Organizations are in a constant race to find and keep talent. Further, the business environment continues to increase in complexity, and employees require more specialized skills.
Learning budgets may not jell with this reality because the focus during the financial crisis was on controlling costs. Now, with the economy gradually recovering, in many companies just-in-time hiring has replaced long-term development planning.
To help their companies get back on track, learning leaders should remind senior management that making the right learning investments can support business strategy and save resources in the long-term through reduced attrition.
“The Corporate Learning Factbook 2013” by research company Bersin by Deloitte cited a 12 percent increase in learning budgets, which is the largest increase since 2008 and shows that companies are preparing to invest in workforce development to address increasingly complex job requirements.
To Buy or to Build
In Wharton professor Peter Cappelli’s 2012 book, Why Good People Can’t Get Jobs, he discusses the paradox of a prolonged environment of high unemployment during a time when employers are complaining about difficulty finding skilled workers. Complicating matters further, Cappelli cites the phenomenon where potential employees refuse jobs due to the offered compensation. At the same time, internal recruiters are overwhelmed with resumes as they try to satisfy hiring managers’ demands for the perfect candidate for each opening.
Similarly, Harvard professor Boris Groysberg in his 2010 book Chasing Stars concludes that an investment in internal talent costs far less than acquiring and assimilating new talent. Groysberg’s research indicates companies end up paying 75 percent to 150 percent more to acquire new talent. Further, the acquired talent does not typically perform at previous levels unless the culture of the new organization is similar to the previous one and the assimilation process is robust.
This research is supported by Wharton professor Matthew Bidwell when looking at performance differences between external hires and those promoted internally. In his article, “Paying More to Get Less: The Effects of External Hiring Versus Internal Mobility,” he writes that in every area of performance measured, internally promoted employees outperform external hires. Further, it takes a new hire nearly three years to reach the same performance level as an internally promoted employee. This lends itself to a focus on internal development programs versus external-focused hiring to find people in an ever-shrinking talent pool.
Ironically, in the late 1990s learning and human resources leaders were concerned about the upcoming war for talent as presented in an oft-quoted 1998 McKinsey study. From 2007 to 2010, during the worst of the global financial meltdown, there was ostensibly a temporary truce in that battle due to shrinking businesses and layoffs across the workforce. However, it seems that now a more apt analogy is a three-way standoff between employers, potential employees and business performance where no one emerges as winner. Instead, all parties suffer the consequences of not filling positions, which leads to risks in business performance, leaves clients vulnerable and employees out of work or underemployed. For those who do have jobs, engagement levels remain relatively low, according to Towers Watson’s 2012 Global Workforce Study.
Tension Brings Opportunity
For chief learning officers and learning teams, the tension between what employers and employees want creates an opportunity. For years, phrases such as “running learning like a business” and “needing a seat at the table” have been popular. However, the current market and employment realities provide learning leaders with a unique environment in which to make long-term impact by providing organizational leadership, promoting business performance and making a broader economic contribution.
However, to reap these benefits learning leaders will need to build the business case for long-term development. A successful business case has multiple facets, all of which are linked to the business strategy and a contextual understanding of an organization’s operating environment. The following steps provide an approach to develop a business case for investing in employee development.
1. Use the right data in the right combinations. In many organizations there is an immense amount of data available to support business case development. The real issue is determining what data to use and how to use it to engage senior business leaders to influence their decision-making.
For example, in many organizations employee engagement or climate surveys are conducted to get a sense of what employees are thinking about the organization and their work. However, senior business leaders typically view this as soft data when compared to hard data such as financial information related to revenue and profit. The key with these comparisons is to build a business case by combining soft data such as employee engagement scores and voluntary turnover with business performance financial data to identify correlations.
The hypothesis for presenting the data this way is that those business teams within the organization with higher soft data scores also will have elevated hard data scores. By being explicit when making these connections to data, business leaders will start to make those connections and see that focused development investments can enable business growth.
2. Show alignment to the business strategy and be one step ahead — maybe two. The quickest way to be denied resources for long-term development initiatives is not to connect learning to critical business outcomes. However, a number of studies such as The Conference Board’s 2012 State of Human Capital study indicate learning professionals are not making this connection. Missing this linkage is the quickest way for learning practitioners to become irrelevant. On the other hand, being an active part of the business planning process and connecting those plans to learning programs increases the significance of the learning practitioners’ role.
Even more important, learning leaders should be able to see what lies ahead for the organization by understanding the business and market environments that will determine the organization’s future people capability requirements. A business case for learning should be forward-focused as far in the future as possible. It is critical to realize things get fuzzy at a certain distance from a specific point in time, as is the case with the fast-moving technology sector, and build in room to be agile and adaptable to react to the changing business environment.
3. Start small. Think big. Scale fast. Making small bets through focused short-term investments and creating wins is a recipe for success. Ask any business leader, and at some point the term “risk management” will come up. Senior business leaders are constantly managing risk, so learning practitioners should as well. The business case for long-term talent development needs to include an assessment of the risks involved and risk mitigation strategies. One approach is to run several learning pilots or experiments aimed at solving business issues to determine which is most effective. Starting small and determining which approach has the greatest likelihood of success and impact, while thinking big picture to scale the best solution quickly, is a way to manage risk. Including these components in the business case indicates the learning department’s approach is aligned with the business.
4. Present both sides of the buy or build decision. Finally, the business case should include a balanced discussion about whether to build the internal capability or hire externally to create it. This can usually be accomplished by asking a series of questions (Figure 1). The goal behind the question-packed build or buy part in the business case is not to present a one-sided story on how to develop the required business capabilities. Learning practitioners can best influence business leaders by presenting a combination or balanced set of options that provide costs and benefits, and communicate an objective approach along with a point of view about the best solution. This requires looking across the talent management spectrum and coordinating with talent acquisition and finance leaders to develop an integrated solution to enable the business strategy.
In many organizations, the speed of business requires immediate contributions through activities such as talent acquisition that learning professionals are sometimes challenged to keep pace with and support. That is why building the business case for focused and high-impact, long-term development initiatives is critical to organizations and to the learning practitioners’ ability to influence senior leaders.
There are a number of indicators to illustrate how long-term development initiatives can be beneficial to the business from an effectiveness and efficiency perspective. The key for learning practitioners is to leverage business case development in a clear and well-thought out way to communicate the right sets of options to enable the business to be successful.
J. Keith Dunbar is the vice president, learning and talent development at science and engineering application company SAIC. Dave DeFilippo is the chief learning officer for the asset management business at BNY Mellon. They can be reached at editor@CLOmedia.com.