To Be Strategic or Transactional? That is the Question
The Case for Human Resources in Strategic Planning Ask most business leaders and professionals, and they will describe human resources in transactional terms. “They are the department that hires people, fires people, manages our benefit plans, and tells us how much we can pay people.” A lot to unpack there for sure, but that perception misses the mark entirely. While it is true that human resources has a lot of transactional components, it is no different from any other department or function within a business. For example, consider your Accounting Department. Arguably it is one of the most critical roles within the business as it has the power of the purse. Its transactional tasks include logging debits and credits into the general ledger, the monthly close process, development of quarterly and annual statements, or logging receipts and outflows through the AR/AP departments. Human Resources also has its share of transactional components. Someone has to enter payroll weekly or biweekly, manage open enrollment, conduct onboarding, or even manage recruitment requisitions. If that is the extent of the value leadership perceives human resources brings to the table, there is a lot they are missing. We would argue that perception is precisely what is holding a business back from achieving its fullest potential. At its core, a business is its people. Try starting a business without any people at all? You can’t do it. You know why? You are a person. If you start a business, even a company of one, say a single shingle consulting business, then a human is part of that business. Humans are the brainchild of every initiative and action internally and externally to the company. Even with all the automation being implemented today, from software to robots, people must maintain, repair, and monitor them to ensure they continue to perform as intended. There is a strategic component that is often overlooked, and it begins with strategic workforce planning. When your business develops its strategic plan, you look at a 3-to-5-year horizon. With the fast pace of change in business today, it is almost always the case that many of the roles, skills, and competencies needed to fulfill that strategic vision do not currently exist. Absent strategic workforce planning, that vision is doomed to fail from the start. Strategic HR professionals can work closely with executive management to flesh out a human capital plan according to organizational goals. Such a plan may include developing career pathing to move key talent from current roles that will be going away and into the new positions that will be created. It may also have a compensation analysis and benchmarking strategy to determine what to pay roles that don’t yet exist in your business (or even, possibly, anywhere). Plus, learning development programs to teach existing employees the very knowledge and skills they need to succeed in roles they don’t even know are coming, employee relations strategies that will drive engagement and retain key talent, and manage the impact on your people as the organization marches towards that strategic vision. None of this is transactional. All of it requires a very strategic and planned approach aligned with the organization’s strategic plan, outcomes, and goals. As with many areas of your business, there are laws and regulations involved. The EPA places restrictions on the output of carcinogens that can be expelled by smokestacks of factories or waste that can be dumped into rivers and streams. The SEC restricts actions they consider insider trading. Even your sales teams have restrictions to protect consumers from “bait-and-switch” tactics. Human resources is no different— well, maybe a little different. Employment law is a fickle beast, constantly weaving and bobbing, changing all the time. A great example is a recent court case in Minnesota (Hill v. City of Plainview) that appears to have upended decades of legal precedent about the use of disclaimer statements that prevent an Employee Handbook from being interpreted as an employment contract. To the untrained and uninitiated in the ways of human resources, it can seem that the application of employment law bends with the proverbial wind. Though it is rare when significant landmark laws are passed (i.e., Affordable Care Act, Health Insurance Portability and Accountability Act, or even the Civil Rights Act), the way many of the laws are interpreted by the courts is what drives the most significant adjustments by businesses to comply with employment law. With the right strategic HR leadership in place, appropriate plans for implementing changes to employment law can be made that will protect the organization from costly fees, fines, and government-imposed remedies. Strategic human resources leadership can also guide your business by executing transactional HR tasks and even positively impacting the bottom line. For example, there is a time in the business lifecycle when outsourcing transactional HR tasks are more cost-effective. That does not mean every aspect of human resources should get outsourced. That would be a huge mistake. It means that a strategic HR leader should guide or even lead the research, selection, and implementation of an appropriate Administrative Service Organization (ASO) or Preferred Employer Organization (PEO) to handle these transactions. That strategic HR leader should lead the selection and implementation of appropriate Learning and Development (L&D) programs, develop and direct a total rewards strategy, and even the selection and relationship management of the suitable recruiting partners to align human capital needs with the strategic workforce plan. As an economy of scale is reached internally due to headcount and revenue size, it becomes more economically feasible to bring back the human resource tasks formerly outsourced to an ASO or PEO. The organization will further benefit from greater command and control over transactional HR tasks and align better with corporate strategy. There is no magic universal breakpoint to determine when to do this. You will have to look at your business’s demands, nature of employment, industry, and geographic reach as each impacts a company differently. However, the right strategic HR leader will make the correct business case, leading to the most beneficial outcomes. It’s a new year. We have
