The Book of Knowledge

Michael Moe et alia, Merrill Lynch, April 9, 1999, 190 pages
Free for the asking

Corporate training has become a business imperative, migrating from an expense to an investment. Elven percent or 55 of the FOrtune 500 have a Chief Knowledge Office today, up from virtuallly none five years ago. Motorola calculates that every $1 it spends on training translates to $30 in productivity gains within trhee years. We see the opportunity for the creation of several multi-billion dollar companies in this highly frgmented market where the largest training company today has training revenues of just $200 million.

The U.S. school system is truly sick. Consider:

• Nearly half of all high school graduates have not mastered seventh-grade arithmetic. One-third of 17-year-olds cannot place France on a map. Only about one in 10 high school graduates can write a reasonably coherent paragraph.
• 90% of prisoners cannot read.
• Nationally, all teachers -- public and private -- are 50% more likely than the general public to send their children to private schools.

The Book of Knowledge mixes schools and corporate training to come up with a two trillion dollar global education market. To my mind, education and training are oranges and applies -- pedagogy and andragogy if you like.

Nifty descriptions of differences between old- and new-economy views of education:

Half a century ago, a man could learn how to drive a tractor and have that job skill for 40 years or more. Today, a person learns a software program and has that curren skill for, maybe, 18 months.

Corporate training market, for profit:

IT training, a subsector of corporate training, is a $19 billion market growing rapidly. IT has become so important to businesses that it represents nearly 50% of capital expenditures today, up from 5% in 1970.

The total corporate & government training market is five times larger:

Six megatrends impacting the overall market are:

demographics -- older. family disintegration. minorities becoming the majority.

outsourcing

technology revolution -- Internet adopted at wildfire rate.

consolidation

branding -- a short-cut to identify quality and consistency.

As corporations look to outside orgaizations to manage their training programs, branding will be a factor in the early selection process. Companies themselves are also branding their own training content, whether for internal or external use, to, for example, extend training to their channel organizations or end-uers around the world.

globalization -- requires multilingual training

"We broadly define performance improvement training as any form of non-IT related training..." Oh yeah? Tony Robbins tapes? Get rich through real estate? Scientology "psychology" tests? est? Sunday school? Traffic school?

In our view, corporations want more training products and services from fewer vendors. In short, they want the convenience and ease of working with one diversified provider. In response to this demand, training providers, who in the past found success by focusing on a narrow niche, now are scrambling to add content through internal development, acquisitions and/or partnership with peers in the industry.

IT Training

Corporate market = $19 billion
Government market = $7 billion

Largest public companies: CBT Systems, New Horizons, ARIS Corporation, Learning Tree International

12% CAGR, growing from $20 b to $28 billion 1999-2002

The IT training industry is highly fragmented wit the largest IT training provider being IBM Global Services with $520 million in revenues in 1997 and only 3% market share. Learning Tree and CBT Systems are the two largest pure play public IT training comapnies in the industry with revenues in 1998 of $187.2 million and $162.2 million, respectively. There is tremendous opportunity for IT training companies that have scaleable soluitons, national presence, quality content, and wide range of delivery options to gain market share very quickly.

The top ten IT training companies only have 13.7% of the market.

ITTA reports that one of every ten IT positions (~350,000 jobs) is open today. 50% of IT company execs cite the lack of skilled workers as the most signicant barrier to grwoth during the next year. 70% say "few" or "some" applicants for IT jobs have the skills they're looking for.

Certification training is growing at a rapid pace, with the number of exams growing at over 30% annually, transforming what is currently a relatively small $900 million industry to $2.1 billion by 2001. There are now 150+ technical certifications available with the number of industry certified professionals continually rising.

Technology-based training

The same technology that is fueling our economy and increasing our need to lifelong education and training has, not surprisingly, had signifcant implications on how we deliver training. Thotal technoolgy delivered education is projected to grow from $3.0 billion in 198 to $8.2 billion in 2001, a CAGR of nearly 40%. The IT technology based training component is $2 billion, expected to reach $7.7 billion by 2002.

"We are done putting people on planes."

WBT is a growing component of technology based training and is expected to grow from $197 million in 1997 to $5.5 billion in 2002, representing explosive growth of 95% annually.

Technology based training is projected to represent 55% of all training by 2002, up from 21% in 1998. We ultimately see the industry embracing a hybrid solution, with an indivudal's education combining the best of technology-delivered education and clasroom-based instruction.

Like most every financial pundit I read, these guys look at the small end of the stick. Their number one justification for tech-based training is cost reduction -- fewer plane tickets. Some tout less time off the job. None of them seem to care about how much learning results from taking part in a class. In fact, they don't differentiate between fabulous courses and crummy courses. And they totally miss the fact that you've got to provide tech-based learning if you want to lead in an Internet-speed business.

What I call "training management systems," the Book of Knowledge calls "quantifiers & qualifiers." Among these are Docent, KnowledgeSoft, and Saba.

The Book of Knowledge concludes with a healthy list of education and training bookmarks.