In this video, Nucleus Research Principal Analyst Brent Skinner talks about measuring the return on investment (ROI) of talent management technology, and how recruiters and technology vendors alike can use this knowledge to secure C-suite buy-in.
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Scot: Joining us now is Brent Skinner, a Principal Analyst at Nucleus Research.
Brent: Well, thank you Scot for that introduction. I really appreciate it. I’m very excited to be here today, from Nucleus Research, to talk about the secret of unlocking the cold, dead heart of your CFO. And that will be the return on investment of a technology.
Just a little bit about Nucleus Research. We were founded in 2000, based in Boston, Massachusetts. We are similar to other analyst firms, but the value of technology guides our approach to research. So in that vein, we are the only analyst firm registered by the National Association of State Boards of Accountancy. And that’s our registration number right there. And we follow, therefore, standard, consistent, globally understood research methodology. And along those lines, we have published more than 500 ROI case studies since our founding. And counting. All return on investment case studies looking at what the payback was on a technology investment. And that’s sort of the auspices under which we’ll be discussing this topic today.
Just a little bit about me. Again, my name is Brent Skinner. And I’m Principal Analyst for Nucleus covering HCM and all things related. That is a photo of me at the Patriots, Cincinnati football game last season, where the Patriots turned their season around and we all know what happen after that. I’m also a former Technology Editor for HRO Today and the Contributing Editor to Executive Recruiter News, formerly both those publications. I’m also formerly of Ceridian. Believe it or not, I was quoted in The Wall Street Journal several years ago. It was regarding some research I had conducted back then around the trends and pay for Executive Recruiters. Also, since January of 2003, I’ve been an Adjunct Instructor of business writing at Boston University for what that it might be worth.
So the problem with talent management technology. What is the problem with talent management technology? I mean it’s fun. It gets employees more engaged, right? It keeps them happier in their jobs. What’s the problem with any of that? Nothing. However, executives don’t really care about any of this. It’s not that they don’t understand the technology. Talent management technology is great. No. It’s just that in their minds, none of this translates to the bottom line. None of it jumps out to them and says, “This will improve our numbers.”
So, how do we tackle this? What does resonate with the C-suite? Who has their ear? We understand that there’s a measure of gray area here. For instance, a couple years ago, I insisted a private equity group promote a summit for midmarket CEOs. CEOs from some of the world’s largest corporations presented at this event. And the common denominator and the common theme led throughout was a need by all of these CEOs to expressing their need to find and keep top talent. They saw this is a priority number one for their businesses success. So that should tell us something. But think about what that really means. Why are they concerned about it? Because it affects their bottom line. The bottom line is where the C-level executive feels pain. They understand what it costs to replace an irreplaceable employee. And that’s a lot of money, if they can even find somebody.
So at the end of the day, anyone who speaks about the bottom line has the ear of executives at your organization. Nobody among your C-level executives is more robotically fixated on that bottom line than the CFO.
So who are your internal stakeholders? That’s the next question. Who brought you into the prospect company when you were approached, because they saw a need there for your talent management technology? What’s their challenge? What’s their pain point? Chances are, it’s an important pain point, but chances also are that it has to do with human beings. It may very well not necessarily be tied directly to the bottom line. Think about the things you tout, the things that you get excited about your own product. Employers are more engaged. They like the gamafication for instance. The app is sticky. Employees collaborate more. Don’t misunderstand. I totally agree with you on the importance of these things. However, a CFO might even agree that these things are cool, but none of these things translates to cost avoided or saved.
So how can your top stakeholder become, what I like to call, a CFO whisperer, a champion. Many of you have probably seen that old late ’90s film, The Horse Whisperer. I have a confession to make. I haven’t seen it, but it doesn’t matter. It’s one of those catch phrases that entered the pop culture. From what I understand, the horse whisperer was some guy, played by Robert Radford, who could communicate with horses in some almost shamanic way. In a way that horses actually understood. So let’s talk about what it would mean to be a CFO whisperer. This is someone who understands how to communicate value to a CFO. Imagine your number one stakeholder at the organization you hope will purchase your talent management technology, understanding exactly how to communicate with the CFO, how to translate the benefits of your technology into something the CFO values. That’s what we’re talking about. And that’s the kind of person who can become a champion for your product at the prospect organization.
