Advantages and Disadvantages of Cutting Training Budgets in an Organization - Research Paper Example

Advantages and Disadvantages of Cutting Training Budgets in an Organization Introduction Training and development of employees at the workplace is increasing in significance for organizations that seek to have a competitive advantage and increase performance. Numerous debates exist among scholars and researchers regarding the impacts of training on both employees and the goals of the organization. Some argue that training increases turnover; on the other hand, others assert that training is an important HR tool that can effectively increase the levels of employee retention (Colarelli and Moneti, 1996). Regardless of the school of thought one adheres to, most HR professionals agree that training and development at the workplace is a complex human resource practice that has the potential to influence the levels of success of an organization or lack thereof. Despite the various benefits, training has on employee performance and overall organizational goals, most companies are increasingly finding it hard to maintain training practices especially during recession or declining sales. Firms that are faced with declining sales are forced to look for areas to cut expenditures as a way of protecting themselves against further loss of profits, and the risk of going out of business. In such cases, managers forces to identify areas of overhead to cut their spending on first, which usually sees the budgets of training and development either cut down or eliminated (Paradise and Mosley, 2000). The managers of such firms are forced to balance budgets through elimination of performance development programs and training practices that are considered unnecessary or add no major value to the profitability of the company (Milton-Eversole, 2010). Although this may seem as a short-term strategy or a reactionary one, it is often the case that the Training and Development function is the first in line to experience budget cuts when the management embarks on cost-cutting (Coleman, 2009; Phillips, 2009). Training and development needs and strategies in organizations It is important for any organization to have a good understanding of the specific training needs of its workforce in order to adequately address inefficiencies of the past and meet present and future demands. The skills to be developed in the training program should therefore be tailored according to the skills required by different employees in the organization. Front-line workers who are involved in the running of operations in the firm should have the required technical skills and greater knowledge about the technical aspects of the job. Middle level employees such as supervisors and middle managers are involved in translating the general goals and objectives developed by the top management to the front-line workers (Kamble, 2011). They should accordingly poses good interpersonal and managerial skills in order to understand and work well with others. In addition to having proper managerial skills, the top-level managers in organizational hierarchy should poses good conceptual skills to enable them view the organization as a whole, and understand how different functions of the business relate with one another (Kamble, 2011). Training programs for any organization can be developed internally, or delivered by in-house experts,or specialist external consulting firms that offer training and development services. It is often costly for small and medium sized enterprises to develop their own internal training institutions;therefore, it is cost-effective for such firms to rely on external training resources (Sadler-Smith et al., 2000). On the other hand, large corporations such as multinational have the capacity to develop internal training institutions to meet their specific training needs. The programmes developed by these organizations rely on external experts though the training programs are conducted internally. This not only saves the company much effort but also permits accessibility to external expertise, which might not be available in house. According to the training needs and capacity of organizations, organizations can decide to adopt various training programs and methods. Distance learning is an essential training method since it covers a variety of training options in cases where the trainer and trainee are not co-located, is highly flexible, has relatively low costs, allows trainees to work at their own pace, and incorporates standardized instructions. Classroom training is usually conducted away from the workplace, focuses on particular set of topics such as interpersonal skills, is highly flexible, and is cost effective. It, however, lacks opportunities for practice since learning is mainly theory-based, and offers little accounting for individual needs. On-the-job training programs are practiced by big organizations since it enables the employees to learn on the job, and the trainer is able to set targets according to the needs of the system and the trainees. The associated costs are moderate, and the employees acquire hands-on experienced from knowledgeable and experienced experts who perform the skills they learn. Other training methods employed by both SMEs and large corporations include embedded training which embeds learning practice within the system, computer-based training and simulator training programs (Li and You, 2007). Advantages of cutting training and development program budgets Cost Saving Training and development programs are usually supported financially, and depending on the type of training an organization has adopted, the costs might be quite huge. The training programs in place in an organization can have considerable impact on the company’s finances given that there are various potential training costs that the organization might have to incur. One such cost is the direct costs, which may entail salaries for the training instructors, materials, and follow up supervisions. The other training associated cost is indirect costs, whichare linked to employee productivity and efficiency during and after completing the training. Although there is evidence indicating that training and development activities lead to an increase in outputs, the firm may find it necessary to finance only those programs that