Litrechar Review On HR Practises
Litrechar Review On HR Practises
Introduction
In recent years, research has shown that the competitiveness of enterprises is intimately linked
to their human resource management practices.
The creation of high performance organisations rests upon the establishment of a productive
workplace culture, appropriate organisational structures and development of the skills and
capabilities of people.
No one setof practices is enough to create the high performance organisation.
HR practices have to be bundled into complementary packages that suit the goals of the
organisation.
This link to the strategy of the organisation is perhaps the most important element of all in the
design of effective HR practices for organisations.
As RTOs face an increasingly competitiveenvironment, so the importance of high quality HR
practices will become central to their long-term viability and competitive success.
This project will seek to investigate the current HR practices being implemented within RTOs
and gauge their effect on the performance of the organisations. In particular, the project will
focus on the strategic aspects of HR management.
• review the current state of practice of human resource management internationally and evidence
for the relationship of effective HRM to the creation of high performance work systems,
especially in the education and training sector establish the current state of HR practices amongst
Australian RTOs examine the linkages between HR practices and business strategy in Australian
RTOs Products Systematic literature review on international best practice human resource
management Final report on the state of HR practice within Australian RTOs Model of how HR
practice can improve the performance of RTOs
Benefits
RTOs and State/Territory training authorities will benefit from this research by:
• gaining a greater understanding of the role of HR practices in improving the competitiveness of RTOs
understanding the ways in which HR practices can be linked effectively to the business strategies of
RTOs understanding how HR practices can be put together in complementary bundles to suit differing
organisational goals and structures
HRM practices in large and small manufacturing firms:
a comparative study.
By Golhar, Damodar Y.
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Small firms created more than six million new jobs in the United States in the 1980s. During the same
period, Fortune 500 firms reduced employment by more than a million (Holt 1993). In recent years, small
firms have accounted for nearly 90 percent of the net new jobs added in the U.S. (Mathis and Jackson
1991). Since small firms employ nearly half of the American workforce (Holley and Wolters 1987), their
success is critical for the economy. To be successful in a global market, a small firm needs a highly
motivated, skilled and satisfied workforce that can produce quality goods at low costs (Holt 1993).
However, to develop such a workforce, a firm has to implement an appropriate human resource
management (HRM) strategy.
Unlike large businesses, published research further indicates that recruiting, motivating, and retaining
employees is one of the biggest problems for small firms (Hornsby and Kuratko 1990, Mathis and
Jackson 1991, Gatewood and Field 1987, Verser 1987). These findings are substantiated by a recent
study (Hess 1987) which reports that small firms ranked personnel management as the second most
important management activity (next to general management). However, in practice, other functional
areas such as finance, production, and marketing usually get preference over personnel management
(McEvoy 1984). Even textbooks on small business management pay considerably more attention to
finance, marketing, and planning than personnel management (Hess 1987). Also, researchers report that
managers of small firms lack training in formal personnel management practices and they do not consider
the use of generally accepted HRM practices as essential for improving productivity (Amba-Rao and
Pendse 1985, McEvoy 1984). This lack of understanding of HRM issues and their importance in the
operation of a successful business has impacted many small firms. Inadequate and inefficient
management of human resources of firms have often resulted in low productivity, and high dissatisfaction
and turnover among the employees (Mathis and Jackson 1991). At least one study has found HRM
practices to be the leading cause of small firms' failures (McEvoy 1984).
However, there is no consensus among researchers regarding the role of HRM in the success of small
firms. A study suggesting that training in personnel management is not as critical as training in finance or
marketing for small business owners has added to the confusion regarding the importance of HRM
practices in small firms (Curran 1988). To resolve this issue, a comparative study of small and large firms
is undertaken.
LITERATURE REVIEW
A good HRM program will recruit, select, motivate, and retain employees who have the required
workforce characteristics (Deshpande, Golhar, and Stamm 1993; Saha 1989). A majority of the published
research investigating HRM issues in small businesses is conceptual and has concentrated on diverse
HRM topics. Maurer and Fay (1986) examined the legal issues involved in employee selection methods
used in small business. Gatewood and Field (1987) proposed a model selection program for small
business. Fairfield-Sonn (1987) developed a strategic process model to guide the establishment of small
business training and development programs. Curran (1988) suggested various training strategies for
small business. Fowler and Murlis (1989) proposed compensation systems for small companies.
