IS TRAINING & DEVELOPMENT COST

OR AN INVESTMENT
[Document subtitle]

Date: October, 2017

Introduction

Employee training and development is a broad term covering multiple kinds of employee
learning.

Training is a program that helps employees learn specific knowledge or skills to improve
performance in their current roles. Development is more expansive and focuses on employee
growth and future performance, rather than an immediate job role.

However, it has always been a debate on perceiving such employee training and
development activities as a cost or an investment.

Top performing companies not only recognize the importance of their people but also the
need to provide the right skills to enable their people. 71% of CEOs cited human capital,
ahead of products, customer relationships and brands as the leading source of sustained
economic value. In addition CEOs ranked People Skills in top 4 External forces impacting
the enterprise.

84% of employees in Best Performing Organizations are receiving the training they need
compared with 16% in the worst performing companies. Source: IBM Smarter Workforce
(Kenexa) 2013 Survey Today more than ever, companies need to maximize their human
capital by providing the right skills at the right time for the right people. Embracing the right
level of IT training, enablement and engagement can dramatically reduce attrition and
safeguard the investment made in hiring.

An IBM study revealed thatEmployees who do not feel they can achieve their career goals at
their current organization are 12 times more likely to consider leaving than employees who
do feel they can achieve their career goals. Even worse, this number skyrockets to about 30
times more likely for new employees. Considering the amount companies invest in the
recruitment process and the time lost to filling the same role again, the impact to performance
and margin can be significant.

Page 2
The True Cost of Not Providing Employee Training

When a lightbulb burns out, do you throw away the lamp? If you do, then you are either
incredibly rich or possibly have a weird thing for new lamps I guess. But, if youre like the
majority of the lamp-owning world then you likely just replace the bulb, which allows you to
save money and enjoy a brighter room too.

Unfortunately, when it comes to "fixing" an existing employee, over hiring a new one,
managers often throw out the lamp, so to speak. While companies have a pretty clear idea of
what it costs to train an employee they ignore the real question: what is the cost not training
an employee?

Michael Leboeuf in his book "The great principle of management" warns of the dangers of
ignoring training:

"If you believe that training is expensive, it is because you do not know what ignorance costs.
Companies that have the loyalty of their employees invest heavily in permanent training
programs and promotion systems. "

The problem is that training is seen as an expense and not as an investment. Untrained
employees will, inevitably, lack the knowledge to use company resources properly, which
will lead to waste, in a service industry; lack of knowledge about procedures will affect
customer interaction and retention. Because of this, your employees, your company, and your
clients will all suffer.

1) It is worth it to Make Your Employees Happy

The benefits, praise and training that successful companies give their employees are not out
of pure goodness of heart. There is an actual correlation between happy employees and a
successful business.

The current and up and coming workforce believes in the value of training and the
opportunity to advance in a position. Because they are aware of the competitive world they
live in, a job that provides training opportunities satisfies their need to stay ahead of the
curve.

Conversely, untrained and unhappy employees who feel that they are being underutilized are
more apt to become frustrated with their job and be less loyal to their company meaning they
will make more mistakes and fail to meet even minimum standards. Management often
assumes that providing training will lead to employees moving on to other companies, but
this simply isnt true. With proper training, employees feel like they are valued and are
happier in their jobs plus a job that comes with training will attract a higher class of
candidate.

Page 3
Additionally, training helps in a more short-term way by helping employees to be more
efficient in their interaction with customers. A trained employee can answer questions
without having to go to a manager and with training comes a greater understanding of the job,
which leads to more efficient work and ability to get along with management.

A survey conducted by PwC asked Millennials, "Which of the following

characteristics make an organization compelling to work for?" This is what they answered:

2) Training and Retaining Current Employees is Cheaper than Hiring New Ones
Lack of training leads to employees who feel unappreciated in their job and a general sense
their job not really mattering. At this point, employees either leave or get fired for poor
performance. While it may seem simple just to replace one worker with another, consider
this: hiring someone can cost up to 30% of the jobs salary which for an employee that makes
$40,000 a year that could equal around $12,000 to hire someone new.

However, training an existing employee might only cost a few hundred and take far less time.
Even if replacing one employee doesnt sound that bad, consider that for every three
employees that need to be replaced that will equal an entire salary with no real gains.

The training and recruitment costs of new hires are far more than what it would take to train
an existing employee as well when you factor in the time and money it takes to hire along
with time spent as a new employee acclimates to the company. Rehiring costs represent
around 12% of a companys expenses with up to 40% for businesses that have a high
turnover rate.

Page 4
These stats prove that turnover is costly. A study conducted by Right Management also
confirmed this, as nearly 70% of organizations say that staff turnover has a negative financial
impact due to the cost of recruiting, hiring, and training a replacement employee and the
overtime work of current employees thats required until the organization can fill the vacant
position.

3) Trained Employees Work Smarter

A company is only as good as its employees, and those employees are really only as good as
the resources put into them. When workers perform poorly, it reflects badly on the business
and affects the bottom line, but when you have a high turnover rate with dozens or hundreds
of employees making the same mistakes, then its time to look at the training provided, not
the employees themselves.

