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Cutting That Training Budget
Is a No-Brainer, Right? Issue 446 | February 13, 2009 By Kevin Oakes and Mike Grohs
Reduce the budget now! It's a fire drill almost every company is either currenty immersed in or has already gone through. And when this fire drill happens, it's typically a time when corporate training and development get a lot of attention. After all, conventional wisdom states that when times are tough, the training budget is one of the first - and easiest - to slash.
However, conventional wisdom may not be so wise in this case. Cutting the training budget might just be cutting into your organization's future success.
Companies are definitely hacking into training, according to a soon-to-be-released study from the American Society for Training & Development (ASTD) and i4cp. Many survey participants reported that they're seriously slicing into the resources used to support learning, and nearly seven out of 10 said that, in these tighter economic times, their organizations are, to a high or very high extent, taking a close look at their learning budgets.
And why not? As President Obama rails on Wall Street for doling out bonuses of a mere $18 billion, that figure pales in comparison to what companies spend each year on training alone. According to ASTD (2008), the training industry's best-known association, U.S. organizations spent $134.39 billion on employee learning and development in 2007. This amount reflects direct learning expenditures such as the learning function's staff salaries, administrative learning costs, and non-salary delivery costs. Nearly two-thirds of the U.S. total ($83.62 billion) was spent on the internal learning function, and the remainder ($50.77 billion) was allocated to external services.
To a CEO or CFO, on the surface it is probably an easy decision. However, dig a little deeper and you'll find that eliminating training is typically not the answer to surviving in a tough economy.
Rather, companies should be looking for better ways of doing things in the learning function. Tamar Elkeles, the VP of Learning at i4cp member Qualcomm and co-author of The Chief Learning Officer, offers some succinct advice for training professionals in these economic times. "Learning leaders need to consistently demonstrate fiscal responsibility, especially in a down economy," says Elkeles. "The key for learning professionals is to reprioritize and rethink the way learning is delivered in the organization."
It's crucial to stay innovative in the learning function, as in other parts of the organization. Craig Barrett, the recently retired CEO of Intel, noted in a recent edition of Newsweek, "There is a general rule in business life: market share is won or lost during transitions." He said, "The analyst community will be lauding major cutbacks in spending and head counts. CEOs must screw up their courage to buck the conventional wisdom of Wall Street and invest through the downturn (after all, by now we should recognize that Wall Street is hardly wise). It's time for long-term thinking in an environment that has too often been dominated by quarterly statements" ("Survival," 2009).
That short-term thinking has often been the downfall of training departments worldwide. "This is a time to invest in employees and to demonstrate a commitment to increasing employee productivity and overall organizational performance," Elkeles reinforced. "The best learning organizations will embrace this time as an opportunity to focus their learning initiatives on critical business outcomes that will sustain innovation and drive future organizational growth."
The research backs Elkeles up. An international survey conducted by business performance consultancy McKinney Rogers found that 78% of executives think that the key tactic in reducing the impact a recession has on their organization is to invest in and develop their workforce (McKinney Rogers, 2008). As Richard Watts, regional partner for Europe at McKinney Rogers, notes, "A company's workforce is an essential tool in the business armory when the going gets tough" (Eyre, 2008).
The question is: How can companies make learning more efficient without making it less effective? The ASTD/i4cp survey indicates that many learning professionals favor new and less-expensive methods of delivering learning -- including e-learning, simulations and other online options -- over extensive cuts to learning.
While the cost benefits of e-learning have been well documented over the years (less of a need for classrooms, instructors, time away from the job, etc.), the technology needed to attain these benefits does not need to be overly complicated or expensive. Simply incorporating a homegrown blog, wiki, online bulletin board or open-source software has proven to be quite successful in several companies. In 2006, longtime i4cp member Intel introduced Intelpedia, a Wikipedia-like site on which employees can share information. After only two years, the site has 5,000 authors who contribute to 20,000 pages. It gets 200,000 hits a day, second only to Intel's homepage (Wilkins, 2008).
But not everything needs to be high-tech to be cost-effective. The ASTD/i4cp study indicates that there are certain "high-touch," network-friendly practices that respondents feel their organizations should be doing more of during the downturn, such as using more mentoring and peer coaching, encouraging more informal learning, and encouraging more communities of practice.
The trick is to increase rather than erode the organization's intellectual capital during the downturn. With unprecedented layoffs, today many corporations are experiencing the hidden cost of downsizing: an exodus of that valuable knowledge. Another recent i4cp study showed that about a third of responding companies retain knowledge poorly or not at all when workers leave, whereas only about a fifth say they are doing well or very well in knowledge retention. The largest group think they're only "okay" in this area.
Such mediocre performance could be costly. The same i4cp study shows a significant positive correlation between the extent to which respondents say their organizations retain knowledge and the extent to which they say their firms perform well in the marketplace. What's more, the longer they've had knowledge retention initiatives in place, the more likely they are to say those initiatives are successful. In other words, it seems to take time to get good at knowledge retention.
Bottom line: The status quo isn't truly an option in today's tough, cost-sensitive environment, but random slashing also seems like a lousy option. Learning functions need to get creative, improving their store of knowledge by using new technologies and adopting better ideas. And they must prove they can become efficient even while having a positive, strategically crucial impact on the organization. However tempting it is to break out the carving knives, history has proven that deep cuts in training can be dangerous to future performance. So organizations should look for ways to invest wisely in their workers' skills, ensuring the organization can gain real ground on the competition when the economy finally starts to recover.
Documents used in the preparation of this TrendWatcher include the following:
* American Society for Training & Development. (2008). State of the industry report 2008: ASTD's annual review of trends in workplace learning and performance. * Eyre, E. (2008, September). People power beats a recession, says survey. TJ, 20. * McKinney Rogers. (2008, July). Economic recession - perceived risks and rewards. * Recession agenda for employers: Recruit, retain, train and be honest with workforce. (2008, April 23). Inside HR. * Survival tips from the top. (2009, January 31). Newsweek.
* Training efficiency: Optimizing costs. (2008). Retrieved from expertus.com * Wilkins, D. (2008, May). Learner-driven content: The next wave in development. Chief Learning Officer, 50-53. * Woods, D. (2008, October 9). Training budgets remain "recession-proof." HRmagazine.
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