CFOs, Apply Supply Chain Logic To Human Capital Management – Part 2

Making ROI-based Decisions About TRAINING AND DEVELOPMENT

In Part 1 of this series, I proposed supply chain management (SCM) discipline should be applied to human resource processes to understand opportunities to enhance efficiencies in these processes. This is especially important for CFOs with increasing responsibility for improving financial efficiencies in all areas of the company. Part 1 specifically discussed applying SCM discipline to the recruiting process as a way for CFOs to ask the right questions about HR programs, and, as a result, to make decisions about people spend that positively impact the bottom line. In this post, we’ll explore the application of SCM thinking to another powerful HR process — training and development — with an eye to a similar improvement in financial decision making.

Why the CFO Should Pay Attention

As with recruiting, training and development can also be costly. But unlike recruiting, a benefit of providing training to employees is that the company will more directly reap some level of return on its investment – hopefully in employee productivity, retention and loyalty. The relationship between training and a firm’s overall performance has been the subject of study for more than sixty years.

Recently, Harvard professors Aaron Bernstein and Larry Beeferman, concluded that “training is frequently associated with higher profits for firms.”

However, the benefits of training programs can be hard to quantify financially for two major reasons: 1) It can be hard to directly correlate the impact of training with better performance, better decision-making or leadership quality. 2) It is hard to pinpoint the time when the benefit of the training intervention will “kick in” – a week, a month or longer.

As we said, in Part 1 about SCM and recruiting, Applying an SCM lens can help CFOs ASK THE RIGHT QUESTIONS of HR to confirm the alignment of programs and processes to business strategy and identify opportunities to improve efficiencies. We aren’t suggesting CFOs get into the nitty-gritty of designing and managing HR programs; we are suggesting CFOs partner with CHROs and other business leaders to enhance the impact of HR on bottom-line performance. The partnership of financial rigor with program and people expertise will generate measurable benefits.

To identify where improvements in efficiencies (and therefore ROI) can be achieved in training investments, we suggest examining each step in the training process with an SCM approach before making critical decisions including how much to invest in these programs:

1. Demand, Planning, and Forecasting: In SCM this is focused on predicting future resource needs. For training, this involves predicting the quantity and timing of the skills/competencies required based on today’s needs and future needs. Understanding how skills/competencies have been affected by attrition trends help to understand where these gaps are. Questions to ask:

• How do we define training for professional development purposes?
• Do we have the skills/competencies we need today and, in the future, to achieve our business strategy?
• How effective have our training programs been in the past – what is our baseline ROI on training? How do we capture the investment? How do we capture the benefit?
• What changes in technology, product line, etc. do we predict and how do we prepare our employees for the changes?

2. Production Planning and Scheduling: In SCM, this exercise established future inventory acquisition schedules and optimizing production to fit quality and quantity needs. For training, this would encompass predicting and planning future training interventions. Questions to ask:

• Are we training the right people at the right time with the right protocols?
• Are we aligning our training programs with our future talent needs and business strategy?

3. Distribution and Logistics: In SCM this is planning how goods will move through space and time, identifying where to place goods and optimizing choices about which sources to use. For training, this would inform decisions on whether to use in-house training resources or use contracted/consulting resources to deliver training. Questions to ask:

• Are we tapping internal expertise to deliver training?
• What is the cost/benefit analysis and the opportunity cost of using internal versus out-sourced training talent?
• Are we optimizing the timing of training delivery to coincide with slow work periods?

4. Inventory Management: In SCM the key concept is managing resources – how much inventory should we have, where can shortages and surpluses be tolerated, and how much is this costing the organization. For training, this would address how to quantify the inventory of skills and competencies in the organization to facilitate deployment of this asset where and when needed. Also addressed would be planning how far in advance to build inventories of needed skills/competencies. Questions to ask:

• What is the impact of training on retention, engagement, employer brand, productivity?
• What is our ROI on training and the ultimate benefit to the organization?

CONCLUSION: CFOs can begin to identify opportunities to better align cost/benefit for the organization and optimize dollars invested and resulting return in the training process. By working closely with the CHRO, an authentic, synergistic partnership between Finance and HR will create substantial value

Footnote: Solange created HCMoneyball as a first of its kind solution designed to capture and report on much of the data needed to address the above questions and reveal the efficiency and impact of all HR programs.

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