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Archive for the ‘Bidness, and Other Current Economic Realities’ Category

In a new book entitledcomplacent-class, author Tyler Cowen notes that the entrepreneurship rate in the United States has plummeted to about 7.5% of American companies today that are considered “startups,” down from about 13% in the 1980s (when, coincidentally, our firm started, back in the recession of 1987).

At the same time, the percentage of workers who “switch jobs” every year, a general indicator of workers finding better prospects elsewhere – as opposed to shifts caused by layoffs – has declined by nearly 50% since 2000.  Cowen further points out the overall decline in measured productivity, now at about half the post WWII average since we moved out of the great recession, as well as about a 25% decline since 2000 in U.S. patents that are also filed in Europe and Japan (an indicator of greater scientific rigor, he believes).

More alarmingly, the type of innovation occurring these days tends to be more incremental than fully transformational.  Here, think: Uber, Airbnb or Snap, to name just three recent examples of the new innovation.

One of Cowen’s conclusions appears to be that a “complacent class” — defined as a risk-averse populace that has lost “the capacity to imagine or embrace a world where things do change rapidly for most if not all people” – has “sapped us of the pioneer spirit that made America the world’s most productive economy.”

In his book, Cowen points out the contrast between the changes of the past 50 years and those that occurred in the first half of the 20th century.  His view is that we went from dramatic improvements in health and education, coupled with a vast proliferation in technologies like autos, planes and phones, to the changes in the past 50 years which, by contrast, he finds more modest.  “A lot of our technological world seems to have stood pretty much still.”

Cowen draws an interesting point, noting how what he calls “matching” makes it easier than ever for people to find what they need, or an algorithm thinks they need.  It’s true for shopping for everything for music and movies to clothes and spouses.  A click or a swipe and, often as not, we find what we’d previously had to spend a long time looking for. (He even humorously points to a new dating app from Oscar Mayer for specifically targeting bacon-lovers.  You gotta’ love it.)  His implication appears to be that we are both less creatively inclined perhaps, and more complacent in accepting the status quo as life becomes easier, and the incentive to improvise and create diminishes.

Cowen, an Economics professor at George Mason University predicts the U.S. will see a wave of online crime that will “wall off” the Internet, thus “reinforcing group isolation.”  He sees the world becoming a more dangerous place, where “the higher the benefits of peace, the more gun-shy and war-shy the prosperous and peaceful countries will become.”  He sees this as incentive for smaller, radicalized groups to “seize territory or start wars…”

There are many who would argue against some of his depressing and Doomsday predictions.  While it acknowledges the recent decline in startups, it hasn’t yet allowed time for the necessary re-emergence from the most recent recession, nor for the entrepreneurial spirit many in business today see around us in the up and coming generation of new entrepreneurs.  In other words, the jury’s out.

Whether you agree or disagree with Cowen’s assumptions and conclusions, he’ll make you think.  And isn’t that, at the core of it, what ultimately incentivizes the entrepreneur — thinking of a better way?  Here’s hoping his dire predictions can be undone in some small, ironic way with some soul-searching by tomorrow’s entrepreneurs on the conclusions he draws.

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changechangechangeWe came across a good article recently on the difficulties of “organizational change management” – and what to do about them.  It’s an issue every company faces at one time or another, and although the author (Eric Kimberling of Panorama Consulting) normally opines about most things ERP, his comments are apropos of most any organization that is challenged by change.  We’ll share those thoughts here today.

Speaking specifically of ERP software projects (but really, of any structural organizational change), Kimberling notes that change resistance can come from every level of the organization.  Executives may fear that the change does not align with their goals and objectives.  Others may feel their voices were not heard.  End-users may resist because they don’t understand why change is even necessary (or worse, we might add, the dreaded “… but we’ve always done it this way.”)

