In the dynamic phases of startup and scaleup growth, Human Resources (HR) plays a crucial role in shaping and guiding the business. However, the HR leadership required during these stages is not the same as that needed to manage traditional, day-to-day operations in a more stable environment. A common mistake is assuming that a successful HR leader in a conventional setting can seamlessly transition to leading HR in a startup or scaleup. In reality, while an HR leader experienced in driving startup or scaleup growth can later manage conventional HR operations, the reverse is seldom true.

This is because startups and scaleups demand a distinct set of HR skills and strategic insights. It requires a thorough understanding of corporate performance, cultural dynamics, institutional development, and phased business planning—areas that extend far beyond the scope of traditional HR management.

In this series of articles, I’ll focus on the specific skills and strategic approaches required for HR leaders in startups and scaleups. I will break down these complexities into digestible parts, avoiding conventional HR topics, and instead focusing on institutional analysis and strategy. This first article will examine different institutional stages and the types of HR typically seen at each level, providing a foundation for developing a tailored HR strategy as your business grows. More will follow in the weeks to come, so stay tuned

Institutionalisation levels

Company development occurs across two key dimensions: growth in size and institutionalisation evolution. From inception to maturity, businesses undergo various stages. This will lead to one of two types of institutionalisations, either one that is lenient towards “Hierarchy & stability” or towards “Agility & Networks”. There is no right or wrong. Each of institutionalisation types have their pros and cons. It is important to understand those two types, as the nature of industry, business and competitive environment will be hugely impacted those two types. Accordingly, it is important as executive leaders to understand them, and consciously define if it is the way forward, they need to continue working or there is a need for change and restructuring.

Those types of institutional structures are essential for effective building of HR strategy and defining the way the HR functions will operate in day-to day operation, in the relations with the stakeholders and business functions, as well as defining how compliance will develop as a "one-size-fits-all" approach does not work across different stages of company development.

Attitude-Driven Stage (1 – 50/70 Employees)

In the early stages of a startup, typically with 0 to 50 or 70 employees, the founder's attitude dominates the organisation. Decisions, actions, and the general approach to work are heavily influenced by the founder's personal values and leadership style. This stage is largely informal, where personal influence overshadows formal rules, and employees adapt based on the founder’s behaviour and expectations.

Culture Development Stage (50–200 Employees)

As the company grows beyond 50 employees and up to around 200, the founder is no longer omnipresent, and the need for an organisational culture becomes apparent. A culture is a set of shared norms and implicit assumptions about how things are done, shaping employee behaviour even when the founder is not directly involved. Often, this culture reflects the founder's original attitudes. For example, if the founder values trust and prioritises customer satisfaction, these values will permeate the company culture, guiding employees' actions and decision-making processes. Culture at this stage is critical for reducing complexity and maintaining cohesion without needing exhaustive rules.

Role and Structure Evolvement (200+ Employees)

Once the company exceeds 200 employees, culture alone is insufficient to manage the growing complexity. Clear roles, responsibilities, and organisational structures become necessary. This stage marks the emergence of formalised processes and systems that define who is responsible for what and how tasks should be carried out. As functional departments emerge, the delegation of power becomes crucial. Even routine matters, such as travel policies, need formal guidelines—such as who can go for a business travel, whether an employee should fly business or economy, how much they can spend on meals, car rent, etc. These structures not only streamline operations but also ensure consistency, reduce uncertainty, and provide clarity across the organisation.

Strategic Management Systems Stage (Large Organisations)

In more the organisation grow and mature, especially those with today’s competitive advantages, the need for strategic management systems becomes paramount. Beyond attitudes, cultures, and roles, large-scale systems such as Customer Relationship Management (CRM), Supply Chain Management (SCM), Human Resource Information Systems (HRIS), and financial systems come into play. These systems handle vast amounts of data and coordinate complex processes, providing the necessary infrastructure for efficient, scalable operations. Strategic systems help integrate and align various functions, supporting long-term growth and enabling the organisation to compete effectively in the marketplace.

Types of Institutionalisations

The previous section outlined the levels of institutionalisation within an organisation, illustrating how businesses progress through various stages of development. Now, we turn to the types of institutionalisations, which can be visualised as a spectrum, or hemispheres, representing two opposing organisational tendencies. These hemispheres reflect how companies operate in terms of decision-making, responsibility, and structure. For simplicity, we will explore the two extreme ends of this spectrum.