So, how do you speak the CFO’s language? Well, it’s all about the bottom line. You see those dollar signs there? What are your first, second, and third, and fourth order benefits? Figure out what those are and communicate the first and second order ones to the CFO. How do you translate talent management benefits to first and second order benefits to show straightforward ROI in the future? The truth of the matter is most talent management technologies have third and even fourth order benefits, that most right away come to mind. Marking collaterals is strewn with these third and fourth order benefits. And what your job is just to help your champion, your CFO whisperer within the organization that you are trying to sell your product into, to get that person to understand how to translate those third and fourth order benefits into first and second order benefits.
So let’s define the orders of benefits. There are direct and indirect benefits. The first and second order benefits, those are the direct kind. And then the third and fourth, those are the indirect kind. First order of benefits, let’s start with those, are the ones that resonate most with CFOs. These are direct cost savings that everyone believes will be achieved. Or costs that everyone agrees will be avoided. In the case of HCM Technology or talent management, both of these tend to be found in improvements to the most budget facing activities. And here, vendors of workforce management or payroll have it easy. So for instance, if you have an organization that can reduce overall scheduling cost by 15%, that’s the first order of benefit, right? That a CFO whisperer can communicate. And others defined are penalty an employer clearly avoids by complying with the government regulation related to employment law aided by the technology that helped with that. That’s another first order benefit that’s a cost avoided.
Then you have second order of benefits. These are basically first order of benefits, but they have maybe a qualifying word. For instance, “We think that we will avoid this cost.” Or, “We expect to save X amount of money.” The CFO whisperer will want to share some due diligence with the CFO, and develop an action plan laying it all out. But a CFO will likely press the go button. So your job in these instances is to give that champion inside the organization, your internal stakeholder, the information, the tools they need to speak to the CFO in a way that they’ll understand, to feel comfortable with that second order benefit.
So here’s an example of a second order of benefit playing out. Let’s say your technology would enable the prospect to hire two fewer or three fewer sourcing specialists, because the technology takes care of that. This is just a hypothetical situation. But let’s consider that the cost of the technology is less than the combined income of those three sourcing specialists. Your CFO whisperer, your internal champion, gives this person that information to prove your technology’s ability to do this. And watch the CFO say yes. What about the third order of benefits? These have to do with productivity. And a lot of talent management technology that promises third order benefits. You probably have a large impact on employees’ productivity by making something they must do easier. And that’s great, but you’ll need to show that employee will indeed be productive with the time he or she has saved.
Notice that fourth place isn’t even here on the screen. Just like in the Olympics, fourth order benefits don’t count. Fourth order benefits are all about this fluffy stuff like . . . I don’t need to characterize it as such, because it’s important, but employee engagement, happier employers, these sorts of things or this will probably result in higher profits, these sorts of sayings. Those are all fourth order benefits. They’re very indirect. There hard to prove. It’s hard for a CFO to see the clear line-of-sight from those fourth order benefits to the bottom line. And so, if you find yourself communicating a lot of fourth order benefits with your technology, you need to start translating those at least in the third order benefits, so then you can have a baseline from which to transform them into second or first order benefits.
Here’s just a graphical rendering of these benefits. And you can see on the vertical axis there, believability. The more believable the benefit is, the more of a readily apparent direct savings it is, so a reduction in cost here. And then we have . . . as we move along the horizontal line to second, third and fourth order benefits we have less and less direct. So we have semi-direct savings, expected reduction in cost. That could be a second order benefit. We have indirect savings when we have an increasing work of productivity. You recall from the previous slide that’s a third order benefit. And that needs to be translated to something higher. And then we have very indirect savings. Fourth order of benefits. Increasing . . . this says increasing manager productivity. I would actually change that to say, increase in staff engagement. Or, increase in employees’ satisfaction with their job. These are all very positive things that we want to see happening in the organization. However, they are difficult to translate into something that shows a clear line-of-sight to the bottom line. So these are sorts of things to keep in mind when you’re building the case for technology with your C-level executive, especially with your CFO.
So let’s talk about some factors that drive value. What are the five factors that drive value? Well, the first one is breadth. How many people will the technology affect? Will this affect a small division within the organization, or will that potentially touch every single employee in some way. You need to define that, figure out which is which. And know what that is going into the deal.
