The Business Case for Creating a Corporate University

Transcription

1 The Business Case for Creating a Corporate University Peter McAteer CEO, Corporate University Xchange Mike Pino VP Research, Corporate University Xchange September 12, 2011

2 Executive Summary This paper sets forth the business case for creating a corporate university, based on the premise that corporate universities are the current best practice for systematically building human capital a key capability for adaptive, innovative, knowledge-based organizations. The term corporate university is most prevalent in the United States, Western Europe and Japan, but whether it is called an academy, institute, or center for excellence, the feature that distinguishes it remains the same: the alignment of key learning programs so they actively support the strategic interests of the business. Corporate universities offer a curriculum designed to support major change initiatives, serve to align staff development with business goals and improve the ROI associated with training investments. Corporate universities help create the conditions for strategic agility and innovation in a knowledge economy. Successful corporate universities have executive support and oversight to assure corporate goals and training align; appropriate technologies to assure and measure transfer and retention of knowledge and skills; and a well documented organizational plan for execution. Companies with efficient and effective corporate universities show measurable improvements to the bottom line in shareholder return, productivity, and customer satisfaction Corporate University Xchange Page 2

3 We are living in the information age, and business strategy is increasingly dependent on human capital as the key to growth and business differentiation. An efficient and effective corporate university maximizes human capital development, providing a measurable competitive edge. In addition to codifying knowledge as it directly relates to business needs, a corporate university also helps to increase employee engagement, improves operational effectiveness and internal communication, and, most critically, transforms the learning department from a training provider to a business partner. The bottom line is that top talent businesses have a significantly higher return to shareholders than businesses rated as having average talent. Corporate universities are the way leading firms get it done. 1 The Business Challenge Global workforce challenges are well documented and a subject of increasing concern. The U.S. labor force will continue to experience slow growth while becoming both older and more culturally diverse, and the pool of skilled workers is shrinking even as organizations increasingly require employees with analytical, communication and collaboration skills. 2 Or, as one analyst more bluntly stated, the workforce is aging, undereducated and rife with shortages. 3 Despite the current unemployment rate and delayed retirement for many older workers, the risk of brain drain looms as they will eventually leave the ranks of the employed. Employers with global workforces face more cultural issues and, especially in emerging markets, more deficiencies in education among potential employees who, in the words of Vijay Govindarajan while talented, suffer from what we would call last-mile employability.they lack communications skills, don t know how to work in teams, are extremely theoretical, and are taught to be overly obedient. 4 Many would argue that the graduates of educational systems in developed countries fare no better, and even the best educated college graduates require skills and training in organizational practices and culture that can only be acquired in the workplace. The pace of change and the brief shelf life of knowledge demands lifelong learning for even the most senior and experienced worker. In addition to these demographic and worker preparedness issues, organizations face internal challenges in developing, engaging, and retaining employees. The current job market around the globe is highly variable, but talented workers are in demand in any economic climate, and retention based on workers who believe they are without options is not any company s goal. A recent study shows that the recent economic downturn may not have exacerbated employee disengagement, but that employers should not take heart since the study indicated that 38% of employees were already 1 Smart, Bradford D Topgrading: how leading companies win by hiring, coaching, and keeping the best people. Paramus, NJ: Prentice Hall Press. 2 Karoly, Lynn and Constantijn Panis The 21 st Century at Work: Forces Shaping the Workforce and Workplace in the United States. Santa Monica, CA: The Rand Corporation. 3 Akin, Jeffrey and Brenda Worthen Managing the Impending Workforce Crisis, Capturing the People Advantage: Thought Leaders on Human Capital. s.l.: Booz & Company. 4 Margolis, Mac. September 13, Corporate Learning: Big companies are setting up university campuses all over the world to help produce the kinds of employees they most need, Newsweek. Accessed online on 5/19/11 at Corporate University Xchange Page 3

