The concept of Return on Investment (ROI) was formed as part of the concept of Value Creation. The origins of ROI were in the Manufacturing sector, where it’s simple to measure time and output. Next, to adopt the concept was the Banking industry where intense competition necessitated Innovation Management and with that the need to calculate ROI. ROI calculation is now a common feature in every industry and business function.
Employee Training is part and parcel of workforce development. It necessitates spending a lot of effort and resources. Deliberating if the Training Program is going to be worth all the costs is a valid concern.
Return on Training Investment (ROTI) is the comparison between financial benefits obtained from a training program and the total cost of running that training program. The objective of ROTI analysis is to see whether the benefits outweigh the costs i.e., to establish if the investment was worthwhile.
ROTI calculation and analysis is significant when:
- Investment in a training program is viewed as a substantial outlay.
- Attainment of explicit strategic or operational objectives is associated with the training program.
- Financial benefits and their amount from the training program is ambiguous.
ROTI can be calculated dependably so long as:
- Measurement data on changes in business performance, pertinent to training, is reliable or can be rationally estimated by those who matter.
- Financial values can be assigned to the applicable performance measures.
- Cost related to developing, delivering, and handling the training program can be classified.
ROTI calculation involves selecting performance measures, gathering data on those measures as well as data on costs—both direct and indirect—related to training, and lastly calculating the Return On Training Investments.
Key steps in the ROTI calculation are:
- Choose the performance measures to use.
- Gather data on changes.
- Gather data on costs.
- Calculate ROTI.
There are 3 types of calculations that are relevant in ROTI analysis.
- ROTI as a percentage
- Benefit to Cost Ratio (BCR)
- Payback Period
Let us delve a little deeper into the calculation methods.
1. ROTI as a percentage
This calculation shows Net Training Benefits as a percentage of Training Cost. An outcome of 100% or more denotes that the Program has a Net Benefit after accounting for all the costs connected with running the program.
2. Benefit : Cost Ratio (BCR)
This ratio divides Total Training Benefits by Total Training Costs. When BCR is greater than 1, the benefits exceed the costs and the program is judged a success. When BCR is less than 1, the costs surpass the benefits and signify that enhancements or alterations are needed to warrant the continuation of the program.
3. Payback Period
This calculation exhibits the time in which the Training Investment will be paid back i.e., when the costs equal the benefits. The calculation is usually done in terms of months.
Monthly Training Benefits are calculated by dividing Total Training Benefits over 12 months.
It is pertinent to note that although ROTI analysis is important in evaluating a training program, merely a ROTI calculation will not typically be adequate to make the business case for a Training Program or influence top management to act. Sometimes we have to consider non-monetary benefits of training, such as a change in attitude. When monetary and non-monetary benefits are combined, these supplement Performance Management resulting in benefits such as reduced absenteeism, lower turnover rates, and more promotions from within.
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The purpose of Human Resources (HR) is to ensure our organization achieves success through our people. Without the right people in place—at all levels of the organization—we will never be able to execute our Strategy effectively.
This begs the question: Does your organization view HR as a support function or a strategic one? Research shows leading organizations leverage HR as a strategic function, one that both supports and drives the organization’s Strategy. In fact, having strong HRM capabilities is a source of Competitive Advantage.
This has never been more true than right now in the Digital Age, as organizations must compete for specialized talent to drive forward their Digital Transformation Strategies. Beyond just hiring and selection, HR also plays the critical role in retaining talent—by keeping people engaged, motivated, and happy.
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The world is changing. Forced isolation and social distancing restrictions have been put into place with the advent of the COVID-19 health crisis. This is not expected to end soon but is expected to have a lasting effect on the world. In fact, a new generation of consumer behaviors is already being shaped.
The new world will not be better off or worse. It will be different. During this period of influx, some businesses will thrive in this change and reach accelerated success, while others will struggle to find their footing in all of the chaos. The Low Touch Economy is here.
