Talent management: solution

or myth?
A small low value-added firms‟ perspective

Renske N. Mertens
Oosterkade 115
3011 TV Rotterdam
ANR: s760289

Master’s Thesis
Supervisor: Drs. Brigitte Kroon
Second assessor: Dr. Paul Boselie
Period: January 2010 – September 2010
Theme: HRM in micro and small organizations
 Table of contents

Table of contents ........................................................................................................................................... 1

1. Introduction ........................................................................................................................................... 2
2. Theoretical framework .......................................................................................................................... 6
The research focus: low value-added (LVA) social service firms ............................................................ 6

Attracting and retaining highly motivated and qualified employees in small LVA firms: more difficult

for social service firms? ............................................................................................................................ 7

Talent management ................................................................................................................................. 10

Why is talent management important in attracting and retaining motivated and qualified employees? . 12

Conceptual model ................................................................................................................................... 13

3. Method ................................................................................................................................................ 14
Research design ...................................................................................................................................... 14

Sample statistics ...................................................................................................................................... 14

Procedure ................................................................................................................................................ 16

Measures ................................................................................................................................................. 16

Control variables ..................................................................................................................................... 18

Data analysis ........................................................................................................................................... 19

4. Results ................................................................................................................................................. 20
Correlations ............................................................................................................................................. 20

Regression ............................................................................................................................................... 21

5. Conclusion and discussion .................................................................................................................. 24

Conclusion .............................................................................................................................................. 24

Discussion ............................................................................................................................................... 25

6. Limitations .......................................................................................................................................... 28
7. Practical implications .......................................................................................................................... 29
8. Recommendations for future research ................................................................................................ 31
9. References ........................................................................................................................................... 32
10. Appendices...................................................................................................................................... 38

Talent management within small LVA firms

1
 Abstract

Within the hospitality, tourism and retail sector in The Netherlands many small firms have

difficulties attracting and retaining the motivated and qualified employees that they need to

survive in and recover from tough economic times. Putting in place talent management

practices can have a positive effect on attracting and retaining motivated and qualified

employees. This research focuses on the effect of being a small low value-added (LVA)

social service firm on the ability to attract and retain ‘the right’ employees, with a mediating

effect of putting in place talent management practices. Questionnaires and explorative

interviews are conducted to senior managers or owners of small firms in The Netherlands.

In total, 92 respondents filled out the questionnaire. The results showed no significant effect

of being a small LVA social service firm on the ability to attract and retain motivated and

qualified personnel. Also the mediating effect did not conclude in a significant result.

Therefore it is necessary to expand this research with more respondents to enlarge the

sample.

Keywords: small LVA firms, talent management, attraction, retention

1. Introduction

In the recently published survey, the „Horeca Barometer Q4 2009‟, six out of ten employers

within the hospitality sector in The Netherlands reported difficulties recruiting qualified

employees. Especially within the Restaurant sector, this problem occurs (Synovate, 2010). This

calls for investigating human resource management (HRM) in small service firms like

restaurants, cafés, small retail shops and similar small scale, low knowledge personal service

firms.

Talent management within small LVA firms

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Human resource management deals with attracting and retaining highly motivated and qualified

employees to meet strategic goals and in the end gain sustainable competitive advantage through

your most important asset: employees (Boxall & Purcell, 2008; Baron & Kreps, 1999; Guest,

1987). Within most small firms, it is difficult to attract and retain highly motivated and qualified

employees. Recruitment practices in small firms are often unknown to or unrecognized by

management (Behrends, 2007). Furthermore, any systematic or professional approach in

selection new employees is lacking in small firms (Behrends, 2007). Especially within low

value-added (LVA) firms it is a struggle to attract and retain motivated and qualified employees,

because they lack material or financial resources for recruitment and retention. This paper

examines whether the use of talent management practices has a positive effect on the ability to

attract and retain highly motivated and qualified employees.

Recent HRM research in small firms shows that HRM approaches are often copied from large

firms and implemented in a small firm context (Marlow, 2006). Various authors in the HRM

domain qualify small firms as „the ideal site for the development of a HRM approach‟, due to

direct face to face communication and the directly observable contribution of each employee to

organizational performance (Bacon, Ackers, Storey, & Coates, 1996). An opposing view is that

employment in small firms is more difficult because they often operate in more competitive

markets (Rainnie, 1989). A particular type of small organization operating in those competitive

markets is low value-added firms (LVA) (Edwards & Ram, 2006). In a small low value-added

firm, the value of the product is low, the contribution to the economy is low and with that the

income of the owners of the firms is low. They also define small LVA firms as follows: located

in highly competitive sectors of the economy with low barriers to entry, and payment of low

wages (Edwards & Ram, 2006). Examples of firms within those competitive sectors are: retail

Talent management within small LVA firms

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shops, tourism companies like amusement parks and hospitality firms like restaurant, small

hotels and cafés. In small firms, where resources are likely to be scarce, the difficulty in

recruiting and retaining employees lies in the lack of financial resources, and therefore the lack

of possibilities to invest in costly or restrictive practices (Cardon & Stevens, 2004). Small firms

not only operate in highly competitive markets, but are incapable of influencing their

environments. Therefore wages in such firms might be expected to be relatively low

(Arrowsmith, Gilman, Edwards, & Ram, 2003). This paper characterizes LVA firms as being

small, operating in competitive markets and with little financial room to manoeuvre.

HRM in small firms is somewhat different than in larger firms. Especially in these though

economic times, survival is the key word for small LVA social service firms. In the HR field,

Edwards and Ram (2006) report that resources, like human resources, are also mostly deployed

to maintain the survival of a business in harsh conditions. The resource-based view (RBV) of the

firm has been successfully applied to small firms (Chua, Chrisman, & Steier, 2003; Simon & Hitt,

2003). Any sustainable competitive advantage will be, proposed by the RBV, realized through

the use and availability of those resources that are valuable, scarce or rare and not easy to imitate

(Barney, 1991). In light of these characteristics, it is likely that human resources have a strategic

potential in gaining sustainable competitive advantage. The RBV also recognizes the contextual

factors in the external environment such as networks, industries, sectors, regions and nations (De

Kok & Uhlaner, 2001). But the resource-based view (RBV), according to Boxall and Purcell

(2008), gives „undue emphasis‟ to matters within the firm and needs to embrace the market

context. Other theories emphasize the restraining impact of a firm‟s context and lack of

(financial) leeway (e.g. Paauwe 1991, 2004), leaving small firms little room to invest in their

human resources. Small LVA social service firms are good examples. As discussed before small

Talent management within small LVA firms

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LVA firms have little room to manoeuvre and little room for structured HRM activities (Paauwe,

2004).

