What High Performing Companies Have In Common

I could never be a full-time professor, but I enjoy teaching one class per semester at a local university. I value the interactions with my students and the discipline required to prepare a meaningful course each semester.

While preparing for my class this Spring, I came across some interesting research from the Institute for Corporate Productivity (i4cp). They found that among large companies (think Fortune 1000), high performing companies have fewer HR resources per 100 employees than their lower performing peers. But the exact opposite is true with small and mid-sized companies. The top performing companies outspend their industry competitors in HR.

Why do well-performing large companies need less HR?  

My guess is that those companies have solid, healthy cultures, they value management skills and train their managers well. They recruit and retain the right people for their organizations. Their competitors over-value technical skills and under-value people management skills, so they get weaker management at every level. This leads to lower engagement, higher turnover and more employee relations issues. Those extra HR people are recruiting and cleaning up messes!

Why do well-performing small and mid-sized companies spend more on HR than their lower performing peers?  

Visionary owners see HR resources as an investment rather than an expense. They hire HR resources earlier in their growth cycle and implement good HR platforms sooner. They are actively engaged with the HR team in the development of these platforms. And they reap the benefits.

What is HR doing for these companies?

1. These companies make better hiring and promotion decisions. They utilize proven HR tools to aid in selection and promotion. The underperforming competitors tend to make snap hiring decisions based only on interviews and promote based on tenure and technical skills.

  

2. These companies communicate better with employees, define what good performance looks like more clearly, have better performance management tools, and give better feedback. 

3. These companies have clearer policies and enforce them more fairly, keeping them out of trouble and wasting fewer resources reacting to charges of misconduct.

4. These organizations have a built-in pressure valve - a place employees can go to be heard and receive coaching when they're unhappy, rather than going straight to the boss and perhaps making things worse.

5. These organizations have a more engaged workforce as a result of good people management practices.

Does this mean throwing money at the HR function will make a small or mid-sized organization more profitable? Of course not. Just like with any investment, they must be wise investments.  Adding full-time people to a support function is a difficult and expensive decision. That's why some wise owners choose outsourced solutions. They get a higher level of expertise at a lower investment as they begin building that platform that's going to help them develop that solid culture when they're small, so they will need less HR when they're large!