The measuring and the making of 'good' HR practice in SMEs

1
The measuring and the making of 'good' HR
practice in SMEs

• Liz Doherty
• Professor of Human Resource Management
• Sheffield Hallam University
• Manchester Metropolitan University, 11 February
  2009
• (with acknowledgement to Ann Norton and Sarah
  Carmody)

2
Structure

• Background to HR in SMEs and to Fosters Bakery
• Measuring 'good' HR practice
• Evaluating the main factors which make 'good' HR
  practice
• Conclusions
• Discussion

3
HR practice in SMEs

• Despite their economic importance, relatively
  little research into their HR practice
• Defining SMEs (less than 250 employees, turnover,
  ownership)
• Much existing commentary/research polarises
  into 'small is beautiful' (harmonious, family
  style, little bureaucracy, good HR) v bleak house
  (conflict, authoritarian, instability, poor HR
  practice) (Wilkinson, 1999)
• 'Small is brutal, not beautiful' (Rainnie, 1989)

4
Some key features

• Resource poverty (Welsh and White, 1981)
• Dependence on large firms less power, lower
  profits, higher risks, more labour exploitation
  (Rainnie, 1989)
• As companies grow a 'leadership crisis' demands
  formalisation and professionalisation (Greiner,
  1972)
• Managers can make more of an impact in SMEs than
  in large organisations (Storey, 1995)
• Employees often seem surprisingly loyal even when
  conditions are rather poor (Wilkinson et al,
  2007)
• Assumed that SMEs 'should learn from large firms'
  (Cassell et al, 2002)

5
Fosters Bakery

• A family owned bakery in Barnsley, South
  Yorkshire employing 225 FTEs
• Organic growth plans (from 10 m turnover)
• Serious, presenting HR problems (high labour
  turnover and absenteeism, recruitment
  difficulties, customer complaints)
• A Knowledge Transfer Partnership Project
• To develop an HR strategy, together with
  policies, procedures and initiatives

6
Methods

• Action research
• In-depth interviews with directors
• Participant observation on the factory floor by
  the KTP Associate
• Review of company information and statistics
• Reflections on action interventions

7
Measuring HR practice against a benchmark my
1994 survey

• IR/PM
• HRM
• 'Good practice' required or encouraged by legal
  provisions' (contracts, recruitment and
  selection, discipline)
• Random sample of UK hotels and restaurants
  (median size 25, 241 responses)

8
Findings

• Clear co-relation between size and formality
• Practice rather poor and only a 'veneer' of good
  practice in larger workplaces
• Unwilling to pay a commercial rate for management
  training
• 'We work in a truly family atmosphere'
• 'Benign paternalism is no substitute
  forsubstantive and procedural arrangements to
  guarantee fair treatment' (Price, 1994 51)

9
HR practices in South Yorkshire SMEs (Cassell et
al, 2002)

• Survey of 100, interviews with 22 managers
• Informed by SHRM debate of 1990s
• EO policies claimed to be most widely used, yet
  'intuitively we felt that there was very little
  evidence of EO at work..'
• Wide range of recruitment and selection methods,
  but considerable emphasis on 'word of mouth'
• Some use of IiP, but training mostly focused,
  targeted and reactive

10
Challenge how we think about HR in SMEs

• HR management is necessarily less formal
• Better to be flexible and not extend bureaucracy
  in an arena of 'scarce managerial resources'
• 'Strategic' HRM 'as a package' is not practical
  or appropriate
• Rather HR practices are needed to address HR
  issues relevant to current business priorities

11
The WERS 1998 benchmark (adapted by Bacon and
Hoque, 2005)

• HRM practices based on 8 measures drawn from WERS
  1998 (388 SMEs)
• Measures not justified, but
• Some represent 'best practice' as legislative
  compliance
• Some represent 'best practice' as investment in
  people and winning motivation
• Others more about SHRM and associated more with
  'best fit'

12
Measuring Fosters against the benchmark
13
Beyond the benchmark

• Building an image as a good employer (outreach to
  colleges and schools, and rehabilitation of
  offenders)
• Developing people (NVQs, English language
  training for migrant workers, IoD qualifications)
• Seeking recognition for excellent HR practice
  (Food manufacturing excellence award on diversity
  and recruitment short-listed for CBI human
  capital award)

14
The making of good HR practice market position

• Skill mix investment v 'sweating' (Bacon and
  Hoque, 2005)
• Although a low skill industry, consciously a
  niche differentiator with an emphasis on
  innovation
• 'We make innovative and different but mainstream
  breads..we are rapid innovators...products with
  an ethical story behind them' (MD)
• 'We try to enhance products like we have for Pret
  a manger, so they are difficult to copy.we have
  invested in technologyto develop our own
  improvers and we use enzyme technology'
  Operations Director

15
People are key

• 'The more we put into up-skilling and motivating
  the masses, then generally the better we will be'
  (MD)
• 'We are nothing without our people. They are very
  skilled, loyal, knowledgeable. You cant put a
  value on that - this is why we are doing the
  training, and we are trying to put in a bit of
  academic qualification too, to sharpen their
  brains..to create a knowledge base.' Operations
  Director

16
The making of good HR practice the pressures for
compliance

• Coercive external networks trade unions, large
  customers (Bacon and Hoque, 2005)
• Key customers (eg major supermarkets and pub
  chains) exert their buying power to keep prices
  low, but also require high quality
• Need to conform to British Retail Consortium
  standards
• Also industry standards, eg occupational health
• Bakery and Allied Workers TU exerts little
  pressure

