We blogged earlier about Deloitte’s then new Shift Index 2009, noting that it painted quite a dismal tale of US competitiveness and return on assets. Deloitte has just released its 2010 Shift Index, and it appears that while all of 2009’s tough findings still continue, there is an added element of employee apathy and a distressing chasm between winners and losers, further accentuated by a weakening of the economic moat that winners have tried to build around their businesses. All this in the context of a severe global economic downturn, which is serving only to accentuate the trends that have been affecting the US economy for over 40 years.
Deloitte’s Shift Index has three indices and 25 metrics to highlight longer-term performance trends and make them more visible and actionable. In 2009, Deloitte found a 75% drop in return on assets for U.S. firms from 1965 to 2009 while there have been continuous, albeit much more modest, improvements in labor productivity. Also, Deloitte noted that ROA performance gap between winners and losers has increased over time, but that the “topple rate” of winners losing their leadership positions has more than doubled, along with a doubling of
U.S. competitive intensity. Creative talent is exploiting any benefits of productivity improvements with higher salaries; and customers are also gaining and using power. The internet is only exacerbating all these trends.
In 2010, 2009’s persistent trends continue but worker passion remains low and in some industries has declined. If you are not excited about your job – you are not alone – < 25% is passionate about their current work; and oddly enough, passion holds the key to sustained performance improvement (more on this later). Sadly, ROA and ROIC both are trending downwards still and the cyclical economic downturn has hurt access to capital, led to decreased consumer spending and the resulting business bankruptcies.
Deloitte indicates pressures on downward performance will continue even as current economic downturn begins to dissipate.
And then it asks the critical question – so what can be done to reverse these performance trends?
The answer lies in three waves of deep change which underlie today’s “Big
1. “Foundation” wave: reduced barriers to entry have led to a doubling of competitive intensity.
2. “Flow” wave is being shaped by digital infrastructure, flows of
knowledge, capital, and talent their amplifiers.
3. “Impact” wave, centers on the consequences of the Big Shift, following the first two waves.
To fix the current situation, the Deloitte prescription is:
1. Deeper, yet strategic, restructuring of firm economics to generate maximum possible value from existing resources (essentially portfolio analysis and subsequent divestitures)
2. New management practices to more effectively catalyze and participate in growing knowledge flows (essentially new archetypes of managing knowledge workers)
3 Significant innovation to drive scalable participation in knowledge flows and reap the increasing returns to performance improvement (Essentially, social media to drive better customer engagement and employee performance)
The report is 198 pages long and goes broad and deep into an enormous variety of interesting topics, but we will stick for this blog post on the key theme of Employee passion.
Why is employee passion so important? Because fundamentally it represents a prerequisite for responding to downward trends and is essential for performance. Sadly, companies are losing the battle to stimulate employee passion; and get this as the economy improves, more workers will stop taking jobs and become self-employed contractors. Passionate workers drive sustained extreme performance improvement; and without engaged workers, companies cannot reverse continued deterioration in financial performance. Deloitte finds incentive based compensation just doesn’t work.
1. Passionate workers have a “questing” disposition; they are inspired or energized by unexpected challenges, not indifferent or negative; and thus achieve higher levels of performance. In a rapidly changing world, the passionate employees (and their companies) will thrive; apathetic workers will stress out.
2. Passionate workers will connect with others who are relevant to their
work to overcome performance challenges. They will participate in knowledge flows which will ultimately drive value for them and their companies.
But companies are far behind the curve. Consider only 23% are “passionate” about
their current jobs compared to 20% in 2009. Which means nearly 80 percent of workers lack passion regarding their jobs. Passion, as opposed to job satisfaction or happiness, is not driven by job security and work-life
So who are these passionate workers and where can they be found? Not surprisingly, they are more often self-employed (47 percent are passionate
versus 21 percent among firm-employed) and in smaller companies; in management, sales, and human resources functions; and in the Energy industry.
And as workers become more interested in integrating their passions into their professions, they will turn away from uncaring employers to become independent as contractors or consultants or in other forms of self-employment. 26 percent indicated an interest in becoming an independent contractor or consultant; and 60% of those are either passive or disengaged in their current jobs. This suggests that the workers
Deloitte prognosticates, that as the economy improves, more workers will pursue their passions through independent employment if the nature of work in their current firms does not change.
And what does that mean for America?
We will become a free agent nation. Today’s "pink slip" may also be the impetus to pursue a passion. Some of those who leave the firm may not return to traditional employment once the economy rebounds.
And company executives will need to be actively “engaging and amplifying passion to provide richer opportunities for talent development by focusing on performance challenges and making resources more flexibly available to workers to creatively address those challenges.”
So there you have it, passionate employees hold the key to innovation, creativity, overcoming challenges and creating wealth. And if companies don’t understand and harness this passion, look for employees to slip away to starting their own companies where they feel impassioned and challenged. Despite all the troubles of creating their support infrastructure.
This notion is really so intuitive, and it may be the answer to the unemployment challenge – what’s the point of having disgruntled employees who just hold a job. Perhaps public policy should change its focus to supporting creative self-employment and all that stimulus money should go into loans for smart employees who want to start their own small business.
Now if only the nation’s policy wonks read this report and acted on it!