Forget What You Know About Costs Immediately

13 Apr

ROEI - Return on Employee Investment

In this first Episode of a multi-part series, I’m here to present on the idea of Return on Employee Investment (ROEI).  Throughout the series I’ll speak directly to what ROEI is, how organizations can maximize it and how they can calculate it.

 A company is as good as its employees. We are used to talking about a company as if the organization itself is a person. But an organization does not generate ideas, does not give service, and by itself is neither efficient nor productive. People make all of those things happen, people define a company.

Companies are accustomed to paying competitive wages and good benefits to attract talented managers and professionals. Yet often relatively little attention is paid to creating the best circumstances for each individual in the organization to perform at his or her best potential.

The effectiveness of HR-related technology or programs is regularly assessed in an isolated manner. Human Resource Management Systems (HRMS) are judged by how much more efficient the HR worker becomes and how the software helps the HR department accomplish daily tasks. To calculate the Return on Investment (ROI) of that HRMS system you’d measure the result of the total costs saved or efficiency gained, divided by the Total Cost of Ownership (TCO).

But this approach is old fashioned and doesn’t do justice to the real value modern human resource management brings to finding and retaining talented employees. From recruiting to on-boarding, from motivating and developing talent to supporting people managers and creating an engaged workforce, the effectiveness of employee management has a direct impact on business results and competitiveness.

The cost of employee management technology is actually an investment in employees. These investments will reward the company with a healthy return on employee investment, ROEI, that will impress any CFO.

2 Responses to “Forget What You Know About Costs Immediately”

  1. Cees Noordzij April 13, 2011 at 9:46 pm #

    Hi Mark, I like this article and fully support the thought you wrote! Actually, in the very near future we will develop in the direction of human being management instead of human resource management. The generation that is now entering the labourmarket is looking for authentic and meaningful challenges. They are not looking for jobs, they are looking for companies where they can develop themselves in interesting projects of programs and where personal initiatives are well stimulated and where they can contribute to the growth of the company.
    Companies with a true soul will become attractive employers.
    Gr. Cees Noordzij

    • Mark Butje April 18, 2011 at 12:24 pm #

      Cees,

      Great to hear from you and thanks for your wonderful response. Your observations are spot on, as always. I hope you will enjoy the rest of my blog posts on ROEI and I am looking forward to receiving more of your insightful comments!

      Mark

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