HRM in SME’s

1 Project of SME

HRM in small and medium enterprises (SME’s)

Submitted to: Ma’am Shirin

Submitted by: Noor-ul-ain Afzal (BBA-FA08-031)

Sumaira Hafiz (BBA-FA08-034)

Aisha Bashir (BBA-FA08-030)

Submission date: March 7, 2011

The University of Faisalabad

HRM in SME’s

2 Table fo contents

Section 1

Focus of study, company profile and background, major issues

Section 2

Training mad development

Section 3

Literature review

Section 4

Conclusions and recommendations

HRM in SME’s

3 ACKNOWLWDGEMENT

First and fore mostly we would like to thank Almighty Allah who blessed us with knowledge,

understanding and ability to do this project.

We have discovered that the work of some unknown persons makes our lives easier every day. We

believe it's appropriate to acknowledge all of these unknown persons; but it is also necessary to

acknowledge those people we know have directly shaped our lives and our work.

First of all we would like to thank our teacher Ms. Shirin for her guidance throughout the semester.

We thank director marketing Mr. Uzair Saeed of Al-Noor textile Pvt. Ltd., under whose kind

supervision we got our required material.

DEDICATION

This project is dedicated to our parents who have enabled us to stand on our own feet and have guided

us in all matters of life.

May Allah bless them!

Ameen

HRM in SME’s

4 Section 1

Focus of study

This report explores the role and part of HRM in SME’s. Small and medium enterprise didn’t

have a clear concept about the importance of HRM for an organization. Our aim was to

investigate the level of HR formality in SME’s. Small and Medium-sized Enterprises (SME) are

recognized as a significant part of both developed and developing economies. Numbers signify

their importance as SMEs usually represent more than 99 percent of all Enterprises in almost

every country. For developing economies they are especially important as SMEs play a Critical

role in poverty reduction through employment generation. In the past, HRM scholars have

focused mainly on large firms. Recently, research attention has increased as scholars seem to

realize the importance of HRM in SMEs better. Researchers looking at smaller companies focus

on issues like the determinants of HR in SMEs individual HR management practices and the

level of HR formality. Most studies researching HR formality conclude that in SME's in general,

HRM is informal, intuitive and ad hoc.

As in most small SMEs the owner/manager takes care of all HR related activities it obviously

becomes difficult for him/her to manage employees when firm size increases. Consequently,

the owner/manager starts thinking to delegate HR responsibilities to others, inevitably leading

to more formalization.

According to a classical definition, formal HRM means that procedures or practices are;

_ Written down (like a list of skills and qualifications for jobs)

_ regularly applied within an organization (like yearly performance review)

HRM in SME’s

5 _ Assured to take place (like employer sponsored training)

Brief Company Profile

We selected AL-NOOR PROCESSING & TEXTILE MILLS (PVT.) LIMITED.

Background:

The chief executive of al-Noor is Mr. Riaz Ahmad Sheikh and his family in 1965 in association

with his elder brother Mr. Basher Ahmad and his family. They joined hands to start their career

in cloth processing industry they invested their capital in Al-Noor fabrics PVT limited at

Samundari Road Faisalabad as a partner. To expand their business and to project their

investments Mr. Riaz Ahmad sheikh and his brother invest their capital in Tanzeeb textile.

They also plant of data oil mills at samundari road at convert the plant into textile unit at the

name of Al-Hamra textile on partnership basis. With the great pace of their business they

purchased the unit of Al-Noor fabrics. It’s the independently owned unit by both brothers.

By the grace of Allah they also registered another private limited company at the name of

Baber international (pvt) ltd. On June 12th 1990 with the capital of Rs. 5,000,000 at Sargodha

road Faisalabad. In 2001 they changed the name of Baber textile to al-Noor processing &

textile mills (Pvt) Ltd. Now this unit is working under this name.

Management of company:

1. Riaz ahmad sheikh Chief Executive Director

2. Basher ahmad Executive Director

HRM in SME’s

6 3. Muhammad Amir Riaz sheikh Executive Director

4. Muhammad Saeed sheikh Executive Director

5. Muhammad Faisal sheikh Director

6. Muhammad Saad Director

7. Muhammad Hassan Riaz sheikh Director

8. Uzair Saeed Director

Employment:

Al-Noor has engaged more than 350 skilled manpower to expedite the processing of cloth,

including 20 members of experienced and well educated staff which is back bone of our

business.

Business Relationships:

As the company has local as well export business, we have sound elation with our valued

customers either from local market or from local market or from exports. We have also sound

relationship with our suppliers similarly from local as well as from foreign.

