| A Right Recruiting Newsletter, 12/2008
I’d like to thank everyone who participated in our survey on hiring and business conditions. We surveyed over 1,100 managers at over 600 companies. We received responses from over 300 managers at over 400 companies. I think that’s a good rate of response. I am including a copy of the questionnaire at the bottom of this email for those who are curious.
As a quick aside comment, we are clearly in a recession in most industries. Of course, as our survey shows, it’s more severe for some companies and industries than others. I’d like to share an anecdote that has stuck in my head for 15 years.
I had a client in NE Pennsylvania. At the time they were a privately held, $80,000,000/yr manufacturer. In the middle of a pretty bad 1991 business downturn, their CEO got up in front of the management team and said the following. “We are going to decline to participate in this recession. We are going to run our company as if it is a normal market. We will continue to fund product development and enhance our sales force. If we do that, when the recession ends we will be a much larger and better company.” Of course I am paraphrasing him. Eight years later they were at $300,000,000, all organic growth.
Back to the topic at hand - in our survey we divided companies into market/product categories and asked a series of questions about general business conditions and hiring plans, all on a scale of 1 to 10, with 10 being the best. We received at least 20 responses from each category, with the most being from Business to Business products, over 100 Reponses. The fewest responses were from pharma and chemicals, each with responses from about 25 companies. I am not a statistician, but I think it is a good sampling.
When I analyzed the results, I looked at two different things. First, the rate of expansion or contraction in each industry group. This was the easy part. I looked at the raw numbers and figured out a group average. A group that averaged a 6 in any category was expecting to expand slightly, for example. A 4 would show the expectations of a slight contraction.
However, the second thing I looked at was the variance in the numbers. If all responses were grouped within three numbers, all 4’s, 5’s or 6’s, for example, I would call that average variance. Those grouped within two numbers, all 5’s or 6’s for example, I would call minimal variance and anything grouped around more than three numbers would be a wide variance. I hope that this allows for the fact that some companies within each category will, frankly, be better managed than others. It also adds validity to the sample. A group that averages a 5, but with all numbers being either 1 or 9, doesn’t tell us the same thing as a group averaging a 5 with all numbers being 4 or 6.
Here are the things we learned, with a little bit of comment thrown in:
Business to Business Engineered Products
This category brought the most responses and very little variance. As far as general business conditions go, this segment is slightly worse than a year ago. The replies were very consistent on this, with most responses being 5’s or 4’s. Expectations vary a little more for early next year, as some anticipate a slightly worse situation than exists now, but with a wider disparity in answers.
When we move projections out to a year from now, we see almost all 5’s and 6’s, which would indicate to me that almost all companies in this industry expect a steady to improving climate by the end of next year. We are in or near their business trough.
Now, as to hiring and employment, this parallels general business expectations, but with more variance between the companies. Almost all are doing less hiring than a year ago and most expect that to stabilize early next year and show an increased rate of hiring by the end of next year. This is the only category that shows 1’s and 2’s but also one of the few categories to eventually get to 7 and 8. In analyzing why this wider variance occurs, there does not seem to be a product or market common factor as to whether any one company will hire or layoff. Over the years, I’ve found that some companies will take advantage of an improving business condition and bring new, better staff on board and some will not. It’s more a function of company management and philosophy, I think.
It would appear that most companies in this segment expect visible improvement by the second quarter.
Business to Consumer Products
This group of companies clearly did not end the year well. Current business conditions range from 2’s to 4’s, a reasonably steep drop. The outliers were a few companies showing 6’s, but they are well out-voted by the lower numbers. Future business conditions for next year show a trough now, with an improvement throughout next year. Next year’s trend is similar to the above category but it differs in two areas. It starts from a lower point and stays lower early next year but by the end of next year comes close to matching the B2B market. There is a little more variance in the outlook for the farthest horizon, a year from now, which is to be expected in this category because it includes a wide variety of products. However, the variance is only a little more than average, with 5,6,7 being the common numbers for business conditions a year from now.
