Final project

Submitted To: Maam Sania

Zahra Malik
Submitted By:
Bushra Umer (013 M)
Arsheen Sabir (038 E)
Hamza Tarar (057 M)
Institute Of Business
Administration
University Of
Punjab

Dedication:

We dedicate our work to our families and

friends. A special feeling of gratitude to our
loving parents whose words of
encouragement matter a lot to us. We will
always appreciate all they have done for
helping us and believing in us.

Acknowledgment:
We thank all our team members who were more than
generous with their expertise and precious time. A special
thanks to our course instructor MaamSania Zahra Malik
for her guidance, appreciation, dedication and most of all
encouragement throughout the entire process. We are
grateful to her for giving us an opportunity to work on
such an interesting and challenging project. We would like
to acknowledge and thank our institute Institute of
Business Administration for providing us with a reference
to the organization and providing any assistance
requested. Special thanks goes to the CEOs of sample
organizations for cooperating with us, giving us all
necessary information and for their precious time they
gave us.

Contents
Dedication:................................................................................................................. 3
Acknowledgment:....................................................................................................... 4
Abstract:..................................................................................................................... 5
Introduction:............................................................................................................... 6
Literature review:....................................................................................................... 8
Research question:................................................................................................... 17
Objective:................................................................................................................. 17
Research design:...................................................................................................... 17
Source of data:...................................................................................................... 18
Sampling:.............................................................................................................. 18
Analysis and findings:............................................................................................... 18
Case 1:.................................................................................................................. 18
Case 2................................................................................................................... 20
Case 3:.................................................................................................................. 23
Discussion:............................................................................................................... 23
Conclusion:............................................................................................................... 24
Bibliography............................................................................................................. 25
Questionnaire:.......................................................................................................... 28

How Do Small and Medium

Enterprises Manage Their Human
Resource Functions
Abstract:
The purpose of this paper is to study Human Resource Development in SMEs.
The main interest is in how HRD practices occur in small organizations or
what kind of human resource practices takes place in small organizations.
This study applies a qualitative case study approach and it is mostly
descriptive in nature. This research is conducted in three small organizations.
All of these case organizations operate locally; one is a promotion and
marketing firm, other is an agro-based firm and third one is a news channel.
All three of these organizations face the limitations of small firms but have
developed their own ways to manage the uncertainty and lack of resources.
The data for this research has been gathered from interviews with case
organizations owner-managers and some from organizations employees.
The overall result of our research indicates a general pattern of informality in
human resource activities of these small and medium enterprises.

Introduction:
In most of the organizations operating in Pakistan at small level there is not
any formal human resource department to carry out primary human resource
functions. That may be the contributing factor of their lagging behind or
failure to compete with other major organizations and multinationals etc.
Regarding HR Practices they do not have any clear benchmarking about HR
policies and theories. Due to informality in SMEs firm has to face many
challenges in business world due to globalization and increased market
competition. 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.

The human resource of any organization is one of the sources of sustainable

competitive advantage. It must be dealt with due care. Many small and
medium enterprises are having very informal sort of human resource
activities. Even in some organizations,
there is not any formal human
resource department. The functions of
recruitment, selection, compensation
and training if any, are all carried out
in
a very casual manner by top
managers in most of the cases. It has
an advantage of flexibility and low cost
but as the size of a company grows it
becomes difficult for the managers to perform all these functions besides
managing other operations, the burden of whom has also been increased
due to growth. So, as a consequence of this informality, the company has to
pay certain costs in terms of time and money. The resources of recruitment
in case of informal human resources being gathered through personal
references and channels are not sufficient. Hence, in order to survive and
sustain a position in the market the human resource functions must be
carried out in the best possible manner and they must be ensured to be
aligned with organizational goals as a whole for fulfilling the needs of
strategic human resource management.

There is a substantial amount of evidence to suggest that the small

organizations do not have the HRD expertise ,infrastructure and general
resource more usually enjoyed by larger ones .Research has revealed a high
degree of unplanned, reactive and informal training activity in small firms ,
where there is typically unlikely to be a dedicated personnel manager or
training officer.
Other literature supports that in many small organizations training does not
take place at all. Moreover, where training does not occur in small
organizations, not only is it more likely to be reactive and informal but also it
tends to be short term and almost exclusively directed at the solution of
immediate work-related problems rather than the development of people.
Such factors suggest that T&D in small organizations is predominantly jobskill related, delivered on the job as part of the job, and is seen not so much
as proper training but instead regarded as part of everyday life .These
arguments also suggest that dynamics of HRD in small organizations are

notably different from those in larger enterprises. Training and Development

practices in smaller organizations are characterized by lacks .Managers in
small companies is seen as resistant to the provision of training opportunities
through a lack of time, money or market knowledge. We also examined the
argument that suitable training and development are not provided for
employees in small companies, as suppliers have concentrated on larger,
wealthier organizations. If Recruitment and selection can be seen as the first
people management task underpinning the entry of a new employee into an
organization, training and development can be seen as the second. (Beaver,
2004)

