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How strategic is human resource management in small firms?

Abstract The focus of much strategic human resource management (SHRM) research has been

large firms and there are questions as to the applicability of these normative models for small

firms that have different modes of operation, particularly in respect of the dominance of

owner managers. There is nevertheless growing evidence that SHRM approaches can be

effective in small firms, but this research is at an early stage. To develop understanding, this

paper explores how HR practice is applied in small firms, the owner manager’s role and the

impact on firm performance. We use qualitative data from small firm owner managers to

demonstrate how HR-focused business support services create awareness and understanding

that lead to exercise of owner manager agency, which results in HR interventions that

improve performance in different way. Theoretically, we propose a model that explains how

HR plays out, arguing that ‘strategic’ may be different in small firms.

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Introduction

Small firms with fewer than 50 employees (EU, 2011) form the backbone of the UK

economy: they generate almost half of private sector employment, nearly 40% of its turnover

(HoC, 2017) and are a focus of substantial policy-maker interest when seeking levers to

improve UK economic performance (Authors). A variety of state-funded business support

services has resulted that aim to improve small firm performance and underpin a growth

agenda. Here, we explore uptake and application of HR interventions that resulted from a

business support project aimed at improving small firm performance through better people

management (Authors). This is novel as support services typically emphasise finance and

marketing, commonly recognised as central to effective performance, above other aspects of

business function (Mole et al., 2016). Yet, drawing upon a widely-accepted strategic human

resource management (SHRM) philosophy that effective HR practices improve firm

performance (Boxall et al., 2016), people management is a vital aspect of small firm

operation. The focus of SHRM research has, however, been larger firms and small firms have

different modes of operation (Lai et al., 2016), particularly in respect of the dominance of

owner managers and lack of internal specialist HR support . There is nevertheless growing

evidence that SHRM approaches can be effective in small firms (e.g. Rauch and Hatak, 2016;

Wu et al., 2015), but this research is at an early stage and knowledge is lacking as to whether

and how normative models of SHRM apply in small firms (Harney and Dundon, 2006). To

develop understanding, this paper addresses the following questions: how is HR practice

applied in small firms? What is the owner manager’s role in this? What is the impact on firm

performance?

We draw on a stream of research that argues a focus purely on firm size is overly

deterministic (Timming, 2011) and that wider contextual analysis of HR practices is needed

(Harney and Dundon, 2006). This reflects best-fit SHRM approaches, i.e. that HR practice

should be designed to reflect firm context (Kinnie et al., 2005). We argue, however, that this

contextual ‘turn’ in small firm research has created structural determinism in many analyses

(e.g. Gilman et al., 2015) and return to an earlier strand of HR research (and a continuing one

in the wider small business field) that emphasises the key decision-making role of small firm

owner managers (Edwards and Sengupta, 2010). We explore the critical role of owner

managers in determining uptake and application of HR practice and build on recent work that

argues for a high degree of owner manager agency within structural constraints (Mayson and

Barrett, 2017). This agency is reflected in a number of cues (Jones et al., 2007) that inform

particular responses and underpin different types of engagement with HR practice. We use

qualitative data from project participants to demonstrate how HR-focused business support

services create awareness and understanding that lead to exercise of owner manager agency

which results in HR interventions that improve performance across widely-varying contexts.

We make a number of contributions. Theoretically, we propose a model that explains

how HR plays out in these small firms, reflecting their heterogeneity of operation. It

identifies the critical role of owner manager agency and moves beyond normative models of

HR developed in large firms to incorporate small firm considerations. Empirically, we

contribute in providing qualitative data to SHRM research, offering methodological pluralism

in a field increasingly dominated by statistical analyses (Harley, 2015) and, unusually,

offering stakeholder perspectives both within and outside of the small firm. For policy-

makers, our research demonstrates that investment in HR-focussed business services should

reap dividends but that these should be tailored to small firm requirements, which may differ

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to larger firms. Finally, for small firm owner managers, we demonstrate that investment in

HR activity is likely to reap benefits.

The paper proceeds as follows. First, we review literature on SHRM in small firms

and the role of the owner manager within this, before presenting research methods. We then

present findings and discussion, before concluding as to the contributions and implications of

our research.

Strategic HRM: in small firms?

Strategic human resource management (SHRM) is premised upon an assumption that

applying sets of (usually sophisticated, Authors) human resource (HR) practices in a high-

performance work system (HPWS) drives improved organisational performance (Jiang et al.,

2012). This contrasts with operational, personnel management approaches focused on

routine, bureaucratic practices (Godard, 2010). Performance is variously defined but can

include improved profit, quality and market share (Boxall et al., 2016). SHRM is supported

by a body of evidence spanning 30 years and, while contested by some (e.g. Guest, 2011),

has gained widespread acceptance (see for example the recent Special Issue of this journal,

Boxall et al., 2016). Until relatively recently, however, SHRM research emanated from large

firms and, despite limited supporting evidence, it was generally supposed that small firms

suffered an HR ‘deficit’ (Behrends, 2007) and that SHRM would not be found. This flowed

from a body of research on employment relations/HR in small firms that evidenced

approaches that were hardly strategic (e.g. Cassell et al., 2002). While assumptions in early

streams of research that small firms are either ‘bleak houses’ or ‘happy ships’ (Wilkinson,

