Human Resource Management Issues as a Small Business Grows

By Howard, Jack L. | New England Journal of Entrepreneurship, Spring 2001 | Go to article overview
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Human Resource Management Issues as a Small Business Grows

Howard, Jack L., New England Journal of Entrepreneurship

With the recent growth of small businesses in the private sector, it has become increasingly important to understand how small businesses use their human resources. Yet, very little research has been conducted to examine human resource management issues in small business. Additionally, their need to address human resource management issues is largely unstudied. This article attempts to begin to assess the issues facing small businesses, and how human resource management can be integrated as a small business grows.

Small businesses represent a considerable portion of the U.S. economy. Indicative of the role of small business is the fact that the U.S. Small Business Association states that as of 1997, small companies account for the following:

* 52 percent of the private sector sales in dollars;

* 50 percent of private sector output;

* 41 percent of private sector business total assets;

* 41 percent of private sector total debt;

* 42 percent of private sector business net worth;

* 36 percent of all private sector innovation; and

* a total of 21 million small businesses filing tax returns.

This information indicates that small business is a major player in the U.S. economy.

While the statistics presented are important, also important is the fact that 54 percent of all private sector employment is found in small business. Big business and large corporations are not employing the numbers they once did, with small business employing the majority of the private sector workforce. Given this fact, one would think that research had been conducted examining how small businesses grow in terms of the number of employees. However, much of the focus has been on the traits and characteristics that make small businessowners and entrepreneurs successful, sales and profit growth, as well as growth of market share. The small amount of research that does focus on the growth of the number of employees is largely descriptive in nature, reporting trends found in small businesses.

The present study is exploratory in nature, in an attempt to begin to determine the underlying conditions that might indicate when a small businessowner or entrepreneur might consider expanding his or her workforce. Additionally, an attempt to determine the human resource management issues that should be considered as a small business grows will be made. First, this report covers the literature to date. Second, data and analysis techniques are explored. Third, the results of the analysis are examined and discussed. Finally, conclusions drawn from the study are presented.

Literature Review of Small Business Growth

Small businesses have been studied for many years, in an attempt to determine what differentiates successful small businesses from unsuccessful small businesses. One of the major issues surrounding the study of small business is that of defining small business. A wide variety of definitions of small business exist. For purposes of the present study, a small business is "one that is independently owned and operated and not dominant in its field of operation" (Hodgetts and Kuratko, 1995). Additionally, as the definition pertains to the present study, this indicates that for manufacturing firms there are:

* fewer than 250 employees;

* less than $22 million in annual sales in the wholesale sector;

* less than $7.5 million in annual sales in the retail sector; and

* less than $10 million in annual sales in the service sector.

The literature to date focuses largely on firm growth. Given that the focus of the present study is on firm growth in terms of number of employees, the focus of the literature review is on literature to date associated with human resource management issues. Specifically, the literature review focuses on firm growth (an issue that affects several human resource areas, such as selection, training, and planning, for example), as that can and may influence and relate to the number of employees in the firm.

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