The Financial Crisis of 2008 shook the very foundations of the global economy. In this PBS Newshour video, Business and Economics Correspondent Paul Solman talks to Charles Ferguson, director of the Academy Award winning documentary, Inside Job, a film that raises concerns about conflicts of interest for economists in academics and their work within the financial sector. Solman goes on to explore how this film is influencing some leading economic thinkers today.
Click here to access a full transcript and mp3 audio file of this video.
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New research confirms the financial crisis has significantly exacerbated business complexity. A recently released survey reveals that 86 percent of firms face increasing complexity in their operating environment or organizational structure over the past three years.
In the survey for the report titled, The Complexity Challenge: How businesses are bearing up, only 22 percent of senior executives think their organizations are well prepared to confront complexity in the future. More than one in four of them describe their firm as ‘complex and chaotic.’ The most prominent reason for the spiraling complexity is the greater expectations of customers. Complexity stemming from globalization or technology rank much lower in the list of causes.
The report also explains the wide range of measures companies are adopting to tackle the complexity; from cutting down management layers to simplifying product portfolios and processes. “It is clear from the research that complexity has become a constraint and a risk for firms,” says Abhik Sen, editor of the report. “Our study shows that some of the most successful companies today are the ones that are tackling this challenge head on by simplifying their organizations or business practices.”
Other key findings in the report include:
The single biggest cause of complexity is greater expectations on the part of customers. Increasing customer demands for more choice in the quality and range of products and services are providing the biggest impetus to complexity. The second most cited cause of complexity in the survey is regulation.
Complexity is exposing firms to new and more dangerous risks. Complexity has significantly increased the risk exposure of nearly one in five firms. The majority of survey respondents say complexity is affecting the ability of their firms to change business processes and is hindering the introduction of new products and services.
Businesses are focusing on technological solutions to tackle complexity. Simplifying information technology systems seems to be the most popular way to tackle complexity in business, along with efforts to simplify or consolidate product and service portfolios. As a source of complexity, though, technology comes in only at seventh place in the survey.
A majority of firms have an organizational structure that is adding to complexity. Nearly three in five survey respondents say that the organizational structure of their firms is exacerbating complexity. Almost half (47%) say it is difficult to work out who is responsible for what at their companies and 39 percent say that, as a result of the lack of transparency, there is considerable duplication of effort.
The complexity challenge: how businesses are bearing up is an Economist Intelligence Unit (EIU) report commissioned by the Royal Bank of Scotland. The research is based on a worldwide survey conducted by the EIU in October-November 2010 of 300 senior executives from a wide range of industries. Approximately half the respondents represent firms with $500M USD or more in annual global revenue. Over half the respondents are C-level or equivalent and the others are directors or senior managers. A minimum of 125 respondents are from the finance function and a minimum of 125 represent functions other than finance. The Economist Intelligence Unit bears sole responsibility for the content of the report.
About the Economist Intelligence Unit
The Economist Intelligence Unit is the world’s leading resource for economic and business research, forecasting and analysis. It provides accurate and impartial intelligence for companies, government agencies, financial institutions and academic organisations around the globe, inspiring business leaders to act with confidence since 1946. EIU products include its flagship Country Reports service, providing political and economic analysis for 195 countries, and a portfolio of subscription-based data and forecasting services. The company also undertakes bespoke research and analysis projects on individual markets and business sectors. More information is available at www.eiu.com.
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Advocates of the president’s health care reform package have expressed alarm over a wave of mergers spurred by the new law.
Johns Hopkins Medicine, for instance, is snapping up hospitals in the Washington, D.C.-area, a move it describes as “driven largely by health care reform, which demands an integrated regional network.”
Johns Hopkins is not alone. Many established actors in the health care industry – including insurers, brokers and providers – are searching for ways to increase their market clout.
That’s bad news for ordinary patients, who will be forced to pay ever more for their care as the level of competition in the health care marketplace dwindles.