Example given, Boella (1992) predicted that in the future it will be more difficult to provide the

necessary number of people required by the hospitality industry. As stated before, the hospitality

industry in The Netherlands has difficulties finding the right employees. One of the insights he

provides is to attract young professionals and offer them real career prospects involving training

and personal development. This argument can be extended to other social service industries like

retail and recreation. Why is it more difficult to attract motivated and qualified employees in

small LVA social service firms than in other small LVA firms? Research from Grandey (2003)

investigates surface acting and stress in service providing firms. The results show that acting as if

you feel positive by modifying facial expression (like smiling) is positively related with job

burnout and depression (Brotheridge & Grandey, 2002). In social service firms like restaurants,

hotels and shops, the most important outcome is customer satisfaction. But to achieve this,

employees in social service firms sometimes pay the price. Demands of job-focused emotional

labor or „people work‟ contribute to stress (Brotheridge & Grandey, 2002). In addition, job

burnout has been associated with some organizational outcomes like increased turnover and

intention to leave (Broteridge & Grandey, 2002). These outcomes show that employees in

service providing firms can have more chance for burnout and stress.

The aim of the paper is to answer the following research question:

To what extent do small LVA social service firms differ from small LVA non –social service firms

in explaining the inability to attract and retain highly motivated and qualified employees and the

lack of talent management practices within those firms?

Talent management within small LVA firms

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This paper contributes and adds findings and conclusions to existing research. It examines the

HRM characteristics of small LVA social service firms and the lack of talent management

initiatives within these firms as possible explanation that can lead to the inability to attract and

retain highly motivated and qualified employees. The findings in this paper are interesting for

owners/management of small LVA social service firms, because they provide insight in why

talent management can be useful in the search for talented and dedicated employees.

2. Theoretical framework

The research focus: low value-added (LVA) social service firms

This research focuses on small organizations in The Netherlands. Small organizations are

defined by the European Commission as firms with ten to 50 employees. The focus of this

research is on one specific group of small organizations: low value-added (LVA) social service

firms. Small LVA firms can be defined as follows: located in highly competitive sectors of the

economy with low barriers to entry, and payment of low wages, for example restaurants and

retail shops (Edwards & Ram, 2006). O‟Leary and Deegan (2005) highlight barriers to career

progression and retention like long unsociable hours, poor payment, the physical and stressful

nature of the work, and a poor work-life balance (WLB). Above all, firms in the hospitality,

retail and tourism sector (social service firms) show good examples of firms with these

characteristics. To determine whether a firm can be defined as low value-added (LVA) or not, a

selection is made based on the yearly turnover of the firm. Firms with an annual turnover of €

1.000.000, - or less are defined as low value-added (LVA) firms. In this paper, small LVA firms

located in other sectors are referred to as small LVA non-social service firms.

Talent management within small LVA firms

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Attracting and retaining highly motivated and qualified employees in small LVA firms: more

difficult for social service firms?

One of the most important challenges in human resources management is attracting and retaining

highly motivated and qualified employees. Owners of small firms frequently express the

difficulty of finding the “right” staff (Barrett, Neeson, & Billington, 2007). Recruitment and

selection is an operational HRM activity to bring new employees into the firm. HRM in small

firms is mostly characterized by informality (Cardon and Stevens, 2004; Cassell et al., 2002;

Heneman et al., 2000). The practices used to recruit, select, manage and appraise employees‟

performance in small firms are not formally regulated, regularly applied or guaranteed they take

place (Cardon and Stevens, 2004; Cassell et al., 2002). In the context of small LVA firms, a

well-known result is that firms often recruit from narrow sections of the labor market, relying on

family ties and other informal networks (Ram, 1994). While informal recruitment and selection

methods are preferred because they can be effective in ensuring new recruits “fit in” (Marlow, &

Patton, 1993), they could also lead to the employment of the “wrong” or “not quite right” person.

In the recruitment domain, two forms of fit have been described to see whether an employee fits

the organization: person-job fit (PJ fit) and person-organization fit (PO fit) (Barber, 1998). PJ fit

is the match between an individual and the requirements of a specific job and PO fit is the match

between an individual and broader organizational goals. The person-organization fit is often very

important as stated before, but the person-job fit is of equal importance in selecting and

recruiting motivated and qualified employees.

Williamson et al. (2002) suggest that small firms need to adopt recruiting practices that reflect

industry norms. Using common recruitment practices such as newspapers ads, college recruiting

offices, and well-defined job positions may also aid in successful recruiting efforts (Baker &

Talent management within small LVA firms

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Aldrich, 1994) and may help firms fill vacancies faster and retain employees longer (Heneman &

Berkley, 1999).

In contrast, for some small businesses, uniqueness provides the organization with competitive

advantages in acquiring “the right” person (Barney, 1991). Not only recruiting, but also retaining,

qualified employees „„whose knowledge often represents the firm‟s most valuable asset‟‟ (Baron

& Hannan, 2002, p. 21) is clearly important. Only retention of highly motivated and qualified

employees in larger organizations has been examined, for small firms this still is a practically

untouched area of research. The question is: „why should small firms be concerned about

retaining employees?‟ Employee turnover can be very costly (Griffith & Hom, 2001). Potential

costs (Dess & Shaw, 2001) can include both „direct‟ costs (like replacement and training) and

„indirect‟ costs (like lower productivity and reduced customer loyalty). Retaining key individuals

is particularly important for small businesses. If high-quality employees leave the firm, a smaller

firm may be less likely to have a suitable internal candidate or lack the resources for recruitment

within the external market (Wagar & Rondeau, 2006). The drivers of retention in small firms are

examined by Marchington, Carroll and Boxall (2003). In addition to a mix of formal human

resource practices (like training opportunities and pay-for-performance), employee retention is

associated with an „informal‟ working relationship and a „relaxed place to work‟.

