As organizations everywhere examine their need for effective learning programs, many see LBPO as a credible solution. However, garnering executive buy-in and changing corporate culture will be a tough sell for HR.
Of all the people development-related services entrusted to HR, none is less centralized than learning. That’s because the training and development of employees and executives often are the charge of autonomous business units that set budgets, choose vendors, and decide on outcomes. As most HR leaders realize, the majority of the dollars spent on learning, training, and development for internal and external workers falls beyond their control.
But with greater adoption of learning business process outsourcing (LBPO), a growing number of organizations are involving HR to help reduce costs, ensure appropriate training, and integrate learning with talent management efforts. By centralizing administrative support and employee performance data, HR is better able to perform succession and compensation planning that ultimately helps the business grow. And just as with all outsourcing endeavors, LBPO allows HR to focus on strategic activities by offloading non-core services to third parties.
At the same time, the outsourced learning market is ratcheting up product offerings, providing a broad array of both end-to-end, full-service offerings as well as point solutions aimed at addressing specific problems. On one hand, buyers still procure outsourced learning services in piecemeal fashion, adding on components as the need arises. For instance, a buyer might initially outsource content development to a provider but then seek its help with program administration later on. Or the buyer of a learning management system (LMS) might find that beyond technology, it needs to implement best practices and turn to the LMS vendor for guidance on process improvements.
Other LBPO deals come via end-to-end HRO, with buyers looking to include learning as one of the pillars in their comprehensive engagements. Providers such as Accenture, ACS, IBM, and others have included learning as part of a number of HRO deals. By taking this comprehensive approach, some HR organizations are moving a step closer to an integrated talent management.
Regardless of how they engage outsourced learning services, buyers seek common benefits that come with an external solution: a reduction or stabilization of costs; improvements in operational efficiencies; better access to employee data; integration with performance and talent management tools; and access to robust technology and industry best practices.
While the benefits of adopting LBPO are clear, the challenges may be equally daunting. Because learning is so decentralized, especially in large organizations, securing buy-in for an outsourced solution from various business units may be difficult. Considering that each may have its own preference for content developers and other vendors, consolidating the number of providers is not easy. Moreover, relinquishing local control of these programs requires a cultural shift, one that might involve some kicking and screaming from the lines of business.
But as organizations plan for future growth and the necessary human capital required, they will need a full complement of data that an integrated talent management program can offer. By ensuring that their workforce is properly trained and prepared for future roles within their organizations, HR leaders can help support a variety of business initiatives.
A Big Business
Why are more organizations turning their attention to corporate learning? With billions of dollars spent on internal and external training, it’s an area ripe for process transformation. Consider data from the American Society for Training and Development (ASTD):
- U.S. organizations spent $129.6 billion on employee learning and development in 2006, with around two-thirds going to internal learning functions and the other third for external services.
- The average direct spend per employee in 2006 was $1,040, up 1.7 percent from 2004 (comparable 2005 data was not available).
- Larger and top-performing organizations typically spend more per employee. ASTD’s Benchmarking Forum group (with an average of 71,905 employees per company) spent $1,320 per worker while its BEST Award winners group spent $1,531 per worker.
- Spending as a percentage of payroll in 2006 reached 2.33 percent. The ASTD said this figure has remained stable for several years.
- In its 2007 annual report, the organization found that the level of outsourcing among all companies has remained stable in recent years, despite increasingly complex learning requirements; external spending accounted for 28.07 percent of learning dollars, down from 28.87 in 2004; among the BEST group, the ratio was 23.47 percent, down from 23.93 percent. Larger organizations tended to outsourced more, averaging an external spend of more than 30 percent.
The ASTD also found that because of the increasing requirements for learning programs, many organizations are being forced to consider their capabilities to deliver learning. It has identified segments such as content development and delivery, infrastructure development, translation services, and administrative tasks suitable for outsourcing.
Although industry trends show that the level of learning spending has remained stable, outsourced service providers said organizations are more closely scrutinizing how they are spending learning dollars if not the amount. More importantly, they are rethinking learning in context with other HR services.
“If you are dealing with the most senior-level person at an HR organization, they are looking at all the pieces,” said Marianne Langlois, vice president, Convergys Learning Solutions. “They are saying ‘These are the core things that I need to be good at as a company. Outsourcing [learning services] doesn’t mean it’s not important, but it says let me give it to someone who thinks about this when they wake up in the morning.’”
Indeed, the same drivers that propelled enterprise HRO to top of mind for many HR leaders are also behind the LBPO movement. Langlois pointed out that as recently as three years ago, learning might have been included in 1 in 3 enterprise HRO deals that Convergys worked on; today, they are included in almost all of them.
Nevertheless, LBPO remains a small portion of the total amount spent on outsourced learning services. According to Doug Harward, president and CEO of Training Industry, Inc., a consultant that tracks the outsourced learning market, point solutions accounts for the overwhelming portion of external services. Typical deals range between $3 million and $5 million, but he laments that many of these deals have not truly captured the value or cost savings that LBPO can offer. He faults, in part, the providers’ inability to bring their costs down as well as failing to unearth hidden costs that an outsourced solution might bring. For instance, he noted, some costs such as student travel might be accounted for under a non-learning budget line item. So if an e-learning program is proposed, buyers might not realize they can reduce some indirect costs as well.
“I think we still have some great opportunities for suppliers to focus on efficiencies in the market,” he said. “We’re not seeing the efficiency gains like we should.”
