From Hidden Costs to High Returns 

In these tough economic times, employers can improve their fortunes by investing in training and career development for their frontline employees. Employers around the nation have achieved significant bottom line benefits by undertaking innovative training and career development efforts targeted at their lower-skilled, lower-wage workers, and providing significant wage increases to those who develop valuable skills.

American companies tend to view their low-skill, low-wage workers as a disposable resource necessary but transient, plentiful enough to hire and lose and hire again as needed. Like many forms of waste, this approach to human capital has the advantage of simplicity, but it's loaded with hidden costs. Chief among these is the constant expense of recruiting and training new employees. But there are other costs, too, like the stunting of employees' loyalty, ambition, and attention to quality. A culture of transiency, where paychecks don't pay the bills and opportunities for advancement are few or nil, is one sure way to wipe out any incentive to perform above average, to push for excellence, to get the details right.

These circumstances are mostly the result of longstanding practice, not of deliberate policy. Among other things, they reflect a tendency for companies to focus their investments in human resources - everything from recruitment to compensation to development - on higher-ranking employees. But the result is a lower-ranking workforce that performs well below its potential. A growing number of companies, large and small, are investing in a different approach. These companies view the lower-skill workforce as a durable asset: a means of continually improving quality and a potential talent pool for higher-level positions.
  
The defense contractor, Northrop Grumman Shipbuilding, has created a recruitment and training program called Pay for Skills, specifically aimed at grooming entry-level workers for higher-level positions. Because the company foresees a shortage of good recruits for its skilled jobs, Pay for Skills seeks to grow that level of talent from within. Along the way, it gives the least skilled workers a clear motivation to stay, learn, perform, and try to advance.

According to Woody Oge, site director at Northrop Grumman's Avondale, Louisiana, shipyards, the program not only improved performance and loyalty among the participants, but "there was more motivation, obviously, to the individual, if they could summarily increase pay with increased skills." Among other things, he says, Pay for Skills helped the company hold on to new recruits rather than having to replace them every few months. Together with an apprenticeship program for high school graduates, Pay for Skills "reduced our attrition rate of entering employees, because it gave them a career ladder to look for and a goal to shoot for." In Pay for Skills, entry-level Northrop Grumman workers would typically start at $20,000 a year, and in two to four years could reach journeyman level, more than doubling their compensation. Within a few years after the program started in 2001, the company's entry-level attrition rate in the first year of employment plunged from a longstanding level of 20 to 25 percent down all the way to single digits.

Oge notes that when many companies think about skilled employees, they think first about four-year colleges and formal credentials. But he counters that "for every professional who comes out of a four-year university, arguably you need 10, 12, 15 technicians or support people to support that one four-year professional." In short, companies often need employees with a range of skills that don't call for traditional classroom learning, but can be acquired in many ways - on the job, at lunchtime, in community-based workforce programs, or through vocational or technical programs at community colleges, among other things. Employees can develop these skills during or outside work hours, while still doing essential work and forming a bond with the company and its products, services, and customers. At Northrop Grumman, close to 2,000 employees a month take part in Pay for Skills.

Employers profiled note that efforts targeted at their lower-wage workers paid off for them and their employees. Some of the returns employers cite include:

• Increased revenue as quality and customer satisfaction rises.
• Decreased costs as errors, customer complaints, and supervisory interventions diminish.
• Improved employee productivity and morale
• Drop in costs related to vacancies, recruitment, re-training and overall turnover.
• Improved company image among both customers and employees.

From Hidden Costs to High Returns, Unlocking the Potential of the Lower-Wage Workforce is based on structured interviews with nearly five dozen American companies in 2009, with particular emphasis on manufacturing and health care.  Many of the employers participate in industry-sector focused workforce development efforts called sector initiatives. This research was conducted by the National Network of Sector Partners, funded by the Hitachi Foundation.

Source: Insight Center for Community Economic Development, 8/12/2010