Strategic human resource management in small and growing firms: aligning valuable resources.

Hargis, Michael B. ; Bradley, Don B., III

INTRODUCTION

When entrepreneurs and business executives develop a business plan, they recognize that a great line of products or services helps a company achieve, and maintain, a competitive advantage in the marketplace (Porter, 1980). For instance, the founder of Coyote Logistics (based in Lake Forest, Ill) based his business model around the practice of back-hauling (filling trucks with cargo from other clients for return trips) so that fewer of his trucks traveled with underutilized cargo space (Inc, 2010). This unique service has caused Coyote Logistics to have a 13,846.8% growth rate since being founded in 2006. Similarly, W.L. Gore and Associates (based in Newark, NJ) base the majority of their products (ranging from dental floss to guitar strings) on their innovative fluoropolymer material. This unique product has helped position the company as a market leader in diverse industries ranging from rugged outdoor equipment to high-end transfer cables for electronic equipment. Finally, Zappos.com (based in Henderson, NV) provides another example of a company that has relied on a unique service/product line to grow from a small web-based shoe retailer to the largest on-line shoe retailer within 5 years of being founded (Durst, 2007).

The leaders at these businesses, and any other successful venture, clearly recognize the importance of identifying a unique product or service. Furthermore, successful managers also recognize the importance of efficiently managing their employees and developing their human resources. For example, CEO Jeff Silver credits Coyote Logistics success to an intensive two-month training program followed by a six-month mentorship program that is required for all new employees (Inc, 2010). Additionally, W.L. Gore and Associates has consistently been ranked as one of the top 100 places to work in Fortune magazine's annual rankings by focusing on valid human resource management practices to identify and prepare associates to develop innovative uses for their fluoropolymer materials. Furthermore, throughout Zappos.com's rapid growth, the leaders consistently focused on designing training programs to help employees deliver quality customer service (Chafkin, 2009). These firms clearly linked their human resource management practices to their competitive business model. When business leaders are able to align a strong competitive strategy with a well designed and strategically focused human resource system, it has the necessary foundation that brings customers in the door (or to their website) initially and gets them to come back for repeat business (Cascio & Boudreau, 2008; Ulrich & Brockbank, 2005).

The recognition that human resource issues are important to small and growing firms is not new. For instance, Hess (1987) presented data that suggested that small business owners rank human resource related issues as the second most important management activity after general management. Further, Karami, Jones, and Kakabadse (2008) suggested that the majority of CEO's in their sample believe that human resource practices have a substantial impact on firm performance. Additionally, Dunn, Short, and Liang (2008) presented results suggesting that sound hiring practices and training programs are considered important by small business owners who have 10 or more employees.

In light of the growing recognition that the human resource issues faced by small and growing firms are different from their larger counterparts and that the quality of a company's human resources play an important role in building a successful firm, recent theoretical (Cardon & Stevens, 2004) and empirical (e.g., Carlson, Upton, & Seaman, 2006; Dunn, Short, & Liang, 2008; Karami, Jones, & Kakabadse, 2008; Messersmith & Guthrie, 2010) work has begun to examine the specific human resource management practices employed by small and entrepreneurial firms. This prior research has clearly established a link between employee knowledge, skills, and abilities and maintaining a competitive edge in small and entrepreneurial businesses (Deshpande & Golhar, 1994). Given the important role of human resource management in building a competitive advantage, it is important to develop a more complete understanding of the role that human resource practices play in the performance of small and entrepreneurial firms (Heneman, Tanksy, & Camp, 2000).

Therefore, the current paper aims to make a contribution to the literature by highlighting the recruitment, selection, training, and compensation practices commonly utilized by a national sample of independent small business owners and by presenting a strategic human resource management model based on the operating needs of small and growing businesses. In the text below, the authors will: (1) further discuss how strategically focused human resource management practices can lead to important organization level outcomes; (2) present the results of a study designed to examine the human resource practices typically utilized by small and growing firms, and (3) develop and present a model that outlines several steps that organizations can use to successfully implement strategic human resource programs that complement, and build upon, their competitive strategy.

HUMAN RESOURCE MANAGEMENT PRACTICE

Human resource management represents the design, development, and implementation of interrelated people management practices that influence how well an organization can attract job applicants, retain motivated and successful employees, and ultimately impact job performance and organizational effectiveness (Noe, Hollenbeck, Gerhart, & Wright, 2007). Effective human resource management practices, including properly developed employee recruitment and selection plans, training and development programs, and compensation and reward systems have been linked to higher employee performance and adding value to the corporation (Pfeffer, 1994). Prior research clearly links effective human resource management practices to valuable business level outcomes, such as product innovation, customer satisfaction, and financial performance (Dooney, 2005; Huselid, 1995; Phillips, 1998; Pfeffer & Veiga, 1999).

