How Training Can Make You Money. Executive Summary

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1 How Training Can Make You Money Executive Summary The research in this document was conducted to determine How to implement an effective training program for a small to midsized business in the low voltage industry. This document does not focus on whether or not your business should have a training program because you already do. Your training program may be proactive or accidental. Your training program may be planned and included in your budget or it may be unplanned and added to on the job expenses. The evidence clearly shows that a proactive and well planned training program amplifies a business s ability to achieve its objectives. This is not in question. So the question is how can you incorporate a training program which will provide your business with the greatest return on investment. This process is outlined here and explained in detail on the following pages. Step 1: Make an executive decision to develop an effective training program. This is a choice which the business owner must make in order to develop a training program that produces exceptional results. Step 2: Clearly identify your strategic business objectives. The whole purpose of a training program is to help your business achieve its objectives. Identifying those objectives provides the focus for the entire training program. Step 3: Make a decision on what level of resources your business should dedicate to a training program. The resources your business dedicates to training should be sustainable and not cause a hardship on the business. It does not have to be developed all at once. Build it over time. Typically companies dedicate 1-5 days of training per employee per year. Step 4: Select training content based on your strategic objectives. The content is a critical component of the program. It must support your business goals, be high quality and high value. Step 5: Choose several training pathways for the delivery of the training content. It is clear that several different methods of training which include a level of repetition makes for an effective training program model. Providing several opportunities to get the training in different ways helps your employees retain and implement the training into everyday work. Evaluation is a key component of your training program as well. You business should have a method to evaluate individual employee participation and benefit from training. Your business should also have a method for evaluating the effectiveness of your training program in supporting the objectives of your company. Although an effective training program is not the only aspect to producing exceptional business results, it certainly is a common theme among the top performers in the low voltage industry. As a business owner, developing a low cost and effective training program will help amplify your business results as well. National Training Center How Training Can Make You Money 1

2 Introduction How can a Training Program help my company make more money? This is a question which all business owners must face at some point. Training is typically viewed as a necessary evil. Training is something which must be done, so the business can get on with its real mission, to make money. Most business s react when a training need arises. Very few businesses s take a proactive approach to training. Yet being proactive in the training arena is exactly the approach used by the most successful companies in our industry. It is important to consider two facts concerning businesses and training. These are facts which seem to be controversial in discussions about training programs for businesses. These are facts which are apparent and really undisputable. 1. Fact 1: All companies have a training program. The real question: Does the training program support the business s objective and owner s intent? Training programs which are proactive perform more effectively at supporting the business objectives established by the owner. 2. Fact 2: Training is an expense. There is no way around this one. All training has a cost. Someone has to prepare the training, present the training and receive the training. All of these people have to be paid. Additionally when employees are in training, they are not producing for the business, so there is a loss factor which must be considered as an expense also. All businesses have to pay for training. As a business owner, the dilemma is how can the expense be minimized and the effectiveness be maximized? Expenses are a necessity of any business. The job of owners and managers is to get the most from those expenses. If a company dedicates resources to training, and then receives a return on that investment in increased sales and profit, the expense made money for the business. The training ROI is really the important factor. If a training program is established with the intent of supporting the business objectives and is effectively executed, the company will be better positioned to meet those objectives. The information in this white paper is intended for those business owners who are interested in building a better and more effective business. The only focus of this document is building a better business through the development of effective training. There are many important aspects to building an effective business and an effective training program is just one of those aspects. An effective training program can help to amplify the effectiveness of other areas of the business and is intended to work with the business as a whole to meet the objectives of the business. National Training Center How Training Can Make You Money 2

