Strategic Planning for the Growing Business

INTRODUCTION

To many people, strategic planning is something
meant only for big businesses, but it is equally
applicable to small businesses. Strategic plan-
ning is matching the strengths of your business
to available opportunities. To do this effective-
ly, you need to collect, screen and analyze in-
formation about the business environment. You
also need to have a clear understanding of your
business - its strenghts and weaknesses - and de-
velop a clear mission, goals an objectives. Ac-
quiring this understanding often involves more
work than expected. You must realistically as-
sess the business you are convinced you know well.
Familiarity can breed contempt for thorough analy-
sis; you cannot properly evaluate your firm's
strengths or shortcomings.

THE BUSINESS ENVIRONMENT
Strategic planning focuses largely on managing
interaction with environmental forces, which
include competitors, government, suppliers,
customers, various interest groups and other
factors that affect your business and its pro-
spects. Your ability as a small business owner-
manager to deal with these groups will vary
widely depending on the group and on the timing.
For example, you may enjoy greater influence
with your local government than with the federal
government. Also, you may be able to get more of
what you want from a supplier than from a compe-
titor (although size, distance, the percentage
of the supplier's business you represent and
your record of dependability as a customer can
affect this relationship). How you manage these
and other relationships is one of the decisions
you will make during the strategic planning pro-
cess.

Because of major changes in the business environ-
ment, your familiarity with strategic planning
and your ability to implement it is critical. At
one time, business owner-managers assessed the
environment on a continuum that ran between very
stable and very unstable. Businesses, such as the
producers of automobiles, furniture and other con-
sumer goods, operated in a relatively stable and
predictable world. This also was true of many ser-
vice firms, such as banks and savings and loans.
Typically, the environment included competition
that was limited to a stable group of competitors,
loyal customers and a relatively slow transfer of
information. Many small businesses could thrive in
this environment. Other small investors entered
fields such as xerography, computers and computer
component production, software design and chemical
research. Some of these grew rapidly, becoming
names with which we all are familiar: Xerox, IBM,
Apple and Microsoft. But many more failed.

Today, experts agree that more businesses face an
unstable business environment. Improvements in in-
formation processing and telecommunications have
made major changes in most industries. Along with
this, improvements in transportation and the grow-
th of foreign economies (specifically in Europe
and Asia) have created a global marketplace and
redefined certain industries. In addition, as con-
sumers are exposed to more choices, loyalty has
become less important than it once was; a slightly
better deal or a temporary shortage of stock can
easily result in the loss of customers. Competi-
tors also can change rapidly, with new ones appear-
ing from out of nowhere (often this means the other
side of the globe). With the instability of the
global market, it is important that you make stra-
tegic planning part of your overall business stra-
tegy.

PROACTIVE VERSUS REACTIVE MANAGEMENT
A few years ago, you could establish and maintain
a business by reacting to and meeting changes in
tastes, costs and prices. This reactive style of
management was often enough to keep the business
going. However, today changes happen fast and come
from many directions. By the time a reactive mana-
ger can make the necessary adjustments, he or she
may lose many customers -- possibly for good.
Proactive planning is the anticipation of future
events. Decisions are based on predictions of fu-
ture states of the environment as opposed to re-
actions to various crises as they occur. Proac-
tive planning in an unstable, technology-driven
business environment is critical to continuing
success in almost any endeavor. Rather than re-
acting to the situation as it changes, proactive
planning requires that you analyze environmental
forces and make resource-allocation decisions.
By doing this you will take your business where
it needs to be in the next month, year and dec-
ade. Barry Worth, a consultant speclalizing in
small business management, puts it this way:
Today's entrepreneur must be a business
architect. Anything built in today's
business environment must have a step-
by-step blueprint or plan on how to
achieve success (Worth December 1989).
The blueprint for today's business owner is a
business plan.

THE NEED FOR A STRATEGIC PLAN
Planning plays an important role in any business
venture. It can make the difference between the
success or failure of your business. You should
plan carefully before investing your time and,
especially, your money in any business venture.
The need for a plan is best illustrated by the
following scenario - "A Tale of Two Businesses."
Two franchises (A and B) were started by individ-
uals who had worked in management in much larger
companies. While Franchise A provided a product
and Franchise B a service, the output of both
franchise systems had been sold exclusively in
the United States before lhe current owners be-
came involved. The output of both was readily
available in other developed countries as well.
The franchises opened about the same time and
neither franchisee had a strong market presence,
nor do they at present. Today Franchise B is bank-
rupt. By contrast, Franchise A is selling products
in the midwestern United States and in Europe.
What was the deciding difference in the two fran-
chises' success? You probably expect it to be
that one had developed a strategic plan and the
other hadn't; however, it isn't this simple. Many
factors can influence the outcome of a business
venture. There were many similarities between the
franchises, but there also were many differences.
Most notably, Franchise A sold a product and Fran-
chise B a service (although this does not clearly
limit options). Another difference was that Fran-
chise A had a carefully thought-out plan. The in-
vestors knew as they looked for a franchise part-
ner that they wanted to find a product that could
satisfy international markets and a franchisor who
would support that kind of sales effort. These in-
vestors were based in thc Midwest, but negotiated
for exclusive rights to export lhc franchisor's
product. Once they had obtained the franchise, and
as they began to establish their business domestic-
ally, they also began to contact government experts
in the U.S. Department of Commerce and the U.S.
Small Business Administration, as well as educators
and local managers with international experience.
Clear plans were developed outlining how they would
position, market and distribute the product and
which foreign markets would be targeted first. Even
as they were building sales in one European market,
they were attending trade shows and planning entry
strategies in others.

By contrast, the second investor (Franchisc B)
started his business strictly because he wanted
to leave a former employer. Of course many small
businesses get started this way; however, in
this case no investigation of franchising alter-
natives was done. The business was located in an
area that, as it turned out, contained virtually
no consumers for the kind of service being offer-
ed. When this mistake was realized, it was too
late to move--the investor simply did not have
the money or the desire to risk starting again.
Other examples further show the need for strate-
gic planning and for developing a clear business
plan. The owner of a business that seemed to be
doing quite well in two locations was about to
open in a third. The authors were called in to
develop a benefits policy and discovered cash-
flow problems that could be found only after op-
erations had begun in the new location. After
analyzing the situation, an expansion and finan-
cial plan was developed for the sound locations
only. In another case, the authors determined
that a business had purchased more equipment than
was necessary to accomplish the current workload.
After careful analysis, plans to make further pur-
chases were put on hold, and the equipment avail-
able was used effectively to meet immediate needs.
A business enterprise is toog complex to assume
that failure to develop a sound business plan
will be the cause for problems Nevertheless,
this failure often counts among thc factors con-
tributing to busincss difficulties. As Worth has
said, "Being a business entrepreneur today takes
constant vigilance in order to be able to take
advantage of new opportunities and the availabil-
ity of new information and technology as they
come into being." The first step in doing this
is to have a plan.

DEVELOPING A STRATEGIC PLAN
Mission Statement
The first step in the strategic planning process
is an assessment of the market. Businesses depend
on consumers for their existence. If you are fac-
ing a rapidly growing consumer base, you probably
will plan differently than if your clientele is
stable or shrinking. If you are lucky enough to
be in a business where brand loyalty still pre-
vails, you may take risks that others cannot af-
ford to take. Before you begin to assess the mar-
ket, it is important that you complete a careful
assessment of your own business and its goals.
The outcome of this self-assessment process is
known as the mission statement. According to
Glueck and Jauch (1984, p 51), "The mission can
be seen as a link between performing some social
function and the more specific targets or objec-
tives of the organization." Another definition
states that the mission statement is a "term that
refers to identifying an organization's current
and future business. It is viewed as the primary
objective of the organization" (Rue and Byars
1983, p. 99).

Because these authors are writing for an audience
of managers or would-be managers of larger busi-
nesses, their definitions may sound a bit lofty.
If, however, you go back to the earlier example
of a successful small business, you can see it
started with a clear direction--what was to be
achieved and, in a broad sense, how best to a-
chieve it. While your own goal may be to survive,
make a profit, be your own boss or even be rich,
your business must first perform a social func-
tion, i.e., I must serve someone. Given this you
must determine (1) the ultimate purpose and (2)
the specific targets or objectives of your busi-
ness.

The investors of Franchise A discussed above
clearly had determined they wanted a business
with the potential for international sales.
With this objective they were able to deter-
mine the kind of franchise they wanted and
the terms. They knew that some goods and ser-
vices were more likely to be marketable over-
seas than others. Early research helped them
determine which areas of the world would be
the best places to start. This, in turn, help-
ed them to further narrow their list of poten-
tial products. Also, they were able to assess
the financial demands of various approaches
to overseas markets. Their financial analysis
enabled them to affirm that a franchise would
be one of the alternatives with a high profit
potential. All of these directions were derived
from an initially vague desire to "go interna-
tional." And, as the investors developed their
ideas into a clearly defined business purpose,
many issues were discovered that were critical
to success.

Defining Your Business
A primary concern in defining a mission state-
ment is addressing the question "What business
are you in?" Answering this may seem fairly
easy: however, it can be a complex task. Deter-
mining the nature of your business should not
be strictly tied to the specific product or ser-
vice you currently produce. Rather, it must be
tied to the result of your output--your social
function--and the competencies you have develop-
ed in producing that output.

Management theorist Peter Drucker suggests that
if the railroad companies of the early 1900s or
the wagonmakers of the 1800s had defined their
business purpose as that of developing a firm
position in the transportation business, rather
than limiting themselves strictly to the rail
or wagon business, they might still enjoy the
market positions they once did (Rue and Byars
1983, p. 101). The obvious concern here is to
ensure that you do not define your busincss too
narrowly, leaving yourself open to economic
changes or competitive challenges that make you
vulnerable. The primary reason the service com-
pany mentioned earlier (Franchise B) failed was
that it lacked a consumer base. These consumers
were already being served by the current market.
In another example, an entrepreneur developed a
device to provide greater security for homes and
vehicles. But, by focusing on the product rather
than the service it was meant to provide, he
failed to consider other services that already
provided essentially the same level of protec-
tion at lower costs.

Your Firm's Philosophy
Once you have defined your mission statement,
the next step is to define the firm's basic
philosophy. Such a statement will help explain
to your employees and associates how you would
like to see the firm operate. Are you a risk
taker, or would you prefer to build your busi-
ness slowly from a solid base? How will you
relate to customers, suppliers and competitors?
What type of community involvement do you plan
for your business, e.g., participation in recyc-
ling and volunteer activities? These questions,
and many more, need clear answers to help your
employees make operational decisions and conduct
themselves in a manner consistent with your
wishes. Much has been written about this concept
in business literature under the term corporate
culture. A clear explanation of your business's
philosophy in the mission statement will provide
a basis for the development of a consistent busi-
ness culture.

