Training outsourcing is one of the hottest topics in learning and development today. In the past year, almost every industry publication and conference has included an article or session on the topic. With so much being said about this phenomenon, now is an appropriate time to gauge the extent to which companies are actually employing a training outsourcing strategy.
Every other month, we survey Chief Learning Officer magazine’s Business Intelligence Board on a wide array of topics to measure the attitudes, issues and interests of senior training executives. The July 2005 issue examined the evolution of learning delivery. This month’s article looks at the topic of training outsourcing, addressing questions such as: How widespread is training outsourcing? What is the nature of training outsourcing engagements? Is training outsourcing primarily a cost savings tool or a transformational engine? What activities are being outsourced, and what qualities are companies looking for in an outsourcing provider?
IDC defines training outsourcing as the ongoing transfer of the management and execution of one or more complete training processes to an external services provider. Training outsourcing engagements fall into one of two types: select training outsourcing, where selected training activities are outsourced, and the more comprehensive total training BPO engagements, where the entire training function is outsourced.
The potential benefits of training outsourcing are well documented. Organizations look to the outsourcing model to reduce training costs, gain access to training and technical expertise, focus on core competencies and provide an overall improved training product to their internal and external constituents. Some companies, however, equate outsourcing with a loss of control, increased training costs, a threat to intellectual property and, potentially, the need to lay off staff.
Select Outsourcing Is Widespread
Almost two-thirds of respondents indicated that they outsourced some part of their training function. This significant majority reveals that training outsourcing is a well-established practice. Of the respondents who indicated they do outsource, the vast majority said that they were engaged in select training outsourcing (see Figure 1), while a small minority said their organizations had outsourced the entire training function. With the bulk of the outsourcing activity continuing to be of the select nature, it’s clear that companies recognize the advantages of outsourcing some aspects of their training program, but few are ready to outsource the entire function. It appears that companies today are motivated more by training outsourcing’s cost savings capabilities than its transformational possibilities.
Of those organizations that do not currently outsource any training, 21 percent said that they did expect to outsource at some point in the future, while the remainder said they had no intention to do so at all. This is significant because it indicates that a large majority of companies that have yet to adopt any form of training outsourcing are still waiting to hear a more compelling value proposition. In other words, to reach this group, outsourcing providers need to present a stronger business case for why an outsourcing strategy makes sense. It also reveals that future growth for the training outsourcing market will likely come from existing customers.
A Shift in Emphasis
Survey participants also revealed a significant shift in which training activities they are outsourcing. There is a range of back-office and front-line activities within the training pyramid. In earlier years as training outsourcing was emerging, it was common for companies to hold onto the more visible aspects of the training function and consider an outsourcing strategy for the less visible back-office activities. However, when participants were asked to indicate which training activities their companies outsourced, training delivery and content management emerged as the two most frequently selected. The outsourcing of these two activities, which combined are the “meat and potatoes” of the training function, indicates that organizations have clearly grown confident in the training outsourcing model (See Figure 2.)
Speed, Cost and Alignment
In today’s knowledge economy, developing skills and distributing knowledge quickly and efficiently is crucial to business success. A highly efficient training program can distribute appropriate knowledge quickly and reduce an organization’s time to competence. Organizations or business units that lack these training resources often see outsourcing as a viable solution. It is clear, then, why more than 40 percent of respondents selected “to increase speed to market” as a top reason for pursuing training outsourcing.
While much has been written about the transformational capabilities of training outsourcing, cost reduction is still a primary driver. By moving many of the training processes outside the organization, a company is able to reduce the dollars it spends on training personnel, training resources, and implementation and operation costs associated with training technologies. Cost reduction was selected as a top reason for pursuing outsourcing by 38 percent of respondents.
Another popular reason given by respondents for adopting an outsourcing strategy was to better align their companies’ learning functions with business strategy. The decentralized nature of training within most companies often makes it difficult to consistently align training offerings with company objectives. Many organizations look to training outsourcing as a solution. By outsourcing the training function, companies are able to achieve a more centralized approach to training, standardize their training practices and more easily support organizational goals (See Figure 3.)
