Editor’s Note: Even as the global economy slows down, some Chinese companies are grappling with a new reality: hypergrowth. Dizzying growth rates might sound like good news in today’s world, but they create their own set of challenges. In a new series titled The High Growth Conundrum, CKGSB Knowledge will walk you through the different challenges associated with hypergrowth and how a company in that situation can deal with them.

In the first installment, we take a look at the crucial issue of hiring and retention in a high-growth environment.
Behind every successful company lies a story, and the heart of that story is always the same: an entrepreneur inspires a group, the group builds a company, and that company finds enough customers to make a place for itself in the world.

But finding the right people isn’t always easy–particularly when the company reaches a stage of rapid growth–and in an industry that is itself experiencing hypergrowth.

“There’s a saying that in China, building a business depends on who you get. If you get the right people and if you get enough of the right people, you can grow no matter what,” says Alan Zhang, a Beijing-based partner of Mercer, the human resource consultancy.

Talent is short in China today, as it has been for decades, experts say, as some companies struggle to keep up with logarithmic increases in demand. In China’s high tech sector, for instance, the cumulative growth rate of the top five fastest-growing companies over the past three years ranged from 1,955% to nearly 20,000%, according to the 2011 Deloitte Technology Fast 50 China survey. The number one company on that survey, The Store Corporation, an e-commerce company, clocked a revenue growth rate of 19,218% over three years.

This kind of fast growth creates a tremendous challenge for hiring managers, because it’s not just a matter of finding one person who is right for the job: as a general rule, a company needs to review 40-60 qualified applicants to find the right candidate, according to Verne Harnish, author of Mastering the Rockefeller Habits: What You Must Do to Increase the Value of Your Fast-Growth Firm and CEO of Gazelles, a Virginia-based consulting firm that specializes in fast-growing companies.

At the entry level, companies in China face a tremendous shortage of qualified applicants. “China’s higher education system… (has been producing) over six million college graduates each year, but the quality has been dropping sharply,” Zhang says.

But just trying to recruit the cream of the crop isn’t a workable strategy either, according to Zhang: these days, the salary expectations of graduates from the best universities are often not very realistic.

What seems to be happening instead is that companies are no longer using education as a critical differentiator. Instead, Zhang says, corporate recruiters are starting to think “you don’t need to hire the best students from the best university. You have to just focus on what’s the best fit for you”.

In fact, some Chinese companies are now trying to take promising ‘raw material’ and shape it themselves. Several large Chinese companies have even gone so far as to follow General Electric’s lead and established their own in-house universities, such as the 12,000-square meter campus of Haier University, or the 15,000-square meter Huawei University.

Resist Quick Hires

Filling more experienced positions is even more difficult, but Harnish advises keeping standards high.

“Most growth companies, because they’re short of time and they need somebody today, they’ll pick up anybody who passes the breath test–can he fog the mirror?” Harnish says.

But Harnish says such quick hires are a mistake. “Man, you make the wrong decision, you’re going to just pay dearly,” he says. “Three times their annual salary is… the standard cost of making a bad hire.”

Many companies try to develop managers internally, Zhang says, but as job-hopping is frequent, and he estimates that managers in China are already about 10 years ahead of their counterparts in the West in terms of seniority, only so much acceleration is possible.

Some Chinese companies turn to expatriates, with mixed results. “We’ve witnessed that a lot of companies, especially those technical companies, localize a lot of expatriates and they repatriated some of them… After several years, they have to introduce a lot of expatriates back into China to help grow the business,” Zhang says.

Expats are getting cheaper, however. As China grows, it’s gotten easier to lure foreigners without a gold-plated package, according to Zhang. “It’s not that hard to attract aggressive expatriates to China because it’s such an amazing, growing market,” he says.

Fast-growing companies are also beginning to turn to external recruiters to find the candidates they need. This is still an alien concept for many companies in China, says Xin Guo, president of Career International, a major recruiting firm, but over time more and more companies are using recruiters to find candidates, or outsourcing their recruiting altogether.

