#HRTechChat: The Economics of HR - Speaking the Language of Business with Maria Scarangella

Speaker A: Welcome to HR Tech Chat, where we explore how HR technology helps people leaders drive better business outcomes. I'm Nicole Roberts, senior analyst and advisor with 360 insights. Today we are exploring how HR leaders can better communicate the value of their work by translating people decisions into business language and measurable roi. And joining me is someone who brings deep experience in doing that, Maria Scarrangela. Maria, welcome to the show.

Speaker B: Hi. Thanks for having me.

Speaker A: Absolutely. So, to get us started, would you introduce yourself a bit and share a little about your background and the work that you're doing today?

Speaker B: Sure. So I worked for Geico Insurance for 37 years, held roles in both operations and HR and led talent for the full organization. After retiring, I started my own business and was doing business consulting for senior leaders and executive coaching, and identified that there was a gap between the way that I looked at the value of talent to the way many of my clients did. So we built Marstella to help our clients understand all of the costs of talent and how to maximize their return on investment.

Speaker A: I love that. And I'd love to start off with a theme that you and I discussed in our prep conversation. This idea that HR is losing its seat at the table because leaders just simply aren't speaking the language of the business.

Speaker B: Yeah. And you know, what got us here is kind of the evolution that's happened over the past five or six years. 2018, 2019, there was a war for talent, and it was hard to find talented people. And then we headed into Covid and Post. Covid employees really held all the cards. Interest rates got higher and money became more expensive, and companies started really pulling back and looking at how they can drive efficiency. And I think that pendulum has swung the other way. Employers are laying people off. There's a lot less flexibility. They're expecting more from their workforce, and HR really has to be guiding the business. And if they're not focused on how they can drive business results, then the business leaders are going to work around them. And, uh, I think they're really at a turning point where, you know, as people are implementing more technology and they're looking at the expenses, HR really should be stepping up and saying this is how investments in people will drive that business strategy. And I don't think they're all prepared to do that.

Speaker A: Yeah, yeah, Uh, I, I would agree with that. And, you know, you've been in those executive conversations where that, that breakdown happens. So from your experience at Geico, and, you know, obviously now with Marstela, where does that disconnect between HR and the C suite most often show up.

Speaker B: It shows up when HR talks about HR metrics as a final metric. So turnover is important because there's a great deal of expense associated with it. And if you think about, you hire someone, you train them, they become proficient in their job, they deliver value to the organization. You could hire someone that's really talented to replace them, but they're not going to start on day one performing at the same level of that experienced person. So the reason that turnover is important is because there's a loss of productivity, there's a loss of efficiency, there could be a loss of likely, there's a loss of revenue. And that's why it's important to the business. Engagement is important because if people are engaged, they typically perform better. If they perform better, they bring more value to the business. And I think what happens is sometimes HR doesn't make that full connection and they really need to talk about these metrics in relation to how they drive business results. And then they become a strategic business partner that are working towards the same outcomes.

Speaker A: Yeah. Uh, and I, I see that as well. I teach strategic HR business partner courses, certification courses with hci and just getting the attendees into the mindset of, uh, like we'll talk about leading indicators and we'll talk about business metrics. And for the first half of the day, probably they're still talking about turnover and they're still talking about, you know, time to hire, and they're still talking about these type of, you know, engagement surveys. And I'm like, yes, but tie that to the business. Right. Why is that important? How are you going to have that conversation? So you have built a platform that I think is fascinating that really tracks the cost of each stage of the employee life cycle. What surprises leaders most when they first see their data?

Speaker B: I would say the most important things that they see is how much money it really costs to hire someone and train them and then the significant cost of turnover. When we first started, I would ask HR leaders, how much does turnover cost? And they would say, a lot. And my response was, a lot. It's not a number. So let's talk about really calculating that cost. And the other very positive surprise that they get is how much value they bring to the organization. So when they see the dollar impact that they have, and most companies, you know, 50 to 70% of their expenses are on salaries. So when the HR leaders really understand their impact, they become so much more powerful.

Speaker A: Yeah.

Speaker B: And they feel real responsible to the organization to help drive outcomes. And that to me, Is, is the even better outcome than them. Um, understanding the cost.

Speaker A: Yeah, of course you need to know

Speaker B: the cost so that you know how to use this data to drive those positive outcomes.

Speaker A: Yeah, I agree with you. So how does quantifying the hiring, the onboarding and the turnover costs, how are you seeing that changing how executives are making decisions?

