Align HR with Evolution of Company: An SME Perspective

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In this paper Ms. Indupriya S brings her insights on how to align your Human resources as your company grows and transforms from a SME to a larger company.

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Align HR with Evolution of Company: An SME Perspective

  1. 1. SIndupriya Board&CEOAdvisors,Management Browne&Mohan
  2. 2. Browne & Mohan Board & CEO Advisors, Management consultants Introduction The importance of human resources to organizational success has only multiplied as businesses have become more knowledge and technology driven (Barney, 1991). Literature has identified seven universal HR practices that impact the business performance (Delery and Doty, 1996, Akhtar, Ding and Ge, 2008). These practices, known as best practices or strategic HRM practices include formal training, outcome based appraisals, employee security, employee participation, internal career advancement, job description and profit sharing. Small and medium enterprises (SMEs) have been the backbone of the Indian economy. That is both a good and a bad thing. A recent IFC study on MSME finance in India indicates there are 29.8 million enterprises in various industries, employing 69 million people. This sector accounts for 45 per cent of Indian industrial output and 40 per cent of exports. Although 94 per cent of micro, small and medium firms are unregistered, the contribution of the sector to India's GDP has been growing consistently at 11.5 per cent annually, which is higher than the overall GDP growth of 8 per cent. The good part first. Employing close to 40% of India's workforce and contributing 45% to India's manufacturing output, SMEs play a critical role in generating millions of jobs, especially at the low-skill level. The country's 1.3 million SMEs account for 40% of India's total exports. The Small and Medium Enterprises' (SMEs) contribution to Indian GDP is expected to increase to 22 per cent by 2020, from the present 17 percent. Unlike the larger companies that enjoy the benefits of scale and reach, SME face several challenges on HR front. Their ability to attract the right talent and retain the key employee poses a challenge. Most SME companies have limited HR resources, often 2-3 resources only. Unlike larger counterparts, SME have not embraced IT to automate repetitive work like payroll and attendance. As a result, most of their resources are caught with payroll and follow up. The HR resources have little time to employee engagement or organizational identity building activities. It is becoming important that HR function has the right tools and technologies to optimize the selection, hiring, training and retaining of employees. In absence of right tools and technologies, many qualified SME HR professionals are caught in only “transactional” activities and are unable to bring strategic value to their employers. A major fallacy in SME companies is they lack an evolutionary approach to HR as their company grows over years. Initially, the focus of HR is recruiting the right candidates, providing the organization with appropriate policies and systems. As the company grows in size, HR has to move from laissez-faire decentralized approach to bring in formal system. HR at this stage has to educate the employees a need for formalization and processes to capture and analyze data. As the organization matures, the challenge for HR is to create open spaces so that innovation and creativity are not stifled within the company, and employees take ownership to drive newer innovation. However, most SME companies pursue a common agenda approach throught their life-cycle. Thus result in disgruntled employees, despaired management and lost opportunities to build lovable place to work. We believe building appropriate HR systems in conjunction with the life-cycle of the firm ensure right alignment and right strategic fit. In this paper we explain how HR integration
  3. 3. Browne & Mohan Board & CEO Advisors, Management consultants makes a firm more effective and efficient and how it could be implemented. SME company growth over years We use organization’s life cycle concept to describe the changes eventually happening in the organizations. Many researchers in the past have proposed different life cycle models using various variables as time dependent indices to define and discuss life cycle stages. Numerous researchers have explained organizational life process (Chandler 1962; Galbraith 1982; Churchil and Lewis 1983; Kazanijan 1988; Hoy 2006). Typical life cycle of an organization typically passes through four stages as (1) Formative stage, (2) Growth stage, (3) Maturity and (4) Decline. For our paper, we consider the first three stages only. In formation stage, the founder of SME attempts to establish the firm, ensures its survival in early stages and build customer base. The corporate objectives at this stage are establishment of the organization in terms of workable place, human resources and production facilities and acquisition of customer base. There are neither defined procedures nor control systems. There exists a rudimentary management where every process is loosely arranged. Also the number of resources is few. Thus the concentration of expertise is high and implicit. It has high probability of loss of information when any key resource absconds/ leaves the firm. The HR objectives at this stage are to define basic HR policies for employees to follow. In the growth stage, the corporate objectives involve increased production, head count and development of strong brand through focused marketing activities. The firm introduces incremental changes in the process, technology, products and services. The HR processes, while well adopted, may need to be formalized and interlinked across various HR activities. Companies may be facing loss of information, employee handling becomes difficult. HR objectives at this stage would be to introduce documentation of all processes, management control system, institute lines of formal communication and increase the number of resources. In the maturity stage, corporate objectives are rationalizing the customer base, service/product portfolio; create innovative culture and look for international opportunities for expansion. With formalized organization structure, hierarchy is built in, roles and responsibilities are clearly defined. The challenge is to introduce changes, make employees at all levels have a sense of ownership and drive a sense of urgency so that Organization does not suffer from rigidity. The HR objectives are establishment of comprehensive processes; standardisation and automation of processes across organization and emphasis on outcome – impact analysis. Table 1: Showcase the corporate and HR objectives at all the three stages. Stage of evolution of the firm Corporate strategy Expected HR objectives Formative/ Foundation Establish the organization quickly To setup workable processes To identify affordable resources To onboard and facilitate the production process Ensure go-to market and customer acquisition To define few basic HR policies Low strength in number of resources but employees have high expertise Implicit to Explicit knowledge transfer
