In leading organizations like Toyota, Starbucks, and Amazon, Learning and Development (L&D) has become an integral part of their success, woven seamlessly into the fabric of their operations. As L&D becomes more deeply embedded, so does the importance of fostering strong relationships with other departments—especially finance.
However, aligning with the finance team can be challenging. Are L&D professionals effectively communicating their role and value in terms that resonate with finance? Are we speaking the same language when it comes to demonstrating impact and organizational value?
In this article, we delve into these questions with insights from Ajay Pangarkar, author of Learning Metrics: How to Measure the Impact of Organizational Learning. We’ll explore how L&D’s role as a cost center can evolve, and how using KPIs to report on learning outcomes can help prove the tangible impact of your interventions.
L&D budget conversation? Nail it with these talking points.
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Aligning L&D and business objectives
Every organization has a business objective that keeps it growing and competitive. This objective ensures that the entire organization remains focused on its purpose.
To ensure that L&D teams deliver value to their organization, they can examine the company’s mission or vision statement. By deconstructing and re-engineering the mission statement, you can develop a strategy that will impact your organization's primary objective.
For example, at Toyota, the objective has been to consistently deliver a quality product. To fulfill that mission statement, L&D was not an afterthought but a fully integrated function within the organization's culture. Up to 90% of the L&D focus was on defining and delivering on that quality objective.
“I use that example because it shows how integrative learning can make an organization powerful,” says Ajay.
“I use that example because it shows how integrative learning can make an organization powerful,” - Ajay Pangarkar.
At the heart of the vision statement are the elements that will empower you to deliver value to your organization by focusing on performance outcomes.
L&D is seen as a cost center, not a profit center
Finance departments use the term cost center to measure how specific departments deliver on the money provided to fulfill their function.
A cost center is not expected to make a profit but rather to support the parts of the organization producing the profit (the profit centers).
L&D is a cost center (or a value-adding center), just like accounting or marketing. Because the L&D function is a cost center, we need to keep our minds on a necessary clarification about how we should be showing impact.
Here’s a quick example: marketing doesn’t prove its value by showcasing the campaign it designed. Senior decision-makers are interested in the results at the bottom of the financial statements. They want to see metrics like the number of new customers a marketing campaign attracts.
“But for some reason, L&D wants to show the beautiful course that we designed and how people are learning,” says Ajay.
“But for some reason, L&D wants to show the beautiful course that we designed and how people are learning,” - Ajay Pangarkar.
L&D needs to shift the focus of our language and reporting from a course’s design or how people are learning to the results that prove an impact on performance in the workflow.
Speaking the same language
An organization’s finance department measures profit centers in ROI, not cost centers.
Although ROI can be used to prove the return on investment for tangible equipment (e.g., tablets to enhance workflow learning), L&D should separate ROI from measuring the training itself, which is a cost.
For example, companies spend millions of dollars on Super Bowl commercials, but they do so without expecting to recoup the cost in the short term. Long-term exposure provides the value, but no direct correlation exists for measuring the investment. The same principle applies to learning.
“You can say, ‘I’ve upskilled David,’ and next year he performs well, but there’s no direct correlation to say the training is what really caused the improvement,” says Ajay.
“You can say, ‘I’ve upskilled David,’ and next year he performs well, but there’s no direct correlation to say the training is what really caused the improvement,” - Ajay Pangarkar.
To prove the impact of learning interventions, L&D needs to understand the problems that need to be solved before delivering any solutions.
Focus on performance expectations to measure impact
To demonstrate to the finance department that learning interventions are making an impact, L&D should be reporting on KPIs instead of ROI.
To demonstrate to the finance department that learning interventions are making an impact, L&D should be reporting on KPIs instead of ROI.
The performance framework is derived from the mission statement, down to the senior leaders, and through your organization to every department. Each department has its own operational scorecard with KPIs.
“These key performance indicators are the performance expectations of each of these operational value areas that have to deliver to ensure the organization exists,” says Ajay.
Your organization’s manufacturing, sales, or marketing operational leaders all have performance measures to meet. They will have targets to meet in the next six months or a year. Engage these leaders to identify their most pressing challenges and areas of focus.
By understanding their performance expectations, operations, and the business, you can partner with them to address an issue and deliver solutions aligned with their needs.
Explore further insights on how L&D can better measure impact on the latest episode on The L&D Podcast: What Your Finance Department Want to See From Your L&D Department With Ajay Pangarkar
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