Category Archives: Labor force management

Why the Public Does Not Believe That Corporations Are Accountable

westonAddressing members of the media on Thursday, Galen G. Weston, executive chairman of Loblaw, told reporters that, “I’m very troubled. I’m troubled by the deafening silence from other apparel retailers on this.” Mr. Weston was referring to the tragedy at a Bangladesh textile factory last week in which factory collapsed, killing almost 400 workers.

Mr. Weston said Loblaw has always ensured that factories in its supply chain adhered to rigorous standards in areas including local labour laws and work conditions. Mr. Weston said he was “troubled” by practices that saw it fit to send workers back into the factory after it was declared dangerous.

“Nothing in those reports suggested a problem, but the scope of the audits does not cover structural integrity,” Weston said.

But it is exceedingly difficult to believe that Loblaw executives would have been unaware of the risks associated with shoddy building practices in Bangladesh. Site selection methodologies have become very sophisticated and comprehensive over the last 10 years, covering everything from the cost and availability of labour to elements associated with real estate. The number of fire escapes and other safety factors would have been integral considerations in any evaluation. Site selection may not have been the responsibility of Loblaw employees themselves, but specialists contracted to perform evaluations would have provided a detailed breakdown of risk factors. Since this has been standard procedure for some time, it is disingenuous in the extreme that Mr. Galen would project that this was all new to him and his executive team.

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Filed under Corporate Ethics, Labor force management, Risk Management, Social contract

What’s an SLA?

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Claiming that they were scammed by Indian multinational outsourcing firms and “dazzled” by their sales pitches, some executives of Canadian companies deny accountability for poor job performance, work delays and outright project errors. Apparently, these executives prefer being characterized as incompetent managers, unaware of basic contractual countermeasures such as service level agreements (SLAs), rather than admit they made decisions to outsource work to offshore locations. This line of reasoning also extends the definition of “plausible deniability” to include practices that are intrinsic to executive decision-making. The changes introduced by the federal government will do nothing to change the fundamental problem associated with the purported skills gap.

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Filed under Labor force management, Productivity, Unemployment

Have We Started to Consider the End of Outsourcing?

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Published in the Telegraph-Journal 7th December 2012

In recent interviews with business media, Apple revealed that it will begin to manufacture computers in the United States for the first time in years. “Next year we’re going to bring some production to the U.S.,” said Apple CEO Timothy Cook. This announcement comes on the heels of decisions made by companies such as General Electric which are moving some of their manufacturing operations back the U.S. after years of outsourcing their production offshore to countries such as China and India.

Reversing the offshoring trend —insourcing— to bring manufacturing back to the U.S. addresses a number of challenges: transportation is simplified and less expensive, intellectual property is more easily protected and costs can be managed with greater transparency closer to home. Companies are better able to manage innovation and productivity because they are more involved in the key elements of production. But these developments don’t mean that the era of outsourcing to offshore locations is over. Nor does it mean that jobs that have been offshored are coming back to North America in large numbers.

Many offshore outsourcing decisions were based on the single determinant of dramatically less expensive labour. In many cases, offshore labour was so cheap—fifty cents an hour against as much as $20 an hour in North America—that it compensated for higher costs and risks in other areas. Labour arbitrage may have been a determining factor for many firms seeking to reduce costs, but there are other advantages to countries such as India and China. Offshore labour generally lacked troublesome unions, and safety and environmental conditions tended to be less onerous than in the West.

There is another reason that many U.S. companies are reconsidering their commitments to offshore production. Any one of four critical risks can torpedo an outsourcing relationship: economic fundamentals, behaviour, execution and relationship management. Reviews of outsourcing relationships increasingly reveal that many were not well managed. Relationships frequently lacked common, shared metrics which then led to disagreements about quality. Overlapping operational and contract management roles contributed to interpretations of metrics that were overly dependent on management of the day. With no agreed objective measurement of performance, misunderstandings about success were often difficult to avoid. Maintaining an effective outsourcing relationship requires conscious ongoing investment of management expertise as well as financial. Since the rationale for offshoring was cost cutting, some firms were unwilling to contribute to that investment. Poor economic fundamentals often were unresolved.

