Managing a learning portfolio requires a sensitivity and appreciation for outcomes; and traditionally in most business environments, outcomes or outputs are examined in the light of inputs. Return on investment, or ROI, has been a key measure that reflects the ratio of outputs to inputs. Since business people aim to maximize the returns on their investments, they make management decisions about their investments using ROI as a guiding indicator.
Using ROI as a singular criterion for making management or investment decisions is a limiting approach. To determine the value of outputs and expected returns assumptions must be made about the future; and these assumptions can turn out to be invalid. Assumptions are also made about linear associations, that an investment (usually financial resources) will be converted to some measurable amount of inputs (material, labor, process technology) that will be converted to an expected set of outputs (products, services, benefits). Over time unanticipated events or circumstances occur which thwart the realization of the presumed causal linkage, as when the cost of material or labor increases. Consequently, many management decisions end up being based on projections that turn out to be inaccurate.
This problem is especially prevalent with learning investments since the period during which the returns from learning are realized can be quite lengthy; and the lengthier the period of returns to be gained from an investment, the more tenuous our assumptions. Also the usefulness of learning pertains to its timeliness. When employees learn something in a formal training program, such as how to use new software for group collaboration, it’s often because they expect to use those new skills right away. In that scenario, the benefits and outcomes from the learning have immediate value. On the other hand, employees sometimes learn behaviors (such as how to deal with angry customers or aggressive competitors) that they hope they never have to use. If we never use such behaviors, does that mean they have no value and were not worth the initial learning investment? Of course not, but what criteria should be used to make decisions among learning investments that lead to uncertain outcomes?
Another difficulty in using ROI as a criterion to manage learning investments is that it only takes into account tangible assets or returns. When an employee learns a new skill, a work team learns how to work better together, or a firm develops a new process technology, nothing tangible is created, but obviously the learning has produced something of value. When managers take the customary route of basing investment decisions and allocating learning resources among practices that generate tangible benefits and hence promise a higher ROI, they neglect to account for several characteristics of learning.