This assignment will be providing an elaborate discussion upon the human resource practices and concepts that exists today and are practiced worldwide. Along with that this essay would provide information about the human resource management of the small and medium enterprises and would identify the limitations of human resource management in SME’s.
Human resource management is an activity that attracts an effective and energetic workforce in an organization. Followed by a process to develop and maintain it in order to achieve the mission and targets of an organization. The basic function of any organization is to ultimately reach a level where it attains profits and develops in a sustainable manner. For this the basic requirement is the presence of an appropriate workforce. Employees are indeed the backbone of any company. A good team becomes the biggest competitive advantage for any company. A firm’s human capital is a source of sustainable competition in the industry. It the times of such complex competition a good human resource is what makes a difference (Ronald 2006).
Human resource can be considered as one of the most valuable concepts of management in the present times. Today every company comprises of a human resource department that makes strategies and plans incentives in order to attract and maintain the human capital. Form the process of recruitment to the process of maintenance and development; all aspects of human resource are of great importance to all the firms today. It is essential that before recruiting the potential candidates be informed about the values of the company and their specific requirement needs. Along with that the hiring authority should develop such a relationship or terms, with the candidate that he/she feels the need to join the firm (Harzing 2004).
HRM development is equally essential for all firms may it be a large or a small one. Until recently there was a misconception that HRM practice was inappropriate for the SME’s. SME stands for small and medium business enterprises. There have been many criterions that have been defined for characterizing a company as a small or medium firm. But no set standards have been formed that can easily differentiate between. This still remains debatable with various theories still coming up. But generally when a firm’s human capital exceeds the limit of 150, such a capacity needs to be handled by an HR manager. Therefore today it is a known fact that even SME’s require HR management. But it is slightly different to that of large firms due to lack of resources and sophistication.
The biggest hindrance for the small firms in terms of HR development comes due to resource constraints. Small firms generally fall into the category of entrepreneurship or family business practices. In such conditions there is a single leader with a few people that are known to him. Since the company is small and has many other liabilities therefore priority does not remain to be the establishment of an HR department. Because the company generally works on a single man decisions supported by a few technical expertise. Due to lack of resources they also face problems in attracting the appropriate skilled labor into their firms as the skilled labor works for company’s that can pay them according to their desires (Redman 2006).
It is often observed that the environment of a small enterprise is fairly less formal as compare to the large firms. And also lacks the sophistication. Because of the limited scope not many a young recruits are willing to serve here. In order to develop as professionals, they require formal on job training. Therefore it is difficult to be able to attract a competitive workforce. When small businesses develop, this growth is accompanied by increase in the demand of labor. And consequently the owners become burdened with the responsibility of hiring skilled people. But unfortunately most of such owner turned managers are not well equipped with the appropriate knowledge of handling and developing the HRM policies for the company. Therefore it is seen that the faster is the growth trend the greater is the probability of that problems would occur. The extensive amount of burden that is to be faced by the owner usually occurs with respect to areas such as recruitment, selection, retention, promotion, salary and wages, taxation and the most important one is that regarding the training of employees(Redman 2006).
In order to handle such issues there seem to be a requirement of HR managers in small businesses also. Selection and recruitment is the core of any HR program. In SME’s there are no strict selection criteria. Just that the best man gets the jobs and the level of competition is low. When there is a noticeable increase in the workforce it is essential to keep them contended. For that the owner is not equipped with sufficient information and experience that can make his human capital happy and motivated. The salary structure is also not properly made. Some people are not paid for there actual potential. Due to which it is difficult to retain them on the job. Also there is no appropriate training, which has now become a necessity in order to deal with the challenges of the external environment.
Therefore SME’s can only survive and maintain their competitive advantage over the large firms if they introduce proper human resource management programs. A good human resource strategy brings about employee satisfaction, which in turn produces many advantages for the company itself. Like reduced costs of productivity, absenteeism etc. an HR program can contribute a lot in the development of such firms. Also proving to be a key element of growth and competitive advantage. A highly skilled and well-motivated workforce is a guarantee to the attainment of competitive advantage for the small business in today’s world. A human capital that is capable of innovation, and is highly skilled and extremely effective remains committed to the organizations mission and in turn increases competency.
Since the importance of human capital is emphasized, the management of this resource for firms working in this complex and competitive environment becomes all the more difficult. Therefore it is necessary for all the firms to outline an appropriate human resource development plan along with strategies to implement them. Pfeffer have devised form the successful businesses a set of human resource practices. The first one is employment security. In this world of uncertainty where anything can happen the next moment job security stands most essential. If companies keep employment security as their topmost plan and are able to communicate this policy to their employees, it can be a very useful strategy. Next comes selective hiring. Selective hiring is basically the most difficult task of the HR plan. Because it requires a lot of expertise in order to select the right person for the right job (Harris 2003).
