For decades, companies have been employing outsourcing strategies to achieve greater scale, efficiency and expertise in a wide array of business functions. More recently, however, a number of organizations have begun to apply the outsourcing model to thei
by Site Staff
August 29, 2006
For decades, companies have used outsourcing strategies to achieve greater scale, efficiency and expertise in a wide array of business functions. Some of the functions organizations have outsourced include finance and accounting, human resources, procurement and customer service. More recently, however, a number of organizations have begun to apply the outsourcing model to their training function. There is still debate as to whether the training function can be successfully outsourced. Some learning professionals consider the function to be too embedded within a company’s culture to be successfully outsourced to a third-party provider. Others freely acknowledge that it is not part of their company’s core competency and seek to partner with a training provider whose expertise they can leverage.
Every other month IDC surveys the Chief Learning Officer magazine’s Business Intelligence Board (BIB) on a variety of topics to measure the attitudes, issues and interests of senior learning executives. The July 2006 issue looked at the evolution of blended learning. This month’s article looks at the continuing evolution of training outsourcing and seeks to address such questions as: How widespread is training outsourcing? What is the nature of training outsourcing engagements? How satisfied are buyers with their outsourcing provider? Who are the key decision makers regarding training outsourcing?
Training outsourcing engagements typically fall into one of two camps, those engagements where select training activities are outsourced and those where the entire training function is outsourced altogether. The benefits of a successfully deployed outsourcing strategy are relatively obvious. In addition to being a potential means for reducing cost, training outsourcing allows companies to access training delivery, content development, and technical expertise and scalability not available within their own organizations. An outsourcing solution also frees up training professionals to focus on more strategic issues such as better aligning training objectives with corporate goals. IDC sees the conversation around training outsourcing shifting from one about pure cost reduction to one of cost efficiency. It is less now about how much a company can save and more about how a company can spend its training budget more wisely.
Buyers Satisfied with Outsourcing Solutions
More than two-thirds of CLO BIB respondents indicated that their companies outsourced some portion of the training function. This is consistent with last year’s survey where 62 percent of participants responded the same way, showing a 6 percent growth in outsourcing. Of this year’s respondents that do outsource, 95 percent outsource selected training activities and 5 percent outsource their entire training outright. This suggests that most buyers of training outsourcing services are content leveraging their provider’s expertise within specific areas of training, but are not yet interested in completely outsourcing the whole training function.
Eighty-six percent of the BIB indicated that they were satisfied with their company’s outsourcing arrangement while another 48 percent indicated they were somewhat satisfied. Only 5 percent of respondents indicated that they were dissatisfied with their company’s outsourcing situation. These results were consistent for both select and total training outsourcing, suggesting that an outsourcing strategy can be successfully deployed for either case.
Of those companies that do not currently outsource any of their training function, 20 percent said that they do expect to at some point in the future. This is also consistent with the findings of last year’s survey. However, 6 percent of those companies that currently outsource responded that they would not be looking to outsource in the future, despite stating they were either very or somewhat satisfied with their outsourcing provider. This suggests that there are other factors beyond client satisfaction that impact a company’s decision to continue to outsource. In some cases, an outsourcing relationship might be tied to specific objectives and once those objectives have been met, the rationale for outsourcing is removed.
Delivery and Content Continue to Lead the Way
Survey participants revealed that training delivery and custom content development continue to be the two most commonly outsourced services. This continues to represent a shift from earlier years of training outsourcing when it was more common for back-office administrative activities such as learning technology management and enrollment management to be outsourced. Clearly, training professionals today have become more open to using an outside provider for some of the more crucial aspects of training.
Primary Reasons to Outsource
The pressures being put on today’s training professionals are sizeable. A growing number of company executives realize the contribution training divisions can make to achieve business success, and as a result they put heavier expectations on training departments to keep their employees proficient and knowledgeable. In some cases, given the limited number of training personnel available, these companies might find it difficult to keep pace with their own expectations. Not surprisingly, when asked for the top three reasons for pursuing a training outsourcing solution, the response “To deliver more training than internal resources could provide” was selected most often. Twenty-seven percent of respondents selected this as a top reason for looking to outsourcing.
