Sharpening the Leading Edge

Sharpening the Leading Edge
By Laurie J. Bassi and Mark E. Van Buren

The State of the Industry Report reveals the steps companies must take to ascend to the top of the training field.

Data from more than 750 organizations that participated in ASTD's 1998 Benchmarking Service (reporting figures from 1997) is in. And the evidence shows that employer-provided training in the United States is clearly on the rise. Both the amount of money invested in training and the percentage of people trained increased substantially in 1997. However, the survey also shows that the gap between the leaders in company-provided training and the average organization is growing in many respects through the foreseeable future. The average organization has improved its training investments and practices, but at a slower rate than the leading edge.

In the ASTD State of the Industry Report covering 1996, we revealed the drama unfolding between leading-edge firms and the state of the employer-provided training industry. Based on 1996 numbers, we designated 32 companies (out of 500) as leading-edge firms. The leading-edge firms represent the pinnacle of training practice in the United States in terms of the amount of training and the types of human performance practices they provide. We also reported that leading-edge firms distinguished themselves in their use of learning technologies and their levels of outsourcing, as well as their performance.

Using the same methods, this year we identified 55 organizations, or 7.2 percent of the Benchmarking Service participants, as leading-edge firms.This small group at the apex of the training industry again led their counterparts in the amount of training they provided, the resources they invested in employee development, the practices in which they engaged, and the means by which they delivered their training.

Perhaps your organization looks more like a typical company than a leading-edge firm. You may be wondering what it would take for your organization to transform itself into a firm at the forefront of training in the United States. Our Key Ratios for the training industry show the gap that you'd have to cover to catapult your company into this elite group. The Ratios reveal that, along most dimensions, this divide is expected to widen in the coming years. The slope to the top is becoming steeper. So, if your organization aspires to be on the leading edge, the sooner you start the better. The evidence suggests that your bottom line will thank you.

Your leading-edge makeover
Before describing what transforming your organization into a leading-edge firm would entail, you may be wondering whether it can be accomplished at all. The answer is yes. Of the participants in the last two years of the Benchmarking Service, 85 organizations reported data for both 1996 and 1997. Six of those organizations are leading-edge firms, based on their 1997 numbers. Four of the six were also among our leading edge for 1996. The other two, however, are examples of firms that moved from the ranks of average organizations into the leading edge in just one year. One firm nearly doubled the percentage of employees trained and its spending on training per employee. The other complemented an already high volume of training with a number of leading-edge human performance and training practices. The data reveals that you can emulate leading-edge firms by focusing your change efforts in these areas:

• human performance practices
• number of employees trained
• training expenditures
• outsourcing
• course topics
• delivery methods
• review and evaluation.

Start with the system. A good starting place for your leading-edge makeover isn't how much you spend on training, but rather the things you do to improve workplace learning and performance in general. As was true last year, a coherent system of human performance practices is a critical feature of a leading-edge firm. Such firms align their training with a number of innovative practices that can be categorized into these groups:

• High performance work practices (such as self-directed teams, access to business information)
• Innovative compensation practices (such as profit sharing, group-based pay)
• Innovative training practices (such as mentoring or coaching programs, training information systems).

To join the leading edge, you will need to use an average of 13 of the 17 practices we placed in those groups, rather than the 11 used by the typical organization. Your company will also have to reach at least 50 percent of your employees with six of the practices. In most organizations, only 4.5 of the practices reach more than 50 percent of employees.

Training for everyone. Once you have the whole system of leading-edge human performance practices in place to support your training efforts, your next task may be to increase the amount of training you provide. Fortunately, here we have some good news: This is the one area in which the slope to the top may not be as steep. Many organizations gained ground on leading-edge firms from 1996 to 1997 in the percentage of employees trained. And we expect to see that the gap has narrowed even further when 1998 data is reported. This is partly because, for leading-edge firms, there are few employees who aren't already being trained. If your company is like most organizations, you train about 74 percent of your employees. This figure would have to be increased to more than 86 percent. For the typical organization in our Benchmarking Service, with slightly more than 5,000 employees, that would mean training an additional 600 employees.

