HR Administration Is No Longer Enough!
How to Build Strategic HR in SMEs
In Hungary, HR in most small businesses is still perceived as an operational “personnel administration” function. However, research examining 2,094 organizations across the V4 countries clearly shows that where HR is treated as a strategic issue, employee turnover is lower, growth is more stable, and productivity is higher. Today, the question is no longer whether an SME needs HR, but how HR can take on a strategic role.
When Does HR Become a Strategic Issue in a Small Business?
Based on both domestic and international experience, several typical turning points can be identified where HR can no longer remain a purely administrative support function.
Around 20–30 employees, the phase where “everyone knows everything” and informal communication is sufficient begins to break down. At this point, the first serious information gaps and misunderstandings appear, and the owner spends increasing time managing conflicts and firefighting.
Between 30–50 employees, turnover, burnout, and managerial overload become visible. The organization already operates as a mid-sized company, while HR issues are still often handled as if it were a “big family” — without formalized processes, roles, or tools.
International SME research shows that companies introducing basic strategic HR practices — structured recruitment and selection, standardized onboarding, and regular performance and development discussions — achieve significantly better retention and productivity in the long term. Their innovation performance is also higher.
In connection with the mentioned project, the characteristics, challenges, and potential development directions of five different HR areas were examined and discussed within the framework of the program.
The V4 empirical research highlights that the three most important HR areas in the region are:
- hiring and offboarding,
- HR controlling, and
- talent management,
yet in many small businesses these still operate in an ad hoc, non-institutionalized way.
“HR Maturity Mirror” for SMEs – In Three Questions
1.
Is There a Written One-Year HR Plan?
This does not mean a long, formal HR strategy, but a few sentences and concrete numbers linking business goals to human resources. For example:
- reducing turnover from 28% to below 20% within a year,
- halving the number of employees leaving during probation,
- reducing time-to-fill for key roles from 45 days to under 30 days.
Research shows that SMEs working with quantified HR goals achieve more stable headcount planning and higher revenue per employee. They are less likely to resort to panic hiring or forced layoffs and can plan capacity more effectively.
2.
Is Recruitment and Onboarding Standardized?
A critical question is whether hiring and onboarding follow a consistent process, or whether the company “reinvents” it each time.
SMEs with structured hiring and onboarding practices — clear job descriptions, standardized interview questions, simple evaluation forms, and onboarding checklists for the first 5–10 days — see significantly lower early attrition and faster ramp-up of new hires.
In practice, this means fewer hiring mistakes, fewer costly restarts, and less operational burden on managers.
3.
Does the Company Track at Least 4–5 Core HR Metrics?
According to the V4 research, nearly 39% of organizations in the region do not use HR controlling at all — meaning they do not systematically track turnover, absenteeism, headcount, or performance.
At the SME level, this results in decision-making based on intuition: leaders may sense high turnover or increasing overtime, but these signals are not quantified or tracked over time.
At minimum, companies should review the following monthly:
- total turnover and probationary attrition,
- average time-to-fill for key roles,
- absenteeism and overtime levels,
- participation rate in annual performance or development discussions.
Organizations that implement even this basic level of HR controlling can identify problem areas faster (e.g., overloaded managers, underperforming teams, or uncompetitive salary structures) and reduce hidden people-related risks.
About the Project
The Best HR Solutions in V4 Countries project is an international community of business leaders, HR professionals, and academic experts. It explores how scientifically validated HR practices can be translated into everyday business operations to build truly effective and business-driven HR systems. As part of this initiative, an article series addresses key HR areas from both SME and large enterprise perspectives.
Four Practical Steps Toward Strategic HR in SMEs
1. Translate Business Goals into Human Resource Needs
HR becomes a strategic partner when it can translate business objectives into workforce requirements.
At the SME level, this means that every major growth, efficiency, or market expansion goal must include:
- required headcount,
- necessary competencies,
- timing, and
- onboarding and training needs.
For example, a revenue growth plan should not only define percentages but also specify how many salespeople, operators, or support staff are needed — and how quickly they must become productive.
2. Introduce a “Minimum HR Package” with Simple Tools
Research shows that success in SMEs is not driven by complex HR software, but by consistent and repeatable processes.
A realistic “minimum HR package” may include:
- short (1–2 page) job descriptions for key roles,
- a standardized hiring process with core interview questions and evaluation templates,
- a structured onboarding plan for the first 5–10 working days.
International research on high-performance work systems demonstrates that these practices significantly improve productivity, performance per employee, and competitiveness.
3. Integrate HR Data into Monthly Management Meetings
A key aspect of strategic HR is its integration into decision-making.
A practical approach is to include a fixed 10–15 minute HR segment in monthly management meetings, reviewing:
- number of hires and exits, and reasons for leaving,
- time-to-fill and delayed recruitment processes,
- absenteeism and overtime, especially in critical areas.
According to V4 data, only 29.3% of organizations use both operational and strategic HR controlling tools, meaning SMEs have significant potential to gain advantage by incorporating HR data into leadership discussions.
4. Leverage the Strength of SME Closeness
One of the greatest strengths of SMEs is the direct, personal relationship between leaders and employees. When structured properly, this can significantly increase engagement and loyalty.
Recommended practices include:
- at least one annual anonymous engagement or satisfaction survey,
- regular (e.g., quarterly) one-on-one discussions covering performance, workload, development, and future plans.
Research shows that organizations with structured feedback practices can achieve 20–25% higher engagement levels, strongly linked to lower turnover and better business results.
It’s Not About Hiring an HR Specialist — It’s About Changing Strategy
Strategic HR is not a privilege of large corporations. It is a tangible competitive advantage for Hungarian SMEs:
- fewer poor hiring decisions,
- faster onboarding,
- more predictable workforce planning,
- greater innovation capacity.
According to V4 data, many organizations in the region still do not utilize these tools. SMEs that introduce a simple but consistent “minimum HR system” and regularly use HR metrics can gain a clear advantage in the labor market.
In the coming years, the key question will not be who can hire an HR professional, but who can make HR a true strategic driver of their business.
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