UNIT 12: SMALL BUSINESS MANAGEMENT II PEOPLE MANAGEMENT

Transcription

1 UNIT 12: SMALL BUSINESS MANAGEMENT II PEOPLE MANAGEMENT Unit Structure 12.0 Overview 12.1 Learning Objectives 12.2 Introduction 12.3 HRM Definition and Functions Definition HRM Approaches HRM Functions 12.4 HR Strategies 12.5 HR Planning for Small Firms 12.6 Recruitment Decision Making for SMEs Factors to be considered in Recruitment Organisation Goals Marketing Plan Issue Financial Provisions Position in the Hierarchy Recruitment Methods for SMEs 12.7 Selection 12.8 Induction Training and Skills Based Training Planned Training The Training Cycle 12.9 Performance Management Systems (PMS) Definition Reward Management, Performance Related Pay Types of PRP Other HR issues SME Specific HR practices Summary References 1

2 12.0 OVERVIEW Entrepreneurs may choose to run their businesses alone for a number of reasons. However, when the business grows, additional human resource will become necessary to handle the larger number and diversity of tasks and responsibilities. The present unit involves many different issues including how people will be recruited, criteria for selection, pay and positions of people within the organisation, tasks allocation, training, performance, motivation and termination. The differences in HR management between large and small firms will be discussed LEARNING OBJECTIVES By the end of this Unit, you should be able to do the following: 1. Explain the HRM concept, approaches and functions. 2. Understand the steps in HR planning as a strategic approach. 3. Link pay with performance for employee motivation. 4. Distinguish between Recruitment and Selection when strictly defined. 5. Assess the importance of HR as a source of competitive advantage. 6. Analyse the sequence of steps in the training cycle. 7. Differentiate between large firm and small firm HRM practices. 2

3 12.2 INTRODUCTION Employing more people in an organisation gives rise to an enhancement in the firm s capacity to produce goods and services. It enables the firm to expand its client portfolio, thereby increasing sales and market share. More strategically, employing people enables the entrepreneur to free himself/herself in order to concentrate on policy issues and other customer value added activities. Even in the early stages of the company, the entrepreneur should be familiar with the tools and techniques required for effectively planning and staffing a venture. In developing countries, it is widely accepted that small firms employ more people than large firms, estimates being around 60% of total employment. However, large firms and small firms do differ fundamentally in HRM policies and practices HRM DEFINITION AND FUNCTIONS Definition According to Storey (1995), HRM is a distinctive approach to employee management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce using an integrated array of cultural, structural and personal techniques. This definition refers to the resource based view of the firm, whereby HR is a source of competitive advantage. Activity 1 Identify and try to explain the key works in this definition 3

4 HRM Approaches Hard and Soft HRM The Hard version emphasizes the quantitative, calculated and business-strategic aspects of managing the headcounts resource in as rational a way as for any other economic factor. By contrast, the soft version traces its roots to the human relations school. It emphasises communication, motivation and leadership. (Storey, 1989). However the HRM paradigm must be treated with caution. The rhetoric may be the people centred approach of the soft version: the reality may be the cost reduction approach of the hard version HRM Functions HRM functions can be summarised in three main issues: 1. Acquisition: Whereby the firm makes a decision to recruit after having considered all alternatives. A job analysis is performed, the recruitment method is chosen and the employee is selected according to an employment contract. 2. Maintenance: The new employee is introduced to the organisation, trained in necessary skills and his/her performance is measured regularly. Steps are taken to motivate the employee to work towards achieving the goals of the organisation while following a clear career path. 3. Termination: Termination can be voluntary (e.g. retirement) or can follow disciplinary procedures, for example, dismissal following misconduct. Specific HRM functions include: - Human resource planning (assessment of HR needs). - Recruitment. - Selection. - Induction training, training for required skills. - Motivation, Health and Safety issues. 4

