Some thoughts, initially posted in 2015, that we have been thinking about a lot recently.
As mentioned in previous posts, we aim to help small businesses create sustainable processes by focusing on being “clock-builders” not “time-tellers.” For us, a crucial aspect of creating a lasting institution is the continuous education of our workforce regarding our particular approach to business. Simply put, we believe that all employees should be trained to know what our company does, why we do it, and how we do it.
The data show that a commitment to training separates good companies from great ones. In 2014, Fortune Magazine and Great Place to Work’s 100 Best Companies to Work For reported that top companies spent an average of 73 hours on annual training and development for salaried employees and 58 hours for hourly employees, significantly higher than the corporate average of 32 hours. These firms make this commitment despite knowing that in the aggregate many training programs are not great investments. According to the Wall Street Journal, U.S. firms spent almost $156 billion on employee learning in 2011, despite the fact that 90% of new skills are estimated to be lost within a year due to poor follow-up and inadequate assessments.
We believe that quality training done consistently has the potential to create sticky, highly passionate employees. However, we have been surprised by the profound differences in training availability — both technological and in-person — between blue-collar and white collar industries. Although there is some correlation between higher skill work and increased training hours, our initial research suggests a striking lack of basic entry level training options for hourly workers. For instance, while a 22 year old analyst new to Wall Street can expect to spend upwards of two months being paid for a formal training program complete with scheduled classroom instruction, structured simulations, and periodic evaluations, the “training program” for a similarly aged hourly worker at the average landscaping company likely consists of being handed a time card and a shovel.
We find this juxtaposition striking because the sheer size of the hourly labor market and the frequency with which hourly workers change jobs suggests that the cost of not training employees is extremely high. According to the BLS, in 2014, 77 million workers age 16 and older in the United States were paid at hourly rates, representing almost 59% of the labor force. Additionally, according to the U.S. Department of Labor, turnover for hourly workers is four times higher than that of salaried workers, creating significant expense for corporations which utilize a revolving door approach to staffing (estimates for replacement costs range from $2,000 to $8,000 per hourly employee depending on industry).
To us, this represents an enormous opportunity to differentiate ourselves as an employer. We believe that regardless of seniority, skill-set, or background, smart investments in our workforce will have a significant impact on our ability to create lasting institutions. This is not altruism: workforce investment, when done right, can be a smart investment, period. As seen below, turnover at the aforementioned 100 Best Companies is low relative to industry standards, regardless of market sector.
Voluntary Turnover at Best Places to Work vs. Industry Averages (Hourly and Salaried Workers):
- Manufacturing & Production: 5% vs. 11%
- Health Care: 7% vs. 18%
- Financial Service & Insurance: 8% vs. 12%
- Information Technology: 9% vs. 18%
- Professional Services: 11% vs. 31%
- Retail: 21% vs. 32%
- Hospitality 23% vs. 42%
Despite our broad belief that training programs can be valuable, we still struggle with implementation. For instance, can we financially rationalize the cost of relatively dated off-the-shelf training systems, which have high price tags and notoriously difficult ROI calculations, simply because they are the only option in the marketplace? Or should we take the time to develop custom, in-house training? If so, how much will that cost? Furthermore, will it work?
Dr. Eduardo Salas, professor of organizational psychology at the University of Central Florida and a program director at its Institute for Simulation and Training, helped us better understand our options in a 2012 Wall Street Journal interview:
“WSJ: What is the single most important element of an effective training program?
DR. SALAS: Design. It’s the thing you do before, during and after. How are you going to allow employees to practice? How are you going to provide feedback? What sort of technology are you going to use? While this may seem obvious, very few organizations really pay attention to this.
[Many companies] just procure a vendor for a program—like four hours of a workshop to do interpersonal skills—and they assume that the design is incorporated into it. Many vendors make sure the training is flashy and engaging, with a lot of bells and whistles. While that may be a fun and interesting few hours, after you go back to your job, you ask, ‘What do I do now?’”
While it’s relatively easy to have employees sit through an hour long Bobcat snow-removal training video, it’s unlikely that hour will actually have a lasting impact. We’re starting to understand that training is not valuable if it is just a check-the-box exercise. Rather, training is valuable when it improves skill-sets and creates opportunities for personal development and professional advancement.
Given this, we have come to the realization that effective training programs teach both the hard skills essential for job performance while also helping workers take ongoing ownership of their respective lines of work. A recent note titled Attitude is a Skill from Seth Godin reinforces this point:
Regardless of technological sophistication, we’ll likely lose money on training programs if we simply throw information at individuals without helping them learn how to internalize, and take ownership, of that information. In short, we have to teach our employees how to learn before we can teach them what to learn. From Dr. Salas again:
“Companies need to teach employees how and where to access facts. If you are inundated with facts and concepts, you will forget 90% of it. What training ought to do is help you get access to that information—databases, manuals, checklists—when you need it on the job. They cannot memorize everything.”
Last week the BLS announced that U.S. employers added 271,000 new jobs in the month of October, a figure which handily beat expectations of 185,000 and pushed the unemployment rate to 5%. While the strong headline performance supports the narrative of steady economic expansion, beneath the surface some people are being left behind. As the FT recently reported, in 2014 12% of men aged 25-54 were neither in work nor looking for it, a 5% increase since 1991. To be sure, while some of this is driven by structural economic change, this trend is also reflective of a growing sense that the economic prospects for hourly male workers are minimal at best. These prime age males aren’t looking for work at least in part because they can’t see the long term benefit of connecting to the labor force
We believe that as employers, it is incumbent upon us to provide that connection and to establish a path that can take capable people from entry level to management or from working for a pay check to working for a career. While our approach is certainly a work in progress — one that will take months if not years to fully implement — and the short-term ROI will likely remain difficult to pinpoint, we remain committed to figuring out how we can create smart, effective, and lasting training programs for our workforce.