There are 42 million SME in India which comprise of 95% of country’s industrial units contributing to 30% of country’s GDP (6.11% of manufacturing and 24.63% of Service GDP). Together these employ 106 million people, 40% of country’s workforce. Looking at the growth and job creation potential, SME should have good focus on their human resource, but there are many challenges relating to human resources that mar the growth of this industry. It makes it rather non- negotiable to work on the internal structure, HR processes and practices to ensure growth and attract talent. Enlisting some challenges that SMEs face relating to people that HR leaders, company owners and government should address.
1. Absence of HR department in SMEs
According to a CII survey, 20% of medium and 80% of small-sized businesses have no HR departments. It is not possible to implement people related processes and policies without an HR function. There are two most important reasons for the lack of HR department in SMEs. First, SME’s are more growth oriented. When the companies are startup stage of small, all their objective is how to grow first to be sustainable and reach bigger scale of business. So, human resource is no priority.
Secondly, SMEs operate under budget constraint and perceive having a proper HR department as an expensive burden on their company budget. As, many SMEs have smaller teams, promoters end up managing the HR functions themselves to save cost, rather creating more HR issues. So, the promoter’s culture, value system etc become SMEs culture and when the organisations grow with culture – related issues and no one there to handle these. This leads to lot of politics as when people don’t know where to bring their grievances, they start talking to each other. The recruitments, the appraisals and promotions, exits etc are very subjective.
Solution – SMEs that think HR is just another administrative function, need to correct their perspective. Organisations must include an HR system right in the planning stage and build various people related practices like talent management, engagement, policies related to compensation and benefits. A proper HR function with manual sets standards that helps SMES to take objective decisions related to people’s recruitment, job responsibilities, remuneration, promotion, attrition, company’s stand in case of difficult situations.
2. Challenge in hiring the right talent
SMEs biggest struggle is hiring people with specialised skills. Limited talent pool, inability to offer competitive salaries and fierce competition add to the misery of HR managers.
Secondly, SMEs want to have best of the talent and expect them to multitask at compromised salaries much lesser than those provided by larger organisations.So, many employees resort to working in smaller & riskier organisation but aspire to working in bigger and safer organisations. These will shift to the larger organisations whenever there are vacancies.
Thirdly, SMEs show lack of awareness about the legal hiring standards procedures and practices. Some consciously and unconsciously violate the common employment laws and regulations. These could be as small, but significant as the company not offering a valid employment letter with proper job description, salary and other details to their employees.
Image source : Economic Times
Solution: SMEs Organisations should consider human talent more as long-term investment and not immediate ROI. It takes time for a plant to grow into a fruitful tree. There is no other alternative than to have a pool of skilled employees. It is better to employ one employee with good skill sets at industry competitive salary than to have 2 -3 employees with lower skill sets.
It is critical that all entrepreneurs even as small as a 3 member team should know and understand the employment law and try not to violate them. In case of low budget, SME should consider hiring the HR specialist/consultant to avoid facing the consequences. Having an employee handbook is the most desired element in company HR.
3. Challenge in Building and maintaining the Culture
An organisational culture is basically a uniformly understood set of principles along with non- negotiable organizational values that impact every individual in the company. But, many SMEs struggle in this area due to lack of proper organisational vision and plan and end up following the promoter- based culture.
E.g. StartUps, in the initial and initial growth stage, display full of energy and fast moving entrepreneurial culture in the organisation. The environment is often friendly with young and energetic teams working and interacting closely. There are exchange of ideas and feedbacks. It starts to die down as the company matures. This is when people start getting bored and lose interest. The structure firms up from informal interactions to formal monthly meetings.
Solution – SMEs need to articulate long-term organizational HR objective for achieving the desired culture and should have a structured plan to get there. HR in turn, can play significant role to keep the culture by laying the standards and keeping everyone informed, engaged and involved. HR can run several initiatives to connect everyone through various platforms – Outdoor sports & picnics, Intra office blogging, social media campaign, coffee mornings where people can share their stories of gratitude towards the organisation and fellow employees. In fact many SMEs are working towards growing bonding among employees and making the employees feel like the part of a family.
4. Aligning Values – A Big HR Challenge
Another big challenge facing HR managers in SMEs is to see the founders’values are aligned with that of larger employee group. Many a time, employees bring in conflicting set of values not in alignment with those of founders. It requires a lot of unlearning on the part of employees and adjustment on the part of the founders. This misalignment often leads to lot of decision-making conflicts, employee dissatisfaction, lower morale and higher attrition rate.
In such challenging situation, HR needs to play a critical role by bringing the attention of founders and employees towards organisational vision and goals.Firstly, HR needs to make the new entrants aware about the SME objectives and set the right expectations right from the point of hiring and induction. Secondly, HR needs to bridge the gap by inculcating a culture of transparent communication between the founders and employees.
5. Challenge in building capability- based organisations
The real challenge that lies in front of the SMEs is in building a capability-based organisation than individual based organizations, and not forgetting that individuals are the building blocks of the successful organisations. SMEs should implement effective training and development programs for employee upskilling and growth to build organisational capability. But, is it that simple? Due to the budget constraint, it is seldom feasible for SEMs to involve external vendors for upskilling of their employees. So, SMEs lag in case of specific skill-based training.
Thought the customised training and development programs are ideal for building organisational capability, SMEs can focus on developing good in house and on the job training programs.Mentorship programs can be one low cost option for training employees. Here, a senior employee mentors a junior on one on one. At least, this keeps both the levels in tune with each other. Juniors feel empowered by learning new skills and getting to know someone senior in the organisation.
6. HR Challenge in Retaining the Talent:
Small companies face great challenge in retaining employees, especially, at the lower level. Salaries are not too good, and teams end up multitasking and over working. Attrition rate in junior level is highest as they might change jobs for small increments without even giving prior notice. Middle and senior employees may find unclear role definitions and unknown career path frustrating and they change over for more clarity and more lucrative offers too.
SMEs should couple their equitable pay grade for employees with other intangible factors for retaining their employees. Consistent compensation package, job security, employee growth progression plan, employee care and bonding, workplace comfort, inclusive growth are some of the important factors why employees stick to the same organisation for long.In addition to this, how the company behaves with the exiting employees cast impression on those still inside. SMEs need to have more professional approach towards those choose to leave and treat them with equal respect. This will build a culture of mutual respect within the organisation too.
More founders need to recognise these challenges that HR and their SMEs can work in tandem to solve and create HR healthy enterprises. When the founders will start viewing HR as a strategic role in the organisations they want to build and not just an administrative function, they will be raising the bars of their organisations. At the same time, employees perceive the enterprises with HR function more positively.
HR managers can also make use of technology and research various factors and trends to analyse satisfaction, performance, appraisals, attrition for getting best talent, the employee retention and SME growth.