Dr. Vivek Bindra, Founder & CEO, Bada Business Pvt Ltd

In majority of economies around the world, MSMEs constitute more than 90% of the total enterprises. In India, MSMEs employ around 40% of the country’s workforce contributing significantly to the GDP. More often than not, the basic values reflected by MSMEs are agility, cost consciousness, trust, centralised decision making, risk-taking ability, and culture of doing business through intuition and relationships. With so much business diversity,limited resources and lack of professional stratification, MSMEs often exhibit a certain range of informality in management practices and procedures. Human resource management is one area where most MSMEs do not pay as much emphasis as required.

With small organizations largely governed by the dictates of the founders, MSMEs often relegate HR to a lower priority. However, HR strategies when leveraged effectively can provide a strong foundation to an MSME, helping it to enhance creativity, maximise productivity, and control costs.

The Role of Human Resource Management in Driving Efficiency and Effectiveness

Research states that organisational performance can be enhanced through the strategic use of HRM. To a great extent, the success of MSMEs depends on the resources, competency, commitment, and enthusiasm of the owner. As owners often involve themselves in employment matters such as determination of compensation, promotion and termination, employee issues are hardly managed in a specialized way. This also results in disaffection, high rates of attrition, lack of a cohesive leadership pipeline and absence of upskilling practices.

Small organizations have different needs and lesser resources from the larger ones. This is why effective and creative human resource management becomes even more imperative for them.

From staffing, training, performance planning, appraisal,retention and creating a leadership pipeline, human resource plays a key role in the overall success and growth of an organisation.

Addressing talent crunch

Talent crunch is a major challenge for MSMEs that can hurt their growth and bottom line. MSMEs face a significant challenge to recruit skilled workers especially when it comes to middle level and workmen level positions. In small organizations which may not have the resources to hire top notch talent from their fields, intelligent talent association strategies need to be worked out. A balanced combination of regular workforce with talented part-timers and freelancers or consultants can be worked out to ensure that the best talent is on boarded in the given resources. It is also important to establish a creative strategy of recruiting talented interns and training them to fill in vital positions over time. With properly created job role descriptions, materials, and job posts, HRmust also implement effective recruitment standards to efficiently select the right candidates.

Addressing the challenge of attrition

Retaining the existing talent pool because of a lack of competitive salary is a critical problem faced by MSMEs. Efficient strategies put in place by human resources ensure that employees remain content within the organisation without heading for early departures. However, it is important to understand that compensation is not the only factor that drives decisions of quitting among employees. A number of other factors such as work life balance, work satisfaction, a culture of trust, value and respect as well as job security also play a crucial role in determining employee decisions.

This is where HR plays a crucial role in making the work culture of small organizations more amenable and accommodating to employees. A well-laid-out employee retention program can aid in reducing attrition rates significantly. This may include instituting a flexible work policy, infusing a culture of trust between employees and senior management, running effective mentorship programs to train newcomers and giving ample opportunities to employees to use their skills and grow in the organization.

Job satisfaction and employee engagement are vital components of employee retention programs. When all the above-mentioned factors are addressed properly, employee turnover reduces and employees feel motivated to contribute to the success of the organisation.

Constant up-skilling of workforce

With the evolution of technology, job requirements change and it becomes necessary to equip employees with new skills to let them stay on top of best business practices. This also ensures that the company remains competitive by filling the required skill gaps. Human resources can identify organisational skill shortcomings and ensure that upskilling efforts are aligned with the workforce needs. They can decide which training and development method works best for the organisation – one-on-one-training vs volume training programs. Also, HR personnel are the best people to judge whether the training can be accomplished through internal teams or external institutions. When employees are offered the resources to upskill, it acts as a positive return on investment. They feel motivated to acquire the new skills which in turn boosts performance, and also reduces the need to hire outside workers to get the job done.

Resource Scheduling and building leadership pipeline

Managers in MSMEs often face challenges to keep track of their resource pool, capacity, skills, and availability. Such scenarios result in managers hiring new resources instead of allocating the work to an already competent resource within the organisation. However, with efficient human resources management in place, such things are managed using a systematic approach that lets managers schedule resources for jobs to be completed well ahead of time. Apart from ensuring optimal allocation, resource scheduling allows employees to easily accommodate the newly assigned tasks with their existing tasks. Well-planned resource scheduling by human resources helps managers to prevent underutilisation and overutilization of resources thus maximising productivity.

Small organizations also have only a handful of managers at any given point of time. This makes them irreplaceable cogs on the organizational wheels. So much so that even if one manager quits and decided to move on, it creates a vacuum that affects organizational performance and client relationship.  HR must therefore work consciously to build a pipeline of leadership so that at any given point of time there are ready employees to take place of managers who might be moving on. Identifying a group of promising employees and training them for future leadership roles is a critical element of an HR strategy for small organizations.


Human resource management has strategic significance for MSMEs. HRM plays a leading role in a variety of functions like employee engagement, facilitating integration, quality of work-life, flexibility, productivity, changing organisational values, and delivery mechanism. HR isn’t just about a function that contributes to keeping employees happy and maintaining attendance, payroll instead, it is strategic that assists organisations to gain a competitive edge and achieve their business goals.

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