How investing in Human Resources can help Startups and MSMEs grow?
MSMEs form the backbone of any developing economy like India. According to the MSME Ministry’s FY19 annual report, there are about 63.05 million micro industries, 0.33 million small, and about 5,000 medium enterprises in India. Today, MSMEs employ about 110 million people across the country in different sectors and industries.
Like MSMEs, Startups also contribute to economic development by generating employment and spurring innovation and injecting competition in the country. Initiatives like Startup India by the government of India aims at supporting and promoting entrepreneurship in India and is intended to transform it into a country of job creators instead of job seekers. The Department for Promotion of Industry and Internal Trade (DPIIT) has recognized 27,916 startups, as on 1st February 2020.
So we see, MSMEs and Startups play a crucial role in employment generation and for the economic growth of the country. However recently, the COVID 19 pandemic has significantly impacted the MSMEs and Startup ecosystem in India thereby derailing the growth engine. The Government of India in order to revive the economy announced a stimulus package towards building the Atmanirbhar Bharat or making India a self-reliant country, which also focussed on bringing reforms for MSMEs and reviving startups.
We all are aware that India has a demographic advantage to its side. With the government focusing on new reforms, if the vision is well executed this can be a game changer for a lot of businesses in India and will help India in becoming a large formal economy.
In India, the MSMEs are largely characterized by their informal nature, which is another major reason for restricting the growth which this sector can otherwise experience. While MSMEs have the structural flexibility that enables them to promote innovation and adaptability to the market needs, the informal characteristics associated due to its small size like the nature of employment contracts, employment benefits provided, transparency and proper framework, and non-adherence to compliances does limit its growth.
Faced with several challenges like business competition, financing needs, marketing, resources, etc., an entrepreneur ends up focusing on day to day operations around these challenges and invariably neglecting the importance of Human Resources. HR is not perceived as the core to the MSMEs and a study in India indicates that most MSMEs have no HR strategy of function in place. However, there is a direct correlation between Business strategy and HR strategy and the impact HR can have on driving the organizational performance.
MSMEs and Startups are often seen struggling to transform their business into large business models and eventually getting restricted. HR is strategic regardless of sector and segment and MSMEs and Startups should also look at it as an investment. Investing in Human Resources can certainly have a multiplier effect on the growth and profitability of MSMEs.
The model developed by David Guest shows how linking Business strategy to HR strategy can drive the financial performance of the organization.
Most SMEs and Startups do not have clearly defined people practices and goals. They often depend on informal, temporary, or existing resources to carry out Human Resource processes such as recruitment, learning and development and performance management. Here is how formal Human Resources function and practices can help Startups and MSMEs in achieving their larger business objectives:
1. Attracting Talent : Every business irrespective of its size requires the right skill sets and people in order to function effectively. Having the workforce with the right talent increases the efficiency of the organization and eventually helps in achieving the goals of the organization. Human Resources can facilitate the recruitment process and ensure that the relevant candidates are hired in the organization based on their competencies and skill sets.
2. Onboarding and Experience : The first impression is the lasting impression. An effective onboarding process can help a new employee to connect with the organization and also in identifying with the goals and culture of the organization. Making them feel important on the very first day and gradually bringing at par with the business’s vision helps in fostering the engagement and retention of the employees. Human Resources facilitates a smooth and successful onboarding process for the new employees.
3. Reward and Recognition and Employee motivation : Employees respond to appreciation and recognition of their good work because it validates that their work is valued by others. Recognition of their efforts and boosting their morale results in increased productivity and decreased attrition rate. A motivated and dedicated workforce can change the fate of a company The idea is simple, you make their day and they make your day. Human Resources can play in implementing practices, which would boost the employee morale thereby contributing to the growth for SMEs and Startups.
4. Facilitate Goal setting and performance management : MSMEs come with their own challenges when it comes to managing the performance of their talent. A well-run appraisal process is an essential way to achieve better work performance from employees contributing to the growth of the organization. Human Resources functions take the responsibility of designing and ensuring a smooth implementation of the appraisal process and performance management system of the organization.
5. Standardization and governance through proper HR framework : It is important to have a good policy framework for an organization to achieve the short term and long term goals of an organization. It gives the necessary structure many businesses need to sustain the company's productivity and overall profitability. Human Resources play an important role in developing and formalizing the company policies and procedures that help in accomplishing the vision and objectives of the company.
6. Learning & Development : Learning & Development as an activity can create a lot of value for any organization. It contributes to better engagement with increased productivity. A study says companies with a culture of Learning & Development have a competitive edge over the companies which do not invest in Training & Development. For SMEs and Startups, the growth of their business would also depend on how they leverage the power of learning to their benefit. The Human Resources function helps in the identification of training needs, facilitating training programs for enhancing the required skills of the employees and helps in achieving the business goals of the organization.
7. Staying compliant and hassle-free : It has been observed that a lot of business owners often fail to remain compliant either because they are ignorant or uninformed about the importance of being compliant. Even a small non-compliance may cause businesses to face penalties or any long-run litigation. A compliant organization is always perceived as an ethical organization that abides by the law of the land, which also helps in building a strong employer brand in the longer term. Human Resources can help you overcome the challenges associated with being non-compliant and ensures that the business remains compliant with all the statutory rules and regulations, ultimately contributing to the hassle-free growth for the business.
Human Resources functions allow MSMEs and Startups to focus more on the strategic and core business activities of the organization, ultimately boosting their growth and success in the long run. It plays a key role in building a positive culture and facilitates in developing a trusted brand image of the organization.
Todays’ dynamic and uncertain business environment makes a compelling case for businesses to look at Human Resources as a primary important function and not a secondary one. HR practices and processes can help Startups and MSMEs develop sustainable competitive advantage by adding value through people and linking effective people practices to Business Strategy.
AMS Human Resources Pvt. Ltd. offers HR Advisory and HR Outsourcing services to all industries spread across all sizes - Startups, small, medium, and large for managing the critical HR functions and operations of their business enabling the business owners and entrepreneurs to focus on their core business activities.
For any queries related to your HR worries, you can reach out to us on +91-9890835165 or mail us at info@amshr.com.
