Will e-learning be the catalyst for outsourcing?

T+D, July, 2003 by Kevin Oakes

Maybe you've seen the TV commercial--one of those quirky IBM ads. The boss is lying down in his psychiatrist's office and describing a recurring nightmare, in which he's on a hot-air balloon that's quickly sinking. In the nightmare, the boss and a partner are frantically throwing things overboard to stay aloft. At one point, everything is gone and the boss gives his partner an evil look as if contemplating whether to throw him off the balloon. The tagline: "We live in an on-demand world. Reduce expenses."

That ad accurately sums up the thought process of most CEOs when the subject of outsourcing comes up. The thinking goes along these lines: "Let's focus on our core competencies and reduce expenses by outsourcing the rest and paying for it only when we use it."

Many core functions of the typical corporation are now outsourced. For example, it's likely that your paycheck is processed by a third-parry vendor and your 401(k) or 403(b) is also probably handled externally. It would be common if your company's data center and storage facility are managed by other firms.

The question--and it's not a new one--on many people's minds is whether learning and the training and development functions fall into the same camp.

These days, outsourcing is big business. Corporations have become accustomed to IT outsourcing and application outsourcing, but another category--business process oursourcing--is generating a great deal of discussion within the t&d community across the globe. The discussion is heated because BPO isn't outsourcing small segments of a business; it's outsourcing the entire kit and caboodle.

Industry analyst firm IDC defines business process outsourcing as "the transfer of management and execution of one or more complete business processes or entire business functions to an external services provider." Gartner predicts that the worldwide BPO market will be US$234 billion (that's right, with a 6) by 2005, growing at 14 percent per year. The BPO market has attracted some big players, notably Accenture and IBM, who have built up large practices over the past few years. And some analysts on Wall Street are calling the BPO market "recession-proof" since its popularity has grown during an economic downturn and recurring revenues have resulted in strong financial results for suppliers in this sector.

Whether those indicators will work for the corporate training function is hotly debated.

"The corporate training market seems primed for business process outsourcing," says Trace Urdan of ThinkEquity Partners in a press release for Intrepid, a new startup in this area. "The combination of a complex learning technologies market, increased focus by corporations on cost containment, and an expanded openness to outsourced solutions suggests the market is finally ready for such a venture." A key phrase here is finally ready. Outsourcing has been tried before in our industry, and, in most people's opinion, it failed miserably. In the mid 1 990s, the idea of outsourcing the training function skyrocketed to the top of the agenda--and just as quickly fizzled. In early 1998, Training magazine reported on "The Great Outsourcing Stampede That Never Happened," and a Gallup survey showed that "reports of the death of the internal training department have been greatly exaggerated." The value propositions of the 1990s were different. Then, it was about cost takeout. Now, it's about business improvement.

One of the first companies to make a splash in outsourcing training during that time was the Forum Corporation of Boston. "Forum got into the [outsourcing] business originally because everyone was focused on the concept of 'do what you do well and outsource the rest' -- much like what Nike was doing with shoes: handling the design and marketing but outsourcing the manufacturing," says Diane Hessan, who used to oversee the outsourcing business for Forum but now heads up Communispace Corporation. "Although many large organizations, such as DuPont," says Hessan, "bought into the vision, it was difficult to get buy-in from internal staff, despite immediate cost savings of 10 to 15 percent.

"Part of the controversy was that it was difficult to centralize something that had been controlled at the local and divisional levels," adds Hessan. "Then there was disagreement about whether any company should completely outsource something as precious' as people development to any outsider. It's more complex and emotional than traditionally outsourced functions."

Part of the complexity comes from the hard fact that the r&d function is incredibly dispersed throughout most corporations, with many "decision makers" who have authority to spend money on training. "Outsourcing the entire training department won't work because training is a different beast than IT services," says Lance Dublin, an independent management consultant based in San Francisco. "In most companies, training is too decentralized. In the typical company, more than 50 percent of the dollars spent on learning and development are not controlled by a centralized organization. IT is the reverse: Almost 100 percent of that spend is centrally controlled."