The Role of Human Capital Investment in Sustainable Economic Development

1. The Role of Human Capital Investment in Sustainable Economic Development Patrick Sherry, Ph.D. Director, National Center for Intermodal Transportation University of Denver

2. Overview • Effects of Human Capital Investment • Anticipated Economic Activity • Identification of Needed Areas for Human Capital Development • Leadership • Workforce • Practical Considerations for Implementation

3. I & ITS Experts Group Four Pillars of Activities • Technology (Including ITS and Global Navigation Satellite Systems) • The development and implementation of selected integrated technologies is important to the successful management and operation of intermodal transportation. • Supply Chain Management (Focused on Transportation) • Seamless interconnectivity of different modes of transportation. Efficient management of the supply chain involved in regional freight and shipping movement is critical to seamless interconnectivity. • Sustainability (Including Energy and the Environment) • The identification of opportunities for the development and promotion of fuel efficient transport policies and practices is particularly important in the APEC region. • Human Capacity Development • Human capacity skills are important to the effective movement of intermodal transportation. The ability of the work force to develop, manage, and safely implement existing and emerging technologies is essential to the ongoing facilitation of trade in the APEC region.

4. Asian Economic Downturn

5. US International Container Traffic Source: RITA

6. What Are US Railroads Doing to Increase Productivity & Profit? Circa 2008-2009 • Developing cooperative alliances • Working with customers • Investing in Technology • Investing in equipment and infrastructure • Investing in employees • Hiring additional employees

7. Railroad PerformanceClass I Railroads Index 1981 = 100 Productivity Volume Revenue Price Source: Railroad Facts, AAR (Based on a design by R. Gallamore)

8. Railroad Capital ExpendituresClass I Railroads – and so far 2008 looks to be a paradigm shift! Billions Source: Railroad Facts, AAR

9. U.S. Railroad Intermodal Traffic(millions) Source: Association of American Railroads’ Weekly Railroad Traffic

10. U.S. Railroad Intermodal TrafficTrailers vs. Containers (millions) Source: Association of American Railroads’ Railroad Facts

11. Future Demand for Freight Transportation Will Continue to Grow Billions of Tons of Freight Transported in the U.S. p – U.S. DOT projection

12. Projected % Growth in Trains Per Day From 2005 to 2035 by Primary Rail Corridor

13. Class I Railroad Capital Spending vs. Net Income (Current Dollars) Capital Spending Net Income Source: Association of American Railroads

14. Tax Incentives to Leverage Capacity Expansion • 25% tax credit for projects that expand rail capacity • Expense other infrastructure capital expenditures • Leverage private investment • Need tax CREDITS for HUMAN CAPITAL INVESTMENT

15. US Rail Employment is Up for the First Time in Decades Total Class I Employment: Jan. 2001-Nov. 2008 Source: Surface Transportation Board

16. Railroad Employee ProductivityClass I Railroads, Ton-Miles Per Freight Service Employee Millions Source: Railroad Facts, AAR

18. The Role of Training

19. Investment in Human Capital Related to Increased Productivity Increased Percent Time in Training

20. Source: Kim & Bloom (2003)

21. The mean proportion of workers being trained in an industry is about 10%. • If industry managed to increase the proportion of workers from the mean to 15% this would be associated with a 4% increase in productivity and a 1.5% increase in wages. • Note that it took the UK economy 13 years to generate an increase in the proportion workers trained on this scale (from 9% in 1984 to 14% in 1996).

22. Effects of Education on Productivity • Becker 1964, Mincer 1974 looked at the impact of education on earnings or estimated private rate of returns (). • A survey of growth accounting studies covering 29 developing countries found estimates of education’s contribution to economic growth ranging from less than 1 percent in Mexico to as high as 23 percent in Ghana (Psacharopoulos, 1984).

23. Education is also an important contributor to technological capability and technical change in industry. Statistical analysis of the clothing and engineering industries showed that the skill and education levels of workers and entrepreneurs were positively related to the rate of technical change of the firm (Deraniyagala, 1995). http://www.geocities.com/ceteris_paribus_tr2/i_ozturk.htm

24. Lucas (1998), found that the higher the level of education of the work force the higher the overall productivity of capital because the more educated are more likely to innovate, and thus affect everyone’s productivity. • Increased education of individuals raises not only their own productivity but also that of others with whom they interact, so that total productivity increases as the average level of education rises (Perotti, 1993). • The impact of education on the nature and growth of exports, which, in turn, affect the aggregate growth rate, is another way in which human development influences macro performance.