4 disenchanted or fully disengaged. What can improve engagement and retention? Learning opportunities, effective leadership, company image, career development, and empowerment. 5 Perhaps the most pressing challenge is organizational, since without the right systems in place, the workforce is unlikely to benefit from development or other opportunities, and much of even committed employee s lack of engagement and frustration can be attributed to organizational impediments. 6 A quick perusal of the current crop of business publications books, journals and industry analyst papers makes clear that companies are looking to innovation to drive growth and success. This trend is not a fad, but the recognition of economic realities. A common refrain within discussions on innovation is the need for corporations to manage organizational structure in order to successfully generate and execute innovation initiatives. Linked to organizational structure and innovation are issues of leadership, training, talent management and corporate culture. The Roots of the Corporate University Every business has recognized the need to educate and train its members in order to further the goals of the organization and enhance the skills of its employees. From the earliest craft and guild societies, to the foundation of universities and professional schools, the centrally organized learning institution has developed the core curriculum for disciplines, and established the authority to issue credentials that designate who has achieved mastery of that core knowledge. The university has its roots in Europe where it was the first official institution for training knowledge workers, including the professional classes and the governing elite. Under the umbrella of the university, individual colleges and courses of study were created in addition to a basic, core curriculum meant to encompass what an educated person should know, on top of which the emerging professional schools and independent disciplines established specialty courses. With the growth in complexity of commerce came the recognition that business itself was a discipline requiring its own schools, starting with the École Supérieure de Commerce de Paris (ECSP) in 1819, and continuing with the establishment of professional business schools with Wharton Business School in 1881 and Harvard Business School s MBA program in These institutions of higher learning brought academic rigor and recognition to the practice of business, and educated an elite body of managers, but alone they could not solve the needs of businesses that required managerial expertise for a growing workforce in an expanding, complex, and increasingly global economy made up of larger, multinational businesses. In response, the institutes of higher learning began offering programs, such as Harvard University s Advanced Management Program, begun in 1945, to address the post-war shortage of qualified managerial candidates. Increasingly, though, businesses 5 Towers Watson The New Employment Deal: How Far, How Fast and How Enduring? Insights from the 2010 Global Workforce Study. New York: Towers Watson. 6 Herman, Jeffrey et al. March Motivated by Their Organization s Mission or Their Career?: Implications for Leaders in Turbulent Times. New York: Booz & Co Corporate University Xchange Page 4

5 began to create their own programs, including AT&T, the world-famous Tata Management Training Center, major airlines and global professional services firms throughout the 1950 s and 1960 s. University of Bologna, 1088 Wharton Business School, 1881 École Supérieure de Commerce de Paris (ECSP), 1819 Harvard Business School MBA Program, 1908 Harvard University s Advanced Management Program, 1945 Tata Management Training Center, 1966 Motorola Training and Education Center, 1980 More than 4,000 companies worldwide have invested in a corporate university First generation corporate universities followed the traditional university model in terms of delivery methodology large facilities, class room instruction basically, putting people in seats. Second generation corporate universities are becoming more diverse, helping to drive innovation, capturing more informal learning, and helping to manage the shift from centrally managed knowledge to usergenerated knowledge, and support the trends toward distributed decision-making and cross-functional collaboration. The broader adoption of the Corporate University Model can be traced to the 1970 s and 1980 s and largely follows changes in market conditions. As economies became more dependent on services and knowledge industries, companies saw the importance of more dedicated training functions with higher levels of investment. As the figure below illustrates, the percentage of US non-governmental GDP in 4 major industries now accounts for almost 50%. That number is up 9 percentage points in the last 20 years and almost double 15 percentage points from the mid s. United States % Of Non-Governmental GDP ICT 4% 9% 9% 5% 5% Educational services & health care 8% 8% 8% 9% 10% Professional, scientific & technical services 6% 6% 8% 8% 9% Finance and insurance 21% 22% 23% 24% 24% Knowledge Total Work 39% 45% 47% 45% 48% 2011 Corporate University Xchange Page 5

