The July issue of Chief Learning Officer is now available online. It features an article in which Jon Husband and I delve into how to measure the impact of learning in the network era.

Productivity in a Networked era: Not Your Father’s ROI

Today’s networked era requires a new way to make investment decisions that incorporates intangible assets and more accurately depicts how value is created.

The industrial age has run out of steam. Look at General Motors. Look at Chrysler. We are witnessing the death throes of management models that have outlived their usefulness.

The network era now replacing the industrial age holds great promise. Networked organizations are reaping rewards for connecting people, know-how and ideas at an ever-faster pace. Value creation has migrated from what we can see (physical assets) to intangibles (ideas). Look at Google and Cisco.

Understandably, seasoned executives, chief learning officers among them, are having a devil of a time shifting from the industrial age mindset of logic, certainty and bounded constraints to the network gestalt of interaction, self-organization, unpredictability and fewer limits to potential. The pressure is constantly on to meet quarter-to-quarter revenue and earnings targets that in turn accentuate the need to take decisions that support achieving those targets. At the same time, we are shifting into an era in which knowledge work and learning occur where re-engineered business processes collide with a participative and interactive ecology of information flows.

How can a chief learning officer hope to make informed judgments in this continually expanding networked environment that’s flowing ever faster, spreading power among its members and producing outsized impacts in unpredictable ways? What to do?

One cherished industrial age concept that is proving particularly difficult to let go of is return on investment (ROI). But like Pontiacs and Oldsmobiles, old-school ROI’s day in the sun is waning. In an environment of continuous flow and interaction, there’s a need to consider an emerging metric: return on investment in interaction (ROII). The working definition of ROII is the observable development of capacity and capability to create economic values out of intangibles.

Consultants and smart-aleck MBAs will tell you if you want to sell a big project internally, you’ve got to talk ROI. It’s the language senior managers understand. Being fluent in ROI talk addresses the “hard” tangible returns stemming from an investment in a specific project or capacity. It is supposedly the secret handshake that gets you to the inner circle of those who control budget dollars.

Let’s look at what ROI was, how it needs to be changed and how to recapture its original intent in the network era, in which continuous learning and knowledge work are becoming inseparable. As Steven Forth of the LeveragePoint division of the Monitor Group puts it, “Too many people who talk about the ROI of learning are focused on being precisely wrong rather than directionally correct.”

Traditional ROI
ROI is an accounting and financial management concept businesses use to decide where to make investments and to assess the success of investment decisions after the fact. ROI reduces both return — R, what you expect back — and investment — I, what you expect to put in to numbers — making it possible to compare one investment opportunity to another. The numbers tie back to categories on the balance sheet and income statement, (i.e. tangible assets and hard-dollar returns).

ROI is what you get for your money, divided by what you spent to get it. It’s R/I expressed as a percentage. In a business culture that is skeptical of nonnumerical reasoning, ROI implies disciplined, mathematical rigor. It ties actions to intended results. It shows the logic of how results will be achieved.

Companies set up ROI hurdle rates to gauge whether there will be sufficient payback over a reasonable and defined period of time to justify the capital invested to acquire additional capacity or produce a defined result. Companies also use ROI to evaluate past performance. In retrospect, what was spent and what benefits were received? This simplifies making the case for similar projects in the future.

What You Can’t See
In the network era, things you can’t see are more valuable than things you can. Thomas Stewart sounded a clarion call in his book The Wealth of Knowledge with his exhortation that building the capacity to create economic value through things such as innovating and enhancing brand reputation is as important, or more important, than generating specific results from a specific initiative. Twenty-five years ago, intangibles accounted for less than a third of the value of the S&P 500. Today, intangibles can make up more than 80 percent of that value.

On paper, Google’s net worth was about $30 billion at the end of 2008. That’s what it paid for computers, buildings and stuff you can see, minus debts and the expense of wear and tear. Stock market investors value Google at $125 billion. Where does the extra $95 billion come from? Intangibles.

“Intangible assets — a skilled workforce, patents and know-how, software, strong customer relationships, brands, unique organizational designs and processes, and the like — generate most of corporate growth and shareholder value,” wrote NYU Professor Baruch Lev in Harvard Business Review in June 2004.

