Down But Not Quite Out: what can we learn from the plights of Learning Tree International and Readers Digest?

These turbulent economic times have not been kind to two of the large publishers of catalogues and journals - Reader's Digest and Learning Tree International.

Of course, Learning Tree International's business is selling face-to-face courses, but most of us will have had the Learning Tree catalogue 'brick' of courses dropping onto our desks on a regular basis for many years.

Learning Tree has been around since 1974. Readers Digest is much older, having first rolled off the presses in 1922. However, both are living in troubled times for the same reason – a failure to innovate and a failure to adapt in a rapidly changing world.

Reader's Digest - The Demise of a Venerable Organ
Reader's Digest still circulates to 17 million people in 65 countries worldwide, but major problems with its financial structuring and an ongoing drop in readership (down from 18 million in the USA in the 1970s to 8 million today – still the largest audited circulation of any magazine) has left it in dire straits.

The US company is preparing to file a pre-arranged bankruptcy agreement, to trim back to a distribution of 5.5 million, and reduce editions from 12 to 10 a year. However word on the streets is that it has 'lost its way' and will never recover but will slowly wither and die. One view is that Reader's Digest has lost its 'DNA'. When Lila Bell and De Witt Wallace conceived their baby in Minnesota back in the 1920s there were no competitors to the condensed articles, the 'Use Your Word Power' quizzes and the jokes that they made available through the Digest.

Despite moving some activity onto the Internet and getting its journalists blogging the company is still struggling. Current blog postings include '4 tips for selling your gold' and 'it's enough to make your stomach hurt' – with more tips, this time for avoiding heartburn. So it's no surprise really. It seems that Reader's Digest hasn't come to terms with the way that people get their information, and their laughs, these days.

Learning Tree International's Approach
Learning Tree International recently published its F3Q09 earnings. They don't make pretty reading to me (despite at least one analyst upgrading LTRE to 'buy' – but analysts don't have a great track record for picking fundamental weaknesses in business models - just think back to the late-1990s first Internet bubble burst or to the more recent failure to see the business model weaknesses in the sub-prime fiasco).

Learning Tree reported a decline of 31.2% in earnings compared to 2008. Operating expenses were down from $22 million to $14.6 million ($1.5 million of that contributed by producing less of those damn catalogues). And overall operating profit was down by 40.7% compared to the same period in 2008. Net income was down 44.7%.

Maybe more interesting is Learning Tree's decline in learner activity (I use the term 'learner' advisedly in this context as the structure of many Learning Tree courses is such that many people only learn despite the Learning Tree course - more of that later). There was a 20.7% decrease in attendance overall, with management courses down by 13.7% and IT attendee days down by 31.7%.

The CEO reported that foreign exchange rate changes had an impact, but I think Learning Tree is facing deeper problems. And they're the same problems being faced by Reader's Digest.

Old business models cannot be maintained forever.

Our Changing World
The world is moving on, people expect to get their learning and development online where possible, at a time that suits them, and in small chunks rather than 5-day off-the-job courses. This change in user demand has been taking place for at least the last 15 years. It appears Learning Tree is only just waking up to this fact, if they have at all.

Their response?

It's a 'hybrid' model called Anywhere. Anywhere allows remote participants to attend a live Learning Tree class without having to be in the classroom – for up to 5 days... They have developed a portal to stream video and audio of the instructor's performance, with some real-time communication with instructor and other participants in 'break-out rooms'. I checked out the 3-day ITIL basic course. Apart from the limitations of needing to be roughly in the same time zone as the face-to-face attendees so I wasn't expected to sit up all night to participate, tuition fees are high. $2,390 is the standard fee for remote participants, in this case for the three day course.

Learning Tree's CEO and President, Nicholas Schacht, reported their approach in the quarterly earnings call (available on http://www.seekingalpha.com/)

"Things that we are very being careful to measure at this point in time along with the response to our marketing are what happens in the way of cannibalization, are we seeing a response from people who would have come to the classroom but are now preferring to attend as remote attendees, because the remote attendees to carry a bit of incremental cost as well, so we have to measure all that and balance all that out and see what happens, but the effect that we'd be looking for in the short term would clearly be an improvement in the gross margin by increasing the number of attendees per event for those Anywhere titles."

