This paper provides an insight by Hansson (2007) to the factors that determine the level of employee training in an organisation and its effect on the profitability levels of the organisation. The study will be achieved through a critical review of Hansson’s paper which will examine the concepts, research methods, analysis of findings and the implications of training.
This study employed a survey research strategy that is, the Cranet International Human Resource Management (HRM) survey in order to demonstrate the level of employee training and determine its impact on the company’s performance. The survey was conducted by analysing data obtained from over 5,000 organisations in the private sector in 26 different countries. The findings reveal that a company will carry out staff training based on how relevant the training is to the company. It also suggests two main measures of training, namely incidence (amount of employees to be trained) and intensity (proportion of wages to be spent on the training), which are determined by other factors. Lastly the study resonates that the level of profitability is directly proportionate to the amount of training invested in the company. The objective of this paper is to provide a critique of the aforementioned views and those of the effects on training and company performance as discussed in Hansson’s paper.
Literature and Concepts
There have been a number of studies regarding company training. Veum, 1995; Loewenstein and Spletzer, 1998, Barron et al, 1999 and Autor, 2001 contend that company training contributes towards investment in human capital stock. They suggest that Labour Economics and Human Research Management research are the two main sources of company training. Research on Labour Economics lays more emphasis on individual measures and the factors that affect the decisions leading to employee training.
Recent studies relating to labour economics suggest that companies would provide general training as well as firm specific training to their employees. Acemoglu (1999) however contradicts this view as untrue because he suggests that most companies would rather prefer to invest in providing relevant training required for the activities in that company such that the employees can utilise the skills acquired to provide better performance. This critique is backed by Becker (1962) who contends that a company will only provide training to satisfy a firm’s specific needs and an employee who requires general training will have to pay independently to acquire this training.
On the other hand, research on the HRM is one sided because it focuses more on capturing the effects of company and organisation based training, and less on the determinants of training. For instance Guest (2007) p 177 suggests that there is a positive relationship between HRM and performance.
The view on the HRM is very narrow because it does not assess which factors influence the decision to train employees. Lack of such vital information makes it difficult in the first place to determine the level or specificity of training required to tailor the needs of the company. Therefore to address this issue, Guest (2007) pp 177 suggested a need for a theory on HRM in order to provide better understanding about the impact of HRM on performance.
Hansson’s paper focussed more on the research method and data collection and provided a limited review on literature. This therefore makes limits the views of other literature provide with respect to his.
The research method used in this study was the Cranet survey: this survey was formed in 1989 by the UK, Germany, France, Sweden and Spain and is co-ordinated by the Centre for European Human Resource Management. It was suitable for the purpose of investigating the determinants of company based training and the impact of this training on a company’s performance. Data was collected by posting questionnaires to over 5,000 organisations in 26 different countries. This research method was valid to an extent because it was more practical to obtain information from such a large scope of respondents using questionnaires; a face to face interview, for instance, would have been more time consuming and very costly to embark on.
However, the effectiveness of the Cranet survey can be questioned in that whilst relevant information was requested through anonymous postal questionnaires, it was unclear about what level of knowledge the respondents had about training. As a result, a personal definition of the term ‘training’ by a respondent would be unsatisfactory and any comparisons made between the information provided for the study would be potentially misleading. This could also impair the examination and analysis of the training report and lead to an improper control or quantification of a major variable in the investigation.
In addition to this limitation, the Cranet survey omitted potential relevant information. Hansson (2007) only provided information about general training and failed to differentiate the nature of the training discussed, such as information regarding whether the training was formal or informal, general or specific. In addition, the data collection process in point is not very efficient given that the questionnaires were delivered to the respondents through the post, and this method is not particularly effective as information sent in this way could be lost or data released can easily be compromised or dealt with inappropriately (rigged).
A more efficient method would be for questionnaires to be provided to be filled in online and backed by a secure website. In addition to this, information provided by respondents may be inaccurate. This is because respondents may provide incorrect information required in the questionnaire because they may be reluctant to divulge information regarding the company. The sample selection used in this survey in my view was not appropriate. The questionnaires were only provided to the most senior executive officer in the organisation. This may lead to a process of poor data collection because the sample size for this project (n=1) was very small, given that the organisation targeted had at least 200 employees, information provided in the questionnaire may be misleading as the not all employee view points can be represented .
