You charm your bankers, you cajole your clients, you persuade your suppliers.And then you ignore your own employees. Wrong. Here’s the right way.

"We need hugs" proclaims a poster proudly displayed in the reception of a small central London computer training company. "Four a day for survival, eight a day for maintenance and twelve a day for growth." Hugging is healthy, rejuvenating, natural... a miracle drug, gushes the supporting copy.

Hugging as a management tool? A little West Coast perhaps, but no more than you might expect from a company that calls itself Happy Computers. "People work best when they feel good about themselves and the role of management is to make them feel good," explains managing director Henry Stewart. "Hugging builds supportive relationships."

These are no loony ambitions. Stewart is surprisingly hard-edged. Happy Computers, which he founded in 1991, boasted a 1997 annual turnover of £800,000 and 45 employees. He hopes to exceed £10m within ten years. It's a goal which will require an awful lot of hugs, because he aims to do it by harnessing the enthusiasm and commitment of this staff.

"Our mission is to develop unique ways of training," enthuses Stewart. "To do this we need a particular ethos. Without the transmission of this clear ethos we have nothing." With internal communications the cornerstone of his growth strategy, he clearly takes the subject very seriously indeed.

To aid communication he insists on absolute transparency and openness throughout the company, a principle which even extends to normally sensitive financial details such as his salary. "Why would you want to keep anything secret? Knowledge is power. If everyone has knowledge then you have a powerful organisation," reasons Stewart persuasively.

So he has a whole battery of tools to build morale and disseminate knowledge around his small but loyal group of employees. There are Monday afternoon meetings attended by all staff, where people can discuss any issue that concerns them. These are supplemented by Friday afternoon briefings at which Stewart reports back to the company on issues he deems important.

There is also the usual complement of staff jollies - evenings in the pub, Christmas piss-ups and the like, as well as quarterly "Happy Days" - mini company conventions and an annual general meeting which features a bouncy castle.The policy of communication and trust seems to have paid off handsomely. Most staff are wildly enthusiastic about the company and express an astonishing degree of loyalty - and ownership. "I feel valued," says 28 year old purchasing manager Rebecca Carter. "I enjoy working here because you have to take more responsibility, but you never feel that you are alone."

"I could earn a lot more elsewhere but I choose not to because the atmosphere here is so supportive and nurturing," agrees trainer Mat Hirst.

Now all this may seem a little Moonie-like for your taste, but it does show how important talking to one another can be in even small companies and how the art of communication contributes to the growth of such businesses.

However, Happy Computers is a rarity among smaller companies because it has a clear view on the subject. All the evidence is that the vast majority don't. More typical is Focal Point Fires, a Dorset-based assembler of gas-effect fires, which came 76th in Real Business's 1997 survey of the 100 fastest growing companies in the UK.

"We don't really have any deliberate internal communications," admits director Alan Pryke. The company has BS5750 accreditation which includes a section on staff involvement. But they rarely have staff meetings or staff outings, even at Christmas. "It's just too embarrassing," he says.

On the other hand, all the administration staff are in one room - "so it's easy to know what's going on." And the directors do walk through the factory two or three times a day.

If anything, Focal Fires is probably one of the more enlightened smaller companies when it comes to internal communications. According to a survey conducted by the Industrial Society in 1994, only 23 per cent of companies with fewer than 500 employees had such a policy.

It's hardly surprising. Employee communications have only recently emerged as a management issue. And after all, if you are running a small company, the chances are that the entire workforce will operate from one or two rooms. In theory at least, communications should be direct and immediate, consisting of plain old face-to-face conversation. This, according to the experts, is the very best method of communication.

The trouble comes when you start to grow. New staff come in, perhaps not sharing or understanding the vision of the original people. You may no longer know all your employees very well - or at all. Maybe you have to move to space where everybody is no longer in the same room. Perhaps the physical aspects of production have to be housed in a different building from sales and administration.

It is then that internal communications become critical. Unless people understand what the company is doing, why, and what their role is, the company won't be properly aligned. People will go off in the wrong directions.

This is particularly relevant in the service sector where the number of staff can easily double in a year and management controls often lag behind the realities of the situation - leading to problems in ensuring the quality and consistency of output.

And in any company with even vague pretensions to management nostrums such as empowerment, good internal communications are clearly vital. How can employees act autonomously if they don't know what they are supposed to be doing?

A major problem is that the benefits are very hard to quantify while costs can be only too identifiable, especially in small companies. But, as they say, if you think education is expensive, try ignorance.

However there are companies that view the process in reverse. Rather than growth leading to the need for expensive and irksome internal communications, they see internal communications as an engine of growth.

"We started taking internal communications seriously two years ago," says Clare Walker, managing director of high-tech PR company Firefly. "It is no coincidence that we had 35 employees then, now we have 60 and by next year it will be 75."

The centrepiece of her philosopy of work is a simple three-part mission statement: "to deliver outstanding service... to develop fulfilling careers... and to achieve financial success." All employees have a credit card-sized copy on their desk and their computer terminals.

This is supplemented by appraisals, a mentoring scheme, company away-days, informal office meetings, quarterly awards for achievement and e-mails to keep staff informed of day-to-day developments.

It is, in part, an ethical issue for Walker. "Everyone is important and should be made to feel valued by being told what is going on," she argues. But the real benefits are much more concrete.

