Hartford Business Journal

20 Hartford Business Journal • March 25, 2019 • www.HartfordBusiness.com EDITOR'S TAKE Why jobs numbers matter B usiness leaders, policymakers and others were stunned recently when Connecticut labor officials announced that a major revision had cut in half the true number of jobs the state's economy added in 2018. It turns out Connecticut added a measly 10,000 jobs last year, compared to an original estimate of nearly 20,000. The major swing was a result of the annual benchmark revision process conducted by the Bureau of Labor Statistics, which uses a much more accurate method in counting jobs than the state Department of Labor's surveys. So, do these numbers matter? I'd argue yes, in a signifi- cant way. While Connecticut's labor reports may not move the stock market like national jobs' numbers, they are a litmus test for the strength of the state's economic performance and could impact policy decisions, especially if lawmakers get a false sense that the economy is performing much bet- ter than it actually is. For example, we were told on Jan. 17 that preliminary data showed Connecticut added 19,900 jobs in 2018, a strong (for this state at least) 1.2 percent growth rate. That news broke at the start of the 2019 legislative session, where many lawmakers, particularly Democrats and those in the House's progressive caucus, are acting like we are in the middle of a boom period, proposing measure after measure that would raise the costs of doing business and living in this state. Whether it's increasing the minimum wage, broadening the sales tax, adopting a mandatory paid family medical leave program or establishing statewide tolls, there is no shortage of cost-raising proposals being bandied about in Hartford. More accurate jobs data in January might have changed some of the dialogue on these issues — although that could just be wishful thinking. The truth is Connecticut's growth since the Great Recession still lags far behind the nation's, so we should be backing policies that support private-sector growth, not hinder it. Yet, the refrain out of the state Capitol seems to be that happy days are here again. Folks, they are not, and we actually face the dim reality of another reces- sion on the horizon. We can talk about economic fairness all we want, but there are no policies law- makers can enact to force businesses to invest in this state. Instead, we simply give them more reasons to move their money elsewhere. Currently, United Technologies Corp., one of our state's largest employers, is in the process of breaking up into three separate companies, leaving its future here uncertain. I can tell you conversations are happening as to the location of its future head- quarters, and it's a real possibility the state of Florida, where the company already has a strong presence, could become the new home to subsidiaries Carrier and Otis. Policymakers should pay attention. Another reason jobs numbers are important is because they inform our state's economic projections. When any governor delivers a budget proposal, it is based on economic assumptions that help project expected revenues in the years ahead. Bad data can lead to bad budget projections, which can lead to deficits and further fiscal crisis. Economists on several occasions accused Gov. Dannel P. Malloy of using growth rates that were too rosy. And they were right. Gov. Ned Lamont's two-year, $43 billion budget proposal isn't overly bullish but it too may have overestimated. For example, Lamont's budget projects the overall state econ- omy will grow 1.5 percent this year and next, and 1.2 percent in 2021. It also predicts personal income in the state will grow over 3 percent for each of the next five years. Given that many economists are predicting a recession this year or next, it's hard to see how those projections will hold up. Numbers don't lie, unless, of course, they are false numbers. The Bureau of Labor Statistics handed Connecticut a harsh dose of reality. State lawmakers ought to wake up to it. BUSINESS STRATEGY Understanding your strategic landscape By Ronald Recardo F or many of us, the strategic-planning process is akin to a "black hole." Meetings occur, and at the end, magic happens and a three-ring binder is crafted or, worse yet, a plan is never formalized and stays in someone's head. The most successful second-stage companies fully understand the value of stra- tegic planning and appreciate that it is an iterative discov- ery process with inputs, outputs and deliverables. The best designed strategic-planning processes start with a data-driven analysis of what's happening outside of your organization. The data can then be used to begin to formulate your organi- zation's preliminary growth platforms. There are five critical areas of focus: Market dynamics: One can easily get lost in a "forest-vs.-the- trees" scenario if not careful. The most critical areas to focus on are collecting data that can impact the perfor- mance of your organization, such as infla- tion rates, energy costs and unemploy- ment rates. Understand the cause- and-effect variables that can help you determine market segmentation. For example, if inflation increases X percent, revenues decrease Y per- cent. You typically want to focus on the largest markets with the highest growth rates and largest profitability. White space or blue ocean: The best place to "play" is in uncontested market space where you are the first to identify an unmet need. Think of Cirque du Soleil, which combined traditional circus with Broadway the- atrics to command a premium price point that appeals to a much larger audience, from children to retirees. Cirque has flourished after finding "blue ocean" while most of the tradi- tional circuses are now defunct. Competitors: The more data you have on competitors, the better you can differentiate and dominate. Although it's more difficult with privately held companies, data can be collected from sources ranging from third-party data aggregators and the public domain to industry and trade groups. For every competitor, you should minimally understand the company's business strategy, market segments, distribution/sales channels, pricing, product/service offerings, cost struc- ture compared to yours and sources of competitive advantage. Customers: How well do you understand your customers' desired product/service attributes? Do you know which customers are most and least profitable? Most importantly, what are their unmet needs? Can you answer the following questions? • Which customers are most stra- tegic? • Which customers do you work with that you know you will never satisfy? • Do you understand why custom- ers stop doing business with you? Disruptive technologies/substitute products: A disruptive technology is one that can make your product or service obsolete. Kodak didn't under- stand that photo paper was about to become past tense, and Blockbuster didn't grasp that streaming technol- ogy was the future. An example of a substitute product is using Splenda instead of sugar or using composites instead of steel. The net effect is that substitutes great- ly diminish demand for your offering. Key success factor The first key outgrowth of an environ- mental scan is the identification of fac- tors that detail the areas of performance your organization must excel at to dominate the markets you compete in. Opportunities/threats All of the data collected needs to be synthesized one last time to: 1) identify and prioritize trends and their implica- tions on your organization; 2) prioritize opportunities and threats; and 3) begin to develop a preliminary list of growth platforms and business strategies. Taking the time to collect the data and using that data to inform your decision-making is the secret sauce that separates "A companies" from the rest of the pack. Ronald Recardo is the managing partner of The Catalyst Consulting Group LLC, a Shelton-based business advisory firm. He can be reached at rrecardo@catalystconsultinggroup.org. Opinion & Commentary Greg Bordonaro Editor Ronald Recardo The best designed strategic-planning processes start with a data-driven analysis of what's happening outside of your organization.

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