Human Capital Research – What’s Stopping Us From Capturing the Business Impact of Human Capital Programs

What’s Stopping Human Capital Leaders From Capturing the Business Impact of Their Programs? A Grounded Theory Study

Organizations across the United States spend an estimated $134 billion on developing their workers (ASTD, 2008).  Yet, fewer than 5 percent attempt to measure the business impact of these learning interventions.  Human capital development can take many forms, but most frequently consists of management and leadership training, formal educational programs (i.e. Bachelor’s and Master’s Degrees), specific skill development or on-the-job training.  The nature of investment in tangible and intangible capital has changed dramatically over the past 100 years. Human capital is defined as “an approach to people management that treats it as a high-level strategic issue and seeks systematically to analyze, measure and evaluate how people policies and practices create value” (Accounting for People, 2003, p. 3). 

 When investing in “intangible” assets, it is often difficult to determine the economic benefit of the investment.  Lev (2001) makes a strong case for measuring intangibles, but his work does not bridge the gap between accounting, financial and human capital investments.  Organizations attempting to determine the return on investment or financial impact for mid-level management development training or tuition assistance programs often do not have the tools, data or resources to fully capture the impact of these programs.  In addition, most senior level executives do not accept that investment in intangibles can be captured.  They attribute changes in performance to outside environmental factors, and continue to view learning and development as expenses rather than assets that create value in the future.  Yet, because of the amount of money already being invested in human capital development, untangling the web of intangibles that contribute to performance is of extreme importance. Measuring the value created by human capital investment is increasingly required.

Because human capital is thought of as an intangible asset, the problem that organizations must address is how to determine the return on investment and economic benefit of human capital through learning and development interventions.  Organizations know they must invest in their employees, but financially justifying the investment is difficult.  Learning leaders need to understand how to translate their investment in human capital and learning programs into business outcomes. Learning leaders are now compelled to facilitate the learning innovation process within their organizations.  Learning leaders are increasingly required to account for the value of learning programs.

 Yet, understanding the methods and measures that capture the value learning creates is a mystery to many learning leaders who have the responsibility to do so. Whitaker and Wilson (2007) clarify that human capital was originally thought of as an economic entity, and that human capital management should include measurement activities.  However, many of the measurements that are conducted are thought to be irrelevant or inaccurate by senior management who could benefit from this data (Corporate University Xchange 8^th Annual Benchmarking Report, 2008). Cohen (2007) reiterates that those attempting to use data to make human capital investment decisions must be able to make a business case for those decisions.  

 To capture the breadth of the organizational learning phenomenon, interviews were conducted with a diverse group of organizational personnel with varying levels of experience and knowledge related to organizational learning.  The resultant sample included both senior leaders and directors responsible for implementing organizational learning programs (Gilchrist, 1992).

Results

Human Capital Strategy

 

 A major finding of this study was that human capital needs to be an integral element in the overall corporate strategy.  To that end, the human capital development agenda must originate from the top of the organization and be directly linked to corporate goals and then measured to ensure accountability to those corporate goals.  If the human capital management agenda does not originate from the top of the organization, then it must be driven up to the top by those individuals with direct responsibility for it.

Every informant articulated the necessity that the CEO, President, Founder, or owner must be cognizant of the value of learning in order for learning programs to be financially supported.  While this notion makes cognitive sense, it is not often the manner in which human capital investment decisions are made.  Rather, the norm is that organizations maintain a standing budget item entitled “training and development” or “human resource investment”.  Rarely do organizations understand the financial value that training and development actually bring to their business. But, increasingly, they need to do so in order to make informed investment decisions in intangible assets – in investing in their people.

 The participants in this study, however, each realized the necessity of their presence at the executive table.  When human capital investment decisions were made, it was vital that those who will be directly implementing the programs be a part of initial discussions concerning the goals of the organization and the learning intervention. One informant noted “there are several other (Chief Learning Officers) who are getting a strategic role, or a place at the table with the CEO, etc…  And they aren’t being buried under a senior VP of HR” (male, government informant).  This informant also noted “You can’t push it (learning strategy) up from the bottom, you’ll get “crushed!:  Another noted “I don’t think it sits on one place.  I think there are different inputs, but at the end of the day, my CEO pays the bill.  He approves the budget.  So, it is him and his direct reports, which are not necessarily human resources people, who are really dictating what learning and development does to support the business” (male, investment firm informant). 

