LOVRO ULAGA, HRM CONSULTANT, FLEDGEWORKS
A lot of companies nowadays are deciding to digitalize their HR function and processes.
On the surface, it looks like a great idea but that may be because HR digital transformation is a hot HR trend.
However, is it a good idea when it comes to costs and benefits?
Is it logical to digitalize HR when we look at the bottom line?
How much can we save on cost and how quickly?
Let’s find out!
As companies increasingly embrace HR digital transformation with modern HR software, the focus shifts to understanding the tangible benefits and cost savings associated with this trend.
The primary emphasis is on automating HR administration, such as employee records, workforce planning, worktime management, payroll, and compliance, to optimize the efficiency of HR representatives.
The blog underscores that digitalization can lead to substantial savings in labour costs by reallocating human resources from mundane, repetitive tasks to more strategic activities that enhance employee well-being and productivity.
The analysis presents a case study, illustrating potential savings ranging from 20% to 50%, with specific attention to a scenario involving 150 employees and three HR representatives.
The blog also explores the digitalization of HR processes, particularly talent management, highlighting the benefits of digital recruitment, onboarding, AI performance management, and learning.
The potential outcomes of HR digital transformation are discussed, including improved workforce productivity, talent development, and overall organizational competitiveness.
The conclusion emphasizes the growing popularity of HR digitalization and encourages companies to empower HR to excel in its core functions of managing people and talent.
The blog offers assistance to companies interested in calculating potential savings through HR digitalization.
When we talk about HR, putting it in numbers can be tricky. Why?
Well mostly because we talk about people. And when it comes to people some costs and benefits can be measured easily like the performance of a salesperson.
Others can’t be directly measured, like employee well-being or burnout.
But all are equally important. And, if not taken care of, can have a significant impact on revenue and profit.
In this article, we are going to focus on costs that can be directly measured. And when it comes to HR, this is mainly labour costs.
Cutting labour costs has a negative connotation because people usually think of layovers.
However, this is not the case here.
When we digitalize HR, instead of layovers, we should transition HR representatives into work that benefits other employees’ well-being and productivity.
We are not talking about saving on HR work that has added value but rather on HR work that is meaningless and redundant.
Work that should be done by automatization software instead of a human.
HR administration is the foundation of the HR function.
Unfortunately, it is usually the biggest time waster in a company.
The whole point of digitalization is that HR representatives can work on administration as little as possible and rather work on HR processes that have added value to the company.
Employee records, workforce planning, worktime management, payroll, regulatory compliance, document creation, feedback and much more can be easily automated if properly digitalized.
Digital employee records give HR reps quick access to all personal data, contact data, employment data, competencies, certificates, and documents… all in one place.
This allows HR representatives to quickly access, compare and evaluate different employees.
It makes report and document creation an easy task since the data is already in the system.
It also lets employees access all the relevant data and cuts the time HR would usually spend on employees’ requests.
It makes data management simple and fun since the software does most of the work.
All the organizational structure and hierarchy, reporting, job classification, and regulatory compliance are digital.
It allows a company to plan organizational shifts quickly and in advance.
Putting the right people in the right positions inside the organization.
Regulatory compliance like GDPR, data security and health and safety all require little to no time with proper digital support.
Tracking employee attendance digitally is necessary, and a lot of companies already do so.
But having worktime management as part of a broader system can drastically reduce time spent on scheduling, reporting, payroll management, absence requests and work time planning.
With all the data already in the system, HR representatives can create documents for groups, departments, or the whole company with a few clicks.
Probably the biggest time and money saver if digitalized properly.
With the HR system, HR representatives can create any report since everything needed is already included.
Useful analytics of HR is practically impossible to do without digitalization.
A lot of companies are outsourcing analysis and paying a lot of money for reports that can be easily done with the right HR solution.
This directly cuts costs spent on outsourcing as well as cutting time in reporting.
All that as well as feedback, communication, dashboard, and everything you can imagine under HR administration can be digitalized and automated.
But how much can we save on labour costs with all that?
