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Is HRM a worthwhile investment for an SME ? Essay

This paper will examine the concept of Human Resource Management (HRM) within the context of a Small or Medium Sized Enterprise (SME) by presenting its role from various perspectives. It will use a range of academic evidence to discuss both the benefits and limitations of HRM within the SME sector so as to give a rounded critical evaluation of whether it presents a worthwhile investment.

The research upon which the discussion of HRM in the SME sector is based will be evaluated in terms of both findings and methodology. Also considered are whether the results presented in the research support the conclusions reached in promoting the concept of HRM as a worthwhile investment for SMEs seeking to achieve their organisational objectives. This paper accepts that a commonly agreed definition of HRM is still subject to debate.

The search for such a definition is made more complicated by the issue pointed out in Torrington et al (2011), that the term is often used in two distinct ways; one to cover the group of people management activities undertaken by an organisation, such as recruitment, performance management, reward etc… and the other directed at a particular approach to the management of the people within the

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organisation. Here the focus will be more on the former of the two as to whether investment in HRM activities are worthwhile for SMEs, but some element of the approach to their inaction will also be considered.

Along with the European Commission and the Department for Business Innovation & Skills ( http://www. bis. gov. uk/assets/biscore/statistics/docs/b/business-population-estimates-2011_statistical-release. pdf Accessed on 14 Sept 2012) SMEs are here defined as organisations consisting of less than 249 employees. This sector of the UK economy accounts for 99. 9 per cent of all enterprises, 58. 8 per cent of private sector employment and 48. 8 per cent of private sector turnover (ibid). While this definition, based on the number of employees in the organisation, is the most widely accepted it does have limitations.

As a SME based on the number of employees may be small within one sector this may not be the case in another. Other measurements have been suggested such as turnover, value of output, capital employed but the level of employment is the most common. A further issue to be acknowledged is associating a common viewpoint to SMEs so as to allow for discussion as to whether HRM investment is ‘worthwhile’. What could be seen as worthwhile by one SME may not be the same for another at any given point and this will also be subject to change over time.

SMEs may be similar in size, although the difference between having one employee and having 249 is probably greater that the difference between having 1,000 and 10,000, but they may differ in a number of other factors such as; business model, sector, life-cycle etc. This acknowledgement that HRM investment may be appropriate and worthwhile in one circumstance but not in another, provides the opportunity to discuss the various strategic approaches to HRM. The academic literature concerning the link between HRM and organisational performance has mainly been addressed from the perspective of three approaches.

The theoretical approach has been based on the resource based view (RBV) of the organisation, which attempts to show how HR is linked to corporate strategy and thereafter organisational performance through the achievement of sustained competitive advantage via the use of human capital. As noted by Becker and Huselid, the theory behind RVB “that organizations can build competitive advantage, and as a result above-average financial performance, based on valuable and inimitable internal resources, offers an appealing rationale for HR’s strategic importance.

” (2006, p. 900). The alternative to the RBV approach is the research debate between those who seek to evidence the validity of ‘best practice’ (universalist) verses ‘fit’ (contingency) approaches to supporting the link between HR and improved organisational performance. As the name suggests the former proposes that it is possible to apply a particular group of HRM practices to any organisation and this will result in an increase in performance.

Research has found support for the ‘best practice’ view (Arthur 1994; Pfeffer 1994; Huselid 1995; Delery and Doty 1996; Gill and Meyer 2008; Gooderham et al 2008) but it has also been strongly criticised on a number of fronts including: that a number of its proponents have suggested different bundles of practices and that there is often conflict between the practices within the bundles (Legge 1991); that it presents a unitarist management view of the impact of the HRM practices and neglects the employee view as to the effectiveness of implementation (Kinnie et al 2005); and that it is too simplistic and unlikely to be implementable in reality (Purcell 1999).

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