When, Why and What to Outsource

<p><em>While training outsourcing is on the decline overall, when it is being used, it&rsquo;s in increasingly important areas.</em><br /><br />CLOs have a range of options in developing any training program. They 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 often rests on whether the needed volume and quality of training can be supported by internal staff.<br /><br />Every other month IDC surveys Chief Learning Officer magazine&rsquo;s Business Intelligence Board (BIB) on a variety of topics to measure the attitudes, issues and interests of senior training executives. This month&rsquo;s topic is training outsourcing, and this article will discuss the survey responses of 209 BIB members, as well as compare its results to Chief Learning Officer&rsquo;s outsourcing surveys from previous years. The findings and interpretations 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.<br /><br /><strong>Outsourcing on Its Way Out</strong><br />Overall, those enterprises that do outsource training are satisfied with the services they receive and maintained or increased slightly their budgeted spending levels for 2011. Most often, enterprises use external vendors for content development, training delivery and LMS.<br /><br />However, survey results show that training outsourcing usage overall is declining. In the early 2000s, two-thirds (66 percent) of enterprises reported outsourcing some of their training function. In 2007, this number dipped to 58 percent, and by 2009, only about 45 percent of CLOs reported outsourcing some portion of their training function. In 2010, the trend continued, with slightly less than 45 percent of enterprises outsourcing some portion of their training function.</p><p>The challenging present state of the economy is probably a significant component of this shift. Internal training resources are being pushed to greater utilization in order to curtail spending on external providers. And the urgency of training has declined as deflated economic conditions continue.<br /><br />The reduction in firms using outsourcing is interesting, too, because many of the other behaviors in training outsourcing remain remarkably consistent over the past several years.<br /><br />Most companies outsource only select portions of their training functions. Only about 3 percent outsource the entire training function. This percentage has remained relatively steady.<br /><br />Expected spending distribution on training outsourcing as a percent of overall training budgets this year has a bell curve skewed slightly toward the left &mdash; with a minority of overall budgets spent on outsourcing training. This is consistent with 2009, only shifted slightly more to the left. <br /><br />This illustrates the reduction in the use of external providers. Eighty percent of enterprises that outsource some portion of their training spend less than 40 percent of their training budget on outsourcing, with half spending less than 15 percent. On average, enterprises spend about 25 percent of their training budget on external providers.<br /><br />For 2011, about 81 percent of companies expect spending on training outsourcing to increase or remain the same. This indicates that 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 19 percent of companies indicated that their training outsourcing budgets will decrease next year.<br /><br /><strong>Outsourcing the Important</strong><br />While it seems reasonable to assume that organizations use external providers to help with those parts of their business that are less important, that is not the case with training outsourcing. With training outsourcing, it seems that both core and non-core activities are outsourced. <br /><br />Respondents were asked to compare the importance of training functions with the training functions most frequently outsourced. 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. CLOs&rsquo; ranking of the importance of these activities hasn&rsquo;t changed much during the past several years &mdash; suggesting overall priorities haven&rsquo;t changed much, either. <br /><br />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, 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, are less popular to outsource. <br /><br />It seems that companies are using external training providers primarily for activities that are important but do not require the transfer of management authority. <br /><strong><br />Reasons to Outsource</strong><br />While other aspects of training outsourcing have not changed much, the reasons for outsourcing have shown a significant shift. In the past, a clear majority of companies chose outsourcing to gain access to better training expertise and to deliver more training than internal resources could provide.<br /><br />As recently as 2007, speed to market was a significant rationale for using external providers. During the past several years the importance of speed to market has declined. In 2010, however, speed to market for training has increased as a motivation for leveraging external providers. As organizations seek to rebound quickly from the economic crisis, more firms are leveraging external vendors as a way to get essential training delivered quickly.<br /><br />Those companies that are outsourcing training functions primarily to supplement internal resources do so to have training resources available on an as-needed basis and because they believe that training outsourcing is a more cost-effective method of creating or delivering training.<br /><br />Those that outsource seem to be somewhat less satisfied with their providers. While 60 percent of CLOs report being satisfied &mdash; either very or somewhat satisfied &mdash; with their providers overall, this is down from nearly 90 percent in 2007. Many more CLOs are dissatisfied with their providers, too, both compared with 2009 and with 2007. <br /><br /><strong>Expertise in Outsourcing</strong><br />The most important qualities to consider when looking at a training outsourcer are training 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.<br /><br />Other factors that are important are vendors that act as business partners, a good cultural fit between the customer and 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 increased financial stability.<br /><strong><br />Why Not Outsource?</strong><br />Companies that don&rsquo;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.<br /><br />Training outsourcing remains a well-established service. As enterprises continue to emerge from the economic crisis, it will be interesting to see if predictions of increased use of external providers hold true or whether organizations will attempt to bank the savings gained from not using external providers and continue to try to do more with less. </p>