Small and medium-sized businesses (SMBs) are the backbone of the economy, accounting for 99.7% of all businesses in the U.S. and employing nearly half of the private-sector workforce. But running an SMB is no small feat. With limited resources and leaner teams, SMB owners and leaders often wear many hats, juggling everything from sales and marketing to operations and HR.
When it comes to human capital management (HCM), in particular, many SMBs struggle to give it the attention it deserves. After all, HR responsibilities like payroll, benefits, compliance, and talent management can quickly eat up time and resources. But having a strong HCM strategy is crucial for the success and growth of any business, regardless of size.
Fortunately, with the right approach and tools, SMBs can develop an effective and efficient HCM strategy that sets them up for success. Here's what you need to know.
Human capital management (HCM) refers to the set of practices and processes that a company uses to recruit, manage, develop, and optimize its workforce. HCM includes a wide range of HR functions, such as:
At its core, HCM is about treating employees as assets that contribute to the success of the business. When done right, HCM can help SMBs attract and retain top talent, boost employee engagement and productivity, and drive business outcomes.
However, many SMBs struggle with HCM due to limited resources, lack of HR expertise, and competing priorities. In fact, a study by ADP found that 70% of small businesses handle HR tasks themselves, rather than outsourcing or using HR software. This can lead to inefficiencies, compliance risks, and missed opportunities to support and engage employees.
The good news is that there are strategies and solutions that can help SMBs overcome these challenges and excel at HCM. Here are some key considerations.
One of the biggest mistakes that SMBs make with HCM is treating it as an administrative function separate from the overall business strategy. In reality, HCM should be closely aligned with the company's goals, culture, and values.
Start by clearly defining your business objectives and identifying the workforce capabilities you need to achieve them. Then, develop an HCM strategy that supports those objectives and capabilities. For example:
By aligning HCM with your business strategy, you can ensure that your workforce is prepared and motivated to execute on your company's priorities.
Another way that SMBs can improve their HCM is by leveraging technology to automate and streamline HR processes. HR software, also known as HCM platforms or HRIS (human resource information systems), can help SMBs manage everything from payroll and benefits to time tracking and performance management.
The right HR technology can provide several benefits for SMBs:
Time and cost savings: By automating manual tasks and paperwork, HR software can reduce the time and cost of managing HR. For example, a study by Nucleus Research found that companies that use an HCM platform can reduce HR labor costs by an average of 22%.
Improved accuracy and compliance: HR software can help ensure that payroll, taxes, and other HR tasks are completed accurately and in compliance with labor laws and regulations. This can reduce the risk of costly errors and penalties.
Enhanced employee experience: Many HCM platforms offer self-service portals that allow employees to access their pay stubs, benefits information, and other HR documents online. This can improve transparency, convenience, and engagement for employees.
Better data and analytics: HR software can provide valuable data and insights on workforce metrics such as turnover, absenteeism, and performance. This can help SMBs make more informed decisions about their HCM strategy.
When choosing an HR technology solution, SMBs should look for a platform that is scalable, user-friendly, and designed for their specific needs and budget. Many HCM providers offer solutions tailored for SMBs, with features like payroll processing, time tracking, benefits administration, and performance management.
Beyond the administrative aspects of HCM, SMBs should also prioritize employee engagement and development. Engaged employees are more productive, motivated, and likely to stay with the company long-term. In fact, a study by Gallup found that companies with highly engaged employees are 21% more profitable than those with low engagement.
To boost employee engagement, SMBs can:
SMBs should also make employee development a priority, even with limited resources. This can include:
By investing in employee development, SMBs can build a more skilled, engaged, and loyal workforce that is prepared to take on new challenges and drive the business forward.
For many SMBs, managing HCM in-house can be challenging, especially as the business grows and becomes more complex. Partnering with a trusted HCM provider can be a smart solution that allows SMBs to focus on their core business while ensuring that their HR needs are met.
An HCM provider can offer a range of services, such as:
When choosing an HCM provider, SMBs should look for a partner that understands their unique needs and challenges. Some factors to consider include:
Industry expertise: Look for a provider that has experience working with businesses in your industry and can offer tailored solutions and best practices.
Scalability: Choose a provider that can grow with your business and adapt to changing needs over time.
Integration: Ensure that the provider's technology can integrate with your existing systems and workflows.
Customer support: Look for a provider that offers responsive, knowledgeable, and accessible customer support.
Security and compliance: Choose a provider that prioritizes data security and stays up-to-date with changing labor laws and regulations.
By partnering with an HCM provider, SMBs can gain access to expertise, technology, and resources that might otherwise be out of reach. This can help them streamline HR processes, reduce costs, and improve employee engagement and retention.
For small and medium-sized businesses, human capital management is a critical function that can have a big impact on the bottom line. By aligning HCM with business strategy, leveraging technology, focusing on employee engagement and development, and partnering with trusted providers, SMBs can create an HCM strategy that drives success.
Here are some key takeaways for SMBs looking to improve their HCM:
With the right approach to HCM, SMBs can attract and retain top talent, boost productivity and engagement, and achieve their business objectives. By investing in their workforce, SMBs can lay the foundation for long-term success and growth.
Ready to elevate your HR strategy? Discover how the right HCM approach can help your small business achieve big success.