While important and useful, most of the extant research (and associated "best practices" models) are based on data gathered from large businesses--businesses that often have more available capital than their smaller and growing counterparts (Welsh & White, 1981). For instance, prior research has clearly demonstrated that small businesses and entrepreneurial firms are fundamentally different than larger firms--in terms of resources available, number of employees, and employees with human resource training (Barber, Wesson, Roberson, & Taylor, 1999). Therefore, it has been difficult to understand how strategically designed human resource management practices can be generalized to small and entrepreneurial firms (Cardon & Stevens, 2004; Tocher & Rutherford, 2009). Furthermore, small businesses have a more difficult time recruiting employees (Williamson, Cable, & Aldrich, 2002) and may face a difficult time developing sustainable human resource systems and policies (Barber et al., 1999; Cardon & Stevens, 2004). Additionally, Rutherford, Buller, and McMullen (2003) demonstrated that human resource needs change across the growth/life cycle of the firm.

In the text below, the authors present the more widely recognized aspects of a human resource system and tie them, where possible, to important individual and business level outcomes (e.g., innovation, employee productivity, motivation, etc.). Consistent with prior research (Golhar & Deshpande, 1997; Sels et al., 2006), the current review focuses on a limited number of components of the total human resource system including recruitment, selection, training and development, and compensation. These areas are highlighted because prior research has demonstrated a positive link between selective hiring practices, extensive training, strategic compensation plans, and overall firm performance in small and growing firms (Cardon & Stevens, 2004; Dess & Lumpkin, 2003; Rutherford, Buller, & McMullen, 2003).

Employee recruitment and selection

Employee recruitment and selection practices are focused on attracting talented applicants to a business, identifying the applicants that are most qualified, and ultimately making the hiring and placement decisions. Due to the general importance of finding capable and motivated employees, both recruitment and selection practices have received attention within the relevant literature (Cardon & Stevens, 2006). However, some authors (e.g., Barrett & Mayson, 2007) argue that recruitment and selection are areas where growing businesses typically rely on poorly structured practices that exhibit a lack of strategic planning (Mayson & Barrett, 2006). This lack of strategic focus and formal planning is particularly troubling because growing firms often compete with more established, larger firms for employees (Heneman & Berkley, 1999) and because many growing firms are not considered to be an employer of choice (Williamson, 2000).

Recruitment involves all the activities carried out to identify and attract potential employees (Barber, 1998). Recruitment strategies include sources designed to identify qualified internal (e.g., performance records, customer satisfaction ratings, job postings, etc.) or external job candidates (e.g., public or private employment agencies, job fairs, advertisements, employee referrals, etc.). While there are a variety of effective recruitment strategies available to small and entrepreneurial firms, the extant research suggests that, by in large, small employers tend to rely on recruitment methods that are inexpensive, convenient (e.g., newspaper ads and signs encouraging walk in applications), and controlled by the employer directly (Heneman & Berkley, 1999; Hornsby & Kuratako, 1990). These recruitment methods do tend to bring applicants in the door; however, data suggest that they do not necessarily attract the most skilled and qualified applicants (Heneman & Berkley, 1999).

While recruitment is primarily focused on building a qualified applicant pool, employee selection involves the process where organizations make decisions about who will be allowed to work for the organization (Noe, Hollenbeck, Gerhart, & Wright, 2009). The most valid selection procedures help a business consistently and accurately evaluate whether a job applicant has the knowledge, skills, and abilities that align with the core competencies a business relies on to create a competitive advantage. The typical selection methods utilized by most small and growing firms would be characterized as informal including face to face unstructured interviews, reference checks, and job previews (Deshpande & Golhar, 1994; Kotey & Slade, 2005). Unfortunately, these methods rarely provide employers with enough useful information to compare each candidate's job/organization related credentials in a way that allows him or her to consistently identify the best candidate from the applicant pool.

Employee training

Employee training and development programs represent an organizations planned effort to enhance an employee's job related knowledge, skills, and abilities in an effort to improve job performance (Noe, Hollenbeck, Gerhart, & Wright, 2009). As companies grow, so do their product or service lines and training is the primary tool a business can use to help increase the knowledge and skills of their employees. Furthermore, data presented by Gundry (1991) suggests that an entrepreneurial firm's investment in training for their employees helps build technical expertise and facilitate innovation.

Training programs can involve formal class-based training sponsored by professional organizations, systematic on-the-job training, or informal methods such as mentorship programs or peer feedback regarding job performance. As such, training is another important component of human resource management activities; however, the literature in this area is very limited. Training in small and growing businesses has been described as informal and primarily focuses on the use of "on-the-job" training (Kotey & Slade, 2005) or training provided by the raw material suppliers that businesses rely upon. This focus on on-the-job training is believed to be driven by two primary factors (Storey & Westhead, 1997). First, the cost of other forms of training (formal education, training by professional organizations, etc.) are perceived as prohibitive. Second, many business owners fail to see how training costs (both direct and indirect) lead to improved performance.

