HR Challenges for SMEs – Basic Reasons & Solutions

Most SMEs wish their HRs would effectively address their top people concerns – recruitment, leadership building, performance & culture. While these seem simple enough asks from internal HRs, more often than not, these are never really addressed for years on end.

The impact of the absence of good HR practices are often not clearly felt (or ignored) for years until business expansions, mergers & acquisitions or critical attrition bogs down business and directly impacts top line numbers. Add to these situations, CEOs’ sudden health concerns and handing down of business reins to next generation, and suddenly the seemingly well-oiled organization starts showing cracks, especially in the areas of governance, deliverables and accountability.

Most CEOs resort to knee-jerk reactions – acting as the quasi-HR for critical employees, spending extra budget for short term retentions or hiring, turning to local management consultants for “HR interventions” and HR digitization. While these sometimes seem to help in weathering the immediate situation, most, if not all, of them fail to address the endemic issues surrounding implementation & continuance of an effective people management approach.

To ensure that business continuity and planning are not negatively impacted by lack of strong HR fundamentals, SMEs should focus on designing, implementing and maintaining the most fundamental of people practices – 1. Driving middle management accountability & 2. structure-driven, data-enriched HR delivery systems.

Driving middle management accountability – The maximum interaction (both formal & informal) that any employee has in an organization is with her/his manager and team. Everyday interactions directly impact an employee’s cultural assimilation, engagement & sense of community. This dyadic structure is key to addressing most people topics. Unfortunately, many SMEs view manager roles as a “herder”, i.e., ensure outputs from the team. Managers, consequently, not only fail to accept responsibilities of their team’s development, they themselves fail to develop into future effective leaders, in absence of applied people management skills.

For a fundamentally strong HR practice, SMEs must ensure that managers are made the elementary unit of HR for their respective teams. What this practically translates to is that each manager should be made accountable for their own teams’ hiring, retention, personal development, salary & performance. They need to collaborate with their HRs to administer these but must take direct accountability of its effectiveness in their teams. SMEs must also ensure that managers must always be reminded of their “duties & responsibilities” and not just their “authorities” over their teams. This approach ensures that managers themselves, and their teams, tick all boxes that the CEO wants from HR at a macro level, thus achieving overall organizational effectiveness. Of course, interventions like mentoring, coaching, project-based/on-the-job learnings, formal trainings, etc. must continue to compliment and develop effectiveness of this approach.

Structure-driven, data-enriched HR delivery systems – HR Tools for digitization is nowadays touted as the silver bullet that resolves all errors & gaps that HR is guilty of, in a manual system. While HR automation is undoubtedly important for overall HR effectiveness, SMEs mostly struggle to find meaningful RoI of automation. The fault lies in their inability to structure their organization, design practically useful SoPs and implement lean processes. Most SMEs end up having basic employee details, payroll and attendance data, and sometimes, incentive and performance data. Unfortunately, these data become meaningless in absence of any basic structures like job levels, consistent salary structures, job-relevant salary bands, organizational span-of-control, etc. No insights are gained by data cuts and decision making continues adhoc without consistencies and deliberations. Middle managers continue to be sidelined in performance and salary revision decisions and this only makes HR practices weaker by the year.

Among the more important HR deliverables, is a performance and salary revision process, that is widely perceived as fair and consistent. To achieve this, SMEs must first focus on structuring their organization through job & designation standardization, job leveling & mapping, driving salary consistencies within job levels, and then, defining simple & easy-to-understand KRAs for all roles.

This would immediately help them identify inconsistencies between good & bad performers, salary gaps within peers, non-standard designations across functions and inconsistent manager mappings. Once these are addressed, SMEs must start empowering their managers, by involving them in all such reviews and decisions for their teams. When every manager is involved in this exercise, it ensures fair, transparent and consistent employee treatment, and one which can be justified to the employee. Employees see their managers taking accountability and respond positively to such management practices.

The journey to achieving overall HR effectiveness becomes simpler for SMEs, with managers joining them in this journey and improving HR’s (& management’s) overall credibility in the eyes of employees.

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