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Copyright © 2017 Pearson Education, Inc.
Part Five
Enrichment Topics in Human Resource Management
Chapter 18
Managing Human Resources in Small and
Entrepreneurial Firms
Lecture Outline:
The Small Business Challenge
How Small Business Human Resource Management Is Different
Diversity Counts: Necessity and the Entrepreneur
Why HRM Is Important to Small Business
Using Internet and Government Tools to Support the HR Effort
Complying with Employment Laws
Employment Planning and Recruiting
Trends Shaping HR: Digital and Social Media
Employment Selection
Employment Training
Employment Appraisal and Compensation
Employment Safety and Health
Leveraging Small Size with Familiarity, Flexibility, Fairness and Informality
Simple, Informal Employee Selection Procedures
Improving Performance: HR Tools for Line Managers and Small Businesses
Flexibility in Training
Flexibility in Benefits and Rewards
Fairness and the Family Business
Using Professional Employer Organizations
How Do PEOs Work?
Why Use a PEO?
Caveats
Managing HR Systems, Procedures, and Paperwork
Introduction
Improving Performance: The Strategic Context
Basic Components of Manual HR Systems
Automating Individual HR Tasks
Human Resource Information Systems (HRIS)
Improved Transaction Processing
Online Self-Processing
Improved Reporting Capability
HR System Integration
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-2
Copyright © 2017 Pearson Education, Inc.
HRIS Vendors
Trending Shaping HR: Digital and Social Media
Chapter Review
Where Are We Now…
The main purpose of this chapter is to help you apply what you know about human resource
management to running a small business. The main topics we’ll address include the small
business challenge; using Internet and government tools to support the HR effort; leveraging
small size with familiarity, flexibility, fairness, and informality; using professional employer
organizations; and managing HR systems, procedures, and paperwork.
Interesting Issues:
City Garage is an expanding auto servicing company in Texas. One way they distinguish
themselves is with a strategy based on letting customers interact directly with City Garage’s
mechanics in what it calls its “open service area” – as they say, “We are all about customers.”
But fast growth and hiring sociable employees require effective hiring. We’ll see what they did.
Learning Objectives:
18-1: Explain why HRM is important to small businesses and how small business HRM is
different from that in large businesses.
18-2: Give four examples of how entrepreneurs can use Internet and government tools to
support the HR effort.
18-3: List five ways entrepreneurs can use their small size to improve their HR processes.
18-4: Discuss how you would choose and deal with a professional employee organization.
18-5: Describe how you would create a start-up human resource system for a new small
business.
Annotated Outline:
I. The Small Business Challenge
A. How Small Business Human Resource Management Is Different –
managing human resources in small firms is different for four main
reasons: size, priorities, informality, and the nature of the entrepreneur.
1. Size – the general guideline is that it’s not until a company reaches the
100-employee milestone that it can afford a human resource specialist.
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-3
Copyright © 2017 Pearson Education, Inc.
However, even five- to six-employee organizations must recruit,
select, train, compensate, and retain qualified staff.
2. Priorities – it is not just size but business realities of the entrepreneur’s
situation that drive them to focus their time on non-HR issues.
3. Informality – human resources management activities tend to be more
informal in smaller firms. Entrepreneurs must be able to react quickly
to changes in competitive conditions.
4. The Entrepreneur – entrepreneurs are people who create businesses
under risky conditions, and starting new businesses from scratch is
always risky. Entrepreneurs therefore need to be highly dedicated and
visionary.
5. Implications – the differences listed above result in potential
implications: 1) Small business owners run the risk that their relatively
rudimentary human resource practices will put them at a competitive
disadvantage. 2) There is a lack of specialized HR expertise as
compared with larger firms that have a full range of HR functions. 3)
The smaller firm is probably not adequately addressing potential
workplace litigation. Most small business owners are well aware of
the threat of employment-related litigation. 4) The small business
owner may not be fully complying with compensation regulations and
laws. 5) Duplication and paperwork leads to inefficiencies and data
entry errors. For small businesses, employee data often appears on
multiple human resource management forms.
