Outsourced Training Begins to Find its Niche
By Paul Harris

Organizations are increasingly relying on expertise from training outsourcing suppliers to fill many of their learning needs. But they won’t discover outsourcing’s full potential to create value until they begin outsourcing their learning processes, not just projects, experts claim. Achieving that comfort level won’t come over night.

“I don’t know of a single company that has not outsourced some aspect of its training function at least once,” says Douglas Harward, a business consultant and former corporate training executive.

The observation is both timely and relevant considering the rapidly growing interest in outsourced learning among companies. So what’s all the fuss about? What organization hasn’t called upon an outside specialist to help train members of its workforce, devise a curriculum, or perform some other learning-related job? Why, it might just be the second oldest profession.

The answer involves the clear distinction between time honored out-tasking relationships formed between suppliers and corporate trainers, and the expertise available from a growing fraternity of training business process outsourcing (BPO) firms. In short, companies aren’t just hiring classroom instructors any more.

Corporate, government, and other organizations are turning toward training outsourcing in record numbers. The field is currently growing at a 15 percent clip, compared with an eight percent rate for the training marketplace overall, according to estimates.

The reasons for the increased activity are numerous. Customers need to eliminate the fixed costs of maintaining a large training organization, improve the quality of learning while reducing course work and training time, cope with the confusing array of e-learning technologies, focus on core competencies, and become more strategic. All of those capabilities are reportedly available from eager suppliers serving the field today.

Meanwhile, providers have found equally attractive reasons to enter the business. They include the ability to leverage heavy fixed costs, such as call centers and content development among multiple clients; provide scaleable, enterprise e-learning products and services; and form profitable relationships around technologies and training personnel that clients are reluctant to sever.

By some definitions, the new era of training outsourcing debuted in 2000 when Nortel Networks signed a large contract with PriceWaterhouseCoopers to perform a variety of activities, including management of its enterprise-wide training function. That contract, which was scrubbed after the bubble burst in the communications industry, opened eyes among both suppliers and corporate training departments about the potential for strategic learning outsourcing.

But four years later, the number of comprehensive training outsourcing contracts can still be counted on one hand. They include Accenture Learning’s contract to operate Avaya University and IBM Learning Solutions’s contract with the U.S. Army to run the massive eArmyU higher learning initiative. Task-oriented arrangements still account for 85 percent of training-related outsourcing, and will continue to dominate the field, say experts. Indeed, hundreds of companies outsource their LMS systems, content development and delivery, and other training tasks.

Yet interest is growing in a third category of training outsourcing: the selective outsourcing of multiple learning tasks. Such engagements may include tactical management of some portion of learning but not all of the business processes included in an organization’s training operations. For example, a company may outsource its content development and the hosting of learning technologies along with such “back office” administrative support tasks as scheduling classes and handling enrollments. At the same time, it may retain internal responsibility for learning strategy, instructional delivery, portfolio management, and strategic reporting and analysis.

Meanwhile, several other key signs that the marketplace is seeking to elbow its way into the ranks of more established BPO fields like HR and finance have occurred this year. Among them:

Acquisitions. Convergys Corporation, a traditional outsourcing company, purchased custom content developer DigitalThink earlier this year for US$120 million. The move immediately strengthened Convergys’s training capabilities, complimenting its own administrative expertise, says Tom Starr, senior principal of Convergys Employee Care. San Francisco-based DigitalThink produces creative and instructional design from facilities within the United States and India, as well as consulting services, simulations, and a scalable technology platform for on-demand course delivery. Two other potentially significant acquisitions include the Thomson Corporation's purchase of Princeton, New Jersey-based Capstar from Educational Testing Service in August and Exult’s merger in June with Hewitt Associates, an HR and learning BPO firm.

New Online Community. Earlier this year, training BPO consultant Harward founded a new Website, www.trainingoutsourcing.com, to serve the community of customers and suppliers in the burgeoning field. “TrainingOutsourcing.com seeks to help people understand who is in the training outsourcing business, where the successes and best practices are, and to identify the best processes for BPO for training,” explains Harward. He says the site presents timely and accurate information to increase the level of exposure and understanding of outsourcing as a viable solution for organizations.

