v

STRATEGY

LEVERAGING INTELLECT IN A SMALL BUSINESS:
DESIGNING AN INFRASTRUCTURE TO SUPPORT

TODAY'S KNOWLEDGE WORKER

Robert L. Cross
Boston University

Frederick L. Funk
Arthur Andersen Small Business Consulting

ABSTRACT

Thefntensttyofcompetitionandpace with which knowledge becomes obsoleie are heralding
an era where leadership, structure and control systems musi increasingly focus on
tiianagement of knowledge and skills. Such an environnient requires managemeni to
sysieniatically design an infrastmcture that is iai lored to the needs of an increasingly mobile
knotv ledge worker and supports organizational learning iti areas ofstrategic concern. Small
businesses face a unique challenge in this environment as they ofteti do not have the time or
a sufficieni "mass" of employees to sustain sopinsticated recntiting, development or
performance management programs. In the folio wi rig arri cle, the authors argue the real world
imperative ofcrafiing an infrastructure that supports organi ational learm'ng from the very
ittception ofa business, and provide some manageable approaches to tiiis task for any small
bnsiness.

INTRODUCTION

Many management theorists have paid tribute to today's knowledge worker and the
dramatic paradigm shift that managing such an employee has brought to our society(Crawford,
1991; Naisbitt kt Aburdene, 1990; and Toffler, 1990). As well articulated by Peter Drucker
(1993), we are entering a "knowledge society" where knowledge is quickly eclipsing
traditional factors of production such as labor, capital and land. Nowhere is this more true than
in high end knowledge work sectors such as professional services, software development,
financial services and technical product development —areas where an organization's ability
to tap the intangiblesofemployeejudgment and creativity are critical. To thrive and grow in
today's dynamic business environment, it is increasingly important that small businesses in
such knowledge intensive industries organize to I eve rage the collective i ntel lect and creati vi ty
of its entire employee base.

Yet organizing in such an environment poses unique problems for small business
leaders. As Charles Handy and James Brian Quinn have recognized, today's knowledge
workers are truly volunteers, presenting numerous challenges to managers who grew up in the

15



"command and control" environment of the Mass Production Age. Further, the management
of intellect as a source of strategic advantage requires new approaches to planning,
organization and perl'ormance measurement. In a Mass Production environment, employees
were interchangeable and could often be managed as little more than inventory. Today'

knowledge worker, by contrast, must exhibit judgment, creativity, technical expertise. and
interpersonal skills that promote knowledge creation —intang ib I esthat often cannot be -'forced"
like a labor standard on an assembly line (Nonaka & Takeuchi, 1995).

A knowledge based organization creates value on the intangibles of employee judgment
and creativity, which often are only maximized when employees are actively engaged in their

work. In such an environment, conditions of safety and a personal sense of return for effort
expended (Kahn, 1990) in tandem with challenging goals and deadlines can facilitate
engagement; however, coercion, which can occur in many forms, will often result in employee
disengagement from the task at hand. While it is often easy to assess how an assembly line'

going down impacts organizational productivity; it is a fundamentally different management
challenge to recognize when and why the intangibles of judgment and creativity are not being

properly or fully applied. Further, the creation of organizational knowledge requires unique
cognitive and social skills as it is oflen both an individual and interpersonal act (Fiol and Lyles,
1985). For small business leaders in knowledge-based sectors, the management challenge is
creatingan environmentconduciveto non-defensive interactionamong knowledgespecialists,
who by virtue of personality, education and prior career success are oflen highly
individualistic.

While much has been written about the importance of leadership style and culture in
crafling a learning environment, we find that there is less emphasis in practice or in the
literature on development of organizational infrastructure to support knowledge creation and
sharing —es pecial ly for small business operations. Discussion in the small business literature
is often restricted to large scale assessments of strategic fit between strategy, leadership
approach, technology and structure (see for example: Randolph, et. al., 1991; Bates, 1990;
Nwachukwu & Tsalikis, 1990-91; Fombrun & Wally, 1989 and Miller & Toulouse, 1986).
However, the bulk of such studies provide little useful guidance in aspects of infrastructure
design important for emerging knowledge sector organizations. We argue that infrastructure
can not be overlooked, as any successful small company quickly outstrips the oversight ability
ofeven the most charismatic leader. Besides, as systems theory indicates, management style
alone is not the answer (Senge, 1990). Behavior within an organization is the product of a
whole host of influencing factors, only part of which is related to leadership style. Leveraging
employee knowledge as a source of competitive advantage is a strategic decision that must be
made at the highest levels of an organization and then consistently worked into its architecture
(Pfeffer, 1994; Collins and Porras, 1994).

