Sixth Annual Investment Confidence Report

Sequestration and the macroeconomic outlook keep confidence in the doldrums

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Lab Manager’s 2013 Investment Confidence Survey was conducted during November 2013. The survey consisted of 18 questions related to responders’ outlook on current, past, and future business trends. Two hundred seventy-two individuals completed the survey.

Demographics

Of all respondents, 68% held managerial positions. Fifty-six percent indicated they managed labs, core facilities, or research projects. The remainder held managerial or supervisory positions in safety, operations, clinical research, and quality. Thirty-one percent of respondents identified themselves as rank-and-file scientists or technicians.

The following table breaks down respondents by job function.

Job Function%
R&D 30
Technical Services 13
Operations 12
Quality Control/Assurance/Validation 12
Teaching 4
Clinical Research/Trials 3
Corporate Management 3
Manufacturing/Processing 3
Purchasing 3
Regulatory 3
Safety 3
Study Management 1
Other 10

When respondents were asked to identify their industry, clinical laboratories, at 17%, comprised the largest distinct group. Still, 23% of respondents participated in the diverse group of industries related to biology (cell biology, microbiology, biotechnology). Assuming those who listed “biotechnology” are approximately split between pharmaceuticals and foods, those two sectors accounted for 9% and 8%, respectively, of respondents. Chemicals (9%), environmental (9%), and materials (8%) represented three other strong industry categories. Instrument design, agriculture, energy, and “other” brought up the rear with low single-digit numbers. The following table breaks down respondents by type of organization.

Organization Type%
University/College Research Lab 33
Industry Research Lab 24
Hospital/Medical Lab 18
Private Research Institution 18
Government Research Lab 6
Contract Research Organization 2
Other 9

As the following graph shows, 73% of labs have 25 or fewer workers, and 82% have 50 or fewer.

But laboratory personnel is not a pure indicator of organization size, as the following graph shows.

Just 11% of respondents work in companies of fewer than 50 workers, and only 31% work in firms of 500 workers or fewer. A full 38% were located in companies of more than 5,000 employees. Certainly many large organizations have multiple laboratories, but these tend to be relatively small and, it is assumed, dedicated to specific tasks.

Respondents were overwhelmingly located in North America, followed by Europe. Just 6% worked outside these areas.

Business Outlook Analysis

35,000-foot view

This section reports and analyzes respondent outlooks toward a number of key business activities for 2013, anticipated outlook for 2014, and, where appropriate, compares responses on the 2013 survey with those from the 2012 survey. The first several questions are generic.

How would you assess present general business conditions (4th quarter of current year) in your lab compared to a year ago (4th quarter last year)?

  2013 2012
Better 28% 32%
Worse 26% 21%
Same 42% 39%
Don't Know/Not Applicable 4% 9%

The 2013 survey saw a slight weakening in perceived business conditions compared with the 2012 results. In both years, nearly half felt the business climate was unchanged or were unsure.

How do you think general business conditions in your lab will be one year from now?

  2013 2012
Better 35% 40%
Worse 19% 16%
Same 37% 34%
Don't Know/Not Applicable 8% 10%

Similarly, slightly fewer respondents in 2013 than in 2012 were optimistic that the outlook in their labs would improve over the following year, and slightly more believed their situation would deteriorate.

Do you feel that U.S. government sequestration will negatively affect your lab’s funding during 2014?

Yes 43%
No 33%
Don't Know 24%

Respondents were asked whether they believed that government “sequestration”—forced budget cuts—would negatively affect their labs during the coming year. This question was not asked in 2012, but the results from 2013 may, to a significant degree, explain the erosion in confidence compared with 2012.

One would expect from the responses to the “lab type” question that just 6% of labs would be directly affected by sequestration. However, any lab that receives contract work from the government or is funded through any of the large granting agencies (NIH, NSF, NASA, etc.) could potentially suffer as well. Still, the effects of sequestration may be more a matter of perception than fact. Sequestration did not cut actual spending but only the growth in spending. Regardless, this perception and perhaps fear of government shutdowns appear to be real phenomena for many laboratory managers.

