Why L&D budgets shrink when they’re needed most

by John Hilton14 Dec 2015
It’s an odd thing that L&D budgets are often shrinking at a time when the case for widespread training has been so well made.

The reason probably comes down to an age-old paradox, said Sam Russell, Director of Client Services & Business Development at Rhodes Business School.

“When businesses are in a period of a lower profit, there seems to be a knee-jerk reaction where they tend to reduce spending in areas such as systems or software upgrades, machinery upgrades and, of course, workforce capability upgrades,” Russell told L&D Professional.

“You see it with things like IT systems. They will put off moving to the next version and after a while the IT manager will get a call saying that the systems aren’t working.

“He or she then says: ‘That’s right, because we haven’t actually upgraded or invested in anything in the systems for the last two or three years’.”

Russell added that there seems to be a lot of similarities with that, and upgrading people by investing in their capability.

After a while, if we haven’t done that things start to go wrong and that's when the pressure mounts for them to start investing again, he told L&D Professional.  

“But there is no getting away from the fact that when profits are down - and I think that’s been true with a lot of areas in Australia and worldwide - you do tend to see that knee jerk reaction,” he added.

In Russell’s opinion, the ultimate paradox is that in severe situations you will get organisation who have a knee-jerk reaction to reduce their staff via redundancies or not replacing staff who leave.

“They often go through a retrenchment process and yet at the same time they want their remaining staff to maintain the productivity levels and the quality levels and everything else,” he said.

“To me, it seems somewhat obvious that if you want half the amount of staff to maintain the levels of productivity that twice the number have done you need them to be twice as capable. You actually need to increase your L&D spending in the period that you’re reducing staff.

“I am an L&D tragic, so I’m admittedly biased. But if we agree that an organisation’s value is nothing more or less than the sum total of the capability of its people and their willingness to implement that capability – the rest being just buildings, machinery, etc - then it stands to reason that the more you invest in the capability and engagement of your staff, the more valuable your organisation is going to be.”

He added that in a very real and proven way investing in L&D translates into increased productivity, increased profits, increased engagement levels and staff retention.

“So it seems odd to me that given most people agree that an organisation values staff capability you get that opposite reaction,” he said.

That being said, from Russell’s own engagement with organisations he does get the strong impression that people in the C-suite are becoming more aware of the importance of L&D funding.

But it has been a long time coming and the change is slow, he added.