Strategic Human Resource Management in Emergent and Developing Small

Entrepreneurial Firms
1. Acknowledgement: The author would like to thank Dr. Louis C. Mancuso for his support and
assistance with this research.
2. A previous version of this article was presented in the Entrepreneurship Division at the 69th Annual
Meeting of the Academy of Management in Chicago, IL

Dr. Mario Krenn

Assistant Professor
Department of Business Administration
College of Business and Public Administration
Southern University at New Orleans
6400 Press Drive
New Orleans, LA 70126

Tel: 504-286-5174
Email: mkrenn@suno.edu

Abstract
The emergent and developing small entrepreneurial firm (EDSEF) as a unit of analysis is largely ignored in
limited relevance in entrepreneurial settings. It argues that SHRM theory needs to be
reconfigured to fit the realities and characteristics of the EDSEF. To achieve this fit, the
author proposes the integration of the individual entrepreneur and the construct human
resource system flexibility into SHRM theory and research on EDSEF. Research propositions
are posed throughout the paper to promote and to facilitate the further development of SHRM
theory for the EDSEF.

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INTRODUCTION
Entrepreneurship research suggests that new, small firms grow faster, create more net
jobs, distribute wealth more effectively, and innovate more than large firms and are,
therefore, the true drivers of economic growth (Newbert, 2005). In 2005, according to the
United States Small Business Administration, 99.7 % of the 5,983,546 companies in the
United States (US) had fewer than 500 employees; 98.2 % had fewer than 100 employees;
and 78.2 % had fewer than 10 employees. The US appears to provide a very stimulating
entrepreneurial environment, since about 6.2 in every 100 US adults 18 years and older are
engaged in trying to start new firms (United States Small Business Administration Office of
Advocacy [USSBA], 2005). Clearly, emergent and developing small entrepreneurial firms
(EDSEF) are a vital part of the US economy.
Management research has recognized that a critical success factor for the survival,
growth, and sustained development of these firms is human resources (HR) (Cardon, 2003;
Leung, 2003). In the opening paragraphs of her seminal book, The Theory of the Growth of
the Firm, Edith G. Penrose (1959) notes that the growth of a firm is connected with
attempts of a particular group of human beings to do something; nothing is gained and much
is lost if this factor is not explicitly recognized (p. 2).
This paper takes up and adopts this tenor and in recognition of the significance of the
EDSEF to the economy, focuses on the organizational performance aspect of human resource
management (HRM) which is primarily addressed in the field of strategic human resource
management (SHRM).
A review of the literature shows that EDSEF have been treated as second-class
citizens (Tansky & Heneman, 2003, p. 299) in HRM theory and research. Despite the
recognition of the importance of HR in these firms, there is very little research in this field.
There is even less research that explores the strategic nature of HRM in these firms (Mayson
& Barrett, 2006). In general, HRM in entrepreneurial ventures is a subject that is frequently
overlooked and HRM theories are developed and tested in the context of large, nonentrepreneurial, and established firms (Jack, Hyman, & Osborne, 2006).
A possible reason for this shortcoming is the tendency of HRM researchers to survey
HR professionals and to focus on the HRM department in a firm and describe what work it
performs (Katz & Welbourne, 2002). HRM in entrepreneurial firms, however, is not
dependent on an HRM department or an HR professional. Many of these firms are too small
30

and do not have the resources to institutionalize an HRM department or to employ an HR

