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Lars Linnekogel
Lars
Linnekogel

3 Reasons Why Small and Medium-Sized Enterprises Need a People Strategy

07.08.2019
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“Our employees give us our biggest potential as a business”. You’ll find no company that wouldn’t hold to this principle. You’ll also find no managing director that doesn’t recognize this reality. That’s the truth of the matter. 

However, this principle often looks much different in the real world. In a business, there will always be something that takes priority over the employee. Turnover and profit have to be increased, and the product has to be optimized. And more often than not, you will find the manager of a Small or Medium-Sized Enterprise (SME) plunging themselves headlong into the day-to-day workload, which means they are too busy to give maximum attention to their employees.

The implementation of employee management or even the development of a People Strategy can become a lot of extra work on top of an already heavy workload, and is a strategy that often gets brushed under the carpet by many companies. Sometimes, in order to offer something extra for employees, afterwork evenings and social gatherings are introduced. If a position is vacant, ads are placed online. However, it is often the case that SMEs lack the necessary time and organization to implement this successfully.

The Shortage of Skilled Workers Poses Challenges for SMEs

A deficit in skilled workers and employee turnover rates can have fatal consequences for these smaller companies. Even now, many companies are feeling the effects of this deficit: stable teams are becoming more fragile, and lately it has become increasingly difficult to replace valuable specialist employees. At the same time, new additions that would facilitate growth and innovation are lacking. According to the EY estimates, German SMEs miss out on almost 50 billion euros worth of revenue every year because orders have to be turned down due to a lack of skilled employees.

A further piece of the puzzle: Young professionals and workers nowadays not only want to be successful in their work and benefit from a generous salary, they are also seeking jobs with meaning and purpose. With this in mind, how should you go about addressing this new generation? All these problems can easily lead to situations where you are neglectful and can’t act properly because you feel paralyzed. A successful plan is needed: The People Strategy. 

The People Strategy: If It Works for Google, It’ll Work for SMEs

The People Strategy principle originates from the world of large corporations where it is already well established. It refers to a sustainable action plan - a strategy that defines fundamental measures for a company’s personnel development with an eye on the future. The People Strategy is thus even more comprehensive than the usual HR initiatives. This way, it becomes an integral part of the corporate strategy. In short, you could say that it is based on a strong financial situation, but is driven by the people. 

Companies like Google und Co. aren’t the only corporations that are good at putting their employees first. However, small and medium-sized enterprises in particular can no longer afford to be involved in personnel issues on a day-to-day basis. Nonetheless, here are three reasons why SMEs benefit from a tailor-made People Strategy:

1. SMEs are more vulnerable

Employees are important in every company. Especially in medium-sized companies, however, they are the essence and core of the company. All knowledge is shared among a few people. Performance, brainstorming and customer loyalty all depend on relatively few individuals. For example, customers often build a special relationship of trust with their sales partner, and if that long-term employee resigns, the loss for the business is immense. 

On the other hand, smaller companies usually have fewer resources at their disposal, meaning that they often find it difficult to compensate for a loss with financial or human resources. A People Strategy designs various solutions to counteract the huge costs that emerge due to a lack of employee retention and high levels of fluctuation. Consequently, this model can be pivotal for the survival of medium-sized companies. 

2. SMEs can achieve more with less

Is developing a People Strategy only worthwhile for large companies? Certainly not! As a matter of fact, the smaller the company, the more relative impact the impulses and changes will have. With just two or three cleverly implemented strategic measures, owners can make a decisive difference to the success of their company.

Examples from consulting practice show that situating the right employee in the right place at the right time can result in efficiency gains worth several million euros. Outsourcing a work area that is not part of the core business can free up resources for a critical project. In addition, a respectful working atmosphere can determine whether your employees find that urgently needed solution or not.

If you want to fully exploit the potential of the People Strategy, it goes without saying that it needs to be adapted to the respective working conditions in smaller companies.

3. SMEs can fully utilize their strengths through the People Strategy

Smaller companies aren’t at a disadvantage as far as their attractiveness to employees is concerned. On the contrary, they have lots of great things to offer. Most people don’t want to be a small, insignificant cog in the wheel. Instead, they want to be seen and make a significant contribution. This is exactly what SMEs can provide.

Furthermore, these smaller businesses tend to make life easier for employees by having less bureaucracy, closer and more intimate working relationships, flexible areas of responsibility and the opportunity to take on an important role in the company. Pride, identity and the sense of belonging are given an elevated position. Unfortunately, it is sometimes the case that these advantages are not sufficiently communicated. A People Strategy helps companies to play to their strengths in the “war for talent” in the business world.

What Does the People Strategy Mean for SMEs?

It has become evident to us that SMEs can no longer afford to put off adopting a People Strategy. If they do not, the risk of damaging the company is high. Unlike large companies, though, SMEs are not able to absorb this risk.

On the other hand, a successfully implemented People Strategy will provide numerous benefits for SMEs. It creates clarity on the organization’s future resource requirements. Companies anticipate early on at which point in time they might have too many or not enough employees on board. At the same time, a people strategy can increase the company’s visibility in the job market, introduce new, effective ways of recruiting people and keep existing employee satisfaction levels high

As a result, it would positively affect the innovative strength and sustainability of a company. For these reasons and more, it is absolutely worth investing time and energy in people and developing a People Strategy.

Unlike the corporate working environment, such a medium-sized People Strategy does not have to be overly complex or excessive. Rather, it should simply adapt to the specific needs of smaller companies and provide concrete and practical guidelines on how to act and make daily decisions.

The four core elements of a People Strategy:

In the following points, we outline the four core building blocks of a sustainable People Strategy. These are not only relevant for SMEs, but are also vital components to any company that has a long-term vision. If you want to delve deeper into the four core elements, we recommend that you read our introductory blog article on the People Strategy.

  1. Determine requirements: This is all about predicting the future number, capacity and ability of your employees as precisely as possible and drawing up a plan on that basis. This should include many factors such as retirement, dates for the beginning and completion of training, and the possibility of future strategic layoffs. The two key questions are: When do I need whom and what skills should they have? And what can I do today to meet the needs of my company in the future?
  2. Attract talent: This element is also an important part of classic recruiting. It is about positioning your company as an attractive option on the job market, identifying and recruiting exactly the right people for your company from the pool of suitable candidates and luring in the talent not currently searching for new work. 
  3. Manage skills: As part of a People Strategy, the status quo of skills and know-how is evaluated and a plan for the future is drawn up. This includes training and retraining programs to ensure employees are prepared to deal with possible future challenges: an especially important topic during large transformation projects such as digitalization!
  4. Preserve talent: This area includes all measures designed to prevent the loss of valuable employees. This would entail maintaining a clear corporate vision and mission, upholding a positive working atmosphere and developing a culture that promotes a long-term relationship between people and the company.

“Our employees give us our biggest potential as a business.” Do you want this phrase to become a reality? Do you want to focus more on the people in your company? Find out how the People Strategy could be utilized in your business by talking with our experts. We look forward to hearing from you!



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