Listen up, bosses: the ROI case for learning and development is REAL

Leaders are often nervous about committing to learning and development spending to boost talent – but a compelling new report shows they don’t have to be

Everywhere you look in business circles, there are concerns about talent: who has it, whether they are available, and how their existing skillsets can be kept up to date – or, preferably, bolstered – with ongoing training programmes. Lurking above all of those issues is the concern that there’s just not enough mobility in the talent market; that individuals who have proven their aptitude for specific business sectors are not getting the vital chances they need to break through into roles that will show them at their best.

In the past couple of months, those matters have really risen to the fore in the media, revealing the full extent of the business community’s preoccupation – or, indeed, frustration – with the underlying issues:

  • In March, tech-friendly finance outlet the Silicon Valley Bank revealed that 95% of UK startups in the technology and life-sciences sectors are finding it increasingly harder to recruit people with the skills they need to help their firms grow.
  • That same month, accounting group the ICAEW said that a talent shortage in its industry was pushing up salaries, with leaders offering pay incentives as a means of clinging on to the skilled employees they already have.
  • This month, jobs site CV-Library announced that, in a poll of 2,300 workers, almost two-thirds had experienced nepotism in the workplace, with almost a third saying they’d witnessed the hiring of underqualified candidates because of favouritism.

None of those scenarios are remotely satisfactory – and together, they paint a picture of a talent market that is lacklustre at worst, and stagnant at best. It would be understandable if business leaders were beginning to lose their faith in the skills pool and its ability to yield the results that will help their organisations thrive. In terms of how those trends may be affecting enthusiasm for training, leaders could be forgiven for thinking they’re between a rock and a hard place: reluctant to spend on development amid the pinched conditions of low productivity, and fearful that if they did, the talent would quickly fly off elsewhere.

View from America
Although we’re now eight years on from the flashpoint of the economic crisis, we are still very much in recovery mode, with uncertainty stemming from a whole host of fresh quarters (China’s slowdown, cyberattacks and global terrorism to name but a few). At a point when everyone is trying to do more with less, it has never been more important for leaders to have a readymade business case for placing learning and development at the heart of their HR strategies. In other words, employers need to have the confidence that they will see a return on investment (ROI).

Helpfully, compelling evidence of that very sort has emerged in the past few weeks from another country that is grappling with the talent riddle – the United States. Every year, US firms spend a whopping $177 billion on formal learning and development programmes, of which around 10% is dedicated to tuition-assistance schemes: courses designed to either i) furnish employees with new certificates, such as secondary degrees or other educational goals chosen for job relevance; or ii) provide workers with another shot at qualifications they may have missed out on earlier in life through, for example, dropping out of university. The aim of these achievements is to boost skills in the talent pool and enable staffers to fulfil their career aspirations – ideally within the firms that are providing the training.

However, when it comes to that tricky ROI question, there’s a catch. As a recent report from US learning and development agency the Lumina Foundation explains, most American organisations view tuition-assistance schemes as part of their employee-benefits finances, rather than their training expenditure. As a result, only between 2% and 5% of US firms have actually carved out the time to evaluate what ROI they receive on their development dollars: a relatively low evidence base – and not really enough for CEOs to go on, in terms of figures that would spur them on to widen their tuition offerings.

Signals from Cigna
That, however, is what the Lumina Foundation set out to change. Entitled Talent Investments Pay Off, its report examined how health-service giant Cigna managed to get a definitive fix on the ROI it receives from its tuition-based Educational Reimbursement Programme (ERP – not to be confused with the more generic business term, ‘enterprise resource plan’). Even though the report focuses on the experience of just one firm, its findings should fire imaginations in boardrooms everywhere – especially those that are wrestling with gnawing concerns about the extent of skills gaps and other talent shortfalls.

Cigna – which pulled in $35bn of revenue in 2014 – has around 31,000 employees. The Lumina Foundation study tracked use of the firm’s ERP scheme from 2012 to 2014, during which more than 2,200 different employees took part. So, over three years, the use rate across the company topped out at 5.8%. In its analysis of the outcomes, the Foundation gathered 4,400 employee records – half consisting of workers who’d used ERP, and half of those who had not (the latter forming a control group). Then it pinned down the total investment costs for tuition, third-party services, and administrative personnel.

After running the numbers, the Foundation discovered that workers who’d taken advantage of their ERP benefits achieved more promotions (+10%) and transfers (+7.5%) and generally stayed at Cigna for longer (+8%) than colleagues who didn’t participate. Calculating the total reward for the company across three, key factors of promotions, transfers and turnover, the analysis found that, between 2012 and 2014, the firm had achieved an ROI of 129%. Indeed, ERP users had greater career mobility and attained 43% higher incremental wage gains during the study period than workers who didn’t participate. Part of the programme’s success was Cigna’s knack for identifying ways of lining up the ERP scheme with jobs that had particularly high skills demands. To help those objectives along, a range of dedicated support services helped staffers get to where they wanted to go.

Fuel for the future
Following the study, Cigna’s management were determined that the pleasing result wouldn’t lead them to rest on their laurels. In fact, it galvanised them to come up with ways of making the ERP scheme even more effective going forward, with a view to improving on that 129% ROI. Its action plan involved:

  1. Increasing financial support to $10k for undergraduate degrees and $12k for graduate degrees in strategic fields of study, while lowering reimbursement to $4k for undergraduate degrees and $6.5k for graduate degrees in non-strategic fields – steps designed to address the most pressing elements of the firm’s talent strategy, while still helping employees develop skills for long-term employability;
  2. Launching advisory services to support ERP participants that would help them to navigate Cigna’s various career pathways, and
  3. Eliminating the burden of upfront payment by working with service providers to accept payment after each semester, when employees are most able to access their reimbursement funds.

So, what can we take away from what Cigna learned?

Most importantly: that firms not only can, but should be proactive about these matters. Yes, there is much about the talent riddle that is tangled and intimidating. But what the Cigna experience proves, with hard-and-fast numerical analysis (that time-honoured nectar for boardrooms) is that it’s well within every firm’s wheelhouse to do this.

Under a well-managed and clearly thought-through programme, it is unnecessary for leaders to be consumed with nerves about their learning and development expenditure… and highly likely that it will pay for itself sooner than they think.

Read the executive summary of Talent Investments Pay Off (PDF)

Find out about the workplace areas where Inemmo Leadership Development Solutions can deliver change

Image courtesy of PeteLinforth / 2043 images, via Pixabay