professional. Nevertheless, someone must do the HRM and HRM, in fact, happens in these
firms. This activity falls primarily to the founding entity (i.e., the individual founder) of the
firm. His or her HRM efforts in the early developmental phases of the firm have the potential
to set the path for the further development of HRM. Researchers recognized that employment
systems, bureaucratic structure, culture, and norms are established by the entrepreneur in the
firms early formative stages (Baron, Burton, & Hannan, 1995, 1996, 1999; McCarthy,
2003). The founders initial HRM tends to be very informal, which may in some situations
give the entrepreneurial firm an advantage in terms of a high degree of flexibility of
managing HR related problems. This flexibility is often considered to be the great strength of
small entrepreneurial firms (Mayson & Barrett, 2006). In the long run, however, informal
HRM does not recognize the value of human capital and may not deliver the optimal results
for the firm (Welbourne & Cyr, 1999). As a firm transitions from the start-up phase to the
growth phase it becomes a more complex entity. As the firm grows in size a more strategic
approach to HRM, based upon a more formalized HRM structure, can positively contribute to
the important firm performance outcomes growth and survival (Rutherford, Buller, &
McMullen, 2003; Welbourne & Andrews, 1996).
The significance of the founders role in imprinting a firms employment system
during its early stages of existence must not be overlooked and the founder must be
considered as an important variable of analysis in HRM research in EDSEF.
A small business is not just a little big business (Welsh & White, 1981, p. 18).
HRM in an emergent and entrepreneurial firm is confronted with a high degree of uncertainty
concerning individual, as well as, firm performance outcomes, resource poverty (Welsh &
White, 1981, p. 18) and a liability of newness and smallness (Alvarez & Molloy, 2006;
Boccardelli & Magnusson, 2006). These conditions, in addition to the intraorganizational and
environmental dynamics that a small entrepreneurial firm is exposed to, distinguish it from a
larger and more established firm. The condition of uncertainty, however, deserves particular
attention. In contrast to the established and nonentrepreneurial firm that operates under
conditions associated with varying degrees of risk, the EDSEF operates under conditions of
uncertainty in which firm and individual performance outcomes are both unknown and
unknowable. Furthermore, in contrast to an established nonentrepreneurial firm, an
entrepreneurial firm cannot capitalize on prior experiences with a certain product or service,
because the product or service that the firm will ultimately place on the market may not been
31

discovered or created. This highly uncertain setting makes it especially difficult for the
EDSEF to design and to implement resource coordination decisions (i.e., HRM) that improve
or maximize organizational performance outcomes (Alvarez & Molloy, 2006; Boccardelli &
Magnusson, 2006).
HRM, in particular, SHRM has been studied primarily in large, bureaucratic and
established organizations. The question of whether extant SHRM theory and research can be
seamlessly extended to small entrepreneurial firms has not been sufficiently addressed in the
literature. This paper argues that the firm performance link of HRM should be studied
separately in EDSEF from large and established firms. In support of this argument, Heneman,
Tansky, and Camp (2000) found in a comprehensive qualitative study of more than 300
founders and young entrepreneurs that HRM that is effective and works well in large firms
does not automatically work in small entrepreneurial firms. Other research studies arrive at
similar findings and are supportive of Heneman et al.s (2000) argument (Barber, Wesson,
Roberson, & Taylor, 1999; Harney & Dundon, 2006; Jack et al., 2006).
The purpose of this paper is to evaluate the relevance and the generalizability of the
underlying key concepts of SHRM in the context of EDSEF. It will accomplish this by briefly
describing the foundations of the SHRM framework, addressing the founders role in forming
and imprinting the employment system in a firm, pointing out the implications for HR
strategy in regard to the organizational dynamics associated with the start-up and the growth
phases, and finally proposing an extension of the extant SHRM theory by the construct HR
system flexibility as an important strategic facilitator.
This paper examines the EDSEF in the context of its organizational life cycle (OLC)
stages pre start-up, start-up and early growth in order to discriminate research on the
emergent and developing small entrepreneurial firm from research that focuses on the large,
bureaucratic and established company. Research in the field of OLCs has conceptualized
different stage models (Mazzarol, 2005). Despite the controversy in the OLC literature
regarding the proper number of stages, the concepts practical relevance and the question of
whether the actual development of firms is as linear as OLC models suggest, this concept will
here be used merely as an illustrative framework to facilitate discussion and analysis of
SHRM theory in the context of the EDSEF. In support for this approach, Rutherford et al.
(2003) found that firm size and firm growth are factors that identify OLC stages and that HR
problems vary significantly with these two factors.
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The following paragraph will briefly depict the mainstay principles of SHRM to
facilitate the readers understanding of this papers discussions.
THE FOUNDATIONS OF STRATEGIC HUMAN RESOURCE MANAGEMENT
The field of SHRM differs from traditional HRM in various aspects. SHRM focuses
on organizational performance rather than individual employee performance and emphasizes
the role of HR systems instead of individual HRM practices. SHRM is based on the concept
of fit between the strategic goals of an organization and its HR architecture. The HR
architecture consists of HR systems and HR practices that reflect the management of the
organizations strategic human capital. The heart and mainstay of SHRM is the concept of fit
that subsumes external congruence and internal consistency. External congruency stresses the
development of systems of HR practices for each functional area of HRM that are consistent
with the business strategy of the organization. Internal consistency emphasizes the potential
for synergies when HR practices are developed in a manner that they are consistent with one
another (Becker & Huselid, 2006; Heneman & Tansky, 2002).
Extant SHRM theory and research that is based on these principles will be examined
in the subsequent paragraphs.

