How to build a business case for reskilling

Interest in reskilling is soaring within the HR and L&D community. 

There are plenty of compelling reasons why reskilling should be a part of your people plans, including improving your staff morale and employer reputation. 

But if you want to win over your organisation's hearts and minds, here are the most potent financial factors to incorporate into your reskilling business case.  

Reskilling ROI #1: Reducing redundancy costs

McKinsey estimates that by 2030, up to 375 million workers - around 14% of the global workforce - will be displaced by automation and AI. The costs associated with losing that proportion of your employees would be significant. 

While there are costs related to the management time necessary for administration, planning, and consulting, the heaviest costs associated with redundancy are the severance packages paid to experienced, longer-tenured employees. 

Reskilling enables organisations to retain these capable, loyal employees and avoid costly severance packages. 

Reskilling programmes are not without costs of their own. There are direct training costs, administrative costs, as well as the indirect costs related to the time the employee is learning instead of working. The WEF estimates that this equates to around $24,000 a worker. 

However, these costs pale in comparison to the costs of redundancy. In a recent study of redundancy costs, the lowest cost of a single layoff was estimated at $30,000 - with some companies reporting significantly higher. 

Spotted Zebra has saved 1 company an estimated £2 million in exit costs by reskilling 150 employees from declining roles to high-growth tech roles. 

Reskilling ROI #2: Reducing recruitment costs

Hiring new employees is more costly than reskilling existing staff. 

Some new hires may have accrued recruitment fees. However, all will need onboarding and inductions to familiarise them with the company culture and workplace procedures, which will require time and effort. 

By comparison, existing employees already possess workplace knowledge. 

New employees also often require higher salaries than reskilling. According to research by the Wharton School, external hires are paid about 20% more than reskilled workers. But salaries could be even higher for in-demand skills. 

Competition for digital skills, for instance, is fierce. Meanwhile, the talent pool for some of these skills—such as AI—is very limited, with demand far outstripping supply. Therefore, businesses can expect to pay a premium to recruit some required skills. 

Plus, for roles with a talent shortage, time-to-hire can be significant - meaning that critical high-growth roles can be left unfilled for a lengthy period. 

Research from PwC UK estimates that reskilling can save companies up to £49,000 per employee compared to hiring someone with the relevant skills. Reflecting this, LinkedIn research found that 80% of professionals believe it's cheaper to reskill a current employee than to hire a new one. 

Reskilling ROI #3: Improving productivity

Reskilling individuals enables organisations to retain institutional knowledge that would otherwise take time to teach to a new hire, enabling reskilled employees to be more productive than recruits. 

Longer-tenured employees in particular often have a deep understanding of the organisation’s systems, processes, and context. They are also likely to possess a number of transferable skills that provide a productivity advantage over new hires. 

Research by Panopto estimates that the average new hire receives 2.5 months of formal training, but it can take up to 6 months for an employee to ramp up in a new role. Even then, these employees often struggle for up to 3.5 months, learning the details of their jobs, seeking information, and familiarising themselves with new systems and technologies.

On average, new hires are less productive for their first two years on the job than reskilled employees who already possess workplace knowledge, according to estimates.

Reskilling ROI #4: Reducing employee attrition

Redundancies inevitably damage employee morale. However, reskilling boosts morale by demonstrating a commitment to staff development and fostering greater job security. 

This can lead to benefits such as higher engagement and productivity and greater employee loyalty. Research suggests that 94% of employees would stay at a company longer if it invested in their career development. 

Reskilled employees are also less of a flight risk than new hires. On average, around a third of new employees leave their jobs within the first 90 days of getting hired. However, with existing employees already a proven cultural fit and happy to have been given a new opportunity within the organisation, turnover is less of a concern.

With the average cost of replacing an employee potentially as high as four times the position's salary, reskilling programmes can therefore deliver significant ROI from cutting staff attrition. 

Need to build an even stronger case?

If you want to demonstrate the effectiveness of reskilling, nothing is more persuasive than a successful pilot scheme. 

Identify a pain point - a role that is proving difficult to fill - and a cohort of employees whose roles are at-risk. Determine the employees who would be a good fit for reskilling and then train them into the new role, collecting and sharing success metrics. 

James McKenna, speaker, learning consultant, and author of Upskill, Reskill, Thrive, notes: "Perhaps start small and build a case study. Show how reskilling a pilot group led to positive outcomes like increased engagement and loyalty, avoidance of lost productivity that normally ensues by waiting to find the right talent outside the organisation, etc."

Want to learn more about implementing reskilling in your organisation? Read our next blog or download our handy guide here:

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FAQs

1. What are the specific financial advantages of reskilling compared to other methods of addressing workforce displacement, such as redundancies or external hiring?

The specific financial advantages of reskilling compared to redundancies and external hiring include reducing redundancy costs, lower recruitment expenses, reduced salary premiums, and improved productivity.

2. How do the costs associated with reskilling programmes compare to the potential savings from reduced redundancy and recruitment expenses?

The costs associated with reskilling programmes include direct training costs, administrative expenses, and the indirect cost of time spent learning instead of working. The World Economic Forum (WEF) estimates these costs to be around $24,000 per worker. However, these costs are generally much lower than the expenses associated with redundancies and new hires, which include redundancy costs and recruitment costs. Therefore, while reskilling involves upfront investment, the potential savings from reduced redundancy and recruitment expenses make it a financially advantageous strategy.

3. What are the critical steps and considerations for HR and L&D teams when designing and implementing a pilot reskilling programme to ensure its success and demonstrate its effectiveness?

When designing and implementing a pilot reskilling programme, HR and L&D teams should consider the following critical steps: identify high-impact roles, select candidates for reskilling, develop tailored training programmes, pilot the programme, measure and share success metrics, and provide continuous feedback for improvement. By following these steps, HR and L&D teams can ensure the pilot reskilling programme is successful and provides a strong foundation for broader reskilling initiatives.

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