HR IN MSME S

SUMEET VARGHESE

HR systems & MSMEs:

How many is too many?

or many micro, small and medium scale

industries in the country, one of the critical
issues affecting business sustainability and
growth is clarity on principles and processes
or systems governing the people part of the
business. For a good many MSMEs today, a
prevailing concern is how many HR systems or subsystems they need versus which ones are more suited
or appropriate to the business. While there is no clear
benchmark on the ideal number of HR operations and
systems an MSME should have, a minimalist approach
mandates that any business, no matter the scale of
operations, should have a clear talent philosophy guiding
vital talent management processes like acquisition,
assessment, deployment, development, retention and
leadership. In order to check whether this is the case in
practice, a clutch of MSMEs based in Jaipur representing
various sectors like textile, hospitality and IT were polled
on various talent management parameters considered
critical for any business.

Talent philosophy
As is clear from the table below, a majority of MSMEs
polled understand the central role talent plays in their
business. According to them this principle coupled
with the recognition that business success is clearly
related to talented people joining the enterprise forms
the background people philosophy guiding their talent
management initiatives. What is also interesting is that
MSME owners understand that training and respecting
employee is also just as critical.
100%

100%

Hire keeping in mind the kind of growth my company

will have in the next few years

Employees are our most important resource

33%

Have a Workforce Plan that shows the supply and

demand for present and future talent and skills

Key to Business Success lies in:

33%

Have clearly understood the impact of retirements and

people leaving the business

100%

Finding good employees

100%

Training good employees

100%

Treating them well

Talent acquisition
While it was not possible to ascertain what kind of
operational processes MSMEs in Jaipur have developed
to manage key HR activities like hiring, some interesting
differences relating to the strategies guiding talent
acquisition were quite evident (see table below). For

54

instance, even as the owners claimed that hiring is

conducted keeping the company's growth prospects in
mind, many did not possess a clear workforce plan
reflecting demand and supply for critical skills in the
organization in the present or in the future. Apparently,
this level of strategic resource planning has not hit the
people function yet because the full financial impact of
retirements and attrition has not been studied.
Interestingly, one of the companies that took part in
the survey appeared to have done this math because
it is part of the textile sector and has over 570
employees. The large size of the workforce appeared
to have mandated the retirement and attrition impact
analysis. This does not in any way suggest that firms
with less than 10-20 employees may not find it necessary
to work out the impact of potential talent flowing into
the organization or out of it. In the case of Vishwanet
- a Kolhapur -based MSME that has under 20 employees
on its rolls, not only was future demand and supply of
critical skills worked out, but on the basis of the HR
Vision for the next couple of years (completely derived
from the Annual Business Plan), the owners - Ajay
Kulkarni and Anil Wadikar, had worked out elaborate
KRAs (Key Result Areas) as well for the potential
workforce. Since their business is primarily located in
the IT learning space, they felt this step was necessary
to end the firefighting they found themselves doing
when employees left the organization. Incidentally, the
company has 18 employees.

September 2010

33%

We can attract top talent in the area

33%

Have developed a unique employment brand just like

our business brand to attract talent

100%

Employees we hire do a very good job

67%

New employees who join the company start performing

quickly

Talent acquisition at MSMEs is influenced by one

important factor: the type of growth that the owner
expects to see in the coming years. However, what

www.humancapitalonline.com

HR IN MSMES
seems to be not factored in is the impact of potential
attrition and retirements on the planned growth.
Interestingly there are several other important
factors than talent strategy that challenge the
effectiveness and efficiency of the hiring process. Most
MSMEs that were surveyed confessed they could not
attract top talent in the area because they had not yet
developed a unique employment brand to bring
talented employees to their doorsteps. However, they
were confident the employees they hired were doing
a good job eventually even if they were slow to
contribute performancewise, initially.

Talent assessment
For a majority of the MSMEs assessment of talent went
hand in hand with a good assessment of the job. Almost
all those firms that were surveyed stated that they
were in a position to distinguish the not-so-critical jobs
from the most critical ones. However, most had not
taken the next step of identifying the critical
competencies required to perform the job well. See
table below:
100%

Critical jobs have been identified and prioritized

33%

Competencies for key positions have been identified

67%

Firm has systematic performance review process in

place

100%

Different talent levels based on performance,

contribution and potential

67%

Provide honest and thorough feedback to employees

on performance and behavior issues regularly

Whereas it could not be ascertained from the

companies participating in the survey whether they
had a competency based assessment process in place,
most did confirm that a proper performance review
process was definitely on. Also, thanks to the
performance review process - formal or informal, all
firms had a clear understanding of the difference in
performance and potential among their workforce.
However, not all shared this through regular
performance feedback to employees.

Talent deployment
Despite the level of match the hiring team found
between the talent hired and the most important jobs
in the company, most of the firms that were surveyed
believed they had deployed the best people to the
most critical jobs (67%). However, even as they had a
done a good job of identifying the critical jobs and
placing critical talent on those jobs, only a minority
(33%) claimed they had a sufficient backup of at least
2 qualified people for these critical jobs. Apparently,
replacement planning or plain vanilla succession
planning is still in its infancy for most of the companies.

