By Design: Gross Mismanagement Part II: Downsizing as Dumbsizing
By Glenn Beall
Published: December 1st, 2011
Published: December 1st, 2011
Many countries struggle to provide for an increasing number of unemployed citizens. Some are financially strained and facing default. Back in the days when there were plenty of jobs nearly everyone who worked could take care of themselves and the system worked well. If jobs could be found for whomever wants to work today, it would solve a lot of the world's current problems.
People without jobs don't get married. They don't buy cars, houses, groceries, appliances, furniture, Christmas presents, office equipment, injection molding machines, and the latest digital devices that stimulate the economy. Young people with time on their hands get into mischief and are easy prey for any fast talking evangelist who promises to solve all of the world's problems.
It is obvious that the winner-take-all global economy is not generating enough jobs for those that want to work. The United States has an abundance of freshly minted college graduates who are having difficulties finding employment. There will shortly be thousands of returning soldiers who need and definitely deserve good jobs.
University/job mismatch
An average unemployment rate of over 9% is high for the U.S. At the same time, employers, including manufacturers, are claiming they could expand their businesses but cannot find qualified employees. There is evidently a mismatch between the available jobs and the capabilities of the job seekers. It has always been this way, and there is no sound reason why this mismatch should be stunting the growth of the economy. The lack of jobs for recent college graduates is a good example of how this mismatch came about.
Some university curriculums fully prepare graduates for narrow, well-defined careers. Most provide a general education that can be used in many different occupations. My own field of product design is a good example of a general education. Product designers have all kinds of backgrounds. However, most formally educated product designers are mechanical engineers or industrial designers.
 |
| There was a time when old and new workers exchanged knowledge, recent grads learned specialized tricks from veteran employees while veteran employees learned about the latest technologies from recent grads. |
Graduate mechanical engineers could take jobs requiring the design of earth-moving equipment, medical products, air compressors, lift trucks, consumer products, heavy electrical switch gears, lawn and garden equipment, cars, motorcycles, boats, trucks, airplanes, inline skates, and so on. Such a designer should also know how to work with the common materials such as steel, rubber, glass, plastic, aluminum, wood, ceramics, etc. They should also be aware of the mind-numbing array of manufacturing processes used for all of the different materials.
There is no way that a university could prepare a student to know how to perform all of these varied jobs. The answer to this problem is simple. Universities didn't try to teach their students everything they needed to know. They teach the basics and the very latest state-of-the-art technology that theoretically could be used on many jobs. If a student commented that his family's business produced metal gears and he needed to learn how to design and manufacture plastic gears, he was told that gears were beyond the scope of the course. The professor would then go on to explain that each job required specialized knowledge that the student would learn "on the job." The professor was correct. This wasn't an ideal situation; however, this is the way it had always been done, and the practice worked well.
On-the-job training needed
The system worked because companies that required special proprietary knowledge had a few senior designers and maybe even a chief engineer who knew everything about the company and its products. Under the old model, the new graduate arrived on the job with a general engineering education plus all of the very latest technology, but no knowledge of gears.
This was alright, however, since the company's senior engineers taught the new graduates what they needed to know in order to make gears. Simultaneously the new employee was teaching the company's senior engineers how to use those portions of the new technology, such as computer aided engineering, that were applicable to the manufacture of gears.
This system was thought of as "on-the-job training" of a new employee. It was actually an exchange of knowledge between new and old employees. There is a high probability that some form of this "on-the-job training" also took place in banking, school teaching, health care, merchandising, farming, and most other forms of human endeavors.
The system worked.
In fact, it worked so well that the U.S. developed the world's largest economy while enjoying the world's highest standard of living. It is difficult to understand why anyone would want to change that system, but that is exactly what was done.
Downsizing as dumbsizing
In the mid-1980s a new group of university-trained business majors with no practical experience began to assume control of corporate America. Following the latest management fad, they strove to create the lean and mean organizations that were so highly prized by the stock market. They quickly learned that downsizing was the fastest way of increasing quarterly profits. Downsizing became dumbsizing and many of the experienced designers were replaced by less costly, new graduates with no knowledge of the company's products.
