Business strategies and employees

23/05/2012 § Leave a comment

MED recently published some research I did for them with a few co-researchers. The work is a little old but it’s nice to see it on the MED website.

The research was part of a larger programme investigating the interaction between businesses’ strategies and their job vacancies. The programme was based on work by Geoff Mason in the UK on business growth, innovation, and employment.

Here is the blurb from the MED website:

This research explored the interaction between strategy and employees’ skills, and differences between high value-add (HVA) and medium value-add (MVA) firms, through interviews with firms and analysis of the 2008 New Zealand Business Operations Survey.

We were trying to understand how businesspeople thought about their business plans or strategies and link that to the success of their firms. A critical part of running a business — and implementing a plan — is having the people to do it. So, we focused in particular on key employees and skill gaps.

Two interesting findings:

  1. Most firms had trouble recruiting key employees. They reacted by recruiting from overseas, training an existing employee, relaxing the criteria, or simply leaving the position unfilled.
  2. MVA firms focused more on production methods, technical skills, and margins over costs. HVA firms focused more on the business skills of a few, professional core employees, as well as the marketing aspects of their products.

The first finding underlined that there are skill shortages in New Zealand. It may seem a trivial finding to economists, but it is important to remember the matching problem. Available workers may not match the available openings. In addition, most domestic firms are small, so a poor hiring decision can really hurt them. Throw in a bit of risk aversion, and firms are willing to let positions sit unfilled for years and work around the gap.

The second finding was, in a general sense, about the difference between cost-plus pricing and value pricing. MVA firms tended to be more cost-plus — they figured their cost of production and added a margin. As a result, they couldn’t really be high value-add firms unless they added a high margin, which they were loath to do. The HVA firms tended to work more on the basis of ‘value to customers’, and then charge accordingly. Of course, in a Walrasian equilibrium, cost-plus and value pricing would yield the same results. In the non-equilibrium world of actual firms, value pricing leads to higher value-add.

Always interesting to get out in the economy and talk to people in it, rather than just sitting at my desk teasing something out of the numbers.

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