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Unit 2: Strategic Training

The new agenda for HR is a radical departure from the status quo. HR will have to move towards Notes
centre stage in the accomplishment of business results. Managing change through people has to
be the motto of HRM.

2.3.3 Economic Rationale for Investing in Training

Because HR investments frequently involve training, it is instructive to consider the difference
between specific and general training. The decision whether to invest in training and development
depends upon whether the education imparts the skills that are specific to the employing
organisation or are general and transferable to other employers. Employers generally invest in
or pay part of the cost of specific training because employees cannot readily transfer such skills
to other employers. Human capital theory predicts that employers will pay for none of the cost
of general training because employees can transfer skills developed at employers’ expense to
other employers. Accordingly, employers would hire rather an employee who has the requisite
general skills.
Like general training, specific training can be obtained through formal programmes. It also can
be obtained through on-the-job experience as much of what employees learn on-the-job tends to
be specific nature. Employees who receive specific training from an employer, receive a lower
wage after training than their productivity would warrant because no other employers have use
for these specific skills. Thus, it is likely that the employer will have invested more heavily in
these employees and would not want to lose the investment.

There are probably few skills that have no transferability to other employers. Nonetheless, the
concepts of general and specific training can provide insights on the conditions in which
investments in human resources are more favourable.
(a) Utility Theory: In considering investment in human resources in terms of hiring or
development of current employees in order to pursue given strategies, there must be a
method for evaluating the financial attractiveness of such investments. Utility theory
attempts to determine the economic value of human resources programmes, activities
and procedures.
(b) Outsources as Alternative to Investment in HR: Investment in HR should support
organisation’s strategies. Unless there is the potential to build capabilities that provide an
advantage over competition, cost considerations often lead to the rational decision to
outsource through specialised service providers rather than invest in HR. In general,
strategic outsourcing is advocated where (1) world-class capabilities and a strategic
advantage cannot be developed, (2) the resources devoted to services performed internally
will be greater than those need to outsource the service, and (3) excessive dependency on
suppliers can be avoided.
(c) Investment in Employability : While there have been dramatic declines in the prevalence
of employment security policies, some companies are now investing in their HR by
providing developmental experiences that made employees much more employable,
should the employment relationship end. These developmental investments might include
the provision for growth opportunities, a learning environmental training, and retraining.
Having a workforce that is characterised by its employability is probably a necessary
prerequisite for corporate survival.

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