Workforce development could be society’s best chance at solving the skills gap
The skills shortage, accelerated by Covid, cannot be solved unless we rapidly scale investment into workforce development. We believe startups are essential to making this happen and estimate that solving the skills gap through workforce development could at least double the market to $500bn by 2030.
Higher education, vocational education and bridges to employment have an important role to play in tackling the $8.5Tn skills gap, forecasted to represent 85m unfilled jobs globally by 2030. However Workforce Development solutions which further existing employee skills whilst furthering business outcomes of the employer, could be the most effective way to solve the skills gap.
The skills gap is felt most directly by employers It is employers that are closest to the problems and should know best which skills are in shortest supply. It is employers that can most readily offer and embrace applied learning environments that trump theoretical learning offered by education institutions that are slow to innovate and respond to industry needs (as per our research on Mass Collaboration between Employers and Universities).
Workforce development is key to our collective economic future, yet we are far from the reality of predictable and continuous reskilling and upskilling. Amongst all of the activity and transformation in education, workforce development is arguably the furthest behind. Only 3 of the 19 education unicorns (private companies valued at $1bn+) operate in this space, 2 of which are fundamentally a conduit for academic-driven learning as a solution to corporate problems.
Chief executives and company leadership view the unavailability of talent and skills as their biggest business threat. Without adequate solutions, it is a threat that will persist and accelerate given the average skill shelf life continues to decline and the importance of new digital skills accelerates.
“People are our greatest asset. The business environment and our clients’ needs are changing rapidly, so we need to ensure that our employee skills are evolving at that pace too. To do this we have build the EY Tech MBA by Hult. Our MBA is future-focused — with a constantly updating curriculum, flexible — where employees can learn at their own pace and evidence learning through badges, and free for all employees — having a democratising effect.” —
Riaz Shah, Partner, Global Learning at EY
Below is a snapshot from Udemy’s most popular courses, showing how the relevant skills of today are completely being replaced by new skills that are increasing in popularity, as the average skill shelf life is below 5 years..
Why today is the right time to innovate in workforce development
The market is large with a lot of potential and impetus for growth
At least $240bn is spent per year on corporate training and the spend has been trending upwards. Of this spend, however, a small proportion currently goes towards technology and genuine upskilling and reskilling. 40% is generally allocated to compliance, 30% towards ancillaries such as travel, and a large part of the remainder goes towards LMS e-learning content. Only $20bn of the $240bn is spent on digital learning solutions. The average total training spend per employee is just under $1500 per year, less than 2 months of the cost of their office rent.
Many of the existing workforce development solutions are still just scratching the surface in terms of customer penetration. One of the largest providers, Cornerstone has 75m users, Linkedin learning has 14m, Degreed has only 250 clients and 4m users.
Consider the 85m jobs estimated to be unfilled due to talent skills shortages by 2030. Filling this gap through WD alone would require an additional $250bn, a figure that pales in comparison to the estimated $8.5tn in expected lost revenues. It takes an average of $15k to upskill or reskill an employee (range from $5k to $25k depending on the job). 85m open jobs x $15k = $1.275tn, or $250bn p.a. assuming a 5-year role shelf life. Assuming existing workforce development spend stays at $240bn, additional targeted spend on reskilling and upskilling to eliminate the skills gaps could easily double the market size by 2030.
Covid is expediting the already existing trend towards online
As Linkedin Learning demonstrates that the proportion of spend on digital vs in-classroom has been increasing. This is a much needed move if we are to move beyond inefficient training spend into more effective upskilling and reskilling.
“L&D has suffered from limited budgets and — often — limited vision in their organisations. The shift from physical to online delivery represents a real possibility that we are moving to a more innovative, business-focused future for the industry”
Donald Taylor, Chairman of LPI (Learning and Performance Institute)
Some investors are concerned that during the last recession L&D spending fell, and are hesitant to invest in workforce development. The immediate short term will carry its challenges to the overall market, given tighter budgets and greater availability of talent. At Emerge we think Covid could have a net positive impact on technology workforce development spend given accelerating budget shifts from physical to online, and the growing need to develop more skills with less staff.
