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Architecting Human Resources Management Systems in <br />Early and Growth Stage Technology Companies<br />Dave Litwiller, July 2011<br />Introduction<br />Companies progressing from concept- or seed-stage into start-up or growth stage need to explicitly plan for the human resources management (HRM) model they will use going forward to foster expansion and success.<br />There are diverse and complex factors that affect HRM models.  These include personalities, culture, management monitoring and reporting, technology and markets.  Despite rich variation, the intense interrelatedness of HRM practices to form a coherent system empirically yields coalescence into to a small number of distinct, prevailing models.  Companies exiting earlier development stages into start-up or growth typically perform best when they largely commit to one of three pervasive HRM systems.  The probability of business success adopting one of these a co-ordinated set of systems and behaviors is much higher than without.  Companies which adopt a selected model early and stay with it greatly outperform those that change models or vary significantly from the preferred forms.  <br />The case for careful up-front selection of the HRM blueprint becomes even more powerful when one considers that a company that sustains its chosen HRM system is several times more likely to succeed than a business which cannot.  Radically altering the employment relations model is destabilizing, even at a relatively small size.  Reengineering the HRM model in flight is extraordinarily difficult because of how interdependent and ensconced practices become with the skills, status and deeply held values of employees, as well as the business’ reputation with customers.   <br />The three dominant systems are:<br />,[object Object]
Technical Supremacy
High CommitmentBelow are summary descriptions of each, strategic situations of greatest suitability, advantages and disadvantages, pivotal implementation success factors, and common situations of best fit.<br />Founder Aristocracy<br />Summary: A founder aristocracy makes no apologies for the founders reigning supreme in all significant decisions, resource allocations, and in the relationship with employees, shareholders and customers.<br />Suitability: This form of HRM is best for companies that are unlikely to need to expand beyond the span of control of the founders, their energy, and time horizon of interest.<br />Advantages: A founder aristocracy is fast to start and scales most rapidly during early growth because much of the key relationships and know-how stay with the founders.  Decisions can be made rapidly, subordinates can be trained quickly, and rarely is there doubt about who is in charge when tough choices need to be made.<br />Disadvantages: This HRM model usually deprives the company of the ability to attract, retain, or fully engage the most dynamic employees.  If there are any significant leadership or capability gaps among the founding team, they can be difficult to fill.  Even with a sufficiently comprehensive suite of founder attributes early on, the efficiency and effectiveness of the organization typically starts to wane with growth beyond twenty or so staff when the amount of founder contact with the extended organization necessarily declines.<br />Success Factors: The founder aristocracy system works best when the founders are able to establish and maintain nearly all enabling skills and relationships in technology, operations, customer relationships and other pivotal internal and ecosystem linkages.  It demands unwavering commitment of time and priority to the business by the founders.  The founders also need to have a matching view for how far they see the organization growing from the outset, given the natural growth limit of this model.<br />Best Fit: Frequently the founder aristocracy model works well where the founders want to remain the bosses of a limited size, proprietor-run business over the long term, or, where the business is aiming for a quick flip in a situation where the IP and customer relationships become rapidly ensconced in the technology of implementation, as is the case in many lean start-up consumer web services and mobile applications.<br />Technical Supremacy<br />Summary: Technical supremacy HRM is based on decisive technology leadership and mastery of a distinct science or engineering discipline in the eyes of customers, partners, employees, and employee candidates.<br />Suitability: It is most appropriate where technologies are on a trajectory of foreseeable ongoing relevance, and superior performance or rapid development is a significant competitive advantage in the strategic environment.<br />Advantages: Technical supremacy provides a reputation that attracts and motivates the best R&D employees, drives them to the highest level of performance, and draws in customers with the most compelling needs.<br />Disadvantages: Problems arise if the executive and investors have a misplaced sense of the technical superiority and durability of the business, or if competitive circumstances change to demand significantly different skills, or the business fails to recruit and train a sufficient number of industry leading experts.  If any of these difficulties occur the competitive position of the business can be impaired or lost.  As well, the ego and professional advancement of other functional groups of the business can be difficult to sustain in the presence of so strongly acknowledged supremacy of the technical community.<br />Success Factors: The technical mastery model flows most easily from founders and near founders who are widely recognized in the technical field as pioneers or innovators, who are also committed to remaining at the fore of the field, and who can directly recruit early hires.  As well, there needs to be both the substance and the reputation for discriminating screening and a demanding onboarding process for new hires to drive up desirability of the company as an employment destination for the most capable and motivated in the technical domain who wish to burnish their credentials.<br />Best Fit: This system is suitable with base or interface technologies of ongoing and rising relevance, where the fundamental performance drivers remain similar over time, and have significant influence over the performance of the larger systems in which those technologies are used.  