Shopify’s Human Resources Strategic Plans

HRMG 4605

by Tammy Trinh, A00956923July 3, 2016

Executive Summary

Shopify is a cloud-based software services company that has been disrupting the traditional

modes of commerce and innovating solutions to offer merchants a scalable omni-channel e-commerce

platform to manage their business activities. They have been very successful in their corporate growth

strategy and plan on accelerating growth by targeting the larger international market.

Exponential growth is an indicator of a company’s success but can also have a negative effect on

the internal environment of the organization if the HR programs: recruiting, training & development and

onboarding are not scaled properly. A negative impact could be poorer hiring decisions if the labour

demand stress increases. Another concern is the time it would take to assimilate a mass of new hires

diluting company culture and lowering employee engagement.

The future demand for labour across the organization is for 770 new personnel. This rate of new

hires required to assimilate into the organization, would wreck havoc and cause chaos if the new hires are

not onboarded properly and don’t perform their jobs as needed. A larger HR workforce is required to

scale the organization’s transformational programs to be able to accommodate the forecasted workforce

to continue supporting the corporate growth strategy.

Table of ContentsExecutive Summary.................................................................................................................................2Table of Contents....................................................................................................................................2Organizational Overview.........................................................................................................................3Research, Analysis and Forecasting.........................................................................................................3

External Environment Scanning..........................................................................................................3Internal Environment Scanning...........................................................................................................4

Forecasting HR Demand..........................................................................................................................5Shopify’s Time Series Analysis.............................................................................................................5Shopify’s Staffing Tables and HR Budget.............................................................................................5

Ascertaining HR Supply...........................................................................................................................6Shopify’s Movement Analysis..............................................................................................................6Shopify’s Personnel Movement Chart.................................................................................................6Shopify’s Vacancy Model....................................................................................................................7

Issues and Recommendations:................................................................................................................7Action Plan..............................................................................................................................................9

Shopify Action Plan: 12-month horizon..............................................................................................9Forecasting Monetary Benefits.........................................................................................................10

Evaluation Plan:.....................................................................................................................................10Evaluation Measures of Action Plan..................................................................................................10

References............................................................................................................................................11

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Organizational Overview

Shopify is a publicly-held Canadian software services company offering small- and medium-sized

businesses the ability to set up e-commerce stores. The product is a customizable, simple, cloud-based

software with a powerful back-office for a low monthly rate.1

The grand corporate strategy is aggressive growth through greater international penetration,

additional strategic partnerships and commerce channel platforms. Using differentiation as a competitive

strategy, Shopify focuses on simplifying e-commerce to make it accessible for businesses of all sizes. The

corporate culture is of a winning company that offers big rewards.

Mission: Make commerce better for everyone

Vision: Have a product-driven team with a long-term focus

Values: Get Shit Done, Build for Long-Term, Focus on Simple

Solutions, Act Like Owners, and Thrive on Change.

In May, Shopify launched a pilot project, GoSpaces, an alternative e-commerce platform targeting

the international market. They’ve forged strategic partnerships with companies offering supporting

services like Amazon Services’ and Apple Pay’s point-of-sales platforms, and Postmates’ and Uber’s

shipping services.

Shopify has flourished since its inception in 2014, posting 95% revenue growths year on year for

2015. Total revenues forecasts for 2016 are up to $347 million USD with an operating loss of up to $47

million USD. Losses are attributed to operating expenses like high labour costs associated with company

growth. (Pinto and Gayathri, 2016).

Research, Analysis and ForecastingExternal Environment Scanning

Shopify’s core offices are located in the technology hub of eastern Canada, in Ottawa (HQ),

Toronto, Montreal, and Waterloo. Clustered amongst many other technology companies, competition for

talented employees is fierce, raising the cost of labour. The unemployment rate for IT workers 4.7%, much

lower compared to the overall rate of 7.4% in 2003. (Statistics Canada, 2003). Shopify competes with

other high technology companies like GuestLogix and SAP by offering nearly 20% higher salaries for

software developers and 8% for product managers. (Glassdoor, 2016) In the past, Shopify fulfilled its

labour demand by aggressively recruiting employees during the IBM’s and RIM’s downsize in 2011 and

2013, respectively. Now, Sortable, an automated ad software company in Waterloo, is “capitalizing on

anti-Trump sentiments with a new, cheeky recruiting campaign that hopes to lure top tech talent from the

1 Monthly subscriptions range from $29 to $179 USDCredit card transaction fees range from 2.25% to 2.90% + $0.30 USD depending on scale of business.