It’s easy to see why competition drives down costs. When insurers or health care providers have to battle one another to attract customers, they must differentiate themselves by charging lower prices or providing better service.
But if an insurer dominates a marketplace, it can raise prices and lower service standards with impunity.
Many insurers and providers are already taking steps to limit competition. Consider ‘most favored nation’ (MFN) clauses, which insurers use to prohibit hospitals or doctors from charging competitors less. Insurers claim that these discounts are necessary to help them secure the best possible deal.
Unfortunately, it’s the “best possible deal” for the insurer — not ordinary patients. The ‘low’ prices included in these MFN clauses are often based on artificially high price quotes from the provider. In some cases, insurers have actually agreed to increase what they’ll pay so long as other insurers are forced to pay even more.
Patients, of course, lose. The favored insurer passes along artificial cost increases directly to their customers, while disadvantaged competitors have to charge even higher premiums to continue offering access to offending providers. Many insurers simply exit a market once a rival negotiates an MFN.
Such an exit can be disastrous. According to an American Medical Association study, two or fewer health insurers control more than 70 percent of the market in 24 states. And if a competitor is foolhardy enough to try to work around an MFN, then the dominant insurer can simply force its rival out of the market.
A case in point is TheraMatrix, a small Michigan company. In 2005, TheraMatrix contracted with Ford Motor Co. to provide physical therapy services to its employees. TheraMatrix cut Ford’s costs by nearly half – saving the company millions of dollars. Last year, Ford expanded the program to cover 390,000 employees and retirees nationwide.
Everyone was happy – except Blue Cross Blue Shield of Michigan (BCBSM), which handled the administrative side of Ford’s insurance plan.
As TheraMatrix added other automakers to its customer base, BCBSM dropped the company from its medical provider network, which covers most Michiganians. BCBSM also threatened to revoke its other customers’ hospital discounts if they carved out their physical therapy benefits and contracted with TheraMatrix to provide them.
Blue Cross wrote that TheraMatrix’s operations were “competitive and damaging not only to BCBSM’s financial interests, but also to its business relationships.”
In other words, BCBSM would not allow its customers to shop around for better deals. And it would try to bully TheraMatrix out of business.
Such anti-competitive behavior harms employers and patients alike. Further consolidation of insurers and providers could make things worse.
Over the last 10 years, employer-provided health insurance premiums have more than doubled. Premiums for the most popular employer-provided plans are projected to increase by another 10 percent next year.
If businesses are to stop runaway medical costs, they’ll have to take control of their benefits. They can do so with the help of a new business strategy: ‘Healthcare Performance Management’ (HPM).
HPM uses powerful software to show companies where their health plan dollars are going, and where opportunities for savings exist.
For instance, HPM analysis of employee medical and prescription claims data might show that a company is spending too much on brand-name prescription drugs and that alternatives like generics could help it save millions.
Unsurprisingly, insurers don’t want to share this data with businesses. After all, if a company can’t pinpoint exactly how it’s spending its health dollars, it will be less likely to question premium hikes. Nor will it be able to find efficiencies, as Ford did, by cutting the insurer middleman out of the equation.
In many parts of the country, big health insurers have enjoyed virtual monopolies. Unburdened by real competition, they’ve abused their powers while businesses and their employees footed the bill.
HPM empowers businesses to inject competition into the healthcare marketplace and fight back against decades of cost increases. Employers should take advantage.
Additional Information
In addition to the invaluable insights George shares in this StrategyDriven Editorial Perspective article are the resources accessible from his website, www.HPMInstitute.org. George can be reached at [email protected].
Final Request…
The strength in our community grows with the additional insights brought by our expanding member base. Please consider rating us and sharing your perspectives regarding the StrategyDriven Editorial Perspective podcast on iTunes by clicking here. Sharing your thoughts improves our ranking and helps us attract new listeners which, in turn, helps us grow our community.
