Indeed it would seem that both national and local economies constitute largely of smaller enterprises with a minority of large firms making up for it (Cassell et al, 2002). SMEs provide a rich source of materials for management research based on a range of current human resource trends (Cassell et al, 2002), yet Hendry et al (1995), argues that much emphasis on large firms continues by management theory (Cassell et al, 2002). Given the current trends of outsourcing, delayering, and downsizing, the growth of SMEs still appears to be ignored (Wilkinson, 1999). These findings is interesting in the light of claims that SMEs will dominate the economy in terms of job creation and new work patterns, as noted by Overell (1996), with a lending hand to improve the health of the economy (Storey, 1994). This is evident following Deshopande and Golhar’s (1994) findings on small firms accounting for nearly ninety percent of the net new jobs added in the United States and, according to BIS (2010) statistics, “small and medium-sized enterprises (SMEs) together account for ninety-nine percent of all enterprises, fifty-nine percent of private sector employment and forty-nine percent of private sector turnover.” (Wapshott, 2010).
In part, the lack of research and the way of work on human resources in SMEs results from the problematic issue of size (Wilkinson 1999), which, as Storey (1994) notes, does not have a ‘uniformly acceptable’ definition in terms of employment relation. There is a traditional assumption that small firms are much like large firms, as noted by Cassell et al (2002), except that they have smaller sales, less employees and smaller assets, thereby creating a condition known as ‘resource poverty’ which distinguishes them from large firms and will therefore require different management approaches. The problem with such assumptions, however, is the danger of assuming homogeneity of small firms with similar characteristics of shared industrial relations (Wilkinson, 1999).
In many respects, small firms are seen to provide a ‘small is beautiful’ scenario where they facilitate close and harmonious working relationships, providing a better environment than larger firms (Wilkinson, 1999). This therefore suggests that such firms demonstrate good people management with better communication, in other words, creating a ‘family’ atmosphere with greater flexibility and lower levels of conflict than in larger firms (Wilkinson, 1999). And although there could be inferior physical working conditions in small firms, as Wilkinson (1999) points out, each employee still stands a chance to participate in several kinds of work with a record of low staff turnover and less strikes and disputes.
Although there are some examples of successful small firms, research seems to show that they could also be disadvantaged when compared with larger firms (Cassell et al, 2002); the ‘bleak house’ scenario, as Bacon et al (1996) describes it, which portrays an ‘assumption of harmony’ and a dictatorially-run firm with employees subjected to poor working conditions, interpreting low levels of unionisation and less strikes as inadequate safety conditions on the part of the employee (Wilkinson, 1999), hence conflict could be expressed through more singular means, such as absenteeism and labour turnover. Atkinson and Storey (1994, p.11) therefore conclude, on evidence of research, that “the quality of employment in small firms is, in fact, lower than large firms”. Having acknowledged an overview of SMEs, the literature will be focused on the subject of formality/informality in SMEs in terms of human resource practices.
It is generally accepted that only a few small firms place a high priority on human resource management (Ritche, 1993), and they hardly consider formalising their working strategies, with day-to-day business activity involving informal routines (Scott et al, 1989), cited by Cassell et al (2002). Also, research has shown that managers of small firms, as noted by McEvoy (1984), do not contemplate the use of human resource practices (Deshopande and Golhar, 1994). This can be traced to a lack of resources, with a study by McEvoy (1984) showing the lack of human resource practices to be the leading cause of small firm failures. However, informality might not imply a particular view of work relations, as suggested by Wilkinson (1999), it could be related to harmonisation and power asymmetries between owner and employee (Wapshott, 2010). Also, given the indication that human resource management practices are used in diverse ways by SME, they are less likely to formalise than larger organisations (Cassell et al, 1999).
According to Deshpande and Golhar (1994), recruitment, selection, motivation and retention of employees are the purpose of good human resource practices, but for the purpose of the essay in which the ethnographic study is based; recruitment and selection practices will be given considerable attention. Based on Cassell et al’s (2002) research conducted, they found that recruitment and selection procedures were more used than any other practices in an SME, especially given that this type of practice is a long tradition and a necessity for keeping the business going.
The mainstream literature usually distinguishes between the formal recruitment method- press advertisement, job centres, and the informal recruitment method- recommendations from existing staff, word-of-mouth method (Carroll et al, 1999). The word-of-mouth recruitment method is known to have some distinctive advantages of speed and cost, and, according to Carroll et al (1999), a ‘known quantity’ is not only recruited but he is likely to have more prior knowledge about the firm and the job, more so, it is in the interest of the employee who recommended him, to socialise the new recruit. Word-of- mouth recruitment method is therefore recommended to employers to reduce to staff turnover in small firms (Carroll et al, 1999). Despite the wide-spread use of word-of-mouth recruitment method, Scott et al (1989) pointed out variations in small firms’ approach to recruiting staff which may depend on the calibre of employee recruited. According to Atkinson and Meager (1994), while word-of-mouth is used to recruit manual workers and managers, more formal methods tend to be implemented for recruiting clerical, administrative and technical employees (Carroll et al, 1999).
