The HR Tipping Point: When Should Australian SMEs Invest in Human Resources?
In the dynamic landscape of Australian small and medium-sized enterprises (SMEs), growth brings both opportunities and challenges. As businesses expand, managing people effectively becomes more complex and risks rise — especially without structured HR practices in place.
This raises an essential question: When is the right time for SMEs to invest in dedicated Human Resources (HR) support?
Understanding the Growth Journey of SMEs
SMEs are the backbone of the Australian economy. According to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), they account for 97.6% of all Australian businesses, employing around 42% of the workforce (ASBFEO, 2022). These businesses range from sole traders to companies with up to 199 employees, and they face very different challenges as they grow.
As businesses evolve, they typically move through key stages where their internal processes and leadership requirements must shift. One popular model that explains this journey is Greiner’s Growth Model.
Greiner’s Growth Model and Organisational Tipping Points
Greiner (1972) proposed that organisations grow in phases — each marked by a “crisis” that prompts the need for change. These phases are:
- Creativity – driven by founders and innovation
- Direction – formal structures are introduced
- Delegation – authority is decentralised
- Coordination – systems and processes are centralised again
- Collaboration – a move toward more team-based, flexible leadership
- Alliances – external partnerships support expansion
For SMEs, the tipping point often arises during the shift from Direction to Delegation, typically around the 20 to 200 employee mark — when leaders can no longer manage every aspect of the business themselves, including HR responsibilities.
Source: Greiner, L. E. (1972). “Evolution and Revolution as Organizations Grow.” Harvard Business Review, July–August 1972. Available at: https://hbr.org/1972/07/evolution-and-revolution-as-organizations-grow
Why HR Matters — Especially for Growing SMEs
Many Australian SMEs delay hiring HR support, either to keep costs down or due to the belief that HR is only needed once the company is “big enough.” But evidence suggests this delay comes at a cost.
According to SmartCompany, over 60% of Australian SMEs do not invest in formal HR, which leaves them exposed to risks such as:
- Poor onboarding experiences
- Increased employee turnover
- Gaps in award compliance
- Lack of clear performance and conduct frameworks
SmartCompany (2021). “Almost two-thirds of SMEs are not investing in HR — why that’s a mistake.” Available at: https://www.smartcompany.com.au/people-human-resources/almost-two-thirds-of-smes-are-not-investing-in-hr-why-that-is-a-mistake/
The Fair Work Ombudsman has also noted that many SMEs unknowingly breach workplace laws due to inadequate HR processes, particularly in relation to award coverage, casual conversion, and pay obligations.
Fair Work Ombudsman (2023). “Small business.” Available at: https://www.fairwork.gov.au/find-help-for/small-business
What Happens Without HR?
Without a dedicated HR resource — whether internal or external — businesses may face:
- Compliance risks: Failing to meet Fair Work obligations or modern award requirements
- Cultural breakdown: No consistent approach to values, behaviour, or performance
- Manager overload: Directors or team leaders juggling people issues alongside operational demands
- Missed opportunities: Talent development, retention, and succession planning fall through the cracks
While some SMEs outsource parts of their HR function, others operate without any structured support — often until a compliance issue forces them to act reactively.
Help Define the HR Tipping Point: Take the Survey
At HR Excellence Partners, we’re investigating when and why Australian businesses decide to invest in HR.
We’re inviting business owners, managers and employees from organisations with fewer than 250 staff to participate in a short 2 minute survey. Whether you have a full HR team or no HR at all, your voice matters.
Take the HR Tipping Point Survey Now
Your insights will help shape an evidence-based understanding of:
- Who actually manages HR in SMEs today
- What the trigger points are for HR investment
- The impact of HR presence (or absence) on business outcomes
References
- Australian Small Business and Family Enterprise Ombudsman (2022). “Small Business Counts.”
Available at: https://www.asbfeo.gov.au/small-business-statistics-and-research/small-business-counts - Greiner, L. E. (1972). “Evolution and Revolution as Organizations Grow.” Harvard Business Review.
Available at: https://hbr.org/1972/07/evolution-and-revolution-as-organizations-grow - SmartCompany (2021). “Almost two-thirds of SMEs are not investing in HR — why that’s a mistake.”
Available at: https://www.smartcompany.com.au/people-human-resources/almost-two-thirds-of-smes-are-not-investing-in-hr-why-that-is-a-mistake/ - Fair Work Ombudsman (2023). “Small Business Resources.”
Available at: https://www.fairwork.gov.au/find-help-for/small-business