5 - Performance management. - Pay and reward management. - Career planning. - Termination of the employment contract HR STRATEGIES Managing HR is a strategic process whereby the owner manager needs to have the future in mind when deciding above HR policies and practices. Each strategic decision will affect other aspects of the business. For example, if decision-making is delegated to line management, the firm can respond more rapidly to sudden changes in the business environment because line managers (supervisors) are closer to front line employees and customers. Successful small firms usually have HR managers who share a clear vision of the business with employees, strongly support the latter by delegating authority and providing resources. Employees are not systematically blamed for mistakes but are rather encouraged to take initiatives (failure being considered as learning opportunities). Strategically, companies may have to choose between recruiting temporary employees, who can be obtained fairly quickly and who can be allowed to go more easily or bringing in new permanent employees, who may take longer to hire and be harder to let go. Employees of small firms are versatile and work in flexible structures, which make them become innovative and responsive to change in the business environment. 5

6 12.5 HR PLANNING FOR SMALL FIRMS HR Planning refers to matching the current supply of HR from the labour market with the actual demand from the organisation (obtained from needs analysis). Individuals enter, move through and leave organisations all the time. However, this should be done as far as possible within the organisation s overall business strategy. It is about analysis of the factors influencing supply and demand for people while carrying out the organisation s objectives. HRP is an attempt to forecast how many and what kind of employees will be required in the future and to what extent this demand is likely to be met. (Graham & Bennett, 1999). HR planning usually consists of the following steps: 1. Forecasting future demands. 2. Analysis of current supply. 3. Matching supply and demand to assess recruitment needs. Activity 2 What can the firm do if required skills are scarce on the labour market? Once decision has been taken to recruit, one needs to decide what the new employee will do and what type of person will fit the job requirements. 6

7 A job description is a written statement of what the job requires, how it is to be done and under what conditions. The job description covers issues such as: the job title, the reporting relationship and the duties and responsibilities. Person specifications refer to personal characteristics, qualifications and experience required from the prospective employee. Any required skills, for example, communication, leadership or any physical attributes will be specified. Job advertisements are then constructed, based on job description and person specification. Activity 3 Search the local press for a typical job advertisement and identify the job description and person specification components. The HR Plan normally describes the job description and person specification for each position in the organisation RECRUITMENT DECISION MAKING FOR SMEs The first questions to be asked are: Is there a vacancy? Is it to be filled by a newly recruited employee? Vacancies may arise if employees are leaving or if there is an expansion. Vacancies may also be imaginary. For example, an executive may make a pressing demand for an assistant more as a plea for recognition than for assistance. Recruiting a new employee is not necessarily the automatic response when a vacancy occurs. Some options are: 7

8 - Reorganise the work. - Use overtime. - Mechanise the work. - Stagger the hours. - Make the job part-time. - Sub-contract the work. - Use an agency Factors to be considered in Recruitment Factors to be considered in recruitment include the following: Organisation Goals The business plan normally contains an assessment of HR needs presently and in future, according to the objectives of the organisation. One reason for recruitment can be a planned growth of business Marketing Plan Issue Recruiting new staff may pose a dilemma to the owner who has established personal customer relationships. He/She will wonder whether staff will be in a position to nurture the existing relationships (or at worst spoil them through lack of customer care). However, owners may lack good interpersonal skills and thereby prefer to recruit people who can display a high level of customer responsiveness. Some business owners find it hard to delegate critical functions to staff either for fear of losing control or else may feel threatened by another person taking his/her responsibility. 8

9 Provision of Facilities When recruiting new staff, additional equipment and working space will be required. Furthermore, complex issues such as legal matters pertaining to the employment contract (for instance, health and safety issues) will arise. The owner may not be prepared to such new aspects of the work relationship Financial Provisions Salary and benefits of employees is one of the major cost items in total expenditure of a firm. Recruitment is therefore a crucial decision which will affect cash flow and profitability of the firm. The entrepreneur will undoubtedly carry out a cost benefit analysis prior to the recruitment decision Position in the Hierarchy Organisations normally have more or less formal organisation structures. These are represented by organisation charts which show the relative positions of people in organisations, how tasks are allocated, how activities are coordinated and the flow of information and how future employees will fit in the overall picture. Small firms in general have organic structures instead of hierarchical (pyramidal) structures. They emphasise teamwork, that is, small groups which share information, ideas and tasks. Management structure is flat and flexible Recruitment Methods for SMEs Common methods of employee recruitment include: Newspapers are the most common forms of advertisement media. However, they tend to be expensive although they are effective in reaching a large audience. Web site - Company web site is less costly, but also less effective in attaining an audience, unless people are particularly interested to work for the organisation. 9

