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*AN INTEGRATED HUMAN RESOURCE MANAGEMENT
FRAMEWORK FOR SMES
Hamid Reza Qasemi
(Student of PhD program in Public Management- Allameh Tabatabaee University)
[email protected]
Majid Zanjirdar
(Islamic Azad University- Arak Branch)
[email protected]
Abstract
Managing small and medium sized enterprises differs from large enterprises from
different aspects. These are from aspects in which they do how manufacturing,
investment, establishing, marketing, human resource management (HRM). HRM
practices in SMEs do not follow certain manner or model, and it is performed some of
the practices, it is not performed some others, or they have been applied without any
regards to other aspects of HRM and lack of any defined relevance. In this paper, the
purpose is description of different practice of HRM for SMEs in an integrated
framework. In this framework HRM system, as a certain component and aligned with
management of SME, helps to attain goals. For this purpose, at the first, it is reviewed
conducted researches on HRM in SMEs, then it is determined research vacuums, and
at the end, is offered an integrated HRM in SMEs.
Key words: Small and medium sized enterprises/ SMEs/ Human resource
management/ HRM/ Integrated Framework
Introduction
Human resource management (HRM) is an important sections of organizations that,
consistently with other components of it, does various practices in context of HRM till
creates comparative advantage for organizations. The large firms always have special
attention to managing their intellectual and human capital, and because it, they invest
a large amount investment on planning, training and development of their HR.
A huge part of business firms of countries is constituted by small and medium sized
enterprises (SMEs) and a high percent of countries GDP is related to performance
these firms. In compare with large firms that have allocated to themselves almost all
HRM researches and literatures, SMEs in HRM aspect, have a few share of related
theories, models, and patterns.
In one hand, because of varied number of SMEs and their role in developing
entrepreneurship, and in other hand, increasingly important of intellectual and human
capital and its role in creating comparative advantage, and also increase competition,
it is necessary to study different HRM practices in these firms, and develop their
patterns and manners. This paper attempts provide a comprehensive relatively
framework in this direction so that, offers HRM practices in SMEs in a consistent
system and in adapt with other organizational components of these firms.
١
1.
2.
3.
4.
Human Resource Management
Management process includes five basic functions that are planning, organizing,
staffing, leading, and controlling. HRM is the policies and practices involved in
carrying out the people or human resource aspects of a management position,
including recruiting, screening, training, rewarding, and appraising (Dessler, 2005).
HRM is process of attracting, developing, and maintaining a talented and energetic
workforce to support organizational mission, objectives, and strategies
(Venkateshvara, 2006). In other definition, HRM can be defined as application of
managerial principles, techniques and theories to attract, training, development and
devoting human resource to achieve organizational goals with the most efficiency and
effectiveness. On base of this definition, the manager as use as management
knowledge for planning, operations, manufacturing, and marketing, he has to apply
the knowledge on the most main organization resource, HR, and creates its
comparative advantage. Then no management function is more important than the
management of people. In Dessler's believes (2005), the manager job has different
aspects of human resource: job analysis (determining job nature of each employee);
planning for workforce needs and recruiting job candidates; selecting and hiring job
candidates; orienting and training new employees (Mentors); managing wages and
salaries (compensating employees); providing incentives and benefits; appraising
performance ; communicating (interviewing, counseling, disciplining); training and
developing managers; building employee commitment. The importance of HRM
necessitates that managers act these aspects either themselves directly or set up HRM
department in organization, and appoint an appropriate person as the HRM manager.
HRM department has four basic functions in organization (DeCenzo & Robbins,
2005):
Staffing: job analysis, human resource planning, recruitment, and selection are
the main practices for attract and staffing competent HR.
Training and development: this task includes orientation, employee training,
employee development, and career development.
Motivation: applying motivation theories and job design, performance
appraisal, rewards and compensation, employee benefits are practices which act to
purpose providing incentives for employees.
Maintenance: in this function, there are some practices such as safety and
health, communications, and labor relations.
HRM functions are carried out in forms of different practices. The practices have a
systematic trend that are started from staffing and continue to various forms of
termination and included: job analysis, job design, human resource planning,
recruitment, selection, training and development, compensation, job evaluation,
performance appraisal, safety and health, labor relations, discipline, and termination.
The mentioned practices can be place in a systematic flow as shown in figure (1).
