It's a small world:managing human resources in small businesses

It has become widely acknowledged that, during the past decade or so, large mainstream companies in the UK have adopted a new agenda for managing people. Relatively little is known about the impact of this new agenda on small businesses. The small business sector has been long regarded as the natural home for ‘bleak house’ employment relations practices typified by direct management control, poor terms and conditions, high staff turnover and little training. In March 1993, however, a large survey of 560 companies in Leicestershire revealed a surprisingly high take-up and awareness of new management ideas among small business managers. These findings are at odds with a crude ‘bleak house’ scenario. This large-scale telephone survey was then followed up with detailed case study research. This article presents and reflects upon the evidence and reformulates ideas about people management in small businesses.     

Short-cuts in issuance decisions and subsequent small firm performance

This paper examines the subsequent change in performance characteristics of companies that make security issuance choices consistent with “following the herd.” It extends the literature on decision heuristics (i.e., decision short-cuts) by exploring the outcome of mimicking behavior. Results suggest that firms that issue equity in an environment consistent with mimicking are associated with subsequent increased risk of bankruptcy relative to their non-mimicking counterparts. Moreover, the results also suggest that these mimicking actions are not associated with subsequent changes in profitability. This gives support to the argument that decision short-cuts produce suboptimal results. Moreover, the effect is concentrated in very small (i.e., micro-cap) companies, but not present for companies in larger size categories. Similar patterns for debt issuers who mimic competitors are not observed, which may reflect the greater scrutiny imposed by lenders and debt under-writers with regard to debt issuances.

Innovation processes in small and medium-size companies

Innovation in small manufacturing companies often proceeds in an unstructured way. For the most part there is no previous well-defined plan. Small companies manage to introduce product and process innovations in a great variety of ways. The activities involved in the innovation process vary from one company to another, as does the total duration of the process.

With product innovations, the market to which the companies orient largely determines how the innovation evolves. With process innovations, it is the novelty of the innovation that determines the mode of evolution.

Next to the know-how invested in the company, sources of information in the business sector are particularly intensively used, such as customers and suppliers. The use of other sources depends strongly on the stage in the innovation process.

These are the most important conclusions from an investigation that has been carried out under commission from the Dutch government. Its objective was to establish how innovation is accomplished in small companies and which sources of information are used at the successive stages of the innovation process.     

Family background and gender: implications for interest in small firm ownership

This paper directly assesses the impact of family background, sex and work experience on interest in small firm ownership and employment. Additional exploration focuses on differentiating family background (parents-only versus extended-only) to assess the impact on small firm career interest. Results indicate that family background, sex and work experience are significant predictors of these interests. Specifically, males are more interested than females in someday owning their own small business. Small firm work experience enhanced interest in small firm employment. When comparing males and females with an extended-only family background, males are significantly more interested than females in small firm ownership. Implications for future research are discussed.     

Comment: ‘The causes of coal-mine accidents’, worker autonomy,and the myth of the small firm

Here Steve Tombs discusses an article pulished in this Journal (Vol 18 No 1 Spring 1987)–his comments are followed by the author's response     

Academic-industry linkages and small firm innovation: evidence from the scientific instruments sector

This paper explores the role of academic linkages in the product development efforts of small and medium-sized manufacturing firms (SMFs). Data from a sample of 204 SMFs in New York State's scientific instruments sector suggest that university research units can play a helpful role in small firm innovation. Knowledge spillovers from the academic sector are shown to be geographically localized. A key finding is that the intensity of academic-SMF interaction varies inversely with the time-distance that separates firms from major campuses. A related finding is that innovation rates are higher among SMFs that enjoy close proximity to academic resources. The paper concludes with a brief discussion of the role of micro-geographical factors in regional knowledge diffusion.     

Human resource involvement,job-related factors,and their relation with firm performance: experiences from Greece

A great deal of debate exists regarding the relationship between human resource (HR) practices and firm performance. The purpose of this paper is to examine the relationship between HR involvement in firm's strategic planning, job-related constructs (job characteristics, workplace characteristics, and satisfaction), and their impact on firm performance. A new research model is proposed exploring the above-mentioned relationships. The validity of this model is tested using data from 106 chief executive officers (CEOs), top managers, and managing directors of Greek small medium enterprises (SMEs)), using the structural equation modeling approach. The results indicate that job characteristics and workplace characteristics directly affect satisfaction and firm performance, while HR involvement has a direct impact on job characteristics and workplace characteristics and an indirect effect on satisfaction and firm performance. It is suggested that managers should emphasize on the HR involvement in the process of strategic planning which actually affects the job-related constructs, in order to improve employees' satisfaction and achieve higher firm performance levels.     

