Forging a closer connection for the future.
by Jack Ph.D.
November 29, 2009
<p>The three acronyms above are closely related, although it may not be readily apparent. Recent issues and trends bring the connection into focus. </p> <p>Enter the CFO. From all indications, the chief financial officer has become an integral part of the people side of the organization. A survey from CFO magazine of the top 10 concerns of CFOs offered insight into what’s on their minds. Five of the top 10 involve what’s normally under the control of the human resources function. With regular coverage of human resources topics and even an annual issue devoted to human capital, the magazine clearly says that human capital is too important to leave in the hands of the HR function. </p> <p><em>The Economist</em> has labeled 2009 the year of the CFO, declaring this person the most important executive to help manage us out of the recession. Gartner research reported that more chief human resources officers are now reporting to the CFO. During a keynote address at a recent conference for the National Association of Electrical Distributors, I asked for a show of hands of human resources managers who are now reporting to the CFO. Surprisingly, almost 20 percent raised their hands. The same question three years ago would have elicited a substantially smaller number. Most learning and development functions still report to HR, putting the CFO in a position to have direct responsibility for this important area. </p> <p>Now enter the CEO. Now, after the ROI Institute conducted a study of the chief executive’s perception of the value of the investment in learning, we have more insight into what the top executive considers important measures. Ninety-six out of 451 Fortune 500 CEOs responded for a 21 percent response rate. Of those, 96 percent said they would like to see some measure that connects learning to business impact, yet only 8 percent of their L&D functions provide the data. </p> <p>On a similar note, 74 percent of the executives said they would like to see return on investment (ROI) developed at least for some major programs, yet only 4 percent said they are provided this data now. Not surprisingly, 18 percent of the executives say they base the amount of funding for L&D on the amount of payoff they see from this function. Clearly, CEOs are restless when it comes to the data we provide to them. Unfortunately, most of the information provided has been dominated by input data (number of programs, hours, costs and efficiencies) or reaction data. While we’ve always realized that CEOs want to see impact and ROI data, perhaps it’s now coming into focus because of the recession.</p> <p>Now enter ROI. Clearly, CEOs and CFOs want to see the value of learning and development in terms that are important to them, which often means data that connects L&D to the business. In some cases, this means measuring ROI for major projects or programs. Financial ROI has been calculated for almost 200 years, originally for capital expenditures. In those days, capital expenditures represented the majority of expenses in a company — buildings, equipment and tools. Today, in most companies, those items only represent 15 percent of expenses. The other 85 percent are expenses such as marketing, human resources, technology, quality programs, support functions and other processes. Now the CFO is using the concept of ROI in nontraditional areas. It is entrenched in marketing, quality, technology and, yes, in human resources. Naturally, the CEO looks to the CFO to try to capture the return on the largest investment, human capital. </p> <p>To many, it comes as no surprise that the CFO is now more involved than ever before, often at the encouragement and requirement of the CEO. Together, these two important people will be eyeing our investments. This leaves some important challenges for the CLO. As we emerge from the recession, there must be a renewed effort in building a culture of measurement and accountability. We must focus on results and continue to have our teams thinking about the contributions they’re making.</p> <p>Evaluation must be pushed to the impact level for at least major programs, and in some cases pushed to the ROI level for expensive and strategic projects that command this level of accountability. Some projects will have this level of scrutiny before they are even implemented. The issue of forecasting ROI will reach intense proportions in 2010-2011. </p> <p>So, clearly the concepts of CLO, CFO, CEO and ROI are becoming linked. While this is uncomfortable for some CLOs, it is a welcome challenge for others. Regardless of the process used to show impact and ROI, it must pass the test of credibility with two executives, the CEO and CFO. Otherwise, these two important stakeholders will be disappointed.</p>