My point? It is common practice for companies to scrutinize most business expenses for their impact and ROI. Most would agree that this just makes good business sense. Yet time and again, I’ve witnessed departments, business units, even entire organizations diving head first into costly learning initiatives with little more than a hunch that by training employees, business results will be better.
I am not alone in this observation. According to learning consultant Brandon Hall, there is no other workplace issue on which so much money is spent with as little accountability as training.
What’s the Problem?
Traditional accounting practices are designed to recognize revenue and expenses. Results are expressed in terms of income or loss. Learning and training are still seen as an expense, and the metric commonly considered is cost. There is no gauge to recognize the impact of learning and the increase in value of people over time. Consequently, the increases in skill, competency and motivation gained from learning fall outside the boundaries of measurement, and training’s ROI is overlooked.
If the ultimate purpose of training and learning is to drive business results, then learning is not just an expense. It is a catalyst to improving business performance. Managed effectively, learning drives an organization toward measurable business goals, such as accelerating new product, service or technology rollouts, increasing customer satisfaction and retention, minimizing turnover and reducing counterproductive practices.
The Need for Measurement
“If you can’t measure it, you can’t manage it.” – Peter Drucker
The only way to drive business results through training is to make it effective, and to improve effectiveness you must measure impact and analyze ROI.
Through an evaluation of cost and benefits—both hard and soft—a company can allocate funds and resources to the areas of greatest need and return. The company can also ensure that the programs are in line with its overall strategy.
Measuring training offers benefits for both the organization and individual employees. For the organization, training measurement can be used to:
- Make intelligent decisions about funding future training initiatives or continuing existing initiatives.
- Demonstrate the impact of the initiative on business objectives and performance.
- Establish the strategic importance of human resources and training.
- Manage people as a strategic resource.
Employees also benefit in a number of ways. By measuring training and its effectiveness:
- Employees receive helpful, objective feedback regarding performance as it relates to their work, skills and competency.
- Employees, through assessments, can recognize opportunities for growth and improve aspects of their performance.
- Employees can identify what skills and knowledge are important to the organization and can develop paths to career growth within the organization.
These benefits translate into increased employee satisfaction, and studies show that with increased satisfaction comes increased employee retention.
What to Measure
If the ultimate purpose of training and learning is to drive business results, the best gauge of training ROI is business ROI. Because training is not an expense, it should not be measured in savings or reduced cost. Instead, results from training investments should be recognized in terms of measurable impact on strategic goals and business metrics.
Before measuring business results, you must know if the training program itself is being engaged and if it is having an impact on workforce performance and behavior. Several key areas should be evaluated:
- Enrollment: If enrollment numbers are low, the problem could be lack of interest or little demand for such knowledge in company job roles. It could also mean poor internal promotion. If employees don’t know a class is there or why they need it, they won’t sign up. Internal programs should be marketed with energy and enthusiasm, using many of the same tools you would use to educate external target markets and rally support and preference for your products.
- Utilization/Completion: If completion rates are low, your content could be inappropriate, too complex or simply not interesting. Perhaps students lack incentive to complete, such as reward or recognition. Where e-learning is concerned, it could be due to lack of interactivity and human engagement. Industry research, such as the Thomson Job Impact Study, has determined that a structured blended learning model (content delivery coupled with live mentors and interactive tools online) dramatically increases overall on-the-job performance.
- Application: Learning should improve the way students solve business problems and perform everyday tasks. Learning assessments play an important role in providing feedback on progress made toward business objectives, and identify areas in need of improvement.
- Performance: After training, there should be a noticeable impact on individual efficiency, effectiveness and motivation. Are individuals spending less time on related tasks than they were before? Are you benefiting from more meaningful and solution-oriented relationships with customers and vendors? Are individuals coming up with new or improved ways of doing things?
Balancing the Books
As stated earlier, training should not be viewed as just as an expense. This practice fails to recognize the dynamics of learning and its positive or revenue-generating impact on business metrics. Following the “matching” principle of accounting, each revenue item must have a related expense. If training is to be viewed as an expense, the increased knowledge, skill and performance derived from training should be considered deferred or unearned revenue.