Eliminating the senior employees also resulted in the loss of the knowledge of how to design, develop and manufacture the company's product. They also lost their corporate history. There was no one left who knew why things were done the way they were or what to do if things went wrong. With no one left to train them, the new designers were left on their own to make beginner's mistakes while learning by the expensive and time-consuming process of trial and error.
These new graduates have now become the senior designers. They have gained the knowledge and experience to teach and learn from a new class of graduates. Regrettably things have changed. Corporate America has now decreed that they can no longer afford the time and expense of on-the-job training. The current concept is that new employees must be fully qualified and capable of doing their jobs with no additional training.
This is wishful thinking. Universities cannot produce graduates who are fully qualified for all of the different jobs they may assume. The uneducated people who are now moving from job to job cannot be expected to be qualified for any job other than by prior experience. Both groups of potential new employees require varying degrees of on-the-job training. The quicker corporate management recognizes this fact and starts providing on-the-job training the sooner they will have all of the qualified employees required to sustain their company's growth.
This is the way it has always been and the way it must be again. Corporate America could afford in-plant training in the past and they can afford it today. Failing to train enough employees to sustain a company's growth is another example of gross mismanagement.
GLB
I've been recently thinking
I've been recently thinking how every company you want to apply to requires experience. But there's this paradox - if everyone asks for experience, how can one have a first job? I'm not saying I don't, luckily for me, I work at a SLC junk removal company, but I can't help thinking about the Y generation.
Mr. Glenn Beall, this article
Mr. Glenn Beall, this article sums up what most of us were thinking. I do remember when we used to help each other, things were so much easier because of this. I can't put a finger on when we started to take cover one from another and hide in our pretty Tempurpedic beds instead of sharing.
Dear Anonymous, Yours is a
Dear Anonymous,
Yours is a good question. Whether or not to encourage young people to pursue a career in manufacturing is troubling for a lot of parents and advisers.
As far as I know Cerritos is a good school. Composites are growing at a faster rate than most other parts of the plastics industry. The dynamic plastics industry still offers a lot of career and business opportunities.
The plastics industry is much bigger than composites. I would suggest including composites, but not limiting one's education to that field.
I would not hesitate to encourage any young person to pursue a career in plastics. In my opinion an education in plastics supplimented by as much computer technology as possible will equip a person to prosper in the future.
A well written article and an
A well written article and an excellent analysis by Steve DeHoff to complement it. It does not give me any comfort to see that the most profitable, short range course of action for large US corporations is to get as much US government subsidies as possible but invest in training of foreign workers and facilities until our labor rates in the US match those of 3rd world countries. As top executives of our major banks and companies like AIG have demonstrated, their hunger for short range profit are so acute that warnings of corruption and maleficence from auditors are easily ignored if they get in the way of profits.
Walter Jobst
Well . . this is quite a
Well . . this is quite a string of posts to a well written article on a topic of vital importance. I'd like to briefly add some data from research I did several years ago that was also shared in presentations to industry groups, most notably the keynote address to Molding 2007. The point was warning to the plastic industry fundamentals were turning against the industry.
There is a lot of confusion, misdirection, and misunderstanding on facts regarding the U.S. economy and economic history. Here is some data:
1. Inequality & GDP are inversely related. A look at inequality data and GDP statistical trends data going back to 1787(not the yearly numbers which bounce around like a superball from numerous short-term effects)clearly show that rising inequality is associated with falling GDP trend growth and vice versa. The concept that we need to have the mass population of the country benefiting from real income growth as the economy grows vs. concentration of the growth benefit going to handful of us is very real.
2. David Ricardo, the economist who brought us "comparative advantage" for international trade in the same chapter also tells us that international trade in "necessaries" of life as opposed to "luxuries" will result in lower wages and higher profits across the economy. Think a prediction of "Wal-mart" in 1816. Adam Smith makes similar observations. Call it whatever political name you want, but the ecomomic fact is that profit and wages as a percent of the economy are a zero-sum game. For one to rise, the other must recede. Today, wages have gone from around 60% of GDP in the 1950's/60's to around 50% today while profit has risen from around 5-6% to around 14-15%. The right and sustainable balance is probably close to the middle.
