institute for employment studies

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The Return on Investors

Hillage J, Moralee J
Report 314, Institute for Employment Studies, September 1996

commissioned by the Department for Education and Employment

Increasing attention is being given to the training and development of employees in the workplace. The importance of raising the skills of the nation’s workforce is exemplified by the priority attached by the government to encouraging employers to meet the Investors in People standard. Launched in October 1991, Investors provides a framework for employers to align the development of employees with business goals.

In 1993 the Department for Education and Employment (DfEE) commissioned the Institute for Employment Studies (IES) to research the way employers were developing their training and development practices and, in particular, evaluate the impact of Investors in People. The study has been carried out in three stages, based largely around a longitudinal survey of 1,800 workplaces, supplemented by surveys of employees and in-depth interviews with employers.

This summary presents the main findings of the latest report from the study. It compares the latest findings with those from previous surveys and includes analyses of the responses from the employers who took part in all three surveys. It represents an overview of the results from the three stages of the evaluation, and addresses directly the extent to which employers achieve a return on their investment in people.

Getting involved with Investors

Fig. 1: Most important benefits from IIP

Source: IES Survey 1995

Employers see a wide range of potential benefits from participation in the Investors initiative. The most commonly cited reasons include (Figure 1):

• better training systems — including improved identification of training needs, introduction of training audits
• improved workforce outcomes — in terms of a more highly skilled workforce, improved staff motivation and morale or more employee involvement.

The next most frequently reported areas where employers felt that Investors could contribute are:

• improved business performance — either generally in terms of a better external image or more directly in terms of improved financial performance (including profitability and efficiency) higher quality products, and higher levels of customer satisfaction
• better management systems — in terms of workplace procedures, and communication systems.

Other benefits cited include acting as a catalyst for change and providing an external benchmark.

TECs are key agents in the process of getting employers involved in Investors. Although there is a high level of joint involvement in Investors and other quality standards such as BS5750, and in training initiatives such as NVQs, we found relatively little evidence of one leading to another.

Around 15 per cent of non-involved employers said they were very likely to become involved in the future and a further 35 to 40 per cent were undecided. Non-involved employers mostly fall into one of five camps:

• the unaware — who do not know about Investors: a third of all not-involved employers
• the uninterested — aware but not influenced by Investors, nor interested in participation: again about one-third of all not-involved employers
• the unprepared — employers who are possibly interested in taking part in Investors and who have not been influenced by what they know so far: under 20 per cent
• the emulators — employers aware of Investors and what it consists of, and who seek to take on board some of the key elements of the initiative without getting involved: around five per cent of non-participating employers
• the primed — some ten per cent of the not-involved who want to get their house in order before becoming involved, perhaps to minimise the time it takes to reach the standard.

Looking particularly at small employers (ie those with fewer than 50 employees) and comparing them with larger ones, we found that:

• they were less likely to expect benefits from Investors in the area of training — although there was no variation in the importance attached to such improvements.
• involvement with the BS5750 quality standard among smaller employers was more likely to lead to involvement in Investors than with larger ones.
• smaller non-involved employers were less likely to take part in Investors. They tended to be less concerned about the bureaucracy or resource implications, but generally felt that Investors did not apply to them because they were too small or did not do any training.

Progress to the standard

It currently takes employers an average of two years from start to finish to meet the Investors in People standard. The time taken to achieve recognition has doubled since the first batch of employers signed up to the process (see Figure 2).

Fig. 2: Time taken to achieve recognition, 1993 to 1995

Source: IES Survey 1995

Employers committing to becoming Investors in People in recent years have generally found it harder than expected to achieve the standard. Reasons include:

• The distance they have to travel — either in terms of the culture of the organisation (ie attitudes of staff and/or managers) or the detail of the systems and processes already in place (eg on appraisals, training evaluation or needs analysis).
• Lack of effective external support — some found difficulty with the help from the TEC or the quality of the Investors assessor, or assembling the evidence.
• Lack of internal commitment — the length of time it takes to achieve the award appears to be influenced by the degree of commitment within the organisation to the process.
• Organisational change — changes in ownership or major internal reorganisations meant that in some cases Investors was put onto a ‘back burner’ until the new structures had bedded down.