Repeatability, how often will they use it? Is this something that employees will be using every single day? Is it something that a lot of employees will be using every single day? Or, a small number of employees will be using maybe infrequently.
Risk, this one’s pretty straightforward. Could this cost money if done wrong? What are the risks? If something is . . . there’s a potential huge . . . potentially big upside to an investment, but a potentially large risk also. That is potentially a good investment. It just has some risk.
Collaboration, will employees need to share? Will employees need to work together in using this new technology? That’s a factor as well.
Knowledge, can I reuse the information I create? So employees, using the technology that you are selling into this organization, can they use what they learn from it? Can they reuse that information?
So let’s talk about building the business case, building the business case for a technology investment at a prospect organization. So the best cases they present maybe two to three benefits, tops. So going back to those orders of benefit that we were talking about earlier in this presentation, what are the most readily apparent benefits there, first and second order? Which are the most readily apparent, the ones that you think would resonate most with the CFO? Arm your internal stakeholders, your internal champion with those, and run with those.
Use breadth and repeatability as your guides. So the more employees that your technology will affect, in a positive way, the better. And the more repeatable the result is of their use that technology is also a very positive thing. So look for breadth and repeatability in those top two to three benefits. Look for those. Those criteria and run with those. Stay away, stay away from benefits that maybe affect only a few employees. Or even if they affect many employees if they affect them only infrequently, then stay away from those as well.
Here’s the big one that I want to talk about for a minute. Using correction factors to accurately estimate productivity and other indirect benefits a real impact. So a lot of the benefits from talent management technology come in a form of an improvement in productivity. Or a saving, a time saving which the assumed correlatory of that is an increase in productivity. But the mistake a lot of people do and make is they assume that the increase in productivity is roughly equal to the amount of time saved. That is simply not the case. If you have an employee who hasn’t . . . all of a sudden has a lot more time on his or her hands, they may spend some of that time not working. So you need to use a correction factor. You figure maybe a 50%. Fifty percent of the time that is saved will be use on some productive activity that’s contributing to the goals of the business. You need to use these correction factors when you’re trying to figure out just exactly what the benefit is. And when you do this, also remember, remember that the CFO is going to look at that estimate and revise it down even further for an even more a conservative estimate.
And at the end of the day really, that actually is realistic. So think about what’s realistic in terms of time saved versus productivity gained. Apply a correction factor that makes sense for you, that you think make sense, and stick with that.
Case study examples provide a great starting point. Nucleus Research, we’ve conducted 500 ROI case studies, more than 500 and counting, since our founding 15 years ago. And then every one of those we’ve been able to show exactly what the return on investment was for the technology studied. We have a vast trove of those. We encourage you to visit our archives and see what makes sense for you. That is not a flag. It’s just that we know of no other source that has that kind of information that would help to make a solid case for a business deal that you’re making.
And also, remember the human factors. This is very important. We’ve been talking about CFOs a lot during this presentation and how they really think about the bottom line, the finances of something, what is the cold hard cash return on investment. And not necessarily the: “I’m worried about the engagement levels, or the happiness levels, or satisfaction levels of employees and this sort of thing.” That’s all well and good at the end of the day. Those are the factors that you need to focus on when you’re making the case for your technology at the prospect organization. However, it’s also important to point out also the human factors that will be involved. How your technology will in fact have all these very positive fourth order benefits as well.
And also, just to remember that there are number of people who has, as we mentioned earlier also, have very real pain points. That had nothing to do with the bottom line. Maybe they have to do with workflow or tedium or an administrative burden. Or whatever it is that’s slowing them down in their jobs. So if your technology helps with that, helps to make their lives easier in their jobs, saying that their technology will make their lives easier and their job isn’t necessarily going to sell the CFO. However, once you’ve figured out that that is indeed a factor, then you can translate that information into something that the CFO will appreciate from a financial standpoint and then you’ve gotten somewhere.
So that is how to get through to your CFOs. Cold, dead heart ROI. What is the return on investment of technology and talent management? I encourage you to continue this conversation. This is a social media infused event, and we’re continuing the conversation online right now on Twitter. That’s my handle @brentskinner. If you have any questions, please, please feel free to tweet me with my Twitter handle. And I will be monitoring this all day and I’ll be there to answer your questions. Also, if you prefer more old school email, feel free to send me an email, email@example.com. It’s been a pleasure presenting to you all today. Thank you very much.