Employment for these companies is low, with no one right now scoring themselves above a 5 and most being at 2 or 3. This continues into the first quarter of next year but by the end of the year we see 7’s and 6’s. Once again, an improvement for most companies and increased hiring by this time next year. I think these firms know that they are cutting close to the bone and will want to beef up as soon as practical.
As we all know, consumers can be fickle. They can appear and disappear quickly. There are two factors that I think bear watching here. One, an improvement in disposable income thanks to the tremendous drop in oil prices. Two, a more optimistic message from Washington with a new, fresher administration. Consumers respond to optimism. This sector may bounce back quicker than expected.
Foods
Everyone is still eating. At least that’s what the survey tells us. Here we see mostly 7’s and 8’s in all categories in both hiring and business conditions. It’s a smaller sample than the other two, but still represents a variety of companies, over 30 represented in the survey. There wasn’t much variance in the answers either; most were grouped around 2 numbers. Very positive results.
My impression of this industry has always been positive. Locally, the pharma folk get a lot of headlines but the foods industry represent more companies in the region. More importantly, it represents a wider variety of companies, from small to large, and all are profitable. The downsides to working in this industry are two fold. One, the success of your business can ebb or flow with a strong marketing campaign, which is out of your control. The second is that these companies can get purchased once they reach a certain size. In both those instances, the ability to move to another local firm in the industry can certainly stabilize your career.
Pharma/Biotech
This was easily the most interesting response and the one I had to look at a few times to find the common themes. Our responses came from both large firms like Merck, Astra Zeneca and Glaxo as well as from smaller bio-tech start ups. This segment had the widest variance of response, both between the different companies in the segment and within the companies themselves along our time line. In current business conditions, we see everything from a 2 to a 9 and the same thing on hiring. What’s odder, we see a significant number of companies with declining numbers moving into next year, progressing downward until a year from now. There are at least 4 companies that are at 6 now but expect to be a 3 or 4 in a year. No other industry segment showed a declining prospect as next year progresses.
That’s not what I expected. With pharma, because of its reputation, one would expect stable or improving numbers. When I looked at the results more closely, it would appear that the lower, weaker numbers for the future come from the larger, name-brand firms. The lower, weaker numbers in the present come from the smaller start-ups. Now it begins to make sense.
I am definitely not a medical economist but I am told that there are two things hanging over the Big Pharma world. The first is a slowly diminishing pipeline of new products. The second, an expanding governmental role in that industry. If the second involves a pressure on patents that opens up more drugs to generic manufacturers, no one will be hurt more than Big Pharma. That could explain the insecurity about the future.
As to the bio-tech concerns about current weak business conditions and an expected improvement in the future, one must remind themselves that these companies often generate no profits and sometimes live off VC money for a significant part of their company life. With a financial crisis possibly drying up funds to support these firms that might explain the weaker numbers for current conditions yet stronger numbers as they get through the credit crunch into next year.
Working in this industry can often require a candidate to be open to moving from company to company. Those who have worked in small start-ups are used to this and take it in stride. Those in Big Pharma have a more difficult time with this but may have to adjust their personal goals as the year progresses and if the worst scenario occurs..
Medical Devices
This is a very different industry than pharma companies. It encompasses a wide variety of products, from catheters to spinal implants to medical electronics. These are generally considered engineered products that are manufactured. It’s engineering, not science. And, because its manufacturing oriented is sometimes considered less glamorous.
As is usually the case here, these are very steady companies. Most are reasonably well established and their product cycles, while long by commercial/consumer products standards, are much more rapid than the pharma world. That also leads to stability because a product hiccup is not fatal, as a rule. They have an easier product pipeline to replenish.
Here all current business conditions are ranked at 5 or higher, with a sprinkling of 7s and 8s. This continues throughout next year with little variance and is paralleled by the hiring trends numbers. No layoffs here. The only personal caution I would mention here is to be carful with start-ups. If a credit crisis continues into next year, those medical device firms still in the development stage could be under stress.