 Another informant noted the importance of the Chief Learning Officer (CLO) being initially positioned at the senior level.  He stated “our CLO was not initially hired as a direct report to the CEO, but by the end of the year, I think she will have repositioned herself as more of a direct report.  I think that was part of her initial negotiations” (male, technology firm informant). 

 Human capital development must be directly linked to corporate strategy — from the highest levels down to operatives, each major learning initiative and investment must be tied to an overall corporate strategy.  In order for human capital development to be respected and embraced organization-wide, it is necessary it be part of the strategy.  One informant describes their philosophy below:

…we have a performance plan that included performance tasks, performance targets or metrics.  We identified who was responsible for them.  In other words, who can we pin the responsibility on? We had 105 tasks that we wanted to get accomplished across the organization.  Some of them supported the head office and workforce, and some of them were internal things such as business system modernization .(male, government informant).

Problems arise in organizations when human capital is not directly aligned with strategy.   Informants commented that a key challenge they face was the organizational view of learning.  When learning and development initiatives were not tied directly to corporate objectives, they were often viewed as “irrelevant”, “a perk” or a “cure-all.”  This was well articulated by several informants. The quote below captures this thought:

There’s not a lot of follow through, there’s not a lot of integration, into the organization.  So, historically, you can see whether or not a trend that you started has continued. (male, technology firm informant).  

 Another informant said it this way “I think that’s some of the challenges are how training is viewed in the organization.   Is it viewed as a perk? Is it viewed as a magic cure all? Whatever the training is, will it have the maximum impact? (male, technology firm informant). 

 Overall, human capital development, and investment therein, must be linked to the corporate strategy in order for it to be viewed as relevant.  But, in order for human capital development to be linked to the corporate strategy, it must be measureable.  Measurement, and the resulting metrics, of human capital development are another major theme found in this study. 

Human Capital Measurement

 

 As mentioned above, the value created by human capital investment is not customarily measured.  Unlike investments in tangible capital such as equipment and buildings where well established accounting measures and methods exist, investments in intangible asset, including human capital has no comparable measures and methods.  Systematically measuring the financial impact of learning investments is vague, unclear and often disregarded (Kirkpatrick, 1994).

 Through the interview and data gathering process used in this study, it was found that in order for learning leaders to know what outcomes to measure, several factors are necessary.  First, they need to know which key performance indicators (KPI’s) are of most interest to the CEO and business leaders. Second, they need to have statistically rigorous measurement tools and know how to use them.  Third, they need access to the data combined with knowhow to analyze the data.  And, finally, they need to have the confidence to implement the process. 

 One tool that was recommended by an informant was the use of the Enterprise Learning Plan, described below:

First, you need to know your organization’s top 10 goals, overall.  You can get this information from the Board of Governors, your CEO, etc… These goals should be prioritized so you know where to devote your energy and time.  Through this examination, you will find which top goals you need to be addressing in your learning program. You also know which line managers with whom you should align.  If increasing market share is the number 1 goal of the corporation, it better not be the number 10 goal in your Enterprise Learning Plan.. But, what is very important for Learning Leaders to understand is that in a small company, the business plan for learning could be written in one day.  After you have conducted interviews with your leaders and understand their priorities, an 8 – 10 page learning plan can be created.  (male, manufacturing firm informant).

  Yet, even if learning leaders have a sound business plan for learning, they still need to have access to and knowhow of measurement tools.  One informant stated “the issue learning leaders face is using anecdotal evidence rather than rigorous measurement tools.  When considering what stops learning leaders from measuring learning, there are four key hurdles –1)limited access to measurement tools, 2) no time, 3) lack of support from management and 4) don’t know how to analyze the data.” (Dresner, 2008). 