Proper training will make workers better and more capable of their jobs, which will reduce
the time it takes to search for information as they are working. This also helps to quell
redundancy of effort where multiple employees are attempting to perform the same task, not
realizing whose job it really is because they have never been trained otherwise. The time and
money it takes to correct mistakes are also lessened greatly when employees have the tools to
do the task right the first time.

It may seem overwhelming to provide a weeklong training course to employees, but there is a
better alternative. With our technology-driven world and on-demand culture, the best and
most cost effective way to offer training is with online courses that can be taken at an
employees own pace and schedule.

Companies that put a priority on employee development make median revenue of $169,100
per employee while companies that dont make $82,800, which is less than half.

According to HR Magazine companies that invest $1,500 on training per employee can see
an average of 24% more profit than companies who invest less.

Additionally, a study of 2500 businesses done by ATD, found that companies that offer
thorough training had more than twice the amount of income per employee over firms that
offered less training. They also create a 6% higher return for shareholders when training per
employee is increased by $680.

4) Effective Training Equals Increased Productivity

Training is no longer about sending all managers away for a weekend conference or sending
anyone to an 8 hour-long lecture in a hotel. Effective training needs to be tailored to
employee and business needs and to be an ongoing venture.

Competition from around the globe and ever-changing technology means that skills need to
be regularly updated to keep your workforce ready and able to support your company. Your

Page 5
Human Resources Department should make it a priority to integrate processes to encourage
and promote employee education and skill development while also keeping the amount of
time spent away from work to a minimum.

This is where eLearning courses come to the rescue. A single 8-hour training course can be
condensed into a 3-hour eLearning course that students will be able to access on their own
time and terms. Generally speaking, eLearning courses offer a great chance for retention as
well because students can go back and look at sections they didnt understand and the
information is broken down into more manageable bites.

Productivity is also increased because effective training makes employees feel valued and
empowered, which fosters loyalty and engagement with the company that provides that
training. A study by the National Center on the Educational Quality of the Workforce (EQW)
supports this with its finding that a 10% increase in educational development produced an
8.6% gain in productivity.

Before forgoing training always consider how much more expensive it is not to train.
Consider productivity loss, the cost of employee turnover and lost customers due to mistakes
made by improperly trained employees. Your employees training and happiness is just as
much an asset as the workers themselves.

5) OTHER BENEFITS OF TRAINING

Despite the initial monetary costs, staff training pays back your investment. Here are just
some of the reasons to take on development initiatives:

Training helps your business run better. Trained employees will be better equipped to
handle customer inquiries, make a sale or use computer systems.

Training is a recruiting tool. Today's young workers want more than a pay cheque.
They are geared toward seeking employment that allows them to learn new skills.
You are more likely to attract and keep good employees if you can offer development
opportunities.

Training promotes job satisfaction. Nurturing employees to develop more rounded

skill sets will help them contribute to the company. The more engaged and involved
they are in working for your success, the better your rewards.

Training is a retention tool, instilling loyalty and commitment from good workers.
Staff looking for the next challenge will be more likely to stay if you offer ways for
them to learn and grow while at your company. Don't give them a reason to move on
by letting them stagnate once they've mastered initial tasks.

Training adds flexibility and efficiency. You can cross-train employees to be capable
in more than one aspect of the business. Teach them to be competent in sales,

Page 6
 customer service, administration and operations. This will help keep them interested
and will be enormously helpful to you when setting schedules or filling in for
absences. Cross-training also fosters team spirit, as employees appreciate the
challenges faced by co-workers.

Training is essential for knowledge transfer. It's very important to share knowledge
among your staff. If only one person has special skills, you'll have a tough time
recouping their knowledge if they suddenly leave the company. Spread knowledge
around it's like diversifying your investments.

Training gives seasonal workers a reason to return. Let seasonal employees know
there are more ways than one to contribute. Instead of hiring someone new, offer them
a chance to learn new skills and benefit from their experience.

Learning and upgrading employee skills makes business sense. It starts from day one, and
becomes successive as your employees grow. Granted, it may take some time to see a return
on your investment, but the long-term gains associated with employee training make a
difference. The short-term expense of a training program ensures you keep qualified and
productive workers who will help your company succeed. Thats an investment you can take
to the bank.

Page 7
Page 8
Costly Risks of Not Investing in Employee Training

Heeding wise words from the father of business management, Peter Drucker, The only
sustainable competitive advantage is an organizations ability to learn faster than the
competition. Your organization may be getting a run for your money, quite literally, by not
investing in a solid learning strategy.
Weve summarized the top four risks, in no particular order, that our clients are no longer
willing to take:

Risk 1: New employees learning from your bad apples.

Can one bad apple really spoil the whole bunch? Without a solid learning strategy, you have
no control over how your employees learn. Bad habits are hard to fix and without providing
the proper learning support to help employees reach their potential, you risk them learning all
the wrong things from all the wrong people.

Risk 2: Higher chance of turnover.

