The prospect of quick cost savings and improved results lead companies to take a closer look at external solutions.
by Andy Teng
At a time when cost cutting is dominating the thoughts of most executives, have organizations shifted their focus away from performance improvements? And if so, does that mean the learning function—often a key differentiator between world-class companies and the also-rans—is losing its luster as an engine for productivity gains?
For companies that have turned to outsourced solutions, the answer is an emphatic no. According to industry observers, outsourced learning continues to draw interest among many employers, including those under financial stress. That’s because like other domains of HRO, outsourced learning enables companies to reduce costs, increase accountability, and standardize what is often a decentralized function with many stakeholders involved in the spend. But learning may offer more opportunities to capture savings than other outsourced HR services because of its decentralized nature. With so many parts of an organization engaging learning services—whether for internal employees, channel partners, or even clients—inefficiencies abound, and economies of scale are often missed as a result.
And in this economic climate, senior leaders are placing greater emphasis on improving operational efficiencies, whether through headcount reduction or replacing costly operations with an outsourced solution. Furthermore, as travel budgets have declined, many companies are looking to learning service providers to introduce more eLearning and virtual classrooms to improve process excellence.
Instilling greater discipline in its learning function was one of the critical reasons why Energy East, a distributor of natural gas and electricity in the Northeast, engaged in a broad learning outsourcing deal with ACS two years ago. As a company whose cultural beliefs are based on outsourcing all non-core services, the company didn’t have a formalized learning program until it began outsourcing, explained Sheri Lamoureux, executive director of HR services. Since engaging ACS to help with its professional skills training (it retained its training related to IT and health and safety), Energy East has seen marked improvements in its learning metrics, including training hours and attendance. More importantly, Lamoureux said the company can now focus on tying effectiveness of learning to outcomes.
“We will have the ability to focus on appropriate training courses and more effectively measure the results,” said Lamoureux. “If those courses aren’t moving the person (trainee) forward, we can better evaluate and make adjustments.”
A Shift in Priorities
Lamoureux’s experience is typical of organizations that outsource learning. By shifting a variety of services spanning technology, administration, and content development, buyers enjoy a variety of benefits they otherwise would struggle to achieve through internal resources. But of the spectrum of process improvements achievable through outsourcing, the one companies place the most emphasis on these days is cost reduction. Even though Energy East made transformation its primary goal for outsourcing, a business case was necessary to win executive-level buy in. And that’s something most organizations are looking for these days.
According to industry observers, current economic conditions have businesses looking at outsourced learning in a different way. Because of potential cost savings, many employers are honing in on that aspect rather than the transformational facet of outsourced learning. Although some vendors report that decision-making is taking longer because executives are being more cautious, overall interest is strong.
Jill Kidwell, vice president of learning outsourcing solutions at provider IBM, said companies have always looked to outsourcing to change the cost “profile” of their learning programs, but today, “What we are seeing is a sharper focus on that. In the past it was good to have cost savings, but today it’s a clear requirement.” In particular, she added, sponsors of outsourcing initiatives are under significant pressure to provide a business case upfront.
Cost-cutting in learning is nothing new, but there is renewed vigor to further slash redundancy and inefficiency. For years now, the industry has been slowly but surely moving from instructor-led training (ILT) at brick-and-mortar facilities to online and now virtual training programs that require no travel or even a classroom. So as the pressure to reduce spending increases, the shift to outsourcing is accelerating as well.
This trend is affecting learning outsourcing in a variety of ways. With the market bifurcated into learning BPO (a comprehensive solution encompassing all services for an entire organization) and outtasking (point solutions addressing specific issues around, say, a learning management system or administration services), employers have a variety of options when it comes to external solutions. In many instances, LBPO providers are partnering with each other or operating a program management office for clients to help deliver end-to-end services. Best-of-breed vendors continue to find strong demand for technology and content services, especially for solutions that can be implemented quickly and with little cost upfront.
Guido Minaya, a managing partner with Minaya and Associates, a consulting group, said outsourcing is striking a chord with buyers these days for several reasons. Many are looking for consultative advice to help them with process efficiencies, and at a time when most organizations are either reducing their workforce or freezing headcount, acquiring that expertise internally is just about out of the question. Outsourcing providers, especially large, enterprise vendors as well as mid-market players, offer both process expertise as well as established infrastructures. He advised any organizations not considering outsourcing to take a second look. “Now with the downturn in the economy, you should evaluate what a corporate university does and its core competencies,” he said.