Changes in the global economy have caused many firms that had been committed to offshoring to reconsider their options. The cost of fuel is one of those key changes. Shipping cargo is much more expensive than even ten years ago as oil prices have tripled. The cost of wages in China has increased exponentially and is forecast to rise at more than 15 per cent per year in the medium term. In the U.S., labour unions have become more compliant if not more acquiescent in the wake of the 2007-2008 financial crisis. Unions are more agreeable to making deals that reduce the costs of wages and benefits to corporations. Productivity has increased substantially in the U.S. largely as a consequence of robotics, computerized inventory control, voice recognition and online commerce. This trend has accelerated during the current recession with the result that productivity increases have compensated for higher labour costs. Labour has become a smaller proportion of the total cost of finished goods.

There is a dawning realization in many U.S. firms that management failures have been chiefly responsible for the reversal of commitment to offshoring and outsourcing of all kinds as the economics have changed in favour of bringing jobs back. Although much of American manufacturing many never return, the rebirth of even a portion of manufacturing will require a rethinking of the critical role of management to the survival of the firm.

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Filed under Economics, Foreign Direct Investment, Innovation strategy, Job creation, Labor force management, Offshoring

Talent Recruitment Dominates Innovation Discussion

By Peter Lindfield, published in the Telegraph-Journal 18th September 2012

The questions are familiar: why do some companies embrace innovative thinking and bring to market compelling new products and services, while others falter and are unable to compete? Why do companies and regions that were models of competitiveness fall to the wayside? Why do entrepreneurs succeed in some regions but struggle in others?

To government policy-makers, economists and business people who seek to support creativity and reap its benefits, these questions are of compelling and enduring interest.

Although there has been no shortage of effort to develop an overarching theory of innovation, there is no model with the necessary probative value and explanatory power to provide a reliable roadmap or blueprint for growth. But there are a substantial number of practical lessons that policy-makers and business managers can leverage today.

First, innovation thrives in ecosystems. For more than 30 years, Harvard University’s Michael Porter has elaborated on how regions around the world have become internationally competitive and how they possess common features of success.

His now-famous theory of national advantage places the elements of an ecosystem – firm strategy, demand conditions, factor conditions and related and supporting industries – at the centre of competitive capability. There are disagreements over whether Porter’s model is accurate, but the concept of competitive ecosystems has become embedded in the economic growth lexicon.

Second, innovation is more than hardware, machines and tools. Some of the most powerful industry success stories have been the consequence of process innovation.

Outsourcing, continuous improvement and data mining, among other process innovations, have revolutionized companies in every industry. Innovation is spurred when a powerful technology platform becomes widely used. The economic growth of nations today is inextricably linked to the adoption of information and communications technology.

Third, the drive to attract talent dominates industries and at two levels. Entrepreneurs are a critical factor in industry innovation but entrepreneurs alone are unproductive without the skills and ambitions of their workforce.

A key characteristic of competitive regions is not only that they attract the leading entrepreneurs that can become household names, but they are also a magnet for the supporting talent that entrepreneurs need.

In mature economies, skilled talent has become mobile, seeking the best environment in which to thrive and become prosperous. Companies must think beyond boundaries to make investments in creative talent sourcing practices, develop global talent competencies and cultivate the powerful employer brands with which their employees can identify.

This means that corporate culture is critical to the retention of employees who have other options.

This has profound implications for many regions. Every industry is caught in a global squeeze for people.

Finally, consistent government support matters. The intersection of innovation, policy and investment has always determined the rate at which economies advance.

For Porter, the appropriate role of government is encouraging companies to raise the performance of firms. Governments achieve this by enforcing strict product standards, fostering early demand for advanced products and stimulating local rivalry by encouraging competition and limiting direct co-operation.

But governments increasingly are constrained by high levels of debt and the rising costs of entitlements, such as health care, education and social welfare. In the absence of raising taxes, which may discourage investment, governments will need to balance debt-reduction measures with expenditures to support growth.

This puts high-debt regions at a disadvantage, at least until their debt levels recede.

Governments additionally are subject to the effects of ‘time compression diseconomies,’ a term coined by INSEAD professors Ingemar Dierickx and Karel Cool: when an organization tries to compress substantial effort and growth into a short time frame, it will not be as effective as when that effort is distributed over a longer period of time.

Consistent effort over a long time frame has been shown to pay dividends. But this approach runs headlong into the challenge of how much time is available before it is too late.

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Filed under Innovation, Labor force management

The Past Is Not A Reliable Guide To The Future

By Peter Lindfield, published in the Telegraph-Journal 11th September 2012

The financial crisis marked the end of an economic era. For more than twenty years, the New Brunswick economy rode on the coat-tails of the expansionary impact of falling inflation, including lower interest rates, greater debt and higher personal wealth but we are now suffering its side effects.

