Justifying Training Investments in 2023

Upskilling, re-skilling and business change enablement are widely acknowledged as being three critical dimensions to improving company performance, reducing attrition, and maintaining a peak competitive position.  But how do you justify investments in this kind of staff development, and can you actually get a return on the money you invest?  

Most learning and development (L&D) organizations struggle with that challenge.  In many companies, the senior learning and development people do not sit round the table with the CEO and Executive Committee members, to be part of the discussion.  A recent European survey concluded that only 16% of companies have a senior L&D executive in the C suite.

Our previous article introduced the notion of capability academies . A capability academy can be a key component of enabling business change.  If you subscribe to the concept of capability academies, you will already have the business objectives you want the academy to help deliver as part of your business plan.  If you have an academy already, you will hopefully be seeing some results which give you confidence in the strategy.  However, the concept is very new, so even if you do have one, you may not yet have the evidence to prove how wise a decision it was.

This is where we come in at Martec International.  We specialise in upskilling, re-skilling, business change and transformation.  After 35 years working in retail and consumer goods, we have deep experience in these industry segments.  We also have a track record in building return on investment models that determine the returns you are likely to achieve with any kind of investment, especially new technology, new business processes and skill development programs.  But more than that, our methodology helps you quantify what you can achieve, but also gives you the means to remediate it if you find you are not achieving what you planned.  

We can do the analysis for you or supply the models to help you do it yourselves, with or without assistance from us.  We even have a training class to teach this process.

If you struggle to get key learning projects funded or make an effective business case, our models, training program and consultancy services may be just the support you need.  If this is an issue for you, why not contact us for a no obligation conversation?  We’ll be happy to help.

More on how we do it ……

We build a multi-year P&L, balance sheet and cashflow model (or we tweak one we have already).  Year one is last year’s information, which is the normal base line to track improvements against.  Depending on your situation, years two and three are the years you implement the training and other skills development activity to achieve your goals.  The training may go in parallel with other business process changes you might be making at the same time.  

As time progresses, you will start to get some benefits and they will scale up gradually.  You can influence the rate at which they scale by sequencing the elements of the training in the order that delivers the most first, subject to the constraint that certain things must be taught and practiced in a sequence.  In later years benefits scale, you are not still spending the same level of investment in the training, so the profit contribution gets bigger.  

There may be other factors at work too.  For example, you may have finished calendar 2022 with big overstocks.  You can train people in how to plan and buy better, but better planning will not impact the results on any season you have bought already, and bad overstocks may take time to turn into cash.  So, care needs to be taken in phasing both investments and benefits.

The end results of our models include:

  • How much you can increase pre-tax profit each year going forward.
  • How much you can reduce working capital needs in the balance sheet year by year.
  • How much you can impact free cash flow each year.
  • What internal rate of return (IRR) and what payback you can achieve.
  • How much you can improve the relevant key performance indicators.

You can then run a series of sensitivity tests or evaluate different scenarios to determine the optimum approach for your company.

But how do you know that you will get the results?  This is where our approach really wins.  We build all the benefits from the base up.  For example, when planning sales increases, we might establish that you can improve availability on the shelf.  We know that every 1% increase in availability typically delivers 0.5% growth in same store sales.  We build sales using the formula:

Sales = Traffic x conversion rate x transaction size – returns

If we don’t get the sales increases we expect, we check the availability before and after, to see if we achieved it and, if not, investigate why not and create a remediation plan.  We look at the traffic assumptions we made year by year and if we are not getting them, we produce a remediation plan to address that.  The same with conversion rate, transaction size and returns.  

In each case, you can find the root cause why the results are not being achieved as expected and tune your business processes and training plans to address the specific issues causing the problem.

Posted by Brian Hume
19th January 2023

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