December 2010 Business Magazine

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Who is Your Most Admired CEO? We’ve all heard the names Bill Gates, Steve Jobs and Warren Buffett, but who are the local CEOs you most admire? The Business Magazine wants to recognize those area business leaders that our readers feel consistently demonstrate strong leadership, integrity, values, vision and commitment to excellence in their business dealings ... and we need your help! Tell us in 50 words or less who you’d like to be one of the Business Magazine’s Most Admired CEOs. Please include the person’s name, title, company, and how you know them. Profiles will be published in a special section in our February issue, as space permits. Please e-mail your submission to LORI JOINT AT ljoint@mbausa.org by no later than WEDNESDAY, December 8.

Read about our Most Admired CEOs online! Would you like the premier monthly member publication of the Manufacturer & Business Association delivered straight to your inbox each month? Register for our digital edition at www.mbausa.org.

BUSINESS M A G A Z I N E Manufacturer & Business Association

VOLUME XXIII, NUMBER 12

2011 ECONOMIC FORECAST

Weak economic growth expected to be compounded by sluggish sales, high unemployment and soaring debt / Page 14

DECEMBER 2010

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14

December 2010

Blue Ocean Strategy Center

EDITORIAL >

FEATURES >

Why social intelligence matters to employers.

Axeman-Anderson Vice President and General Manager Peter Axeman Jr. talks about why the best boilers are made in America and how this innovative South Williamsport, Pennsylvania-based company has continued to be a major figure in the heating industry for more than 60 years.

9 / Health Matters

ANNETTE KOLSKI-ANDREACO, LSW/MSW, MURP

11 / Legal Brief

Understanding the pros and cons of standard form construction projects. STEVEN C. BECKMAN

3 / Spotlight

14 / 2011 Economic Forecast

KEVIN T. OVIATT, CPA, CVA

Economist James Kurre, Ph.D. addresses the local and national economic outlook and why forecasters say the U.S. economy will grow next year at a slower pace than previously thought.

25 / Strategy Trends

23 / On the Hill

13 / Financial Adviser

A closer look at the many tax cut provisions that will sunset in 2011.

Outsourcing your way to renewed business growth. KEN POLK

31 / Blue Ocean Strategy

How reconstructing market boundaries can help you reach a blue ocean. ANGIE ANGUS

Association State Government Relations Representative Anna McCauslin explains why fixing the Commonwealth’s broken legal system should be a first priority, now that state government is in the hands of Republicans at all branches for the first time in a decade.

33 / EVENTS >

From our monthly Eggs ’n’ Issues to our special recognition luncheons, be sure to view the latest happenings at the Manufacturer & Business Association in our special photo section.

DEPARTMENTS > 6 / Business Buzz 20 / HR Connection

26 / Legal Q&A 38 / People Buzz 33 & 40/ The Network

3 33

TAKE OUR ONLINE POLL!

The number of women-owned small businesses is growing approximately twice as quickly as the national average for all startups. How many womenowned businesses are there in the United States? t NJMMJPO t NJMMJPO t NJMMJPO t NJMMJPO Respond now on the Business Magazine homepage at www.mbausa.org. Results to be featured in the March 2011 issue.

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December 2010 > www.mbausa.org > 1

LET’S ROLL FLIGHT 93 MEMORIAL RIDE

40

BIKES FLAGS

HEROES

SEPTEMBER 11, 2011 marks the 10th anniversary of the terrorist attacks on the United States – as well as the first American victory in the war on terrorism when the passengers and crew of Flight 93 became true heroes who took action, sacrificing their own lives to save others in defense of our country. We will never forget them. The LET’S ROLL FLIGHT 93 MEMORIAL RIDE is an organized motorcycle event to honor the 40 heroes and to raise funds for the Flight 93 National Memorial in Shanksville, Pennsylvania. Currently, there are nine groups of 40 bikes located in eight “flight paths” – Erie, Meadville/Conneaut, Pittsburgh, Cranberry, Williamsport, Pottstown, Harrisburg and Philadelphia. On September 11, 2011, each group will converge at the memorial site in Shanksville. Each sponsored bike/rider will be issued a memorial flag bearing the name of one of the 40 heroes of Flight 93 that will be attached to their motorcycle during the ride to Shanksville. They also will receive an exclusive patch and T-shirt bearing the official “Let’s Roll: Flight 93 Memorial Ride” design. All proceeds from the ride will directly benefit the Flight 93 National Memorial Campaign. To learn more or to register, visitt www.letsrollride.com.

The 2011 Roar on the Shore® (July 14, 15 & 16) bike rally is expected to attract an estimated 60,000 to 65,000 motorcycle enthusiasts from across the country. Country music star Darryl Worley will serve as grand marshal of the Bringin’ in the Roar bike parade and perform live in concert Thursday night, July 14. His numerous hits include “Have You Forgotten,” widely regarded as the anthem to those who lost their lives in the terrorist attacks on 9/11. All proceeds from the 2011 ROAR® rally will benefit the Flight 93 National Memorial. For more information, visit www.roarontheshore.com.

SPOTLIGHT > by Karen Torres Axeman-Anderson believes the best boilers in America are built in Pennsylvania. In fact, the South Williamsport, Pennsylvania-based manufacturer has been a major figure in the heating industry for more than 60 years. Vice President and General Manager Peter Axeman Jr., an advisory board member with the Manufacturer & Business Association’s Central PA Division, recently spoke with the Business Magazine about this innovative company and its success as a manufacturer in the highly competitive energy market.

VOL. X XIV, NO. 12 DECEMBER 2010 Manufacturer & Business Association Board of Governors

Axeman-Anderson was founded in 1944. Please share with our readers how your company got its start. *O NZ HSBOEGBUIFS +BNFT & "YFNBO WJDF QSFTJEFOU PG 4QFODFS #PJMFS $PNQBOZ and William Anderson, the chief engineer there, left Spencer Boiler and joined with the Anthracite Institute to develop a revolutionary way to burn Anthracite coal. After more than POF BOE B IBMG ZFBST BOE NJMMJPO MBUFS UIF "OUISBUVCF XBT mOBMMZ EFWFMPQFE UP XIBU JU is today, with only slight modifications to the original design. Manufacturing of two models CFHBO JO

Editor in Chief

Executive Editor

What is the size of your operation? 8F BSF B UIJSE HFOFSBUJPO GBNJMZ PXOFE DPNQBOZ XJUI TBMFT PG NJMMJPO QMVT .Z GBUIFS Peter H. Axeman Sr., who is still a regular part of the day-to-day business, joined the DPNQBOZ JO BOE * DBNF BCPBSE JO BGUFS NZ HSBOEGBUIFS QBTTFE BXBZ

Managing Editor & Senior Writer

The market for boilers in the United States is relatively small and is located primarily in the Northeast. We have grown from manufacturing only coal-fired boilers (the Anthratube) to manufacturing many types of oil, gas and electric boilers. We pride ourselves on manufacturing quality products using American-made materials. Over the years, Axeman-Anderson has engaged in research, development, and the production of high-quality and high-efficiency heating equipment. Please describe the range of boilers you manufacture. The Anthratube, which is still being manufactured today, is just one of many types of boilers we build. In addition to residential and light commercial boilers, we build boilers that go on paint trucks that paint the strips on highways, boilers for mobile homes, waste oil boilers that burn crankcase oil and transmission fluid, and even boilers for small yachts. Axeman-Anderson is well known for its specialty units and also has gained an international reputation with its Anthratube, a highly efficient automatic anthracite coal-burning heating unit. What can you tell us about these products that is so revolutionary? 5IF "OUISBUVCF PQFSBUFT BU QFSDFOU FGmDJFODZ BOE XBT EFTJHOFE UP PQFSBUF BVUPNBUJDBMMZ and cleanly. The boiler was designed with a built-in fly ash separator to reduce the amount of ash collecting in the flue pipe. The unit incorporates an induced draft fan for combustion that increases efficiency and adds to clean operation. The coal feed system is unique in that the whole feed tube rotates eliminating the need for shear pins. A custom-made temperature switch controls the grate that removes the ash ensuring the complete burn of UIF DPBM 5IF HSBUF JT OFWFS FYQPTFE UP UFNQFSBUVSFT BCPWF EFHSFFT 'BISFOIFJU UIFSFCZ lasting a lifetime. The energy industry is constantly evolving with greater emphasis on energy efficiency. How has your company continued to keep pace with the oil, gas and electric industries? Our boilers are considered the highest in efficiency among the industry. The range in A.F.U.E. &GmDJFODJFT TIPXO PO UIF ZFMMPX &OFSHZ (VJEFT GPS OPO DPOEFOTJOH PJM CPJMFST JT QFSDFOU UP QFSDFOU XJUI UIF IJHIFS FGmDJFODZ FTUBCMJTIFE CZ POF PG PVS NPEFMT What opportunities and challenges do you face within your industry? Our opportunities are to continue to develop high-efficiency units, while the challenge is to develop and manufacture these units cost efficiently and still produce boilers that are long lasting and serviceable. All our residential boilers presently carry a lifetime non-prorated warranty, and we expect to extend this warranty on boilers we develop in the future. What is the outlook for your company in 2011? We are looking for continued growth with the development of new products.

