Recruitment Practices in Malaysian Knowledge Intensive Startups

 

In this article, Shanmuga Pillaiyan investigates the recruitment practices adopted by knowledge intensive start-up companies. Existing literature is first examined to provide a base for further investigation. Three owner-managers of Malaysian knowledge intensive start-ups were interviewed to better understand the processes they practice in their companies for the first 3 years. The pros and cons of their practices are examined and finally a framework for recruitment in small knowledge based firms is proposed.

 

Introduction

The role of Strategic Human Resource Management (SHRM) in developing firm competitive advantage is explained with reference to the resource-based-view (RBV) of the firm (Barney, 1991; Barney & Wright, 1998; Ferris et al., 2004).

 

According to Barney & Wright (1998),  “RBV postulates that the physical, organizational and human resources of a firm may be a source of sustainable competitive advantage if they add value to the organization; are unique to the firm or rare among competitors; difficult to imitate and non-substitutable”. Even though there is mainstream consensus that SHRM has a positive impact on firm performance, SHRM is frequently critiqued due to the difficulty to prove causality (Wright et al., 2005). Delery (1998) argues that the direct mechanism by which SHRM influences a firm’s effectiveness is not clearly understood. For the purpose of this paper we assume that SHRM is especially critical to firm performance of knowledge based companies.

 

HR Management models, including recruitment practices, are largely developed based on large organisations with limited understanding of its application to small knowledge intensive start-up organisations (Heneman et al., 2000). This is in spite of the criticality of human resources to small knowledge intensive start-ups. Studies suggest that the existence of formal HRM practices is related to firm growth (Barrett & Mayson, 2005; Kotey & Slade, 2005; Nguyen & Bryant, 2004). Many start-ups also fail due to their inability to recruit and retain key staff (Jack et al, 2006).

 

 

INFORMAL STYLE

The interview findings concur with literature on the informal nature of HR practices in general and more specifically recruitment process in small start-up companies. This is driven by the belief of all three owner-managers that the small size of the company doesn't mandate the setting up of formal HR processes. The cost associated to maintaining a dedicated HR person / team is deemed unjustifiable. Owner-managers feel they will be able to carry out the HR tasks themselves.

 

The owner-managers views his/her direct involvement in the informal HR processes as a strength of the firm. This informal process is seen as giving the flexibility needed to attract key resources to the firm.

 

There is acknowledgement among the three owner-managers that such unstructured approach may lead to inconsistent treatment of staff. This may lead to a perception of favoritism among the staff. But the three owner-managers do not view this as a major issue as they feel their personal credibility and relationship with their staff will avert such feeling of favoritism.

 

RECRUITMENT PROCESS

The interviews identified that the most common recruitment steps among the three start-ups where:

  • Referral from current staff

  • Face-to-face Interview

  • Online recruitment portals (e.g. JobStreet.com)

These steps are not consistently applied to every candidate. The owner-managers utilizes one or a combination of the steps for each particular candidate. Factors such as available time, familiarity with the candidate and job level impacts the decision on the recruitment steps. Even when implemented, steps such as face-to-face interviews are not structured and standardized. The actual questions asked and criteria examined may differ from candidate to candidate. This variation is potentially even more significant between different interviewers.

 

The final hiring decision is based on the owner-manager’s “feel” of the individual’s fit in the organisation. This is done on a “gut feel” basis without much structured approach. There seems to be no structured approach for the interviews conducted even though this is the main evaluation for the individual’s “fit”.

 

Surprisingly owner-managers believe that their unstructured recruitment approach is successful even when two of them indicated that the average duration of employment is one to two years. This could be due to the fact that owner-managers don’t see retention period as a measure of successful recruitment process. Potentially owner-managers take a short term view and are more concern with just filling the immediate vacancy. Owner-managers also acknowledge their difficulty in identifying key resources with particular skills within their own circle of business acquaintances and friends. There is a perception that head-hunters and professional recruitment services are expensive among all three owner-managers. Due to this perception, owner-managers seem to restrict themselves to online recruitment portals, such as JobStreet.com, which are much cheaper. The quality and accuracy of the individual CVs on the site is a major area of dissatisfaction for owner-managers. Time consuming interview sessions are required to validate the experiences and skills claimed by the individuals on their respective CVs.

 

COMPENSATION

The interview revealed that all three owner-managers interviewed actually pay above market rates to attract and retain their key staff. However, small firms are not able to offer extensive benefits to staff. According to the owner-managers, they will not be able to attract their key staff without offering above market compensation.

 

On top of the pay, owner-managers also feel other benefits they can offer such as flexible working hours, close knit “family” culture, lack of office politics, flat reporting structure help attract and retain key staff. This could be a key attraction for experienced hire who are disillusioned by work at large multinational corporations. 

 

UNSTRUCTURED BUT "SUCCESSFUL!"

Small owner-managed firm consistently have an informal & ad-hoc approach to managing HR practices including recruitment. The owner-managers believe that their informal approach delivers the best possible results. In my opinion owner-managers are confusing between informal and unstructured. The general belief that informal practices must be unstructured is not true. Steps can be structured to ensure consistency and still be presented in a way as to be seen as informal by the target audience.

 

It is this failure to structure HR practices especially recruitment that poses the biggest threat and also opportunity for small businesses. Due to an unstructured recruitment, unsuitable candidates may be routinely hired by small firms. This directly impacts the performance of the firm, especially for knowledge intensive firms where the contribution of each individual is large.

 

All three owner-managers interviewed believe that their unstructured recruitment approach is successful. This is in spite of two owner-managers indicated that the average duration of employment is one to two years. The third owner-manager indicated an average of 3 to 4 year. An average employment duration of 1 to 2 years is very low. There is insufficient time frame for talent development.  The organisation as a whole would not be able to develop its competency. This could be a major limiting factor for the growth of the start-up. Owner-managers need to re-look at how they evaluate the effectiveness of their recruitment process. A long term view of selecting and retaining the best talent will be strategic in making the start-up successful.

 

A formal recruitment strategy will enable start-ups to attract quality candidates. Potential candidates should be segregated into logical groupings such as fresh graduates and experience hire with family. Specific strategies must be developed to attract each segment. For instance, experienced hires with family may be more attracted by non-cash benefits such as flexible work hours and medical benefits for the family. Fresh graduates may be attracted by a clearly defined and quick career progression plan within the company. The firm will need to meet the needs of the segment of candidates targeted for hire.

 

PROPOSED RECRUITMENT FRAMEWORK

 

Figure above is a proposed structured framework for recruitment to maximise the recruitment “hit” rate. The framework intends to preserve the “informal” nature of recruitment and its benefits while standardising the implementation. Adopting a behavioural approach to the assessment of “fit” within the organisation will help to standardise the process. Behavioural assessment based on the DISC (Dominance, Influence, Steadiness and Conscientiousness) framework can be utilised.

 

This strategy intends to maximise the internal “hit” rate for the start-up. From stage 5 which involves the start-up staff, the “hit” rate is projected at 25%. This saves the start-up valuable time and resources. The HR outsourcing company is able to effectively filter through a large list of candidates and only provide the start-up with the candidates most likely to succeed.

 

There must also be a feedback mechanism from stage 5 & 6 to stage 2 (pre-screening). The pre-screening process should be regularly updated with feedback from stages 5 & 6 regarding characteristics of successful and unsuccessful candidates. This will ensure a progressively better “hit” rate for the entire process.

 

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