The risk of another recession isn’t gone. It’s at the gym doing pushups.
Fortunately, for the time being, the U.S. is on solid ground. An astounding 71 percent of chief financial officers expect the business environment in the U.S. to improve over the next three years. They have reason to be positive: claims for state unemployment benefits recently hit their lowest level since 1969. The U.S. consumer comfort index is at its highest level since 2001. Sales of new homes are up and 30-year mortgage rates are down.
But, if the U.S. economy is on its way to cruising altitude, then why should business leaders and even their employees be worried?
Why a Strengthening Economy Isn’t All Good News
First, a productivity paradox is holding people back. In the years following the recession companies cut costs by laying off employees. The remaining employees were tasked with doing more work. The problem: Wages went nowhere. In truth, this problem existed before the recession, but the 2008-09 economic downturn exacerbated the situation.
Research from the Economic Policy Institute shows that in the 30 years following World War II productivity increased by 96 percent. Hourly compensation kept pace, growing 91 percent over the same period. Recent history shows a dramatic deviation from this relationship. From 1973 to 2013, productivity rose by 74 percent and wages increased just 9 percent. The strength of today’s economy has come at a cost.
Employees shoulder this cost in the form of stagnating wages. This environment has led to a productivity paradox. Wages cannot grow without increased productivity, but soft productivity growth might be “a consequence of depressed demand for goods” as The New York Times writes.
In other words, wages cannot grow without a productivity increase, and productivity cannot increase without higher wages which are needed to boost demand for goods.
Aside from productivity, surging mergers and acquisitions are leaving people behind.
Global M&A volume in 2015 exceeded $5 trillion breaking the previous record by 9 percent. The Herfindahl Index, a popular measure of market consolidation, has increased across 75 percent of U.S. industries. The trend will not slow. Researchers at Deloitte predict that both deal flow and deal size are likely to increase over the next 12 months.
Often, M&A activity arises from the notion that increased scale leads to efficiencies. These efficiencies then lead to more revenue and profitability. However, if these initiatives offer such benefits then why does 60 percent of M&A activity fail to generate the expected revenue?
The answer may be that M&A pursuits are a double-edged sword. While scale offers new benefits, it also slows the business’s agility. This inflexibility is a problem because scale alone isn’t enough, at least not today. Consider that “The probability that the market share leader is also the profitability leader declined from 34 percent in 1950 to just 7 percent in 2007,” according to the Harvard Business Review.
Size cannot sustain competitive advantage in a world of escalating change. Employees become lost in the sprawling labyrinth of new departments, managers under managers, and operating procedures.
Aside from the aforementioned forces, tech spending is on the rise. This comes at a cost.
Forrester recently projected that tech spending from U.S. businesses and the government will exceed $1.5 trillion in 2018. This figure will outpace the GDP. Meanwhile, U.S. companies spent less than 5 percent of that amount on learning and development in 2016. The problem: Technology is only as strong as those who wield it. Companies cannot fully realize the value of their escalating investments in tech without equipping people with the skills to derive value from IT.
As economists cited in a recent Gallup study explain, “It cannot be assumed that it is possible to replicate the breakthroughs in technology and business practices that transformed human life during the early and later phases of the industrial revolution.”
In the following section we look at this issue in-depth. We look at why technology may distract from equally important initiatives that offer long-term advantages to both businesses and employees.
Too often we invest in technology instead of investing in ourselves. In fact, improvements to IT are “not where growth is going to come from. Some 25 to 30 percent of overall revenues are expected to come from new sources of business,” according to McKinsey. Sourcing new business requires having the right people with the right skills.
Moreover, investments in technology can in fact undermine the kind of self-investment that develops new skills. With so many plans anchored to technology we forget the people using it. Responsibility shifts to the software rather than the person.
As academic Neil Postman remarked, technology is “always a Faustian bargain: Technology giveth and technology taketh away, and not always in equal measure.” Like a treadmill, technology begets more technology but not always the skills to go with it.
Instead, invest in people, who are the new competitive opportunity.
Perhaps this ever-accelerating treadmill is why Columbia Business School professor Rita Gunther McGrath believes that competitive advantage itself is dead. “Now the disruptions are coming closer and closer together. The competitive environment is in perpetual motion,” she said in an interview.