Literature review:
Much of the literature has focused on how large/multinationals manage their
human resource i-e how they recruit, reward, motivate, train and evaluate
their employees. These practices can somehow be generalized in order to
understand how small and emerging enterprises perform these functions and
who performs them. But, in order to have a better understanding of them a
theoretical framework is needed. More research must be done in order to
describe the functioning of HR department in small and medium
organizations. As to draw a general perception of it, we consulted a lot of
articles, a brief introduction and results of which is given below.
Susan Mayson and Rowena Barrettt in their article The science and
practice of HRM in small firms have come up with a view that although
there is great evidence regarding the informality in human resource functions
the reason behind it is not that known. The source of competitive advantage
has always shifted over time. Once it was the technology and sophisticated
use of latest machinery that provided a firm competing in fierce competition
to have an edge over and above others. But now, the scenario has been
changed. These sources of competitive advantage can easily be imitated and
the source of more sustainable competitive advantage is undoubtedly the
human resource of a firm that is motivated, engaged and committed.
In this article the authors have focused on describing the science of strategic
human resource management that is usually thought to be associated with
larger firms and have tried to develop a deep understanding of its role in
small or medium size firms as well. They have used RBV or resource based
view model to elaborate the value of employees in contributing towards the
success or failure of an organization. According to RBV any physical, human
or organizational resource of a firm can act as a source of driving competitive
advantage for a firm if it is unique to the firm or is rare among all the
competitors, is difficult to be copied , is non-substitutable and adds
considerable value to any firm. As the size of a firm increases, it must take
initiative to move towards more systematic and planned activities of
managing human resources. Strategic human resource is more than just
managing payroll and other employee related functions. The focus has now
shifted from HRM to SHRM because of the importance of strategic human
resource in generating sustainable growth, profitability and competitive
edge. Strategic human resource management focuses on achieving
organizational objectives by aligning them with the individual goals of the

employees. More importantly, SHRM implies the employees are a source of

strategic value and their development, deployment and organization all
contribute towards a firms performance, profitability and sustainability.
SHRM and the RBV view employees as valuable, firm specific resource that is
a system of integrated practices contributing towards organizational
performance rather than operational activities designed to reduce cost.
Most of the research suggests that HRM in small firms is ad hoc r informal.
Most of them usually dont have HR professionals in-house or even a
separate HR department. If we look at staffing in small firms it is usually
done through convenient, less expensive and in ways that are directly
controllable by the firm rather than through proper channels and no special
attention is given to the screening of the applications in an effective manner
and to reference checking as well. Such practices ultimately lead to bad
performance of the employees and the firm as a whole.
Undoubtedly training is an indispensible function of
todays competitive world but in most of small firms
it is being ignored either because of high costs or
inability of small firms to recognize the importance
of it. Even if there is training being held in some
organizations it is usually conducted informally on
the job. Performance evaluation is also being
ignored and it is usually carried out informally with a
view of monitoring rather than developing
employees. They are also lagging behind in
attracting a high performing pool of employees
through attractive pays and benefits. In a nut shell, the research done since
yet does show that there is some form of HRM in small firms. It also confirms
that the practice is characterized by informality. It may be a problem
because informal HR practices do not recognize the value of employees.
(Susan Mayson, 2006)
It is true that informality provides small firms with a benefit of flexibility and
convenience but as the size of the firm grows such informality can lead to
diminishing returns. For example, when number of employees increases due
to growth, it becomes difficult to manually keep their record and also to
recruit from the existing sources informally doesnt pay well. However, while
describing the HR practices in small firms, the impacts of other factors such
as labor and product markets conditions is often overlooked. Small firms
managers usually have to face many other challenges beside establishing a

formal HR department. Their major concern usually is to keep the business

running and to survive in the long run while operating in a highly competitive
environment. The transformation towards a formal HR department depends
upon the owners desirability to do so and his ability to recognize and be
compliant towards legal issues as well. The responsibility of HR related
practices may be delegated someone else as the pressure of operations
increases upon growth in the size of firm. But, this still depends upon the
management style and personality of the owner. (Marlow, 1993)
The studies which the authors have used as reference indicate that the small
firms may be termed as resource poverty, as intensive HRM practices require
both, huge amount of money and time, that is a barrier in their way to SHRM.
Small firms, particularly those that are growing or growth oriented, make an
important contribution to the performance of developed and developing
economies around the globe. A critical issue is how to ensure the growth and
sustainability of the firm as we know HRM in small firms we clearly see that it
is characterized by informality. Studies have revealed that SHRM contributes
exponentially towards the growth and sustainability of businesses. (Susan
Mayson, 2006)
Rosemary Hill and Jim Stewart in their study of 3 small and medium
organizations in North West England discussed the values and characteristics
of SMEs generally in these 3 firms and their impact on human resource
development in them. Some suggestion for further research is also provided.
Their focus of study was that despite the encouragement from government
to promote SMEs while recognizing their crucial role in development of
economy SMEs are still not enjoying the infrastructure and expertise that
large organizations have. There is very less focus on training and
development of employees in SMEs despite of the need to reduce the skill
gap that is substantial. Major proportion of businesses in UK according to the
Skill and Employment Network statistics employee less than 100 employees
and fall under SMEs. So, due attention must be paid in formal training and
development of employees so that there is no more a difference in what the
employers want their employees to do and what they actually do. This
research was carried out by the authors as part of a 4 year doctoral program,
whose objective was to analyze and assess the effectiveness of UK national
policy towards there development of human resource in SMES. The data
was collected by means of multiple case studies and two to three follow up
visits to case study organizations. As well as mailed questionnaires to 350
small organizations and interviews to 23 owners and CEOs of small
organizations. The three organizations belonged to three different industries

