We looked at 20 academic studies on workforce training and business success – when is education worth the investment?

The following is an article independently developed from the content contained in the full client report, which focuses on workforce education and their returns on investment.  This article is an excerpt from the study and is published with permission by the client.

Introduction

Skills training and continuous learning programs are essential for career development for individual employees and sustainable productivity growth for companies.  They help to enhance employability of individuals, contributing to economic growth and social development.

At the same time, many companies struggle with funding.  Justifying expenses dedicated to workforce development can be a challenge, and individuals are often unable to afford not only the cost of additional education and training, but also the time required to pursue it.

How can workforce training be seen by businesses as an investment which generates positive returns? What are the key success factors to ensuring a positive ROI?  What are some of the pitfalls that companies may encounter in designing educational programming?

For these questions and more, we undertook an investigation of twenty leading studies on the topic of workforce training and development programs, with ten of these selected and highlighted here.  The results were mixed.  While all studies indicate the positive potential of educational programming, the return on investment is dependent on a diverse collection of factors leading to financial success or failure of such programs.

This study was done for a client in the commercial education business, seeking to transform its coursework and educational offerings to those with which there is a high potential for a positive financial return for their clients.  While the detailed analysis is confidential to the client, we have compiled a summary of the academic research on the topic, and identify some high-level conclusions that businesses must account for in their decisioning over sponsorship of workforce development.

Benefits of workforce development

This study begins with highlighting the key benefits of workforce development.  For context, workforce development programs are dedicated training programs which aim to provide individuals with opportunities to acquire new skills or upgrade existing ones. This can include technical skills, soft skills, and industry-specific knowledge.  Three key benefits of workforce training include the following:

• Productivity improvement: First and foremost, companies aim to achieve growth in output.  The fact that improving knowledge and skills would increase productivity is without dispute.  The question on this point is regarding how much improvement can be possible, and is it worth the direct costs of educational programming and the cost of time away from production.
• Addressing Skill Gaps: Employer-sponsored educational programming can help target specific business activities where there are skill shortages, particularly where there is a shortage in the market of related skillsets.
• Tailored Training: Along these lines, workforce development programs can be specifically targeted at a company’s core business functions and processes to enable fulfilling unique challenges and barriers to growth.

Major studies of workforce development impact

With this context in mind, we turned our attention to the research available on the topic.  Several studies have demonstrated the positive impact of workforce training on company performance. Here are a few examples:

• McKinsey Global Institute Report (2017): A report by the McKinsey Global Institute found that investments in workforce training and development can lead to significant improvements in productivity, particularly in industries experiencing rapid technological change. The report highlighted that companies that prioritize skills development tend to outperform their peers.
• Harvard Business Review Study (2019): A study published in the Harvard Business Review examined the impact of training programs on employee retention and performance. The researchers found that companies with comprehensive training programs experienced lower turnover rates and higher levels of employee engagement and productivity.
• World Economic Forum (WEF) Report (2020): A report by the World Economic Forum highlighted the importance of reskilling and upskilling initiatives in preparing the workforce for the future of work. The report emphasized that companies that invest in workforce training are better equipped to adapt to technological disruptions and remain competitive in the global economy.
• Association for Psychological Science (2010): A 2010 study found that while workforce training is helpful on a broad scale, implementation of the programs is key to adding value to the organization. More specifically, the study noted that there needs to be a system around training programs – not just one-off events – which supports the training objectives before, during and after sessions.
• American Society for Training and Development (ASTD) Report (2000): A study conducted by ASTD found that companies that invest in employee training and development yield higher profit margins and greater shareholder returns compared to companies that do not prioritize workforce training.
• European Centre for the Development of Vocational Training (Cedefop) Study (2018): A study by Cedefop examined the relationship between workforce training and innovation in European companies. The study found that companies that invest in employee training and development are more likely to innovate and adopt new technologies, leading to improved competitiveness and performance.

What we can immediately highlight from these and other studies on workforce development is that in consideration of the financial returns on training programs, companies must account for more than just direct, productivity impacts, but also – with an effort to quantify their impact – the soft benefits in terms of overall employee well-being, company loyalty, lower turnover and cultural impact to the organization.  These variables have a real impact on financial results, but are very difficult to quantify, and typically cannot be linked with direct causality.

