Managing Human Resources in Small & Entrepreneurial Firms

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  • 0:03 The HR Function and…
  • 1:25 The Start-Up
  • 2:22 Growth in Size
  • 3:29 Time to Delegate
  • 3:52 Attitudes to HR Management
  • 5:05 Lesson Summary
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Lesson Transcript
Instructor: Nick Chandler
Do small and medium enterprises need a human resources function? And if so, what form will it take? This lesson looks at the various ways in which human resources can be managed in SMEs.

The HR Function and Growth Prospects

Human resources (HR) involves a range of practices, such as the daily operation of the business, contracts, working conditions, pay, and general employee administration. Others are concerned with the longer term, such as the development of the employee through training, talent development, and developing employee career paths. If 8 out of 10 small and entrepreneurial businesses fail in the first 18 months, then there seems to be little need for any long-term HR function. Often, many small firms employ an accountant to take care of the administration and payroll. So what can be done for the HR function in these small firms?

Just because there is a high chance of failure, does not mean that a small business should plan to fail. The entrepreneur is focused on growth and making a success of the business. Often, we think of HR as the existence of HR departments or the employment of an HR expert. Of course, at such an early stage of growth in a business, there is often not enough finance to employ experts. A lack of HR specialists, however, doesn't mean there is no HR function in a company, nor that the small and medium enterprise (SME) doesn't take HR seriously. Let's consider the HR functions as the organization grows and develops.

The Start-Up

When a business is first founded, there may well be simply the entrepreneur and no one else. Even if there is a handful of staff, the organization is managed in a very informal way. Staff are expected to be flexible, undertake a wide range of tasks and roles, and strategy is unlikely to be formally planned. With such high demands from employees, the owner has the task of finding the right people with the right skills and flexibility. The owner sets the rates and conditions in the contract. The owner is also likely to have a vision and personal values that he wants the prospective employee to appreciate and take on board. Without an HR specialist, the owner is likely to get advice from solicitors and accountants on a range of issues, such as paid leave, holiday entitlement, sick leave, dismissal, and so on. Training is often on the job, with staff learning by doing the task and muddling through.

Growth in Size

So far we have considered a business with just an owner and a handful of employees. However, as the company enjoys success, it might look to increase the workforce to cope with further expansion. Firstly, this means the need for the owner to spend time recruiting more staff. Once the staff gets into double figures, if not before, then it might be time to create some systems and procedures. This means defining the job roles.

A job role lists the tasks and responsibilities that are expected for a certain position. Although the owner may be able to do this, it is very time consuming and the task might be outsourced to an HR expert or given to someone inside the company, such as a general office manager, who has an idea of who does what.

At this stage, the payroll may become the official part of the job role of the finance manager. In time, employees may become separated into sections and a section leader may be required. Contractual issues may well remain with the solicitor, but record keeping for employees may become an employee task to keep track of sick days, holidays, and so on.

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