Measuring the Impact of Training and Development on SMEs (Working Paper)

Ali SajjadiSenior Lecturer in School of Human Resource Management and Organisational Behaviour

Leeds Beckett UniversityEmail:  a.sajjadi@leedsbeckett.ac.uk

Dr Julia ClaxtonPrincipal Lecturer in School of Human Resource Management and Organisational Behaviour

Leeds Beckett University

Abstract:

This is a working paper based on an ongoing PhD study. This research will investigate the

statistical relationship between the training and development variables (including: the

existence of training and development strategy, the average amount of money spent on

Training and Development per person per year, type of training programs used in different

sectors, etc.) and SMEs’ financial success variables (including: profitability, Sales, Earnings

per share, Return on assets, etc.)

This research will use a mixed method. Quantitative research will be done by using a broad

survey (sent to 600 SMEs) to collect the information about Training and Development and its

related variables in those companies. Then the collected data will be matched and compared

with some financial information from the same companies which are collected from the

FAME data base. Statistical correlation will be investigated by using SPSS software. At the

second part of this research qualitative method will be used to collect some descriptive data

by using 10 interviews with those companies who are willing to participate more in this

research. Results will be used for triangulation and revalidation of the finding from

quantitative part.

Since this research is at the data collection stage at the moment, the current paper is more a

literature review paper which is looking at the research background and the critical gap in the

body of knowledge in this area.

According to the research plan collected data will be available to be presented in the UFHRD

conference in June.

Introduction

From the middle of twentieth century until now many attempts have been made to measure

the impact of Training and Development activities. There has been always this issue that

most of the attempts have been conducted to measure the impact of specific interventions like

a snapshot at only a single point in time (CIPD fact sheet 2010). So it was always difficult to

find an overall view of the long term impacts of training and development policies in the

organisations. The other challenge is that there are different levels of impacts for each

intervention and lots of the models are getting stocked in the early layers and they are not

able to make a holistic view of the whole impact of training and development policies in the

organisations. According to CIPD L&D survey (2011) 41% of organisations are evaluating

the impact of their Learning and Development activities through feedback from employees

involved in the initiatives. 40% are evaluating the impact of their programmes through

feedback from line managers, 35% through the anecdotal observation of change and only

28% have a formal annual evaluation process at an organisation-wide level.

Sometimes, the evaluation process is avoided because it is considered as an expensive and

time consuming process (Buckley and Caple, 1991). At other times, the reason is the lack of

right measurement system for determining the impact of those activities (Sole and Mirabet,

1997).

“one in six organisations report that they do not evaluate learning. Evaluations are

most likely to occur in larger organisations with a specific training budget.”

CIPD survey (2011)

Getting the market more competitive the demands for ability to measure the financial impacts

of Training and Development activities have increased. Most of the decision makers want to

know if by spending a lot of money on these activities they could expect more profitability in

their organisation or not.

“By the mid 1980s calls began to emerge for return on investment (ROI) analyses of T&D

efforts.”(CIPD fact sheet 2010). But these efforts have been facing some serious limitation as

well. For example it is always difficult to convert the impact of those interventions to

monetary value. Sometimes it is easy to calculate the value of those changes which are made

as the result of our training programmes, especially in the manufacturing industries which

any performance improvement is usually equal with more production. But for example in

service sector it is more difficult to convert the performance improvement to monetary value

and find a general figure of organisational success. The other unsolved challenge is to isolate

the impact of training and development activities from other influences. It is almost

impossible to isolate the impact of all other influences from the impact of the Training and

Development strategies because in the real world there are lots of affecting factors which are

surrounding the organisation and its employees and as a result the outcomes of the ROI

models or other evaluation methods could not be very reliable.

“Unfortunately, it seems that a sort of holistic study – that is, comparing what

actually helps to raise performance rather than beginning with an assumption

that training is the answer – has not been repeated seriously.”

