The case dwells upon the purpose of the business and the basic criteria for its successful and sustainable development. The point that the authors are making is that any business should aim at attracting and retaining their clients. There are two ways to reach these goals. One way is to build a quality product and another is to deliver a service in a high-quality way. This means that the companies should not only focus on what, but how they deliver this experience to the clients.
With the above in mind, the authors suggest that business decisions should be based on two pillars, cost, and benefits. When it comes to decisions regarding organizational training needs, the management should have a clear picture about the actual cot-reductions and revenue increase, both deriving from effective training. Once there is a strong potential for both, the company should consider training as an important strategic tool. Taking into account the benefits of effectively built training, individuals with specific skills to identify the ways and opportunities to reduce the cost and generate higher revenue can be of a great value to the contemporary organizations.
Impact of Bottom Line and Revenue
Customer retention is critical for sustainable organizational revenue. The example, outlined in the document suggests that the training implemented undertaken in the organization improved the response rates of the customers in the category of "very dissatisfied" from 15% to 5%, while the company saw 10% increase in customers, who responded that they are "satisfied and would return".
The table above outlines the direct impact of the training on the bottom line of the company. Based on the isolated statistics of the “never return” customers, the positive impact of the training accounts for USD 25,000, assuming that the company generates an average USD 500 per client and currently has 500 customers. With double-digit growth in the customer base, the total impact would USD 50,000. This calculation is based upon another assumption that the impact of training on customer satisfaction and retention is equal throughout time and effort.
Direct Cost Savings
The below table is the numerical representation of the assumed major costs and the potential positive impact of effective training on the organizational upstream structure and, consequently, cost optimization. The calculations are based on assumed costs and 10% improvement in each of the categories over the period of one month.
Based on the above, the total impact of all 6 categories in financial terms is USD 10,500 per month. It is important to understand, how each of the categories is linked to financial savings. Any error in an operational process can result in on-site accidents while this direct cost is variable, appropriate training can reduce the umber of accidents and, consequently, payouts and operational the costs. Overtime is often not the result of overload, but the outcome of poor performance of employees. By providing training, focused on individual improvement of operations, attention, and skills, companies can significantly and positively impact the collective productivity. Moreover, the same training can make employees more productive and multifunctional, allowing for better distribution of tasks and reduced headcount. As a result, a company can significantly reduce the HR expenses. Finally, training of upstream and downstream operational staff can increase their understanding of forecasting and logistics costs, which accounts for significant part of direct variable expenses of the company, such as safety stock levels, fuel consumption and optimization of logistics mapping (Wynne and Garret, 2002).
Turnover Cost Savings
Recruitment and selection processes can be extremely costly for the companies and the direct costs are associated with the advertisement of the position, working hours of HR professionals dedicated to building job description, specification and design and the application of selection tools. Moreover, low retention directly affects the training costs, making employee turnover costs an essential part of the contribution, which good training can make to the bottom line. Training helps to reduce human error and increase understanding of the employees about the relationships between their actions and the individual impact of their function on the operations of the company. Additionally, human error can generate the significant amount of waste and returns in the retail industry, beyond the risks to safety and health in a given working environment.Combined Impact of Savings
The table above is the simplified calculation of the possible impact of the 10% improvement in turnover, based on the operational department at a warehouse and the sales team. The assumption for this calculation is based on the salary level, where warehouse employee wage is USD 12/hour and sales assistant's salary is based on the fixed USD 2000 and the commission of 2% on the USD 100,000 in monthly sales. The calculations show that the turnover of employees reduced by 10%, outlining the total USD 24,420 Improvement in costs, based on the before-training turnover rate of 0.23 and 0.25 for warehouse staff and sales assistants respectively.
Combined Impact of Savings
For this exercise, we have considered five major direct costs, which can be impacted by training activities within the organization and the example of the reduction in indirect turnover costs, resulting from effective training for sales staff and warehouse staff. It is important to recognize that the impact of training, implemented and conducted over the period of one year will be gradually reducing, as the company and the employees will be more prepared and trained. With that in mind, the table below outlines the one-year financial impact on the organization with the gradual reduction in overall impact (Barbazette, 2008).
The total forecasted financial savings over the first year of training in a company is USD 287,101.
Key Learnings
The costs of the training can be significant at the stage of implementation, but the companies can optimize this investment by building on Virtual Learning Spaces (VLS) and continuous training through mentoring and supervision. It is evident that in a long term the positive impact of training on the organizational bottom line is significant. One of the two major learnings is the importance of the in-depth analysis of both, direct and indirect costs, as this analysis can help organizations to truly understand the bottom line impact in a long term. He second learning from this exercise and the course, in general, is the relationships between the HR and motivation and actual financial impact. While it is obvious that training can improve the production process and reduce the overtime, the benefits of motivation and improvement in retention can be significantly higher.
References
Barbazette J. (2008). Managing the Training Function For Bottom Line Results: Tools, Models, and Best Practices. Sao Franciso: Pfeiffer Publishing.
Wynne B and Garret N. (2002). Training and the Bottom Line: Invest or Act in Faith. London: Spiro Press.
