The rise of small and medium enterprises has been one of the business growth success stories of recent times. Quite often, businesses develop without a well-thought-out People Strategy simply because the initial focus is almost exclusively on revenue growth. In reality, the People and Business Strategies should run parallel from the start, because the lack of an effective People Strategy directly influences profitability, which in turn can impact future investment, growth and sustainability. 

Entrepreneurial organisations have the potential to offer so much to the overall employee experience; clear purpose, alignment of values and the excitement of pushing new business frontiers. However, at the early stages of most SMEs development, good People Practice, for want of a defined HR strategy, often lags far behind. If the bare bones of a People strategy do exist, it is often originated from operational necessities and designed by the CEO with input from the COO and CFO, due to the absence of a capable HRD on the management team. It is largely deployed as a tactical response to individual People Management issues as and when they arise.

The consequences of this can be that inexperienced managers are promoted beyond their ability. Training and career development can be ill-thought out, if considered at all, and Reward and Benefits are usually given only rudimentary consideration outside of the top team. There is little or no attention paid to employee engagement and retention. Only when ‘red flags’ start to emerge, as the business develops to the next stage of its evolution, does this approach change and by that point some damage to the sustainability of the enterprise’s growth rate has already been done.

We frequently hear that a typical ‘red flag’ is a sudden increase in staff turnover, resulting in increasing costs to the business, impacting profitability and the ability to scale-up. We can look at the example of Technology SMEs to illustrate this, as they usually require a high volume of graduates in their first or second roles out of university to grow. As these employees gain more skills, they become an obvious recruitment target from the competition who can offer better pay, benefits and career development; making it easy for essential employees to move on for what they consider to be better career opportunities. This risk can be mitigated if more small businesses ensured that a robust HR strategy formed around talent development is in place from the outset.

An experienced HRD can create a flexible resourcing plan and weave it into the CEO’s vision, allowing agility to become part of the organisation’s DNA. This can prove essential to staff retention and can lead to the development of a talent-led culture that keeps highly valued employees engaged for longer.

Connecting people with the purpose and vision of the business requires an ongoing dialogue between the leadership team and employees. This practice of constant communication is well served by an effective HR function, and attention paid in this area can reap many benefits in terms of bonding workers and management.

Comprehensive HR planning can also aid leadership confidence by largely removing People concerns from the day to day attention of the CEO. This reduces the chance of the senior management team being drawn into employee situations outside their area of expertise and generally minimising the exposure to employee created risk.  This frees the leadership team to concentrate on developing the business strategy and chasing growth.

So, while the CEO might have thought thorough HR planning was initially of moderate importance, it soon becomes clear that it’s absolutely essential as the business grows to give the company the best chance of maintaining its initial hard-won success.

These are just a few of the benefits to be gained from having a solid HR Strategy and expertise in place from early on in an organisation’s development. However, despite the pivotal role the HRD can play in partnering the head of a business, it is not uncommon for a CEO to insist that HR reports to the CFO or COO, rather than themselves. For many HR professionals this is a deal-breaker because it sends a clear message that the CEO does not put People at the top of their agenda. When we talk to HRDs, those who are excited about the characteristics and challenges of working within a rapid growth enterprise – such as a chance for them to really frame a business, working from a blank sheet of paper, and to design creative policies with measurable results – it is clear they will not want to be layered into a reporting line below that of CEO. Without that direct reporting line, many form the perception, true or otherwise, that the ability for HR to have strategic input and business impact is restrained.

CEOs themselves should understand the value of prioritising good strategic People Practice from the outset and choose an HRD with whom they feel that they can easily build a rapport and who they are assured is giving them pragmatic business partnering. They can act as a confidante and a general sounding board for the CEO. Alongside this business partnering relationship, an experienced HR professional will also be able to bring coaching skills, which is useful for helping to build alignment across the top team.

Secondly, and just as importantly, HRDs moving into these roles must ensure they earn the CEO’s ear, land with impact and quickly build trust.

Any incoming HRD should demonstrate their value by being able to clearly link the importance of good HR practice to business revenues and cost benefits. Being financially literate and able to communicate confidently on business matters with the rest of the leadership team, namely the CFO and COO, is critical to establishing and maintaining credibility and this bears direct relation to the commercial impact they can have.

Outside investors are increasingly looking for evidence that the leadership team has fully thought through their People Agenda to protect their investment before committing money into start-ups and SMEs. CEOs would be advised to take heed of this and put a resilient, pragmatic and commercial HRD on their leadership team in, if nothing else, the interests of sustainability and keeping competitive advantage.