The second most commonly selected response by the CLO BIB was “to gain access to better technical or training expertise.” It is a reality of today’s workplace that companies simply cannot afford the time for specific expertise to develop organically. Outsourcing affords a company the opportunity to access technical or training expertise immediately, helping companies to respond to their development needs in a timely fashion.
These responses indicate a shift in the BIB’s thinking from a year ago where cost reduction was one of the predominant reasons given for pursuing an outsourcing solution. This year cost reduction was preceded by four other responses as the top reasons for outsourcing.
Buyers Looking for a Business Partner
Training and subject-matter expertise rate as the two most important qualities buyers consider when selecting an outsourcing provider. Simply put, buyers want a provider who knows training and who knows their industry. These two qualities have essentially become the table stakes for competing in the training outsourcing market today. What has emerged from this year’s survey, however, is the importance buyers now place on finding an outsourcing provider who acts as a business partner. Buyers want a provider who remains engaged with them throughout the process, is continuously re-evaluating and assessing training needs and approaches, and customizes solutions specific to their business. The BIB find qualities such as financial stability, proven case studies and a prior work history with the company less influential to their selection.
Customers Becoming a Bigger Part of the Audience
As compared to last year’s survey, a growing number of companies are beginning to look to outsourcing providers to manage some component of their customer training. Although internal employees still comprise the majority of the training audience, there has been a significant increase in the percentage of BIB respondents who target outsourced training to their customers. IDC anticipates that this trend will continue as more companies recognize the value of providing training to the entire value chain.
Why Some Opt Not to Outsource
A third of survey respondents indicated they do not outsource any of their training function. When this group was asked to provide the reasons for this position, their responses illustrate the growth the market still must make and provides insight to the vendor community on how they could better serve prospective clients. The primary reason given for why companies choose not to outsource is an obvious one: They are content with their internal training resources. Other reasons, however, speak to some of the conceptions perceived or otherwise that buyers have of outsourcing solutions. Issues involving loss of control, loss of intellectual property and the belief that outsourcing providers do not understand their company’s business still rank high as reasons for not pursuing outsourcing. The BIB indicates that less significant is the fear of loss of employment for trainers, lack of appropriate measures or that outsourcing is too expensive.
Who Are the Decision Makers?
Not surprisingly, within the majority of BIB companies, the key decision maker for all training outsourcing agreements is the same—the CLO or head of training. However, within some companies the BIB shows a shift in responsibility away from heads of business units for select training outsourcing engagements and toward the CEO and senior HR executive for decisions involving the outsourcing of the entire training function. Roughly 5 percent of respondents did not know who the decision maker would be within their company.
Many Vendors Competing for Buyers’ Mindshare
In an attempt to measure the awareness of vendors of training outsourcing services among the buying community, BIB participants were asked to provide the names of two companies they thought of when they heard the term “training outsourcing provider.” The results from this question highlight the breadth of training providers that exist on the BIB’s radar as well as the fragmented nature of the training industry as a whole. In total, the BIB provided the names of 144 different vendors with 114 of these receiving a single mention. Accenture led the list of companies with 33 mentions, and IBM was second with 14, however, “None” or “No one” was given 18 times, making it the second most common response. In further examining the BIB’s responses, IDC found that similar to last year, the list contains a significant number of companies that do not specifically market themselves as training outsourcing providers. This suggests that a diverse understanding of the term training outsourcing still exists within the buyer and vendor communities. Some buyers might in fact equate the procurement of regular training services from a third-party vendor as outsourcing, when in it fact it is not.
Still Room for Improvement
Training outsourcing remains a well-established practice within the ranks of the BIB. Seventy-percent of respondents to this month’s survey indicated that they will continue to use training outsourcing services going forward. Despite this positive outlook, the BIB did have advice for providers of outsourcing services on how they could better serve the learning market. Many respondents felt that the vendor community needs to do a better job of listening to their clients’ needs and crafting customized and flexible solutions that fit within existing processes rather than attempting to sell them a pre-packaged solution. As this market continues to mature, buyers and vendors alike will benefit from an ongoing discussion about how learning outsourcing services can be better tailored to fit the needs of today’s training professionals.
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.