Often, leaders of small organizations clearly recognize the importance of meeting the
objectives of financial stakeholders —an emphasis that is then driven home to the rest of the
organization through budgeting and planning processes. While financial stakeholders are vital
to the success of any organization, attention to these constituents alone does not guarantee
success. Companies maintaining viability over a longer timeframe have been shown to create
cultures (Kotter & I-leskett, 1992) and control systems (Simons, 1995) that value three

16



"'&'Iv 'l. e'

'mportant

constituents: customers, employees and financial stakeholders. We argue that
companies in knowledge sectors would be well advised to position the development of their
employeesat a level of at least equal importanceto financial stal eholdersand customers. The
leadership imperative is making the time early on to develop a vision of organizational design
elements that are well integrated, and also rellective of leadership values (Miles and Snow,
1994; Nadler, 1992; and Galbraith, 1995). Mismatch between design elements or between
infrastructure and leadership intent results in little more than dissipated organizational energy.
As a result, it is important that small business leaders begin considering how to leverage

effective organizational design from the very inception of an enterprise.

The focus on attracting, developing and retaining the right people in a knowledge-based
business is critical. Unfortunately, the hectic demands of day-to-day survival and the lack of
management sophistication at many entrepreneurial firms often result in the neglect of
organizational design considerations. Paradoxically, not establishing an infrastructure that
helps employees plan and coordinate their own activities and concerns soon results in
management finding its time increasinglyconsumed by employee grievances. The result is that
leadership has even less time to commit to crucial activities such as negotiating supplier
relationships, securing necessary financingor locating additional sources of revenue. Further,
without structures in place to help guide behavior, employee output and creativity will oiten
falter. As leaders increasingly withdraw from the day to day operation of a small business,
mechanisms need to be established that allow employees to understand and revitalize a sense
of direction and mission to which their work is contributing.

Ultimately, successful knowledge-based environments seem to develop a culture
combining rigorous performance expectationswith a concern for the individual (Von Glinlow,
1985). Maintaining the balance of these two objectives can be an important guide in
organizational design for any small business. Rigorous performance expectations can serve
to create a positive source of goal related tension that facilitates employee output and
engagement in work. A concern for the individual, be it shown in material or non-material
forms, helps align employee and organizational interests, and also often serves to allow higher
levels of goal-related tension to be employed than in organizations where a concern clearly
does not exist. In the following sections, the authors have outlined how a fledgling company
can support its knowledge objectives by holistically and systematically advancing the
recruiting, retaining, developing, promoting, and rewarding objectives of the enterprise —using
rigorous perfonnance expectations and a concern for the individual as guiding values.

Quite often in small business operations, very important human resource processes are
overlooked given the hectic day to day demands of survival. We propose the following model
in an effort to orient small business leaders on these human resource issues holistically and in
an integrated fashion when considering organizational design. Our main objective is
developingstrategicconsistency and integration of several important processes that are oRen
discussed in isolation in the literature and in practice. Further, we will also offer several tools
to facilitate many of these processes that require minimal eITort to develop and have proven
effective in small business environments. Such tools and approaches require little additional
effort on the part of personnel, but can be very eITective structures in ensuring consistency in
such processes as recruiting and performance management.

17



The discussion that follows will serve to elaborate on each component of the model and
provide practical tools based on findings from our analysis of eight small business operations
ranging in size from 24 to 117 full time equivalent employees(ltTEs). Our sample ofbusiness
operations reviewed includes two regional investment banking firms, three software

development firms, one engineering firm, one technical consulting firm and two high

technology firms. Data was collected by interviews and review of archival data.

