Recently the Wall Street Journal ran an article titled “Is It a Dream or a Drag? Companies without HR.” Authors Lauren Weber and Rachel Feintzeig describe companies that attempted to operate without traditional human resource departments under the assumption that good people management should be everyone’s job. They conclude the idea is a big mistake.
The article highlights the experiences of consulting firm LRN Corp., landscaping company Ruppert Landscape Inc., Outback Steakhouse, and marketing agency Klick Health. For different reasons, after attempting to go HR-less, three of the four highlighted companies added back employees to focus on people issues. I was not surprised.
In my view, a good HR department is a critical asset in any organization because its sole focus is on human capital—the number one issue CEOs face around the world, according to a recent survey released by The Conference Board. An investment in human capital (as opposed to financial capital) often yields the best return for an organization.
I have consistently witnessed million and billion dollar organizations triple their growth rates by focusing on critical HR issues like recruiting, performance management, compensation, recognition, and communication. In one case, by placing much of our attention on these areas, I had the opportunity to work with a team who tripled the growth rate of a $3B organization, growing from 5% to 15% and holding that growth rate for three years. I can tell you first hand, strong HR departments are critical to growth.
The WSJ authors highlight another big reason why eliminating HR departments is a bad idea. Subject matter expert Steve Miranda sums it up by saying, “Whenever you consider eliminating portions of HR you have to think of the financial risk, [and] the strategic risk.” There is no doubt companies increase risk when traditional HR support for employees is cut. Examples cited in the article include exposure to lawsuits, inability to attract employees with needed skill sets, mediating employee disputes, and increasing the cost of effectively handling a workforce.
Companies want to cut costs, and they want their leaders to be more involved with their people—I get that. Both of these opportunities can be addressed while maintaining an HR presence. Tactical HR functions like benefits and payroll administration might very well be outsourced, but strategic HR functions must be retained.
HR can also be held accountable for key leading indicator metrics around recruiting and productivity. The business of business is measured by numbers—a successful HR department will need to be measured. In his book The New Human Capital Strategy, author Bradley Hall describes the award winning metrics based approach we implemented at AT&T in 1999.
Finally, I must admit my own bias. My Dad chose a career in personnel, a precursor to human resources and organizational development (OD).
At the kitchen table growing up I heard stories of how his group provided invaluable services to a mid-size machine tool manufacturer, bridging the needs of management and the workforce. Beyond ensuring a safe environment, Dad’s group enabled success by bringing skills in recruiting, training, performance management, recognition, comp and benefits, and employee development.
Companies without HR are making a mistake. Doubling down on a well-funded and strategic HR department is the way to go. That’s what Dad taught me.