Key Takeaways
- Successful learning ROI starts with clearly documenting the "why" behind LMS procurement before implementation, not after. Articulating specific business goals (like cost reduction, revenue growth, or compliance) and establishing measurement metrics upfront creates accountability and demonstrates value to stakeholders.
- Beyond mathematical ROI calculations, the "employee happiness factor" represents valuable soft returns that can be measured through structured surveys and attrition rates. Integration with talent management systems enhances this by connecting learning to career development opportunities.
- Compliance training offers one of the most compelling ROI justifications for an LMS, as the cost of non-compliance (averaging $490,000 per employment lawsuit) often far exceeds the investment in a learning system. This "slam-dunk" business case is particularly potent in highly regulated industries.
There has been much debate over learning ROI (return on investment). In a corporate setting, it usually comes up around content or learning management system renewals or during budgeting time. Executives will ask, and rightfully so, "are we getting our money's worth?" It's a fair question. But when the question is asked after implementation or when a training program is in full swing, it often throws the training or learning manager into a tailspin.
I have seen many corporate L&D departments scurrying around trying to run reports that will somehow demonstrate ROI for the learning management system (LMS). I always encourage organizations to address this ROI question from the very beginning, i.e., when you are in the process of selecting an LMS and capturing stakeholder buy-in.
There are two key questions when considering learning ROI:
"Why are we procuring an LMS?"
"How do we validate our reasoning?"
Many L&D professionals might argue this is obvious, but if you're the head of manufacturing in a large corporation and weren't involved in the original discussions, the answer is not obvious. If asked to contribute funding, you'd want to know the reasoning.
Particularly in large companies, a business plan is usually developed to justify the spend, including an explanation of ROI and measurable ways to quantify the investment over time (monthly, semi-annually, or annually).
Reasons for Procuring an LMS
When answering the "why are we procuring an LMS?" question, think about the possible answers:
- To increase productivity
- To decrease costs (e.g., less travel to classrooms and more eLearning)
- To satisfy mandatory training for compliance
- To improve employee job performance
- To increase revenue (e.g., beef up sales training to drive more sales)
- To enhance career development
- Some combination of the above
Answering the "why" question is usually verbalized but not concisely documented. My advice is to document your rationale in the business plan or whatever document you are using to justify the investment.
Stakeholder Buy-In
Equally important is stakeholder buy-in by function or line of business. In addition to HR, the IT department will likely be involved and they need to be a part of any implementation from the start – even if they don’t own the project. It is not always easy to see how revenue-generating lines of business, for example manufacturing, are stakeholders who ultimately fund the LMS – so they should also have the opportunity to weigh-in on the project. Unless you sell your learning content to finance the LMS, it is an indirect cost to the company.
Document Reasoning for Purchase
Wilson advises to “document stakeholder input and/or commitment in your business plan. This should help satisfy the new head of manufacturing’s concerns about why we procured an LMS.”
When documenting the reasons for procuring the LMS, it needs to be followed with "how the system investment will be measured over time." Some reasons are more difficult to measure than others.
For example, if a reason is to decrease employee travel costs by reducing instructor-led training and increasing eLearning delivery, then benchmark current travel and labor costs, calculate the initial system investment, track ongoing maintenance costs, and finally track employee travel and labor costs – or something similar to achieve the needed metrics to "measure the investment." Much of this data can be programmed and retrieved from the LMS – but usually not all of the data. So, a concise model for measuring the system investment over time needs to be conceived and documented for this to work.
Answering the questions discussed will get you on the path to successful implementation, provide legitimacy for your reasoning through solid documentation that specifies how you will measure success over time, and ultimately validate the rationale for your investment.
Drive Revenue with Your Learning Initiatives
In most organizations, increased revenue is directly linked to sales team productivity. How do you relate increasing sales team productivity as a reason to procure an LMS? If increased sales productivity is an organizational goal, and you can legitimately make the case that sales training can make a difference, how do you document your answer and measure results? Be careful with your reasoning because sales people measure success by age-old axioms of pursuing leads, follow-up, and closing deals. It’s a game of percentages and sales people are sensitive about how they spend their time – in training or time with potential clients.
