ROI, or return on investment, is king in today’s business world. Touted routinely by managers and project leaders, ROI is used as a selling point in print advertisements and is featured regularly in news and business discussions because, for every purchase a company makes, it needs to make sure that it has clear investment value that will result in increased revenue or decreased cost.
But some organizations have slowly shifted from a single dogged focus on ROI to a more complete analysis called “ROV,” or return on value. ROV is a term that is used less by companies, but one that actually paints a more accurate picture of the impact of investments on the overall business. It broadens the analysis of ROI to include both the financial costs and hard returns, and also the intangible benefits, like having a scalable business, having more competent employees or having more satisfied customers.
For example, although it is difficult to measure the value of having helpful, knowledgeable customer support representatives in dollars, there is tremendous value in keeping customers happy by providing them with good experiences. Companies invest in CRM technology and customer service training to capitalize on this value. Judging call-center effectiveness with traditional metrics like “number of calls per hour” is a decent starting point, but it fails to encompass the impact of those calls on customer value. After all, a high number of calls per hour may be efficient, but if the employee handling the call is not competent and the customer has to make multiple calls, he is likely to take his business elsewhere. The company makes more money in the long run by balancing quantifiable data, like calls per hour, with value created by good customer experiences. That value needs to be considered and should be a key driver in procurement decisions.
ROV can be applied in the learning and training field as well. When companies implement learning initiatives, return on value should be the key factor in making decisions. For instance, learning technology is designed to make it more efficient to create and deploy learning and training. This creates cost and resource savings that may or may not justify its purchase. However, this needs to be considered in conjunction with the impact that learning technology can have on the performance of learners to really determine whether or not it is worth buying.
As the business world has changed and products and services have become more technical and specialized, the value of worker knowledge has increased. The emergence of the “knowledge worker” means that when workers with specialized skills depart an organization, the cost of replacing them goes up. After all, new employees, or those taking a departing employee’s place, usually require training. Not only is there a cost associated with this training, but there is also value associated with the ability to capture the departing knowledge worker’s unique know-how before she leaves. If this knowledge cannot be captured, the lost value associated with her departure increases because her knowledge is lost as well. Like “good customer support,” this value can be tough to calculate, but that does not make it any less important when calculating total return.
Good learning technology will make it possible to capture a departing employee’s unique know-how as a corporate asset and make it so it can be accessed and shared with others throughout the organization. There can be tremendous value in keeping that knowledge with the company.
Learning and training can impact company value in other ways as well. Many businesses follow a model where they systematically eliminate the bottom 10 percent of performers within their workforces after each quarter. They replace these bottom 10 percent with new hires, some of whom prove to be good workers, while others prove to belong to the bottom 10 percent just like the people they were hired to replace. They are eventually eliminated and the cycle continues.
These companies, instead of firing the bottom 10 percent of performers each quarter, might be better served by putting programs in place to improve performance. In the long run, it may be more valuable than bringing in new, untested employees and training them from the ground up. By improving performance, the company not only eliminates some of the costs of training brand-new employees, but also increases employee loyalty and strengthens the corporate culture by investing in employees and helping provide skills that make people better at their jobs. These impacts add value to the company as a whole that once again, can be tough to neatly quantify with an ROI analysis formula.
The book “The Loyalty Effect,” written by Bain & Company Director Frederick F. Reichheld, builds a powerful economic case for loyalty, and concludes, “Inventories of experienced customers, employees, and investors are a company’s most valuable assets. Their combined knowledge and experience comprise a firm’s entire intellectual capital.” It goes on to describe loyalty leaders, as those who “choose human assets carefully, then find ways to extend their productive lifetimes and increase their values.” Reichheld argues that human assets can increase in value and that good business leaders often focus on doing just that within their employee base in order to grow the value of their businesses.
Despite the notion of value, in the learning and training industry–as in the high-tech industry–the natural tendency is to look solely at ROI when measuring success and to forget the grander impacts on the business that are harder to measure but go beyond the factors that fall within an analysis of ROI.
Consider the following questions: What is the dollar value of improved morale, satisfied customers or more systematic capture and transfer of employee knowledge? What does a company lose by delaying learning technology procurement decisions for a year, and with them, delaying the value realized by these benefits for a year? These questions won’t be found in most ROI analyses, but certainly should be weighed. Return on value analyzes important questions like these in addition to just typical ROI calculations.
As learning technology ROI analysis moves higher up in the organization, it gets closer and closer to ROV analysis, as senior executives consider initiatives more strategically and less tactically. Training managers care about metrics like individual performance, while executive management measures ROI through top-line growth, time-to-market abilities and shareholder value.
The addition of ROV into the business mix does not mean that ROI should be abandoned. It means that companies need to integrate the consideration of costs and benefits that are more difficult to quantify into their ROI-centric business cultures. Together, ROI and the consideration of these other costs and benefits will give a more accurate answer to the question of whether or not an investment will deliver a return: return on value.
ROI may be king today, but ROV will soon assume the throne.
Dan Kossmann is CFO of OutStart, a Boston-based software company that provides an integrated learning software product family for companies seeking to increase individual and organizational performance.Filed under: Measurement, Technology