3 Basics of Developing a Training Program Although there are a million details involved in setting up an effective training program, the experts have identified 4 key components. From these key components we will extrapolate a method for developing a training program which will help your company make more money. 1. Clearly define the objectives. IEEE Industry Applications Magazine. 2. Effective training requires committed resources. American Society for Training Development. 3. Formal classroom training is essential. Rand Corporation study for the US Military. 4. Use variety and repetition in training. Electrical Contracting and Maintenance Magazine. 1. Clearly define the objectives. This is an absolutely critical step in developing an effective training program. Since the whole purpose of a training program is to meet the needs of the business and support business objectives, these objectives must be clearly stated. According to IEEE Industry Applications Magazine 1 in an article by Dennis Neitzel: Identifying organizational objectives can be used to determine whether or not training is the best solution for achieving those objectives. Not all of your company objectives require a training program solution, but most likely some will. The identification of the actual objectives is the starting point. Training programs are very well suited to help the business achieve some objectives and amplify the organization s ability to reach others. The objectives will provide the starting point for the design, development, implementation and evaluation of the training program that best meets the needs of the company. 2. Effective training requires committed resources. An intentional and effective training program cannot exist without planning and resources. For company owners interested in amplifying their company s performance thru training, resources must be dedicated to the task. The question becomes then, what is the appropriate level of resources needed for a training program to meet the company s objectives? To a large degree this is subjective. The American Society for Training Development (ASTD) has conducted some research on this subject for typical companies and industries. According to the ASTD in a recent report on training and business success: in virtually every case, companies who dedicated resources to training outperformed their competitors who did not. In every industry included in the survey, the best performing companies budgeted for training, and considered their training program as an integral component of their business planning. In the ASTD report, the best performing companies dedicated approximately $1, per employee for their training program. This does not mean every company needs to dedicate this level of financial assets to training. The ASTD report certainly indicates that dedicating the resources to training will result in superior company performance. There are other considerations as well. It is really important that business owners realize training is just one component of exceptional performance. It is essential that resources dedicated for training support specific objectives. Although National Training Center How Training Can Make You Money 3

4 training is always beneficial, the business s focus is on maximizing business performance. Highly focused training for that purpose generally produces better results. 3. Formal classroom training is essential. There is a perception in many industries and companies that a certain type of training is better than another type of training. This is clearly demonstrated in the contrast between formal classroom training and on the job training. There are many who believe on the job training is significantly more important in overall performance than formal classroom training. The Rand Corporation conducted an intense 2 year study on this very subject for the United States Military. The military, like many businesses needed to know where to spend its training resources in order to get the best performance. The study found that in every military occupational specialty formal classroom training was essential to sustained superior performance. Here is an excerpt from the findings in the Rand Corporation study: our estimates indicate that graduates of formal classroom training produce better results for a longer period of time than those trained exclusively on the job. It is more cost effective to incorporate formal classroom training rather than using only on the job training. It is important to note that this study does not prefer formal classroom training over on the job training. The study s findings indicate that employees who have both perform their jobs more effectively for a longer period of time. The study supports formal classroom training in conjunction with on the job training in order to get the best results. 4. Use variety and repetition in training. People learn in different ways. Some people learn better in a classroom while others learn better on the job. Some may learn better in a live class, while others may learn better in self study. In a recent study for Electrical Contracting and Maintenance magazine, Mark Lamendola found this to be a key concept in training employees. The EC&M article states: You have many training media and methods available. Use as many as is feasible to get the best results. The more ways you present information the more your staff will learn and retain. The EC&M article provides several examples of training which include hands on, classroom, online, self study thru references, training at meetings and employee education programs. Additional training can be obtained thru vendors and subject matter experts. Using several pathways for training provides for the best results. An important aspect to training which each of the above references is evaluation. It is important for businesses to track the results of training. This includes individual employee participation and performance plus the performance of the business in terms of the identified objectives. The business owner should set up a method for evaluating in an objective way how well the training helped to reach the company goals. National Training Center How Training Can Make You Money 4

