How much do SMBs to Medium sized businesses spend on talent development? How has this number grown empirically and what are the projections for the next few years?

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How much do SMBs to Medium sized businesses spend on talent development? How has this number grown empirically and what are the projections for the next few years?

Hello! Thank you for your question about how much SMBs to medium-sized businesses spend on talent development. I understand you also want to know how this number has grown empirically and the projections of growth for the next few years.

On average, companies spend $1,252 annually per employee on talent and development with small companies spending $1,105 and mid-sized companies spending $544 annually. That spending is accelerating in growth by about 0.1% each year, based on my calculations. Spending is shifting from classroom-based learning to online learning, especially in larger companies. Below is a deep dive of my findings.

First, I endeavored to understand the basic industry definition of "Talent Development," including best practices, which I have described in the Background section below. Then, I began to search for market statistics to determine annual spending for small and mid-size businesses on talent development.

I found several reports detailing the U.S. and global market statistics, most of which only gave general statistics. However, I did find one report that detailed the amount that small and mid-sized businesses spend annually per employee in the U.S. I have detailed these findings in the Talent Development Market Size Section. I also included projections in this section, which I had to calculate myself based on reports of spending in previous years, due to a lack of available projections. To do this, I looked at the average increase for each year, noticing that there was a growth increase of about 0.1% each year, with an occasional spike. So, I calculated the projections of spending for 2020 based on a 0.1% growth increase each year (For example, a 1.9% increase in 2016 and a 2% increase in 2017, etc.) until I reached the calculation for 2020, which I have included in my findings.

I then searched for the types of spending within talent development and detailed that in its own category. While I was able to find evidence of some of the types of things this money is spent on, it wasn't clear which arms of different companies were responsible for funding them. There is some clear overlap with Human Resources, based on the inclusion of Talent Management Software, but nowhere did it say who specifically was funding these pieces. However, this led directly into trends in the talent development industry both domestically and globally. I have detailed these findings in the Trends Section.

Finally, since the talent development market is so broad, I listed competitors for the two fastest-growing pieces of the industry, according to Forbes. These include digital learning, for which I focused on Massive Open Online Courses (MOOCs), and Talent Management Software. Due to time constraints, I was not able to describe these in great detail, but hope they will offer some valuable insight.

The primary definition of talent development includes two primary functions: the hire of new talent and the development of existing employees. Typically, spending on talent and development consists of two major categories: talent management and talent learning, though other categories exist as well. For the purpose of this particular question, I will be focusing primarily on these two categories. Talent management refers to the journey of a person's employment with a company, including hiring, development, and retention. In larger companies, this is often managed with Talent Management Software. Talent learning refers to work-related learning that develops each employee's skills and knowledge, such as classes, seminars, conferences, etc.

DDI reports that talent management is becoming increasingly important because the "ability to effectively hire, retain, deploy, and engage talent—at all levels—is really the only true competitive advantage an organization possesses." Unlike a product, there is no way of replicating a "high-quality, engaged workforce." DDI also defines best practices in talent management as encompassing the following concepts:
-A clear understanding of the organization’s current and future business strategies.
-Identification of the key gaps between current talent and talent required.
-A sound talent management plan integrated with strategic and business plans.
-Accurate hiring and promoting decisions.
-Connection of individual and team goals to corporate goals, and providing clear expectations and feedback to manage performance.
-Developing talent in their current positions and preparing them to transition to higher levels.
-A focus not just on the talent strategy itself, but the elements required for successful execution
-Business impact and workforce effectiveness measurement during and after implementation.
They also suggest that investing in talent increases the monetary value of a company and growth in business performance overall.

In 2015, companies spent an average of $1,252 per employee annually on talent development, a $23 increase from the previous year. According to Forbes, that constitutes about $70 billion spent on corporate training in the U.S. and $130 million globally. This accounts for about 35% of corporate spending, making it the #1 spending area. Only one report broke down annual expenditure by company size. In 2015, mid-sized companies spent an average of $1.4 million on training expenditures while small businesses spent $350,301. For mid-size companies, this was a slight decrease from $1.5 million. For small businesses, it was a slight increase from $338,386 in 2014.
According to ATD's 2014, 2015, and 2016 State of the Industry reports, spending in talent development has increased between 1% and 2% each year since 2012. The most recent years have had a consistent growth rate, increasing in growth by 0.1% each year (1.7% in 2014 and 1.8% in 2015). Calculating with that rate of growth increase, it is expected that companies will spend $1,389 annually per employee on average, based on my calculations. Since there was only one report that broke down the differences in expenditure by company, this is an overall statistic. Reports suggest that smaller companies tend to spend more per employee on talent development than mid-size companies. However, Forbes suggests that this tends to reflect changes in budget priorities overall, with companies spending more on talent development when business performance is higher, and less when performance decreases.