It doesn't come cheap. Although you may not want to start with the issue of money, training more people and surrounding your training with leading-edge training practices will require a greater financial investment. The leading edge is rapidly raising the bar of excellence in training expenditures.

On the bright side, most organizations reported significant increases in their total amount of spending on training between 1996 and 1997. Topping the charts, of course, were our mostly large Benchmarking Forum organizations, whose average total expenditures

rose from $29.8 million in 1996 to $32.7 million in 1997. In fact, average total expenditures for the BMF firms that reported for both years grew by $8 million during that period.

The average total expenditures for the sample as a whole are much more modest, but reveal the same upward trend. The typical firm spent about $2 million on training in 1997, up from $1.4 million in 1996. Projected total expenditures for 1998 were expected to be up slightly as well ($2.1 million). Leading-edge firms, meanwhile, increased their spending even more. Total expenditures for the typical leading-edge firm grew from $3.4 to $4.1 million between 1996 and 1997. In 1998, average total training expenditures are projected to be $4.7 million per firm. This rate of growth means that the gap between the leading edge and general practice is likely to grow from $2 million to $2.6 million in two short years.

Total training expenditures, however, do not provide a good basis for comparison across organizations because training expenditures are heavily influenced by the size of the organization. More accurate comparisons can be made using two of our Key Ratios: training expenditures per employee and total expenditures on training as a percent of payroll. Viewed from that vantage point, the spending gap appears even more difficult to close. The average leading-edge firm has fewer than half the number of employees of the typical company and an appreciably smaller payroll. As a result, you would have had to triple your 1997 training expenditures per employee just to match the leading edge's 1997 figures. While the sample average grew by about $150 per employee, the leading-edge average rose by about $300 per employee.

Total training expenditures as a percentage of payroll paint a similar picture. Both the industry as a whole and the leading edge raised this Key Ratio between 1996 and 1997. However, the gap also grew during the same period. To pull even with the leading edge on this measure in 1997, your organization would have had to double its spending level. Using those two measures of spending, our Key Ratios chart also reveals that Benchmarking Forum organizations, though world-class in many respects, fall somewhere between the leading-edge firm and the average organization.

Spreading it around. OK. So now you know that you have a high hurdle to jump on your way to the top when it comes to spending. It might be helpful to know where the top firms put their money.

One way to look at expenditure allocations is to examine the pieces that make up our total training expenditure pies:

• wages and salaries of trainers
• payments to outside training firms
• tuition reimbursements
• other internal expenditures (for example, facilities, materials, administration, and trainer travel expenses).

A first glance reveals that spending priorities between the leading edge and general practice are similar. Both groups spend the largest percentage of their money on trainers' wages and salaries, followed by payments to external firms, other expenditures, and tuition reimbursements. Closer examination, however, shows that your leading-edge makeover would entail reducing wages and salaries by about four percentage points and increasing outside payments by the same amount. Similarly, you would spend about 6.5 percentage points less on tuition reimbursements and about the same amount more on other expenses. Because leading-edge firms spend more on training to begin with, that means that while you shift the allocation of your spending across categories, you'll also have to increase your spending in all categories.

The percent of payments to outside firms deserves a special look, because this figure serves as our Key Ratio on outsourcing. Outsourcing is the only area in which our data suggests divergent trends between the training industry as a whole and the leading edge. The percentage of expenditures to outside firms is going up for leading-edge firms, but headed downward for the training industry in general. Although the percentage was about the same for both groups in 1996, leading-edge expenditures to outside training providers were three percentage points higher in 1997. Benchmarking Forum companies, which track external expenditures differently, also reported a decrease in outside spending from 1996 to 1997.

Another measure of outsourcing is the percentage of organizations using outside training and consulting firms. The percentage of leading-edge firms using outside providers in 1997 remained constant at 91 percent, but for the sample as a whole, the figure increased from 73 percent to 76 percent. Taken with the percentage of outside spending for training, these numbers suggest that the typical organization has become more likely to use outside providers, but spending on services has not risen at the same rate as it has among the leading edge. By either measure, your transformation into a leading-edge firm will require allocating more funds for outside training than in 1996.