have a direct relation to financial improvements. Jones (2008) suggests that during poor economic activity, organizational management oftentimes invests greatly in research and marketing as compared to initiatives such as training of employees.Arguments in support of reduction or elimination of funding for training programs during poor economic activity make financial sense because as margins and profits tighten, aversion to risk when spending money increases. Therefore, it can be argued that although training of employees has benefits, the benefits are often intrinsic and the financial gains are usually not realized immediately. When firms are faced with dwindling sales, it is important that the management identifies areas where expenditure can be reduced or eliminated so as to reduce losses and maintain a competitive edge in the market. In line with this point, most managers find unrealistic to continue or increase the budgets of their training programs. The firm might therefore find it reasonable, right and appropriate to cut down on training expenditure so as to enable saving of money (Kaufman and Hotchkiss, 2006). Although organizations are aware of the benefits associated with investment training for the future for both individual employees and organizational goals, any costs on programs that are considered non-essential are reduced or annihilated. The balance the management has to make is between staying afloat during such hard economic conditions for the business, and being a casualty of the circumstances created by the poor economic activities. It is therefore in the interest of the organization, and a financial benefit to cut down on the expenditure of training and development programs. Option of poaching already skilled employees Further, reason why firms may decide to cut down on their training budgets is because of the existence of the alternative of poaching or outsourcing such services. If a firm is able to outsource, it becomes a financial advantage to the firm to cut down on extra in-house training costs which might further hurt the business. The other benefit that firms can derive from cutting down on training expenditure is that it eventually forces the HR professionals to recruit already skilled personnel. A firm may be forced to provide training and development programs to its employees because of lack of various competences in the current workforce. However, when the company is experiencing reduced sales and profits, it is financially sound if the company opts to recruit people who are already equipped with the desired skills and competences. This move ensures that the company no longer needs to provide training to the employees, which essentially reduces costs associated with the programs. Moreover, reduction of training expenditure or elimination of such programs encourages employees to develop themselves without necessarily depending on the training programs offered by the organization. Financial benefits When the firm is undergoing financial crisis due to poor economic activity or reduced sales, it is logical for the firm to reduce its spending on training so that more money can be put into other programs that have a direct financial benefit (Jones, 2008). During these times, the firm needs to invest more in programs involving research and marketing so that the management can come up with ways of growing their sales. With the increased aversion to risk, cost-cutting therefore increases financial efficiency. Lack of yield from existing training Given that the firm currently practices in-house training as its Training and development strategy, the firm finds that this type of training has variously disadvantages that the company can do away with by outsourcing. The type of training program currently in place places extra administrative burden on the firm in terms of equipment and facilities. Moreover, the in-house training has not brought about visible benefits since either most employees fail to attend or do not take the training program as seriously as they should. The current in-house training is also difficult to improve since the courses run with the aid of internal resources. This has led to lack of improvement in the learning process thereby making the training process obsolete. The training does not offer and is not at speed with current best-practice, making it financially unsound to continue funding. Moreover, during tough economic times, the corporate goals of the firm, including maintaining financial stability supersedes the need for employee development (Rainbird and Maguire, 1993). Disadvantages of cutting training expenditure in an organization Loss of competitive advantage One of the benefits of continuing training programs at the workplace is that significantly contributes to enabling the organization gain a competitive advantage (Schuler and MacMillan, 1984). The investment an organization puts into its training initiatives can therefore be justified by the contribution suck initiatives make to improving both individual employee performance and organizational productivity (Bartel, 2000). Training is particularly important to a firm since it enhances organization-specific knowledge to the company’s workforce, making it gain a competitive advantage. This is more so important especially when training is tailored to help employees in learning a broad range of skills rather than being equipped to simply perform restricted jobs. Having such a broad perspective to training consequently leads to nurturing of a multi-skilled workforce, which consequently leads to reduced unit labour costs and the employees being more adaptive. In this regard, reducing expenditure or eliminating training means the organization risks missing on these benefits. However, companies that highly value workplace training and development practices achieve dramatic results. Laser Drive, Inc., a manufacturing company based in Pittsburgh has successfully used learning organization techniques to enable and drive the company’s achievement of a market share of 70% (Kapp, 1999). Reduced employee morale and commitment Research suggests that the actions and practices adopted by HRM can greatly impact on the attitude and behaviour of employee (Allen,Shoreand Griffeth,2003; Gould-Williams, 2007; Heyes and Stuart, 1996). In order to appreciate the success of training at