Suggesting that ‘training is important’ might seem a rather weak and obvious statement. Precisely because of this I want to look at the latest data about how learning and development has become the very best investment any organization can make, perhaps now more than ever. I want to provide you with data, insights, and clear points of view to reinforce the idea that to be successful an organization must put it’s people first.

Consider this quote from Bassi & McMurrer

“Companies that fail to invest in employees jeopardize their own success and even survival. In part, this practice has lingered for lack of alternatives. Until recently, there simply were not robust methods for measuring the bottom-line contributions of investments in human capital management (HCM) – things like leadership development, job design, and knowledge sharing. That’s changed.” (2007)

Start with what you can control, your mindset. If you think the work you are doing in learning and development is ancillary, or in some way not that important, take a deep breath, and say the following statement out loud:

“Now more than ever, learning and development professionals are poised to make strong and lasting contributions to the organization”

Did you say it out loud? I hope so because in order to change how others in the organization see learning and development, you must change how you present your value to others. The data is crystal clear so let’s get started.

How about those stock prices!

The white-paper ‘The Impact of U.S. Firmsí Investments in Human Capital on Stock Prices‘ - Laurie Bassi, of Bassi Investments, Inc., et al – June 2004 offers an amazingly comprehensive look at what it means for an organization to invest in their people through training and development.

In Bassi’s Training and stock performance: quartile analysis, Table 3 shows that investments in training are positively correlated with stock price returns. As seen in the table, firms in the 3rd and 4th quartiles with respect to training expenditures subsequently experience annual changes in share prices equal to 34.3 and 30.7 percent, respectively, roughly double the return experienced by firms in the bottom quartile (15.3 percent).

The table reveals similarly substantial differences across quartiles with respect to sales per employee, gross profit margin, and market capitalization per employee, and somewhat less dramatically for sales per employee, return on assets and Tobinís Q (which is essentially the ratio of market to book value of the firm).

Profit margins are a strange thing to study, as so many factors affect the final outcome. What is notable about the table shown here, and the research of Bassi and others is the simple fact that every business needs people. Taking the time to make sure the best people work for within your organization is the key to lasting prosperity.

Should we downsize?

I want to talk about the opposite of investing in people, getting rid of them. This practice, even though it has been given many names is still the act of firing good people that will be hard to replace. When times are tough, it can seem there is nothing else to do. From a lot of perspectives it can seem like a prudent thing to do as well, but it’s not. Here is a bit of data that lends itself to being shared any time the idea of ‘downsizing’ comes up as a solution to complex and challenging times.

“The evidence indicates downsizing is guaranteed to accomplish only one thing — it makes organizations smaller” (Pfeffer, 1998). In fact, the consequences of downsizing is stock prices that lag 5 to 45% behind the competition (in more than 1/2 the cases they lagged 17 to 48%), it does not necessarily increase productivity or profits, downsizing tends to be repetitive (2/3 of organizations repeat it the next year), it does not fix or improve core processes, it can be readily copied so it offers no competitive advantage, and it has unanticipated costs that limit its benefits.

As it turns out downsizing only works about 50% of the time, so if an organization likes taking huge risks, they may choose to downsize. The intangible concerns come from the ‘word on the street’ that let’s everyone know which organization ‘can’t be trusted’ – after all ‘they’re laying people off’. In spite of the ill-will that is generated from an action such as downsizing, very few firms use other means to avoid downsizing (1994 American Management Association survey). While the idea of cutting labor costs is common it is not borne out through a logical analysis of what happens after downsizing is completed.

Avoid downsizing with these options:

• reducing work hours
• reducing pay
• taking outsourced work back
• building inventories
• freeze hiring and reshuffle workers
• do training, maintenance, etc.
• refrain from hiring during peak demands
• encourage people to innovate (product, services, markets)
• transfer people to sales to build demand

When an organization puts financial resources – even if it seems modest at first – behind the learning and development professionals, the results speak for themselves. Here’s an example of how one organization has stayed sharp for more than 100 years.

Lincoln Electric is one of the leaders in its field and has not laid off since its inception in 1948. Yet it has been through all the hard times like everyone else, but during lean times, it chooses to redeploy people rather than lay them off, e.g. factory workers start selling its products in the field.

Start a discussion and bring the data to the bear on whether training is the best tool for thriving, even in a challenging economy. The data is more than clear that investing in personnel pays long-term dividends, in not only at the bank, it also pays on the street. As learning and development professionals are asked to validate their claims, it is important to know the core message is clear – training works.

DARE TO BE GREAT!
Your LQ Team