Founders Talk #01 - Measuring L&D effectiveness: Practical measures to prove ROI

In a year characterized by conservative budget decisions, measuring the Return on Investment (ROI) of L&D initiatives and storytelling based on these metrics will become increasingly important in 2024. With companies investing more cautiously, justifying L&D investments poses a central challenge for many. L&D professionals are increasingly facing budget cuts or stagnant budgets.

Therefore, demonstrating Return on Investment (ROI) for L&D programs is more crucial than ever. It's not enough to show how many hours were spent learning or how satisfied employees are with the learning process; it's also essential to demonstrate that it positively impacts the company's bottom line.

In this context, learning and skill analytics are coming into focus to underline the effectiveness and benefits of professional development initiatives within the company. Learning analytics are crucial for making learning outcomes measurable, evaluating activities, and justifying investments in learning content. Skill analytics, on the other hand, can help capture skill development at individual and organizational levels, uncover skill gaps, strategically address them, thereby making a significant contribution to tackling skill shortages and calculating a clear ROI.

In this interview, we spoke to our co-founders Marius & David about their views on measuring the effectiveness of L&D initiatives.

Question 1: What are the most common metrics currently used by L&D teams to justify L&D investments?

David: In practice, I often see most L&D teams focusing on traditional metrics. We're talking about learning hours, completion rates, and employee satisfaction. These metrics have their value because they provide us with insight into engagement and participation. But honestly, they only scratch the surface of what's really important. They measure more the input, the effort we put into training, rather than the actual impact that learning has on our business. Teams often rely on so-called 'Happy Sheets,' which assess how satisfied participants were with a seminar or course. However, such evaluations can be misleading. They measure satisfaction at a specific moment, often without reference to actual learning outcomes or their application in practice. It's like measuring the success of a fitness program solely based on how satisfied participants were with the course or the trainer, rather than whether they improved their fitness or health.

Question 2: Why do these fall short in measuring the actual impact?

Marius: When we look at the traditional metrics commonly used to measure L&D effectiveness, we quickly realize that they measure quantity rather than quality. They tell us how much time someone spent learning but not how effective that learning was or how it contributes concretely to improving business results. Metrics like learning hours and completion rates often have no direct connection to business outcomes. That's a significant shortcoming. It's not just about whether employees complete courses or feel comfortable with what they learn. More important is whether they can apply what they've learned in their daily work and how it advances our company. Moreover, such metrics only provide superficial insights. They don't really tell us whether learners can apply what they've learned or how it affects company performance. Long-term effects are often completely overlooked. Yet, it's precisely the long-term development of skills and employee engagement that are crucial for business success. Additionally, individual learning paths and progress are not considered. Everyone learns differently and at different paces. By limiting ourselves to generic metrics, we miss the opportunity to design L&D in a truly efficient and targeted manner.

Question 3: What should the metrics look like instead to get L&D activities to the board and secure budget?

David: What I really care about and what I would like to see more of are metrics directly aligned with business goals. By that, I mean things like reducing employee turnover or improving productivity. These metrics show us how L&D actually contributes to business success. It's about not seeing personnel development only as a cost center there for employee satisfaction but as a strategic partner making a measurable contribution to business success. For me, the following 5 aspects are important:

1. Business goals: The ROI of L&D should be reflected in tangible results such as revenue growth, productivity improvement, and cost reduction.
2. Behavioral change and performance improvement: Measuring how L&D improves employee performance, e.g., by reducing errors or improving work quality after training.
3. Long-term effects: Measuring the long-term effects of L&D, e.g., lower turnover and stronger employee retention.
4. Innovative learning metrics: Dive deeper into the effectiveness of L&D with advanced analytics to understand the relationship between learning activities and performance. Predictive analytics help us anticipate future requirements and adjust our L&D strategy accordingly.
5. Clarity and communication: Results need to be communicated clearly and understandably. By storytelling with data, we show how L&D solves real business problems.

Question 4: What are the biggest challenges for companies when it comes to measuring these metrics?

Marius: The challenges for companies in measuring these metrics consist of various factors. First, there's the challenge of data integration and analysis, meaning that data from different sources such as L&D systems, performance evaluations, and business results need to be consolidated. These processes alone can be quite complex. Then there's the challenge of proving direct influence on business outcomes. It's often difficult to establish a clear connection between L&D initiatives and concrete improvements in business results. Another sticking point is long-term effects. Measuring the effects of L&D measures over a longer period is not always easy. It requires a long observation period and some patience. At the same time, there are cultural and organizational barriers within the company where there's simply a lack of understanding or acceptance of the importance of L&D-related data. This also involves a certain level of awareness and persuasion. Adapting the L&D strategy to business goals poses a real challenge as business goals and needs are constantly changing and require continuous adjustment. Last but not least, there's often a lack of the necessary expertise within the company to effectively use advanced analytical methods. This is another hurdle to overcome.

