Why SMEs need HR for business growth

The small and medium-sized enterprises (SME) sector is not growing at a pace, it should have been. The sector which includes manufacturing, infrastructure, service, food processing, packaging, chemicals, and IT, employs around 40 per cent of the Indian workforce, but its contribution to the GDP is slightly above 6 per cent. This is not because of lack of efforts. What is missing is people strategy and it is high time the sector goes through a transformation to develop a visionary mindset.

Given its hire and fire culture, it is common for the baseline workers, comprising manual labourers, to quit very frequently. Moreover, the sector struggles to attract competent talent at mid-levels too and fails miserably in terms of succession planning.

Prince Augustin, EVP group human capital, Mahindra & Mahindra, who works with SMEs on a daily basis, is of the opinion that every enterprise in this sector, needs to become more practical and its people philosophy has to be geared to reality. “SMEs have a big floating population of employees. Moreover, having a larger number of employees does not necessarily mean that productivity will go up. The question is, how effectively are people utilised there?”

SMEs are mostly run by families and often without hierarchical structures between the founders (leaders) and employees. The middle level should be developed as it is in constant touch with the leaders and should take responsible positions.

“SMEs have a big floating population of employees. Moreover, having a larger number of employees does not necessarily mean that productivity will go up. The question is, how effectively are people utilised there?”

“SMEs try to scale up by adding more people, when what they actually need is technology and experts to run them,” says Pankaj Bansal, CEO, People Strong, who provides HR solutions to the SME sector.

“Do we really need that much people in SMEs? Effectiveness is not in employing a greater number of workers, but in productivity and manpower efficiency,” says Augustin.

Now, how can they attract skilled talent, since they do not believe in building a brand value which so far has been little known to this sector? The SMEs that operate out of the metros find it very challenging to attract competent talent.

In addition, SMEs do not leverage social media and lose out on attracting qualified and competent talent.

Clearly, SMEs cannot continue to overlook the strategic role that the HR function can play in their business growth. By having an internal one or outsourcing it, they can remove the ambiguity that exists in this sector around defining roles, career-paths and learning and development.

“Another problem with this sector is that it is very conservative about making investments. That is a big roadblock that prevents it from taking meaningful HR decisions,” says Bansal.

The restricted growth of SMEs can be blamed on the founders’ conservative mindsets. They are usually control freaks and focused on cutting costs. Most decisions made by the owners of the companies reflect the same attitude. Moreover, the owner-run companies fail to understand that having policies for people practices will give them a competitive advantage, be it manufacturing or sales.

No businessman will change, if he does not see profit at the end of the day. SMEs have to see that direct value contribution before they change.

“Unfortunately, they do not have our education ecosystem, and therefore, lose out on very high talent. Also, the problem is with our education system, for instance work that can be done by a high school pass student is being done by a graduate,” opines Augustin.

At Mahindra, Augustin and team have created an organisational support system for the SMEs, because they realise that 50 per cent of their business depends upon them. “It is imperative that we build their capability. Since they cannot afford to have high-level HR personnel, they have to basically learn how to leverage competent HR resources, and thus, resort to relying on a share model.

Time and technology are slowly but surely taking over the sector, which is waking up to see the advantage of the HR function in terms of long-term employee experience, better cost management and more people bandwidth.

“The word of caution here is SMES are still penny wise and pound foolish, when it comes to choosing digital and outsourcing partners. More often, They get things right the second time, not the first time”

“Absolutely! I see a massive change in thinking. Most of the SMEs have adopted OKR (objective and key result) based on a popular book by John Dover, Measure What Matters. Most of them are open to getting newer technology to run internal processes,” remarks Bansal.

Apparently, 80 per cent of HR can be digitised or outsourced. However, the more the companies move towards digitisation the better, as activities, such as payroll can be outsourced.

“The word of caution here is they are still penny wise and pound foolish, when it comes to choosing digital and outsourcing partners. More often, people get things right the second time, not the first time,” chuckles Bansal.

On a more serious note, Augustin says, “They need to develop a visionary mindset, so we teach them not be dependent on one company, and highlight the importance of strategy, and the processes required to manage human capital.”

Definitely things have to be made very simple for them. “If we talk of complicated products, such as engagement models, the leadership does not have the bandwidth to appreciate and understand that. If I tell them, ‘When people will emotionally connect with you, your productivity will be high,’ that they understand,” opines Augustin.

Now, it is more critical than ever for the SMEs to develop employees at the managerial level to boost their growth trajectory and also create a robust culture, which apparently, they lack.