Your Firm's Goals
The next step is to set clear goals to guide and
maintain the business on a path consistent with
its mission. Daniel Robey provides an excellent
list of the key functions of business goals
(Robey 1982). To summarize his comments, goals
serve to
- 1. Justify or legitimize the organization's
activities.
- 2. Focus attention and set constraints for
member behavior.
- 3. Identify the nature of the organization
and elicit commitment.
- 4. Reduce uncertainty by clarifying what
the organization is pursuing.
- 5. Help an organization to learn and adapt
by showing discrepancies between goals
and actual progress (providing feedback).
- 6. Serve as a standard of assessment for
organization members.
- 7. Provide a rationale for organization de-
sign.

At one time, it was widely assumed that the
owner of a company set that firm's goals.
Glueck and Jauch refer to this as a "trickle-
down" theory because it was assumed that others
in the organization simply accepted these goals.
Chester Barnard, believing that it was naive to
assume such ready acceptance, suggested that or-
ganizational objectives arose from a consensus
of the employees (Gleuck and Jauch, pp. 78-79).
This "trickle-up" theory, however, is also naive
in assuming that an organization is simply the
sum of individual perspectives, and that it can
achieve direction from an unguided and usually
disparate group of people. Modern theories spring
from combinations of these two approaches, suggest-
ing goal development is a complex goal-bargaining
process that enjoys some advantages of both basic
theories.

Bargaining, while seeming a rather negative and
poorly developed goal-setting approach, has the
advantage of involving most, if not all, employ-
ees in the process. As a result, it is more
likely that key concerns, internal as well as
external, will be taken into account. By involv-
ing employees, you improve their understanding
of and commitment to the firm.
Pierce and Robinson captured the complexity of
goal setting in this statement:
Strategic choice is the simultaneous selection
of long-range objectives and grand strategy....
When strategic planners study their opportuni-
ties, they try to determine which are most
likely to result in achieving various long-
range objectives. Almost simultaneously, they
try to forecast whether an available grand
strategy can take advantage of preferred op-
portunities so that the tentative objectives
can be met. In essence then, three distinct
but highly interdependent choices are being
made at one time. Usually several triads or
sets of possible decisions are considered
(Pierce and Robinson 1985, p. 231).

To improve the structure of this strategic ap-
proach, most experts suggest that a repetitive
method be used in developing goals. This begins
with the owner and perhaps a few key employees
agreeing on a long-term direction for the busi-
ness and suggesting major goals in line with
this direction. Then, other employees are asked
to suggest specific objectives, which are then
reviewed before being implemented. Goals become
the shared purposes of the owner and employees
and thus, it is much easier to get the support
of employees and their clear understanding of
what needs to be accomplished.

Goals are defined as broad, ideal conditions. A
possible goal could be "To become the leading
small-package delivery service in the Kansas City
metropolitan area." In defining goals it is impor-
tant to understand (1) how the goal was derived
and (2) how it provides guidance.
Objectives to Achieve Goals
Accomplishing a goal requires establishing and
achieving several specific objectives, which must
- Be clear, concise and attainable.
- Be measurable.
- Have a target date for completion.
- Include responsibility for taking action.
- Be arranged according to priority.

An objective to the above-stated goal could re-
quire that the dispatcher develop a route struc-
ture capable of providing three-hour service to
any area within 20 miles of the city's center,
with the service beginning within six months.
An objective has to fit within a hierarchical
network of other objectives that together con-
tribute to the firm's ultimate goals and mis-
sion. For example, a subsidiary objective to
the one mentioned above may be "To purchase
three new or late-model used delivery vans
within five months." Another objective could
specify expanding staff to drive the addition-
al vehicles and to handle the expected increase
in dispatching chores. This system of setting
priorities is called a hierarchy of objectives.
Anthony Raia provides a list of guidelines to
help you avoid pitfalls in setting objectives
(Rue and Byars, p. 107). Some of the most im-
portant include
- Adapt your objectives directly to organiza-
tional goals and strategic plans. Do not as-
sume that they support higher level manage-
ment objectives.
- Quantify and target the results whenever
possible. Do not formulate objectives where
attainment cannot be measured or at least
verified.
- Test your objectives for challenge and achiev-
ability. Do not build in cushions to hedge
against accountability for results.
- Adjust the objectives to the available re-
sources and the realities of organizational
life. Do not keep your head either in the
clouds or in the sand.
- Establish performance reports and milestones
that measure progress toward the objective. Do
not rely on instinct or crude benchmarks to ap-
praise perfonnance.
- Put your objectives in writing and express them
in clear, concise and unambiguous statements.
Do not allow them to remain in loose or vague
terms.
- Limit the number of statements of objectives
to the key result areas (for your business).
Do not obscure priorities by slating too many
objectives.
- Review your statements with others to assure
consistency and mutual support. Do not fall
into the trap of setting your objectives in a
vacuum.
- Modify your statements to meet changing condi-
tions and priorities.
- Do not continue to pursue objectives that have
become obsolete.

The formulation of a mission, goals and objectives
is a complex, repetitive and continual process. As
a small business owner-manager, your first reaction
may be that you don't have the time or the re-
sources to accomplish this. This may be true; how-
ever, you must develop a process that you can im-
plement and be comfortable with. You will need to
be aware of this process, the relationship of goals
to ultimate performance and the need to be specific
and consistent. A carefully thought-out set of
goals provides the base on which the rest of stra-
tegic planning will proceed. The time you put into
carefully assessing what you hope to achieve and
how you will measure it will reduce the time re-
quired to assess and control performance.

Environmental and Industry Analysis
In determining appropriate goals, you will need to
consider the position of your business within its
industry and the broader business environment.
Several trends may affect your business prospects.
Examples may include shifts in population (e.g.,
the purchasing status of "baby boomers"), trends
in the economy, technological developments, legis-
lation (e.g., safety or antipollution regulation)
and the activities of special interest groups. As
you clarify your mission and goals, you will find
that some factors are important while others may
not require your attention.

There are several approaches to dealing with fluc-
tuation and change in your business environment.
James Thompson presents a list of general strate-
gies that provides a good "first cut" at the com-
plicated process of making strategic choices re-
lated to the business environment (Miner 1982,
p. 147). He argues that most organizations search
for certainty in an uncertain, fluctuating environ-
ment. Depending on the business' resources and the
specific situation, a business may adopt one of
four approaches to the business environment.
Buffering can be used when you have an abundance
of resources, sometimes referred to as organiza-
tional slack. However, this is a luxury few ef-
ficiently run businesses enjoy. If, for example,
you possess a technological edge, you may be able
to relax your vigilance in the confidence that
you have the resources to adapt to changes that
may occur. You are then able to concentrate on
other environmental factors that may affect areas
of your business in which you don't have such an
advantage.

Smoothing is a useful approach when you enjoy sur-
plus resources in one area but your ability to
meet demand is overtaxed in others. A good example
is a chimney cleaning service that was unable to
meet demands for chimney repair and service during
the winter months, but had to lay off employees
during the spring and summer months. In an attempt
to change the environment, the owner developed ad-
vertising and pricing strategies aimed at attract-
ing more business during slow times. In addition
the owner assessed the skills of his employees. He
found that by doing general masonry jobs in slow
times, he could retain workers while actually in-
creasing the size of his business. This example
also provides a clear illustration of how a small
business can manage, and even change, its environ-
ment.

Forecasting is something, that all businesses must
do. When you don't have the resources to use a buf-
fering strategy or when conditions make smoothing
impossible, you must anticipate environmental
changes. The immediate need of most businesses is
to monitor the competition. Other events that you
can anticipate with an effective forecasting system
include
- Technological breakthroughs.
- New competitors (either a company "purchases
in to" your industry or a new competitor en-
ters from an overseas market).
- Changes in the cost and availability of raw
materials.
- Changes in consumer taste.
Effective forecasting is possible only when prob-
abilities can be predicted; for example, you have
a pretty good idea of what the odds are that short-
ages will occur in a raw material, or what the
chances are that a law will pass providing new
sources of assistance to small businesses. Unfor-
tunately, many trends and changes are very diffi-
cult, if not impossible, to anticipate, even with
the best forecasting system.

As a result you may find that you must resort to
Thompson's fourth approach - rationing. An unanti-
cipated technological breakthrough or a sudden
change in the spending habits of your customers
may force you to reallocate resources. In this
situation, goals may need to be delayed or fore-
gone altogether, and parts of your business may
need to be reduced. All needs of the business will
not be completely met, but you will move to a base
from which you will have the best chance to re-
cover. With time you will rebuild to compensate
for any losses incurred.

Information Needs
The most important consideration in developing an
effective approach to forecasting and planning is
the development of your information system. In the
world of personal computers, you may equate infor-
mation systems with microchips and programming,
but the concept as used here is much broader, re-
ferring to the way you gather, screen, analyze and
use information that may affect your business. This
publication is part of your information system. You
are using it to inform yourself of modern approach-
es to managing, improving and possibly enlarging
your business.

Too many businesses still have information systems
that might be described as "shoebox" systems. In-
formation about the business and its environment
are collected in various documents that are stored
in shoeboxes, or it is picked up through contacts
between the owner and customers. The owner "analy-
zes" this information and the results are used to
make further decisions.

The problems with this system are obvious. First,
no effort has been made to determine what critical
elements--internal or external to the business--
should be assessed. Second, assessment is based en-
tirely on what strikes the owner as memorable or
important. Unfortunately, what is remembered is not
necessarily what is important. Memory is influenced
by preconceptions and perceptions, and by how busy,
tired or distracted the owner was at the time an
event occurred. An additional problem with this in-
formal approach is that, should the owner want to
verify his or her impressions of some series of
events, it would be time consuming--if not impossi-
ble--to locate the records that would allow a full
analysis. While "seat-of-the-pants" decision making
based on this type of information system sometimes
works remarkably well, much is left to chance.
Setting up an effective information system is inte-
grally related to your mission and goals and to the
specific environmental factors defined in your stra-
tegic purpose. Collect enough information, but
don't collect too much-- this leads to information
overload, where decision makers are so swamped they
become incapable of making sense of the informa-
tion, or of using it to make good decisions.

Developing a good system is a dynamic process. It
is easy to determine what information you need to
collect and how to obtain it. However, as the en-
vironment and your situation change, the informa-
tion you need also changes. Items that were once
important now are not. Other considerations, im-
possible to anticipate at the time you developed
your system, have become critical.

Employees should be involved in determining what
information is needed and where to obtain it. They
are often the first line for data collection. They
can provide insights and perspectives that you may
not have considered. Together, you will be able to
develop a reasonably thorough list of concerns
that the information system should address.

In any information system, a variety of sources
should always be used. You already collect much
information in the documents you use to conduct
everyday business. Other sources may include peri-
odicals (particularly those published specifically
for your industry), newspapers (or clipping ser-
vices), books and experts in areas of concern.
Once you have collected the data, you will need to
condense and analyze it. This is the information
reporting system. You already produce reports for
various government agencies and banks, which are
nothing more than a presentation of the data you
collect in a way that is useful to the particular
agency. A good information system will provide in-
formation to employees in your business in a form
that they need to make effective decisions and
carry out their jobs. It will provide enough infor-
mation, but not more than is necessary and useful.
As the type of data collected changes over time,
so will the reports needed. As a result, report re-
quirements must be periodically reassessed so time
is not spent producing useless reports.

