The trending topic in corporate learning and development (L&D) is around its own accountability and value. Historically, learning professionals have been trying to prove the business value of their efforts. What many learning professionals fail to realize is that stakeholders already know the value of training. But as with any troubled relationship, the underlying issue is typically poor communication.
There’s a communication chasm between L&D professionals and operational stakeholders about what’s required to properly evaluate the impact of learning. From training’s return on investment (ROI) to other relevant metrics for measuring performance, misunderstandings are ripe among learning leaders and decision makers alike.
Each side of the conversation says to the other, “If you only understood us better, you’d get it.” But only one side needs to understand organizational expectations and that’s, wait for it, learning professionals. You heard it right — learning professionals have the responsibility to deliver the results company leaders, and even employees, expect from their learning efforts.
Like any other internal operation, decision makers don’t need, or even want, to know how you do it — they just want to see the results. You never ask McDonald’s how it makes the Big Mac special sauce. You just enjoy a Big Mac, but you’d notice if they left it out. No one in your organization expects you to explain how you’ll address an issue. They just want it solved.
Embrace Being a Cost Center
How do you demonstrate to decision makers tangible business and financial value from your learning initiatives? First, you must understand and respect how these business leaders financially evaluate expectations from training. Evaluating learning initiatives depends on whether it qualifies as a profit, cost or an investment. Depending on which bucket the learning initiative falls under will dictate how its performance is evaluated. This is relevant to how learning’s contribution is valued.
Learning is typically classified as a cost since it’s an operational activity not expected to deliver a (direct) financial return to the business. Don’t take the “cost center” label personally. Every organization has cost centers like production, marketing and even the finance department. None of these cost centers are expected to deliver a financial return like covering actual costs or, even more challenging, delivering a profit. The only operational activities expected to do so are profit or investment centers.
Training and development as a cost center is rarely defined as a financial investment but instead as an operational line expense, in other words, an expense incurred for running the business. This doesn’t mean that stakeholders don’t recognize the value of continuous learning opportunities. However, financially, learning initiatives are accounted for as an expense. This isn’t a reflection of its intrinsic organizational value, but instead how it’s reported for taxation purposes.
Depending on if it’s classified as an expense or an investment will determine how stakeholders measure results. It’s important for you to acknowledge that your learning efforts, more often than not, are considered an expense rather than investment. This doesn’t mean all of your learning efforts aren’t investments. It just means you must recognize when it’s one and how to evaluate its ROI.
Answering the ROI Question
Even though learning is usually classified as an expense, it doesn’t mean you’re off the hook when it comes to evaluating learning as a capital investment. The questions to address are when is learning considered an investment and how will stakeholders evaluate the decision to invest?
First, you must recognize how decision makers classify an expense versus an investment. Both are considered costs an organization incurs but the difference lies within the period in which the expense is made and its contribution toward meeting organizational expectations.
This is also where learning professionals claim the term “investment” is only semantics. But it isn’t. You may say investing in people is an “investment.” Naturally, this is meant to show learning’s qualitative value, however decision makers financially define and calculate an investment with deliberate approaches and requirements.
Major learning requirements (or any major expenditures) are considered a capital investment to decision makers. They will require a financial ROI evaluation (no, not training ROI) to demonstrate long-term operational contribution. Consider this when proposing to purchase any type of learning technology or learning infrastructure requirement.
It’s at this point when some learning professionals can become resistant. A typical rebuttal to their stakeholder’s ROI request is met with, “It’ll help employees perform better, so how can you place a financial value on it?” However, decision makers will and should expect value from your proposal for these two reasons:
- To demonstrate long-term contribution (value) to the organization.
- To achieve organizational objectives.
Now, don’t panic — your stakeholders don’t expect you to come up with the appropriate “ROI” calculation. But they do expect you to partner with those that can, like the finance department or even operational leaders expecting to benefit from your proposal. Your organization might not assume that you possess financial expertise, but they likely expect you to be financially literate and to understand the business impact of training.
This is also where some learning professionals are reluctant to share details due to a misconceived belief that external parties won’t appreciate the underlying learning intent. On the contrary, partnering with finance, working with internal operations and even involving information technology (IT) can further enhance you and your proposal’s credibility.
It’s true, this topic can be quite overwhelming. But you can continue to learn more about making operational financial decisions from the same resources used by your organization’s decision makers.
Just as you expect employees to learn something for their benefit, consider this as a part of your learning and professional development. By furthering your own L&D, you can gain significant benefits including delivering substantive proposals, building your business credibility, becoming a sought-after operational partner and securing the value of what learning can offer the organization and your business leaders.
Your leaders see value in learning. Many even consider it as a competitive advantage. Live up to their expectations. Grow into the valued business partner they expect you to be.