10 State employment agencies - Designed to assist job seekers, they have a good database of unemployed people. The service is usually free but is normally restricted to lower level jobs. Educational institutions - Employers may seek recruits directly from colleges, polytechnics, vocational schools or universities. This is more useful when organisations are seeking high levels of specialisation, for example, Hotel School of Mauritius for the hospitality industry. Recruitment agencies - Specialised agencies usually cater for higher level jobs, for example, management. They usually have a database of qualified and experienced people who may be looking for a change in job or for more challenging opportunities. Family and friends and unsolicited application - Apart from the above methods, small firms, more often than not, have recourse to simpler recruitment channels including appeals to family members, relatives and friends to join the organisation. They also keep applications for future reference. The HR Plan directs the relevant methods of recruitment for different positions in the organisation. Activity 4 Reflect upon the Equal Opportunities Act recently passed in Parliament with reference to recruiting from family and friends. Candidates are likely to be influenced by such issues as pay, incentives, and possibilities for advancement and growth prospects of the company. 10

11 12.7 SELECTION Once applications have been compiled, a pre-selection is made whereby unqualified candidates are rejected and a reasonable number of applications are set aside for selection. The HR Plan sets the criteria for selection. Selection criteria are based on the job analysis and are used by the selection panel to judge potential applicants suitability for the post. Unlike the public service or large firms, small firms will concentrate on individual characteristics and potential for performance rather than on qualifications and experience only. Entrepreneurs will look for characteristics such as risk taking propensity, energy, drive, teamwork, project management skills, business awareness and people management skills. The main Selection methods are the traditional interview and aptitude tests (for example, for manual or technical jobs). The two key requirements for selection methods are reliability and validity. Reliability means that the method should not be influenced by chance it should give consistent results if used twice on the same person. Validity means that the method measures what it purports to measure and predicts with reasonable accuracy the future behaviour or performance that it was required to predict. Selection Methods Letter of application Application forms Personality Tests References Aptitude Tests Interviews: Three main types of approach to interviewing may be used: (Torrington & Chapman, 1983). 11

12 - Biological in which the interviewer questions the candidate about incidents in previous experience - Problem solving in which the interviewer presents the candidate with a hypothetical what if? type problem and asks the candidate to offer his or her solution - Stress interview, where the interviewer may become aggressive and put the candidate under some pressure, for example, by criticising his/her performance or career. During the selection process, a salary (and other conditions of service) is either proposed to the prospective employee or is negotiated. All agreed conditions will form part of the employment contract. The employment contract can be in the form of a formal document. However, most small firms do not draw a formal contract and employment relationships are governed by an unwritten contract which is recognised by law and based on industry norms or government remuneration orders and general labour & employment laws INDUCTION TRAINING AND SKILLS BASED TRAINING Induction refers to introducing the new recruit to colleagues, acquainting with current procedures and meeting customers and suppliers. The physical as well as psychological working environments are presented. Reporting relationships are explained as per position in organisation structure. Normally, the new recruit works under probation for a given period (3 months to one year), during which period the employee has to demonstrate ability to work in the assigned position. Otherwise, the employee can be dismissed without any obligation. Post induction training can then take place in order to improve performance. HR plans generally contain a training needs analysis, whereby the gap is measured between what skills employees actually have and what they are expected to have with reference to organisation goals. Such 12

