by:
Michal Smith-Mello
Susan Blankenship
Earl Hamm Jr.
James Strohmaier
with:
Melissa A. Taylor
Charles C. Nett
THE WORLD OF WORK and the complex economic system which envelops it are undergoing radical and inescapable change. Advances in communications technology have accelerated the pace of global commerce, minimizing the distances and differences that once complicated foreign trade. As a consequence, enterprises and entrepreneurs are now glimpsing the virtually unlimited expanse of markets, customers--and competition--that lies before them. In order to successfully negotiate the structural change now underway and seize the many opportunities it offers, new orders must emerge. Workplaces and workers must change, as well as the critical institutions which prepare them for entry and re-entry into the world of work.
In response, new approaches to management are bringing critical focus to the organization of work and gradually transforming the dynamics of historically autocratic systems. The ranks of management are being thinned and reoriented, and unprecedented responsibility is being extended to millions of front-line workers, many of whom can no longer rely on rote skills. Increasingly, they are expected to continue learning and acquiring skills, to think systemically, to analyze and solve problems, to work effectively in teams, and to lead.
As a result, the educational paradigm of the past is fading. The order of education in youth, followed by gradual ascension through the ranks of a single organization, is fading. Slowly, hierarchical layers are melting away, and learning is becoming central to our work lives, an ongoing process rather than a product we acquire and continue to use. In turn, labor force quality is fast becoming the linchpin of the international marketplace. Indeed, workforce quality, not the enticements of states, now drives U.S. industrial locations. Ultimately, the capacity of a firm's, a state's or a nation's workforce, the quality of the human capital it brings to the arena of world trade, will become the principal determinant of profitability and prosperity.
In spite of the gains we have made here in Kentucky, a significant skills gap remains to be closed. The challenge before the Commonwealth is made more difficult by our historic reliance on agrarian, mining, and, later, manufacturing economies that did not require an educated labor force, and by the enduring legacy of poverty. While the issues surrounding the development of our labor force are complex, two questions will likely remain constant for some time:
With recognition of the unique strengths and weaknesses the Commonwealth brings to the challenge of developing the full potential of its labor force, we examine current assets and liabilities, the array of institutional responses we have brought to the challenge of workforce development, and ways of balancing differences between public and private roles and maximizing returns on investments in workforce development.
THE CURRENT STATUS of Kentucky's workforce is perhaps best described as transitional. On a number of fronts, we are moving rapidly to meet the challenge of the future and overcome a legacy of inattention to education, but the full benefit of these sweeping changes will not likely be realized for many years. It is estimated that 75 percent of Kentuckians who are on the job today will be below retirement age in the year 2010. At the same time, we have experienced substantial losses of youth population that, in the absence of significant net in-migration, could deplete our future labor force. As a consequence, the quality of today's workers, the enterprises which employ them, and the teaching and training institutions which support them is key to the future.
The challenge of preparing our workforce is made more difficult by poverty, low workforce participation, and low educational achievement. Fewer than 57 percent (47th in the U.S.) of Kentucky's total working age population actively participates in the workforce, compared to a national rate of 67 percent. The cause of this startlingly low rate can, in no small part, be traced to educational deficiencies. An estimated 54 percent of non-participating members of the labor force have less than a high school education, compared to only 19 percent of active participants. Kentucky's full working age population remains undereducated by a number of measures; more than one-third (36 percent) of Kentuckians 25 years and older do not have a high school diploma, compared to a national average of 24 percent. And, while Kentucky continues to chip away at the ranks of under-educated citizens through literacy training, GED preparation, and testing, participation has slowed. Anecdotal evidence also suggests that many high school graduates, particularly those who do not express an interest in college, are ill-prepared to meet the demands of today's workplace.
The future prosperity of working Kentuckians depends not only on the skills they bring to their workplace but the organizational strategies their workplaces bring to the international marketplace. Many Kentucky firms have not organized socially or physically to achieve higher productivity and product quality. While some Kentucky plants, such as Ford, Toyota and Rohm & Haas, are model high-performance learning organizations, they are the exceptions. Instead, Kentucky is dominated by smaller, often under-capitalized enterprises. Many offer only low-skill, low-wage jobs. Consequently, even the best public sector efforts to supply skilled workers could be met with insufficient demand.
