Why the Economy Will Rebound Faster than Employment
Regardless of when we pull out of the recession, one thing is certain - unemployment will lag behind.
I have seen it happen over and over again. Entrepreneurs and business owners hire people and then they grow to like them. They build a culture of family and they genuinely feel a sense of pride in and responsibility for providing employment and security for so many families.
Then, when times get tough, they struggle to let people go because of this same sense of pride and responsibility. These same entrepreneurs don’t hesitate to sell equipment, downsize their office, or cut other non-human expenses. So why can’t they just look at their employees as an asset or a piece of equipment to sell or dispose of when they need to lean-up their operations?
I know, this question sounds silly. Obviously we don’t build much of a real relationship with a piece of equipment, and we don’t personally know of a wife and five kids that the piece of equipment is trying to support. So, what does this have to do with our ongoing high levels of unemployment in this country?
We have all heard the statistic from the SBA that that just over half of private employees are employed by small businesses. And I would argue that the small businesses are those that have more of a tendency to view their employees as real people and real families – in fact, sometimes a good portion of their employees are family members. In this context, I submit that owners and executives of the small businesses of America are still wounded from having to let people go during the recession.
Where a few years ago it was common to see entrepreneurs hire a new person at even the prospect of the need, these same entrepreneurs, still bruised from some tough times, are much more hesitant to pull the trigger on new hires. Phrases like: “Let’s hold off on hiring until we are absolutely certain we need another person,” and “I’m fine to authorize overtime until we can really justify adding to the staff,” have become the new norm.
Even though the Business Outlook Survey published in CFO Magazine is predicting double-digit rates of growth in both earnings and capital spending over the next 12 months, it is also predicting much slower employment growth. When asked why employment would lag behind other positive trends, two of the top three responses highlighted the reliance on :
- 44% plan to increase productivity per employee
- 37% will increase production efficiency
Entrepreneurs are simply asking for more from their current employees and looking to technology and automation to grow. They learned their lesson and, as a result, are accelerating our economy’s change to a more efficient playing field, relying on people to add high-level value than fulfill lower-level tasks.
So, as the economy rebounds, it only makes sense that employment will lag behind.
Comments
Company: Independent
Ken, congratulations. Last week's employment data really bore out your analysis.
Company: Treasury Dynamics
As a small business owner I take a lot of pride in providing jobs for my employees, and they do become 'family'. Reducing headcount is the last thing I consider when looking at cutting costs, so prematurely adding people could prove ill-advised, both economically and emotionally.
Company: ERA
Last week I presented in front of 15 CEO's on mid size companies and their comments bare out your thoughts. CEO's may be willing hire "A" players but will hold off on hiring "B" or "C" players until there is more certainty. The problem is there are very few "A" players that are not already employed and are uncertain about leaving their company for a new opportunity. We are in a dilemma and until more certainty returns to the marketplace, we are stuck in a circle.
Company: ERA
One of my contacts made a comment to me the other day about recently attending a conference where it was stated that small and mid size businesses are only hiring "A" players and not filling jobs with B or C players. If you need resources and cannot find or afford to fill jobs with "A" players, use an external resource that is paid on performance and avoid the drag along expenses that come with filling vacant jobs with non performers.
If only B and C players are left to hire, and you need help in reducing your operating cost, consider looking for “A” player consulting companies that have the resources, data and expertise to be effective and only pay them on their performance. Follow the steps listed below to find these external resources that are the “A” players in professional services who focus on expense management.
• Look for a consulting company that will take the risk of reducing your expenses that has a history of success through a contingency agreement.
o A shared risk model will keep your cost low and will reduce the time you spend on expense categories that have little financial or operational benefit to the company
o Have the consultant provide case studies, testimonials and references up front.
o Have the consult look at multiple categories of expenses to ascertain where opportunities lie.
• Make sure the consultant agrees to find an area to reduce expenses at the same or better quality and service levels than you now experience.
o You can always find a cheaper product or service however, you need to consider the quality and service levels you will receive when you use the service or product
o Total cost of ownership should be considered. If you save money on the service but it ends up costing you more in your use of that service, it is not a savings
o Establish a “Baseline” that you can jointly use to measure against and have unitized measurements established
o The Baseline should identify your largest purchases in the category, seasonality of the purchase and any service or quality level that you require.
