How are middle market company CEOs thinking about the tradeoffs of using more technology versus hiring more people? With the wild proliferation of powerful cloud computing services and low-cost software platforms, as well as increasingly frictionless collaboration over the Internet, is technology investment proving to be the water in the gasoline of America’s job creation engine?
After all, the U.S. created a minuscule 84,000 jobs in the month of June, far below what’s considered the “treading water” rate of about 120,000 jobs just to keep up with population growth.
So what’s actually going on out there, especially in the middle market companies that form the backbone of the American economy?
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Discussions with numerous middle market company CEOs on the subject were striking in their uniformity, even though the industries represented were wildly different: All said their hiring was relatively flat because they were aggressively using technology to get more output from the same number of employees.
Patrick Linnihan, President of Gant Travel Management in Bloomington, Indiana, said that dramatic increases in healthcare costs and a general assumption that employee benefits costs will continue to escalate dramatically caused him to completely rethink his company’s entire strategy -- and not in a job-positive way.
“We saw healthcare increases pushing our overall employee costs up so much and so quickly that all the technology we always thought was out of reach for us suddenly started to look like a much better investment,” said Linnihan.
That led Gant to develop a sophisticated customized travel portal that client companies (such as M&M Mars) can use to hold expenses down while keeping the pain of travel for employees to a minimum.
“We started focusing on new clients who were willing to use the technology we developed, so now 80% of our volume runs through the portal and just 20% needs a live operator,” said Linnihan.
Gant has added 25% more travel volume “without hiring anyone,” said Linnihan. “When you change the equation about what it takes to keep and insure an employee, technology starts to look a lot more attractive.”
Mark Hollander is President and CEO of Honolulu-based Crazy Shirts, which has 350 employees that manufacture and sell high-end imprinted T-shirts. He said his company has made major technology investments over the past two years that have made it far more efficient and effective.
“Other than a small force reduction right at the beginning of the economic downturn, we really haven’t laid anyone off,” he said. “but we’re not doing any significant hiring, either. We’ve been making some big IT investments to do more with what we’ve got.”
Hollander said an extensive new point-of-sale system helps Crazy Shirts monitor its stores more effectively and track consumer behavior more closely, reducing inventory and helping sell more merchandise to each customer. The company has also relied extensively on the IT capabilities of larger outside vendors like FedEx, which handles all Crazy Shirts’ logistics, to help streamline its entire distribution function.
And all without more workers.
Software companies using software instead of bodies, too
High-end knowledge-based companies are in the same frame of mind, though they may have different motivations and use different technology levers. Nate Thompson, Founder and CEO of Spectralogic Corporation in Boulder, Colorado, which builds very high capacity tape storage drives for supercomputing centers and television networks, says that he can’t hire as many high-end software engineers as he’d like, which led his company to embrace open source software (free, publicly designed and shareable programming platforms and systems) that lets Spectralogic get more productivity from the same number of engineers.
“We definitely do more innovation than we could otherwise with open source platforms,” Thompson said. “It lets us free engineers up for higher and better uses.”
Frictionless collaboration: The new management?
But even as middle market CEOs rethink hiring in an aggressively technological world, the ability of people inside an organization to collaborate with people outside the organization just as easily and immediately as if all were employees under one umbrella seems to be throwing up another obstacle to traditional notions of job creation.
The ease with which businesses today can find and collaborate with a contractor, freelancer, or small firm with the exact skill set and reputation needed is helping create a new kind of employment ecosystem. Several CEOs interviewed for this article noted increased labor and health care regulations are driving the cost of hiring an employee higher even as the hurdles to collaborating with an outside contractor or small firm are diminishing.
Marketplaces like Crowdspring, Freelancer.com and Amazon’s Mechanical Turk let companies find resources capable of performing even the most sophisticated tasks on short notice and with tight quality parameters, and eliminate the need for companies to take on additional personnel management and healthcare expenses, accelerating the trend. Technology and the ease of collaboration it brings are changing the way the economy works. Policymakers should consider the future implications and prepare a framework that eases the transition.
Dave Maney is Founder and Publisher at Economaney.com.
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