What’s the ROI of enterprise 2.0 learning?

Many a corporation misses massive opportunities by demanding to know “Where’s the ROI?” in cases where ROI is an inappropriate and misleading indicator. Permit me to explain why.

Return on Investment means different things to different people To some, ROI is a hurdle a project must achieve to warrant investment. To others, ROI is a way to coax people to make the business case for a proposal. Some treat ROI as a formula, others as a philosophy.

Typically, the higher you go in an organization, the more expansive the definition of ROI and the less reliance on it in decision-making. A $10,000 decision is likely to require ultraconservative estimates, solid arithmetic, and measurements in accordance with Generally Accepted Accounting Principles. For a $5,000,000 decision, corporate politics, intangible benefits, and gut feel may overrule the numbers. And at the $50,000,000 level, the numbers are at best a footnote to the real way executives make decisions.

Picture this: A CFO has calculated an ROI of 154% for Project A and 155% for Project B. His CEO must decide which project to back to the tune of $100 million. Can you really imagine the CEO will make the decision based on ROI?

“You can’t manage what you don’t measure” is nonsense. The vast majority of what senior executives manage is immeasurable. They make judgment calls; they play hunches. How else do you select the right people for key jobs? How else do you choose your partners? How else do you divine the future? Organizations pay senior executives handsomely to buy their ability to make wise choices in the absence of simple measurements.

Intangibles rule

Business enterprises exist to create value for their stakeholders. Once upon a time, value as profit was a good proxy for the value earned by investors. Profit, the proverbial bottom line, is the difference between revenue and expenses, and these relate back directly to changes in accounts on the balance sheet. Balance sheets record tangible assets: factories, land, trucks, and paperclips, things you can see and touch.

In 1982, intangibles accounted for less than a quarter of the value the U.S. stock market. By 1999, intangibles, the no-see-ums, made up more than 80% of the value of the market. Balance sheets do not record intangibles, things like know-how, customer relationships, and reputation. On the balance sheet, highly-skilled people have the same value as new hires: zero.

Imagine Google. Google’s book value, e.g. the stuff you can see and touch, is roughly $5 billion. Investors value Google stock at more than $13bmillion. The $125 billion bump is what investors are willing to bet that Google will get better and bigger. This is entirely intangible, i.e. not on the books and not on the bottom line.

If you were making decisions at Google, what would you pay attention? Would you do ROI calculations on what might impact the $5 billion? Or would you make decisions to impact the $130 billion?

Where’s the ROI from implementing interactive technology?

I’m going to take ROI back to its roots. Instead of using the conventions of 19th century accounting, I’ll define return as an increase in shareholder value.

When interactive technology (blogs, wikis, social software) is applied to an area for the first time, the results can be staggering. Consider these three examples where costs were negligible, and returns are counted in eight figures.

  • Three years ago, a staffer at Intel set up a wiki for sharing information among individuals throughout the company. It grew organically and has become a vital source of information throughout the company. Usage has surpassed a million page-views. The wiki is doing what knowledge management systems and intranets were supposed to do. The software was free. The wiki is self-maintaining. Benefits include time saved looking for things, less likelihood of using dated or inaccurate information, and accelerated ramp-up of new hires. If the system saves 30 minutes a week for its 20,000 active users, that’s more than 200 person-years, i.e. $30,000,000 or more in annual savings. The software was a free download. (Here’s a four-minute video on Intelpedia.)
  • Four thousand professionals at CGI receive news and updates in their specialties by subscription instead of foraging for research findings on their own. There’s less likelihood of important developments slipping through the cracks, and the consultants can bill at least one incremental half-hour a week per person with the time saved. The value of two thousand billable hours per week? Astronomical. Costs were minimal.
  • Tax preparer T. Rowe Price encouraged seasonal tax-preparation staff to contribute Frequently Asked Questions to a central repository. The central source of questions and answers enabled the 1,500 support staff to shave two minutes off the duration of the average customer phone call. The result? Better customer service and $15,000,000 in annual savings.

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What do you want to improve?


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How to cost-justify enterprise and informal learning

SHOW ME THE MONEY
Excertps from Informal Learning

Learning is not compulsory but neither is survival. R. Edwards Demming

It’s an immutable law of business that words are words, promises are promises, but only performance is reality. Harold Geneen

It’s like arguing in favor of the plough. You know some people are going to argue against it, but you also know it’s going to exist. James Hughes

Informal learning is the path to organizational capability, agility, and profits. It also respects workers and challenges them to be all they can be.
“Fine,” you say, “but my company is not going to go for any of this unless I can show them a solid return on investment.” Tell them about these examples of informal learning which we’ll explore in more detail in chapters ahead.

