IHRM

Formal System Of HRM in Small or Growing Enterprise

Formal System Of HRM in Small or Growing Enterprise

Introduction

It is recognized increasingly that small and medium-sized enterprises (SMEs) are complex, varied, and influenced by a range of factors and thus cannot be depicted by static models. SMEs encompass firms of various sizes with varying degrees of complexity in management practices. However, they often are treated as one entity. Management training and advice to SMEs is based largely prescriptions that require the adoption of formal management procedures more suited to large firms. Trainers and advisers often fail to investigate the degree of formality already established in the firm and the implications for the firm's competitiveness before prescribing changes to existing practices. This is particularly true for human resource management (HRM) where practices in SMEs generally are described as "informal".

The need to examine the interaction between firm size and HRM practices is gaining recognition among researchers. This paper investigates the extent to which HRM practices become formal as firms progress in size and the implications of the changes for effective and competitive HRM practices. The HRM practices examined are recruitment and selection, training, performance appraisal, development of human resource (HR) policies, and maintenance of HR records. Kaman et al. (2001, 33-44) noted that these are HRM areas prone to increased formalization with firm growth.

Discussion

The word formal refers to prescribed practices--that is, practices generally approved in the literature as appropriate for the various HRM areas examined. In this regard, it extends beyond documentation and standardization of procedures, roles, and instructions to include legitimate sources of recruitment and the use of specialists for training. From Katzell's (1962, 33-44) contention SMEs of varying sizes should exhibit various levels of formality in their HRM practices.

Consistent with Katzell's (1962, 33-44) propositions, Hornsby and Kuratko (1990, 9-18) examined HRM practices of small firms in three size categories and reported increased sophistication in practices with firm growth. Roberts, Sawbridge and Bamber (1992, 240-257) argued that the limits of informality become apparent in firms with 20 or more employees when informal networks of recruitment dry up and when informal styles of management communication are stretched. Jennings and Beaver (1997, 63-75) noted that at this size the owner becomes overextended and needs to delegate responsibility to more professional management. In contrast, Wilkinson (1999, 206-217) argued that employment relations in SMEs are characterized by informality and those formal control systems and communication strategies are almost nonexistent. He maintained that emphasis on rules and procedures is outdated in an environment where owners have to make speedy decisions in response to market pressures. Golhar and Deshpande (1997, 30-38) found similarities among small and large firms in many areas of HRM practices. These contrasting views make it difficult to understand existing HRM practices in SMEs and to prescribe appropriate practices for these firms. The result is a "one-size-fits-all" approach to HRM training and advice for SMEs (Jennings and Beaver, 1997, 63-75).

Recruitment and Selection

It is expected that as firms grow, the skills ...