1999) have broken down, there remains a prevailing view that small firms have a tendency to

informality of operation (Nolan and Garavan, 2016), based around close employment and

interpersonal relations (Arrowsmith et al., 2003). This extends to HR practice, creating a

somewhat piecemeal approach to HR (Cassell et al., 2002) and is in conflict with formal

SHRM systems (Bacon and Hoque, 2005; Psychogios et al., 2016). The resource constraints,

both money and time, that small firms typically experience also preclude costly HR practices

(Marlow, 2006). Lack of HR expertise is a further contributory factor as small firms rarely

have an internal HR specialist (Teo et al., 2011) and owner managers typically lack HR

experience (Mayson and Barrett, 2006). In sum, HR practice is unlikely to be sophisticated in

small firms, which may limit SHRM.

Perhaps somewhat unexpectedly then, research in recent years has evidenced that HR

practice can improve performance in small firms. For example, both ONS (2017) and Lai et

al. (2016) have demonstrated consistent relationships between HR practices and improved

productivity. Further, longitudinal studies have evidenced not just an association between HR

practice and performance, but that HR practice predicts performance (Sheehan, 2014;

Razouk, 2011). While small firms may be less likely to adopt (formal) HPWS than large

firms, it seems they are effective where implemented, perhaps because they are a substantial

resource investment (Wu et al., 2015). Research is, however, at an early stage and there are

still many unknowns, with contextual factors such as product and labour markets (Rainnie,

1989), life cycle stage (Wu et al., 2015) and sector (Psychogios et al., 2016) bringing to bear.

For example, HR practices change as firms grow (Gilman et al., 2015) and greater formality

has been evidenced in smaller firms with skilled employees (Bacon and Hoque, 2005),

manufacturing firms and those with international links (Psychogios et al., 2016). In short, the

heterogeneity across small firms is well-recognised (Lai et al., 2016), leading (Timming,

2011), among others, to argue that a focus on size alone is overly deterministic. We have

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accordingly seen a ‘turn’ in the small firm employment relations literature to an integrative

model of analysis (Harney and Dundon, 2006). This argues for the strong explanatory

potential of combining the contextual factors noted above with internal influences such

ownership (Psychogios et al., 2016) when examining small firm employment relations. This

contextual turn has also appeared in SHRM research and of particular note here is Rauch and

Hatak’s (2016) meta-analysis of 56 studies across various countries that confirms the

importance of both internal and external factors in small firm HR practice. A contextual focus

in small firm analysis brings us to a central debate in SHRM research: best practice versus

best fit. A best practice approach argues for the adoption of a universal set of HR practices

which is performance-enhancing in any context, though which practices constitute the ideal

set is contested (Marchington and Grugulis, 2000). A best-fit approach promotes a set of HR

practices that reflect firm strategy and reflect the influence of the external context (Kinnie et

al., 2005). While there are proponents of both, best fit perhaps holds the day (Timming,

2011) and, following Wu et al. (2015), we operate within this paradigm. This affords the

opportunity to develop a model of HRM that addresses the varied facets of small firm

operation and associated difficulties in applying normative HR models in small firms (Harney

and Dundon, 2006), as these neither acknowledge the generally accepted large/small

distinction nor recognise the diversity of approaches across small firms (Cassell et al., 2002).

Indeed, normative models typically presume formality of HR practice, which is lacking, as

we have noted, in many small firms. ONS (2017) and Lai et al. (2016) both measured formal

practice, although interestingly Lai et al. (2016) showed that formal practice was less

effective when employee satisfaction was already high, perhaps suggesting that formality is

not a pre-requisite to improved performance. Indeed, SHRM might be effective because

rather than despite small firms’ mode of operation. Verreynne et al. (2013), for example,

found that employee perceptions of HR systems are important: this fits with the wider

literature on employee attributions (Nishii et al., 2008) and may play to small firm strengths

building on work around their being negotiated orders where trust and relationships are

strong (Ram, 1994). While the strategic nature (not just number) of HR practices is important

(Teo et al., 2011; Garavan et al., 2016; Georgiadis and Pitelis, 2012), an informal yet

strategic approach could be possible: enactment of practice might be more important than its

formalisation (Harney and Dundon, 2006). Indeed, informality can be a source of competitive

advantage and formal HR practices could undermine this (Authors). A second concern with

normative HR models is the presumption of large firm professional management structures.

Small firms, however, tend to be run by owner managers. Finally, there is the question of

appropriate performance measures in small firms given that owner managers are often

motivated by retaining independence/autonomy rather than typical larger firm measures such

as profit/market share (Jones et al., 2007). Indeed small firms may accept lower performance

than larger firms on typical measures (Mole et al., 2016) as personal or family agendas may

carry more weight than growth ones (Edwards and Sengupta, 2010). This is missed in much

contemporary HR/performance research that is based within a statistical paradigm (Harley,

2015) and may not get ‘under the skin’ of small firms to measure performance on appropriate

terms.

