Date: 05/03/13 Duration: 00:25:05

In this podcast Lesley Cotton, HR Director, P&O Ferries, Clive Hutchinson, Company Leader, Cougar Automation, Hazel Stimpson, HR Manager, Harrod UK and CIPD Advisor, Jill Miller discuss research on how SMEs can grow and maintain employee engagement at various tipping points as they get bigger. Includes case studies.

Philippa Lamb: Small or medium size businesses with ambition want to evolve and grow but how do you keep your people engaged as the organisation changes around them? The CIPD has been looking at that question and it’s identified four key stages that SMEs pass through as they mature and the different HR opportunities and challenges each one presents.

Dr Jill Miller led the research and when I met up with her she explained how the four stages work.

Dr Jill Miller: Our research is saying there are four stages of SME growth or SME transition. The first one we've termed entrepreneurial edge which really reflects the start up phase of an organisation, the workforce is still very small, people management will be looked after by the owner/founder typically. It’s really an informal and very flexible organisation at this stage.

The next stage we reach we term emerging enterprise. This is where the organisation starts to get a bit of structure and process put in place. The workforce is at a size where we need a bit of formalisation and sometimes this could be a tipping point where the owner/founder decides to bring somebody in to look after the people aspects of the business, whether that's a HR person or perhaps an office manager doing some great people management stuff.

The next stage is a consolidating organisation. This stage is very much about taking a step back, reflecting and improving on where you've got to with your growth so far. And it’s at this point we start thinking much more clearly about the long term organisation. And at the consolidating organisation stage it’s likely that you’d have a HR manager or HR adviser in place. Your workforce is typically going to be quite large at this point.

The final stage of SME growth we've identified is called established organisation. This is where typically you have all the HR processes and policies in place but what’s really defining this stage is the attention that's given to the more intangible people management issues such as culture. The importance of knowledge sharing and collaboration really comes to the fore.

PL: In theory these four stages seem very clear. However from the helm of a small or medium size company it can be tricky to identify exactly which stage your organisation is at. Here’s Jill Miller again.

JM: Our research has shown there's some really key tipping points along the way where different processes are needed or practices are needed to be put in place and there's some tipping points we identify where practices that have worked to date are no longer really effective for the business’s long term performance and we're hoping through the research model that that helps people look ahead to these tipping points and anticipate what needs to be put in place now which is going to make the growth more sustainable for the long term.

PL: And what characterises those tipping points? How will they know when they were there?

JM: I think there comes a point where the organisation has so far rested on the owner/founder’s personality, their vision and values to guide where we're going but sometimes the organisation comes to a size with the workforce where the owner/founder doesn’t see people in person every day any more and so to keep that personal connection alive is really difficult and I think it’s at that tipping point that the owner/founder needs to be looking at other people in the organisation to be carrying that mantle and that's when the role of line managers becomes especially important about how do they engage, inspire, motivate, people in the same way that the owner/founder did in the early days.

PL: We’ll come back to Jill’s point about the importance of line managers when we look at some case studies a bit later on. For now though it’s clear that organisations need to keep employee engagement at the heart of their business whichever stage of growth they’ve reached. However the CIPD research has identified one particular stage when employers really do need to sharpen their focus on engagement. Jill Miller.

JM: I think when an organisation is entering the emerging organisation stage, so the second stage of our model, this is when attention really needs to focus on what’s keeping people engaged and how engagement drivers are changing over time. As an SME grows in size and the workforce is increasing, I think it becomes increasingly difficult to maintain people’s connection and engagement with the original founding vision and values of the organisation and that really does require significant attention to keep that in place.

PL: People management has a vital role to play in driving long term organisational performance and maintaining engagement whatever the size of the company but as Jill Miller said it’s essential to understand which growth stage you’re in and to make sure you have the HR resources and processes in place to sustain the business as it grows into future stages.

JM: So as a HR professional working in an SME I think it’s really important to identify in the model which stage of SME growth or development that you’re currently at and then to be looking ahead to the next tipping point or the next inflexion point to see what kind of challenges and opportunities are on the horizon for you and then to be thinking about what could you put in place now to address some of those issues that are going to make your growth sustainable over time.

PL: Lesley Cotton is HR director for P & O Ferries. With an annual turnover of around a billion pounds P & O can hardly be described as an SME but Lesley gained her wealth of HR experience in far smaller businesses too including Holmes Place Health Clubs and Paramount Restaurants. As she explained to me during her time at Holmes Place the organisation was working towards selling the business so how did she keep the workforce engaged under such difficult circumstances?

