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Is ROI the True Determinant of Success?

Is ROI the best (or only) way to determine success?

Is ROI the best (or only) way to determine success?

ATwo different consulting experiences recently from different parts of the world reinforced a very important lesson that questioned conventional business wisdom.  In one experience, I was invited to remotely lecture to a graduate school class in Training and Development that is part of a “MOOC” (Massive Open Online Course – meaning that students can register and attend from anywhere on the globe as long as they have the capability to connect via the internet) that originated from Mexico.  In the other experience, I was speaking with a New York City-based company that serves the needs of Human Resources departments addressing specific benefits issues.  In both instances, the conversation settled on the issues of evaluation, return on investment, and how to measure performance.

MOOC Question

After I had lectured on the steps to take to ensure training is a success, I opened up the line to questions from the attendees.  A participant who owns a small air conditioning business asked me how she can best determine whether it is more effective to invest in training versus adding more sales people, adding more technology, or just spending the money on morale-building efforts to reward her existing staff.

After reviewing with her the classic ways of identifying training needs and performance gaps, how to then choose or develop trainings to address those needs, the discussion focused on how to evaluate one’s efforts.  A pure Finance perspective would look at the return on investment (ROI) by measuring:

  • Costs (both the costs of the training itself, AND the salaries of the people being trained during the training)
  • What benefits (or “return”) would that spending provide
  • Opportunity assessment (what could the money be spent on and what would the results of that spending be for the company).

Now, there are A LOT of assumptions built into that assessment.  There have to be clear or agreed upon ways of measuring costs, the objectives of the training (or any initiative) should be clearly delineated, there are also difficulties in keeping all variables constant to truly assess the impact of the training (economic conditions, competitive actions, management changes, and on and on).  Even if one can control those variables – the return on investment would still be a fuzzy number because we can’t always capture or measure all of the things that impact the number.  However, this was seen as the “goal” and the “best way” to truly discern whether training was a worthwhile investment.

New York Company

Earlier in the week, I was meeting with a successful company that addresses ways of helping employees and companies avoid having to access short-term (or long-term) disability, Family Medical Leave Act (FMLA), or address turnover and related events through earlier (and less expensive) options.  In discussing this company’s selling process with the CEO, I inquired how they go about providing cost justification for the services they provide.

The CEO said that he studiously avoids thinking of it in classic ROI terms.  I assumed the “clincher” that got people to purchase the company’s services was the “feel good nature” of helping employees and companies do the right thing and helping them avoid more costly interventions.  The answer was something a little different.  The CEO responded that few people complain about paying for insurance and never having to use it.  Similarly, providing help to prevent larger expenses does not easily translate to an ROI.  However, it is intuitive for most businesses that employees will need help and support in order to remain operating at peak efficiency and productivity.  And, while maintenance efforts for machines are rarely questioned, the upkeep and maintenance of employees should be viewed similarly.  No sane person would purposely set a fire JUST to collect on their insurance because they have been paying for it for over 20 years. Trying to assess the value or worth of certain initiatives is similar.

What resonated with me through this discussion was something that a mentor of mine shared when I questioned how to quantify the value of a particular training program I was hoping to sell.  I was told, “if you think this training is expensive, what is ignorance and incompetence costing you?”  just by asking that one question to prospects over the next year or two, I was able to close more business on that project than I had previously done on any prior project.

David Zahn