GETTING DOWN TO CASES

Sales force readiness

A global technology leader is moving at a fever pitch, acquiring a new company on average once a month. The company maintains its competitive advantage by providing its sales force and customers with instant access to case studies, product specs, sales tools, and insight into future trends. Company thought leaders in twelve strategically important areas meet in person to update one another, talk with customers, and what’s new in their field. The firm “Google-izes” this content, making it searchable with ease but also retrievable as video-on-demand, podcast, presentation, or text. The result is a better-informed sales force, more competence on sales calls, more cross-selling, better presentations, and ease in bringing partners up to speed.

Access to expertise

Knowledge workers waste a third of their time looking for information and finding the right people to talk with. Frequently they spend more time re-creating existing information they were unaware of than creating original material. Expertise locators direct workers to people with the right answers. Organizational network analysis pinpoints bottlenecks and poor connections. Bottom-up systems provide exception-handling workarounds and rules of thumb. Instant messaging accelerates information flow. Reduced search times, streamlined organizational processes, and finding people faster can increase worker productivity 20% – 30%.

Transformation

A major semiconductor company transformed itself from near-bankruptcy to record profitability in three years. They used group graphics to develop and communicate a new strategy throughout the organization. 95% of employees could explain the strategy and how they contributed to it personally. No formal training took place.

”Many companies nurture communities
of customers provide an on-ramp for new
customers and fresh ideas for old hands.”

Innovation

Times of change require new approaches, and conversation is the parent of innovation. Organizations are re-designing the workspace to encourage meaningful conversation. Mind maps and visualization tools accelerate discussion. Concept prototyping multiplies the volume of new ideas generated by workgroups. On-line collaboration and discussion software spark innovation among far-flung groups that share common interests. Formal learning promotes a curriculum; informal learning encourages thinking about opportunities.

Increase IT flexibiity

An organization that brings internet technology and internet culture inside the firewall reduces Total Cost of Ownership. Workers do not need to learn a new interface to participate. They already know how to search, blog, navigate, and add features. Software improves incrementally instead of in disruptive new versions. Modular web services replace brittle, hard-coded monolithic systems and flex with change.

Increase sales

The more people know about a product or service, the more likely they will buy it. Many companies nurture communities of customers provide an on-ramp for new customers and fresh ideas for old hands. The company provides the platform, be it space at a trade show or directions on building a group website; the customers provide the content. Loyal customers are great sales people. Beyond that, they are often the source of new product ideas.

Improve work processes

In a knowledge-based economy, said Shell Oil’s Arie De Geus, “the ability to learn faster than your competitors may be the only sustainable competitive advantage.” Nonetheless, when it comes to learning, most companies are akin to the lumberjack who was too busy chopping down trees to sharpen his axe. Learning is a skill, not a given. Meta-learning, helping people learn to be better learners, underpins continuous improvement across the firm. Improving worker process skills such as speaking and writing opens up the circuitry through which knowledge flows.

Reduce stress

Job stress devastates work performance. Stress has been implicated as a factor in heart disease, stroke, diabetes, ulcers, depression, serious accidents, alcoholism, and hypertension. Three out of four American workers report stress on the job. Health care expenditures are nearly 50% higher for workers who report high levels of stress. Attacking the problems associated with stress head on and giving workers more control over decision-making make dramatic improvements. One organization reported reducing tension by 65% and aches and pains by 70%. Participants were 65% less angry, 70% less worried, 87% less fatigued and 68% happier. There was a 44% decrease in their desire to leave the company and a 52% decrease in the desire to quit their jobs.

Unlock worker potential

The role of management used to be to tell workers how to do their jobs. “You’re not paid to think,” Frederick Taylor told workers. That’s history. Today, people are paid to think. Formal training is deemed successful if everyone passes the test or demonstrates enough to get by. In contrast, informal learning helps people “be all that they can be.” Informal learning also appeals to the incoming generation who are accustomed to learning from small chunks of information and snippets of conversation.

Optimize return on investment

In the knowledge economy, a superlative performer is not just 20% more effective than average; she can easily be ten times as productive. Seasoned workers, the “big middle” between new hires and senior staff, generate most of a firm’s profits, yet formal learning historically targets new hires and novices. Mid-career professionals don’t have time for classes; their learning is haphazard and unmanaged. If you were starting with a clean slate, you would probably focus the training budget less on formal learning for novices and more on informal learning for high performers.

