2005 Outlook – More of the Same Change

It’s a new year and a new beginning for executives, workers and community economic developers. What key trends will shape their agendas in 2005? Here’s my take on the issues that are near and dear to my research and consulting work.

GROWTH AND INNOVATION MAKE A COMEBACK – Cost-cutting isn’t going away but companies will be increasing their attention on finding ways to grow and innovate, albeit in a ‘lean’ manner. They won’t want to spend too much money or take big risks. Smart companies as they always do will find smart ways to grow. And they will not shy away from taking significant risks when they make sense. Others will continue to look for big wins on the cheap.

MERGERS AND ACQUISITIONS RESUME – M&A activity in 2004 quietly reached record levels. Analysts and Investment Bankers predict an even better year in 2005. The drivers in some industries will be consolidation (telecoms, software for example), but in many others it will be growth and innovation. Given the dismal track records of M&A – various research studies estimate 55-70% fail to increase shareholder value for example – buckle your seat belts. We may be in for a rocky ride.

GLOBILIZATION AND OUTSOURCING CONTINUE UNABATED – These trends will continue to pick up steam and in 2005. The cost allure of offshore outsourcing will remain too hard to resist for many companies. And the unrelenting hype machines of vendors, consultants and venture capitalists will ensure that outsourcing is front in center in the minds of top executives here in the U.S. While there are beneficial aspects to these trends, they have significant downsides as well. One is the impact on this country’s human capital. It remains to be seen whether our corporate and political leaders will focus any attention or urgency on developing and repurposing our home grown talent. Years of neglect and underinvestment in human capital has left too many organizations operationally lean and mean, but strategically emaciated and feeble.

TURNOVER RETURNS – Look for the U.S. labor market to continue its slow recovery. There are some signs pointing to a pickup in the pace of turnover and new hiring this year. Productivity gains slowed toward the end of 2004. This suggests that companies have wrung out just about all they can from existing workers. Many of those remaining will be tougher to replace via outsourcing or automation. Hiring new talent will be needed to support even moderate growth this year. Headhunters are reporting increases in activity. This means new jobs are opening up as many individuals leave for greener pastures.

BOOMERS BOLT - Look for Boomers to continue to flood the entrepreneurial ranks. If you want to keep them (and demographic trends suggest you will need to) then be prepared to offer them the right mix of flexibility, challenge and rewards. All-or-nothing approaches to employment particularly for those nearing retirement age simply won't cut it. Many older workers want to continue to work, indeed many will have to, but continuing in high pressure, all consuming roles is not an option they care to pursue. They want to do something fresh and new that allows them to draw on their deep knowledge about their work, their field of expertise, their industry and their company and its culture. New roles need to be created that keep older workers involved meaningfully but which also offer significant flexibility and choice in when and how much they work. Mentoring, consulting, and project-based assignments appeal to older workers burned out by the grind of full-time work but not ready for retirement.

GEN Y STEPS IN, GEN X STEPS UP - The ranks of young talent are not growing as fast as older workers and in the case of 35-44 year olds they are shrinking as a percentage of the workforce. These groups represent the new generation of workers and leaders and Corporate America needs to engage them. But is it? Are companies setting the example that youth seeks? Many want socially- responsible, people-centered and sustainable workplaces. The rhetoric of corporate America about the importance of human capital sounds good. Conversations with individual executives leave one feeling that many 'get' it. Yet old behaviors die hard.

SMALL AND MEDIUM ENTERPRISES RULE - SME’s are where the action will continue to be in the economy both nationally and locally. SME’s produce the bulk of the new jobs and in many cases the new ideas and innovations that create future growth for the economy. Some even become dominant companies or create tomorrow’s industries and hot markets – e.g. Microsoft, Dell, Apple, Whole Foods, Starbucks to name just a few were all small startup businesses not so long ago. These are merely the biggest and best known success stories. There are literally thousands of smaller but highly successful small companies growing leaps and bounds and generating new jobs and new growth. See http://www.inc.com/resources/inc500/index.html for Inc. magazine’s list of 500 of the most dynamic small companies in the U.S.

That’s my take on the outlook for 2005. Time will tell how accurate my predictions are. No doubt a few surprises await us just over the horizon. Stay tuned.