She explains that today’s business landscape is one of “transient advantage.” That is, success comes to those able to move and adapt rather than rest atop a firmly fixed competitive advantage. Agility isn’t always a question of technology. In fact, McGrath said, “It’s ironic that many companies aren’t investing in people.” She also said, “A farsighted company realizes that human talent is one of the few things that enable it to surf from wave to wave of advantage.”
There’s evidence that leaders are starting to come around. More leaders believe that upskilling is becoming a necessity. A late-2017 poll of 1,500 respondents concluded that “addressing potential skills gaps related to automation/digitization,” is a top-10 priority. The skills needed aren’t always technical in nature.
For example, technology has given rise to sales and marketing automation tools. This advancement allows companies to develop internal sales teams. Companies are now training these teams to foster meaningful connections with their customers. The effort is worthwhile given that one Accenture survey of more than 1,200 companies worldwide shows that sellers who “build a trusted relationship with customers can improve results.”
3 Ways Leaders Can Upskill Their Team Today
- Invest in people first and technology second.
It’s easy to attribute success to our skills. However, a strong economy often obscures the fact that at least some of this success comes from circumstances. It comes from the sound fundamentals underpinning the economy. In time, the natural cycle of business sets in and a downturn begins. These fluctuations are inevitable; it’s never a question of “if,” it’s a question of “when.” The time to upskill and reach for the next rung is when economic fundamentals allow for the flexibility and breathing room required to develop new capabilities. This option begins to fade once a downturn starts. Budgets thin, and thrive becomes survive.
The problem is that a good economic climate invigorates tech spending more than skill building. Consider that even in today’s strengthening business environment, global productivity growth is expected to remain around 1.2 percent through 2022. This figure is lower than the 2.7 percent seen in the years prior to the financial crisis. Often, new technologies promise to deliver increased productivity, but in many cases, they don’t. The reason: a lot of technology equips employees to track what they’re doing rather than amplify what they’re doing.
John Elsey, CEO of Richardson, a sales training company, explains that leaders “are still striving to balance process orientation with truly meaningful customer interaction which goes beyond “checking the box.” (Editor’s note: The author works at Richardson.)
- Listen to what 31 million U.S. employees have already said.
In their “State of the American Workplace” study, Gallup reviewed more than 31 million respondents across U.S. businesses. They discovered that “despite massive changes in the economy and technology, the results of the most recent meta-analysis are consistent with the results of each previous version.” The result they’re referring to is a familiar one: “Engaged employees produce better business outcomes than other employees.” Their research also determined that just over half of the workforce is not engaged.
Investing in skill building boosts engagement. With more engagement comes better customer interactions, an important revenue driver in today’s economy. Businesses that ignore this truth will sacrifice growth. Forrester predicts that 30 percent of companies will continue to experience declining customer experience which “will translate to a net loss of a point of growth.” Technologies become obsolete, but people-facing skills are always at the leading edge.
- Upskill across all levels.
Historically, leaders and managers have placed disproportionate focus on the knock-out performers and the laggards in their workforce. Doing so ignores the wide valley in between. Today’s most successful companies engage in upskilling across the organization leaving no one behind.
Research shows that upskilling an organization makes the business a better place to work. This environment translates to increased profitability despite the cost and time associated with more training. Companies who succeed with this approach do so with training that touches on all employees. This idea makes intuitive sense; consistent results can only come from initiatives that incorporate all employees. Investing in just a portion of the organization sends a signal to those left out. Results come from engagement that applies to everyone.
Upskilling not only develops new capabilities; it also helps retain the valuable experience and institutional knowledge long-standing employees possess. It stands to reason that these workers, having been with the business longer, are most likely to yearn for new skills and experiences that revitalize their roles.
The Bottom Line
Strong economic fundamentals and rising consumer confidence are great for business. But there is a reverse side to that coin: Leaders have become complacent about the state of the workforce and are choosing to turn their focus and spending to technology. The time to upskill is now, while the business environment is healthy, not later when it will be too late. Leaders, therefore, need to invest in people first and technology second for engagement across the business.Filed under: Talent EconomyTagged with: economics, economy, invest, talent, tech, technology, upskill