CLO magazine

Published June 2010

When you talk to businesspeople, you must speak as they do. Executives only care about training as it relates to execution. Their interest is in moving the corporation forward. You should share that interest. That is what they pay you for.

A sponsor is the person who pays those bills. Sponsors are responsible for championing the case for change (i.e., the vision), visibly representing the change (i.e., walking the talk), and providing reassurance and confidence (i.e., the implementation plan).

Someone once interrupted me during a webinar when I was talking about how trainers need to be aware of corporate objectives and rate their contributions by their impact on the business. “Wouldn’t that require us to understand how the business worked?” he asked. Yes, of course. How could you do your job right without knowing how the corporation worked? Several others jumped in, essentially saying that organizational success and helping to meet strategic objectives was “not my job.”

The days when corporations were larded with layer upon layer of management whose job was to translate strategic imperatives from above into job descriptions and projects down below are long gone. Now all of us are supposed to sing from the same hymnal without the intermediaries.

There’s no cookie-cutter formula for applying metrics, but there is an underlying process.

Measure results throughout your program, not just before and after. Keep your sponsor informed. Frequency is sometimes more important than quantity. Monitoring things early on may enable you to make mid-course corrections.

The Responsibilities You Share

Peter Drucker, hailed as the father of management, is a business guru’s guru. Drucker singled out eight characteristics of effective executives:

• They asked, “What needs to be done?”
• They asked, ‘‘What is right for the enterprise?”
• They developed action plans.
• They took responsibility for decisions.
• They took responsibility for communicating.
• They were focused on opportunities rather than problems.
• They ran productive meetings.
• They thought and said “we” rather than “I.”

The Metrics Cycle

There’s no cookie-cutter formula for applying metrics, but there is an underlying process.

Generally, you’ll follow these five steps to identify, agree upon, assess and use metrics. This is not rocket science. It’s the same process you already use to accomplish a lot of things in life.

Let’s briefly consider each step.

1. State the desired outcome. Results do not exist inside the training department. In fact, results do not exist within the business. Results come from outside the business. Imagine a no-nonsense businessperson, such as Jack Welch, GE’s former boss. If you can explain yourself to Jack, you’ve mastered this step.

2. Agree on how to measure. The only valid metrics for corporate learning are business metrics. Examples are increased sales, shorter time to market, fewer rejects and lower costs. How do you decide what measures to apply? You don’t. That’s the responsibility of your business sponsor, the person who signs the checks. Together you agree on what’s to be done and how you’ll measure success or failure. Once you’ve settled on the project and its metrics, get it in writing.

3. Execute projects. The projects could be training, an incentive bonus plan or more advertising. Training programs are often part of a larger scheme, and it’s fruitless to try to isolate them. In fact, savvy training directors look for major corporate initiatives they can hitch a ride on.

4. Assess the results. You must evaluate the impact of your efforts with the measures you set up back in the second step. In other words, you are not allowed to mimic Charlie Brown, who would shoot an arrow and then paint the target around it. Why stick with the measures you came up with before? Because that’s how you maintain credibility with your sponsor. You can bring up unforeseen outcomes or anecdotal evidence, so long as you follow up on those original methods first.

5. Begin anew. The only thing worse than learning from experience is not learning from experience. Your post-mortem on the completed project should include a section titled “What to do better next time.”<

Jay Cross is a champion of informal learning, web 2.0, and systems thinking. He has challenged conventional wisdom about how adults learn since designing the first business degree program offered by the University of Phoenix.

Do you remember the first time a boss implored you to work smarter and not harder? Unfortunately, the next thing you heard was probably something akin to “know what I mean?”.

No, as a matter of fact we don’t always know what working smarter means.

Jay’s new un-book Working Smarter (available in on-demand paperback or PDF download) examines how to boost an organization’s collective brainpower. You’ll find an excerpt of his book below that might strike a chord with you in the ongoing conversation that we’re having here at HRExaminer.com on the effective and perceived value of HR.

Cross mashes up his considerable experience in training, business consulting and web 2.0 thinking to put forth a straight forward book designed for managers who want a natural way to improve performance – without the typical management consulting crapola. When Cross does delve into charts, models and mind maps you can rest assured he does so with an aim to clarify, not to earn his business book writing chops. While I’m not done with the book yet I will say what stands out to me so far; Cross does a nice job of balancing the theoretical with the practical – and that’s really useful to us as people who want fresh ideas we can use to improve our team’s results.