6 The numbers for total GDP in the US follow the same pattern at 33%, 39%, 42%, 39%, and 42% for the corresponding periods. The same pattern can be seen in major European and Asian economies. As the figure below illustrates, the percentage of UK total GDP in 3 major industries now accounts for 30%. That number is up 9 percentage points in the last 20 years and up significantly since the mid s. 7 United Kingdom % Of Total GDP ICT 6% 6% 7% 9% 10% Education Services & Healthcare 12% 10% 12% 12% 10% Finance Services 3% 6% 5% 8% 10% Knowledge Total Work 21% 22% 25% 28% 30% Similar shifts in the type of work can be seen in Japan where knowledge work in 3 major industries now accounts for 48% of total GDP spending. That number is up 16 percentage points in the last 20 years. Japan % Of Total GDP ICT 0% 7% 9% 8% 8% Education Services & Healthcare 10.0% 10.5% 11.1% 11.8% 12.4% Financial Services 22% 24% 26% 28% 27% Knowledge Total Work 32% 41.2% 46% 46.7% 48% The table below offers a simple illustration of GDP from service industries in major economies across the globe. These are industries dependent on intellectual property, key business processes and knowledge workers. Maintaining competitive differentiation requires higher investments in learning and development hence the increased interest in corporate universities. Country Services GDP % Services GDP % Services GDP % Country Country US 77 India 55 Brazil 67 Canada 78 Singapore 73 Philippines 55 UK 77 South Korea 58 South Africa 66 France 79 Hong Kong 92 Australia 71 China 44 Thailand 44 Thailand 44 7 All country data taken from CIA Factbook, World Bank and individual country websites Corporate University Xchange Page 6

7 The Business Solution A well-designed, well-implemented corporate university is the key to addressing these workforce and organizational challenges, creating a learning function that contributes to the bottom line through efficient and effective human capital development. What is a corporate university? Though corporate universities have been in existence for more than thirty years, the definition of what a corporate university is varies, in part because there is no one standard model (see sidebar). Also, as Martijn Rademakers notes, each corporate university is as unique as the organization it serves, so one size will not fit all and the ideal best corporate university does not exist. 8 The term university is more frequently used in the U.S., but whether it is called a university, an academy, or a center for excellence, the distinguishing features are the same. A corporate university is a strategic developer of human capital that is aligned with the business goals of the company, an organ for transmitting corporate culture, and a catalyst for knowledge creation and transmission. Like the academic model upon which it is based, the corporate university creates a mechanism for the exchange of existing knowledge and the creation of new ideas, while fostering a sense of community and shared purpose. How many corporate universities are there? To get a sense of the growth of corporate universities since the days of Crotonville and Motorola University, consider that the total number was estimated at 400 in 1988, and Corporate University Xchange (CorpU) data suggests that this had increased to over 2,000 by the 1990s and double that worldwide by Definitions of a Corporate University Mark Allen, Jeanne Meister and Annick Renaud-Coulon have all written extensively about corporate universities, and here are some definitions they have provided: A corporate university is an educational entity that is a strategic tool designed to assist its parent organization in achieving its mission by conducting activities that cultivate individual and organizational learning, knowledge, and wisdom Allen, Mark The Corporate University Handbook. New York: AMACOM. A corporate university is the centralized strategic umbrella for the education and development of employees and value chain members such as customers, suppliers, and dealers. Most importantly, a corporate university is the chief vehicle for disseminating an organization s culture and fostering the development of not only job skills, but also such core workplace skills as learning-to-learn, leadership, creative thinking, and problem solving. Meister, Jeanne Ten Steps to Creating a Corporate University. Training and Development. 52(11): Corporate university is a generic name given to educational structures based in private and public, commercial and noncommercial organizations, to help implement through education the organization s strategies in human, economic, financial, technological, social and environmental terms. Renaud- Coulon, Annick Corporate Universities: A Lever of Corporate Social Responsibility. Paris: GlobalCCU. 8 Rademakers, Martijns "Corporate universities: driving force of knowledge innovation." Journal of Workplace Learning 17(1/2): Corporate University Xchange Page 7

