This was originally published on UBS.edu.
November 6, 2018 — America’s skills ecosystem is broken. Employers are confounded by workforce development institutions. Middle skills employees can’t get the training they need. Educators aren’t held accountable for outcomes. Now, innovative providers are aligning stakeholders around a common cause: creating a pipeline of workers with 21st century skills. Joe quizzes Frank Britt, CEO of Penn Foster, one of the oldest non-traditional educators in the U.S., on how the new skills ecosystem must be radically redesigned.
Joe Fuller: Education provider Penn Foster started in the 1800s as a correspondence school for miners and engineers. By World War II, it was common for GIs to take courses with the company by mail. It has since evolved to become one of the largest educational platforms in the US. Its offerings range from fully accredited high school programs, to career certificates, to associates degrees for jobs such as veterinary technician and machinist. As the US fights its growing middle-skills gap, flexible innovative education providers like Penn Foster are finding ways to fill the needs of both employers and employees, opening pathways to higher-earning careers and more-productive workforces.
Welcome to the Managing the Future of Work podcast. I’m your host, Harvard Business School Professor and visiting fellow at the American Enterprise Institute, Joe Fuller. Today, I’m speaking with Penn Foster’s CEO, Frank Britt, to discuss current challenges in workforce development and how Penn Foster bridges the gap between employers and employees in a way that the traditional education system simply can’t. Welcome, Frank.
Frank Britt: Thanks for having me.
Fuller: Frank, let’s start with a pretty broad question. I think that there’s one of the few things that many leaders in our country agree on. It’s that the skills development system just doesn’t work. Multiple governors have initiatives in this space, employers and employer groups complain about it all the time, educators are increasingly anxious about their capacity to keep up with the rate of technology. How do you see the system, and what do you think doesn’t work about it?
Britt: Well, I think the reality is there’s always going to be a skills gap in a market-based economy. That’s not unique to this moment. I think what has changed about the current state is the rate of skills obsolescence is accelerating, and the traditional system was designed for a different time. It was premised in the idea that all training was local, and that the needs of the economy are best understood at a local level. The new reality is that progressive corporations need scaled solutions that are national, and I think what governors, states, and all the other stakeholders in the system are really grappling with is how do we navigate from a system that was designed in the ’50s and ’60s to one that better suits the new skills economy of the 21st century.
Fuller: A lot of commentators share that explanation and express their concern about it, and we’ve been having the same conversation it seems to me for at least a decade, if not longer. Why haven’t we mounted a better response, and also, could you talk specifically about what you mean by scalability?
Britt: Well, I think that the factors that drive change in a system have a lot to do with ultimately how it evolves, the rate in which it evolves, and how it ends up, and I think the new part of the narrative is the voice of the employer has gotten much more pronounced, much more significant. In a full-employment economy, employers are increasingly preoccupied with, “How do I close this gap?” Historically, if you look at corporate training, the vast majority of corporate training, 80-plus percent has been focused on white-collar professionals. So the new, new news is that there’s a democratization of training to the front-line workers. And so, what’s really happening is the perspective that once existed that it was an implicit social contract between the local economy and the education system and employers was you would produce for me a sufficient number and right mix of talent. The reality is, as employers have really dug in, particularly to this middle-skills cohort, they’ve realized that that, in fact, is not the case. The system isn’t really prepared to give them the breadth, the depth, and the blend of capabilities they need. And so they’re taking a far more activist approach to trying to address the problem, themselves, and in so doing, that’s bringing further attention and visibility to some of the more systemic challenges.
Fuller: You mentioned that obviously it’s a period of very low unemployment. The days outstanding for job postings are getting to well over 40 days for any jobs, which is unusual. Often the number is in the low 30s. Very big swings in the job vacancy rate. Is that just a temporary phenomena, or do you think this is the new normal?
