A smart investment

Learning & development / 19 January 2011

In tough times, training budgets are often one of the first things to go. But does trimming the development pot now lead to trouble in the future, asks Karen Higginbottom

There is an old adage that says in order to survive hard times the best thing you can do is spend everything you have on a new suit and a haircut – you might be penniless, but your new-found confidence will ensure that riches are only just around the corner. Trite as it sounds, there is nevertheless a grain of truth in the idea that smart investment can help you to survive a recession. Unfortunately, it’s a message that seems lost on many businesses at the moment, which, in an effort to save money during the current economic downturn, are increasingly slashing budgets, especially for staff training. Although it might balance the books in the short term, cutting investment in your people is a tactic that can lead to problems once the economy starts to pick up again.

In October last year, as the economy worsened, some UK bosses took the unprecedented step of calling on other employers not to cut staff training to reduce costs. Senior industry figures such as Sir Stuart Rose of Marks & Spencer, and Sir Michael Rake, chairman of the BT group, joined forces with TUC general secretary Brendan Barber to urge employers to maintain or even increase their investment in training.

False economy

Unfortunately, not everyone is so forward-thinking, says Sally Watson, director of executive education at Lancaster University Management School. Cutting the L&D budget ‘is a short-term solution,’ she says. "It’s a quick fix and not sustainable. You end up spending less money on a cheaper option but the organisation doesn’t have the infrastructure to sustain it."

A lack of investment in staff will only add to an organisation’s troubles during any recession, adds Watson. "We’ve already got an economic downturn and you’re adding to it by having a psychological downturn," she says. "It’s about survival rather than playing for the future."

It’s vital to develop staff and we need to share knowledge to get through tough times. If you rein back on training and coaching, it’s not good. I learnt a lot from the last recession and we know that those companies that keep investing in training are the quickest to get out of it.

David Clubb, managing director, Office Angels

Some companies have continued to fund training during an economic downturn, and reaped the rewards. One frequently cited case is that of Southwest Airlines, which as well as being the only major airline that refused to lay off staff in the aftermath of 9/11, also continued to invest in them when the airline industry’s prospects were suffering, which did wonders for staff loyalty and productivity. Computer company Dell, meanwhile, continued to support leadership development following extensive budget and job cuts. Both companies reported improved performance as a result of continued investment in training.

A recent report, Nurturing Talent, by Cranfield School of Management surveyed 1,189 employers and found that more than three quarters of them see skills development as more beneficial than recruiting new staff.
"It’s more cost-effective to develop staff and of more benefit to nurture talent internally," says Dr Emma Parry, senior research fellow at Cranfield and author of the report. The research, which is the first piece of work to examine the impact of external recruitment versus the development of internal talent, found that 44% of businesses that train and develop their staff actually save money, 33% improve staff motivation and 52% increase employee retention.

"From my experience, training and development is often seen as superficial in a recession and it’s easy to cut," says Dr Parry. "My argument is that it shouldn’t be viewed that way. We know that investing in staff development can help to motivate staff, improve their commitment and keep them in the organisation. That becomes more important in times like these when you want to hold on to your good staff."

One of the by-products of cutting training budgets is low morale within the workforce, adds Dr Parry. "You’re in danger of de-motivating staff or losing good staff to an organisation that will invest in them.’

In-house investment

One firm that is continuing to invest in staff development is secretarial and office support recruitment agency Office Angels. It runs management development programmes for its recruitment consultants (Angels Ascent) and branch managers (Aspire). Established in 2006, the year-long Aspire course provides branch managers with an insight into the role of a senior manager and includes training in the skills necessary to run a particular recruitment area.

"It’s vital to develop staff and we need to share knowledge to get through tough times," says David Clubb, the managing director of Office Angels. Clubb personally delivers a number of workshops in the Aspire programme, where the branch managers look at business strategy and how to use resources to perform more effectively.

"It’s a very tailored course that gives you hands-on experience to move up the ladder," says Clubb. "If you rein back on training and coaching, it’s not good. I learnt a lot from the last recession and we know that those companies that keep investing in training are the quickest to get out of it."

Office Angels has the same financial budget as last year for its Ascent and Aspire programmes, but has increased its overall commitment. "We have actually increased the investment by launching Acquire for 2009, which is for administrators who want to be consultants," says Clubb. "You could say we have increased our time investment which I suppose ultimately is money." And it seems to be working – the Aspire management development programme resulted in a 100% retention rate among the 10 managers who took the course last year.

"The idea was to give the top talent experience of what it would be like to move into their next role as well as using it as a retention tool," Clubb says. "We believe the effect on morale has been very positive as it has recognised those people who always go above and beyond the call of duty and want progression."

Katie Tomlinson took part in the Aspire programme in 2007. "I got promoted to senior branch manager through the programme," she says. "I got to mix with other people going through the same thing, we shared our thoughts and ideas and started to understand the strategic side of the business."

As part of the programme, Katie flew to London once every three months for the workshops. "It improved my confidence, time management and organisational skills," she says. And although training and development can feel like an expensive luxury, in fact it compares very favourably when weighed against recruitment costs.

"You must remember that it’s hugely expensive to recruit external talent," says Khalid Aziz, chairman of the Aziz Corporation, a leadership development consultancy. "When you weigh the cost of recruitment against training, it’s a drop in the ocean compared to what it would cost to recruit new staff. Training staff gives you direct benefits and it’s a good tool for retaining people as it makes them feel wanted and developed."

Survival training

There is also evidence that organisations which fail to train their staff are 2.5 times more likely to fail than those that do. In their Training and Establishment Survival study, Skills for Business investigated whether a lack of workplace training is associated with company closure over a six-year period. It found that more than one in four companies that failed to provide training to non-managerial employees closed for business over the 1998-2004 period, while only one in nine companies that did provide training went to the wall.

Of course, not all companies will cut their training budgets completely – many will either focus on the group of people who make a difference to the business or delay any training. Simon Mitchell, a director at leadership development consultancy DDI, advises employers to focus on those staff who are critical to the business. "Those are the people you need to spend development money on," he says.

In these times of fiscal uncertainty, it’s understandable that companies will cast around for ways to save money, but managers need to make sure that any cutbacks are not simply a false economy. Aziz sounds a word of warning to those tempted to stop investing in people. "When you do climb out of recession, people will be on the move to another organisation if they don’t feel valued," he says.

This article first appeared in Edge in February 2009