Rapid Technology Change Fuels Knowledge Industry

When Joe Costello left Cadence Design Systems Inc. for a top post at Knowledge Universe, he made the move sound like a calling: The company would, he vowed, alleviate the woes of American education through solid business principles.

Perhaps, one day, it will try. But along the way Knowledge Universe and myriad other fledgling “learning industry” companies intend to make a fortune.

“It’s not necessarily altruism motivating anyone in this area,” said Craig Conway, president and chief executive of distance learning networks maker One Touch Systems, based in San Jose. “You’re talking about a $60 billion (corporate training) industry right now in the U.S. alone … Technology can be used to deliver (training) better, cheaper and faster, so there’s plenty of money to go around to the innovators. And some very smart people are gravitating to this field.”

Their efforts spring from a common problem: As economic growth relies more and more heavily on knowledgeable, skilled workers, fewer workers have the knowledge and the skills that industry needs.

At first, companies tried to contend with the problem in-house, rounding up sometimes far-flung work forces in one location to conduct old-fashioned classroom instruction. But this tried-and-true method grew ever less practical, particularly with the rapid pace of change in business technology. More and more, they began to look for outside help.

The need for training is enormous - and enormously costly. The corporate training process consumes roughly $59 billion in the United States alone, according to the trade journal Training Magazine. About 60 percent of that money is spent on teaching technology skills. The remainder is spent teaching “soft skills,” some of that remedial education.

“We’re talking about a huge, huge industry here,” noted Ellen Julian, manager for training and education research at International Data Corp. in Framingham, Mass. “I don’t think we’ll see any one company owning this market. It just isn’t possible. It’s a very fragmented market served by lots of mom-and-pop organizations.”

In fact, some large learning companies are beginning to emerge, but only a few of the key players are publicly traded, so it is virtually impossible to know just how much money is going where.

Defining the industry is also problematic. Traditional textbook publishers and school equipment makers might be considered part of the larger “learning industry,” but they’re not where the 40 percent and 50 percent annual revenue growth is taking place. Instead, the hottest learning industry companies are the big names like ExecuTrain and Learning Tree, which do more traditional corporate training, and the smaller companies that offer specialized training, write software and build networks relying on the latest twists in technology.

This is the industry sector where firms like Knowledge Universe are aggressively jockeying for position. In just over a year, that company has purchased a vast array of other learning companies - training specialists, software companies, even a children’s educational toy maker - that together bring in a reported $700 million in revenues annually.

But there are many other approaches. With its emphasis on remedial education, Academic Systems decided two years ago to take a contrarian tack, moving into the learning industry from the public education side first. That move required ignoring the warnings of naysayers that community and state colleges don’t have the money to sustain a fledgling learning industry business.

The company says it has not regretted the decision. Dozens of college campuses have adopted Academic Systems as their remedial education method of choice. Using the company’s multimedia software, designed by education professionals, students work through remedial math and English courses at their own pace as an instructor circulates around the classroom to answer questions.

The software is more than just rote drills, said Academic Systems CEO John Brandon. Students can click on video clips that give them real-life examples about how they might use the information being taught.

“For some students, it’s just like turning on a light for the first time,” he said. “They’re finally getting to see how math might make a difference for them.”

Now Academic Systems plans to expand its sales force to pursue both corporate and military accounts. That might be the company’s smartest move yet, according to a research report released by Lehman Brothers earlier this year.

“We believe that corporations will be forced to offer employees remedial and basic skills training,” education services analyst Kian Ghazi said in the report. “The U.S. Department of Labor estimates that illiteracy costs U.S. businesses nearly $225 billion a year in lost productivity. … We believe that the responsibility of providing basic skills training will be transferred, in part, from schools to corporations.”

Historically, large corporations with little or no background in education were the ones trying to pressure schools to conform to corporate standards. Today - especially in Silicon Valley - there are two other sorts of business/school interactions. Groups like the Technology Network, a newly formed political organization, compensate for their lack of background by taking a more focused approach, advocating improvements in public schools through government channels. Companies in the learning industry, meanwhile, boast a new level of educational expertise to go with their bolder plans and powerful profit motive.

At One Touch Systems, which helps companies set up both broadcast and Web-based networks for interactive distance learning, Conway believes the one-teacher-one-classroom model of teaching is quickly becoming outmoded, at least in the corporate training world.

“Oracle conducts classes simultaneously in 45 different countries. J.C. Penney has classrooms set up in every one of its 1,200 stores,” Conway said. “Technology-based training will take more and more of an active role in learning in general, whether it’s corporate learning or universities or public schools. It’s just a matter of time and demonstrating the success of it.”