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Small firms, big ideas: The adoption of human resource

management in Australian small firms

Timothy Bartram
La Trobe University, Australia

Relatively little research has been conducted on human resource management

(HRM) in Australian small firms. This study, using AWIRS 1995 data,
investigates the adoption and character of HRM in small firms. The dominant
findings indicate that, relative to medium and large firms, small firms in Australia
are generally less likely to adopt ‘formal’ HRM practices, including recruitment
and selection procedures, written OH&S guidelines, and performance evaluation
practices. In contrast, small firms were just as likely as medium and large firms to
utilise workplace innovations such as TQM. Regardless of establishment size,
management have similar views regarding the devotion of resources to HRM and
the development of a corporate ethic. Management in small firms, however, were
less likely to receive training in employee relations and less likely to develop a
formal organisational strategy. Industry differences are also apparent within the
adoption of HRM by small firms. This study provides a greater understanding of
where small firms are in the adoption of HRM in Australia relative to medium
and large firms, as well as some of the critical issues that small firms may face.
The paper concludes with a call for greater research regarding the adoption of
HRM in small firms.

Keywords: human resource management, small firms, Australia

Over a million private sector small firms operate in Australia, employing over
3 million workers. There has, moreover, been a 9 per cent increase in the small
business sector since 1999 (Australian Bureau of Statistics (ABS) 2001). Yet,
despite the growth in human resource management (HRM) practices in

Correspondence to: Dr Timothy Bartram, School of Business, La Trobe University, Victoria

3086, Australia; fax: +613 9479 5971; e-mail: t.bartram@latrobe.edu.au

Asia Pacific Journal of Human Resources. Published by Sage Publications (London, Thousand Oaks, CA and
New Delhi; www.sagepublications.com) on behalf of the Australian Human Resources Institute. Copyright © 2005
Australian Human Resources Institute. Volume 43(1): 137–154. [1038-4111] DOI: 10.1177/1038411105050311.
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138 Asia Pacific Journal of Human Resources 2005 43(1)

Australian organisations (Fisher, Dowling and Garnham 1999) and the sugges-
tion that HRM practices may improve organisational performance (Arthur
1992; Ichniowski, Shaw and Prennushi 1994; Delery and Doty 1996), there is
little systematic research available concerning the adoption and character of
HRM in small Australian firms (Wiesner and McDonald 2001). It is only
recently that there has been active research of HRM in small firms, particu-
larly among British (Duberley and Walley 1995; Bacon, Ackers, Storey and
Coates 1996; Reid et al. 2000) and North American scholars (Kaman et al. 2001;
Heneman, Tansky and Camp 2000; Wagar 1998).
There is clearly a need for advancement in our understanding of HRM
within the Australian small business context. This sector represents a signifi-
cantly large employer group. Yet only a handful of studies have explored
related topics within the Australian context, such as the ‘bleak house’ concept
among Australian firms (Wiesner and McDonald 2001). Other studies have
investigated the impact of changes on labour in small firms, and organisational
size as a determinant of trade union membership (Barrett 1995; Barrett and
Buttigieg 1999; Toten 2001), work and family issues in small firms (Wolcott
1993; Mace and Williams 2000), and retention of quality staff in small firms
(Hartcher 2001).
Yet a number of questions remain unanswered. Have small firms experi-
enced a similar pattern of proliferation of formal HRM techniques as their
medium and large counterparts? Are small firms adopting workplace innov-
ations in similar patterns to medium and large firms? What are the views of
managers in small firms concerning devoting resources to the HRM function
and developing a corporate ethic relative to managers in medium and large
firms? Are there industry differences among small firms’ adoption of HRM
techniques? What are the barriers towards the adoption of HRM in small
firms?
These are timely questions, as the following factors are putting pressure
on small firms to formalise HRM activities: evidence that ‘bundles’ of formal
HRM techniques and workplace innovations in firms of all sizes are being
associated with increases in employee and organisational performance (Huselid
1995; Arthur 1992); intensifying global and domestic competition; and greater
pressures of legal compliance, particularly in areas of recruitment and selection,
and performance management (Rigby and Lawlor 2001; Delahaye and Smith
1987). Small firms may also be able to derive some important advantages from
informality, including enhancing creativity and innovation (Adler and Borys
1996; Kilmann 1990).
The aim of this paper is to examine large-scale survey data on the HRM
practices and policies of small firms operating in Australia. The paper
addresses the character of formal HRM practices being adopted by small
firms. This is achieved through logistic regression analyses comparing small
firms to medium and large firms’ HRM policies, practices and managerial
attitudes.
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Small firms, big ideas 139