Yvonne Atkinson-Mishrell John Cline Dale Deist Timothy Hunter Dan Ignasiak Mark C. Kulyk John B. Pellegrino Sr., P.E. Dennis Prischak Robert S. Pursell Lorenzo Simonelli Sue Sutto Phil Tredway Ralph Pontillo rpontillo@mbausa.org John Krahe jkrahe@mbausa.org Karen Torres ktorres@mbausa.org

Contributing Writers

Annette Kolski-Andreaco Angie Angus Steven C. Beckman Jessica Crocker Kevin T. Oviatt Ken Polk

Illustration & Photography

iStockPhoto.com ERIEdata.org

Advertising Sales Lori Maus Joint PS ljoint@mbausa.org

Design, Production & Printing

Printing Concepts Inc. printcon@erie.net

ON THE COVER: Forecasters say the U.S. economy will grow next year at a slower pace than previously thought and that job expansion will be just as sluggish. Are we bracing for a “double dip recession,� or is recovery just around UIF DPSOFS 4FF TUPSZ PO 1BHF

Mission Statement The Manufacturer & Business Association is dedicated to providing information and services to its members that will assist them in the pursuit of their business and community interests. – Board of Governors Manufacturer & Business Association 8FTU UI 4USFFU &SJF 1B PS www.mbausa.org Š Copyright 2010 by the Manufacturer & Business Association. All rights reserved. Reproduction or use of editorial, pictorial or advertisements created for use in the Business Magazine, in any manner, without written permission from the publisher, is prohibited. Unsolicited manuscripts cannot be returned unless accompanied by a properly addressed envelope bearing sufficient postage. The magazine accepts no responsibility for unsolicited manuscripts or artwork. The Business Magazine and Manufacturer & Business Association do not specifically endorse any of the products or practices described in the magazine. The Business Magazine is published monthly by the .BOVGBDUVSFS #VTJOFTT "TTPDJBUJPO 8FTU UI 4USFFU &SJF 1B 1IPOF PS

December 2010 > www.mbausa.org > 3

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Saint Vincent is Here for Life

These are the words Saint Vincent president and CEO C. Angela Bontempo used to describe what fiscal year 2010 meant during the Health System’s annual board of corporators meeting on October 25. Despite a challenging year, Saint Vincent once again preserved all associate jobs, recruited an additional 46 physicians to our staff and gave even more to the community, despite economic challenges. Saint Vincent is: Here for You-offering expert clinical services from the area’s top physicians, nurses and specialists, our commitment to delivering the highest standard of care has never been stronger. Here for Associates-as a long-standing community employer, we value the contributions our men and women make to Saint Vincent and the community each and every day, increasing our competitive advantage. Here for our Community-just as the Sisters of St. Joseph were committed to the region over 135 years ago, Saint Vincent continues to have a vested interest in the health, vitality and prosperity of our community. Good health is something none of us can afford to sacrifice. That’s why we continue to deliver the most sophisticated specialty care from the most skillful, experienced and compassionate caregivers in the region. And while the future of other community health providers may be uncertain, rest assured our promise remains the same. Saint Vincent is Here for Life.

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Business Buzz S. Warner, managing partner of MacDonald Illig.

MACDONALD ILLIG RECOGNIZED IN U.S. NEWS LAW FIRM RANKINGS The Erie firm of MacDonald, Illig, Jones & Britton LLP was recently recognized by the inaugural edition of U.S. News “Best Law Firms,� earning among the highest marks for any law firm in all of western Pennsylvania, defined as the “Pittsburgh-Metropolitan� area. MacDonald Illig received recognition in eight practice areas, six of which earned first-tier status.

For a complete listing of national, regional and state law firm rankings, visit www.usnews.com/bestlawfirms. WORKING MOTHER MAGAZINE HONORS PNC FINANCIAL SERVICES GROUP PNC Financial Services Group, Inc. has been selected one of the nation’s 2010 Working Mother 100 Best Companies, which recognizes efforts to improve the lives of working families. Its ninth consecutive year for such distinction, PNC was acknowledged for expansion of existing work/life benefits, recognition programs, and communication tools to ease the significant impact of economic and cultural changes.

“We are certainly honored by this recognition, not only because of how the rankings reflect on our firm, but also because they confirm that the work of MacDonald Illig is topquality compared to other law firms in the region and state,� said Russell

PNC program enhancements included back-up child, adult and elder

care programs, merging benefits programs to facilitate longer paid maternity leave, and expansion of the PNC pension plan to all employees, including former employees of National City. For more information, visit www.pnc.com. ERIE INSURANCE NAMED 2010 PIA COMPANY OF THE YEAR The National Association of Professional Insurance Agents (PIA) recently named Erie Insurance the recipient of its prestigious 2010 Company Award of Excellence. The annual award honors a company for its commitment to independent agents and creating a better business environment. “Since the company’s beginnings in &3*& IBT SFNBJOFE EFEJDBUFE UP its independent agents,� said President

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DEPARTMENTS > Contact: Jessica Crocker

Career

Professional

Affordable

Quality

Manufacturing

Based on data gathered through DLA’s Automated Best Value System, the award honors excellence in product quality, packaging, labeling, delivery and technical data.

Convenient

VEE Sales, headquartered in Tionesta, Pennsylvania, offers extensive product lines for custom parts, automotive supplies, electronics, material handling supplies, and safety equipment for government and commercial buyers. For more information, visit www.veesales.us.

Career

Automotive

Success Industrial

Achievement Employability

Technical Training

Computer

Business

Workforce

Job Skills Adult Classes

VEE SALES RECEIVES AWARD FOR EXCELLENCE VEE Sales – Veteran Employment Enterprise, Inc. recently was honored with the 2009 Defense Logistics Agency Land and Maritime Recognition for Excellence award at the 2010 DLA Enterprise Supplier Conference & Exhibition in Columbus, Ohio.

Medical

Construction

Industry

Convenient

cturing

Technology

Drafting

Short-term

Occupation

Satisfaction

HVAC

Under the terms of the deal, MRS XJMM CVZ "$ J MPDPNPUJWFT and has an option to buy a further 100. Ninety units are scheduled for EFMJWFSZ JO JODMVEJOH VOEFS an existing deal. The remaining units Erie Insurance Group, the United 4UBUFT UI MBSHFTU BVUPNPCJMF JOTVSFS XJMM CF EFMJWFSFE UISPVHI 5IF locomotives will be manufactured at and 19th largest property/casualty a plant in Brazil, with key components insurer, according to A.M. Best supplied by the GE plant in Grove City, $PNQBOZ IBT NPSF UIBO NJMMJPO Pennsylvania. policies in force and operates in 11 states and the District of Columbia. “GE is a global locomotive manufacturer who partners with For more information, visit railroad customers around the world,� www.erieinsurance.com. said Lorenzo Simonelli, president and CEO of GE Transportation. “We are GE TRANSPORTATION SIGNS pleased to serve our customer MRS LARGEST LOCOMOTIVE DEAL by providing advanced AC technology IN BRAZIL’S HISTORY that requires less maintenance, GE Transportation, headquartered in reduces fuel consumption and Erie, Pennsylvania, and Brazilian rail lowers emissions.� operator MRS Logistica have signed the largest locomotive purchase For more information, visit agreement ever in Brazil. www.getransportation.com. Medical

and CEO Terrence Cavanaugh. “It’s a tremendous honor to be recognized nationally by agents for our commitment to the independent agency model.�

