Managing Human Resources in Small and Medium-Sized Enterprises

Entrepreneurship and the Employment Relationship

Robert Wapshott, Oliver Mallett

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317618256
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Well-managed employment relationships can be a secret to business success, yet this factor is relatively poorly understood when it comes to small and medium-sized enterprises (SME's).

Written by active researchers with teaching experience, this book brings together the fields of entrepreneurship and human resource management for the first time, providing entrepreneurship students with a solid grounding in HRM as well as a platform for further critical engagement with the research. The concise and authoritative style also enables the book to be used as a primer for researchers exploring this under-developed terrain.

As the only student-focused specialist book on human resource management in entrepreneurial firms, this is vital reading for students and researchers in this area, as well as those interested in small business and management more generally.

Part IThe distinctive case of SMEs

DOI: 10.4324/9781315752471-1

1Introduction

DOI: 10.4324/9781315752471-2

Small and medium-sized enterprises (SMEs) employ significant numbers of people in the world’s major economies. For example, in the UK broad definitions of SMEs account for over 5 million businesses and the paid employment of 15 million people (see Table 1.1). With so many people either self-employed or employed in SMEs, the quality of their employment relationships has implications for a great many working lives. Moreover, for those wanting to manage their own small or medium-sized business successfully, and for governments wanting to develop policies that will help and not hinder these firms, we need to explore the relationships and practices found within them.

Table 1.1 Estimated number of businesses in the UK private sector and their associated employment and turnover, by size of business, start of 2014

	Businesses	Employment (thousands)	Turnover (£ millions)
All businesses	5,243,135	25,229	3,521,254
SMEs (0–249 employees)	5,236,390	15,159	1,647,201
Small businesses (0–49 employees)	5,204,915	12,084	1,170,337
All employers	1,277,360	20,876	3,290,110
With no employees	3,965,775	4,353	231,143
1–9 employees (micro)	1,044,385	3,923	424,299
10–49 employees (small)	194,755	3,807	514,895
50–249 (medium)	31,475	3,075	476,864
250 or more (large)	6,745	10,070	1,874,053
Source: Adapted BIS, 2014.

In different guises SMEs have been around as long as businesses have, although not always in fashion and often ignored. In modern economies focused on economic growth, SMEs have been given a central place in the narratives offered up by politicians and lobby groups as a way to solve economic malaise, provide economies with a transfusion of energy, innovation and disruption, while providing economic growth and employment. Cast in their current heroic guise, it becomes easy to overlook the messiness that characterises aspects of SMEs on a day-to-day basis as they seek to cope with various challenges. In this book we are interested in moving beyond the political rhetoric and somewhat simplistic characterisations of SMEs to try to understand the complexities and messiness of everyday employment relationships and practices.

One of the most prominent measures of success for SMEs is business growth in terms of employment expansion. Yet how employees are recruited, selected and managed in these firms remains under-explored and mainstream textbooks on both human resource management (HRM) and entrepreneurship pay little, if any, attention to understanding employment relationships in SMEs. This oversight matters because ignoring or misunderstanding the issues associated with the employment relationship could hold back start-up ventures and present barriers to enterprise success. Creating and running a successful enterprise relies on more than just the start-up phase; it is vital not to overlook the management of businesses and the role of employees.

In this book we present a discussion of people management (or ‘human resource management’ as it is commonly known) in small and medium-sized enterprises, with a particular focus on entrepreneurial firms, which we define very broadly as those that are experiencing growth or are taking steps to fulfil their aspirations for business growth. We draw on a wide range of literature to offer interesting perspectives on important aspects of human resource management in SMEs, arguing that they are often distinct from larger firms and need to be understood on their own terms. Our approach will provide students with a foundation of core knowledge around employment issues in these organisations and also a platform for further critical engagement with debates in the research. For lecturers this text will offer flexibility in how they tailor their classes to student knowledge and ability. Students who will benefit most from grasping the core information and concepts can be focused on the substantive topics covered in the book, while those with a sound grasp of these topics can be challenged through the more critical and analytical themes underpinning the text. This structure will also enable the book to be used as a primer for student dissertations and for researchers who are interested in engaging with this area of study.

In this first chapter we will outline our perspective on employment relationships and practices in SMEs, introduce ourselves as authors and provide an overview of the book’s structure.

SMEs, employment and the economy

In many economies around the world, SMEs constitute the majority of business enterprises. Look at the UK, USA and, with changes in recent years, former communist states such as Estonia and you will find that SMEs represent somewhere over 90% of all private business enterprises and account for significant proportions of non-governmental employment. If we return to the example of the UK (see Table 1.1), we can see just how significant a role SMEs play in terms of business enterprises and employment. Discounting the self-employed, SMEs provide around 10 million jobs within the UK economy, or over 40% of the non-government jobs total presented by the Office for National Statistics. SMEs are also acknowledged to create jobs, although we must remember that many SMEs fail and so they also account for a high proportion of job losses (see Anyadike-Danes et al., 2011). It is also important to note that many SMEs have no employees beyond the lone business owner or group of partners who own the venture (see Table 1.1).

The number of businesses and employees means that, in the UK alone, studying the employment relationships and practices in SMEs can tell us important things about the working experiences of millions of people. Readers from outside the UK may wish to take a moment to look up the role played by SMEs within the economy in their home country. While there are differences in terminology and definition that mean we must be careful when drawing international comparisons, the general picture is one where, although many businesses are quite small, the sheer number of them means that SMEs can account for high numbers of jobs. Clearly, understanding the employment relationships and practices within these kinds of businesses is an important element in understanding work in modern societies.

