Final project

Submitted To: Ma’am Sania Zahra Malik

Submitted By:

Bushra Umer (013 M) Arsheen Sabir (038 E) Hamza Tarar (057 M)

Institute Of Business Administration

University Of Punjab

Dedication:

We dedicate our work to our families and friends. A special feeling of gratitude to our

loving parents whose words of encouragement matter a lot to us. We will always appreciate all they have done for

helping us and believing in us.

Acknowledgment:

We thank all our team members who were more than generous with their expertise and precious time. A special thanks to our course instructor “Ma’amSania Zahra Malik” for her guidance, appreciation, dedication and most of all

encouragement throughout the entire process. We are grateful to her for giving us an opportunity to work on such an interesting and challenging project. We would

like to acknowledge and thank our institute “Institute of Business Administration” for providing us with a reference to the organization and providing any

assistance requested. Special thanks goes to the CEO’s of sample organizations for cooperating with us, giving us

all necessary information and for their precious time they gave us.

ContentsDedication:..................................................................................................................................................3

Acknowledgment:........................................................................................................................................4

Abstract:......................................................................................................................................................5

Introduction:...............................................................................................................................................6

Literature review:........................................................................................................................................8

Research question:....................................................................................................................................17

Objective:..................................................................................................................................................17

Research design:........................................................................................................................................17

Source of data:......................................................................................................................................18

Sampling:...............................................................................................................................................18

Analysis and findings:................................................................................................................................18

Case 1:...................................................................................................................................................18

Case 2....................................................................................................................................................20

Case 3:...................................................................................................................................................23

Discussion:.................................................................................................................................................23

Conclusion:................................................................................................................................................24

Bibliography...............................................................................................................................................25

Questionnaire:...........................................................................................................................................28

How Do Small and Medium Enterprises Manage Their Human Resource Functions

Abstract:The purpose of this paper is to study Human Resource Development in SMEs. The main interest is in how HRD practices occur in small organizations or what kind of human resource practices takes place in small organizations. This study applies a qualitative case study approach and it is mostly descriptive in nature. This research is conducted in three small organizations. All of these case organizations operate locally; one is a promotion and marketing firm, other is an agro-based firm and third one is a news channel. All three of these organizations face the limitations of small firms but have developed their own ways to manage the uncertainty and lack of resources. The data for this research has been gathered from interviews with case organizations’ owner-managers and some from organization’s employees. The overall result of our research indicates a general pattern of informality in human resource activities of these small and medium enterprises.

Introduction:In most of the organizations operating in Pakistan at small level there is not any formal human resource department to carry out primary human resource functions. That may be the contributing factor of their lagging behind or failure to compete with other major organizations and multinationals etc. Regarding HR Practices they do not have any clear benchmarking about HR policies and theories. Due to informality in SME’s firm has to face many challenges in business world due to globalization and increased market competition. SMEs face unique challenges that stem largely from their size. While economies of scale permit larger organizations to employ a team of specialists to address the complexities involved in managing HR programs, this is not a viable option for many SMEs. The costs associated with hiring highly trained HR professionals on a full-time basis are likely to be prohibitive for many smaller organizations. As a result, HR activities often become the responsibility of line managers. This can be problematic for two reasons. First, the complexity of many HR activities is likely to result in them becoming a significant drain on managerial time and resources. As such, HR tasks may interfere with managerial responsibilities that are directly related to revenue production.

The human resource of any organization is one of the sources of sustainable competitive advantage. It must be dealt with due care. Many small and medium enterprises are having very informal sort of human resource activities. Even in some organizations, there is not any formal human resource department. The functions of recruitment, selection, compensation and training if any, are all carried out in a very casual manner by top managers in most of the cases. It has an advantage of flexibility and low cost but as the size of a company grows it becomes difficult for the managers to perform all these functions besides managing other operations, the burden of whom has also been increased due to growth. So, as a consequence of this informality, the company has to pay certain costs in terms of time and money. The resources of recruitment in case of informal human resources being gathered through personal references and channels are not sufficient. Hence, in order to survive and sustain a position in the market the human resource functions must be carried out in the best possible manner and they must be ensured to be aligned with organizational goals as a whole for fulfilling the needs of strategic human resource management.

There is a substantial amount of evidence to suggest that the small organizations do not have the HRD expertise ,infrastructure and general resource more usually enjoyed by larger ones .Research has revealed a high degree of unplanned, reactive and informal training activity in small firms , where there is typically unlikely to be a dedicated personnel manager or training officer.

Other literature supports that in many small organizations training does not take place at all. Moreover, where training does not occur in small organizations, not only is it more likely to be reactive and informal but also it tends to be short term and almost exclusively directed at the solution of immediate work-related problems rather than the development of people. Such factors suggest that T&D in small organizations is predominantly job-skill related, delivered on the job as part of the job, and is seen not so much as ‘proper training’ but instead regarded as’ part of everyday life’ .These arguments also suggest that dynamics of HRD in small organizations are notably different from those in larger enterprises. Training and Development practices in smaller organizations are characterized by ‘lacks’ .Managers in small companies is seen as resistant to the provision of training opportunities through a lack of time, money or market knowledge. We also examined the argument that suitable training and development are not provided for employees in small companies, as suppliers have concentrated on larger, wealthier organizations. If Recruitment and selection can be seen as the first people management task underpinning the entry of a new employee into an organization, training and development can be seen as the second. (Beaver, 2004)

Literature review:Much of the literature has focused on how large/multinationals manage their human resource i-e how they recruit, reward, motivate, train and evaluate their employees. These practices can somehow be generalized in order to understand how small and emerging enterprises perform these functions and who performs them. But, in order to have a better understanding of them a theoretical framework is needed. More research must be done in order to describe the functioning of HR department in small and medium organizations. As to draw a general perception of it, we consulted a lot of articles, a brief introduction and results of which is given below.

