Learning & Development

Recession-Proof Your L&D Strategies and Budget For Future Success

By Dieter Veldsman
Recession-Proof Your L&D Strategies and Budget For Future Success
Learning & Development

In brief

  • The looming recession is leading towards a more cost-conscious mindset within organizations with discretionary spending being cut 
  • Learning and development budgets are a prime target, yet historical research indicates that cutting these budgets would be a mistake with both short and long term implications
  • Organizations need to adopt a different approach that creates short-term relief while also investing now to be well positioned post the recession
  • We propose a threefold strategy on how organizations can Refocus, Redirect and Restructure their learning strategies and conclude with six initiatives organizations can action to set them up for success

Weathering the storm

Back in 2008, when the economic crisis hit, 63% of organizations reduced their L&D expenses. Even though this provided short-term relief, 15 years of hindsight, have shown this to be a  mistake. 

Companies that continued to invest during the economic crisis were able to bounce back faster and capitalize on new opportunities in the post-crisis workplace.  For example, in 2008, amidst the recession, Netflix launched their now successful streaming service, Mailchimp pivoted to introduce a freemium business model, and Groupon, a startup at the time, successfully launched their business in November of 2008.  

Albeit,  every recession will have unique circumstances, we see a similar trend in recessions pre-dating 2008.  General Electric was formed during the “The Panic of 1893” in the United States, global giant 3M was founded in 1901, and the iconic Mickey Mouse was born as Disney was recovering from a number of setbacks from the period 1923 to 1929.  

What do all these organizations have in common, and what did they do to survive and flourish during difficult times? 

We believe that successful organizations take three strategic decisions during a recession:

1. They continue to invest responsibly during the recession to capitalize on the post-recession marketplace;

2. They cut spending strategically for the short-term and redirect available funds towards areas that will lead to competitive advantage; and

3. They balance short-term survival with long-term prosperity

A study conducted by Harvard studying 4700 public companies across three recession periods confirmed that companies that make generic costs cuts across the board during a downturn are not able to flourish once the market recovers. Rather, a more considered approach that balances investment and savings lead towards relief in the short-term while not diluting longer term post-recession value.

However, deciding where to invest while responsibly making cuts for short-term survival is not easy.  This often leads to executives making rash decisions and focusing on targets perceived to be “easy to cut”.

Unfortunately, HR and people development budgets are seen as a prime target. 

An easy target: Cutting people development budgets

In the UK, a study conducted in 2010 indicated that more than half of the 700 participating organizations experienced significant learning budget cuts during the financial crisis.  Similarly, the US experienced double-digit cuts in 2008, even though executives agreed that developing people during the recession would  put the organization in a better position in the future. 

This pattern seems to be repeating itself, with a recent 2021survey by CIPD and Accenture indicating a significant change in spending patterns related to learning. Organizations have started to re-evaluate learning channels, vendors and the need for sizable internal learning and development teams, as a starting point to manage costs. Largely, we have seen a decline in spending, headcount, and the use of external suppliers.

Let’s fast-forward to today. 

Even though acting cost-consciously is critical, we believe that ruthlessly cutting people development spending will harm the organization in the short and the longer term.  Short-term, with no investment in development, the skills required to navigate through the recession will not be readily available or would have to be in-sourced at a high premium. 

In a talent-scarce market, such as what we are experiencing at the moment, a lack of development opportunities will make the employer brand unattractive to new talent, as well as increase the likelihood that critical skills will leave.

Recent employee engagement scores published by Gallup in the US indicates that for the first time in a decade, employee engagement has decreased, while disengagement levels have increased with “opportunities to learn and grow” stated as a key reason for the decline. 

Longer-term, the impact on organizational culture, employee morale and talent bench strength will significantly impact the organizations ability to execute and perform. As we emerge from the pandemic, we are also facing a crisis of burnout and “pre-maturely promoted” leaders that without conscious investment and care will result in detrimental long-term business impact.

There is a need for an intentional future-forward approach that organizations can adopt to make the right decisions that will guide them through the recession while also setting them up for success in the post-recession world.

In this report, we explore the actions that HR and Learning professionals can take to recession and future-proof the development budget. We discuss three strategies which we have themed  Refocus, Redirect and Restructure that should be top of mind for any HR or L&D professional during this time.  

