The success of minor to medium-sized enterprises (SMEs) is often viewed as an indicator of overall economic health. Moreover, businesses with less than 250 employees may be more straightforward to manage than multinational companies with thousands of employees—consequently, the matters of scale result in a different mix of challenges. However, businesses face many peculiar challenges with implementing human resources (HR) systems and policies in an SME.
The issue prevails because, unlike large organizations, SMEs tend to take HR issues and concerns for granted and ignore them either partially or fully. They only take action when matters peak; thus, the scenario becomes out of their control. Moreover, HR matters are more complicated than accounting matters, which can be rectified by scrutinizing and correcting the bookkeeping issues.
Consequently, small to medium-sized enterprises must adopt the best HR practices and procedures to accomplish their company goals and business objectives. You do not need huge funds as long as you have the right people at the right seats, putting processes in place at the right time. Here are some of the typical HR issues prevailing with SMEs.
Absence or Lack of HR Department in SMEs
Most small businesses and medium-sized enterprises have no HR departments, mainly because they perceive that having a fully functional HR department is an additional cost. Hence, in the absence of an HR department, workers tend to solve workplace issues themselves, which can result in chaos and problems among the workers. Therefore, they are often vulnerable to concerns affecting their morale and job motivation.
Managing Talent
Lack of talent management is another big issue prevailing in SMEs, which ultimately affects the following HR processes.
Recruitment
The HR process begins with recruiting the ideal candidate for a position. Remember, the quality of the individuals you hire will eventually determine their success or failure in the long term. SMEs typically start recruiting referrals, their relatives and people they know, or individuals related to shareholders. This is okay as long as merit is the basis for people’s employment.
However, SMEs typically prefer relatives and friends, assuming that they are easy to deal with and willing to work for them at a lower rate. However, the downside of this practice is that the hired friends and relatives often lack the requisite skills and expertise, which can cost a lot to the company in the long run. Moreover, family-owned small businesses usually have no formal recruitment process, mainly acquired by succession or inheritance.
Training and Development
In today’s developed business societies and with the current market scenario, organizations should acquire an adequate pool of skilled and experienced employees. Therefore, large companies demonstrate concrete efforts to hire intelligent and skilled people and upscale their abilities and potential by making them go through various training and development programs. However, SMEs often tend not to rely on external training and development programs because of budget constraints. Therefore, they conduct on-the-job or in-house training, which often produces lower results or provides no training.
Reward and Remuneration & Performance Appraisals
Reward and remuneration are other essential HR aspects that all organizations, regardless of size and nature, should effectively use to motivate their employees. They must have a transparent and dependable system of setting the salaries for their staff. However, many SMEs either have a vaguely structured reward and remuneration system and performance appraisals or none.
This is primarily because other structures like a job description, competency framework, and values for the different roles are not well-defined. Moreover, small business owners or managers are mostly busy or are not well trained to handle more than average ‘performance.’ Most SMEs are not too focused on scale and growth to tackle appraisal processes.
Talent Retention
Retaining competent employees at the junior level is often a big challenge for SMEs. This junior-level mainly consists of workers with functional skills like electricians, field salespersons, etc. This class is significantly mobile and rarely available in job shifts recurrently; it may even quit working without giving prior notice. The unexpected loss of employees sometimes affects SMEs, especially during the seasonal days.
Moreover, vague role definitions, lack of career prospects, or any perceived unfairness in the remuneration or appraisal system can trigger thoughts of attrition among workers. HR managers should be aware of employees’ engagement at all levels of the enterprise and their retention drivers.
Maintaining the Spirit of Innovation and Entrepreneurial Culture
Bursting with excitement, aspirations, expectations, and immense potential, SMEs, in their starting days, often cater to a business culture that is fun, fast-moving, innovative, and entrepreneurial. Such a culture comprises young, energetic team members who show excellent coordination and dedication, work closely with each other, and frequently interact with their seniors and business founders. However, SMEs lose such spirit as the business grows and matures. Therefore, due to conventional ways of business management, they often fail to grow further. In fact, at some point, sustaining in the competitive market becomes a challenge.
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