Human Resources – Challenging the SME Market

SME Market - Complete Controller

The success of small to medium-sized enterprises (SMEs) is often viewed as an indicator of overall economic health. Moreover, businesses with less than 250 employees may be simpler to manage when compared to multinational companies with thousands of employees. Consequently, the matters of scale result in a different mix of challenges. However, businesses face many peculiar challenges when implementing human resources (HR) systems and policies in an SME. The issue prevails because, unlike large organizations, SMEs tend to take HR issues and concerns for granted and ignore them either partially or fully. In fact, they only act when matters have reached their peak; thus, the scenario becomes out of their control. Moreover, HR matters are often more complicated than issues in other departments like Accounting which can be scrutinized and corrected through calculations. Check out America's Best Bookkeepers

Consequently, small to medium-sized enterprises must adopt the best HR practices and procedures to ensure that they accomplish their company goals and business objectives. You do not need to have large reserve funds as long as you have the right people putting processes in place at the right time. Here are some of the common HR issues SMEs currently face:

  1. Absence or lack of HR Department in SMEs

Most small-sized businesses and some medium-sized enterprises have no HR departments because they perceive that having a fully functional HR department is an additional cost. Hence, in the absence of an HR department, workers tend to resolve workplace issues themselves, resulting in chaos and more issues among workers. Therefore, they are often vulnerable to the concerns affecting their morale and job motivation.

  1. Managing Talent

Lack of talent management is another big issue for SMEs, which ultimately affects the following HR processes: Check out America's Best Bookkeepers


The HR process begins with recruiting the ideal candidate for a position. Remember, the quality of individuals you hire will eventually determine the success or failure in the long term. SMEs typically start recruiting through referrals; their relatives and people they know or individuals related to shareholders. This is okay if merit and qualifications are the basis on which the people are employed. However, SMEs normally prefer relatives and friends with the assumption that they are easy to deal with and willing to work for them at a lower rate. Unfortunately, the downside of this practice is that the hired friends and relatives often lack requisite skills and expertise and can cost the company in the long run. Moreover, there is usually no formal recruitment process in family-owned small businesses, especially ones acquired by succession or inheritance.

Training and Development:

In today’s developed business societies, organizations should acquire an adequate pool of skilled and experienced employees with the current market scenario. Therefore, large companies demonstrate concrete efforts to hire smart and skilled people and upscale their abilities by making them go through various training and development programs. However, SMEs often tend not to rely on external training and development programs, mainly owning to budget constraints. Therefore, they conduct on-the-job or in-house training, which often produces lower results or provides no training at all.

Reward and Remuneration & Performance Appraisals: Check out America's Best Bookkeepers

Reward and Remuneration is another essential HR aspect that all organizations, irrespective of their size and nature, should effectively use to motivate their employees. They must have a transparent and dependable system for setting salaries for their staff. However, many SMEs either have a vaguely structured Reward and Remuneration system and performance appraisals or none of them at all. This is primarily because other structures like a job description for different roles, competency framework, and values for the different roles are not well-defined. Moreover, small business owners or managers are busy or are not trained to handle more than average ‘performance.’ In fact, most SMEs are not focused on scale and growth to tackle appraisal processes.

Talent Retention:

Retaining competent employees at the junior level is often a challenge for SMEs. This junior-level usually consists of workers with functional skills like electricians, field salespersons, etc. This class is significantly mobile, rarely available in consistent job shifts, and may even quit working without giving prior notice. The unexpected loss of employees affects SMEs, especially during the seasonal days. Moreover, vague role definitions, lack of career prospects, or any perceived unfairness in the remuneration or appraisal system can trigger thoughts of attrition among workers. HR managers should be aware of employees’ engagement at all levels of the enterprise and their retention drivers.

  1. Maintaining the spirit of innovation and entrepreneurial culture

Bursting with excitement, aspirations, expectations, and immense potential, SMEs in their early days often promote a business culture that is fun, fast-moving, innovative, and entrepreneurial in nature. Such a culture is generally comprised of young, energetic team members who show great coordination and dedication, work closely with each other, and frequently interact with their seniors and business founders. However, SMEs tend to lose this spirit as the business begins to grow and mature. Therefore, due to conventional ways of business management, they often fail to grow further. In fact, at some point, it becomes a challenge to sustain operations in the competitive market.

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