Human Resources Management for the Small and Medium – Scale Businesses


By: Site Engineer, Staff

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Most small and medium – scale business organizations do not pay any particular attention to Human Resources Management (HRM). The reasons for this situation are many.

Firstly, there is the belief that only large scale organizations need to perform the HRM function.

Secondly, there is the belief that performing the HRM function requires the establishment of a formal department with HRM specialists. In a small business organization with less than ten employees, it becomes superfluous to establish such a specialized HRM department. Both types of beliefs are wrong.

Reasons for the Importance of HRM

The early discussions of the factors of production; land, labor, capital, and entrepreneurship placed emphasis on entrepreneurship and capital as the most important factors of production.

The reasons for this belief were many.

Firstly, land and labor were always in abundant supply whereas capital and entrepreneurship were more difficult to come by.

Secondly, it requires entrepreneurship to start a business. Moreover, the absence of new business startups and business failures were usually associated with inadequacy in this factor of production.

Thirdly, most entrepreneurs who started choir businesses often indicated that their major problem was acquiring sufficient capital to keep their business going.

Fourthly, and perhaps the most important, the reason was that discussions of the factors of production were initiated on behalf of or directly by entrepreneurs themselves. It was to be expected that such discussions would indicate that the entrepreneurial factor represented by the entrepreneur who also supplied the capital was the most important factor in the production system.

This ranking of the factors of production had direct consequences for the attention paid to each of the factors. A great deal of attention was paid to developing entrepreneurship as well as to raising and managing capital. Much less attention was paid to labor and its management.

Certainly, in the small and medium enterprises it was assumed that once people were employed, all that was necessary to keep them productive was to pay their salaries regularly. Little or no attempt was made to do anything else.

Today all that has changed. From the least important, labor or human resources – has moved to the most important factor of production. Why has this change occurred?

All the activities of any enterprise are initiated and determined by the persons who make up that institution, plant offices, computers, automated equipment and all else that a modern firm uses are unproductive except for human effort and direction. Of all the tasks of management, managing the human component is the central and most important task because it all depends upon how well it is done.

In today’s world, the ranking of HRM has to be the first position. These observations mean that money, machines, and materials have no meaning without human input and direction. Another crucial reason is that entrepreneurs have come to recognize that they are also part of the human resources of an organization. This means that entrepreneurship is provided by human beings and that its productivity depends upon the quality of human beings in the organization.

The third main reason responsible for the change is the realization that the most important problems and the solution to these problems in any organization are usually the results of the activities of the organization’s people. If a company is in trouble because it lacks a good strategy, only the people of the organization can provide a good strategy.

Indeed, frequent equipment breakdowns can also be traced” to the methods and attitudes that are adopted by people at work. In a world where competition and change are occurring at a dizzying pace, the survival of any organization depends upon the quality of the people in the organization.

All these have led to the realization that the difference between success and failure for the same or different organizations, the difference between levels of success for different organizations is a result largely of the differences in the quality of the human resources in the organizations involved.

One major implication of the change in emphasis is that leading organizations of all sizes in all industries in all parts of the world are paying detailed attention to human resource management as a key area of competitive advantage. But what is human resources management? What activities are involved in human resources management? How is the field changing and what factors are responsible for the changes that are occurring?

The Meaning of Human Resources Management

Human resource management is about managing people in organizations as effectively as possible for the good of the employees, the company and society.

From this definition, it is clear that HRM is the enterprise function that is specifically concerned with the effective management of people at work for the purpose of achieving the goals of the people themselves and of the organization.

Human Resources Management and Personnel Administration

In many organizations, the name given to the department that is charged with providing expert advice for managing the people of the organization is called Personnel Administration. The head of the department will usually be called the Personnel Manager. Recently, however, some organizations have begun to call the department, Human Resources Management Department. In several departments of Business Administration or Management, the course is sometimes called Personnel Administration or Human Resources Management. Is there a difference between Human Resources Management and Personnel Administration?

To answer this question, a brief history of the field is in order. The field began with a concern about

(i) The relations between employers and employees and

(ii) The administration of salaries and welfare. At this stage, the field was either subsumed under the general term of Administration or more restrictively called Industrial Relations. From around the 1940s, a lot of research undertaken by behavioral scientists added the issues of motivation, communication, attitudes, and the like to the field. A broader and more specific name – Personnel Administration came to be more often used and soon became the adopted name.

However, more changes were to come, from the 1980s onwards. During this period, matters such environment, strategic planning, culture and organization change and development, diversity management came to be regarded as substantive issues in the field.

At the same time, the organizational profile of the personnel manager was changing with the acceptance that the people of the organization were indeed the most valuable assets of the organization. The personnel manager was now expected to become a member of the top management team and serve as the internal consultant to the organization. The expanding scope and profile of the field soon led to a change in name. The new name of the field became Human Resources Management.

