Human Resource Management Practices Implementation - Research Paper Example

Applicability of Human Resource Management Practices Implementation in Small and Medium Sized Organizations Introduction In the current era of globalization, companies should fashion favorable conditions to make people to generate, assimilate, accumulate and use knowledge to improve competitiveness. This paper shall discuss the applicability of human resource management practices implementation in small and medium sized organizations. This paper shall be organized into three parts. First of which is this part which is the introduction. It will include the discussion on the overview human resource management practices. The second part will aim to answer what are the effective strategies on human resource management and the barriers that make it harder for small and medium scale organizations apply these strategies. The possible effects of the application of human resource management practices in small and medium scale organizations shall also be discussed. The last part would be the conclusion. Ducker (1995 p. 12)concluded that small and medium scale organizations are important for modern economy and that their contribution to employment growth is widely recognized. They provide 66% of all working places and they constitute about 99% of all Ruropean companies (Rauch, 2006, p. 29). Astonishing;y, personnel management of small businesses is widely unnoticed in popular textbooks as in empirical research (Hornsby, 1997 p. 1). But then, employee efficiency might be even more significant in small companies in contrast to bigger companies. A flaw of small and medium scale enterprises is their low labor output united with lower than average wages. Human resource management consists of practices that make it certain that the collective knowledge, skills and abilities of employees will contribute to business outcomes. Traditionally, HRM is focused on managingm, measuring and controlling organization’s workforce (Rauch, 2006, p. 3). The technical or so-called tactical HRM includes selection testing, training, performance measurement and administration of benefits. There is also a second dimension of HRM activitiesm, such as strategic HRM which encompasses employee participation and empowerment, communication, team based work design and development of managers of the organization. Human Resource Management Humam Resource Management and Employee Retention The result of a study conducted by Wagar (2005, p. 13) showed that employee retention is related to human resource management activities. Higher employee retention is associated to a greater use of HRM practices. But then even if a number of small and medium-size firms may lack the resources to have a exceedingly sophisticated human resource system, Pfeffer and Veiga (1999, .p. 40) note that even among big organizations, only a small minority have efficiently implemented such a system. Moreover, it was found out in Wager’s study (2005, p. 16) with proposition for small and medium scale organizations that a lower quit rate was linked with a higher score of the decision-making ideology scale and greater attention to human resource management strategy issues. Decision-making ideology refers to the utilization of participative techniques in decision making which exhibits open communication while HRM strategy centers on the significance of linking human resource needs with the tactical plan of the business. Furthermore, a firm conscious with employee retention aims at escalating its routine on both of these constructs devoid of having to endure the costs of implementing a full battery of HRM practices. It discussed by Way (2002, p. 772) that in the introduction of battery of human resource management practices can be very costly especially for small and medium scale organizations. The existence of formal human resource practices may be less important and the workplace climate can be one of the biggest factors in an employee’s decision to stay or resign from his job in the context of small and medium scale organizations. To put it differently, it is more attractive to employees and thus results to a fewer quitters in such firms if the organization has a more developed human resource management system. Guthrie (2002, p. 189) also showed that there is an association between the business technique of the organization and the adoption of HRM practices and the relationship between human resource management systems and performance. Some organizations have the tendency to be more willing than others to accept high employee turnover but it all depends on the strategic perspective of the firm concerned. HRM Policies and Procedures The owners or managers choose a recruitment channel, which depends on the type and level of the position being filled (e.g. skilled, semi-skilled or unskilled), the nature of the business and the geographic location (Finney, 1987 p. 38). For example, the rising specialization in the printing industry meant that owner-managers were prone to seeking applicants with higher skill levels, qualifications and relevant experience. They usually advertise locally and nationally with letters of applications and requiring a CV. Recruitment is not a major issue because of the low turnover. The approach to recruitment was influenced not just by the skill requirements of the position and the nature of the business but also by geographic location (Finney 1987, p. 40). A small business in a rural town might rely on ‘community networking’ instead of advertising whereas this would not work for a comparable sized business in the same industry in the greater Auckland region. At the stage of the interview process, the level of formality depends to a large degree on the nature of the position being filled, again, for an example, the skilled and the unskilled. When filling an unskilled position, the process is extremely informal with the owner-manager taking a ‘satisfying’ approach (Meyer, 2005 p. 50). For skilled positions, the formless, one-on-one interview was the most frequent selection technique used, concerning the owner-manager, often assisted by a spouse or partner. Pre-selection involved sifting through letters of