Six Economic Themes for the Decade Ahead

Dr. Michael Cox of SMU (and past Chief Economist of the Federal Reserve) recently presented “Six Economic Themes for the Decade Ahead.”

The 25 year period from 1982 – 2007 represented the longest string of almost uninterrupted growth in U.S. history, in stark contrast to every other measurement period. The 2010 – 2020 period will most probably be different.

Innovation was the first theme, and was key to economic growth from 1982 – 2007. Fueled by the technology explosion, spillover from hardware, software, the Internet, and microchip hugely impacted our economic growth. In fact from 1995 – 2007 the microchip and its usage was the most important contributor to economic growth.

So what’s in store for 2010 and beyond? We are still waiting for that one great idea or innovation. One possible prediction is Pharmacogenomics, which is the ability to use individual genetic information to predict whether a drug will make a patient well or ill.

Globalization. Foreign country growth has added approximately 3 billion new capitalist consumers. 21 of 22 potential customers are now outside of the United States, and accessible in ways never before available.

Credit. From 1982 – 2007 there was an abundance of financial trust and available credit.

Recent large scale financial institution failures (at least in the near term) resulted in even greater government regulation. The years from 2010 – 2020 credit markets will most likely operate under a cloud of suspicion and fear. Unabated, new government rules have the potential to crush small businesses in the opinion of Dr. Cox.

Consumerism. Our attitude has shifted from “too much ain’t enough” over to “saving is chic." Personal savings rate shifted from approximately 9% in 1947 to 1% in 2008. Personal debt had grown to 120% of personal income.

Times have changed. Current savings rate has grown to 4% at the end of 2009 and appears to be rising. Companies need to better understand elasticity of demand relative to income and its impact on changing purchasing habits by businesses and consumers.

Inflation. Most mainstream economists believe a low steady rate of inflation is good. Low (as opposed to zero or negative inflation) is typically believed to reduce the severity of economic downturns

Between 1982 – 2007 inflation averaged between 2% - 3%. In 2009, inflation in the U.S. averaged -.34%. With the National Debt projected to be almost $12 trillion in 2010, controlled positive inflation is critical to help improve the economy. Controlled inflation will help in reducing the federal debt and improve equity values in private real estate ownership.

Government. Between 1982 – 2007 government intervention was considered minimal. The general feeling was “less is better."

However, Dr. Cox feels there will be significantly more government regulation and intervention between 2010 – 2020. This is driven both by the recent problems in the financial markets as well as the current administration’s underlying political philosophy.

This does not bode well according to Dr. Cox, and he foresees serious negative implications to business growth as a result. He also believes the income tax burden to higher earning individuals and businesses will increase.

Further government overreacting with policy fixes and increasing the tax burden will slow the economy even more in Dr. Cox’s opinion.

Conclusion

So was the overall opinion by Dr. Cox one of complete doom and gloom? No. While clearly he is concerned that overreaction by the federal government in terms of policy making could seriously impact the well being of private enterprise, an even greater opportunity lies with the expanding global economy. The challenge for American based companies is to recognize and correctly respond to this global business opportunity.

Posted by Wayne Rampey, Vice President, The InSource Group

What a difference a year makes!

Last night, The InSource Group hosted a client networking event. Over 65 people were in attendance, representing a cross section of clients from the DFW Metroplex, from small businesses to Fortune 1000 companies. It was very interesting to compare the tone and tenor of the conversations last night with a similar event that was held a year ago.

Twelve months ago the words that best characterized those conversations were "uncertainty," "anxiety" and "commiseration." This year the mood was decidedly more upbeat. From cautiously optimistic to sanguine, if last night was any indication, we are definitely in the midst of a recovery. While everyone queried acknowledged that we had a long way to go, for most attendees, hiring was up and expense constraints are gradually being lifted.



Clearly, everyone who attended had a great time, fueled in part, of course, by food and drink, but also and perhaps most importantly by a sense of optimism about 2010.

Recognition vs. Compensation – Which is most influential?

As the economic recovery continues, anecdotal evidence as well as formal surveys continue to point to a significant problem in today’s workforce. As an IT recruiting firm, we see this problem often as we look for candidates. That problem is employee discontent.

