Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-7
Copyright © 2017 Pearson Education, Inc.
Chapter Section Summaries:
18-1: Many people reading this book will work for or own their own small business, so it’s
important to understand the small business challenge.
18-2: Being small, small businesses can particularly capitalize on freely available Internet and
government tools to support their HR efforts.
18-3: Small businesses need to capitalize on their strengths, and in this case, it means
capitalizing on familiarity, flexibility, and informality.
18-4: After reviewing all the challenges of managing human resources, many small business
owners turn to using professional employer organizations.
18-5: Small business managers need to understand how their HR systems, procedures, and
paperwork will evolve.
Discussion Questions:
18-1: How and why is HR in small businesses different than that in large firms?
Human resource management activities tend to be more informal in smaller firms. For
example, one study analyzed training practices in about 900 family and non-family small
companies. Training tended to be informal, with an emphasis, for instance, on methods
18-2: Explain why HRM is important to small businesses.
This item can be assigned as a Discussion Question in MyManagementLab. Student
18-3: Explain and give at least five examples of ways entrepreneurs can use small size—
familiarity, flexibility, and informality—to improve their HR processes.
Small business owners spend much of their time tackling legal issues. These small
business owners can quickly find answers to many such questions online at the following:
The Department of Labor or DOL.gov, the EEOC or EEOC.gov, the Occupational Safety
18-4: Describe with examples how you would create a startup, paper-based human
resource system for a new small business.
This item can be assigned as a Discussion Question in MyManagementLab. Student
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-8
Copyright © 2017 Pearson Education, Inc.
Individual and Group Activities:
18-5: Form teams of five or six persons, each with at least one person who owns or has
worked for a small business. Based on their experiences, make a list of the
“ inadequate-HR risks” the business endured, in terms of competitive disadvantage,
lack of specialized HR expertise, workplace litigation, compensation laws
compliance, and paperwork/data-entry errors.
Lack of effective and sophisticated recruitment strategies, additional legal issues due to
lack of HR expertise, lack of training which may lead to employment discrimination or
sexual harassment claims, small business may not comply with complex regulations and
18-6: You own a small business, and you are confused about which of your employees is
eligible for overtime pay. The employees in question include your secretary, two
accounting clerks, one engineer, and two inside salespeople. Individually or in
groups of four or five students, use the DOL’s Overtime Security Advisor and
DOL’s Calculator to determine who gets overtime pay.
The secretary and two accounting clerks should be classified as non-exempt, and the
18-7: You have about 32 employees working in your factory. Working individually or in
teams of four or five students, find and create a list of five online sources you could
use to provide training to them, at no cost to you or to them.
Here are 5 to start: www.DOL.gov, www.strategichr.com, www.ASTD.org,
18-8: Appendices A and B at the end of this book list the knowledge someone studying for
the HRCI (Appendix A) or SHRM (Appendix B) certification exam needs to have in
each area of human resource management (such as in Strategic Management and
Workforce Planning). In groups of several students, do four things: (1) review
Appendix A and/or B; (2) identify the material in this chapter that relates to the
Appendix A and/or B required knowledge lists; (3) write four multiple-choice exam
questions on this material that you believe would be suitable for inclusion in the
HRCI exam; and (4) if time permits, have someone from your team post your
team’s questions in front of the class, so that students in all teams can answer the
exam questions created by the other teams.
The material from this chapter that is applicable to the certification exams would include:
the HR challenges of small businesses, how small organizational differences affect HRM,
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-9
Copyright © 2017 Pearson Education, Inc.
Experiential Exercise: Building an HRIS
Purpose: The purpose of this exercise is to give you practice in creating a human resource
management system (HRIS).
Required Understanding: You should be fully acquainted with the material in this chapter.
How to Set up the Exercise/Instructions: Divide the class into teams of several students. Each
team will need access to the Internet. Assume that the owners of a small business come to you
with the following problem. They have a company with less than 40 employees. They have been
taking care of all HR paperwork informally, mostly on slips of paper and with memos. They
want you to supply them with a human resource management information system – how
computerized it is will be up to you, but they can only afford a budget of $5,000 upfront (not
counting your consulting), and then about $500 per year for maintenance. You know from your
HR training that there are various sources of paper-based and online systems. Write a two-page
proposal telling them exactly what your team would suggest, based on its accumulated existing
knowledge, and from online research.
Application Case: Netflix Breaks the Rules
In many respects, the Netflix HR strategy seems like a dream come true for small businesses.