These three strategies will enable organizations to bring short-term relief, while also redirecting their focus to capitalize on the post-recession future. Capitalizing on the opportunities brought forward by these strategies, however relies heavily on managing the misconceptions related to Learning and Development budgets.

The perceptions of Learning and Development budgets addressed

Working with more than 300 clients in 100+ countries, AIHR has observed three prevailing perceptions that position learning and development budgets in a negative light: 

Learning does not impact the bottom-lineThe business case for learning is clear not only in terms of value, but also with regard to mitigating risk
Learning is a privilege and not a priorityLearning is a strategic priority within the organization to gain access to the required skills to execute on strategy
On the job learning is enough and formal programs are too theoreticalMixed and blended learning approaches that combine theoretical and practical learning yield better results. 

Perception 1: Learning does not impact the bottom-line

The debate on how to prove learning return on investment has been ongoing.  Various models have emerged that calculates the impact of learning spend and equate it to productivity, customer satisfaction, increased sales or improvement in revenue.  

Approaches such as the Kirkpatrick Evaluation and Phillips Models provide validated frameworks when calculating return on investment, and many people analytics teams have spent significant amounts of effort to conduct impact studies to convince executives on the value of learning investment.

Yet the models are not the problem.

Even though the data has proven these models to be valid, L&D professionals have struggled to change the perception that business holds of whether training leads to business impact.  Similarly, L&D professionals have also struggled to provide an informed perspective of the risks associated with not developing individuals, and specifically how this will impact the ability of business to operate. 

The focus has primarily been on showcasing the value of learning and not highlighting risk the risk of non-development, which has created the “nice to have” perception by leaders about training spend. 

Perception 2: Learning is a privilege and not a priority

Learning has always been a key pillar of any good employee value proposition and is usually positioned as a key gateway towards career advancement and increases in earning potential. 

Inspite of this, organizations have created the perception that learning is a benefit, or a privilege provided to employees as part of employee engagement and retention strategies.  This view neglects the important role that learning plays in preparing the organizational talent supply to meet the demands of the business.

 A PwC survey of 4410 CEOs conducted at Davos indicates that 52% believe labor shortages pose a risk to the profitability of their industry over the coming years. A recent poll indicated that 68% of organizations were already experiencing skills shortages which has resulted in increased levels of burnout for current employees.

Additionally, the talent shortage and skills gap is expected to total a loss of $8.5 trillion by 2030 in the U.S. alone, and the World Economic Forum estimates that we will need to reskill more than 1 billion people by 2030.

Despite the increasing risks of skills shortages, leaders argue that talent can also be bought, or that technological advancement will be able to contribute towards the skills gap.  However, the cost of replacing an individual employee ranges from 1.5 to 2 times the employee’s annual salary. For a 100-person organization that could conservatively equate to a $625,000 to $2.5 million cost per year.

Buying talent across the market also does not solve the problem. Instead it will drive up the cost of scarce and critical talent in a market that is already suffering from a lack of supply.

This is evident with technical and digital roles seeing a double-digit percentage increase in salary growth from 2020 to 2021, compared to a 2,8% increase in other industries within the UK.

Perception 3: On the job learning is enough and formal programs are too theoretical

The final perception held is that learning happens best “on-the-job” and formalized learning is irrelevant and not practical enough to deliver value. 

This perception is largely due to outdated learning methodologies that continue to be followed , which rarely provide transferable skills in the workplace. 

For example, methodologies such as the well-known “70-20-10” approach have been misunderstood by business leaders, and are now being used as a reason for spending less on formal and structured learning. This model has also been criticized extensively in academic literature, yet a number of organizations continue to hold on to this type of approach. 

The preference for on-the-job development above all else is limiting the adoption of a blended and more balanced approach that will yield value in the longer term. Various studies highlight that a learning approach that blends practical exposure with conceptual understanding are more effective.

Similarly, studies highlighting the important role leaders and managers play in employee learning is quoted out of context and negates the fact that on the job coaching does not happen outside a complementary and structured learning journey. 

It is therefore unsurprising that this perception of learning contributes towards managers and leaders agreeing to the cutting of learning budgets. 

A LinkedIn Learning report indicates that getting managers to make learning a priority remains the biggest challenge to access learning opportunities with 49% of individuals indicating that this remains one of the key barriers to development.

Challenges of Talent Development

These three perceptions create a misleading view of the lack of importance of n Learning and Development budgets in the face of cost-cutting.