So why is this such an important topic to discuss? Especially coming from a company which makes its living helping individuals find new careers.

With the vast majority of candidates, compensation is one of the first topics indicated as their prime motivator. After all, most of us would like to be making more money, and think we deserve more money. But upon detailed discussion, we almost always find a plethora of other issues behind that person’s desire to change employment. And compensation is rarely the only or even the primary reason a person will accept a new job. Think about it……… why accept a new position making 5 – 8% more, when the same problem set exists at the next employer?

The economy is recovering, profits are rising, but in most cases that deep reservoir of cash for large salary increases is still not an available option. So if you have limited financial resource to increase compensation or you have already handed out raises, what options do you still have?

First, lets look at some of the most common issues we hear from individuals. Employee discontent typically boils down to individuals feeling like:

• They are under appreciated or under recognized for their contributions, or
• There is not enough autonomy in performing their jobs, or
• They are not truly making an important contribution in their job, or
• They are not learning or being challenged enough for future career growth.

Importantly, these types of feelings play across all generational ranges of employees.

If you look at Fortune Magazine’s 2010 list of the 100 Best Companies to Work For, one important common denominator that drives their success is enlightened and innovative management. But lets not confuse greatness with absolute size, nor being the biggest as the most successful company. The companies on Fortune’s list did not become successful or grow faster than their competition until management recognized how to motivate all of their employees to perform at a higher level.

So what is a firm to do to fend off this potential disaster of looming employee turnover? Sometimes just revisiting the fundamentals of good management principles will help solve much of the problem.

1. Companies need to refocus on the renewal of the bond between company and employee.
2. Treat employees with greater respect and trust regardless of their position or income level. You will experience greater productivity from your employees when they know you respect and trust them.
3. Be clear with company communication. Knowledge breeds confidence and clarity of purpose. Ambiguity leads to misinterpretations, rumor, or even worse – misaligned goals and efforts by employees.
4. Recognize that different employees define success differently. Enlightened management recognizes those differences, and within reason manages to those different expectations. Authoritarian approaches breed resentment and handicap a firm’s ability to compete effectively.

Posted by Wayne Rampey, Vice President, The InSource Group

Moving Forward in Today’s Economy

On March 5th, IBM’s Chief Economist Dr. Phil Swan was in Dallas to present to The Metroplex Technology Business Council. In Dr. Swan’s role, he evaluates economic data at the macro and microeconomic level, and advises the executive staff of IBM to assist their strategic decision making process.

As you might expect, Dr. Swan’s presentation contained a mix of news about the economic recovery, and specifically some interesting data on Information Technology’s contribution to the recovery. Some of Dr. Swan’s observations include:

• On a positive note, from 1995 to 2008 the U.S. utilized Information Technology to increase productivity growth better than any other country. Better than Japan, the European Union or the OECD. In fact between 2001 to 2008, Dr. Swan attributed 60% of U.S. productivity increase to Information Technology usage.

• In 1980 total Government Debt as a share of GDP was 37%. In Q3 of 2009, total Government Debt as a share of GDP was 69.2%. This current debt level severely constrains both Government and private industry investments in areas that could contribute to growth in a positive manner.

• Between Dec. 2007 to Q4 of 2009, the number of unemployed increased by 7.6 million, the under employed increased by 5.6 million, for a total increase of 13.2 million. Over 7.5 million jobs would have to be created to bring unemployment back down to 5%. The best year ever for net new jobs creation was 1984 in which 4.2 million new jobs were created. So what does this mean? It would take 2 years of unprecedented job growth to create the 7.5 million needed jobs to reduce unemployment back to 5%

• A real time measurement of the health of the economy is the Purchasing Managers Manufacturing Index. From second half of 2008 to Jan / Feb 2010, the index increased from 42 to 58.4 in the U.S. Any number greater than 50 is positive news for the economy although we would like to see an even higher number than the 58.4.

• Increasing corporate profits bode well for rising business capital outlays. The global inventory correction (I.e. moving from limited or a no stock inventory) is turning into production gains due to the need to replenish inventory levels. This production gain is a positive influence on the economic recovery.