Susan Mayson and Rowena Barrettt in their article “The science and practice of HRM in small firms” have come up with a view that although there is great evidence regarding the informality in human resource functions the reason behind it is not that known. The source of competitive advantage has always shifted over time. Once it was the technology and sophisticated use of latest machinery that provided a firm competing in fierce competition to have an edge over and above others. But now, the scenario has been changed. These sources of competitive advantage can easily be imitated and the source of more sustainable competitive advantage is undoubtedly the human resource of a firm that is motivated, engaged and committed.

In this article the authors have focused on describing the science of strategic human resource management that is usually thought to be associated with larger firms and have tried to develop a deep understanding of it’s role in small or medium size firms as well. They have used RBV or resource based view model to elaborate the value of employees in contributing towards the success or failure of an organization. According to RBV any physical, human or organizational resource of a firm can act as a source of driving competitive advantage for a firm if it is unique to the firm or is rare among all the competitors, is difficult to be copied , is non-substitutable and adds considerable value to any firm. As the size of a firm increases, it must take initiative to move towards more systematic and planned activities of managing human resources. Strategic human resource is more than just managing payroll and other employee related functions. The focus has now shifted from HRM to SHRM because of the importance of strategic human resource in generating sustainable growth, profitability and competitive edge. Strategic human resource management focuses on achieving organizational objectives by aligning them with the individual goals of the employees. More importantly, SHRM implies the employees are a source of strategic value and their development, deployment and organization all contribute towards a firm’s performance, profitability and sustainability. SHRM and the RBV view employees as valuable, firm specific resource that is a system of integrated practices

contributing towards organizational performance rather than operational activities designed to reduce cost.

Most of the research suggests that HRM in small firms is ad hoc r informal. Most of them usually don’t have HR professionals in-house or even a separate HR department. If we look at staffing in small firms it is usually done through convenient, less expensive and in ways that are directly controllable by the firm rather than through proper channels and no special attention is given to the screening of the applications in an effective manner and to reference checking as well. Such practices ultimately lead to bad performance of the employees and the firm as a whole.

Undoubtedly training is an indispensible function of today’s competitive world but in most of small firms it is being ignored either because of high costs or inability of small firms to recognize the importance of it. Even if there is training being held in some organizations it is usually conducted informally on the job. Performance evaluation is also being ignored and it is usually carried out informally with a view of monitoring rather than developing employees. They are also lagging behind in attracting a high performing pool of employees through attractive pays and benefits. In a nut shell, the research done since yet does show that there is some form of HRM in small firms. It also confirms that the practice is characterized by informality. It may be a problem because informal HR practices do not recognize the value of employees. (Susan Mayson, 2006)

It is true that informality provides small firms with a benefit of flexibility and convenience but as the size of the firm grows such informality can lead to diminishing returns. For example, when number of employee’s increases due to growth, it becomes difficult to manually keep their record and also to recruit from the existing sources informally doesn’t pay well. However, while describing the HR practices in small firms, the impacts of other factors such as labor and product market’s conditions is often overlooked. Small firms’ managers usually have to face many other challenges beside establishing a formal HR department. Their major concern usually is to keep the business running and to survive in the long run while operating in a highly competitive environment. The transformation towards a formal HR department depends upon the owner’s desirability to do so and his ability to recognize and be compliant towards legal issues as well. The responsibility of HR related practices may be delegated someone else as the pressure of operations increases upon growth in the size of firm. But, this still depends upon the management style and personality of the owner. (Marlow, 1993)

The studies which the authors have used as reference indicate that the small firms may be termed as resource poverty, as intensive HRM practices require both, huge amount of money and time, that is a barrier in their way to SHRM. Small firms, particularly those that are growing or growth oriented, make an important contribution to the performance of developed and developing economies around the globe. A critical issue is how to ensure the growth and sustainability of the firm as we know HRM in small firms we clearly see that it is characterized by informality. Studies have revealed that SHRM contributes exponentially towards the growth and sustainability of businesses. (Susan Mayson, 2006)

Rosemary Hill and Jim Stewart in their study of 3 small and medium organizations in North West England discussed the values and characteristics of SME’s generally in these 3 firms and their impact on human resource development in them. Some suggestion for further research is also provided. Their focus of study was that despite the encouragement from government to promote SME’s while recognizing their crucial role in development of economy SMEs are still not enjoying the infrastructure and expertise that large organizations have. There is very less focus on training and development of employees in SME’s despite of the need to reduce the skill gap that is substantial. Major proportion of businesses in UK according to the Skill and Employment Network statistics employee less than 100 employees and fall under SMEs. So, due attention must be paid in formal training and development of employees so that there is no more a difference in what the employers want their employees to do and what they actually do. This research was carried out by the authors as part of a 4 year doctoral program, whose objective was to analyze and assess the effectiveness of UK national policy towards there development of human resource in SMES. The data was collected by means of multiple case studies and two to three follow up visits to case study organizations. As well as mailed questionnaires to 350 small organizations and interviews to 23 owners and CEOs of small organizations. The three organizations belonged to three different industries and it helped the researchers to come up with contrasting views of management styles, ownership. Structure etc, the majority of data was collected through semi structured and informal interviews, telephone conversations and site observations in a quite informal manner. Small and large firms cannot be generalized because of the uncertainties and conditions they face. Most large firms face internal uncertainty i-e whether the decisions made at the top are disseminated properly to the lower levels for implementation or not. On the other side this in not an issue for small firms. (Storey, 1994)