The Cranet survey made use of a number of variables. The first variable is the written training policy which reflects that firms will most likely invest in the provision of training if it monitored the need for the training.
The internal labour market was another variable which was used to determine how managerial vacancies are filled. Basically, this measure suggests that firms who promote employees within the company to fill managerial duties are more likely to spend very little on investing in training. This view is valid and supported by Hanchane and Mehaut, (2001) who suggest that vacancies are usually filled in a company by promotion of existing employees who are usually the senior staff and have significant higher levels of pay much more so than the level of skills or competence required for the position, as such the employees and employers are inclined to have little or no willingness to gain adequate training. However the view was in contrast to studies carried out by Delaney and Huselid (1996) on the US market who found that firms with a higher internal labour market provided more training.
Based on these responses, an internal labour market was seen as a means to reduce personnel turnover. This turnover was viewed to be indirectly proportionate to the level of training investment needed. The level of education was seen to influence the level of training required with some researchers contending that employees with higher levels of education receive more training compared to those employees who have served the organisation for longer periods (e.g. Booth et al. 1999; Frazis et al., 1998; Veum, 1995; Reilly, 1995). This claim is exaggerated and unsubstantiated as new employees in some cases may even require less training than existing employees who may need periodical training to keep them up to date with the company’s requirements.
Innovation was another measure utilised in this survey. Baldwin and Johnson (1996) contend that firms which are more innovative usually require more training. The firm’s past performance was also analysed as a measure to determine if this influences its training provision. The measure of past performance was analysed in order to establish if the level of training implemented in a company helps generate profit or if it is that profitable firms are better placed to afford training. In order to control effects associated with differences in various industries, dummies were introduced to stabilise country specific heterogeneity. The results reflect that there is a direct relationship between training policy and employee needs for training. This implies that companies who have written policies regarding their training are more likely to monitor the need for their employee training. The data analysed represents the wage bills spent on training and the proportion of employees trained a year in 26 countries.
Discussion of Results
The research method (questionnaire) used by Hansson was time consuming but straightforward to interpret the results was. The results show that fewer organisations provided answers to questions regarding their wage bills, while a few more organisations declared the proportion of employees trained. For comparability purposes and to evaluate the sustainability and effectiveness of the survey, the results obtained for each country was compared to the results achieved from a similar study carried out in American countries during the same year. It was observed that most of the countries analysed in the Cranet survey spent relatively more on training their employees than in the USA. Furthermore, it is observed that the United States and Japanese companies spend relatively comparable amounts on company training. However, this appears to be contradictory as previous studies by Acemoglu and Pischke (1999) and Blinder and Krueger, (1996) who suggest that Japanese companies invest more on company training than the US companies.
For further research the main practical implication to draw from his study is the lack of depth in reviewing previous literature. This is important in order to be able to address issues that are needed to be addressed for further theories or findings to be made. That said, the research method employed is sound as the procedures were clearly stated step by step.
Conclusion and Recommendations
The conclusion drawn from the study shows that the variables for wages spent on training (intensity) and the proportion of employees who are trained (incidence) are different and do not apparently measure the same thing. There is a lack of substantial evidence to support this conclusion because, given the Cranet survey is basically based on a random sample of organisations at each time, this makes it impossible to monitor the same organisations each time to identify if the variables for the incidence and intensity do actually vary. The study is restricted at all times to a cross sectional study. The paper concludes that staff turnover is not a determinant on training provision in a company. Furthermore, it suggests that staff turnover leads to a reduction in company training. The only explanation provided was that the economic benefit of training outweighs the cost of staff turnover. This suggestion is lacking in depth and adequate detail and as a result it is difficult to assess the validity and reliability of the findings. The study also concludes that the probability of a firm belonging in the top 10 percent of profitable industries depends on the amount of training invested therein. This supports the argument most researchers contend that economic benefits will accrue for companies who invest more in training. However, the conclusion can be challenged as being too general because there is no clear data or results to prove that all companies who realise economic benefits and profitability achieve this as a result of the amount of training invested. The author concludes by suggesting that there is room for further research to examine the relationship between staff turnover and the type of training provided by firms.
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