The Market for Training Outsourcing is Changing
Training BPO (TBPO; Business Process Outsourcing) has changed considerably since the late ‘90’s when some believed it actually took root as a viable business strategy for training leaders. There’s no question that all training organizations continue to outsource some part of their training activities. But few large companies outsource all or large parts of their training processes. Of the ones that do, few like to talk about it publicly making it difficult to hear about the successes and failures.
As an outsourcing analyst and consultant, I’ve been fortunate to have the opportunity to meet and work with many of the companies who have done large scale outsourcing deals. What I’ve observed during this time is that the fundamental reasons why companies choose Training Outsourcing (BPO) has changed, although the fundamental driver for change continues to be all about financial performance.
Let’s be clear, outsourcing is not a decision made with the expectation to improve today’s business performance – it’s a decision based on improving the businesses performance for the next five to ten years. This long term perspective, or future performance perspective, is at the heart of the changes I’ve observed.
Below are some of my observations of how the training outsourcing market has evolved.
• Cost Reduction Not Always the Primary Driver - Most anyone will say that the most important benefit of training outsourcing is reduced costs. But companies who have successfully managed large scale training outsourcing engagements will tell you their objectives were much more sophisticated than that; it often included factors such as shifting fixed costs to variable expenses, better management of resources, improved quality of content development and delivery, faster time to market, obtaining greater geographic reach into foreign markets, and much more. There is no question that cost reduction is an understood business requirement. But the reason for outsourcing is not cost reduction alone.
• Risk Mitigation Much More Important - Risk management has always been in the discussion of why companies choose outsourcing. Either to mitigate the risk from future economic conditions, or to shift risk from internal to external resources. The early days of the market you didn’t hear people speak of risk near as much. Now it’s at the beginning of every discussion. And many choose not to outsource because they perceive the risk too costly.
• Survival of the Fittest Market - The supplier landscape continues to change. TrainingIndustry.com continues to research the top suppliers around the globe who are focused on this market. From our first list in 2004 only 7 companies remain in the list of Top 20 Training Outsourcing Companies in 2011. The companies who have remained on the list have demonstrated success in winning new clients, as well as success in keeping clients. The seven companies who have been on the list for the entire period are Accenture , ACS , GP , IBM, Intrepid , NIIT , and Raytheon (listed in alphabetical order). The companies who have fallen off the list have done so because they either failed to demonstrate sustainable capabilities, chose not to continue to compete in the space, were acquired, or simply are no longer in business.
• Deals Getting Closer to Revenues and Customers - In the past 18 months, we’ve seen positive, albeit slow changes in the global economy. This has generated an increase in training spend by buyside companies, resulting in revenue growth for training suppliers. But its where that spend is directed that is most intriguing. Outsourcing use to be focused more on training directed to internal employees. It’s now getting much closer to the activities that impact customers and revenues. The growth market for TBPO services has been in sales training and content development. Makes sense, doesn’t it? When the future looks bright, help is needed to get content ready for training a new and enhanced sales force, for customer support representatives, for channel partners, and of course for customers who buy products. When the economy is in decline, outsourcing focuses more on streamlining administrative services.
• Deal Complexity and Size is Smaller - The average TBPO deal 10 years ago involved multiple business processes , often integrated with HR activities, with annual expenditures often exceeding $10m per year (comprehensive outsourcing). Today’s deals are more focused. They involve less processes and much more transactional. For example, a prominent deal today is a content development deal for 3 to 5 years focused on a single line of business or client base. The average deal size is between $3-5m per year (selective outsourcing). These deals are considered to be much more strategic, less risky, easier to manage, and much more successful in achieving business results. I’m not seeing the large scale, all inclusive, multi-national comprehensive outsourcing deals. And I don’t expect this trend to change anytime soon.
• Off-Shoring Becoming More Transparent - The early days of training outsourcing saw a huge influx of offshore suppliers attempting to compete for content development deals directly with the buyside company. Offshoring was more about labor arbitrage and utilizing less expensive resources than in-house, in-country talent. The global economy has changed this arbitrage opportunity. Wages in India have increased, while remaining flat if not lower with North America resources. This means that the difference in the effective cost per instructional development hour (which includes project management and designer costs) between near-shore providers and off-shore providers has almost eroded. It’s now much less attractive to do a deal directly with offshore providers. What we are seeing though are more partnerships between large scale training outsourcing suppliers utilizing offshore resources, or offshore companies locating resources onshore to manage projects and client relations. Looking much more like a near-shore provider. Offshoring remains a vital part of the market, but it is becoming much more transparent than in early years.
There is no question the training outsourcing market has matured and is alive and well. This is contrary to the belief by some that the market is dead. The biggest change is that the structure of the relationship looks different than before - and the nature of the deals continues to change. It reminds me of how many viewed instructor led training as a thing of the past because of e-learning; and some viewed outsourcing as a temporary fad that would eventually die. Not the case. Outsourcing will always be a strong part of the business of learning.
And as always, I welcome your comments. Or feel free to send me a note at email@example.com.
Related Blog: 10 Reasons Companies are Outsourcing Training in Today's Market
Editors Note: ACS, GP, IBM, Intrepid, NIIT, and Raytheon are sponsors or clients of TrainingIndustry.com.
About the Author
Doug Harward is the CEO and Founder of Training Industry, Inc. He is internationally recognized as one of the leading strategists for training and outsourcing business models. He is respected as one of the industry's leading authorities on competitive analysis for training services and works with international companies and new business start-ups in building training organizations.
Harward previously served as the Director of Global Learning for Nortel Networks where he led the industry's largest global training outsourcing engagement with PricewaterhouseCoopers. He received the Chairman's Global Award for Community Service for his work in developing integrated learning organization strategies within higher education, public schools and business. He has worked in the training industry for more than 25 years. He received an MBA from the Fuqua School of Business at Duke University and a BSBA in Marketing from Appalachian State University.