Foreign direct investment and small firm employment in northern Mexico: 1987-1996

This study analyses the impact of foreign direct investment on small business employment along the border in Mexico between 1987 and 1996. During this period, unprecedented levels of foreign direct investment flowed to Mexico, most notably to the northern border region. At the same time, it appears that internal migration of workers from the interior to the border occurred in response to employment generated by this investment. Utilizing 1987 and 1996 data from the Encuesta Nacional de Empleo Urbano, bivariate probit models of employment and small/ large firm employment for the border and interior regions are estimated. The results suggest that the increased employment share captured by large firms in the border may have hindered growth in the small business sector. A better understanding of the impact of FDI flows on small businesses may help policymakers in developing countries as they strive to create broad-based economic growth.     

Unionisation structures, productivity and firm performance: New insights from a heterogeneous firm model

This paper introduces collective bargaining at the firm and at the sector level into the heterogeneous firm model of Melitz and Ottaviano (Melitz, M. J., Ottaviano, G. I. P., 2008. Market size, trade, and productivity. Review of Economic Studies 75 (1), 295-316). It then analyses how the two bargaining regimes change aggregate industry productivity and firm performance relative to a competitive labour market. While sector-level bargaining forces the least productive firms to exit and thus increases average productivity relative to the competitive benchmark, firm-level bargaining allows less productive firms to stay in the market and thus reduces average productivity. Sector-level bargaining also results in higher average output and profit levels than either firm-level bargaining or a competitive labour market. The paper also shows that the choice between sector- and firm-level bargaining can involve a trade-off between product variety and product prices: Not only the average price level but also product variety tends to be lower under sector-level bargaining than under firm-level bargaining.     

Entrepreneurial orientation and social capital as small firm strategies: A study of gender differences from a resource-based view

Women entrepreneurs have recently been the subject of many studies which have revealed that though women possess some of the same resources as male entrepreneurs, success levels are not the same. The current study looks at the resources utilized by small business owners within downtown business districts. Using a sample of 467 small business owners, we test differences in entrepreneurial orientation and social capital between men and women entrepreneurs. Though women actually reported higher levels of entrepreneurial orientation and social capital, there were no differences in their abilities to utilize these two resources in achieving firm performance. We offer discussion of why these findings are relevant, as well as research implications.     

Exploration and exploitation and firm performance variability<Emphasis>:</Emphasis> a study of ambidexterity in entrepreneurial firms

A challenge young entrepreneurial firms usually face is reducing variability in firm performance in order to mitigate survival difficulties. This paper suggests ventures should have a clear preference for either exploration or exploitation, because such an approach to ambidexterity reduces variability in firm performance. We specifically concentrate on the moderation effects of firm size and environmental dynamism in a sample of young entrepreneurial firms. We found evidence for the effects of lower performance variability in dynamic environments. This is an important insight, because environmental dynamism is a contingency where performance variance is considered problematic for entrepreneurial firms. Our research has implications for the establishment phase of entrepreneurial firms as it suggests they should carefully consider how much they explore to be as different as possible and how much they exploit to be as effective as possible. This is particularly important when they are younger and exposed to dynamic environments.     

Legitimating behaviors and firm emergence: a resource dependence perspective

This study makes an attempt to understand some of the reasons why some nascent firms make the transition to new operational firms (a process called “firm emergence”) while others do not. Because of liabilities-of-newness, nascent firms face the daunting task of acquiring legitimacy from their immediate audience in order to emerge as new operational firm. This study claims and finds empirical evidence that through certain legitimating behaviors nascent firms can acquire legitimacy from their immediate audience and thus succeed in becoming new operational firms. The study will put forward more general propositions for future testing, and will draw implications for practitioners and entrepreneurship scholars.

Innovation,external technical linkages and small firm commercial performance: an empirical analysis from Western New York

This paper examines the role of external service linkages in the innovation and market peformance of small manufacturing firms (SMFs). Survey data from a technological cross-section of 146 Western New York SMFs are summarized. The data suggest a helpful role for consultants in the product development efforts of innovative firms, especially those that serve foreign export markets. Several multiple discriminant models are presented, each of which suggests an interactive connection between SMF commercial performance, externa) technical links, innovation propensity and in-house R&D. It is argued that innovative SMFs that exploit specialized technical services perform significantly better than comparably sized firms that rely solely on in-house resources. It is also argued that the quality of a region's producer service environment may have a significant bearing on the growth potential of its SMF population. The paper concludes by discussing the main academic and public policy implications that flow from the empirical results.     