THE ORIGINS OF A FIRM'S HUMAN RESOURCE MANAGEMENT

Since an HR department and an assigned HR professional are missing in most
emergent entrepreneurial firms at the start-up phase, and the dominant research method in
SHRM is to study HR departments and to survey HR professionals, it is imperative to
establish a different construct underlying SHRM research in entrepreneurial firms. In HR
strategy research in emergent entrepreneurial firms it will be important to focus on a firms
HR strategy from the perspective of the founder before an HR department has been
established and the firm has survived its first years. Analyzing the HR policies implemented
or administered by an HR department and analyzing a founders initial HR actions are two
different issues. Welbourne and Andrews (1996) argue that the latter approach provides more
variance in performance measures, including survival, and also allows analysis of the
causation between HR policies, practices, and systems and firm performance outcomes. For
example, the existence of a certain HR program might not indicate whether management
really uses this program. It might merely reflect the activity level or the level of staffing of
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the HR department. Data gathered from HR professionals might not tap the underlying
construct of whether management employs and employees use the HR program. This matter
is directly related to the intensively discussed black box issue in the SHRM literature
(Becker & Huselid, 2006; Collins & Clark, 2003; Mayson & Barrett, 2006; Wright, Gardner,
Moynihan, & Allen, 2005), which refers to the struggle of SHRM researchers to address
causality between the HR architecture and firm performance. Focusing on the founders
initiated HRM practices and policies at the early developmental stages of a firm may be
helpful in adequately addressing causation.
Research proposition 1: The founders initiated HRM policies and practices are
related more directly to firm performance outcomes than the HRM policies and practices
initiated by an HRM department or an HR professional.
The pre start-up phase is usually delineated by OLC models as the stage where the
firm is initially conceived in the mind or minds of its founders (Mazzarol, 2005, p. 38).
At the pre start-up phase of a firm the founder and the firm are isomorphic and overlap fully
(Katz & Welbourne, 2002). Shane and Venkatarman (2000, p. 218) suggest that
entrepreneurship research should focus on how, by whom, and with what effects
opportunities to create future goods and services are discovered, evaluated, and exploited
(italic added). Studying the origins of HRM issues from the perspective of the individual
entrepreneur, his or her individual thought processes and how he or she puts these into action
may provide valuable insights for HRM research concerning how the earliest HR efforts
influence a firms employee relations and performance outcomes in the present. For example,
Baron et al. (1995) identified four distinct HR models or blueprints that founders of hightechnology firms had in mind when they started their firms. They describe these four HR
models as star, engineering, commitment, and factory models. These models, in turn, reflect
three interrelated dimensions of the employment relationship: the focus on employee
attachment and motivation, the basis of selection, and the nature of control and coordination
exercised over the employees. It is very interesting that within their rather restricted sample
of 100 high-technology companies they could find support for the discriminant existence of
such diverse models. They further showed that the founders employment blueprints
influenced subsequent adoption of HR strategies, timing of HR policies and the speed with
which firms committed themselves to formalize their HRM by appointing a full-time HR
manager. Additionally, they found that founders employment models are stronger predictors
of firms current HR practices than is the current CEOs employment model two years after
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the establishment of a firm. These findings imply strong path dependence in the evolution of
employment systems. Clearly, organizational origins matter and the founders mental HR
blueprint very likely constrains the evolution of HRM in the EDSEF.
Research proposition 2: The performance of an emergent and developing small
entrepreneurial firm will depend on the founders mental HR blueprint. This mental HR
blueprint will form employees perceptions of what are the critical HR problems and
activities in a firm. Consequently, employees HR initiatives will be tailored toward the
founders mental HR blueprint.