Definition of a small firm

For industrial relations and HRM purposes, the number of employees is used
to describe firm size (Barrett and Buttigieg 1999). Barrett and Buttigieg (1999:
3), suggest ‘it is often a convenient and arbitrary size that is chosen to differ-
entiate between small and large firms’. The definition of a small firm is
complex, and therefore a wide disparity of definitions of what constitutes a
small firm is presented in the literature (Hill and Stewart 2000).
Following Wiesner and McDonald (2001), this paper defines a small firm
as one that employs between 20 and 99 employees, while medium to large
firms employ over 100 workers. Firms employing fewer than 20 employees
were not surveyed in the Australian Workplace Industrial Relations Survey
(AWIRS) 1995 (Morehead et al. 1997). The ABS (2001) defined the upper limit
of small firms as those employing less than 100 employees. AWIRS 1995
measured seven different size bands, of which ‘less than 100’ was the smallest.
Due to the constraints of the data, it was not possible to further disaggregate
small firms as illustrated in Wagar (1998). It is acknowledged that a disparity
of the adoption of HRM practices exists in small firms (Wagar 1998) within
the ‘less than 100’ band (e.g. firms of 20 to 30 may be significantly different
from firms of over 80 employees).

A review of contemporary studies of HRM in small firms

The literature explores a number of key themes: the complex character of

HRM among small firms; the difficulties associated with the adoption of HRM
by small firms; the relevance of ‘large firm’ HRM practices for small firms;
discussion of the relationship between the use of informal and formal HRM
practices among small firms; and organisational performance outcomes of
small firms utilising formal and informal HRM practices.

Small firms and the adoption of HRM

Theoretical studies of the utilisation of HRM in small firms are very sparse
(Heneman, Tansky and Camp 2000; Duberley and Walley 1995; Guest and
Conway 1999; Marlow 2002; Ram 1999; Deshpande and Golhar 1994). Results
in the the studies indicate that small firms have fewer formal HRM practices
than their larger counterparts. Literature that reports studies of HRM in small
firms tends to reveal that even though these organisations are ‘dabbling’ in
HRM innovations, little evidence exists to suggest that they are generally prac-
ticing normative strategic HRM (Duberly and Walley 1995). Storey (1992) and
Guest and Conway (1999) go as far as characterising small firms as ‘bleak
houses’, whereby they fail to institutionalise industrial relations arrangements,
or systematic HRM practices.
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140 Asia Pacific Journal of Human Resources 2005 43(1)

In a rare paper on this topic within the Australian context, Wiesner and
McDonald (2001) found that based on a sample of 1435 SMEs (collected in
1998), there was only a moderate uptake of human resource management
practices. Seventy-three practices were identified. In fact, less than two-thirds
(66%) of the five HRM practices (recruitment, selection, training and devel-
opment, performance appraisal and compensation) were adopted by the
majority of SMEs in the sample. Only, 36 of the 73 practices had a high level
of adoption.
Bacon et al. (1996) found that small firms are experimenting with
workplace innovations. Based on a sample of 560 companies in Leicestershire,
the characterisation of small firms as ‘bleak houses’ is an over-generalisation.
Small firms were experimenting with cultural change, employee participation,
semi-autonomous work teams and quality circles.

Barriers to the adoption of HRM in small firms

There is some debate concerning the ability of small firms to adopt HRM and
workplace innovations due to the lack of resources, such as time and money
(Bacon et al. 1996; Wagar 1998; Duberly and Walley 1995), management
expertise (Hill and Stewart 2000; Westhead and Storey 1997), and greater
informality relative to their larger counterparts (Storey 1994). Chandler (1988)
suggested that management may possess inadequate training concerning HRM
and broader management issues, or have an inadequate understanding of the
impact of HRM on the business. Although many managers in small firms had
little understanding of HRM theory, many were familiar with a number of its
practical components (e.g. personnel functions, motivation, etc.).

