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One of our long-term research clients is a large pharmaceutical company which has grown by leaps and bounds over the last decade.  This company, like many others in this industry, invests heavily in R&D and has benefited from the tremendous success of many of its blockbuster best-selling products.

In the last 18 months, however, growth has slowed – so this organization is now looking for ways to better rationalize its spending on corporate training and other business support functions.  A few recommendations to consider, based on this organization’s situation:

1.  It’s time to build a truly federated spending model for training.  Centralize the programs and functions which are repeatable and scalable (typically these include leadership development, career development, LMS and training technology, vendor operations, and advanced e-learning.

In this industry companies typically have strong functional business leaders in sales, manufacturing, research and development, and corporate functions.  These business units are going to have to give up some autonomy and rely on a shared services or corporate university function.  Such a move can save 10-15% or more of a company’s training spending with little or no real reduction in effectiveness.

2.  Rely heavily on informal and collaborative learning.  One of the least expensive ways to improve programs like onboarding, management and supervisory development, and career development is by focusing heavily on building collaborative programs which rely on communities of practice, social networking, and coaching.  David Mallon’s recent research (and soon to be published study in this are) shows that among all the social networking program in companies today, the most prevalent and successful are communities of practice.

Pharmaceutical research teams, sales teams, manufacturing teams, and technical teams can all learn rapidly and easily from each other.  And the L&D spending on such programs is minimal.

3.  Rationalize external spending.  Most big companies (like large pharmaceuticals) have many suppliers.  In a decentralized L&D environment it is almost impossible to efficiently manage these contracts.  While many excellent learning solution providers deliver high value (e.g. supervisory training companies, content development firms), they also look for opportunities to sell services to multiple business units in a global company.  When you centralize vendor operations you often find 20-30% extra spending in many program and functional training areas.

4.  Consolidate the LMS and build a talent management systems strategy.  Finally, focus on the area which most companies have been focused on for a few years, consolidation of the corporate LMS.  Our research shows that almost 70% of large corporations (more than 10,000 employees) are now focused on LMS consolidation.  This process, in conjunction with the development of an integrated talent management systems strategy, will save millions in IT and technical expenses.

Today nearly every major LMS vendor also has an integrated talent management (e.g. performance and succession management) suite.  Look carefully at it, because our research clearly shows that organizations which buy their LMS from the same supplier as their talent management system are seeing 3-4X the return from those who buy them from different companies.

I know cutting costs is not always easy.  But it is something we must deal with continuously, and today it is probably one of the most important things you will be asked to do.

In the United States, only 38% of all employees work for companies with more than 1,000 employees, and only 22% work for companies with more than 10,000 employees.  So if you focus your software sales and product strategy toward the biggest companies, you are likely to find a saturated market quickly.  In fact, there are only 912 companies with more than 10,000 employees headquartered in the United States.

The “mid-market” is actually shaped like a dumbell.  In other words, there are a very large number (nearly 6 million) of tiny companies in the US (startups, small businesses), but far fewer companies of a medium size (companies from 500-2,500 employees only make up 8% of total US employment).  My guess is that the reason for this is that it is very hard for a business to grow above a few hundred employees, and those that manage to doso are solid enough to either grow much bigger or become acquired.

What this data essentially means is that HR software companies that target the large, global enterprise buyers are going to run into a lot of competition as their market matures.  For example, the market for performance and talent management software has already become very competitive, with more than 22 software providers including Oracle and SAP.  When this occurs it becomes a “replacement” market, which slowly favors the largest most established vendors.

On the other hand, if you can find a way to tap into the small business market, you are likely to find a goldmine.  Look at ADP and Paychex, for example.  These companies dominate the market for small business payroll and both are very large, profitable, and growing.  ADP’s revenues are nearly $9 Billion and Paychex’s is over $2 Billion.  Both are highly profitable and continue to grow rapidly.

In addition, the HR software solution providers must realize that the real needs of small businesses (those with more than 10-20 employees) are not much different than the needs of large companies.  Functionally, they still need payroll, performance management, learning, succession, and compensation management systems.  While they need a very simple, easy to use interface, one will find that once you start to fill their needs their requirements are very similar to big companies.  Halogen Software and Kronos are two of the best  examples of companies that understand this.  Their products are widely used by small and mid-sized companies and both have grown successfully and profitably in this huge market.

In the coming months we are going to introduce two major research reports on enterprise software markets, one discussing the marketplace for corporate social networking software (a very exciting and rapidly changing space) and the other focused on the exploding market for performance and talent management software.   In each report we will point out the current market size, growth rate, and potential penetration in each segment.

