In my last post, I promised that I would provide a prescription for improving the competitive stance of U.S. companies that operate in the U.S. To be fair, the advice outlined below will work for any country (or even smaller geographic units like states or cities) that wants to improve its competitive positioning. First, let’s talk about a couple of myths:
- American workers are not competitive or capable. This myth has been around since imported cars became a problem for the “domestic” U.S. auto industry. Then “foreign” car companies began producing cars in the U.S. that were just as good as the ones built in their native countries. And left with no excuses, American car companies began producing competitive product. The problem wasn’t with the American Worker, it was with the American company’s leadership. Once the leadership got its act together, the companies did just fine.
- Lower wage workers in other countries are as a rule going to take jobs away from American workers. Labor content in most products has gone down, dramatically—and will continue to do so. This is because of automation. As labor content goes down, the incentive to make business decisions (such as moving factories to other countries) based on labor rates goes away.
- The jobs of the past (e.g. mining and manufacturing) are coming back. This just isn’t true. Throughout history, some leaders have tried to halt technological progress and have been universally unsuccessful. Whether it was the Catholic Church trying to halt or reverse the effects of technology on their adherent’s views on Catholic theology or the populist movement of the late 19th Century’s opposition to elements that improved farm productivity (which caused farm prices to fall) they have all been singularly unsuccessful.
That is all good news. And, there is more. The U.S.:
- Culture seems predisposed to producing people who are innovators and capable of bringing their ideas to fruition.
- Has a first-rate educational system—at least at the University level.
- Has a well-developed, if sparsely implemented mechanisms for developing and funding innovation.
- Has a business, regulatory and legal environment that is supportive of innovation and the new business ventures that result.
So, what is the bad news:
- The old economy is not coming back. As much as some of us might want it to, the industrial jobs (steel, coal, car manufacturing) are not what they used to be. There is not enough money in any of them to allow the kind of wages and benefits that “American industry” used to pay.
- Many wage earners are not equipped with the skills and experience to participate in the post-industrial age.
- Change management is (very, very) hard. Moreover, we don’t seem to have political leadership who understands that the good old days are not going to return, and even if they do, they are not sufficiently skilled in change management to overcome the inertia of constituencies who need strong leadership to help them make the right decisions and move forward with determination.
So, what do we do. There are several key points:
- We need to leaders who are willing to do the hard work of creating, communicating and executing on a plan that actively addresses the issues, the biggest of which is that a significant percentage of our workforce does not have the training to participate in the economy of the future. We need to make substantial investments in: 1) making sure that the training that our children get prepares them for the work that will need to be done when they graduate; and 2) retraining those who are currently in the workforce (or out of work) so that they too can participate in a productive future.
Don’t tell me it can’t be done. During the 17 years that I was with Price Waterhouse, we effectively retained our workforce three times as the market changed, and their skill sets became stale. It was an enormous effort but paled in comparison to the alternatives, which were to hire new workers (we did the analysis and that wouldn’t have worked) or shut down the business. The owners (the partners) didn’t find the latter alternatives very appealing.
The U.S. economy has the wherewithal to pull this off and I would submit that it is less expensive than the alternative, which is to: 1) cede our economic leadership and prosperity and 2) let the next generations of Americans experience a significant decline in their standard of living.
- Beyond investing in our people, Michael Porter, in a classic HBR article (What is Strategy), suggests an approach that is both elegant and well-proven. He argues that long term strategic competitive advantage is attained by developing (and mastering) a set of complementary attributes that a company can use to uniquely differentiate itself from the competition by selecting attributes that are both attractive to the customer and difficult for the competition to replicate in their entirety. Porter describes how Southwest Airlines produced a set of “interlocking” attributes that offer a unique mix of value and are nearly impossible for their competition (American, Delta and United) to replicate. That was 22 years ago, and the full-service airlines still haven’t figured out how to compete in that market.
We need to leverage the attributes I outlined above by combining them. The combination of our: 1) culture; 2) educational system; 3) capital markets; and 4) legal and regulatory environment is unique in their quality, breadth and depth. There is not a country in the world that even comes close to matching the power of this infrastructure that supports our economy.
- At an organizational level, we need to learn how to team. I am all for the entrepreneurial spirit that induces the lone wolf to break off from the pack and start a new business, but there are situations where you can’t go it alone. Governments, educational institutions and businesses need to learn to work better together. This means understanding when it makes sense (and when it doesn’t) and having thought through the approach, which is well understood and documented, about how to partner. My observation is that hubris blinds otherwise brilliant people and induces them to avoid partnering, because they are the very successful boss and they don’t want to be constrained by a partnership agreement. I will speak more to this in my next post.
- And, finally, we need make the Silicon Valley a model to be implemented more broadly across the U.S. There are only a few locations that have even a fraction of the capability when measured in terms of the combination 1) culture; 2) educational infrastructure; and 3) capital markets that you find in the Silicon Valley. Replicating the Silicon Valley in the Midwest, Southeast, Northeast and Northwest, Southwest, i.e. throughout the U.S. will take the kind of teamwork and partnerships I suggest above.
Let me close with a couple of thoughts:
- Your can talk about regulations and taxes but being competitive has always been a brain thing. The table stakes have just gotten a lot higher. Staying competitive and making our children better off than we are requires that they have a different set of skills than have been necessary for the past 150 years. And it’s not just our kids. A significant portion of our population isn’t trained to compete in today’s economy. We need to make the investments to ensure that coming generations are equipped to compete and address the deficit in many of today’s workers; and
- We can do this the (relatively) easy way or the hard way. We (not just the U.S., but civilization as a whole) have been through this before and we didn’t have the resources or will to ease the pain of the dislocation caused by changes that make the skills workers have obsolete and lower their earning power or, worse, put them out of work entirely. We need to develop and implement a strategy that recognizes that “things have changed” and address the changes in ways that are productive rather than obstructive.
You might (are likely) think(ing) that it cannot be this simple. While I will concede I am probably missing a couple of points here, it isn’t much more complicated than this. We need to focus ourselves on this relatively simple strategy and spend a lot of time figuring out how to make it work—the devil is in the details.
I would love to hear your feedback. What am I missing, what do I have WRONG? Please let me know.
Copyright 2018 Howard Niden
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