I hope you try the book – I’m finding it a worthwhile investment of time. Don’t forget that you can buy the online copy, save some money, kill one less tree and convert the PDF into an online book reader for your iPhone, Android phone and many others.

- Julian Seery Gude, HRExaminer Collaborator and Editorial Advisory Board Member.

Article continues here.

I think of un-books as more of a subscription that a purchase. A major update is in the works. More than half will be new material. It’s a collaborative effort. Publication is a month or more in the future.  The price has not been set as yet. I suggest you buy both, but if you’re only buying one, I suggest you wait a while.

One of the things I like best about Twitter is the collegial, friendly fire-ish banter among L & D professionals. One of the most active of these professionals is the prolific Jay Cross. Jay, with his colleagues in the Internet Time Alliance, has recently produced the 2010 version of his “unbook,” Working Smarter: Informal Learning in the Cloud.

Convention and controversy

Among the topics often up for grabs lately are ideas around informal learning and the networked learning landscape of the 21^st century. Those in the quantitative data/metrics/benchmarking camp argue against the legitimacy of the notion of “informal” learning. As often as not, they claim workplace learning is too important to be left up to happenstance, and requires planning and careful, thorough, design. Cross is clear, though, that he is drawing the “kill the courses, shut down the training department” line with a dramatically heavy hand, admitting that he uses it as much for shock value as anything else, while trying to put forth the idea of workplace learning as different from the traditional view of training course. He also asserts that “informal” does not, as it so often seems to be interpreted, mean “haphazard” or “random.”. Cross acknowledges the time and place of traditional training approaches, particularly for novices (although he questions the decision to put so many resources there rather than with supporting better producers). But seasoned workers, he rightly notes, will not flock to workshops and traditional classes, as they have work to do. Making it easier for them to get to information, to find one another, to learn through collaboration and by accessing meaningful self-service performance support, will strengthen the organization and “help sharp people become sharper.”

From the abstract to the specific

As I said on Twitter one night, “I am 93.2% suspicious of statistics about concepts of abstractions like ‘learning’.” While the data we have all seen – along the lines of “80% of workplace learning occurs outside the classroom” – may be appealing, and so quotable, we know we can’t actually measure anything like “learning” in these terms. But we do know that people learn at work all the time, every day, more from one another (even if that “other” is a person who has uploaded a video tutorial, or updated a Wikipedia page) than from anything that happens in a classroom. We know that peer groups and communities exist to share knowledge and support performance, even if they’re bootlegged and kept under management’s radar. We’ve all experienced a need-to-know moment, made better or worse by how quickly we could put our hands on the right information or find the right person to ask. Doubt me? For the rest of the week, as you go about enacting your work, ask how much of what you are doing came from anything resembling a traditional classroom or e-Learning course. Cross leads the reader on a tour of informal, networked learning and performance support, and helps move the conversation from 50,000 feet to 50. This “unbook” is a compilation of his own ideas as well as interjections from his colleagues in the Internet Time Alliance (Harold Jarche, Jane Hart, Charles Jennings, Clark Quinn, and Jon Husband), with chime-ins from many others. There are checklists, tools, and images, charts and provocative questions. And there are honest remarks about the state of learners, many of whom need to stop waiting for directions and start becoming self-directed. For me, the most value in the text comes not from the parsing out of the finer points of informal and formal approaches, but the articulation of the difference between training and learning. Food for thought, from Cross: “If you were to create the organization’s learning and development function from scratch, what would it look like? Are you still doing huge, expensive training-based software rollouts, or shifting the effort into on-point performance support? Have you taken charge of your organization’s learning function, or just training?”

