Is it time to invest in a Human Resources Department?

I’ve just had a discussion with a business in Manchester about when during the growth of a company does it become necessary to think about setting up a Human Resources Department.

Well obviously given what I do, my answer is always going to be on the side of outsourcing but it made me think what are the triggers for making some form of Human Resources department attractive, and why do some companies manage perfectly well without a Human Resources professional on the payroll, and have over 300 employees, and others feel they need one when they get more than 50 staff.

My take on this is as follows:

When an entrepreneur (or anyone else that matter) starts an organisation they personally recruit the staff and have regular day to day contact with them either face to face or over the phone. The staff member and the owner get to know each other pretty well and if they get on, all generally goes according to plan. If it doesn’t go well the employee usually gets another job (most of the time without being dismissed, they just leave.)

This continues as the organisation grows and the driving force behind the organisation keeps regular contact with the staff, communicating their vision to the employees, who either buy into this or not.

In my experience it doesn’t matter whether the driving force is a skilled motivator, who keeps staff involved and makes them feel included and loved, or a martinet who barks out instructions and expects them to be obeyed. In most cases the staff either stay, and just get on with it, or leave. So the nature of the driving force determines the type of employee they get. What surprises some HR professionals is that there are people out there who prefer to work for a Genghis Khan type of character, rather than an inclusive charming motivator.

So far so good, but when the organisation develops further and gets above a certain size, the driving force no longer has direct contact with each employee and has to employ managers to do that for them. This means that the vision the entrepreneur has is no longer directly passed on to the staff, but filtered through a third party. The point at which this occurs differs depending on a number of factors:

1)      The ability of the driving force to spread themselves thinly

2)      The structure of the organisation (i.e. is it multisite or single location)

3)      The complexity of the tasks the organisation undertakes

4)      The influence outside bodies have on how the organisation functions

Each of these factors is worthy of discussion on their own but for now the point is that all organisations reach this point in their own time.

Once this happens it is the appointment of managers which can be the key. If the people who are appointed to management positions have management and administration skills rather than just being good at the job they do, and their style of management matches or at least compliments the driving force’s style. Things tend to move ahead remarkably well.

If any of these factors aren’t properly established then the organisation starts to fracture and not be properly focussed. This is when people start asking for a Human Resources department to bring things together into a coherent and consistent management style, and to cover all the administration work that is required both in law and to keep the business ticking over. The first steps are then taken to getting an HR manager. Often the person given this job is the P.A. to the driving force because she (and it usually is a she), has the most in depth knowledge of what the driving force wants and is usually an effective administrator. The problem with this is that sooner or later the P.A. gets bogged down with HR management work and is no longer able to fulfil the functions that she originally had. I would also observe that I have worked with some fantastic P.A.s in my time and the best of them had an attitude of “give to me, and I’ll deal with it”. The problem with this is that it tends to mask the shortcomings of internal managers.

But what if the company approach an HR manager from outside? They may not follow the driving force’s way of doing things, indeed the very fracturing that created the need for an HR manager in the first place is made worse by their appointment. Also in these circumstances, all the HR manager is doing is talking over the functions of the operational manager, weakening their authority and allowing poor performing managers to “dump” jobs they don’t like.

In my view it is for better to recruit the right managers who follow the lead of the driving force, and insist they take responsibility for their management decision.  Then you outsource the technical stuff making sure the provider is fully conversant with the driving force’s style and vision because then if it doesn’t work out you can just cancel the contract and get someone else in. With an HR manager you will have to deal with them as an employee. The problem is you brought them in for just the type of expertise you now need to use on them!

The final point is this, a full time HR professional can cost between £25k and £35k on salary alone (the cost of employing someone is usually calculated as about one and a half times to twice the salary). Then you need to see if they need admin support which can cost an additional £15k to £25k on salary alone, outsourcing a full HR support package will usually cost less than half this amount.

Also as someone once said to me, if you appoint an HR manager and they make a mess of it, you will have to pay the bills. If you outsource it and it doesn’t work you claim off the contractor’s insurance.

I know this is a somewhat contentious view but as someone who has been both the driving force and the person who tried to work against the flow (with the expected consequences on both occasions!), I know an internal HR manager would have made no difference to the final outcome in either case.

What are your experiences of managing HR in your business? How did you resolve the issues raised above? Are you going through this at the moment?

Any comments and opinions would be welcome and you can respond directly by calling me on 07879 551256 or e-mailing

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