New Brunswickers have always placed great store in opportunity. But we are faced with a new economic era that may frustrate this confidence. This new era is not only the consequence of the 2007-2009 financial crisis and its appalling side effects but coincides with other challenges. The combination of an aging population, rising health care spending and unprecedented government debt jeopardizes our prospects for economic growth.

Premier David Alward took office facing the most daunting economic conditions in decades. There is a strong argument that the New Brunswick economy is at a historic inflection point when the past is no longer a reliable guide to the future. That is the central concern confronting Mr. Alward and his government.

New Brunswick will eventually pull out of the economy doldrums, but the recovery will not necessarily ensure a return to previous rates of economic growth. Gathering over the horizon is the looming threat of an aging population.

As baby boomers retire, the workforce will contract, potentially taking growth with it. If productivity levels in New Brunswick continue to falter, as they have for years, the economy could stagnate in the face of growing claims on New Brunswickers’ incomes. Because of low levels of immigrant attraction and retention and the outmigration of young workers to the more prosperous Western provinces, Newfoundland and the U.S., New Brunswick threatens to age more rapidly over the next twenty years. These factors virtually ensure a shortfall in the workers necessary to fuel a buoyant economy.

A dilemma for the New Brunswick government is how to restore public confidence in the economy. The Keynesian solution is to supercharge demand and spending while putting the unemployed back to work and increasing the production of underutilized firms. But the province’s debt has made that stimulus option an unworkable one. Its borrowing capacity has been strained past its limits and government has taken the wise measure of reducing the cost of government until that capacity has been restored.  This measure will continue to be profoundly unpopular with those whose hold that the role of government is not only to stimulate the economy but to sustain it. The principle that government’s commitments should be balanced with what can be sensibly afforded will continue to meet with opposition.

Nowhere is this principle more in jeopardy than in health care. As a society, we have been patently unable – and unwilling – to control health care spending. Many New Brunswickers are firmly of the view that people are entitled to receive all the health care options that are available, regardless of the ultimate cost. The implication of this view is that health care spending increasingly is placing upward pressure on taxes and downward pressure on other government programs.

It is possible that the demands for government spending will overcome the will of politicians to resist them. But some outcomes clearly are superior to others. If we are unable to reduce projected health care spending, we may face unprecedented tax burdens that will depress economic growth, leading to a vicious cycle of increasingly unaffordable spending. If we are not able to come to grips with a public debt that threatens the future of government to act, we may face the deterioration of the province’s infrastructure that is critical to economic growth. Other outcomes, such as Draconian cuts in government programs, are equally undesirable.

There is no doubt that New Brunswick is at a crucial juncture and not only because the world in the aftermath of the financial crisis appears so unfamiliar and forbidding. We all sit at the eye of this storm where weathering it will involve something approaching economic diplomacy as much as political doctrine.

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Filed under Fiscal Policy, Health Care, Labor force management, New Brunswick

Worker Shortage Needs Immediate Attention

By Peter Lindfield, published in the Telegraph-Journal 4th September 2012

Discussions about the challenge of attracting and retaining workers in New Brunswick inevitably brings hand-wringing, teeth-gnashing and renewed calls to do something to solve the problems of too few workers and too much competition from outside the province. Many recognize that it could be even worse. That the province has not experienced an even greater out-migration of workers and newly-minted university graduates is testimony to the strong ties that bind many New Brunswickers to their communities.

The workforce shortage challenge is not restricted to New Brunswick. National economic data have the effect of masking regional changes, but beneath the surface they can have striking consequences. In regions across Canada, wage disparities have worsened over time, continuing a longstanding trend. At the same time as the Maritimes has been lagging, Canada’s most prosperous provinces – Alberta, Saskatchewan – have been growing even faster than the economy as a whole if GDP per capita is used as a measuring tool for economic vigor.

The wage gap frequently is identified as the chief reason for the rush to the west. In fact, the compensation disparity can be profound, depending on the industry. Workers in construction, information technologies and financial services are paid substantially more in other parts of Canada. New Brunswick university graduates can earn as much as 50 per cent more in a similar position in Ontario, Alberta, British Columbia or now Newfoundland. This wage boost represents a way to pay student debt that cannot be found in much of New Brunswick. Total compensation, including such fringe benefits as bonuses, profit- or gain-sharing, health plans, pension plans and commissions, frequently are more substantial as well.