In other words, favorable work conditions, employment security and positive relationships

between management and employees are considered to be important conditions in retaining

employees. In service providing firms (social service firms) where customer satisfaction is the

most important outcome, research indicates more difficulties retaining employees (Grandey,

2003). Job demands are mostly emotional, providing service with a smile, even though the

employee does not feel like smiling (Grandey, 2003). These demands are positively related to job

Talent management within small LVA firms

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stress, burnout, increased turnover and intention to leave (Brotheridge & Grandey, 2002;

Grandey, 2003).

Not only HR perspectives are considered when examining conditions and outcomes of retention

of motivated and qualified employees, but also an economic perspective is desirable. For small

social service firms, it can be more difficult to retain motivated and qualified employees, because

the demands from the market can fluctuate. According to research by Edwards and Ram (2006),

catering firms within the hospitality sector responded to the declining demand through flexibility

of two kinds. First: flexibility in working hours. High variability in hours worked is a

phenomenon that is generally accepted within the hospitality sector. Employees are expected to

be available as required, as long as customers are present. The second kind of flexibility and a

consequence of the first is pay flexibility. Edwards and Ram (2006) found that in the majority of

the hospitality firms, there was a lack of formal pay structures. Also the practice of „pay per

shift‟ regardless of hours worked is a common practice. Even the introduction of the national

minimum wage (NMW) (Edwards & Ram, 2006; Arrowsmith et al., 2003) did not seem to

improve the situation. It has been said that within the hospitality industry wages are still

sometimes below NMW.

Concluding, recruiting and retaining highly motivated and qualified employees is very important

for small firms and is seen in an HRM and an economic perspective. Within small LVA social

service firms, it is more difficult to attract and retain highly motivated and qualified employees

within the firm, because they often operate in the margins of the economy and have to provide

service non-stop, even when employees do not feel like it. As Paauwe (2004) described, they

have little (financial) leeway to invest in human resources for example by putting in place talent

Talent management within small LVA firms

9
management practices. They cannot always offer challenging tasks or fit payment. This leads to

the first hypothesis:

Hypothesis 1: Small LVA social service firms have more difficulties attracting and retaining

highly motivated and qualified employees than small LVA non-social service firms.

Talent management

The term talent management is defined in many ways by different scholars. “In its broadest sense

it is concerned with . . . identification, development, engagement/retention, and deployment of

“talent” within a specific organizational context” (CIPD, 2006). A more detailed definition is

provided by Blass (2007) and CIPD (2007): “Talent management concerns the additional

management processes and opportunities that are made available to employees in the

organization who are considered to be „talented‟. This means systematically attracting,

identifying, developing, engaging, retaining and deploying those high potentials who are of

particular value to the organization.” But what is talent? Cheese, Thomas and Craig (2007)

provide a definition which best fits the scope of this research. They state that talent is „an all-

encompassing term to describe the human resources that organizations want to acquire, retain

and develop in order to meet their business goals‟ (Cheese et al., 2007, p.46). These are the

employees that have the person-job fit and the person-organization fit.

Lewis and Heckman (2006) however stated that “talent management, as defined currently, is not

well grounded in research, not distinct from traditional HR practices or disciplines, and is

supported mainly by anecdote” (p. 143). Talent management is often seen as the part of HRM

that is focused on talent development in order to improve the effectiveness of the organization.

Although there are many different focuses on talent management, most of them agree that talent

Talent management within small LVA firms

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management is not just about HR (Cheese et al., 2007). As with HRM in small businesses, which

is often a copied „best practice‟ from larger firms, talent management is also mostly seen in a

large company setting. There is not much literature on talent management within small firms, let

alone in small LVA social service firms. This paper translates the literature on talent

management within larger firms to small LVA social service firms, like small firms in the

hospitality sector and within small LVA non-social service firms.

Talent, in the context of social service sectors like hospitality and tourism, does not necessarily

translate to other sectors of the economy (Baum, 2008). In small LVA non-social service firms,

talent is mostly specified as intellectual property, due to the emergence of the knowledge society

(Baum, 2008). Defining the necessary skills within small LVA social service firms is often more

about emotional attitude with a strong focus on the delivery of service to diverse customers

(Baum, 2008). It is a generally accepted view that much work undertaken within the sector can

be described as low value, demanding few conceptual or knowledge-driven attributes (Baum,

2008). Jobs in small social service firms often require a bundle of technical „know-how‟ and

personal soft-skills, instead of intellectual knowledge like in non-social service firms.

Small LVA social service firms act within the margins of the economy. They do not always have

room to manoeuvre or have the ability to implement structured HRM activities (Paauwe, 2004).

Talent management within a complex, weak labor market, as within most hospitality

organizations, needs to focus on inclusiveness of, and an open-minded approach to, training and

development. This provides opportunities for employees to develop and make use of their bundle

of skills (Baum, 2008). It is as much about talent identification and acknowledgement as it is

about talent management. After considering these different views on talent management within

small LVA social service firms, the term talent management is defined in this paper as follows:

Talent management within small LVA firms

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“Talent management is a bundle of HR practices put in place by the management of the firm to

realize high-skilled, highly motivated and dedicated employees.” The ultimate goal is to keep the

employee dedicated and make him/her walk the extra mile for the firm. Due to financial

constrains, small LVA firms have little room to manoeuvre and are often not able to implement

structured HR or talent management practices. In addition, due to the highly labor intensive

nature of social service firms, where customer service expectations can be high, there can be

resistance against putting in place talent management practices. For ages, characteristics of social

service firms have been that it is difficult to attract and retain talent, but they are also accepted as

„the way it is‟ (Hughes & Rog, 2008). To conclude, talent management within small LVA social

service firms is a scarcely touched domain of research. This leads to the following hypothesis:

Hypothesis 2: Small LVA social service firms have more difficulties putting in place talent

management practices than small LVA non-social service firms.

Why is talent management important in attracting and retaining motivated and qualified

employees?

The number one priority on the HR agenda is still to attract and retain key talent (Towers Perrin,

2004). More strongly, among all the factors that could influence the effectiveness of

organizations in the future, the foremost driver is talent (Buckingham & Voshurgh, 2001).

According to research done by the CIPD (2006), there is a high level of belief in the value of

well-designed talent management activities, respondents agree that it can have a positive impact

on an organization‟s bottom line (profitability). The need for investment in talent management

activities within small firms is further emphasized by the earlier stated fact that sectors with

LVA social service firms have difficulty finding motivated and qualified employees.