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December 2010 > www.mbausa.org > 7

EDITORIAL > by Annette Kolski-Andreaco, LSW/MSW, MURP

Health Matters

Why Social Intelligence Matters to Employers Social intelligence is an umbrella term used to describe the neural biology of human relationship dynamics and its intentional, and automatic activation. Understanding the importance of social intelligence can be the difference between being an effective leader and being someone incapable of motivating employees to be productive. Advances in scientific research, aided by new technology, make it possible to observe the brain as we interact with others. More than at any time in the past, it is understood that the human brain is a social organ that changes and is changed by emotions generated in and by human relationships. Origins of Social Intelligence The term social intelligence was coined in the 1920s, and it was defined as acting wisely in relationships, as well as, “the ability to understand and manage men and women.” From the beginning, social intelligence was connected to leadership. The term has gained wider recognition since Daniel Goleman’s Social Intelligence: The Revolutionary New Science of Human Relationships was published in 2006. A simple definition of social intelligence is the ability to connect with others in such a way that facilitates cooperation and collaboration. Social intelligence is an important skill for everyone to have, but that’s especially true for people in leadership positions. Leaders need to know how to connect with

the people they are leading on some basic level. In essence, social intelligence uses what we know about the biology of relationships to help leaders enhance the performance of the people they are leading. Personal skills such as initiative and empathy, adaptability and persuasiveness are vital for a leader’s toolbox. Not being aware of the impact a leader is having on others can doom a leader, regardless of how competent in the subject matter he or she may be. A leader can sometimes distress employees to such an extent that they are more anxious than they would otherwise be. By the same token, leaders also can moderate their behavior and mood to create an atmosphere of calm and creativity simply in how they relate to their employees. Basically, if you don’t understand people, you can’t manage them. People who haven’t developed their social intelligence skills cannot connect effectively with others and may even alienate or offend them. This can be true for employees and employers alike. You Can Learn Social Intelligence It’s important to know that all humans have a hard-wired capacity for social intelligence. While there is wide variability among people in terms of their ability to be socially intelligent, each of us possesses the potential to be more skillful at human relationships at work. These would include, for example, knowing what one is expected

to do in any social situation. Similarly, one can learn to be better at reading nonverbal clues with practice and attention. What Socially Intelligent Leadership Looks Like Socially intelligent leaders do not inhibit or impede others. They try to actively enhance the performance of others. They wish to genuinely know the people who work for them or work with them and seek to develop in them the desire to cooperate. Many of their efforts are geared toward creating a positive mood and, in turn, their employees contribute creativity and are more motivated. To these kinds of leaders, the way in which something is communicated is as essential as the content of what’s communicated. For more information on social intelligence, visit www.upmchealthplan.com. Annette Kolski-Andreaco, LSW/MSW, MURP is an account manager for LifeSolutions, an employee assistance program that is part of the integrated partner companies of the UPMC Insurance Services Division. The UPMC Insurance Services Division also includes UPMC WorkPartners, UPMC for You (Medical Assistance), and EBenefits – and offers a full range of insurance programs and products.

December 2010 > www.mbausa.org > 9

Legal Brief

EDITORIAL > by Steven C. Beckman

Understanding the Pros and Cons of Standard Form Construction Contracts Construction projects, whether a simple office remodel or a multimillion-dollar plant expansion, can be one of the more challenging projects undertaken by any business entity. A properly drafted construction contract can be key to a successful project by establishing the expectations, rights and responsibilities of the owner, contractor and other parties involved in a modern construction project. Given the vital role a good contract can play in a successful construction project, it is important to put in place a contract that meets the needs of your specific project. In many instances, parties rely on standard form contracts. If you are considering using a standard form construction contract, it is important to know the pros and cons of doing so.

are generally well understood by parties involved in construction, which hopefully results in fewer misunderstandings on the job. Unlike contracts drafted from scratch that may fail to address important issues, the form contracts are generally thorough and cover virtually any issue that is likely to arise in a construction project. Because standard form contracts have been used over a period of time, a body of case law has developed addressing the specific contract terms and clauses used in these types of contracts so that when issues arise, the parties can look to prior decisions to see how certain key provisions have been interpreted. Finally, standard form contracts are easily obtained at a relatively low cost.

There are numerous standard form construction contracts available in the marketplace. Most have been developed by trade groups and organizations whose members play a significant role in the construction business. Among the organizations whose standard form construction contracts are widely used are the American Institute of Architects (AIA), the Engineers Joint Contract Documents Committee (EJCDC), and the Associated General Contractors of America (AGC). Each organization has developed a series of contract documents addressing different types of construction projects, the various party relationships that may exist on a project (i.e., contractor/subcontractor, architect/owner, etc.) and certain project tasks (i.e., pay applications, lien forms, etc.).

Despite the advantages of standard form construction contracts, they don’t fit all projects. Even where they are an appropriate starting point for your project, the contract terms may need to be modified to fit your specific circumstances. In considering whether a standard form contract is appropriate, and which one to use, you should keep in mind that because they have been developed by trade groups, the contract terms can, in subtle and not so subtle ways, favor the membership of that trade organization. For instance, the AIA documents are widely used and, in general, are wellbalanced documents. However, the AIA contract documents provide a significant project role for the project architect, which may or may not fit your project delivery system. Similarly, those contracts created by the EJCDC provide a significant role for a project engineer. The AGC, in conjunction with other organizations, has developed a series of contracts, known as ConsensusDocs, which it

Standard form construction contracts have several advantages. First, because the documents are widely used in the industry, the contract terms

contends are well balanced and don’t favor one particular party. If you chose to use a standard form construction contract for your project, it is still wise to have that contract reviewed by an attorney or other professional. A professional who is familiar with this type of contract, as well as construction practices, can determine what contract modifications may be necessary for your particular project. Given the propensity for construction projects to result in problems such as cost overruns, schedule delays and payment disputes, it is important that your contract protect your interests. Overall, a properly tailored standard form construction contract is the best way to ensure that you get the end result you want and any disputes are resolved in a fair and appropriate manner. For more information on standard form construction contracts, contact Steven Beckman at MacDonald, Illig, Jones & Britton LLP at 814/870-7610 or sbeckman@mijb.com. Steven C. Beckman is a partner in the law firm of MacDonald, Illig, Jones & Britton LLP, where he is a member of the firm's Environmental Group. He was formerly the regional director of the Pennsylvania Department of Environmental Protection. He concentrates his practice in the areas of environmental and construction law, including environmental regulatory, permitting and litigation matters, as well as public and private sector construction contracting, arbitration and litigation.

December 2010 > www.mbausa.org > 11

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EDITORIAL > by Kevin T. Oviatt, CPA, CVA

Financial Adviser Many Tax Cuts Will ‘Sunset’ in 2011 Time is almost up for the historic cuts in federal income tax, capital gains and dividend tax rates enacted by President Bush in the early 2000s. Most of these popular tax cuts automatically expire iTVOTFUw BGUFS %FDFNCFS Without any Congressional action, there BSF NPSF UIBO NBKPS DIBOHFT UIBU XJMM sunset. There have been many discussions regarding these sunset provisions, but at the time this article was written, nothing has been finalized.

paid to investors of corporations). Prior to the Bush tax cuts, the tax rates were 20 percent on capital gains and ordinary tax SBUFT UIF NBSHJOBM SBUFT BT IJHI BT percent) for dividend income. The Bush tax cuts lowered the tax rates for both DBQJUBM HBJOT BOE EJWJEFOET UP QFSDFOU The sunset provision of the Bush tax cuts returns those rates to 20 percent for capital gains and ordinary tax rates for dividends. Itemized Deduction Phase-Out Before the Bush tax cuts, many high income earners were subject to an overall limitation on the amount of itemized deductions that could be taken on the Schedule A (state income and property taxes, mortgage interest, charitable contributions, medical deduction, investment deductions, etc.). For most high-income earners, their itemized EFEVDUJPOT XFSF SFEVDFE CZ QFSDFOU PG their income over a certain threshold. The Bush tax cuts set out to remove, over time, UIPTF QFSDFOU SFEVDUJPOT BOE VMUJNBUFMZ eliminated the entire reduction in 2010. However, the overall limitation is scheduled to be reinstated in 2011, and taxpayers XJUI JODPNFT PG NPSF UIBO XJMM find their itemized deductions once again reduced.

