NYNP blog post 11-18-09

Debunking the Myth of Training ROI
Notes from Michael Molinaro's provocative ASTDNY presentation

At last night's ASTDNY meeting, Michael Molinaro, Corporate Vice President and Head of Leadership Development at New York Life Insurance Company, gave a presentation titled "One Last Time: What's the Deal with ROI?" In his presentation, he took on the much-hyped training industry focus on calculating return on investment (ROI). ROI is basically the amount of money earned by spending money.

Focusing on the trend of measuring ROI for soft skills training like executive coaching and leadership training, Molinaro gave three succinct reasons not to measure ROI:
1) You can't
2) You don't need to
3) You oughtn't want to

You can't measure ROI
Molinaro pointed out that current formulas for measuring ROI are basically guesses. The models all factor in a percentage weighting for how confident the person doing the calculations is in the validity of the rest of the formula, which essentially invalidates the entire calculation because it's never close to 100%. After all, what CEO would bother with an accounting figure that the accountant believes is only 65% accurate?

You don't need to measure ROI
Molinaro stated that there is no point in going to ridiculous lengths to come up with a mythical ROI number when there is a wealth of research that backs up the value of developing employees. If the point of ROI is to justify the need to spend budget money on training, then the existing data already meets that need. He suggested that a better use of time and resources is to focus on linking training to organizational strategies and goals.

If you need hard data about the value of training and developing employees, he referenced the following three studies:
- Laurie Bassi, Paul Harrison, Jens Ludwig, and Daniel McMurrer (2004) published "The Impact of U.S. Firms' Investments in Human Capital on Stock Prices," which discussed their research finding that companies that spend more on training perform better in the stock market.
- Bruce Pfau and Ira Kay (2002) published The Human Capital Edge: 21 People Management Practices Your Company Must Implement (or Avoid) to Maximize Shareholder Value, which discussed their study of over 750 companies which found that companies with effective human resources practices can increase their shareholder value by 47% more than companies without effective human resources practices.
- Marcus Buckingham and Curt Coffman (1999) published First, Break All the Rules: What the World's Greatest Managers Do Differently, which distilled information from more than 80,000 interviews conducted by the Gallup Organization and found that good management is the key to strong organizational performance.

You oughtn't want to measure ROI
Molinaro said that it's demeaning to try to put dollar figures on the work of a field like learning and development, which is a field primarily focused on human beings rather than numbers. He urged the attendees to have the courage to believe that because this field involves different work than businesspeople' s jobs, we should be held accountable in different ways.

A final note
Lance Tukell, Director of Global Training & Development at Chartis and next year's ASTDNY chapter president, suggested that an alternative to calculating ROI is to ask at the start of a project: "What is success to you? What do you need to see?" This will result in much more useful information about how a training project will add value to a company.