The Hindu Business Line : SMEs must put leadership before HR

Having worked with small and medium enterprises (SMEs) for over eight years in a variety of Organisation Development and HR consulting engagements, I am now convinced beyond doubt that SME owners must put leadership before HR. In other words, the SME owner must focus on getting his leadership right well before investing in HR processes because it is the SME owner’s leadership and not his HR processes that has the most significant impact on the company’s success .

First things first. The role of SMEs in our economy cannot be overemphasised. India has nearly three million SMEs, which account for almost 50 per cent of industrial output and 42 per cent of total exports. SMEs account for 50 per cent of private sector employment and 30 to 40 per cent of value-addition in manufacturing. SMEs in India constitute more than 80 per cent of the total number of industrial enterprises. The SME sector forms a significant percentage of the Indian software and services industry too. The success of SMEs determines India’s success.

Leadership is particularly crucial for these SMEs because they are characterised by unity of ownership, management, liability and risk. The enterprise is owned and managed by the same person or group of persons. The owner is responsible for and involved in all decisions related to corporate policy. The owner-entrepreneur has enormous autonomy in all decision-making matters. It is this combination of ownership and management resting with the same person or persons that places a premium on the quality of leadership in SMEs compared to larger organisations where leadership is a lot more shared, dispersed and institutionalised.

Greater role clarity

While the early days of an SME are characterised by a strong burst of entrepreneurial fervour, energy and commitment and some early success, entrepreneurs realise that in order to sustain the momentum they now need to build an organisation; enhance skills; install structures, systems and processes; revisit the original strategy; and, most importantly, solve the human problems that are now beginning to mount. Even as the owner is busy solving technical, marketing and delivery problems, employees are beginning to ask where the organisation is headed. They want greater role clarity. They are unable to work with one another. The newer employees are unhappy about seemingly petty things. The owner himself is worried about the lack of ownership and performance orientation.

The owner, however, sees all these as HR problems and attempts to solve them by hiring a HR head. He hopes that through good HR systems and processes he will be able to solve his problems of ownership, performance and morale. The HR head who joins the enterprise is unable to solve any of these problems and leaves in frustration. This is the stage at which I meet many SME entrepreneurs. My diagnosis of the situation predictably leads me not to HR problems but leadership problems. There are three significant leadership gaps or crises that I often encounter:

The crisis of direction

While many leaders are clear in their mind about what they want to achieve, they seldom clarify this or communicate it consistently.

While their founding team members may ‘tacitly understand’ the direction, the next generation of employees fails to see it. They can only see their job and not the larger purpose.

The problems become acute when the founders are unclear about where they are headed or keep making course corrections. Sometimes, the direction might be clear but the path to get there may not be as clear and the owner may not clarify this path. There are several reasons why entrepreneurs fail to give this direction: They assume people know where the company is headed. They may not find the time to have important conversations even with their key employees about the direction of the business. Some may not have the skills to not just communicate, but to rally people around this common purpose. They are also unable to resolve conflicting views about the company’s direction.

The crisis of organisation design

Leaders may be clear about their direction, but may still be hamstrung by an organisation design that is not geared for the future. For example, the job design for key roles might be wrong. Roles may not be clearly defined leading to a mismatch between performance and expectations. The choice of organisational form may be erroneous. The span might be too large. Accountability may be diffused across roles and levels. Above all, the original design of the organisation may need to be recast given the growth and complexity.

The crisis of style

In entrepreneurial organisations, the style of the leader has a direct impact on the performance climate and engagement levels of the employees. From being ad hoc, they are unable to imbibe a style of disciplined execution through planning, reviews and corrective actions. From micro management, they seldom move to delegation with controls. Entrepreneurs are also quite unaware of their style and its impact on the climate of the organisation because no one gives them feedback. This may cause unintended damage. Entrepreneurs also seldom realise that they need to change their style in line with the changing life stage of the organisation.

None of these can be fixed by the HR head or through any HR system or process. The starting point has to be the entrepreneur’s realisation that he needs to install a leadership system and also change his style in line with the changing life stage of the organisation. An honest dialogue with a trusted friend or a mentor or coach can be a good starting point. The entrepreneur must learn new skills and unlearn many. He must change some of his beliefs and embrace new ones. Once this crisis is averted, the entrepreneur will begin to see greater ownership, clarity, accountability and improved performance.

On this foundation alone can he build a good, sustainable organisation.

(The writer is the founder and CEO of totus consulting, a strategic HR consulting firm. He is also the co-founder of the Executive & Business Coaching Foundation India Ltd. He can be reached at ganesh@totusconsulting.com)

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