3. Much of the reduction in inequality that led to strong GDP growth after WW2 was a function of unique, unsustainable conditions that created a hyper-tight labor market. The major factors; destruction of manufacturing competition allowing us to be "china" for about 20 years supporting labor union strength & strong wages-but low profits; delaying & shifting of the historically traditional post-war, wage-depressing low wage labor glut into upper incomes via the GI Bill (the data and history around this is fascinating - the lowest return to a college eduction occured in the 1950's); the residual effects of war-time controls on upper income wages and high marginal tax rates; and finally "free trade" allowing access to lower cost labor sources and globalization creating a global labor glut.
4. The two major histories of globalization, first 19th century Britain, then the U.S., are associated first with falling transportation costs and second correlation with rising inequality and falling GDP. Globalization expands the labor market resulting in a labor glut and a shifting of market power from wages to profit. It's that simple and we've been there before with the same result. In both historic instances, globalization resulted in a long-slow reduction in the GDP growth rate, falling wages, and rising profit that led ultimately to WW1 and the 1930's depression in the case of the English chapter and we're starting to look like something similar for the U.S. chapter. This development occurs over decades.
5. GDP statistical growth rate peaked around late '60's, early 70's coincident with the lowest levels of income inequality. GDP growth has been statistically slowly falling for 30-40 years as inquality rises.
6. Energy costs play a big role as well. The shale gas/oil development is a real positive for us. Do we have the good sense to control the advantage to ourselves/N. America?
7. Globalization is a free lunch. First, there have been many miscalculations about the short term cost/benefit. More importantly, the companies making these decisions do not have to bear the real costs associated with shifting the jobs. The unemployed bear those costs - income needs during retraining, retraining costs, relocating, etc. While I can understand society bearing this cost if a company relocates from, say, Washington State to South Carolina since our economy retains the activity, I have a problem if the job leaves the country and we lose the job but retain the cost.
There's more - I've gone on long enough - too long probably. The point is a sustainable growing economy requires the bulk of the population to grow consumption and other economic activity via growing real incomes, not via debt and putting more family members to work, etc.
I know Glenn is correct about a growing failure to invest in training by corporations - I'm seeing this story play out in one of my own college-educated children and those of numerous business contacts. The access to lower cost labor abroad, however, is creating a labor glut that encourages this behavior - better to train the cheaper low wage sources than higher cost Americans. I've seen and experienced these decisions on this basis. Corporations are doing this training, just not here.
There are really only two root solutions. The first is the equilibration process. At some point, our wages will fall to the point where we are competitive with the net cost of producing elsewhere to sell here. We see some early signs of this now. Rising energy costs actually will cause the equilibration point to be sooner and higher but probably not be that helpful since the higher wages may simply go to purchase more expensive energy.
The other choice is to cause a tight labor market domestically so the natural power of a tight market will shift GDP growth benefits more strongly back towards wages. This probably looks like some version of trade restrictions forcing more manufacturing here that would have their own negative effects including higher prices on many goods and retaliations by other countries. But, we're to a point where the net effect might be worthwhile. In the end, we need to employ our own citizens and some kind of correction is necessary.
Steve DeHoff
People you need to get out
People you need to get out more and take a good look at the shoppers out there. They are buying things like crazy, and I don't mean cheap stuff either, (I'm talking top of the line things, like clothes, cars, homes,
not to mention food, and they're dining in expensive restaurants)Education is included too. There are plenty of new students in the best and most expensive universities, but I seriously doubt they actually have what it is supposed to take to be there.
So where is all this money they're spending coming from? Could it be that our government is supporting this? You will never get these shoppers to put down their Food Stamps and get a job, they won't bite the hand feeding them.
Just the way I see it...
Good article. From my
Good article. From my perspective, we have to go back to the core, root cause of this, which is the high cost of our government, and the inflation of our money.
When an American made product is built here, around 40% to 45% is the cost of taxes, EPA, and insurance. This is an 80% tariff on American manufacturing!
We MUST downsize government by at least 50% to 60% and get our freedoms back, and prosperity will return!
Fred, plasticstoday@hydroworks.net
The push to move
The push to move manufacturing jobs out of the US has been one of the main drags on sustaining a middle class in the US. The responsibility is both a greedy, short sighted management that is focused on the next quarter and a greedy union that takes an adversary relationship with management. In addition we have a political system that continues to put thousands of regulations on the manufacturing industry that increase costs and uncertainty. We will not fix the problems overnight but we better get started unless we want to wind up like southern Europe.
