Managing people in the small business to get a win-win result
Despite the importance of the SME sector to the national workforce, relatively little research has been undertaken in how workplace laws and regulations influence HRM practise within small firms. Academic studies have tended to type cast the small business workplace as representing either a “small is beautiful” or “Bleak House” scenario.
The first of these comprises a harmonious and close working relationship between the owner-manager and their employees. The second is a dictatorship offering employees poor working conditions. The reality is probably somewhere between, and recent evidence suggests that Australian SMEs are more likely to represent the “small is beautiful” option.
Small to medium enterprises (SMEs) – defined as those employing fewer than 200 people – employ just over 70 percent of the national workforce. Although about 60 percent of SMEs employ no one other than their owner-manager, around 36 percent comprise work places where the workforce is less than 20 people.
What this means is that the majority of the Australian workforce is located within the SME sector where they work in small teams. This makes the workplace environment of a small business significantly different in many respects from that found in large organisations.
Managing the small business workplace
Although not all small businesses are the same, research suggests that they do share some common traits. For example, the small business workplace typically operates as a tight circle with the owner-manager at the centre, coordinating their team in what is often an informal and idiosyncratic environment.
Large organisations are generally characterised by formality and structure, with full-time human resource management (HRM) staff and systems. By contrast most SMEs have informal, often fluid structures and limited HRM systems dealing only with the essentials.
Another feature of SME workplaces is their relatively low level of unionisation. When making decisions over pay and conditions, discipline or dismissal, the owner-manager tends to rely on industrial awards rather than formal negotiations with employees.
Most micro and small firms remain informal in how they manage their workforce. For the majority of owner-managers the complexity and frequently changing nature of workplace laws and regulations can be daunting and time consuming. As a business grows larger, the level of formality in HRM increases. However, small firms that have highly skilled employees are more likely to adopt formal HRM systems than their counterparts with low-skilled employees.
Employer associations such as Chambers of Commerce, can also help to influence the level of formality in HRM within SMEs, usually through education of the owner-manager. However, trade unions and even major customers or suppliers can have a strong influence. This typically occurs when a union takes action against the employer, or in the case of a customer, staff training and certification are required under contracts.
Getting a win-win via peak performance management
Small business owner-managers who wish to grow their firm or just enhance its performance need to adopt more formal HRM systems. Key areas for attention are flexibility of working hours, performance appraisal systems, group or team working practices and performance-based pay.
Flexible working arrangements are strongly associated with innovation and the adoption of new ideas. Providing employees with greater levels of flexibility in their working arrangements, as well as career path development, reward for effort, constructive feedback, training and organisational support have been found to enhance SME performance. Sadly, not enough small business owner-managers in Australia appear willing to adopt employee performance management practices.
Despite this, most Australian SME owners demonstrate a willingness to pay overtime rates. Research into Australian SMEs also suggests that around 40 percent of employers allow employees to use leave entitlements, however, only 34.5 percent offer flexibility working hours.
Research has also suggested that workplace laws and regulations serve to restrict the ability of SMEs to adopt flexible working arrangements. There may also be a tendency for owner-managers to want to treat all employees fairly and equally.
As already noted, the workplace in most SMEs is relatively flexible in regards to structure and team roles. Many owner-managers view the adoption of more formal HRM systems as reducing their flexibility and making things too rigid.
The bottom line for the majority of small business owners, particularly those who wish to grow or enhance their firm’s innovation and performance, is that an investment in the skills and productivity of their workforce is important. Although it can be initially complex, the adoption of HRM practices focused on high performance is the key to success.
A first step for small business owner-managers is to engage their workforce in a dialogue designed to focus the entire team’s effort on achieving enhanced levels of innovation and performance. Employee engagement and involvement in innovation and performance enhancement programs have been found to be effective within SMEs.
Owner-managers who are willing to lead change and engage their employees in a discussion over what is needed, and the trade-offs to ensure that both the employee and the employer achieve their goals are likely to facilitate enhanced firm performance and a more satisfied workforce.
This article by Tim Mazzarol arises out of a research project conducted by the Small Enterprise Association of Australia and New Zealand (SEAANZ), for Biz Better Together, an initiative established by the Australian Chamber of Commerce and Industry. It is supported by the Department of Employment under the Productivity and Education Training (PET) Fund.