The Roemer Report January 1986

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It's easily one of the most favorable since we began this report eight years ago. There's a boom in the stock market, but not within the economy as a whole. Stable across-the­ board growth is more like it. The stock market reflects today's sanguine outlook on interest rates… heading south and instilling a sense of confidence and stability throughout our economy. Oil prices have dropped from $35 a barrel in 1980 to about $25 today. Analysts are predicting further drops…some even suggest $15 a barrel. Oil is a major cost item in everything that is produced or grown in this country…everything. As these prices drop, so do manufacturing and farming costs. And today's dropping oil prices give the current economy a staying power well beyond what could normally be expected.

MANUFACTURING OUTLOOK IS FAVORABLE: The Commerce Department says that most industries will experience a better year in 1986 than last year. In a detailed analysis of 250 goods producing industries, it says that most manufacturers should benefit from an improved U.S. trade position in 1986. A lower dollar is making U.S. manufacturinv and exports more competitive, diminishing the surge in imports. Here’s a key point for truckers. The Commerce Department predicts that median shipments in manufacturing industries will increase by 2.2% th year after adjustments for inflation. That’s up from a level of 2% last year. The pivotal auto industry may not quite match its bountiful 1985 performance, but it shouldn’t miss it by much. The fact is that dropping energy prices are an elixir for car sales. Add attractive low-cost financing packages on top of this and you’ve got a pipeline into the consumer’s wallet.

THE BIG PICTURE: We may just be settling into a new economic environ­ ment characterized by low inflation, low interest rates, and a lower dollar. In addition to oil prices, many strategic commodity prices are dropping like stone. There's also little pressure for wage gains. In short, truckers may be cruising into a long economic expansion. Your key industrial freight customers are likely to have one of their most profitable years in recent memory.

IS THE I.C.C. OUT OF BUSINESS? President Reagan's draft budget for fiscal 1987 would abolish the I.C.C….that's-right…send the Federal government's oldest regulatory agency to the bone yard. Mr.Reagan's final budget won't be public until its submission to Congress in early June. Current decisions are tentative and subject to Presidential changes. But, as it stands now, beginning on October 1, 1986 (when the '87 fiscal year begins) the I.C.C. would go out of business…ironically exactly 100 years after its creation in 1887. The agency's role clearly has been diminished by deregulation. One of the Administration's most avid proponents of deregulation is James C. Miller, III, director of the Office of Management and Budget. The matter will certainly be the subject of intense debate in Congress, if it gets that far. One obvious question is whether or not the government wants to totally eliminate all rate regulations of the transportation industry…forever.

YOUR INVISIBLE REPORT CARD: Welcome to the emerging service economy, where "relationships" transcend tangible goods -- a philosophy that applies equally to manufacturers and service firms. In truth, a customer-is-king orientation may be this decade's business survival kit. Born of burgeoning competition and, higher customer expectations, today's demand for flawless service is fierce.

Karl Albrecht and Ron Zemke, authors of Service America, Doing Business in the New Economy, urge companies to think of customer satisfaction as an invisible report card. During each transaction, the client mentally "grades" us. On the basis of these marks, he/she decides whether or not to continue the business relationship. Our goal is to get an outstanding score, but first we must understand two criteria: (1) What factors are most important to our clients? (2) How do we compare with our competitors in terms of those factors? Extensive and ongoing customer interviews will provide the answers -- including some surprises. Often clients prize qualities a company has simply overlooked. Thus interviews are a focusing device, enabling firms to realign their service vision…Customers remember the exceptional, note Albrecht and Zemke. An unchecked error at any point in the service chain can undo all the good work that preceded it. Conversely, extraordinary gestures can erase past mistakes.

REWARD COMPETENCE, NOT CREDENTIALS: James Fallows, Washington Editor of The Atlantic, believes America is giving its entrepreneurs short shrift. In a recent column, he noted the clash between admiration for the entrepreneurial loner and recognition for the heavily credentialed professional. We give lip service to entrepreneurial pluck, says Fallows. But when push comes to shove, our society values and rewards education over competence. As evidence he cites the highly touted M.B.A. degree and similar trappings of meritocracy. Increas­ ingly, ambitious workers need an alphabet soup of credentials after their name. Yet Fallows presents impressive statistics showing the gap between occupational competence on one hand and education and professional licensing on the other.

He concludes that credentialism usually results in increasingly mediocre per­ formance within a profession. What's the solution? A renewed effort to reward competence and innovation. Fallows suggests sports rather than the professions as the new American business model. Sports teams, after all, are notorious for their rugged emphasis on strong performance.

DETERRENCE--THE SUBTLE STRATEGY THAT WINS: Military metaphors have faded from current business jargon. Yet today's business conditions warrant the revival of one term: deterrence. Less used than the forthright tactics of attack and defense, deterrence is an indirect approach. By definition, it is a war­ avoidance strategy -- a mental contest between two rivals. Deterrence, in essence, means persuading an opponent not to do something by convincing him that his actions would be self-destructive. According to Barrie G. James, author of Business Wargames, deterrence is ideally suited to our high-cost, super competitive climate because it enables the user to avoid costly all-out marketplace wars. James outlines four key elements present in all effective deterrent strategies… (1) Credibility. A company must be able to convince its rival that its clout is real and that the rival will benefit by restraint. If a firm has a proven track record, its reputation should discourage opponents from competition. (2) Capability. This is the muscle behind the motion -- the corporate resources that will inflict pain on the opponent. For instance, high start-up costs and a limited customer base can deter firms from entering certain markets. (3) Communication. A company must alert its competitors to its intentions and to the consequences of cooperation or resistance. (4) Rationality. Although intuition plays a major role in deterrence, a company must appeal to logic. Otherwise, its opponent may react impulsively, causing harm to both parties.

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