Formality is good but it must not be so rigid that things cannot be altered even under pressure. The uncertainty they face is external i-e market risk and less power and influence than the larger firms. Another difference among large and small firms is of innovation, while small firms can go on by developing a niche in the market, larger firms usually produce standardized products. The studies the authors have used as reference reveal that in many small

organizations training and development does not take place at all. Even if it takes place, it is usually short term and for the current needs only. It depends upon the attitude of the owner towards training and development and also its perceived impact on organizational performance. It is a three step process of panning, doing and evaluating the training activities. Most of the studies revealed a direct link between training and business success. (Rosemarry Hill, 2000)

Alan Price in his article “HRD in small and medium-sized enterprises” shared his views regarding HRD in SME’S . He said recruitment is problematic for SMEs due to limited budget and material resources an also the large number of functions that requires the employee to perform various roles with responsibilities not very explicit. Empirical evidence suggests that SMEs have enormous difficulties in attracting employees with the knowledge they need. The quality of manpower on the market including lack of basic competencies particularly in younger people make the task of recruiting in SMEs very difficult. SMEs seek an employee to match the function and not by qualification or professional skills. Is there R&S truly strategic, structured and conceptualized or just informal or disconnected from core business? Approach to the HR of SMEs is fragmented and more reactive than proactive, holistic and systematic. Owners of the companies are more concerned with their systems of telephone networks or the internet platform than with the culture and practices of HR managers.HRD is more likely perceived and talked about in small organizations as T&D. While acknowledging views about small organizations not doing HRD in a conventional sense, research methods and questions were formulated on the basis that small organizations do ’do’ HRD but that it is difficult to find as HRD policies and activities are embedded within organizational infrastructures and operational routines. The research therefore sought HRD not exclusively within traditional frameworks(formal training courses and induction programmers ,for instance)-that by and large were not there to be found anyway or were partially there-but within phenomena such as organizational changes, markets, competitive strategies, evolution and growth, leadership influences and inclinations towards innovation and creativity.

The primary research strategy was to collect data by means of a questionnaire and through an interview. These interviews and questionnaires were used to gain an understanding of some of the problems, views and experiences of the owner-managers in a wide range of organizations in the area. (Price, 2004)

HRD in small organizations seems more naturally directed towards the development of organizational knowledge and capability than at the T&D of employees. Since learning seems typified by tacit knowledge and skills the extent of HRD enacted becomes obscured, misunderstood and underestimated. This makes small organizations HRD significantly different from conventional notions of HRD. (Price, 2004)

While acknowledging views about small organizations not doing HRD in a conventional sense, research methods and questions were formulated on the basis that small organizations do ’do’ HRD but that it is difficult to find as HRD policies and activities are embedded within organizational infrastructures and operational routines. The research therefore sought HRD not exclusively within traditional frameworks (formal training courses and induction programmers, for instance)-that by and large were not there to be found anyway or were partially there-but within phenomena such as organizational changes, markets, competitive strategies, evolution and growth, leadership influences and inclinations towards innovation and creativity.

Research has revealed a high degree of unplanned, reactive and informal training activity in small firms, where there is typically unlikely to be a dedicated personnel manager or training officer.If Recruitment and selection can be seen as the first people management task underpinning the entry of a new employee into an organization, training and development can be seen as the second.

Other literature supports that in many small organizations training does not take place at all. Moreover, where training does not occur in small organizations, not only is it more likely to be reactive and informal but also it tends to be short term and almost exclusively directed at the solution of immediate work-related problems rather than the development of people. Such factors suggest that T&D in small organizations is predominantly job-skill related, delivered on the job as part of the job, and is seen not so much as ‘proper training’ but instead regarded as’ part of everyday life’. These arguments also suggest that dynamics of HRD in small organizations are notably different from those in larger enterprises. Training and Development

practices in smaller organizations are characterized by ‘lacks’ Managers in small companies are seen as resistant to the provision of training opportunities through a lack of time, money or market knowledge.

Recruitment is problematic for SMEs due to limited budget and material resources an also the large number of functions that requires the employee to perform various roles with responsibilities not very explicit. Empirical evidence suggests that SMEs have enormous difficulties in attracting employees with the knowledge they need. The quality of manpower on the market including lack of basic competencies particularly in younger people make the task of recruiting in SMEs very difficult. SMEs seek an employee to match the function and not by qualification or professional skills .Is there R&S truly strategic, structured and conceptualized or just informal or disconnected from core business. Approach to the HR of SMEs is fragmented and more reactive than proactive, holistic and systematic. Owners of the companies are more concerned with their systems of telephone networks or the internet platform than with the culture and practices of HR managers.HRD is more likely perceived and talked about in small organizations as T&D.