Finally, information should be stored for easy re-
trieval to accommodate new situations that may re-
quire different analyses. In data processing, this
system of storage is referred to as the company's
data base. Whether you rely on an electronic or a
manual system, storing information so it is easily
retrievable requires considerable forethought.
Much of the business software available today
focuses on storing data in ways that allow it to
be retrieved in many different forms and later com-
bined for analyses that were not originally anti-
cipatcd or nccessary.

Internal Business Analysis
Once you've begun to collect the necessary informa-
tion about your external environment, you will be
able to consider how to best fit your business in-
to the situations that surface. To do this you must
clearly understand the strengths and weaknesses of
your firm. For a long time, people assumed that
small businesses were always at a disadvantage be-
cause they were small. Today, there are few com-
mercial areas that don't have room for smaller com-
petitors if they are focused and efficient.

The primary task in the business analysis phase is
to identify those factors that may give you a com-
petitive advantage. If you hold a patent or an ex-
clusive license on a particular product or service,
you may enjoy a competitive advantage. Flexibility
is a major advantage that small businesses often
enjoy over larger rivals. You may be able to re-
spond more quickly and with less cost to mood
swings or taste changes in the market. Also, small
businesses can often move into new product or ser-
vice lines more quickly than larger firms.

The nature of the technology used to make your
product may often yield competitive advantages.
If you employ individuals skilled in areas unique
to your business, their skills will often yield
cost advantages that may offset disadvantages in
other areas. For example, your competitor may be
further ahead in using computer-aided scheduling,
but you are able to rely on specialists in your
own firm and can market your product as a unique
value while you move to minimize the technologi-
cal differential. Once you are clear about the
areas in which you are ahead, assess your weak-
nesses. Having done this, you can develop a stra-
tegy that has the best chance of succeeding. In-
stead of simply trying to compete for customers
on a single dimension, such as price, or to catch
up in one area of technology, you are now able to
consider alternatives derived from a combination
of factors. You may, for example, see that a tra-
ditional competitor has an apparently insurmount-
able cost advantage from adopting a technology
that yielded unforeseen benefits. An effort to
compete strictly on thc basis of price while at-
tempting to catch up technologically is probably
doomed to failure. On the other hand, a move into
other product lines that take advantage of the
skills used by your firm may give you a better
chance for survival. Eventually, this strategy
may give you the time needed to acquire the tech-
nology to compete in your original product area.

Finalizing a Plan
When you have a clear grasp of the competitors,
customers, suppliers and situations you face,
and you combine this with a realistic understand-
ing of your own strengths and weaknesses, you can
develop a strategic plan with a strong chance of
success. You may decide that you have the strengths
to compete with other businesses "head-to-head" in
their best markets. You may choose to target a mar-
ket that has not been touched by your competitors.
You may see opportunities to influence local or
state legislation in a way favorable to your needs.
Or you may realize that you are constrained by a
combination of circumstances that severely restrict
your opportunities and leave you only limited
chances for success. You should, however, under any
of these scenarios, be able to make better choices.
Before you develop a detailed plan to implement,
attempt to identify several possible alternative
approaches. Frequently, when an individual or or-
ganization faces a problem or opportunity, solu-
tions will appear to "pop up." You've faced simi-
lar situations before, you have a "gut feeling
that the way to solve the problem is to.... "
While your first idea may, in fact, work, the odds
are it won't be as effective as other possibili-
ties. The reason that this obvious choice may not
be the best option is that it is usually based on
experiences that, while appearing similar, are
actually very different. You may struggle a bit to
identify other possible approaches. No alternative
will be perfect. But once you have considered
several and listed the advantages, disadvantages
and overall chances of success for each alterna-
tive, you will be in a better position to settle
on a plan with greater potential.

THE BUSINESS PLAN
The business plan is a succinct document that
specifies the components of a strategy with re-
gard to the business mission, external and in-
ternal environments and problems identified in
earlier analyses. A business plan is not writ-
ten each time a modification to a strategy is
made. It should be written when you develop a
new venture or launch a major new initiative.
The business plan serves several important pur-
poses:
- It helps determine the viability of the
venture in a designated market.
- It provides guidance to the entrepreneur
in organizing his or her planning activi-
ties.
- It serves as an important tool in helping
to obtain financing
(Hisrich and Peters 1989, p. 126).
A well-written business plan also will pro-
vide broad parameters upon which progress
toward goals can be assessed and control de-
cisions made at a later time.
A typical business plan begins with a brief
introduction followed by an executive summary.
The executive summary is prepared after the
total plan has been written. Its purpose is
to communicate the plan in a convincing way
to important audiences, such as potential in-
vestors, so they will read further.

An industry analysis usually follows the execu-
tive summary. This section communicates key in-
formation--thc collection of which was discussed
earlier--that puts the venture or plan into the
proper context.

The marketing plan is the first step in develop-
ing any new strategy. It is developed within the
context of the company's goals and should be
based on a realistic assessment of the external
environment, as discussed earlier. The marketing
plan is written first because marketing decisions
typically determine resource needs in other areas.
Obviously, a decision to seek a large share of a
market will require a significant commitment of
resources of various kinds. How you choose to pro-
mote and distribute your product or service will
have clear ramifications for your organizational,
production, human resource and financial plans.
The organizational plan details how your business
is to be configured to most effectively support
the marketing objectives. What kinds of skills are
needed to carry out your plan? What sorts of
skills do you have among managers and employees?
What tasks will be done by which employees? What
tasks will be contracted out? Many businesses, for
example, hire the services of an advertising firm
to improve their product promotions but handle
their customer relations internally. Roles and re-
sponsibilities of each employee need to be clearly
specified, as discussed in the section on goal set-
ting.

Develop the production plan and human resources
plan along with the organizational plan. Again,
you must decide whether or not you will handle
all production internally or contract all or part
of it to other firms. What equipment will you
need to meet the marketing plan? What will be
the costs of manufacturing the product? What will
be the future capital needs of the enterprise?
Human resource needs are clearly affected by de-
cisions made in production planning. What human
resources do you have? Will they be adequate to
handle new or changed plans? What additional
skills are needed? Will you seek employees who
are already trained, or will you hire less
skilled individuals and train them? If the lat-
ter, what resources will be needed for training,
and how long will it take to obtain the desired
levels of productivity?

The financial plan underpins this entire system
of plans. Three financial areas are generally
discussed (Hisrich and Peters, pp 126-7). First,
forecasted sales and related expenses need to be
summarized. Monthly figures generally need to be
estimated for a period exceeding one year, al-
though the appropriate period will vary depend-
ing on the nature of the product and the stabil-
ity of the market. Second, cash flow figures need
to be estimated over the same period. A business
needs to pay its bills in a timely fashion; many
successful ventures end when suppliers refuse to
extend additional credit to a business that hasn't
paid its bills. Finally, a projected balance sheet
that shows the financial condition of your busi-
ness at a specific time needs to be prepared.
Usually an appendix is included in a business
plan. This generally contains supporting infor-
mation, documents and details that would inter-
fere with clear communiution in the body of the
plan. Examples of this type of information in-
clude price lists, economic forecasts, demo-
graphic data and market analyses.

IMPLEMENTING THE STRATEGY
Implementation is usually thought of as something
you do at the end of the strategic planning pro-
cess. "Okay, now we have this strategic plan; let's
do it." If you think about what has been discussed
in this publication, it becomes apparent that you
will be considering the practical problems of im-
plementation throughout the planning process. Fre-
quently, a suggested alternative will be rejected
because it would be difficult to implement. Or a
preferred approach to marketing or production
would be beyond the financial means of you or your
investors.

The two primary issues that need to be considered
in the final implementation process are communica-
tion and scheduling. Successfully implementing a
plan depends on effective communication. Employee
resistance often can be reduced, if not elimina-
ted, if plans are openly presented and concerns
are dealt with up front. In addition, to carry
out new policies and procedures effectively, em-
ployees need to have a clear understanding of
what is happening and what is expected of them.
Better informed employees are more likely to do
as you instruct them, thereby reducing the need
for complex and costly control systems.

One key element in effective communication is
involving your employees--those who must carry
out the plan--as much as possible in the actual
planning process. People who are involved in
planning will have a solid grasp of the plan
and their part in it when it is implemented.
If employees are genuinely involved in the pro-
cess, they are more likely to accept the result
as a plan they helped develop. This result is
often referred to as "ownership."

Successful implementation also depends on a
realistic schedule for the transition. It is
too easy to assume away the difficulties of
a major change and to anticipate that every-
thing will be on track and running smoothly.
How many times have you seen a news report
about schedule and cost overruns on a govern-
ment project? This kind of error can be disas-
trous if you are working within tight margins
that can be quickly eradicated when costs and
sales don't reach expectations on time. Real-
istic schedules require that you factor in
training time, periods of low productivity,
increased error rates and slowdowns as you
correct organizational oversights. Schedules
also should include planned checkpoints for
carefully assessing progress toward full im-
plementation.

Every business needs to develop systems for
measuring and controlling progress toward stra-
tegic goals; no matter how loyal your employees
or how strong the camaraderie, individual and
organizational goals are not always the same.
Three features distinguish effective control
systems from ineffective systems.
- Standards--These are your specific operative
goals. The need to carefully set clear and
measurable goals was emphasized earlier. (The
processes of planning and controlling are most
closely related for this reason.) Cautiously
interpret how well your business performs rel-
ative to your goals. It is too easy to assume
that, if you are not meeting your goals, the
business simply is falling short. You also
must reassess your original goals. Are the
goals reasonable? Is it possible that you
overestimated the firm's capabilities? Has
something changed in the environment--a new
law, a new competitor, an economic downturn-
that has completely changed the playing
field? If, for whatever reason, your goals
are now too high, your employees, if forced
to continue to pursue them, will bccome ex-
asperated rather than motivated.
- Measurement-control systems must include quan-
tifiable measures for monitoring performance.
The lack of effective measurement systems is
where control systems often fail. If you can
set performance standards for profits and
units produced, if you can tie standards di-
rectly to the goals of the plan, then build-
ing an effective measurement system is less
difficult. Unfortunately, there are many tasks,
particularly in management, that are difficult
to assess. The output of these tasks, while
critical to the overall success of the plan,
is not usually measurable in clear units. Pay-
offs often only come after a long interval.
- Corrective measures-corrective actions must be
carefully directed at the cause of discrepan-
cies between planned and actual results, and
the cause of problems is often very difficult
to identify. It is fairly easy, for example,
to blame an individual worker for goal fail-
ures. However, in complex business systems,
where labor and sophisticated technology inter-
act, production systems require careful coordi-
nation by managers who must deal with vast
amounts of information. In the modern business
world, it is becoming harder to identify the
source of problems with one agent.
In setting up an effective control system, you
need to make five key design decisions:
- Will you use behavior or output controls? As
noted earlier, output controls are easier to
develop if they can be directly related to
the goal. Unfortunately, for many jobs, out-
put controls don't make sense because of the
indirect link between day-to-day work and
long-term output.
- Do you have adequate means of measuring pro-
gress? Frequently, it is wise to use multiple
measures of job and organization performance.
Too many standards, however, can become cum-
bersome and costly.
- Have you properly focused your controls? As
noted earlier, interdependencies between
various tasks, technologies and phases of the
production system can be quite significant.
If your target of control is too narrow (e.g.,
"The guy just isn't willing to make a reason-
able effort."), you may be missing a more com-
plex situation and find that your remedies
don't really work.
- Have you determined proper intervals between
assessments? You need to find a happy medium
in this area. It might seem ideal to continu-
ally monitor fulfillment of the plan--and in-
formation technologies do, in fact, enable
you to do this in some situations. The cost
of frequent measurements can, nevertheless,
become prohibitive.
- Should you reward or punish to correct dis-
crepancies? Both of these usually are used. How-
ever, overuse of punishment can lead to negative
feelings and, eventually, failure to meet goals.
Additionally, negative controls--punishment sys-
tems--require much more time to administer. This
is because you constantly need to watch for de-
viations from desired behaviors if you are to
catch and effectively punish offenders. A reward
system, on the other hand, links appropriate
actions to rewards, increasing the likelihood
that you will observe positive contributions
without the need for careful or frequent moni-
toring of day-to-day activities.