What about the owner manager? We have so far established a need for better understanding of SHRM in small firms.

While operating within a best-fit paradigm, we nevertheless question whether the contextual

turn in small firm analysis (e.g. Gilman et al., 2015; Harney and Dundon, 2006) has created

recognition of complexity without adequate explanation. While many small firms exhibit

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similar characteristics to a greater or lesser extent (Cassell et al., 2002; Lai et al., 2016), there

remains a high degree of complexity about what happens in practice (Authors). Indeed

Harney and Dundon (2006) themselves caution against structural determinism and note that,

while HR practice is influenced by external context, the shape of HR is ultimately contingent

on individualistic firm responses. We argue here that the owner manager is a key determining

factor in adoption of (strategic) HRM. In this, we return to a stream of work on the

importance of owner manager that dominated perhaps 20 years ago in small firm employment

relations research (e.g. Storey, 1994; Jennings and Beaver, 1997) but has more recently

enjoyed less prominence. Central to that work was recognition of the dominance of the owner

manager (Steijvers et al., 2017) and their presumed desire for autonomy, seeking a freedom

to do things their own way and resentment of limits to this (Marlow, 2002). Arrowsmith et al.

(2003) reinforced this in demonstrating, for example, that owner-manager actions and

attitudes were fundamental to determining response to National Minimum Wage legislation.

Recognition of owner manager agency thus provides an important counterbalance to potential

structural determinism in small firm employment relations analysis, e.g. Gilman et al. ’s

(2015) recent work explores voice and context in smaller firms with substantial emphasis on

resources and constraints but affords a limited role to agency. Research is increasingly

demonstrating the key role of owner managers (Georgiadis and Pitelis, 2012; Garavan et al.,

2016; Ho et al., 2010) and, most recently, Mayson and Barrett (2017) have examined the

structural constraints that small firms experience in responding to external regulation and

argued that, via sensemaking, there is space for owner manager agency in adapting to

regulation. None, however, have foregrounded agency to the extent proposed here and we

draw on wider small firm literature that, unlike the employment relations literature, has

continued to position the owner manager as a key actor in navigating the external

environment and shaping internal systems, structures and processes (Jones et al., 2007). We

consider how owner managers make sense of their contexts and exercise agency via

management action to create HR practices.

Management action refers to individualised decision-making set within structural

relations (Granovetter, 1985) and means that small firms in similar positions can adopt very

different courses of action, dependent on the personal choice and idiosyncratic behaviour of

owner managers (Edwards and Sengupta, 2010). This affords substantial scope for the

exercise of their agency and we draw on (Hauptmeier, 2012: : 738-9) who argues that

institutions are ‘what actors make of them’. Recognition of the capacity to influence

management action has underpinned provision of business support services that seek to

develop owner manager skills and attitudes to enhance firm performance (Kempster and

Cope, 2010). Our interest is in the uptake and application of HR interventions that resulted

from a business support programme and the role of the owner manager as the main decision

maker (Steijvers et al., 2017; Psychogios et al., 2016). As we note above, extant research

evidences that owner manager attitudes and behaviours condition responses to regulation (see

also Kitching, 2016). There is little evidence in relation to HR practices, although Garavan et

al. (2016) suggest that implementation of leadership development is influenced by owner

manager attitudes and this is supported in work by Ho et al. (2010) and Georgiadis and Pitelis

(2012). As we demonstrate in our findings, owner manager agency is central to engagement

with HRM and, drawing on Jones et al. (2007), we argue that agency was reflected in a series

of ‘cues’, that is calls to action, that drove owner managers to adopt particular HR

interventions.

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Current literature suggests five main cues. First is the owner manager’s perceived

need for HR practice and associated support (Mole et al., 2016). This is critical to

engagement, as people management often receives very limited management attention

(Phelps et al., 2007) not least, as (Timming, 2011: : 580) notes, because of:

‘the complete lack of knowledge among owner/managers of what HRM means’.

Small firm owner managers are unlikely to implement HR practices where they do not

understand the need for them. Allied to this is the capacity of owner managers to work with

advisors and adopt advice (Mole et al., 2016), which requires leadership skills and the

perception that HR can be effective/do-able within a small firm. Third, as Richbell et al.

(2006) note, owner managers who have previous work experience in a medium/large firm or

have run a business in other sectors are more likely to engage with HR. A fourth cue relates

to levels of education, where those more highly educated have been demonstrated to

implement SHRM (Psychogios et al., 2016; Edwards and Sengupta, 2010). A final cue is a

perceived need for formalisation, often as part of the growth process, as Phelps et al. (2007)

demonstrate that once a certain size is reached, the importance of managing people is

accepted. This often emphasises formalisation via employment contracts and procedures

rather than anything more sophisticated (Jarvis and Rigby, 2012). Formalisation can also

result from, for example, an Employment Tribunal claim (see Marlow, 2002) or questions

over firm survival (Mole et al., 2016). Our discussion here of cues is deliberately brief as

there is little current research that relates to HR practice. We build understanding inductively

via our analysis.