and it helped the researchers to come up with contrasting views of

management styles, ownership. Structure etc, the majority of data was
collected through semi structured and informal interviews, telephone
conversations and site observations in a quite informal manner. Small and
large firms cannot be generalized because of the uncertainties and
conditions they face. Most large firms face internal uncertainty i-e whether
the decisions made at the top are disseminated properly to the lower levels
for implementation or not. On the other side this in not an issue for small
firms. (Storey, 1994)
Formality is good but it must not be so rigid that things cannot be altered
even under pressure. The uncertainty they face is external i-e market risk
and less power and influence than the larger firms. Another difference
among large and small firms is of innovation, while small firms can go on by
developing a niche in the market, larger firms usually produce standardized
products. The studies the authors have used as reference reveal that in
many small organizations training and development does not take place at
all. Even if it takes place, it is usually short term and for the current needs
only. It depends upon the attitude of the owner towards training and
development and also its perceived impact on organizational performance. It
is a three step process of panning, doing and evaluating the training
activities. Most of the studies revealed a direct link between training and
business success. (Rosemarry Hill, 2000)
Alan Price in his article HRD in small and medium-sized enterprises
shared his views regarding HRD in SMES . He said recruitment is problematic
for SMEs due to limited budget and material resources an also the large
number of functions that requires the employee to perform various roles with
responsibilities not very explicit. Empirical evidence suggests that SMEs have
enormous difficulties in attracting employees with the knowledge they need.
The quality of manpower on the market including lack of basic competencies
particularly in younger people make the task of recruiting in SMEs very
difficult. SMEs seek an employee to match the function and not by
qualification or professional skills. Is there R&S truly strategic, structured and
conceptualized or just informal or disconnected from core business?
Approach to the HR of SMEs is fragmented and more reactive than proactive,
holistic and systematic. Owners of the companies are more concerned with
their systems of telephone networks or the internet platform than with the
culture and practices of HR managers.HRD is more likely perceived and
talked about in small organizations as T&D. While acknowledging views
about small organizations not doing HRD in a conventional sense, research

methods and questions were formulated on the basis that small

organizations do do HRD but that it is difficult to find as HRD policies and
activities are embedded within organizational infrastructures and operational
routines. The research therefore sought HRD not exclusively within
traditional frameworks(formal training courses and induction programmers
,for instance)-that by and large were not there to be found anyway or were
partially there-but within phenomena such as organizational changes,
markets, competitive strategies, evolution and growth, leadership influences
and inclinations towards innovation and creativity.

The primary research strategy was to

collect data by means of a questionnaire
and through an interview. These
interviews and questionnaires were used
to gain an understanding of some of the
problems, views and experiences of the
owner-managers in a wide range of
organizations in the area. (Price, 2004)
HRD in small organizations seems more naturally directed towards the
development of organizational knowledge and capability than at the T&D of
employees. Since learning seems typified by tacit knowledge and skills the
extent of HRD enacted becomes obscured, misunderstood and
underestimated. This makes small organizations HRD significantly different
from conventional notions of HRD. (Price, 2004)

While acknowledging views about small organizations not doing HRD in a

conventional sense, research methods and questions were formulated on the
basis that small organizations do do HRD but that it is difficult to find as
HRD policies and activities are embedded within organizational
infrastructures and operational routines. The research therefore sought HRD
not exclusively within traditional frameworks (formal training courses and
induction programmers, for instance)-that by and large were not there to be
found anyway or were partially there-but within phenomena such as
organizational changes, markets, competitive strategies, evolution and
growth, leadership influences and inclinations towards innovation and
creativity.

Research has revealed a high degree of unplanned, reactive and informal

training activity in small firms, where there is typically unlikely to be a
dedicated personnel manager or training officer.If Recruitment and selection
can be seen as the first people management task underpinning the entry of
a new employee into an organization, training and development can be seen
as the second.
Other literature supports that in many small organizations training does not
take place at all. Moreover, where training does not occur in small
organizations, not only is it more likely to be reactive and informal but also it
tends to be short term and almost exclusively directed at the solution of
immediate work-related problems rather than the development of people.
Such factors suggest that T&D in small organizations is predominantly jobskill related, delivered on the job as part of the job, and is seen not so much
as proper training but instead regarded as part of everyday life. These
arguments also suggest that dynamics of HRD in small organizations are

notably different from those in larger enterprises. Training and Development

practices in smaller organizations are characterized by lacks Managers in
small companies are seen as resistant to the provision of training
opportunities through a lack of time, money or market knowledge.
Recruitment is problematic for SMEs due to limited budget and material
resources an also the large number of functions that requires the employee
to perform various roles with responsibilities not very explicit. Empirical
evidence suggests that SMEs have enormous difficulties in attracting
employees with the knowledge they need. The quality of manpower on the
market including lack of basic competencies particularly in younger people
make the task of recruiting in SMEs very difficult. SMEs seek an employee to
match the function and not by qualification or professional skills .Is there

