In the past years, the growth of small and medium enterprises has increased and economic analysts have predicted that it will continue to do so. The rise of small and medium enterprises has become a key indicator of economic activity in countries with mature economies. A study that surveyed the presence of small business enterprises across Japan, the United States and Western Europe found that 86% of all business enterprises were small and medium in structure (Faces, 1999). Small businesses are dynamic and unique in terms of structure and the use of management strategy.
With the many similar businesses and a specialized market base, small businesses face stiff competition and constantly have to devise strategies to gain competitive advantage. Small businesses due to its flatter structure are flexible and informal, the manager can be the cashier and the waitress can be the janitress when needed to be. As with any organization, researchers and HR practitioners have emphasized the importance of retaining productive employees to increase organizational productivity.
Previous studies have found that retention of highly productive workers significantly affects organizational performance, but this does not remain true in retaining employees regardless of performance (Horwitz, Heng, & Quazi, 2003: Roehling, Cavanaugh, Moyhihan & Boswell, 2000; Turnley & Feldman, 2000). It is commons sense that a highly productive workforce result to high company output and gains. Small businesses have a limited workforce; often the 2
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businesses operate on 15 or less employees and work on different tasks necessary to keep the business running. Losing one or two employees would adversely affect the business and hence productivity will suffer. But with the stiff competition and the lack of measures to keep turnover nil or low facilitates the movement of employees. Due to its size and structure, small businesses cannot offer the same retention management strategies (Cappelli, 2001; Mitchell et al. , 2001; Steel et al.
, 2002) that large corporations can, hence small companies try to offer a streamlined but meaningful array of compensations and benefits that would keep the productive employees from leaving most of which include competitive salary, better fringe benefits, and profit sharing, flex time and day care provisions. Turnover can be costly and damaging to any business but more so in small businesses, one way to lessen turnover is to provide employees with incentives to stay in the company. Most researchers have identified turnover rates as indicator of the health of the organization (Horwitz et al.
, 2003; Steel et al. ,2002), when people voluntarily leave the organization, then there must be something wrong in the organization, and when turnover is low, this means that employees are satisfied. As argued earlier, small businesses will be hampered by the loss of even a single employee and hence must be avoided at all costs. But the question remains is whether the retention strategies of small businesses enough to keep their best workers? And whether the presence of such retention strategies significantly contributes to the company’s performance or productivity?
Small businesses largely are concentrated on the production of goods like a local bread and pastry store, a local pizza parlor, the local grocers or provide services like the local barber 3 shop, the local hairdressers etc. the technological innovations of the past decade have also made it possible to engage in business through the internet, most of the hobby shops or craft shops are run by 15 people or less (Perry, 1999). This study focuses on measuring the productivity of small businesses enterprises that mainly produce goods than services.
The motivation to conduct this study grew from the desire to be able to identify the factors that might affect the productivity and output of a small business and to confirm whether the previous literature on the importance of employee retention holds true for small businesses. Despite the important role that small businesses play in the countries economy, few studies have been conducted as relating to its effectiveness and performance thus study also tries to contribute to the literature on small businesses.