application before deciding who should attend the interview. No formal criteria were likely to be used. The interview itself tended to be driven by a series of unwritten questions rather than a systematically developed interview schedule, consequential in a conversational style of interview. Formal induction is hardly ever practiced (Arthur 1995, p. 29). A new employee is usually shown around the business, introduced to fellow workers and left to ‘learn-on-the-job’. A number of businesses operated a ‘buddy’ system; however, this depended on the size of the enterprise and the preceding work experience of the new employee. Human resource management literature places management of performance in the center but then few businesses operated any formal performance evaluation procedures. Rather, they operated in a system described as ‘assessment by observation’, assessing employee performance ‘every six minutes rather than every six months’. Being in the thick of the action, owner-managers regard themselves as well placed to evaluate employee performance supported by whatever data was available, such as point-of-sale returns or customer feedback (Finney 1997, p. 43). When a problem surfaced, such as errors or poor workmanship, owner managers would interfere, taking the employee away to discuss the problem. On-the-job training might take place but if this was not successful, the employee has continued employment with the business might be re-considered (Wagar, 1998, p. 15). A number of owner-managers in ‘larger’ small businesses indicated discontent with this ‘after-the-fact’ approach to managing employee performance, telling that the business should expand further; it was an area that would need attention and the development of an official system of managing performance. Owner-managers were often ambivalent about training viewing it as a cost to be borne by the employee rather than by the business. For courses or programs undertaken at a polytechnic, an owner-manager might contribute to the cost or reimburse the fees on the successful completion of the course. Training however, was often seen as ‘personal development’, increasing an employee’s marketability and therefore, a cost that she or he should bear (Arthur, 1995, p. 33). Barriers to Implementation When one talks about modernization of manufacturing it refers to updating capabilities and changing the ways in which companies organize and manage processes, make their product, and hire, train and of course, retain their employees. This can summarize human resource management and is often referred to as ‘high performance’. It is composed of qualities such as worker and training development, continuous improvement, ongoing information sharing and worker discretion and autonomy. All of these are equally applicable to small, medium and large scale organization but they just vary in the degree of implementation and success, wherein small and medium scale organization are closely comparable. Although many barriers exist that challenge the small and medium scale organizations to move from their traditional operations to high perfromance and the successful application of human management practices, those who are able to operate within this mode have showed great success. Barriers to the Implementation of Human Resource Management Practices in Small And Medium Scale Organizations Although it was showned that human resource management practices can contribute greatly to an organization, small and medium companies are slow to adopt them, especially small scale organizations. More often than not, they do not have the knowledge, tools or resources for impelemnting such practices. Moreover, the implementation of such practices is not on their priority list, but rather focused on meeting payroll, not longer term issues such as work organization or worker training (Mirvir, 1997, p. 51). There are five indetified barriers to the implementation of effevtive human resource management practices to small and medium sized organizations which was also mentioned in summary earlier. First is the lack of awareness. As simple as that, these organizations do not recognized the existence of such practices. Small to medium organizations are often unfamiliar with changing advances in changing technology, production techniques, and n\business management practices (Mirvir, 1997, p. 51). As a result, these companies become less aware of the best manufacturing practices, innovative application of new technologies and innovative approaches to improved production efficiency. There is also a lesser possibility that these companies will invest in risky ways of doing things or in major changes to the management structure and relationships within the business (Mirvir, 1997, p. 51). Another barrier is isolation. Smaller organizations tend to be isolated and have too few oppurtunities for interaction with other organizations which have the same situation and condition. They are therefore missing an essential factor for continuous improvement which is interaction with other companies (Mirvir, 1997, p. 51). Third, there is the problem on where to seek advise. The owners and managers of these companies have difficulty in looking for high-quality, unbiased information, advice and assistance. Seeking for help in the public sector often disclose a confusing uncoordinated array of services –universities, economic development groups, technical schools, government agencies – who are trying to win clients. Fourth, there is the problem of scarcity of capital. Since they are only small and medium scale orgnization, operating capital and investment funds for modernization of management practices are difficult for them to obtain. The banking or tthe financial community as a whole regards loans for the purposes of human resource management develpment as high risks loans (Hornsby, 1990, p. 10). ` Lastly, there is the disproportionate impact of regulation. National, state, and even the local initiatives and decisions concerning trade, the environment, employment, work place safety, health care, and liability have a direct impact on the competitiveness of manufacturing companies. One result is that the economic effect of regulatory conformity