While small businesses account for an estimated 49 percent of all private sector jobs in the US, most discussions on human capital strategy revolve around the best practices of multi-divisional (e.g., GE) or technology-intensive (e.g., Google) firms. It is true that small business firms do not typically design and implement long term human capital strategies and usually lack a strategic HR function or a Chief Talent Officer. However, they do struggle with issues related to the attraction, development and retention of talent. This became evident to me, serendipitously, during a recent visit to a sweet shop on Devon Avenue in Chicago.
Devon Avenue is a multicultural shopping destination in northwest Chicago with ethnic businesses operated by South Asians, Eastern Europeans and Orthodox Jews, among others. In the South Asian portion of this street, sits an Asian Indian sweet shop, which I will call “Asia Sweets." To go to Devon’s desi corridor is to encounter the sights, sounds and smells of a crowded south Asian city. Stores sell clothes, jewelry, books, music, groceries and souvenirs from the Indian subcontinent, and more than a dozen ethnic restaurants and sweet shops eagerly patronized by hungry and/or adventurous customers.
I was in Devon Street to collect several trays of Indian sweets ordered by an out-of-state friend. Upon entering Asia Sweets, I was struck by not only the variety of colorful sweets and savories, but also the amount of noise caused by a standing-room-only crowd placing and confirming orders. It was clear to me that this was a bazaar, not a neat and orderly confectionary store! Needless to say, as a result of the prevailing chaos, the delivery was significantly delayed. However, during the process of service recovery, I struck up a conversation with the owner of this sweet shop, J.S.
Asia Sweets was established twenty years ago by J.S, an immigrant from the state of Gujarat in India. Sweet making is a proud family tradition, with his ancestors serving as official sweet makers to one of the Nabobs of that region! Asia Sweets operates within a competitive environment. I counted four sweet shops within a block of this establishment, each advertising its specialty offerings and competitive prices. To thrive here, in Devon Avenue, for two decades, is therefore no easy task. So, ever the business professor, I asked him, “what keeps you awake at night?”
J.S. thought for a while and then spoke about a specific pastry made and sold at his shop. He described the labor intensive process followed in creating this pastry – the kneading of the dough, the layering of the dough sheets, the temperature at which it is cooked, and so on. He then, paused, and stated the issue: It is relatively easy to replace employees who make simpler sweets, but a maker of such pastries is difficult to find, train, and retain. In the competitive environment of Devon Avenue, good pastry chefs have many places to go.
I must confess that I had not expected this conversation with J.S. to trigger in my mind the key tenets of strategic human capital management! First, in order to attain competitive advantage, firms need to acquire, develop and retain non-substitutable resources and processes. The complex technique of dessert making described earlier is non-substitutable, i.e., impossible as yet to replicate with untrained or mechanical hands. Second, these resources (raw materials and people) and processes should be inimitable. For more than two hundred years, specific sweet making techniques have been passed along from father to son, culminating with J.S! How can competitors even begin to imitate this proud tradition or learn the techniques shaped in specific sweet shops? Well, for J.S., the challenge is to maintain this inimitability by preserving the techniques of sweet making in an environment where human capital is portable, i.e., dessert chefs can easily move to another sweet shop. He could, of course, not use portable resources, and like his ancestors train his sons to master the techniques of dessert making (and chaos management), thereby developing human capital internally. But here too, J.S. is at a distinct disadvantage. His sons are in business school and are free to pursue other career options. Succession planning might have been easier if, like Jack Welch, J.S. had access to vast talent pools and well-established talent processes. That way, he would have both ‘talent at demand’, and ‘leadership bench strength’. Unfortunately, he has neither.
Asia Sweets is a specific, but not unique, instance of a small business that has attained competitive advantage because of its thus-far non-substitutable and inimitable human capital resources and technological processes. Its challenge is to preserve this advantage, i.e., continue delivering high quality products (delicious sweets) in a competitive environment. If small businesses are to survive in this environment, they will need to find ways to grow their own human capital management capabilities. What does strategic human capital management look like for small businesses? Please comment…
Mahesh Subramony, PHD is an Associate Professor of Management and Director of the Center for Human Capital and Leadership at Northern Illinois University. He can be reached at email@example.com.