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The ROI Imperative of Reskilling in Digital Transformation of Global Enterprises

Talent Intelligence Platform May 19, 2021

The ROI Imperative of Reskilling in Digital Transformation of Global Enterprises
Vijay Swaminathan

Chief Executive Officer, Draup

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Corporate business models, operational workflows, and the talent needs of enterprises are witnessing a tectonic shift from traditional patterns. From increased deployment of automation and AI solutions to reduced workplace densities and remote working, the sudden shift in workforce dynamics has introduced a disruption in the established talent management pipeline.

Draup’s research shows that well over 77% of all job roles and functions are bound to undergo some form of disruption.

Most enterprises have not fared well in response to this disruption. The talent gap triggered by a workforce that was growing out-of-sync with the technological advancements has continued to widen with no sign of relief in the near-future.

However, contrasting this growing talent gap with the World Bank’s projection that over 133 million roles are set to be created in the coming years is bound to confuse any analyst. After all, if there are new roles emerging and there are more college graduates now than ever before, then how can there be a talent shortage?

Our analysis reveals that the talent problem plaguing enterprises is two-fold:

  1. Companies with deep pockets are scooping up the crème-de-la-crème of the talent leaving others scrambling for much-needed top-tier talent
  2. Companies left with the remaining talent are devoid of any solid reskilling initiatives to enhance their employee’s skills leading to a negative feedback loop that only serves to extend the skills gap

Surveys of talent stakeholders reveal that only an insignificant minority have an actual plan to fortify their workforce and immunize themselves from future disruptions.

Reskilling as an Antidote to Job-Role Disruption

A key part of their strategy to bridge the talent gap is the increasing investments into enterprise-wide reskilling initiatives.

But current reskilling initiatives suffer from two major flaws:

  1. Lack of quantitative and qualitative metrics to gauge their ROI
  2. Lack of established protocols to ensure their success.

This article will focus on the first point.

It is unsurprising that companies, both with and without deep pockets, are investing in internal talent intelligence platforms and creating partnerships with online learning companies to implement custom reskilling strategies.

But are they working? Is the renewed pivot to reskilling and the widespread embracing of learning really having the benefits that reskilling evangelists tout?

That’s exactly where the data falls short. There aren’t any quantifiable metrics available for companies to understand and measure the ROI of their reskilling initiatives. And this is causing many enterprises to think twice before embarking on a reskilling partnership.

This is despite the fact that the World Economic Forum has given a directional ROI of about 21% for reskilling when compared with external hiring.

Measuring the ROI of a Reskilling Initiative

Draup’s researchers have spent countless hours trying to answer solve the ROI conundrum plaguing enterprise reskilling initiatives.

While the qualitative benefits of reskilling can be easily argued out as below:

  • Culture fit – existing employees work very well the company culture
  • Understanding of Company Proprietary Systems – existing employees require little to no training in handling proprietary systems
  • Inclusivity – being embedded in the organization for a while exposes existing employees to the inclusivity and diversity ethos
  • Internal Resource Network – that they can leverage to get things done faster
  • Understanding of relevant business domains and metrics – crucial for delivering on projects that are time & logistics sensitive

However, the quantitative benefits require some amount of data wrangling.

Nevertheless, we have succeeded in building a heuristic model that captures the quantitative benefits of reskilling initiatives.

The Draup model developed to measure the ROI of reskilling initiatives was assembled through primary and secondary research across the following parameters:

  • Time taken by an internal employee to acquire a typical new-age technology skill
  • Costs associated with the reskilling programs
  • Hiring costs associated with external hiring
  • Cost of ramping up an external hire in the domain and functional skills

The model operates on two variables – cost savings associated with hiring external talent and the productivity impact associated with external hire in the learning domain and functional skills.

The Reskilling ROI Model in Action

This first step – analyzing cost savings – serves as a cornerstone to our comparison of reskilling existing employees vs fresh hires.

The underlying equation is below. It’s simple yet quite effective when applied on Draup’s data.  

Comparison of Cost Impact Equation:

Comparison of Cost Impact Equation

Here, we make some safe assumptions about the Salary Cost of Hiring/Reskilling, Productivity Cost of Hiring/Reskilling & Hiring/Training Operational Costs based on Draup’s extensive data sources that are well-within the margins for error.

An example of this model in action can be seen below.

In the below image, we measure Productivity Impact (P), and Cost where “d“ has been derived assuming an annual salary cost of $100,000 and “D” has been derived as 35% higher than “d” and compare them across Reskill & Fresh hires.

While the fresh hire is expected to reach 100% productivity only by the 9th month, the existing employee attains this level much before, all the while simultaneously undergoing an on-the-job reskilling program.  

The net result at the end of 12 months: 

 

External Hire 

Reskilling Employee 

Productivity 

6.75P 

9P 

Cost 

9D 

11d+D 

Note that D is 35% higher than d. 

It is quite evident that reskilling wins across both factors. 

By studying the above features cost savings and productivity impact, we estimate that reskilling an existing employee to be 23% cheaper than hiring a new employee. 

To learn more about our Reskilling ROI Model, our actual assumptions, baselines and how we arrived at our estimates, download the whitepaper here.

 

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