START-UP AND GROWTH DYNAMICS

The shift from the pre start-up phase to the start-up phase and to the growth phase
results in a growth in scale, more complexity, and higher heterogeneity of tasks and
employees for the EDSEF. Heneman et al. (2000) and Rutherford et al. (2003) show that
HRM related problems perceived by managers in small and entrepreneurial firms indeed vary
over the OLC with respect to firm growth and firm size. The previous discussion about the
founders mental HR blueprints suggests that the evolution of HRM problems and HRM
activities may be path dependent. Firm growth, firm size, and internal organizational
differentiation in this context may not be alternative explanations (Rutherford et al., 2003,
p. 331) to these mental HR blueprints. Instead they will function as moderating variables in
the cause-effect relationship of mental HR blueprints and the evolution of HR problems and
HR activities. For example, a high rate of growth and a rapid increase in firm size may not
allow the founder to fully institutionalize his or her mental HR blueprint, whereas a slow rate
of firm growth and a slow increase in size may allow the founder more time to
comprehensively institutionalize his or her mental HR blueprint in the firms structure and
processes.
Research proposition 3: Firm growth and firm size will moderate the influence of a
founders mental HR blueprint on the evolution of HR problems and HR activities in an
emergent and developing small entrepreneurial firm.
The dynamics associated with firm formation at the start-up phase and at the growth
phase and their implications for SHRM are discussed in the subsequent paragraphs.

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Start-up Phase Dynamics

During the start-up phase of the firm, the founder makes all HR related decisions.
Managerial staff is minimal and is focused on execution. The major organizational goal at
this stage is survival (Leung, 2003). Founders are very time and resource constrained. They
focus on realizing the opportunities they have identified and establishing legitimacy as an
organization (Heneman & Tansky, 2002). Employees and the founder do not have time to
develop careful recruiting and selection, or other HR processes (Cardon, 2003).
Organizational structure and systems are likely to be simple and informal (Ciavarella, 2003).
The major challenge for the firm at this stage is to find a balance between controlling costs
and hiring specialized skills necessary to start the business. Many employees might be needed
on a temporary or contingent basis to perform project related and highly specialized tasks
(e.g., installing a PC infrastructure, setting up an accounting system or an inventory system,
handling legal affairs). At the start-up stage, informal recruitment through networks is often
adopted by entrepreneurs and considered to be more effective than formal practices (Leung,
2003). At this stage, entrepreneurial firms lack resources and organizational legitimacy to
recruit employees from outside the founders social circle. Entrepreneurs tend to look for
strong ties, and people with like minds who are sharing a similar background and similar
values. During the start-up phase, this cohesiveness is key for survival in a highly uncertain
and ambiguous business environment where it is not always clearly specified what should be
done and how to proceed (Leung, 2003).
In this context, some models and assumptions that are integral to SHRM may not be
of relevance to EDSEF. The SHRM mainstay principles of external congruence and internal
consistency, for instance, appear to be of low relevance for entrepreneurial firms struggle
with immediate survival at the early start-up phase. For example, the identification of market
opportunities and the formulation of a strategy of how to exploit these opportunities may be
carried out successfully without a high degree of external congruence and internal
consistency.
High performance work systems (HPWS) which are defined as best practices
(Becker & Huselid, 2006, p. 905) are argued to increase performance outcomes for a large
number of firms. HPWS are based on characteristics like employment security, selective
hiring, self managed teams, high compensation levels, decentralized decision making, and
36

