Perceptions of the Value of Human Resource Management Practices

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					Perceptions of the Value of
Human Resource Management
Practices by Entrepreneurial
Small Business Owners

R.D. Gulbro                                    been growing in size and number,         with growth, entrepreneurs need
 and                                           they also have been failing. The         to enlist the help of others in order
                                               failure rate has been said to exceed     to achieve success and avoid fail-
 M.B. Marker                                   fifty percent during the first five      ure. According to research, those
Assistant Professors                           years of business life (Gaedeke and      who can best obtain this help also
 Department of Management                      Tootelian, 1985; Hofer and               tend to achieve the most success
 Jacksonville State University                 Sandberg, 1987). Research has            (Hay and Ross, 1989).
                                               uncovered many factors contribut-          Because by recruiting, selecting, and
Abstract                                       ing to the failure of small firms, but   retaining new employee entrepreneurs
                                               a lack of management skills ap-          are important to the economy by cre-
    It has been said that sound human re- pears to be at the top of the list            ating jobs.
 source management programs and prac-          (Peterson, Kozmetsky and Ridgway           They must have sufficient staffing
 tices contribute to small business success. A 1983).                                   skills to attract and retain the kind of
 survey of small business owners as to their      What management problems do           employees who can make a positive
perceptions of the value of their HRM prac- entrepreneurs have? Is the entre-           contribution to the success of the grow-
 tices found a significant difference between preneur any different than any            ing firm. The search, selection, and
 owners who had started their business and     other manager? According to cur-         motivation practices employed should
 those who had not. The perceptions of the rent research, the entrepreneurial           provide people who will help the firm
non-entrepreneurial owners were higher firms is unique. An entrepreneur-                survive the stresses placed upon it by
 than the entrepreneurs. Because of the im- ial venture is characterized by in-         the growth process. The entrepre-
portance of employees to the success of novation, growth, and the creation              neur therefore must have human
growing firms, and the need for morejobs by of new goods, methods or markets.           resource management skills and
 the economy, suggestions for future policies Entrepreneurs therefore are in-           must utilize human resource man-
are provided.                                  volved in starting or expanding new      agement practices that will staff
Introduction                                   enterprises that aid the economy         the new enterprise with productive
                                               by providing jobs for others. Man-       employees. The HRM practices
    Small business start-ups and agement of these growing firms                         employed by the entrepreneur
growth accounted for almost half could include many problems that                       would thus collectively contribute
of all the jobs created in the United the entrepreneur is unprepared to                 to the organization through the
States during the 1980s. Small solve.                                                   behavior and the performance of
businesses therefore played a ma-                 Finding scarce resources and          the employees (Kleiner etal., 1987).
jor role in prolonging the economic dealing with problems as they oc-                     A recent article on small busi-
growth that occurred during that cur may limit the managerial effec-                    ness problems thoroughly dis-
period and thus demonstrated their tiveness of the entrepreneur. To                     cussed ways to improve the chances
importance to the future of this deal with problems of scarcity and                     for new venture success (Hofer and
country. Although small firms have

