SME (Small-Medium Enterprise) sector has been playing a significant role in strengthening country’s economic progress and international standing. The sector has been instrumental in generating millions of jobs, promoting industrial development in rural areas, production of diverse range of products with the limited capital investment. According to the estimates of the Ministry of SMEs, the sector contributes around 40% of the manufacturing output, accounts for over 8% of the national GDP, and creates more job opportunities both in rural and urban parts of the country. Going forward, SMEs will need constant support from the government to achieve its full potential. At the same time, SMEs will also need to work on their internal structure, processes and practices to continue their journey of growth. Not underscoring their incredible growth so far, SMEs are still grappling with some of the inherent challenges related to people and culture which must be essentially addressed by the HR leaders. Enlisting some such challenges here:

Absence or Lack of HR Department in SMEs

According to a survey conducted by Confederation of Indian Industries, 20% of medium and 80% of small-sized businesses have no HR departments. This is startling as without a proper functioning HR department, implementing various people-related processes and policies would be difficult. There can be many reasons for the absence or lack of HR departments in SMEs. The first and foremost being budget constraints- SMEs mostly work on a tight budget and focus more on the growth and scale aspects vis a vis people and culture-related issues. Having a fully functioning HR department can be perceived as a costly activity to be carried out for a small enterprise. Secondly, many SME founders feel that their teams are currently too small for an elaborate HR system and most of the HR activities can be managed like that. However, it is advisable to build an HR system right from the start so that various people related practices like talent management, engagement, policies related to compensation and benefits can be laid out. Well laid out HR practices help in removing various ambiguities related to one’s job and role in the organization and thus help in improving employees’ motivation and control attrition.

Managing Talent

Managing talent in SMEs is another big challenge facing HR, mainly for the following reasons in different categories:

• Recruitment: Recruiting the ‘right’ talent has emerged as one of the top challenges which HR has to face in their daily operations. Fierce competition, limited pool of qualified candidates and at times inability to offer a competitive salary are some of the top recruitment constraints. Apart from this, inadequate branding and risk associated make these enterprises less attractive vis-a-vis more established, big organizations.  However, there has been a small perception shift- highly qualified and experienced people are now willingly taking up senior positions in such enterprises- their profiles are exciting and offering them diverse roles and responsibilities with a good benefits package. Despite this positive shift, HR managers still struggle to create a strong layer of middle managers, especially in the urban set up where competition is fierce.
  
  
• Training and Development: To succeed in current scenario, organizations need to have a pool of skilled labour. Big organizations are making concerted efforts to assess and upskill their talent by roping in expert external vendors to assess and deliver various training programs. However, for SMEs, relying on external vendors is not always feasible mainly owing to budget constraints. Therefore, they are mostly conducting on-the-job or in-house training programs which might or might not be that effective. So despite realizing the need to roll-out specific skill based programs, HR at times, feels constrained to take that up. 
  
  
• Performance Appraisals: Performance appraisals are often not very structured or documented in SMEs mainly because other structures like competency framework, values, job description for different roles are not that well defined. Furthermore, managers are mostly occupied and are not trained to handle difficult ‘performance conversations’. Since SMEs are mostly focused towards growth and scale, the process of appraisal somehow gets sidelined. This comes as a big challenge and frustration for HR managers who are considered as the process owners of such systems yet don’t have requisite resources and means to roll that out.   
  
  
• Retention: In SMEs, retaining employees at the junior level is a challenge. The junior levels mostly comprise of employees with functional skills such as electricians, or field sales people. This class is highly mobile and change jobs frequently and may even quit without a prior notice. It becomes a big challenge for the HR to fill vacant positions at a short notice. On the other hand, at senior and middle levels, where attrition is relatively low, HR needs to mainly focus on keeping employees engaged. Unclear role definitions, lack of career path or any perceived unfairness in the system can trigger thoughts of attrition among these employees. As an HR manager, one has to be really aware of employees’ engagement levels and their retention drivers. 

Raising the Profile of HR

SME founders often overlook the strategic side of the HR and mostly view it as another ‘administrative function’ bearing no direct impact on the business. In such scenarios, it becomes increasingly challenging for the HR to propose or initiate any organization-wide change. It has become imperative for the HR managers to break this mould and raise their profile to become more of a strategic partner who is able to demonstrate the direct worth of HR initiatives on the business. In this era of technological disruption, there are plenty of opportunities available to the HR managers, for an instance, they can leverage on rich people-related data which the business can use to observe various trends (ex. tracking attrition, increasing engagement etc). 

Maintaining the spirit of entrepreneurial culture 

Bursting with aspirations, hopes and immense potential, SMEs in their initial days usually carry a culture which is fun, energetic, fast-moving and ‘entrepreneurial’ in nature. It is mostly comprised of young team members who work very closely with each other and interact with seniors and founders more frequently. However, once the business starts growing and becomes mature, it tends to lose its original entrepreneurial spirit –teams become big and frequent interactions with seniors/founders turn into monthly meetings. Such scenarios present the possibilities of people feeling less valued and less entrenched in the system, paving way for disenchantment and eventual attrition. Though challenging, HR can play a significant role here and maintain the culture by keeping everyone informed, involved and engaged. HR can leverage on social platform to communicate about the critical developments in the organization, share success stories, and even listen to employees’ grievances. Such efforts will help keep everyone connected – especially during the trial times when employees feel disengaged.

Aligning Values

Another important challenge which HR managers face in SMEs is to ensure that the values of the founders are aligned with that of larger employee group. Misalignment often happens when people from outside bring different set of values which stand in direct conflict with that of founders and both the parties are rigid enough to unlearn and embrace what is best for the enterprise. In such challenging situation, HR needs to play a critical role by creating awareness amongst decision makers about the need for change. Two-way and transparent communication between both the parties can bridge the gap.

The importance of HR function in contributing to the growth of SMEs cannot be denied. However, it is still dealing with certain challenges which cannot be ignored. While SMEs continue their growth trajectory, the need is to recognize and address these challenges so that both SMEs and HR can work together to implement various desirable changes in the enterprise.