Strengthening Michigan’s Manufacturing Workplaces:Early Warning and Layoff Aversion

Michigan Economic Dislocation SummitJune 20, 2006

Why We’re Here: Saving and Creat ing GOOD JOBS

In this Presentat ion

Toward the Next Generation of Manufacturing Jobs

Overview of SEWN

Toward a Regional Early Warning Network

Key Steps to Early Warning/ Layoff Aversion

Opening the Door—Analysis and Assessment

Saving the House—Aversion Response

The Next Generat ion of Manufacturing

Tennessee’s Industria l Heritage

America’s Manufacturing Jobs Plummeting

U.S. Manufacturing Employment, January 1991-March 2005*

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Manufacturing Matters

a. Productivity leader b. 2/ 3 of all R&D investmentc. Primary source of innovationd. Leading purchaser of new technologye. Leading purchaser of financial and

technical servicesf. Leader in new work org and processesg. Opportunity: economic ladder with rungs

at all levels

There is a Role for State Government to Play

– Bring together stakeholders—manufacturing associations, labor, chambers, political leaders—to pressure for strategic policies

– Push for the creation of manufacturing focus and strategic capacity within state government

– Integrate existing and new state programs into an overall strategy

There is a Role for State Government to Play

• Advocacy– for National Trade Policy Changes

• Short-term-helping workers survive • Business retention assistance• Long-term transition

– to Globally Competitive Enterprises

• State procurement• State leadership in new renewable

energy portfolio, other key resources– that supports domestic growth

The “Next Generat ion” of Manufacturing Jobs...

Governor’s Office Prioritized• Balanced trade policies

– Trade Law Compliance Office

• Retention partnerships• New industry consortia • Accessible and flexible capital

– Increased capital loan funding

• Growth strategies– New funding for “top-line”, marketing

• Workforce training– Increased incumbent worker training

Early Warning and Layoff Aversion

Early warning is a multi-stakeholder approach to identifying companies-at-risk early enough to be able to mount an effective layoff aversion strategy.

Layoff Aversion focuses on saving jobs, putting people back to work, and revitalizing industrial communities.

An Overview of SVA’sSEWN Netw ork

The SVA--a Regional Authority

Origin: Formed by mayors and legislators, small businesses, and working families in the 1980s in the Pittsburgh-Mon Valley, during the downturn of the steel industry.

Structure: The SVA is a twelve-member municipal authority, with statewide powers and programs. The SVA operates HQ office in Pittsburgh area and a new office in Harrisburg. The SVA manages projects nationally.

Programs: Jobs retention, private capital investment network, economic policy, community development.

What is SEWN?

Sponsored by PA Department of Labor and I ndustry.

Has worked with over 450 manufacturers, including steel, metals, plastics, electrical, food processing, etc.

Operates in 49 counties in Pennsylvania.

The SEWN Netw ork

SEWN Built a “Regional Retention Team” to monitor industries:

Regional Governor’s OfficesRegional Rapid Response Offices Workforce I nvestment Boards (WI Bs)City/ county development groups ( I DC’s/ I DA’s) Modernization programs ( I RCs and BFs) ;Chambers and industry associationsUnions, labor councils, L/ M groupsBanks, private investment groups, Freelance managers and consultantsI ndustry policy groups

SEWN Geographic Response

SEWN Industry Sectors

SEWN Cases by Segment

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1. Tow ard a Regional Early Warning Netw ork

Tools for Early Warning

The SVA is working with the PA DLI to fashion a new information data system that will benchmark firms with inordinate layoffs, UI claims filing, etc., against the trends of their industry clusters.

SEWN utilizes the Layoff Aversion Guidebook that was prepared for the U.S. Department of Labor (DOL) by the SVA. The Guidebook provides a compendium of layoff aversion strategies for communities.

Linkages to New Capita l Sources

The SEWN Network provides links to an SVA-Heartland I nvestment “Deal Flow”

Network, focused on:

Coordination of existing pension-capitalized private capital funds, with an estimated $8-10 billion in assets.

Collaboration with state development and loan programs and in-state investment groups, to explore joint investment opportunities.

Early Warning Analysis and Assessment--Early Warning Monitoring

--Pre-feasibility of Companies-in-Stress

Layoff Aversion Response--Core Retent ion Steps--Sectoral/Cluster Strategies--Workplace Change and Training

2. Key Steps to Early Warning/Layoff Aversion

Exploring Layoff Alternat ives

Corporate conglomerates frequently close or sell plants or facilities that may be profitable, but not profitable enough. They may sell or close operations that no longer meet their core business application or that are viewed as excess capacity to their overall operations.

Over the past 25 years, there have been hundreds of examples of companies that were scheduled for closing and where various interest groups have organized to rescue the business operation.

What are the Alternat ives?

Financial restructuring

Cost reviews

Conversion to new products

I ncumbent worker training, work-sharing

Bringing in new management

Labor-management cooperation

Succession planning

Employee buyouts

Company buyouts

Modernization and technology upgrades

Best Pract ice Models

Best practice models from around the country do several things

I ntegrate economic and workforce development communities, and empower labor, management and community stakeholders.

Share timely informational sources, set high standards for turnaround response time and result, and utilize flexible strategies, tactics and tools

Keys to Analysis/Response

Early Warning Monitoring: Utilizing industry and labor market systems and networks to monitor and predict plantclosures in order to implement response andprevention strategies.