Ben of California
"It really doesn’t matter who
"It really doesn’t matter who is blamed for the current trend."
It does if you want to solve the problem and eventually control it. Remember DMAIC?
Lamenting that corporations should invest more in innovation and efficiency goes back to the 1980's and Tom Peters. In the final analysis, the vast majority will take the easy road. And that road is minimization of risk and maximization of profit margin. (It's usually the small business owner that still has the vision and sense of cause to do this. And, BTW, were the heart and soul of what made this economy great.)
Also, I'm not as concerned as some about validating the author here. (This is a comments section, isn't it?) I've been in Manufacturing for 30 years (SME/SPE) and have fought and won many battles where keeping manufacturing in the U.S. was threatened. I know the battlefield well. The issue here is the definition of the problem and its solution.
Keith in Florida
Unfortunately it has all come
Unfortunately it has all come down to $. That is what drives EVERYTHING. We are not a nation of greed. We are a world of greed.
The reality is our politicans
The reality is our politicans have stopped our ability to convert our natural resources into wealth, given our trade partners(?)unfair advantages that have drained too many jobs from the US, and allowed the illeagal immigrants to alter the supply/demand balance for working opportunities. All of these things are choices and great leadership will make better choices. I foresee a huge boom in reindustrializing the US beginning with clean drilling and mining known reserves, fighting back against China et al who expoloit their environment and their citizens to make cheap products while stealing our intellectual property, and insuring that all who work here are properly documented and controlled.
Then you will see job opportunities for all, resumed social mobility, and incredible opportunities paced by the on going revolution in personal communications and electronics!
Ken Hedges
I had worked for Glenn for 17
I had worked for Glenn for 17 years and always thought he was one of the smartest men I had know. I still think that, even after some 23 years have passed. It's too bad there are not more like him. It seems that greed has overtaken this country. Great ob Glenn. RRW
Glenn has posted an excellent
Glenn has posted an excellent commentary on the state of American business today. His extremely well written article points out a cancerous cycle which can ultimately evolve toward financial collapse. It really doesn’t matter who is blamed for the current trend. Continued decline in employment and productivity will result in decreased circulation of cash, smaller profits and shrinking markets. Glenn’s point is that corporations should focus their attention on investing in innovation and increased productivity to increase profits versus stripping core competency through the elimination of key people. I fully agree.
Michael Paloian
I suppose it's fashionable to
I suppose it's fashionable to blame corporate management for our current economic plight. After all, they are an easy target for everything from global warming to poisoning the food supply. In regard to Beall's claim, a more accurate assertion is that the jobs corporations are seeking to fill and provide training for are ones the nubile young graduates don't want (nor would they seek that training if offered at a training center).
There is a myth in this country which has been perpetrated by the for- profit business know as: "Education" (I'll refer to them as the Gatekeepers) . The myth is that if you jump through the right university hoops, industry will welcome you with open arms and give you a job. The business seemed to work well for awhile. In fact, the Gatekeepers grew their business and provided certificates of expertise (ring optional)in a host of areas such as Cultural Engineering and Transgender Studies. In the meantime, the Gatekeepers also created drive-thru windows where virtually anyone who could operate a mouse could enroll at the temple and receive enlightenment. Soon, there were MBA's and PhD's flooding the countryside (I call this: "educational inflation"). Oddly, as the number of "experts" multiplied, our industrial competitiveness lagged. And even though we've had more business schools per square mile than any nation in the history of the world, our economy has been spiraling downward toward insolvency (BTW, Enron's Jeffery Skilling was a Harvard MBA). Was this corporate management's fault? Or was it really related to the Gatekeeper's training of corpoorate management on how to do leveraged buy-outs, hostile takeovers and creative financing with OPM rather than how to build a business? And they did this because that's where the MONEY was and what sells (notice how the temples advertise how much their graduates make....it's advertising that sells). Remember that the greatest industrial revolution the planet has ever known was driven and fueled by non-MBA's.
I wish our current problem with jobs was as simple as blaming it on corporate management or that academia has the answer. It's really more basic and has to do with the fading of the American moral fabric and the glorification of greed (aka success). What pushed manufacturing and the "means" of manufacturing out of the U.S. and created a jobs crisis? Accountants and not visionaries. Meanwhile, the sirens that praised the virtues of globalization have disappeared. (And they lined their pockets in the process.)