8 To get a better understanding of the total number we examined the publicly available annual reports of the Forbes Global We searched the reports for a specific mention of a corporate university or academy function. The assumption was that if it was important enough to merit a mention in an annual report, the investment had been raised to a strategic level. The data shows that nearly 900 or 45% have an entity they describe as either a university or an academy. This breakdown of the group by industry shows that financial and industrial sector companies account for approximately 40% of the total. Corporate Universities by Industry Type (n=783). Source: CorpU Of course, labeling something a university or academy does not in itself mean that it fulfills the functions of corporate university: more than one training department has been renamed, given a logo and a mission statement, and carried on just as before. 9 Traditional training departments are often described as tactical, directed toward specific unit needs, and focused on providing individual employees with job skills. Corporate universities are more often strategic, directed toward achieving corporate goals, and focused on corporate capabilities as well as the needs of the individual learners that make up the whole value chain customers, suppliers and dealers as well as internal employees. 10 The most essential distinction between a training department and a corporate university centers on strategic alignment with corporate goals, which includes measuring effectiveness based on total business outcomes and transitioning from learning provider to a business partner working collaboratively and with the support 9 Allen, Mark The Corporate University Handbook. New York: AMACOM. 10 Meister (1998). Allen, Mark The Next Generation of Corporate Universities: Innovative Approaches for Developing People and Expanding Organizational Capabilities. Hoboken, NJ: Pfeiffer Corporate University Xchange Page 8

9 of senior leadership. The scope, flexibility and structure of corporate universities are manifest directly and indirectly in firm s growth and productivity. Do corporate universities deliver results? What kind of measurable results do companies with a corporate university typically experience? Research has repeatedly affirmed that firms that can capitalize on their human capital have significantly higher shareholder return than average firms. The chart below illustrates a ten-year total return comparing a market cap weighted index of more than 500 public companies that identify themselves as having a corporate university and the Russell 3000 index. Both the CorpU weighted index and the Russell 3000 index track predominantly large US-listed companies. In this comparison the CorpU index of companies with corporate universities beat the index by a solid 9%. Figure 1 Connecting Business Performance with Corporate Universities (n=557). Source: CorpU By reviewing reports from client companies for which it has first-hand knowledge of corporate university systems, CorpU has collected numerous examples of measurable financial, programmatic, and organizational results realized by those firms on their investment in a corporate university. A range of examples are provided on the following page. The value proposition of the corporate university rests both in what it helps the company avoid (prevent a gap), and in what it addresses due to sub-par performance (fill a gap), as well as in building on that which currently is in place (building on strength) Corporate University Xchange Page 9

10 Company Self-reported Results from Their Corporate Universities A Fortune 50 Technology Firm moving from decentralization to centralization under three groups Strategy, Design and Development, Delivery realized a reduction of 40% of training staff. A Fortune 500 Insurance Company saw its new agent success rate increased from 39% to 75%, and its new agent productivity increased 38%. District productivity increased 27% over non-participating districts. A Global Bank attributed a 28% reduction in turnover to better apprenticeship training. A Global Manufacturing / High-Tech Firm estimates time saved in selling, supporting and servicing products at 132 hours per person for a total savings of $66 million (US) per year, and costs saved by moving to elearning strategies was $74 million (US) in A Regional Health Care Provider s nurse on-boarding program lowered its turnover to less than 10%, a significant improvement over the 20% turnover average in the industry. A Global Manufacturing Firm attributed $1.4 billion (US) savings to the bottom line after two years of teaching Six Sigma in the corporate university. They saw the correlation and power of targeting the investment in people to a specific business objective, rather than individual professional skills. A Global Confectionary and Candy Firm measured a $33 million (US) cost savings due to lean programs delivered through its corporate university. Results from client company reports in: Corporate University Xchange Corporate Universities: Delivering Value to their Businesses. Mechanicsburg, PA: Corporate University Xchange Corporate University Xchange Page 10