٢
Figure (1): HRM System
Input
Output
Retain Process
1. Job analysis
6. Training &
Development
2. Job design
7. Compensation
3. HRP
8. Job assessment
4. Recruitment
9. Performance
Appraisal
5. Selection
10. Wealth & safety
12. Termination:
-
Retirement
Transfer
Resignation
Dismissal
Death
Discharge & …
11. Labor relations
Feedback
Small and Medium-sized enterprises (SMEs):
Today, SMEs are an important part of every country's economy. Although these firms
have characteristics that differ from large firms, but nobody can unseen their role in
innovation, entrepreneurship, and profitability. The most important indicator of
distinguishing SMEs from large one is number of employees. Of course there are
some contradictory views on this case but in general the firms with up 50 employees
are small enterprises, and firms with 50 through 250 employees, are medium sized
enterprises (McCartan, 2001).
A SME needs three plans: strategic plan, marketing plan, and business plan (Howe &
Bradcovich, 1995). In business plan, it should be consider three important aspects of
operation, human resources, and finance.
In SMEs, it is rate of entrepreneurship very high so that their concerns generally
consider with entrepreneurship concerns. Entrepreneurship can has had origin in
physical resources, experience, or knowledge. Also it can create by individual, group,
or organization. Types and states of entrepreneurship come from combination of
entrepreneurship origin and entrepreneur and can be indicate in figure (2).
٣
Figure (2) Types of entrepreneurship in SMEs
Entrepreneur
Individual
Group
Organization
Origin
Physical
Resources
Entrepreneurship
based on
individual
resources
Entrepreneurship
based on group
resources
Entrepreneurship
based on
organizational
resources
Experience
Entrepreneurship
based on
individual
experience
Entrepreneurship
based on group
experience
Entrepreneurship
based on
organizational
experience
Knowledge
Entrepreneurship
based on
individual
knowledge
Entrepreneurship
based on group
knowledge
Entrepreneurship
based on
organizational
knowledge
In SMEs talented, creative, and skilled people identified as source of ideas for
creating, producing, and distributing products. SMEs are an example of knowledge
based economy in which intellectual property (IP) is the main enterprise asset, and
this asset is dependent to knowledge of key people in the firm (Nordicity Group,
2004). In these enterprises, employees should be able play multiple roles, and act in
different organizational growth stages (Camp, 2000).
In SMEs it can identifiable some main areas that are: entrepreneurship, investment,
HR, related industry, finance, management (managerial knowledge), and marketing
areas. On this base, structure of a SME is constituted of components such as
purchasing, HRM, maintenance, finance affairs, engineering, top management,
quality, and operational employees (Stapelton, 2001).
The needed resources of a SME are impacted by two factors of technology and size.
Combination of these factors can make multiple states that indicate relation between
the factors to needed resources of the enterprise (Honig, 2001). In figure (3) the
modes are shown. Environment always is changing and followed by technology and
size of firms, then the needed resources change during time.
٤
Figure (3) The needed resources of SMEs in a transitional environment
High
Owner’s Formal
Education
Financial Capital
Enhanced Organizational
Expertise
Owner’s Practical
Experience
Financial Capital
Limited Organizational
Expertise
Opportunistic
High Technology
High Profit
Craftsman
Low Technology
Low Profits
Low
Small
Large
HRM Practices in SMEs
Why HRM scholars have been far from research on SMEs? Why entrepreneurship
researchers have avoided to do research on HRM issues? Perhaps the reason, for most
of the scholars, HRM is assumed a large firms phenomenon. If it is asked every
manager to define HRM, more likely he or she will speak about bureaucracy, policies,
procedures, and reports. Moreover, most of the HR researchers traditionally have
gained their data and information from a HRM department, but SMEs don't have
HRM department then there is a great dilemma for people training using traditional
paradigms of HRM. In spite of this, there are many similarities between SMEs and
large firms in sense of HRM practices. According Mills and Lavells (2006), although
HRM practices, support systems and personnel profiles in SMEs are different from
large firms but access to information technology has developed equality of practices
and function of HR in SMEs.
According to conducted researches, SMEs components include HR, marketing,
finance, infrastructure, technology and innovation, and rules (Borisov, 2007). Also the
most important SMEs indicators are HR productivity, liabilities, and profitability
(Maniolova, 2006). Two indicators of liabilities and profitability depend on HR
productivity.