Hierarchy and Stability

On one end of the spectrum is the "Hierarchy and Stability" model. In this approach, decision-making authority and responsibilities are concentrated at the top management level with clear divisions of functional responsibilities and well-defined roles. Organisations that lean towards this hemisphere often feature strong hierarchical structures with clearly defined roles and responsibilities. Functional silos are common, with distinct divisions of labour and control. The focus here is on maintaining stability, ensuring consistency, and reducing ambiguity through well-established rules and procedures where authority and accountability reside primarily with senior leaders.

Agility and Networks

At the opposite end of the spectrum is the "Agility and Networks" model. In this approach, responsibility is decentralised and shared across networks of employees or teams. Instead of being confined to a rigid hierarchy, decision-making is distributed, and accountability is collective. The focus is on flexibility, innovation, and empowering individuals. People are enabled to take initiative and ownership, with structures designed to support collaboration rather than enforcing strict, top-down controls.

Application in a Business Context

To better understand these two institutional hemispheres, let's apply them in a practical business context, using the example of business travel policies. This will provide a visual representation of how these differing approaches manifest in real-life organisational settings.

Agility and Networks: A Decentralised Approach

In companies that operate under the "Agility and Networks" model, travel policies may be flexible, with minimal rigid guidelines. Employees are trusted to act in the company's best interest when making travel decisions. For example, if an employee feels that booking a first-class flight is justified under certain circumstances, they are empowered to make that decision without seeking prior approval, as long as they can justify it as being beneficial and for the best interest of the company.

However, this autonomy comes with transparency. The company may publish all travel expenses against the overall business budget with graphs, charts and comparisons on an internal platform (Intranet), allowing everyone to see how much was spent by each employee. This creates a culture of accountability, where employees are encouraged to act responsibly, knowing that their decisions will be publicly visible. Here, trust and shared responsibility are key, and the organisational structures are designed to enable employees to make decisions while remaining accountable to their peers.

Hierarchy and Stability: A Centralised Approach

In contrast, companies that lean towards the "Hierarchy and Stability" model will have far more rigid and defined travel policies. For instance, the policy might specify the class of travel based on the employee's grade and the length of the flight. Any deviations from this set policy—such as an upgrade to business class or exceeding the allocated travel budget—would require approval from the employee's direct manager, CEO, or even the Executive Leadership Team (ELT).

In this model, decision-making authority is centralised. The upper management has the final say on matters like travel expenses, and employees must follow established protocols. This creates a stable, predictable environment where roles and responsibilities are clearly delineated, and authority rests with those in leadership positions. The focus is on control and maintaining order within the organisation.

Comparing the Two Approaches

These two ends of the institutional spectrum illustrate a fundamental difference in how companies are structured and managed. Organisations focused on Hierarchy and Stability tend to value control, order, and consistency, with decision-making power concentrated at the top. In contrast, companies that prioritise Agility and Networks promote shared responsibility, decentralisation, and flexibility, empowering employees to make decisions within a networked framework.

While both approaches have their merits, the choice between them depends on multiple factors, such as the organisation's size, industry, growth stage, and competitive environment. Some organisations may benefit from the stability and control offered by a hierarchical approach, while others may thrive on the flexibility and innovation enabled by a more agile, decentralised model.

In subsequent sections, we will delve deeper into the structural and cultural contexts within organisations to explore how these two approaches can be applied effectively, and which factors influence the optimal choice for a given business.

Following the discussion on levels of institutionalisation and the opposing types of institutionalisations, we now turn to the types of HR in this context. Just as organisations vary in their approach to decision-making and structure, they also differ in how they approach human resources, depending on their level of institutionalisation. To better understand these differences, let's explore three key HR types that align with different stages of institutional growth.

Low Level of Institutionalisation: "Hire & Pay" (Left Side of the Triangle)

At the earliest stage of institutionalisation, HR is primarily concerned with the most basic functions: hiring and paying employees. This stage, represented on the left side of the triangle, is typical of young, small organisations that have little to no formal HR structure. Here, HR is almost non-existent—there may not even be an official HR department.

