what is the business case on manager training?

Is it worth doing management training to help managers become effective managers? Well of course I’m going to say yes but don’t let that persuade you, look at the facts and then see what you think. The reason why I’ve given up everything else to focus on helping managers is because I think it is the single most important thing to get right in every firm. And if you’re a boss who’s had limited or no manager training I’d bet that manager training is going to change your life.

This Module is Part of Boss Camp

Boss Camp will show you how to improve employee performance by showing you what they never taught you in school. the program includes topics such as:

  • How to motivate employees
  • What are bad employee motivators
  • What you must do as a manager but isn't on your job description
  • How leaders get power
  • Management techniques that don't take time

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What is the business case on manager training?

Is it worth doing management training to help managers become effective managers? Well of course I’m going to say yes but don’t let that persuade you, look at the facts and then see what you think. The reason why I’ve given up everything else to focus on helping managers is because I think it is the single most important thing to get right in every firm. And if you’re a boss who’s had limited or no manager training I’d bet that manager training is going to change your life. And I’d like to show you how.

Before I get into the logical stuff I’d like to ask a meaning of life sort of question. Where do you want to work? Until the robots take over, for better or worse, we’re still spending half of our waking day at work. It’s a great thought that if you enjoy your work you will never have to “work” a day in your life. But the reality is most of us don’t really like work. I expect that just like me you’d like:

  • to work in a place where you can grow and use your potential,
  • the flexibiltity to do the job the way you want to,
  • to do work that has meaning, to be valued and to have your contribution acknowledged
  • a good relationship with your boss and
  • for your staff to do their jobs with the minimum of conflict and management pains

and the funny thing is that this is what your employees want too. I know this because I have the research that says so. What’s the relevance of this? These things don’t just happen on their own. The Manager Foundation is exactly about engaging employees which leads directly to higher profitability. This is not by spending money or making managers work harder. This is by tapping into common, basic human desires using ethical management techniques and carefully selected words. This helps managers to create the sort of environment that people work well in.

I’d like to think that this alone is reason enough for manager training. So if you are the type of person who believes in

  • Ethical management practices
  • A positive work environment that adds value to our lives and
  • Confidence in your abilities as a boss

And you accept that you can’t get there without  a little time and money then you’re in the right place to be a better boss. And if you’re like me and like a bit of logical justification then think of these:

  • The multiplier effect: Training an individual staff member only improves their productivity. Training a single manager to improve employee productivity improves the productivity of the whole team.
  • Employees are your largest untapped asset: Even in some of the best firms more than half of the employees are not fully engaged. Small improvements in engagement result in large increases in profitability. In one study1 across 90 000 employees, the companies in the top quartile of engagement grew profits by 32% whilst the companies in the bottom quartile had a decline of 19%
  • Manager training increases retention. Staff turnover is extremely expensive. An average staff turnover of 20% costs you around 10% of your total payroll in direct costs alone (recruitment costs, training costs, learning curve)
  • Other productivity improvement options (for example automation, incentive programs, team building exercises) are costly, complex, riskier, less enduring and/ or take longer to implement.

A thought experiment:

Before I get into the numbers a small thought experiment: Think of a time when you were fully engaged by a task – you believed in it’s importance and you wanted to do it. How much better did you do this task than something that you only did because you had to do it. It’s not that one task was any better than the other, it is more about the state-of-mind that you approach the task with. The perceived importance of the task, the impact on other people. In the workplace this is the difference that a manager can make to the performance of their staff. The manager who as not been trained in motivation and effective management techniques usually relies on formal role power and ordering staff what to do. The effective manager gets their staff to want to do what the job requires. This isn’t an easy thing to do and that’s why a little help goes a long way.

Ok now show me some numbers:

Do you agree with the logical reasons about why manager training will make a difference to the workplace? Maybe you’re like me and want to see some hard numbers?

As you can imagine we are dealing with soft skills here and complicated factors with many different variables. This means that this is a bit of an inexact science. To compensate for that I will use figures at the bottom end of what the research shows.