Britt: I think that the full economy view is looking at a slightly different one than what we are preoccupied with. We’re more focused on under-employment. So while the unemployment rate, depending on which part of the country you’re in—it could be as low as 2 percent in some cities, say 4 percent on average—it’s really the under-employment number, which is between 8 percent and 15 percent, depending on which part of the country you’re in. That, to us, is really the news that’s most important, because what that speaks to is there’s a pent-up desire that people have for enhancements in their income mobility and career mobility, and so that unsatisfied demand is people want better alternatives. They understand the need to be upskilled. It’s not lost on them that the economy is rapidly changing, that there’s risk if they don’t adjust. But what they’re finding is that they’re not exactly sure how best to proceed. There are legitimate and very substantive financial, social, and academic constraints; that, if you’re going to try to solve the skills gap, particularly for the middle skills, you have to be explicit and mindful in the design. For example, middle-skilled professionals don’t have any appetite for going into debt, which is quite rational. Well, all the traditional systems would presume that they are going to take out the traditional bargain that says I’m going to borrow money and I’m going to be upskilled, and I’m going to get a return on that investment. I think what we’re suggesting is that there’s a consumerization of the middle-skills economy that has to be matched with new capabilities, and that consumerization, like all consumer purchases, involves quality, affordability, and convenience. And so, what we’re finding from the middle skilled is that they know they have an imperative to upskill, they have a desire to upskill, but they don’t have solutions that better match their requirements on those dimensions.
Fuller: One thing we certainly see in a lot of the data and a lot of our conversations with other people in the sector is that, as you said, people know that they need to enhance their skills. They feel responsible for that, unlike some platitudes we hear around that people don’t feel like they own this. But they can’t stop their life long enough to get the skills they need. They’ve got family obligations. They need the income they’ve got in their current job, even though they may be under-employed. How do we break that cycle?
Britt: Well, I’ll just give you an example. We believe that the current workforce system, which is historically primarily workforce development boards—there’s about 650 of those, the 1,300 community colleges and some ad hoc providers—we have actually decided over time that we want to partner with those institutions, not “just be the alternative.” And a good example is in Dallas—The Dallas Workforce Board, which is one of the most progressive ones in the country—we just secured an agreement with them. And specifically, the problem they’re trying to solve is that one-third of the adults that live in Dallas are considered the working poor. And when you get underneath why and what needs to happen to help them, they say, “I don’t have access to transportation. I don’t have access to child care.” And so, if you’re going to empower folks who are the working poor, who are employed, to be clear, in Dallas today, you need to design a solution that accommodates their needs. What we often say is, “You have to wrap the institution—the school—around the individual, not the individual around the institution.”
Fuller: Let’s talk a little bit about Penn Foster, the role it’s playing. That’s a great illustration of bringing your perspective and tools to an existing educational institution. But where do you sit in the system, and how has that changed over time?
Britt: The way we frame the market is, there’s K-12 on one end, higher ed on the other, and there’s this large opaque market in the middle called “workforce development” that, depending on whose estimates, could be $200 billion to $300 billion. We’re struck by the fact that, in that market, there are really no notable leaders, which to us means brand leaders, folks that have brand recognition. And so, where we sit in that ecosystem is we would like to partner with any institution that cares about the middle skilled. It could be a social purpose organization, a staffing company, a union, an employer, a technology platform company. So what we’ve done is we’ve said that we’re going to continue, as is our history, to serve consumers directly to the best ability we can, and deliver what we perceive to be the best notion of value, where “value” is quality over price. But for the other stakeholders in that system that have a similar arc to their narrative around caring around this middle-skills worker, we’re going to help empower them to play at a bigger level, and ideally put more and more institutions into the upskilling business. So, for example, we partner with the largest specialty staffing companies in the United States. Historically, staffing companies have had a notion that they find people, and they deploy them. They’ve now realized that they need to take a much more activist role in building human capital, not just finding and deploying them. And so we’ve put the largest staffing companies now into, essentially, the upskilling business. What we want to do is, we think the need is immense, and there aren’t enough nontraditional providers and other institutions that do have real engagement with those workers today. We’re trying to put them in a position where they can actually have a direct influence on the capabilities of their members, unions, or whatever the term of art is for that cohort.
Fuller: You’ve used the phrase, “We’re empowering these institutions.” What are doing that they can’t do for themselves?