This means that many of the people reading this book will, at some point in their working lives, have business relations with SMEs, whether that be as an owner, an employee, a supplier or a client. If you run your own business currently, then the contents of our book might chime with your experiences to date, and in doing so serve to counter-balance some of the more prescriptive models of people management that seem to treat a large firm experience as typical while paying scant attention to SMEs more generally. We are less interested in prescribing apparently ‘best practice’ than we are in understanding how employment relationships and practices develop in SMEs, taking these businesses, and the practices that are in use within them, on their own terms.

This understanding will not come from the application of knowledge gained from multinational corporations. As this book will show, employment relationships can differ significantly in SMEs compared with what you might have studied in more general courses on HRM which have a tendency to emphasise the challenges and responses of much larger organisations (Baron, 2003). Consequently, if our knowledge only comes from large firms, or we otherwise fail to understand SMEs on their own terms, we can have a distorted understanding of the employment relationships and practices that represent the everyday working lives of millions of people.

Why SMEs matter to us

For all the quantifiable reasons why we think employment relationships in SMEs are interesting, there are also more personal reasons for our interest in the topic. At the time of writing, Robert has studied employment in small firms for around ten years. His interest in the topic area stems from his MBA studies, when he began to wonder why the various models of HRM he was studying seemed to say little or nothing about working lives in small firms. He pursued this interest through his PhD, during which he studied the employment relationships of small firms in detail. Currently he teaches the module ‘Entrepreneurship and Human Resource Management’ at the University of Sheffield, where he forms part of the Centre for Regional Economic and Enterprise Development. He is also a director and trustee of the Institute for Small Business and Entrepreneurship.

Oliver has a different academic background, initially studying psychology and then exploring psychoanalytic approaches to understanding cities in his PhD. However, it was while conducting his PhD studies, when Oliver was working part time in the public sector, that he would discuss working life with his wife (Becky) who was a company director in a small IT firm. The differences in working practices and the day-to-day experiences of these contrasting jobs were striking. For example, while Oliver never interacted with those at the top of his organisation (a government department), in Becky’s company all employees had formal and informal contact with the owner-manager on a regular basis. Further, where the large public-sector organisation would work on long-term strategic changes that were slow to implement, change in the IT firm was rapid and, at times, ad hoc.

After we had both completed our PhD studies, this overlap of interests led to us working on understanding home-based businesses and home working more generally in terms of social space (Wapshott and Mallett, 2012). We have since worked with a broad range of SMEs and entrepreneurs, developing our understanding and our appreciation of the complexities of employment relationships in these businesses. We have published our work in a range of academic journal articles but also in national newspapers, practitioner forums, and in company and government reports. It is upon this work, conducted over the past decade or so, that we draw in this book.

We believe strongly that the employment relationships and practices in SMEs represent a vital and fascinating topic. However, it is not a straightforward one and, before outlining the contents of the book, it is valuable to define some of our key terms.

Getting to grips with some key terms

Before we go much further and get into a more detailed consideration of entrepreneurship and HRM it is appropriate for us to clarify our definitions. As the book progresses you will be able to develop your understanding of these areas and build some detail around these basic definitions but, for now, we will set out briefly how we use certain common words and phrases.

What is an entrepreneur?

The terms ‘entrepreneurship’ and ‘entrepreneur’ have, in recent years, become widely adopted in everyday use and in the academic literature (Greene et al., 2008). The terms have been subject to different uses and critical consideration (Mills, 1951; Bendix, 1956; DuGay, 1996; Jones and Spicer, 2009; Mallett and Wapshott, 2015). In this book we use the term ‘entrepreneurship’ to refer to the process of business foundation and ‘entrepreneurs’ to identify the people most closely associated with that start-up. We acknowledge that these uses are more colloquial than technically rigorous. However, they suffice as a shorthand to indicate when we are discussing the early stages of organisation foundation and when a founder may be initially setting out on their own (Greene et al., 2008).

We use the term ‘owner-manager’ frequently in the book. By owner-manager we mean the person who owns the business and remains closely associated with overseeing its day-to-day operation. Owner-managers are attributed a key role in SMEs where, owing to the size of the organisation, an owner can readily exercise their influence (see Goss, 1991). We take the term to imply the presence of employees in the organisation beyond the founder or founding team. From some perspectives the owner-manager may be seen as a very powerful figure in deciding how things are done in a firm and how employment issues are addressed, but, as our discussion throughout the book will show, this is not necessarily the case.

What is an SME?

Small and medium-sized enterprises are defined variously in different parts of the world and in different academic texts. Number of employees has consistently been the most dominant basis for classing a firm as an SME, but alternatives incorporate annual turnover, a local focus and industry norms. Given this book’s focus on the employment relationships and practices in SMEs, we will draw on these definitions and mainly focus on number of employees. As you will see as we progress through the book, defining a group of businesses on the basis of employee numbers can be problematic if it means that other important considerations such as sectoral norms are disregarded (Arrowsmith et al., 2003). While business size is a useful tool for giving an initial focus for our attention, we must always try to understand businesse...

Table of contents

• Cover Page
• Half-Title Page
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• Part I The distinctive case of SMEs
• Part II Managing human resources
• Part III Rethinking HRM in SMEs
• Bibliography
• Index