Lesley Cotton: There's no doubt if you’re in a private equity business and it’s moving towards the sale process that you could argue that engagement could be under threat because at the same point as trying to maintain motivation you’re also looking at your cost base and most businesses in parallel are going through a redundancy programme which we were, we were restructuring the office and that's never easy but due to the fact that we had focused on the sort of engaging programme of how do we improve customer service which ended in our measure was going to be an external award which we achieved and we achieved awards in the actual industry itself for turnaround health club of the year. So I think we’d got a foundation of a very positive relationship with our people. Also it’s got to be authentic and believable, we did promote open and honest communication and yes to your question was it at risk - yes it was because you’re also trying to do some quite difficult things at the same time but we had a strong relationship with the staff and therefore the consultation process and the exit process was less painful. I mean it’s always painful because people fear change and the unknown and we didn’t feel great about that but if you’re in private equity you know that nine times out of ten is going to happen but of course the staff themselves don’t really think about that. So it’s how do you get them through that and yes at that point you could argue the engagement piece is under threat but I think it pays dividends as to how you've behaved in the past and knowing the sort of timeline towards the exit is important so you can really pace what is it we need to do to get the business, not just financially but in terms of the mindset of the people, to the right place to manage that.

PL: But would she have adopted a different strategy if the business had simply been expanding through growth rather than evolving through a change of ownership?

LC: To answer the question I don't think there's a huge amount of difference to be honest. I think people are people and I think there’s some core values, you know, how you like to be treated yourself I think clearly you could argue in a growth situation it’s easier because people are on a high and there's no doubt trying to manage a shrinking situation it’s tougher times but I think in terms of the growth scenario I think yes could argue you've got an open door to engagement because people are in a positive frame of mind, they can see the opportunities.

PL: But equally they’re seeing themselves, their body of people becoming bigger, they get more distant perhaps from the original founders of an organisation or the powerbase, people can start to feel quite detached from what they thought they were holding on to can't they?

LC: Yeah I think that's very true and I think there is the fear of the unknown, it’s like, “Oh my goodness what’s my job now?” and I do think that one of the key elements to that has got to be thought through in terms of management development and the coaching and leadership, you know you go very much into a leadership scenario and what are the skills required and making people feel comfortable about that. I mean I remember when I got to Morgan the layer below the board they were like sponges, they just wanted to learn. So you still want to hold on to that entrepreneurial edge, that flair for product, but as you grow if you don’t put some framework around it you create chaos and I think there's a balance between holding onto what we believe in and getting behind, reminding people around the vision and the values, and in fact at Holmes Place we got people to vote for the values so that we didn’t impose values. So I think it’s holding on to what you believe in and almost just keep repeating the same messages because people need to hear things a lot of times, at least eight times for it to become a habit. Upskill them at the same time so they don’t feel threatened and have the fear of the unknown, and try not to lose the individuality that that person brings to the job but the big thing is if you step too far back when it’s growing you will create chaos. So I think there's a real fine line.

PL: Lesley’s experience has also taught her to spot the warning signs that employee engagement might need particular attention.

LC: Clearly there are measures and we do surveys and we look at results but good business leaders you don’t necessarily have to be in HR but good business leaders will inherently know when something’s not right.

PL: It’s quite intangible isn’t it, the spirit of the organisation?

LC: Yeah and a strong leader, leading by example will be out in the business she won't be sat behind a desk.

PL: Visibility?

LC: Yes so you'll be testing the temperature if you like just by purely being in the locations, in the sites, talking to the people, listening to the messages. I think you have to then have a natural filter system because you hear an awful lot of things that you have to filter through, what’s the nub of the issue versus the general moans and groans that people like to share and express but that's also important because people want to get things off their chests. So I think you do have to have an internal filter system but you can inherently tell and it’s not always, you know, some people will say measuring absence and we have, I’m in a bigger business at the moment with P & O Ferries, you know, we have very low turnover and we don’t have a problem necessarily with absence but I would be naïve to think that means high levels of motivation and everybody was 120% engaged. I think I'd be naïve to think that. We have a very loyal workforce but that doesn’t mean we shouldn’t still work hard at improving communication and engagement and people striving to improve the business.

PL: Cougar Automation is an engineering company that supplies industrial control and management systems, in simple terms they write software and they design engineering. They have about 80 people in five locations across the country. Clive Hutchinson has been company leader at Cougar since 2001 and in that time he has helped to build it into an award winning business that's now widely recognised for outstanding values, culture and sometimes radical management methods. I met up with Clive at a recent CIPD conference and asked him about the Cougar approach to engagement.