Welfare and efficiency in incomplete market economies with a single firm

In the quasilinear case, surplus maximization leads to constrained efficient Drèze equilibria. We investigate the question of whether surplus maximization can be useful beyond the quasilinear case.     

Antecedents of the small firm effect: the role of knowledge spillover and blocked mobility for employee entrepreneurial intentions

Small firms are said to produce more entrepreneurs than larger ones (“small firm effect”). Applying existing theories, we analyze how different management positions influence employee entrepreneurship in small firms. Based on a panel study of 4832 cases, we provide evidence for the fact that small firms indeed produce more entrepreneurs. Moreover, we show that lower management positions of small firm employees are responsible for this small firm effect. We conclude that small firms seem to create an environment in which employees on low management positions strongly benefit from knowledge spillover effects as they are educated necessary skills, knowledge and expertise, and are able to build up networks conducive to entrepreneurship (“knowledge spillover effect”), while not having the multifaceted advancement opportunities as in large companies (“blocked mobility effect”).     

On learning and the economics of firm efficiency: a state-contingent approach

The paper investigates the microeconomics of learning for an owner-managed firm. The analysis relies on a general state-contingent approach to uncertainty. In the presence of price and production uncertainty, it examines the case where acquiring information is costly. It evaluates the microeconomic efficiency of decisions, with a focus on three factors: sure income, the value of information, and a risk premium (measuring the implicit cost of private risk bearing). The analysis stresses the role of information and learning in microeconomic decisions. Implications for efficiency and productivity measurements are discussed.     

HR flexibility and firm performance: analysis of a multi-level causal model

Human resource flexibility as a construct, how it develops, and its effect on firm performance have not received adequate attention in strategic HRM literature in spite of their obvious importance in today's dynamic competitive environment. Based on a study of 98 manufacturing and 103 service firms in India, this paper addresses these issues by developing and testing a multi-level model that attempts to explore the ‘black box’ of the interlinkages between the various components of HR flexibility and firm-level human, operational, and financial outcomes. The results suggest that a certain set of ambidextrous HR practices constitute a distinct dimension of HR flexibility, beyond the dimensions of flexibilities of skill, behaviour and HR practices as already identified in the existing literature. Evidences from both manufacturing and service sectors support the notion of HR value chain that suggests that HR system has a direct impact on firm-level HR outcomes which are most proximal, and its effects on increasingly more distal operational and financial outcomes are mediated by HR outcomes that it produces. Another important finding is that HR practices as a system have both direct and indirect (mediated by behavioural flexibility) effects on firm-level HR outcomes. Existence of significant direct effects highlights the important role that HR practices play as a structural mechanism in achieving superior firm performance.     

Corporate social responsibility and firm efficiency: a latent class stochastic frontier analysis

The nexus between corporate social responsibility and corporate performance is of fundamental importance to understand if the former can be a sustainable strategy in the competitive race. In this paper we test this relationship on a sample of firms observed in a 13-year interval by focusing on a performance indicator (productive efficiency) seldom explored in this literature with a novel approach (latent class stochastic frontiers). Our empirical findings show that firms included in the Domini 400 index (a CSR stock market index) do not appear to be more distant from the production frontier than firms in the control sample after controlling for the heterogeneity of production structure.     

The differential effects of public R&D support on firm R&D: Theory and evidence from multi-country data

This paper aims to evaluate the effects of various forms of public research and development (R&D) support on firms’ incentives to invest in R&D. First, in order to identify potential channels through which public R&D support influences firm R&D, a formal model of firm R&D with public R&D support is developed and analyzed. Four potential channels are identified: the technological-competence-enhancing effect, the demand-creating effect, the R&D-cost-reducing effect and the (project) overlap (or duplication) effect. These multiple channels indicate that it is difficult to evaluate the aggregate effect of public R&D support and that there are differential effects of public R&D support on firm R&D, depending on various firm- or industry-specific characteristics. Second, the differential effects of public R&D support are empirically tested using unique firm-level data for nine industries across six countries. Public support tends to have a complementarity effect on private R&D for firms with low technological competence, for firms in industries with high technological opportunities and for firms facing intense market competition. In contrast, firms with high technological competence and firms that have enjoyed fast demand growth in recent years show a crowding-out effect, and firm size and age do not show any discernible differential effect.