Who is Tad Waddington?

International Business Award Best Human Resources Executive of the Year, 2008.

World Human Resources Development Award for Human Resources Leadership, 2009.

PhD, Measurement, Evaluation & Statistical Analysis; Education; University of Chicago, 1995.

MA, History of Chinese Religions, University of Chicago, 1990.

BA, Psychology, Honors College, Arizona State University, Phi Beta Kappa, Moeur Award (for 4.0 gpa), 1986.

Global Senior Advisor, Asia-Pacific CEO Association, Worldwide

Director, Performance Measurement, Accenture

Public Speaker (in English and Chinese) recently in Beijing, Cairo, Changchun, Kuala Lumpur, London, Mumbai, Nanjing, Nice & Singapore.

http://www.portraitsbythomas.com/

What was your inspiration/motivation for writing this book?

Nothing frustrates me more than wasted potential. I see many well-intentioned people in the world who are trying to do good work, but because they don’t understand economics, game theory, or statistics, they are not as effective as they could be. Since not everybody has the time or inclination to study all of these fields, I took an idea from the ancient Chinese philosopher Zhuangzi who said, “The fish trap exists because of the fish. Once you’ve gotten the fish you can forget the trap.” My goal was to bring the insights from various fields of study to more people so they could be more effective in their well-intentioned pursuits.

Given the thinking in your book, if you could solve just one of the world’s problems, what would it be?

Energy. Besides addressing global warming, clean and cheap energy would allow you to desalinate and move water, which would go a long way toward solving problems with food and population.

You have expertise in China, hermeneutics, education, and statistics. How does all of this fit together?

My knowledge of China is focused on language, culture, and philosophy, which inevitably leads to Confucius. He asked: How do you make the world a better place? By making people better, and you do that through education. That’s two topics. The other two are variations on the theme of, “How do you know?” One is qualitative and the other quantitative, but we live not in a multi- or poly-verse, but rather a universe. This means that the qualitative and quantitative approaches must converge. If they don’t, then you haven’t done enough work.

               To put all of this differently, if I were interested in making money—good old capital—then I’d invest, which would involve a qualitative assessment of the management team and a quantitative assessment of the fundamentals. I’m interested in human capital, so I conduct qualitative and quantitative assessments of how to improve it.

What is your lasting contribution?

Confucius said that to leave a legacy, you should have kids (I have a son) or write, but Socrates said that to leave a legacy you should have kids, write, or (what does this tell you about the difference between China and the West?) do something that has an enduring impact on the world. According to Accenture’s Chief Learning Officer, my contribution has been “to fundamentally change the equation for how companies think about investing in their people.” I proved that the return on investment in training is very high. Gary Becker, Nobel laureate and Presidential Medal of Freedom winner said, “In terms of human capital, [Tad’s work] is exactly what American businesses most need to be doing.”

How did you do that?

I analyzed 261,000 employee records of per-person margin (how much people brought in minus how much we paid them), controlled for experience, inflation, and business cycles, to show that for every dollar Accenture spent on training, it received $4.53 in return, which is a return on investment (ROI) of 353 percent.

There are several features of this work that I think are worth pointing out:

• Since the analysis focused not on soft data (Did you enjoy your hospital stay?), but on hard data (Did you survive your hospital stay?) and since it used rigorous statistical techniques (multiple regression that accounted for various confounds), the results had a high degree of credibility, so high that the work won half a dozen awards and was turned into the book Return on Learning: Training for High Performance at Accenture.

• The approach forces people to focus not on training activities—hours of training delivered, percentage of workforce trained, and so on—but on results, a focus that forces you to speak the language of the organization’s leaders—the language of results.

• The analysis took into consideration all of the training that everybody experienced as well as all of the costs associated with the training, including opportunity costs. One point is that this makes for a conservative estimate of ROI. But the more important point is that the analysis looked at the big picture of how all of the courses interacted with each other to add value, thus avoiding the common mistake of trying to explain how a particular course increased a particular skill, which has a particular ROI. The analysis showed that, because individual courses interact with each other, the whole effect of training is greater than the sum of its parts.

Why is the ROI so high?

Because training has benefits that are direct, indirect, and very indirect for individuals, organizations, and countries:

• Scientific Management is a training technique used throughout the 20^th century that allowed American blue-collar workers to increase their productivity by a factor of 50.

• Potential Accenture employees said they would rather work for a company with outstanding training than one with average training, even if it meant a 13 percent reduction in pay. Of new hires, 72 percent said that training was the number-one reason they joined the company. Employee satisfaction surveys at Accenture showed that people who say they get the training they need are twice as likely to say they’ll be with the company in two years.

• In the 1800s, Japan and Sweden were poor countries with few natural resources, but they invested heavily in educating their people. A hundred and fifty years later they have enviable per-capita GDPs.

               The returns on investments in training are very high for two reasons. First, unlike other factors of production, investments in human capital do not have diminishing returns. If you keep adding people to a project they quickly begin to bump into each other so that each additional person adds less value. The more you know, however, the more you can know, and thousands of studies on learning curves have shown no end to how much improvement can be made to skills.

Second, the rate-limiting factor of any system is its least-productive element. In other words, a chain is only as strong as its weakest link. Because, relative to other factors, companies usually under-invest in human capital, investments in training yield the highest returns. An example shows how this works:

Imagine that you run a micro-business and that your business performance is a function of People, Process and Technology. If you’ve invested $5 in Process and $5 in Technology and $1 in People, then your total output is ($5 * $5 * $1) $25 units of production. If you increase your investment in People by $1, then your output increases to ($5 * $5 * $2) $50. The formula return on investment (ROI) is:

ROI = (Value – Cost) / Cost

In this example, the value added by the training was $25 at a cost of $1.

ROI = ($25 – $1) / $1 = 2,400%

The ROI in training is so high because training helped unlock value in the other factors of production. For example, suppose I am barely skilled at using some software. Upgrading me to the newest version or giving me a faster computer would not yield as much value as would increasing my skills with the software. Increasing my skills will allow me to draw more value out of both the software and the hardware. 

Speaking at your undergraduate alma mater, President Obama urged students to continue to add to their body of work. What is your next contribution?

I’ve been asked not to say just yet, but it is half way between Lasting Contribution and Return on Learning.