So why do so few businesses attempt to reeducate their own workers in light of these potential grave economic consequences? There seem to be two major roadblocks:
- Doubt about the credibility of the providers of skills training and about the results of such training.
- A lack of understanding concerning the economic value added (return-on-investment) that skills training will give to any business.
UTILITY ANALYSIS (ADDED VALUE)
How much is any training program worth? Utility analysis is a hard-data method for determining return-on-investment (ROI) for training by calculating the value of an intervention (i.e., a training program) minus its cost. Economic gain equals the training effect times the monetary value of that effect.
TIME VALUE OF MONEY
The National Planning Association has addressed training ROI in Crawrods and Webley's Continuing Education and Training of the Workforce (1992). This is also an added-value approach through calculating the opportunity cost of training. The authors offer a set of economic formulas that compare a company's investment in a specific training program to other potential forms of investment. They give a step-by-step method for a company's financial officer to determine if the training productivity increase will give a greater ROI than investing the company's money in capital improvements and so forth.
PERFORMANCE VALUE
A third method is offered by Swanson and Gradous in Forecasting Financial Benefits of Human Resource Development (Jossey-Bass, 1988). They argue that it is better to forecast the potential results than to later evaluate the effect of training. Performance value helps businesses to choose among training program options before investing in any program, rather than waiting to evaluate after the training has been completed.
This forecasting approach forces the business to determine the fiscal value of the operational problems to be addressed by the training program. How will quality, time, costs, and output issues translate into specific quantifiable training results? Swanson and Gradous offer a worksheet to calculate the performance value of a training program.
HOW PRACTICAL?
To accomplish effective ROI, trainers must first receive approval from senior management and their financial people for a specific financial analysis model and an acceptable rate of return. They need to be involved in determining how that return on training that meets a real operational need is calculated and measured. Remember that achieving a good, feasible rate-of-return (profit) in senior management's eyes is what the business is all about. Bringing the training department "on line" as another "revenue center" rather than just another "cost" means you are finally providing the monetary proof that investing in people will be profitable for any business. This holds equally true for either basic skill programs or more traditional management development. Total quality management (TQM) and other quality team efforts are contemporary areas in which ROI for training is gaining widespread interest. Poor quality in products or services costs in terms of the economic value added. High potential training payoffs will only be reached if the specific education programs precisely uncover local TQM operational problems. European Union (EU) members and the Japanese have clearly demonstrated how high productivity gains can be achieved by using training to correct substantial business problems.
When will American senior managers also acknowledge the realities of the modern workplace and place workforce education on the cutting edge of business?
THE REAL BOTTOM-LINE MESSAGE
The immediate return-on-investment practices of American corporations are threatening contemporary workplace innovation. American managers do not equate investment in human capital (through education/training) that has the potential for producing dazzling innovations with capital investment in equipment or buildings. Most U.S. business leaders now believe that it is too costly to train or retrain the American worker.
The chief issue that seems to drive most American boardrooms in this direction is the quarterly financial return. In the short term it seems far cheaper for many companies either to relocate over-seas, where they can find the well-educated, technically ready employees they need, or to sell off their technology for a quick profit. Examples abound.
RCA developed the liquid crystal display (LCD) technology and sold its concept to Timex of Japan. Ampex invented magnetic videotape technology only to sell it to Sony. Rockwell sold Sharp its semiconductor patent. Hewlett-Packard designs and builds laser-jet printer technology overseas to import back to the United States.
Many other multinational corporations are increasingly falling into the same pattern. On and on this list grows as markets worth at least tens of billions of dollars, capital investment, and human education investment all benefit societies other than our own.
The major long-term economic consequences of this business scenario is that, unless this pattern changes, the United States will develop into a two-tier society of high-wage/high-educated employees versus low-wage/low-educated workers. Left unchecked, this business trend will gradually undermine the American middle class and our consumer-driven economic system. Signs of this change have already begun with the continued wage erosion of middle-class workers who comprise the bulk of U.S. consumers. Who then will be left to buy these products being made overseas? Will U.S. business continue to thrive regardless of these long-term economic shifts? Or will American business be bought off by foreign investors and the United States become another postindustrial nation, such as Great Britain, where Jaguar is owned by Ford and Rover by BMW?
Is the average German, Japanese, or Korean worker more innately intelligent or technically astute than the average American worker? The many case studies of financially successful skill training and educational programs within American companies presented in such books as Closing the Literacy Gap in American Business (1991) and FutureWork: The Revolution Reshaping American Business (1994) make the authors say they don't think so!