Strategtcntty Lcvcraging Knowledge through Organicattonat Design

Recruiting

Rewarding Rclnining

Performnnce Expectations
nnd

Concern for Ihe individuni

Promoting Developing

RECRUITING

The recruiting process is where it all starts. Knowledge-basedbusinesses will live or die

by their ability to recognize and attract individuals with the right mixture of technical and
interpersonal skills. Bringing in people with poor technical or mismatched interpersonal skills

has enormous costs for a knowledge-based business'roductivity through the overall
intellectual drain that can occur when having to conduct remedial training or smooth over
conflicts. However, in a start up or small company environment, the recruiting process is most
often handled by the founders, head of HR or one or two other favorites of senior management
Quite ollen, the assessment of a recruit comes down to factors of personality rather than
technical and interpersonal fit with the "ranks" —the people who the new hire must actually
work with. Some relatively simple practices and tools can help bring more objectivity and
structure into this process.

IS



Standardize Recruit Evaluation

A standardized recruit evaluation process should be established early, as it yields two
significant benefits. First, it forces management to identify the capabilities crucial to the
organization's future success —a clarification process that not only helps recruiting efforts but
also strategic resource allocation(Schoemaker, 1992 and I lammel & Prahalad, 1994). Second,
an agreed on standardized approach allows interviewers to capture consistent information
during the interview process on a series of items strategically important to the organization.
For example, the small (59 FTEs) engineering services firm that we reviewed adopted the
following format to ensure consistency in its recruiting process. The firm employed this tool
to focus interviewers on attributes of each candidate that were of strategic importance to the
business. This was particularly important for this specific organization as it was attempting
to move to a more participatoryenvironmentand increasingly involving front line employees
in the interviewing process.

Standardized Recruitin Process

A standardized approach to each recruiting visit allows an organization to structure the
interview process from the candidate's perspective. Requiring each interviewer to ask specific
types of questions and sell specific points of the company to the recruit avoids unwarranted
repetition. At least two significant benefits can be derived from standardizing each recruiting
visit: I) the organization obtains a consistent and well rounded view of each candidate's
abilities; and 2) a non-duplicative and professional image is portrayed to the recruit. The
second point can not be overemphasized for a small firm, as the office visit is usually the most
salient of points that a recruit uses to evaluate an offer of employment. Quite otten, high
caliber employees have competing offers from more established institutions. While the appeal
of a small firm lies in the entrepreneurial spirit, disorganization may unnecessarily lead to
questions of ongoing operational viability. The same engineering firm found the following
interviewing process effective in ensuring that a professional image was portrayed to the
recruit. As the firm was making a participatory efTort to involve more people in the
interviewing process, this tool became important in ensuring consistency.

While there are a number of sophisticated tools that can be introduced in the recruiting
process, down to psychological tests or behavioral interviewing, these are often overkill for the
needs of a small business. The above tools are fairly simple to develop and serve to quickly
provide focus and consistency in a process that is of key importance to the organization. In
addition, some of the questions that a start up should attempt to address over time include:

~ Does the company have a clearly defined core group of recruiters?
~ Does the company ensure that all recruiters are trained in and practice effective

recruiting techniques?
~ Does the company ensure that all recruiters are trained to comply with recruiting and

hiring regulations?

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Figure 2

Recruit Evaluation Form

Name ol'Applicant

Current Employer

Specialty Arear

Does not
Above Below meet Re-

Outstanding Average Average Average quirements

I. PERSONAL QUAI.IFICATIONS

A. Personality
'Fit'.

Verbal Communication Skills

C. Interpersonal/I'eamwork Skills

D. I udgment, Business dt Common
Scnsc

E. Professional Demeanor

F. Organizational Skills

2. PROFESSIONAL QUALIFICATIONS

A. Technical Expertise

B. Industry Knowledge

C. Managerial/Leadership Potential

D. Project Management Skills

E. Understanding of Services Lines

F Overall "Fit" with Company

G. Growth Potential with Company

3. INTI'.REST IN CAREER WITI I
OUR COMPANY

Comments: (strengths, weaknesses, general observations):

At what level do you believe this candidate should be hired?