Once you’ve identified root causes of the resistance, Kimberling suggests four strategies to help employees accept change:

  1. Understand objections. Too often, the importance of listening is overlooked.  Employees generally care, often a lot – and simply want (and need) to be heard.  Readiness assessments, surveys and focus groups can help.  But don’t discount the value of simply asking, listening and communicating thoughtfully.
  2. Encourage employee engagement. As Kimberling states: “By involving employees in key decisions, they will be more likely to support organizational changes.”  Employers should strive to help employees understand how the change relates to them specifically, if they want to create a sense of ownership.
  3. Communicate organizational goals. Directly communicate with employees about the changes, the impact, the effects on them, and the reasons behind the change initiative.  Talk about tangible goals, other examples or past successes.  Focus on outcomes in order to create a desire for change.
  4. Finally, don’t give up. Any employee can become an advocate for change, but it takes time.  Don’t lose hope in your team.  Instead, he suggests, “focus on converting the strongest, loudest dissenters so they can use their energy for good.”

The most effective change management strategies require planning and communication well beyond the bullet points on a memo.  Take your time, plan, and communicate constantly.  As many business owners will tell you, change is about the hardest thing to master in business.

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code-schoolThey’re called Code Schools.  Scattered now across the U.S. is a growing number of usually short-term (i.e., 12-week) intensive training programs aimed at providing core skills to a growing army of tomorrow’s workers: coders, aka programmers.  These may well be the bricklayers of the 21st century.

In a recent article in the Wall Street Journal Christopher Mims points out one such enterprise in Akron, Ohio, that charges about $14,000 for its three month course of study.  Graduates include Alex Mathis who said “If you’d told me several years ago that I was going to be a computer programmer and working for a software company I wouldn’t have believed you.”  Mathis went from being a shipping manager to a higher-paid programmer upon graduation.

As Mims notes, “Across the U.S., change is coming for the ecosystem of employers, educational institutions and job seekers who confront the increasingly software-driven nature of work.  A potent combination – a yawning skills gap, stagnant middle-class wages and diminished career prospects for millennials – is bringing about a rapid shift in the labor market for coders and other technical professionals.”

Mind you, these code schools aren’t necessarily creating rock stars.  These aren’t the top of the food chain programmers who end up at Google or Facebook.  These schools, rather, are designed to turn out the junior developers and apprentices that will later be dropped into teams of other, more experienced programmers, to ply their craft at today’s industrial and knowledge companies, while furthering their educations there.

Most are engaged in the truly productive work of transferring and translating business processes into code, or mining data for business advantage, or maintaining and upgrading legacy systems.  In short, they’re doing the work that stokes the American business engine.  Critical infrastructure work designed to help companies grow.

On a personal note, firms like ours can perhaps be allowed a touch of pride for providing exactly that sort of work for clients (for, in our case, these past three decades).  In this blog we’ve bemoaned the dearth of effective programs for training the next generation of productive workers for this economy.  We’ve noted the successes of Germany and Japan in realizing that not every student was meant to go to college, and so have built apprentice programs and guilds that help ease young people from the realm of highs school students into the professionally employed – especially in manufacturing.

And so we can only nod approvingly when Mims concludes his piece as follows:

“U.S. manufacturers have spent decades developing guilds, vocational training programs and in-house retraining efforts to keep workers up to date… What is happening now with code schools is very much the reinvention of that system, but for professionals who work with bits, rather than widgets.”

 

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jack-welchA recent article in the Wall Street Journal “C-Suite Strategies” Report by Dr. Peter Cappelli, Director of the Center for Human Resources at Wharton, delves into our rather natural tendencies to put people into categories – especially in business.  We do it, he points, because it’s useful, providing managers with an easy way of thinking about people.  At work, we typically put them into boxes: The A players, who perform well, the C players, who perform poorly, and the rest, the B players stuck in the middle.

But Cappelli suggests this does companies and employees a lot more harm than good.

For starters, he notes, the boxes are just plain wrong.  Broad categories miss a lot of subtleties and “people’s true talents and strengths often get ignored.”  The notion that good players are always good creates a ‘halo effect’ in the mistaken belief that if you’re an A player in one thing, you will be an A player in another.  And these prophecies too often become self-fulfilling, if misguided.  When we give stars more opportunities to succeed, we risk denying those chances to those we expect to fail.

Former GE CEO Jack Welch abided by this tack with his famous “vitality curve” describing differences in employee performance and used as justification for forced ranking systems in which the bottom 10%, relative to other employees were usually shown the door.

