Businesses have a clear idea of why training employees is essential and how much it costs, but not all of them implement learning. That’s why we want to answer the fundamental question — how much does it cost not to train an employee?
Innovation breakthrough is changing the workforce
Fast growth in technological innovation, robotics, automation, and AI is transforming the nature and number of jobs available. Technology improves our lives and raises productivity, living standards, and average life span. Also, technologies force us to implement continuous learning with every new update.
Continuous learning means non-stop growth of skills and knowledge. It includes lifelong personal learning and working training, upskilling, and career development.
Continuous employee training benefits a company in many ways. Most companies apply it to achieve such goals as:
Improving performance and productivity to meet future demands in the marketplace more effectively.
Acquiring a competitive position on the market by constantly gaining new knowledge, developing skills, and addressing current industry changes.
Developing new skills due to changing industry standards to stay ahead of the competition.
Increasing revenue through improved employee performance.
Retaining valuable team members and offering them learning and career growth opportunities.
Growing a community of brand advocates through well-trained, enthusiastic employees.
Adapting to transformations in the world and the workforce specifically.
How companies organize a system of continuous learning
To make continuous learning work, training programs should be tailored to the company's specific business needs and strategic goals. In small companies, a manager and a top-level specialist define a plan for training and practice for the employee. Medium and large companies have learning departments that select courses and training materials according to the employee's career plan. They organize mentoring at different levels with conferences, meetups, and internal projects to expand their expertise.
Let's look at focus areas common for all learning organizations.
This gives the big-picture to new employees, helps them integrate into the new work environment faster. They acquire the skills, knowledge, and behaviors needed to become productive through onboarding. The program covers topics such as history, corporate culture, basic policies, and health and safety regulations.
Such a program may occur regularly, depending on the particular job position or department. For some positions, it is a must to be up to date, and skilled up, and motivated regularly. It can include product and service training.
This can help a company build its human resource basis. The most successful employees are usually candidates for promotion who are ready for executive training. Topics might include anything from product knowledge to leadership skills, such as facilitating and delegating, giving feedback, and managing teams.
A learning organization aims to expand employees’ capacity and achieve the results they truly want. In The Fifth Discipline by Peter Senge, we find advice using five "component technologies": systems thinking, personal mastery, mental models, shared vision, and team learning. At PioGroup Software we encourage dialogue and focus and build community by continually teaching people to learn together.
Global market transformations and employees’ priorities
Unsure of what's next, some leaders pause, observe, and act carefully while the top-performing businesses of the future are taking the following steps.
They're committing all of their reserves on the "knowable" aspects of human nature and behavior—things that are true now and will remain so. Things that are disruption-proof.
And one of the most consistent, time-tested human needs is progress. People demand growth and development. They will leave companies that don't provide it and move to companies that do. In a June 2021 survey, Gallup found that 57% of U.S. workers want to update their skills and 48% would consider switching jobs to do it.
Employees aged 18 to 24 think upskilling is more significant than retirement, insurance, vacation, sick and parental leaves. Also, more than half of workers aged 55 and older say that attaining new skills is "very" or "extremely" important.
Millennials are drawn to employers who can offer more than just a good salary. That's not to say that pay isn't necessary—44% of those questioned said competitive salaries made an employer more attractive.
Why is continuous learning so important?
Even setting aside the fact that Oxford University predicts that about 50% of all jobs will be transformed in the next 20 years, it's good to keep in mind a metric such as "half-life facts." So far, every fact lasts five years on average. Accordingly, half of what your employees learned five years ago probably isn’t relevant anymore. Such a tendency encourages companies to incorporate continuous learning to keep their business competitive in the future.
Udemy has approximately 46 million learners. We are seeing a growing demand for new skills based on modern technologies, business models, and online cryptocurrency payments in general. Neural networks (artificial intelligence) and dropshipping (retailing without storing goods in their warehouse) are go-to topics. Many skills come and go that lead us towards a "role-free" future of work. Constant retraining and transitioning to new roles will determine future career paths, so employees will often "change roles" within their company instead of switching to new companies. In the future, jobs will be more hybrid and interdisciplinary.
Gen Z and millennials
Changing a career path to one degree or another will affect the entire working-age population. Generational shifts tend to change. By 2025, 75% of the workforce will be millennials—this new wave of employees will pick the norms and styles of the workplace.
In Gallup analytics, we find that younger generations (millennials and Gen Z) expect to be coached and developed in their workplace. They are more likely than the earlier generation to say that development opportunities and "quality of manager" are essential in a new job. Young employees want a leader who cares about them as a person and who is actively engaged in their career growth.
According to the Gallup report "How Millennials Want to Work and Live," the most active driving force of the modern world focuses on development. It turns out that 59% of millennials believe that opportunities to learn and grow are incredibly crucial when applying for jobs.
