- 18 January, 2020
- Posted by: Johan Skoglöf
- Categories: Learning Organisation, Profits
Many learning and development functions struggle with limited resources and influence over the business. At the same time, we are facing massive skill shifts. The World Economic Forum estimates that an average employee needs 101 days of re-skilling over the next 5 years.
One of the challenges is that we need to adequately demonstrate the value of investing in continuous development and reskilling. To be able to do that, we need to speak an economic language to show the return of investment. For example, a typical organization of a few thousand employees can save several million SEK per year through efficiency improvements. It is investments that can be used to help employees learn more, become more flexible and cope with the transition that is now taking place.
Many industries are facing major changes as a result of accelerating digitization. Critical skills and development are in focus of world leaders. According to PwC, 83% of CEOs believe that a lack of key skills is an obstacle against growth. At the same time there is a belief that very little is happening. Only 9% of Swedish business leaders say that there is clear progress in this area and one in four state that there is no resources for skill development.
A mix of will and insight in senior management but also a lack of resources is what I hear when I visit L&D departments. The desire to invest in learning does not reach all the way to the L&D department, to really gather resources.
Changing the culture and making the necessary changes is not a top priority among the management. The L&D manager is usually not part of the organization’s management team, rather often found in a central function where resources are slimmed down.
There are some things we can do to address this, for example:
- Show that we are a strategic partner in the shifts that are now taking place.
- Measure and show the impact of learning for the business.
- Talk the language of the business and show senior management the value of formal training.
- Join the business and actually observe and ask employees about challenges at work.
- Name the L&D Department something more connected to the challenges of today regarding agility, constant development, collaborative, adaptability, etc.
In fact, we have a great business case. A typical organization with 10,000 employees already spend SEK 4-500 million formal training. Most of it with very little effect. To reduce half of that spend, as I will show, is not impossible What could you as an L&D manager achieve with SEK 200 million annually instead?
How to show the value ?
Learning creates value, of course. According to the Boston Consulting Group, the organization’s learning is by far the most important competitive factor of the 20th century. I am now going to go through some ways to show values, for you who work with training, can present to your management:
- Cost savings with digitisation of learning.
- The value of increased productivity as a result of learning.
- The value of reduced staff turnover.
- The value of a more innovative and agile learning organization.
1. Value of digital learning
The first topic is about digitisation of learning. The picture below is from a few years back and shows the proportion of delivered training from different delivery channels.
As you can see, the proportion of classrooms has declined over the last 10 years. From 77% to less than 30%. However, many companies I visit still conduct 80%-90% of their training in a classroom. Consequences of this are:
- Low availability, employees cannot quickly access knowledge available when needed.
- Slow build-up of capabilities. It takes time when large numbers of employees are to be trained.
- We over consume training. Employees who only needed part of training had to attend all day.
- High cost. The total cost of a course per day including absence from work is SEK 10-15,000 per employee.
According to LinkedIn, employees experience on average that only 15% of their needs are being met by the company’s course catalogue. For companies with high proportions of classrooms, the figure is even lower. Employees are simply not given the chance to stay relevant with today’s rapid and changing development.
In this article, I will not go into detail on how to digitize. This is described in my article: “Digitize learning for increased competitiveness – Part 1″.
The fact box below show how you can count on the savings. The total cost of a company with 10,000 employees who conduct 90% of its training in classrooms is SEK 4-500 million.
If half the courses are digitised the organization would save up to SEK 240 million each year. It is the most important “business case” to start with when you are going to justify the budget for a change in training.
Fact box – the value of digitizing
- A course day costs about 10-15,000 SEK per employee.
- Employees cost about 6-10,000 SEK per day.
- The course cost (instructor, course material and venue) is approx 2-3.000 SEK.
- Travel expenses are 0-3.000 SEK.
- The corresponding cost of digital learning is SEK 2-3,000 per employee.
- 50-70% less time is spent.
- No travel or delivery costs.
- Going from 90% to 50% classroom courses saves 2 full course days.
- According to the “ATD Industry Report”, we attend about 4 course days per year.
- Digitization of 2 classroom days saves up to 24,000 SEK per employee per year.
- 2 * (15,000 – 3,000) = 24.000 KR.
- For 10,000 employees, this will be SEK 240 mn annually.
The reasoning above is focused on cost savings, which is of great importance to show. However, there are other advantages to digitize course content.
- The courses will be available anytime and anywhere.
- Critical content can be spread faster in your organization.
- Parts of a course content become available and can be used by more.
- Several meta-studies show higher learning effect.
2. Value of increased productivity
Whether the course is delivered in a classroom or digitally, there are challenges. The biggest challenge is to transfer knowledge to work. We quickly forget the knowledge if we do not apply directly. According to Ebbinghauser approx. 70% over 2 days. Research shows that we as a result of the internet has relocated our memory into our mobiles and actually remember even less. Other research shows that we only apply 15% of what we learn from a course.
As the picture shows, a single course is not enough to create the capabilities we need at work.
The above has led us to learn at work today, just when we need the knowledge. Occasional course sessions simply have too low impact, or as Tony Driscoll (professor at Duke University) describes the problem:
- Only 15% of the employees’ abilities depend on knowledge, the rest of motivation, leadership, processes, etc.
- Only 15% of the learning depends on formal education, i.e. courses
- Only 15% of the knowledge of a course are applied at work.
Multiplied, it will be less than 1%. That is how much investments in courses would affect our ability at work. Exaggeration? Perhaps, but we all realize that more than a single course is needed to create lasting shifts in capabilities.
