Why Companies Do Not Need an HR Department
What they need is HR capability—and the courage to redesign the system that never worked.
On her first day as an HR executive at a high-growth startup, Rachel was handed a thick binder titled Policies & Procedures. The CEO smiled and said, “Everything you need is in here. Just make sure we stay compliant.” Within six months, Rachel had inherited a broken performance review process, a toxic manager protected by senior leadership, and a revolving door of talented employees quietly exiting through back channels. Her job wasn’t to lead transformation. It was to “keep things under control.” She didn’t stay.
This story is not rare. It is the design.
We’ve been conditioned to believe that every company, once it reaches a certain size, must establish a formal Human Resources department. But the assumption is flawed. Not only does this default structure often fail to solve core business challenges—it frequently makes them worse.
Companies don’t need HR departments.
They need HR capability—and that’s not the same thing.
The Myth of the HR Department
The rise of the HR department as a functional silo was never about strategy. It was about containment. In the 1990s, Dave Ulrich's Human Resource Champions offered a compelling, rational model for a profession searching for legitimacy. His framework split HR into Business Partners, Centers of Expertise (COEs), and Shared Services, each with distinct roles, clear reporting lines, and an emphasis on alignment (Ulrich, 1997). It made HR look more like operations—and less like a liability.
But while Ulrich’s model gave HR a structure, it also stripped it of centralized authority. It taught practitioners to “align with the business” without ever asking if the business was aligned with its people. Over time, HR became a relay function—passing information between executives and employees, mediating instead of owning, facilitating instead of leading.
And it worked… on paper.
In reality, the model created silos. COEs became policy factories. HRBPs turned into glorified customer service agents. Shared Services became the email address no one wanted to copy. HR, in many organizations, stopped being a strategic driver—and became a compliance enforcer.
This wasn’t evolution. It was a regression dressed as professionalism.
What Companies Actually Need: HR Capability
Let’s be clear: companies do need the functions traditionally held by HR. Hiring. Onboarding. Performance systems. Compensation. Culture design. Retention strategies. But those functions don’t require a department. They require capability—and ownership.
Ownership means:
Leaders who understand how to build high-trust, high-performance teams.
Systems that integrate accountability into the flow of work, not just at annual review time.
A structure where the people strategy is designed with operations—not around it.
A direct line between talent decisions and business outcomes.
That doesn’t always mean hiring a full-time CHRO. In fact, for many companies, especially startups and mid-sized firms, a traditional HR department is overbuilt and underperforming. They don't need HR generalists ticking boxes—they need a fractional CHRO or an organizational architect who can redesign the system under pressure.
Case Study: The Overengineered Disaster
A Series C tech startup in Toronto had scaled to 250 employees. It hired a Director of People to “build HR” from the ground up. Within a year, she had implemented a 42-page handbook, rolled out a five-point rating system for quarterly reviews, and launched a new internal grievance process. None of it worked. Why?
Because the actual problems weren’t procedural—they were structural.
The executive team couldn’t articulate a unified leadership philosophy.
Managers had never been trained to give direct feedback or set expectations.
Burnout was normalized because the company celebrated “grit” instead of balance.
Employees weren’t quitting because they lacked perks or policies. They were quitting because no one owned the people system.
And despite a six-figure HR budget, the company still had no capability to solve what mattered: performance under pressure, retention of top talent, and systemic trust.
HR Departments Don’t Fix Culture—Leadership Does
SHRM has long advocated for HR departments as the custodians of culture, often tying this role to certification, policy knowledge, and “best practices.” But culture doesn’t live in policies—it lives in leadership behavior. And no amount of HR process can compensate for cowardice at the top.
In fact, many HR departments become buffers that shield executive dysfunction from consequence. They conduct exit interviews they never escalate. They mediate toxic managers instead of removing them. They build elaborate frameworks for “engagement” that disguise deep cultural fatigue.
This is why high-performing organizations often embed HR capability directly into the business—not as a separate entity, but as a distributed, shared responsibility.
The most effective CHROs don’t just run departments. They restructure power.
And that can’t be outsourced to policy specialists.
The Startup Trap: Hiring HR Too Early
In early-stage startups, founders often bring on an HR professional as soon as they feel overwhelmed. The intent is good: “We need someone to handle people stuff.”
But the result?
They hire someone too junior, give them no budget or strategic access, and expect them to fix everything broken about communication, performance, morale, and retention—without authority.
That’s not HR. That’s a scapegoat.
What these companies need instead is a Fractional CHRO, a culture strategist, or a systems thinker who can ask:
How are decisions made here?
Where does accountability break down?
What kind of leadership is this organization designed to support?
Where are we rewarding performance—and where are we protecting incompetence?
Once those questions are answered, only then does it make sense to operationalize HR—and only at the level the system can absorb.
The Ulrich Model Doesn’t Scale to Modern Complexity
Let’s not mince words. The Ulrich model served its time. But we’re not in 1997 anymore.
Today’s teams are remote, hybrid, and distributed.
Trust has become a currency more valuable than titles.
Employees expect leadership—not hierarchy.
And the speed at which companies must now operate demands fluidity, not function boxes. The Ulrich structure—HRBP, COE, Shared Services—was built for stability, not disruption. It was designed to manage liability, not lead transformation.
And SHRM? It codified this structure as dogma. Entire generations of HR leaders were taught that strategic HR means invisible HR. That the best way to lead was to “align quietly.” That influence comes through process, not power.
We’re now paying the price for that obedience.
What Comes Next: Capability Without the Department
What companies need is a new operating system for people strategy. One that:
Designs for pressure, not just process.
Centralizes authority where decisions matter, not where liability gets pushed.
Embeds trust, not just compliance, into team systems.
And most importantly, trains leaders to lead, not just to avoid risk.
This is the foundation of the HR Power Model™—a structural alternative to legacy frameworks that puts capability before form. It doesn’t start with roles. It starts with outcomes:
Is your organization retaining high performers?
Do your managers build or break trust?
Are your systems reinforcing clarity—or hiding dysfunction?
If you can’t answer those with confidence, adding more HR headcount won’t fix it.
You don’t need an HR department.
You need HR ownership.
Final Thought: Stop Hiring for Coverage. Start Building for Power.
It’s easy to fall into the trap of adding a department because it feels safe. Because it’s what “mature companies” do. But ask yourself:
Does your HR structure produce clarity or confusion?
Do your HR processes drive accountability or protect status quo?
Does your team trust the system—or work around it?
The future of organizational design will not be shaped by departments. It will be shaped by capabilities embedded in every leader, every decision, every system.
And that starts when you stop treating HR like a function to contain—and start treating it like the engine of performance it was always meant to be.
James Woods is a leadership strategist and the creator of the HR Power Model™. For over 26 years across 51 countries, he’s helped organizations redesign their systems for pressure, performance, and trust.