Have you ever heard a board member, or perhaps even a CEO say, “The Company sure invests a lot in trainings, meetings, and “feel good” stuff, and I wonder if more of those resources and energy went into focus on results whether we would be better off?”  When we ask the CEO to focus on results, which I firmly believe is what the board should hold the CEO accountable for, we have to understand what the drivers to producing results are.  

In every business, at the end of the day it is the people who produce results (I have yet to see a machine or a process produce anything without people).   While it is easy to see expenditures in the “feel good stuff” as wasting resources, the real challenge lies in the difficulty to determine if the investment will produce the result.   The proof is in the results, but how do I know that my investments will in the end improve results.

No one will argue that making an investment to improve the organization’s ability to perform better is wasting valuable corporate resources.  In fact most will argue that if you don’t invest for improved performance you are not doing your job as CEO. 

In the “machine” aspect of an organization it is relatively easy to determine the value of the investment.  When I install a new piece of equipment, upgrade a piece of equipment or do maintenance work on a piece of equipment, I can see the results of the investment pretty quickly and very concretely.  So both from an observational framework and a time frame I can “measure” my success very easily.  The same can be said for re-engineering a process, there are fairly concrete observational data in a time frame within which I can correlate results to investment.

When I am dealing with the “organic” aspect of an organization, human development, there is a lag time between investment and results.  And this is the real issue.  It is because we cannot see the results in a definitive pattern from investment to results that we easily question the value of the investment.  And the lag time is a function of the type of investment.  Some skill development is visible and measurable (teaching someone to type) and even the time frame for translation into results can be determined relatively easily using benchmark data (I expect someone to improve form 40 WPM to 80WPM within 3 months).

But what about development issues that are much less tangible, like investments in gaining alignment and commitment.  These are extremely difficult to determine the impact of the investment, not only because of the lag time but also because of the multitude of variables that can impact success of the investment.

To make the point another way let’s take a look at an investment in hiring a business development person one of our CEO clients recently experienced.   It took a couple of years for the new business development person to start producing payback for his time “schmoozing with the brass”.  And now a good portion of their current growth is directly attributable to this investment.  Yet there were many people, including some on the board and the executive team, who was pressing the CEO to save the expenses and cut the position since this person wasn’t bringing in any current period revenue.

I often look at the challenge we are facing of “investing in people” as the same challenge that investing in marketing underwent 20 – 30 years ago.  I often heard back then that investing in marketing was wasting valuable resources for we can’t really tell the return on our marketing dollars.  And still today no one has yet come up with a way of tying marketing dollars into actual growth in revenues.  There are a lot of attempts at proxy metrics (number of placements times expected impressions per placement yields so many leads generated, etc).  But I have not met a CEO of late that does not recognize the need to invest in marketing, even though they cannot determine the return on their investment in any other fashion that anecdotal (perhaps that will change with Web 2.0 but we will see).

What has changed over the years regarding marketing investments is that the mindset of the CEO and the executive team which has come to appreciate the value of marketing, and that resources must be devoted to it.  And though I still have yet to hear a CEO say they can concretely determine the return on their marketing expenditure, they readily make the investments.

And like marketing, people development activity has gained much from years of studying and research around this very question.  And though there isn’t, and I dare say likely will never be, a concrete set of metrics, there are best practices on what are effective investments in people development is and what is wasting dollars.

I think the challenge for boards, CEOs and their executive teams is to not summarily dismiss these investments as wasted expenditures but to begin to learn what is effective investment and what is wasting corporate resources and how will we know the difference in the context of their company. 

Throughout his professional career as a Chief Executive Officer, Corporate Director, and Advisor to CEOs, Norman Wolfe has successfully guided corporations through major transitions leading to substantial growth, market expansion and enhanced financial performance.