You don’t need a pay plan; instead, you just update each person’s pay every few months based
on market surveys. You offer no training and development. And you don’t track vacation time,
more or less. If someone’s not doing well, you just pay him or her to leave, with no hassles.
Netflix seems to have hit upon its own version of “Netflix High-Performance Work Practices.”
Given that, answer the following questions (please be specific).
18-9: What (if anything) is it about Netflix that makes its HR practices work for it?
Student answers will vary and may include a discussion of the company’s culture. The
culture is such that people are treated as adults and are able to “police themselves.”
Everyone understands that not performing up to the company’s expectations will result in
18-10: Would you suggest using similar practices in other businesses, such as a new
restaurant? Why?
Students’ answers will vary, but look for their arguments to be grounded in logical
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-10
Copyright © 2017 Pearson Education, Inc.
18-11: List the criteria you would use for deciding whether another company is right for
Netflix-type HR practices.
Criteria may include looking at the following areas: the current compensation system
(Does the company pay at or above market wages?), the strength of the corporate ethical
culture (Companies who are to be successful at this type of HR system must be highly
18-12: What argument would you make in response to the following: “Netflix just lucked
out; they would have done even better with conventional HR practices?”
Students’ answers will vary. Either side is debatable, so look for students to defend their
Continuing Case: Carter Cleaning Company – Cleaning in Challenging Times
18-13: Assume that we don’t want to terminate any of our employees. What work-
scheduling related changes could we make that would reduce our payrolls by, say,
20% per week but still keep all our employees on board?
One of the benefits of a small employer is the ability to adapt to changing market
conditions. Therefore, flexible work scheduling could be easily implemented to cover all
required costs while keeping staffing costs at a minimum. Even offering the staff the
18-14: We are currently handling most of our personnel-related activities, such as sign-ons,
benefits administration, and appraisals, manually. What specific suggestions would
you have for us in terms of using software systems to automate our HR processes?
A packaged system would probably prove cost effective for this size employer. These
types of systems offer programs for controlling attendance, maintaining employee
18-15: Suggest at least five free Internet-based sources we could turn to for helping us to
lower our total employment costs.
The International Association for Human Resource Information Management
(www.ihrim.org), the Small Business Administration (www.sba.gov), the U.S.
Department of Labor’s – First Step Law Advisor (www.dol.gov/elaws/firstep), OSHA’s
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-11
Copyright © 2017 Pearson Education, Inc.
Hotel Paris: Improving Performance at the Hotel Paris – The New HRIS
18-16: Using any benchmark data that you can find, including information from this
textbook, what are some benchmark metrics that Lisa could be using to assess the
efficiency of her human resource management operations? To what extent does the
Hotel Paris’s quality service orientation enter into how Lisa’s metrics should
compare?
Lisa should consider looking at benchmarking data on the following HR activities:
benefits, work schedules/locations, compensation options, workforce demographics,
training, development, and technology. Lisa should review carefully the Hotel Paris’s
18-17: Throughout this textbook, we’ve discussed various specific examples of how human
resource management departments have been reducing the cost of delivering their
services. Keeping in mind the Hotel Paris’s service quality orientation, please list
and explain with examples how Lisa Cruz could use at least five of these.
Information technology could greatly help Lisa reduce the human resource
administration’s current costs; in addition, Lisa could look at the resources available from
18-18: Focusing only on human resource information systems for a moment, which systems
would you suggest Lisa consider recommending for the Hotel Paris? Why?
A packaged program would prove the most cost effective for the Hotel Paris. Online self–
processing should prove especially beneficial to Lisa in order to help improve efficiency,
18-19: Explain with detailed examples how Lisa can use free online and governmental
sources to accomplish at least part of what you propose in your previous answers.
Lisa could review the resources offered from the Small Business Administration as well
18-20: Give three examples of fee-based online tools you suggest Lisa use.
Transaction-processing systems, management information systems, and executive
18-21: Do you suggest Lisa use a PEO? Why?
Chapter 18: Managing Human Resources in Small and Entrepreneurial Firms 18-12
Copyright © 2017 Pearson Education, Inc.
Lisa should consider the use of a PEO for at least some of her HR programs. For
example, payroll and benefits administration could prove very cost effective for Lisa
My Management Lab
Students can find the following assisted-graded writing questions at mymanagementlab.com.
Answers to these questions are graded against rubrics in the MyLab.
18-22: Explain and give at least four examples of how entrepreneurs can use Internet and
government tools to support the HR effort.
18-23: This chapter explained that to compete with larger employers, the small business owner
should capitalize on familiarity, flexibility, and informality. What does this mean and
how as a small business owner would you do that?