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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
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 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
Management The Definition
Introduction
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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
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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
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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
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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
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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
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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
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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
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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.
Human Resource Management
The significance of Function
SIGNIFICANCE
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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 andknowledge) are becoming increasingly
important in assessing the viability of
firms and investment decisions
SIGNIFICANCE
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Human Resource Management
The significance of Function
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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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
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Some key features of SMEs
(HRM Context)
External environments effect the
overall performance instantly
Generally a family venture
Mostly untrained management
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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
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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.
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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.
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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.
Some key features of SMEs
(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)
Human Resource Management
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Human Resource Management
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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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
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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 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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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.
S t d HRM S l ti F
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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
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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 of professionalism is generally
missing.
Suggested HRM Solutions For
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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
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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.
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Suggested HRM Solutions For
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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
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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
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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
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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
Suggested HRM Solutions For
SMEs
Suggested HRM Solutions For
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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
Suggested HRM Solutions For
SMEs
Suggested HRM Solutions For
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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.
Suggested HRM Solutions For
SMEs
3. Mould the organization to be flexible one
Try to absorb and retain old employees
Suggested HRM Solutions For
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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
Suggested HRM Solutions For
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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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