Corporate decision makers say their goal is to increase shareholder value. In a networked, information-based environment, shareholders value brand, reputation, ideas, relationships and know-how. These assets don’t appear on the balance sheet, but more and more often they provide a corporation’s competitive edge. These most important aspects of the business aren’t recognized by old-school accounting and therefore aren’t factored into ROI calculations.

Organizations that make decisions based solely on things that are sufficiently tangible to be counted directly might as well consult a Ouija board to set their goals. Leaving the most important sources of value out of the ROI equation is not conservative — it’s foolish.

Measuring intangibles involves making judgment calls, so managers often exclude intangibles from their ROI calculations. Several purported authorities on calculating ROI suggest taking intangibles into account by putting them on a list but refusing to estimate their value. This leads you to comparing numbers to words, apples to oranges.

You Must Manage What You Can’t Measure

“You can’t manage what you can’t measure” was a mantra of industrial age management. Adopting F.W. Taylor’s brilliant research and models, generations of managers have carried stopwatches and pored over measurements in a continual quest to make things work better. Efficiency was the road to riches in the slower-moving, predictable industrial age, and measurement was the proof of the pudding.

While the measurement meme works when your goal is to tweak the way you’ve been doing things and other operational decisions, it doesn’t apply to making judgment calls, strategic choices or disruptive innovations.

Executives manage immeasurable things all the time. The more powerful the executive, the more likely he or she is involved in effectiveness — doing the right things rather than doing things right. Intuition, judgment and gut feelings guide these more important decisions. Qualitative assessment often can make up for a concrete numeric result.

Make a hypothesis of cause and effect. Interview a statistically significant sample of the workforce to see if the hypothesis holds up. Often, results obtained from social science research methods will produce more meaningful feedback than solid counts of the wrong thing.

The old “can’t measure, can’t manage” dodge doesn’t free businesspeople from making decisions under conditions of uncertainty, and the network era ushers in uncertainty in spades.

Making Decisions in the Era of Networks
A business network is a group of individuals or organizations that are linked together by factors such as values, visions, ideas, financial exchange and collaboration to further the ends of the corporation. Business networks share common characteristics with all networks:

• They multiply like rabbits because the value of a network increases exponentially with each additional connection.
• They naturally become faster and faster because the denser the interconnections, the faster its cycle time.
• They subvert hierarchy because previously scarce resources such as information are available to all.
• Network interactions yield volatile results because echo effects amplify signals.
• Networks connect with other networks to form complex adaptive systems whose outcomes are inherently unpredictable.

Intangibles travel via networks, and networks are the infrastructure for doing business in the future. An overarching caveat here: Strategist and practitioner Stuart Henshall said trust is critical. “It’s the one qualitative factor all networks depend upon.”

ROI, the tool we once used to evaluate projects in stable times, clearly is not up to the task. The impacts of collaboration-based knowledge work are accelerating. However, the Western world is lurching from crisis to crisis, and executives are under constant pressure to perform. It’s difficult for them to give up models they understand well.

In the future, organizational effectiveness will be defined by the interaction of workers in a networked environment. Exchanges of information and knowledge are what make peoples’ brains work on a purpose and what gets the imagination going to formulate pertinent responses. However, the return on networked collaboration is less tangible than the results generated from stable and ordered sequential tasks that dominate the efficiency-oriented industrial era.

So we face the problem of convincing managers to adopt new mental models that incorporate the intangibles generated by a whole system, the organization and its interconnected networks. Making a business decision to invest in new ways of working is a complex process involving many factors and intricate tradeoffs, such as:
• Risks must be weighed against rewards.
• Short-term vs. long-term aims.
• Alignment with strategic initiatives.
• Scarce resources call for shrewd horse trading.

Identifying and Measuring ROII
The focus in this new world of work is to do what’s important and involve those who know what’s important, why it’s important and what they know (or know how to find out) about a problem or issue. To begin measuring increases in productivity and value in a networked social computing environment, we propose return on investment in interaction (ROII), derived from the principles of Metcalfe’s law of networks.

