HUMAN RESOURCE MANAGEMENT ISSUES AS GROWTH BARRIERS IN PROFESSIONAL SERVICE FIRM SMEs

Article excerpt

This paper analyses how SMEs and more specifically Professional Service Firm (PSF) SMEs, face the growth barriers that arise when the managerial roles in the firm need to change. Human resource issues will be important in every organisational setting. These issues will, however, be of paramount importance for service firms as the human contingent within the firm is effectively its only real 'asset', and constitutes 100% of the product portfolio. Growth within PSFs requiring the mass production of specialist service, will change the nature and shape of the organisation and increase the requirement for 'managerial' processes to exist within the so-called middle line. The very existence of management, in a professional context, can be the source of organisational tension as professionals tend to regard themselves as self-regulating individuals government by the standards and codes of practice established by their own professional body. The natural resistance to external managerial influences, and a desire to progress, both professionally and financially, will mean the firm has to 'strike' a delicate balance between the desires of its professionals for advancement, and its own organisational objectives which will, inevitably, require the creation of congruent environments. The purpose of the paper is to look at the growth issues typically facing entrepreneurial start-up and small firms. The intention is to focus on the issues of a Human Resources and to consider how these act as growth barriers. More specifically, this will be considered for PSFs as they rely solely on 'human capital' as their primary source of production, and because the complex nature or professional working environments give rise to particular management challenges. To clarify, the study focussed on firms located in the UK and the US

INTRODUCTION

Small and medium size enterprises have never before been so important in market economies. Entrepreneurs are now presented with greater opportunities as changes in both government microeconomic policy, and the activities of corporate businesses have helped raise awareness of the value of small firms. Governmental moves towards deregulation and privatisation have created niches for small firms to offer more specialised services within theses sectors. Corporations reengineering and streamlining their internal processes have created opportunities for managers to spin-off the less profitable areas of corporate businesses, creating new start-up ventures. Consumers have also demanded a greater choice in the consumer goods on offer, creating further specialist niche positions for new ventures. Of the UK's 3.7 million businesses in 1999 over 2.3 million were in the SME category. The service sector accounts for 23% (DTI 2000) of UK business which makes this the second largest segment of business, the first being production at 27%.

SME-DEFINITIONS

For the purpose of this study it is intended to use the definitions of an SME as used by the Bolton Committee (DTI 2000) in its 1971 report on small firms. This states, "a small firm is and independent business managed by its owner or part-owners and having a small market share", Section 249 of the Company Act of UK. 1985, states that a company is "small" if it satisfies at least two of the following criteria.

* A turnover of not more than £2.8 million.

* A balance sheet total of not more than £1.4 million.

* Not more than 50 employees.

A medium sized company must satisfy at least two of the following criteria :

* A turnover of not more than £11.2 million;

* A balance sheet total of not more than £5.6 million

* Not more than 250 employees

For statistical purposes, the Department of Tread and Industry (DTI), UK usually uses the following definitions:

* Micro firm : 0 - 9 employees

* Small firm : 0 - 49 employees (includes micro)

* Medium firm : 50 - 249 employees

* Large firm : over 250 employees. …