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How to Enhance ROI of Human Capital Through Training How to Enhance ROI of Human Capital Through Training Presenter: Raymond Lo, Senior Manager Deloitte Human Capital Advisory Services Limited 21 June 2002 How to Enhance ROI of Human Capital Through Training An Overview Why Care about ROI of Human Capital? Enhancing ROI of Human Capital Training Initiatives Measuring Training Effectiveness Q & A How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? What is Human Capital? Human Capital (“HC”): ? is an intangible asset of a company ? inspires ideas that ignite values ? financial analysts pay higher attention on HC leverages on measuring the companys worth ? E.g. General Electric, Nokia, Microsoft ? Intelligence and values of employees can generate multi-fold of revenues and are reflected on stock prices How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Human Capital Components Human Capital Knowledge Management Skills & Knowledge Creativity Lessons Learnt Undocumented Methodologies Ideas & Insights Market Research Technical Know-How & Education How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Corporate Investment on Human Capital Human Capital US$1.0 3.1 Trillion Customer Assets Organl Assets Business Relationship Intellectual Assets Intangible Assets Tangible Assets US$2.0 Trillion US$10.4 Trillion Market Values US$12.4 Trillion How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Why Care about ROI of Human Capital? Management is concerned with: Reducing Operating Costs Increasing Productivity, Efficiency & Effectiveness How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Calculating ROI Traditional ROI Calculation: Total Benefits Total Costs Total Costs ROI =x 100% Total Benefits: money saved and generated at directly or indirectly Total Costs: include tangible and intangible costs How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Why Care about ROI of Human Capital? Today, employee costs can exceed 40% of corporate expenses (Dr. Jac Fitz-enz) ?To measure the effectiveness of resources allocation, it is critical to evaluate the ROI in human capital Management needs a system of metrics that describes and predicts the cost and productivity curves of its workforce ?“Quantitative” measures ?“Qualitative” measures How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Measuring ROI of Human Capital “Quantitative” measures ?tend toward measuring costs, capacity and time ?tell what have happened “Qualitative” measures ?focus on value and human reactions ?give ideas of why things happened ?also offer insights of results, and drivers or causes ? E.g. Poor product quality ? increases in costs (e.g. re-work and scrap) and prolongs delivery time ? reduces customer satisfaction (lose customers) ? increases marketing costs to attract new customers How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Case Study #1 An Australian-based banking institute is experiencing high turnover of staff recently since the new operations of the customer service centre. The turnover rate has reached the historical highest of 40%. Besides high turnover, the absenteeism rate is extraordinary high as compared to other departments. Management is very worried about this situation and urges the HR Department to reveal the underlying reasons. The HR Department has invited a number of customer service centre staff for focus group meetings. They discovered that staff find the customer management system (CMS) difficult to operate and has no clear instructions. They always feel frustration to complete simple tasks by keeping the customer wait for a long time. They also feel no accomplishment on their job. How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Case Study #1 (contd) Questions to ask: 1.What do you think is (are) the cause(s) of high staff turnover? 2.What resolution(s) would you suggest to the HR Department? 3.How should the result be measured? How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Case Study #1 (contd) From the focus group discussion, HR Department realizes that the staff lack proper training on operating the system. Not that the system is complicated, but the staff are just not familiar with the system interface. Consequently, the HR Department has proposed a number of solutions to the management: 1.Technical Training on CMS Operation 2.High Performer Campaign 3.Simplification of the CMS Functions How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Case Study #1 (contd) For measuring the improvement of staffs performance, HR Department relies data on: 1.Staff Absenteeism Rate 2.Customer Satisfaction Questionnaire 3.Customer Complaints Rate 4.Exit Interviews with Staff Resigned As a result, the staff turnover rate reduce to 5% and customer complaints drops to 3 incidents per 1000 calls. Note: This study was conducted in December 2001. How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? How to Measure ROI of Human Capital? Time Efficiency without ROI consideration No. of Output ? Efficiency with ROI consideration ? How to Enhance ROI of Human Capital Through Training Why Care about ROI on Human Capital? Looking for ROI Enhancement HC accounts about 20% to 30% of a companys total worth (Fortune 1000 companies) ? Create a Knowledge Management System to foster knowledge retention within the company ? General knowledge