Exit Planning: Attracting Buyers and Investors
Is it time to sell? Use this checklist to see if you’re ready to put your nursery on the market. Uncertain economic conditions in the past several months have created new opportunities for owners of businesses who are able to produce cash flow. They can cash out now. The time has not been this pregnant with opportunity for years. Why? It’s all about rates and returns. A key number considered when placing a value on a business is the interest rates available in the open market. Many times, the Treasury Bill, or T-Bill rate, is referenced. The lower the interest rate, the higher the value of a business. For some time to come, it will be hard to achieve more than 1% return from interest even in the long term. The Federal Reserve has telegraphed that for the next two years, they will keep interest rates near zero. Investors are seeking better and more reliable returns on their money. They are dissatisfied, keeping it on the sideline, earning almost nothing in interest. Right now, there is enormous liquidity in bank accounts looking for a home. Warren Buffet is reported to have two major holdings — one is Apple, and the other is cash. This legendary investor can’t seem to find a suitable place to park his money for a return. Many horticultural businesses have reliably generated predictable positive cash flow over the years. The ability to generate significant repeatable positive cash flow year in and year out is highly desired when looking at any business to buy or invest in. If you own one of these companies, it might be high time to sell. For many, it has been a great year, while others have suffered losses. In horticulture, there is a skill level a buyer or investor must have to own and operate a green-industry business, or at least be able to hire qualified expertise. That is also true in pharmacology, technology, and finance. All those hot categories are driven by superior expertise and innovation. Good people are like gold in this market. Some company owners have visions of their children taking over. Historically, it is unusual for a second generation and even less for a third generation to do as well as the founder did. The old adage “rags to riches to rags in three generations” is still true in many cases. It might be better to find a buyer and leave your grandchildren with cash and not a business to run. There are exceptions, but few. See How You Measure Up Deciding you want to sell your business or attract an investor is the first step. Once that decision is made, you need to get the company ready for a sale. A careful evaluation of the things that add or subtract from/to your business value will need review. Investors know what they are looking for in buying a business. BUSINESS CHECKLIST On a scale of 1-10, these are the key issues an investor considers in buying or putting money into a horticultural business. How does your company measure up? Score yourself: A: Size of business (compared to others in the space): 1 – Small, not a big player in the market. 10 – We are one of the largest and most successful in our space. B. Quality of the financial records: 1 – Pretty scattered and fragmented, a bit better than a shoebox full of receipt slips. 10 – All our records are computerized, complete, and reviewed; our CFO keeps us well informed. C. Positive cash flow and potential increases: 1 – Not generating significant cash flow or profit. 10 – We are a cash cow; lots of room to grow and even double our net revenues. D. Need for capital investment: 1 – Will need significant upgrades; will need capital soon. 10 – All our equipment and infrastructure are up to date and paid off; no needs on the horizon. E. Credit line requirements: 1 – We use a large credit line and sometimes have difficulty paying it back sometimes. 10 – We don’t need a credit line, and have significant cash resources to back up. F. Owner centric – management team: 1 – This company can’t exist without me there every day; only I know how it works. I don’t have anyone to back me up when I am sick. If I died, this company would die. 10 – If I never showed up again, it will work just fine. This is nearly a passive investment. I have great people. If I retired tomorrow, I have a team who can pick up where I left off and maybe make it better. G. Workforce quality and access to labor as needed: 1 – We just can’t find anyone who wants to work anymore. 10 – There are a lot of good people in our area. Hiring is easy because people want to work for a company like ours. H. Customer concentration and loyalty: 1 – The bulk of our business comes from a handful of steady customers. There are a few that buy once and never come back again. 10 – Our top 10 customers only make upon 5% of our total revenue. Losing a customer is not a death sentence. Our customers see us as an essential primary vendor. They come back again and again. I. Competition in the market for the dollar: 1 – Lots of aggressive competition; we have to discount deep to make deals. 10 – We are the competition. In our space, we make the rules. J. Compliance with environmental, labor, immigration, OSHA, and EPA regulations: 1 – We fly under the radar and keep the feds at bay. 10 – We try to make sure we are never vulnerable to the violation of any regulations that could shut us down. Obviously, no company on the planet can score a 10 in every category, but the closer to 100% in each of these important areas, the more valuable your company will be in the eyes of a buyer. You
Who wants to be President?