11 About the Authors Peter F. McAteer Chief Executive Officer The Corporate University Xchange Perspective: The number one issue affecting global competitiveness in the coming decade will be education its quality, cost and accessibility. Degrees, continuing education and micro-credentials will be increasingly important as will the educational brands that make the market more efficient for both employees and employers. Generation C, those born after 1990, will begin to dominate the developed western economies, the BRIC countries, major markets in Latin America and key southeast Asian economies as both consumers and employees. They will be more familiar with technology, more adept at social learning and more skilled in the use of video. The business opportunity is to reinvent education to make it more personal, relevant, accessible and effective at lower costs. Biography: Peter McAteer is Chief Executive Officer of Corporate University Xchange (CorpU) - a membership-based research, advisory and educational services firm serving clients around the world. Most recently, Peter was a member of the Executive Committee for Harvard Business Publishing (HBP) and Managing Director for HBP s Corporate Learning business. Peter has also served as Chief Learning Officer and Director of the Learning Resources Center for the United Nations Development Programme (UNDP), was Managing Director for Giga Information Group s HR e-learning services group in Cambridge, MA, and was Vice President of Leadership Development at Fidelity Investments in Boston. Peter has been a sought after speaker at global conferences, has served as adjunct faculty in human resource management at Columbia University s Graduate School of International and Public Affairs and has been a guest lecturer at various business schools around the world. He holds undergraduate and graduate degrees from Rutgers University, and has written commentary and articles for numerous publications including the European Business Forum, Harvard Business Review, Directors and Boards, and Training and Development Magazine Corporate University Xchange Page 11

12 Mike Pino VP, Research Corporate University Xchange Biography: Mike Pino is VP, Research of Corporate University Xchange (CorpU) - a membership-based research, advisory and educational services firm serving clients around the world. Most recently, Mike served as Director, Technology Innovation, at Harvard Business Publishing s Corporate Learning business. Mike has also served as Course Management System Administrator and Lead Web Development at Brandeis University. Mike has presented, moderated and keynoted at global conferences, has served as adjunct faculty at Providence College, Queens College (CUNY), and New Jersey Institute of Technology (NJIT). He holds a Ph.D. from the Graduate School and University Center of the City University of New York (CUNY). Corporate University Xchange (CorpU) Since 1997, CorpU has helped design or improve hundreds of learning organizations around the world, including those for Caterpillar, M&M Mars, Exxon and many others. We help organizations through our Membership, Advisory Services or CorpU Academy programs. CorpU Membership Membership in CorpU provides access to the best advice on learning and leadership development. Membership offers access to key research reports, blogs, videos, analyst assistance and networking opportunities on a variety of topics that affect key decisions and investments saving you time and money while achieving real bottom line impact. Additionally, membership includes access to the CorpU Buying Center that includes detailed analysis on hundreds of learning vendors, big and small, local and global all designed to save you time and money. CorpU Advisory Services CorpU Advisory Services support individual client projects. We help clients start a Corporate University or take the one they have and make it best in class. In addition to our Advisory Services, we offer Buying Services, which focus on helping organizations make informed decisions that improve their Learning Supply Chain. CorpU's Advisory Services leverage years of experience, benchmarking, and best practice data, and include our market leading 12 Dimension Framework TM and annual benchmarking survey Corporate University Xchange Page 12

13 CorpU Academy CorpU Academy offers blended and virtual on-line education from leading authors and top schools from around the world. Our programs cover general management topics such as Innovation, Change, Talent management and leadership development as well as functional topics such as strategic sales negotiations and supply chain management. We represent leading institutions such as the University of Pennsylvania, bestselling authors such as Stewart Friedman, author of the Harvard Business Publishing book, Total Leadership, and leading experts such as Lawrence Susskind, professor at MIT and world renowned expert on negotiation. For More information: Website: Telephone: Fax: Headquarters Mailing Address: Corporate University Xchange 401 East Winding Hill Road, Suite 200D, Mechanicsburg, PA 17055, USA 2011 Corporate University Xchange Page 13