July 25, 2018

Experts Share Views on ROI of Learning and Development

Training can have a profound impact on staff and a company’s performance but does require an investment both in terms of time and cost.  However trying to measure the return on investment for this significant investment can be difficult.  The tricky topic arose in a recent Call for Support by one of our members and although the community produced some nuggets, the general consensus was that this area was big and important enough for a more structured session.

On a snowy December morning in Athlone a group of HR and Learning and Development executives representing 11 member companies gathered to hear the expert insights of  Ronan Emmett, Learning & Talent Acquisition Manager, Boston Scientific Cork and Professor Thomas Garavan – Research Professor-Leadership at Edinburgh Napier Business School.

In his talk “Measuring Return on Investment (ROI) in Learning & Performance Improvement programs” Ronan presented an ROI model with practical examples of how it can be applied to various programs; while Thomas presented data from a meta-analysis on the relationship between training and financial performance in his talk “Does Training Really Pay?”

Prof. Thomas Garavan from the Edinburgh Napier Business School followed with a presentation giving some global stats on the size and scale of the training market and some insights they have gathered from a statistical analysis of 98 published studies

Globally training is one of the most significant HR expenditure items: with the USA market valued at $90 Billion Dollars, the UK expenditure at $29 Billion Dollars, 2016 and the Irish market valued at ROI $1.6 Billion Euros.   Small firms account for one third of training expenditure while large firms spend significantly on training- across the globe.  Interestingly for ICBE members, manufacturing spends more than service organisations.

Before discussing the results of his own analysis on the industry Thomas presented the three ‘R’s of why organisations provide training namely Resources (skills to enhance performance), Regulation and Reputation (attract talent)

In an analysis of 98 studies to identify relationships between training and financial performance, productivity, customer retention, innovation, customer service and employee turnover, Thomas spotted a number of trends where training;

  • Resulted in a 9% increase in financial performance
  • Resulted in a 15% increase in organisational productivity
  • Contributed to a 28% increase in human capital quality
  • Increased collective motivation by 36%
  • Contributed to a 5% increase in voluntary employee turnover- skilled employees leaving the organisation
  • Increased the rate of product/service innovation by 34%
  • Contributed to a 38% increase in customer service levels

Thomas’ study also pointed to a clear path explaining how training enhances Financial Performance.  Amongst the body of statistics, he uncovered that training first of all increases human capital by 28% and that human capital leads to a 49% increase in employee motivation, leading to a 34% increase in organisational performance and a 36% increase in financial performance.

He also discovered a range of contingency factors including that training had a greater impact on organisational performance in service rather than manufacturing firms and interestingly that training had greater short term rather than long term organisational productivity advantages.

Thomas’s study has a range of implications for training managers and organisations as they seek to analyse the impact and value of training, including:

  • Investment in training has both positive and negative outcomes – it enhances human capital. However this leads to voluntary employee turnover.
  • The impact of training is maximised when it both enhances human capital and employee motivation. Enhanced human capital is an insufficient condition for financial performance.
  • Employees must be motivated to utilise their human capital for the benefit of the organisation otherwise the training investment is lost. The research found no direct relationship between enhanced human capital and organisational productivity
  • Investment in training that leads to both human capital and motivation gains significantly reduced voluntary employee turnover.

In concluding his presentation Thomas pointed out “Therefore the business case for training is two-pronged – enhanced human capital and motivation. However the motivation dimension is the key to unlocking the various paths in our analysis.”

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