A recent study of more than 600 Australian owners and decision makers of small to medium enterprises found that almost four in 10 businesses believe that they are performing better now compared to this time 12 months ago. Additionally, one third of all business owners stated that they feel more confident about the year ahead than they did this time last year. Admittedly, the numbers are far from unanimous and confidence in the economy remains lukewarm but it's a step in the right direction. Overall, the study notes, businesses are reporting a marginal increase in confidence for the year ahead.

One of the biggest effects of this change however is being felt in recruitment. Now that companies are looking to hire, the skills shortage is returning to the spotlight with six in 10 Australian businesses stating that they are struggling to find appropriately skilled staff.

Exacerbating the issue are new demands coming from existing staff. After a couple of years of patient belt tightening, employees can sense the changing business temperament. Three in 10 companies say that staff have started to make more wage demands and, in a bid to retain and motivate staff, almost half (47%) report having increased pay levels for all staff during the past 12 months.

Unsurprisingly, the larger the company, the greater the problem. Large and medium enterprises report being the hardest hit by staff issues and they expect staff and skills shortages to remain high on their list of challenges throughout 2011. Yet, while businesses clearly understand the importance of retaining and up-skilling existing staff in an improving environment, the Index shows that few organisations have structures in place to help this occur.

Remembering the basics

It sounds obvious but one of the first steps to retaining staff is to give them feedback. Annual reviews that praise where appropriate, set goals, identify future training needs and help to identify potential career progression paths are amongst the best tools available for encouraging employees. They may take time to complete but apart from opportunity cost, they don't have to be an expensive exercise.

Most companies recognise this. We know because, when compiling the Index, nine in 10 large businesses and eight in 10 medium businesses agreed that reviews are essential to keep staff engaged.

What is worrying is that only six in 10 large businesses actually carried out such plans for every employee in the past 12 months. The number drops to four in 10 medium enterprises and across all sized businesses, just over two in 10 organisations report having undertaken and implemented reviews in the past 12 months.

If the shortage of skills does become more marked in the coming year, it is your best employees who are most likely to be headhunted and tempted elsewhere. Therefore, now would seem to be a good time for all management and HR to start practicing what we preach and to put in place those yearly reviews and development plans. Giving staff an incentive by showing your interest in their career will deliver long-term benefit to the business and it may just save you from incurring business risk through the loss of critical skills.

Staff training should be considered as an additional means of encouraging staff, improving processes and increasing business consistency while adding to the skills and knowledge within an organisation. Despite this, only 45% of small businesses, rising to 52% of large businesses see it as a priority in 2011.

Another proactive move is to conduct a skills gap analysis that identifies your organisation's current essential skills and your projected future needs. This will help you to understand which employees may be critical to your business, and will provide a solid foundation that brings together your staff training, recruitment and development plans.

Softly, softly

2011 is going to be an interesting year. Australian businesses are leaning towards an improvement in business conditions but much depends on the performance of international economies, some of which are poised on a knife edge. Now, more than ever, it's a time for prudent management.

Mitigating staff risk requires narrowing the gap between what is required in employee management and what is being delivered. When the economy was slow and employees were loathe to move, that gap may not have seemed quite so important but with the return to business form, no employer can afford to take their staff for granted. The best way to retain skills and knowledge is to treat your staff right and that means regular reviews, ongoing career development plans and appropriate training.