The 2009 Lehigh Valley Workforce Report was presented to the region\'s business community on January 27, 2009 by Kevin Flemming, President of Integrity Personnel, Inc.

1. 2009
Lehigh
Valley
Workforce
Report
By: Kevin F. Flemming, President
Integrity Personnel, Inc.
Prepared exclusively for the GLVCC
Annual Economic Strategy Program
January 27, 2009 Research assistant: Lori Koch

2. Dateline: January, 2009
In preparing the 2009 Workforce Report, we didn’t find it necessary to produce a detailed analysis of
the current economic environment. All of us involved in business, government, and non-profit
leadership are very much aware that we’re in the midst of a national economic crisis impacting our
region as greatly as the rest of the country.
Lay-offs are increasing across all industries. Unemployment claims in the Lehigh Valley have
climbed over 50% in just the last 12 months. And we’re seeing local companies and institutions
shrink at an alarming rate, with the expectation that the decline will continue through much of the
year.
Lehigh Valley Unemployment
25,700
30,000
25,000
16,980
20,000
15,000
10,000
5,000
0
Unemployment 11/2007 Unemployment 11/2008
So how does one make smart business decisions when so many factors are out of his control? When
the squeeze on the capital markets (created by the devaluation of assets) leads to a lack of new
construction projects that causes a decline in manufacturing orders, coupled with a drop in consumer
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3. spending ... how on earth does an organization make any decision with certainty? More importantly,
how can we even address workforce and employment questions when many of our organizations can
no longer afford the current staff they have?
Facing the crisis
This year’s report includes both short-term tactics for managing your workforce today, and a blueprint
for making long-term changes to your organizational structure to prepare for the next cycle. Both the
short and long term views offered require a belief that the economic cycle will change. Although it is
necessary to face the brutal truth (as Jim Collin’s writes in his book, Good to Great) organizational
leadership requires a level of optimism about the future.
So, as long as you believe that the economy will improve and that your company can survive the
current crisis - read on. We’re going to draw you a map to navigate with. You may not be able to see
all of the landmarks yet, but we can visualize what the route looks like from the labor and market
trends we’re observing today.
Communicate – assess – adjust
The first steps to effectively respond to this new economic reality are to communicate, assess, and
adjust.
Your organization’s current workforce is your greatest competitive advantage and should be the first
source you turn to for a recession plan. Communicate with your employees. Tell them what’s
happening to the organization. Show them the numbers. If your organization has kept financial and
productivity data from your employees in the past (either out of a perceived need for confidentiality or
to protect silos of control), stop it! When your employees know the truth and understand reality,
they’ll be more willing to help. The communication starts with sharing the brutal truth, but it doesn’t
end there.
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4. Solicit your employees’ ideas. Make them all accountable for thinking about ways to improve the
organization’s situation. You will be surprised to find that some of the most creative ideas will come
from folks who aren’t in management roles, but do understand their piece of the business. Ask your
employees to help.
COMMUNICATE With Employees
ASSESS Liabilities, Risks, & Barriers
ADJUST Fix or Eliminate
The next step is to assess both your existing capabilities and the alternative resources available for
performing operations less expensively. The goal for this assessment is a clear, unbiased picture of
your organization’s assets, liabilities, risk, and barriers to survival. Yes, I’m using the word survival
because we have to get used to it. The current economic crisis has moved the goal posts on us. And
for the near term, we should be taking “growth” off the table to focus on the more realistic goal of
surviving the recession.
Again, this is a responsibility of all stakeholders, not just top management. Put aside sacred cows
and make it clear that everything is on the table. This assessment doesn’t stop with a report. It is no
longer acceptable for everyone to agree on what needs to be done and then walk away with a vague
idea of how to change while conducting business as usual. The organization must adjust.