To summarise, while an emerging body of evidence demonstrates that SHRM can be

effective in smaller firms, there is limited understanding of the mechanics of this and a

tendency, given the contextual ‘turn’ in small firm employment analysis, to structural

determinism. We argue here that owner manager agency is fundamental to adoption of

SHRM and that this is largely neglected in current analyses. We also recognise that

normative HR models may not be applicable in the small firm context (Harney and Dundon,

2006) and present a model of how HR plays out in these small firms. In so doing, we address

the following research questions: how is HR practice applied in small firms? What is the

owner manager’s role in this? What is the impact on firm performance?

Methods We report here a subset of data from the evaluation of a project delivering free HR

support services to small firmsi. The project was funded by the charitable arm of a large

organisation and, led by a project manager, worked with delivery partners (local councils or

chambers of commerce) in three locations in the South East, Midlands and Scotland. Each

delivery partner appointed a co-ordinator who managed the project and was a point of liaison

between an appointed team of freelance HR consultants and the small firms. HR consultants

worked on an individual basis with a nominated point of contact in each firm, usually the

owner manager. This facilitated the design and delivery of bespoke ‘interventions’ delivering

HR practices to address identified firm-specific needs. The project ran for around 18 months

across 2015-6, though firms ‘rolled on and rolled off’ and many were not involved for the

whole time. As the project evaluation team, we had full access to all project participants and

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report here data relevant to our research questions. The full evaluation report can be found at

(anonymised for review).

Our data draw on participant ‘stories’ (Harley, 2015) gathered through semi-

structured interveiws. Adopting a qualitative methodology allowed us to surface important

issues in an area where little is known (Mayson and Barrett, 2017), i.e. SHRM in small

firms. It importantly offers methodological pluralism and responds to Harley’s (2015) call for

methods beyond the narrow highly-statistical approaches that now dominate the field. Our

longitudinal qualitative data offer in-depth understanding of why HR was implemented, how

it played out and the impact it had on small firm operation. We captured the lived experiences

of key project participants, using these to understand causal processes (Mayson and Barrett,

2017) and exploring context, process and complexity to develop theory (Gilman et al., 2015).

We report data from two participant groups across the three locations (Table 1). First, that

gathered from project manager (1), project co-ordinators (3) and HR consultants (19) who

were responsible for generating engagement with the HR support and associated

interventions. Here, we held focus groups at the project launches and conducted

telephone/face to face interviews at the project mid- and end-points. Second, we report data

gathered from 17 small firm participants who agreed to in-depth evaluation of their firm’s HR

intervention. Here we conducted telephone/face to face interviews, 82 in total, at the

beginning, mid and end points of an intervention with the owner manager or their delegated

representative. This offers rare, rich contextual data on how HR is implemented in small

firms. All data capture was recorded and data summaries were written up for thematic

analysis.

Table 1 around here

The data summaries were imported into NVivo software and subjected to thematic

analysis (Braun and Clarke, 2006). We inductively arrived at three categories of HR

intervention, drawing on Mole’s (2016) work to label these as ‘transactional’, i.e. supporting

routine day-to-day operations or ‘transformational’, i.e. designed to achieve substantial

business growth and development. The third category was where transactional and

transformational interventions were combined. Drawing on both project and small firm

participant data offers a perspective not typical in small firm employment research, which is

usually located within the boundaries of the firm.

Having established these intervention categories, we undertook second order coding

to generate explanation of why small firm participants engaged in particular ways

(Granovetter, 1985). Inductive analysis demonstrated the critical role of owner manager

agency and we used the series of cues discussed earlier (Jones et al., 2007) to analyse their

responses. We added a further cue, change of ownership, which emerged from our analysis.

This supported development of a model of HR in small firms (Figure 1) which we build

inductively through the findings and discussion section and present later, rather than as a post

hoc rationalisation in the literature review.

We recognise the limitations of working with only 17 small firms and seek to

generalise to theory rather than more widely. Nevertheless, we establish a preliminary model

that has potentially powerful explanatory potential and can be tested in future research.

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Engaging with (S?)HRM 449 small firms engaged with the wider project, which was a relatively small

proportion of the firms in the project locations (Authors). This reflects well-recognised

problems of small firm engagement with HRM, and project members echoed Timming’s

(2011) view that many simply did not know what it consisted of and ‘we have had to explain

what HR is, which is a challenge’. SE Coordinator T2. Typical concerns were also expressed

over time/workload and financial constraints (as per Marlow, 2006) with HR being ‘seen as a

luxury’ and ‘you don’t have the time or the head space’ PM T2 to think strategically as an

owner manager. Others suggested that small firms were ‘not big enough to think about HR

issues’ (S HRC 1 T2) and that they would only ‘pick it up in a crisis’ (S HRC 4 T2). Limited

understanding of HR and its (strategic) contribution was thus implicit in the widely reported

HR deficit (Behrends, 2007) and, for many, the cues of the perceived need for HR practice

and associated support and the capacity of owner managers to work with advisors and adopt

advice (Mole et al., 2016) were missing.

