Decision-Science: Measuring & Valuing Training Investments

Dr. Laurie Bassi
Contributor: Dr. Laurie Bassi
Posted: 08/07/2011

What if there were a powerful argument, substantiated by years of research, that senior-level training executives could use to persuade other senior managers to invest more in training? Human Resources iQ speaks with Dr. Laurie Bassi. Dr. Bassi has been researching the correlation between training and development expenditures to shareholder value and has created internationally recognized standards for measuring and valuing firms' investments in education and training. She is an expert on the "decision-science" of human capital management—the processes and practices within an organization that align the management and development of employees with its business results.

HRIQ: What is the relationship between public companies' stock prices and how much they invest in training-and-development programs?

In a nutshell, holding all else constant we find that statistically firms’ investments in training and development are the single most powerful predictors of stock prices that we can find in a large data set of firms.

Backing up a bit, it’s very, very difficult to find anything that predicts future stock prices—if any of you have ever tried to choose your own stock portfolio, you know how hard it is to get this right. Economic theory states that there are no variables to predict future stock prices. They follow what economist call a "random walk." So it is quite unexpected to find anything that predicts stock prices.

It’s a surprising finding—to some, not to us—that training and development investments could be such a powerful predictor, and controlling for other variables, it was the most powerful predictor we could find.

Then why haven’t learning expenditures caught on as a major metric for analysts and investors?

Very succinctly: the absence of comparable data for the purpose of analysis.

It’s really hard work to get this data. My business partner, Dan McMurrer, and I have been working at it for over 15 years now. First of all, you have to have a standard definition of what constitutes a training and development expense so that you can do an apples-to-apples comparison across firms. Then you have to get firms to provide you with the data. Because there are no required accounting and reporting practices around this, there is no source of comparable, publicly-available information that Wall Street analysts and others could use to examine the importance of this relationship.

How can a company measure what role training-and-development investments play and if they are effective?

Of course, there is the standard Kirkpatrick Level 1-5 analysis. There are software providers that are now supporting the automation of training evaluation. That’s all well and good—making it simple and cost effective to do the standard type of evaluation is definitely a move in the right direction. Having said that, I feel that we, as a profession, have to move beyond that— to what I think are more authentic methods of evaluation. For example: merging records from your Leaning Management System (LMS) with data from your employee surveys with data on key performance indicators (KPIs). Where I see the world moving in what we think of as human capital analytics, is really taking disparate pieces of information so that you’ve got a database that can produce actual business intelligence about how these investments in learning and development relate to employee engagement, employee turnover, and sales productivity. That’s the next evolution that will take us beyond traditional Kirkpatrick Level 1-5 analysis.

According to your research, what are the characteristics of programs and training investments that present the highest ROI across the board?

On the one hand, there is no universal answer—which is distressing. There’s probably no amount of data that is going to universally answer this question—different firms, different stages of maturity, different industries and different business demands have different training and development requirements.

Having said that, analysis of these databases indicates that, not surprisingly, voluntary education training has more impact than mandatory, which is often compliance-oriented in nature. You need to go beyond just the baseline and actually have discretionary employee training investments. Interestingly, we found that basic skills had a high payoff, as have investments in technology training.

From a researcher’s point of view, we’re unable to say that there’s a single best thing or a one-size-fits all. The realistic answer is you have to move beyond the simple base requirements of compliance mandatory training to really see much of an impact.

The data presented in your research is clearly compelling for the return on training investments. What else can the HR partners in an organization do to create a business case for training programs and make use of human capital metrics?

Obviously, we are big advocates of metrics and analysis. We encourage people to use our findings. I can say that some of these most recent findings are published in our upcoming book Good Company in chapter five. In addition to our findings and analysis that [firms themselves] are doing, there is storytelling. As much as I love metrics, we also understand that there’s incredible power in storytelling. The most effective training professionals and HR profesionals are those who are leaning how to blend compelling quantitative analysis with the ancient art of storytelling.

In the end, it is story-telling that moves people, speaks to their hearts, and that they remember. Analytics is my gift and trained skill set, but I’m always learning to tell stories that I combine with the analysis we present. It’s that combination that really sticks and makes a difference. And it will help get you the budget you need!

Interview conducted by Alexandra Guadagno, Editor for Human Resources iQ

Dr. Laurie Bassi
Contributor: Dr. Laurie Bassi
Posted: 08/07/2011