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Is HRM a worthwhile investment for an SME ?

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Introduction

´╗┐Is HRM a worthwhile investment for an SME (Small or Medium Sized Enterprise)? Discuss critically. Human Resources Strategy Student Number: 12835997 ________________ ?it is clear from our research that HR has a vital role to play in driving long-term performance in SMEs? (CIPD, 2012) This paper will examine the concept of Human Resource Management (HRM) within the context of a Small or Medium Sized Enterprise (SME) by presenting its role from various perspectives. It will use a range of academic evidence to discuss both the benefits and limitations of HRM within the SME sector so as to give a rounded critical evaluation of whether it presents a worthwhile investment. The research upon which the discussion of HRM in the SME sector is based will be evaluated in terms of both findings and methodology. Also considered are whether the results presented in the research support the conclusions reached in promoting the concept of HRM as a worthwhile investment for SMEs seeking to achieve their organisational objectives. This paper accepts that a commonly agreed definition of HRM is still subject to debate. The search for such a definition is made more complicated by the issue pointed out in Torrington et al (2011), that the term is often used in two distinct ways; one to cover the group of people management activities undertaken by an organisation, such as recruitment, performance management, reward etc? and the other directed at a particular approach to the management of the people within the organisation. Here the focus will be more on the former of the two as to whether investment in HRM activities are worthwhile for SMEs, but some element of the approach to their inaction will also be considered. Along with the European Commission and the Department for Business Innovation & Skills ( http://www.bis.gov.uk/assets/biscore/statistics/docs/b/business-population-estimates-2011_statistical-release.pdf Accessed on 14 Sept 2012) SMEs are here defined as organisations consisting of less than 249 employees. ...read more.

Middle

They point to research (Huselid 1995) proposing that it is the abilities of top management, rather than general employees, that can be an important determinant in organisational success and suggest that due to the high concentration of decision-making power in an SME this is likely to be an even more important factor. Their claim is that the results they produced from their empirical study, which involved a questionnaire being sent to 1,350 (460 respondents) SMEs of varying size, evidence a ?direct and strong positive association? (2012, p.817) between entrepreneur?s experience and financial performance. This leads to the conclusion that HR practices designed to support the training and development of owner/entrepreneurs could be a worthwhile investment for SMEs. Other than investment in their owners capabilities what other areas of HR practice might be seen to lead to improved SME performance? Experian has an index which tracks the likelihood of an SME being successful and has found five indicators ? track record of directors? expertise (which links with the above proposal that the owner/entrepreneurs capacity is crucial); ability to export; willingness to invest back into the business, building of networks with similar companies to get support and internal flexibility. How might investment in HRM be worthwhile for an SME in addressing one or other of these factors? The factor in the Experian index that could have some link to HRM practices is the relationship between SME success and flexibility. Georgiadis and Pitelis, citing Forth et al 2006, state that ?the nature of HRM [in SMEs] hinges heavily on the personal relationship between the management and the employees? (2012, p.811). They go on to state that the ?HR practice closer to the informal and relational model identified as relevant for services SMEs, is the organisation?s commitment to its employees (OCE)? (ibid). This suggests that in SMEs OCE is particularly valuable in creating a relationship between the employee and the organisation, which can lead to a higher degree of discretionary effort (what some might term ?engagement?) ...read more.

Conclusion

and Swart, J. (2005) ?Satisfaction with HR practices and commitment to the organisation; why one size does not fit all?, Human Resources Management Journal, 15, 4, 9-29. Legge, K. (1991) ?Human resource management ? a critical analysis?, in J. Storey (ed), New Perspectives in Human Resource Management, London: Routledge. Lengnick-Hall, C. A. and Lengnick-Hall, M. L. (1988) ?Strategic Human Resource Management: A Review of the Literature and a Proposed Typology.? Academy of Management Review, 13, 3: 454-70 MacDuffie, J. (1995) ?Human resource bundles and manufacturing performance: organisational logic and flexible production systems in the world auto industry?, Industrial and Labor Relations Review, 48, 2, 197-221 Pfeffer, J. (1994) Competitive Advantage through People. Boston Harvard Business School Press Purcell, J (1999) ?Best practice and best fit: chimera or cul-de-sac??, Human Resource Management Journal, 9, 3; 26-41 Porter, M.E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press Ram, M., Edwards, P., Gilman, M. and Arrowsmith, J. (2001) ?The Dynamics of Informality: Employment Relations in Small Firms and the Effects of Regulatory Change?, Work, Employment and Society, 15: 845-61 Sisson, K. and Storey, J (2000) The Realities of Human Resource Management: Managing the employment relationship. Buckingham: OUP Storey, J. (2002), ?Education, Training and Development Policies and Practices in Medium-Sized Companies in the UK: Do They Really Influence Firm Performance? Omega, 30, 249-264 Tsai, C. (2010) ?HRM in SMEs: homogeneity or heterogeneity? A study of Taiwanese high-tech firms?, The International Journal of Human Resource Management, 21, 10: 1689?1711 Wang, D.S. and Shyu, C.L. (2008) ?Will the strategic fit between business and HRM strategy influence HRM effectivenss and organisational performance??, International Journal of Manpower, 29, 2, 92-110 Way, S. A. (2002), ?High Performance Work Systems and Intermediate Indicators of Firm Performance with the US Small Business Sector,? Journal of Management, 28, 6; 765-785 Wright, P. (1998) ?Strategy-HR fit: Does it really matter?? Human Resource Planning, 21, 4: 56-7 Wright, P., Gardner, T., Moynihan, L., Allen. ...read more.

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