Recession fears shake training budgets and rouse new ways to cope.Cancelled leadership classes, travel restrictions, and broken links on the online university site are the training professional’s worst fears during an economic downturn.
The current climate is causing many training leaders to step back, if not cut back, and rethink how they deliver training. Travel reductions are an obvious first step, followed by increased online offerings. Panic has not set in inside training departments, and most organizations report pressure to do more with the same budget without being asked to reduce expenditures outright.
No workplace analyst believes that times are as severe as the downturn earlier this decade. Tom Starr, leader of learning and employee development at Booz & Company consultancy, classifies the current climate as status quo, with selective cuts to programs. He recalls darker days in the 1990s when DuPont placed a two-year moratorium on training. Nothing in the current climate resembles such a drastic step.
“Maybe struggling business units are making cuts, but there’s no corporate or enterprisewide moratorium,” Starr says.
Even if training budgets are spared now, decisions about training purchases are being delayed until the end of the year, according to Rommin Adl, a vice president with BTS, a management consultancy. Classroom time is being shortened, and organizations are exploring ways to do more teaching online. Adl says one client in chemical manufacturing is currently working to pare down the number of vendors it employs in training from 125 to 25. Other organizations are attempting to renegotiate training contracts or put out projects for bidding.
There is greater scrutiny on training budgets just as there is with spending in all departments, but learning officials no longer discuss strategy with senior executives from a position of weakness. Smart organizations, in fields as diverse as the financial sector and construction, integrate training into daily performance and maintain it as a development resource, not simply a shield against attrition.
“What’s different now from eight years ago is that learning organizations are better prepared to tell their stories,” says Bill Pelster, leader of Deloitte’s human capital training and development practice.
Where many training organizations are scrambling to demonstrate value in terms of skills acquired versus dollars spent, Pelster believes such calculations are a waste of time. The need to prove some kind of metric for training’s value is a “red herring”—a clear sign that the training department lacks confidence in its ability to illustrate how training aided the organization.
Should the economy worsen, Pelster believes that it usually takes two years from the time a recession hits for training budgets to return to previous levels. “Training budgets are a lagging indicator,” he says. “They come back in increments, not in one fell swoop.”
If reductions are mandated, learning officials should consider cofunded training among multiple teams to reduce travel and registration. Heidi Spirgi, president of Knowledge Infusion, noted that large organizations have multiple vendor contracts for training, which limits their ability to receive volume discounts. She advises that learning departments consider consolidation into a single contract. Any kind of single-user licensing fee for applications should be renegotiated.
Vulnerable sectors, notably retail and the government, are cutting back on training. Susan Varnadoe, president of Ninth House, says businesses with narrow margins cut training entirely, even if they already possess an online learning curriculum. New hires are simply pushed onto the sales floor and told to follow the lead of a current employee. Likewise, government agencies and technology companies are beginning to conserve resources.
“A government agency told me they are too busy buying gasoline and bullets,” Varnadoe says. “It’s all they can afford to do.”
Varnadoe is confident that government agencies will restore their training budgets to prerecession levels, as will technology and telecommunications businesses. Throughout the long-term, the recession is accelerating a change in training delivery, whereby organizations move from site-based training to a mobile, technology-enabled classroom.
One large healthcare provider that formerly conducted training at the hospital level worked with Varnadoe to develop more online offerings, specifically in management and leadership development. An online performance management suite was developed consisting of three-minute segments that are tailored to physicians and other healthcare workers whose time away from the hospital floor is limited.
The harsh reality is that training with a direct financial return will take precedence over intangible development skills. Sebastian Grady, chief operating officer of Altus Corporation, says that if organizations were to rank training based on priority, new product knowledge and instruction on how to sell the product would receive greater priority over soft skills.
Spending less on training delivery does not necessarily mean offering a cheaper, watered-down version. By using technology wisely, the material can be captured and distributed to a wider audience at a reduced cost.
When NetApp scheduled its annual “Fall Classic” training seminar for sales staff, management wanted to cut costs without sacrificing the quality of what became a tradition. Typically, 3,000 sales staff members attend the event.
Altus sent a production team to the site, taped all of the sessions, and provided the entire seminar online with search capability to locate particular seminars based on specific words spoken by each presenter.
Only 1,500 attendees were present for 2006. All of the material was condensed from three weeks of learning to one week. Production costs totaled $150,000. The company saved $1 million. Because the material was available online, attendees could listen to the presenters without having to take copious notes.
Grady suggests that chief learning officers create a balance sheet with an itemized list of all content. Then calculate the cost per hour of each course, and address difficult questions about whether a particular offering contributes to revenue.
Following such strict financial calculations, however, can undermine future development initiatives. Long-term priorities for closing the talent and leadership gap are among the first casualties in a downturn, according to Rich Thompson, vice president of training and development at Adecco. Especially in the wake of corporate financial scandals, the next generation needs to learn how to steer an organization responsibly without focusing exclusively on inflating the company’s stock price.
“The biggest need in corporate America is leadership development,” Thompson says. “But it’s not considered among the hard skills, so it never gets off the ground. It’s always the first to go. The lack of interest in leadership development is costing organizations greatly.”
