Role of Small and Medium Enterprises in the Canadian Economy
The Small and Medium Enterprises (SMEs) are acknowledged as the engines of the Canadian economy. The success of these businesses leads to prosperity in the Canadian market. In Canada, 98.1% of the entire business activity lie in the category of small businesses and by the addition of the medium-sized businesses, it amounts to 99.8% of all the businesses. SMEs that belong to the Information Technology (It) industry are the major contributor to job creation and economic growth in Canada. SMEs contribute to more than 45% of the total Canadian export value that is more than $130 billion. It is one of the concerns that the SMEs will be negatively affected in the future because of aging population and no succession planning.
In Canada, a business that consists of less than 100 employees is categorized as small-sized business and the businesses that employ 100-499 employees lie in the category of medium-sized business. The small-sized businesses in Canada employ more than 1.1 million people, and more than 20,000 are employed in medium-sized businesses. As IT SMEs are major contributors to the economy, the government of Canada also supports them. The debt financing for SMEs has an 85% approval rate that is also given to the IT companies .
In Canada, the survival rate of the SMEs is declining which will affect the economy of Canada. From the statistics, it is observed that the small and medium-sized businesses that entered the Canadian market in 2005 were not successful for a longer period. 85% of the businesses managed to survive for a year. 70% of the businesses carried their operations in the second year, and 62% stayed in the market of the third year, and until the end of five years, only 51% of the businesses survived in the market in which IT is also included that is a major contributor in the overall economy. It is a very alarming situation, as almost half of the businesses wiped out in 5 years. To overcome these uncertainties, it is necessary for the owners of the SMEs especially those relate to IT industry to ensure that they adopt several management strategies to improve their businesses .
There are several factors for the declining survival rate of the IT SMEs, but the most prominent factors that affect these businesses is the lack of proper management. As the most of the firms are comprised of fewer people, therefore, the owners avoid establishing the proper department of Human Resource Management. The Human Resource Management Department will help the companies to hire experienced people who will improve the efficiency of the business. In addition to it, the department will also help the organization in training people so that they can be efficient in their performance. The value of the Human Resource department and their strategies are important for the IT SMEs and therefore, it is essential to aware the owners of SMEs about such departments.
Limitation of the Study
The study is limited to the issues of IT SMEs that are working in Canada. It sector has the problem of effective management that is affecting other businesses as well as the economy of the country. The leaders of the organization are worried about the declining growth of the industry or sector. The study mainly focuses on the major highlighted issues that are obstacles to the growth. The effective strategies are mentioned that can be used to develop or implement an effective HRM management in the business. However, some specific strategies are discussed that considers the most important element in resolving the issues and challenges of IT sector in the Canadian economy. Although the issues and recommended strategies are relevant for all types of business, the declining business of IT sector in Canada can be improved through the implementation of these strategies.
Strategies for Human Resource Management and its Importance in IT SMEs
Managing Human Resource is one of the most crucial parts of the business because the several factors need to be controlled to improve the performance of the company. The IT SMEs are totally dependent on the human capital, as the performance of these businesses is totally dependent on the performance of its employees. The IT SMEs can only be successful if the business is established on out of the box ideas and ambitious people. SMEs lack sufficient financial resources, therefore, it depends on the human capital to fight the uncertainties that the business is likely to face by making appropriate decisions .
The organizations save cost by not forming a Human Resource Department, as it is an additional cost. The owners of the SMEs need to realize that it is essential for the business to control people as they are the main resource of these organizations. The Human Resource Department will help the companies in hiring efficient and experienced people so that the operational activities of the business can be improved. The problem that most of the IT SMEs face are to hire a right person and the Human Resource Management can help these companies in hiring the right person for the right position. It is also a part of the Human Resource Management to develop the proper job descriptions for various positions in the organizations. It also increases the efficiency in the performance of the company. Furthermore, it is also important to train the employees if the organization is doing a new business that lacks experienced people in that country. Human Resource Management can train the employees to make sure that the company properly conducts the business. As the Human Resource Management entirely focuses on the human capital, therefore, it is necessary for the SMEs to focus on establishing such departments.
