HRM Management within Small and Big Business - Case Study Example

Module of the Assignment: of the Number: Introduction The importance of the human resource management (HRM) function in modern organisations has now gained prominence as firms take cognizance of the significance of employees as the major drivers in corporation’s growth. This is true for both small and large enterprises that adopt flexible less rigid organisational structures. Prominent management analysts Jack & Susan Welch have insists that, the HRM function in an organisation should be allotted a ‘position of power and primacy’. HRM strategies should encompass a systematic, non-bureaucratic appraisal approach that can be scrutinized for its veracity; efficient methods of remuneration, recognition, and training that inspires and therefore retains employees; involve the line staff in decision-making aspects; and design a level organisation chart that has logical reporting links and duties (Welch and Welch, 2008). Small Businesses Definition Small businesses have been described as those private enterprises that have less than ten employees up to those with a maximum of 100 workers in their ranks. Corporations with more than 100 employees are therefore deemed medium-sized while those with more than 1000 workers can be termed as large-scale enterprises. However, the United States Small Business Administration (2002) defines small businesses as those with fewer than 500 employees. nonetheless, most studies consider the former classification is appropriate assessment of size and extent of businesses (Thomas et al. 2005). In the US small business (with ten or less employees) are the biggest employers while accounting for over 51 percent of private GDP (Summers et al, 2005). Constraints on Small Business Due to time and financial constraints, small businesses provide less training than the relatively larger firms do, which has variously been attributed to lack of adequate funds and ignorance. Nevertheless, small business relies mostly on on-job training rather than formal planned preparation (Rabemananjara and Parsley, 2006). Firms whose business strategies are based on innovation and development are more liable to train their staff than other production-based firms. Smith (2010) has suggested five priority strategies that small business can effect to enhance their human resources functions. These are employing lawful service practices, improving employee satisfaction, constructing fair and equitable compensation strategies, developing reliable evaluative systems, designing effective training & development programs HRM strategies in larger firms are more formal and complex than in the relatively smaller SMEs who are less constrained by factors of diverse backgrounds, cultures, legal and regional spread (Oikarinen et al. 2007). Small business failure is mostly attributed to poor managerial practices particularly in regards to financial management but also due to inadequate recruitment and HRM practices lacking professional and tactical acumen (Rabemananjara and Parsley, 2006). Oikarinen et al. (2007) have linked employee performance to HRM strategies or operational environment adopted by the firm to organizational citizenship behaviour (OCB). This concept directly links employees’ propensity to enhance their productivity on having equitable and fair working conditions. Most studies indicate that small businesses fail within the first two years (50 percent) and over 85 percent within five years while only four percent survive after ten years (Peacock, 2000). Assessing the Performance of HRM Georgiadis and Piteli (2010) argue that although there is minimal empirical evidence to prove the assertion of a positive link in advanced HRM practices and a firm’s performance, there is still enough compelling evidence to suggest that those firms who have better relationships with their employees have better financial performance. The Centre for the Study of Social Policy (2002) has recommended several strategies to use in the analyses of the performance of human resource management (HRM). These include turnover, employee fulfilment, involvement in education, and age of openings are generally employed to evaluate achievement of HRM approach. A number of HRM tasks also appraise the contentment of HRM’s ‘clientele.’ These processes encompass the appropriate recruitment procedures and broad-spectrum appeal of applicants hired (Pg.6). The three main obstacles to a team’s fulfilment and triumph are change, lack of control and mistrust (Flores, 2003). Schuler and Jackson (2000) assert that the impact of HRM is primarily exhibited in the ‘formulation and implementation of strategy’. This include the planned vision or deciding the business of the firm, objectives, schemes, development and execution, appraising, modifying, and refocusing on the upcoming projects. During the firm’s implementation, stage the classification of strategic business issues (SBIs) and the setting of strategic business objectives (SBOs) are established which incorporate measurable and achievable set targets. Schuler and Jackson have formulated a Four-Task Model of HRM, which includes the management of staff projects and opportunities, capabilities, performance and motivation. The authors term this the raison d’être of HRM that guide the firm’s options by linking HRM with the firm’s strategic management. Small Business and Effective HR Strategies According to the Small Business Encyclopedia, human resources management (HRM) is concerned with the ‘management of people within an organisation’. This function encompasses three major areas of outlining the job function, hiring and remuneration (Small Business Encyclopedia, 2010); (Lingham, 2008). Strategic human resources require a long-term view of the business enterprises whereby the organisation’s human resources are factored and made imperative in its goals and objectives (SmallBusinessBible.com, 2008). In a study conducted by Gevity Institute in 2006, it was revealed that small business that had more effective HR strategies were found to be experiencing 23.3 percent higher returns and 66.8 percent reduction in employee turnover (Collins, 2006). Cameron and Miller (2008) assert that ‘small business are at distinct disadvantage in terms of recruiting, selecting and retaining staff when competing against big business in what is becoming an increasingly competitive global market.’ (Pg.3). Large firms often have a formal HR function manned by experts and are also able to offer more tangible benefits and career advancement than the smaller firms. The Role of Recruitment and Retention in Human Resources Management To further guard against frequent and undue high turnovers in modern organisations, Heinemann and Judge (2003) therefore argue a need to employ efficient recruitment strategies for appropriate staff with ‘sufficient quantity and quality to create positive impacts on the organisation’s effectiveness’ (Pg.4). The criterion and staffing approach employed is therefore critical in securing the retention of workers. The hiring process should follow a five-step method as illustrated by the U.S. Department of Transport: recruitment, selection, hiring, training and retention [See Figure 1 below]. Figure 1 Source: Adapted from U.S. Department of Transportation/Reinach (2007) Reducing Employee Turnovers The hiring of the correct workforce is thus essentially important to piffling out the fidgety workers that have ‘one eye on the horizon’ and may not be loyal to the company’s aspirations. This affects both the small business and larger corporations who are adversely affected by staff turnovers. According to Shilling (2003, pg. 2) high worker turnover expenditure is caused by various issues. These include the expenditure accrued in hiring provisional/casual labourers apparent that is quickly discerned by diminishing yields; toll on residual workforce strained and compelled to take up additional duties to disguise production deficits; extraneous expenses in overtime pay; guidance costs for provisional workers; exit interview procedures and dispensation of final benefits. Another factor is the loss of exiting worker’s experience and aptitude, including recommendations; joblessness indemnity expenditures; staffing overheads including the engagement of recruitment agencies or in advertising revenues. The Chartered Institute of Personnel and Development (CIPD) has determined a formulation of its inventory of the replacement costs for exiting staff that is calculated by factoring the overall crude turnover rate for the entire workforce thus computing the annual expenditure accumulated by the exiting staff. The major categories as determined by the CIPD are: management or dispensation costs for the exiting employees terminal benefits, the expenses sustained in hiring new workers, the expenditure accrued in keeping up with production within the company as they await the hiring of new staff in the vacancy period. The preparation overheads needed to acclimatise the fresh worker to the company’s procedures and duties is also another factor (CIPD, 2009). Total number of departing personnel over time x 100 Average total number of personnel engaged over time Likewise, the CIPD has formulated a permanence index that illustrates the rate of retention for staff as follows: Total personnel departing after a year’s service x 100 Total personnel retained beyond one year The Black Hole Concept The lack of adequate employment structure prevailing in small business enterprises can be likened to a ‘black hole’ due to the lack any formal HRM structures and employee representation in trade unions as envisioned by Guest & Conway (1999). [See illustration Table: 1]. The authors describe this ‘black hole organisations’ as being mainly constituted of small businesses operating on the ‘margins of employment’ circumventing contemporary HRM practices through application of decadent draconian rules and practices hence are often unable to retain their personnel. Table: 2 Employment Relations Policy Choices HRM Priority High Low Industrial Relations High New Realism Traditional Collectivism Policy Low Individual HRM The Black Hole Source: Guest & Conway (1999), Pg.368 Storey (2001) In Barlow (2003) has stated that, ‘the ability to attract and hold on to talented employees is the single most reliable predictor of overall excellence’ (Pg. 2). Employee turnover is an indication of elementary difficulty bedevilling the organisation that in real terms translates to real cost to the firm in financial costing and lost opportunities, which advertently affects the firms’ success, and credibility particularly in the sensitive service sectors. The numerous expenditure ensuing includes, separation costs, recruitment and attracting, selection, hiring, and lost productivity costs (Barlow, 2003). Strategic Human Resource Development (HRSD) The conventional altitude that people are a variable cost exemplified by the hospitality industry has now changed as strategic human resource development (SHRD) concepts ascertain that to gain a competitive advantage in modern industry, a well educated, skilled, inspired and dedicated workforce is needed at every point of the organisation. Storey, (1991) observed that ‘the existence of policies and practices designed to realize the latent potential of the workforce at all levels becomes the litmus test of an organizations orientation’ (Pg. 10). Silva (1998) therefore observed that, ‘a discernible trend in management is a greater individualisation of the employer-employee relationship, implying less emphasis on collective, and more emphasis on individual relations’ (Pg. 17). The role of HRM has emerged from its peripheral role of mere recruitment to that of ‘selection, review, rewards and growth. It now encompasses a set of strategies intended to capitalize on managerial assimilation, employee dedication, flexibility and quality of labour (Ijose, 2010). Maxwell et al. (2004) have linked HRSD to service management as contemporary firms increasingly view the fulfilment of their customers’ needs as their ultimate aim and reason for existence. In this regard, they cite the five major attributes of service management ascribed to that encompass, general organizational viewpoint, client driven, holistic standpoint, excellence as an fundamental element of service administration, and internal growth of employees in alignment to the organisational goals (Maxwell et al. 2004). For an effective strategic human resource management (SHRM), a firm must identify all employee’s competency or capabilities and hence appropriately assign matching tasks and place them in the best department as per their skill level to adequately enhance the firm’s overall performance (Sempere, 2002). Hansson (2007) argues that a company’s investment in training of their personnel is mostly dependent on past economic benefits or profitability. Firms that have educated their employees have realised more tangible benefits hence tend to intensify training if it results in more enhanced performance. Hansson therefore proposes that the amount invested in training has a linkage with the firm performance or profitability. According to the Society for Human Resource Management (SHRM), organizational and employee development within an organization, merge the objectives of both the individual employee and the firm’s vision effectively. The career management of employees converge to form an optimum stage whereby the firm and employee needs become compatible (SHRM, 2009). Figure 2 www.shrm.org/ Contemporary Management Practices In management, employee relations were enhanced or revolutionised by the advent of the human resources approach of management that led to the demise of the previously predominant paradigm of the scientific model as advocated by Fredrick Taylor whereby workers were a viewed as variable resource to be ruthlessly and efficiently exploited like machines. The Hawthorne Studies conducted at the Hawthorne Works of the Western Electric Company in Chicago from 1924 to 1932 led by Elton Mayo introduced the Human Relations Approach to management. This spawned the hypothesis of Douglas McGregor’s Theory X and Theory Y; Frederick Herzberg’s dual factor Motivation-Hygiene Model Of Management; Abraham Maslow’s Hierarchy of Needs model (theory z); and John Stacey Adam’s Equity Theory. These theories emphasised the importance of taking a more humanistic approach to organisational development rather than a scientific or mechanical approach that dehumanised people to the level of machines within a firm. Maslow’s assertion of taking care of the lower basic needs sequent to attaining higher levels of needs and Herzberg’s dual model motivational-hygienic factors all illustrate the factors that motivate/satisfies frustrated employees as opposed to the dissatisfying hygienic factors (negative motivational forces within the firm) (Goffee et al, 2007). Hard and Soft Approaches to Human Resources Management Developing from the human resources approach of management, HRM models now can be classified in terms of ‘hard’ or ‘soft’ approaches (CU-Boulder, 2008). In the ‘hard’ approach, HRM is viewed in terms of a firm’s drive to strategically manage and control her personnel with specific objective of realising the company’s goals. Conversely, in the ‘soft’ approach, HRM is strategically organised around the firm’s personnel hence consider more about their welfare and dedication to the firm (Lingham, 2008). Employee relations are therefore enhanced when the prevailing cultural and management practises within the organisation are more developed. Outlaw (2005) argues that when the management of the organisation spawns confidence, enthusiasm and affirmative altitude, it automatically leads to an improved performance in the organization; and the opposite is true where gloomy, mistrustful, and negative altitudes in the workplace are predominant, hence performance suffers. McNamara (2008) nevertheless insists that the most important motivational tool should be self-motivation, arguing that it is more effective in recognizing what motivates you and how your job is aligned or configured to sustain your motivations. S.M.A.R.T.E.R Objectives There is no secret formula or set of rules in enhancing management objectives, however it takes personal style plus some unyielding dedication to succeed by the organisation’s strategic objectives of enhancing earnings, expansions and growth. Nonetheless the organisation’s management must always be conscious of the adage that, ‘By failing to plan you plan to fail’, hence the need to establish long and short-term objectives. The planned objectives have to be S.M.A.R.T.E.R, i.e. Specific, Measurable, Attainable, Realistic, Timely, Ethical, and Relevant (Blair, 2006). Successful team building improves the functionality of an organisation tremendously leading to enhanced analytical, competence, staff motivation and returns. This also assists in easing tension in the workplace, turnovers and expenses (Accel-team.com, 2010). This is illustrated by the following formula: Sense + Simplicity + Relevance = Results Strategic Human Resource Development (SHRD) Though most companies recognize that the significance of the workforce for the organisation to succeed, managing the people within the firm entails far greater perspicacity by the executive. Lindner (1998) advocates for a blend of systematic bundling of benefits, including career