Research suggests fivefold gain for every training dollar spent

A new research report by DeakinCo. (a division of Deakin University focused on workplace education and skills recognition), in partnership with Deloitte Access Economics, has revealed why learning and development (L&D) should be a strategic priority for every Australian business.

The report outlines the significant revenue gains associated with L&D investment, finding that for every dollar invested per employee, an additional $4.70 is generated in business revenue.

DeakinCo. says that 87% of Australian organisations could do more to realise the benefits on offer, with only 13% of businesses classified as advanced learning organisations — those at the forefront of investing skills and knowledge in their people.

Beyond the significant financial benefits, DeakinCo. says L&D drives productivity, increases loyalty and staff retention and helps businesses tackle major challenges like rapid digitalisation and skill gaps.

While most businesses recognise the benefits, over half (51%) want better evidence of the benefits of training for organisational performance, a statistic the report’s authors believe reveals a significant lack of understanding into the quantifiable benefits of L&D activities.

Of the 68% of businesses who report tracking L&D-related outcomes, the majority measure their ROI through employee satisfaction surveys (56%) or changes in productivity (50%). Only one-third (33%) of businesses report tracking returns through financial metrics. This suggests most businesses lack the necessary information about their programs’ efficacy to properly capitalise on the benefits.

Rapid digitalisation and labour shortages increase urgency for L&D

The onset of COVID-19 accelerated the rapid digitalisation that Australian businesses were already grappling with, and this challenge has been compounded by skilled labour shortages. In fact, Australia’s Digital Economy Strategy 2030 notes the country vaulted five years forward in both consumer and business digital adoption in just two months of the pandemic.

As digitalisation increases, Australian digital skills will have to keep up. Research in 2021 indicates that 64% of Australian workers apply digital skills in their jobs today. And though most businesses may have some level of digital literacy, 26% of all businesses surveyed reported digital literacy as a key skills gap.

In this context, L&D plays a crucial role in helping businesses to upskill and reskill employees so they can deliver the specific digital skills businesses will require to survive in the rapidly changing business landscape.

Businesses divided between hiring and upskilling existing staff

When asked how they planned to fill skills gaps within their organisation, most businesses were split between hiring new people and upskilling existing staff.

Across the top five skills gaps — adaptability and flexibility, customer service, critical thinking and problem-solving, data analysis and digital literacy — 39% of organisations plan to upskill staff, while 27% intend to hire new people to fill these gaps.

Given the immense skills shortages currently impacting Australian businesses, it’s unclear whether hiring will be a viable solution. With so many businesses pursuing this as a strategy, they risk not being able to find the right people, with the right skills, indefinitely.

There are also significant risks and costs associated with hiring, with research suggesting the cost of replacing a bad hire can be 2.5 times that person’s salary. Hiring externally also typically attracts higher wages, which means relationships may need to be built from scratch, and reduces productivity when hires first join.

A big perception gap exists

Only 13% of businesses in Australia can be classified as advanced learning organisations. Of the 87% not classified as advanced, 9% were considered laggards, 36% beginners and 42% intermediate.

Strikingly, when asked to self-identify their L&D status, over 90% of businesses believe they are learning organisations — indicating a significant disconnect between businesses perception of their L&D activity and reality.

When asked if more could be done within their organisations to drive learning and development, 60% of respondents from the laggard and beginner categories said yes, compared with over 80% and 90% from the intermediate and advanced organisations respectively.

This is also reflected in a significantly lower training spend per employee among laggard businesses ($1100 per employee on average), compared to the spend per employee of more advanced learning organisations ($3000 per employee).

This demonstrates that many businesses in Australia do not understand the complexities or depth of learning that is possible, nor the value of L&D to their business performance.

Investment in L&D is growing

Despite this widespread perception and knowledge gap, the future is looking brighter for L&D. Businesses expect the amount of training they will deliver to increase by 19% on average this year compared to pre-COVID levels. And when it comes to the industries that plan to invest in the most, retail and aged care come out on top.

Business investment in L&D per employee has remained stable during the pandemic — falling by just 1% in 2020–21 compared to the year prior. While investment in L&D did not grow as would have been expected in pre-pandemic times, the fact that it did not fall is a significant sign that for many organisations L&D remained a priority during COVID-19 — despite the challenges of implementing it during this time.

Incentives and barriers for L&D

Given the demonstrated advantages of L&D, it is interesting to consider the factors which would incentivise businesses to undertake more training. Indeed, only 3% of surveyed businesses cited that nothing would incentivise them to conduct further training.

The largest incentive identified was training being relevant to current and emerging technologies (54%) with increasing digitalisation and automation likely the propellant for this incentive.

Many businesses were able to recognise the value of training for employee productivity (47%), upskilling (44%) and retaining current employees (38%).

While the pandemic highlighted the importance of L&D for reskilling employees, it also emerged as one of the largest barriers to implementing L&D. In fact, close to half (47%) of businesses in Australia identified COVID-19 as one of the top three barriers preventing them from investing in L&D.

Better evidence of the benefits of training for organisational performance was also identified as a major factor by many (51%). Measuring economic and business performance outcomes of L&D has long been one of the most notoriously difficult parts of L&D, according to Glenn Campbell, DeakinCo. CEO.

“Until now, measuring L&D performance has been a guessing game for too many businesses. Our research very clearly demonstrates the financial benefits of L&D and we hope businesses can now feel more confident investing in their people knowing that every $1 invested translates to an additional $4.70 in business revenue per employee.

“What’s more, investing in L&D leads to better staff retention. Advanced learning organisations report an average attrition rate of 14%, compared to almost 25% for laggard organisations. And in the context of the major skills shortages Australia is currently experiencing, this is an obvious opportunity for businesses who are wanting to retain talent and tackle skills gaps.

“Skills shortages are here to stay, and Australian businesses need to take action. L&D will help to counteract this challenge — not only by improving employee innovation and productivity, but also by preparing businesses for the future state of work,” Campbell said.

Image credit: ©stock.adobe.com/au/Sikov