DETERMINATION OF HUMAN RESOURCE MANAGEMENT PRACTICES OF MANAGERS OF SMALL AND MEDIUM ENTERPRISES IN ANAMBRA STATE
Background to the Study
Small and Medium Scale Enterprises (SMEs) are deemed to be integral to the growth and development of any forward thinking nation. Small and medium enterprises (SME) are seen as agents of economic development and contribute to improved living standards, substantial local capital formation, and achieve high levels of productivity and capability for individuals and nations. Muogbo (2013) was of the opinion that SMEs are very important because they are the key drivers of employment and economic growth. According to Ahmeti and Marmullaku (2015), SMEs constitute 90 to 95 percent of all enterprises worldwide and account for more than 70 percent of the products and services in the world. SMEs are seen also as key factors in employment and account for approximately 60 percent of private sector employment worldwide. Besides the fact that SMEs play a significant role in developing countries economies, they also play a crucial role in regional development.
The development of SMEs has been recognized as a veritable tool for promoting poverty eradication, job creation, rural development and sustainable livelihood for the populace. Small and medium-scale enterprises make up the largest proportion of business all over the world and play tremendous roles i
employment generation as well as immensely contributing to the Gross Domestic Products (GDP) of many countries. Yusuf and Dansu (2013) reported that SMEs make up about 97 percent of businesses in Nigeria and provide an average 50 percent of Nigeria‟s employment and industrial output. Small and medium enterprises are largely present in Anambra State.
Anambra State is a State where a large percentage of her citizens are entrepreneurs or owners of SMEs. The presence of small and medium scale enterprises has increased economic activities in the State and has helped to improve the revenue base of the State. SMEs have been a major engine of economic growth and technological progress. Eniola (2014) stated that the characteristics of SMEs not only reflect the economic patterns of a country but also the social and cultural dimensions. These differing patterns (economic, social and cultural) are noticeable within different definitions and criteria of SMEs adopted by different countries. Whereas some refer to the number of employees as their distinctive criteria for defining SMEs, others use invested capital, and some others use a combination of the number of employees, invested capital, sales and industry type (Kraja & Osmani, 2013).
Small and medium scale enterprises are business organizations set-up by individuals or group of individuals known as business operators for the main purpose of providing goods and services. Their classification into small an
medium enterprises depends on the scale or size of business operators‟ control. Furthermore, SMEs engage in different types of activities ranging from construction, agro-allied, information technology, manufacturing, educational establishment, business services, tourism and leisure. The criteria mostly used for the definition of small businesses in Nigeria include; capital investment (fixed assets), annual turnover, number of employees and gross output (that is total production before any product is taken away). In this regard, the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) (2011) categorized small scale enterprises as business ventures with a minimum of 10 and maximum of 49 employees with assets within the range of five to fifty million Naira (excluding land and buildings). In the same vein, SMEDAN categorized medium scale enterprises as business ventures with a minimum of 50 and maximum of 199 employees with assets within the range of 50 to 500 million Naira (excluding land and buildings). Some of these enterprises are overseen by managers employed by the business owners.
Business owners, according to Okolo (2014) are people who have the ability to see and evaluate business opportunities, put together the necessary resources to take advantage of them and to initiate appropriate actions to ensure success. The business owners employ and contract the managers to oversee the running of their businesses. A manager can be seen as a person who is responsible for the
realization of management processes, who makes plans and decisions, organizes, supervises and controls human, financial and information resources of business enterprises. Gorgievski, Ascalon and Stephan (2011) defined a manager as the person employed in an administrative position, who has comprehensive knowledge necessary for leading people and managing an organization in order to achieve optimal realization of set tasks in confined conditions. Thus, the manager of a small and medium scale enterprise is the person who is employed by the owner of the venture to oversee the management of the business which includes the management of the material and human resources on his behalf. The management of human resources is the proficient utilization of employees in accomplishing objectives within an organization.
Human resource management (HRM) is the organizational function that deals with issues related to people such as compensation, hiring, performance management, organizational development, safety, wellness, benefits, employee motivation, communication, administration, and training. Human resource management is also a strategic and comprehensive approach to managing people and the workplace culture and environment. Human resource management is a strategic and coherent approach to the management of an organization‟s most valued assets-the people working there, who individually and collectively
contribute to the achievement of set objectives for sustainable competitive advantage (Luftim, 2014).
The main objective of human resource is to create and maintain an efficient workforce that is able to meet the organization‟s needs (Mayhew, 2014). Effective HRM enables employees to contribute effectively and productively to overall company direction and the accomplishment of an organization's goals and objectives. Small and medium scale enterprises with successful HRM practices are likely to have lower absenteeism and employee turnover rates and better skills development and retention which ensure work productivity thereby contribute to economic development of a nation. These contributions are feasible under effective systems which include good human resource management practices.
