Learning Out

A R e a l i t y
behind making a decision to outsource, survey results suggest that after cost cutting, the major reason to outsource is to address the lack of internal capability to meet organizational learning demands or the desire to access best practices and talent. This finding is significant and suggests that companies will look for more than simple cost savings in the future. At the same time, they want to establish better ties between learning, organizational performance, and productivity. However, companies determined to establish linkages between learning and organizational performance are still left facing the challenge of how to deliver on their mission. The real question is, are companies ready to actually outsource most or all of their learning functions to an outside learning vendor to help them get there? And, if not, what does this mean for the learning market? Based on survey results as well as ASTDs and IBMs own experiences, we see an increasing percentage of early adopters jumping on the outsourcing bandwagon. While the level of interest is escalating, the majority of organizations are not yet ready for full-scale outsourcing of their entire learning function to an outside entity. In short, the market is still in its infancy, although poised for growth.

s learning outsourcing the next big thing in learning? And if so, are companies ready to move in that direction? To understand the answers to those questions as well as the perceptions and current practices of corporate buyers in the learning outsourcing market, IBM recently partnered with ASTD for an outsourcing reality check. The two organizations conducted a survey of nearly 200 learning and human resource executives in August 2004. Our survey results suggest that learning outsourcing, while currently a young and emerging market, is poised for growth in the future. Today, the primary driver behind outsourcing is cost savings. In the future, we expect companies will look for providers to also accelerate the transformation of their learning environments. We began by asking companies to identify their most pressing issues. Clearly, companies are struggling to establish a link between learning and organizational performance. Other top concerns include developing the skills necessary to drive company initiatives and transformation and establishing a return-oninvestment (ROI) or value for learning. When asked about the driving force

Understanding outsourcing versus out-tasking To better understand how the market perceives outsourcing and out-tasking, definitions were offered to participants for clarification. For the purposes of the survey, outtasking was defined as a situation where specialist firms help with specific tasks or parts of the learning process. Outtasking tends to be project driven and uses transactional pricing. The major difference between outsourcing and outtasking is the level of control assumed by the service provided. Outsourcing was defined as encompassing situations where an external services firm takes complete responsibility for and control of selected learning processes or activities an outsourcing firm takes over an organizations total training operations or major portions of training such as learning infrastructure, administration, or design, development, and delivery.

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See page 5 for an Executive Summary of this article

sourcing
C h e c k
11%

A recent survey of top learning executives indicates the industry is poised for growth, but the market is still young.
By Nancy DeViney and Brenda Sugrue

Outsourcing Realities

One indicator that the learning outsourcing market is still in the early stages of maturity is that most organizations today still prefer out-tasking smaller projects over complete business process outsourcing (BPO). The current learning outsourcing market drivers are similar to those associated with broader BPO initiatives which are now gaining momentum in the market. In April 2004, Yankee Group profiled the HR BPO market, highlighting several drivers pushing companies toward HR

Smaller organizations may begin their outsourcing initiatives at the infrastructure level. . .
partnerships. Several of those motivators correlate directly with what survey respondents reported, including goals such as the following: Lower external costs. In almost any business process outsourcing industry, the desire to reduce external costs clearly drives short-term motivations.
Access to new technology at deferred costs. The ability for companies to access

tries where retention of key talent is paramount to performance and the top line, the ability to measure, monitor, and manage individual employee performance is now a vital capability. (Human Resources BPO: Market Analysis, Forecast and Competitive Landscape 20032008, April 2004) Data from ASTDs 2004 State of the Industry Report shows a slow but steady increase in the percentage of learning expenditures that go to outside services, from an average of 20 percent across a broad sample of organizations in 1999 to 26 percent in 2003 with 27 percent projected for 2004. More than 50 percent of our respondents reported forming partnerships to fulfill some of their learning functions. However, only a small percentage of respondents currently partner with a vendor for all or most of their learning needs. Though respondents expressed an interest in out-tasking the functions associated with learning content development/delivery as well as infrastructure (about 40 percent of respondents show interest in out-tasking Learning Management Systems [LMS] and Learning Content Management Systems [LCMS]), less than 7 percent are willing to outsource the entire learning function. Survey results also indicate that smaller organizations may begin their outsourcing initiatives at the infrastructure level while larger companies are more likely to focus first on content areas. Overall, findings are consistent with an early market and indicate respondents are likely to begin with one component at a time.

full-service applications, develop employee portals, and develop metrics to monitor performance at deferred costs are major influencers in the negotiation of full-service HR BPO deals.
Making performance management more visible and strategic across the organization. For companies involved in indus-

