PART I: Corporate training centres – to keep them on the books, or not?

Tuesday, October 29, 2019 – 10:05

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There are bottomline and social reasons why running in-house technical training centres should be reconsidered. In a two-part series of articles, Sean Jones, managing director of the Artisan Training Institute (ATI) unpacks the implications of keeping corporate training centres on the books in a slowed-down economy.

Over the past twelve years managing ATI as a private training provider, I’ve observed the changing impact of market dynamics affecting the different approaches corporate companies have towards technical training. The key decisions to insource or outsource technical training needs to be reflected on, with a longitudinal view of the institutional relevance of corporate training centres.

In this article, I argue that institutional relevance is linked to the commercial sustainability of a training institution, with the positive societal spinoff related to those centres’ ability to train artisans at a competitive cost.

Deciding whether to outsource technical training or not, requires a few key questions being answered. For example, understanding national and regional skills supply constraints, forecasting immediate and future industry skills demands, and weighing options for planned capacity building initiatives against provider capacity constraints. Unfortunately, the decision to build and manage training centres has often been taken during times of abundance, ignoring the time held predictability of market downturns, plus the questions raised above.

Unless business has no access to quality training providers, there is no commercial rationale for building corporate-owned training centres. This is especially relevant in South Africa, where there is a significant oversupply of underutilised training facilities. This is true for both company and private training providers. Critically, from a financial perspective, companies have to question the utility of carrying ongoing fixed costs that represent a weak balance sheet item, versus making technical skills training a variable cost. It is also prudent for them to question what business they are in; training or their core focus of mining or engineering for example?

Illustrating, the financial decisions corporates need to consider, Andre Steyn, ATI’s Financial Director presents three comparisons1:

1. A corporate training running at full capacity
2. A corporate training centre running at 50% capacity
3. A breakeven scenario

Although the variable cost per learner for running an in-house facility is R12,629 versus R14,482 for an outsourced facility, in the unlikely representation where a training centre runs at full capacity, this monthly variable cost advantage is not sustainable. Most corporate training centres in South Africa today are operating far below 50% of their capacity.

Table 2 highlights the drastic effect of the variable cost per month working at 50% of capacity. The nature of the cost structure drives the variable costs per learner to R24,095 versus R14,482.

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Source: Skillsportal.co.za

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