What is undermining job creation in the USA?

December 31, 2009

I recently attended a Silicon Valley executive networking meeting. Here’s what the participants concluded:

  • People can’t wait for 2009 to end; 2009 just can’t end soon enough.
  • Many want to close additional business before the end of 2009 to have strong momentum going into 2010.

The US needs job growth. Many economists are predicting a “jobless economic recovery” meaning there won’t be much hiring going on for some time to come. When people leave their positions either due to normal attrition or layoff, there is often no intention to replace them. This isn’t what the US needs.

Unemployment in California just hit 12.5%. The effective rate of unemployment may be understated by as much as 5% due to furlough days, temporary shut-downs, people who have given up looking for work, etc.

I see many factors undermining job growth; 2 of the most critical structural impediments are:

  • Out of control health insurance premium increases
  • Access to capital

Out of control health insurance premium increases

Health insurance costs have been spiraling out of control for at least the last 5 years and, realistically, much longer. The insurance companies are passing along double-digit premium increases year after year. Mine went up 16% this year, I’ve heard of many others in the same situation, one business owner in Massachusetts saw a 30% increase with no discernible rationale or explanation.

A woman in the insurance business tried to say, “Well, Dave…you don’t understand…” Frankly, I don’t want an explanation—I want a solution. What came next was some diatribe about how the insurance companies are just passing on costs, how we need to get people to eat differently and exercise so the system can right itself in 30 or 40 years, etc. Yada, yada, yada.

When did it become acceptable to pass on double-digit premium increases year after year? When did it become acceptable to have premium increases that are 5 times or more the rate of inflation? I get incensed just writing about this. And, of course (as we have been warned), it will only get worse if and when the insurance companies have to cover people with “pre-existing conditions” who are denied coverage today.

Business leaders need to be “mad as hell and not take this any more!” America seems to be the only country in the world that looks at this issue with such complacency. America is also one of the few countries in the world that allows people to be driven into bankruptcy due to lack of insurance coverage.

We’ve got Congress fiddle-farting around trying to balance the needs of their constituents with the needs of the special interests that fund their getting into office. This is the height of absurdity. I’ve heard that if you ever saw sausage being made, you would never eat it. I’m beginning to feel that the health care reform legislation is similar—it’s not going to be palatable.

Ever-increasing health care costs are a deterrent to hiring people at a time when job growth is badly needed. So, what were ideas the group had to overcome this problem?

  • I suggested we start with the assumption that American does not have the best health care system in the world (contrary to some talking points). We don’t have the best system by a wide margin—we are actually ranked 19th in the world. I suggested everyone read T. R. Reid’s book “The Healing of America.” We should look for best practices from all around the world and incorporate changes here in the USA as quickly as possible.
  • One person offered we should stop hiring people and put everyone on a 1099 so there will be no obligation to offer health insurance. Wow—great idea! Is the IRS going to change the rules to treat “real employees” as temps? Or, do we just allow people to work a few months; take a few months off, rinse and repeat?
  • Outsource the jobs internationally to avoid the negative deterrents to hiring domestically. That’s going to really help with USA job creation.
  • Suck it up—just recognize that increasing health care costs are our future and there’s nothing that can be done about it.

Sorry, but, I’m a change agent—change agents do not embrace the status quo when the status quo is so obviously unacceptable. The insurance industry must be far more than a pass-through point—they need to drive their own structural changes that decrease costs and undermine fraud. Right now, they are not incented to do that. They just pass it on.

Access to capital

I “romanced the past” by reminding people of what Silicon Valley was like back in the 70’s, 80’s and 90’s:

  • Entrepreneurs came up with seemingly viable business ideas
  • Venture capitalists funded the ideas with equity financing realizing that there wouldn’t be an instantaneous return on their investment
  • Employees worked their butts off trying to deliver top value to the marketplace driving company growth, revenue and market valuations
  • IPO’s were a frequent occurrence and were a reason for people to work so hard looking for a “big payday”
  • Go find the next great business adventure and create excitement

Did the formula always work? No. But it was the driver of what made Silicon Valley Silicon Valley. I can tell you—people were excited about going to work everyday. Can we say that today? No. Why isn’t that happening today?