Thank you again for listening to the StrategyDriven Editorial Perspective podcast!
About the Author
George Pantos is Executive Director of the Healthcare Performance Management Institute, a research and education organization dedicated to promoting the use of business technology and management principles that deliver better and more cost-effective healthcare benefits for employers who provide health insurance coverage for employees and their dependents. To read George’s full biography, click here.
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The extension of Bush-era tax breaks, healthcare reform and an increase in the rate of hiring in November suggests that the economy is gaining momentum. Unfortunately, few expect a change in the 9.6 percent unemployment rate. Yet despite this constant, many economists are optimistic about the Nation’s hiring forecast.
Two pillars of the economy – jobs and consumer spending – appear to be on the upswing. Factories are producing, auto sales are rising and new businesses pop up daily. Also, applications for initial unemployment benefits hit a two year low in November and 151,000 new jobs were created.
Job creation does not necessarily correlate with lowering the unemployment rate. According to analysts, the economy would need to consistently add 200,000-300,000 jobs a month to make a noticeable dent in the unemployment rate. Despite the job creation shortfall, the economy is moving in the right direction. Economists predict that the United States economy will grow at a three percent pace in the October-December quarter, up from a two and a half percent growth rate in the July-September quarter.
Will the steady increase in the economy translate into a positive hiring forecast? The results are mixed. The increase in private sector jobs suggests that retail and factory jobs will continue to climb. The same cannot be said for small businesses, mainly due to uncertain tax future many businesses face.
The issue at the heart of this uncertainty involves limited access to capital at a time when banks are reluctant to lend. Taxes further hinder these businesses’ ability to produce. If a business owner has to pay higher taxes on net earnings, the business is much less available to do other things needed to contribute to the economy such as hire employees, buy equipment and expand. Many small business owners seek long term tax strategies rather than year-by-year decisions that make planning for the future of their business impossible.
Recent healthcare reform is also adding to economic uncertainty for small businesses. Many of the provisions of the sweeping health-care bill passed by the House of Representatives in March won’t kick in until 2014, however these provisions spell big changes for small businesses.
By no later than 2014, states will have to set up Small Business Health Options Programs, or “SHOP Exchanges,” where small businesses will be able to pool together to buy insurance. Businesses with more than 50 employees will be required to either offer healthcare coverage or pay a penalty of $750 a year per full-time worker. Part-time employees would be counted toward the 50-employee minimum on pro-rated basis based on hours worked, bringing more small businesses into the group required to provide coverage.
This clearly effects hiring as many small businesses have been able to exclude part time employees from healthcare benefits and from its total number of employees. However, the proposed reforms could help spur entrepreneurial activity by increasing the incentives for talented Americans to launch their own companies, and could increase the pool of workers willing to work at small firms. Further, successful reform would reduce the phenomenon of ‘job lock,’ in which workers are reluctant to leave a job with employer-sponsored health insurance out of fear that they will not be able to find affordable coverage.
As both the future of business tax as well as healthcare reform are uncertain, the countries hiring forecast is foggy. However, both private sector jobs and consumer spending have risen creating an optimistic attitude among economic analysts for our country’s economic future. New healthcare laws also suggest a possible increase in entrepreneurial activity, thus creating more jobs, hopefully creating a positive hiring trend.
About the Author
As CEO of MyCorporation Business Services, Inc. (www.MyCorporation.com), Deborah Sweeney is an advocate for protecting personal and business assets for all consumers. With experience in the field of corporate and intellectual property law, Deborah provides insightful commentary on the benefits, barriers and who should consider incorporation and trademark registration.
Deborah joined MyCorporation in 2003 after serving as outside general counsel for 5 years. She received her Juris Doctor and Masters in Business Administration degrees from Pepperdine University and is a member of the American Bar Association.
Deborah served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in the area of corporate and intellectual property law. Because of her extensive knowledge, Deborah has long served as a speaker and panelist on legal issues affecting new to the world and growing businesses.
