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Playing the training game and losing: 'training for future work' and 'hiring for potential' can drain your company's shareholder value - Training & Development - Includes related article on the research

HR Magazine, August, 2002 by Bruce Pfau, Ira Kay

They say you can teach a squirrel to fly. But it's easier to hire the eagle." DAVID McCLELLAND, noted organizational psychologist behavioralist.

On nearly every survey, training appears somewhere in the top three benefits that employees want from their employers. In particular, they want the opportunity to grow and learn, and they search for organizations that will give them the tools to advance in their profession. Top-performing professional/technical employees and those under age 30 tend to put developmental opportunities first on their list of desires.

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By the same token, HR professionals have long been advocates of training. They espouse the importance of investing the time and resources in developing their people and how much that can pay off, not only for the individual, but for the company as well-in retention and increased productivity.

So, creating training programs is a no-brainer, right? Employees say they want it, and companies stand to benefit from it.

Not so fast, according to new research from Watson Wyatt, a worldwide human resource consulting firm based in Washington, D.C. In fact, training is actually linked to lower shareholder value, with companies providing it being worth 5.6 percent less than companies that do not provide training. Furthermore, companies that train during an economic slowdown have a market value that is 3.4 percent less than companies who don't train during this time.

These conclusions are drawn from data analyzed from the 2001 Watson Wyatt Human Capital Index (HCI), an ongoing study of the linkages between specific HR practices and shareholder value at 750 large, publicly traded companies. The HCI study provides insight on what works--and what doesn't--when it comes to maximizing HR's contributions to the bottom line. (For information on 360-degree feedback programs' effect on shareholder value, see "Does 360-Degree Feedback Negatively Affect Company Performance?" in the June issue of HR Magazine.)

Wrong Type of Training

How can companies lose money on training when it is clearly valued by employees? One reason training may act as a drain on shareholder value is the simple fact that, too often, the quality of training is poor. Training programs are pulled together quickly, outside vendors are hired and workers are informed they must attend--all because everyone agrees that training is a good thing. Little measurement takes place (notwithstanding the quick questionnaire at the door on the way out) so there isn't enough information available on the effect the training had on performance. The result? Training programs remain poorly designed and employees remain frustrated.

Watson Wyatt research shows that a large part of the problem stems from too much investment in "developmental" training--developing people for future jobs.

Developmental training is popular with employees who are interested in becoming more marketable. But, after the training, one of two things happens, neither of which contributes positively to shareholder value:

* Employees who have undergone developmental training typically expect a salary increase commensurate with the contributions they are making with their new skills. The raise cancels out any increased productivity the company might otherwise have captured.

Research Watson Wyatt conducted on training, productivity and shareholder returns bore this out. A 10 percent increase in productivity led to a 10 percent increase in pay, for example, negating any potential benefits.

* Offering developmental training without proper career opportunities increase turnover. In many cases organizations providing top notch developmental training do not have higher-level positions available for their newly skilled employees. Unfortunately, their competitors do.

Getting Training Right

The Watson Wyatt findings should not lead HR to abandon developmental training programs altogether. But, in the face of numbers that show training can be harmful to the bottom line, it is useful for HR to become healthy skeptics. All training is not equal. Companies must take a rigorous approach to the design of training programs to reap the benefits of increased productivity, employee commitment and shareholder value. There must be a strategy for return on investment (ROI). And, the organization must capitalize on the new skills.

The most critical step HR professionals can take is to look closely at employees' competencies and to train specific individuals in specific job-related skills based on organizational needs.

But HR should not stop there. It should examine training methods as well. All too often, organizations rely on lectures, inspirational speeches or videos, discussion groups and simulation exercises. These methods may receive high marks from participants, but whether they change behavior on the job is debatable. Often, HR sets up the training, conducts it and then checks it off the list of things to do for the year without any follow-up to determine if the training transferred to the employees' daily work.

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Playing the training game and losing: 'training for future work' and 'hiring for potential' can drain your company's shareholder value - Training & Development - Includes related article on the research

HR Magazine, August, 2002 by Bruce Pfau, Ira Kay

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