School’s Out?

By Josh Bersin

In this economic crisis, corporate training budgets are being tightened. Our research shows that in the second half of 2008 corporate training departments cut their spending on learning and development (L&D) by 12 to 18%. And that number is certain to grow as the crisis continues.

“12 to 18% cut in spending on learning and development in the second half of 2008.”
-Josh Bersin

When budgets are tightened and companies are forced to cut major costs, it’s important to maintain L&D investments. More than ever, you need performance-driven and talent-driven learning. Learning executives must be prepared to educate senior management about the short- and long-term impact of budget reductions that will impact strategic programs.

The L&D budget typically represents a very small fraction of a company’s total revenue. Indiscriminate budget cuts can have a major impact on development plans and programs, and yet barely make a dent in the company’s bottom line.

For example, if an organization eliminates or dramatically reduces leadership development training, it will see a reduction in the productivity and effectiveness of its leaders. During an economic downturn, leadership is more important than ever. Management looks to leaders to restructure their departments, improve productivity, find new ways to drive value, and work even harder to rebuild the business. Does it make sense to take away that small amount of money spent on building their skills, capabilities, and internal networks?

We recently talked to a learning executive at a financial services company who told us that his organization was still recovering from a decision made more than five years ago to eliminate leadership development. The decision had left the company with underprepared mid-level managers and supervisors and had significant impact on the retention of key employees.

We have studied thousands of corporate training organizations and how they react to various economic conditions. Our research shows that the high-impact organizations do reduce costs, but they do so strategically. They do not cut long-term strategic development programs and they do not eliminate high value performance-driven training programs such as onboarding and sales training. Rather, they focus on improving productivity and use the downturn as an opportunity to fix and repair inefficiencies which inevitably build up in any bureaucracy.

There are some specific examples of where and how you might be able to gain cost efficiencies without compromising strategic investments.

Reorganize and centralize certain L&D programs and operations

As most companies grow, they develop pockets of employee development teams throughout the organizations. Sales, customer service, IT, manufacturing, finance, and other business units hire training staff and build programs to facilitate the development of their workers. They license, buy, or rent learning management technology and tools (such as virtual classroom and development tools). They license third party content in a variety of areas. And they build teams of instructional designers, trainers, and organizational development people.

Now is the time to look hard at how many of these functions can be centralized. High- impact learning organizations use what we call the federated model of L&D. In this model, some critical programs and infrastructure are centralized and others are decentralized, similarly to the federated approach to government.

We are currently working with three different pharmaceutical companies which are each going through this very process. After several decades of continuous growth, the pharmaceutical industry is slowing because of market maturity, government regulation, and saturation. Companies in this sector are realizing that they cannot grow at 30 to 50% any longer.

Most pharmaceuticals have invested heavily in a wide variety of training programs: extensive sales training for field pharmaceutical reps, highly regulated certification and training for manufacturing processes, leadership development and formal compliance training, and all the other typical corporate training functions. At the same time, every one of these companies has built islands of inefficiency. They have multiple learning management systems, multiple training organizations with overlapping roles, and extensive vendor contracts which often buy the same or similar content across different functions.

By focusing on a more efficient federated model, these companies are now embarking on new organization models which will save 20 to 30% and more in many cases, with little or no reduction in real training hours per employee. You can probably do the same.

Focus on talent-driven learning

Not all training drives the same level of strategic value. We categorize L&D programs into two types: performance-driven and talent-driven. Performance-driven programs are the typical operational training programs such as those that support new product launches, systems rollouts, and other core functions necessary to run the business. Every company has such operational training needs.

But do such programs add strategic value? In many cases they do not. Often, operational training programs can be replaced with low cost, off-the shelf content. Does your project management, IT, and financial training really drive strategic competitive advantage? If not, you should outsource it or purchase off-the-shelf content. Save your rarified resources for strategic operational training that is truly strategic.

For example, we work with a Fortune 500 company in the middle of a global rollout of its new manufacturing system. Training to support this system is highly strategic to the business. Consequently, the company is outsourcing much of its other operational training in the interest of saving money for focus in this area.

The second type of training, talent-driven learning programs, are what most companies need today. Examples include e career development for sales and engineering, leadership development, and mentoring and coaching for high potentials. During a downturn, you are likely to ask people to change jobs, take lower pay, or take on additional responsibilities. These types of programs facilitate such workforce flexibility. Even more importantly, given today’s aging workforce, they will build your leadership pipeline.

In an economic downturn, you must strive to eliminate and rationalize the non-strategic operational programs and focus on talent-driven programs.

Energize your informal and collaborative learning programs

Finally, let me add a critical third way to save money. We all know that formal training accounts at most for 10% of workforce skills. Our research shows that nearly 20% of all training occurs from informal information sharing and nearly 70% comes from on-the job training. Your job also encompasses these informal sources of learning.

So rather than building more expensive programs, start to spend more time facilitating and building informal learning networks, coaching programs and performance support systems. We call this new world learning on-demand, and it includes communities of practice, expert directories and corporate social networks.

Our new research on enterprise social software identified more than 20 exciting, innovative new software tools that go far beyond traditional LMS systems to enable sharing of workforce data and information, blogging, virtual meetings and more. You can invest in these systems for a fraction of the cost of building and deploying a new training program. Your role will also expand in new and exciting ways.

Organizations such as the Federal Reserve, the US Department of Defense, Cisco and Network Appliance are leveraging informal learning in highly strategic ways.

The bottom line is that an economic downturn need not spell disaster for L&D budgets. If you apply these three principles, you can likely save money and increase efficiency – all while moving your learning organization ahead. Sometimes economic crisis is the mother of great invention. This is your opportunity.

Josh Bersin is CEO and President of Bersin & Associates, www.bersin.com.