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  1. 1. HRM in SME’s Project of SME 1HRM in small and medium enterprises (SME’s)Submitted to: Ma’am ShirinSubmitted 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
  2. 2. HRM in SME’s 2 Table fo contents Section 1Focus of study, company profile and background, major issues Section 2 Training mad development Section 3 Literature review Section 4 Conclusions and recommendations
  3. 3. 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 its 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. DEDICATIONThis 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
  4. 4. HRM in SME’s 4 Section 1 Focus of studyThis report explores the role and part of HRM in SME’s. Small and medium enterprise didn’thave a clear concept about the importance of HRM for an organization. Our aim was toinvestigate the level of HR formality in SME’s. Small and Medium-sized Enterprises (SME) arerecognized as a significant part of both developed and developing economies. Numbers signifytheir importance as SMEs usually represent more than 99 percent of all Enterprises in almostevery country. For developing economies they are especially important as SMEs play a Criticalrole in poverty reduction through employment generation. In the past, HRM scholars havefocused mainly on large firms. Recently, research attention has increased as scholars seem torealize the importance of HRM in SMEs better. Researchers looking at smaller companies focuson issues like the determinants of HR in SMEs individual HR management practices and thelevel of HR formality. Most studies researching HR formality conclude that in SMEs 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 obviouslybecomes difficult for him/her to manage employees when firm size increases. Consequently,the owner/manager starts thinking to delegate HR responsibilities to others, inevitably leadingto 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)
  5. 5. HRM in SME’s 5_ Assured to take place (like employer sponsored training) Brief Company ProfileWe 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 associationwith his elder brother Mr. Basher Ahmad and his family. They joined hands to start their careerin cloth processing industry they invested their capital in Al-Noor fabrics PVT limited atSamundari Road Faisalabad as a partner. To expand their business and to project theirinvestments 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 thename of Al-Hamra textile on partnership basis. With the great pace of their business theypurchased 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 ofBaber international (pvt) ltd. On June 12th 1990 with the capital of Rs. 5,000,000 at Sargodharoad 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
  6. 6. 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 DirectorEmployment: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 ourbusiness.Business Relationships:As the company has local as well export business, we have sound elation with our valuedcustomers either from local market or from local market or from exports. We have also soundrelationship 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 haveseparate department for HRM company management is dealing with the HRM of companymeans 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 tobusiness and product strategy. They verbally tell their HR strategy.
  7. 7. HRM in SME’s 7Regarding HR Practices they didn’t have any clear benchmarking about HR policies andtheories. They have some formal methods about recruitment and selection if they need torecruit from outside. They mainly recruit employees from family and friends otherwise internalrecruitment 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 toglobalization and increased market competition. After 2005, company has a littleimprovement in practicing the HR.HR challenges in SMEs:SMEs face unique challenges that stem largely from their size. While economies of scalepermit larger organizations to employ a team of specialists to address the complexitiesinvolved in managing HR programs, this is not a viable option for many SMEs. The costsassociated with hiring highly trained HR professionals on a full-time basis are likely to beprohibitive for many smaller organizations.As a result, HR activities often become the responsibility of line managers. This can beproblematic for two reasons.First, the complexity of many HR activities is likely to result in them becoming a significantdrain on managerial time and resources. As such, HR tasks may interfere with managerialresponsibilities that are directly related to revenue production. This problem is even morecritical given that scarcity of managerial talent is often cited as a key factor limiting growth inSMEs. This scarcity of managerial talent increases the opportunity costs associated with timespent on HR administration by SME line managers.
  8. 8. HRM in SME’s 8Second, many HR tasks involve substantial complexity and thus the quality of HR decisionsmay well be affected by the fact that line managers often lack significant training and expertisein HR.
