On October 25, 2016, just two weeks ahead of the 2016 presidential election, Bloomberg hosted a roundtable in New York City with CEOs who lead a diverse array of companies across industries to discuss what the future holds. Here’s what they had to say.
Participants
ROUNDTABLE PARTICIPANTS
Mohamad Ali, President and CEO, Carbonite
Dominic Casserley, President and Deputy CEO, Willis Towers Watson
Douglas Clark, CEO, Chairman and President, AmeriQuest Business Services
Jim D’Addario, CEO, D’Addario & Company, Inc.
Andrea Illy, Chairman, illycaffè S.p.A.
Mostafa Kamal, CEO, Magellan Rx Management
Beatrice Mitchell, Co-Founder and Managing Director, Sperry, Mitchell & Company
Tom Phillips, Former CEO, Dstillery
Scott Schober, President and CEO, Berkeley Varitronics Systems Inc.
Scott Shaw, CEO and President, Lincoln Educational Services
Harry West, CEO, frog
Gregory Woods, CEO, AstroNova, Inc.
MODERATED BY
Carol Massar, Co-Host, “The Bloomberg Advantage”, Bloomberg Radio
Where There’s Growth
Technology executives were optimistic on growth and the outlook for their businesses. “For our business, we’re seeing growth everywhere,” said Mohamad Ali, CEO of online backup company Carbonite. “Cloud services within the U.S. are just on fire. All these cloud services are on fire. Europe is starting to take off. Even in Asia we’re seeing cloud services grow.”
He credited part of their growth to the current environment in cybersecurity. “Part of it has to do with the business we’re in – cybersecurity, data protection and data loss prevention. That market is on fire because the cyber criminals are advancing at a rate that is actually faster than one would expect.”
The use of cloud services is also helping expand the market for small and medium-sized businesses. “You’ve probably heard of this company Atlassian. They sell to lots of SMBs as well as enterprise, and they don’t have a single salesperson out in the field. Amazing, right? GoDaddy does $13-14 million in SMB customers. People are starting to crack the nut of how to make scalable SMB businesses,” said Ali.
Jim McGrann, CEO of eye care company VSP Global, also noted that his company is decommissioning its mainframe and moving all technology to the cloud. “As an ex-IBM’er, it hurts a little bit to see it happening, but it’s happening,” he said. The company is also moving its electronic medical records and practice management business to the cloud in order to make it easier to use and access the data.
Another key growth area for businesses is the Internet of Things, or IoT. Andrea Illy, chairman of illycaffe, noted that connected devices can generate data which helps drive the business forward.
McGrann echoed the importance of IoT. The company is starting to test wearables within eyewear, particularly for the elderly. “If you’re taking care of an elderly parent and their routine is that every night they put these frames on their nightstand at 7 o’clock, and by 9 o’clock in the morning those frames haven’t moved, you can get notified. If these frames fall from 5’ 3’’ down to the floor, and then don’t move, you realize something’s happening and you can get notified. We believe we’re just scratching the surface about what we can do with IoT and the overall area of contextual health,” said McGrann.
“We believe we’re just scratching the surface about what we can do with IoT and the overall area of contextual health.” – Jim McGrann, CEO, VSP Global
Bloomberg Harry West, CEO of design and innovation company frog, focused on the growth in artificial intelligence and big data to drive growth: “The connection between big data and the experience so that people can make sense of that data in real time – that’s going to be an enormous source of growth over the next year.”
The Labor Challenge
Many participants expressed frustration with the supply of qualified employees to fill their ranks. Beatrice Mitchell, co-founder and managing director of Sperry, Mitchell & Company, sells privately-held companies—she’s also a coowner of Percival Scientific, an Iowa-based manufacturer of biological incubators and plant growth chambers.
“We have such problems hiring, even though we pay $25 per hour in Iowa,” said Mitchell. “We have a permanent sign outside saying, ‘we’re hiring,’ and the jobs aren’t bad. Everywhere I go I see this.”
