Small Business Labs

Labor Force Participation Continues to Decline

The labor force participation rate continues to fall.  

As the chart below - from the New York Times article Three Questions on the Jobs Picture - shows, it's down to levels we haven't seen since the 1970's (the blue line is the actual data as reported by the BLS, the red line is the trend). 

Demographics explain part of the decline. Aging baby boomers, a big demographic cohort, are retiring and leaving the work force. But this only explains part of the decline. Key quote from the article:

Researcher have shown that some of the drop is to be expected given our aging demographics, but not this much. (I’d say half, at most, can be attributed to demographics, and probably more like one-third.)

But a big question that still remains is where are the folks aged 25-54 going? In 2007 54% of Americans aged 25-54 were working. Today the percent has declined to 51%.  

For men the data is even worse. Key quote from another New York Times article, Changes in the Labor Force Mask Gains in the Jobs Situation:

Men between 25 and 34, the period when careers begin and families form, are less likely to have jobs now than at any time from 1948, when the statistic began to be compiled ...

This is not good news and the societal impacts of men in the prime of their lives not working are huge.

Part-Time Women Out Earn Part-Time Men

In Part-Time Jobs, Women Outearn Men covers the interesting fact that women who work 35 hours or less per week earn about 110% of what men working similar hours earn.

The chart below, from the article, shows this data by various hours worked.

In general women's earning continue to increase faster than men's and the male/female earnings gap continues to close.

Back in 2010 we forecast that women would reach earnings parity with men around 2020. At the time we got a lot of push back on this forecast, but the data is showing earnings parity is likely in that time frame.

The Cloud's Impact on Business Models

I had an interesting time this week at Solutions 13, which is the Sleeter Group's annual accounting solutions conference.  

Over 800 people attended the event which focused on improving business processes through the use of mobile, cloud and connected services and technologies.

My biggest take away from the event was the impact cloud technologies are having on accounting firm business models.  

The use of cloud-based accounting systems such as Quickbooks Online is fundamentally changing how accounting firms interact with their clients - and fundamentally changing industry business models.

The traditional way accounting firms service their clients is a different time - different place model. The client sends their data to the accountant (often in shoe boxes or other non-digital formats), the accountant organizes the data and then sends the information back to the client.

Data requests and questions tend to follow this same pattern. The client calls or emails a question and the accountant figures out an answer and gets back to the client at a later time. 

Cloud services replace this slow, iterative and inefficient work process with real-time, 24/7 client data collaboration. Cloud services also allow accounting firms to create self-service applications for their clients.  

These changes don't sound that big, but their impact on accounting firm business models are enormous.

It's changing how accountants service their clients, how they charge (from hourly rates to value-based pricing), the type of skill sets they need to be successful and leading to more firm and practice specialization. It's also creating new opportunities for accounting firms that can successfully adapt to the cloud.

We document many of these shifts and changes in our recent Future of Accountancy report. 

As we've discussed in the past, the accounting industry is an excellent case study for what's happening more broadly with knowledge work and work in general.

Because of this, we suggest firms in all industries think about how cloud technologies are or may impact their business models.

For those interested in how accounting industry business models are changing here are a few resources to check out:

Root Works: They help accounting firms shift their business models. Their blog contains covers the shifts caused by the mobile, cloud and other connective technologies.  

BMRG: They provide advisory services related to the shifts discussed above. They have an interesting looking webinar series on business planning that starts in December.

Supporting Strategies: They are an accounting firm who has created a new business model by focusing on being the outsource provider of accounting services for small businesses. Their site does a nice job of explaining the benefits of this approach.

Backops: a startup providing cloud-based back offices services to small businesses. Interesting approach and business model.

Consulting Disruption Leading to Opportunities for Independents

According to well known innovation and strategy guru Clayton Christensen, the consulting industry is on the cusp of disruption.

