Managing Labour in Small Firms

Susan Marlow, Dean Patton, Monder Ram, Susan Marlow, Dean Patton, Monder Ram

• Publisher: Routledge
• Year: 2004
• ISBN:
  9781134381463
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

The majority of employees currently working in the private sector are now employed in small firms, yet little is known about their working conditions. This collection of essays addresses this gap. Based on theoretical analysis supported by contemporary empirical evidence, the book explores key areas of the employment relationship adding a new perspective to our understanding of contemporary work.

1 Introduction

Susan Marlow

In a recent discussion paper pertaining to theoretical shifts and challenges in the study of the contemporary employment relationship, Edwards (2001:3) argues that ignoring emerging sectors of the economy and associated developments in management theory is blinkered and indeed, counterproductive. Whilst arguing that new areas for study and debate must be recognised, Edwards also states that these must be seen to be part of wider, established theoretical analyses in that, ‘tools such as the effort wage bargain (are) equally applicable’. Hence, it was suggested that whilst debate upon developments in labour management must have foundations set in fundamental terms and concepts, it must also recognise how particular situations and circumstances, such as firm size, will shape and influence the articulation of these concepts within the organisation. This book demonstrates the manner in which the size of the organisation influences the effort-wage bargain (Burowoy, 1979). Illustrated by the range of issues and arguments included within this text, it is evident that organisation size will affect the manner in which the employment relationship is managed. However, it is also acknowledged that size, whilst influential in shaping firm behaviour, will interact with a number of other extraneous elements such as market constraints, sector, location, age (amongst others). These will, in turn, interact with characteristics such as management styles, family dynamics, skill profiles, owner gender and ethnicity; the outcome of these complex interactions being varied and shifting employment relationships.

So, whilst sensitive to heterogeneity arising from context, the underlying argument within this book is that it is possible to recognise and accommodate difference within labour management in small firms whilst identifying a number of key themes and concepts which will offer an analytical framework and foundation to this work. As such, this book differs from others which focus on contemporary employment relations by considering the manner in which fundamental concepts pertaining to labour management in a market economy, such as the effort-wage bargain, are shaped particularly by the context within which the firm operates. Hence, whilst drawing upon a number of key areas in current debate such as human resource management (HRM) as a new managerial strategy, employee representation and employment regulation, this collection of essays illustrates how the size of the firm, in conjunction with other influences, such as sector, forms a lens through which specific articulations of the effort/wage concept can be analysed.

When considering the extant literature which explores the employment relationship in small firms, there is a growing sophistication in the material which acknowledges heterogeneity within sector, whilst developing conceptual themes drawn from accepted theory and applying this to the specific circumstance of the smaller organisation. So, whilst the current body of evidence exploring employment relations in small firms is limited, compared to that of larger firms, it is notable for its increasing complexity in unpicking how firm size, in tandem with other contingent factors, will influence the manner in which labour is managed. Indeed, just recently, it has been argued that within the sociological discipline of work and organisations, the growing sophistication of the literature pertaining to labour management in small firms is, ‘a key exemplar of analytical advance … (and) British research has made substantial empirical and analytical progress’ (Ram and Edwards, 2003:719). This book will contribute further to this debate through discussion and analysis of the manner in which firm size, in accordance with other factors, impacts upon labour management. To set these current debates in context, a critical evaluation of the extant literature pertaining to this area of study will be briefly outlined after which there will be a consideration of how the contributors to this text advance this debate.

As interest in the experience of small firm ownership grew from the mid-1970s so did a certain myth that labour management in small firms was, in general, ‘harmonious’ with proof of this assertion evident by the absence of collective dispute (Bolton, 1971). Although the analysis of labour management in small firms commanded little attention during the 1980s (Matlay, 2002), the emergent debate focused largely around dispelling the harmony thesis. Rather, it was argued that industrial relations in small firms was generally defined by autocratic owner prerogative (Rainnie, 1989) leading to highly exploitative labour relations. In his challenge to the ‘harmony’ thesis, Rainnie argued that the structure of the market economy, founded upon the domination of large capitals ensured that small firms were limited in their operations primarily to subcontracting or within niche areas where it was irrational for large firms to operate. Such market positioning then critically affected the nature of the employment relationship in such firms. In effect, in markets where large organisations dictate supplier relationships small firm owners and managers are largely denied choice regarding the manner in which they manage labour as observing cost constraints and meeting quality targets takes away options for independent decision making. For those firms who locate in niche areas and so do not enter such supply chains, the nature of the market, by definition, limits their operational scope and so again, survival under such constraints will lead to specific and exploitative approaches to labour management. This analysis broadened the debate to locate small firms within the wider market environment, arguing that centralised and fragmented capital have a symbiotic relationship, if asymmetrical in terms of power. Hence, large firms dominate markets in such a way as to essentially dictate the employment relationship in both their smaller suppliers and those confined to niche markets.