Chemicals
Candidly, this has the widest variance of all and the fewest responses. When I looked at my database, it became pretty clear that many companies in this industry, which used to be well represented in the region, have fled the area. This has occurred either for business/merger reasons or to escape state regulatory bodies. There are some plants still left in the region and they manufacture a wide variety of products for a wide variety of markets. Of course, that would explain the wide variance in answers because there is less commonality in their markets and client base.
In general, our response here parallels the business to business products category. It’s weak now but expects to get stronger next year. Weaker responses seem to come from those companies whose markets include construction or auto. Those are more pessimistic, which is to be expected.
Other
There are no companies in this category. Those that rated themselves in this segment I placed in the most appropriate category. For example, distribution firms went into either the first or second category, depending on their focus.
General Comments
Things have clearly gotten worse over the last 6 months but they have not fallen off a cliff. There are still companies hiring and next year promises an increased rate of job openings, albeit at a slow rate. Even some companies that are laying off in some areas are hiring in others. This is not at all similar to the 2001-2003 downturn, which decimated technology employment and destroyed certain industries (telecomm, for example) and companies (Lucent, for example). This is a widespread downturn but one in which most local companies will survive in an identifiable form. From our internal metrics here at Right Recruiting, the local employment market does not show many layoffs, at least in the type of company we represent. Having said that, I must remind you that we are almost exclusively concerned with professional employment in the region. We are not considering industries that are not concentrated here, like auto. Nor are we considering non-professional employment. Employment markets, like real estate, are local. If you are looking for a Product Manager for consumer products in Reading, it does you no good if 100 automotive tool & die makers have been laid off in Detroit or 250 equity analysts laid off in Manhattan. I’ve often said the strength of our region lies in the thousands of smaller companies that service a diverse group of markets. That will continue to be our strength.
If anything, this downturn may look like 1982. For those who are old enough, like me, to remember the 1982 recession, we remember that for the general employment market it was very very deep. For professionals, especially technical people, it was just a blip. I remember working on a project for Sun Oil back then. One of their refineries needed 3 or 4 Process Engineers and they were very hard to find. I remember an ironic moment when, in the middle of the project, one of the local news channels covered an event at that very refinery. Sun had just opened up a handful of hourly jobs and literally had over 1,000 people lined up at the gate before dawn to fill out applications. That was at the same time they were having a hard time finding professional people.
With business getting more sophisticated every year with new systems and methodologies (Six Sigma, supply chain, CAD, etc), that schism between the general market and the professional market has become wider. That tells me 2 things. One, don’t let the general new media affect your judgment about hiring and jobs. Two, make sure your education is up to date and your children take their schooling seriously. Really.
There is more discussion of other, more interesting issues, in the enclosure on employment trends. There are macro trends that may change many employment and career management practices that are going unnoticed, I think...
Questionnaire Sample
For those who have not seen the questionnaire, we first asked each manager to categorize their industry. There were 7 industry categories:
A) Manufacturing- Business to Business Engineered Products and/or Capital Goods
B) Manufacturing- Business to Consumer Products
C) Foods
D) Pharma/Biotech
E) Medical Devices
F) Chemicals
G) Other (please indicate)
We then asked them to rate their company’s current and expected general business conditions, as follows:
A) Current conditions: Scale of 1 to 10. 5
If last year, November 2007 was rated a 5, what number would you rate your conditions now, in November 2008? The higher the number the more active your business level, lower then 5 a less active business level.
B) Short term conditions: Scale of 1 to 10
Please try and predict your company's level of business activity in the 1st quarter of 2009, compared to now. Current conditions being a 5.
C) Long term conditions: Scale of 1 to 10
Please try and predict your company's level of business a year from now in November 2009. Current conditions being a 5.
Lastly, we asked them to rate their hiring needs as follows:
A) Current hiring: Scale of 1 to 10
If one year ago, November 2007, was rated a 5, how would you rate you company's current hiring needs?
B) Short-term conditions: Scale of 1 to 10
Can you predict your hiring needs in the first quarter of next year? Current hiring needs being a 5.
C) Long-term conditions: Scale of 1 to 10
Can you predict your hiring needs a year from now, in November of 2009? Current hiring needs being a 5.
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