In my day to day consultations with clients I get some strange questions which often reveal some underlying incompetencies in a company’s strategic and decision-making ability. One of the classics was ‘We need to know how much we should spend on employee training. Can you provide us with industry benchmark data which could be used to allocate an appropriate portion of the company budget for employee training’.
The response I would have liked, but didn’t give was ‘ You should spend about as much as it costs to retrench the person who wants to know the answer!’. But the reality is its actually not uncommon for companies to have expenditure targets for traning and other such employee management strategies.
I could only assume that the question had come from an someone in the finance department or maybe from a Human Resource Manager looking for a way to justify employee training expenditure. Whatever the motive, this sort of question reveals a sadly common ignorance.
I’ve never been a great advocate of using industry benchmarks for anything, let alone employee management strategy. Why should a company be remotely concerned with what competitors are spending. The aim for most businesses is simply to have the largest profit margin at the price which meets your sales/revenue targets (this could be the market price if your just a competitor or the price which meets your growth targets if you have a differentiated product or market niche). What it costs others is of no concern either in the contest of continuous improvement strategy – you just want to consistently achieve better quality, efficiency, market penetration etc.
OK I’m being a bit harsh, but industry benchmarks are often more distracting than useful, other than a few key indicators such as market product price or shareholder dividend measures. Imagine the average expenditure on employee training in your industry is 2% of budget. Does this mean you are going to feel guilty or clever if you only spend 1.5%.? Are you going to overspend at 2.5%? Are you going to send people to training courses they don’t need to achieve the industry rate. More so, in most cases this type of data is not available, and if it is, it probably would reveal a high variance across individual company expenditures.
The answer, is simply as the title suggests. You spend as much on employee training as you need to achieve your performance goals. Training expenditure falls right from the business strategy. For example, you develop your targets for revenue, costs and profit etc. From those you determine your sales targets and/or customer retention and supporting product or service strategies. Following, you determine your capital and employee expenditure targets. Given these, you must determine the adequacy of your employee skills and recruit and train. Many companies define their skill needs within job position competencies against which employee skills can be assessed. This level of detail can be useful but again the competencies must reflect the business’ strategic needs if they are to add value, which in turn requires regular review and adjustment. Whatever the sophistication of the process, it is evolutionary and iterative and requires discipline as your internal and external organisational environments transform.
So for example, lets say you need to improve your customer retention by improving service standards. You have diagnosed a deficiency in product expertise and improved the service framework with new systems and processes. You must train the relevant staff so you allocate trainging expenditure, then sit back and watch the relevant KPI’s – they’ll tell you whether you need more training or not (given the systems and processes are correct in the first place (which is an issue for another time). How much training do you need? As much as it takes to develop the competency of employees on the new system.
The idea that training budgets emerge from business strategy is simple but takes time and effort in planning, measuring and managing continuous improvement. Obviously the amount you spend will differ depending on your business strategy. But the purpose of the expenditure should be transparent and justified and the benefits accountable. Managers across the organisation should be able to say ‘I spent this much to achieve this objective, for this reason and this is how close I got’.
As far as industry benchmarks go you’ll probably be setting it, not following it. But who cares anyway?
What sort of training should you give your staff?…..click here