Human Resource Management

Human Resource Management involves the functions of planning and forecasting the personnel needs of the business, as well as putting in place systems for appraising, rewarding and developing staff. Hiring and training good staff are major tasks during the Start-Up Stage.

Business today is becoming more and more about working successfully in a team. Human resource management is integral to developing staff that have the skills to work independently but also as part of a team. A central challenge in the Start-Up Stage is to select talented and experienced staff and to set up successful teams. At this stage the owner often needs to learn to delegate and step away from the more operational day-to-day demands of the business.

Teamwork

Teamwork is the use of many individuals and their unique skills to complete tasks in ways that increase the levels of effectiveness and innovation in the business.

Setting up a team is an important contributor to commercial success because: There is so much effort involved – you can share the load.

Business founders do not have all of the expertise required.

A team helps to build upon the credibility of the business idea by involving others who will be judged by investors as experienced and expert.

A team allows its members to focus only on roles where they can make the most difference in building the business and not be tied up in “red tape” or roles they don’t like to do.

You can set up two types of teams:

an informal team of friends, advisers, your accountant, lawyer and similar people
a formal team that acts as an advisory board, and whose members are paid to give occasional advice, meeting four to five times a year.

In getting the right team together, consider the following suggestions:

Attach yourself to the right people. Like you, they must be passionate about the idea, product or service – making money is not the primary issue.
Choose a team that allows you to keep control and ownership. Access their expertise. Be up front about how you want them to help you.
Avoid hiring “too many of yourself”. Seek people who are different to get balance in your team.

Recruitment and Selection

Recruitment and selection processes include activities that assist the business to recruit a pool of job applicants and to select the best applicants for the available jobs.

Companies have at least two major assets that are fundamental to their success:

a product or service that meets the needs of customers in a way that competitors find it very hard to match
having highly committed and customer-focused staff

The employment of staff also raises a wide range of issues linked to industrial awards, equal opportunity legislation, training and occupational health and safety.

Good human resource practices are about recruiting, selecting and retaining talented staff. There are two options, both of which have their advantages and disadvantages.

Internal recruitment promotes opportunities within, for advancement and promotion. Linked to this is a “trickle-down” effect, where vacancies emerge at lower levels as higher positions are filled. Advantages of internal recruitment include lower costs in locating staff, increased morale, reduced levels of disruption and retaining and growing talented staff by giving them opportunities at higher levels. However, internal promotions have the potential to generate infighting and mistrust, resulting in a negative impact on staff morale.

External recruitment accesses talent from outside the business. You can bring in staff with quite different ideas about meeting customers’ needs. The downside is the higher costs in recruiting and the need to induct and train new staff about procedures and company culture.

Also, there is a wide range of financial incentives available to employers in taking on a trainee or apprentice as a cost effective way of building a talented team. More information can be found from the Department of Employment and Training.

Useful hints in recruiting are to:

Follow a plan – decide well in advance on the type of skills you want your staff to have as you grow and succeed as a business.
Develop a skills inventory – this provides a quick and easy way to evaluate the available skills in the company. The inventory should include personal information, qualifications, job history, special skills and statements of the short and long-term goals set by the individual staff member.

Selection Tools

Selection Tools in job selection can include the use of job interviews, reference checks, psychometric assessment and job trials.

Essentially, good selection practices employ a number of these tools.

It is becoming more common for companies to interview applicants two or three times, from formal to more informal meetings, before a decision is made. There is no need to rush the selection process, there are always talented staff looking for opportunities to join exciting start-up businesses.

Below is a brief summary of the major selection tools available:

Interviews - Can be very low in reliability (that is, the degree to which they are free from error). All employers want to interview staff – it is part of human nature. The tip is to use a series of structured questions and to meet the applicant more than once. Also combine the interview with visits by the job applicants to the business, referee checks and possibly a half-day trial on the job.
References - Are very low in reliability. Attempt to telephone and talk to the person who provided the reference. Again, combine references with other information.
Psychometric Assessment - Some organisations use these assessment tools which have moderate levels of reliability, but higher expense as they need to be conducted by a psychological testing company. Combine with other selection activities. Ask questions in the interview to follow upon features of the aptitude and psychological profile. Assessment can include aptitude, personality, cogitative ability and work preferences.
Work sample - Have applicants complete a set of job-specific exercises under supervision. Add the supervisor’s comments to the findings of the job interview and other selection tools as you make your decision.

Job Descriptions

Job Descriptions contain information on position details, including the nature of the job and the necessary skills, knowledge and abilities to do the job well.

Accurate job descriptions are an important employee and company resource. These descriptions provide a summary of the current role of employees, the required skills and responsibilities. With the level of change occurring in businesses today, job descriptions have become less rigid and more adaptable.

However, they should never become inaccurate. For the employer, a job description is a wonderful source of information about the jobs, skills, talents and resources located in their business.

Job descriptions should be:

Updated two to three times a year.
The basis for regular performance appraisals and discussions about future training, development and promotional opportunities.
Mostly in dot point form, two to three pages in length, around the headings of job title, purpose of the position, major duties, qualifications and experience required, authorities and accountabilities (dollars, access to resources, sign-offs), date written and approved.

Pay

Pay is the amount of money that the business is willing to pay for staff with certain sets of skills or knowledge that are required for the day-to-day operations as well as future growth of the business.

