Reframing HRM in SMEs: Challenges and Dynamics 303134278X, 9783031342783

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Reframing HRM in SMEs Challenges and Dynamics Edited by Ciara Nolan · Brian Harney

Reframing HRM in SMEs

Ciara Nolan · Brian Harney Editors

Reframing HRM in SMEs Challenges and Dynamics

Editors Ciara Nolan Technological University Dublin Dublin, Ireland

Brian Harney DCU Business School Dublin City University Dublin, Ireland

ISBN 978-3-031-34278-3 ISBN 978-3-031-34279-0 https://doi.org/10.1007/978-3-031-34279-0

(eBook)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Paper in this product is recyclable.

Ciara-for Eoin, Emma and Poppy (always in our hearts). Brian-for my wonderful family, Sandra and Charli.

Acknowledgments

We would like to express our sincere thanks to all of our contributing authors for taking up the challenge of reframing HRM in SMEs. We are also extremely grateful to Alec Selwyn and Lauren Dooley for their support and guidance.

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Contents

1

Reframing HRM in SMEs: An Introduction Ciara Nolan and Brian Harney

1

HR Challenges 2

Regulation as a Management Challenge for Small Businesses Robert Wapshott and Oliver Mallett

3

HR Support for Enhanced Small Firm Performance Carol Atkinson and Ben Lupton

4

Owner-Managers and Environments of Learning in SMEs Alan Coetzer and Andreas Wallo

5

Challenging the Dehumanisation of HRM: Developing an Alternative Resilience Scaffold to the Theory of Firm’s Application in SMEs John Mendy

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Contents

HR Dynamics 6

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The Control-Based HRM Configurations Theory: Examining the Temporal Stability of HRM Systems in SME’s Brigitte Kroon and Wouter van Koppen

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The Role of Joiners for the Development of New Firms: A Literature Review and Future Research Agenda Evy Van Lancker and Mirjam Knockaert

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HRM in SMEs Under Turbulence: An Employee-Centric Perspective Margarita Nyfoudi

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Dynamics of Formality and Informality: Examining and Resolving Tensions Ciara Nolan and Brian Harney

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Conclusion Reframing HRM in SMEs: Navigating Challenges and Dynamics Brian Harney and Ciara Nolan

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Index

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Notes on Contributors

Carol Atkinson is Professor of Human Resource Management, based in Manchester Metropolitan University Business School’s Centre for Decent Work and Productivity. Her research interests center on creating decent work, including the intersection of gender, age and careers, and employment in the adult social care and small- and medium-sized enterprise sectors. Her work on SMEs comprises various projects, including one for Chartered Institute of Personnel and Development evaluating People Skills, a project that delivered HR support to small firms. She is currently working on a project on women’s health, including menopause transition, in a large NHS Trust in the north of England and has previously undertaken work on menopause transition in the police service. She was a co-author of the Department of Health and Social Care’s (2020) Gender Pay Gap in Medicine project. In adult social care, she has recently completed an ESRC Good Employment Learning Lab project where she led the adult social care learning lab exploring employment quality in the sector. She has undertaken similar work for Greater Manchester’s Independent Prosperity Review and Welsh Government.

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Alan Coetzer is a Sessional Lecturer in Leadership Development and Change Management at the University of Southern Queensland, Australia. Previously, he worked as a Senior Lecturer at both the Wellington Campus of Massey University in New Zealand and the Joondalup Campus of Edith Cowan University in Perth, Western Australia. His research interests include human resource management, human resource development, and workplace learning. Much of his research has examined these areas of interest in the SME context. He has published his research in journals such as Employee Relations, Human Resource Management Journal , Journal of Small Business Management, Journal of Business Ethics, Leadership & Organization Development Journal , Journal of Workplace Learning, Personnel Review, Human Resource Development International , and Human Resource Development Review. Brian Harney is Professor in Strategy & HRM at Dublin City University Business School. His research focuses on the intersection of Strategy and HRM, with a particular focus on SMEs, growth and knowledgeintensive sectors. He is the author of several books including Strategy and Strategists (Oxford University Press) and co-edited collections The Global Case Book (Routledge), Reframing HRM in SMEs (Palgrave Macmillan) and Strategic HRM: Research and Practice in Ireland (Blackhall). In 2020, he was the recipient of the Academy of Management, HR Division Innovative Educator award. He serves as an Associate Editor for Human Resource Management. He has guest edited special issues of International Journal of HRM , HRM Review, International Small Business Journal , and Employee Relations. He has been involved in successful competitive funding bids receiving in excess of 3 million Euro to support SME management development activities. In 2012, he delivered a 24-hour non-stop lecture for charity and was nominated for a President’s Award for Civic Engagement. Mirjam Knockaert is an Associate Professor in Entrepreneurship at Ghent University (Belgium) and a Visiting Professor at the TUM School of Management (Germany). She obtained her master in Business Economics from KU Leuven (Belgium) and her Ph.D. in Business Economics from Ghent University (Belgium), and worked in financial audit before joining academia. She worked at the University of

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Oslo (Norway) as an adjunct Associate Professor for ten years. Her research focuses on two specific research streams. First, she addresses research questions in the area of academic entrepreneurship and technology transfer. Second, she is interested in the human capital side of entrepreneurship, investigating the role of team members, boards of directors, and core employees for entrepreneurial ventures. Her research was published in internationally leading entrepreneurship journals such as Academy of Management Journal , Journal of Management, Journal of Management Studies, Journal of Business Venturing, and Entrepreneurship Theory and Practice. She is a field editor for Innovation and Entrepreneurship at the Journal of Business Venturing. Brigitte Kroon is Associate Professor Human Resource Studies at the Tilburg University School of Social and Behavioral Sciences. She is the Academic Director of the Bachelor programs HRS People Management and HRS Personeelwetenschappen. Her research focus is on extending HRM theory to workers and work contexts that are less standard in HRM research, such as small businesses, migrant-, agency-, and lowskilled work. Her work is published in journals like Human Resource Management and the International Journal of HRM . She is an expert member of the European Labor Authority’s working group on information about rights and responsibilities for individuals and employers on labor mobility. She also engages in research and executive education on evidence-based HRM, as a means to engage non-HR professionals, such as small business management, in improving decision-making about people in workplaces. Ben Lupton is Professor of Employment at Manchester Metropolitan University’s Decent Work and Productivity Research Centre. He teaches and researches in the field of Human Resource Management. His research interests include, HRM in small businesses, developing line manager skills, and payment systems, and he has published widely in leading academic journals on these and other topics. He has completed practically-focused research projects for a range of policymakers and academic funders. His recent work includes a report for CIPD’s on raising management capability in small firms, evaluation of the Greater

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Manchester Good Employment Charter and the current Good Employment Learning Lab project. Oliver Mallett is a Professor in Entrepreneurship at Stirling Management School, University of Stirling. He previously worked at Durham University Business School and Newcastle University Business School and, prior to joining academia, spent nearly 10 years working as a civil servant for the UK Department for Work and Pensions. His research focuses on the sociology of entrepreneurship, principally in terms of the experience of self-employment and employment relationships in small firms. He also researches the context for this activity in terms of enterprise policy and business support. John Mendy is a Senior Lecturer and Programme Lead for MSc HRM at the University of Lincoln, and Co-Chair for the Organisational Transformation, Change and Development Special Interest Group, British Academy of Management (BAM). His research interests are broadly in the areas of HRM, Organisational Studies, and OB, with specific foci on SMEs and MNEs in developed and developing countries. He has published extensively in a range of internationally respectable peerreviewed journals and his latest books are in the areas of Absurdity in the Workplace, Teaching and Learning of HRM and OB and Research Methods in Business and Management. He is an Associate Editor for Human Resource Development Quarterly and Advances in Developing Human Resources and an Editorial Board Member. He is a Senior Fellow, Higher Education Academy, and a Chartered Member of the Chartered Institute of Personnel and Development. Ciara Nolan is a Lecturer in Management, specializing in Human Resource Management, in the College of Business, Technological University Dublin City Campus. She is also a Fellow of the Higher Education Academy (UK). She has previously worked as a Lecturer in HRM at Dublin City University and Ulster University, as well as in HR practitioner and consulting roles in the retail and hospitality industries. Her main research interests focus on the dynamics of human resource management and development in small and medium-sized enterprises, with a particular emphasis on professional service firms

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and the tourism and hospitality industry. She has been part of several teams that have secured research funding to inform national policy on management development in Ireland. More recently, this includes a study on improving management development standards within Irish SMEs, which was funded by the Directorate-General for Structural Reform Support (DG REFORM) of the European Commission. Her most recent research centers on embedding sustainability literacy within the business school curriculum and she is part of two research teams that have secured research funding from the National Forum for Teaching and Learning. She has published her work in outlets such as The International Journal of Management Reviews, Tourism Management, Human Resource Development Quarterly, Human Resource Development International , among others. Margarita Nyfoudi is Associate Professor of HRM and Organizational Behaviour and Director of the Undergraduate Business Management Programmes at the University of Birmingham (UK). Her research interests lie at the heart of management examining how line managers and HR departments can motivate, inspire, engage, and develop employees and their teams to perform better and more effectively. She is particularly interested in times of crises and turbulence in SMEs. She has published in academic journals such as the British Journal of Management, Human Resource Management Journal , and Human Resource Management Review. For the past 11 years, she has collaborated with a diverse number of organizations to develop diagnostics and solutions that go beyond the surface and drive strategic priorities, including performance, innovation, and well-being. Her aim is to help individuals and teams thrive and experience a more meaningful work life. She is a Senior Associate Editor of the Journal of Organizational Effectiveness: People and Performance, a Fellow of the Higher Education Academy (UK), and a Chartered Member of the CIPD. Wouter van Koppen is a committed student pursuing an MSc degree in People, Organisation and Change student at the Rotterdam School of Management. He recently completed his BSc Human Resource Studies degree at Tilburg University, during which time he earned a Bachelor Scholarship allowing him to participate in a research project for a