In comparison, 44% of Gen X and 41% of baby boomers say the same about these types of opportunities. An impressive 87% of millennials consider "professional or career advancement and development opportunities" important to them at work. And only 69% of non-millennials say the same thing.
Consequences for the businesses that do not provide education and training for employees
If the business doesn't provide educational training, then what will happen?
Narrow field of specialization of the company's services.
To solve complex problems, you will need to involve third-party specialists.
Customers will notice if the team speaks poor English and experience miscommunication and disappointing service.
Lack of management and leadership skills will lead to conflict situations with clients (for example, an employee did not warn about a delay in the development period, poorly estimated timing, and slowed the project).
Low motivation of employees, therefore they work less or ineffectively.
The risk is that the company will not compete due to a shortage of new technologies and approaches.
High level of layoffs due to the desire to grow. Hiring and onboarding costs increase accordingly.
The new younger generation is taking learning as a matter of course. It won't be easy to hire young professionals because they will choose companies with a development plan.
There will be no opportunity to offer clients a "game-changing" solution to technical problems for clients, and there will be only one scenario.
There will be fewer occasions for discussion and networking among employees and a lower level of interaction on projects.
Education is crucial for the working generation. Let's calculate how cost-effective it is for businesses. Perhaps it is easier to hire a new employee with more experience than educate a less competent employee.
What is the training cost?
Let’s review training programs with the example of software development. A two-month intensive course costs $500. Developers will take more than one course and attend a couple of workshops a year. So we can roughly say that average training for one developer costs $500-1000 per year.
Let's assume that the company does not want to develop its software engineers, thinking it will be easy to find a readily prepared professional with proper knowledge on the market.
How much does it cost to find a new employee for the company?
The cost of closing a vacancy = (payment to job sites + commission to a recruiting agency / payment of referral bonuses + salary of recruiters + salary of tech lead + interview time + advertisement of vacancies) / number of closed vacancies.
Let's estimate roughly the cost of filling a developer vacancy with a monthly salary of $3000. This number will be equal to $1400 at the lowest. But we also need to consider how many hours will be spent on mentoring new employees (multiplied by the mentor's rate). Add the time that HR will spend on this person’s adaptation, and let's keep in mind the overheads added with each newcomer's integration at the company. And some more money will be invested in the onboarding processing for a new employee.
For example, we used 2–3 services for job searching to close our vacancy. Posting a vacancy for a month or two starts from $215.
Recruiter with a monthly salary of $1000 spent 80 hours to cover this vacancy — $480.
Quantity of time for interviewing 3–4 candidates, including time of interviewers—HR, recruiter, and team lead — $300.
Amount of referral bonuses, starting at $200 and going up to $2000.
Covering one middle/senior developer position equals at least $1300 and up to $5000 if a requested specialist is supposed to hold rare skills and advanced level of knowledge.
Developing and training are more profitable than hiring a new specialist.
But training for employees in companies for the sake of knowledge is pointless. It is crucial to evaluate training effectiveness and the link between training received and implementing knowledge at work.
To do this, you can use the standard model of Donald Kirkpatrick. This model helps to assess the impact of training, whether achievements meet the planned requirements, business value, and the return on investment.
According to Kirkpatrick, the vital question for business is: "Do changes in participants' behavior after training have a positive impact on the business/company?" And from this issue, it is worth further rebuilding the entire effective training system starting from the first level.
For different types of people, the same training can be helpful or ineffective. Effective learning means something different for everyone. Some people find it easier to comprehend information in text form (numbers, statistics, and descriptions). Some find it easier to perceive information through video lectures. And some discover something new while facing errors and using the learning-by-doing approach.
When choosing the type of training, one should consider that the same kind of training for different people can be either effective or not. You provide an incredible lecture, but the presentation format does not fit your employee. In that case, even the best lecture is a waste of time.
Thus, at PioGroup Software, when we draw up individual development plans, we consider the suitability of the acquired knowledge for a particular employee's work and its practical application. When drawing up personal development plans, we recommend:
1. Ensure that information gets into long-term memory. Add practice to the theory.
2. Try to find the purpose of the knowledge and use it.
4. Sleep is an essential part of the learning process.
5. Learn new material only when necessary.
6. Change the environment and stimulate emotions.
Organizing learning within a company is the go-to if you want your business to be competitive. New technologies require updates and employee upskilling because, in the best situation, half of the currently relevant facts and knowledge will be outdated in five years. Training at the workplace isn't easy to establish, but it can be three times cheaper to teach an average software developer than to find one that already holds needed skills.
Millennials and Gen Z are the future of the workforce, and they are paying particular attention to companies with great training programs that provide development and learning opportunities. We think it's crucial to be open to bold ideas on developing and engaging employees. Educational technologies can smooth the way of establishing continuous learning.
At PioGroup Software, we create e-learning solutions that people love. When you are ready for innovation, ping us and we will get together.