  9. 9. HRM in SME’s 9 Section 2 Training and DevelopmentWe select training and development approach to evaluate our selected textile firm. In textileindustry technical and creative skills are very important for the enhanced productivity and
  10. 10. HRM in SME’s 10competitiveness of a firm. Al-Noor textile has a clear focus on training and development oftheir employees. Because employees are human resources of a company and polished staffleads a company to success. They think that our employees are our pillars of company. Skilledworker are the basic need of textile sector. Human Resource Development is very importantfor textile firms, so HRD gained momentum in terms of employing and develop manpower thatsatisfies 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 industrialsectors. But due to globalization there is increase in competition as a result development ofhuman resource has become essential. However organized HR practices are being adoptedmostly by the mill sector. In last decade we have seen not so good performance by textilesector, this was because of lack of HRD department in many mills. But the scenario haschanged as HRD departments have taken up their role in textile sectors. Various trainingprogrammers pertaining to training of workforce, textile related topics have helped inenhancing the overall performance of the textile companies.In order to get increased productivity from workforce it is essential to have a well framed HRDsystem in the organization. If the principles of HRD are adopted it could result in decrease innon-attendance by 20% and increase in productivity by 30%. So to cope up with the marketcompetition HRD is very essential element for the textile industry.HRD department is responsible for developing the feeling of motivation in the employees; thismotivation in other words is the commitment of the employees towards the job and theorganization. When the work of HRD is done effectively it would result into co-operation
  11. 11. HRM in SME’s 11among team members, demolition of centralized system of decision making, creates homelyenvironment, feeling of ownership and positive working atmosphere.From the above discussion it is clearly seen that HRD has become an important need in textilesector. So a clear trend towards HRD is also seen in SME’s to cope up with the new emergingchallenges in the world. From the start of 21st century, SME’s start practicing to some extentbecause it becomes the need for them. As the prevailing trend in SME’s Al-Noor textile alsogave attention towards their HRM practices. In the last ten years they have adopted many ofthe 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
  12. 12. 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 useorientation program for the new entrants to make them easier and familiar with their job. Here is their orientation planDay 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
  13. 13. HRM in SME’s 13  location of office supplies, and general work areaDay 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 directionDay 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
  14. 14. HRM in SME’s Section 3 14 Article reviews Review no. 1Encouraging Training & Development Activities in SME’s: Some Lessons from UK Research*BY Steve Johnson who can be contacted at 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 aretrying 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 manySMEs do in Fact engages in many forms of skill development activities.It is important that government and other organizations recognize the factors that inhibittraining and Development in SMEs and build upon the positive practice that does exist in manySMEs, as well as Linking skill development initiatives more effectively with businessdevelopment policies. This article sets out some of the key lessons for policy that haveemerged from a recent review of research into skills.
  15. 15. HRM in SME’s 15Issues in SMEs (Johnson, 2002).The policy background that forms the context for this article is the so-called ‘lifelong learningagenda’. The desire to improve the level of skills, training and associated qualifications haslong 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 isclearly important to consider the activities of SMEs in relation to learning and skillsdevelopment. If policy Makers are to succeed in ensuring that the skill needs of the economyare met, they need to persuade and/or incentivize SMEs as well as larger employers to invest intheir people, while also convincing Individuals to invest in their own learning.The National Skills Task Force Final Report (2000), and the subsequent response from theSecretary of State (Department for Education and Employment, 2000) both recognize the keyrole played by SMEs in the learning and training system. These documents suggest that thereare a number of problems associated with engaging SMEs in the national skills agenda. Theproblems 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 fortheir 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.
  16. 16. HRM in SME’s 16The argument of this article is that the chances of success of policies to promote lifelonglearning, in the UK as well as in other countries, will be increased if a number of key points arerecognized about learning within SMEs.This role and importance of informal learning in SMEsneeds to be recognized and appreciated. It is important to understand and appreciate thereasons why some SMEs do not undertake formal training. Training and learning initiativesneed to be introduced in the context of business support and not ‘sold’ as standalonepackages.The arguments presented above suggest that care needs to be taken in drawing generalconclusions from evidence that is not totally unambiguous and relies on definitions of trainingthat are more relevant to large organizations than to smaller employers. A much moresophisticated picture needs to be built of the variations in training/learning activities betweendifferent 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.