In a survey of 6000 randomly selected SMEs in Great Britain, Matley found significant differences in owner/manager attitudes and approaches towards training needs of family and non-family employees in their businesses. The needs of family members were seen in terms of firm-specific HRD issues such as succession planning whereas training for non-family employees was focused on individual career needs.

Owner/managers were mostly positive towards training but did not regard it as a critical element in overall business strategy. Matlay also found that in most cases (100 per cent of micro-enterprises and 93 per cent of small businesses), decision-making for training and HRD were taken by the owner/manager. A mere 7 per cent of small businesses employed a human resource manager but, even in those organizations, the final decisions appeared to be taken by the owner/managers.

The analysis from research shows that growth-oriented small firms are more likely than non-growing ones to use formal HRM practices where that means that they are written down, regularly applied or assured to take place.

Human Resource Management within small and medium-sized entreprizes, a research partly funded by Dutch Ministry of Economic Affairs and done by Prof.dr.ir.J.Hvan Bemmel, Prof.dr. A.R. Thurik, Prof.dr. F.A.G. den Butter, Prof.dr. J. Paauwe, Prof.dr. J. de Koning and Prof.dr. M. Lindeboom shows how the importance of human resources in recent years has been evident at both macro and micro level. Resource base theories at micro level are a major benefit to the individual firms. Recent developments show that earning of human capital in the

western economy is termed under knowledge-based economies. The increasing importance of human capital is seen both at the demand and supply side. Companies in the knowledge-based economy despite witnessing a shortage of qualified employees in the labour market have to meet their demand for highly qualified officials. Thus, as a result both human resources and therefore the management of these resources is becoming important. This knowledge based economy at the same time is seeing an increase in the small and medium sized firms which employees half of the employees, decreasing the HRM practices. HRM requires a workforce with qualities of higher knowledge, training, determination and developmental and communication skills which are ensured by recruitment, selection, appraisal and compensation of employees. These employees then prove to be the key to organizational success and this was the reason to the early 1980's shift from personnel management to human resource management. So, human resources are an important source to generate sustained competitive advantage. Most studies on HRM within SMEs are based on qualitative studies and the empirical information on HRM within SMEs show that smaller firms make less use of high performance HRM practices than larger organizations further explaining that small sized firms work in a more casual and informal way as compared to that of the bigger organisations.The HRM planning and formal training is directly related to the firm size so a smaller firm means less formal training to the employees along with less chances of bonuses than larger companies. Along with firm size, Heterogeneity in the type and formalization of the HRM practices also affect the HRM practices.

Scholars arguing on the HRM patterns have both sorts of viewpoints. Where some scholars say that lack of resources and foresight lead to less use of formal high performance HRM practices, at the same point others state that HRM patterns in small firms should be more flexible and informal so that they are able to cope with the higher levels of environmental uncertainty. Scholars even argue that lack of understanding of HRM issues by small business owners may be one of the explanations for firm-size differences in HRM practices. Small firms with being informal are also believed to be less specialized than larger firms. Specialists are rarely found in a small firm and employees have to perform a greater variety of tasks. In a random sample of 117 companies with less than 100 employees, only 15 have an HRM department. Despite all these studies, it is still believed that HRM practices in small firms are often more sophisticated than expected yet being less sophisticated as compared to the larger firms. It is also seen that smaller firms pay less wages than larger organizations. These large firms have a higher monitoring cost increasing the benefits of screening for workers with high abilities making them succeed in attracting the most able workers. SMEs way of managing their employees resembles the “bleak house” concept, where employment relations can be “typified by direct management control, poor terms and conditions, high staff turnover and little training” (Bacon et al., 1996, page 82). The above stated practices of smaller firms of paying lower wages, providing less training and employment of less specialized people seems to support this bleak

house concept. But authors still claim that Small and medium-sized enterprises may even have a behavioral advantage over large firms when it comes to managing employment relationships as they believe that this enables flexibility and individual approach to employment relationship. Though, the small firms are still ignorant towards the relationship between HRM and performance. It is receiving much attention in HRM studies amongst large firms. All of the determination of HRM practices in SMEs has received less attention on relevance of contextual and structural dimensions besides size but none the less large firms are depicting positive relations with HRM. (Bemmel, 26 june 2003)

Muhammad Umer, in his research, “Human Resource Management Theory and Practices in Small and Medium-Sized Enterprises (SMEs) and Enterprises Performance in Pakistan” describes the degree of HR formality in SMEs of particularly Pakistan. Several approaches are used to measure the patterns of HR formality but the author uses HRM formalization scale based on a system approach. This provides level of HR formality with different prevailing HR configurations and also helps in differentiating HR formalizing different size classes. This study mainly deals with the usual categories of HR practices like recruitment, selection, training, compensation etc and there impacts on a organizations performance. The HRM researches in SMEs are increasing gradually showing the 'democratic management style, informal organizing and flexible working arrangements. They are still lacking behind in the conceptual framework and methodology. The global economic meltdown has further compounded the grounds for SMEs growth by showing a rapid increase in the inflammation. Despite the inflammation these SMEs play an important role in the reduction of poverty through employment generation as they mostly represent 99 percent of the enterprises in almost all the countries. Now researchers looking at smaller firms are paying attention towards individual HRM practices, determinants of HRM in SMEs and the level of formality. These conclude that HRM in small and medium sized organizations are informal, intuitive and ad hoc and are sub-optimal. As the size of firm grows the level of formality increases. As numbers increase, direct communication and direct supervision become inadequate tools to coordinate activities. In SMEs manager takes care of all HR related activities it obviously becomes difficult for him to manage employees when firm size increases. Consequently, the manger starts thinking to delegate HR responsibilities to others, inevitably leading to more formalization. In fact, owners or managers themselves believe that it is important to achieve a certain level of HR formalization for attracting better employees and customers and profitability of the firm. Retention is among the major problems of SMEs. Employees keep shifting from one firm to another as an increment in salary is far behind the growth in inflation. There are no practicing HR policies, no bonuses, no incentives, and no employee contracts. All of this results in depression of the workers making the workplace of SMEs less productive. Different organizations have different perceptions about Human Resource. In this competitive nature of firms where each organization is trying to differentiate from the other, HR can give competitive edge over the others. Thus the market