Perspective and practices of HRM of the firm:

When we talk with firm’s director about their hr perspective they answered they don’t have

separate department for HRM company management is dealing with the HRM of company

means employees matters are dealt by company management. Starting with HR planning,

there is not any kind of clear HR strategy available in similar to their responses with respect to

business and product strategy. They verbally tell their HR strategy.

HRM in SME’s

7 Regarding HR Practices they didn’t have any clear benchmarking about HR policies and

theories. They have some formal methods about recruitment and selection if they need to

recruit from outside. They mainly recruit employees from family and friends otherwise internal

recruitment means fill the spaces by promoting or rotating the existing employees.

Due to informality in SME’s firm has to face many challenges in business world due to

globalization and increased market competition. After 2005, company has a little

improvement in practicing the HR.

HR challenges in SMEs: 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. This problem is even more

critical given that scarcity of managerial talent is often cited as a key factor limiting growth in

SMEs. This scarcity of managerial talent increases the opportunity costs associated with time

spent on HR administration by SME line managers.

HRM in SME’s

8 Second, many HR tasks involve substantial complexity and thus the quality of HR decisions

may well be affected by the fact that line managers often lack significant training and expertise

in HR.

HRM in SME’s

9 Section 2

Training and Development

We select training and development approach to evaluate our selected textile firm. In textile

industry technical and creative skills are very important for the enhanced productivity and

HRM in SME’s

10 competitiveness of a firm. Al-Noor textile has a clear focus on training and development of

their employees. Because employees are human resources of a company and polished staff

leads a company to success. They think that our employees are our pillars of company. Skilled

worker are the basic need of textile sector. Human Resource Development is very important

for textile firms, so HRD gained momentum in terms of employing and develop manpower that

satisfies the professional requirements of this sector and that is well skilled.

The advent of HR practices in textile sector was rather slow in comparison to other industrial

sectors. But due to globalization there is increase in competition as a result development of

human resource has become essential. However organized HR practices are being adopted

mostly by the mill sector. In last decade we have seen not so good performance by textile

sector, this was because of lack of HRD department in many mills. But the scenario has

changed as HRD departments have taken up their role in textile sectors. Various training

programmers pertaining to training of workforce, textile related topics have helped in

enhancing the overall performance of the textile companies.

In order to get increased productivity from workforce it is essential to have a well framed HRD

system in the organization. If the principles of HRD are adopted it could result in decrease in

non-attendance by 20% and increase in productivity by 30%. So to cope up with the market

competition HRD is very essential element for the textile industry.

HRD department is responsible for developing the feeling of motivation in the employees; this

motivation in other words is the commitment of the employees towards the job and the

organization. When the work of HRD is done effectively it would result into co-operation

HRM in SME’s

11 among team members, demolition of centralized system of decision making, creates homely

environment, feeling of ownership and positive working atmosphere.

From the above discussion it is clearly seen that HRD has become an important need in textile

sector. So a clear trend towards HRD is also seen in SME’s to cope up with the new emerging

challenges in the world. From the start of 21st century, SME’s start practicing to some extent

because it becomes the need for them. As the prevailing trend in SME’s Al-Noor textile also

gave attention towards their HRM practices. In the last ten years they have adopted many of

the HR practices and I will discuss here the T&D practices they are practicing now a days.

1. The training drivers for the company are the following by which they analyze the needs

that when and why employees need training to develop their skills:

• Business performance statistics and reports.

• Financial reports and ratios.

• Competitor analysis and comparison, e.g. SWOT analysis

2. Training plan: A detailed plan for carrying out employee training for a unit of work.

They have a three step training plan to implement on:

1st- establishment of performance standards (on which employees to be

evaluated): they provide a readymade structure for a training program.

Job Description ,Job Specifications, Market Benchmarking on the specified jobs

,“People Culture”

2nd- training objective

HRM in SME’s

12 “To see our employees competitive with the market and coping up with the

“people culture’’.”

3rd- Standard procedures

Unit training program for technical employees

Training workshops

On the job training (JIT)

Orientation plan: (the pre-job phase training)

The company introduces the new employees with the job and workplace. Al- Noor textile use

orientation program for the new entrants to make them easier and familiar with their job.