Marginal Tax Rates The keystone of the Bush tax cuts were the changes in marginal (ordinary income) tax rates and brackets. The largest marginal tax SBUF DVU TJODF TMBTIFE UIF UPQ FBSOFS SBUFT GSPN QFSDFOU UP QFSDFOU BOE MPXFSFE NPTU PUIFS CSBDLFUT QFSDFOU Those marginal tax rates are scheduled to revert back to pre-2001 rates. Smallbusiness owners whose businesses are set up as pass-throughs, such as S corporations or partnerships/LLCs, also would be affected by these rate increases because their businesses’ income is generally taxed at the individual level. To appreciate the impact of those changes, a married couple with two children and making roughly B ZFBS XPVME QPTTJCMZ TFF UIFJS UBY CJMM JODSFBTF CZ President Obama has expressed Individual Income Tax Rates - married filing jointly his concern for these potential 2010 2011 tax increases for taxpayers Top bracket 35% 39.6 % incomes over $379,150 making less than $200,000. Fifth bracket 33% 36% incomes over $212,300 Fourth bracket 28% 31% incomes over $139,350 He has proposed to change Third bracket 25% 28% incomes over $57,650 the marginal tax rates for those Second bracket 15% 15% incomes over $0 earning more than $200,000 Initial bracket 10% N/A ‰ GPS UIF QFSDFOU CSBDLFU UP JODSFBTF UP QFSDFOU BOE UIF QFSDFOU CSBDLFU UP JODSFBTF UP QFSDFOU however, these are only Investment Income Tax Rates concerns currently and not 2010 2011 enacted by legislation. Capital gains 15% 20% sales of stocks, investments, etc. Capital Gains and Dividend Tax Rates One of the most significant enactments of the Bush tax cuts were the changes made to tax rates imposed on capital gains (sales of stocks, investments and other capital assets) and dividends (amounts

Dividends

15%

Estate/Gift Tax Rates 2010 Maximum Tax Rates No estate tax 35% for gift tax Exclusion Amounts

ordinary tax rates (see above), as high as 39.6% $212,300

2011 55% for estate and gift

Estate and Gift Taxes The Bush tax cuts significantly lowered estate taxes, over the course of several ZFBST CZ MPXFSJOH UIF UBY SBUF GSPN QFSDFOU UP QFSDFOU BQQMJFE UP FTUBUFT and also by increasing the exclusion BNPVOU GSPN NJMMJPO UP NJMMJPO in 2009. Ultimately, the estate tax was repealed in 2010. Beginning in 2011, the exclusion amount returns to $1 million for the estate and gift tax as the Bush tax cuts sunset. Certainly, significant tax planning is needed for high-income taxpayers, as they will be most affected by the sunset of the Bush tax cuts. Opportunities still exist in 2010 to lower your overall tax liability from the sunset provisions by possibly delaying deductions to 2011 and accelerating income to 2010. However, you should seek trusted advice from your certified public accountant before doing anything. As explained earlier, the future of tax rates and tax deduction is very fluid because Congress has failed to act on the expiring provisions as of this writing. Stay tuned! For more information on these sunset provisions, please contact Kevin Oviatt at McGill, Power, Bell & Associates, LLP’s Meadville office at 814/724-5890 or koviatt@mpbcpa.com. Kevin T. Oviatt, CPA, CVA, is a manager with the accounting and financial services firm McGill, Power, Bell & Associates, LLP. Oviatt, who also is a Certified Valuation Analyst (CVA) focuses his practice in tax planning and accounting, business valuation and litigation support services. He has substantial experience in the manufacturing and construction industries. Oviatt is a member of the firm’s Valuation and Litigation Services Group.

N/A for estate tax $1 million for estate and gift tax $1 million for gift tax

December 2010 > www.mbausa.org > 13

2011 ECONOMI

Weak economic growth expecte by sluggish sales, high unemplo

2011ECONOMICFORECAST2011ECONOMICFOR FORECAST2011ECONOMICFORECAST 2011ECONOMICFORECAST2011ECO-­ Despite the National Bureau of Economic Research’s (NBER) declaration that the longest-running and deepest recession since the Great Depression ended in June 2009, it’s almost hard to believe that there was any hint of a turn because of the financial hardships still being felt around the globe.

Forecasters say the U.S. economy will grow next year at a slower pace than previously thought, weakened by governments and consumers spending less so they can pay down debt.

In fact, the National Association for Business Economics (NABE) reduced its forecast for annual economic growth to 2.6 percent in 2010 and 2011 — down from its forecast of 3.2 percent in May.

The economists expect the U.S. economy will add jobs through the end of 2011, but not enough to bring down the unemployment rate below 9.2 percent. “We often see the unemployment rate lag the rest of the economy, so it’s not surprising that the unemployment rate has stayed relatively high despite the pronouncement that the recession is officially over,” explains James Kurre, Ph.D., director of the Economic Research Institute of Erie (ERIE) and associate professor of economics at Penn State Erie, The Behrend College. “The NBER also had a hard time identifying that turning point, since the national economy was going sideways rather than experiencing a clear-cut upturn. The recovery seems more to be a slight upward drift than a steep, rapid takeoff.” Even with the latest less-than-inspiring economic data, however, Kurre dismisses the potential for a “double dip

14 < www.mbausa.org < December 2010

recession” — a downturn followed by a short recovery followed immediately by another downturn. Not only is it historically rare, but the United States has only seen one since World War I, dating back to the early 1980s. Even then, Kurre notes, the Erie area didn’t actually have a douple-dip recession — the first recession just continued straight through the short-lived national recovery.

“The possibility of a double dip makes for a great headline, and I think it shows up in the press a lot more than is warranted simply because it makes for a good issue to capture people’s interest,” notes Kurre. “It’s a bit like shark attacks, which are also very rare if you look at the data, but you just can’t help wanting to read the story.”

Local vs. National Trends

Since the 1950s, Erie’s recessions have averaged about 23 months from peak to trough, compared with about 11 months for the nation as a whole. At the national level, the Great Recession officially started in December 2007 and ended in June 2009, lasting about 18 months. “Locally, it’s hard to identify exactly when the recession started because there wasn’t a clear-cut peak and then a downturn; we went sideways for quite a while before the dropoff occurred.” It’s one of the reasons why the Economic Research Institute of Erie, with the financial help of Marquette Savings Bank, recently unveiled the ERIE Leading Index, better known as ELI. The index is composed of eight data series — national, state and local — that tends to turn up and down before turns in Erie employment.

According to results from the Manufacturer & Business Association’s Economic Snapshot Survey for the third quarter 2010, employers were mixed on their expectations for their businesses looking ahead three months:

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Kurre says ELI should help function as an early warning system for business cycle turning points in the economy. In the past, when ELI has turned up for five consecutive months, the economy also has turned up a few months later.

In terms of severity and unemployment, Erie lost about 7 percent of its jobs from peak to trough, compared with an average of about 7.8 percent in all recessions since the 1950s. Nationally, the United States lost about 6 percent of its jobs compared with only about 3 percent in an average recession.

Currently, ERIE economists say ELI has been going sideways, so there has yet to be a clear-cut turnaround. But they are confident that the latest ELI data should give a better picture when it is released in December on www.ERIEdata.org.

“So although the recession was a bit more severe in Erie (or northwest PA, for that matter) than in the United States overall,� says Kurre, “it was still less than we’re used to seeing. A good analogy might be that Washington shuts down if they have 3 inches of snow, but Erie takes a 6-inch snowfall in stride and continues with business as usual.�

“We at ERIE tend to use May 2008 as the point after which we saw employment fall. Similarly, it’s hard to see precisely where the bottom point occurred — if it has occurred — but February 2010 is starting to look like a likely candidate,� says Kurre. “If that timing holds up in the face of future data, that would mean this recession lasted about 21 months locally, which is just a bit shorter than our post-World War II average.�

3OARING 5NEMPLOYMENT

At the national level, economists expect hiring to increase at a painfully slow rate. They predict the economy will add >

ELI  â€“ ERIE Leading  Index 110

102 101

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The ERIE Leading Index (ELI) is a data series that tends to turn down into recessions before the Erie economy generally (as measured by Erie total employment), and to turn up out of recessions before the Erie economy recovers. According to economists and the data from May 2010, the bottom line is that we may be near the bottom line of this recession; economic signs have been less negative for Erie lately and may even be turning positive. The most current data is due out this December on www.ERIEdata.org.