Harward’s view reflects what many in the industry say: LBPO remains an immature segment of the broader HRO market. Because end-to-end deals (those covering all four components, including content development, delivery, technology, and administration), account for just a small portion of the total outsourced expenditures, the learning business clearly remains fragmented. Whether many more organizations will engage in comprehensive learning outsourcing is up for debate, but if the segment mirrors trends in enterprise HRO, it would likely peak within a few years; however, if it takes a path similar to recruitment process outsourcing, the potential for growth may be greater.
There’s no question that the market will remain fragmented, with many companies preferring to outsource discrete learning services, but as BPO makes greater inroads into back offices, it’s unclear how hard HR leaders and their C-level supporters will push to integrate learning with other areas of talent management.
Ranjani Iyengar, global practice lead for learning, performance management, and succession planning outsourcing services for Hewitt Associates, said she believes integration only exists at a rudimentary level today. Buyers remain price sensitive—even among organizations that seek transformational benefits, most aren’t willing to spend more for those gains. And comprehensive LBPO can intimidate some buyers because of its complexity. She contended that the market is still developing credible, simple solutions that can tie talent management pieces such as learning to business strategies, and the next 18 months will be a critical time in the development cycle.
The near future will also be a time for LBPO stakeholders to better define the value of outsourcing learning. Today, most organizations focus on three major areas of savings: the headcount of learning staff; cost of content development; and fixed capital costs such as learning institutions.
Indeed, many organizations operate their learning functions inefficiently because staffers with other primary jobs are asked to administer the learning program. As a result, said Richard Klingshirn, executive managing director for learning services at HRO vendor ACS, the process at these organizations lacks efficiency, quality, and rigor. For example, he said, the learning administration for a company might require the efforts of 25 full-time employees, but because of a decentralized and informal process, that organization may have 100 employees performing these tasks while tending to other duties as well. He added that different business units within a single organization often duplicate each other’s efforts.
“Many business units have built their own training capability, but you have redundancy,” he pointed out.
Providers say unnecessary redundancy is a problem that plagues organizations on a number of levels. In contracting vendors, one business unit might use the same ones as another unit but fail to procure their services as a collective. LBPO providers say concerns about leveraging economies of scale have led some of their clients to ask for support in vendor management as well as centralizing and standardizing their learning spend.
“We do see more and more vendor management requirements, with the expectations that they will yield savings as a result,” said Dave Letts, general manager of Raytheon Professional Services, an end-to-end service provider. “There is no doubt that within a large Fortune 500 or Global 200 organization, you may have hundreds of vendors that are not being integrated smartly, and nobody is working the [procurement] deals.”
Because LBPO is still in a puerile state, some companies wanting to transform their learning process are hedging their bets when outsourcing. While they still want the big-bang benefits of end-to-end outsourcing, they are careful to phase in services either by function or by business unit. Business leaders are sensitive to changing learning habits and cultures, and often C-level as well as HR leaders want proof that a solution will work in one part of the organization before they implement it in others.
“We will prove the model successful in division A and then take the model to divisions B, C, and D,” explained John Higgins, senior director of innovation deployment within Accenture Learning BPO, which mostly provides comprehensive LBPO services to its clients. Once the concept has been validated, he said, buyers tend to migrate many if not all of the elements of its initial LBPO program elsewhere.
Comprehensive adoption, he contended, can stem from an existing outsourced content relationship because once a client is at ease with the provider’s ability to create content—which has a significantly greater impact on driving business than outsourcing administrative or technological functions—it is much easier to broaden scope of delivery to cover logistical and other services.
Some industry stakeholders argue that a company’s indirect costs around learning should be better defined so that LBPO’s true value can be measured.
“What we’re really working on is the value bit—how to get soft savings,” said Mary Sue Rogers, general manager, global HR & learning business transformation outsourcing, IBM. She pointed out that outsourcing can sometimes mitigate hidden liabilities. For instance, in the area of compliance and certification, she added, service providers can help their client better control the costs of compliance. Furthermore, in regulated industries, outsourcing can also help LBPO practitioners to avoid potential penalties by ensuring their employees are trained according to regulations.
One of the key drivers for all HRO activities is access to technology, and in learning, these tools are increasingly an indispensable part of the value of outsourcing. Whether it’s access to a robust learning management system (LMS) or increased utilization of e-learning, outsourced solutions offer a wealth of technology-related benefits.
According to the ASTD, technology-based learning delivery methods account for 30 percent of learning hours provided in 2006, a significantly higher proportion than in 2001, when the figure was 11.5 percent. While it indicates a desire among organizations to reduce training and development costs by adopting an on-demand model instead of in-person training, industry observers also reflected the desire of employees to receive lessons at their convenience.
Not only can technology help companies better administer training and developments and cut costs, but its impact on talent management will be tremendous, Rogers explained. For instance, as an organization seeks to fill key business roles from within, an integrated toolkit enables business and HR leaders to quickly look at their pipeline of available internal candidates. They can easily scan who has the necessary training and other qualifications to satisfy their specific needs. Using the same tools and analytics, LBPO service providers can proactively alert their clients to available talent for future needs as well as alert them to an impending shortage for certain skilled workers, she added.
As organizations continue to struggle in the war for talent—and even in difficult economic times, the need for top talent goes unabated—they are realizing robust, integrated learning can also effectively address this need. More importantly, with the outsourced market offering a cornucopia of solutions, they no longer have to go it alone.