As you can see, control, like implementation, can-
not be treated as an afterthought if you are to be
successful in whatever strategy you choose. The
standards are determined early in the strategic
planning process as you set clear operative goals.
Effective measurement and correction systems are
crucial if you hope to encourage consistent per-
formance that will lead to the realization of your
strategic goals.

SUMMARY
Strategic planning has become more important to
business managers because technology and competi-
tion have made the business environment less
stable and less predictable. If you are to sur-
vive and prosper, you should take the time to
identify the niches in which you are most likely
to succeed and to identify the resource demands
that must be met. In larger businesses the steps
outlined in this publication may be carried out
by teams of experts or may involve the interplay
of ideas among hundreds, even thousands, of mana-
gers. These guidelines are equally applicable to
the entrepreneur sitting down with several key
employees to discuss what can be achieved in the
next two to three years, and what it will cost.
The amount of time spent on each step and the
resources devoted to this process will vary
greatly from business to business, but it is
vital to understand and employ these steps. The
questions in Appendix A will help you recall the
steps involved in developing a strategic plan.

REFERENCES
Glueck, William, and Lawrence Jauch. Business
Policy and Strategic Management. New York:
McGraw-Hill, 1984.
Hisrich, Robert D., and Michael P. Peters.
Entrepreneurship: Starting, Developing, and
Managing a New Enterprise. Homewood, IL:
BPI/Irwin, 1989.
Miner, John B. Theories of Organizational
Structure and Process. Chicago, IL: Dryden,
1982.
Pierce, John A., and Richard B. Robinson, Jr.
Strategic Management: Strategy Formulation
and Implementation. Homewood, IL: Richard D.
Irwin, 1985.
Robey, Daniel. Designing Organizations: A
Macro Perspective. Homewood, IL: Richard D.
Irwin, 1982.
Rue, Leslie, and Lloyd L. Byars. Management:
Theory and Application. Homewood, IL: Richard
D. Irwin, 1983.
Worth, Barry. "Being an Entrepreneur in Today's
Sophisticated Environment," St. Louis Business
Journal (Dec. 25-31, 1989):5A.

APPENDIX A: SELF-ASSESSMENT QUESTIONNAIRE
--- Have you developed a clear sense of direction
or mission?
--- Have you clearly defined the nature of your
business?
--- Do you have a clear philosophy for conducting
your business affairs?
--- Are your business goals obtainable?
--- Are your objectives logically related in a
hierarchy that will lead to goal achievement?
--- Are your objectives clear, measurable and
tied to goal achievement?
--- Do you periodically reevaluate your ob-
jectives to be sure they have not grown
obsolete?
--- Have you developed a logical and planned ap-
proach for collecting data on your environ-
ment?
--- Are data stored or filed in ways that allow
easy retrieval of useful information?
--- Are reports produced that are seldom or never
used?
--- Do you periodically review your information
system to make certain it is useful and up-
to-date?
--- Can you list four or five key strengths of
your business?
--- Are you aware of key weaknesses in your
business?
--- In developing your final strategy, did you
consider three or four possible alternatives?
--- Are you involving your employees in planning
decisions?
--- Did you take time to communicate the final
plan to employees and deal with their con-
cerns?
--- Is your timetable for implementation of the
plan realistic?
--- Have you scheduled definite checkpoints for
assessing progress toward goals?
--- Have you developed effective ways of measuring
progress?

APPENDIX B: HOW TO WRITE A BUSINESS PLAN
The following pages provide a suggested outline of
the material that should be included in your busi-
ness plan. Your final plan may vary according to
your needs or because of the individual require-
ments of your lender.

What Are the Benefits?
Every business can benefit from the preparation of
a carefully written plan. There are two main pur-
poses for writing that plan:
- 1. To serve as a guide during the lifetime of
the business. It is the blueprint of your
business and will provide you with the
tools for analysis and change.
- 2. A business plan is a requirement if you are
planning to seek a loan. It will provide
potential lenders with detailed information
on all aspects of your company's past and
current operations and provide future pro-
jections.

Business Plan Outline
I. Cover sheet
Serves as the title page of your business
plan. It should contain the following:
- Name of the company
- Company address
- Company phone number (include area code)
- Logo (if you have one)
- Names, titles, addresses, phone numbers
(include area code) of owners
- Month and year your plan was issued
- Name of preparer
II. Statement of purpose (Same as executive
summary.) This is the thesis statement
and includes business plan objectives.
Use the key words (who, what, where,
when, why, how, and how much) to briefly
tell about the following:
- What your company is (also who, what,
where and when).
- What your objectives are.
- If you need a loan, why you need it.
- How much you need.
- Why you will be successful.
- How and when you plan to repay your loan.
III. Table of contents
A page listing the major topics and
references.
IV. The business
Covers the details of your business. In-
clude inforrnation about your industry
in general, and your business in partic-
ular. Address the following:
- Legal structure--Tell what legal struc-
ture you have chosen and state reasons
for your choice.
- Description of the business--Detail your
business. Tell about your history, present
status and future projections. Outline
your product or service in terms of market-
ability. Project a sense of what you expect
to accomplish in the next few years.
- Products or services--give a detailed de-
scription of your products from raw ma-
terials to finished items. Tell about your
manufacturing process. If you provide a
service, tell what it is, how it is pro-
vided and why it is unique. List future
products or services you plan to provide.
- Location--Describe site and why it was
chosen. (If location is important to your
marketing plan, focus on this in the mar-
keting section below.)
- Management--Describe who is behind the
business. For each owner, tell about re-
sponsibilities and abilities. Support with
resumes.
- Personnel--Who will be doing the work, why
are they qualified, what is their wage,
what are their responsibilities?
- Methods of record keeping--What accounting
system will you use? Who will do your
record keeping? Do you have a plan to help
you use your records in analyzing your
business?
- Insurance--What kinds of insurance will
you need? What will these cost and who
will you use for a carrier?
- Security--Address security in terms of in-
ventory control and theft of information.
V. Marketing
Covers the details of your marketing plan.
Include information about the total market
with emphasis on your target market. Iden-
tify your customers and tell about the
means to make your product or service
available to them.
- Target market--Identify characteristics of
your customers. Tell how you arrived at
your results. Back up information with demo-
graphics, questionnaires and surveys. Pro-
ject size of your market.
- Competition--Evaluate indirect and direct
competition. Show how you can compete. Eval-
uate competition in terms of location, mar-
ket and business history.
- Methods of distribution--Tell about the man-
ner in which products and services will be
made available to the customer. Back up de-
cisions with statistical reports, rate
sheets, etc.
- Advertising--How will your advertising be
tailored to your target market? Include rate
sheets, promotional material and time lines
for your advertising campaign.
- Pricing--Pricing will be determined as a re-
sult of market research and costing your
product or service. Tell how you arrived at
your pricing structure and back it up with
materials from your research.
- Product design--Answer key questions regard-
ing product design and packaging. Include
graphics and proprietary rights information.
- Timing of market entry--Tell when you plan to
enter the market and how you arrived at your
decision.
- Location--If your choice of location is re-
lated to target market, cover it in this
section of your business plan. (See location
in the business section of this outline.)
- Industry trends--give current trends, pro-
ject how the market may change and what
you plan to do to keep up.
VI. Financial documents
These are the records used to show past, cur-
rent and projected finances. The following are
the major documents you will want to include
in your business plan. The work is easier if
these are done in the order presented.
- Summary of financial needs--This is an out-
line indicating why you are applying for a
loan and how much you need.
- Sources and uses of funds statement--It will
be necessary for you to tell how you intend
to disperse the loan funds. Back up your
statement with supporting data.
- Cashflow statement (budget)--This document
projects what your business plan means in
terms of dollars. It shows cash inflow and
outflow over a period of time and is used
for internal planning. Cash flow statements
show both how much and when cash must flow
in and out of your business.
- Three-year income projection--A pro forma
income statement showing your projections
for your company for the next three years.
Use the pro forma cash flow statement for
the first year's figures and project the
next according to economic and industry
trends.
- Break-even analysis--The break-even point
is when a company's expenses exactly match
the sales or service volume. It can be ex-
pressed in total dollars or revenue exactly
offset by total expenses or total units of
production (cost of which exactly equals
the income derived by their sales). This
analysis can be done either mathematically
or graphically.
NOTE: The following are actual performance state-
ments reflecting the activity of your busi-
ness in the past. If you are a new business
owner, your financial section will end here
and you will add a personal financial his-
tory. If you are an established business,
you will include the actual performance
statements that follow.
- Balance sheet--Shows the condition of the
business as of a fixed date. It is a pic-
ture of your firm's financial condition at
a particular moment and will show you
whether your financial position is strong
or weak. It is usually done at the close
of an accounting period, and contains as-
sets, liabilities and net worth.
- Income (profit and loss) statement--Shows
your business financial activity over a
period of time (monthly, annually). It is
a moving picture showing what has happened
in your business and is an excellent tool
for assessing your business. Your ledger
is closed and balanced and the revenue and
expense totals transferred to this statement.
- Business financial history--This is a sum-
mary of financial information about your
company from its start to the present. The
business financial history and loan appli-
cation are usually the same. If you have
completed the rest of the financial sec-
tion, you should be able to transfer all
the needed information to this doeument.
VII. Supporting documents
These are the records that back up the
statements and decisions made in the three
main parts of your business plan. Those
most commonly included are as follows:
- Personal resumes--should be limited to one
page and include work history, educational
background, professional affiliations and
honors and special skills.
- Personal financial statement--A statement
of personal assets and liabilities. For a
new business owner, this will be part of
your financial section.
- Credit reports--Business and personal from
suppliers or wholesalers, credit bureaus
and banks.
- Copies of leases--All agreements currently
in force between your company and a leasing
agency.
- Letters of reference--letters recommending
you as being a reputable and reliable busi-
nessperson worthy of being considered a
good risk. (Include both business and per-
sonal references.)
- Contracts--Include all business contracts,
both completed and currently in force.
- Legal documents--All legal papers pertain-
ing to your legal structure, proprietary
rights, insurance, titles, etc.
- Miscellaneous documents--All other docu-
ments that have been referred to, but are
not included in the main body of the plan
(e.g., location plans, demographies, adver-
tising plan, etc.).
Putting Your Plan Together
When you are finished: Your business plan should
look professional, but the lender needs to know
that it was done by you. A business plan will be
the best indicator he or she has to judge your
potential for success. It should be no more than
30 to 40 pages long. Include only the supporting
documents that will be of immediate interest to
your potential lender. Keep the others in your
own copy where they will be available on short
notice. Have copies of your plan bound at your
local print shop, or with a blue, black or brown
cover purchased from the stationery store. Make
copies for yourself and each lender you wish to
approach. Do not give out too many copies at
once, and keep track of each copy. If your loan
is refused, be sure to retrieve your business
plan. For a more detailed explanation of each
section of the business plan outline, see SBA's
publication, How To Write a Business Plan, which
includes step-by-step directions and sample sec-
tions of actual business plans. Also available
from the SBA is a VHS videotape and workbook,
"The Business Plan: Your Roadmap for Success."

