Training Outsourcing

The hottest new trend in HRO Training and Learning

by Jay Whitehead

View full Training Outsourcing article (PDF)

FINDING TRAINING OUTSOURCINGS IDENTITY

Outsource training? Are you insane?
Actually, no. Training outsourcing is a burgeoning market. Its watershed moment came in 1986 when General Physics inked its landmark training outsourcing relationship with General Motors. Regardless of its mega-deals, training outsourcing has taken the long road to its own identity. With the increase in training business process outsourcing (BPO) deals since 1998, training now has a distinctive place in BPO alongside other human resources (HR), finance and accounting (F&A), and information technology (IT) business process functions. Moreover, corporate trainings focus now extends beyond employee learning to customer education. This increase in trainings scope has resulted in a steep boost in demand for outsourced training services of several flavors.

The Numbers Behind the Story
The data on trainings value is starting to pour in. And here is the bottom line. The growth in training outsourcing is all based on two facts: Training boosts organizational productivity, and outside training providers increase an organizations ability to train more people faster and more cost-effectively than in-house staff.

According to a 2004 report by Accenture, high-performance organizations, representing approximately 10 percent of the organizations surveyed, exceeded their peers in productivity (as measured by sales per employee) by 27 percent more than their competitors, revenue growth by 40 percent, and net income growth by 50 percent.

The American Society for Training and Development (ASTD) reported that training spending in U.S. corporations was $826 per employee in 2002, an increase from $734 the year prior.

The Exceleration Group estimates that corporate training expenditures of all types, in-house and outsourced, was nearly $120 billion in 2004. Of this, 42 percent was targeted for employee learning, 52 percent for customer training, and 6 percent for training supply chain interests. The ASTD, in 2003, estimated that 28 percent of all training expenditures go to outside vendors. That indicates that the training outsourcing market exceeds $30 billion.

Consolidation Equation
Like many BPO segments, the training market has seen the start of a significant wave of consolidations. In March 2004, the biggest of the mergers happened when Cincinnati-based Convergys picked up San Franciscobased DigitalThink for $2.40 per share, or $120 million, a 30 percent premium to DigitalThinks share price.

At the time, Thomas J. Starr, senior principal of learning services for Convergys Employee Care, said DigitalThinks capabilities would create synergies for the company by beefing up its capabilities in learning while improving its competitive position in HR outsourcing.

The Convergys acquisition also set the stage for back-to-back Thomson Learning deals in August 2004. In the first of the two deals, Thomson Learning added Capstar, a unit of Educational Testing Service. Capstar develops competency assessment, learning and measurement, and testing solutions for private and public sector markets. The second deal, two weeks later in August 2004, featured Thomson acquiring KnowledgeNet, an e-learning provider, which Thomson merged with its own NETg unit. The two buys, while positioning Thomson Learning as a market share leader, contrasted with Convergys stated goal for its training outsourcing acquisition: to position Convergys to better compete for large-scale HRO contracts. The differing M&A philosophies of Thomson and Convergys reflect the training outsourcing markets conflicts about its own identity. Is training outsourcing a market of its own, or does it comprise a subset of the HRO market?

Follow the Money:
Customers Come First

On Wall Street, the trend is your friend. In training outsourcing, the overwhelming trend is toward investing in customer training. In 2004, TrainingOutsourcing.com writer Paul Harris documented software provider Intuits eureka moment, which caused it to invest heavily in customer training.

Sales of the companys QuickBooks software were suddenly spurting, Harris wrote, and a new analysis revealed why: Professional accountants were referring the product to their corporate customers after taking an e-learning course that made them certified users.

We discovered that accountants who received their ProAdvisor Certification were referring QuickBooks to their small business customers at four times the rate of those who simply use the software, says Rich Walker, Intuits director of accountant and advisor relations. It is a causal relationship.

Launched two years ago, Intuits new customer training initiative is outtasked to Convergys Corporation, the business process outsourcing firm that recently acquired e-learning content provider DigitalThink. Convergys Learning Solutions helped create the courseware and now manages the training via its scalable Web-based platform, the L5 Learning Delivery System. It supplements Intuits classroom training program begun seven years ago with Dallas, Texas-based Real World Training. Intuit, as Harris showed, illustrates the fastest-growing trend in learningthe outsourcing of customer training initiatives.

Posted January 10, 2005 in Engaged Workforce

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