Providing pre-feasibility assessments todetermine continued financial and marketviability of business or facility.

I mplementing broad retention strategies andservices to maintain and strengthenindustries.

Developing urban and rural models targetingindustrial sectors in geographic areas.

Supporting high-performance workplaces to:• improve performance and • improve working conditions, stabilize

employment• promote incumbent worker training and

labor-management cooperation, etc.

Assessment:

Core Retention Steps:

Sectoral/ Cluster Strategies:

Workplace Change andTraining:

3. Opening the Door—What Happened?

Early Warning Analysis

Pre-feasibility/ Viability Assessments

What Are Early Warning Sources?

Labor Market I nfo (declining/ underperforming sectors) and layoff data from unemployment filings, showing patterns.

WARN notice alerts of mass layoffs or plant closures, and Trade Act notices.

Public loan defaults, mirrored by bank/ financing problems.

Dun and Bradstreet (D&B) reports of stressed firms and industries.

Utility company reports of usage drops, or customer and supplier knowledge.

Labor-management committees foresee potential problems.

Business visitation and calling programs.

Local elected leaders.

Early Warning Sources

Primary Sources Secondary Sources

UC claim filing notice

Loan delinquencies

Bankruptcies

WARN notifications

Direct Referrals

– Unions, workers

– L&I , DCED, GAT

– Managers, Owners

– Local Dev. Groups

– Elected leaders

– Vendors, Suppliers

Dun and Bradstreet

Public media

Business surveys

Business workshops

Industry cluster groups

Industry sector trend reports

Company annual reports

Industry “bellwether indicators”

WARN as Start ing Point

• Through the Worker Adjustment and Retraining Notification Act (WARN), employers must give local Chief Elected Officials, the State Rapid Response Dislocated Worker Unit, and workers, and their representative, advance notice of a plant closing or mass layoff.

Thus, an informal “network” of informational channels already exists. The logical network of early warning “ informants” include states, local mayors and council members, local unions, civic and religious institutions, chambers, and other institutions.

Example of Early Warning Collaborat ion

Dun and Bradstreet provides, for a cost, a stressed company list--companies that can be selected by industry, that have high financial stress scores. I t is a strong predictive tool.

The SEWN Network discreetly shares data with the SW PA BREP county coordinators to determine if a special visit or coordinated business call should be arranged.

We developed a protocol so that the BREP coordinators will share the results of confidential calls, and a joint action plan will be developed if the firm is at-risk of closing.

Example of Early Warning Collaborat ion

The SEWN Network has worked closely with the Rapid Response Offices, and receives copies of WARN notices, trade petitions, etc.

We developed a protocol so that SEWN staff can monitor WARN cases or other closure and mass layoff notices. I f there are cases to investigate for potential layoff aversion, the staff will work with the RR office to provide introductions to managers, workers.

The SEWN staff will share the results of any contacts with the company, so that a duel plan--assisting dislocated workers, yet exploring the alternatives--can move forward.

Pre-feasibility Studies

An assessment of a company to determine if it could be operated viably and profitability. I t looks at options for a company or group, including the workers, to purchase or re-organize a plant or company and continue in operation.

I t examines: organizational structure, market, operations/manufacturing equipment, financial condition/new investment requirements, legal issues, conclusions and methodology.

Cost--between $5,000 and $20,000 per company--depending on the size, accessibility of information, and the need for specialized consultant assistance.

4. Saving the House—Layoff Aversion/Response

Core Retention StepsSectoral/ Cluster StrategiesWorkplace Change and Training

Responsible Layoff Aversion

The goal of layoff aversion is to anchor existing firms where they currently conduct operations. I n its most basic form, this business retention approach consists of interventions…to influence the location decisions of business firms in that locale. I t is not enough to salvage equipment or real estate…good job retention programs work to retain the skilled workforce and efficient managers. ( from "Markets, Economic Development and Business Retention," 1996)

Core Retent ion Steps

SEWN’s Approach…

• Financial Restructuring

• Company Buyouts

• Business Continuity

• Operations and Cost Management

Sectoral/Cluster Strategies

Cluster projects focus on groups of companies within an industry cluster.

Sectoral strategies start with a geographic analysis, identified key sectors, and organized services around those sectors.

Pennsylvania DLI is sponsoring Manufacturing Workforce Partnerships to align resources in areas such as workforce development, technology deployment and technical assistance.

Workplace Change and Training

• Workplace change and training models include modernization skills upgrading and cross-training, “high performance” workplaces, and “ learning”workplaces.

By addressing the training needs and knowledge practices of workers, the workplace change approach does not just provide training on specific skills and techniques of the job or production.

Rather, it seeks out strategies to promote greater cooperation between management and workers in production techniques as firms attempt to re-direct operations or upgrade their production capabilit ies.

Workplace Change and Training

“New Works Systems”: worker participation and information-sharing

“Open-book management” provides training for workers on how to understand the company’s financial statements and general trends.

Employee ownership training teaches workers to think about the overall success of the firm, and provides governance structures to ensure their voice is heard.

“Lead mentor training” and self-directed work teams help workers to train themselves, and adapt to changes.

High performance workplaces– front-line workers receive training, incentives and job security to participate in decisions that alter organizational routines.

Early Warning and Layoff Aversion provide new tools to the State to bolster manufacturing w orkplaces, build a stakeholder approach, and re-posit ion the state’s jobs foundat ions for new industries and grow th.

Presented by the Steel Valley Authority