MSMEs in India: Time to create “The HR Advantage”

The HR Advantage

Micro Small & Medium Enterprises (MSMEs) have been the backbone of the Indian economy. The 6.3Cr MSMEs in India employing a 110 Mn workforce, contribute around 30% of the national GDP. In addition to the economic factors, this highly vibrant and dynamic sector plays a key role in India, uplifting rural areas via industrialization. It empowers the country by reducing regional imbalances and assuring equitable distribution of national income and wealth.

With aggressive targets for national economic growth, the MSME sector has become more critical than ever before. This sector generally categorized with average productivity, low efficiency and low skill sets must transform itself into an innovative global ecosystem of entities to enhance its economic contribution and capture growth. One of the key areas, often neglected in these organizations, is the efficient management of human resources. Employees are the most important resources for any organization and effective human resource management can create a comparative advantage for companies.

The sustainable growth & development of an organization is driven by the leadership & management team. Leadership capabilities have a direct correlation with organizational effectiveness. The leadership creates the vision, mission, and values of the organization. It nurtures management that can live the vision & mission of the leadership. It dedicates resources (man/machine/material/ money) to deliver it. Management translates the vision into a meaningful strategy & actionable plan by optimum use of resources allocated by the leadership. The management team is responsible for the execution of the strategy & plan formulated in line with the leadership team.

In order to create & implement a successful business strategy, organizations must ensure that they have the right people (not necessarily the best ones) capable of creating & delivering the vision. HR and its different facets also play an important role to address the growth issues. While the organization plans to follow a successful trajectory, there is a need for both HR and the promoters (& management) to appreciate and agree on the change management agenda through a change in organizational culture. In this case, HR has the responsibility to understand business dynamics in the external environment.

Therefore, the most critical challenge for HR is to onboard the right people into management and leadership roles. While there is a surplus of human resources in India vying for senior management & leadership roles, there is a dearth of talent for sufficiently educated and skilled manpower adept in managing people and organizations efficiently. Also building a cadre of excellent managers and leaders takes time, persistence, and resilience.

MSMEs generally have flat (horizontal) organizational structure. The employees that surround the entrepreneur are mostly the closed group that communicates informally. When the organization grows, it becomes more difficult to involve all employees equally in decisions. Employees, that are generally not part of the core group, find a need for standard and transparent HR policies, uniform & consistent strategy, and functional organizational structure. Strong HR processes & policies can address this challenge up to a great extent.

High unemployment rates may seem to be suppressing attrition for the time being but this is likely to be a temporary phenomenon as talented resources realizing their indispensability for the organization may up the ante and become more demanding. Talent poaching by competitors will increase as they realize the efforts, costs, and time involved in organically developing employees from within the organization.

In a volatile and fast-paced business environment, training and development have evolved as an indispensable function for all enterprises. However, it is observed that this function is considered to be at a lower priority in most MSMEs. The conventional approach of not considering training as an important aspect of skill development prevails in the MSME sector. Most of the organizations still consider training as irrelevant & cost contributor. For them, management skills are inborn and not developed. HR must play a lead role in changing the approach to the modern one that considers training & development as an “efficient retention cost” and not an “added cost”. A strong & flexible training system and processes ensure a productive workforce and guarantee high organizational efficiency.

Talent ‘attraction’, ‘hiring & selection’, ‘training’ and ‘retention’ are major HR challenges for this sector presently. While large scale organizations & big brands are plundering the HR market, MSMEs are struggling to manage the skillsets gap and skill upgradation. MSME sector is backbone of any economy  and crucial for its growth and development. Innovators must come up with business models and technologies to address this gap in order to enhance their contribution to the global manufacturing sector.

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