Increase professionalism

Workers develop professional expertise in loose confederations of like-minded individuals. For example, engineers with an interest in optical computing might meet for beers after work to swap stories about breakthroughs and what’s on the horizon. Security experts come together when facing a common threat. Corporations that support these communities of practice by providing worker time to participate and technical support to capture and distribute their conversations stay on top of new developments, foster camaraderie, and avoid the unnecessary step of requiring subject-matter experts to explain things to instructional designers.

Self service

As business removes the labor content from services, often service improves while costs go down. We enjoy the convenience of the ATM, pumping our own gas, and ordering merchandise over the net. Informal learning brings the same benefits to acquiring knowledge: greater user convenience and lower overall cost.

Improve morale

Knowledge workers balk at being told how to do their work; it’s seen as micromanagement and an insult to the worker’s abilities. People enjoy conversation and learning; they do not relish listening to pontification from the podium. Formal training is top-down. By contrast, informal learning trusts the worker with the decision of how to master new knowledge and skills. This, in turn, increases morale while lowering turnover.

Impromptu meetings

Companies invest heavily in annual sales meetings and other galas under the big tent. Lead time for large events is six months or more. Often 90% of more of the air time is devoted to presentations. I’m not one to complain about occasional celebrations or parties, but they are a poor way for people to learning anything. Participatory sessions, conducted as needed and often by surprise costs less and get more across.

Conversations

Conversation is the most powerful learning technology ever invented. Conversations carry news, create meaning, foster cooperation, and spark innovation. Encouraging open, honest conversation through workspace design, setting ground rules for conversing productively, and baking conversation into the corporate culture spreads intellectual capital, improves cooperation, and strengthens personal relationships.

Keeping up

San Franciscans know that when the ground shakes, rigid structures crumble and flexible ones roll with the punches. The acceleration of time, globalization, outsourcing, software interoperability, open-sourcing, supply-chaining, and more are rattling the foundations of business. As we’ll see in the next chapter, business is going from push (rigid, conforming, monoliths) to push (flexible, innovative, small pieces). Training programs are push; top down, teaching the standard, difficult to revise. A learning platform is pull; dynamic, always responding to change. What is the ROI of survival?

EVALUATING INNOVATION

Successful business people make decisions based on reasonable expectations of future returns. In general, the more senior the leader, the further out the time horizon. The further in the future, the less precise the expectation. Great leaders have vision, not exactitude.
…..The investment community is, misguidedly in my opinion, fixated on quarterly results. But wisdom tells us that perpetually focusing on short-term numbers is not a prescription for long-term success.
…..Given a choice of now or later, senior managers want both. How can we deal with this conundrum? I’ll suggest that we adopt the perspective of a supremely successful businessperson, someone like Andrew Carnegie.
…..Andrew Carnegie rose from abject poverty to unimaginable riches through enlightened management and sound investments. He quit at the peak of his game, sold his holdings to J.P. Morgan, built himself a castle in his hometown in Scotland, and spent the rest of his days giving his fortune to good causes. As a businessman, he did not put up with foolishness.
…..When you’re evaluating an investment of time or money, or a new approach, say, informal learning, ask yourself, “What would Andrew Carnegie do?” Ask yourself the questions he’d ask. Get to the heart of it: does this project feel right? Is this the best use of your hard-earned money? Will this pay us back for taking a risk on it?
…..If a learning project—make that any project—does not make business sense, don’t do it. If the return on investment is not so slam-dunk obvious that you can sketch it out on the back of a napkin, do something with a higher return.
…..By the way, Carnegie favored informal learning. He was convinced “that much of that which is taught in the schools is of no value whatsoever in connection with the business of earning a living or accumulating riches. He had arrived at this decision, because he had taken into his business one young man after another, many of them with but little schooling, and by coaching them…, developed in them rare leadership.” (Hill, 1937)

WHAT DO WORKERS WANT?

Knowledge workers demand respect for who they are. They expect to be treated fairly. They thrive when given the freedom to decide how they will do what they’re asked to do. They rise or fall to meet expectations.
…..This is hardly new. They want life, liberty, and the pursuit of happiness. What’s new is that if they don’t get those opportunities, they will work for someone else. Talent is scarce and getting scarcer.
…..Ask yourself about your workers. Are they happy? Are they proud of what they do at work? Do they lead the lives they want to lead? Are they preparing themselves for the work of the future? Are they progressing in ways that increase their economic value? Do you think they feel they’re doing their part to make the world a better place? Are they satisfied with their jobs or looking for the quickest escape route?
…..Extreme high performance is generally coupled to the “flow experience.” Working at peak levels converts work into joy. Some find it addictive. It’s a better incentive than money.
…..Psychic income is real. I just read a note from someone who attended my first day-long workshop on informal learning. (If you really want to learn something, teach it.) The students were Chinese knowledge workers and professors. I was not confident that I’d gotten my message across. Then I found this on the wiki I’d left behind for follow-up.

