LMS Needs

With a world economy floundering and travel costs mounting, one drug companyknew it must cut training costs aggressively, and discovered that the bestglobal classroom deal is on the Web.

Kendle International Inc., a pharmaceutical research company in Cincinnati,employs researchers throughout the globe who must be trained before everyclinical trial. Scaling back on training without compromising quality, the1,800-person firm knew, would require high-powered software–technology thatcouldn’t be maintained in-house–to launch an effective online program. Sothe company embarked on a hunt for an emerging technology known as a learningmanagement system, or LMS, a vehicle that is used to automate the administrationof online training programs.

The system can register users and track courses, record data on a student’sprogress, and forward reports to management–work otherwise conducted byon-site trainers. Brandon Hall, LMS guru and head of a Sunnyvale, California,e-learning consulting firm, defines the system as “the foundation of moste-learning programs.”

But it is also the most expensive tool involved in establishing an e-learninginitiative. In a 2001 report, Hall estimated that the average LMS system costs$550,000 for 8,000 users over a five-year stretch, and the price tag isincreasing. For human resources professionals, training executives, and otherswho are involved in making such an investment, picking the right system canresult in saving an organization huge amounts of money while advancing workforcedevelopment.

Making the right pick, however, isn’t easy. There are several factors toconsider when making a choice, including the company’s in-house ITcapabilities, the expectation for return on investment, the nature ofcustomization needs, and the dizzying array of models and vendors. Choosing avendor is perhaps most important, because LMS investments are often multi-yeardeals. You’ll want to know that your vendor will be around for the duration,although there are no guarantees in the swiftly changing marketplace.

Two years ago, there were at least 200 players in the LMS business; todayonly half as many still exist. Much of the dramatic reduction is related to thetroubled economy. “It’s complex and expensive software to deploy, and withIT budgets down lately, there’s only so much business to go around,” saysNate Swanson, a Minneapolis-based e-learning analyst with ThinkEquity.

But the shakeout also is related to the fact that the burgeoning industry isstill weeding out its weakest links. Vendors that marketed viable products andgenerated customers quickly were able to establish themselves and grow revenuebefore venture capitalists closed the spigot on all things Web-related. Thosethat were less established were left behind.

The LMS market is growing, but it is doing so in the hands of fewer and fewervendors. For those in HR, that means it’s essential to do your homework beforeshopping for a vendor.

Sherry Gevedon, Kendle’s director of global training and development, and asmall team of assistants spent nine weeks in 2000 interviewing more than 50vendors. They knew that they wanted to be able to customize the software andlater add to it. They eventually whittled the list down to three companies, andprice became a significant factor. They selected California-based Saba Software.

Before the selection process began, Gevedon and her crew had to make surethat top management really wanted the system and supported the move. They alsohad to determine if the IT department could ensure the necessary infrastructureto make the new system work, and that the LMS could get the kind of return oninvestment that would make the program self-supporting.

“Be prepared. Make sure the support is there,” Gevedon says. “We madethe case, and the support just flowed down from the top. That’s why it hasworked for us.”

In May of 2001, the company went live with its eKendleCollege, an onlinecorporate university that caters to hundreds of associates at 21 differentdomestic and international locations. In its first 15 months, associatesaccessed more than 5,000 online courses. In-person training sessions once heldat corporate headquarters in Ohio became history.

To illustrate how much the company has saved, Gevedon uses this example:About 300 Kendle associates had to get up to speed on the basics of a new trial,such as its size and information about the drug. Before the advent of the LMS,they needed four two-hour training sessions. Most participants had to travel toreceive instruction, and would spend three days in the program. The onlineuniversity made it possible for all 300 employees to complete the training in amatter of hours without leaving their offices.

The savings: $500,000 in travel and hotel costs alone. “This has gone very,very well,” Gevedon says. “The training programs now are running moreefficiently than they did before, and staff development has been bolstered.”And the company’s savings on e-learning programs has already offset the nearly$2 million that was invested in an LMS.

“Managers and human resource people have to think about this as more than atraining thing,” says Brook Manville, Saba’s chief learning officer. “It’salso about the management and alignment of human capital across theorganization.” That leaves HR leaders to answer the most fundamental question:Is there truly a compelling business need for an LMS? Do you have to invest in acomprehensive e-learning program to speed up training or make it more efficientand less costly by cutting back on travel expenses?

If so, HR must work to make certain the whole organization is on board andthinking about the same goals. Gevedon and other decision-makers boil theprocess down to four areas of advice:

• Think hard about ROI. This is, after all, what any major business move isall about. How will you measure the success of the system? How quickly do youneed it up and running? Do you want the system to pay for itself within a year,five years, eight years?

The largest companies are more likely to look for shorter contracts,expecting to make upgrades or other changes–perhaps with a different vendor–inthe near future. Xcel

Energy, the power behemoth created by the merger of Minneapolis-basedNorthern States Power Co. and New Century Energies in Denver, earlier this yearneeded a new LMS to consolidate and track a range of compliance training effortsinvolving 13,000 employees.

It had to quickly set up dozens of courses covering everything fromregulatory compliance to on-the-job safety, and it had to be able to track whocompleted the courses and when. Most pressing, Xcel wanted its costs covered inthe first year. The firm signed a deal with Plateau Systems in Arlington,Virginia, to get that specific training initiative handled fast to “get anaccurate picture of where we stand as an enterprise,” says Daniel Marshall,project director of Xcel’s e-learning department.

