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Most common HR(Human resources) challenges faced by SMEs

Make MSME contribute to Aatma Nirbhar Bharat

In January 2019, I received an interesting mail.

Mr. Bakshi.

Good Evening.

This mail is to inform that, we as an organization have grown to a 5 CR company with 52-member team since we last met in 2014.

I am now facing lots of challenges wrt manpower. May I call you to discuss the issue tomorrow at 11 am if you are in town.

Signed Ms. ABC from M/s XYZ.

Since I was in town, I took out the Organization Study sheets, because we had undertaken Assignment Study of the said organization in November of 2013. The entire organization and its owner all became live in my memory.

This organization was:

  • headed by a gorgeous enterprising young lady
  • into herbal beauty products
  • struggling to get to the grip of the market
  • 30 lacs turnover
  • 11-member team
  • 9 in production, 1 account, and an office boy
  • operating from a room in the home
  • parents and elder brother well settled
  • marketing, sales, and operations managed by self
  • no one in the family interfered

Next day I received a call. She discussed the entire issue.

Since I was leaving overseas the next day, I suggested for a skype meeting late evening.

At the skype meeting, I observed: all her charm was missing, inspite of wonderful growth.

So, she started asking me questions and I explained to her every challenging aspect of HR that she can envisage in the coming years.

She: What threshold a small business needs to reach before starting to build an in-house HR team?

Me: There is no universal threshold or thumb rule.

By 25 -30 people the organization must have at least a part-time HR person or consultancy.

50 – 60 employees are a typical benchmark. At this point, it becomes clear that uniform, formal HR policies and processes are necessary to avoid the mess that can arise as more people join your business. A full-time HR professional is now needed to build internal HR operations that can support the next phase of the company’s growth.

When your business reaches between 150 to 200 employees it is likely that an experienced HR leader supported by a small team will be required.

Throughout this transformational period, whoever is responsible for the HR function will certainly have to overcome more than a few hurdles.

These are made even acuter if the business is expanding at a rapid pace.

She: What are some of the most common HR challenges a growing business will face, and please suggest how they can be tackled to ensure the organization isn’t held back?

Me: The three most common HR challenges that any SME will face while it is growing are:

  1. Culture
  2. Recruitment and
  3. Retention

She: Would you mind explaining each one of them, so that I can brief my HR executive? She is a young management graduate with majors in HR but has no experience. And she suited me well because a] my team is young with an average age of 30 and b] she fit into my budget.

Me: I will take the part two first and then go on to explain each one.

Remember: In business, people come first, rest all is a distant second. Jobs, activities, and results are only achieved after the right people are in place.

So, you must give tremendous importance to HUMAN RESOURCE. It is usually the most neglected resource of all, though the MOST IMPORTANT of all!

Having an experienced HR Executive is better than a fresh graduate. You must hire a fresh executive as a support to the senior HR. There are a few benefits:

  1. The junior one learns as the employment progresses.
  2. When the senior is on leave or leaves the junior is trained to take over the mantle.
  3. This is such an important department that you can’t afford to leave it vacant even for a day.

As regards the budget is concerned, as I told you that since this is the most important resource, you must budget it appropriately. A small addition to the budget will go a long way!.

She: Yes. It is clear. Now, will you explain part one?

Me: let me first explain to you about CULTURE.

Culture gives a sense of direction to the employees. The work culture goes a long way in creating the brand image of the organization and making it distinct from its competitors. It is essential for the employees to understand the culture of their workplace to adjust well.

As your business makes the most natural transition from a start-up to a more established operation, there comes a point – whereby you as the owner of the business truly accept that you can no longer be involved in everything.

Therefore, your role must change from ‘entrepreneur’ to ‘leader.’

Hiring an HR team may signal your intent to relinquish more control, but in practice, this will be a difficult process.

Often, you would retain a huge amount of influence across all areas of the business and continue to make key decisions, despite appointing a dedicated team for every business operation.

However, YOU as a leader must accept that HR has a job to do. You must give them the power and autonomy to do what they need to do – whether that needs formalizing the recruitment process, analyzing the cost of absence, or devising an employee value proposition, etc., yes of course with your approval and deadline.

