Where HR Stands in Small/Medium Industries!

Anil Kaushik, Chief Editor, Business Manager Magazine

SMEs (Small & Medium Enterprises) in India account for nearly 45% of industrial output, employ over 60 million people and are expected to account for 22% of the GDP by 2012, which is certainly going to have strong influence on the country's economy. Consider this aspect too! On the basis of the recent report on SMEs, at present, India has around 2.61 crore small and medium units. 15.52 lakh units are registered, and employ around one crore people. 45% units are involved in manufacturing, while 40% units are export oriented and contribute 8% of India's GDP. This is the wholesome scenario of small and medium business in the country. They too often are viewed as growth engine of nation's economy, which increase employment opportunities.

This sector no more operates in a protected zone and is, consequently, subject to the same challenges as large enterprises. In the open economy, playing field is the same for both but unfortunately resources and expertise to handle different domains differ.

India's HR magazine 'Business Manager' recently conducted a survey to find out status of HR function, HR issues that continue to hamper growth of small and medium organisations and how entrepreneurs view these challenges. Survey was conducted on 524 small and medium organizations of NCR (National Capital Region) ranging from manufacturing, ancillaries, sales/services and hospitality industries with 10 to 100 employees strength and the findings are not much surprising. Broadly, HR function nowhere stands in this sector. 70% organizations have no formal HR department or exclusive person for this function. Payroll/attendance/statutory compliance are either completely outsourced or part-timers perform record maintenance functions or owner himself controls this function. In these units, there is no formal performance management system. 22% industries have time-office persons who represent 'HR' of the organization - mainly do record keeping/pay roll/statutory compliance/liaison and employee grievance handling. Only 8% industries have formal HR person taking care of HR administration and employee relations.

In 91 % industries, there is no empowerment to this function. All HR/employee relations policies are owner driven. Increment/promotions are totally decided by the owner on his gut feel and personal understanding of the employee. His like-dislike plays an important role in this function. Only 9% industries have some formal system/process of recruitment/induction/performance evaluation and training.

Key findings of the survey are:

▪	KRA of HR person in these units is to ensure that adequate employees are made available in production and other areas. They also handle salary, administration, grievance handling and dealing with Government officers.
▪	HR is at back stage and has gained no / little importance in practice.
▪	Complexities of employment regulations deter small employers, which hamper their growth.
▪	Variety of informal systems are used for appraisals.
▪	Formal employee development process has to go a long way.
▪	Incentive schemes are very much there but with no formal systems/processes.
▪	Training is liked by owners but they don't want to invest much because of fear of attrition.
▪	In spite of enough understanding of HR importance, employers are so pre-occupied with core business issues that don't get enough time to concentrate on HR issues.
▪	Due to lack of financial muscle and tight business demands, these small organizations sometimes compromise on critical HR issues like indiscipline, productivity, etc.

 
Problem creeps up because small/medium organizations can't afford to set up/operate HR function with the expertise and the way large organizations do and invest in this function. On one side, SMEs need to be more competitive, aligning themselves to new ideas, processes and acquire a professional approach by adopting the best management practices and change the ways of managing business; on the other side, they have neither such mindset nor financial resources to establish people centric systems and processes to build up their human capital. Country's employment regulations also act as deterrent and their complexities keep them on back foot.

The reality is that we still lack the conceptual framework and methods applicable for small and medium industries. HR persons have also neglected this sector and have not contributed much in this direction. The lack of appropriateness, expectation of various HR activities like training & development, performance appraisal, etc. being too bureaucratic & time consuming, and the lack of clarity on the importance of HR function have resulted in very limited attention to the approach and the techniques associated with it among top management.

Though few HR practices prevail in this sector, the lack of knowledge and professional approach in establishing the practices mar their growth. In this competitive game, SMEs have to relate to HR - particularly staffing and the retention issues of key employees. No doubt, the personal involvement of the owner and adaptation process associated with this is the basis of their survival, but even then, considerable efforts have to be made by small business owners in this direction to put HR function in forefront with professional approach.

To achieve the dual objective of saving cost as well as establishing HR function, SMEs can safely outsource this function to the extent of branding, quality hiring and training after proper needs identification and creating a culture of performance. Uniform well-documented HR policies will certainly help SMEs in shifting from family oriented approach to professional approach.

Adopting technological approach in managing HR can also be of great help to SMEs. Automated HR simplifies the people management processes, which regularly monitor performance. Technological process saves time and cost to manage this function. Recruitment, induction, performance, training, compensation and rewards - all these areas can easily be addressed and monitored by technological process.

At the end, writing on the wall is clear. Entrepreneurial businesses can't afford more to neglect the people issues in their organizations. At some point, it has to move on. Sooner the better!

Note: Author can be reached at akaushikus@yahoo.com