Cosgrove and Dinerman (1982) addressed industrial relations issues in small firms. Holley and Wolters
(1987) examined employment-at-will issues in small businesses. Finney (1987) and Smith (1991)
addressed personnel challenges faced by HRM managers of small firms and proposed strategies for
effective HRM.
On the other hand, some empirical work has also been reported in the literature that examines specific
aspects of HRM. McEvoy (1984) studied personnel practices of 84 small businesses near a large
midwestern metropolitan area and found that small businesses lacked creative staffing practices. An
investigation of compensation practices of 78 small firms in north-central Indiana revealed that small
business compensation and maintenance practices lacked a systematic and rational approach (Amba-
Rao and pendse 1985). Verser (1987) examined perceptions of personnel problems by 25 small business
owners. She found that owners often dealt with subordinates in an arbitrary fashion and did not perceive
this behavior as contributing to low employee morale or productivity. Another study of 347 small
midwestern firms identified selection and retention of a quality workforce as the most important HRM
issue for small firms (Hornsby and Kuratko 1990). An implied assumption of most of these empirical
studies is that HRM practices of different types of small firms (e.g., manufacturing, retail, wholesale, and
service) are similar. The researchers also implicitly assume that both large and small firms need
employees with similar workforce characteristics. Since each employee constitutes a larger percentage of
the workforce for a small firm (Gatewood and Field 1987), it is possible that the workforce requirements in
small firms are more stringent. Thus, it is expected that HRM managers of large and small firms will
perceive the importance of various desired workforce characteristics differently. We hypothesize that
these workforce characteristics will be more important in small than large manufacturing firms.
In addition to the workforce characteristics, it is important to know if HRM practices of small and large
manufacturing firms are different. Hornsby and Kuratko (1990) discuss the confusion that exists in the
literature concerning personnel policies of small firms. They also indicate that the HRM textbooks
contradict what actually happens in practice and make untested assumptions about HRM policies and
practices. The HRM practices of small firms may be different from large ones either because of different
workforce requirements and/or a lack of understanding of HRM issues by small business owners.
Therefore, we hypothesize that the HRM practices of large and small firms are different.
In summary, this empirical study compares HRM issues in large and small manufacturing firms. In
particular, the following issues are examined: (a) essential workforce characteristics, (b) sources of
recruitment used, (c) selection instruments used, and (d) other HRM practices. Such an investigation will
be useful to both practitioners and researchers.
METHODOLOGY
A survey instrument, based on current HRM literature, was developed. The survey contained items
regarding workforce characteristics, sources of recruitment, and selection tests. The questionnaire also
included items related to compensation, training and development, and employee retention.
The survey was sent to 360 HRM managers of small and large midwestern (Michigan, Illinois, and
Indiana) manufacturing firms in early 1992. A list of the firms was compiled by the authors from an earlier
research study. A follow-up letter was sent to the HRM managers four weeks after the first mailing. Of the
360 firms, a total of 105 firms responded to the survey. Five firms did not submit a complete questionnaire
and were dropped from subsequent analysis. This resulted in 100 usable responses (a response rate of
28 percent). Out of the 100 respondents, 21 were large firms (with more than 500 employees). The size of
the large firms ranged from 575 to 37,900 employees (median = 1,700, mode = 1,400). The remaining 79
firms were small firms (that employed fewer than 500 workers). The size of small firms ranged from 10 to
460 employees (median = 170, mode = 35). Responding firms represented a wide variety of industries
including automotive, metal fabrication, and office furniture.