The New Normal
The post-COVID-19 era will have an economy shaped by new habits and regulations based on reduced close contact interaction, tighter travel, and hygiene restrictions. While managing the current health crisis is the first priority, companies must start adapting its strategic response to the mid and long-term ripple effects of COVID-19.
Businesses, to survive, must learn how to effectively respond to COVID-19 that is marked with plenty of ups and downs and economic uncertainty. There will be fundamental shifts that are here to stay and there will be industries that will be turned upside down. Until there is a vaccine or herd immunity, the base case scenario will be continuous up and down of disruptions for the coming 2 years. Strategy Development now calls for business to make the right strategic approach.
The 3-phase Approach to Strategic Planning
During turbulent times, businesses must have the agility to switch from defense to offense. Taking the 3-phase approach to Strategic Planning will prepare organizations for the Low Touch Economy.
Phase 1: Protect
The first phase is focused on acting now to protect and run the business today. It is basically responding to the crisis and protecting the business. The primary objective of Phase 1 is to ensure the continuity and stability of the business despite the ongoing crisis.
This is best undertaken when employees and customers are grappling with one basic emotion and that is fear. The organization is faced with a declining revenue with prospects of liquidity freeze. Unfortunately, time horizons at this phase also remain uncertain.
When these scenarios are happening, the organization must strive to undertake strategies that will both protect the business, as well as ensure its continuity and stability. One strategy that must be undertaken is to put the safety of employees and customers first. With the advent of COVID-19, this is considered the most urgent thing to do and the most important. Once this has been taken care of, senior leaders can set up a war room where they can tackle immediate challenges.
The war room discussions must shift from just being reactive to being proactive when it comes to crisis management. At this point, model scenarios that are developed must be more aggressive than any of the team can think of. It has to be aggressive in the sense that it is capable of protecting the business from the disruption that COVID-19 is greatly inflicting on the organization.
At this time, during this phase, this is the best time too to invest in Innovation Management and R&D. While others are stalling, the most innovative companies spend more on R&D during the recession. The other 2 phases are Recover and Grow. Phase 2, Recover is focused on accelerating through the recovery and Phase 3, Grow is focused on achieving growth in the Low Touch Economy.
In what phase is your organization now? Are you Protecting? Recovering? or Growing?
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Organizations today are spending money on the latest technologies and working hard to solve problems as they arise. Yet, sad to say, this is simply not enough.
Today, to get on top of today’s fiercely competitive business environment, organizations need to take a strategic move: Develop an Innovation Mindset. What is an Innovation Mindset? What does it take to develop an Innovation Mindset? Often, this can be mindboggling as we get confused as to understanding what is an Innovation Mindset. Developing an Innovation Mindset is never the mere act or intent of investing in technology. It goes beyond spending money on the latest technology.
Developing an Innovation Mindset is to undergo the transformation from an innovation-averse to a forward-thinking organization.
Understanding an Innovation Mindset: What It Takes to Develop One
Developing an Innovation Mindset requires scaling innovations repeatedly and making it grow as fast as others. Companies need to depart from adopting technologies as point solutions to evolving future systems. This can be achieved by cultivating the mindset and methods of the top 10%.
The top 10% are the Leaders in Innovation Management that are already enjoying a considerable head start and are not standing still. The systems they have put in place are specifically designed to not only accommodate innovations but also scale them across the enterprise.
Developing an Innovation Mindset Starts with the Right Tools
These 5 principles can provide organizations the foundation on developing Innovation Mindsets. There first 2 are defined as:
- Adopt technologies that make the organization fast and flexible. Consumers now demand that companies are fast and flexible. The market is getting impatient when there are delays and so structured that it ceases to be an organization with a Customer-centric Design. Principle 1 focuses on making organizations fast and flexible. Achieving this call for efficient use of decoupling data, infrastructure, and applications to achieve greater flexibility and a faster-moving IT culture.
- Get grounded in cloud computing. This principle is focused on catalyzing innovation. Adopting this principle will enable organizations to maximize the use of the cloud to successfully utilize other technologies, including Artificial Intelligence and analytics.
