Why Build an Intranet – Introduction

Employees’ expectations change and evolve over time. We expect more from our employers than we did 20 years ago, with momentous changes in the last couple of years due to COVID. I cannot speak for all employees, but this employee has a core set of expectations! These are some of the questions I consider as an employee:

  1. What is my leadership team working on? What have they been reading up on recently? What are they thinking about?
  2. What is going on in my organization?
  3. What is our mission, and how am I connected to that mission?
  4. How can I work remotely, but still feel connected and a part of my organization?
  5. What makes my organization remarkable and unlike any other organization in the same space?

Stubborn business leaders complain about these evolving expectations and will casually dismiss them as “entitlement” or “spoiled millennial thinking.”  These businesses will struggle to hire and keep employees, as workers have more tools and resources available to find a new position than at any time in history! I have seen an increase in interest when it comes to intranets, as part of a solution to help keep employees informed, engaged, and connected to the organization’s mission and goals.

Why build an intranet - Business woman points at whiteboard: "show me the ROI!"
SHOW ME THE ROI!

I also hear, all the time from the decision makers who approve budgets for intranet projects, “What’ll be our ROI on this intranet?”  On the one hand, this smells of business school groupthink, and it is easy to stop there and dismiss that question. Let us remember that these decision makers are human beings! This means that they want to feel good about saying yes to the intranet project, and they are looking for assurance that the project will be a win for the organization. Who does not want to be a winner, and feel the pride of sponsoring a successful initiative?

How do we produce a number to reflect the savings an intranet can deliver? We should not! Instead, we should try to calculate the cost of inaction, or what it is costing the organization to stick with the status quo, in this case having no intranet, or an old and neglected intranet. Why? Loss aversion! I have been dabbling in reading about behavioral economics, or the study of how and why people make decisions around money. Studies have shown that people feel the pain of a financial loss much more than they feel good about an equal sized financial gain.  This means when we are trying to motivate a decision to move away from the status quo, it is more compelling to present the cost of doing nothing vs the cost of building an intranet, instead of presenting how an intranet can save an organization money.

Methodology and Assumptions

I focused on two of the main goals I hear most often from organizations asking us to why build an intranet or how to build an internet; increasing employee engagement and reducing the time employees spend searching for and gathering information. I tried to use concrete sources of data from research and studies I could find and took educated guesses for a couple of factors I could not find good data on. To produce these costs, I made up a fictional company profile:

  • Company Name – Moon Man Mysteries, a professional services firm based in the US.
  • Moon Man Mysteries has 150 salaried employees.
  • Moon Man Mysteries employees all make $40,000 per year.
  • Moon Man Mysteries’ employees all work 50 weeks, 40 hours a week, for a total of 1920 working hours per year.
  • Moon Man Mysteries has average turnover rates, employee engagement, and average costs to recruit and fill an open position:
    • Turnover Rate – 26.3%
    • Actively disengaged employees – 15%
    • Cost to recruit and fill an open position – $4,129
The Sweet Moon Price - Black and white cat on why you should build an intranet
Figure 1 – The Sweet Moon Prince, CEO Of Moon Man Mysteries

Why Build an Intranet – Employee Engagement

The best intranets serve as a beacon, shining light on the mission of an organization, as well as a gathering space for employees across the organization to get the same information, interact with each other, and stay connected. I could not find a broad study quantifying the impact of an intranet, but I was able to find case studies showing improved engagement after launching an intranet, through surveying end users for their sentiments and comparing to engagement scores pre-launch.

What is employee engagement, and why should I care about it?

Employee engagement is the strength of the mental and emotional connection employees feel about their work, their teams, and their organization. The Gallup Q12 Engagement Survey is a common way to measure this, putting a number to how an employee feels about their organization.  Why does this matter? There are two main factors, disengaged employees are more likely to leave their organization, and disengaged employees are also less productive than an engaged employee in the role.

  • The Corporate Leadership Council (2004) found that the most engaged employees are 87% less likely to leave their organization. The same study found that the 100 best places to work (according to their research) had an average voluntary turnover rate of 13% as compared with the average of 28.5% of other businesses in the same Mysteries
  • McLean and Company reports that a disengaged employee can cost the organization close to $3400 for every $10,000 paid in annual salary
  • A study by the Society for Human Resource Management found that employers will need to spend the equivalent of six to nine months of an employee’s salary to find and train their replacement

Now, let us do math!

My key assumption here is that launching a good intranet for Moon Man Mysteries will reduce turnover from 26.3% to 22.3%. The cost of training lost productivity for filling an open position seemed a bit high, so I used three months’ salary instead.

