Besides working capital, a tight management of business operations and state-of-the-art machinery, an SME entrepreneur also needs to have knowledge of the human resource function. While it is necessary to have all the elements described below, it is necessary that they understand what is required for their human resources to function smoothly.  

HR functions can be broadly divided into 3 categories:

• Transactional elements –  These form the day to day transactional elements without which the business cannot function. Managing these tangible deliverables of HR fulfill the physiological and security needs of employees. Right from finding the right manpower with the right skills to rules and regulations regarding joining, leaving, office timings, leave and other conditions of employment to regulatory compliances applicable to the industry to payroll processing - also called compensation and benefits.
  
  

• Structural elements – This determines how the employees interact with each other to get the work done. Proper definition of roles and reporting, coordination, delegation, work allocation and appraising work ensures perfect coordination among employees and a hassle free experience for the customer and vendors. Proper structure creates clarity among employees about what they are expected to do. These also fulfil social and esteem needs of employees, providing a platform for building employee commitment and retention.
  
  
• Strategic elements – These are those HR actions which lead to competitive strength and business growth through people. These intangibles have the potential to transform business results through business planning, budgeting, goal setting, skill enhancement and all those schemes and systems which go towards building a particular culture as per the vision of the entrepreneur and objectives of the business. A running business is evidence of the customer need being fulfilled; therefore this function of HR is the instrument through which an entrepreneur builds a unique value proposition for the customer.  
  
  

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