A Rising Tide Lifts Large Boats First [Poll]


Personalefabriksmall

You know the saying. It's "all boats," of course.

Current data indicates the economy is improving, albeit at a slower pace than usual. Past recessions have enjoyed a more robust recovery. What does this mean for the average small business?

Small Businesses' Reaction to the Recession

Many small businesses went into "hunker down" mode in 2008. This means they curtailed most capital purchases and certainly stopping hiring. They may have laid off people. If they didn't lay people off, they might have reduced the number of hours worked. They had no choice! Their customers reduced orders to them, asked for pricing concessions, and stretched out payments. Even large companies did this to the small companies. Why? Because everyone else was doing it. I'm not saying this is unreasonable. It's just the way most businesses work.

Businesses try to use the periods of reduced sales to continue to market into new areas, or develop new products with existing capabilities, or establish alliances with other companies. They also do this when times are good, but you can spend more time on these areas when things are slower. There's less pressure to do these things when times are better. You focus on improving operations to become more efficient, but that requires investment. In "hunker down" mode, you avoid investment unless you are sure it will pay off. If things get a lot better, you might be able to hire someone to help in those areas.

Back to the current situation. Small business can't layoff too many people. Believe it or not, small business owners in particular loathe laying anyone off. They know they are affecting families when this happens, and it feels very personal. It is also a matter of survival, so sometimes it must happen. But unlike large companies, there is not a lot to cut before you are cutting muscle. There are many key people in a small company, who, if you laid them off, would get another job, and you would not be able to bring them back. So small business owners "carry" them. This means they do not have the profitability or the orders to keep those people but they keep them for the sake of the company's future. Most employees don't realize this. The owners assign other tasks to keep these people busy until the climate improves. And the owners still might need to reduce hours.

Expectations for an Improving Ecomony

As the economy improves you will see hiring start to pick up. The large companies are hiring. The work week is increasing as the small company has more orders and can bring their reduced team back to full time. Check the BLS for data on the work week. The increasing number of hours indicates hiring will follow. And, in case you didn't know, you can subscribe to all kinds of BLS reports.

Once the employees are working full time with maybe a little overtime, small business owners gain some confidence that maybe the sales are here to stay, and they begin to hire. They hire slowly, and fire slowly, as is their nature. This small-business hiring lags well behind large-business hiring, hence the title of the article.



Tom Smith,

a recent arrival to ChEnected's Reactor blog, is Managing Director at Focused Solutions Group in Chatham, NJ, and can be emailed directly here.

Comments

ehorahan's picture

Perhaps businesses are cutting hours for Hourly Employees, but a lot of businesses are requiring Salaried Employees to work more hours with no additional compensation. Being Salaried used to be the thing to strive for, now its less desireable. And perhaps companies are hiring... but once they see they can function with less... they will continue to do so - the perks that were cut won't be coming back any time soon. Yes - the boats might be lifted... but they will never rise quite as high.

Rich Byrnes's picture

I have worked for a large Fortune 100 company during economic down turns, and now a small privately held company during perhaps what was the worst economic down turn in recent history. The primary difference was in the small company the sense that the company could cease to exist at any moment was real and palpable. Whereas in the large company most employees felt, there might be some pain and perhaps downsizing, however for the most part things will work out. In the small company we had to let go about 20% of the staff, hitting the muscle quite quickly, and all employees from the CEO down took a substantial reduction in pay to keep the “boat” afloat. All activity other than meeting the anemic customer orders simply stopped! I agree with Tom, small companies cannot afford to let talent go! Small companies have to work much harder than their larger “name recognizable” counterparts to attract talent when looking to fill or re-fill critical roles.

