How to Build Efficient and Resilient Organizations in 2023

The last few years have been challenging for start-ups and scale-ups. Securing organizational stability is therefore more important than ever. The HR function plays a crucial role here. In this article, Dr. Martin Beischl, Principal at torq.partners, provides you with five operating principles that equip the department in your business to ensure long-term stability.

Over the past three years, organizations have experienced challenging times. First, the Covid crisis in 2020, which resulted in reduced hours for many employees and the establishment of remote working. Starting the following year, cheap money from central banks led to a hiring boom. In parallel, the ongoing trend of the Great Resignation began, with more and more people questioning their job as well as their relationship with their employer. Then, in 2022, the environment changed again and many companies drastically cut operating costs. The result was mass layoffs, especially in the tech environment. Despite greatly reduced resources, many startups held on to previous ambitious roadmaps – usually at the expense of the employees who remained with the company. Unsurprisingly, many employees in startups and scaleups are currently frustrated and unsettled.

But what does this mean for organizations and the way they scale? And how can robust organizational structures be built? In the following, I have summarized five operating principles for the interaction of HR and business leadership that provide guidance on how to continue to build and develop an efficient and resilient organization in 2023.

1. Create awareness of people and organizational issues

Since more than 80 percent of the costs in a startup are usually related to personnel, it is important that the company management knows what is going on within the workforce. HR reporting, controlling and forecasting as well as people analytics, for example, serve this purpose. To gain data-driven insights in the first place, an awareness among founders and business leaders of the added value generated by adequate use of data is essential. In addition to compiling and analyzing internal data, it is also necessary to compare it with market data. For example, salaries should be compared with external salary benchmarks to attract and retain talent.

However, not only should management be involved in the activities of the HR department, this should also be done vice versa. After all, like all other departments in a company, the HR department pursues economic interests, too. It should be treated accordingly by management. Only if HR is consistently involved can it gain a detailed understanding of the business plan and add the most value to the company. As such, there should not be any distinction between HR and business leadership.

2. Ensure a sustainable and lean organizational structure

During the scaling phase of a company, it makes sense to take a close look at the organizational charts and adjust them according to the company's situation. At the latest when reaching the 100-employee mark, an organization should hire a hands-on HR lead or Head of People. At the same time, a VP or C-level HR manager should not be hired too early. Appropriate roles require strategic depth, which is usually not available until an organization consists of more than 300 employees. Hiring respective roles too early also runs the risk of creating a pull effect for other levels of management, which can lead to power struggles. To avoid these, it is advisable to keep the company as lean as possible during the scaling phase.?

If one nevertheless makes a VP- or C-level hire, in HR or any other function, it is crucial to clearly define in advance how this level will be differentiated from others, how the organizational chart will change, how many management levels are planned and how they will be named. This is the only way to recruit and retain the managers who are needed. It can also prevent personnel decisions from being made independently of organizational needs and structures from being knitted around a new position retrospectively.

For a clearly defined organizational structure, also the job titles must match the responsibilities and expectations of each role. I firmly believe that titles are not just titles. They are critical to managing the entire organization as it scales. Once titles are assigned, they are difficult to remove and can therefore create legacy issues.

3. Involve HR in key decisions

My experience has shown that difficult decisions in the company can be made better and faster if the people function is involved. It should especially be involved in topics such as layoffs or contingency plans. The department knows the company and can help find wordings that meet with a high level of acceptance among employees.

CEOs and Founders are also well advised to tell HR managers what they talk about in investor updates and what KPIs they pay attention to. This will help HR best align the HR roadmap and key decisions with the company's priorities.

With significant funding pressure in 2023, I believe it is also important for management and founders to prepare their HR teams for due diligence by letting them know early on what issues are relevant for due diligence and removing other issues from the roadmap to ensure there is sufficient bandwidth.

4. Ensure an appropriate HR scaling strategy

In the fast-paced nature of growth companies, operations are usually reactive to events. However, to scale a business well, proactive action should be taken. You need a clear vision and a strategy for how you want to scale in HR. Scaling means creating lean, repeatable processes that run just as efficiently with a 2-person team hiring 30 employees as they do with a 30-person team hiring 200 employees. This allows employees to work in an agile manner and not face scaling issues.

Successful scaling depends on a clear recruiting strategy. As part of the recruitment process, companies need to make sustainable hiring decisions based on their ability to retain talent over the long term. It should be embedded in the HR strategy that employees are given the space to develop in their roles. However, this can only be achieved if a company has managers who can act as mentors and facilitators. Therefore, I recommend anybody to have solid leadership principles and values in place as part of their HR strategy.

In addition, when we talk about the recruiting strategy, it is recommended that HR departments first consider internal specialists and managers. Internal recruiting can be an effective and sustainable way to scale. Not only are internal hires significantly less expensive and faster to implement than external ones, they also give employees the chance to develop and expand their skills. This increases morale and loyalty to the company. In addition, with internal appointments, it is usually clear that the person fits the company culture.

5. Manage HR risks?

One of the biggest challenges for growth companies is the turnover of key employees and high performers. Companies need to develop mechanisms to identify and provide transparency about this risk. Semi-annual performance reviews, development discussions and employee surveys play an important role here. Such measures must go hand in hand with thorough documentation of processes and critical knowledge. This is the only way to ensure that knowledge is preserved and passed on when personnel move around the company or when they leave the company. Especially in hybrid and remote work environments, this is important.?

In addition to attrition, there are other risks in the form of poor performance and quiet quitting. Here I would recommend a two-part approach, one consisting of establishing a performance management framework in which employee performance can be assessed every six months and salary adjusted based on performance. There must be clear guidelines for employees who should be put on a performance improvement plan. Second, an inspiring and motivating employee experience should be created that is knitted around the individual impact of employees and the long-term purpose of the company. Such an approach can increase employee identification with the company and employee retention. At the same time, it can mitigate the risk of retaining underperforming employees.?

There are also risks in recruiting. For example, the difficult talent market in the current tense economic situation means that employees are less willing to change jobs. This risk aversion can be counteracted by active sourcing of candidates and first-class candidate experiences with transparent, personal communication and fast response times.?

Closing advice?

In a business environment that is subject to constant change, organizational resilience is no longer an option. It is critical to the success of any business today. However, building resilience is a difficult endeavor that takes time. The five operating principles listed provide an effective framework for building resilience and can help develop adaptation to change, crisis or disruption in your organization.

About the author

Dr. Martin Beischl is Principal at torq.partners . With his many years of experience in People & Culture, he leads projects on complex HR topics for torq.people. In this way, he helps dynamic companies in fast-moving environments to achieve long-term stability.