demand of HR is increasing, bringing more people towards this field. HR in SMEs if come in action largely will benefit by streamlining the activities and creating a transparent, fair equitable system providing equal employment opportunities, justified promotions, tenure track and providing solution to the queries related to insurance, medical etc. They would get an organized structure, proper pay structures, promotion plans and employee compensation and benefits plans etc. HR department in SMEs would ensure recruitment, selection, training and development. Working with planning HR would ensure better formal levels in SMEs too.

SMEDA states that findings of HRM formalization research within SMEs in Pakistan will help to improve management control, for policy and strategy concerns. The three types of theories strategic, descriptive and normative of HRM are concerned with relations between a range of possible external contingencies and HRM policy and practice. Broad field, interrelations and key outcomes and are basis for prescribed best practice and high worker performance respectively. There is a correlation between high performance due to HRM practice and organization output. Poole & Jenkins (1996) surveyed 909 firms in Britain, and found that HRM is one of the major keys for firms to gain a competitive edge or a lasting and sustained advantage over their competitors in the modern world. There is no direct link between HRM strategy and corporate strategy but HR qualities do contribute to the profits and growth of the firm. Business strategy is related with human performance and is important factors in achieving great excellence from the firm. All the researches indicate that HRM policies and practices pay a major role for business success; hence there are interrelationships between HRM and organizational performance. Small sized organizations are usually challenged by HRM because due to lack of resources as compared to the larger firms they can’t hire professionals exclusively for HRM department and as mentioned earlier they result in being informal and not very sophisticated. SMEs are complex and influenced by a range of factors. So some authors still argue that an informal approach is better for the smaller firms as the owners can keep direct personal control of the firm and HRM informal services are perfect.

Some SMEs cannot adopt formal HRM practices due to lack of resources like finance and time. So as a result, the vision and knowledge of the owner and limited resources play a vital role in keeping SMEs informal. The cause of rationality behind RM formality in SMEs is the firm size. There is an increased sophistication in HR practices with increasing firm size. It is also seen through studies that growing small firms are more likely to use formalized HRM practices than non-growing. The presence of HR department is directly proportional with the size of the firm. It is positively related with the probability that HR department is present. So it can be said that as the size increases, complexity of the firms also increase. Highly competitive and rigid environments of SMEs also demand a certain level of HR formality to stay attractive for employees and customers. It is necessary to maintain detailed records of each employee for control purposes as they also serve as reference documents. Legislation dealing with certain

legal procedures may also demand SMEs to adopt formal HR practices. Small firms also have to keep a balance between formal and informal management practices to compete in the marketplace. Where on one hand it is stated that competition with bigger firms may force SMEs to apply HR formality. AS the business tycoons could minimize the profit margin of the smaller firms, the owners need to have strong and absolute control over the labor process. There on the other hand it is stated that SMEs and bigger firms compete for both customers and employees and this could pressurize the SMEs owners to develop HR policies to attract superior employees. Thus as a result it is seen that formal HR practices could distinguish one firm from the other and could attract more customers and employees. SMEs when in search of loans go to micro credit banks to fulfill their financial needs are perceived to be unreliable due to the low levels of HR formality. So to avail this facility small firm owners have to develop HR practices. Thus, concluded that SHR formality is not only influenced by benefits attached to it but are also by cultural, economic and institutional factors. It is now evident that a certain level of HR formality is necessary and beneficial for SMEs and realizing these certain SMEs are now practicing HRM in their firms. (Umer, 2012)

Research question:How do small and medium enterprises manage their human resource functions?

Objective:Our objectives of study are as follows:

To find out how SMEs carry out their basic HR functions. Highlighting the reasons and factors why they are lagging behind in effectively managing

their human resources. Perceptions of employees and employers on the issue

Research design:The methodology we have used or the research design consist of gathering data from a small sample of SME’s by interviewing their CEOs or top managers and it helped us a lot to come up

with descriptive analysis of the functionality of Human Resource Department in small or emerging firms.

Source of data:The data was collected from both secondary sources like scholarly articles to use as a reference and to develop a know how about functioning of small and medium enterprises with respect to human resource management activities and also from primary sources i-e direct interviews and questionnaire from the participating organization’s CEO.

Sampling:A sample of managers or CEOs from 3 small and medium organizations operating in Pakistan was taken for the purpose of study.

Analysis and findings: The study was conducted by visiting 3 organizations. All three belonged to different nature of work and were small enterprises operating in Pakistan. The results we drew from these organizations are summarized below.

