The Real Cost of Not Having HR
Updated: Oct 16, 2019
Imagine this: you're an entrepreneur. You have a million-dollar idea, the technical chops to get it off the ground, and a solid business plan. You've gone through a couple of rounds of funding, assembled a best-in-class engineering team, and, suddenly, you are responsible for an office of 30+ employees. By this point, you've likely hired an executive team to manage your operations, financials, and business development.
But what about human resources?
On the surface, HR may not seem like a crucial business function for small to medium-sized companies, but executives would be wise to invest in the most critical part of their organizations: their people. Sure, you could choose to outsource benefits and payroll, but, there are areas of HR for which software cannot take the place of real-life, human support. Unfortunately, many companies wait until a problem arises to establish or improve their HR function, which could prevent them from both financial and emotional hardships.
Uber is a prime example of "too little, too late" as it pertains to HR.
Employee relations often don't enter leadership's consciousness until after an incident occurs - once it is too late to address a systemic issue within the company culture. Uber hired its first HR professional in 2014 when the company had already grown to more than 500 employees. Even then, Uber's HR department focused on recruitment instead of ethics, diversity, and employee relations. This subsequently led to a host of high-profile HR issues for the company, eventually leading to the resignation of its CEO, Travis Kalanick.
On February 20, 2017, former Uber engineer Susan Fowler publicly stated that she was subjected to sexual harassment by a manager and subsequently threatened with termination of employment by another manager if she continued to report the incident. In March of 2018, Uber paid $10 million to 420 employees to settle a class-action suit regarding discriminatory pay practices resulting in lower wages for women and minorities. In addition, Uber once again faced sexual harassment claims when a former employee sued the company in May of 2018, alleging that the company's human resources department did nothing to stop co-workers from sexually harassing her during her employment.
There are many lessons to learn from Uber's tribulations, the key one being that investing in HR upfront can not only save a company’s reputation but millions of dollars in the long run. Uber lost $1.8 billion in 2018, which directly reflects the company's inner turmoil, vacant executive roles, legal expenses, and a loss of sales revenue. Lyft, on the other hand, doubled its revenue in 2018 to reach $2.2 billion - and I can personally attest that Uber's toxic culture influenced my decision to exclusively use Lyft.
Although it affects everything from recruitment through retirement, compliance is another area of HR that is often overlooked. A robust HR department will keep the business out of danger and ensure that employees are treated legally and fairly. Besides laws which protect against discrimination, such as Title VII or the American with Disabilities Act, there are also various laws that cover benefits, wages, immigration, and safety - all of which have implications for recruiting and beyond. With frequent changes to state and local laws, HR serves as the first line of defense against discriminatory practices, audits, and investigations, all of which could result in significant loss of revenue.
The risks of operating without HR is why the Society for Human Resource Management recommends hiring an HR employee once a company reaches 15 employees. If that’s not possible for your company, you might consider bringing in an HR consultant to assess and audit key matters like performance management, employee relations, workplace legislation, compensation, and beyond. You may also consider investing in a consultant who can train managers in conflict resolution, management, and recruitment – most people are woefully unaware of the potential landmines that can derail the recruitment process (or worse, lead to a lawsuit).
Can you afford to function without HR? Likely not - the smaller the organization, the larger the impact a single mistake can have on your organization. It is time that executives stop viewing HR as a necessary evil and embrace the multitude of ways that HR practitioners can positively affect your recruitment strategy, company culture, and bottom line.
Brett Chinn is the President and founder of Brett Chinn Consulting. She specializes in building talent acquisition plans, recruiter/interviewer coaching, executive search, and employer branding across multiple industries, including staffing/recruiting, data science, and engineering.