HR Tech Stack Financial Evaluation & ROI

As organizations prepare to implement new HRIS and modern AI-based people technologies, it's essential for HR teams to take a step back and thoroughly evaluate their existing HR tech stack.

In companies experiencing growth, especially through acquisitions, the technology landscape often includes a mix of tools that may not have been strategically assessed for their suitability within the organization. This situation can lead to the accumulation of "tech debt"—outdated, redundant, or underutilized technologies that complicate processes and reduce efficiency.

After initially cataloging the HR tech stack across the employee lifecycle and conducting a high-level fit-for-purpose assessment from an HR perspective, it becomes crucial to undertake a more detailed and objective re-evaluation of the technology landscape.

This deeper analysis helps identify technologies that are redundant, outdated, or not fully aligned with the organization's current and future needs. By systematically reviewing the HR tech stack, organizations can begin to eliminate tech debt and make room for the new HRIS and other modern AI-based people technologies.

To conduct a financial evaluation of the current HR tech stack and establish its return on investment (ROI), the HR and finance teams can follow these steps:

1. Inventory All Current Technologies

• List all technologies currently in use, including those inherited from acquisitions. Include every tool and platform across the HR functions (e.g., payroll, onboarding, performance management, employee engagement).
• Categorize these technologies by function (e.g., Employee Engagement, Onboarding, Payroll, Benefits) to understand where costs are being allocated.

2. Identify and Calculate Total Costs

Direct Costs: Gather data on all direct costs associated with each technology, including:

• Software licensing fees: Annual or monthly costs per user or organization.
• Subscription fees: Costs associated with accessing the tool.
• Maintenance costs: Fees for support, updates, and regular maintenance.
• Implementation costs: Any upfront fees for initial setup or deployment.
• Integration costs: Costs associated with integrating the tool with other systems.

Indirect Costs: Estimate indirect costs, such as:

• Training costs: Time and resources spent training employees to use the technology.
• Support costs: Time spent by IT or HR support teams assisting users.
• Operational inefficiencies: Costs due to inefficiencies like overlapping functionalities, slow performance, or manual workarounds.

3. Calculate the Benefits and Savings

• Efficiency Gains: Measure time savings achieved through automation or streamlined processes (e.g., reduced time for payroll processing, automated onboarding).
• Productivity Improvements: Identify any increases in employee productivity directly attributable to the use of specific technologies (e.g., faster access to data, improved decision-making tools).
• Cost Avoidance: Quantify any costs that have been avoided due to the technology (e.g., reduced paper use, lower error rates reducing rework).

4. Estimate Intangible Benefits

• Employee Satisfaction and Retention: Evaluate how the technology impacts employee engagement and satisfaction, which can indirectly affect turnover rates.
• Compliance and Risk Mitigation: Assess how technologies help mitigate risks and ensure compliance with regulations, which could prevent costly fines or legal fees.

5. Calculate the ROI for Each Technology

• Formula: ROI = (Total Benefits – Total Costs) / Total Costs
• Analysis: Calculate ROI for each technology and categorize them based on their financial impact. High ROI tools indicate good investments, while low or negative ROI suggests the need for reevaluation.

6. Conduct a Comparative Analysis

• Compare ROI across all technologies to identify the most and least effective investments.
• Highlight Redundancies: Identify tools with overlapping functionalities to determine if consolidating or sunsetting tools can increase overall ROI.

7. Present Findings and Make Recommendations

• Report the findings with visual aids (charts, graphs) showing the ROI for each tool.
• Recommend Actions based on the analysis: retain high-ROI tools, replace or sunset low-ROI ones, and consider potential new investments.

8. Reassess Regularly

• Schedule regular reviews of the tech stack to continually assess the ROI as technology evolves and the business needs change.

By following these steps, you can effectively evaluate the financial performance of their current HR tech stack and make data-driven decisions on optimizing their technology investments.

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This article is inspired by a recent conversation with the SVP, Technology Operations of a current client.

If you're a CHRO looking to elevate the impact of your HR function and drive meaningful business results, we're here to help. Reach out to us to discuss how we can assist you in evaluating your digital-first HR maturity and provide actionable recommendations to enhance your HR strategy, effectiveness, and influence in the C-suite for status and budget.

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