Tag Archives: ROI

A phenomenal shift in HR and L&D performance is coming

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Are you behind or ahead of the professional curve?

One of the earliest posts in this series laid down a fundamental tenet of evidence-based management (EBM) – the bell curve – and the need to show an improvement in performance. To justify our salaries HR and L&D professionals have to produce evidence that our work produces a positive shift in the performance curve of the human resource.  It should also be obvious, to any HR or L&D readers, that they themselves are already inhabitants of the bell curve for the entire profession.  Unfortunately the current version of that curve is a phenomenon, an aberration – it is in negative territory (see the curve on the left in the above chart).

The simplest employee performance curve – say from 1 to 10 with goalposts placed at 3 and 8 – will not normally have a minus scale because anyone performing that badly would have been fired.  Yes, we all know executives who seem to be exceptions to that rule but, leaving aside the issue of management failures, performance curves usually start on the right side of zero. In HR and L&D we should expect any practitioner to be getting no lower than the minimum acceptable score of 4 and this is exactly how we should be viewing SHRM’s current efforts. ASTD do not seem to be following SHRM’s lead and the CIPD is still looking for insights.  However, if we ever do set internationally recognised standards we will eventually start to see a normal curve form; as long as the standards are enforced.

In the absence of any international standards the only other standard that can be set is the simple question – where is your evidence?  Anyone in HR and L&D that does not have evidence of the performance benefits they bring to the organisation is, by definition, producing a negative ROI – their costs outweigh their benefits.  Measurement is the key to professionalism so the sooner we have some credible standards, against which HR and L&D professionals can be measured, the better.  SHRM’s first attempts at standards are misguided and wide of the mark because they are not measuring value and ASTD, who should know better, does not know how to evaluate, despite teaching every single one of its members that evaluation is a necessary and absolutely integral part of the learning cycle.

It is a strange phenomenon indeed that a global profession should still be searching for a solid foundation; so it will take an equally phenomenal shift in thinking if we are to put this situation right before our paymasters find us out.

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The Rise and Fall of America’s management ‘empire’.

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There are many, many things that I have come to admire about the ‘American Way’ over the years but human capital management isn’t one of them (nor the subtlety of their automotive designs).

Having experienced, at first hand, the style of people management methods amongst some of the biggest American corporations (Exxon, Ford, GE, GM, IBM, Microsoft, Oracle, Texaco) it always struck me that any success they achieved was in spite of, rather than because of, their people management.  The evidence to support this view has been growing steadily over the years (and is presented throughout this series) but to get to the heart of what is wrong in American management one only has to look at America’s inability to learn from its own mistakes.

This is most clearly manifest within the very institution that should be promoting learning – the ASTD (American Society for Training & Development) – which always based evaluation of learning on a poorly designed model from 1959 – Kirkpatrick’s 4 levels.  When the design flaws apparent in this model were exposed, during the TQM revolution of the 1980’s, what did ASTD do?  Instead of admitting they had failed, and returning to the drawing board, they moved into hyper-over-engineering  mode and bolted on another superfluous ‘tailfin’* (Jack Phillips’ fatuous ‘level 5’) in the hope that the new look might deceive corporations enough for them to continue employing their members.

So far, American management has fallen for it.  That does not worry me unduly and should please managers from competing countries.  No, what really concerns me is that the ASTD is now trying to force perfectly sensible learning and development people, from around the world, into following its asinine lead. You don’t need to be a historian to realise that all empires go through a natural, rise-and-fall cycle and there is a now a big question mark over the West’s future but is this just another tell-tale sign of it entering its descendency phase.  By the way, the word ‘descendency’ does not appear in either American or English dictionaries.

It is equally well documented that the grieving process tends to follow five phases of denial, anger, bargaining, depression and, finally, acceptance.  So you might think that the US is already well into the bargaining phase; as evidenced by its internal, political wrangling over its inability to tackle its huge debt, but actually America is still firmly in denial. They are still trying to convince themselves and the world that HCM is something they are actually quite good at.  This is why, if you want the ASTD’s blessing, you will have to attend one of Phillips’ garage workshops on how to add an enormous and costly tailfin to your ‘Mini’ (or whatever model you drive).  It might look ridiculous and not fit very well but you’re stuck with it because it only comes in one size – ROI.