“Almost every HR department I have talked to is in the process of transforming. Now is the time to “get on with it — and fast.” We have to shed our administrative history; automate ourselves faster; reskill our own internal teams; and reorganize ourselves into an agile set of experts.”
It is cheaper for employers to build than buy talent
It is non-controversial that promoting internally can be less costly than hiring new talent, which can cost as much as 6-times more. Josh Bersin lays out the economics:
The cost of recruiting a mid-career software engineer (who earns $150,000- 200,000 per year) can be $30,000 or more including recruitment fees, advertising, and recruiting technology. This new hire also requires onboarding and has a potential turnover of two to three times higher than an internal recruit. By contrast, the cost to train and reskill an internal employee may be $20,000 or less, saving as much as $116,000 per person over three years.
Whilst the time to fill the role could be in favour of hiring, the internal hire has a lower likelihood of churn, is likely to perform better sooner, and require a lower salary. David Blake’s (ex Degreed founder) new company Learn In, an upskilling-as-a-service startup, has done extensive cost-benefit analysis on this topic, in the context of promoting ‘learning leave’ over layoffs.
Research by the World Economic Forum, BCG and Burning Glass technologies also shows that employers alone can reskill 25% of employees and with government support 77% of employees with a positive cost-benefit balance.
Industry and government are increasingly acknowledging and promoting the importance of upskilling and reskilling
76% of C-suite respondents in a Deloitte survey rated internal mobility as important, and 20% rated it one of their organisation’s three most urgent issues.
During Covid, recent Linkedin research below shows that while workers are spending more time learning (130% increase), L&D leaders are prioritising reskilling (64% see it as more of a priority now than ever) and CEOs are championing L&D harder (159% increase in CEO champions).
At least 60 countries worldwide have some kind of training levy, where government mandates employers to allocate money to employee training. This represents a real opportunity for training providers as large sums remain left on the table. In the UK under the Apprenticeship Levy, all employers with a payroll bill exceeding £3m allocate roughly 0.5% of payroll into a fund to be spent on certified training provision. In 2019, £2.8bn was paid in yet only 28% (£800m) was drawn down, leaving £2bn untouched.
So why isn’t Workforce development a bigger industry yet?
Despite the market potential and favourable trends, there remain key obstacles preventing the rise of workforce development.
Solutions have been focused on core HR infrastructure and content, driven by administrative and regulatory needs, creating barriers to entry for smaller players
For decades the main solutions in the space have focused on automating and simplifying HR core functions. Huge players like SAP, Oracle and Workday have become the core engines and guardians of HR data. while players like Skillsoft and Cornerstone, have owned the content and learning management infrastructure.
While neither player has successfully pursued workforce development, as guardians of data they have created barriers to entry for smaller players, focused on more niche use cases, that could benefit from data integrations.
The emphasis on content and learning has neglected skills acquisition and delivery of career and measurable business outcomes
Learning for the sake of learning often fails to meet either employer and employee objectives. Passive content and learning is detached from real work and fails to motivate and support employees, while % completion and consumption time metrics fail to give employers meaningful oversight.
As a result, most workforce platforms are still seen as learning deserts or places employees come to complete last-minute tick box exercises. For employers, most workforce development remains far removed from the golden standard of measuring impact and return on investment (ROI). At best investments in this field are made to improve staff retention, versus moving the needle on business outcomes.
The L&D and Talent professions and leaders still lack the influence and skills. Companies lack clear strategies to promote WD.
While leaders are increasingly acknowledging the importance of upskilling and reskilling, company structures often paralyse this ambition. A lack of company-wide top-down strategy and incentives make it challenging to move from the ‘buying’ to the ‘building’ philosophy.
