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The Wrong Measurement of ROI

Dealing with ROI can be a real headache. I've talked about it before, and last night it came up again in a chat. I mentioned how the Kirkpatrick model is cool but kinda limited. In the business world, there's this misunderstanding about ROI—it's not just about raking in cash. People tend to boil it down to positive financial outcomes, but that's just not the whole story.

I think the new model should be based on four different ROIs:

  • Knowledge ROI

  • Skill ROI

  • Behaviour ROI 

  • Monetary ROI 

Most knowledge, skill or behaviour training will not yield monetary ROI (Or at least it is very hard to boil them down to a clear financial outcome) but it doesn't mean you stop training employees. Examples:

  • Knowledge ROI: As a new employee I am put through orientation to learn about the company (knowledge) but that knowledge will not result in money. As a barista, I learn about the different coffee beans but it is not to make more money. You can argue "Yes, but it is for a better guest experience and that leads to repeat business..", yes, however, good luck proving that. You train your barista about the coffee beans because it is part of the job and not because it will make more money for you!

  • Skill ROI: Going back to the barista example, you train them how to operate the coffee machine because it is part of the job not because of the financial ROI. The same applies to any technical training. You can argue "Yes, but if you train technical skills they will be more efficient and hence sell more coffee...." yes, however, good luck proving that. Once again, it is part of the job. 

  • Behaviour ROI: You train your telephone operator to answer the phone based on your standards because that is your understanding of quality service. Will it result in money? "Yes, but better guest experience..." I understand that but you cannot possibly prove it. The same applies to leadership development, you don't invest in developing the behaviour of your leaders so you can make money out of it, you invest because that is your understanding of quality service towards your employees. But you already know that because it is the same principle you applied when training your phone operator on how to answer the phone so guests can have better experiences. Why don't you use the same logic and principle for leadership development? It aims to set the standards of quality for your employees' experiences. 

  • Monetary ROI: You might be able to link any of the above training to financial gain but I would not waste money on that. What I would rather do is this. Identify how the business could make more money and what competencies you need to develop for that. Select a targeted group, and outline the objective of the training i.e. I am sending you there to learn this and as a result, I want to see a 20% increase in revenue and make sure you have a competence implementation plan for after the training. 

Let me give you a real example. Take a large FMCG that sent its leadership team of 16 people to Switzerland for a 6-month Business course. Needless to say, they spent tons of money with no outcome to the business apart from the 16 having a fantastic time. The CHRO was super happy because the people were developed and invested in it. The CEO literally rolled his eyes at the CHRO (I laughed) saying "The business is still shit". 

So I asked what was the purpose of such a huge investment to which both answered differently; skill development vs monetary ROI. I probed further, "Did you send them away with a clear message of what you expect of them when they are back?" Of course not. "Did you tell them that when they are back you expect them to create a commercial strategy based on what they learned, implement that and show the financial impact of their actions within the next 18 months?" Of course not. 

Here is the thing, you only taught someone if the person's behaviour, actions, way of thinking, and/or knowledge have changed in the same context. If they have not you have wasted the money and this should be counted as a negative monetary ROI. 

If you trained me in product knowledge so I can explain it to customers it is a positive Knowledge ROI even if it doesn't yield extra revenue. The money spent on training is justified and you must not look for monetary ROI benefit. 

If you trained me on how to operate the machine so I can do the job you pay me for it is a positive Skill ROI even if it doesn't yield extra revenue. The money spent on training is justified and you must not look for monetary ROI benefit. 

If you trained me on emotional regulation as a leader stopping me from losing my marbles because not shouting at employees is the minimum quality standard you set for your employees to have it is a positive Behaviour ROI even if it doesn't yield extra revenue. The money spent on training is justified and you must not look for monetary ROI benefit.

If you sent me for a "Business Strategy" course with clear instructions of what I need to do with that course (create a strategy that results in a 20% top-line revenue increase) post-program and I can do that it is a positive Monetary ROI. It can also mean positive knowledge, behaviour, and skills ROI.

Your ROI depends on knowing what you want from the training, learning or development intervention. Most will not result in monetary ROI and you must understand that. ROI is in the measurement of implementation and outcomes will vary; knowing, being able to do, behaving, and making money. That is the new model. And just a quiet FYI: All these data is in your Annual Appraisal....... WINK!

PS: This approach also provides satisfaction of training, learning, and development interventions to employees because achievement is satisfying! So throw away your happy sheets of measuring whether or not the person enjoyed the training and instead measure whether or not the person has acquired the required knowledge, skills, or behaviour and now can use those within the context of their role. This will be satisfying to them. 

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