Empirical Rationalism and Other Oxymora
Economics
Do More With Less
Jun 25th
In an uncertain market, it is important for organizations to learn to do more with fewer internal resources. In a recent study of over 4600 respondents, nearly a third (31%) believed that shortage of labor / talent is a top challenge for their organization. Furthermore, on a year-over-year basis, staff development/expansion was down significantly as a top strategy to achieve business goals (from 31% to 22%). Although business execution (34%) and new products / services (34%) remained the top strategies most often cited in aggregate, 37% of CEOs believed that strategic partnerships are a top strategic priority in 2008 (second only to business execution at 40%). Furthermore, the research indicates that there has been a marked increase in the outsourcing of select functions. For example, in 2007, 24% of organizations engaged in IT outsourcing with 10% predicting outsourcing in the future; in 2008, 42% of respondents are engaged in ITO. Similarly, there has been a rise in the outsourcing of select manufacturing processes (a rise of 13% to 23%).
As part of a defensive strategy in a down economy, organizations should consider a multi-pronged strategy to address the shortage of talent. First, organizations should be prepared to outsource increasing complex functions to achieve strategic goals. However, it is important to note (and understand) that outsourcing does not necessarily mean off-shoring. With rising transportation costs and a falling dollar, America may yet become a low cost country source (LCCS) Second, organizations should consider engaging in partnerships to rapidly develop new products, services and competencies. Next, managers should review the competencies of the current staff against the newly aligned strategic plan – and cut dead weight where possible. Lastly, you should use the perceived downturn in the market as an opportunity to identify and aggressively recruit top performers into the business.
The Long Tail of Globalization
Mar 9th
The current issue of Foreign Policy has an article that attempts to dispel the notion that The World is Flat. According to author Pankaj Ghemawat, less than 10% of patents, phone call revenues, management research, direct investment and “management cases” cross borders. In his opinion, if globalization truly lived up to its hype, he would expect these measures to register at much higher levels (e.g. “90% for foreign investment”). The author contends:
These and other data on cross-border integration suggest a semiglobalized world, in which neither the bridges nor the barriers between countries can be ignored. From this perspective, the most astonishing aspect of various writings on globalization is the extent of exaggeration involved. In short, the levels of internationalization in the world today are roughly an order of magnitude lower than those implied by globalization proponents.
The author feels that globalization has been over-hyped and that “The World is Flat” thinking is both dangerous and not reflective of reality. In his view, a better model is a “Clash of Civilizations” posited by Samuel Huntington…
The champions of globalization are describing a world that doesn’t exist. It’s a fine strategy to sell books and even describe a potential environment that may someday exist. Because such episodes of mass delusion tend to be relatively short-lived even when they do achieve broad currency, one might simply be tempted to wait this one out as well.
The world has not seen this level of global integration since pre- World War I. Granted, Globalization 1.0 turned out pretty poorly for most of the participating countries; and, yes, there may be some truth to his hype claims. However, it is undeniable that there are powerful social and technological trends that underpin this new wave of globalization – namely, unprecedented access to the global communications infrastructure and the ability to participate in the read/write web. In short, globalization is not simply an economic occurrence – for better or worse, it must also be viewed through the lens of its lasting social and cultural impact. As such, I’d urge Mr. Ghemawat not to limit his analysis solely to economic indicators.
Shout-out to my homies in the Islamic Republic of Iran…
To illustrate my point, I had a look at the Google Analytics data for this blog. Yes, I recognize that this is completely unscientific and utterly navel-gazing. Nevertheless, it turns out that that roughly 60% of visitors over the last 90 days were from the US; followed by the UK (9.73%), India (4.89%), Canada (3.93%), Germany (2.36%), Australia (1.33%), Thailand (1.09%), Singapore (.91%), Italy (.91%) and Netherlands (.85%). The top-ten list is not particularly surprising – four of the top ten visitor countries are native English speaking countries (and two others, Singapore and India, have very strong English-based educational systems). However, what I found particularly interesting was The Long Tail of my reach. In the past 90 days, readers from 76 countries including The Islamic Republic of Iran, Zimbabwe and Nigeria have visited the strategyst.
As more than a casual reader of The Economist, I would have thought that these visitors would have more pressing concerns than the random musings of a customer and technology evangelist half a world away. The fact that they do not leads me to believe that there is more to this globalization thing than mere economics.
The Economics of Price and Quality
Dec 12th
Apparently, according to a Sony exec, in good times people look for the best prices and lower deals (they can just buy a new one if it breaks). In bad times, they are more interested in quality products that will last. The refs are weak in the cited article, but it is an interesting theory nonetheless.
Preparing for Change — An Individual Responsibility
Dec 12th
Although he is right about the shortage of IT engineers and deficiencies of math education in the US, given the degree of animosity and passion that surrounds the immigration/outsourcing debate, it would be foolhardy of me to quote this interview with Wipro Chairman as exclusive support for my position. However, he does raise an interesting point that I missed in my other posts on the topic (1,2) — with the phenomenal growth over the past few years, both China and India have corresponding shortages in experienced managers. Additionally, both of these countries are starting to have significant issues in employee retention which, unless addressed, will ultimately slow the rate of outsourcing growth. Development of skilled and experienced managers is not something that can be solved through education and training — it is is an issue of experience that can only be developed over time.
Protectionism is Not the Solution
Nov 22nd
The immigration and off-shoring debate is certainly an emotionally charged issue. In the spirit of the balanced debate that I called for in my Monday post, I’d like to respond to one of the commenter’s points individually:
- “Slave Wages” – according to the US Dept of Labor, median annual earnings of computer programmers were $62,890 in May 2004. The middle 50 percent earned between $47,580 and $81,280 a year. The highest 10 percent earned more than $99,610. In 2005, the median household income was $45,817. Putting it another way, the average wage for all occupations in the US in June 2005 was $18.06 per hour; the average for math and computer science professions was $35.30 per hour. Any way you slice it, these are hardly “slave wages”.
- “Shortage of willing…” – unemployment in Silicon Valley has hit a 5 year low at 4.1%, below the national average of 4.4%. Also, studies (1, 2) have indicated that tech jobs will be some of the fastest growing professions over the next 10 years. I doubt that there is a shortage of people willing to work for wages that are well above the national median; however, as the demand for talent increases, the US is in danger of a real skills shortage.
- Education Debt – most college grads, regardless of profession, are carrying an obscene amount of debt (we should have the same concern for nurses, teachers, social workers, etc). If we want to increase the attractiveness of math, science and engineering as a profession, we should provide more scholarships, student aid and loan forgiveness programs. We should also develop programs that make it attractive for people to want to become math and science teachers. In a recent study, the US placed 27th in math literacy on a global scale – unfortunately, most kids have decided long before university that math and science is not for them. We need kids to be passionate about math and science – pursuing it for the love of it – not for the promise of riches. This passion needs to be instilled in kids early by enthusiastic and well-trained teachers. Passion is where true innovation and technical leadership is going to come from.
- Politics– protectionist measures that artificially drive up wages in the short-term will all but ensure that these jobs will eventually go off-shore. We need to make it attractive for companies to keep the jobs in the US through investment in infrastructure and in an educated workforce. However, this will require substantial, real and long-term policy changes. Rather than pushing for zero-sum protectionist policies (that in the long run will make the US less competitive on a global scale), we should encourage our politicians to increase direct and indirect R&D investment (R&D investment in physical and engineering research has stagnated over the past 25 years), invest in math and science education, make it easier to start technical businesses and invest in the retraining of displaced workers.