13 training will equip workers with the skills necessary for their current jobs as well as for future business needs. The HR plan includes a proper training plan and can include training areas such as management skills, customer care, quality assurance and so on Planned Training The Training Cycle Planned training, as defined by Kenney & Reid (1994), is a deliberate intervention aimed at achieving the learning necessary for improved job performance. The process of planned training, as shown below, consists of the following steps: Identify and define training needs analysis of individual and organisational needs in terms of new skills or knowledge or to improve existing competences. The analysis adopts a problem-solving approach as well as future needs. Define the learning required that is, the skills and knowledge to be learned, the competences to be developed and the attitudes to be reinforced or to be changed. Define the objectives of training objectives are set as to what needs to be learnt and what employees must be able to do after the training programme. Plan training programmes meeting the objectives by applying the right mix of training methods and locations. Decide who provide the training and where choice of trainers from, for example, within or outside the organisation. Sharing of responsibility between the training managers or team leaders and individuals has to be decided. Implement the training ensure that the appropriate training methods are applied for trainees to acquire the skills, knowledge, levels of competence and attitudes. Evaluate training Monitoring the effectiveness of training during the programmes. Assessing the impact of training in achieving learning objectives. Amend and extend training as necessary As a result of evaluation, review the planned training programme as to what needs to be improved. 13

14 12.9 PERFORMANCE MANAGEMENT SYSTEMS (PMS) As a company grows, it becomes more important to have a system to manage behaviour and results, and to ensure these results are consistent with the goals and strategy of the venture Definition Performance Management is a means of getting better results from the organisation, teams and individuals by understanding and managing performance within an agreed framework of planned goals, standards and competence requirements. It is a process for establishing shared understanding about what is to be achieved, and an approach to managing and developing people in a way which increases the probability that it will be achieved in the short and long term. It is owned and driven by line management (Armstrong, 1996) A PMS system is a collaborative approach which strategically uses performance measurements as a tool to: - Set goals or work standards. - Assess performance relative to those standards. - Provide feedback to employees so that they can improve their performance and develop their capabilities and skills (Kaplan, 2004). A PMS identifies the mechanisms for performance appraisal, for example, interviews, rating scales, peer appraisal and so on. In general, small firms have a greater reliance on entrepreneur s assessment following his/her personal impressions on worker s performance REWARD MANAGEMENT, PERFORMANCE RELATED PAY 14

15 To achieve company goals, employees must have positive consequences extrinsic rewards and intrinsic recognition that they find desirable enough to motivate them to change their behaviour and improve performance. Performance Related Pay (PRP), looks beyond straight forward measures of output and provides a means whereby individual effectiveness, flexibility and work quality can also be rewarded. Having started as incentive schemes designed to motivate managers and executives, it has now spread downward through organisations to cover non-manual grades and some manual grades (Torrington & Hall, 1995) Types of PRP The PRP form that relates annual incremental progression to individual performance is the most widely used. Low performance will result in a compensation to cover only cost of living increase and not by increase in basic salary. The disadvantage of this form of PRP is that it causes the organisation s pay bill to rise. PRP schemes also vary in terms of the % of pay which is performance related. Rewards can be related to performance by means of profit-sharing, gain sharing, profitrelated pay and share ownership schemes (Armstrong, 1996) Profit Sharing Cash is provided from a pool to eligible employees on the basis of a pre-designed formula. The size of the pool is decided at the discretion of directors. The payment is triggered by the attainment of a set profit level. Gain Sharing A bonus plan which provides for employees to share in the financial gains made by a company as a result of its improved performance, for example, in cost reduction. It aims to relate payouts specifically to performance improvements within the control of employees. 15

16 Profit-Related Pay A portion of pay moves up or down with profit. Employees have to accept that their pay may increase or decrease as profits rise or fall. Share Ownership It can be provided through an Employee Share Option Plan (ESOP). An Employee Benefit Trust buys shares from the company to distribute to employees OTHER HR ISSUES Included in the HR plan are the procedures for termination of employment contracts. The legal issues are so complex that small firms often have recourse to lawyers or the legal services of employer associations. Health and safety issues refer to the workplace conditions that need to be monitored to minimise risks of injury. Activity 5 Describe some occupational Heath and Safety issues at work in a service organisation. Pension is statutory in most countries whereby both employer and employee contribute to a pension plan. Small firms rarely go beyond legal requirements. However, for management positions, firms may offer pension payments which go beyond legal requirements. 16

