By Lisa Toenniges
May 9, 2013
A February 2009 study by Laurie Bassi and Daniel McMurrer found that “training expenditures are a very strong and statistically significant predictor of subsequent stock prices.” Does this surprise you? It shouldn’t. Whether you realize it or not, investing or - not investing - in your employees’ professional growth does affect your company’s bottom line. As obvious as this may seem, it’s not always immediately observable by company leaders who look at financial statements day in and day out. Let me explain why.
Expenditures for training (that is, the cost to develop and deliver training) show up on the profit and loss statement or P&L. The P&L summarizes the company’s revenues and expenses during a particular period. It shows managers and investors whether or not the company made money during the period being reported. It’s basically a measure of past financial performance.
Training expenses are part of the past performance detail and, because they’re a cost, often make the performance of the given period look worse, not better. But what about the fact that those individuals who complete training have acquired higher skill and can add more value to the organization? The individuals who completed training, assuming they can actually go back on the job and do it better, are now an asset with higher value. Where does this increased value in human capital (referring to a person’s ability to be more productive) show up?
Unlike property, money, and other tangible assets, human capital is considered intangible because people can leave a company and take their abilities with them. Such intangible assets aren’t included on balance sheets, which record assets and resources that will create future value. Yet as we’ve moved from the industrial era to the knowledge age, it’s knowledge and ideas that are the main source of economic growth. Knowledge workers may be more important to a company’s success than other tangible resources.
What does this mean? Simply stated, the balance sheet may become less helpful in directing future decisions because it doesn’t reflect intangible assets, which have been proven to be more valuable than ever. If executives only study the balance sheet, they’ll miss the future value that their investment in employees may bring.
I don’t have an answer for revising age-old financial statements. But I do know that, as leaders, we need to trumpet the importance of committing resources for training now in order to create future value. We must look at training expenditures as investments in our employees. If your employees are capable individuals and align with your company’s culture, it’s a wise decision to invest in their future - far better than spending dollars on recruiting, training, and other costs associated with turnover.
I have this conversation with professional colleagues and clients often. By the end, I can see the wheels churning and the light bulb go on in their minds. I’m picturing many of them next having the same conversation with their peers and leadership. It just makes sense.
Organizations that invest in training and figure out how to measure and improve the return on their investment will have greater potential to gain competitive advantage. As Bassi and McMurrer note, there’s a powerful correlation between training expenditures per employee and stock prices. So, start looking at training as an investment today and share this with your leaders.
Lisa Toenniges is CEO and owner of Innovative Learning Group, a company that creates custom learning solutions. Lisa has 25 years of experience in the performance improvement industry and has consulted with numerous national and international companies about learning strategies and solutions. Contact Lisa at [email protected] or at 248-544-1568.