TRAINING: Hitting an Air-pocket

Year 2001 is one that IT training vendors would not like to forget for only
one rea son–it is good future reference for how every calculation and forecast
can go wrong at times! Long used to heady growth year after year, the slowdown
threw up a doubly nasty shock for IT training firms. Not only did demand for
re-training and skill upgradation slump, but a general lack of interest in IT
sent normal new enrollments crashing to all-time lows. And as layoffs became
common news, things got even worse, hitting both the topline and bottomline of
the bigger vendors, and driving some smaller ones out of business.

Pop goes the party!

After witnessing some of the best years in terms of performance, the
training industry watched with dismay as the dream went sour. The nightmare that
began with the slowdown in late 2000 resulted in cautious students adopting a
wait-and-watch policy and delaying their decision of enrolling for IT courses,
preferring to wait and evaluate industry prospects. This trend had an instant
fallout on the IT education and training market, with most players facing a
severe drop in sales. The IT education segment shrank by 38% to Rs 1,595 crore
in 2001-02, down from Rs 2,591 crore in 2000-01. This brought about significant
changes in composition and focus. It also brought a semblance of sanity to a
market where low entry barriers had made it easy for non-serious players to make
a quick killing and disappear overnight, giving the entire industry a bad name.

The slowdown triggered a massive drop in revenues, down 37% over the previous year Consolidation and acquisition period for top players, while the middle-level and small players closed shop Corporate and institutional training picked up

A shakeout occurred in IT education, eliminating smaller training institutes.
The larger players, though hit, used the opportunity to consolidate and enhance
their marketshare. By the end of the year, the industry had lost a large part of
the low-quality, short term, fly-by-night players in the ensuing melee. This is
also evident after an observation of the contribution of the top 15 training
vendors to the total IT training industry–their share increased to 75% in
2001-02, from 67% in the previous year.

And they all came tumbling after...

The timing of the slowdown could not have been worse. As news of a tech-led
slowdown in the US broke in early 2001, wary students held back on enrollments
in IT courses in the peak season–April to September. The result was that
training centers, usually full of activity with packed schedules, suddenly
looked empty. Enrollments took a massive dip and training majors issued profit
warnings, especially as it became clear that revenue targets would be missed.
Revenues from the individual training segment in 2001-02 were down 41%, against
the previous year.

A MASSIVE SOCK: Accustomed to steady growth for years, the IT training industry was in shell-chock—as it slid from a dizzying 48% growth in the previous year to a negative 39% in FY 2001

Even though NIIT has been announcing a huge growth in enrolments during the
third quarter–up by 200% year on year–this cannot be used as an
industry-wide yardstick, or a sign of renewed interest in IT courses. While NIIT
weathered the storm better than most other players, most of this jump in numbers
came from its low-priced Swift program and its ‘Million Registrations in a Day’
campaign in December 2001, to commemorate its 20th anniversary. NIIT’s Swift
accounted for 130,000 of its 160,000 enrolments for the quarter. Also, thanks to
the slowdown and the accompanying whiplash on IT workers, India had a surplus of
12,000 IT professionals in 2001-02. FY 2002-03 is expected to prove a borderline
year, with a drastic 85% drop in surplus numbers. The rationale behind this was
the sharp drop in registration for long-term IT courses since 2001–the same
time that IT majors officially issued profit warnings and the media started
painting dismal pictures of Indian IT’s condition.

According to a Merrill Lynch report on the top IT education companies,
"The key takeaway on Indian education industry, based on the results of
both NIIT and SSI, is that the contraction of the industry in FY 9/2002 (year
ending September) will likely be higher than originally anticipated. While both
NIIT and SSI have forecast a contraction in the education industry to the tune
of 20% for the period, early signs indicate a significantly higher number,
considering the 51% and 44% declines seen year on year by both companies in the
December quarter."

Innovation on the rise

Within the training segment itself, corporate training emerged as an area of
hope. Corporate and institutional training actually increased its share of the
total training market to 13.6% in 2001-02, up from 9.6%. There was an increased
effort on corporate and institutional educational initiatives, and e-governance
initiatives were seriously pursued, considering that a large amount of funds had
been allocated for these projects. The tougher environment necessitated a change
in image and product offerings. Vendors were forced to come up with innovative
business models. Vendors learnt to expand business in phases while continuing
their focus on safeguarding the existing revenue streams. The period also saw
gainfully improved internal systems, efficiencies, drive in quality, and
consolidation. The slowdown instilled a sense of urgency among the training
vendors when it came to implementing decisions. Various processes and systems
were put in place to improve operational efficiencies. Cost reduction measures
were also initiated. Suddenly there was no time to be lost.

Most came up with innovative business models to prevent revenues from
tumbling. Tata Infotech introduced the concept of ‘Blended Learning’ where
they used a combination of instructor led training and computer based training.
STG introduced the dial a trainer scheme to take IT training to the doorstep of
students. Cisco decided to emphasize their network education program. Aptech
settled for a hybrid model of delivering education, which was christened Aptech’s
Multi-modal Education Delivery Architecture (AMEDA) which would simultaneously
help in cost-optimization due to faculty de-skilling and use of technology. ZILS
added corporate training and learning solutions for institutions to its
initiatives.

Back to basics

Back to basics

Given the thrust on fundamentals and ‘back to basics’, the trend has
been an increase in enrollments for long duration courses over short-term crash
courses. The skills in demand were in the areas of software engineering;
database administrators; business applications of software development;
networking applications; data warehousing; client networking; project
management; quality assurance and legacy systems. There is a growing trend of IT
professionals wanting to supplement their existing IT skill base. This is in
direct co-relation with the speed of change in technology standards. It is
expected that there would be a visible shift in the number of certifications per
individual, which will mean on an average every individual, will have a minimum
of four certifications to begin with. There is a demand for networking,
enterprise application integration, and .NET short courses. The demand for
designing, multimedia, and animation has also been on the rise. Other growing
areas will be web-based technologies and Web-based programming.

Lessons learnt

Fiscal 2001 was clearly a period of consolidation for the IT training
segment, which differentiated the serious players from the others. While the
serious players used this period to consolidate and gain marketshare, it was
also a time for some innovative thinking. Vendors tinkered around with different
business models in order to target hitherto unaddressed segments, such as
housewives and working executives. NIIT’s Swift campaigns on ‘World Literacy
Day’ and SSI’s "Dial-a-Trainer" scheme were examples of such a
push.

Another trend that marked this phase was the attempt by some of the top
training companies to gain acceptance in the global markets. NIIT and Aptech,
for instance, wnt all out to establish businesses in other geographies where the
need for IT manpower was acute, in order to acquire a stronger foothold in those
markets.

Light at the end of the tunnel

While the global slowdown had an impact for the short term, the importance
of IT is beyond doubt. The general lack of interest among prospective students
resulted in declining registrations in 2001-02. An industry wide explanation of
the number game in 2001 is that the lack of interest is that it is a short-term
phenomenon associated with job squeeze. Students have become more discerning and
selective. A technical certification is recognized as a self-investment that
provides a tangible and relatively immediate return. IT professionals are now
vying to obtain more than one technical certification to boost their existing
skill set. This will continue to propel demand for IT courses.

There is a clear shift taking place. While retail training is and will
continue to be dominant in the near future, institutional training is picking up
rapidly across the country, and across the training companies. Also, many IT
training and education vendors already have or are putting together a software
solutions division, which, in most cases, is growing at a rate much faster than
the traditional training division. The industry will witness a demand for
specialized courses in newer categories. The upgradation of IT skills will not
be restricted to IT departments alone, but will pervade all walks and
departments.

TEAM DQ