 Another informant discussed the need for learning leaders to understand statistics.  He was torn between the need for rigorous measurement and the extra resources this type of measurement requires.  He had an excellent thought regarding the view of measurement from CEO’s and other top business leaders.  He said “we have to consider reinforcing or changing the existing beliefs of our top managers.  For example, if my top management already believes that learning has a business impact, then any measures we use will suffice. But, if he or she does not already believe in the value of learning, then no amount of measurement will convince them.” (male, technology firm informant).  

One learning group shared that they set learning initiative priorities by meeting with business leaders and understanding the outcomes they need learning programs to address.  They held a “talent summit” once a year that helped them uncover business priorities such as talent attraction, talent deployment, talent development and retention.  They use both hard and soft data that captures costs, outcomes and deliverables.  They stated that using this data has brought increased “credibility with upper levels of management.” 

 Another shared his lack of comfort with statistics and measurement, but that he has partnered with universities and interns who are very skilled in this area.  Several other respondents indicated the necessity to utilize control groups in order to fully capture the impact of the learning initiative (male, technology industry informant).

 Finally, one respondent, responsible for over 400,000 learners, shared her organization’s “Data x Training x Outcomes” model.  She said that their organization can measure Kirkpatrick’s Level 1 and 2 very well, and that they measure some programs at level 3.  This person is responsible for a $10 million budget, so she emphasized the necessity to “think like a business person rather than and learning and development person.” (female, transportation industry informant).    

The last respondent’s response leads directly to the next key finding from this research.  The measurement of learning problem seems to be directly linked to the learning leader’s capabilities and skills.  If learning leaders do not have the human capital, or knowledge, skills, and experience to partner with others in their organization to build measurement processes, then they face an almost insurmountable challenge.  In addition, many respondents discussed the need for learning leaders to be change agents in their organizations. Being a change agent requires many skills, but leadership skill is certainly one of the most necessary. 

Learning Leader Capabilities

Cohen (2007) makes a very strong case for human resource professionals and learning leaders to be firmly grounded in scientific knowledge and evidence in their field.  In order for HR directors and learning leaders to practice evidence-based management, they must be grounded in scientific procedures. Additionally, because of the increased pressure to show business impact for learning initiatives, and because of the limitation of resources available for learning programs, it is essential that learning leaders become business leaders within their organization. 

 The question emerges as to how a human resource executive or learning and development professional achieve the business acumen, strategic thinking and economic/financial knowledge necessary to effectively manage their learning programs.

  A shift is occurring in the field of learning and development.  In the past, human resources, learning and development, and training executives customarily received their academic training in college programs such as adult education, human resource management and organizational development.  Rarely do these types of programs cover finance, business development, sales, strategy, economics, statistics and accounting. In fact, many learning leaders opt-in to these types of programs specifically because they do not feel competent to succeed in traditional business courses. Yet, it is business acumen that is directly and formidably lacking in many learning organizations

  When interviewing participants for this study, one of the most important questions asked was how they came to be in their current position.  After a few interviews, it became clear that learning executives who had previously run a line of business, came through finance or accounting, or who had self-educated in these areas, where at a distinct advantage over those who had not. 

 “I got involved (in learning and development) through one of the lines of business.  I joined the company before a lot of merger and acquisition started and the company grew through that activity.  I was representing one of the major lines of business within the company.  As the company grew, I took on additional responsibilities and changed the breadth of my focus.  That’s where the CLO title came from because as the company grew, my group took on additional business lines (female, bank executive informant).

 One might be tempted to feel that once a learning leader has the language of business, then they can operate in that realm. One participant disagreed. She said

“I think it’s because we use the ROI, and that’s an accounting term for gap analysis, which is really not what we’re doing when we do evaluation.  So I think that’s where that whole thought of using the right language with executives comes from.  But, I think, at the end of the day, what really makes (learning leaders) successful, is more about the personality, more about the ability to convince.  I don’t even think it’s a discipline thing (whether you come out of economics or human resources). It had nothing to do with where the leaders came from or how they were groomed.  It came down to personality, literally.  Isn’t that sad?” (female, retail informant). 