L&D professionals will need to adopt a different approach that not only addresses these perceptions, but further continues to provide viable alternatives for business during this time of recession. 

We propose three strategies: Refocus, Redirect and Restructure.

Refocus, Redirect and Restructure your L&D spend

We propose three viable strategies for organizations to adopt when recession-proofing their L&D budgets and setting their businesses up for post-recession success.  Importantly, these strategies need to be adopted collectively, and depending on the nature, size and context of the organization the emphasis of where focus and time is spent might differ.

The strategies will be discussed in terms of the following categories:  

  • Refocus where we spend and what we prioritize, 
  • Redirect our spending across different channels and blend our content strategy; and
  • Restructure our budgets to reflect our revised investments and reorganize the L&D organization to reflect revised priorities

Strategy 1:  Refocus

Objective: Ensure that where we invest brings maximum value and impact now and in the future.

The Refocus strategy consists of two key initiatives:

Initiative 1: Balance training on skills and focus on capabilities required for survival and for future prosperity

The first initiative is to focus learning and development efforts on critical skills that will guide the organization through the current crisis, as well as investing in those that will be important for the  post-recession business. To do this, we recommend the use of capability maps that go beyond our usual skills development planning, but rather evaluates the organization through the lens of the recession requirements.

Capability maps provide a great foundation to reallocate and target development efforts.  A capability map is a visual representation of the core skills required to deliver business objectives in alignment with the business value chain.  Let’s use an example to demonstrate this in action.

An example of capability maps in use:

Wired Inc is an electronics retailer selling computers, electronic parts, and cables—through seventeen physical stores across North America and online. They also have a manufacturing plant in Indiana, a sales division spread across different regions and a head office in New York. They employ over 12,000 workers, with most in the manufacturing plant or the retail stores. 

To determine their key capabilities, their first step is to obtain a good understanding of their core business value chain.  Put differently, they identify where their business starts and ends, and the high-level capabilities they require to deliver products to the customers.  

Wired Inc Capability Maps Example

The primary capabilities are:

  • Their business starts with sourcing and procurement. Here, they find raw materials, buy them from various suppliers, and ensure that the manufacturing plants have everything required to build the products. 
  • Next, they have manufacturing, which is responsible for building their products. Here, they build appliances, electronics, and other goods.
  • Then, logistics ships these goods to different retail stores or delivers them to the online consumers. 
  • After that, marketing takes responsibility for Wired Inc’s online presence, runs campaigns within the stores, and also drives sponsorships for brand visibility.
  • Next, sales is responsible for generating revenue within stores and selling products to third-party vendors that stock them.
  • Finally, after-sales customer service is responsible for dealing with post-purchase customer queries and warranty requests.

These building blocks make up the primary capabilities. 

The secondary capabilities:

The secondary capabilities of Human Resources, Facilities and Finance underpin these. For Wired Inc., the secondary capabilities enable the business by building an efficient workforce, supporting its structure, and maintaining the environment.

Next they categorize these capabilities into a matrix that provides a view of both the current importance during the recession as well as the longer term value to determine investment priority. Depending on the categorization, they are able to group the capabilities into one of the following:

  • High Priority Investment Grow: This category refers to skills that need continued investment and should be a first priority
  • Medium to High Priority Investment Maintain: These skills should be top of mind for the short term to drive survival during the recession.
  • Low to Medium Priority Maintain: These skills should still be prioritized but should be a focus for the medium to longer term.
  • Low Priority: Reduce or Discontinue.  Skills categorized within this block should not warrant investment during this time.
Wired Inc Capability Maps Example: Part 2

Depending on their business strategy, Wired Inc maps both the primary and secondary capabilities across the matrix depending on the criteria of relevance to current recession importance and post-recession value.

Depending on available budgets, they are able to use this matrix to make more informed decisions on where to keep on or increase investment; where current investment needs to be maintained or where current investment should be reduced or discontinued.

Wired Inc Capability Maps Example: Part 3

For Wired Inc, they need to continue investing in Marketing and Manufacturing as the post-recession opportunities within a new market segment with new products provide opportunities for growth. 

To meet current demands, sales and sourcing and procurement remain vital, yet they will discontinue any new investment within those areas.  For After-Sale Customer Service and Logistics, they will discontinue investment and rather reallocate that money to some of the higher priority areas during the recession period.

