The Business Case for Learning: The 3% Rule for Investment and Why It Matters More Than Ever for 2024 Training Budgets

As a six-time Chief Learning/Talent Officer, this season was frequently associated with setting budget for the next year. In tough economic times, and frankly, it feels like most years feel like that, the training budget can be the first to be scrutinized. I usually assumed a zero base, and built a plan based on business needs and strategic initiatives. But I've come to believe that the sum of those near-term initiatives doesn't equal what organizations need to be sustainable. Why do customers choose to buy from any organization? Because they trust them. Let's delve into this relationship between trust and why training is crucial.

The academic literature on trust is well-established, crossing many fields, from marketing to social psychology. For purposes of this discussion, I'm going to condense across papers and simplify to a few concepts that most researchers would agree contribute to trust. You will trust you can buy from my organization if you believe we are:

1. Capable. Our products and services do what we say they do. If you walk up to the front desk of a hotel, you expect the clerk to be able to assign you a room, take your payment, answer your questions, and direct you to a clean, well-serviced room that meets the expectations from your booking. All the people in that chain, from the people who designed the booking experience to the last person in the room, likely the cleaner, had to capably do their jobs.
2. Reliable. Not only is my organization reliable once, you get the same level of experience every time with every person you interact with. We are consistently capable.
3. Responsible. Sometimes this is called altruism, but essentially it is that you believe my organization's interests are guided by concern for your welfare and interests as a customer. If we do something wrong, we'll make it up to you.

Trust is the cornerstone of brand loyalty. You will buy and continue to buy from my organization if you perceive us as capable, reliable, and responsible.

So how does an organization create a culture that is consistently capable, reliable and responsible? Of course leaders must model and reinforce those behaviors, but there is no way to ensure those three factors without training. Training can take many forms, to include shadowing, on-the-job performance tools, classrooms, digital learning, mentoring, etc. Of course people will learn without formal training, but if that learning process isn't designed and planned, the outcome is unreliable and inconsistent. It can take just one breach of trust for a customer to never return again.

Hopefully I've established that the risk of not having a consistent training plan for all employees is essential to maintain brand trust. But does that mean the strings to the corporate purses should be completely at the training function's disposal?

Of course not. I propose that most organization's should consider their training budgets as a percentage of payroll and plan on fluctuations in budget based on changes in strategy, operational requirements, or specific initiatives. Using ATD research , my position is that organizations should be somewhere in the two to five percent of payroll range for their investment in creating people capability in their organization. At the two percent range would be companies with low turnover, little change to processes, and low growth. Most companies should be investing at least three percent. Organizations with high turnover, high growth, or shifting technologies should be closer to five percent.

How that investment is spent matters as well. If it's almost all dedicated to executive development and high potential programs, then the organization risks having people at the front line who aren't prepared to provide a consistent, reliable brand experience. In addition, I often quote a CEO I worked for who said, "I don't feel an obligation to guarantee jobs for everyone here, but I do feel a moral obligation to keep them employable." It's not only smart to make a minimum investment in training for people, it's also the right thing to do to preserve our society's sustainability.

Just as a company diligently maintains its expensive machinery to protect its investment, shouldn't we accord the same care and attention to our most valuable asset — our people? Neglecting machinery can lead to breakdowns; overlooking human needs can lead to a breakdown in productivity and morale. As we potentially face a new era in technology and human productivity with the introduction of generative AI, we must consider our investment in preparing people through training. In a study published this week , Harvard and Boston Consulting Group found that productivity gains ranged from 17-43% for those consultants working with AI, with the highest gains coming from the low performers. Yet the article cautions that what might seem like obvious tasks for AI could produce risky results, requiring training to work with AI at this stage and as it evolves. The promise of AI + humans is incredible, but comes with risks that can impact trust. We must prepare. Is your training budget funded sufficiently for that in 2024?