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USA.” (Sharkey, 2016) The labour market for talented personnel, particularly top-performing software

developers, is very competitive resulting in the need for a strong employee value proposition and a

desirable incentive package.

Internal Environment Scanning

As of 2015, Shopify retained 1,048 employees, of which 112 are working outside of the core

offices, in British Columbia, San Francisco, and Ireland. (Linkedin, 2016) Shopify stays connected with its

employees on multiple social media platforms2 (#LifeAtShopify) and Unicorn, an internal custom-built

platform used to improve employee communication, collaboration, and compensation. Employee fringe

benefits include catered lunches, massages, laundry and home cleaning services so employees can spend

more time at work. Three-day Hack-a-thon events hosted every quarter, give employees opportunities to

action learn by working on special projects and rotating teams and jobs. This promotes an environment of

creative chaos characteristic of a chaordic organization to encouraging innovation, continuous learning

and less than 1% employee turnover rates.

Due to Shopify’s explosive rate of growth, HR dedicates a significant amount of resources to recruitment

and selection. Tobias Lutke, the Shopify CEO, mentioned in an “Ask Me Anything” forum on Reddit in

2014, that they hire roughly 0.3% of the potential candidates interviewed. Sixteen out of thirty HR

professionals at Shopify are involved in recruitment. (Linkedin, 2016) The remainder is dedicated to

coaching, employee engagement and training and development. The routine transactional functions of HR

such as payroll have been outsourced allowing Shopify HR to focus on transformational activities that

keep employees highly engaged and committed to the organization.

2 Social media platforms include Facebook, Instagram, Twitter, Snapchat etc.

Figure 1 SWOT Analysis of Shopify

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Forecasting HR DemandThe planning horizon for all forecasting models will be end of 2016 using 2015 historical data.

Shopify’s Time Series AnalysisYear Operational

Index Revenue a

Actual # of Employees Required

Actual Employee Requirement Ratio (Sales per Employee)

Forecast # of Employees Required

Forecast Employee Requirement Ratio

2011 $11.50 M 85 $ 135,2942012 23.71 132 179,6212013 50.25 340 147,7942014 105.02 525 200,0382015 205.20 1048 195,8012016 347.00b 1808c $191,879d

2017 589.90b 3074c 194,546d

a ($ Millions USD)b The initial forecast is based on 2015 actual data. Forecast labour demands are for 2016 and 2017, and therefore sales figures for those years are estimates. c Employee numbers are forecasted HR demands.d The forecast employee requirement ratio is developed from the rolling 3-year historical weighted average of actual employee requirement ratios. The weight vector is [1, 2, 3].

The time series is a simple model that uses past data to predict future demand. It is the best

model for this exercise as it best captures Shopify’s growth trend by using the weighted moving average of

employee requirement ratios.

Shopify’s Staffing Tables and HR Budget.Staff Demand Requirements

Revenues ($ Millions USD) $ 205 $ 337 $ 342 $ 347

President 1 1 1 1Directors 5 5 5 5Vice Presidents 10 12 12 13Chiefs 9 10 10 10Managers 67 105 107 109Senior Developer Staff 122 205 205 207Developer Staff 285 478 487 494HR Staff 30 35 37 39Marketing Staff 26 43 49 55Financial Staff 6 12 12 12General Admin Staff 487 850 857 863

TOTAL 1048 1756 1782 1808Revenue range for 2016 was forecasted between $337 to $347million USD, the chart presents the total HR demand requirement according to revenue activity.Number of employees at each level is an educated guess.

Staffing tables are useful during short run-times as high growth software companies like Shopify’s

environment is constantly changing. It enables the budgeting process to incorporate changes in

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compensation costs linked to the level of future labour demand and that is relevant as Shopify’s stock just

dropped in May due to higher forecasted operating losses as a result of high labour cost.