the workplace, it is important to examine the affiliation to organizational assurance. Bartlett (2001) states that training is related to employee commitment and organizational effectiveness. Moreover, the behaviour and attitudes of employees at the workplace is largely dependent on how the employees perceive the extent to which their employer puts value on their contributions and cares about their well-being and personal development (Allen,ShoreandGriffeth,2003). It is important for the organization to show their readiness and willingness to cater for their employee needs (Gould-Williams, 2007). When organizations are willing to do this, the employees reciprocate by developing positive work-related attitudes and behaviours which are helpful to organizational performance (Aryee,Budhwarand Chen,2002; Settoon,Bennettand Liden,1996). Accordingly, training can be utilized to bring out desired attributes in employees, which may then translate to improved organizational commitment, hence better organizational performance (Bartlett, 2001). Reduced employee retention levels When the company continues to offer training and development programs, it is perceived by the employee as a signal from the organization that it is willing to create a social exchange with them. Continued provision of training, just like other similar HRM practices, leads to the creation of a strong psychological connection between the employee and the employer (Garrow, 2004). Most managers agree that provision of training, enabling employees to take-up courses, and attending workshops and conferences are key if the organization desires to retain them and for their own development as well. This not only leads to a lower employee turnover rate but also creates a positive reputation for the organization in its field of operation (Cheng and Waldenberger, 2013; Tannenbaum et al., 1996). The disadvantage of cutting training budgets can therefore, be better explained by the example of a truck leasing company that was able to reduce the employee turnover by 6% as a result of providing employer-sponsored training (Kelly and Caplan, 1993). Reduced productivity The other disadvantage of discontinuing training or reducing its budget is that it might be difficult for the firm to take advantage when the market expands and sales recover, or the firm might lose any element of learning and development that it had inculcated. This will eventually lead to reduced productivity levels;therefore, firms may find it prudent to use the downturn to continue with its training initiatives in order to take full advantage when the sales recover. Moreover, reducing training expenditure or eliminating the programs may have a negative impact on customer satisfaction levels, which may have a direct negative impact on the sales of the company. In addition, the slowed rate of growth occasioned by reduced sales coupled with underprovided leadershipdevelopment creates a waiting state in the organization (Parks, 2009). Such complacency created by slashing training initiatives does not put companies in positions of to be proactive and lessens their ability to deal with the difficulties associated with reduced sales (Coleman, 2009). Reduced employee motivation levels, weakening customer satisfaction levels, coupled with the financial strains occasioned by the poor economic activity significantly leads to reduced productivity. In consideration of the fact that firms have to cut down on their expenditure during such difficult times, and the impact such cuts have on development of an adequate performance pipeline, the question managers are faced with is ways of developing strategic plans that will effectively serve both purposes. It is important that organizations find new opportunities of revitalizing training so that they can become proactive once again through learning programs on a financially diligent basis (Taylor, 2010). Although the firm might still need to cut down on its training budgets, organizations need to review their strategies, and choose those necessary training options as smart investments that will increase performance of the organization (Minton-Eversole, 2010). For example, Motorolla Inc., a Smartphone and Bluetooth accessories manufacturer estimated that for each dollar it invests in its statistical process control training of its employees, 30 dollars return to the company (). Burns,Bingham&Galagan(2010) state that despite the market situation, organizations might be forced to continue investing in training initiatives since it makes the difference between success and failure for the firm. It ensures that morale levels are kept high, employees are continuously engaged and motivated, and increased performance through reinvigorated training ensures that companies continue making money (Coleman, 2009; Minton-Eversole, 2008). Conclusion There is growing consensus that training and development is an integral part of the HR function of any organization that desires to gain a competitive edge over its business rivals.However, in the wake of economic downturns brought about by decreased sales, firm managers are increasingly forced to cut down on training and development costs. Evidence indicates that most companies opt to cut down on overhead expenditures such as training budgets during poor economic activities. Some of the benefits associated with reduction of training budgets include reduced costs, both direct and indirect, that are associated with training and development of employees. Cutting training costs also forces the company to recruit already skilled people, which reduce the costs it would have to incur to train those employees on the job. In addition, when training is eliminated from HR practices, it encourages the employees to develop themselves on a personal level so as to be retained at the organization. Despite the perceived benefits of cutting down on training budgets, it is also evident that lack of training and development initiatives in an organization has a negative impact on the business psychologically, financially, and developmentally. The psychological effects of cutting training can be attributed to the fact that employees are less motivated and engaged at the workplace, which would reflect negatively on the growth and profitability of the organization. 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