Finally, one more important thing to consider.  Two seperate but also large markets for HR software are the federal and the state and local government markets.  In the US both are very big:  the Federal Government employs over 2.2 million employees and state and local governments employ more than 23 million employees.  As you consider your growth strategy, think about when and how you will target these segments as well – both of which need precisely the same software as profit-making businesses.

Consider the following:

Change is the biggest challenge organizations face:  There are five distinct phases of any business – startup, rapid growth, maturity, decline, and rebirth (or death).
Figure 1:  The Lifecycle of a Business

Every company we talk with is going through this cycle – whether its Apple with the i-Pod, Starbucks in Coffee, AIG with its insurance business, Fidelity in 401k, or Target in retail.  The lifecycle takes place across its entire organization or across its individual products and services.  (We will be talking much more about the way talent management strategies vary across these phases in upcoming research.)

The reason for this cycle is the nature of competitive markets.  Whenever a company finds a profitable market, others eventually find new ways to serve it.   This process creates competition and buyers become more savvy.  Prices go down, and the leaders must now find a way to climb further “up the value chain.”  Today we see this happening to Starbucks, for example.  This process of continual evolution is not something you do occasionally, in today’s rapidly changing markets you have to do it all the time!

Caterpillar, one of our best practice research companies, is a good example here.  The company has evolved from steam tractors into a highly diversified global manufacturer of engines, machines, tractors, equipment,  services, and apparel.  During its  100+ year history Caterpillar’s people have had to “learn” a lot – and the company views learning as a strategic part of its business planning and execution process.

We call the companies which succeed over these cycles “enduring organizations,” and they are the focus of a major research effort we have been working on this year.
Learning is the core of Adapting to Change.

If you accept the fact that change is one of the biggest issues a business faces, then the ability to continuously adapt to change (organizational and individual learning) is one of the most important parts of a long term business strategy.   Unfortunately, many organizations don’t internalize this.

For example:  One of the most frequent questions we discuss with L&D leaders is the question of how to measure the value of training.  They ask this question because their leaders (VPs of HR or business leaders) question the investment in L&D and want to do a “zero based budget” each year.

The critical issue here is the top finding in our High Impact Learning Organization research:  the biggest driver of impact from learning investments comes from the development of an organizational “learning culture.”

A learning culture has many elements, including the organization’s:

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Ability to face up to its mistakes
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Ability to use errors as a learning process, not a punishment process
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Ability to sustain workforce development through bad times and good
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Ability to break things that seem to work and improve them before they really break
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Ability to coach people (the #1 high impact talent process)
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Ability to rotate people into development roles at all levels.

These “cultural” processes in companies go far beyond the L&D organization – they infiltrate leadership, management, operations, rewards and recognition programs, and values.  (The top 50 elements of such a learning culture are part of our HILO research.)

We are just about to announce our HILO Top 80®, the 80 Leading organizations in our High Impact Learning Organization research.  When you look at this list, you will see many iconic brand names – but you will also see many small and mid-sized companies which are highly profitable, highly successful, and owners of their markets.  These organizations realize that learning is part of a business strategy.

Learning vs. Execution Culture

Many organizations call us to ask for help in “measuring training” or “reorganizing L&D” or “building a blended or collaborative learning strategy.”  These are critically important parts of executing the learning strategy of an organization.  But the learning culture goes further – it means that you must balance learning with execution in every single business process.  And we must be careful to balance the focus between “learning” and “execution.”  Many companies think they compete against each other, while in reality they are totally aligned.

Consider the following.  Are the two columns competitive or complimentary?

Figure 2:  Execution Culture vs. Learning Culture

One may argue that “we don’t have time for learning,” we have a job to do.  Well that is true.  But of course if you are not “learning” while you “execute,” you are likely to “execute” yourself into oblivion.  Learning and Execution go together.

Examples of Learning as a Business Strategy

Consider Toyota.  How can Toyota manage to be first-to-market in hybrid automobiles, yet still continously compete against GM in trucks, mid-sized cars, and other existing markets.  Are the engineers at Toyota smarter than the engineers at GM?

Absolutely not.  I have met several GM executives and they are among the smartest and most focused leaders of any business.  But somehow they have not built the same culture of continuous learning which Toyota has.  Toyota has many well documented processes which build and reinforce this culture of learning:  quality programs, Kaizan, career development, experimentation, and empowering line workers to identify problems and fix them.

Consider GM.  GM, for all its challenges, is an amazing company.  As they fight their high labor and medical costs and work to trim products, they are instituting many innovative new learning programs – and I sense that their learning culture is undergoing tremendous change.