Whereas personnel administration was seen to be focused on the administration of systems and procedures, human resources management is focused on releasing the potential of the organization and its people. This is achieved through the performance of a number of diverse human resource management activities.

Activities Performed Under HRM

  1. Compensating performance
  2. Gaining and development
  3. Establishing and maintaining effective work relationships
  4. Monitoring and assessing the work environment
  5. Organization development and change
  6. Organization learning
  7. Facilitating industrial harmony
  8. Understanding the environment and meeting its demands
  9. Understanding the legal framework
  10. Human resources planning
  11. Staffing the organization
  12. Appraising employee behavior and performance

Understanding the Environment and Meeting its Demands

There are usually two types of environment:

  1. External Environment consists of the factors and conditions that exist outside of the organization that has implications for the operations of the organization. The internal environment includes the values of the people in the business, the methods and processes used in conducting work and producing the results of the organization the physical arrangement of people and facilities and the way in which. People think and feel about their organization. Performing the human resource management function requires understanding and managing these ‘nuances’ of the business.
  2. External Environment include the degree of competition, changes in customer tastes, the customs of the people, the existing or changing regime of laws, rules and regulations provided by the state and other regulatory agencies that have relevance for the industry in which the business operates, the quality of available labor the prevailing wage rates the practices of competitors and several others.

Legal Framework as Part of the Environment of the Business Enterprise

Although the legal framework may vary depending upon the type and size of the enterprise, many of its provisions apply to all enterprises. Some of the laws derive from Nigeria’s membership of international organizations such as the International Labour Organisation (ILO) and the United Nations.

Others derive from the specific laws made by the Nigerian State itself, the most important being the Constitution of the Federal Republic of Nigeria and the specific regime of laws that deal with labor matters specifically.

Another derives from legislation passed on matters that, although not being strictly labor have implications for labor. The examples in this regard are laws relating to the National Provident Fund, the National Social Insurance Trust Fund, and Taxation.

The fundamental human rights are also contained in the constitution of the Federal Republic of Nigeria. One of these fundamental human rights is freedom of association. Freedom of association means that workers have a fundamental right associate in a trade union. The laws on industrial relations are quite comprehensive and are discussed later in the relevant section. In addition to these laws, the Labour Act of 1974 forbids the employment of children. It also provides that deductions cannot be made from the wages of a worker without his or her written consent. The National Social Insurance Trust Fund helps small businesses understand why they must ensure their businesses and staff.

The National Minimum Wage Act specifies the type of businesses that are exempted from paying the minimum wage. Small business owners need to be aware of the provisions of this Act so that they will understand from the outset whether they are exempted. Beyond these legislations, small business owners also need to pay attention to the decisions of the courts that have implications for the employment contract.

If a worker who was sacked by an employer goes to court and obtains a ruling of the court that the termination of the appointment is illegal, other employees are likely to rely on such court decisions if they suffer similar fates in the future.

Overall, any small business owner who does not understand the current laws and does not continually update his/her knowledge will be at a great disadvantage relative to other business owners who have such an understanding.

Decision About Human Resource Planning 

No matter how small the business enterprise is, the owners must make decisions about the jobs that will be performed, the skills that will be required to perform the jobs, the number of people that will be needed and how the individuals employed will progress in the organization.

In terms of human resource management, business owners must:

  1. Plan and forecast manpower requirements;
  2. Plan and manage the careers of employees;
  3. Design jobs; and
  4. Analyze jobs.

Without appropriate job analysis and design, it is difficult to tell how many employees a business needs.

Staffing the Organization

There several activities involved in staffing the organization include finding a sufficient number of people who will want to take up employment in the business and selecting from this number those whom employment will be offered.

Many small business owners rely on family members and a small circle of friends to put out the word that people are needed. This practice is costly because it does not give the business the opportunity to select employees from an existing pool of qualified candidates. Rather, those hired will usually be those who are available, not those who necessarily fit the circumstances of the organization. It is not surprising that many small businesses suffer from high rates of labor turnover and absenteeism.

To be able to create a pool of qualified candidates who will be willing to work organization the owners of the business need to cultivate an image for the business as a good place to work. They also need to know which media to use to attract people to the organization.

Basically, in hiring people, the business owners must be able to apply selection methods that enable them to reject employees who will not stay or if they stay turn out to be poor performers. In practice, the fact of the matter is that the quality of an organization depends upon the people who work in it. Thus hiring the wrong people will result in an organization where most things will go wrong.

Appraising Employee Behavior and Performance

Every business, whether small or large, needs to be able to evaluate the performance and behavior of its staff on a regular and continuing basis. Large organizations understand this need and set up formal systems for appraising the performance of their employees. The owners of small business organizations usually assume that the day-to-day interactions with employees are an adequate substitute for a more formalized process. This assumption is as wrong as it is costly.