The major problem here, apart from the downside of having to pay a significant amount of money to stare at a screen for several days, is that instead of registering for the Learning Tree ITIL course and parting with $2,390, people preparing for the ITIL V3 Foundation Certification have a lot of other options. Many of them are free and most are certainly better approaches for learning than a solid 3-day away-from-job course.

Alternatives to ILT events
The Internet has not only changed the way we communicate but also our concept of 'freely available'. A cursory look at the ITIL resources available on the Net reveals a wealth of material on YouTube for a start. You've got the Principal Product Manager for EMC giving a 6-minute overview. If you want to get into a bit more detail there is lots of other YouTube instructional material. You can delve further into ITIL, maybe into Configuration Management, or access a number of other areas such as Service Level Management.

Then there are numerous free books, guides and reports, such as the 230 page ITIL V3 Foundation Exam Study Guide, a comprehensive, freely downloadable book with "everything you need to know to pass the exam and in addition the official OGC sample exams included at the end of each chapter".

Turning to collaborative and community support for learning, there's the ITIL Community Forum with its FAQs, feedback, forums and 23,000 registered users to interact with. I could go on.

Now I may be missing something here, but think ILT training companies such as Learning Tree need to go back to the drawing board and make more fundamental changes to their business models for a number of reasons.

Our Changing Expectations
Firstly, many CLOs in large corporations around the world now subscribe to the view that most organisational learning is informal and even where formal learning is used they expect more than a one-off event from their suppliers. The expectation is that the provider will make on-going support available through some form of online forum and email at least, or make their content available online in an on-demand way such as the excellent Books 24x7 has done. And CLOs want to integrate their provider's learning materials and learning tools with their own internal systems so that they can be made available across the corporation.

CLOs are also looking to measure learning outputs rather than simply recording inputs. All-in-all they are becoming more savvy in their expectations and in the tools and approaches available to them. They want more than the 'same old ILT stuff' in their kitbags.

Here's an example of what I mean by 'more savvy in their expectations'.

Reuters Institute of Technolgy - an example of CLO expectations
When I was CLO at Reuters my learning and development colleague Andrew MacGovern developed the Reuters Institute of Technology which was a fully-featured set of online resources and tools to support our 5,000 or so technical and operations staff. Many of the technical staff were 'gen Yers' – the average age of the 1,800 software developers in Bangkok was 28 years and the 1,000 or so technical staff in Beijing were just a little older.

The Institute didn't include any courses from suppliers such as Learning Tree, but was rich with resources from Books24x7, TechChek (a web-based technical skills assessment tool), internal company communities and knowledge sharing wikis. A ning site, podcasts, video learning resources, RSS feeds from the large technology providers such as Cisco, Sun and Microsoft, and a number of other facilities including a range short formal modules deep-linked from the corporate LMS that could be pulled on-demand.

There were other integrated tools, such as the 'culture wizard' which matches the profile of one learner's country and culture to other colleagues to enable the development of more productive cross-cultural team working and support. It provided on-going learning and support opportunities.

Andrew won the CLO Magazine's Gold Award for innovation in 2008 for this initiative.

This is the type of provision many CLOs are either building or expecting to be made available to them. One-off courses will no longer 'cut the mustard' in the new world. Not even if they stretch their tentacles to remote participants.

So what's the learning here?

Well, I think that the learning is to always look forward and plan with an eye on changes and adapt your business model to suit the emerging world – whatever it may be at any point in time. If stalwarts such as Reader's Digest and Learning Tree can fall off the perch, other suppliers can as well.

The Future Business of Learning for Suppliers

Last month Tony Karrer wrote an very insightful piece on his eLearning Technology blog about the Business of Learning. The post and the discussion underneath it are well worth reading.

Tony equated the challenges of the learning industry to those of the publishing industry. Publishers have been going through a very tough time over the past few years. Even before the current economic turmoil, publishers were seeing their customers and advertising revenues bleed away to the multitude of new communication channels that has arrived as part of the tidal wave of Internet services.

