Put us to work Responding to the new job creation imperative

For-profit corporations are increasingly being judged on the basis of how many and what type of jobs they create.

The new job creation imperative

Traditionally, corporate leaders haven’t had to think about job creation as a core component of strategy. Jobs were an input to your operations, not an output on which your success would be measured. Of course, there were always signals that job creation was valued. But the presumption for corporate leaders and for society as a whole was that if businesses focused on creating value, jobs would naturally follow. When and where that equation faltered, and when new jobs didn’t materialize, it was the responsibility of government to address the shortfall. Now, the equation isn’t just faltering, it’s broken; in an increasingly globalized and information-based economy, value production has visibly less and less immediate connection to job creation. Moreover, everyone now expects corporations to address the problem. So how do you respond? This article offers a plan to address this new job creation imperative.

For the next several years . . . companies . . . will be judged on the basis of how many and what type of jobs they create.

It was an extraordinary meeting. On November 17, 2011, Philippe Varin, chief executive of French carmaker PSA Peugeot Citroën, was summoned by the then-president of France, Nicolas Sarkozy, to answer for the cost-cutting plan he had just announced. To other business leaders, his plan, which involved reducing the company’s payroll in France by over 5,000 positions, had come as no surprise. Whereas PSA’s hands had previously been tied with regard to layoffs—the bailout that it, along with rival Renault, had accepted from the government in 2009 was conditional on maintaining its French workforce—that debt had just been fully paid. What became painfully clear to Varin (and other French auto executives) was that Sarkozy cared little about the expeditious payment of the loan, and even less about PSA’s profitability. He thought the company should focus more on providing jobs. 1

Think this is distinctive to France—the kind of worker-friendly society that legislates a 36-hour workweek? Think again. Consider the example of Apple, the darling of consumers and capital markets. After its outsourced and offshored production process was examined by reporters from the New York Times and called out by President Barack Obama, the company felt compelled to commission an independent study of its overall impact on domestic jobs. Its finding, that the company had driven the creation of 514,000 jobs in the United States in 2011 (an order of magnitude beyond the 47,000 Americans directly on its payroll), seemed only to invite more challenges.2 GE, a major American employer and a long-term champion of boosting American competitiveness, can nonetheless testify to feeling the same kind of scrutiny when the company announced it would move its X-ray business, based for over a century in Wisconsin, to China. 3

We are in a new world now when it comes to employment. For the next several years, and possibly for quite a lot longer, companies, countries, and national systems of economic growth and innovation (in both developed and developing economies) will be judged on the basis of how many and what type of jobs they create. This scrutiny will be equal to (and sometimes more than) that of how much value or wealth is created. This is not an issue of what economic theory says is most efficient for firms; it is an issue of political economy that in operational terms supersedes theory. How will wise managers respond? In the actions of a vanguard of well-managed firms, the answer is already becoming evident: They will make job creation central to their strategic thinking, and pursue it in coordination with government through innovative platforms and campaigns.

Figure 1. US jobs since 2008

Now it’s your problem

Employment has, of course, always been important to societies as well as economies. It is as much a source of individual fulfillment and meaning as it is a foundation of social stability and an engine of tax revenue. Labor unions have famously rallied support with the deeply human appeal of “a decent job for a decent wage.” No surprise, then, that for most citizens in most countries, the availability of good jobs is the most important measure of an economy’s health.

The onus for achieving healthy employment levels, however, has traditionally (at least in the post-World War II era) been on governments. The core economic presumption has been that, as businesses focus on creating value, job growth generally takes care of itself. When there are bumps in that equation, or in situations where the supply of labor outstrips demand for it, it’s a signal of market failure—and addressing market failure is a task for government policy makers. President Obama is not the first elected official to realize that his performance is being judged in large part on the basis of jobs created or destroyed during his tenure. Businesses, by contrast, have been viewed as actors within the system, obliged to follow the rules but, like job-holding and job-hunting individuals, mainly responsible for their own economic interests. An Apple executive responding to the New York Times’ questions captured that stance perfectly: “Our only obligation is making the best product possible.”4

Figure 2. Workforce participation rates

To be sure, business leaders have generally been aware that they play a pivotal role in job creation. It is on this basis that they have frequently argued against regulations, taxes, and other policies that increase the cost of doing business. Governments have provided many businesses with incentives to locate in certain geographic areas with the implicit, and sometimes explicit, understanding that their presence would bring good jobs. But the pressure to do so rarely impinged on strategy decisions. Jobs in business were an input to a company’s operations, not an outcome on which it would be judged.