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year. He brought valuable hands-on experience on working in the SME glasshouse horticulture industry to the project, because of his previous production and HR administrative side jobs in the sector. Evy Van Lancker is a research and teaching assistant at Ghent University (Belgium). Prior to starting her Ph.D. in Business Economics, she obtained her master in Business Engineering from Ghent University in 2017. During her Ph.D., she temporarily joined a startup as HR assistant to gain hands-on experience in different aspects of human resource management in entrepreneurial firms. In her research, she bridges the fields of human resource management and entrepreneurship, hereby employing both qualitative and quantitative research designs. She is particularly interested in the role and impact of employees in entrepreneurial firms and the evolution of these firms. She further investigates research questions that are related to early human resource management and organizational design choices made by entrepreneurs, ranging from people management practices to how roles evolve in entrepreneurial firms. Two of her doctoral studies have been accepted for publication in high-ranked journals, namely Human Resource Management Review and Journal of Business Venturing. Andreas Wallo is a Senior Associate Professor in Education in the Department of Behavioural Sciences and Learning, Linköping University, Sweden. His research interests include human resource development, human resource management, workplace learning, leadership, managerial work, and HR outsourcing. Specifically, he has focused on how managers, leaders, and HR professionals facilitate employee learning and development in daily work. He has published his research in journals such as Action Research, Leadership & Organization Development Journal , European Journal of Training and Development, Journal of Leadership and Organizational Studies, Journal of Workplace Learning, Personnel Review, Management Learning, Human Resource Development International , and Human Resource Development Review. He has extensive experience as an interactive researcher and has based most of his previous research on collaboration with industrial and public sector organizations. He is also a teacher at the bachelor’s and master’s programs in HRM and HRD at Linköping University.

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Robert Wapshott is an Associate Professor in Entrepreneurship and Innovation at the Haydn Green Institute, University of Nottingham. His research into entrepreneurship and small business management focuses on employment relationships and management practices along with the relationship between smaller businesses and their external environment.

List of Figures

Fig. Fig. Fig. Fig.

3.1 3.2 5.1 7.1

Fig. 8.1

Investing in people management capability (%) Comparisons of workplace effectiveness within sector (%) Integrative employee resilience framework Overview of current research and avenues for future research A framework for research on HRM in SMEs under turbulence

64 68 114 163 193

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List of Tables

Table Table Table Table

3.1 3.2 5.1 5.2

Table 6.1 Table 6.2 Table 7.1 Table 9.1

Small firms engaging with people skills Nature of intervention Companies, roles and responses Comparison of resilience, theory of the firm and resilience scaffold perspectives Functional requirements and possible HRM responses Configurations with HRM responses to functional requirements Description of systematic review methodology Definitions of formality and informality in a sample of HRM in SMEs investigations

60 62 109 117 135 139 161 209

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1 Reframing HRM in SMEs: An Introduction Ciara Nolan and Brian Harney

1.1

Introduction

Recent years have undoubtedly witnessed a growing literature on human resource management (HRM) in small and medium-sized firms (SMEs). We have seen several special issues of leading journals devoted to this topic over the past two decades, including Human Resource Management (Tansky & Heneman, 2003), Human Resource Management Review (Barrett & Mayson, 2006) and most recently, The International Journal of Human Resource Management (Harney et al., 2022). In addition, several pertinent systematic literature reviews (SLRs) have been published (Harney & Alkhalaf, 2021; Nolan & Garavan 2016; Van Lancker et al., C. Nolan (B) Technological University Dublin, Dublin, Ireland e-mail: [email protected] B. Harney DCU Business School, Dublin City University, Dublin, Ireland e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 C. Nolan and B. Harney (eds.), Reframing HRM in SMEs, https://doi.org/10.1007/978-3-031-34279-0_1

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2022). Dedicated chapters on SMEs have also appeared in recent editions of leading HRM textbooks (e.g. Torrington et al., 2020; Wilkinson et al., 2021). Despite such important progress, many questions remain unanswered, and the ultimate, perhaps surprising, conclusion is that extant literature on HRM in SMEs remains significantly deficient, fragmented, and equivocal. There are many reasons for this, not the least universalistic undertone of best practice HRM theory which assumes that HR issues and solutions as applied to large firms can be transplanted without distortion or adaptation to the SME context. There is a growing body of literature which recognises this deficiency, but much less is offered by way of alternative means of understanding and engaging with the challenges and specificities of managing people in a smaller firm context (Harney, 2021; Nolan & Garavan 2016). We hope this book will act as a catalyst to promote discussion and debate based on the topics explored and reframing advanced in the chapters that follow. In this introduction we begin by outlining the significance of SMEs and consider the challenges associated with understanding the term ‘SME’. We then detail some of the key characteristics of SMEs, as captured by the acronym RECIPE (resource constraints, environmental vulnerability; centralised control; informality; proximity of relations and employee dynamics) (Harney et al., 2022). We conclude with a summary of the contributions to this edited volume.

1.2

Motivation

The motivation for this book arose from a desire to address key limitations in current research exploring HRM in SMEs. One basic deficiency concerns the extent of attention directed towards SMEs. Systematic reviews continuously highlight a field neglected from mainstream research. A quarter century review of contributions on HRM in SMEs found that only 0.5% of articles published in Employment Relations/HRM journals paid dedicated attention to the SME context (Harney & Alkhalaf, 2021). Examining SME studies in the context of Human Resource Development, Nolan and Garavan (2016) point

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to a niche and isolated area requiring further engagement. The relative neglect of SMEs in the HRM literature can be partially explained by the fact that studies outside of the traditional, multinational corporate setting are regarded as unconventional contexts for management research, which leads to their exclusion (Bamberger & Pratt, 2010). Similarly, Corbett et al. (2014) observe the institutional pressures that perpetuate a homogenisation effect whereby attention to unconventional research sites is limited. A second deficiency identified in reviews is a tendency to draw upon a limited and narrow range of theories. Much traditional theorising and research in HRM can be characterised as what Alvesson and Gabriel (2013, p. 245) refer to as ‘formulaic’, which leads to the production of ‘more of the same, within the same conventions’ (ibid., p. 252). With this edited volume we sought to bring together a collection of chapters to not only direct greater attention to the SME context, but critically to advance understanding of the challenges and dynamics of HR issues in this context. We were keen to bring leading-edge international researchers together to reframe understanding of HRM in the SME context, including via novel theoretical perspectives and exploring hitherto underexplored areas. It is arguable that the preoccupation with conventional research settings has stymied development of the HRM field as there is a notable absence of studies that challenge the status quo. Of particular significance is a lack of critical reflection on the key assumptions underpinning dominant HR research and how they may (or may not) translate to an SME context. As Marlow noted some time ago, “engaging with, and even challenging, contemporary analyses of HRM when conceptualising them in small firms will ensure that ensuing research questions adopt a more theoretical and contextualised approach” (2006, p. 475). This book represents our efforts to push forward new research agendas and approaches to engage and accommodate HRM in SMEs. Notably, in so doing we move purposefully beyond tired debates about particular HR practices (e.g. recruitment, training) and an exclusive focus on performance. Bacharach and Bamberger (2007, p. 389) observe that “studies in which the examination of context is a ‘declared and substantive’ research objective are rare”. The approach taken in this volume privileges the

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SME context arguing that HRM in SMEs cannot be understood independent of this context (Harney et al., 2022; L’Écuyer et al., 2019; Mallett et al., 2019; Mayson & Barrett, 2017). The chapters included in this book therefore explicitly consider the broad range of external and internal contextual factors (both enabling and constraining) that shape the conceptualisation, manifestation and meaning of HRM in SMEs.

1.3

Defining Key Terminology

There are a number of key terms used throughout this book that require definition; notably HRM and SMEs. While the topic of HRM in SMEs might appear on the surface to be a relatively simple one, in practice, it is difficult to construct definitions of both terms. Attempts to map the conceptual terrain of both HRM and SMEs are fraught with challenges, which stem directly from the lack of definitional consensus as to what constitutes either HRM or an SME. As detailed by Katz et al., “with so many ways to define HRM and the SME, almost anything could be studied” (2000, p. 8).

1.4

What is an SME? Significance and Definition

The global socio-economic imprint of SMEs is significant. According to the OECD, SMEs account for approximately 99% of all firms, and 68% of all private sector employment, playing a vital role in sustainable economic growth, job creation (or contraction), innovation and social cohesion (OECD, 2021a). In emerging markets SMEs contribute up to 40% of GDP and generate 7 out of 10 new jobs (World Bank, 2021). SMEs experience heightened exposure to macroeconomic turbulence, making them particularly vulnerable to conditions of socio-economic disruption (Psychogios et al., 2019). In the current environment, this includes forces such as (de)globalisation, digitalisation, global pandemics, supply chain disruptions and geo-polotical uncertainties. SMEs were

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disproportionately impacted by the Covid-19 pandemic as they are overrepresented in the most exposed economic sectors (Harney and Collings, 2021; Thukral, 2021). Evidence suggests that many SMEs endured a sharp decline in revenue of between 30 and 50% (OECD, 2021b), increased failure rates (Kalemi-Özcan et al., 2020), with small business owners suffering from adverse mental health consequences such as burnout (Torrès et al., 2021). It is anticipated that SMEs will play a critical role in global recovery and renewal, not least as recent crises have highlighted their role as a backbone to socio-economic development (Belitski et al., 2022). Such developments make this book a timely endeavour. While the significance of SMEs is clear, efforts to understand what constitutes an SME are fraught with complexity and contradictions (Harney et al., 2022). After decades of debate, the only consensus about what constitutes an SMEs is that such firms are “clearly not large” (Storey, 1994, p. 8). Definitions of the term ‘SME’ exhibit considerable variance, which impedes efforts to achieve comparability in research studies around the globe. Quantitative definitions based on the numbers employed by the firm persist as the principal means of classifying firm size. A widely cited definition is that proposed by the European Commission (2020) which disaggregates firms as micro (less than 10 employees), small (10–49), and medium sized (5–249). This categorisation is further delimited by criteria relating to ownership (non-subsidiary/independence) and revenue limits. While the default position of relying on quantitative definitions may have pragmatic utility, this risks perpetuating an approach whereby the specificities of SMEs are overlooked (Torrès & Julien, 2005). Curran and Burrows (1986) refer to this as ‘size reductionism’ whereby the behaviour of the SME is explained by reference to whatever size criterion has been chosen. In privileging size, other contextual factors may be neglected or treated as secondary. Thus, while the size of the firm will invariably affect the nature of how the employment relationship is managed, HRM is not merely size-dependent. The unique characteristics of SMEs must be afforded attention to inform studies of HRM. Rather than reverting to the default position, in this book, we emphasise the importance of researching SMEs by being cognisant of their key characteristics

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and local ambitions, in addition to recognising the influence of important determinants such as the strategy in place and the nature of talent employed. In this way we also seek to avoid common flaws such as the ‘universalism composition fallacy’ (Nightingale & Coad, 2014) whereby entrepreneurial stereotypes are transposed to all SMEs. Relatedly we caution against any implicit ‘acorn to oak’ assumption concerning the desire and ability for growth. For SMEs performance does not always equate to a grandiose quest for competitive advantage, but rather aligns with purpose, relative performance goals, local differentiation, desire for sustainability, independence and/or succession across generations. Performance in an SME context can cover a wealth of outcomes as opposed to the narrow generation of financial wealth. The chapters in this book utilise a variety of different terminology such as small business, small firm and SME to analyse the context under investigation. A key uniting feature is an emphasis on key SME characteristics that serve to not only distinguish SMEs from larger firms, but also shape HRM in this context.