Pay and employment compensation systems are important devices for encouraging high levels of performance and innovation. The compensation policy of the company needs to be well-known and understood. This is especially true in the start-up stages where most staff will be asked to accept moderate levels of pay in the short-term. Organisations that are in the business of innovation often use more innovative approaches towards pay and remuneration.

A company can consider various pay strategies during the Start-Up Stage. In a lot of new ventures staff accept lower pay in the short term for involvement in something quite new and exciting and with the expectation of higher pay in the longer term. Other businesses pay at the industry average or above the average due to a wide range of industrial relations issues. The important issue is to explain to new staff when they join, that the pay and compensation systems aid the philosophy of the company.

Once again, your accountant can provide you with useful advice and can suggest various pay strategies for your business.

Some final comments about pay:

Australians like to keep the amount they are paid a fairly private matter.
Many companies are using a mix of remuneration schemes that are strongly linked to trying to achieve higher levels of corporate performance.
While they take quite a deal of time to set up and update, job descriptions are an important asset for the individual and the company.
Paying at above the market should be considered as an image and positioning strategy, if it can be afforded. Surprisingly, pay levels even a little above market rates can have a marked effect on employee morale.

Compensation Programs

Compensation Programs are a range of ways of arranging remuneration to be linked to individual, team or corporate performance. Most companies today use a mix of remuneration programs. Systems are often designed to reward both individual performance and team performance.

Here are some options frequently used in companies:

Merit pay – the most frequently used strategy. Pay increases are linked to individual performance as discussed at performance appraisal meetings, and by one’s position in the salary range for the job. The negatives are that outstanding performance is not easily rewarded as it is often difficult to provide higher increments in pay. There is also a lot of reliance on supervisory ratings of performance.
Individual incentives– are not linked to one’s regular pay, but to the achievement of meeting certain targets. These incentives are found to increase individual performance quite significantly. But such schemes can motivate individuals to achieve personal outcomes at the expense of other corporate or team goals. For example, being paid a bonus for meeting a production target, a person may care less about employee fatigue or adequate downtime for equipment maintenance.
Profit sharing– is linked to many businesses involved in innovation. Under profit sharing, payment is linked to company performance. Companies that use this scheme claim that employees take a more corporate perspective, and move away from self-interest. However, it is important to remember that other factors influence overall company performance, so the evidence is not conclusive in relation to the relationship between profit sharing arrangements and higher levels of company performance.
Ownership– is another option applied in many new venture companies. This provides employees with shares, or promises of shares, in the company (referred to particularly in the USA as “stock options”). This becomes particularly relevant when a company’s shares are listed on the stock exchange. Once again, this strategy provides employees with a direct interest in the performance of the company, and can act as a good motivator. However, unlike profit sharing, the additional wealth provided to employees by “stock options” only exists on paper until the employee sells his or her shares. The value of these shares can vary significantly, making this a more risky strategy for employees. It also has the potential to dilute equity in the company.

Once again, you should consult a professional adviser, such as your accountant, to discuss the above strategies before you implement them.

Retention

Retention of talented staff requires the use of explicit strategies that show staff how well they are doing, and rewards them accordingly.

Here are some useful hints that human resource managers believe make a big difference in efforts to retain good staff:

Talented staff like to work with other talented staff – keep picking good staff.
Use a range of rewards to continue to motivate staff. These rewards include a good level of remuneration, access to training and development opportunities, appropriate mentoring, explicit management of performance through regular performance appraisals and by establishing a team environment and work culture where effort is rewarded publicly.
Use internal recruitment as your first choice, especially when there is substantial evidence of a lot of talent at other levels in the business.

Succession Planning

Succession Planning involves the transition of the management and leadership of the business to other people. It is important for you to develop a “backup plan” for your business.

Who will do your work if you are unable to, or you decide that you’d prefer to do other things?

A simple succession plan involves consideration of the following steps:

Identify a successor – from either within the business or quite possibly from outside, especially if the business needs to head in a new direction.
Groom an heir – begin a coaching relationship where they work with you, attend meetings and “shadow” your activities towards learning about the business.
Agree on a plan – that sets the time when the owner will step aside, the responsibilities they will pass on, those that they may keep, and to discuss all of this with others in the team so that they understand the plan.

It is important for you to seek professional advice on strategies for succession. Organisational and HR consultants will assist you in defining these strategies and your lawyer or accountant will be able to guide you in the related legal aspects.

Delegation

Delegation involves the decision to pass the authority for the completion of specific tasks or roles to others in the company. This is often a major problem among entrepreneurs and those who start up businesses.

Business founders should consider the Delegation Exercise.

Draw up three columns on piece of paper.

Column 1. What are you good at?
Column 2. What do you dislike doing, but it is important to get done for your business?
Column 3.Who are the people who can do these important things for the business? Where can you find them now in your business?

Find a mentor who will help you grow into other roles in the business. Think of someone you know or you have heard about who is interested in the idea, product or service you are developing. In particular, seek someone that has successfully grown a small business into a much larger one. Approach them. If the meeting goes well, ask them to be your mentor.

They have three roles:

to challenge you and your ideas
to support you emotionally and intellectually
to accept that mentoring is a two-way relationship. While you are learning from them, they will also learn from you.

After confronting the financial, legal and competitive requirements of the Start-Up Stage, you have reached the final phase.

Next Stage: Growth Stage