Friday, 7 September 2007

Return on human capital

In Thursday's 'Return on the Individual' webinar, Fitz-Enz explained that since more attention is now being paid to the role of the individual, a key question needs to be, when push comes to shove, and decisions have to be made, how do we make in a way that has a positive impact on the individual as well as on the overall organisation / business?

Fitz-Enz believes that answering this question requires measures of individual performance, so that investments in talent management can be correlated to, and used to predict, company results.

I was pleased to see that Fizt-Enz promoted use of a value chain as the means of doing this, and, despite the title of the webinar, did not push a ROI calculation, which is often seen as the 'holy grail' within this area. However, as I've explained in a previous post, this is increasingly inappropriate as a measure of HCM.

The CIPD seem to have come to the same conclusions in their recent analysis of learning metrics (their analysis of HCM metrics doesn’t seem to have caught up with this) which suggests that making sure L&D fulfils the expectations of learners is much more important than calculating a post-event ROI.

In this week’s People Management, Martyn Sloman, the CIPD’s adviser on learning, training and development, and a former colleague at Ernst & Young, says:

"What we’re seeing is a move away from return on investment, which sees training as a one-off investment, towards a return on expectations. That’s a much more forward-looking measure than simply looking at a training programme after it has taken place and somehow trying to isolate the benefits."

In their Change Agenda on the Value of Learning, the CIPD explain that business managers welcome qualitative as well as quantitative assessments of the value of learning. In fact, four types of valuation (rather than evaluation) may be appropriate depending on senior management's trust in the L&D function, and the extent to which the organisation's agenda is long or short term: learning function efficiency measures; key performance indicators and benchmark measures; return on investment measures and return on expectation measures.

I think the CIPD’s analysis on ROI is very compelling, although worry slightly about their focus on the 'partnership model' which emphasises that ‘value’ should always be defined by the receivers.

This focus comes through in the People Management article as well. It quotes Jimmy Naudi at Christian Aid as explaining that internal trainers should not lose sight of the fact that they were still operating in a customer-seller relationship:

"The bottom line is that if you cannot demonstrate that you are providing an efficient and effective service, your organisation can choose to go elsewhere. One of the key things I try to encourage my people to think about is, if the organisation had the ability to choose between our learning and development function or taking their business elsewhere, who would they choose?"

I know it's not a commonly held view, but I think HR / L&D needs to be a bit more assertive than this - there is danger in simply accepting existing expectations as a basis for deciding on an approach to evaluation. OK, this may be a step forward from L&D simply assuming that it knows what the organisation requires, but I don't think it's the ideal situation either.

Just because managers ask for a ROI doesn’t mean that it’s necessarily the right thing to do to provide it. So, in the CIPD’s forthcoming Research into Practice report on the Value for Learning, I state:

"Learning and development should not be just an order taker…We should be influencing business leaders’ expectations. Many managers may not even understand that they need development or what sort of development should be provided, never mind how it should be evaluated. So even if an organisation employs that rare breed of manager who actually want to see an ROI calculation, learning and development needs to decide whether it should accept or challenge the situation."

The development of an appropriate approach to measurement should be part of the development of an HCM strategy itself. HR should be careful not to be boxed in by existing expectations of the business about the contribution people can make to this business, or that HR can deliver, or about how this contribution / delivery should be measured.