Thursday, January 29, 2009

Effective Training Results in Lower Costs and Additional Revenue, So During Tough Economic Times Why Are Companies Cutting Training Staff and Budgets?

To borrow a phrase from Ray Davies of the Kinks, in this "mixed up muddled up shook up world" it is not surprising to me when the government makes decisions that result in it shooting itself in the foot, but it always takes me aback when it happens in the Corporate World. After all, the primary goal of Government is not to make money. However, maximizing profits is exactly what the top priority is in business. Politicians get elected based on ideals. CEO's get hired to make stockholders rich.

So when the government looks at economic development solely as an expense, and ignores the revenue generated from that development, resulting in the economic development funds being cut during tough economic times (while funds to social programs remain in tact or even grow), I get discouraged, but not surprised. I mean, I shout at the television, radio, newspaper, or web site where I get that news, “don’t you idiots know that helping small businesses in their time of need succeed and grow results in more revenue for the government (taxes, licenses, filing fees, etc.), and more jobs, or higher paid jobs which reduces government expenses (unemployment, welfare, food stamps, etc.) while also increasing government revenues (taxes from welfare to work, additional taxes from higher paid employees, additional sales taxes due to increased purchases from the higher earnings – which then has a positive effective on the owners/employees of the businesses where the additional purchases are made, additional taxes from gasoline because more people are driving to work, etc.).”

However, the impact of cutting funds to effective economic development centers goes even further. If these small businesses fail, they will create the next generation of people in need of the social programs that are still being funded. Therefore, if small businesses keep failing, the cycle will never end. It’s politically sexy to help someone keep his or her home, or to set up a Rec Center to get kids off the street to help reduce crime. It’s not politically sexy to say you helped a struggling small business succeed which resulted in the owner not being in a situation where he/she could not pay the mortgage, that the business growth resulted in the hiring of a manager who can now afford his/her mortgage, and the business hired a couple young adults who if not working would have been hanging around the streets looking for a Rec Center to help keep them out of trouble. Therefore, I look at effective economic development as the ideal form of “preventive medicine”; stopping major problems while earning revenue.

While I think cutting off/tremendously reducing government funds for economic development, especially in economically tough times is poor policy, I just cannot understand this movement by businesses away from training. The situation reminds me about how corporations used to view service delivery.

Back in the early 1980’s when I was a junior officer at Citibank, a forward-looking Vice President named Mike Cole came to me, placed a book of studies undertaken by a company called TARP on my desk, told me to read a specific study and do something similar for the Bankcard Business. The study showed how good customer service resulted in additional profits for a business. Mr. Cole, being the Vice President of Bankcard Customer Service, knew we were a profit center for the bank, but was fighting the fairly universal perception throughout Corporate America that customer service was just a “necessary cost”. Therefore, customer service strategy was usually reduced to spend as little as you can to provide service at a level where the customers will stay with the business.

I analyzed that TARP study and determined it was a different model than the one we needed. Their model was for a business that did not have to have a help desk, and was set up to conclude yes or no on implementing one. Our customer service center was not optional, so the model I developed compared Citibank credit card usage patterns for customers receiving good customer service to customers receiving poor customer service. I then set about formulating an equation that encompassed all bank costs and revenues associated with credit card usage; collected and analyzed data to determine factors like, for credit card revolvers, what was the average time it took for a transaction to be paid and off the books; and surveyed customers. The results were eye-opening. Since, at that time, cardholders had multiple options for making purchases (multiple cards, cash, checks, etc.), when a cardholder was dissatisfied with Citibank’s service, on average, that cardholder reduced their usage of their Citibank credit card significantly. This was one of the first looks at service as a way to generate profits in Citibank. A few years later, the bank took on the corporate strategy of providing superior service to differentiate itself in the marketplace and grow market share.

Today, almost everyone agrees that superior customer service can grow market share, keep customers and, therefore, is a profit generator, not a just a “necessary cost”. So why isn’t training looked at the same way? Effective training reduces employee turnover (cost saving), reduces workplace errors (cost saving, revenue saving), results in more informed employees (more sales), results in more dependable and reliable employees (cost saving and revenue generating), results in a better team approach (cost savings, revenue generating, business growth), and much much more.

One reason may be that, like service was in the not to distance past, training is looked at just as an expense, not as a positive factor to a business’ bottom line. Another reason could be that companies do not develop a training strategic plan, so they just train employees on work procedures instead of having training goals, with strategies and tactics, aimed at reducing costs and increasing revenues. The third reason is just like economic development and customer service; there is no direct correlation between the actions taken and the increase on the bottom line (through reduced expenses or additional revenues). For example, if a business trains its managers to explain why a process or procedure change is being implemented, instead of just telling his/her employees what the changes are, the results would be:
  • Lower employee turnover (cost savings)
  • Happier in job resulting in better interactions with customers (more sales)
  • A better understanding of the purpose for the change which results in fewer employee mistakes/errors (customer retention)
However, when the bottom line is looked at, the impact from these positive effects from management training cannot be quantified. So when the economy is tight, trainers and training budgets get cut, and the impact is far greater than the business owner/manager could have ever imagined.

In my opinion it’s time for training to take the step that service did back in the 1980’s. Service strategic plans were implemented. There were objectives, strategies, tactics and goals. For example:

  • Objective: provide superior phone service
  • Strategy: answer the phone in a timely manner
  • Tactic: measure phone representatives speed in answering calls using the statistics on the ACD system
  • Tactic: monitor call traffic in real time/full time to manage call traffic flow
  • Tactic: manage phone representatives breaks, lunch times, system plug in time
  • Tactic: survey customers to determine customer satisfaction
  • Goal: 95% of the calls answered within three rings
  • Goal: 95% of customers surveyed satisfied with time it took to get to speak to a phone representative

This same strategy can, and should be applied to training. Training needs to be linked to goals of keeping costs down (e.g. low employee turnover, minimize employee errors, etc.) and profits high (product knowledge to increase sales, management skills to keep good employees, etc.).

If you would like to contact me about developing a training strategic plan, developing effective training courses, or using some of my existing courses please call 561-842-9942 and leave a message, or email me at JayGoldberg@DTRConsulting.BIZ and write “training blog” in the subject line to ensure your email is not deleted as junk mail. Find out more about me at

At a minimum, if your company has limited funds for training, purchase my book, “How to Get, Keep and Be Well Paid in a Job” (web site) and use it as a work readiness training guide for your business. You can also contact me to arrange for live webinar training in support of the book.

Catch you in my next blog, whether here or at

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