Recently, Dan Arriola, our Vice President of Sales, wrote a great article for Entrepreneurs’ Organization of Chicago’s December edition about weighing the decision to establish an in-house human resources department or outsource to employment service companies. Below is a copy of his article. You can also find it on the EO Chicago website along with other great articles by various authors.

To HR, or Not to HR?
Dan Arriola
EO Chicago

As entrepreneurs, we are routinely faced with important questions that could impact the inner workings of our businesses. I have found that one, in particular, is common and relevant in today’s competitive business world: Does it pay to invest in a human resources (HR) department?

In my experience, it’s worth it. I have found that investing in an HR department to handle compliance and talent needs helps when it comes time to execute a human capital management strategy. As a service provider, talent is my company’s primary competitive edge, and human capital management is a vital component of our strategy.

Given our size (we have almost 500 employees) and the ethnic, racial, generational, socioeconomic, educational and professional diversity of our employee population, it became obvious to us that we needed a department focused solely on our people. We couldn’t outsource that. We couldn’t afford a one-size-fits-all approach. We needed human–capital professionals in the trenches, people intimately familiar with the day-to-day inner workings of our operations, people with the capacity to be proactive to our challenges and keep up with our changing requirements.

How did I come to determine if an HR department was right for my company? I simply analyzed our need for one. Before executing a decision, I performed a gap analysis to determine where my company was and where I wanted it to go. I asked myself several questions that helped me make the right moves:

• What is my aim in having an HR department?
• Does it make sense, given the makeup of my organization, its available resources, its priorities, its placement in the growth cycle and its strategic direction?
• How much HR ground can I cover with my current resources?

I did my best to answer these questions realistically. What I uncovered helped me formulate an objective that showed me how necessary an HR department was for my company, as well as my department’s overall composition. For example, if my company had only 10 people, little to no attrition, was struggling for financial solubility and depended primarily on a CFO, I might have been better off working under a Professional Employer Organization (PEO) environment and delegating the talent management and employee-relations responsibilities to an office manager. Or, as president of my company, I could have chosen to take on those important responsibilities. Instead, I elected for an HR department because it fit the fabric of my company and met my employee–management needs.

Though other entrepreneurs may choose to employ a different approach to managing their human resources, I found that mine needed to address five key functional areas:

• Workforce planning and employment
• Development of human capital
• Total rewards for human capital
• Employee and labor relations
• Risk management

A deficiency in any one of these areas could potentially derail my company or keep it from performing optimally. By fulfilling them strategically, however, my company’s success has skyrocketed, and my employees are managed better than ever.