The unbook

A word about the book itself – it claims it is not one. It’s an unbook, updated every year or so, and published by “Jay Cross and friends,” his colleagues in the Internet Time Alliance Group. Updates appear on Jay’s Internet Time blog http://www.internettime.com so, if they strike your fancy, purchase a bound or e-copy update from Jay’s site, from Lulu, or from Amazon. Where traditional books exist as editions updated every few years, often out of date before they even make it to bookshelves, this unbook is always in Beta. Be aware: While Working Smarter is organized into chapters, it is not the formal, tightly edited, unified work that some readers will expect from a traditional book. I found the organization refreshing, and the get-to-the-point-already style very effective. You can also find Jay on Twitter @jaycross, where he’s a frequent participant in the weekly Thursday night #lrnchat sessions that I help moderate. Join us! 8:30 to 10 PM ET. Jay Cross and Friends. (2010) Working Smarter: Informal Learning in the Cloud. Internet Time Alliance: LULU. $20 paper; $16 e-version, available from Lulu http://www.lulu.com/content/paperback-book/working-smarter-|-january-2010/8259651 or from Internet Time at http://internettime.pbworks.com/FrontPage.

MAKING BUSINESS DECISIONS: THE HEART AND THE HEAD

Jay Cross examines decision making on learning at work, and gives the lie to some myths about the use of business metrics.

To “earn a seat at the table” where the business managers sit, you must:

1. Speak the language of business
2. Behave like an officer of the corporation
3. Think like a business person
4. Act like a business person

This applies to any corporation, in both the public and private sectors. It is vital to understand how a business person makes decisions – and in particular the weight they give (or not) to numbers and facts when doing so. It is equally vital to understand that different officers of your corporation will approach decisions about learning in very different ways depending on their circumstances.

Business is about making sound decisions. Every business decision is a trade-off. (If there’s no trade-off, it’s a no-brainer.) An important corollary: There is no free lunch. List the pro’s of doing something and the con’s of doing something else. Be aware of what you’re trading off when making a decision. Every trade-off is a risk. That doesn’t mean you should shy away from risk. Quite the contrary, for no risk means no reward. A decision-maker who disregards risk is a fool, a pauper, or both.

Fortune favors the bold. An astute businessperson seeks the most lucrative balance of risk and reward. Every business decision is made with less than perfect information, and every decision entails taking a risk. Most investment decisions trade off risk and reward.

Every business decision is made with less than perfect information, and every decision entails taking a risk. Most investment decisions trade off risk and reward. The way to make sound decisions is to judge when you have enough information to move ahead and when the level of risk is acceptable. He who hesitates is lost. Saying “We don’t have enough information” is not an acceptable excuse. If the timing is not right, it would be better to say, “The downside is losing $500,000, and we can’t identify the range of probability around that occurring any finer than 25% to 75%.”

When you talk about the bottom line, you damn well better know what it is. I don’t mean to insult your intelligence, so permit me to explain that I didn’t understand the difference between profit and revenue until I took a correspondence course in accounting five years after graduating from college. If you are not fully fluent with terms like revenue, earnings, cost, cash flow, margin, and value, take a look at here and get a friend to explain the workings of the basic business model.

THE ENVIRONMENT OF BUSINESS

Everything is relative, including evidence and “hard numbers.” An executive, a manager, a training director, and a worker each have different but valid ways of evaluating the effectiveness of learning.

People see what they focus on; they don’t see what’s really there. An alcoholic sees the liquor stores other people breeze by. A foodie always remembers whether or not she has eaten at a particular restaurant. A top executive sees long-term trends; a factory labourer sees the clock. (Training directors see learners; everyone else sees workers or employees.)

Let’s walk in the shoes of different people and see what they notice.

Knowledge Workers

The knowledge worker’s objective is to learn what it takes to do the best she can. The learned worker enjoys the fulfillment of a job well done, the rewards that go with high performance, and the accumulation of marketable skills. Today’s workers are out for themselves. Not selfishly but realistically. Free agents. They recognize that their careers will last many times longer than their employer. Our market driven world drives people to increase their personal marketability. Incoming workers are more demanding than previous generations. They have no patience for irrelevant exercises, be they useless curriculum or teaching what they already know. Their watchwords are “Don’t waste my time” and “Less is more.”

A great industrial worker might be half again as productive as his middle-of-the road peer. A great knowledge worker can be several hundred times as productive as his peer. These people need the room to excel. They want their organizations to give them the dots but they want to connect the dots for themselves. Workers want learning that is ‘pull’, i.e. they find and use what they feel they need, instead of ‘push’, i.e. someone else decides the subject matter for them.

The incoming generation of knowledge workers demand opportunities to learn through their work; otherwise, they will pick up and go elsewhere.