Informal and formal HRM practices and performance implications

Will increased formality of management techniques generally improve the
effectiveness and organisational performance of small firms? Authors have
suggested that formalising HRM, particularly human resource development,
may stifle creativity and innovation (Kaman et al., 2001) and be anti-entre-
preneurial (Gibb 2000). Welbourne and Cyr (1999) purported that ‘bureau-
cratic’ HRM may reduce flexibility and increase organisational inertia. ‘Small
firms have also been described as experiencing the benefits of informal
communication, direct supervision, and more broadly defined jobs’ (Kaman
et al. 2001, 36).
In contrast, a number of authors have argued for the adoption of formal
HRM practices among small firms (Kaman et al. 2001; Marlow 2002;
Heneman, Tansky and Camp 2000; Patton, Marlow and Hannon 2000; Rigby
and Lawlor 2001). Summaries of HRM research on ‘best practices’ (Boxall and
Purcell 2000; Becker and Gerhart 1996) are nearly always drawn from the sub-
functions of personnel psychology: selection, training, appraisal and pay, and
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Small firms, big ideas 141

necessitate a carefully integrated and congruent approach with organisational

strategy. The use of formal HRM practices may help firms to formalise
management’s expectations of employees.
Roberts, Sawbridge and Bamber (1992, 255, as cited in Wilksinson 1999,
210) argued that ‘when a firm employs more than 20 staff, the limits of infor-
mality become apparent: informal networks of recruitment dry up; informal
styles of management communication are stretched; and ad hoc responses to
personnel issues create problems’. This finding supports Jennings and Beaver’s
(1997) contention that once the organisation is above a certain size and the
owner becomes over-extended, management needs to be professionalised and
delegated.
An important issue, which is seldom raised in the small firm literature, is
the suitability of (large firm) HRM for small firms (Hendry, Arthur and Jones
1995). Hendry, Arthur and Jones (1995) found that formalised HRM is char-
acteristic of larger firms. However, a key theme within the small business
textbooks is the formalisation of HRM functions (see, Scarborough and
Zimmer 2000; Longenecker, Moore and Petty 1997) and a ‘best practice’
prescription approach. Within the debate concerning informality and
formality, a ‘broad brush’ is used to categorise HRM. The formalisation of
HRM, as argued in this paper refers to the personnel functions, rather than
the management of people per se. It is apparent from the literature that small
firms may well benefit and build a competitive advantage (Barney 1991) from
elements of informality and formality with respect to the management of
people. Kaman et al. (2001) found that the use of high commitment HRM
practices (e.g. information sharing, open channels of communication, extensive
training, teams, incentive compensation, and flexibility in scheduling) were
not correlated with firm size. These practices were associated with lower
turnover, lower absenteeism, fewer litigations, and less concern about motiv-
ating workers. The formalisation of HRM functions is valuable to the point
that it improves people management and does not erode many of the potential
advantages of small firms – family atmosphere, open communication, flexi-
bility, creativity, and innovation and building trust.
Clearly, adopting a ‘large firm approach’ to HRM may not be suitable for
many small firms. However, formalising HRM is an important part of legal
compliance (Rigby and Lawlor 2001; Delahaye and Smith 1987). According to
De Cieri and Kramar (2003), managing HRM activities within legal
constraints in a strategic, proactive manner is a potential source of competitive
advantage. Barrett (2001) commented on changes to unfair dismissal provi-
sions in the Workplace Relations Act 1996. She suggested that unfair dismissal
is a symptom that reflects ineffective recruitment, selection and retention
strategies of both employees and managers. Informal recruitment practices can
mean that the ‘right’ person is not employed as the pool of suitable applicants
is untapped, leaving the firm open to accusations of discrimination.
‘Best practice’ HRM research has found some evidence of a measurable
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142 Asia Pacific Journal of Human Resources 2005 43(1)

and positive impact on firm performance (Becker and Gerhart 1996; Huselid
1995). There is less evidence of the HRM–performance connection in small
firms (Kaman et al. 2001). However, three studies have provided statistical
support for the relationship between HRM and firm performance in smaller
firms (Welbourne and Andrews 1996; Kotey and Meredith 1997; Heneman
and Berkley 1999). Heneman and Berkley (1999), for example, found evidence
that formalisation of recruitment and selection techniques had improved days
to fill positions, acceptance and retention rates.
In summary, this review of the literature suggests that relatively little is
known about the adoption and character of HRM in small firms in Australia
– since the literature tends to be British, American or Canadian in origin. Is
there evidence to suggest that small firms in Australia are adopting progres-
sive HRM practices, or are these firms yet to ‘catch the wave’ of organisational
transformation? Against the backdrop of this discussion, two general research
propositions are advanced:

Proposition 1: Small firms are less likely to invest in formal HRM practices
and policies, and workplace innovations relative to medium and large
firms.

Proposition 2: Managers in small firms will be less likely to devote

resources to the development of HRM, be less likely to develop a formal
organisational plan, and receive management training relative to managers
in medium and large organisations.