Rich Byrnes's picture

Sorry for the long post, however this is a great topic, here is the continuation:  Things are definitely better now, full production, pay restored, however although we have rehired staff we most likely will not return to the staffing levels seen before the down turn.  I agree with Elizabeth, the ranks of the salaried employees are “doing more with less”, and have taken on the Lion’s Share of the load that has improved Corporate America Productivity.  As I see it, “doing more with less” in a fierce Global Economy, economic downturn or not, was inevitable.  As the world’s economies move closer to economic parity over time, and perhaps rightfully so, our boats probably will never float as high as they did in the recent past, however they will stay afloat! American Innovation (ability to improve or invent new products) and Productivity are the only two areas that keep the US competitive opposite emerging economies. The Greatest Generation, our Parents and Grand Parents before us saved America on the battlefields of WWII, it is now up to us to keep her economically viable in the face of intense Global Competition.

Rich Byrnes's picture

Closing comments, I promise: We will have to continue to “do more with less” in order to grow and create more jobs to re-employ those laid off.  In the end, there is a sense of pride across my company that everyone pulled together in tough times to limit layoffs, and “save the ship”.

Robert S's picture

I have a couple of different experiences with working during tough times. The small go down much faster if they are not running when the bad times hit. No room for recovery. And there is a great "coming together" feeling in the good companies when everyone pulls through together. The big difference, in my experience, is that the small companies share the pain more equally on the way down and return to normal faster. In large companies, the pain is not equal (CEO might lose a little of their bonus but not a salary cut) and benefits taken away are never fully replaced or with the same speed. The press releases are all about how much money is being made because of lower costs, but no acknowledgment that this is related to the fact that everyone is getting paid less for the same or more work. Some of this is necessary, as mentioned about globalization, but some of it is because they find they can get away with it.

Rich Byrnes's picture

Robert, I agree there is a fine line that divides asking us to do more with less to stay competitive, vs. a method to turn yet larger corporate profits.  In the end salaries, work hours, and profits can all be measured, when the balance shifts beyond what is "reasonable and customary", Higher than normal Profits, at the expense of Long Hours, and Less Staff, it is up to us to demand a correction.  The only way I know how to do this is for all of us to stop investing in publically traded companies that have too high of a Profit or Revenue/Employee Ratio,  or perhaps to low of a Compensation/Employee Ratio for the business sectors they are in. If we do this collectively, Wall Street and CEO's will get the message.  The key is we must act collectively to be effective, and unfortunately it is the companies with the highest profits that usually give our 401Ks the highest returns.  How many of us are heavily invested in the companies that are pushing the productivity curves?  Are we our own worst enemies? Rich

ehorahan's picture

Or, as the economy improves slightly and companies begin hiring again, the companies that take advantage of employees will see a mass exodus of talent leaving for positions in other companies. Of course the really big companies are probably too big to even feel a dent.

Rich Byrnes's picture

Elizabeth, Interesting Point, Yes, I agree we can and should always "vote with our feet" by selecting an employer that values "Quality of Life" for their employees as well as Profits.  The smart companies already know this is best way to attract and retain talent.  Let's hope there are enough "smart companies" left out there for the pool of talented people to exercise this option.  Wall Street's Laser Beam Focus on Day-to-Day Profits is making in very tough for companies to value such longer term behaviors.  I continue to hear CEO's say "But, But, We must answer to the Shareholders".  Collectively the American People are a very large Shareholder, we must unit, speak in a single voice, stop valuing returns over company social commitments, and withhold our investment $$, something CEO's & Wall Street will respect right away.....

Tom Smith (author)'s picture

Some outstanding comments here! I agree that many employees work more hours to try to keep up. I think it IS important to be productive while you are at work, I do not agree that it is necessary or even desirable to kill yourself for your employer. How many hours per week are enough? Your salary is based on 40 (or thereabouts). I submit that working more than 50 hours (2 more per day in a 5 day week) does not gain you any more points with the boss. At some point, you need to say, enough is enough! Don't you need a life? Don't you need to recharge your batteries? People tell me that they work 80 hours per week in a salary job. Once I probe, I find that the actual productive time is less. But even if it is all productive, is it so critical that this work be done today? Why? Did you promise that you would be done today? If so, then first, you need to learn how to estimate better. Second, you made a commitment and you need to stick to it. But..... If your boss is simply loading you up with work, I say there is always tomorrow. Most bosses will be reasonable about the amount of work that CAN be done in a day. It is certainly NOT double! The article referred to small businesses. In my experience, the small business owner is quite aware of the time each employee is putting in. In large businesses, there are probably many layers from you to the CEO, so, while there may be pressure to work the long hours, I'd argue that it is not worth it beyond a certain point. Each person decides what that point is for them. And now that brings us to competition. Are you worried about losing your job to someone that WILL work the long hours? As has been said here and boiled down to this excerpt paraphrased from the Serenity Prayer....and adapted for work. Accept the things you cannot change; Change the things you can; Leave if you can't accept or change. Tom Smith