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1

OVI RALI I VALUATION: Docs Not

Above Below Meet Re-

Outstanding Average Average Average quirements

Interviewer:

Figure 3
Recruitin Process Form

Name Date

Interviewer I GREETING - Administration
Objective: to make each recruit feel at ease, and to provide a consistent
forum to answer all administrative questions.
~ Explain interview schedule to recruit

Explain history of the company - current status
~ Explain benefits
Complete and take evaluation form to final interviewer

Interviewer 2 FIRST INTERVIEW - Behavior Interview
Objective: to identify and verify relevant behaviors exhibited in past
work or educational experiences.

Focus on 3 past relevant experiences the recruit wants to highlight
Complete and take evaluation I'orm to final interviewer.

Interviewer 3 SECOND INTERVIEW - Technical Interview
Objective: to verify technical skills in the area of interest.
~ Use pre-established technical questions relevant to area of interest
Complete and give evaluation to final interviewer.

Peer(s) of LUNCH
recruit Objective: give both the recruit and the people he/she will be working with an

opportunity to evaluate how the recruit would fit in with the work team.
Recruit is given opportunity to talk to peers about what it is really
like to work at the company

Alter lunch, peer(s) takes evaluation form to final interviewer

Final THIRD INTERVIEW
Interviewer Objective: identify and follow up on open issues or concerns from prior
(senior evaluations.
member of ~ Sell the company and vision
management) Complete evaluation and schedule other interviewers for round table

meeting.

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RETAINING

Once in the door, it is increasingly the company's job to retain highly skilled employees
Never before have knowledge workers had the breadth of opportunities to switch employment
than they currently enjoy. While turnover always represents a cost to an organization's
productivityas well as a drain of intellectual capital, this can be cripp!ing to a small or start up
firm. Some things that a small knowledge-based enterprise can do to help ensure retention
include:

Provide Intellectual Challen e

Quite often, the draw for a knowledge worker lies in the intrinsic satisfaction of
challenging or thought provoking work and the ability to be around others with similar tastes
(Leonard-Barton, 1995). Opportunities to work with, or at least have access to, challenging
work in a selected field can be a strong motivational factor. To provide this opportunity, some
of the companies that we spoke with were experimenting with a structural element called by
various names (i.e., competence center, center of excellence, knowledge labs, etc.) to help
generate organizational knowledge as well as provide an opportunity for employees to work,
for at least a part of their time, on tasks of interest to them.

The competence center concept can be a means both to ensure that new knowledge is
being generated in areas critical to the organization and to help employees develop
professionally in areas of particular interest to them. Obviously, smaller companies can not
afford to dedicate groups of people to solely sit around and "think big thoughts." However,
an

effective

competence

center�ca

be built if approached pragmatically. Initially, individuals
assigned competence center responsibility may spend only IO to 20 percent of their time
developing and sharing knowledge in the area of interest. The responsibilities in this role
could involve such things as providing technical guidance to others in the organization,
monitoring an electronic discussion data base and advising senior management on key trends
in their area ofspecialization. The amount of time allocated to these activities could increase
for a given competence center, if and when a specific area grows in strategic importance to the
organization.

In general, the competence center concept allows the start-up, with limited investment,
to explore potential areas of interest and technical advancements when they are in formation.
The center also allows the organization to establish clear accountability for developing
specialized knowledge and sharing it with the rest of the organization, so that this very
important task does not get lost among the many day-to-day crises. Finally, the center can
provide a source of non-traditional reward to employees.

Provide echanisms for Em lo ee Su estions

Establishingsuggestion systems and using interactive forums during periodic meetings
are effective ways to gather input from employees. These mechanisms help maintain a "small

company feel" by ensuring that employees have a voice and an opportunity to make a
difference in the success of the firm. Suggestion systems(i e. an E-tv(ail box, an old fashioned

22



suggestion box, etc.) can build on a small company's culture of openness and free-thinking
attitudes. Some problems that can hamper suggestion systems include lack of urgency from
employees involved in the process, lack of incentive to participate,too much time between the
offering of the suggestion and the giving of feedback (or simply giving no feedback at all), and
lack of action regarding suggestions. The cardinal rules with a suggestion system are: l) Do
not implement one if you do not have tire ability to respondin a timely manner or ifyou cannot
commit to take actioii wlien necessary, and 2) Answer all suggestions and pay particular to

)itstifying why a suggestion is not accepted. Creation of such a process raises employee
expectationofaction,and managementshould be prepared for "nit-picking" suggestionsin the
beginning, as employees test the system for authenticity.

