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Leadership
Time out need not be time wasted: The real value of executive learning
IMD’s Johanna Leppävirta shares a framework for measuring the impact of learning.
One of your company’s executives leaves a three-day intensive training program feeling empowered and full of new ideas to try when they get back to the office. They’ve bookmarked the training resources for future reference, suggesting that the program has given them a framework for personal growth. But fast-forward a few months, and the budget-holder is left wondering whether the learning has really had an impact or is now just a distant memory. Most CHROs have no clear idea of how to assess the value of a training exercise, let alone demonstrate it.
Calling out the ROI blind spots
With a swathe of new technologies changing working processes and systems, businesses are investing billions in learning and education in an attempt to bring their workforces up to speed. Recent studies predict these investments will triple in the coming decade. According to research from the ROI Institute, most organizations surveyed (94%) are keen to evaluate the impact of learning investment, but only 4% are actively attempting to capture the ROI of learning initiatives.
Organizations tend to have no trouble tracking initial learning outcomes, such as program attendance or interaction with materials. But when it comes to understanding the influence these programs have on business performance – be it decision-making, productivity, collaboration across the workforce, or customer loyalty metrics – they begin to struggle.
If the CEO doesn’t ask for ROI visibility, the CHRO can get complacent. For a number of reasons, this lack of visibility is problematic. First, it’s unclear whether the time spent on the program was worth the time lost from that executive’s day job. Second, with persistent financial headwinds, CHROs will find it increasingly challenging to justify the training budget. Then comes a C-suite reshuffle. The new CEO questions the amount allocated to leadership development programs. Suddenly, the CHRO is scrambling to find evidence to justify continued investment.
Sustaining value visibility is good practice to protect and enhance buy-in for future initiatives.
There are also professional advantages for CHROs: the ability to demonstrate ROI will enhance their influence and reputation as a strategically integral member of the business.
Quantifying the value of learning
IMD has created a guide to capturing the business impact of executive education. It comprises a four-step process that draws on the industry gold standard ROI Methodology® framework created by the ROI Institute and can be applied to any learning program.
Step 1: Planning the evaluation
Companies sometimes criticize business schools that offer programs based on lofty promises of transformation. This high-flown opacity makes it difficult for CHROs to demonstrate ROI in financial terms. If the CHRO applies an ROI metric framework from the planning phase, their ultimate task of demonstrating value becomes much easier.
One of the first questions to ask is: which business problem, need or objective is this initiative targeting? This ensures there is a real motive for the initiative and lays a foundation for measuring cause and effect. After confirming the desired business objective, it’s about identifying the leadership behaviors and skills the business needs to gain from the learning initiative. A gap analysis should prove helpful here.
Your employees will help you aim at the right targets. At IMD, we ask every course participant to define a business improvement target or “performance agreement” that they’re going to work toward throughout the program.
Line managers must sign off on the performance agreement of everyone in their teams, ensuring targets are measurable, achievable, and aligned with business goals. This sets a baseline for measuring the program’s impact and instills responsibility in the participant for working toward a specific (rather than vague and intangible) objective.
These performance agreements proved beneficial when a very cost-conscious Southeast Asian automotive company wanted assurance that it would see strong ROI from sending 25 senior business leaders to one of our courses. Each leader oversaw different market areas, and so had different business improvement metrics, whether to grow margins, reduce idle inventory, or optimize tax planning. In their performance agreements, they had to identify how their chosen metric was linked to one of the three main strategic company targets.
Through the learning program, the executives focused on their respective objectives. Then, in our ROI analysis, we referred to the original performance agreements and calculated that, since the learning initiative launched, the automotive company generated business improvements that yielded a 3x return. This convinced budget-holders that we could provide an impactful program.
Before the program takes place, you should know which data sources will be used to evidence impact on the agreed business objectives.
Step 2: Drawing up a data collection plan
Before the program takes place, you should know which data sources will be used to evidence impact on the agreed business objectives. At this stage, leaders should agree on factors such as which data will be used and how it will be collected, with what frequency and over which timeframe.
CHROs should then look to evidence the various input costs (attendance fees, materials, travel expenses, etc.) and the cost to the business of time taken out of regular work. Regarding which output data points to consider, CHROs should include the employee-retention benefits of offering learning programs. Employees will appreciate their employer offering opportunities and investing in them as individuals, building engagement and loyalty. As such, it can be considered a cost-avoidance measure, reducing churn of top-end executives.
This information can be collected anecdotally via interviews. Surveys can ask participants: To what extent has being included in this program influenced your decision to stay at the company? Answer options should range from 0% to 100%. To calculate the monetary value, multiply this percentage by the cost of employee turnover.
When we calculated the employee retention benefits the automotive company achieved from attending the IMD learning program, the overall ROI more than doubled, rising from 3.0x to 7.5x.
While it’s important to target specific business metrics, that’s just the beginning of your ROI investigations.
Step 3: Analyzing the data
While it’s important to target specific business metrics, that’s just the beginning of your ROI investigations. A crucial step is to isolate the outcomes of the program. At IMD, we routinely ask participants for their candid assessment of the impact of the learning program and look for any operational metric results as quantitative evidence to support or challenge their assertions.
To isolate the program’s impact, we encourage participants to estimate the extent to which improvements can be attributed to the learning program. We prompt them to consider other variables, such as other initiatives running concurrently, that may have also contributed to improvement. These observations are helpful contextual information to give to stakeholders when presenting ROI projections.
It is also vital to calculate as precisely as possible the monetary value of improvements in employee engagement, retention, and related outcomes, and offset these against the financial cost of sending attendees. This financial equation will demonstrate the objective value of the learning program to be presented alongside the more intangible benefits of attendance, such as well-being, psychological safety, and workplace culture improvements.
Quantifying the value of a learning program can help leaders address the root causes of issues holding back their workforce.
Step 4: Continuous optimization
Quantifying the value of a learning program can help leaders address the root causes of issues holding back their workforce. For example, it may identify that communication training for managers helped reduce absenteeism by 2.5 percentage points and delivered an ROI of over 300%.
Following on from this, managers could identify themes that recur in conversations with employees and use these learnings to inspire proactive measures to improve employee well-being. ROI calculations can also help identify further opportunities for value creation, such as rolling out a particular training program to other areas of the business.
As well as arming HR leaders with the evidence to justify the time and money invested in learning initiatives, the IMD guide empowers CHROs with the strategic intelligence to identify areas of opportunity and develop strategies that can be used to the business’s competitive advantage.
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