This is the second piece in a two-part series; read Part 1 on our website.
In Part 1 of this series, we discussed five types of learning and development (L&D) efforts that will have the biggest positive impact on both employees and shareholders. Building a learning culture, developing a comprehensive learning strategy, allocating resources to drive equity, designing career pathways, and focusing on transferable skills will help define the programs that will lift up your employees while providing a meaningful return to shareholders.
The second and final piece in this series discusses how you can undertake these efforts as sustainably as possible. This entails ensuring that your L&D programs are cost-efficient, effective, and collectively funded. In many ways, this is even more important than building popular learning programs that receive accolades from business partners and learners alike: today’s high-priced, centrally funded human resources (HR) programs are often tomorrow’s cost-cutting casualties.
Ultimately, L&D leaders need to focus on the long term if they’re to succeed. This requires sustainability as a core principle of success.
The strategies presented in this article are derived from three key sustainability principles:
- Rely heavily on partners and vendors that can deliver effective programs at maximum efficiency.
- Keep the costs low and avoid relying on HR to pay for programs that stakeholders are willing to fund.
- Maximize the efficacy of your learning programs with creative interventions that will address the organizational and socio-emotional needs of your learners.
If the five strategies in Part 1 focused on the “what,” the final five strategies focus on the “how.” By following the suggestions below, you’ll be able to ensure that the L&D programs you build will sustainably deliver maximum impact.
Strategy Six: Build Partnerships That Can Increase Scale and Reach
Some of the most compelling research into successful workforce development programs has shown the extent to which partnerships with other employers and local community colleges can help companies efficiently build the talent they need for their most hard-to-fill jobs. While this is particularly the case for middle-skill positions related to science, technology, engineering, and math (STEM) in fields such as manufacturing, health care, telecommunications, and construction, the same strategy can pay dividends in non-STEM-related fields as well.
The key attribute of the most successful partnerships is the extent to which corporate partners can successfully guide partners by clearly articulating their employees’ development needs. In a 2019 study by the Rand Corporation, for example, researchers looked at the market for middle-skill professionals in the oil and gas industry in the tri-state region of Ohio, Pennsylvania, and West Virginia. Their analysis indicated that the region’s college programs failed to incorporate transferable interpersonal and higher-order thinking skills into oil and gas feeder programs. For example, 51 percent of employers sought workers with time management skills, but only 6 percent of colleges in the study focused on such skills as part of their oil and gas degrees.
The study concluded that a variety of relatively simple efforts undertaken by both employers and local community colleges could make a significant positive impact on both employers and potential employees. Some of the suggestions for employers include:
- Shaping the curricula at nearby educational institutions by sharing key talent needs and future occupational demands.
- Advising department heads and instructors on how to include job-related interpersonal and management skills in coursework.
- Encouraging existing employees to volunteer in classrooms at local community college feeder programs.
- Donating supplies, materials, and space for hands-on training.
According to Rand, undertaking efforts such as these can significantly improve the quality of preparation provided to existing and potential workers in the oil and gas industry.
These types of partnerships, moreover, can be further enhanced through alignments with other local employers to bring added advocacy, resources, and insights to workforce development initiatives. A 2014 study by the National Association of Manufacturers, for example, makes a compelling case for “manufacturers coming together to speak with one voice regarding their workforce needs and engaging with key stakeholders in the community to build a system that delivers a sustainable pipeline of skilled talent.” A consortium of manufacturing companies in Michigan used this approach to create the Michigan Advanced Technical Training Program, an industry-driven apprenticeship program where students alternate between classroom instruction and on-the-job training.
These types of partnerships can be a critical source of success for even the most challenging workforce development initiatives, especially those undertaken by small and midsize businesses. Such endeavors have the potential to dramatically increase learning effectiveness at a far lower overall cost than companies could achieve working independently. The combination of increased impact at a lower cost is critical to creating sustainable programs for learners.
