Edward Trolley, SVP Consulting & Advisory Services, NIIT
A recent Horses for Sources (HFS)/KPMG study says cost take-out coming from the C-Suite is at an intensity never seen before. 90% of C-Suite now view cost reduction as an important-to-critical imperative for their operations. This need to increase shareholder value has caused organizations to consider other ways to perform functions that are not core.
Yet, if we look at this from a training perspective, training continues to be the largest unmanaged expenditure for many organizations. The average 20,000-person organization invests $100 million per year on the direct and indirect costs of training but few are able to determine what they spend each year on training or the value they are getting from such a large investment despite all the “business-driven” rhetoric.
The bigger picture is that many organizations spend more outside the corporate function than inside it. No matter how hard organizations try to get their arms around it, spending at the corporate and business levels continues, quietly unabated. Training has somehow maintained a sacred cow status and has been viewed as “a good thing to do” and a core competence, even though it doesn’t get ample capital investment or get held accountable for delivering value commensurate with the investment it does get.
So how can training sharpen its focus, reduce its costs and improve the quality and value of its services?
The answer is the application of traditional Business Process Outsourcing practices to the training function.
Why does this approach work?
Because it offers many, if not all, of the improvement opportunities that companies define as the reasons for why they engage in Business Process Outsourcing. This approach, which we call Managed Training Services, assumes responsibility for key elements of the value-chain of training.
Through the application of proven BPO systems, processes and technologies, the implementation of Managed Training Services includes:
- Installing and managing best-practice systems, processes and intellectual property
- Providing a single point of accountability and clear service level agreements
- Leveraging learning technology enterprise-wide:
- Exploiting economies of scale and purchasing power across multiple organizations
- Installing comprehensive measurement systems
- Leveraging existing assets and capital investment
- Transferring head-count
- Attracting and retaining high-quality talent
If Managed Training Services is such a great idea, but why don’t more organizations embrace it?
Training leaders have been hesitant to embrace outsourcing as a viable option, concerned by outdated notions of what I call the Five Myths of Outsourcing. And it’s time to dispel those myths. Let’s examine them one by one.
Myth # 1: Outsourcing Can’t Reduce Costs.
Talk about extremes. How can we be so far apart on this important issue? In general, outsourcing has been known to reduce costs across various functions like Information Technology, Human Resources, Finance and Accounting. Training outsourcers, particularly those who take on such transactional elements of training as technology, administration and vendor management, can reduce the cost of these activities because they, like their counterparts in other functions, benefit from scale, leverage and common technologies and processes.
So: Does training outsourcing reduce costs? It does in transactional areas and it may in the more strategic areas, such as content development and delivery. Overall, the goal should be a reduction in the unit cost of training (costs per person per hour/day/year). In fact, when we dramatically improve the value of training, companies actually tend to spend more, not less.
Myth #2: No Outsider Can Know My Business like I Do.
Outsourcing does not mean that you stop accessing the subject matter expertise of your businesses. It does mean that you begin accessing resources and capabilities that are professional and skilled at what they do. Companies have been outsourcing parts of training for years. These providers work with their customers, both training professionals and subject matter experts, to put together learning solutions that directly address business needs. And because these companies understand how to design, develop and deliver training, they can apply those capabilities to the subject matter/business issues at hand.
Myth # 3: Strategic Activities Can’t Be Outsourced.
This is code for “I don’t want to outsource anything”; however, the only part of the training value chain that should be up for debate is determining a business’s direction, strategy, challenges and goals—then determining how and where training can add value. Most companies choose not to include this in the scope of outsourcing relationships as they prefer to have their own employees perform this work.
Beyond this activity, the rest of the value chain, quite frankly, should be at the top of the list for outsourcing consideration.
Myth #4: People Don’t Lose Their Jobs After Outsourcing.
The primary reason most companies outsource is to take costs out. It’s hard to reduce costs at the levels required without eliminating jobs. Also, if cost is truly an issue and you don’t outsource, it’s likely that jobs will still be lost, and the numbers may be higher.
Myth #5: Outsourcing Means Losing Control.
Training continues to be one of the largest unmanaged spends in many organizations. Training is pervasive and much of the costs occur outside of HR. Very few organizations know how much they are really spending, and, as a result, they have little control over the investment today.
Outsourcing will typically bring improved control through a single point of accountability, rigorous service level agreements, and management of costs and quality.
So these were the five myths. Once training leaders realize they have been operating under these misconceptions, they can begin to turn around their organizations—and real bottom-line results.
The proof is can be seen through the rise of outsourcing activity levels across the globe. According to HFS (2015), the number of outsourcing deals this past year grew 11% over the previous year. The same has been happening in training. And outsourcing in general is not just about cost reduction; it is now the classic better, faster, and cheaper solution. And this now applies to “sacred cows”as well!