Career goal setting and development. Do you have a specific career vision of being the President of a company someday? Are you working on adding professional skill sets that will enable you to take on a C-Level role? Do you have a career dream? As a company, have you invested in a definitive training and development program to foster your next generation of company leaders? The horticultural industry is just one of many that need more leaders now and progressively into the future. The number of retirements coming up is staggering. Did you know that there are over 100 owners of companies retiring soon who have no clear leader to succeed them? That is just in horticulture. Overall, 60% of the professionals in the agriculture industry are over 55. As an industry, we endured a period with historically low numbers of students and professionals interested in pursuing a green industry career. This period has created an employee talent gap in what would often be considered the next traditional leadership group. This group is talented and knowledgeable, but it is merely a matter of supply and demand. There are just not enough leaders to take over, and not enough have been provided the necessary leadership training. Throughout every sector, demographic, and role in the green industry and many other industries, there are too few individuals who have had a specific desire and career focus to run a company. Compare this to the financial or IT sectors where a high volume of professionals have an early passion and focus on driving their careers to their industry’s top leadership roles. It is surprising how few professionals have had an initial desire to be a President of a company. A dynamic affecting this is the sheer number of family-held companies where leadership has traditionally been passed to 2nd or 3rd generations. While this is admirable, it has also tempered the career aspirations of those who are not part of the family. We are now at a tipping point where there are fewer generations to pass leadership roles to, causing new and challenging exit planning options for the current leaders. How do we address this? From the mutual effort of individuals and companies. Encourage students and early career professionals to dream and envision being a company leader. Leadership is not for the faint of heart with all its responsibilities and challenges. However, we need more professionals to dream about wanting to run a company. Ask yourself if you have allowed yourself to dream about this type of role? To have more leaders, we need more professionals desiring to take on this level of leadership. With that desire comes the awareness that a person needs to embrace continual learning with curiosity and accept certain sacrifices driving their career to achieve top leadership positions. This could include putting in longer hours some days, the ability to relocate as necessary, and volunteering to take on new tasks or help in other departments when they are shorthanded. Academically, technical knowledge is essential. Many excellent educational institutions produce technically knowledgeable students. However, many lack focused programs on developing company leadership with curriculums geared to business and management. We rightly celebrate our grower interns, but we should also celebrate those doing horticulture industry internships in sales, marketing, accounting, or human resources. Have a professional growth plan. If you do want to take the helm of a company someday, identify in yourself the knowledge and industry skillsets you need to master, so you are ready. Proactively take charge of gaining the knowledge and experience you lack rather than relying on others. There is as much onus on companies to be a part of increased leadership development. Yes, this does require an investment. Begin to balance your team’s professional development with your automation budget. No matter how automated, it still takes strong professionals for a company to realize success. Many assessment tools are available that will help a company identify individuals with leadership behaviors. These tools identify a career plan for those individuals that will infuse them with the skillsets needed to become a strong leader in the future. Does your company have ongoing career development planning, which includes rotation through different departments or functions? At the very least, does the company invest in continual education or training programs focused on improving communication, soft skills, sales, marketing, financial, operations, or supply chain knowledge? Encourage and support your company’s professionals to become active within your industry via associations, seminars, or other educational and networking events. Don’t be afraid of losing this talent by this exposure. Professionals who know their company is investing fully in their growth are much less likely to leave. Employees who feel stifled in their development will leap at the chance for growth elsewhere. No company has an endless budget, but a company can apply strategies that do not require a monetary investment – transparency in your business and delegation of responsibilities. Openness with your employees about all facets of the business directly correlates to increasing their professional growth. For example, companies applying the Great Game of Business approach to transparency have more engaged and motivated employees concerning their career progression. Pairing high potential employees with positive mentors will also benefit the mentor themselves increasing organizational talent strength. Encourage delegating responsibilities and not micro-managing those assigned these tasks. This must start from the highest leadership levels. Current leaders – ask yourself if too many business decisions are run through you, or have you honestly delegated to your team decisions without hovering over them? FYI – your business’s valuation increases when delegating decision making abilities and becoming less owner-centric. Growing the number of leaders is critical to the future success of any industry. The gap can be closed with more professionals who desire to run a company and put their plan in place. Couple this with companies providing increased focus on training and development, and we have set the stage for increased industry success that becomes sustainable for many years to
Strategic HR