In this context, hiring is often done in an ad hoc manner, with little consistency or formalised processes. Each recruitment might look entirely different from the last, and there are no standardised systems for performance appraisal, employee development, or succession planning. Compensation is similarly unstructured, with salaries being the only consistent HR-related function. The company may not have implemented even basic Human Resource Management Systems (HRMS), and the term "HR" might not even be used internally. This phase represents the lowest level of HR institutionalisation, where the organisation has yet to develop formal HR processes or systems.

Central Planning & Control (Right Side of the Triangle)

As the organisation grows and begins to institutionalise, it may move toward a more hierarchical approach, which is represented on the right side of the triangle. In this phase, HR operates under a model of central planning and control. This is often found in organisations that value stability, consistency, and predictability, and the HR function is firmly rooted in centralised authority.

In this model, the HR department is responsible for all aspects of employee management, from recruitment to development and retention. If you were to ask who is in charge of hiring, learning and development, or identifying high-potential employees, the answer would be clear: the HR department. HR in this context acts as the gatekeeper of all people-related processes, maintaining strong oversight over recruitment, career progression, and employee development.

For example, a talented employee in this system would be identified by HR and high-level management as a "high potential." They would then be guided through a pre-defined career path with specific steps, training programs, and developmental goals determined by HR. Recruitment functions similarly—when a department needs to hire, HR takes complete ownership of the process, from gathering requirements to screening and selecting candidates. The business function plays a secondary role, checking in for progress updates. While this is an extreme view, many organisations still operate with a centralised, hierarchical HR function, where authority and responsibility rest primarily with HR rather than being shared across the organisation.

People-Centered Enablement (Bottom Right of the Triangle)

On the opposite end of the HR spectrum, aligned with agility and networks, is the People-Centered Enablement approach, located at the bottom right of the triangle. This model decentralises responsibility, empowering employees and managers to take ownership of most HR-related tasks. Rather than HR serving as the central authority, people within the organisation—employees, teams, and business functions—are responsible for much of their own learning, development, recruitment, and retention efforts.

In this system, if you asked who is responsible for identifying high-potential employees or hiring new staff, the answer would be the employees and their managers, not HR. HR’s role here is more supportive; it provides resources, guidance, and systems, but it does not control or own the process. For instance, a talented employee would approach HR themselves, stating their ambitions and desire for development. HR would encourage this initiative, providing support and resources, but the responsibility for driving development rests with the employee. The organisation views career development not as an elevator, where HR carries you upward, but as a stairway, where the employee must take each step themselves, with HR offering guidance along the way.

Similarly, in recruitment, the business function takes the lead in identifying and hiring the right candidates. HR supports the process but does not take full ownership. For example, if a team needs five new software developers, it is the responsibility of that team to find and recruit them. HR provides advice on best practices, but the business unit is in charge. This model reflects a strong belief in decentralisation, where the business, rather than HR, is primarily accountable for people-related outcomes. HR's focus is on enabling the business to perform these tasks effectively, providing support, systems, and oversight where needed, but not controlling the process.

Conclusion

In summary, the three types of HR—Hire & Pay, Central Planning & Control, and People-Centered Enablement—correspond to different levels of institutionalisation within an organisation. Each approach comes with its own strengths and challenges, and the choice of which to adopt depends on the organisation's size, maturity, and strategic objectives.

As HR evolves from the basic "Hire & Pay" model to more sophisticated systems of centralised or decentralised responsibility, organisations must carefully consider their specific needs. Building an effective HR strategy is critical for business success, but it cannot be a one-size-fits-all approach. HR strategy must be aligned with the organisation's institutionalisation level, structural framework, and cultural context. Only then can it support the business in achieving its short-, medium-, and long-term objectives.

In the next parts of this series of articles, we will explore how HR can align its strategic topics and operational plans with the business's goals, taking into account the company's structural and cultural dynamics. Operational design will encompass processes, systems, responsibilities, KPIs, and technology, ensuring HR’s role is fully integrated into the organisation’s strategic trajectory.

Following the discussion on levels of institutionalisation and the opposing types of institutionalisations, we now turn to the types of HR in this context. Just as organisations vary in their approach to decision-making and structure, they also differ in how they approach human resources, depending on their level of institutionalisation. To better understand these differences, let's explore three key HR types that align with different stages of institutional growth.