An unorganized, incomplete and lackluster learning strategy is often the leading cause for
employees to rethink their decision to stay with a company. Disengagement from inadequate
support leaves employees feeling resentful and lacking confidence in their role. Its time to
realize that a strong learning strategy is the number one reason top talent comes to work for
and stay with you.

Risk 3: Poor customer service and damage to brand reputation.

We only get one chance to make a first impression, and as clich as it is, a negative first
impression can have long lasting repercussions. Putting untrained or under educated
employees in front of customers tarnishes their experience and your companys brand.

Risk 4: Slowed ramp time.

Without effective learning support, employees suffer long learning curves with drawn out
time to productivity rates. This drives up costs for idle time and increases the risks associated
with trial and error learning.

Measures to Control Waste of Time And Money on Employee Training

The fast will beat the big in todays economy. Winning is about shortening the learning
curve. That is why many companies will embark on new programs to train their employees
this fall, and why corporate America spent 10% more on learning in 2014 than the year
before, according to research just released by Bersin by Deloitte . Spending on learning
programs rose to $1,004 per employee.

Much of this training is, unfortunately, worthless. McKinsey & Co. found that only 25% of
respondents to a 2010 survey found that training improved employees performance.

Page 9
What goes wrong and how can we fix it?

We have always seen a few common problems in companies existing training programs. The
big one is having no strategic focus to their training. Companies dont train employees in the
skills most critical to the businesss stage of development. They send the wrong people to the
training, over-train them and spend too little time on implementation.

Often programs fall short of being both interesting and useful qualities that should be
mandatory. Interesting training enriches your life, energizes you and ideally makes you more
loyal to the company. Useful training offers a practical skill critical to this stage of
organizational development. It should be essential to the job you have to perform in the next
six months not the next three years. Otherwise, it will soon be forgotten or will get employees
spinning in the wrong direction.

Some companies derail their training programs by training their teams in painfully boring
marathon sessions. The most effective training is done in short bites.

So how do we fix these problems? It takes a reality check.

1. Plan first, train later. For training to have real value, your company must first have a
clear strategy and execution plan in place. Your strategy should clearly articulate
three to five core skills and competencies and three to five key activities that will
make execution possible. Your training should then focus on these skills and
competencies. Otherwise, it is probably just a nice idea from a pushy trainer, your HR
department or a line manager.
People attending the training should be those responsible for acting on it. If they
wont be on the front lines using it, they shouldnt be there. They wont be
sufficiently invested in absorbing what is being taught.

2. Real life experience trumps fancy diplomas. To avoid training that is mind-
numbing or useless, make sure the trainers have actually worked in your field. Try a
small engagement with a trainer before committing to a bigger one. One way to tell a
good practitioner is that he or she makes things look and sound simple and is focused
on action.

3. Plan for sprints, not a marathon. Many trainers will encourage long sessions
because these fit better into their travel schedule. Resist their pressure and find
someone willing to offer shorter sessions.
Lets say youre doing leadership training. Break the training into 12 bite-sized
sessions, rotated into your normal workdays. Devote about 10% of employees time to
training, 50% to implementation, 30% to repetition and 20% to analysis of results.
Programs should be a series of sprints: train, implement, train, implement, until what
is learned becomes a habit. As Peter Brown explains in his book Make It Stick, a
small dose of learning should be followed by a series of quizzes based on open-ended

Page 10
 questions so the brain is allowed to develop associated circuits and also explore
neighboring territories that spark creativity.

4. Road test the training. During the implementation and repetition phase, give
employees access to tools they can use to practice what theyve learned. Tools are the
bridge between theory and actual knowledge.
Theres a science to this. As David Rock explains in Your Brain at Work, when you
learn anything for the first time, you rely on the pre-frontal cortex. Doing so takes a
lot of cognitive power and energy. Once you repeat something again and again, it
moves to the basal ganglia of the brain and becomes a habit. Tapping that knowledge
is not energy intensive. That is why we find it easy to drive from home to work every
day, but very difficult to navigate a new city from behind the steering wheel. Once
what is learned becomes a habit, someone is ready to move onto the next piece of
training.
5. Spend less, not more. Successful training doesnt require millions of dollars. Using
more effective methods will reduce what you spend. You do, however, need to
commit time to implementation, repetition and assessment of what youve learned for
several months after the initial training session or your training wont work.

Conclusion

Some of the company do some training in-house, through an event such as Learning Friday.
At the beginning of every year they identify the core skills and competences that they need to
be best in the world at. They distribute topics among all the team members and target best
practices, theories and concepts in these areas. Every Friday, an employee gives a one-hour
presentation on a core skill that will help us improve. The presentation includes two parts: the
main takeaways and one to three items we want to implement, such as a customer loyalty
program. These session always ends with a document showing Who will implement What
and When that will happen.

Training without implementation is just an intellectual journey and most of us would rather
go to the movies or read a great book. At the end of the day the question to ask yourself is:
Will the training change the way we do stuff around here? If not, dont waste your timeand
money. Take your team to the movies instead.

Page 11