How Small to Medium-Sized Businesses Can Get the Most Out of the HR Function “For the world is changing: I feel it in the water, I feel it in the earth, and I smell it in the air.” These words were spoken in the movie and written in the book “Lord of the Rings,” and very accurately sums up what is happening in our world today. The fast pace of change for businesses due to recent social unrest, economic recession, and a global pandemic shined a light on just how unprepared so many companies, regardless of size, industry, or sector, were when it came to crisis management. If there is one lesson small to mid-sized business leaders have learned, it likely is the value, importance, and absolute need for strategic human resource professionals. Years ago, when I joined an underground utility company as the HR Manager, I knew nothing about the business. If I were going to add value to the organization, I had to understand the business— what they did, how they did it, their competition, and how the company could compete. Only then could I collaborate with superintendents on staffing planning, project managers around their pipeline of projects that would feed the revenue wheel, and the employees to understand how to keep them engaged and reduce turnover. In small to medium-sized businesses, many business leaders struggle with understanding the strategic partnership that HR can have within the organization. This is too often because HR does not properly understand the business and because many business leaders only understand the transactional support HR provides. Many business leaders determine a need for dedicated HR personnel only when the transactions become more burdensome than they are willing or able to handle. For HR to demonstrate the strength of the strategic partnership, they must be intimately familiar with all aspects of your business, understand when to outsource transactional tasks, and when to bring those back in-house. To get the most out of your HR department or function, business leaders should differentiate the transactional tasks of HR from their strategic partnership with the business. Transactions can be outsourced and automated. Many solutions are available, some of which were shared in a previous article, Resistance is Futile, that addresses many affordable HR compliance solutions (the primary transactional tasks of HR) for small to medium-sized businesses. The low to no-cost solutions available are numerous, and when employed, these services free up the HR team member(s) to become true strategic partners. There is a time in the business life cycle where outsourcing transactional tasks is the right strategic move, and when bringing such tasks in-house is best. A May 8, 2019, Gartner article, Gartner Survey Reveals That CEO Priorities Are Slowly Shifting to Meet Rising Growth Challenges, indicates that in the annual Gartner 2019 CEO and Senior Business Executive Survey, “a growing number of CEOs… deem financial priorities important, especially profitability improvement.” The survey also states that “at the same time, mentions of financial priorities, cost, and risk management also increased.” The appropriate treatment of transactional HR tasks can be a huge help in addressing such concerns in your organization. Outsourcing can stabilize cash flow, especially in a seasonal business, make it more predictable and easier on the budget. It can introduce automation, such as self-service portals, reporting, and file maintenance. Outsourcing transactional HR tasks can even shift the risks of non-compliance to a vendor, potentially saving your business hundreds of thousands of dollars in fines, fees, and government-imposed remedies. Typically, much later in the business life cycle, insourcing these transactional tasks is the right strategic move. It will provide more control of data, improve the quality of service transactions, develop deeper metrics and tracking, and improve innovation and creativity around HR initiatives. Due to economies of scale, it may even be more cost-effective to insource than outsource. Knowing the right time to do each is somewhat challenging, but HR becomes a more strategic partner to your business when done right. To help HR be more strategic, now that the transactional tasks have been appropriately addressed, we need to immerse them in the business fully. Take HR under your wing and teach them the business from the ground up. Company history is part of that, but only a small part. For example, in horticulture, your HR function needs to understand what growers do and what various crops and systems challenge them. They need to know the role and responsibility of those leading operations, whether they are working with plants in a field or a greenhouse, and the relationship between customer service, sales, product development, marketing, and operations. HR should visit and have a chance to shadow every department or function within your business, meet the key leaders, and have a chance to talk with entry-level employees. Invite HR to meet with key customers to understand this relationship and the customer’s challenges your company is trying to help them solve. Expose them to the entire industry through the various trade show events and conferences such as Cultivate, MANTS, Far West, or the Plug & Cutting Conference so they can learn about all the companies that make up the horticulture industry as well as interact with other HR leaders to share best practices. Expecting HR to stay in their silo, their office, or behind their cubicle separates them from the business. It hinders their innovation and creativity when tasked with solving real business problems. Strategic elements that HR brings include assisting with developing the organization’s strategic and tactical plan, organizational development and design, strategic workforce planning, succession planning, and learning and development. Even the development of compensation and benefits programs, collectively the total rewards program, is strategic. In a March 14, 2019 article by The Predictive Index, Top CEO Priorities Are Business Strategy and Talent Strategy, the top two priority concerns are… well, as the title states… business strategy and talent strategy, two core areas addressed with an HR function that performs a strategic role. Add to that the January 17,
Take a Breath and Think
