Why Human Resource Management Is Necessary for Business Success

by | Mar 11, 2019 | U.S. Chamber of Commerce

Why Human Resource Management Is Necessary for Business Success

by | Mar 11, 2019 | U.S. Chamber of Commerce | 0 comments



For a business to effectively recruit, retain and manage its employees, it must take a contemporary approach on human resource management, or HRM.

HumanResourcesEDU defines HRM as a concept that involves “overseeing all things related to managing an organization’s human capital” and “developing and administering programs that are designed to increase the effectiveness of an organization or business…(which) includes the entire spectrum of creating, managing, and cultivating the employer-employee relationship.”

To accomplish these and other crucial HRM tasks, one or more dedicated HR professionals are typically needed. But that’s often not how many small businesses are structured.

Consider that, according to ADP’s Ad Hoc Human Resource Management Study, seven in 10 small businesses handle HR matters ad hoc, minus a dedicated or certified HR professional. At most of these companies (64%), the owner, president or CEO handles these HR duties, followed by a finance staffer (13%), office manager (12%), or other employee (11%). Per the same study, 32% of small businesses expect to hire personnel over the next 12 to 18 months, yet only 2% plan to add HR staff.

A 2017 business compliance survey by ComplyRight and SCORE found that most business owners with five to 100 employees recognize the importance of having trained HR specialists, due particularly to the increasing complexity of government compliance regulations. Still, making an investment in HR staff and systems is often a financial struggle for small businesses.

But ponder some of the pitfalls of lacking effective HR personnel and practices: More than eight in 10 HR professionals surveyed recently by the Society for Human Resources Management (SHRM) indicated they found it hard to recruit suitable candidates within the past 12 months.

separate SHRM survey found that, while 61% of workers feel that trust between employees and management is important, only one in three are actually satisfied with their relationship. And half of CEOs who participated in an Egon Zehnder poll revealed that driving culture change was more challenging than they’d anticipated.

Tracing the history of HRM

The modern model of HRM actually took decades to arrive and required a dramatic evolution in our understanding and practice of human resources.

“Beginning with the Industrial Revolution and continuing through the 1940s, the focus on managing personnel was on efficiency. In the 1960s and 1970s, the focus shifted to administrative duties—completing and maintaining paperwork necessary to avoid regulatory and legal issues,” said Deb Kirby, founder of Imaginal Wisdom.

By the 1980s, “globalization, increasing competition, and a more volatile marketplace created an environment where organizational change was crucial. Yet many organizations were incapable of or resistant to change and, thus, no longer able to sustain excellence over long-term periods,” Kirby said.

Administrative personnel practices were forced to widen their scope and incorporate a more systems-oriented process to optimize the workplace. This planted the seeds for HRM to blossom today. But still more change was needed.

“Before the 1990s, HR was mainly called ‘personnel’ and was often limited to the administration of employees’ new hire paperwork and payroll. In the 1990s, ‘personnel’ become ‘human resources’ and focused more on driving performance from human capital. Eventually, companies began to see people as an expense to be managed in the most efficient way possible—with a focus on improving the bottom line,” said Carol Wood, director of People Operations for Homebase and formerly the head of HR for Fuddruckers.

Consequently, “HR professionals adapted and began gathering data to calculate employee efficiency, and they recruited, rewarded, incentivized, compensated and promoted in a more data-driven way,” Wood said.

And HRM continues to evolve.

“Many businesses, like Homebase, now call this management ‘People Operations,’” Wood said. “The guiding philosophy of which is, how do we better manage our people as humans and less like robots to help the company achieve its goals rather than as a business expense to minimize?”

Indeed, “HR” or “HRM” is hardly a fixed or universally applied term.

“To align with their corporate culture, we’ve seen many companies change the title of their HRM teams to names like ‘Human Capital Management’ or ‘Employee Experience Specialists,’” said Ashleigh Eames, an employment law attorney with LeClairRyan.

Why HRM is needed ASAP

Wood notes that, nowadays, HRM primarily covers three broad categories:

  1. Administration—including payroll, worker’s compensation, taxes, employment eligibility verification, recruiting, onboarding and terminating.
  2. Employment law compliance—including legal and regulatory issues related to discrimination, civil rights and EEOC matters, Federal labor standards (e.g., wages, tips, overtime, etc.), and the Americans with Disabilities Act.
  3. Driving employee performance—encompassing performance reviews, rewards, recognition, leadership, career progression, benefits, paid time off, bonus structure, compensation plans and more.

That second item is particularly important, said Eames.

“HRM continues to change as we see more employee-related laws on federal, state and local levels,” Eames said. “While many of these changes have obvious implications for the workplace—such as minimum wage laws—others are more subtle, such as how the legalization of medical marijuana affects employer drug-free policies or the job application process.”

And this underscores why having an HRM staffer or team in place is so vital to your organization.

“If you aren’t storing the proper employee records, or paying the proper wages in accordance with local laws, you’re exposing yourself to tremendous legal liabilities that could threaten the future of your business,” said Wood.

The other risk of going without an HRM pro is that it can eventually dilute worker morale and your roster of talent.

“Without an effective HRM person or system in place, your employees may not feel motivated or valued, and that can erode business performance.,” Wood added.

Minus an HRM expert, your business may also find it tough to foster trust between all employees—most importantly between management and those they supervise.

“HRM staff are responsible for promoting a corporate culture that cultivates trust,” Susan Kuczmarski, co-author of Lifting People Up: The Power of Recognition, said. “That means hiring and training leaders to be fair, open and honest with people, engaging workers to collaborate and be part of the discussion, promoting transparency, and adopting a ‘yes’ culture versus a ‘no’ culture by not micromanaging. It’s about building up employee confidence by letting them know their organization cares about them.”

Consider, too, how essential it is for supervisors and managers to work closely with HRM staff and know HRM policies and functions.

“An employee’s direct supervisor or manager represents the company to that employee, and they set the tone for corporate culture and workplace standards. These leaders should know when to direct an employee to HRM and how to identify potential HRM issues to maintain workplace compliance,” said Eames.

Can’t afford an HRM pro? You have options

Your organization may lack the financial wherewithal to hire a full-time HRM specialist or team. But that doesn’t mean you can afford to get by without at least one person dedicated to these duties. In this scenario, experts recommend considering a few options.

“If you are small, you can likely find an HRM specialist who only wants to work a day or two a week,” Wood said. “You may even get a bargain in hiring a senior-level professional looking for part-time work while raising young children.”

Another option would be to outsource the work to a professional employer organization (PEO)* that specializes in handling HRM functions for smaller companies. [Read more about how to choose a PEO.]

“Businesses that partner with a PEO to oversee HRM have been shown to grow seven to nine percent faster, because the business can focus on revenue-generating activities,” said Garry Bradford, President/CEO of UniqueHR. “A PEO can help you comply with state and federal laws, regulations and requirements for your small business. It can also handle payroll and payroll taxes, offer good benefit packages to employees, provide workers’ compensation insurance, and improve the safety of your work environment to prevent injuries and claims.”

As a last resort, you can assign various HRM responsibilities to different staff you trust. SHRM suggests that companies with fewer than 20 workers who lack a dedicated HRM manager commonly may benefit from the owner delegating these duties within the company—although this option has its drawbacks, including inconsistent execution of HRM tasks, possible noncompliance with regulations, and inability to attract and retain top talent.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

*Learn more about choosing a PEO and how it can help your business from this Insperity article.