Employee compensation

Compensation practices are one of the most important tools an organization can use to help attract, retain, and motivate key talent in small growing firms (Cardon & Stevens, 2004). If firms cannot pay applicants enough, then they will not be able to recruit strong applicants or retain the employees with the core knowledge and skills necessary to compete in the marketplace. Compensation decisions focus on establishing a pay structure that fairly represents the local market (external pay equity) and creates a pay system that clearly differentiates among performance within the firm (internal pay equity) so that more valuable employees are recognized for their contribution. Additionally, incentive plans that tie compensation to important individual level (job performance) and company level (market share, profit) metrics provides an important communication device that helps employees recognize which job related behaviors are expected and rewarded (Kerr, 1999). Prior research has indicated that pay incentives, such as profit sharing and goal-based pay, are very effective in small entrepreneurial ventures and can positively impact job performance, teamwork and cooperation, improved decision making, and organizational effectiveness (Heneman & Tansky, 2002; Huselid, 1995).

In addition to pay structure and incentive pay systems, benefits also represent an important compensation tool for businesses to help establish employee commitment and loyalty. Prior research does not clearly link employee benefits (health insurance, vacation time, etc.) to enhanced job performance (e.g., Carlson, Upton, & Seaman, 2006); however, extant evidence does suggest that benefits practices are related to employee commitment (Noe et al., 2009). This makes sense due to the fact that individual job performance does not impact the typical employee benefit plan; however, it can directly influence the amount of incentive compensation received and the growth rate of a business.

HUMAN RESOURCE PRACTICE AND FIRM PERFORMANCE

In a recent series of studies, Collins and colleagues reported that the effective implementation of human resources practices (including recruitment, selection, training, and compensation) in small firms was linked to 22.1% higher revenue growth, 23.3% higher profit, and a 66.8% reduction in employee turnover (Collins & Allen, 2006). Furthermore, Sels et al. (2006) demonstrate that effective implementation of various human resource management practices helps small firms improve their financial performance and the individual productivity of employees. Additionally, a growing body of evidence demonstrates how effective human resource practices impact important organization-level (e.g., survival rate, profit, market share, and long term business success) and individual level outcomes (e.g., turnover, motivation, etc.) for small and growing firms (Chandler & McEvoy, 2000; Hayton, 2003; Huselid, 1995; Huselid & Becker, 1997). Further, Welbourne and Andrews (1996) demonstrated that that the value a company placed on developing it's

human resources and how the company structured it's reward program were significant predictors of firm survival even after statistically controlling for other important factors that impact business success, such as industry, company size, and profit. Rauch, Frese, and Utsch (2005) also found that the value and quality employees (centrally determined by human resource management practices) are important predictors of future business growth. In fact, research by Dunn and Bradstreet (2001) suggests that managerial incompetence in the area of human resource management is one of the primary causes of failure in smaller firms.

When implemented effectively, human resource management practices can create these profound individual and business level effects because each independent practice (i.e., selection, training, compensation, etc.) is designed to enhance organizational performance by developing skilled workers with a vested interest in the company's success. The logic behind focusing on human resource management as a way for a firm to build a competitive advantage lies in the resource based view of management and the practice of strategic human resource management (Mayson & Barrett, 2006) both of which are described below.

Effectively Aligning Resources: The Role of Strategic Human Resource Management

The resource based view of management suggests that various forms of capital (e.g., financial, physical, human, etc.) create a consistent source of competitive advantage if they fulfill four distinct criteria (Barney &Wright, 1998). First, capital must add value to the business. Second, capital should be unique to the firm or rare within competing firms. Third, each form of capital should be difficult to imitate or duplicate. Finally, each form of capital should be difficult to substitute with other available products or services.

The resource based view of management relates to human resources (i.e., the knowledge, skills, and abilities of employees within a firm) by suggesting that a firm will be most successful when they cumulatively evaluate the human resource practices and strategies that enable the business to remain competitive. Utilizing the resource based view to understand the importance of a firm's human resources, employees are considered a source of competitive advantage when their: knowledge and skills add value; are rare and difficult to imitate; and cannot be substituted by technology or other resources.

The practice of strategic human resource management builds off of the resource based view of management and focuses on how businesses should structure, implement, and sequence their human resource management practices in an effort to build their human capital. This process provides businesses with a framework to improve how well the company can react to their competitive environment by aligning key aspects of their human resource systems (such as recruitment and selection, training and development, and reward systems) with a focus on the central business strategy. In this sense, strategic human resource management focuses on internally aligning each component of a human resource management system so that each part seamlessly feeds into other components of the human resource system. More specifically, this approach encourages managers to think of how each independent human resource practice (e.g., recruitment, selection, training, etc.) impacts every other practice (e.g., compensation, performance evaluation, employee retention). Thus, this approach focuses on internally aligning independent human resource practices in a way that maximizes the capabilities of the human resources (i.e., the employees) so that they contribute to firm performance and longevity.

