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How to develop an HR strategy for small businesses

How to develop an HR strategy for small businesses

You can introduce HR initiatives on the fly and they might be successful, but to really make an impact you need an HR strategy that aligns with your business goals.

In this guide, we’ll explore what an HR strategy is, why you should have one, and how you can create an effective HR strategy — even in the smallest of businesses. We’ll also share some of our go-to HR activities for small businesses, including many that we use at Charlie, to support our HR strategy goals.

What is an HR strategy?

An HR strategy is a plan or roadmap that outlines how you’ll use human resources tactics, activities, and methods to support your goals. The plan covers all areas of HR, including how you handle recruitment, onboarding, performance management, employee experience, pay and benefits, and more.

Your HR strategy should tie into your overall business strategy, so that the work you’re doing enables your “human capital” (your people) to achieve wider business goals. It should set out your HR goals, where you stand now, and what you’ll do to reach your targets.

Why you need an HR strategy

While most business leaders recognise the need for a business plan, developing a human resource strategy can often be an afterthought — especially in a small business. It’s easy to see why you need a plan with thousands of employees, but the rewards exist for new, growing, and intentionally small businesses too.

Being more intentional about how you approach HR and developing an HR strategy can lead to benefits like:

  • Higher levels of employee retention and happiness
  • Competitive advantage in areas like recruitment, company culture, and employee experience
  • Higher levels of employee performance and productivity
  • Better employee engagement
  • More strategic, data-driven decisions in HR and business matters
  • Better use of budgets and resources
  • Streamlined HR management for HR leaders and team members

Strategic human resource management enables better decisions, higher levels of support for employees, and more effective resource and talent management. Investing in HR strategy now gives you a competitive advantage and a strong foundation that’ll help as the business grows.

How to create a small business HR strategy in 7 steps

Big companies can task an entire HR team with developing an HR strategy in great detail. In a small business, time and resources are limited — but luckily, your strategy can also be more streamlined and you can adapt it as you grow.

Here’s how to approach the HR strategy process from a small business perspective.

1. Set your goals

Review your business objectives, goals, and key performance indicators (KPIs) to understand what matters most to the company. Use this to help you identify people-focused goals that align with and support your wider business goals.

For example, if one of your company goals is to attract investor funding, a linked HR goal might be to review pay, benefits, and the recruitment process to make sure you’re attracting talented candidates with the knowledge you need to develop impressive pitches.

2. Evaluate your strengths and weaknesses

There’s always something you’re doing well, and at least one HR function where you could improve. Now is the ideal time to do a SWOT analysis and dive into what your strengths, weaknesses, opportunities, and threats are.

During this process, you might discover that you can attract talent and keep them happy for a while, but employee retention and succession planning is a weakness. Or maybe you notice that your training budget is barely being used. Use what you uncover to help you figure out what you should prioritise within your HR strategy plan.

3. Run a gap analysis

Take a closer look at your employees’ skills, competencies, and attributes to identify how you can better support them. You’ll also discover whether you need to hire to grow the team or train existing employees to better meet business objectives.

A gap analysis is especially helpful in a small business where people may have multiple roles and responsibilities. Understanding what each individual is great at, where they need more support, and what your overall skills gaps are means you can make smarter decisions when it comes to recruitment, retention, and training.

4. Dive into your data

Tap into your people analytics, feedback surveys, and performance reviews to get a fuller picture of your employees’ experience. Pair this with data on recruitment, leavers, training, salaries, annual leave, sickness, and benefits to see what’s happening across the organisation.

Review your data carefully to both uncover individual insights and identify potential trends. If you see that there’s recurring feedback that your onboarding process is lacking, it should be a priority to fix it. Similarly, if data shows that you have high levels of employee sickness, it’s time to investigate why.

This is something you can easily have a look at Charlie’s reports as well. Simply start a free trial now to kick it off. 

Click here to start a free trial and run reports

5. Identify your core HR needs

While it would be great to be able to tackle every aspect of HR at once, it’s just not realistic for most small businesses. Evaluate all your research so far and figure out which HR function(s) need the most attention first.

If your organisation is growth-focused, it makes sense to tackle recruitment, talent management, and pay and benefits as a priority. Having a competitive advantage here allows you to hire the best talent to unlock growth. In other small businesses, your focus may be on company culture, employee experience, or diversity, equity, and inclusion (DEI).

6. Create a strategic HR plan

Once you’ve figured out your main needs and goals, it’s time to turn that into an actionable roadmap that you can work on. Devise a strategic HR plan that outlines the activities and services you’ll provide for employees.

