It's the end of the year and it's a good time to sit back and reflect on some of the things the industry has taught me this year. No question these thoughts are random, following no specific theme. But I'll bet they strike a chord with many of you.
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Many of the conversations I had with training executives last year viewed 2010 as a very good year, especially compared to ’08 and ’09. Good news is spending for training is up. But I’m finding many people are viewing 2007 as the barometer of a good year in our industry - which we’re all waiting for to return. I’m not so sure about that. Maybe 2010 showed us what the new norm will be in the next couple of years. People seem to be more excited and optimistic about 2011. It feels good to be a training professional right now. But I say that with guarded optimism. Although we’re seeing light at the end of the tunnel, I think we still have a ways to go.
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It looks like starting a training business may not be as easy as it has been in the past. Many of you have heard me say that starting a training company is about as difficult as printing a business card, launching a website and putting a flag in your yard and claiming you are a training company. But success is a different story. Building a company that is truly competitive in the space requires proper capitalization, savvy marketing, and a true ability to deliver. The rules are for starting a training company is not changing; truth be told there are no rules. The change we now see is that there are more companies competing for the buyer’s share of wallet. Suppliers are getting much better at what they do; they’re more innovative, leaner, and efficient than ever. And they are getting accustomed to competing at lower costs. Quite frankly, I like what I’m seeing from training suppliers.
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It’s my opinion the hype about measuring the Return on Investment (ROI) for training has become a bit overdone. ROI measures the value returned to the business from investing in a project, activity or asset. It doesn’t consider the time value of money (NPV does that). I’m a much bigger fan of using the Net Present Value approach. For some reason, ROI has become the accepted approach. I think you will find that most finance professionals prefer using NPV when comparing multiple investments and bringing the costs to present day terms.
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Speaking of ROI, I think we spend way too much time talking about the return we should get from investing in training. Maybe we should spend a lot more time thinking about the cost to the business of not training. If an employee or customer is not properly trained, then the failure cost to the business, or liability, can be staggering. Lawsuits, loss of life, lost customers; all are heavy costs compared to upfront prevention. Let’s face it; training is not only about improving productivity. It’s also about protecting the business.
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Here are some books I found interesting in 2010 that I thought I would share with you. Some are reference books, others are entertaining. Happy reading.
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One of my biggest learning’s this year came from a conversation with a Director of Training from a company evaluating whether to outsource or insource course development. This experience taught me how much we still have to learn about financial analysis in the business of training. Here's the scenario: the annual cost of insourcing three instructional designers was calculated based on their annual compensation and overhead expenses and then divided by 2200 hours. They viewed this as their standard cost per development hour. Sounds good so far, right?
Well this cost was then compared to the variable rates per hour quoted by several custom content development companies. Their finding was that the internal cost/hr was less than half that of using external firms. So what’s the problem with the logic?
Answer – the comparisons do not view cost in the same way. In other words, the internal rate per hour assumes each person is 100% productive all hours of the year. We know that’s not the case. Employees are generally paid for time off; vacations, holidays, sick leave, etc. They also have miscellaneous time they are paid for such
as attending staff meetings, corporate functions, things that are not factored into productivity hours. When hiring a contractor, you may not hire them for the full year; nor do you pay contractors for holidays, sick leave or vacations. I think the best way to get to a fair comparison is to look at rate per 'productive' hour. Let's face it - not all staff is productive 100% of the time they are compensated for. Maybe the discussion should be about the ‘effective’ rate per development hour where all costs get normalized. Please know I’m not advocating using external resources more than internal. I am advocating that training is a business, and when we are responsible for making business decisions, we should make using sound business logic.
Happy New Year! And as always, I welcome your comments. Or please feel free to send me a note at dharward@trainingindustry.com.