Research. One testament that a field has arrived is the number of high-priced research studies being produced to measure its impact and predict growth. In the case of training outsourcing, at least five such reports have been released so far this year. One study from Bersin & Associates contends that companies that outsource spend 31 percent less in total annual training expenditures per learner than firms that train internally, as well as have 26 percent fewer staff per learner.   

Process contracts pose hurdles

Although the growth in training outsourcing is brisk by any definition, relatively few companies are pursuing process management or comprehensive engagements, say experts. They are settling instead for the variety of transactional agreements with defined deliverables.

“The market hasn’t yet matured into enterprise-wide training outsourcing,” declares Harward, who is president of the Exceleration Group in Cary, North Carolina. He contends that although the field is progressing naturally, customers are still wary about risk. “It’s a big jump from project outsourcing to process outsourcing,” says Harward. “Companies don’t want to dive in head first.” He adds that projects with defined deliverables pose little risk for companies.

Thomas A. Kraack, lead partner for Accenture Learning, says he’s surprised that the market hasn’t grown more quickly, considering the obvious advantages of higher end outsourcing relationships. He says one reason the decision poses difficulties for U.S.-based companies is the disaggregated nature of the training function.

“There are lots of frustrated CLOs who perceive the opportunities and leverages available to them, but who are stymied by the entrenched self-interest, political divisions, and ownership structures of training within their companies,” says Kraack. “This has led to smaller deals than you might imagine.” By contrast, other BPO fields such as HR, finance, procurement, and IT are more centralized, he says.

Allan Tetley, a partner with Accenture Learning who leads its customer education offering, says another outsourcing hurdle for training organizations is the perceived risk of engaging an outside firm to develop course content. Says Tetley: “They ask, ‘How can anybody know our products or services well enough to build our content?’”

But putting new authoring tools into the hands of their engineers enables the development of collateral information on their own systems, claims Tetley. “We can leverage that to build high quality learning content. Once organizations believe we can do it, it becomes a big deal.” Another positive element is Accenture Learning’s ability to manage this process to benefit both the client and provider, he says.

Tetley contends the biggest enemy of the training outsourcing deal is the time it takes to complete one. Potential outsourcing partnerships often stall and whither because senior management refuses to pull the trigger on an area it knows little about. “Often we don’t lose a deal to a competitor, but to the inability of a client to act. That is bad for everybody, especially the client who has invested time and energy looking at a solution,” says Tetley. He believes that finding a way to shorten the lengthy sales cycle of outsourcing contracts would help.

Still, most training outsourcing firms aren’t complaining about the current level of business coming through their doors. The major players typically are working on 40 to 50 potential deals at any given time, of which 10 are in serious discussions, according to one estimate. “Several major deals will be announced soon,” predicts one outsourcing executive.

Client confidence is key

TrainingOutsourcing.com Names Top 20   TrainingOutsourcing.com announced its picks for the top 20 companies in the training outsourcing industry. Selection was based on experience in managing multiyear engagements, commitment to training BPO services, recognition as a leading OSP in the training industry, range of capabilities, and talent level of staff. Because of the diversity of services included in training outsourcing engagements, no attempt was made to rank the companies. Accenture Learning Affiliated Computer Services, Inc. Achieve Global Capstar Convergys Exult GeoLearning GlobalKnowledge General Physics IBM Learning Solutions Innovatia Intellinex Intrepid Learning Solutions KnowledgePlanet Learning Tree International New Horizons Computer Learning Centers NIIT, Ltd. Productivity Point International Raytheon Professional Services RWD Technologies Worth noting is that companies based outside the United States made the list. Global organizations reflect the diversity of companies in the industry—from major business consulting and technology corporations to those specializing in IT training and e-learning. Included on the list are two companies with non-U.S. headquarters: New Delhi, India-based NIIT and Innovatia, based in Saint John, New Brunswick, Canada.   According to Jim Hanlin, COO of TrainingOutsourcing.com, "Narrowing down the list of top training OSP's to 20 companies required some extensive deliberation among our staff. However, we're confident that those on the list have the experience, competence, resources, tools, and commitment to high quality training to advance the industry. There are plenty of excellent training companies out there, but we believe that the top 20 have set the standard when it comes to provision of outsourced services."

