Why It Is Necessary to Link Training and Development Activities to the Achievement of an Organisation’s Business Objectives
Monash University, August 2000
The purpose of this short paper is to discuss why it is necessary to link training and development activities to the achievement of an organisation’s strategic business objectives. It looks at how this is relevant in an Australian context; discussing whether Australian organisations in fact do emphasise training and development, and if this is the case, whether they link these activities to broader organisational objectives.
Training, Development, Australia, Organisation, Objectives, HRM
The purpose of this short paper is to discuss why it is necessary to link training and development activities to the achievement of an organisation’s strategic business objectives. It looks at how this is relevant in an Australian context; discussing whether Australian organisations in fact do emphasise training and development, and if this is the case, whether they link these activities to broader organisational objectives. Recent articles, statistical data, and case studies finally provide the evidence that justifies the conclusion that a well-defined ‘fit’ between HRD activities and corporate strategy is necessary to achieve the competitiveness, adaptability, productivity and profitability needed if Australian organisations are to survive in a fast-changing Australian - as well as international - environment.
It is hard to deny that today’s modern organisations more and more come to realise the importance of investment in human capital and its link to overall goals and objectives. McCracken and Wallace (2000: 281), for example, foresee the requirement of organisations to ensure that “any investment which is made in human capital with the promotion of HRD strategy is clearly linked to the wider corporate strategy”. Keep (1992) strongly argues that training and development not only makes an important contribution to the achievement of business objectives, but that they are vital components in the realisation of business plans. This is also the view held by DeSimone & Harris (1998: 11), who argue that the role of HRD executives is to not only contribute information, ideas, and recommendations during strategy formulation, but to “ensure that the organisation’s HRD strategy is consistent with the overall strategy”.
These views all belong to a relatively new concept within Human Resource Management, namely Strategic Human Resource Management (SRHM), which aims at the creation of a organisational learning culture, within which a range of training, development and learning strategies both respond to corporate strategy and also help to shape and influence it (McCracken & Wallace, 2000). But why do so many proponents of SHRM argue the necessity of a strategic fit between training and development of the workforce and corporate strategy? What is the evidence behind these statements? McCracken & Wallace do a good job in proposing for SHRM and the integration of HRD activities with organisational mission and goals, but they show no concrete evidence of why this should be done.
One way to reach to a quick conclusion, is to argue that it is self-evident that an investment in the human capital (workforce) must benefit an organisation insofar that increased skills and training only can have positive effects on productivity and efficiency, and thus this investment must be clearly defined and emphasised from top level of management. This way of reasoning lacks supporting evidence, though, and relies heavily on value judgments. It also fails to consider the cost of training compared to gained benefits in order to assess effectiveness. On the other hand, as noted by Marinos (1998), it is not always easy to provide tangible proof of the value of training and development. Organisations want measurable outcomes, such as cost improvement, time improvement or a process improvement. Still, it does tell us something about the importance of the people behind the results: the human capital.
Roberts (1998) defines human capital as being one area of an organisation’s intellectual assets, encompassing a company’s investment in training, knowledge, skills and business relationships. Hence it could be argued that if human capital is seen as an asset, it must be clear that if an organisation is to achieve its overall strategic objectives and goals, it cannot ignore the value brought to the organisation by this asset. Morisset (1999) even argues in an article in The Age, that the way intellectual capital is valued within corporations has a direct impact on their share prices. She states that: “what the organisation knows and what its people know is a critical component of its overall value”. Roberts (1998) further states that:
Intellectual assets, and especially concepts of “knowledge”, are emerging as the new building blocks of competitiveness, replacing technology, finance and access to land and labour as the key drivers of economic growth.
This all sounds fine in theory, but is it also the case in practice? Before looking into what real physical evidence exists of the benefits gained by linking an organisation’s strategic business objectives to training and development of its human capital, it is worth briefly looking at the current general approach to training and development within Australian organisations.
The Australian Bureau of Statistics (ABS) published a report in 1998, revealing the scope and nature of training within Australian organisations. According to this report, 80% of the 7,700,600 persons who were wage or salary earners during the 12 months prior to the study undertook some form of training. This is broadly consistent with results from similar surveys conducted in 1993 and 1989, in which the figures were 86% and 79% respectively (See table 1 below) (ABS, 1998). Although these figures seem high, Roberts (1997) points out that the average training expenditure on training in Australia was only 2.9 per cent of payroll in 1990, while international best practice expenditure on training is closer to 8 per cent. Whether these figures are correct is doubtful, considering that Roberts states that only 32 per cent of employers provide training to their employees. As mentioned above, the ABS report indicates that this figure is much higher than that, making his claim rather suspicious.
Table 1: (ABS,1998)
Of persons in the Public sector, 74% undertook study or training courses, compared with 44% of those in the Private sector. Those currently employed in the electricity, gas and water supply industry were the most likely to have undertaken study or training courses, with 80% having done so, while those currently employed in the agriculture, forestry, and fishing industry were the least likely (32%). Considerable differences were also apparent across occupations, with 74% of professionals undertaking study or training courses in the last 12 months, compared with 28% of labourers and related workers (see table 2 below).