1.5

A RECIPE for Exploring Key SME Characteristics

Extant understanding of HRM in the SME context has been hindered by a lack of dedicated attention to the ‘specificities’ of the SME context (Torrès & Julien, 2005). Drawing on Harney et al. (2022, pp. 3177– 3180) these include resource constraints, environmental vulnerability, centralised control, informality, proximity of relations and employee dynamics as captured by the acronym RECIPE.

Resource Constraints In terms of resources, SMEs suffer from ‘liabilities of smallness’ meaning they face constraints in terms of finances, time and expertise often limiting their investment in HRM, including the inability or unwillingness to hire dedicated HR expertise. In essence SMEs are ‘not little big businesses’ (Welsh & White, 1981) as they typically suffer from severe

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cost constraints and challenges in introducing and sustaining so called ‘best practice’ HRM practices. By the same token, because SMEs are so labour intensive they are especially reliant on the effort and performance of all employees. This makes SMEs particularly vulnerable to the consequences of deficient HRM such as poor hiring decisions, below par performance and employee turnover or illness (Klofsten et al., 2021). It is important to also note that resource constraints can also serve as a catalyst for agility, creativity, and resourcefulness. In many instances, sophisticated HRM is not even viable or necessary in an SME context. For example, in terms of recruitment SMEs may draw on personal networks ensuring a degree of peer pressure in terms of performance expectations. Another approach might be to purposefully hold back from recruiting to ensure greater internal efficiencies or to avoid intensive selection tools but rather utilise probation periods as a ‘prolonged selection filter’ (Behrends, 2007, p. 67). As Moule concluded from his study of small button manufacturers what is rational in the context of decision making should be judged “by [desired] outcomes rather than organisational theories of best practice” (1998, p. 652).

Environmental Vulnerability SMEs are likely to be especially sensitive to socio-economic disruption (Lim et al., 2020; Psychogios et al., 2019). Unlike larger firms, SMEs typically lack buffers to protect against environmental turbulence and shock. Proximity to the external environment means SMEs are often ‘takers not makers’ of external conditions and demands be this competitive forces or labour market dynamics (Wapshott & Mallett, 2021). This ‘liability of volatility’ was exemplified during the Covid-19 pandemic, when many SMEs had to fight for survival and/or dramatically pivot their core business operations (Lundmark et al., 2020). Proximity to structural and market-orientation instability can lead to HRM which is more organic, adaptive, ad hoc, or even imposed (Harney & Dundon, 2006; Mendy, 2021). Allied with resource constraints, SMEs often struggle to engage in environmental scanning, which can result in knowledge deficiencies related to regulatory change or competitive dynamics. It

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can also be difficult for SMEs to position themselves as a viable employer of choice as they may lack legitimacy and recognition in the labour market.

Concentrated Control Owner managers or top teams often bear a significant ‘imprint’ on the approach taken to people management in SMEs (Baron & Hannan, 2002; Harney & Alkhalaf, 2021). Concentrated ownership and control means that decision making often resides with one individual as the owner manager, on a familial basis or via a small dominant coalition. Concentrated control is frequently associated with an ideology of unitarism or claims of a family like atmosphere in SMEs. The implications can be a reluctance to delegate HR tasks and selective use of voice, with limited sharing of financial or strategic information. This points to the longstanding recognition of varying leadership styles in impacting employee experiences in SMEs (Goss, 1991; McClean & Collins, 2019). Concentrated control also serve to put the parameters on performance outcomes expected and desired within SMEs. Often these take the form of survival, succession, local advantage, or socio-material wealth as opposed to hard financial measures (Wach et al., 2016). For example, while many assume SMEs to be gazelle like organisations solely motivated by growth ambition, in reality this is very much the exception. For the majority of small firms, the reality often reflects a culture of survival and/or a drive by owner managers to achieve their desired status of independence (Stanworth & Gray, 1991). This points to varying frames of reference and local understanding when exploring HRM decisions and outcomes in an SME context.

Informality A common feature that will be identified across the chapters in this book is the emphasis on informal practices and operation in SMEs. This is in many ways a direct manifestation of resource constraints, environmental vulnerability and concentrated control. A preference for informality

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enables flexibility, influence and cost saving. Informality creates an interesting paradox when it comes to HRM in SMEs. While informality can provide difficulties in terms of justice, consistency and challenges for scaling and growth, it can equally form the basis of advantage fostering local accommodation and commitment and at times serving as a viable substitute for formal HR practice (Bacon et al., 1996; Patel & Conklin, 2012). Of course in practice informality may well be variable across HR practices e.g. less common in areas mandated by institutional or regulatory pressure (e.g. grievances) but more prominent in training and development e.g. learning on the job. Capturing this dynamic HRM in SMEs might be said to be ‘intuitive’ co-evolving with the external environment (Buisson et al., 2021).

Proximity of Relations The size effect of SMEs means a relatively flat structure and smaller span of control resulting in more proximate social and spatial relations between managers and employees. This suggests visibility of SME leaders, enhanced chances of on-going employer-employee interactions and that employees are likely to have a direct line of sight to business challenges and end-user experiences. This proximity of relations can facilitate a negotiated order as owner managers seek to control worker output frequently through local accommodation (e.g. flexible working hours, community hiring practices, opportunity for voice and shared responsibility) (Ram, 1991; Wapshott & Mallett, 2013). Of course proximity of relations cannot be equated with a style of relations, as it just as easily facilitates an iron-fist of rule as a family-like culture, or indeed variants of both. Interesting HRM issues also arise when the proximity of relations is disrupted, be that via the introduction of new hires to the firm, attempts at formalising practices, dealing with the consequences of growth in employee numbers, or succession/change of leadership (Harney et al., 2022).

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Employee Dynamics A final characteristic of SMEs relates to the nature of work and employee experiences in this context. While we can caution against early accounts advocating a deterministic self-selection thesis (Ingham, 1967) it is equally clear that there are unique features shaping the work experience in a smaller firm context (Van Lancker et al., 2022). Examples might include the opportunity to work across multiple roles, having a direct line of sight with the value created by products or services and/or regular interactions with management. These have the potential to lead to intrinsic motivation, discretionary effort and greater engagement of employees working in an SME context, even in the absence of sophisticated HR practices, as evidenced by some research in this area (Bryson & White, 2019; Forth et al., 2006; Mustafa et al., 2021). Experiences of work in the SME context are likely to draw attention to interesting questions related to local commitment, perceptions of justice, and the impact of relativity when it comes to factors such as pay and conditions. Of course, we should be cautious to not promote a singular or stereotypical view of SMEs. Paternalistic relations can easily have an undercurrent of harsh work, intensification and control.

1.6

What is Human Resource Management?

This book adopts an ‘analytical approach’ to HRM (cf. Boxall et al., 2007). Following Boxall and colleagues, the aim of utilising an analytical approach is ‘to understand what managers do and why they do it before we offer any sort of prescription for what…they should do’ (Boxall & Purcell, 2016, p. xi). For the present purposes, the term analytical HRM offers three important contributions. Firstly, it presents a mechanism for accommodating HRM in small firms as HRM is regarded as a “fundamental activity in any organisation in which human beings are employed” (Boxall et al., 2007, p. 1). By implication nearly all firms will have some form of HRM, however informal (Cardon & Stevens, 2004). Second, the concept of analytical HRM avoids the limitations of approaches which narrowly impose HRM as a preconceived ideal

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(e.g. a certain bundle of practices), perceive HRM activities as the exclusive remit of an HR department, or treat HRM as a specific universalistic style of people management. The stress, instead, is on the necessity of the process not on predetermining or dictating the form it will take; “HRM happens in some form or another” (Boxall et al., 2007, p. 1). This avoids the common problem in much HRM analysis whereby its meaning is exhausted by those who prescribe it (Ezzamel et al., 1996, p. 63). Very much connected to this is the third and important point that analytical HRM moves towards embracing the inevitability of tension and contradiction, and so steps away from a unitarist and normative agenda. HRM, so conceived, is the practical activity of people management, a ‘warts and all’ type depiction. The power and politics inherent in the operation of employment relationship is acknowledged through the notion of ‘plural’ HRM goals and ‘strategic tensions’ (Boxall & Purcell, 2008, p. 280). We therefore adopt a pragmatic approach and treat HRM in a descriptive manner. Such an approach has the advantage of affording a degree of flexibility in capturing a broad range of activity, whether labelled HRM or not. This tactic similarly finds support in the empirical work of Kitching (2007) and Hill (2004). An analytical approach to HRM also complements the focus of the book given its primary concern with locating activities and processes within their wider context (Boxall et al., 2007). Moreover, a context-based conceptualisation of HRM assumes particular importance because of its ability to tactically engage (Jacques, 1999) with SME practice and accommodate its specific challanges and dynamics (Nolan & Garavan, 2014).