“One message I got from Jay’s speech is the exponential acceleration of, not only the learning evolution, but the evolution of intellectual humankind. I feel enlightened and liberated. I am reminded of Plato’s Cave. Imagine humankind finally taking away the chains on their legs and necks, turning around to see that the traditional learning contents are but the shadows of the puppets manipulated by marionette players (instructors? Unfortunately I am one of them.) Will we, among the first released prisoners (thanks to Jay), become one of the intrepid pioneers to walk toward the light from outside of the cave, and ‘dive in’ the realities of the world?”

Now I am walking on air. Everyone should feel this good. You don’t receive rewards like this unless you have the latitude to make your own choices.

HOW CAN I TELL IF IT WORKS?

“How do I know that a graduate of one of these off-campus programs has learned anything?” snarled an accreditation official in the early days of distance education. “And how do we know if a Stanford grad knows anything?” came the retort of my boss, the future founder of the University of Phoenix.
…..He and I both knew academia’s deep, dark secret: outside of the school system, grades are meaningless. In fact, it’s hard to find a more random variable. Grades do not predict wealth, happiness, income, health, social standing, home ownership, optimism, or professional standing. The only place grades matter is at other schools and for professional credentials. So if grades make no difference to a graduate’s wellbeing, are students learning anything at school?
…..Traditional schools take attendance. That must count for something, right? Actually, the literacy rate in America was higher before we made schooling compulsory.
…..I talked with Don Novello (“Fr. Guido Sarducci”) about his routine, the Five-Minute University. In five minutes, you learn everything the typical college graduate remembers after five years. Where did he come up with the idea? “It’s all true, man,” he replied.
…..When I was championing the advantages of eLearning at the end of the last century, many people questioned whether self-directed learning could ever be as effective as a live training session. I questioned whether it could be worse. A few data points on the effectiveness of American classroom education:

40% of American adults (upward of 70 million people) did not know that Germany was our enemy in World War II. (Davis)

50% or high school students were unaware of the Cold War. 60% of the same group had no idea of how the U.S. came into existence. (Davis)

60% of adult Americans claim never to have read a book, 50% believe in UFOs, 42% cannot find Japan on a map. (Berman)

(In school) He learns to sit still, to line up in orderly rows, to take instructions, to feel guilt for his natural impulses – and perhaps to do a few simple things that he could learn to do one-fiftieth—yes, one-fiftieth-of the time it usually takes him. (Leonard, 1991 )

Formal Training Has Scant Impact

Training managers have complained for years that senior managers don’t understand the value of training. That’s why training is often the first area to get the axe when business heads south. And that’s also why training managers don’t get to “sit at the table” with the organization’s decision-makers.

Only 10% to 20% of training transfers to the job.

At least 90% of American Industry’s spending on training fails to result in transfer to the job. (Ford, 1997)
…less than 20% of training transferred to the job. (Brinkerhoff, 1994)
Most of the investment in organizational training and development is wasted because most of the knowledge and skills gained in training (well over 80% by some estimates) is not fully applied by employees on the job (Broad and Newstrom, 1992).
… more than 10% of the expenditures [on job training] actually result in transfer to the job (Baldwin and Ford, 1988).

Training is a necessary but insufficient means of changing worker performance.

The leading human performance authorities “have all demonstrated that most performance deficiencies in the workplace are not a result of skill and knowledge gaps. Far more frequently, they are due to environmental factors, such as lack of clear expectations; insufficient and untimely feedback; lack of access to required information; inadequate tools, resources, and procedures; inappropriate and even counterproductive incentives; task interferences and administrative obstacles that prevent achieving desired results.” (Stolovicth, 2002)
…..Geary Rummler determined training accounts for but only about ten percent of the potential for changing performance on the job. (Other factors are incentives & rewards, information, & feedback, support & resources, individual capacity, and motives & expectations.)
…..As we’ve seen, training departments manage only the 20% of training that is formal, assuming that informal learning is not in their charter.
…..Working with averages can be tricky. (You can drown in a river that’s an average of 6” deep.) Nonetheless, even if we beef up the numbers to compensate for double-counting, the impact of formal training is at best a drop in the bucket.
…..Let’s do the math. 20% x 20% x 10% = 0.4%. This implies that formal training is responsible for less than 1% of the potential change in performance on the job.
…..”Tragically, many firms have mistaken measuring activity for measuring results.”[end display text]
At least half of most companies’ investments in training go down the toilet because the training occurs too far in advance of its application. You lay down a great bottle of wine, leave it undisturbed, and open it a dozen years later to discover ordinary wine has become extraordinary wine. Bottle your great knowledge, leave it undisturbed, and when you open a dozen weeks later, the bottle will be empty.
Maybe the executives do understand the value of formal training. They’ve determined that in its present form, it’s not worth much.

