How to know if Management Training is Working

Determining the Return on Investment of Training

Learn how to determine what training will give back to you.

Organizational leaders today must realize they have the ability to improve their bottom line and productivity right now. Companies like Google, Amazon, and GE have spent billions in recent years developing their leaders and employees. Their efforts have shown the return on investment (or in modern terms- cost to benefit) is huge! How can you know if Management Training is Working? In a recent study by the University of Warwick, Google reported a performance boost of 34% from undertaking an employee engagement and happiness program. Amazon has created a leadership and management indoctrination and onboarding training program that is several weeks long. Their research shows consequently, they have enjoyed increased productivity and employee performance because of it. Organizations everywhere are beginning to realize there is a competitive edge that can be gained by developing their workforce and getting workforce engagement. The top 100 organizations are 5% more profitable than their peers and that difference can be mostly attributed to the fact that they develop their employees to a greater extent. So how does an organization determine the ROI of training and developing their managers, supervisors, and leaders?

Here’s the formula…

It takes little effort and yields great rewards. Ask yourself and your stakeholders, would we like to improve our bottom line and significantly increase our competitiveness and performance using the resources we already have?… If the answer is yes—read on!

When looking into increasing the skill level, awareness, and behavioral practices of leaders, organizations have to be able to weigh the incurred costs against the benefits of any training programs in which they invest. The question is: how do we determine the financial return on investment (ROI) of leadership and soft skills training? Organizations must look at several factors before deciding whether to provide leadership and soft skills training:

The cost in salaries of the people attending the training
The cost of the training being provided
The amount of lost production of the attendees
And the most important question, are we getting a satisfactory ROI?

For technical training such as learning to operate, run, and maintain a machine, the ROI is easier to calculate. How much profit was being made when the machine wasn’t producing goods compared to how much profit is being made with the machine producing goods. Leadership and soft skills training assessment for ROI isn’t quite as straight forward. To calculate return on investment you must consider factors that aren’t so easy to place a monetary value on, such as:

Lost revenues from dissatisfied customers
Wasted advertising dollars
Employee turnover
Employee and customer lawsuits
Sub-standard production (what it is compared to what it would be if all personnel were proficient and committed to the organization’s mission)
Absenteeism
And more

The fact is the lack of skills and commitment to professional standards by leaders and company representatives costs organizations billions in lost profits, trackable in a myriad of ways. Keep in mind that American organizations spent a whopping 171.5 billion on training in 2010 and 70% of the current workforce is shown by research to be disengaged and dissatisfied with their work. Imagine with 70% of the workforce not wanting to be there or really caring about the quality and amount of effort they provide, what is the loss in productivity to American organizations. That monetary loss, if known, would be a staggering amount!

I’ve seen companies spend millions of dollars in new customer acquisition programs, both in advertising dollars and giveaways, only to see many prospective customers walk away due to poor customer service efforts from apathetic employees. The sub-standard customer efforts were not due to poor employee quality or training but rather to employee apathy and disenchantment with their leaders and organization. Think about the team or unit leader who speaks to employees negatively and as a result has constant turnover—how much are they costing an organization in turnover, absenteeism, health costs, etc.?

The average cost of acquiring and hiring a new employee has been estimated to be between $27,000 and up to as high as two times the position’s annual salary. That means if the position pays 50k a year that poor leader who ran the employee off just cost the organization 100k. The kicker is, that the organization also paid the leader thousands in salary expense to do it! How about the leader that gets an organization sued due to their lack of professional leadership skills? In 2008, American organizations paid out more than a half a billion dollars in fines from the Equal Employment Opportunity Commission. That number doesn’t include damages against companies awarded by American courts as a result of employee lawsuits. That number is in the billions annually!

The key to having the greatest return on investment is having a highly skilled and committed group of people who know what to do, how to do it, and they want to do it well. Of course this positive attitude and level of commitment and performance starts with the performance of the leaders, managers, and supervisors of the organization. Most anyone can force people to work given the power of authority, however, skilled leaders or professional leaders, as we call them at TLI, make people WANT to be highly productive and successful. We all know that when someone wants to do something it will get done better and faster than if they are forced to. Most of us have experienced that result but there is a ton of research that verifies it. Teams accomplish magnificent feats when they are led well and want to, not because they are forced to.

All the research that shows that the right training, provided in the right way to people who are open to being developed, takes organizations to the top of their industry, let’s look at how to compute the amount of investment required.

So how do we measure ROI for leadership training and soft skills? How do we know that the investment is worth it? Let’s look at the following (after the appropriate training and follow-up):

Are we capturing more customers from our marketing efforts?
Do we have a higher percent of prospects purchasing goods and services?
Has customer satisfaction increased?
Have customer referrals increased?
Have sales increased?
Has customer feedback become more positive and more frequent?

For leadership training:

Has morale increased?
Have employee complaints decreased significantly?
Has production increased (without overtime)?
Has absenteeism decreased?
Have employee lawsuits stopped?
Have leader and employee relationships improved and interpersonal stresses been removed?
Has position turnover declined?
Has the work environment become more positive, team oriented, and mission focused (don’t ask, walk around unexpectedly and observe)?

Research shows most organizations that have problems with production and performance suffer from people issues not process issues. Changing processes, adding rules, making demands does not fix people issues. People work for people, not for policies. Getting the right people, providing the right skills, creating a unified sense of purpose, completely defining and enforcing the required professional standards, and setting the example are the true path to maximizing an organization’s Return on Investment. Get good people, provide the training (immersion training that teach the specific dynamic skills that develop professional leader–not just any training) and reap the rewards!

What is your leadership team doing to evaluate your organization’s investment into leadership and soft skills training? How are you taking the time to measure those elements that can lead to better working environments and better production rates? What investments in these types of training have you seen work well?

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