“We really need to use much more imagination and creativity when thinking about corporate training”
Pia Merilahti, is Finnish national with experience of facilitating business process for corporations like Apple Computer, Fujitsu, Nordic Investment Bank and Nokia. She came to Nepal 15 years ago under a Finnish project to help Nepal Telecom and since then has been working with several private sector and NGO projects here, specially in IT and human resource development. Excerpts from an e-mail interview:
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Pia Merilahti |
Many people claim that trainings are not really effective as training an adult mind is a complex activity which can’t be accomplished by short-training courses. Would you elaborate when training intervention works and when it is likely to fail?
We cannot term trainings as effective or not effective. Many training events are organized just for the sake of it as an incentive to the participants or because everybody “knows” training is necessary and every self-respecting corporation has to have it. The more important factor is WHAT kind of training is given and WHY.
All activities, practices and processes in a company should be based on the strategies and the values and targets defined by the top management. Mere definitions are not enough. The definitions have to be “run down” into practical terms for each and every level, unit and function in an organization. According to this, real training needs can be found and the contents of the training events can be designed to support the overall strategies of the company. Training should always have an immediate impact on the behaviour and business processes.
Corporate and institutional training culture is still in infancy in Nepal. What should be done to inculcate the training culture?
I don’t think the problems (concerning this question) of a developing country like Nepal differ from that of developed countries. Many companies make such misjudgments and therefore the training culture hardly becomes strong and healthy.
Certain attitudes and actions should be in place to develop institutional training culture. First, training is not a separate event from other corporate activities. It should not be an independent, distant Human Resource Department activity but a practical toolbox for management and leadership. Many companies do not understand this aspect of training.
Secondly, companies often have a very narrow vision about training. It is easily seen as an event organized at an outside venue, sometimes with haphazardly collected group of participants. In no other function in an organization do we act as lightly as in the field of training. If we plan an ad campaign, we don’t choose the product target group and advertising agency randomly, do we? In training, also the participants have to be chosen systematically, following the same life cycle as the company is following, quarterly or monthly. The training should be designed to support the targets of that period, the change processes defined by the management, the desired improvements of skill profiles within the organization or as a part of career planning and securing a new generation of experts and managers in the organization.
If we broaden our view of training a little, we can see that training events can be embedded in the everyday life in the department or the team. Many topics can be developed during weekly meetings; skills can be improved through on-site mentoring, tutoring and monitoring.
Some on-going training and development procedures can be conducted as independent team tasks. We really need to use much more imagination and creativity when thinking about corporate training.
Thirdly, companies need to set targets, preferably measurable targets, for training programmes. Some results like behavioural change, utilizing time, less sick leave etc. can be seen expected such training.
One thing I find totally different in Nepal compared to European companies is the positive attitude of Nepali people to try out new ideas and practices and not to be judgmental in advance. The participants of a training or the managers of a company are not afraid of rejecting a new idea, but often they want to try it out or at least think it thoroughly before making any decision. I find that very refreshing.
In the developed countries what percentage of the total revenue do the corporations spend in training and HR development activities?
It is not an easy question to answer. Training budgets should be relative to the aims and desired outcomes. For instance, if a company invests 1 million dollars in a new computer system and the staff do not know how to use it, the investment is a failure. How much does that prospect cost to the company? What are the expected benefits in terms of money, for a successful, fast implementation and utilization of the new system?
Or if the company wants to strengthen customer loyalty and lengthen customer life cycle, we have to know the calculated value of this target and then allocate a training budget in accordance to that target.
So, even in this matter we can understand how closely planning and budgeting of training goes with overall strategic and operative planning in the organization.
What are the different formats and methodologies of training that have evolved over the period in the field of corporate and institutional trainings?
There are various methods and formats. The point is to use an appropriate one for each purpose. In the same way as we choose scissors not an axe, to cut paper, we have to know how to achieve the desired results with adult learners. The adult brain works in a different way from the children’s brain. Adults don’t memorize mechanically, but use their past experience to adapt or reject something new. Adults need a relevant motive for all doing. The nature of man is generally lazy, so most innovations and new ways of doing something have to somehow improve the current state of things, make things easier, faster and more rewarding to us. There are many didactic methods that support adult learning: problem solving techniques, suggestive and brain enhancing methods, lateral thinking, learning by doing etc.