Ascertaining HR SupplyShopify’s Movement Analysis

Authority Level

No. of Positions at Start of Period

Staffing Changes Personnel Losses Positions to be Filled

1 1 0 0 02 5 0 0 03 12 1 0 14 10 0 0 05 71 45 0 456 284 208 0 2087 172 158 1 1598 259 176 2 1789 234 172 7 179

1048 760 10 770Level of staff is the forecasted labour demand from the Time Series Analysis, 2016. Number of employees at each authority level is an educated guess.

Shopify’s Personnel Movement Chart

Total Ripple of Chain Movement1 1 10 1 0 145 1 0 45 46208 1 0 45 208 253159 1 0 45 208 159 412178 1 0 45 208 159 178 590179 1 0 45 208 159 178 179 770

The movement analysis provides information on the total number of vacant/open positions and

total number of personnel movements caused by replacing/filling those positions. It enables the HR

department to select the desired mix of internal/external candidates, creating effective hiring policies. The

results indicate that an exclusive “hire-from-within” policy is not feasible to accommodate the growth

strategy. A mix of internal/external hiring is better suited.

Shopify’s Vacancy Model

Level%

External Hiring

% Internal Hiring

No. of Personnel at Start of Year

Annual Losses

Promotions to level

Level Outflows

External Hiring

1 0 100 1 0 0 0 02 0 100 5 0 0 0 0

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3 0 100 12 0 1 0 04 0 100 10 0 1 1 05 40 60 71 0 28 1 186 70 30 284 0 71 28 1657 70 30 172 1 69 72 1618 70 30 259 2 74 71 1739 100 0 234 7 0 81 253

1048 10 244 254 770

The vacancy model analyzes the flow of personnel throughout Shopify by examining input and

outputs at each compensation level. It’s beneficial in identifying specific number of internal/external

personnel required at each level and organization as a whole and calculates Shopify’s promotion metric:

23.3%(244 promotions/1048 total employees)

The analysis’ indicate there is a significant HR shortage. Within the 12-month planning horizon the

company will need to recruit 770 new employees to keep up with company growth. Looking at the

internal talent pool, we can determine with an 23% average internal hiring policy or promotion metric, it

will create 244 personnel movements. External candidates will be recruited to fill the 770 vacancies.

Issues and Recommendations:

The current resources allocated to the recruiters is currently not enough to fill the HR demand. As

mentioned earlier Shopify’s external hire rate is 0.3%. To fill the 770 positions, over 256,600

candidates will apply be considered. Many candidates have reported applying multiple times before

there was an offer.

Retaining more recruiters will allow for effective and efficient selection decisions. If the candidates are

eventually hired after being considered three to four times, it would be more efficient to make those

hiring decisions earlier. Annual cost of 5-9 recruiters is $300k to 540k per year.3

With recruiting resources spread thin, it will take time to fill the positions, especially the many that

require specific developer education, experience or competencies. With low unemployment rates,

competition to hire good talent is high. Recruiters might miss getting top talent when it takes too

long to contact a candidate. SMEs report that an average developer can take up to 28:1 the time it

takes a talented developer to solve a problem. A very conservative productivity metrics is 5:1.

Top talent can easily be lured away by better hiring experiences or not even looking for employment.

3 Average HR personnel salary at Shopify is $ 60,000 per year. Multiple personnel are required to staff the departments at each Shopify office in Ottawa (HQ), Toronto, Montreal and Waterloo.

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Retaining more recruiters will also ensure that Shopify can target top talent to reduce time to fill

positions and hire the most efficient workforce. Annual cost of recruiters is previously mentioned.

To reduce the time competing for talent or filtering through average candidates, recruiters should

create candidate pipelines from high quality external talent pools.

Sourcing talent pools from universities, colleges, and US expats with software skills are desirable.

CEO, Tobias Lutke, can promote Shopify and boost employee value proposition at schools and other

speaking engagements. An employee value proposition taskforce can be created to create material

and media promoting Shopify. Material can include videos4, blogs, and social media material. Annual

cost of recruiters is previously mentioned.

With the number of new employees hired each year, there are concerns about diluting culture and

work interruption during the new hire acclimatization.

Hiring a number of onboarding specialists(1 for each office) who have the technical knowledge to

navigate each of the departments they are responsible for will reduce workflow interruptions and

ensure the best onboarding experience to boost productivity rates of new hires and Shopify advocacy.

Annual cost of 4 developer onboarding specialists is $300k per year5 and 4 onboarding specialists for

other departments is $240k per year.