Key quote from his Harvard Business Review article on this topic:

We have come to the conclusion that the same forces that disrupted so many businesses, from steel to publishing, are starting to reshape the world of consulting. The implications for firms and their clients are significant. The pattern of industry disruption is familiar: New competitors with new business models arrive; incumbents choose to ignore the new players or to flee to higher-margin activities; a disrupter whose product was once barely good enough achieves a level of quality acceptable to the broad middle of the market, undermining the position of longtime leaders and often causing the “flip” to a new basis of competition.

According to Christensen one of the sources of disruption is the growing role independent consultants - many of which formerly worked for major consulting firms - are playing.

A good example are the consultants from the online consulting staffing firm MBA & Co.  Think of them as a specialized Elance or oDesk that connects independent consultants with buyers.  According to a Business Week article, their roster of consultants is highly qualified:

More than 98 percent of the 16,000 contractors listed on its website hold a postgraduate degree; 35 percent have worked at consulting and financial firms. 

There are also a growing number of firms that bring together groups of independent consultants to take on projects and then disband. These firms have lower cost structures than traditional consulting firms and pass these savings on to clients.  The Business Talent Group (BTG) is an example of this type of firm.

Our research as part of the MBO Partners State of Independence study shows that about 1.2 million U.S. independent workers describe themselves as independent consultants.   

We expect these numbers to continue to grow as consulting becomes even more democratized.

The Atlantic's 10 Stealth Economic Trends

The Atlantic's 10 Stealth Economic Trends that Rule the World Today covers 10 trends in an interesting point-counter point style that lists the new trend versus the old trend.

For example, their first trend is:

1) Old Trend: Expensive solar, surviving only on subsidies. 
New Trend: Cheap solar, disrupting old industries.

I don't agree with all of their trends and several seem curiously out of date. For example, they have passive asset management as a new trend replacing the old trend of active asset management.  

This is hardly a new trend. The Vanguard group has been stressing this shift for at least 2 decades and the academic work showing the advantages of passive asset management was part of my business school curriculum in the 1970s.  

But it is an interesting list and well worth the time it takes to read.  

In Europe, Bikes Outsell Cars

Good article from NPR on bikes outselling cars in most European countries. The chart to the right is from the article.  

Bikes outsold cars in the U.S. too, if you count kids bikes. In 2012 there were roughly 18 million bikes sold in the U.S. versus 14.3 million cars and light trucks.  

But if you exclude kids bikes (which the industry defines as bikes with wheels smaller than 20 inches), 2012 U.S. bike sales were about 13 million.  

While not yet popular in the U.S., electric bike sales are surging in many countries.  

Quartz's Consider the e-bike: can 200 million Chinese be wrong covers this trend.

Key quote:

The number of electric-powered bicycles in China just passed the 200 million mark, manufactures are reporting 200% annual sales growth in Brazil, sales are strong in Europe and the Philippines is ordering 100,000 electricity-powered three wheelers, just one of several Asian nations investing in e-bikes.

I think the coolest electric bike is the Elf, from Organic Transit. It costs $5000, but as you can see from the picture below is very car-like.

As we've pointed out in the past, the growth of the bike industry is leading to increasing numbers of small and specialty bike manufacturers. This is leading to bike manufacturing becoming yet another example of a barbell industry structure.  

Labormetrics, Autonomy and Employee Tracking

The Wall Street Journal's Memo to Mobile Workers: The Boss is Watching covers the growing use of labormetrics systems to monitor and track their employees.  Key quote:

Thanks to mobile devices and inexpensive monitoring software, managers can now know where workers are, eavesdrop on their phone calls, tell if a truck driver is wearing his seat belt and intervene if he is tailgating.

The growing use of labormetrics - a buzz word that's a play on sabermetrics, baseball's term for the use of statistics and empirical analysis - is interesting to us on two levels.

First, it's clear labormetrics systems are going to be used in most businesses and across most tasks. 

But it's also interesting as a counter trend to people looking for more autonomy, flexibility and freedom in their work. These are, of course, key reasons people become self-employed.

