Managing Costs:
The Goldilocks Phenomenon
By Thomas Kraack
Managers should think like Goldilocks when they’re considering cost management options—not too much and not too little. To find the solution that’s just right, though, you need to understand the principal cost management drivers: migration to e-learning, effective supplier management, common learning design, process reengineering.
At its most basic level, you may want to think of cost management as a Goldilocks issue: not too much and not too little investment but a “just right” level of spending that achieves maximum value without waste or insufficiency. Understanding what “just right” means, however, entails understanding the principal cost management drivers. For large-scale training delivery, four drivers account for approximately 80 percent of the variability around the proper leveraging of resources.
Migration to e-learning
Currently, cost savings from e-learning are well documented and manifest themselves in a number of ways. The first is a decrease in direct costs, such as lower program tuition, as well as the reduction or elimination of such items as facilities and travel costs, instructor fees and travel costs, and a large percentage of publishing and printing costs. Accenture has developed for its clients fairly accurate gearing ratios for cost savings from e-learning. That is, it spells out how companies will realize impressive reductions in the cost-per-learner day of training for certain percentage increases by migrating instructor-led training to e-learning, accompanied by corresponding increases in e-learning investment.
For most companies, the relative percentage of learner days delivered via technology-enabled tools is still far from optimized. This phenomenon is particularly true in some industries, including financial services, retail, and healthcare, in which several of the right elements are in place to justify large-scale migration to e-learning. The combination of large, vastly distributed workforces, a high degree of technical and product knowledge content, and high turnover is a likely recipe for accelerated and large scale e-learning initiatives. But even in less likely situations, such as in manufacturing and resources companies, examples exist of aggressive programs migrating to e-learning. Overall, dramatic breakthroughs in cost leverage can result from challenging traditional assumptions of user acceptance, technical barriers, and near-term investments.
Another aspect of cost savings derived from e-learning lies in so-called opportunity costs, which means that most companies can easily quantify the cost of lost productivity involved in employee travel to reach a training event or when employees simply need time away from their jobs. In the latter example, one accepted industry standard is that employees can get as much out of a one-hour e-learning experience as from a two-hour instructor-led course. You do the math: less time away from the job means more productivity on the job.
When some companies calculate ROI, though, estimated productivity gains stemming from e-learning are controversial. Finance managers often are reluctant to count such soft dollar savings as tangible benefits. Yet, in some industries, these savings are extremely tangible. Defense industries, for example, are highly sensitive to labor rate calculations. For them, small savings in labor time, calculated over many workers, provide a significant value to margin or cost competitiveness. In other industries, such labor gains aren’t used to justify investments, but they still are estimated and counted below the line. Whether factored into the business case or not, productivity gains are certainly real to employees and their managers.
More effective supplier management
In enterprise training, it’s not unusual for suppliers to account for as much as 30 to 50 percent of the total cost of the solution. As a result, procurement and supplier management become big opportunities for cost reduction. The problem, however, is that too often a highly disaggregated (a polite term for disorganized) training function leads to a great deal of waste, redundancy, and lost opportunities for cost savings. An audit of spending at one major company Accenture worked with uncovered that it had seven different contracts with one supplier. By altering this arrangement to a single global contract, the company cut costs associated with the supplier by 50 percent.
Supplier consolidation presents another opportunity for savings. In most companies, some 10 percent of their suppliers provide approximately half of their training programs. Clearly, such companies need to target their supplier discounting activities. But what about that other 90 percent of the suppliers that provide the other half of the programs? That’s where consolidation, followed by discounting, can again yield impressive savings. The value of such consolidation also goes beyond cost—by decreasing the number of suppliers, companies can build stronger relationships with a smaller number of organizations, increasing the capacity of both sides to work together creatively.
Far from being a threat to training suppliers, the creation of such partnerships offers great value to both companies and suppliers. In leading companies, such arrangements have led to creative pricing and risk-sharing arrangements, which align economic self-interests toward achieving performance goals. They also enable significant movement from fixed to variable costs, by moving overhead and infrastructure costs to suppliers who can spread those costs over a much larger base. Finally, properly structured, these partnerships enable nimbleness and speed, by streamlining the typical laborious procurement process under a master servicing agreement.
Common learning design
Another consequence of decentralized training (a polite term for sub-optimized) is enormous redundancy in course design and development. Some companies have as many as 100 different training and development groups, each providing non-strategic and non-proprietary programs. We have seen companies, for example, that offer up to seven different ways of teaching negotiating skills. Are these courses in sync? Not exactly. Clearly, such situations offer companies the opportunity to lower the cost of maintaining redundant and sometimes conflicting intellectual property significantly. An industry standard, suggesting that companies refresh training content approximately every two years, underscores the importance of this effort. Companies with multiple versions of content obviously multiply their maintenance costs when they update that content. Consolidating learning design activities, therefore, can create more consistent learning experiences and increase a company’s ability to maintain content at significantly lower cost.
The effort to standardize content is well worth the effort. We have entered a new age of training content management, in which learning content management systems and knowledge management technologies have converged to create powerful opportunities to rethink long-held beliefs about this area. We now have the capacity for reuse, mass customization, personalization and wholesale change in printing and distribution. This is as much the case for instructor-led training content as for e-learning content. But taking advantage of such tools starts with a strategic approach to content management, and fundamental to that approach is the recognition of such content as intellectual property—a valuable asset of the organization.
Process reengineering
One of the most important truths about learning management is that updating technology without updating processes likely means a company is under-leveraging new technologies. But restructuring processes to refocus the roles and capabilities of training staff, which in turn provides greater strategic value to the organization, can be a critical source of both value and cost savings. In some companies, as much as 25 percent of all training staff time is spent in administration—registering learners, dealing with cancellations, preparing the training facility, and so forth.
Through a variety of approaches, companies can address such process problems. They can update the organizational structures and processes used by the training group, or they can revise roles and responsibilities to maximize value for the investment. They can centralize certain functions to minimize the number of high-value professionals performing low-value tasks, or they can aggregate costly and time-consuming activities and then off-load them, perhaps through an outsourcing arrangement. Equally, they could consider a shared-services function for training design and delivery, which could eliminate redundancies that occur from having content developed in multiple locations—and leads to the consequent maintenance problems mentioned earlier. Additionally, increasing employee self-service could drastically reduce the costs of providing basic administrative functionality. Whatever approach(es) a company implements, the result can equal major cost savings.
Ironically, despite the proliferation of learning management systems, most learning organizations haven’t fundamentally changed the way in which they deliver services. In far too many cases, such platforms are essentially used as back-end databases, rather than as enabling engines for enhanced workflows. It could be argued that, for most training organizations, governance lags technology. That is, we have inserted new technologies into legacy governance structures, thereby sub-optimizing their potential benefits. Such benefits, it should be noted, may not be found in training headcount reduction, but in transforming training staff workloads into more productive, high leverage activities.
More opportunities
Accenture’s experience suggests that companies with large training budgets and highly decentralized training design and delivery resources often quickly realize a 20 to 30 percent cost reduction when they implement more advanced cost management techniques. At the same time, these companies increase the impact of training on their people and on the business value created from both the training and from the people who perform more efficiently.
Managing costs more effectively can produce substantial savings, but it’s important to remember that cost savings are only the tip of the iceberg. The real rewards are the significant improvements to productivity and performance of a company’s critical workforces. By deploying the “just right” learning strategies and technologies to efficiently deliver the learning that’s needed to the people that need it, companies can transform their learning function into an engine driving greater business performance.