In 2004, members of the Chief Learning Officer magazine Business Intelligence Board shared their thoughts on how their organizations would be investing in training and development over the next 12 months. One year later, these respondents were approached again with the same survey, and their responses were even more optimistic than they were a year ago.
Continued Increase in Spending
With the global economic engine having hit its stride in 2004, many organizations are now re-investing corporate profits into human capital development. More than half of the survey respondents indicated that there was an increase in the 2005 training budget over 2004. (See Figure 1.) The outlook for corporate training remains positive through 2006, with more than half of the respondents indicating that they expect training budgets to continue to increase. Further evidence of the market’s growth potential is the decline in the number of organizations that indicated they would be decreasing their training budgets.
Growth for Leadership Development
With new dollars flowing into training departments, learning executives have more spending options available. As they did a year ago, Business Intelligence Board members indicated that a diversified approach is still the call of the day. (See Figure 2.)
- Learning executives expect to invest heavily in leadership and executive development: With the pent-up demand for training from prior lean years and the topic of succession planning becoming more prevalent, learning executives see leadership and executive development as a key initiative this year. Consequently, more than half of all companies will increase spending on leadership and executive development by more than 15 percent.
- Investment in learning technologies will continue: With many organizations competing on a global scale and providing training throughout the extended enterprise, the demand for learning technologies, including learning management systems, content management, simulations, content builders and virtual classrooms, is as important as ever. Senior learning professionals are looking for tools that will facilitate the transfer of knowledge across the enterprise and throughout the value chain. Nearly half of all companies will significantly increase their spending on learning technologies in 2006.
- Learning executives look to refresh content: More than a third of respondents indicated that they expect to see significant growth in spending on the design and development of in-house training. With increasing budgets, learning executives are in a position to re-evaluate their curricula for overall relevancy and alignment with company objectives. During leaner times, organizations were satisfied with existing offerings or “good enough” learning products.
- Performance management gains attention: As part of the effort to better align learning goals with company objectives, CLOs will step up their reporting and tracking efforts and take a more holistic approach to employee development. Holistic performance management allows managers to oversee a team’s development needs, assign training and facilitate the review process, and is a growing area of interest within many organizations.
Overall Priorities Remain the Same
Although almost a third of companies plan to significantly increase spending with learning vendors, there will be little change in how companies will use external assistance. The top three areas continue to be hosting services, content development and classroom delivery. (See Figure 3.)
Slightly more than 40 percent of respondents plan to increase spending on hosted services in 2006. This will either be hosted technologies such as learning management systems or hosted content. This is a slight decline from 2004 when 45 percent of respondents indicated increased spending on hosted services.
Content development also shows a slight decline from 2004, with about 38 percent of companies indicating a significant increase in spending in this area, down from about 40 percent. The percentage of companies that will significantly increase spending on classroom delivery is expected to jump slightly to about 25 percent.
Priorities Vary by Company Size
The IDC Learning Growth Index suggests that companies of varying sizes have somewhat different priorities for spending during the coming year. Large and very large companies will experience high growth in content development spending and the use of vendors to host technology or content over the next two years. While there has been a push to make custom content development more affordable for the small and medium-sized companies, it continues to be the large organizations that have the necessary budgets for custom content.
As IDC reported in its November 2004 e-learning market forecast, hosting services have helped move e-learning into mid-sized markets. This growth is reflected in e-learning’s leading position in the Learning Growth Index for mid-sized companies over the next two years. Mid-sized companies will see moderate growth in spending on classroom delivery and content creation.
Conversely, small organizations will be spending more with vendors for classroom delivery over the next two years. IDC estimates that instructor-led training (ILT) accounts for 65 percent of corporate training, but is expected to decrease somewhat over the next five years as e-learning continues to make inroads into the ILT market. For smaller companies, the benefits of e-learning are not as immediately applicable, and therefore, smaller companies choose to invest more of their training dollars in the classroom. Consistent with the increase in classroom spending, smaller companies also expect to spend more on access to subject-matter experts and mentors. (See Figure 4.)
Outsourcing Confusion
The breadth of offerings available to companies suggests vibrancy in the market and a variety of delivery needs for buyers of training and training services. It also suggests there is still confusion within the training community as to what the term “training outsourcing” actually means. This year, nearly 150 companies were mentioned by name as providers of training outsourcing or outsourcing services. Some of the companies mentioned would not consider themselves “outsource service providers,” but they clearly generate feelings of satisfaction from their clients.
Vendors mentioned both this year and last year reveal the diversity of market perception of capabilities and offerings. Large outsourcing providers Accenture and IBM are among the top mentioned in both years. For other companies, consideration by CLOs suggests to some degree their value to their clients regardless of the services they provide.
Fifteen companies were mentioned more than once as training outsourcing providers in 2005, but were not mentioned at all in 2004. About half of those companies provided learning services—performance management, development or training delivery—while one-third were primarily content companies, and the remainder were technology vendors. Again, this shows the range of training needs CLOs have and the range of vendors required to serve those needs.
Investment Options Abound
Independent of economic conditions, learning professionals have had to be conservative when managing their budgets. The challenge lies in striking the balance between the associated risks and expected returns on each investment. In 2006, learning executives will be in a position to invest in a number of key components, but the expectations for those investments show that the impact of learning efforts on the company’s bottom line must continue. CLOs’ investment priorities for 2006—in leadership development, learning technologies, content re-design and performance management—also will receive this scrutiny. Working with reputable and experienced vendors will increase the likelihood that CLOs will be able to deliver on the expectation of bottom-line impact.
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 pmcstravick@clomedia.com.
