This study examines determinants of professional human resource management (HRM) practices within a sample of approximately 700 small to medium-sized firms. Predictions from the agency theory and the resource-based view of organizations lead to alternate hypotheses regarding the direct and indirect negative effects of family ownership and management on the usage of professional HRM practices. Results support predictions for both direct and indirect effects. These indirect effects occur through intermediary variables that reflect organizational complexity, such as firm size, (the presence of a) formal business plan, and HRM specialization. The findings lend partial support to both theories.
Human resource management (HRM) has been defined as the "process of attracting, developing and maintaining a talented and energetic workforce to support organizational mission, objectives, and strategies" (Schermerhorn 2001, p. 2400). Effective HRM practices are becoming increasingly important in the modern knowledge-based economy, as companies face the double challenge of the need for more highly trained employees and the shortage of qualified labor. These challenges, coupled with the third trend toward smaller firms in general, reinforce the need for effective HRM practices in the small firm (Audretsch and Thurik 2001).
Empirical research confirms that in general, smaller firms make less use of professional HRM practices than larger firms. For example, smaller firms make less use of formalized recruitment practices, provide less training to their employees, and are less likely to use formalized performance appraisals. Despite the size effect, research suggests that far from being homogeneous, small firms vary widely in the professional HRM practices in use (De Kok and Uhlaner 2001).
Variation in family ownership and management may help to explain the differences in HRM practices among small and medium-sized enterprises (SMEs). Dyer (2003) and Schulze, Lubatkin, and Dino (2003) all point out that the family is a neglected variable in organizational research. Nevertheless, a research stream is emerging that generally confirms a negative relationship between family firm governance and the use of professional HRM practices (Fiegener et al. 1996; Cyr, Johnson, and Welbourne 2000). In this paper, we pursue this research stream further by deriving and testing a model to explain whether and why family-owned and managed firms (1) tend to use fewer professional HRM practices than other SMEs. In developing the propositions of the model, we compare and contrast predictions and explanations based on agency theory with those based on the resource-based view. We argue that the direct effect of family ownership and management on the types of HRM practices found in SMEs is consistent with agency theory whereas indirect effects, via various organization characteristics variables associated with greater organizational complexity and resource richness, may support a resource-based view of the firm. The organization characteristics chosen for the present study include firm size, formal business planning, HRM specialization, and export strategy. In addition, we control for other organization characteristics such as firm age, sector, unionization, and franchising. Before presenting the methodology and results of an empirical study of approximately 700 SMEs, we will review aspects of the literature that provide conceptual support for the proposed model and hypotheses.
Professional HRM Practices
One of the lingering questions in HRM research is whether or not there is a single set of policies or practices that represents a universally superior approach to managing people. Theories on best practices or high commitment theories suggest that universally, certain HRM practices, either separately or in combination with others, are associated with improved organizational performance. They maintain that well-paid, well-motivated workers, working in an atmosphere of mutuality and trust, generate higher productivity gains and lower unit costs (Boxall 1996; Pfeffer 1994). …