"It has led to a general improvement in standards which in turn has generated new business. Staff turnover of only five per cent has saved a fortune in recruitment costs and consequent disruption to existing business, so relationships with clients are much stronger."

While there is no universal prescription for internal communications - it depends on the structure, industry, corporate ambition, culture and a host of other factors, probably the most important feature is that it should be a two-way process.

Information should not only flow from the top downwards but from the bottom upwards. "Everybody needs to be heard and everybody has something to add, so listening is vitally important to the well-being of staff and as a source of information about what is actually happening in the company," says Liz Cochrane, internal communications adviser to the Industrial Society.

The best companies build internal communications into their structure as a way to manage growth, right from their inception. There are few examples more spectacular than advertising agency M&C Saatchi which was set up in 1995 and has since become one of Britain’s most successful advertising agencies.

The company was founded by Charles and Maurice Saatchi with a handful of senior colleagues after Maurice was ousted from Saatchi & Saatchi, the agency he had founded with his brother. As the most famous ad-men in the world, and founders of the largest UK agency whose credo was more or less "size is everything", there was never any doubt that the new venture would show explosive growth.

Sure enough, the company set up with 40 employees from Saatchi & Saatchi and business poured in (most of it from the previous agency). Within two years the company had billings of £170m and 213 staff. But it wanted to create a very different culture from the old set-up.

"Saatchi & Saatchi values came from strong leadership and success," says joint managing director Nick Hurrell - previously joint MD of Saatchi & Saatchi. "There was a clearly identifiable Saatchi 'type'. But here we want to be the most sought-after agency in the world and we have a deliberate policy of recruiting diverse sorts of people to achieve that."

His problem was how to meld these disparate personalities into a unified force, all pulling in the same direction. "Our culture is one of our greatest selling points, one of the greatest drivers of the business. We want our people to have no fear, to feel safe enough to try new things," says Hurrell.

Staff meetings - known as "the Hill Street Blues" - are vital. "Every Tuesday everybody gets together so we can tell them what is happening. In a high-profile company it is very important that staff don't find out about important developments from the media," says Hurrell.

Like Stewart, Hurrell places great store on humour and laughter as a way of engendering common purpose. "The meetings give staff the chance to come at us with whatever they want - absolutely anything," says Hurrell "Often they take the piss out of us something rotten," he adds. No target is sacrosanct. When Maurice Saatchi was ennobled, the staff marked the occasion by presenting him with a velvet dressing gown to wear in the upper house.

The design of the building plays a part in communication. Every floor was gutted, painted white; glass walls were installed, even around the boardroom. The reception area is designed, not in the traditional way as a display of power to impress, but as an informal meeting place for staff and visitors. "Staff love it, clients love it and it creates a feeling of energy in the company," concludes Hurrell.

His employees virtually queue up to agree. "It's fantastic place to work. We all feel that this is the best advertising agency in the world. There's wit and humour and a lot of physical movement which create a feeling of enormous energy. When I joined there were 40 people; now there are 200, but there has been no dilution of the exuberance. That is down to openness which means people can actually get to like each other," says account director Richard Allford.

Crucially, communication at M&C is directly related to business goals and is closely linked to the way the business is run.

In the case of M&C Saatchi, the role of internal communications was to provide a new focus for the people from "Old Saatchi" and a clear vision for people joining from outside. In the cases of Firefly and Happy Computers it was to provide an engine for corporate growth.

But the amazing thing about communicating with your employees is that it also gives you the chance to persuade them of things that aren't necessarily in their best interests and which would otherwise lead to a bitter atmosphere - even strikes.

The workforce at Happy Computers, for instance, last year agreed to a £500 salary cut - to be replaced by a bonus scheme. "It was important in cutting costs at a time of low turnover, while encouraging staff to help improve the business," says Stewart. Such has been the success of the move that bonuses now far exceed £500 - but only because business has boomed.

Internal communications can even mean the difference between survival and extinction. TV station Meridian is a textbook example. In October 1993 the company won a franchise that had been operated by Television South. It had just 14 months to get on air which meant recruiting 350 new people to staff seven different locations, a demanding enough task.

But the job was made infinitely more complex because 200 of the staff came from TVS and were angry and demoralised at its demise. Worse, in order to honour its bid costings, Meridian had to introduce radically new ways of working, with fewer perks and less favourable conditions.

The company responded by setting up a project team and staging a number of half-day seminars for the new staff - most of whom attended before they had even joined the company.

The result was that Meridian went into profit in 1994 and has since then taken over Anglia Television and merged successfully with United Newspapers. This is almost certainly a direct result of the greater leanness achieved by introducing what even the company admitted were stringent terms and conditions of employment. And yet was achieved with scarcely a murmur from the staff.

The key feature of the Meridian programme was that it left no room for doubt about what was going to happen. "The company involved the audience at an early stage so they ended up with a sense of ownership of this very difficult message," says Dr Aldwyn Cooper, managing director of internal communications consultancy Workhouse.

With the return of a Labour government, any employer worried about militancy and union power would clearly do well to consider internal communications programmes as an antidote.

When stripped of all the management jargon, internal communication is, after all, only talking to people and carrying them along with you. Any successful businessman has dozens of tales of how he persuaded financiers, clients and difficult suppliers and the like to do his bidding by entering into a dialogue with them. Why should it be any different with employees?

Contacts
Happy Computers. Tel: 0171-278 5596.

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