Building a Strong Foundation: Planning & Recruitment in Small Businesses

By: Phil McCarthy

HR needs to create a plan that aligns with a company’s strategic direction. Hopefully that direction includes growth, however sometimes it includes downsizing, or a reallocation of resources. HR needs to determine labor demand for workers and address any labor surpluses or shortages, and if necessary, put a plan in place to successfully recruit employees. The process of planning consists of forecasting, goal setting and strategic planning, and program implementation and evaluation.

The first step is forecasting, which is an attempt to determine the supply and demand of various types of human resources. In short, the goal is to predict areas within the organization where there will be future labor shortages or surpluses. The second step is goal setting and strategic planning. Goal setting should be done to determine areas where labor may need to be reduced, or added, and setting a specific timetable to reach those goals. Options for reducing labor might include downsizing, hiring freezes, natural attrition, or early retirement to name a few. Options for adding labor might include adding overtime, temporary workers, outsourcing, or hiring new employees. When done well, HR planning can benefit the organization while minimizing the human suffering that can be a byproduct of poorly anticipated labor surpluses or shortages. In short, figure how many people you need and where, and get ahead of it so that the business and people are able to make the most of the situation.

      The goal of recruiting is to create an applicant pool that the organization can draw from in the event of a labor shortage. This can include promoting-from-within, advertising to fill vacancies, leveraging referrals, or using recruiters among other options. While we will discuss the selection and placement process below, one major note for small businesses: It is common to go with your “gut” when making hiring decisions, however taking the time to choose organizational members by following best practices and having a plan in place is a better predictor of success.

      When it comes time to select organizational members, the goal is to take care in choosing them. The selection process should include five standards. (1) Reliability, which is the degree to which a measure is free from random error. As an example, human judgements are often unreliable for a variety of reasons, so if we determine that we are looking for a trait such as conscientiousness when making a hire, we want to reliably measure that trait. A great way to do this is through a personality test such as The Big Five Personality Test. (2) Validity, which is the extent to which performance on a measure is related to performance on the job. As an example, many people assume that leaders need to be extroverts, so they might want to test for extroversion when hiring a manager. However, studies have shown that both extroverts and introverts can make good leaders, so that may not be a valid measure. In that case we would then want to consider whether or not that specific trait is a valid requirement for that position. (3) Generalizability: tests tend to show similar levels of correlation even across jobs that are only somewhat similar. (4) Utility, which is the degree to which the information provided by selection methods enhances the bottom-line effectiveness of the organization. In general, the more reliable, valid, and generalizable the selection method is, the more utility it will have. This is all to say that most larger organizations aren’t winging it, or simply trusting their gut when making a hiring decision. They have a plan that removes the emotion from it, increasing the likelihood of success, and small businesses can replicate these plans. The final standard is (5) Legality: all selection methods should conform to existing laws and legal precedents. This is another area where going with your gut can get you in trouble, so having a selection process that avoids any legal pitfalls can save the high costs associated with litigation, settlements, or simply damage to your social reputation.

      Once the selection measures are in place, it is time to look at the selection methods that can be used. Selection methods will have varying levels of reliability, validity, generalizability, utility, and legality. As an example, interviews have long been employed in organizations, and there have been literally hundreds of studies examining their effectiveness. Despite the common use of interviews, it has been shown that without proper care, they can be unreliable, low in validity, and biased against a number of groups. Thankfully, more recent research has shown that there are steps that can be taken to increase their utility. First, interviews should be structured, standardized, and focused on a small number of goals. For example, they are in fact useful for looking at observable dimensions like the ability to express oneself but are less useful for measuring intelligence. In the case of intelligence, testing is often a better tool. Situational interviews, where applicants are asked questions dealing with specific questions that are likely to arise on the job have also been shown to have high predictive validity. Interviewers should also have a structured note-taking system that will aid recall when it comes to justifying any ratings. Additionally, as tempting as it may be, interviewers should avoid other goals like recruiting a candidate. That should be a separate discussion. In short, it is tempting to just wing it in interviews, but given the time, expense, potential legal pitfalls, and unreliable outcomes, winging it is ill advised.