Don’t Get Fooled Again

“You cannot manage what you cannot measure” is one of the oldest clichés in management, and it’s either false or meaningless. It’s false in that companies have always managed things–people, morale, strategy, etc.–that are essentially unmeasured. It’s meaningless in the sense that everything in business–including people, morale, strategy, etc.–eventually shows up in someone’s ledger of costs or revenues. Measurement, in other words, is a worldview, not just a scorecard. It is a means of thinking and acting, as well as measuring.

Tom Stewart, The Wealth of Knowledge

Businesses exist to create value, and the source of value resides outside the learning function. As the late Peter Drucker has pointed out, “Neither results nor resources exist inside the business. Both exist outside. The customer is the business.”
…..Tragically, many firms have mistaken measuring activity for measuring results. Training directors measure participant satisfaction, the ability to pass tests, and demonstrations. They don’t measure business results because they don’t own the yardstick by which business results are measured. Elaborate learning management systems track who has attended what, courseware distribution, workshop schedules, test scores, and online course completion, but not business metrics.
…..Especially egregious is the advice from consultants to measure performance using traditional accounting rules. This gives the false precision of hard numbers. Unfortunately those numbers are almost always off because they attribute no value to intangibles. Invisible assets such as intellectual capital, customer relationships, brand image, and business intelligence are worth far more than plant and equipment but they do not appear on a traditional balance sheet.
…..People have told me intangibles do not count because they are impossible to measure. It’s as if what you cannot see is not really there. Tell it to Wall Street. Google is worth $3 billion on paper (using traditional accounting measures). Investors value Google’s stock at $125 billion!!! That’s more than the value of Disney, The Washington Post, The New York Times, The Wall Street Journal, Amazon.com, Ford, and General Motors combined. Where is the missing $122 billion? It’s invisible stuff like brand, culture, and a team of people investors expect to keep minting money for them. Intangibles are real. You can’t see air either, but you can’t live without it.

The appropriate measure of learning is how good a job one is doing. Training metrics should be business metrics.

Paying attention to pragmatic end-measures will bring informal learning to prominence, but the switch is only now starting. In the next chapter, we’ll look into what’s just emerging.

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What’s in it for you? What’s in it for THEM?

Let’s imagine you’re convinced that your organization needs to adopt an ecological, holistic approach to learning. How do you get skeptical management on board? How do you overcome the inertia of the day-to-day in order to lay the foundation for the future?

Begin by figuring out where you are. Are you just starting out or down the path a ways? Is management pushing for the change or resisting it or unaware? Is your organization’s use of web 2.0 in infancy, childhood, or maturity?

Select business drivers for change. Don’t try to solve all problems at once. One or two make for a good start:

  • Speed up the flow of information through the organization
  • Improve customer service
  • Streamline workflow and slash bureaucracy
  • Unleash the power of collective intelligence
  • Create a nerve center for corporate news and market intelligence
  • Make all corporate know-how accessible 24/7
  • Recruit best candidates for new positions and make them productive quickly
  • Replace training classes with informal, hands-on learning
  • Open the process of innovation to all employees
  • Help workers build strong, supportive relationships
  • Enable managers to assess the status and direction of projects
  • Empower all employees to contribute ideas and feel part of the team
  • Better relationships with customers, prospects, recruits, partners, suppliers

Are you trying to save time, increase revenue, cut costs, or improve efficiency?

For a more extensive list, check out What do you want to improve?

Consider your options
You might pick one of the learnscape patterns here or in the printed material: professional subscriptions, central information sharing, voluntary social networks, and so on. Perhaps something on this list will lead you to an ah-ha moment.

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The Mythical Man-Month

Fred Brooks wrote The Mythical Man-Month about the lessons learned as the senior software engineer behind OS/360, at the time the slickest operating system ever written.

What became known as Brooks’ Law states, “Assigning more programmers to a project running behind schedule will make it even later, due to the time required for the new programmers to learn about the project, as well as the increased communication overhead. When N people have to communicate among themselves (without a hierarchy), as N increases, their output M decreases and can even become negative (i.e. the total work remaining at the end of a day is greater than the total work that had been remaining at the beginning of that day, such as when many bugs are created).”