52                                                                                                         BUSINESS REMEW
 Sandberg 1987). The article in-         Schuler, 1990). Can we assume          pline (Questionnaire included to
 cluded several assumptions about        that entrepreneurs utilize and ap-     assist the review process).
 entrepreneurs: that they seek to        preciate the value of HRM prac-           The owners were asked to rate
 get the best people for the job, that   tices? How do other small business     (on a scale of 1 to 7), their percep-
 they share the rewards of success,      owners compare to entrepreneurs?       tion of the contribution made by
 and that they create an encourag-                                              each of the thirteen HRM practices
                                         The Study
 ing climate for employees. Can we                                              to the success of their particular
 be sure that these assumptions             To find answers to these ques-      firm. Other research has shown
 about entrepreneurs are correct?        tions, small business owners were      that this type of subjective percep-
Are entrepreneurs people-oriented        surveyed and asked to respond to       tual response can be a substitute
 and employee-oriented? Do they          questions about the value of their     for quantitative data (Dess and
 have HRM skills and the knowl-          firms' HRM practices.                  Robinson, 1985; Smith etal., 1989).
 edge to put HRM practices into          Methodology                            Results
 effect in their growing firms? These
 actions on the part of the entrepre-       A homogeneous, single-state da-        Although the survey had a 30
 neur would be important because         tabase (Alabama Directory of Min-      percent response rate, only 152
 of the part the employees play in       ing and Manufacturing) was used        questionnaires were completed
 the overall success or failure of the   to obtain a sample of firms for the    properly by independent small busi-
 small growing business.                 survey. Research has shown that        nesses and were included in the
   Since small firms employ fewer        firms within a single state all face   analysis. The replies were divided
 people, each employee is a signifi-     similar laws, taxes, and proximity     into two groupings. All respondents
 cant part of the firm. Each em-         to markets (Cochran, 1981; Gomez-      answering 'Yes1 to a question about
 ployee could interact with custom-      Mejia, 1987). Using small busi-        being involved in the start up of
 ers and other employees and could       nesses from a single state would       their firm were classified as "Entre-
be called upon to make decisions         therefore help eliminate many ex-      preneurs." All respondents giving
 having long-term effects on the firm.   traneous variables. Manufacturing      'No 1 answers were classified as
This makes subordinate employ-           firms were chosen because it was       "Non-entrepreneurs." The ratings
ees important to the positive out-       assumed that small manufactur-         for the HRM practices by each owner
comes desired by the entrepreneur.       ers would be somewhat labor in-        were summarized to obtain an over-
It also makes HRM skills and prac-       tensive and would have HRM pro-        all rating score for the HRM 'cli-
tices important to the entrepre-         grams and practices of some sort       mate' at each firm. The summated
neur and to the success of the firm.     already in use. The sample was         scores (Spector, 1992) would thus
   Many small firms are growing,         chosen systematically (by com-         provide a measure of the overall
developing, and struggling with          puter) and each firm was mailed a      perception of HRM practices by that
roadblocks and constraints to their      two-page questionnaire. The own-       owner. A score would be a mea-
success and survival. They desper-       ers were asked both demographic        sure, from the perspective of the
ately need employees who are ca-         questions and questions about their    owner, of the collective effect of the
pable of growing and changing and        perception of the value of their       HRM practices upon the employ-
adapting as the firms evolve. How        HRM practices to their particular      ees and the firm (as described by
can the entrepreneur create a cli-       firm. The HRM questions were de-       Kleiner etal., 1987).
mate of encouragement for these          rived from basic HRM practices           A comparison of the result is
employees? Is the entrepreneur           found in current textbooks (see for    shown in Table 1. The means were
capable of developing this climate       example, Schuler 1990). The list of    compared using T-Tests, and the
for success? How can the entrepre-       practices was reduced to thirteen      difference in the average responses
neur find the best people for the        to encourage responses. The re-        of the two groups was statistically
job? How can the entrepreneur            sultant thirteen practices provided    significant (p = .05). The Non-en-
manage the firm's growth efficiently     a wide variety of separate HRM         trepreneurs rated their perception
and effectively? One important           practices. These areas ranged from     of the contribution of their HRM
method is through the develop-           employee search to hiring to disci-    practices much higher than the
ment and implementation of good                                           Table 1
HRM practices. Many writers have                           Type of     Involved      Years in      Average  #
emphasized the importance and                              Business     in Start     Business      Rating Firms
impact these practices have on the       Non-entrepreneurs Mfg            No           26             71       107
successful performance of small          Entrepreneurs     Mfg            Yes           16            66       45
business (Aziz and Anderson, 1986;
Hambrick and Crozier, 1985;