RESULTS
Nine important workforce characteristics were identified from the management literature (Deshpande,
Golhar, and Stamm 1993; Saha 1989). Respondents were asked to indicate the degree of importance for
each characteristic on a 5-point scale (1 = not important, 2 = somewhat important, 3 = important, 4 = very
important, and 5 = extremely important). For each workforce characteristic, a mean response was
computed and is given in table 1. Using the mean responses, the characteristics were then rank-ordered
for large and small firms. mean scores for all the nine characteristics exceed 3, indicating that they were
perceived to be important by both types of firms. Based on the rankings of the characteristics, it can be
seen that while "concern for firm's success" was the most important workforce characteristic for large
firms, "ability to inspect their work" was the most important workforce characteristic for small firms. Next,
we wanted to test if there was a difference in the overall importance of the nine workforce characteristics
as perceived by large and small firms. When the overall mean scores of the two types of firms were
compared, it was found that small firms perceived these workforce characteristics to be statistically more
important than large firms (3.90 vs. 3.56, t = 1.92, p [less than or equal to] .05, one-tailed test).
Related Articles
Sponsored Links
PCMag.com rates Brother® #1 printer in customer satisfaction.
Small firms created more than six million new jobs in the United States in the 1980s. During the same
period, Fortune 500 firms reduced employment by more than a million (Holt 1993). In recent years, small
firms have accounted for nearly 90 percent of the net new jobs added in the U.S. (Mathis and Jackson
1991). Since small firms employ nearly half of the American workforce (Holley and Wolters 1987), their
success is critical for the economy. To be successful in a global market, a small firm needs a highly
motivated, skilled and satisfied workforce that can produce quality goods at low costs (Holt 1993).
However, to develop such a workforce, a firm has to implement an appropriate human resource
management (HRM) strategy.
Unlike large businesses, published research further indicates that recruiting, motivating, and retaining
employees is one of the biggest problems for small firms (Hornsby and Kuratko 1990, Mathis and
Jackson 1991, Gatewood and Field 1987, Verser 1987). These findings are substantiated by a recent
study (Hess 1987) which reports that small firms ranked personnel management as the second most
important management activity (next to general management). However, in practice, other functional
areas such as finance, production, and marketing usually get preference over personnel management
(McEvoy 1984). Even textbooks on small business management pay considerably more attention to
finance, marketing, and planning than personnel management (Hess 1987). Also, researchers report that
managers of small firms lack training in formal personnel management practices and they do not consider
the use of generally accepted HRM practices as essential for improving productivity (Amba-Rao and
Pendse 1985, McEvoy 1984). This lack of understanding of HRM issues and their importance in the
operation of a successful business has impacted many small firms. Inadequate and inefficient
management of human resources of firms have often resulted in low productivity, and high dissatisfaction
and turnover among the employees (Mathis and Jackson 1991). At least one study has found HRM
practices to be the leading cause of small firms' failures (McEvoy 1984).
However, there is no consensus among researchers regarding the role of HRM in the success of small
firms. A study suggesting that training in personnel management is not as critical as training in finance or
marketing for small business owners has added to the confusion regarding the importance of HRM
practices in small firms (Curran 1988). To resolve this issue, a comparative study of small and large firms
is undertaken.
LITERATURE REVIEW
A good HRM program will recruit, select, motivate, and retain employees who have the required
workforce characteristics (Deshpande, Golhar, and Stamm 1993; Saha 1989). A majority of the published
research investigating HRM issues in small businesses is conceptual and has concentrated on diverse
HRM topics. Maurer and Fay (1986) examined the legal issues involved in employee selection methods
used in small business. Gatewood and Field (1987) proposed a model selection program for small
business. Fairfield-Sonn (1987) developed a strategic process model to guide the establishment of small
business training and development programs. Curran (1988) suggested various training strategies for
small business. Fowler and Murlis (1989) proposed compensation systems for small companies.
Cosgrove and Dinerman (1982) addressed industrial relations issues in small firms. Holley and Wolters
(1987) examined employment-at-will issues in small businesses. Finney (1987) and Smith (1991)
addressed personnel challenges faced by HRM managers of small firms and proposed strategies for
effective HRM.