R&S truly strategic, structured and conceptualized or just informal or

disconnected from core business. Approach to the HR of SMEs is fragmented
and more reactive than proactive, holistic and systematic. Owners of the
companies are more concerned with their systems of telephone networks or
the internet platform than with the culture and practices of HR
managers.HRD is more likely perceived and talked about in small
organizations as T&D.
In a survey of 6000 randomly selected SMEs in Great Britain, Matley found
significant differences in owner/manager attitudes and approaches towards
training needs of family and non-family employees in their businesses. The
needs of family members were seen in terms of firm-specific HRD issues
such as succession planning whereas training for non-family employees was
focused on individual career needs.
Owner/managers were mostly positive towards training but did not regard it
as a critical element in overall business strategy. Matlay also found that in
most cases (100 per cent of micro-enterprises and 93 per cent of small
businesses), decision-making for training and HRD were taken by the
owner/manager. A mere 7 per cent of small businesses employed a human
resource manager but, even in those organizations, the final decisions
appeared to be taken by the owner/managers.
The analysis from research shows that growth-oriented small firms are more
likely than non-growing ones to use formal HRM practices where that means
that they are written down, regularly applied or assured to take place.
Human Resource Management within small and medium-sized entreprizes, a
research partly funded by Dutch Ministry of Economic Affairs and done by
Prof.dr.ir.J.Hvan Bemmel, Prof.dr. A.R. Thurik, Prof.dr. F.A.G. den
Butter, Prof.dr. J. Paauwe, Prof.dr. J. de Koning and Prof.dr. M.
Lindeboom shows how the importance of human resources in recent years
has been evident at both macro and micro level. Resource base theories at
micro level are a major benefit to the individual firms. Recent developments
show that earning of human capital in the western economy is termed under
knowledge-based economies. The increasing importance of human capital is
seen both at the demand and supply side. Companies in the knowledgebased economy despite witnessing a shortage of qualified employees in the
labour market have to meet their demand for highly qualified officials. Thus,
as a result both human resources and therefore the management of these
resources is becoming important. This knowledge based economy at the

same time is seeing an increase in the small and medium sized firms which
employees half of the employees, decreasing the HRM practices. HRM
requires a workforce with qualities of higher knowledge, training,
determination and developmental and communication skills which are
ensured by recruitment, selection, appraisal and compensation of
employees. These employees then prove to be the key to organizational
success and this was the reason to the early 1980's shift from personnel
management to human resource management. So, human resources are an
important source to generate sustained competitive advantage. Most studies
on HRM within SMEs are based on qualitative studies and the empirical
information on HRM within SMEs show that smaller firms make less use of
high performance HRM practices than larger organizations further explaining
that small sized firms work in a more casual and informal way as compared
to that of the bigger organisations.The HRM planning and formal training is
directly related to the firm size so a smaller firm means less formal training
to the employees along with less chances of bonuses than larger companies.
Along with firm size, Heterogeneity in the type and formalization of the HRM
practices also affect the HRM practices.
Scholars arguing on the HRM patterns have both sorts of viewpoints. Where
some scholars say that lack of resources and foresight lead to less use of
formal high performance HRM practices, at the same point others state that
HRM patterns in small firms should be more flexible and informal so that they
are able to cope with the higher levels of environmental uncertainty. Scholars
even argue that lack of understanding of HRM issues by small business
owners may be one of the explanations for firm-size differences in HRM
practices. Small firms with being informal are also believed to be less
specialized than larger firms. Specialists are rarely found in a small firm and
employees have to perform a greater variety of tasks. In a random sample of
117 companies with less than 100 employees, only 15 have an HRM
department. Despite all these studies, it is still believed that HRM practices
in small firms are often more sophisticated than expected yet being less
sophisticated as compared to the larger firms. It is also seen that smaller
firms pay less wages than larger organizations. These large firms have a
higher monitoring cost increasing the benefits of screening for workers with
high abilities making them succeed in attracting the most able workers.
SMEs way of managing their employees resembles the bleak house
concept, where employment relations can be typified by direct
management control, poor terms and conditions, high staff turnover and little
training (Bacon et al., 1996, page 82). The above stated practices of smaller

firms of paying lower wages, providing less training and employment of less
specialized people seems to support this bleak house concept. But authors
still claim that Small and medium-sized enterprises may even have a
behavioral advantage over large firms when it comes to managing
employment relationships as they believe that this enables flexibility and
individual approach to employment relationship. Though, the small firms are
still ignorant towards the relationship between HRM and performance. It is
receiving much attention in HRM studies amongst large firms. All of the
determination of HRM practices in SMEs has received less attention on
relevance of contextual and structural dimensions besides size but none the
less large firms are depicting positive relations with HRM. (Bemmel, 26 june
2003)
Muhammad Umer, in his research, Human Resource Management
Theory and Practices in Small and Medium-Sized Enterprises (SMEs)
and Enterprises Performance in Pakistan describes the degree of HR
formality in SMEs of particularly Pakistan. Several approaches are used to
measure the patterns of HR formality but the author uses HRM formalization
scale based on a system approach. This provides level of HR formality with
different prevailing HR configurations and also helps in differentiating HR
formalizing different size classes. This study mainly deals with the usual
categories of HR practices like recruitment, selection, training, compensation
etc and there impacts on a organizations performance. The HRM researches
in SMEs are increasing gradually showing the 'democratic management style,
informal organizing and flexible working arrangements. They are still lacking
behind in the conceptual framework and methodology. The global economic
meltdown has further compounded the grounds for SMEs growth by showing
a rapid increase in the inflammation. Despite the inflammation these SMEs
play an important role in the reduction of poverty through employment
generation as they mostly represent 99 percent of the enterprises in almost
all the countries. Now researchers looking at smaller firms are paying
attention towards individual HRM practices, determinants of HRM in SMEs
and the level of formality. These conclude that HRM in small and medium
sized organizations are informal, intuitive and ad hoc and are sub-optimal. As
the size of firm grows the level of formality increases. As numbers increase,
direct communication and direct supervision become inadequate tools to
coordinate activities. In SMEs manager takes care of all HR related activities
it obviously becomes difficult for him to manage employees when firm size
increases. Consequently, the manger starts thinking to delegate HR
responsibilities to others, inevitably leading to more formalization. In fact,

