Whats ROI On Worker Training

November 10, 2003
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GRAND RAPIDS — Corporate training is a huge industry, but it's also one of the hardest business investments to track in terms of return on investment.

Corporations in North America spend in excess of $500 billion a year on corporate training, noted Donn Smith, director of business development at Varnum Consulting LLC.

"It's a very big, broad, expensive area for businesses. Is there any return for it? That seems to be one of the biggest issues for business when they're looking at corporate training," he said.

"Everyone recognizes that they need continual improvement and education training and they throw a lot of money at it trying to keep their work force up to speed. But how does that relate to the bottom line? Just what kind of value do you get out of it?"

According to the "curve of forgetting" measurement, developed by German psychologist Hermann Ebbinghaus, the average student forgets 90 percent or more of delivered content within 30 days.

If that holds true, then $450 billion of the $500 billion spent on corporate training every year in North America is wasted.

"When you consider that businesses are spending a significant amount of money on training, whether it's 90 percent of the content that is forgotten or some number under that, it's a huge amount of wasted money," Smith remarked. "So the challenge is, how do you train and make that an effective investment?"

The problem is not that people don't understand the training or that the training isn't exciting or engaging, said Varnum consultant Del Nykamp, Ph.D.

"If we don't have the systems to hold people accountable and we're not putting it into the way we manage, the odds are we don't get the return."

The nature of employment is changing with the introduction of new business processes and new business technology — both manufacturing and information technology. So it's absolutely critical that employees stay abreast of what's going on, Smith said.

"It should be a system of training, not just sending employees to a class or buying them a training CD."

It's critical, Smith said, that an organization assess its skill sets from top to bottom to determine what its needs are at all levels and where it wants to be.

In other words, what does the company need to do? How does it need to be improved? What kind of training is going to best help the company achieve that goal and get to where it wants to be?

That means defining where performance must be improved and setting a baseline for current performance, he said, then creating and implementing a working development design.

Nykamp recalled a recent case in which he worked with a local organization that wanted to grow annual revenues. What they found after assessing the organization and its supervisors was that a certain percentage of supervisors weren't presently qualified for what the company wanted to do.

"The organization had never laid out the specific targets. It never measured that or asked, 'How do we help supervisors to grow?'" Nykamp recalled. "Only once we started looking at growth targets for the organization and then looking at the competence and the knowledge of the people that were supposed to get there, could we start working on steps to bring those people up to speed."

After training is accomplished, he said, a company has to support that training and make sure employees are implementing it daily.

"We think the support and ongoing accountability is extremely important. It's something they need to monitor constantly," Smith said. "They're going to have to look at education as a full process and be committed to it."

When continual improvement and continual education is part of the corporate culture, it creates excitement within an organization, Smith believes.

"In today's environment, there's not much loyalty either way," he observed. "Training can help. If you invest in people to help improve them, it helps build loyalty."

A company also has to decide what type of training is most suitable for its employees: classroom style, one-on-one, customized, executive coaching, mentoring, seminars, computer and Web-based training, or a combination of several.

Smith also noted that there are some retention-based technologies coming soon to the market to help people retain what they've learned.

A lot of the big organizations today are developing mentoring programs, he said.

Training doesn't only involve learning about a new manufacturing process or new IT system, he said. It also involves leadership training and the art of motivating people.

Leadership training creates a very dynamic organization and pays off handsomely, Smith said.

"More and more companies are looking at developing leadership programs in their organizations — not just at how they do the daily operational types of things. There are studies that indicate that there is a significant relationship between effective leadership programs and bottom line financial performance."

Training isn't something a company does once in a while when there's a crisis, Nykamp remarked. People can get better and smarter and more skilled, but the training has to be ongoing, he added.

In order for learning to be effective, it has to engage the learner, Nykamp said. He has developed seven key principles designed to engage people in training:

  • Build on learners' "response-ability" — their capacity to make choices.

  • Share control with learners.

  • Adapt to learners' learning styles.

  • Treat learners as adults.

  • Respond to emotions of learning stages.

  • Respect each learner's natural limits.

It's important to understand each learner's own self-assessment, Nykamp said.

"If Don doesn't think he needs to improve, even though Don's boss may think he needs to improve, the odds of Don getting there are low." 

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