That has changed for several reasons. First, we now know that robust economic growth simply does not guarantee sufficient job growth.

Companies make expansion investment decisions that are less about returning to prior employment levels at any particular operating location and more about positioning themselves to serve new customers in emerging economies. Economic theory says there should be no conflict between these two goals in the long run but, as Keynes famously pointed out, the long run is not the relevant time frame for CEOs, job seekers, and politicians. In fact, governments themselves have often been conflicted in their commitment to job creation. With productivity and competitiveness also important concerns, government policy has favored efforts to boost them with, for example, support for automation efforts. Thus, even as many economies pick up steam, unemployment levels remain stubbornly high. In late spring 2013, Eurozone unemployment hit an all-time high. And in the United States, where the recovery is by many measures the most robust, the partial but real improvement in headline unemployment figures has barely moved the needle on the political economy of jobs, which remains a top concern for politicians and the public alike.

Figure 3. Jobless recoveries

Second, there is a growing awareness of just how crucial jobs are to social order and psychological well-being. In recent research studies, unemployment has been clearly shown to cause serious depression and anxiety.5 Beyond the financial strains that tear at the fabric of families and communities, an inability to find work undermines individuals’ very sense of identity. Particularly troubling are the effects of long-term unemployment, with the average duration of unemployment in the United States hitting new levels during the recession. (In April 2012, it reached 42 weeks, the longest since the Labor Department began tracking the statistic in 1948; as of April 2013, it remains elevated at 39 weeks. These numbers do not include former workers who have become so discouraged that they give up looking for a job.6)

Experienced workers see their skills erode, while many new entrants fail to gain a foothold. In some countries, youth employment has reached such shocking levels that many worry about a “lost generation” of labor—and of people via migration. As the focus has shifted to jobs in almost all major economies around the world, it has become one of the biggest issues, if not the No. 1 issue, on the political agendas of leaders and political candidates.

Companies stand to win points for every domestic job created or even, possibly, maintained. And these direct rewards may pale alongside the intangible goodwill an organization may win by visibly stepping up to the challenge of job creation.

Figure 4. Dependency ratios

Third, governments that once had a natural ally on this front in their nations’ business leaders should consider now coming to terms with the scope of modern firms’ operations. In its revelatory article about Apple’s outsourcing of manufacturing to China, the New York Times noted, “What has vexed Mr. Obama as well as economists and policy makers is that Apple—and many of its high-technology peers—are not nearly as avid in creating American jobs as other famous companies were in their heydays.”7 Vexing, perhaps, but not surprising. In earlier generations’ downturns, some big companies were still not truly global. Betsey Stevenson, the US Labor Department’s chief economist, is expressing a widely felt nostalgic point of view when she complains, “Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice . . . That’s disappeared. Profits and efficiency have trumped generosity.”8 But job creation by companies was rarely an act of generosity. For corporate decision makers of yesteryear, there was simply more alignment between the health of a local economy and their own.

One last new development adding to the pressure on firms to create jobs is a rising skepticism about government’s ability to do so. Many now perceive that, even when government takes action, it can only succeed by indirectly stimulating private sector hiring. For industry, the stimulus can be a two-edged sword. Incentives like tax breaks are extended with expectations about employment consequences, and when the hoped-for outcomes don’t materialize, public frustration can be intense. Firms that take advantage of incentives but fail to produce jobs as anticipated or claimed, or fail to do so for particular constituencies, wind up with targets on their backs.

As a result of these developments, stakeholders of all kinds now hold businesses responsible for jobs and joblessness. For a given company, this might sound like bad news. But it is good news when one considers that, like some shifts in the competitive environment, it also creates the opportunity to excel and benefit on a new front. Governments are now formulating policies that reward job creation explicitly. For example, in the United States, the current administration has again put forward the idea of tax breaks for repatriating cash held abroad, on the condition that it is used to create domestic jobs. Companies stand to win points for every domestic job created or even, possibly, maintained. And these direct rewards may pale alongside the intangible goodwill an organization may win by visibly stepping up to the challenge of job creation.