Utilize Task Forces to Create or Modif HR Policies

Establishing task forces to develop Human Resource policies is another means of
enabling employees to provide valuable input to the future direction of any small business
organization. Further, transitioning such responsibilities to employees removes a large time
burden from management, providing more opportunity to focus on important boundary
management tasks. Finally, the use of cross-functional task forces can also dramatically speed
the acceptance of new policies and procedures as they are not simply pushed down from above.
Management teams in small businesses are often reluctant to give autonomy of decision
making to task forces based on fear of a poor decision (which oAen translates into a more
fundamental issue of not wanting to give up control). Paradoxically, if such an event does take
place, the organizational problem of incompetent employees should far outweigh any concerns
with a poor human resource policy. Provided with sufficient vision and one or two check
points, most employees will craft procedures that serve the needs of the organization, and, in
the process, gain an improved perspective on the difficulty of craAing and implementing
administrative proceduresthat often seem so patently obvious from an employee perspective.

DEVELOPING

With the evolution of skill and competence-based pay schemes has come literature
declaring the necessity of recognizing and measuring an increasingly wide body of supposedly
core skills. Of course, many of these models are based on experiences of Fortune 500
companies and are oAen insupportableand unnecessaryin a small business environment. We
are increasinglyconvinced that a knowledge-basal firm should focus on developing skill sets
along three critical dimensions: technical/job specific, business, and interpersonal skill sets.
It is this balanced combination of skills and perspectives that helps to build a flexible and
integrative organization over time. While Frederick Taylor's idea of narrowing task
specialization worked in a Mass Production society, it is the reverse focus that will provide
flexibility and learning in a highly dynamic and fast moving information age. The nature of
skills identified to lit into each of these three categories must be tailored to the specific core
competenchs of an organization (Tovey, 1993); however, these three categories can provide
a valuable framework for linking employee and organizational skill development.

23



Personal Develo ment Plans

Personal development plans allow employees to introduce their own goals and

aspirations into the development process as well as work on improving skills integral to the
organization'sstrategy. Many studies indicate the power of'goal setting" in improving task
performance (Latham and Locke, 1979). We are only suggesting that the use of personal
development plans begin to focus employees on knowledge acquisition as a task they are held
accountable for. To ensure ownership and take the burden off the organization, development
plans should become the employees'esponsibility to implement, the results of which are
assessed in the annual review process.

Figure 4

Personal Develo ment Plan

KEY SUCCESS
GOALS ACTION STEPS DATES CRITERIA

Demonstrate Take ownership of 12/9X Reduce time
expanded consulting recommendation creation for both required by project
skills on next assignment manager by 50%

Identify follow-on Sell 2 follow-on

opportunity and work engagements
with project manager to
sell an additional

engagement

Leam Microsoft Take 1 company 4/9X Course Completion
Access sponsored training class

Use Access on I project 12/9X Appropriate
application of
Access on project

Continue to develop Work on two projects 12/9X Complete two

expertise in cost involving cost projects involving
management management cost management

Development items that we have seen in small organizations have ranged from working
for a week with a competence center leader, to publishing a white paper on a potential strategic
direction for an organization, to a short rotation through another department or project. These
ideas, in addition to meeting employee needs, place minimal burden on the company and can
serve to help create valuable organizational knowledge from both a strategic and a process
coordination perspective. For example, the technical services consulting firm (44 FTEs) that
we reviewed provided complex systems consulting services in the NEXT programming

24



language to a fairly small universe of sophisticated buyers. Given the tenuous future of this
programming language, management needed a development process that could serve to
broaden skills across languages (i.e. JAVA) as well as service line offerings (i.e. training
services) and adopted the following plan template to ensure a balanced approach to skill
development among its employees. This firm used the personal development plan as part of
an annual goal setting process, and ensured that these plans became salient to employees by
making achievement of these goals part of BOTH the employee's and their supervisor's
evaluations.