There are 3 other principles that organizations must take notice of and focus on. The other 3 principles are recognizing data as being both an asset and a liability, managing technology investments well across the enterprise, and finding creative ways to nurture talent.
Integrating these principles in the organization’s journey towards Digital Transformation will promote the development of an Innovation Mindset. When this happens, we can expect our organization to keep up with the pace and catch up.
What Does It Take to Have an Innovation Mindset
Developing an Innovation Mindset has led leaders to take command and be in-charge of market demands. Leaders are adopting DevOps, automation, and continuous integration/continuous deployment at a faster rate than Laggards. Let us take a look at a Travel Industry disruptor. The company migrated its platform to microservice as part of decoupling initiatives.
As a result of taking this initiative, rapid response to change was achieved. This also enhanced its capability to add new features as the company experiences explosive growth.
Let us take a look at a more internationally recognized company: Ant Financial (formerly known as Alipay), the Alibaba Group’s financial arm. The organization embedded cloud services and AI across multiple processes and product lines. Furthermore, AI capabilities were offered to external ecosystem partners.
Today, Ant Financial can instantly assess the credit risks of underserved people who may not have bank accounts and even target them with loan offers. The overall cost was reduced by 50% and the company experienced a 10-fold increase in daily visitors.
Developing an Innovation Mindset is key.
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Today’s C-suite is making a significant investment in new technologies. Yet, it is failing to achieve full value. Technologies are being deployed in pockets or silos without a Strategy for scaling the Innovation from these technologies across the enterprise. Unable to scale their Innovation, organizations are not realizing the full benefits of their technology investments.
An Innovation Achievement Gap exists. What is the Innovation Achievement Gap? This is the difference between potential and realized value from technology investments. When new technology does not achieve its full value, the Innovation Achievement Gap exists.
What Companies are Facing Today
The enormous challenge of Innovation Management with legacy systems is facing companies today. The conventional IT stack is not built or designed for the world of tomorrow. These are our software applications, data, hardware, telecommunications, facilities, and data centers. Today’s cloud-oriented world is full of analytics. There are sensors, mobile computing, AI, the Internet of Things (IoT), and billions of devices. Digital Transformation is changing the face ob business.
True, companies have started in the cloud. But the systems have not been adopted at the pace of technological change. As a result, there are distinct Leaders and Laggards when it comes to the adoption and penetration of technologies. Leaders are seeing more than 2X the revenue growth of Laggards. Laggards, on the other hand, often adopt technologies as individual point solutions without a strategy for enabling systems than can achieve enterprise-wide, game-changing innovation. While they might have pockets of brilliance, Laggards cannot maximize the value achieved. To be a Leader is to have an Innovation Leadership Mindset.
Simply said, adopting technologies does not guarantee success. This requires a systematic and sequential strategy in line with Next-gen Enterprise Systems. This needs an Innovation Leadership Mindset.
Doing Things Differently: The Innovation Leadership Mindset
Leaders differ much from Laggards. Embedded within their whole being is the Innovation Leadership Mindset.
Having an Innovation Leadership Mindset is clicking the future into place. There are 4 core pillars of the Innovation Leadership Mindset. Let’s define the first 2:
- Invest in innovation. Leaders invest more in innovation. Organizations with Innovation Leadership Mindset direct a greater percentage of its IT budget toward innovation. They accelerate investment innovation over the next 5 years. Leaders are far advanced from Laggards when it comes to investing in innovations. Leaders invest 93% on innovation and are expected to increase this to 97% in the next 5 years. On the other hand, laggards invest only 64% on innovation with a planned investment of 74% in the next 5 years.
- Develop Innovation Systems. Leaders show a consistently higher rate of technology adoption. Organizations with Innovation Leadership Mindset adopt new technologies earlier and develop higher levels of expertise. They prioritize and sequence implementation in optimal ways. Leaders have been found to adopt a fundamental general-purpose technology at a rate of 98%. An example of this is Artificial Intelligence. Laggards, on the other hand, have faith in a fast follower approach. They take technology haphazardly leading to patchwork across the organization.