We move beyond this well-trodden ground, however, to explore in-depth why and

how 17 participant firms did engage with HRM and the extent to which this was strategic (see

Table 2 for summary of findings). Firm responses were highly individualistic (as per Harney

and Dundon, 2006) and there were few patterns by, for example, sector or skill (see project

report for more detail, Authors). Rather, owner manager agency informed their sense making

in relation to structural factors (Mayson and Barrett, 2017). Our key argument is that project

support facilitated exercise of this agency, first in creating (for many) understanding of HR

and its contribution and, second, in developing in all the confidence to work with HR

practice. Understanding was widely acknowledged to be lacking:

‘I came out of college and I knew exactly how to build an opera house or a ballet

school or a cemetery. Never….. learned about HR. Nothing at all’ S Architects Co

OM T1

Developing confidence in application of HR practice was also vital and allowed owner

managers to say ‘I really don’t know what I should be doing here. What do you think?’

(Packaging Co OM T3). Without this, many felt their agency was constrained:

Much more confident, suit of armour around us, would have never been able to do

that [develop HR practice] on my own. Ark Co OM T3

Certainly, idiosyncratic behaviour and personal choices of the owner manager were

paramount (as per Edwards and Sengupta, 2010): in 13 of the 17 participant firms,

engagement was driven by the owner manager and, in three of the other four interventions,

led by an office/practice manager or similar, owner manager ambivalence led to more limited

uptake of HR practice.

Table 2 around here

Cues to engagement and type of interventions Here we address the first two research questions, the uptake and application of

HR practice in small firms and the associated role of owner manager. Management action in

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engaging with HR support emanated from individualised decision-making within varied

structural relations (Granovetter, 1985) and derived from a series of cues. There was

considerable intersection across these cues, which included: desire for compliance/formality

(Phelps et al., 2007) (in two cases linked to Employment Tribunal claims (Marlow, 2002)),

previous large firm experience (Richbell et al., 2006), changes in ownership (either buy out

or the arrival of a new family member) and education (Psychogios et al., 2016). Interventions

comprised of HR practice that was both transactional, focused on bureaucratic, routine

practice (Godard, 2010) and transformational (Mole et al., 2016), premised on the

sophisticated HR practices that underpin SHRM (Authors).

Ten firms engaged with wholly transactional interventions, with a further five firms

having transactional aspects. These centred on handbooks, employment contracts, job

descriptions, maternity and similar. HR was operationally driven, issue-based and

‘firefighting’, serving to ‘fix a problem’ SE HRC 3 T2. Previous large firm experience was a

dominant cue in these transactional interventions, owner managers (Care Co, Design Co)

wanting the reassurance they had previously experienced from HR policies and procedures:

[In education] the HR department was very well structured, ….all the information

was already there…. Until I engaged in [project], I think I was quite naïve to the

requirements of human resources. Design Co OM T2

Change in ownership, previously unreported as a cue, was also an important cue and was in

many cases linked to previous large firm experience (Richbell et al., 2006). For example, the

owner manager of IT Co, part of a buy-out team and coming from a large firm, sought to

formalise basic policies and procedures. Incoming family members at Insurance Co, Design

Co and Packaging Co also came from large firms and sought to disrupt the status quo of

existing family leadership teams and resist the ‘we don’t have to do that, we’re only a wee

business’ mentality (S Owner Manager, Packaging Co. T2). Support helped them to deal with

challenge from other family members about time involved/value resulting from transactional

HR activity.

Even without large firm experience or change in ownership, perceived need for

compliance/formality was a primary cue for engagement, with owner mangers seeking to

formalise employment contracts, handbooks and basic policies and procedures (Jarvis and

Rigby, 2012). Two firms (Arts Co, Photography Co) engaged following concerns around

Employment Tribunal claims (Marlow, 2002), again seeking protection of basic policies and

procedures and arguing that such a claim could ‘bring a small business down’ (Director Arts

Co. T3). Increased need for formalisation also resulted from business growth (Gilman et al.,

2015):

We are growing, and when we were small we perhaps let things lapse and now we’ve

got bigger [HR consultant] has helped us set it up for the future as well. Handbooks

and things like that. It’s really helpful. Rental Co OM T3

Transactional interventions thus delivered routine bureaucratic practice: in contrast to

Marlow’s (2002) view that owner managers privilege autonomy, here they sought

compliance.

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Six of the case study firms had mixed interventions, combining both transactional and

transformational practices. Mixed interventions typically started with operational practices

such as handbooks and contracts, driven by the cues already discussed. Developing

understanding in owner managers created a foundation for more transformational work, and

practices became more sophisticated, for example, performance management systems and

leadership and development programmes. As one project member opined:

They realise, at a certain size, that they need to formalise and that is often a stimulus

to engage. And then there is opportunity to widen the discussion into improving

processes and practices, and things like performance management, and then you can

move up the scale. PM T3

For example, Ark Co began with routine policies and procedures and then widened the

intervention to performance management and wellness. Elsewhere, transactional

interventions created understanding of the value of more transformational practices, ‘It’s

water on dry earth’ Architect Co OM2 T2, and that HR could make a substantial contribution:

