Like many entrepreneurs, Chris Stone has a training budget. He offers $1,500 plus five days of paid training per year to his employees, who have participated in training sessions ranging from technical writing to sales.
But how does he know he's getting something back on his investment? "The measurement is problematic," says Stone, 54, founder and CEO of Stone Environmental, a Montpelier, Vermont, company that analyzes water quality. "In some cases, it's hard to get a direct payback."
So how can companies tell whether the training has been worth it? U.S. companies want to see an ROI when they hire a consultant or send employees to a conference, especially when they're spending more than $60 billion annually on training, according to the American Society of Training and Development.
Training has many benefits. But evaluating ROI takes time, money and data crunching. Most entrepreneurs go with their gut. "We see companies that have a belief in [certain training programs]," says James W. Dean Jr., associate dean of executive education at University of North Carolina's Kenan-Flagler Business School in Chapel Hill. "You don't see people scurrying around trying to prove ROI is 21 percent."
Companies that measure training impact rely on methods like the Kirkpatrick levels framework, which evaluates training on four levels. Level 1 measures participant satisfaction. Level 2 gauges whether employees learned anything. Level 3 studies whether employees are doing anything different as a result of the training. Level 4 assesses how training has changed the organization. Most companies don't venture beyond the first level. "The ROI question is framed in terms of level 4," Dean says. "[Most companies] are thinking about level 4, but [the number that] go to the lengths you'd have to go to calculate ROI impact is relatively small."
Entrepreneurs can, however, estimate the cost of a company problem with an upfront analysis, says William Rothwell, co-author of What CEOs Expect From Corporate Training. Say, for example, poor customer service is holding a company back. The entrepreneur can calculate how many customers the company is losing every week, the number of complaints, the average purchase size, even lost sales. These numbers give the entrepreneur a bench mark for evaluating the ROI of a training program down the line.
Generally, it's easier to see a quick return on "hard" skills-sales and software training, for example-than "softer" skills, such as leadership training, where any noticeable change can take months or years to see. Laura Yamanaka is co-founder and president of TeamCFO, a Los Angeles provider of outsourced CFO services with annual sales nearing $1 million. The company's employees have attended technical and leadership training seminars, and Yamanaka finds that the softer the training, the more she needs to coach employees to generate returns. "You can't send an employee to leadership and management training and expect them to create a change within the company," says Yamanaka, 47. "It has to come from the top."
Quarterly job reviews, focus groups and 360-degree feedback can help measure the impact of soft training over many months. "Make training and development as closely integrated with the real work as possible," says Thomas E. Moore, vice president of executive education and corporate programs at Babson College in Babson Park, Massachusetts.
Stone Environmental's employees and managers talk about what kinds of training will improve performance the most. "We make sure this is something the employee wants to do," Stone says. After a training session, employees have a meeting to share what they took away from it. For Stone, making sure training meets a need is key to generating ROI. "It's carefully selecting courses that make sense for the employee and your business," he says. The strategy must be working: Yearly company sales are now more than $4 million.
Do departmental managers and company policies enhance the new skills employees bring back to the office? "The biggest problem with training is that new skills aren't reinforced. That's why training often doesn't stick," says
, president of Los Angeles consulting firm Peacock Productions and co-author of the new book, Who Are "They" Anyway? A Tale of Achieving Success at Work Through Personal Accountability. "Make sure what you're training [for] is also what you're going to be rewarding." This means aligning salary increases, bonuses and other incentives to reward employees who make progress meeting training goals.
In the end, some training is always better than no training at all. "Training is an acknowledgement that you're investing in the individual," Stone says. "That benefits the company."