Rethinking strategy and jobs

Astute leaders in the business community have already realized that they should consider job creation in a new light: as a matter of strategy. Thinking strategically about job creation has at least two dimensions. It is necessary now to have an explicit strategy for job creation; that means setting clear goals and laying out a roadmap to achieve them. It is also necessary to rethink the role of job creation in the overall strategy of the business. How can it drive rather than only follow marketplace success?

To understand the distinction, recall how Walmart responded as it came under increasing pressure to be “greener” so that its operations did not impair the sustainability of life on the planet. Certainly its management saw the risks of inaction, and, far from taking an antagonistic stance, the company worked to understand what was expected of it by different stakeholders, outlined actions to take, and devised metrics to measure performance. It devised a strategy for becoming a sustainable company by leading by example and setting the terms and pace of sustainability for its suppliers. Walmart thrived to become a more efficient company and, in 2005, it set three aspirational goals: be supplied with 100 percent renewable energy, create zero waste, and sell products that sustain people and the environment. Walmart’s commitment to be a good steward of the environment has become part of its competitive differentiation. Can job creation take on a similar role?

When a company like Lockheed Martin sets up a recruitment program dedicated to transitioning military veterans into private sector work, it is similarly working on two levels. The program itself spells out clear goals for veteran employment and how they will be reached. But the organization has also drawn a clear connecting line between providing jobs for veterans and succeeding overall. Its current executive chairman and former CEO Bob Stevens pointed out that veterans are “an extraordinary group of people,” tested under pressure and known to have what it takes to succeed in Lockheed’s culture.9 Lockheed has also been responding to encouragement from customers to hire veterans returning from Iraq, for which they may, at times, be eligible for financial credits. For an organization with important military customers, the experience of veterans hired as employees provides a basis for understanding customers’ needs and forming lasting relationships.

Likewise, when GlobalFoundries, a semiconductor foundry spun off from AMD in 2009, chose to invest in a new fabrication facility in upstate New York, it was weaving job creation in advanced manufacturing directly into its strategy. Its projected hiring of 6,500 skilled workers won it federal, state, and local government support, without which, its CEO Ajit Manocha said on the occasion of President Obama’s recent visit, “None of this would have been possible.”10

How Danfoss created jobs by downsizing

Industrial manufacturer Danfoss is the largest employer in southern Denmark, but in 2003 it faced the painful task of scaling down its workforce in the region. With a hit to headquarters’ morale inevitable, Danfoss’s leadership decided to engage with affected professionals in a completely new way. The idea was to recognize the region’s potential as an industry cluster, and to facilitate a process by which many of those skilled former Danfoss executives could establish themselves as high-impact entrepreneurs within it. Danfoss provided seed capital for new ventures using innovative funding mechanisms that distributed the risk between itself and the entrepreneur. It especially encouraged startups in areas complementary to its own business so that it could lend support both as an investor and as a customer—and was soon benefiting along both lines. Danfoss has earned a healthy return on the investments, and its access to sophisticated new services and products helps fuel its competitive advantage. The company’s sales subsequently jumped by €22 million.

But the benefits go far beyond Danfoss’s success. Hiring by the new ecosystem of startups brought unemployment in its region of Denmark down by 1.4 percent. The surprising outcome of Danfoss’s shedding workers was a beneficial churn into new deployments that has helped to counter industrial decline in the region.

The important lesson of this story is that this innovative approach was not led by the Danish government or a non-governmental organization; it was Danfoss itself that recognized the executive talent potentially going to waste and piloted new structures to employ it. Also note that Danfoss’s approach is a job creation model that can travel easily; it does not depend on any unique features of Danfoss’s business or the Danish economy. It is, more than anything, a change in mindset that teaches how important it can be to look at a downsizing situation through a different strategic lens. In any year, Danfoss would have made many purchases and investments. By putting the emphasis on job creation, it found it could do so in ways that also boosted regional employment. 11

In any year, Danfoss would have made many purchases and investments. By putting the emphasis on job creation, it found it could do so in ways that also boosted regional employment.

