Perceived Acute Human Resource Management Problems in Small and Medium Firms: An Empirical Examination

By Tocher, Neil; Rutherford, Matthew W. | Entrepreneurship: Theory and Practice, March 2009 | Go to article overview

Perceived Acute Human Resource Management Problems in Small and Medium Firms: An Empirical Examination


Tocher, Neil, Rutherford, Matthew W., Entrepreneurship: Theory and Practice


The main objective of this study was to introduce and empirically test a novel and useful framework from which to study human resource management (HRM) problems in small- and medium-sized enterprises (SMEs). Specifically, the "perceived acute HRM problems framework" introduced in this study was an attempt to advance the literature by moving beyond simply studying when HRM problems may exist in SMEs, to instead studying when SME owners and managers perceive that HRM problems are the firm's most significant concern. Recent literature suggests that SME owners and managers do not conceptualize specific HRM problems on a spectrum. Rather, they are more likely to perceive only "people problems" in the aggregate and then only when severe. Thus, the acute problems framework may be a more appropriate angle from which to study HRM problems in SMEs. We employ binary logistic regression on a sample of 1,693 SMEs to analyze the effect of owner/manager characteristics and firm characteristics on the likelihood of perceiving acute HRM problems. Our results indicate that SME owners and managers who were running higher- performing firms were less likely to perceive acute HRM problems. Conversely, SME owners and managers who were more experienced, who were more educated, and who were running larger SMEs were more likely to perceive acute HRM problems. Finally, gender, owner age, firm age, and firm growth showed no significant relationship with likelihood of SME owners and managers perceiving acute HRM problems.

Introduction

Human resource management (HRM) problems have been an area of interest to entrepreneurship researchers for at least 15 years (e.g., Hornsby & Kuratko, 1990; Kazanjian & Drazin, 1989; Terpstra & Olson, 1993). Since these early studies, interest in the topic has intensified mostly because of the dual contention in small-firm HRM research, which holds that an inability to identify and manage HRM problems is a common cause of failure, and conversely the ability to perceive and overcome HRM problems is a key area in which small firms can gain competitive advantage (Barney, 1995; Dess & Lumpkin, 2003; Hornsby & Kuratko, 2003). While this increased interest has led to increased research, the empirical work on the topic has focused on identifying when (in the life cycle) small- and medium-sized enterprises (SMEs) may experience varying levels of HRM problems (e.g. Huang & Brown, 1999). While such research is important and informative, it may not be the most appropriate lens from which to examine SME HRM problems. Specifically, research indicates that SME owners and managers are not likely to focus on administrative issues such as HRM, unless they perceive such issues to be an acute concern of the firm (Cooper, Ramachandran, & Schooman, 1997; McCarthy, Krueger, & Schoenecker, 1990). Hence, the current manuscript proposes an acute HRM problems framework that may be a more appropriate lens from which to examine SME HRM problems.

Why study acute HRM problems? On one hand, HRM has been theorized and empirically demonstrated to be an area where sustainable competitive advantages can be developed (Barney, 1991, 1995; Berman, Down, & Hill, 2002). Specifically, it is argued that advantages developed through HRM such as a positive organizational culture and a strong firm knowledge base, can help create sustainable competitive advantages, because such intangible assets are valuable, rare, and difficult to imitate (Arthur, 1994; Hayton, 2003; Huselid, 1995). Furthermore, developing competitive advantages through HRM are likely more important to SMEs because SMEs do not likely possess the tangible resource bases to compete with larger and more established firms (Cardon & Stevens, 2004; Hornsby & Kuratko, 2003).

On the other hand, in spite of the importance of HRM to SMEs, research also indicates that SME owners and managers do not tend to focus on administrative issues such as HRM, until they perceive that such issues are critically important to the firm (Cooper et al. …

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