The paths to growth - economic growth

Chief Executive, The, March, 1997 by Jerry J. Jasinowski

Ask not what country can do for you, but what you can do for its growth rate. The economy's in great shape, but we aren't growing as fast as we could be. Here's how you can help.

America is on top again. Five years after losing out to the Japanese in both perception and reality, the U.S. economy is booming and a number of U.S. industrial firms have once again taken the lead in technology, productivity, and the quality of the goods they produce.

That's the good news. The bad news is that for all the hullabaloo about competitive success, our actual economic growth rate has not recovered much at all. We are, in fact, growing at rates slower than those of any recent economic expansion. That's a shame. Because the potential benefits of even a slight increase in growth rate are considerable.

Our research, for example, shows that if the growth rate were to be raised by half a percentage point over the next seven years, real cumulative GDP would end up higher by $675 billion; direct compensation to labor - wages and salaries - would increase by $390 billion; the pre-tax income of the average family would increase by $6,588; and federal tax revenues would increase by $129 billion. By increasing wealth, raising incomes, and providing revenue to balance the budget, higher economic growth for the nation would translate into higher potential growth for millions of firms.

Growth at the firm level has been severely hampered by at least one inaccurate myth propagated about corporate success; according to much of the popular press, the new competitive success of industrial firms has been built on downsizing. But while corporate downsizing had an initial positive impact in the 1980s, its benefits have been overstated. In fact, successful companies have gone beyond simple cost-cutting to become productivity powerhouses and successful "upsizers." They increased productivity, growth, and employment simultaneously. Today's successful upsizers - like telecommunications giant MCI, steel maker Nucor, and manufacturing equipment producer Thermo Electron - have added far more to growth in recent years than most of the firms that have downsized and restructured, and they've done so even while cost-cutting. Compaq Computers has added 12,000 jobs since 1985; Thermo Electron has added 7,800; and MCI Communications added 36,000 in that period.

Clearly, the challenge is - as it has been - to encourage higher growth without triggering an acceleration of inflation. But we won't achieve that goal by pumping up the money supply or via consumption-oriented tax cuts. Instead, we must focus on improving productivity gains that raise the quality and more effectively utilize the technology, capital, and labor resources of the nation. Business must provide the leadership for higher growth, as it has historically, by both increasing the growth of their companies and, at the same time, advocating a pro-growth agenda in the public policy arena.

GROWTH AT THE FIRM LEVEL

Here are six key steps you can take to begin maximizing the growth of your own company:

1. Focus on your customer. No company can be assured survival, much less growth, without a solid customer-centered approach to sales, marketing, service, and production. Employees must be trained to focus on customer need and expectation, and they should be inspired to not only meet but exceed those expectations. That kind of refocusing represents a major shift in corporate culture requiring CEO-mandated enterprisewide policies. To that end, CEOs today are utilizing new corporate management strategies as well as tested programs such as Total Quality Management (TQM) to effect these sweeping changes in employee focus. Larry Bossidy, CEO of Allied Signal, for example, uses a TQM framework that starts with improving customer satisfaction and encompasses all aspects of the company's performance.

2. Improve productivity. Customer satisfaction begins on the factory floor. That is, productivity power has a great deal to do with how well you can meet your customers' needs. Nearly one-third of productivity increase during the 1980s resulted from newer factories with more modern technology displacing older systems. Manufacturing has adopted a series of computer technology improvements in the production process that have revolutionized the way products are made, distributed, and sold. The most widely-used process improvement for production efficiency is just-in-time (JIT) inventory. control, aimed at reducing distribution cycle times, a primary goal for manufacturers. JIT enables a company to provide a far higher level of customer satisfaction because manufacturers can supply goods precisely as needed, so that no product is out of stock for long and, at the same time, back storage rooms are not overburdened with an excess of any one item. Other examples of process-improvement methods are statistical quality control (SQM), a technique for which computers are used to monitor the quality of output and analyze defect rates; computer-aided manufacturing (CAM); and computer-aided design (CAD), in which graphics and visual software enable engineers to draft and manipulate designs on a terminal.