08

Year

December 2010 > www.mbausa.org > 15

150,000 or fewer jobs each month until the middle of 2011, after which the numbers will improve to about 175,000. Only then will the jobless rate begin dropping, from 9.6 percent to 9.2 percent. Regionally, the majority of Manufacturer & Business Association members (66.2 percent) say they have been able to maintain their work-force levels — and they have continued to do so by implementing hiring freezes and overtime increases. These same employers (80.1 percent), many of which are manufacturers, also appear to expect to see no change or some pickup in their business in the next three months. Another 19.9 percent expect business to slow down. According to Kurre, “firms experience the need to reduce costs, and labor is often one of their biggest costs so they lay off workers. Of course, they don’t lay off random workers; they lay off the least productive and keep the most productive. The result is that productivity increases — more output per hour worked.” Smart firms also tend to do what economists call “labor hoarding” — finding ways to keep their best and brightest workers through downturns rather than having to replace them with new workers when the recovery finally comes. According to Kurre, this helps mitigate the recession in terms of employment, although it takes a bigger toll on the firm’s bottom line during the recession. “We typically see overtime hours rise coming out of a recession before hiring takes place,” notes Kurre. “Firms will ask current employees to work longer hours rather than undertaking the cost of hiring new employees, until they’re sure that the increase in business is going to continue, rather than being a short-term uptick that disappears after the new hire has been made. As more and more firms begin to see that the expansion has legs, they’ll tend to cut back on overtime and hire new workers.”

'OVERNMENT 3PENDING

Employers may be leery of hiring workers right now given the anti-business legislative environment that has become pervasive in Washington. Not only are these business owners

concerned about the repeal of the Bush era tax cuts, but also the implementation of health-care reform, the long-term impact of the stimulus bill, and ballooning federal deficit, which is expected to shrink only from $100 billion to $1.2 trillion next year — a level the NABE has called “extreme.” “Businesses don’t react well to uncertainty and we have a lot of that right now,” notes Kurre. “We have an activist government in Washington that is expanding entitlement programs, without providing for the resources needed to pay for them. And there has been unprecedented federal spending by this administration to try to fight the recession. That means that a huge bill will be coming due in the not too distant future, and it isn’t clear how we’re going to pay it.” Higher taxes will cause a reduction in the incentives for people and firms to produce. And, if they continue to borrow at high rates that will cause interest rates to rise, it will make it harder for the private sector to find the capital it needs to update plants and equipment, and to innovate new technologies to stay competitive. The key to remember, says Kurre, is that the economy has self-correcting mechanisms built in that will turn things around to a positive direction. Continued growth in China and other international economies means increasing demand for American goods and services, as consumers still look to the United States as the premier source for many consumer and industrial products. Also, there usually is a pent-up demand for consumer durables immediately after a recession, since consumers tighten spending when there is uncertainty about employment. With the beginning of an upturn, those demands begin to surface, helping to fuel the recovery. “On net,” says Kurre, “I expect the positive effects from the private sector to outweigh the negative effects from the public sector, and thus for the economy to continue to grow — although more slowly than we might like.” For the latest economic data, visit www.ERIEdata.org or see the results of the Association’s quarterly Economic Snapshot Survey on www.mbausa.org.

2011ECONOMICFORECAST2011ECONOMICFOR 'ROWTH !MID THE $OWNTURN n (EALTH #ARE AND %DUCATION According to economist James Kurre, Ph.D., the health-care sector has been a consistent growth sector, adding jobs in most months even during the deepest parts of the recent recession. Higher education is also a bright spot, with the local colleges continuing to grow and bring in new talent and jobs, and new spending from students located outside the region. “This is clearly an export industry for the Erie area, since it brings in outside money just like the export of manufactured goods,” says Kurre. “If we can convert more of those visiting students into permanent residents of Erie, that will help us compete in the global economy long-term. Brain gain is the name of the game.”

16 < www.mbausa.org < December 2010

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HR Connection SURVEY: 40 PERCENT OF WORKERS PLAN TO DELAY RETIREMENT Four out of 10 workers will stay on the job longer than they anticipated two years ago because they’re worried about paying for retirement, according to a recent survey by human resources consulting firm Towers Watson. Research shows a third of workers BHFT UP OPX QMBO UP XPSL GJWF years or more than they previously FYQFDUFE 8PSLFST BHF BOE PMEFS also are saving more than other age groups to fund their retirement. According to the Towers Watson research, the workers most likely to delay retirement are either older or in poor health. Forty-eight percent of XPSLFST PWFS BHF TBJE UIFZ XPVME XPSL MPOHFS o VQ GSPN QFSDFOU JO o BOE QFSDFOU PG XPSLFST BHF UP TBJE UIFZ XPVME XPSL MPOHFS o VQ GSPN QFSDFOU JO

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minutes over or the BlackBerry that won’t stop buzzing, there are a myriad of conflicting matters vying for employees’ attention. According to a recent survey by WORKPLACE DISTRACTIONS 8PSLQMBDF 0QUJPOT QFSDFOU PG AFFECT PRODUCTIVITY workers are extending their workdays 8IFUIFS JU T UIF NFFUJOH UIBU SVOT by coming in early or staying late

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in order to avoid distractions. .PSF UIBO IBMG PG UIPTF QPMMFE percent) report that distractions in the workplace impact their productivity. Thirty-three percent of workers believe it would help their productivity if employers provided work-life benefits aimed at alleviating stress caused by such distractions.

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DEPARTMENTS > Contact: John Onorato

Why It’s a Good Idea to Shy Away from Title Promotions When economic times are tough, companies everywhere create innovative solutions to keep their loyal staff happy. When there isn’t enough spare cash for raises, many employers turn to title promotions as a way to show appreciation. While there’s nothing wrong with advancing a competent person, you must maintain integrity when giving promotions. Be careful. If you start inflating titles, the titles themselves don’t reflect the duties of the position and required expertise. It also can become confusing, disorganizing and difficult when striving to maintain job classifications and proper salaries when the economy bounces back. Here are some following tips for employers looking to implement UJUMF DIBOHFT t Steer clear of negligently promoting. To give someone a responsibility he/she is not capable of doing — or a title that suggests something he/she is not really doing — is very risky. Employers are largely

liable for their employees’ actions and if they haven’t trained them properly, or are negligently promoted, the company is responsible for that action. Employers should avoid the temptation to change titles if it misstates what the person actually does. t Don’t give overworked staff title changes. When an organization struggles financially, employees often get more responsibility and jobs are combined. Risks include increased injuries or job turnover. Employers should be smart and evaluate the risks of spreading out more work and responsibility to fewer employees just to “save money.� t Don’t play the name game. Many companies started calling staff “associates� several years ago, and it’s lost much of its value today. Similarly, now everyone’s a “consultant� instead of a “salesman� or other appropriate title. Ensure the reputation of your team’s qualifications is maintained and that management titles remain respected.

t Ensure exempt and nonexempt accuracy. Employers giving supervisory title changes also may assume they can shift a nonexempt employee to exempt status. However, if the actual job duties or responsibilities do not change much, there may be legal ramifications for misclassification and a potential lawsuit against the employer for unpaid overtime. For more information on promotions, compensation and evaluations, please contact the Association’s HR Services Division at 814/833-3200, 800/815-2660 or e-mail me at rbruno@ mbausa.org. Rose Bruno is a PHRcertified HR generalist at the Manufacturer & Business Association.

December 2010 > www.mbausa.org > 21

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DEPARTMENTS > Contact: Sheila Sterrett

Comprehensive Legal Reform: A Requirement for the New Administration Anna McCauslin is the state government relations representative for the Manufacturer & Business Association in Harrisburg. Contact her at 717/525-7213 or amccauslin@mbausa.org.

