Chief Learning Officer- September 2008

Value Creation With Human Capital Investment BY MICHAEL E. ECHOLS, PH.D. Value is pretty straightforward when it comes to capital assets. When it comes to human capital, measuring value becomes more difﬁcult. Still, it can be done in a way that makes sense for business leaders. ost senior manager discussions about for several reasons. First of all, when we examine costs, learning eventually boil down to we spend heavily on learning and development. ASTD cost. Why? What is it about cost that estimated U.S. organizations spent $129.6 billion on makes it the center of attention in employee learning and development in 2006. We all have a stake in the value being created by training and learning decisions? It’s these learning expenditures. In the 21st century, global time to move beyond costs and introduce value into economy intangible assets such as know-how are what these management decisions. The value journey begins with costs. The ﬁrst create the majority of the value. This is a major shift reason cost is dominant is because training and learn- from the 20th century, when investments in plant and equipment were the primary engine ing expenditures are accounted for as of value creation. The good news an expense on the income statement. is that this shift puts learning leadSenior managers care a lot about the DATA POINT ers at the heart of the value creation income statement, that is, increasing ASTD estimated U.S. process. The bad news is there is little the top line (revenue) while decreasing organizations spent agreement about how to measure the the costs that siphon away resources $129.6 billion on value side of the equation. on the accounting passage from the employee learning One symptom of this impasse can top line to the bottom line (proﬁts). and development be seen on corporate balance sheets. The second reason costs dominate in 2006. In a February BusinessWeek article, is because we agree on how to measure Moody’s Investor Service reported a costs. Our ﬁnancial systems have rules record $1.6 trillion in cash on the balance sheets of on how to assign a hard number to costs. The accounnonﬁnancial U.S. companies, $600 billion more than tants measure and manage costs with great enthusiasm. Neither of these characteristics exists on the value ﬁve years before. By itself, this data means little. When the cash position is combined with what learnside of the equation. The value created by training and ing leaders say they want, a totally different picture emerglearning expenditures is not recorded anywhere. One of the reasons there is no record is because there is no es. A Bersin & Associates study documents that 72 percent agreement within the learning community about how of surveyed learning executives stated that measurement to measure value in the ﬁrst place. The value conversa- of business impact is most important. In the same survey, tion is being held hostage by the hardened sides that when it comes to measuring business impact, 82 percent have polarized the ROI debate. It is time to move on. of organizations would like to spend more on measureManaging the value creation equation is important ment and 31 percent would like to spend much more. M 46 Chief Learning Ofﬁcer • September 2008 • www.clomedia.com http://www.clomedia.com

Table of Contents Feed for the Digital Edition of Chief Learning Officer- September 2008

Chief Learning Officer Editor’s Letter Contents Connections Imperatives Selling Up, Selling Down Strategies Take Five Lifestyle Learning: Improve the Bottom Line With Behavioral Education Tracom’s Social Style Model CLO Profile IOL: Determining the Impact of Learning Communicating With the Boss About Impact Mission Accomplished? Measuring Success of Corporate Universities Borrowing Measurement Practices From Investors Value Creation With Human Capital Investment Business Impact Analysis at Chrysler Learning or Performance Enhancement: Which Is It? Best Practices in Global Project Management Training Case Study Business Intelligence Advertisers’ Index Editorial Resources In Conclusion

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