On the other hand, some empirical work has also been reported in the literature that examines specific
aspects of HRM. McEvoy (1984) studied personnel practices of 84 small businesses near a large
midwestern metropolitan area and found that small businesses lacked creative staffing practices. An
investigation of compensation practices of 78 small firms in north-central Indiana revealed that small
business compensation and maintenance practices lacked a systematic and rational approach (Amba-
Rao and pendse 1985). Verser (1987) examined perceptions of personnel problems by 25 small business
owners. She found that owners often dealt with subordinates in an arbitrary fashion and did not perceive
this behavior as contributing to low employee morale or productivity. Another study of 347 small
midwestern firms identified selection and retention of a quality workforce as the most important HRM
issue for small firms (Hornsby and Kuratko 1990). An implied assumption of most of these empirical
studies is that HRM practices of different types of small firms (e.g., manufacturing, retail, wholesale, and
service) are similar. The researchers also implicitly assume that both large and small firms need
employees with similar workforce characteristics. Since each employee constitutes a larger percentage of
the workforce for a small firm (Gatewood and Field 1987), it is possible that the workforce requirements in
small firms are more stringent. Thus, it is expected that HRM managers of large and small firms will
perceive the importance of various desired workforce characteristics differently. We hypothesize that
these workforce characteristics will be more important in small than large manufacturing firms.
In addition to the workforce characteristics, it is important to know if HRM practices of small and large
manufacturing firms are different. Hornsby and Kuratko (1990) discuss the confusion that exists in the
literature concerning personnel policies of small firms. They also indicate that the HRM textbooks
contradict what actually happens in practice and make untested assumptions about HRM policies and
practices. The HRM practices of small firms may be different from large ones either because of different
workforce requirements and/or a lack of understanding of HRM issues by small business owners.
Therefore, we hypothesize that the HRM practices of large and small firms are different.
In summary, this empirical study compares HRM issues in large and small manufacturing firms. In
particular, the following issues are examined: (a) essential workforce characteristics, (b) sources of
recruitment used, (c) selection instruments used, and (d) other HRM practices. Such an investigation will
be useful to both practitioners and researchers.
METHODOLOGY
A survey instrument, based on current HRM literature, was developed. The survey contained items
regarding workforce characteristics, sources of recruitment, and selection tests. The questionnaire also
included items related to compensation, training and development, and employee retention.
The survey was sent to 360 HRM managers of small and large midwestern (Michigan, Illinois, and
Indiana) manufacturing firms in early 1992. A list of the firms was compiled by the authors from an earlier
research study. A follow-up letter was sent to the HRM managers four weeks after the first mailing. Of the
360 firms, a total of 105 firms responded to the survey. Five firms did not submit a complete questionnaire
and were dropped from subsequent analysis. This resulted in 100 usable responses (a response rate of
28 percent). Out of the 100 respondents, 21 were large firms (with more than 500 employees). The size of
the large firms ranged from 575 to 37,900 employees (median = 1,700, mode = 1,400). The remaining 79
firms were small firms (that employed fewer than 500 workers). The size of small firms ranged from 10 to
460 employees (median = 170, mode = 35). Responding firms represented a wide variety of industries
including automotive, metal fabrication, and office furniture.
RESULTS
Nine important workforce characteristics were identified from the management literature (Deshpande,
Golhar, and Stamm 1993; Saha 1989). Respondents were asked to indicate the degree of importance for
each characteristic on a 5-point scale (1 = not important, 2 = somewhat important, 3 = important, 4 = very
important, and 5 = extremely important). For each workforce characteristic, a mean response was
computed and is given in table 1. Using the mean responses, the characteristics were then rank-ordered
for large and small firms. mean scores for all the nine characteristics exceed 3, indicating that they were
perceived to be important by both types of firms. Based on the rankings of the characteristics, it can be
seen that while "concern for firm's success" was the most important workforce characteristic for large
firms, "ability to inspect their work" was the most important workforce characteristic for small firms. Next,
we wanted to test if there was a difference in the overall importance of the nine workforce characteristics
as perceived by large and small firms. When the overall mean scores of the two types of firms were
compared, it was found that small firms perceived these workforce characteristics to be statistically more
important than large firms (3.90 vs. 3.56, t = 1.92, p [less than or equal to] .05, one-tailed test).
