Podcast
Podcast
- 23 Aug 2023
- Managing the Future of Work
The case for investing in the apprenticeship model
Bill Kerr: In the U.S. context, the apprenticeship, like institutional knowledge, might seem like a relic of a bygone economy. But with college out of reach for many—and inadequate job preparation for many of those who do attend—apprenticeships look decidedly modern.
Welcome to the Managing the Future of Work podcast from Harvard Business School. I’m your host, Bill Kerr. I’m joined today by Ryan Craig, Managing Director of Achieve Partners, an impact investment firm focusing on workforce development and job placement. We’ll talk about how the investment portfolio model addresses skills and opportunity gaps. We’ll also discuss where the 20th-century education and training model falls short in a fast-evolving 21st-century economy. We’ll consider how the apprenticeship model offers advantages for both workers and employers, and how it boosts diversity and equity. And we’ll take stock of some crucial public policy issues. Ryan, welcome to the podcast.
Ryan Craig: Great to be here, Bill.
Kerr: Ryan, why don’t we start with a little bit of your background and how you came to focus on workforce development.
Craig: So out of law school, I went to work at Columbia University in the early aughts, working for a hard-charging Executive Vice Provost by the name of Michael Crow, who’s now fairly well known in higher education as the very successful long-tenured president of Arizona State University. About a decade ago, I was fortunate enough to be able to raise capital to launch my own private equity firm focused on investing in sort of the next-generation higher-education–related businesses. And a few years out of the Great Recession, it was clear that higher education was not only suffering from a crisis of completion and one of affordability, but also one of employability. So the levels of student debt we were seeing, they’d be supportable if everyone graduated from college into a $60,000 a year job. That’s not what we were seeing. We were seeing 40 percent of college graduates coming out into underemployment. We know if you’re underemployed in your first job, two-thirds of the time you’re underemployed five years later. Half the time, you’re underemployed a decade later. It’s a real problem. And if you walk around a college campus today, the degree programs that are on offer look very similar to the programs that were available when I went through school 25, 30 years ago. And that’s a problem in an economy that has been completely transformed by digital technology. Every entry-level job the students want is digital in some form or fashion, requests, demands, digital skills, platform skills that colleges and universities simply aren’t training on. And so we quickly began to move at my firm to looking for—and this was the title of my last book— A New U: Faster and Cheaper Alternatives to College to equip and put students on the path to those good first digital jobs. And so that book was kind of a guided tour of bootcamps and income-share programs and other models that might get you to that result without borrowing tens or hundreds of thousands of dollars and taking four to six years of an undergraduate degree. The new book, it basically is the answer to that guided tour, which is, we think the answer to many—if not all—of the problems that higher education is facing is found in the apprenticeship model, earning and learning and providing a true level playing field for everyone to socioeconomic mobility and economic opportunity.
Kerr: Well, let’s continue on that theme. And the forthcoming book is called Apprentice Nation. Unpack a little bit for us the thesis of the book, and maybe also give us some examples of successful apprenticeships and what you’re aspiring toward.
Craig: Sure. I mean, I start by saying, look, we were once a nation of apprentices. George Washington was an apprentice. Paul Revere, Thomas Jefferson, John Adams were apprentice lawyers. It’s really only since the 1950s and ’60s that college became the sort of sole socially respectable pathway to economic opportunity in this country. And the pendulum is definitely swinging back. College for all is not working for all. We know that, due to the fact that the overwhelming public policy debate in the last two and a half, three years in higher education has been debt forgiveness, which is an entirely backward-looking proposition. It says nothing about what future students will have to borrow or what they can afford. It says nothing about the responsibility of colleges and universities to equip students with employable skills. And this is not an indictment of all colleges and universities. I think colleges are doing as good a job as they’ve ever done at equipping students with cognitive skills, critical-thinking skills, problem-solving skills, communication skills that they need. The problem is that the economy has shifted under the feet of colleges and universities, right? It’s now asking for different sets of skills that colleges aren’t particularly adept at providing. So apprenticeship is the answer, we believe, because we’re facing not only a skills gap in terms of those digital skills, but also an experience gap. There are lots of jobs where, even if you have the skills, you probably won’t be hired unless you’ve already effectively done the job, right? It’s easy enough to go on Salesforce’s Trailhead and certify yourself as a Trailhead certified administrator, Salesforce administrator. But I don’t know too many companies that are interested in hiring a newly minted Salesforce administrator who’s never actually worked as a Salesforce administrator before. Same thing in cybersecurity, right? If you look at cybersecurity tier-1 analyst job descriptions, they’re asking for sets of certifications and skills that probably mean that you’ve been working in cybersecurity for two or three years already, sort of turning the idea of an entry-level job into a bit of an oxymoron. So there’s an experience gap, as well. And apprenticeship solves both of those. It not only equips someone who doesn’t have those last-mile skills with the skills that she needs, but it’s providing her with the experience that she needs to get hired. And more than that, we’re not asking the apprentice to take on any financial risk at all because, by definition, unlike every other training or workforce development pathway or option, apprenticeships are full-time jobs that pay you a living wage.
