Author: Ed Frauenheim

The payoffs of training have long been considered tough-to-measure intangibles—such as improved morale or increased employee productivity.

But over the past decade or so, researchers have forged links between training investments and business outcomes. And they’ve been joined by others working to assign value to additional hard-to-quantify factors such as a company’s good will or innovation, says Pat Galagan, executive editor at the American Society for Training & Development professional group.

“In the last 10 years, there’s been a lot of progress,” she says.

Among the seminal studies in the field was a 1998 paper by Laurie Bassi and Dan McMurrer finding preliminary evidence that companies that invest more heavily in training and development are more successful and profitable. A follow-up study they did in 2004 on about 390 publicly traded companies confirmed a strong link between training expenditures and subsequent stock market performance.

Research firm Bersin & Associates has found that organizations that consistently spend within 10 percent of the industry average on training per employee are, on average, 12 percent more profitable over a four-year period than those that spend below these levels.

Despite such glowing results, there’s a fundamental challenge associated with tying training and other HR investments to business benefits, says John Haggerty, managing director of the executive education program at Cornell University’s Center for Advanced Human Resources Studies. It’s tricky to distinguish chicken from egg, he says.

“It is possible that companies that perform better invest more in [human capital],” Haggerty says. “There are lots of people working on better proof, but it has been a frustrating exercise.”

Bassi and McMurrer, though, say they dealt with “reverse causality” in their 2004 paper, where they found that training expenditures are not driven by past stock returns.

They also say related research they did this year controls for reverse causality, because it looks at changes in stock price rather than the level of the stock price. That paper finds that nearly half the change in banks’ stock performance relative to peers could be attributed to changes in annual training budgets during the prior year. Although the authors had 2007 training data on a very small number of banks, they say it appears training expenditures were a very strong predictor of stock prices even during last year’s market turbulence.

The paper concludes that training may have its intended effect of better corporate performance. Budgets for employee development also may indicate whether a firm is focused on the long term, Bassi and McMurrer argue. And training expenditures may act as a “window” into a firm’s future financial health, they say.

Citing Training Magazine figures, they say Wachovia slashed its training per employee by more than half from 2006 to 2007. In 2008, Wachovia shares fell as much as 95 percent before the bank agreed to merge with Wells Fargo.

Bassi and McMurrer have spent more than a decade researching the link between training and business results. Bassi says the bank study is particularly good evidence of a connection between training spending and stock performance: “That’s the cleanest, purest example we’ve had.”

Key studies on the impact of training investments have focused on heavier versus lighter spending on employee training. The work of Laurie Bassi and Dan McMurrer over the last decade, for example, has concentrated largely on the link between training expenditures and stock performance. They have found that, all else being equal, companies that spend more on training on a per capita basis do better in the stock market in the year following the investment than do those companies that spend less.

Diane Valenti, a consultant who has worked in the training and development arena for more than two decades, says early Bassi research made a strong impression on her. But Valenti, who is president of San Francisco-based firm Applied Performance Solutions, notes there are limits to looking at training budgets alone. “It’s one thing to invest in training,” she says, “but another to throw money at it.”

Valenti calls for studies pinpointing the wisest uses of training dollars. “I would love to see that next layer of research.”

Josh Bersin, head of research firm Bersin & Associates, says organizations can get the biggest bang for their buck in the areas of sales-force training and leadership development. He says when companies invest heavily in sales training, they tend to gain a greater understanding of their customers and the market. Leaders and managers help everyone in the organization perform at a higher level, Bersin says, and leadership development prompts a thoughtful review of a firm.

“You can’t just spend money on it. You also have to design it,” he says. “It forces you to be reflective.”

Bassi and McMurrer agree that training budgets alone fail to tell the whole story. As part of a 2004 study, they found that the returns on technical training and basic skill training exceeded the returns on other major forms of training. What’s more, in their consulting work to help clients such as ConAgra Foods, Coca-Cola and Charles Schwab optimize business performance, Bassi and McMurrer look at a range of people management factors. These include work conditions, hiring practices, job design and leadership behavior.

Lucy Dinwiddie, vice president of organization development at ConAgra, says McMurrer and Bassi’s consulting firm, McBassi, helped push her 25,000-employee firm to invest in a new learning management software system and create a leadership development program that was recognized last year in Chief Learning Officer magazine’s annual awards.

Thanks partly to McBassi, the internal promotion rate at ConAgra—famous for brands such as Chef Boyardee, Hunt’s and Wesson—has climbed to 70 percent, up from 30 percent in 2006, Dinwiddie says.

“We’re very pleased,” Dinwiddie says of McBassi’s work. “It really helped us to prioritize and focus.”

The recession has been painful for old-guard job boards. But upstarts in the field known as vertical search engines appear to be doing well.

For the first quarter of 2009, revenue from CareerBuilder.com’s North America network—including its main job site and partner newspaper sites—fell 27 percent year-over-year to $141 million. Monster’s North America careers revenue—which reflects all of the firm’s career-related services in North America, including job postings—plummeted 35 percent, to $119 million.

The third job board giant, Yahoo HotJobs, declined to provide information about its revenue for the first quarter of 2009.

Happy to talk about rising results are Indeed and SimplyHired, two firms that specialize in job searches by aggregating job openings from around the Web.