Here is their orientation plan

Day 0 Prior to employee arrival Clean and set up office or workstation

Notify current staff of the new staff and arrival date Get business cards and a name plate for office or workstation Set up equipment access ( telephone, machinery etc)

Day 1 Welcoming our new employee meeting with immediate supervisor

give them the 'lay of the land'-location of restrooms, kitchen or lunch room, dress code, hours of work

introduction to team members provide a mentor or buddy who will guide the new hire arrange for security pass take the employee out to lunch

Key information to be provided job requirements and what is expected from new employees employee handbook organization chart signing of employees form

HRM in SME’s

13 location of office supplies, and general work area

Day 2 On the job training Share the right account of information that is required to the employee to

do the job connect the employee with key people whom they can go for assistance or

direction

Day 3 Official orientation program depending on the number of new hires, set up a half day or full day

orientation presentation Allow hires to connect with each other. try ice breaker games Provide broad business information such as business strategy, vision and

mission and structure. allow employee to address any concerns they may have

HRM in SME’s

14 Section 3

Article reviews

Review no. 1

Encouraging Training & Development Activities in SME’s: Some Lessons from UK Research*

BY Steve Johnson who can be contacted at s.g.johnson@lmu.ac.uk

Summary:

This article reviews some recent research that has been undertaken in the United Kingdom

(UK) into Training and development activities in Small and Medium Sized Enterprises (SMEs),

and outlines some Lessons that could be valuable for organizations in South Africa that are

trying to encourage and assist SMEs to engage more effectively in skill development activities.

Despite a range of statistical evidence to the contrary, UK research has revealed that many

SMEs do in Fact engages in many forms of skill development activities.

It is important that government and other organizations recognize the factors that inhibit

training and Development in SMEs and build upon the positive practice that does exist in many

SMEs, as well as Linking skill development initiatives more effectively with business

development policies. This article sets out some of the key lessons for policy that have

emerged from a recent review of research into skills.

HRM in SME’s

15 Issues in SMEs (Johnson, 2002).

The policy background that forms the context for this article is the so-called ‘lifelong learning

agenda’. The desire to improve the level of skills, training and associated qualifications has

long been a Component of UK economic and labor market policy.

Given the well-documented increase in the importance of SMEs within the UK economy, it is

clearly important to consider the activities of SMEs in relation to learning and skills

development. If policy Makers are to succeed in ensuring that the skill needs of the economy

are met, they need to persuade and/or incentivize SMEs as well as larger employers to invest in

their people, while also convincing Individuals to invest in their own learning.

The National Skills Task Force Final Report (2000), and the subsequent response from the

Secretary of State (Department for Education and Employment, 2000) both recognize the key

role played by SMEs in the learning and training system. These documents suggest that there

are a number of problems associated with engaging SMEs in the national skills agenda. The

problems which are identified are as follow:

1) Low levels of off-the-job training by SMEs, in comparison with larger organizations.

2) Lack of internal capacity, and sometimes motivation, to provide learning opportunities for

their staff.

3) A "disturbingly high proportion … of owner-managers who had low or no qualifications"

(National Skills Task Force 2000: para. 4.23)

4) Very low proportions of small businesses involved in Investors in People.

HRM in SME’s

16 The argument of this article is that the chances of success of policies to promote lifelong

learning, in the UK as well as in other countries, will be increased if a number of key points are

recognized about learning within SMEs.This role and importance of informal learning in SMEs

needs to be recognized and appreciated. It is important to understand and appreciate the

reasons why some SMEs do not undertake formal training. Training and learning initiatives

need to be introduced in the context of business support and not ‘sold’ as standalone

packages.

The arguments presented above suggest that care needs to be taken in drawing general

conclusions from evidence that is not totally unambiguous and relies on definitions of training

that are more relevant to large organizations than to smaller employers. A much more

sophisticated picture needs to be built of the variations in training/learning activities between

different types of employer, if appropriate policy responses are to be devised.

Key points:

1. UK research has revealed that many SMEs do in Fact engages in many forms of skill

development activities.

2. Documented increase in the importance of SMEs within the UK economy.

3. Consider the activities of SMEs in relation to learning and skills development.

4. The argument of this article is that the chances of success of policies to promote

lifelong learning.

5. Highlighted a number of factors that are relevant to the situation in South Africa.

HRM in SME’s

17

Conclusion:

From this article we can summaries a large and growing body of research evidence from the

UK, and has highlighted a number of factors that are relevant to the situation in South Africa,

with its large and diverse SME population and a policy desire to improve levels of skill

development in SMEs.This review has demonstrated that it is very dangerous to generalize

about training and skill Development activities in SMEs.

Finally, it should be recognized that improved skill development can lead to better business

performance of some SMEs under some circumstances. Skill development initiatives need to

be linked to wider programmers to help SMEs to improve their performance. This means much

closer working between skill development agencies and business development organizations.

