The Role of Human Resources in the Success of New Businesses

By Menefee, Michael L.; Parnell, John A. et al. | Southern Business Review, Fall 2006 | Go to article overview

The Role of Human Resources in the Success of New Businesses


Menefee, Michael L., Parnell, John A., Powers, Ed, Ziemnowicz, Chris, Southern Business Review


The academic and popular business press are flush with recurring articles on the factors associated with business success. Examples of business successes and failures abound, thus articles abound discussing the various causes and trends. Two decades ago, for example, the Yugo was introduced in the United States. It had as the lowest price automobile on the market, but the carmaker's American division was bankrupted only four years later due to perceptions of quality problems and poor dealer service. The same entrepreneur also brought the Subaru line of cars from Japan and is now developing plans to import cheap cars from China (Rerup, 2OO5). Will the organizational factors that plagued the Yugo be repeated? Perhaps consumers now overlook the lack of service and the disposable nature of many contemporary products because of their (always) low price.

Similar examples abound. During the 1990s, PepsiCo acquired the California Pizza Kitchen restaurant chain and launched an aggressive growth campaign, opening sixty new stores. Quality and service management problems resulted in the closure of seventeen stores; however, and PepsiCo divested the pizza chain only five years later (Parnell, Von Bergen 8 Soper, 2005). More recently, the success of Internet icons Google and Yahoo has been attributed to a number of factors, including technical acumen and executive prowess (Effron, Gandossy, 8 Goldsmith, 2003). On the other hand, there are also examples of firms with technological marvels that have turned into major management blunders, as was the case with Iridium Satellite communications (Finkelstein 8 Sanford, 2000).

Factors associated with business success have been pervasive topics in the entrepreneurship literature for decades and have address all functional areas of business, such as marketing, finance, and production (Bruno, Leidecker, & Harder, 1987; Terpstra & Olson, 1993). Business Resources are usually categorized in three groups: physical, organizational, and human (Koch & Kok 1999). The human resource has long been identified as critical, and in particular the experience of management, by affecting the other resources and functions to achieve success (Penrose, 1959, p. 5). Therefore, this paper considers specific factors in one functional area-human resources (HR)-and examines relationships to several key organizational attributes. This paper is based on a survey of firms involved in technology environments because new businesses in this sector are often seen as the engines in the so-called new economy and their distinctive human capital needs and composition may help determine their growth or failure.

Review of the Literature

More than 600,000 new businesses are launched in the United States each year (Dennis, 1999). Carter, Gartner, and Reynolds (1996) described successful entrepreneurs as aggressive in starting their businesses, making their business tangible to others, finding the most suitable facilities and equipment, getting financial support, forming a legal entity, managing their resources, and devoting full time to the business. Lussier (1995) found that successful firms had good resources in terms of managerial advice and financial support as well as having a detailed and developed business plan. Cooper (1993) constructed a model of the elements affecting new venture performance that included the entrepreneur's characteristics including goals, founding process including reasons for start up, initial firm characteristics, and the environment including risks. This research led to the conclusion that both the characteristics of the entrepreneur and some skill set should be explored.

Success and failure is not only linked to characteristics of the entrepreneur, however, but also to emphasis on key strategic factors (Frese, Brantjes, & Hoorn, 2002; Parnell, Lester, & Menefee, 2000). For example, Reynolds and Miller (1992) describe a fully developed new firm as one that requires the full time commitment of one or more individuals, is selling a product or service, has formal financial support and has hired one or more individuals. …

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