Stepping up to the challenge of job creation

Many business leaders have begun to see that they should step up their game with regard to job creation—and that doing so is wiser than waiting for government and other stakeholders to up the game on them. Still, the actions to take may not be clear. Our research and client work suggest five imperatives in this changed world.

Put job creation squarely on the strategy agenda. At one level, factoring job creation into strategic decision making is as simple as asking the question about each major strategic proposal: How will this affect jobs—and not only their sheer numbers, but their type, quality, and location? The point is that a positive outcome will likely have a material effect on the company’s future prospects. These are considerations that can dramatically change the decision-making equation when it comes to critical investment and location choices. Reshoring, for example, can begin to make sense—not as a reversal of globalization but as a rebalancing of it.

Asking such questions will likely lead to different approaches in different places, depending on the granular needs and politics of each country or region in which a business operates. Ideally, investments in job creation will be guided by the potential for “rising tide” outcomes, where a company stands to reap rewards, albeit in the long term, from a more capable and fully employed population. But in a global labor market that tends to be seen as zero-sum—a job created here is viewed as a job lost there—strategic decisions may sometimes be guided more narrowly by where a company needs greater degrees of freedom or a more robust license to operate. Faced with the question of whom they can least afford to antagonize, most organizations favor their largest markets.

Many business leaders have begun to see that they should step up their game with regard to job creation—and that doing so is wiser than waiting for government and other stakeholders to up the game on them.

Shine a spotlight on skills and flexibility. Media coverage and political rhetoric often seize on relative wage levels as the reason for job migration—almost certainly because they are highly emotive and easiest to compare. Here, for example, was CNN’s Wolf Blitzer introducing a recent Situation Room segment: “Apple rings up massive sale of iPads and iPhones, but should it be employing Americans to make those devices at home instead of paying cheap wages in China?”12 The fight over wage levels is not one that most companies want to take on, and they actually don’t have to. The real situation is that labor wages account for a very small percentage of the cost of many products sold today, and producers are increasingly unlikely to choose facility locations based on such marginal savings. More important than cheap wages are factors such as flexibility. In China, for example, what Apple values most in its partner Foxconn is its ability to quickly bring more semiskilled workers online when a need for them arises. When Apple made an eleventh-hour design change to its iPhone, Foxconn roused 8,000 workers from onsite dormitories at midnight to take their places at an overhauled assembly line rather than fall behind in production. While a scenario in which American workers become so easy to mobilize is unlikely, greater flexibility on US soil could come from a more robust pipeline of mid-level engineers with redundancies built in. A serious commitment to community colleges, technical trade schools, online education, and their linkages with job training programs could help achieve this pipeline and provide companies, and communities, significant benefits.

Pursue coordinated government and business action. If the old division of labor between government and business when it comes to job creation is breaking down, the two camps can try to shift responsibility (and blame) onto the other—or they can take joint responsibility and share the upsides of success. This is the big message strategists should take away from the new job creation imperative: Many opportunities can be found in the context of public-private partnerships aimed at employment growth. A recent report by the Council of the Americas and the Americas Society outlines five areas ripe for such partnering: closing skills and education gaps, cultivating more R&D and innovation activity, employing more young people in internships and apprenticeships, supporting high-impact entrepreneurs, and spreading recognized practices across businesses and industries.13 Some high-profile public-private partnerships have focused on sponsoring “open innovation” contests where prizes are awarded for the best ideas addressing vexing national and regional job challenges.

To be sure, governments often face their own challenges. Even in developed countries, essential bureaucratic processes are sometimes neglected. (In Italy, for example, tax collection is so flawed that special police have lately resorted to tracing license plates on Ferraris to allegedly poor citizens.14) But working with the public sector can often provide strong advantages, such as in situations (which we will likely see more of) where companies compete globally with state-owned enterprises, some of which are set up in part precisely to create and retain employment for home-country nationals. In some sectors, partnerships are the only way to make timely progress. As Glenn Hutchins and William A. Galston wrote in a recent Fortune article, “Only Washington can provide key drivers of our competitiveness—from a sustainable macroeconomic policy, pro-growth tax code, prudent spending, sensible regulation, and market-opening trade treaties to smart public investments in education, infrastructure, and research.”15 Meanwhile, failing to collaborate with government on solutions brings risk. For any perceived setback, companies may blame government, and government may blame companies—but companies rarely come out of such fights unbruised.

