At a recent strategy forum in Houston I was struck by something that Latha Ramchand said about the role of learning. Dr Ramchand is Dean at the University of Houston’s C.T. Bauer College of Business and was part of a panel discussing, amongst other things, factors essential to an organization’s long-term growth. She proposed training as one of the key tools that a business can employ in the fight for corporate survival and prosperity. Especially for those businesses that inhabit fast-changing markets, businesses can and should train (and retrain) their employees to meet evolving client needs, market dynamics and ever-changing competitive forces.
This got me thinking – what does research tell us about the financial benefit to a business of training (or retraining) its people? Intuitively, an organization that invests in its human capital through training should see a positive impact (right?!)… be that direct benefit in the form of increased sales or improved profit margins, or indirectly in the form of positive human resource ‘outcomes’ such as better employee engagement or higher retention rates. If there wasn’t a benefit, why would companies spend so much money on training (more than $90 billion per year by US companies, according to the Association for Talent Development)?
Well, it seems that evidence for the positive impact on financial performance of investing in training is not that compelling. A 2007 research paper by Phyllis Tharenou, Alan M. Saks and Celia Moore evaluated data from 67 different studies and concluded that “training is positively related to human resource outcomes and organizational performance but is only very weakly related to financial outcomes” (Human Resource Management Review 17 (2007) 251–273)).
What explains this? Well, one reason could be that other factors impacting financial performance are so strong or multifarious that the positive benefit of training is ‘lost in the wash’. Alternatively, it might be that financial performance drives training spending (rather than the other way around); i.e. that those companies that are financially strong have plenty of cash available to spend on training and development, whereas those that are struggling do not.
What I also discovered, equally interestingly, is that conversely research does shows a link between financial performance and organizational learning – an organization’s orientation to learn and its capability(s) that facilitate the learning process. So, organizations that invest time and resources to learn from past mistakes, to improve internal process & systems, modify their behavior and adapt to market changes fare better than those that do not.
Author and academic David A. Garvin wrote compellingly about the factors required to create a learning organization (see e.g. HBR July-August 1993 for a good overview). He identified five activities that an organization should master:
- Solving problems systematically
- Experimenting with new approaches to work
- Learning from past experience
- Learning from other companies and from customers
- Transferring knowledge throughout your organization
Much of this sounds almost ridiculous in its simplicity, but if I asked you to rate your organization’s proficiency in these areas I suspect that many of you would acknowledge shortcomings. I’ve certainly seen organizational shortcomings repeated unnecessarily, a reluctance to shape development on anything more than an internal perspective/experience and an aversion to new approaches to work; all limit organizational development and make for a pretty frustrating experience!
But if a business can master the activities that typify a learning organizational there is a substantial prize to be had. Garvin, who died last year, said that “Woven into the fabric of your company’s daily operations, these activities help your organization make enduring improvements that translate directly into measurable gains—including superior quality, better delivery, and increased market share.”
Turning back to training, maybe it’s time for us to re-evaluate how we spend our businesses’ precious training dollars, especially when it comes to developmental training. If our ultimate objective is to drive improved financial performance then maybe the training’s impact on organizational learning should be a key criterion that we use to select how to allocate our training and development spend.
What’s your view? How would you rate your organization’s ability to learn (and develop as a result)?
Concept and Perspective 