(CIPD fact sheet 2010)

So still this question is remaining for the managers that how important is the role of Training

and Development interventions and do we need to spent vast amount of money on these

interventions in the recession time or these are some kind of luxury expenses which we could

cut them to help the financial situation of our organisation. When the development activities

are not well evaluated, the investment and its effects cannot be tested and resources can be

wasted in inadequate activities (Gomez et al., 1996; Foot and Hook, 1996).

This issue is more serious about the Small Medium Business. There are some efforts to

analyse the impact of T&D practices in large organisation but Small Medium Business are

ignored in most of these researches. Small and medium size companies are 99% of all the

European companies and they are providing 66% of all the job positions in the Europe

(ECSB Newsletter). So their contribution to employment growth is extensively recognisable.

Despite the important role of these companies in today’s job market there has not been

enough attention to their T&D strategies. Most of these companies do not have a HRM

department and they are managing their personnel based on their personal styles.

The other fact about these small, medium size businesses is about their high failure rate. Data

from the U.S. Census Bureau’s Business Information Tracking Series shows that from those

businesses which started between 1990 and 1992 in United State 34% did not survive within

the first two years, 50% did not survive within four years, and 60% did not survive within six

years. So it seems that these companies are more vulnerable and they need more managerial

attention to be able to improve their chance of survival.

Based on all the above mentioned and because in the current economic climate it is more

important than ever to be able to prove the value of T&D activities, this holistic research

intend to do a broad survey in a national scale on the SMEs to identify the possible

relationship between the T&D interventions and financial success variables to help managers

to find out which kind of T&D interventions are more likely to help them to improve their

chance of survival.

T&D variables: training characteristics, development strategies, learning and development

budget, external development options such as external conferences, workshops and events

and formal education courses, internal development programmes such as job rotation,

secondments, shadowing, coaching and mentoring.

Financial performance variables such as: profitability, Sales, Earnings per share, Return on

assets, etc.

Contingency factors which are going to be considered about the SMEs in this research:

business strategy, organisational structure, perceived environmental uncertainty, intensity of

competition, organisation size, sector and etc. The main concern of this research is to identify whether T&D practices and SMEs

Performance are significantly linked together in different contexts or not? And if yes, which

T&D strategies would cause more impacts on financial success in different contexts?

This research is not focusing on evaluating the impact of one T&D intervention in one

occasion; it is trying to evaluate the impact of ongoing learning process on the organisational

success.

Aim of the Study:

The aim of this study is to understand the relationship between T&D interventions and SMEs

financial success variables. By understanding these relationships we could identify to which

extend the T&D methods are going to affect the SMEs success in different contexts.

Research Questions:

1- Could it be proven that well chosen T&D Methods in the SMEs will play a

considerable role in their business success?

2- To which extend the growth rate is depended on T&D policies in SMEs?

3- Does the impact of different formal and informal T&D interventions depend on the

organisational sector and its contingency factors and what are the most effective T&D

strategies in each sector?

4- What measures and indicators do SMEs use to assess the impact of their formal and

informal T&D interventions and does this vary by organisational sector?

5- Could it be possible to make a guideline for the managers to design their T&D

policies based on their organisational context and contingency factors to get the most

out of their T&D activities regarding their organisational success?

Research Objectives:

1- To identify if there is a considerable impact of T&D interventions on the SMEs

financial success.

2- To identify the extent to which the SMEs financial success is dependent to their T&D

practices.

3- To discover the possible correlation between T&D interventions and the SMEs

performance within different contexts.

4- To provide a guideline for Human Resource practitioner to choose the right T&D

strategies considering their sector and organisational contingency factors.

Research Hypothesis:

1- T&D activities will have positive impact on SMEs financial success.

2- SMEs with higher investment in T&D will obtain better profitability and effectiveness

level in compare to similar companies with lower investments.

3- Business owners approach toward their Training and Development has a direct effect

on business success.

4- Informal learning and development activities are more effective in improving the

business results of small companies in compare to formal T&D activities.

5- Investment on T&D programmes will have delayed returns over a long period of time.

Literature Review

It has been always important for the organisations to well manage their human resources.

However this importance is sometimes neglected in the Small Medium Enterprises (SMEs)

(Storey, 2007).

