Human Resource Management in Small Medium Enterprises Challenges and Practices

Tamgha-e-Imtiaz
Advisor - (NESPAK) Disaster Management Division
(Enterprise of Ministry of Water and Power)

Human Resources in Small Medium Enterprises Road Map

Introduction
What is HRM-an insight purview ?

Significance pf HR in SMEs Role of HR in an organization HR Challenges in SMEs Suggestions to Over come Challenges Conclusion

Introduction
The globalisation, has made business

environments highly dynamic with high risk

and uncertainty. This situation has placed us in a state of bewilderment decreasing our market share and increasing organisational inefficiency. It has pronounced the requirement of a dedicated organizations. approach to HRM in

Introduction
The problem gets compounded with

prevailing economic and law / order situation

making effective HRM rather peremptory.

Pakistani SMEs which are also affected by the recent global economic meltdown get the

multiple crunch due to escalating inflation

and prevailing situation.

Introduction
SMEs form the bulk of our national economy as these:
Contribute a share of 40% in GDP Contribute significantly to our job bank. Represent nearly 90% of total enterprises

Employ 80% of the non-agricultural labour force.

These figures indicate the importance of potential and further growth in this sector Human resources working in SME sector play a vital role in economic growth prejudice to personal growth.

Introduction
SMES do not operate in a secluded arena Subjected to the same challenges as larger companies.

Contemporarily, HR work in SMEs has to

display the same quality and professionalism as in large ones.

SMEs, however cannot afford to operate

large HR departments.

Introduction

Introduction

Human Resource Management The Definition

The design of formal systems in an organization to ensure effective and efficient use of human talent to accomplish organizational goals.

HRM is the organizational function that deals with issues related to people such as compensation, hiring, performance management, organization development, safety, wellness, benefits, employee motivation, communication, administration, and training.

Introduction Human Resource Management The Definition

HRM is also a strategic and comprehensive approach to managing people and the workplace culture and environment. Effective HRM enables employees to contribute effectively and productively to the overall company direction and the accomplishment of the organization's goals and objectives. HRM is moving away from traditional personnel, administration, and transactional roles, which are increasingly outsourced. HRM is now expected to add value to the strategic utilization of employees and that employee programs impact the business in measurable ways. The new role of HRM involves strategic direction and HRM metrics and measurements to demonstrate

Introduction Human Resource Management The Definition

Defined explicitly, HRM is administrative discipline of hiring and developing employees so that they become more valuable to the organization. Human Resource management includes
conducting job analyses, planning personnel needs, and recruitment, selecting the right people for the job, orienting and training, determining and managing wages and salaries,

providing benefits and incentives,

appraising performance, resolving disputes, communicating with all employees at all levels. Formerly called personnel management.

SIGNIFICANCE

Human Resource Management The significance of Function

SMEs tend to wither away in front of big organizations violant policies leaving no choice with small ones but to think smart especially in terms of

element of production the important being the HR.

This is the wisdom cry for SMEs that fail to keep pace with the growth juggernaut.

SIGNIFICANCE

Human Resource Management The significance of Function

Amidst lot of competition within SMEs, it also becomes mandatory to benchmark various processes in order to remain competitive within the marketplace ensuring benefit by staying one step ahead of the game. Human resources are one of the most essential growth element / indicator for these organizations.

Irony remains that growth-hungry large companies are scouring the market for human resources (HR), leaving only crumbs for SMEs who can never outpay the big ones when it comes to salaries / perks.

SIGNIFICANCE

Human Resource Management The significance of Function

Being part of global community Pakistani SMEs
rather require extra efforts to combat the prevailing economic meltdown.

This has forced SMEs to make endeavours to

harness their resources and use these to their

utmost especially their human capital.

SIGNIFICANCE

Human Resource Management The significance of Function

Simple and effective HR support is fundamentally important for all businesses, regardless of size.

This aspect becomes more pronounced in SMEs as every individual in the workforce is important for sustainability.

HRM is required to set the guidelines of how to find, retain, manage and motive every businesses biggest asset; its people.

SIGNIFICANCE

Human Resource Management The significance of Function

HR can and should influence and motivate
SMEs to a much greater degree as it promotes the more accessible face-to-face

interaction lacking in larger businesses.

Proactive and effective HR should bring out the best working skills of each

employee while being aligned with

business goals.

SIGNIFICANCE

Human Resource Management The significance of Function

Attracting the right people is an integral part of building a SME SMEs need to actively attract appropriate people

but often the potential employee will interview

management, in their search for the right job. To the unskilled SME owner, this process is

daunting and one that can not only be time

consuming and expensive, but hold high risk and have long lasting effects for the business.