However, it is very important that a personal development process be tied to
organizational objectives, otherwise a company will begin to evolve to a form of liberal arts
education. One approach to developing personal development plans is first to identify five to
ten core "skill sets" that are needed by the company to meet its business objectives. Then. each
employee should:

I. Conduct a self-assessment for each of the core skills by using annual performance
appraisals, project manager appraisals or team member evaluations as appropriate.

2. Select two or three skills to improve in the next twelve months.
3. Fill out a 'Goals/Action Steps/Key Dates/Success Criteria/" matrix for each targeted

skill area. Action steps might include self-study, company-sponsored training or self-
initiated projects.

4. Schedule a mid year follow-up meeting with a senior adviser to discuss progress on the
plan.

Performance Evaluation

Performance evaluations based on dimensions of strategic importance provide a
consistent means of identifying, tracking, and ultimately recognizing superior performance.
Effective evaluation processes are usually put on a timeline that provides feedback to
employees more frequently than the typical annual review cycle —thereby providing more
opportunitiesfor correctiveaction. The important point here is to identify key dimensions of
performance that are tied to the organization's strategic objectives and then communicate these
objectives very clearly to an employee base prior to the evaluation period. This approach helps
to reduce the inherent subjectivity of the performance evaluation process in that employees
know what they are being evaluated on. Attached is a composite of dimensions measured in
five small knowledge-based enterprises; however, here more than in any other element of
organizational design, it is critical that management determine the correct dimensions of
measurement for their specific business'. The axiom: "you get what you measure" has
enormous power.

'hese competencies were drawn from five of the firms in our sample (two software development firms,
one of the regional investment banking firms, the technical consulting firm and onc technical products
firm). We took the competencies(or cntical success factors as two tinns called them) that could be applied
to a ivide range of small business operations and offer them as a potential starting point for other small
business leaders to consider.

25



Figure 5

Common Performance Dimensions Relevant to Small Business

Customer Service
~ Accepts personal responsibility for customer service

Develops an understanding of the customer's industry
~ Gains confidence of'customer personnel
~ Suggests ways for the project team to be innovative in serving the customer

Communication Skills
~ Applies effective listening skills
~ Maintains confidentiality

Demonstrates good written communication skills

~ Demonstrates good verbal communication skills

Facilitating Teamwork
~ Exhibits positive attitude

~ Volunteers for more work when possible

Works well with other members of the team
~ I.eads team efforts to achieve shared objectives

Technical Competence
~ Develops realistic timelines and budgets
~ Demonstrates the ability to analyze and define project requirements
~ Leads project implementation
~ Contributes to overall knowledge of the organization

Self-Development
~ Takes responsibility for improving own business and technical skills

~ Continues to develop verbal and written communication skills

~ Seeks specific feedback on performance and acts on it

Organizational Skills
~ Manages own time effectively
~ Delivers quality products and services on time
~ Uses resources effectively and eAiciently

Peer feedback processes, despite potential shortcomings (DeNisi and Mitchell, 1978),
can often be very effective means of providing informal performance feedback (see for
example: Fedor & Bettenhausen, I 989; McEvoy and Buller, 1987). While a full discussion of
peer feedback design and implementation is beyond the scope of this article, the successful
practices that we have seen tend to; I) be relatively non-complicated; 2) not be a part of the
formal evaluation or incentive process (at least initially); 3) be craAed with input from
employees and 4) be focused on interpersonal skills oiten overlooked in traditional supervisor
performance evaluations. In addition to its strength of credibility in shaping behavior, peer

26



1

feedback helps employees improve "soft" teamwork skills such as active listening —skills that
are often overlooked but that have tremendous impact on productivity in knowledge-based
settings. Following are items created by the employees of one of the small regional
investment banking firms we reviewed (24 FTEs). According to interviews with employees
of the firm, these simple items have been used very effectivelyto help the firin's "deal" teams,
which temporarily and continuously form and disband, work successfully together.

~ The individual exhibits a positive attitude for work assignments and team discussions
~ The individual completes assignments as agreed.