1.7

Structure of the Book

This edited collection brings together insights from thought leaders in the field of HRM in SMEs. The chapters are grouped into two key sections: (1) HR Challenges, and (2) HR Dynamics. We conceptualise HR challenges as encompassing the wide range of potential challenges confronted by SMEs as they navigate the effective management of the workforce. SMEs face unique challenges directly stemming from their size, which may create pressures, tensions and dilemmas with regard

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to people management. These include the liabilities of smallness and newness, as well as resource challenges pertaining to attraction, development and retention of the workforce. In turn, these challenges can give rise to unique HR dynamics in the SME setting. The concept of HR dynamics refers to the patterns of HRM in the SME context that may evolve and alter over time. The heterogeneity of HRM in SMEs is widely observed and can be further complicated by the growth intentions of the firm. An explicit focus on dynamics will allow us to consider how the interplay of a range of external and internal contextual factors coalesce to shape the nature and form of HRM in SMEs, including the degree of (in)formality adopted. In presenting content in this way we move beyond traditional accounts which are organised by HR function or practice area, e.g. recruitment, performance, training etc., and equally move beyond tired considerations of the applicability of HR, e.g. HR and performance, best practice/best fit etc.

Part I—HR Challenges Part I of this book contains 4 chapters that address various HR challenges facing SMEs. In Chapter 2, Wapshott and Mallett address the implementation of employment regulation as a managerial challenge. They emphasise the importance of understanding how owner-managers navigate their business support journeys to develop resources to address this critical challenge. In Chapter 3, Atkinson and Lupton focus on the potential impact of HR support as means of meeting the challenges posed by the adoption of strategic HRM within small firms. They present findings from a CIPD project which offered free bespoke, specialist HR support to a selection of small firms across the UK. The chapter emphasises the importance of capturing both the content and process of HR, as well as being sensitive to the prevailing influence of the owner-manager in order to better understand small firm engagement with HR support services. Coetzer and Wallo further unpack the impact and challenge of owner-manager influence on HRM in small businesses in Chapter 4. They examine how the unique features of small businesses may present challenges to owner-managers in the enactment of their central role as

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enablers of learning. In the final chapter of Part I, Chapter 5, Mendy concentrates on the resource constraints facing managers in SMEs in crisis situations when implementing core HRM practices. He presents two models (the resilience scaffold and resilience framework) which emphasise the importance of resilience development to deal with HR implementations challenges in SMEs.

Part II—HR Dynamics Part II of this book includes 4 chapters that address HR dynamics in SMEs. The chapters pay particular attention to a range of contextual characteristics of SMEs that may serve to explain the heterogeneity of HRM practice in the SME setting. In Chapter 6, Kroon and van Koppen explore the unique context of small glasshouse horticultural businesses. They compare the HRM practices of 8 case firms to the dimensions of the control-based configurations theory. Their findings emphasise the utility of this perspective for capturing and explaining the variation of HRM practices firms facing similar conditions (equifinality), as well as the outcomes for organisational effectiveness and employee wellbeing. In Chapter 7, Van Lancker and Knockaert present a review and research agenda pertaining to the distinctive role of joiners and the role they play in the performance and development of new and entrepreneurial ventures. They advocate a process lens to understand joiners from a more dynamic perspective in order to capture their evolutionary journey in the new venture setting. In Chapter 8, Nyfoudi draws upon the novel theoretical framework of Coleman’s boat to examine how macro-level influences such as turbulence and micro-level elements in the form of employee perceptions interact and shape the emergence of SME-specific HR outcomes. In order to achieve a more comprehensive understanding of HRM in turbulent SMEs, the chapter advocates the need for multilevel research designs incorporating much-needed employee perspectives, managerial perceptions, as well as external environmental influences. In the final chapter of Part II, Chapter 9, Nolan and Harney examine the tensions inherent in the formality-informality dynamic in SMEs.

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The authors emphasise the importance of capturing the logic underpinning the adoption of degrees of (in)formality by being more sensitive to issues of context. The chapter proposes that formal and informal HRM may be simultaneously complementary and substitutive. It argues for the adoption of more nuanced understanding and operationalisation of HR informality if this key feature of SMEs is to be captured and accommodated in research endeavours. Chapter 10 provides a summary and conclusion by revisiting the RECIPE framework (resource constraints, environmental vulnerability, centralized control, informality, proximity of relations and employee dynamics), exploring how our understanding has been advanced as well as highlighting unanswered questions that remain.

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Lundmark, E., Coad, A., Frankish, J. S., & Storey, D. J. (2020). The liability of volatility and how it changes over time among new ventures. Entrepreneurship Theory and Practice, 44 (5), 933–963. Mallett, O., Wapshott, R., & Vorley, T. (2019). How do regulations affect SMEs? A review of the qualitative evidence and a research agenda. International Journal of Management Reviews, 21(3), 294–316. Marlow, S. (2006). Human resource management in smaller firms: A contradiction in terms? Human Resource Management Review, 16 (4), 467–477. Mayson, S., & Barrett, R. (2017). A new argument using embeddedness and sensemaking to explain small firms’ responses to employment regulation. Human Resource Management Journal , 27 (1), 189–202. McClean, E., & Collins, C. J. (2019). Expanding the concept of fit in strategic human resource management: An examination of the relationship between human resource practices and charismatic leadership on organizational outcomes. Human Resource Management, 58(2), 187–202. Mendy, J. (2021). Performance management problem of four small and medium-sized enterprises (SMEs): Towards a performance resolution. Journal of Small Business and Enterprise Development, 28(5), 690–710. Moule, C. (1998). The regulation of work in small firms. Work, Employment and Society, 12(4), 635–654. Mustafa, M., Coetzer, A., Ramos, H. M., & Fuhrer, J. (2021). Exploring the effects of small- and medium-sized enterprise employees’ job satisfaction on their innovative work behaviours: The moderating effects of personality. Journal of Organizational Effectiveness: People and Performance, 8(2), 228–250. Nolan, C., & Garavan, T. N. (2014). HRD in smaller firms: Current issues, insights and future directions for research and practice. In N. E. Chalofsky, T. S. Rocco, & M. L. Morris (Eds.), Handbook of human resource development (pp. 526–546). Wiley. Nolan, C. T., & Garavan, T. N. (2016). HRD in SMEs: A systematic review of the literature. International Journal of Management Reviews, 18(1), 85–107. Nightingale, P., & Coad, A. (2014). Muppets and gazelles: Political and methodological biases in entrepreneurship research. Industrial and Corporate Change, 23(1), 113–143. Organisation for Economic Co-operation and Development (OECD). (2021a). SME and Entrepreneurship Outlook 2021. Organisation for Economic Co-operation and Development. Organisation for Economic Co-operation and Development (OECD). (2021b). OECD policy responses to coronavirus (COVID-19): One year of

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SME and entrepreneurship policy responses to COVID-19: Lessons learned to “build back better” . Accessed 19 June 2022. Available from the website of the OECD: https://www.oecd.org/coronavirus/policy-responses/one-yearof-sme-and-entrepreneurship-policy-responses-to-covid-19-lessons-learnedto-build-back-better-9a230220/ Patel, P. C., & Conklin, B. (2012). Perceived labor productivity in small firms—The effects of high–performance work systems and group culture through employee retention. Entrepreneurship Theory and Practice, 36 (2), 205–235. Psychogios, A., Nyfoudi, M., Theodorakopoulos, N., Szamosi, L. T., & Prouska, R. (2019). Many hands lighter work? deciphering the relationship between adverse working conditions and organization citizenship behaviours in small and medium-sized enterprises during a severe economic crisis. British Journal of Management, 30 (3), 519–537. Ram, M. (1991). The dynamics of workplace relations. International Small Business Journal: Researching Entrepreneurship, 10 (1), 44–53. Stanworth, J., & Gray, C. (1991). Bolton 20 years on: The small firm in the 1990s. Paul Chapman Publishing. Storey, D. J. (1994). Understanding the small business sector. Routledge. Tansky, J., & Heneman, R. (2003). Introduction to the special issue on human resource management in SMEs: A call for more research. Human Resource Management, 42(4), 299–302. Thukral, E. (2021). COVID-19: Small and medium enterprises challenges and responses with creativity, innovation, and entrepreneurship. Strategic Change, 30, 153–158. Torrès, O., & Julien, P. A. (2005). Specificity and denaturing of small business. International Small Business Journal: Researching Entrepreneurship, 23(4), 355–377. Torrès, O., Benzari, A., Fisch, C., Mukerjee, J., Swalhi, A., & Thurik, R. (2021). Risk of burnout in French entrepreneurs during the COVID-19 crisis. Small Business Economics, 58(2), 717–739. Torrington, D., Hall, L., Taylor, S., & Atkinson, C. (2020). Human resource management (11th ed.). Pearson Education Limited. Van Lancker, E., Knockaert, M., Audenaert, M., & Cardon, M. (2022). HRM in entrepreneurial firms: A systematic review and research agenda. Human Resource Management Review, 32(3). https://doi.org/10.1016/j.hrmr.2021. 100850. Wach, D., Stephan, U., & Gorgievski, M. (2016). More than money: Developing an integrative multi-factorial measure of entrepreneurial success.