Nonetheless, these studies provide compelling evidence that workforce training and development initiatives contribute to improved company performance, including increased productivity, profitability, innovation, and competitiveness.

The down-side of workforce development

At the same time, we looked at studies which highlighted some key challenges.  While we could not find studies from reputable institutions which conclude that workforce training routinely leads to negative outcomes, there are certainly examples and instances where training initiatives have failed to deliver the expected return on investment. Here are a few examples and sources that discuss challenges and pitfalls associated with training programs:

• “The Great Training Robbery” by Michael Beer and his colleagues: This Harvard Business Review article discusses how many organizations invest heavily in training programs without seeing meaningful improvements in performance. The authors argue that the problem often lies in the disconnect between training initiatives and broader organizational goals, as well as the lack of follow-up and reinforcement after training sessions.
• “Why Leadership Training Fails—and What to Do About It” by Michael Beer and Magnus Finnström: Another Harvard Business Review article that examines common reasons why leadership development programs often fall short. The authors highlight issues such as unrealistic expectations, lack of alignment with organizational culture, and failure to address underlying systemic problems.
• “Learning to Lead: The Digital Potential” by McKinsey & Company: This report explores the challenges organizations face in developing digital leadership capabilities. While not explicitly stating that training programs are a waste of money, it discusses the need for more effective approaches to leadership development in the digital age.
• “Learning to Realize Education’s Promise” by the World Bank: Although focused on education more broadly, this report discusses the challenges and inefficiencies in traditional education and training systems that can hinder their effectiveness in preparing individuals for the workforce.
• Research from the Association for Talent Development (ATD): While ATD primarily focuses on advocating for effective talent development practices, they have published articles and reports discussing common pitfalls and challenges in training initiatives. These resources can provide insights into areas where training programs may fail to deliver expected results.

While these sources may not explicitly label all training programs as a poor investment, they highlight common pitfalls and challenges that organizations face in designing, implementing, and evaluating training initiatives. By addressing these issues and adopting more strategic and evidence-based approaches to workforce development, organizations can increase the likelihood of achieving positive outcomes from their training investments.

Challenges to Effective Workforce Training

At risk of stating the obvious, not all training programs are equally effective, and poorly designed or implemented initiatives may not deliver the desired results. While this observation is basic, many organizations nonetheless invest in training without adequately assessing their needs, aligning training objectives with business goals, or providing sufficient support and resources for employees to apply new skills on the job.  For example, management performance metrics are frequently defined as a simple count of the number of training hours per employee, but without any more sophisticated analysis in linking training with productivity or workforce efficiency.

Funding constraints are frequently cited by managers as being a key limiting factor in the amount of training that can be provided.  Limited funding can restrict the scale and scope of training initiatives, and critically, prevent businesses from implementing the training in daily workflows.

Evaluating the effectiveness of workforce development programs can be challenging, particularly in measuring long-term impacts such as wage growth, career advancement, or job retention. As mentioned above, robust evaluation frameworks are needed to assess program outcomes accurately.

In each of these examples, the lack of alignment between training initiatives and organizational needs, as well as barriers to effective implementation and application of skills, contribute to the limited impact on company performance

Wrapping up the results

Despite these challenges, workforce development programs remain vital mechanisms for enhancing the skills and employability of individuals, fostering economic prosperity, and promoting social inclusion. Efforts to address weaknesses and enhance program effectiveness are essential for maximizing their impact.

There is much discussion on training of soft skills vs hard skills.  While this paradigm is useful in some cases where training outcomes result in technical certifications, the key question companies must ask is regarding the usefulness of the training, and their ability to see through its potential benefits to implementation, using the training as a basis for transformation.

The following points summarize general observations of the study (some specific observations have been withheld by request of the client):

• Businesses must undertake due diligence if they are to implement a cost-effective and positive-ROI workforce training initiative.
• More than just filling gaps in workforce knowledge, top ROI training programs must reach a tipping point to be effective. In other words, a little investment does not achieve a little result, but rather, achieves zero result.  At the same time, a large investment can be both greatly beneficial as well as useless, depending on the design of the program and the commitment to implementation.
• Organizations whose main value proposition lies in innovation and creativity across the value chain can benefit from a large array of workforce development programming. Alternatively, organizations with a narrow value proposition (e.g., cost leadership) can benefit from intensive training in specific skills or workflow process development.