Kerr: Going back, obviously the beginning of U.S. history and then through manufacturing and so forth, we can all think of maybe some apprenticeship examples. For the digital economy and for where you see the country and the workforce going, what are some of the great examples? What are some best-in-class examples?
Craig: Yeah. I mean, your putting your finger on the issue here, which is that in the U.S. today, apprenticeship is still largely localized to the construction trades. If you look at every other developed country in the world—not only Germany, Austria, Switzerland, obviously the kings of apprenticeship, but countries like the U.K., Australia, Canada, France—they’re way ahead of us on apprenticeship. So just as a percentage, central European countries or have 15 times as many apprentices as we do as a percentage of their workforce. But Canada, the U.K., Australia, France, they’re eight times where we are as a percent. And so it’s very common in those countries to launch a career in tech or financial services and healthcare as an apprentice. It’s vanishingly rare here today. And so the book is really the story of where we are and where we need to go in order to become 8X, 10X, 15X larger than we are on apprentices. And if we are, then we’ll have almost as many apprenticeship seats as we do college and university seats, which I think is where we need to be, right? And to your question, “Where are the jobs?” we are seeing successful apprenticeship programs being built in software development, data analytics, cybersecurity, Salesforce, Workday, healthcare IT. Pretty much any area of tech where there’s a talent gap, there’s either an apprenticeship that’s been developed recently to try and address it or there’s one in development
Kerr: And how long does a typical apprenticeship last?
Craig: In the trades, it can be as long as four years, right? Electricians, they can be apprentices for that length of time. Most of the tech apprenticeships that we’re seeing are kind of one to two years. And unlike your traditional trade apprenticeships, where you’ll sort of start on day one and you’ll have maybe one day of classroom training and then four days of what’s called on-the-job training, where you’re kind of, you know, can be helpful, right? You can hold the tools, you can sort of watch and learn. You can’t really do that as much in tech, because there’s no such thing as holding the tools when you’re a tier-1 cybersecurity analyst. You either need to know what you’re doing on the platform, or you don’t. So typically, these tech apprenticeships are upfronting the training. You’re probably doing some version of classroom training—or the term in apprenticeship land is “related technical instruction”—for at least three months, becoming proficient on the platform with the technology before you’re actually doing work.
Kerr: What share is currently in-person physical versus remote, given that with digital tech we could reach quite distant with it?
Craig: Yeah, I would say the majority of these are remote apprenticeships that Covid kind of helped accelerate the trend in apprenticeship to remote training and remote work. So I don’t think that’s the issue. When you’re putting together cohorts, we’re seeing cohorts coming together from not only all around the country but around the world.
Kerr: So going back to this kind of comparison, a number of European countries are well ahead of the U.S. Tell us a little bit more of, like, for the ecosystem, what do you have to have in place to achieve that scaled-up eight times, 15 times apprenticeship model?
