HRM IN SMALL AND

MEDIUM ENTERPRISES,HRM
IN SERVICE SECTOR
MODULE 4
INTRODUCTION TO SME’S
An industrial undertaking is referred to as a small-scale industry only if its
investment in fixed assets like plant and machinery is not more than Scrore (in
manufacturing organisations) and 2crore (in service organisations). No matter,
whether the fixed assets are purchased, rented, or are taken on lease. Though,
Government can always change these limits.
In the Small and Medium Enterprises (SMEs), booming
and rational markets exist for the similar products and processes, and offerings
are distinguished on the basis of their value addition, quality, and superiority
over competitive products. The multiplicity in demand patterns and
manufacturing practices make sure the long-term existence of demand for
various technologies, procedures, consumer goods, etc. This unique feature of
Indian economy creates co-existence of different products
THE DIFFERENCE IN ADOPTION OF
HRM:SME’S AND LARGE FIRMS
Most studies on HRM within SMEs are based on qualitative researches. This lack of
information our human resources in SMEs is considered "problematic for theory,
research and practice. The stan indicate relatively far lesser use of professional
HRM practices in SMEs than in larger firms. Some have suggested that this
increased formalization may be a liability in decreasing the flexibility of HRM
policies and practices.
• Size
• Observations and Reflections
• Recruitment practices
• Training
• Responsibilities
• Resources
• Size:
SMEs: Small in size, SMEs often operate with fewer employees and limited formal
structures. HR functions in SMEs tend to be handled by the business owner or a small team
rather than a dedicated HR department.
Large Firms: With a larger workforce, large firms typically have formal HR departments and
specialized personnel handling recruitment, training, and compliance with employment
laws.
• Recruitment Practices:
SMEs: Recruitment is often more informal in SMEs. Many SMEs rely on word-of-mouth,
local networks, and employee referrals to find candidates. Due to limited budgets, SMEs
may not have access to expensive recruitment platforms or headhunting services. The focus
is often on finding individuals who are a cultural fit and can handle a broad range of tasks.
Large Firms: Larger organizations typically follow a more formal recruitment process,
utilizing a variety of recruitment platforms, professional recruiters, and detailed selection
methods (e.g., psychometric tests, structured interviews). The recruitment process is often
highly structured, involving multiple stages and a focus on specialization.
3. Training:
SMEs: Due to limited resources, SMEs tend to provide on-the-job training
rather than formal training programs. Training may be less structured and
focused on immediate, practical needs. Small businesses may rely on
external resources, such as government training programs or industry
associations, to supplement their internal capabilities.
Large Firms: Large organizations usually have formalized training and
development programs, often tailored to different roles and career paths.
These programs may include orientation sessions, leadership
development, continuous professional development (CPD), and even
partnerships with external training providers.
• Responsibilities:
SMEs: HR responsibilities in SMEs are typically spread across various roles.
The business owner, manager, or office administrator often takes on HR
tasks such as payroll, recruitment, and employee relations. These tasks
may not be formalized into written policies but are handled based on
immediate business needs.
Large Firms: In large firms, HR is a distinct department, often divided into
specialized units such as recruitment, talent management, employee
relations, payroll, and compliance. Responsibilities are clearly defined, and
HR personnel are typically experts in their specific fields.
• Resources:
SMEs: Resource limitations in SMEs—whether financial, technological,
or human—often mean that HR practices are leaner and more informal.
SMEs may not have access to advanced HR management software,
dedicated HR teams, or training budgets. As a result, they adopt
flexible, low-cost solutions to manage their HR needs.
Large Firms: Larger firms tend to have greater resources for HR. They
can invest in sophisticated HR management systems (HRMS), employee
benefits, comprehensive training programs, and specialized HR
professionals. Additionally, they can use data analytics for HR decision-
making and employee performance monitoring.
SME’S AND LARGE FIRMS
SME’s occupy important place in economy of the most countries. Globally
considered as nurseries of the entrepreneurship and innovation,SME’s produce a
diverse range of products to meet the need of local and global market and national
and international value chains. SME’s also contribute significantly to the nations
GDP and provide employment to the large number of people it is forecasted that the
future will be dominated by SME’s in terms of job creation and innovation and new
pattern of work
• Recruitment and Selection
• Compensation
• Training
• Performance Appraisal
• Labor Relations
Category SMEs (Small & Medium Large Firms
Enterprises)
Employees Typically up to 250 Hundreds to thousands

