Human Resource Management in SMEs

Written By: Naveed Ur Rehman Khan

In the era of globalisation, business environment becomes highly dynamic with high risk and uncertainty. This uncertainty decreases market share and increases organisational inefficiency.

As elsewhere, Pakistani SMEs too are affected by the recent global economic meltdown. Escalating inflation in Pakistan further compounded the situation for SME growth. Human resources working in SME sector play a vital role in economic growth without any space for their personal growth. They are less paid and their natural needs like health care and family insurance are seldom offered, annual bonuses are not covered. Annual bonuses are not regular in our SME sector.

It is therefore observed that retention is one of the major problems in small and medium size industries. Slightly better emoluments provide good reasons to an employee to switch over from one organisation to another organisation. Growth in salary in SME sector is far behind the growth in inflation which is a source of depression and made them less productive at their workplace. This situation has precipitated negative impact on the overall economy of Pakistan. How can we reverse the situation? Organisational ability to practice HR function and retain human capital is critical for future survival. Thus, HR policies and practices may provide solution to this problem.

In Pakistan SMEs have a significant contribution in the total GDP of Pakistan, according to SMEDA and Economic survey reports, the share in the annual GDP is 40% likewise SMEs generating significant employment opportunities for skilled workers and entrepreneurs. Small and medium scale firms represent nearly 90% of all the enterprises in Pakistan and employ 80% of the non-agricultural labour force. These figures indicate the potential and further growth in this sector.

Recently a study has been conducted to specifically investigate the way in which SMEs implement and practice HRM activities to ensure the organisation success. The results of the study revealed that the equation of theory and practice is not balanced in Pakistan.

Pakistani SMEs are far behind the philosophies and practices of HRM. The SMEs are not utilising their human resource strategically and coherently. Further, management ignores organisation’s most valued assets, that is, the workforce. This ignorance causes the job dissatisfaction in employees and ultimately affects the organisational performance. However, employees perform the essential tasks within the organisation, and organisational human resource systems are designed to support and manage this human capital. But the bitter truth is that, SMEs owners are taking the HR system as an additional expense. A small sample survey from one of the industrial zone in Karachi reveals that HR functions are practices informally in organisations. They do not have HRM policy manual. They are reluctant to establish a separate, autonomous, and functional HR department which is responsible for performing HR practices. Why they have fear to do so?

Illiteracy and family-based conventional methods may be the obstacles to new contemporary approaches in business. However the new breed of entrepreneurs may bring radical changes in business operations through their formal education, adaptive and flexible behaviours. They are well equipped to meet the changes in business environment. Likewise, SMEs owners’ outlook shall be changed when they realised the significance of the implementation of HR functions and consider them as an investment rather expense, which in return enhance the organisational performance. It is further observed that the existing HR structure in SMEs is fragile and still there is a room for improvement.

Several paths may have been followed to gain competitive advantage in SMEs but best HRM practices ensure the viability of improvement. HR practices such as recruitment, training, compensation and evaluation are the key factors for success. Therefore, it is clear that SMEs success is linked with HRM practices. Moreover, several researches provided evidence the positive relationship between HRM practices and the increase in economic productivity of organisation. I think the adoption of organisational strategies needs to be supported by specific forms of HRM practice.

The central role of HR practices in shaping organisational performance especially in SME sector should not been ignored in current economic scenario of Pakistan. However, affects of individual HR practices are also contingent on other HR practices and therefore require an approach to those practices working as a set or “bundle” rather than independently. What I mean by this is synergy.

SMEs owners and HR managers should focus on implementing HRM practices to enhance the organisational performance in terms of productivity and market share. Successful HR system also helps to integrate the other organisational functions in less time. This integration will open long term investment opportunities through organisational strategy. The last but not the least, appropriate strategies at national level may enable the SME sector to boost the national economy.

(The writer is Lecturer in Faculty of Management Sciences at Institute of Business and Technology – BIZTEK)

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