ISSN-L: 0798-1015 • eISSN: 2739-0071 (En línea)

https://www.revistaespacios.com Pag. 110

Vol. 45 (01) 2024 • Ene-Feb • Art. 9

Recibido/Received: 04/01/2024 • Aprobado/Approved: 28/01/2024 • Publicado/Published: 31/01/2024

DOI: 10.48082/espacios-a24v45n01p09

Study of transformational HR practices impact on SME

business in India

Estudio del impacto de las prácticas transformadoras de recursos humanos en las PYME en

la India

DAS, Debashish

CHAUDHARY, Nidhi

Abstract

Small Medium Enterprises (SME’s) unicorns impact the economic drive of India, yet Transformational HR

practices to acquire, manage talent are inconsistent, casual, unofficial in SME’s. This descriptive study on the

case study method approach on 30 SMEs of Delhi / NCR, Mumbai, Udaipur, Bangalore, Pune aims to study

Transformational HR practices, its possible corelation to business growth in SME. This study will support as

reference point, model for SME’s, Unicorns for Transformational HR execution for business growth.

Key words: Transformational H.R. In SME, Unicorn, Employer Branding In SME, SMEHR

Resumen

Las pequeñas y medianas empresas (PYME) Unicornios impactan el impulso económico de la India, pero

las prácticas transformacionales de recursos humanos para adquirir y gestionar el talento son

inconsistentes, informales y no oficiales en las PYME. Este estudio descriptivo, con enfoque de estudio

de caso en 30 PYME de Delhi / NCR, Mumbai, Udaipur, Bangalore y Pune, tiene como objetivo estudiar

las prácticas transformacionales de recursos humanos y su posible correlación con el crecimiento

empresarial en las PYME.

Palabras clave: Transformación de RR.HH. en PYME, Unicornio, Employer Branding en PYME

1. Introduction

Studies revealed that most small and medium organizations lack HR departments, do not follow best practices of

transformational HR, Moroka & Uncles (2008), Santos et al., (2019). Transformational HR management initiatives

are most effective means to enhance business growth through talent and potential of people Allen et. al., (2010).

As per Giffee & Jones (2007) talent is the set of attitudes, knowledge, and skills that lead to the potential of

producing more with the same resources available.

Transformational HR practices create a desirable workplace, helping SMEs, and unicorns attract and retain talent

Barrett & Mayson (2007); Bell V (2006), Clarke K.F. (2001) this is a future need amongst SME. Bhardwaj et al.,

Research Scholar, Sushant School of Business, Gurgaon, India. debad2911@gmail.com

Associate Professor, Sushant School of Business, Gurgaon, India.

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(2019) argued further SMEs, and unicorns that do not focus on their employer brand may lose talent to

competitors that do. Year 2005 onwards saw rise of many SME who became Unicorns across the world such as

Facebook, Google, Whatsapp, Instagram, Twitter, Uber. In india we saw the rise of SME and Unicorns such as

Zoho, Oyo, Make My Trip, Fresh works, Paytm, Mrs. Bector, Byju’s as case studies of SME turned Unicorns in

India. People and culture are common factor in all these success stories. However, many SME and unicorn

businesses have been affected due to people issues of attrition, inability to hire, leadership challenges leading

to impact on business and stakeholders. ( Exhibit 1)

Small and Medium Enterprises will be the employer of quality talent and will need best practices of People

productivity, Culture and performance to attract, retain and grow talent which will have a direct impact on

business.

1.1. Significance of SME and Unicorn in Indian Business context

SMEs have driven significant growth in global economic expansion since long as per Aegagri et al., (2011). SME’s

are the bedrock of business and economic growth of the nation. The impact of SME is over 90% in business of

global brands as opined by Zakaria et al., (2011). SME have become Unicorn in emerging economies like India

rapidly Srivastava et al. (2015), with contribution to GDP, tax revenues, and employment of an economy. Indian

SME eco system is a unique eco system and model to study. Not much has been published on transformational

HR in SME of India especially post Covid 2020. The classification of SME in India is defined by Ministry of Small

and medium Enterprises (MSME).

