Why HR Adoption Is a Challenge for Small and Medium-Sized Businesses in Sri Lanka
In Sri Lanka, a company is considered small and medium-sized
if its yearly revenue does not exceed 750 million and it employs fewer than 300
people. That is the definition. However, when we simply consider SMEs, we get
the impression that they are small businesses with few workers. The majority of
SMEs are family owned businesses that are managed directly by their owners.
Most SMEs do not feel the need for an HR department (Storey, 2016).
The owners of the business are in charge of everything. They think that the HR department is just another burden. This tendency has intensified following the economic crisis in Sri Lanka in 2022. Most owners believe they can handle their employees on their own. Sometimes they like the old fashioned way that their family members used to do things. Most of the time, they do not know what the right HR practices are (Harney & Dundon, 2006).
Sometimes SME business owners only care about making money and not about their workers. They think, "This is my business, and I can do whatever I want with it and its workers."
Another problem can be finding the right persons for the company. When owners do not know how to hire better workers, they end up hiring the wrong ones (Mathushan & Gamage, 2024),(Dessler, 2017). When there is not an HR department, there is not anyone to evaluate the employees or notice their skills. Most of the time, managers at the top take credit for the work of their mid level or below level employees.
Sometimes, owners listen to rumors and base their decisions on them. Some businesses do not even sign up their employees for the EPF and ETF, which is required by Sri Lankan law. As a consequence, Employees become unhappy with their jobs, and more people leave their jobs. And workers do not give their all, they just work to pass the time. Then the quality of the work may not be high enough.
Another reason is that most SMEs have limited knowledge of new technologies, such as artificial intelligence. Failure to embrace new technologies like AI systems means failure to have effective means of dealing with HR data (Lasanthika & Pavithra, 2025). Best practices in HR provide a competitive advantage since competition is extremely high among SMEs (Mathushan & Kengatharan, 2022). Finally, sometimes businesses fail because of these factors.
For further understanding, check the video below about Human Resource Management in small organizations.
Conclusion
SME owners should try to adopt better HR practices to some extent. It will be a huge advantage for their business development. Only satisfied employees can drive a company toward greater achievement.
Reference List
- Storey, D.J. (2016). Understanding the Small Business Sector
- Harney, B. & Dundon, T. (2006). Capturing complexity: Developing an integrated approach to analysing HRM in SMEs.
- Mathushan, P. & Gamage, A. (2024). Human Resource Management Practices and Firm Innovation: An Empirical Study in Sri Lankan SMEs.
- Dessler, G. (2017). Human Resource Management.
- Lasanthika, W.J.A.J.M. & Pavithra, H.D. (2025). Technological Adoption and Organizational Performance of SMEs in Sri Lanka.
- Mathushan, P. & Kengatharan, N. (2022). Human Resource Management Practices and Corporate Entrepreneurship in SMEs
This is a well-articulated and insightful analysis of HR challenges within Sri Lankan SMEs, especially in the context of the post-2022 economic environment. You have clearly highlighted both structural and behavioral barriers. In this regard, how do you think SME owners can be encouraged to shift from a short-term, cost-focused mindset to a more strategic view of HRM as a source of sustainable competitive advantage?
ReplyDeleteAs I have already pointed out, this is indeed a difficult task. This can be done through improving their awareness through programs organized by the government or by government regulations.
DeleteThis is a very relevant issue for the Sri Lankan business landscape. Many small and medium-sized enterprises struggle with HR adoption because they often lack dedicated HR expertise, rely on informal people-management practices, and don’t prioritise strategic HR systems early on. Without formal HR processes or technology, tasks like recruitment, compliance, performance management and employee engagement can become inconsistent and time-consuming, which holds back growth and competitiveness. Investing in even basic HR frameworks and affordable digital tools can help SMEs build stronger teams and improve retention, productivity, and long-term success.
ReplyDeleteYou are discussing a very useful and important topic. As you mentioned, most SMEs are run by owners or their family members, which often limits the implementation of structured HR practices. In my view, one key solution is to educate SME owners through private or government institutions. By providing proper HR knowledge and training, we can help them build strong and effective HR practices, which will ultimately support sustainable business growth.
ReplyDeleteWell discussed! It clearly highlights why HR adoption can be challenging for small businesses, especially due to limited resources, unclear processes, and resistance to change . Do you think simplifying HR systems and improving employee training could accelerate adoption in smaller organisations?
ReplyDeleteA very honest and grounded post! The observation about managers taking credit for the work of lower-level employees is a particularly significant one — it speaks to a deeper cultural issue within many Sri Lankan SMEs where voice and recognition are structurally absent. Without basic mechanisms for employee feedback and fair performance assessment, even well-intentioned owners will struggle to retain their best people. The EPF and ETF compliance point is also critical — non-compliance is not just a legal risk but a clear signal to employees that the organisation does not take their long-term security seriously.
ReplyDeletereally like how you highlighted practical problems such as poor recruitment decisions, lack of employee evaluation, and non-compliance with EPF/ETF regulations. These are very realistic issues that many small businesses face but are often overlooked. Your discussion on how traditional mindsets and limited exposure to new technologies like AI affect HR practices adds strong value to the analysis.
ReplyDeleteYou have cleary strutrued the reality of how many of the Sri Lankan MSEs operate,especially the tendency to overlook HR practices due to cost or traditions.Given the financial constraints SMEs face,what are the practical and low cost HR practices do you think could be realistically adpoted to improve employees satisfaction and retention?
ReplyDeleteYour analysis of Sri Lankan SMEs is excellent and very realistic. I appreciate how you highlight that avoiding HR is a "hidden cost" rather than a saving. You’ve clearly shown that when owners rely on rumors and ignore legal rights like EPF, they destroy employee trust and productivity. Professional HR isn't a burden; it’s a vital tool to find talent and adopt technology. Without it, SMEs simply cannot survive today's competition.
ReplyDeleteExcellent point..! many SMEs ignore HR because they see it as a cost rather than an investment. Without proper HR practices, businesses struggle with hiring, employee satisfaction, and long term growth. How can SMEs expect success if they fail to manage their people effectively?
ReplyDeleteYou mentioned that many SME owners in Sri Lanka still prefer 'old-fashioned' family methods and see HR as a burden; in your opinion, what is the single most effective low-cost HR practice an owner could adopt today to see immediate value without feeling overwhelmed by bureaucracy?
ReplyDeleteYour post clearly shows that many small businesses in Sri Lanka haven't 'gone professional' yet. By using expert research, you prove that these owners see HR as a boring expense they have to pay, rather than a smart way to grow their business.
ReplyDeleteYour post clearly highlights the real challenges SMEs in Sri Lanka face in adopting HR practices, especially owner-centralized management and lack of HR knowledge. I agree that many SMEs still rely on informal decision-making, which can lead to poor hiring, low employee satisfaction, and high turnover. However, I also feel that gradual HR adoption, even in simple forms like structured recruitment and basic employee policies, can significantly improve efficiency without adding heavy costs.
ReplyDelete