UNIVERSITY OF CENTRAL OKLAHOMA                                                                                   53
Entrepreneurs.                            In this study, the non-entrepreneur-    knowledge of the local situation to
Discussion                                ial firms were older. With the firms    deal with needs as they arise. Local
   The difference between the two         being older and therefore perhaps       help could be tailored to the deficien-
groups (as found in Table 1) could        more established, the non-entrepre-     cies of each entrepreneur. Without
have been obtained for a variety of       neur may have had more time to          definite public policies addressing
reasons. The difference may be ex-        evaluate contributions to the firm      and solving entrepreneurial prob-
plained as a difference between en-       made by management activities and       lems, the business sector will con-
trepreneurs and other small busi-         practices.                              tinue to have too many small busi-
ness owners in their perceptions of          If starting or growing the firm is   ness failures. The opportunity cost of
the value of people, in the percep-       important to the economy, then en-      lost jobs and wasted resources can
tions of the value of HRM practices,      trepreneurs are the most important      no longer be afforded if we are to
or in their knowledge of human re-        of all business owners. Given that      continue to compete with the rest of
source management itself.                 importance, the difference between      the economic world.
   If an owner rated the perceived        the two scores indicates that the          Given the small size of the sample,
value of HRM practices higher than        entrepreneur may need help in the       and that it was drawn from a single
another owner, it could be because        management and the staffing of the      state, means that any interpretation
human resource management was            growth enterprise. In order to help      of the data may be generalized only
emphasized or stressed more highly        entrepreneurs succeed, management       with a great deal of caution. However,
in the day-to-day activities at that      assistance on techniques, methods,      further investigation of the manage-
firm. The owner who gave high val-        and ways to implement good human        ment skills and practices of entre-
ues to HRM might have been more           resource management practices may       preneurs is needed to help shed more
involved with the implementation of      have to be provided. Understanding       light on the entrepreneurial process
those practices. If the HRM practices    basic HRM practices is a learned         that is so necessary to our economy.
were important to an owner, the          behavior that should not occur           Selected References
employees could have recognized this     through trial and error. It cannot be
importance and responded to the           assumed that entrepreneurs are ex-      (1) AlabamaManufacturing andMin-
emphasis with a more productive          perts at starting or managing a small          ing Directory 1989-1990
work effort. The outcome would be        business. This research indicates that   (2) Aziz, A., and R. Anderson, "Per-
better firm performance. The owner       the entrepreneur needs our help in             sonnel Policies in Small Busi-
would see the improved performance       the staffing process and in dealing           ness," Proceedings (Southern
of the employees and the firm and        with people within the firm. More             Management Association, 1986),
would have the high perceptions of       assistance should be provided by               177-79.
the HRM practices reinforced. The        schools and universities, by cham-       (3) Cochran, A.B. "Small Business
HRM practices thus would become          bers of commerce, and also by gov-            Mortality Rates: A Review of the
an extension of the beliefs and per-     ernment agencies. Public policies             Literature," Journal of Small
ceptions of the owner.                   should be implemented that address            Business Management (October
   Perhaps the entrepreneurs are fo-     the creation, the growth, and the              1981), 50-59.
cused on being creative, on finding      success of small business entrepre-      (4) Dess, G., and R. Robinson, Jr..
financial resources, or on interacting   neurs. The economic future of our             "Measuring Organizational Per-
with customers since they were in-       country demands that this process             formance in the Absence of Ob-
strumental in starting their own         not be left to chance.                       jective Measures," StrategicMan-
firms. The idea, the fledgling firm,        Although broad public policies             agement Journal (1984), 265-
and making the most of a "window of      must originate at the federal or state        73.
opportunity," may preoccupy the          government levels, all assistance pro-   (5) Gaedeke, R.M., and D.H.
entrepreneur's thoughts, plans, and      grams of a public nature should be            Tootelian. Small Business Man-
activities. The extra assistance that    implemented and directed at the lo-           agement 2nd ed. (Glenview, IL:
subordinate employees could offer        cal level whenever possible. The needs        Scott-Foresman & Co., 1985).
may not be available in the entrepre-    of the entrepreneur can best be met      (6) Gomez-Mejia, Luis R. "The Role
neurial firm because a climate of        by local funding, local supervision,          of Human Resources Strategy
encouragement is missing.                and local follow-up. Most entrepre-           in Export Performance: A Longi-
   These results may indicate that       neurs have time and resource limita-          tudinal Study," A paper pre-
non-entrepreneurs have a better          tions that can not be understood or           sented at the Academy of Man-
understanding of good management         corrected by a federal bureaucracy.           agement Conference (New Or-
practices and how to better manage       Local institutions would have the             leans, 1987).
a small business than entrepreneurs.     flexibility, the presence, and the       (7) Hambrick, D.C., and L.M. Cro-



