Human resource management is rarely the first priority in a middle-market firm. Sales and marketing, as well as financial and supply chain management seem more pressing.
Without sales and the capital to grow it, a firm won’t survive, let alone strive. Yet, it would be a grave error to disregard HR.
By that, I don’t mean giving lip service with phrases such as “my people are my most important asset” or “our people are what make the difference,” which are jotted on delivery trucks or aired in the customary media interview.
Rather, it implies using HR as a truly strategic and operational resource, where it is a competitive advantage that is embedded and identifies and drives sales, profits, growth and innovation.
Disjunction in the middle market
HR management in middle-market firms has a number of characteristics that differentiate them from their larger brethren.
First, executives, especially in smaller companies, tend to wear many hats and have multiple responsibilities. These executives often rotate and shift roles, making them more agile but also thin on functional knowledge.
Middle-market firms are less likely to be unionized, giving management more discretion but a more paternal role. These firms are typically less formal, placing a greater burden on building and retaining relationships with and between employees.
These ingredients suggest an “organic” corporate culture, with fluid tasks and an informal and relatively flat organizational structure.
Yet, as many middle market companies farm out various HR functions, e.g., payroll, they run the risk of severing direct touch with organizational members and forfeiting key managerial functions such as motivating and incentivizing employees.
Such disjunction is no less dangerous than losing direct touch with your customers.
Step up and invest
Because of this, owners and managers need to undertake a proactive role.
They shouldn’t leave HR responsibilities to staff or outsiders without retaining active monitoring and strategic and operational decision-making power in key HR functions.
They must invest in augmenting their staff’s knowledge, even though the thought of having them spend time away from operational tasks gives them pause.
Surveys conducted by the National Center for the Middle Market, Economist Intelligence Unit and Brookings Institute suggest that lack of knowledge is one of the main barriers preventing middle-market firms from entering global markets, where future growth potential lies.
Recruiting experienced executives from large multinationals is a way to deal with entry into new markets and new product lines, all the while maintaining the key competitive advantage of the middle-market firm — agility.
As middle-market companies grow, they’re faced with pressures toward formalization. In HR management, this implies moving from informal on-the-job training and mentoring to formal training programs, from an on-the-fly pay system to systematic performance evaluation, compensation and succession planning.
Don’t get too bureaucratic, however, your goal is to grow your company into a “large middle-market firm” that is well-managed and confident in its capabilities, yet nimble, flexible and agile.
Oded Shenkar is the Academic director for the National Center for the Middle Market, the leading source for knowledge, leadership and research on midsized companies, based at the Fisher College of Business, in collaboration with The Ohio State University. Oded is the Ford Motor Co. chair in Global Business Management and a professor of management and human resources at the Fisher College of Business.