Technology has certainly made it easier for middle market companies to focus on core competencies and operate more effectively. A prime example is the ability to outsource various administrative tasks that are typically handled by an HR department, such as payroll, health and retirement benefits, and legal and regulatory compliance. Without the option to outsource to specialty firms possessing deep expertise and robust IT systems, those tasks would instead fall to a middle market firm's executives, department heads, or perhaps even administrative support staff who are not experts in those disciplines and who have other responsibilities that likely deliver more value to the firm.
On the other hand, middle market companies need to grow in order to remain healthy, and growth requires a predominant focus on business plans, personnel development and a motivational culture. An internal HR department, in addition to overseeing the firm's administrative tasks, can coordinate with executives to streamline efforts surrounding employee development and culture.
Recruiting, hiring, onboarding, continued training, and managing the review and promotion process become more complex as a company grows because executives and managers can no longer do it all themselves, according to Suzanne Lucas, a 10-year veteran of corporate HR. As a result, "it just makes good sense to have someone who is an expert in [those areas] on board to help you out." At many middle market firms, managers and executives either spend too much or too little time on those tasks; the former is inefficient, while the latter stunts progress and demoralizes employees.
When there's no point person to work with department heads to create company-wide, uniform processes for these performance-related duties, it's difficult to establish a consistent, coherent culture. "If you want someone to be your right-hand man, advising you, handling problems instantly, and participating as part of your planning team to help figure out the best way to develop the staff to handle a changing workload as the business grows, you probably want to hire someone directly," Lucas adds.
It's imperative that middle market executives proactively keep an internal HR department's focus on duties that deliver the most value to the firm's growth initiatives. "HR people aren't in place to process vacation requests, but rather to view your team and your business through a human-colored lens," says Liz Ryan, a former Fortune 500 HR executive. Ryan describes the most valuable component of HR as "the 'fuel the business' part where talent, strategy and vision intersect."
With the upsides an HR manager brings, significant compensation may be necessary, and you want to make sure the payoff matches your investment by hiring an employee that is in tune with the middle market. If a midmarket firm decides to bring on a dedicated HR manager "who can see the big picture and join up the dots [across departments], this means being willing to pay for the organization you want to be," says Jason Heward, formerly the director of performance and change for London-based Penna Consulting. "There's a real knack to finding that person, as you can't just apply big corporate processes and procedures to a midsized company." Given the benefits of having the right person in an internal HR role, however, middle market executives should view a sizable salary as acceptable in return for unleashing the company's full growth potential.
Are there any HR-related tasks that would still be better served by outsourcing, even after hiring internal HR staff? Let us know what you think by commenting below.
Rob Carey is an NCMM contributor and a features writer who has focused on the business-to-business niche since 1992. He spent his first 15 years at Nielsen Business Media, rising from editorial intern to editorial director. Since then, he has been the principal of New York–based Meetings & Hospitality Insight, working with large hospitality brands in addition to various media outlets.