The classifications are:

1.Micro Business 2. Small Business 3. Medium business 4. Enterprise Business

Each of the above are classified basis the size and number of people they employ. India (Bharat) has

approximately 6.3 crore MSMEs. The economy has undergone significant changes and revised MSME criteria

of classification was announced in the “Aatmanirbhar Bharat” package on 13th May 2020, SMEs recorded 34%

GDP growth in 2021 employing over 70 million people including executive and managerial talent both in

service and manufacturing sectors. This aligns with the USD 5 trillion goal of India to become an economic

superpower based on “Make in India” vision of the nation by 2040 with focus on ease of doing business for

SME in India. The Udyam MSME number allowed MSME to be a legitimate entity and better business

opportunities for SME. In August 2023 ISRO acknowledged the role of SME in the launch of Chandrayaan -3

space mission of India at the South Pole of Moon as per published news.

With the increase of service and technology-based SME organizations there is increase in the number of

professionally qualified and executive, managerial jobs in SME.

There are over 100 new Unicorns in India which is 20% of the Unicorn contribution of the world and 85%

of the Unicorn contribution of Asia. Unicorns employ over 40,000 employees which comprise executives

and professionally skilled employees.

The Ministry of MSME revamped policies to ensure factors of compliance, ease of recovering payments,

funding is facilitated, but the ability to attract, manage and retain talent for SME remains a challenge:

The question which has emerged is:

1. Do SME organizations attract good talent as the first preference for job opportunity at

executive, managerial level?

2. Are SME organizations adopting best practice to manage, retain and grow existing talent in

the organisation?

The importance of employer branding as a tool to attract, retain and manage talent is enhanced by Edwards

(2017) in SME and Unicorn. This challenge has possible impact on business growth for SME. Based on the

MSME report, published reports, industry case studies of attrition at leadership with impact on shareholders

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in organization (exhibit 1 of newspaper cutting) the study was conducted in Delhi NCR, Bangalore, Mumbai

and extended to cities such as Udaipur, Pune. The executive, leadership, managerial cadre such as Owner/

Founder, CEO, MD, Director, COO, VP, GM, Departmental head till manager, team leader in Unicorn and Mid-

Sized companies formed the universe.

Transformational HR areas in attracting, retaining, growing, managing, engaging executive and managerial

level talent which have bearing on productivity and efficiency was basis for this qualitative study with case

study method research to traverse impact of Transformational HR in SME on business growth.

Exhibit 1

Newspaper cutting of challenges

Setting Context - The new trend

Ulrich (1997) opined adopting best practices indicates the quality in which transformational HR practices

evolve. Post-independence SME in India have focused on transactional activities in HR such as compliance,

factory and labor regulations which was necessary due to high industrialization trends.

Post 2015 small and medium enterprises and unicorns in India dominated by technology , service- oriented

businesses which require executive , managerial talent are witnessing talent challenge due to ineffective

Transformational HR practices in employer branding ,talent management practices.

This is a top agenda of concern an opportunity for academia, practicing managers as well investors in 21st

century Cellar-Molina et al., (2019).

1.2. Objectives of the study

The objective of the study are as follows:

1. To study Transformational HR practice in SME, Unicorn

2. To study correlation between Transformational HR practice and Business Growth in SME

1.3. Literature Review

In many journals across the world HR related topics in SME have gained attention Oliveira (2004), Porter

(1996). References of the work and Foundation of Resource Based View (RBV) theory of Barney (1986),

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Mahoney (1995) Werner (1984) have referred to the use of the transformational HR tool as a business

enabler by making talent a key resource. HR has a significant impact as a strategic partner to business and

its growth Steel et al. (2002) talent Management through Employer branding is gaining new importance in

an employee-centric climate, where attracting, retaining, and managing talent is a growing challenge

Abdullai & Shafiwu (2014). The specialized aspects of emotional intelligence, competency-based assessment,

and psychometric assessment to assess behavior, personality, and cultural fitment are also needful for

decision-making in small and medium enterprises Stein (2000).

