Human Resource Management in SMEs

A well-developed human resource pool is essential in a nation i.e. it is the factor that drives or determines economic growth. Management of human resources is, therefore, very critical for any organization that aims at achieving or realizing strategic objectives. Although a large percentage of many nations’ populations are employed in SMEs, studies on HR practices tend to focus exclusively on large enterprises. This research paper will explore HRM practices in SMEs. The focus of the paper will be on how proper management of human resources in SMEs contributes to the improved performance of SMEs.

Human Resource Management in Small and Medium Enterprises (SMEs) is not entrenched practice. HR practices are not well laid out or stipulated or provided for in SMEs organizational structures. This is in contrast to larger firms that do require or have a designated HR department or complex HR method in the management of an organization (Hendry, 1995). Thus, HR management and related functions in SME are limited in dispensing minimal administrative tasks such as payroll rather than solving or implementing strategic policies of an organization (McCoy-Pinderh, 2000).

Practices in SME Organizations

Employee Recruitment

The method of recruitment in SMEs encompasses identifying a position to be filled. When a vacancy exists, qualified, skilled, and experienced people are allowed to apply. SMEs have two methods of sourcing for potential employees (Fink, 2009). Internal recruitment is sometimes favored to external processes because of less financial overheads involved. Internal recruitment refers to the practice of selection done among the existing workers in an organization (Hendry, 1995). This process involves the organization internally advertising a vacant position, which then can be taken by existing workers in the organization. Internal recruitment is essential especially because the employees to be hired already have been in the organization, and thus are familiar with company values and best practices (Sims, 2007). However, when no suitable candidate is available in the organization, external recruitment is invoked. External recruitment involves filling vacant positions in an organization from external sources. However, external recruitment is recurrent in larger organizations with a high staff turnover or the ones that have a strong progression record. External recruitment is usually carried out through placing outdoor advertisements in the media, which has the advantage of reaching a wider audience (Sharma, 2009, p.96).

Employee Selection

Selecting a suitable candidate in an SME through a recruitment process is a challenging and complex experience. Selection may require; interviews to determine the relationship with an existing vacancy and assess the list of applicant references (Sims, 2007). Other selections processes can be involved such as; assessing the employee’s competency to decide if she or he meets the organization’s needs. This is beneficial because it helps SMEs to understand if the selectee meets the organization’s needs and can contribute effectively to its growth. The employee selection process can be enriched by creating a “free domain” between the employee and employer (Storey, 1995). This can increase the matching process of the relationship between the two parties.

Employee Orientation

Employee orientation should be conducted immediately after a potential employee has joined the organization. This policy encourages “bonding” and strengthens the connection with employees based on “attraction” developed during the recruitment and selection phase (Prowle, 2000). Besides, orientation forms a method of training by the organization and an opportunity for socialization for the new workforce. A structured orientation has an economic impact on an organization. It increases productivity and helps in retaining employees. Further, the family “like” relationships established in SME environment enhances new employees’ training and adaptation in a new working environment (Fink, 2009). Provision of critical information such as business guidelines, mentoring and rules in orientation typically control problems contributing to stressful situations in the organization. Consequently, support of new employees by inspiration and greater participation can build trust and strengthen the relationship past orientation and produce a long-term association of prolonged employee involvement (Fink, 2009).

Employee Training and Development

SME modifies its management policies geared towards employees and their contributions to the organization. The Impact of an employee on each other in SME is, therefore, indispensable to the general management of the organization (Stewart & Beaver, 2007). By increasing employee relationships SME advances a more concise and performance levels. Training in SME often assumes the form of on-the-job training. This is to reduce cost compared to off-the-job training. By embracing on-the-job training, SMEs can achieve objectives as outlined during recruitment, selection, and orientation stages. Besides, it cultivates and strengthens relation to a personal level so deepening trust among fellow employees in the organization. Consequently, on-job training enriches the expertise and trainer as well encouraging a sense of long-term partnership reducing the turnover effect (Stewart & Beaver, 2007).

Employee Compensation Schemes

Compensation is one of the basic rights for employees in both large organizations and SME. Several reasons determine the compensation package. For example, the expertise and skills of the employee is one of the factors for consideration (McCoy-Pinderh, 2000). Competence depends on educational attainment and previous training. Besides, the experience of the employee is also another factor (Burack, 1986). Employees who own several work experience get a higher income compared with say recent graduates from college. Further, performance helps to determine the amount of the compensation package to an employee; this means that an employee who achieves better results will have better compensation than others who perform unsatisfactorily (Burack, 1986). Some SME organizations embrace these schemes as a form of employee motivation.

Performance Appraisal

Performance appraisal is a method of evaluating employees output based on time, quality, and cost (Stewart & Beaver, 2007). Performance appraisal is considered necessary in managing career development of employees. This process primarily seeks to collect information about the value that an employee has to the organization (Beaumont, 1993). The aims of performance appraisal in SMEs vary, but its purpose is to enhance performance of employees through giving feedback obtained from analyzing the employee’s behavior (Sharma, 2009).

Reference List

Beaumont, B. (1993). Human Resource Management: Key Concepts and Skills. California: SAGE.

Burack, E.H. (1986). Corporate, Business, and Human Resource Planning Practices: Strategic Issues and Concerns. Organizational Dynamics, 15, 73-87. New York: Routledge.

Hendry, C. (1995) Human Resource Management: a Strategic Approach to Employment. Amsterdam: Butterworth-Heinemann.

Fink, M. (2009). The Management of Small and Medium Enterprises. New Year: Routledge.

McCoy-Pinderh, P. (2000). How to Be an Entrepreneur and Keep Your Sanity: The African-American Handbook to Owning, Building and Maintaining Your Own Small Business. Boulevard: Amber Books.

Prowle, M. (2000). The Changing Public Sector: A Practical Management Guide. Burlington: Gower Publishing Limited.

Sharma, S. K. (2009). Human Resource Management: A Strategic Approach to Employment. New Delhi: Global India Publications.

Sims, R. R. (2007). Human Resource Management: Contemporary Issues, Challenges, and Opportunities. North Carolina: IAP.

Stewart, J. & Beaver, G. (2007). Human Resource Development in Small Organizations: Research and Practice. London: Taylor and Francis.

Storey, J. (1995). Human Resource Management: a Critical Text. New York: Routledge.

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