Whether companies are doing it or not, examining the outsourcing of training can provide a vital snapshot of where corporate learning and development are today.
Every other month, IDC surveys Chief Learning Officer’s Business Intelligence Board (BIB) on a variety of topics to measure the attitudes, issues and interests of senior training executives. This month’s topic is training outsourcing, and the following article will discuss the survey responses of 209 BIB members. The findings and interpretations below should interest both companies that do not currently outsource and those that do, because the answers can provide benchmarking information in regard to how companies conduct training as compared to their peers.
It is commonly recognized that companies need effective training programs in order to transfer knowledge and skills to employees, customers and partners, to retain employees and to improve speed to proficiency. Training programs can be grown organically over time, developed in-house, outsourced to a training provider or implemented using some combination of in-house and external expertise. The decision to outsource rests mainly on whether the needed volume and quality of training can be supported by internal staff. Overall, those enterprises that outsource training are satisfied with the services they receive and plan to increase or maintain current spending levels for 2010. Nearly half of enterprises use outside providers to fulfill some aspect of their training function, primarily outsourcing content development, training delivery and LMS.
Training Outsourcing Synonymous With Using External Training 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. However, it is clear from the survey results over the past several years that this is not the current use of the term by the marketplace. The types of training activities being purchased suggest enterprises use the term training outsourcing synonymously with using external training providers. For the purpose of this article, we will adopt this broader usage of training outsourcing for our analysis.
Declining Usage of Training Outsourcing Reported
Not too long ago, 66 percent of enterprises were outsourcing some part of their training function. In 2007, this number dipped to 58 percent. In 2008, this percentage went down again to 55 percent. In 2009, the trend continued, with only about 45 percent of enterprises outsourcing some part of their training function (Figure 1). The challenging economy is probably a significant component of this shift, as internal training resources are being pushed to a higher utilization in order to curtail spending on external providers. This reduction is interesting, as many of the other behaviors in training outsourcing remained remarkably consistent over the past three years.
Most companies outsource only select portions of their training functions — only about 2 percent outsource the entire training function. This percentage has remained relatively steady even though the number of enterprises outsourcing some of their training function has declined.
Companies Spend About 25 Percent of Training Budget on Outsourcing
Spending on training outsourcing as a percent of overall training budgets reveals a bell curve skewed toward the left, as seen in Figure 2. Eighty percent of companies spend less than 40 percent of their training budget on training outsourcing, with about half spending less than 20 percent. Conversely, the 2 percent that spend more than 80 percent are likely the same group that outsources its entire training function. On average, enterprises spend about 25 percent of their budgets on external providers.
For 2010, 83 percent of companies expect spending on training outsourcing to increase or remain the same, as seen in Figure 3. This indicates that while the number of companies that are outsourcing may have declined this year as compared to last year, the companies that are outsourcing are, for the most part, satisfied with their use of external training providers. In spite of the economic challenges felt throughout the world, only 17 percent of companies indicated their training outsourcing budgets would decrease next year.
Companies Outsource Some Important Activities
It seems common to assume that organizations use external providers to help with those parts of their business that are less important. However, with training outsourcing, core activities are outsourced in some cases and noncore activities are outsourced in others. The activities that CLOs identify as most important include both custom content design and development and training delivery. Also important is strategy development, with program oversight, learning technology management, and reporting and measurement following with about equal importance.
In an effort to determine if highly important or less important training functions are the ones chosen for outsourcing, Figure 4 compares the importance of training functions against the training functions most frequently outsourced. There appears to be a correlation between the importance of the activity and activities outsourced for the three areas of custom content, training delivery and LMS. However, those training functions that are highly important but require the transfer of management responsibilities to execute, such as strategy development, program oversight and reporting and measurement, show low popularity for outsourcing. It seems that companies are using external training providers primarily for activities that are important but do not require the transfer of management authority.
Accessing Expertise and More Resources Main Reasons to Outsource
The top three reasons to outsource, by a clear majority of companies, are to gain access to better training expertise, reduce costs and provide flexible capacity in delivering training. These reasons remain consistent from last year. Not surprisingly, reducing costs has actually become more important to enterprises. As recently as 2007, speed to market was a significant rationale for using external providers. However, over the past several years, speed to market has dropped from an important reason to an also-ran. The increased importance of reducing costs and the declining influence of speed to market appear tied to the current economic situation as organizations seek to hunker down more often than pursue new opportunities.
Those companies that are outsourcing training functions primarily to supplement internal resources do so to have training resources available on an as-needed basis. Companies looking to deliver training beyond the capabilities of internal resources consider that training outsourcing can be managed like just-in-time inventory, with services on hand as needed, while also resolving issues of cost, lack of talent and timing (being able to ramp up training needs quickly).
Those that outsource seem to be somewhat less satisfied with their providers than in the past. While almost 30 percent of CLOs report being very satisfied with their providers overall, this is down from nearly 40 percent in 2007. To be fair, only 5 percent of CLOs are dissatisfied with their providers. These satisfaction levels are consistent with 2007 results, and so it appears that training providers continue to provide quality services to their customers.
Provider Expertise in Training and Subject Matter Critical
The most important qualities to consider when looking at a training outsourcer are training expertise and subject-matter expertise. These are the fundamentals for providing high-quality training services in terms of understanding the subject matter and knowing how to impart knowledge to the audience. Other important factors are vendors that act as business partners, a good cultural fit between the customer and the vendor and industry knowledge. These qualities, while possibly harder to assess in the proposal process, are key attributes for a successful relationship, especially one where the vendor will represent client companies in training situations for employees, partners and customers. These factors have remained consistently important for several years. However, the economic crisis has increased the importance of a provider that can create a flexible arrangement and those with financial stability.
CLOs and Heads of Business Units Are Decision Makers
The ultimate decision maker for outsourcing choices is changing. From 2006 to 2007, it appeared that HR executives were becoming more active in the decision-making process — even more so than CLOs or heads of training. More recently, however, CLOs and heads of business units have taken on more decision-making authority across companies. This places the responsibility for the business impact of learning and training outsourcing squarely on the shoulders of the executives impacted by the decision.
Non-Outsourcers Cite Lack of Need
Companies that don’t outsource typically cite satisfaction with their internal training operations, believe it is too expensive or fear losing control of the training function. Some companies believe the subject matter is too complex for outside providers, though this reason is declining in importance.
Findings and Recovery
Training outsourcing is a well-established service. The key findings from this survey include a slight decrease in the number of enterprises that outsource corresponding to an increase in the number of companies that are content with the performance of their internal training resources. Another key finding is that companies that outsource are satisfied with the results and expect to increase or maintain their levels of spending on external training providers. Finally, most companies outsource select training activities that do not require the transfer of management control to an external provider.
As we emerge from the economic crisis, it will be interesting to see if the predictions of increased use of external providers hold true or whether organizations will attempt to bank their savings on using external providers and attempt to continue to do more with less.