The firm's size has a positive relation with HRM department, and being a business
plan has positive effect on formalization of HRM practices, and being a HRM
department in SMEs has positive relation with formalization of HRM practices (Jan,
2003). According to Jan (2003), there are four intermediary variables that can impact
on formalization of HRM practices in SMEs: the demand for HR, the supply of
financial resources, the expectations and requirements from external stakeholders, and
the CEO's perceived value of HRM practices. These variables are affected by
contextual determinants of SMEs, and provide an appropriate ground for HRM
practices in SMEs. In figure (4) is shown relation between the variables with others.
٥
On Jan's believes (2003), there is a different between HRM context and its contents.
HRM context contains role, definition, organization, and outputs, and includes being a
HRM department or HRM manager, while HRM contents work flows, reward
systems, and labor relation. Formalization of HRM practices can be as HRM contents.
Figure (4) A model of contextual determinants of HRM practices within SMEs
Contextual
Determinants
-Firm size
- Business plan
- Export
- Franchise
- Family business
-Unionization
Intermediary
Variables
-Requirement from
expectations of
external stakeholders
-Demand for HR
- Supply of financial
Resources
-Perceived value
of HRM practices
By the CEO
HRM
department
Formal
HRM
practices
One of the main challenges of HRM in SMEs is balance between formal policies and
informal culture of these firms. Since HRM formalization is a very qualitative issue,
until now, it has not been done any quantitative analysis about it (Nguyen, 2004).
According to Coetzer (2006), HRM practices in SMEs are formed affecting some
factors such as workplace culture, resources paucity, and distinguish in characteristics
of SMEs. In SMEs, HRM practices are multiple and divers. In Coetzer study, it is
determined several HRM practices in SMEs that are: attracting an effective
workforce, recruitment and selection, training, and performance appraisal. In 2000 in
USA is conducted a study on 156 SMES that was suggested recruitment, selection,
maintenance, motivation, training, development and career, compensation, benefits,
labor relations, safety and health practices for HRM in SMEs (Fall, 2000). In other
studies, are mentioned some HRM practices such as compensation and benefits,
complaint and policies, recruitment replacements, employees' assurance, employees'
management, wages and salary, recruitment and selection, termination, and job
analysis.
Andersen (2003) in his study found seven main HRM practices for SMEs. He
suggests that HRM structure and practices in SMEs are including seven main types
that are shown in figure (5).
٦
Figure (5) HR structure and some practices in SMEs
Explicit
strategy and
policy
HRresponsible
Employment
condition fixed
through
Commitment
Career
Few or non
Bookkeeper
(accountant)
Owner / CEO
Organization
Out of the
Company
Some
Executive
secretary
Bargaining
Organization
In and out of
company
Some
Chief accountant
Bargaining
Profession and
Organization
Out of the
company
Many
Managing
director
Owner /CEO
Profession
In and out of the
company
Some
HR manager
Owner /
bargaining
Profession
Out of the
company
Some
Manager
(production)
Bargaining
Company
In and out of the
company
None
Owner
Owner
bargaining
Company
?
Also Venkateshvara (2006) describes seven HRM practices for SMEs. According to
him, HRM practices include human resources planning, systematic recruitment and
selection, training and development, job analysis, performance appraisal, growth
plans and strategies, and managerial techniques such as continuous improvement,
total quality management, and benchmarking.
Integrated HRM framework
Effective HRM practices in a new knowledge-base economy gain increasingly
important because companies face to a dual challenge about need to highly trained
employees while shortage of qualified HR. This challenge is more general for SMEs,
and then it is more sensible to support HRM practices more than past.
HRM practices in SMEs are quantitatively and qualitatively different from HRM
practices in large one. Growing SMEs need to development of their HRM practices,
because they should apply a more professional approach to managing people as
increasing in their size ( Venkateshvara, 2006). But this difference isn't in kind of
HRM practices but it is in quality of application of them.
In SMEs, it is identifiable HR and jobs types. The most important these jobs are
knowledgeable jobs, managerial jobs, data and information jobs, service jobs, and
commodity jobs. In knowledgeable jobs, knowledge workers are active, in managerial
jobs, owners and managers operate, in information jobs, technicians and clerks play
roles, in service jobs, servants work, and in commodity jobs, machinery workers act
as operators.
Therefore it can assume HRM as system approach that, according figure (1), has
different practices, and can be divided into input practices, maintenance process, and
output practices.
