Learning and development (L&D) practitioners dread the moment internal stakeholders ask them to build a business case for learning efforts. Learning leaders often respond by asking, “Why? This is not my responsibility.” More frequently, they may wonder, “How do I even address this concern?”
Fundamentally, learning accountability and stakeholder support is about clear communication. Communicating intent, however, requires speaking in a language stakeholders respect and recognize. Using your own interpretation and methodologies will not gain stakeholder favor, and it will guarantee you to lose credibility.
Effective communication is about business and financial literacy. This requires the learning function to accept it is a business function expected to deliver business results. Embracing this fact allows learning leaders to develop robust and valued learning efforts.
This is not to say you need to become a business expert. Rather, business credibility and stakeholder accountability are about literacy. There are four business accountability aspects to consider to gain support for your learning initiatives, including discerning between cost and profit centers, differentiating expenses and investments, fostering business growth, and improving performance. Let’s take a deeper look at each one.
- Discerning Between Cost and Profit Centers
Practitioners constantly debate between cost and profit centers. The difference is about delineating financial accountability and performance. Practitioners are discouraged when stakeholders refer to learning as a cost to the business. It implies a negative connotation as the anthesis of profit. Unfortunately, this myth is further reinforced when stakeholders focus on reducing costs for key business decisions.
A cost center is a business unit that incurs expenses but does not generate revenue. Learning is a classic cost center example along with accounting, marketing, human resources, production, and information technology (IT) departments.
When stakeholders refer to you as a cost, they are not disparaging your efforts. They are categorizing financial accountability based on how budget is allocated. It is about accurately measuring financial performance following specific accounting guidelines.
Stakeholders evaluate performance by how the learning function manages their budget. Practitioners instinctively believe they must reduce costs to improve performance. This is inaccurate and can lead to declined performance. Stakeholders are actually evaluating how well you’re using money to positively affect performance. This is what stakeholders call a cost-benefit relationship.
Alternatively, a profit center incurs costs to drive revenue. Profit center managers are evaluated on how well they manage costs to maximize revenue.
Embrace being a cost center, and show how you use money to create learning performance value. Second, the profit center, your client, pays for the costs of your learning solution. Prove to them your learning cost will deliver value.
- Differentiate Between Expense and Investments
Practitioners also misapply expense and investment when developing business cases. Stakeholders make relevant distinctions between the two when approving learning initiatives, specifically when it involves technology.
Practitioners often consider expenses negative and investments as value adding. Stakeholders see either one as adding value. Both, in theory, are expected costs to the organization, so – if you are to propose training in either context – then initiatives should demonstrate potential value.
The difference is mostly about financial accountability and performance. Training is meant to develop employees during the time it occurs. A training expense is intangible since employee knowledge is not proprietary to the organization and can walk out of the door at any time. Decision-makers recognize training is about improving employee performance, so training is successful only when it proves value for its initial expense. This is the precarious variable training practitioners fail to demonstrate.
Investment, or capital investment, is a cost for a long-term growth strategy. By definition, capital investments are typically tangible items meant to increase operational capacity, capture a larger share of the market and generate more revenue for the organization. For learning, capital investments are typically infrastructure requirements – everything from actual classrooms to learning technology.
Casually implying learning is an investment is factually inaccurate and misleading. Stakeholders apply precise return on investment (ROI) evaluation methodologies to determine how these long-term costs add value for the organization. This is not the misleading training ROI business leaders will never accept or acknowledge.
There are two aspects of evaluating return on learning costs: the expenses within an organizational capital investment and the return on investment. Learning cost is one of many costs included when evaluating an organization’s capital investments. Without affecting the integrity and value of the investment, stakeholders attempt to reduce costs as much as possible. They will certainly ask you to find ways to lower costs. Do so without affecting the overall value of the investment but also have the courage to say when reductions may have adverse effects.
This mindset also applies for your learning infrastructure needs. Learning is a complex and capital-intensive activity requiring significant investments in technology. Trying to convince decision-makers to purchase the latest and greatest library of eLearning courses or learning management system (LMS) is out of the question if you don’t demonstrate long-term organizational value. Build a proper capital investment case by working with your finance and IT departments prior to presenting a learning need to stakeholders.
- Fostering Business Growth
Operational support activities, such as learning, must enable primary profit-center activities. Proposing costs must not adversely impact the profit-center analysis.
Break-even occurs when profit-center activities exceed costs and start earning profit. More than just compiling total costs, stakeholders compare the relationship between earned revenue and incurred costs with product and service volume activity. Increased or new fixed costs should lead to more volume activity leading to increased revenue.
Typically, learning initiatives are additional fixed costs to the profit center. This implies that additional training costs should, albeit indirectly, contribute to increasing profitability.
Practitioners misleadingly believe proving value for learning efforts is about covering costs or demonstrating a direct correlation to profitability. For stakeholders, it is not about covering cost. It is about how additional learning costs affect primary business profitability.Operational leaders must maintain or improve organizational contribution margin (CM). The CM represents the company’s business profit before deducting fixed costs. Since learning is a fixed cost, stakeholders want to know what the incremental revenue will be to cover total fixed costs.
Account for all learning costs, especially for any learning technology or infrastructure requirements. Before suggesting buying more technology, evaluate existing organizational resources and only consider acquiring what will add long-term organizational value. Then, proactively work with the operational area requiring your support. Afterall, they fund your learning costs and are under tremendous pressure to improve profitability.
- Improving Performance, Not Profit
Stakeholders do not expect any operational support function to demonstrate profitability, but they expect it to demonstrate value. Learning practitioners must demonstrate how training can deliver tangible results. By identifying key performance indicators (KPIs) and investigating how they relate to employee roles, learning leaders can communicate value.
Performance improvement is what stakeholders expect. They explicitly develop a performance framework focusing on operational activities and strategic expectations. This performance framework is a business methodology, not a learning tool. The framework offers answers to target learning interventions. You simply need to ask the right people the right questions to help achieve key performance metrics.
Begin by identifying the organizations’ strategic objectives. Second, identify operational value chain activities directly contributing to strategic expectations. Next, investigate interdependencies among activities through your organization’s performance framework, and conduct a needs assessment to identify potential learning opportunities. Finally, map these learning opportunities back to the primary activities’ existing KPIs.
Practitioners are unable to accept that stakeholders value organizational learning. The issue is about business and operational accountability; it is not about reducing costs or proving profitability. Learning accountability is about embracing learning’s business role and positioning efforts as value adding. Develop relationships with value-chain operational leaders and focus on performance results. Start now to develop tangible performance solutions that resolve and support operational concerns and contribute directly to strategic value creation. Doing so will allow you to demonstrate lasting organizational impact.