  • Insufficient capital undermines the formation of new companies and the expansion of existing companies both of which negatively impact job creation. What incentives can be offered to get investors out of the bleachers and back on the field of play?
  • People lending money are offering terms that one could only imagine as having originated from loan sharks. It is harder and harder to get equity investment; money lent in today’s world is debt with high interest rates and short timeframes for repayment.
  • The dot com bust in 2001, Enron and then ensuing Sarbanes-Oxley audit requirements have dramatically altered the availability of capital and desirability of taking companies public. Is the US and investors getting any return or benefit for the cost of SOX? Is the value commensurate with the cost?  I think not.  There will always be white collar crooks—we see evidence of that everyday in the news.
  • IPO’s are a rarity today; getting acquired seems to be the stronger exit strategy and apparently is not as attractive an exit strategy as IPO’s used to represent.

One gentleman in our meeting suggested an approach the San Jose Mercury News has just today (22NOV09) referred to as “extreme bootstrapping”—finding unemployed people, letting them work for free with the hope that there might be a job in it for them someday or some royalty payment, etc. Call me crazy, but, that’s not what we need either. Hope is not a strategy.

Summary

There is no question that access to capital and health care insurance costs are undermining job creation. Removing structural impediments to job creation isn’t just desirable—it’s key to turning this economy around. Job growth will come from small, entrepreneurial ventures. More attention must be paid to small companies, getting them financed and giving them incentives to create real jobs.

What do you think?

Dave Gardner, Gardner & Associates Consulting

http://www.gardnerandassoc.com


Economic recovery in manufacturing and jobs

December 30, 2009

There are some encouraging economic signs just announced the 24th of December, 2009:

  • the number of newly laid-off workers fell more than expected last week
  • the four-week average for unemployment claims fell for the 16th consecutive week
  • U.S. factory orders for “big ticket items” (durable goods) rose in November and, while less than expected, were double what economists had predicted.

Are we out of the economic woods yet?  It is a bit early to declare victory, but, I appreciate goods news as we leave 2009 and move into 2010.

Dave Gardner, Gardner & Associates Consulting

http://www.gardnerandassoc.com


Homeland Security Fails with Airplane Bomber

December 27, 2009

I think it’s high time we get mad as hell and let the Department of Homeland Security know we are not going to take it anymore.

As everyone now knows, on Christmas Day, another extremist (by his own admission) attempted to blow up an international flight between Amsterdam and Detroit.  This event will spark outrage by Congress and result in all the inevitable hearings.  We are so great at being reactive but can’t seem to be proactive in heading off threats until after they have occurred.

One thing is painfully clear to me:

The homeland security system is not working and it was only because of an unlikely failure in a bomb ignition device that hundreds of innocent people were not killed.

This incident was so avoidable. The father of the young man went to the U.S. embassy in Nigeria to report that his son is a threat. His son’s name doesn’t find its way on to the “no-fly” list allegedly because the threat was not specific enough.  Are you kidding me.? This is a problem.

The Associated Press reports this morning that Janet Napolitano says “the system worked.”  Excuse me?  How does she arrive at that conclusion?  Here’s the official position of the White House as reported in the Associated Press:

White House spokesman Robert Gibbs says investigators are looking at the system for placing potential terrorists on travel security lists to see if procedures were properly followed and what can be done to make them more effective.

What is it about politicians who just avoided a horrific calamity that makes them make statements like this?

Just say it:  The system failed and failed big time.  People failed to execute their jobs properly.  Those who are responsible for designing and implementing this business process will be immediately terminated from their jobs.

And, get ready:  You’re going to hear the U.S. Embassies are run by the State Department whereas the Department of Homeland Security is a separate department and that fact alone  means that the system can’t be lean and agile.  Really?  Do we have to accept this?  Or, does our command and control mechanism build firewalls around these 2 functions that preclude timely and effective collaboration between these groups?  If you’ve got a “.gov” email address, there should be no barrier to collaboration.

I’m also not in favor of political correctness.

