What company would spend thousands — or even millions — of dollars, year in and year out, without knowing the return? When it comes to training and workforce development, lots of them.
In a 2014 survey, 55% of executives said a major constraint to investing in training was that they did not know how to measure success. Almost half (49%) said that it was difficult to ensure a return on investment (ROI). And in another survey, 87% said they cannot calculate quantifiable returns on their learning investments. In short, companies have little idea whether they are spending too much or not enough. This is a particularly acute issue at the entry level, where employers have come to accept that high levels of attrition and low levels of productivity and quality are normal.
The reasons for this lack of understanding are not difficult to identify. For a start, employers don’t often collect or analyze
performance data. Nor do they quantify the cost of high employee turnover. But it is possible to do better.
The business model of Generation, a youth employment nonprofit founded by McKinsey & Company, where we both work, is based on that assertion. Launched in 2015, Generation works in five countries (India, Kenya, Mexico, Spain, and the United States). It has trained and placed 11,000 graduates into entry-level jobs in four sectors: health care, tech, retail/sales, and skilled trades.
Once these graduates are on the job, Generation measures their performance relative to peers. The metrics we track include: productivity, cost savings in recruitment and training, quality, retention, and speed to promotion. These metrics can be converted into an estimate of ROI for the employer. Employers pay Generation based on the ROI of the graduates they hire. Ultimately, our aim is that by proving the economic value of our training, Generation can charge employers enough to be entirely self-sustaining.
One key to our training is to identify ahead of time the challenges that lead employees to leave positions, which is costly for employers. By tailoring our training to those challenges, we can reduce turnover, therefore saving employers money.
For example, in the U.S. and India, we train nurse assistants for hospitals and nursing homes. These are stressful jobs, with high expectations and high turnover. Employers pay for this; we estimated the costs of high turnover at three to four months of salary per year per position.
In designing our training program, we began by identifying “breakdown” activities — tasks that differentiate high and low performers — and mapping them to ROI levers. For example, out of 30 activities that a nurse assistant may do in their day, only seven are truly breakdown activities. One such activity was the observation and reporting of changes in patients’ conditions. To do this work well, we found that nurse assistants needed to be able to combine both technical skills, such as understanding what to monitor and how to report the results, and behavioral ones, such as judgment and empathy. Generation therefore provided intensive training that integrated technical, behavioral, and mindset capabilities in the performance of each activity. Three-quarters of our training is practicum, providing hands-on practice through role playing, case studies, and simulations. Finally, we exposed participants to the job environment from the outset through sessions at our employer partners.
By concentrating on the activities that mattered the most, we were able to compress the training period to eight weeks, while preparing graduates to succeed. Our goal was to demonstrate to employers the value of this training in terms of productivity, quality, and retention — factors that can be translated into an estimate of ROI.
Analysis done by independent evaluator Gallup and our own research team found that each of Generation’s Indian nurse assistants — 97% them get job offers after the training — saved nearly 10% of a nurse supervisor’s shift time, compared with a non-Generation assistant. Employers in the U.S. and India also saw a 70% reduction in hiring and training costs, and retention at 90 days was up to 80%; the industry standard is less than 60%. Nearly 90% of supervisors say that Generation’s graduates perform on par or better than non-Generation peers.
No wonder, then, that employers are beginning to pay for Generation’s nurse assistants, moving Generation toward sustainable funding and away from reliance on philanthropic funders. In addition, employers have explored the creation of a new accelerated career path just for Generation’s nurse assistants. The model also benefits students: Graduates of the nurse assistant program see their previous incomes increase fourfold in the U.S. and sixfold in India.
Our success shows that companies should see entry-level staff as a source of value rather than cost, and should evaluate the possible ROI of a new hire and take action on that basis. The argument is not just that doing so would help young people find jobs (though it will); it can also improve performance in measurable ways. “Win-win” is an overused term in business, but in this case, the cliché fits neatly. Better, data-driven training for entry-level positions really can benefit both employees and their employers.