I once called a prospect and asked for an appointment. He replied, “My CFO is a CPA, so we’re fine.” Another prospect responded, “we outsource our HR to our payroll company.” Both of those responses instantly told me that these mid-sized companies have half of an HR department, but don’t know it.
The HR function to these business owners consists of risk management (compliance) activities and administrative (payroll and benefits) activities. And since that’s what HR is to them, they are confident they have HR covered.
CPAs are generally good at risk management, so I’m confident that the first prospect’s CPA has made certain that the company is compliant with basic employment laws and regulations. Finance folks are also normally good at developing efficient administrative work flows, so I’m also sure that this company’s employees get paid accurately and on-time and their benefits are administered efficiently. In my experience, as companies grow from the bookkeeper stage to the controller stage to the CFO stage, they get better and better at this half of the HR pie – the “cost” side.
I refer to the compliance/administrative side of HR as the “cost side” because there is no return-on-investment from compliance activities unless you make assumptions about the fines or lawsuits you “might” have experienced. Compliance is comparable to insurance – there are risks if you don’t have it, but no real benefit from having it until you need it. No one chooses to do business with a company because it has a great Employee Handbook!
Likewise, any ROI from process improvements comes from efficiency gains. Outsourcing portions of HR to payroll providers can be a legitimate way to generate some process improvement and compliance peace-of-mind. But administrative process improvements in support functions, like accounting or HR, don’t typically help a company win in its competitive space.
The real ROI from an HR department comes from strategic initiatives. Strategic HR includes:
– identifying who are the right people for the jobs in your organization.
– ensuring jobs are designed well.
– measuring and improving employee engagement which impacts productivity and reduces unnecessary turnover.
– developing supervisors and managers before you need them.
– managing performance in a way that actually improves performance.
– getting people in the right roles.
– having an organizational structure that aligns with your strategic objectives.
– training and development programs that support stated strategic objectives.
CPAs, finance professionals and HR processes companies are generally not as prepared to influence organizations in these areas as an experienced HR professional is. The realities of growing a company require the addition of a capable finance leader earlier in the growth curve than a capable HR leader. However, the earlier a company commits to having a “whole” HR department, the healthier its culture will be.
One effective strategy that many small and mid-sized companies are utilizing that is both scalable and keeps costs variable is outsourcing HR leadership. In some cases they are outsourcing processes, such as payroll, to one company and strategic HR leadership to another. This model has a lot of potential to make the right expertise available to small but growing organizations in the proper dosage.