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Learning Outsourcing: Strategic Opportunity

April 2004
Authors:  Eilif Trondsen and Hal Richman

About this report

Benefits and Challenges
Today, a growing number of organizations recognize that few—if any—of their training activities fall within their core set of activities or competencies. As a result, the past several years have seen a noticeable increase in the number of companies procuring outsourced services to satisfy their learning and training needs. For some companies, outsourcing is an easy way to make training (an often ill-defined and murky business process) go away; for others, it is an opportunity to raise the overall quality of learning and training, as well as to ensure the strategic relevance of these activities to core business objectives.

The promised benefits of learning outsourcing (LO) are indeed appealing. However, to achieve these benefits and reach the tipping point that some players believe is just around the corner, vendors and clients alike need to grapple with a number of challenging issues and business realities, which we address in this report. The report provides background, analysis, and practical advice from industry leaders and consultants who have been in the trenches of learning outsourcing.

This report is a must-read for:
Human-resources (HR) and training executives and managers, who need to prepare for and educate themselves about learning outsourcing so they can make good, timely decisions
Learning-outsourcing vendors

Organizations currently active in learning outsourcing that wish to maximize the value of their investments.
Learning outsourcing exists on a continuum, from "outtasking" to outsourcing, and can include one or more of the following four categories of services: services that provide a learning-technology infrastructure; back-office operational and administrative services; learning-content design, development, acquisition, and delivery; and strategic operations.

LO promises to: 
Reduce and avoid costs
Reveal and correct overlap in training initiatives and budgets
Enable more flexible staffing arrangements
Improve management of operational and financial risk
Increase the strategic orientation of learning staffs.

LO Evolution and Elements of Successful LO
General outsourcing has been a thriving business for many years, often involving large and long-term projects. But the primary technological focus of early LO projects was learning administration. Today, technology plays a much greater enabling—and potentially transforming—role. People with whom we talked during our research said that the emerging LO industry needs to digest the lessons of the past in business-process redesign (BPR) and in the outsourcing of manufacturing, information-technology (IT), finance, and HR activities.

Contrary to most people's belief, LO is not new: Some 50 to 75 projects of various sizes have taken place in the past 10 to 15 years. We are now in the third wave of learning outsourcing, with a rapid increase in the number of LO deals and a rise in the number of larger vendors entering the market. Most large players see opportunities to leverage technology to deliver learning and training more cost-effectively (as well as many other benefits).

A look at the successes of the first and second waves of LO points to the following challenges and opportunities for LO vendors in the third wave:

The role of technology has dramatically increased, as has the importance of having cost-effective access to the latest technologies.

Though eLearning has become increasingly important, vendors must be able to deliver flexible, blended-learning solutions.

Past successes show the importance of being agile and customer focused. In the next wave of LO, vendors will need to leverage the commonality of user needs to provide cost-effective hosting of learning-management systems (LMSs) and to drive down costs through business-process outsourcing (BPO).

Most early LO deals focused on domestic (mostly U.S.) operations, but in today's increasingly global economy, LO vendors will have difficulty competing seriously for large LO deals unless they can serve clients around the world—especially in Europe and in the major Asian countries.

Though some industry observers believe that industries share many learning- and training-outsourcing needs, vertical-industry knowledge will also be important to help vendors design highly industry-specific business solutions.

The Supplier Landscape
One can segment LO suppliers in several ways. This section of the report describes two complementary segmentation approaches that provide different perspectives on the competitive landscape:

LO veteran Doug Harward (the Exceleration Group) divides suppliers into three tiers: integrators capable of comprehensive deals, functionalists capable of selective deals, and specialists capable of outtasking.

LO expert Ed Trolley (Knowledge Planet) divides the world by company type, defining technology, training, services, HR-focused, and broad-based LO players.
These approaches are useful in looking at today's key players and have implications for organizations evaluating LO vendors and their offerings (which tend to grow out of a limited number of deals and a limited best-practice knowledge base).

The Future of LO
A common set of forces drives both the demand and the supply sides of LO and will significantly influence the final shape of the LO growth curve. This section presents a demand-supply model to help analysts project and track industry growth as supply and demand factors change. In this section, we also indicate what type of growth curve is most likely to occur.

The section explores the likely level of LO adoption in the corporate sector (and in specific industries) in the next two to three years, as well as in small to midsize businesses (SMBs), schools and higher education, and government. We discuss the specific factors likely to influence adoption in each of these sectors and examine international trends and differences in learning outsourcing. In general, industries and sectors that have past (and positive) experience with outsourcing, have an in-depth understanding of learning and training, and consider these activities to be critical to business objectives will see the highest growth in the next two to three years.

Recommendations and Action Steps
LO success strategies are emerging from industry leaders who have been in the trenches. In the early stages of LO planning, companies are wise to create corporate learning profiles to identify and understand the costs of their current training operations, map the distribution of these training operations, and assess the degree to which learning and training staff support performance and business outcomes.

Despite uncertainties about future LO growth and opportunities, LO is likely to follow a path similar to that of other forms of outsourcing—although perhaps not with an identical adoption curve. As a result, executives and managers in HR and training need to prepare for and educate themselves about LO so that they can make good decisions when the time comes to consider LO seriously.

This section defines specific action steps that chief learning officers (CLOs), vice presidents of HR, and other executives who will likely have to take the lead in preparing for LO can take to prepare for LO. It also presents solid advice from two leading LO suppliers for both users and suppliers of LO services. The report concludes with some focused advice and gentle warnings to LO vendors about factors they need to be aware of to be successful.

Learning Outsourcing: Strategic Opportunity