But it's also increasingly showing up in research on why people like their jobs. The very popular Results Only Work Environment movement, for example, is based on providing employees flexibilty and autonomy.  

The lack of freedom, autonomy and flexibility is also a key reason people don't like their work.

So which path is going to win? Results oriented work environments with lots of freedom or flexibility - or workplaces where labormetrics systems monitor and measure all aspects of work?

The answer is likely both. Those working in high end knowledge based jobs will likely see an increase in the freedom and flexibility in the coming years. Labor competition for people capable of doing this type of work will result in great freedom for these workers.

But expect growing use of labormetrics in lower skilled jobs where labor competition will continue to favor the employer.

Is That an Accountant in Your Pocket?

You don't often see a paraphrased Mae West quote as part of a study on the future of accounting, but with the rise of mobile and cloud computing it makes sense (sort of).  

Last week Intuit released the 2103 Future of Accountancy report.

We co-authored this report with Intuit and it's an update of The Future of the Accounting Profession study we did with them in 2011.  

The forecast update was done by conducting several "think tanks" with practicing accountants, industry analysts and accounting related media members.  

The main think tank was held in September at the Intuit Accounting Summit.  

The report covers shifts in demographics, technology, accounting industry structure, economics and practice management, but two key findings jumped out at me:

1. Mobile, Cloud and Social technologies are rapidly becoming the main tools for accounting professionals.  This shift is happening even faster than we forecast in 2011 (and we forecast a very fast transition to these technologies in 2011).  These tools are allowing accounting firms to provide real-time customer support and "appify" the entire accounting experience.

It's also allowing accounting firm clients to access and interact with their accounting information and professionals from their mobile computing devices. In other words, clients can now carry their accountant in their pocket.  

2. Outsourcing is both a threat and an opportunity for accounting firms. In 2011 we saw outsourcing as mostly a threat and the vast majority of accounting industry professionals we interviewed at that time agreed.

But as we pointed out in Outsourcing and the Future of Accounting, it's also a key opportunity for accounting firms. This is because accounting firms are well positioned to serve the growing number of firms that want to outsource all or part of their bookkeeping and accounting functions.

The accounting profession continues to be an excellent case study on the broader future of knowledge work.  The same trends and shifts that buffeting the accounting industry are also impacting most knowledge workers.  

The good news is the accounting industry is adjusting and adapting to these shifts and finding profitable ways to thrive.  We think the same will be true for other knowledge based firms and workers.  

Self-Employment and Portfolio Careers

One of the more interesting findings from this year's MBO Partners State of Independence study is that about 40% of adult Americans aged 21 or older have been independent workers (freelancers, self-employed, contractors, etc.) at some point during their lives.

This breaks out as about 8% of adult Americans who are currently independent and about 32% of those not currently independent - meaning they have a traditional job or are currently not in the labor force - have been an independent worker in the past.  

The chart below shows past independent employment by those not currently employed as independents.

    

With the number of independent workers growing, it won't be long until the majority of Americans have worked as independents at some point in their careers.  Our forecast is this will happen around 2020.

The implication of this data is quite clear - portfolio careers where people spend part of their work lives as freelancers, self-employed or independent workers of some sort is becoming increasingly common.  

People need to understand, plan and prepare for periods of time where they will be self-employed.

Part-Time Employment Not Due to Obamacare

The Wall Street Journal's Don't Blame Health Care Law for Part-Time Employment shows that despite what a number of folks are saying, the Affordable Care Act (aka Obamacare) is not causing, at least yet, an increase in part-time employment.  

As the chart from the WSJ article below shows, part-time employment has leveled off - and even fallen a bit - over the last year.

       

This doesn't mean the Obamacare rules won't lead to more part-time employment in the future. The employer mandate was delayed a year, so we could see an Obamacare related uptick in part-time employment next year.

For more this topic, see articles from Reuters, the Los Angeles Times and/or Time Magazine.

We expect part-time employment to continue to grow, but for a wide variety of reasons unrelated to Obamacare.