Recruiting isn’t always a panacea, however, as the quality of recruiters varies enormously. Recruiting is a business with very low barriers to entry, Xin warns: anyone can put up a sign and call himself a recruiter. As a result, it’s easy to get burned.

Building an Employer Brand

One of the major problems companies have with their recruiting, says Harnish, is the fact that most HR people “don’t have a marketing bone in their body”.

Zhang agrees. Many Chinese companies take advantage of service or technology in their HR processes, “but very few people have been thinking strategically about how to build their employment brand in the China market,” he says.

“You cannot be higher than your competitor on everything. You have to have a strategy,” Zhang says. “Either the salary or the culture or the development opportunities or very fat stock options or a bright future or something–you’ve got to come up with a few things, but not necessarily everything…What is your strategy to attract the group of people that you value the most?”

Beyond money, Zhang says, development opportunities seem to be important to new employees–particularly for education and advancement. In fact, multinationals are becoming less attractive to young candidates partly because Chinese companies have caught up in terms of pay but also because of a perception of a glass ceiling, according to Zhang: if they don’t see Chinese faces in the executive suite, they’re not interested.

Besides developing the right offer, simply reaching the right candidates is not always easy–particularly in a fast-growing market.

On-campus recruiting can be very effective, Zhang says, especially if the recruiter is a former student. Xin notes too that students like to see promotional materials that emphasize things like company picnics and after-work ball games.

Sometimes, an unconventional approach works best: in 2004, for instance, while it was still in a hypergrowth phase, Google took out a billboard along Highway 101 in Silicon Valley that read, “{first 10-digit prime found in consecutive digits e}.com”. The solution to this problem, having to do with the mathematical function e, led to a website with an even harder problem, and the answer to that problem, to an invitation from Google Labs, Google’s R&D function, to apply for a job. “We’ve always worked hard to hire the smartest engineers we can find, and we thought this would be a cool way to find a few more,” wrote a Google spokesman on a company blog.

More recently in April 2012, Atlassian, an Australian software company, chartered a bus and drove around Europe, all in order to find 15 programmers willing to make a move down under.

Retention Challenges

Hiring is only the first step, however. Keeping them can be an even bigger problem.

Most Chinese companies experience a lot of churn. The average Chinese company experiences 23% churn in any given year, more than four times the level of the average western company (5%), according to a recent report by managing consultancy Roland Berger.

There are a number of reasons behind the churn, but the biggest may be that leaving is an option: It’s the first time in history that people have had a choice in their jobs, and they’re making the most of it, according to Mercer’s Zhang.

In China, retaining people is first and foremost a question of money, Zhang says. But with salaries rising 10% a year on average and even 20% in some cities, according to a Mercer study titled China 2012: Business Leaders’ Top Talent Challenges, simply keeping up with the market is already expensive.

Then again, you may not want them: Harnish says there is only a 40% chance that you’ve made a good hire, and with the costs of picking the wrong person around three times their salary, making the wrong hire can be costly.

Fortunately, the odds can be improved, he says. The first is to hire more based on how well they fit into the company culture than for skills. “They hire somebody based on what looks like a match between the things they’ve been doing on their resume and what the company’s looking for, and they get them in, they find out there’s no fit to the culture, and that’s when everything blows up,” Harnish says.

Second, giving people a structured interview can go a long way toward making sure you won’t make a mistake. Harnish swears by the Chronological In-Depth Structured (CIDS) Interviews (CIDS) process. This proprietary process developed by Brad Smart at US HR consultancy Topgrading, involves a painstaking, chronological review of every job the candidate has ever had, and how she handled those challenges. The process is a lot of work, but Harnish claims it can bring the success rate up to 90%.

Finally, to hang on to those hard-won hires, Harnish says it’s useful to keep in mind something that management guru Jim Collins noted: don’t worry about motivation–most people are motivated. Focus instead on getting rid of the demotivators. A stupid policy that makes things difficult can suck the motivation right out of a good employee.

For the market as a whole, however, Zhang argues that the maturity of the talent pool will just take time. The Chinese economy may have grown exponentially over the past 30 years, he says, but people cannot grow at the same speed.