Furthermore, implied in the notion of strategic human resource management, is the focus on building a competitive advantage through external alignment. That is, not only should the independent human resource practices be internally aligned, but these practices should individually and collectively support the broader purpose of the business. Huselid, Jackson, and Schuler (1997) suggest that strategic human resource management is focused on designing and implementing a coordinated set of human resource practices that are all focused toward accomplishing the firm's strategic goals and objectives. Examples of externally aligned human resource management practices include such things as incentive pay or reward plans, employee participative decision making, and employee involvement plans (Huselid, Jackson, & Schuler, 1997; Tocher & Rutherford, 2009). These practices are all focused on trying to help the employee see how his or her performance ties into company objectives and helps the company maintain a competitive advantage.

At the heart of both the resource based view and strategic human resource management is the focus on proactive planning and use of resources in a way that aligns with the strategic direction of the firm. The extant literature suggests that when strategic human resource management is implemented appropriately the firm's position in the marketplace is improved and individual performance within the firm is enhanced (Chandler & McEvoy, 2000; Welbourne & Andrews, 1994). In fact, some authors have suggested that strategic human resource management practices are even more important for small firms because they do not have the resources that more established firms have (Cardon & Stevens, 2004; Tocher & Rutherford, 2009).

Zappos.com provides an excellent example of the appropriate application of strategic human resource management (selective hiring, extensive training, incentivized pay) so that their human capital adds value, is difficult to imitate, and cannot be substituted by other firms. More specifically, Zappos.com's founding leaders recognized that one of the primary difficulties with running a shoe store on-line is that customers do not have the opportunity to try on shoes and have the shoes available immediately. Rather than letting this hurdle adversely impact their business, the management designed training programs to help employees understand the importance of excellent customer service and how their specific job impacted the company's bottom line (Chafkin, 2009). Thus, it is important for organizations to realize that they must continuously develop and grow their human capital through three primary mechanisms--selectively hiring capable employees, developing skills that complement the competitive strategy of the business, and retaining the best employees by focusing on compensation and work environment (Dess & Lumpkin, 2003; Rutherford, Buller, & McMullen, 2003).

In contrast to the deliberate, and proactive, structuring of human resource management practices according to the resource based view and strategic human resource management, as reviewed above, most frequently the human resource systems in place in small businesses are considered informal (at best) or non-existent (Cardon & Stevens, 2004; Mayson & Barrett, 2006). Furthermore, prior research has indicated that small business owners and managers are less likely to focus on administration issues, such as human resource management, unless something appears to be a serious issue (Tocher & Rutherford, 2009). Additionally, Kotey and Slade (2005) noted that the implementation of human resource management policies and practices lags behind other operational decisions. As such, we must develop human resource management practices that focus on the needs and operating issues faced by smaller firms (Barber, Wesson, Roberson, & Taylor, 1999).

In the next section of the manuscript we highlight a descriptive study that is designed to examine the current human resource management practices in a national sample of organizations. Following this, the authors present a model developed to help guide businesses through the critical decision points of implementing a strategic human resource management plan.

METHOD/DATA COLLECTION

We utilized two archival data sets collected by the National Federation of Independent Businesses (NFIB) to examine the human resource management practices typically implemented in small firms in the United States. In both cases, the NFIB conducted interviews with a stratified random sample of "small employers" (employers with 250 or less employees) across the United States, which were drawn from the data files maintained by Dunn & Bradstreet Corporation.

The data focused on employee recruitment, selection and training were collected from a total of 752 owners or managers who operated businesses across a wide variety of industries. The four largest industries were retail trade (13.7% of sample), professional/technical services (11.4% of sample), food services (11.4% of sample), and construction (8.9% of sample). The majority of interviewees had some form of higher education or technical training (79%) and was male (77%). Additionally, the majority of businesses (76.5%) had been in operation for over 6 years (average = 16.89 years) and 87.1% of the sample reported an increase in real volume sales over the last two years. It is important to note, that during the interviews, approximately half of the sample (N=368) was asked to report on their "most skilled" position while the other half of the sample reported on their "most common" (N=384) employee. For instance, considering a restaurant, the most skilled position would likely be the chef. However, the most common employee would likely be the waiters or waitresses.

The data focused on the compensation and benefit practices were collected from a total of 751 owners or managers who operated businesses across a wide variety of industries. The four largest industries were retail trade (18% of sample), professional/technical services (11% of sample), manufacturing/mining (9.4% of sample), and construction (8.1% of sample). The majority of interviewees had some form of higher education or technical training (76.4%) and was male (82.5%). Additionally, the majority of businesses (72.7%) had been in operation for over 6 years and 65.6% of the sample reported an increase in sales over the last two years.

