Employees love training. Makes their résumé looks better, get time out from work etc. Managers also love it, because showing a shiny training program show how much they care for talented people. But does that generate return to shareholders?
For some big investments such as infrastructure (like building power plants) companies approve a plan and use the future cash flow that the project will generate to finance the project. So you prove that your business plan will bring $XXXXX, commit this future value to get finance. You lower the risk, get your financing and everybody is happy (of course is not that easy, but that’s the general idea, right?!)
So why not use training models with a similar approach? Why can’t we pay training with its future cashflow?
There are five risks that sometimes show up when talking about training:
- Agency costs (aka management trying to burn shareholder money): let’s be honest – it is easier to burn $500.000 of our company than our own
- Asymmetry of information: sometimes is difficult to assess if a training program is really necessary (both to HR and top executives), so it’s hard to have an opinion
- Training as a substitute: People trying to compensate either for bad management, lack of promotion or compensation by giving away training.
- It’s easier than working: like process and meetings, it’s better to attend to training than to deliver results (how many people chooses to attend to training on weekends vs. during working hours?)
- Managers love to show shiny training programs as a statement of how much they are developing a high performance team
So, what we can do? We can follow the “HR-bimbo-pizza-delivery-approach”, just saying “yes-sir!” and implement what we are told; we may try to cope with the problems above; or we may put in place the right incentives (needless to say, I prefer the last one!)
When people come ask me for money for HR projects I generally think: if it was my own money, for my own company, would I invest on that? Of course is easier to think in a abstract way. How to be more concrete? I ask: If I took this money out of your bonus pool (so you would have less $XXXXX to pay your employees), would you still do?
To be even more practical, I suggest a project finance approach – this means: finance your training with the cashflow you will generate. Would go like this: “Ok, you want training, what are the a) increase of profits or b) cost saving that it’s gonna achieve? So let’s do like this: I will take 50% of the costs out of your bonus pool. If we have the payback, I give the money back, ok?
(aggressive? A little bit. Efficient? 100% sure! Shareholders will thank you)
Best,
Alex
What are you looking for?
Is HR really working or just outsourcing its responsibilities?
Best performance and reward strategy?
Setting a meritocratic culture?
photo credit: Pensiero via photopin cc