extensive training (Cardon, 2003). Taking into consideration the resource constraints and
uncertainties that are impacting entrepreneurial firms at the start-up phase, providing
employment security, engaging in selective hiring, and extensive training seem to be
impracticable. The universalistic best practices perspective (Becker & Huselid, 2006, p.
905; Delery & Doty, 1996), which is supposed to be relevant to all firms, fails the recognize
the special characteristics of entrepreneurial firms. Ways (2002) finding that HPWS research
has excluded firms with fewer than 100 employees lends support to this argument.
Universalistic HPWS prescriptions that are developed based on the assumptions and realities
of an established large scale firm clearly suffer form a little big business syndrome (Harney
& Dundon, 2006, p. 49). For example, the adoption of a best practice HPWS which stresses
employment security may even be detrimental to EDSEF performance. Employment security
may conflict with the benefits that entrepreneurial firms can draw from allowing a constant
flow of employees into and out of the firm, as this may support the generation of ideas which,
in turn, positively contributes to survival and growth.
A more relevant alternative to studying the firm performance link of HRM in
entrepreneurial firms at the start-up stage is the market-type employment system perspective
that Delery and Doty (1996) describe. EDSEF do not have another choice but to be market
driven in their approaches to employees. The idea of market-based HR practices is to match
patterns of HR practices with characteristics of the firm. Multiple characteristics need to be
focused on simultaneously rather than one characteristic of the firm or business strategy
being considered by itself. A market-type employment system provides little training,
individual performance appraisals, little employment security, broadly defined jobs, and few
internal career opportunities (Delery & Doty, 1996). Employment systems like that clearly
reflect the realities and characteristics of the EDSEF at the start-up stage and represent the
configurational perspective of theorizing in SHRM (Delery & Doty, 1996, p. 808). At the
start-up stage the entrepreneurial firm is exploring markets in which it has no experience. It
will very likely move on quickly if it appears that there is little opportunity for profit in a
certain area. It is confronted with constant change and is less aware of specific behaviors that
are necessary to perform well. At the early start-up stages where the identification of
opportunities and formulation of exploitation strategies of market opportunities is important,
the configurational perspective (Delery & Doty, 1996, p. 808) is likely to be more relevant
to entrepreneurial firms than the universalistic perspective (Delery & Doty, 1996, p. 805)

37

of HPWS or even the contingency perspective (Delery & Doty, 1996, p. 807), where the
firms strategy is considered to be the primary contingency factor for HRM.
Research proposition 4: Emergent and developing small entrepreneurial firms at the
start-up phase which adopt market-type employment systems will be able to reap higher
organizational performance than others, who pursue a universalistic or contingency approach
to HRM.