Various studies show that all trainings fall into one of the following five categories:
• Improvement in sales productivity or product and services revenue
• Reducing the costs of existing training and eliminating inefficient processes
• Improving productivity of workers by reducing training cycle time and time spent in training
• Improving product and service quality by measurably increasing the skills of line workers
• Rolling out major new systems or initiatives that require new skills in a fixed and very critical period of time
To be able to conduct all the defined need based trainings required in an organization, it is necessary to find training solutions with a reduced cost. Training and employee development are nowadays seen as a multiform of methods - a combination of e-learning, independent study, on-the-job-training, workshops, seminars etc. The main idea is that classroom based training should be participatory and interactive. The theoretical lectures can be replaced by e-learning methods, for example.
Maybe one of the newer philosophies in training is that it is based on process development and methods familiar to many of us from manufacturing and IT development, such as re-engineering, and rapid development methods that are nowadays implemented in organization development as well.
Another aspect is that the responsibility of employee development and training needs assessment falls on the line manager- not the HR staff. The HR staff can act as a consultant, change agent, facilitator, tool distributor etc, but they don’t know the practical work related needs on the grass-root level.
Would you elaborate a little on the structure of training departments in the European Continent? And would you list a few specific examples of how seriously corporations take training as their business activity (Any Best Demonstrated Practice - BDPs) ?
In a massive scale research done by Bersin & Associates, touching 1.3 million learners, it was found that blended or multiform learning – that is, training programmes combining a number of modalities such as e-learning, live instruction, and tele-conferencing – is helping some of the world’s largest, best-known companies meet really key objectives including increased profits and employee productivity.
The best practices most definitely include the following matters:
To inculcate and sustain a client-based and performance-focused service culture that support the company’s pledge for quality customer service, cost-effectiveness, commitment and teamwork, the management has to pursue a number of management initiatives.
The vision, mission, objectives, service culture and values have to be widely publicized and clearly explained to staff at all levels to ensure that they understand the organizational goals and the role they are expected to play in achieving them. Each functional division in the company has to develop its own mission statement directed towards achieving the department’s objectives
In recognition of human resource development as a critical success factor a strategic approach on staff training and development has to be adopted by linking training and development initiatives to departmental goals and objectives, reviewing training policies and plans regularly and promoting a continuous learning culture.
Finally, one slogan that every company sincerely follows, sometimes without understanding its real meaning is: “The staff is our company’s most important asset”.
In my opinion, the staff is the tool, the muscle and the effort that produces the company products, achieves its everyday and long term goals and creates profit for the stakeholders.
So what the company leaders should say is: Our company is the most important asset for our staff. It will and wants to provide all the necessary things to the staff in order to help them perform better in the jobs they are hired for.
Cognitive Dissonance: An explanation for productivity and employee turnover
BY Jwolit Budhathoki
“Dissonance and Consonance are relations among cognitions, that is, among opinions, beliefs, or items of knowledge of the environment, and knowledge of one’s own actions and feelings. Two opinions, or beliefs, or items of knowledge are dissonant with each other if they do not fit together, that is, if they are inconsistent or if, considering the only two particular items, one does not follow from the other.
There are three ways to deal with cognitive dissonance.
1. One may try to change one or more of the beliefs, opinions, or behaviours involved in the dissonance;
2. One may try to acquire new information or beliefs that will increase the existing consonance and, thus cause the total dissonance to be reduced; or,
3. One may try to forget or reduce the importance of those cognitions that are in a dissonant relationship
(Leon Festinger, 1957)
One of the complex as well as interesting forms of conflicts is conflict within the individual. It can also be termed as state of Human Vs Self where individual perceives that his/her own actions are causing some sort of discomfort or are negatively affecting something that he/she values. Possession of two conflicting ideas or conflict between attitude and behaviour result in such a conflict within an individual. When an individual behaves or is forced to behave in a manner that contradicts with his/her values and beliefs, it leads to cognitive dissonance which causes discomfort which human beings naturally try to reduce. In other words, as human beings, we all try to minimize all types of dissonance we face.
Now the question is why it is important for an organisation to know the dissonance status of its employees? Undermining the importance of this psychological process may be one of the reasons why organisations are not applying much effort in understanding the dissonance status or organisations may simply do not feel comfortable in intruding the private domain of their employees. Sometimes, it is almost impossible to know the internal state of an individual. But, is it necessary to have knowledge of cognitive dissonance state of employees? The answer is often “Yes”, because cognitive dissonance can provide a major explanation for why the employees behave the way they do and issues related to lower productivity, level of stress and retention. Sometimes an employee who is well paid, who seems most satisfied with his/her job, suddenly quits leaving no clue to organisation know why the person left. Maybe the answer lies within the cognitive dissonance status of the person.