However, despite the difficulties some had encountered, employers involved in Investors were keen to carry on trying to meet the standard. Although the numbers dropping out have risen slightly over the course of the three studies, they are still small, with about eight per cent of those involved on hold and four per cent deciding not to continue. Similarly, nearly all (95 per cent) the employers who had reached the standard intended to maintain it.

Looking at small employers, we found that, in comparison with larger employers, they:

• were more concerned about the amount of paperwork involved
• found it more difficult to find someone to drive the process forward
• were more vulnerable to internal reorganisation and changes in circumstances which took attention away from Investors
• encountered less internal resistance.

Impact on practice

A consistent overall picture has emerged over our three surveys, with employers believing that their involvement with Investors has a significant, positive influence on their approach to training.

Three-quarters of the employers who anticipated training benefits from Investors said they had achieved the improvements they had expected. However, two-thirds also said that they could have achieved the same result by other means. Investors is therefore not a unique vehicle for bringing about improvements to training systems and outcomes. However, relatively few employers (15 per cent) would have made the same changes at the same time in the absence of Investors. Generally, Investors has influenced employers to make changes they would not otherwise have made (29 per cent of cases) or make the changes earlier (another 29 per cent) or on a larger scale (25 per cent) than they would have done otherwise.

As a result of Investors:

• employers have become more systematic in their approach to training
• training is concentrated more on employees who require it and therefore more directly related to business need.

Fig. 3: Changes to training practices (recognised employers)

Source: IES Survey 1995

The effects of Investors on the training practices among recognised employers are set out is Figure 3. By and large, Investors appears to have more of an impact on the quality rather than the quantity of training. The amount of training provided rose over the three years of the study, among both organisations involved in Investors and those which were not. While we found some evidence of a switch from off-the-job to on-the-job training among Investors employers, it was not overwhelming. We found more convincing evidence of a greater amount of induction training being undertaken as a result of Investors.

Four in ten involved in Investors saw training costs rise as a result. There were two main sets of costs:

• start-up costs — such as consultancy and assessment fees and investments in new training systems
• ongoing costs — such as more employee downtime and higher training spend (as a wider range of employees engage in training) and higher management costs (through time spent in appraisals, needs analyses, evaluation etc.).

One in seven saw their training costs fall as they adopted a more targeted approach, used their training resources more efficiently, and altered the balance between in-house and external training.

We found a clear Investors effect on the approach adopted to business planning. As employers move through the Investors process they increasingly adopt more formal practices, such as written mission statements, business plans and HR strategies.

The impact of Investors on training and management practices is different among small employers in that:

• the effect is bigger — there is a much larger difference between the practices used by small employers involved in Investors and those not involved in the standard, eg a third of non-involved employers with under ten employees regularly plan and review training needs, compared with nearly all such employers involved in Investors.
• the effect is quicker — there is generally a much greater difference between those at an early stage in the Investors process and those not involved at all, compared with larger employers.
• there is less dead-weight — only ten per cent of small employers would have made the changes anyway, compared with 20 per cent of employers with over 200 employees
• there is less formality — smaller employers who reach the Investors standard are less likely than larger ones to adopt some of the more formal business management practices such as training budgets and written HR strategies.

Impact on business performance

Employers are interested in Investors as a means of improving the skills and motivation of their workforce and workplace relationships. Two-thirds of employers involved in Investors said that these benefits had been achieved. Although between 60 and 70 per cent said they could also have been achieved by other means, the study does not examine these alternatives or their relative merits.

Six in ten employers involved in Investors said that they had seen improvements in their workforce as a result of their participation in the standard (Figure 4).

Fig. 4: Workforce improvements since involvement with IIP

Source: IES Survey 1995

The main improvements were in the areas of:

• employees’ understanding of the business (58 per cent of cases)
• employees’ skills and competences (51 per cent)
• employee commitment (51 per cent)
• employee communications (47 per cent).

