Companies spend millions each year on capital improvements: Installing new equipment, changing existing flow paths, etc. For each of these capital improvements, a return on investment is calculated. The math is neat and clean, predictable, and usually fairly accurate.
But too often companies neglect improving their other asset: Human capital. Not only does this leave workers feeling stagnated, the often-unseen ripple effects are lower levels of enthusiasm and production, both of which by themselves affect profits in a big way.
Research by Christian and Timbers found that the number one reason employees leave a job is boredom or lack of challenge. Reason number two was lack of opportunity for growth or advancement. Just in case youíre wondering, non-competitive pay was way down the list at number nine.
Ever price out what it costs to replace an employee? In the United States, the cost of replacing an employee averages $17,000. Those making over $60,000 per year will cost you more than $38,000 to replace. However, more than one human resource manager has told me to look at an employeeís annual salary, and thatís about what it will cost you to replace that person.
Assuming those are eye-opening numbers, consider these as well: A few years back, BusinessWeek published part of the Emerging Workforce Study. In it we learned that among employees who felt their company offered little, no, or poor training, 41% planned to leave within a year. But in companies where training opportunities were viewed as excellent, only 12% of the employees were considering work elsewhere.
Thatís a 240% greater chance of employees wanting to leave if training is non-existent or viewed as poor!
Are you starting to see the math? Thatís a lot of human and financial capital silently sneaking out the door if people donít feel a company is investing in them.
People want a challenge. They want an opportunity to grow. And based on the research, the cost (or more accurately, the investment) of improving your human capital is a very good deal for all concerned. A few training dollars will go a long way toward saving you lots of money (not to mention stress, headaches, etc.) in both reduced turnover and higher productivity.
One reason many companies dislike human capital investments is because they donít know how to measure the return on their investment (ROI). And, because they donít know how to measure ROI in this arena, they fear that training is just an exercise in throwing their money at something and ďhopingĒ for a return.
This should not be. Very clear methods exist for measuring ROI in training, but itís not often taught in business schools, so rare is the company that uses it. And, because training is still (incorrectly) viewed as intangible, most number-crunchers continue to avoid it.
Still, despite the scientific approaches for measuring ROI in training, it continually befuddles me how a CEO will invest thousands to estimate ROI on capital improvements, but wonít take five minutes to consider how ROI can be measured in training courses.
Iíve scratched my head on more than one occasion when Iíve heard of consultants offering to measure ROI on training at no cost to the company, and the company still turned them down.
But even if your company doesnít want to learn the ROI process for training, at least consider the strength of the research:
- People are much more likely to stay and be more enthusiastic about their job if they feel theyíre being trained for a challenge.
- People are much more likely to think about leaving (or be more lethargic about their work) if training is not provided or if itís considered poor.
With these facts before you, how much unseen money do you want sneaking out your door?
PS. To find out how to conduct ROI for training, pick up a copy of Return on Investment in training and performance improvement programs: A step-by-step manual for calculating the financial return
by Jack J. Phillips.