So what was the final message? Dr. Swan was somewhat optimistic that the economic recovery will continue with a positive trajectory. The GDP recovery however will likely proceed at a much slower rate than the past decade, and most likely at an average of between 2.0 – 2.5% year over year growth.

Posted by Wayne Rampey, Vice President, The InSource Group

InSource Group awarded Schedule 70

The InSource Group was recently awarded an Information Technology Schedule 70 contract by the U.S. General Services Administration (GSA), the procurement arm of the federal government. The five-year contract streamlines the ability of Federal customers to purchase The InSource Group’s advanced IT consulting, application development, and other IT related services.

Federal, State and local agencies can obtain information about The InSource Group’s GSA Schedule 70 contract services on the GSA web site at: www.gsa.gov (search for Contract Number: GS-35F-0230W). The InSource Group’s services are offered under the Special Item Number (SIN) 132-51, Information Technology Professional Services, and the award is effective February 15, 2010 – February 14, 2015.

DFW Marketplace Changes in 2010

My purpose in writing is to communicate The InSource Group’s overall assessment of how the market in the Dallas Ft. Worth metroplex is changing in 2010. This assessment is potentially significant in terms of our client’s abilities to remain competitive with respect to future hires regardless of whether they are employees or contactors; and it also speaks to the challenges associated with employee and contractor retention that have already arisen in 2010.

Without question, demand for new technical resources is up significantly. We began to see an increase in client requirements beginning in December and that trend has continued unabated through February. This is particularly true in the Dallas market where we have seen a 40% increase in requests for technical contractor resources, additionally; full time requests are also up by approximately 17%. This has resulted in many of our candidates being able to pick and choose between multiple job offers. In terms of new hires, speed of response and competiveness of compensation are becoming more critical to our client’s securing the talent that they need.

With respect to retention, the market has changed. 2009 was a buyer’s market. 2010 is shaping up to be a seller’s market. Contractors will have alternatives available to them that were not options last year. They will all be looking at two factors in assessing whether to stay or leave; rate and length of assignment.

In particular, for those contractors who received rate reductions last year, they will be looking to at least have their pre-reduction rates restored. If this is not possible, another alternative may be to extend their assignments for as long as possible. Some contractors have spoken of their willingness to trade a longer commitment for rate dollars. Please recognize that both contractors and full time employees will be receiving calls from recruiters. Retention challenges have increased; how you respond will dictate the outcomes.

Web 2.0

How Is Web 2.0 Impacting Your Business? Harnessing The Untapped Potential

As an IT recruiting firm, we are constantly studying technology trends that impact our clients and candidates. Nothing in recent history has had as unique an impact on business as social media and the Web 2.0 world. According to a recent survey conducted by computer reseller CDW Corp., nearly half of IT decision-makers have rolled out Web 2.0 tools in their organizations. Businesses that have yet to officially implement these new tools may be surprised at the extent to which their employees use them anyway. Web 2.0 is already impacting your employees and customers. The question is: “Can you leverage these tools to support your business objectives?” In my opinion, your organization should have official plans to weave Web 2.0 tools into the fabric of its operations. However, if official implementation is not on the horizon, management should investigate the potential of these tools and at least set parameters for unofficial use.

Web 2.0 is the broad term for the second generation of the Internet, encompassing interactive tools such as social networking sites, wikis and blogs, that can potentially enhance collaboration, productivity and provide a forum for dialogue. Some of the most common and widely known Web 2.0 companies include Facebook, Twitter, Wikipedia and LinkedIn. Lesser known or up and coming Web 2.0 companies which may be interesting if not instructional to check out include Wetpaint, Kookyplan, Shoutlet and Bzzagent. Web 1.0 made information more accessible to everyone; consequently, hierarchical business structures were flattened. Web 2.0 allows individuals a myriad of new ways to not only find and view information, but also to comment and give input. This new two-way communication further flattens organizations and is ushering in a more meritocratic way of doing business.

