Continuing our new series of provocative features that explode the myths about HR
Effective recruitment, low attrition rates and a business-driven people strategy are all high on the agenda of HR professionals in blue-chip companies.
Most of these organisations will go some way to achieving these goals at some point in their lifespan. But increasingly it’s small and medium-sized businesses (SMEs) – most of them without formal HR departments – that are showing their larger cousins how to manage their people successfully.
SMEs, which the Department of Trade and Industry (DTI) defines as companies with fewer than 250 employees, have shaken off their image of short-termism and amateurish people policies.
“Overall they are more advanced in people management than many believe,” says Paul Sparrow, professor of International HR management at Manchester Business School. He points to the DTI’s latest Workplace Employee Relations survey, which includes findings from workplaces employing between five and nine people. “Techniques such as culture-change programmes, employee-involvement schemes, teamworking and devolved control systems are all evident,” he says.
So why should large companies bother having HR departments? If this level of sophistication is available in SMEs (which typically do not employ an HR specialist until they have at least 80 employees), why not meander along without the people specialists? All businesses need to be nimble and flexible – perhaps having an HR department slows down the bigger organisations.
Not necessarily, according to the group HR director at one of the UK’s major companies. At Boots, Mike Cutt deploys “consistent” people policies across 60,000 UK employees and a further 3,000 overseas. This happens alongside the fast turnaround of ideas and the ability to compete with both large and small pharmacies and the supermarkets.
According to Cutt, the role and impact of HR “depends on the degree of understanding about the contribution that people make to that business”. In other words, its impact and potential are dependent on wider corporate support.
Recruiting for talent
However, others who have studied the business habits of SMEs think the HR departments in large companies could learn a lot from smaller firms.
At Coventry University, senior lecturer in collaborative working, Anne-Marie McTavish, runs management and IT skills programmes for SMEs.
“Small companies have to recruit for talent – they cannot afford to carry people who need training or who might be a mistake,” she says.
This urgent need to get it right first time means that the people closest to the business write the job descriptions and conduct the interviews. McTavish contrasts this with a typical recruitment campaign in a large company, which tends to be conducted away from the coalface, and where HR managers do not have specific knowledge of where the recruit will be working.
Increased diversity happens organically in SMEs, adds McTavish. “One SME I came across employed two disabled people among a workforce of nine,” she says. “This is a good quota, but it had occurred naturally because the owner had recruited on talent.”
It’s the innovative, sometimes niche, product base and the level of autonomy on offer at SMEs that can attract the best talent away from larger companies, argues Sparrow.
“SMEs cannot compete in terms of salary, but they can compete in terms of values and cultures, relationships with other people and networks. In contrast, larger organisations are having to recruit people on idiosyncratic terms or packages,” he says.
The result for the larger companies, says Sparrow, is that they have to offer many non-monetary motivators. “They have to make guarantees about the quality of work that will be offered, the technology, the access to influential networks and so forth,” he says.
SMEs boast an agility that companies with several hundred employees can only aspire to, according to Mary Kennedy, director of strategic HR programmes at the Ashridge international business school.
“Small companies have less fat and fewer power cliques,” she says. In contrast, large firms are hindered by their standardised processes and global sprawl. “A lot of time goes into being ‘global’ or ‘local’ and, all the while, the talent is leaving.”
However, as companies expand and HR departments grow, so does their propensity to be swept away by fads, as David Molian, director of the Centre for Small Business Growth and Development (Credo) at Cranfield University, explains.
“When you ask successful owner-managers about HR in big business, their biggest criticism is that the HR department is pursuing a fashionable agenda – such as corporate governance and corporate social responsibility – at the expense of the business,” says Molian.
But it’s precisely their ignorance of corporate governance and employment law that could be placing SMEs in danger. For example, age was not on the diversity agenda in the SMEs that McTavish worked with.
She says: “There is some reluctance to recruit people who are much over 50 because of the fear that they’ll be inclined to work part-time.” She has also witnessed a fear of younger, inexperienced people who might be a drain on resources while they are being trained up.
Lewis Sidnick, senior policy adviser at the British Chamber of Commerce, says that SME ignorance of employment law leads smaller companies to pass the responsibility to third-party suppliers.
“A large firm deals with employment law on a regular basis,” he says. “A small firm that only deals with issues every couple of years won’t have any procedures or policies in place.”
SMEs are, therefore, more likely to outsource employment law matters or use web-based services that can generate employment contracts or explain disciplinary procedures, says Molian. But he warns that they can pay the price for the lack of joined-up thinking.
“What goes wrong is a shortfall in procedures or processes,” he says. “Firing people in a fit of pique, for example. It is common for SMEs to find themselves going through tribunals for unfair or constructive dismissal.”
Business success is dependent on how companies compete for an ever-decreasing pool of skills – and that’s where the problems are the same for large companies and their smaller counterparts, concludes Sparrow.
The outright winners are the employees who know their worth and who can negotiate the best deals for themselves, he says. “Even large companies can be dependent on a small nub of talent.”
It’s how companies find and hold on to that talent that will determine their success, wherever their HR responsibilities lie or what they’re called. So, yes, hundreds of SMEs manage fine without HR, but that’s not to say people policies aren’t right at the top of their agenda.
CAN WE LIVE WITHOUT HR?
Heather Gorringe has just won Small Business Champion of 2005, awarded by the Federation of Small Businesses. Her business, a garden products firm called Wiggly Wigglers, has a turnover of £2m and a workforce of 14.
Gorringe handles HR matters. She also cleans her own open-plan office area to show employees that she will handle anything, andanswers the telephone to stay in touch with customers.
Gorringe aims for a culture built on trust and goodwill. Staff who need to take time out for appointments or childcare know that they have to make up the hours.
“The trouble with rules is that you need someone to implement and monitor them,” she says. So if someone is abusing that trust, by using the internet for more than their job, for example, she asks them to justify it.
“It could be that they have got into the habit of using the internet without thinking. We ask them to adjust their thinking.”
CAN WE LIVE WITHOUT HR?
Chaos is likely for organisations that try to operate without an HR department, says Corinne Spencer, director of HR at Handpicked Hotels.
“If you don’t have an HR department, you may find yourself with different versions of what’s important, a lack of direction, a number of versions about the priorities, duplication of effort and a loss of the core heart of the business. Without HR, there would be chaos,” she warns.
CAN WE LIVE WITHOUT HR?
Data Connection is consistently a top five performer in the Sunday Times 100 Best Companies to Work For list. With 270 employees in the UK, it is just outside the accepted size parameters of an SME, yet its chairman Ian Ferguson ensures that he remains close to his employees.
Ferguson employs a personnel administration department, which handles practices, pensions and insurance, but not people strategy. He has made this his own personal priority.
“I interview everyone,” he says, priding himself on finding and nurturing a long-serving graduate workforce. “The people strategy comes from me.”
Ferguson asks line managers to operate a three-monthly appraisal system in keeping with their remit of “developing people and delivering projects”.
And he’s quite clear where the buck stops. ” I am the ultimate line manager,” he says.