  17. 17. HRM in SME’s 17Conclusion:From this article we can summaries a large and growing body of research evidence from theUK, 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 skilldevelopment in SMEs.This review has demonstrated that it is very dangerous to generalizeabout training and skill Development activities in SMEs.Finally, it should be recognized that improved skill development can lead to better businessperformance of some SMEs under some circumstances. Skill development initiatives need tobe linked to wider programmers to help SMEs to improve their performance. This means muchcloser 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 9JTSummary:Small and Medium Enterprises (SMEs) are defined to be companies that have less than 250employees. By contrast there are just 40, 000 large enterprises (LE) with more than 250employees. (Issue, 2003). In The context of the knowledge economy, with demandingcustomer-bases, reduced product cycle periods, and global markets, SMEs are under pressure
  18. 18. HRM in SME’s 18to develop and modernize their competency and skills base. Continual competitive pressureslead SMEs and large enterprises (LE) to innovate and Change at ever increasing rates, and bothare always looking for new sources of knowledge and skills to exploit. Within the LargeEnterprise sector there has been a trend to “outsource” training, with recent surveys showing90% 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 thecontext 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.” Thisleads to a different sense of personal and organizational goals both in comparison to largeenterprises, and between employers and employees within SMEs. A major factor in thisprocess of gaining new knowledge and skills for SMEs and large enterprises is Information andCommunication Technology (ICT). Although there are distinct difference between the SMEsand LE in their attitudes and approaches to training in new knowledge and skills, they bothneed 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 orTechniques delivered in a style and at a pace that suits individual learners, are one attractivesolution. Much has been written about the ways that e-learning or e-training can be used aspart of this process. E-training might benefit this SME sector the most by finding businessstructures that accommodate the Internet, and help the firm assimilate to those structures aspart of their activities. The “lack of Buffering” means that for SMEs that intend to deal with the
  19. 19. HRM in SME’s 19Internet, 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 quitespecific, organizational goals. So called “just-in-time “strategies, which resonate with businesssupply chain models and practices, imply that relevant information and training arrive at a timeand 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:
  20. 20. HRM in SME’s 20Conclusions reached in the context of large firms about training may be inappropriate for smallorganizations. And also conclude by discussing the nature of the knowledge transferredbetween the participants, and the model of Knowledge Transfer used in the scenario. Review 3Strategies & SolutionsTraining Strategy Using Internal ExpertsBy 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 supplymanagement and the SMEs organization. Today, supply managers must be skilled not only insupply management but in the management of the entire value chain, as supply managementOrganizations become significant players in organizations’ quests to gain competitiveadvantages. 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 jobshave the know-how to excel. But it is not easy to implement training and development intoday’s time and money –starved organizations.The internal experts are in the best position to identify which knowledge and skills are mostessential for sourcing professionals in their organization. But if internal experts not give thenew 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. WhenT&D experts come together with SMEs, however, the group is most likely to succeed in
  21. 21. HRM in SME’s 21producing a strategy that is fresh and effective. The SMEs involved in this project were allexemplary employees who were committed to strategic sourcing. They were able to identifyand explain the best practices, although they required some assistance from the consultants inreaching consensus about which practices should be incorporated into standard workprocesses.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 developthe content for training that meets real organizational needs is to base it on the KSAspossessed by the organization’s finest talent. These KSAs may be of two types. The first type isfact-based and procedural. Training professionals use fairly straightforward procedures calledjob analysis and task analysis to access this information from SMEs. The T&D facilitators askedthe SMEs to describe concrete situations that exemplified how they carried out each step. Asthe SMEs relayed their stories, the facilitators probed by asking questions, such as how theychose between several alternatives, how they weighed options, or what information theyexamined in order to make decisions.Still another way to use internal experts is to involve them in the delivery of the training orlearning experience. With the proper materials and some preparation, most SMEs can becomeeffective teachers. T&D professionals can offer valuable instruction on how to facilitatelearning experiences, both formal and informal. Some of the services they can provide includeconducting "train-the-trainer" sessions for SMEs or designing mentoring or SOJT toolkits thatthe SMEs can use as guides. Changes occurring within supply management organizations
  22. 22. HRM in SME’s 22necessitate increased attention to the training and development needs of sourcingprofessionals.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 thedesign, 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 learningprograms that successfully support the goals of the organization while saving time and money.
  23. 23. HRM in SME’s 23 Section 4 Conclusions and RecommendationsTo summarize, HR functions deal with different dynamics when contributing to SME growthplan. While the organization plans to follow a successful trajectory, there is a need for both HRand the Promoters to appreciate and agree on change management agenda through change inorganization culture. HR has the responsibility to understand business dynamics in SMEenvironment before implementing the standard HR practices, policies and processes. Thismutual 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 tounderstand the relevance of HRM formality for SMEs as majority of the scholars wisely tried toescape from this by advocating formality is required when SMEs grow, pressurize from largercounterparts and so on. As literature review suggests that an appropriate level of HR formalityis required and these formal HR practices are believed to help Owners/mangers in hiring theright candidates, developing employees, compensating and judging their performance whichin return helps organizations achieve better results. But in reality things are different, as hardlyany 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 inthe last decade in SME’s. As increasing competition and the globalization mean it veryimportant for every organization to have powerful and skilled staff, which understands thetrends and changing needs of society.
  24. 24. HRM in SME’s 24To develop the staff according to market trends HRD is playing a vital role in making the staffcompetitive. So a way to enhance T&D is to work with internal experts to design T&Dstrategies for the firm. Source them to T&D specialists so they can make learning programswhich 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 eitherit’s an SME because in competitive world sizes of firm have lost its importance. The thingwhich 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.
  25. 25. HRM in SME’s 2510. Training should be driven through many channels.We have some low cost training programs as recommendations: People Performance Potential model (PPP)
  26. 26. HRM in SME’s 26The Process of Training and Developing Others - Typical Model