Clive Hutchinson: It’s absolutely central to everything we do. The thing we started trying to do maybe eight or nine years ago was get a competitive advantage by delivering great customer service and being engineers we don’t really understand people very well but a year or two into that we started to realise that maybe people enjoying their work and being engaged might have been a good thing. So eventually the penny dropped but from then on in actually we've become real zealots about it and really that is the core to everything we do is for people to be engaged and we've been very lucky and learnt from people who have been there and done it before and have been very generous and shared their experiences and their knowledge. And one of the things that we learnt was this idea of people playing to their strengths which is an embarrassingly simple concept really, it’s almost embarrassing talking about it because basically you’re just saying that well if we're all different then why don’t we just let people at work do things that they really enjoy doing, the kind of stuff that when you’re doing it you're just completely absorbed in it, time flies by because we're much more productive when we do that and we're much happier than when we're doing those jobs we don’t like and we can't settle to it and we keep going and making cups of coffee and interrupting everyone else and checking the email again and just kind of nothing gets done and that's almost the core to what we do is set people free so we don’t manage them as such, we support them to really do the best they can and do the things that they love doing.

PL: Giving employees that much autonomy sounds exciting but has it always worked well as the company expanded and if so how did they make that work. Here’s Clive Hutchinson again.

CH: I think that's the conventional wisdom and I like to do things differently I suppose and that's why we do things differently at Cougar is that I won't accept the kind of if that's the received wisdom so that's what it must be like, you know, for me it doesn’t have to be like that at all so what we're trying to do is we're trying to find what is it that we could do differently that could actually allow you to have both things together, be a big company and be exactly like being a small company at the same time.

PL: How do you do that? That's the holy grail isn’t it?

CH: Well if it is the holy grail and we haven't got all the answers it has to be said but one of the key things we've done is just organised the way we do things so that actually people are grouped together in small teams the way they would be if they were a small company. So I used to work on the other side of the fence if you like from Cougar Automation, I used to buy the services that we do, from Cougar and many other competitors of Cougar’s and it was always apparent to me that the companies that would give the best service, do the best job and also were cheapest were small companies of five to ten people. So then when I came into take over running Cougar ten or 11 years ago there was a real challenge for me in thinking that well I know it’s the small companies, smaller than Cougar was at the moment with maybe 30 people, that are delivering the better service and are cheaper and more cost effective and also what I'm going to try and do is grow this company to be even bigger than it is, so heading in the wrong direction. So we've structured ourselves now that it’s highly autonomous project teams, we have a slogan in the business, ‘Your Team, Your Business’ and they can see the financial results all the time down to the level of their team, even down to individual projects and we don’t tell them how to do it because then they can't take responsibility, they work it out for themselves and then as we've grown geographically rather than doing it all from one big office with 80 in we've deliberately opened offices dotted around in different parts of the countryside so in a typical office we’ll have two, three or four teams in it, so at that level it’s very autonomous, incredibly autonomous, each office does its own thing in its own region and then the teams within that have huge amounts of freedom as well.

PL: It sounds like a fantastic business model for a company with 80 people but will it still work if the company grows to say four times its current size? Clive again.

BP: If you just simply say to yourself does it work better if you've got a group of five to ten people doing it? And if the answer to that is yes, I'm just a simple soul, I kind of go, “Well why can't we find a way of making that work when we've got a thousand people?” because ultimately what we're saying is in a small owner managed business there's a set of conditions that make that more successful than a big business in some senses and that's why they grow, why can't we replicate that? And so the team leader has to have that sense of being the owner/manager and everyone needs to be involved in everything rather than splitting it up into departments the way they had in that smaller thing.

PL: At Cougar they keep employee engagement high by keeping their business units small no matter how big the wider business becomes. These small teams enjoy a great deal of autonomy but it’s also key to the strategy that they stay engaged with the wider organisation too. Clive Hutchinson.

CH: We're very, very clear about what we stand for and how we do things, in a sort of a philosophical sense, if that's not too grand a word, which it probably is for a company of 80 people, so we're very, very clear, and this is very explicit, we've even got special diagrams that we've drawn that show this kind of thing. We're there to achieve ten out of ten service for our customers, we survey the customers, so ten out of ten is what we're aiming for, perfection if you like, we want everyone in the business to be happy and fulfilled. That's an explicit part of the vision and we want to eliminate all waste basically, get rid of things that are unnecessary or don’t have to be done. So that's a clear vision. So everyone we ask, this is your job to do that and then we say find ways of playing to your strengths to do that, so use strengths to achieve that and then we have some underlying sort of pillars and values that we have, so things like freedom and trust, the fact that managers are there to give support rather than to kind of control and supervise people, feedback in an objective way, so what the customers say, so we survey the customers, we get all the financial results are out there and then we have underlying values, even sitting underneath that. So that is all very, very explicit and is a given and that's kind of what the broader company brings and what we're trying to do is create lots of small units that live and breath that.

PL: Hazel Stimpson is head of HR at Harrod UK, a leading supplier of sports equipment and nets. They’re official suppliers to Wembley Stadium, England Hockey and England Netball. The business currently employs 110 people and like Cougar Harrod have found that their company values and their mission statement are really central to keeping everyone engaged.