Insightful pundits agree that, based on political trends EBUJOH CBDL UP UIF T UIF FMFDUJPO PG B 3FQVCMJDBO governor in the state of Pennsylvania takes place roughly once every 16 years. Add to that a Republican-controlled House and Senate, and you soon have a trifurcate of power that could bring the Commonwealth out the Dark Ages of lawsuit abuse. BACKGROUND: Lawsuit abuse has a disastrous effect on the cost of doing business and the ability to create jobs. It is unfair, unpredictable and undermines a business’s ability to compete in a growing and global marketplace. Additionally, the lack of tort reform throughout the Commonwealth has played a major role in the cost of health care. In fact, a study released by the Institute for -FHBM 3FGPSN GPVOE UIBU BCPVU QFSDFOU PG IFBMUI DBSF providers in Pennsylvania are practicing defensive medicine. In September, the business community waged the first legal reform battle since the Fair Share Act was found VODPOTUJUVUJPOBM JO BOE JU XBT VHMZ 5IF 1FOOTZMWBOJB Trial Lawyers Association, through a sympathizing legislator, was able to amend a vehicle code bill that would allow for “arguing of damages.� Arguing damages is a tactic that would allow trial lawyers to argue for specific lump-sum payments that they deem appropriate for all past and future economic and non-economic damages. The truth is that the arguing of damages in auto tort cases will inflate verdicts and settlements. Consequently, this cost will be shouldered by Pennsylvania drivers who will TFF QFSDFOU UP QFSDFOU IJHIFS QSFNJVNT "MMPXJOH the arguing of damages also sends the wrong message to current and prospective businesses in a state that ranks UI JO MFHBM DMJNBUF Lawsuit 2010, Ranking the States). In 2010, the U.S. Tort Liability Index, compiled by the Pacific 3FTFBSDI *OTUJUVUF SBUFE 1FOOTZMWBOJB PVU PG UIF states for its overall tort system. Although the specific wording in the amended vehicle code legislation applies specifically to automobile cases, it would only be a matter of time until it would be expanded to all areas of law, whether by the legislature, or by the rules committee of the Pennsylvania Supreme Court. Now that the state government is in the hands of Republicans at all branches for the first time in a decade, fixing the very broken legal system in the Commonwealth should be first priority, especially given the weak economy.

After all, forecasts show that lawsuit abuse reform could QSPEVDF BO BEEJUJPOBM KPCT JO 1FOOTZMWBOJB Specific Reforms to Enact 1. Establishment of the Fair Share Act. Pennsylvania’s legal system operates under an outdated common law rule known as joint-andseveral liability. Under such a system, every defendant found partially liable in a lawsuit can be held responsible for the entire verdict, even if they are only deemed to be 1-percent liable. As a result, plaintiffs and personal injury attorneys often file frivolous and excessive lawsuits against numerous defendants based on their ability to pay rather than their level of liability. Forty-four other states have eliminated joint-and-several liability in cases where a defendant is found to be less than 60-percent responsible. 2. Enactment of caps on non-economic damages. Currently, Pennsylvania does not impose caps on non-economic damages such as emotional distress or pain and suffering. These damages have no EJSFDU FDPOPNJD MPTT PS QSFDJTF WBMVF BT B SFTVMU rewards for these damages tend to be unpredictable and excessive. By placing caps on such damages, the legislature will be able to curtail unnecessary lawsuits and reduce the unexpected and excessive costs currently faced by business. A RAND study of the legal liability system concluded that less than half of all the money spent for the system goes to compensate injured victims. Establishment of an innocent seller provision. Businesses that sell products manufactured by others are often subject to lawsuits when those products are found defective. This practice is unfair to both the business and consumer as it leads to an artificially inflated process. Establishing an innocent seller provision would help to ensure that businesses that simply sell products that they do no alter would not be held liable if a product is later deemed defective. Implementation of a loser-pays system. Trial attorneys often go on “witch hunts,� filing lawsuits against any and all possible defendants regardless of their association to the actual case. By establishing a loser-pays legal system for civil tort cases, the Commonwealth will be able to curtail frivolous lawsuits and reduce the costs of our judicial system. December 2010 > www.mbausa.org > 23

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logo and the McGladrey Alliance signatures are used under license by RSM McGladrey, Inc. and McGladrey & Pullen, LLP. The McGladrey Alliance is a premier affiliation of independent accounting and consulting firms. The McGladrey Alliance member firms maintain their name, autonomy and independence and are responsible for their own client fee arrangements, delivery of services and maintenance of client relationships. The McGladrey Alliance is a business of RSM McGladrey, Inc., a leading professional services firm providing tax and consulting services. McGladrey is the brand under which RSM McGladrey, Inc. and McGladrey & Pullen, LLP serve clients’ business needs. McGladrey, the McGladrey logo and the McGladrey Alliance signatures are used under license by RSM McGladrey, Inc. and McGladrey & Pullen, LLP.

Strategy Trends

EDITORIAL > by Ken Polk

Outsourcing Your Way to Renewed Business Growth Popular misconceptions often equate outsourcing with job elimination, reduction in quality and loss of control. But in many ways, your organization might already be a master at strategic outsourcing. Here’s how to extend its benefits even further: It’s not uncommon for a business owner or manager to hear the word “outsourcing� and equate it with American jobs leaving the country. Call it a myth, an urban legend or simply a misconception — it’s just not the right way to think about outsourcing. A major reason outsourcing is often misunderstood is that it gets confused with the term offshoring — the reassignment of operational processes, such as manufacturing or call center operations, to international vendors several times zones away. Chances are pretty good that your company already is doing a fair amount of outsourcing, even without calling it such. For instance, did someone on your payroll build your computerized inventory management system? Did a staff member shoot the beautiful photography that went into your last brochure? Do you have an employee whose only job is to maintain the HVAC system? Probably not. Some things are just better managed and much less costly when they are handled by experts. That, in a nutshell, is outsourcing. Debunking the Economizing Rationale Another common misconception about outsourcing is that it’s more expensive than handling things in-house. In fact, financial experts refer to the in-house handling of common administrative tasks (like those mentioned above) as creating “false economies.� It may feel like you’re saving money when you add to staff, or assign existing staff to administrative matters, but that’s hardly ever the reality.

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Flexibility — The ability to realign people, processes and technology so your business can refocus on core strengths and become more agile. Commonly outsourced administrative functions include accounting, tax and compliance, and human resources (benefits, talent management, recruiting and payroll). Safety — Improved security and reduced compliance risk. Monetary — Reducing capital investments in technology or infrastructure, for example, and freeing up cash for reinvestment into research and development.

Get Back Your Focus In addition to cost and resource benefits, outsourcing allows your business to concentrate on its core competencies rather than be pulled in many different directions. Financial resources also are freed up to invest in missioncritical strategic initiatives rather than administrative functions, as outsourced organizations typically offer their own, very sophisticated technology. This opens up a world of possibilities, such as improving employee retention through advanced performance tracking, staff training, and succession planning. Outsourcing also helps put in place universal, standardized practices that make providing quality service to employees that much easier while also driving down costs. Before You Make the Leap Cautious executives and business owners will be comforted by the fact that most, if not all, outsource offerings can be tailored to provide as little or as much external assistance as desired.

Every business is unique, and there are always departments and processes a company prefers to retain in-house. To start your outsourcing off on the right foot, give careful thought to company functions — generally your core streams of revenue — that cannot be outsourced. The next step is to assess the remaining duties — those that might benefit from an assessment through the outsourcing lens. Outline your goals and expectations for outsourcing and share these with your teams to ensure proper change management. Outsourcing is a viable strategy that most businesses already use on some level — most likely, yours included. The great majority enjoys cost savings, improved employee engagement, and more productive operations. In the currently contracted economy, maintaining a strong focus on core competencies is vital to sustainable growth, and there is no better way to ensure that growth than through strategic outsourcing. For more information about outsourcing solutions, contact Ken Polk at Automatic Data Processing at ken_polk@adp.com or 814/460-4570. Ken Polk is the district manager for Automatic Data Processing (ADP) in the Erie, Pennsylvania and Jamestown, New York areas. By utilizing technology, ADP specializes in helping organizations achieve better business results by streamlining key back-office administrative duties like payroll and human resources administration along with time and attendance and benefits management.