Once you’ve identified the factors that pose the greatest risks and barriers to its survival, fix them or
eliminate them. As harsh as this sounds, it is a much more humane way of managing crisis than
hoping the business environment will change before things get worse. Oh, and don’t wait for the
perfect solution. If there is a 75% degree of certainty that an assessment is correct, that should be
enough to make the corresponding adjustment.
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5. Communicate, assess, and adjust. This response may just help your organization get through the
next 6-12 months. Then what?
The real cost of lay-offs
The second leg of the journey we’ve mapped requires a new organizational structure. Its goal is to
strengthen your business for the future (post crisis) by creating a more competitive model - one that
provides flexibility in both good and bad economies.
During recessions, it is almost impossible for organizations to remain fully staffed. This is because
human resources are inherently inflexible. Every employee represents an amount of fixed overhead
dedicated to specific functions. Since revenues are anything but fixed, an organization’s human
resources will never adjust as quickly as needed in times of economic downturn. This severely limits
management’s options to respond when facing losses in revenue, and leads to expensive lay-offs that
sacrifice the organization’s capabilities.
The single biggest problem with the way lay-offs are conducted is that they do not provide
alternatives for the loss of capability. Lay-offs are permanent losses of resources that directly impact
an organization’s ability to function. So even when the organization starts to hire again, the cycle is
unchanged. Headcount may be increased to replenish the organization’s capabilities, until the next
downturn.
In order to break this cycle of downsizing, companies must rethink the way in which they acquire and
deploy the resources needed to run their business. A functional view versus an employee view is
required to gain control over both costs and productivity, especially in a downturn.
Identifying functions, not positions
Too often, the organization looks at its functional capabilities through the lens of employees. Rather
than analyze its critical functions as activities independent of positions, it defines functions through
fixed job descriptions. But because we’re limited by the number of people we can afford to hire,
positions are designed to incorporate as many singular functions as possible in order to make them
cost-effective.
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6. There comes a time when these multi-task, multi-responsibility jobs become untenable because no
one can perform all of the tasks they require well. Productivity actually falls as additional duties are
added to an individual’s job - never more apparent than in times of cut-backs. How many of your
employees have taken on more responsibility in the past two years?
An organization can begin to
separate functions from CORE SUPPORT NON-CORE
positions by redefining its Executive mgt. Accounting Compliance
activities into core, support, and Strategic planning Marketing Tax reporting
non-core categories. Core Product design I.T. Document mgt.
activities are unique to the
Sales Logistics Benefits admin.
organization - they are the
fundamental elements of a Service delivery
company’s business that includes strategic planning, business development, and product or service
delivery. Whatever directly contributes to the creation of revenue can be described as a core
function.
Support functions are the things that make the organization run. From accounting to marketing, they
enable the company to perform its core activities effectively. Non-core activities are found in every
organization and are generally unrelated to driving revenue or profit. These activities, like regulatory
compliance, tax reporting, and database management are important but not critical to the success of
the business.
Moving from “employee only” to “employee plus” models
It is in the support and non-core functions where alternative resources can be found. There are other
companies, individuals, and even software programs that can perform them better, faster and
cheaper. The more tasks that can be separated and outsourced in this way enable your internal
workforce to be more productive in the areas that are critical to your business, from sales - to financial
planning - to product delivery.
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7. What we are describing is not the typical outsourcing model of the past 10 years. That method is
limited by its own economics. For example, in order to make the outsourcing of an entire customer
service department to a third-party company affordable, a certain volume of transactions must be
present, limiting this option to only the largest of operations.
Small and mid-sized organizations will find more alternatives outside of the traditional outsourcing
business model once they can define their support and non-core functions. And the best news is that
those alternatives are already in front of them.
There is no rule book that states a company must employ all of its resources. As the traditional
employer model becomes ever more difficult to maintain, a company’s ability to outsource functions
will contribute to its competitive advantage. Since many non-core and support functions are
standardized, there are ever more sources capable of delivering them at low cost and high quality.