In expounding this analysis, Rainnie used a series of taxonomies reminiscent of Weberian ideal types to describe how the market positioning of smaller firms would determine their modes of operations and management strategies. To some degree this was a useful device as it challenged the notion of homogeneity based upon size alone. The focus upon market determinism, however, did somewhat narrow the scope to generate further analyses of the employment relationship in small firms whilst the use of taxonomies is constricting. Although this device is useful in recognising degrees of heterogeneity, the nature of the model by necessity, crudely categorises firms on the basis of limited descriptors. In a contrasting consideration of employment relations in small firms, whilst still favouring the taxonomy approach, Goss (1991) based his typologies of labour management on a wider ranges of influences drawing together both market structures and the impact of owner prerogative upon management style. This led to a more sensitive, sociological assessment which recognised the interplay of structure and agency in the dynamic links between the internal and external environment of the firm (Gorton, 2000), thus acknowledging the impact of the social relations of production upon labour management practices.

Indeed, recent work which has advanced the analysis of the employment relationship in small firms recognises the complex interplay between the position of the organisation in the wider economy and the components which make up the ‘black box’ of the firm itself (Ram, 1994; Holliday, 1995; Moule, 1998). This case study material, gathered in the 1990s, proved to be both sensitive to market constraints whilst acknowledging how the internal dynamics within the firm led to heterogeneity within the sector. This work illustrated how owners actually managed their employees in situ and also, how employees experienced their work in small firms and were in fact able, to differing degrees, to manipulate their own labour process. Reminiscent of the classic case studies of large firms in the 1970s and 1980s (Beynon, 1973; Nichols and Beynon, 1977; Cockburn, 1983) studies of labour management in smaller firms echoed this approach with their intimate portrayals of how the employment relationship was constructed, changed and challenged in such firms. So for example, the study of three small textile firms owned by members of ethnic minorities enabled Ram (1994) to analyse the interplay between sector, ethnicity and gender and then demonstrate how firm size was critical in deciding how these influences collided to generate a particular employment relationship. In recognition of the negotiated nature of the employment relationship, Ram (1994:150) suggests that the market-based autocracy thesis did not adequately ‘convey the bargained nature of life on the shop floor, the extent of mutual dependency between workers and management and the importance of informal accommodation’.

The primary influence of market conditions upon the employment relationship was further challenged by Holliday (1995), who explored the manner in which family ownership structures shaped this relationship and how, in particular, paternalism pervaded labour management. The ensuing employment relationship then developed around notions of deference and mutual dependence, but this also acted to obscure exploitative behaviour as notions of obligation intruded, particularly where family members were also employees.

Developing this focus upon the dynamic interplay between the social relations of production and market imperatives, Moule’s (1998) study of a button factory brought together issues of firm size in a context of subcontracting dependence. Just as in the other cases discussed, he observed an employment relationship which was constructed around negotiation, toleration and occasional outbursts of employer prerogative. In this particular study, Moule was a participant observer so was able to observe first hand, and over some time, the manner in which the proximity between the Directors and the employees facilitated a particular employment relationship where mutual dependence was tacitly recognised, if unevenly applied. Within Button Co. this led to a situation where, ‘the toleration of certain fiddles, practices [by employees] and unpredictable patterns of behaviours by the Directors did not appear to stem from any other motive other than ensuring workable day to day relations’ (Moule, 1998:652). Thus, it was argued that this firm had a complex approach to labour management whereby Directors would ignore certain behaviours if targets were met but levels and degrees of toleration were differentiated dependent on employee status. This debate around the notion of consent and control is well rehearsed (Burowoy, 1979) and the type of behaviour identified by Moule in Button Co. is evident throughout the economy. But what sets this firm and many small firms aside in this debate is that this behaviour is not bounded or underpinned by the bureaucratic rationality of formal management processes, a point which will be explored in more detail below. Instead, the business was based upon an informal, tacit, uneven managerial approach which was negotiated and renegotiated on a frequent basis. This work, as part of the wider evidence to analyse the complexity of employment relations in small firms which emerged in the 1990s (see also, Curran et al., 1993; Matlay, 1999; Ram, 1999) advanced the debate by demonstrating the manner in which firm size facilitates social negotiation between employees and employers around the labour process.

These case studies have been particularly helpful in revealing the interaction between markets, firms, owners, managers and employees which then in turn, shapes the manner in which labour is managed. The findings support the notion that it is somewhat simplistic to argue that the employment relationship in small firms is determined solely by the market and so, from necessity autocracy, not harmony, dominates. It would appear that market influence is critical, but equally, the particularistic social relations of production generated within a context of smallness and proximity will facilitate differentiated degrees of negotiation between employers and employees regarding the terms and conditions of employment. As such, the form and content of the employment relationship in small firms arises from the interplay of these factors rather than either one alone. A critical outcome of this more complex analysis focuses around the importance of informal management approaches in small firms. In this context, informality and formality are presented as opposing constructs where the former is perceived to encompass an approach where labour management is largely emergent, flexible and loosely structured. As such, in the small firm this would appear to be an outcome from a number of factors, of importance amongst these is the preference of owners to manage labour either themselves or delegate this task to a general manager. Consequently, there is an absence of informed professional HR management, this ensures that contemporary and appropriate HR policies and practices are unlikely to be in place plus, management by the uninformed encourages and perhaps even requires the intrusion of personal idiosyncrasies and priorities (Wynarczyk et al., 1993; Marlow, 2002). Formality, however, might usefully be described as where:

terms and conditions of employment are formally contracted so both labour and management have recourse to a set of rules, should they feel it appropriate to use them. Moreover, the presence of HR professionals who can be called upon to formulate policy and apply rules and regulations facilitates a more ‘arms length’ or anonymous application of formality which emphasises bureaucratic rationality.