December 2010 > www.mbausa.org > 25

Legal Q&A WE WOULD LIKE TO HELP OUR NATION’S RETURNING VETERANS, ESPECIALLY THOSE WHO HAVE BEEN INJURED IN COMBAT. WHAT STEPS CAN WE TAKE TO RECRUIT AND HIRE VETERANS WITH SERVICECONNECTED DISABILITIES? There are a number of steps employers can take to recruit and hire veterans with service-connected disabilities. Here are some tips offered by the U.S. Equal &NQMPZNFOU 0QQPSUVOJUZ $PNNJTTJPO t 4UBUF PO B KPC BEWFSUJTFNFOU PS vacancy announcement that your company is an equal opportunity employer and that those individuals with disabilities, including disabled veterans or veterans with service-connected disabilities, are encouraged to apply. t &OTVSF UIBU POMJOF KPC announcements, recruiting information and application processes are accessible to individuals with disabilities. t 4FOE WBDBODZ BOOPVODFNFOUT to, and ask for referrals from,

government, community, military organizations and One Stop Career Centers that train and/or support veterans with service-connected disabilities. MY EMPLOYER WOULD LIKE TO “GO GREEN� IN 2011. HOW CAN HR DO THIS? Here are some green initiatives that are GSFRVFOUMZ BEPQUFE JO UIF XPSLQMBDF t *NQMFNFOU B SFDZDMJOH QSPHSBN t 6TF UIF *OUFSOFU BOE UFMFDPOGFSFODing to cut down on business travel. t 1VU TVNNBSZ QMBO EFTDSJQUJPOT BOE other HR communications online to reduce printing. t 0GGFS FNQMPZFFT UIF PQQPSUVOJUZ to telecommute. t &TUBCMJTI B SJEFTIBSJOH QSPHSBN t .BJOUBJO B TMJHIUMZ DPPMFS PGGJDF temperature during the winter and slightly warmer temperature in the summer to lower heating and cooling costs.

t "TL FNQMPZFFT UP CSJOH JO UIFJS PXO coffee mugs to eliminate the need for foam cups. WE HAD TO LAY OFF SEVERAL HUNDRED WORKERS LAST MONTH AND MORALE AMONG THE REMAINING WORK FORCE HAS PLUMMETED. WHAT CAN WE DO TO RE-ENGAGE THESE EMPLOYEES? At a time when performance is most critical, it is wise to try to focus in on four things to foster engagement BNPOH FNQMPZFFT t #VJME DPOGJEFODF JO UIF PSHBOJ[BUJPO BOE JUT MFBEFST t *OTUJMM PQUJNJTN GPS UIF GVUVSF t $BSF GPS FNQMPZFFT F H NBOBHF stress and work/life balance, ensure safety, offer adequate pay, support UIF DPNNVOJUZ BOE t 5SBJO UIFTF XPSLFST UP LFFQ UIF business running and serving customers.

The Erie Federal Credit Union is committed to providing quality financial products and the best member service. And for the second year in a row, this dedication to service has been recognized by the Credit Union National Association with the 2010 Excellence in Lending Award. Helping our members to achieve their dreams of owning a home, buying a car, or running a business is what we do every day. We’re proud to be a part of the Erie community and happy to be making a positive difference in the lives of our members. The Erie Federal Credit Union is ready to answer your questions and provide you with the resources you need for financial success. To learn more, call or visit us at www.eriefcu.org

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26 < www.mbausa.org < December 2010

DEPARTMENTS > Contact: John Onorato

2011: A Time to Get Back to Basics Employment law issues grow increasingly complex each year, with many companies struggling to comply with new state and federal laws while trying to reduce claims. It should be noted that it is generally the most fundamental of issues that get employers in trouble. As we are about to enter a new year, here are some tips to help you get back UP CBTJDT t Employee handbooks. Follow this TJNQMF GPSNVMB )BWF QPMJDJFT UIBU make sense, review your polices at least once a year, and make sure your employees are informed of the policies and that your managers consistently enforce them. t Compensation plans. If you don’t have a compensation plan, make sure you get one. You may be overpaying some employees and underpaying others. Worse yet, you are open to charges of discrimination. t Job applications. Many companies don’t require applications and instead opt for resumÊ submissions.

With a well-drafted application, employers elicit “just the facts.� In addition, applications allow employers to obtain approval to conduct various background checks. t Performance evaluations. If employers don’t conduct performance reviews when they’re supposed to be done — or they’re skipped altogether — it will be difficult to terminate problem employees when there’s a lack of notice regarding issues that need to be improved, or if there are inconsistent patterns of providing performance evaluations (which could be perceived as a bias). Performance evaluations also can prove helpful in preventing misclassification claims. t Exit interviews. Aside from providing information about the industry and market conditions, exit interviews can help you defend a lawsuit if a disgruntled employee decides to sue.

employees’ meal and rest periods in writing each day, including when they were taken, how long they lasted, whether they were waived, and if so, why they were waived. t Use the HR/Legal Hotline. One of the biggest mistakes employers make is to involve legal counsel or an HR professional after a decision has been made. Sometimes it may just be a five-minute phone call to a qualified professional that saves the company from a lawsuit. For more information, contact the Association’s HR/Legal Hotline at 814/833-3200 or 800/815-2660. Attorney John Onorato is the vice president/general counsel at the Manufacturer & Business Association. He assists member companies with their legal needs and HR questions.

t Timekeeping. 3FNFNCFS *U T UIF employer’s obligation to track hours worked. Employers should document

December 2010 > www.mbausa.org > 27

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Why does Jim Ohrn choose ECCA? “ECCA helps us navigate the maze of federal, state and local wage regulations. Their accuracy and service positively impact our employees. And they positively impact our business.� ECCA Payroll + Business Solutions offers customer-focused, comprehensive payroll, tax, timekeeping and HR services to businesses ranging from one to one thousand employees. Discounted, web-based programs are available to all MBA members. Jim Ohrn, Vice President and Chief Financial Officer Custom Engineering Company

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EDITORIAL > by Angie Angus

Reconstruct Market Boundaries to Reach a Blue Ocean Angie Angus is the manager of BOS Programs and Support Services.

Six Paths Framework Industry

This article is the sixth in a series that features excerpts from the international best-selling book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant by authors W. Chan Kim and RenĂŠe Mauborgne. A key principle of Blue Ocean Strategy is to break out of industry boundaries in order to create new markets. This allows a break from competitors and creates a blue ocean of opportunity with a new market base. All industries have self-imposed boundaries that define the factors in which they commonly compete. However, in their research, authors Kim and Mauborgne uncovered six systematic patterns for reconstructing industry boundaries. A systematic approach minimizes risk and helps to eliminate guesswork. These approaches, referred to as the Six Paths Framework, are applicable to almost any type of business or organization. According to Blue Ocean Strategy i5IFTF QBUIT DIBMMFOHF UIF TJY fundamental assumptions underlying many companies’ strategies. These six assumptions, on which most companies hypnotically build their strategies, keep companies trapped competing in red oceans. 4QFDJGJDBMMZ DPNQBOJFT UFOE UP EP UIF GPMMPXJOH t %FGJOF UIFJS JOEVTUSZ TJNJMBSMZ BOE GPDVT PO CFJOH UIF CFTU within it. t -PPL BU UIFJS JOEVTUSJFT UISPVHI UIF MFOT PG HFOFSBMMZ BDDFQUFE strategic groups and strive to stand out in the strategic group they play in. t 'PDVT PO UIF TBNF CVZFS HSPVQ CF JU UIF QVSDIBTFS UIF VTFS or the influencer. t %FGJOF UIF TDPQF PG UIF QSPEVDUT BOE TFSWJDFT PGGFSFE CZ UIFJS industry similarly. t "DDFQU UIFJS JOEVTUSZ T GVODUJPOBM PS FNPUJPOBM PSJFOUBUJPO t 'PDVT PO UIF TBNF QPJOU JO UJNF ‰ BOE PGUFO PO DVSSFOU competitive threats — in formulating strategy.â€? The Six Paths Framework assists in identifying where your company can successfully break out of its conventional boundaries. The six paths to limitless opportunity include industry, strategic group, buyer group, scope of product or service offering, functional-emotional orientation, and time. When looking across each of these paths, first consider your dominant buyer group and then each of your noncustomers (those identified as “soon-to-be,â€? “refusingâ€? and “unexploredâ€?). Most importantly, ask how the path may explain why they are noncustomers. The first path requires you to look across your industry and identify alternatives to your industry. For example, an alternative to going to the movies could be going out to dinner. Both offer an entertaining night out, but are not considered direct competitors.

