hile there is a large body of research on human resources management practices in large organizations, very little is known about HR management in very small businesses.
What training do small firms offer their employees? How are they managing performance assessment and compensation? And where are small organizations finding and selecting their staff?
In search of answers to these questions, we surveyed more than 350 small businesses in the Halifax area. The sample was restricted to small firms (fewer than 100 employees) and excluded workplaces that were in the not-for-profit sector or were branch facilities of larger organizations.
The businesses participating in the study were quite small, with 63 per cent having 10 or fewer employees, 30 per cent having 11 to 50 employees, and seven per cent having between 50 and 100 staff. About 11 per cent of the firms were unionized, 20 per cent were in manufacturing, 41 per cent in the retail or wholesale trade sector and 39 per cent in other business services.
This first article in a three-part series looks at where and how small firms are finding their staff. Other articles will explore training and performance management and compensation.
Responsibility for recruitment
Who assumes primary responsibility for recruitment in small firms? About 31 per cent of respondents said the owner of the business is responsible for recruitment, 51 per cent reported that it is the president or chief executive officer, and about 18 per cent replied that a manager or other employee is primarily responsible for recruitment.
These results show that in many small firms, senior management plays a dominant role in the selection of new employees. While it is not surprising that small business owners and senior management are actively involved in recruitment, the results also suggest that many people involved in recruitment do not receive any specific training.
About 42 per cent of participants indicated that some training is provided to individuals involved in employee recruitment. Firm size is related to the provision of training for recruiters, with 61 per cent of businesses with 51 to 100 employees providing such training.
The results raise important issues concerning the ability of very small firms to find the people who drive organizational success, since there is growing evidence that careful employee selection is an important component in high-performance workplaces. Moreover, the costs associated with hiring a poor employee may be considerably higher in very small firms.
Survey participants were asked to consider a number of external recruitment methods and indicate how frequently each is used, using a six-point scale where “1” indicates the method is never used and 6 represents frequent use.
Employee referral is the most frequently used method of recruiting new employees, followed by advertising job openings and examining resumes that have been kept on file. These three approaches are the only ones that are above the midpoint score of 3.5.
It appears that as small firms grow, they tend to use a larger number of recruiting methods in the search for new employees. Although such an approach may increase the costs associated with recruiting new employees, it also expands the applicant pool.
The two least common methods of external recruitment are the use of private agencies and the Internet.
Despite the growing attention to the Internet as a source of employee recruitment, only about six per cent of small firms reported frequent use of this method, as indicated by a score of 5 or 6.
The use of the Internet to recruit new employees is more common among “larger” small firms, with about 14 per cent of businesses with 51 to 100 employees indicating frequent use of the Internet as a recruitment method.
It appears that many small businesses have not embraced the Internet as a method of attracting new employees. While reasons for this were not explored in this study, it may be that very small firms do not see the Internet as a viable, effective means of recruiting new employees. Moreover, in some small businesses, the individual responsible for recruitment may not have the technology, expertise or desire to use the Internet as a means of attracting employees.
Small employers may be missing out on potential employees who use the Internet as a primary means of searching for work, a large and growing pool of talent.
How often do small firms hire from within? Just less than 50 per cent of respondents said they never hire from within the firm and about 24 per cent of businesses reported that up to one-quarter of job openings are filled internally.
In effect, most of the hiring in small firms is done externally. While promotion from within policies may encourage employee commitment, several small firms hire primarily at the entry level and thus internal recruitment opportunities are limited. Not surprisingly, hiring from within is associated with firm size, with larger employers more likely to hire internally.
Those small businesses that hire internally were asked to consider four different approaches and indicate the frequency of use associated with each, again using a six-point scale; 1 indicates never used and 6 represents frequent use.
The two most common methods are direct assignment to the new position based on performance considerations and by word of mouth from the employee’s supervisor (average scores of 3.66 and 3.53 respectively).
Less common is the use of formal job postings or the use of seniority (average scores of 2.21 and 2.83). Note that the use of job postings is noticeably more common among larger businesses.
Employee recruitment within small firms may vary noticeably when compared to the practices of larger organizations. Procedures are much less formal in smaller organizations and more than 80 per cent of businesses rely on the owner or senior management to make human resource decisions. It is important to note that the number of recruiting methods used increases with firm size. Some small firms may rely on a single method (such as employee referrals) to attract new employees and a result, the pool of job applicants may be very limited.
Although many small employers do not employ human resource professionals, the importance of managing the firm’s human resources cannot be ignored. While hiring quality employees is critical to the success of any organization, the study results suggest that a number of small firms may not be recruiting employees as effectively as possible.
Terry Wagar is a professor of industrial relations at Saint Mary’s University in Halifax and Lynn Langrock is an EMBA graduate of Saint Mary’s. Terry can be reached by e-mail at firstname.lastname@example.org.