This is an interesting week if you are both in business and are in the business of Talent Development. The ATD 2018 conference is in full swing and I saw with my own eyes that San Diego is alive and thriving with a buzz and energy level I haven’t seen since the “dot.com” days of the late 1990s and early 2000’s. I had the chance to lead a session at the conference Sunday afternoon on Sales Trends to a robust group of professionals trying to figure out and understand what the future looks like and how are things like AI, VR, AR, and immersive business simulations are going to impact the future of training. I also had the chance to walk the exhibit hall and see a lot of brand new vendors in the industry. But the most interesting observation was the excitement and conversations in the corridors of the convention center as people shared information, ideas, and curiosity. It certainly feels to me almost everyone who is at ATD this week seems to have a quiet confidence that the strong global economy is going to support more spending and investments in talent development.
The other part of this interesting week is happening on Wall Street as large companies are reporting their first quarter earnings and dividends. Just like the ATD conference the buzz is strong and many companies are reporting record-breaking earnings, more dividends, and enhanced total shareholder return (TSR).
Are these things mutually exclusive? Are they a function of each other? Is there a connection? And do we have to ask ourselves if there is a tradeoff?
The optimist in me says many of the better companies will realize that their increased earnings is a result of well-trained leaders and professionals who are executing the strategy and achieving targets and results.
The pessimist in me says that too many companies are showing better results because they are cutting talent development to make their numbers look good which could hurt them in the long run.
In any discussion like this, we need data. According to Statistica, the US training market grew significantly in 2017 to a $94 billion market. That’s an increase from 2016 of 33%. Based on what I saw in San Diego this week, that number should easily be over $100 billion in 2018.
Source: https://www.statista.com/statistics/788521/training-expenditures-united-states/
Another great source of data is Training Magazine’s annual Training Budget issue. Their data was identical to the Statistica data and provided even deep insight into benchmarking. According to the Training report, the “typical” large company spent about $17 million of corporate training and development. If the typical large company sells about $2 billion in revenues then the Training-to-Revenue ratio for most successful companies is about .085% or for every $1,000 of revenue they bring in, they spend about $8.50 on training.
But is that good or bad?
https://trainingmag.com/trgmag-article/2017-training-industry-report
As spending on training has gone up, so have corporate earnings. According to CNBC, first quarter 2018 earnings will be up 17.2% which is the best jump in more than 7 years. At the same time, many companies are using cash from profits to buy back their own stock. According the Financial Times, US companies have committed to $167 billion in stock buybacks which interestingly enough is 50% more than all of the money being spent on training.
One has to wonder; what if just 25% (another $40 billion) of that money was invested in more training; would the ROI and results be even stronger in the future providing even greater shareholder return? Or are things optimized and balanced now?
The question most likely on the minds of executives deciding these answers is what type of training? What investments will provide a return greater than the return of the increased TSR? Should these investments be made in short-term skills such as technical and manufacturing skills, or should they be on longer term skills like leadership development and sales training?
As a business person and a talent development professional, I think the answer is to lean more toward more investments in talent development and people rather than giving money back to shareholders without a purpose. I’ve seen too many companies starve their people of skills to make the quarterly numbers and then wonder why their retention and level of talent is so poor and why they aren’t making any money a few years later. That process starts the vicious cycle of death because instead of investing in more training, they tend to cut more until the company implodes.