Research Question
The paper analyzes the problems of SMEs and the importance of Human Resource Management to help the IT SMEs in overcoming these issues. For this purpose, a research question is developed that is:
“What is the impact of effective Human Resources Management strategy on the competitiveness of IT SMEs concerning the economy of Canada?”
The paper discusses the importance of Human Resource Management and the way it can help IT SMEs which answers the research question to a great extent.
Discussion on Issues and Relevant Strategies
Strategies for Effective Human Resource Management
Human Resource Management (HRM) is a crucial element in SMEs where the performance of an organization relates to the individual or teamwork of employees. The effective HRM strategy is essential to enhance the performance of employees and ensure effective outcomes from it. There are four important strategies that can be used to strengthen the workforce who are key stakeholders of an IT business (Leede and Looise 112).
Leadership
Amos, Ristow and Pearse (2009) state that leaders are the influential individuals who set directions, provide guidance and become a role model for other employees and leaders. HRM leaders are effective in increasing the performances of employees working in different departments (Amos, Ristow and Pearse 58). They apply tactics, make policies, and recommend suggestions to enhance the employees’ performances. They should take leadership roles and give ideas to other leaders to overcome the issues and challenges faced by them. However, Bae and Lawler (2000) suggest that it is critical that HRM leader should be selected on merit basis and has some guts and power to influence others in increasing their performances (Bae and Lawler 506).
High-Performance Culture
Organizations should implement the culture of high performance within an organization. They should appreciate hardworking employees and motivate others to work hard. A hardworking individual can provide a better result than an intelligent employee. Amos, Ristow and Pearse (2009) explain that a leader needs to create an environment in which the performance of employees are measured and assist. The motivation will result ultimately in the high performance of employees. A leader has influence over his subordinates so he should create opportunities for hardworking employees to contribute their substantial and potential role in the overall performance of an organization (Amos, Ristow and Pearse 127).
Promoting Talents
Cornelius (2001) state that talent is the key to success, and it is crucial for an organization to enhance its performance. A talented employee is one of the assets of a company. The HRM policies should be implemented that appreciate an individual who shows their talents and contribute their best towards the organization (Cornelius 288). These types of employees are entitled to get incentives and perquisites. Also, HRM leader should create effective plans to retain such talent for the long-term success of business. Their skills, abilities, and knowledge Bae and Lawler (2000) are crucial for the organization, and they require continuous training and development of employees (Bae and Lawler 510).
Strategic Planning
Ndubisi (2013) states that customer satisfaction and employee satisfaction is the primary goal of an organization. A leader should have the knowledge to promote valuable employees and offer incentives, amenities, and career development opportunities to achieve their primary goal. However, strategic planning is needed for the purpose in which employees are allowed to take part in the decision-making process and notify their demands and give suggestions to the decision makers. Their participation is crucial in enhancing the employees' performances, and a leader will acknowledge what is required to continue work with innovative and creative ideas (Ndubisi 157).
Key issues of IT SMEs in Canada
Berkow (2011) identifies that Canadian IT SMEs have several issues that have lower the retention of employees in IT industry. The IT employees working in SMEs are not properly controlled or managed by the leaders of an organization, and it has ultimately resulted in the major downfall of the IT industry and overall economy (Berkow 2).
Small Numbers of Employees
The SMEs workforce is limited in numbers due to the small and medium size structure of an organization. The fewer number of employees may result in the monopoly of employees, and the environment of business can result in the decreasing performance of team members. It is one of the issues in Canadian SMEs where employees do not have motivation or career development opportunities that can increase their overall performance necessary for the organization. Although IT SMEs have fewer numbers of employees, there should be an opportunity to work hard and get the desired designation within the organization. The promotion is essential to motivate employees so that employees should have competition with each other to get success. If there are less than 100 employees working in an organization, and there is no designation for different employees, it seems to have an environment in which there is no chance to work hard for promotion (Cornelius 151). The designation motivates low-level employees to work hard and develop their skills and abilities to match their skills with that designation. The hierarchy is crucial for enhancing the performances of Canadian IT SMEs employees who are willing to get success. There is no chance for hard work that is usually expected from employees to bring growth in the business. The reason is the absence of opportunities to come forward and lead the overall operations of business. Also, the employees do not have expectations to get more remuneration and benefits from overtime or hard work. The leadership is mainly concerned to get hard work but does not provide benefits so the employees could develop their thinking and get the desired outcome for them (Berkow 4).