Training Directors

In the industrial age, the worker was told she was not paid to think. In the knowledge era, workers are paid to think. And they need to keep current with a buzz of things racing by.Workers expect to learn things in small chunks. Learning has shifted from something outside of work to something embedded in work. Stand-up instruction is giving way to peer learning.

The training director’s objective is to help his sponsors achieve their goals. Sponsors? Usually this is the people with the authority and wherewithal to sign the checks. Training cannot rate itself; it doesn’t own the yardstick.

Business managers set objectives; training directors help achieve them. ‘Proof’ that training is working is when sponsors believe it is.

Pity the training director. There’s more and more to learn. The old training they’re accustomed to doesn’t work well any more. They must interpret business needs into learning opportunities. And even as knowledge workers take responsibility for their own learning, the training director is likely to be held accountable when learners’ performance is underwhelming.

Typical assessment measures – the four or five levels – are at best pieces of a much larger puzzle. “Level Four” will always be out of reach because the instruments of measurement belong to another level in the organization.

The shift from training (we tell you what to learn) to learning (you decide what to learn) increases the scope of the director’s job from classes, workshops, and tests to the broad array of networks, communities, meta-learning, and learning culture.

You live your life as if everything is a miracle or nothing’s a miracle; for the training director, the sky’s the limit or the job is untenable. Today’s training director must gain control by giving control.

Here are some things one might add to any training director’s job description:

• Supporting the informal learning process

• Creating useful, peer-rated FAQs and knowledge bases

• Supplementing self-directed learning with mentors and experts

• Using smart tech to make it easier for workers to collaborate and network

• Encouraging cross-functional gatherings

• Helping workers learn how to improve their learning skills

• Explicitly teaching workers how to learn

• Enlisting learning coaches to encourage reflection

• Calculating life-time value of a learning “customer”

• Explaining the know-who, know-how framework

• Creating a supportive organizational culture

• Setting up a budget for informal learning (There’s no free lunch.)

• Positioning learning as a growth experience

• Conduct a learning culture audit

• Adding learning and teaching goals to job descriptions

• Encouraging learning relationships

• Supporting participation in professional communities of practice

Managers

Getting things done is the role of managers. Meeting this quarter’s numbers is the number one priority. “Long-term” means one year. Great execution merits a great bonus and more rapid promotion. Execution is judged by relative success in meeting planned objectives.

Common measures are gain in market share, increased revenue, customer satisfaction, and other business metrics. The manager does not necessarily care what it takes to hit the numbers. If people could gain new skills by popping smart pills instead of training, pharmaceuticals would push training aside. Sometimes the numbers are even manufactured.

A couple of hundred years ago, the factory system kicked off the industrial revolution. The need for coordinated action led to working hours, the urban workforce, specialization of jobs, the quest for efficiency, and the separation of management and workers. In the west, the educational system adopted German methods of schooling soldiers to convert feisty farmers and hunters into obedient factory workers.

Great ideas have a life cycle. They grow from obscurity among enthusiasts and fanatics to nearly universal acceptance and eventually to decline, as the world passes them by. Business managers cling to ROI and conventional training because they are known entities, not because they are right. These conceptual blinders retard the pace of progress.

We recently toured a corporate headquarters where staying late at work was prized by managers. Time on the job was thought to be correlated with output when the job is tending an assembly line. In knowledge work, overwork leads to stress and a reduction in cognitive acumen. It’s better to have a team that leaves on time to exercise than one that is chained to its desks.

Executive management

Top management is led by what creates value for stakeholders. This generally involves innovation, staying power, adherence to corporate values, and sufficient organizational flexibility to keep ahead of the speed of change. Shareholder confidence along these dimensions fuels market capitalization.When investors judge that the firm can innovate, improve, and grow, the value of its shares increases, as does the take-home pay of the executive.

All learning, informal or formal and anything inbetween, should be evaluated with the same metric: whether people who participate in it are doing the job.

Executives realize that competing successfully in business requires teams of inspired employees – mentally equipped to make sound decisions on the fly; able to execute good ideas in a snap; and proactive when it comes to taking initiatives and bringing innovation.

Being on the front line dealing with customers, these employees don’t have time to run every idea up the management flagpole. Leaders want to field a team that’s in the game and ahead of the crowd. They want to pile on innovation that meshes smoothly with what people already know. They want organizations that make bold moves and respond to change as if by instinct. The overall goal: an environment where people learn faster and better than the competition.