At the same time, you must ensure that HR professionals must be prepared to assert their influence if they are to make things happen.

HR teams need to take on a little ‘entrepreneurial spirit’ of their own, radiating the confidence to win people over, while demonstrating that a good foundation in HR will be good for the business. Else, HR will only exist to do the clerical work on your behalf.

Your HR must be made responsible to:

  1. integrate individuals into an effective whole, such that they
  2. effectively adapt to the external environment to survive.

She: Yes sir. It is clear. What I need to know about RECRUITMENT?

Me: Effective recruitment is the foundation of a growing business and HR naturally has a huge role to play.

As any company grows, your HR must work to help improve all aspects of the recruitment process – from company brand to the employee value proposition, to candidate hiring and onboarding.

Well, in a growing company like yours, it is the job of HR to ensure, “first, get the right people in, and second, get the wrong people out.”

The best people have two qualities.

  1. They can be counted on to get the job done, to get it done well, and to get it done timely.
  2. They get along well with others. They are good team players.

Another big HR challenge for a growing business these days is to be aware of the company’s online reputation as a place to work. Candidates will be looking to reviews of your organization from past or even current employees.

Previously, the damage that could be caused by disgruntled employees would be minimal, but now things are far more transparent.

Always analyze thoroughly your people data. You know why? Because you will undoubtedly find clues that can inform better decisions and lead to more strategic actions.

For your best-performing employees – find out which job sites or portals they came from, or how they applied, what was in their resume that caught your eyeballs. Similarly, analyze your weakest performers or staff who stayed for the shortest period. Did they all come from the same recruiter, portal, or application method? This is just one example that may enable you to refine your recruitment strategies, resulting in better future hires.

Your hiring process must have a specific way viz.

  • two rounds with Human resources for shortlisting and deeper analysis;
  • two rounds with the department head for subject sessions shortlisting to top two;
  • And final round with YOU.

She: Now I am realizing where I am going wrong. Thanks. And the last one which is my biggest headache – RETAINING.

Me: A successful employee retention strategy requires you to think about things from the employee’s viewpoint.

No two employees are ever alike. Each has unique desires and goals. Yet each one of them wants to feel appreciated and treated fairly by their employer. They want to feel challenged and excited by their work. Above all, they want to be paid better than industry with excellent benefits and on time. 

All these concerns are important, but since you are serious about retention do more than just the bare minimum. Scan every area of the employer-employee relationship in developing your organization’s plan for keeping the team happy and performing.

Few strategic initiatives that can boost employee retention are:

  1. Induction and orientation 
  2. Employee compensation 
  3. Perksand play
  4. Work-life balance 
  5. Regular Training and development 
  6. Fostering teamwork
  7. Periodic Performance reviews 
  8. Communication and feedback 
  9. Reward and recognition systems
  10. Mentorship programs 

Develop each one of them based on your industry norms.

Ideally revisit your employee retention strategic initiatives at least once a year.

Stay current on market standards for salary, benefits, best practices in developing an attractive workplace culture and strong management-employee relations.

And you will ensure talented professionals are happy about working for you.

She: I have understood all three clearly. When must I begin? Is it ok if I start from the coming financial year?

Me: Any growing business if not dealt with, immediately, the impact on the business can be serious, especially if the organization needs to scale quickly.

Without solid HR policies and processes, the business will revert to ways of working that were just about good enough when the operation was much smaller. 

This may ultimately breed a culture of unhappy employees, which can lead to higher attrition and impact your reputation adversely as an employer.

Ma’am, I have brought out the challenges and their associated impact to help you avoid some common pitfalls. While it can be tough to build an internal HR function in a small, growing business, but it is also an amazing opening to build an operation to be proud of!

From My Diary…

After working for 16 years 1982-1998, with MNCs, top Indian groups viz, Birlas, Tatas, Polar and SMEs, Mr. Rajiv Bakshi ventured out to start my own consulting firm in 1999. Possible Business Solutions has been instrumental in growth of 151 companies [SMEs, Family Owned Businesses, StartUps] within India and overseas. They have studied Business Models of close to 700 organization in these segments. Team has handled wide spectrum of industries from water to herbal, cables to cinema screens, building materials to liquid closures, etc. You name the industry and they have it in our portfolio.

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