The business models that sustained publishers from the 18th to the early 21st century are no longer valid. The world has changed, and it will keep changing rather than returning to previous states. The old models that supported the growth of the publishing industry for more than 200 years are not going to sustain it again once the global economy has shaken off its current problems and returned to some form of stability. Publishing needs to look for new ways to sustain itself, new business models and new ways of publishing. It has no other option.

The same applies to the Learning industry. In fact, I wonder whether we’ll even call it a ‘learning industry’ in a few years time. Jay Cross posted a comment under Tony’s article pointing out that a number of us in the TogetherLearn team have been discussing this issue and that we agree that ‘learning’ may have outlived its usefulness as a term. I don’t know what the ‘learning industry’ will be called in the future, but its focus will certainly be a lot wider than what is generally seen in today’s world as ‘learning and development’, let alone ‘training'.

With this in mind we need to focus on new ways of learning to support our organisations’ new ways of working.

This is where the data Tony Karrer presented is both interesting and revealing. He references The Masie Barometer which provides a late-March 2009 snapshot of learning & development in a range of organisations – 77% of respondents based in the USA.

THE MASIE BAROMETER and CIPD 2009 SURVEY

It is useful to look at the Masie Learning Resources Barometer data alongside the UK CIPD data gathered a few months earlier. There are, unsurprisingly, plenty of similarities.

When the CIPD asked the survey question “how would you describe the economic/funding circumstances facing your organisation in the past 12 months?” 85% of private sector organisations responded with either ‘decreased’ or ‘stayed the same’. When looking forward to 2009, the outlook was about the same – 86%.

The Masie figure is 88%. The correlation between these two sets of data is high.

Looking at the CIPD 2009 projections we get a slightly more optimistic view with between 10% and 19% of (mainly L&D) respondents suggesting that funding will increase. The 9% variation is across sectors – public, private and voluntary & community.

Analysing these figures I think they support the fact that L&D people may be - underneath it all - optimistic types and maybe those that work in the voluntary and community sector are the most optimistic of us all. Either that or they just can’t bear to face reality ..

With these trends in mind it's hard not to agree with Tony Karrer when he says that the type of training we’d call ‘traditional’ is on an overall downward trend along with traditional publishing. And that it’s unlikely to return to the past status quo when the global economy picks up.

THE FUTURE BUSINESS OF LEARNING

The future business of Learning (or whatever name we finally settle on) lies in providing organisations with the tools, techniques and environments to support them in building employee capability and performance in an increasing range of areas. It certainly doesn’t lie in the provision of ' training'. Traditional training may have a role in the picture going forward, sometimes, but it will certainly be only a minor role.

The ‘Learning Tree’ Syndrome

Which is why I’m not surprised with Tony identifying Learning Tree International as an example of training companies that are currently being hit hard – quarterly revenue from last year down from $47m to $30.5m and running at a loss.

Learning Tree is a perfect example of a ‘traditional’ training company that has not altered its business model in light of a world changing around it. Although it now offers it’s AnyWare remote courses – allowing virtual attendance at classrooms in its education centres - which is probably marginally less useful than actually attending the face-to-face version (you don’t get the best bits - the coffee and lunch) the company has steadfastly refused to change its model to reflect the new world.

I recall meeting with senior Learning Tree executives 5 years ago when I was chief learning officer at Reuters (an organisation that knows a little bit about the need to respond to changing circumstances and has done so pretty well over the past decade). The Learning Tree people told me at that time that they weren’t planning to introduce any ‘new’ approaches to their training provision. We could have their face-to-face courses or nothing. On the back of that information we chose to go our separate ways and Reuters teamed up with other training suppliers that offered blended solutions, virtual labs, online technical libraries, performance support/business process guidance and other more flexible approaches to building capability that were more closely built into employees daily workflow. The latter were a better fit for our learning strategy and offered far more value in terms of impact and ‘bang-for-buck’ than 3, 4 and 5-day stand-alone courses.