Based on small firm statistic from DTI research in the UK (1998) more than 9,418,000

people are working in small firms with less than 50 employees, 2,544,000 people are working

in medium size companies with less than 250 employees and 9,112,000 people are working in

large companies with more than 250 employees. Although Small Medium Enterprises are

providing more jobs in the society in compare to large organisations their investment in

training programme is considerably less than large organisations. According to Cambridge

Business Research Centre (1998) only 41% of people who are working in the small

businesses with less than 50 employees are going to external training courses and most of

these people are the business managers not the normal employees. This ratio is 57% for

companies with 50 to 100 employees, 66% for companies with 100 to 250 employees and

81% for companies with more than 250 employees. Although the external training courses

are not necessarily the most effective method of training they are obviously one of the most

costly methods and these statistics are proving that Small Medium Enterprises are

significantly investing less money in their human resources in compare to large organisations.

This issue will become more severe when we realise that those small firms which are

investing less in their human resources have got considerably higher failure rate in compare

to the bigger firms.

Failure rate of UK SMEs 1990-5

Employment size Death rate

0 – 49 29.8

50 – 99 24.3

100 – 200 16.5

200 - 500 18.3

Source: Centre for Business Research

Westhead and Storey (1997) have concluded that employees in small organisations have less

chance for training opportunities in compare to people in large organisations. They have

provided two explanations for this situation; the first one is “Ignorance” which is saying

business owners are not aware of the impact of Human Resource Development (T&D)

programmes on their business results and they do not believe in the benefits of these

investments.

The other explanation is “Market Forces” which is saying that business owners of SMEs are

not providing enough development opportunities for their employees because they believe

that the costs of these activities are more than their returns and they have some other

priorities to consider to be able to survive in the market. According to CIPD L&D survey

(2011) resources and funds available for learning and development in the past 12 months

have decreased for two fifths of organisations.

A well trained human resource is always known as a crucial element to maintain the

competitive advantage of organisations in the global market. Also it is acknowledged that

T&D is able to play an important role in organisational growth and consequently in increased

profitability (Cosh, Duncan and Hugh, 1998). However most of these researches have

evaluated the impact of T&D activities on large organisations and the relationship between

T&D interventions and business results in SMEs is not very clear yet.

The main argument in the related literature is to answer whether there is a significant positive

impact from T&D programmes on the business results of small firms or not. Some

researchers have identified the positive correlation between T&D interventions and SMEs

success factors whereas some other are saying that there is not a significant link between

T&D activities and business success in SMEs.

Patterson et al. (1997) in a study of sixty seven small manufacturing companies in the UK

identified that 19% of changes in the profit rate of these companies was because of HRM

practices and specially because of two main factors of HRM activities which are innovation

and strategy. Another research by Cosh et al. (2000) investigates the relationship between

training activities and employment growth in small firms. This research has identified a

positive relationship between training activities and employment growth especially when

those activities are surrounded by some other HR solutions such as job rotation, quality

circles, performance related payment system and total quality management. In another study

of medium size companies in the UK Storey (2002) found that there is no direct link between

training programmes and companies performance. However he found that there is a positive

relation between the bundles of attitude toward Human Resources and practices of HRM

from one side and the level of organisational performance from the other side.

Another research by Kitching and Blackburn (2002) for the UK Department of Education and

Skills concluded:

“Data was inconclusive regarding the links between the provision of training and

employment growth, sales turnover growth or profit performance. The relationship

between each of these factors and each type of training provision is complex; there is

no simple positive association between them.”

(Kitching and Blackburn, 2002) There are some other researches which have tried to identify the impact of publicly funded

training programmes on SMEs. One of those publicly funded training programmes is Golden

Key Package (GKP) which has been researched by Cosh et al. (2000).

“taken as a whole the results … suggest that the impact of the GKP is positive but not

significantly so. There is very little evidence of ‘bottom line’ performance effects (as

reflected in the employment growth, turnover growth, productivity growth or profit

margin change) for those using the Golden Key Package.”

