When should I add Human Resources to my business?

06 March 2020

Kally Mitchell, Manager, People Advisory |

People Advisory Manager, Kally Mitchell, discusses key considerations for businesses.

Is your business putting its people first? Many business owners will agree that people are their number one resource. When you have the right people, in the right place, with the right support, your business will know no bounds when it comes to growth and success. So, if having the right support for staff is critical for growth, then why do so many businesses leave implementing their Human Resources (HR) function till last, or even overlook it altogether?

Often this comes down to the fact that for many small business owners and start-up founders, their focus on the business’ survival, commercial success and growth is all-consuming, and whilst they may realise the needs of people are changing, and cultural shift is occurring (whether they like it or not), it may not be something they have the time or the know-how to focus on.

For example, imagine a small start-up with a close-knit team of five people. Since the team is small, staff communication is often quick and easy, payroll demands are low and any issues are usually resolved through a quick chat. What if that start-up was to grow rapidly, tripling in size in one year to 15 people, then again next year to 45 people – do you think the culture, communication and people needs of that business would remain the same?

Of course not, however, many growing businesses will still leave introducing an HR function until it’s absolutely necessary – perhaps when they are already starting to see issues arise - when it’s too late. And even when they do introduce HR, there is often a strong emphasis on growing the business - attracting and recruiting more people - rather than focussing on managing their culture and the needs of existing staff. This is the exact situation that Uber faced a few years ago, where they valued rapid growth so highly that they tolerated inappropriate and discriminatory behaviour to achieve it.

Ultimately, any business that fails to effectively introduce the right HR function for their needs is putting the onus on their people to set the tone, culture and norms for acceptable behaviour within the business. This puts considerable pressure on staff as well as can result in negative and undesirable behaviours being proliferated. We are not saying that HR is the ultimate owner of culture, however, a well set up HR function can significantly support and enable the development of the culture you are trying to achieve.

What are the costs of poor HR practices?

Not having the right HR function in place leads to poor employee practices costing the business significantly. These often include:

  • High Employee Turnover – leads to knowledge and skill loss, increased re-training costs, poor workplace culture as existing employees have to do extra work to make up the staff shortfall.
  • Lack of Talent Pipeline – not having a future leadership plan in place can cause share prices to plummet and put the business at risk of hostile takeover if key staff and management leave unexpectedly.
  • Bullying Allegations – can result in hefty fines, legal red tape, negative impacts on employee welfare and their families and reputation loss that can be difficult to recover from.
  • Over/Under Payments – not paying your staff appropriately or correctly can result in substantial financial penalties and reputational damage.
  • Discrimination Claims – can result in significant legal costs and fines (which can be uncapped in some cases), negative impacts on workplace culture and reputational damage.
  • Compliance – can result in damage to reputation, or legal issues arising from non-legislative compliance (or poor internal ethical compliance)

Therefore, it’s crucial that businesses take a proactive approach to implementing an HR function as well as take the time to truly understand their current and future HR needs. Ultimately, the intent of HR is to help a business achieve its strategic objective through talent.

When thinking about your people and HR needs, what key questions should you ask?

  • Is this the point when having HR makes sense?
  • What are the key things that are going to make my business successful in the future?
  • How am I going to grow and prepare my people for the changes that growth brings?
  • Do I have the right person in the business to take ownership or should I seek support or resources externally?

What sort of HR function is right for my business?

Now that you are looking to introduce HR into your business, the question is, what sort of HR activities and scale is right for you?

Every business’ HR strategy and function will be unique, but as a general guide, it’s best to ensure your HR practices align with your business’ growth because as your business grows in size and scale so will your people needs.

Below are the five types of HR function maturity and their characteristics aligned with business growth.

1. ADHOC – “Let’s hope for the best”

This is the type of HR that is most common in emerging start-ups and businesses such as local cafes, shops and sole practitioners. HR activities and practices are mostly on a ‘needs required’ basis.

Key characteristics include:

  • No formal HR structures or staffing
  • Management typically react to situations as they occur and seek advice to fix issues as they arise
  • There may be some basic contracts or policies in place
  • Basic employees records and administration.

2. Compliance Driven – “Let’s get the basics right”

The focus is primarily on meeting the basic, mandatory HR requirements and regulations, especially regarding employment. However, as the business size is still small, it is likely that any HR activities are undertaken either by the owner or as part of a shared role e.g. someone who looks after HR and Finance.

Key characteristics include:

  • Core policies and practices put in place to manage any compliance risks and satisfy legal requirements
  • Minimal thought beyond the basics
  • HR responsibility often sits with the MD of Finance lead and is generally focussed on the administrative side of managing people.

3. Foundational – “Let’s enable our people”

In this stage, businesses really start to invest in their HR function, often with a strong focus on attracting and recruiting talent. Businesses introduce an employee solely focussed on HR and begin to develop and standardise new HR processes, such as on and off boarding and training.

Key characteristics include:

  • HR progresses beyond compliance with a desire to build processes across the employee lifecycle
  • A greater emphasis on understanding how we can get the best employees and get the best out of them
  • Introduction of an HR focussed role, however, this is likely to be operationally focussed
  • Introduction of HR software and systems.

4. Strategic – “Let’s enable our employees to help set us apart”

There is now an HR strategy for the businesses with clearly defined goals and objectives aligning with the business’ overall strategic vision. As the size of the business grows, the HR function may now consist of a few people, each focussing on specific areas such as talent acquisition and recruitment, training and development, culture and employee welfare.

Key characteristics include:

  • Introduction of an HR strategy aligning with the business’ strategy and key initiatives are also introduced to support business growth
  • Proactively responds to current, emerging and future organisational needs
  • Genuine presence at an executive level and a greater focus on leadership.

5. Integrated – “Let’s create superior business performance through our people”

HR plays an integral role in supporting the business’ goals and in building and leading its vision with the HR executive or leader adopting a strategic focus. The introduction of new systems and technologies help the businesses develop data-informed HR strategies with an emphasis on providing efficiency, productivity and optimisation insights. The big change here is a new focus on continual improvement, looking at how the business can improve both its HR processes and employee experiences. 

Key characteristics include:

  • A focus on improving and transforming business performance and creating a distinct competitive advantage
  • Advanced strategic programs align with business strategy
  • Continuous evolution, being agile and adaptive, and the use of data analysis and trends
  • An executive leads HR with genuine influence at both the executive and board level.

Finally, it’s important to remember that even though one of these stages of HR may be right for your business today, it may not be later down the track. As your business grows and matures, so will your HR needs and requirements. Therefore, you should regularly review your HR practices. For more information on the qualities of an effective HR function, see our webinar.

To find out more about how to best implement an HR strategy and function into your business as well as the best HR activities for your specific size, industry and business needs, speak to Kally today.


Is it time to start thinking about introducing HR into your business?

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