Eng Mgt 6113

Advanced Personnel Management

(Strategic Human Resource Management & Measurement)

Costs & Benefits of HR Development

Programs
David G. Spurlock, Ph.D., Instructor
Costs/Benefits of HR Development (Training)
Programs
Overview & Logic of Talent Development
Some Background on Training (Not in Text)
Utility Analysis of HRD Programs (modified
BCG approach)
Break-Even Analysis of Training Programs
An Illustration of Cost Analysis of Off-Site vs.
Web-Based Meetings
Conclusions
emgt6113ch11 2
 Overview & Logic of Talent Development

US employee training expenditures estimated at

$125 billion annually
Google offers 100 hours of professional
development training per employee per year
Googles numbers are well above average for private
sector employers 40 hours or less is typical
Compare to US military training hours
Captains in this program are getting far more than 100 hours:
youre getting officially approximately 120 hours just of class
meeting time this semester alone
emgt6113ch11 3
 Overview & Logic of Talent Development
Training needed to meet many challenges of
modern business environment
Text mentions seven: (recall lecture on trends)
(1) Hypercompetition: implies constant reinvention of business
models, strategies, structures
(2) Power shift to customer (due to info available through
Internet) personally Im not sure this is as great a shift as
authors imply since complexity of products and services make
comparisons very difficult and conclusions highly perishable
(3) Complex collaborations involving multiple
cultures/languages
(4) Requirements for sustained high levels of talent

emgt6113ch11 4
 Overview & Logic of Talent Development

Training needed to meet many challenges of

modern business environment
Text mentions seven:
(5) Changing workforces (demographics of ethnicity, gender,
age, educational attainment)
(6) Changing technology (constant stream of new
developments)
(7) Ever greater use of teams (requires learning new behaviors)

emgt6113ch11 5
 Overview & Logic of Talent Development

Training entails 4 major features

Training implies learning
Training is planned by organization
Training occurs after individual joins organization (for
purposes of evaluating costs & benefits)
Training intended to further organizations goals

emgt6113ch11 6
 Overview & Logic of Talent Development
DEFINITION: Training & development activities are planned
programs of organizational improvement undertaken to
bring about a relatively permanent change in employee
knowledge, skills, attitudes or social behavior
Training & development encompass many topics including
improving technical skills, interpersonal skills, &
supervisory skills, as well as socialization, orientation,
indoctrination (drinking the Kool-Aid?) and many modes
including OJT, coaching, mentoring, e-learning, formal
classroom instruction, etc. (more on all this in a bit)

emgt6113ch11 7
 Overview & Logic of Talent Development
Unfortunately, many training programs are NOT
evaluated properly for financial impact
Evidence from many studies indicates that training is
both effective and provides a good return on
investment when implemented properly but managers
need to know how to make that determination for their
specific programs in their specific organizations
Studies of stock prices suggest firms that invest in training
above industry norms have better market performance
although causality cannot be firmly demonstrated
(e.g., training expenses may be a leading indicator of
profitability rather than the primary cause per se)
emgt6113ch11 8
 Overview & Logic of Talent Development
Fig. 11-1 depicts relation of various investments in
particular stages of the training process and the
outcomes expected as a result
Example of successful partnership of Caterpillar
with a network of vocational schools in six
countries
Some organizations have world class reputations
for their training and development programs for
certain types of professionals and leaders (GE,
IBM, Procter & Gamble, US military)
emgt6113ch11 9
Some Background on Training (Not in Text)

Although the text does provide a bit more

background on training and development than
it did on selection & performance appraisal &
compensation, I am incorporating some
additional material to provide a foundation for
whats to come in the text treatment

emgt6113ch11 10
 Some Background on Training (Not in Text)
Employee Training & Development
Basic principle is to invest in increasing employees
skills to increase long-term productivity
Other benefits: reduced turnover, greater job
satisfaction, fewer disruptions due to skill shortages
Managers/professionals/administrative (including office
workers) tend to get more training
Most companies devote relatively little time to training in
terms of hours per employee
Beware- training norms vary greatly between industries
& over economic cycles when times are bad, training is
one of the first things to get cut from the budget
viewed as deferrable
emgt6113ch11 11
Some Background on Training (Not in Text)

Training Methods
Orientation programs usually short duration &
formal (meetings & information distribution about
rules, practices, responsibilities, etc.)
Socialization of new employees longer
lasting & more informal; mainly occurs during
first few months but continues at more subtle level
indefinitely especially if there are transfers or
reorganizations that present a new set of
cultural norms

emgt6113ch11 12
Some Background on Training (Not in Text)