There are 2 other core pillars that are equally important. One is Scale Technology Innovation and the other is Evolve Next-gen Enterprise Systems. Leaders that set their sights on innovating at scale target 3 times more business processes with technologies. Leaders have also drummed up their resources towards building the Next-gen Enterprise Systems.
Next-gen Enterprise Systems are systems that are capable of repeatable and scalable innovations. It is Boundaryless, Adaptable, and Radically Human. Outpacing others calls for organizations to start envisioning their own version of Boundaryless, Adaptable, and Radically Human Next-gen Enterprise Systems.
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Over the last decade, companies have made greater strides in retooling their innovation engines. Leaner and faster, products are developed from concept and delivered to customers in record time. But even a Ferrari does not know where to drive.
There are plenty of opportunities to enhance execution. Yet, inspiration and insights are increasingly getting to be a challenge for innovation executives. Innovation executives know that a new approach is needed. To boost performance to the next level, executives need to simultaneously loosen and tighten approaches to innovation management. We must start looking outward and opening ourselves to customers, collaborators, and our own creative side. At the same time, we need to tighten it through continuous improvement by attempting to embed an innovation culture to the organization.
Intelligent Innovation is considered a comprehensive approach that can support the next phase of Innovation Performance Improvement. The practice of Intelligent Innovation must complement the strengths of the current control regime to achieve innovative excellence.
Why Intelligent Innovation
Innovation Performance Improvement has been driven by initiatives that are highly analytical, inward-looking, and focused largely on retooling the innovation engine. There are 3 Stages of Performance Improvement. First is Management Control where innovation was treated like any other process and controlled with traditional management techniques. The second is Cost Control where innovation is redesigned to minimize cost. And the third is Profit Control where innovation was managed as projects with each project needing to be profitable in its own right.
Each successive stage built on the previous one. These stages are called “control regimes.” While these have built a critical foundation for future progress, they cannot deliver the desired results on their own.
To boost performance to the next level, Intelligent Innovation must be put in place. Intelligent Innovation completes the 4 Stages of Innovation Performance Improvement.
Intelligent Innovation and its 4 Dimensions
Intelligent Innovation cuts across 4 critical dimensions. It complements the strengths of the current control regime with excellence in 4 dimensions.
1st Dimension: Customer Insight
Customer Insight is considered the most important performance improvement level. It improves customer understanding with regards the evolving needs and critical priorities of customers. It can also increase customer participation in the innovation process.
Understanding what the customers want is important to drive ideation and execution.
According to Henry Ford, “If I’d only listened to customers, I’d have developed faster horses.”
By listening to customers, the more we learn what our customers need or want. And by knowing what our customers want, our organization will be in a better position to uncover tacit priorities that will fuel the most attractive development and innovative options.
2nd Dimension: Global Network
Global Network allows intelligent innovators to leverage dispersed knowledge across the globe. Each site or external partner is integrated into a seamlessly managed innovation network.
By having a Global Innovation Network, our organization will have the impetus to grow faster than its market.
3rd Dimension: Future Foresight
A well-tuned future trends capability can be a powerful strategic and competitive weapon in today’s global environment. It can identify tomorrow’s market opportunities and risks to drive innovation. Detailed and imaginative, this envisions the future competitive environment which better prepares our organization how to approach it.
4th Dimension: Innovation Organization
A critical element of success is the way organizations foster an innovation culture. An Innovation Organization carries within its DNA the intelligent innovation principles – senior management commitment to innovation, knowledge sharing, cross-functional teaming, freedom to pursue ideas, and innovation-friendly incentives. These are all embedded in the organization.
Intelligent innovators must work hard to unlock the innovation potential within the organization and use the tools available to direct organizations to take advantage of market opportunities. With a clear destination in mind, an innovative organization can accelerate its potential to gaining the winning edge when it comes to innovation, customer excellence, and profit.
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