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Why Family Businesses Need HR

December 4, 2020

Courtesy of Ahola Corporation

It is no secret that prospering organizations have a skillful human resources department. However, it can be sometimes difficult to surmise how exactly human resources contribute to organizational success when so many of its functions are based on coaching, soft skill training, and the anomaly of talent. Lesser known is how human resources directly contribute to successful family business operations specifically as many family firms will often attribute hard work, a little luck, and/or experiences to their achievement.

What we do know is that people are the core of every organization. When a business employs a talented, diligent workforce, those people provide the business with a competitive edge. Having human resources in place develops that talent. Oftentimes family businesses employ multiple generations of relatives or close friends to the family. What can happen if human resources are not intentional or led by a professional is a lack of preparation or discipline and leaning too far into trusting emotion or kinship over strategic planning and business-minded decision making.

Family-owned businesses are the backbone of the American economy. Studies have shown about thirty-five percent of Fortune 500 companies are family-controlled and represent the full spectrum of American companies from small businesses to major corporations. Small businesses, including many family firms, employ just over half of US workers.

Conversely, fifty-four percent of small businesses handle employment matters themselves to save money. A staggering seventy percent of businesses with five to forty-nine employees add HR functions such as recruiting, employee relations, benefits management, and training onto the workload of employees with little to no experience in workforce issues. Frankly, most owners or members of management already stretched for time in their days.

Employing an internal contributor or outsourcing an external human resources professional is linked to organizational competitive business advantage. Examples of competitive advantage include increased productivity, higher qualities of work-life, and overall greater profitability to a firm. Because many business owners and entrepreneurs tend to manage HR in-house with little experience, family firms especially, tend to dedicate a (sometimes unqualified) relative to handle personnel issues.

The reality is that it is imperative to have human resources professional who is educated in the field, SHRM (Society for Human Resources) certified, and adaptable to shifting compliance issues and workplace regulations (think, implications due to COVID-19 in 2020). and changes to workplace regulations. A strong grasp of HR beyond just succession planning for family firms will only strengthen the competitive advantage.

A business’s organizational capability is a business’s ability to establish internal structures and processes that influence its members to create organizational-specific competencies. This enables the business to adapt to changing customer and strategic needs. Payroll or “people costs” will likely make up for roughly fifty-five percent or more company operating budgets. While family firms do trend higher than non-family firm counterparts as having more well-rounded company values that better capture the spirit of the organization and better overall employee commitment, having a human resources component within a business, will only increase the organizational capacity of shared mindset, capacity for change, and leadership. Human resources within a family business can only make family businesses better, set them apart from their peers, compliance, professionalize business.

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