Hazel Stimpson: Things like the mission and the vision it changes over time. The reason it changes is because of what’s happening with the business, where we're going, external factors, but also it changes because what people on the shop floor have said they want. So the wording might change, the ethos of it might change but it’s come from the shop floor.

PL: The idea that the opinions of the staff really matter has been intrinsic to maintaining employee engagement at Harrod and it’s also had a profound effect on the success of the business. Back in the late 80s Harrod UK reached a crisis point and management drafted in a business consultant to carry out a cultural audit. Now that process revealed some interesting ideas from the shop floor that have gone on to have a really big impact on the very nature of the business. Here’s Hazel Stimpson again.

HS: People didn’t know where we were. They didn’t know what we were doing, where we going, had no idea about the financials of the company, they thought they were doing okay, so the consultant started bringing in team training, looked at the make up of teams and we tried to get people matched to what they want, realised that people had talents that weren't being used at work. They were bored. And if you’re bored you're not going to perform as well as you can. And the company diversified as well back in the early 2000s to sell horticultural items by mail order and this came really from that tipping point earlier, that crisis point. When the consultant came in he got people on the shop floor to think, to strip back, what do we really do? And at the time we didn’t have the horticultural division we just had the sports and we make posts, we make nets, which are used for goals of footballs. What other use can we have for them? Fruit cages. And the horticultural division was born and that was 2002 and now the horticultural division has got to be half the turnover of the company. And then that leaves okay if we do that how else can we grow?

PL: And that all plays into engagement.

HS: It does.

PL: As the CIPD’s Dr Jill Miller pointed out earlier on line managers, as the main point of contact between employees and business leaders, play a vital role in maintaining engagement. With larger teams the skills and capabilities of managers become of paramount importance but maintaining strong engagement with the organisation’s purpose and vision can become more challenging as the distance between the founder or current owner and the workforce increases. I asked Hazel how line managers are trained to promote engagement at Harrod?

HS: They have a very difficult job. They’re getting pressures from people on the shop floor, they’re getting pressures from above, so it’s managing, really a balancing act for them. We're going through a programme of training the managers, having some external training on their management development skills and the way they can tease out of their employees how they can perform, what they need to do differently to get the results that the company needs. And at the shop floor have said that the company needs but it is ongoing. A lot of it is coaching as well as things come up, mentoring. So for example the manufacturing director has a very close relationship with the finishing manager, the manufacturing manager, the logistics manager and as issues come up they can maybe talk over them with him first. So very much involved in what’s going on.

PL: So plenty to take away from those case studies on how to grow and maintain employee engagement as a small business expands and one key lesson around the idea of an evolving and shared management philosophy. Here’s Clive Hutchinson from Cougar again.

CH: There's a lot of talk about culture and it’s a very intangible thing but the definition I like is it’s the way we do things round here and it’s like we've worked hard to get where we are in terms of understanding what we're trying to achieve, we're not perfect by any means and we don’t do it perfectly all the time. We then bring people in who share that view and we keep working at it, if people aren’t seen to be living by those values you don’t need a management structure to reinforce that it becomes a very uncomfortable place and certainly when I've read about companies that deliver exceptional, extraordinary service that's usually one of the things that's said about them is they have a very, very particular culture and while everyone from the outside might go, “I'd love to work there,” actually if the wrong people get in that don’t share that kind of view actually they get ejected very quickly and they didn’t enjoy it, they're surprised and I suspect we're a bit like that. So someone who really like a lot of structure and a lot of direction I suspect would hate working at Cougar Automation.

PL: For HRs in SMEs it’s critical to keep an eye on where the business is going because, as we all know change is the new normal whether you're in control of that change or not. Here’s Lesley Cotton again.

LC: You have to run almost a twin track approach really. There's the day to day delivery and there is where are we heading, what’s it going to look like? I mean I think the world changed for most of us in 2008, certainly where I am at the moment we're still feeling the pain of that, where 60% of our business is freight and it’s tough times but that doesn’t mean you can't reinvent yourself even with a business that's been around for 175 years, which the P & O brand has.

PL: And keeping people engaged even though they know it’s a tight time a threatening time?

LC: Yeah. Absolutely and I'm not saying for one minute it’s easy, particularly in a business that has a lot of tradition and heritage and legacy but you've also got a lot of loyalty and you've got a lot of belief and a lot of passion and it’s how you pull on that to really get people behind we need to be here for the future and this is how we're going to do it. So I think if you miss the opportunity to have your eye on the future then that's not going to bode well for anybody so it’s how you do the day to day plus see ahead as you say.

PL: So it’s striking that balance between preservation and evolution.

LC: Absolutely.

PL: That's it for this month. Join me next time when we’ll be looking at how HRs can use analytics to make sure their voices are heard loud and clear when it comes to organisational strategy.