When outsourcing training services, there are two general approaches, or methodologies, that contractually obligate a buyer and supplier to terms and deliverables: business process outsourcing (BPO) and out-tasking. Within BPO, there are two models: comprehensive and selective. Within out-tasking, there are two models: contracting and licensing.
Virtually every company that provides employees or customers with training sources some part of the development, delivery, or administration of that training. There is a common myth among training professionals that companies either choose to outsource or they choose not to, the latter meaning companies will only use internal resources for training services. The reality is that all companies outsource some part of the training function. An important task for training professionals is to determine how these processes should be sourced. Once a professional chooses to use an external supplier, they must then consider which type of sourcing model would be best.
TYPES OF OUTSOURCING MODELS
As stated above, there are two outsourcing models, or methodologies, for sourcing training processes, content, technologies, or services: Business Process Outsourcing and Out-Tasking.
There are a number of distinguishing characteristics that differentiate each model. Understanding the intricacies of each model is crucial when determining which model would be best for a contractual engagement. The following questions will help involved parties identify which model would be suitable for their particular engagement.
1. Which party in the deal assumes strategic control of the process or activity being sourced? Buyer or Supplier?
2. Which party in the deal assumes responsibility for the deliverables of the process or activity being sourced? Buyer or Supplier?
3. What is the contracted term, or length of time, of the engagement? Hourly, Daily, Weekly, Monthly, Yearly? Multi-Year?
4. Does the time of the engagement take contractual precedence over all other terms of the engagement, such as process or specified deliverables? Or do the defined deliverables take precedence over the term?
5. What type(s) of financial transactions are embedded in the engagement? Royalties? Payment at completion? Monthly fees? Other transactions?
Business Process Outsourcing (BPO)
Business Process Outsourcing (BPO) is a strategic approach to sourcing whereby a company utilizes an external supplier for the management of a broad set of training processes. BPO is considered a more strategic approach to sourcing because the complexities of managing multiple processes includes higher risk, and the contractual terms are generally more structured and are defined for longer periods of time.
There are two types of BPO engagements: Comprehensive and Selective. Each has a set of defining characteristics, which are outlined in further detail below.
Comprehensive BPO is a sourcing strategy in which a third party supplier is selected to manage all of the training processes and activities of a training organization. Comprehensive BPO is also referred to as Comprehensive Outsourcing or Comprehensive Business Process Outsourcing.
The characteristics of Comprehensive BPO are discussed below.
1. Considered the most complex and strategic type of outsourcing engagement.
2. Involves the external supplier managing the integration of processes across all four functional areas of the training organization: Administration, Content, Delivery, and Technology (as defined in the Training Process Framework).
4. Requires dedicated resources from the buyer and supplier in the management of the engagement.
5. Financial sizes of Comprehensive engagements are considered the largest of any outsourcing model. Deal sizes generally start around $3M (USD) per year, and increasing from there.
6. Considered the least used model in training outsourcing engagements. Estimated to represent less than $200M (USD) of the $130B (USD) North American market (2011 TrainingIndustry.com Research).
Example: Company X engages Supplier Y to manage the entire training function for their company, including all aspects of back office administration, creation and delivery of training programs, and integration and hosting of training technologies (such as an LMS or authoring and delivery platforms). The term of the deal is for five years.
Selective Outsourcing is a sourcing strategy in which a third party supplier is selected to manage a set of training processes related to content or services, whereby all the processes fall within the same functional area of training, or across multiple functional areas, but not all functional areas of training.
The characteristics of Selective BPO are defined below.
1. Considered the second most complex and strategic type of outsourcing engagement. Also considered the highest risk engagement for buyers and suppliers.
2. Involves the external supplier managing the integration of processes across at least two of the four functional areas of the training organization: Administration, Content, Delivery, and Technology (as defined in the Training Process Framework); or the management and integration of processes from all four functional areas, but for a limited scope of the client’s organization.
