As organizations and their learning functions tighten their belts, they’re going to get much more selective about how they spend their money. Here’s a look at how learning industry spending is shaping up.
Investments in learning technologies and services are growing slightly in 2008 as compared to 2007 budgets, though the growth is slow and many companies expect to maintain spending levels. Investments in learning technologies are a priority over learning services, particularly for learning management systems (LMS) and workforce performance management (WPM) systems.
WPM appears to be the up-and-coming investment area in the learning portfolio. In learning services, needs-assessment services have become a top priority as companies increasingly seek to target and improve learning programs.
Every other month, IDC surveys Chief Learning Officer magazine’s Business Intelligence Board (BIB) on a variety of topics to gauge the issues, opportunities and attitudes that are important to senior training executives. For the past several years, members of the Chief Learning Officer magazine Business Intelligence Board have been asked to provide annual insight into their investment choices. This month, we’ll examine how companies are investing their training dollars in certain learning technologies and services, and whether spending on training is expected to increase or decrease in 2008 and 2009.
Training Budgets Grew Slowly in 2008
Training budgets remain on a slow growth trajectory, as has been the case for many years. In fact, a third (34 percent) of companies reported little or no change in training and development spending from 2007 to 2008. Forty-two percent of companies had or expect an increase in spending from 2007 to 2008, while 23 percent of companies had or expect budget decreases.
In spite of a challenging economic environment, significantly more companies had budget increases in 2008 than in 2007. And while there were also more companies with decreasing budgets, there is strong evidence enterprises are spending more on training in 2008 than 2007.
The trend for changes in training budgets looks very similar for 2009, although many companies are unsure of the direction of training budgets for next year. The same percentage of companies, 42 percent, expect spending increases, but only 15 percent expect decreases in spending. A third (35 percent) of companies expect spending to remain the same.
It is unclear from the data whether the majority of companies have several years of increasing or decreasing investments in training, whether companies tend to recover their budget increases after a year of decline or vice versa.
Key Investment Areas
CLOs continue to use their training dollars efficiently, spending on highly important areas that offer fast and visible results. Figure 3 shows which areas of the training investment portfolio are expected to grow significantly (more than 15 percent) from 2007 to 2008.
The clear first choice is e-learning, followed by performance management; leadership and executive development; development of in-house training; and investment in learning technologies. These choices are consistent with the top spending priorities of 2007. Here’s a quick look at the top three:
• E-learning: E-learning offers many advantages, among them flexibility and convenience, and as such, this area continues to be a key investment priority for CLOs. Technologies such as simulations and gaming offer new ways to train employees on new topics, and this contributes to investment increases.
• Workforce performance management (WPM): Training is becoming more synchronized with business objectives, and training is critical to implementation of corporate strategy. Therefore, companies are turning to performance management technologies to better integrate training programs with business objectives.
• Leadership and executive development: The core of executive development is leadership training, which continues to be a priority for large companies. As boomers retire, training and development professionals must prepare the next generation of executives to replace retiring leaders. Combined with mentoring and job rotations, leadership development increases retention rates among mid- and senior-level executives and helps enterprises ensure the talent and experience they require will be available when it’s needed.
About one-third of companies expect to decrease investment in training facilities and equipment and in tuition paid out to colleges and universities. The other two top areas of investment decreases are bringing on new training and development personnel and payments to external learning services suppliers other than colleges and universities.
Top Technology Priorities
Companies are continuing to invest in their learning management systems (LMS), with 48 percent of companies indicating a budget increase in this technology.
This is the same percentage of companies that expected budget increases in LMS in 2007. However, because training budgets are increasing over 2007 levels, all other training technology areas are experiencing higher spending increases than in 2007.
Of interest is the jump in investment in WPMs, which has surpassed collaborative software as the second key technology area for 2008. Forty-three percent of companies are expecting an increase in spending in WPM as compared to 32 percent of companies in 2007. For all technology areas, there were no expected decreases in investment, though about half of companies expect spending to remain the same for all the technologies.
Investments in Learning Services
The priorities in spending on areas of learning services appear to have shifted from 2007 to 2008. Needs assessment and analysis are now the top investment area for learning services, with 31 percent of companies reporting increases in spending. In 2007, only 19 percent of companies expected to increase their spending in this area.
Custom content development and learning-related technical services shared the spot for the No. 1 investment area in 2007, with 29 percent of companies expecting budget increases. Custom content development is now the lowest priority, with only 14 percent of companies expecting spending increases in this area. Similarly, only 16 percent of companies expect increases in investment in learning-related technical services. Given the projected increases in investment in LMS and other technology areas, it is unclear why the supporting technical services would not also increase.
Fewer companies expect increases in investments in learning services, as compared to learning technologies. While 48 percent of companies expect increases in LMS, the top technology priority, only 31 percent of companies expect increases in spending on needs assessment, the No. 1 learning services priority. More than half of companies expect spending on learning services to remain the same.
Use of External Providers
During the next one to two years, companies plan to use external providers mostly for hosting, content development, third-party negotiations, classroom delivery and subject matter expertise. This is consistent with spending on external providers during the past few years. Using outside providers for hosting, content development and classroom delivery has long been the most popular uses for external providers. (This subject also is covered in the September Business Intelligence article, “Training Outsourcing on the Decline.”)
For the most part, engagements with external providers are project-by-project as opposed to long-term contracts. The exception to this is hosting. Hosting engagements are long-term for 42 percent of companies. Technical help-desk and individual testing services also are more popular as long-term engagements, but are not priority investments, with only 17 percent of companies expecting to use external providers for these area in the coming two years.
During the next one to two years, most companies are not planning to change their reliance on external providers for most of the services in their learning portfolios. The three exceptions to this are in the areas of content development, hosting and classroom instructional delivery.
Thirty-four percent of companies indicate they will increase their reliance on external providers for hosting content and learning technologies (such as LMS and WPM technologies), and 30 percent of companies plan to increase their use of external providers for content development. On the other hand, only 18 percent of companies plan to increase their reliance on external providers for classroom delivery. This appears consistent with trends to invest in e-learning and in-house training.
Most CLOs and senior training executives have the basics covered in regard to training content, delivery and management systems. This group of executives has big dreams for improvements in their programs and believes that integrated technology solutions will provide the most impact on their businesses. Their ideas for using technologies are very up-to-date, consisting of social networks, Google-like search, wikis, integrated LMS and WPM systems and e-learning.
Many are looking at incorporating different innovations in technologies to improve training programs and access important training content using blogs, podcasts, streaming media and satellite video. These new ways to reach stakeholders and improve communications may prove to be the next wave in effecting organizational change through training.
For the most part, training executives remain consistent in their priorities in 2008. While conservative in managing their learning investment portfolios, there are changes in priorities in investment areas as conditions dictate the technologies and services that will provide the maximum company benefits. This is evidenced by a shift in focus to WPM systems and needs assessment services, as well as the ways executives choose to use external providers.
Learning executives are looking at how to make the best use of current technologies to achieve their goals of supporting organizational learning and change.