     Paul Forster, co-founder and CEO of Indeed, says his 4½-year-old firm has continued to grow revenue despite the downturn. Indeed gets most of its revenue from pay-per-click advertising—principally through sponsored job ads. Advertisers pay only when job seekers click through to view and apply for the jobs on their Web sites.

“People are very cost-sensitive,” Forster says. “In this environment, it’s definitely great for the pay-for-performance model.”

Business is also strong at SimplyHired, which was founded in 2003. Gautam Godhwani, SimplyHired’s co-founder and CEO, expects revenue to double this year from 2008.

Both Indeed and SimplyHired allow job seekers to see if they have any contacts from their social networks at firms showing up in job search results. And both sites offer to help other Web sites publish job listings.

SimplyHired now has a network of some 5,000 sites, which helps employers reach passive candidates, Godhwani says. Godhwani says job boards are at a crossroads. While a decade ago they were effectively the sole option for companies looking to recruit online, they now are just one of many choices.

“What job boards have to do is work harder and harder to deliver value,” Godhwani says.

Workforce Management, June 22, 2009, p. 27 — Subscribe Now!

Allen Stone is ready to leave HR.

Years of playing the hatchet man during layoffs with little influence on how companies downsize have him fed up with the field. In this recession, the Ludington, Michigan, resident laid off about 200 people at the mining company he worked for as an HR director, before getting a pink slip himself in January. Now the 40-year veteran of the profession is remaking himself as a consultant.

“We’re being used a lot,” Stone, 61, says of HR practitioners. “It’s been a lot of trying to clean up, in companies that have been mismanaged.”

Stone is not alone. Laying people off in this recession has caused a significant portion of HR professionals to consider exiting the field, according to Workforce Management’s HR Anxiety Survey. The study asked whether HR professionals’ experiences in conducting layoffs had prompted them to think about changing careers or moving to a different, non-HR role in their company. Most said no, but 37 percent answered affirmatively. Just over a quarter of the respondents acknowledged “some thought” about changing careers or roles, while an additional 9 percent said they’d given “serious consideration” to a switch. Three percent said they had begun the process of changing their career or role.

Leaving a profession typically signals dissatisfaction with more than merely one’s job or boss, says John Boudreau, management professor at the University of Southern California. He says HR practitioners’ musings about moving out of the field could have to do with perceptions that HR is regressing to a reactive, delivery-oriented role, rather than rising to a more strategic stature.

“The layoff question may be a microcosm of that question of whether the field is advancing,” Boudreau says. Fred Foulkes, management professor at Boston University, says he’s not surprised a substantial number of HR professionals are thinking about leaving their jobs. HR practitioners are being asked to execute layoffs even though they may favor alternative cost-trimming steps such as furloughs or pay cuts, he says. “Some of them are doing things they don’t necessarily agree with,” Foulkes says.

One HR official with 20 years in the field used to view layoffs in a hopeful light. Speaking on condition of anonymity, she said she could see the cuts as good for people losing jobs—she figured new doors would open for them. But in the past decade, layoffs have lost their luster for her.

“I’ve become much more cynical over the years,” she says. “It’s the easy way to reduce costs quickly.”

The official recently left an organization as an HR director. During her last year there, she estimates she spent 70 percent of her time laying off employees.

Although she just started a new HR director job at a technology company in Texas, she’s not sure how long she’ll stay.

“The prevailing theme when you look at my résumé is, I’ve laid off people,” she says. “I’m really, really looking at getting out of the profession.”

Workforce Management, June 22, 2009, p. 20 — Subscribe Now!

For many human resources executives, today’s hard times translate into tough days at the office.

Top HR officials are being asked to oversee major cost-cutting—in many cases, layoffs. At the same time, they need to plan for future talent needs of their organizations. And often they face these twin challenges with a downsized department of their own.

“When you’ve got a fire, you can’t ignore the fire. You’ve got to put it out,” says Fred Foulkes, director of the Human Resources Policy Institute at the Boston University School of Management. “But you’ve also got to think about the long term.”

Not all HR executives are in that position. Cynthia McCague of Coca-Cola and Rich Floersch of McDonald’s serve companies that are doing decent business in the recession. But many top people leaders are like Sid Banwart, chief HR officer of heavy equipment maker Caterpillar. His company has announced a workforce reduction of about 23,000 people, a figure that includes flexible workers such as contract employees. Banwart says the trick now is not to see the situation as a trade-off between today and tomorrow.

“This is a time when we emphasize the power of the ‘and,’ ” Banwart says. “We must deal with the current reality and maintain the ability of the company to grow following the downturn.”

He says Caterpillar is continuing efforts to develop future managers. Between now and 2020, Banwart expects the company to need thousands of new leaders. He’s also hoping to continue a seven-year streak of improved employee engagement despite the layoffs and a bleak near-term outlook.

As if such juggling weren’t hard enough, HR leaders also are being asked to wrestle with new government rules, Foulkes notes. Among them are a set of executive compensation restrictions related to the Troubled Asset Relief Program and card-check legislation that would make unionization easier. In addition, the stimulus package approved earlier this year demands new COBRA policies from organizations.

Add it all up and HR execs have their work cut out for them.

“It’s a really challenging job these days,” Foulkes says. “There’s a lot of issues at the top of the organization, there’s a lot of issues at the bottom, and a lot of issues in between.”