5 Training Baseline A detailed view of training requires some baseline information. It is important to understand the resource requirements for implementing an effective training program. It is true that the resources required will be different based on the industry, the company objectives, individual employee requirements and the company culture, but a review of training programs and results could be useful in setting some parameters. As this document is intended for those who realize a training program has the potential to add value to business performance, some level of resources needs to be allocated to training. There is no standard for the minimum amount of resources to be dedicated to training. Since no standard exists, the minimum threshold for training will be selected as follows: 1. Training expense per employee: $ Training as a percentage of payroll: 0.5% 3. Amount of employee training time: 8 hours per year The American Society for Training Development (ASTD) has conducted extensive research on employee training in the corporate sector. A recent research report from ASTD focused on best training practices for small to medium sized businesses. The report specifically identified the best companies and their key training statistics. The ASTD report identified the best companies based on three criteria: 1. Increase in sales over previous year. 2. Overall net profit. 3. Annual employee retention rate. The research report for the top 25 companies revealed some interesting training statistics. These statistics are the average of the 25 best companies in the research report. 1. Training expense per employee: $1, per year 2. Training as a percentage of payroll: 2.72% 3. Amount of employee training time: 43 hours per year Those companies with the poorest performance in the research report did not budget for or consistently dedicate resources for training. This is as would be expected. Although the research report did not focus on the training content or quality, it is obvious that these issues play an important role in training effectiveness as well. The first step the business owner must take is to decide to implement a training program. The business owner must decide what resources he is willing to dedicate to developing a training program. The business owner must also decide what his training program will look like and feel like. The statistics above provide a pretty clear idea about the resources required to develop the best and most effective training program. National Training Center How Training Can Make You Money 5

6 Clearly defined effective training program The most important aspect to defining an effective training program is your company s strategic objectives. Your company s strategic objectives are the road map for an effective training program. The only reason to dedicate resources to build a training program is to support your company objectives. Training programs can only be effective if they are directly supporting business goals. The business owner is directly responsible for establishing the company strategic objectives. These strategic objectives must be written down. Once this is complete, the process of building an effective training program can really begin. The strategic objectives of the company are the driving force in determining the content for your training program. The training program itself is a shell. Once the training program is set up, specific content can be added based on your company s strategic objectives. The dedication of resources to a training program provides the platform. Selecting the right content really makes the training effective. The content selection process starts with strategic objectives. Most strategic objectives are focused on two items: performance and value. Performance generally relates to increasing sales and increasing profit margin. Value generally relates to the overall net worth of the business. The specific company objectives should be used to determine the actual content used in the training program. The chart below provides some ideas for decisions concerning content for the training program. Strategic Objective Increase sales Increase profitability Improve customer satisfaction Reduce service failures Increase employee retention Increase company value Type of Training Training focused on how to make sales Training focused on job performance Training focused on job performance Training focused on job performance Training focused on employee growth & performance Training focused on job performance & certification It is important to note that the training which is focused on job performance varies based on the position each employee hold in the company. Training on technician job performance is different than training on sales person job performance. It is also important to note that all employees should receive training on sales. Employees who specifically fill sales positions in the company require the most training on sales but all employees should have some training on how the company makes sales and how their position in the company can impact sales. Selecting the most effective content for the training program is based on the strategic objectives of the company. It is important to note that selecting the content to align with the company goals will provide the best opportunity for training to positively impact business goals. National Training Center How Training Can Make You Money 6

7 Setting up a training program Once the decision is made to set up a training program, the business owner must decide how the training program will operate. This includes a decision about what amount of training best fits the business s needs and resources. The first and most important aspect of this is to make sure that the resources the business dedicates to training are sustainable. The resources which are dedicated to training should not cause undue financial stress on the business. Remember, the purpose of a training program is to help your business achieve its objectives. Here are 5 examples of how company resources may be dedicated to training programs. Example 1 1. Training expense per employee: $ Dedicated employee time / year: 8 hours Expected results. Definite improvement in performance. Example 2 1. Training expense per employee: $ Dedicated employee time / year: 16 hours Expected results. Substantial improvement in performance. Example 3 1. Training expense per employee: $ Dedicated employee time / year: 24 hours Expected results. Very substantial improvement in performance. Example 4 1. Training expense per employee: $1, Dedicated employee time / year: 32 hours Expected results. Superior performance. Example 5 1. Training expense per employee: $1, Dedicated employee time / year: 40 hours Expected results. Peak performance. These examples demonstrate some of the options available for setting up a training program. They are based on the statistics from the ASTD research report. They are only intended to describe the resource requirements, not the content. Intentionally dedicating resources to a training program is an essential step in developing an effective training program. The content must be high quality and focused on the company objectives to make it really effective. National Training Center How Training Can Make You Money 7