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HR Challenges

2 Regulation as a Management Challenge for Small Businesses Robert Wapshott and Oliver Mallett

2.1

Introduction

It can be difficult to pin down Human Resource Management (HRM) in small firms. These organisations tend not to have any designated HR role, HR Department or dedicated HR business partner. Most HRrelated tasks are carried out on an ad hoc basis and activities such as on-the-job training, or informal forms of performance appraisal, are best identified as ‘functional equivalents’ of similar tasks performed in medium-sized and larger organisations, rather than simply scaled down versions of the same activities (Kroon & Paauwe, 2021; Ram, 1999). However, there are also HR-related decisions and actions that require an R. Wapshott (B) University of Nottingham, Nottingham, UK e-mail: [email protected] O. Mallett University of Stirling, Stirling, UK e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 C. Nolan and B. Harney (eds.), Reframing HRM in SMEs, https://doi.org/10.1007/978-3-031-34279-0_2

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engagement with sources of external advice and guidance. In much the same way that a manager in a larger organisation may contact their HR Business Partner, an owner-manager of a small firm may need to seek guidance for their management practices, in this case from outside the firm. An interesting context in which to explore this important aspect of HR practices in small firms is in relation to employment regulation. Business regulations are a common source of difficulty and complaint for owner-managers of small firms, with employment regulation often singled out for their ire (Mallett et al., 2019). Examples of employment regulation include rules around unfair dismissal, health and safety or minimum wages and working relationships. In the context of small firms, employment regulation represents ‘one more thing’ for the owner-manager to deal with, while also being less malleable than other management tasks, which might be more readily tackled through various workarounds, informal accommodations and ‘negotiated order’ (Edwards et al., 2004; Ram, 1994). As a result, the specific details of regulations do not garner necessary attention and this is reflected in consistent findings that owner-manager complaints are based on poor levels of understanding, both on the specific regulations being criticised and on the direct ways in which they impact the business (Betton et al., 2019; Hart & Blackburn, 2005; Marlow, 2003). Further, this can be extended to consideration of a regulatory context, encompassing all forms of social and economic influence acting as forms of regulation on small firms and their owner-managers, which may include large, powerful multinationals, industry expectations or other normative influences (Mallett, 2019). The context from which we are writing is the United Kingdom. Small firms play a significant role in the UK’s national economy, in terms of enterprises, jobs and economic contribution. According to recent government statistics, of the 5.6 million private sector businesses in the UK, 5.5 million have 0–49 employees, account for nearly half of private sector employment and 36% of turnover (UK Government, 2021). Although such broad categories as ‘SME’ or ‘small firm’ mask significant diversity within them, the business environment has presented numerous common challenges in recent years. These challenges have arisen in general terms through the Covid pandemic as well as with particular

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relevance to regulation in light of Brexit (the process by which the UK withdrew from the European Union), creating uncertainties and significant pressures on already resource constrained environments (De Lyon & Dhingra, 2021). The impacts of Covid and Brexit continue at the time of writing, and it seems likely that the implications of both will unfold in the years ahead, as on-going management challenges for small firms. In this chapter, we argue for a reframing of employment regulation as a management challenge within a broader regulatory context and suggest that this reframing can lead to better understanding of the difficulties reported by small firms. This reframing is rooted within an understanding of the distinctive characteristics common to many small businesses and how these characteristics shape the practices associated with a broadly conceived notion of HRM. We follow Nehles et al. (2006) in considering the implementation of HRM as a management challenge, that is as a practical, ongoing, everyday accomplishment. In doing so, we highlight how a lack of resources within many small firms can necessitate an engagement with external sources of support, advice and guidance. Building on this reframing of HRM in SMEs, we discuss regulation as a management challenge and how owner-managers of small firms engage with it. We discuss the ways in which, when considering small firms, ‘HRM in SMEs’ might usefully be considered more broadly than a specific set of management concerns and we explore the implications of this reframing. We conclude by setting out a research agenda to advance understanding of how owner-managers meet HR-related and other challenges facing them in running their businesses.

2.2

Characterising Small Firms

Before we explore employment regulation as a specific management challenge, it is important to set out in detail the specific context in which such management takes place and some of the complexities and difficulties that can arise in the conduct of HR-related management practices in small firms. In this chapter we focus specifically on small firms (broadly defined as those with fewer than 50 employees) as potentially distinctive

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from medium-sized firms, which are likely to be better resourced, for example in the HR expertise available within the firm. Among small firms we can identify some common characteristics that we might associate to a greater degree with their practices than with medium-sized and larger organisations. Following Wapshott and Mallett (2015, 2021), we can therefore characterise an ‘ideal type’ of small business. This is not ‘ideal’ in the sense of what a firm should aspire to but, instead, an analytical construct that provides a valuable means of accentuating the key features that tend to differentiate these businesses from larger organisations. In reality, small firms differ from one another substantially but, analytically, as we will demonstrate in this chapter, it is useful to identify and explore the features of relevance to this ‘ideal type’ of small firm. This provides a valuable starting point for considering practices in such firms in general terms and then, through comparison with this ideal type, to explore the situation for specific businesses. In a broad sense, management is typically concerned with how well those leading an organisation can marshal available resources to meet the challenges posed by its external environment (Starbuck, 1965; Stinchcombe, 1965). The resources available to meet the challenges posed by the environment are typically limited in small firms. While there are exceptions, many small firms lack financial resources, time, equipment or potentially expertise in key areas of the business. The characteristic of ‘resource poverty’ (Welsh & White, 1981) implies that managers might need to make decisions not only about which challenges require responses as a priority, but also how far the organisation needs to respond; doing ‘just enough’ might have to be good enough in some instances. The resources available to a firm will clearly influence business practices and the ability to engage positively with regulation: ‘Where businesses lack the resources to develop new practices and products, their capacity to adapt to regulation is constrained’ (Anyadike-Danes et al., 2008, p. 134). Importantly, resources that may be lacking here include the experience and expertise within the firm that is necessary to identify, interpret and apply new or amended regulations. A lack of HR expertise is an interesting and potentially complex example of this lack of

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resources and one that is directly relevant to dealing with certain forms of regulation. Partly related to the lack of resources in the firm, a second important feature for small firms when considering their relation to a broad regulatory context is that they are generally not well-placed to exert significant influence over their external environment (Wapshott & Mallett, 2015). Where large firms can often exert pressure when negotiating with their supply chain, invest in shaping customer preferences or have an impact on the development of regulations, individual small firms are rarely able to exert such influence. In the long run, for example, their small size means that they are likely to be at a disadvantage in negotiating with larger firms which can dictate their practices (Rainnie, 1989). Think for example of the small firm trying to negotiate terms with a multinational supermarket chain stocking its product on their shelves. Despite their overall significance in aggregate, in practice, ‘SMEs’ are not united around a common perspective or purpose such that their sheer number converts into leverage on their wider environment. Instead, individual small firms tend to be takers not makers of the external environments in which they operate, and which pose challenges they must overcome. While limited resources and the challenges of exerting influence in the external environment are restrictive for small firms, this does not mean that owner-managers are entirely constrained in their actions (Ram & Edwards, 2003). In the context of small organisations, management influence can helpfully be considered in terms of ‘owner-manager prerogative’. That is, the owner-manager runs their business as they see fit. Understanding how organisations might respond to management challenges needs to consider the significant influence of those who own and manage the firm on a daily basis (cf. Ram, 1994; Wapshott & Mallett, 2013). This can also relate to a form of hubris in owner-managers, where they may be reluctant to engage with other points of view, advice or external sources of support (Betton et al., 2019). The mix of owner-manager prerogative, powerful external influences and the potential for regular, unpredictable change as well as a lack of resources mean that small firms frequently exhibit informal and ad hoc approaches both to the management of tasks and their completion (Mallett & Wapshott, 2014; Rainnie, 1989; Ram, 1999; Ram et al.,

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2019; Wapshott & Mallett, 2015). They often rely on flexibility in the routines developed to meet the challenges posed by the firm’s environment and scope for different approaches to be taken as the need may arise. While informal and ad hoc approaches to working might be particularly difficult in a larger firm, owing to practical considerations of coordination, small firms have much closer spatial and social relations, which can ease such coordination problems. If people are working relatively closely together, if interactions are frequent and easily observed, colleagues can know what is going on without a need for standardised procedures to be followed. In contrast to the organisation, job specification and hierarchical structures of larger businesses, in small firms, employees can be expected to get involved in a variety of activities and when a task needs to be completed there is unlikely to be consultation of formalised job descriptions. As a result, any employee in a small firm may find their role changing, for example in response to a new opportunity or a demand from a powerful customer. How they are managed through this change, how new skills are developed or feedback on their performance is provided, are all likely to be on an informal basis; ad hoc and reactive rather than through long-term strategies, formal policies or routinised practices. Importantly, where functional equivalents emerge in these contexts, they should not be viewed as deficient in relation to HR ‘best practice’ identified in large business (Behrends, 2007; Kroon & Paauwe, 2021). Such functional equivalents as recruiting within trusted existing networks, on-the-job training, or regular, unstructured forms of feedback are functional. Informality and reactive practices, low job specialisation or centralised control through an on-site owner-manager provide forms of agility that can be highly effective in small firms. Further, informal working environments characterised by close spatial and social proximity can develop supportive, inclusive forms of organisational culture and a sense of belonging akin to the romanticised conception of a close-knit family firm. Nonetheless, lacking resources and being limited in their ability to exert influence on their external environments, small firms can still face limitations, especially when encountering challenges that are at odds with their established ways of working. How might the owner-managers of

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small firms seek to engage with significant management challenges such as those that may arise from the regulatory context in which they operate? One possibility is to consider the external resources that owner-managers might, or might not, be able to draw upon. We can consider these potentially available external resources as available from what we can term an ‘enterprise industry’.

