Derived demand, British management and employer investment in training

“Skills are a derived demand: employers’ skills needs are a consequence both of their product strategy and the firm’s characteristics. Management is a key determinant of an employer’s product or service strategy and whether skills are used effectively.”

Lord Leitch made this point over 15 years ago in his review of skills, Prosperity for all in the global economy – world class skills (2006). Yet, it remains the heart of our issue with skills in England. Skills demand is driven by things which managers decide based on the rational interest of the firm, whatever providers, Secretaries of State, or regulators say. You can’t force a firm to train – they need to decide to.

The biggest issue in workplace skills policy

So, the biggest single question in English workplace skills policy is how we make sure the right decisions are being made. How do we avoid imposing a system that does not persuade managers to play? And how do we give them the skills to see the value – to them and their firm – if they do?

We need to change the debate for managers themselves

At a CBI event, a French CEO of a utilities firm said, “the issue is that in everything you do here, you teach managers to run the finances of the company – not its performance.” Her point was specific – it was a challenge to the management education that took place in British business schools, and how it focuses on the short-term and the financial over the long-term and the sustainable.

But it is a point that translates. How we train managers, what we incentivise them to do, and the promotion pathways that we develop all are relevant.

Across British business, there has been a residual risk that short-term delivery – essential to any business, of course – has obscured long-term returns. It was no surprise that the initial work of the Government-funded ‘Be the Business’ group identified people issues – management, skills utilisation and more – as a key driver of low productivity.

A counsel of hope, not despair, is necessary

British businesses do invest in training. The challenge is how they do it, and for what aim. Look at Eurostat data on training and UKCES data on employer spending to prove it. Indeed, in 2019, UK adult (25-64) participation in training and learning was significantly higher than both the EU average and the number for Germany.

The challenge is not that we don’t do it. It is that we do not do it well enough. Much training takes place outside of regulated systems and focuses on immediate needs. The birth of the small firm economy – and the death of many behemoth industrial training schools of the past – has only accelerated this.

But this is not to say that it needs to be this way. British management has had, and still has, a capacity for change. In the 1980s the principles of lean production shot through our manufacturing industries, as those who had seen it done well arrived in businesses and made radical changes.

And that is the challenge now – to show it done well, and shout about it. We need skills FOMO (fear of missing out). Lecturing managers will not work; they need to see the upside of leaning in and be reassured they aren’t being taken for another ride by a system high on public cash. As firms, we need to address the incentives we set and the management development curriculums we use to underpin a confidence to think long-term. And then we need the system to meet us halfway.

Employer responsiveness, not employer ownership

Too often, firms with the best of intentions navigate the system badly. From the firms caught out by unscrupulous providers seeking government skills cash, to those who were upbraided by officials for not taking part in Train to Gain when the scheme couldn’t offer what they needed – the long-term return on investment to the system has been difficult to discern, and difficult to access. For many managers, already incentivised to short-term performance, the risk was too high.

No policy highlights this like the Apprenticeship Levy. Designed in a bunker, beloved of a provider network that sees the Government as its client, and big in numbers, this was meant to be a game changer. Businesses would love it to be that – they would pay more for a system that works. But it isn’t.

Every criticism made of the levy by business groups in 2016 has come to pass. Just as managers in businesses need to be supported to understand why investment in skills matters, we also need to acknowledge that too much skills policy in Whitehall has failed to deal with the simple question of why a firm would invest. The levy does not encourage payers to do more apprenticeships, away from the very highest levels. It fails the Leitch test.

It’s all about the clusters

Finally, a word on delivery. Support is built up in business by being able to see the practicalities. By relationships and networks. That is why the best innovations in England right now are happening with mayors like Andy Street. We will go forward, together, when there is a stable framework for investment and an economically relevant offer to businesses where they are, built on local partnerships like the new local skills improvement plans (LSIPs).

Taken together – firms changing how we support managers to understand skills need, and factoring it into business planning, a system that meets businesses where they are, and local delivery leadership – we could build competence and confidence to do a lot more. Best of all, it will finally give us all what we need – a bully pulpit. A chance for those firms who are doing the right thing to go to managers who are not engaging and say, “we’re all in this together – the only trouble is, you are not”.

Recommendation 1

Firms need to look at management training and incentives. Putting the people stuff first is non-negotiable in the 2020s, and practice needs to change to incentivise managers to think about the longer term, so that they invest when an investable training proposition arrives.

Recommendation 2

Government needs to end the redesign cycle of the English skills system and focus on a system that sets a stable set of incentives to encourage firms to invest both levy funds and their own money.

Recommendation 3

Delivery frameworks should be highly devolved, building local skills networks that are employer responsive, and creating clusters that firms of all sizes can access.

By Neil Carberry, Chief Executive, Recruitment and Employment Confederation

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