8 Training Pathways Once resources are dedicated to a training program and content is selected, the business owner must decide on the delivery pathways for the training. There are several pathways for training delivery available to businesses today. Using multiple pathways reinforces the training message and amplifies the effectiveness of the training program. Although there are many different aspects and pathways which could be used for training, it is useful to focus on a manageable number. For the purposes of this document, the focus will be on eight pathways which provide a well rounded training solution for most companies and typical company objectives. The training pathways selected should be mutually reinforcing. Pathway 1: New Employee Training. This pathway is focused on getting new employees trained and producing results as soon as possible. Pathway 2: Formal On the Job Training. This pathway is a formal method for training and evaluating employee performance in their actual work environment. Typically this training is coordinated, supervised and evaluated by company management. Pathway 3: Employee Qualification Training. Most companies have specific qualification requirements for some employee positions. There may be special licensing, certification or other qualifications which are required by the company or a regulatory authority. Pathway 4: Regularly Scheduled Meetings. This pathway uses regularly scheduled meeting time to include some element of training. It is another way to reinforce the training message. Pathway 5: Specialized Training. Companies regularly have need of training in new areas in order to achieve their strategic objectives. These are commonly growth areas for the business. Pathway 6: Product Training. In a technology industry, which many businesses are in today s market, new product training is necessary to stay on the cutting edge. Pathway 7: Reference Library: This pathway is relatively inexpensive and necessary for business. Employees can find information and train themselves if they have access to the materials. Pathway 8: Employee Educational Assistance. This pathway is intended to demonstrate that the company values employees who are willing to commit their own time and effort in getting more knowledge. There are many training pathways which may be selected for a training program. The eight training pathways listed above have been proven to be effective for many of the companies in the ASTD study as well as for the low voltage industry as a whole. It is important to note that not all companies use all eight of the pathways. Many companies use just a few of them. The more training pathways which are used, the better the expected result. National Training Center How Training Can Make You Money 8

9 Summary It is clear that all companies have a training program. Some companies choose to build an effective proactive training program which is directly aligned with their business objectives. Other companies end up with an accidental training program which is not aligned with their business objectives. It is obvious that any company owner concerned with improving business performance would take the proactive approach to training. It is clear that all training programs require the dedication of some resources. The evidence demonstrates that proactive training programs produce better results and cost the business less than accidental training programs. The key aspect to a company training program is return on investment. Training programs which produce the greatest return on investment are proactive training programs which are aligned with the strategic objectives of the company. Those companies who choose to ignore training have significantly lower performance. It is clear that having defined company objectives allows the selected training program to be focused on those areas which are most important to the business. Those companies who focus their training efforts on their strategic objectives amplify their ability to achieve those objectives. It is true that all training can produce beneficial results. The most effective training is focused on the specific needs of the business. It is clear that providing a variety of training methods along with repetition makes training more effective. There are several important training pathways which include formal classroom, on the job, self paced, live, online as well as many others. Selecting several training pathways intensifies the effectiveness of the training and produces better results. The evidence is clear. A proactive approach to training will cost your business less, amplify your business s ability to achieve its objectives, and provide a much higher return on your investment. An important note. Getting started on the process of building a training program for your business does not have to be expensive. Remember, a training program is something your business can build over time. As a business owner, you must decide how to develop a training program which meets your needs. The whole purpose of the training program is to enhance your business performance, not to cause your business undue hardship. Also, keep your attention on the fact that those companies who build an effective training program for their business always outperform those companies who do not. National Training Center How Training Can Make You Money 9

10 References 1. IEEE Industry Applications Magazine, Author Dennis Neitzel, Sep American Society of Training Development (ASTD), State of the Industry Report on Training and Business Success, Author Marc Rosenberg, Mar An Evaluation of the Effectiveness of Classroom and On the Job Training, Rand Corporation, Authors Alan Marcus, Aline Quester, Dec Electrical Contracting & Maintenance, Author Mark Lamendola. Sep 2010 National Training Center How Training Can Make You Money 10