Special HR challenges in SMEs

Human resources are one of the most essential growth indicators for small and micro
enterprises. Growth-hungry large companies are scouring the market for human resources
(HR), leaving only crumbs for SMEs who can never out pay the big ones when it comes to
salaries. Moreover, typical about micro firms is the predominantly horizontal structure that
one wants to preserve. The employees that surround the entrepreneur are mostly a tight group
that communicates informally. That is why the challenge an entrepreneur is faced with in this
phase is directly linked to maintaining the climate of participation unique in a micro firm.
When the organization grows, it becomes more difficult to involve all employees equally in
operational decisions. Moreover, with an ever growing team it becomes extremely difficult
for the entrepreneur to keep the close partnership with every employee. The creative, intuitive
approach that was fruitful in the start-up phase appears to become an obstacle for a number of
employees. There is a lack of formalization, structure and clarity when thinking of
performance, training or reward management. More specifically, employees report a need for
a transparent training and compensation policy and a standardized introduction procedure for
new employees. Employees miss a uniform strategy and functional organizational structure.

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. There can be several reasons to this such as dissatisfaction with pay, HR
policies and practices, lack of hygiene factors, employee loyalty issues, and the like. Some
HR Issues in SMEs are discussed below:--

Talent Attraction, Hiring and Retention Issues

Talent Attraction

Certain issues faced by SMEs in attracting talent can be:

• Not maintaining an active database of potential hires – adverts are placed each
time there is a vacancy without harnessing past database effectively,
• Not implementing comprehensive hiring channels such as referral, graduate
recruitment, internal transfers etc.,
• Lack of detailed job analysis which leads to ineffective recruitment (i.e. often
it is not known what are the key criteria for hiring the personnel and key success
factors on the job),
• Weak or no employer branding – candidates do not have a good knowledge of
the overall organization OR do not have a good experience during the recruitment
exercise
• Not able to offer higher than average starting salaries and having ‘standard’
benefits/rewards
Hiring and Selection

Building a strong workforce can be a challenge. The following factors contribute towards that
challenge:

• Top talent command premium: Well, after weeks of hunting and rounds of
interviews, you found the right guy. But his pay expectations are way beyond your
estimates. This is a typical scenario in many companies today. Talented people don’t
come cheap. Mind you, talent comes at a price. Talented folks command premium. If
you are willing to pay more you get the right guy. Else, you lose him.
• Wide Job opportunities: Currently, the market place is marked by war for
talent and talent-focused corporate would go to any length to get the right guy. The
world is not just flat but wide too! The marketplace is flooded with new age
companies (read IT & ITeS companies) ready to offer more not only in terms of
lucrative compensation but also challenging job profile, cross functional exposure
levels, onsite job opportunities, higher responsibilities, plush work ambience and
overall corporate culture not to speak of world-class brand image that would lend
prestige to people who opt to work for them.
• Employer Branding: Corporate branding is a very important aspect for a job seeker
to come onboard. Remember, today we are in an employee-driven job market and as
such candidates have the luxury to choose whom to work for. Because, the candidate
is entrusting his career in your hands for the next, say few years or so. Hence, it is
understandable that he is choosy about his prospective employer.

• Talent shortage: Talent shortage is the familiar refrain for long and in the times to
come it is going to get acute than ever before. While it is the general scenario
prevalent across all industry sectors, this would be more pronounced if you are
looking for folks in new technology platforms in the IT sector.

• Ineffective HR sourcing: If talent doesn’t come to you, you’ll have to go to it. Gone
are the days when candidates used to hang around for jobs. Today’s candidates are in
a strong wicket to consciously choose their employers and if you stay where you are
refusing to budge in your quest for talent, you will lose. SMEs need to take a hard
look at their current HR sourcing strategies.

Talent Retention

• Lack of a comprehensive orientation program or induction training

• Lack of clear career path development for individual staff
• Lack of communication of corporate goals/vision
• Lack of job-rotation: often SMEs lose talents as they are not able to provide
new learning opportunities within the organization by redesigning jobs etc.
• Minimum investment in training & development
Talent Management Issues:

SMEs face the same fundamental talent issues that large firms do. They need to attract, select,
motivate, deploy, develop and retain talent. However, SMEs face some particular constraints;
constraints that are more pronounced in case of small firms. These constraints are:

Lack of Specialized Expertise- Large firms will have experts in specialized areas of talent
management. For example, they may have experts in assessment methodologies, diversity or
instructional design. Smaller firms may know that sourcing is important, for example, but not
have much specialized expertise in the subject.

Fewer Economies of Scale- Large firms can afford to invest in researching what
psychometric tests are best or which talent-management software is most reliable. Smaller
firms often cannot afford to do the kind of in-depth assessment of talent management tools
they would like. This matters because not all tools are appropriate and/or good for every
company.

Criticality of Each Hire- A firm with 1,000 call center reps will not be much affected by a
very bad or very good hire. However, if you only have five reps then each individual is
touching 20 per cent of your customer base.

Criticality of Turnover- The smaller the firm the more of a continuity problem it faces when
there is turnover in key jobs. For example, the loss of one marketing person may mean losing
the relationship with the ad agency, the history of what worked, andthe location of the
relevant files. Interestingly, the reverse problem can also occur. Ann Bartelstein, who spent
many years in HR in SMEs, says lack of turnover can mean the firm is stuck with the wrong
people.

WHAT SHOULD SMEs DO?

Outsource

Outsourcing non-core activities is increasingly becoming popular even for SMEs. Instead of
incurring huge fixed costs in manpower to manage recruitment / retention issues with
sophisticated IT software, SMEs can reap the following benefits by outsourcing such
functions to the experts in the field

• Cost savings
• Focus on strategic functions
• Access to world-class recruitment/retention strategies
• Create employer branding
• Quality of Hire
Employer Branding

Having mentioned outsourcing as one of the strategies in managing talents, the responsibility
on employer branding still remains with the organization. Companies need to brand
themselves as choiced employers just like how they brand their products and services. There
are some distinct advantages of being an SME which need to be communicated to job seekers
and existing staff. Being small can be an asset in many instances. Having a staff strength of
less than 300 makes an organization a lot more nimble, fast and flexible compared to larger
MNCs which often wait for global initiatives before implementing changes in their HR
policies and practices.

The following are some tips for SMEs:

Talent Attraction

• focus on key strengths such as “innovative”, “fast-growing” “regional

exposure”
• Provide flexible and innovative benefits/rewards that cater to individual needs
• Measure the current hiring effectiveness – indices such as ‘cost per hire’,
‘days to fill a job’, ‘effectiveness of hiring channels’, ‘candidate experience’ are
critical so that SMEs can track where there are bottlenecks and where the hiring
process can be improved.
• Plan career path for individuals
• More growth opportunities, regionalization – which is attractive to the
younger workforce

Talent Retention

• Shift from being family-oriented to more performance-based

• Communicating the corporate goals, vision, direction (for a more engaged
workforce)
• HR can afford to give personalized attention to individual’s needs in terms of
benefits, rewards, career goals, training & development needs
• Invest in meaningful training & development that leads to job expansion for
staff. Once the SME has established themselves as a choice employer with attractive
and innovative HR policies, retention strategies and career advancement
opportunities, it is only a matter of time that happy employees spread the word. There
is nothing more powerful for an organization than happy staffs who become their
‘ambassadors’ wherever they go! This inevitably does wonders for enhanced
employer branding and attracting better talents over the years.