Slices by the course. Another way to slice expenditures on training is by topic or course type. We tracked training time in 1996 and training expenditures in 1997, making comparisons between the two years difficult to draw. In 1996, more than a quarter (26 percent) of all training time went to technical training, either computer applications training or job-specific technical skills training. In 1997, technical training courses accounted for more than 29 percent of expenditures in the typical company. The figure for leading-edge firms was only slightly higher (31 percent). Those expenditures were most often spent on sales and dealer training, executive development, and professional skills training. Leading-edge firms opt less frequently for customer service training, management and supervisory training, and safety and compliance training. None of the differences would amount to more than two or three percentage points.

Getting it there. Your journey to the top would not be complete without some changes in the way you deliver training to employees. First of all, no matter which organizations you consider, you'll see that our Key Ratio on delivery methods--instructor-led classroom training as a percent of training time--is declining. In 1997, most organizations delivered about 4 percent less of their training by instructors in a classroom setting. Projections to the year 2000 hint that figure may drop by another 20 percentage points. For the typical organization, that indicates traditional training will drop from more than 80 percent to just over 60 percent. Large corporations, such as many of those in the Benchmarking Forum, reported figures at or below 70 percent for 1997.

Based on the numbers reported in both years of the Benchmarking Service, the difference between leading-edge firms and the overall sample in instructor-led, classroom-based training is expected to hold constant at about five percentage points through the year 2000. That means your organization has less than two years to close the gap and take another step toward becoming a leading-edge firm.

A large part of the tremendous change in the delivery of training is driven by learning technologies such as CD-ROMs, intranets, local area networks, and the Internet. Our Benchmarking Service estimates reveal that learning technologies account for a relatively small, but growing, percentage of training time. Leading-edge firms delivered 11.8 percent of their training in 1997 using learning technologies, compared to the training-industry average of 9.1 percent. Those figures are up from 8.4 percent and 5.8 percent respectively in 1996.

The divide between the leading edge and general practice is projected to widen even further by the year 2000. By then, you'll have to deliver more than a quarter (27 percent) of your training using learning technologies to be on the leading edge. The overall average will also rise, but only to 22.5 percent. Either way, the shift away from traditional instructor-led, classroom-based training portends a major change in both the ways training is delivered and the ways people learn.

Several technologies in particular are leading the way. In 1997, about half of all organizations in the sample delivered training via CD-ROMs, and roughly a third delivered training via electronic mail and local area networks. By the year 2000, 80 percent expect to be using CD-ROMs; intranets (70 percent) and the Internet (58 percent) ranked second and third. In fact, both forms of Web-based training are projected to triple in use between 1997 and 2000. As you would expect, to join the ranks of the leading edge by the year 2000, you would be even more likely to use CD-ROMs (93 percent), intranets (85 percent), and the Internet (62 percent).

More indicative of the degree to which those technologies are being used for training is the actual percent of courses for which they are the primary delivery method. Organizations that use CD-ROMs, for instance, used them only for slightly more than 9 percent of their courses in 1997. By 2000, that figure is expected to double. Electronic mail and LANs, by contrast, were used for 18 and 19 percent of courses respectively in 1997, with little increase expected over the next three years. The leading learning technology by the year 2000 is expected to be the company intranet. The typical organization expects to use its intranet to deliver more than 22 percent of its courses by that time.

Another piece of good news is that the percentages of courses leading-edge firms deliver via learning technologies are not any higher than in the typical organization. In fact, for some technologies, such as CD-ROMs and the Internet, the leading-edge percentages are lower. In other words, to join the leading edge, your organization won't have to use the technologies you currently have for more courses. Rather, you'll have to use a greater variety of learning technologies to deliver your training than you currently do.

Come full circle. Before completing your journey to the leading edge, there are a few other important issues to consider. One is how you manage the performance of your employees to ensure that they're making the most of your leading-edge training. As in last year's report, our leading-edge firms exhibited a much heavier reliance on performance management practices that give high-quality individualized feedback, including 360 feedback and peer review, individual development plans, and annual performance reviews. Almost all leading-edge firms conducted annual performance reviews for most of their employees in 1997, versus only 85 percent of the total sample. Three-quarters provided individual development plans and one-third provided 360 feedback for most of their employees. The comparable figures for the sample as a whole were 50 percent and 10 percent respectively.