HRM too often being Personnel Management

Most HR functions in SMEs do not operate within Human Resource Management paradigm and they should be called Personnel Management instead.

What they do is short-term with an ad hoc perspective rather than long-term and planned contribution, serves administrative rather than strategic purpose and involves managing employees collectively rather than individually.

And although they may seem sufficient for your business, they do not contribute much in your becoming a bigger player because they, like all administrative functions, are a stabilising force whereas to grow you need progressive forces.

Reactive SMEs

Rarely do SMEs act in a calculated, planned, strategic and deliberate way. Most often, they only react and do not consider consequences of the reaction.

This prevents them from successfully competing in the market as they lack three aspects of being a serious competitor:

  1. Ability to act which requires understanding of what the company can do with their resources. Hence the necessity for internal analysis;
  2. Motivation which accounts for incentives that drive the company. Hence the need for business planning;
  3. Awareness of the rivals and general competitive environment. The organisation must understand what changes and reactions are likely to take place. Hence the need for competitor and external environment analyses.

Value of Business Reputation

Business reputation has economic value and can be a source of competitive advantage.

For consumers, reputation signals quality or reliability of a product/service features, for investors it increases confidence in investments, for employees it positively affects their behaviour. Speaking generally, reputation ‘attracts more and better resources’ (Fombrun, 1996) and is closely related to brand.

Companies can manage their reputation and be active in shaping it and there are ways to measure and increase it but it does not mean that every organisation should invest their resources into reputation building.

There are three pricing strategies in general:

Skim Pricing – setting high prices relative to competitors. Your product/service needs to be differentiated to justify the price. But as the product moves through life cycles you need to either reduce the price or add value to the product/service. Sticking too much to skim pricing attracts new competitors.

Neutral Pricing – prices are close to the competition. Second-tier competitors use the strategy particularly when they want the basis of competition to be something different than price.

Penetration Pricing – used when price is the primary driver of purchase decision. It may work if you are certain that you can win the price war and stay profitable. However, the strategy creates more problems.
(Holden, Burton, 2008)

But businesses should not simply choose a strategy that they think will work for them. Pricing strategy should be a natural outcome of marketing strategy and the marketing strategy should be a way to execute business strategy.

Outsourcing and Organisational Learning

Among pros and cons of outsourcing there is one aspect that is critical for future of the company who decides to subcontract work.

It is organisational learning, a crucial concept for organisations who want to grow, improve, innovate, and, in knowledge-intensive sectors, survive.

If the firm outsources, it does not learn, develop competencies, accumulate knowledge, or exploit synergies, all of which will endanger the firm’s existence.

Employee segmentation and action

Employee segmentation is a powerful practice which can help you realistically look at the talent pool, or lack of it as not everyone is a talent as business utopians would like us to believe, in your organisation.

Think about how you can segment your employees, help them develop for their and your organisation’s benefit, and how to manage them. This process has to objective so eliminate the impact of politics.

An example of employee segments and managerial actions is presented below.

short-term efficiency or long-term effectiveness?

What a difficult choice: short-term efficiency or long-term effectiveness?

The better an organisation is fitted to serve a particular niche, the more rigid it becomes to respond to changes, or as Karl Weick puts it: “adaptation precludes adaptability”.

Companies tend to prioritise short-term efficiency to grow fast but the pandemic has exposed the fragility of the choice.

Trilemma in Consulting

It is not possible to provide business advice that would be simultaneously general, accurate and simple. Why?

Accurate and generally applicable advice cannot be simple because it needs to take into account all organisations operating in various environments, which creates complexity.

Simple and accurate advice can only take place when the number of variables has been reduced, which allows for a bespoke solution.

For advice to be simplistic and comprehensive, there must be assumptions made, which in effect reduces accuracy. This is the realm of cliché, off-the-shelf and silver bullet solutions, which are prevalent in today’s business discourse.

“[…] it is absurd to set sales increases as a direct objective for advertising.”

“[…] in most circumstances advertising is only one of a whole host of important determinants of sales levels (such as product quality, prices, customer service levels, the competence of the sales force, and so on).” (Wilson & McDonald, 2016)

“[…] views, clicks, likes and shares can be counted […] Of course, these numbers do not correspond to sales, market share or revenue, but they are often used as a proxy simply because they can easily be measured.” (Hackley & Hackley, 2018)

We are seriously damaging businesses because of ignorance in this matter. Business owners throw money away on advertising and complain about marketers. Marketers in turn cannot perform well and are obsessive about the proxy measures. It must stop.

Business owners, put your business and marketing strategy in order before investing in promotion. Marketers, educate the customer and be more careful about claims on your impact on ROI. We all need to become better in business, particularly in current economic situation.

SMEs are internally focused

Most SMEs are internally focused. Their attempts to improve business by attending to internal factors may not necessarily work because the factors inhibiting the performance may reside in the external environment.

performance = ƒ (market structure and company’s internal variables)

And although the PIMS principle mostly relates to big business, it emphasises the interplay between the internal and external environments.

We need to understand how an organisation, with its resources and capabilities, can operate and perform in the market.

But what happens when the function (of PIMS) is weak, meaning that there is not enough ‘space’ for your organisation to perform well? Reconstruct the market i.e. modify the rules or create new ones.