SIGNIFICANCE

Human Resource Management The significance of Function

SMEs need to understand that effective HR must reach beyond merely attracting quality staff.

It is hard work to retain staff, a conscious

effort must be made to keep the good,

manage the poor and get rid of the bad.

SIGNIFICANCE

Human Resource Management The significance of Function

Retention begins from the day the employee starts to the day they leave The employees tenure is linked to HR strategy being followed. SMEs lacking such defined strategy land up in trouble. Such SMEs all other things often get pushed aside and get nonprofitable.

SIGNIFICANCE

Human Resource Management The significance of Function

Attracting and retaining valuable
employees is especially important for

entrepreneurial firms, since:

The impact of one employee on firm

performance is larger in a small firm

compared to the impact in a large firm

SIGNIFICANCE

Human Resource Management The significance of Function

The role of Human Resources in the SME is to ensure that a company maintains its competitive advantage through its people and leadership process and procedures.
As the HR allocated yearly budget is the top 5 yearly overhead for any company, greater attention is now being placed on the role of Human Resources as a profit centre and source of competitive advantage in the market place.

SIGNIFICANCE

Human Resource Management The significance of Function

Attracting and retaining valuable
employees is especially important for entrepreneurial firms, since: Small firms have less tolerance for inefficiency, Evaluation of intangible assets (such as the value of human capital and knowledge) are becoming increasingly important in assessing the viability of firms and investment decisions

SIGNIFICANCE

Human Resource Management The significance of Function

Role of HR in SMEs

Role of HR in SMEs
The increasing attention on human resource management (HRM) in SMEs is a phenomenon enunciated after the onset of market pressures on these organizations . Our SMEs feature: Presence of the large proportion; Absence of institutionalized and well organized labor market, Absence of a more professional approach to human resource management These characteristics have rather added to deterioration of situation leading to generally short lived life cycles of our SMEs.

Role of HR in SMEs
HR Department / Section (If)
Develops legal, effective interviewing techniques
Trains managers in conducting selection interviews Conducts interviews and testing Sends top three applicants to managers for final review Checks references Does final interviewing and hiring for certain job classifications

Entrepreneur / Managers
Take action or advise HR of job openings Decide whether to do own final interviewing Do final interviewing and hiring where appropriate Review reference information Provide feedback to HR unit on hiring/rejection decisions

Role of HR in SMEs
HR Planning and Analysis
Equal Employment Opportunity Staffing

HR Development
Compensation and Benefits Health, Safety, and Security Employee and Labor/Management Relations

HR CHALLENGES

HR Challenges

SMEs are generally facing economic crunch. This has brought in new promoters in the shape of investors and acquisitions.
Promoter driven enterprise, carries higher stakes.:
Continuously influence the Promoter on the need for organization culture change Manage the agenda for organization culture change.

Often, the values which the Promoter reflects are different from the values that the employee groups reflect.

HR Challenges

Values of Promoters, employees and

those which are essential for business growth are all different ? Create awareness amongst decision makers about the need for change, an

aspect totally missing.

HR Challenges
SMEs interested in hiring competent professionals - difficult proposition ??? Success of such senior professionals depends on how much they are willing to unlearn to fit culturally.

The culture dimension shifting professional driven company professionally driven.

from to

HR has the challenge of attracting professionals and then retaining them by providing a professionally driven organization culture. Inability of SMEs to offer competitive benefits package.

HR Challenges
Bureaucratic structure in SMEs makes easier to implement HR change management programs but leads to fiasco. The values expected from work force are not only professionalism. These envisage; The promotions Recruitment process

loyalty
Trust

HR Challenges
Another challenge which the HR faces is adhering to the agreed policy norms which succumb to

exemption
owners.

from

the

HR Challenges

Economic and Technological Changes are imperatives but offer the challenges like
Shift in jobs for manufacturing and agriculture to service industries and telecommunications. Pressures of global competition causing firms to adapt by lowering costs and increasing productivity a difficult proposition.

Growth of information technology (Internet) options available for buyer.

HR Challenges
Predominantly horizontal structure that one wants to preserve leads to dictorial form of management. The employees are mostly a tight group that communicates informally. That is why the challenge an entrepreneur is faced is directly linked to maintaining the climate of participation unique in a SME. But the prevailing management style thawrts it.

HR Challenges

Despite

the

small
the is less

size

of

the

organization, participation decisions.

employees in operational

The creative, intuitive approach bound to be fruitful in the start-up phase appears to become an obstacle for a number of employees.

HR Challenges
There is a lack of formalization, structure and clarity when thinking of performance, training or reward management in SMEs.