BSDaly's picture

"People tell me that they work 80 hours per week in a salary job. Once I probe, I find that the actual productive time is less. But even if it is all productive, is it so critical that this work be done today? Why? Did you promise that you would be done today? If so, then first, you need to learn how to estimate better. Second, you made a commitment and you need to stick to it. But....." Recently coming from a job where I was constantly working nearly 80 hours a week, I can tell you that most of the time it boiled down to meeting rushed deadlines which were heaved upon us constantly. Trust me, we estimated higher hours but they were always, ALWAYS, cut in half even on some of the most vital things (like say a relief valve study). And what is an engineer to do if his boss is the one who is constantly low balling the estimate?

Tom Smith (author)'s picture

BSD, The article was about how small businesses are late to the expansion’s hiring party since they “carried” many employees. You say “recently coming from a job”. Does this mean you left there, at least partly due to the situation? I say congratulations! As I noted in my prior comment, “Accept the things you cannot change; Change the things you can; Leave if you can't accept or change.” So it seems as though you left. That’s great! But your question was “What should you do?” Let’s assume you do not want to leave, and you cannot accept the situation, then you need to figure out how to change it to an acceptable situation. Otherwise your stress levels will go through the roof and you might wind up in the hospital. To respond, now we move into a discussion about Project Management, and perhaps this deserves a column of its own: When given an assignment with a deadline, I would provide a commitment that is when I think I could complete it, based on my other assignments and commitments. Go on record if necessary, in writing to your boss. Assuming he is the project manager, he should be getting buy-in from his project team members (some of which are not his sub-ordinates) about the schedule. Since this is a ChE site, I’m assuming this is a complex project with many tasks and team members in a large company environment. Tell me if this basis is wrong. When I was a PM in a matrix environment, if my team members could not agree on a particular deadline, I went to THEIR bosses to see if I could get their priorities changed so that project task could get done on time. Many times I was successful. Sometimes I was not. In those cases, I would either ask other team members to help, or sometime I would need to go to my boss to let them know about a schedule delay for that task. In some cases, this would prompt my boss to get involved with the other team members’ bosses to get priorities changed. In other cases, my boss then agreed there was nothing that could be done for that task and the deadline for that task was moved. Okay, but not as PM, I would be expected to find any way to pick up he slack somewhere else in order to keep the entire project on schedule. If this particular task was a critical path item, that might be quite difficult. This is why you have contingency plans. The point here is that you tell your boss what you CAN do, and do not agree to deadlines that are not unreasonable. Never accept an assignment without knowing when it is expected to be done. ASK! And then you can respond to that answer. If your boss wishes to impose an unreasonable deadline on you and knowing you have said you will not be able to get it done on time (and documented that discussion in writing), I think I would be comfortable in going home at a reasonable hour every night. Understand that some unreasonable bosses might see that as insubordination. But they cannot force you to work 80 hours. It is expected that salaried employees can sometimes be expected to work more than 40. But at some point it becomes unreasonable. Certainly, 80 is way over the line. But communication is the key. Let them know you cannot do this, since you have obligations outside the job. Like a life! If they insist, I might put up with it for a while but then I’d be looking to jump ship, which is difficult in this environment. But I would not leave until I had another way to pay the bills. And please don’t bad mouth your company in public forums. Most companies in the US at “at-will employers, meaning they can lay you off for no reason. Your company’s policies might even enable them to let you go if you disparage the company in any way. Getting laid off for a reason might mean you would not be eligible for unemployment. So grin and bear it until you find something else. Tom Smith

