The Impact of Digitalization on Human Resource Practices in Small and Medium-Sized Enterprises: Navigating the Challenges and Opportunities

Abstract

This article examines the impact of digitalization on human resource (HR) practices in small and medium-sized enterprises (SMEs), focusing on the challenges and opportunities it presents. Digitalization has fundamentally transformed various HR functions, including recruitment, training, performance management, and employee engagement, by introducing advanced technologies such as artificial intelligence, big data analytics, and cloud-based systems. While these technologies offer significant benefits, such as increased efficiency, cost reduction, and improved decision-making, they also pose several challenges for SMEs, particularly in terms of data security, digital literacy, and resistance to change among employees. This study utilizes a qualitative approach, drawing on interviews with HR professionals and analysis of relevant documents to explore how SMEs are adapting to these changes. The findings reveal that, while SMEs have begun leveraging digital tools to enhance HR processes, there are significant gaps in their readiness to fully embrace digital transformation. Key challenges include limited financial and technical resources, inadequate training for employees, and the need to balance digital efficiency with maintaining a human-centric approach. However, the study also identifies opportunities for SMEs to harness digitalization to drive innovation, improve employee satisfaction, and gain a competitive edge. The article concludes with practical recommendations for SMEs to navigate the digital landscape effectively, emphasizing the importance of strategic planning, continuous learning, and fostering a culture of adaptability.