You can use this article in your blog or website given that you include this link - http://smlbusiness.blogspot.com

Human Resource Management

INTRODUCTION


All small businesses must staff their opera-
tions. This involves bringing new people into
the business and making sure they are produc-
tive additions to the enterprise. Effective
human resource management matches and develops
the abilities of job candidates and employees
with the needs of the firm. A responsive per-
sonnel system will assist you in this process
and is a key ingredient for growth.


Human resource management is a balancing act.
At one extreme, you hire only qualified people
who are well suited to the firm's needs. At
the other extreme, you train and develop employ-
ees to meet the firm's needs. Most expanding
small businesses fall between the two extremes-
i.e., they hire the best people they can find
and afford, and they also recognize the need
to train and develop both current and new em-
ployees as the firm grows.


The first section of this article explains
how to hire and train the right people and ad-
dresses the characteristics of an effective per-
sonnel system, such as
- Assessing personnel needs.
- Recruiting personnel.
- Screening personnel.
- Selecting and hiring personnel.
- Orienting new employees to the business.
- Deciding compensation issues.


The second section of this article addresses
the training and development side of human re-
source management. The third section discusses
how the personnel system and the training and de-
velopment functions come together to build employ-
ee trust and productivity. These three sections
stress the importance of a good human resource
management climate and provide specific guidelines
for creating such a climate. The appendixes include
a self-assessment questionnaire to assist you in
evaluating the effectiveness of your personnel sys-
tem and a list of general information resources.


DEVELOPING A RESPONSIVE PERSONNEL SYSTEM


Assessing Personnel Needs
The small business owner should base the firm's
personnel policies on explicit, well-proven prin-
ciples. Small businesses that follow these prin-
ciples have higher performance and growth rates
than those that do not follow them. The most im-
portant of these principles are
- All positions should be filled with people
who are both willing and able to do the job.
- The more accurate and realistic the specifi-
cations of and skill requirements for each
job, the more likely it is that workers
will be matched to the right job and, there-
fore, be more competent in that job.
- A written job description and definition are
the keys to communicating job expectations
to people. Do the best job you can! is ter-
rible job guidance.
- Employees chosen on the basis of the best
person available are more effective than
those chosen on the basis of friendship or
expediency.
- If specific job expectations are clearly
spelled out, and if performance appraisals
are based on these expectations,
performance is higher. Also, employee train-
ing results in higher performance if it is
based on measurable learning objectives.


The first step in assessing personnel needs for
the small business is to conduct an audit of fu-
ture personnel needs. Ask yourself
- Can the workload you visualize be accomplished
by the present work force? Will more or fewer
employees be needed? Consider seasonal patterns
of demand and probable turnover rates.
- Can any jobs be eliminated to free people for
other work?
- What balance of full-time or part-time, tempo-
rary or permanent, hourly or salaried personnel
do you need?
- What does the labor supply look like in the
future?
- Will you be able to fill some of the jobs
you've identified? How easily?
- What qualifications are needed in your
personnel?

Develop a method to forecast labor demand based
on your answers to these questions. Once your
needs are estimated, determine strategies to
meet them.

The process of selecting a competent person for
each position is best accomplished through a
systematic definition of the requirements for
each job, including the skills, knowledge and
other qualifications that employees must pos-
sess to perform each task. To guarantee that
personnel needs are adequately specified,
(1) conduct a job analysis, (2) develop a
written job description and (3) prepare a
job specification.

Job Analysis
Job analysis is a systematic investigation
that collects all information pertinent to
each task performed by an employee. From
this analysis, you identify the skills, know-
ledge and abilities required of that employee,
and determine the duties, responsibilities and
requirements of each job. Job analysis should
provide information such as
- Job title.
- Department.
- Supervision required.
- Job description-major and implied duties
and responsibilities.
- Unique characteristics of the job including
location and physical setting.
- Types of material used.
- Types of equipment used.
- Qualifications.
- Experience requirements.
- Education requirements.
- Mental and physical requirements.
- Manual dexterity required.
- Working conditions (inside, outside, hot,
cold, dry, wet, noisy, dirty, etc.).

Job Description
The job analysis is used to generate a job
description, which defines the duties of
each task, and other responsibilities of
the position. The description covers the
various task requirements, such as mental
or physical activities; working conditions
and job hazards. The approximate percentage
of time the employee should spend on each
activity is also specified. Job descriptions
focus on the what, why, where and how of the
job.

There are two excellent resources the small
business owner can use to develop job descrip-
tions. First, ask employees themselves to de-
scribe their jobs. A good employee may know
more about the job than anyone else. Second,
consult the Dictionary of Occupational Titles,
published by the Government Printing Office,
which contains over 20,000 job descriptions.

Job Specification
The job specification describes the person
expected to fill a job. It details the knowl-
edge (both educational and experiential), qua-
lities, skills and abilities needed to perform
the job satisfactorily. The job specification
provides a standard against which to measure
how well an applicant matches a job opening
and should be used as the basis for recruiting.

Recruiting
As a small business owner-manager, you should
be aware of the legal environment in which you
operate. This is especially true when it comes
to recruitment. Being aware of legislation that
will affect your business is extremely important
to efficient recruiting.

Congress has passed several laws that deal with
discrimination in the workplace. The Civil Rights
Act of 1964 and the Equal Employment Act of 1972
are two that small businesses owners should be
especially aware of. The Equal Employment Oppor-
tunity Commission (EEOC), is charged with enforc-
ing federal law against discrimination based on
- Race.
- Color.
- National origin.
- Sex.
- Age (between 40 and 70).
- Disability.
- Veteran status.
- Handicap.
- Religion.
Another law to be aware of is the 1963 Equal Pay
Act, which requires that men and women receive
equal pay for equal work.
Box 1 is a list of illegal questions that are
often asked during the recruitment process.
Review them carefully to ensure that you avoid
asking them when interviewing applicants.
+--------------------------------------------------+
¦ Box 1 - Often Asked (but illegal) ¦
¦ Questions in the Recruitment Process ¦
¦ ¦
¦ - How old are you? ¦
¦ - Are you married? ¦
¦ - Do you have any children? ¦
¦ - How will you care for your children ¦
¦ during work hours? ¦
¦ - Where do you attend church/synagogue? ¦
¦ - How old are your children? ¦
¦ - Do you receive alimony or child support? ¦
¦ - Are you Puerto Rican? (etc.) ¦
¦ - Are you pregnant? ¦
¦ - Send in a picture with your job application. ¦
¦ - How much do you weigh? ¦
¦ - What is your maiden name? ¦
¦ - What is your father's surname? ¦
¦ - Where were you born? ¦
¦ - What clubs do you belong to? ¦
+--------------------------------------------------+
Sources of Employees
Effective recruiting requires that you know where
and how to obtain qualified applicants. It is dif-
ficult to generalize about the best source for
each business, but a description of the major
sources follows.
- Present employees - Promotion from within tends
to keep employee morale high. Whenever possible,
current employees should be given first consid-
eration for any job openings. This practice sig-
nals your support of current employees.
- Unsolicited applicants - Small businesses re-
ceive many unsolicited applications from quali-
fied and unqualified individuals. The former
should be kept on file for future reference.
Good business practice suggests that all appli-
cants be treated courteously whether or not
they are offered jobs.
- Schools - High schools, trade schools, voca-
tional schools, colleges and universities are
sources for certain types of employees, espe-
cially if prior work experience is not a major
factor in the job specification. Schools also
are excellent sources for part-time employees.
- Public employment offices - The Employment Ser-
vice of the U.S. Department of Labor works with
state employment offices to provide no-cost
brokerage of applicants who are seeking employ-
ment. Local offices will provide small busines-
ses with applicants who have been screened on
the basis of workexperience, education and some
psychological testing. They also have an up-to-
date file on potential employees who possess a
wide range of skills.
- Private employment agencies - These firms pro-
vide a service for employers and applicants by
matching people to jobs in exchange for a fee.
Some fees are paid by the applicants, and there
is no cost to the employer; for highly quali-
fied applicants in short supply, the employer
sometimes pays the fee.
- Employee referrals - References by current em-
ployees may provide excellent prospects for
the business. Evidence suggests that current
employees hesitate to recommend applicants
with below average ability. Word of mouth is
one of the most commonly used recruiting
sources in the small business community.
- "Help Wanted" advertising - Letting people
know that the business is hiring is a key
element in gaining access to the pool of
potential employees. At its simplest, this
type of advertising may take the form of a
Help Wanted sign in the window. More sophis-
ticated methods involve using local media,
primarily print sources such as daily and
weekly newspapers. The classified pages of
newspapers are frequently consulted by ac-
tive job seekers, including currently em-
ployed individuals who may be tempted by a
more attractive position. Other advertising
media include radio and television. These
tend to have a wider appeal than the news-
paper; however, the price of an advertise-
ment is correspondingly higher.

Specialty media publications, such as trade as-
sociation magazines and newsletters, may also
produce quality job applicants. There are ef-
forts in some parts of the country to offer
small business employers access to cable tele-
vision community bulletin boards. Another high-
tech opportunity is to list positions on compu-
ter network bulletin boards.

Prices for help wanted advertising vary and the
small business owner approaches them with cau-
tion. A well-placed, high-quality advertisement
will attract good people, whereas, an expensive
advertisement in the wrong medium may get no
results. Some experimentation is worthwhile to
most small businesses. Another suggestion is
to ask other small business people in the area
about their success with help wanted advertising.
Learn from others' successes and mistakes.

Screening
The screening process provides information about
an individual's skills, knowledge and attitudes,
enabling a potential employer to determine whe-
ther that person is suited to, and qualified for,
the position. Experience has shown that hiring
an overqualified person can be as harmful as hir-
ing an underqualified person.