assets i.e. ubiquitous knowledge ? Business knowledge assets i.e. company specific ? Enhance the knowledge of staff by sharing information amongst them ? Encourage information sharing ? Provide accessibility to authorized personnel How to Enhance ROI of Human Capital Through Training Enhancing ROI of Human Capital Translation of ROI of Human Capital Potential Abilities Training Needs Performance / Productivity Return on Investment (ROI) Motivational Drives Staffs Efforts Behaviors Abilities Corporate Assets Human Capital How to Enhance ROI of Human Capital Through Training Enhancing ROI of Human Capital Enhancing ROI Through HR Strategies Training & Development Enhance ROI of Human Capital Recruitment & Selection Employee Relations Employee Motivation Rewards Management Motivate right performance Foster right culture Reward right behaviors Develop right skills / competencies Place right people on jobs How to Enhance ROI of Human Capital Through Training Training Initiatives Training Initiatives Analyzing training needs ? Soft skills training vs. Technical skills training ManufacturingServicing Industry HiLow LowHi Technical Skills Soft Skills ManufacturingServicing How to Enhance ROI of Human Capital Through Training Training Initiatives Types of Training Effective Communications Problem Solving Skills Presentation and Public Speaking Negotiation Interpersonal Skills Series Train-the-Trainers Effective Recruitment Behavioral and Stress Interview Training for Managers HR Management Series Change Management Conflict Resolutions Employee Motivation Time and Project Management Developing Self-Confidence Team Building Leadership and Delegation Leadership Series How to Enhance ROI of Human Capital Through Training Training Initiatives Benefits of Training Create a team spiritTeam Building Enhance interdepartmental communications Increase work procedures and process Effective Communications Select higher quality workforceBehavioral and Stress Interviewing Influence and convince others Give confidence to others Presentation and Public Speaking Increase work process and efficiency Time Management BenefitsTraining How to Enhance ROI of Human Capital Through Training Training Initiatives Case Study #2 An US-based insurance company is expanding its business in Asia. With its century old experience in North America, it gains over 30% market share in the home country. It is planning to grow exponentially in Asia, particularly in China, because it foresees the potential of the Asian market after Chinas accession to the WTO. The headquarters has initiated a massive recruitment campaign in Hong Kong. The management faced no problems in recruiting business development individuals in Hong Kong, and they would like the newly recruited business development individuals to exploit the China market. How to Enhance ROI of Human Capital Through Training Training Initiatives Case Study #2 (contd) Two months after the recruitment process, the management realized that the sales volume does not increased much, even though workforce has been increased by 20%. The management is anxious to know the underlying reasons. Thus, a committee is formed to investigate the root causes of the stagnant situation. In the research report, the committee addresses a number of issues: 1.Unfamiliarity of the industry regulations in China 2.Lack of business development experiences 3.No motivation on hitting higher sales target How to Enhance ROI of Human Capital Through Training Questions to ask: 1.Is there a need for training? 2.What types of training would you recommend? 3.How effective would the training be? What to be measured? Training Initiatives Case Study #2 (contd) How to Enhance ROI of Human Capital Through Training Training Initiatives Case Study #2 (contd) The committee has proposed several training initiatives to improve the current status, which include: 1.Industrial Knowledge Training 2.Soft Skills Training (Sales Techniques and Presentation Skills) 3.Teamwork and Motivation Outward Bound How to Enhance ROI of Human Capital Through Training Training Initiatives Case Study #2 (contd) The committee set out a number of performance indicators to measure the effectiveness of the training programs. These indicators include: 1.Written Test Examination (to test industry knowledge) 2.Random Tape-Recording Conversation (to control the sales quality) 3.Customer Satisfaction Survey / Customer Complaints Report (to foster customer service and professionalism of staff) 4.Team and Individual Rewards (to motivate higher sales effort) How to Enhance ROI of Human Capital Through Training Measuring Training Effectiveness Impacts of Ignoring Training Investment Reduce work efficiency ? Staff with no training normally needs six times the time to take up the same tasks as those who are trained Increase staff turnover ? Training can enhance staff retention as they become more satisfy on their job How to Enhance ROI of Human Capital Through Training Measuring Training Effectiveness Impacts of Ignoring Training Investment (contd) Lower gross profit margins and lower income per employee ? A four-year study conducted by the American Society of Training and Development shows that companies which spend more money on training have higher gross profit margin (24% higher) and income per employee (218% higher) than those spend less How to Enhance ROI of Human Capital Through