Employees x Turnover rate x ((.25 x SALARY) + Direct Hiring Costs)

Status Quo – No Intranet

150 * .263 * ((.25*40000) +4129) = 39.5 employees turn over, $557,389 turnover cost

New Intranet – 4% drop in turnover rate

150 * .223 * ((.25*40000) +4129) = 33.5 employees turn over, $472,615.06 turnover cost

By doing nothing, Moon Man Mysteries costs itself six employees and $84,773.95 each year.

That makes it easy to show the CEO that investing $75000 in a good intranet can return the investment in Year 1.

I feel some of you squinting your eyes at that number.

I see you there, I can almost hear the harrumphs. Let us assume when Moon Man Mysteries loses an employee, they get fully up to speed on day one, a perfect replacement that needs no training. We will take that cost out, and just look at the direct costs of hiring.

Employees x Turnover rate x (Direct Hiring Costs)

Status Quo – No Int. et Direct Costs Only

150 * .263 * 4129 = 168889.05

New Intranet – 4% drop in turnover rate, Direct Costs Only

150 * .223 * 4129 = 138115.05

That is still costing Moon Man Mysteries six employees and $30,774 each year.

But wait, there is more!

Not all disengaged employees leave. Some stay, so let us look at the cost of disengagement.

Employees x Percent Disengagement x (Salary x .34)

Here, we are going to assume that launching a good intranet takes Moon Man Mysteries disengagement percent from average (15%) to 12.5%.

Status Quo – No Intranet

150 * .15 * (40000*.34) = 22.5 disengaged employees costing $306,000 in lost productivity

New Intranet – 2.5% drop in disengagement

150 * .125 * (40000*.34) = 18.75 disengaged employees costing $255,000 in lost productivity

By doing nothing, Moon Man Mysteries costs itself $51,000 in lost productivity.

Conclusion

What I have put together is not an exact number, and there is estimating involved. I feel confident I am close to representing an accurate cost of inaction when it comes to employee engagement.  For my made up 150-person business, doing nothing is costing them 80,000 to 120,000 dollars each year. Looking at that cost of inaction, a 75,000-dollar cost to launch a good intranet does not seem as risky, painful, or overpriced.

Cost of Inaction – Time Spent Finding Information

A common goal I hear from our clients when that ask for an intranet is to making it easier to find information. This is also one of the top pain points that end users express through surveys and interviews about their experiences. We can measure this by surveying the users on how long they spend finding information every day, and survey them again after the new intranet launches. But what is the cost of inaction for an organization that choose not to launch a new intranet?

Math Time!

The key assumption here is that time a user spends trying to find information so that they can perform their job responsibilities, there is a cost associated with the time they spend finding information instead of doing their job. A review of a few studies I could find gave me a high-level number, that the average employee spends 19% of their work week searching for information. For a 40-hour work week, that’s 7.6 hours each week the average employee spends looking for something.

  • An employee of Moon Man Mysteries makes $40,000 and works 1920 hours in a year over 50 work weeks.
  • Their hourly cost is $20.80 per hr.

Employee Hourly cost x Search hours per week x Number of Work Weeks x Number of Employees

For this I am assuming a new internet would reduce employee search time by 90 minutes per week.

Status Quo – No Intranet

20.8 * 7.6 * 50 * 150 = $1,185,600 ($7,904 per employee)

New Intranet – 90 less minutes searching each week

20.8 * 6 * 50 * 150 = $936,000 ($6,240 per employee)

By not providing a good internet for Moon Man Mysteries’ employees, the organization’s inaction is costing them $249,600 a year.

Why Build An Intranet: A Summary

  • People feel pain from costs more than they feel good about savings.
  • Business leaders are people who want to feel good about saying yes to a project that supplies value and feels like a win.
  • With a little research, we can deliver business leaders a realistic cost number for keeping the status quo vs saying yes to a new intranet.

We hope you found Why Build An Intranet: Cost of Inaction helpful, and gives you some ideas on how to pitch an intranet to leadership. If you liked this, subscribe for more blog posts, our monthly newsletter, and Microsoft updates!


Sources

  1. Average wages, median wages, and wage dispersion (ssa.gov)
  2. Towers Perrin (2003). Working Today: Understanding What Drives Employee Engagement. The 2003 Towers Perrin Talent Report. Retrieved 15 June 2011, from http://www.towersperrin.com/tp/getwebcachedoc?webc=hrs/usa/2003/200309/talent_2003.pdf
  3. https://hr.mcleanco.com/research/ss/develop-an-engagement-program-strategy
  4. The social economy: Unlocking value and productivity through social technologies | McKinsey
  5. https://www.gallup.com/workplace/352949/employee-engagement-holds-steady-first-half-2021.aspx
  6. https://www.shrm.org/about-shrm/press-room/press-releases/pages/human-capital-benchmarking-report.aspx
  7. 2019 Thesis Case Study Developing an Intranet at EA Finland