You would be forgiven for thinking that, as a Brit, I am being partisan here if it were not for the fact that I am the first to admit that we are no better at HCM in the UK.  We might take a less ostentatious, more thoughtful, approach but thoughts don’t amount to a hill of beans.  To experience minds that are completely open to new ways of addressing the human dimension of large corporations (and Governments) you need to travel much further East; to a very different, underlying philosophy.  We have been here once before, when the Japanese taught the West a few lessons about how to manufacture efficiently, but there was always so much more that we needed to learn – not least of which was some humility.

When I teach in the East** myself I know they don’t have all the answers either but their great strength is that, unlike the Americans, they don’t try to pretend that they do – and neither do I.  Empires that are built on hubris crash and burn for the very same reason.  When you have believed that you are the best for so long you tend to breed people who either believe their own hype or, worse still, are too frightened to challenge it – why do you think Hitler employed Goebbels?  When hype trumps reality learning ceases and the problems really start.

I still think early reports of the West’s demise are, in the words of one wise American – Mark Twain – greatly exaggerated, but my own prediction would be that the next, most sustainable, management empire is likely to be founded on clear evidence that management is learning to best serve society – not some ugly tailfin.

*Many other evaluation models have emanated from the US over the last 30 years or so – all of them adding unnecessary paraphernalia and gadgets rather than focusing on super-charging the engine.

**Beyond Evaluation & ROI

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All you need to know about training evaluation in about 700 words

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When asked by the editor for a title for my CIPD book on evaluation I suggested – ‘The Last Word on Evaluation’ – not out of arrogance but because the mountain of literature and endless debate around the subject had never reached a conclusion.  Evaluation is essentially a simple subject made unnecessarily complicated by vested interests. Probably the biggest and most influential vested interest is the American Society for Training and Development (ASTD) who, whenever they tried to offer their members advice on this thorny subject, managed to get it so completely and so obviously wrong.

From the 1970’s the ASTD regarded Kirkpatrick’s 4-Levels as their standard:

  1. Reaction to training (happy or smile sheets)
  2. Testing learning
  3. Applying learning in the workplace
  4. Business impact

Let’s try this out by thinking of one salesperson going on a sales training course at a cost of $1000. When they return you take them through the 4 levels, starting with how they felt about the course…  – WRONG.  That way you end up at Level 4 with no way of assessing impact.

Let’s start again. Before you send them on the course you ask them how much they sell now ($1.2 million) and what the profit margin is (10%)?  Then afterwards, when you get to Level 4, you can ask again how much they are selling and you have a basis for gauging impact. The critical, pre-learning questions form the BASELINE and produce the simplest, most obvious and effective evaluation model with just 2 levels:

  1. Baseline evidence
  2. Business impact measured against the baseline data

- but you will quickly find in practice that this 1st, Baseline level will usually suffice because it is this one that adds all the value in what is now an enhanced, learning process. Individual learning starts when each individual knows their own Baseline.

The 4-Levels never captured this so, just as corporations started asking what the financial return (ROI) was on their training investment, Kirkpatrick’s obsolescence was becoming apparent.  So the ASTD decided to back a different horse in the 1990’s, but could not admit Kirkpatrick* was wrong, so adopted Jack Phillips’ model which just added another level – level 5 for the ROI calculation – which also made it look like an innovation – WRONG again.

Let’s go back to the beginning. You ask the sales trainee the BASELINE questions. You do the training and then at Level 4 you get an answer as to how much sales have increased (1%) and you know the cost ($1000) so you can do the net ROI calculation immediately – it’s 20%. There is no need for any level 5 – it doesn’t add anything and anyone with a calculator can work it out.  Under Phillips though you have to spend even more time and money making the numbers up and converting to $ because he doesn’t establish the relevant $ sign at the beginning.  Level 5 was always a figment of the ASTD’s collective imagination and that’s why the figures Phillips produced never convinced anyone who had a business head on their shoulders.

So the ASTD decided it needed more credibility and drafted in a labour economist  – Laurie Bassi – in a vain attempt to garner a more academic and quasi-scientific level of respectability.  Laurie tried to show the business impact from the billions of $’s ASTD members were spending on training.  Laurie did not know any more about evaluation than her predecessors though and, as an academic, used the only analytical tools she had, regression analysis to produce correlations, using retrospective data.  I guess she also did not have the benefit of first-hand experience of what it feels like to work in a training department in a large corporation; where trainers are often under pressure from managers to produce all sorts of stupid, knee-jerk programmes to cover up their deficiencies in people management and development.  Laurie is now heading up efforts to establish international standards by the other large American professional body, SHRM ( the Society for HRM) and the ASTD still makes it mandatory for anyone wanting to be their ‘partner’ to attend a Jack Phillips training programme.