25. One of the emerging requirements for a successful economic development program is a workforce delivery system that works for local, emerging, and new businesses in the community. • Survey after survey notes businesses need a skilled workforce to be competitive. Traditionally economic developers have not had to deal with the workforce delivery system and that system tends to be complicated by regulations, vendor influence, and perceptions that it only deals with those least capable of holding a job. • International Economic Development Council http://www.iedconline.org/?p=Training_Workforce#agenda

26. World Bank: Knowledge Economy Index

27. Bloom et al 2006

28. In a study of more than 3,100 U.S. workplaces, the National Center on the Educational Quality of the Workforce (EQW) found that on average, a 10 percent increase in workforce education level led to an 8.6 percent gain in total productivity. But a 10 percent increase in the value of equipment increased productivity just 3.4 percent.Another study by ASTD showed that “leading-edge” companies trained 86 percent of employees while “average” companies trained only 74 percent. Leading edge companies also spent twice as much per employee. Companies that invest the most in workplace learning, the study showed, yielded higher net sales per employee, higher gross profits per employee, and a higher ratio in market-to-book values.

29. Difficulty in finding workers with key skills

30. An Expanded Role for APEC • To increase and sustain economic development there needs to be continued investment in education and training of workforce • APEC can take the lead by providing training and development actiiities for key leaders throughout the region • In addition to providing skills training APEC should seek to enhance the leadership and developmental sklls of key industry represntaitinves • Focus should be aon giding and shaping the values and praoctices fo businesses from the top as well as supporting skills development at all levels

31. Business Week’s 50 Most Innovative Companies • 1 1 APPLE  2 2 GOOGLE  3 3 TOYOTA MOTOR  4 5 MICROSOFT  5 7 NINTENDO  6 12 IBM  7 15 HEWLETT-PACKARD  8 13 RESEARCH IN MOTION  9 10 NOKIA  10 23 WAL-MART STORES  11 11 AMAZON.COM  12 8 PROCTER & GAMBLE  13 6 TATA GROUP  14 9 SONY  15 19 RELIANCE INDUSTRIES  16 26 SAMSUNG ELECTRONICS  17 4 GENERAL ELECTRIC  18 NR VOLKSWAGEN  19 30 MCDONALDS  20 14 BMW  21 17 WALT DISNEY  22 16 HONDA MOTOR  23 27 AT&T  24 NR COCA-COLA  25 47 VODAFONE  26 NR INFOSYS  27 NR LG ELECTRONICS  28 NR TELEFÓNICA  29 31 DAIMLER  30 34 VERIZON COMMUNICATIONS  31 NR FORD MOTOR  32 35 CISCO SYSTEMS  33 48 INTEL  34 28 VIRGIN GROUP  35 NR ARCELORMITTAL  36 40 HSBC HOLDINGS  37 42 EXXONMOBIL  38 NR NESTLÉ  39 NR IBERDROLA  40 25 FACEBOOK  41 22 3M  42 NR BANCO SANTANDER  43 45 NIKE  44 NR JOHNSON & JOHNSON  45 49 SOUTHWEST AIRLINES  46 NR LENOVO  47 NR JPMORGAN CHASE  48 NR FIAT  49 24 TARGET  50 NR ROYAL DUTCH SHELL 

32. Innovative Transportation Companies http://images.businessweek.com/ss/09/04/0409_most_innovative_cos/index.htm

33. Procter & Gamble • Gets 400,000 applications for entry-level management positions each year. • It will hire less than one half of 1% of them, • "We actually recruit for values," says Chief Operating Officer Robert McDonald. • "If you are not inspired to improve lives, this isn't the company you want to work for." • The careful vetting, training, and career development pay off. P&G boasts 23 brands with at least $1 billion in annual sales and is the market leader in everything from detergent to diapers to razors. • bringing in and promoting creative thinkers. • Interviewers look for what they call a candidate's "power," including leadership ability and empathy. • Innovation skills and values are measured in an online assessment. "Our managers are skilled at probing for the right fit," says William Reina, director for global talent. "The people they identify score well on the assessment." • every department has its own "university." The general manager's college, holds a week-long school term once a year when there are a handful of newly promoted managers • There are nearly 50 courses—helps managers with technical writing or financial analysis.