We've changed what we value in this country. The bottom line is more important than character or moral cause. That's where it started...everything else is systemic.
Keith in Florida
Great article! Our company
Great article! Our company struggles to find people who are skilled and willing to work (also west Michigan). We have had to do exactly what Glenn talked about by developing our own workers.
As far as the greedy CEO's comment, there are some out there, but a lot more of it comes down to the fact a business needs to be profitable or it will die. If a company making cars wanted to be nice and pay all their workers $100 an hour they would never sell a car because consumers won't buy the product for 4 times the price. We are now a global market and we need to realise that as a country. If you can't find a job, move to where one is, or learn a new skill so you can find one. There are a lot of people who are mad they can't make ends meet, but they have cable TV, cellphones, internet, and other non-neccesities. Wealthy people are not the problem with our country. You will never get hired by a poor person...
I am trying to encourage my
I am trying to encourage my grandson to look into a degree program offered at Cerritos College in Plastics/Composites Manufacturing Techonolgy. Do you think this is good advice? Do you think this education will lead to a job in plastics manufacturing in the U.S.?
EXCUSE ME...there is a
EXCUSE ME...there is a shortage of skilled workers. CEOs have resorted to off shore manufacturing becuase the American union worker priced himself out of the market. Paying $25+/hr to semi-skilled workers, higher for skilled workers, with lush benefit packages and productivity killing workplace rules has killed the market for blue collar workers. That may not be where the market is now, but that is where it was when the off shore movement started. You made the bed, now sleep in it. You hear a lot about "corporate greed", how about union boss greed?
By the way, I think a nurse should be paid more than a CNC machine operator, don't see the problem there. Get outa here with your socialist class warfare crap.
Glenn, New Hires Deserve
Glenn,
New Hires Deserve training!
Great article. Well stated. I would think that no matter what your business one would expect to perform some kind of training for any new hire - even an experienced employee. Perhaps the "fast food" idea of going to "Employee Mart" and getting a ready-baked, seasons professional is not always realistic. In my world I have always done one of three things: Hired someone who is moving up - and traing them. Hired someone who is content to "do the same" - and train them. Or hired someone who has had much more responsibility but is looking to enjoy the fact that they are well experienced and are looking for a job they can do without a lot of struggle - and then trained them. Training makes people feel that you are investing in them and gives them knowledge and insight that would take them years to develop on their own. It also gives people of solid character reason to identify with your business and feel that they are part of the process - because of the head start they got with training. Here is my closing: What if you train a person and they leave? . . . Well, what if you do not train them and they stay? Well trained employees tend to stay. Long live high scvholl industrial tech programs and companies that MAKE something! Best of Luck, John - Illinois
Actually there IS a shortage
Actually there IS a shortage of skilled labor. All the tool shops around western MI are looking for people that know how to use a CNC and they can't find them. On the job training is necessary to give businesses the ability to grow when they need to. Right now automotive suppliers in the area can not find skilled people to allow them to grow. They will be outsourcing work to other countries if they don't find the people they need. Since they don't currently have a training program, they don't have any up and coming trainees to fall back on. The author is right on the money with this article.
BTW, a skilled trade such as a plumber or an electrician will often make more than I do (Sr. Process Engineer).
EXCUSE ME.....there is no
EXCUSE ME.....there is no shortage of skill in this country, just a lack of CEO's willing to pay a fair wage to people with thosee skills. GM's CEO saying that all new GM tooling to be made off shore is a real good example. You will be hard pressed to find a skilled trades person that makes as much as a hospital nurse. Consequently, there are no young people willing to start in the trade. It's the same ole story, the college educated thieves against the blue collar worker. And the colleges teach this sort of behavior.
Well Glenn - this is very
Well Glenn - this is very well written. I suggest that you read "Fast Food Nation" and then you will also see that the "Fast Food Mentality" is at play in our Dumbsizing of the American Industry -- Of course a great pair to follow with are "Poorly Made in China" and "Barefoot in the Boardroom." These two paint real life pictures of what we are getting out of the Chinese Boom Economy... But heck we all like $40.00 Micro-waves and $60.00 DVD Players...
Scott