Some core assumptions about ROII :
• Continuous flows of information are the raw material of an organization’s value creation and overall performance.
• Information flows are carried by links, alerts, RSS feeds, search engines, aggregation and filtering of content.
• All leading vendors’ productivity platforms now feature collaborative social networking and computing.
• These platforms’ architectures facilitate purposeful cross-silo communications and exchange.

In a June 2008 “The Network Thinker” blog post, social networking pioneer Valdis Krebs outlined four generic metrics that are becoming widely accepted as leading to observable, tangible measurable outputs:
• Increase in size of network.
• Increase in internal network connectivity.
• Increase in connection to valuable third parties.
• Increase in number of projects formed from all three factors above.

It’s important to note here that we are not proposing a definitive answer, but rather the need to debate and clarify the issues. Each of the principles outlined above proposed by Krebs addresses the productivity of network activity. Unpacking them can help us understand how to begin to assess ROII.

Increase in Network Size
If we follow the logic of two heads are better than one, and therefore X heads are better than two, in social- and knowledge-building networks, we can expect to find:
• More engagement with an issue.
• More analysis by more people.
• More input from more people.
• More possibilities that may have been overlooked.
• Quicker and more comprehensive analysis.

CapGemini’s relaunch of its knowledge management initiatives offers a great example. Its initial program wasn’t working: 20 percent year-on-year usage decline, three and a half year average document age and an average of seven years to refresh current knowledge. It relaunched informally via word of mouth and within six months had 27,000 of 83,000 employees using it, involved in 900 communities exchanging information and pertinent knowledge on a daily basis. All that activity came without spending a single dollar on formal internal communications or training.

Increase in Internal Network Connectivity
Increases in network connectivity involve the degree, frequency, density and concentration of information flows between nodes in a social network. The organization is able to define better business and market intelligence, more frequent and tangible customer centricity and responsiveness, and clear instances in which cross-silo knowledge exchanges lead to tangible results.

At CapGemini, six months after the informal launch, the 900 communities of practice were using 500 forums, 500 wikis and more than 250 expertise- or project-focused blogs. Business results as defined in the previous paragraph are not long behind.

Increase in Connection to Valuable Third Parties
In today’s increasingly interconnected environment, ignoring external parties that have an interest in products or services is a guarantee for trouble. These interested parties talk about brands or offer up opportunities, and organizations that respond rapidly and effectively to issues gain competitive advantage.

Ford Motor Co. opened up its launch of the new Sync service to customer input and conversation. With 1 million page views in less than 12 months, the company experienced a significant reduction in customer-service support costs as 10,000 customers began to offer each other tips, pointers and answers. Further, it began to receive significant tangible market intelligence as engaged users began to share product integration and compatibility experiences, tips and tricks.

Increase in Number of Projects
ROII is obvious when the scope, degree and intensity of interaction increase due to implementation of the three above principles. An increase in the number of projects creates value as people learn to work together effectively in networks, putting informal learning to work on resolving issues, creating opportunities and generating activity that enhances an organization’s reputation for listening and responding effectively.

Fast Company recently published an article on Cisco Systems’ large-scale adoption of social computing as the main means of working with information and knowledge. CEO John Chambers said that as a result, Cisco has gone from being able to focus on three to five strategic initiatives at a time, to now working on 26-27 strategic initiatives in parallel.

Informed Judgment
The heart of the matter is providing decision makers with an informed business case that ties investment to the results that it brings. A solid case describes results in business terms, such as increased revenue, better customer service, reduced cost or speedier time to performance.

Network returns are asymmetric, so simplistic count-’em-up approaches are no longer viable. But how can one make a solid network-era case to an executive who is still playing by yesterday’s rules?

The answer is to improve the corporate network as a continuous process, not as a project with a hurdle rate. Improving network performance need not be all-or-nothing. It can be implemented in small stages. Break major decisions into numerous low-risk incremental decisions. Instead of making one major decision a year, CLOs might look at boosting network results as a series of monthly decisions. Continuous monitoring of the statistics of ROII would guide mid-course corrections.

