“If you think education is expensive, try estimating the cost of ignorance.” — Howard Gardner
Most HR directors will agree that nurturing talent and investing in learning and development may not always be on the top of management’s agenda, but failure to understand the impact of training programmes on ROI often leaves CEOs and CFOs in doubt about the necessity of these programmes. However, in recent years, the tide seems to be turning – according to research from Bersin by Deloitte, many organisations in the UK have increased their expenditure on L&D. The research reported an 11% surge between 2014 and 2015 to an average of £1,068 per learner as surveyed organisations invested more to help develop future leaders and close skills gaps.
Let’s look at who’s investing where…
According to the Report, in 2015, largest development spending was invested in management or supervisory training programmes and clearly, organisations have realigned objectives to develop future leaders and drive business outcomes.
The 2014 Corporate Learning Factbook provides interesting insights about the US spending on training:
Expenditure on corporate training grew by 15% (the highest growth rate in seven years) to over $70 Billion in the US and over $130 Billion worldwide.
Furthermore, this article reports that U.S. training expenditures in 2015, including payroll and spending on external products and services, took an upward trajectory, soaring 14.2 % to $70.6 billion. Spending on outside products and services skyrocketed 29 % from $6.1 billion to $8 billion, while other training expenditures (i.e., travel, facilities, equipment) more than doubled to $28.7 billion. Meanwhile, training payroll plummeted 20 % to 2011-2012 levels at $33.9 billion.
The 2016 Bersin Corporate Learning Factbook tells an interesting tale…
Other than the surge in L&D spends from 2014 to 2015, the report also highlights other interesting facts:
- Employee training hours have been increased by 12% as businesses are keen to develop skills in their teams in order to meet market requirements.
- one quarter of all L&D is now attributed to online training.
- 32% of training is in the form of instructor-led training. Interestingly, this trend is changing with a 45% drop year on year since 2009.
Why organisations cannot ignore the importance of L&D…
One of the most insightful studies into the importance of Learning & development for leadership was Harvard’s Business Publishing’s report in 2016 titled: “The State of Leadership Development”.
Researchers surveyed more than 700 individuals from companies around the world and ninety percent of respondents had attended a leadership development course at some point.
The report highlights that only 7% of leadership programmes can be characterised as “Best in Class”, but 95% of those programmes were in organisations that considered leadership development to be a strategic priority or important to their strategy. (By comparison, of the “underperforming” organisations, 58% said it was “something we do to check the box”). Best in class programmes have the following characteristics:
- They are tightly aligned with the organisational strategy
- They enjoy executive support
- They have cultivated a strong talent pipeline
- They demonstrate an impact on overall success
How does L&D impact business growth?
“The absence of leadership creates risk. Much has been written about the leadership failures that resulted in the worst financial crisis since the depression, as well as numerous environmental and public safety disasters.” Leadership by design: An architecture to build leadership in organizations.
Recent research by Deloitte clearly indicates the relevance of effective leadership for business growth:
- 88% of business leaders know that their organisation’s future depends upon the effectiveness of their leadership pipeline
- But only 13% are confident in their succession plans, and
- 54% perceive business damage as a result of talent shortages
“Organizations most successful in leadership…have a much higher level of integration between leadership development and the various talent management components.” – High-Impact Leadership Development 2009, Bersin & Associates Industry Study
At Aston Business School’s Centre for Executive Development, we work in partnership with our clients, shaping bespoke leadership and management development solutions aligned to specific challenges. When it comes to financial measures, we have identified some areas of significant impact:
- Implementation of new skills and behaviours in one programme driving savings of £72,000 per annum in sickness absence (these were cultural changes, not procedural changes)
- Service redesign inspired by programme participation with identified savings of £150,000
- The implementation of a major operational efficiency programme, for which the attributable savings from the leadership programme, at the most conservative estimate, approach £250,000 per annum
- By linking research data, on employee engagement, to data on sickness absence we have been able to build a model that forecasts the likely savings in reduced sickness absence, based on predicted improvements in employee engagement figures
- For one healthcare client, we demonstrated how readmission rates (and associated costs) fell by two thirds over a 6-year period, significantly influenced by improved management culture and teamwork
What CEOs need to consider before questioning the value of a training program:
Training programmes have a significant impact on:
- Employee engagement – when your staff are given the opportunity to learn and grow, they feel valued. It goes without saying that these employees will be motivated and willing to put their best foot forward.
- Staff retention costs – When your employees are motivated and engaged they are more likely to stay.
- Aligning business goals with employee goals – Training programmes are perhaps one of the most effective ways to ensure that companies and employees are on the same page. With a focus on improving individual or team productivity, internal communication or achieving strategic business goals, training programmes are an opportunity for both the organisation and the employee to grow.
- Adapting to change – a leader who in not equipped to deal with change is unlikely to succeed in the long run. In fact, most HR Directors will agree that the ability to respond to unpredictable situations or challenges remains at the forefront of their roles.
Aston Business School’s Centre for Executive Development aim to hard-wire impact into every programme we deliver and we have consulted with organisations to help them establish robust and verifiable measures of impact.
For our own programmes, examples of impact identified by participants as a result of their application of learning include:
- Improvements in budgeting and cost control driven by one participant on one programme generated savings of €450,000 within a year of programme completion, paying for the entire programme one and a half times over
- Another participant demonstrated new business generated as a result of applying learning from a programme, generating €700,000 revenue and over €50,000 EBIT in the first year
- A review of manufacturing lines and logistics carried out during a programme led to a reorganisation of production which increased plant revenues by €2 million per annum in their first year, and improved EBITDA for the business by 10%.
- An individual project to improve the internal processes associated with product launches identified a €1.2 million saving and 5-month payback on one project.
- An operational review of one department, in the automotive sector, demonstrated a payback period of 9 months, reduction in scrap rates of 50%, and improvement of EBITDA of 1.5-3.5%
- A project proposal to move to Just in Time Assembly and flexible manufacturing identified potential savings of €2.6 million per annum across three sites.
Based on extensive experience in this area, we have seen that the cost of neglecting to train leaders can be really damaging to organisations. If you want to equip your current and future leaders with the skills they need to take on an uncertain and changing business environment, contact us and we can discuss your executive development needs.