What’s to blame? In part, American culture. “There’s a huge demand we get from employers, but Americans want to play on their phones; they don’t know what a screwdriver is, and they haven’t done the things with their fathers that other generations have done,” said Scott Shaw, CEO and president of Lincoln Educational Services, a for-profit education company that teaches people to be mechanics, welders, electricians and machinists. “There is also this wave going through where vocational schools have been pushed out of high schools and everyone has to go to college. This whole mindset is going to create a bigger skills gap in these areas.”
“It’s not culturally romantic to be a machinist in America,” said Jim D’Addario, who runs D’Addario and Company, a Long Island-based manufacturer of musical instrument accessories. “In Germany it is—it’s an equally respectable occupation. But here, we’ve made it to be something completely negative. Everyone wants to go to college and be an investment banker.”
“It’s not culturally romantic to be a machinist in America.” – Jim D’Addario, CEO, D’Addario and Company
Shaw highlighted a program the company built in Northern New Jersey that is now producing approximately 50 graduates per year to help fill demand for trained CNC (computer numeric controlled) machinists. He says employers are very happy, but “you’ve got to start replicating that across a lot of markets to start helping all this reshoring of manufacturing.”
Gregory Woods, CEO of AstroNova, and Scott Schober, CEO of Berkeley Varitronics Systems, shared similar stories. “Until 2-3 years ago, we had our own machine shop, but it was so hard to get people—trained tool and die makers, CNC operators. There would be turnover, and there’s definitely an aging with that demographic, so we finally decided we’re going to get out of that business,” said Woods. “On the technology front, we’re starting to run into the same thing again. We’re making avionics that go onto flight decks—you need software people, technical engineering talent—prices [wages] are going up.”
“I had a similar challenge,” said Schober, whose company builds cybersecurity and wireless threat detection tools in New Jersey. “I said I’m going to keep all the machining inside so we can respond faster, be a little bit more competitive. We couldn’t find a CNC machinist. I went ahead and spent $100,000-plus to buy the machinery and set it all up while I’m still looking for someone qualified to operate it.” Schober eventually found a qualified machinist through word-of-mouth.
Outside of manufacturing, CEOs noted the challenge in retaining top talent against behemoths like Google. “There is a global war for design talent right now,” said Harry West, CEO of frog, a design and innovation firm. “We are actually unwittingly in the talent development business. We recruit young people, develop them wonderfully over 6-7 years, and then Google swoops in and recruits them from us.”
Particularly in manufacturing, CEOs noted that the aging demographic of the workforce was problematic, and proposed a solution: immigration.
Government and Regulation
Illycaffè chairman Andrea Illy discussed a program by the Italian government to help industry move forward into more knowledge-intensive industries instead of pure manufacturing. He welcomed the government’s involvement, noting that it could stimulate productivity. “One of the problems is that the European central bank made a lot of money available, but it has not been used because of lack of trust and lack of stimulant,” he said.
The lack of trust showed in the U.S. as well. “I don’t think anybody in America feels represented [in Washington] anymore,” said D’Addario. “People can contribute unlimited amounts of money, undisclosed—it’s horrible. Congressmen spend 50 percent plus of their time raising money, the day after they get elected. So how are they possibly representing us?”
Regulatory burdens were also a concern. “So I cross all sectors of the economy, and I think one of the things that hasn’t been discussed here is the drag on the economy that regulations are creating, particularly in transportation and those areas,” said Ameriquest CEO Douglas Clark. “There’s a regulation that passed that’s going to regulate overtime, and it is the most complex law I’ve ever seen. You can’t even define what’s overtime once you read that law.” He predicts that businesses will eliminate overtime in favor of part-time help and hold back on investment until they evaluate the impact on their bottom line. In discussing the growth in the cybersecurity segment, Carbonite CEO Mohamad Ali warned that “odd government proposals” like the Burr-Feinstein bill weakened cybersecurity.
