Redefining the economics of skilling

We live in the automation age in which – more than ever before – skills will define the employment prospects of our citizens, particularly young people. UN World Youth Skills Day, celebrated on July 15 every year, draws attention to the need for equipping the young with skills, and setting them on a path to a fulfilling career. India has made skills development a national priority with the institution of its National Skill Development Mission in 2015, a programme that has an annual budget of about Rs 17,000 crore. 

Indian industry is still grappling with ways to establish the value of skilling for employers as well as learners by increasingly focusing on programme outcomes and strengthening links between skilling and employment. These efforts will be critical if India’s skill development offering is to be scaled up and made sustainable. 

Generation, a youth employment non-profit founded by McKinsey & Company, empowers young people to build thriving, sustainable careers, and provides employers the highly skilled, motivated talent they need. Within two years of its launch, Generation became the largest demand-driven skilling programme in the world. Our experience offers some lessons on establishing the business case for skilling. Four lessons stand out, which – in our view – redefine the economics of skilling. 

First, we found that investment for skilling needs to be comprehensive — covering not only the training itself, but also screening, matching and mentoring. Second, programmes need to have measurable outcomes for the person seeking a job; that will encourage other young people to get involved. Third, we have established a close link between skilling and business profitability that should convince employers that they have a lot to gain from employing skilled people. Finally, we should shift how we measure the efficacy of skilling from cost (and occasionally placement rates) to a broader metric measuring return on investment for society.

So what has Generation done differently? First, it has established a tight link between supply and demand. We mapped activities in locations where potential employers are active to identify what differentiates high-performers from the rest, and designed our curriculum accordingly. Every training session is based on a tight assessment of what skills are needed in a particular job, and we hold sessions on attitudes and behaviour that we find have made a big difference to students’ approach at the workplace. 

Generation also invests in areas beyond training that have direct impact on increasing employment and retention rates. We realised early on that we needed to find candidates that were well-suited and enthusiastic about the roles they would train for, and we would need to support them through their transition to work. So we designed a pre-training immersion module, which gave the students an idea – in advance – of the kind of work that they would be doing, so clarifying expectations. Equally important, we followed up after they had graduated with a mentorship programme that is delivered by trained psychologists delivered where Generation alumni are employed (giving special attention to students who had relocated far away from home in order to train and work). 

All in all, we are saving on the cost of delivering skilling and therefore are able to invest more in screening, mentoring, and matching. In other words we are moving money to where it matters – to the “edges” of the skilling chain – and thereby, in effect, redefining the economics of skilling.  

The results are encouraging for participants. Generation alumni are more likely to be employed than young people in other programmes. More than 90 per cent of our graduates have been offered jobs, compared to an average of about 60 per cent elsewhere. Students are able to earn six times their earlier income. Returns for individuals have been positive and measurable.

And the results for employers are promising, too — we invested part of the Generation budget in tracking key metrics. Generation graduates are, on average, more productive. Generation-trained general duty-assistants working in health care save 20 to 30 minutes of a nurse’s time per shift. A food and beverage steward saves up to 180 minutes of each supervisor’s shift. Our graduates also perform better than employees who have not been through the programme on customer satisfaction; they are courteous and proactive. 

By our estimates, a single Generation graduate can save an employer from Rs 45,000 to Rs 1 lakh. Employers hiring only Generation graduates could boost the overall margins from the business by about half a percentage point — no mean feat.

We are continuing to refine how we measure the results of the Generation programme. For instance, we are moving toward a new integrated measure that looks at job placements, job retention, and cost: The “cost per employed day” or CPED. Essentially, CPED measures how many employment days are generated for every rupee invested, and helps us to gauge effectiveness and therefore devote resources to where they really count. We estimate that the employment days produced by Generation graduates is up to three-and-a-half times those that arise from conventional skilling programmes. Put another way, Generation is 30 per cent to 70 per cent cheaper than those conventional programmes. 

Although we have been able to measure the productivity gains and cost reduction from attrition, we recognise that we need more rigour in measuring increases in customer satisfaction that Generation graduates deliver. Early results in both health care and hospitality show that employers are not only willing to rehire from the Generation pool but also to share the economic surplus with all participants by providing higher wages and/or faster promotions to graduates. Many of our employer-partners also share in the cost of training. By improving our measurement of customer satisfaction, we can increase that commitment among employers and broaden our programme. 

We intend to continue to spread the methodology being developed in the Generation initiative, but whether Generation expands (our aspiration is to train half a million young people) or others take similar approaches to ours is not critical. Demand for skills among young people themselves and among prospective employers is growing — nothing less than a redefinition of the economics of skills development will be sufficient to meet both their needs. 
 

Rajat Gupta is a McKinsey & Company senior partner in Mumbai and Saipriya Sarangan is a McKinsey senior expert in Delhi. They are both directors of Generation India, a programme of Generation: You Employed, Inc