The application form is the place to begin screen-
ing candidates for a job. It provides information
on the person's background and training and is the
first means of comparing the applicant with the
job description. This will ensure that you don't
waste time on applicants who clearly do not meet
the minimum requirements for the job.

Generally, the following information is asked on
an employment application form: name, address,
telephone number, social security number, kind of
work desired, work experience, military service,
education and references. See the sample applica-
tion form in Box 2.
+-------------------------------------------------------+
¦ Box 2 - Sample Application Form ¦
¦ ¦
¦ Date: ¦
¦ Name: ¦
¦ Social security number: ¦
¦ Address: ¦
¦ Telephone number: ¦
¦ Position desired: ¦
¦ Education: ¦
¦ ¦
¦ ¦
¦ EMPLOYMENT RECORD: ¦
¦ Name and address of company, position, dates employed ¦
¦ and reason for leaving: ¦
¦ ¦
¦ ¦
¦ ¦
¦ MILITARY SERVICE: ¦
¦ Branch: from: to: ¦
¦ Rank achieved: Type of discharge: ¦
¦ REFERENCES: ¦
+-------------------------------------------------------+
The personal interview is the second step in the
screening process. During the interview, the man-
ager learns more about the applicant through
face-to-face contact, including observation of
personal appearance. The interview should be
guided, but not dominated, by the manager as it
is important to let the candidate speak freely.
Whenever possible, the interviewer should ask
questions that are directly related to the job.
Devise a list of questions that will adequately
assess the applicant's qualifications while meet-
ing the specifications for the job. Three major
errors often committed in the personal interview
are
- Failure to analyze the requirements of the
job in sufficient detail to generate valid
questions.
- Failure to ask candidates the right ques-
tions to determine their strengths and weak-
nesses, and their fit with the job.
- Too much reliance on gut reaction instead of
objective evaluation of candidates based on
criteria established in the job specification.
Interviewing makes the selection process more
personal and gives the interviewer an overall
idea of whether the applicant is appropriate
for the job. The following list of techniques
in Box 3 will help you select the right appli-
cant for the job.
+-------------------------------------------+
¦ Box 3 - Interviews ¦
¦ ¦
¦ 1. Review the job description before ¦
¦ the interview. ¦
¦ 2. Break the ice - establish a friendly ¦
¦ atmosphere. ¦
¦ 3. Develop an interview time plan and ¦
¦ stick to it. ¦
¦ 4. Keep an open mind, i.e., don't form ¦
¦ an opinion too early. ¦
¦ 5. Give the candidate time to tell his ¦
¦ or her story; don't talk too much. ¦
¦ 6. Present a truthful picture of the ¦
¦ company and the job. ¦
¦ 7. Listen carefully, concentrate and ¦
¦ take notes. ¦
¦ 8. Avoid detailed discussion of salary ¦
¦ too early in the interview. ¦
¦ 9. Be courteous. ¦
¦ 10. Don't leave the candidate hanging - ¦
¦ discuss the next step in the hiring ¦
¦ process and the timing. ¦
+-------------------------------------------+
Other screening techniques include employment
tests and physical examinations. Some employ-
ment tests measure aptitude, achievement, in-
telligence, personality and honesty. A physi-
cal examination determines if the applicant
meets the health standards and physical de-
mands of the job.

Selecting and Hiring
If the screening process is thorough, select-
ing the best applicants for the job is easy.
However, before making the final selection,
one last step should be taken: the top candi-
date's references should be checked for accu-
racy and input. You should be aware of the ten-
dency of references to give a rose-colored pic-
ture of applicant's character and ability. De-
spite this potential bias, a careful check with
former employers, schools and other references
can be most constructive. At a minimum, check-
ing can determine whether or not the applicant
was truthful about his or her employment his-
tory.

Orienting New Employees to Your Business
An employee handbook communicates important in-
formation about the company to the employee. The
handbook should cover topics such as company ex-
pectations, pay policies, working conditions,
fringe benefits and the company philosophy toward
customers (see Box 4).
+--------------------------------------------------+
¦ Box 4 - Employee Handbook Topics ¦
¦ ¦
¦ Welcome from the Personal appearance ¦
¦ owner ¦
¦ Use of telephones ¦
¦ History of the company ¦
¦ Prohibited acts ¦
¦ Introduction to the ¦
¦ company Absence from work ¦
¦ and reporting policies ¦
¦ Company products and ¦
¦ services Weather emergencies ¦
¦ ¦
¦ Hours of work Pay policies ¦
¦ ¦
¦ Holidays Safety ¦
¦ ¦
¦ Insurance Disciplinary procedures¦
¦ and appeals ¦
¦ On-the-job injury ¦
¦ Termination ¦
¦ Jury duty ¦
¦ Vacation policy ¦
¦ Military leave ¦
¦ Sick leave ¦
¦ Parking rules ¦
¦ Parental leave ¦
+--------------------------------------------------+
Once an individual is hired, he or she should
receive a comprehensive orientation on the gen-
eral policies of the company and on the speci-
fic nature of the job. Rules should be explain-
ed in detail, job expectations agreed upon and
any questions answered before the new employee
begins work. New employees should be introduced
to other employees and made to feel welcome.

Compensation Issues
Compensation takes two forms: (1) direct com-
pensation (wages and salaries) and (2) indi-
rect compensation (fringe benefits).

Direct Compensation
Wages and salaries are the compensation people
receive on a regular basis (monthly, biweekly
or weekly). Workers are paid on the basis of
time (by the hour, day, week or month) or on
the basis of output (an incentive plan).
Some of the legal issues regarding wage and
salary compensation include
- Wages and hours - The Fair Labor Standards
Act of 1938 introduced the minimum wage
and the 40-hour work week. As of April 1,
1991, the minimum wage is $4.25 an hour.
The law also specifies that workers must
receive time-and-a-half pay for time spent
on the job in excess of 40 hours. (Not all
employees are covered by this act; mana-
gers, professionals and sales personnel may
be excluded.)
- Eligibility to work - The Immigration Re-
form Control Act of 1986 was intended to
reduce the number of illegal immigrants
seeking jobs in the United States. Under
the law, employees hired after November 6,
1986, must show proof of their identity and
eligibility to work. There are sanctions
against employers who do not comply with
this act.
- Child labor - The minimum age for children
in most jobs is 16 years old. Fourteen- and
15-year-olds are restricted to a few jobs,
such as filing and sales. Persons under 14
years of age may work only under certain
conditions.
- Social Security - The Social Security Act
passed in 1935 provides a minimum guaranteed
income to retired and disabled persons. This
system is funded by a tax on both employees
and employers. In 1990 employees were re-
quired to pay the system an amount equal to
7.65 percent of the first $51,300 earned.
Employers are required to match that amount.
- Unemployment benefits - Each state has a
program for providing protection for those
who lose their jobs (usually through no fault
of their own). While programs vary from state
to state, each program must comply with cer-
tain federal guidelines. Employers pay a tax
to the state, which maintains these funds for
use by the unemployed.

Indirect Compensation
Fringe benefits are an important part of the over-
all compensation package in most small businesses.
Employee benefits now account for about 40 per-
cent of payroll costs. The profitability of the
small firm is one of the primary determinants of
what benefits are offered by the firm.

Box 5 is a list of options to consider when decid-
ing which fringe benefits to offer employees.
+---------------------------------------------------------+
¦ Box 5 - Fringe Benefits ¦
¦ ¦
¦ Old age payments Paid vacations ¦
¦ ¦
¦ Survivor payments Payment for jury duty, ¦
¦ National Guard or ¦
¦ Disability and health reserve duty ¦
¦ insurance ¦
¦ Profit sharing ¦
¦ Pension plans ¦
¦ Bonuses ¦
¦ Life insurance ¦
¦ Education payments ¦
¦ Dental insurance ¦
¦ Worker's compensation ¦
¦ Accident insurance ¦
¦ Unemployment compensation¦
¦ Discounts on goods/ ¦
¦ services purchased Child care ¦
¦ from the company ¦
¦ ¦
¦ Employee meals ¦
+---------------------------------------------------------+
Cafeteria Planning
One successful approach to providing benefits
to employees of a small business is to allo-
cate a certain amount of money per employee
for benefits. Each employee then chooses the
package of benefits that suits his or her cur-
rent needs. This approach is called cafeteria
planning because it is similar to going down a
cafeteria line, where each customer chooses
what he or she wants to eat. It has been sug-
gested that employees perceive this approach as
highly equitable because it (1) allows freedom
of choice and (2) does not impose a single pack-
age of benefits on all employees.

For example, a young employee with several small
children may be interested in dental insurance
for his family. He is not really interested in
or motivated by a pension plan at this time in
his life. Another employee in this same company
is in her late forties, has no dependent child-
ren and is planning for retirement. To force the
same benefit on these two employees is not an ef-
fective use of benefit money. To allow some choice
on the part of participants is a major advantage
of the cafeteria approach to benefit planning.
Small businesses face difficult challenges when
they try to match benefits with big firms. Never-
theless, the small firm can enjoy the benefits of
greater flexibility and innovativeness by offer-
ing a cafeteria plan.

EMPLOYEE TRAINING AND DEVELOPMENT

An Effective Training Program
The quality of employees and their development
through training and education are major fac-
tors in determining long-term profitability of
a small business. Hiring and keeping good em-
ployees is the key to the first factor. (Hiring
has been discussed in the first section and re-
taining employees will be discussed in the third
section.) If you hire and keep good employees,
it is good policy to invest in the development
of their skills, so they can increase their pro-
ductivity.

Training often is considered for new employees
only. This is a mistake because ongoing training
for current employees helps them adjust to rapid-
ly changing job requirements.

Purpose of Training and Development
Reasons for emphasizing the growth and develop-
ment of personnel include
- Creating a pool of readily available and
adequate replacements for personnel who
may leave or move up in the organization.
- Enhancing the company's ability to adopt
and use advances in technology because of
a sufficiently knowledgeable staff.
- Building a more efficient, effective and
highly motivated team, which enhances the
company's competitive position and improves
employee morale.
- Ensuring adequate human resources for ex-
pansion into new programs.
Research has shown specific benefits that a
small business receives from training and de-
veloping its workers, including:
- Increased productivity.
- Reduced employee turnover.
- Increased efficiency resulting in finan-
cial gains.
- Decreased need for supervision.
Employees frequently develop a greater sense
of self-worth, dignity and well-being as they
become more valuable to the firm and to soci-
ety. Generally they will receive a greater
share of the material gains that result from
their increased productivity. These factors
give them a sense of satisfaction through the
achievement of personal and company goals.