• Seek out a company that can focus on more than a single expense category but has expertise in all categories under review.
o Every time you meet with an external company it cost you time and money. Therefore, having multiple consulting companies reviewing your expenses will generally cost you more time and money.
o Each consulting company will use a different process so your team will need to understand the different processes each company uses. More time, more money!
o One throat to choke is an expression often used to describe the benefits of using a single supplier. It works with consultants as well when they review your expenses
• The consultant should not take up much of your or your team's time
o Have the consulting company tell you upfront how much of your and your team’s time they expect use during the project.
o What has the consulting company averaged in savings over the categories of expense they have reviewed?
If they expect to save $100,000 and use 5 hours of your time that's $20,000 an hour you are contributing to your company’s bottom line. For 10 hours, it is $10,000 an hour in contribution to your company
o Make sure they will do the heavy lifting: making copies, reviewing contracts, calling suppliers, coordinating meetings, etc. Don’t let your team do the work for the consultant. You should expect to pay them well but they should do the lion’s share of the work.
o However, also remember that history may not be repeatable; it is only an indicator of potential savings. It will take an effort on the part of the consulting company to induce competition during their RFP process to truly get the best prices the market can offer.
o If you have a “special” relationship with a supplier, let your consultant know so that they have a full understanding of that relationship.
• The resource should have benchmarks to measure your current performance against your competitors, industry and those outside your industry that have similar needs as yours.
o If they have completed thousands of projects, they should have benchmarks from the projects and be able to use them to evaluate the projected outcome
o Don't expect the consultant to share these benchmarks as they are most like under NDA's and they are IP of the consulting firm. Remember, they are paid for their knowledge and experience.
• Look for companies that are transparent in their approach and fully explain fees that are measurable up front.
o Review their process with the Client Manager before you sign an agreement.
o Don’t expect your Client Manager to be an expert on all expense categories. Your Client Manager should be the quarterback of a team of consultants that have expertise in each category. He/she should facilitate meetings with your team and these experts and manage the project by meeting critical project dates
o Do not view your Client Manager as a sales person. They may be and often are an owner in the business and should be viewed as a peer that will help you better manage your company.
o The consultant must be able to understand your culture as well as have the ability to work with your employees who are stakeholders in the expense category and process. He/she must be able to overcome internal resistance to change and be viewed as part of your team vs. an outside consultant.
o Ensure that you maintain control during the process that requires your approval as they progress through their process.
o Do not provide them the ability to make any changes without your signed approval. A Letter of Authorization is OK but a Letter of Agency is not.
o Make sure they provide you options that best fit your operating environment. Your environment is unique to your company and ”A” Player consultants understand your situation is special onto you.
o Make sure you understand their fee structure and if they obtain incentives from certain suppliers. If they get a commission from a supplier their objectivity may be compromised. If they obtain fees from a supplier, have them disclose that fee and how it benefits you.
• The consultant’s company should not only recommend savings but be able to implement the savings.
o If they recommend but do not have the resources or expertise to implement, then your team will need to carry the ball and take their time away from more important functions
o We have found that internal expense reduction programs can lose focus as other pet projects become more important. Implementation distractions can add to this loss of focus
o You stand the risk of losing your internal resources right in the middle of an implementation. A consulting company is only paid if they are present.
o If the consultants implement a solution that does not work, then they must be willing to fix it before you pay them any additional fees. Implementation must be viewed by you as successful before the consultant is paid.
• An audit period after implementation must insure that the savings predicted actually happen.
o Savings can evaporate if they are not audited on a regular and timely basis
o A shared risk (contingency) model will ensure that the consulting company has a vested interest toward increasing your savings, auditing invoices for credits and suggesting more ideas to increase your savings
• The consultant company is paid on performance!
o Over the life of the project the consultant should only be paid for the actual savings they produce.
o An “A” player consulting company can help you change your company’s culture to one that better manages cost.
o An “A” player consultant has made many contacts over the years and can recommend other “A” Players to you. A trusted advisor can speed your path to prosperity!