The individual exhibits a respect for other people's ideas and opinions that is
conducive to an open discussion.

~ The individual is able to clearly communicate ideas and exhibits an appropriate blend
of the skills of inquiry and advocacy.

~ The individual comes forward as a -leader" at the appropriate times. but is also
willing to take a "follower" role at the appropriate junctures.

PROMOTING

The organizational structure employed by a small business often dictates how
management thinks about promotion. However, the notion of promotion as a lockstep climb
up a hierarchy is not sustainable in small business environments or even in larger organizatiora
given the de-layering currently taking place. A flatter hierarchy is a necessity today as it
provides such advantages as: I) quicker organizational response to a dynamic environment;
2) increased accountability for results (not simply action) among lower levels in the
organization; and 3) there is some evidence that structures diffusing decision processes
promote greater organizational learning (Meyer, 1982).

A streamlined approach to hierarchy has a well known disadvantage in that it reduces
the potential for career advancement in the traditional sense of the word. However, it is here
where alternative structural mechanisms such as a competence center or personal development
plan can serve to keep a career engaging from an employee's perspective. For example, one
of the small (36 FTEs) software development firms in our sample used the competence center
idea to provide high performing employees with an opportunity to investigate specific internet
applications and share the results with the company. For example, one of the projects involved
investigation into the potential of providing updated releases of their software directly over the
Internet. This project provided at least three benefits to the organization: I) the report
advanced the organizations knowledge of potential market opportunities and threats; 2) it
provided an opportunity I or high-per form ingemployees to work on matters of personal interest
—an opportunity that the employees did not believe they would get in other similar small start
up environments; and 3) the sharing of these results with the organization provided a form of
informal recognition of these employees'kills.

REWARDING

Clearly, any organization must provide adequate compensation to induce an employee
to not only stay with the organization,but also to engage mentally and physically in their work.

27



However, we also argue that management of a small firm should become adept at identifying
and leveraging the unique inducements they have to offer beyond simply salary and benefits.
We do not mean to suggest that parity with the market in terms of compensation can be
ignored. Rather, that smal I business owners take the time to recognize that there are many non-

compensation-based reasons that people come to work each day, and that quite oRen these
reasons provide an alternative means for management to influence employee commitment.
Frequently, there are innovative ways that small organizations can work with employees on
more of a partnership basis than is feasible in large companies where standardization is
demanded to manage complexity. For example, providing employees an opportunity to
explore an area of technical interest or providing flexible work arrangements as long as certain
performance targets are met can be very effective sources of inducement for valued knowledge
workers.

In small business environmentsthere are also myriad opportunitiesto institute incentive

pay and bonus schemes (see for example: Pederson & Lidgerding, 1995). However, in
practice, the change management and administrative burdens of such systems rarely seems
fully appreciated prior to implementation. Additionally, aside from the calculation,
distribution and communication issues that always present challenges with organization-wide
incentive schemes, there are at least two inherent difficulties with administering bonus pay.
First, to be effective, employees must believe that their performance can feasibly have an
impact on attaining the incentive. As a result, some small organizations have introduced
bonuses by division or service line which has the effect of creating enormous dissatisfaction
when one area gets a payout due to good fortune while another does not despite putting in the
same amount of effort. In addition to behavioral problems, research has illustrated the
difficulty, cost and political battles that oflen accompany internal transfer pricing and overhead
allocation models required to calculate bonus payments for dilTerent departments (Eccles,
1985). Second, monetary rewards oRen have a backlash effect in that each payout sets the
baseline for the next one. Employee expectations are raised, and anything less than the
previous payout is oflen deemed as a failure.

COMMUNICATION —THE KEY TO
PUTTING IT ALL TOGETHER

While we hate to overuse a sticky analogy, communication truly is the glue that holds
an organization together. However, leadership teams oflen fail to recognize the power and
importanceofcommunicationin mobilizing the energy and commitmentof the employee base.
ORen, the problem is that communication is never an issue in the genesis of a start up —usually
a group of founders talk daily and use a variety of informal channels to ensure agreement on
what needs to be done and where the organization is going. At some point, during rapid
growth, this informal mode of communication does not work anymore. The difficulty for
entrepreneurial leaders is to identify exactly where that point is. The analogy of a small
company as moving from a speedboat(i.e. very maneuverableand able to respond quickly) to
a cruise liner (i.e. more sluggish in maneuverability, but more powerful once momentum is
built in any given direction) is often very effective in illustrating the power of communication
and shared vision as a steering mechanism.

