Encouraging employer demand for training

Investing in training and development is critical for tackling skill gaps and improving workplace productivity.

Yet, despite its importance, evidence suggests that employers in the UK are training less and investing less in their workforces than they were 20 years ago, with UK investment per employee now standing at around half that of the EU average. Smaller employers are even less likely to invest in their workforces; whilst just 5% of large firms are non-training enterprises, the figure for small employers (under 50 employees) stands at over 40%.

Barriers for smaller employers wishing to invest in training

Smaller employers typically face greater barriers to training participation than larger firms. These include, but are not limited to, informational barriers such as lack of knowledge about the availability of training opportunities, lack of understanding of its potential benefits, and financial barriers with small organisations unable to achieve the economies of scale enjoyed by larger businesses. Smaller firms are also more likely to be focused on the short-term goals, on business survival and ‘getting the job done’, and are therefore less likely to make longer-term strategic investments in developing their people.

Yet, we also know that smaller organisations are often blind to the skills challenges facing their organisations – for instance, smaller organisations are much less likely to identify that they have skills gap amongst their workforces. And even when they do identify a skills challenge, they often lack the internal capacity to put into place practices to develop their employees’ skills because of poor management or a lack of a specialised HR function.

It is also widely recognised that many firms, particularly smaller or family-owned firms, adopt a ‘low-road’ approach to competitiveness and see human resources as a cost to be minimised, rather than invested in and properly harnessed. A low-road strategy can be self-reinforcing, in that previous decisions relating to capital and human investments take on path-dependency and determine future investments.

Stimulating employer demand

As noted by the Cabinet Office back in 2001, skills are derived from business need, so unless there are mechanisms in place to influence underlying need, then policy interventions are unlikely to have the desired impact.

The OECD has convincingly argued that addressing this requires direct intervention at the level of the workplace to support employers to either shift to higher-value-added production and/or reshape workplace practices to drive the demand for skills. For instance, evidence from Finland highlights the value of providing support to business via external experts to help firms to upgrade their workplace organisation, improve their people-management skills and redesign work, and to drive their investment in training.

The CIPD has also run a number of regional pilots to explore the sort of approaches that might work to raise SME’s people management and development capability, and to stimulate their investment in skills via a limited amount of high quality ‘pump-priming’ HR consultancy support. The evaluation of these pilot schemes suggests that the provision of high-quality HR support to small firms at a local level, embedded through key partnerships such as Local Enterprise Partnerships, chambers of commerce and local authorities, has the potential to reach large numbers of employers and make a material difference to owner- manager confidence and capability and support productivity growth over time.

We estimate that a People Skills-type business support service could be rolled out across all 38 Local Enterprise Partnership areas at a cost of between £20m-£40m a year, and could potentially provide support to between 20,000 and 40,000 firms a year, depending on the level of funding. Over five years it could start to have a material effect on the people management and development capability of a significant proportion of businesses in an area.

And finally, if we are to create a business environment where business leaders regard their workforce not as a cost to be managed, but as a key value driver to be invested in, a strong focus on industrial strategy is needed. This is because addressing weak demand for skills and poor skills use by firms requires action across a range of connected policy areas – including business support, innovation, skills, economic development, and labour market enforcement .

Recommendation 1

Government should invest in high-quality business and people management support to build employer capability and appetite to invest in skills and improve how people are managed and developed in the workplace.

Recommendation 2

Whilst direct intervention with individual businesses is important, international evidence highlights the benefits of local approaches that target multiple employers, local areas should seek to leverage sectors and employer networks to stimulate and encourage SME investment in training.

Recommendation 3

Government should prioritise the development of a broad-based industrial strategy that encompasses and addresses the bulk of the economy and employment, rather than a narrow focus on a small sub-section of high growth or R&D intensive firms.

By Lizzie Crowley, Skills Policy Adviser, CIPD

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This article is part of Campaign for Learning’s series: ‘Driving-up employer investment in training – pressing the right buttons’.

Part One: Employer investment in context

1. Louise Murphy, Economist, Resolution Foundation: Investment in the round
2. Dr Vicki Belt, Deputy Director, Enterprise Research Centre, Warwick Business School: UK enterprises and investment in capital and training
3. Becci Newton, Director, Public Policy Research, Institute of Employment Studies: Employer investment in training in England

Part Two: Drivers of employer investment in training

4. Neil Carberry, Chief Executive, Recruitment and Employment Confederation: Derived demand, British management and employer investment in training
5. Ewart Keep, Professor Emeritus, Education Department, University of Oxford: Strategies to drive-up employer investment in training
6. Sam Alvis, Head of Economy, Green Alliance: Transitioning to net zero, green skills and employer investment in training
7. Dan Lucy, Director of HR, Institute of Employment Studies: Job quality, job design and driving-up employer investment in training
8. Natasha Waller, Policy Manager, LEP Network: Local inward investment, business support and employer demand for training
9. Jovan Luzajic, Acting Assistant Director of Policy, Universities UK: Universities, R&D, business innovation and meeting employer skills needs
10. David Hughes, Chief Executive, Association of Colleges: FE colleges, business innovation and meeting employer skills needs

Part Three: Increasing employer investment in training

11. Paul Bivand, Labour Market Consultant: Why should employers invest in training in a flexible labour market?
12. Aidan Relf, Skills Consultant: Why should employers invest in training with large net worker migration into the UK?
13. Stephen Evans, Chief Executive, Learning and Work Institute: Raising employer investment in training
14. Robert West, Head of Education and Skills, CBI: Increasing employer investment in training
15. Lizzie Crowley, Skills Policy Adviser, CIPD: Encouraging employer demand for training
16. Anthony Painter, Director and Daisy Hooper, Head of Policy and Innovation Chartered Management Institute: Increasing employer demand for management training

Part Four: Raising employer demand for publicly funded post-16 education and skills

17. Jane Hickie, Chief Executive, AELP: Increasing employer demand for post-16 apprenticeships in England
18. Mandy Crawford-Lee, Chief Executive, UVAC: Increasing employer demand for level 4-5 technical education in England
19. Ian Pryce, Principal, The Bedford College Group: Increasing employer demand for higher technical education in England

Part Five: Raising employer demand for work placements

20. John Widdowson, Board Member, NCG: Increasing employer demand for work placements for level 3-5 vocational courses in England
21. Stephen Isherwood, Joint Chief Executive, Institute of Student Employers: Increasing employer demand for undergraduate work placements in England