The Training Process
The model in Chart 1 traces the steps neces-
sary in the training process.
+---------------------------------------------------------------+
¦ Chart 1 - Steps in the Training Process ¦
¦ ¦
¦ +----------------------------+ ¦
¦ ¦ Organizational Objectives ¦ ¦
¦ +----------------------------+ ¦
¦ ¦
¦ ¦
¦ +------------------+ ¦
¦ ¦ Needs Assessment ¦ ¦
¦ +------------------+ ¦
¦ +---------------+ ¦
¦ ¦Is There a Gap?¦ ¦
¦ -----------------+---------------+ ¦
¦ ¦
¦ +---------------------+ ¦
¦ ¦ Training Objectives ¦ ¦
¦ +---------------------+ ¦
¦ ¦
¦ +------------+ ¦
¦ ¦ Select the ¦------------ ¦
¦ ¦ Trainees ¦ ¦
¦ +------------+ ¦
¦ +-----------------------------+ ¦
¦ ¦ Select the Training Methods ¦ ¦
¦ ¦ and Mode ¦ ¦
¦ +-----------------------------+ ¦
¦ ¦
¦ +----------------+¦
¦ -------------------¦ Choose a Means ¦¦
¦ ¦ of Evaluating ¦¦
¦ +----------------+¦
¦ +---------------------+ ¦
¦ ¦ Administer Training ¦ ¦
¦ +---------------------+ ¦
¦ ¦
¦ ¦
¦ +-----------------------+ ¦
¦ ¦ Evaluate the Training ¦ ¦
¦ +-----------------------+ ¦
¦ ¦
+---------------------------------------------------------------+
Your business should have a clearly defined
strategy and set of objectives that direct
and drive all the decisions madeespecially
training decisions. Firms that plan their
training process are more successful than
those that do not. Most business owners want
to succeed, but do not engage in training de-
signs that promise to improve their chances
of success. Why? The five reasons most often
identified are
- Time - Small businesses managers find
that time demands do not allow them to
train employees.
- Getting started - Most small business
managers have not practiced training
employees. The training process is un-
familiar.
- Broad expertise - Managers tend to have
broad expertise rather than the special-
ized skills needed for training and de-
velopment activities.
- Lack of trust and openness - Many mana-
gers prefer to keep information to them-
selves. By doing so they keep information
from subordinates and others who could be
useful in the training and development
process.
- Skepticism as to the value of the train-
ing - Some small business owners believe
the future cannot be predicted or control-
led and their efforts, therefore, are best
centered on current activities i.e., mak-
ing money today.

A well-conceived training program can help your
firm succeed. A program structured with the com-
pany's strategy and objectives in mind has a
high probability of improving productivity and
other goals that are set in the training mission.
For any business, formulating a training strate-
gy requires addressing a series of questions.
- Who are your customers? Why do they buy
from you?
- Who are your competitors? How do they
serve the market? What competitive ad-
vantages do they enjoy? What parts of
the market have they ignored?
- What strengths does the company have?
What weaknesses?
- What social trends are emerging that
will affect the firm?

The purpose of formulating a training strategy
is to answer two relatively simple but vitally
important questions: (1) What is our business?
and (2) What should our business be? Armed with
the answers to these questions and a clear vi-
sion of its mission, strategy and objectives,
a company can identify its training needs.

Identifying Training Needs
Training needs can be assessed by analyzing
three major human resource areas: the organ-
ization as a whole, the job characteristics
and the needs of the individuals. This analy-
sis will provide answers to the following
questions:
- Where is training needed?
- What specifically must an employee learn
in order to be more productive?
- Who needs to be trained?

Begin by assessing the current status of the
company how it does what it does best and the
abilities of your employees to do these tasks.
This analysis will provide some benchmarks
against which the effectiveness of a training
program can be evaluated. Your firm should
know where it wants to be in five years from
its long-range strategic plan. What you need
is a training program to take your firm from
here to there.

Second, consider whether the organization is
financially committed to supporting the train-
ing efforts. If not, any attempt to develop a
solid training program will fail.

Next, determine exactly where training is need-
ed. It is foolish to implement a companywide
training effort without concentrating resources
where they are needed most. An internal audit
will help point out areas that may benefit from
training. Also, a skills inventory can help de-
termine the skills possessed by the employees in
general. This inventory will help the organiza-
tion determine what skills are available now and
what skills are needed for future development.
Also, in today's market-driven economy, you
would be remiss not to ask your customers what
they like about your business and what areas
they think should be improved. In summary, the
analysis should focus on the total organiza-
tion and should tell you (1) where training is
needed and (2) where it will work within the
organization.

Once you have determined where training is
needed, concentrate on the content of the
program. Analyze the characteristics of the
job based on its description, the written
narrative of what the employee actually does.
Training based on job descriptions should
go into detail about how the job is performed
on a task-by-task basis. Actually doing the
job will enable you to get a better feel for
what is done.

Individual employees can be evaluated by com-
paring their current skill levels or perfor-
mance to the organization's performance stand-
ards or anticipated needs. Any discrepancies
between actual and anticipated skill levels
identifies a training need.

Selection of Trainees
Once you have decided what training is neces-
sary and where it is needed, the next decision
is who should be trained? For a small business,
this question is crucial. Training an employee
is expensive, especially when he or she leaves
your firm for a better job. Therefore, it is im-
portant to carefully select who will be trained.
Training programs should be designed to consider
the ability of the employee to learn the material
and to use it effectively, and to make the most
efficient use of resources possible. It is also
important that employees be motivated by the
training experience. Employee failure in the pro-
gram is not only damaging to the employee but a
waste of money as well. Selecting the right train-
ees is important to the success of the program.

Training Goals
The goals of the training program should relate
directly to the needs determined by the assessment
process outlined above. Course objectives should
clearly state what behavior or skill will be
changed as a result of the training and should re-
late to the mission and strategic plan of the com-
pany. Goals should include milestones to help take
the employee from where he or she is today to where
the firm wants him or her in the future. Setting
goals helps to evaluate the training program and
also to motivate employees. Allowing employees to
participate in setting goals increases the proba-
bility of success.

Training Methods
There are two broad types of training available
to small businesses: on-the-job and off-the-job
techniques. Individual circumstances and the
"who," "what" and "why" of your training program
determine which method to use (see Box 6).
+-------------------------------------------------------------------------+
¦ Box 6 - Training Techniques and Activities ¦
¦ ¦
¦ Creative Sales ¦
¦ technical administrative, ¦
¦ Orienting Special and supervisory ¦
¦ new skill professional and managerial ¦
¦ employees training education education ¦
¦ ----------------------------------------------------------------------- ¦
¦ On-the-job ¦
¦ Orientation X ¦
¦ Apprentice X X X X ¦
¦ Internship X X X ¦
¦ Job rotation X X ¦
¦ ¦
¦ Off-the-job ¦
¦ Lecture X X X X ¦
¦ Films X X X X ¦
¦ Television X X X X ¦
¦ Conferences X X ¦
¦ Role playing X ¦
¦ Simulation X X X ¦
¦ Programmed X X X X ¦
¦ Laboratory X ¦
¦ ----------------------------------------------------------------------- ¦
¦ Source:Adapted from B. M. Bass and J. A. Vaughan, Training in ¦
¦ Industry: The Management of Learning, Copyright 1966. ¦
+-------------------------------------------------------------------------+
On-the-job training is delivered to employees
while they perform their regular jobs. In this
way, they do not lose time while they are learn-
ing. After a plan is developed for what should
be taught, employees should be informed of the
details. A timetable should be established with
periodic evaluations to inform employees about
their progress. On-the-job techniques include
orientations, job instruction training, appren-
ticeships, internships and assistantships, job
rotation and coaching.

Off-the-job techniques include lectures, special
study, films, television conferences or discus-
sions, case studies, role playing, simulation,
programmed instruction and laboratory training.
Most of these techniques can be used by small
businesses although, some may be too costly.
Box 7 shows the range of costs for different
types of training. Choose the techniques that
meet your needs and fit your budget.
+------------------------------------------------------+
¦ Box 7 Relative Expense of ¦
¦ Various Training Techniques ¦
¦ (from least to most expensive) ¦
¦------------------------------------------------------¦
¦ Range* ¦
¦ ---------------- ¦
¦ Low High ¦
¦------------------------------------------------------¦
¦ Orientation $0 $5 ¦
¦ Lecture (in house) 0 10 ¦
¦ Role playing 0 25 ¦
¦ Films 5 25 ¦
¦ Television 5 50 ¦
¦ Job rotation 25 500 ¦
¦ Simulations (computer) 125 1000 ¦
¦ Apprenticeships 350 1500 ¦
¦ Internships 350 2500 ¦
¦ Programmed instruction (computer) 100 3500 ¦
¦ Conferences (off site) 500 3500 ¦
¦ Laboratory training 1000 5000+ ¦
¦------------------------------------------------------¦
¦ ¦
¦ *Per participant per period. ¦
¦ Note:The range of expenses should be taken as ¦
¦ examples only and were obtained by a telephone ¦
¦ survey of small businesses and trainers in a ¦
¦ large metropolitan area. Costs vary widely by ¦
¦ the content of the training, the location and ¦
¦ the source. ¦
+------------------------------------------------------+
Orientations are for new employees. The first
several days on the job are crucial in the suc-
cess of new employees. This point is illustra-
ted by the fact that 60 percent of all employ-
ees who quit do so in the first ten days. Orien-
tation training should emphasize the following
topics:
- The company's history and mission.
- The key members in the organization.
- The key members in the department,
and how the department helps fulfill
the mission of the company.
- Personnel rules and regulations.

Some companies use verbal presentations while
others have written presentations. Many small
businesses convey these topics in one-on-one
orientations. No matter what method is used,
it is important that the newcomer understand
his or her new place of employment. The impor-
tance of an employee handbook for imparting
rules and culture was discussed earlier, with
specific suggestions for what should be inclu-
ded in the employee handbook.

Lectures present training material verbally
and are used when the goal is to present a
great deal of material to many people. It is
more cost effective to lecture to a group
than to train people individually. Lecturing
is one-way communication and as such may not
be the most effective way to train. Also, it
is hard to ensure that the entire audience
understands a topic on the same level; by tar-
geting the average attendee you may undertrain
some and lose others. Despite these drawbacks,
lecturing is the most cost-effective way of
reaching large audiences.

Role playing and simulation are training tech-
niques that attempt to bring realistic decision-
making situations to the trainee. Likely prob-
lems and alternative solutions are presented for
discussion. The adage there is no better trainer
than experience is exemplified with this type of
training. Experienced employees can describe
real world experiences, and can help in and learn
from developing the solutions to these simula-
tions. This method is cost effective and is used
in marketing and management training.
Audiovisual methods such as television, video-
tapes and films are the most effective means of
providing real world conditions and situations
in a short time. One advantage is that the pre-
sentation is the same no matter how many times
it's played. This is not true with lectures,
which can change as the speaker is changed or
can be influenced by outside constraints. The
major flaw with the audiovisual method is that
it does not allow for questions and interac-
tions with the speaker, nor does it allow for
changes in the presentation for different audi-
ences.

Job rotation involves moving an employee through
a series of jobs so he or she can get a good
feel for the tasks that are associated with dif-
ferent jobs. It is usually used in training for
supervisory positions. The employee learns a
little about everything. This is a good strategy
for small businesses because of the many jobs an
employee may be asked to do.

Apprenticeships develop employees who can do
many different tasks. They usually involve sev-
eral related groups of skills that allow the
apprentice to practice a particular trade, and
they take place over a long period of time in
which the apprentice works for, and with, the
senior skilled worker. Apprenticeships are es-
pecially appropriate for jobs requiring produc-
tion skills.