17
The need for compliance is recognised

• 'HR needs to keep things ticking over..doing the
  right thing with policies and procedures in place
  as everyone says you ought to have'
• HR 'like AA breakdown service'
• 'The law is good as it is definite. Policies are
  not quite the law - more of a rule book'
• 'Clear policies will help stop issues getting to
  top management as middle management can deal with
  it according to the rules.' MD

18
The making of good HR practice the vision of a
'good' man

• The MD is a Methodist Minister (adapted Porter's
  models to his church)
• To move Fosters from 'a has-been baker with no
  planningour customers thought we were crapwe
  were making no money'
• to the Swann Morton vision 'Their yardman is
  paid twice as much as the yardman in any other
  steelworks, but if there is a blade of grass out
  of place he gets the sackso he gets a lot of
  money but he had better do his job right'

19
Tough love

• Dealt early on with the 'dross', the 'dead-legs'
  and the 'liabilities'
• Balance looking after people with drug dependency
  problems with them 'killing the business'
• Of ex-offenders 'It's simple. If they do right by
  us, we'll do right by them'.
• Create 'super-people'when you cut them they've
  got Fosters running through them like rock -
  that's a super person'
• Putting something back into Barnsley - chairs the
  Work and Skills Board

20
The making of good HR practice the impact of an
HR Champion

• Before the Operations Director arrived, no
  interest in HR, no investment, massive
  absenteeism and a 'fed-up' workforce
• First challenge 'eradicate the dross', show 'we
  will not tolerate bad behaviour', recruit a
  workforce with a better work ethic
• Second challenge enhance the workforce - invest
  in training, apprenticeships, career pathways,
  multi-skilling
• Establish the KTP and promote IiP case

21
Some countervailing forces

• Profit margins are tight 'we gather up the crumbs
  from the giant's table'
• Hard for the MD to devolve control
• This feeds all through the factory - shopfloor
  staff feel not trusted like 'children',
  reluctance to share information, still a very
  Tayloristic factory
• The creation of an HR function and new procedures
  leads line managers to abdicate responsibility
  (then this has to be 'trained' back in)

22
Back to measurement

• How do we measure success? Both for the KTP, for
  Fosters, for research purposes
• Fosters regularly measures financial performance
  turnover, profit, return on capital investment
  'does anything else matter?' only..
• 'If the yard is tidy everything else is tidy.and
  we want our HR to be as clean as our yard' MD
• Resistance to generating any KPIs related to HR -
  time not justified
• Ad hoc measurement is done when required (eg
  factory wastage) then it ceases

23
HR measures for KTP

• SSP payments have decreased
• 43,021.79 annual cost for tax year 2006/2007
• 33,854.23 annual cost for tax year 2007/2008
•  
• Number of disciplinary cases decreasing
• 20 in the 6 months prior to March 2007
• 5 in the 6 months prior to March 2008

24
HR measures for KTP

• Employee Turnover has decreased
• 21.8 in March 2006 (Prior to the KTP project)
• 9.1 in March 2008 (18 months into the KTP
  project) 
• Retention rate of employees with over 1 years
  service has improved
• 10.6 of leavers had more than 1 years service
  in March 2006
• 7.9 of leavers had more than 1 years service in
  March 2008

25
What really matters?

• Not concerned about evidencing the value added
  through HR investment - it is a leap of faith
• Current climate of increased costs of raw
  materials and fuel
• Several competitors have gone out of business
• 'The improvements made through the KTP have
  contributed to Fosters ability to stay in
  business and indeed win new contracts from failed
  competitors' (KTP Final Report)

26
Conclusions

• Good HR practice in SMEs is different to that in
  large organisations (resource poverty, reactive
  to presenting issues and business interests,
  nimble, less formalised and bureaucratic, more
  influenced by a few key managers/directors)
• Drivers toward formality are external networks
  and legislation (compliance)
• Drivers towards investment in people (more
  aspirational practices) are market position and
  ideology of key managers/directors
• Owner/MD likely to cling to control and to
  management prerogative
• Routine measurement of HR impact is not
  cost-effective, likely to be ad hoc

27
Sources

• Bacon, N and Hoque, K (2005) 'HRM in the SME
  sector valuable employees and coercive networks'
  International Journal of Human Resource
  Management, 1611
• Cassell, C, Nadin, S, Gray, M and Clegg, C (2002)
  'Exploring human resource management practices in
  small and medium sized enterprises' Personnel
  Review, Vol 31, No 6
• Dundon, T, Grugulis, I and Wilkinson, A (1999)
  'Looking out of the black-hole Non-union
  relations in an SME' Employee Relations, Vol 21,
  No 3
• Greiner, L (1972) 'Evolution and Revolution as
  Organisations Grow' Harvard Business Review
• Price, L (1994) 'Poor personnel practice in the
  hotel and catering industry does it matter?'
  Human Resource Management Journal, Vol 4, No 4
• Rainnie, A (1989) Industrial Relations in Small
  Firms, Routledge, London
• Storey (1995) Human Resource management a
  Critical Text, Thompson International, London
• Wilkinson, A, Dundon, T and Grugulis, I (2007)
  'Information but not consultation exploring
  employee involvement in SMEs' International
  Journal of Human Resource Management, 187

28
Sources

• Welsh, J and White, J (1981) 'A small business is
  not a little big business' Harvarad Business
  Review, July-August
• Wilkinson, A (1999) 'Employment relations in
  SMEs' Employee Relations, Vol 21, No 3
• Wilkinson, A, Dundon, T and Grugulis, I (2007)
  'Information but not comnsultataion exploring
  employee involvement in SMEs' International
  Journal of Human Resource Management, 187