Absence of HRM Department
Berkow (2011) highlights that the major drawback of Canadian IT SMEs is that there is not a separate department to assess the performance of employees (Berkow 6). Gupta, Jain, and Dhar (2007) suggest that HRM department plays a crucial in an organization that can manage all the workforce and customers of business (Gupta, Jain and Dhar 203). Due to a small number of employees, IT SMEs in Canada avoid to establish this department that can affect the overall performance of an organization. If there is no strategy or policy to manage the employees and to enhance their performances, it is difficult to get the desired outcomes from a limited number of employees. HRM department is critical in implementing policies to encourage employees and get the desired outcomes. The assessment of performances of employees is necessary as employees of an organization acknowledge that their performances are being measured, and they should work hard to create a positive image. HRM department offers incentives for analyzing the performance graph of workers and take decisions on facts. Canadian It SMEs are weak in establishing HRM department, or it could be said that an effective HRM department that assesses the performance of employees and manages all the employees working in an organization (Berkow 6).
Lack of Training and Development
It is also a major issue or challenge for Canadian SMEs as there is no effective training and development program that can develop personal skills and abilities to overcome several issues come forward in an ordinary course of business. Effective training is crucial in emerging out talents of employees and allows them to realize their personal endowments that can result in their success (Ndubisi 130). However, it is also important that the employees acknowledge that is demanded by their organization. SMEs should introduce development programs that are relevant for sustainability and reliability of business. A well-trained employee is better than a qualified professional as he has specific knowledge regarding the operations of an organization and can provide expected outcomes efficiently. Canadian IT SMEs are worried about the decline of performances of their employees, but they do not have effective training and develop programs to sharp the talents and personal capabilities of employees working at different levels (Berkow 5).
Recommended Strategies for Canadian IT SMEs
The issues of SMEs are crucial for the organizations as well as the IT sector of the country. There is an extreme need to practice reliable strategies that can resolve the issues and challenges of IT industry. Few strategies that relate to the specific issues and challenges are mentioned below.
Implement HRM Policies
HRM is the backbone of IT service organizations. Its policies include incentives, promotions, overtime, commissions, and other perquisites that attract employees to work hard and deliver their best to the organization. Employees needs should be well acknowledged by the employers so that they can be retained for a long time. Also, it flourishes the skills and development of employees and enables them to work hard to get high compensation. However, some Canadian IT SMEs may adopt this strategy to manage their workforce, but the need is to form a department consists of few employees who have assessment skills. An HRM leader can fix the problems of employees and tackle out a solution that can resolve the overall issues of IT sector in Canada. The HRM management will also look into different matters such as hiring, recruiting, promoting, and motivating employees that will ultimately provide long-term benefits to the organization (Leede and Looise 111).
Motivate Employees
The employee should be appreciated for their increasing performance. Companies pay high to the employees those show outstanding performance. The appreciation to increase efficiency will ultimately increase the production and service quality of an organization. Employees will work hard for fame, extra remuneration, and building career opportunities that will enhance their performance on their assigned work. However, in large organizations, appreciation is given by providing financial benefits to the company. In the case of SMEs, there is one more reason that it will increase the business of SMEs and its products and services will be offered to large size market. In fact, SMEs can earn high profits if it employees are experienced and qualified with personal skills and abilities and they do not have complaints regarding their return to hard work and expertise. It concludes that IT SMEs may move towards large size organizations by motivating and appreciating their staff and labor to provide more efficient results (Amos, Ristow and Pearse 191).