Internships and assistantships are usually a
combination of classroom and on-the-job train-
ing. They are often used to train prospective
managers or marketing personnel.

Programmed learning, computer-aided instruc-
tion and interactive video all have one thing
in common: they allow the trainee to learn at
his or her own pace. Also, they allow material
already learned to be bypassed in favor of ma-
terial with which a trainee is having difficul-
ty. After the introductory period, the instruc-
tor need not be present, and the trainee can
learn as his or her time allows. These methods
sound good, but may be beyond the resources of
some small businesses.

Laboratory training is conducted for groups by
skilled trainers. It usually is conducted at a
neutral site and is used by upper- and middle-
management trainees to develop a spirit of team-
work and an increased ability to deal with man-
agement and peers. It can be costly and usually
is offered by larger small businesses.

Trainers
Who actually conducts the training depends on
the type of training needed and who will be
receiving it. On-the-job training is conducted
mostly by supervisors; off-the-job training, by
either in-house personnel or outside instructors.
In-house training is the daily responsibility
of supervisors and employees. Supervisors are
ultimately responsible for the productivity
and, therefore, the training of their subordi-
nates. These supervisors should be taught the
techniques of good training. They must be aware
of the knowledge and skills necessary to make a
productive employee. Trainers should be taught
to establish goals and objectives for their
training and to determine how these objectives
can be used to influence the productivity of
their departments. They also must be aware of
how adults learn and how best to communicate
with adults. Small businesses need to develop
their supervisors' training capabilities by
sending them to courses on training methods.
The investment will pay off in increased pro-
ductivity.

There are several ways to select training per-
sonnel for off-the-job training programs. Many
small businesses use in-house personnel to de-
velop formal training programs to be delivered
to employees off line from their normal work
activities, during company meetings or indivi-
dually at prearranged training sessions.

There are many outside training sources, in-
cluding consultants, technical and vocational
schools, continuing education programs, cham-
bers of commerce and economic development
groups. Selecting an outside source for train-
ing has advantages and disadvantages. The big-
gest advantage is that these organizations are
well versed in training techniques, which is
often not the case with in-house personnel.

The disadvantage of using outside training
specialists is their limited knowledge of
the company's product or service and custo-
mer needs. These trainers have a more general
knowledge of customer satisfaction and needs.
In many cases, the outside trainer can develop
this knowledge quickly by immersing himself or
herself in the company prior to training the
employees. Another disadvantage of using out-
side trainers is the relatively high cost com-
pared to in-house training, although the higher
cost may be offset by the increased effective-
ness of the training.

Whoever is selected to conduct the training,
either outside or in-house trainers, it is
important that the company's goals and values
be carefully explained.

Training Administration
Having planned the training program properly,
you must now administer the training to the
selected employees. It is important to follow
through to make sure the goals are being met.
Questions to consider before training begins
include
- Location.
- Facilities.
- Accessibility.
- Comfort.
- Equipment.
- Timing.

Careful attention to these operational details
will contribute to the success of the training
program.

An effective training program administrator
should follow these steps:
- Define the organizational objectives.
- Determine the needs of the training program.
- Define training goals.
- Develop training methods.
- Decide whom to train.
- Decide who should do the training.
- Administer the training.
- Evaluate the training program.

Following these steps will help an administra-
tor develop an effective training program to
ensure that the firm keeps qualified employees
who are productive, happy workers. This will
contribute positively to the bottom line.

Evaluation of Training
Training should be evaluated several times
during the process. Determine these mile-
stones when you develop the training. Em-
ployees should be evaluated by comparing
their newly acquired skills with the skills
defined by the goals of the training pro-
gram. Any discrepancies should be noted and
adjustments made to the training program to
enable it to meet specified goals. Many
training programs fall short of their ex-
pectations simply because the administrator
failed to evaluate its progress until it was
too late. Timely evaluation will prevent the
training from straying from its goals.

BUILDING EMPLOYEE TRUST AND PRODUCTIVITY

The most effective way to build trust in the
workplace is to work together. There are no
magic gimmicks or other simple solutions.
Trust cannot be created by excessive wages,
great company picnics or wonderful working
conditions; it can only be generated through
teamwork, honesty and fairness. Although trust
and productivity are complex issues and repre-
sent only part of the total fabric of inter-
personal relationships in small businesses,
three attributes appear to have a positive ef-
fect on trust in successful small businesses:
- The owner-manager of the small business
is open and honest about the day-to-day
business operations.
- The owner-manager of the small business
is consistent and fair about personnel
policies.
- The owner-manager spends a great deal of
his or her time concentrating on good
communications with those working in the
firm.

Honesty
Secrecy breeds suspicion. Whenever information
is kept on close hold, the context becomes open
to misinterpretation. Total quality improvement
is based on the concept that workers care as
much about the success of the small business as
the owners do. Studies of small businesses indi-
cate that employees tend to overestimate profits
by substantial amounts. These same studies indi-
cate that when true financial information is
shared with employees, substantial cost controls
are voluntarily initiated by all members of the
work force.

Whenever in doubt concerning the amount of in-
formation to share with employees, experience
indicates that too much is better than not
enough. Never lie to workers about human rela-
tions issues. Institutional memory is long
term; any deceit will be remembered for many
years. Note that employees talk with each other
and inconsistencies will be quickly detected
and brought to the surface frequently to your
embarrassment. The following are suggestions
on how to avoid this dilemma:
- Take time to talk with your workers.
- Find out what they're thinking.
- Find out what they'd like to know and
tell them whenever possible.
- Don't tell only good things.
- Allow employees an opportunity to
provide you, the owner, with infor-
mation, questions and suggestions.
In this way, communications are two way.

Fairness
Fairness ranges from consistency in personnel
actions and fair market practices to adherence
to the various laws governing the workplace.
The concept of due process requires that a small
business follow its own rules and policies. Em-
ployees must be treated the same when it comes
to personnel issues.

Each worker should have an equal chance to per-
form at his or her best. Decisions concerning
rewards, promotions and advancement should al-
ways be based on performance, and good perfor-
mance should be spelled out in the job descrip-
tion. When performance is equal among employees,
seniority should be used to break ties.

The key to healthy work relations is managing
communications within the firm. Most of the
communication will flow as orders and instruc-
tions to employees. Nevertheless, communicating
(and honesty and fairness) is a two-way process.
It is difficult for employees to be intelligent
and enthusiastic teamworkers if they do not know
the reasons behind orders and instructions. Per-
haps even more important is giving employees the
opportunity to contribute ideas and opinions be-
fore the manager-owner makes a decision. This
adds dignity and meaning to the job in the eyes
of most employees and their families.

Communicating includes telling employees where
they stand, how the business is doing and what
future plans are being developed. Negative feed-
back may be necessary at times, but positive
feedback should be the primary tool for estab-
lishing good human relations. Never forget that
employees are people, and that they will quickly
detect insincerity. They also will respond to
honest efforts to treat them as mature, respon-
sible adults. Some practical human relations
techniques that stimulate two-way communications
include
- Periodic performance review sessions
(every three months).
- Bulletin boards.
- Suggestion boxes.
- Newsletters.
- Regular open meetings.

The Legal Environment
Small businesses operate in a complex legal
environment that places many constraints on
recruitment, selection, placement and other
personnel practices. Laws may specify what
is required, what is acceptable or what is
prohibited. Every personnel system must con-
sider the statutes relating to these issues.
One of the most important laws the small
business owner should be aware of is the
Occupational Safety and Health Act (OSHA
1970). This law is aimed at reducing the
number of safety and health hazards in the
American workplace. Businesses must comply
with health and safety standards set by
the U.S. Department of Labor for individual
industries.

The past sixty years have been characterized
by laws that encourage collective bargaining
and that try to bring about a better balance
between management and labor. Many of these
laws apply to small businesses:
- Norris-LaGuardia Act (1932) - Protects
the rights of unions to organize. It
also prohibits "yellow-dog contracts"
an employment practice where the firm
requires employees to promise they will
not join a union if hired by the company.
- Wagner Act (1935) - Guarantees workers
the right to engage in union activities,
to organize and to bargain collectively
without interference from employers. A
small business manager may not prohibit
employees from union activity.
See the discussion of other applicable laws in
the first section under Recruiting and Compen-
sation Issues.

The Personnel Manager
Many small businesses cannot afford a full-
time specialist to deal with human resource
problems. However, as a business grows, its
structure becomes more complex and personnel
problems increase in number and potential
cost. At a certain point in the typical small
business, it becomes apparent that a full-time
or part-time personnel manager is needed. Con-
ditions that indicate the necessity of a per-
sonnel manager include
- The firm has more than 100 employees.
- Employees are represented by a union.
- Turnover is very high (and costly).
- The need for skilled or semiskilled
labor creates problems in recruitment
or selection.
- Employee morale is low.
- Competition for good personnel is es-
pecially keen in the market area.

CONCLUSION

All small businesses must staff their operations, by bringing in
new people and by training new and current employees. Effective
human resource management matches and develops the abilities of
job candidates and employees with the needs of the firm. A
responsive personnel system will help you manage this process and
is a key ingredient for your business's growth.

Human resource management is a balancing act: hiring qualified
personnel who are well suited to the firm's needs and training
and developing employees to meet the firm's needs are the
endpoints of the continuum. Most expanding small businesses fall
in the middle of this continuumi.e., they hire the best people
they can afford, but they also recognize the need to train and
develop current employees as the firm grows.

This publication should provide you with an increased awareness
of the importance of creating a good human resource management
climate within the firm, and specific guidelines on how to create
such a climate.

REFERENCES
Leap, Terry and Michael Crino. Personnel/Human Resource
Management. New York: Macmillan Publishing Co., 1989.
Longenecker, Justin and Carlos Moore. Small Business Management.
Cincinnati: South-Western Publishing Co., 1987.
Roxe, Linda, A. Personnel Management for the Smaller Company. New
York: AMACOM, 1979.
Tate, Curtis, et al. Successful Small Business Management. Plano,
TX: Business Publications, Inc., 1985.
Wexley, Kenneth and Gary P. Latham. Developing and Training Human
Resources in Organizations. Glenview, IL: Scott Foresman and Co.,
1981.
Johnston, William B, et al. Workforce 2000: Work and Workers for
the 21st Century. Indianapolis, IN: Hudson Institute, 1987.
APPENDIX A: HUMAN RESOURCE MANAGEMENT AUDIT QUESTIONNAIRE
1. Does the business have a plan for fore-
casting long-term personnel needs?
2. Are there guidelines for hiring person-
nel, or are employees hired based on gut
feelings?
3. Are there job descriptions for all posi-
tions?
4. What do employees like about their jobs?
5. What do employees dislike about their jobs?
6. Why do employees leave the organization?
7. Is there an active training program? Is it
based on an assessment of where the firm
is now or where it should be in the future?
8. Are a variety of training programs avail-
able?
9. How is morale in the firm?
10. Do employees really believe what you have
to say?
11. Are all employees treated fairly?


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