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The Drone Pilot Economy

May 28, 2010

It’s getting hard to go to parties where almost every time I run into a laid off 50+ year old executive who’s been on the street for over a year. In the old world order, after 25 years experience, these execs should have become the C level leaders and senior mid-level managers of their firms, but now, they all talk of Career 2.0 and how to continue paying for colleges and second homes on 75% earnings.

We used to talk about work related situations, political challenges, how to turn these big ocean freighter sized companies around or at least change course.  Now it’s all how people with 10 years of experience can do the same job, at lower cost and just as well.  Many sales managers now talk about ‘aging out’ of their markets as their long term contacts leave, retire or run out the clock. These friends are the people in their best earning years who are now grouped into U-6, the “real” unemployment number which some pretty reputable economists say could grow to 25% the middle of this year. Even with our tepid recovery, senior executive slots are not opening as new companies are not being formed. In fact, it’s the exact opposite – with increased M&A activity, the number of displaced senior executives can be predicted to increase.

The military is going through a similar change with the wide scale adoption of drones, called UAV’s.  Fighter pilots, artillery and heavy armor officers all resent drone pilots not being in the stinking heat, eating MREs, afraid of walking past open doors.  Drone pilots are resented for being 19 years old, referred to as ‘pups,’ sitting in an air-conditioned room in Nevada, going home at night, watching a screen, wearing pilot’s wings and receiving flight pay. Since almost all medals include the word ‘valor’, in the traditional leadership’s mind even this has to be redefined. We now have an abundance of pilots in the Military as many routine flying missions are now video-gamed into drone sessions, with even more in development and planning. A lot of careers are at risk.

Management jobs used to be earned based upon the 3 A’s: Affability, Accumulation and Acumen.  The first ‘A’ still holds, the second is out since tenure is no longer a factor and quite frankly, most jobs seem to plateau after a decade in terms of acquiring additional Acumen, as in the old adage “do you have 20 years experience or 1 years experience 20 times?”  Much like the pups vs. experienced officers, the dynamics of fast changing business leadership requires someone who has done it before to avoid missteps or seize opportunities.  That’s the good news, but it applies only to the most senior positions of which there aren’t many. The bad news is, most of the people I know who are looking for work were in jobs which were well mastered after 10 years and therefore could be performed by less expensive replacements, or even consolidated into a single position by leveraging social network and collaborative technologies.  We see 3 real trends emerging.

Trend #1 – For many jobs, vast experience is not required up front, or like an Anesthesiologist supervising 6 Nurse Anesthesiologists, one vastly experienced flight officer can provide judgment and leadership to many drone pilots.  Good news – you can safely limit payroll and benefits growth without dumbing down your organization, just understand where you need the vastly trained to foresee and handle the severe and unexpected and where sufficiently talented (and presumably less expensive) managers can handle the routine and some ‘oops’.

With over 11 Million jobs lost in the recession and now a new wave of mergers, there simply won’t be that many go-forward management jobs and the competition will be fierce between an expensive person doing the same job for 20 years and a less expensive person who can do that very job at 60-75% the cost and perhaps with a more open mindset. Beyond the financial and market share component, one of the main justifications for a merger is, on average, a typical 15% workforce reduction.  Recently the UK’s ‘The Guardian’ newspaper had a story about Parliament grilling a US Kraft executive on their plans  to close or not close a local large Cadbury plant (i.e.:  Kraft and Cadbury have a combined 130,000 jobs, of which 35,000 to 40,000 will be cut. Kraft has a bad history in the UK, having made similar promises before and then executing a plant closing immediately thereafter and “I dunno” doesn’t translate from US to UK English).

Trend #2 – There’s no need for even senior middle management when there’s no middle to manage.  Even with a recovery, production level personnel, not management layers, will be the first hired and even that hiring will be grudging.  Contrary to a generation’s thoughts about college vs. working with your hands, the skilled trades and assemblers will continue to have jobs since they contribute directly to revenue creation.

Trend # 3 – Another factor is the upcoming Maturity Wall, i.e. all those  junk bonds which are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014, per a recent NY Times article. Didn’t have to do junk?  Your Bank probably did and their ability to keep writing loans to you is going to be severely diminished.  A former client of mine, a family run Community Bank in the South, started over 100 years ago, had to be taken over by the FDIC and the founding family removed as Chairman and President due to subprimes bleeding off the reserves. And they were known for being very conservative, to the point of opening a typical consumer demand deposit account only after running a credit check. If they went headlong into junk, I’ll bet most banks jumped in deeper. Welcome to the world of self-funding and cash flow centric ROI calculations.

Free Cash to service leverage and self-fund new initiatives will be the KPI of KPIs.  Uncontrolled leverage killed Lehman, killed AIG, it’s seriously hurting Reology, it can easily get out of control and it’s not the 30X we’re used to hearing in the Banks.  In many non-banking cyclical businesses, credit analysts are currently saying a leverage ratio above 6x to $1 earnings is a debacle waiting to happen.  We suggest constantly knowing and managing your own Leverage KPI, developing a plan to refinance/restructure, sell off assets to raise cash and best of all, operate with cash always in front of mind.  I ran a country operation in a hyper-inflation rattled country where we reported back to HQ in USGAAP but managed locally on a cash basis, just like our favorite corner deli. Successful senior executives will have to be hyper-detail oriented, knowing intimately how the pieces interact to maintain free cash flows.  Yet, they will have to be far minded risk takers, reminding me of a fighter jock who told me he knew he was getting old when his eyes had trouble focusing instantly between his instruments and the world outside his canopy.

Trends 1, 2 and 3 converge at the point where we can see a 2010-2011 trend towards hiring a finite core group of battle tested senior managers and/or Crisis Interims who know how to run a business to generate not paper profits, but real free cash.  With all apologies to my friends, most mainstream senior middle managers with ‘typical experiences’ will not be part of that core group.

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

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2 Comments
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