It’s time to promote or hire a manager…..

This is one of the single most difficult challenges for an owner/operator to do and we can tell you why!

Essentially no one can do it like you can, and you really believe this.

You are growing because you have good people, they know what they need to do and have performed well for many years, and there is always one employee that deserves consideration and has been a driving force within your business for many years, so do you now promote from within or external hire?

Before we consider the pro and cons of internal promotion and external hire, let us first ask the question, “are you capable of letting go of the reins and allowing someone else to manage your business”. Be honest here, the answer to this question is just as important as the appointment of the new manager. In fact it is more important.

It truly is amazing. We have seen businesses blessed with high performing employees who have been promoted because of the excellent work and results they have achieved year in and year out only to see them resign within the first 6 months of a promotion.

We have seen businesses advertise and recruit true professionals with demonstrated skills and recognised achievements within an industry leave within the first three months of the appointment.

Of the many reasons: The owner/operator could not let go and would not let them manage.

The irony of the situation is they were hired because you recognised their talent and wanted them to be a part of your business. You promoted them because they consistently delivered and achieved results. They know the business, they know the clients, and are proven performers and yet now as managers they can’t do a thing without consent.  This loss of empowerment is the primary reason for their departure.

More of a concern is you have lost a very strong performing employee and the business is now exposed.

The other real question you need ask is “can a star performer transition to manager and be just as successful?” The skills required to individually succeed vary significantly to the skills required to manage a team to succeed.  Be careful you don’t create a lose/lose situation here.

And what part does your culture play when considering an external hire can you define your culture and are you interviewing with that in mind?

• Sales are growing
• Profit is increasing
• Costs are increasing
• Employee count is heading up
• Customer demand is on the increase

Your Small business might be ready to move to the next level, the Medium sized enterprise.

This shift is fraught with exciting challenges, frustrations and real concerns. What has worked in the past now needs to be reviewed, what was standard procedure now seems inadequate.

Moreover, where you felt in control now you’re not so sure. You now begin to know what you don’t know.

In the past your policies and procedures were implemented as your business grew, now you need standard business processes that align and will flex to your growing business.

Decisions could be made as you were challenged, whereas now your people need direction, focus, goals and clearly identified duties.

Strategy was something you adopted as your business grew and opportunities presented themselves, cash flow financed capital purchases and your employees could all step into each other’s role.

Now a business plan including financials are in order, you need to identify growth, maximise the new and exciting ideas while consolidating proven business practises.

Below are just some of the considerations you may want to consider as you approach this time in your business.

• Have I got the right people in the right role?
• Where is my investment in time best returned?
• Do my cash flows support the next steps?
• Have I set clear direction and communicated the expectations?
• Have I applied a time frame?
• Can I do this on my own?

In fact, of the businesses that conduct performance and salary reviews most do not prepare and regard this time of the year with derision and can’t wait to get it over with, while the employees consider it a complete waste of time and just want to know what it means to their wage/salary. However both parties could be missing an excellent opportunity.A performance review is the time to review the year and the overall performance of your employee against agreed KPI’s. It’s not the time to inform your staff of where they went wrong, this should be an ongoing discussion throughout the year. Regardless of whether an employee has performed very well or poorly they should have an expectation of how the review will unfold. The performance review plays a significant part when reviewing your employees salary/wage.

If an employee has performed well throughout the year, (based on achieving agreed KPI’s) they are justified in expecting a solid review and by extension a fair and reasonable salary/wage review, however a poor performer should be just as prepared. There should be no major surprises at a review..

The old saying “people respect what you inspect” has a two fold challenge. Do the measurements you have in place align to ongoing business success? As the business changes do the measurements?

For some jobs, the appropriate metric to use might be the results of a task, such as the dollar amount of orders taken or the number of orders shipped. For other jobs, the profitability of the company should be used as the metric. This works very well for tasks or segments of your operation that are linked to profitability but have no independent metric, such as technology, customer support, Web site design and management, and other areas. However, in these cases a secondary measure is needed so that you can inspect each area. For example, your IT department being “down” more days than the national metrics may signal the need for changes in your IT personnel.

One size never fits all, so critically look at the operational elements of your business and determine the key for each that helps you create and maintain the highest profitability possible.

If you have set the right measurements for each individual employee then not only is the performance review a vital part of your planning year it is fundamental to the ongoing success of your business. Rewarding your employees for a job well done ensures they pay attention to what you have positioned as key to growth and profit.