Methodology

Data

The data utilised to examine the character of HRM in small Australian firms
is derived from AWIRS 1995. AWIRS 1995 is a large-scale workplace survey
conducted by the Commonwealth Department of Industrial Relations. The
data set has been published widely (Drago 1996), and despite the age of the
data set, studies have published the data quite recently (e.g. Walsh 2001). The
data has a number of important strengths such as its breadth and size, as illus-
trated below. Disadvantages of this format include respondents not being able
to provide information within their contextual circumstances and there is some
reliance on the perceptions of managers (Morehead et al. 1997). This study
represents an initial and exploratory investigation of the adoption of HRM in
Australian small firms. The data has not been analysed in this manner before
and provides some results of importance to academics and practitioners alike.
The data were collected in the period from September 1995 to January
1996. This cross-sectional data is based on a sample of 2001 workplaces with
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Small firms, big ideas 143

20 or more employees covering all major ANZSIC divisions, excluding those

in forestry, agriculture, fishing and defence across all states and territories. A
more complete description of the data is provided in Morehead et al. (1997).
The focus of this study is a comparison of private sector workplaces. The
final sample used in this analysis consisted of 828 medium to large private
sector establishments (employee numbers over 100) and 138 small private
sector firms (employee numbers between 20 and 99). The data is further disag-
gregated for comparisons between medium-sized organisations (employee
numbers between 100 and 499), large organisations (employee numbers
between 500 and 4999) and very large organisations (employee numbers over
5000). This follows the classification of employment size used by Gallie, Penn
and Rose (1996).
As set out in table 1, 95 per cent of both small and medium to large firms
have undertaken their main business activity for more than two years. Small
firms tend to be relatively newer entities relative to medium and large organ-
isations. Fifty-five per cent of the principal owners tend to work at the
workplace of small firms; only 11 per cent of principal owners tend to work at
medium and large firms.
Table 2 provides a disaggregation of main industry codes by firm size.
Over 26 per cent of small firms operate in manufacturing as compared with 16
percent of medium and large firms. There is a higher representation of small
firms in the construction, manufacturing and wholesale trade industries
relative to medium and large firms.
Exploratory analysis of the industry differences among small firms within
the AWIRS sample was also conducted (see appendix 1). Fourteen industries
are represented including manufacturing, retail trade, finance and insurance,
construction, and health and community services. Some industry differences
among small firms concerning the adoption of HRM practices and workplace
innovations do emerge, particularly in terms of staff appraisal, bonus arrange-
ments, performance based pay and formal selection procedures. These differ-

Table 1 Organisational characteristics of small and medium to large firms

Small firms Medium and large

Characteristics (n = 138) firms (n = 827)

Manufacturing dummy (%) 39.1 54.5**

Head office in Australia 79.0 71.9
Time workplace undertaken main activity (< 2 years) 5.1 5.3
Principal owners at workplace 55.0 10.7**
Year began operating at this address (year) 1979 1972**

Significant at *p < 0.05, **p < 0.01

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144 Asia Pacific Journal of Human Resources 2005 43(1)

Table 2 Industry code descriptive statistics

Small firm (%) Medium and large

Industry code (n = 172) firm (%) (n = 1497)

Mining 5.8 3.9

Manufacturing 26.2 16.1
Electricity, gas and water 9.3 14.2
Construction 9.3 2.6
Wholesale trade 10.5 4.0
Retail trade 9.8 5.8
Accommodation/restaurants 2.9 3.5
Finance and insurance 4.1 6.1
Property and business services 7.0 5.6
Government administration 5.2 8.0
Education 2.3 8.8
Health and community services 2.3 8.6
Cultural and recreational services 6.4 3.0
Personal and other services 2.9 5.9

ences may suggest that context plays an important role in shaping the HRM
practices within these firms.

Method
The first stage of the investigation involves Chi-square and ANOVA tests
between small, medium and large firms on a selection of control variables,
formal HRM and workplace innovation variables. The second stage of the
investigation involves the use of logistic regression analyses using SPSS
software version 11.0 to examine the impact of firm size on the uptake and
character of HRM techniques, incentive structures and managerial attitudes.
The dependent variable is small firm or otherwise. The model calculates the
effect of HRM practices on the probability (or odds) that the organisation is a
small firm. The use of logistic regression analysis is deemed appropriate since
the dependent variable – firm size – is coded as a dichotomous variable
(Maddala 1983), as were the independent variables (see appendix 2).