These conditions are often present in interface semiconductors, transducers, materials science, bio-technology instrumentation, and video game development.<br />High Commitment<br />Summary:  The high commitment HRM (HCHRM) blueprint places overarching mission, the betterment of the company, its operating methods, intense customer focus, and employees’ capabilities ahead of other objectives.  Particular groups, functions or people are subordinate to the larger goals.  The HCHRM is the most expandable human resources model, as well as being most adaptable over time and changing competitive circumstances.<br />Suitability: The high commitment HRM offers the greatest scalability for the business.  It has unequalled ability to contribute to the growth of a company to hundreds of employees and beyond.   This framework provides the most robust system to adapt to changes in competitive circumstances as conditions change.  Commonly, over time there can be movement between technical leadership, cost leadership and customer service as the basis of competition as the marketplace evolves.  HC delivers the most robust unifying influence through such changes.  Moreover, HC can grow to embrace multiple operating sites, national cultures, and endure through significant changes in supplier, customer and partner relationships.<br />Advantages:  When the objective of an early- or growth-stage technology business it to become an enduring business of sufficient scale to achieve an IPO as a plausible liquidity or financing vehicle, and to prosper beyond, then the HCHRM model is unequalled.  Additionally, when done well, a HCHRM blueprint can serve as a significant competitive advantage attracting, motivating and retaining employees, allowing such firms to thrive even in high mobility external labor markets.<br />Disadvantages:  The high commitment HRM model takes the most time to initiate and ongoing effort to sustain.  It is also most sensitive to inconsistencies in behavior, particularly by the leadership team, but also among different groups (functional, divisional or geographic) or individuals.  HCHRM is challenging to maintain if there is a high rate of employee turnover because of the time investment required to suitably train newcomers and the internal inconsistency of such a pattern.  <br />Success Factors: Communication, transparency, consistency across the enterprise and over time, exemplary leadership by example, and goal of making a difference in the chosen field of endeavor as a higher calling in addition to achieving a strong financial model.  As well, employees need to be chosen and on-boarded to ensure cultural fit.  Together these ingredients can inspire intense loyalty and effort by employees, driving performance and employee retention.<br />Best Fit: The HC blueprint is most appropriate for businesses bringing forward game changers, platforms upon which other significant business and industries are expected to be built, and long-gestation businesses.  It is also commonly used for businesses developing and marketing medical devices and therapies, enterprise software, telecommunications and networking equipment, clean technology, and, complex systems involving multiple technical and operational disciplines.<br />HCHRM Expanded<br />The importance of the HCHRM system for building rapidly growing, large, and prosperous businesses merits further attention.  The highest performing organizations operate at many times the productivity during their rapid growth years as compared to average peers.  There are several interacting and supporting elements of coherent model practices from which to achieve highest collective productivity and strategic impact.<br />The HRM system must be stated in a way that current and prospective employees can understand and apply consistently.  Consider several examples, one from the grandfather of HCHRM technology companies, Hewlett-Packard, another from a more recently founded enduring success, Intuit, and finally from recent star Zynga.<br />The HP Way                           (circa 1992, summarized)<br />We have trust and respect for individuals<br />We focus on a high level of achievement and contribution <br />We conduct our business with uncompromising integrity <br />We achieve our common objectives through teamwork <br />We encourage flexibility and innovation<br />Intuit’s Operating Values        (circa 2002)<br />Integrity without compromise<br />Do right by our customers<br />It’s the people<br />Seek the best<br />Continually improve processes<br />Speak, listen and respond<br />Teams work<br />Customers define quality<br />Think smart, move fast<br />We care and give back<br />Zynga’s Core Values            (2011)<br />Build games you and your friends love to play<br />Surprise and delight our players<br />Zynga is a meritocracy<br />Be a CEO and own outcomes<br />Move at Zynga speed<br />Put Zynga first, decisions for the greater good<br />Always innovate<br />Deeply held beliefs should be brief, clear and actionable so that staff and management can interpret them consistently and live them.<br />Pervasive Attributes of High Commitment Work Systems<br />The overarching characteristics of HCHRM can be categorized by people, leadership and culture:<br />People<br />,[object Object]
The business targets and rewards those who seek responsibility and not merely accept it
Staff and management see themselves as responsible for more than their job descriptionsLeadership<br />,[object Object]
Over-communicates about company progress, challenges, measures of performance, and relationships to mission objectives.  Particularly in challenging circumstances, communication keeps up
Hires for capability and a positive, winning attitude.  Roots out passivity, poor attitudes and passive dissent
Walks the talk, leading by example  Culture<br />,[object Object]
Work is fun.  Energy is high.  Whining is unacceptable
There is one ego in the company, the company itself.  There is esprit de corps and a shared pride in the organization

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Human resources management in early stage technology companies june 2011 - dave litwiller

  • 1.