There are other reasons beyond the compensation formula that create recruitment disadvantages for many New Brunswick firms. The province is home to a more limited number of large or multinational companies than Alberta, Ontario or Massachusetts. In New Brunswick, many of its employment opportunities are provided by small firms. Small companies, including startups and early stage firms, experience greater business failure rates than established firms and small company managers often lack experience. For small companies, uncertainty is a recruiting obstacle, especially when hiring experienced personnel. And career paths are more easily defined in centers that feature a high concentration of similar firms in an industry.

There are no easy answers for New Brunswick companies, large or small. Increasing immigration flows to the province is a temporary solution at best since the wage gap with the West as a force of attraction will apply equally to all workers. For similar reasons, the provincial government should not subsidize the relocation of workers to New Brunswick. Even if that subsidy represented a workable solution, which it does not, the problem is for the private sector rather than government to sort out. We need to refrain from viewing the New Brunswick government as a panacea dispenser.

New Brunswick’s largest firms have a better grip on the challenge but even they are not immune to losing workers to other regions. These firms know that they simply cannot compete with compensation packages in Alberta, Ontario or many parts of the U.S. Global competition is producing increasingly more sophisticated and qualified challengers to the status quo. The most competitive of New Brunswick’s firms have adapted to changing global realities by altering their business models. Others throw up obstacles to competition and continue to live in the past.

The retirement of many members of the baby boom generation over the next ten years is placing enormous pressures on companies to hire and hold on to their people. The most competitive New Brunswick firms have recognized that when recruiting workers they need to have a viable value proposition that resonates with those workers. By providing a supportive environment that promotes the merits of apprenticeship, structural innovation, continuous learning and opportunities to grow, New Brunswick firms can be the differentiators to big wages.

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Filed under Labor force management, New Brunswick

Small Centers Face Hiring Pitfalls

By Peter Lindfield, published in the Telegraph-Journal 11th May 2012

Every small geographic centre has a similar problem when it comes to matching people to its labour needs. In many industries, small centres lose out to larger jurisdictions when competing for talent. This problem is most pronounced in “hard-to-hire” positions where there is substantial competition for the most capable and promising employees. And it is not getting easier for small firms to compete with their larger counterparts in the game of employee recruiting and retention.

At one time, there was a substantial compensation advantage to being employed in larger centres, in part because of cost-of-living premiums, but this differential gradually is being eroded. The result is that it has become even more difficult to recruit and retain top employees in smaller centres. There is a greater expectation that compensation packages will measure favourably to those from larger cities.

This problem is profound for smaller centres. In the technology industry, product development is not the main challenge in the same way that it was 20 years ago. Many firms in this industry are undergoing a transition to become service firms. Although these firms continue to hold significant intellectual property, infrastructure and other capital assets, their most valuable and irreplaceable asset has become human capital. At the same time, the main challenge today is recruiting, retaining and managing the best people in the market. Creating loyalty is at the core of retention programs.

Approaches to generating loyalty vary not only by individual but by markets. In markets where there is less long-term stability, people will tend to focus more on short-term incentives rather than on long-term development opportunities. But many highly qualified professionals would prefer to live and work in larger centres, and it is a constant challenge to attract professionals to remain in a smaller region.

The dynamic nature of many industries dictates that firms seek people who are adaptable as well as capable. Today they search out and recruit people with the skills to cope with the boom times and the downturns that follow. The implication of this is that building people capabilities is at the core of the strategy, with programs that identify and nurture high-potential talent.

In practice, this strategy unfolds in two important ways. The first way involves growing the talent pool with the necessary technical skills by partnering with engineering departments at universities and key vendors to develop learning programs. This has the effect of creating graduate development programs for entry-level hires to make up for the gaps in the existing education systems.

The second is providing employees with headroom to grow within the organization. This ensures that the people who have the right technical skills will also have leadership ability. Top firms have created leadership development programs for middle and top management that builds people and business skills and also places them into a talent network. This focus on management skills and expertise is of particular importance to smaller centres. Because large firms have significant revenue and margin targets associated with them, many of the firms in small centres are small and medium sized.

One of the negative attributes associated with joining a small firm is that management may possess fewer skills and less experience, which in turn can contribute to greater company instability. Creating greater management expertise has the effect of spreading the risk more broadly across the industry and to everyone’s benefit.

Company size can contribute to more limited potential career options. Although firms in small centres can exist in sufficient numbers, there may be too few rungs among those firms to constitute a career ladder. If a company fails, a senior or technical professional has a much more limited number of employment alternatives in a smaller centre than a larger one. When creating a labour force plan, we will need to face the increasing limitations associated with smaller centres.

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Filed under Labor force management