Talent management within small LVA firms

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The hospitality sector has always found it hard to attract suitably motivated, trained and qualified

employees able to deliver the services promised to current and potential customers. Despite

widespread descriptions of hospitality and tourism work as “low skilled”, there is little doubt that

there is room for talent and talent development within firms in this sector (Baum, 2008).

Talented personnel is needed to ensure firms within the sector that are able to recruit, retain,

support and develop personnel of the highest quality. These firms have to be able to cope with

the diversity of work and employment situations that exist within the sector (Baum, 2008). To

conclude, the following hypothesis is formulated:

Hypothesis 3: Small LVA social service firms have more difficulties attracting and retaining

motivated and qualified personnel than small LVA non-social service firms, because small LVA

social service firms have less talent management practices put in place.

Conceptual model

In brief, the aim of this study is to examine whether small LVA social service firms have more

difficulties putting in place talent management practices which results in the inability to attract

and retain highly motivated and qualified employees than other small LVA non-social service

firms (figure 1).

(-)

Sectors with (-) (+)

Talent management Ability to attract and retain highly
LVA social
practices motivated and qualified employees
service firms

Figure 1: Conceptual model

Talent management within small LVA firms

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 3. Method

Research design

The aim of this study is to explain the difficulties small LVA social service firms have in

attracting and retaining highly motivated and qualified employees. Part of the research is to see

whether putting in place talent management practices helps clearing out these difficulties. The

level of analysis focuses on small LVA firms. A cross-sectional, quantitative design has been

chosen for this study, because the data used are collected at one point in time by a questionnaire.

Sample statistics

This research focuses on small sized (average ten to 50 employees) companies in the Netherlands

(European Commission, 2009). Moreover, the study only focused on firms without an appointed

HR specialist. The total sample consisted of 92 small organizations. Organizations that are a

franchise or subsidiary of a larger company were eliminated from the sample (two out of 94).

The group respondents were collected with a mixture of a convenience and a snowball sampling

methods (Bryman, 2004), since employees working in selected organizations were approached

by a contact person of the data collector, bachelor and (pre-)master students of Tilburg

University.

Table 1 summarizes the descriptives of this sample. Out of 92 small firms, 62 were small low

value-added (LVA) firms (67%) and 30 firms could be categorized as small non-LVA firms

(33%). The selection criterion was the annual turnover of a firm. Firms with an annual turnover

of € 1.000.000, - or less were qualified as small LVA firms. Out of the 62 small LVA firms, 22

firms could be qualified as small LVA social service firms (35%) and 40 firms as small LVA

non-social service firms (65%). Small LVA social service firms were firms in the hospitality,

Talent management within small LVA firms

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retail and tourism sector. Most small LVA social service firms are in the retail sector (15 firms).

Small LVA non-social service firms were firms in other sectors like transport and consultancy.

Most small LVA non-social service firms are consultancy firms (nine firms). Only the small

LVA firms (62 cases) are used in the sample to be able to test the hypotheses. The average

amount of employees was nearly eight (lowest was two, highest was 30 employees). The

percentage of male senior managers/owners filling out the questionnaire was higher than the

percentage of female senior managers/owners (73% men; 27% women). The average age of the

respondents was 44 years old, with the youngest respondent being 21 and the eldest 73 years old.

Table 1: Sample statistics

Mean SD Frequency Percentage
Gender of owner/senior manager
- Male 45 73%
- Female 17 27%
Age of owner/senior manager 44.13 11.38
Number of employees 7.58 6.02
Firm type
- LVA 62 67%
- Non-LVA 30 33%
- Social service firms 22 35%
Hospitality 4 6%
Retail 15 24%
Tourism 3 5%

- Non-social service firms 40 65%

Agriculture 2 3%
Industrial sector 1 2%
Construction industry 3 5%
Wholesale industry 2 3%
Transport 2 3%
ICT 5 9%
Finance 8 13%
Consultancy, research and other business services 9 15%
Health sector 4 6%
Other 4 6%

Employment contract
- Full-time 32 51%
- Part-time 30 49%

Talent management within small LVA firms

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Procedure

The questionnaires were distributed in small organizations in The Netherlands by students of

Tilburg University. Each student distributed at least one questionnaire to the most senior person

responsible for HRM: the HR manager or the owner of the firm. The questionnaire was

explained by the student in a structured interview. The most senior person responsible for HRM

was asked to complete general questions about the organization. The anonymity was guaranteed

by the students, if that was not sufficient, the student provided an answering envelope for the

questionnaire. The research the sample consisted of 62 small LVA firms.

Measures

The variables central in this study were part of a larger questionnaire consisting of 149 questions

concerning HRM related topics within small organizations. The following variables were

examined in this research:

Small LVA firms: To select the entities in the sample which met the requirements of the

definitions of small LVA firms, a selection was made based on the yearly turnover of the firm

(European Commission, 2009). Firms with a turnover of € 1.000.000,- or more where left out of

the selection. One questions was used, namely to indicate the annual turnover of the company.

Answers were given on an ordinal scale (€ 500.000,- or less to more than € 10.000.000,-).

Small LVA social service firms: Furthermore, a distinction was made between two types of small

LVA firms:

 Small LVA social service firms and

 Small LVA non-social service firms.

Talent management within small LVA firms

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To determine the difference between the two types of small LVA firms, one question was used to

measure which sector the firms were in: “Choose the sector that fits best” (Kamer van

Koophandel, 2009). Sixteen categories were provided in the questionnaire that best fitted the

description of the sector the firm was operating in. Sectors with low value-added social service

firms are retail sector, hospitality sector and recreational (or tourism) sector. Small LVA non-

social service firms were found in ten other sectors for example consultancy or transport. Three

sectors were not represented by firms in the sample: rental of real estate, education and rental of

moving goods. Small LVA (non-)social service firms were combined in a dummy variable (0=

small LVA non-social service firms; 1= small LVA social service firms).

Attracting and retaining highly motivated and qualified employees: to measure this variable one

scale was used containing three questions (Guest & Peccei, 2001).

The three questions were: “how do you judge the ability to attract high quality employees of your

company?”, “how do you judge the level of labor turnover?” and “how do you judge the ability

to retain key employees?” The items were answered on a five-point Likert scale (very low - very

high). The validity of this scale was examined by using factor analysis. One component was

extracted to measure the ability to attract and retain highly motivated and qualified employees.

This component consisted of three items. The reliability to describe to what extent the three

questions measure the concept of attracting and retaining highly motivated and qualified

employees was established using Cronbach‟s alpha (α=0.382).