Many opportunities can be found in the context of public-private partnerships aimed at employment growth.

Recast government relations as a core strategic function. At one well-known Internet business headquartered in California, the attitude toward government is worse than dismissive. “Top management refers to what I do as ‘taking out the trash,’” says a government relations executive there. “They tell me: Just keep Washington from getting in the way of our work.”

That kind of stance is hardly the way to turn a conversation that has been adversarial into a partnership that can enhance capabilities. On many fronts, companies have to go beyond their lobbyists in DC and other capitals and engage in deeper, more authentic constituency engagement at the local and regional level. The job agenda is an excellent place to start.

For most companies, working productively with government will require some fundamental internal reconfiguration to put people with different skills in place. Engaging in more productive conversations and finding common thematic ground—as Walmart did with its green agenda—requires an updated skill set in “corporate diplomacy,” as well as people who can move easily among the leaders of external constituencies, finding ways to bridge the private and public sector camps.

Offer a clear and high-level point of view. Today’s norm is for business leaders to register ad hoc complaints and calls for redress against specific problems on the employment agenda. Much more valuable is for a company to have a comprehensive point of view on this issue, not just in its own interests but also on behalf of its sector. Policy makers are more likely to respond to a cool-headed and prioritized outline of what the industry needs from government to create jobs. Is it lower taxes for manufacturers that produce goods in the developed market? A denial of tax breaks for businesses that move jobs offshore? A double tax deduction for makers of high-tech goods if manufactured domestically in high-unemployment locations? Perhaps the industry needs more support for businesses investing in geographic areas where factories are closing. Or it needs expanded worker training programs, especially in the types of midlevel engineering skills that modern factories need (not PhDs, but not low-skilled workers either). It could be that better enforcement of trade rules and intellectual property rights is needed, perhaps through beefed-up inspections abroad, more aggressive World Trade Organization action, or the creation of new Trade Enforcement Unit “SWAT teams” that address specific job-related trade issues in the expedited time frames of business decisions, not political resolutions.

You can’t ask for all of these at once; governments respond no better to laundry lists than anyone else. Business leaders, on behalf of their own firms or (even better) their industries, should be clear on how the different moves would affect their hiring equation. They should consider proposing specific reciprocal commitments along the lines of “if you will support us with x, we will deliver y,” in what is essentially a new job creation negotiation system.

At an even higher level, corporate leaders should weigh in regularly on matters such as the nature of the “social contract” and the need to overhaul markets for labor and services. They should think deeply about what it would take to renegotiate the bargain between labor and capital, in forward-looking terms and with differentiated approaches to suit the realities and politics of the different regions in which they operate. In an era when Spain’s reported jobless rate for people aged 16–24 is around 56 percent, Greece’s is 63 percent, and Portugal’s and Italy’s are both around 41 percent, CEOs should be thoughtful about the problem of “lost generations” of unemployed young people.16 Those people really are their future customers, employees, shareholders, and more.

Somewhat ironically, it is increasingly left to business leaders to articulate realistic long-term arguments for change. Despite the common criticism of companies being oriented to the short term, many are less so than politicians facing re-election campaigns, and many are less paralyzed by political gridlock. Companies’ interest in job quantity, and especially quality, persists over a time frame appropriate to undertaking meaningful initiatives.

Launch initiatives to learn from and build on. Nothing proves good intentions like concerted action. It is important for firms to identify job-creating initiatives they can launch with confidence in the short term—and soon report on results. For many, an uncontroversial choice will be to invest in worker training in a region with substantial current operations and growth potential. The business argument for doing so is very strong: Having access to an adequate supply of appropriately skilled labor is mission-critical.