Results

HRM and workplace innovations

The variables chosen reflect HRM functions and policy areas affecting awards,
and individual contracts. The formal HRM functions included in the logis-
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Small firms, big ideas 145

tical regression analysis are training and development procedures, recruitment

and selection procedures, occupational health and safety arrangements,
grievance procedures and remuneration policies. Furthermore, the use of
workplace innovations indicating the presence of semi-autonomous groups,
the use of skills audits, the presence of team-building in the firm, suggestion
schemes, joint consultation, employee representatives on the boards of manage-
ment and TQM have been used in the analysis. To illuminate the importance
of HRM policies that individualise the employment relationship, the extent of
individual contracts used within the firm is also examined. Appendix 2 sets
out the variables used in the logistic regression analyses.
Table 3 illustrates the use of HRM practices in small and medium to large
organisations. The key finding that emerges from the table 3 is that small firms

Table 3 Cross-tabulation statistics

Small firm (%) Medium and large

Variable (n = 138) firm (%) (n = 828)

Recruitment and training strategies

Formal training scheme 52.9 73.8***
Supervisory training 54.4 79.7***
Skills audit 24.6 40.0***
Formal selection procedure 32.6 62.6***
Staff Appraisal 46.4 72.6***
Workplace innovations
Team-building 35.5 56.6***
Semi-autonomous work groups 21.7 32.9***
Quality circles 15.2 19.0
TQM 36.2 46.0**
Humanising practices
OH&S policy 60.1 90.3
OH&S committee 26.8 57.9***
Affirmative action 29.4 67.4**
Suggestion schemes 23.9 34.5**
Grievance procedure 45.3 82.1***
Joint consultative committee 22.5 40.0***
Employee reps on management board 13.8 6.3***
Daily walk around by management 91.3 87.0
Incentive structures
Individual contracts 63.8 61.8
Bonus arrangement 36.2 52.7***
Performance based pay 50.0 50.7
Strategic HRM
Plan for corporate goals 74.6 88.8***
Corporate ethic 89.9 94.5**
Resource for HRM 90.6 91.3
Employer association
Employer association member 77.5 75.7
Union presence
Union 44.9 80.1***

*p < 0.10; **p < 0.05; ***p < 0.01

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146 Asia Pacific Journal of Human Resources 2005 43(1)

tend to utilise HRM to a lesser extent (most variables p < 0.001). This is evident
across the breadth of HRM practices, including formal training, recruitment
and selection procedures, humanisation practices, and workplace innovations,
such as team-building programs, TQM and semi-autonomous work groups.
However, in terms of workplace governance structures, both small and
medium to large firms reported similar use of individual contract provisions
and performance-related pay at the workplace. Small firms did report a higher
presence of employee representatives on managerial boards.
The results of the logistic regression analyses are presented in table 4.
Small firms are regressed against medium to large firms as the primary focus
of the investigation. A further exploratory analysis was also undertaken,
regressing small and medium-sized firms (excluding large and very large
firms), small and large firms (excluding medium and very large firms) and
small and very large firms (excluding medium and large firms). Results of
model 1 (small firms versus medium to large firms) reveal that small firms are
less likely to utilise bonus arrangements for employees, formal staff appraisal
and evaluation, formal selection procedures for employees and employee repre-
sentatives on the managerial board. Small firms are also less likely to have a
written policy on occupational health and safety, and an occupational health
and safety committee. The results of the analysis also indicate that small firms
are less likely to have a formal grievance procedure concerning sexual and
racial harassment and less general grievance procedures relative to medium
and large organisations. Proposition 1 is largely supported, as small firms are
less likely to use key aspects of formal HRM.
In model 2 (small firms versus medium-sized firms), the results illustrate
fewer statistically significant differences between the two groups. Small firms
tend to be less likely to utilise bonus arrangements for employees, have
employee representatives on managerial boards, have an occupational health
and safety committee, and possess written grievance procedures relative to
medium sized organisations. Small firms are more likely to utilise individual
contract provisions relative to medium-sized organisations.
In model 3 (small firms versus large organisations), the results largely echo
model 1, with the exception of performance-related pay, which is more likely
to be utilised in small firms. Suggestion schemes are less likely to be used in
small firms.
In model 4 (small firms versus very large firms) the results indicated
similar HRM patterns to model 3. Again these results provide support for the
notion that organisational size is an important determinant of the adoption of
HRM.
The results of the logistic regression analysis indicate an interesting
phenomenon – there are no statistical differences between small firms and
medium to large firms (i.e. models 1, 2, 3 and 4) concerning workplace inno-
vations such as skills audits, semi-autonomous work groups and total quality
management. Despite the apparent fervour for workplace innovations, small
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Small firms, big ideas 147