And of course, once workers are labeled as the C player, they are usually shunted aside, or as in the GE case, out the door – even though on the next assignment, or with a little help, they may well improve in the next period.  Meanwhile, players labeled A-level are assumed to have more ability and get designated as high potentials.  “Research shows that when employees believe their current performance isn’t recognized, they are stuck with a B player label even if their performance shoots up… incentives no longer motivate them, so they give up trying.”

How do we shake off the natural inclination to put employees into boxes then?

Among Cappelli’s suggestions:

  • Respond to employees’ performance more quickly, reflecting on how variable that performance actually is. This might mean paying an excellent bonus for superb performance in one period or project, and perhaps none for lesser work on another project.
  • Monitor performance. Where possible, take people out of high-potential programs and slot in people whose performance is surging.
  • Create new performance categories based on the actual tasks people have to perform. Who is good at managing projects, negotiating agreements, running meetings?  “Knowing such things breaks down the tendency to rely on a simple good/bad employee classification.”
  • Finally, supervisors should be “active about managing subordinates.” Cappelli notes that “the evidence is overwhelming that it does matter how we set expectations, assign projects, hold people accountable for performance, provide feedback and so forth.

Finally, this: Surveyed HR leaders say their number one employee-potential assessment method is “management judgment” followed by “performance-review results.”  Nothing else even came close.

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multiplierBeing that we are providers of business software and consulting solutions predominantly to manufacturers and distributors throughout the Midwest, we have a presumed (and accurately so) bias towards manufacturing.

For that reason we are pleased to reprise a few comments made recently by Forbes Magazine “Editor at Large / Global Futurist” Rich Karlgaard, in his column “Innovation Rules.”  In an article criticizing the high cost of regulation to business, he cites current administration proposed reforms that he believes will greatly – disproportionately, even, and “quite intentionally” – help the manufacturing sector, which as noted in our article title he says has “the best wealth- and job- multiplier effect.

In the article, Karlgaard quotes economists Mark and Nicole Crain that “The costs of federal regulations fall disproportionately on manufacturers…[who] pay $19,564 per employee on average to comply with federal regulations, or nearly double the $9,991 per employee costs borne by all firms as a whole.”

Since the era of globalization, notes Karlgaard, “manufacturing as a percentage of the labor force has steadily fallen from a peak of 22% in 1977 to about 8% today.”

And lest one think that’s due solely to automation, he points out that Germany and Japan, both world leaders in robotics and among the most technologically advanced economies in the world still retain healthy percentages of their respective populations in the manufacturing sector – 20% of Germany’s workforce and about 17% of Japan’s work in manufacturing.

And that’s not just T-shirts and plastic toys – we’re talking about high tech manufacturing from autos and chemicals to robots and aerospace, 3-D printing, shipbuilding and the like.

The bottom line: manufacturing still matters.  A lot.  And it could matter even more, as resources are focused, training programs expand and regulations are judiciously refined.

And a final postscript to our manufacturing comments…

Just today, as we write, the Institute for Supply Management published results showing that “U.S. factory activity grew at the fastest pace in 2-1/2 years in February as new orders and production advanced.”  Their supplier indicator showed that manufacturing was in a state of “expansion.”  Their report goes on to state that “17 out of 18 manufacturing sectors reported growth” in the month just ended.  It notes that the economy overall grew for the 93rd consecutive month.

 

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startupthecityTonight in South Bend, Indiana, a student group that I’ve been proud to be associated with for the past two years will be hosting a grand event that’s been months in the planning – and it’s already a sell-out.

StJoeCEO is a group of over 30 high school seniors (and one junior) from seven area high schools in its second year, with a mission of developing tomorrow’s young entrepreneurs.  For several months now the students have been building support for their big event at the Palais Royale in downtown South Bend.

(Disclosure: I am a board member and the CFO of StJoeCEO, but much more interesting and importantly to me, an occasional in-class volunteer and a mentor to several of these bright and enthusiastic students.)

If you ever despair of the future, given all the divisiveness surrounding us today, just find a group like this to turn your head around.

Tonight’s event, Startup The City is a celebration of the entrepreneurial spirit, and of the tremendous strides that the city of South Bend has made in just the last couple of years.  The event features “Venture Valley” and “Innovation Way” that will showcase local entrepreneurs… “Panel in the Park,” a panel discussion including South Bend Mayor Pete Buttigieg, Chamber CEO (and former area mayor) Jeff Rea, and a host of local business dignitaries… and showcase presentations by area start-ups.