Each individual has his/her own way to cope with the cognitive dissonance. Either they change attitude or change behaviour or reduce importance of dissonance element. During this adjustment phase, individual might lose mental energy, cross the productive stress level and become unable to perform in full capacity and start to lose productivity which depends on how much valuable is the dissonant element for the individual concerned. If the dissonance element is not of much value to the individual, it might not have any effect in the productivity or stress level of that individual. But if the importance of dissonant element is high, the individual puts effort to reduce discomfort and tries to reach the equilibrium state. During the course of such efforts to reduce the discomfort from dissonance, the employee changes his behaviour, that means he/she stops doing things that causes dissonance and does not behave in the way the organisation desires. This may even lead to quitting the job in extreme cases – a change in behaviour that is not so desirable from the organisation’s point of view.
Now, let’s consider the remaining two aspects - changing attitude and reducing the importance of dissonant element. Both of these are determined by the reward involved. Why would a person want to change his/her attitude or reduce the dissonant element? This may be because the reward for dissonance is very high. That’s why we can see many people still working hard in their job they dislike and there are also few people who suggest their friends and relatives not to work in a particular organisation or sector though they themselves continue to work there. They simply cannot quit because they don’t want to lose the attractive remuneration package or reward involved in doing the job they dislike. This might lead to two effects we talked about: the person may try to change attitude towards the job or he may continue to convince himself that there is nothing wrong in the job. He tries to suppress the dissonance by reward. This, in the long term, may bring about change in attitude towards the job and the person may actually start to like his/her job. The reason for this transformation is simply that the more we talk and think about a particular thing the more likely our attitude towards it gets changed.
How is it possible from the organization’s point of view to know the cognitive dissonance status of the employees? Is it possible in a large organisation where the boss barely knows his subordinates? The answer here is also positive. The concepts like personality-organisation fit, personality-job fit, right-person-in-the-right-job actually address the cognitive dissonance issue in one way or other. Effective selection process plays a crucial role in reducing the dissonance related to job responsibility by ensuring that only those are selected who have certain knowledge of what the job involves and what they are supposed to do. Another crucial thing is to develop the culture of open communication and capability to confront rather than suppressing the views so as to bring out the dissonance issues.
The supervisors can play a significant role in coping with cognitive dissonance of subordinates through regular interaction, even though the number of subordinates may be high. From HR professional’s point of view, the crucial part is to look at the overall job satisfaction rather than the satisfaction from individual component of the job. People cannot simply choose to do only those things they like and enjoy because every job comes in certain package. Sometimes letting an employee quit his/her job can be the best solution for the mutual benefit of the individual as well as the organisation. That’s why there is no single solution to this due to complex psychological process involved in cognitive dissonance and its impact in human behaviour.
Still, from organisational point of view, the most advisable route is to bring about the change in attitude to address the cognitive dissonance issue. In our context, there are many organisations which are trying to bring about a change in the attitude of the employees towards the business in which the organisation is involved, towards the job itself and towards organisational culture and policies. This practice is quite common in those organisations which are involved in businesses that have some negative impact on the society, mostly from health or environmental point of view. For example, organisations that involve in tobacco or alcohol try to bring about a change in the attitudes of employees through statements like “There is nothing wrong in selling cigarettes. If we don’t do it, someone else will do it”, and “We are merely providing choices to the people”. These efforts to change the attitude are quite crucial so as to bring alignment between individual’s values, principles, beliefs and behaviours. The stronger this alignment; the higher the retention and productivity.
Challenge of Managing Interest Rate Risk
By A. R. Bhattarai (FCA)
Recent cash crunch in the money market has caused enormous pressure on other banks and financial institutions to adjust the interest rate to a new high as there were no options left. Intense competition for business involving both the assets and liabilities, together with increasing volatility in the domestic as well as foreign markets, has brought pressure on the management of banks to rethink spreads between profitability and long-term viability.
The unscientific and ad-hoc pricing of lending in the context of intensifying competition and alternative avenues available for the borrowers results in inefficient deployment of resources. A thoughtful evaluation of customers and their price sensitivities can provide valuable insights into the crisis.
The deregulation of interest rates and the operational flexibility given to financial institutions in pricing most of the assets and liabilities imply the need for the banking system to hedge the Interest Rate Risk (IRR). IRR is a risk where changes in market interest rates might adversely affect a bank’s financial condition. The immediate impact of changes in interest rates is on bank’s profits by changing its spread (Net Interest Income - NII). A long-term impact of changing interest rates is on bank’s Economic Value of Equity (EVE).
Therefore, before making revision on interest rate, every financial institution should understand the following points. First, why is the price war occurring—or may occur? Second, it is also critical to recognise where to look for resources when in a battle. Third, it is important to analyse carefully the customers, competitors and other players within and outside the industry that may have an interest in how the price war plays out.
