PIHRA Scope - Spring 2008 - (Page 11) When Should You Start Worrying About Human Capital? Focus on Hiring, Performance Management, and Compensation at a Company’s Early Stage By Jack Midgley Vice President, Human Capital Consulting, TriNet © www.istockphoto.com “I’ll worry about performance management later.” “Compensation policy? That’s something for Google to think about. I’m a small company; my issues are growth and getting to market.” When we ask leaders of early-stage companies about their approaches to human capital management, we sometimes hear responses like those. High-performing small companies and the entrepreneurs who lead them are laser-focused on growth and innovation. It’s not uncommon for early-stage management teams to believe that sound human capital practices are a luxury—great in principle, but simply not practical given the pressures of the moment. The hard fact is that every company makes critical longterm decisions about its people, culture, and structure early in its history. Those choices can be designed by management, or they may simply evolve as the business grows—but the choices are always made. Either way, human capital policy choices made at the early stage will shape the competitive position of every business. Bower did not wait until they “got bigger” to think about how McKinsey would manage its human capital. Microsoft’s developer-centric, thrifty culture was shaped by Bill Gates and Paul Allen when the company’s small team was building BASIC interpreters for the Altair 8800. Those core practices have not changed and few would argue that Microsoft could change them now. What are the key human capital choices that high-performing companies need to make? McKinsey and Microsoft demonstrate that three elements—hiring practices, performance management, and compensation practices—need early, explicit attention. HIRE SMART Hiring makes perhaps the most impact upon the identity of early stage companies. Leaders can “let it happen,” or, like Bower, can make the hard choices about the qualities and attributes they believe will be essential to long-term growth and profitability. Biotech companies often struggle with this challenge, as a “science-first” early stage gives way to the need to commercialize and manage manufacturing. If the management team will not or cannot adapt hiring practices, then the company’s future is at risk. MANAGE PERFORMANCE Performance management, whether it’s the “up or out” variety or a more developmental approach, signals management priorities and shapes behavior. We often encounter small companies with attentive financial management who have never actually reviewed the individual contributions of employees or executives. But the largest single investment these companies make is the compensation of their employees. Management needs to know—especially in the early stages—if goals are being met. How can the leaders know, unless employee performance is being actively managed and measured? The right performance management system can make a significant impact upon a company, and it can happen at a company’s earliest stage. HUMAN CAPITAL continued on page 12 Spring 2008 PIHRAScope 11 THOSE WHO GOT IT RIGHT STAY SUCCESSFUL The consulting firm McKinsey & Company continues to dominate its industry because of key human capital decisions deliberately made by the founders when the firm had fewer than 10 employees. Marvin Bower’s advocacy of the partnership structure, strong “up or out” management, and a clientcentered approach drawn from top law firms shaped McKinsey’s early choices about people and clients. Those choices can still be seen in the policies and practices of the firm. FEATURE http://www.istockphoto.com
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