 This respondent disagrees that learning leaders need to come through the business ranks and speak the right language to succeed.  But her final point was this: If learning leaders don’t have the right relationships with senior management, for whatever reason, it will be very difficult to get their respect and attention.  It becomes a matter of demeanor, confidence, leadership ability and perseverance.  It might come down to a communication style, business style or presentation presence, but for learning leaders to change the shape of their organizations, they must tap into another type of capital, a type of capital known as psychological capital. 

Learning Leader Psychological Capital

 Psychological capital has been thoroughly researched and creates the ability for workers to have hope, optimism, resiliency and self efficacy and use these capacities in the workplace to achieve high levels of productivity (Luthans, Norman, Avolio & Avey, 2008).   Without psychological capital, the other factors found in this study become diluted. Without the ability to persevere when making organizational changes, having the right measurement tools, adequate resources, and alignment with corporate strategy still are not enough to implement sweeping organizational change. 

Paradoxically, it is the educational and work background, along with the ability to measure business outcomes for learning, that would give learning leaders confidence in their program and themselves. Without these factors, learning leaders continue to operate with blinders, unable to convince senior management of the value they and their programs bring. Without the highest levels of psychological capital and human capital, learning leaders fail to have an active voice within their organizations. 

 The necessity for psychological capital was most evident through observations of learning leaders during the data collection process. More specifically, the need for the growth of psychological capital was observed through several focus group sessions held with learning leaders.  Observations were powerful when looking into the eyes and watching the body language of learning executives. This data was not present in the words of the participants, but in their behaviors. 

Without the psychological capital and leadership skills necessary to leap the hurdles in order to measure outcomes of learning programs, learning leaders will never have accurate measurements of outcomes.  And, without accurate measurements of outcomes, learning leaders will find it difficult to build psychological capital.  How can the field of human capital management and learning collectively build its psychological capital? And, how can those with sound measurement and business experience align themselves with those championing learning programs within their organizations?  How can the bridge between learning and human capital investment decisions be made?

 Ironically, learning leader knowledge, skills, experience and psychological capacities trump all other measurement issues because it is ultimately the responsibility of the learning leader to drive change within their organization.  Learning leaders can have a rich and supportive context in which to create a fully-integrated, strategically aligned learning program, but without the leadership skills and abilities to do so, program success is tenuous. 

Not only is it important for learning leaders to develop their programs and themselves, it would be highly beneficial for organizations to support this activity as well.  Top decision makers within organizations (CEO, CFO, CIO) need to proactively attach themselves to their organizational human capital (and the future value it can provide) and support the efforts of human resources, learning and development and other human capital investment activities.  Organizations need to change the way they think about human capital investment and seek out those individuals who are experienced in planning and implementing human capital management decisions.

Both leadership and psychological capital are developmental and represent a tremendous opportunity for those in the learning field to make a substantive contribution to the success of their organizations.  We can purposefully move the field of learning forward by training our own leaders to be competent, to persevere and to be strategic.  We can change the landscape of learning by increasing the talents of learning leaders.  We can invest in our own human capital by investing in our own human capital leaders.

   As mentioned in the introduction of this paper, organizations are investing billions of dollars in training and development each year.  Yet, to date, less than 5 percent of organizations attempt to capture the value of this investment, not because they don’t see it as important, but because they don’t know how.  Organizations need to expand their knowledge about the impact of these investments. They need learning leaders to drive this change.

  It is possible to develop an action plan for learning and deploy that action plan systematically.  It is also possible to capture the business impact of learning by partnering with groups or individuals who can guide the process.  Learning leaders can operate as strategic partners in their organizations, but they must believe in their own value. They must believe in their own human capital and the impact they can make within their organization.  And organizations need to understand the impact developing their workforce can have, both economically and holistically.

 Participants of this study shared both their frustrations and strategies for capturing the value of learning.  They were leaders in their field because they took the opportunity to voice their successes and failures. Through this work, they gave voice to all learning executives who now understand they are not alone with their struggles.  The participants of this study gave hope to the field of learning and to organizations facing impending worker shortages and other human capital challenges.  Participants in this study moved the field forward by providing experience and insight into making sound human capital investment decisions.

 

References Available Upon Request