It was opined by Porter (1996) supported by Schneider (1987), the size of the organization has a positive

correlation to the systematic and quality of transformation HR practices Moroka & Uncles (2008), along

with dynamic nature of SME business Santos et al. (2019).

Loosely held Transformational HR practices may work in some SME, Moroka & Uncles (2008), Mitchell

(2002) as SMEs is organized informally in human resource practices is a common assumption Oliveira

(2004), Porter (1996).

Ineffective application of Transformational HR practices causes misdirection and ineffective results and lose

purpose in competitive environment further stated by Schein (1986).

In the Indian economic growth context, it is essential that the company think strategically to survive the

constant changes for business growth, suggests Sunil Mani (2009).

Transformational HR practices should be part of the strategic business growth of the organization. Martin

et al., (2005). Role of manager is key for Transformational HR activities Sousa & Rocha (2019). While many

papers have discussed this aspect in global scenario, but less work has happened post covid 2020 in Indian

SME on Transformational HR. It raises a question on the integrated approach of transformational HR

practices prevalent in small and medium enterprises in India.

Ambule & Barro (1996) propose employer branding as the organization’s efforts to promote itself as

preferred employer supported by Banality (2011), Gamage (2015), Lumpkin & Jerome (2007) since there is

correlation between hiring and the branding of the employer organization, Sees (2017) Cassell et al. (2002)

Wright et al. (2003),which has mediating effect on its organisation performance, Joon & Mclean (2006) and

differentiates amongst competitors, Smith, et al. (2001) to hire better talent, Fitz- Enzi(1990). This has impact

on perception of organisation Ambler & Barrow (1996) and build employer brand and differentiate

themselves from their competitors Backhaus & Teko (2004).

Transformational HR practices are more prevalent in organizations with larger organizations Joshi &

Satyanarayana (2014), Mayhew(2018) than SME Piszczek & Berg (2019). Camara (2011) author of the

attraction-selection-attrition (ASA) model, “different types of organizations attract, select and retain

different types of people” further validated by Sarangi & Nayak (2016) that there is a direct correlation

between the attraction of employees externally and the value system of the organization.

2. Metodology

The methodology proposed is descriptive case study method using mixed quantitative and qualitative

approach. The prevalent HR practices in SME having internal employees and decision-makers at the level

of executive, leadership, and managerial cadre such as Owner/ Founder, CEO, MD, Director, COO, VP, GM,

Departmental head till manager, team leader in Unicorn and Mid-Sized companies based out of Delhi NCR,

Mumbai, Bangalore, Pune , Jaipur formed form the universe.

2.1. Sample, population, data collection:

Primary data through survey was conducted over a sample size of 30 respondents. The questionnaire has

an ordinal and 5-point Likert scale.

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The survey questionnaire had questions to cover all 7 variables - 3 independent and 4 dependent variables.

The reliability was validated through cron bach alpha and was found at very high reliability on all variables.

Table 1

Reliability Test of questionnaire used in case study survey

Variance = 1.02 , Overall Cronbach alpha = 1.42

Bpa

EP-c

EP-ex

SBG

1.32

1.06

1.18

1.32

1.98

1.1

Table 2

Profile of organizations in case study

Type of Organisation

Service Organisation – 65.63%

Manufacturing Organisation – 34.38%

Sales of Organisation( All figures in INR)

0 to 50cr.-

37.50%

51cr. to 100

cr. –

18.75%

101cr. to

200

201cr. to 500

cr. –

12.50%

501cr. to 750

cr. –

3.12%

750cr. to 1000cr.

