Getting an ROI from Leadership Training: Is it even possible?

Episode #213 Getting an ROI from Leadership Training: Is it even possible?

During my corporate career, I saw a frustratingly large amount of money squandered on training that returned little benefit either for the individual or for the organization. That’s why our driving philosophy at Your CEO Mentor is to deliver value. Em and I are absolutely fanatical about ensuring that any training an individual or company invests in – with our business at least – yields a measurable return on investment. But, everyone has a different learning style, and everyone applies those learnings in different ways, which sometimes makes it hard to track the value of the desired outcomes. There are often as many intangible benefits as there are tangible benefits.

One of the most important functions of leadership is to build capability in your team. There are many reasons for this – not least of which is that if your team is to be fully capable of doing their jobs, they need to have the essential skills that are required to perform successfully. They need to be learning and growing all the time so that they can approach some level of mastery, grow into larger roles, better performance and high levels of leadership. So it’s important to make sure that the value from any training isn’t lost in the weeks, months, and years after it’s been undertaken.

THE TWO TYPES OF TRAINING

It’s easier to explore this topic by making a fundamental distinction that separates training into two broad categories:

1. Mandatory training that imparts the skills and knowledge required by your people to do their jobs.

2. Discretionary training that’s designed for the overall development and growth of an individual.

The skills piece is not negotiable if you want people to perform adequately. It’s akin to having a driver’s license: you can’t drive a car unless you’ve learned the road rules, undertaken a number of supervised driving hours, and passed a test to prove that you are competent in both the theory and the practise of driving.

In a professional sense – apart from any entry level qualification that people need in order to be hired, such as a veterinary science degree or a law degree – you need to make sure that no one is expected to do anything on the job that they don’t have the skills to do. For example:

• An electrician might need to have studied (and been certified as competent to work on) high voltage equipment.

• A coder needs to be trained in the fundamentals of the programming language that the company requires them to use to develop software.

• An accountant may have to be trained on a finance system like SAP or Oracle that the company uses to store financial transactions and produce reports.

This stuff is not negotiable, and return on investment isn’t really something you tend to measure. You have to make the investment to ensure that everyone can do the job you’re paying them to do.

Discretionary training falls in the broad category of professional development, rather than essential skills and qualifications.

BUILDING THE FOUNDATIONS FOR RETURN ON INVESTMENT

A couple of years ago, Forbes magazine reported that organizations globally spend almost $400 billion every year on leadership development – and that’s just the financial cost. It doesn’t even consider the disruption to organizations when key people are out of their roles while they undertake the training. It would appear, from casual observation, that this is not time and money well spent. 

For example, if you were looking purely at the financial stuff, and you were looking for a minimum return on investment for this to make sense, at a company’s weighted average cost of capital, that would imply that this training spend generates around $450 billion of lifetime value, compounding every year. I expect that we are collectively far from that number…

So, the question then becomes, why do it at all? If we don’t think this type of training creates real value, what’s the point? I guess part of it is that it’s expected – we feel as though it’s something we ought to do because it’s the right thing. And anyway, if you throw enough mud against the wall, some of it’s bound to stick, right?

The first obvious barrier to ROI is having the mindset that the training itself is sufficient – it’s not. In a previous article about the types of training options available, I mentioned the 70-20-10 methodology of adult learning:

• 70% of the learning comes through on the job assignments and experience that you gain

• 20% is from the interactions with those around you, especially the mentoring and coaching you receive from your boss and others who may have already walked the path.

• The final 10% is from formalized training.

It’s really worth bearing this in mind when you think about the context for any training. If the formal learning component is only 10%, then arguably it’s only the appetizer to the true implementation of the learning, and your ability to leverage any new capability that you might acquire. In order to get value from the training, it needs to go beyond the 10%.

When you send your people on any training program, it’s important that you do two things:

1. Make sure you are interested and involved in the formal process of training, and that you assist the trainee (for want of a better word) with interpretation and application of the new learnings. That’s part of the 20%.

2. Make sure that the person being trained has the opportunity to apply their new learnings in their day to day work, which is part of the 70%.

If you can do this, you are much more likely to be in a position to capture any potential return on investment.

Interestingly, the investment we are making, and trying to get the return on, is focused purely on the 10%, but to reap the benefits we need to work in the 20% and the 70% as well. And this isn’t really different from any other investment in business.

For example, you might outlay a large amount of capital to build an asset like a new factory or an e-commerce platform, but getting an ROI on that asset can go on for years after the asset’s actually been built. It can involve a lot of people, a lot of planning, and some ongoing investment.

There are some other obvious impediments to getting a return:

1. Not having any measurable targets set prior to the training 

Like any good research study, there has to be a defined outcome before the commencement of the trial so that you can see what happens independently from your investment in leadership training. What would you measure?

Often, it can take months or even years to see a real difference in the lag indicators, like increased profitability or a reduction in the number of injuries to your people. But that doesn’t mean you can’t set the targets up front. You can measure a reduction in undesirable staff turnover, or an increase in the percentage of people at full performance or higher, or a lifting of  the climate factors that drive your culture.

I’ve seen company-wide leadership development initiatives where the only measure of success was the number of leaders trained (with the target being 90% of the company’s non-executive leaders). This proves nothing, it delivers nothing, and it returns nothing. You’ll never know if you achieved an ROI because you didn’t measure anything useful.

2. The one-size-fits-all bulk training exercise 

In Australia, we call this “sheep dipping”: everyone goes through the same training, just like a flock of sheep going through the sheep dip, regardless of their current leadership level, experience, or development needs.

This type of training is much less likely to give you a decent return on investment because it’s not targeting the specific needs of the individuals. Now, this is great if you’re just training your people to get them on the same page – think things like emergency evacuation procedures – but it’s not so great if you’re trying to build capability in individuals based on their specific needs. And, like many areas of leadership, individual differentiation is a prerequisite to successful performance.

PLAN AND EXECUTE THE BENEFITS RECOVERY PROCESS FOR ANY TRAINING