On-the-job training (OJT) varies in terms

of the mix between the job part & the
training part often OJT is a euphemism
for sink-or-swim
From another perspective, if the money to pay you
is not coming from a special training budget, then
whatever it is youre doing until youre
competent is OJT

emgt6113ch11 13
 Some Background on Training (Not in Text)
Coaching very similar to athletic sense of term provide
feedback, instruction, advice, encouragement
Mentoring can be very critical but importance will vary
depending upon occupation & organization
consider yourself very lucky if you find a mentor or mentors who are
(1) sufficiently influential (powerful) to help send you to the next
level, (2) competent at mentoring, & (3) truly interested in helping
you succeed
Some mentors have one or two of these attributes but they really
need all three characteristics to help you especially if the
environment is a particularly competitive one
In fact, if the environment is hypercompetitive, you may need
sequential sets of multiple mentors to really do well

emgt6113ch11 14
 Some Background on Training (Not in Text)
Computer-based training/instruction
Actually this has been around for a while but the development costs
have until recently (10-20 years) been too high for many applications
Now with cheap but powerful pc's & fairly good Web-based programs,
this has fast become a huge growth area in corporate training
Not quite as profitable a market with traditional school education
though, at least not yet
What are the differences between a corporate training environment
and traditional K-12 schools and post-secondary colleges &
universities that would be important in determining the effectiveness
of CBT?

emgt6113ch11 15
 Some Background on Training (Not in Text)
Apprenticeships
Rare in U.S. but relatively common in Europe
Actually some professions in the U.S. are based on
quasi-apprenticeships like university professors or
medicine or clinical psychology
In a sense, becoming a professional engineer requires an
apprenticeship period between passing the FE/EIT and final
official registration after passing the actual P.E. exam (rules vary
by state):
Often one needs a period of post-FE/EIT work supervised by
a licensed (or registered) P.E. who will attest to your
qualifications when you seek to be licensed/registered if this
matters to you, verify the requirements with your employer
emgt6113ch11 16
Some Background on Training (Not in Text)
Management Development
Job rotation & cross-functional assignments are
traditional ways of developing managers
Scott Adams has mockingly referred to these folks as
bungee bosses because they are only around long
enough to change everything & then they depart
without having any responsibility for the long-term
effects of their decisions
Its been said that some executives with 20 years
experience really have one year of experience
20 times

emgt6113ch11 17
Some Background on Training (Not in Text)
Problem of the last 20-30 years has been the dramatic
reduction in promotion opportunities in the traditional,
large Fortune 500 organizations due to the trend toward
eliminating layers of management and the sheer glut
of managers (tens of thousands of MBAs have been
cranked out every year since the early eighties there
are probably around one million people with an MBA
now and there really arent one million jobs that truly
need that level of management education)
For a while now, in some organizations, the MBA is viewed as
an entry-level degree; in other organizations and fields, it isnt
respected as much to begin with and may even be viewed
negatively (Mediocre But Arrogant)
emgt6113ch11 18
Some Background on Training (Not in Text)
On the bright side, demographics favor the baby-
busters (Gen X-ers) who dont face the crowded
conditions of the second half baby boomers if you
ignore impacts of foreign workers and technology as
factors reducing demand for US skilled labor
Millennials might eventually benefit as Gen X-ers
retire if economy expands BUT so many pursue
advanced degrees now, not such a differentiator
Fewer people than ever can stay in school more or less full-time
until their late-20s or early 30s and then make enough money
to pay off six-figure student debt, raise a family, buy big houses
in the burbs and retire early at 55 with enough wealth to coast
for 40 or 50 years and remain comfortable into their late 80s or
90s.
emgt6113ch11 19
Some Background on Training (Not in Text)
Management Development for International Assignments
In many orgs this is a necessity because they are essentially
global companies
Product Life Cycles and Managerial Fit - Development
vs. Selection
Some suggest that the personality of manager or managerial
style needs to be matched to the life-cycle stage with more
entrepreneurial risk takers need for early stages and more
conservative caretakers or preservers needed for later stages
Reasonable idea but difficult to implement in practice because
managers are rarely pure-types and many would try to appear to
be whatever type it is in their self-interest to be; in addition these
life cycle stages are sometimes fuzzier than one would hope

emgt6113ch11 20
Some Background on Training (Not in Text)
One widely used (though decades old) approach toward
types of measures to include when evaluating training
effectiveness is Donald Kirkpatricks model:
Emphasizes four levels of effects for which different
measures should be developed
Reactions (level 1): trainees opinions of training at conclusion
of training process
Learning (level 2): a relatively permanent change in trainees
knowledge & skills (or attitudes) as a result of the training
(usually measured with a test after the training has ended)
Behavior (level 3): change in trainees workplace behavior as a
result of the training (how they do their jobs)
Results (level 4): outcomes for the organization (e.g., improved
sales, productivity, increased revenue, increased safety, reduced
costs, increased profits)
emgt6113ch11 21
Some Background on Training (Not in Text)
Kirkpatricks model is useful in highlighting the relative
importance of success at the four levels and the
potential for considerable attenuation of effects as
higher levels are examined
Trainees can be very happy with a training experience (level 1)
without learning as much as they should (level 2)
Trainees can learn a lot (level 2) but not be able or willing to
change their behaviors on the job (level 3)
Trainees can change their behaviors on the job (level 3) without
a subsequent improvement in important overall organizational
metrics (level 4)
These last two circumstances may not be the fault of either the
training program or the trainees as there may be external,
independent factors influencing those metrics