2.3

The Enterprise Industry

There is an abundance of potential external resources and support available for small firms. Further, the advice, guidance and other support targeted at small firms relates to every aspect of the business. In mapping this provision, Wren and Storey (2002) differentiate between ‘soft’ business support, including advisory assistance, sharing best practice, signposting in response to market failures; and ‘hard’ business support, which includes loan guarantee schemes, subsidised loans or capital grants. The sheer number of providers, schemes and initiatives, both public and private sector, that exist as a market offering services and products to small firms in the UK can be usefully considered as an ‘enterprise industry’ (Bennett, 1998; Greene et al., 2008; MacDonald & Coffield, 1991; Ramsden & Bennett, 2006). The enterprise industry ‘is constituted by organisations and actors, including membership, professional services and advocacy organisations, that undertake roles in relation to SMEs on full-time or less frequent bases’ (Mallett, 2019, p. 96). It is an industry because, as a key part of the service economy, this large group of organisations offers services directed at small firms as consumers, sometimes on a voluntary basis but often as a form of economic activity, that competes to provide services to small firms. An important factor in understanding this market for business support services and the organisations who compete to provide them, is a surprising lack of demand. Findings presented in the panel report of the Longitudinal Small Business Survey 2020 indicate declining proportions of panel firms seeking business advice or information externally, beyond a ‘casual conversation’. Demand for such guidance fell from

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24.7% of SMEs in 2018, to 17.2% in 2020, with larger SMEs and those in Business Services being the most active in seeking support (BEIS, 2020a). A great deal of this support, and questions about low levels of demand, has also attracted government interest as part of a wider enterprise policy agenda that involves governments providing support, subsidies and promotion for these services (Mallett & Wapshott, 2020). Understanding the figures and impacts of government spending in this area is made difficult by such information not being shared widely by governments (Fotopoulos & Storey, 2019), but estimates for the UK have placed the figure around the £10 billion mark. Gibb (2000) describes how such repeated and long-term government interventions in support for small businesses have created and reinforced support structures that often involve subsidised programmes of training, finance and counselling. Ram et al. (2013) extend this picture by suggesting how such a subsidised industry creates vested interests where many intermediaries are constantly having to ensure they win government funding to secure their own futures. The complexity of the enterprise industry and how it is accessed also involves a blurring between different providers and different types of service. Kitching’s (2016) study of SMEs and regulation found that traditional distinctions between formal and informal sources of support did not prove practically useful. Kitching found that external advisers would ‘often straddle this binary divide’ (p. 609). Owner-managers would informally consult family members and friends with formal roles as legal or HRM professionals, business owners themselves or government employees. This included advice on how to interpret generic sources of guidance and support that needed application to the specific business or were difficult to interpret. Kitching’s study also emphasised the importance of these external advisors in ‘mediating the influence of regulation on small employers by providing information and advice that constructs their image of the law’ (p. 613). The services on offer within the enterprise industry have also altered over time in response to technological changes and forms of market demand. Jarvis and Rigby’s (2012) study of accounting firms identified the development of services offering human resource and employment

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advice, finding extensive advice and support ranging from signposting to sharing their own experiences to accompanying their clients to employment-related meetings. Jarvis and Rigby found that the degree to which such limited expertise could be tailored to the ends of different clients is unclear, leading to concerns, especially among the smallest accountancy firms, about giving advice in areas in which they lacked expertise (e.g. reputational damage, litigation). Perhaps as a result, the accountancy firms, especially where mid-sized, employed HR-qualified staff or entered into partnership with HR specialists. In these ways, the support on offer to small firms where they lack resources continues to develop and expand. Nevertheless, the processes of identifying, negotiating, strategically utilising and implementing the support and advice on offer risks becoming an additional management challenge facing these firms in and of itself. It is interesting to explore the management practices of small firms and their engagement with (or lack thereof ) the enterprise industry in relation to a key management challenge facing those running small firms: regulation.

2.4

Regulation as a Management Challenge

To explore the issues of limited resources within the firm and how external services may be utilised, the ways in which firms engage with their regulatory context provides an excellent area for examination. In this chapter, we focus specifically on employment-related state regulations, which can be examined with relatively clear, somewhat objective and standardised data. Employment regulation is also frequently reported as a persistent and major challenge by owner-managers, serving as a significant constraint on their ability to grow their businesses (Mallett et al., 2019).

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Owner-Manager Attitudes and Actions Regarding Regulation Small businesses, as characterised above, can experience regulation as a significant management challenge. As we begin to explore this in detail, an important starting point is how owner-managers of small firms perceive and engage with their regulatory environment. While this can be related to all forms of influence within the regulatory context, here we focus on state regulations. Regulation and red tape are often reported as obstacles to small firm growth. The most recent Longitudinal Small Business Survey (BEIS, 2021) lists ‘regulation and red tape’ as an obstacle for 35% of SMEs, placing behind the Covid-19 pandemic (71%) and ‘competition’ (37%). It is notable that most surveys do not ask about specific regulations and how exactly they impact business growth, reflecting suggestions that what is expressed is a general dissatisfaction and that owner-manager understanding is often vague on the details of employment regulations (Hart & Blackburn, 2005; Marlow, 2003). It is also worth noting the pejorative language of ‘red tape’. Nonetheless, concerns about regulation and its potentially negative impact on small firms persist in surveys of owner-manager perceptions (Mallett et al., 2018). The negative associations between regulations and their effects on small businesses, as reported by business owners, might stem, at least in part, from how the costs and benefits of regulation are distributed. As Betton et al. (2021) have suggested, while the costs of compliance fall on the firm, the benefits might accrue elsewhere, for example in the form of broader societal benefits. Betton et al. (2021, p. 79) go on to explain that this separation of where costs are incurred and benefits accrue ‘…likely explains why small–firm owner–managers have previously struggled to identify regulatory benefits without prompting…’. The Federation Small Businesses (FSB, 2021) has reported confusion among small businesses about regulations in the post-Brexit environment. The same research reported that 31% of small firms ‘say employment issues are the most burdensome regulations’ (p. 3). In the FSB’s analysis, part of the cause for problems encountered by small firms, and perhaps a contributing factor for the generalised dissatisfaction, is the

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‘cumulative burden of regulation’ (p. 8). Rather than seeking to understand the impacts of a single regulation on small firms, the FSB argues that a proper assessment of regulation needs to account for how regulations can have implications for different aspects of a business, all of which need to be complied with. Extending this observation, in the particular case of owner-managers trying to meet their regulatory obligations, these tasks become an ongoing, everyday part of running the business. Further, they are vying for attention alongside potentially more immediate concerns such as serving customers, purchasing raw materials, chasing invoices and so on. Further, owner-managers often report that regulations do not shape their management practices (see e.g. Jordan et al., 2013). Returning to Betton et al.’s (2019) work on micro-enterprises in the hospitality sector, they report evidence that owners’ ‘perceived knowledge’ and their ‘actual knowledge’ of regulation are weakly correlated. In other words, relying on owners’ self-assessment of their knowledge of regulations, without some means of verification, could lead to misjudgements about what changes are required to comply. Such a finding appears to lend support to Jordan et al.’s (2013) classification of ‘confident ignorance’. Nonetheless, other studies have suggested that, while owner-managers might not be aware of it, regulations do shape their activities and ‘become absorbed into business routines such that they become a takenfor-granted, barely visible, condition of conducting business’ (AnyadikeDanes et al., 2008, p. 28). The informal and ad hoc character of many small firms, not to mention preferences among managers and workers to avoid perceived bureaucratic measures, can create circumstances in which subject knowledge is acquired informally while risks are addressed following incidents, rather than proactively. The European Risk Observatory report (Walters et al., 2018) on Safety and Health in micro and small enterprises in the EU highlights that these ventures are sites of more serious and fatal injuries than larger businesses, even when adjusting for sector. In this context, the report’s authors identify how the characteristics associated with small firms can lead to under-estimating risk in the workplace, while also over-estimating the knowledge within the firm. Nonetheless, while safety and health requirements and other areas of employment regulations can sometimes seem

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like a very specific, special task or function, many of the associated activities are not. Issuing written terms to an employee, for example, is a rule but one that we might expect to fall within the category of day-to-day practices rather than something identified as deriving from compliance with a set of regulations. Even where regulations do not exert direct effects, indirect effects may occur through, for example, changes in employee expectations. For example, instituting minimum wages might not affect directly those employees being paid at this rate already but, through an increase in the wages of others, still create a general increase above the minimum threshold to maintain pay differentials (Arrowsmith et al., 2003). Atkinson et al. (2016) found that indirect impacts of regulation shape the psychological contract, that is the perceived rights and obligations within the employment relationship, with important implications for the ongoing negotiation of this relationship and the wider social order of the organisation. Further, the ways in which the psychological contract is shaped are mediated by advisors for owner-managers and for secondhand information (primarily formal firm documentation) for employees. It is therefore important to relate the developing practices in response to the management challenge of regulation to external influences operating on the firm, including those from within the enterprise industry. Engaging with regulations represents an ongoing, everyday aspect of owning and managing a small firm, affecting multiple aspects of the business in direct and indirect ways; even where owner-managers report minimal compliance. It is important to emphasise that regulations, and engagement with the wider regulatory context, goes beyond monitoring compliance and is fundamental to the development of management practices within the firm.

Employment Tribunals and Accessing Business Support The benefit of viewing regulation from the perspective of a management challenge can be illustrated with more specific reference to employment regulation. Data reported from the 2018 Survey of Employment Tribunal Applications (BEIS, 2020b), indicates how smaller employers

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fare poorly compared to larger employers. It is worth bearing in mind that around 17% of all claims reached the stage of a full tribunal, but larger employers were more likely than small to have claims withdrawn or dismissed rather than progressing to a full hearing. Moreover, the findings report that ‘[C]laimants were considerably more likely to be successful in cases involving small or medium-sized employers (up to 250 employees) than large employers (with 250 or more employees)’ (p. 64). As noted in our ‘ideal type’ characterisation, smaller organisations are more likely to be informal in their practices: employers in the smallest category (80% permanent contracts, vitality program, personal development plans

Permanent contracts, vitality program

Ensuring continuity

Hierarchical task division

Task rotation, complex tasks

Work autonomy, task rotation, self-scheduling

Work division Information sharing, involvement in decisionmaking, open door policy Information sharing, distribution of profits, involvement in decisionmaking; HR consult hour No information sharing, subjective performance evaluation

Work integration

DHO

FHI

FEI

Control style*

Closest ideal type

Bleakhouse

Strategic

Knowledge

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Cucumbers and tomatoes

B8

10 permanent, 80 seasonal

10 permanent, 4–360 seasonal

Size

No internal recruitment, no training, employment agency

No employment agency: independent recruitment, internal recruitment

Recruitment

Only short-term contracts for migrants, no attention for work-life balance of migrants

Housing for migrant workers, paternalism (individual consideration), Extension of season to allow longer contracts, bonus achievable for 90% of workers

Ensuring continuity

Hierarchical task division, repetitive work

Job enrichment, little task rotation, output measuring

Work division

D = Direct, F = Formal; H = Hierarchical, E = Equality; I = Input, O = Output

Strawberries, blackberries, raspberries

B7

*

Product

Firm No employment agency: building personal relations, weekly individual performance talks, no information sharing, all management speak Polish/ Romanian Hard-to-achieve individual performance bonus, no information sharing

Work integration

DHO

DHI

Control style* Closest ideal type

Bleakhouse

Traditional owner-managed

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Lighting (B8) and Culinary (B3). These cases were selected because they represent different configurations, and because the interview materials were the most elaborate on why these organizations opted for their current HRM system. After presenting the interviewee’s rationales for the HR practices in place, their reflections on future challenges for HRM are connected to likely changes in the current HRM type.

