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case study

When Alberta’s economy improved, HermaTech did not see its loyalty reciprocated. Several machinists left to work at larger companies. The small shop is now vulnerable, reeling from a shortage of skilled labour.

THE CHALLENGE

Small businesses especially in the technical trades often find themselves serving as the training grounds for new recruits. Fresh graduates from technical schools join these small operations where they learn the trade and earn their Red Seals and other certification papers. But after a few years of hard work, they're drawn to bigger shops that offer better pay and benefits and advancement opportunities.

Herma-Tech Mechanical Corp., a small-family owned machine shop in Calgary, wanted to set itself apart from its competition and focused on specialization, personal attention and responsiveness. The new approach worked well through 2007 as HermaTech rode the wave of the expanding Alberta economy.

What HermaTech overlooked in the good years was continuous renewal of its skilled labour force. It had built a reliable team of machinists, a few of whom had started their careers at HermaTech, and was running two shifts a day. The shop dedicated many hours to training and committed to no layoffs even while orders slowed during the recent recession. HermaTech took on marginal work and riskier projects enabling it to maintain steady employment when other shops were laying off workers. It offered benefits competitive with bigger shops and flexibility on working hours and vacations.

Although HermaTech did not lay off employees when work slowed, the myth of job insecurity in small shops is hard to defeat.

When the economy improved, HermaTech did not see its loyalty reciprocated. Several machinists left to work at larger companies. The small shop is now vulnerable, reeling from a shortage of skilled labour.

THE BACKGROUND

HermaTech was incorporated in 1987 by Peter Herrmann, a Swiss immigrant to Canada who arrived as a young skilled machinist, having worked for a major international manufacturer of heavy and industrial equipment. The business began as a one-person operation offering compressor services to various industries. When the compressor industry declined, HermaTech expanded to mechanical design and consulting, various coatings, custom machining, computer numeric control production, welding and fabrication.

During the recent recession, the company was rattled by drastic changes in the industry. North American manufacturing shrank as orders migrated to Asia's lower labour cost economies. A local competitor closed. HermaTech's customers implemented sophisticated procurement systems to drive down costs, quality assurance mandates, online shopping and quoting. HermaTech responded by purchasing new technology and invested more in the latest equipment.

These disruptions to HermaTech's business environment distracted Mr. Herrmann from hiring and training new technicians. Now a vulnerable HermaTech finds itself suddenly understaffed with skilled machinists. There are job orders to fill with time and profit margins that are as slim as the mechanical tolerances. If the company does not deliver its precisely machined work on time and on budget, keeping its customers happy, the shop's viability is in jeopardy.

THE SOLUTION

While machining offers a Red-Seal certification recognized across Canada, it is not a compulsory trade. The work, however, requires commitment and training for a new machinist to become proficient. Being a well-tuned shop guaranteeing quick turnaround on precise work was HermaTech's advantage. But now the company has to hire new machinists who can work with updated complex software and machine tools.

Among recruitment options available, free advertising in the federal government job bank attracts many applicants from across the country and around the world, but few have machining experience. HermaTech once hired through the foreign skilled temporary workers program but found it a risky and expensive approach. The initial 18-month work permit leaves little time for training, bridging the language gap, learning the imperial system, not to mention recovering costs. Extending work permits is time-consuming and complicated. How patient can a worker remain while engaged in a Labour Market Opinion challenge with the government?

Hiring in a precision trade from overseas is also risky given the range of standards and skill sets. Importing someone without family or roots in the local community is a further burden on small employers, especially if the worker fails in the job. And engaging a headhunter to fill positions too expensive to consider.

With little time to waste and desiring more control over the process, HermaTech decided to conduct its own local hiring from technical institutes, general job postings and word of mouth.

THE RESULT

The machining industry demands significant investment in modern computerized machines. This reduces the number of skilled employees required but demands far greater technical skills of those employees. As employees learn how to utilize these machines to full efficiency and capacity, they can readily jump to a bigger shop.

Small trades shops like HermaTech have little control over retention of their technical workers. They cannot afford to hire at the top end of experience in the trade, and the most skilled journeyman can be hard to integrate into a small shop. Training new tradespersons from the ground up seems to be the best strategy as it reduces costs and risks while optimizing technical integration into the business.

It is still too early to tell whether this workforce renewal strategy will work for HermaTech – some new employees have already quit or were dismissed. Some also make costly mistakes while learning the trade. The right workers must be found, hired and trained quickly; not an easy thing to do in the current Alberta economy.

Yet, HermaTech has risen to meet challenges in the past. One thing learned this time that will not be forgotten – to continuously renew the essentially important skilled workforce and not to presume on its loyalty.

Peter Bowal is a professor of law at the Haskayne School of Business.

This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Report on Small Business website.

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