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Small Business and Enterprise Development, Vol. 3, 109-118 (1996)


Graham Benmore and Adam Palmer, Business Management Faculty, Southampton Institute, Southampton, UK

Recent research into the use of human resource (HR) practices within small firms suggests that it is characterized by an absence of personnel policies, limited planning and little strategic integration. These practices are further explored by reviewing some of the results obtained from a survey into the attitudes towards and existence of HR practices within small businesses. The specific issues considered are the extent to which HR practices operate formally or informally, the attitudes of owner-managers towards them and the extent to which the attitudes expressed are consistent with their use. The results indicate a very high take-up rate for each of ten specific practices identified in the survey. In most instances this is reflected in the utilization of informal practices rather than formal systems. Similarly, owner-managers exhibit positive attitudes towards five of the six HR dimensions adopted for the study, suggesting a consistency between practices and attitudes. The findings of this small sample suggest that HR practices appear to be more widely used in small businesses than has previously been recognized, although there remains

Manuscript Submitted 4 April 1996 Manuscript Revised 20 May 1996 Manuscript Accepted 8 August 1996

CCC 0968-1000/96/030109-10 © 1996 by John Wiley & Sons, Ltd. and European Research Press

a reluctance to formalize the arrange- ments adopted.


Small firms recognize the value of HR techniques.

• Informal HR practices are widespread in small firms. • Formal HR practices are under-utilized • Owners value employee commitment, flexible working and quality control. • Small firms encourage employee commitment in decision-making. • Employers recognize the importance of staff development. • Employees should know how their work relates to business objectives. Small firms are less convinced of the need/ability to engage in HR planning. • Small firms may be receptive to TEC initiatives.


T he purpose of this paper is to examine the ways in which small firms choose to manage their human resources. Empirical data have

been generated by a survey of over 200 small firms

in Hampshire, UK. The acquisition and analysis of empirical data, in relation to the role of human resource (HR) practices within small firms, is particularly important, as illustrated by Truss

and Gratton (1994): '

the pre-occupation with

... theoretical discourse in the HRM debate has done relatively little to assist practitioners seeking a broader sweep of evidence'.



When this research project

was planned,


The comprehensive Leicestershire Survey under-








taken by Loughborough University Business School


(i) The extent to which certain HR practices operate as formal systems or informal practices within small firms. (ii) Whether specific practices are more prevalent within (a) particular industrial sectors and (b) firms of a certain maturity. (iii) The location of responsibility for HR within small firms. (iv) The attitudes of those responsible for the HR function towards contemporary HR practices. (v) The extent to which there is a consistency between the attitudes expressed and the prac-

and Leicestershire TEC in 1994 revealed that 70% of the larger organizations covered in that investi- gation claimed to have 'a strategic approach to

personnel', compared with 44% of smaller employers. A survey of 100 large and small manu- facturing firms in the American Midwest suggested that personnel policies, necessary to develop those workforce characteristics which the respondents themselves had identified as important, were absent in both large and small organizations (Deshpande and Golhar, 1994). This finding is supported by the initial results obtained in a case study investigation into 40 small and medium-sized enterprises (SMEs) undertaken by Marlow and Patton (1993), who

tices operated. (vi) Whether there is a correlation between the operation of HR practices and economic performance.

claim that'

there is no firm indication that

... strategic management is being employed with the intent of gaining competitive advantage'. Clearly some HR practices are likely to appeal more to small business owners than others. Goss et

The data which has been generated from the survey will enable each of these issues to be analysed. However, for the purposes of this paper, it is intended to concentrate on issues (i), (iv) and (v). Publications which seek to explore the nature of the relationship between small firms and HR practices are reviewed. The methodology under- pinning the project is then described, followed by an examination of the implications of the research results. The central argument is that the value of HR practices is recognized by the owner-managers of small businesses (within this paper the term 'owner-manager' represents the individual respon- sible for HR matters within the firm). Consequently, many contemporary HR techniques are utilized in these organizations, but only rarely are they adopted as formal systems.