Growth Phase Dynamics

The growth stage is characterized as the most dynamic stage of the OLC (Ciavarella,
2003). The focus is set on the transition of the firm into a more systematic entity (Leung,
2003). Change and adaptation is necessary in many functional areas as new employees,
systems, functions, and customers are added. At the growth phase, the founder can no longer
cover all the key functions in the organization. Professional HR managers may have been
hired. Contingent or temporary workers, which have partnered with the firm at the start-up
phase, may be converted into permanent employees. At this stage the major concern is related
to maintaining a market niche, continuing profitability, and deriving a long-term strategic
growth plan. A growing firm may have to accommodate increased product demand by hiring
large numbers of people, which in turn may become an administrative problem. The
recruitment at the growth stage is different from recruitment at the start-up phase. Now, the
entrepreneurial firm needs a more diverse team with different competencies and perspectives
to carry out the firms strategic course. Leung (2003) demonstrates that recruitment sources
of entrepreneurs change at this stage from social networks to business networks. She shows
that the characteristics of the network ties remained consistently strong and direct during
start-up and growth phase. This is surprising as one might expect from prior studies in
network theory that organizations would strive to recruit from weak and indirect ties rather
than strong ties to gain access to diversified information and resources. What Leungs (2003)
finding implies is that cohesiveness of members of an entrepreneurial firm in terms of shared
values, visions, and goal congruence may be of high importance throughout the early
development stages. Heneman et al. (2000) arrive at a similar conclusion and show that
growth oriented founders demonstrate a high concern about matching characteristics of the
employees, other than their knowledge, skills, and abilities (KSA), to the values and culture
of the organization. This cohesiveness in terms of values, visions, and goals may offer
38

guidance to the employees in a context where uncertainty concerning individual and

organizational performance outcomes and ambiguity levels regarding organizational
processes and guidelines are high (Alvarez & Molloy, 2006; Boccardelli & Magnusson,
2006; Shane & Venkatarman, 2000).
Studying an entrepreneurs rational behind recruitment practices may be a step
towards the identification of unique characteristics of entrepreneurial HPWS.
Research proposition 5: Emergent and developing small entrepreneurial firms which
show high levels of member cohesiveness in terms of values, visions, and goal congruence at
the early growth stage of the OLC will be able to reap higher organizational performance
outcomes.
While some of the characteristics of HPWS described earlier may be overwhelming
resource consuming, impractical, and of limited relevance for the entrepreneurial firm at the
start-up stage, as the firm grows and capital becomes available there may be some
opportunity to implement high performance based practices like stock sharing plans and
profit sharing (Heneman & Tansky, 2002). Way (2002) argues that HPWS may enhance the
ability of an entrepreneurial firm to select, develop, retain, and motivate a workforce that
produces superior employee output. However, research in this area has not identified whether
there are HPWS characteristics associated with entrepreneurial firms that are unique to them.
The SHRM principles of internal consistency and external alignment will become
more relevant at this stage where firm creation and growth are essential and the market
exploitation strategy has been defined. At the same time, this system equilibrium will also be
more difficult to achieve because of the growing complexity of the entrepreneurial firms
operations.
The fact that Baron et al. (1995) could systematically relate the adoption of specific
HRM policies to the mental HR blueprints of the founders during the first two years of firm
existence, provides evidence for internal HR system consistency of entrepreneurial firms at
their early start-up phase. In fact, Heneman et al. (2000) show that founders do not describe
effective HRM as a function of functionally isolated individual HR practices, but rather
describe effective HRM as a function of interrelated bundles of HR practices. In a subsequent
study Baron et al. (1996) found the founders employment models and business strategies to
be highly interdependent at the early start-up phase. This is the mainstay of SHRM, that
39

employment systems are closely aligned with and supportive of business strategy. However,
it was also found that this system equilibrium of internal consistency and external alignment
was a temporary condition and deteriorated significantly over a ten year period. This finding
reflects the fact that internal consistency and external congruence are easier to achieve during
the early developmental phases of an entrepreneurial venture. At these stages the tasks that
are carried out are more homogeneous than at the growth stage. Increasing firm size, higher
rates of firm growth, and increasing heterogeneity within the entrepreneurial firms functional
areas exert more pressure towards internal differentiation and make the system equilibrium of
internal consistency and external congruence more difficult to achieve. In this context it
might be argued that a firms ability to adapt to environmental dynamics and internal
differentiation during early developmental phases might be negatively influenced by a high
degree of internal consistency and external congruence. This is what Heneman et al. (2000)
found when surveying young founders about the importance of HR strategy for the success of
their firms. Growth oriented founders associated strategic HR considerations in regard to
external congruence and internal consistency with static and inflexible firm characteristics
that hinder a firms adaptability to internal or external dynamics.
Extant SHRM theory and the typical SHRM model are conceptualized for
organizations that operate in mature and stable environments and that are confronted with
little intraorganizational change and differentiation (Becker & Huselid, 2006; Hayton, 2006;
Wright & Snell, 1998). The need of EDSEF to cope with instabilities and changes and to
maintain a dynamic concept of fit calls for the integration of HR system flexibility into
SHRM theory for EDSEF. The subsequent section introduces the construct HR system
flexibility as a strategic facilitator for EDSEF.