RESULTS

Employee Selection and Recruitment

The majority of small business managers who hired employees over the last two years (50.5%) indicated having a difficult time recruiting and hiring qualified employees. As indicated in Table 1, small employers typically require minimal levels of formal education for both the most skilled and the most common employees.

For the most skilled positions, 18.5% require no formal education while 36.5% require no more than a high school education. In terms of experience, 50.8% required prior experience for their most skilled workers. Certain specialized skills, such as management skills, knowledge of business operation procedures, and leadership ability were not emphasized in making hiring decisions with only 14.9%, 21%, and 16.8% of the sample indicating these skills were required for their most skilled hires (see Table 1), respectively. However, other skills such as occupation specific skills, social/interpersonal skills, good work habits and attitudes, and the ability to follow direction were emphasized with 30.1%, 36.7%, 65.5%, 62.6% of the sample indicating these skills were required for their most skilled hires (see Table 1).

For the most common employee, 27.3% require no formal education while 45.8% require only a high school diploma. In terms of experience, 30.5% require experience for the most common employee. Good work habits and attitudes (required by 62.8% of the sample) and the ability to follow direction (required by 60.6%) and strong social/interpersonal skills (34.7%) were the skills that were most heavily relied upon for making selection decisions regarding the most common employee (see lower half Table 1).

Training

Given the relative informality of selection criteria used to predict success on the job, it is perhaps no surprise that many small businesses rely on training programs to help prepare their staff for the demands of the job or that it takes a long period of time before employees are fully prepared for the job. In terms of training, 61.6% of the employers sampled suggest that the most common method of training their most skilled employee is to have someone in the firm work with the new employee and another 13.5% report allowing employees to learn through actually performing the job (on-the-job performance). An additional 11.3% of the sample utilizes outside vendors for training their most skilled workers (see Table 2). For the most common workers, 75.6% of employers relied on someone within the firm to teach new employees how to perform their job. Another 14.2% reported using on-the-job training for their most common employee (see Table 2). As indicated in Table 3, 43.3% of the sample reported that it took their most skilled employee between 3 months and a year to get their skills to a satisfactory level while 35.4% of the sample indicated that it took their most common employee between 3 months and a year. Additionally, for 14.3% (most skilled sample) and 8.7% (most common sample) it took over a year for their employees to be fully prepared for the job. Finally, as indicated in Table 4, 35.4% of the most skilled sample indicated spending between $1,000 and $9,000 on training while 32.8% of the most common sample indicates spending a similar amount.

Compensation and Benefits

Just over half of the sampled employers (56.4%) reported paying their full-time employees a salary (23.2%) or a fixed hourly wage (33.2%). Additionally, about half (52.4%) of the sampled employers reported paying their part-time employees a salary (3.8%) or an hourly wage (48.6%). Additionally, 51.6% stated that full-time employees receive periodic bonuses or profit sharing based on the overall performance of the business. With regards to benefits, 40.6% of employers indicated that they target their full- and part-time employees when constructing their benefits package rather than primarily targeting their full-time employees (targeted by 28.3%), their most valuable employees (targeted by 7.7%), the long-serving employees (targeted by 4.4%), or the owners and their families (7.9%). As specified in Table 5, businesses rely on benefits packages that include paid vacations, health insurance, and job related education benefits to attract, retain, and motivate their key talent.

DISCUSSION

When implemented correctly, human resource management practices can play a significant role in business success (Chandler & McEvoy, 2000; Hayton, 2003). The results generated from the samples in this manuscript are consistent with prior research examining the practices typically used by small growing firms (cf. Cardon & Stevens, 2004; Mayson & Barrett, 2006). More specifically, we found that while there were human resource systems in place they were largely informal and did not necessarily reflect strategic implementation or a focus on building human capital as a source of competitive advantage. Thus, as noted by Mayson and Barrett (2006), the literature is relatively clear with regards to the types of practices typically implemented.

However, there is still no consistent guideline for how to implement independent human resource systems in a strategic manner. Thus, in the text that follows, the authors develop a framework to help guide owners and managers of small and growing firms through the people management practices that will help them build a competitive advantage and hopefully build their status as employers of choice (See Figure 1).