It is even better if such training can be provided through a public-private partnership. Germany’s apprenticeship program, which has at least a quarter of employers there offering on-the-job training in core industrial skills, is interesting in this regard. In the depths of the post-financial crisis recession, BusinessWeek reported that Siemens alone was sponsoring over 10,000 young people in learning trades important to its operations at an annual cost of about $220 million.17 In the United States, such targeted vocational training typically happens through community colleges. Upgrading them can be a focal point for strengthening the front lines of job creation.

How Biogen gets the skilled workers it needs

What do you do if you can’t find enough appropriately skilled workers for your leading-edge business? An idea that has taken hold in Germany is to work with community colleges and technical schools to design a course of studies that would make their students immediately employable on graduation. In the United States, however, few companies have worked to create these types of feeder programs—and even fewer with community colleges, as opposed to major universities.

An exception is the biopharmaceutical company Biogen Idec, which in 2001 launched a new approach to growing its pool of skilled mid-level workers in Research Triangle, NC. Biogen has been working with the North Carolina Biotechnology Center at Wake Technical Community College to provide nine modules of training as a sort of biotech boot camp. After one intensive month (paid for partly by Biogen), participants have been able to then complete their associate degrees while working at Biogen. There is an explicit recognition that many of the enrollees will have prior experience in industries such as tobacco and textiles—not traditional recruiting grounds for Biogen, but now a source of surplus talent.

The arrangement is mutually beneficial to company and community. Again, note that it was led by a company, which proactively engaged with public and nonprofit leaders around the theme of job creation, and not by government. 18

Measure and communicate successes on the job front. The new job creation imperative also demands a change in strategic communications. Corporate decisions on this issue are now fully visible; everyone knows what a company has chosen to do, not years later but almost immediately. Careful measurement of outcomes and transparent reporting (and certainly avoiding overclaiming) will be especially important to the extent that a company accepts public subsidies—the tax breaks and other incentives that governments provide to keep jobs in their region as part of the broader job creation equation.

Governments are changing the way they hold firms accountable for employment creation—and when they don’t, watchdogs like Good Jobs First fill in, avidly monitoring what subsidies have been doled out (nearly $80 billion a year in the United States) and what taxpayers are getting for their money.19 Where there was no quid pro quo before, there will now be a basis for tracking and enforcement. For companies, this is actually a positive development, since it means less ambiguity around the question of whether each side has kept up its part of the bargain. But keeping everyone informed and satisfied demands appropriate metrics to track compliance and performance.

Firms should develop those metrics in collaboration with others—perhaps a coalition of government, a research organization like the Kauffman Foundation, and industry peers—to reflect a shared job agenda. The goal should not only be to account for the numbers of jobs created. A more meaningful “job quality index” or “quality of employment index” would include weighted metrics to reflect variations in jobs’ sustainability, productivity, wage potential, human development worth, and location. (There might, for example, be added weighting on locations suffering from the highest long-term unemployment.) To be proactive in the establishment of such metrics is, right now, enormously important. If a company does not lead the process of defining the right criteria for judging performance, it can be certain that someone else will—and that the metrics they outline might cast the company’s accomplishments in a bad light.

Get to work

What constitutes great business leadership? It’s a question of seeing when the world has changed, and effectively leading an organization through that altered territory. Today’s reality has been reshaped, in many parts of the world, by a new and urgent focus on the importance of jobs. In the long run, the theoretical proposition remains correct: Innovation, productivity, and value creation will naturally, eventually, create growth and raise employment levels. But remember Keynes: In the long run, we’re all dead. For now, and quite likely for the next few years, there are clear calls for business to step up to the job creation task, and firms that choose to ignore those demands do so at their peril.

For many managers, the new job imperative feels only like another constraint, burden, or unwelcome responsibility that gets in the way of the core task. Others, however, will see in it the opportunity to compete in an important new realm. They will value the chance to build their reputation with critical stakeholders, and end up gaining from privileged access to human capital and other sources of advantage.

Those that flip seeming adversity to their advantage will flip it also to the advantage of the regions where they operate. As the public and its leaders seek viable job creation strategies, they will value the companies most that recognize and act on the new challenge of our times.

There are clear calls for business to step up to the job creation task, and firms that choose to ignore those demands do so at their peril.