‘Had we not had this we’d start to lose a lot of unique quality that we have in the

practice….. This allows us to keep on growing and to keep people feeling happy’

Architect Co OM2 T2

Confidence followed understanding, Building Co OM T3 noting that ‘everything

clicked’ and allowed him to delegate, freeing up time for more strategic matters. Education

also served as a cue (Psychogios et al., 2016) for the Business Manager at Building Co, who

had a CIPD qualification and was keen to introduce more sophisticated HR practice. This

was, however, an isolated example and our data offer limited support for education as a cue

for owner managers. Cues could lead to different outcomes, dependent again on owner

manager agency. For example, desire for compliance/formality in mixed interventions placed

more emphasis on supporting growth than the legislative protection deemed important in

transactional ones (Phelps et al., 2007):

Re staff, main thing is to ensure policies and procedures are up to date. As we grow,

we have to change the way we look at things Ark Co PM T1

Mixed interventions thus focused less on legislative compliance and more on strategic intent.

Only two case study firms had wholly transformational interventions, namely coaching

and personal development and the establishment of a learning academy (Retail Co and

Learning Co respectively). Given this, we must proceed with caution, but the primary cue

here was again previous large firm experience (Richbell et al., 2006). While the focus in both

was sophisticated HR practice, owner manager agency informed different approaches in two

firms in varying contexts. Retail Co was a fairly recent start up, but the owner managers,

having worked in large firms, ‘knew what they didn’t know’ and coaching and mentoring was

transformational in setting strong basis for strategic operation. In Learning Co, a new owner

manager had recently joined her husband’s long-established firm, having taken redundancy

from a large, blue chip firm, and had sound understanding of the value of investing in people.

She engaged with HR support to implement sophisticated practices that established a highly

aspirational learning academy offering training, career and pay progression. While her

understanding of HR was well-developed, she had not been an HR specialist and the support

built her confidence. She noted that ‘we couldn’t have done it on our own’. Whilst an isolated

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example, it provides evidence that, given owner manager agency, a HPWS approach adopting

an integrated set of sophisticated HR practices is possible in a small firm (Wu et al., 2015).

The consistent theme across all interventions was the role of owner manager agency

and their sense-making around structural relations was more important than the structures

themselves (Mayson and Barrett, 2017). As evidenced above, many deemed a degree of

formalisation in response to employment legislation to be inevitable, but owner managers

nevertheless expressed the view that they wanted to ‘keep the fun’ and that formalisation

should only be to the extent needed to either protect their businesses or support growth. This

typifies a widespread informality of operation (as per Nolan and Garavan, 2016) and suggests

that enactment is more important than formalisation (Harney and Dundon, 2006). We

question whether, as others have argued, this necessarily conflicts SHRM’s typical premise in

formality (Bacon and Hoque, 2005; Psychogios et al., 2016). Agency also mitigated labour

market influences, addressing strong competition and recruitment and retention challenges in

Bar Co, IT Co and Learning Co and product market constraints in highly competitive sectors

experienced by Packaging Co, Insurance Co and Care Co.

How do HR interventions influence firm performance? Our third research question concerns whether HR interventions in these small firms

created practices that were performance enhancing i.e. strategic (Boxall et al., 2016) as

opposed to routine bureaucratic practice focused on operations (Godard, 2010). We continue

our line of argument that owner manager agency is paramount:

‘Some [owner managers] really got it. Had their eyes opened, illuminated challenges

and issues in their businesses that they hadn’t thought in that way. It [intervention]

made a lot of difference in those businesses. Some don’t get it. It doesn’t matter what

you do. They run their own business their own way and they don’t want other people

telling them what to do. PM T3

For the 17 participant firms, there were a number of valued performance outcomes

including: improved operations, better recruitment and retention, improved employee

performance management, improved communications, and, perhaps more typically

strategically, growth and strategic-level operation (Table 2). Following typical SHRM

prescriptions, it might be presumed that transactional interventions were largely operational

and focused on day to day routines (Mole et al., 2016), applying bureaucratic practice

(Godard, 2010). Indeed, our findings evidence this, despite which, these practices supported

more effective operation and allowed participants to stand back from being ‘caught up in the

day-to-day’ (Insurance Co OM T2). This was a theme to which owner managers repeatedly

returned. In Packaging Co, for example, introducing basic employment policies reduced

‘chaos and firefighting’ creating the space and ‘courage’ to deal with underperformance and

exit two sales representatives who were damaging the firm. In Bar Co, interview skills

training led the owner manager to realise he had been ‘asking all the wrong questions’. New

processes were still basic rather than the sophisticated processes prescribed by SHRM, but

resulted in transformed recruitment and business operations. Improved job advertisements at

Rental Co gave the owner manager the confidence to take on new people and expand. At the

extreme, the support enabled Arts Co to survive. In short, getting the basics right:

..can transform the business while being transactional. S HRC3 T3

12

Transactional HR can thus be performance enhancing, indeed transformative, for small firms

(Wu et al., 2015; Rauch and Hatak, 2016) and a wider conceptualisation of strategic may thus

be appropriate in the small firm context.