To accommodate the flow of new hires, there is a need to scale all HR programs including coaching,

training & development and leadership programs.

Hire more coach/training and development personnel. Coaching workshops can be introduced to give

all employees a foundation with maintenance meetings afterward. Buy or make a coaching program

like CoachAccountable to scale the program up. Annual cost of 4-8 personnel is $240k to 480k per

year and annual cost of $4,800 of CoachingAccountable program.

The need to scale offices to accommodate the rate of new hires over the next two years. Productivity

is interrupted every time the offices needs to move to a larger space. Ottawa HQ has already moved

four times.

The purchase or lease multiple floors or a building to accommodate for growth over the next two to

three years. Possible to sublet space that is not needed in the short-run. This reduces the need to

interrupt workflow to move every time a larger space is required. Cost will require more investigation.

4 Promotional videos can feature Shopify like this video: https://www.youtube.com/watch?v=XMRufdqpFnM or the high technology software profession like this video: https://www.youtube.com/watch?v=pvAsqPbz9Ro.5 Developer onboarding specialists will need to have specialized skills in the coding programs and software at Shopify so average salary would be $ 75,000.

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Action Plan

Total annual cost of all recommendations are $1,080k to 1,560k per year for 17 to 25 personnel.

Possible additional annual cost of $4,800 to buy a scalable coaching program. On the other hand, a

customized one could be made to suit Shopify’s specific needs.

The following is a GANTT chart of the actions that need to be taken to implement the

recommended plan.

Shopify Action Plan: 12-month horizonJ A S O N D J F M A M J J

RECRUITING TEAM

Hire 17 – 25 new personnel Identify & generate recruiting pipelines Formalize criteria for better hire selection Identify and list succession candidates. Form employer branding taskforce. Measure &Surveys conducted

ONBOARDING TEAM

Develop onboarding program & materials Pilot the program & make adjustments Implement the program Measure & Surveys conducted

COACHING AND TRAINING & DEVELOPMENT

Identify coaching program needs and determine make or buy Pilot the program & make adjustments Full adoption of coaching program Enroll succession candidates in programsMeasure & survey conducted

The following is a table calculating the monetary benefits of each of the recommendations.

Forecasting Monetary BenefitsHire more recruiters to improve hiring times and target more top-performers.Cost (value) of one average developer = $ 75K per yearCost (value) of one top-performing developer = $ 100K per yearRatio of average developer to top-performing developer according to SME 5:1

Ratio of salaries of 5 average developer to 1 top performing developer $ 300K to $ 100K per yearHire more coaches and trainers to scale coaching, training and development and leadership programs.

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Cost (value) of research and development labour = $ 39,722K/year

Project Improvement= 3 - 5% cycle time on projects Annual value = $ 39,722K/year x 3% = $ 1191.7K/yearAnnual value = $ 39,722K/year x 5% = $ 1986.1K/yearHire more onboarding specialistsCost (value) of research and development labour = $ 39,722K/year per $ 205.2 million revenue/yearEstimate cost (value) of research and development labour by end of 2016 = $ 65,235K/year per $ 337 million revenue/yearDifference cost (value) of research and development labour for 2016 = $ 65,235K/year - $ 39,722K/year = $ 25,513 for 2016

Improve productivity of new research and development employeesb from 6 months to 3 months Annual (value) of improved productivity = $ 25,413/year / 12months x 3 months x 0.5 productivity = $ 314.1K/year per research and development employee hired.

Evaluation Plan:

Evaluation Measures of Action PlanHire more recruiters to improve hiring times and target more top-performers.Efficiency of external time to fill position External offer acceptance rate360-degree performance evaluation on new hiresSurvey internal & external candidates experienceIncreased Revenue per FTEHire more coaches and trainers to scale coaching, training and development and leadership programs.Efficiency of project cycle times360-degree performance evaluation of all employeesGallup Q12 Surveys Promotion rateHire more onboarding specialists360-degree performance evaluation of new hiresSurvey candidates experienceIncreased Revenue per FTE Project Cycle times Learning & development FTE Ratio

The above are a list of metrics that will measure of progress from beginning and during the

programs implementation. The first set of metrics measures the change in efficiencies before and after

the hiring of more recruiters to fill positions to ensure that the reduction of selection time frame is

significant enough to prevent top-talent to be lured away by other enticing offers of employment. The

360-degree performance evaluation, surveys and revenue per FTE are designed together to ensure a high

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quality of hire. It ensures that Shopify maintains a high quality of hire despite hiring en masse to keep up

with labour demand.

