Companies should strategize about upskilling workers as much as their next business ventures
Before coming to Guild to help design solutions for our employer partners, I used to work in strategic finance. In this past life, I pored over financial statements and looked for ways companies could improve their profit and cash positions. I targeted expenditures that weren’t directly connected to business imperatives, like things that generated revenue or reduced costs.
One of the line items that always garnered scrutiny were cost centers, which were departments or company undertakings that cost the organization money and didn’t directly contribute to profits. Employee benefits, which broadly covered everything from health insurance to paid family leave, fell into this bucket, and nestled within that was education programs. Education programs were perceived as a substantial cost center — employers collectively spend over $20 billion annually on education initiatives — and the conversations I had with companies almost always focused on how these programs tracked with their approved budgets, with little emphasis on anything else.
It was in stark contrast with the kind of conversations companies held around new product launches or go-to-market strategies, which were more calculated and methodological. But this shouldn’t be the case. Whether intentionally or not, when businesses think about their education programs simply as a cost center, they create incentives to minimize usage and miss out on opportunities that turn their investments into meaningful business outcomes. Instead, educating employees should be seen as a competitive business advantage that can solve a variety of challenges like retaining workers, filling critical roles, and improving diversity among management ranks.
Creating the wrong incentives
When companies view their education programs as a cost center, they have a responsibility to meticulously track spend and keep costs as low as possible. This sort of mentality, which focuses only on reducing the dollars spent, permeates the governance of these programs and stifles its potential as a strategic business tactic.
Education programs, for example, are typically available only to corporate employees. This keeps costs low by limiting the number of eligible workers. But it also excludes many frontline and entry-level employees from the get-go, despite the high turnover rates of that population, which end up costing companies money.
As salaried employees seek to continue their higher education, frontline employees who need new skills for economic mobility are shut out, and businesses can’t harness their potential new skills to their advantage. Recently, Guild analyzed one company’s tuition reimbursement policy and found that 88% of the cost went to full-time salaried employees, who comprise nearly 79% of the overall enrollment in the education program.
For organizations that have more generous eligibility criteria, many introduce programmatic barriers to curb costs and risks, like enacting strict retention agreements that have severe financial penalties or requiring employees to pay for their education out of pocket before reimbursing them later. These provisions essentially exclude frontline employees given that even before the pandemic, the Federal Reserve reported in May 2019 that 40% of American workers did not have $400 in savings to pay for an unexpected expense, let alone pay for tuition or risk paying a penalty.
For those who are eligible, financially well off, or able to incur more debt, a lack of clarity around how a degree will advance their careers may still lead to low program adoption. That’s because developing career pathways for employees through education requires strategic planning that many employers have not yet done, despite the fact that companies set aside funds for employees to get degrees. Without thoughtful curation of academic programming, both the employer and the employee do not know if the time and money invested will result in short- or long-term career advancement. Combine all of this with an intentional lack of promotion — for example, 43% of working adults are unaware that their employers offer such programs, according to the Lumina Foundation — and it isn’t surprising that only 2% to 5% of the 60 million eligible employees actually participate in education programs.
Shift the mindset and remain competitive
The good news is that a number of innovative companies are starting to shift the mindset. Companies like Chipotle, Walmart, and Discover Financial are applying the same strategic rigor and structuring to their education investments as they do their key business ventures. And their vision is being rewarded. In many cases, they are seeing a return on investment of $2 to $3 for every dollar they spend. Not only are they improving the lives and earning potential of their employees, but also their investment just makes good business sense.
By viewing education programs as a competitive advantage, employers make better use of their investments by focusing on strategic design and relentless commitment to execution and iteration. Because of this, companies can see a direct impact on their financial and equity goals. The results are far-reaching and give them an edge in three key areas.
- Keeping the right talent. Losing talent has a direct impact on a company’s bottom line. Replacing an employee costs 16%+ of that employee’s annual pay, even for entry-level roles, according to a 2012 study by The Center of American Progress. High turnover also results in less productivity, less stability, and less expertise at each location. The quality of customer service is put at risk as well. Failing to retain workers is doubly damaging when employers seek new skillsets for hard-to-fill roles, even though their current employees can develop the same skills through education. For example, leading industry researcher and analyst Josh Bersin reported that hiring a new mid-career software engineer costs $30,000 or more. But upskilling an existing employee into the same role costs $20,000 or less. Ninety-three percent of employees also say they would stay at a company longer if it invested in furthering their careers, according to LinkedIn’s 2018 Workforce Learning Report. This indicates that a well-structured education program would move the needle on employee retention.
- Attracting the right talent. With stiff competition for the best talent, investment in education can be a critical differentiator. The nonprofit corporation Strada Education Network reported that three in five of those surveyed in its Public Viewpoint report would be more likely to accept a job offer or stay with an employer that supports their educational and career development.
- Improving the pipeline for DE&I talent. Companies are now expected to deliver real change in opportunity for mobility, wages, and outcomes with their diversity, equity, and inclusion initiatives (DE&I). Most companies can say they don’t have a diversity problem in their frontlines per se. But they do have an internal mobility problem, since 41% of all frontline workers are non-white, but only 15% of executives are non-white, according to the Center for Economic and Policy Research. Developing a diverse bench of talent through education and upskilling the frontline into key roles is a critical foundational step to delivering on DE&I goals. For one Guild employer partner, the promotion rate of black employees who finished a strategically aligned education program was 2X higher than those who did not enroll.
Companies will always try to “gain the edge” with every new product launch or market strategy. But they can also do the same by investing in their own people, especially those in their frontlines. By shifting the perception that investing in education programs is the savvy business move that it actually is, instead of a sunken cost that must be endured, businesses give themselves an opportunity to be more strategic, stay atop of their industry, and add to their bottom lines all at once.