What is a pound of training worth? A longitudinal study of the effects of training investments on financial performance in firms

Despite an estimated USD 129.6 billion annual expenditure on workplace learning and performance improvement in the U.S. alone, there remains a conspicuous disconnect between recognition of the importance of investment in workplace learning, and a solid understanding of what happens to these investments as they become distributed throughout the organization. Managers of training functions struggle to demonstrate how investments in workplace learning and performance improvement programs pay off in terms of hard business results, that is, the kind of results that executives expect to realize from other capital investments. Or, rephrased using the language of today's training professionals, "What is a pound of training worth?";As the workplace learning and performance industry garners a level of investment equaling that of the revenues of major industries, the need to demonstrate financial efficacy according to the same standards of rigor as are applied to other capital investments is becoming acute. Yet for such a massive investment of resources there is a puzzling lack of theoretical guidance or empirical research available by which managers can soundly evaluate their workplace learning investments.;The purpose of this study is to investigate the effects of (a) workplace learning expenditures, and (b) allocation of hours of training in various learning content areas on subsequent year financial performance in publicly traded firms, controlling for firm size, industry sector, and research and development expenditures. The study sample contains a total of 1156 observations, with workplace learning investment and financial performance data for 672 different publicly traded firms, representing 275 distinct 6-digit NAICS codes, and covering the years 1996-2005. The sample includes multiple years of training investment data for 243 firms, of which 90 firms have three or more consecutive years of data. The study uses a fixed effects panel data model, an ordinary least squares model, and stepwise regression. The database assembled for this study is one of only a few known databases containing longitudinal data that contains observations for workplace learning expenditures, learning content hours, and financial results.;The main result of the study is that workplace learning investments, whether reckoned in total expenditures or amount of hours devoted to various learning content areas, were not found to be significantly associated with most financial outcomes, either across firms or, on average, within firms across years. While such associations were not demonstrated, neither was the absence of such associations. When significant effects were observed, coefficients were distributed in both in the positive and negative directions. Of particular note, hours of sales, dealer, and product knowledge training were not significantly associated with sales revenue.;This study did not demonstrate that either learning expenditures or hours of learning content were influenced significantly by prior year financial performance. Such results support the robustness of the models employed, by helping to rule out the plausible rival hypothesis of reverse causation. They also illustrate that the effect of learning investment is a weak signal regardless of causal direction. However, since data were reported on an annual basis, it is possible that a greater signal in either direction could be discerned if data were available on a more periodic basis, for example quarterly. It is also possible that longer-term, or delayed effects of training investments on future financial performance were present but not detected.;To put the findings in context, the study comparatively reviewed prior research on the effects of investments on student and school system performance, specifically in the areas of school quality, teacher certification, and teacher inservice and professional development. The review found that educators encounter many of the same challenges as training managers and learning executives when attempting to demonstrate the impact of human capital investments within firms.;The findings of this study imply that learning investment is multidimensional, perhaps better described by a profile of human capital investments, including employee tenure. Researchers in the future may wish to pursue finer research strategies that limit inquiry to samples of homogeneous firms, or business units within very large firms. The lack of influence of training investments and firm financial performance on one another, regardless of the direction of causation, suggests the training investment decision is another area where insight from research is lacking.;Among such findings, the link between workplace learning investment and business performance remains elusive. Interest in discovering the link will likely grow as the global economy becomes increasingly driven by intangible assets, with training managers and learning executives continuing to regard the link as the "holy grail" of the profession. Yet the lack of theoretical development and the scarcity of high quality data will likely pose severe hindrances to future researchers.