–

3.12%

Over 1000cr.-

18.75%

cr. –

6.25%

Position Occupied in the organisation

MD/Founder/Director/

Owner CEO/President/CEO – 65.62%

CXO/VP/HOD – 31.25%

Others – 3.13%

Number of employees in the organisation

0 to 50 –

51 to 150

151 to

251 to

501 to

1001 to

2001 to

More than

17%

– 21%

250 –

500 –

1000 –

2000 – 12%

5000 –

5000 – 9%

12%

19%

The response was taken from the business Owner, Director of the company or the CHRO, these are levels who

have a strategic view of business and Transformational HR. The case study has used primary data directly from

the respondents through survey monkey questionnaire using a validated survey questionnaire. Secondary

data available from established and credible published reports was used.

Many news articles on latest published trends in Economic Times , Times of India were also referred . Pooja

Bhatt ( 2018) work on questionnaire was studied .

Table 3

No.

Transformational

HR Area

Activities

Implementation

status

Extent of

implementation

Employer

Branding

Use of digital and website

3.6

Medium

Campus hiring

Medium

Interview Experience

Medium

Induction and Onboarding

2.86

Low

Job Description, hierarchy

available

4.1

Medium

Skill and role-based

compensation in practice

4.23

Medium

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No.

Transformational

HR Area

Activities

Implementation

status

Extent of

implementation

Talent

Management

KRA of new joiner ready at joining, reviewed monthly

with

feedback

Medium

Manager have adequate span of

control

3.83

Medium

Clarity to employee on reporting

relationship

Medium

Clear skill and competencies defined and reviewed at

each

level

3.9

Medium

System to identify High Potential

employees

3.26

Medium

Clarity about career growth plan

in next 3 to 5 years

3.43

Medium

Managers trained in IDP

Medium

Learning development plans

linked to business for employees

3.13

Medium

Wealth creation opportunity for

employees

3.33

Medium

Increase in employee productivity

3.23

Medium

Increase in profitability

3.1

Medium

Best Practice

adoption

Managers trained in competency-

based hiring skills

3.03

Medium

Psychometric assessment to hire

managerial talent

2.63

Low

Director, owner personally take

session in Induction / Onboarding

3.63

Medium

Managers trained on best

practice of KRA setting

2.86

Low

Benchmarked compensation

practice based upon skills, competencies

3.4

Medium

Agile, adaptive organisation to

changing external business scenario

3.66

Medium

Employee

Engagement

Corelation between staff

interaction experience with customers and business

reviewed

3.53

Medium

Forum of Open communication

with employees

3.6

Medium

Forum to understand behaviours

of self and others

3.7

Medium

Decision making in organisation

basis merit, dialogue

3.6

Medium

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No.

Transformational

HR Area

Activities

Implementation

status

Extent of

implementation

Employee

Perception –

current

Trust built with customer due to human interaction

has effect on value and price asked for the

product / service reviewed

Medium

Accountability at leadership level

3.33

Medium

Employee

perception – ex

Ex -employee referral candidates

in organisation

3.8

Medium

Probability of high customer

satisfaction score

3.33

Medium

Strategic

Business Growth

Organisation structure based

upon business plan

2.86

Low

People performance, productivity

agenda are part of business reviews

3.36

Medium

People metrics and agenda are

reviewed at Board, CEO level

3.56

Medium

Back up of employees available in

key positions for business continuity

3.6

Medium

Team has capability to adapt and

grow in business scenario

3.23

Medium

Leadership team capability to

grow the business inorganically

3.43

Medium

Corelation between HR practice

and business growth

3.7

Medium

2.2. View and indications

1. Employer Branding: There were four sub parameters which were evaluated through the survey,

elements such as - use of website, campus hiring rigour, interview experience and induction

onboarding were checked.

The survey response brough to the fact that use of website and digital tools to attract talent in SME

was used to a medium extent in 57% SME of service sector and 43% in manufacturing sector with

employees ranging from 100 to 1000 employees in companies of turn over from Rs.150 crore to

Rs.1000crore.

In further discussions it was identified that the “career” page in company website was either

missing or inactive and the use of “career “page on company website was not done actively to

source and seek talent for hiring.