Case 1:One of the organizations we visited was a promotion and marketing firm, formed just three to four years ago. We interviewed the CEO of that organization and he helped us a lot in analyzing the nature of HR activities they are currently involved in. It was a small organization employing approximately 70 employees. Currently, there are 7 departments i-e HR, marketing, creative, marketing, business development, finance and retail management having 4-10 members in each. The numbers of employees vary according to the nature of work.

The person we interviewed told us that the main functions of HR department at his organization include hiring and firing, training (organizational development), data base management, annual appraisal and administration. There is one HR manager under whose supervision is a team of 4-10 members. He focused his debate on telling us that the culture of his organization is family oriented, and HR policies are no exception in being under affect of this culture. Job analysis for all kinds of jobs at their organization was conducted. While describing a job tasks are being prioritized and upon them job description is being made. And for job specification as well, requirements of jobs are being prioritize before finalizing it. He said that it is not possible that manager of any particular field cannot be contacted, as we provide our staff with all the facilities so that they may remain in contact. Even if any such thing happens, there

is a backup of each manager in the case of his absence from the job. For the purpose of assessment, individual form filling is done by each member to rate himself and afterwards, his assessment is being reviewed by his manager and CEO and is discussed to look for any discrepancies. Conflicts if any are resolved by having all the persons involved to sit in a room and solve the problem as soon as possible.

The CEO told us that they are dealing with multinationals and they can’t afford to be legally constrained. They have to file sales tax as well properly in order to keep their multinational clients satisfied. In hiring there isn’t any particular fixed time to hire. They hire when they need and as many times as they want. Primarily the mode they used for recruitment was word of mouth but by now they place ads in newspaper and on online channels as well. Interviews of new recruits are conducted by line managers and of that 70-80% get selected usually and CEO conducts the final interview. They are applying Equal employment opportunity laws 100% in their organization.

There is not any policy yet that states organization’s philosophy on employee training and development. They have TNA training need assessment process that is being carried out each year after the appraisal. In training employees power point presentations are mostly conducted and another tool used is team building. The company does not have its own training institute. Training programs is usually conducted more than once in a year. Foods and drinks are provided t the trainees during this process. One month after the training program being held a test is usually conducted in order to assess the change in behavior, attitude and work style of employees. Assessment of employees is done throughout the year and they are replaced if necessary depending upon the needs of market and on their own performance. Opportunities of advancement are also provided to high performing employees. Employees are also being guided bt their supervisors and CEO regarding their career paths. He said that they increase the morale of his employees by providing medical facility and free lunch in house. The talent in his organization is being managed through training.

The main factors identified in evaluating the employee are his performance, attitude/behavior and potential. Non wage compensations provided include medical insurance, cars for senior employees, laptops and mobile phones and on the day an employee joins an organization, he can apply for motor bike loan. Pay is decided by keeping in view both seniority and merit basis.Basic pay is given, in addition to it perks like petrol, cell phones, health insurance, social security and vehicle are given depending on his/her contract and GST is also deducted.Casual, maternity and annual leaves are also given to the employees.

The orientation is generally conducted in 2 to 3 sessions ranging from 20 minutes to half an hour. In orientation consists of company’s profile and orientation to all departments and a detailed orientation on the relevant department with job description explained.

So, this organization is growing yet and falls in the category of small and medium enterprises, hence a general trend that is evident from this organization is that it does consider HRM as one of the crucial contributors towards success but still it’s size does not allow it to have a proper formal human resource management department that has the sole authority of managing HR related functions.

Case 2The organization visited was an agro-based firm ,which was relatively a new company only three years old so their HR department was not much developed, they were still devising and implementing their HR policies and strategies .When asked about main functions of HR department in their organization the CEO of the organization told us that the main function of HR department is to hire the right employees to provide them with proper job descriptions to ensure that company policies are being followed to make and suggest any amendments that are required in the policies. He said their HR department also looks after the administration functions as well, which means that if they have a fleet of cars, the administration of fleet of cars is also the responsibility of HR function. So for them HR department and administration was treated as one.

As far as hierarchy of HR department was concerned there were only two employees in HR department. One was Assistant Manager, other was his officer. When asked about their current philosophy of designing HR policies and laws he told us that they have benchmarked their HR policies against the policies implemented by multinationals, so what they have done, since they are their competition, is that they have identified few multinationals, they keep track of the HR policies which are being adopted by those multinationals .Job analysis is conducted for some positions of company and not for all. When asked about main components of job description which are focused while analyzing a job he said they look at the key performance indicators, that what are the expectations of the organization and depending on that they design job descriptions. They also identify the percentage of time which they expect to spend on each particular task. They also try to quantify the amount of importance that each task has for the organization. So, if somebody has say six tasks to perform each task is not equally important there are few tasks which are critical than others. They also treat job description and job specification as one and there is no separate document related to job specification. Their Finance and Accounts department housed in the head office was considered to be the second alternate when say supply chain or warehousing or any sales person cannot be reached , which takes care of all matters.

