Home » Education & Career » Training & Development » How the Economic Slowdown Affects Training

How the Economic Slowdown Affects Training

© Audrey Choden

Over the past year, economic indicators have shown that the U.S. economy has been slowing down. Sales are declining, stock prices are falling and labor costs are rising.

When the economy slows down, employers typically lay off workers to cut costs. And that's what is happening now. Challenger, Gray & Christmas, a job placement firm in Chicago, reports that announcements of downsizing reached their highest level in at least seven years during December 2000 and January 2001.

Manpower Inc., the world's leading employment services firm, conducts a quarterly Employment Outlook Survey. The latest results show that a long-awaited decline in new hiring activity among employers nationwide appears ahead for the second quarter.

When senior management needs to slash labor costs, the training function historically is one of the first areas to get cut. Let's face it: When times get tough, the idea that training is an investment rather than an expense goes by the way side. The CFO looks at the training department's budget and says, "Hey, why do we need all these trainers when there are fewer employees to train?"

What's Next?

In a Training and Development magazine article "What's Next for the training market if the economy falters?" Clark Aldrich, senior analyst with the Gartner Group, wrote:

"The two major forces shaping training organizations are the economy and the consolidation of training suppliers. The global economy is likely to be a boom or bust...the shifts in market supply and demand affect labor markets and compensation levels, which alter the training organization's mission and size."

Alrich goes a step further and lays out four possible economy/consolidation scenarios:

Scenario 1: High Prosperity/Low Consolidation. A growing economy with normal demand for training causes some consolidation of the training market (mergers and acquisitions).

Scenario 2: High Prosperity/High Consolidation. A growing economy with increased demand for training means more competition. Vendors consolidate to get a competitive advantage.

Scenario 3: Low Prosperity/Low Consolidation. The economy slows and companies find it cheaper to hire contractors than to train employees in new skills. The training staff is cut. Companies hire contract instructors and invest less in technology to deliver training.

Scenario 4: Low Prosperity/High Consolidation. The training infrastructure is downsized. Many online training vendors merge to prevent bankruptcy and to build a critical mass. Since there is less corporate training, vendors focus on consumers who will take courses delivered by PC and at libraries.

Based on Mr. Aldrich's model and from what I've observed, I think we're headed toward Scenario 4: Low Prosperity/High Consolidation. The demand for training is high and vendor consolidations seem to occur daily. More companies are looking seriously at online training, especially for IT workers, at performance support systems to reduce training costs.