Tim Cook, the CEO of Apple wakes up in the middle of the night from a dream. He has had a premonition that somewhere in his company of 80,000 employees there are 100 people who will develop and market Apples next blockbuster product: iPet. Right now, though, these people don’t know enough about pets to make that happen. So Mr. Cook calls his Learning and Development team and tells them to deploy animal behavior training to everyone in the company at a cost of $10 million.
If Cook was the head of a division, he would count the $10 million as an expense and subtract that number, along with other expenses like salaries, from the projected revenues to show his boss that there would be profits. But Tim Cook doesn’t have a boss like you and I do. His bosses are the stockholders. They have bought Apple stock for a lot of money and they want the value of their stock to keep going up. The value of the stock is a share of the Market Value of the company. It is Cook’s job to make sure that value keeps increasing.
When Jobs and Wozniak were starting Apple Computer in their garage in the seventies, 80% of the value of companies depended on tangeable asssets like factories. Only 20% was created by people. So if you built another factory, you could increase the value of the company. Now the numbers are flipped. 80% of the value of companies is created by people. But people aren’t factories, how do you account for the value that they produce?
Not coincidentally, Apple’s book value of $120 billion is about 20% of it’s market value of $570 billion. Book value is calculated by accountants and it lists employees as expenses and liabilities. No where in the book value of Apple is any mention of the legacy of Steve Jobs but you can be sure that it is factored into the market value.
The 100 people in Tim Cook’s dream are already contributing to the market value of the company. If Cook wants to increase that value, he needs to increase the value that those 100 people are capable of producing. Since he doesn’t know which employees will produce that increased value, he needs to increase the capability of all of his employees. He will invest 10 million dollars in a learning program that has the potential of raising the company valuation 10% or $57 billion dollars. That is the return on investment for learning.
Not every CEO wakes up in the middle of the night with visions of new products, but most good leaders instinctively know that they need to invest in their people as producers of value even though that calculation is not figured into their accounting. The reason companies set aside budgets for learning is to increase the value of the company.