‘new ways of learning for new ways of working’

What organisations need to look to achieve from their relationships with training/learning suppliers and from their own internal learning teams are new ways of doing things that work in 21st century contexts, in the same way that the publishers need to look at new ways of providing their services. This in turn means learning suppliers need to embrace new approaches and tools, new ways of helping individuals, managers and organisations to work better, smarter and faster and achieve more.

This change will require CLOs and senior L&D executives to review how, and whether, they continue engagement with traditional training suppliers going forward. If they do, they will need to be absolutely sure that each supplier is providing real value.

REVIEWING YOUR TRAINING SUPPLIERS AS 'FIT-FOR-PURPOSE'

Some organisations have very rigorous mechanisms in place to manage their training/learning supplier base. But most don’t. However, if learning and development departments are going to operate efficiently and effectively, and provide real value to their organisation, they simply must do this.

When I joined Reuters in 2001 I did something that hadn’t been done in the organisation before. I analysed the training supplier base in considerable detail – spreadsheets and spreadsheets of analysis. For a workforce of around 18,000 employees I discovered we had engaged with 3,025 separate suppliers of training or training-related services over the previous 18 months. That’s equivalent to one training supplier for every 6 employees! The thought that any ‘vendor relationship management’ could occur with this number of suppliers was laughable.

I am sure that if you walked into many organisations today you would find the same situation. It’s crazy, but it happens more often than you think.

However, this situation also presents great opportunities for consolidation and for reducing management overhead and costs associated with training and development, and also for controlling quality. If you're starting from here there are some potential big wins.

When I presented the fact of the 3,025 suppliers to the chief operating officer at Reuters he was as incredulous as I was with the situation. He pointed out that the company had a single supplier for all PCs and laptops, one or two others for the company’s networking kit, and in other purchasing categories we had just a few carefully-selected suppliers. Yet we had more than 3,000 for our training. What was going on here?

The COO said to me “OK. how many training suppliers should we have?” I really didn’t have an answer, but I knew it was certainly a lot less than 3,025 for our size of workforce despite the fact that we were spread across 92 countries. So I replied “let’s strike out the zero in the middle and I think we’ll be at about the correct level” – 325. So that's what I was targeted to achieve.

Training/Learning Vendor Rationalisation

Working with some very competent procurement/sourcing colleagues we created a simple approach for reviewing and rationalising our supplier base. Over time we reduced the supplier number to less than 500, a six-fold reduction from where we started out. Not quite 325, but close to it.

This, in essence, is what was done.

Each supplier was allocated to a category:

1. Strategic Suppliers – those who were so embedded into the ‘DNA’ of the organisation that there would be serious disruption if we wished to end a relationship with them. Additionally, they:
· had the ability to offer services on a global basis
· provided a critical service aligned with our business strategy
· had a strong cultural fit with our organisation
And that included supporting the move to the 70:20:10 approach we had adopted, an increase in learning provision underpinned by technology, and increased ‘informal’ learning support.

2. Preferred Suppliers – those that offered a number of best-in-class solutions that represented excellent value-for-money but could not, or did not, offer global solutions except by jumping on an aeroplane at the client's expense.

3. Approved Suppliers - those that met a defined level of service provision and value for money, but their services were limited and not strategically significant to the business. These suppliers were engaged with on a transactional ad-hoc or as required basis.

4. Non-Approved Suppliers – this was by far the largest category. After evaluation it was decided they didn’t fit into any of the other three categories. Most were small local suppliers offering non-specialist training that replicated the offerings of the strategic and preferred suppliers. Many had never previously been through a quality assessment.

Following the vendor rationalisation process there were a small number of strategic suppliers, more preferred suppliers, a long ‘tail’ of approved suppliers and an even longer one of non-approved suppliers who were excluded from bidding for further work with the company. We then worked to consolidate as much of the work carried out by Approved Suppliers up to Preferred Suppliers and, in doing so, remove some of the ‘tail’ of approved suppliers.

It was a long and tedious process that took several years, but it was largely successful, producing not just a reduced number of vendors, but greater alignment of the remaining vendors with our strategic direction. I think that every organisation could benefit from going through this process.