Getting there takes more than a lavish investment in training. Time is frequently more important than money.” “We are moving from a world in which the big eat the small to a world in which the fast eat the slow,” says Klaus Schwab, director of the World Economic Forum.

Let’s look at how senior decisions are really made. The staff has shopped various projects around, gathered the figures, done due diligence on suppliers, run the numbers, assessed the impact of changes in the marketplace, and prepared terse summaries for each scenario. Six business cases for new investments, bound with a clear sheet up front, rest in a pile on the coffee table at the executive vice president’s weekend cabin. (This is going on simultaneously at the CEO’s place by the lake, the COO’s condo, and a few other spots.)

A couple of projects are no-brainers; these are so integral to the organization’s mission, giving a go-ahead is a mere formality.

Projects that enter new territory, eLearning for example, warrant more detailed consideration. If you were to eavesdrop on the executive’s internal thought processes, you’d hear something like this:

[Inner dialog] “Good Heavens, this effort is going to cost us $8 million and change. But our people are our hope for the future. The analysis shows that we’re already spending nearly that much on training. I wonder what Mikey thinks. The ROI is better than building another fab plant but some of the underlying numbers are soft. Of course there’s no guarantee that the fab plant wouldn’t be another white elephant when it comes on stream in three years. The breeze is picking up outside. I bet it rains tonight. Without eLearning, we’ll never become an eBusiness. Some of our systems are pretty creaky right now and would benefit from streamlining.We need to shrink cycle times throughout our organization. This eLearning infrastructure would give Charlie a platform for broadcasting and reinforcing his message about transforming our organization. The Net Discounted Cash Flow is $2 million better than if we took this on ourselves. And the real problem there is that our IT staff would be swamped. And this would wait in line behind the other missioncritical projects they’re working on. Keeping up with eLearning is not a core activity for us; we should outsource as much of it as we can. I wonder what Charlie thinks. The ballgame comes on in about ten minutes. Where do I come out on this one? I’m optimistic about the potential. It feels right. I’ll back it at the Executive Committee Meeting on Monday. I better call the wife to let her know I arrived safely. I could use a slug of single malt about now….”

Don’t believe it? Most senior executives have more faith in gut feel than numbers. The numbers are input. The decision is broader than that.

Five years ago, an Information Week survey revealed that “more companies are justifying their ventures not in terms of ROI but in terms of strategic goals… Creating or maintaining a competitive edge was cited most often as the reason for deploying a business application.”

Decision making at work is as much about what the heart says (based on experience and values) as the head (dictated by the numbers). To give yourself a chance to lead on learning in your organization you need to understand and appeal to both – at all levels.

Karl Kapp and Tony O’Driscoll have written a definitive book on virtual worlds, Learning in 3D:  Adding a New Dimension in Enterprise Learning and Collaboration.

Many people think of virtual worlds as the realm of characters in bizarre costumes and companies out to waste their PR budgets. Karl and Tony see a phase change in how people learn.

Learning is social, and I think this has something to do with the power of watching your avatar experience something as opposed to simply imagining it in your mind.

I heartily recommend the book but I suggest jumping around as you read. The first section sets the stage by setting out the fundamentals: the webvolution, the immersive internet, the ineffectiveness of the classroom, and “the brave new training world.” If you read this blog, you already know this stuff. They move on to architecture and archetypes. Everyone will want to read the nine cases which demonstrate a variety of learning environments. If you take part in Thursday evenings’ #lrnchat on Twitter, you can skip the sections on traditional design; you have already witnessed the ADDIE wars. The implementation advice is priceless, as are the essays by four revolutionaries.

Tony and Karl have convinced me that 3D learning is on the way. I hate to be a stick in the mud but I don’t yet think it’s ready for prime time. It’s going to be a while before most corporate citizens will be comfortable with this. Many workers’ minds are too calcified to handle the concept of avatars and alternative realities. Give it five years, and people will be saying “Why didn’t we do this sooner?”

I don’t expect 3D learning environments to thrive in Second Life. Second Life is a pioneer and is the gorilla in the 3D space right now. However, SL can’t shed its DNA, and corporations aren’t going to train workers while the twisted sisters next door solicit customers.