54                                                                                                  BUSINESS REVIEW
     zier. "Stumblers and Stars in
                                                     Human Resource Management Practices Survey
     the Management of Rapid
     Growth," Journal of Business        Using the scale to the right, please       7 very important
      Venturing (Winter 1985), 31-45.    rate each of the HRM practices below       6 important
 |B) Hay, R.K., and D.L. Ross, "An       relative to its importance to the sue-     5 somewhat important
     Assessment of Success Factors       cess of your firm, If, for example, you    4 neither important nor
     of Non-Urban Start-Up Firms         feel that the practice is "very impor-       unimportant
     Based Upon Financial Charac-        tant" to the success of your firm,         3 somewhat unimportant
     teristics of Successful Versus      then place a "7" in the blank pertain-      2unimportant
     Failed Firms," Frontiers ofEntre-   ing to that practice.                      1 very unimportant
     preneurship Research (1989)
      148-159.                            1. Using a full-time person to administer the
  91 Hofer, C.W., andW.R. Sandberg.          Human Resource Management program.
      Improving New Venture Perfor-
     mance: Some Guidelines for Suc-      2. Making written job descriptions available to
     cess," American JoumalofSmall           employees for each job.
     Business (Summer 1987), 11-
     26.                                  3. Following a step by step formal procedure to
  0) Peterson, R., G. Kozmetsky, and         socialize new employees into the company.
     N.M. Ridgway. "Perceived
     Causes of Small Business Fail-       4. Using current employees to fill jobs with
     ures: A Research Note," Ameri-          greater responsibilities whenever possible
     can Journal of Small Business           (promotion from within).
     (July-September 1983), 15-19.
 .1) Schuler, R.S. Personnel and          5. Using more than one method/media when
     Human Resource Management               searching for new employees (newspapers and
     4th Ed., (St. Paul, MN: West            employment search firms, for example).
     Publishing Co., 1990).
                                         6. Realistically describing the job to prospective
                                            employees to aid in the recruiting and selection
                                            process.

                                          7. Basing the wage or salary assigned to each job
                                             on a market value.

                                         8. Using formal performance evaluations/ap-
                                            praisals to employees once a year for each
                                            employee.

                                         9. Making training classes or seminars available
                                            to employees on a regular basis (at least
                                            yearly).

                                         10. Stressing safety for all employees and holding
                                             regular monthly meetings to discuss safety.

                                         11. Resolving employee grievances with a formal
                                             and publicized method (an open door policy,
                                             for example).

                                         12. Using progressive discipline in a program
                                             which applies to all employees.




UNIVERSITY OF CENTRAL OKLAHOMA                                                                                55
13 Keeping all employees informed of company
   progress with periodic meetings or other types
   of communication (at least monthly).

14. Other human resource tools/practices used by
    your firm (please list and rate):




Please respond to each of the following questions. (Complete
confidentiality is assured). Underline the correct answer or fill
in the blank.
1. Type of business - manufacturing, service, processing,
    other?

                      Product(s) produced:

                      Standard Industrial Classification
                       (SIC code) if known:

2. Position/title with this firm - owner, general manager,
   human resources manager, other?

3. Is this organization a subsidiary, a division, or in some way
   owned by another firm?

4. Total number of employees in your organization.

5. Number of years for the firm to be in this business?

6. Gross sales from your last year's income statement?

Thank you for your assistance. If you are interested in receiving a
summary of the results of this survey, please include your name
and address on a separate sheet of paper. This will maintain the
confidentiality of your response.




56                                                                    BUSINESS REVIEW
Central
Business
Review
SUMMER 1993 VOLUME XII NO. 2




  University of
Central Oklahoma
COLLEGE OF BUSINESS ADMINISTRATION