٧
According to what is described and what is reviewed through the study in HRM area
in SMEs, it can be design an integrated and consisted framework in which place the
most HRM practices prevalent. This framework must have some characteristics:
1. It should be made on a systematic approach.
2. It should describe the type of relation between HRM and other components of the
firm.
3. It should have a strategic perspective.
4. It should consider differences between SME and large one.
In other hand, the SMEs structure mainly includes sales, HRM, maintenance
(engineering and technical affairs), financing and investment, and manufacturing and
operations. Maintenance section is responsible for balancing in and out of the firm
and takes some practices such as planning, organizing, and leading to attain it.
Financing and investment section undertakes the important task of budgeting and fund
allocation for support of entrepreneurship areas. Manufacturing and operations is
responsible for operationalize entrepreneurship aspects, and it is doing marketing
practices and market research in frame of sale section. All of the HR aspects include
formal and informal ones are do in HRM section.
Here is what should be need for make an integrated HRM framework:
1.
Determining the main and important HRM practices in a SME according to
size, technology level, type of activity, and amount of capital.
2.
Relating these practices to the main components of SME structure such as
maintenance, financing, HRM, manufacturing, and sale sections.
3.
Adapting HRM practices and the main components to environment based on a
strategic view.
According to contents above in the paper, there are several executive manners for
each HRM practices in SMEs that are mentioned in following:
1.
Recruitment and selection. This practice is applied in tow levels; managerial
and operational levels. In operational level, the main recruitment source is word of
mouth (Slade, 2005). It is used other sources as increasing firm size such as
government recruiter agencies, newspaper advertisements, and professional and
technical schools. SMEs managers prefer to select who are fully known. In
managerial level, it is rarely used sources such as the government recruiter agencies
and schools. Interview is dominant method in selection in operational level. The most
of SMEs consider candidates characteristics and qualifications, and previous
experience and employers. In managerial level, it is used some techniques for
selection such as interview, assessing conditions and characteristics of candidates, and
reference. Therefore the main used techniques for selection are informal interviews,
doing work samples by candidates, matching person to organization instead of
matching to job, and using people during an experiment period ( Coetzer, 2006).
2.
Compensation and employees welfare. The employees' welfare level in SMEs
is very low so that the complaint is high, and even many employers are unaware about
employment rights of their employees. Compensation includes more direct payments,
and doesn’t include many indirect payments. It is more attend to pay wage than
salary. Regards this, the conducted studies ( Kongtip, 2007) show that it is provided
welfare facilities such as cafeteria and place for food, medical service and so on.
3. Training and development. Researches (Jack, 2006) show that the SMEs's
employees receive training very lower than their peer in large firms. Training in
SMEs is rarely planned and usually plans in contingent. Training methods in
managerial level is in general on-the-job and as increasing firm size, it is increasingly
focus on external training for managers. Generally, in SMEs kinds of training are on-
٨
the-job, training at home, partnership training, government-funded training, and job
rotation. Employees' development generally includes training and performance
appraisal. HR development needs in SMEs (Barker, 1998) are exploring business
opportunities, evaluating business ideas, and protecting ideas and intellectual
property; marketing basics, market research, sales forecasting, and business
promotions; business finance, equity financing, long term and short term debt
financing, and alternative sources of financing; planning fundamentals, preparing a
cash flow forecast, and preparing a business plan; and basic government regulations
for getting started, taxes, becoming an employer and basic start up tasks. A study of
entrepreneurs in Canada resulted in the following list of entrepreneurial-managerial
competency requirements: positioning / adapting competencies, represented by a clear
business vision; sales planning and promotion; interpersonal skills, leadership in
climate setting, communication, delegation and coaching; management and decisionmaking; cognitive ability and information processing; background knowledge of
industry and business connections; financial capabilities, cash management and
control; technical capabilities; entrepreneurship; and innovation.
Direction of HRD in SMEs must be toward lifelong learning. Lifelong learning is a
continuous process which stimulates and empowers individuals to acquire all the
knowledge and skills they will require throughout their lifetimes, and to apply them
with confidence and creativity.
4.
Performance appraisal. According to Karden & Sstivens (Jack, 2006), it was
found that have not done any study on performance appraisal in SMEs. Also there is
very low trust on performance appraisal systems. Therefore, performance appraisal in
these firms is more applied through observation and correct errors (Slade, 2005). In
operational level, it is used rating scales very much, and some mangers evaluate
performance through compare between employees. In some SMEs, as increasing in
size, it is assessed performance by peer and self evaluation.