And many organizations are actively evaluating their learning functions. All of the vendors contacted by HRO Today cited a strong pipeline of deals in the new year, despite the bad economic news. Although in some instances the time it takes for buyers to make a decision has lengthened—companies are more cautious about committing and so involve more arms of the organization such as affected lines of business, procurement, and operations—there is nevertheless an elevated interest in outsourcing.
“We are seeing a lot more interest in learning outsourcing than we’ve seen before,” said Richard Klingshirn, executive managing director of ACS Learning Services. He explained that even when prospective buyers aren’t specifically citing cost reduction as the reason for considering outsourcing, they are motivated by a related driver such as increasing productivity with a smaller staff. The bottom line, he said, outsourcing is seen as delivering “most bang for the buck.”
One way ACS has worked with customers to quickly capture savings is to offer a lift-and-shift model, in which the provider takes over the learning activities of the client. Through economies of scale, ACS can quickly deliver cost savings. Then during a 6- to 12-month period, it can also transform the client’s learning function to further gain efficiencies. Klingshirn said this approach provides a path to immediate savings while undertaking transformation.
In some cases, providers are being asked to take over physical assets of learning universities; in others, buyers are closing down those facilities and moving classrooms to those of providers. For instance, Raytheon Professional Services (RPS), an enterprise provider, recently took over the Russian learning operations of one client because it no longer wanted the administrative burdens. Ray Matteson, director of global learning operations at RPS, said interest in such an arrangement is growing.
Buyers are asking “How do I get rid of fixed costs,” he said. “I think you’re seeing more people raise the issue.”
A New Conversation
While cost savings dominate much of the discussions around learning these days, many organizations still want to integrate the function with other aspects of talent management such as performance, succession, and compensation. Just because the economy has slowed doesn’t mean HR leaders have tempered their aspirations to integrate talent management within their organizations. Marianne Langlois, vice president of learning solutions with Convergys, pointed out that the industry still boasts a strong desire to improve HR’s business contributions. She said outsourcing must be viewed holistically in context with strategy, which has not always been the case among some buyers in the past.
“If learning is really going to drive the organization, then you have to have a different dialogue around what we can do differently and how much more powerful we can be by aligning learning more with these other areas,” she said.
Even as some organizations consider comprehensive outsourcing, the majority of engagements are for point solutions. Buyers may turn to a provider strictly for technology, administration, or curriculum development. Among technology buyers, they may choose to outsource to standardize the platform. For those seeking administration support, HR can better track and improve the quality of training if tactical functions are offloaded to an external provider. Because many organizations already outsource content creation, some buyers engage Tier 1 providers to either manage others or consolidate the number of vendors.
Herb Blanchard, director of enterprise solutions and outsourcing at The Training Associates, a content developer that sells directly to HR organizations as well as through relationships with other vendors, said these types of partnerships serve important roles in the outsourced learning industry. Enterprise providers often don’t have the resources or expertise to deliver the appropriate content to their clients. Through partnerships, they can meet those needs while focusing on their own core competencies, whether that’s administration, process expertise, or technology. He added that enterprise HRO providers are increasingly turning to domain specialists to provide services in which they do not want to invest.
He said in a way this reflects a broader trend among organizations to phase out learning officers as they look to integrate learning with other HR services. “Larger firms are combining HRO and BPO, so it’s critical that HR and Learning effectively collaborate. As these two business units come together on learning, clients tell me they expect to see the title of chief learning officer, now 10 years old, to be changing.”
Will this convergence occur in the near future? Probably not, a number of industry observers point out. While there have been many changes in how companies engage in learning and outsourcing, service integration is still very much immature in many organizations.
However, even as employers ponder how they can provide better business results in the future, many of the industry’s leading providers are already mapping the path for them. After all, the learning industry offers many solutions that enable companies to focus on cost savings, core competencies, and effectiveness of training. It will simply be a matter of time before the market figures out how to marry learning with business outcomes.