Looking forward: Overcoming barriers to turn out-tasking functions into BPO opportunities Today, the learning BPO market is taking initial steps, primarily driven by cost cutting initiatives and access to talent. Tomorrow, we believe the market will

present new opportunities to leverage learning relationships for organizational transformation and growth. Executives report that establishing direct linkages between learning and business priorities continues to be a challenge and necessity. Even a year ago, research firm IDC noted, There has been a move to tie employee learning more closely to business objectives (for example, quicker penetration of new products, regulatory compliance, customer retention) and with other areas of workforce development such as performance management and staffing. (Training and Development: Fertile Ground for BPO, May 2003) Likewise, survey respondents indicated a growing interest in learning outsourcing during the next two years. This finding was consistent for both large and small companies alike. Interestingly, organizations with decentralized training budgets show a greater likelihood to outsource learning components than their counterparts in organizations with centrally administered budgets. This may reflect a sense of frustration and desire for an outsourcer to provide a greater level of control. For example, ASTD/IBM found that more than 60 percent of learning executives dont want to lose control of their learning functions. Likewise, more than 60 percent also cite a lack of confidence in the ability of outsourcers to meet a companys learning requirements. Both of those factors carry more weight with respondents from larger organizations, reflecting the perceived risk associated with an external provider. Achieving ROI is less of a concern for respondents with decentralized training budgets; however, their counterparts place significant weight on ROI. Finally, nearly 40 percent indicated that learning outsourcing is still a new market, and the cost/benefit structure isnt clearly defined. Newness is a factor of greater

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. . . while larger companies are more likely to focus first on content areas.

Outsourcing Realities

Outsourcing decisions should be made in the context of core competencies.

concern to respondents from smaller organizations, perhaps reflecting doubt on whether learning outsourcing can benefit smaller companies. To overcome those challenges, learning vendors must be prepared to start small, consider a clients needs, and clearly define the measures for success.

Many vendors are fearful of what outsourcing learning may mean for their company. Giga Group effectively summarizes the market situation: Organizations must realize that outsourcing can result in the loss of intellectual capital and day-to-day control of training, and that the vendors style and approach are just as important as the tools and methodologies to the overall success of the relationship. Because outsourcing relationships are typically long-term commitments, ensuring a cultural fit between the two organizations and implementing service level agreements (SLAs) are critical when considering business process outsourcing for training and learning. (The Benefits and Risks of Outsourcing Learning, September 2004) However, specific concerns over learning outsourcing may be overstated. Many companies are already spending more

than 30 percent of their training budgets on external services providers, according to ASTD. Although a portion of that amount is related to out-tasking, the percentage has been steadily increasing. Were also seeing more hosted deployments of learning infrastructure. Other issues surrounding the rights to intellectual property capital and management control can be mitigated by keeping selected functions in-house.

Evaluating and working with a learning partner Given the current trends in learning outsourcing, how can companies know when a learning partnership makes sense for them? When should they consider learning outsourcing over out-tasking? What factors should an organization weigh when considering outsourcing? There are many benefits associated with both out-tasking and outsourcing of

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learning functions that make them appealing options for many companies. The top reason for outsourcing is potential operating cost reduction. The data suggests based on the other survey responses, that over time, more companies will place heavy emphasis on the transformational aspects of learningsuch as best practices, access to talent, and access to critical skills. Today, learning executives rate cost savings high and the transformative aspects of learning outsourcing low. That may be a reflection of their perspective that it is difficult to transform the learning function. Learning decision makers in our survey agree, reporting that the most important characteristic in a learning vendor is knowledge of the client company and its industry. Other important qualities include performance, speed in service delivery, and the ability to deliver without disruption to the organization. In summary, the learning outsourcing market remains poised for growth in both large and mid-market enterprises. Organizational characteristics such as industry, culture, number of employees, and training budget administration are likely to influence the adoption of learning outsourcing in different ways. Content and delivery are the likely functions that will be outsourced initially. Other functions likely to follow include technology infrastructure and learning administration. Survey results also suggest that companies evaluating their outsourcing options may be more comfortable starting smaller at the beginning, perhaps with out-tasking activities such as LMS implementation. Outsourcing decisions should be made in the context of core competencies and what is critical in achieving business objectives. For those organizations considering outsourcing, remember learning needs are unique to each company. Therefore, choosing a learning

partner that has a strong learning culture, an in-depth understanding of learning functions, and a sensitivity to your individual needs and internal issues is critical to future success. TD
Nancy DeViney is the general manager of IBM Learning Solutions; deviney@us.ibm.com. Brenda Sugrue is ASTDs senior director of research; bsugrue@astd.org.