Can training make your organization recession-proof?

by on June 1, 2016 · 0 Comment POSTED IN: Rapid Learning Insights
recession-proof

The benefits of training your employees are well chronicled here at Insights and in many other sources. To briefly review, research suggests that workplace learning can improve productivity and performance, increase employee engagement and improve employee retention, just to name a few benefits.

But these plusses are usually framed by the assumption that your organization is operating as it normally does. What about when the situation is abnormal – and by “abnormal” we mean “potentially disastrous”? Can training help your organization survive, or even thrive, when the economic outlook is grim?

The research

Researchers from the University of South Carolina looked at whether a robust training program helps organizations weather a storm – specifically, the Great Recession of 2008 to 2009.

To find out, the study looked at human resources and financial data from 359 firms in the manufacturing, finance and professional services sectors. By analyzing the HR data, they separated the firms into three groups – high, average and low levels of employee training.

First, the researchers compared the firms’ pre-recession conditions. They found that a high level of training correlated to higher productivity and, therefore, higher profits for the company. The researchers stated that an organization’s investment in human capital resulted in the growth of financial capital.

They also found that organizations that provided a high level of in-house training boosted productivity more than organizations that relied on external training programs, such as through a university or other training institution.

Second, the researchers analyzed the effects of the recession on the three groups of firms. They discovered that companies with a high commitment to training were hurt less by the recession than the average and low-level training firms. This, again, was attributed to the well-trained and highly productive human capital that the firms possessed.

Finally, the study looked at the 359 firms’ post-recession performance. The data showed that the high-level training companies rebounded faster from the recession and were back to the same amount of pre-recession profit – or an even higher amount – by the end of 2009. In contrast, the low-level training firms took until the end of 2011, on average, to fully recover.

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Implications

The researchers concluded that a high-level commitment to training may be most valuable during economic downturns. This idea is a powerful one, as some companies may feel that training is an unnecessary expense during times of financial hardship. But the research suggests that training may help organizations bail themselves out when the economy takes a dip and that the return on investment for training can be quite high under these conditions.

The study argues that a highly trained workforce at a company creates “slack resources” – or resources above and beyond what the company requires to operate. If a business has well-trained and high-performing talent throughout the organization, it’s easy to see how they might weather the economic storm more readily than a company that doesn’t invest in training and growing its talent.

The study concluded by claiming to cast light on the “black box” of training. Often, for a variety of reasons, it is difficult to tie positive results directly to training outcomes. But in this study, the researchers argue that high-level, internal training is directly tied to improvements in employee productivity and, in turn, higher profits in a stable economy and faster recovery during an economic downturn.

Source

Kim, Y. and Ployhat, R. E. (2013). The effects of staffing and training on firm productivity and profit growth before, during and after the Great Recession. Journal of Applied Psychology, 99(3), 361-389.

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