34. Development of Human Capital • Begins with the leadership • Having a vision • Recognizing that technology levels the playing fields • Recognize that new technology will take time to develop • Recognize that we need to improve our ability to identify new techs • Recognize that we need to implement new techology

35. Leadership Competencies Vision Values Problem Solving Execution Communication Skills

36. How do you develop Innovative and Productive Leadership? • Our Team at the • National Center for Intermodal Transportation has • Twenty Five years of experience developing leaders • University of Denver Pioneer Leadership Program • Center for Creative Leadership Consultants • Academics – USC, Harvard, Georgia Tech • Businesses - • Trainers

37. 1-E-4 Intermodal Training Model

38. Technical Assistance Provided by our extensive industry contacts and ITI board members

39. Construct a Competency Model

40. The Key Competencies for Success

41. Identify Gaps in Skill, Knowledge & Capacity • Evaluate BENCH STRENGTH

42. SUMMARY OF RESULTSUsing Competency Model

43. THINKING SKILLS Critical Thinking Skills

44. BOGOR

45. Working With TOP Leadership Teams APEC Leadership SHOULD take the LEAD with • Both PUBLIC and PRIVATE SECTOR • Identify key COMPETENCIES needed • Identify key areas for development • Create opportunities to discuss and promote INNOVATIVE thinking and development • Ensure that EXECUTIVES are thinking about how to develop their workforce • Encourage incentives to promote HUMAN CAPTIAL INVESTMENT • FACILITATE evaluation and growth of executive Capability & Bench Strength • Examine key areas for growth • Promote the thinking and investment needed to advance and develop the workforce • Work with Teams to create Strategic Vision

46. Workforce Development Activities Provide COACHING and MENTORING Identification of Skills Needed Intermodal Skills Identification of Gaps Development of Skills Courses • “Needed Intermodal Skills” • “Intermodal Managers” • “Refrigeration Handlers” Identification of Available Training Programs Insufficient Training Available

47. FOUNDATIONAL KNOWLEDGE: Government Regulations & Policies Available Transport Technology Global Business Environment General Business Environment Labor Relations Various Transportation Modes How Modes Interface Understanding of Legal Issues INTERPERSONAL SKILLS: General Managerial Skills Customer Service Skills Communications Skills Listening Skills Sales Skills Coalition Building Skills Teambuilding Skills Conflict Management & Negotiation Leadership Skills Priority Skill Areas ANALYTICAL SKILLS: Environ Impact Analysis Economic & Financial Analysis Policy Analysis Strategic Planning Forecasting Skills Futures Analysis Systems Analysis Ethical Analysis TECHNICAL SKILLS: Computer Applications Technology Management Modeling Skills Logistics & Supply Chain Processes Data Gathering, Analysis & Manipulation Marketing Skills Transportation Experience

48. Success Stories Cohort 1999-2000 • José Antonio Pérez Antón was promoted to Chief Executive Officer of Grupo ADO. Cohort 1 • Shannon Brown, Senior VP and Chief Human Resources Officer FedEx. • Michael Byrne, CEO, Linfox Australia, Pty Limited. • Bruce Denny, Asst VP, Terminal Operations, with Pacer Stacktrain. • Barbara Gilliland, Principal at Parametrix Consulting in Denver. • Adam Rodery, Director, Operational Process Improvement with Excel. • Chris Schuleit ,Vice President of the Enterprise Business Development with Hub Group.

49. Cohort 2 • Michael Brothers, Vice President, Intermodal Operations, at JB Hunt Transport Services, Inc., • David Leech, Vice President of US Operations, Southern Region of FedEx Express. • Adam J. Lemarr, Manager of Intermodal Hub Operations within Norfolk Southern. • James Price, Vice President Rail Operations, Hampton Roads Transit, Norfolk, Virginia. Cohort 3 • Grantley Martelly, Regional General Manager, Utah Transit Authority. • Tim E. Naylor, Manager of Service Delivery, Utah Transit Authority. • Than Seeds, Vice President of Operations, Americas with APL. • Ben Sullivan, Country Manager of Linfox, India.

50. Challenges • Economic activity increasing • Shortage of skills in developing economies • Intelligent Transportation • Intermodal Transportation • Employment outlook good • Shortages of key talent identified • Opportunity to shape the future • Develop self-sustaining training efforts