Financial Capacity Limited budgets and funding Strong financial power, access to
sources stock markets, etc.

Informal, flat hierarchy; owner-

Management Style Formal, multi-layered structure
managed

Innovation Speed Quick and flexible, but resource- High investment in R&D, but slower
constrained decision cycles
Market Reach Local or regional National or global presence
Decision-Making Fast and agile Structured and often bureaucratic

Regulatory Compliance Generally simpler, though varies by Subject to strict regulations and
region audits

Limited HR resources, localized Global talent pool, competitive

Talent Acquisition
hiring recruitment strategies
Indian experience
• Micro investment Not more than ₹1 crore, annual turnover Not more
than ₹5 crore
• Small Not more than ₹10 crore Not more than ₹50 crore
• Medium Not more than ₹50 crore
• Contribute ~30% to GDP and 45% to exports
IMPACT OF WEAK ADOPTION OF HRM IN SME’S
As a business owner, one has the challenge of taking on different
responsibilities on a daily basis. Owners of small and medium
enterprises (SMEs) usually have to perform multiple functions, from the
accounting of the company to the management of human resources.
Whether you are the person in charge of this field or delegate it to
someone else, your company may be making several mistakes in
adopting weak HRM practices. These errors in Human Resources
management can have devastating consequences for the company from
legal actions to high turnover costs. Therefore, it is extremely important
that the Owner/HR to make sure that the company avoids these common
and often costly mistakes. Following are the types of weak HRM
practices adopted by SME's and their impacts:
IMPACT OF WEAK ADOPTION OF
HRM IN SME’S
• Hiring wrong people for the job
• Improperly classifying employees as exempt
• Promoting workers not fit to manage people
• Lack of documentation
• Employee training and safety
• Time tracking
• Employee benefits
• Hiring the Wrong People for the Job
Poor recruitment practices due to weak HRM adoption can result in hiring
employees who lack the necessary skills, experience, or cultural fit for the
role. In SMEs, where each employee plays a critical role in the company's
success, hiring the wrong person can have significant negative
consequences, such as:
• Lower Productivity
• High Turnover
• Improperly Classifying Employees as Exemp Misclassifying employees as
exempt from overtime pay or other benefits due to weak HRM policies
can lead to legal issues, financial penalties, and employee dissatisfaction.
Improper classification could mean:
• Legal Risks: labor laws, such as the Fair Labor Standards Act (FLSA)
• Financial Loss: Incorrect classification can result in paying hefty legal fees or
penalties, diverting resources from business growth.
• Promoting Workers Not Fit to Manage People
In SMEs, there is often less focus on leadership development or
formalized management training. As a result, workers may be promoted
to managerial roles based solely on their technical skills, without
consideration for their ability to manage people effectively. This can lead
to:
• Poor Team Performance
• High Employee Turnover
• Conflict and Miscommunication
• Lack of Documentation
A lack of proper HR documentation, such as employment contracts, job
descriptions, and performance reviews, can create confusion and lead to
legal and operational issues. Specific consequences include:
 EMERGENCE OF SERVICE SECTOR
The services sector includes industries that do not produce physical goods
but provide services such as healthcare, education, IT, banking, tourism, etc.
Its rapid growth is a key trend in modern economies.
1. Technological Advancements
• The internet and digital tools have transformed how services are delivered.
• Services like e-commerce, online banking, digital marketing, and
virtual education have expanded rapidly.
