Followers of the training industry are well aware of the correlation that exists between corporate profits and the size of training budgets.
In general, as corporate profits increase, so do funds for training. The reverse, of course, is also true. It is not surprising then that as a majority of companies have benefited from the global economic recovery and have seen a surge in company profits, training budgets too have grown. The outlook is optimistic for the fourth straight year, as a greater number of training executives expect larger budgets, foresee an increased use of external training providers and plan to make significant investments in learning technologies.
Every other month, IDC administers a brief Web-based survey to Chief Learning Officer magazine’s Business Intelligence Board (BIB) on a variety of topics to gauge the issues, opportunities and attitudes that make up the diverse role of a senior training executive. Since 2004, BIB members have been asked to provide an annual insight into their spending expectations for employee development. Last year’s survey showed learning professionals were anticipating increased training budgets for 2006.
IDC research bears this out again this year. Figure 1 shows that for the fourth straight year, BIB members indicated an increase in their training and development budgets over the prior year. Moreover, almost 60 percent expect they will have more training dollars to spend in 2007 than 2006.
Figure 1 also shows that the number of companies who have made cuts to their training budgets has fallen for the fourth consecutive year and is expected to fall again next year. Nearly two-thirds of small and medium-sized companies saw an increase in training budgets in 2006 as compared with 2005. The rise in company profits, however, isn’t the only factor driving the increase in available training dollars. Many companies recognize that remaining competitive in today’s knowledge economy requires organizational agility and increased employee proficiency. Businesses are reinvesting profits in workforce development and management to meet this demand.
Leadership, Technology and Performance Management Key Investment Areas
With the inflow of dollars to training continuing to rise, chief learning officers are looking to develop their company’s workforce by investing in a wide array of key areas. Consistent with past years, the focus over the next two years will be on making improvements in executive development, learning infrastructure and gaining better visibility of workforce performance. Figure 2 shows the top three investment areas: competency and/or performance management, learning technologies and leadership development.
Medium-Sized and Large Companies are Making Significant Investments in Leadership and Executive Development
Many corporations are facing the impending retirement of key executives over the next decade, and training and development professionals now are working to prepare the next generation of executives to take over these senior posts. Consistent with last year’s study, 50 percent of the BIB members expect their investments in this area to grow significantly over the next two years. As Figure 2 shows, investments in leadership and executive development are a top priority for more than half of medium, large and very large organizations. Within small companies, the need for leadership development is not as significant.
Learning Technologies are Seen as a Smart Investment
Training in its simplest form is about facilitating the flow of information from those who have it to those who do not. With more companies competing at the global level, facilitating this flow of information to all employees in a timely and efficient fashion has become increasingly more difficult. As such, there is a strong demand for learning technologies such as learning management systems (LMS), learning content management systems, content-authoring applications and collaborative software to improve the speed with which content is developed and delivered to all employees. As Figure 2 shows, 47 percent of the BIB members expect to make significant investments in this area over the next two years, representing a 2 percent increase over last year. As one would expect, learning technologies are seen as a slightly more significant investment for large and very large companies where large dispersed workforces are more likely to exist.
Performance Management is Gaining Importance
As company executives begin to recognize training as an enabler of corporate strategy, there becomes an increased need to tightly align workforce development with business objectives. Many organizations look to performance management as a means of achieving organizational alignment, and by integrating the function with training, they are gaining even greater visibility into organizational competencies, which allows for more targeted and relevant training. As Figure 2 shows, 41 percent of BIB respondents expect to make significant investments in competency and performance management over the next two years. This accounts for an 8 percent increase over last year. This is also the first year in this survey’s history that performance management has emerged as one of the top three investment areas for CLOs.
Increased Reliance on External Providers
Thirty-five percent of companies plan to significantly increase spending with learning vendors over the next two years, up 4 percent from last year. There is little change, however, in the services training managers will be looking to procure from vendors. The top three areas continue to be hosting services, content development and classroom delivery.
Forty percent of respondents indicated they intend to increase spending on hosted services for technologies and content over the next two years. This is a slight decline from 2004 and 2005, when 45 percent and 41 percent of respondents, respectively, indicated increased spending on hosted services.
Conversely, content development and classroom delivery both show an increase in the percentage of respondents who expect to enhance spending in these areas with external providers.
Despite Saturation, LMS Still a Key Investment for Next Year
When asked specifically about learning technologies, 40 percent of respondents indicated they would be making significant investments in learning management systems within the next 12 months. This is noteworthy because it reveals that despite a high saturation rate — 87 percent of the BIB members support one or more LMS — companies still are making significant investments in this technology.
For reasons already provided, training professionals indicate they also are expecting to make sizeable investments in workforce performance management systems over the coming year. This is particularly so among larger companies, where issues such as alignment and visibility become increasingly more of a challenge.
Content-authoring software will be a top purchase over the next year, in particular, for smaller companies that typically lack the training funds to regularly buy off-the-shelf content and must develop the bulk of their content internally.
Content Development Leads Learning Services
Among learning services, more than a third of the BIB members indicated they would be making considerable investments in custom content development over the next 12 months. As one would expect, this is especially the case with larger companies that are more likely to have the necessary budget to fund custom content-development projects. Still, the demand for this service is present across all company segments.
Not surprisingly, given the investments expected to be made in learning technologies over the next year, there is going to be a need for learning-related technology services, as well. With every technology purchase there is IT consulting, system integration, implementation and hosting services required to ensure smooth rollout and end-user adoption. Almost a third of medium-sized companies expect to be making significant investments in this area in the coming year.
Finally, no money spent on training is worth the investment if time isn’t taken up front to ensure that it addresses the required competencies and aligns correctly with company direction. Accordingly, BIB respondents expect to be spending significantly in needs assessment and analysis. This service appears to be of particular interest to very large and small companies over the next 12 months.
If Money Were No Object …
The last question posed to the BIB members was, ‘If money were no object, what training-related service or technology would you purchase for your company?’ The majority of respondents were relatively conservative in their responses, indicating they would invest in either a top-of-the-line learning management system, a learning content-management system or acquire customized content for their companies. Leadership training, in particular, was mentioned most. Many respondents also indicated their wish to be able to fund overall improvements to company infrastructure or integration-type projects that would allow their organizations to support a more robust and dynamic training program.
Unfortunately, though, money always will be an object for training professionals, and the need to make smart investments will continue to be paramount. Unlike fund managers, who can protect themselves against risk by diversifying their investments, CLOs rarely have the luxury to spread their training dollars over many different training solutions. They typically have the funds to support one training solution, and the one they pick must be a winner. Increases in training budgets also mean CLOs face greater scrutiny than before regarding their training investments.
Despite these challenges, it is possible for CLOs to “beat the street” by mitigating as much risk as possible. Aligning training with corporate strategy, establishing competencies, providing relevant training offerings and working with reputable and experienced vendors increases CLOs’ likelihood that their training portfolios will deliver value over both the short and long term.
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 the U.S. corporate training market. He can be reached at email@example.com.