Speaker B: So when you understand the full costs end to end, and you realize that each stage affects the stages before it and after it, you make longer term decisions. So if you think about hiring someone, you're hiring someone who is going to be able to do the job and to stay. So some of those quick fill the job, let's just get somebody a, uh, warm body in to fill the role. You realized, wow, that hurts us so much more than giving us just a temporary relief. If we need a temporary relief, then maybe we need a temporary solution. Well, we really strive to find that right person. And then they take the onboarding process and the training process much more seriously because they also think about this is costing us a significant amount of money. Let's make it value add. And sometimes when you see the cost of turnover, you realize it is much more worthwhile to invest in your people and work through some of the challenges than to let them go or let them leave, I should say. And you have that significant knowledge and productivity leaving the business at the same time. So it's really a game changer. You know, if you think about, um, marketing a few years ago, let's say 10 years ago, marketing was about the messaging and advertising and then digital marketing started and all of those metrics just really changed the way that people approached it. I think we have an opportunity to do that with human resources as well.

Speaker A: Yeah, well, and to your point, talking about, you know, accountability with these decisions as well, if you don't have a great way to measure this, then oftentimes the default is that the hiring expenses, all of that goes into like an HR budget. And if you have hiring managers who have ownership of P and L, but they are not owning the cost of their people and the cost of acquisition and the cost of the turnover, then how can you hope for them to be accountable and responsible with it? Because it's not a real number to them. They say, well, that's part of HR's budget and we're, they've got a salary anyways, like what do we get? They're not looking at what are the actual hard dollar costs of, uh, the training, the onboarding, you know, getting a person ramped up, that loss of productivity and it, it truly is not just filling gaps. Right. And it's truly not just, well, you know, HR is going to be there anyways, so what do they care what they're spending their time on? It's like, no, you don't understand. These have real costs.

Speaker B: Right, Exactly. And when HR understands how the business operates, they can tie all of their performance to those levers that are really driving the business outcomes. And then you have that partnership and the synergy that works so well. But hr, huh, can't go in blind. They need to know their cost.

Speaker A: Yeah. So for, you know, obviously not all organizations have a true analytics team or maybe have a resource that they can dedicate to this. So what would your advice be as a first small step that an organization can take to start measuring ROI on people initiatives?

Speaker B: Um, I think the very first thing is to, to trap the costs and understand how much you're spending. When we do, uh, an onboarding experience with companies on Morstella, they are surprised they're pulling their own budget information. And when they look at it in this context, they're surprised at how much they're spending. And it's such a great experience because then the light bulbs start to go off and they start thinking about it a little bit differently. So I would say everybody today can go back and start trapping the cost and look at what they're spending in aggregate and divide that by the number of hires or divide that by the number of terminations. And easily. You know, the whole reason that we created Marstella was to democratize this thought process M and enable an HR department of one to be able to understand their information the same way that a, uh, a company with a huge people analytics team can do it. So that would be the first step. And then I would say use a tool like Marstella because it is already laid out for you and you put your data in and it gives you the information.

Speaker A: Yeah. Did you find that where they were surprised, it was simply because they weren't understanding one what the full complement was that would add up to being that true cost and that it was probably siphoned into some, um, line item that didn't necessarily translate. Is that where you're seeing that?

Speaker B: That's where we're seeing that. And also you have the opportunity to calculate the cost of processes. So people are looking at, gosh, we touch this item three times. Every time we touch it, there's a salary cost, there's a processing cost, and that, that just opens a whole slew of conversations. I'll Give you an example. So there's one of our clients that is saying, I can't afford to purchase any kind of online learning or learning management system. So they hire a lot of trainers. Those trainers cost money.

Speaker A: Yeah.

Speaker B: And when we looked at the cost of the tools or technology that could help with learning versus the salary and the number of people that you can impact, they realized they were spending more money with old methodology than if they invested in some technology and had a combined process. Because maybe the whole thing can't be automated, but when you start looking at the data, it just opens your eyes to many opportunities.

Speaker A: Yeah. So I know and through our conversations that you're very data driven and obviously so am I. So you, you managed a, ah, $2.5 billion P&L before leading talent at Geico. How did that experience shape your view of HR as a business driver?

Speaker B: So part of the reason that I was selected to the new role was because of my experience and because I understood all of the components of the P and L. And you know, insurance is a very low margin business. So we were very focused on every dollar that we spent and how that contributed and needed to add value to the bottom line. So taking over that role, the first thing that I wanted to do was to understand HR and talent in the same way that we did every other area of the business and having the financial impact of it and then looking at it as if we were spending our customers money. And does this make sense? Is it, is it going to add value or is it just an expense that's uh, nice to have, not a need to have? So all of those years of experience of managing the business functions allowed me to move into HR with, with a different lens. And that really is, is what you need to be able to make those shifts is to understand it from the business aspect and be very purposeful in how you're spending your money. And I think most HR leaders are really diligent and they're very focused on not spending or oversp, but I don't think they have all the tools to make the right decisions.