Prevalence of HR Practices in Small Firms

As much of the research into the application of HR practices in small firms has taken the form of case study investigations, it is difficult to acquire an authoritative overview of the nature of this relation- ship. Those studies which serve to provide some indication of whether HR practices do operate within the smaller enterprise tend to concur with

Bottomley (1995):'

the HRM function is, at best,

... ad hoc with little time devoted to manpower planning, succession management, and little for- mulation or planning in the recruitment and selection process'.

al. (1994) point out that although the use of labour is

often' ...

pragmatic, reactive, and ad hoc rather

than strategically integrated and planned', there is evidence to suggest that the commitment dimen- sion of human resource management (HRM) is often a feature of employment relations in small firms.

Applicability of HR Practices in Small Firms

Although recent research suggests a limited adop- tion of HR practices within small firms, many researchers consider that such initiatives are com- patible with a smaller organizational environment (Marlow and Patton, 1993; Storey, 1995). Reviewing the findings of the Leicestershire Survey, Storey (1995) argues that certain HR initiatives are more likely to remain in place in the smaller firm following the decision to adopt them. The need for such initiatives may become apparent when the major problems and needs associated with small firms are identified. Hornsby and Kuratko (1990) suggest that the recruitment, motivation and retention of employ- ees is one of the major problems faced by small firms. Additionally, Hess (1987) has reported that small firms consider personnel management as the second most important management activity.

Other researchers also consider the small firm to be a suitable environment for the application of HR practices - for example, Goss et al. (1994) and Deshpande and Golhar (1994). Further support for this view is provided by Hollings and Green (1994),

who argue, on the basis of their case study research,


rather than being inappropriate entities for

... the application of HRM ideas and approaches,

smaller businesses may offer better opportunities

for the implementation of HRM techniques





Attitudes of Owner-Managers of Small Firms to HR Practices

The attitudes held by small business owners and their managers towards HRM initiatives is clearly a critical issue in this debate. Deshpande and Golhar (1994), reviewing earlier American research, reaf- firm that if the owner-managers of small firms have not benefited from training in formal personnel management practices, they will not consider HRM practices to be critical to improvements in business performance.

However, caution should be exercised when reviewing statements of attitude. Deshpande and

Golhar (1994) stress that '

what is perceived as

... important by managers may not actually be

practised by them'. Moreover, the Leicestershire

study also found'

some discrepancy between the

... claim to have an integrated approach and the reality'. Much has been written about the gap between rhetoric and reality - for example, Legge (1995), Sisson (1994) and, perhaps most persua- sively, Thompson and O'Connell Davidson (1995). The identification of such a gap clearly requires research which attempts to match statements of belief with the practices observed and recorded within organizations.

A key factor in the formulation of small business employer attitudes towards the broader issue of employment relations might be the extent to which such employers are dependent on the co-operation and trust of their employees. Making this assertion, Scase (1994) notes that paternalism and fraterniza- tion rather than autocracy are more likely to characterize the nature of employment relations within small firms because mutual dependency is central to the relationship.

HR Practices and Performance in Small Firms Perhaps still less conclusive than the evidence

discussed so far in relation to these issues is that connected with HR practices and economic perfor- mance. Clearly there are many factors which will influence business performance and it is a compli- cated task to identify the contribution that each will make. McKiernan and Morris (1994) report that formal planning systems do not necessarily pro- duce superior performance within SMEs, although

they are'

a pre-requisite of survival in turbulent

... markets'. Although their own results do not indi-

cate that formal planning is associated with super- ior performance, McKiernan and Morris (1994)

nonetheless conclude that'

there remain strong

... theoretical reasons for a positive relationship

between formal, systematic strategic planning and financial performance'. McKiernan and Morris

(1994) recognize that formal planning systems can become more informal over a period of time as

their novelty value diminishes. This leads these researchers to suggest that managers in SMEs ' ... should adopt a judicious balance of the formal and informal in their planning systems'.