Thompson suggests that training officers prepare a list of priorities during budget season, outlining the “must have” programs—ones that can be delayed for a year—and potential cuts to incremental programs. New initiatives should be avoided.
“Training departments don’t have to show value; they have to help the business improve,” he says. “They should be proactive and be able to validate, not justify their existence.”
At a time when travel, guest instructors, and class registration fees are under scrutiny, analysts believe that technical means influenced by the investment community and that are used to prove training dollars are well spent, will fall on deaf ears.
Training analysts have long debated the merits of return-on-investment and other measures to demonstrate a financial yield for training new leaders, communicating with colleagues, or teaching managers to delegate. Any improvements in intangible skills are unlikely to be reflected on the balance sheet.
“A lot of people have tried to answer that question,” says Gordon Johnson, vice president of marketing for Expertus. “There is no good answer. You just can’t do it. You measure what you can.”
Experts agree that in the current environment, curriculum-based instruction dependent on enrollment is an obvious candidate for cuts. Any kind of off-the-shelf, general development courses, such as finance for nonfinancial managers, conflict resolution, or novice software application tools, are also potential candidates for cuts.
If internal programs are already small, shrinking the class size offers another approach. One company in the oil sector is preparing for the retirement of a generation of managers. The internal leadership development program is essential, but with tighter budgets, the company chose to develop a smaller group of individuals, according to Marc Sokol, vice president of Personnel Decisions International. He believes organizations could be more selective about who receives training instead of debating whether to slash programs.
“Don’t spread training dollars thin just to say that you touched everybody,” Sokol says.
Training administration is another expense under the microscope. Johnson recalls working with a hardware manufacturer that counted 500 people in the training department, some working part-time for just one hour per week. The company decided to contract with a vendor, using 20 people working full-time.
For larger organizations, outsourcing seems a logical step, but it introduces a host of unanswered questions, specifically about who owns training. Starr recalls pitching a financial services client a contract whereby the client would reduce its annual training budget of $120 million by 25 percent. The company balked, believing that outsourcing the division would be disruptive.
“A lot of companies are nervous about ceding too much authority to a supplier,” Starr says.
Against the grain
While several organizations made the transition to outsourcing, one company that relies heavily on development is taking the opposite tack. Five years ago, Suffolk Construction brought all of its training in-house. A new facility in Florida, set to open this fall, includes a 2,500–square-foot training center. Among a staff of 1,000, Suffolk employs eight full-time trainers, two of whom are responsible for curriculum planning. All of the 80 training courses are reviewed annually.
To meet the needs of the millennial generation, Suffolk offers an eight-month rotation in each business unit, including project management, field operations, and estimator to teach new hires the entire business. Fred Day, director of training at Suffolk, says the job rotation program is a major enticement for graduates. The training regimen has helped build the company’s reputation. “The only pressure we faced was to cut travel,” Day says.
Organizations committed to ongoing development with an integrated training regimen no longer debate whether training yields any kind of tangible return. For others, discussion is heating up, whereby training is linked to an overall talent management strategy. Absent any training and development, proponents argue that turnover is bound to rise.
“The biggest effect training has is to reduce turnover,” Thompson says. “If 55 percent of your employees are not engaged, and 15 percent are actively disengaged, they’re destroying your brand. They’re telling customers and colleagues how bad the company is.”
Instead of forecasting their own demise, training officials face the same prospects as their colleagues. David Smith, managing director of talent and organization performance at Accenture, compares the current climate with the annual expectations in manufacturing where greater productivity is expected without increased investment in resources. He noted no significant cuts in training budgets as of yet.
“Yes, some pressure has hit learning departments,” Smith says. “They are being asked to do more with less, but that’s business. Training departments asked to be treated like a business unit, and that’s what chief financial officers are doing.”
With the expectation that more training is delivered through online or social networking tools, Smith believes training officials need to undergo training themselves to become more familiar with the new delivery systems.
Piecemeal cuts to training do not need to be painful. Starr believes that cuts to the corporate training catalog or e-learning can be made without harm to the environment. However, wholesale cuts carry a much greater risk.
“If all of a sudden you reduce sales training or management training or cancel classes, that sends an alarm through the organization,” he says. “After a year, you go from being a company that offers training to one that doesn’t.”
Steep cuts may change the entire dynamic in the workplace. Individuals identified as candidates for promotion or who possess special skills may latch on to another opportunity. Staff expenses, specific jobs, and development programs are the easiest to cut and the most difficult to rebuild.
“Companies that cut human capital aggressively in the early 2000s caught the last wave to shore when other companies were thriving,” Thompson says.
If organizations take a flexible approach to provide training using other mediums, they can meet the needs of the new workforce. The younger generation is “omnivorous” regarding how they learn. Organizations employ staff with years of experience and the desire to teach. Online resources can capture such expertise so the individual need not present training anew, though few organizations are following this path.
One analyst believes that the transition from instruction based on classrooms and materials to one relying entirely on expertise has yet to occur in a meaningful way. “For years there has been talk about blended learning where people work in teams with in-house trainers, and no one has done it,” says Kerry Patterson, cofounder of VitalSmarts, a corporate training consultancy. “They don’t think it will work. Organizations have a long history of sending people to training. Classrooms and a big university are one of the first things they build into a company. They hate the idea of not using them. It’s the devil that they know.”