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The second path is to look across strategic groups within an industry. If you produce a luxury car, then you need to look at the economy car group to decide why customers would decide to trade up or down. The third path takes a look across the buyer chain, from purchasers, users and influencers. Is there another group in the chain that you should be targeting? Parents may be paying for the food at McDonald’s but the true influencers in the buying decision are their children. Looking across complementary products and service offerings is the fourth path. Analyze what occurs before, during and after your products or services are used, and then consider additional offerings. The fifth path requires you to examine the functional or emotional appeal to buyers. For instance, Swatch watches took a functional item and made it an emotional decision, by getting customers to purchase not simply a watch but a fashion statement. The sixth and final path forces you to look across time. You must keep in mind three critical factors while examining current trends and how they can change value to your customers. These trends must be irreversible, decisive to your business, and must have a clear trajectory. Consequently, by exploring the Six Paths Framework, you can take your organization outside of its traditional market boundaries of competition and open up an entirely new market. The next few months will be used to explore each path in more detail. Next month: 1BUI -PPLJOH "DSPTT "MUFSOBUJWF *OEVTUSJFT If you are interested in learning more about how your company can explore blue oceans of opportunity, please visit mbausa. blueoceanstrategy.com or contact me at aangus@mbausa.org. December 2010 > www.mbausa.org > 31

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Events

Jay Badams, Erie’s new superintendent of schools, addresses technology choice and the future of public education, at a recent Eggs ‘n’ Issues briefing.

To learn about upcoming events at the Manufacturer & Business Association, visit www.mbausa.org!

Scott A. Maas, CPE, director of Assessment for Erie County, provides an overview of technology based reassessment for local business owners, during one of the Association’s monthly briefings. The reassessment of properties throughout Erie County, begun in 2008, is expected to be completed by January 1, 2012.

2010 Roar on the Shore Board Chairman Richard Knight presents SafeNet Executive Director Linda Lyons King with a $75,000 donation for the Big Backyard Children’s Garden, along with City of Erie Mayoral Assistant Laura Schaaf, and Dan Ignasiak, chairman of the Manufacturer & Business Association Board of Governors and president of SEPCO-Erie, during a special luncheon at the Manufacturer & Business Association Conference Center in Erie. For information about the 2011 RoarŽ, visit www.roarontheshore.com.

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December 2010 > www.mbausa.org > 33

AW]Z <IJTM Q[ :MILa David Robbinson, the new executive chef at the Bayfront Convention Center, has reserved your table at the region’s flagship facility. Whether you are planning an event for 10 or 2,000, Chef Robbinson can create the perfect culinary complement. From fine dining to informal accompaniments, the former executive chef of the Aviation Country Club and Perry’s Landing Yacht Club brings 30 years of developing recipes, menus and dining room ambiance to the table. Bayfront Convention Center 1 Sassafras Pier Erie, PA 16507 (814) 455-1260 (814) 879-0910 fax BayfrontConventionCenter.com

With breathtaking views and world-class facilities, the Bayfront Convention Center offers the perfect pairing for your meeting, trade show or event. To reserve a seat at the region’s only venue with superb cuisine and spectacular sunsets, call (814) 455-1260.

Recently, First National Bank was identified among the Best U.S. Banks by Forbes.com and we are proud to

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People Buzz GE TRANSPORTATION CEO MAKES FORTUNE’S ‘40 UNDER 40’ LIST GE Transportation President and CEO and Manufacturer & Business Association Board Member Lorenzo Simonelli has been ranked No. PO '0356/& NBHB[JOF T i 6OEFS w MJTU PG CVTJOFTT T IPUUFTU SJTJOH TUBST VOEFS UIF BHF PG Marc Andreessen, co-founder of Netscape and the venture capital firm, Andreessen Horowitz, was No. 1. As GE’s youngest-ever division IFBE 4JNPOFMMJ IBT SVO JUT CJMMJPO transportation business since July "OE JO UIPTF UXP ZFBST BDDPSEJOH UP '0356/& UIF ZFBS old Florence, Italy native, “has been fighting a brutal market for the locomotives and large engines that his

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Storage, was among those honored for exceptional achievement in 2010, at the United Van Lines World Convention in Maui, Hawaii. J.H. Bennett was awarded the prestigious “Customer Choice� Award, one of only eight agents receiving the honor. Agents are selected based on their Customer Survey Scores and a number of other quality measures. The Customer Choice Award recognizes the top agents dedicated to quality service performance. AREA ATTORNEY NAMED PRESIDENT OF PENNSYLVANIA DEFENSE INSTITUTE The law firm of MacDonald, Illig, Jones & Britton LLP in Erie has announced that Craig Murphey, a partner in the firm and chair of its Insurance Practice Group, was

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elected president of the Pennsylvania Defense Institute (PDI). Murphey has been a member of the PDI for the past 20 years. He has been an officer and a director for the past seven years. Murphey is a civil litigator who concentrates his practice in the areas of insurance coverage, insured defense, arbitrations, trials and appeals. He has successfully represented insurers in many cases that have resulted in reported decisions that have shaped Pennsylvania insurance law, particularly in the area of uninsured/ underinsured motorist coverage. DECISION ASSOCIATES WELCOMES PROFESSIONALS Erie, Pennsylvnia-based Decision Associates, consultants in strategy, marketing, organizational development and succession planning,

announced the addition of several NFNCFST UP JUT UFBN Emily Wachter will utilize her experience in marketing, communications and sales to assist clients with developing strategic planning initiatives. She holds a bachelor’s degree in communications with a concentration in public relations from the University of Dayton and has extensive experience working with nonprofit, manufacturing, healthcare and retail/tourism organizations. 8BDIUFS XBT UIF SFDJQJFOU PG UIF Northwest Advertising Federation’s media buyer/planner for the year award. Michael Estrich has joined the firm as a sales and marketing consultant. In this capacity, he will utilize his diverse experience to develop effective 7 LQ

marketing/sales strategies and strategic planning initiatives. Estrich earned a bachelor’s degree in financial economics with concentrations in industrial and international trade and a minor in graphic design from SUNY Binghamton University. He previously served as a branch manager for First Niagara Bank where he concentrated on small business development. Kimberley Womack is now an administrative assistant. She holds a bachelor’s degree in economics from Allegheny College and has a vast array of experience, including federal government contracting, event management, manufacturing and advertising.

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RESOURCES AROUND THE GLOBE. EXPERIENCED PEOPLE AROUND THE CORNER. PUT THE GLOBAL STRENGTH OF CITIZENS BANK TO WORK FOR YOUR COMPANY. Managing a successful company in today’s competitive global marketplace requires vast resources, connections, and experience. And it requires a financial provider that is able to bring them to you. That’s Citizens Bank. Every day, we customize financial solutions for a wide range of companies. Backed by the strength of our corporate parent RBS Group, one of the world’s top ten financial services groups, we’ll deliver the solutions you need to succeed in today’s global economy. To learn more about how we can help your business prosper, contact our team of experienced local professionals or visit citizensbank.com/commercial. SUSAN FERRY, Vice President - 814-547-3197 JOHN C. DILL, Sr. Vice President - 814-453-7265 EDWARD J. KLOECKER, Sr. Vice President - 814-453-7233 DOUG PATTON, Sr. Vice President - 814-453-7212

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Enjoy a discount and the ease of 24/7 on-line access for all of your health plan needs. Has there ever been an easier business decision? At UPMC Health Plan, we want to make it that simple. That’s why we’ve introduced the region’s most comprehensive all-electronic option. It’s called and it’s an easy-to-use, paperless option that complements any of our Small Business Advantage health plans. With , all enrollment, billing, claims, and payments are conducted online – providing you and your employees with greater convenience. Your employees also enjoy easy access to all their health information, wellness tools, and health support. And, as always, you and your employees have access to our network of more than 80 hospitals and 7,000 physicians, and the award-winning member service you expect from UPMC Health Plan. In other words you get more for less. To learn more about how you can save, go to upmchealthplan.com.

Shouldn’t the people who insure your health understand it? This managed care plan may not cover all your health care expenses. Read your contract carefully to determine which health care services are covered. If you have questions, call Member Services at 1-888-876-2756.

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