A professional service business defined operational efficiency (and by extension operating profit) by measuring the case load of each of their employees.  While this method had been successful in the early years they found as time progressed they were increasing employee numbers without the associated revenue/profit increase.

The problem:

The process they used for measuring success had one major floor!  In the beginning the employer assigned an agreed case load target to each employee and of course this worked very well while the employees built up to the agreed target, however once it was achieved they employee would argue their number had been achieved and they could no more, the result of course was to hire more people.

However the employee had control over when a case was to roll off and a new one assigned so if the employee was reluctant to close a case they could hover around the maximum case load target and any new work had to be passed on to “New Employees”.

The measurement was not working for the employer and creating a culture of complacency and more importantly eating away profits.

So how do you change an agreed process and keep your people engaged?

Next Move identified the problem, then wrote and implemented a new measurement tool that created a new and exciting opportunity of incentivising the employees while eliminating the unnecessary recruitment of new staff and returning significant profit margin back to the business.

A business decided the variable cost of engaging contractors was better suited to their cash flow over the fixed costs of employees.

During the normal peaks and troughs of their business they could flex labour costs to suit business needs.

Over the years this had worked well, until one of these contractors decided to leave and requested their holiday pay.

They were informed they were contractors and as such were not entitled, at which point they sought legal advice. During the first meeting with their legal counsel they were asked a series of questions: How they worked, how they were paid, starting times, lunch breaks, tools of the trade, etc.

The result?

They were advised that not only were they deemed to be employees; that other entitlements were owed, including:

• Superannuation
• Penalty rates
• Holiday pay
• Paid sick days
• Etc, etc.

While this one off claim with retrospective implications and penalties would not cause to much hardship the implications for the rest of the workforce was disastrous.

Keep in mind it only takes one person to who doesn’t fully understand the relationship under which they have been hired, to take action. If the process under which contractors are hired and engaged is wrong in one aspect then you expose your business.

Employee or independent contractor?

There are a number of factors to consider in determining whether a worker is an employee or an independent contractor, with no one factor necessarily conclusive. An employer must examine all the facts in each case, including the terms of their contract with the worker showing the intent of both parties.

1. A key factor in deciding if a worker is an employee is the degree of control that can be exercised over the worker.

2. If the employer has the right to direct how, when, where and who is to perform the work, the worker is likely to be an employee. These directions may be verbal or in writing, or simply understood between the parties.

3. If corrective work is to be performed, who is responsible?

Another key factor to consider is whether the worker is being paid for the time they work, or being paid for a result. Workers being paid by the hour are more likely to be employees. Workers being paid for a result are more likely to be independent contractors.

The main factors to consider in determining whether a worker is an employee or an independent contractor are outlined below and summarised in the table below.

Employee

Generally, a worker is an employee if they:

• are paid for time worked
• receive paid leave (for example, sick, annual or recreation, or long service leave)
• are not responsible for providing the materials or equipment required to do their job
• must perform the duties of their position
• agree to provide their personal services
• work hours set by an agreement or award
• are recognised as part and parcel of the payer’s business, and
• take no commercial risks and cannot make a profit or loss from the work performed.

Independent contractor

An independent contractor is an entity (such as an individual, partnership, trust or company) that agrees to produce a designated result for an agreed price. In most cases an independent contractor:

• is paid for results achieved
• provides all or most of the necessary materials and equipment to complete the work
• is free to delegate work to other entities
• has freedom in the way the work is done
• provides services to the general public and other businesses
• is free to accept or refuse work, and
• is in a position to make a profit or loss.

Note:

These factors vary between governing bodies, if the ATO deem them contractors via agreed determinations; this may not be the case with Work cover which may also vary to the factors laid down by union groups and Superannuation considerations.

• There are over 1.2 million SMEs representing over 96% of all business and 33% of GDP. It makes them Australia’s largest employer.
• Of the 1.2 million SMEs in Australia, more than two thirds employ between one and four people.
• A further 180,880 SMEs employ between five and 19 people
• This means that 93.5 per cent of people employed by SMEs in Australia are employed by what can be described as ‘micro-SMEs’, namely companies with less than 20 employees.

There are over 100,000 businesses with an annual turnover between $2M and $100M accounting for $16 billion or 9% of commonwealth revenue.