An additional challenge, managers know people forget courses. It is therefore considered that training is something that should “assure” a bottom level, such as for rules and regulations, compliance or as an introduction to a profession. There are many articles similar to the famous Harvard article where leadership training is called “the great training robbery“.
So how can we address this. The first is, of course, to create training that affects employees’ performance at work. I describe how this can be done in my article “Digitize learning for increasing competitiveness – Part 2″.
The second part is about actually measuring changes in performance. The more we can measure changes in performance, e.g. increased sales, and link it to changing behaviors that in turn is because of development, we can also show management how we create value.
Fact box – value of increased productivity
- A shipping company I worked with measured customer care’ and planners’ behaviors before and after our change program. They were able to connect 3-4% higher filling rates on vessels as a result of the program. The value of this was SEK 800 million annually.
- Cisco evaluated a larger training effort for the sales force. The result was 26% higher productivity and a total of $142 million in profits/savings.
- In general, increased productivity can be charged as increased revenue or reduced costs, usually staff costs.
- Revenue: Multiply productivity gains by annual contribution (income less variable costs).
- Costs: Multiply productivity gains by annual total staff cost.
More examples of gains:
- With well-designed “blended” programs, the proportion that applies the knowledge increases from 15% to 86%.
- By working with multiple repetitions and exercises, what the employee retains increases from 20% to 90%.
- Metastudies show that the effect of “blended” programs is 60% higher than for traditional programs.
- What’s this worth? According to IBM, those who invest more and have a higher maturity in learning have 10% higher productivity than the average company.
3. Value of lower staff turnover
The examples above are about improving existing training, digitising it and ensuring that it has the desired effect in actual performance.
As I mentioned, today’s course catalogue covers less and less of employees’ formal learning. According to LinkedIn about 15%. They rarely include the 40% new abilities we have to learn in the next few years.
The goal is to provide everyone in the organization with learning resources, that also encourage the employee’s long-term ambition to grow and prepare for future change.
I write more about this in “Digitizing learning part 3 – addressing the skill shift“.
One of the big profits beyond what I previously mentioned is reduced staff turnover. Today, many companies with staff turnover are grappling on average over 15%.
An IBM study shows that 3x more people choose to stay if they receive development and growth opportunities. The possibility of development and learning is “No 1” both to be an attractive employer and as a reason for employee retaining.
For an organization with 10,000 employees, every percent of reduced staff turnover means SEK 100-300 million. Today development play a big role for attracting and retaining the right skill on an increasingly tougher labor market.
Fact box – the value of lower staff turnover
- According to Josh Bersin, among others, it costsSEK 1-3 million to hire and “onboard” a new employee.
- This means that an average staff turnover of 15% cost a company of 10,000 employees between SEK 1.5 and 3 billion.
- Several studies, like the one from IBM above, show that increased opportunities for learning and development multiply employees’ willingness to remain at the company.
- That is a lot of money. For a company with 10,000 employees, 1% difference in staff turnover mean SEK 100-300 mn in savings per year.
Providing increased opportunities for learning in the organization does not only affect staff turnover. Other gains are:
- Reduced time to competence – Content curation drastically reduces the time to build new capabilities compared to delivering through classrooms or developing your own content.
- Increased productivity – Companies with top quartile training offers have 16% better productivity.
- Increased engagement – According to Bersin Deloitte, employees’ learning experience improves 10 times and according to Degreed, activity increases 9 times with self-driven learning.
4. Value of an agile learning organization
According to the employment service, the Swedes spends an average of 15-30 minutes a week on training. However, the current change of skills mean that we need to increase that proportion drastically. According to the World Economic Forum, we will need to increase our learning to about 5 hours a week. In order for this to happen, learning needs to be driven by the employees themselves and done directly at work.
In the article “6 factors for creating a learning organization” I describe overall how we can work on developing employees’ ability to learn, a culture that encourages development and moves training to work.
The most important benefits are employees and an organization that is faster to absorb the rapid (technological) development abroad. More and more industries are fundamentally changing. Success in digitization and the transformation many companies go through requires speed in learning and translating improvements in working methods and offerings.
Fact box – the value of an agile learning organization
- According to ATD and other studies, revenue per employee is 2-3 times higher and profits are 24% higher for those companies that have the most developed learning.
- According to studies fromBersin Deloitte, profit growth is 3 times higher for companies that have the most developed learning.
- According to other studies from Bersin Deloitte, companies with developed learning have twice the rate of innovation and productivity.
The ultimate value of formal training is how the company develops in the long term. How it thrives on the rapid changes that technological development creates. Several studies, including: McKinsey and BCG shows that only between 10-30% of the companies are successful with a technological transformation in their industry. Industries such as “Minicomputers” and “PC” had their shake-out in the 80´s and 90´s. Travel companies just been through the shake-out. Clothing industry, stores and banking & finance are next.
The picture below shows Microsoft’s development in the last 3 years compared to 3 major Swedish companies. Microsoft has more than doubled its course in recent years, while previously successful traditional Swedish companies have stood still.
The 5% most dynamic and successful companies are now speeding past the others and are valued significantly higher than other companies.
Employees of, for example, Google, Microsoft and Apple are valued at SEK 80 million each (market capitalisation/employee). It’s companies that all work with a learning culture. As a contrast, employees of traditional large Swedish companies are valued at between SEK 2-12 million each. The differences are equally large when you look at the companies’ profits and are also when it comes to employees’ salaries. The average salary of the above-mentioned company’s Swedish employee is over SEK 100,000/month.
These are some examples of the financial benefits of investing in learning. Are you interested in creating a “business case” for your business?
Do you have more arguments as to why management should invest in learning? Please comment below