Initiative 2: Adopt a bias towards technical skills and leadership development

The second initiative refers to shifting investment spend towards two critical areas in alignment with the capability matrix above.  The first, is to have a core focus on technical skills within the High Priority and Medium to High Priority blocks.

Technical skills in this context, should relate to categories of skills that are essential to do the job requirements.  In our Wired Inc example, for Manufacturing these could be “Product Design”, “Packaging” and “Quality Assurance”. 

Shifting Investment Spend: Technical Skills

As a secondary shift, the movement towards continued leadership development with a key focus on emerging leaders will be required for the post-recession business. An important focus here would be to target skills such as problem-solving, resilience, dealing with complexity and setting direction.  There is also the opportunity to target this particular pool through cheaper online alternatives (see next point on channel diversification).

In the US, executive development is still mostly offered in person or through immersive experiences, while less than 10 percent of organizations have switched to digital options which are more cost-effective while not reducing the learning impact.  Again using the capability matrix as guide, we recommend investment in future leaders for functions that will be crucial to the post-recession success.

Shifting Investment Spend: Leadership Development

Strategy 2: Redirect

Objective: Diversify learning channel spend to create cost-savings while also anchoring content strategies in a set learning methodology

Initiative 1: Diversify learning spending to different channels that increase reach

As part of redirecting spending during the recession, we propose a re-evaluation of current learning channels and how money is being spent across channels.  Online training has a better Return On Investment than in-person training: it offers cost savings of up to 94% without compromising on effectiveness; and with the recent shifts towards online learning, the barriers to entry and adoption have also been lowered significantly.  

Coursera, the online learning platform reported 20 million new learners registering for courses, and this momentum can be utilized to find more cost-effective digital solutions during the recession. 

Number of Learners Accessing Online Learnings

Similarly, we find that most organizations already have evaluated their learning channel mix during the pandemic and have implement digital first learning strategies. 

With development in digital and virtual reality, this has also posed new opportunities for L&D to create simulations within the online learning domain.  The adoption here to date has been predominantly within the domain of larger organizations, yet the barriers to entry have reduced significantly and become more affordable for organizations of all sizes to explore.

Current Usage of AF, VR and AI Learning Technologies
Source: Training Industry Magazine, 2019 & Research.com

Initiative 2: Align your content strategy to a set learning methodology to increase impact

Given the high propensity of content available in the open market, more organizations have started to follow a “Netflix”-like approach towards content. This approach curates content from various sources combining both self-developed content with open source or gated vendor content.

This has become a great strategy, yet the challenge is that often the content strategy is not aligned to a set learning methodology.  This results in content being too theoretical, difficult to navigate and also dilutes the practical application value of content.

At AIHR, we follow a set learning methodology to blend our content. This methodology is called the Tell, Show, Do, Apply and Reflect methodology and we anchor all our content across these 5 content experiences.

“Tell” content has a strong focus on imparting theoretical knowledge and understanding which is usually conducted via video lesson.  “Show” relates to the observation of the knowledge in practice which we blend through the use of case studies and practical experiences.  “Do” provides the learner with the opportunity to practice in a safe environment through peer discussions, assignments, simulations and case study experiences. 

“Apply” is the practical application back in the workplace, and there is a strong focus on resources, in work application and tools.  Last, we believe that learning happens through reflection, or the sense-making process of allowing learning to become ingrained through behavior change, which is why throughout all these steps we incorporate reflection as a key part of making sense of the learning.

Tell, Show, Do, Apply Methodology

Organizations should consider using a similar methodology to underpin their content strategies and map the content mix that they provide to these methodology steps to optimize the impact of training and ensure the adequate blend between different content types. 

We highlight this as part of future-proofing the learning function as the ability to continuously demonstrate the relevance and impact to business goals are important – and having the right content mix is the first step in this direction. 

Strategy 3: Restructure

Objective: Create cost-savings within the current budget and realign the L&D skills to the new content and channel strategies

Initiative 1: Restructuring your budget and negotiations

Learning and Development budgets have always been a contentious issue in most organizations.  Various methods exist to determine the optimal spend, with some stating that 1% to 5% of total payroll should be allocated to people development, while others pushing for higher numbers based on a per employee cost estimate. 

The reality is that during the recession you need to free up capital within your L&D budget that can be reallocated elsewhere or cut to relive short term pressure without impacting the effectiveness of your training priorities. 