Review 2

FROM FORMAL TO FUNCTIONAL: SME’S, E-LEARNING AND KNOWLEDGE TRANSFER IN THE CANDLE

PROJECT Ian Stevenson

School of Education, University of Leeds Woodhouse Lane, Leeds LS2 9JT

Summary:

Small and Medium Enterprises (SMEs) are defined to be companies that have less than 250

employees. By contrast there are just 40, 000 large enterprises (LE) with more than 250

employees. (Issue, 2003). In The context of the knowledge economy, with demanding

customer-bases, reduced product cycle periods, and global markets, SMEs are under pressure

HRM in SME’s

18 to develop and modernize their competency and skills base. Continual competitive pressures

lead SMEs and large enterprises (LE) to innovate and Change at ever increasing rates, and both

are always looking for new sources of knowledge and skills to exploit. Within the Large

Enterprise sector there has been a trend to “outsource” training, with recent surveys showing

90% of firms outsourcing at least some of their training and administrative tasks (Gainey &

Klaas, 2003). The training picture for SMEs is more complex, with many (rural and peripheral)

areas relying on SMEs for employment and learning opportunities. Conclusions reached in the

context of large firms about training may be inappropriate for small organizations. (Hill &

Stewart 2000). As Iles & Yolles (2002:6) note: “there is little evidence that small business-

owners are particularly attracted to such training, either for themselves or their staff.” This

leads to a different sense of personal and organizational goals both in comparison to large

enterprises, and between employers and employees within SMEs. A major factor in this

process of gaining new knowledge and skills for SMEs and large enterprises is Information and

Communication Technology (ICT). Although there are distinct difference between the SMEs

and LE in their attitudes and approaches to training in new knowledge and skills, they both

need to have access to the latest technologies and to use them effectively.

The notion that Small, Medium, and Large Enterprises can have access to the latest research or

Techniques delivered in a style and at a pace that suits individual learners, are one attractive

solution. Much has been written about the ways that e-learning or e-training can be used as

part of this process. E-training might benefit this SME sector the most by finding business

structures that accommodate the Internet, and help the firm assimilate to those structures as

part of their activities. The “lack of Buffering” means that for SMEs that intend to deal with the

HRM in SME’s

19 Internet, training and using the web will take a relatively larger share of their resources. ).

Enterprises need knowledge which will be useful in helping them to achieve, often quite

specific, organizational goals. So called “just-in-time “strategies, which resonate with business

supply chain models and practices, imply that relevant information and training arrive at a time

and pace to suit a specific need.

Key points:

1. The survey demanding customer-bases, reduced product cycle periods, and global

markets.

2. Continual competitive pressures lead SMEs and large enterprises (LE) to innovate and

Change at ever increasing rates.

3. Training picture for SMEs is more complex, with many (rural and peripheral) areas

relying on SMEs for employment and learning opportunities.

4. A major factor in this process of gaining new knowledge and skills for SMEs and large

enterprises is Information and Communication Technology (ICT).

5. The e-learning or e-training can be used as part of this process.

6. Enterprises need knowledge which will be useful in helping them to achieve, often quite

specific, organizational goals.

Conclusion:

HRM in SME’s

20 Conclusions reached in the context of large firms about training may be inappropriate for small

organizations. And also conclude by discussing the nature of the knowledge transferred

between the participants, and the model of Knowledge Transfer used in the scenario.

Review 3

Strategies & Solutions

Training Strategy Using Internal Experts

By Kathleen D. Miller, president of Miller Consultants, Louisville, Kentucky; Virginia S. Major, organizational consultant for Miller Consultants, Manchester, Connecticut; and Leslie Hunt, organizational consultant for Miller Consultants, Houston.

Summary:

In this article describe that how much training and development is important in supply

management and the SMEs organization. Today, supply managers must be skilled not only in

supply management but in the management of the entire value chain, as supply management

Organizations become significant players in organizations’ quests to gain competitive

advantages. Organizations that are on the ball will craft sound training and development

(T&D) Strategies to ensure that the supply managers who hold these increasingly critical jobs

have the know-how to excel. But it is not easy to implement training and development in

today’s time and money –starved organizations.

The internal experts are in the best position to identify which knowledge and skills are most

essential for sourcing professionals in their organization. But if internal experts not give the

new ideas and efforts then organization hire the outside experts who manage all the things.