Fig. 5: Skill shortages (existence of hard to fill vacancies), 1994 to 1995 (per cent)

Source: IES Surveys, 1994, 1995

We compared a matched sample of employers involved in all three surveys. Although the level of sickness absence in Investors employers is generally higher than in non-Investors, we found those involved in Investors were more likely to have falling rates of sickness absence. Employers involved in Investors also reported fewer skill shortages year on year, while the level of shortages rose among non-participants (Figure 5). The differential pattern is statistically significant.

Improved financial performance is not a primary motivation for employers who seek to be an Investor in People. Fewer employers identified improved financial performance as a benefit they were looking to gain from Investors than those who were looking for training or workforce benefits. Of those that did, only 43 per cent said that their anticipated benefits had been achieved, and 80 per cent of those said that they could have been achieved by other means. However, 40 per cent of employers who said that the training or workforce objectives they sought from Investors had been realised, felt that there was a flow through to improved financial performance.

Nearly 40 per cent of employers said that Investors had made a direct contribution to improved business performance and a further third said that it had had an indirect effect. Of the rest, almost 70 per cent said that Investors would have an effect in the future and would take at least a year to feed through.

The main areas of business improvement were:

• increased productivity (46 per cent of those identifying an improvement)
• a better quality of service/production (46 per cent)
• increased awareness of business needs and goals (45 per cent).

More objective evidence from our longitudinal sample to back up the perceptions of our respondents was difficult to unearth. There did appear to be an association between employers moving through the Investors process, and improved profit performance, but this association was not sufficiently strong to be statistically significant.

Multiple regression analysis indicated that being a recognised Investor in People was positively related with profitability, but the finding was not statistically significant. Investment in training (ie training expenditure) was the only significant influence on profitability per employee, with increased expenditure on training leading to increased profitability — a finding consistent with other studies.

We found further evidence that the smaller employers see the impact of Investors at an earlier stage than larger ones. Almost two-thirds of committed employers with under 50 employees told us that their involvement with Investors had led to workforce improvements, compared with less than half of those with 200 or more employees. The key area of improvement for small employers was in their employees’ understanding of the business.

Smaller employers were also more likely to:

• report that Investors made a direct contribution to financial performance
• expect to see an effect in the future
• expect any future effect to materialise sooner (generally under a year; larger employers felt that they had to wait at least 18 months for the financial benefits to show through).

Overall assessment

Ten key messages emerge from the study:

1. Investors is a successful initiative — employers involved with Investors are positive about the initiative. It has spurred them to make changes that they would not otherwise have made, or to change earlier or on a larger scale.
2. Investors delivers better training and skills — Investors in People has a major effect on the approach to managing people in employing organisations. Although there is no simple and clear relationship between Investors and financial performance, we found most employers involved with Investors believe it has already, or will in the future, contribute to improved performance.
3. Investors tackles the parts other initiatives don’t reach — Evidence from employees shows that it is those with low and intermediate level skills (the area where the country’s skill deficit is most apparent) who see the greatest impact from their employer’s involvement with the standard.
4. Investors is only part of the picture — it rarely offers the whole solution to better business performance, but can make a significant contribution.
5. The smaller the organisation, the bigger the impact — Investors appears to take hold faster among smaller employers and as a result, they expect to realise business benefits sooner than their larger counterparts.
6. Investment means money up front — involvement in Investors in People can initially cost money. It can be returned through ‘pay backs’ such as better value from training expenditure, or falling skill shortages.
7. Recognise the difficulties — achieving the standard often takes longer and is more difficult than employers expect.
8. The targets are a long way off — the National Target on Investors will be hard to meet as there is limited interest among non-involved employers and the time taken to achieve recognition is increasing.
9. Don’t oversell. Don’t under-deliver — attracting employers needs careful marketing and clear tailored messages about what Investors can and cannot do. There also needs to be a good after-sales service with consistent and high quality support from TECs and others.
10. Impact masked by badging and emulation — the combination of some involved employers effectively badging existing practice, and some non-involved employers adopting Investors practices, has masked the clarity of the macro-level impact of the initiative.

The Return on Investors, Hillage J, Moralee J. Report 314, Institute for Employment Studies, 1996.
ISBN: 978-1-85184-240-7. PDF Download only: £10.00

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