All Dressed Up with No One to Grow?

Even fabled gazelles are finding their expansion plans beached in the labor pool’s shallow end. But some SMEs are outwitting the work-force crunch.

Many areas’ tight labor markets are creating some highly unorthodox corporate expansion strategies.

Even fast-growth small and mid-sized enterprises (SMEs), including many fabled “gazelle” firms, are seeing the worker dearth stymie their ample expansion potential.

According to Coopers & Lybrand’s (C&L) “Trendsetter Barometer” research released in February 1998, 70 percent of the fastest-growing U.S. SMEs “face serious problems finding skilled, experienced workers . . . caused by their ambitious plans to increase their collective work force by 22.4 percent over the next 12 months,” says James Lafond, C&L Mid-Atlantic cluster managing partner.

Some expanding firms are resorting to massive relocations to find qualified employees. Other worker-starved firms are only expanding through risky “hire-anyone-alive” strategies. Failed hires, though, cost three times workers’ wages, adding new costs in lost productivity, training and recruiting, studies indicate.

Human Capital as Holy Grail

Some fast-growth SMEs, though, are beating the labor squeeze.
Among those firms, one common strategic element stands out in Site Selection’s research: Human capital is considered the Holy Grail. More than half of the fastest-growing companies have adopted new employee training programs in the last two years, C&L reports. “They’ve made education their business,” Lafond says.

Alternative workplace settings are another weapon little giants are using to beat the labor squeeze.

For example, the Arthur Andersen Enterprise Group/National Small Business United annual SME survey found that “sales leaders” were twice as likely to allow employees to work in alternative, non-office settings.

“Successful SMEs embrace changing work-style trends, offering their employees options like working at home and not letting time and space stand in the way of more productive environments,” says Nancy Pechloff, Arthur Andersen Enterprise Group managing director. “With limited resources, efficiency and flexibility are critical.”
Many rapidly expanding SMEs have dramatically altered their location strategies to find qualified employees.

For example, Minneapolis-based Select Comfort, a high-quality air mattress manufacturer that’s No. 82 on the Inc. 500, targets areas with high underemployment. One such area was Columbia, S.C., which met the company’s distribution strategy. In addition, a state incentive program paid for all recruitment and training.

Select Comfort promised local area workers above-average wages and a focus on quality. In turn, it demanded the kind of commitment that would yield rapid new plant productivity. Applicants had to undergo five weeks of rigorous pre-employment training — without job guarantees.

Yet response to the new plant was so positive that it picked from 400-plus applicants for its first 100 trainees; two-thirds were already employed. Only 10 weeks after its 1996 opening, Select Comfort’s plant exceeded output forecasts.

Tapping Captive Markets

Site Selection‘s research identified other successful labor strategies fueling expansions among fast-growth SMEs:

• hiring from welfare-to-work programs,
  
• targeting areas with expanding immigrant populations,
  
• recruiting outside the company’s national boundaries,
  
• tapping large contingents of retirees, and
  
• recruiting over the World Wide Web (a major recruiting weapon for high- and low-tech firms alike).
  

— Jack Lyne is Executive Editor of Site Selection

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