Unlocking the ROI of employee development
Reading time: 4 minutes.
It’s not unreasonable for organisations investing in the training and development of their employees to expect to see some kind of return on investment (ROI). On average, the Fortune 100 ‘Best Companies’ to Work For' list provide 73 hours of training for full-time employees, compared to 38 hours delivered as standard practice by others.
The top organisations also had 65 per cent less staff turnover than other organisations in the same sector – partly due to their employee development programmes.
It may be more difficult to persuade individuals that taking part in training and development will show return on investment for them personally. However, according to Philip Seely, ROI calculations can and should be used as a means to determine the value of training in terms of an individual’s personal financial gain. Increased training hours should correlate with increased employee satisfaction as well as higher profit margins.
Positive ripple effects
The ROI measuring stick works particularly well in sales and customer relationship departments. Happy customers create sales on the longer term. ROI may be less clear at first glance for other types of employee development, such as language and communication training. However, employees with these skills are more valuable to organisations.
According to MIT economist, Albert Saiz, there’s a 1.5 per cent premium on returns for Spanish language skills in the US, just behind French at 2.3 per cent and German at 3.8 per cent. English-speaking skills are at a premium – recruiters and HR managers around the world report that job seekers with exceptional English compared to their country’s level earned 30-50 per cent higher salaries.
HR professionals may well question how they can best go about measuring ROI in employee development in their organisation. There are many data sources HR may tap into, depending on the KPIs they have set. Investment might be measured not only as actual budget spent but also by the number of training hours spent.
Increased sales and decreased employee turnover provide hard statistics that demonstrate clear return on investment in training. Other KPIs demonstrating return on investment might include increased employee satisfaction levels, as indicated by data from employee satisfaction surveys.
Similarly, customer satisfaction surveys and other qualitative feedback mechanisms should show increased customer satisfaction. In addition, an increase in the number of courses offered might be a good indication of the success of training – and indicate that employees are valuing it. Alongside a decrease in employee attrition, an increase in employee movement within the organisation such as through promotions and cross-functional and lateral moves is another good sign that training and development is supporting a flexible and agile organisation.
If your organisation does not have a process in place to measure employee development ROI, where should you start? Here are some quick tips:
- Define strategic KPIs for the organisation and break theses down into expectations at individual employee level. Make sure these are clearly communicated to employees.
- Align KPIs with the management performance review process so that the success of training and development may be measured against performance requirements. Managers can play a key part here and it may be an idea to incentivise them to coach employees in the skills required as well as to provide formal training.
- Get employee feedback on training. Set up an employee questionnaire regarding an existing or potential training programme combined with questions related to employee satisfaction.
- Include language and communication skills training to underpin developing the business in new territories across the world. The ability to make sales in new territories will provide a direct return on investment in the language skills required to operate there.
- Create a proactive culture of employee development in your organisation – use the concept of return on investment to get employee buy-in into their own development. If employees can see what is in it for them they are likely to be far more engaged with training and development activities
ROI – measuring the X factor
Organisations measuring and monitoring employee development ROI can expect to see benefits including improved employee retention and improved productivity. The organisation should be become increasingly competitive both in its own market sector and within the labour market.
Return on investment and employee development may be measured in direct monetary terms, too, seeing higher sales or better rates of customer retention as a result of improved service. Organisations will find it harder to measure the X factor - that is, new opportunities gained or lost because of having a flexible agile workforce in place. However, it is this X factor that drives growth and innovation, keeping the organisation ahead of competitors.
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