Speaker A: Yeah, uh, yeah, I would agree with you. What advice would you give HR leaders who want to strengthen their, their business acumen and their credibility with executives?

Speaker B: I think the very first thing they need to do is understand the business. How does the business make money? What are the two overarching goals that are key for the business? And when I have this conversation, it's kind of funny because people say, well, we have so many goals, there's always two, you know, what is your CEOs bonus based on? Yes, it's probably, you know, revenue and growth or it's EBITDA and revenue increase. If you understand those two big goals, then you can look at the levers that are beneath them. And for most companies there's eight or nine levers. So you want to increase revenue, you want to increase market share, you want to improve your, your margin expansion, you want to be scalable, you want to, you know, increase the level of talent or productivity. And then there's some levers that you want to reduce. You want to reduce costs, you want to reduce turnover, you want to reduce leverage or debt, and you want to reduce performance gaps. So when you have that framework, then you start acting upon how you can impact those levers. And you could talk to each of the business leaders and say, where are you? Where can I help you achieve your goals? And what are your goals that are contributing to, uh, the overarching goals of the company? How can we partner? That's a very different conversation than talking to a business partner about turnover and engagement.

Speaker A: Yes, yes. And why they, you have to listen to them and why it matters and why you need to care and that it's the wrong conversation. Right. Like you already are starting off on the wrong foot if that's what you're leading with.

Speaker B: Yeah, right.

Speaker A: Yeah.

Speaker B: And a lot of senior leaders see HR as an impediment or an obstacle to their business rather than a facilitator.

Speaker A: Right. They see HR as the department of. No. Yeah. Yep.

Speaker B: They won't let me do this, they won't let me do that. And, uh, in the past, you know, if you think back years ago, HR was about making sure that people got paid and that nobody broke the law.

Speaker A: Right, right. Just trying to keep you guys out of jail.

Speaker B: Right, right, exactly. It's not like that anymore. Now it's a facilitator of business results.

Speaker A: Yes.

Speaker B: So HR needs to think of their role and it's a really, really important role.

Speaker A: Yes. Yeah, it is. So in, uh, we talked a little bit about this before as well. So in my work with, you know, PE backed companies, we're seeing more and more where board decks have, you know, people metrics that are right next to those financial KPIs. How are you seeing that trend evolving through your work and through what you're seeing?

Speaker B: I think that the people metrics are becoming a bigger and bigger part of the board deck. And if you think about the fact that companies are investing significantly in AI, in automation, that component is also there's an expectation that there'll be an efficiency improvement or productivity change or the number of staff needed to do the same type of work will be less. So the people metrics and the financial metrics are so intertwined that if the HR ah, team can speak in financial terms, they'll immediately have credibility with the board. And uh, I think if you can do that and tie all the pieces together, you could really leap forward frog your competitors because you'll be making decisions based on the total package and that's what's important. And PE firms are especially PE backed firms. They're looking for how quickly can you deliver the investment thesis.

Speaker A: Yes.

Speaker B: And they are very results oriented. When everyone is talking about delivering results, you get so much more credibility and you achieve that investment thesis faster.

Speaker A: Yeah. So that being said, how can tools like Marstella help portfolio companies and investors to really understand the ROI of their talent strategies?

Speaker B: So the very first stage is understanding where you are today. So what is the cost of hiring? What is the cost of onboarding? What is the cost of uh, training? How long does it take someone to become proficient? And then when you lose people, how much productivity do you lose? How much does that mean in dollars and cents? And how long does it take it to get the next replacement through that path of proficiency? I think portfolio companies can show best practices that can be leveraged across the whole PE portfolio.

Speaker A: Mhm.

Speaker B: They can also show the value of their investments. And the most unique thing is when you know the costs, then you can start looking for solutions and you can pilot different solutions and go into a conversation with a vendor to say, you're promising me that you're going to deliver X, Y and Z. The financial impact of that will be X number of dollars. So we're going to prove out that theory through our pilot and if it's achieved, then we'll roll out the rest of the program. And I think especially in hr, it's harder and harder for them to show the ROI of an investment if they don't use this methodology. And ideally they create a flywheel because the world is constantly changing so they're going to need to continue to iterate. So you do your pilot, you adjust, you iterate, you deliver the results that are expected, you roll it out and then you go to the next area that is high cost, high impact. And when you know the costs, you could prioritize based on what is the high cost that's going to deliver that big impact to the other levers that we talked about. And when you do that. You really are driving business results and such an invaluable business partner.