(Cosh et. al., 2002; 66)

Another publicly funded training programme is Small Firms Training Loans (SFTL) which

has been researched by Fraser et al. (2002). They show that firms taking an SFTL have higher

growth rates and higher survival rates than non-SFTL firms. However, it is only the smaller

loans, between £1000 to £5000 that influence performance and for loans higher than £5000

there is no significant influence.

Therefore, although there are some studies investigating the impact of T&D activities on the

organisational performance of SMEs, the issue is still not clear and more can be done in this

area to address this ambiguity. The other gap in the related literature is about the scope of the

current studies. Most of the studies in the area of evaluating the impact of T&D activities on

the successful performance of SMEs are limited to the formal type of Learning and

Development activities (Westhead and Storey, 1997; Cosh et al., 1998; Patton et al., 2000).

These studies did not pay enough attention on the informal type of L&D activities such as on

the job training, coaching, mentoring, etc. Whereas, more recent studies are showing that

most of the small business owners are relying on the informal or inside the company learning

activities instead of formal off the job training programmes which require a higher

investment in time and money (Johnson and Gubbins 1992; Curren et al., 1996). According

to CIPD L&D survey (2011) in-house development programmes and coaching by line

managers are seen generally to be the most effective learning and development practice for

employees. Also this survey shows that L&D departments are becoming more business

focused. One third of them have reduced the use of external suppliers to move to in-house

provision of L&D programs.

Some other researchers have focused on some specific roles (for example managers) in the

organisations and they have evaluated the impact of training programmes for those specific

people on the organisations (Storey, 2007). Hence, the question which remains unanswered is

whether we could extend their results to other people who are working in small companies

(Westhead and Storey 1996; Loan-Clark et al., 1999; Patton et al., 2000).

The other gap in the related literature is about the contingency factors. Some of the studies

have investigated the relationship between the T&D activities and success rate of SMEs in

specific sectors. These studies have identified the impact of some T&D interventions in those

specific industries and it is not possible to extend their results to the other sectors. Whereas a

holistic research on the impact of different T&D programmes on different type of small

business could help us to identify which L&D activities are expected to be most effective

based on the contingency factors of each organisation such as size, sector, age, location,

structure, etc (Gamage, 2007).

A further limitation in the extant studies in this area is about their methodology. The majority

of these researchers have identified the level of success based on those data which have been

collected from their questionnaire (for example the business owner opinion about their level

of success). Although these types of measures are still good to find an indication of success in

SMEs some real facts from the financial databases could be a better nonbiased indicator to

provide more reliable results (Kauanui and Su-Dang, 2006).

These limitations in the related literature could affect our understanding of the process and

impacts of T&D interventions on the small businesses (Kitching and Blackburn 2002).

Therefore to be able to predict the impact of T&D programmes on the SMEs and their

potential benefits, an inclusive research to investigate the links between T&D activities and

their impacts on the business performance of SMEs is required.

Employees have been considered always as one of the most important assets of small

businesses and using their skills and motivations is crucial for organisational success.

Improving employees’ productivity in small firms is even more important that larger ones

because one of the general issues in small firms is the low level of salary which is usually tied

with low level of performance (Mulhern, 1995). The other issue in the small firms is the lack

of task separation. Therefore, each employee has to work in several different areas of skill

and it will highlight the importance of skill development activities in small firms to achieve

the organisational success (Rauch and Frese, 2000).

Human Resource Development interventions are those kinds of activities which will help the

organisations to achieve their objectives by improving the level of knowledge and skills and

consequently the level of performance of each individual employee (Huselid, Jackson and

Schuler, 1997). Also T&D activities will help the organisation by improving technical

competency and strategic innovation.