The State of Industry reports that the highest percentage of formal learning hours occur in instructor-led classrooms (50%). Other types of formal learning include online (9%) and remote (5%) instructor-led learning, as well as self-paced learning online (19%) and on other platforms. Interestingly, the most sought-after learning content area is Management and Supervision. Millennials are shifting the need for leadership development from the "pyramid model" to a need for leadership at all levels by taking on more responsibility but being self-aware that they do not have the skills for managerial and supervisory positions.
Some companies are much more likely to invest in their own talent for learning development opportunities. Google, for example, gives their employees teaching roles, which they say, "makes learning a natural part of the way employees work together." Deckers Outdoor created a company learning program that not only delivers content, but also the purpose and meaning of the training and how it relates to the company's goals and priorities. Nestle developed a multi-faceted experiential learning program based around the idea that "learning could be a strategic lever within the organization to change the way employees think and act." This approach engages their employees in varied activities, all built around real problem-solving within their industry. In any case, companies seem more apt to invest internally when it comes to learning development and teaching opportunities than in previous years.

CCL reports that the challenge in future leadership development is in how to "grow bigger minds." They suggest that management already knows what "good leadership" looks like, but are unaware of how to develop themselves to get there. As such, CCL suggests that four trends will emerge in the future of talent and leadership development:
-More focus on vertical development (leadership development stages as opposed to competencies).
-Transfer of the ownership of development to the individual, putting them into the driver's seat of their own development.
-Greater focus on collective rather than individual leadership.
-Much greater focus on innovation in leadership development methods due to the needs of the levels of collective leadership required.
Vertical developments include expanding the individual's capacity to learn, instead of focusing on specific skills or concepts (horizontal development). It is more a transformation of mindset, according to CCL. CCL also reports that the greatest need in the future of talent development is not in greater technologies, but "new ways of working together that are made possible by these new technologies." This shift to "build 'leadership cultures' rather than individual leader programs. Leadership teams engage in practices to elevate their own levels of development, thus creating “headroom” for the rest of the culture." Companies are attempting to build a greater capacity for talent development to help decrease the skills gap.
While these trends were based on U.S. markets, globally there are similarities. With the advancement in learning technology, digital learning will continue to rise and according to ATD, "gamification and other fun learning techniques will emerge into the space." Skill gaps and a rapidly changing workforce will continue to drive change in what employees demand from their employers, as well as how employers hire and develop talent. ATD predicts that "strategic, business-aligned global talent development practices will become common place." There is also expected to be more partnerships between companies and universities or other learning entities to create better talent development programs.

In 2014, the learning and development market grew 14%, while specifically the "learning technology market grew by 27% and is now a $4 billion industry." The talent management software industry grew by 17% in the same year, growing to a $5 billion industry. There are two key areas of huge growth within this industry. Both Talent Management Software and MOOCs are growing at a rapid pace, creating opportunities to close the skills gap in leadership. As such, I have detailed both below and included some of the noted competitors in each field.

Digital Learning is one of the fastest growing industries under the talent development umbrella. MOOCs are making a clear rise in the ranks of similar offerings. These online courses are usually self-paced with support from an expert in the field of learning. For example, some of the courses on EdX are taught by Ivy League professors. As such, they have the flexibility of self-pacing with access to an instructor, as in traditional learning opportunities. Essentially, it is melding the two worlds. Top competitors in this field include EdX, Udemy, Coursera, and Udacity.

Talent Management software is also rising, mostly in larger companies. Although, some mid-size companies have begun to utilize this technology. This software gives employers the capability to track employee progress from recruitment to the day they retire or leave the company. This usually entails record-keeping, such as interview records, resumes, etc, in addition to tracking of performance and progress within the company. It includes a range of options, such as goal setting and completion tracking, as well as performance reviews. These systems are becoming more complex and integrated every day.

In Integrated Talent Management Software, major competitors are companies such as SAP, Oracle, IBM, Workday, CornerstoneOnDemand, and ADP. These companies have already solidified their foundation in this space. However, there are more innovative companies coming up the ranks, such as Saba, PeopleFluent, SumTotal Systems, Halogen, ADP, Lumesse, and Ultimate Software. However, these management systems tend to be marketed toward companies with 200 employees or more. They are not as relevant to smaller businesses, and these companies thrive better by focusing on the larger companies.
To wrap up, spending on talent development seems to have consistent growth, with increases being 0.1% faster each year, with the occasional spike. On average, companies spend about $1,252 per employee annually on talent development. The industry encompasses many smaller industries, the fastest growing being MOOCs and Talent Management Software.

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