He also noted:

  • To make a user-friendly system, the system must have conceptual integrity, which can only be achieved by separating architecture from implementation.
  • To avoid disaster, all the teams working on a project should remain in contact with each other in as many ways as possible (e-mail, phone, meetings, memos etc.) Instead of assuming something, the implementer should instead ask the architects to clarify their intent on a feature he is implementing, before proceeding with an assumption that might very well be completely incorrect.
  • Brooks muses that “good” programmers are generally 5-10 times as productive as mediocre ones.

Brooks’ Law seemed both whimsical and radical back in ’75. It didn’t seem right that adding people to a project would slow it down. A programmer told me it was like a woman having a baby in nine months; it didn’t mean nine women could not produce baby in one month. Brooks was saying more that that. He recognized that the output of knowledge workers was not directly related to the hours they worked.

Today we recognize that a great knowledge worker may produce as much value as a hundred of her less gifted peers.

Schools may mix the student with off-the-charts promise with his average classmates to avoid the appearance of favoritism.

In business, it pays to devote special attention to superlative performers.


Knowledge workers can goof off and still be productive.

Factory workers, particularly those on production lines, produce the same amount of value each hour. Most manual labor is similar: the best performer may produce 125% of the norm, but never 500%. Managers were lulled into equating hours and output. An employee who knocked off work early was presumed to be a slacker. Kibitzing in the coffee room was regarded as downtime.

Knowledge work is different. Google recruiters figure a top engineer can produce two hundred times more value than the norm! Assume that top engineer sits on a beach for six months and then, in the course of a few minutes, comes up with Google’s new $5 billion innovation?

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Show me the money

Chapter three of Informal Learning

It’s an immutable law of business that words are words, promises are promises, but
only performance is reality. HAROLD GENEEN

It’s like arguing in favor of the plough. You know some people are going to argue
against it, but you also know it’s going to exist. JAMES HUGHES

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Linking training to business goals, not the first time

Jack Gordon, writing in Training magazine:

“While we’re at it, here’s one for top management: Does your training director find it difficult to make learning serve your desires because of the nature of your desires? If your idea of training that serves a critical need is a program that persuades employees to work more enthusiastically, for less money and fewer benefits, right up to the moment when you figrure out how to eliminate their jobs altogether, maybe the problem isn’t your training director. Maybe what you really need is dumber employees.”

I want to call your attention to Jack’s article CLO: A Strategic Player? which flippantly and brilliantly describes the wrenching situation that keeps the training function hidden in the back room:

The vision must have sprung to life not long after the first corporate training departments crawled forth as distinct entities from the primeval ooze of the Industrial Age. It has been a theme on the conference circuit for as long as trainers have gathered in hotel ballrooms to discuss their careers. The vision is commonly expressed in the form of a sermon with a title like “Linking Training to Business Goals.” A short version goes like this:

An organization’s training unit should not operate in the form of a little red schoolhouse, tucked away in a corner, divorced from the vital strategic concerns of the business. It should measure its success not by the number of courses it runs or the number of people it runs through them, but rather by the impact of its efforts on critical business criteria. The training manager should not be the last to know about new initiatives or shifting priorities that will require employees to be brought up to speed. Instead, the top training person should sit in the executive meetings where those initiatives are born.

Furthermore, the top training person should have as much business expertise as educational savvy. He or she must understand what executives and line managers care about and why�by speaking to them regularly, in their language, about their concerns. Only then can training and performance-support efforts be linked to key goals and thus become a strategic driver of organizational performance. Without such a link, a training operation will always be seen as a cost center and a more-or-less necessary evil rather than as the priceless asset it ought to be.

Thus endeth the sermon.

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Strategic value of learning

Examining the Strategic Value of Learning by Tony O’Driscoll, IBM. Online Educa 2005.

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Cost-effectiveness of eLearning

An article in the June 2001 issue of T+D magazine carried this line: “The fact is, as thousands of people around the world including myself and my boss learned the hard way, there are few claims as outlandish and as unsubstantiated as eLearning being a money saver.” I couldn’t resist sending this reply:

1. COSTS ARE NOT THE WHOLE STORY.

Costs are only part of the eLearning equation. The primary advantage my clients attribute to eLearning comes from increasing the top line, i.e. enabling organizations to do things they couldn’t do with traditional training.