B. Diversity Counts: Necessity and the Entrepreneur – more men than women start new
businesses, but according to one study, about 100 million women in 59 countries still
started new businesses in one recent year. Interestingly, most of the women who did
start businesses were not in the developed world. The most likely countries for women
to start businesses were in Latin America and sub-Saharan Africa. This may be because
in developed economies, women have more career options. In developing economies
such as Ghana, necessity infuses a confidence that drives more women to make it on
their own.
C. Why HRM Is Important to Small Business – entrepreneurs need all the
advantages they can get, and for them, effective human resource
management is a competitive necessity. Small firms with effective HR
practices perform better than those with less effective practices. For small
firms, effective human resource management is also required for getting and
keeping big customers.
II. Using Internet and Government Tools to Support the HR Effort
A. Complying with Employment Laws – small business owners spend much of their
time tackling issues related to employment laws. These owners can quickly find the
answers to many such questions online at federal agencies’ Web sites such as the
following:
1. The DOL – the U.S. Department of Labor’s First Step Employment Law
Advisor (www.DOL.gov/elaw/firststep); helps small employers determine
which laws apply to their business.
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-4
Copyright © 2017 Pearson Education, Inc.
2. The EEOC – the U.S. Equal Employment Opportunity Commission
(www.EEOC.gov/employers); guides small employers on all laws pertaining to
employment discrimination.
3. OSHA – the DOL’s Occupational Safety and Health Administration site
(www.OSHA.gov); supplies guidance for small business owners on practical
information including industry-specific safety and accident checklists.
B. Employment Planning and Recruiting – Internet resources such as the Department
of Labor O*NET (http://online.onetcenter.org) can make small business owners as
effective as their large competitors at writing job descriptions and building applicant
pools. Small business owners can use the online recruiting tools to post positions
on popular Internet job boards.
C. Trends Shaping HR: Digital and Social Media
D. Employment Selection – for the small business, one or two hiring mistakes could
wreak havoc. Some tests are so easy to use they are particularly good for smaller
firms. One example of such a test is the Wonderlic Personnel Test, which measures
general mental ability, and the Predictive Index, which measures work-related
personality traits, drives, and behaviors – in particular, dominance, extroversion,
patience, and blame avoidance.
E. Employment Training – although small companies can’t compete with the training
resources of larger organizations, Internet training can provide, at a relatively low
cost, the kinds of professional employee training that was formerly beyond most
small employers’ reach.
1. Private Vendors – the small business owner can tap hundreds of suppliers of
prepackaged training solutions.
2. The SBA – the federal government’s Small Business Administration
(www.SBA.gov) provides a virtual campus that offers online courses,
workshops, publications, and learning tools aimed toward supporting
entrepreneurs.
3. NAM – the National Association of Manufacturers (NAM) is the largest
industrial organization in the United States. NAM’s Virtual University
(www.namvu.com) helps employees maintain and upgrade their work skills and
continue their professional development.
F. Employment Appraisal and Compensation – even small employers now have easy
access to computerized and online appraisal and compensation services. Lack of
easy access to salary surveys once made it difficult and time consuming for smaller
businesses to fine tune their pay scales.
G. Employment Safety and Health – without human resource managers or safety
departments, small businesses often don’t know where to turn to for advice on
promoting employee safety. OSHA provides free on-site safety and health services
for small businesses. The OSHA Sharp program is a certification process through
which OSHA certifies that small employers have achieved commendable levels of
safety awareness.
III. Leveraging Small Size with Familiarity, Flexibility, Fairness, and Informality
A. Simple Informal Employee Selection Procedures – in general, small firms tend to
rely on more informal employee selection and recruitment practices, such as
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-5
Copyright © 2017 Pearson Education, Inc.
employee referrals and unstructured interviews, than do large firms. Work
sampling tests require candidates to perform actual samples of the job in question.
This can also be a very simple way to select employees.
B. Improving Performance: HR Tools for Line Managers and Small Businesses
C. Flexibility in Training – small companies typically take a more informal approach to
training and development. Smaller firms also tend to focus any management
development training on learning specific firm-related competencies.
D. Flexibility in Benefits and Rewards – The Family and Work Institute surveyed the
benefits practices of about 1,000 small and large companies. They found that large
firms offer more extensive benefit packages than small ones do. However, many
small firms seemed to overcome their bigger competitors by offering more
flexibility.