Talent management within small LVA firms

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Talent management practices: Some authors described the most common and in their view most

effective talent management practices (Blass, 2007; CIPD, 2006; Erickson & Gratton, 2007;

Hiltrop, 1999). Literature research confirms that there is no scientific consensus for a uniform

way of measuring the presence and/or effects of talent management practices. CIPD (2006)

described that small organizations report the use a wide range of different activities to develop

their talent. CIPD (2006) summarized these activities into a list of 16 practices. The use of

different activities varies depending on firm size. CIPD (2006) reports that coaching is the most

popular method of developing talent in small firms. This research extracted 15 HRM items out of

the questionnaire that fitted the list of practices from CIPD best. These items were often

included in talent management research and represent the presence of talent management

practices. An example was: “The organization pays for training, development and education that

goes beyond of what is needed for the immediate job.” The items were answered on a five-point

Likert scale (no one – all employees). The items were then transformed into an index variable

with answer possibilities on scope level (0=no one; 1=some, half, most, all employees). The

validity of this scale was examined by using factor analysis. One component was extracted to

measure Talent Management Practices. This component consisted of 13 items, two items were

deleted („above market pay‟ and „social fit‟) after doing factor analysis. The reliability was

established using Cronbach‟s alpha (α=0.812).

Control variables

To control for spuriousness (the incorrect inference of a causal relationship between two

variables where the relationship is in reality only accidental (ICAAP, 2002)), control variables

were added.

Talent management within small LVA firms

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Size of the organization: Arthur (1995) suggested that in growth-oriented small firms formal

HRM policies and practices have to cope with increasing complexity resulting from growth in

number of employees. To see whether size of the organization was of influence on the outcomes,

this variable is used as a control variable. This variable was measured by one open question.

“Indicate the total number of employees, including working owners and part-timers.” The answer

is given in number of employees.

Amount of unskilled workers: This research focuses on small LVA social service firms. As

described before by Baum (2008), the social service sectors are not particularly about knowledge

driven activities, but more about operational, professional skills. To investigate whether the

amount of unskilled workers has an effect on the ability to attract and retain highly motivated

and qualified employees or the use of talent management practices, this variable is used as a

control variable. This variable is measured by one question: “What is the proportion of unskilled

employees in your organization?” The answer could be given on a five-point ordinal scale (0

percent unskilled – more than 75 percent unskilled) based on Bacon & Hoque (2005).

Data analysis

First of all the cases were checked for scores that were missing or out of range. Two respondents

were deleted from the database, because they did not fill out the ANR and Organization code.

The data was checked for outliers (very high or very low scores). Outliers were checked using

the 5% Trimmed Mean. If the Trimmed mean and the mean values are very different, there is a

possibility for outliers. Talent Management had a mean of 2,66 and a 5% Trimmed Mean of 2,65.

Talent management within small LVA firms

19
The ability to attract and retain highly motivated and qualified employees had a mean of 2,87

and a 5% Trimmed Mean of 2,86. These differences are too small to influence to original mean.

Before doing the actual regression analysis of the data, some assumptions were made. The data

was checked for multicollinearity to see whether the independent variables are not highly

correlated (r>.6). Secondly, normality, linearity and homoscedasticity were checked. Normality

was checked by examining the scatter plot and linearity was detected from the Normal P-P

scatter plot (Pallant, 2005). Examining the plots, it could be concluded that the assumptions of

linearity, normality and homoscedasticity were met.

4. Results

Correlations

The means, standard deviations and correlations of the variables used are presented in Table 2.

The relationship between the variables is indicated by Pearson‟s correlation. This correlation

indicates the strength and direction of each relationship between the variables (Pallant, 2005).

The relationships between having unskilled employees and being a social service firm (r=.419,

p<0.1), between having unskilled employees and TM practices (r=-.288, p<0.5), between size

and TM practices (r=.378, p<0.1) and between size and the ability to attract and retain highly

motivated and qualified employees (r=.258, p<.05) are presented. The main variables do not

correlate very high, but the direction of the relationships is good. That is why these variables are

taking into account when doing regression analysis. None of the variables correlate higher than

r=.80, so it is not necessary to check for multicollinearity. Both control variables are significantly

correlated with the independent and the mediating variable, so it is appropriate to take them into

account when performing the regression analysis.

Talent management within small LVA firms

20
Table 2: Correlation matrix
Mean SD 1 2 3 4 5
1. Social service sector .37 .49 (-)
2. Talent Management (TM) practices .57 .27 -.068 (.812)
3. Ability to attract and retain 2.87 .50 -.076 .205 (.382)
4. Unskilled Employees 1.58 1.02 .419** -.288* -.201 (-)
5. Size 7.58 6.02 .132 .378** .258* .099 (-)
Note: between parentheses Cronbach‟s Alpha
* p < .01
** p < .05

Regression

The data is analyzed using a path analysis. This is done because the conceptual model consists of

hypotheses about mediating effects. Several multiple regressions are hierarchically performed.

The first series of multiple regression analyses was repeated by adding control variables to

compare effects of explanatory variables before and after controlling for extraneous variables.

The outcomes of the different regression analyses are presented in Table 3 and Table 4. When

adding the control variables, model 3 explains the ability to attract and retain highly motivated

and qualified employees significantly better (ΔR²=.074). However, the effects of the independent

variables on the ability to attract and retain highly motivated and qualified employees are less

strong in this third model. To test the first hypothesis (H1) the direct effect between sectors with

firms with LVA firms and the ability to attract and retain highly motivated and qualified

employees is analyzed. Regression analysis is done with LVA firms as the independent variable

whereas the ability to attract and retain highly motivated and qualified employees is the

dependent variable. Model 3 in Table 3 shows a negative effect between the sector a LVA firm

operates in and the ability to attract and retain employees. Subsequently, the direct effect of the

use of talent management practices on the ability to attract and retain highly motivated and

qualified employees is analyzed. The model shows a small positive effect.