Your strategic HR plan should include your goals, KPIs, budget, expected resources, and a list of planned activities or strategies. Provide as much detail in each area as you can — especially if you’re requesting a budget increase or introducing major changes.

7. Get management and employee buy-in

Any successful HR strategy needs buy-in from stakeholders — this includes both leadership and other employees. In a small business, this often means taking a more personal approach and highlighting the benefits to individuals and the wider team.

To increase the chances of your strategy being successful, involve employees within the process. Send questionnaires to ask for feedback on ideas, or for them to share their thoughts and experiences. You should also make sure the strategy aligns with wider business needs and explicitly state how, so management can quickly identify wins.

7 Examples of effective HR strategy for small businesses

As a small business HR professional you don’t have access to a big HR department or a wild budget for HR activities. While this means you can’t take on every challenge at once, it does give you some extra flexibility to be nimble, experimental, and more personalised with your approach.

What works for big companies doesn’t always support your goals or needs. With that in mind, here are some of our favourite examples of HR services and activities for small businesses — including some that we run here at Charlie.

1. Be intentional with recruitment

Finding (and keeping) top talent isn’t just about writing a simple job advert and listing it online. If hiring is an area you want to improve in, you need to adopt a talent strategy that aligns your core values and company culture with a fair and simple recruitment process.

Our approach to recruitment at Charlie is open and transparent, with lots of focus on our values and desire to be fair, equitable, and diverse. The recruitment process is made up of four steps, each of which is clearly communicated to prospective candidates — promoting transparency and fairness throughout. Take a look at our recruitment policy template for an in-depth look at how we approach recruitment.

2. Create a thorough onboarding process

The onboarding process is one of the best ways to connect with new hires and introduce them to your company culture. However big or small your company is, you can create an impressive employee experience from the start by investing in the way you handle those first days, weeks, and months.

At Charlie, we naturally use our software for our onboarding steps. This includes an automatic reminder of new starters on the homepage — so team members can make their new colleagues feel welcome right away. Small reminders like this can go a long way, especially when you’re working in a remote team.

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3. Train team members

If your gap analysis identified a need to upskill your existing team, it’s time to start putting together plans to make this happen. Investing in training is an ideal way to bring new skills into your organisation without spending money on consultants, and also supports employees’ own personal growth goals.

As well as formal training courses, look for other ways to promote personal development. At Charlie, we have dedicated personal development time which employees are encouraged to take advantage of. This time is ideal for learning or developing skills in areas like communication or productivity, or enhancing talents like design, engineering, or marketing.

4. Embrace flexible working

Traditionally many UK-based small businesses have favoured an in-person approach to working together. But by opening up to remote working and other flexible working options, like part-time or hybrid work, you allow your employees to choose a work environment that suits them best — and get access to the best talent available, with no geographical restrictions.

Flexible working is a core part of how we work at Charlie, as we have a hybrid-first approach. We encourage team members to get together several times a year and work from the office when they want to, but also embrace remote working and nomad working.

5. Use personal development plans

Many small business employees are juggling long to-do lists and may be taking care of more than one role at a time. This means there’s often little time left to consider personal development, however essential it might be. Introducing personal development plans is an effective way to prioritise skill and career growth, so your employees’ ambitions don’t get forgotten.

Here at Charlie, we use personal development plans to encourage our employees to dive deep into their “north star” goal for the year, along with focus areas and action plans to help them get there. Investing in your employee’s long-term careers not only helps you retain top talent, but it enables them to learn, grow, and build their own path for the future.

6. Create a progression framework

Employee retention can be a struggle for small businesses, especially if there’s no clear route forward in terms of career growth. Introducing a progression framework or career progression system can give employees a goal to work towards, so they don’t have to look elsewhere to take that next step up.

We have a progression framework in place at Charlie, and it’s part of our HR strategy that works really well. The framework enables managers and employees to discuss promotions, role progression, and salaries in an open and meaningful way — giving everyone a greater sense of satisfaction and control over their careers.

7. Promote core behaviours

There’s a company culture at every organisation, whether it’s something you’ve intentionally curated or one that’s happened by accident. A great HR strategy to use within a small business is to promote core behaviours and values to support the company’s goals and your overall culture efforts.

At Charlie, we have a series of high performance behaviours that outline what top performance looks like. This gives everyone a clear picture of what to aim for, along with practical steps they can take to demonstrate those behaviours. For example, under our “give energy” category one of the suggested actions includes “finding moments to support others in the business”.

8. Offer budgets for specific purposes

While you may not have the buying power of a large business or multinational company, one way you can support your employees with perks or equipment is by offering specific budgets as benefits for your small business. These can be as small or as generous as you like, and be used for purposes like wellbeing, training, coworking, or personal growth.

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