Monday, 16 May 2011

What's the ROI on ROI?

A few weeks ago I participated in a panel discussion arranged by the network Swedish Learning Association. The subject for the discussion was Competence Development and we who was in the panel came from two furniture dealer companies from Sweden, IKEA and Kinnarps. It was really interesting to learn from another company working in the same field.

But what really caught my interest was a discussion that started way too close to the end of the gathering. One participant started asking us questions about how we proved that our competence development initiatives were successful. Did we prove it with showing the ROI? My response was that I have never calculated ROI in my life. But the participant wasn't happy with that answer, because how can I prove the right for an L&D department, if I don't show the management that they get something for the money they invest.

On the way home I reflected on my views on ROI and came to some conclusions. So here they are:


1. I hate economics. Every time people start talking about investments, ROI, budgets etc. I start to sweat. I don't know why, but that's how it is. So is this making me deny ROI simply because I have a fear of these kinds of things? No I don't think so. Because I also realised this:

2. I have actually never been asked to prove mine or the L&D departments right to exist in any company I have worked for. Why is that? Is it that the I am possessing some cool stealth equipment and simply managed to keep myself below the company radar? No I honestly don't think so. I think the companies I have worked for has seen the need for learning and development within their company. I mean, any profit driven company will close down departments that they don't see the need for. Now I think I am on to something:

3. In my profession, working with learning and competence development one thing is crucial as I see it. Working as close as possible to the business, preferably as an equal partner. By that I mean that I don't come up with suggestions for learning initiatives on my own. I do it together with the business. Together we start with identifying the needs the business has and if the need can be fixed with the help of learning I find the best solution to their problem. This means that I suggest a solution to a problem the business themselves have identified. By doing this there is no need to prove ROI. It's enough to show that what we wanted to change has been changed. If I would be asked for ROI on my job I would consider it a failure for me, since to me that shows that I have come up with a solution to a problem the business don't see as partculary important. Think of it like this: if a car sales man knocked on your door and suggested that you should buy a new car from him. Wouldn't you start to question this? Wouldn't you ask why he suggested this? And wouldn't you ask for some ROI? But what if you turned to a car dealer and together with the sales man started to discuss your needs and desires for a new car. After long discussions he suggests a car that fulfills your needs. Would you then start to question him? Would you ask for prove of ROI? Probably not, because you have a problem that he can fix for you and that is enough proof.

4. To prove ROI is a complex task that takes a lot of time and require both manpower and money to be successful. So as I stated in the title: what's the ROI of ROI? Is it really worth spending all that time and resources? Wouldn't it be better to focus on fixing a critical business problem?

Maybe I am naive, but I just can't understand the thing with ROI. And to be honest I still haven't met anyone who has been able to prove me wrong or even show me how they have calculated the ROI on a learning investment. And maybe more important, what they have gained from doing so.

So is anyone out there ready to prove me wrong? I am really, honestly looking forward to it, because I don't mind being proved wrong and I love to learn new things.

Thanks for taking the time,
/Mattias

5 comments:

  1. I think individuals who are being asked to prove the ROI on their activities are perhaps those that are in a failing organization and perhaps one that's grasping at straws to figure out how to improve their financial picture.

    A responsible manager should have enough contact with the work he or she manages that a measure of ROI is meaningless. It's also probably a huge compliment to your work that you are not asked to demonstrate the ROI of your work: Clearly, your colleagues experience and observe the impact of your work on an ongoing basis!

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  2. Hi Kelly,

    Thanks for the reply. I agree with you in many ways. I also think that the reason why some people are asked for ROI is that they work in departments (often HR, if I dare say so) that sit far away from the actual business. So when they propose something the business reacts in a negative way simply because they don't feel it is connected to their needs.

    I strongly believe that by working in close co-operation with the business there is no need for them to ask for ROI.

    Once again, thans for the response!

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  3. Hej Mattias,

    I think ROI can be valid if it's connected to the business objectives for the learning/performance intervention. Ie if the business goal is increased upselling then a reasonable expectation is that sales staff use techniques learnt to find other products of value to a custome, and that a quantifiable increase in income is achieved. Compare that to development and delivery costs and voila! ROI :)

    Most projects aren't like that though. Business and performance objectives may be soft (intangible) or missing altogether. In which case ROI is an artificial measure without meaning.

    I do think we should be able to demonstrate real business value in anything we do, but that that can take many forms. We should at least plan to be able to measure. If then the people that own the yardstick don't bother to measure - that's another matter.

    /David

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  4. Hi David,

    Thanks for dropping by and taking the time to comment.

    I absolutely agree with you that we should be able to show business value of the learning interventions. The problem with doing so is that there are so many factors that influence the business, learning is just one factor. The risk with showing ROI on a learning intervention is that you see learning as an isolated event instead of lokking at it as part of a context.

    I tink the business itself must be responsible for measuring the business. If sales have gone up and the co-workers have changed the ways of working according to our expectation, then that should be enough. There is no point in doiong a calculation like you propose since we know that the answer is really no the truth. There are just too many other factors that influence the business (world economics, competitor offers, weather, commercial drives, reduced price and so on). Sure you would show a great ROI figure but is it really worth anything?

    Say you were working with L&D for a jewelry retailer and you launched a new sales training right when the big recesion made sales drop like a stone. If you would then do a calculation of ROI I guess you could start looking for a new job.

    Of course this example is extreme, but I just wanted to show that doing the kind of calculation yoi suggest doesn't give the full picture.

    Maybe I am completely wrong about this, I am just trying to understand of ROI is of any importance at all, and if so how do you actually do it?

    Thanks again and I hope I wasn't too hard in ts comment .
    /Mattias

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  5. I share the same experience. I have never really been involved in conducting a proper ROI although I have worked in dozens and dozens of training projects. Having said that, some projects have been evaluated according to a set of KPI (Key Performance Indicators). I remember one project especially well since it measured rate of change. In this I got data which represented the behavior of abandoning the old, safe and familiar IT system tool for the new tool. I also remember the top management commenting some like "We don't really need a ROI - the fact that we manage to complete the migration in 2 months instead of two years is all I need to proclaim a total success".

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