Measure what matters

How to measure "total cost of growth" to retain and develop employees

A balanced investment strategy: factoring the total cost of growth into company success
How to measure "total cost of growth" to retain and develop employees
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In an increasingly services-driven economy, knowledge leads to growth. Employers and employees strive for that growth, illustrating the importance of organizations creating cultures built upon a foundation of learning and development (L&D). Yet, we find that investment in L&D lags far behind appropriate levels, leading to skill gaps, challenges with retention, and lower levels of workforce engagement and productivity.

According to our Skillsoft’s 2022 IT Skills and Salary survey (pdf), a fourth of IT decision-makers said a lack of investment in training is a primary reason behind departmental skills gaps. And, when there is some investment, it’s often in areas that don’t measure outcomes.

Consider a well-known industry term called the total cost of ownership (TCO). It is the cost of owning capital equipment, software, real estate, laboratories, etc., including maintenance and upgrades. TCO can vary widely, but it often ranges between 5-20% of the initial capital investment or the yearly fee for licensed assets like software.

Now, consider an employee’s fully loaded cost as the yearly license cost for the intellectual output of each employee. Software and SaaS license price increases are akin to employee compensation increases; investment in employee learning and growth is akin to yearly spending on maintenance and upgrades in our people. So we’ll call this the total cost of growth (TCG) for each employee.

How total cost of growth retains employees

While TCO ensures that capital investments are in good working condition, TCG ensures the same for employees. Just like lubrication in machines protects them against environmental atrophy, L&D protects employees against intellectual stagnation or decline as the environment changes around them—and helps keep them engaged, motivated, and fulfilled.

Spending just 3% of total compensation on training and development to retain employees and fill more roles internally can pay off the cost of L&D and more. Consider SHRM’s report that it can cost a company six to nine months of an employee’s salary to replace them.

We have repeatedly seen that a learning culture helps retain top talent. Our survey (pdf) found that a third of employees who changed companies did so due to a lack of training, growth, and development. More simply, a stagnant career path leads to a quick exit—and high turnover rates can be disastrous for an organization’s finances, reputation, continuity, and overall growth.

Employees are looking for fulfilling work with mindful companies. Meanwhile, employers need skilled team members, and the onus is on the company to keep those qualified employees engaged. Investing in skilling and a robust L&D initiative gives employees the resources, validation, and opportunity to succeed. It also creates an ecosystem of success.

An outcome-oriented approach to TCG investment

Many companies spend on L&D as if buying a box of chocolates. It is treated as an employee benefit and learning content by weight, where investment is measured by how much content is purchased rather than on quality, assessment, and curation. Such spend can be considered worse than not spending anything because there is no measurable ROI in retention, internal mobility, and workforce development that maps back to strategic goals.

Effective TCG investments:

  • Are deliberate about employee development for strategic business needs.
  • Assess critical skill needs aligned with company strategies and plan workforce transformation accordingly.
  • Benchmark employee skills, build and maintain individual development plans, and provide individualized learning programs that prepare the employee for jobs and future roles.

For companies that offer human intellectual property as a product, such as consulting and services, this type of deliberate skilling goes directly toward business outcomes like time to billability or speed and flexibility of project staffing. For companies such as health services, financial services, hospitality, and transportation, this development relates directly to business outcomes like retention, internal mobility, customer satisfaction, data security, legal compliance, and employee health and safety.

So where to begin? Consider blending learning methods like videos, books, and virtual live instruction. Use learning platforms that engage the learner with recommendations, social cues, badges, goals, reminders, and gamification. Focus on developing the whole professional by offering a balance of technical skills (e.g., programming, data) with power skills (e.g., communication, agility). L&D is not one-size-fits-all, and programs should reflect that.

Managing your development budget

How a company administers an L&D budget is also critical to the success of any approach. Indeed, functional leaders like chief technology/information officers, chief revenue officers, or chief compliance officers are more tuned to the strategic needs of their functions. Many CEOs often delegate L&D decisions to these major functional heads. This fully decentralized approach could be more impactful in the short term. Still, in the long run, it may result in suboptimal allocation of funds, duplicative spending, fractured learning experiences, and poor outcomes. A decentralized, but synchronized approach is critical.

When the CEO is more involved in L&D, seeks valuable input from every function, then challenges the chief learning officer (CLO)to produce a combined plan that results in the best business case and the best employee experience—the overall investment is more efficient, and results are more impactful across the company. The modern, successful CLO must continuously engage with functional leaders and stay abreast of their needs and strategies.

Quite often, L&D leaders must convince executive teams to allocate a budget to help the organization grow. However, walls can quickly and efficiently be broken down by defining budget needs and allocations, sharing a comprehensive rollout strategy, and explaining how training can help address departmental gaps.

It’s also critical to measure and report results with recurring skills assessments to show progress and improvement in areas where talent shortages exist and employee development. For example, we’ve found that employees who receive training or earn new certifications demonstrate improved work quality, higher engagement rates, and faster performance. And 46% of decision-makers say certified employees add $20,000 or more to their organization’s bottom line.

TCG is a critical investment needed for the whole company to sustain and grow. Everything around companies and employees is changing faster than ever, and falling behind is a guarantee for obsolescence.

Apratim Purakayastha is chief product and technology officer at Skillsoft.