Talent development
One of the major areas of attention and concern for
the MSMEs in Jaipur is the quantum and quality of
developmental inputs, their employees are receiving.
As the table below illustrates, only 1 out of 3 appear

www.humancapitalonline.com

September 2010

55

HR IN MSME S
to have made real investments in introducing group
or individual focused developmental programs to
upgrade the skills of the employee population. More
importantly, the most important point of contact
between the owner and the employee - the manager
or supervisor, does not get the sufficient training or
coaching to develop those who report to him/her. This
can be a double whammy of sorts for an MSME
especially because in the absence of external training
inputs, companies rely heavily on line managers to
build training competence quickly and in turn, train
others in the organization on critical technical and
behavioral skills. Interestingly, the critical role the
manager plays in directly leading the workforce to
achieve targets, developing his/her juniors and retaining
them, is not lost on the owner. All companies that were
surveyed strongly believe the manager is central to
their scheme of things. However, this belief does not
seem to be translating into any concrete action or
effort to develop the managerial rung. See table below:
33%

Each employee has an individual development plan

33%

Employees are able to develop their skills through

strong developmental programs

33%

Managers are provided resources, training and

coaching to improve employee development skills

100%

Managers and supervisors are directly responsible and

accountable for the performance of their juniors

100%

Managers and supervisors are directly responsible and

accountable for the development and retention of their
juniors

Talent retention
It's an all too common observation that one of the
most vital HR challenge for an MSME pertains to
bringing people in and then ensuring they stay back
long enough to make a contribution to the organization.
Obviously, retention is central to an MSME just as it is
for any kind of organization. While most companies
surveyed felt they were doing a good job in this area,
it was not possible to explore how and why they were
able to retain talent. This is interesting because only 1
out of 3 companies was obtaining regular employee
feedback on issues critical to the employees or having
retention discussions with employees or even exploring
the possibility of placing talented and competent
employees in positions they had expressed interest in.
Apparently one of the most fundamental principles of
the competency movement that competence does not
equal qualification and that qualification need not be
a basis for assessing competence does not seem to find
active favor with these companies. This is ironical
because in a large number of cases, the owner or
entrepreneur globally is most likely to be the least
qualified for future jobs in the company including that
of his/her own. As they acquire scale and complexity
organizations lose sight of the original competence
that founded and built the organization and increasingly
begin to focus on qualifications and other background
details that may have little relevance for the job. It may

56

September 2010

www.humancapitalonline.com

HR IN MSMES
be strange but true that if the best hiring teams from
Microsoft, Reliance Industries or Apple were to descend
down on a pool of potential CEO candidates comprising
their founders in disguise today - Bill Gates, Dhirubhai
Ambani and Steve Jobs, they will most likely reject
their disguised owners on qualification grounds. MSME
owners are in a better position to understand this truth
and can certainly make a difference especially when
competent employees show the potential to do jobs
that they don't have a degree/diploma in. In fact, there
are MSMEs in the country that believe in this principle
and actively promote it. This author, in an earlier article,
documented the case of an office boy becoming the
head of the department at an MSME in Nashik. Of
course, this does not in any way mean qualifications
are of no use. But in a market where qualifications are
priced, sometimes more than competence, there is
very less elbow room for wage negotiations.
Retention, incidentally, is more than placing talent
employees in positions of their choice. Typically, there
are several other points of employee dissatisfaction as
well. As the above table shows, for many MSMEs in
Jaipur, employee satisfaction and engagement data is
regularly collected. While this is a welcome move it
does not appear that the exercise necessarily translates
into some strong program aimed at improving the
workplace environment or the employee experience.
Moreover, with little flexibility on the compensation
and benefits front, talented employees are likely to give
their employers the heat.

www.humancapitalonline.com

33%

Obtain employee feedback on critical issues regularly

67%

Regularly collect employee satisfaction and

engagement data

33%

Flexible in placing talented people in positions they are

interested in and for which they are competent even if
they are not qualified for it

67%

We are able to retain our best people

33%

have frequent retention discussions with key

employees

33%

Strong programs are in place to improve the workplace

environment and employee experience

None

Have a flexible compensation and benefits system

where differential rewards and opportunities are made
available to top talent and for critical jobs

MSMEs across India are more likely to vary than

resemble each other in their HR philosophy and
practices. While this may be a function of the owner's
own orientation to HR , the business the MSME is in,
scale of operations, location of the enterprise - to
name just a few factors out of the many, there is no
denying the fact that in a talent economy, most
MSMEs do recognize the centrality of talent in the
scheme of things. While this does shape their talent
philosophy or people outlook, our analysis shows,
recognition and respect though critical need to take
the form of some basic HR processes in areas like
talent acquisition, assessment, deployment,
HC
development and retention.
Sumeet Varghese is an independent management consultant.

September 2010

57