The Role of Human Resources in SMEs

8/13/2019 The Role of Human Resources in SMEs

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Human Resource Management

in

Small Medium Enterprises -

Challenges and Practices

Advisor - (NESPAK)

Disaster Management Division(Enterprise of Ministry of Water and Power)

Tamgha-e-Imtiaz


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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 approach to HRM in

organizations.


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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.


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Introduction

SMEs form the bulk of our nationaleconomy 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 thissector

Human resources working in SME

sector play a vital role in economic

growth prejudice to personal growth.


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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.


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Introduction


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Human Resource

Management The Definition

The design of formal systems in an

organization to ensure effective and efficient

use of human talent to accomplishorganizational 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


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Human Resource


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 addvalue 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


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Defined explicitly, HRM is administrativediscipline 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.

Human Resource


Introduction


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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


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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


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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


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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


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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


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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


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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


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The role of Human Resources in the

SME is to ensure that a company

maintains its competitive advantage

through its people and leadershipprocess and procedures.

As the HR allocated yearly budget is

the top 5 yearly overhead for any

company, greater attention is nowbeing placed on the role of Human

Resources as a profit centre and

source of competitive advantage in the

market place.



SIGNIFICANCE


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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 andknowledge) are becoming increasingly

important in assessing the viability of

firms and investment decisions

SIGNIFICANCE


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SIGNIFICANCE


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Role of HR in SMEs


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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 wellorganized labor market,

Absence of a more professional approachto 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


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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 hiringfor 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


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HR Planning and Analysis

Equal Employment Opportunity

Staffing

HR Development

Compensation and Benefits

Health, Safety, and Security

Employee and Labor/Management

Relations

Role of HR in SMEs


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HR

CHALLENGES


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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 culturechange.

Often, the values which the Promoter reflects are

different from the values that the employee

groups reflect.


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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


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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 from

professional driven company to

professionally driven.

HR has the challenge of attractingprofessionals and then retaining them by

providing a professionally driven organization

culture.

Inability of SMEs to offer competitive benefits

package.

HR Challenges


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Bureaucratic structure in SMEs makes

easier to implement HR change

management programs but leads to fiasco.

The values expected from work force arenot only professionalism. These envisage;

The promotions

Recruitment process

loyalty

Trust

HR Challenges


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HR Challenges

Another challenge which

the HR faces is adhering

to the agreed policy norms

which succumb to

exemption from the

owners.


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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 loweringcosts and increasing productivity a

difficult proposition.

Growth of information technology

(Internet) options available for buyer.


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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.
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HR Challenges

Despite the small size of the

organization, the employees

participation is less in operationaldecisions.

The creative, intuitive approach bound

to be fruitful in the start-up phase

appears to become an obstacle for a

number of employees.


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HR Challenges

There is a lack of formalization, structure

and clarity when thinking of performance,

training or reward management in SMEs.

The lack of inplace and streamlinedHR

functions in these organizations come as a

weakness when all the efforts invested in

building a team become fruitless because

of high attrition rates.


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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


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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 mergersa much needed

task lacking in our SMEs.


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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

professionalsexperience.


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HR Challenges

HR function for entrepreneurs leadsto loss of productive time which

results in losing interest in HRM.

Hence in SMEs, is taken as

personnel function.

Since HR is not a revenue

generator, it is never given its due

importance and hence people

practices and innovative HR

practices take a back seat.

Cost is a major deterrent in

introducing many HR practices .


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HR Challenges

The growth imperatives necessitate

healthy HR practices.

Recruitment is a major challenge

because of the huge demand andcompetitive 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


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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


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(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


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(HRM Context)

External environments effect the

overall performance instantly

Generally a family venture

Mostly untrained management


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(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


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(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.


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(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.


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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.


(HRM Context)


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General HR Planning Process

Human Resource Management Processes


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Human Resource Management Processes

General

Acquisition

Training

Appraisal

Compensationabor Relations

Health and Safety

FairnessHuman

Resource

Management

(HRM)



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Processes in SMEs

AcquisitionRecruitment / Selection)

In House TrainingIf needed)

Compensationroductivity

Growth linkedwith

Market ShareHuman

Resource

Management

(HRM)


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Recruitment

Processis oversimplified

Advertisement

Job contents

TORs


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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.


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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

Recruitment


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Selection

The Process

Short listing

Interview

Presentations

In-tray exercises

Psychometric testing

Aptitude testing

Selection

Suggested HRM Solutions For


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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.



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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 contemporaryapproaches 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


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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.

S t d HRM S l ti F


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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



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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 of professionalism is generally

missing.



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SMEs

This may be through Leadership development

and Individual Development Plans.

Plans can be created and discussed with each

employee and appointing mentors.



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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.


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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.



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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.



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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



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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


SMEs



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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

Professionalizing HRM in SMEs Step by Step

1. Choosing the Most Suitable Employee


SMEs



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Professionalizing HRM in SMEs prioritize HRactivities

2. Adopt a Systematic Approach To OJT

Establish need for OJT especially when company is

subjected to strategic changes, size of the organizationincreases and competition sets in internally.


SMEs

3. Mould the organization to be flexible one

Try to absorb and retain old employees



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3. Adopt a justified Pay policy

4. Make arrangement for motivation

5. Make them empowered

6. Address grievances (individual, social, organizational)

Professionalizing HRM in SMEs prioritize HR activities

S gg S

SMEs



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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

Professionalizing HRM in SMEs Structural Changes ifnecessitated

gg

SMEs

Human Resource Managementi


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inSmall Medium Enterprises -Challenges and Practices

Human Resource Managementin


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Conclusion

Our SMEs are lacking the philosophies and

practices of HRM. HR system is taken as anadditional 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 organizationinstead of a standalone tint that takes a unit basedor a micro approach.

The practice of HRM needs to be integrated withthe overall strategy at every level of the businessto ensure effective use of people and provide

better returns to the organizations

inSmall Medium Enterprises -Challenges and Practices

Human Resource Managementin


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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.

Conclusion

Small Medium Enterprises -Challenges and Practices


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Documents

The Role of Human Resources in SMEs