Those of us who travel extensively know that even when you see something suspicious, those who are responsible for protecting us are hesitant to investigate suspicious behavior to avoid charges of  “profiling.”  This is obscene.  It’s not 80-year old white women and 5-year old kids who have a history of blowing up planes.  More profiling and less political correctness could go a long way in protecting us.

Back when the shoe bomber tried to bring down a plane, I joked that it was a good thing that he used his shoes and hadn’t stuffed something in his underware.  Otherwise, we would have to remove more than just our shoes as we went through airport security.  Well, guess what–this latest guy just stuffed his underwear.  I hate to think of what the implications will be for us.

It perturbs me to no end that the failure of those charged with protecting us will now cause great inconvenience to the millions of travelers who aren’t breaking the law and trying to bring down aircraft.  All this because the current system that could have prevented this failed.   Will it make us safer?  No.  But, it will certainly create the illusion that we are safer.

The Department of Homeland Security needs to come to grips with the notion that things are not going well for them.  This department owns the Secret Service–the agency that allowed 2 reality TV wannabees to have full access to the President of the United States, the Vice President, the Speaker of the House, etc., at the recent state dinner.  If this latest execution failure is not further indication of the need for a wake-up call, then I don’t what is.

What do you think?

Dave Gardner, Gardner & Associates Consulting

http://www.gardnerandassoc.com


Jazz Improvisation and Consulting

December 18, 2009

Those of us interested in getting involved in the school music program were summoned to the elementary school cafeteria to speak with the music teacher, Mr. Whiteside.

Mr. Whiteside looked at each of us carefully—almost as if he was going to purchase a horse at auction.  We had to show him our teeth and mouth so he could determine what instrument he deemed would be best for us.

When my turn came, he looked at me and said, “So, what do you want to play.”  I responded, “Trumpet, Mr. Whiteside.”  He looked carefully at me and declared, “With an embouchure like yours, I think clarinet would be best.”

I informed him in a rather matter-of-fact matter that my natural father had died before shortly before I was born, that he was known for being quite the trumpet player and I wanted to follow in his footsteps.  I told him that I had his horn and was ready to start.

Mr. Whiteside said, “Well, okay, but I don’t think you’ll ever amount to much of a trumpet player.”  It’s not good to tell me (or anyone for that matter) that I can’t achieve something for which I’ve set my intention.

I started playing trumpet when I was in the fourth grade.  When I entered junior high in the 6th grade, I wanted to be the first chair trumpet.  The guy who had held that seat for a couple of years was in his fourth year at the junior high school and didn’t expect some kid right out of elementary school to come in and take first chair—his chair. After all, I had only 2 years experience; he had 5.  I challenged him for first chair early in the school year and won on my first attempt.

The lesson: In music and in life, you can never become complacent; there is always someone who can come along and replace you.

Thanks to great teachers, inherited talent and hard work, I excelled at playing trumpet.  In junior high, I performed with high school groups. During high school, I performed with college groups and adult big band jazz groups made up of professionals who had toured with the likes of Stan Kenton, Woody Herman, Buddy Rich and others.

When it comes to playing trumpet, I’ve pretty much done it all. I played lead and jazz trumpet in big band jazz groups, had my own small jazz groups to earn money going through undergraduate school, performed with pit orchestras for musicals, marching bands, symphonic bands and symphony orchestras, etc.  Mr. Whiteside and I even played a few gigs together.

Please don’t ask me about one horrible January when I had to play for one month in a Palo Alto, California, German beer house polka band each Friday and Saturday night wearing lederhosen and a silly felt hat.  Thankfully, there are no photos of this—I would have to buy them.

So, what does playing jazz have to do with consulting?

When you play a jazz tune, the tune itself provides the framework or essential structure within which you live for the duration of that tune.  A tune is played in a certain key, with specific chord progressions, etc.  The tune sets the context; it is the target that you have to stay within the entire time you are playing it.

As jazz musicians, we play the tune, several of us take improvisational solos within the context of the tune, and we conclude by replaying the original tune in its fully-recognizable form—bringing it home as we say.  The start and ending are completely predictable; it’s the middle that holds the mystery.

