When entrepreneurs and business executives develop a business plan, they recognize that a great line of products or services helps a company achieve, and maintain, a competitive advantage in the marketplace (Porter, 1980). For instance, the founder of Coyote Logistics (based in Lake Forest, Ill) based his business model around the practice of back-hauling (filling trucks with cargo from other clients for return trips) so that fewer of his trucks traveled with underutilized cargo space (Inc, 2010). This unique service has caused Coyote Logistics to have a 13,846.8% growth rate since being founded in 2006. Similarly, W.L. Gore and Associates (based in Newark, NJ) base the majority of their products (ranging from dental floss to guitar strings) on their innovative fluoropolymer material. This unique product has helped position the company as a market leader in diverse industries ranging from rugged outdoor equipment to high-end transfer cables for electronic equipment. Finally, Zappos.com (based in Henderson, NV) provides another example of a company that has relied on a unique service/product line to grow from a small web-based shoe retailer to the largest on-line shoe retailer within 5 years of being founded (Durst, 2007).
The leaders at these businesses, and any other successful venture, clearly recognize the importance of identifying a unique product or service. Furthermore, successful managers also recognize the importance of efficiently managing their employees and developing their human resources. For example, CEO Jeff Silver credits Coyote Logistics success to an intensive two-month training program followed by a six-month mentorship program that is required for all new employees (Inc, 2010). Additionally, W.L. Gore and Associates has consistently been ranked as one of the top 100 places to work in Fortune magazine's annual rankings by focusing on valid human resource management practices to identify and prepare associates to develop innovative uses for their fluoropolymer materials. Furthermore, throughout Zappos.com's rapid growth, the leaders consistently focused on designing training programs to help employees deliver quality customer service (Chafkin, 2009). These firms clearly linked their human resource management practices to their competitive business model. When business leaders are able to align a strong competitive strategy with a well designed and strategically focused human resource system, it has the necessary foundation that brings customers in the door (or to their website) initially and gets them to come back for repeat business (Cascio & Boudreau, 2008; Ulrich & Brockbank, 2005).
The recognition that human resource issues are important to small and growing firms is not new. For instance, Hess (1987) presented data that suggested that small business owners rank human resource related issues as the second most important management activity after general management. Further, Karami, Jones, and Kakabadse (2008) suggested that the majority of CEO's in their sample believe that human resource practices have a substantial impact on firm performance. Additionally, Dunn, Short, and Liang (2008) presented results suggesting that sound hiring practices and training programs are considered important by small business owners who have 10 or more employees.
In light of the growing recognition that the human resource issues faced by small and growing firms are different from their larger counterparts and that the quality of a company's human resources play an important role in building a successful firm, recent theoretical (Cardon & Stevens, 2004) and empirical (e.g., Carlson, Upton, & Seaman, 2006; Dunn, Short, & Liang, 2008; Karami, Jones, & Kakabadse, 2008; Messersmith & Guthrie, 2010) work has begun to examine the specific human resource management practices employed by small and entrepreneurial firms. This prior research has clearly established a link between employee knowledge, skills, and abilities and maintaining a competitive edge in small and entrepreneurial businesses (Deshpande & Golhar, 1994). Given the important role of human resource management in building a competitive advantage, it is important to develop a more complete understanding of the role that human resource practices play in the performance of small and entrepreneurial firms (Heneman, Tanksy, & Camp, 2000).
Therefore, the current paper aims to make a contribution to the literature by highlighting the recruitment, selection, training, and compensation practices commonly utilized by a national sample of independent small business owners and by presenting a strategic human resource management model based on the operating needs of small and growing businesses. In the text below, the authors will: (1) further discuss how strategically focused human resource management practices can lead to important organization level outcomes; (2) present the results of a study designed to examine the human resource practices typically utilized by small and growing firms, and (3) develop and present a model that outlines several steps that organizations can use to successfully implement strategic human resource programs that complement, and build upon, their competitive strategy.
HUMAN RESOURCE MANAGEMENT PRACTICE
Human resource management represents the design, development, and implementation of interrelated people management practices that influence how well an organization can attract job applicants, retain motivated and successful employees, and ultimately impact job performance and organizational effectiveness (Noe, Hollenbeck, Gerhart, & Wright, 2007). Effective human resource management practices, including properly developed employee recruitment and selection plans, training and development programs, and compensation and reward systems have been linked to higher employee performance and adding value to the corporation (Pfeffer, 1994). Prior research clearly links effective human resource management practices to valuable business level outcomes, such as product innovation, customer satisfaction, and financial performance (Dooney, 2005; Huselid, 1995; Phillips, 1998; Pfeffer & Veiga, 1999).
While important and useful, most of the extant research (and associated "best practices" models) are based on data gathered from large businesses--businesses that often have more available capital than their smaller and growing counterparts (Welsh & White, 1981). For instance, prior research has clearly demonstrated that small businesses and entrepreneurial firms are fundamentally different than larger firms--in terms of resources available, number of employees, and employees with human resource training (Barber, Wesson, Roberson, & Taylor, 1999). Therefore, it has been difficult to understand how strategically designed human resource management practices can be generalized to small and entrepreneurial firms (Cardon & Stevens, 2004; Tocher & Rutherford, 2009). Furthermore, small businesses have a more difficult time recruiting employees (Williamson, Cable, & Aldrich, 2002) and may face a difficult time developing sustainable human resource systems and policies (Barber et al., 1999; Cardon & Stevens, 2004). Additionally, Rutherford, Buller, and McMullen (2003) demonstrated that human resource needs change across the growth/life cycle of the firm.
In the text below, the authors present the more widely recognized aspects of a human resource system and tie them, where possible, to important individual and business level outcomes (e.g., innovation, employee productivity, motivation, etc.). Consistent with prior research (Golhar & Deshpande, 1997; Sels et al., 2006), the current review focuses on a limited number of components of the total human resource system including recruitment, selection, training and development, and compensation. These areas are highlighted because prior research has demonstrated a positive link between selective hiring practices, extensive training, strategic compensation plans, and overall firm performance in small and growing firms (Cardon & Stevens, 2004; Dess & Lumpkin, 2003; Rutherford, Buller, & McMullen, 2003).
Employee recruitment and selection
Employee recruitment and selection practices are focused on attracting talented applicants to a business, identifying the applicants that are most qualified, and ultimately making the hiring and placement decisions. Due to the general importance of finding capable and motivated employees, both recruitment and selection practices have received attention within the relevant literature (Cardon & Stevens, 2006). However, some authors (e.g., Barrett & Mayson, 2007) argue that recruitment and selection are areas where growing businesses typically rely on poorly structured practices that exhibit a lack of strategic planning (Mayson & Barrett, …