Research shows $4.7 gain per employee for a $1 invested in L&D

Glenn Campbell, Chief Executive Officer of DeakinCo.

A new research report by DeakinCo. in partnership with Deloitte Access Economics, has revealed why L&D should be a strategic priority for every Australian business and the significant revenue gains associated with investing in Learning and Development (L&D).

The business case for investing in L&D is incredibly strong, with a 1% increase in L&D expenditure per employee associated with a 0.2% increase in business revenue in the same year. Every $1 invested in L&D per employee generates an additional $4.70 in revenue.

Why is L&D important in a business?

Beyond the big financial benefits, L&D is proven to drive productivity, increase loyalty, staff retention, and help  businesses tackle major challenges like rapid digitalisation and skill gaps.

Despite this strong case for Learning and Development, the report found that 87% of businesses in Australia could do more to enhance it; with only 13% classified as Advanced Learning firms—those at the forefront of investing skills and knowledge in their people.

While most businesses recognise the benefits of L&D, over half (51%) want better evidence of the benefits of training for  organisational performance— revealing a significant lack of understanding into the quantifiable benefits of Learning and Development (L&D) activities.

Of the 68% of businesses who report they track L&D-related outcomes, the majority (56%) measure their ROI through employee satisfaction surveys or changes in productivity (50%).

Meanwhile, only one third (33%) of businesses report tracking returns to L&D through financial metrics. This suggests most businesses lack the necessary information about their programs’ efficacy to properly capitalise on the benefits of Learning and Development (L&D).

What were the key insights of the report?

These were the key insights of the DeakinCo. research report;

Rapid digitalisation and labour shortages increase urgency for L&D

The onset of COVID-19 accelerated the rapid digitalisation that Australian businesses were already grappling with, and this  challenge has been compounded by skilled labour shortages. In fact, Australia’s Digital Economy Strategy 2030 notes the country vaulted five years forward in both consumer and business digital adoption in just two months of the pandemic.

Australian digital skills will have to keep up. Research in 2021 indicates that 64% of Aussie workers apply digital skills in their jobs. And though most businesses may have some level of digital literacy, 26% of all businesses surveyed reported digital literacy as a key skills gap.

L&D plays a crucial role in helping businesses to upskill and reskill employees so they can deliver the specific digital skills businesses will require to survive in the changing landscape.

Investing in L&D improves staff retention; ensuring businesses have the manpower to deliver goods and to fill skill shortages through reskilling and upskilling. Advanced learning firms report an average attrition rate of 14%, compared to almost 25% for Laggard firms showing those who invest heavily in their people will stand a much greater chance of retaining talent.

Businesses divided between hiring and upskilling existing staff

When asked how they planned to fill skills gaps, businesses were split between hiring new people, and upskilling existing staff. Across the top five skills gaps—adaptability and flexibility, customer service, critical thinking and problem-solving, data analysis and digital literacy—39% of firms plan to upskill staff, while 27% intend to hire new people to fill gaps.

Given the immense skills shortages currently impacting Australian businesses, it’s unclear whether hiring will be a viable solution. With so many businesses pursuing this as a strategy, they risk not being able to find the right people, with the right skills, indefinitely.

There are risks and costs associated with hiring; research suggests the cost of replacing a bad hire can be 2.5 times that person’s salary. Hiring externally attracts higher wages, means kinships may need to be built from scratch, and reduces productivity when hires first join.

A big perception gap exists

13% of businesses in Australia can be classified as Advanced learning organisations — those at the forefront of investing  skills and knowledge in their people. Of the 87% who were not Advanced, 9% were classified as Laggards, 36% as Beginners, and 42% as Intermediate.

However, strikingly when asked to self-identify their L&D status, over 90% of businesses believe they are learning organisations; indicating a significant disconnect between businesses perception of their Learning and Development (L&D) activity and reality.

When asked if more could be done within their firms to drive L&D, only 60% of  businesses within the Laggard and Beginner categories believe that more could be done, compared to over 80% and 90% for  Intermediate and Advanced learning organisations, respectively.

This is also reflected in a significantly lower training spend per employee among Laggard businesses ($1,100 per employee on  average), compared to the spend per employee of more advanced learning organisations ($3,000 per employee).

This demonstrates that many businesses in Australia do not understand the complexities or depth of learning that is  possible, nor the value of L&D to their business performance.

Investment in L&D is growing

Despite this widespread perception and knowledge gap, the future is looking brighter for Learning and Development (L&D); with businesses expecting the amount of training they will deliver to increase by 19% on average this year compared to pre-COVID levels. And when it comes  to the industries that plan to invest the most, retail and aged care come out on top.

During the pandemic business investment in Learning and Development (L&D) per employee has remained stable — falling by just 1% in 2020-21 compared  to the year prior.

While investment in L&D did not grow as would have been expected in pre-pandemic times, the fact that it did  not fall is a significant sign that for many organisations L&D remained a priority during COVID-19 — despite the challenges of implementing it during this time.

Incentives and barriers for L&D

Given the demonstrated advantages of L&D, it is interesting to consider the factors which would incentivise businesses to  undertake more training. Indeed, only 3% of surveyed businesses cited that nothing would incentivise them to conduct further training.

The largest incentive identified was training being relevant to current and emerging tech (54%) with increasing  digitalisation and automation likely the propellant for this incentive.

Many businesses were able to recognise the value of training for employee productivity (47%), upskilling (44%), and retaining current employees (38%).

While the pandemic highlighted the value of L&D for reskilling employees, it also emerged as one of the largest barriers to implementing L&D. In fact, 47% of businesses in Australia identified COVID-19 as one of top three barriers preventing them from investing in L&D.

Better evidence of the benefits of training for organisational performance was also identified as a major factor by many (51%). Indeed, measuring economic and business performance outcomes of L&D long been one of the most notoriously difficult parts of L&D.

Glenn Campbell, DeakinCo. CEO, said, “Until now, measuring L&D performance has been a guessing game. Our research very clearly demonstrates the financial benefits of L&D and we hope businesses can now feel more  confident investing in their people knowing that every $1 invested translates to an additional $4.70 in business revenue per employee.”

“Investing in L&D leads to better staff retention. Advanced learning organisations report an average attrition rate of 14%, compared to almost 25% for Laggard organisations. And in the context of the major skills shortages Australia is currently experiencing, this is an obvious opportunity for businesses who are wanting to retain talent and tackle skills gaps.”

“Skills shortages are here to stay, and Australian businesses need to take action. L&D will help to counteract this challenge — not only by improving employee innovation and productivity, but also by preparing businesses for the future state of work.”

David Rumbens, Partner Deloitte Access Economics, said, “In 2022, Australian businesses rate ‘securing and retaining talent’ as  their number one business risk.”

“What better time therefore to invest in L&D for their own staff. As well as the productivity  payoff, it’s a very visible signal of giving back to employees. We know that L&D strengthens employee engagement with a  business—organisations who don’t focus on L&D have an attrition rate of nearly double that of advanced learning  organisations.”