Though small and medium scale enterprises are making positive contributions to economic growth and development in Nigeria, the rate of failure is high. According to West and Wood (2012), 90 percent of all these business failures result from lack of experience and competence. West and Wood also added that inefficiency in overall business management and poor record keeping is also a major feature of most SMEs and have always led to funds misappropriation, wrong and costly decision making. Other possible contributory factor could be human resource management practices of these SMEs such as inconsistent and equitable employee compensation policy, lack of training and development plans for
employees, lack of trust, inadequate working conditions, poor communication and among others. Therefore, adoption of human resource management practices by managers in small and medium scale enterprises is thus imperative because these firms are the economic drivers of the future through employment creation and utilization of indigenous resources.
Human resource management practices according to DeCenzo and Robbins (2010) are classified into four broad categories. These include: (a) acquisition- human resource planning, recruiting, employee socialization; (b) development- employee training, management development, and career development; (c) motivation-job design, performance evaluation, rewards, job evaluation, compensation or benefits, and discipline; and (d) maintenance-safety and health, employee or labour relations. Stoner, Freeman and Gilbert (2011) prescribed seven basic activities of HRM that include human resource planning, recruitment, selection, socialization (orientation), training and development, performance appraisal, promotions, transfers, demotions and separations of human resource. For this study, the components of HRM covered are resourcing, employee development and training, employee compensation and employee relations.
Resourcing is an important HRM practices that involves finding the right employees that will help to attain the goals of the business. Resourcing practices have to do with employees in the venture. Human resources are key organizational
assets as organizational performance depends on the quality of employee effort and hence, on their ability and motivation. Human resources (people) design and produce goods and services, control quality, market the products, allocate financial resources, and set overall strategies and objectives for the organization (Milkovich, Newman & Gerhart, 2013). Without effective people, it is impossible for an organization to achieve its objectives. Therefore, resourcing with the „right persons‟ and placing them in their „right positions‟ is the central task of HRM. Resourcing in an organization involves human resource planning, job analysis, recruitment, selection and socialization or orientation. Training should be provided to the selected employees to make them fit with the jobs of the organization.
Employee development and training are processes that attempt to provide employees with information, skills, and understanding of the organization and its goals (Ivancevich, 2011). Employee capabilities are balanced through training and development. With ongoing trends toward greater workforce diversification, flatter organizations, and increased global competition, training and development efforts enable employees to assume expanded duties and greater responsibilities (Milkovich, Newman & Gerhart, 2013). Organizational performance and its growth depend upon the skills and knowledge of the employees which considered as the assets of the firm. The knowledge, development, abilities and skills are the dimensions of the process of training and development. However, the results of
training impart major contribution in the better performance thereby increasing compensation of employees.
Employee compensation is another important human resource management practice. Employee compensation encompasses the employees‟ wages, incentives and benefits (Abubakar & Abubakar, 2013). Compensation is important for both employers and employees regarding attracting, retaining and motivating employees. By implementing employee compensation plans that work toward a competitive level of compensation and equity, employees feel that they are working toward a common goal, which in turn leads to increases in performance quality and productivity. Good compensation plan attempts to form and keep amiable relations between employees working at numerous levels in the organization
Employee relations are significant aspects of human resource management (HRM) which is aimed at maintaining a peaceful working environment in small and medium enterprises (SMEs) (Enis, Xhavit & Nagip, 2015). Employees need to be involved in the management of human resources that affects their interests. A well thought-out structure of employee participation system, grievance system, dispute handling management, disciplining system and labour representation system maintain conducive labour relations in organizations which will ultimately ensure interrupted operations, progress and prosperity of the firm. It appears that
the productivity of SMEs is closely related to their ability to adopt suitable human resource management practices in handling their employees.
However, certain factors like size of business enterprise and years of experience of SMEs managers could influence their human resource practices in the management of the business. The ability of SMEs to adopt HRM practices is dependent on their size. According to Muhammad (2009), medium scale enterprises have better capacity to adopt HRM practices in their ventures than small scale enterprises. In support, Saravanan and Vasumathi (2015) opined that the size of a business could influence the adoption of HRM practices by managers of SMEs.
Years of experience could also be another variable that could influence the SMEs managers‟ human resource practices in organizations. Years of experience in this study refers to field of knowledge acquired over months or years of actual practice and which, presumably, has resulted in superior understanding or mastery. It is believed that 90 percent of business failures are associated with management inadequacy, which consists of either management inexperience or incompetence (Perry and Pendleton in Mugo, 2012). Mugo further observed that many SMEs owners or managers lack managerial training and experience. Experience is the best predictor of business success, especially when the new business is related to earlier business experiences
Managers with vast experiences in managing business are more capable of finding ways to open new business compared to employees with different career pathways. It is possible that successful SMEs are handled by experienced managers who personally observe the day to day activities of their enterprises and also involve the employees in decision making process to increase productivity. However, the extent to which these assertions apply in Anambra State demands an empirical investigation, hence, the need to determine the human resource management practices of small and medium scale enterprises in Anambra State.