Define Benefits and Associated Costs

A key element in establishing the value of HR is to demonstrate how a transformed HR service will better enable the organisation to deliver its overall goals and objectives. It is, therefore, important that the benefits of HR transformation are clearly linked to the corporate and HR strategic objectives. The process for establishing this link is an iterative one, working from the whole to the part. The process starts with the strategic objectives for the organisation and involves:

1. taking the strategic objectives for the organisation as a whole and identifying the customer requirements for the HR service;
2. identifying how the HR transformation objectives will address customer requirements;
3. identifying the benefits that will be delivered by each of the HR transformation objectives.

The above approach will provide a clear flow from strategic objectives to transformation objectives and benefits and demonstrate how the transformation programme will support the organisation's overall strategy and goals.

An example of how to link HR transformation objectives and benefits to the organisation's overall strategic benefits are provided in the case study below.

Case Study

An international services company needed to clearly demonstrate how its HR transformation programme would support the company with the delivery of its corporate strategy. The HR transformation programme began by taking each of the strategic objectives and defining the requirements for the HR service, as illustrated in Figure 1.

 

Figure 1: Defining customer requirements.

The transformation programme then identified how the programme's objectives would meet the strategic objectives and customer requirements, as demonstrated in Figure 2.

 

Figure 2: Aligning customer requirements with transformation objectives.

Finally the transformation programme linked the benefits of HR transformation to provide a clear flow from strategic objectives to benefits, demonstrating how HR transformation would support not just HR but the entire organisation (Figure 3).

 

Figure 3: Aligning benefits.

When defining benefits it is also important to attach measures and targets to ensure that these benefits can be tracked and realised. An example of measures and targets for benefits could be a reduction in the HR budget of 30% or a change in the ratio of HR staff to employee base from 1:70 to 1:150. The key in setting measures and targets is to make them challenging enough so that it is not possible to achieve them without significant change (otherwise why would you embark on the HR transformation?) whilst ensuring that they are realistic enough to be achieved, as this will be a measure of the success of the transformation. To assist in setting measures and targets it is often helpful to compare yourself to leading practice found elsewhere. Benchmarking where you sit in comparison to other organisations will give you an indication of what would be realistic targets for your transformation programme. However, the risks with using benchmarks is that you may have to dig very deep into another organisation to find whether you are comparing like with like. So we advocate using benchmarks as a guide only, and spending enough time collecting your own baseline data so that you know where you are now and can then set targets in relation to that baseline. Once the targets are set, the next stage is to break them down to determine the detailed benefits that will collectively contribute to meeting the overall target. 

Before considering what those benefits are in detail it is worth spending some time defining what we mean by a benefit, particularly the difference between tangible and intangible benefits.