On the other hand, T&D activities are costly and they usually have some delayed returns in

the organisations. It means that investment in T&D interventions is costly and takes time to

show its positive impacts. In the short term it might even reduce the level of performance of

those employees because they need to spend part of their time for the training programmes

rather than working fulltime. Also HRM activities are only effective if those people who have

been trained in these activities would stay in the same company for a certain period of time

otherwise the company is not able to get the delayed returns on its investment. Since small

businesses have very limited financial resources in compare to the large organisations and

also because the rate of turnover is higher in these organisations one might suggests that

small business are not able to take advantage of the T&D activities and their delayed returns

as much as the large organisations (Friedrich et. al., 2006; Tharenou, 2007)

Golhar and Deshpande (1997) identified that T&D activities in small and large organisations

are quite similar, but in large organisations the external resources are more used whereas in

small firms internal learning is more frequent. Also, in small businesses people are asked to

evaluate their own performance and identify their training needs whereas in large companies

there are some formal performance measurement systems in use.

According to the related literature the main challenge of small firms to expand their business

in this competitive market is the lack of effective and suitable employees. Finding the right

people and dealing with those employees which are not well trained are the main barriers for

the growth of small businesses (Hoover and Hoover, 1999). Considering the importance of

SMEs in today’s economy and their role in improving the job market there is not enough

research to help them with their human resource management issues yet and most of the

efforts are focused around the large organisations which are providing less job opportunities

in compare to SMEs (Heneman, Tansky and Camp 2000; Upton and Heck 1997).

As it was mentioned before the survival rate in small businesses is very low and it is

generally agreed that one of the main success keys in these companies is the quality of the

human resources (JASMEC, 2001). Therefore, recruiting the good potentials and training

them in the small firms which usually have limited managerial resources is very critical for

their survival. A research by Small Firms Enterprise Development Initiative (SFEDI) in 1999

shows that formal training and development cuts the failure rates by half when all the other

variables are being kept equal. Another study suggests that failure rate could fall from one in

three in the first three years to one in ten where training was undertaken (Midland Bank, CBI

and Small Business Bureau in 1992/3, quoted in Storey, 1994). Investors in People (IiP),

which sets a level of good practice for improving the organisational performance through

their people, is claiming the following impacts on the organisational performance after

achieving the IiP standard :

- company’s turnover has increased

- staff are no longer leaving

- working relationships have improved

- profits are up

- productivity is up

- quality and reliability have improved

Insufficient studies in the area of T&D in SMEs have left us with very few information

required for decision making and forming new theories. Most of the available theories in this

area are based on the investigation of large organisations and therefore we do not know to

which extend we could use them for the small firms. Despite the increasing importance of

researches on SMEs, Storey (2007) is claiming that there is still lack of attention to the

investigation of T&D activities in SMEs. He suggests that it is not only the SMEs themselves

which are not giving enough attention to the training and development issues but even the

researchers are neglecting this important area of research.

Some researches (Friedrich et. al., 2006; Sels et. al., 2006; Kotey and Folker, 2007; Tharenou,

2007) have tried to focus on this area and narrow the existing gap in the literature. However,

their studies are not very comprehensive and most of them have used a set of binary

indicators looking whether organisational training is present or not (Cosh et al., 2000).

Therefore, these studies are not able to identify whether the quality and quantity of those

development activities have been suitable or not (Kitching and Blackburn 2002). More recent

efforts by Cosh et al. (2000, 2002) to include quantity and quality of T&D programmes in the

business success studies were based on the amount of money which was invested in these

activities and, therefore, they are more suitable for the external training programmes which

are more costly. Those kind of L&D activities which are not costly or their costs are not easy

to be measured such as on the job training, coaching, mentoring, shadowing are still

neglected. In fact, these informal development programmes, despite their popularity and

critical role in the small firms, are very difficult to be investigated because of their

decentralised structure and this is an important issue because the owners of small businesses

are more relying on informal learning activities rather than formal trainings (Kitching and

Blackburn, 2002). According to CIPD L&D survey (2011) coaching is most commonly rated

as one of the most effective talent management activities, in-house development programmes,

360-degree feedback and internal secondments which are all informal T&D methods are

among the most effective methods as well. Therefore, the aim of this research is to

investigate the relation between different types of T&D activities, including formal and

informal, and business performance variables in small firms considering their situational and

contingency variables. This research will help the business owners in the decision making

process to identify which learning and development interventions are more likely to improve

their performance based on their specific situation and contingency factors.

