4 Ways The Right L&D Program Boosts Bottom Line Performance

How to measure and get support for effective L&D strategies

 

The potential return on investment (ROI) of an effective learning and development program is a critical factor across the board for business success. 

Company awareness of the need is reflected in the fact that the workplace training industry worldwide was estimated to post a market size of $370 billion in 2019. 

Unfortunately, unlike most critical areas of business management and growth, there’s no standard industry framework for recognizing or planning ROI for learning and development teams.

Leaders in L&D often find it difficult to quantify and present the benefits that become available from a strong ongoing learning and development program, or to justify the need to invest corporate dollars into it. In this article, we’ll take a look at some of the key ROI benefits associated with learning and development, how they can best be measured and presented, and ways that L&D managers can overcome these challenges and gain support for their programs.

Learning and development, as it applies to business functions, is a specialized HR process by which employees are taught specific skills related to their responsibilities within the company, are upskilled with new and improved processes, and are empowered to perform better and with greater efficiency.

Predictions from the World Economic Forum suggest that investments in upskilling and reskilling of employees will increase global GDP by $6.5 trillion by 2030.

However, performance is not the only outcome of L&D, nor is it the only metric by which it should be measured. Additional benefits, including improved employee retention and satisfaction, and keeping a business current with the latest technologies and processes, are also significant results of a successful learning and development program.  Each of these can help grow overall ROI, as well.

L&D, sometimes referred to as a company’s “talent management strategy” leverages the power of learning and skill development to maximize employee value, improve efficiency in business processes, and retain the best and brightest.

An effective L&D program focuses on targeted training to improve ROI, so it’s important to first identify exactly what areas of the employee’s work strategy can be improved or upskilled for maximum impact.

Once these are identified, an effective training plan can be developed and implemented to target those specific areas, with quantifiable benchmarks for each. 

Having these benchmarks, or learning analytics, not only allow you to monitor the success of individual L&D training and its effect on the ROI, but also help to identify areas that can be strengthened and improved upon in future training. Tracking these training benchmarks can also help identify areas in training that do not result in positive learner engagement. 

By recognizing these and working to improve those specific areas of training, companies not only improve control of the learner’s experience and outcomes, but also ensure (and can report) optimized allocation of resources and improved return-on-investment for those providing program approval and funding. 

One challenge when trying to track ROI in a learning & development program is that, too often, these types of initiatives are viewed more as a benefit being offered to employees than a critical investment in the company’s efficiency and future success. This is because it can sometimes be difficult to “connect the dots” between a training activity and a quantifiable business outcome that may be achieved months, or even years down the road.

L&D is not an employee benefit (at least not solely) like healthcare or PTO. 

Instead, it must be recognized as a key and strategic business investment, and its metrics tracked and reported on as any other major investment would be.

Some of the traditional metrics that can be monitored may include talent mobility, productivity, employee retention, turn-over, and, of course, measurable return on investment. Let’s take a closer look at each of these metrics:

Talent mobility refers to employees’ ability to transition between positions and responsibilities within the organization, learning and improving the aspects of each. 

L&D can track:

Talent mobility tracking can be a strong indicator of L&D performance, especially over the long term.

The amount of work that an employee can accomplish within a set timeframe is referred to as their productivity. 

By tracking productivity in identical or similar projects both before and after training, L&D managers can compare and contrast the amount of time and resources spent. Any productivity improvement (reduction in time spent or resources required) based on an improved understanding or use of new skills, can be considered a direct indicator of ROI from that training. 

Employee retention indicates how long an employee stays with the company, or in a specific department of the company, and is often an indicator of employee satisfaction.

Conversely, turnover is the loss of employees within a workforce over time whether they quit or are terminated. 

In most industries, it’s far more expensive to replace a previously trained employee with a new, untrained one. In fact, according to a report by Employee Benefit News, companies spend an average of 33% of an employee’s annual salary to replace just one employee. 

Employees who participate in training and new skills education, especially when that training leads to a better position or additional pay, are often more likely to stay with a company for a much longer period.

By comparing the number of turn-overs between employees who have, and have not, participated in targeted L&D training, a company can see the effect of training and promotion on employee retention and turnover.

The bottom line: Employee retention equates to positive ROI.

A successful and effective L&D program will typically make a noticeable impact on a business's bottom line…if you know where to look.

One of the best ways to track ROI to a specific program or training is to “reverse engineer” increases in profits or decreases in expenses. In other words, follow the money.

Often, this process will end up highlighting an improvement in efficiency, or a reduction in time, labor cost (hours), or waste that is the direct result of improvement or new skills training.

It’s especially important for L&D leaders to watch for these changes in the weeks or months following major training initiatives and have this verifiable data at hand for ROI reporting. 

Smart businesses proactively invest in their own success and are constantly searching for areas of improvement and increased efficiency. The ability to quantify L&D’s effectiveness and impact on positive ROI makes it easier for companies to understand the importance of, and continue to invest in, their own learning and development programs.