Craig: The secret is that employers don’t build their own apprenticeship programs out of the goodness of their hearts. In fact, when you’re asking an employer to hire an apprentice, you’re asking an employer to hire and pay someone who’s not yet productive at their job, which is anathema to most employers. You want someone who’s going to be productive on day one or close to it, not six months or 12 months later. So if you look around the world in everywhere that apprenticeship has proliferated—so whether it’s in Germany or whether it’s in the U.S. construction trades—it’s always because there’s some intermediary that’s standing between the apprentice and the ultimate employer and doing the heavy lifting of setting up and helping to run that apprenticeship program for them. In Germany, those intermediaries are powerful Chambers of Commerce and unions whose role actually in setting up and running these programs is written into statute. So they’re required to do it. In the U.S., in the construction trades, it’s trade unions who do that role. Our problem is that, one, it’s not obvious who those intermediaries should be in tech. And two, the bigger problem is that countries like Australia and the U.K., which were basically the same as the U.S. 25 years ago—which is to say, relatively small apprenticeship sectors localized in construction—they recognized that they needed to incentivize intermediaries. So those countries, what they do is they fund—or in some cases, overfund—the training, not only to fund the cost of the training, but also provide a margin to these apprenticeship intermediaries. And they also provide a bounty for every apprentice placed. And so, in the U.K. today—an economy one-seventh, one-eighth our size—you have something like 1,200 apprenticeship intermediaries that are active in the U.K. economy. I’ve been involved in helping to set up the equivalent organization here in the U.S., which is called “Apprenticeships for America.” We’ve scoured the country for every organization for-profit, nonprofit, public, that can be called an apprenticeship intermediary, meaning they perform one or more of the functions that an employer would need to perform were they to run their own apprenticeship program. We have about 250 members right now. So we ought to have probably like 8,000, right? And the reason we don’t is that we haven’t funded it. So the good news is the Department of Labor over the past seven years has significantly increased spending on apprenticeships. The bad news is that we’re spending it the wrong way, mostly wasting it. Rather than this formula-based funding like we see in the U.K. and Australia, where the funding follows a student or the apprentice like it does in post-secondary education, what they’ve been doing is awarding grants, trying to pick winners of intermediaries. And the intermediaries they’ve been picking and awarding $5 [million] or $10[million] or $20 million to are, by and large, local workforce boards and community colleges who really don’t do the heavy lifting that’s needed. So what a community college would do when they receive an apprenticeship grant from the Department of Labor is, they’ll develop a curriculum for the related technical instruction, and they’ll register the program with the Department of Labor, and they’ll kind of sit on their hands waiting for an employer to come along and ask to use the curriculum. You need what we have in the U.K., which is an ecosystem of 1,200 intermediaries running around knocking on doors, offering to set up and run apprenticeship programs. So in the U.K., you won’t find a midsize or large employer that hasn’t been approached by 6, 10, 12 apprenticeship intermediaries knocking on their door offering to set up and run apprenticeship programs. If you think about the overall funding, for every dollar taxpayers spend on apprenticeships, we’re spending $1,000 on an accredited colleges and universities. So it’s 1,000:1. If you were to compare a college student to a working apprentice and ask how much taxpayer support is that student or apprentice receiving, for every dollar that the apprentice is receiving, the college students receiving $50. So I don’t know if the right ratio is 10:1 or 5:1 or 2:1, but it shouldn’t be 50:1 or 1,000:1, right? We’re kind of out of whack here.
Kerr: Ryan, as you think about taking this out and having it actualized, if you created the funding changes that were described, do you believe that all of the intermediaries and so forth could fill themselves in, and that’s kind of just the first domino that needs to fall, and the rest will happen? Or are there other things that need to also transpire to really boost the number of intermediaries?
Craig: There are a bunch of folks who are sitting on the sidelines watching this, like Adecco or Robert Half. We’re hopeful that we can get the funding changes. They’re going to step off the sidelines and actually get into the game of running apprenticeship service-provider businesses for their tens of thousands of clients. We’ve actually already been successful with California, in part thanks to our work. California, just at the end of last year, announced the first formula-based apprenticeship funding in the country, called “Apprenticeship Innovation Funding,” where every apprenticeship registered in California gets $3,500 to $4,500 for every apprentice they hire.
Kerr: As you think about the future, do you predict a lot more state-level change will happen? And will there be a gap across states emerging in terms of the apprenticeship programs?
Craig: We do. But I expect federal action as well. I expect in the next five years we will see a change in how we fund apprenticeships. Let me just say that it’s not just about funding. There are other things we need to do as well. Other countries have established occupational frameworks, which are basically frameworks which set up what skills each apprentice or apprenticeship should be delivering. So right now, there’s nothing that’s organized at a federal or state level. We need to streamline the registration process, make it easier to register. Right now, it’s a bit of a paperwork nightmare to do that. We need to define youth apprenticeship. Right now, there’s a ton of interest in having high school students be apprentices as they’re continuing to be students. There’s no federal definition for what that means, let alone funding for it. We need to promote public sector apprenticeships. If governments believe apprenticeships are valuable, they should be launching and hiring apprenticeship programs, themselves. And then we need to market apprenticeships. In the U.K., you have National Apprenticeship Week, where kind of everything stops, and everyone is focused on talking about the importance of apprenticeships.
Kerr: Ryan, at the state level, licenses are often very important for given occupations. How does that play into your work?
Craig: Yeah, it’s a problem, it’s a barrier. And often, the licensure requirements come with a degree requirement. That usually will be a block to apprenticeship. And the reason for that is that you’re not going to find an employer or an intermediary willing to hire and pay an apprentice for a period of years before they can become productive and billable, right? The math just simply isn’t going to work. So in the book, I talk about, if states can do one thing, it would be to revisit licensure—and degree requirements, as part of licensure. And if the professional bodies aren’t willing to reconsider some of these unnecessary degree requirements, then states should take that authority back that they’ve delegated.
