Training for productivity

Purpose and method

The research has investigated a method to demonstrate that Australian enterprises that invest in the training of their employees gain a return from that investment through their employees being more productive. The exploratory nature of the research has meant that it has sought to clarify what is and what is not practicable. The method, which compares enterprise expenditure on training of personnel with labour productivity across a small group of enterprises producing similar products or providing similar services, derives from one used successfully in Europe by Sigmund Prais and others in inter-country comparisons.

The case-study approach involves investigating management processes and work practices in order to assist interpretation of any correlation between training and productivity. Some overseas research suggests that the levels of productivity achieved by firms that invest heavily in training results from forward planning and a 'bundle' of human resource practices, rather than being solely the result of training. The project therefore has investigated whether the productivity levels of the case-study firms could be better explained as being the result of a set of characteristics which are referred to as 'enterprise dynamic'.

Case studies were undertaken in four industries: footwear manufacture, wire products manufacture, four- and five-star hotels (accommodation) and supermarkets, with between five and eight firms in each cluster. Enterprises were located in cities in all States of Australia. During a visit to each enterprise, senior managers were interviewed to gain information on planning, operations and resources, especially human resource recruitment, management and training. The work of operational personnel was observed. Quantitative data, for each of the three-and-a-half years, July 1995 to December 1998, were supplied as available. Personnel were invited to complete and return a voluntary, anonymous questionnaire. The quantitative data were analysed to test for a relationship between training investment and labour productivity. The qualitative data were used to interpret the quantitative findings in two ways. Firstly, they were examined to determine under what conditions the method being tested would be likely to be an effective one for demonstrating a relationship between training and labour productivity. Secondly, the qualitative data were examined to find out whether those enterprises with relatively high labour productivity also had a high enterprise dynamic.

Results

The method appears to have been employed successfully in footwear manufacturing where results suggest that each dollar invested in training of non-management personnel each year, results in an average of fifty-eight dollars in value adding. Furthermore, the outcome appears to have been a consequence of training being a subset of human resources practices in the context of overall business strategy in pursuit of quality enhancement, innovation in products and processes, and client interests. Enterprises achieving high levels of labour productivity appear to have employed one of two alternative systems of work organisation. One involved multi-skilled personnel working in teams which had achieved a degree of self-management capability. The other, as used by one enterprise, involved highly skilled specialists, working under close direction of management.

The results within wire products manufacture were less clear-cut. Of the five enterprises compared, four suggested a relationship between training expenditure on non-management personnel and productivity while the results for a fifth were quite different. It appears that the latter firm has recruited successfully for industry skills, and has employed a low-cost but very effective training strategy-on-the-job training, especially in new technologies, combined with mainstream TAFE provision. For the rest, the correlation implies an average return of one-hundred-and-ninety dollars in value adding to one dollar spent on training; but again, this appears to have been the result of investment in training as part of business strategy rather than in isolation. So true expenditure would have been quite a lot greater.

For the service-based industries the method was ineffective except, perhaps, in relation to hotel office personnel where productivity (rooms booked per hour) suggested a possible relationship to training investment. The ineffectiveness of the method in the service sector might have been a consequence of the uniqueness of services, as typified by the nature of accommodation in top-of-the-range hotels, and the locality of supermarkets. These were factors for which it was impossible to control fully. Hence, what were estimated as labour productivities really were set targets based on those differences. Notwithstanding, the research found that senior managers in each of the hotels and in the two supermarket chains which participated in the research, considered that the future success of their company depended on having personnel trained both in technologies and in interpersonal skills.

For manufacturers, training appeared to have delivered increases in labour productivity by affecting work practices in a range of ways. Workers with more training appeared to maintain their machinery better with less down-time; they were more skilled in setting and using computer-based technologies, as well as more traditional production methods, and they were able to contribute more to innovation. Possibly, there were benefits too, in better relations between labour and management.

The research along the way identified a number of shortcomings in understanding and/or applying nationally recognised training:

Managers and supervisors, in enterprises with employees undertaking traditional apprenticeships, seldom had any knowledge of the training curriculum, or had spoken with teachers from the provider of the off-the-job component. The assumption was that if the apprentice had a concern he or she would ask. There was seldom any concept of complementarity as a result of collaboration.

Many of the managers in the wire products enterprises had no knowledge of industry competency standards - even that they existed. This reflects, in part, the lack of success that the sub-sector has had in the past in establishing an apprenticeship in spring-making.

A majority of trainees, especially in footwear manufacturing New Apprenticeships, appeared to be unaware of the course they were enrolled in, or even that they were enrolled in a nationally recognised course. An instance was found too, where a private provider had issued certificates for training that had yet to take place.