Speaker A: Hex. Yeah. Yeah. I think that this is going to be such an important conversation for the HR practitioner or even the HR executive that is looking at their, you know, their year of results or at least their year of activities and seeing where did they drive the most value? And then as they're planning for the new year, where can they look to drive the most value simply based on that? Right. Like what is the priority? Where are our, you know, greatest opportunities that we can really drive? An impact when it comes to revenue and cost and all of those things.

Speaker B: The interesting thing is that HR is always looked at as an expense.

Speaker A: Yes.

Speaker B: And they really can shift to be a, uh, revenue generator. And we work with our clients to understand what is the current expense. If they can cut that expense in half, they can then negotiate with the business to say, I'd like to have half of those savings and to invest in my next initiatives.

Speaker A: Yes.

Speaker B: And they can fuel their own revenue and to be able to really show, invest in us, give us the budget. Because you will get a 10x return on the money that you spend. And that really shifts the conversation because if you think of, oh, you're just an expense. We're going to, we're going to try and keep this as low as possible. That makes complete sense. Mhm. But if you show that investments in people and it's an investment beyond the HR team, it's really an investment in people across the organization. And when we look at the costs, we look at it by the aggregate company, we look at it by division, by department, and by job level. Uh, when you get that granular information, you really can see where should I have an impact from first?

Speaker A: Yeah, yeah. What do you think the next evolution of, uh, HR tech and measurement will look like?

Speaker B: I think it's so interesting how everyone is adding AI.

Speaker A: Everybody, everybody's got an AI solution that's going to solve world peace.

Speaker B: Yeah.

Speaker A: Yes.

Speaker B: I don't think it addresses this gap that Marstella fills because AI is fantastic. It's changing how we do things. But we still have to be solving the right business problem. And our tool, um, it is first to market. We've been looking and there is nobody else that has tied together all the pieces. So I do think that, you know, this is going to give the opportunity to people to be able to see those pieces and then they can, they can decide which piece of HR tech is going to solve my solution. And there's some great HR Ah, tech out there that will help with hiring, that will help with onboarding, that will help reduce the cost of processes, help with learning. So I think once you have a tool that helps you understand the costs and where there's the opportunity, then you can go and find the solution. But you have to figure out the problem you're trying to solve first.

Speaker A: The number one question that we go through in the courses is, how will you know you're succeeding? How are you going to measure it? And it cracks me up when the initial thought is not, well, what was the indicator to us in the first place that this is what we needed the solution for? Like, it's not a trick question, like, go back and measure where you got your, you know, your kind of red flag indicator to start with. And if you don't know what good looks like, you'll never know if you're successful.

Speaker B: Yeah, yeah. There was an interesting conversation that we were just having with a CFO and a chro, and they were talking about having to do a reduction in force. And it's an unfortunate part of what's happening in the workforce right now. And the CFO was saying, we need to do a 5% cut across the board. And I said, well, let's just stop for a minute and let's think about how much it costs to hire, train and onboard and to get people proficient. And we have that data. So let's look at that.

Speaker A: Yeah.

Speaker B: Um, and if it costs us thousand dollars to get an FP and a analyst to the level that you need so that they can be independent and contribute, and in another area it only costs 14,000. Let's rethink where we do the cuts so that it makes sense and also supports your business continuing. So that was a very, very interesting conversation. When we had the data, they made a different decision and shifted some of their reductions so that they could, when they get profitable again, they can go back and grow even faster because they have all the right people in place.

Speaker A: Yeah, well, and I imagine having that data was helpful because sometimes you'll see where the decision is, you know, across the board simply from a fear, uh, of not appearing to be consistent. Right. Or like some, some aspect of that and not being confident in the data that led to the decision being made. Where if you're saying, well, this is the data that you have available, this is the true cost, uh, of these pieces of the business, and then you can say, okay, well then this is our legitimate business decision aligned with our strategy of why we're making this. These certain cuts versus an across the board.

Speaker B: Yeah. It's very powerful.

Speaker A: Yeah. If you could give Chros one piece of advice for reclaiming their strategic seat, what would it be?

Speaker B: Understand how your business makes money. Understand your financials and the areas that the business struggles to achieve its results. Not not hr. Mhm. But the business and then partner with them to solve those problems that Maria,

Speaker A: thank you so much for joining me today. Your perspective on HR economics and business impact is something that I think so many leaders need right now. I think this is really going to resonate with our audience for our listeners. You can find links to connect with Maria and learn more about her work in our show. Notes thank you for tuning into the HR tech chat from 360 Insights. Be sure to subscribe, follow and share this episode with a leader who needs to have the reminder that HR is a strategic value driver and join us next time on HR Tech Chat.