Why should organizations invest in training generally – and specifically in commercial training? And why must they know how the cost leadership1 and the differentiation approaches to applicable strategies2 correlate?
Commercial training plays two essential roles in fulfilling both objectives…
- …as human capital and training which can increase worker productivity; and
- …as an investment in commercial training activities which creates the ability to further the inimitability of human resources – so essential in maintaining competitive advantage. Organizational knowledge and training provide, among other things, necessary data for employees to internalize.
The learning process transforms the necessary data into information and transforms information into knowledge and understanding (Bollinger & Smith, 2001).3 Furthermore, the process provides employees with the ability to create documentation which allows them to structure and code knowledge.
Finally, transmitting this knowledge enables the learning process to act as a mechanism to access the knowledge (Alavi & Leidner, 2001; Earl, 2001).4 Commercial training is a fundamental practice to possess a competitive advantage. Its importance plays a crucial role in preserving and developing capabilities of both of individuals and organizations, and, in turn, such capabilities substantially contribute to the organizational change process.
Regarding the human element, the challenge personnel management must grasp is the human element is not a resource for capitalizing policies. Instead, it is an accumulation of the individual's commercial knowledge and expertise which, ideally, should outlast expertise of their competitors (Kamoche 1996).5
Training also develops the ability and capacity to retain accomplished employees which can minimize the rotation rate of personnel. The extent to which commercial training is well designed, applied and integrated into other human resources’ practices may help attract, develop, and retain employees (Munoz and Salinero, 2011).6
When this level of training is achieved, it may contribute to raising the employees' commitment level to an organization as well as their ergonomics (efficiency in work environment). This leads to increasing the organization’s profitability or operational efficiency in the public sector by attaining greater efficiency, productivity, and quality, resulting in lower organizational employee rotation levels and absenteeism (Bonache& Cabrera, 2002).7
But this is at best, hypothetical. For insurance, companies could state in the employee contracts that training is free for individuals who remain at the company for over three years. Employees who decide to quit their jobs before that time can be made liable for reimbursement of training costs.
This policy for employee responsibility indicates the organization's long-term commitment to its employees and strengthens individual motivation and commitment to its objectives. Fortunately, satisfied workers and productiveness are closely related and directly linked to a positive correlation.
Making employees feel valued and appreciated for their services creates a feeling of loyalty to the firm, thus reducing employee turnover rates. The long-term satisfaction also links to satisfaction levels. All these positive aspects lead to a more significant level of competitiveness and improvement in productivity and organizational results.
To illustrate, Munoz Castellanos and Salinero Martin investigated to decide whether to invest money into training new employees.
Their research model included these variables:
- business size,
- activity sector,
- strategy variables,
- job stability,
- human resource department, and
- business culture.
The model paid particular attention to the two typologies used most widely in the strategic decisions and the human resources (HR) practices proposed by Miles and Snow (1978) and Porter (1980) (Munoz and Salinero, 2011).
Munoz and Salinero proposed a Binomial Logit Model8 to discover which variables influence deciding whether to invest money.
The following variables serve as a basis for the empirical contrast of the model (Munoz and Salinero, 2011). 8
- Identification variables - business size, activity sector and legal status.
- Strategy variables - Porter and Miles and Snow9 strategies.
- Training variables -Temporality of employees, the existence of human resources department and business culture.
- Size of business - number of employees in the business allows size to be measured.
- Activity Sector - grouping those businesses that carry out similar activities and comparisons between businesses in different sectors.
- Miles and Snow (1978)10 - A competitive strategy typology where within each activity sector, it is possible to categorize types of organizations: defensive, explorer, analytical, and reactive companies.
- The Porter (1980) typology11 - This typology also allows us to compare whether investments in personnel (specifically in employee training) are compatible with low- cost production.
- Stability in the job is measured by the percentage of personnel in the total workforce who have temporary contracts.
- Existence of human resources department is the ability to reveal if the business considers its personnel to be important.
- Business culture –can be a starting point for collective renovation projects.
The following data was gathered through a postal questionnaire addressed to human resources , departments or managing directors. This study's population comprises over 50 employees in 2007, because medium-sized companies tend to lack a formalized unit with which to manage human resources.
The following table establishes the relationship between the decision to invest in training or otherwise and shows the two significant variables collected from the statistical study and the conclusion of each.
Companies that obtain a differentiation strategy make a more significant effort in commercial training than companies that follow a cost leader strategy (Schuler & Jackson, 1987).12
Moreover, to corroborate the trend that a relationship between training and results exist, other authors have pointed out that results differ, but a relationship exists when a cost or differentiation strategy is carried out (Arthur, 1992).13
Regarding the second conclusion on the table (second row, last column), the resource-based hypothesis can explain it. It can help one to understand the circumstances under which human resources become strategic assets (Mueller, 2000).14
In the case of human resource training, whether it has the characteristics of durability, the impossibility of transmission and duplication, and lack of transparency -- staff stability is nevertheless required to obtain most of them. For this reason, access to training is increasingly reserved for a business' permanent personnel.