Kerr: Ryan, I want us to link back to something you mentioned at the very beginning that you are working as a firm. You’re a practitioner in addition to thinking about these topics. Tell us a bit about Achieve Partners, and how did you come to the investment portfolio model as a way to approach opportunity gaps and skills gaps.
Craig: Yeah, so at Achieve, we have two fund strategies. We’re a buyout firm, and we have a tech fund, and we have a workforce fund. And so our workforce fund basically is trying to solve this problem by creating new apprenticeship intermediaries. And the way we’re doing it is, we locate strategically situated services firms. It could be staffing, more likely solutions, consulting, implementation, configuration, integration firms in sectors of the economy where there is a clear talent gap. So some of the areas I listed before—cybersecurity, healthcare IT, software development, data analytics, Salesforce, Workday. And so we are buying control of these businesses from founders. The companies could be anywhere from $10 [million] to $150 million in revenue. We build a large-scale apprenticeship program inside that company, and they become the first company in a talent-starved sector to wave the new talent flag. So they’re running around now selling new talent to clients and other partners in that ecosystem. I’ll use Workday as an example. We just put out a whitepaper on the talent gap in Workday—a very controlled ecosystem, one of the most controlled we’ve seen. They took the same approach to their training. And as a result, there were as many job listings last year alone for Workday consultants as there are certified Workday consultants in the ecosystem. So our company, Helios, is the first company now to be delivering Workday Pro certified consultants. And they’ll be doing it not just for their clients, but for other service providers and partners in the Workday ecosystem. When you wave that new talent flag, you get a ton of attention, and you’re generating a big new revenue stream of producing new talent for clients, which you can deliver in the form of staff augmentation. Or you can be doing project work, where maybe at the end of the project, the client is able to take the talent at no cost. So we call this model “hire, train, deploy,” because there’s such a shortage of apprenticeships, when we launch a new cohort, we get thousands of applications. And so we’re highly selective, typically sort of 1 percent selection rate. And so we’re selecting on cognitive skills, we’re selecting on technical aptitude, but not skills. And we’re selecting on diversity. So most of our cohorts are majority underrepresented minority, because we can help clients then address that as well, which is the diversification of their largely un-diverse tech workforces today. So that’s another benefit of apprenticeship, and it’s working great.
Kerr: Tell us a little bit about how this plays into the diversity that employers are trying to achieve.
Craig: Apprenticeships are jobs that pay you a living wage from day one. So they’re open to everyone of every background—underrepresented minorities, rural, you name it, you can do an apprenticeship. And so they are the most democratic form of post-secondary education by definition, and we just need more of them. As I said, we have so many applicants for every seat we have in a cohort that we can be very selective. We’d like to be less selective; we’d like to have 10 or 20 times as many apprenticeship programs as we have today, and it’s just going to be more and more opportunities for underrepresented minorities and underprivileged youth who just simply can’t or won’t afford or wouldn’t be successful in a multiyear degree pathway.
Kerr: Ryan, I’d love for you to unpack a little bit the decision process to buy something and augment it with this new line of work, versus creating de novo intermediaries. Was it just the scale that could quickly move the needle, or was there some other kind of scarce goods that these companies have?
Craig: Yeah, well, obviously they have an existing client base, right? And so that client base is typically talent starved. And so, we can usually push tens if not hundreds of new apprentices into that client base off the bat. But I would say the biggest thing is the sales side. Building your own new apprentice sort of salesforce in a given vertical is very difficult. You need to understand new talent, you need to understand that vertical, you need to be able to often talk at a very deep technical level with the CTO, CIO line of leaders at the company. That’s hard to do. So we much prefer to buy the salesforce than to try to build it from scratch. Plus, we have the benefit of having a legacy business, which is profitable and growing to begin with, which reduces the risk. And we have the synergy, as I said, between that core business and the new talent business. So we much prefer that. And obviously, that’s the model we’ve chosen with the buyout model.
Kerr: So it seems like success for you would be a combination of both investor returns and also job placements and doing the good in the ecosystem you’ve been describing. How have you worked to prioritize that? Are there conflicts that emerge?
