Does Training Improve Performance of Offshore IT Workers?

Firms, in today’s knowledge economy, need to continually invest in their employees to gain lasting competitive advantage. This is especially true for the IT services industry, where the fast pace of technological change necessitates continual rebuilding of technical and other expertise (Lee et al., 1995), and where employee costs and associated productivity are the major determinants of gross profits. Our work is motivated by the observed trends of training investments by Indian IT firms. For instance, the bellwether company, Infosys, has been increasing training expenditure by close to 16% per annum per employee^[1] over the last five years. More broadly, survey studies by Price Water House Coopers^[2] and the Center for IT and the Networked Economy at the Indian School of Business^[3] show that IT firms are increasing investments in training at close to double digits in percentage terms.

Because training is costly, returns to investment in employee training has interested researchers (Blundell et al., 1999; Barrett and O’Connell, 1999, Hitt et al., 2001). For example, extant literature has found that training increases productivity at the firm level (Bishop, 1994). However, there has been no prior research that establishes the link between employees’ performance, the amount of employer provided training and the benefits accrued to employees from such training. For this, we use detailed archival training and employee level data from a leading IT services vendor. Using a simultaneous equation model, we establish the importance of training at an aggregate level; we find that training leads to better employee performance (and consequent monetary benefits), which induces the employee to undertake more training in the future. Further, we differentiate between technical and non technical training and find that the latter benefits the employee even more as compared to the former. Contrary to expectations, we find that technical and non technical training are substitutive in their impact on employee performance.