Nearly 30 percent of all custom content development, 44 percent of delivery and 30 percent of learning management system (LMS) operations now are outsourced to learning service providers.
Research conducted in 2006 to study the economics of training outsourcing uncovered some interesting facts. First, the training outsourcing market is very fragmented and comprises thousands of content developers, content providers, consultants and technology firms. Most large organizations do not select service providers based on size. Rather, they seek solution providers that “understand our business problems” and “fit with our corporate culture.”
Although a few dozen companies are conducting very large process-based engagements, the majority of outsourcing is specific to particular programs or initiatives. For instance, a company will outsource its sales or dealer training or elements of its leadership development program. As a result, most learning providers specialize in program areas, not horizontal technologies and processes.
Prices Vary Widely
Research found content development prices ranged from $3,000 an hour to more than $75,000 an hour. Even within a single type of content (such as informational Web-based training or application simulation), prices can vary by 100 percent to 200 percent.
Prices are highly efficient, however. That is, organizations that pay more also gain far greater value. Those that paid above-average prices showed the highest satisfaction with business impact, and organizations that paid below-average prices were dissatisfied with business impact, cultural fit and flexibility.
The bottom line: In this market, you get what you pay for.
At least seven highly dimensions are highly correlated to price — the price you will pay for a given program or content development project is based on far more than the content itself. Also factored in is the business strategy on which it is based, speed of development and how you work with the service provider. This means you should be very careful about shopping for content and development providers through a request for proposal (RFP) process.
If you choose to do so, you should make sure the RFP is extremely detailed and discusses all aspects of your expected content, all methods of delivery and your expected relationship with the supplier.
The LMS Outsourcing Market is Exploding
Virtually every LMS vendor offers a hosted or on-demand solution. Traditional licensed software vendors all have announced similarly configured on-demand offerings targeted at midmarket organizations. Some of the more experienced on-demand vendors are now finding their solutions broadly established and easy to sell. In fact, these vendors tend to be growing the fastest as a result.
Finally, the increased focus on outsourcing and evolution of learning services has fundamentally changed training organizations. The new high-impact learning organization focuses on business alignment, performance consulting, strategy, measurement and integration with talent management initiatives.
Although today’s training organizations still build high-value content, a much larger part of their role is the selection, management and blending of outsourced content and services into the mix of programs their organizations need.
You should expect to spend time and resources in the selection and management of learning service providers. You should evaluate vendors based on many criteria — not just the quality of their content but also their flexibility, their ability to understand your business and skills gaps, their ability to fit into your culture and, most of all, their proven delivery capability from reference customers.
Josh Bersin is the principal and founder of Bersin & Associates, and he has more than 25 years of experience in corporate solutions, training and e-learning. He can be reached at email@example.com.