Large Small
Sample Sample
Characteristics Size Mean Rank Size Mean Rank
Concern for firm's success 21 4.01 1 79 4.39 2
Ability to inspect their 21 3.81 2 78 4.42 1
work
Worker flexibility 21 3.76 3 79 3.90 5
Ability to work in groups 21 3.67 4 79 4.00 4
Self-disciplined 21 3.62 5 79 4.14 3
Problem solving skills 20 3.60 6 79 3.76 6
Multi-skilled workforce 21 3.52 7 79 3.62 7
Communication skills 21 3.14 8 79 3.59 8
Quantitative skills 21 3.10 9 78 3.36 9
Nine common sources of worker recruitment were identified from the HRM literature (see table 2).
Respondents indicated the frequency of usage of each recruitment source on a 4-point scale (1 = never
used, 2 = occasionally, 3 = often, and 4 = always used). Rankings based on mean responses indicate
that, for both large and small manufacturing firms, job posting and bidding was the most preferred source
of recruitment. Other sources of recruitment were either used occasionally or never.
Large Small
Sample Sample
Sources Size Mean Rank Size Mean Rank
Job posting and bidding 21 3.62 1 79 3.19 1
Promotion 21 2.81 2 79 2.54 3
Employees' reference 21 2.57 3 79 2.58 2
Temporaries and laid-off 21 2.57 3 79 2.52 4
workers
Transfers 21 2.48 5 78 2.32 6
Advertisements 21 2.48 5 79 2.46 5
Employment agencies 21 2.38 7 79 1.92 9
Educational institutions 21 2.29 8 79 2.06 8
Previous applicants 21 2.10 9 79 2.08 7
HRM literature identified the following four most commonly used selection instruments: written tests, job
tryouts, panel interviews, and one-on-one interviews (Mathis and Jackson 1991). Manufacturing firms
were asked to indicate the selection instruments used in their firm. Data presented in table 3 shows that
90 percent of the large firms use one-on-one interviews followed by written tests (33 percent). Similar
results were obtained for small firms for one-on-one intervews (89 percent) and written tests (41 percent).
However, job tryouts were used more significantly by small firms than large ones (51 percent vs. 29
percent, t = 1.91, p < .10, one-tailed test).
Size of Firm
Selection Large Small
Instrument (Percent) (Percent)
Written tests 33 41
Job tryouts 29 51
Panel interview 19 24
One-on-one interview 90 89
Other instruments 29 16
(*)Percentages total more than 100 because more than one instrument is used in many cases.
Table 4 compares and contrasts the importance of certain HRM practices in large and small firms.
Respondents were asked to indicate the degree of importance of each practice to their firm's operations
on a 5-point scale (1 = not important, 2 = somewhat important, 3 = important, 4 = very important, and 5 =
extremely important). Based on the mean responses, the HRM practices were rank-ordered for each firm
type. Results indicate that open communication, pay based on performance, competitive wages, training
new employees, job security, employee participation, and open communication are the top five important
HRM practices for both types of firms. To test if the HRM practices differed for the two groups, overall
means were compared. No significant difference was observed in the HRM practices of large and small
firms (2.85 vs. 2.95, t = -.29, p = .39).
Large Small
Sample Sample
Practice Size Mean Rank Size Mean Rank
Open communication 21 3.90 1 77 4.19 1
Pay based on performance 21 3.76 2 78 3.53 4
Competitive wages 21 3.71 3 78 3.47 5
Training for new employees 21 3.67 4 79 3.72 2
Job security for employees 21 3.62 5 78 3.62 3
Employee participation 21 3.43 6 78 3.41 6
initiatives
Training to enhance group 20 3.25 7 77 3.00 9
orientation
Collective responsibility 21 2.81 8 75 3.24 8
Training to enhance 20 2.80 9 78 2.85 10
quantitative skills
Pay based on acquired 21 2.76 10 79 3.31 7
skills
Job rotation 21 2.57 11 79 2.65 12
Group incentive programs 21 2.38 12 77 2.42 13
Specialized career paths 20 2.20 13 78 1.91 16
Pay based on seniority 21 2.10 14 79 2.30 14
Profit sharing schemes 21 2.10 14 77 2.68 11
Rapid promotions 20 1.80 16 78 1.83 17
Individual incentive 21 1.62 17 78 2.08 15
programs
This study has a number of important implications. The results indicate that all nine workforce
characteristics were important for both types of firms. However, these characteristics were more critical in
small firms than large firms. To develop a workforce with these characteristics, small firms will have to
make extra efforts to recruit and select employees. Existing employees who lack these required skills will
have to be trained. In addition, compensation policies of small firms will have to reinforce the importance
of the required skills.
