Is your Learning Services business model optimized for your charter?

Lets start by looking at some information from a recent benchmarking study completed by Mile High Research. Our study looked at several global learning organizations within the technology industry and identified four primary business models in use.



Four Primary Business Models - Learning Services:

1. Cost Center
2. Cost Recovery
3. Profit Center
4. Hybrid

The learning organizations charter is the primary driver of the appropriate business model(s) for Learning Services. It is common for many learning organizations to utilize multiple business models depending on factors such as audience (Employees, Customers, Partners, Community), budget transfer policy, level of finance support and back office capabilities to name a few.

Cost Center Model – Usually used for employee and some types of partner training. A fixed budget amount is available for all training expenses. Training management is measured on their ability to get the maximum return while staying within a fixed budget. Often used for mandatory or required training programs. A metric commonly used to understand business value using this model is cost per head or cost per student hour of delivery and reduction over time. Goal for this model is control of fixed expenses.

Cost Recovery Model – Can be used for any audience, but generally used for employee and partner training. An example - training delivered by a vendor / 3rd party, you charge the audience for the actual cost incurred. Sometimes a slight incremental “tax” is charged to cover the learning organizations over head expense. The benefit over a cost center model is that your training budget can scale up or down based on need and assumes the employee or partner department has budget and transferees the funding (sometimes a tricky thing). A metric commonly used to understand business value using this model is cost per head, cost per student hour of delivery with reductions over time and financial proof of the learning organizations non-profit status. Often used for technical or specialty training. Goal for this model is to cover expenses.

Profit Center Model – Generally used for customer training, but can be used for all audiences. This model positions Learning Services as a product, a line of business managed to a profit and loss (P&L) statement. Revenue and margin goals are established and training leadership's performance is measured on plan vs. goal aligned to the companies financial reporting calendar – quarterly / annually. Obviously the goal of this model is to deliver revenue and margin value to the corporation.

Hybrid Model – A popular business model for multi-audience (Employee, Partner, Customer, Community) is a blend of the aforementioned models. Learning and Development teams, whose charter is to cover multiple audiences, could apply a different model to each audience or type of training. Example, Cost center for compliance training, cost recovery for technical training, or profit center for all non-compliance training.

As you might expect, each model has trade offs and thus every element or lever available within the business model must be thoroughly understood to provide maximum optimization.

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Lets take a closer look at a real example of a Learning Services organization in the technology industry using the profit center business model. The primary charter of this organization was to grow revenue and margin. Mile High Research performed a targeted business model assessment and delivered a strategic insight summary of the current state highlighting the following charter challenges:

Learning Services Charter Challenges (Current State)

Revenue Growth

• Low Attach Rates
• Channel Sales In Decline
• Growing Gray Market Competition
• New Product Time To Market (Too Slow)
• Products Needed To Be Localized For International Marketplace
• Product vs Value Focused Marketing
• Go-To-Market Strategy Not Well Defined

Learning Services Charter Challenges (Current State)

Margin Growth

• Delivery Strategy Not Aligned To Opportunities
• Paying Above Market Rate For Delivery Services
• Product Mix Predominately Instructor Led Training
• Paying Above Market Rate For 3rd Party Learning Content
• Under performing Pricing Strategy For 3rd Party Learning Content

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The Learning Services product lines include; Instructor Led Training (ILT), Education Consulting, Certification and eLearning. The financial aspects of the business model highlight % of overall revenue and gross margin % by product mix – current state vs year 1 projected (optimized) state. You begin to see the impact of the business model optimization work completed for this client. The product mix has been rebalanced and gross margin gains by product line representing a variety of initiatives including reduced delivery cost, changes in go-to-market focus, product packaging changes, product localization, value focus and price adjustments.

"Mile High Research can assist learning leaders to select and optimize a business model for their learning charter." - Denny Schall, Chief Learning Officer at Mile High Research.

Our targeted Business Model Assessment Service provides a comprehensive review of the learning organization business models and assesses the current state of results vs our industry benchmark companies. Deliverables include a strategic insight summary of the current state and defines actionable recommendations to further enhance business results in alignment to your charter. Assessment and recommendations are based on our benchmark data and best practices research within the learning industry.

Contact Mile High Research for further information.