  • 3.
  • 4. The business targets and rewards those who seek responsibility and not merely accept it
  • 5.
  • 6. Over-communicates about company progress, challenges, measures of performance, and relationships to mission objectives. Particularly in challenging circumstances, communication keeps up
  • 7. Hires for capability and a positive, winning attitude. Roots out passivity, poor attitudes and passive dissent
  • 8.
  • 9. Work is fun. Energy is high. Whining is unacceptable
  • 10. There is one ego in the company, the company itself. There is esprit de corps and a shared pride in the organization
  • 11. Group pursuit of mastery in the company’s endeavor. This superordinate goal produces engagement, grit and determination. It releases greater creativity than more rote objectives and converts much more of work into something pleasurable
  • 12. Motivation for staff comes from developing and maintaining the respect of their peers as much as from monetary rewards
  • 13. Obsess over customers. Do what it takes to make them successful
  • 14. Exhibit mutual respect for what different people and functions bring to the table
  • 15. The best idea wins, no matter from whom or where it came
  • 16. Truth speaks to power, connecting leaders authentically to people, protecting the capacity to inquire and improve
  • 17. Value learning and constructively harnessing the lessons of failure. Smart failure – fast, cheap and not the same way twice - is not harshly punished. Mistakes are disclosed as soon as they are known so that they can be corrected most quickly and cheaply
  • 18.
  • 19. Rigorous on-boarding process for orientation, training, enculturation and feedback
  • 23. Regular company-wide meetingsWhile important, the incorporation of these items should take a secondary role until the company has validated product-market fit, or service-market fit. However, upon reaching the threshold of offering fit with market demand, instituting these contributing elements for an efficient and high commitment HRM rapidly rises in importance for a ramping-up business and pays long term dividends.<br />Conclusion<br />Founder aristocracies capture the hearts and minds of the founders, but not many other employees. Technical supremacies appeal to the scientific and engineering community, and can more easily grow to a larger size than the founder-centric model. But, for greatest adaptability and scale, the high commitment model is unequalled. <br />The high commitment blueprint comes though at a price of significant up front cost, as well as vigilant ongoing behavior from staff and management to reinforce, protect and renew this culture. Done well, it contributes to the highest comparative rate of business and financial success. It is adaptable and resilient. <br />The most important aspect of implementing and sustaining a HCHRM model is consistency of practices. This blueprint has particularly strong positive feedback among its many related supporting and contributing elements. It demands internal consistency of interrelated factors more than any other model. Done right, many aspects of HRM are achieved through social and peer mechanisms. With coherent practices, the high commitment model is the most robust and enduring for HRM in a growing high technology firm to achieve prosperity and lasting impact. <br />About the Author<br />David J. Litwiller is an Executive-in-Residence with Communitech, based in Waterloo, Ontario. His background is in wireless devices, precision electro-mechanics, semiconductors, electro-optics, MEMS, biotech instrumentation, and enterprise software. He serves as an advisor to various private corporations in matters of strategy, technology, operations, finance, governance, and business development. Mr. Litwiller is the author of “Rapid Advance - Mergers & Acquisitions, Partnerships, Restructurings, Turnarounds and Divestitures in High Technology”.<br />References<br />“Organizational Blueprints for Success in High-Tech Start-Ups: Lessons from the Stanford Project on Emerging Companies”, J. Barron and M. Hannan, California Management Review, Vol. 44 No. 3, Spring 2002<br />http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1511023<br />“Strategic Human Resources: Frameworks for General Managers”, J. Barron and D. Kreps, Wiley, Hoboken, NJ, 1999<br />http://www.amazon.com/Strategic-Human-Resources-Frameworks-Managers/dp/0471072532/ref=sr_1_1?s=books&ie=UTF8&qid=1311169351&sr=1-1<br />Zynga Inc. S-1 Filing, http://www.sec.gov/Archives/edgar/data/1439404/000119312511180285/ds1.htm<br />“Inside Intuit: How the Makers of Quicken Beat Microsoft and Revolutionized an Entire Industry”, S. Taylor and K. Schroeder, Harvard Business School Press, 2003 <br />http://www.amazon.com/Inside-Intuit-Microsoft-Revolutionized-Industry/dp/1591391369/ref=sr_1_1?s=books&ie=UTF8&qid=1311169208&sr=1-1<br />The HP Way http://www.hpalumni.org/hp_way.htm<br />“Startup Genome Report”, B. Herrmann et al, 2011 http://startupgenome.cc/pages/startup-genome-report-1<br />