During 2002/03 there were 47,000 new SMEs to market and between the years 1983 – 2000 the number of SMEs grew by 3.5% as compared to large business employing 200 or more which grew by 2.0%.

SMEs are the fastest growing sector of most economies around the world. Recent (Australian) SME growth has been in the areas of:

• Construction
• Manufacturing
• Services
• Property
• Retail
• Wholesale

The ups and downs of SMEs.

Without doubt, SMEs perform a critical role in the Australian economy as highly flexible and responsive suppliers to large firms, customers of large firms and as suppliers to end-user customers in their own right. However, the mortality rate among SMEs is alarmingly high. In 2005-06, 99.5% (80,000) of employing businesses that folded were SMEs.

To counter that, the resilience of the SME sector is astounding.

For every SME that ‘died’ in 2005-06, there was a new one born. In fact, by the end of the year, there were 3% more employing SMEs than at the start of the year.

A highly crowded market.

Importantly, the number of SMEs facing this very pressing survival challenge is growing each year. At July 2006, there were 22,400 more SMEs than at July 2005 and 183,000 more SMEs than at July 2003.

While SMEs have a much higher number of exits than larger businesses, this does not seem to deter other SMEs from entering the market. Around 99.5% (102,000 businesses) of new employing businesses in 2005-06 were SMEs.

Each year over the last 3 years, the number of new entrant employing SMEs more than replaces the number of exiting SMEs.

So what are SMEs doing wrong?

Two primary causes of SME failure appear to be:

• Lack of appropriate management skills
• Inadequate capital.

You can add to that the fact that:

• only 28% of SMEs have business plans in place
• over 160,000 business owners are aged under 30
• and only 38% have planned ahead. (Aust Fin review 29/05)

A “Marsden-Jacob” study at the behest of the Attorney-Generals Department revealed that 48% of SMEs had a serious dispute within the past two years with less than half of those in dispute seeking help. The reason they most often offered, was not knowing where to turn.

The survey went on to reveal the disputes in respect:

• HR issues
• Workplace reform
• Employee policy etc

It’s interesting to note that management acknowledgement these disputes are at a considerable cost to their economy and a brake on SME growth.

Other challenges your organisation could be facing:

• Attracting & developing talent to your company
• ICT issues
• Performance Management
• Poor sales results
• Change

Market dynamics that affect your business:

• The overall economic environment
• Shortage of skills in the marketplace
• Changing IR landscape
• Generational expectations
• Baby Boomers
• Generation X
• Generation Y
• Women in the workplace
• Technology i.e. more flexible work options
• Demographics i.e. an aging workforce

Why the risks are greater for SMEs.

As a SME, you face many similar risks to larger business. However the relative impact of each risk has the potential to devastate your business.

The following list represents challenges as identified by SMEs across a variety of sectors.

• Business re-engineering
• Change management
• Performance management
• Information and communication
• Sales growth
• Regulation & compliance
• HR Issues
• Retention
• Cost efficiencies
• Learning & development

Understanding all of these risks is vital to protecting your business. However, if you’re like most SME owners or managers, you probably don’t have the time or expertise in-house to deal with them.
That’s precisely why you should talk to Next Move. We can provide you with a professional range of HR solutions and business support strategies, which can be tailored to meet the exact needs of your business.

A free, no-obligation meeting

Your first meeting with a Next Move consultant is free and without any obligation. So get in contact with us today. Email us right now at info@nextmoveconsulting.com.au

• One day I realised my business had more employees than ever, yet I seem to be earning less?
• I felt I was in business just to keep my employees earning a wage!
• I used to be on top of things and now I feel my management approach is reactive.
• I seem to be in back-to-back meetings all day, no longer able to work on my business and can feel it slipping in some areas.
• I am always fire fighting.
• Some days I spend all day just referring disputes.
• I used to love what I do, but lately I am just going through the motions. The passion is gone.
• I spend more time on IT, HR and financial issues than ever before?
• Revenue is up, while profits seem to stay the same or even decreasing?
• I am spending more time at my business today than I did when I first started; this wasn’t the plan at all.
• I always seem to be on the attack.
• My business feels like it’s out of control?
• I am stuck.
• The business is growing faster than me.
• I’m really not sure what to do next.
• I kept thinking things would get better.

Your first meeting with Next Move is completely free and without obligation.

So get in touch with us right now by emailing us at info@nextmoveconsulting.com.au