Does business training actually help? Results of a recent study

I have been involved in designing and delivering CREAM, a training course on business management for social enterprises in rural India. The participants in the course are entrepreneurs, consultants or NGO staff involved in businesses such as farming cooperatives, and smaller micro-enterprises such as tailoring garments, kirana shops (small provision stores), coconul oil extraction, etc.

So a recent study on the efficacy of training caught my attention.  The study measured the impact of (primarily) financial training on micro-enterprises in Bosnia.  Though the content of our CREAM course is broader than the topics covered in the study, it is worth looking at the results of the study and compare them with CREAM experience.

THE STUDY: “The Impact of Business and Financial Literacy Training for Young Entrepreneursin Bosnia-Herzogovina by Miriam Bruhn and Bilal Zia

Randomized evaluation of a business and financial literacy training program for young entrepreneurs aged 18-30 was conducted in Bosnia and Herzegovina. The sample consisted of 445 loan clients of a microcredit organization who either already owned a business or had taken out an exploratory business loan.  On average businesses in the study had ~2 employees, perhaps slightly larger than the typical single-person micro-credit initiated enterprises in India. The training course covered basic business concepts and accounting skills, as well as investment and growth strategies, with a particular emphasis on the importance of up-front capital investment.

RESULT 1: Financial literacy training does not seem to affect business start-up or business survival rates.

The authors conclude that: “Although training programs could form an important part of policies to promote firm growth, lack of access to finance, for instance, may be a much more important factor in business development.”

Based on my experience in training I would go a bit further:  Financial literacy focused training alone cannot not ensure that the entrepreneurs understand the viability of business ideas.  If you decide to start a subscale paper-cup production business, it will fail regardless of your ability to create a P&L or invest capital wisely.  So while financial literacy may be necessary, it is not sufficient to ensure firm survival.  Similarly financial literacy alone cannot increase the likelihood of starting a business by raising a would-be entrepreneur’s risk appetite or increase access to capital or help him/her identify a business opportunity.

In our course CREAM, we offer a module on business viability to help entrepreneurs understand the various factors that affect the likelihood of success of a business.  If the objective it to increase business survival rate, something like this should form one of the several critical building blocks in the training, shouldn’t it?

RESULT 2:  “Training clearly has positive effects on businesses that do survive, encouraging them to implement production processes and make investments that they otherwise would not have.”

In particular, the surviving businesses who received the training were more likely to:

  • implement new production processes;
  • inject new investment in business;
  • separate business and personal accounts;
  • refinance existing loans for more favorable terms, and negotiate a larger number of loan installments
  • exhibit greater improvements in sales and profits, though this was only the case for those with higher ex-ante financial literacy.

In our two years of running CREAM training programs, we have also gotten similar feedback from entrepreneurs about specific practices they have started implementing in their businesses.

The authors conclude that “Policymakers might therefore consider targeting business training resources towards existing firms, with an emphasis on particularly teachable behaviors.”

In light of what we see in our CREAM work as well as research like the above, it is surprising that so few of the entrepreneurship promotion programs in India make training an integral part of their programs.  What is even more surprising is that none of them measure success in terms of success of the enterprise itself, preferring to base their “impact assessment” purely in terms of # of enterprises initiated/financed or – in rare cases – increase in incomes of entrepreneurs (which includes income from all sources since typically micro-entrepreneurs don’t bother separating finances from multiple income generating activities).

More on models for measuring success of micro-enterprises in a later blog…

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This entry was posted in Business management training, Micro-enterprises & rural businesses, Research studies and surveys and tagged , , , , . Bookmark the permalink.

One Response to Does business training actually help? Results of a recent study

  1. Pingback: Building the energy industry sector | Stirring the Pyramid

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