The second set of metrics revolving around hiring more coaches and trainers is designed to ensure

when the employees are at work, they are engaged and performing to a high standard. The benefits that

these measures are designed to track are project cycle times to measure productivity and 360-degree

performance evaluations, surveys, and promotion or career path ratios to measure quality of work. The

Gallup Q12 survey is particularly useful as it measures the actionable employee engagement issues for

management.

The third set of metrics purpose is to determine the change in productivity of new hires and value

added by their mentors, the onboarding specialists. Productivity measurements of 360-degree

performance evaluations, surveys will also determine cultural assimilation and engagement of new hires.

The evaluation metrics rely heavily on 360-degree performance evaluations but due to the high

resources needed to ascertain the appropriate results, it should only be conducted bi-annually and

surveys/questionnaires are used to supplement the required data in between.

Using all of the listed metrics and interpreting the data according to this intention will produce an

HR dashboard view of the value these HR programs are adding to the organization and its support of the

corporate growth strategy.

References

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Belcourt, M., & McBey, K.J. (2016). Strategic Human Resources Planning (Vol. 6). Toronto, Ontario, Canada: Nelson Education

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Casey, Quentin (2013 October) ‘There’s life after BlackBerry’: Startups’ need for talent may soften landing for laid-off workers. Retrieved from http://business.financialpost.com/entrepreneur/fp-startups/theres-life-after-blackberry-startups-need-for-talent-may-soften-landing-for-laid-off-workers?__lsa=0d14-dcd6

Galang, Jessica (2016 May) Shopify Testing International Waters with Launch of GoSpaces in 38 Countries. Retrieved from http://betakit.com/shopify-testing-international-waters-with-launch-of-gospaces-in-38-countries/

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Normore, Jason (2016 June) Apple Pay is Coming to All Shopify Stores This Fall. Retrieved from https://www.shopify.ca/blog/118721221-apple-pay-is-coming-to-all-shopify-stores-this-fall

Pinto, Anet Josline and Gayathri, Amruthra (2016 May). Canada’s Shopify forecasts bigger loss, shares fall. Retrieved from https://ca.finance.yahoo.com/news/canadas-shopify-posts-wider-loss-111329821.html

Pechloff, Tom (2016 March) Ottawa tech sector hits all-time employment high, says Invest Ottawa survey. Retrieved from http://www.obj.ca/Technology/2016-03-29/article-4480815/Ottawa-tech-sector-hits-all-time-employment-high,-says-Invest-Ottawa-survey/1

Pilieci, Vito (2014 October) Ottawa’s Shopify unveils new HQ: A mix of personality, creativity and booming business. Retrieved from http://ottawacitizen.com/business/local-business/ottawas-shopify-unveils-new-hq-a-mix-of-personality-creativity-and-booming-business

Sharkey, Jackie (2016 March) Sortable pitches company as refuge for tech workers escaping Trump’s Amercia.Retrieved from http://www.cbc.ca/news/canada/kitchener-waterloo/sortable-pitches-company-as-refuge-for-tech-workers-escaping-trump-s-america-1.3497464

Symons, Courtney (2013 July) Recruiting Superheros: Shopify’s Talent Acquisition Strategies. Retrieved from http://www.obj.ca/Local/2013-07-02/article-3284363/Recruiting-superheros%3A-Shopifys-talent-acquisition-strategies/1

Wertz, Boris (2015 December) Shopify’s Big People Investment: How a Start-up Scaled Coaching Beyond its Executives. Retrieved from http://versionone.vc/shopifys-big-people-investment-how-a-startup-scaled-coaching-beyond-its-executives/

Reddit. (2014, July 29). Questions about working at Shopify. Retrieved from Reddit/Ottawa: https://www.reddit.com/r/ottawa/comments/2c1ltu/questions_about_working_at_shopify/

Shopfiy (2016 May) Shopify Overview. Shopify Retrieved from https://s2.q4cdn.com/024715446/files/doc_downloads/2016/apr/Shopify-Overview-Q1-2016.pdf

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