Improving manager skills will:

  • Increase staff performance through better engagement, more effective performance feedback, improving the skills of staff and better delegation. Range 10% - 40%. Use 5%
  • Dealing with underperformers faster (fix or fire). An average team has around 20% of performance that is below an acceptable level. A realistic target is to reduce this to 10%. Use 5%
  • Avoid Bad Hires:  The bad hire rate is between 25% and 50% - for this we will take 25%. You hire around 20% of your workforce every year. Direct costs of a bad hire include recruitment fees, wasted payroll, training etc. These could easily amount to a years worth of payroll per bad hire. If you can halve the number of bad hires the benefit of your total payroll is: 50% (improvement) x 25% (bad hires) x 20% (staff turnover rate) x 100% (annual cost per bad hire) = 2.5% of total payroll
  • Hiring better staff - improving the quality of good hires. The range on this is incredibly large. In some roles the difference between bottom quartile and top quartile is an order of magnitude and you could hire an absolute superstar that becomes the next CEO. For this we will take a typical scenario: moving from average to above average (but not even the top quartile). This is approx. a 25% difference in performance. By the time you turn your whole team, you will have the full benefit but in the first year this will only be 5%
  • Reducing staff turnover by one quarter (Reduce staff turnover rate from 20% to 15%). Ignoring the cost of lost organisational knowledge and lost customer relationships, the payroll saving in direct costs alone (recruitment costs, training, learning curve) is 2.5%
  • Sundry efficiency improvements (Better time management, running Meetings that Matter etc.): 5%

In total, conservative estimates for partial improvements in the skills of your managers is around 25% of your total annual payroll bill. Some of these effects cancel each other out and some of them have a multiplier effect. These effects are for Year 1. Year 2 will be larger. The 25% benefit is for putting most of the “Foundational Techniques” into practice. It is possible to use only some of the techniques.

So to put it into context that is a little easier to understand. Manager training will allow you to:

  1. Hire better employees and similarly but slightly different

  2. Reduce the costs of bad hires

  3. Reduce the cost of employee turnover and

  4. Increase employee productivity with better motivation and employee development

To the extent that for every 4 people people on your team, you will be doing 5 people's worth of work. I’m a Chartered Accountant and I can confidently claim that I’m an expert at running business case numbers yet personally I find that such a big improvement is difficult to believe. Especially as these are the figures on the lower end of the scale. After checking the numbers over and over what I came to realize is that there was a message behind this. And that is there is a vast difference in performance between people. And these are the numbers that  support Steve Jobs quote that a small team of A+ players can run circles around a giant team of B and C players.

The accountant’s favorite question is: “Yes, but how much will this cost?”

Not all situations are created equal so some accountant-friendly conservative numbers will be used (based on a team of 5 staff and the manager makes 30% more than their direct reports).

The investment in time and money (including two to four weeks of the manager’s time) is between 1% and 2.5% of your total payroll. This means your Return on Investment (R.O.I.) starts at the 1000% range and your 5-year IRR (with the cost all in Year 0 and benefits only starting Year 1) is also in the 1000% range. I’ve had years of doing financial modelling for many multi-million dollar investments and acquisitions in some of the largest companies in the world. So I know that you’re probably thinking the same thing as me – these numbers are too good to be true. What I can say is that these figures support the real world results I’ve seen. When I’ve consulted, I’ve seen failing companies turn into thriving companies.

I’ll tell you something personal here: Yes the mission of Manager Foundation is to make work a better place like I described in the beginning. But this isn’t some fluffy nice to have. I believe that this is possibly the best business investment that anyone can make. In every company I’ve worked for or client I’ve had, which includes professional accounting firms, trusted brands, successful operators and great leaders. The single thing that all of these companies could do better was to improve their manager skills.  This is a major the reason why out of all the other things I could be doing, I have chosen to do the Manager Foundation.

Of course your scenario will be different. And even though I feel I’ve used the lower range of numbers you might think some of the increases are too high. But what I think this demonstrates is that even just a small increase is really a very worthwhile return. You could get one tenth of the benefit that I have seen other firms get and it would still be a worthwhile endeavour.

How have other firms been affected?

One last data point: Using a real world study that tested the difference that the manager makes to the output of their team (2). This study found that the top bosses compared to the bottom bosses added the equivalent of an additional worker to the team. This is comparable to the benefits above.

Conclusion

So in conclusion is it worth doing management training? I believe the real question is can you afford not to? I’m obviously not an unbiased source because of what I do but I can tell you that I chose what I do exactly because I saw the potential. In summary:

  • Better manager skills make the workplace the sort of place that you and I want to work at. As staff and as the boss,
  • There are several logical reasons (such as the multiplier effect) why manager training is a smart choice,
  • When you look at the financial returns I don’t think you will find an alternative business initiative that can come anywhere close to it and
  • Economists have studied the impact that bosses make and have shown that other firms have seen a significant cause and effect from managerial skills