There are many use of external expertise and they give the benefits to the organizations. When

T&D experts come together with SMEs, however, the group is most likely to succeed in

HRM in SME’s

21 producing a strategy that is fresh and effective. The SMEs involved in this project were all

exemplary employees who were committed to strategic sourcing. They were able to identify

and explain the best practices, although they required some assistance from the consultants in

reaching consensus about which practices should be incorporated into standard work

processes.

But if the organizations use their internal experts they have knowledge, skills, and abilities

(KSAs) that they use to carry out their duties and make decisions. An excellent way to develop

the content for training that meets real organizational needs is to base it on the KSAs

possessed by the organization’s finest talent. These KSAs may be of two types. The first type is

fact-based and procedural. Training professionals use fairly straightforward procedures called

job analysis and task analysis to access this information from SMEs. The T&D facilitators asked

the SMEs to describe concrete situations that exemplified how they carried out each step. As

the SMEs relayed their stories, the facilitators probed by asking questions, such as how they

chose between several alternatives, how they weighed options, or what information they

examined in order to make decisions.

Still another way to use internal experts is to involve them in the delivery of the training or

learning experience. With the proper materials and some preparation, most SMEs can become

effective teachers. T&D professionals can offer valuable instruction on how to facilitate

learning experiences, both formal and informal. Some of the services they can provide include

conducting "train-the-trainer" sessions for SMEs or designing mentoring or SOJT toolkits that

the SMEs can use as guides. Changes occurring within supply management organizations

HRM in SME’s

22 necessitate increased attention to the training and development needs of sourcing

professionals.

Key points:

1. Organizations are maximizing their resources to develop and implement training

strategy

2. By collaborating with internal experts.

3. Assemble the training and development strategy group.

4. Use different subject matter experts to determine curriculum.

5. Use internal SMEs to deliver the training and development experiences.

6. T&D gives the confident to work the more effective and efficient.

7. The SMEs take the clear decisions.

8. The T&D world refers to these people as subject matter experts (SMEs). They bring

profession related expertise to the table.

Conclusion: The article has described a few of the many ways to involve internal experts in the

design, development, and delivery of T&D strategies. Regardless of the exact role they play,

when sourcing experts collaborate with T&D professionals, together they can create learning

programs that successfully support the goals of the organization while saving time and money.

HRM in SME’s

23 Section 4

Conclusions and Recommendations

To summarize, HR functions deal with different dynamics when contributing to SME growth

plan. While the organization plans to follow a successful trajectory, there is a need for both HR

and the Promoters to appreciate and agree on change management agenda through change in

organization culture. HR has the responsibility to understand business dynamics in SME

environment before implementing the standard HR practices, policies and processes. This

mutual appreciation will help HR to be an effective business partner.

It is the hard reality, with which scholars may agree that right efforts has not been devoted to

understand the relevance of HRM formality for SMEs as majority of the scholars wisely tried to

escape from this by advocating formality is required when SMEs grow, pressurize from larger

counterparts and so on. As literature review suggests that an appropriate level of HR formality

is required and these formal HR practices are believed to help Owners/mangers in hiring the

right candidates, developing employees, compensating and judging their performance which

in return helps organizations achieve better results. But in reality things are different, as hardly

any study able to clearly identify 'what HR formality means for SMEs'.

Now to summarize training and development in the context. T&D has a very positive trend in

the last decade in SME’s. As increasing competition and the globalization mean it very

important for every organization to have powerful and skilled staff, which understands the

trends and changing needs of society.

HRM in SME’s

24 To develop the staff according to market trends HRD is playing a vital role in making the staff

competitive. So a way to enhance T&D is to work with internal experts to design T&D

strategies for the firm. Source them to T&D specialists so they can make learning programs

which can work effectively for the firm and it also save money.

Here are some recommendations to improve training strategies for a firm.

There are ten features which are necessary for a feature of training program for a firm either

it’s an SME because in competitive world sizes of firm have lost its importance. The thing

which is important is skilled manpower.

1. Training objectives should be strategy driven

2. Positive cost to benefit ratio

3. Training objectives should be Supported by key strategies, systems, structures,

policies, and practices

4. Training should Maximize employee ability and potential through shared accountability

5. Training should be Work-related.

6. Learning by doing is best criteria.

7. Training should have Transferability of knowledge and skills back to the job.

8. Linked to other people-related programs and departments

9. Continuous learning process.

HRM in SME’s

25 10. Training should be driven through many channels.

We have some low cost training programs as recommendations:

People Performance Potential model (PPP)

HRM in SME’s

26

The Process of Training and Developing Others - Typical Model