Life was simpler when you could measure performance by counting the number of widgets produced, shipped or sold. Given that the networked workplace and markets are here to stay, how can managers begin to adapt and refocus long-standing mental models about what and where to invest precious energy and time? An effective response to this conundrum is qualitative assessment.

Create a hypothesis and use existing techniques — surveys, focus groups, facilitated brainstorming — to find out what employees and customers are doing and how they want to work together. Then, check it out with a wider sample of the workforce to see if it holds up. It’s clear we are moving rapidly into a networked world in which responsiveness, innovation, gaining competitive advantage through learning faster and embedding knowledge into products and services are all important.

In a world of intangibles, we need to contribute to the productivity, viability and profitability of any given enterprise. We should rethink and expand our methods for making judgments about where, when and how we invest in the ongoing interaction between our employees and customers. That is the return on investment in interaction.

In the past three weeks, I have been scanned, patted down, forced to remove my belt and shoes, and asked to wait in line for the privilege, in San Francisco, London, Lisbon, Madrid, and Philadelphia.

Collectively, we’re wasting hundreds of millions of dollars on this nonsense, money that could be invested in  schools, parks, and public health.

At Heathrow, a guard ripped a rag doll from the arms of a panicked, confused, one-year old child just ahead of me in order to scan it. Busybodies in uniform confiscate duty-free booze and expensive perfume. (Exploding Channel No. 5? Single malt munitions?) One nutcase tries to ignite explosives in his shoe, and we all have to take our shoes off. This is crazy.

The whole search-and-sniff apparatus was cooked up by the Bush Administration to convince the citizenry that we were at war. (Voters rally behind wartime presidents.) The Transportation Safety Administration and the goons the U.S. Government has coerced other countries to install at the entrances of airports are engaged in political theater.

Why don’t we shut down the frisk-everyone lines? In their place, pick 1% of passengers for a search and pat-down. That should be enough to divert terrorists to other targets if they really hanker to blow something up.

To fork or not to fork?

For my brief stay in Madrid, my guidebook is Top 10 Madrid, from DK Eyewitness Travel. It is excellent, a most useful hip-pocket compendium of maps, things to see, restaurants, foods, shops, neighborhoods, and history, structured as a series of top 10 lists.

The book has me thinking in 10’s. Here are my Top Ten Ways Madrid Differs from Berkeley:

1. Independent bookstores are thriving in Madrid.
2. Lots, perhaps most, people in Madrid smoke cigarettes.
3. People in Madrid read daily newspapers.
4. Businessmen in Madrid wear ties.
5. Service workers, even taxi drivers, are polite.
6. Spaniards are oblivious to the dangers of skin cancer.
7. People in Madrid eat late at night.
8. Security guards in front of luxury shops wear loaded guns.
9. In Spain, Christopher Columbus is still regarded as a hero.
10. Taxi drivers and waiters are pleased to receive a 5% tip.

Most of my corporate clients would be well served to put together booklets as comprehensive as a Top 10 Guide. It would reside primarily online.

Imagine having these top ten lists in one easily-accessed, profusely-illustrated corporate guidebook:

1. Top ten corporate milestones, capsule histories
2. Top ten buildings and rooms, accompanied by maps, floorplans, and access information
3. Top ten founders and corporate pioneers
4. Top ten customer engagements
5. Top ten sources of company information
6. Top ten corporate innovations over time
7. Top ten corporate benefits
8. Top ten restaurants near our offices
9. Top ten corporate benefits
10. Top ten expense and reimbursement policies

I am staying at the Hotel Hi Tech President in Madrid. Don’t follow in my footsteps. There’s a PC in my room; it doesn’t work because no one has installed the HP set-up software. There’s a mini-bar that keeps the drinks lukewarm.The wi-fi is painfully slow.

Today I walked the galleries of the Reina Sofia Museum, a staggering collection of beautiful and challenging modern art. In the courtyard in the early afternoon, I swayed as a percussionist ensemble performed mind-blowing sets on snare drums, bongos, marimbas, gongs, cymbals, and tablas. Then I filled my head with everything from Lucas Cranach el viejo to Roy Lichtenstein and Lucien Freud at the Thyssen-Bornemisza museums. I took in the special Matisse 1917-1941 show for dessert before wandering the streets of Madrid for another hour.

