Term Paper: ROI From Employee Education

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[. . .] Yet, today's business environment increasingly calls for an organization's ability to use employee expertise, at all levels, as a factor in the very shaping of business strategy. Implicit in this is the need for HRD to not just support the business objectives of organizations but play a pivotal role in the shaping of business strategy since organizational success increasingly depends on an organization's ability to apply state-of-the-art expertise to new, emerging business opportunities. This is contrary to current practices where formal consideration is given to employee expertise and training implications of a given strategy only after constraints emerge during implementation (Swanson & Torraco, 1995).

The centrality of employee expertise to business success is particularly evident in high technology industries such as information technology and communications where technical innovations are continuous and the life of knowledge is measured in months (Swanson & Torraco, 1995). However, employee knowledge and expertise is not confined to high technology industries alone. For today's competitive, global economy calls for continuous innovation, value addition, and rapid adaptation to changing conditions. Thus, only "high performance work organizations can succeed in virtually all industries. Such firms are the ones who take the approach of relying upon the ingenuity, creativity, and problem-solving abilities of their workers to constantly develop the necessary competitive edges in terms of product quality and innovation, price and cost leadership, and customer service. A good example here is the work practices in FedEx, a company that has been known to rely on their delivery truck drivers to use their knowledge of customers and routes to identify bottlenecks; act as sales representatives by informing customers of new services; and work as a team through training and installing communication equipment in trucks (Kling, 1995). Naturally, no high performance firm can achieve this without investing in the ongoing education and training of its workforce, and changes in the organizational structure and culture. The latter is particularly important since employee education and training programs need to necessarily be accompanied by employee motivation through practices such as organizational career development, which could necessitate changes in organizational structure and culture.

The truism that investing in employee education and training pays off in terms of building competitive advantages and higher productivity levels has, in fact, been realized by several leading-edge corporations such as Motorola, Texas Instruments, Xerox, Disney, Home Depot, Ford, and Dupont; several of who have created extensive internal systems for providing education and learning, including business literacy (Swanson & Torraco, 1995). Besides such anecdotal evidence, there is a wide body of research that conclusively proves that there is a ROI from ongoing employee education and training. One such study is a cross-industry survey of work practices and firm performance of 855 publicly held firms conducted in 1992. This study, which created two indexes, "employee skills and organizational structures" and "employee motivation," demonstrated that each of these indexes was significantly correlated with higher sales per worker when considered separately. Taken together, a one-standard deviation increase in both indexes was associated with a 16% increase in productivity. Further, these indexes were also positively related to financial performance measures such as gross rate of return on assets and the ratio of stock market value to total assets. In another study, it was found that 108 firms that had successfully introduced innovations in training, quality management, and organizational structures outperformed a matched control group over the six years subsequent to the introduction of such practices. These innovative, learning organizations achieved a cumulative excess increase in stock price of over 20% (Kling, 1995).

Employee Education and Training Improves Employee Morale and Retention

"Employee loyalty to the organization rests on many other motivational factors besides money: self-fulfillment, improved self-esteem, and a need for personal affiliation. If a company's business culture places an emphasis on life-long employee learning, more individuals will see themselves as highly-appreciated members of the organization. This feeling of "being vested" is a powerful inducement to stay." (Gordon et.al., 1994, p. 137) The preceding observation is not new and has long been acknowledged by behavioral theory. But perhaps employee motivation has assumed higher significance in the light of an environment characterized by rapid changes and employee insecurity caused by the fear of job obsolescence. Indeed, the current environment has led to training, education, and degree completion programs becoming one of the most desired employee benefits sought. This is also because a Gen. X and Gen. Y workforce views training and development as critical, valuing the opportunity to advance and make more money (Smith, 1999-2004).

While the fact that improved employee morale leads to higher motivation and productivity is self-evident, it is important to note that the absence of employee education and opportunities to advance or gain wider experience can result in employees migrating to companies that are known to offer such benefits. Despite these known facts, "a research company reports that 54% of businesses do nothing to create a high-retention culture or reduce high employee turnover." This, in spite of the fact that the costs associated with high turnover include lost customers, business, damaged morale, besides the costs of hiring and training new recruits (Smith, 1999).

Employee Education Reduces the Costs of Recruitment

The fact that employee education reduces employee turnover, saving the organization a great deal of money, time and effort in hiring and training of new recruits has already been discussed in the previous section. However, perhaps it is important to note here that replacement costs are usually 2.5 times the salary of an individual, costing between $4-7 K. To replace an hourly worker and up to $40 K. To replace a midlevel, salaried employee (Smith, 1999). Besides such facts, employee education and training can significantly reduce the costs of recruitment even for new job openings, created by business expansion, through internal promotions. In addition, the development of business and management skills of employees at all levels can even lead to reducing the need for higher paid business degree holders, as evidenced by several research studies that demonstrate that the performance levels of business and non-business degree holders in managerial positions are not significantly different. One such study, as reported by Ariss and Timmins (1989), in fact, concluded that non-business degree holders can usually be hired at relatively lower salaries for managerial jobs that do not require a specific technical qualification. This implies that as long as an individual worker has the inherent interest and talent, employee education and training could lead to promotions from within, thereby negating the need for extensive and expensive campus recruitment from business schools.

Of course, this does not imply that business management degrees are not valuable. On the contrary, the above observation is certainly not universal although valid when considering certain types of managerial positions. Indeed, the best strategy for HRD in planning employee education and training is to adopt a matrix model as the basis for analyzing and managing an organization's workforce and job functions. This implies categorizing employees as star achievers; consistent performers; problem employees; and under-achievers. Such a matrix will enable HRD to plan the education and training needs of different employees and job functions based on their potential, thereby allowing for maximization of corporate investments in training and recruitment through defining training needs as: training only; training plus executive development; issuance of academic credit; and issuance of academic degrees.

Conclusion

While there is a wide body of literature as well as research evidence that there is a definite ROI from employee education and training, the fact remains that for many corporates, employee education and training continues to be seen as an optional and not a necessary business investment. Part of the problem lies in the fact that businesses often fail to define their training needs adequately. But perhaps the larger reason is the failure of employee education and training programs to gather information on results with most programs offering audience reaction evaluations only. Therefore, if more organizations are to realize that there is a definite, substantial ROI to be gained from employee education and training, it is critical that human resource professionals ensure that training needs are assessed correctly and that the evaluation is done in the areas of learning, behavior and results.

References

Ariss, S.S., & Timmins, S.A. (1989). Employee Education and Job Performance: Does

Education Matter? Public Personnel Management. Vol. 18: 1, p. 1+.

Davis, B. D, & Muir, C. (2002). In This Issue: Upgrading Business Literacy and Information

Skills. Business Communication Quarterly. Vol. 65: 3. p. 99+.

Gordon, E.E., Morgan, R.R., & Ponticell, J.A. (1994). Futurework: The Revolution

Reshaping American Business. Westport, CT: Praeger Publishers.

Gutteridge, T.G., Leibowitz, Z.B., & Shore, J.E. (1993). A New Look at Organizational

Career Development. Human Resource Planning. Vol. 16: 2, p. 71+.

Kling, J. (1995). High Performance Work Systems and Firm Performance. Monthly Labor

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