Based on relevant evidence from my observations and through adopted perspectives, the appearance of formality/informality in SMEs in terms of recruitment processes will be highlighted. For better analysis of the literature, recruitment methods were classified into four types, as classified by Carroll et al (1999, p.242) in their research, into ‘internal recruitment’, ‘closed searches’, ‘responsive methods’ and open searches’. The internal recruitment involves a movement of an existing employee to a different type of work and according to Carroll et al (1999), this is done for reasons of motivation and loyalty. Closed search, on the other hand, popularly known as the word-of-mouth recruitment method, involves recommendations from existing employees and this applies to Ben, the manager’s nephew who was probably referred by his uncle.
The responsive method of recruitment applied to my observation and was the case for Sally, having applied by submitting her CV to the firm. According to Carroll et al’s (1999) findings, this was the most widely used method, where more jobs were offered to individuals included in their file of interested applicants than to casual callers who contacted the firm. Relying on a pool of potential recruits who just contacted the firm could be seen as a less proactive approach, according to Carroll et al (1999), which, on the other hand, could be argued to be more attractive to the employers, given that the individuals utilized their initiatives to seek jobs.
My own experience could be viewed in the more formal ‘open search’ recruitment methods, where advertising in job centres and the local press were more common. I made an application through a job centre where I was contacted, and based on the case study researched by Carroll et al (1999), job centres were frequently used, at least for some categories of staff, and the advantage of using the job centre is that they are free.
Interestingly, while some individuals appreciated the use of the job centres as a good source, some others were dissatisfied with the standard of service (Carroll et al, 1999) which was unsophisticated and not suited to their business context. The entire interview, as earlier mentioned, was as quick as possible and did not require my past work experience, coupled with the quick run-through of the job description, all that was required was my ability and readiness to do the job. The most popular complaints, according to Carroll et al (1999) were failures to turn up for interviews or ‘not being interested in finding a job’. My reaction at the moment was that of dissatisfaction. This is painted by Ritche (1993, p.112) as a ‘bleak house’ picture that portrays ‘generally less desirable workplaces’.
During the course of my interview, I was offered a pay structure, different from the normal pay structure (by commission), and I was also required to choose working hours suitable for me. This supports findings by Carroll et al (1999), in their research, in reporting that some organisations had difficulties in attracting staff which were sometimes compounded with high staff turnover rates with a shortage of good quality staff. Therefore, to raise the job profile, these firms had to adopt recruitment and retention strategies to make the job more attractive.
In addition, another problem faced by small firms, according to my observation, is the inability to sustain internal labour market- retaining key staff- which is in accordance with Lane’s (1994) research cited by Carroll et al (1999). They are therefore vulnerable to the external labour market and, as Ritche (1993) and Atkinson and Storey (1994) suggests, are less likely to attract good quality employee than large firms. This might be the case, from my observation on the calibre of workers at the firm, most of which appeared to be temporary workers and students. This verifies Atkinson and Storey’s (1994) point on small firms reporting complaints on the quality of labour available, such as a lack of basic literacy skills, particularly among young people.
In conclusion, the aim of this essay has been to support the theory of, and to analyse the issue of formality/informality in SMEs in terms of recruitment practices as observed in the ethnographic study conducted. The study was carried out based on my experience attending an interview in an energy firm. The interview drew my attention to the subject of informality in SMEs after a thorough observation of my surrounding, and specifically to recruitment practices after the interview. In relation to the literature, as might have been expected, the study showed little in the way of formalised procedures, except for the method of job application.
Whatever method of recruitment was chosen by the firm tends to be a tried and trusted technique and does have some advantage of a simply conducted recruitment process, according to Carroll et al (1999). Given, also, that it relies on the use of personal links, business contacts and assumptions based on current organisational culture (Wilkinson,1999), it reduces the risk of uncertainty associated with hiring new recruits, moreover, the process has no ‘initial financial outlay, a key criterion in the context of resource poverty’ (Cassell et al, 2002, p.686). This might appear problematic, especially when viewed in a systematic manner, thus, taking us back to the traditional assumption on small firms (Cassell et al, 2002). This could create a misunderstanding on the distinctive practices that go on within and impact on SMEs (Cassell et al, 2002), it could be that such practices fit with their context and these are established human resource policies that are not bureaucratic like in big companies. Therefore, given the diverse nature of SMEs, according to Cassell et al (2002), uniformity in dealing with issues cannot be expected.
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