Big Training Challenge: Finding High Pay-Off Training Projects

Posted: 08/24/2008

Without doubt, a handful of internal training organizations have rendered the established agenda of corporate training—its work, priorities and perceived mission—largely obsolete.

They have set the stage for the training function to adopt a new agenda and thereby create unprecedented business value by providing clearer evidence of the impact of training on financial performance.

It has long been known that training must pay its way; but it will do so only if it is targeted at opportunities to improve the organization’s profitability and productivity. If firms grow their revenue base and keep their costs under control, they will improve productivity and profits.

Much of senior-level executives’ discomfort with the training function reflects the lack of a clear economic framework for judging the linkages between training and profitability.

Even when the competitive benefits of training and continuous learning are apparent, it has proven difficult to measure the economic benefits.

Workforce Training and Competitive Advantage

Of late, economists have been developing models that put knowledge (i.e. successful application of information) into the center of the wealth-producing process. According to economists, this is because there increasingly has been less return on the traditional resources: labor, land and capital. The main producers of corporate growth and profits are information and knowledge.

"Competitive advantage through workforce training and continuous learning" has become the "in" slogan, replacing yesterday’s "competitive advantage through IT."

The main task of internal training organizations is to turn knowledge achievements (both internal and external) into gains in both financial and non-financial performance measurements.

Gaining "competitive advantage through workforce training" rests on choosing training opportunities that provide the greatest economic benefit. That should be common sense; why would anyone want to work on low-yield training activities? Surely no one would consciously target low business-payoff areas. Yet, for whatever reason, many internal training departments appear prone to this affliction.

The Importance of Finding and Transferring Best Practices Within an Organization

In the summer 1999 issue of The Wharton Magazine, Laurence Prusak, executive director of the IBM Institute of Knowledge Management, told the following story about how British Petroleum identified and transferred best practices knowledge.

"Some years ago an executive at British Petroleum—now known as BP Amoco, a $5 billion oil giant—noticed an unusual fact.

While studying the company’s performance, he discovered significant disparities in the productivity of oil wells in different parts of the world. Intrigued by the discrepancy, John Browne, British Petroleum’s CEO, asked his associates to find out what was going on.

The team that investigated the phenomenon soon found the answer.

It turned out that tiny, seemingly insignificant innovations that the workers practiced—for example, the method they used to remove barnacles from a ship’s hull—cumulatively made a huge difference in results and ultimately oil well productivity.

Enthused by this discovery, British Petroleum set about trying to introduce these high-yield work techniques at all of the company’s oil wells. The initiative should have led to a massive, across-the-board increase in productivity, right? Wrong.

British Petroleum learned, to its dismay, that productivity did not rise at all. The reason was simple: The oil workers, who saw these changes as dictates imposed from above, resisted them.

British Petroleum had to spend large sums educating the oil workers and persuading them of the need for change. This time, the effort paid off. The company slashed drilling costs by $47 million per oil well."

"Like most stories," notes Prusak, "this one had a moral: Companies that capture knowledge about best practices and share it across the organization can sharpen their competitive edge."

The Neglected Role of Training in Transferring Best Practices

Whether or not British Petroleum’s corporate training group was involved with that project is not known, but they should have co-ventured with the group that identified the best practices.

As Prusak indicated, the first attempt to transfer best practices to under-performing units failed. Once the best practices were converted into a systematic, well-organized learning program, productivity and profits soared.

Why "knowledge management" receives all the credit for reducing costs by hundreds of millions of dollars is not clear because both knowledge management and training are responsible for producing these astonishing economic results.

Still another illustration of increasing productivity and profits through knowledge management and training is provided by Prusak and Thomas A. Davenport, who co-authored Working Knowledge: How Organizations Manage What They Know.

"At Texas Instruments, sharing best practices became a strong focus after the concept was strongly endorsed by Jerry Junkins, then the firm’s CEO.

He noted in a 1994 address: ‘We cannot tolerate having world-class performance right next to mediocre performance simply because we don’t have a method to implement best practices.’

In response to Junkins’s exhortation, the company developed a common set of terms and methods around best practices sharing called the TI Business Excellence Standard (TI-BEST).

Early best practices sharing across the firm’s 13 semiconductor fabrication plants (known as ‘fabs’) had substantially reduced cycle time and performance variability, leading to capacity improvements equal to building a new fab."


What’s Missing?

Many internal training groups currently lack the expertise to systematically identify best internal practices that produce significant performance variations.

It is, therefore, essential to link with internal knowledge management groups and hire individuals with demonstrated benchmarking and operations management skills.

Neither e-learning nor any other "breakthroughs in the training process" are nearly as important for the future of the training function as the need for identifying internal best practices and developing customized learning programs (and continuous learning forums) to successfully transfer these practices.

Another Training Idea That Produces Results

Germany’s electronics giant, Siemens, once manufactured 12 million mobile phones a year. Yet this giant company discovered that its own use of cellular services was stuck in a morass of antiquated equipment and multiple service providers, which was costing the company a small fortune. The TREND Letter provides an illuminating example of this approach.

"In the past, the company might have hired a platoon of high-priced consultants to study the problem and tell them what to do, but this time they turned to the company’s in-house corporate training program, Siemens University.

It turned out to be the perfect opportunity for analysts and engineers from a variety of divisions to act like MBA students.

Using the Siemens phone dilemma as a case study, a group of mid-level managers from units other than the one experiencing the problem came together to analyze and recommend solutions.

They came up with some good ones, and mobile phone costs plummeted as a result. Siemens may be the only company in which uncovering inefficiencies as a training exercise turned out to be a profit making venture.

The program encouraged cross disciplinary cooperation and communication between managers.

It also improved participants’ reasoning abilities and powers of persuasion, because those analyzing the problem must convince managers in the division being scrutinized that their solution will work."


Through the program, Siemens hoped to encourage managers to think outside the box, work in teams with people from diverse backgrounds and learn to share resources and ideas to achieve common goals.

In Conclusion

CEOs and CFOs can immediately relate to training activities that produce economic results.

Who can argue with training that leads to hundreds of millions of dollars in improved profitability or produces the equivalent of a new plant or significant cost reductions?

It is this type of training that will propel training chieftains to the top of the corporate hierarchy—equal in rank to the CFO, ClO and other functional executives.

Payoffs from knowledge transfer learning programs are high. Training executives who do not make the effort to capitalize on this aspect of "knowledge management" do more than risk poor performance. They risk their organization’s respect.

First published on Human Resources IQ.

Posted: 08/24/2008

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