  4. 4. Browne & Mohan Board & CEO Advisors, Management consultants Growth To add more resources To add more product lines To understand the key customers and account mining Expansion of its market share Branding Attempt to formalization of process Adoption of certification of standardisation Introduction of documentation of HR policies and processes Increase in no. of resources Introduction of management control systems Lines of formal communication are laid down Partially formalized islands of control Partially comprehensive and consistent processes and procedures Emphasis on delivery quality and timeliness Maturity Rationalize customer base Rationalize service/product portfolio Manage productivity and effectiveness Create and sustain innovative culture Encourage production variations To acquire new partner and dealer alliances Stride into Organization structure is established Clear descriptions of roles and responsibilities. Processes are completely comprehensive and standardized- where data is used to make informed decisions. Emphasis on outcome and impact analysis Extensive formal and informal horizontal interactions between the functions international expansion Design new HR best practices and acquire expertise in them HR direct participation in formulating overall business strategy Aligning HR process with life stages using HR integration framework Towards aligning HR objectives with corporate objectives at various life-stages, we suggest organizations to adopt a four stage approach consisting of: (1) As-Is Analysis,(2) GAP Analysis,(3) Next 5-10 years goals and (4) Prioritization and implementation of HR activities. In As-Is Analysis, the current state of the organization’s life, system, capacity and functionality are analyzed. The objective is to collect data and highlight opportunities for improvement. An As-Is of cultural elements such as values of the organization, practices, working style, employee morale, structural elements as hierarchy, internal rules and processes, lateral transfers, leadership styles of the managers; people elements like Gender break up, non full time employees, experience of these employees, learning and development programs given to them, skill gaps, recruitment, induction, employee satisfaction surveys etc, financial and operational elements are assessed. In GAP Analysis, we determine what steps need to be taken in order to move from the current state to the desired future state. It highlights the gaps that exists and that need to be filled to achieve the expected HR objectives. It also measures the investment of time, money and human resources required to reach the business goal.
  5. 5. Browne & Mohan Board & CEO Advisors, Management consultants Depending on what stage of life the company is in currently, the objectives for Next 5-10 years are established. This includes the functional goals of all the functions in the organization such as Finance, marketing, HR, sales, which would be aligned with the business goals. Once the functional objectives are freezed, the HR activities must be prioritized based on variables such as time, cost and percentage of contribution to business objectives. To align HR objectives with business goals, the company must have standardized processes and fool proof Knowledge management system. For which the following steps need to be followed: 1. Map each process a. The complete HR cycle has 6 functions (recruitment, induction, training, performance appraisal, reward and recognition and exit).Each process should be formulated with quality and clarity in focus, so that bottlenecks and unduly long lead times can be prevented. b. The flow of items for every process under HR umbrella must be penned by benchmarking with similar organization in the same industry. In HR, the internal customer needs are the items that flow through the value stream. c. Each process flow must be accompanied with a checklist so that the entire flow of activities to be done and time frame to complete each activity is known. This helps in monitoring cost and time. Thus deficiencies can be eliminated to a large extent by showing interdependency of various activities. d. Establish ownership details for every stage in each process. Every process has a primary owner and a secondary owner. The primary owner is the person responsible for the outcome of the process and the secondary owner is the person who reviews the outcome and its business impact. e. We suggest each process so defined to be checked against completeness and purpose based on PCC-DIO framework. The PCC- DIO framework related to  Purpose  Comprehensiveness  Consistency  Delivery  Impact  Outcome Purpose: The process should meet the objective of integrating each process, functions and technology. It should focus on actions that drive performance. Comprehensiveness: The process should be detailed and all encompassing. The big picture of the roles, responsibilities, activities and different levels of learning and associated tools, methodologies should be captured. The process templates designed for capturing data, the depth and breadth of information thus obtained should be rich enough to make informed decisions. Consistency: The HR systems must be consistent in terms of data, duration and procedures throughout the HR life cycle and show no deviation from the desired architecture. Delivery: The timeliness and quality of delivery by each process should meet the business goals and be delivered within lead time.