Strategic Framework for Human Resource Management: A "Best Practices" Guide

It is important to realize that human resource management practices are best thought of as tools that can be used to help support the mission, vision, and purpose of an organization. Thus, as specified in Figure 1, the first thing that business managers need to do is develop a clear plan for how their business is going to compete in the marketplace. This competitive strategy could be based on a low-cost model (where a business owner decides to try to build a customer base by offering a quality product/service for a lower price than competitors), on a differentiation strategy (where a business owner competes based on identifying how their product/service is more unique and useful), or on some form of hybrid strategy. It is important to note that the business strategy should be inline with the operating environment (i.e., the local marketplace). As noted by the bi-directional arrows in Figure 1, the human resource system (and the resulting knowledge, skills, and abilities of the workforce) should also impact the type of strategy that a business should pursue. For instance, without a skilled and knowledgeable workforce a business cannot effectively pursue a differentiation strategy.

Once a realistic business strategy has been identified, the owner should turn their attention to creating human resource systems that adhere to the principles of the resource based view of management and strategic human resource management (see Step 2 in Figure 1). The first thing that a business owner wants to focus on is the concept of external alignment. External alignment focuses on the connection between the business objectives, in this case the strategic mission, and the major human resource initiatives (employee selection, training, etc.). For example, if a business owner wants to compete using a cost framework, he or she will need to develop recruitment, selection, and compensation strategies that encourage employees to work efficiently in an effort to contain costs. Additionally, when developing human resource management practices, it is important to pay attention to internal alignment--or aligning each human resource practice with one another to establish a structure that is mutually reinforcing. For instance, using the above example, managers would want our training programs to teach employees to work efficiently (quickly with minimal waste) and we would want to develop a compensation system that rewards (at least to some degree) these behaviors. In contrast, if a manager wants to pursue a differentiation strategy, he or she would need to create a training program to teach employees the competitive business strategy and then reward them for generating new and unique ideas based on the business model. This approach is used by a number of businesses that compete based on a differentiation strategy including 3M, Google, and W.L. Gore and Associates.

In terms of recruitment and selection practices, our sample tended to rely on non-technical factors (e.g., ability to follow instruction, strong interpersonal skills, good work habits and attitudes) when recruiting and selecting employees. This finding makes sense because, as noted by Cardon and Stevens (2004), small firms frequently consider non- skill based factors when making hiring and staffing decisions. Often, they focus on person-organization fit or the degree of value alignment between a job applicant, the owner, and the current staff. Focusing on person-organization fit has several benefits for small business owners. First, it allows business owners to actively create a business culture that is in line with his or her mission and vision and consistent with the values he or she desires for the business. Second, focusing on employee value fit also helps small businesses create a consistent culture which helps employees understand the patterns of behavior that are expected and rewarded in the business and it also helps customers learn what to expect from a business. In fact, Collins and Allen (2006) note that small employers that use a person organization fit strategy (rather than a person-job fit strategy) had a 7.5% higher revenue growth, 6.1% higher profit growth, and 17.1% lower turnover.

In addition to focusing on person-job fit, there are some other practical issues that small employers need to consider when developing their selection and recruitment strategies. As indicated in the literature review, small employers often have a very difficult time structuring their recruitment and selection plans. One of the primary problems seen in small business selection is the overreliance on strategies that have limited validity, such as the informal interviews. Job interviews represent one of the most common, and least expensive, methods of employee selection and evidence suggests that interviews can be structured in a way that improves the validity and reliability of selection decisions (Noe et al., 2009). However, an informal interview (where each applicant is asked different questions) makes it impossible to compare applicants based solely on their person-organization and person-job fit.

Another way to avoid making a bad hire is to rely on public employment agencies. Any individual currently receiving unemployment compensation is required to register with their local state employment agency. Employment agencies collect information from unemployed individuals about their prior work experience and their skills. Employers can register their job vacancies with their local state employment office and the agency will try to find a suitable candidate from its inventory of local unemployed individuals at no charge. Another useful training and selection tool is working with college or university career placement services that can help screen applicants based on qualifications and other factors. Additionally, during the recruitment process, another cost effective method to improve outcomes is to provide job applicants with a realistic preview of the job duties and functions they will perform. Research has demonstrated that realistic job previews during the interview and selection process do tend to increase the time it takes to hire an employee; however, it also significantly reduces employee turnover which is a significant problem with most small businesses (Noe et al., 2009).

The employers in our sample spent a great deal of time and money training employees for their jobs. In fact, the data suggest that it takes somewhere between three months and a year for most of their employees to be fully functioning in their jobs. Given the limited budgets that most small and growing firms have, it is important to focus on cost-effective training programs. Most of the businesses sampled are already utilizing cost effective methods of training: On-the-job training and peer training. When choosing the trainer it is important for managers to make sure that the appropriate behaviors (i.e., no bad habits) are being trained. Thus, it is important for the managers and trainers to focus on the key behaviors that help improve performance on the job.

