Right Recruiting has many different types of clients. We work with large, billion dollar firms as well as small, owner operated companies. This White Paper is primarily addressed to the latter group, though employers of all sizes might appreciate some of the info contained. We will start the discussion by focusing on HR as it applies to small and mid-sized firms. A second White Paper will give advice on the how and who of upgrading HR and then end with a cautionary tale of how an HR department, improperly used, can grow into a destructive force within a larger firm.
HR IS NOT PERSONNEL ANYMORE
Many of my clients run small or medium sized firms. They often have an impression of HR that is 20 years old. There is an obvious reason for that. Most of them began their careers as employees back in the 70’s or 80’s. They still think of Human Resources as the Personnel Department. Their vision of HR is, at best, a clerical function designed to make sure paychecks are sent out. At worst, it’s a vision of an angry busybody telling everyone in the company why they could not do what they want to do. I’ve had dozens of conversations with owners of small businesses who swear that, as their businesses grow, they will never, ever create an HR department. Most of that negativity comes from an outdated impression of HR as a company function. It is that impression that we want to correct in this White Paper.
One of the most interesting things I have seen in recruitment in the last few decades has been a rolling wave of skill set professionalization in companies. For example, in 1975, Quality was a backwater in most companies. By 1985, it was an increasingly professional and important function in larger firms. By 1995, even the smallest manufacturing company had to have a Quality department that was professionally run. By 2005, Quality was a key part of the service sector as well.
Think about how Production Supervisors have changed from being a tenured hourly to a professional, almost entry-level, management track position. Consider how Buyers who used to get liquor bottles as gifts from suppliers at Christmas have morphed into a Supply Chain professionals who source globally. All these disciplines have changed.
The increased professionalism of those areas is not the only important point. What is equally important is that the change has come to all companies, big and small.
A very timely business quote was in the Wall Street Journal the morning I wrote this. The owner of a mid-sized business in New Jersey was asked about how his firm was doing. He said that his business has survived 2008-2009. The last few years had gotten better and he expected 2014 to be very good. Then he said this- “Good companies seem to have survived the recession and are doing very well. Bad companies are dying a slow death.”
There are no more protected markets. You don’t have regional or product isolation anymore. Niche markets are gone. Location is not a factor to your clients. A major account located next door to your company can be lost to a vendor thousands of miles away in an instant. A product line that is considered a niche, high margin product can be commoditized by a new technology tomorrow.
Sound frightening? Possibly. But it should also sound exciting. If you can lose a major account to a competitor located far away, you can take away a major account from a competitor far away. With increased competition comes opportunity.
But, this opportunity can only be maximized at a cost. No matter how small your firm, you can’t run your business like a small company anymore. No client will give you slack just because they like you. No client will forgive a lack of professionalism in your firm because you are small. Being a “mom and pop” is not a plus to potential clients.
Put simply, would you accept a quality flaw in a product that you bought just because the manufacturer was a small firm?
Now comes the obvious question- what does that have to do with HR? You might say, “My clients have no interaction with HR. I have professionalized quality, sales and all the other client facing departments at my company. Those are the important departments. Why spend money on HR?”
There are two reasons to pay attention to HR now. One leads to another.
The first is that HR, like everything else, is more complicated. As a small business owner I know that nothing is simple anymore. At the tactical level, all of the HR roles that are considered routine have a high degree of complexity to them. For example:
- Payroll involves multi-state tax systems if you expand. Reporting requirements can be mind boggling.
- Benefits- well who can explain that now anyway?
- EEO issues- I have to help some clients with EEO data on some projects, as an example. That will not get simpler in the future
- Recruitment- more on that later
- Employees reviews – legal issues can be overwhelming
I think you get the idea. Not one of these things is as simple as it was 10 or 20 years ago and every year they get progressively worse. At the tactical level, HR requires resources to manage these functions. That, in turn, means that you need someone in HR to manage those resources. Is that really going to be a $12/hour bookkeeper with an HR title?
The second reason to upgrade your HR function is more holistic. It has to do with your entire company. Here is an explanation.
Without an effective HR function, there are still HR related jobs that need to be done. Someone needs to manage benefits, someone needs to do recruiting, and someone needs to go over discipline issues, ad infinitum. Without a professional HR presence, those HR functions become 2nd, 3rd or 4th tier duties for other people who have different primary functions. In other words, those HR functions don’t get done well or don’t get done at all.
All HR functions contribute directly to the quality or lack thereof your staff. If you own or run a small or mid-sized business and don’t think the quality of your staff is a top 3 contributor to your success, stop reading now. In fact, don’t just stop reading now, please sell your company now while it still has any value. I don’t think I can be clearer.
HR HAS ONE BASIC REASON FOR EXISTENCE – TO HELP YOU MAINTAIN AND IMPROVE YOUR STAFF.
THAT BREAKS ITSELF DOWN INTO TWO AREAS:
- HR helps your managers do their jobs better. It does this in a few ways. One, it supports them in a defensive mode- preventing or avoiding legal problems. Two, it also takes care of the secondary or tertiary HR functions that can crowd a managers plate. Your manager should not have to go over benefits options with their staff, for example. Your managers should not be the people who solve payroll problems. “Mechanical” issues should go directly to an HR function to clean them up. Your managers will be better able to focus on their functions and your employees will get better info quicker. You have no idea how often we hear from disgruntled employees about issues like that with their employer. A harried manager or incompetent HR person devalue your staff.
- HR can fill an objective, strategic role that is a solid advisory function. In many companies, the CFO is the right hand person to the owner. That can work if you have the right type of CFO. To correctly fill that role, the CFO needs to understand people, not just budgets. Without that type of vision, a CFO in a consigliore role can do more harm than good. Your staff will quickly perceive themselves as digits on a spread sheet and you will lose good people. It will cost more in turnover than you save in budgetary manipulation.
Put simply, to keep and maintain good people you need a professional HR function, no matter how small you are. It can be a HR Generalist reporting to you if you are the owner. It can be a Director of HR with budgetary resources if you are mid-sized. No matter where the person falls on your org chart, it needs to be someone with professional and academic credentials in the field. As important, he or she needs to be positive. They need to see themselves as a positive influence on your firm, not, like I said before, someone who just wants to tell everyone why they can’t do what they want to do.
HR is best imagined as a concierge function. Its role extends to every part and person in your organization as a support function. It prevents other departmental managers from getting bogged down in the minutia of their jobs and allows them to focus on their core function. The cost of upgrading your HR function can be offset by increased efficiencies within all other functions in your firm. In the past it was easy to assume that HR is an overhead function and should be minimized as an expense. This is 2014 and, frankly, there is no such thing as an overhead function anymore. There is a cost of doing business correctly and a cost of doing business incorrectly. Anything else is an accounting myth.
We hope that this White Paper has resonated with you. Of course, there is a secondary question to upgrading HR. What type of person do I hire and where do I put them on my org chart? That is a topic for another White Paper.
Thanks for getting this far. Of course, don’t hesitate to contact me with any questions or comments.