Job posting and bidding were important sources of recruitment for both types of firms. This indicates that
HRM managers prefer to fill vacancies from within the organization. Small firms did not make much use of
external sources of recruitment (e.g., employment agencies and educational institutions). External
sources of recruitment provide a rich source of fresh talent. A Roper Organization Poll found that one of
the most difficult problems for small businesses was finding competent workers (Gatewood and Field
1987). Personnel reference services of professional associations, recommendations of present
employees, and educational institutions are underused and inexpensive external recruitment methods
that can be used by small manufacturing firms (McEvoy 1984). Our results substantiate these findings.
While one-on-one interviews and written tests are popular, manufacturing firms do not use written tests
extensively. Firms can use the General Aptitude Test Battery (GAT-B). It is generally offered free by local
employment services. This cognitive test is the most valid predictor of job performance for entry level
positions and is related to over 1,200 occupations listed in the U.S. Department of Labor's Directory of
Occupational Titles. Manufacturing firms also do not extensively use panel interviews. Panel interviews
should be more widely used since ability to work in groups is reported to be an important workforce
characteristic (ranked fourth) by both large and small firms. Small firms use job tryouts more often than
large firms. In addition to being inexpensive, job tryouts are less likely to be questioned by equal
employment opportunity authorities because of their high content validity (McEvoy 1984).
It is observed that many personnel practices of small and large firms are similar. These findings support
the Hornsby and Kuratko (1990) study which suggests that personnel practices of small firms are more
sophisticated than indicated previously (Amba-Rao and Pendse 1985, McEvoy 1984). It is possible that
small firms have realized the effectiveness of sound personnel policies and are now making a concerted
effort to address personnel problems. Also, awareness of new philosophies such as just-in-time (JIT) and
total quality management (TQM) may have forced small manufacturing firms to pay close attention to
HRM issues.
Compensation texts suggest that firms in the start-up and growth phase (typically small firms) tend to
emphasize incentive schemes more than large organizations that are in mature and stable phases of their
life cycle (Milkovich and Newman 1987). The results of this study indicate that HRM managers of small
manufacturing firms do not consider group and individual incentives important (mean < 3). This further
strengthens Hornsby and Kuratko's (1990) observation that materials in textbooks occasionally contradict
what happens in practice.
Finally, this study reveals that both large and small manufacturing firms lack personnel policies that
reinforce and nurture the workforce characteristics that they say are important for the success of their
firms. For example, while both types of firms indicate that workers' ability to inspect their work, ability to
work in groups, and concern for firm's success are important (ranked fourth or better), neither feels it
important to have an incentive (individual or a group) scheme to reinforce these characteristics.
Respondents indicate that quantitative skills are important for their workers to do their job. However, they
don't feel training to enhance workers' quantitative skills is important (mean < 3, and ranked ninth or
higher). Also, while they indicate that a multiskilled workforce is important, they don't consider job rotation
as being important (mean < 3, and ranked eleventh or higher). This could be more critical for small firms.
Small business owners should realize that personnel practices of their firms should reinforce worker
characteristics that they perceive as critical for their success. Future research should investigate these
issues in detail.
In conclusion, both large and small manufacturing firms indicated that the nine workforce characteristics
were important. However, the workforce characteristics were perceived as being more important for small
firms than large firms. HRM managers of both types of firms preferred to fill vacancies from within the
organization and used job posting and bidding extensively. While one-on-one interviews and written tests
were popular among both large and small firms, small firms made more extensive use of job tryouts. It
was further observed that personnel policies did not reinforce workforce characteristics that both types of
firms perceived as important.
One purpose of this study was to investigate the importance of various HRM practices. But what is
perceived as important by managers may not actually be practiced by them. Future research needs to
investigate this issue. It should also be noted that the conclusions of this study are limited by the sample
size and the geographical representation of the study. Further, a follow-up study should be undertaken to
examine the role of unions on HRM practices of small manufacturing firms.
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