Forty years should have been long enough for the Americans to get it right but so far, despite being an SBO (statement of the bleeding obvious), no ‘expert’ in the US has ever fully understood or acknowledged the crucial importance of the BASELINE level in evaluation and learning; whether it be sales training, management development, leadership or OD.  Starting with a Baseline makes learning evidence-based, it is a perfect application of evidence-based management.  Now, if you are looking for an indication of which corporations waste the most money on ‘training’ just ask them which model they use and where they start from.

For personal development linked to this topic visit the Consummate Professional Series or attend a workshop.

* The Kirkpatricks still refer to their model as ‘the 4-levels’, although son Jim now tries to make up for the absence of ROI with something called ROE (return on expectations).  This is intended as a sort of ROI-lite, except ‘expectations’ are not necessarily couched in $ terms and no ‘return’ can actually be calculated because ROE is not a mathematical or financial formula.  In short, ROE can mean whatever you want it to mean.


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Is there any ROI in ‘learning’ technology?

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How times have changed – or maybe not? Having just spoken at the CIPD’s ‘HRD 2011’ on the topic of ‘How accurate and necessary is ROI for L&D?’ (based on my CIPD book) I was trying to compare it to my last big CIPD conference session (Scottish 2006), entitled “The ROI from Human Capital”, when I suddenly realised I had been typecast.

So what has changed?  Well obviously not the subject matter – no I was thinking more along the lines of the application of technology to individual and organisational learning.  For a start, this was the first conference I have ever spoken at where apparently my every utterance was being tweeted, every couple of minutes, such as -

“The purpose of evaluation is to establish evidence that your organisation is creating value by learning.” (11.41 precisely)

- and I ask myself, is this where the technology was meant to take us?  Is this what the great technological revolution was all about?  All the organisations I know, who have been relentlessly moving towards something they call ‘e-learning’, is this what they had in mind – twittering?  Is the great white hope of social media the answer to anything?

If you do follow tweeters what were you supposed to make of these disconnected, 140-character snippets?  If you look at Lesson 7 I will at least provide one practical lesson that you can take away and use.  Then when you get stuck – comment here, drop me a line, call, or email and I will offer a possible answer to your question.  Now, out of all of that activity, which bit did the technology help with?  It can certainly disseminate data faster to more people.  What it doesn’t seem able to do is offer an answer to the most difficult problems in individual and organisational learning – how we discriminate between what is worth knowing, and what isn’t, and then how we manage to apply what we have learned in a human organisation that doesn’t necessarily want to learn.

Of the 140+ people, who crammed themselves into the seminar room on Wednesday, I wonder what they learned from my session? More importantly, if they learned anything at all, how have they applied it?  What I hope they took away was this (my first slide – tweeted at 11.25 precisely) -

“ROI doesn’t have to be accurate and isn’t always necessary”

This was not only a straight answer to a straight question but one I could only offer, with absolute confidence and 20 years experience, because I know ROI isn’t the main issue here.  The main issue in learning is human relationships.  There are huge barriers to learning in the human condition, especially humans drawn together, willingly or otherwise, in organisations.

The IT industry have always told us that ‘information is power’ but they are wrong.  Partly because they usually provide data, not information (the data has to be processed by a human brain for it to be called information) but even if they do manage to get that far they should have realised that it is not information that is powerful but knowledge and wisdom.  Moreover, it is a reluctance to share knowledge, because it is so powerful, that stops organisations learning what they need to know: those with power are usually reluctant to let it go.  People play politics in preference to playing the learning game and trying to get someone to admit their ignorance, the first step towards enlightenment, usually means they fear losing face.  So you had better have superb skills in helping people to feel good about themselves while they are learning.

So where does ROI fit in with all of this – well you should have come to hear me speak instead of reading tweets or, failing that, you might learn something from reading Lesson 7, or even my book, but none of this beats developing a proper, warm blooded relationship where we can continuously learn from each other in a safe, constructive and mutually supportive environment – and if you already reside in such a place then you are truly blessed.