The campus hiring Programme, which is a very common practice in established, large enterprises

was also used only in medium extent and many SME were using campus hiring to attract shop floor

workers. 63% of SME in service sector were not using it or were unsure about its usage in the

turnover range of 200 crore to over Rs.1000 crore with employee base of 200 employees to over

1000 employees. The interview experience feedback of the candidate at all level was practised in a

medium to ineffective extent. 70.8% of the organizations were from service sector with turnover of

Rs. 200 crore to over Rs. 1500 crore having employee size of 200 employees to 1000 employees.

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Formal systems were not in place, but this was gathered through informal methods. Structured

Induction and on boarding for new joiners was practised in a low implementation mode.56% of the

organizations where this was seen is in the manufacturing sector with employee base of 200 to 1000

employees and turnover of Rs. 50 crore to 2000 crore. The interesting part is that in 70% of these

organizations where the practices were absent have HR Head either as family member Director or

an employee. The need to do transformational HR may be a possibility.

2. Talent Management: There were 15 sub parameters which were evaluated through the survey.

These were ranging from Job description, hierarchy, KRA, span of control, reporting

relationship, performance management system, IDP, productivity linked to profitability.

It was observed that an average of 19.6% disagreed, strongly disagreed to the presence of various

practices of Talent Management in their organisations. 36% respondents were from Manufacturing

sector and 63% from Services sector. 63% organizations had upto 200 employees,24% had

employees between 201 to 1000 employees and 12% organizations had employees between 1001

to 2000. 66% respondents were MD/CEO/Founders and 30% were CHRO of organizations. 54%

organizations had turnover upto Rs.100 crores, 18% organizations had turnover between Rs.101 to

Rs.250crores, 27% organizations had turnover from Rs.750 to Rs.2000 crores. The lag points were:

KRA goals finalised of new joiner, review of key parameters, managers trained in IDP, learning path

linked to business, review, assess, develop competencies, clarity about career growth 3 to 5 years

from now. The points of resonance were: JD established, span of control, reporting relationship and

compensation. The areas where no clear response was available were: wealth creation opportunity

for employees, assessing employee productivity and profitability, review of KRA parameters

monthly.

3. Best Practice adoption: There were 5 sub parameters in which the responses were evaluated. On

the parameter of psychometric evaluation for leadership hiring the lack of implementation was

60%. Overall, 7.8% were unclear about the BPA implementation and 9.4% clearly disagreed with

implementation of Best Practices. 3% clearly agreed the implementation of Best Practices. The lag

areas were use of psychometric tools for leadership assessment and managers trained in

interview skills. There was uniform acceptance amongst SME organizations that the organisation

was agile, adaptive, responsive to changes in business scenario.

4. Employee Engagement: There were 3 sub parameters in which the responses were evaluated. 7%

of the respondents were unclear about the implementation of the practices whereas 3%

disagreed with the implementation of Employee Engagement practices. 5% clearly agreed about

Employee Engagement practices being implemented. 3% clearly agreed that employees

understand their behaviour and action. Agreement to open communication was higher than

decision making based upon merit.

5. Employee perception (current): 9% respondents had clearly agreed that the current employee

perception is that the organisation accountability is visible. 12% disagreed and 15% had no clarity

to comment.

6. Employee perception (ex): 9% respondent disagreed that the ex-employees would refer

candidates to the organisation. 24% respondents were not sure, and 27% respondents

strongly agreed that the ex - employees will refer employees to the organisation.

7. Strategic Business Growth: There were 15 parameters to evaluate. 6.2% respondents

disagreed with the implementation of the best practices, whereas 4.13% strongly agreed about

the implementation of the strategic business goals in context to people and HR in business.

9.13% respondents were neutral in their response. The areas of lag and clear disagreement to

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implementation were: Sufficient back up of critical position for business continuity, Capability

of team to adapt to changing business scenario, Capability to grow inorganically, profit growth

compared to competitors, business reviews have people related productivity and performance

indicators, people related metrics are reviewed, HR agenda and department, part of business

planning.