When asked about what techniques and tools managers use for assessment purposes he told us that is something they have introduced this year only. It is a relatively young company, only three years old. So from this year, they have started a formal employee appraisal system. It was

not there previously two years ago. Their strategy regarding conflict is to sit across the table and try to understand different viewpoints of employees and then find a way and if someone is being unreasonable CEO tries to tell and the mechanism is that CEO of the organization resolves the issues. Their strategy regarding legal compliance is that they have a lawyer they consult him, whenever they feel they need a legal opinion. Sometimes there are conflicts with other companies that also trigger the initiative to take legal advice so they consult legal advisor for that purpose. Recruitment source used in the organization is almost always reference of existing employees. When asked about how many times they hire employees in one year he told us that for them hiring and firing is a continuous process. They keep on hiring and firing employees. Most effective recruitment method in the organization is personal references. Departmental head starts the interview process, he usually conducts the initial interview and depending on the rank, if there is an Assistant Manager or Senior Manager, he is also introduced to the CEO of organization. When asked about the extent of applicability of EEO laws in hiring process he told us they are equal opportunity employers in fact they have tried to find female employees but the nature of work is such that, they have a lean organization, the office, head office is small. Most staff consists of sales persons and they move to rural areas, so it is not very convenient for females. He said that he does not know and heard of even a multinational which has a sales executive position for females who go around in different villages for sales of fertilizers and pesticides. The organization does not have any well articulated and written down policy that states the organization’s philosophy on employee training and development. They do not have any process for assessing the organization’s training needs and individual development needs. What they have done in the past is that they identified reporting lines, they have done job descriptions , identified key performance indicators of departments, and then from department to employees .So that is where most of their HR practices are and unfortunately not to that level. Training needs assessment they do not conduct but they do conduct some internal training but it is not based on training needs assessment. They conduct generalized training e.g., if they are entering a time in a year when cotton will be sown or rice will be sown ,it’s a general practice among most companies in this business that before the sowing of a particular crop, the sales officers are gathered at a particular site, where their technical heads give them tips on the crop ,the challenges that farmer has to face etc, he said if you define that as training then we are very intense on that. Another practice they follow is that on a weekly basis they send a company newsletter to all employees. That is one way of communicating with them, they inform them about various initiatives, new products being introduced. Similarly it is technical manager’s part of job description to write technical bulletin about sales which is distributed among all the employees. Technical training is frequently used by the organization. As far as topics emphasized in the training program are concerned, they have made a list of training topics but the initiative has not been launched yet. The topics include team building, listening skills, selling skills and

followership. The organization has a technical department that act as training institute and its main job was to conduct trainings. They hire trainers from outside they do sometimes have sales conferences. They have one annual sales conference and some quarterly events where whole sales team was gathered less than one roof and they invite technical trainers. The training program is conducted once a quarter. They offered facilities for employees during training period by conducting training at hill stations so the sales team gets relaxed as well along with being trained. Training is usually lecture based. The trainer usually conducts the training by delivering lecture. There is a written exam at the end of the training and based on that written exam , they evaluated key trainees. These reports are made part of HR files and are documented and told how a particular employee performed and those who performed well a certain weight was assigned when decisions for promotions were made. As far as opportunities for high potential workers are concerned he said they try, if somebody performs well he has a faster track to grow .They do not treat all the employees equally. Those who perform well get monetary benefits and promotions etc. They increase pool of promotable employees by focusing on motivating them. He said there is some effort that employee has to put in and certain level of effort which leadership has to put in that would increase the pool of promotable candidates. He said there is some effort that employees do, and the management tries to provide them technical training, that’s their business, so their main focus is always on technical training.

They guide individuals in their career paths at personal level but at organizational level there was no such policy. They increase the morale of employees by encouraging them, by rewarding them, one way is through weekly newsletter, so if the employee performed well his name is mentioned in that newsletter and they recognize them in these letters. Then they recognize them in annual meetings, quarterly meetings where they give them chance to speak with other employees. They also give them cash prizes and incentives. They do not have any mechanism for enhancing the talent management of employees; CEO said that he thinks he has not reached that level yet. He told us they try, they have recently registered their company in Prime Minister Youth Employment Scheme but they have not received any application through that channel, that is one way of encouraging young talent. For existing talent it’s the company strategy of reward and punishment. If the employee performs well he gets promotion, incentives, bonuses and if does not perform well he gets fired. They have a performance appraisal system for evaluating the performance of employees. The system included educating the person doing the evaluation and for weekly evaluation HR department is responsible. Departmental head conducts the performance appraisal and the final approval is from the CEO. Departmental and individual targets of an employee are considered in evaluating his performance. They evaluated employee’s performance on an annual basis but mock appraisals are conducted on six monthly basis. Non-wage compensation provided to employees included travelling allowance; they provided mobile phones and mobile connections. When asked that

do they pay lowest rate of pay to employees to ensure that they remain with the organization, he told us it depends on the department there is no standard formula for that. They pay their sales persons according to market and follow some reference companies. There is no role of seniority in pay schedule but yes meritorious performance has a major role.