Decentralized work planning is a measure taken to ensure that all employees participate in company decisions. This is a very effective tool because it helps gains the loyalties of employees. It is the nature of every man to be praised and that he feels wanted and special. This specific action creates a sense of belonging and responsibility ion the workforce and they feels wanted and comfortable in their workplace. Performance based pay is a plan that is generally introduced into companies to increase efficiency. When employees are rewarded on this basis of the measurement of how well they perform, this promotes efficient work. Many employees work harder in order to earn more. Extensive employee training is no more the requirement of large firms but it has become a necessity for SME’s also. The main aim of training is to equip the employees with the new trends in the market and increase their awareness. It introduces them to new trends and makes them capable of dealing with the challenges of this increasing competition and global demands (Brewster 2003).
Another step towards the strategy building may include the reduction in status differentials. The concept of a decentralized organization in management came up because of the deficiencies in the autocratic system. Since the older system had status differentials therefore the employees felt humiliated and found it difficult. This is when the decentralization concept came up. It promoted equality and innovation. And also increased employee satisfaction. Therefore reducing the status differences in any company proves to be an effective tool in the human resource management.
Finally information sharing can be included in the plan. The most important thing is that all the departments of any firm are in coordination with each other. The departments of a firm are like the bogies of a train that are attached yet they are separate. But if any one bogie fails to move with the train, the entire party suffers. Therefore coordination chain is extremely essential. When information is shared between the departments this creates uniformity. And one person knows what the other is doing. In this way a collective effort comes up that reduces the chances and probability of mistakes. Therefore information sharing is an essential component for building up a human resource plan.
External environment plays a major role in the human capital and have important implications for the employees. The socio-cultural structural framework of a society always has an influence on the human resource. It is very important for businesses today to address the issues related to such external environment. Today a diverse workforce is present that has different requirements that have to be addressed. For example if in a country there is uncertainty and political instability. This may affect the minds of the workforce and can have implication. This may also impact the organizational culture.
Human resource programs emphasize on the fact that employees should be considered the greatest and the most valuable asset of an organization. The SME’s are slightly at a disadvantage because they usually comprise of an above average workforce. They still manage to have a skilled and committed human capital. Research suggests that employee consideration and their commitment brings about competitive advantage. In order to achieve greater financial performance, increased productivity and high turnovers extensive training and a suitable incentive program is necessary. That gears up and motivates the employees. This will eventually result in growth and success. A positive correlation has been observed with regard to successful human resource programs and revenues (Barrett 2007).
There are several measures that can be taken considering the contemporaries. For example if we take recruitment and selection the concept of probationary period recruitment is very helpful. In this period both the employee and the employer are given a period of few months before they become permanent. In this period both the parties get a chance to judge each other and maintain a relationship. This period helps them decide whether one would be able to adapt or not. In SME’s when growth occurs one basic element that lacks is the presence of motivation. Weaknesses occur in the area of goal setting. The employees are not very clear in the direction in which they are heading. Therefore it becomes essential on the part of the owner to increase communication and understanding. Such efforts can be helpful in evaluating the performances and receiving feedback. If the expectations from the job were clear this would be a preventive measure for the development of any kind of misunderstanding. Therefore efforts on the part of the manager to solve the problems of employee’s through HRM policies would increase opportunities for success and employee satisfaction. The contribution of wage incentive to human resource is great. Such actions may have a considerable effect on the human capital quality and efficiency. This is an area that may create trouble, if not handled properly (Curan 2001).
Human resource management is a very important concern for all the companies today. We see that despite the fact SME’s have survived without an appropriate framework of a human resource program, research suggest that HRM is essential for SME’s as well. It is due to the lack of good quality human resource management that SME’s are facing problems today. As further growth occurs it is the primary responsibility of a company to provide to its employees with sufficient and adequate opportunities. That would satisfy them and will be helpful in retaining them. In the time of globalization, where the world is becoming one and distances are squeezingt is the required that all companies pay close attention to human resource management. And alongside cater to the needs of their employees. In this globalize world the organizations are required to understand the needs of their employees in order to face the challenges of the changing external environment.
Barrett, R & Mayson, S, 2007, International Handbook of Entrepreneurship and HRM, Edward Elgar Publishing
Brewster, C, 2003, Contemporary Issues in Human Resource Management: Gaining a Competitive Advantage, Oxford University Press
Curan, J & Blackburn, A, 2001, researching the small enterprise, Sage publication.
Harris, H, & Brewster, C, 2003, International Human Resource Management, by CIPD Publishing
Harzing, A, 2004, International Human Resource Management: Managing People Across Borders, Sage Publications,
Redman, T & Wilkinson, A, 2006, Contemporary Human Resource Management: Text and Cases, by FT/Prentice Hall
Ronald R., 2006, Human Resource Management: Contemporary Issues, Challenges, and Opportunities, Published by IAP