Well, it depends on the size of a company, the level of digitalization the company is at, the number of HR specialists it has and many more factors.
Institutions like Gartner and ABC reporting house have done studies on how much time digitalization could save you on administration and the percentage varies from about 20% to up to 50%.
Let’s look at the numbers in an example:
Imagine a company that has 150 employees, 3 HR representatives and isn’t digitalized much.
Let’s say that two work only in administration and one does all the HR processes (recruitment, onboarding, learning…).
The average annual gross salary for a full-time employed HR representative in the EU is about 40.000€.
This means that the company pays them about 20.8€ an hour each.
They work 160 hours a month each so together they spend 320 hours on HR administration.
Both do 20% to 50% of tasks that they wouldn’t have to if we had HR software in place.
That means that we can save somewhere between 64 and 160 hours or 1.331,2 € and 3.328 € monthly.
Between 15.074,4 € and 40.000 € yearly.
For more accurate calculations, you can use our online HR cost savings calculator.
In other words, at the high end, we have one employee who does only manual tasks that the HR software should do.
An HR representative could spend all their time improving HR processes and making a company more productive, competitive, and attractive for future talent as well as making employees happier and more motivated.
As we said before, HR processes are what the HR function is really about.
With the digitalization of administration, we free up the time, so the HR representatives can focus on talent management and through them make a company more productive and a better place to work.
But the processes can also have meaningless tasks if not automated properly.
The whole recruitment process can be done through a digital solution.
From listing a new opening to creating and monitoring the selection process with all the ratings and interviews in one place.
Recruitment teams can easily compare and rate the candidates so they can make sure to pick the best one.
It cuts costs on manual tasks like making comparisons and ratings as well as time because it allows the whole team to voice their opinions through the software as opposed to having numerous meetings.
The onboarding process can be made once and then reused for every new hire.
Digitalization doesn’t cut costs but it does improve the process quite a bit since it keeps track of all the steps that need to take place to ensure the employee is fully operational as fast as possible.
All the employee plans, goals and evaluations should be done with performance management software, preferably backed by Artificial intelligence (AI).
It drastically improves the productivity and understanding of each employee.
It also cuts costs because the leaders can set and measure goals more efficiently thus reducing the time needed for performance plans and evaluation of each employee.
The software also automates remuneration and variable pay.
Both can be a real burden if done by hand.
Fledgeworks, which is a top-of-the-line cloud-based HR software, currently already incorporates AI as a copilot for performance management for a more intelligent, data-driven, and employee-centric approach to managing and optimizing workforce performance within the organization.
With AI-powered learning software, a company can keep efficient track of each employee’s past courses, certificates and requirements based on necessary competencies.
Learning also includes a lot of budgeting, planning, scheduling, and administrative tasks that can easily be automated.
All the processes should be digitalized as it drastically improves them.
It helps HR representatives make them efficient.
But how much can we save? We estimate that about 10%.
If we take the company from the example above the situation is like this:
One HR representative is doing the processes. That means that about 16 hours or 332,8 € can be saved monthly or 3.993,6 € yearly.
That usually means that the processes are done 10% better because the HR representative has more time to do them more efficiently and thoroughly.
Digitalization of talent management has many more benefits as it improves and “upgrades” our workforce.
Let’s see what will happen with our example company if we digitalize both HR administration and processes. We have 2 options:
Option 1:
HR administration digitalization gave us the freedom to lay off one of our HR representatives and we saved about 40.000 € on yearly labor costs.
Our talent management is doing about 10% better since we eliminated meaningless tasks in HR processes.
Option 2:
HR administration digitalization gave us the freedom to transfer one of the representatives into talent management.
Our talent management is doing about 120% better since we doubled the workforce and digitalized the processes.
Results are guaranteed to come in the form of productivity, motivation, talent development, talent attraction and all the benefits we can get with efficient talent management.
The trend of digitalizing HR is so popular for a reason.
It is time to allow HR to do what it does best. Managing people and talent!
If you would like us to help you calculate how much your company can save with the digitalization of HR, feel free to contact us or book a demo.
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