• Technology allows businesses to reach customers globally and operate
more efficiently.
2. Changing Consumer Preferences
• As people earn more and lifestyles improve, they want more personalized
services (like spa treatments, streaming platforms, tourism, etc.).
• People are spending more on experiences and quality of life, rather than
just physical goods.
3. Globalization and Trade
• Services (like IT support, education, design) are now being offered across
countries, thanks to technology and open trade policies.
• For example, Indian software companies serve clients all over the
world, boosting exports.
4. Urbanization
• Cities grow rapidly, creating a need for services like public transport,
healthcare, entertainment, education, and retail.
• Urban lifestyles increase the demand for convenience-based services
(e.g., food delivery, cab services).
5. Knowledge-Based Economy
• Modern economies rely on skills, innovation, and information, not
just raw materials or machinery.
• Sectors like IT, finance, R&D, legal services, and creative
industries are thriving because they use expert knowledge.
• 6. Job Creation
• Many service jobs like nursing, teaching, customer service,
hospitality require human interaction and are hard to automate.
• This sector absorbs a large number of skilled and semi-skilled
workers.
7. Value Addition
• Services support other industries:
• Banking supports trade and business.
• Logistics helps move goods.
• Marketing and advertising help sell products.
8. Economic Diversification
• Relying only on manufacturing or agriculture can be risky. Services
offer diverse income sources, helping stabilize economies.
• Countries like India have used the services sector to strengthen their
economy beyond agriculture and manufacturing.
9. Service Innovation
• Companies continuously improve or create new services to attract
customers (e.g., app-based doctor consultations, digital wallets).
• Innovation in processes (like faster customer support or AI chatbots)
also makes service delivery better.
11. Sustainability and Green Services
• With rising environmental awareness, green services are growing—
like eco-tourism, renewable energy consulting, and sustainable
urban planning.
• This adds a new dimension to the services sector and supports
sustainable development goals
 IMPLICATIONS FOR HUMAN RESOURCE
MANAGEMENT IN SERVICES SECTOR
1. Talent Acquisition and Recruitment:
• Employees are the face of the brand.
• HR must hire for soft skills: communication, empathy, problem-solving.
• Focus on cultural fit and service mindset.
Taj Hotels hires people who show kindness and calm behavior during interviews.
2. Training and Development
• Service industry needs constant upskilling.
• HR should train in both technical and soft skills.
• Use workshops, simulations, and e-learning.
McDonald's trains staff with videos and real-life practice before joining work.
3. Customer-Centric Approach
• Customer satisfaction drives business success.
• HR must align culture, training, and appraisals with customer-first values.
• Use customer feedback in performance evaluations.
Amazon includes customer reviews in employee performance checks.
4. Employee Engagement
• Engaged employees = better service.
• HR must foster a positive, supportive work culture.
• Implement wellness programs and recognition.
Infosys gives appreciation awards between team members to keep morale high.
5. Flexibility and Adaptability
• HR must plan for changing customer demands.
• Provide flexible shifts, cross-training, gig workforce.
• Support adaptability and quick response.
Zomato allows delivery staff to choose their work hours freely.
6. Performance Management
• Beyond KPIs: include customer feedback.
• Use real-time coaching and service quality metrics.
• Encourage continuous improvement.
Indigo Airlines uses passenger feedback to review cabin crew.