Britt: Well, in the case of a staffing company, staffing companies have no historical capability around education, and even the framing of the value of education is actually a challenge. So we tend to take a step back. We think of ourselves as a solution provider to those enterprises. And so, what are the components you need? Well, there’s a set of needs for the learner, which includes the discovery of what capabilities they have and what they should do. It includes the marketing of the programs to help them understand why they’ll want to do it. Then there’s all the traditional education components around learning engagement and support services, some that are quite unique to this cohort. Then some sort of pathing and career service to make sure they end up in the right place.
Fuller: Let’s talk a little bit more about employer engagement, because as I travel around the country and talk to business leaders—including leaders in free federations, group business councils, things like that—they consistently complain that, not only is it hard to find someone to talk to, that when they show up and start explaining what they need, the image I often use is, it’s if they speak a different dialect of the same language of the educator, and the two dialects are mutually unintelligible, a little bit like German-Swiss and Swiss, or something like that. Is that what you’re seeing? Are you providing that translation function?
Britt: If you or I ran a traditional school, and a good one, we presumably would have great dexterity capability and a culture that’s oriented around serving learners, and we’d have the language of learners very much embedded in how we think, and talk, and behave. What we’re proposing here is that there’s another conversation that needs to happen that is in many respects equally, if not more complex, which is the engagement with an employer. Where we look at the future state of the workforce development system, we think that leading providers will have the ability to speak essentially two languages: the language of the learner, in a progressive sense, and the language of the employer, with all the capabilities implied in a business-to-business type relationship, whether that be data, whether it be analytics, whether it be systems integration and operability. There’s a variety of components that need to be assembled to serve that need, especially at a scaled level.So you asked earlier about scale. Scale to us means national geographic scope, thousands or tens of thousands of folks running through a system concurrently, and doing it in a way that still feels highly personalized to the learner, but meets the unique requirements of a Fortune 1000 enterprise in all that’s implied, in terms of professional account management, professional technology capabilities, and all the other components that make a traditional B2B relationship a progressive one—as you would find at an IBM, and an Oracle, or a Salesforce—combined with all the capabilities you need to really run a progressive consumer business. And the good news is that when you have that capability, it unlocks value in the seams that you can’t access otherwise. So, for example, when you serve the three or four largest animal hospital chains in the United States on the enterprise side, and you have the largest vet technician program on the consumer side, you get to then essentially make a market between the learner and the employer in a way that you could not do if you were just an actor on one end or the other.
Fuller: How does this spill over, does it spill over to smaller enterprises and medium enterprises? You’re very specific about we can provide a scalable solution to Fortune 1000-type companies, but many of the jobs, as you know, in the United States, a majority are created by new enterprises. By that, we don’t mean the latest mobile app provider, but new retail sites, new service sites of the type you talked about.
Britt: Well, I have a bit of a wonky answer, I suppose. Our view is that the large employers have a set of needs, as you noted, and those would be the ones you would traditionally expect to find in a progressive B2B enterprise. The small providers have a similar challenge, but they’re subscale. And so, if they happen to be in right geography and they happen to have programs that are relevant to their industry in that geography, then they might be well served. But that is, frankly, a little bit of happenstance. For example, in Pennsylvania, there are 52 counties and 13 community colleges. If your business happens to be collated to a community college, you might be in business. But if you’re not, you’re kind of out of luck. It’s the medium-size firms that arguably are best positioned to use local providers, because they have critical mass. If you have a big plant down the street in Ohio, and you’re relatively near the community college, it could make an enormous amount of sense for you to partner to do upskilling , skilled trades, and the like. So I guess the way we look at it, as the local design model doesn’t serve the national provider, and ironically, it may not serve the hyper-local. It may actually just be designed for those who are regionally scaled organizations, where they can essentially build a constellation of actors, and through a patchwork, if you will, solve their problem. They’ll still encounter issues of consistency of experience, consistency of outcomes, and so forth, but there are viable alternatives.
Fuller: Frank, let’s go back to your description of that company in Pennsylvania, the 13 community colleges, the 50-plus counties. An employer has to understand how that system works. It seems very incoherent from the outside. Can you talk a little bit about how the system is supposed to work, and why it creates such inefficiencies, and so many people that actually don’t get what the system is reportedly set up to provide them?