Victoria Bracewell Lewis, senior analyst of e-business and channels at Forrester Research said, “As trust in established brands and media fades, consumers turn to one another for advice and validation.” To put it another way, Web 2.0 has everyone talking. This may be unsettling to some business leaders not comfortable with such transparency and free flow of information. However, the magnitude of the Web 2.0 movement can’t be ignored. Consider the growth of Facebook--150 million users expected to double in 2009. The greater risk to a company may be not adopting Web 2.0 tools and having the unofficial use grow both inside and outside the firewall of the company. This phenomenon has motivated more than one organization to officially implement Web 2.0 tools in an effort to have greater input regarding their uses and be better able to monitor and participate in online dialogue.

So what is a company not yet in possession of a clear Web 2.0 strategy to do?

Begin by setting up a structure to address Web 2.0. This does not require a major investment and can be as simple as appointing an existing employee to serve as a part-time project manager to investigate current unofficial Web 2.0 use. The process of uncovering existing unofficial uses is a critical step. Begin by asking questions such as:

• What tools are employees already using to accomplish work-related tasks that you don’t know about?
• Are employees, partners and customers sharing information online that relates to your organization?
• Are there industry forums, wikis or blogs frequented by your organization’s publics?
• Are there unofficial Web 2.0 uses that negatively impact your organization or its productivity?

Once you are more aware of the current Web 2.0 uses which impact your organization, work with employees to identify what existing applications could be effectively exploited to fill a need. Further explore options not yet widely used by employees and open a dialogue with early adopters about how they think such tools could fill a need in the organization. Implementing Web 2.0 tools at the corporate level for the sake of jumping on the bandwagon won’t ensure a benefit to the organization. In fact, implementing tools that employees don’t find relevant could create resentment and division. Take time to find out what Web 2.0 users in your company would like to see officially implemented.

Once you have uncovered an unofficial implementation that seems to have merit, or a real need that could be solved using Web 2.0 tools, implement official testing on a small scale. One of the great things about these new tools is that they are often free. Initial investigation and testing doesn’t necessarily require a major investment. Of course, the cost of implementing major Web 2.0 initiatives can be more significant once you factor in the man-hours necessary, as well as the cost of hardware and bandwidth sometimes required to properly implement these tools on a large scale. Cost alone shouldn’t preclude you from developing a Web 2.0 strategy. You may be missing a major opportunity by ignoring the possibilities out there surrounding this latest iteration of the Internet.

One impressive example of leveraging Web 2.0 is HP’s use of the blogging community. The company simply gave away 31 of its new HDX Dragon computers to influential bloggers. The bloggers ran contests to give away the computers to their readers. The campaign developed a life of its own and sales of HP personal computers jumped 10 percent in one month in 2008.

Although Web 2.0 tools effective for your business can be uncovered by examining existing grassroots uses, the implementation of effective applications requires upper-level buy in. A recent article published in The McKinsey Quarterly online journal examined the early adoption of Web 2.0 tools among 50 organizations and found that successful implementation of Web 2.0 efforts had the backing of upper management. The article asserted that although Web 2.0 application with the most value come from users, management needs to be involved on several levels including identifying applications that are effective and scaling them up. While participation technologies work best when they are initiated as a bottom-up strategy, management that is tuned in to what works and how to encourage proper use of these tools have more success in their implementations.

The McKinsey research also found that one major reason for failure of Web 2.0 initiatives was management’s discomfort with its lack of control over information. Striking a balance between freedom and control can be difficult. The article suggested that although fears are often overblown and social norms tend to enforce proper usage, managers should work with the legal, HR and IT security functions to establish reasonable policies, such as no anonymous postings.

For organizations able to strike the right balance when opening up lines of communications with its many publics there can be huge dividends. Consider the Proctor and Gamble success story. By opening research and development to feedback from outside the organization through Web 2.0 tools, the company was able to increase the success rate of its product launches from 20 percent to almost 80 percent.

Proctor and Gamble and HP’s Web 2.0 uses are dramatic examples of a much larger groundswell. Although the concept of Web 2.0 has taken a few years to come into focus, the time has long past for speculating whether or not Web 2.0 tools are a fad that will burst like the dot com bubble. It’s here, it’s real and it impacts employees and customers whether organizations embrace it or not. Shouldn’t you address Web 2.0’s impact and potential for your business?