To do so, we recommend 8 practical steps organizations should consider:

  1. Vendor negotiations: Renegotiate terms with vendors to be more favorable and longer term to spread costs over an extended period of time and reduce immediate spend.
  2. Discounts: While working on renegotiating terms, negotiate larger discounts with the vendor if contracts start exceeding one year terms.
  3. Flexible subscriptions: Shift spending into more license and subscription-based solutions that you can control based upon headcount numbers.
  4. Online vs. Offline: Re-evaluate the mix of training spend to focus on more scalable online solutions as opposed to fixed face-to-face immersive experiences.  Given more online channels being utilized, there is a great opportunity to consolidate previous real estate and training facilities.  A practical example is one of our clients who closed down their physical training centers and switched towards both online and rent-for-use models which resulted in significant savings that could be redistributed elsewhere.
  5. Public funding: Look at local government levies and skills development opportunities to fund some of the learning spend of programs such as bursaries or learnerships.
  6. In-house: Save external coaching & mentoring costs by setting up an in-house mentoring program.
  7. Budgeting perspective: Shift to a 3-year budget cycle and spread costs accordingly. This helps show why some spend is required now, and where future savings will come from.
  8. Consolidation: Consolidate systems and vendors. You need to be clear on where your optimal spend is aligned to the strategic priorities of the organization.

Initiative 2: Restructure the L&D organization

L&D teams also need to put themselves, their processes, and their vendors under the microscope because most companies will find that the L&D budget is not actually spent on training.  According to the 2022 Training Industry Report, just 8% of the total (US) L&D budget is allocated to actual training providers like LinkedIn Learning, Udemy, and AIHR. The majority of budget resides in fixed costs related to headcount. 

We are not proposing to immediately cut down on the learning and development team, but rather to review the team composition given the shifted priorities, new channel mix and reworked content strategy.  For example, if most of the learning is going to be conducted online, you might require more “Instructional Designers”, yet your facilitator pool could be reduced.  

Total L&D Budget, US

Given the current talent market, we also believe there are some opportunities for alternative models such as gig-workers and job-sharing to be utilized to reduce fixed costs within the L&D organization. 

To conclude

To conclude, these three strategies, Refocus, Redirect and Restructure, will enable organizations to balance short-term cost constraints without compromising on longer term priorities and opportunities.  Depending on organizational size and context, these strategies will differ in relevance and impact.  Yet, we believe that organizations of all sizes should consider adoption a combination of the initiatives discussed in this report.  

RefocusEnsure that where we invest brings maximum value and impact now and in the future.Initiative 1: Balance training on skills and focus on capabilities required for survival and for future prosperity
Initiative 2: Adopt a bias towards technical skills and leadership development
RedirectDiversify learning channel spend to create cost-savings while also anchoring content strategies in a set learning methodologyInitiative 1: Diversify learning spending to different channels that increase reach
Initiative 2: Align your content strategy to a set learning methodology to increase impact
RestructureCreate cost-savings within the current budget and realign the L&D skills to the new content and channel strategiesInitiative 1:  Restructuring your budget and negotiations
Initiative 2: Restructure the L&D organization

Even though the future is ambiguous, we firmly believe that organizations need to proactively invest in developing the skills required for success. 

With more uncertainty and complexity on the horizon, organizations that pro-actively implement the strategies discussed in this document will be better positioned to capitalize on the opportunities that the post-recession world will provide.  The short-term cost pressure should however also be taken into consideration, yet making uninformed cuts will not yield the desired results organizations are hoping to achieve.

The way forward is clear and using the wisdom gained from previous recessions, organizations have the opportunity to become one of the success stories that will be told in future when reflecting back on this time.  If they do not act, they will also be part of this story – as a generic statistic quoted to describe those that where not able to weather the storm.

About the Author

Dieter VeldsmanChief HR Scientist
Dr. Dieter Veldsman is an organizational psychologist with 15+ years of experience across the HR value chain and lifecycle, having worked for and consulted with various organizations in EMEA, APAC, and LATAM. He has held the positions of Group Chief People Officer, Organizational Effectiveness Executive, Director of Consulting Solutions, and Chief Research Scientist. He is a regular speaker on the topics of Strategic HR, Future of Work, Employee Experience and Organisational Development.
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