HOW LEARNING ORGANIZATIONS GET - AND SPEND - MONEY

Questions about funding are endless and highly individual. There is no "right" answer, but is there a better way to determine what budgets should be?

Many of the questions we get through the CorpU Inquiry process revolve around spending.

-	“How much do my competitors spend per employee?”
-	“What percent of learning costs are spent on staff?”
-	“What is spent as a percent of payroll?”

Companies want to compare themselves to their direct competitors, to companies of their size, and to experts. As I was writing the recently released chapter Funding: How Learning Organizations Get and Spend Money - based off the Corporate University Xchange 8th Annual Benchmarking Study - I was struck by how variable some of the results were. This got me thinking: is there a better way to determine what budgets should be and how they should be spent?

There are companies that rethink learning each year. They create an annual learning plan based on business priorities and get agreement that these are the programs we need and the money that will be spent to meet the company’s strategic goals. That kind of zero-based budgeting can only take place if the company’s business leaders understand the importance of learning – and agree on the desired outcomes.

There is evidence in the Funding data that some understanding is in place. In previous downturns, Learning & Development (L&D) was the first place that budgets were cut. This has changed over the last few years and L&D groups have not seen budgets cut dramatically, despite the difficult economic climate.

Overall budgets are increasing as companies recognize the strategic advantage of a robust, aligned learning organization, and they look to that organization to help develop the next generation of corporate leaders. In fact, the CorpU study revealed that 45% of companies reported budget increases for
strategic programs.  

This doesn’t mean L&D is being given an unlimited amount of money to spend. Learning leaders are often expected to do more with less by:

-	Using more technology-based learning
-	Identifying internal core competencies and outsourcing whenever it makes sense
-	Using a central L&D group for company-wide course design and development
-	Developing strict processes for managing priorities

Benchmarking how others do it, however, is not necessarily the best way to decide where the money should go.

A robust system for aligning learning to the business and having L&D accountable goes a long way when it comes to developing budgets that are believable and accepted. Farmers Insurance discusses - through a CorpU TV interview - the need for L&D salaries to be dependent on results, and how important that is in getting the funds for learning programs that need to prove their worth.

On the other hand, new projects sometimes require an extraordinary amount of new funding just to get off the ground. For example, in the CorpU TV video on the U.S. Army’s Leadership Development programs, Chief of the Civilian Leadership Development Division Alice Mullerweiss talks about the Army’s new emphasis on investing in the civilian corps to “set the stage for our future." That investment almost certainly required an infusion of new funding to make it happen.

Alice Mullerweiss, U.S. Army

It is instructive to note that (1) certain industries devote more money to training at certain levels, (2) differences are based on company size and the age of the learning organization, and (3) companies with well-respected L&D organizations - what we call Strategic Functions - spend more per person on learning of all kinds (though not as much as survey respondents with 50,001-100,000 employees). The table shown below displays some of those differences.

Clearly, there is no “right” answer to funding questions; the same kind of variation is seen when questions about where the money is spent are asked. What is enough for some companies would be inadequate for others, and the mix of spending is going to change with the business challenges of the organization. Is expensive instructor-led leadership development a priority, or does the company first need to tackle basic skills best provided via third-party Web courses? Have changes in corporate direction necessitated a retooling of skills for large numbers of employees? Does courseware have to reach global audiences or only those close to headquarters?

The questions are endless and highly individual while the benchmarking numbers can be, at best, guides. And, when L&D is consistently successful over time, the conversation will shift from funding benchmarks to what the company must spend to get the results it wants.

CorpU members can download the recently released chapter Funding: How Learning Organizations Get and Spend Money by logging into CorpU Analytics or visiting the CorpU Collaboratory.