In many respects, consulting is a lot like playing jazz.  You know what the outcomes are that you are intending to produce.  What you don’t know is all the twists and turns that project will take in the middle as you seek to create the outcome(s).  But, just as in music, you know what the ending has to look like to successfully conclude the effort.

Here is a story about an improvisation I made with a client in mid-Michigan back during the year 2000.

Powell Fab is a capital equipment manufacturer located in St. Louis, Michigan, a town of about 4500 people.  The company employed 43 people at the time.  The culture in mid-Michigan could not have been more different from what I was used to in Silicon Valley.  The majority of the team members were not very keen about me being there to implement changes to the way this 35-year old company had done business.  Here’s a bit about the situation I faced:

  • I was helping the company implement a small ERP system that the president had invested in but had not been integrated with any of the core business processes.
  • There was an open stock room accessible by everyone.
  • The president rejected the idea of installing a cage around the stock room to secure the inventory.
  • The inventory record accuracy was deplorable.

The challenge I faced was getting the employees to:

  • Transact all inventory consumed or returned with the person who oversaw the stock room to properly account for inventory and improve inventory accuracy, and,
  • Ensure that the parts were properly charged to the jobs they were used on.

In my gut, I knew I could never sell them on the idea of “transacting inventory.”  Those words would hold no appeal.  I’d be laughed at.

So, given my music background, I challenged myself to define a powerful metaphor that would change the behavior forever and ensure that my client got what he wanted: compliance with the new processes.

As I drove by the Wal-Mart in a neighboring town, it dawned on me:  None of these people would ever think of going into the big open stockroom called Wal-Mart and bypassing the cash register going out the door.  That would be shoplifting.  Nobody wants to get caught shoplifting.

When it came time to train people about the new process, I told them that if they didn’t stop by the check-out stand as they left the stock room on their way to the shop floor, that action would be the equivalent of shoplifting.  The team connected with that immediately.  They got it and we had instant, enduring compliance.

When people would come out of the stock room with one or more parts in hand, others would immediately look at that person, point and ask, “Did you shoplift that?”  They held each other accountable.

I help clients implement appropriate, sustainable solutions to their business execution challenges.  Sometimes, you have to improvise to create enduring change.  It works in jazz and in business.

Dave Gardner, Gardner & Associates Consulting http://www.gardnerandassoc.com


AT&T Business Execution Failure

December 10, 2009

AT&T’s CEO has taken to blaming customers for consuming too much cellular bandwidth and, in effect, hogging capacity.  AT&T’s CEO has nailed it!  It is the customer’s fault.  Thanks for clearing that up.

So, while it’s the “customer’s fault,” is it salient that AT&T’s network has historically been behind actual demand? Why should we be surprised now?

My memory is that cell phone voice mail was created because networks could not support demand…there was no contractual commitment that calls needed to get through on the first dial.  So, as much as we’d like to think cellular voicemail was for our convenience, network capacity drove this feature.

The iPhone has certainly exacerbated the network problem for AT&T.  That and Verizon’s new advertising campaign in the US illustrating the lack of robustness of their network.

AT&T is talking about rate changes for heavy users of the iPhone.  I liken it to drug usage–inexpensive to get started but expensive to keep up now that you are hooked.

But, will paying more get you a better network?  Not in the near term.

AT&T is hoping you will use your iPhone less because of the cost premiums customers want to avoid which will increase their network bandwidth because they have a constrained supply.  It might help, but, it’s not an answer.  And, they’ll be degrading service at the same price, not a good strategy for creating a wonderful customer experience.

AT&T entered into an agreement with Apple that meant AT&T would realize no profit from the iPhone for 17 months after launch.  If Verizon offers the iPhone with a better service plan, AT&T customers will move in droves overnight.

As a devout Verizon customer, will that be a good thing for me?  Too early to tell.

What do you think?

Dave Gardner, Gardner & Associates Consulting http://www.gardnerandassoc.com


Not failing? Not trying!

December 2, 2009

Enjoy!

What do you think?

Dave Gardner, Gardner & Associates Consulting http://www.gardnerandassoc.com