In order to understand why this is the case, there is a need to understand why there is a need to evaluate the performance and behavior of staff on a regular and continuing basis. The first is that employees themselves often want to know that they are perceived to be doing a good job. This confirmation helps them do an even better job.

Where the employees are not doing as well as they should, the information helps them, sometimes with or without the support of the business to take action to overcome performance lapses. Arising from this, the owner of the business may decide that some employees need training, need to be assigned to other tasks or jobs, or in extreme cases, that they are no longer needed. This is the second reason why performance evaluations are needed in a small business.

The third reason is that the information is vital in deciding on which employees should be rewarded in what form, by how much and how often. The reward may be in the form of promotion, salary increases, citations or even praise.

The fourth but the last reason is that it enables the business to focus the attention of employees on performance parameters that the owners consider to be most important. The performance parameters may be tangible when they are stated in units of performance or intangible when they are expressed in desirable behaviors, such as honesty, politeness to customers, integrity and the like.

The small business does not require an elaborate system to conduct an evaluation of employee performance and behavior. What the owner of the business has to do is to decide, in the first place, on the standards of performance that will be observed by employees. In a small business involved in providing information technology services, the standards of performance may be set as the number of pages that an operator is expected to process in a day, in addition, ‘sort’ measures of towards customers: politeness, courtesy, neatness of appearance, personal hygiene, and similar other factors.

The second step is deciding how performance against the standards by employees will be treated. The question here is: what forms of rewards and sanctions will be applied to different levels of performance?

The third step is communicating and sharing the standards of performance and the applicable rewards and sanctions with employees.

Finally, the system must then be applied and experience documented. All of these steps may be done formally or informally: the major point is that they must be done by the owners of the business. When conducted appropriately, the system can serve as a powerful encouragement or source of motivation for employees. When done poorly or not at all, employees may become confused, demoralized or even angry. Some employees may come to understand that their progress in the business depends upon being the favorites of the owners rather than being first-class performers in the business.

Consequently, such employees may engage in political behavior; telling on workmates, acting as praise singers of the boss, misrepresenting facts and events to the boss in order to gain personal favors. These and other types of problems are avoided when adequate attention is paid to performance appraisal.

Compensating Performance

Most people work because they desire to be rewarded. No business whether large or small can survive for even a short period if it does not reward its people for the work that they do. In several studies of work motivation in Nigeria, employees consistently ranked pay as the most important motivator.

In a business that specializes in the sale of some item or service, the compensation plan may include paying commission or providing performance-based pay, to the sales staff. Such commissions will then be taken into account in setting the base pay for the staff involved. It is also necessary to ensure that provision is made for annual increases in salaries. This will ensure that employees have a sense of growth on the job.

Of course, it needs no repeating that everyone in the business, including the owners, must also be on a salary. To determine their level of compensation, the question that the owners of the business should ask themselves is how much would they pay if someone else were doing the job that they have responsibility for?

The alternative is to set their level of compensation at some percentage that is higher than what the highest compensated employee receives in the business. Whatever the approach adopted, it is crucial that the owners of the business place themselves on a salary. It is also important to keep compensation records for all categories of staff. The records will enable the business to determine what proportion of its costs are accounted for by human resources.

Training and Development

One major way of avoiding disaster and improving on the quality of service in the small business is by training and developing the employees and the owners of the organization. We believe that over 90 percent of the basic problems in the small business enterprise is a result of the fact that the small business enterprise typically does not train its owners, let alone its employees. As the popular training and development adage goes: You cannot blame them if you have not trained them.

Training and development activities are directed towards providing the people of an organization with the skills, attitudes, and motivation needed to perform the work of the organization effectively and efficiently. For example, training enables the business to reduce the wastage of materials and accidents on the job. When workers are trained, they will understand why and how to carry out their tasks and duties. They will acquire the attitudes and orientations that are needed in particular tasks. They will become competent performers. The state of being competent performers will make them motivated employees.

The small business can train its employees on the job. This requires that someone inside the business who knows best how the tasks of a particular job are performed is assigned to teach others how to perform those tasks. Training and development can also occur outside of the job context. In this case, the owners of the business may identify particular courses that certain categories of staff may need to attend.

To establish the kinds of training needed, the owners of the business may observe the actual performance of the staff, or think through developments in the business that may require additional skills that the staff currently do not possess. A business center that is considering adding internet services to its current bouquet of word processing, photocopying, and binding services must ensure that some of its staff are trained in internet applications. A restaurant that is considering adding an ice cream stand to its business must ensure that some of the current staff are trained in operating and maintaining the ice cream making machine. The greatest area of need for training and development in a small business is leadership.

The owners of small businesses need to be equipped with the appropriate leadership and interpersonal skills to be able to inspire peak performance from employees.


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