Talent management within small LVA firms

21
Table 3: Regression analysis Ability to attract and retain highly motivated and qualified employees

Model Model Model

1 2 3
B s.e. β B s.e. β B s.e. β
Social Service firms -.078 .133 -.076 -.064 .132 -.062 -.023 .142 -.022
Talent Management .381 .244 .200 .084 .275 .044
Unskilled employees -.101 .072 -.205
Size .022 .012 .264*

R² .006 .046 .120

Δ R² .040 .074
F .341 1.390 1.910
F change 2.430 2.365
* p < .10

Secondly to test whether firms in sectors with LVA firms have more difficulties putting in place

talent management practices (H2), the use of talent management practices is measured in LVA

firms in social service sectors. This is analyzed using the second regression analysis with talent

management practices as the dependent variable (Table 4). Model 1 in Table 4 shows a small

negative effect. However, the significant F change shows that model 2 best fits the population

from which the data is sampled (F change=9.471; p<.001). Model 2 in Table 4 shows a small

positive effect of small LVA social service firms on talent management practices. The hypothesis

is not supported and therefore rejected. Furthermore, model 2 shows an important influence of

organizational size (β=.408; p<.001) and having unskilled employees (β=-.336; p<.01).

Table 4: Regression analysis Talent Management practices

Model Model 2
1
B s.e. β B s.e. β
Social Service firms -.037 .069 -.068 .010 .068 .019
Unskilled employees -0.87 .032 -.336*
Size .018 .005 .408**

R² .005 .250
Δ R² .245
F .279 6.433**
F change 9.471**
* p < .01
** p < .001

Talent management within small LVA firms

22
Thirdly the last hypothesis (H3) expects talent management practices to mediate the relationship

between small LVA social service firms and the ability to attract and retain highly motivated and

qualified employees. Full mediation occurs if the independent variable has no significant effect

when the mediator is controlled. As shown in Table 3, being a small LVA social service firm

does not have a significant effect on the ability to attract and retain motivated and qualified

employees when controlling talent management practices. By multiplying the standardized

effect of being a small LVA social service firm on talent management practices (β=.019) by the

effect of talent management practices on the ability to attract and retain highly motivated and

qualified employees (β=.044), the actual indirect effect can be calculated. Thus the indirect effect

of being a small LVA social service firm on the ability to attract and retain highly motivated and

qualified employees via talent management practices is β= .0008.

To check whether this indirect effect differed significantly from zero, a Sobel-test was performed.

A Sobel-test is used to test whether the indirect effect of the independent variable on the

dependent variable through the mediator variable is significant. The Sobel test indicates that this

indirect effect (β=,0008) is not significant. Therefore Hypothesis 3 is not accepted.

Finally, two explorative analysis were performed. The first was a series of regression analyses to

test if being a small LVA social service firm (independent variable) has a negative influence on

„the ability to attract motivated and qualified employees‟, mediated by putting in place talent

management practices. The second one had the same independent and mediating variable and

„the ability to retain highly motivated and qualified employees‟ as dependent variable and the

last one had „employee turnover‟ as dependent variable, with the same independent and

Talent management within small LVA firms

23
mediating variable. Due to the fact that the results did not contribute significantly to the research,

the conceptual models and results are presented in Appendix 4.

The second explorative analysis was also a regression analysis. This analysis tested if having

unskilled workers has a negative effect on the ability to attract and retain highly motivated and

qualified employees, when mediated by putting in place talent management practices. In addition,

it tested if organizational size has a positive effect on the ability to attract motivated and

qualified employees, when mediated by talent management practices. Again, due to the fact that

the results did not contribute significantly to the research, the results are presented in Appendix 4

and 5.

5. Conclusion and discussion

Conclusion

This thesis aimed to investigate the effect of being a small low value-added (LVA) social service

firm on the ability to attract and retain highly motivated and qualified employees, with a

mediating effect of putting in place talent management practices. The following research

question played a central part in this research: To what extent do small LVA social service firms

differ from small LVA non –social service firms in explaining the inability to attract and retain

highly motivated and qualified employees and the lack of talent management practices within

those firms?

According to Edwards & Ram (2006) and Cardon & Stevens (2004) small LVA firms have

difficulties attracting and retaining highly motivated and qualified employees. To test the

proposition that small LVA social service firms have more difficulties attracting and retaining

highly motivated and qualified employees than small LVA non-social service firms, a hypothesis

Talent management within small LVA firms

24
was developed. Hypothesis 1, which expected that small LVA social service firms have more

difficulties attracting and retaining highly motivated and qualified employees than small LVA

non-social service firms, showed the correct direction of the relationship, but was rejected

because the result was not significant. Hypothesis 2, dealing with small LVA social service firms

having difficulties putting in place talent management practices, was also rejected due to an

insignificant result. Hypothesis 3, including the mediating effect of the use of talent management

practices, was also rejected due to an insignificant result of the Sobel-test. It can be concluded

that there is no significant difference between small LVA social service firms and small LVA

non-social service firms considered their ability to attract and retain highly motivated and

qualified employees or putting in place talent management practices. Support was found that the

percentage of unskilled employees and size of the organization are significant control variables

when added to the models. Size seemed to be the most important control variable.

Discussion

Talent management within small firms is an almost untouched area in research although putting

in place talent management practices is an important management intervention to improve

profitability (CIPD, 2006). This research has tried to create a starting point for further research,

because small firms, and especially small LVA social service firms, have more difficulties

finding and retaining highly motivated and qualified employees (Barett, Neeson & Billington,

2007; Barron & Hannon, 2002; Paauwe, 2004; Wagar & Rondeau, 2006). It is important for

small LVA social service firms to find alternative resources to attract and retain highly motivated

and qualified employees. This research focused on talent management practices as resource to

attract and retain the right employees within small LVA firms. Although the majority of the

Talent management within small LVA firms

25
results from this research are too weak to generalize to the population of small LVA social

service firms in The Netherlands, we can draw these conclusions within the sample of this

research.

The results show a negative relationship between small LVA social service firms and attracting

and retaining highly motivated and qualified employees. When adding talent management

practices to the model, the previous relationship becomes slightly less negative. And in addition,

adding talent management practices shows a positive relationship with attracting and retaining

highly motivated and qualified employees. Controlling for size in this model seems to be

important. Size has a positive relationship with attracting and retaining highly motivated and

qualified employees. This indicates that larger small firms have less difficulties attracting and

retaining the right employees. Literature by Barrett and Mayson (2007) supports this statement.