Selecting a Provider: Experience Counts
Once a company has made the decision to outsource training, the work has really only just begun. Next, the organization is tasked with sifting through an overwhelming number of outsourcing providers to find a suitable fit. Nearly three quarters of respondents said that expertise is the most important quality they used when selecting a training outsource provider. Obviously, if a company is looking to outsource content development, it wants to make sure that the provider is an expert in that area. Not surprisingly, two-thirds of respondents also noted that price was an important factor in selecting a provider. As mentioned earlier, a primary driver for training outsourcing remains cost reduction, so it stands to reason that price would be a key selection criterion. More than half of the respondents also selected “good cultural fit” over other listed criteria, such as industry knowledge, financial stability and successful case studies, as important qualities they look for in selecting an outsourcing provider. This speaks to the personal and intimate nature of training. While cultural fit may not be as important when selecting a provider to outsource technology management activities to, it is certainly more important for activities such as content development, which requires interaction with company subject-matter experts, or training delivery, where the selected provider will have frequent contact with employees. (See Figure 4.)
Table Stakes: Knowing the Business
Respondents to the survey who indicated that they did not currently outsource any portion of their training function were asked what their primary reason was for not pursuing an outsourcing strategy. Some stated that both the fear of loss of control and the decentralized nature of their training function, which made it to difficult to outsource, were primary reasons. The plurality (22 percent) said the biggest reason was that they felt that training outsourcing providers did not understand their business. This should be a wakeup call to training outsourcing providers. Knowing a client’s business is a “must have”—table stakes, if you will, just to play the game. To be selected, a provider also needs to demonstrate expertise, cost and fit.
A range of additional reasons for not pursuing an outsourcing strategy were included in the “other” category, and generally fell to one of three areas. Respondents either felt that their current training departments were meeting the needs of the organization, that they simply had no need for training, or they believed that outsourcing was too costly.
Training Audience: Internal Versus External
With a large number of organizations recognizing the value of providing training across the entire value chain, survey participants were asked to indicate who the recipients were of the outsourced training. Ninety-three percent of respondents indicated that their internal employees were the target of outsourced training efforts. Nineteen percent said it was their customers. Sixteen percent indicated that they provided outsourced training to their partners, and 5 percent said they did so for their suppliers. So while the majority of respondents indicated an internal audience, there appears to a healthy number also using training outsourcing to reach external partners and customers. IDC believes this represents a significant opportunity for both buyers and sellers of outsourcing services. An educated value chain is better prepared to support a company in developing, building and delivering a product, and in offering and supporting the product to the end customer.
Total Training BPO: Valuable to Small Companies
One perception of training outsourcing is that it is a service only offered to large enterprises. The energy and commitment required by outsourcing providers in order to win a bid combined with the length of the sales cycle requires that vendors go after the big contracts with large companies, leaving smaller organizations to fend for themselves. Counter to expectations, respondents felt that a comprehensive or total training outsourcing strategy was more valuable to smaller organizations than large or mid-sized ones. This clearly shows that there is a market for total training outsourcing among small companies. If providers of training outsourcing services can figure out how to leverage their experience with large enterprises to serve these smaller organizations, it will be a win-win situation for both sides. (See Figures 5 and 6.)
Where Do We Go From Here?
Training outsourcing is well-established within the ranks of survey respondents. With the majority of the companies involved in select training outsourcing engagements, growth in this market will likely be seen as these companies elect to outsource additional training activities. For some, this may even lead to an outsourcing of the entire function. It is clear, however, that for either option, clients look first to those providers who can demonstrate that they know the company’s business and can provide training efficiency for a reasonable cost.
Peter McStravick is the senior research analyst for IDC’s Learning Services group, where he addresses the impact of training methodologies and business models on end-user organizations, and tracks market growth and opportunities in a variety of segments in the U.S. corporate training market. He can be reached at email@example.com.