Strategy Seven: Develop a ‘Build vs. Buy’ Philosophy
More often than not, the scope of responsibilities for the average L&D organization will require a breadth of expertise that exceeds the capabilities of its employees. While this would seem to be a recipe for failure, the savviest L&D leaders recognize their departments’ strengths and have a plan to play to these strengths while mitigating their deficiencies through a comprehensive outsourcing strategy. This often necessitates developing a formal plan for when to build training programs internally and when to rely on external vendors with specific expertise.
While there’s no perfect approach to outsourcing, most L&D organizations that have developed a “build vs. buy” strategy rely on one of two different approaches: outsourcing by content area or outsourcing by L&D business process.
Those organizations that choose the former approach—content-area outsourcers—tend to rely on vendors that bring external points of view that are impossible to foster among internal L&D employees. By way of context, most L&D organizations have oversight of a variety of training portfolios—sets of courses and programs that are collectively designed to achieve similar ends. While different companies tend to define their portfolios in slightly different terms, some of the most common training portfolios are employee onboarding, job-role training, compliance training, professional development, leadership development, and executive development. With different target audiences, types of learning objectives, and delivery modalities, each portfolio requires specialized L&D expertise to drive optimal impact. Indeed, the breadth of expertise necessary to design, develop, and implement each of these separate portfolios is far beyond the capabilities of nearly all L&D organizations.
For this reason, content-area outsourcers will outsource entire portfolios to vendors with specific subject matter expertise. In deciding which portfolios to outsource and which to insource, organizations must weigh the need for specialized expertise against company-specific knowledge that is nearly impossible to develop externally. Portfolios that require high levels of external expertise and don’t require much internal context to resonate with the intended audience can usually be safely outsourced. Many professional development programs focusing on transferable skills such as effective communication, analytical reasoning, and problem solving are best handled by external vendors that can hire subject matter experts with a world of experience in their specific domains. In contrast, portfolios that need to be heavily contextualized to the internal company environment but don’t need a lot of external expertise are usually best developed internally. Most functional job-role training programs can be effectively and efficiently developed with internal resources because the specific functions of most job roles are unique to each company.
In contrast, some L&D organizations outsource only a portion of the work across all training portfolios. These companies often choose to hire highly skilled L&D professionals to document the company’s learning needs and draw up the blueprints for the desired learning solutions. With detailed specifications in hand, they can then outsource a subset of the L&D business process—often curriculum design and development—to vendors that specialize in building high-quality content. In many such arrangements, L&D departments can even outsource the face-to-face delivery of training content by experienced instructors. Irrespective of the preferred approach, what’s most important is that L&D leaders analyze these various approaches and trade-offs and then document a clear build-buy philosophy so that each training portfolio is developed in the optimal manner. This helps ensure that training provided to employees is efficiently developed and yields the greatest possible impact for employer and employee alike.
Strategy Eight: Get the Cost Accounting Right
Employee development is what’s known as a common good. In other words, the benefits to educating an employee do not accrue solely to the employee and to the manager who paid for the training out of their employee development budget; the benefits are broadly shared across the company. When an employee consumes L&D resources and garners the ability to contribute at a higher level, that employee also provides more value to their immediate team, department, division, and company as a whole. In part, this is because well-trained employees improve collaborative work both within and outside of their manager’s span of authority. In addition, well-trained employees rarely stay with one team for long; they get promoted and transferred throughout the company, contributing across a variety of areas, elevating their colleagues, and setting a positive example wherever they go. So when the employee’s manager chooses to fund their development, there are significant spillover benefits to the broader company.
In the parlance of economics, these spillover benefits are called positive externalities and are defined as the positive side effects to nonparticipants in a given economic transaction. In this case, a manager invests part of the team’s budget in employee development, but the benefits of that development are diffusely shared across the company. In this way, the manager captures only a small amount of the long-term benefit of that employee’s higher level of performance. From a purely self-interested perspective, the manager likely undervalues employee development—especially the development of skills that are not specific to their role—and consequently underinvests in the types of L&D activities that have the potential to boost an employee’s long-term value to the company.