Mixed interventions supported participants in moving along a continuum of HR

practice sophistication beyond existing modes of operation to achieve more strategic

outcomes:

‘We (OMs) are working more on the business rather than in it. It’s extremely unusual

for us.’ Creative Co OM T3

The owner manager of Architect Co also realised the value of investing in the firm’s human

capital and experienced firm growth. Finally, sophisticated HR practice, in at least one

instance, delivered truly transformational effects that resulted in substantial business growth

and improved financial performance after many years steady state performance:

[It’s] really easy to run the business, people just do their job. It feels really good and

it feels like we’ve got the right team of people in place. Learning Co, OM, T3

Normative models of SHRM argue that HR practice should be sophisticated to

improve performance and that limited benefit accrues from routine, operational HR practice.

Yet most participants here demonstrated performance improvements from engaging in both

transactional and transformational interventions. Indeed, interventions sat along a continuum

of sophistication, rather than the polar opposites proposed by Mole et al. (2016), and

delivered benefits at varied strategic levels. Despite some formalisation, modes of operation

remained typically informal, again challenging the dominant discourse of SHRM. This begs

the question as to whether SHRM needs rethinking for small firms? It may be less that there

is an HR deficit (Behrends, 2007), rather that HR plays out in ways not prescribed by SHRM

and that enactment is more important than formalisation (Harney and Dundon, 2006).

Further, context-specific understanding of ‘high’ performance may be needed, as typical high

performance measures may lack relevance (Mole et al., 2016). For example, a focus on

lifestyle or autonomy, getting things right and being a good place to work were often more

important than growth (Edwards and Sengupta, 2010) and other large firm performance

measures. Here, we got ‘under the skin’ of participant firms to identify what was important to

them (Harley, 2015) and argue that while one, Learning Co, reflects large firm modes of

operation most firms did not. Yet all engaged in HR activity that enhanced firm performance

in some way.

Drawing this together to generalise to theory rather than more widely (Figure 1), we

argue that HR practice, sophisticated and otherwise, is possible in small firms. It flows from

owner manager agency, the exercise of which is underpinned by their understanding and

confidence of HR, and reflects particular cues to engagement. We argue for a continuum of

HR sophistication that allows owner managers to make sense of their structural relations and

deliver performance outcomes appropriate to and valued in their particular contexts.

Figure 1 here

13

Conclusions

In this paper, we have explored the uptake and application of SHRM in small firms,

seeking to explain the seeming paradox that formal HRM in this context is rare (Nolan and

Garavan, 2016), and yet application of HRM has been demonstrated to improve their

performance (Razouk, 2011). We argue that SHRM can be effective in small firms (Wu et al.,

2015), despite different modes of operation to large firms (Lai et al., 2016). We present a

model of how HR played out in these small firms that reflects the heterogeneity of the sector,

supporting a best fit approach (Timming, 2011) and responding to Lai et al.’s (2016) call for

a nuanced and contingent model of SHRM in small firms. This moves beyond both the

typically homogenous SHRM models that are built on normative assumptions and the

structural determinism that the ‘contextual turn’ in small firm employment research has

occasioned (Harney and Dundon, 2006).

Underpinning this model is owner manager agency and we follow Timming’s (2011)

in arguing that using size as the explanatory factor in small firm HR processes is overly

deterministic. Idiosyncratic responses and the key role of owner manager as decision-maker

(Edwards and Sengupta, 2010) meant that agency dominated over structural influences, such

as regulation and labour markets, in all the participant firms. This was reflected in a diversity

of approaches (Cassell et al., 2002), led mainly by owner managers despite the normative

presumption that an professional HR is required (Teo et al., 2011). While there is a body of

research on owner manager responses to regulation (Mayson and Barrett, 2017; Gilman et al.,

2015), much less is known about their responses to HR. Our findings are important in

demonstrating that owner managers were influenced by a series of cues including changes in

ownership, perceived need for compliance/formality (Phelps et al., 2007) and previous large

firm experience (Richbell et al., 2006). The supposed small firm HR deficit (Behrends, 2007)

appears, in our study, to be largely owner manager-dependent, according to their

management action (Granovetter, 1985) that results from agency and their sense-making

(Mayson and Barrett, 2017). Institutions really do seem to be what actors make of them

(Hauptmeier, 2012),

We have proposed a model of SHRM that outlines a continuum of HR sophistication,

arguing that both transformational and transactional interventions can be performance-

enhancing. In so doing, we call for a wider understanding of ‘strategic’, relevant to the small

firm context; here, it can be about confidence building and support (Rauch and Hatak, 2016)

and getting the basics right, as well as truly transformational work driven by sophisticated

HR practice. Further, an informal yet strategic approach may well be possible (Wu et al.,

2015) in a context where enactment is more important than formalisation (Harney and

Dundon, 2006). OM agency is again an important lens through which to examine

performance. Jones et al. (2007) note that its measurement is often challenging in small firms

and indeed we demonstrate its subjective nature, moving beyond a policy-maker

preoccupation with growth to embrace enhanced confidence, lifestyle concerns such as

‘keeping the fun’ and a better working environment. Against more typical measures, small

firms offered appeared to accept lower performance (Mole et al., 2016) and privileged family

priorities (Edwards and Sengupta, 2010). It is important to capture these measures of

‘success’. Despite this, we evidence , albeit in a small number of cases, transformational

engagement that achieved performance enhancements in ways often supposed not to be

possible in small firms. OM agency was critical to these examples. HPWS can operate in

small firms as commonly understood (Wu et al., 2015), but SHRM in the sense that it

14

delivers performance benefits can operate via transactional, bureaucratic practices (Godard,

2010). Our work makes an important theoretical contribution to defining strategic in ways

that reflect the small firm context and gaining understanding of what constitutes performance

success in that context.