Conservative organizations and schools are more likely to adopt environments developed specifically for business and academic applications. Examples are the knowledge worker environments developed by Proton Media and the interactive simulations coming out of Toolwire.

ProtonMedia: a professional environment, no funny hats

Inside Learning Technologies is an important magazine in the U.K. (Isn’t it odd that while the net spans the globe, learning magazines remain confined to their home countries?)

For the current issue, I wrote an article entitled Making Business Decision: the Hand and the Heart. This is the sequel to last month’s Speaking the Language of Business.

Hats off to Donald Taylor, a big cheese at the Learning Technologies Conference and chair of the Learning & Skills Group. 

Donald excerpted and edited sections of my book-in-progress, What Would Andrew Do?, to create both articles.

Leadership, Intangibles, and Talent Review

“Articles are included from the likes of the Harvard Business Review, Henry Mintzberg, HR Magazine, Jeffrey Pfeffer, MIT Sloan Review, Nokia, SuccessFactors and the Wall Street Journal.” (I am proud to be among such company.)

Retention

By making it easier for people to leave or be appealing to other employers, organisations are likely to benefit from increased retention and motivation. This idea of increased autonomy is supported in an article by Rex Davenport where he highlights a recent interview with Jay Cross in Learning Executives Briefing.

“When learning is pushed on people—people resent it.”

Cross then goes on to make the point about the way outcomes are measured;

“First, the metrics that people have been using for the past 30 years— using accounting measures—are totally ridiculous. In the past 40 years the value of the stock market has gone from 80 percent tangibles to almost the opposite, 80 percent intangibles. If you listen to any (experts) they say that intangibles are unmeasurable, that they are too flaky. The ROI stuff is totally bogus and organizations shouldn’t waste their time on it. The proof is not to look at the learning, but instead to look at the changes in behavior that come about as a result of the learning.”

In yestserday’s New York Times, Gretchen Morgenstern explained one reason Why All Earnings Are Not Equal. Corporate managers have lots of elbow room as to whether an item is an expense or an investment, and some push the limits of discretion.

More puzzling to me is why businesses are not permitted to account for social capital (such as know-how, relationships, and talent) which makes up more than half of their value. Hey, financiers, this emperor has no clothes!

Verna Allee is the only person I’m aware of who has a viable solution for describing and monitoring the role of intangibles in value creation.

Verna sees organizations as value networks. A value network is a web of relationships that generates economic value and other benefits through complex dynamic exchanges between two or more individuals, groups, or organizations. Any organization or group of organizations engaged in both tangible and intangible exchanges can be viewed as a value network, whether private industry, government, or public sector.

Rather than counting accounting’s funny-money, Verna directly tracks the flow of value through the organization’s circuitry. Her Value Network Analysis is the missing link that unites the formal organization, business process modeling, asset management, and social networks.

Let me take another run at what Verna does: She evaluates an entity as a living system. Every living system is a self-renewing network. Its structure is its best description. The focus is on the people, who are the nodes in the network. Verna connects the nodes with arrows (for direction) and labels (describing exchanges of matter, energy, and ideas between the nodes). Each node is linked to a scorecard that tallies the value of its exchanges. She uses the system map to spot bottlenecks and relationships that need improvement; managers need to focus on the white space between the nodes.

Emerge, converge, and know.I captured a few minutes of Verna leading a workshop on Value Networks last fall:

Might Value Networks be the appropriate measurement system for optimizing Wirearchy?

Related links:
Value Networks Library
Value Networks.com
Open Value Networks

This month’s Big Question is one that I’m asked all the time. How do you cost-justify social learning initiatives?

Social learning is no different from other business investments. You don’t sell the tools; you sell the business value of the project. Does it increase revenue? Cut costs? Improve service? Speed things up? How much?

If there’s not an obvious, believable, significant business outcome, pick another project. Social media generally delivers astounding returns.

Draw analogies to what other companies have accomplished with social media:

• Large company implements an organizational wiki informally. Used by 20,000 employees, it saves $20 million a year previously wasted tracking things down.
• Consulting firm uses blogs and feeds to distribute summaries of research findings and competitive information to 4,000 software engineers, freeing up 250,000 billable hours annually.
• Simple FAQ shaves 10% off customer calls and improves quality of service, saving $3,000,000 a year in salary costs alone.

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.