Training Keeps IT Firms Ahead, Employees Content
By Gail Repsher Emery
Information technology companies that provide regular training to their employees are doing more than keeping up with competitors ? they're beating them soundly.
Companies have long recognized that training programs help them stay on the cutting edge of technology and prevent talented people from jumping ship. But a new study shows that training also improves profitability.
"It is clear that a firm's commitment to workplace learning is directly linked to its bottom line," said Mark Van Buren, director of research for the American Society for Training & Development, which published the October study.
Investments in work-force training can predict a company's future financial performance, including its total stockholder return, according to the Alexandria, Va., association, whose 70,000 members are employed in workplace learning and performance.
ASTD examined the average annual training expenditures of 575 U.S.-based publicly traded firms from 1996 to 1998. Firms in the top quarter of the group invested an average $1,595 per employee in training. Firms in the bottom quarter invested an average $128 per employee. Firms in the top quarter had 24 percent higher gross profit margins and 218 percent higher income per employee than firms in the bottom quarter.
Furthermore, firms in the top half had an average stockholder return the following year of 36.9 percent, while firms in the bottom half had an average stockholder return of 19.8 percent. (The Standard & Poor's 500 had an annual return of 25.5 percent at the same time.)
Training "absolutely affects the bottom line of a company. They can't develop breakthrough technologies without skilled people," said Marjorie Bynum, vice president of work force development for the Information Technology Association of America, Arlington, Va.
In a separate study of 501 employers, ASTD found that total employer training expenditures increased from 1.8 percent of payroll in 1997 to 2 percent of payroll in 1998, an 11 percent rise. The employers projected a 14 percent jump in spending between 1998 and 1999. Technology firms in the group projected the largest increase, 30 percent, during the same period.
"The IT industry probably spends more than any other industry on training. It's a priority. They realize the connection between training and productivity," Bynum said.
Van Buren cautioned against placing too much emphasis on training expenditures, however.
"Is it really important to measure how much companies spend, or is it more important to focus on what people learn and how that impacts business?" he asked. "In the past, we've seen too much emphasis on inputs and not enough emphasis on the outputs ? the impact on bottom line. When you do make that emphasis, you have a better case for investing in people."
Professional consulting firms, software development companies and government systems integrators are only as good as their employees, their managers said.
When systems integrator Electronic Data Systems Corp. of Plano, Texas, wins multimillion-dollar contracts with the federal government, "that's because of the kind of people we have," said Irv Towson, director of human resources.
Training is "clearly a business decision," he said. "The people we have are an asset, but they are also an investment. The better prepared they are, the better prepared we are [as a company]."
EDS gave training "a new breath of life," this year, Towson said, when it launched EDS University in June. The online education service makes 800 courses available to all EDS employees worldwide, and has received 1.2 million hits.
PricewaterhouseCoopers' U.S. consulting practice spends more than $100 million a year on employee training, according to Caryn Perelli, director of human resources for the New York firm's Washington consulting group. Its 2,500 staff members provide consulting services to federal and state governments and some private organizations.
One hundred million dollars may sound like a lot of money, but really, "it's not that surprising," Perelli said. "Our clients pay for the skills and knowledge and capability of our people."
Every PricewaterhouseCoopers employee must take at least 20 hours of training a year and 120 hours every three years, she said. That training could be online, in a traditional classroom, through the firm's 10-week, entry-level technical training program in Tampa, Fla., or through its master's degree program in business administration, a two-year distance-learning endeavor with the University of Georgia in Athens.
Training is critical to Cognos Inc., a business intelligence software developer in Ottawa, said Rod Brandvold, vice president of organizational development.
"We need to ensure that our people are trained, up to date in the technology that goes into the products and solutions, and in the products and solutions themselves," he said.
The firm's clients include the U.S. Coast Guard and Marine Corps, the Miami-Dade Police Department in Florida and the city of Philadelphia.
Cognos accomplishes its training goals with a variety of programs, including management training and workplace orientation, and three- to six-week boot camps that get new employees acclimated to their jobs in sales, product development and consulting.
The company's new product training increasingly is delivered via the Internet, said Laurel Peters, director of global education services. Web-based instruction gets new information to employees faster, boosting their confidence on the job.
"We've cut the time it takes to roll out new product training worldwide from six months to a month or two," she said. "Now [employees] are better able serve their customers."
Training is so necessary that it's now seen as a requirement rather than a benefit, Brandvold said.
"I just believe companies nowadays have no choice. You've got to do it to drive the business, and employees expect it," he said.
A study released earlier this year by ASTD and the Society for Human Resource Management in Alexandria, Va., backs up Brandvold's assertion. "Recruiting and Retaining Employees: Using Training and Education in the War for Talent" showed that training and development is essential in order to attract and retain talented employees.
The two associations studied seven companies, including Great Plains Software Inc., a business management software developer in Fargo, N.D., Dow Chemical Co. in Midland, Mich., and Edward Jones, a St. Louis financial services firm.
Compared to ASTD's database of 2,500 organizations worldwide, the seven companies trained more employees, spent more as a percentage of payroll on employee training and spent more on technology as a percentage of the training budget. The companies reported lower turnover rates and higher employee satisfaction than the average company in their industries.
The companies "provided growth and the chance for advancement, and they were getting people. And people were staying on," said Stacey Wagner, director of the study and ASTD's Benchmarking Forum.
At Great Plains Software, turnover runs 8 percent to 10 percent annually in an industry where it can hit 25 percent, said Pam McGee, organizational and development manager. "We believe learning has such a key role in keeping our turnover low. There is a direct relationship between the value the employee feels in the company and the support we give them in their growth," she said.
The company, whose clients include local governments, doesn't require training, but its extensive offerings, from technical certification to team building and leadership skills, are open to all employees. As a result, workers take at least 81 hours of training annually, McGee said.
"People realize that what keeps them marketable is a current upgrading of skills," Wagner said. "New experience adds a depth and breadth to a person's experience. Nobody wants to do the same job for 20 years."
The companies in ASTD's recruitment and retention study promoted their training programs extensively, Wagner said.
"They communicated it all the time: in recruitment literature, in interviews, in new employee orientation, in the creation of individual development plans, in performance appraisals and even in exit interviews," she said.
That's what workers are looking for, employers said.
"The technology changes so quickly, so it's extremely critical for [employees] to know what kind of opportunities they will have to expand their skill set," Towson said.
Perelli added, "If you don't have training featured prominently in the offer you are making to any new employee, you're going to have a hard time competing in this marketplace."
Sometimes training opportunities are a happy surprise, said Jerry Smith, group manager for Microsoft Leadership and Development in Redmond, Wash.
The software giant this fall acquired MongoMusic Inc., a developer of digital music infrastructure in Redwood City, Calif. The small start-up, like many of Microsoft's acquisitions, "didn't have the resources to offer any training," Smith said.
Microsoft's extensive offerings, from orientation to targeted sales and technical training in every line of its business, "was a big sell for a lot of those folks, because they all had to move up here" to Redmond, Smith said.
Salary, always a factor in hiring, "is a given," Towson said.
"Salary comes into play, but it is not the end-all," he said. "It's not why [employees] come, why they go, why they stay. People stay because of the quality of life, the challenge of the job and the ability to be trained."