15

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Table 1: Participants South East Number of interviews Participants

Architect Co 6 Owner managers, practice manager

Bar Co 2 Owner manager, practice manager

Building Co 4 Owner manager, business manager

Photography Co 3 Owner manager

Project Coordinator 2 SE PC

HR Consultants (7) 9 SE HRC 1-7

Plus 2 focus groups of project co-ordinator and HR consultants

Scotland

Arts Co 4 Director, office manager

Creative Co 3 Owner manager, business manager

Insurance Co 2 Owner manager

IT Co 2 Owner manager, supervisor

Learning Co 3 Owner manager, HR supervisor

Packaging Co 4 Owner manager, supervisor

Retail Co 3 Owner managers

Coordinator 2 S PC

Consultants (5) 9 S HRC 1-5

Plus 1 focus group of project co-ordinator and HR consultants

Midlands

Ark Co 3 Chief executive, office manager

Care Co 2 Owner manager

Comms Co 1 Accountant

Design Co 2 Owner manager

Rental Co 2 Owner manager

Support Co 2 Chief executive, HR officer

Coordinator 2 M PC

Consultants (7) 7 M HRC 1-7

Plus 1 focus group of project co-ordinator and HR consultants

Project manager 3 PM

Total Interviews: 82; Focus groups: 4 Quotes in findings indicate whether at beginning (T1), mid-point (T2) and end (T3) of the project cycle

19

Table 2: Overview of findings

20

Firm Sector Employees Led by Cue to engagement Nature of intervention

Intervention details Performance outcomes

South East

Architect Co.

Professional services

30 Practice manager Mixed OM support

Previous large firm experience Mixed Contract and policy review Performance appraisal and coaching

Business growth

Bar Co. Hospitality 25 Practice manager Lack of OM support

Previous large firm experience Transactional Contract and policy review Recruitment and training

Improved recruitment

Building Co. Construction 19 Business manager Lack of OM support

Education: CIPD qualified Mixed Contract and policy review Leadership coaching

Some improvement to operations

Photography Co.

Services 8 Owner manager Desire for compliance/formality (Employment Tribunal claim)

Transactional Contract and policy review Employment law support

Improved operations

Scotland

Arts Co. Charity 20 Director Delegated to Office Manager

Desire for compliance/formality (Employment Tribunal claim)

Transactional Contract and policy review Job roles and structures

Improved operations Firm survival

Creative Co.

Creative industries

38 Owner manager Delegated to Business Manager

Change in ownership (Buy out)

Mixed Contract and policy review Leadership development

Strategic-level operation

IT Co. Communications 17 Owner manager Change in ownership (buy out) Previous large firm experience

Transactional Contract and policy review Absence management

Improved operations

Insurance Co.

Financial services 22 Owner manager Previous large firm experience Change in ownership (family member joining)

Mixed Contract and policy review Competency matrix and training

Strategic-level operation

Learning Co.

Construction 20 Owner manager Previous large firm experience Change in ownership (family member joining)

Transformational Establishment of a Learning Academy

Business growth

Packaging Co.

Wholesaler 24 Owner manager Previous large firm experience Change in ownership (family member joining)

Transactional Contract and policy review Legislative advice

Improved operations Addressing poor performance

Retail Co. Retail 4 Owner manager Previous large firm experience Transformational Coaching and personal development Strategic-level operation

Business growth Midlands

Ark Co. Charity 11 Chief Executive Delegated to Office Manager

Perceived need for compliance/formality Mixed Job descriptions and person specifications Performance management scheme Wellness policy

Improved recruitment Addressing poor performance

Care Co. Social care 6 Owner manager Previous large firm experience Transactional

Contract and policy review Improved operations

Comms Co. Telecomms 26 Accountant OM Support

Perceived need for compliance/formality Transactional Contract and policy review Disciplinary and grievance handling

Improved operations

Design Co. Professional services

5 Owner manager Previous large firm experience Change in ownership (family member joining)

Transactional Contract policy and review

Improved recruitment

Rental Co. Property 4 Owner manager Perceived need for compliance/formality Transactional Contract and policy review Improved operations

21

Figure 1: a model of (S)HRM in small firms

i Anonymised for review purposes

Support Co. Charity 10 Chief Executive Delegated to HR officer

Perceived need for compliance/formality Mixed Contract policy and review Induction programme Development review process

Improved operations and communication