Case 1: BLOOMING—Investing in Human Capital Blooming is a family business established in 1950, producing a range of indoor plants in five production locations. Jobs vary per location depending on the product. The production and manpower needs are relatively constant during the year. The organisation employs 143 workers on permanent contracts, 20 students on flexible contracts and 15–30 seasonal workers, mostly European labour migrants. As compared to the control-based HR typology, Blooming most closely resembles the ‘strategic entrepreneur’ configuration. On the direct-formal control dimension, Blooming uses formal HR practices, including job descriptions delineating the competences and skills for each job, ensuring fair pay by conducting salary benchmarks, offering end of year profit shares, and a cafeteria plan. In the hiring process, they offer videos to visualise jobs for applicants, a formal induction program that is discussed with candidates prior to employment and a welcoming package. Employee planning is managed with a formal talent management program, including the digital registration of current employee training and competences. On the hierarchy-equality dimension, there is a fair flow of topdown information sharing and management efforts to empower workers to optimally contribute to the organization. First, information sharing about organisational performance. In addition, employees participate in employee satisfaction surveys, and there is a weekly HR-consult hour for employees in every location. Besides, through a job rotation scheme and learning on the job, information is shared on the job. Due to the management structure and the lack of self-managed teams, the dimension is more towards hierarchy than equality.

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For the input—output control dimension, many practices indicate investments in the human capital input of the staff. Examples include training investments, periodic medical examination and a vitality program. Most employees have permanent contracts. All employees have biannual formal appraisal interviews and keep personal development plans. All new employees on all levels have an introductory lunch with the management team. Management stimulates qualitative flexibility of employees, offers internal recruitment and development opportunities, and offers (language) training and workshops. Characterizing of strategic entrepreneurs is the emphasis on the value that workers could add to products or services (Kroon & Paauwe, 2021). The owner of Blooming explained how long-term employment relations are beneficial to their organization: Well, on the one hand it is a deliberate choice but on the other hand it is a result of good atmosphere, a focus, and the way we want to operate as employer. People like to work here, so they stay longer. It is also true that in some functions we are primary a production company in which we deliver products with relatively high added value. This means that we have quite a lot of variation in orders and specific adjustments.

Investing in the motivation and involvement of employees helps Blooming to retain the knowledge needed to perform effectively when adjustments are needed. Asked about future employment challenges, Blooming mentioned the robotization of production, which would require more technical expertise. The manager also noted the need to adjust to employee expectations regarding flexible work hours. These challenges may change the HR control configuration in the direction of a ‘knowledge entrepreneur’.

Case 2: LIGHTING—Migrant Labour as a Commodity Lighting is a cucumber and tomato growing, second generation family business operating in two locations. Due to innovative LED Lighting, Lighting runs a year-round vegetable production under glass. The workforce exists of a small permanent staff of 10 employees, and many

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production workers on various kinds of flexible contracts. The flexible staff are largely migrant workers from Poland and Romania (about 80), supplemented with local students on the weekends and during holidays (about 20). In the interview, the lack of HR strategy came to the fore: there are no structural plans for staffing, training, internal recruitment and career development, appraisal, or work-life balance. The communication also indicates a perspective on migrant workers as ‘bodies for production’, rather than skilled workers with potential benefits for the organization beyond harvest hands. Altogether, Lighting’s HRM system qualifies as a bleak house within the control-based HR typology. On the direct-formal control dimension, the manager indicates that most practices happen in informal accommodation between workers and team leaders. There is no written information about any HR procedure, as shows when the HR-manager was asked in which ways employees have access to formal training opportunities: They can always say something themselves if they want something. (…) [In] Which ways (...). Yes verbally, we still have to set that up that is more of a plan of action, that. […] We are in the process of developing that. A kind of manual in which employees can find all things related to personnel policy.

The power distance between supervisors and workers is very hierarchical. Supervisors control the quality of work by individual workers using output quantifications. A language barrier between international workers and managers complicates the supervision and increases the power distance, requiring to “… call in another person of the same nationality who can speak English”. In line with the hierarchical distance, there is no information sharing with employees about the organisation and its performance, apart from individual performance registration. There are no channels for upward communication other than via line managers. The following quote illustrates the view on sharing information with their workers and why any shared information is not perceived to be in the workers’ interest:

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As long as they work 40, 50 hours, preferably 50, they will already be satisfied. Because they come here to make money, make hours. I think that the state of our company doesn’t interest them at all. Just work. As long as they can work tomorrow and can return to work every day they will all be fine. […]: It is all about the net income in the end. That’s what it is all about for them.

The idea that money and work hours are the key motivators for attraction and retention of migrant workers emphasizes the labour as a commodity that is typical for bleak house configurations. The separation of labour from the worker is most visible in the input–output control dimension. In Lighting, a bonus system is in place for excellent individual performance output, which is distributed to only 10–15% of production workers. Such performance-contingent pay systems are infamous for increasing work pressure (Ogbonnaya et al., 2017) and add to the precarity of uncertain working conditions. The view on migrant workers as a commodity seems to hinder the strategy and formalization of HRM. At the same time, Lighting experiences a continuous struggle to find and retain workers: It is also difficult to keep foreign staff, so to speak, because if they can earn a penny more somewhere else they are gone, so to speak. So to really bind them.

However, a larger threat is perceived to come from changing government regulations, that will reduce the option to offer short term contracts. The manager states that Lighting does not want to offer more permanent contracts: So the time that you can offer for contracts will be less [long], so it will be more than a year that you will lose them sooner, because they will have to leave. Then they probably have to take six months off before they come back. Because we don’t want to offer them a permanent contract.

The quote indicates a fundamental unwillingness to engage with migrant workers as a source of long-term human capital. Asked what this would imply for Lighting’s HRM practices, the answer stays a question.

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The manager’s hope is that the employers’ association will seduce more students to engage in horticulture studies, but they acknowledge that working seven days a week is not very attractive for current generations.

Case 3: CULINARY—Equality for Innovation The current owner, described as ‘a visionary person’, transformed the business in the early 2000’s into a specialized producer of seedlings and edible leaves and flowers, targeting the trend of health and vegetables in the high-end culinary industry. The organisation employs 175 permanent workers, of whom 110 in production and 65 in overhead departments. Additionally, they employ 40 flexible migrant workers. Production-peaks exist during festive seasons, but overall, the production is fairly constant. As compared to the control-based HR typology, Culinary qualifies as a knowledge entrepreneur. On the formal-direct control dimension, Culinary gears towards formal. There are formal job descriptions, formal meetings and information sharing about the organisation and its performance, and formal appraisal conversations. The hierarchical distance between superiors and employees is kept small by organizing open dialogue, social events, and personalized care. Examples include an operational works council (effective social dialogue between management and workers), a daily free and healthy lunch for all employees (socializing), and the promotion of equal opportunities by e.g., the employment of disabled employees (inclusion). The social side of work is further supported by multiple communication channels such as social media, information on displays in lunchrooms, mail, and a newsletter. The HR manager explains how a culture of inclusion is fostered and how that contributes to knowledge sharing: There is no hierarchy so everyone is the same so I am no better than another colleague, you know, we are all working for the same thing. […] We want to convey that we are all equal to each other. […] By showing them that we should deal with each other in this way, people will feel that the vibe is right and that there is a certain atmosphere. […] But also by involving them in what is exactly happening in our organization.

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We are very open to our people so if information is being shared, the organization is sharing it openly to them.

On the input–output control dimension, the HR manager mentions cross functional teamwork in projects, teamwork on production locations, education opportunities and selection for long-term employment with an emphasis on a person’s fit with the organisation and group. A challenge for Culinary is the growth of the organization, which threatens the equal style of control: When the CEO took over Culinary in 200X, well, you know, he also said, you know, will you help me? We are going to do it together, which also created something that made people very involved and enthusiastic and, you know, of course it was a small close group, almost like a family. And then you get bigger, and it becomes a bit more difficult. Because then that disappears a bit, because you can’t keep everything on such a short leash anymore. Now I notice that we would very much like to go back to that, yes, that is not possible of course, because that is the past, but I mean in those short lines, and really show that we do it together, and that everyone is accessible.

The growth of the organization urges management to make changes in dealing with all employees on equal footing. The formalization of groups in the company heads a risk that the hierarchy between management and employees increases, which would lead Culinary towards the configuration of strategic entrepreneur. The elaborated findings presented in the three cases indicate a temporal stability of configurations, which relates to sectoral as well as firm-level conditions that challenge each organization. Below we note the shared conditions that were to some extent mentioned in all cases, and then we concentrate on conditions that may explain for the clear differences in HRM configurations.

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Shared Conditions and Diversity

Shared conditions that were mentioned in most interviews were persistent labour market shortages in all job levels. All organizations employ at least some European migrant employees in the production processes. Other characteristics are technological innovations that stretch the production season. Although seasonality is still causing fluctuations in the demand for labour, many interviewees indicated production seasons of seven months to year-round. This positions these glasshouse horticulture organizations closer to manufacturing than agricultural firms. Another similarity is the size of the organizations. The sampled organizations largely qualify as medium sized, as they all have at least 100 employees, albeit some shrink to almost micro outside the harvest season. In line with life cycle theory (Baird & Meshoulam, 1988), all firms have developed a management structure and some departmentalization. The sampled organizations vary with respect to their line of products. Products produced in the Bleak house and Subcontracted types allow standardization, and production management resembles the Tayloristic tradition. Numerical flexibility is the traditional answer to fluctuations in production: short contracts and minimal training ensure that employees can be easily replaced. In contrast, firms that qualify as a Knowledge entrepreneur have a more diverse portfolio of products and jobs; these obviously benefit from the qualitative flexibility of workers to adjust production when needed. Interestingly, the two Strategic entrepreneurs’ lines of products are not very different from the Bleak House and Subcontracted type. However, the entire rhetoric in Strategic entrepreneurs about the value of workers is almost opposite to the Bleak house and Subcontracted types. In Strategic entrepreneurs, the discourse emphasizes the value of good working relationships for the attraction and retention of employees, but also for the sake of ‘a good atmosphere’. Moreover, Strategic entrepreneurs mention that product quality depends on employee involvement in the organization. Strategic entrepreneurs invest in employees, expecting a return on investment through reduced costs for recruitment and selection, product quality, and internal flexibility.