(Marlow, 2002:4)

This notion of informality in small firms is a useful construct as a general indicator of difference between the employment relationship in small and large enterprises with empirical evidence, drawn from both fine grained research (Marlow and Patton, 2002) and large surveys (Matlay, 2002) supporting this notion, whilst of course, exception is recognised. So, for example Cully et al. (1999) in WERS did find that smaller firms were likely to have some formal policies in place – particularly regarding discipline issues. It is interesting to note that Marlow (2002), in a qualitative study of labour management in manufacturing firms, also found some degree of co-existence between formality and informality, but upon closer analysis found that whilst policy was in place, owners were reluctant to use it. This occurred as the close proximity between employer and employee generated a social relationship into which formality could not readily intrude. This social relationship emerged in a number of ways, some of which were highly exploitative, but whether harsh or based around friendships and team working, the resort to formality was unlikely as this in fact ‘professionalised’ the employment relationship where previously there had been no precedent for this. Matlay (2002), in his survey of 6,000 SME owners, looked for any ‘mix’ of formality and informality but found little evidence for this and a significant preference for informal approaches to labour management by small firm owners.

However, it is recognised that it is overly simplistic to subscribe to a dichotomy of formality and informality without recognising the dynamic nature of such constructs as noted by Ram et al. (2001:846), who suggested that ‘informality is therefore, a matter of degree and not kind’ when arguing that the manner in which informality is articulated changes over time and is sensitive to context. Drawing upon a study of the impact of regulatory shock, specifically the introduction of the National Minimum Wage (NMW), Ram et al. argued that informality was not solely an outcome of owner prerogative but is also a necessary response to accommodating fluctuating product and labour market demands. In essence firms were combining flexibility and informality to remain viable.

There can be little dissent, however, from the notion that a defining feature of firm growth is increasing bureaucracy which will, of course, also apply to the employment relationship (Wynarczyk et al., 1993). This is articulated through the development of formal policy and practice administered by a personnel function subject to updating and, where trade unions are recognised, amendment through collective bargaining. Studies of labour management in large firms again demonstrate the co-existence of formality and informality, indicating that whilst the former ‘bounds’ the employment relationship, the latter underpins it (Nichols and Beynon, 1977; Westwood, 1986). Moreover, despite recent volatile markets, shifts towards greater managerial prerogative and diminishing union power, the informal manipulation of the labour process persists and continues to be tolerated to a greater or less degree (Elger and Smith, 1998; Webb and Palmer, 1998).

So, it would appear that within all firms there is a differentiated degree of co-existence between informal and formal labour management approaches which suggests that it is too simplistic to develop an uncritical correlation between firm size and these concepts. Whilst recognising this, Marlow (2002) draws attention to the fact that within larger firms, the dynamic of control and consent is bounded by formality in that if, and when, line managers have to overtly assert authority, they have the channels by which to do so or indeed, where necessary or preferred, they can even delegate this task to the professional HR function. Equally, the recourse to formal policy and practice is available to employees or their trade union representatives should they wish to individually, or collectively, assert their rights within the employment relationship.

From this, it is argued that informality in large firms, although an enduring if changing feature of the employment relationship, is to a degree, a subversive activity. Whilst many informal practices are accepted under the auspices of custom and practice, this is only ever discretionary with both labour and management being able to challenge these practices should the need arise. This is not the case in small firms where formality is less likely to ‘police’ informality as, even where the former is in place, owner/managers seem reluctant to use it. As noted above, this is supported by survey and case study evidence (Cully et al., 1999; Marlow, 2002) regarding the presence of formal discipline/grievance policies. Yet, as small firms are still overrepresented at Employment Tribunals (Earnshaw et al., 1998) in unfair dismissal cases it would appear that they are either over-selecting litigious employees or failing to apply appropriate policy in the correct manner. The latter scenario would appear more likely. So, whilst the constructs of informality and formality are useful in the debate regarding the association between firm size and employment relations, this is a complex associ...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• List of tables
• List of contributors
• 1 Introduction
• 2 The hunting of the snark: a critical analysis of human resource management discourses in relation to managing labour in smaller organisations
• 3 Researching the employment relationship in small firms: what are the contributions from the employment relations and small business literatures?
• 4 Managerial strategies in small firms
• 5 Training in smaller firms
• 6 Breaking out of survival businesses: managing labour, growth and development in the South Asian restaurant trade
• 7 Labour regulation and SMEs: a challenge to competitiveness and employability?
• 8 Small firms and the National Minimum Wage
• 9 Managing variable pay systems in smaller workplaces: the significance of employee perceptions of organisational justice
• 10 Representation, consultation and the smaller firm
• Index