While this might sound like a far-fetched scenario, underinvestment in employee development is a very common occurrence in large, multifaceted companies, especially those that attempt to manage costs through annual cost-center budget allocations or interdepartmental transfer payments. In these situations, managers often see little to no upside—and a significant downside—to investing in training programs that fail to provide immediate returns in role-specific productivity. In this environment, rare is the manager who invests for the long haul by developing team members in areas that aren’t directly relevant to their current areas of responsibility. More typically, managers fail to advocate for—and often deny access to—the types of employee development opportunities that can have the most significant positive long-term impact on employee and company alike.
In these situations, it’s often the cost accounting that’s to blame. Because training costs are often allocated at a level of the organization that doesn’t realize the full benefit of the investment, managers routinely underinvest in helping their employees gain the types of transferable skills that can meet the long-term needs of the company.
The solution, however, is often as simple as the problem: Instead of allocating L&D costs to lower-level managers who rarely benefit from improved interdepartmental collaboration, have little upside in employee mobility, and likely don’t have a long-term stake in the success of the company, the most effective L&D organizations allocate costs at a higher level of authority. In these situations, L&D leaders work with C-level executives to determine a company-wide target L&D spend. They then allocate all training costs to an organizational level at which leaders have little interest in constraining access to employee development resources. The specific authority level will differ based on the company, but a good heuristic is to allocate L&D costs at an organizational level in which leaders have a high percentage of their individual compensation in long-term equity, along with a span of authority broad enough to contain the vast majority of employees’ collaboration and job transfers.
Many L&D organizations attempt to reduce underinvestment in employee development by boosting the internal advertising of available training programs, celebrating the achievement of various employee-development milestones, and relaxing the training participation approval process. The most effective change, however, is often to simply align the costs and benefits of employee development by moving the cost allocation for training to a higher level within the company.
Strategy Nine: Make Use of Creative Funding Sources
The cost of employee development can be significant, especially for the small and midsize businesses that struggle to achieve economies of scale in their L&D expenditures. According to the Association for Talent Development, the average annual direct L&D expenditure per employee was approximately $1,300 in 2018. For companies with fewer than 500 employees, however, expenditures averaged over $2,400. This isn’t because smaller companies provide less training to their employees; it’s largely because they don’t have the scale to staff a full L&D team and consequently end up paying top dollar by outsourcing the vast majority of their training programs to expensive vendors.
There are a variety of measures companies can undertake to cut L&D costs, such as negotiating with vendors for reduced rates, replacing the bulk of face-to-face training events with virtual sessions, and culling outdated and poorly attended courses from the L&D catalog. These strategies, however, quickly meet the point of diminishing marginal returns, especially when they begin to reduce access to needed training for employees who have few avenues for upward mobility.
Fortunately, there are additional funding sources that companies can tap to augment their L&D resources. Three warrant particular mention:
- Tax credits: The Work Opportunity Tax Credit provides a federal tax credit of up to $2,400 per employee. Employees must be in their first year of employment, perform at least 400 hours of service for the employer, and be a member of one of 10 targeted groups that have consistently faced significant barriers to employment. Targeted groups include certain veterans, people with felony convictions, and qualified long-term unemployment recipients.
- Pell Grants: Pell Grants are a means-tested subsidy the federal government provides to postsecondary students who enroll in eligible educational programs. Providing up to $6,495 annually per student, Pell Grants must be used for qualified educational expenses, such as tuition, fees, books, and supplies. While the vast majority of Pell Grant recipients use these funds to pay for bachelor’s and associate’s degree programs, some credentials and certificates are also covered. Companies looking to enhance their educational assistance programs can ask—or even require—all participants to fill out a Free Application for Federal Student Aid, or FAFSA. When employees qualify for a Pell Grant, the financial aid is sent directly to their educational institutions, lowering the overall program cost for the employers.
