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“Economic Hotline, can I put you on hold?”

May 11, 2009

As I was first entering the workforce after Undergrad, there seemed to be a lot of very educated and wickedly smart English folk in New York.  I had one, as a Regional Manger, who was pretty darn good, I recall.  Spoke funny, but very effective.  With the British economy crashing in the 1970’s, talent fled.  To this day, if I meet a mid-late 50’s English person in the ‘States, chances are they came here around 30 years ago.  Funny about human capital, it has 2 legs and a desire to no longer sulk.  Unlike dollars which can flow in and out of a country based on expected returns, human capital buys houses, sends their kids to school and puts down roots.  Once gone, there’s a slight chance, at best, that someone will return to the ‘mother country’.

In the 70’s, in those early heady days of computing, there was a strong software and chip sector in the UK, for those who remember the pioneering Psion organizer and a few other devices.  British Leyland was still producing cars leaking oil as a standard feature and Lucas still produced sufficiently bad automotive voltage regulators and bulbs to ensure its solid reputation as the ‘Lord of Darkness’. My second car was an English Ford and I carried a jeweler’s hammer to gently tap the Lucas voltage regulator on the firewall so the battery would charge. Then again, the doors were virtually held on by duck tape while the air cleaner had more bolts than a bridge.  Psion is no longer, Lucas makes God knows what and other than perhaps a garage kind of boutique, the car plants are foreign owned and slimmed down to a bare minimum.  As for British Steel… The bottom-line is that except for the busted Finance industry around London, England has lost a ton of talent and in a recent world ranking of contentment, came in at 41 (the US as 23).  You may graduate from University in England, but where will you work?

Here in the ‘States, we’re at a weird point in our economic stumble.  Unemployment is slowing, but is still at 8.9%, and this is a major understatement.  In an OpEd piece by David Brooks of the NY Times on Saturday, May 9th, he rightly points out that based on our population growth, we need to add 127,000 jobs each month solely to absorb new market entrants.  Add that to the unemployment from the start of the recession to today, and we’ll need to absorb 7.8 million workers, as of now, into our workforce just to get back to where we were in heady 2007. And you can add another 127,000 jobs each month before we begin to draw down from this pool and rehire. Just this week, the stats were released showing overtime is up but new hiring is nowhere to be seen.  Looks like the economy has begun to ‘right size’ and unlike England 30 years ago, where can our left out employees go?

As turnaround and operational efficiency consultants, we’re suddenly seeing a surge in companies looking to map out future growth, either organic but by mostly merger execution. So on one hand we have a growing pool of unemployed, and on the other we have companies going away (through shutdown or merger) meaning reduced potential hiring.  What will our future companies look like?  As the great NY Mayor LaGuardia once said “I can shut things down, but who will buy your products”.

As business people, we have to serve or create (and then serve) a market.  Given our seemingly new bad demographics, which new markets will be available for exploitation?  How will consumers pay for this economic expansion given Moody’s recent statistic that the average American household is focused on savings and is semi-servicing $8400 in consumer debt?  Or, to rephrase – the average American household now ‘owns’ a low mileage 2003 Acura sport coupe (please make mine a convertible). To survive in this economy, companies will have to really map out their course and more importantly, their internal assets and processes, not just letting it unfold while adapting incrementally over time.

With a slowly expanding economy, or even a shrinking economy, this is really time to aggressively follow Welsh’s great rule – if you can’t be number 1 or number 2 in a market, get out of it. Utilize this slower time not just to lay-off and cut current expenses, but to think out of the box and build the infrastructure, culture and right-sized critical mass you’ll need to be that ongoing number 1 or 2.  Recognize the operational traits of successful companies 2 levels higher on the ‘S’ curve (the universal growth curve), map a course and execute.  I’ve lived and managed businesses under revolution, hyper-inflation and general strikes, and while we’re not even close, it became apparent that after every great upheaval, new market leaders emerged and previous market leaders became hulks of their former selves.  Think in the positive – this is a brave new world we’re entering and if you desire, plan and execute, it could be a once in a lifetime opportunity.

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies and key initiatives as well as operating units of Global organizations. He can be reached at richard.eichen@growroe.com

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