For example,

Transforming a traditional business into an eBusiness
Certifying thousands of employees in technical disciplines
Accelerating revenue with simultaneous global product launches
Upgrading customer service by building skills during non-peak hours
Merging organizations on Internet time
Providing scalable training to channel partners

The cost of eLearning is relative. So long as the bottom line is increasing, organizations shouldn’t worry too much about costs.

2. IT’S eLEARNING + ILT, NOT eLEARNING *OR* ILT.

Your article suggests that eLearning is an either/or situation. This is a fallacy. Think of eLearning as supplementing traditional learning rather than replacing it. Only apply e-technologies when the benefits are obvious.

Take prework as an example. Traditionally, prework might take the form of reading material on paper. In today’s fast-paced world, the material is often out-of-date before it’s read. And whether anyone reads it — and gets it — before a workshop is anybody’s guess. The eLearning alternative is to post the prework on the web, where it’s always current, and require a passing pretest score for admission to the workshop.

3. THE PAST IS A SUNK COST.

When making an incremental decision, count only incremental costs. Most of my customers already have desktop computers, local area networks, and Internet access in place. The money already spent on these resources shouldn’t be toted up as an expense of eLearning.

4. THE LARGEST COST OF ALL IS FOREGONE OPPORTUNITY.

Again and again, I’ve found the largest overall cost of any corporate learning endeavor is the cost of people’s time. I’m not talking about salaries and benefits; I refer to the value they would have created had they not been tied up in training. Opportunity cost per hour is not a fixed amount. A salesperson’s time during working hours in peak buying season is worth much more than the same individual’s time after closing time in non-peak season. eLearning often enables the employee to shift learning to those non-peak hours.
Payback

Technology-enabled learning creates value by speeding things up. Business-school professors compare making big corporate changes to turning around the Queen Mary. Turn the rudder and in a few miles, the ship changes course. These days, organizations that lack the agility to turn on a dime can only go about as far as the Queen Mary (which is moored in cement alongside a pier in Long Beach, California.)

A Fortune 50 company used eLearning, knowledge management, and collaboration to bring new-hire sales people up to speed in six months instead of fifteen. Nine months x 1400 new hires/year x $5 million quota = $5 billion incremental revenue. To be sure, better products, sales campaigns, and a host of factors contributed to the gain but a tiny faction of $5 billion still yields a significant ROI. (Here are the details: New-hire training at Sun Microsystems.)

Ten thousand consultants at a Fortune 100 technical services company earned professional certifications via eLearning. The result? Less attrition, better esprit de corps, and $100 million revenue/year attributable to higher billing rates.

A software firm launches a new system into a $250 million global market with eLearning and virtual meetings. This accelerates time-to-market by two months, gives them first-mover advantage over a major competitor, builds a more confident and enthusiastic sales force, and gets the channel up to speed at the same time as the direct sales force. Gain? $80 to $100 million incremental revenue.

A very large retailer of personal computers realizes that customers are frustrated with their products because they don’t understand the software that accompanies them. The company offers customers free admission to an online learning community created by SmartForce. More than 100,000 customers sign up to learn Windows, Word, and Office apps online. Value of increased customer loyalty? Conservatively, $20 million in repeat business over three years.

Often an e-Learning initiative pays for itself right off the bat by eliminating travel and facility costs, but that misses the point, because in comparison, upside gains dwarf cost savings.

ROI

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Jack Phillips, Ed Trolley, and Jay Cross Debate ROI in 2000

Jack Phillips, Ed Trolley, and Jay Cross discuss the
ROI of eLearning
. 9/2000

Jay Cross—Internet Time Group

Jay has been passionate
about harnessing technology to improve adult learning since the
1960s. He has managed several software startups and is the former
president of MegaMedia WorldWide. Jay founded Internet Time Group
to help organizations learn. The group provides hands-on advice
on launching new products, building reputation, and accelerating
sales. Reach
Jay at www.meta-time.com.

Jack J. Phillips, Ph.D—The Jack
Phillips Center for Research

As a world-renowned expert on measurement and evaluation, Jack provides consulting services for Fortune 500 companies and is the author or editor of more than 30 books including The Consultant’s Scorecard and HRD
Trends Worldwide: Shared Solutions to Compete in a Global Economy
.
His 27 years of corporate experience in five industries led him
to develop the ROI Process™—a revolutionary process that provides
bottom-line figures and accountability for all types of training
programs.