3. Results

The findings in this case study indicates that SME organizations both in manufacturing and services with

different employee strength and turnover have irregular, incomplete implementation of Transformational

HR practices (Khan, H.; Syed, N.; Asim, M. 2013). It also indicates that Transformational HR practices have a

direct business impact in SME organizations. The reason of irregular implementation could be due to lack of

capability inside SME organisation, low knowledge of the benefits (Sunil Mani 2009).

The study highlights and makes it visible that SME organizations lack consistency in Employer Branding, talent

management and other Transformational HR practices (Ambler T. & Barrow S., 1996) HR practices are present,

however the best practice led transformational HR practices get a miss. As per Barrett, R. & Mayson, S. (2007)

transformational HR practices will drive the business growth agenda of SME. The reasons for non-

implementation could be lack of capability, lack of data-based visibility to show impact, low awareness of the

benefits, perceived complexity in adoption inside SME organizations, “Not now, maybe later “syndrome.

SME owner founders’ awareness of the best practices and talent, capability to implement it internally within

budget is another reason for inconsistent implementation of Transformational HR practices. (Ulrich, D.&

Brockbank 2005).

53.13% of surveyed SME organizations agreed or strongly agreed to correlate with business growth and HR

practices. However, there is no established model prevalent specifically for SMEs to refer to.

56.25% of these SME organizations are up to INR.100 crores and 59% of them are up to 500 employees,

87.50% of these SME organizations have an HR department and 78.13% have CHRO and head HR.

Various Transformational HR practices which have high impact on business growth such as Induction

Onboarding, psychometric assessment while selecting leadership talent, Managerial training on KRA

setting, organisation structure based upon business plan were found to be clearly low on implementation.

For strategic business growth - capability of team to adapt to changing business scenario, capability to grow

inorganically, non-review of people related metrics for productivity and performance stood out as not being

effectively implemented (Bhardwaj, S.; Jain, A. and Kumar V., 2019) All the above create opportunities to

attract good talent as well to retain employees by making them effective and productive.

After this study the author feels that effective implementation of Transformational HR practices and the

regular review and assessment will have significant benefits to SME business growth.

The findings of the study will be useful contribution in literature review on growth of SME in India through

Transformational HR (Khan, H.; Syed, N.; Asim, M., 2013)

The finding of the study will be of relevance to Ministry Micro Small and Medium Enterprise, Investors, Banks,

institutions looking to fund SME, SME owners, policy makers, industry associations. It will be relevant to

understand what may propel the growth of Indian SME in a digital environment as the nation moves towards

its economic revolution by 2047 (Sunil Mani 2009)

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This may also offer insight for emerging economies as well as to developed economy SME. This study opens the

discussion on why SME must adopt Transformational HR and not just transactional HR for business growth.

(Ulrich, D., & Brockbank, W. 2005)

3.1. Future Research Opportunity

No significant research conducted on HR impact on Indian SMEs across metro cities and executive staff post-

2020.

Pursuant and after this study research in future may be conducted on various aspects amongst the many

elements of transformational HR identified and studied here. The outcome may be used to create more

insights into how SME owners can imbibe transformational HR and its elements to create business

organizations which will have perception at par with big established brands.

4. Conclusions

There is strong validation to suggest that Transformational HR practices to attract talent by

employer branding and talent management to retain talent have direct corelation with SME

business growth. This has been responded by 66% of SME owners in the study. SME are the

backbone of India’s march towards 15trillion dollar economy by 2047 and people with professional

skills in the digital age will be the differentiator. Transformational HR practices will be critical for

the growth of SME to become world-class organizations of Unicorn stature.

4.1. Ethical Consideration

Ethical considerations were always kept in mind throughout the study process. During the data collection

process to respect the respondent's identity certain personal details were made optional. At any given point

in time, the data details were handled only by the author and not delegated to anyone. None of the details

were used elsewhere.

4.2. Disclosure Statement

No potential conflict of interest was reported by the author.

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