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Conventional economic wisdomthe stuff of economics and MBA curriculaholds that employers who invest heavily in education and training will suffer high employee turnover rates. The logic behind this wisdom is simple. Employers who pay for employee development cannot afford to pay their employees the full value of their worth, because the employer must recoup the cost of the education. Therefore, employers who do not provide or pay for the education can offer higher wagesraiding those employers who do provide education. So the prediction is that investing in employees’ education and training contributes to high turnover rates. Because this line of reasoning has permeated the thinking of many senior executives (perhaps only subconsciously), it is one of the barriers that must be overcome in positioning learning as a strategic investment.

Fortunately, conventional economic wisdom is not faring too well these days. Even Alan Greenspan, the highly regarded chairman of the Federal Reserves, confesses that he does not fully understand the new economic forces at work. The old rules do not seem to hold the power they once did, and in many cases, have been turned on their head by the unfolding of the knowledge era. Employees are not interchangeable cogs in a production environment (the assumption implicit in the conventional economic wisdom). Nor do they simply go to the highest bidder. Nor is the size of the economic pie fixed; it is no longer necessarily the case that when employees gain, their employers lose, or vice versa.

Although a new, unified economic theoryone that is relevant to the knowledge erahas yet to emerge, some tantalizing research results point to a reality very different from that described to MBA students by their economics professors. Some collective insights emerge from a variety of recent research reports done by Aon Consulting, the Hay Group, the William M. Mercer Group, the Gallup Organization, and the American Society for Training and Development.

  • Although money is clearly an important consideration, cash is not the primary factor that keeps people in their current job or attracts them away to a new job.

  • Opportunity to grow and learn at work is emerging as a primary determinant of attracting and retaining employees.

  •  Another key determinant of employee retention is the quality of an employee’s immediate supervisor. (Note that the management qualities that contribute to employee satisfaction and retention are “trainable.”)

  •  Although employees consistently indicate that education and training are key aspects of their willingness to stay at or leave their current job, employees also typically rank the quality of their employer’s education and training function as low.
  • The only “intangible asset” found to predict the future financial performance of a firm (its revenue per employee and stock market price) is the firm’s retention rate for key employees.

Taken together, this body of research suggests that:

1.      Keeping good people is an important determinant of financial performance, and

2.      The way to keep good people is to provide them with the skills they need to leave; that way they don’t feel that they have to.

During the 1980s and 1990s, employers hammered the message through to their employees that they were responsible for their own ongoing development. And the increasing wage premium that is paid to those with high levels of skills has hammered home the message that lifelong learning is an increasingly important determinant of an individual’s financial security.

So it is not surprising that employees are focusing more than ever on their own development. What is ironic, particularly given many employers’ message that employees are responsible for their own development, is that those employers who are willing to share this responsibility now enjoy a competitive advantage in the marketplace. Winning the war for talent, a prerequisite for effectively competing, increasingly hinges on an enterprise’s capacity to provide and manage effective development for its people.

What is perhaps surprising, given the centrality of employee development that is evident from the research summarized above, is the poor regard with which it is typically held by employees. This suggests that lip service given to the view that “people are our most important asset” is inadequate. If employers are serious about attracting and retaining the best people, then they must be equally serious about attending to managing learning. Learning must be run like the strategic business investment that it has become.

Laurie Bassi, President of Human Capital Dynamics and Saba Fellow, is a recent escapee from academe's ivory tower. Consequently, she benefits from interaction with real people. Send email with your reactions or questions to lbassi@hcdynamics.com.

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