For the students, it’s an opportunity to put into motion what they’ve been learning the past few months about business, innovation, strategic thinking, finance and emotional intelligence, not to mention marketing, sales, pitching, record-keeping and flat-out entrepreneurial thinking.  Program Director Iris Hammel and her co-teacher Bethany Hartley have been tireless in their efforts to set a high bar for these kids – and they appear to be exceeding.

Collectively, the StJoeCEO team has already raised around $80,000 in event funding, half of which will later go to fund the students’ own start-up businesses, which each will be diligently working on as soon as Startup ends tonight.  In the coming weeks, each will give a ‘Shark Tank’-like presentation to a panel of local business and investment professionals, and will ultimately share in funds that will help them launch their own local businesses.

What a great way to learn about entrepreneurship and the many benefits of their hometown community.  I am excited to attend this evening along with about 300 other folks, and look forward to working with these students the rest of the year.

You can learn more about StJoeCEO here.  They’re currently accepting applications for a few spots in next year’s classes, and are in the process of adding a college level program and an Elkhart area class as well.  I encourage anyone who knows of a bright young high school junior to check them out.

And by the way, local business community… investors are ALWAYS welcome!

 

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what_nextIn our prior post we looked at some of the data revealed in a recent report by The Economist which highlights the changing complexity of manufacturing, including fewer jobs overall, muddled in part by the ways those jobs are accounted for – or often not accounted for – as we move up the manufacturing supply chain.  We noted that those higher-paying manufacturing jobs in the “rich world” still account for a sizable share of nations’ GDP, and how much of the intellectual property retained by countries like the U.S., Germany and the U.K. continues to account for much of manufacturing’s overall value-add.

Still, keeping those jobs, and the future of manufacturing, are topics ripe for debate.  Today we’ll finish up our two-part post with what a few of the experts think.

For one thing, we can turn manufacturing from a product into a service, as Rolls Royce pioneered in the 1980s by providing its engines, service and maintenance at a fixed price, bundled package, or “power by the hour.”  The result was more stable revenues and more locked-in customers.

More recently, machines are being equipped with internet-connected sensors (the Internet of Things, or IoT, of which we’ve written before), which can gather data on how machines perform in the real world.  The accumulated data provides a trove of knowledge from which manufacturers can sell additional services to clients, and entice new customers as well.

Yet another bright spot will be 3-D manufacturing.  Here, we’re not speaking about creating playful little plastic widgets or toys, but rather complex manufacturing tasks in which design and manufacturing can be tightly coupled to produce things from motorbikes to high fashion.

But the real key, experts agree, lies in education.  Companies who offshore assembly and production work often suffer from reduced product innovation. Opportunities to learn how to do things better on the home front are often lost.  This is the natural synergy of production, where design meets reality, and the shop floor can provide feedback to designers; break that bond, and innovation suffers.  But those high-value design and innovation jobs require skill, adaptability and education.  These jobs will change over the lifetimes of workers, and they will not provide the mass employment of the past.

So it’s important to start with modest expectations, as is noted by James Manyika of the McKinsey Global Institute.  Improved education to ensure engineers are in good supply would be a good start.  A recent Bloomberg BusinessWeek article noted that nearly 75% of U.S. graduate-level advanced degrees in engineering and computer science are now going to non-American graduates.

Vocational training, where Germany proves a world-class model, and retraining programs that create new skills or refurbish current ones among displaced workers, have never been more important.

One way not to benefit manufacturing as a whole, many argue, is to disrupt global supply chains, nor will threatening companies that seek to move jobs overseas or the companies that host them.  We are reminded that it’s not so much foreign nations that have replaced so many of our low-skill manufacturing jobs, but rather, the inexorable march of industrial innovation, just as it’s done for the past 200 years.  Thus, policies favoring line workers over investments in automation will only make our industries less competitive.

Better to focus on the advanced manufacturing opportunities that lie ahead (i.e., 3D, IoT and manufacturing related services, to name three).  Educating our young talent – and providing ongoing education and retraining for new skills – is where our best hopes lie.

The sooner our leaders figure out what our manufacturers already know, the more robust will be our manufacturing prospects in the next generation.

 

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