By contrast, smaller companies with 5,000 employees or less are much morelikely to view an LMS as a long-term investment, which would, by extension,stretch their ROI expectations out over several years.

• To get any meaningful return on an investment, you have to make sure itis necessary. What are your business needs and how will an LMS help? Are youlooking to create an enterprise-wide e-learning program? Or do you simply want aprogram to automate the administration of a certain training program? Will theLMS be integrated with existing systems such as customer relationship managementsoftware? Or will it stand alone?

The answers to these questions will help determine whether you should makein-house IT investments before signing any deal with an LMS vendor. They alsowill help you determine which vendor will match up best with your IT resources.

“In the end, you need to find out what the problem is that you’re tryingto fix or the issue is that you’re trying to address,” says MassoodZarrabian, chief executive of OutStart, an e-learning services company inBoston.

Then, you have to decide what kind of help you need outside your own company.He stresses that all parts of the company that may be involved in the traininginitiative must have a say in LMS decisions.

When Cisco Systems needed an LMS that could manage a multi-language supportsystem and a variety of content-delivery types for 40,000 employees in 75countries, the Silicon Valley Internet networking company sought input from allof its business units. That meant dealing with dozens of offices in many places.But the result is an LMS that sets and tracks learning requirements,certification levels, and development plans. And it elicits feedback on progressagainst those plans–all things that the entire enterprise agreed werenecessary. The company says the result has been a successful training programthat employees buy into.

• Closely study an array of vendors: their size, history, and stayingpower. You can do this by talking to other clients, following a vendor’smarket value, and researching what analysts have to say about a vendor’sfinancial viability.

Then, of course, consider size and price. There are many choices here thatvary according to the functions you need. The least expensive costs $3,000–againusing Hall’s example for a five-year implementation with 8,000 users. The mostexpensive system can cost $5 million.

If you’re a small company in need of simply managing a small administrativecomponent, a small vendor may work fine. Hall found in a study of 200 LMScustomers that big was not always better. While the larger players certainlyhave a plethora of services to offer, smaller companies often responded fasterto clients’ concerns and were more flexible when it came to structuringcontracts.

But for some companies, especially those with far-reaching LMS needs, sizecan be important. Amazon.com in Seattle employs only about 8,000 people, but itneeded an LMS that would cover all aspects of its business–from training newemployees to managing records and sharing learning content across severaldecentralized facilities that had their own training departments. Amazon wentwith a large vendor for “more flexibility, control, and browser-based access,”says Gerrett Stokes, the company’s senior project manager for global HRsolutions.

• Get all the answers you need on customization. Some companies like Amazonwant an LMS that can perform many functions right off the bat. But no LMS can doeverything. At some point, customizing will be necessary. As vendors develop newproducts and capabilities, they often lobby their clients to customize. Somebuyers will want to; others won’t. Either way, they will want to know from thestart how much future customizations are likely to cost.

Ask about the specific abilities of the LMS you’re buying, and whether thevendor will charge for future customization or the fee is built into the initialinvestment. Also, be sure you’re not paying up-front for current or futuregadgets and gizmos that you won’t need.

“People don’t care about all the bells and whistles anymore,” saysScott Saslow, director of product development for Siebel Systems, a seller ofe-business applications software based in San Mateo, California. “They want itup and running, and they want it to fit their specific needs.”

Count Silicon Valley heavyweight Hewlett-Packard among those that know whatthey want. When the company was on the lookout for an LMS last summer, it wasnot seeking a complete solution to all its e-learning management needs. Itrequired but one important component, an LMS to standardize certain trainingefforts across its international operations during its assimilation of Compaq,which it had acquired for nearly $19 billion.

HP was in the market for a system to track its training investments to makesure that salespeople received the same training on new software andcustomer-relationship management–not every component of its e-leaning effort.And it wanted to be able to customize as it went along, adding new courses anddropping redundant ones.

It was still a huge investment. But why invest in more than you need when allyou want is a piece of the puzzle, says John Seniuk, technology manager forworkforce development at HP.

James Lundy, an e-learning analyst with Gartner, an Internet analyst companyin Stamford, Connecticut, estimates that by 2005, 70 percent of largecorporations will own learning management system applications. Gartner projectsthat within three years, the overall e-learning market will top $33 billion, afigure based on the strong productivity gains of the late 1990s.

During the boom years in the late 1990s, many economists concluded that thenew economy had evolved because information technology caused the productivitygrowth rate to shoot up. During that time, the U.S. Department of Labor reports,productivity grew 2.5 percent, up from 1.4 percent in the previous 20 years.

This data is meaningful because it essentially measures the revenue that thenation’s workers produce. When output increases, revenue grows, and thatrevenue can be invested back into company growth, creating jobs and fuelingsalary increases. Many companies such as Kendle are banking on e-learning to bea big driver of technology in years to come.

Kendle plans to continue expanding its e-learning programs, and will use itsLMS to make that happen. It will establish an individualized online trainingprogram for each associate, to be tracked, assessed, and personalized via itsLMS. And the company expects that cost-savings on time and travel, plus training that is faster and more worker-specific, will morethan offset the expense.

“There are a lot of companies that want to do what we’ve done,” Gevedonsays. “What I can tell them is that while this has been a very big success forus, it wasn’t easy. You have to make sure you know what you need. You have tomake sure you have top management on board. With all of that, you could get ahuge payoff.”

Workforce, November 2002, pp.52-58 — Subscribe Now!