- Income-share agreements: Income-share agreements (ISAs) offer funding for a student’s education from a private lender that is compensated through a portion of the student’s future earnings growth. Not without some degree of controversy, ISAs hold the potential to align the interests of borrower and lender. If the educational program is effective and the borrower grows their earnings significantly, the lender is paid back with a healthy return; if, however, the educational program is not effective and the borrower fails to grow their earnings, the lender takes a loss on the ISA. In these arrangements, students typically agree to a set of terms, including the share of income that will be paid back to the lender, a repayment term specifying how long the payments must continue, a salary floor under which payments will cease, and a payment cap that limits the maximum amount that a borrower will have to repay to the lender. While ISAs are structured in a way to ensure that borrowers have less downside risk than student loan recipients, today’s ISA market is almost completely unregulated. As a result, employers need to thoroughly vet any ISA partners and help ensure that all the ISAs offered to their employees are fair and transparent.
Strategy Ten: Support Your Employees With Robust Wraparound Services
Enhancing the career mobility of employees requires a comprehensive approach to employee development—one that effectively addresses both the learning requirements and socio-emotional needs of the target learner population. In many ways, conducting a learning needs assessment to determine the most pressing skills gaps of a particular set of employees is the most straightforward aspect of providing an effective learning solution. In contrast, understanding the critical motivational and learning-preparedness drivers that will make a learning program successful is far more difficult.
These complexities derive from the experiences and mindsets of workers who have received little in the way of substantive workforce development investments. Unsurprisingly, these employees—those most in need of comprehensive upskilling and reskilling—oftentimes have had the fewest favorable experiences with previous educational programs. For many such employees, especially those from disadvantaged backgrounds in frontline positions, experiences in formal educational settings have often been uninspiring if not downright discouraging. Unfortunately, this has left many workers ill-prepared to participate successfully in the types of self-paced learning experiences that make up the majority of today’s workforce development programs. This is reflected in the staggeringly low graduation rates for working adults pursuing a bachelor’s degree.
The most effective solution is usually to provide more substantive wraparound services targeting the socio-emotional needs of working adults. These services can include a wide variety of interventions, such as:
- Quarterly meetings with a motivational career counselor.
- On-demand peer tutoring.
- Weekly or biweekly meetings with peer mentors or academic counselors.
- Company-sponsored study groups.
- Paid on-site study time.
- Program-relevant stretch assignments and rotations.
- Periodic recognition for program persistence.
These supports can have a significantly positive effect on academic program persistence and engagement. In one study conducted in Chicago, for example, wraparound supports for community college students were shown to double the rate of term-to-term student retention. This illustrates why the most successful universities catering to working adults, such as Southern New Hampshire University, UMass Global, and Bellevue University, have all invested in building comprehensive success-coaching services for their students.
Wraparound services of this type, when successfully implemented as part of company upskillng and reskilling programs, have the power to dramatically reduce attrition, increase engagement, and improve learning effectiveness.
Conclusion
The 10 strategies shared in Parts One and Two of this series will help you develop and deploy a sustainable L&D program that meets the needs of shareholders and employees alike. For employees, the stakes couldn’t be higher. In an era of inflation, automation, and increasing costs for higher education, employees need high-impact development programs more urgently now than ever before. In many ways, this is the challenge of a lifetime for today’s L&D leaders. Succeed, and help launch an era of growth, opportunity, and equality; fail, and witness the continued marginalization of U.S. workers amid the diminished long-term prospects for the American dream.
At Jobs for the Future, we believe that the best enterprise strategies and investments are the ones that are good for both companies and workers, including employees in frontline and entry-level positions. The JFF Corporate Leadership team includes experts in a wide range of fields, from technology to human capital.
We bring a diverse set of perspectives and skills that inform our efforts to help corporate partners make an impact that benefits workers, businesses, and communities. Our expertise spans education, economic development, workforce systems, and corporate consulting.
We are committed to JFF’s mission of building a society in which everyone has an opportunity to achieve economic advancement. Drawing on the knowledge and expertise JFF has acquired in its nearly 40 years as a leader in the education and workforce ecosystems, we offer companies informed guidance about the employee-centered strategies they can adopt to drive impact in today’s dynamic economy.
Learn More: corporate.jff.org
