978-0134235455 Chapter 18 Lecture Note

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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

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

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

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

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

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