Creating and sustaining a thriving company culture with the aid of a performance management tool is very trending. But it’s hard to know what you're actually getting out of it. Capturing feedback, detailed performance reporting, aligning individuals and their teams... All are pretty effective, but at what cost? What’s in it for you in terms of concrete numbers? In other words, what’s the ROI (Return On Investment) of your performance management tool?
Calculate the potential ROI of your own company with our Excel sheet
One of the leading indicators of organizational development and sustainability is the value of the human capital of that company. Plentiful studies have examined the effectiveness of systems and tools when it comes to managing the performance of employees. Gallup has conducted a thorough analysis of several companies that all installed some kind of performance tool or wellness program for their employees.
The ROI calculator explained
Let’s look into an example, shall we?
Let's assume that Company X has 150 employees and generates a yearly revenue of € 14 million. The organization has a pretty healthy a profit margin of 16%, so they generate a yearly profit of € 2.24 million. Thus far the numbers everyone likes.
On average, the cost of absenteeism per day for one employee is around €200 (based on a monthly wage of € 2.300). Let's say that an employee is absent for about six days a year (a modest average). Based on a 230-day work year, and their workforce of 150, the number of absenteeism days per year for Company X mounts up to 900. 900 x € 200 = € 180.000, aka plenty. To paint a more complete picture, we also factor in the standard turnover rate for organizations in Europe, which is averaging at 10%, and add a retention and recruitment cost estimate of € 40.000. A cost that is pretty variable depending on the company, though very real for every company.
So Company X decides to do something about this "lost money" and turns to INTUO's Talent Management Platform for help in this matter. The price of our suite comes down to € 12 per user, per month. If you do the math, you'll total yearly cost of € 21.600. The only cost that is added to this is a one-time onboarding fee of € 4.000. This onboarding track is recommended to guarantee a good adoption of the tool throughout the company.
So how on earth is Company X going to decrease the loss of € 220.000 (+ the turnover costs) with adding another cost of € 25.600, in the form of a performance management tool?
Where the "magic" happens
After implementing any performance tool, a lot changes in this cost framework over the years. The initial year will revolve around the full rollout of the tool. The better the onboarding, faster the new mindset can spread throughout the organization. The second and third year, the culture changes will start to settle in and new habits (revolved around the use of the tool) find their ways into the employees' lives. The benefits and value slowly start to boil up in those initial years and reach their ultimate peak in year four.
The results of the Gallup study speak for themselves. Four years after implementing the program or tool, the median differences between business/work units from the top and bottom-quartile on employee engagement:
- 41% decrease in absenteeism
- 21% increase in profit
- 24% decrease in turnover
The reasons for absenteeism can be any number of things; a personal situation at home, performance issue in the workplace or an unhealthy work environment or culture. An engagement platform like INTUO uses non-intrusive ways to monitor these issues and provides information when certain employees get to a worrying state of wellbeing. Having access to this kind of information, team leaders can take measures to avoid certain cases and can result in an overall 41% decrease in absenteeism, according to Gallup. Needless to say, this decrease will translate into a cut of the costs as well. Going back to our example: € 73.800 worth of savings for Company X, in year four.
Productivity through optimization
To make gains in terms of employee productivity, INTUO provides a set of tools to optimize both individual and team performance. Facilitating coaching with frequent check-ins and improving workflows through feedback are but a couple of things that stimulate productivity. You're never 100% sure that a new employee will thrive in the position he or she starts at. But gradually finding out will eventually put them in the perfect position to unleash hell (in a good way). A natural consequence of streamlining all of these processes is a profit increase for the business in general. For company X in year 4, this equals a profit increase of €470.400.
The best way to improve retention is to increase the engagement and job satisfaction of your employees. Continuous measuring of their "fit" with the company and its values is the perfect way to anticipate when people are likely to leave a company. The data gathered from the monitoring can help managers to act in advance, preventing high turnover costs. When we look at Company X, they are estimated to save up to € 120.000 in turnover costs after four years of using INTUO.
Does it take a bit of effort to implement a new mindset? Certainly. People need time to get accustomed to a more open environment, learn how to give proper feedback, think autonomously about personal improvements... But as you can see, it does pay dividends big time after a while. Company X has invested a total of € 91.300 into INTUO, but in four years they saved a total of € 642.600.
An INTUO implementation also comes with a couple of "side effects" that may increase that number even further. By focusing on an attractive company culture, there's a very real chance you'll attract high potential talent. Or partnerships might sprout thanks to your progressive and future proof way of doing things.
Calculate the ROI for your company!
Intrigued? Curious to find out how much money INTUO can save your company? Hit the button below and receive a straightforward calculator in your mailbox. Fill in your numbers in the Excel sheet, see the effects and don't hesitate to ask me for further explanation or advice!