1. Simple Retirement Benefits – there are several ways for small firms to provide
retirement plans. The SIMPLE (savings incentive match plan for employees)
IRA plan is inexpensive and simple.
E. Fairness and the Family Business – most small businesses are family businesses,
in that the owner and one or more managers are family members. Being a
nonfamily employee here isn’t always easy. They sometimes feel like outsiders.
Some best practices to avoid partiality include setting ground rules, treating people
fairly, confront family issues, and erase privilege.
IV. Using Professional Employer Organizations
A. How Do PEO’s Work? – these vendors range from payroll companies to those that
handle all of an employer’s human resource management requirements. PEOs
basically are your “HR office,” but your employees still work for you.
B. Why Use a PEO? – employers turn to PEO’s for several reasons.
1. Lack of Specialized HR Support – up to 100 or so employees, small firms
typically have no dedicated HR managers, and even larger ones may have few
specialists.
2. Paperwork – The Small Business Administration estimates that small business
owners spend up to 25% of their time on personnel-related paperwork. This
includes background checks, benefits sign-ups, and so on.
3. Liability – to help ensure the small business fulfills its Title VII, OSHA,
COBRA, and the Fair Labor Standards Act responsibilities.
4. Benefits – insurance and benefits are often the PEO attraction. Obtaining
health and other insurance is often more challenging for smaller firms.
5. Performance – the professionalism that the PEO brings to recruiting,
screening, training, compensating, and maintaining employee safety and
welfare will hopefully translate into improved employee and business results.
C. Caveats – many employers view their human resource management processes as a
strategic advantage, and they are not inclined to turn over strategy-sensitive tasks
like screening and training to third-party firms.
V. Managing HR Systems, Procedures, and Paperwork
A. Introduction – recruiting and hiring an employee might require a help wanted
advertising listing, an employment application, an interviewing checklist, and the
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-6
Copyright © 2017 Pearson Education, Inc.
verification of education and immigration status. Much is required to run the human
resources management part of the business.
B. Improving Performance: The Strategic Context
C. Basic Components of Manual HR Systems – very small employers will probably
start with a manual human resource management system. This would include
obtaining and organizing a set of standardized personnel forms covering each
important aspect of HR.
1. Basic Forms – forms that should be considered include an application,
reference check, employee record, performance evaluation, vacation
request, corrective counseling, and exit interview. One simple way to
obtain the basic forms of a manual HR system is from Web sites
(www.hr.com/en/free_forms) or books, or CDs.
2. Other Forms – several direct-mail catalog companies offer a variety of HR
Materials. Firms such as HRdirect (www.hrdirect.com), or G. Neil
Company (www.gneil.com) can provide a comprehensive source of all
needed HR forms.
D. Automating Individual HR Tasks – as the small business grows, it becomes
impractical to rely on manual HR systems. It is as this point that most small- to
medium-sized firms should consider computerizing individual human resource
management tasks.
1. Packaged Systems – there are a variety of resources available. At the Web
site of the International Association for Human Resource Information
Management (www.ihrim.org), a categorical list of HR software vendors
can be found.
E. Human Resource Information Systems (HRIS) – the term information system
refers to the interrelated people, data, technology, and organizational procedures a
company uses to collect, process, store, and disseminate information.
F. Improved Transaction Processing – HRIS packages substitute powerful
computerized processing for a wide range of the firm’s HR transactions.
G. Online Self-Processing – HR information systems make it possible to make the
company’s employee part of the HRIS. For example, an organization can allow
employees to self-enroll in all desired benefit programs.
H. Improved Reporting Capability – the HRIS system integrates numerous individual
HR tasks, thereby increasing HR’s reporting capabilities.
I. HR System Integration – when the HRIS software components, such as payroll
record keeping, appraisals, and so forth, are integrated, the employer can
dramatically reengineer its HR function.
J. HRIS Vendors – the Web site for the International Association for Human
Resource Information Management (www.ihrim.org) provides a comprehensive
list of HR vendors.
K. Trends Shaping HR: Digital and Social Media
Chapter Review