emgt6113ch11 22
Some Background on Training (Not in Text)
This ends the background material on
training
There are no supplemental files for training
posted on Blackboard

emgt6113ch11 23
 Utility Analysis for HRD Programs
(modified BCG approach)
Fig. 11-2 illustrates the idea of effect size
representing the magnitude of the effect of a
treatment (e.g., training) on one group (the
treatment group) compared with another group
(comparison or control group)
NOTE that there is a distribution of individual
differences in both groups and the difference
between the means expressed in standardized
units is the relevant parameter, dt

emgt6113ch11 24
 Utility Analysis for HRD Programs
(modified BCG approach)
= C
is the gain in benefits to the firm in monetary units
N is number of employees trained
T is expected duration of benefits in trained group
dt is the true difference in job performance in SD units (note
how dt is computed/estimated there are some subtle
considerations involving some statistical concepts)
SDy is std. dev. of $ value job performance among untrained
employees
C is the total cost of training N employees
emgt6113ch11 25
 Utility Analysis for HRD Programs
(modified BCG approach)
Note that effect of training on one particular
component of job performance will only have an
effect on OVERALL job performance in proportion
to the ratio of importance of that component to
the overall skill set needed to perform the job
EX.: If skill with Excel is believed to be approximately 5% of the
skill set needed to perform a job, and training improves skill with
Excel by 80%, OVERALL job performance is only going to
improve by 4% (80% of 5%) so although the training itself was
quite effective (80% improvement in the trained skill), the impact
on overall performance was minor and might not even be
noticeable depending on the general variability level in overall
performance emgt6113ch11 26
Break-Even Analysis of Training Programs
Eq. 11-1 can be used to compute break-even
thresholds for SDy as follows:
Set U = 0 in Eq. 11-1 and solve for SDy
dt can be relatively low (e.g., 0.10) in many
circumstances and the computed SDy as a break-even
outcome value for justifying the training program will
still be lower than the typical value of SDy for such
programs ($28-$39K) so easy to justify
Usually useful to include estimates of values for
expected case and worst-case scenarios

emgt6113ch11 27
 Break-Even Analysis of Training Programs
Eq. 11-1 has an Achilles heel though: the value
of T, the duration of training effects
While good estimates can sometimes be obtained through
systematic procedures (e.g., Delphi method), this would be true only if
training methods were effective and the work environment was
stable so the benefits of the training would last
Text examples of extremely wide ranges of training durations
including one where training had a negative effect on performance
Even if training is done very well and is effective, changes in
technology, business models, or customers could make training
obsolete faster than planned
NO general rule or consensus for how long training effects last

emgt6113ch11 28
 Break-Even Analysis of Training Programs
Eq. 11-1 should be modified to account for the
dissipation of training effects over time
Eq. 11-10 (EXTREMELY LONG FULLY MODIFIED
BCG TRAINING MODEL) can be used to provide better
estimates of returns on training programs
NOTE Eq. 11-10 is essentially the same as Eq. 10-6 but with
dt substituted for the product of the validity coefficient rx,SV
and the standardized average predictor score, X
Text works a numerical example (Table 11-1) and then gives an
additional illustration of supervisory skills for bank managers

emgt6113ch11 29
 An Illustration of Cost Analysis of Off-Site vs.
Web-Based Meetings
A case illustrating the application of the ideas in
Ch. 11 is given on pp. 298-302
Details obviously would vary across organizations and over
time but the logic and level of analysis shown in case should be
relatively representative of what one should do
Aside This situation is somewhat analogous to having face-to-
face classroom instruction vs. online course delivery
Despite some efficiencies with online instruction, students
generally tend to prefer face-to-face
Perhaps this will change over time with generational
attitudes toward web-based instruction and changes in
technologies (e.g., really life-like avatars)
emgt6113ch11 30
 Conclusions
Some final thoughts:
Important that senior management preapprove
utility model & procedures prior to investing in
an analysis of the potential returns from training
programs and that they are informed ahead of
time about what reasonable expectations for
accuracy & precision should be
Although rhetorical qualitative arguments about the
value of training programs may still be effective and
necessary, useful quantitative computational
models now exist to do such evaluations and
these should be used to justify such programs
emgt6113ch11 31
END OF SLIDE SET

emgt6113ch11 32