4. Requires dedicated resources from the buyer and supplier in the management of the engagement.
5. Financial sizes of Selective BPO engagements are generally smaller than Comprehensive BPO engagements, but often larger than the Out-Tasking models. Deal sizes typically begin around $500K (USD) per year and increase.
6. Considered the fastest growing segment of Training BPO engagements. Estimated to represent approximately $2.4B (USD) of the $130B (USD) North American training market (2011 TrainingIndustry.com Research).
There are two forms of Selective BPO, or Selective Outsourcing; Selective Process Outsourcing, and Selective Content Outsourcing.
Selective Process Outsourcing refers to an engagement in which a supplier manages a select set of processes across multiple content areas of training.
Example: When a company engages a supplier to manage all of the administrative processes, such as scheduling, registration, facilities management, etc., for all content areas of training (e.g. sales, leadership, manufacturing). Selective Process Outsourcing is most often found in organizations that use a Centralized or Federated organizational model for training.
Selective Content Outsourcing refers to an engagement in which a supplier manages all of the training processes within a select group of content programs, or curriculums.
Example: When a company engages a supplier to manage all the training processes and activities for Sales Training, but is not responsible for any of the processes related to Leadership Training or Manufacturing Training. Selective Content Outsourcing is most often found in organizations that use a Decentralized organizational model for training.
Out-Tasking is an approach to sourcing in which a company utilizes an external supplier for the management of a single, or very few, processes, products or technologies. Out-tasking is considered a more tactical approach to sourcing because managing fewer processes involves less risk. In addition, the contractual terms for out-tasking are generally less complex and defined for shorter periods of time, or are directly related to transactional deliverables.
There are two types of out-tasking engagements: Licensing and Contracting.
Licensing is a sourcing and transactional strategy used in the training industry in which a buyer ‘licenses’ the rights to use, or obtains permission to use, another companies intellectual property. Licensing is considered a form of Out-Tasking. The specific qualities of Licensing engagements are described below.
- Considered the most common sourcing model for training technologies or for the use of intellectual property.
- A transactional model in which the use of the technology or IP is based on the number of users, or the number of transactions during which the technologies are used.
- Contractual terms generally define the number of users, number of uses, length of time for licensing, limited control of intellectual property, how it is to be used, etc.
Example: Company X engages Supplier Y to license the use of their Learning Management System for a 3 year term. The financial model is based on the number of users, length of contract in years, number of features or modules utilized, etc. The types of services tied to the engagement are typically configuration or customization services, hosting services, etc., which are often listed in a separate contract, but are tied to the licensing agreement.
Contracting is a sourcing and transactional strategy used in the training industry in which a buyer ‘contracts’ with a supplier to perform a set of tasks, or to manage a particular group of processes. Contracting is a form of Out-Tasking. The details of Contracting engagements are discussed below.
- Considered the most common form of outsourcing in training and the model with the lowest level of risk.
- A transactional model where the use of skilled labor is the core component of the engagement.
- Contractual terms generally involve the use of labor on an hourly, daily, weekly, monthly, or annual basis. Length of the engagement is generally less binding than in other forms of sourcing; meaning that the use of the resource could be decreased or eliminated with little notice or impact.
Example: Company X engages Supplier Y to develop courseware for a new training curriculum. The term of the engagement is for x number of hours, based on a proposed estimate.
The four Sourcing Models were defined to help buyers with selecting suppliers, and with aligning their business requirements with their sourcing needs. It is recommended that buyers first determine which model meets their financial and procurement needs, and then create a relationship with an organization whose business model will complement their sourcing needs.
Not all suppliers are capable of servicing all Outsourcing Models. For example, Type 1, CSPs are best capable of managing BPO engagements because they have broad process capabilities, expansive global reach, and deep financial coffers. But Type 4, Independent Contractors (ICCs) can not manage a BPO engagement as they are limited in their ability to perform multiple processes over large geographic boundaries, and have less access to capital.
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