For as long as I can remember, the training industry has been looking for ways to identify the return on investment (ROI) of training. This is in part due to senior leadership and their expectations that what is learned needs to be implemented on the job. The overreliance on the training event, without demonstrating application and business value, is one of the reasons learning and development professionals are in danger of being replaced by technology. And why their budgets are one of the first to be cut when economic times get tough. However, it is exceedingly difficult to identify objective ROI measures for soft skill leadership training. So instead of asking, “What is the ROI of training?”, a better question to ask is, “What are the costs of not developing your leaders?”
In his book, The Greatest Management Principle in the World, Michael LeBoeuf states, “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.” Money spent on training for your employees will save you far more in the future. Still not convinced. Let’s look at some statistics pulled from reputable sources, such as McKinsey, PwC, Deloitte and other human resource authorities.
- 94% of employees say they would stay at a company longer if it invested in their learning and development.
- 76% of employees are looking for career growth opportunities, and investments in training may help keep them motivated and inspired to work harder and be better at their job.
- 40% of employees leave their job within the first year unless they receive training and education from their employer.
Training benefits all employees, both new and seasoned leaders. New employees who have not received adequate training are more prone to make errors and mistakes. Investing in job-related training shows all employees that they are valued members of the company by providing opportunities for career advancement and job enrichment. Many agree that training is the right thing to do for an organization. Unfortunately, its critics are quick to point out that the impact of soft skill leadership training is hard to quantify.
One reason for this difficulty is that it is impossible to separate all the contributing factors to performance improvement. Maybe training was exactly what was needed, and it occurred at the right time for the employee. Or it could have been happening at the same time. Maybe he or she was more motivated to learn because of the fear of losing their job because of an economic downturn. In the end, we can only show evidence of training working, not proof that it was responsible for the desired performance improvement.
However, this difficulty has not deterred organizations from making larger investments into the training of their employees, especially in terms of leadership skills. They realize that although it may be difficult to reliability calculate the ROI of this type of training, there are sizable and significant costs of not developing their employees.
Two of the most noticeable benefits of training, which have been proven time and again, have been an improvement in employee engagement and a reduction in turnover. A recent research study reports that retention rates rise 30-50% for companies with strong learning cultures. It also reported that 86% of employees would be kept from leaving their current position if training and development were offered by their employer. One must wonder if development opportunities could have helped to slow turnover during The Great Resignation.
It is often it is easier, however, to quantify the costs of not developing your employees. Two of the most significant costs organizations face are those associated with disengaged employees and the costs of hiring a new employee.
COSTS ASSOCIATED WITH DISENGAGED EMPLOYEES
According to The Engagement Institute, disengaged employees cost U.S. companies up to $550 billion a year. The most common reason cited was the absence of a strong learning culture that provided meaningful training and development opportunities.
A recent Gallup study showed that disengaged employees have 37% higher absenteeism, 18% lower productivity, and 15% lower profitability. When that translates into dollars, you’re looking at the cost of 34% of a disengaged employee’s annual salary, or $3,400 for every $10,000 they make.
COSTS OF HIRING A NEW EMPLOYEE
Many employers don’t consider all the costs associated with hiring a new employee. As a result, they underestimate the total cost of losing a valued employee. Some of the common and perhaps overlooked costs include:
- Hiring costs – advertising, interviewing, and screening potential candidates.
- Onboarding and training costs.
- Lost productivity, since it can take a new employee up to 24 months to reach the productivity of an existing person.
- Lost engagement because high turnover often disengages other employees.
- Customer service issues due to new employees taking longer to assist customers, less adept at solving problems and making more errors.
- Cultural impact since remaining employees are left to question ‘why’ distracting them from their jobs.
Investing in training is one of the best ways, perhaps the best way, to ensure that your company and its existing employees are equipped to grow. As John C. Maxwell, NYT best-selling author and leadership expert states, “There is almost no limit to the potential of an organization that recruits good people, raises them up as leaders and continually develops them.”
ABOUT CHARLES GOOD
Charles Good is the president of The Institute for Management Studies, which provides transformational learning experiences that drive behavioral change and develop exceptional leaders. Charles is an innovative and resourceful leader who specializes in bringing people together to develop creative organizational and talent strategies that enable business results. His areas of expertise include assessing organizational skill gaps and leading the design, creation and delivery of high impact, innovative learning solutions that achieve business goals.