Salesforce.com is a dominant tool that salespeople use daily. Cornerstone OnDemand has done interesting work in the Salesforce integration. The product allows salespeople to access sales training courses directly from their normal workflows in the Salesforce platform. Although Cornerstone’s LMS is the engine behind serving up training content and recording data, the transition to training content is invisible to the end user and, in addition to accessing training content, requisite training data can also be reported from Salesforce. Has it worked? Yes it has and, in terms of achieving increased revenue, you can run a report from Salesforce that documents sales before and after training interventions. That’s a great way to measure sales training effectiveness over time – hence ROI from the LMS.
Measuring the Employee Happiness Factor
Earlier we discussed ROI in terms of decreased costs or increased revenue or, in other words, justify ROI by using math. But what about non-math "why" reasons – the "soft" returns – like enhanced employee career development? These reasons are harder to quantify and measure. This is where Integrated Talent Management comes into play.
If one goal is to improve employee career development, then determine what tools to use. For example, employee exposure to other jobs within the organization and the prerequisites required are capabilities typically available in an integrated talent suite. But how do you measure success?
This is often characterized as the "employee happiness factor." It is measurable and usually accomplished through an organizational communications plan that routinely surveys employees and solicits feedback.
Establish and document what metrics are required to measure success when documenting your ROI plan (e.g., on a 1 to 5 scale, survey employees to see how they rate the organization's ability to enhance their career opportunities). Then document what success looks like over time. If employee feedback trends more positively over time, you're doing the right things.
Also measure employee attrition over time. Employee attrition is an important indicator but don't limit your ROI plan to just that. Multiple factors play a role in attrition including leadership, compensation, and corporate culture.
How does an integrated talent management, specifically a performance management solution, help to answer and measure the more difficult "why" questions and how can compliance align and help determine LMS ROI?
Closing the Circle with Employee Performance
If improving employee job performance is a reason to procure an LMS, your ROI plan should clearly state why and how an LMS will make a positive difference. But can an LMS measure job performance? Not really. An LMS serves up training content and tracks an individual's training progress, which should be a component of employee performance. One could argue, and for that matter measure, that an employee’s performance measurably improved because of training delivered by an LMS.
If improving employee job performance is a goal, consider including employee performance management in your purchase. This is because you won't be able to measure all criteria for job performance through an LMS – only some components.
An employee performance management aligns with corporate goals and cascades down to individual role performance, numerically measuring (usually as a percentage) whether established goals were achieved. This data can be aggregated to measure overall workforce performance and achievement of improved performance or increased productivity. Include these goals in your ROI plan and identify the employee performance management report that will measure success.
Compliance Risk
Compliance ensures that an organization has the processes and internal controls to meet requirements imposed by governmental bodies, regulators, industry mandates, or internal policies. Put simply: don't lie, don't steal, and don't cheat.
Compliance training keeps the business out of trouble and ensures safe business practices. These are usually recurring requirements that need accurate reporting (tasks well-suited for an LMS).
Research by the ADP Research Institute stated that the average employment lawsuit award exceeds $490,000 and that 52% of midsized companies report at least one recent HR-related complaint. Consider industries where lives are at stake – energy, manufacturing, and transportation. Each year, large multinational firms pay billions for infractions that translate to non-compliance. These firms take compliance training seriously.
Ask your legal department about compliance and the cost of non-compliance. Depending on what your company does, the risk might be small or huge. Consider these costs and potential non-compliance risks as a sensible reason to invest in an LMS. Your ROI calculations can quickly become very impressive.
Stick to the ROI rules – ask the right questions, document your answers, and measure the results over time. This will guide you on your path to successful implementation, provide legitimacy for your reasoning through solid documentation that specifies how you will measure success over time, and ultimately validate the rationale for your investment.