HR SYSTEM FLEXIBILITY
HR system flexibility contributes to overall strategic flexibility of a firm (Hayton,
2003). It can be expected that HR system flexibility is also related to entrepreneurial
performance outcomes. According to Hayton (2003), HR system flexibility can take two
forms, resource flexibility and coordination flexibility. Resource flexibility is determined by
HR practices that may either enhance or inhibit the flexibility of a firms HR. Resource
flexibility also includes functional flexibility, which refers to the range of jobs that individual
employees are capable of performing. Coordination flexibility is a function of the speed at
40

which a firm is able to reconfigure human resources to support new strategies (Hayton, 2003,
2006). Similarly, Wright and Snell (1998) propose that HR system flexibility is based upon
the three subdimensions employee skill flexibility, employee behavioral flexibility, and HR
practice flexibility.
In EDSEF, HR system flexibility can be defined as a dynamic capability. A dynamic
capability can be conceptualized as a tool that manipulates, re-combines, and re-interprets
already existing resource configurations (Boccardelli & Magnusson, 2006; Eisenhardt &
Martin, 2000). This suggestion adopts Wright, Dunford, and Snells (2001) proposal that a
comprehensive SHRM theory needs to incorporate the dynamic capability concept. As an
entrepreneurial firm grows and moves through different developmental phases, employees
are required to constantly change and adapt their skill sets and behavioral repertoires. In this
context, HR system flexibility can contribute to the establishment of a dynamic concept of fit
and to improved firm performance outcomes. It is important to recognize that in the context
of EDSEF the primary source of dynamic capabilities is the individual entrepreneur, rather
than organizational processes, and that he or she has or has not the ability to improvise and
re-interpret how resources should be used in order to match changing organizational demands
(Boccardelli & Magnusson, 2006).
SHRM theory has been predicated on HR stability and has tended to ignore HR
system flexibility (Ericksen, 2006). For large and established firms, which operate in mature
and stable environments, HR system flexibility represents an avoidable additional cost.
However, HR system flexibility may be a key dynamic capability and a strategic facilitator
for the realization of a dynamic concept of fit in the EDSEF. The subsequent paragraphs will
discuss the two forms of HR system flexibility in more detail.

Resource Flexibility
SHRM theory is based upon a behavioral perspective which suggests that an
organizations strategy necessitates behavioral requirements for success, and the use of HR
practices in the organization can reward and control employee behavior . If an employer
knows what employee behaviors it needs, then the organization will enact policies and
procedures that elicit these behaviors (Delery & Doty, 1996, p. 808). Taking into
consideration the characteristics of EDSEF and the internal dynamics and changes that result
41