Craig: No conflicts at all. Every apprentice that we hire, train, and place is of value to shareholders. We can quantify it in terms of revenue and gross profit and EBITDA. So we are completely aligned, and we’re highly quantitative. So every quarter we’re reporting to LPs—not only financials but impact, how many we’re hiring, training, placing, the demographics, retention rates, and so forth. Yeah, no, but let me just be clear that we don’t believe in concessionary capital. We believe that by solving this big problem, we are able to generate outsized returns from it. So we underwrite, not to impact, but we underwrite to the financial returns, and the impact follows as a result of the model.
Kerr: So, Ryan, with the apprenticeship model, how does the retention of the employee compare to other channels?
Craig: Yeah, we’ve seen it typically at a 2X. So your typical apprentice will persist at twice the rate of your typical direct hire. And it’s for a couple reasons. One is that these apprenticeship pathways, there’s an expectation that you’re going to apprentice for this period of time, and then you’re going to work for this period of time. So they view it almost as a contractor, a pathway that they’re going to pursue until it’s complete, almost like a degree program. So you have that benefit. And then, in addition, apprentices have just, they’ve already been around. They kind of know that they fit in with the organization culturally.
Kerr : And so, Ryan, do you ever get the opposite side, where people are reluctant to commit early on to full-time employment?
Craig: The employer doesn’t make a hiring decision until they’ve already been working with that apprentice for a period of time via some project, managed service, or a staff augmentation, and they make a conversion decision.
Kerr: We’re recording this in July of 2023, and many of us are working through the implications of the bursting forth of artificial intelligence and generative AI and ChatGPT and everything that we’ve experienced over the last year. You work a lot with entry-level IT as part of the placement of your individuals. Talk to us about how that is involved in your decisions now.
Craig: So I’ve talked a lot about digital skills and so forth. Generative AI is likely to have two effects. It’s likely to narrow the skills gap, as all of these platforms adopt generative AI; you won’t need an expert on the platform to be able to use it from day one. You’ll be able to ask questions and ask the engine to help you accomplish a task, and it will figure out how to do it. So it will narrow the skills gap. But because it will essentially largely eliminate a lot of the menial work associated with these entry-level jobs, what it’s going to also do is, it’s going to significantly widen the experience gap, because the expectation for these entry-level jobs is going to be much higher in terms of level of executive function, networking, value add, creative thinking, much of which—if not all of which—is going to be dependent on familiarity with the industry and the job function. And so I think a lot of these entry-level jobs will look like the cybersecurity job I described earlier, which is, you kind of need to have done the job before in order to get the job. So it’s going to narrow the skills gap, but it’s going to widen the experience gap, which means that you really need something like an apprenticeship program or pathway for most of your entry-level positions, because you’re not going to hire someone who just came right out of school for that job.
Kerr: Continue on this. I’m sure some of our listeners are having this question in their mind about bootcamps. How do bootcamps and apprenticeships, will they coexist in the future that you’re kind of painting? Talk us to a little bit of the ultimate spectrum of solutions you envision.
Craig: We’ve invested in boot camps, and we’ve determined that this is a better model, to the point that we believe that, if you’re looking to get a job or a better job in a sector where there’s a talent gap—and there are thousands of those sectors across the economy—and someone is asking you to pay tuition or take any financial risk whatsoever for that upskilling, they either have a bad business model or at least an unimagined business model, because there’s a very willing payor for that upskilling, and that’s the end employer that can’t find the talent. And so, from a public policy standpoint, and from an investor standpoint, what’s needed is a massive increase in apprenticeship infrastructure in this country.
Kerr: Ryan, another contextual piece for us in 2023, there’s been a lot of tech-sector layoffs over the last six months. Does that lead you to recalibrate or reset any of your goals, or is it orthogonal to what you’re trying to do?
Craig: Yeah, kind of orthogonal. I would say that all the sectors that we’re focused on—Workday, for example, probably 50,000, 100,000 Workday consultants short in that sector, Salesforce, a couple of hundred thousand—so when we see a layoff of 10,000 or 20,000, it doesn’t really move the needle on the shortage in these areas.
Kerr: Ryan, let’s wrap up with a final question. What’s next for you beyond the upcoming release of the book and for Achieve Partners?
Craig: Yeah. So at Achieve, we’re just about to wrap up our fund-raise for our ed-tech fund, and then we’ll be in the market next year with workforce, too, which will be bigger and better. Right now, our workforce strategy is North America only. We’re debating whether we expand it from there. But this model, this strategy will work just as well, even in Germany, the home of apprenticeship, as it will here in the U.S. So we’re looking forward to expanding it in North America and globally.
Kerr: Ryan Craig is the Managing Director of Achieve Partners, and his upcoming book is called Apprentice Nation. Ryan, thanks so much for joining us today.
Craig: Thank you, Bill.
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