Britt: Yeah. We start, as we do with all these things, with a perspective that there a lot of very capable people who are trying to deliver better value to people who need to be upskilled. So it starts at the positive premise. The challenge is the system, as it is currently configured, is essentially a collection of independent actors who have good intent with virtually no coordination across the system. So, for example, with the 600-plus workforce boards in the United States, there’s no integrated national workforce board strategy; it’s highly localized. Community colleges have some degree of collaboration, but they would make the argument that there are different geography needs. And so, if you enter into that ecosystem as an employer, you’re struck by states have their own strategies: New York state, New Jersey, Delaware, Pennsylvania—all adjacent—have completely different theories of change regarding the workforce development system, because they have different policy initiatives, there are political dynamics, and the like. And so, from the employer’s perspective, what you find is this incredibly complicated opaque system with imperfect data on accountability, on outcomes, on cost. And, ultimately, it’s not clear that they’re really building the type of skills for the future. Most of the data, as you know, is a retrospective view of what skills are needed at a time where the consumer needs much broader appreciation for where they should be investing time and energy.
Fuller: Well, first of all, let me say that, as I’ve traveled around the country, I can confirm that people involved in workforce boards and community colleges are, by and large, very, very dedicated, very passionate about what they do, very anxious for better outcomes for people they serve, the communities they serve. Do you have employers that are subsidizing learners?
Britt: Yes, absolutely. So, in our enterprise, about 75 percent of the revenues, historically, have come from the learner directly. And then, the remainder comes from our partnership. And so, if you’re the Banfield Animal Hospital, for example, which is the largest animal hospital chain in the country, you are providing subsidies for your workers to become vet assistants or vet technicians. If you’re at Penske, we’ve been the primary partner to Penske for the last five years for all diesel engine repair. If you go into that program, you go to Penn Foster, and you partner with Penske, they will underwrite that. So that solves for—if you go back to the three risk factors of academic, financial, and motivational, to the extent that you can de-risk the learner financially—that obviously improves outcomes. And it also creates this intrinsic sense that there’s a further partner in my journey—I, the learner—which is the voice of the employer and my supervisors. And so we see that the benefits of moving through the employer partnerships are you re-stack the risk from an economic perspective, and you have a different kind of motivational model, which ultimately drives better outcomes.
Fuller: So, if we look at some other countries whose skills systems are more formalized and, I would argue, much more organized than the traditional system in the United States, they seem to hinge around employer associations that are defining the criteria for hiring people, what the skills are. And that’s communicated directly to educators. And the career path concept is actually built into the curriculum—going even into the K-12 system, let alone post-secondary. We don’t have that type of system in the United States. We have a local system. It’s, some would say, Balkanized. But it certainly does not have that type of centralization and that role of employers. In some ways, it sounds like your building that bridge. You’re providing the insight to the educational resource as to what the employer wants and also ensuring that the market is priced in a way that the learner can start down that path toward getting a better employment situation. Is that a fair characterization?
Britt: I think it is. And maybe I could comment on a few elements of that. If the world were perfect, the Swiss system, which is often cited as one of the most progressive, wouldn’t it be nice if we could tell Johnny, who’s five, his career pathways, but not limit his options as he or she grew over time. That system works fine if you have 8 million or 9 million people. I think as you move to the United States, it becomes virtually impossible to imagine a model of that orientation. But the thing that I think is not well appreciated is that there’s 160 million working adults in the United States. Depending on your definition, you could make a pretty compelling argument that 80 million of the 160 million people are middle skilled. So this is not a small problem. It’s the underpinning of the United States’ competitiveness across countless sectors—and, not to mention, you know, the vibrancy of states. So this is a national imperative. And I think that the more enlightened leaders who spend time on it, the better. And I think the more there’s an embrace of traditional providers and new providers, a combination thereof, that’s where you will build the next generation of the “skills Keiretsu” of the United States.
Fuller: When you use the term “leaders,” are you thinking public-sector leaders, private-sector leaders? Both? Social-sector leaders? Where are the leverage points?
Britt: I think the leverage point, ultimately, is going to be the employer. And you can go back to this incentive alignment thing. The employers are incented to build really two things: help onboard and built a greater supply of workers. But also to take the current workers and help prepare them so they can remain relevant. You’re not going to solve this problem by just net new. You’re going to need a combination of better net new, and then upskilling of current folks so they can participate in the needs of employers going forward.
