• Managerial factors are a prime determinant of small firm survival and growth or failure.
• In terms of managerial capability and HRM in general research indicates that there is much to be done for small firms to achieve greater efficiency.

It is well documented that:

• Training and development is perceived as an unaffordable luxury by small firms.

Low participation attributed to:

• Expenses and inappropriateness.

Expense: not only tuition fees but also the cost of unproductive labour during absence.

Inappropriate: small firms need staff with multiple skills to cope with highly flexible nature of work and not specialists.

Research shows that owner-managers consider people as their most important asset and acknowledge that shortages of suitable qualified staff affect financial performance.

But

• Small firms tend to suffer from shortages due to their lack of purchasing power in the labour market.
• Training could overcome the problem, however small firms remain reluctant to train people due to the fear that larger firms would take away trained staff.

Other researchers focused on the owner-managers skills and found that:

Owner-managers are generally lacking in managerial skills and that such low-levels contribute to the very high failure rate of small firms.

There is very little literature pertaining to performance management in small firms.

Unit labour costs are higher because of lower productivity.

Research indicates that:

Labour productivity = f (establishment size).

Need to introduce some method of PM in order to increase efficiency.

An early thesis of 'worker self-selection' into small or large firms was criticised in the 1980s and early 1990s on the basis that:

Self-selection is not valid in a high-unemployment environment.

In fact, research shows that:

• Less well-trained, less experienced younger workers tend to work in small firms because their lack of experience and training ruled out the possibility of working in large firms.

Implication:

If owner-managers of small firms wish to compete for scarce labour they must be capable of:

• Attracting and retaining staff.
• Creating attractive conditions.
• And developing the right attitude towards employees.

One of the most important skills of business growth:

The ability to recruit staff and to delegate responsibilities.

However many owner-managers find it difficult to trust employees and have little to offer in terms of career satisfaction.

• An illustration that owner-managers lack the experience and knowledge in terms of recruitment and HR management.
• Employment stability in small firms is the exception not the rule.

'Formal Procedures' are regarded as the antithesis of all that is worthy in small firms.

Therefore they are:

• Either not established at all.
• Or they exist only in a purely written form.
• Or only in 'principle' with little effect on the day-to-day running of the firm.

• Formal procedures display the characteristics of "mock bureaucracy".
• Informal processes provide a safe medium by which conflict is neutralised.
• Informality is an important aspect of small firm employment relations and culture.

Early research asserted that in small firms:

Low levels of overt conflict therefore employee relations are trouble free and harmonious and employees have greater attachment to the firm.

Contemporary research questions the assumption of industrial harmony.

Low conflict levels do not reflect commitment

But a pragmatic acceptance by employees of status quo which lack alternatives.

Contemporary research:

Conflict is common to small firms but it tends to manifest itself at an individual level

Or be neutralised before it develops to the point of expression.

Another reason for the persistence of informality:

Low reported incidence of discipline/dismissal problems not due to great degree of harmony but simply because they avoid actually dismissing by 'encouraging' poor performers or those who do not 'fit in' to leave.

Due to the close nature of relationships in small firms disciplinary issues are taken more personally by both sides resulting in devastating effects on employer/employee relations.

Introducing formal procedures can take the personalities out of the equation by creating some personal distance between employer and employee.

Characteristic of small firms:

• Little or no technostructure.
• Few support staffers.
• Loose division of labour.
• Minimal differentiation among its units.
• Small managerial hierarchy.
• Little use of planning and training.
• Communication are informal.
• Workflows tend to be flexible.
• Operating core-tasks are largely unspecialised and interchangeable.
• Strategy is highly intuitive and non-analytical reflecting personal beliefs and attitudes.
• Decision-making is centralised and high levels of uncertainty about responsibilities and aims.

Advantages;

• Capacity for rapid decision making.
• Quick response rate to changes in environment.
• A greater sense of mission.

Disadvantages:

• Inherent risk of becoming dependent on the health and vision of one person.
• Untrammelled decision making power of owner-manager not always rational and in the best interest of the firm.
• Employees may see climate as restrictive, paternalistic, uncertain and lacking in resources thus leading to frustration and stress.

In the majority of firms employing less than 50, owner-managers take sole responsibility for HRM giving rise to managerial shortcomings:

Antipathy to methodical and systematic approaches to management – they pride themselves on their informal approach resulting in an unplanned, hazard prone approach to employ and manage people.

These shortcomings manifest themselves in key themes of HRM:

• Managerial style.
• Conflict management.
• Recruitment/retention.
• Performance management.
• Training and development.

Internal factors that facilitate/constrain adjustment:

• Owner-managers desire to maintain control as an impediment to growth.
• Non-rational attitude to business.
• Lack of managerial skills.
• Fear of incubating competitors.
• Inability to deal with conflicts.

Owner-managers desire to maintain control as an impediment to growth:

• Owner-managers wish to retain ownership of 'their' firm and therefore become unwilling to allocate responsibility and to delegate.
• In the long term as the firm grows the owner-manager is eventually overwhelmed by tasks.
• Result: at best stagnation, at worst failure.

Non-rational attitude to the business:

Variation from economists assumptions of profit maximisation or sales/market share maximisation!

• Many owner-managers ambition is to achieve a certain lifestyle – once achieve they are no longer interested in growing the company.
• Others simply value independence.
• Others do not relish the change in relationship with employees and customers and the loss of personal input that comes with growth.

Lack of managerial skills:

• Many entrepreneurs come from non-business backgrounds.
• While they may be technically competent and know the product/service very well, they are lacking in management skills that are needed to run the business successfully.

Fear of incubating competitors:

• If entrepreneur allows too much knowledge to spread around and growth disrupts interpersonal relationships.
• Employees may leave taking with them the expertise and set up in competition.

Inability to deal with conflicts:

• Management in small firms is practised from a unitary frame of reference.
• Unwillingness to acknowledge differing points of view or to take an objective view of conflict with implications for employee satisfaction and retention.

• Also called: "the organisational development models of growth".
• Useful for analysing survival and growth and to highlight factors which impact on both.
• Criticism: implies a biological nature and inevitable progression from one stage to the next, which is not always the case.

• Small firms make transitions from one stage to another.
• Each transition is associated with a crisis/external shock.

Failure to cope with shock = business failure.

Successful adjustment= survival (+ growth)

Adjustment f (firm's internal capabilities).

• To what extent are managerial factors determinants of small firm survival, growth and/or failure?
• What internal managerial factors/capabilities facilitate/inhibit success?
• Which HR issues are considered as prime contributors to success of failure?