Not surprisingly'

there is no consensus among

... researchers regarding the role of HRM in the success of small firms' (Deshpande and Golhar, 1994). Curran and Burrows (1988) have suggested that training in finance and marketing is more significant than training in personnel for the small business owner. However, reviewing the success

enjoyed by some small firms covered in their study,

Hollings and Green (1994) argue that it was '



belief in, and commitment to, the values, principles

and practices of HRM by the key stakeholders which allowed those companies to move beyond operational efficiency towards organizational success'.


Postal Questionnaire Survey

Many studies into the nature of HRM practices in small firms have taken the form of case studies - for example, Marlow and Patton (1993), Goss el al. (1994) and Palmer and Ranchhod (1995). However, it was decided to administer the Hampshire Survey through the distribution of a questionnaire. This enabled the acquisition of information from a larger number of respondents. It was hoped that the greater quantity of data generated would enable firmer conclusions to be drawn. It is difficult to check the validity of responses given to a postal questionnaire, but, by assuring respondents of anonymity, it was hoped that they would feel no inhibition in completing the survey.

HR Practices and Attitudes

Of particular interest are the attitudes of those responsible for HR within small firms towards contemporary HR practices and whether there is a consistency between these attitudes and the prac- tices operated by the firms. The degree of consis- tency provides an indication of the significance attached to the HR function within small firms.

The survey sought to explore the relationship between practices and attitudes by examining whether small firms operated formal systems or informal practices for a number of key elements of HRM and the extent to which these were consistent with the opinions expressed in relation to what might be considered the key dimensions of HRM. For example, if a respondent indicated that it was important to relate employee objectives to company


goals, then this response could be related to whether or not that company administered a formal or informal appraisal system. A study of practices and attitudes also reveals which key aspects of HRM are considered to be the most important within the context of small firms. In this respect, for example, it would be possible to consider the relative significance that respondents attach to the strategic integration of employee objectives to employee commitment or HR planning.

Questionnaire Design

The questionnaire was designed in two parts. The first section focused on the company profile and was concerned with the extraction of data, such as the age of the organization, the number of employees, the business sector in which the firm operates and whether particular aspects of HRM are implemented via the use of formal systems or informal practices. The second section took the form of the attitudinal survey referred to previously. This consisted of 24 statements of opinion to which respondents were invited to express a view on a five-point scale ranging from 'strongly agree' to 'strongly disagree'. The statements were derived from the researchers' opinion of key HR dimen- sions. In turn, these dimensions were based prin- cipally on the HR models developed by Storey (1989) and Guest (1987). The six dimensions selected for the survey were: (i) employee commit- ment; (ii) flexibility; (iii) strategic integration; (iv) quality; (v) training and development; and (vi) human resource planning.

For each of these six dimensions two positive and two negative statements were selected, with the negative statement representing the opposite of the positive so that respondent replies could be analysed for consistency. For example, statement 14 suggests that 'Employee appraisals are more trouble than they are worth', while statement 8 contends that 'Every employee should be formally appraised at regular intervals'. These statements were presented within the question- naire in a random format. Clearly it would be expected that a respondent who agreed with the first of these statements would disagree with the second. If the results indicated otherwise, then the validity of the research would be called into question.

Finally, by collapsing together the four responses for each particular dimension it was possible to indicate the relative significance which respondents attached to them in the context of the operation of their small business. A full listing of the statements used are provided in the appendix.



The Hampshire Survey was distributed to 1000

small firms within the county during the last week

of July and the first

week of August 1995. The

Hampshire Business Directory, a database pro- duced by Hampshire County Council, was used to identify those companies to whom the question- naires were to be sent. To make the process of selecting suitable firms more convenient, sampling was restricted to the Southampton, Portsmouth and Fareham districts. No attempt was made to restrict the distribution to particular business sectors, but only those firms listed as having less than 50 employees were targeted.

Interpretation of Responses

The questions and responses were coded for statistical analysis. A computer package was used which facilitated the cross-tabulation of any selected dimensions. Simple frequency scores were extracted for attitude statements and the existence of HRM systems. These in themselves were used to examine the consistency of responses in any particular dimension.