Low Level of Institutionalisation: "Hire & Pay" (Left Side of the Triangle)

At the earliest stage of institutionalisation, HR is primarily concerned with the most basic functions: hiring and paying employees. This stage, represented on the left side of the triangle, is typical of young, small organisations that have little to no formal HR structure. Here, HR is almost non-existent—there may not even be an official HR department.

In this context, hiring is often done in an ad hoc manner, with little consistency or formalised processes. Each recruitment might look entirely different from the last, and there are no standardised systems for performance appraisal, employee development, or succession planning. Compensation is similarly unstructured, with salaries being the only consistent HR-related function. The company may not have implemented even basic Human Resource Management Systems (HRMS), and the term "HR" might not even be used internally. This phase represents the lowest level of HR institutionalisation, where the organisation has yet to develop formal HR processes or systems.

Central Planning & Control (Right Side of the Triangle)

As the organisation grows and begins to institutionalise, it may move toward a more hierarchical approach, which is represented on the right side of the triangle. In this phase, HR operates under a model of central planning and control. This is often found in organisations that value stability, consistency, and predictability, and the HR function is firmly rooted in centralised authority.

In this model, the HR department is responsible for all aspects of employee management, from recruitment to development and retention. If you were to ask who is in charge of hiring, learning and development, or identifying high-potential employees, the answer would be clear: the HR department. HR in this context acts as the gatekeeper of all people-related processes, maintaining strong oversight over recruitment, career progression, and employee development.

For example, a talented employee in this system would be identified by HR and high-level management as a "high potential." They would then be guided through a pre-defined career path with specific steps, training programs, and developmental goals determined by HR. Recruitment functions similarly—when a department needs to hire, HR takes complete ownership of the process, from gathering requirements to screening and selecting candidates. The business function plays a secondary role, checking in for progress updates. While this is an extreme view, many organisations still operate with a centralised, hierarchical HR function, where authority and responsibility rest primarily with HR rather than being shared across the organisation.

People-Centered Enablement (Bottom Right of the Triangle)

On the opposite end of the HR spectrum, aligned with agility and networks, is the People-Centered Enablement approach, located at the bottom right of the triangle. This model decentralises responsibility, empowering employees and managers to take ownership of most HR-related tasks. Rather than HR serving as the central authority, people within the organisation—employees, teams, and business functions—are responsible for much of their own learning, development, recruitment, and retention efforts.

In this system, if you asked who is responsible for identifying high-potential employees or hiring new staff, the answer would be the employees and their managers, not HR. HR’s role here is more supportive; it provides resources, guidance, and systems, but it does not control or own the process. For instance, a talented employee would approach HR themselves, stating their ambitions and desire for development. HR would encourage this initiative, providing support and resources, but the responsibility for driving development rests with the employee. The organisation views career development not as an elevator, where HR carries you upward, but as a stairway, where the employee must take each step themselves, with HR offering guidance along the way.

Similarly, in recruitment, the business function takes the lead in identifying and hiring the right candidates. HR supports the process but does not take full ownership. For example, if a team needs five new software developers, it is the responsibility of that team to find and recruit them. HR provides advice on best practices, but the business unit is in charge. This model reflects a strong belief in decentralisation, where the business, rather than HR, is primarily accountable for people-related outcomes. HR's focus is on enabling the business to perform these tasks effectively, providing support, systems, and oversight where needed, but not controlling the process.

Conclusion

In summary, the three types of HR—Hire & Pay, Central Planning & Control, and People-Centered Enablement—correspond to different levels of institutionalisation within an organisation. Each approach comes with its own strengths and challenges, and the choice of which to adopt depends on the organisation's size, maturity, and strategic objectives.

As HR evolves from the basic "Hire & Pay" model to more sophisticated systems of centralised or decentralised responsibility, organisations must carefully consider their specific needs. Building an effective HR strategy is critical for business success, but it cannot be a one-size-fits-all approach. HR strategy must be aligned with the organisation's institutionalisation level, structural framework, and cultural context. Only then can it support the business in achieving its short-, medium-, and long-term objectives.

In the next parts of this series of articles, we will explore how HR can align its strategic topics and operational plans with the business's goals, taking into account the company's structural and cultural dynamics. Operational design will encompass processes, systems, responsibilities, KPIs, and technology, ensuring HR’s role is fully integrated into the organisation’s strategic trajectory.

Reference: Armin Trost (2019) 'Human Resources Strategies' of Hochschule Furtwangen University (HFU), Germany