For example, GM has recently created a program called its “JumpStart” program for younger employees.  These GenX and GenY engineers and marketeers get together and have created career paths and development strategies in conjunction with the top 72 leaders at GM.  Recently the JumpStart team created a “car of the future” and went out and purchased a wide variety of electronic devices, music players, cell phones, and PC’s to demonstrate the opportunity for GM leaders to further innovate on user design and consumer electronics integration.  These initiatives are being thrust upon the “old guard” at GM to shake up complacent thinking and encourage innovation in products like the Volt, GM’s new electric vehicle.

Consider Bank of New York/Mellon.  In this organization, as in many other strong learning organizations, there is an assigned organizational effectiveness consultant located in each major business area.  This individual monitors and evaluates all work processes to look for opportunities to measure job effectiveness, find errors, and implement new opportunities for learning and performance improvement.  In effect, this role is a “learning culture” manager.

Consider EMC, one of the most successful high technology companies ever founded.  EMC sells a wide variety of disk storage, enterprise software, and IT services.  EMC has a business manager role entitled “Director of Business Performance” who serves as the performance consulting manager in each and every major business unit.  This person reports to the corporate university structure, but their job is to help the business unit implement continuous learning in all aspects of the business — including identifying processes with errors and flaws.

Learning Culture means Honestly Identifying Errors

Once an organization considers learning part of the business strategy, they look at “execution” differently.  They rigorously measure performance, constantly looking for errors and variances, and reward and incent managers and employees to fix errors.  They empower line workers to fix things immediately, and they provide a wide variety of formal and informal learning solutions at all levels.

Our research identifies the top 50 elements of a strong learning culture, and you find that every one of these elements is “good business.”  If you are an HR or L&D leader, you can promote and spearhead this philosophy through your programs and organization and approach.  If you are a line manager or leader, you can think about how “learnign and execution” are both different sides of the same coin, not necessarily in conflict with each other.

Consider the following changes which have happened in the last 9 months:

* The number of jobs in construction has dropped by 4.3% (323,000 jobs lost)
* The number of jobs in manufacturing has dropped by 2.7% (366,000 jobs lost)
* The number of jobs in natural resources/energy has increased by 8.6% (64,000 jobs gained)
* The number of jobs in education and health services has risen by 2.1% (394,000 jobs gained)
* The number of jobs in government has grown by 1.1% (254,000 jobs gained).

So what we have experienced is a fairly dramatic drop in the need for manufacturing and construction roles and a very dramatic increase in the demand for energy, education, healthcare, and government roles.  Interestingly, working for the government is more popular among young people now than it has been since the 1960s.

The second economic factor to consider is where industry growth is occurring.  Today, despite the recent drop in the stock market, some industries continue to be doing very well:  our new TalentWatch® research (to be published this month) shows that many Aerospace, Business Services, Defense, High Technology, and Healthcare companies are still growing rapidly.  And when we ask business leaders what roles they need to grow, companies tell us that their biggest shortages are in:

* Line Managers:  43% of organizations cite severe or major shortages
* Engineering / technical professionals:  42% of organizations cite severe or major shortages
* Skilled labor:  30% of organizations cite severe or major shortages
* Sales:  30% of organizations cite severe or major shortages
* Top executives:  yes, believe it or not, 34% of organizations cite severe or major shortages.

As our Talent Management Factbook® research supports, organizations are still suffering from shortages in their leadership pipelines, shortages in technical skills, and a never-ending need to find the right sales and executive roles to run their businesses.

What does this mean to you?  Despite the dire economic news, more than 40% of the companies we surveyed told us they are limited by the inability to hire key people.  And based on the information above, our economy is slowly but surely shifting to one of services, government, healthcare, and energy workers.

Further supporting this trend is the following data.  According to the Bureau of Labor Statistics, the fastest growing jobs over the next five years will be:

* Network systems and data communications analysts – 53% increase
* Home health aids – 49% increase
* Software engineers and applications programmers – 45% increase
* Financial advisors (!!! really?  yes) – 41% increase
* Medical assistants and nurses – 35% increase
* Substance abuse and other counselors – 34% increase (I wont even try to guess the reasons for this).

Bottom line is this:  if your organization needs technical, managerial, or healthcare workers to grow, you should plan ahead.  You are likely going to need to further invest in career development, tuition reimbursement, and increases in training in order to obtain the skills you need.  Our research shows a fevered interest in complete career development programs among corporations – programs which help young workers build their skills in professional, technical, and service roles – not only leadership.

I personally believe that the next administration in Washington is going to wake up to these shifts in labor skills and availability and start a massive emphasis on technical, energy, and health training and education in the US.  WIthout such a shift our businesses are going to be increasingly forced to invest in these skills internally.  Either way, we have no choice but to watch these trends – it’s a critical part of our role as strategic talent managers in our organizations.