Question 5: But how can companies make learning or skills more measurable and prove ROI?

David: To make learning and skills more measurable and thus prove ROI, there are various approaches that companies can take. First, specific learning goals need to be defined that are directly linked to business objectives. This means defining clear and measurable goals aimed at achieving the desired outcomes within the company. For example, L&D programs can be geared towards improving relevant skills that increase long-term customer satisfaction. Another important step is the use of skill assessments and competency models. Through standardized assessments, companies can quantitatively measure their employees' skills before and after L&D initiatives and track skill development. By using learning analytics, the progress of all employees can be monitored. This is not just about tracking participation and completion rates but also about more advanced metrics, such as the transfer of learning into work practice. L&D metrics can provide crucial insights into productivity, revenue growth, or quality improvement within the company. By regularly collecting feedback from employees, supervisors, and other stakeholders, companies can assess how effectively learning is being applied in the workplace and what impact it has on business results. Calculating the ROI of L&D initiatives is another important step, comparing the costs of programs to the business results achieved, such as improving employee performance or reducing absenteeism. Predictive analytics can help companies predict future trends and skill requirements, helping to proactively shape L&D strategies and maximize ROI in the long run. Case studies and success stories are also helpful in demonstrating the value of L&D and serving as compelling evidence of the success of L&D initiatives. Finally, continuous review and adjustment of L&D programs are necessary to adapt to changing business needs and market trends, ensuring that all L&D measures remain effective and deliver the desired ROI.

Question 6: How can AI help companies measure and improve the effectiveness of L&D activities in the future (or even today)?

Marius: AI can support companies in many ways to measure and improve the effectiveness of L&D activities. One important area is the personalization of learning experiences. Learning content can be individually tailored to the needs, skills, and learning styles of each employee. This allows for tailored learning paths that demonstrably increase the effectiveness of learning. Furthermore, predictive analytics enable the prediction of future learning and development needs. With the help of data pattern analysis, we can act proactively and adjust our L&D strategies to upcoming business requirements. Automated skill assessments, using AI, can help objectively and efficiently assess employees' skills and knowledge. Thus, artificial intelligence enables improved analysis of learning and performance data. By analyzing these large amounts of data, we can gain deeper insights into the effectiveness of our L&D programs and identify correlations between learning activities and improvements in job performance. Through real-time feedback and adjustments, we can dynamically adapt learning experiences to maximize their effectiveness. AI-driven systems can, for example, recognize when an employee is struggling with a topic and offer additional resources or exercises. Furthermore, AI can automate time-consuming administrative tasks in the L&D field, such as course registration, progress tracking, and reporting. This allows L&D teams to focus on strategically important tasks.

Question 7: What skills do L&D professionals need to bring their L&D activities to the board level? Or why do they still often fail in practice?

David: Firstly, strategic thinking is extremely important. L&D managers must be able to develop L&D strategies that directly contribute to achieving the company's goals. Unfortunately, we still see too many L&D initiatives in practice that have no direct connection to the company's strategic goals. To counteract this, the ability to analyze data is essential. However, skills and/or resources to collect and analyze data efficiently are often lacking. Communication skills and storytelling also play an important role. L&D managers must be able to clearly and convincingly communicate L&D results and strategies to the board. In addition to communication, a comprehensive understanding of technology and digital trends is crucial to be able to react to market changes in a timely manner and sustainably utilize current trends, such as AI and e-learning. Other important skills include change management, a basic understanding of finance, and effective stakeholder management. Difficulties in involving and considering the interests of key stakeholders are often reasons for the failure of L&D initiatives at the board level.

Question 8: What role do you think "Impact Storytelling" will play? How can storytelling be used to convey the value of L&D programs to the company/the board?

Marius: "Impact storytelling" will play a crucial role in presenting the value of L&D programs to executives or the board. It provides a unique opportunity to present numbers and facts in an engaging, memorable, and convincing way. First of all, storytelling can establish an emotional connection between the listener and the presenter. By sharing stories about individual employee successes or teams that have benefited from L&D programs, L&D professionals can capture the board's attention and demonstrate the relevance of the respective programs. Furthermore, storytelling can serve to make complex data and analyses understandable and tangible. Board members, who are often not deeply involved in the details of L&D, can better understand the value and impact of these initiatives and make better decisions. Stories can also illustrate successes as well as challenges of L&D programs. It's equally important to share stories about challenges and how they were overcome as it is to share success stories. By focusing on individual employee experiences, storytelling emphasizes the human aspect of L&D and shows how L&D programs positively impact work life and career development. In this way, storytelling can also be used to convey the vision and strategy behind L&D initiatives and clarify the long-term value of L&D.

Thank you for your time, and we look forward to the next Founder Interview!