I’ve taken Dave Gray’s advice and stop frequently to sketch of what’s in front of me. My head is exploding with fresh ideas. But the #$%! wi-fi connection here works only intermittently I have 250 photos to upload to Flickr. Yet I’m unable to share what’s going on. Even writing the blog is a drag, for the words appear letter by letter, s-l-o-w-l-y, and I fear that Firefox will crash again when I’m in mid-sentence.

That’s all for now. I’ve been trying to upload a photo for the past ten minutes and the connection simply won’t let me. Grumble, grumble, adios.

My unbook, Working Smarter: Boosting Brainpower for Fun & Profit, is now on sale at Amazon for $14.

This is a book for business managers about applying common sense to the task of building workforces that improve performance naturally, without prodding. It’s about eliminating training bureaucracy that has failed to keep pace with the times. It’s a new way of looking at how people become competent in their work and fulfilled in their professional lives.

In the network era, brains replace brawn, and most work evolves into knowledge work. Using your brain(s) effectively becomes the key to prosperity and the ultimate corporate survival skill. This book advocates investing in brainpower in ways that demonstrably improve organizational performance.

Pragmatic and grounded in experience, this is a re-think of how upgrading an organization’s brains can increase profits, spur innovation, and help businesses prosper.

In today’s volatile, unpredictable times, brainpower and collective intelligence are the keys to corporate responsiveness and survival. While learning is ascendant, training is in decline, for workers are embracing self-service learning; they learn in the context of work, not at some training event divorced from work.

This is an unbook. Among other things, that means it’s unfinished. It will never be finished. Unbooks are always in beta, ready to get better.

My pal Dave Gray hung out with me here at Internet Time Studio the first few days of this week. We are the prime movers in the unbook movement and when I return from Europe, I’ll post a video of our discussion about where unbooks are headed. In the meantime, you might want to visit the unbook website.

Last month, immigration officials began hassling me because every square inch of my passport was filled up with stamps and visas. I mailed it to Washington to have extra visa pages inserted. Now I’m sweating bullets because I’m supposed to fly to London on Sunday and my passport is in transit and may not make it on time.

Public speaking, like writing, forces me to sharpen my thinking, and that, in turn, improves my coaching and workshop sessions with corporate clients. In London, I’ll be talking about how to evaluate informal social learning and learning infrastructure, things that are tougher to get your arms around than individual courses. In my keynote address in Faro, I plan to discuss post-industrial learning and new approaches to instructional design. The next week in Madrid, my workshop will focus on informal learning: what it is, how to take advantage of it, and who’s been doing a good job thus far.

People invariably ask for slides and recordings, so from now on I will be posting follow-up information on my primary website, jaycross.com

If you’re in London, Faro, Seville, or Madrid, ping me if you’d like to get together.

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Evaluating formal and informal learning
London. June 9, 2009

IADIS International Conference  e-Learning 2009
International Association for Development of the Information Society
Faro, Portugal. June 17, 2009

Informal Learning en la Práctica: Cómo diseñar su Proyecto de Aprendizaje Informal
Madrid. June 23, 2009

More Human Than Human

CLO magazine, June 2009
Column on Effectiveness, by Jay Cross

The future is people, not technology

My last column in CLO called for the abolition of corporate training departments. Now some instructors and traditional instructional designers see me as a job threat. They needn’t worry. Enlightened e-learning requires more people, not fewer.

Ten years ago, venture capital firms issued lengthy reports explaining why e-learning would take the world by storm. Their underlying economic argument was cost-cutting: less travel, fewer facilities and no more salary expense for instructors. It was a classic industrial age proposition: Replace humans with machines. That first round of e-learning largely failed for precisely this reason. You can’t remove the humans from learning.

Companies should embrace network-supported informal learning because it works better, not because it reduces labor costs. People learn more efficiently at the time of need, in the context of work, from people in the know and through virtual conversation.