7. Employee Retention
• High turnover disrupts service.
• HR must offer growth paths, rewards, and work-life balance.
• Build a sense of belonging.
TCS offers training and promotion paths to retain staff.
8. Diversity and Inclusion
• Diverse teams serve diverse customers better.
• HR must ensure inclusive hiring and workplace policies.
• Promote equity, respect, and cultural understanding.
9. Technology Integration
• Tech is transforming services (e.g., chatbots, booking apps).
• HR must train staff to use tech confidently.
• Manage change and digital transformation.
• Domino’s trains staff to use apps and GPS systems for faster delivery.
10. Crisis Management
• Services face sudden disruptions (e.g., pandemics).
• HR needs safety protocols and contingency plans.
• Support employee mental and physical health.
During COVID-19, Apollo Hospitals implemented emergency HR protocols—
PPE(Personal Protective Equipment training) training, quarantine leave, and
wellness support for frontline staff.
11. Data-Driven HR
• Use HR analytics to forecast staffing needs and improve performance.
• Make informed decisions using data trends.
• Monitor absenteeism, engagement, and service quality.
Flipkart uses predictive analytics in workforce planning to schedule customer
support teams based on shopping patterns during festivals and sale days.
 MANAGEMENT FUNCTION IN SERVICE
SECTOR
• Human Resource Management (HRM) plays a critical role in the service
sector by overseeing the management of human capital, which is central
to delivering highquality services and maintaining customer satisfacti
1. Talent Acquisition and Recruitment:
2. Training and Development:
3. Performance Management:
4. Workforce Flexibility:
5. Technology Integration:
6. Employee Retention:
 Difference between service sector and
manufacturing sector
Basis of Difference Service Sector Manufacturing sector

Tangibility of output he output of a service firm, such as Manufacturers Sectors produce physical
consultancy. training or maintenance, for goods that customers can see and touch.
example, intangible

Production On Demand Service firms, unlike manufacturers not Manufactures produce goods for stock
hold manufacturers produce goods for with inventory levels aligned to the
stock, with inventory: they create a forecasts of market demand a Some
service when a client requires it manufacturers maintain minimum stock
levels, relying on the accuracy of demand
and forcasts their production capacity to
meet demand on a just-in-time basis.
Inventory also represents a cost for a
manufacturing organisation.
Basis of Difference Service Sector Manufacturing sector

Customer Specific production Service firms/sector does not produce a Manufacturing sector can produce goods
service unless a customer requires it, without a customer order or forecast of a
although they without a customer order customer demand. However, producing
or forecast of design and develop the goods that do not meet market needs is
scope and content of services in advance a poor strategy
of any orders Service firms generally
produce a service tailored to customers)
needs, such as 12 hours of consultancy,
plus 14 hours of design and 10 hours of
installation.

Labor Requirements and Automated A service firm recruits people with Manufacturers can automate many of
Process specific knowledge and skills in the their production processes to reduce
service disciplines production processes their requirements, although some
to reduce their labor that it offers Service manufacturing organisations
delivery is labor intensive and cannot be are labour intensive, particularly in
easily automated although , Processes countries where labour costs are low.
knowledge management systems enable
a degree of knowledge capture and
sharing
Basis of Difference Service Sector Manufacturing sector

Physical production location Service firms do not require a physical Manufacturers must have a physical
Manufacturers must have a physical location for location for their production and stock
their production and stock bolding holding holding operations. Production does not
production site. site. The people creating and necessarily take place on the
delivering the service can be located anywhere. manufacturers own site: it can take place
operations. Production does not necessarily. For, at any point in the supply chain
example, global firms such as consultants take place
on the manufacturer's own site; it Deloitte use
communication networks to access the most
appropriate service skills and knowledge from
offices around the world

Example Service Sectors includes IT communication, Manufacturing sectors include

transport, tourism etc. automobile construction and mining etc
 Difference in HRM in service sector and the
manufacturing sector
HRM Practices Services Sector Manufacturing Sector