Fuller: Let’s focus for a second on that incumbent worker whose skills may not be aging gracefully; there are new requirements for a job. When we talk to employers, historically, many of express a concern that, if they invest in upskilling an incumbent worker, what they’re really doing is giving that person the credentials to go into the job market and maybe end up at a competitor or a different company. And that they’re going to have write off that investment. And they don’t want to “educate” their competitor’s future worker. You must have heard that. How do you see it? How do you rebut that?
Britt: I think the enlightened leaders have said, “Listen, it can’t be a zero-sum game. If I’m a leader, it comes with accountability and responsibility. And I will win disproportionately over time if I embrace this. And, in fact, if all of my competitors did it, I would actually be better off, because we’d have a greater supply of capable people. And since I’m the de facto leader, I’ll actually win.” So I think our view on it is that it’s not going to work anymore to just stay in your corner of the room and say, “Oh, I’m just going to protect my people.” The reality of it is, if you talk to the actual learners themselves, the working adults, they are completely preoccupied with mobility. And so that mobility could be within your organization, or it could be outside of your organization. You have to create a context in which, as they get upskilled and have mobility, they are more inclined to stay than not stay. And I think that, what we see is that the employers are spending time now not just talking about their consumer proposition or their client’s proposition, but what is the brand strategy for them as an employer? And so, what we see happening is that education as a benefit, or skills as a benefit, is going to, over time, become part of the proposition of what you offer employees. But particularly to the middle skilled, because that is something they put enormous amount of value on. For historical reasons, organizations have not always invested in that—that’s the so-called democratization of training to the front line. Those folks put a tremendous amount of value, and they will drive improvements in retention and, over time, put you in a position where you will be advantaged. And that’s the premise of this movement. For multiple years, I have attended events, and I’ve heard about “The inflection is coming, the inflection is coming!” Eventually employers are going to awaken to the new reality.
Fuller: I’ve been at the same events.
Britt: Well, that moment is now.
Britt: And you say, “What’s your evidence of that?” I can cite Amazon, Walmart, Disney, Lowe’s, staffing companies who are leaders, like EmployBridge, and plenty of others. There is a movement afoot to earnestly engage and invest in the front-line worker for upskilling. Not as a social outcome, although that is a very powerful byproduct, but as an economic, rational return on investment type of orientation.
Fuller: What’s the role of federal government in all this? They’re pumping out $120 billion a year plus of Title IV funding—that’s the part of the Higher Education Act that funds student loans at the federal level, Pell grants, and other types of grants. So they’re a big source of the liquidity in the current system. How do you see their role in this new system that you’re describing?
Britt: Well I think that, first of all, the funding models you cited are primarily emanating out of the Department of Education. There’s a corollary out of the Department of Labor. In our world, and we’re of course development, the way they’ve implicitly divided up the world in the government is, the Department of Education worries about K-12 and higher ed. And the Labor Department worries about the workforce development system. And so I think the louder voice in the workforce development system will, in fact, be the Labor Department. And, to their credit, they have begun to put, I think, a fairly significant number of progressive activities—for example, an apprentice study that was just done that recognizes that there are now over a thousand occupations that are apprentice-able. And that even the notion of apprentices needs to be reinvented. So I think there’s some good public policy opportunities to provide guidance. I think that the fulcrum point that we’re waiting to see when it arrives is an embrace that the solutions to the challenges cannot only be sourced from within the current system. When they start creating the right incentives, it will encourage alternative providers to have a level playing field to the traditional system. To us, that will really signal the next generation of, folks are earnest about really making the new reality happen and this new idea of a skills economy starting to work at scale. So I think there are plenty of progressive governors, as you know. And you know the states—Colorado’s a good example. I think that what we still come back to from the employer’s perspective is that I need a national solution. I need an integrated solution. I’ve got 900 locations around the United States. Give me an integrated solution that’s end to end. And the current system fundamentally is not designed with that. And even the new initiatives coming out of the government, which are enlightened and progressive, they still have a bit of work to do to get to where employers’ needs can really be best met.