from the firms transition through the different stages of organizational development,
entrepreneurial job performance and, consequently, firm performance outcomes may be
dependent upon behaviors and skills that are difficult, if not impossible, to identify and to
specify in advance in formal job descriptions. It may not always be clear in ESDEF what
should be done and how, and policies and procedures may not be available or desired in
entrepreneurial settings. SHRM theory focuses on the formal job that, in fact, constrains the
flexibility of a firms human resources. Encouraging employees to non-job and to
entrepreneurial above and beyond behaviors (Welbourne, 1997, p. 7) may be critical for
firm performance in settings where performance outcomes are both unknown and
unknowable. This can be achieved through the promotion of active role making which, in
turn, has the potential to enhance resource flexibility in that the human resources are put to a
greater range of uses (Evans & Davis, 2005). Traditional job analysis does not accommodate
the dynamic and evolving nature of duties, tasks, and behaviors. Moving from an emphasis of
jobs to an emphasis of roles may be a way to accommodate the flexibility required of
employees in entrepreneurial firms. Heneman et al. (2000) found that the primary concern of
growth oriented founders is the development of employees that can perform multiple roles
under various stages of organizational growth. Roles seem to characterize how work is
organized in EDSEF. Welbourne, Johnson, and Erez (1998) developed theory for critical
roles that employees are expected to perform and showed how specific roles relate to multiple
dimensions of performance. These critical roles include the job role, the organizational role,
the career role, the team role, and the innovator role. These five roles, however, may not be
the only important ones. There may be other roles that employees are expected to perform in
entrepreneurial firms. The point here is that unlike functional HR or SHRMs reductionalistic
focus on formal jobs, a focus on roles and proactive role making, allows for the ongoing
creation of roles for employees at various stages of organizational development. This has the
potential to reduce costs of switching a human resource from one use to another and
consequently improve firm performance.
Research proposition 6: The promotion of role behavior and proactive role making
in emergent and developing small entrepreneurial firms will facilitate resource flexibility and
will be positively related to firm performance outcomes.

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Coordination Flexibility
Coordination flexibility is the second aspect of HR system flexibility. It refers to the
speed at which a firm is able to synthesize, reconfigure, and redeploy resources to support
emergent strategic goals (Bhattacharya, Gibson, & Doty, 2005). Increased coordination
flexibility implies a faster response time to changing demands caused by intraorganizational
dynamics or the external environment. In general, coordination flexibility is facilitated if a
firms HRM is focused on strategic and change oriented activities instead of traditional
functional tasks (Hayton, 2006). Proactive role making and the promotion of role behavior
may lead to an increase in employee behavior variety, which can contribute to a speedier
response to intraorganizational and environmental change.
Research proposition 7: HR system flexibility (i.e., resource flexibility and
coordination flexibility) functions as a facilitator between the firm performance link of HRM.
A high degree of HR system flexibility will more positively contribute to firm performance
outcomes if the rate of intraorganizational and environmental change is high rather than low.

CONCLUSION
It is very unlikely that the simple extension of extant SHRM theory to EDSEF will
yield meaningful results. Barber et al. (1999) showed that extending HR practices from large
to small firms does not work well. It is equally unlikely that the extension of findings in
nonentrepreneurial firms to entrepreneurial firms will work well. The differences between
EDSEF and large, established, nonentrepreneurial firms have implications for all resource
coordination activities in these two types of firms. SHRM, in this respect, is no exception.
Understanding the role of the organizational performance aspect of HRM in EDSEF is
of high practical relevance, since these firms contribute significantly to economic growth.
From a theoretical perspective, this paper shows that extant SHRM theory needs to be
adjusted to the realities and characteristics of the EDSEF in at least two major points. First, it
proposes the integration of the individual entrepreneur (i.e., the founder) as an important
variable of analysis. Second, the dynamic nature of EDSEF and the close proximity to
environmental forces need to be accounted for by the integration of the construct HR system
flexibility into SHRM theory in EDSEF. The construct HR system flexibility is depict as a
facilitating mechanism for the maintenance of a dynamic concept of fit.
43

Based upon the finding that there is only little research that focuses on SHRM in
EDSEF, research propositions have been posed throughout the paper as a contribution to
encourage further development of SHRM theory for the EDSEF. The research propositions
formulated in this paper are show in graphical format in Figure 1 below.

Founders

HR Problems

HR System:

Mental HR

HR Activities

External &

Growth in
Sales & Size

HR System
Flexibility

Organizational &
Environmental
Change RP7
Firm Performance
Outcomes:

Note:

Survival & Growth

RP Research Proposition

Figure 1: Toward SHRM theory for emergent and developing small entrepreneurial firms.

44

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