is much greater as a percentage of capital investment than it is for larger businesses (Hornsby, 1990, p. 10). Effects of Human Resource Strategies on Success of Small and Medium Scale Organizations There are only few studies which focus on whether HRM practices were used in small firms. One of which is that by Golhar and Deshpande (1997) which found that many human resource management practices of small and large firms were similar to some extent. The difference however is that bigger organizations utilized external sources of recruitment, written tests, and panel intervies more frequently. In the context of small firms, the ability of the employee to inspect their own work is more vital that in large firms. In the same way, Hornsby (1997, p. 65) also found out that the perceived concern over the most significant future human resource issues is not affected by firm size. Larger companies (up to 150 employees) on the other hand used questionnaires, application blanks, benefits, and performance assessment more regularly than small businesses (1–50 employees). The author Hornsby (1997, p. 65) concluded “personnel practices of smaller firms are much more sophisticated than the literature leads one to believe”. There are posible effects of human resource management strategies on the success of small and medium scale organizations. First, HRM practices have positive effects on small and medium scale organizations. Human resources do not just have to be developed but there is, of course, already a definite quantity of human capital in each organization consisting of the human capital of employees and of the owner (Hornsby 1997, p. 65). Rauch (2006) supported the assumption of the human capital theory. While entrepreneurship research was commonly worried with human capital of business founders/owners, the human capital of employees of small enterprises has been generally ignored. However, the theoretical assumptions of human capital theory should hold for employees as well. Thus, the human capital of employees makes the employee more effective in their daily work and this should affect business success (Huselid, 1995, p. 640). Therefore this leads to two other effects, which are: human capital of business owners have a positive effect on business success, and human capital of employees has positive effects on small and medium business success (Huselid, 1995, p. 640). Although the positive relationship between human capital of business owners and success is well reputable, the relationship is not high enough to be sufficient to make human capital the key factor for business success. Examining seven studies quantitatively, Rauch (2006) found an average correlation of .09 between human capital and small business success. Given the small effect of human capital on business success, it may be useful to look whether human capital influences the effect of HRM on success. With respect to HRM, human capital of business owners is significant because better-educated people are expected to be more amenable to new ideas and novel ways of leading people (Sagie, 1997, p. 401), to be able to deem recommendations of employees, to communicate precise goals and objectives, and to make use of better strategies in leading employees. Therefore, HRM is more successful when business owners have high human capital. The results of the study conducted by Rauch (2006) have drawn attention to the importance of human resource management strategies for small and medium scale organizations. The effect is that successfully implemented HRM practices have positive effects on increasing the business success. Thus, Arthur (1995) acknowledges that what is important for bigger companies is important for small-scale businesses as well. Moreover, the effects of HRM strategies were reliant on human capital of business founders and on human capital of employees. HRM approach was particularly effective when there was high human capital of both, business owners and employees. HRM strategy is made up of training/development of employees, decision-making involvement, goal communication, and supporting personal initiative. It is appealing to discuss that these plans have long-term consequences: HRM strategy had consequences on the boost in business success. HRM strategies do not pay off straight away. In fact, there are costs in the short term, and therefore, HRM is profitable in the long term. For that reason, there is no found contemporary effect but only a longitudinal effect. HRM strategy endlessly trains employees through better information and more insight into business decisions and business objectives. As a result, employees work more vigorously and more professionally in the long term (Drucker, 1995, p. 26). Conclusion Indeed, human resource management practices when used and implemented properly is a comparative advantage in favor of the organization (Macmillan, 1993, p. 50). However, there are barriers which hinders small and medium scale organization in implementing HRM practices. There are five major barrriers for small and medium scale organizations to implement HRM practices, these are; lack of awareness, isolation, the problem of where to seek help, scarcity of capital and lastly, the disproportionate impact of regulation. There is an increasing acknowledgement on the effects of HRM practices on small and medium sized organizations. One of which is its effect on the business, the employee and lastly the manager. Sources Arthur, D. 1995, “Managing Human Resources in Small and Mid-Size Companies”, AMACOM: New York Burns, G .2006, ‘When the structure is faulty’. Canadian HR Reporter, 19(9), 16 – 21 Drucker, P. F. 1995, ‘Innovation and entrepreneurship’. New York: Harper. Finney, M. l997, 'HRM in Small Business: No Small Task', Personnel Administrator 32(11) pp 36-44. Hornsby, J. S., & Kuratko, D. F. 1990, ‘Human resource management in small business: Critical issues for the 1990’s’. Journal of Small Business Management, 28(3), 9–18. Huselid, M.A. 1995, ‘The impact of human resource management practices on turnover, productivity, and corporate financial performance’. Academy of Management Journal, 38 (3), 635-672. 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