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.

written by Mario Barosevcic and Lucy Lynn-Matern

Higher education, vocational education and bridges to employment have an important role to play in tackling the $8.5Tn skills gap, which is forecasted to represent 85m unfilled jobs globally, by 2030, due to a lack of skilled labour. They are increasingly important for those looking for first jobs and new industries, especially now with an estimated 195m FTE jobs reduced by Covid globally in Q2 of 2020.

Workforce development, however, while difficult, we believe could be the most effective way to solve the skills gap. It represents solutions that further existing employee skills whilst supporting the company to achieve faster and better business outcomes. It means investing in existing staff, rather than losing and firing employees and relying on other entities to provide new hires.

The skills gap is felt most directly by employers, in particular during Covid as shortages of digital skills have become even more apparent in new working environments. 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 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. Image below from Holon IQ:

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.

Considering the 85m jobs that are estimated to be unfilled due to talent skills shortages by 2030, if on average $15k (estimated range from $5k to $25k depending on the job) was spent on upskilling or reskilling per employee through workforce development alone to eliminate just this gap, the total additional spend of $1.275tn (85m x $15k), or $250bn p.a. assuming a 5-year role shelf life, would still seem pale compared to the estimated $8.5tn in expected company lost revenues per year. Assuming existing workforce development spend stays $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

Even before Covid, according to the Linkedin Learning report 2020 (image below), the proportion of spend on digital has been increasing, whilst the proportion of in-classroom, instructor-led training has been decreasing. This all points to the much needed move, for a sleepy industry, 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. We, however, think Covid, despite many challenges, could have a net positive impact on technology workforce development spend given Covid further accelerating budget shifts from physical to online, and the growing needs and pressure on company and government shoulders to acquire skills and develop talent, which will resume once economies recover.

“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.” — Josh Bersin

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).

From a government perspective, at least 60 countries worldwide have some kind of training levy, where government mandates that employers allocate money to employee training, however, more reform and efficiencies are still needed here as large sums remain left on the table. For example 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.

Despite the market potential and favourable trends, like with apprenticeship funding not being drawn down, there still remain other key obstacles that are preventing the rise of this industry.

So why isn’t Workforce development a bigger industry yet?

Against the growing imperative for employee upskilling and reskilling and increasingly tailwinds, stand a series of overarching obstacles. The mindset of the industry and tech infrastructure is still dominated by old HR solutions, there is still a disconnect between learning and ROI, while companies lack clear L&D strategies and mechanisms to empower and incentivise greater investment in workforce development.

Solutions have historically been focused on core HR infrastructure and content, driven by administrative and regulatory needs, and 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 in most cases fails to meet both the 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 time, prominence, responsibilities and influence

While some learning leaders enjoy Chief Learning Officer status and importance, most do not. Unlike counterparts in CRO, CMO or CFO roles, these roles still lack hard evidence and data on the impact of their work and investments on the bottom line. As such they are not considered prestigious and given meaningful responsibility, they struggle to attract top talent and to provide meaningful career progression opportunities. Furthermore, the expectations from L&D leaders to innovate are challenging when there are facing a challenge of supporting 1,000 people on average per person with very limited time.

Companies often lack clear strategies and effective structures 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.

In parallel, departments can be siloed and relationships between HR, L&D, Talent leaders and Team managers complicated, leaving fragmented budgets and buyers. When it comes to purchasing decisions, buyers often lack basic understanding of skills they need the company to build and ways to assess technology solutions, from an abundance of LMSs in disguise. Then there is also procurement, everyone’s favourite topic.

What does the present and future of WD look like?

The current landscape

While the 30 years since the 1980s brought limited technological innovation, the last decade has packed in a lot. We believe that this is only the start and tip of the iceberg when it comes to the potential of technology in Workforce Development.

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 center of gravity.

The present and the future

We are excited to see what the next decade of Workforce Development brings. Below we outline some themes and opportunities that we believe will play a role in the next decade of WD. Some opportunities will be seized by existing players, while for some we are excited to see and invest in new solutions. In many cases, we believe the solutions need to be more holistic and cover a broader range of areas and client problems in an integrated manner.

This is in no way an exhaustive list. In our next piece, we cover these opportunities in further detail, alongside some of the new emerging names in the space and strategies for startups to adopt.

If you are building a new business in this space or would like to share your perspectives on other opportunities, please reach out.

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

We believe 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. While self-assessment and internal credentialing can be great solutions, the lack of objectivity can be a limiting factor when making staffing decisions. Similarly, the well-established tests can be inflexible, while authoritative assessment for many skills areas like sales, product management are lacking. Finally, assessing for the sake of assessing, like learning for the sake of learning, has limited value unless it can be tied to intermediate and end business outcomes.

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 and understand existing skills and future skill needs thanks to extensive skill databases and taxonomies. They give employers and employees the taxonomy and tools to understand more about themselves and their opportunities. Separately, content providers and curators have created skill-informed content and learning pathways that help take you from no to some knowledge of a topic, including Udacity’s nanodegrees and 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 and training solutions of the future will have to actively 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 scalable learning solutions of the future, will feel like they are made specifically for your industry, for 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 aim to 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.

Next steps

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.

At Emerge we believe that to create change and solve the skills gap we need to address all parts of the ecosystem and engage the whole workforce development community. Technology businesses need to continue innovating and optimising their solutions towards real business problems. Corporations need to understand the value and importance of workforce development and reduce friction in the adoption of solutions. Governments need to continue finding ways to support and encourage the ecosystem through simpler and clearer mechanisms.

This piece is just a starting pointas 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.

If you are a founder in this space please send us your deck here. We are always on the lookout for investing in and supporting the next generation of innovators. For our next piece, we will be highlighting some of them, providing more granular insights around what we expect to see in the future and practical advice for founders driven by current technology experiences and reflections from corporate leaders.

This post was originally published on Medium here.

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 VC, 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