When my colleagues and I advocate cutting back on workshops and classes in favor of building “learnscapes,” we aren’t suggesting firing the instructors. Rather, we recommend redeploying them in new capacities, serving as connectors, wiki gardeners, internal publicists, news anchors and performance consultants.

There’s no cookie-cutter formula for assigning these new roles and responsibilities. An active community of practice is a different animal from a bottom-up knowledge management network or a corporate news channel. New communities have different requirements than old.

In their book Digital Habitats: Stewarding Technology for Communities, Etienne Wenger, Nancy White and John Smith describe different community orientations in terms of meetings, open-ended conversation, projects, content, access to expertise, relationships, individual participation, community cultivation and service context.

Digital Habitats posits the role of the community technology steward. Technology stewards are people with enough experience of the workings of a community to understand its technology needs and enough experience with technology to take leadership in addressing those needs.

A steward’s initial task is to shape a vision consistent with the community’s orientations. The steward then selects the simplest technology to advance the community as both the technology and the organization progress.

Digital Habitats also assigns these duties to the technology steward:

• Bringing new members up to speed with the community’s technology.
• Identifying and spreading good technology practices.
• Supporting community experimentation.
• Assuring continuity across technology disruptions.
• “Keeping the lights on” (including backups, permissions, vendor payments and domain registrations).

TogetherLearn’s Clark Quinn sees the need for a learnscape architect who nurtures the health of the learning network for collaboration, communication and learning opportunities. More a leader than a technician, the learnscape architect is the network champion who carries the vision, monitors metrics, promotes network participation and encourages continuous experimentation.

Mzinga’s Dave Wilkins describes several production roles. Producers manage the contributions of others, drawing out the best in them while also opting not to include contributions that aren’t as good. Moderators help ensure an environment of high trust by ensuring that people play by the rules. Expert moderators may vet the accuracy and clarity of information in their domains. Yet other moderators seed discussions to channel conversations in ways that might provide insight to the organization. Reporters and bloggers unearth what is newsworthy and document it for the community.

These tasks won’t happen by themselves. Furthermore, people throughout the organization will need to share the burden of helping everyone learn. Distributing learning throughout the social fabric of an organization requires storytellers, mentors, bloggers, community elders, schedulers and editors. We’re all in this together.

Some instructors will continue to instruct, but they will increasingly do so with network support and in smaller bursts. It’s a better use of their time. Face-to-face instruction packs a punch but is difficult to scale. Economics dictate that traditional instruction will play a diminishing role in corporate learning.

Traditional instructors and instructional designers are ideally suited to excel in these roles. They understand how adults learn and how to transform information into learning. It’s important for corporations to benefit from their learning people, not give them pink slips

Last week we signed up for Comcast’s “Triple Play” and have been enjoying HD television, crystal clear phone calls, and zippy internet performance as a result:

Last week

Yesterday we received a phone message informing us that because Comcast is installing new fiber technology “to improve our service,” internet and phone service would be out for 90 minutes between midnight and 6:00 am. We had no internet connection from 8:00 am today until after noon. I had to hitchhike on my neighbor’s unprotected wireless connection. I pray Comcast stops making “improvements” like this.

This afternoon

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Click here to answer six straight-forward questions about learning in your organization.

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In Become a Chief Meta-Learning Officer, published in the May issue of Chief Learning Officer magazine, Clark Quinn and I wrote “The scope of the chief learning officer’s job is mushrooming. CLOs will neither prosper, nor even survive, if they fail to take responsibility for the overall learning process in their organizations. Here’s why, and what to do about it.”

Well, are you doing it or not? Are you following the path we prescribe? Find out without reading our article.

Simply answer these six questions about your organization. It will take  a few minutes at most. Your replies are anonymous. Save a snapshot of your responses so you can compare things with the overall results we’ll share here in about a month.

Here’s where to go: Chief Learning Officer / togetherLearn joint survey.

If you are a sole practitioner or consultant, please don’t take the survey. This one is for organizations. Leave a comment or wait for the results.

If you’re like me, you’re probably reluctant to take part in a survey if you don’t know what’s coming. Here are the questions. You’ll know whether taking part is in your interest.

Now take the survey. Thanks.