There also appeared to be a difference, in practice, in relation to recognition of prior learning. Most firms in the study for which industry competencies were a tool, were not recognising prior learning as much as recognising current competence. The competence of all employees was routinely assessed: for those with prior training it was expected that they would become competent in accordance with the customised standards more quickly than those who had not had previous training.

Conclusions and recommendations

The method

It is tentatively concluded that the method, when applied to manufacturing enterprises, is an effective one for demonstrating a relationship between training investment and labour productivity. This is the case where all enterprises recruiting at operator level similarly demand technical expertise or similarly assume that they will train for it, and where some of the enterprises undertake training within the framework of overarching strategic planning. The method, as investigated, has real world relevance. Businesses undertake training at the same time as doing all sorts of other things - the method accommodates this fact. The method, too, treats training as an ongoing investment that may be in a steady state relationship with skill loss, rather than as an isolated event, the effect of which wears off. Moreover, by dealing with 'concrete' examples, the relationships between business and human resource strategy, work practices and labour productivity are fairly transparent. These attributes could make it a useful tool, not only for businesses for benchmarking purposes, but also for government in the promotion of training.

However, further testing would need to take place before it were promoted as a tool to business. It is also concluded that the method is generally ineffective in service-based industries probably because, here, there are many uncontrollable factors which affect labour productivity. Service-based enterprises tend to deliver a service that is unique in a number of ways, such as location, competition and clientele, facilities, style, and/or combination of services on offer.

Recommendation 1

That the method undergo further testing in manufacturing and related industries such as information technology, before being promoted to businesses as a tool.

Enterprise dynamic

The findings lend some support to the notion that enterprises which have high levels of labour productivity tend to have a 'bundle' or characteristics, which this research has termed a high enterprise dynamic; for example,

• work practices that empower the individual worker to exercise judgement and responsibility while working either as a highly skilled specialist or as a member of a self-managing team in a broad range of tasks
• recruitment and training practices that collectively maintain a high level of skill
• encouragement of workers to identify with their work by receiving recognition (in some form) for either high level or consistently good performance
• human resource planning that is a subset of strategic planning; business strategy that is concerned with quality enhancement, client needs, and innovation, and is informed by market and other research

Recommendation 2

That any subsequent research on the method include further investigation of the relationship between labour productivity and training investment in the context of the level of 'enterprise dynamic'.

Promotion of training

The promotion of training in Australia does not, typically, place training, explicitly, within the context of overarching business strategy. The credibility and effectiveness of training promotion by governments might be increased through communication to businesses of the probable benefits to be gained where comprehensive training is part of strategic planning.

Recommendation 3

That ANTA give consideration to recognising, in the form of policy and promotions, a probable link between training effectiveness and the human resource practices and overarching strategies adopted by enterprises.

Training standards and businesses

Drawing in part on feedback from employees, the research has highlighted the importance, for operational personnel, of one-to-one, relatively informal, work-based learning in being able to apply skills within the context of a particular enterprise. Firms that have integrated on-the-job training with class-based teaching, and with assessment and recording of achievement against customised industry standards, tend to have benefitted most from their investment in training. The research has also suggested that training must not be provided as an event, but as something which is integral to the business function by being built into everything that takes place. Further investigation into linking business planning, innovation, formal and informal work-based learning, off-the-job training, national training standards and customisation, may be able to shed light on more and less effective business practices that could assist many Australian firms.

Recommendation 4

That ANTA give consideration to encouraging research that links business planning, innovation, formal and informal work-based learning, off-the-job training, national training standards and customisation.

Increasing training effectiveness

As noted above, some firms, which have purportedly been utilising nationally recognised training, have not effectively linked learning on and off the job. Collaborative arrangements between firms and external training providers appear to have been inadequate in some cases; in others, personnel seem not to have been informed of the potential for gaining national qualifications through the training they have been undertaking. It is possible that these were isolated instances which were incidentally exposed by this research. But given that those firms which participated were more likely rather than less likely to be 'training conscious', this seems improbable.

Recommendation 5

That ANTA give consideration to mechanisms for ensuring effective collaboration between firms and external training providers with which they deal, and for ensuring that personnel undertaking any nationally recognised training are made fully aware of that recognition and any associated qualifications.

Recognition of current competence

If many firms are not really recognising prior learning, but rather, recognising current competence, it may be apt that policy accommodate this development since it is consistent with present understanding of the partial nature of the transferability of learning, and the need to redevelop knowledge and skills in context, before competence can be reclaimed.

Recommendation 6

That in the further development of their policies on recognition of prior learning, governments give more weight to the common industry practice of recognising current competencies exhibited in performance on the job, assessed against employers' own specific customised standards.