25 October 2018

SMMEs and the Human Resource Management Conundrum

By IQbusiness Research

Small, Medium and Micro-sized Enterprises (SMMEs) are critical contributors to job creation and economic growth in South Africa. According to the Small Enterprise Development Agency (Seda), the SMME sector accounts for 55 – 65% of employment, a percentage that is expected to increase in the coming years.

A number of state-driven initiatives aimed at helping SMMEs grow and/or survive have been implemented over the years. These initiatives have been carried out through mediums such as Seda, the respective Sector Education Training Authorities (SETAs) and incubation centres. Naturally, when entrepreneurs start their businesses there is a tendency to focus on purely commercial aspects at the expense of other areas, such as Human Resource Management (HRM). And while some of the state-driven initiatives include HRM, much of the focus (understandably) tends to be on making the business a financial success – or even, simply, helping it to survive.

Scholars on this topic have noted that although the majority of SMMEs focus on the finances and marketing of their business at the start, the need for effective HRM practices inevitably arises. For some businesses, though, it might be too late – since studies indicate that many SMMEs often experience human resource problems and, as a result, lose their competitive advantages. While it is common knowledge that employees are an indispensable component of business success, and should therefore not be ignored, the reality is that many SMMEs neglect the HR aspect of their business to varying degrees.

Managers/owners of SMMEs often view HR practices as costly, bureaucratic and time-consuming, which typically leads SMMEs to adopting informal HRM practices. In many instances, SMME decision-makers are forced to handle, among other functions, HRM activities they are usually poorly equipped to resolve. A recent IQbusiness study examining the needs of SMMEs found that owners are not confident about their HRM capabilities, and the extent to which they manage related issues effectively. In fact, only 20% of SMME owners rated the business as good/excellent at HRM. This will have to change if employment in the SMME sector increases at the rate we expect it to.

What are the implications of not paying adequate attention to your people? Amongst other things, there’s high staff turnover, low morale, a lack of skills, reduced motivation and dwindling productivity. So, rather than thinking about the cost (monetary or other) of bolstering their HRM capabilities, SMMEs should start thinking about the cost of not making this investment.

Ultimately, the remaining question is how can the impact of this problem be mitigated? We know that commitment from the state exists, so perhaps one avenue would be to concentrate the energy of this commitment a little more on HRM. It could, for example, manifest in a stronger focus on HRM through the training support offered by various government-driven initiatives.

If HRM capabilities of SMMEs are to be improved significantly, though, initiatives must go beyond state-funded programmes. Large businesses are particularly good at managing human resources, and often set trends in HRM globally (here the likes of Google, Microsoft and Unilever come to mind). These companies also invest heavily in corporate social investment (CSI) initiatives. So, is there a smart and sustainable way to encourage companies such as these to channel some of that CSI investment into initiatives such as research on employees’ attitudes to their work? Employee engagement/satisfaction surveys (always-on surveys, spot surveys, pulse surveys and anchor surveys) assist SMMEs at making informed decisions directly relevant to their enterprise and its human resources.

The answers to South Africa’s HRM challenge aren’t simple, to be fair, but unless key stakeholders start thinking about it as a current and future risk to economic growth, we will find ourselves being far too reactive to a problem that we should have seen coming. This specific problem can best be handled, and solved, with proactivity.