In addition, the positive/negative statements and their responses were grouped together under each of the six dimensions described earlier to create an overall response for each dimension, e.g. 'commit- ment'. Then a simple average score was calculated for each. Finally, a new more simplified 'favour- ability' score was calculated by collapsing the one to five scale responses to a four-point scale. Each attitude dimension was then cross-tabulated case by case with appropriate HRM systems. For example, the favourability scores for strategic integration were examined in relation to the existence of a staff appraisal system.


The following analysis comprises three elements. Firstly, some detail is provided indicating the key characteristics of respondent firms. The extent to which HR practices are utilized in a formal or informal context is then considered and a table provided for comparative purposes. Finally, atten- tion is given to the attitudinal element of the survey. Responses have been analysed under each of the six HR dimensions on which the attitudinal inquiry was based. A table indicating the extent to which each of the dimensions is viewed as favourable or unfavourable is included. For five of the six dimensions the results demonstrated a consistency between attitude and practice. This appeared to be



particularly significant with regard to the strategic integration dimension and therefore a further table highlighting this correlation has been incorporated into the text.

Profile of Respondents

Of the 1000 questionnaires sent out, 233 responses were received and processed. The largest group responding were owner-managers (51%), with those who described themselves as managing director and director making up the majority of the rest of the sample. Only 5% used 'personnel manager' to describe their organizational role.

Company Profile

Eighty-five per cent of respondent organizations were firms employing under 25 staff. A further 9% employed under 50 staff. Hence the results of this survey are based on the responses of very small companies. A reasonably upbeat assessment of economic performance was reported by most firms. Eighty-one per cent described their profitability as either increasing or stable, while only 19% reported decreases. The data on business sector are of limited value, but do show that replies were received from a comprehensive range of sectors; all categories

gained at least one response. Manufacturing, con- struction, financial/professional and other services predominated.

HRM Practice

Formal Systems

Figure 1 illustrates the extent to which small firms engage in HRM practices. Most respondents did not have formal systems for carrying out the HRM practices presented to them in the questionnaire. Of the minority that used formal systems, quality control and staff appraisal were the most frequently used. All other aspects had a limited presence, none being practised by more than 20% of firms.

Informal Systems

Many more firms claimed the existence of informal systems. In seven of the ten systems presented, a

clear majority reported that the activities did take place.

No System

It appears that a significant minority of the respondent firms engage in a very limited amount of HRM practice, as defined in this survey. How- ever, the authors are aware that there is perhaps a




fine line between the claim of an informal system and no system!

Attitudes to HRM

Figure 2 shows the overall frequency of responses to attitudinal questions expressed as percentages. The responses have been grouped according to the six dimensions selected to represent contemporary HRM practice.

Employee Commitment

There were very consistent attitude responses in favour of gaining employee commitment. This perhaps reflects the hypothesis put forward by Deshpande and Golhar (1994) that workforce charac- teristics are more important to small firms.

Cross-tabulation of the responses to commitment statements with actual HRM practices showed that the strength of feeling was not articulated in the use of formal systems in related areas. For example, only 29 firms who favoured this dimension linked company and employee objectives in a formal way, with even less having a system for involving employees in decision-making. Similar results appear for staff development, although staff appraisal systems are more common.


Although there was a balance of opinion in favour

of flexibility, a significant minority were negative. Again, of those in favour, very few operated formal practices.


Responses on this dimension were consistently favourable. Of those who were positive 90 had formal quality control processes in place. Con- versely, only 18 had formal systems for employee involvement in decision-making.

Strategic Integration

The questions linked to strategic integration pro- vided perhaps the most interesting and significant response, bearing in mind the comments of Desh- pande and Golhar (1994) on the failure of small businesses to see the link between required worker characteristics and HRM practices to achieve strategic goals. More significant is the comparison between the findings of the Hampshire Survey and the observations by Storey (1993) and Sisson (1989) that HRM initiatives were abundant in large organ- izations, but lacked strategic integration.