5.
Safety and health. In SMEs, safety and health management includes to make
healthy facilities such as medical tools and facilities, social security, social assurance,
annual medical tests, healthy clinic, life and accidents assurance, fire fighting
requirements, and electrical safety management, workplace hazards control , and
industrial hazards control (Kongtip, 2007).
6.
Labor relations. The main practices which apply in frame of labor relations in
SMEs are unionization, employees' representation, government interventions, and
collective bargaining on pay conditions and employment conditions (EIRO, 2000).
7.
Human resource planning. Human resource planning in SMEs is more
provided in form of succession planning. Research findings (Motwani, 2006) show
that regardless attention to their size, it is important for them to create a formal plan
for succession, communicate to successor, and provide training to incumbent CEO.
For SMEs, the first priority of selection is successor who has a high level of sales and
having marketing skills.
There are not certain researches about other HRM practices in SMEs.
HR practices impact on organizational strategy and organization performance
(Chandler, 2000). For example, a total quality strategy has the most effectiveness
when is supported by training and group incentives. Then, it is necessary to fit
between HRM and SMEs. There are different kinds of HRM fit in tow dimensions;
internal and external environment, and criterion specific and free (Zheng, 1999).
Internal environment includes strengths and weaknesses, and external environment
includes opportunities and threats. Also specific criterion includes certain conditions
٩
and limitations on SMEs, and free criterion shows not being any economic limitations
and monopolies.
The firms tend to setting business strategies in respond to many changes driven from
business environment and HRM strategy and practice is set to achieve the goals such
as profitability and market advantages. Each element of HRM is integrated to adapt
the pattern which attains to business needs. Because HRM practices in SMEs are
informal, ad hoc, and opportunistic (Venkateshwara, 2006). The forms of fit HRM in
SMEs is shown in figure (6).
Figure (6) Forms of fit HRM in SMEs
Criterion Specific
Criterion free
Internal
Fit to ideal form of
practices
Fit as a gestalt
Fit as bundles
External
Fit as strategic
interaction
Fit as contingency
Contextual
determinants
HRM system
Structural
factors
Business factors of external environment
Now we can draw the integrated HRM framework in SMEs as figure (7).
Figure (7) the integrated HRM framework in SMEs
Firm
size
Business
plan
Input practices
Finance &
investment
Export
Franchise
Maintenance
practices
Maintenance
practices
Family
business
Unionization
Output practices
Manufacture
& operations
Marketing &
sales
As shown in the figure, an integrated framework has four main sections that are:
1.
Contextual determinants of RHM. These factors determine quality, numbers,
and formalize of HRM practices in SMEs. Being the large size of the firm, exist of a
certain business plan in the firm; take direction toward export in production,
supported by government, no family business and unionization, are developer aspects
١٠
and formalizer of HRM practices in SMEs. Being the smaller size, don't being a
certain business plan, don't have being direct towards expert, don't being a franchise,
being family business, and no unionization, are constrainer factors for HRM practices.
2.
Structural factors. This section is included of structural parts and elements of
SME. That states preliminary forming of a firm by budgeting and investment. This
investment is continued by maintenance practices such as planning, organizing, and
leading, and leads to forming operations and producing product, and then the product
is purchased through studying market.
3.
HRM system. HRM system includes HRM practices that fit to structural
elements during to do them, and systematically determines, designs, and plans the
needed jobs. It is during the HRM system to find and to employ competent people, to
provide required training, to compensate of employees, to evaluate their performance,
to provide safety and health, and to attend to work relations so that links the elements
together.
4.
External factors of business environment. HRM should play the main role in
internal and external fit of a firm. Internal fitness is did between HRM and structural
factors, and external fitness is did between HRM and external factors of business
environment. In fact, HRM system is adaptability's bridge of between internal and
external environment of a SME.
Conclusion
Although application of HRM practices in SMEs includes some difficulties, but it can
be growth factor of these firms. Some of these difficulties are misunderstanding real
concept of HRM by owner-manager, not being enough knowledge about HRM, being
informal and unstructured relations.
An integrated HRM framework can solve these problems. Of course, it is needed to
show the real efficiency of the framework, but what is followed by the framework is
to create a consisted and structured approach to HRM in SMEs and to pay attention of
HR scholars to conduct researches in this area.
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