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Improving communication to maintain a "small company" feel is very important to
employees as a small company or start-up expands. OAen, it was the small company
environment that attracted employees to the organization to begin with. It is important that
leaders take the time to develop a communication strategy with numerous channels of
information to which various audience segments within the organization can turn. The design
and continuous updating of a communication strategy serves to support many objectives: I)
supporting day-to-day communication; 2) communication of special issues; and 3) periodic
interactive meeting forums to discuss results and vision. For example, the other smal I software
development firm that we reviewed (48 FTEs) had several key development efforts working
concurrently and was finding it increasingly difficult to keep all employees informed. With
teams of developers working on new releases and others on an entirely new oITering at the
same time that management was attempting to diversify into offering consulting services and
relocate to a more suitable environment there was oAen a great deal of confusion on the part
of the employees. The finn adopted the following strategy in an attempt to maintain a small
company feel while at the same time keeping all employees informed.

CONCLUSION

This article has taken a holistic approach to considering an employee base as the
fundamental source of strategic advantage in knowledge-based work. We believe the
importance of consideringorganizational design holisticallycan not be overstated. Very often,
we found that small business leaders would isolate a current human resource crisis as "only"
a recruiting or development problem when in fact the two issues were intricately interrelated.
For example, one of the companies in our sample was having trouble promoting teamwork
amongst its soAware developers. Their specific remedy was to emphasize the importance of
teams in every forum possible and to look for ways to measure and reward for demonstrated
team performance. However, they neverconsidered the fact that their interviewingprocesswas
based exclusively on technical merit, and so they were bringing people into the firm without
screening for either a desire to develop or proven ability at team skills.

While different tools and processes have been introduced to stimulate thinking, it is
important that each organization put the thought and effort into developing potential tools that
meet their unique circumstances. Each organizational design element should be addressed in
some fashion with guiding principles of:

Rigorous performance expectations —put in place through mechanisms such as: (I)
a performance evaluation program with feedback from peers and superiors on a balanced range
of objectives, (2) development plans focused on linking company and personal goals, (3) an
organizational structure focused on developing technical excellence through a competence
center approach and (4) recruiting based on strategically important performance metrics.

Concern for the individual is demonstrated —put in place, in addition to values-based
leadership through mechanismssuch as: (I) improved communication(2) seeking input from
employees on topics of importance to them (e.g., suggestion systems, cross-functional task
forces to define important HR policies, interactive sessions in quarterly meetings); (3) using
personal development plans to help employees build expertise based on their own interests and

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Figure 6
Communication Strate Matrix

Audience Media Communication Intent Feedback ~Fre uenc

All Employees Technical groups capture threads on Suggestion On Going
groups on Technical Issues, various technical issues, Customer system/Periodic revietv
Current Customers or database captures call reports and by database moderator
Prospects and New product new service line ideas.
development Usage (i.e. // hits)

All Employees Attendance
to allow people to get together other month, meet at
periodically. 3 PM

All Employees Captures happenings within Usage (i.e. // hits)
group on Company XX Company XX. Celebrates victories
Rumors and captures personal items.

All Employees Facilitated sessions Quarterly
future strategic direction and during meetings and

company happenings questionnaire feedback
on effectiveness

All Employees Suggestion system
sections on technical issues from
each of the competence centers and a
passage from the President



(4) looking for unique ways to "partner'with each etnployee and attempt to identify alternative
reward opportunities.

ln a knowledge-based enterprise, the employees are the business. In today's market,
technical skills seemingly become obsolete almost every year, and the labor force is becoming
more and more transient. Employees are demanding more control over what they do and how
they do it. An integratedapproachto organizational design, balancing rigorous performance
expectations with a concern for the individual, establishes a strong foundation that can align
the any small business'uman resource processes with its strategy.

31



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