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HRM in SMEs

Project of SME

HRM in small and medium enterprises (SMEs)


Submitted to: Maam Shirin Submitted by: Noor-ul-ain Afzal (BBAFA08-031) Sumaira Hafiz (BBA-FA08034) Aisha Bashir (BBA-FA08-030) Submission date: March 7, 2011

HRM in SMEs

The University of Faisalabad

HRM in SMEs
Table fo contents
3

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 SMEs
ACKNOWLWDGEMENT
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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 SMEs
Section 1
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Focus of study
This report explores the role and part of HRM in SMEs. Small and medium enterprise didnt have a clear concept about the importance of HRM for an organization. Our aim was to investigate the level of HR formality in SMEs. 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.

HRM in SMEs
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) _ Assured to take place (like employer sponsored training)
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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 AlNoor fabrics. Its 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

HRM in SMEs
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 7

Chief

Executive

Director
2. Basher ahmad

Executive

Director
3. Muhammad Amir Riaz sheikh 4. Muhammad Saeed sheikh

Executive Director Executive

Director
5. Muhammad Faisal sheikh 6. Muhammad Saad

Director Director Director

7. Muhammad Hassan Riaz sheikh

8. Uzair Saeed Employment:

Director

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:

HRM in SMEs
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 firms director about their hr perspective they answered they dont 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. Regarding HR Practices they didnt 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 SMEs 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:
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HRM 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. 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.
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HRM in SMEs
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Section 2 Training and Development

HRM in SMEs
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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 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.

HRM in SMEs
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 12 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 among team members, demolition of centralized system of decision making, creates homely environment, feeling of ownership and positive working atmosphere.

HRM in SMEs
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 13 SMEs to cope up with the new emerging challenges in the world. From the start of 21st century, SMEs start practicing to some extent because it becomes the need for them. As the prevailing trend in SMEs 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.

HRM in SMEs
Job Description ,Job Specifications, Market Benchmarking on the 14

specified jobs ,People Culture


2nd- training objective

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. AlNoor 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

HRM in SMEs
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 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 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
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Day 3

HRM in SMEs
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Section 3
Article reviews

Review no. 1
Encouraging Training & Development Activities in SMEs: 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.

HRM in SMEs
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 17 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. 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

HRM in SMEs
Employment, 2000) both recognize the key role played by SMEs in the learning and training system. These documents suggest that there are a 18 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. 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

HRM in SMEs
and relies on definitions of training that are more relevant to large organizations than to smaller employers. A much more sophisticated picture 19 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.

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

HRM in SMEs
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 20 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: SMES, 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 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

HRM in SMEs
and skills to exploit. Within the Large Enterprise sector there has been a trend to outsource training, with recent surveys showing 90% of firms 21 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 businessowners 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. Etraining might benefit this SME sector the most by finding business structures that accommodate the Internet, and help the firm assimilate to

HRM in SMEs
those structures as part of their activities. The lack of Buffering means that for SMEs that intend to deal with the Internet, training and using the web will 22 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.

HRM in SMEs
6. Enterprises need knowledge which will be useful in helping them to achieve, often quite specific, organizational goals.
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Conclusion:
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

HRM in SMEs
excel. But it is not easy to implement training and development in todays 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 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 organizations 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
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situations that exemplified how they carried out each step. As the SMEs relayed their stories, the facilitators probed by asking questions, such as how

HRM in SMEs
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 necessitate increased attention to the training and development needs of sourcing professionals. Key points:
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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.

HRM in SMEs
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.
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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.

HRM in SMEs
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 27 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 SMEs. 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. 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.

HRM in SMEs
There are ten features which are necessary for a feature of training program for a firm either its an SME because in competitive world sizes of firm have 28 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. 10. Training should be driven through many channels.

We have some low cost training programs as recommendations:

HRM in SMEs
People Performance Potential model (PPP)
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The Process of Training and Developing Others Typical Model

HRM in SMEs
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