Table 4 Influence of firm size on HRM philosophy and attitudes towards HRM

Model 1 Model 2 Model 3 Model 4

Variable Odds ratio Odds ratio Odds ratio Odds ratio

Strategic HRM
Plan for corporate goals 0.440*** 0.606* 0.364*** 0.403**
Corporate ethic 0.715 0.790 0.512 0.305**
Resource for HRM 1.550 1.286 1.700 1.820
Supervisory training 0.365*** 0.380*** 0.349*** 0.378***
Employer association
Employer association
member 1.361 0.671 1.700** 3.56***
Union presence
Union 0.216*** 0.435*** 0.153*** 0.091***
Effective sample size 942 354 708 299
–2LL 668.93 429.87 599.15 373.89
Chi-square 108.83 41.71 133.62 138.11
Psuedo R-square
(%) (Nagelkerke) 19.4 15.1 27.6 40.5

*p < 0.10; **p < 0.05; ***p < 0.01

Note: an odds ratio > 1 indicates a positive result; < 1 indicates a negative result.

firms were significantly less likely to take up the fundamental tenets of HRM
(Legge 1995; Guest 1987; Walton 1985; Boxall and Dowling 1990), such as
formal recruitment and selection and performance management systems.

Organisational strategy and HRM philosophy

The AWIRS 1995 data contains a number of questions concerning organisa-
tional strategy, management perceptions concerning strategic goals, devotion
of resources to HRM and the development of a corporate ethic. Union
presence, membership of an employer association, and whether managers
responsible for HRM and employee matters received training, were used to
explore the HRM philosophy.
Results of logistic regression analyses are reported in table 5. The results
partially support proposition 2. Model 1 and model 2 indicate that small organ-
isations are less likely to invest in developing formal corporate goals and
provide training for managers responsible for HRM and employee matters.
Small firms are less likely to have a union presence at the workplace. The
results of model 3 suggest similar patterns to the above models, with the
exception of small firms having a higher likelihood of membership to
employer/industry associations. Model 4 indicates similar patterns to that of
model 3. Small firms are also less likely to devote resources to developing a
corporate ethic relative to very large firms.
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148 Asia Pacific Journal of Human Resources 2005 43(1)

Table 5 The influence of firm size on the adoption and character of HRM practices and
workplace innovations

Model 1 Model 2 Model 3 Model 4

Variable Odds ratio Odds ratio Odds ratio Odds ratio

Recruitment and training

strategies
Formal training scheme 0.999 0.999 1.000 0.998
Skills audit 1.001 1.000 1.000 1.002
Formal selection procedure 0.995** 0.997 0.991 0.991***
Staff Appraisal 0.996* 0.998 0.994** 0.993**
Workplace innovations
Team-building 0.997 1.000 0.998 0.997
Semi-autonomous work groups 0.999 0.998 1.000 1.004
Quality circles 1.001 1.000 1.000 0.999
TQM 1.003 1.001 1.002 1.001
Humanising practices
OH&S policy 0.994** 0.999 0.986*** 0.984***
OH&S committee 0.995* 0.992*** 0.993** 0.989***
Affirmative action 0.993*** 0.999 0.988*** 0.985***
Suggestion schemes 0.998 1.000 0.995* 0.996
Grievance procedure 0.468*** 0.470*** 0.418*** 0.456**
Joint consultative committee 0.999 0.996 0.996 0.997
Employee reps on management
board 1.009*** 1.006* 1.016*** 1.011**
Daily walk around by management 1.005 1.004 1.005 1.010**
Incentive structures
Individual contracts 1.004* 1.006** 0.998 0.993**
Bonus arrangement 0.992*** 0.994** 0.993** 0.993*
Effective sample size 947 358 708 398
–2LL 575.31 410.692 453.54 303.18
Chi-square 200.43 63.747 236.34 206.66
Psuedo R-square (%)
(Nagelkerke) 34.1 22.2 45.6 56.1

*p < 0.10; **p < 0.05; ***p < 0.01

Discussion and conclusions

The central finding of this study is that small Australian firms are less likely
than medium or large firms to utilise formal HRM practices. Despite the
apparent lack of resources, management training and formal strategic
planning among small firms, these entities are eagerly adopting and experi-
menting with a host of workplace innovations. Preliminary evidence also
suggests that there may be a wide disparity of industry differences in the
adoption of HRM practices in small Australian firms. This paper confirms the
anecdotal evidence of the adoption of formal HRM practices and policies
among small firms in Australia. This paper also provides practitioners and
academics with information about the adoption and issues surrounding the
adoption of HRM and workplace innovations among small firms in Australia.
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Small firms, big ideas 149