Kraack believes that once customers gain confidence in the full capabilities of top tier outsourcing suppliers, the field will quickly transform to a higher level. “This isn’t a transaction processing business like HR,” says Kraack. “Clearly, there is a value creation side to learning. The argument is more than taking costs out; we also bring speed and value and make a difference in the business.”

Consultant Harward believes that a complicating factor is the shortage of senior business strategists in training roles within most companies today. “I believe that the real challenge for the future of corporate learning is for more senior training managers to focus on business strategy instead of tactical learning. That’s where you get a return on investment,” says Harward.  

But Harward cautions organizations never to outsource their strategic planning function. “You want your outsourcing partner to play a role in that process. When strategies are created together, the buyer owns it.”

Convergys’s Tom Starr believes an increase in process-oriented outsourcing partnerships will coincide with the emergence of industry standards and best practices to guide companies through key hurdles. “If you look at all of the deals that have been collectively done, each has probably been unique in some way in structure, price, or service,” Starr told a session at ASTD’s International Conference and Expo in Washington, D.C., in May. He says there is a “wide-spread understanding around how you go about structuring these transactions, what services will be performed, how you do the handoff, and what the goals and responsibilities are.”

Ed Trolley, vice president of outsourcing for Knowledge Planet, foresees a booming demand from companies seeking to outsource learning activities that represent large investments but lesser value. “If you look at a 200-person training organization, you will probably see that between 30-50 percent of the professionals are spending their time in administrative-related work,” said Trolley at the ASTD session. “The opportunity to improve their efficiency and productivity is significant.” Knowledge Planet provides outsourcing services for such back office activities.

Next big wave: customer education

Even as suppliers work to educate their customers about the many benefits of training outsourcing, many are also jockeying to pursue a related field they believe will soon rival the outsourcing of employee training in size—the training of customers of products and services. “Companies are going to start realizing that there’s more spent on training outside of the corporate training group than inside the training group, and they’ll want to get their arms around it,” says Trolley.

One outsourcing supplier that is especially active in customer service training is Raytheon Professional Services LLC (RPS), a unit of the aerospace giant. “If you’d ask us what we’re best at, it would be product support training,” says Dave Letts, vice president and general manager. Raytheon’s expertise was gained from more than 70 years of training U.S. service men and women how to use military technology, he says.

 “Companies everywhere live and die by selling their products and services,” reminds Jeff Lucas, director of business planning at RPS. Consider China, for example, where RPS is busily teaching the first generation of auto salespeople their trade for an auto manufacturing client. “China is one of the world’s most capitalist countries, but they don’t know how to sell cars there,” says Lucas. That’s because until recently, autos were awarded to favored people, not purchased.

For outsourcing suppliers, the customer training market represents a change in tactics because they are dealing with sales and marketing executives rather than HR people, says Lucas. “Product support is tied to a set of skills and capabilities. It’s a different dialogue,” says Lucas, who claims sales and marketing executives aren’t focused on competency like their HR colleagues. “They’re more interested in bottom-line results, increasing the customer satisfaction index, and retaining people.”

Another veteran workforce training company that has staked its flag in customer education is Productivity Point International, based in Research Triangle Park, North Carolina. The company offers a variety of programs for customers, prospects, and partners, including specific markets or industries with unique value propositions.

PPI is also serving a fast-growing outsourcing niche within customer education, says director of marketing Krista Fuller. Namely, it’s working with corporate clients to educate their customers before the sale, not after. It’s a business model established through long-term relationships with clients, such as Microsoft and Cisco Systems, adds Fuller. PPI also educates prospective customers for clients in wireless communications, petroleum, and chemical industries, she says.

“Sophisticated markets are beginning to train their customers before the purchasing decision as a way to drive interest to their products and services,” says Fuller. “It is becoming an important ingredient of PR and marketing.”  

Published: August 2004