To confirm a relationship between training and business performance, Ngoc, Truong and Buyens15 examined their own empirical studies, which corroborate that workers are more likely to receive training if they have non-temporary jobs (Munoz and Salinero, 2011). The hypotheses that Munoz and Salinero6 wanted to confirm in this research is that some variables like size of business, activity sector, strategy variables, stability in the job, the existence of a human resource department or a business culture can influence a business to decide whether investing money on training employees is a worthwhile decision.
This hypothesis has been confirmed because Munoz and Salinero6 have obtained two determining factors. Therefore, the result of their research is that there is a significant influence of:
- the competitive strategy being followed. (The differentiation strategy positively influences businesses to invest in training.)
- the temporality strategy having a negative influence -- meaning the higher the temporality rate, the less likely the business is to invest in training (Munoz and Salinero, 2011). 6
To discover explanations of this result, we researched companies with cost leader differentiated strategies. In the cost leader strategy, we found that the workers' qualifications and skill requirements are diminished. But, when companies use the differentiation strategy, our results show that employees will carry out a greater variety of tasks, thus achieving greater autonomy of performance. When autonomy of performance is reached, it is usually accompanied by higher qualifications and an elevated motivation to assume the necessary risks in decision making (Munoz and Salinero, 2011).6
Financial considerations and budgetary restrictions play a crucial role in designing human resources strategies in cost leader strategies. Concerning the second assessment, access to training is increasingly reserved for a business' permanent personnel. Workers who secure training will be those that proportionately achieve more significant rises in their business’ productivity over the longest possible time (Munoz and Salinero, 2011). 6
- Economic Times article Definition of Cost Leadership 02 March 2022
- Harappa article Differentiation Strategy: Meaning, Examples, Advantages and Disadvantages
- Bollinger, A.S. & Smith, R.D. (2001) “Managing organizational knowledge as a strategic asset”, Journal of Knowledge Management, 5, 8-18
- Alavi, M. & Leidner, D.E. (2001) “Review: Knowledge Management and Knowledge Management Systems: conceptual foundations and research issues”, MIS Quarterly, 25(1), 107-136.
- Kamoche, K. (1996) “Strategic Human Resource Management Withing a Resource Capability of the Firm”, Journal of Management Studies, 33(2), 213-233.
- Munoz Castellanos, R.M. and Salinero Martin, M.Y., 2011. Factors which cause enterprises to invest in training. The Spanish case. Zbornik radova Ekonomskog fakulteta u Rijeci: časopis za ekonomsku teoriju i praksu, 29(1), pp.133-153.
- Bonache, J. & Cabrera, A. (2002) Dirección estratégica de personas. Evidencias y perspectivas para el siglo XXI, Madrid: Prentice Hall
- Scientific paper titled, Factors which cause enterprises to invest in training. The Spanish case…
- Miles, R.E. & Snow, C.C. (1984) “Designing Strategic Human Resource Systems”, Organizational Dynamics, 31(1), 36-52.
- Miles & Snow Typology 1978 Reference for Business commentary and reference to original paper
- Porter, M. (1980), NY: Free Press. Harvard Business School and ResearchGate paper (See also Competitive Strategy: Techniques for Analyzing Industries and Competitors)
- Schuler, R.S. & Jackson, S.E. (1987) “Linking competitive strategy with human resource practices”, Academy of Management Executive, 1, 207-219.
- Arthur, J.B. (1992) “The link between business strategy and industrial relations systems in America steel minimills”, Industrial and Labor Relations Review, 45, 488-506
- Mueller, F. (2000) “Human resources as strategic assets: an evolutionary resource-based theory”. In Mabey, C. et al. (Ed.), Strategic Human Resource management, London: Sage Publications.
- Ngoc, T., Truong, Q. & Buyens, D. (2010) “The relationship between training and firm performance: a literature review”. Research & Practice in Human Resource Management, 18(1), 28-45.
ABOUT THE AUTHORS
Dr. Ray Carter is an international training and development consultant and widely-recognized author who began his management career in the public sector and thereafter became a manager for a large food manufacturer in the UK. He graduated from the University of London with a master’s degree in Management Studies. Dr. Ray is also a UK-licensed contract management paralegal and World Commerce & Contracting (formerly IACCM) Advanced Practitioner. Dr. Ray authored and coauthored many publications. For a more complete list of titles, see the online summary titled books by Ray Carter, ISBNS.NET.
Adelia Laera is currently studying Economics and Managerial Science at the University of Southampton. Upon working in the financial sector, at Helaba and DPSS, her interest in this field grew. She desires to pursue a career in Investment banking, specifically with venture capital, within the underwriting or client advisory department. Having further worked in the service industry her competency in social relations and problem-solving matured. Throughout her time at DPSS she provided in-depth research on chosen areas in a research paper format, where her papers also became published. She examined data and statistics and used findings to provide financial advice. By analyzing the current situation of the economy, Adelia corroborates theories with prior studies to provide DPSS with the most effective direction.
Developing People Serving the Supply chain (DPSS) consultants offer effective contract management, procurement, and supply chain training and consultancy services. Their custom-made and open courses range from competency development and training needs analysis to bespoke training and development solutions. DPSS has an international reputation for providing quality professionalism and innovation solutions surrounding the UK, U.S., Far East, Europe, the Gulf, and South America.