In a dynamic domestic and global environment, the ability to compete

effectively is crucial for small firms. The great challenge for small firms is to
balance both formal and informal mangement practices to be able to compete
effectively in the marketplace. The low adoption of humanising practices, for
instance, OH&S committees, affirmative action policies, suggestion schemes
and joint consultation committees (as presented in the cross-tabulations)
among small firms relative to medium and large firms may mean that some
managers in small firms are ignoring participative HR practices. Evidence
suggests that these practices can contribute to greater effectiveness in the
marketplace (Arthur 1992; Huselid 1995). Wiesner and McDonald (2001)
found similar patterns among Australian SMEs.
The results of this paper highlight the urgent need for greater research in
this area and lead to many important questions. Within the literature there
appears to be the emergence of an important debate concerning the issue of
formal versus informal HRM practices. The formalisation of key personnel
techniques must not over-shadow many of the key advantages of managing in
small firms (e.g. open communication and flexible deployment of labour).
These results pose an interesting issue in terms of the relationship between
formal HRM techniques and workplace innovations. Given that small firms
are utilising workplace innovations and not utilising formal HRM practices,
what are the possible factors that account for this phenomenon? Are managers
in small firms being influenced by managerial fads? Where and how are small
business owners/managers learning these techniques? What is the role of
employer associations in informing their members of the importance and intri-
cacies of HRM? Furthermore, are there implications for organisational
performance? Based on these results, further research may prove useful in
exploring the formalisation of strategic planning and subsequent relationships
with HRM. Are firms adopting HRM systematically and strategically or are
they adopting it in an ad hoc manner? Moreover, what is driving the adoption
of strategic HRM – industry, context, owner attitudes, and/or trade union
presence?
Greater research needs to be carried out in the area of HRM and its
impact on organisational performance. To date, very few studies, particularly
in Australia, have investigated the impact of HRM on organisational perform-
ance (Drago 1996). This is problematic as HRM may be seen as a cost centre.
Industry differences in the adoption of HRM highlight some important
issues for future research. ‘Large firm’ HRM may not be desirable nor possible
within the small firm context. As suggested above, research into HRM within
small firms does need to be tailored to suit the contextual circumstances of
these organisations (Bartram and Cregan 2001). Jackson, Schuler and Carlos
Rivero (1989) argued that, rather than evaluating the relative effectiveness of
one type of practice over another, researchers should examine different ways
that organisations manage their resources. They maintained that – there is ‘no
“one best way” to management an organization’s human resources … over
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150 Asia Pacific Journal of Human Resources 2005 43(1)

time, organizations evolve practices that fit their particular situation’ (Jackson,
Schuler and Carlos Rivero 1989, 782).
The relatively low adoption of many key aspects of HRM among small
firms does warrant some concern among practitioners, employees and
academics, particularly in the face of growing evidence that HRM is associ-
ated with the improvement of employee welfare and performance, as well as
key organisational performance indicators. Further research in the use of
HRM in small Australian firms is of critical importance, if we are to unlock
its potential employee and organisational benefits.

Timothy Bartram (PhD, La Trobe) is a Lecturer in the School of Business, La Trobe University. His
research interests include the practice of HRM in unionised settings, HRM in small firms, HRM in the
public health sector and high performance work systems.

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 APJHR_43_1_Bartram.qxd
Appendix 1 Industry and HRM practices among small firmsa

A B C D E F G H I J K L M N
Variable n = 10 n = 45 n = 16 n = 16 n = 18 n = 10 n=5 n=7 n = 12 n=9 n=4 n=4 n = 11 n=5

Recruitment and training strategies

31/01/2005
Formal training
scheme 50 40 68.8 43.8 55.6 50 60 85.7 58.3 33.3 0 100 45.5 8
Supervisory training 60 41.9 43.8 75 55.6 50 100 57.2 66.7 55.6 100 50 54.5 60
Skills audit 40 28.9 31.3 37.5 22.2 10 20 28.6 16.7 33.3 25 25 9.1 20
Formal selection
procedure 20 26.7 31.3 25 55.6 40 40 57.1 41.7 88.9 75 50 63.6 80**
Staff appraisal 60 26.7 43.8 43.8 61.1 30 60 85.7 91.7 77.8 50 25 63.6 40***
Workplace innovations

3:37 PM
Team-building 50 31.1 31.3 31.3 38.9 50 60 71.4 25 11.5 25 50 36.4 20
Semi-autonomous
work groups 20 24.4 25 18.8 16.7 10 20 42.9 25 0 0 2 18.2 20
Quality circles 10 24.4 6.3 25 11.1 10 0 0 16.7 0 0 0 18.2 0
TQM 20 35.6 37.5 62.5 22.2 40 60 14.3 50 0 50 75 27.3 0**