Importance of HRM Plays a central and strategic role as Often focused on administrative and
human resources are the main compliance functions like payroll, records, etc.
competitive advantage
Strategic Orientation Strong alignment with Resource- Still transitioning towards RBV; more focus on
Based View (RBV) where people are production and machinery.
core assets.
Nature of Workforce Primarily white-collar employees; Mix of blue-collar (workers) and white-collar
professionals, customer service roles, (supervisory and managerial) staff.
etc.
Focus of HRM Enabling employees, talent Labor relations, productivity, safety, and
development, engagement, and service managing shop floor dynamics.
quality.
Union Involvement Rare or minimal; individual Higher union involvement; collective
performance focus. bargaining, arbitration, and grievance handling.
Technology vs. People-centric – services are delivered by Machine-centric – machines
People humans, especially in hospitality, education, etc. drive production, humans
operate and maintain them.
Training & Focused on soft skills, customer service, Focused on technical skills,
Development communication, and emotional intelligence. safety training, and efficiency
improvement.
Performance Emphasis on customer feedback, service quality, Based on output, efficiency,
Measurement and employee behavior. defect rates, and adherence to
standards.
Human resources management and services
quality correlation
• HRM practices facilitate and enhance the internal development of
employees such as training and career development.
• The relationship between HRM practices and service quality have
examined by several Studies. However, HRM practices play a critical
role in the implementation of Service Quality .
• HRM practices refer to how human resources are managed suggested
that, to survive with the challenges efficiently, HRM practices has
been considered as one of the most ‘critical factors in making and
enhancing competitive advantage.
• The Critical role of job satisfaction will take place in this study by
examine the effect of job satisfaction on service quality, in addition the
mediation role of job satisfaction in the relationship of HRM practices
and service quality.
• The human capital is the most key successes factors in the business
environment. Indeed, to the gain benefits of this factors organizations
consider employees as an internal customer & employees satisfaction
become a measurement of organizational performance and a critical
factor for the implementation of service quality.
• HRM practices are expected to influence job satisfaction which in turn
will improve service quality.
Trade unions in services sectors
• Trade unions in India are registered under a law called the Trade
Union Act, 1926.
• They must submit yearly reports to the Labour Bureau under the
Ministry of Labour.
• As per data from 2012, there were 16,154 trade unions with about
9.18 million members (from 15 states).
• Trade unions in India often follow political party lines
 How Trade Unions Work in
Workplaces
1. Trade unions: negotiating collective agreements: If the company accepts
the union, they can talk and agree on: Salary, Leave days, Working hours,
Job rules, These talks are called collective bargaining.
2. Trade unions: Informing and consulting: In some situations, companies
must inform or consult trade unions, especially during:
Mass Layoffs: When a company is planning to remove many workers from
their jobs at once (like 50, 100 or more people).
Buying or Selling the Company:
• They must talk to the trade union about how this change will affect the
workers, Will jobs be safe? Will salaries change? What will happen to working
conditions?
• Pension Plans for Employees, Health and Safety Issues
3. Trade unions: representing workers at disciplinary and grievance
hearing
• When an employee has a problem or is in trouble at work:
• They don’t have to face it alone.
• They can bring a co-worker or union rep to help and support them.
 Models of union strategies
• 1. Craft Unions: Only people with the same special skill or trade can
join.
• It doesn’t matter which company or industry they work in — as long as
they have that specific skill, they can be a member.
• Carpenters, Weavers, Electricians, Plumbers, Tailors, Welders
• Ahmadabad Weavers' Union
2. Industrial Unions: All workers in one industry can join — no matter
what kind of job they do.
• Rashtriya Mill Mazdoor Sangh, Mumbai
• A union for all workers in the textile industry.
3. Labour Unions: Open to all types of workers, no matter their skill, job, or
industry.
Focus is on unity—because all workers share common problems.
Mix of craft and industrial unions.
4. General Unions: Accepts all kinds of workers, no matter:
• What job they do, What skill level they have, Which industry they work in
