Author Topic: The ROI of talent development  (Read 1037 times)


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The ROI of talent development
« on: April 19, 2017, 11:48:51 PM »
The ROI of talent development

Return on investment, or ROI. This phrase not only drives most executive meetings today, it has moved to the forefront of the L and D arena as well. And actually, it should. ROI is really about delivering results, making sure that you're moving the right needles, and that things are getting better. There are some other phenomenal benefits of learning that I want to give you so that you can use them when you need to help key stakeholders understand the power of learning. First, let's look at retaining your top talent. We all know that this is important, and you'll certainly hear the leaders in your organization talk about it, but I have found that most of them have not fully appreciated the financial costs of losing a top performer.

So I share with them the research that SHRM, the Society for Human Resource Management, has done which found that replacing an employee can cost from 50% to 250% of their annual salary, plus benefits. This takes into account the cost of recruiting and hiring a new person, the lost productivity of the role until it's filled, and the time it takes for the new hire to get up to speed and fully productive. And the range of percentage is based on how highly-skilled they were.

Entry-level positions are at 50%, and highly-skilled or leadership roles will be closer to 250%. But what I do next is show them the math so that they truly get the financial cost. I get data from the folks in HR and industry sources to create a slide similar to this one. On the left you can see the cost of losing a typical, entry-level worker, and on the right is a highly-skilled employee, for example, technical talent or a high-level leader. If you want you can also multiply these costs by how many people have left in recent months to create a real sense of the loss.

As you can see, the costs are far more than people realize. This can help leaders understand that it is far less expensive to invest in developing current talent rather than replacing them. It can also make the case for having a well-developed succession plan for your top performers. Another thing I help leaders see is the true costs of disengagement. There are several great studies on engagement, and I like to use Gallup's data because it's so robust, and includes U.S. and global work-forces.

Gallup studies show that in the U.S., approximately 17.2% of the workforce is actively disengaged. This means that they're very unhappy and acting out that unhappiness at work in the form of tardiness, missed work days, decreased productivity, and shrinkage, which is a fancy word for stealing the office supplies and other resources. In fact, Gallup has estimated that a disengaged employee costs an organization approximately $3,400 for every $10,000 of salary, or 34%.

I take those numbers and build a slide that is specific to the organization or department I'm working with, getting salary information from HR or other reliable sources. In this case the organization has 3,725 employees, and we assume the national average of 17.2%, which is 641 people. The median salary happens to be $150,000 at this company and using the Gallup estimation of 34%, that's roughly $51,000 per person, per year.

Multiply that by 641 people and you reach the astounding cost of $32.5 million per year. Needless to say, leaders sit up and take notice. You can also create slides for regions and job titles, like I've done here. Needless to say, when leaders see the overall and real costs of disengaged employees, they get very focused on prioritizing building an engaging work environment.

The final thing I help show leaders is the impact that learning has on both decreasing attrition and increasing employee engagement. Studies by McLane and Company show that access to learning and development opportunities is a key driver of employee engagement. In addition, it increases employee identification with organizational values, and can make an organization's culture more positive. Add to this Dan Pink's research on motivation being driven by autonomy, mastery, and purpose, all of which have direct ties to learning, and Carol Dweck's research on the power of growth mindset in driving success, and you have a pretty compelling argument for the power of learning.