Current vendors and suppliers; customers; former employees; current employees’ friends; and even
schools can provide the new resources for performing these functions. A supplier that already
provides a monthly statement to your company for the product it sells, could include your other
purchases in its reporting system. Retired employees who still want to work part-time can become
on-call specialists for projects.
By communicating openly with your existing staff, you can connect with individual professionals or
paraprofessionals willing to perform functional-based services at contracted rates. Rather than being
limited to one or two channels for hiring the services your organization needs, you can quickly build a
network of individual channels from which you can purchase services as needed.
Flexibility is key
Both parties in this exchange must be flexible. The providers must be able to think outside of the
traditional professional services model (used by accounting, legal, and information technology firms).
Performing individual functions versus delivering full service programs requires different economics.
Rather than charging for time, these new suppliers may charge for transactions. Or, if metrics are
applied to the specific function, they can charge for results.
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8. The organization must be willing to cede control of activities that were traditionally performed in-
house. This eliminates the need for supervisory-level management that exists only to manage the
behavior of employees. Rather, it requires operations-level managers who understand how to
communicate requirements and measure results.
Assuming that the flexibility is present, the total cost of performing that function will always be less
than doing it in-house.
3 Forces converging to enable change
Why now? Why are we recommending a drastic change to the organizational model at a time of
economic crisis when business is facing more immediate issues?
There are three forces converging that make this
new method of managing organizational
functions no only viable, but potentially game-
Small Employers changing. The first lies in the demographics of
the Lehigh Valley’s business community.
+ Dominated by small companies with less than 10
Free Agents employees each, our region is made up of over
15,000 employers representing every industry
+ sector. The Lehigh Valley reflects the best
Cheap Technology attributes of entrepreneurial organizations
including flexibility, high-performing talent, and
recognition of market opportunities.
This fact provides a welcome environment for
people who can deliver a better way. Combined with the current economic environment, this force
alone has the potential to spawn innovation.
The second force can be called the “free agent” mentality. Individuals who make up the labor force of
2009 are much more flexible than their counterparts from 20 years ago. This is due in part to
demographics: the Millennium Generation is entering the workforce and will eventually supplant its
older counterparts. But it is mostly the result of changing attitudes about careers and work-life issues
that have been long in the making.
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9. The number of projected jobs that the average American will hold in his lifetime is continually
increasing. In fact, conventional wisdom now reflects that an individual will have at least 3 separate
careers over the course of his productive years. Additionally, people see work as more of a
negotiated trade with employers, than as an entitlement or right.
This independent attitude has led many employees to create their own jobs without relying on
established corporate structure. The role of a free agent or contractor is becoming ubiquitous across
all industries, and the trend inevitably increases during recessions.
Finally, technology takes its familiar place as a force of change. In only the past couple of years,
we’ve experienced the magic of being able to access the Internet from our mobile phone - create
broadband, wireless networks in our homes with a few clicks - and deploy our databases on virtual
servers in cyberspace enabling anyone to work from anywhere.
The current communication technology available to all of us at very low cost enables individuals to
own the same capabilities as businesses. With simple adjustments, we can have any number of
people access order/entry systems - email reports - conduct meetings & presentations with live chat -
and answer the phone from anywhere. If there was ever a moment where software enables the
“virtual” organization, it is now. And it is necessary.
Revise instead of replace
We do not suggest that employees can or should be replaced by independent contractors or services.
In fact, the major benefit of this model is that it preserves jobs. By allowing companies to purchase
resources to perform its non-core functions, its regular workforce is free to focus on the highly
specialized activities that generate the company’s revenue. Even if future downturns cause a
reduction in revenue or production levels, cost reductions can be found in the non-core areas of the
business. The in-house staff remains both a necessary and valuable resource.
In no way does this report specify every element required to implement this type of model. But it
offers the concept for your consideration. We believe that organizations will be looking for new ways
to maintain operations with limited resources. This path may provide one answer.
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