Is HR an investment or a cost?

The answer to that defines the core structure of an SME. Those organisations who tend to believe that their product, technology, capital and marketing strategy can take them to the next level, without much focus on people, realise it to be a big mistake

India is booming with small and medium enterprises (SME), young entrepreneurs and start-ups but, according to a recent study done by IBM Institute for Business Value in collaboration with Oxford Economics, more than 90 per cent of the start-ups in the country fail. The study identifies lack of innovation, non-availability of skilled workforce and insufficient funding as the main reasons for the high rate of failure.

The study also reveals that 70 per cent of the venture capitalists believe that talent acquisition is one of the biggest challenges faced by Indian start-ups and that limited availability of necessary skills impedes growth. At the same time, 60 per cent identified India’s skilled workforce as a strength for the Indian market. That shows the importance of processes related to identifying the right talent and attracting them to join the challenging journey. These contradictions further necessitate the need for creating a better understanding on talent front.

Any new organisation faces innumerable challenges and needs to carefully steer through them, to ensure survival and growth. These range from product to technology, capital, focus of entrepreneur, policy and regulatory issues, infrastructure and, of course, talent.

During the initial phase, organisations tend to focus more on tangibles than intangibles and rightly so, as this gives them confidence of being on the right track. Tangibles like sales volume, costs of operation, fixed costs, costs of capital employed and so on are naturally visible parameters indicating progress of the organisation. During this time most human resources (HR) initiatives, which are relatively intangible — like organisation structure, culture, engagement of employees, leadership development and so on — are not paid much attention to.

It is important for the organisations to make prudent investments at this stage, remain lean and contain avoidable costs. The question which needs to be addressed at this stage is that whether HR is an investment or cost. For answering this aspect meaningfully, it is important to dissect the term HR and understand its core.

One has to have clarity in mind with respect to the specific reference one is making with the term HR. It refers to three distinct aspects in any organisation – employees, HR processes and function. For a SME employees will be a few key personal any increase in whom is based on specific needs closely aligned with organisational growth. HR processes will mean organisation design, talent acquisition, compensation & benefits and performance management. Usually, in a SME, the CEO will act as HR head with one to two HR professionals supporting him

Various researches have reinforced the accepted belief that one of the most critical aspects for ensuring success of any organisation is the talent it is able to attract, retain and help deliver high performance. It, therefore, becomes evident that the organisation has to see expense on talent as an investment and ensure optimal allocation, right from the early stage. Those organisations who tend to believe that their product, technology, capital and marketing strategy can take them to the next level, without much focus on people, realise it to be a big mistake, sooner than later. At the same time, it is important to make this investment prudently.

As such, there are a large number of HR processes spread over the complete life-cycle of an employee, which strengthen the organisation and provide a clear competitive advantage. These processes include talent acquisition, onboarding, goal setting, coaching, mentoring, review & feedback, compensation & benefits, rewards & recognition, learning & development, career pathing, succession planning, culture building, employee engagement, leadership development and creating employee value proposition.

However, a start-up or SME need not try to focus on all of them and also not worry about the absence of many of them in their enterprise. These processes need to be introduced progressively, implementing them at elementary level for meeting immediate requirement and then taken to the next level of maturity in due course.

There are a few key HR processes, which should be necessarily focused at an early stage. One is organisation design to ensure that all key roles are identified in advance, along with their experience profile and reporting relationships, thereby evolving ideal organisational structure, optimising on manpower costs and maximising deliverables. Naturally, talent acquisition follows for it is essential to source right talent for these roles. Compensation & benefits enable attraction and retention of professionals by benchmarking with market and competition and, finally, performance management sets goals at an early stage bringing role clarity and focus on targets. Regular reviews will help in steering the performance on right track.

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