In 2019, large companies in the US allocated an average of $17.7 million to their training budget, midsize companies allocated $1.7 million, and small companies allocated $367,500 (2019 Training Industry Report). Were these investments worth it?
Well, it’s hard to tell. Many organizations still rely on traditional impact metrics such as learning-program satisfaction and completion scores, instead of outcomes-based metrics. As Steve Galevski pointed out in his article, Where Companies Go Wrong with Learning and Development, many L&D investments get trapped in easy to measure metrics, such as the number of employees earning continuous professional education (CPE) credits, instead of focusing on the true business impact of these investments.
In order to quantify the value of L&D initiatives, we must first set expectations about returns and define the value of particular forms of talent development. In this blog we will focus on one type of L&D investment: upskilling interventions. Upskilling interventions target workers who are doing well in their current position, but who need additional training to remain relevant or to advance within their company/industry. Think of upskilling a traditional marketer through digital marketing courses, or teaching an engineer a new coding language via a coding bootcamp.
In this blog post we will do a deep-dive into two lenses for articulating and measuring return on investment (ROI) of an upskilling intervention:
For any particular role, the ROI of upskilling is often driven by the difference in costs between hiring someone externally against the costs of training someone internally.
The three key drivers of hiring costs are:
The current economy has created a bidding war between companies for people with critical skills -- such as data scientists and software engineers. This has driven up wages for employees with these coveted skills. Additionally, recruitment fees, the time to fill those roles and turnover rate have all increased as well. As a result, for certain key professions, costs of hiring externally are off the charts compared to the costs of upskilling internally.
Upskilling includes the following major costs:
If the costs of hiring externally outweigh the costs of upskilling internally, then companies should build talent instead of buying talent. Research by Deloitte shows that this is indeed the case as a rising number of companies lean toward training instead of hiring (2019 Global Human Capital Trends).
The ROI of an upskilling intervention is also heavily influenced by its impact on employee retention. The costs of employee turnover are significant. A 2019 Gallup poll found that every year U.S. companies lose a trillion dollars due to voluntary turnover. By offering upskilling opportunities, companies can reduce their employee turnover ratio to a healthier level.
These are some of the key variables to look into when evaluating the retention benefits of offering upskilling interventions to your employees:
To calculate your team or your organization’s monthly turnover ratio, you divide the number of voluntary resignations by the average number of employees (½ times the sum of the number of employees at the start of the month and the number of employees at the end of the month). You can compare these values to U.S. turnover rates based on industry and location.
Companies can use their monthly turnover ratio, together with their hiring costs, to calculate the cost of employee turnover. Using industry data, Learn In’s upskilling platform helps companies calculate their expected turnover savings from offering upskilling-as-a-benefit.
The COVID-19 pandemic has triggered unequal shifts in the labor market -- with some sectors facing mass layoffs and others still desperate for talent. As the labor market transforms towards automation at a faster rate than expected, it is imperative for businesses to develop strategic upskilling interventions and proactively prepare for the future of work.
Learn In’s upskilling platform helps companies chart different ways of allocating time and money to their upskilling interventions, and calculates the expected ROI based on both internal company data and industry standards.