OVER THE COMING YEARS, much of the responsibility for meeting the rising challenge of workforce development is expected to shift to the states. While state governments are already the primary administrators of education and training programs, the federal government controls both the purse strings and the programmatic parameters of many of the nation's job training programs. Those purse strings are expected to tighten as responsibility for decisionmaking expands. As a consequence, the Commonwealth will be challenged to adapt its present workforce development delivery system to new fiscal and administrative realities and to discover more cost-efficient and effective strategies.
While the fiscal challenge remains unmet, remarkable consensus exists on the direction initiatives must take. Like other reform-minded states, many of Kentucky's efforts have been shaped by the findings of a 1990 report on the future of education and training in America, prepared by the Commission on the Skills of the American Workforce for the National Center on Education and the Economy. The Commission concluded that a national system was needed to train workers and organizations for higher performance that included: a system for certification of mastery at all educational levels; systematic preparation for the skill standards of high-performance work organizations; programs and incentives to encourage businesses to adopt high-performance work organization; and a national labor market system. Kentucky has begun to translate many of these concepts into its own policy initiatives, most notably, comprehensive school reform aimed at ensuring achievement of critical thinking skills. It is also moving to bridge school and work and to streamline entry into Kentucky's education and training infrastructure.
Kentucky's workforce development system includes such traditional institutions as universities and community colleges, vocational and technical schools, apprenticeships, and on-the-job training, as well as the emerging school-to-work initiative and one-stop career development centers. Today, the state's post-secondary education and training system depends nearly equally upon federal funds and state General Fund appropriations, 86 percent of which go to higher education. A substantial loss of federal funds earmarked for job training programs could have a potentially severe impact both on higher education and on programs administered by the Workforce Development Cabinet.
Programs hardest hit by Congress' proposed "devolution" of power would obviously be those most reliant upon federal dollars. Workforce Development Cabinet programs, for example, rely heavily on federal funds, which now comprise about 80 percent of the Cabinet's overall budget. Among the Cabinet's programs, only the Kentucky Tech System depends primarily on state funds. While higher education receives less than 10 percent of its funding from the federal government, the loss of any portion of those funds could drive tuition costs up, and further restrict access.
In spite of efforts to increase efficiency through collaborative relationships between agencies, a range of factors continues to undermine the unity of purpose, process and product that Kentucky's workforce development system must achieve. While the expected trends of diminishing federal funds and broadening competition for state funds may only intensify institutional rivalry, they also underscore the absolute necessity of greater institutional effectiveness and efficiency. At a minimum, the system must become far more collaborative. Ultimately, however, it may be necessary to streamline and restructure it in order to maintain critical workforce development initiatives and achieve higher returns on public investment. Balancing Public-Private Roles
PUBLIC AND PRIVATE ROLES in workforce education and training are often blurred and uncertain. Moreover, the absence of an institutionalized bridge between workforce preparation and the real world of work continues to inhibit the effectiveness of both sectors. Private investments are often constrained by the demand for short-term returns that training and education seldom yield. While public investment generally seeks long-term, broad-based benefits, it is severely constrained by limited resources that may decline further, even as need expands. Consequently, striking the appropriate balance between public and private roles ranks among the most important challenges policymakers confront. In order to meet it, policymakers must discover ways of realizing the highest possible return on public investment and leveraging greater private involvement and commitment.
Perhaps the strongest inhibition to employer training is its enormous cost, especially for smaller firms that do not enjoy the economy of scale afforded larger firms. Indeed, the ability of firms to make costly investments in formal or informal training and development is tied directly to their size and relative wealth. In 1990, the Commission on the Skills of the American Workforce reported that only 0.5 percent of all American employers had spent $27 of the $30 billion invested nationally in workforce training and education and that only one-third of these training dollars was directed toward frontline, non-college educated workers, arguably those who need it most.
While offering little information about who receives training, more recent survey results suggest that the incidence of training among employers is relatively high but still considerably lower among smaller employers. According to a 1995 report on national survey results from the National Center on the Educational Quality of the Workforce, 81 percent of all establishments, regardless of size, provide formal classroom training while 97 percent provide informal, on-the-job training. Among firms with fewer than 50 employees, only 75 percent provided formal training while 96 percent provided on-the-job training.