Offshoring vs. Innovation
Participants debated the threat of offshoring and the current mood against free trade. Dominic Casserley, president and deputy CEO of Willis Towers Watson, warned of a second wave of offshoring that would create havoc in the global economy.
“White collar jobs are just going to disappear,” said Casserley. “The shock to the system is going to be when people who used to work for Pricewaterhouse find they’re fired because someone in India is going to do their job. And that’s all because of technology, uplift in education, and access to very talented people who are prepared to do the same job for a fraction of the cost.”
Manufacturing CEO D’Addario rejected the notion that offshoring is a foregone conclusion.
“We make 95 percent of our product here in America—700,000 guitar strings are made in Farmingdale, Long Island every day. We’re the lowest cost producer and highest quality in the world. And we did it by investing over and over again in technology,” said D’Addario. “If people embrace technology to become more efficient and to do a better job and deliver it faster at a higher quality, then they’re safe. It’s easier to just offshore it the way you were doing it before—it’s cheaper—but is that really the long-term solution? It’s not sustainable.” He also tipped his hat to illycaffè chairman Andrea Illy: “You make a great product, and I buy your product because it’s great. I don’t buy it because it’s the cheapest, right?”
Beatrice Mitchell also downplayed the threat of offshoring: “I’m not really worried about labor. We’re starting to see wages go up. Yes, we have always had a history of offshoring jobs—it’s disruptive but somehow we always manage. So I’m not really worried about the future of offshoring. Also, costs are going up in India and China, so there’s going to be an equalization at some point.”
“White collar jobs are just going to disappear.” – Dominic Casserley, President and Deputy CEO, Willis Towers Watson
Carbonite’s Ali, however, noted the unintended consequences of increased productivity and the scapegoating of free trade.
“This free trade thing has become an interesting debate,” said Ali. “Everybody’s all of sudden against free trade. And they use NAFTA as this terrible example. If you look at NAFTA over 15 years, maybe 500,000 jobs have left the country. They would have left anyway. We have actually created hundreds of thousands of jobs every month, so it’s some tiny, tiny percent. People are completely ignoring that productivity is creating a bigger hole than any of this free trade stuff.”
Mostafa Kamal, CEO of pharmacy benefits management company Magellan Rx, noted the disruptive nature of new technologies on the labor force as well. “As you think about people moving to cloud, those are hundreds and hundreds of traditional IT jobs within large organizations that are going away, and it’s all going to Amazon Web Services or Google, and they’re doing it much more efficiently. So this shift in technology is having a major impact on jobs in the country.”
Kamal expressed concern that we’re leaving behind many sectors as we chase cool new innovations in technology. “When you look at a company like Facebook, Google, Amazon, Apple—if you just look at those four—the combined market cap of those companies is the equivalent of something like Western Europe. Americans are not necessarily spending their money on the things they used to spend their money on, but things that are cool, flashy, innovative, and can make their lives more productive—they’re somehow finding ways to spend money on it. A lot of people are focusing on technology and innovation—cool creative stuff—and many, many sectors are being left behind and we’re not investing in some of the core components.”
Tom Phillips, former CEO of advertising company Dstillery, helped close the discussion with a more optimistic tone. “This focus on replacement is the wrong focus. Disruption doesn’t mean replacement. Disruption means new opportunity, too. I work in the data science business, and our ability to harness data has increased by an order of magnitude and a half in the last seven years. It’s just phenomenal. What we can do now, we couldn’t do a few years ago. And so, we’re just feasting off opportunity right now—there’s huge disruption and huge opportunity. Disruption is not all replacement, but it’s change and new business opportunity—new things we can do to make life better.”
“Disruption means new opportunity. What we can do now, we couldn’t do a few years ago. We’re just feasting off opportunity right now.” – Tom Phillips, former CEO, Dstillery
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