Once you have evaluated your training program, look for indicators of improvement to evaluate training’s impact on your organization and anticipate future ROI or unearned revenue.
Look for marked improvements in productivity, knowledge retention and application, effective talent deployment, individual and workplace dynamics, critical attitudes and behaviors and job depth and dimension. Among training’s greatest organizational benefits noted by Fujitsu Transaction Services was the improvement in workforce attitudes, resulting in a tremendous boon to overall productivity. According to Steve Becker, Fujitsu’s chief human capital officer, “When employees know that you value them and the contributions they can make, you create a winning culture in which everyone is excited about delivering their best.”
You should also look for intermediate outcomes, such as workforce and manager proficiency, employee satisfaction and retention, customer satisfaction and retention, time-to-competence and direct alignment to business goals. Before launching its learning and leadership development initiative, Pitney Bowes faced intense competitive pressure, shallow bench strength and major skills gaps. This inhibited the company’s ability to advance or capitalize on key market opportunities. Evaluation of organizational performance after its first year of training-program implementation showed marked increases in the number of competent leaders for market initiatives, intelligent decision-making across the board and effective workforce contributions to the organization. These increases directly impacted financial performance. “Pitney Bowes benefits from performance gains due to alignment between individual performance and development, and linkages between individual performance and corporate direction,” noted Susan Wallberg, Pitney Bowes’ executive director of Strategic Staffing and Executive Development.
Finally, look for improvements in financial and strategic performance, including income, achievement of business goals, sales growth, market share, stock performance and revenue from new products and solutions. As American Standard’s Senior Vice President of Human Resources, Larry Costello was able to leverage training to build a culture of development that fostered collaboration, creative problem solving and solution-oriented thinking and initiative in order to ensure a real return on the company’s investment in technology. Through his training initiative, Costello was also able to make an impact on the financial performance of the company.
“The people of the caliber we’re looking for are pleased with our development and management system,” said Costello. “It gives them the opportunity to outperform our expectations and exceed their own. With the combination of capability and talent, we were able to put ourselves in a much better place. We’ve enjoyed a record-breaking year in Plumbing Americas.” Despite the slow economy, U.S. sales growth for American Standard’s plumbing products grew by 5 percent last year, with record-breaking sales posted. Sales also expanded through retail channels, such as The Home Depot.
Moving Beyond Expense to Value Creation
Investment in learning can have far-reaching benefits for the employee, the team and the organization, as well as customers (through repeat business) and suppliers. The benefits may show up through better-aligned operations, increased efficiency or improved morale, leading to increased revenues and profits.
Evolving into a learning organization that responds rapidly to market changes is not simply a matter of offering training and development or measuring its impact in terms of cost savings. In an economy driven by intangibles, the ability to align training and development with market strategies will be a key driver of competitive agility and value creation. Consequently, learning should be viewed by the organization as more than an expense, and its effectiveness should be measured in terms of its contribution to business performance.
To succeed, organizations must be explicit in managing and measuring the dynamics of training. One must understand the potential areas of positive benefit from such an intervention and drive learning in a manner that optimizes these outcomes. When that infrastructure is put into place and a multidimensional “ROI” is computed, the organization will be able to properly size its investment in learning.
Over the past 20 years, Chani Pangali, Ph.D., has led employee development, growth and retention initiatives for a number of organizations. As senior vice president for KnowledgePool, Pangali contributes to the vision and direction of the organization and drives business growth in key areas. For more information, e-mail Chani at email@example.com.
Lead or Follow
Why measure training? Try answering these questions:
- Is our training vendor worth what we’re paying?
- What are we really getting for our training dollars?
- Can we allow such a key driver of business performance to remain undefined, unaccountable and unmanaged?
- How can we leverage training for improved performance and business growth?
- Can we achieve strategic business objectives if workforce training and performance lack direction, alignment and impact?
- How well do our employees understand the new product, technology or procedure they have just been trained on?
Thomson Job Impact Study
Compared to students engaged in e-learning alone, students who used a blended model for online learning:
- Performed 30 percent more accurately.
- Performed real-world tasks 41 percent faster.