Demystifying HR Priorities for SMEs

Vivek Kumar
Oct 1, 2020
4 min read

Updated: Apr 20, 2021

Business Excellence Series Title - 1

SMEs often tend to ignore the HR aspect of their businesses during the initial stages of operation.

Here is why they should rethink that approach.

India is booming with SMEs, young entrepreneurs and start-ups but according to a recent study by IBM, more than 90 per cent of start-ups in the country fail. According to the study done by IBM Institute for Business Value (IBV) based on a survey done in collaboration with Oxford Economics, lack of innovation, non-availability of skilled workforce and insufficient funding, are the main reasons for the high rate of failure.

This study also reveals that 70 per cent of the Venture Capitalists believe that Talent Acquisition is one of the biggest challenge faced by Indian start-ups, and limited availability of necessary skills impedes growth. At the same time, 60 per cent identified India’s skilled workforce as a strength for Indian market. That leads to importance of processes related to identifying the right Talent and attracting them to join the challenging journey. These contradictions further necessitates the need of creating a better understanding on Talent front.

HR - Investment or Cost for SMEs?

“...most HR initiatives, which are relatively intangibles like Organization Structure, Culture, Engagement of employees, Leadership Development and so on, tend to get out of focus for most enterprises.”

Any new organization faces enumerable challenges from different directions and need to carefully steer through them, to ensure survival and growth. These range from product to technology, capital, focus of entrepreneur, policy and regulatory issues, infrastructure and of course, Talent.

During initial phase of the organizational life cycle, organizations tend to focus more on tangibles than intangibles and rightly so, as they help providing them confidence of being on the right track. Tangibles like Sales volume, Costs of operation, Fixed costs, Cost of capital employed and so on are naturally visible parameters indicating progress of the organization. During this time most HR initiatives, which are relatively intangibles like Organization Structure, Culture, Engagement of employees, Leadership development and so on, tend to get out of focus for most enterprises.

It is important for the organizations to make prudent investments at this stage, remain lean and contain avoidable costs. The question which needs to be addressed at this stage is that whether HR is an Investment or Cost. For answering this aspect meaningfully, it would be important to dissect the term HR and understand it to the core.

Demystifying HR

The term HR refers to three distinct aspects in any organization, as explained in the table below. It is important that one has clarity in mind with respect to the specific reference one is making with the term HR.

Various researches have reinforced the accepted belief that one of the most critical aspect for ensuring success of any organization is the talent it is able to attract, retain and help deliver high performance. It therefore becomes evident that the organization has to see expense on Talent as an investment and ensure optimal allocation, right from the early stage. Those organizations who tend to believe that their product, technology, capital and marketing strategy can take them to the next level, without much focus on people, realize it to be a big mistake, sooner than later.

At the same time, it is important to make this investment prudently, by limiting it to the aspects mentioned in above table in Column “Relevance to SMEs”. Initially CEO happens to hold multiple portfolios in the organization including HR, to be supported by 1-2 SMEs.

As such, there are large number of HR processes spread over complete life-cycle of employee in the organization, which strengthen the organization and provide a clear competitive advantage, as they are most difficult to immolate. These processes include Talent Acquisition, On-boarding, Goal setting, Coaching, Mentoring, Review & Feedback, Compensation & Benefits, Rewards & Recognition, Learning & Development, Career pathing, Succession Planning, Culture building, Employee Engagement, Leadership Development, creating Employee Value Proposition and so on.

Priorities for SMEs

Organization Design, Talent Acquisition, Compensation & Benefits and Performance Management should be the top HR priorities for SMEs in the initial stages of their enterprise.

However, any start-up organization or SME, need not try to focus on all of them and also not worry about absence of many of them in their enterprise. These processes need to be introduced progressively, implementing them at elementary level for meeting immediate requirement, and then taken to the next level of maturity in due course.

Few key HR processes, which should be necessarily focused at an early stage are:

Organization Design – ensuring that all key Roles are identified in advance, along with their experience profile and reporting relationships, thereby evolving ideal organizational structure, optimizing on Manpower costs and maximizing deliverables
Talent Acquisition – sourcing right talent for these roles, evaluating against specific role requirements and Culture fitment
Compensation & Benefits – enabling attraction and retention of professionals by benchmarking with market and competition
Performance Management – setting goals at early stage bringing role clarity and focus on targets, regular reviews helping in steering the performance on right track