Eighty-six per cent of respondents chose state- ments favourable or very favourable to this dimen- sion. Within this category, 90% agreed or strongly



agreed with the need for employees to know how their work contributed to the achievement of busi- ness objectives. Fifty-nine per cent disagreed that

strategic issues were of little interest to employees, but this is still a positive response. This might indicate the 'nearness' of the small firm employee to the outcomes of the success or failure of the business. As the Leicestershire study demonstrated

in 1994, it

may be easier to show evidence of

managerial commitment to HRM initiatives that involve aligning employee interest to strategic issues.

It may be possible to draw some evidence from the Hampshire Survey that a significant minority of small businesses back their instincts with appro- priate formal HRM systems. Figure 3 is included to show one such relationship.

Training and Development

The responses in this area, although generally posi- tive, were less consistent. Although most employers (90%) valued training that allowed employees to reach their full potential, less (77%) were as posi- tive that employee development was critical to the success of the company. The opposite pairing of questions was less positive: only half the respondents disagreed that the benefits of spending money on training and development

were exaggerated. The non-strategic approach to training embodied in one statement only recorded 46% disagreement. The existence of formal systems was clearly tied to positive scores for attitudes to this aspect. However, as shown earlier, formal staff develop- ment systems were rare. Those claiming to have informal systems were generally responding con- sistently with their positive attitudes to training.

Human Resource Planning

There was a curious inconsistency in the results of the survey for this aspect of HRM. As can be seen in

Figure 2, opinions seemed to be equally divided. Statement 6 depicted an ad hoc approach to filling staff vacancies as being inferior to a staff plan. Only 22% agreed or strongly agreed that this was poor practice. Statement 12 was more warmly endorsed, with 74% agreeing that a business plan would need to take into account the strengths and weaknesses of the current workforce.

The inconsistency may be due to a weakness in the questionnaire design. However, evidence from other sources, particularly Legge in Storey (1995), has pointed out, albeit in a different context, the difference between the rhetoric and reality of HRM. Statement 6 possibly represents the realities of life in small business, whereas statement 12 indicates


the outcome small business owner-managers would wish to achieve. Statement 19 (52% disagreement) shows only marginal support for integration of staff issues in strategic plans. Its paired opposite statement shows even stronger opinion, with 60% in favour of unplanned or at least short-term approaches to recruitment.


Significance of Results

The results of the Hampshire Survey have raised a number of interesting issues. Certainly it is clear that the respondent firms have demonstrated a favourable attitude to five of the six HR dimensions which were used to conduct the research. These views are consistent with those of the prominent researchers in this area, who claim that the small business is a suitable environment in which to operate HR practices.

The considerable regard for HR practices demon- strated by respondents is perhaps influenced by an awareness that employment relations within small firms are often characterized by mutual depen- dency. The positive attitudes shown towards issues such as training and development, staff appraisal and employee commitment might indicate a recog- nition among a healthy proportion of small busi- ness owner-managers that the work performance of employees is of critical significance to that of the firm and something which they are able to influence through their employment policies. Previous studies have often doubted such a degree of acknowledge- ment, as the literature review indicated.

It is also significant that respondents were less enthusiastic about the HR planning dimension and indicated a preference for an ad hoc approach to meeting staffing requirements. Clearly the reasons for the marked difference in the attitudes of respondents to this dimension need further inves- tigation. It would be interesting to discover whether the view taken by the researchers that small busi- ness owner-managers are perhaps formulating their view predominantly under the influence of the pre- vailing economic climate is, in fact, borne out.

A further point of interest is the marked pref- erence among respondents for the use of informal practices rather than formal systems. The preva- lence of informal systems among respondent firms is impressive, but, clearly, the term is capable of encompassing a number of different types of practice. Perhaps the most interesting issue is why

so many firms do not utilize the opportunity


formalize the HR practices which they believe to


be of considerable importance. It might be that informal arrangements are more suitable to the smaller business. This again is an issue which might usefully be further explored, notwithstand- ing McKiernan and Morris's contention that a balance between the formal and the informal is most appropriate within SMEs. The one HR practice which was formalized to a more marked extent was quality control processes. This finding is probably not surprising in view of the extensive attention which this particular issue has received in recent years.