For personal development linked to this topic visit the Consummate Professional Series

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EBM – Doing it for real – Lesson 7 – ROI it

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I did warn you in Lesson 1 that this series would not offer a simple sequence.  So why does ‘ROI’ (return on investment) follow on from Vision?  Well it doesn’t have to but considering ROI is an essential discipline for EBM what better place to start than with the Vision?

One of the biggest misconceptions, outside of the banking, investment and accounting ‘professions’ (you would be amazed how unprofessional they can be) is that people who use numbers all the time are more scientific in their methods than those who do not.  Yet they are as likely to use the back of an envelope for their calculations as anyone else when starting to consider their very biggest decisions.  If you were thinking of buying or selling a business you have to start with a guess – exactly what we are witnessing now with those ‘valuing’ (hahaha) twitter and facebook.

So anyone who wants to apply the discipline of ROI to HR or learning need make no apology for a bit of guesswork – at least, not until you get down to the operating level.  That’s why ROI fits very neatly after vision because when Richard Branson had a vision (that he could put tourists into space) I bet he first plucked some figures out of the air for development costs, running costs and numbers of passengers before he went too much further with the idea.

Lesson 7

ROI is usually quick, simple and very good at focusing attention.

Practical application

ROI is just another name for cost benefit analysis – a concept that even economists (like me) admit is full of potential flaws.  Nevertheless, when used intelligently and selectively, particularly in learning and development, it can be a very powerful tool indeed.

The formula for ROI comprises 2 numbers –

  1. The cost (although we should always call it ‘investment’)
  2. The benefit we expect

ROI =(Benefit (e.g. increase in profit) – Cost) ÷ Cost  x 100%

Now all you need to do is apply it but don’t try it on something obvious, like how soon will a piece of equipment pay back its cost, because accountants have already been doing that for years.  The whole point of a site called EB-HR is to apply evidence-based disciplines to the intangibles, the things the accountants struggle to measure.

So you could have a discussion about employee engagement (if you must), culture shift (if you’re really touchy feely) or maybe becoming a learning organisation (do you remember those?).

All you need to do is ask whether it is worth trying to invest in say, becoming a learning organisation?  Following the ROI formula forces you and, much more importantly, your business colleagues, to consider this as a straight business investment just like any other.  They will be reluctant to play this game at first so try and make it fun.  If you get any objections from the CFO ask them why they sign off the training budget every year without asking this question themselves (ssshhhh! – they don’t know how to) and that should shut them up.

When you have got their attention you simply say –

“If we started to learn how to improve what we do by 1% a year, every year, what would the benefit be to the business in terms of extra $’s?”

Always start with 1%, you can always get more ambitious later.  This should start an interesting discussion and you should have them hooked because it is a language they understand and like, especially the CEO.  It doesn’t matter what numbers they decide on because the only other question is how much are they prepared to invest to get this level of improvement? Then you can do the calculation and see what the expected ROI is.  That’s it – end of Lesson 7.

Of course, what you do next with this hypothetical data is to translate it into information (get some real productivity figures) then knowledge, then application – and that will require a combination of every single lesson in this series.  One thing you will have gained in the process though, assuming you are skilled enough, is greater credibility with your peers as a business partner, not an overhead.

For personal development linked to this topic visit the Consummate Professional Series

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HR playing the Fool

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I was sorely tempted to write an April Fool’s piece today but instead I opted for a history lesson on ‘The HR Department’.  In case you were still wondering, this is not a site for HR people – or at least not the majority of those in conventional HR roles.  As far back as I can remember there were soothsayers predicting that HR was at a ‘crossroads’ and had to decide which path to take.  In 1991 I decided to take a very different path to the one that the other 99% of the ‘HR profession’ thought was a safer bet.  So let’s go back 20 years and remind ourselves what the current thinking was then.

1991

The precursor of the UK’s CIPD was the IPM (Institute of Personnel Management).  Its president was Barry Curnow who wrote a piece for Human Resources magazine (Summer issue) entitled -

“Measuring the intangible – performance criteria in jobs without a bottom line”.

Barry, obviously having a penchant for self-immolation, did not present the most positive face that one might expect from a professional body’s titular head.  But even in 1991 Barry was totally out of touch with the real world, which was increasingly demanding a ‘total quality’ approach to management that had to exclude all muda (a Japanese term used in the Toyota Production System for an activity that is wasteful, unproductive and adds no value) and personnel people were definitely starting to be seen, at best, as a necessary evil and, at worst, as the PC (political correctness) police.