Provide Training
Training is the essential factor in IT business. Large companies have developed their employees’ knowledge and skills by providing them an effective and relevant training. SMEs should also train employees how to do work efficiently and accurately. It will help them to demonstrate the task quickly, and they would learn more about the accomplishment of future tasks. The issues and problems will be discussed in the training program and employees will acknowledge how to deal with critical situations that come forward during the execution of specific tasks (Gupta, Jain and Dhar 58). Training will also polish their personal skills, and they would be able to learn from experienced people who served their best to their respective organization. Canadian IT SMEs have the chance to get back to their original position by implementing some effective policies and rules along with the training that can bring out talent from hundreds of people.
Improved Working Environment
The working environment plays an important role in the HRM of SMEs in Canada. It can be observed that if employees have a free and friendly environment, they could work hard, and competition among them will benefit the organization. On the other hand, it is also essential that a leader should keep an eye on the employees. In Canadian IT business, it is missing that why the employees perform their routine task and spend their precious time in leisure activities. However, it is mandatory to introduce new innovative product or service that can gain a competitive advantage in the IT industry. The working environment should be monitored or controlled by the authorities so that the employees should avoid enjoying leisure hours at work. They should be busy in doing work, developing their skills, and knowledge even they do not have work to do (Gupta, Jain and Dhar 148).
Effects on competitiveness
HRM management put a direct and indirect impact on the competitiveness of the industry. IT business was competitive in Canada but due to the lack of proper management strategies and significant external factors, it led to diminishing in recent years. However, the recommended strategies discussed above will bring competitiveness in the overall sector or industry (Leede and Looise 112).
Increase of Financial Performance
Effective management strategies are helpful in deriving financial benefits for the company. IT SMEs in Canada can revive their position in the country and can contribute substantially to the overall GDP of the country. The competitiveness of the industry will be based on earning high revenues and increasing profit that will ultimately increase the overall financial performance of the IT sector. Also, SMEs are the potential contributor to the economy of the country so there is a need of developing competitiveness at a small scale that will provide huge benefits to the industry or sector. SMEs can regain their status that they are major stakeholders in the industry and can bring effectiveness in their business by implementing strict policies at their workplace (Bae and Lawler 507).
Increase Market Share
SMEs in Canada are suffering from huge loss due to their ineffective management and lack of monitoring and control. Implementing effective strategies to enhance the performances of employees can increase their credibility. However, it is a simple formula that if employees of a company work hard, it can increase its market share within the industry. The Canadian market is competitive, but the decline is seen in the IT sector due to the lack of retention of its valuable employees. If HRM strategies are implemented, then it would become easier for small size business to capture a wide range of the market. Also, increasing production and quality service is the major factor to gain competitive advantage (Ndubisi 89).
Brand Value and Brand Recognition
Canadian SMEs find it difficult to create or develop their brand recognition in the local market due to the lack of available resources. The effectiveness and efficiency of employees allow a company to manufacture a high quality product or render high-quality services to its customers. A company will be able to attract customers towards the product and at last, it will be able to create its brand in the local market (Leede and Looise 114).
Low Bargaining Power of Buyers
An effective HRM strategy will lower the bargaining power of buyers due to the involvement of high quality and innovative product. Canadian IT SMEs can influence customers to buy their product and avail services at a given price. HRM management will also improve the quality of the product that is designed by the IT professionals who have innovative ideas and knowledge about the usage of advanced technologies. SMEs can set prices depending upon the uniqueness and differentiated product that emerge out due to the efforts of employees. They will ultimately increase their customers, and the customers will remain attached to the organization on the ground of providing their preferred products with high quality (Amos, Ristow and Pearse 158).
Conclusion
The issues of Canadian IT SMEs have affected the stability of the Canadian economy. Ineffective HRM management is also a major problem in other SMEs of the country. The effective strategies of forming an HRM department, providing training and development programs, and improving working conditions to appreciate foreign employees can resolve the issues of SMEs. However, there is a need for further development in other operational areas of IT such as adoption of new technology to introduce design innovative product and high-quality services to consumers. The HRM strategies should be implemented by all SMEs to derive financial benefits to the company and overall industry. The effective strategies discussed in the paper are relevant to the challenges and problems of SMEs performing in various industries. SMEs are required to retain their valuable employees through effective strategies and policies. The management of SMEs should revive their HRM policies and align them according to the needs and satisfaction of employees.
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