With the elections over and unemployment reaching 9.8 percent, we once again see politics shifting into high gear as the posturing and power grabs in Washington D.C. continue to prevent the creation of marketplace certainty needed before business leaders begin to create new jobs. In our closing commentary for 2010, Perspectives reflects on the several pending and enacted pieces of legislation that continue to plague the job market and have the potential to do so for the foreseeable future.
Expiration of the Bush Tax Cuts – regardless of your position on whether the Bush tax cuts should be allowed to expire or extended in part or in whole, two things are certain – our leaders are in a deadlock split over what action to take and without action the tax rate for all individuals will rise on January 1, 2011. This uncertainty is clearly unnecessary and should have been avoided. Democrats bent of pushing through healthcare, financial, and carbon reforms should have moved on this issue as a priority as it is the only one of these issues with a deadline; though all are bad for the U.S. economy. According to Deloitte Tax LLP, the following impacts will be realized if the Bush Tax Cuts are allowed to expire:
A typical family of four with a household income of $50,000 a year would have to pay $2,900 more in taxes in 2011
The same family making $100,000 a year would see its taxes rise by $4,500
Wealthier families of four making $500,000 a year would pay $10,800 more in taxes
A family making $1 million a year would get a tax increase of $53,2001
Net Result: higher taxes reduce disposable income; resulting in less spending and slower economic growth
Healthcare Reform – with several hundred new regulations and standards not yet defined, the cost of Obamacare remains unknown. However, as Perspectives addressed in You Don’t Get Something for Nothing, the added benefit requirements mandated by the Obamacare legislation have to be paid for by someone; whether those payers are businesses, individuals, or some combination of the two. In fact, the Wall Street Journal reported that healthcare insurers Aetna, some BlueCross Blue Shield plans and other smaller carriers are seeking premium increase between 1 – 9 percent to cover the extra benefits mandated by healthcare reform.2
A report by Senators Coburn M.D. (R-OK) and Barrasso M.D. (R-WY) finds Obamacare as having the following impacts:
New penalties and costs discourages the hiring of American employees
The law will eliminate about 800,000 jobs; possibly more
Real income will be depressed for millions of Americans
Employers are struggling with rising health care costs that are increasing more quickly because of the new law3
Net Result: labor costs increase and/or disposable incomes decrease; resulting in fewer jobs as employers hire less and outsource more and reduced consumer spending – both driving slower, if not negative, economic growth
No Federal Budget – by law, the Congress of the United States is to develop and pass a budget for the coming fiscal year by April 15. Not unlike most years since the law was enacted, Congress has failed to meet this obligation; thereby failing to signal market participants as to how and when the economy’s single largest consumer will spend its money.
Net Result: uncertainty as to the government’s coming year spending heightens employer risk to maintaining and expanding business operations; depressing workforce retention and expansion as well as research and development and other growth projects.
Carbon Legislation – passed by the U.S. House of Representatives and stalled in the Senate, carbon legislation that would assign fees to carbon producing business activities, namely energy generation, looms as an uncertain and daunting risk of increased energy cost. If passed, this legislation would increase energy costs for all consumers; raising personal and business energy consumption expenditures.
A study by the Heritage Foundation of carbon legislation proposed by Representatives Waxman (D-CA) and Markey (D-MA) revealed the following potential economic impacts of this legislation as being:
Elimination of 1,145,000 jobs on average, with peak year unemployment increases of over 2,479,000 jobs
Increased electric rates of 90 percent after adjusting for inflation
Heightened, inflation-adjusted gasoline prices by 58 percent
Raised residential natural gas prices by 55 percent
Increased energy bills for the average American family of $1,241 per year4
Net Result: increased energy costs will add to the costs of every product and services produced within the United States and increase residential heating, cooling, general living, and transportation costs; reducing consumer’s disposable income and subsequently their spending which will slow economic growth if not shrinking the overall economy.