While some learning leaders enjoy Chief Learning Officer status and importance, most do not. Unlike counterparts in CRO, CMO or CFO roles, these roles lack hard evidence of the impact of their work on tangible business outcomes. As such they are given less meaningful levels of responsibility and struggle to attract top talent.
Buyers often lack understanding of which skills the company needs and how to best assess technology solutions. Furthermore, the expectations from L&D leaders to innovate are challenging when they are facing a challenge of supporting 1,000 people on average per person with very limited time.
What does the present and future of WD look like?
The story so far
While the 30 years since the 1980s brought limited technological innovation, the last decade has packed in a lot.
Core HR tech leaders like SAP, Oracle and Workday have not made significant moves into this space. Old players that once led this category are either becoming obsolete (eg. in June Skillsoft, a content pioneer, filed for bankruptcy) or failing to maintain relevance (eg. Cornerstone OnDemand has had limited success expanding beyond its core LMS offer, while its share price peaked start of 2014).
Waves of new solutions have emerged to meet the growing needs of employers, including LXP platforms (Learning Experience Platforms), MOOCs (Massive Open Online Courses), Training providers, Assessment, Performance management and Talent marketplace solutions. The below market map highlights the biggest and most established players against their core value add.
The present and the future
We believe that this is just the start of the evolution in this space. Below we outline themes and opportunities that will play a role in the next decade of WD. Some opportunities will be seized by existing players, whilst others are likely to be addressed by new solutions. . An overarching trend will see solutions covering a broader range of customer problems in an integrated manner.
In our next piece, we cover these opportunities in further detail, highlight some of the emerging players, and delve into specific strategies these startups can adopt.
Assessment solutions of today are bespoke, hiring focused, subjective and big test-driven
Consultancies like Korn Ferry and DDI have built large successful businesses focused on supporting enterprises in creating skills frameworks. Businesses like Pymetrics, Codility and Code Signal successfully support recruiters make more objective hiring decisions based on aptitude and technical skills. External bodies like CFA, ACCA and corporations like Salesforce and Tableau have built their own standarised assessments, while Credly empowers employers to create their own badges to signal progress and motivate employees.
Assessment solutions of tomorrow will be more objective, flexible and business outcome aligned
There is space in the market for scalable solutions that empower employers to understand how existing employees are objectively progressing in their upskilling and reskilling efforts and delivering against business outcomes. Although self-assessment and internal credentialing can be useful solutions, they lack objectivity which limit confidence for staffing decisions. Well established existing tests can be inflexible, while authoritative assessment for skills in areas such as sales and product management are lacking. Assessing without tying the results to intermediate and end business outcomes is of limited value.
Today’s solutions define and untangle skills, while offering skill-informed content and learning pathways
The pioneers in this space, including Burning Glass, EMSI and IBM have helped employers and governments demystify existing skills and future skill needs thanks to extensive skill databases and taxonomies. Content providers and curators have created skill-informed content and learning pathways that help take learners from zero to limited knowledge, including Udacity’s nanodegrees or EdX pathways.
Tomorrow’s solutions will show relationships between skills and roles, while providing facilitated role-aligned career pathways and transitions
Today it is still not crystal clear how roles relate to one another, how content X relates to content Y, nor how content and learning pathways facilitate role progression. To demonstrate greater impact and experience greater uptake, skills taxonomies will have to show how role demands are changing and relate to one another. Training solutions will use this information to move people from A to B. This means solving problems for employees who want to move from role A (eg database administrator) to role B (data analyst) and for employers who have employees in group A (eg product designers) that need to shift to group B (eg product managers).
Today employees have access to all of the content in the world
There has never been more enterprise learning content in the world. Leading MOOC players like Coursera have popularised content from HE institutions, while Udacity has partnered with industry experts to build content. Lynda’s expert-driven microcontent solution successfully sold to Linkedin. Large LMSs like Cornerstone serve as depositories of corporate content and LXPs like Degreed help surface, recommend and personalise content and learning.