  6. 6. Browne & Mohan Board & CEO Advisors, Management consultants Impact: The impact analysis of every process on the concerned stakeholders must be done after delivery. Outcome: On completion of each process, its outcome should be evaluated. It helps the senior management to understand the drawbacks and build on strengths while eliminating errors in the next iteration. 2. Make the processes stay inter-connected The processes are not separate entities. The output of one process becomes the input of the other and few are done in parallel. 3. Capture data for decision making Subjective information yields no meaningful decisions. They are mostly based on intuitive and wild gut feelings. To provide effective decisions and improve efficiency of the business, insights must be drawn from objective data. 4. Enhance knowledge management system Turning implicit data to explicit data will provide an edge to the decision makers to recommend suggestions. It can be documented and formulated for any further changes in future. The knowledge management specific to HR applies to succession planning, decision making for strategic growth, Knowledge transfer from relieving employee to a new hire, and capturing required quantifiable data at each stage of HR process. 5. Create sense and respond system Reduce the gap between targets and actual measurements in terms of cost, time and quality. Data that is unused or incorrect fouls up operations and decision making. Hence continuous improvement of the processes and knowledge management system should be made. Conclusion As an organization moves from formative stage to the mature stage, the HR function also should pass through the optimum growth curve by meeting the expected HR objectives. In this paper we have showcased an approach that has been implemented and yielding results. We suggest SME companies to adopt a life-cycle view to create and implement HR processes appropriate to their life-stage and corporate objectives, so that value from HR function could be optimized. Bibliography Hartog, D. N. D., & Verburg, R. M. (2004). “High performance work systems, organizational culture and firm effectiveness”, Human Resource Management Journal, 14, 55–78 Syed Akhta R , Daniel Z . D I N G, And Gloria L . Ge(2008), “Strategic HRM practices and their impact on company performance in chinese enterprises”, Human Resource Management, Spring 2008, Vol. 47, No. 1, Pp. 15–32 Rutherford, P. F. Buller, P. R. Mcmullen(2004), “Human resource management problems over the life cycle of small to medium-sized firms”, Human Resource Management, Winter 2003, Vol. 42, No. 4, Pp. 321–335 R Barrett, S Mayson,(2007) “Human resource management in growing small firms”, Journal of Small Business and Enterprise Development, Vol. 14 Iss: 2, pp.307 – 320 R Barrett, R Neeson, L Billington,(2007) "Finding the “right staff” in small firms", Education + Training, Vol. 49 Iss: 8/9, pp.686 – 697 S Mayson, R Barrett, “The 'science'and 'practice'of HRM in small firms”, Human resource management review, 2006 – Elsevier B Fabi, L Raymond, R Lacoursière, (2009) "Strategic alignment of HRM practices in manufacturing smes: a Gestalts perspective",
  7. 7. Browne & Mohan Board & CEO Advisors, Management consultants Journal of Small Business and Enterprise Development, Vol. 16 Iss: 1, pp.7 – 25 Lacoursière, Richard; Fabi, Bruno; Raymond, Louis (2008): “Configuring and contextualizing HR systems: An empirical study of manufacturing SMEs”, Management Revue, ISSN 1861-9916, Hampp, Mering, Vol. 19, Iss. 1/2, pp. 106-125 K. Yeung and B Berman, “Adding value through human resources: reorienting human resource measurement to drive business performance”, Human Resource Management, Fall 1997, Vol. 36, No. 3, Pp. 321–335 P Boxall and J Purcell, (2000), “Strategic Human Resource Management: Where have we come from and where should we be going?”, International Journal of Management Reviews, Volume 2 Issue 2 pp. 183-203 D Ulrich (1997), “Measuring human resources: An overview of practice and a prescription for results”, Human Resource Management, Fall 1997, Vol. 36, No. 3, Pp. 303–320 © Browne & Mohan 2014. All rights reserved Printed in India Browne & Mohan insight are general in nature and are not refereed papers. Open Universities and other academic institutions may use the content but with prior approval of Browne & Mohan.

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