They say that small firms‟ ability to attract, motivate and retain employees by offering

competitive salaries and appropriate rewards is linked to firm performance and growth. Hornsby

and Kuratko (2003) state that the availability of motivated and qualified employees and the

regulation of employee benefits remain important staffing issues for small firms. When a firm

grows, usually there is more need for formalized HR practices (Barrett & Mayson, 2007). The

ability for this to occur in small firms depends on the recognition of the owner/manager of the

need for delegation and the possibility of delegating that task to a specialized HR person. On the

other hand, most small firms do not have a special HR representative and access to specialist

HRM advice is costly (Gilbert and Jones, 2000; Kotey and Sheridan, 2001). While advice can be

expensive, it can also be an investment against the cost of „mistakes‟ in HR recruitment and

selection for example (Heneman et al., 2000).

Talent management within small LVA firms

26
This research showed clearly that within the sample small LVA social service firms have more

difficulties putting in place talent management practices than small LVA non-social service

firms. This is in line with previous research by for example Marlow (2000) and Ram (1999)

indicating that small firms are characterized by informal HR practices. Hornsby and Kuratko

(2003) conclude that HR practices in smaller firms have stagnated or even regressed over the last

decade despite threats within external environments and other small firms that do see a greater

importance of regulated HR practices, like talent management practices. They argue staffing and

reward practices remain important HR issues for small firms but more research is needed.

Surprisingly when adding firm size and having unskilled employees to the model, there was a

positive relationship between small LVA social service firms and talent management practices.

This result is inconclusive with the literature, but can be explained by the fact that bigger small

firms have more resources and financial leeway to put in place talent management practices

(Paauwe, 2004; Wagar & Rondeau, 2006). Research has shown that in growth-oriented small

firms formal HR policies and practices, like talent management practices, are necessary to cope

with the increasing administrative complexity resulting from greater numbers of employees if

growth is to be sustained (Arthur, 1995). Despite scepticism, Bacon & Hoque (2005) report that

a link exists between HR and the economic performance of small enterprises, evidence indicates

that the few small firms that have adopted more sophisticated HR practices like talent

management practices do report better performance. As described before, small LVA social

service firms often employ unskilled personnel, because these firms are not operating in

knowledge sectors. Bacon and Hoque (2005) state that small firms employing unskilled

employees have no particular difficulties attracting their unskilled personnel, because unskilled

labor can be easily acquired in the market.

Talent management within small LVA firms

27
The difficulties lie in the retention of the talent, because small firms employing unskilled

employees are unlikely to see employees as strategic human assets. Unfortunately, the results do

not show a distinction between attracting and retaining highly motivated and qualified

employees, but they do show that employing unskilled employees has a negative relationship

with attracting and retaining highly motivated and qualified employees (in the sample).

So far, little research is done about HR in small firms and more specifically in small low value-

added (LVA) social service firms. In addition, the significance of talent management is a

relatively unknown phenomenon in the field of HRM. Research concerning talent management is

therefore a relatively new movement mainly conducted in large firms. In the framework of

research in small firms, talent management is a practically untouched area.

6. Limitations

As well as being a strength, uniqueness is also a weakness in this research. A first limitation is

the scope of the research. First of all only small firms were taken into account within this

research. This narrows the sample and makes it more difficult to find a realistic reflection of the

population of small organizations in the Netherlands. Secondly, only small low value-added

firms were taken into account. This is done by eliminating all organizations with an annual

turnover of over € 1.000.000,-. Because the research focuses on such a narrow group of small

firms, namely LVA social service firms, the sample is restricted. Ultimately the sample only

consisted of 62 small LVA firms.

The second limitation is that research about talent management is still inconclusive. Since a

decent academic framework or scale for measuring talent management has not been developed

yet, a list of 16 Talent Management Practices has been developed by CIPD (2006). This list has

Talent management within small LVA firms

28
been used to measure the presence of talent management within a firm, but seems to contain

some flaws. This list does not exactly match the talent management practices indicated in the

questionnaire used in this research.

Thirdly, the reliability of the scale measuring the dependent variable (ability to attract and retain

highly motivated and qualified employees) was not sufficient. Therefore, the results can be

unreliable.

The composition of the sample in this research can be seen as a fourth limitation. The percentage

of male respondents filling out the questionnaire is substantially higher (73%). This could

influence the representativeness of this sample. The questionnaire was completed by the most

senior person related to HRM (like the owner or senior manager). So the findings in the research

are restricted to the owner‟s perceptions on talent management practices within their own firm.

Gerhart (2000) states that having only the HR responsible or owners‟ perspective reports only the

policy and not the practice. Furthermore, an individual employee perspective is lacking.

The last limitation concerns the design of the study. Due to the cross-sectional design of this

research, it is difficult to determine causality. A change in the independent variable must precede

(in time) a change in the dependent variable (Baker, 1999). Due to the design, it remains

uncertain whether this condition is met. Longitudinal research could help meeting this condition.

7. Practical implications

Taking into account the results of this research, some practical implications can be suggested. In

these economic tough times, the most important thing for any small firm, but more specifically

for the small LVA social service firms, is survival. Many small firms are or have been struggling

in the margins of the economy. Looking at staffing, it is important for these small LVA firms to

Talent management within small LVA firms

29
retain the talented and high-skilled employees who have company specific knowledge. Looking

at the results, small LVA social service firms have difficulties attracting and retaining highly

motivated and qualified employees, but have a slightly positive relation with putting in place

talent management practices. By putting in place talent management practices, the road to

survival can be changed into the road to recovery (Coleman, 2010). After many small LVA

social service firms have been faced with lay-offs, it is important in times of recovery to rely on

employees to regain vital skills or attract new talent. Because of the unemployment in

Netherlands (4,9% in 2009) there is a bigger talent pool available, but it is important to use the

right tools to attract this talent (Coleman, 2010). Small firms are more and more acknowledged

as important job creators, but it is important to look at the recruitment tools to be able to recruit

the talent that you need. Some tools can be online recruitment via search engines or social

networks. According to CIPD (2009) talent management is important in economic tough times,

but especially small firms have to be creative and innovative in using effective talent

management practices. In small LVA social service firms, the most important goal is to let

talented employees perform as effectively as possible to save costs (CIPD, 2009). One thing to

keep in mind is that the costs of the use of talent management practices are not supposed to be

higher than the benefits. It is all about being creative and innovative in using talent management

and using practices that are in line with the business strategy (CIPD, 2009).