What is becoming very clear is that whilst there is an increasing acceptance of the role of

learning in providing competitive advantage, there is also an increasing dissatisfaction with

the ability of traditional training methods to supply that need. The result is that organisations

are looking for more innovative means of providing access to learning and for clear evidence

that the investments they make in training and learning are generating value.

Organisations are increasingly committing significant capital investment in their learning

programmes and are naturally keen to be able to demonstrate quantitative benefits. But

experience shows that the current evaluation models are difficult to deploy and produce little

information that is valuable to the managers. The most recent trend in evaluation has been an

attempt to overlay existing models with simple financial justification techniques such as ROI

(Return on Investment) calculations. I believe this approach is more focused on cost

calculation rather than outcomes of training on human resources.

Whereas most organisations are looking for an evaluation model that clearly demonstrates the

real value generated by their training and learning programmes; a model that can be

consistently deployed and one that provides real information about the effectiveness of their

decisions.

Importance of Training

Prusak (1996) said that “the only thing that gives an organisation a competitive edge, the only

thing that is sustainable – is what it knows, how it uses what it knows and how fast it can

know something new.” This statement is important for two reasons, firstly it places human

knowledge as the central column of organisational success, and secondly it shifts the ground

for thinking about knowledge within organisations.

If knowledge is really the engine of competitive advantage then we need to answer

fundamental questions about how we create, share, store, access, disseminate and collaborate

around our critical knowledge assets. We need to find ways of development the processes

that create knowledge in our organisations and we need to remove the barriers to sharing

knowledge.

For much of the last 30 years we have been hearing what Tofler named the Third Wave

(Toffler 1980), the rise of the information age and the centrality of the information worker. In

this post-industrial era the emphasis has turned increasingly away from land, labour and

capital and towards information and knowledge. Even products and industries that we

traditionally thought of as heavy industry now find that the value inherent in their products is

largely information based. Bethlehem steel, one of the industrial giants held tangible assets

with a net book value of around $1.2 billion in November 1995; at that same time Nucor a

relative newcomer who had pioneered the mini-mill concept had net assets roughly

equivalent at $1.3 billion. However, Nucor had a stock market valuation of $4.6 billion

against Bethlehem’s $1.7 billion (Sveiby 1997).

This is an example of how the valuation of companies is changing to reflect the value of their

knowledge, but companies neither report or trade in these intangible assets.

With this rise of the importance of the information component we have also seen a

fundamental revaluation of corporate assets and a reassessment of what makes value in

organisations. At the end of 1996, IBM’s total market capitalisation was around $70.7 billion

against $85.5 billion for Microsoft. But in stock terms the difference in tangible assets meant

that every $100 invested in IBM was secured against $23 of fixed assets whereas the same

$100 invested in Microsoft would buy fixed assets worth just over a dollar (Stewart 1997).

The whole notion of value creation has fundamentally shifted; we are now years and years

away from the days of both Taylor, who wanted to hold back thought in the workforce, and

Ford who believed “when I hire hands, why do they have to bring their heads”.

We need new ways of identifying and tracking the real drivers of shareholder value. It is

becoming clear that in many industries intellectual capital is the main driver of success and

hence it should be accounted for on the corporate balance sheet (Edvinsson and

Malone 1997).

The above discussion points to the importance of information and knowledge to the

continued success of our organisations; it points to a new perspective on the creation of

knowledge and information. It shows how the worker has transitioned from a mindless

machine, fit only to fulfil prescribed tasks, to being the primary intangible asset.

Knowledge is socially constructed. In our organisations we facilitate this largely through face

to face interaction, whether that be in the meeting room, the classroom or some accidental

social interchange. We share information, knowledge and understanding mainly through

small group interaction, for where the opportunity for interaction is limited, innovation and

creativity appear to be equally limited. Traditionally, teaching and its related disciplines has

held a central role in our organisations in the knowledge creation and sharing process, this

has been the case since organisations emerged in their current format. In Taylor’s world

training was highly skills-based and very tightly focused, but as organisations have

developed, and the knowledge component of jobs has increased, training has become broader

in scope. In all organisational disciplines we are seeing these softer, social skills coming to

the front as the ability to communicate and build working relationships becomes a central

aspect of performance in many situations. In most cases, performance is no longer a function

of individual excellence but rather the combined effect of empowered knowledge workers. In

today’s organisation it is these networks that are the engine for value creation.