owners or managers themselves believe that it is important to achieve a

certain level of HR formalization for attracting better employees and
customers and profitability of the firm. Retention is among the major
problems of SMEs. Employees keep shifting from one firm to another as an
increment in salary is far behind the growth in inflation. There are no
practicing HR policies, no bonuses, no incentives, and no employee
contracts. All of this results in depression of the workers making the
workplace of SMEs less productive. Different organizations have different
perceptions about Human Resource. In this competitive nature of firms where
each organization is trying to differentiate from the other, HR can give
competitive edge over the others. Thus the market demand of HR is
increasing, bringing more people towards this field. HR in SMEs if come in
action largely will benefit by streamlining the activities and creating a
transparent, fair equitable system providing equal employment
opportunities, justified promotions, tenure track and providing solution to the
queries related to insurance, medical etc. They would get an organized
structure, proper pay structures, promotion plans and employee
compensation and benefits plans etc. HR department in SMEs would ensure
recruitment, selection, training and development. Working with planning HR
would ensure better formal levels in SMEs too.
SMEDA states that findings of HRM formalization research within SMEs in
Pakistan will help to improve management control, for policy and strategy
concerns. The three types of theories strategic, descriptive and normative of
HRM are concerned with relations between a range of possible external
contingencies and HRM policy and practice. Broad field, interrelations and
key outcomes and are basis for prescribed best practice and high worker
performance respectively. There is a correlation between high performance
due to HRM practice and organization output. Poole & Jenkins (1996)
surveyed 909 firms in Britain, and found that HRM is one of the major keys
for firms to gain a competitive edge or a lasting and sustained advantage
over their competitors in the modern world. There is no direct link between
HRM strategy and corporate strategy but HR qualities do contribute to the
profits and growth of the firm. Business strategy is related with human
performance and is important factors in achieving great excellence from the
firm. All the researches indicate that HRM policies and practices pay a major
role for business success; hence there are interrelationships between HRM
and organizational performance. Small sized organizations are usually
challenged by HRM because due to lack of resources as compared to the
larger firms they cant hire professionals exclusively for HRM department and

as mentioned earlier they result in being informal and not very sophisticated.
SMEs are complex and influenced by a range of factors. So some authors still
argue that an informal approach is better for the smaller firms as the owners
can keep direct personal control of the firm and HRM informal services are
perfect.
Some SMEs cannot adopt formal HRM practices due to lack of resources like
finance and time. So as a result, the vision and knowledge of the owner and
limited resources play a vital role in keeping SMEs informal. The cause of
rationality behind RM formality in SMEs is the firm size. There is an increased
sophistication in HR practices with increasing firm size. It is also seen
through studies that growing small firms are more likely to use formalized
HRM practices than non-growing. The presence of HR department is directly
proportional with the size of the firm. It is positively related with the
probability that HR department is present. So it can be said that as the size
increases, complexity of the firms also increase. Highly competitive and rigid
environments of SMEs also demand a certain level of HR formality to stay
attractive for employees and customers. It is necessary to maintain detailed
records of each employee for control purposes as they also serve as
reference documents. Legislation dealing with certain legal procedures may
also demand SMEs to adopt formal HR practices. Small firms also have to
keep a balance between formal and informal management practices to
compete in the marketplace. Where on one hand it is stated that competition
with bigger firms may force SMEs to apply HR formality. AS the business
tycoons could minimize the profit margin of the smaller firms, the owners
need to have strong and absolute control over the labor process. There on
the other hand it is stated that SMEs and bigger firms compete for both
customers and employees and this could pressurize the SMEs owners to
develop HR policies to attract superior employees. Thus as a result it is seen
that formal HR practices could distinguish one firm from the other and could
attract more customers and employees. SMEs when in search of loans go to
micro credit banks to fulfill their financial needs are perceived to be
unreliable due to the low levels of HR formality. So to avail this facility small
firm owners have to develop HR practices. Thus, concluded that SHR
formality is not only influenced by benefits attached to it but are also by
cultural, economic and institutional factors. It is now evident that a certain
level of HR formality is necessary and beneficial for SMEs and realizing these
certain SMEs are now practicing HRM in their firms. (Umer, 2012)

Research question:
How do small and medium enterprises manage their human resource
functions?

Objective:
Our objectives of study are as follows:

To find out how SMEs carry out their basic HR functions.

Highlighting the reasons and factors why they are lagging behind in
effectively managing their human resources.
Perceptions of employees and employers on the issue

Research design:
The methodology we have used or the research design consist of gathering
data from a small sample of SMEs by interviewing their CEOs or top
managers and it helped us a lot to come up with descriptive analysis of the
functionality of Human Resource Department in small or emerging firms.

Source of data:
The data was collected from both secondary sources like scholarly articles to
use as a reference and to develop a know how about functioning of small and
medium enterprises with respect to human resource management activities
and also from primary sources i-e direct interviews and questionnaire from
the participating organizations CEO.

Sampling:
A sample of managers or CEOs from 3 small and medium organizations
operating in Pakistan was taken for the purpose of study.

Analysis and findings:

The study was conducted by visiting 3 organizations. All three belonged to
different nature of work and were small enterprises operating in Pakistan.
The results we drew from these organizations are summarized below.