5. Blue-Collar Workers' Unions: Made for workers who do manual or
physical work, like operating machines in factories.
6. White-Collar Workers' Unions: Made for people who do office or desk
jobs,
• Includes clerks, supervisors, managers, professionals, and executives.
• Found in banks, IT companies, insurance firms, government offices, etc.
Unit 5 Human resources management and innovation
• Factors affecting the innovation process in organisations
1.Management Commitment to Innovation: Leaders must actively support innovation with
resources, encouragement, and priority.
2. Strategic orientation: Innovation should align with the organization’s long-term goals and
market needs.
3. Clear responsibilities : Defined roles and accountability ensure ideas are implemented
effectively.
4. Innovation culture: A supportive environment encourages creativity, risk-taking, and
learning from mistakes.
5. Change Management: Smoothly managing transitions helps overcome resistance to new
ideas.
6. Integration of all employees : Engaging employees at all levels brings diverse insights
into the innovation process.
7. Collaboration: Working with internal and external partners enhances creativity and
problem-solving.
 Current trends in hrm
• Promote Diversity equity and Inclusion: Blind recruitment processes to
avoid bias.
• The Trend of Work from Home (WFH)
• Skills-Based Hiring & Continuous Learning
• Employee Wellness Programs:
• Artificial Intelligence (AI) and Machine Learning:
• HR Analytics & Data-Driven Decisions
• Hybrid & Remote Work Models
 Innovative human resources management practices
in india
• Skill Development Initiatives:
• Flexible Work Arrangements:
• Employee Assistance Programs (EAPs): confidential counseling and support services for
employees’ personal and professional issues.
• Diversity and Inclusion
• Start-up-Like Culture:
• Employee Engagement Platforms: digital tools to collect feedback, share updates, and boost
employee interaction.
• Gamification:
• Wellness Initiatives:
• Reverse Mentoring:
• CSR Integration:
•
Sustainable and innovative human resources
management
• managing employees in a way that’s good for business, good for people, and
good for the planet, using fresh, innovative methods rather than outdated HR
practices.
Tata Steel practices sustainable and innovative HRM by:
• Using green HR policies (energy-efficient offices, waste reduction)
• Running continuous skill development programs
• Offering flexible work options and wellness support
• Encouraging employee participation in CSR activities like rural development
projects
Sustainable and Innovative Human Resource Management Practices:
• Green HRM Initiatives – Paperless HR processes, eco-friendly offices, and energy-
saving measures.
• Continuous Learning & Reskilling – Ongoing training to keep skills relevant.
• Flexible & Remote Work Models – Hybrid work to improve well-being and reduce
carbon footprint.
• Diversity, Equity & Inclusion (DEI) – Inclusive hiring and equal growth
opportunities.
• Employee Well-being & Mental Health Support – Wellness programs, counseling,
and healthy workplace policies.
• People Analytics for Strategic Decisions – Data-driven workforce planning and
performance tracking.
• Ethical Leadership & Governance – Transparent, fair, and value-driven leadership
practices.
• CSR-Integrated Employee Engagement – Involving employees in community and
Hr information systems:
• A Human Resource Information System (HRIS) is software that
helps manage employee data and HR tasks digitally.
It automates functions like payroll, recruitment, training, and
performance tracking.
For example, companies use tools like SAP SuccessFactors to make
HR processes faster and more accurate
HRIS in the digital age
• In the digital age, Human Resource Information Systems (HRIS)
have evolved into cloud-based, mobile-friendly platforms that
integrate AI, analytics, and automation. They not only store employee
data but also provide real-time insights for decision-making, improve
employee self-service, and support remote and hybrid work models.
• Example:
Tata Consultancy Services (TCS) uses AI-powered HRIS tools to
manage global talent, predict attrition, and personalize learning for
employees.
Unit 6 : future trends in human resources
management
Hybrid work model:
Here's how the hybrid work model impacts HRM:
• Remote Work Infrastructure: HR makes sure employees have laptops,
internet access, and secure networks to work from home safely.
• Employee Engagement – HR keeps employees connected through virtual
activities, meetings, and team check-ins.
• Performance Management – HR sets clear goals, tracks progress, and gives
feedback whether employees work from home or office.
• Training & Development – HR offers online training for digital tools, time
management, and teamwork in hybrid settings.