As we have seen, an ability to learn is crucial to the development of our organisations.

Learning needs to take place at the individual, team and organisational level. In fact, learning

is becoming an integral part of most jobs, consciously or unconsciously we are all learning

most of the time. But whilst the drivers of value have undoubtedly changed, many of our

organisational structures are still firmly rooted in the industrial age model.

This is more true in the field of learning, and specifically, training. In many organisations,

training and learning are seen as synonymous and training is seen both as an overhead and a

non-core activity that can be removed from day to day operational concerns and hand over to

Learning and Development professionals who are seen as live in a different universe.

Training is the primary deployment vehicle for organisational learning initiatives but it is

rarely aligned to strategic business initiatives. Its contribution to asset creation is largely

ignored and yet we have seen that its products: knowledgeable individuals and patents, are

the differentiating factor when it comes to stock market valuation.

So if contribution to value creation isn’t enough to guarantee serious attention for the learning

and development function perhaps total size of spend will increase the issue.

Just how important is the corporate training market?

Accurate figures are difficult to track down but the American Society for Training and

Development (ASTD) 2004 “State of the Industry Report” points to some interesting

statistics. In the USA the average corporate training spend as a percentage of payroll is

around 2.5%, equating to a spend per individual employee per year of around $820 to $1300

depending upon industry segment (Sugrue and Kim 2004). By comparison the UK based

Chartered Institute of Personnel and Development 2005 annual survey report suggests that

the spend per employee in the UK was at a level of around £607 (2005).

The total number of people of working age in the UK population in 2004, according to the

Office of National Statistics [ONS report], was around 28.5 million. Therefore, assuming full

employment, and an average spend of £607 per year, we could estimate the total UK

corporate training budget as around £17.3 billion per year. This number, although

approximate, compares well with an estimated total UK corporate training expenditure of

£18.1 billion per year in 2004 identified in the Training Market report from Keynote

publications. The ASTD 2004 report also suggests that around a third of this total investment

in training is directed towards external providers whilst the remainder is provided by internal

full time training professionals.

The ASTD report of 2004 goes on to break down the distribution of training spend by

functional specialism - the pattern for 2004 in the USA is shown in the following figure

(Sugrue and Kim 2004). Although we have no comparative data for UK companies it would

appear reasonable to assume that the distribution of spend will be about the same.

Average percentage training spend by employee group (ASTD, 2004)

If these percentages would be the same in the UK we might expect a corporate spend on IT

training of around £1.8 billion and around one third of that to be spent with external

providers, that is around £0.6 billion. The IT Training magazine publishes annual revenue

figures for the top 50 UK IT training companies and according to the magazine’s 2004 survey

these top 50 providers delivered around £0.36 billion of training into the corporate sector

(Charles 2005). In this highly fragmented market segment where only the top fourteen listed

companies report revenues in excess of £10 million per year and of those five are IT vendors

such as IBM and Sun and two are global e-Learning providers, it would seem reasonable to

assume that these top 50 companies only account for around 50% to 60% of the external

corporate spend on IT training.

These simple calculations would appear to support the assertion that the UK currently

sustains a corporate training industry valued at around £18 Billion per annum. By any

standards this represents a significant inward investment on supporting learning within our

organisations.

It is not surprising then that with these sorts of investment levels senior executives are quick

to question all significant training initiatives and seek assurances that the investment can be

tracked directly to organisational benefit. Despite this very real need the art and practice of

demonstrating the organisational impact of learning has progressed little and, even in best

practice organisations, is practised little. The ASTD state of the industry report for 2004

indicates that, even amongst those organisations that have a apparent interest in evaluation

and are part of the ASTD Benchmarking survey, only around 8% try to track level 4, business

impact (Sugrue and Kim 2004).

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