The Business World: Making work a pleasure is a key to success

ONCE UPON a time, about 40 years ago, companies in Britain used to "hoard" labour. During an economic downturn they kept on workers they did not immediately need so they would be able to meet additional demand when the economy picked up.

This was not a quirky, odd practice of a few particularly benevolent companies. It was mainstream policy for British industry, a rational response to conditions of sustained full employment. It was cheaper to pay the wages of these unwanted staff than to find or train new employees - or, worse, to turn away the additional orders when demand returned because you could not meet delivery dates. (The great criticism of British industry in the 1950s was not cost or quality but the tendency to miss delivery dates.)

Then came the seismic shock of high and sustained unemployment. For a generation, labour was in surplus. Unemployment was generally high and, except in a few specialised areas, skilled labour was generally available. Far from hoarding staff, firms spent a generation downsizing their workforce, frequently on the "slash and burn" principle of labour husbandry.

But now the labour market has again become - at least in some parts of the country and in some skills - very tight again. Nationally, unemployment is not yet down to the levels of the 1950s, but in parts of the south- east the labour supply is as tight as it was then. Suddenly companies are having to think differently about the way they manage their workforce.

But the workforce is totally different - much more flexible, thanks in part to the growth of employment of women and part-timers. And it is much more specialised, because the skills needed are often the "soft" ones of human behaviour rather the "hard" ones of formal qualifications.

The pattern of demand is totally different too. If there is a lull in the economy no company can safely assume there will be a swift recovery. We have just had one of the longest periods of sustained growth since the Second World War, nearly eight years, yet some companies have seen their business devastated, and others have sprung up from nowhere to become multi- billion pound companies.

So a new management strategy is needed to meet this combination of a tight, complex labour market and vast swings in demand. Slash and burn is dead - or rather companies that practice it die. A change in priorities is sweeping the corporate world: everyone now accepts managing human capital has become a much more important element in business success, but more companies have little experience of managing human capital in a very tight labour market.

What, then, are the new rules?

There is, as yet, no manual for companies to adopt. I suspect if one were written it would swiftly become useless, because the market will change more swiftly than the theorists can imagine. But here are five ideas companies might ponder while managing their workers.

One: Learn to fine-tune a work-force. Anyone managing a business will know the dangers of employing new people. It is not just that hiring is expensive and time-consuming, but you never really know what the qualities of a new employee are until they are on board. Filling a slot with an existing employee is cheaper and safer. If the person does not fit the slot ideally, then maybe the slot can be adjusted to fit the person.

Two: When training staff, look at the training they want, rather than what company policy dictates as being needed. The point is that employees are just as likely as employers to know what skills they should acquire. Individuals have an even greater interest in managing and adding to their own human capital than their employer does. The self-interest of the employee is a good guide to the way they are likely to be most useful to their employer.

Three: Put more emphasis on soft skills than hard ones. No company can possibly know with any precision what types of skills it will need five years on. Present skills, beyond numeracy and literacy, will become irrelevant. But it can know what sort of human beings it will need - people who can learn. So picking people with flexible attitudes and strong interpersonal skills will be more likely to create a useful workforce than trying to fit people to existing jobs.

Four: Hang on to good people. That means retaining the goodwill of people who do leave in the hope that you can get them back (maybe with more useful experience from outside). It also means finding ways of adjusting the work-contract to retain people who want to work shorter (or longer) hours, or move to a different part of the country.

Five: Create a club, or rather the atmosphere of a club. Most people lead more fragmented lives that they would have done a generation ago - marriages break up, people move to different neighbourhoods, and of course people also change jobs more frequently. Friends and professional acquaintances become more important, traditional loyalties less so. Employers can benefit themselves, employees and associates by creating communities of interest, to make being part of a company feel like being part of a club. Employees will not welcome paternalism, nor will they want to identify too closely with any single employer, for they may well find themselves working for a competitor. But they will welcome membership of a loose group of like-minded people.

The key point here is that in a tight labour market, companies have to be much more thoughtful in the way they manage their human capital. There have been a string of instances where a company has taken over another, only to find the key assets of that company, the staff, have left for a competitor within weeks of the takeover. Binding people in with money is no solution, though, of course, packages have to be competitive. Instead, companies should try to bind people in with care, decency, flexibility and fun.

Fun? Well, yes. The tighter the labour market the more necessary it is for companies to ensure people enjoy what they are doing. Making work enjoyable should always have been a priority. Now it is vital if firms are to attract good people, and keep the ones they have got.