Table 2: (ABS,1998)
According to the report, of the 7,949,100 training courses completed while the participants were working, 86% were said to have improved job performance. Wage or salary earners said that the skills gained from 88% of their reported courses could be used with another employer. Hence, there seem to be some dedication to training in Australian organisations, and that there is a general belief among participants that skills and job performance has improved (see table 3 below).
Table 3: (ABS,1998)
This paper now provides one current example of how linking training and development to corporate strategy can be shown to be beneficial to all parts involved, and the background is the increased realised need to provide quality aged care services for those elderly individuals living in nursing home accommodations. Not only is the provision of aged care services of special current importance due to a demographic change of the Australian population, which sees the population getting older in average, but the case is also interesting due to some recent ‘turbulence’ in this sector that revealed that many nursing homes did not provide even the minimum service the public expected and demanded.
Thus, the Australian government (as the corporate body of health care) set specific objectives and goals which was linked to establishing training programs for employees in the industry, so that, for example, the main purposes of the program undertaken for nurses in rural areas of South Australia were to:
§ Increase participants’ awareness of, understanding of, and ability to evaluate government age care guidelines within their health units;
§ Identify areas of concern; and
§ Implement changes to address any shortcomings
Another important aspect of the training program was to develop nurses’ critical thinking skills and for nurses to become change agents for elderly individuals (that is, to facilitate change in response to identified needs and to improve the quality of care). The results from the training and development program included a widened understanding of the need to provide good quality service for elderly, which then could be translated into actions to improve workplace practices, and improved identification of and rectifying areas of concern. One nurse reflected upon the training program, stating:
I now realise that caring for the elderly is not just doing the day-to-day things. It is seeing them as a person and looking after them from every angle. Not just getting the job done.
Table 4: (Peterson, Hakendorf & Guscott, 1999)
Table 4 above shows the participants’ changing attitudes towards elderly care, and it can be argued that this example of linking training and development to a broader overall strategy has been beneficial. Although this is not an example of how an Australian organisation succeeded in linking training and development to strategic goals and objectives, it shows that if the top level of management (in this example the Government) really understands that its main asset is its human capital, an investment in this asset can improve quality and production, as long as this investment is linked to its overall strategy (Peterson, Hakendorf & Guscott, 1999).
The main problem to overcome in terms of linking training and development to corporate strategy probably lies in the difficulties in estimating the value of the investment. Malott (1998) writes that: “if we could capitalise our investment in labour, as we do machines, many companies would invest more in training”. The vagueness and intangibility of HRD activities in regard to measurable outcome will continue to haunt Australian managers when it comes to finalising each year’s budget and setting business objectives. However, the general climate and various studies in this field indicates that investment in the organisation’s capital is a good investment, but it can only be so if it is linked to a corporate strategy. Without top management’s support and understanding of what important asset an organisation’s employees constitute, training and development programs may not be successful at all. Simultaneously, the Human Resource Department also has to be a strategic business partner with a sound understanding of the objectives of the business and the ability to advise management about how to get the best out of their people (Morisset, 1999).
As Peter Drucker once wrote in Harvard Business Review: “The productivity of knowledge and knowledge workers will not be the only competitive factor in the world economy. It is, however, likely to become the decisive factor” (Malott, 1998). Bearing this in mind, Australian managers must ask themselves how training can produce outcomes and benefits for their businesses, evaluate various alternatives, and incorporate the chosen path(s) into the organisations’ corporate objectives. This should lead to a strong advantage in terms of competitiveness in, and adaptability to, a fast-changing environment, as well as future productivity and profitability.
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Australian Bureau of Statistics (ABS), (1998). “Education and Training Expense, Australia”, Report 6278.0.
DeSimone, R.L. & Harris, D.M. (1998). Human Resource Development (2nd Edition), Florida: The Dryden Press.
Keep, E. (1992). “Corporate training strategies: the vital component?”, in J. Storey (Ed.), New Perspectives on Human resource Management, London: Routledge, Ch. 7.
Malott, T. (1998), “Advantages of creating your own workforce”, Executive Speeches: Dayton, Vol. 12, No. 6, Jun/Jul.
Marinos, S. (1998). “Senior business consultants learns to train from experience - not books”, The Age, 24 February.
McCracken, M. & Wallace, M. (2000). “Towards a redefinition of strategic HRD”, Journal of European Industrial Training, 24:2, 281-290.
Morisset, R. (1999). “Cracking the code on knowledge”, The Age, 11 August.
Peterson, R., Hakendorf, M. & Guscott, T. (1999). “Improving aged care education for Australian rural nurses using problem-based learning”, The Journal of Continuing Education in Nursing, Vol. 30, No. 3, Thorofare, May/June.
Roberts, P. (1997). “Failing grades in new tests of excellence”, Australian Financial Review, 14 February.
Roberts, P. (1998). “It’s not who you know…”, Australian Financial Review, 31 October.