In spite of the clear and proven payoff that both education and training yield to employees and employers, private investment has been inhibited by a number of factors. For many firms, particularly smaller ones, training and education are viewed as a risky investments with uncertain payoffs. Training does not always increase productivity, and concern about "pirating" of trained workers by other firms continues to have a chilling effect on investments in human capital development. And, unlike workers in other countries, American workers exhibit minimal loyalty to firms, a circumstance that is likely to worsen as the employer-employee relationship is further strained by downsizing, stagnant wages and increased reliance on contingent workers.
On the other hand, accelerated competition has forced more and more firms to recognize that investment in training and education is key to survival. Moreover, as firms cooperate more extensively and continue to form networks for a range of purposes, more uniform human resource practices and shared commitments to training are likely to emerge.
In Kentucky, the school-to-work initiative is expected to have a significant impact on aligning public and private roles in the coming years. Two established programs were built on a cooperative public-private model. The Department of Technical Education provides customized training programs by utilizing existing state facilities and resources to enhance the capacity of businesses, and Bluegrass State Skills Corporation (BSSC) provides matching capital for education and training. In recent years, however, BSSC has served a disproportionate number of large firms, in spite of the fact that 98 percent of Kentucky's firms employ fewer than 100 people.
The necessity of aligning the design and delivery of a workforce development strategy is underscored by the specter of further limitations on already strained public resources and expanding private need. Both stand to benefit substantially from a more rational alignment of roles and the creation of an institutional bridge between the two. Striking the appropriate balance between public and private responsibilities for training and education and creating an institutional bridge between the two is critical to future effectiveness.
Because the Commonwealth possesses limited resources, we conclude that a triage approach is in order, one that directs public investment to those areas where need is greatest and broadly encourages private sector involvement. We suggest a three-fold strategy, including:
IN ORDER TO REALIZE THE CRITICAL goal of developing the full potential of our workforce, we must fashion a holistic strategy for workforce development, one that addresses the unique needs of the Commonwealth, recognizing and accommodating social and economic circumstances. To do so, we conclude that it will be necessary to establish a framework for policymaking that demands strategic focus, a foundation of knowledge that informs and guides policy, more efficient utilization of the resources we possess, a thoughtful reckoning with vexing structural issues, and concerted attention to the demand side of the education and training equation.
We begin with the requisite framework for policymaking, without which it seems unlikely that public efforts will achieve desired outcomes. Such a framework necessarily includes:
Structural Change
Critical attention must be brought to questions of institutional effectiveness and
organization. While virtually every factor that traditionally compels reorganization
efforts has surfaced publicly in Kentucky during recent years, we conclude that
reorganization should not be entered into lightly. It is difficult, costly,
time-consuming, and, most importantly, it may not yield the outcomes we hope to achieve.
Instead, it may simply delay or defer their realization. While some organizational changes
are logical and reasonable, others may not be. Consequently, it is critically important
that efforts to reorganize be based upon a solid foundation of timely information.
We conclude, however, that it is both logical and reasonable to continue alignment of Kentucky's workforce development initiatives by moving the Bluegrass State Skills Corporation to the Workforce Development Cabinet. While BSSC's engagement of private sector representatives offers an admirable model worthy of replication, its training investment decisions do not. Further, the establishment of islands of funds that enable autonomy and effectively preclude the necessity of routine inter-agency collaboration appears to be unwise policy.
On the issue of merging the community colleges with the Kentucky Tech system, we conclude that optimum organization is anything but obvious. Instead, more must be learned about the client bases and the capacities of both institutions. If a merger were to effectively eliminate a vital educational entry point that vocational and technical schools provide, a widely shared expectation, the outcome of a merger would be a disservice to those Kentuckians who are more likely to flourish in a hands-on, experiential vocational environment. Instead of moving rapidly toward a potentially costly merger that could inhibit crucial institutional effectiveness for years, we recommend the adoption of financial incentives that reward collaboration, such as shared administrative costs and articulation agreements.