17 12.12 SME SPECIFIC HR PRACTICES Some HR practices are more emphasised in SMEs because in small enterprises, the Human Resource function is closely woven in the structure of the enterprise. The leadership style, the spirit of initiative pervading the organisation and the risk taking propensity, all warrant HR practices that favour such a culture. For example, SMEs staffs need to be empowered to get a sense of ownership to the organisation. They have to be rewarded for performance, and resources spent in their training have to be regarded as an investment rather than an expense. The following HR practices can be prescribed specifically for SMEs. 1. Share ownership (physical/financial and/or psychological) with employees. Activity 6 In what ways can a firm share ownership with employees? 2. Share organisation/owner objectives by defining them and putting in place performance indicators. In HR management, as a golden rule, whatever is strategic has to be communicated to employees and ways and means have to be put in place to measure achievement of objectives. Activity 7 What is the role of performance appraisal in this respect? 17

18 3. Reward performance to increase motivation It is far easier to recognise good performers in a small firm due to shorter physical distance between supervision and execution. Activity 8 How should the owner-manager address low performance? 4. Recruiting, Selecting and retaining the best competences. Large firms have the advantage of being able to give better remuneration in order to recruit and retain the best competences on the labour market. It is also true that an SME can give a more stimulating career to an employee whereby the latter can have more freedom to take initiatives and participate directly in the growth and success of the enterprise instead of being constantly required to follow supervisor s instructions. In addition, the SME employee has fewer promotion ladders and can even secure an equity share in the firm, an employee retention strategy which is difficult to apply in a large firm. 5. Training and Development Newly set up SMEs find it difficult to invest (time and money) in training the personnel, the more so that it is not yet possible to have in house training run by existing employees. However, the training function has to be regarded as an investment rather than an expense in spite of these difficulties. Small enterprises often have access to government 18

19 sponsored training and full use has to be made of such facilities (in Mauritius, the HRDC partially funds training of staff). 6. From SME owner to HR Manager Being given the limited size of the business, the SME owner-manager is quite often responsible for the HR function. Obviously, he/she might lack the HR management skills necessary to carry out HR functions like HR planning, Training & Development, P & R management and so on. He/she may not even have the means at the beginning to hire a full time professional. However, the SME owner can still have recourse to services of private professional consultants as and when required, although SMEs rarely require the formal and standardised HR procedures which are essential in HR management of large firms. Activity 9 What is the role of institutions like HRDC, SEHDA and Chambers of Commerce in this respect? 7. Core and Peripheral Work Force SMEs often lose seasonal contracts due to limited work force. One solution is to keep a pool of workers to be employed on a flexible basis depending on secured contracts. Core staff can take charge of the training of the peripheral work force. The latter can also act as replacement in case of absences or leave of core staff. In this way, an SME can have recourse to a larger work force without actually owning it (that is, bearing social security costs, for example). 19

20 12.13 SUMMARY It would appear that it is more difficult for smaller firms to attract and retain staffs. However, small firms carry the advantages of providing an intimate, family like atmosphere. Small firms also provide flexibility in a number of work compartments, for example, organisation structure, performance related pay, working schedules, etc that make them more responsive to the changing environment, whereby the HR is often seen as a source of competitive advantage REFERENCES 1. Armstrong, M. (1996). Human Resource Management. 2. Graham & Benentt, T. (1999). Human Resource Management. 3. Kenney & Reid (1994). Training and Development. 4. Storey, J. (1992). Developments in the Management of HR. 5. Torrington, D. et al,. (2008). Human Resource Management. 6. Walton, J. (1996). Strategic Human Resource Management. 20