Is there an "I" in Recovery?

Is there an "I" in Recovery?
Issue 526 | June 15, 2011
By Lorrie Lykins

Is it me or is the I-word everywhere lately? Innovation seems to be on everyone's minds these days and the topic is very much in the news. The Economic Times reported this week that corporate leaders worldwide view innovation in products and services as the clear path to growth. Innovation is considered to be more critical than other approaches to increasing revenue - more so than mergers and acquisitions and joint ventures in the race to increase market share. In short, innovation is thought of as the thing that allows organizations to differentiate themselves from the competition and ultimately will determine who thrives and who fades away.

A simplistic view of innovation is that the right people with the right skills and resources drive it. But with more than eight million jobs evaporating since the recession began in 2007, it's a bit overwhelming to consider the consequences of that unprecedented talent displacement and what it means in terms of lost innovation. We'll probably never know. And as the painstakingly slow pace of recovery plods on, I'm thinking that innovation may not prove to be everyone's favorite word - at least not in the short-term.

The New York Times reported a few days ago that capital spending by corporations on things is surpassing spending on people, a result of tax breaks for business and plummeting prices for equipment, among other factors. This isn't necessarily news - an April blog post written by an i4cp colleague of mine bemoaned the current situation in which tax incentives offered to businesses don't support job creation, but are instead promoting investment in capital spending for equipment upgrades. That post was sparked by a very similar story published by Bloomberg Businessweek that - not unlike the New York Times - detailed the political and economic realities driving the trend that's kept employment numbers lackluster at best.

My colleague's blog ("Rise of the Machines") garnered this response from a reader: "When the policy disincentives to growth and hiring are curbed, businesses will 'amazingly' find their heart & soul to improve humanity by hiring more and more even in the face of continued advancements of the machine."

Is this really what will happen? I don't think so. Innovation means that some jobs will be permanently replaced by - well - innovation. To be crass: the road to recovery will leave some jobless folks waiting in vain next to the on-ramp.

Consider department-store retailer Kohl's, which is contracting its labor needs by expanding capital spending on equipment - up from $761 million in 2010 to $1 billion this year. The investment? The installation of electronic signage in 500 locations, which will be completed across the chain by the 2012 holiday season. Kohl's CEO Kevin Mansell told Bloomberg Businessweek that the signs represent payroll savings "because we don't have to change several thousand signs in each of our stores anytime we run a new promotional event."

So the good news is that many corporations have liquid assets and can finally spend money on upgrades that, in many cases, we have gone without by simply making due through the recession. Don't get me wrong, these are worthwhile investments - in some cases sparking growth and positioning companies to expand on their workforces.

Upgrades are fine ... wonderful in fact. But innovation doesn't necessarily come from material and equipment - it comes from people. So I have to wonder who's benefiting from the equipment upgrades while tumbleweeds skitter along empty office corridors. And who's going to manage all this great new equipment, and more importantly, improve it or best it completely with something new and super-cool? Upgrades usually mean increased productivity but if there are too few employees on hand to leverage the expanded inventory, upgraded technology and improved equipment, what's the point? Are we risking an imbalance that will cost us more down the road?

The other factor in all of this, of course, is the watchful waiting we are all doing on the issue of U.S. health care reform. We still aren't hiring at the rates we know we should be because we aren't sure what it will cost us down the road. And meanwhile, as the Bloomberg Businessweek story points out, companies are increasingly opting for "flexibility in employment," (contingent workers), especially in the fields of information-technology and engineering. What will this mean for innovation? Will contingent workers be less likely to be driven to innovate for temporary gigs?

How wide will the gap between capital spending on stuff and resuscitation of the wheezing labor market continue to grow? As long as the employment market is bereft of the same drivers as capital spending on equipment in terms of tax incentives, I'd say pretty darn wide. And this current predicament, of course, will continue to impact consumer spending.

So while I agree that innovation is indeed the way to go, the basket in which most of our collective eggs should nestle, it is not without awareness that innovation means that more seismic shifts are ahead for business.

Perhaps the "I" - the innovation - that will indeed be the driver of the recovery won't come from gadgets but by finding innovative ways to get the "we" in the workforce back to work. Henry Ford was considered an early master of innovation not just for his product and assembly line vision, but for paying employees living wages, which also expanded and solidified his own customer base. Innovating with people is nothing new, but it does take vision, a little courage and a deeper understanding of what constitutes human capital.

Lorrie Lykins is i4cp's Managing Editor and Director of Research Services. She has been engaged in the study of human capital management since 2002 and has published widely to include authoring a chapter in the ASTD Leadership Handbook (2010) and publishing feature articles and editorials in various journals and magazines. Her work at i4cp has been featured in both the New York Times and the Wall Street Journal this year. She is an adjunct professor at Eckerd College in St. Petersburg, FL.

What do you think? Share your opinions on the matter.

Coming soon

The 2011 Five Domains of High-Performance White Paper
New research from i4cp and Human Resource Executive®.
Debuts Thursday, June 16.
Building a Culture of Innovation ReportNew research from i4cp and member 3M Corporation.
Coming this July

Comments or Questions?
Contact Erik Samdahl