Over two years ago, John Seely Brown and I set out on a quest, one that experts called “valuable, but foolhardy.” What were we trying to do? We wanted to create an index that would help business leaders and policy makers to make sense of the long-term changes re-shaping our business landscape.
It all began with an exercise in a conference room. We wanted to know what indices decision-makers use to understand the economic and business environment. As we put up all the usual suspects on a white board – inflation, unemployment, factory orders, etc. – one thing became clear. All the indices focused on short-term economic trends. They were very helpful on that dimension. But they offered little insight on the longer-term trends playing out around us.
Virtually every business executive we knew strongly believed we were in the midst of a profound, long-term shift in our global economy. Yet, there did not seem to be an index to help executives understand and track those longer-term changes.
We brought together a workshop of the architects of some of our leading indices today. They confirmed that there were no indices focused on this longer-term shift. They agreed that such an index would be extremely valuable. But they also warned that such an undertaking would be virtually impossible to pull off. There were simply too many moving parts and many of the key elements would be very difficult to quantify.
That was all we needed to hear. There was something very valuable to pursue that would be extremely challenging to develop. Just the sort of quest that gets us excited. We recruited a team of Edge Fellows at our Center for the Edge to join this quest with us. While many Edge Fellows ultimately contributed to our quest (they are listed in the Shift Index), two in particular played a pivotal role in helping to orchestrate and design the effort: Duleesha Kulasooriya and Dan Elbert.
The first Shift Index
Eighteen months later, we released in the Spring of 2009 the first Shift Index, containing 25 metrics designed to capture key dimensions of the Big Shift in the US economy. In the Fall of 2009, we issued a sequel that broke apart the US economy data into thirteen distinct industries, so that we could better understand how the Big Shift was playing our at an industry level.
The release of the 2010 Shift Index
Late last week, we issued the 2010 edition of the Shift Index, updating each metric with new data. Perhaps not surprisingly, given its focus on long-term trends, this edition of the Shift Index confirms many of the trends identified in the original report. In a previous posting, I summarized the key trends revealed by our original report.
The Shift Index delivers one key message: our companies are experiencing mounting performance pressures, pressures that they have not been successful in addressing. One way of thinking about this is to imagine a pincer move on our companies, with increasingly powerful customers on one side and increasingly powerful creative talent on the other side, both coming together to extract more value from the companies they deal with. This pressure has been mounting steadily for over four decades and there is no evidence of it leveling off, much less turning around.
This puts into perspective our current obsession with the much anticipated recovery from the economic downturn. While certainly important, this obsession tends to distract from a much more profound and long-term challenge that continues to mount in the background and will likely persist far beyond the economic recovery that offers some temporary respite from the mounting pressure.
To measure this mounting performance pressure, the Shift Index focuses on return on assets (ROA) for all public companies in the US since 1965. The bottom line: ROA has collapsed by more than 75% over this period. Many people questioned our original choice of ROA as the key measure of business performance. While we continue to believe that this is the best measure of business fundamentals, the new edition of the Shift Index looks at a number of the suggested alternative measures, including return on invested capital and return on equity, and confirms that these measures have also declined significantly over this time period.
Passion and performance
This edition of the Shift Index also goes into more detail regarding the level of passion in our workforce and its likely impact on business performance. In particular, we highlight two dispositions that are closely linked to passion: questing disposition and connecting disposition. A questing disposition addresses the desire to seek out challenges to test one’s performance and achieve new levels of performance. A connecting disposition focuses on the desire to actively seek out people who share one’s interests and who can be helpful in addressing new challenges.
Our proprietary survey of the US workforce indicates that employees who are passionate about their work are twice as likely to have a questing disposition and a connecting disposition. For companies hoping to overcome mounting performance pressures having passionate workers with these dispositions would significantly improve their likelihood of succeeding.
If you want to improve the performance of your company in a world of increasing uncertainty where the scale and diversity of trust-based relationships increasingly drives potential for value creation, you want workers with questing and connecting dispositions – in other words, you want workers with passion.
The challenge is that passion levels remain very low within the workforce – under 25% of the workers are passionate about their work. And there’s an even bigger problem for large companies. The level of passion in the workforce is inversely related to the size of the company – the larger the company, the lower the level of passion among the workers. The most passionate workers are those who are self-employed or working as independent contractors.
Our survey reveals that 26 percent of workers would like to become an independent contractor or consultant. According to the survey, many of the individuals who choose traditional employment do so for reasons that are steadily eroding —guaranteed employment and healthcare benefits. Factors most cited by those currently employed by firms for their hesitation in becoming independent were a need for steady income (58 percent), need for healthcare (50 percent), uncertainty in the current economy (47 percent) and need for benefits (45 percent). These factors are also the most cited by those employees that remain at their current jobs despite the fact that it does not allow them to pursue their passions.
It is becoming urgent to find ways to more actively engage those who are already passionate while pursuing approaches to more effectively motivate and engage the workers who have yet to find passion in the work they do. Executives need to look at all of the institutional and technological barriers that frustrate employees and prevent these employees from seeking out challenges that will drive performance improvement.
By removing the impediments to questing and connecting behaviors, executives can help reduce the frustration of passionate employees that make them vulnerable to other job opportunities. Even better, those passionate employees will not be diverting their energies from workarounds and will be able to focus, instead, on engaging in, and overcoming, real performance challenges.
Our hope is that the Shift Index will continue to help executives to pull back from their short-term focus and develop a more robust agenda focused on driving sustained extreme performance improvement. In that context, we urge all executives to take a hard look at the passion (or lack of it) within their workforce and to view this as a key lever in driving performance improvement. Without it, companies and their workers will find themselves increasingly stressed and marginalized.