Talent management within small LVA firms

30
 8. Recommendations for future research

As aforementioned, this research is quite unique. There is not much research available on small

LVA social service firms. Due to the size of the sample in this research and time limitations, it is

recommended to expand the research about small LVA social service firms. This allows to get

more insights on the implementation and the effects of talent management practices within small

firms in the population. Furthermore, according to many scholars like for example Lewis and

Heckman (2006) talent management “is not well grounded in research, not distinct from

traditional HR practices or disciplines, and is supported mainly by anecdote”. It is important in

talent management research to explore the link between various talent management practices/HR

practices, organizational outcomes and business strategy (Lewis & Heckman, 2006). It is also

recommended to expand this research by looking at the individual talent management practices

and their effect on attracting and retaining highly motivated and qualified employees, instead of

looking at the practices as a bundle. Uren and Samuel (2007) state that it is not desirable to focus

on all practices at once. Finally, the research about talent management in small businesses is a

fairly untouched area, while putting in place talent management practices can be very beneficial,

especially for small firms. In these times of turning survival around into recovery, putting in

place talent management practices can be of help. However, it would be helpful for these small

firms if research would be done about the exact benefits for business outcomes.

Talent management within small LVA firms

31
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 10. Appendices

Appendix 1: Factor Analysis Talent Management practices

Component matrix Talent Management

Component 1
Internal promotion .697
Internal recruitment .634
Performance targets .630
Formal meetings to discuss performance .599
Measurement of productivity .594
Social skills, teamwork .583
Jobs tailored to specific knowledge/skills .561
Training and development .529
Cross-functional teams .524
Informal meetings to discuss performance .485
Team meetings .472
Permanent contract .448
Performance evaluation .432
Extraction Method: Principal Component
Analysis.
a. 1 component extracted.

Reliability Statistics
Cronbach’s Alpha Cronbach’s N of items
Alpha based on
Standardized
items
.812 .812 13

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Appendix 2: Factor Analysis Ability to attract and retain highly motivated and qualified

employees

Component matrix Ability to attract and retain highly motivated and qualified employees
Component 1
Retain .800
Employee turnover .604
Attract .595
Extraction Method: Principal Component
Analysis.
a. 1 component extracted.

Reliability Statistics
Cronbach’s Alpha Cronbach’s N of items
Alpha based on
Standardized
items
.382 .385 3

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Appendix 3: Sobel test
Talent
B=.019 Management B=.044
s.e.=.068 s.e.= .275

LVA Social Ability to attract

Service firms and retain

Note: z-value=0.1388

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Appendix 4: Explorative analyses

Table 1: Correlations („Attract‟ as dependent variable)

Mean SD 1 2 3 4 5
1. Social service sector .3710 .487 (-)
2. Talent Management (TM) practices .5682 .263 -.068 (.812)
3. Ability to attract 3.016 .827 -.139 .220 (-)
4. Unskilled Employees 1.581 1.02 .419** -.288* -.288* (-)
5. Size 7.581 6.02 .132 .378** .041 .099 (-)
* p < .05
** p < .01

Table 2: Regression analysis Attract

Model Model Model
1 2 3
B s.e. β B s.e. β B s.e. β
Social Service firms -.237 .219 -.139 -.212 .216 -.125 -.057 .238 -.034
Talent Management .666 .401 .212 .458 .460 .145
Unskilled employees -.189 .120 -.233
Size .002 .019 .014

R² .019 .064 .104

Δ R² .045 .040
F 1.169 1.982 1.631
F change 2.761 1.262

Table 3: Correlations („Retain‟ as dependent variable)

Mean SD 1 2 3 4 5
1. Social service sector .3710 .487 (-)
2. Talent Management (TM) practices .5682 .263 -.068 (.812)
3. Ability to retain 3.738 .874 .001 -.041 (-)
4. Unskilled Employees 1.581 1.02 .419** -.288* .066 (-)
5. Size 7.581 6.02 .132 .378** .047 .099 (-)
* p < .05
** p < .01

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Table 4: Regression analysis Retain
Model Model Model
1 2 3
B s.e. β B s.e. β B s.e. β
Social Service firms .002 .234 .001 -.003 .236 -.002 .057 .263 .032
Talent Management -.138 .438 -.041 -.367 .509 -.110
Unskilled employees -.104 .133 -.121
Size .014 .021 .096

R² .000 .002 .017

Δ R² .002 .015
F .000 .050 .244
F change .099 .439

Table 5: Correlations („Employee turnover‟ as dependent variable)

Mean SD 1 2 3 4 5
1. Social service sector .3710 .487 (-)
2. Talent Management (TM) practices .5682 .263 -.068 (.812)
3. Ability to retain 4.131 .951 .000 -.168 (-)
4. Unskilled Employees 1.581 1.02 .419** -.288* .005 (-)
5. Size 7.581 6.02 .132 .378** -.325* .099 (-)
* p < .05
** p < .01

Table 6: Regression analysis Employee Turnover

Model Model Model
1 2 3
B s.e. β B s.e. β B s.e. β
Social Service firms -.001 .256 .000 -.024 .255 -.012 .067 .274 .034
Talent Management -.614 .473 -.168 -.162 .531 -.044
Unskilled employees .008 .139 .009
Size -.050 .022 -.314*

R² .000 .028 .109

Δ R² .028 .081
F .000 .842 1.718
F change 1.685 2.549*
* p < .10

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Table 7: Regression analysis of size and unskilled employees on the ability to attract and retain
highly motivated and qualified employees
Model Model Model
1 2 3
B s.e. β B s.e. β B s.e. β
Unskilled employees -.112 .061 -.229* -.105 .065 -.214 -.101 .072 -.205
Size .023 .010 .281* .022 .011 .263* .022 .012 .264*
Talent Management .083 .272 .044 .084 .275 .044
Social Service firms -.023 .142 -.022

R² .118 .120 .120

Δ R² .001 .000
F 3.888* 2.583* 1.910
F change .094 .025
* p < .10

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Appendix 5: Sobel tests explorative analyses

Talent
β=.019 Management β=.145
s.e.=.068 s.e.=.046

LVA Social Ability to attract

Service firms

Note: z-value=0.209092

Talent
β=.019 Management β=-.110
s.e.=.068 s.e.=.509

LVA Social Ability to retain

Service firms

Note: z-value=0.170945

Talent
β=.019 Management β=-.110
s.e.=.068 s.e.=.509

LVA Social Employee

Service firms turnover

Note: z-value=0.264765

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