As reviewed above, training programs are solely designed to build capabilities that improve job performance and the only way to make a lasting behavior change that is translated to long term job performance is to recognize effective behavior through feedback. When done well, on the job training can lead to improved functioning on the job by providing new employees with the opportunity to successfully perform new and difficult tasks or what are called "mastery experiences". Training programs that provide individuals with the opportunity to master the key behaviors required for job performance provide individual and organization level benefits. Prior data suggest that organizations that utilize resources (time, money, etc.) on well designed training programs focused on key behaviors not only improve individual level job performance, but also build employee commitment to company success, and reduce employee turnover (Noe, 2008).

Compensation programs are designed to help attract qualified applicants and to reward employees for effort that leads to improved organizational functioning and performance. While the managers sampled in this study did report using incentive based pay and profit sharing plans based on company level performance, the employers in our sample relied primarily on fixed salary and wages. While pre-established wages (hourly and salary) do help attract talented employees, they are not structured in a way that maximizes individual performance or effort (Carlson, Upton, & Seaman, 2006; Kerr, 1999). Kerr (1999) argues that one of the most important aspects of reward programs is to encourage and recognize behaviors that are in line with the corporate strategy. Piecerate pay plans that reward employees for a specific unit of output provide a good example of incentive pay plans that reward certain behaviors (output). However, it is important to recognize that by rewarding certain behaviors (output), managers may accidentally create other problems. For instance, consider the situation where call center employees are rewarded for the number of calls answered during a shift. While this reward program will clearly lead to an increase in the call volume for customer service representatives, it will also likely increase reports of unresolved calls. Thus, often the best compensation programs include fixed pay and incentive pay that focuses on both short-term and long-term metrics (Kerr, 1999).

It is important to note, that properly developing strategic selection, training, and compensation programs takes time and financial resources. However, these short-term costs are almost always balanced by long term gain because the quality and caliber of employees (or human capital) within the firm improves (see "Expected Outcomes" box in Figure 1). The improved caliber of employees and enhanced effort almost always has a positive financial impact for the organization (Collins & Allin, 2006). For instance, Welbourn and Andrews (1996) demonstrate in their study of IPO firm performance that firms that had a high human resource value scores were more likely to survive long term. However, consistent with other research, they found that there were short-term costs associated with this (Sels, et. al, 2006).

[FIGURE 1 OMITTED]

Note: This model is based on the data presented in this paper and the growing body of research focusing on human resource management practice in small and growing firms (e.g., Cardon & Stevens, 2004; Collins & Allen, 2006; Mayson & Barrett, 2006). This model is not intended to represent all possible human resource activities nor all possible outcomes.

CONCLUSION

The goal of this manuscript was to highlight the common human resource management practices implemented across the nation. Consistent with prior research, we found that most businesses did actively engage in human resource management practice; however, the systems were not necessarily implemented strategically or in a manner that would help build a competitive advantage. Strategic implementation of human resource initiatives requires managers to think about two forms of strategic alignment: internal alignment (between each independent human resource initiative) and external alignment (between an entire human resource system and the firms overall competitive strategy) and how these forms of alignment help create employees that are capable of fulfilling their essential job duties in a way that helps the firm develop a strong competitive advantage. It is important to recognize that there are other common human resource management systems that were not covered in this manuscript, such as compensation and reward systems and performance appraisals and feedback. These areas represent an important part of a complete human resource management system, but this manuscript focused on specific areas where the research is beginning to converge so that the authors could more fully provide practitioners will valuable guidance.

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Michael B. Hargis, University of Central Arkansas

Don B. Bradley, III, University of Central Arkansas

Table 1

Think of the employees who fill the most common-most skilled job.
On a scale of one-to-five, where 1 means the employee MUST have
such job skills when hired and 5 means you expect the employee to
learn them on the job, what skills do you expect the employee to
have when hired? If they do not need a skill for the job, just
say so. How about ... ?

                                         Most Skilled Employee

Human Resource Practice                    1        2        3

1. Level of Education                    18.5%    36.5%    21.3%
2. Require Prior Experience              50.8%    27.7%     8.2%
3. Management Skills                     14.9%    25.5%    32.2%
4. Knowledge of Operating Procedures
   for Business                          21.0%    15.8%    23.7%
5. Knowledge of goods/services           23.9%    16.6%    23.9%
6. Occupation Specific Skills            30.1%    14.9%    14.9%
7. Good Work Habits                      65.5%    12.1%     5.4%
8. Leadership Ability                    16.8%    26.4%    32.9%
9. Social/Interpersonal Skills           36.7%    25.0%    22.3%
10. Ability to Follow Direction          62.6%    13.8%     6.8%

                                         Most Common Employee

Human Resource Practice                    1        2        3

1. Level of Education                    27.3%    45.8%    14.0%
2. Require Prior Experience              30.5%    26.6%    17.5%
3. Management Skills                     11.3%    17.6%    36.2%
4. Knowledge of Operating Procedures
   for Business                          15.1%     9.9%    24.7%
5. Knowledge of goods/services           15.4%    15.1%    21.6%
6. Occupation Specific Skills            15.6%    14.1%    23.4%
7. Good Work Habits                      62.8%    14.4%     4.7%
8. Leadership Ability                     8.1%    16.8%    38.3%
9. Social/Interpersonal Skills           34.7%    18.3%    27.4%
10. Ability to Follow Direction          60.6%    13.6%     6.8%