Case 1:
One of the organizations we visited was a promotion and marketing firm,
formed just three to four years ago. We interviewed the CEO of that
organization and he helped us a lot in analyzing the nature of HR activities
they are currently involved in. It was a small organization employing
approximately 70 employees. Currently, there are 7 departments i-e HR,
marketing, creative, marketing, business development, finance and retail
management having 4-10 members in each. The numbers of employees vary
according to the nature of work.
The person we interviewed told us that the main functions of HR department
at his organization include hiring and firing, training (organizational
development), data base management, annual appraisal and administration.
There is one HR manager under whose supervision is a team of 4-10
members. He focused his debate on telling us that the culture of his
organization is family oriented, and HR policies are no exception in being
under affect of this culture. Job analysis for all kinds of jobs at their
organization was conducted. While describing a job tasks are being
prioritized and upon them job description is being made. And for job
specification as well, requirements of jobs are being prioritize before
finalizing it. He said that it is not possible that manager of any particular field
cannot be contacted, as we provide our staff with all the facilities so that
they may remain in contact. Even if any such thing happens, there is a
backup of each manager in the case of his absence from the job. For the
purpose of assessment, individual form filling is done by each member to
rate himself and afterwards, his assessment is being reviewed by his
manager and CEO and is discussed to look for any discrepancies. Conflicts if
any are resolved by having all the persons involved to sit in a room and solve
the problem as soon as possible.
The CEO told us that they are dealing with multinationals and they cant
afford to be legally constrained. They have to file sales tax as well properly in
order to keep their multinational clients satisfied. In hiring there isnt any
particular fixed time to hire. They hire when they need and as many times as
they want. Primarily the mode they used for recruitment was word of mouth
but by now they place ads in newspaper and on online channels as well.

Interviews of new recruits are conducted by line managers and of that 7080% get selected usually and CEO conducts the final interview. They are
applying Equal employment opportunity laws 100% in their organization.
There is not any policy yet that states organizations philosophy on employee
training and development. They have TNA training need assessment process
that is being carried out each year after the appraisal. In training employees
power point presentations are mostly conducted and another tool used is
team building. The company does not have its own training institute. Training
programs is usually conducted more than once in a year. Foods and drinks
are provided t the trainees during this process. One month after the training
program being held a test is usually conducted in order to assess the change
in behavior, attitude and work style of employees. Assessment of employees
is done throughout the year and they are replaced if necessary depending
upon the needs of market and on their own performance. Opportunities of
advancement are also provided to high performing employees. Employees
are also being guided bt their supervisors and CEO regarding their career
paths. He said that they increase the morale of his employees by providing
medical facility and free lunch in house. The talent in his organization is
being managed through training.
The main factors identified in evaluating the employee are his performance,
attitude/behavior and potential. Non wage compensations provided include
medical insurance, cars for senior employees, laptops and mobile phones
and on the day an employee joins an organization, he can apply for motor
bike loan. Pay is decided by keeping in view both seniority and merit
basis.Basic pay is given, in addition to it perks like petrol, cell phones, health
insurance, social security and vehicle are given depending on his/her
contract and GST is also deducted.
Casual, maternity and annual leaves are also given to the employees.
The orientation is generally conducted in 2 to 3 sessions ranging from
20 minutes to half an hour. In orientation consists of companys profile and
orientation to all departments and a detailed orientation on the relevant
department with job description explained.
So, this organization is growing yet and falls in the category of small
and medium enterprises, hence a general trend that is evident from this
organization is that it does consider HRM as one of the crucial contributors
towards success but still its size does not allow it to have a proper formal
human resource management department that has the sole authority of
managing HR related functions.

Case 2
The organization visited was an agro-based firm ,which was relatively a new
company only three years old so their HR department was not much
developed, they were still devising and implementing their HR policies and
strategies .When asked about main functions of HR department in their
organization the CEO of the organization told us that the main function of HR
department is to hire the right employees to provide them with proper job
descriptions to ensure that company policies are being followed to make and
suggest any amendments that are required in the policies. He said their HR
department also looks after the administration functions as well, which
means that if they have a fleet of cars, the administration of fleet of cars is
also the responsibility of HR function. So for them HR department and
administration was treated as one.
As far as hierarchy of HR department was concerned there were only two
employees in HR department. One was Assistant Manager, other was his
officer. When asked about their current philosophy of designing HR policies
and laws he told us that they have benchmarked their HR policies against
the policies implemented by multinationals, so what they have done, since
they are their competition, is that they have identified few multinationals,
they keep track of the HR policies which are being adopted by those
multinationals .Job analysis is conducted for some positions of company and
not for all. When asked about main components of job description which are
focused while analyzing a job he said they look at the key performance
indicators, that what are the expectations of the organization and depending
on that they design job descriptions. They also identify the percentage of
time which they expect to spend on each particular task. They also try to
quantify the amount of importance that each task has for the organization.
So, if somebody has say six tasks to perform each task is not equally
important there are few tasks which are critical than others. They also treat
job description and job specification as one and there is no separate
document related to job specification. Their Finance and Accounts
department housed in the head office was considered to be the second
alternate when say supply chain or warehousing or any sales person cannot
be reached , which takes care of all matters.
When asked about what techniques and tools managers use for assessment
purposes he told us that is something they have introduced this year only. It
is a relatively young company, only three years old. So from this year, they
have started a formal employee appraisal system. It was not there previously
two years ago. Their strategy regarding conflict is to sit across the table and