You deserve it, and your business may require it. By Ben Molenda, Human Capital Advisor, and Todd Downing, Managing Partner at BEST Human Capital & Advisory Group Are you tired of “Work From Home,” “COVID Procedures,” and “New Normal” articles? This one is different. Instead of being advised on how to do something, the goal here is to experience thought. “THINK” is what Thomas Watson Sr., the legendary founder of IBM, would tell his people, encouraging everybody to be thinkers, from the assembly line worker and engineer to the salesperson and office admin. It was what would bind the company together and become the cultural cornerstone of one of the world’s great companies. Despite the immense challenges thrust upon all businesses during the pandemic, the Green Industry has experienced positive, and some would say unprecedented, growth. Other industries have not fared as well and are just starting to recover. The stresses you have responded to in running your business with an uncertain future, proper COVID health protocols, plus the volume of business experienced or lost, have left many leaders feeling reactive. There has been considerably less time to focus on strategy as much as they would like. And – a bit exhausted. The pandemic has also created profound change and impact on the people who make up your organization. Strategic Human Resource planning is a vital component to successfully navigating this business evolution. We are all searching for solutions to protect, stabilize, and grow our businesses. But how do you define solutions when your time and energy have been dramatically stretched? A helpful first step is to identify what the Human Resource challenges or opportunities are that require problem-solving. To support leaders in identifying Human Resource solutions, ask yourself a few of these questions to flesh out potential areas that will require change. You can then begin formulating solutions to address these challenges. WORKFORCE DEVELOPMENT Have you identified specific training or development investments to grow key employees? Are your employees cross-trained if a key individual leaves the team? Does each position have a career progression plan? Have you openly discussed it with the individual? Do you have silos between departments requiring increased collaboration? HIRING What are the current bottlenecks or challenges to your business, and what type of professional would you hire to solve these problems? Is your ongoing hiring process compliant with applicable employment law and producing the desired and necessary results for your organization? Are your HR-related marketing tools and company branding message aligned with the current strategic plan to attract the proper level of talent to drive these organizational directives? Do you have a positive company brand image on social media and sites such as Glassdoor to help attract top talent? TOTAL REWARDS – COMPENSATION & BENEFITS Have you updated or benchmarked your benefits and compensation packages lately? If yes, how frequently do you do so? Do you include perks like profit sharing, continual education, or health initiatives to better invest in your employees? What unique benefits do you offer that are attractive to potential new hires or increase retention? Is your compensation in line with your geographic region, cost of living, and other industries to attract top talent? HUMAN RESOURCE SYSTEMS & SOFTWARE Do you have an organized electronic system for classifying and holding all your employees’ documents? Do you have an up-to-date chain of command to report HR issues? Do you have the appropriate technology and tools to maximize efficiency and effectiveness? (i.e., HRIS, LMS, TS, ERP, and Payroll). Do these systems seamlessly integrate? Are your HR employees adequately trained on them? EMPLOYEE RELATIONS Are your employees truly engaged in the business or simply “punching the clock”? What is your retention rate or turnover rate? What type of leader would your employees communicate that you are? Has an appropriate investigatory process been put in place? Are your HR professionals trained to objectively implement such a process to resolve employee relations issues regardless of their severity or nature? HUMAN RESOURCE COMPLIANCE If your Human Resource policies and practices were audited, would you pass without a fine? Have current policies been recently reviewed and updated to conform to recent legislation, court cases, and executive orders? Especially revised regulations? Are Human Resource audits (internal and external) conducted regularly to ensure compliance with all employment laws? SUCCESSION & EXIT PLANNING When was the last time you took time away from your business as its owner or leader of a division? Are you able to take time away knowing you have a team to keep running the business profitably and efficiently? Do you know what you will do when you retire? Have you mapped internal succession paths, including your own, so you know where to recruit externally and where to develop internally? DIVERSITY Would your organization’s effectiveness benefit from someone with a different background, mindset, viewpoint, or values? Have you hired individuals from various backgrounds and educational backgrounds? Have you properly followed Equal Employment Opportunity Laws? Are you tracking appropriate diversity data regardless of whether you must file an annual report? OPERATIONS & PRODUCTION Are you struggling to achieve complete buy-in to LEAN principles or Health & Safety protocols? Do you have employee retention or engagement problems with your production team? Are current performance metrics or KPIs aligned with job expectations, job descriptions, and organizational outcomes? SALES & MARKETING Do you hire sales professionals based solely on knowing your product and customers, or have you taken time to identify and assess for successful sales or marketing behaviors? Have you worked with your sales, marketing, and production teams to understand and increase collaboration with one another relative to production capacity and sales growth? Are your customer-facing professionals a positive reflection of your company with customers and the industry? NEW PRODUCTS & MARKETS Do you have new products in the pipeline that will require hiring professionals with a unique skill set or knowledge? Have you identified new markets to enter that will require hiring professionals with the targeted industry knowledge? FINANCE