From the results which this survey has produced, four hypotheses regarding the relationship between HR practices and small firms are proposed.

(i) Employment relations within small firms are distinctive and often characterized by a mutual dependency culture.

(ii) This culture identifies the small firm as a particularly appropriate organizational environ- ment in which to utilize HR techniques.


The value and applicability of HR techniques is

widely recognized by small business owner- managers. (iv) This recognition is borne out by the prevalence of informal practices, but is not sufficiently reflected in the use of formal systems adopted by small firms.

It is this link between points (iii) and (iv) which particularly interests the researchers. If there is general enthusiasm for HR practices, why are they rarely operated as formal systems which would signify the importance attached to them? If inform- ality characterizes HR operations within the small firm, does it also characterize other business acti- vities such as marketing, purchasing or distribu- tion? Have small business owner-managers fully considered the merits of formal/informal systems and, if they have done so, on what grounds have they chosen to operate on an informal basis?

Further Research

This paper has considered results from the Hamp- shire Survey which relate to points (i), (iv) and (v) from the list of issues identified in the introduction. Although these have been of greatest interest to the researchers, analysis of the outstanding issues (ii), (iii) and (vi) will provide a still clearer picture of the nature of HR practices within small firms. Most particularly, the second issue - whether specific practices are more prevalent within parti- cular industrial sectors and/or firms of a certain



maturity - might well present interesting trends. It is intended to examine these outstanding issues as the next part of this research project. Hence the initial findings of the Hampshire Survey give rise to some interesting avenues for further research. The surprisingly large proportion of small firms claiming that they used informal HRM systems requires verification. If informal systems really do represent practical confirmation of a small firm's positive attitudes to aspects of HRM, then the proposed hypotheses may be worth testing in subsequent studies. Even if informal systems are weak, the perennial question of why attitudes of small business managers are not represented in their HRM practices needs to be examined. This gap between the recognition of HRM and actual practice will be the focus of future work. It is envisaged that a parallel study in another region of the UK or abroad will be carried out for comparative and validatory purposes.


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  • 1. It is better to recruit staff as and when they are

required rather than develop a manpower plan.

  • 2. All employees should be given the same terms

and conditions of employment.

  • 3. Quality is the responsibility of management, not


  • 4. A prerequisite for the success of the company is

that employees have positive attitudes towards its objectives.

  • 5. The most valuable training is that which enables

employees to reach their full potential.


  • 6. Recruiting staff as vacancies arise is an inferior

practice compared to a manpower plan.

  • 7. The benefits of spending money on training and

development are exaggerated.

  • 8. Every employee should be formally appraised at

regular intervals.

  • 9. It is not important that some employees have

negative opinions about the company as long as

their performance is satisfactory.


Paying employees according to individual

performance damages company morale.


The only training which is cost-effective is that

which enables employees to perform their current

tasks to a higher standard.


It is not possible to prepare a business plan

without considering the strengths and weaknesses

of the current workforce.


Quality is the responsibility of everyone in the



Employee appraisals are more trouble than they

are worth.


The notion of employee commitment is too

vague to justify management spending time and

effort trying to secure it.


It is important to relate pay to performance.


  • 17. Investing in the development of employees is

critical to the success of the company.

  • 18. Developing a high level of employee commit-

ment should be a priority for management.

  • 19. It is not essential to incorporate manpower

issues into strategic plans.

  • 20. Employees need to know how their work con-

tributes to the achievement of business objectives.

  • 21. It is essential for management to be able to offer

different terms and conditions of employment to

individual employees.

  • 22. Quality means more than satisfying customers.

  • 23. Strategic business issues are of little interest to


  • 24. It is only when customers are not satisfied

that quality becomes an important matter for the company.


Graham Benmore and Adam Palmer, Business Manage- ment Faculty, Southampton Institute, East Park Terrace, Southampton S014 0YN, UK Tel.: 01703 319000. Fax.:

01703 222259.