Case 3:

Discussion:The main issues that connect these three very different case organizations is that the Owners/managers need to be willing to develop formal HR departments in their organizations. In the agro-based firm HR department was not much developed with HR policies and strategies still in the process of development and implementation. For instance job analysis is not done for all job positions in the organization similarly for them job description and specification are treated as one. If we look at staffing it is usually done through convenient, less expensive and in ways that are directly controllable by the firm rather than through proper channels and no special attention is given to the screening of the applications in an effective manner and to reference checking as well. Such practices ultimately lead to bad performance of the employees and the firm as a whole. Performance evaluation is also being ignored and it is usually carried out informally with a view of monitoring rather than developing employees. Talent Management and training needs assessments are not done. Although this firm practices HRD but these HR practices are characterized by informality. It may be a problem because informal HR practices do not recognize the value of employees. It is true that informality provides small firms with a benefit of flexibility and convenience but as the size of the firm grows such informality can lead to diminishing returns. For example, when number of employee’s increases due to growth, it becomes difficult to manually keep their record and also to recruit from the existing sources, informally doesn’t pay well. Small firms’ managers usually have to face many other challenges beside establishing a formal HR department. Their major concern usually is to keep the business running and to survive in the long run while operating in a highly competitive environment. The transformation towards a formal HR department depends upon the owner’s desirability to do so and his ability to recognize and be compliant towards legal issues as well. The responsibility of HR related practices may be delegated somewhere else as the pressure of operations increases upon growth in the size of firm. But, this still depends upon the management style and personality of the owner.

In the marketing firm, the owner said that there is no policy yet that states organizational commitment towards training and development. Since it is a marketing firm and must stay proactive in managing the talent of its employees, proper attention must be given in devising policies regarding training and development needs of the employees.

Conclusion:Despite of ever increasing importance of human resource management most of the small and medium level organizations operating with in Pakistan are still managing their HR related functions in a traditional and relatively informal method. Some SMEs cannot adopt formal HRM practices due to lack of resources like finance and time. So as a result, the vision and knowledge of the owner and limited resources play a vital role in keeping SMEs informal. The cause of rationality behind HRM formality in SMEs is the firm size. There is an increased sophistication in HR practices with increasing firm size. It is also seen through studies that growing small firms are more likely to use formalized HRM practices than non-growing. The presence of HR department is directly proportional with the size of the firm. It is positively related with the probability that HR department is present. So it can be said that as the size increases, complexity of the firms also increase. We suggest that increased importance must be driven towards formalization of HR practices in SME as it will help the company to overcome many of constraints that the company has to face due to informality in HRM and will help the company in increasing its efficiency and effectiveness.

BibliographyBeaver, J. S. (2004). HRD in small organizations.

Bemmel, P. J. (26 june 2003). HUMAN RESOURCE MANAGEMENT WITHIN SMALL AND MEDIUM-SIZED ENTERPRISES.

Marlow, S. &. (1993). managing the employement relationship in smaller firms: possibilities of Human resource mangement. International small business journal , 57-64.

Price, A. (2004). HRD in small and medium-sized entreprises. Human resource development:strategy and tactics .

Rosemarry Hill, J. S. (2000). human resource development in small organization. journal of Europeon Industrial training , 105-117.

Storey, D. (1994). Understanding the small business sector.

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Umer, M. (2012). Human Resource Management Theory and Practices in SME and entreprise performance in Pakistan. lahore: Global Journals Inc.

Human Resource Development

Interview Questions

How many departments are there in your organization? What are the main functions of HR department at your organization? What is the hierarchy of human resource department? What is your current philosophy for designing HR policies and laws? Is job analysis done for various positions of your company?If yes, then which one? What are the main components of job description which are focused while analyzing a job? What are the main components of job specifications which are focused while analyzing a job? What is the number of employees in each department? What are the alternate chains of command when managers cannot be contacted? What techniques and tools managers use for assessment purposes? What is your strategy regarding resolving conflicts? What is your strategy regarding legal compliance?(policies and regulations)

Recruitment and selection

How many times you hire employees in one year? What is the recruitment source used in your organization? Which recruitment method is most effective in your organization? What type of interviews you conduct and who conducts them? To what extent equal employment opportunity laws are applicable in the process of hiring?

Training and development

Do you have any policy that states the organization’s philosophy on employee training and development?

Do you have any process for assessing the organization’s training needs and individual development needs? If yes how assessment is carried out and how often it is updated?

Which issues you consider in assessing training needs? Which training is frequently used by your organization? Which training opportunities do you offer/which topics are emphasized in the training

program? Do you have any training institute of your own? Do you hire trainers from outside? How often your company conducts training program in year? During the training period, what types of facility program you have? What is the common format/system/tool of your training programs? How do you analyze the after training benefits?

Career development and talent management:

How you identify replacement needs and how did manage? Do you provide opportunities for high potential workers? How you increase pool of promotable employees? Do you guide individuals in their career paths? How you increase your employee morale? How you enhance the talent management of employees?

Performance Management

How you evaluate the performance of employees? Who does the performance appraisal? What are the main factors in evaluating the performance of an employee? Which method is used for performance appraisal? After how much time period do you evaluate the employees? What is the frequency of appraisals?

Compensation and benefits

What are the non-wage compensation provided to employees? What is the lowest rate of pay that must be offered to employees to ensure that they remain

with the organization? Is there any role of seniority and meritorious performance in pay schedule? Which approach is being adopted here?

Questionnaire: How many employees do you have? How many departments are there in? What is the number of employees in each department? What is the manager to employee ratio? Who is responsible for orientation? How many sessions of orientation are conducted? What is the length and timing of each

session? What information is provided to the employees at the orientation? Do you provide any orientation kit to the employees? How evaluation of the orientation is carried out? How you calculate the payroll of employees? Do you provide any benefit to your employees? Do you give different types of leaves of absence?