In the mid-1990s, labor economist Laurie Bassi began to notice a strong correlation between public companies’ stock prices and how much they invested in training-and-development programs. On average, the more a firm invested in training in a given year, the higher its stock went the following year.
The big difference between this form of spending and other investments that can also boost share prices — such as those for research and development, capital equipment, and marketing — is that those latter ones show up on financial statements, allowing analysts and investors to incorporate them into stock valuations. Not so with money spent on training and development, which does not have to be reported and therefore gets little attention.
That means companies that spend a lot on training are undervalued, but only in the short term, says Bassi. As companies spend more on training, the benefits to overall financial performance accumulate and the stock price does eventually reward the investment.
But Bassi, who was formerly the research director for the American Society of Training and Development (ASTD), got little reaction from investors even after publishing what is considered seminal academic research on the business impact of training. She churned out a substantial body of work, “but it was largely ignored,” she says. “I kept thinking, ‘Why doesn’t someone take up this mantle and build this idea into investment portfolios?’”
Eventually she decided to do it herself. She opened a human-capital consultancy in 2001, and as a sideline she became a registered investment adviser and created a “family-and-friends” fund populated with stocks of companies known to educate workers on a large scale. The fund, still going strong, has significantly outperformed the S&P 500 for the past decade, yet learning expenditures haven’t caught on as a major metric for analysts and investors.
No Need to Know
The training community has long debated how — or even whether — to calculate the bottom-line impact of increased spending on employee development. But there is no doubt that few firms make a rigorous effort to quantify the financial value of their learning programs — even though, according to ASTD, U.S. companies spent an estimated $126 billion in 2009 to educate their workforces.
Companies do measure certain results of training, but usually not in a way that directly connects such investments to overall financial performance. One reason is that financial performance is believed to be influenced by so many factors that trying to prove what role training-and-development investments play has struck many as a waste of time.
For example, Radiant Systems, a vendor of point-of-sale technology, believes that well-trained people come up with better products and other ideas, which drives better financial performance, says CFO Mark Haidet. But the closest the company comes to documenting that link is a career survey that asks workers whether they’re getting the needed level of training.
Says Tamar Elkeles, chief learning officer at Qualcomm: “Where people get messed up is in thinking that they have to measure individual training classes to make sure that participants [absorbed] the information and are applying it to their jobs. I’m not interested in that, and neither is our CFO, Bill Keitel. He wants to measure whether managers are performing well and whether the organization is productive.”