Edward A. Trolley—The Forum Corporation

Ed, Senior Vice President of The Forum Corporation, spent
26 years with DuPont, where he held line leadership positions in
three different business units before being named Manager of Training
and Education for the multinational corporation. While with DuPont,
Trolley conceived the insourcing alliance concept “Running Training Like a Business.” Since
joining Forum in 1996, Trolley has carried the insourcing concept
to leading global companies, working closely with the human resources

leaders and line managers alike to significantly increase
training’s effectiveness and efficiency.

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Balance that scorecard

Accounting deals with numbers that can be audited. The rub is that the value of American corporations has migrated from tangibles you can see and touch to intangibles such as reputation, intellectual capital, and customer relationships. Twenty-five years ago, intangibles accounted for less than a third of the value of the S&P 500; ten years ago, intangibles had grown to more than 80% of that value.

Organizations that make decisions based solely on things that are sufficiently tangible to be counted might as well consult a Ouija board to set their goals.

Why do corporations plan? It’s to guide the deployment of resources and to tell people what they need to do. The annual goal at a firm I did some assignments for was to increase profitability by 8%. I had only the vaguest notion of what to suggest they do. Verbal descriptions speak to me; percentages do not

This is why Robert Kaplan and David Norton developed the Balanced Scorecard. The Balanced Scorecard divides an organization’s goals into meaningful objectives in several areas. Each Scorecard is customized to fit the organization. The top-level Scorecard cascades down through the sub-levels of the company, providing clear objectives that summarize upward to the overall mission.

Kaplan and Norton have written three very lucid books on their methods. They and others host conferences to explain implementing this approach. But frankly, you don’t want to devote days to the books or conferences until you’ve made a rough-cut assessment about where the Scorecard might work for you

If your organization has been navigating with a faulty compass take a look at the Balanced Scorecard.

ROI

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Training for performance?

The Canadian sales training manager of a major pharmaceutical company told his trainers than henceforth a substantial part of their bonuses would be based on the sales performance of their graduates.

“That’s not fair,” they complained. “We don’t have anything to do with their performance.”

He suggested they think about that one for a while.

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How to Measure the Impact of Informal Learning

“Ah, Jay,” you ask, “but how do you measure it? What’s the ROI? How am I going to sell this to the boss? How do you prove results?”

In brief, you measure the impact of informal learning the same way you measure the impact of any investment in the organization: by its outcomes. Are people able to do their jobs? Are they challenged? Are they working in top form?

Hold your breath a moment, for some of you will choke on this one: ROI and accounting are inappropriate measures of performance. ROI is a relic of the industrial era, when assets were tangible and repetition was the path to success in the factory. Today, the intangible assets you cannot see are far more valuable than those you can.

Google’s market capitalization, what investors think it’s worth, is $157 billion. Google’s fixed assets (cash, securities, receivables, plant, property, and equipment) are carried on the balance sheet at $20 billion. So where’s the missing $137 billion? Intangibles such as reputation, know-how, and customer relationships.

Look at the world through the eyes of a senior executive. What’s better, (1) looking at how you use the fixed assets or (2) increasing shareholder value (even though its components are tough to separate out? ROI assumes training is a cost, not an investment. Whether someone has learned to do their job or not doesn’t show up in the numbers because ROI overlooks the worker’s ability to execute.

This morning, someone asked me how to measure informal learning with an LMS. Another proposed using questionnaires to capture the amount of time people spent on informal learning. Folks, this is like trying to tell time with a thermometer. Any results you get are guaranteed to be worthless.

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Making the Business Case for Informal Learning

First of all, understand that you’re not buying informal learning. It’s already going on in your organization. In fact, three-quarters of the learning on and about how to do one’s job is informal.

The natural learning that occurs outside of classes and workshops is vital but it probably flies under your corporate radar. No manager is accountable; no department is committed to making improvements; there’s no identifiable budget. Hence, one of the most important functions in an organization, keeping up with skills to prosper in the future, is left largely to chance.

Second of all, a persuasive business case focuses on outcomes, not activities. The measure of success or failure is business metrics, not training metrics. The only meaningful way to assess any form of learning is performance. Are workers doing their jobs well? Is their work challenging? Are workers committed to becoming “all they can be?”

Third, since no one has been re-engineering informal learning, or even thinking about it, identifying applications is akin to being the first to enter an orchard that has never been picked. Low-hanging fruit is in abundance.

If whatever informal learning intervention you are proposing doesn’t have such an obvious payback that you can explain the value proposition on the back of a napkin, pick another project.

Don’t get tricked by the word informal. Informal learning is not “do your own thing.” Rather, it often begins with values, goals, and challenges. The workers have more say-so in choosing how to accomplish them, and they are usually more demanding on themselves than you would ever conceive of being.

ROI

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