The lack of in place and streamlined HR functions in these organizations come as a

weakness when all the efforts invested in

building a team become fruitless because of high attrition rates.

HR Challenges
Demographics and Diversity has lead to more diversity of race, gender, age, and ethnicity now popping up in our SMEs. Balancing Work, Family and Society has become difficult due to :
Dual-career stamping because of economic situation. Family norms effected by high inflation rates Terrorism and law and order situation

Non responsive societal organizations

HR Challenges
Organizational Restructuring, Mergers, and Acquisitions have led to: Right-sizingeliminating of layers of management, closing facilities, merging with other organizations, and outplacing

workers
HR has to work towards ensuring cultural compatibility in mergers a much needed task lacking in our SMEs.

HR Challenges
HR activities in SMEs are taken as the

prerogative of a few operation managers who

concentrate only on the very administrative issues to ensure smooth operations. Lean organizational structure do not permit hiring senior HR professionals. Complex HR issues cannot be dealt by a general manager who does not have the

expertise in the field to take decisions which

may require an expert human resource professionals experience.

HR Challenges
HR function for entrepreneurs leads to loss of productive time which results in losing interest in HRM. Hence in SMEs, is taken as personnel function.

Since

HR

is
and and

not

revenue
people HR in

generator, it is never given its due importance practices Cost is a hence innovative deterrent

practices take a back seat. major introducing many HR practices .

HR Challenges
The growth imperatives necessitate

healthy HR practices.
Recruitment is a major challenge because of the huge demand and

competitive compensation packages

in the industry. the biggest challenge for small firms is to balance between formal and informal management practices to be able to compete effectively in the marketplace

Some key features of SMEs (HRM Context)

Resource Constraint
Dependence on large firms:
less power lower profits higher risks more labour exploitation With companies growth 'leadership crisis' requires formalization and professionalization

Some key features of SMEs (HRM Context)

Managers make more of an impact in
SMEs than in large organisations Employees often seem surprisingly loyal even when conditions are rather poor SMEs try to follow the footstep of larger organizations

Some key features of SMEs (HRM Context)

External environments effect the
overall performance instantly Generally a family venture Mostly untrained management

Some key features of SMEs (HRM Context)

Profiteering preferred over professionalism
Environment of job insecurity generally prevails HRM is informal, intuitive and ad hoc. From all these arguments it seems HR formality is crucial for SMEs Smaller entrepreneurial firms generally are challenged by HRM because the small size of the firm often does not warrant hiring professionals

Some key features of SMEs (HRM Context)

Owners/managers avoid using formal HR practices as they prefer to keep direct personal control of the firm and hesitate to delegate responsibilities to other mangers.
They equally dislike to limit their room for maneuvering by making explicit rules and procedures which they themselves will then have to follow.

Some key features of SMEs (HRM Context)

Lack of resources leads to less use of formal HRM

practices in small businesses Management may possess inadequate training concerning HRM and broader management issues, or have an inadequate understanding of the impact of HRM on the business.

Highly competitive and rigid environments of SMEs also demand a certain level of HR formality to stay attractive for employees and customers.

Some key features of SMEs (HRM Context)

Entrepreneur themselves are often HR
Manager with no HRM background Thus, vision and knowledge of the owner/manger and limited time and resources play a role in keeping SMEs informal. SMEs of this size have no obligations to publish their financial results.

General HR Planning Process

Human Resource Management Processes General

Acquisition

Fairness Human Resource Management (HRM)

Training

Health and Safety

Appraisal

Labor Relations

Compensation

Human Resource Management Processes in SMEs

Acquisition
(Recruitment / Selection)

Growth linked with Market Share Human Resource Management (HRM)

In House Training (If needed)

Productivity

Compensation

Recruitment
Process is oversimplified
Advertisement

Job contents
TORs

Recruitment
The process by which a job vacancy

is identified and potential employees are

notified. The nature of the recruitment process

is regulated and subject

to employment law. Main forms of recruitment through advertising in newspapers, magazines, trade papers and internal vacancy lists.

Recruitment
For better out put prepare a checklist. The

contents could be:

Before choosing the most suitable employee for company answer following questions ? Do I really have a vacancy? Draw up a proper job description Is there an urgency of requirement ? How to conduct Interview & testing

Selection Selection
The Process

Short listing
Interview Presentations In-tray exercises Psychometric testing

Aptitude testing

Suggested HRM Solutions For SMEs

SMESs have to acquire ability to practice
HR function and retain human capital for future survival. There must be realization that better HR policies and practices can solve the sustainability problem. SMEs must realize HRM function need to

be dealt with as specialised job to ensure

the organisation success.