enhancement, progression, internal and external stipends, and non-financial rewards [see illustration Figure 3]. Gamez, el at (2006) describe managing people as a multiple-step process a manager undertakes towards achieving the desired objective. These are voluntary choices and cannot be enforced though may be inspired by the employee’s executive by properly infused performance management systems. The lack of a positive attitude has been attributed to generating negative emotions within the organizations, leading to employees becoming de-motivated hence causing massive absenteeism and illnesses that affects negatively on many lost working hours and medical insurance expense (Fredrickson, 2003). Figure 3 Role of Employee Motivation Contemporary HRM strategies require organisational leaders assume the responsibilities of a therapist, guide, organizer, taskmaster, trainer and adviser to the workforce. The foremost test for corporations nowadays is keeping their workers motivated and performing their duties properly. As people constantly interact with each other, they unconsciously mange each other in their transactions and thus learn how to relate with diverse people in addition. However, within a workplace environment, managing people is a deliberate act that has to be cultivated and enhanced through leadership skills and training. Contrary to expectations, people like to be managed! Individuals feel more secure, supported and appreciated when they judge that somebody is ‘looking out’ for their interests, development and is at hand to assist in case of problems. However managing people has challenges, “a managers most important and often most difficult job is to manage people.” (Welch, 2008) Studies have revealed that workers who are accorded flexible working schedules and other casual conditions were more predisposed to be enthused about their jobs. A study at Johnson & Johnson illustrated that employees who are accorded flexible work programmes and family excursions generated a 50 percent lower nonappearance rates when contrasted with the whole company’s workforce. Likewise, at Rank Xerox, employees were authorized on controlling their individual job timetable that indicated a positive and improved employee motivation, enhanced client service, and additionally a remarkable 30 percent less absence for the personnel (Harrington, 1997). This sensible employee relations strategy has been reciprocated by exemplar staff loyalty depicted at British Airways, whereby employees who enjoy some flexible operational schedules among other perks repaid the company by their acquiescent and cooperation in having their salaries reduced to assist the company overcome poor returns in the current global recession. Leadership in HRM Approaches In effective HRM approaches, one of the main tasks of a manager is assisting an employee through the life cycles processes within the organisation described as HIAR or Hire, Inspire, Admire, and Retire. The manager must be less ‘manager’ and more ‘leader’, hence inspires and motivates those entrusted to lead. Former Chrysler Inc. CEO Lee Iacocca asserts that,’ management is nothing more than motivating other people’ (University of California, 2008). Organisations always strive to ensure the effectiveness of their production process to the satisfaction of their customers and shareholders, a factor that is entirely dependent on the output of all their employees. An inspired workforce serving as the medium for growth epitomizes an effective HRM strategy. Motivation is acknowledged as the catalyst for enhanced production; however solely lacks within many firms due to ineffective HRM strategies and minimal inducements for the staff coupled with many discouraging practices that further de-motivate them (Sorensen, 2002). Since everyone has personal affairs, families, opinion and struggles, all employees should be treated equally regardless of position within the organization (Bright, 2009); (Weightman, 2004). Conclusion Contemporary human resources management requires that departure from the decadent conventional hierarchical organisational structure centrally managed to embrace the modern strategies that less rigid and more inclusive of line staff in decision-making and formulation of organisation goals. Unfortunately most small business though having the propensity to evolve this systems are less flexible and cling to the traditional methods of governance which ultimately impacts negatively on their survival. All organisations irrespective of their size must have an effective performance appraisal system that is ‘specific and measurable’ to achieve business or organizational goals. For HRM strategies to be effective, they must incorporate the employee’s needs and aspirations as well as those of the firm in an integrated scheme to ensure growth in the firm. Strategies must encompass initial recruitment, training, remuneration, retention and other employee relations schemes, which motivate staff into more enhanced productive activities. A progressive HRM strategy is essential to an organisation as it has a direct impact on the individuals and firm. Although not an easy task, strategic HRM entail establishing individual motivations to conform to the firm’s vision hence generating enhanced productivity to the company. References Accel-team.com. (2010). Human Resource Management. Retrieved April 24, 2010, from Accel-team.com: Akita, T. (2009). Human Resource Management Philosophy & Practices of Konosuke Matsushita: The Malaysian Experience. Retrieved April 25, 2010, from Malaysian Institute of Management : Blair, Gerard M. (2006 Starting to Manage: The Essential skills - The Human Factor.) Chartwell-Bratt (UK) Ltd, London Bright, Paul (2009) How to Manage People. Practice Retrieved April 25, 2010, from . 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