There are many misconceptions about training outsourcing. When should we outsource, when should we not? In a previous blog, I discussed ten reasons why companies are choosing outsourcing as a viable sourcing strategy for training services. But I’m finding many people still view training outsourcing as an either/or decision – either we outsource or we don’t. I’ve said it many times, “all training organizations outsource some part of their training activities”. So the better question is, “what outsourcing strategy should we use?”
Outsourcing business models can be very complex. To understand them well, it is impossible to cover all the variations in a short blog. But what we can cover are some of the basic terms and concepts that will help you decide what strategy is best for you and your organization. Then depending on the complexity of the strategy you choose, you may want to seek an advisor to help you through the process.
So let’s start with the basics. There are four types of outsourcing strategies, or what some call engagement models for sourcing. The first two are considered business process outsourcing (BPO) engagements, and the other two are considered out-tasking models. The BPO models are comprehensive and selective. And the out-tasking models are licensing and contracting. And let’s be clear, all four are forms of outsourcing.
A common question is “what’s the difference between BPO and out-tasking?”
The easiest way to explain it is to think about the training organization as an integrated group of business processes that must be managed by someone. We call these processes the Training Process Framework . The framework defines 26 business processes across the four functional areas of a training organization; administration, content, delivery, and technology.
The number of processes a supplier manages, the complexity integrating those processes, and the duration of time a supplier is expected to manage those processes all help define the differences in outsourcing strategies. BPO refers to those engagements that are most complex, longer in duration, integrated across functional process areas, and considered most strategic to the business. Out-tasking refers to the models that are less complex, fewer processes and limited to one functional area, more tactical, and more labor oriented.
1. Comprehensive BPO – this is the most complex, strategic, long term, and demanding relationship you can have with a supplier. A comprehensive outsourcing deal means that you are engaging with a training partner for a multi-year period to strategically manage a comprehensive set of processes across all four functional process areas of your training organization. Both parties are willing to commit dedicated resources to the deal which means you are both committing people and financials over an extended period of time. Comprehensive does not imply that the supplier does everything associated with training for your company. Even in a comprehensive engagement, you as the buyer still must manage some processes – like client relationship management or strategic planning. The idea that you give away all responsibility to the supplier is actually a myth, and NEVER happens in real life. BPO contracts are consist of a master services agreement (MSA), multiple service level agreements (SLA), and many statements of work (SOW).
2. Selective BPO – this is also a very complex engagement, but somewhat less than a comprehensive deal because of the reduced integration of functional processes. In selective outsourcing, you engage a training partner to manage multiple processes within one functional area of training (administration, content, delivery, or technology) but not processes across functional areas. Here you may contract with a supplier for the next three years to manage all custom content development activities for product e-learning courses. But the supplier would not deliver any courses, manage registration or admin services related to this training, nor host or support the courses online. Contracts for selective BPO deals are similar in that there is an MSA, SLA, and SOW’s, but they are somewhat less complicated because there are fewer processes involved.
3. Licensing Agreement – these engagements are forms of out-tasking and used when sourcing a tangible asset, such as a technology or real estate for training. Licensing agreements for technology usually take the form of software as a service (SaaS) contracts. When the cost of implementation and set-up are high, these deals are often times multi-year. This allows the client to amortize costs over longer periods of time. When these costs are low, deals often take the shape of month to month. For example, licensing agreements for an LMS/LCMS tends to be multi-year because of the integration required in set-up, where licenses for authoring and delivery platforms tend to be month to month. Contracts for license agreements are generally purchase orders with defined terms and a unit price in the form of price per time.
4. Contracting – the second form of out-tasking engagements, and the most common form of outsourcing in the training industry. Some refer to it as a ‘labor for hire’ engagement. It’s where we pay a contractor by the hour/day/week/month to perform a task. Contracting is commonly used when we source a supplier to manage a project, and we compensate them when the project is complete. The project can be consulting, instructional design, delivery of a course, etc. It is a tactical engagement when your objective is to limit the complexity and breadth of processes you expect the supplier to manage. It is transactional, which means the relationship ends when the activity is complete. It is the most flexible, least risky and easiest to manage relationship for the buyer. It limits your obligations to a supplier and allows you to easily terminate a contract when things are not going well. Contracts are generally purchase orders with defined terms of activities for a unit price for each deliverable. Unit prices are usually in price per time or price per project terms.
So if out-tasking is the least risky, then why doesn’t everyone use this approach?
In reality, everyone does. It’s my estimate that about 96% of dollars spent in the training outsourcing market is thru out-tasked agreements. Even companies that utilize comprehensive or selective outsourcing strategies have out-tasked something related to training.
But sometimes it makes more sense to strategically engage with a partner so your cost of procurement and ongoing training management is lower. The benefits you get from effective sourcing can be much greater. Committing to a training supplier for multiple years may save your company a lot of money over an extended period of time. This is why it is still a very successful strategy depending on your business objectives.
The decision of how to source training is much about risk and reward. This is what makes selecting the right sourcing strategy a critically important decision. That’s why there are consultants out there that are fully prepared to assist your organization in working through the complexities of sourcing – especially when you are dealing with millions of dollars.
Please know there are infinite variations to each of these, and infinite ways to structure any deal. Your procurement organization and legal counsel will help you in determining the best way to contract for services. But strategically your leadership team should determine the best relationship strategy you should have with sourcing partners.
As always, I welcome your comments. And if you have questions, feel free to contact us.