1993

Two years later I was asked to speak at the IPM’s annual conference on the radically new theme of ‘The added value of Personnel’ (HR was still not on the scene).  Someone had finally decided that the Personnel department should at least acknowledge it had a bottom line.  Although it had not yet registered with the 500+ members in the audience: the majority of whom had bemused looks on their faces, as though I were speaking a foreign language.

The keynote conference speaker that year was Dr. Richard Pascale (“The art of Japanese Management”)  who told his audience -

“In the US people in personnel take on a psychological contract to be a victim.” (reported in Personnel Today, 9 November 1993).

So the US experience was no different apparently.

1995

By 1995 the response from beleaguered personnel departments, to all of this damning criticism, was to re-invent themselves as ‘HR’ – because it sounded more like the sort of department that might actually have a ‘bottom line’.  Yet the guy who had taken over Barry Curnow’s role, the infamous Geoff Armstrong, was having none of it.  In a book review in Personnel Today (23 February 1995) he predicted –

“In my view, it is wrong to tie strategic people issues to the HRM bandwagon.  They were around before HRM was invented, and will still be around long after its faddish label has faded.”

Whilst over-staying his welcome at the CIPD, and building a sycophantic regime that even Colonel Gaddafi would envy, Armstrong arguably did more damage to the cause of business-focused HR professionalism than any other person.  Certainly it set back the CIPD’s development by at least 10 years, IMHO.

1996

Meanwhile observers such as Thomas Stewart in Fortune magazine (15 January 1996) had a simple solution to the HR department ‘problem’ -

“Why not blow the sucker up?”

and added -

“Human resources has come to the proverbial fork in the road.  One path leads to a highly automated employee services operation…. The other leads straight to the CEO’s office.”

What he didn’t cover in any detail was what the HR director would do once they got there (having never been a strategic HR director himself).  Stewart is now the MD and editor of Harvard Business Review (HBR), a journal that has also failed to come up with an answer to maximising HR’s impact on the bottom line, despite publishing many questionable ‘solutions’ in the meantime (Prahalad and Hamel’s ‘core competence’ theory being probably the worst culprit, IMHO, although W. Chan Kim and Renée Mauborgne’s piece on ‘Blue Ocean Strategy’ gets my personal award for the most crass HBR article of all time).  I think it’s high time he blew that sucker up as well.

1998

Then Dave Ulrich turned up on the scene with his own HBR article entitled “A new mandate for human resources” where he argued -

“In recent years, a number of people who study and write about business have been debating whether we should do away with HR. The debate arises out of serious and widespread doubts about HR’s contribution to organizational performance. And as much as I like HR people, I must agree that there is a good reason for HR’s beleaguered reputation. It is often ineffective, incompetent, and costly; in a phrase, it is value sapping. But the truth is that HR has never been more necessary.”

This was a very clever article.  Ulrich knew his audience.  At a single stroke he wrote off HR departments as ineffective but then held out the prospect of a promised land, for the very same people who were so obviously ineffective, with his magic wand that would transform them all into strategic, business partners. He also remembered that when ‘personnel’ people were struggling in 1991 they were happy enough to just change their name rather than their modus operandi.  So he offered them an opportunity to pull the same stunt again, with new titles, only to suggest a full decade later, in …

2008

… at a conference hosted by PwC, that HR had failed to make his model work, rather than admit he had produced a seriously flawed model (which remains fundamentally flawed despite his more recent amendments).

Which roughly brings us up to the present day.

2011

So what are the key items on the organisational, HR agenda now, when HR no longer pretends it does not have a bottom line?*

  • Human capital management and reporting
  • Evidence based (HR) management methods
  • Tougher professional standards for HR people (SHRM is currently working on this)
  • Demonstrating added value and ROI

So, after two decades, HR has arrived right back at the same historical junction.  Of course, some HR departments have already tried to get away with their re-naming stunt once more – this time calling themselves ‘Human Capital’. Others are stuck on a vicious, circular path that always leads back to the transactional ghetto still fooling themselves that efficient transactions have something to do with value – but they are no longer fooling anyone else.

For personal development linked to this topic visit the Consummate Professional Series

*But see Ulrich’s 2003 book “Why the bottom line isn’t!”

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