There has been the occasional business leader whose reign has been magical (Welch and Jobs come to mind).  Yet their business often fall to sustaining enterprise value after they leave. GE’s revenue and stock appreciation has been stuck in neutral since Welch’s departure, as the 20^th century’s most profitable company tries to find its way.  Apple has been trading all over the map in the last few weeks as the market tries to reconcile a world without the imagination of Jobs and his fancy gadgets.

A systemic problem for private companies is that a lack of management and bench strength.  This dearth of talent goes deeper then inhibiting productivity in the short term; it is a significant barrier to value creation for the entrepreneur.  If an exit is an objective (as is often the case), buyers generally want to see a strong management team and bench that can support future growth. If it is the business owner and his brother-in-law that possess all of the tribal knowledge (intellectual capital) about how a business operates successfully, the enterprise can lose luster with investors.

There are similar problems when one or two employees within a company are technically superior to those around them. Often, feeling their power and value, they are unwilling to teach, document, and delegate. When management and boards allow such conditions to persist, they are doing a disservice to the shareholders and are putting the company at risk.

Organizations should:

1. Require that every manager have a delegate – Identify and develop strong number twos that can eventually step in and take on the job duties of every manager. If people can’t attend conferences or go on vacation, because no one else can cover their desk, it is a sign that they have not developed the talent around them. To develop others takes time and investment including focus on performance reviews, career pathing and training.
2. Institutionalize activities, duties and best practices – Develop thorough documentation. Companies must maintain policies and procedures if they are going to be operationally excellent. When a supplier errs, it is usually because an inexperienced junior staffer doesn’t do something the way his senior counter-part would have. Often the junior staffer is criticized, even though it is their management who put them in position to fail.
3. Teach - Great leaders are usually great teachers; they aspire to develop others through daily interaction, and the sharing of information. The inability to teach is often a sign that a manager views themselves as the only person competent enough to complete certain tasks, and makes excuses as to why they can’t find other people to step up.  Great companies have development plans for every key employee, and make resources available for their continuous improvement.

Organizations that formalize these practices in their companies will maintain a long term strategic advantage over those who do. The talent war has only just begun.

The protesters marched on the highway, despondent about rapid inflation.  They shut down the thoroughfare for hours. 1000 miles away, protesters flocked the capital and drove the legislators to safe haven in neighboring territories.

These were fundamentalists in Tunisia or Libya; they were students in California and state workers in Wisconsin.

The impetus for civil unrest in the Middle East is that of the “lost generation” of unemployed misdirected youth.  In some regions of the world, unemployment is 40% or more.  In the U.S. , it is not just the young that face underemployment but generations of workers whose skills have become irrelevant.  The U.S. has the western world’s widest income distribution. The Top 10% make 6 times that of the bottom 10%, compared to 4.2 X for Great Britain and 2.8 X for Sweden[i].  The labor market has hollowed, as wages earned by shop floor workers have actually declined (when adjusted for inflation) over the last two decades.

The labor imbalance in the U.S. has far reaching implications, not only for the unemployed but for our economy as a whole.  The inability of low wage earners to consume is a strain on U.S. growth.

While there is plenty of banter about the need for jobs, there is no systematic solution in place for retraining American workers such as displaced auto and steel workers. President Obama has called on U.S. business leaders to: “generate ideas for creating jobs, sustaining the economic recovery and making America more competitive”[ii].

Of course the notion of “creating jobs” is a little too convenient. Jobs are created when there is a need for them, and Americans get the jobs when they offer the most value. The problem is not that there are not enough jobs; it is that the cost-benefit for the employer often tips towards off-shoring.  If our workers do not offer enough value in the form of specialized knowledge, ability to use technology, etc., jobs will continue to be shipped overseas.

This is not a protectionist rant, and my comments aren’t intended to incite a riot on free trade, or China manipulating currency, etc. I am focused on what we can control.  What our nation needs is a retraining effort. The money we are spending on unemployment and other services would be better spent invested in people so that they can acquire new skill sets that are relevant in an ever changing world.

The question is who will lead, and who will pick up the bill?  To prepare our workers for the future will require collaboration across business and government. Tax and other incentives need to be in place to encourage the retooling of America. So as GE Chairman Jeffery Immelt and the rest of the White House Council of Economic Affairs weighs in on jobs, I hope they emphasize that we need to create opportunities for workers, and provide them will the skill sets required to compete.

Otherwise, the marches may extend to Washington D.C. and a state capital near you.

[ii] Obama wants business world’s best ideas on jobs USA Today

Many business owners are asking, just what should I expect in 2011 and beyond in terms of growth and demand?  Recent 2011 forecasts from Kiplinger’s include:

*        GDP Growth 2.8%
*        Unemployment Ending 2010 at 9.5% and slightly lower in 2011
*        Prime Rate 3.25%
*        10 Year T-notes 3% by late 2011
*        Inflation of 1.5%
*        Crude Oil $75-%80 barrel in early 2011

Demand and pricing is scattered.  The deflation debate seems to have softened as prices are stable and flat (projected to rise 1-2% next year). Upward pressure on raw materials and commodities such as cotton and copper are higher.  Providers of some consumables such as gasoline, coffee and cereals are raising prices, while prices for electronics, computers and automobiles are eroding. [i] A battle could be brewing over “rare earth” elements 95% of which are controlled by China. Materials such as Lithium, used in micro-electronics and products such as iPhone batteries could skyrocket.

The jobless recovery continues.  While the addition of 151,000 jobs in October was encouraging, it would take 20 years of growth at that rate to return back to the level of employment before the recession. Over 2% of Americans have been out of work for a year or more, and with the eventual waning of unemployment benefits, the future is bleak for the unskilled.  As a whole, soft employment and tepid housing prices will offer little in the way of a significant recovery; and the economy will be split between growing and sluggish industries.

The most creative and opportunistic will flourish.  Forms of social media and online marketing are practically free, providing impetus for those with a great idea to get the message out quickly and cheaply. Those with cash will buy up competitors and commercial real estate.

Venture Capital investment has exploded from the depths of a cataclysmic drop to less than $4 Billion in Q1 of 2009 to a projected $11 Billion by Q4, 2011.[ii] With multiples exceeding 6x, this is still a great time to sell a business.

The Federal government is about to enter a phase of complete stagnation. Splintered ideology will not provoke much in the way of bipartisanism and compromise.  Consider health care. A complete repeal of the health care is unlikely, and Republicans will push for less costly reforms. But Parma, and the medical community are gearing up for the addition of  nearly 30% of Americans who are uninsured and offer the industry new volume. In the absence of legislative movement, the administration will be forced to rely on regulatory actions led by political appointees and their cronies.  Early signs are that the Fed’s attempt at “quantitative easing” is not moving the needle very much on lending.

Emerging markets continue explosive growth in Singapore, China, India and Brazil (representing 75% of global GNP growth in 2011).[iii] Infrastructure stocks continue to boom. Cloud computing enables continued strength in the technology sector.

There is momentum behind the return of low level call center jobs to the U.S. as “rural outsourcing” is hot in information technology and other sectors. Small town America offer substitutes for outsourcing,  including Indian Tribes offering U.S. based alternatives, at only 10-20% premium from their Asian counterparts[iv] .

There is plenty of room for optimism. Competitors are weakened, and companies with strong balance sheets and cash flow should prosper.  Well run companies will invest based on relatively stable macro-economic assumptions. The strong will get stronger. Focus on being one of them.

[i] The Kiplinger Letter November 19th 2010

[ii] Money Tree Reports

[iii] The Kiplinger Letter November 19th, 2010

[iv] Rural Outsourcers” Vs. Bangalore