Policymakers should also thoughtfully visit the issue of the community college link to the University of Kentucky. At question is whether this organizational structure achieves the goal of elevating the overall quality of education without diminishing customer access and service to communities. The prevailing national model is that of an independent community college system focused principally on horizontal relationships within a service area. While few models exist, diverse services aimed at a regional client base with different educational foundations is the ideal.
The prospect of merging the community colleges and the Kentucky Tech system raises the question of access. Many observers believe the academic model will drive out the vocational model in the event of a merger and thus exclude many would-be learners. Alternatively, blended approaches designed to broaden access must be sought. Whether or not the merger of the Kentucky Tech system advances, we recommend an independent evaluation of the present organizational structure by a nationally recognized third party, namely a panel from diverse backgrounds and regions with demonstrated expertise in educational organization.
Finally, performance goals for higher education must systematically recognize and determine the effectiveness of Kentucky's public universities in meeting the needs of "the new majority," members of the workforce who have limited time and opportunity for education. In order to do so, institutions must systematically identify obstacles, ways of meeting this new challenge, and move to change accordingly. Secondly, the issue of diminishing accessibility to higher education ultimately must be addressed. Instead of across-the-board funding to higher education, we conclude that funding should be linked to performance, to demonstrated efforts to achieve organizational change, to successful programs that meet the needs of new customers, and to cost shifting strategies that enable reductions in tuition.
The Imperative of High Performance Organization
Because any workforce development strategy must address the demand side of the equation,
strong public focus must be brought to the cultivation of "high-performance
organizations," enterprises which are organized to capture the full potential of
their most valuable resource--human capital. Research offers powerful evidence that
organizational change in the private sector is in the public interest. It enables higher
levels of productivity and product quality; improves competitiveness; increases the
likelihood of a firm's survival; enhances the quality of work life; and imparts important
and transferable community-building skills, such as leadership, teamwork and
problem-solving.
Because organizational change is now so closely linked to the capacity of firms to compete in the global marketplace, many argue that, in its absence, public investment in workplace training will not yield dividends. Consequently, the advancement of high-performance organizations is becoming a central public strategy for workforce development, one the Commonwealth should move rapidly to make a priority. Moreover, state government should act as an exemplar, moving quickly toward high-performance organization and maximum efficiency and productivity internally.
LIKE OTHER STATES, Kentucky seeks to create a responsive, fully integrated workforce development system of the highest quality. Clearly, however, much work is left to be done. Reform efforts continue to be hamstrung by traditions that inhibit our very capacity to change, as well as our ability to benefit from it. But the pressure for change is unlikely to abate. Public institutions must respond by making many of the same adaptive organizational changes underway in the private sector. While organizational change is difficult, time-consuming and sometimes painful, the future capacity of Kentucky's workforce and the future prosperity of the citizens of the Commonwealth may depend on how rapidly we adapt to the demanding context in which we live.
Realization of the ideal "system" for workforce development, unfortunately, is not enough to ensure broad prosperity. Instead, many observers suggest that we also must rebuild and restructure fundamental relationships in our society, particularly the employee-employer relationship. Even as we discover more and more about the very direct role this relationship plays in profitability and productivity, it is being severely eroded in the United States. The long-term implications are, at best, disturbing.
Consequently, part of the work of capturing the fullest potential of Kentucky's, indeed the nation's, workforce is that of rebuilding and strengthening social relationships on which our economic strength depends. To do so, we must encourage and enable employers to choose the high road, to commit to education, training, participatory management, increased employment security and shared gains for workers.
Clearly, prosperity is not merely a choice. Instead, it is the product of outcome-oriented action. In this case, it must be focused on the development of a highly skilled workforce and on the cultivation of economic and social circumstances that will enable broad prosperity over the long term. The stakes are perhaps higher than ever before. The prosperity that has eluded the Commonwealth's grasp throughout the 20th Century is the potential return on this investment of political and institutional will.
While no investment strategy comes with a written guarantee of returns, the absence of one, in this case, does. Without knowledge and the skill it enables, the working people of Kentucky face a bleak economic future. Peter F. Drucker envisions that future as one in which knowledge workers ultimately will reckon with the "social challenge" of how to treat non-knowledge workers. Rather than become the focus of a new social challenge, we envision a future in which Kentuckians will figure prominently among those leaders who will shape a fair and just society.
To obtain a copy of this report, contact the center.