We all know that virtually every company, no matter the size and industry vertical - in some way and at some time - spends money to train employees, customers, or suppliers. Even the small independent consulting companies periodically provides or participates in training to keep credentials current and to stay up to date on industry trends and innovations.

So how much money do these corporations and government organizations spend for training? By my best estimate, as much as 1.5 to 2% of a company's operating expenses. In North America alone, approximately $104.3 billion was spent in 2009 for training products and services. This includes $60.7B, or 58.2% of the total on internal staff and resources. The remaining 41.8%, or $43.6B went to outside companies or training suppliers.

The unfortunate fact is that this spend was down by as much as 21% from 2008 (see chart). The reason for the drop is no surprise - our economy has experienced sharp declines for any corporate service considered discretionary or not immediately needed.

It's important to note a trend we have seen over the past 10 year. There has been a steady shift of dollars moving from insourced activities to outsourced suppliers. In 1999, approximately 61.5% of the dollars companies spent for training went to in-house personnel, real estate and technologies. In 2009 we estimate that approximately 58.2% of the dollars stayed in-house. A shift of more than 3% in 10 years. This may seem like a small shift over a long period of time, but it represents a large market swing that is not likely to stop in the foreseeable future.

Why the trend? Quite frankly there are many reasons. But the most prevalent is that corporate executives more than ever consider training a non-core - variable activity. In addition, they see a large marketplace of highly available, lower cost, independent supply base with capabilities greater than the ones they have in-house. All of these willing to work within a scaleable and variable cost structure. May not be positive words to training professionals who work for demand side companies, but an important reality that affects their future.

This doesn't mean that every company is outsourcing 100% of their training. To the contrary. What it does mean is that all companies outsource some part of their training activity, and insource other parts of their training activity. In my 25 plus years of working within the training profession, I have yet to find one company that does not use a training supplier of some kind. 

And we all know that the supply side that supports this huge spend for training is the most fragmented marketplace than any other industry in our economy. In North America alone I estimate there are more than 6000 companies that provide training products and services.

It's an unfortunate fact that the only barrier of entry to becoming a training supplier is printing a business card and having a website. Virtually anyone can put a flag in their yard and claim they are a training company. Low barriers of entry make it easy to start a business, but it puts a lot of pressure on buyers to understand how to select and contract with the right supplier for the right service.

So what type of organizations make up the total spend for training services. Earlier I mentioned the largest - organizations (corporate and government) that provide training to their own employees. The other categories that make up the marketplace for training products and services are:

• Fortune 1000 companies who provide training as a value added service for their business but not the core reason they exist (e.g. ACS, Accenture, IBM, Raytheon)
• Virtually any company that provides training to their customers to protect themselves from future liabilities, or to drive secondary revenues to their product lines (e.g. Microsoft, Cisco, Novell, Oracle, Caterpillar)
• Stand alone training suppliers with broad capabilities and services (e.g. GP, Prometric, SkillSoft, Saba, New Horizons, Learning Tree, Global Knowledge)
• Community Colleges which provide job based, skills training in regional and local markets.
• Universities and business schools that provide executive and leadership training to corporate clients.
• Independent consultants who provide contract instruction, instructional design and consulting services.

Disclaimer: The fact that we have high fragmentation and companies moving in and out of the market, as well as companies who bury the costs of training in other line function budgets, makes it very challenging to accurately size the market. To make these estimates we use our most sound economic logic, applying micro-economic analysis to macro economic markets.

I welcome your comments. And as always, please feel free to send me an email at dharward@trainingindustry.com.