Rich Byrnes's picture

Tom, I agree with your suggestions to Brian as to how to deal with the situation he illustrates, nice points. Looks as though Brian has already taken positive action, much to his credit! To your main point regarding rehiring of staff, I sense there is an underlying them here; most salaried employees that were not laid off during the bad down turn stepped up significantly by "doing more work". This was perhaps due to a sense of commitment to help keep their companies afloat, or concern if they didn't step-up they might be next on the "list" to go. Perhaps some companies (the short term thinking ones) got "addicted" to this temporary leap in productivity, and as the economy has rebounded have not rehired staffs. Do you think attempting to maintain these productivity gains might be a reason for the slow rehiring rate we are seeing overall, or have companies truly found ways to continue to weed out non value adding work, thus not requiring them to return to larger staffs? Rich

BSDaly's picture

No, from my previous situation, it's that American engineers are more expensive thus their time is literally money which was the driving factor of the rushed deadlines. You'll find in the ever shifting world of engineering, internationalization has truly changed the playing field and the rules. Right now it's hit the EPC side of things pretty hard and I'm not sure what it'll do to the rest of industry however I get the feeling that there's going to be a huge shift in the weight of work (and knowledge) that's here domestically and frankly that scares me.

Tom Smith (author)'s picture

BSD, BSD IMO a higher salary necessitates a higher absolute Return on Investment because the percent ROI is the same. Meaning someone makes 10k and if 10x ROI is expected, they must return 100k per year. If a similar position in another country/company makes 100k, they must generate 1000k(1M) return for the same 10x. One KPI (key performance indicator) for overall company productivity is sales per employee. Most small not-very-automated companies are happy to get to 80k per employee per year. Those companies are not highly profitable and may be struggling to break even. A typical small business with a reasonable level of productivity is in the 200-300k per employee per year range. This is a typical benchmark for small companies. Then you have multi-nationals that require an average of 1000k(1M) per employee per year and they are typically highly profitable. If that ratio drops they are driving hard to figure out why and get it back, or drive it even higher. My business targets small businesses for this very reason. They need to become more productive. And there is a large upside potential. They may not make it to the 1M per year per employee level, but if they can double or triple productivity, there will be more a stable environment for all employees. This means jobs will tend to be more secure. They will have profits to share and they WILL share. Small companies share a much higher percentage of profits with non-owner employees than large companies. Meanwhile, as noted in the reply to Rich, find ways to “work smarter, not harder” and your boss will love you for it! Tom Smith

Tom Smith (author)'s picture

Rich, I have 2 points in response: First I don’t think driving all employees to work 80 hours for 40 hours of pay is something owners/managers think about. Perhaps some employees who decide to take on a project feel the need to do it, but I can’t imagine that it is expected and widespread. And it is my opinion that this is a short burst of effort for a particular project and not a sustained requirement. It would stop if employees didn’t accept it! And I feel this is not so prevalent in large companies because of the reasons mentioned earlier. And it can be stopped by using the project management technique mentioned earlier. Some small business owners feel the need to work long hours. Their family life suffers, and their business suffers for it. This is NOT sustainable. Which brings me to the second point. It IS higher productivity that is desired. As an employee, you can drive productivity improvements by figuring out ways to solve a problem more effectively. Always drive product improvements, schedule improvements, cost savings, quality improvements, you name it. Even calculations and report automation is useful. Anything you can do to improve your company’s productivity is of value to your employer. It creates a high Return on Investment for your training expense and salary. And results-oriented employees that figure out how to “work smarter, not harder” are the ones employers will want to keep and promote. Live your entire career that way! Working 40 hours and accomplishing 80 hours worth of work is the way to do that! Be twice as productive as others! Another point is to work when you are at work. If EVERY employee was willing to offer a “full-court press” every day, imagine how much more productive companies would be! So, no I don’t think that companies have become “addicted” to higher salaried hours thus not hiring. Companies are becoming more LEAN-oriented, rooting out non-value added processes, that’s true. But the reason for not hiring is the economy. We are still waiting for the tide to rise some more. Tom Smith