The lack of optimism regarding general lab operations and expectations was reflected in the more detailed questions on specific topics related to investment, purchasing, hiring, budgeting, and outsourcing.

Detailed Questions and Responses

Analysis Methodology

The remaining questions in the survey solicited much more detailed information on specific aspects of a lab’s business. The questions alternated between asking for next-year (2014) predictions and previous-year comparisons. Responses were graded on a scale of 1 through 7, where 1 was the least optimistic or confident and 7 the most optimistic.

In assessing respondents’ outlooks, the “don’t know” and neutral answers were omitted. Then the negative assessments (very negative to mildly negative) were tallied and compared with the cumulative percentages from the added optimistic responses (mildly positive to very positive).

The first question asked participants to rate their level of confidence for the coming year in six categories related to funding and research investments: general business conditions, company financial status, staffing, equipment purchases, outsourcing, and long-term outlook.

When all responses were taken cumulatively and averaged, 30% indicated optimism, while 42% did not. Twenty-six percent gave either a neutral response or indicated they did not know. For no category did optimism exceed pessimism. By far the most negative result was for “business conditions will improve to support or attract significant research investments,” with 28% indicating optimism and 41% pessimism. This represented a decline from the same question asked in 2012, where 33% were optimistic and just over 34% were not.

The next question related to research budgets in 2013 compared with the previous year. The categories consisted of commodity and consumable equipment; lab construction, refurbishment, and new lab setup; education and training; funding for new and existing projects; investment in “new lab technology”; compensation and benefits; outsourced services; and raw materials.

The average for all categories combined does not present a bright picture. Thirty-seven percent of respondents indicated that spending had decreased, while just 17% reported increases. This section was not without its bright spots, but first the bad news. The budgets for hiring new staff decreased for 51% of responding labs and increased for only 15%. As expected, 42% of those surveyed noted a decrease in compensation versus an increase for 12%. The numbers for new construction (49% decrease, 21% increase) and lab modernization (48% decrease, 16% increase) were similarly unpromising.

Comparing these figures to those from 2012 suggests a slight erosion in confidence. For construction 37% saw a decrease and 23% an increase. Decrease/increase tallies for lab modernization were 41%/29% and for staffing 44%/27%.

On the positive side, 78% of respondents reported that budgets for commodity and consumable items such as filters, glassware, and protective gloves decreased only slightly, remained flat, or increased slightly. This same trend was noted in last year’s survey: if a lab is to remain in business, these are must-have items.

Understandably, this muted optimism spilled over into the category for raw materials. Seventy- three percent of 2013 respondents suggested that spending on chemicals, reagents, etc., was approximately the same as in the previous year. The outliers are even more promising, with 23% reporting that budgets for these items had decreased, while 29% saw increases.

Again, this represents a slight slide in confidence for this category. In the 2012 survey 23% noted a decrease in raw materials purchases, while more than 35% reported an increase.

The other significant category was posed as “new and pre-owned lab technology.” Sixty percent of respondents indicated more or less the status quo from the previous year. However, 36% noted a decrease versus 20% reporting an increase. These figures were down from 2012 (31% decrease, 34% increase).

It is perhaps to be expected, in light of budget cuts for personnel, infrastructure, and instrumentation, that outsourcing would fare somewhat better, but this was not so. Thirty-one percent of respondents indicated less funding for outsourcing services, while 20% reported increases. The numbers from 2012 suggest a slight uptick in this category: 35% decrease, 22% increase.

Looking Ahead

The final survey question reprised many of the early questions, but here the focus was on expectations for the year ahead, 2014. Specifically, respondents were asked, “In the coming year (2014), how do you think your lab’s 2013 research budget for each of the following areas will change?” Responses ranged from values of 1 (decrease significantly) to 7 (increase significantly).