try to understand different viewpoints of employees and then find a way and
if someone is being unreasonable CEO tries to tell and the mechanism is that
CEO of the organization resolves the issues. Their strategy regarding legal
compliance is that they have a lawyer they consult him, whenever they feel
they need a legal opinion. Sometimes there are conflicts with other
companies that also trigger the initiative to take legal advice so they consult
legal advisor for that purpose. Recruitment source used in the organization is
almost always reference of existing employees. When asked about how
many times they hire employees in one year he told us that for them hiring
and firing is a continuous process. They keep on hiring and firing employees.
Most effective recruitment method in the organization is personal references.
Departmental head starts the interview process, he usually conducts the
initial interview and depending on the rank, if there is an Assistant Manager
or Senior Manager, he is also introduced to the CEO of organization. When
asked about the extent of applicability of EEO laws in hiring process he told
us they are equal opportunity employers in fact they have tried to find
female employees but the nature of work is such that, they have a lean
organization, the office, head office is small. Most staff consists of sales
persons and they move to rural areas, so it is not very convenient for
females. He said that he does not know and heard of even a multinational
which has a sales executive position for females who go around in different
villages for sales of fertilizers and pesticides. The organization does not have
any well articulated and written down policy that states the organizations
philosophy on employee training and development. They do not have any
process for assessing the organizations training needs and individual
development needs. What they have done in the past is that they identified
reporting lines, they have done job descriptions , identified key performance
indicators of departments, and then from department to employees .So that
is where most of their HR practices are and unfortunately not to that level.
Training needs assessment they do not conduct but they do conduct some
internal training but it is not based on training needs assessment. They
conduct generalized training e.g., if they are entering a time in a year when
cotton will be sown or rice will be sown ,its a general practice among most
companies in this business that before the sowing of a particular crop, the
sales officers are gathered at a particular site, where their technical heads
give them tips on the crop ,the challenges that farmer has to face etc, he
said if you define that as training then we are very intense on that. Another
practice they follow is that on a weekly basis they send a company
newsletter to all employees. That is one way of communicating with them,
they inform them about various initiatives, new products being introduced.

Similarly it is technical managers part of job description to write technical

bulletin about sales which is distributed among all the employees. Technical
training is frequently used by the organization. As far as topics emphasized
in the training program are concerned, they have made a list of training
topics but the initiative has not been launched yet. The topics include team
building, listening skills, selling skills and followership. The organization has a
technical department that act as training institute and its main job was to
conduct trainings. They hire trainers from outside they do sometimes have
sales conferences. They have one annual sales conference and some
quarterly events where whole sales team was gathered less than one roof
and they invite technical trainers. The training program is conducted once a
quarter. They offered facilities for employees during training period by
conducting training at hill stations so the sales team gets relaxed as well
along with being trained. Training is usually lecture based. The trainer usually
conducts the training by delivering lecture. There is a written exam at the
end of the training and based on that written exam , they evaluated key
trainees. These reports are made part of HR files and are documented and
told how a particular employee performed and those who performed well a
certain weight was assigned when decisions for promotions were made. As
far as opportunities for high potential workers are concerned he said they
try, if somebody performs well he has a faster track to grow .They do not
treat all the employees equally. Those who perform well get monetary
benefits and promotions etc. They increase pool of promotable employees by
focusing on motivating them. He said there is some effort that employee has
to put in and certain level of effort which leadership has to put in that would
increase the pool of promotable candidates. He said there is some effort that
employees do, and the management tries to provide them technical training,
thats their business, so their main focus is always on technical training.
They guide individuals in their career paths at personal level but at
organizational level there was no such policy. They increase the morale of
employees by encouraging them, by rewarding them, one way is through
weekly newsletter, so if the employee performed well his name is mentioned
in that newsletter and they recognize them in these letters. Then they
recognize them in annual meetings, quarterly meetings where they give
them chance to speak with other employees. They also give them cash
prizes and incentives. They do not have any mechanism for enhancing the
talent management of employees; CEO said that he thinks he has not
reached that level yet. He told us they try, they have recently registered
their company in Prime Minister Youth Employment Scheme but they have

not received any application through that channel, that is one way of
encouraging young talent. For existing talent its the company strategy of
reward and punishment. If the employee performs well he gets promotion,
incentives, bonuses and if does not perform well he gets fired. They have a
performance appraisal system for evaluating the performance of employees.
The system included educating the person doing the evaluation and for
weekly evaluation HR department is responsible. Departmental head
conducts the performance appraisal and the final approval is from the CEO.
Departmental and individual targets of an employee are considered in
evaluating his performance. They evaluated employees performance on an
annual basis but mock appraisals are conducted on six monthly basis. Nonwage compensation provided to employees included travelling allowance;
they provided mobile phones and mobile connections. When asked that do
they pay lowest rate of pay to employees to ensure that they remain with the
organization, he told us it depends on the department there is no standard
formula for that. They pay their sales persons according to market and follow
some reference companies. There is no role of seniority in pay schedule but
yes meritorious performance has a major role.

