Understanding the Significance of HR in the Success of MSMEs

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Understanding the Significance of HR in the Success of MSMEs
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On 6th April 2017, the United Nations (UN) designated 27th July as ‘Micro Small and Medium-sized Enterprises Day’ or ‘MSME Day’. It is observed each year to recognize the significance of MSMEs in improving the economy of progressing countries. Additionally, it also highlights the numerous challenges MSMEs face throughout their daily business operations.


If you are an MSME owner, chances are that you might be undertaking the various responsibilities of an HR personnel in your organization. However, it is essential to have a dedicated HR professional in your company since it will help manage your employees better, while also freeing you to take care of your core business expansion plans.


Let us dive deeper into understanding the relevance of MSME Day and the significance of HR in providing your staff with effective management, resulting in a successful venture.


What is an MSME?

The definition of the abbreviation ‘MSME’ changes from country to country. While it generally refers to the various kinds of organizations undertaking business in a country, every country has a clearly defined set of rules, which makes an organization eligible to be designated as an ‘MSME’.


In India, the eligibility factors for an organization to be designated as either a micro, small or medium-sized enterprise depends on its investment in machinery and equipment, and its annual turnover:


Company Classification Machinery / Equipment Investment Annual Turnover
Micro Enterprise Less than ₹1 Crore Less than ₹5 Crores
Small Enterprise Less than ₹10 Crores Less than ₹50 Crores
Medium-sized Enterprise Less than ₹50 Crores Less than ₹250 Crores


The companies falling under these categories are required to register themselves online using the ‘Udyam Registration Portal’ and obtain their Udyam registration certificate, which designates them as a genuine MSME and helps obtain the numerous financial benefits applicable to them.


In general, MSMEs can be identified by the following factors:


  • Singular management, with little to no delegation of responsibilities.
  • Resource limitations, in terms of finance and workforce.
  • Relying on a limited customer base.
  • Operational in regional markets.
  • Deployment of informal and dynamic business strategies.


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Significance of MSME Day

According to the UN, almost 90% of businesses worldwide are MSMEs, and they employ over 60% of employees. As a result, they contribute to 50% of GDP worldwide. They are an essential component in maintaining the economic backbone of any country, as it provides livelihoods to women and youth, and enables them to undertake entrepreneurial endeavors.


The MSME Day was established to highlight the importance of MSMEs in providing jobs, transforming the country’s economy, and providing equitable growth opportunities to everyone. It also highlights their challenges and brings forth the solutions that can be implemented to support their success.


While designating 27th July as ‘Micro-, Small, and Medium-sized Enterprises Day’, the UN had envisioned raising awareness of the remarkable contributions of MSMEs towards the achievement of the United Nations Sustainable Development Goals (SDGs).


Udyami Bharat – MSME Day 2023

To mark the occasion of MSME Day 2023, the Indian Ministry of MSME has declared the celebration of ‘Udyami Bharat MSME Day’ on 27th June 2023 at Vigyan Bhawan in New Delhi. Our Honorable Minster for MSME, Shri Narayan Rane will adorn the occasion as the Chief Guest, while the Union Minister of State (MSME), Shri Bhanu Pratap Singh Verma will be the Guest of Honour.


The Ministry of MSME is poised to launch various programs for the progress of MSMEs, which include the ‘Champions 2.0’ portal as well as the mobile app with geo-tagging of Cluster Projects and Technology Centers. During the event, the results of ‘MSME Idea Hackathon 2.0’ will be announced, while the next iteration for women entrepreneurs will be launched with the title, ‘MSME Idea Hackathon 3.0’.


The Ministry will also be distributing the certificates for Gold and Silver Zero Defect Zero Effect (ZED) MSMEs. It will also include the digital transfer of ₹400 Crores to 10,075 PMEGP beneficiaries as a Margin Money subsidy. Additionally, the program will include the signing of MoUs with numerous Government of India organizations.


With these programs, the Ministry’s primary objective of supporting the growth of MSMEs will be fulfilled. The numerous schemes will help:


  • Improve the business environment for MSMEs
  • Encourage innovation
  • Promote regional development
  • Create domestic and global market opportunities
  • Adopt sustainable practices
  • Create employment opportunities
  • Enhance productivity through upskilling


Significance of HR in MSMEs

The Human Resources (HR) department in an organization is concerned with every aspect of employee management such as hiring and training them, managing their attendance, performance, and maintaining the associated details, keeping them engaged, as well as providing a smooth exit experience when they leave the company.