Primarily, the market risk results from the interest rate, foreign exchange rate and equity price volatility. Clearly, most banks’ principal market risk exposure is interest rate risk (IRR). The IRR examination procedures guide examiners towards a qualitative assessment of a bank’s IRR management and exposure.
IRR is the exposure of a bank’s current or future earnings and capital to interest rate changes. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes also affect the capital by altering banks’ economic value of equity (EVE).
EVE represents the net present value of all asset, liability and off-balance sheet cash flows. Interest rate movements change the present values of these cash flows. EVE estimates the long-term expected change to earnings and capital that will result from an interest rate movement. As financial intermediaries, banks cannot completely avoid IRR. However, excessive IRR can threaten banks’ earnings, capital, liquidity and solvency. IRR has many components, including re-pricing risk, basis risk and yield curve risk.
Re-pricing Risk results from timing differences between cash flows from assets, liabilities and off-balance sheet transactions. For example, long-term fixed rate securities funded by short-term rate deposits may create re-pricing risk. If interest rates change then deposit funding costs will change more quickly than the securities’ yield.
Basis Risk results from weak correlation between interest rate changes for assets, liabilities and off-balance sheet transactions. For example, deposit rates may change by 200 basis points while prime-based loan rates may change only by 50 basis points during the same period.
Yield Curve Risk results from changing rate relationships between different maturities of the same index. For example, a one-year Treasury Bill’s yield may change by 100 basis points, but a three-month Treasury Bill’s yield may change only by 50 basis points during the same period.
The bank’s complexity and risk profile should determine its IRR management programme’s formality and sophistication. More complex banks will likely need more formal, detailed IRR management programmes. In such cases, management should establish specific controls and produce cogent analysis that addresses all major risk exposures. At those banks internal controls should include an independent review process for IRR analysis and requirements for reasonable separation of duties. All procedures should be clearly documented and senior management should supervise the daily operations.
The board of directors must ensure that the management effectively identifies, measures, monitors and controls IRR. The policies, procedures and systems applied to achieve those goals comprise the IRR management programme. The board of directors must understand the bank’s risk exposures and how those risks affect current operations and strategic plans. The board’s three primary IRR responsibilities are: First, to establish strategy and acceptable risk tolerance levels, including policies, risk limits and management authority and responsibility. The second is to monitor IRR to prevent excessive risk exposure, and the third, to provide adequate IRR management resources.
Senior management’s responsibilities include both long-range and daily IRR management. Senior management should first implement procedures that translate the Board’s policies into clear operating standards; secondly, they should maintain a measurement system that identifies, measures, and monitors IRR. Thirdly, they must establish effective internal IRR controls. Prudent risk management demands accurate, timely IRR quantification.
When evaluating IRR, well-managed banks should consider both earnings and economic approaches. Reduced earnings, or losses, can harm capital, liquidity, and even marketplace perception. EVE measurements provide longer-term earnings and capital analysis. Each IRR measurement system relies upon unique assumptions. However, there are some key assumptions that most systems incorporate.
Projected Interest Rate Forecasts must be used in many systems (particularly duration and simulation models). Banks may generate internal forecasts based on supported analysis. For example, internal rate forecasts might rely on implied forward yield curves, economic analysis, or historical regressions. Banks might also incorporate forecasts from external sources. Regardless of the source, rate forecasts should be consistent with other forecasts used throughout the bank’s planning processes (for example, forecasts used to estimate loan demand). Rate forecasts should include increasing and decreasing rate environments that provide meaningful stress scenarios and address the bank’s risk exposures.
Reinvestment Rates determine the yields earned by projected future cash flows (after the bank receives and reinvests them), primarily in simulation models. Many systems simply assume that all future cash flows will be reinvested at one rate (for example, Treasury Bills Rate). More sophisticated systems use multiple reinvestment rates for cash flows from different sources. All reinvestment rates should be reasonable and consistent with other bank forecasts. Unrealistic reinvestment rates render IRR simulations meaningless.
Growth Estimates should reflect the strategic goals and forecasts used in the strategic planning process. Unrealistic asset or deposit growth assumptions will invalidate the system’s results.
Banks should maintain systems that concisely report IRR. At least quarterly, senior management and the board should review those reports. However, banks that engage in complex activities or take greater risks should assess IRR more frequently. IRR reports should contain sufficient detail to permit management and the board to identify IRR sources and levels; to evaluate key assumptions, including interest rate forecasts, deposit behaviour and loan prepayments; and to verify compliance with policies and risk limits.
Bhattarai is a Chartered Accountant
