Human Resource Management

HR in Small and Emerging Business Firms

Dr. L K @ XIM 1
SMEs – Economies - HR

• 1st: there are so many smaller firms that they make up a large proportion
of employment; and
• 2nd: because the way people are managed is regarded as central to the
competitive standing of firms and industries.

Such recognition has provoked debate about the

role of human resource management (HRM)
as a means to enhance organizational
effectiveness.

Dr. L K @ XIM 2
It’s the size of operation….

Within OECD economies, SME

businesses employ more than 60 per
cent of the labor force and generate
around 55 per cent of national gross
domestic product

Dr. L K @ XIM 3
What is an SME?
• American Small Business Administration once defined as a small to medium
sized firm if it employed fewer than 1,500 people.

• The European Commission (2015) defines SMEs as consisting of micro (less

than 10 employees), small (10-49 employees) and medium-sized enterprises
(50- 249 employees) and which have an annual turnover not exceeding €50
million.

• In Indian context, SMEs are defined in accordance with Section 7 of the Micro,
Small and Medium Enterprises Development Act, 2006 and are classified as
such on the basis of the size of investment in these sectors. 

• The threshold for investment in Small Enterprises sector ranges between 1

crore and 10 crores while the threshold of turnover ranges between INR 5 crore
and INR 50 crores. In case of Medium Enterprises, the threshold of investment
ranges between INR 10 crores and INR 50 crores while the threshold of
turnover ranges between INR 50 crores and INR 100 crores. 
Dr. L K @ XIM 4
 Family values as in
SMEs
About 69% of SMEs are family-owned
(69 per cent), with the majority managed
by first- or second-generation family
members.
In particular, the prevalence of dominant
family values is crucial in order to
understand employment relations at the
workplace level, including the ideas of a
founding owner or the ethnicity of
family-run businesses on its people
management practices (Edwards and
Ram, 2009)
Dr. L K @ XIM 5
Whether Small is
Beautiful?
• SMEs provide a better employee relations environment than larger firms.
SMEs were believed to have a more committed and motivated workforce
accompanied by lower levels of conflict.

• Earlier studies show that employees who work in smaller firms display a
high degree of satisfaction in relation to their counterparts in larger
establishments (Forth et al, 2006).

• While Wilkinson (1999) states that, employees suffer poor working

conditions, inadequate health and safety and have less access to union
representation than employees in larger establishments.

A recent observation in this regard, evinces that conflict is not

so much lacking but rather expressed through higher levels of
absenteeism and labor turnover.
Dr. L K @ XIM 6
Let’s try to glance around on
HR Practices

Dr. L K @ XIM 7
Informality and People Management
• An informal rather than bureaucratized relationships is one of the key
defining characteristics of HRM in SMEs.

• Informality, however, does not imply a particular view of the substance of

work relations: it could be associated with an autocratic as much as a
harmonious enterprise.

• In terms of HRM, informal interactions offer both the owner-manager

workers a range of advantages, such as speed of decision-making, clarity
of instruction and opportunities for employees to voice their ideas and
concerns.

• It also seems probable that many managers in SMEs recognize the need
for policy to control employees, but these are often used in tandem with
informal relations.

Dr. L K @ XIM 8
Recruitment and Training in SMEs
• For recruitment of new staff in SMEs is via closed and responsive
methods that rely on informal networks (Carrol et al, 1999).

• According to Forth et al. (2006), very few SMEs monitor their

recruitment methods with regard to equal opportunities.

• Many owner managers are either ‘ignorant’ of the softer people skills
such as training, or they are too busy and pre-occupied with ‘getting
the products out the door’ that they have little time to consider
training needs in a coherent manner.

• SMEs have a different approach to recruitment and training than larger

organisations. It is an approach that is less formal and based on
owner-manager views about what is appropriate for the business at a
particular time

Dr. L K @ XIM 9
Trade Union Membership and
Employee Participation
• Union membership among SMEs is much lower than in larger
organisations as owner-managers are less likely to recognize a union for
bargaining purposes.

• Given the absence of collective representation for workers employed in

SMEs, it is perhaps not surprising that most owner-managers prefer to
communicate with employees directly.

• For example, 86 per cent of managers said they would rather consult
with employees than deal with a trade union (Forth et al, 2006:45).

• While most managers (72 per cent) say they have a ‘neutral’ attitude
towards unions at their establishment, a growing proportion indicate they
either ‘actively discourage’ union membership or are ‘not in favor’
of unions.

Dr. L K @ XIM 10
Employee Communication Channels in SMEs
• For most SMEs, face-to-face meetings are the
dominant mode of communication (80 per cent
among all SMEs: 93 per cent in large firms)
while written communications are less common.

• SMEs employees tend to work together by

definition of the smaller work environment: this
is not a team as conventionally understood in
much of the mainstream literature on HRM
(Boxall and Purcell, 2015).

Dr. L K @ XIM 11
Pay among SMEs
• Only a small proportion of workers (5 per cent) have the
opportunity to discuss and negotiate their pay by collective
bargaining (Forth et al, 2006)

• Much more common are ad hoc wage payment and wage

negotiation systems which can lack transparency about what
other employees earn, even in the same firm (Gilman et al, 2015).

• Arguably, pay determination in the context of an SME is often

based on managerial ‘gut instinct’, ‘prejudice’ by owner-
managers or ‘market pressures’ at a given moment in time.

• Mmany variable pay schemes in smaller firms seem to be based

on managerial ‘gut instinct’ rather than clear systematic and
objective performance criteria (Gillman et al, 2002).
Dr. L K @ XIM 12
High Performance HR Practices in SMEs
• Initiatives such as quality and cultural change programmes
are found to be present in many SMEs but based on
informal arrangements.

• It is observed that, smaller engineering firms used various

high commitment practices such as quality audits, team
working, job rotation and communication techniques.

• Many SMEs utilize some advanced HR techniques that may

signal a degree of institutional isomorphism; that is to say,
what is believed to be good practice in larger organisations
is replicated among those SMEs that are aware of such
practice complementarity (Bacon and Hoque 2005)

Dr. L K @ XIM 13
HR Planning aspects to keep in mind….

Management succession
Attracting and retaining
between generations of
qualified outsiders
owners

HR Planning
Issues in Small
Businesses

Evolution of HR activities as Family relationships and

the business grows HR policies

14
 Working in a large company may give you the cushion
you desire as an HR manager. Meaning, if you want to
work within a large team with plenty of backup and
support, then a large company atmosphere may be for
you.

 But if you're ready for a challenge and looking for

ways to get your hands dirty and be creative, then opt
for a role within a small business.

 There's not only room for change, but there's room for
growth in a more casual, relaxed, laid back, and less
time-constrained environment. 

Dr. L K @ XIM 15