Unlocking the Potential of Outsourced Human Resource Management

It is widely accepted that the SME sector is the engine house of the Australian economy. In employment terms it makes up 40% of the nation’s workforce. Unfortunately it is also the SME sector that has the least resources or capacity to effectively manage their human resource function.

HR is as important, if not fundamentally more important, to SMEs compared to big business as the effect of poor selection and performance can cause considerable disruption to a small business whilst effective outsourced human resource management can contribute more positively to the success of a SME.

How can SMEs introduce effective performance management strategies to attract, retain and reward the right people? The best advice would be to start with a simple system and consistently improve and review practices to ensure this area of your business is not overlooked.

An ideal outsourced human resource management system is one which satisfies 4 main objectives:-

To improve business and individual performance;

To link the key objectives and strategies of the business with individual objectives and strategies;

To measure the progress made towards the achievement of the strategic business objectives by evaluating performance, identifying improvements, developing new objectives and converting improved performance into rewards; and

To coordinate job design, recruitment and selection, training and development, career planning and reward structures.

The components of this system which may be introduced over a period of time depending on resources available include:-

Business plan linking company values and goals with its people;

Job Descriptions (reviewed and updated regularly);

Individual key performance indicators (KPIs) set at various intervals, e.g. monthly, quarterly, annually, etc;

Bonus policy and guarantee which links the performance of the business to individual remuneration – this may be a general policy or clause in individual employment contracts;

Performance reviews;

Professional development plans reviewed and updated annually; and

Ongoing feedback, communication, coaching and training.

In SMEs with multiple departments and line managers it may be appropriate to create a handbook and/or provide training with guidelines on how the above components can be developed internally with timelines and templates. This will equip managers with the ability to drive effective human resource management and empower them with responsibility to ensure its ongoing success. It also ensures consistency and transparency across the business when it comes to HR management, and this is vitally important particularly when it involves the provision of a reward mechanism.

Questions SMEs need to ask themselves include whether a performance management system and effective HR practices can be developed internally or externally, and what resources are available in the business for the implementation of the system. Resources to be considered may include persons within the business, time, knowledge and skills, a budget or allocation of funds, and external expertise or assistance.

Outsourced human resource management can provide 3 separate streams of services depending on the requirements of an SME. Outsourcers have an online portal which provides internal resources with the information and templates to develop and tailor the components of effective performance management outlined above which can be accessed for an annual fee. As an alternative to this, where external assistance is deemed appropriate, there is the option of engaging part-time outsourced human resource management system on a consulting arrangement to deliver the above objectives or a more comprehensive solution such as a fully outsourced HR department which takes care of all of your employment needs, including payroll, contracts, legal compliance and ongoing HR consulting and reporting.