HR Leaders Reveal Why They’re Protecting L&D Budgets
The spread of the coronavirus across the globe has had significant implications for an already worrisome global economy. Most economies, including the U.S., have already slipped into a recession, and a recovery doesn’t appear likely until early next year.
Many organizations have resorted to cost-cutting measures such pay cuts, eliminating travel budgets, furloughs, and in some cases, permanent job eliminations. Organizations are also looking at other areas where they might be able to cut expenses in their FY20 and FY21 budgets, and historically, one of the biggest areas for budget cuts is training & development.
Yet while such cuts can result in short-term expense savings, reducing training & development — especially leadership development — can have negative long-term effects for your organization.
Your top talent powers your organization’s growth both during and after an economic downturn, and you need to ensure they have the skills and competencies to survive and thrive. Developing and retaining top-performing employees is essential in any business strategy, and especially during a time of economic uncertainty.
Data gathered in our latest research study with HR leaders benchmarks what organizations are spending on leadership development, how they intend to protect these budgets in an economic downturn, and ways they’re optimizing leadership development spend to achieve the greatest impact.
NOTE: This research was conducted in October, while recession fears were growing in the U.S. and prior to the COVID-19 outbreak. Now that the global economy has plunged into recession, organizations are implementing the leadership development strategies they were formulating in the fall in response to a potential recession.
Survey Results: Leadership Development Budgets for 2020
As a follow-up to our research last year benchmarking the state of leadership development spending, we recently surveyed 300 HR leaders from both domestic and multinational organizations.
We discovered that organizations are continuing to prioritize investments in leadership development in 2020 because it can:
- give them a competitive advantage,
- help them achieve their business strategy, and
- improve their ability to attain their goals, even as the economy is shaky.
Typical investments in leadership development. Our research found that the median overall budget for leadership development is approximately $350,000. Nearly 40% of the organizations were spending more than $500,000 annually on leadership development, and almost 20% were spending more than $1 million a year on developing leaders.
Budgets are largely staying the same. Last year, the majority of the HR leaders surveyed maintained the same budget levels as the year before, and over 1/3 of those surveyed increased them. For 2020, most (57%) reported they still plan to keep the same budget levels as last year, and nearly 40% expect to spend even more on leadership development for their workers this year.
Only 5% of the respondents were expecting a decrease to their leadership development budgets.
Contingency planning for an economic downturn. While the HR leaders we surveyed felt optimistic about the future of the economy, over half were also making contingency plans for their businesses. The prevailing attitude was to “plan for the worst and hope for the best.”
We asked HR decision-makers how their spending strategies might change in the event of an economic downturn and found the number of organizations who said they would cut their budgets (30%) was almost offset by those that said they would increase budgets (27%). Furthermore, many organizations in the survey (42%) said they would try their best to maintain their leadership development budgets in a downturn or recession.
“Effective leadership is valuable no matter the health of the economy,” noted one senior-level HR leader from the healthcare industry. “Leaders need to be flexible to make decisions in any environment.”
Budgets for developing top leaders will likely be preserved. While development budgets are expected to remain more or less the same across leader levels in a slowdown, we found that budgets for development of senior-level leaders are slightly more likely to be protected. This may be because these leaders will be the ones expected to lead the organization through the current crisis or downturn, and position the company to take advantage of opportunities as the economy recovers.
Spending on high potentials remains a priority. We also discovered that high-potential employees will continue to receive development during a downturn. In fact, 42% of respondents said they planned to increase the leadership development budgets set aside for their high-potential talent in the coming year.
Interestingly, this was even more prevalent among newer organizations that have been in business for 20 years or fewer.
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Why Protect Your Leadership Development Budget?
HR leaders we surveyed noted that it’s critical to protect leadership development budgets during an economic decline. A majority, 70%, said they feel motivated to protect their budgets because of the many benefits leadership development provides to the organization.
The top benefit they identified of continuing leadership development in a downturn is better-trained leaders and ensuring a strong leadership pipeline is in place.
As an HR leader in the aerospace industry told us, “Well-educated leaders can run a more efficient business. They can motivate and engage their employees through a recession, therefore improving retention and cutting down on employees leaving the company. Better educated managers typically have more engaged teams. Better engaged teams have higher customer satisfaction and profits.”
Strong leadership will give an organization competitive advantage and better prepare it for growth in the recovery. Another motivation is to ensure the organization has an adaptable, efficient, and agile workforce in order to implement the business strategy and direction.
For the Majority of Organizations, Cutting Budgets Creates Challenges
Another finding of our latest research study was that nearly 90% of the organizations that expected to be asked to cut their leadership development budgets in a downturn also believed that the budget cut would create a moderate to strong challenge to the success of their organization in the future.
Over half of our respondents, 55%, said they believe a cut in leadership development budgets would produce significant challenges, some with long-term effects lasting far beyond the current economic downturn and coronavirus fears. The biggest consequences of cutting development budgets were identified as:
- issues with employee morale and engagement;
- increased turnover;
- a weak leadership pipeline;
- a less skilled workforce;
- inability to attract new talent due to a lack of development opportunities;
- increased costs/resources required to hire and develop new talent;
- decreased training innovations;
- competitive disadvantage as compared to other companies who continue to invest in their leadership development efforts; and
- inability to take advantage of any new business opportunities that arise.
According to an HR leader from a financial services company, “I think a budget cut will have a sizable impact as it is related to staff morale. There will also be a loss of ideas for innovations.”
Another respondent in the professional services industry worried about decreased budgets having an adverse effect on employee retention, saying, “I feel that my team relies on training and would perceive negatively a decrease in budget. I also feel that other firms that do not decrease training could then lure employees away.”
Investing in Development During Good Times & Bad
While our research with HR leaders found that there is caution, about the same number of organizations said they would decrease their budgets during an economic downturn as said they would increase them.
Furthermore, most reported that they are motivated to protect leadership development budgets, and the majority believe a cut would create a significant challenge for them.
Organizations that continue to make leadership development a priority will find it gives them a competitive advantage, helps them achieve their strategy, and improves their ability to attain their goals. Because leadership development is so closely linked to an organization’s success, investments will continue to be made in good times and in bad.
During the current downturn, top organizations will continue to budget for leadership development, particularly for their high potentials, and will prioritize options that can either be delivered digitally or brought in-house.
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