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
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
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
9. Making training classes or seminars available
to employees on a regular basis (at least
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,
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,
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
SUMMER 1993 VOLUME XII NO. 2
COLLEGE OF BUSINESS ADMINISTRATION