It is a common practice for most of the organizations to put off the employees training in bay when unfavorable situations occur. The organization mention several reasons, like “We are going for cost cutting”, “Our business is dull presently”, “We have reduced our man power now, so we cannot take anyone out for training”, “We have many other priorities”, “We are implementing new systems”, “We are doing firefighting so this is not the time to think about such aspects like training”, “We have to meet our daily production targets” etc. Some organizations even feel that “employee training is a waste of time and money”. While, they all may be right, a deeper plunge into the scenario is very much desirable to validate the views.
Is Training an Expense or Investment?
Michael Leboeuf in his book “The Great Principle of Management” warns of the dangers of ignoring training. He says “If you believe that training is an expense, then you do not know what ignorance costs.”
A common doubt goes around among organizations is that “What if the employees leave the organization after undergoing training?” This has a counter question to ponder over “What if the employees untrained employees stay in the organization for long time?” So which loss is bigger?
A popular quote by Zig Ziggler says “One thing worse than training employees and losing them is retaining them in payroll without training”
Many organizations generally see employee training not only as an expense, but also as disturbance to the process. It may appear so on the face of it.
Bringing all the department heads to the fold, appraising them about the importance of training and aligning them to amicable commitment, then allocating a training budget, doing need analysis at various departments and levels, listing out the present and future challenges, selecting the right training program for every challenge, selecting the right trainers, convincing the employees to undergo the training program etc. are truly challenging processes for any organization. Even more challenging is that a HR department may want to conduct the training program but the management and other departments think otherwise and cite several other factors to decline the training idea. However, when one gets to know deeper about the positive effects of training the employees, then a radical change may occur in the common thought process.
A study from American Society for Training and Development (ASTD) beautifully explains that a good training program can give good returns. The ASTD study provides the first definitive evidence that training investments can yield favorable financial returns for firms and their investors.
In 1997, ASTD launched an unprecedented effort to help firms measure and value their investments in education and training. In the process of conducting this work, ASTD has collected a wealth of training-related information from more than 2,500 firms — everything from the dollar amounts these firms spend on training and the types of training they provide to the means they use to make training available to their employees.
Recognizing that a significant number of the firms in ASTD’s expanding database were publicly traded, ASTD researchers and their partners at Saba Software set out to examine the relationship between firms’ information about education and training investments and their publicly reported financial performance data. The question at the heart of the researchers’ work was whether training investments in one year affected a firm’s total shareholder return, or TSR, during the year that followed. (TSR includes both change in stock price and any dividends issued during a given year.)
ASTD’s central finding is that data on organizational training investments do help to predict a firm’s future TSR—and in a big way. The following are the outcomes of their analysis: (in the words as reported by ASTD)
Looking at the training investments of 575 U.S.-based, publicly traded firms during 1996, 1997 and 1998, the researchers found that:
- Using a sophisticated statistical model to take into account individual firm characteristics such as industry, company size, prior financial performance and earnings, as well as other financial factors, ASTD found that an increase of $680 in a firm’s training expenditures per employee generates, on average, a six percentage point improvement in TSR in the following year, even after controlling for many other important factors.
- When ranked according to how much they spent on training, those firms in the top half of the study group had an average TSR in the following year of 36.9 percent. The TSR for those in the bottom half was only 19.8 percent. By comparison, the S&P 500 had an annual weighted return of 25.5 percent during the same period. Translation: firms in the top half had a TSR that was 86 percent higher than firms in the bottom half, and 45 percent higher than the market average.
- Knowing how much a firm invests in education and training improved the power and ability to predict a firm’s future TSR by 50 percent. Without taking training into account, the other factors explained only 12 percent of the variation in TSR. This increased to 18 percent when training and education expenditures were added in.
- ASTD found other correlations when looking at other key measures of financial performance. For example, the firms in the top quarter of the study group, as measured by average per-employee expenditures on training, enjoyed higher profit margins (by 24 percent), higher income per employee (by 218 percent) and higher price-to-book ratios (by 26 percent) on average than firms in the bottom quarter.
By this, ASTD has suggested that the level of training a firm provides affects other factors of the organization that are vitally valued by the stock market. So by this analysis, it is clear that:
ü Training is certainly an investment and not an expense
ü The impact of Sustained Training Programs can be visible in returns only after one year, at least.
Benefits of Employee Training
Productivity Enhancement:-
Productivity is a combination of process and participating human force. A study conducted by National Center on the Educational Quality of the Workforce, Philadelphia, USA reveals that increases in workforce Training level were far more effective at increasing productivity than increases in the value of equipment (a 10% increase in both produced a productivity gain of 8.6% for education vs. a mere 3.4% increase for upgraded equipment)
Employee Retention:-
Every organization knows how important it is to retain the existing employees who know the organization culture, environment and fellow people. Several studies reveal that, hiring a new employee costs the organization more than 3 times than retaining the existing employee. And there is an element of risk involved too having not known how the new employee would actually perform. So, going ahead with employee retention ideas, giving them attitudinal and motivation enhancement training programs is one of the best ways to retain people.
Leadership Pool:-
At any given point of time, whether an organization is going through challenging times or performing extraordinarily well, what mainly it would need is a handful of Leaders from within at various levels of hierarchy, who would take responsibility and spearhead the process towards the desired goal. And, several studies and experiences of Management maestros say that most of the managers and supervisors lack in Leadership Qualities that are required for their positions. By exposing them to proper Leadership Training, the organization gets a pool of Leaders at achieve its objectives. Also, when the organization is expanding, first it can look at its own leadership pool to promote and assign greater responsibilities required for the expansion.
Effective Teams:-
The overall success of any organization depends on the sum total of the performances of its teams. Teams rarely align naturally as there are several influential mind components such as ego, jealousy, hatred, inferiority and superiority complexes etc., which act as hurdles for a team’s natural harmony. So there needs an explicit intervention to effectuate orientation/ reorientation of team mindset and behavior to effectuate teams to reach their optimal performance.
Positive Organizational Culture:-
Consciousness Studies reveal that the performance of any organization is backed by a strong organizational culture arising out of the collective consciousness and behavior of people who form the integral part. Positive Organizational Culture enhances the happiness and satisfaction quotient of every employee and enhances their work involvement, voluntariness, productivity, efficiency, effectiveness, creativity and strengthens interpersonal bonds. The lack of Positivity in organization culture leads of lethargy, displeasure, dissatisfaction, pessimism, slowness and stagnation in performance, interpersonal quarrels, ego plays, ball passing of responsibilities etc which mounts the pressure of the management. Hence, Positivity in organization culture can be enhanced by enhancing the Positivity of the employees through appropriate Positivity and Motivation Training Programs
Cost Reduction:-
Most of the organizations have their cost reduction plans in place. Especially, during challenging times “cost-cutting” is the buzzword one can hear across the organizations. Organizations are able to identify and work on costs only that are “identifiable” and “measurable”. But the elephant in the room is the “Negativity Cost”, which many organizations do not have any clue about. Studies conducted by Gallup across the United States say that more than 22 Million employees working with various organizations were either “Extremely Negative” or “Actively Disengaged”. Also Gallup went on to say that the United States, as a nation, had been losing around 360 Billion dollars a year in productivity, due to these negativity traits. The negativity cost is incurred due to negative mindset of people and the resultant behavior because of that. Applying this concept to organizations, assuming at least 30-40% of its employees have negative traits, one can imagine how much revenue is lost as “Negativity Cost”.