Case 3:

Discussion:
The main issues that connect these three very different case organizations is
that the Owners/managers need to be willing to develop formal HR
departments in their organizations. In the agro-based firm HR department
was not much developed with HR policies and strategies still in the process
of development and implementation. For instance job analysis is not done for
all job positions in the organization similarly for them job description and
specification are treated as one. If we look at staffing it is usually done
through convenient, less expensive and in ways that are directly controllable
by the firm rather than through proper channels and no special attention is
given to the screening of the applications in an effective manner and to
reference checking as well. Such practices ultimately lead to bad
performance of the employees and the firm as a whole. Performance
evaluation is also being ignored and it is usually carried out informally with a
view of monitoring rather than developing employees. Talent Management
and training needs assessments are not done. Although this firm practices
HRD but these HR practices are characterized by informality. It may be a
problem because informal HR practices do not recognize the value of

employees. It is true that informality provides small firms with a benefit of

flexibility and convenience but as the size of the firm grows such informality
can lead to diminishing returns. For example, when number of employees
increases due to growth, it becomes difficult to manually keep their record
and also to recruit from the existing sources, informally doesnt pay well.
Small firms managers usually have to face many other challenges beside
establishing a formal HR department. Their major concern usually is to keep
the business running and to survive in the long run while operating in a
highly competitive environment. The transformation towards a formal HR
department depends upon the owners desirability to do so and his ability to
recognize and be compliant towards legal issues as well. The responsibility of
HR related practices may be delegated somewhere else as the pressure of
operations increases upon growth in the size of firm. But, this still depends
upon the management style and personality of the owner.
In the marketing firm, the owner said that there is no policy yet that states
organizational commitment towards training and development. Since it is a
marketing firm and must stay proactive in managing the talent of its
employees, proper attention must be given in devising policies regarding
training and development needs of the employees.

Conclusion:
Despite of ever increasing importance of human resource management most
of the small and medium level organizations operating with in Pakistan are
still managing their HR related functions in a traditional and relatively
informal method. Some SMEs cannot adopt formal HRM practices due to lack
of resources like finance and time. So as a result, the vision and knowledge
of the owner and limited resources play a vital role in keeping SMEs informal.
The cause of rationality behind HRM formality in SMEs is the firm size. There
is an increased sophistication in HR practices with increasing firm size. It is
also seen through studies that growing small firms are more likely to use
formalized HRM practices than non-growing. The presence of HR department
is directly proportional with the size of the firm. It is positively related with
the probability that HR department is present. So it can be said that as the
size increases, complexity of the firms also increase. We suggest that
increased importance must be driven towards formalization of HR practices
in SME as it will help the company to overcome many of constraints that the

company has to face due to informality in HRM and will help the company in
increasing its efficiency and effectiveness.

Bibliography
Beaver, J. S. (2004). HRD in small organizations.
Bemmel, P. J. (26 june 2003). HUMAN RESOURCE MANAGEMENT WITHIN
SMALL AND MEDIUM-SIZED ENTERPRISES.
Marlow, S. &. (1993). managing the employement relationship in smaller
firms: possibilities of Human resource mangement. International small
business journal , 57-64.
Price, A. (2004). HRD in small and medium-sized entreprises. Human
resource development:strategy and tactics .
Rosemarry Hill, J. S. (2000). human resource development in small
organization. journal of Europeon Industrial training , 105-117.
Storey, D. (1994). Understanding the small business sector.

Susan Mayson, R. B. (2006). Science and practice of HRm in small firms.

human resource mangement review , 447-455.
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Human Resource Development

Interview Questions

How many departments are there in your organization?

What are the main functions of HR department at your organization?
What is the hierarchy of human resource department?
What is your current philosophy for designing HR policies and laws?
Is job analysis done for various positions of your company?If yes, then
which one?
What are the main components of job description which are focused while
analyzing a job?
What are the main components of job specifications which are focused
while analyzing a job?
What is the number of employees in each department?
What are the alternate chains of command when managers cannot be
contacted?
What techniques and tools managers use for assessment purposes?
What is your strategy regarding resolving conflicts?
What is your strategy regarding legal compliance?(policies and regulations)

Recruitment and selection

How many times you hire employees in one year?

What is the recruitment source used in your organization?
Which recruitment method is most effective in your organization?
What type of interviews you conduct and who conducts them?
To what extent equal employment opportunity laws are applicable in the
process of hiring?

Training and development

Do you have any policy that states the organizations philosophy on
employee training and development?
Do you have any process for assessing the organizations training needs
and individual development needs? If yes how assessment is carried out
and how often it is updated?
Which issues you consider in assessing training needs?
Which training is frequently used by your organization?
Which training opportunities do you offer/which topics are emphasized in
the training program?
Do you have any training institute of your own?
Do you hire trainers from outside?
How often your company conducts training program in year?
During the training period, what types of facility program you have?
What is the common format/system/tool of your training programs?

 How do you analyze the after training benefits?

Career development and talent management:

How you identify replacement needs and how did manage?

Do you provide opportunities for high potential workers?
How you increase pool of promotable employees?
Do you guide individuals in their career paths?
How you increase your employee morale?
How you enhance the talent management of employees?

Performance Management
How you evaluate the performance of employees?
Who does the performance appraisal?
What are the main factors in evaluating the performance of an
employee?
Which method is used for performance appraisal?
After how much time period do you evaluate the employees?
What is the frequency of appraisals?

Compensation and benefits

What are the non-wage compensation provided to employees?
What is the lowest rate of pay that must be offered to employees to ensure
that they remain with the organization?
Is there any role of seniority and meritorious performance in pay schedule?
Which approach is being adopted here?

Questionnaire:
How many employees do you have?
How many departments are there in?
What is the number of employees in each department?
What is the manager to employee ratio?
Who is responsible for orientation?
How many sessions of orientation are conducted? What is the length and
timing of each session?
What information is provided to the employees at the orientation?
Do you provide any orientation kit to the employees?
How evaluation of the orientation is carried out?

How you calculate the payroll of employees?

Do you provide any benefit to your employees?
Do you give different types of leaves of absence?