By Ben Willmott, head of public policy at the CIPD, the professional body for HR and people development

Small and medium sized businesses are the backbone of the UK economy, fuelling innovation and creativity and employing over 16 million workers; 60% of all private sector employment in the UK.

One of the biggest challenges smaller businesses face is unlocking the potential of their people in order to drive business performance. This is because too many owner managers of small firms don't have the necessary knowledge of people management and development, and limited time and resources.

For a lot of smaller businesses, survival and simply ‘getting the job done' is their main focus. While this is understandable it also undermines their productivity and means too often they struggle to find the people they need, fail to provide the necessary training for staff or they face issues around employee absence, conflict and low morale.

For instance, many small businesses pride themselves on having an informal, ‘family' feel to them and while this can support positive working relationships, it can create challenges as well. Roles and responsibilities between employees can become blurred, the organisational culture can be unclear, and without clear HR policies, it can be difficult to for employees to understand what rights they have, and for employers to know what their responsibilities are.

So where should business owners begin? The first step is getting the people management ‘basics' in place, such as ensuring all staff have written terms and conditions of employment, job descriptions and putting in place proper procedures for annual leave and managing sickness absence.

Core HR policies should also cover issues such as health and safety, discipline and grievances, flexible working, staff appraisals, as well as maternity and paternity leave and pay.

These can require a level of legal knowledge and expertise to develop, which many small or medium businesses are unlikely to have within their own walls. It's important therefore that senior leaders seek out the support and knowledge needed to really understand and implement people management practices. Getting even a basic HR foundation in place will have a significant positive impact - not only through providing employees with the relevant support and direction they  need, but also by creating a clear point of reference so that business owners don't have to reinvent the wheel every time a workforce issue or query arises. 

By ignoring people issues in favour of what many perceive to be more pressing business issues, directors and senior staff can create a vicious cycle of problems for themselves. Instead, making time for HR and effective people management practices can result in positive business outcomes and greater efficiency moving forward.

The CIPD's recent People Skills programme, which offered advice to SMEs regarding HR practice, demonstrated how people management practices can help drive engagement and productivity.

For example, clearly defining the organisation's vision, objectives, and strategy really enables employees to understand what their business is setting out to achieve. Similarly, clearly defining job responsibilities, roles and the relationships between teams will help to boost efficiency and help improve individual and overall accountability in achieving that business success.

The CIPD's People Skills initiative regularly found that until these HR ‘fundamentals' are in place, senior staff typically didn't have the capability or time to invest in value-adding activities such as training and development. It's these kinds of activities that can really make a difference to business productivity and potential so start with the basics and good practice can flow from there.

By taking these steps small firms' owner managers will spend less of their time having to deal with the fall-out from poor management such as under-staffing, a lack of skills in the business and time lost to stress, sickness absence or conflict.

Once in place, these policies become part of the organisation's fabric through managers, who can be guided by them in their day-to-day decision making and in their behaviour when managing their teams.

While there are a number of people management practices and legal requirements  that are relevant for every business, tailoring policies for the specific organisation allows SMEs to maintain their individuality and support their business's culture - whether that's its creativity, agility or having an informal, ‘family feel'.

In small businesses, directors and senior staff have a key role to play in living and breathing the company culture, role-modelling expected behaviours and following the practices laid out in HR policies.

However, as SMEs expand and develop, the need for a designated bright HR professional will grow. This is a really worthwhile addition, and as a CIPD report showed, their input can help drive performance. Firstly, a people professional enables an organisation to develop a more sophisticated HR function, which as a result can respond to a larger range of employee and business needs. This is shown through recruitment for example, where people professionals can source individuals which both fit the organisational culture, and have the best talent and skills needed for long-term business objectives. They also bring a range of potential transformative activities, such as training and development, performance management, and personal development. By investing in your employees in these ways, you're also investing in the potential of your business - not only will these activities improve the confidence and abilities of your employees, this in turn will also boost productivity.

While many SME's see the potential benefits of a permanent HR professional, they often aren't at the point where they can afford it or team size makes it relevant. In fact, our research revealed that smaller businesses don't tend to recruit a people professional until they have between 80-100 employees. For smaller businesses than these, outsourcing elements of people management practices could be a suitable alternative.

This will vary from business to business, but the CIPD has found that the most commonly outsourced function is payroll. Seeking complex and legal advice on particular employee queries is also available to businesses, and is a reliable way of ensuring legal compliance and employee welfare. Through outsourcing these various people management practices, it allows directors and senior staff to get on with managing the front end of the business and bringing in revenue, while taking comfort in the fact that they have good HR fundamentals in place. It also provides them with the opportunity to streamline certain HR services, and put more energy into more advanced people management practices which drive wider strategy and business objectives.  

It's essential that smaller and medium sized businesses have a solid foundation of people management practices in place. What this looks like will vary - it could be through leadership from the senior team, the recruitment of a designated HR professional, or through outsourcing particular people management elements. Ultimately, business performance will benefit as a result, and directors can also be assured that they are encouraging a more positive experience of working life amongst their employees.

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