StrategyDriven Recommended Practices
Individually any one of these items damages the U.S. economy; taken together, Perspectives believes they crush any hope for a near-term economic recovery and may even bring about the return of the economist defined recessionary conditions. The combination of these four unnecessary uncertainties results in:
prolonged high unemployment rates
sustained lower consumer spending
perpetuated hording of cash by individuals and businesses
continued slow economic growth with the possibility of reentering recessionary conditions
To protect ones company from these unnecessary risks, StrategyDriven recommends business leaders consider the following options:
Eliminating, streamlining, and outsourcing all processes and activities. The goal is to reduce headcount in order to avoid the potential costs associated with the new healthcare legislation and reduce the energy needed to produce the company’s goods and services to avoid the impacts of the proposed carbon tax. Additionally, more efficient processes increase the organization’s supply flexibility in response to market demand allowing for a reduction in inventory levels. In the case of outsourcing, those functions not absolutely required to be performed within the United States should be transferred to overseas providers.
Increasing employment of temporary staff. The goal is to minimize the company’s commitment to a higher number of full-time staff members that necessarily brings with it the elevated entitlement costs associated with Obamacare. A clearly defined return on investment should be identified prior to hiring any additional full-time staff.
Relocating operations to another country not as heavily burdened with taxes and other mandates. The goal is to reduce non-value adding payments required by the government. Consideration must be given to other added costs such as transportation and importation taxes when evaluating whether or not to relocate.
Limiting production and inventory levels. The goal is to reduce labor and energy consumption to avoid costs while at the same time preparing for the probable decline in the demand for goods that would result in slower inventory turns and subsequently higher inventories and warehousing costs should current production rates be maintained.
Expanding the organization’s cash reserves. The goal is to prepare the company for the heightened expenses that will be incurred as a result of Obamacare and the potential carbon tax as well as the reduction in revenues that will likely result from the expiration of the Bush Tax Cuts.
Final Thought…
Perspectives acknowledges that our recommendations include provisions that would result in fewer American jobs. We believe these recommendations are sound.
Perspectives believes the Obama Administration and Democrat controlled Congress passage of Obamacare, desire to rescind portions of the Bush Tax Cuts, proposed carbon tax legislation, and failure to pass a Federal budget is devastatingly harmful to the American economy. We believe business leaders have a responsibility to their company’s shareholders to maximize their return on investment and that the legislative initiatives discussed drive leaders to transfer operations overseas. Therefore, it is our opinion that the Obama Administration and Democrat Congressional Leaders are culpable for the ongoing unnecessary uncertainty preventing real economic recovery.
As always, we’ve provided our perspective and hope you’ll share your thoughts, lessons learned, and recommended resources with us and the StrategyDriven audience.
Final Request…
The strength in our community grows with the additional insights brought by our expanding member base. Please consider rating us and sharing your perspectives regarding the StrategyDriven Editorial Perspective podcast on iTunes by clicking here. Sharing your thoughts improves our ranking and helps us attract new listeners which, in turn, helps us grow our community.
Thank you again for listening to the StrategyDriven Editorial Perspective podcast!
Sources
“Expiring tax cuts hit taxpayers at every level,” Stephen Ohlemacher, Associated Press, September 16, 2010
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New research confirms the financial crisis has significantly exacerbated business complexity. A recently released survey reveals that 86 percent of firms face increasing complexity in their operating environment or organizational structure over the past three years. 
Advocates of the president’s health care reform package have expressed alarm over a wave of mergers spurred by the new law. 
George Pantos is Executive Director of the Healthcare Performance Management Institute, a research and education organization dedicated to promoting the use of business technology and management principles that deliver better and more cost-effective healthcare benefits for employers who provide health insurance coverage for employees and their dependents. To read George’s full biography, 
As CEO of MyCorporation Business Services, Inc. (
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