Fuller: Frank, as you say, there are numerous governors—and there are also CEOs—who have really embraced this. So you mentioned Governor Hickenlooper in Colorado. Governor Haslam in Tennessee would be another great example. And you have CEOs like HBS’s own Jamie Dimon of JPMorgan Chase who’s really, very passionate about this, not only as it applies to his company, but to his sector and the nation as a whole. But some of those people are term limited. Others will eventually retire. And what we’ve seen over time is that there’s often a shift or a loss of momentum when you have those changes in the executive suite, whether it’s the governor’s mansion, or the C-suite. And that continuity and continuing down this path has been a problem. And that you don’t get that type of investment sustained over time, particularly at the state level, where you’ve got this unbelievable burden of Medicaid and Medicare that are gradually crowding out all other types of funding. How do you see that? How do we make this a more permanent feature of what states are doing, of what companies are doing?
Britt: Well, I think, first of all, it’s going to be messy. It’s designed to be messy. And there’s always going to be horizon challenges of the tenure of the governor, or, for that matter, the tenure of the CEO. I think that what isn’t changing is the needs of the learner. And so that will transcend who’s in power and who is the CEO. And that’s what gives us such hope about a long-term systemic change. The voice of the consumer, especially the consumer called the middle skilled, historically, really hasn’t had a seat at the table. They have a lot of power, and they have new platforms and capabilities to voice that power. And, to the extent that there are new providers that’ve emerged to deliver them more value, they will take their time, energy, resources, and move toward those solution providers. Then they will compel government to be more responsive. And they will compel their employers to step up to the plate and participate, as many increasingly are doing in a very progressive way. So we’re bullish that the consumerization of training and upskilling, you know we’re in a time where the term lifetime learner is becoming a term of art. People are having to prepare for a 40- or 50- or 60-year career, where they’re going to come in and out of the education economy. And there has to be on ramps and off ramps that make that efficient and effective. And so, because that need is only growing, and the recognition is only becoming more significant among the learners, we’re very confident that, over time, either through enlightened leadership, or basically just being dragged, that the states will respond to the voters, because the voters will make their needs known. And employers will respond because it’s in their best interests to do so.
Fuller: Frank, if there’s a unifying theme of what we’ve talked about today, it’s that bringing more market-based, business-based solutions to this pretty inefficient market for skills in the United States is a big part of the solution, and you’re right at the center of that. If there’s just one thing you could do to accelerate that transition and really cause that transition to get settled and become integral to the skill system for the future of the United States, if you could wave that magic wand, what would you ask for?
Britt: Well, we’ve often said that if we could introduce one notion into the education and training economy, it would be net promoter scores—which seems like a kind of a wonky answer. But the reason we think that matters is that, if you just look at the traditional definition of success, by all the establishment and education, it’s a simple question: Did Joe complete his course or not? And the reality is that a lot of times you acquire skills as you go through a program, and you then increase your employment opportunities, and then you decided to go pursue that employment. And from your perspective, you had a high success. Or perhaps you started program and didn’t finish it. But it turns out you’d learned you did not want to be a vet technician. You thought you wanted to. In the traditional system, you would have borrowed $5,000 or $10,000 and gone down that path. In the new system, you would have spent a couple a hundred bucks to figure it out—you know, I really like animals that are healthy; I don’t like animals that aren’t healthy. And so I think that this notion of net promoter score becomes kind of the arc of the narrative, because what it speaks to is, are you deriving the value that you perceive as a learner and you perceive as an employer or a staffing company or a union or, for that matter, a technology company? Are you getting out of the exchange what you wanted? Not what some third party decided you’re supposed to describe as value. And I think that fundamental shift toward outcomes as defined by satisfaction, that will be the day that everything changes, because that’s the day that the consumers truly driving the narrative, and the employers truly driving the narrative. And I’m not in a position to decide if you’ve gotten value or not. You’re uniquely qualified to figure out for yourself, as are the employers. And for us, that will be the change catalyst.
Fuller: Frank, thanks for joining us today to discuss America’s skills development system. I’m looking forward to watching Penn Foster continue to bring market based solutions to addressing the middle-skills gap in America.
Britt: Thank you much for the opportunity.
Fuller: I’m Professor Joe Fuller of the Harvard Business School. Thanks for listening.
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