Suggested HRM Solutions For SMEs

It must be realized now is the high time to shift the HR function from Untrained Entrepreneur or Manger for having an equation of supposition and actuality. Illiterate and family-based conventional methods have to be put aside for new contemporary approaches in business. Entrepreneur need to utilize HR strategically and coherently as per the objectives of existence. Which enunciate :
Better recruitment / selection processes
Adopt well defined HRD policies Offer Competitive remunerations

Suggested HRM Solutions For SMEs

Workforce policies must be taken as investment instead of expense, which in return can boost over all performance. Well defined hierarchical structure be developed

rather than existing brittle and random

organizational arrangements.

Suggested HRM Solutions For SMEs

SMES do not operate in vacuum. The challenges confronted by larger

companies also affect these. They rather have to exhibit better quality and professionalism than the large ones. SMEs, generally ridden with financial crunch overlook this constraint. Entrepreneurs at SMES need to realize this aspect and must adopt well defined HR policies

Suggested HRM Solutions For SMEs

Structurally in SMEs, employees vertical

growth is either extremely fast or highly staggered depending on the growth rate of the company. This may be appalling for the employees as the element missing. of professionalism is generally

Suggested HRM Solutions For SMEs

This may be through Leadership development and Individual Development Plans. Plans can be created and discussed with each employee and appointing mentors.

Suggested HRM Solutions For SMEs

Create a culture of camaraderie and teamwork. Some innovative ways be thought for the purpose. Another way of creating culture in the organization could be by creating

screensavers and wallpapers of the

organizations values.

Suggested HRM Solutions For SMEs

Motivational films or talks or skits can be held on organizational values where culture could be communicated to employees in a fun and interesting way. To summarize, SMEs need to realise that their internal customers are as important as their external customers.

Suggested HRM Solutions For SMEs

HR practices in SMEs have to be designed using innovative thoughts and cost effective mechanisms.

Overall, a well designed HR system and

innovative people practices can benefit

any organization in todays competitive

global environment.

Suggested HRM Solutions For SMEs

Employee referral is another great way of attracting potential talent and be able to brand the organization through your own employees at the same time.

The entrepreneur need to have elaborate

checklists for every function of HR in order to

improve HRM in the SME.

Suggested HRM Solutions For SMEs

The processes of HR function must be professionalized :
Step by step

Aspects which are needed be given priority

No structural change be carried out till the commensurating size increases

Suggested HRM Solutions For SMEs

Professionalizing HRM in SMEs Step by Step 1. Choosing the Most Suitable Employee Establish the need for a vacancy no superfluous workload Workout the workload and job contents of the vacancy

Prioritize the work contents as per the

demand

Suggested HRM Solutions For SMEs

Professionalizing HRM in SMEs Step by Step 1. Choosing the Most Suitable Employee

Advertise, Interview & test for

appropriateness Start with a positive induction as it increases the new employees motivation Give out explicit job requirements. It creates pleasant working atmosphere. Monitor and evaluate continuously

Suggested HRM Solutions For SMEs

Professionalizing HRM in SMEs prioritize HR activities 2. Adopt a Systematic Approach To OJT
Establish need for OJT especially when company is subjected to strategic changes, size of the organization increases and competition sets in internally.

3.

Mould the organization to be flexible one

Try to absorb and retain old employees

Suggested HRM Solutions For SMEs

Professionalizing HRM in SMEs prioritize HR activities

3. 4. 5. 6.

Adopt a justified Pay policy Make arrangement for motivation Make them empowered Address grievances (individual, social, organizational)

Suggested HRM Solutions For SMEs

Professionalizing HRM in SMEs Structural Changes if necessitated Adopt well defined HRM Develop HR procedures which are relevant to organizational activities Involve the workers in strategic decision making Offer market competitive packages Create esprit de corps among the workers Create conducive environment

Human Resource Management in Small Medium Enterprises Challenges and Practices

Human Resource Management in Small Medium Enterprises Challenges and Practices

Conclusion
Our SMEs are lacking the philosophies and practices of HRM. HR system is taken as an additional expense. This is high time that our entrepreneurs realize the importance of this aspect. The practice of HRM must be viewed through the prism of overall strategic goals for the organization instead of a standalone tint that takes a unit based or a micro approach. The practice of HRM needs to be integrated with the overall strategy at every level of the business to ensure effective use of people and provide better returns to the organizations

Human Resource Management in Small Medium Enterprises Challenges and Practices

Conclusion
HR is thought to have a negative impact on the bottom line of SMEs.

Without HR, what could happen to the

biggest asset, workforce must be visualised.

Effectively attracting, employing, retaining

and managing staff are essential elements to a successful SME.