                                         Most Skilled Employee

Human Resource Practice                    4        5        6

1. Level of Education                    13.4%     6.8%     2.5%
2. Require Prior Experience              12.5%     0.8%       NA
3. Management Skills                     11.4%    12.7%     3.3%
4. Knowledge of Operating Procedures
   for Business                          12.5%    25.9%     0.8%
5. Knowledge of goods/services           11.7%    20.7%     3.0%
6. Occupation Specific Skills             8.4%    19.5%    10.3%
7. Good Work Habits                       5.4%    11.1%     0.5%
8. Leadership Ability                     8.7%    12.0%     3.0%
9. Social/Interpersonal Skills            6.5%     7.3%     1.4%
10. Ability to Follow Direction           5.4%    11.4%     0.0%

                                         Most Common Employee

Human Resource Practice                    4        5        6

1. Level of Education                     8.9%     1.6%     0.8%
2. Require Prior Experience              24.8%     0.5%       NA
3. Management Skills                     14.2%    16.5%     4.2%
4. Knowledge of Operating Procedures
   for Business                          15.1%    33.1%     1.6%
5. Knowledge of goods/services           11.7%    32.3%     3.6%
6. Occupation Specific Skills             8.1%    23.7%    13.8%
7. Good Work Habits                       4.7%    13.1%     0.3%
8. Leadership Ability                    15.2%    16.3%     5.2%
9. Social/Interpersonal Skills            7.6%     8.9%     3.1%
10. Ability to Follow Direction           6.8%    12.0%     0.3%

NOTE: Recruitment/Selection Practices percentages based on # of
respondents who indicated that these factors were required upon
being hired. Occupational Specific Skills = represents the types of
skills necessary to perform the job on the first day (e.g., cooking
techniques for chef; appropriate tools for carpentry). Level of
Education: 1 = No education; 2 = High School/GED; 3 =
Trade/AA/Apprentice; 4 = 4 year College Degree; 5 = Post Graduate
Degree; 6 = Other. Require Experience: 1 = Yes; 2 = Yes, Generally;
3 = No, Generally; 4 = No; 5 = DK/Refuse. All Other Variables: 1 =
Yes, required upon hiring; 5 = Learn on the job; 6 = Don't need the
skill.

Table 2: Training and Development:

How do you most often training your most skilled/most common
employee or otherwise help them obtain needed skills? Do you ...?

                                            Most Skilled   Most Common

1. On the job/learn by doing                   13.5%          14.2%
2. Self-help materials                          3.3%          2.6%
3. Have someone in the firm teach skills       61.6%          75.6%
4. Bring in an expert                           1.9%          0.3%
5. Use outside firm                            11.3%          3.9%
6. Take on-line course                          2.2%          1.0%
7. Other                                        3.3%          0.5%
8. Nothing                                      1.1%          0.3%
9. Don't Know/Refuse                            1.6%          1.6%

Table 3: Training and Development

When considering your most skilled/most typical employee, how
long does it typically take to bring such a person's skills up to
a satisfactory level?

                                   Most Skilled   Most Common

1. Two weeks or less                  13.8%          20.3%
2. Two weeks up to one month          18.6%          16.8%
3. One month up to three months       10.0%          18.6%
4. Three months up to one year        43.3%          35.4%
5. Over one year                      14.3%          8.9%

Table 4: Training and Development

What are your typical annual per employee, out-of-pocket costs
to train your most skilled employees?

                           Most Skilled     Most Common

1. Less than $500              9.9%            11.5%
2. $500-$999                   7.5%            8.9%
3. $1,000-$4,999              25.4%            22.8%
4. $5,000-$9,999               9.9%            10.7%
5. $10,000-$24,999             7.7%            8.4%
6. $25,000 or more             5.0%            2.1%
7. Don't Know/Refuse          34.5%            35.6%

Table 5: Compensation and Benefits

Benefits Offered                  Yes       No     DK/Refuse

1. Paid Vacations                75.3%    24.1%       0.6%
2. Paid Sick Leave               57.8%    40.8%      57.8%
3. Life Insurance                28.7%    70.3%       1.1%
4. Health Insurance              60.5%    38.6%       0.9%
5. Dental Insurance              23.5%    75.6%       0.9%
6. Pension/Retirement Plan       29.5%    69.4%       1.1%
7. Education Reimbursement       38.5%    59.8%       1.7%
8. Flexible Spending             11.6%    84.7%       3.8%