Platt Perspective on Business and Technology

Expanding your business with a dual strategic focus – expanding your headcount?

Posted in HR and personnel, macroeconomics, strategy and planning by Timothy Platt on April 26, 2010

This is my third entry in a new series on business growth and expansion and is the first of this set to go into Strategy & Planning, Macroeconomics and HR & Personnel categories. My first posting in this set looked into the issues of expanding a business for range and scope of products and services offered, and at developing new marketplace opportunity. The second installment in this went on to look into some of the issues involved in expanding operations to meet new and emerging opportunity. This posting looks more specifically into issues of hiring, and with thoughts as to how and why our current recovery has been as jobless as it has and whether this makes sense or not to specific businesses as a basis of strategy.

When you take on a new employee, you are taking on both ongoing new capability and skills, and an ongoing obligation and with both direct compensation and indirect benefits costs, and with all of the expenses involved in onboarding and supporting this employee on the job. Salary is clear cut and so, generally are indirect benefits expenses and these tend to be tracked fairly accurately between HR and Finance. The costs from reduced performance during learning curve periods as a new hire gets up to speed may be a bit less well known at least as a specific dollar amount but the general assumption is that depending on position and skills/tasks complexity this can range from the equivalent of six month’s salary up to a year or more. Then there are the costs in keeping that employee provided with work space and with a computer and other resources, and with ongoing expenses such as per-user licensed software definitely included where applicable. The list of requirements here can be extensive. And if this employee does not work out you may have to pay a lot of this again including all of the search and hiring and onboarding expenses as well as a variety of other costs related to severance for the failed hire.

My point is that while good employees are among the most important and valuable resources that most any business has, they are expensive and can be very expensive and even just for employees receiving median income and benefits for that organization. But ultimately, business expansion usually calls for an increase in headcount as workload increases and current employees are stretched to capacity for ability to perform. If you just keep increasing per-employee workload something has to give and that usually includes performance quality and consistency, and speed in follow-through. This all translated into reduced quality of product and services and of customer care.

We are now going through what is usually called a jobless recovery here in the United States with many if not most businesses seeking to expand their levels of business up again from recession standards, primarily if not entirely by increases in efficiency. Some of this is almost always possible and certainly when a business is coming out of a slow period from a down-turn. Improved business processes and incorporation of technology fixes like improved and expanded office automation and improved information access can help reduce pressures from low headcount in meeting business needs too, though this can also carry a significant and ongoing price too, and it is a price that can not always be entirely anticipated up-front. Why are we facing this as so commonly accepted an alternative to hiring and bringing in fresh skills and ideas in the overall marketplace, and particularly where hiring is a buyers market for businesses and they can bring in highly skilled employees for relatively modest compensation packages?

This is all a question of risk management and this trend reflects marketplace uncertainty as much as anything else. If I was advising a business on market positioning as far as growth potential is concerned, I would look to indices like the availability of corrugated cardboard for packaging, where most good are shipped in that, and where an upturn in sales generally coordinates with reduction of packaging materials inventory that may have been sitting around from when the market was still down and goods were not shipping. Here the measures would all be economic and any more macroeconomic indices would all include the word confidence or similar in their names.

There is a lot of uncertainty in the marketplace and that translates into a lack of willingness to make long term commitments that would increase fixed operating costs and payroll. That brings me to an interesting question. Is this the right time for an enterprising business that seeks to capture more of an expanding marketplace to grow in size and headcount to meet emerging market demands?

In the second installment in this set this question, at least if answered in the affirmative, would suggest a more aggressive strategy as cited in my third outcomes scenario. We have some significant areas of uncertainly still in need of any significant resolution, financial systems reform definitely included, but this seems to me to be the wrong level of organization to look to for determining effective acceptable risk levels now for individual businesses.

I would be a lot more interested in consumer willingness to spend than I would be on legislative action as it might impact on macroeconomic metrics. And in this I would look to metrics like corrugated cardboard as an early indicator of increased production and sales. And I would look to the increasing and impressive numbers for sales of products like Windows 7, as office productivity upgrades generally increase in synchrony with increased market expectations and a strong move to increase productive capacity across a wide range of industries and businesses. In this, Windows 7 sales bode well for future economic growth. It should be noted that software sales in general and office productivity software sales in particular held level or decreased during our recent market downturn and with significantly poor sales numbers through that period.

Even with the steady drumbeat of market uncertainty at least at the level of news from Washington with its financial reforms controversies, this is probably a good time for a great many businesses and types of business to make a move into growth, and into a more actively aggressive business strategy.

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