In an MSME, the role of HR is often played by the CEO or a single HR person who oversees the ever-growing number of company employees. They are required to manage them effectively despite the tighter budget restrictions in MSMEs, especially in micro and small businesses. However, since they are also involved in other business processes like company expansion, product development, marketing, etc., employee management often takes a backseat.


Apart from their administrative duties, the HRs are also required to strategize employee development and engagement initiatives to ensure adequate upskilling, engagement, and retention from their staff members. Hence, they effectively manage the most valuable resource of any organization, its staff.


Let us discuss the significance of HRs in MSMEs based on the following aspects of employee management:


1. Address Talent Shortage

MSMEs are often faced with talent shortages due to several reasons such as lack of attractive packages and training options, ineffective onboarding, creative differences, etc. While offering jobs to the candidates in MSMEs, it is often found that they are given informal training since the company cannot afford to train them, both in terms of time and money.


In some companies, the managing director often puts on the role of a trainer. However, since they would also be preoccupied with running their company and expanding their business, employee training is usually not given enough importance in MSMEs.


Hence, having a dedicated HR team would change the scenario for the better as they would be able to address the talent shortage effectively. They can allocate training resources by managing the limited assets of the company, and by streamlining their training.


Similarly, having dedicated training sessions will also improve employee retention as they realize their company values their contribution and is willing to train them. Additionally, it will also free the management, which is often comprised of just the CEO, to concentrate on improving the business than managing their employees.


2. Retain and Engage Staff

HRs are skilled in engaging the staff of the company. Hence, they can devise new strategies to effectively keep the employees engaged with their organization. They can also provide various options to the management to recognize the efforts of the employees within strict budget constraints. They can also bring in better training practices to ensure better upskilling for the staff.


It has been observed that knowledge and intellectual capital have become an essential aspects of MSMEs in the modern business ecosystem. Hence, the employees in these organizations should be equipped with the right tools, which will enable them to undertake their tasks efficiently, while also staying up to date with the latest business practices and associated technologies.


Having a dedicated HR team or at least an HR in the company will vastly improve the effectiveness of the training, while also tailoring the training sessions to suit the company’s requirements.


3. Performance Management

Companies are required to align their organizational goals with employee performance management systems to better optimize their efforts to organize and upskill them and ensure overall success. However, MSMEs are often faced with a scarcity of resources, which hinders them from precisely measuring their employee performance.


To undertake effective performance management, the company needs to allocate a specific amount of resources, which is already scarce for an MSME. Additionally, being a long-term process, performance management often requires focused measures to ensure its success.


As a result, due to the lack of resources, MSMEs often tend to forego performance management. Instead, they tend to recognize their employees based on their rapport with the CEO, as the CEO could be the sole authority taking the final call for their employee appraisal.


On the other hand, with the help of HR, the CEO can delegate the task of employee performance management to the HR team. They can measure employee performance accurately and provide employees with tailor-made improvement plans, which will enable them to upskill themselves and become more productive.


4. Streamline Payroll

Handling employee payroll is a time-consuming and strenuous task. It requires HR to calculate each employee’s working hours for a pay cycle and calculate the additions and deductions accordingly. Additionally, the HR team is also required to consider regulatory compliances when calculating staff salaries.


When the HR department is handled by a single individual, it may result in manual errors, which is highly detrimental to the employees’ engagement. Additionally, they may unintentionally miss following any legal requirements, which could land the company in legal trouble.


Hence, it is essential that the payroll processing of a company be handled by a dedicated HR team. They would be well-versed with the process, as well as understand the numerous legal requirements that are required to be adhered to, to undertake business in that location.


Having such a knowledge of the numerous legalities helps the organization avoid hefty fines and ensures a smooth payroll process. Additionally, it also improves the employees’ trust in the organization as they receive on-time accurate salaries every month.


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On the occasion of MSME Day, we should understand the importance of the silent partners inside the company who are responsible for hiring, upskilling, managing, and retaining talented staff, while also avoiding legal hassles and working under strict budget restrictions.


While the traditional role of HR is generally adorned by the managing director or the CEO of an MSME, it is time to allocate the necessary resources towards human resources in the company and provide the staff with the engagement they deserve.


After all, they are the most valuable resource for any company, and having a dedicated HR will ensure their effective management, leading to prolonged success.


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