Business must change in the age of ‘the new normal’

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BY JAMES E. THOMPSON
April 26, 2010
The InSource Group

If you’re reading this expecting some encouraging words about the U.S. economy and business climate now that the recession is technically over, you will be disappointed. Economists are telling us that robust growth won’t return to the U.S. economy for some time to come. The world in which we are living and doing business has changed and businesses must change with it or suffer the consequences. However, the economic crisis does present opportunities to make necessary changes in order to survive and even prosper in this altered environment.

Perhaps the biggest challenge executives will confront is to get their workforce to accept that these changes aren’t a quick fix. The speed and magnitude of how business must change is unprecedented. Executives must get their employees to not only accept but also embrace what’s been called “the new normal.”

So, what can be done?

First, redefine success. We’ve all heard how the rising tide lifts all boats. Now there isn’t enough economic tide for all boats to float; growth will come from wresting market share from competitors or from startling innovation that creates new demand, as Apple executives hope for with its new iPad. Executives need to reset goals and communicate them accordingly to their employees. While it may be easy to shrug and blame poor results on the economy, businesses can’t accept that and expect to remain operating for long. The new normal demands operational efficiencies that are innovative and executable in order to feed the bottom line.

Conversely, employee attitudes must shift, as those without the heart for a marathon effort will soon find themselves out of work or under-employed. In the new normal, successful performers will display shrewdness, courage and stamina because the business climate will remain challenging for the foreseeable future.

The key to success with the new normal is execution. Successful strategies will be those that can be executed flawlessly, which means that senior management can’t only set strategies, it must oversee the execution of those strategies day in, day out.

Lawrence Bossidy, retired CEO of Honeywell and before that AlliedSignal, is a well-known advocate: “Many people regard execution as detail work that’s beneath the dignity of a business leader. That’s wrong. To the contrary, it’s a leader’s most important job.” He even co-wrote a business best-seller on the topic, Execution: The Discipline of Getting Things Done.

Bossidy writes about a key component – discipline. It requires discipline to make sure that a business strategy is executed for results daily. When he moved into the corner office at AlliedSignal, he found that the company had four basic processes: for people, strategy, budgeting and operations. Yet, he writes that they were “empty rituals, almost abstractions.” He set out to develop a culture of execution that sought results and continuous improvement across the entire operation.

Michael Dell has lived both sides of the execution equation. As a college student, he devised an innovative business model – sell personal computers direct to the consumer – and oversaw execution of that model, resulting in Dell Computer’s phenomenal early success. Yet the company got sidetracked when too many processes were outsourced. As execution suffered, competitors grabbed market share and toppled Dell from its throne as king of the PC market.

Michael Dell has returned to the company and is leading with cost-cutting and “disciplined execution.” Results have improved, although the company hasn’t regained leadership of the PC market, although it has expanded its services offering by acquiring Perot Systems. Time will tell whether Dell can execute its way back to the top.

In this age of the new normal, success will be in the details. Some may call it micro-management, however let’s call it the new management. Larry Bossidy and Michael Dell are good role models – execution is king and discipline is its servant.

Executives who take to heart the lesson of “never let a crisis go to waste” and move immediately to make major changes to their operations and corporate cultures will have a chance. But only if they have the heart to relentlessly monitor execution daily and continue to adapt in order to survive. Any business that ignores the new normal will perish.

James Thompson is president of The InSource Group in Dallas. He can be reached at: jt@insourcegroup.com

Worst Practice – Hiring Process!

With hiring on the increase, people often ask about best practices. Occasionally an executive will ask, “What's one of the worst practices you have encountered.”

Here is our response. We thought you would enjoy.

Our client had a critical need, undertaking a critical project, with limited manpower in the needed area. They could not afford to make a hiring mistake. And time was of the essence (or so they said)!

So, how did they approach their hiring decision? Each candidate required an extensive pre-phone screen involving written responses to a series of technical questions (think 30 – 45 minutes long). Second there was a short phone screen with the company after review of their resume. Then there was a 2 hour in person interview at the office. If the candidate did well, they were asked back for an intensive half day technical grilling and interviews. And finally, the company always liked to have at least two “qualified” candidates before making an offer.

This process virtually ensures the majority of candidates interviewed are either,
1 - unemployed, or
2 - desperate to leave their current job, or
3 - happen to live next door to the hiring company.

Most "A" candidates are unwilling to subject themselves to this process. Why? Do the math. 1 hour for the phone screens, plus 2 hours for the first interview, 4 hours for the second interview, 2 hours drive time, plus around 2 hours working with the staffing firm, start to stop 11 hours. At $45 / hour, that equates to a candidate cost of about $500 just for the “privilege” of interviewing.

The person they ultimately hired quit after two weeks…. So much for the “fail safe” interview process.

What can be done to improve their process and (by extension) yours? It’s not that hard. Shorten and compress, eliminate the written responses, focus on the most important or key items of success, and less on knowledge of minutia in the phone screen. If two face-to-face interviews are needed, be sure you are spending everyone’s time in the right areas. The second interview should also assess how the person will fit into the work environment, as well as further probing into any necessary technical skills. And finally, be prepared to tell the candidate why your opportunity is a good fit for their career and goals. Anyone can technically grill a candidate; just don’t forget that at the end of the process, you turn over final control to them.

Candidates have been developing their image of your company during the entire interview process. And they have the final answer to your offer!

Posted by Wayne Rampey, Vice President, The InSource Group

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.