Page 153
Humanising practices
OH&S policy 70 60 68.8 87.5 55.6 60 40 42.9 41.7 100 100 100 72.7 40*
OH&S committee 40 37.8 50 37.5 16.7 55.6 25 0 33.3 10 0 0 0 29**
Grievance procedure 50 38.6 50 31.3 55.6 60 60 57.1 58.3 88.9 75 50 54.5 60
Suggestion schemes 20 28.9 37.5 12.5 27.8 50 20 14.3 16.7 11.1 25 0 27.3 0
Affirmative action 20 20 31.3 31.3 38.9 20 40 57.1 50 75 100 66.7 40 60**
Joint consultative
committee 20 26.7 37.5 43.8 38.9 0 20 0 33.3 0 50 0 18.2 60*
Employee reps on
management board 0 6.7 0 0 38.9 30 40 14.3 33.3 0 50 0 0 0***
Daily walk around

Small firms, big ideas

by management 90 93.3 81.3 87.5 100 100 100 71.4 83.3 55.6 100 100 90.9 100*
Incentive structures
Individual contracts 40 68.9 87.5 68.8 55.6 80 80 85.7 25 66.7 100 100 81.8 80**
Bonus arrangement 30 17.8 25 25 72.2 50 20 71.4 50 33.3 0 4 27.3 20***
Performance based
pay 40 33.3 37.5 37.5 72.2 50 20 100 75 33.3 25 0 36.4 40***

a All results in percentages; n = 172; *p < 0.10; **p < 0.05; ***p < 0.01
A Mining D Construction G Accommodation, cafes and I Property and business services L Health and community services
B Manufacturing E Wholesale trade restaurants J Government administration M Cultural and recreation services
C Electricity, gas and water supply F Retail trade H Finance and insurance K Education N Personal and other services

153
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154 Asia Pacific Journal of Human Resources 2005 43(1)

Appendix 2 Definitions of variables

Survey
Variable variable Operationalisation

Dependent variable
Establishment size BB17 1 = 20–99 employees
0 = Otherwise
Independent variables
Recruitment and training strategies
Formal training scheme CA17A 1 = Formal training scheme in place
0 = Otherwise
Supervisory training CA9 1 = Supervisors receive training in employment relations
0 = Otherwise
Skills audit CA17D 1 = Skills audit in place
0 = Otherwise
Formal selection procedure CC2 1 = Formal written selection procedure in place
0 = Otherwise
Staff Appraisal CA17E 1 = Formal staff appraisal/evaluation scheme in place
0 = Otherwise
Workplace innovations
Team-building CA17G 1 = Team-building in place
0 = Otherwise
Semi-autonomous work groups CA17C 1 = Semi-autonomous work groups in place
0 = Otherwise
Quality circles CA17F 1 = Quality circles in place
0 = Otherwise
TQM CA17H 1 = TQM in place
0 = Otherwise
Humanising practices
OH&S policy CJ1 1 = Written policy on OH&S
0 = Otherwise
OH&S committee CJ4 1 = Specialist OH&S committee in place
0 = Otherwise
Affirmative action CL10 1 = Formal grievance procedure for sexual and ration
harassment
0 = Otherwise
Suggestion schemes CD1B 1 = Employee suggestion schemes
0 = Otherwise
Grievance procedure CB17 1 = Written grievance procedure
0 = Otherwise
Joint consultative committee CD7C 1 = Joint consultative committee
0 = Otherwise
Employee reps on management board CD30 1 = Employee reps on management board
0 = Otherwise
Daily walk around by management CD1A 1 = Daily walk around by senior managers
0 = Otherwise
Incentive structures
Individual contracts CG8 1 = Workers on individual contracts
0 = Otherwise
Bonus arrangement CA17B 1 = bonus arrangement in place
0 = Otherwise
Performance based pay CM1 1 = Non-management receive performance based pay
0 = Otherwise
Strategic HRM
Plan for corporate goals BD17 1 = Management plan for corporate goals
0 = Otherwise
Corporate ethic BE1A 1 = Organisation devotes time to developing corporate
ethic
0 = Otherwise
Resource for HRM BE1F 1 = Organisation devotes resource to managing people
0 = Otherwise
Employer association
Employer association member CA11 1 = Member of employer association
0 = Otherwise
Union presence
Union CN1 1 = union member at this workplace
0 = Otherwise