Eleven categories were presented: commodity equipment, construction, education/training, funding for new research projects, new staff hires, investment in existing research projects, investment in lab “technology,” worker compensation, lab modernization, outsourced services, and raw materials. The instrumentation/ equipment categories were further broken down to basic equipment (e.g., stirrers), lab automation, biological reagents, software, and lab furniture, for a total of 16 categories.

The average values for optimistic versus pessimistic responses were predictable. Many other studies have shown that present conditions are the single most important factor in predicting the future. Nevertheless, average expectation was skewed toward less optimism. While 63% of respondents believed the 2014 outlook would be similar to that of 2013, the upper and lower ends of the confidence spectrum told a different story—one could say the whole story. Thirtyeight percent believed overall budgets would fall further in 2014, while 21% bet on increases.

The following table summarizes the results. Note that column three compares the outlook in the 2013 survey to that in the 2012 survey, with improved (↑), same (=), or worse ().

Expectation Level for 2014 Spending Category Compared with 2012
Increase Slightly Chemicals, Reagants, Buffers  =
  Raw Materials  =

The same Commodity and consumable equipment   ↓

Decrease Slightly Antibodies, RNA, Microarrays, PCR etc.  = 
  Software  =
  Basic Lab Equipment  =
  Investment in existing lab projects  
  Funding for new research   =

Decrease Significantly Lab furniture  =
  Automation  =
  Analytical instruments  =
  Outsourced services  =
  New staff hires  =
  Education, training  

Decrease Very Significantly Lab modernization, renovation  ↓
  Staff compensation  
  Investion in new/used lab technology  
  Construction, new lab facilities  =

Of the 16 categories for which respondents were asked to predict budgeting during 2014, 12 (threequarters) remained unchanged from the previous year’s survey. That is to say, respondents were equally as optimistic or pessimistic for the upcoming year as were respondents in 2012.

Based on responses to previous questions, the persistent pessimism about lab renovation, investment in new technology, and compensation was expected. On the positive side, confidence in funding for new facilities, while still low (see above), did not deteriorate from 2012 levels. What was surprising was the outlook for funding for education and training.

In the 2013 survey 37% of respondents believed such funding would fall during the year ahead, while 21% believed it would rise. The figures from 2012, 32% decrease and 28% increase, suggest a deterioration of confidence for this category. This might be attributable to sharply lower expectations for compensation and hiring, the other two human resource categories.

The difference between 2013 and 2012 expectations for consumables and existing lab project funding was slight and probably not meaningful. Still, it suggests that respondents are at least somewhat apprehensive, relative to a year ago, about their labs’ ability to retain business.

Why the doom and gloom?

The business outlook for 2014 shows a persistent lack of optimism, a trend that has become familiar over the past several annual surveys. Most negativity appears related to the macroeconomic and political outlooks for the U.S. as a whole.

Repercussions from the financial meltdown of 2007- 2008 have not yet fully abated. Consumer confidence has barely returned to the low levels of previous recessions, so it is not surprising that feelings of gloom and doom spill over into the business world.

Unemployment remains unacceptably high and labor force participation the lowest in 30 years. Laboratory managers and workers see, read about, and, in many instances, experience this every day. The downgrades in lab worker skills and education levels represent a well-known, longterm phenomenon through which higher-paid employees are replaced by those with less experience. This trend will continue to push down compensation expectations in the future as labs continue to seek greater cost savings. The silver lining here is that workers are sometimes but not always replaced by instruments.

A surprisingly high percentage of respondents, 43%, believe that government sequestration will hurt them. Whether these fears are grounded in fact or emotion is irrelevant, as they negatively affect outlook across the board. As one respondent commented, “My lab is directly funded by the NIH. No grant? No lab. Sequestration will kill my entire core.”

The systemic pessimism among lab managers and workers will not resolve overnight. It reflects a contraction in many laboratory sectors that will probably not reverse until some equilibrium point is reached and the economy as a whole is restored to vibrancy.

Categories: Business Management

Published In

Sixth Annual Investment Confidence Report Magazine Issue Cover
Sixth Annual Investment Confidence Report

Published: March 6, 2014

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