Tomorrow employers will have access to learning made for them
Large generalist content providers and AI recommendation engines mitigate problems around access and engagement. Specialised providers, however, can build advantages by fully tailoring their learning environments. For example, Pluralsight, a platform made by and for developers had a brand and experience advantage against generalist players where coding is one of the many offers. The learning solutions of the future will feel like they are made specifically for your industry, your profession and even your company
The learning of today is more practical and flexible
The sector has made a slow move from passive to active learning with practical experience. 30% of Simplilearn’s learning model includes hands-on applied, project-based work. Bootcamps have long been piloting ‘learning by doing philosophies’, including Trilogy Education in the US and Makers in the UK with more recent forays into B2B. Walk Me supports learning on the go through digital transformations, while Edcast has been an early pioneer of learning in the flow of work.
The learning of tomorrow will be more applied, immersive and inclusive
The next generation of workforce development providers will further move from learning through examples to learning by doing real tasks or simulations. Whilst learning through exercises is a good starting point, learning from real experience and mistakes is even more motivating and powerful. Top companies will acknowledge the 70/20/10 model for learning and development and support more of the 70 (learning from challenging assignments and on-the-job experiences), instead of just the 10 (learning from coursework and training), while creating environments where employees can collaborate, share feedback and learn from one another.
Building our knowledge
Over the last few months, we have had the pleasure of speaking with some of the most influential figures in the Workforce Development space from the above mentioned technology pioneers, government L&D leaders, national skills bodies and corporate learning innovators, listed below. Their work has inspired and supported the Workforce Development progress of the last decade and insights have helped shape this piece.
If you’re building a workforce development business, please do reach out to mario.barosevcic@emerge.education or send us a deck here.
This piece is just a starting point as part of a wider drive towards long term change. In association with Mary Curnock Cook (Emerge Network Chair and former CEO of UCAS), Prof Sean Gallagher (Executive Director, Northeastern University), Donald Taylor (Chairman, The Learning and Performance Institute) and Riaz Shah (Partner, Global Talent, EY), in partnership with Future Learn, we are convening an action group of innovative WD leaders, to produce a green paper on ‘the future of workforce development’.
If you are a corporate and workforce development leader and would like to be involved, let us know.
About Emerge
Emerge Education is a European seed fund investing in exceptional founders who are solving the $8.5tn skills gap. Emerge is backed by strategics such as Cambridge University Press, Cambridge Assessment and Jisc, as well as founders/investors of Trilogy and 2u.
The team has a solid track record with 50+ investments, with those companies raising £100m+ from investors such as Local Globe, Stride, Project A, Rethink Education, Learn Capital and Reach Capital.
Portfolio: www.emerge.education/portfolio
Acknowledgements
- Ahmed Haque, former Chief Education Officer at Trilogy Education Services; founder & CEO of Didactic Labs
- Don Spear, president and CEO at OpenSesame
- Donald Taylor, Chairman at LPI (The Learning and Performance Institute)
- Duncan Dunlop, Director of Enterprise and Government at Future Learn
- Hamoon Ekhtiari, CEO at FutureFit AI
- Jason Rosenberg, Managing Director at Avathon Capital
- John Leh, CEO Talented Learning
- Joshua Wohle, founder & CEO at NSPR
- Karl Mehta, founder & CEO at Edcast
- Krishna Kumar, CEO at Simplilearn
- Litzie Maarek, Managing Partner at Educapital
- Mark Zao-Sanders, founder and CEO at Filtered.com
- Matt Sigelman, CEO at Burning Glass Technologies
- Matthew Mee, Director Workforce Intelligence at Emsi UK
- Nick Hernandez, founder & CEO at 360 Learning
- Riaz Shah, Partner, Global Learning at EY
- Ruben Kostucki, former founding COO at Makers
- Ryan Craig, Managing Director at Achieve Partners
- Sean Gallagher, Executive Director, Center for the Future of Higher Education & Talent Strategy at Northeastern University