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Although Bleak houses and Subcontracted types both follow a cost leadership strategy, part of their rhetoric can be traced back to the changes in the composition of the workforce over the past decades. Nowadays, the flexible ranks of the organization are largely populated with Central and Eastern European migrant workers. Employers offering low skilled production work often favour these workers over local workers and other migrant groups (e.g. refugees, Southern European, Turkish/Moroccan), because of their supposed good work ethic, and their submissive, non-demanding attitude (Findlay & McCollum, 2013; Hopkins, 2017). Further, the inability to communicate in the same language strengthens the belief that these workers do not need the same attention as other workers, and that they can easily be replaced. These beliefs are a myth, because also these migrants after some time yearn for equal career opportunities as local workers (e.g. Knight et al., 2017). This is already visible in the reduced willingness of Polish workers in the Netherlands to accept the worst jobs. Strategic entrepreneurs also employ Central and Eastern European migrant workers, but the employers’ interviews refrain from the commodifying discourse about this group of workers. Caution should be taken however, since no employees were interviewed in this project. In line with Harney and Alkhalaf (2021), we noted several internal and external presenting issues that drive the diversity of HRM configurations in our study. Examples of external presenting issues included change in employment regulation for flexible contracts, labour shortages, high energy costs pushing production costs, and the dominant position of buyers vis a vis employers. Internal presenting issues included growth in employees, a change of ownership, and technological innovation. The presenting issues are diverse, leaving room for ambiguity about the best fitting HRM system (Sheppeck & Militello, 2000). This explains why in one sector organizations with similar characteristics develop equifinal HRM configurations—meaning that various configurations are viable for achieving organizational continuity (Gresov & Drazin, 1997). The findings indicate that various HRM systems can exist next to each other in otherwise similar organizations. The findings also give some insight into the temporal stability of the HRM configurations. For example, innovation and technology to

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date have increased crop quality and production periods. The next innovations are expected in robotization of standardized work. This may eventually reduce the demand for cheap workers and increase the demand for skilled employees. It is likely that the HR configurations of firms that survive these transitions will develop into Strategic- and Knowledge entrepreneurs, by offering longer contracts and investments in human capital. Further rationalization on costs could be another business strategy in response to market unpredictability (e.g. war, gas prices), reinforcing the perception that labour intense production is a business liability, which may reinforce configurations towards Subcontracted networks, based on the—potentially false assumptions of—cost effectiveness.

6.6

Implications

This chapter set out to examine configurations of HRM in small organizations under similar conditions. In the remainder of the chapter, we review some implications of the findings for the research and practice of HRM in small organizations. The findings highlight the value of taking an integrative approach in researching HRM in small organizations, wherein HRM configurations are conceived as path- and context dependent (Edwards & Ram, 2006; Marchington et al., 2003). By sampling similar organizations, were able to illustrate how small organizations’ management navigates the ambiguity of presenting issues in the context and management. We highlight three implications for future research. First, future research can build on the control-based HRM configurations theory. One advantage of examining variations of control in managing people and work as the essence of HRM, is that it disentangles formality, hierarchy and the ‘use’ of employees as commodities or valuable resources. This approach declutters some of the black- and white debates about the nature of work in small businesses and gives a theoretical underpinning for describing variations. The notion of control of work and employment is somewhat forgotten in the current high performance paradigm, but has a long tradition in HRM, management, as well as industrial relations research (e.g. Bedford & Malmi, 2015; Snell, 1992;

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Thompson & van den Broek, 2010). Control theory suits the notion of equifinality well and seems a useful perspective when comparing the HRM configurations of small organizations. Second, the HRM configuration in each organization depends on managerial decisions concerning the control of the human factor and the organization of work, navigating conditions of bounded rationality and ambiguity from the organizational context (Kroon & Paauwe, 2021). In one sector, we noted quite diverse styles of control. It would be interesting to research how employers who pursue a Strategic- or Knowledge entrepreneur configuration navigate the bounded rationality and ambiguity presented to all small organizations in the sector (Kroon et al., 2013). Third, the findings indicate temporal stability of HRM systems in small organizations. Process research, following organizations for a number of years, may reveal patterns in the viability of configurations. This would imply longitudinal data to demonstrate persistent stability of configurations. It should be noted that the research presented in this chapter is not without limitations. First, the findings are based on interviews with managers. Since control takes place in the power dynamics between management and employees, it would be better to include multiple respondents for each organization, including team managers and employees in various positions. Second, the classification of the organizations in the nearest-ideal types suggested by Kroon and Paauwe (2021) was to some extent subjective. Future research, based on a somewhat larger sample, could use a configurational comparative method to determine the configurations (Rihoux & Ragin, 2009). Second, the size of the organizations during peak season would disqualify some of the sampled firms as small organizations. In low season however, all organizations included are small. Third, seasonality implies flexible contracts, which could be interpreted as mostly output control. However, we examined the length of the flexible contract in combination with efforts to personalize these as an indication of input or output control. Finally, the sample of organizations is small, and we should be careful generalizing the findings. We note that our findings are comparable to previous research in the horticulture sector other countries (Rogaly, 2008), and in

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other sectors with low skilled labour with large populations of migrant workers (e.g. McCollum & Findlay, 2015). The theory, method, and the findings of the project each have implications for practice. First, the control-based HRM configurations theory can serve as a starting point to consult with small business employers, to find out their current HRM configuration and its outcomes. In the interviews, we asked which challenges the employers perceived. It turned out that a challenge like labour shortages, as perceived most strongly by Bleak House employers, were also recognized by Strategic entrepreneurs and Traditional owner, but resolved in such a way that they had more long-term relationships with employees. Since these employers all operate in the same sector, the sharing of knowledge about effective practices between them can help employers to take better informed decisions about HRM. The findings have implications for SME’s in low skill sectors, which are often associated with output-driven, Bleak house-typed HRM configurations. Typologies with a strong emphasis on output control are associated with neo liberal competitive industries, which contribute to the race to the bottom for workers in low waged work. Awareness of alternatives, as well as institutional pressure to steer away from exploitative contracts, can improve the outcomes of SME HRM configurations in low skilled work sectors (Caroli et al., 2010). Social partners (employers associations, trade unions, policy and enforcement), management capacity building institutes (business training), but also supranational organizations like the European Union and the International Labor Organization can contribute to raising global awareness for equally effective controlbased HRM configurations in small organizations, with better outcomes for employees.

6.7

Conclusion

In this chapter we illustrated the diversity of HRM configurations among small organizations in a single industry (glasshouse horticulture), using the control-based HRM configurations theory developed by Kroon and

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Paauwe (2021). The theory contributes to our understanding of variation in HRM in small organizations, and helps to understand how organizations have different HRM configurations to manage internal issues, as well as to deal with challenging economic—and labour market conditions. Acknowledgements The authors would like to thank the employers’ association ‘Glastuinbouw Nederland’ [Glasshouse Horticulture Netherlands] for opening their network for this research.

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7 The Role of Joiners for the Development of New Firms: A Literature Review and Future Research Agenda Evy Van Lancker and Mirjam Knockaert

7.1

Introduction

Inspired by the star-like status entrepreneurs nowadays receive for their entrepreneurial efforts and endeavours, research on founders and new venture development has burgeoned. In particular, scholars have focused on elucidating the determinants of successful entrepreneurship, hereby studying how founders steer their company towards success, for instance by attracting financial and human resources, or interacting with agents such as governments and boards of directors (e.g., Hellmann & Puri, E. Van Lancker (B) · M. Knockaert Ghent University, Ghent, Belgium e-mail: [email protected] M. Knockaert e-mail: [email protected] M. Knockaert TUM School of Management, Technical University of Munich, Munich, Germany © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 C. Nolan and B. Harney (eds.), Reframing HRM in SMEs, https://doi.org/10.1007/978-3-031-34279-0_7

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2002; Marvel et al., 2016; Roelandt et al., 2022). The majority of scholarly work has thus taken a founder-perspective in which they position founders as the motors driving innovation and technological change. However, while there is sufficient evidence that warrants this view, scholars have recently highlighted the need for a broader approach that acknowledges and uncovers the share and influence of joiners in entrepreneurship (e.g., Brattström & Wennberg, 2021; Van Lancker et al., 2021). Nowadays, people increasingly see new ventures as an attractive employment option. Individuals that work for entrepreneurs are also called joiners, i.e., early-stage non-founder entrepreneurial employees (Roach & Sauermann, 2015). They are a crucial group of entrepreneurial agents that work for and with founders. Attracted to working in the uncertain, resource-scarce, and highly-dynamic context that is germane to new ventures, they bring valuable human capital such as experience and skills to the firm. As such, joiners are perceived as one of the main assets of new ventures (DeSantola & Gulati, 2017; Shrader & Siegel, 2007). Given this strategic value of joiners, HRM is believed to be even more important for the success and performance of new and entrepreneurial ventures (Burton et al., 2019; Van Lancker et al., 2021). Specific attention to joiners is thus necessary as they differ from their counterparts in established firms (Barber et al., 1999). As a consequence, traditional theories and methods cannot be readily applied onto the context of joiners or in new ventures. In this review, we aim to shed more light on joiners and their role in new venture development. In particular, the aim of this chapter is to summarize and synthesize existing work on joiners, and to encourage future research. In doing so, we hope to further stimulate the ongoing debate that coalesces the fields of entrepreneurship and human resource management. We first describe new ventures and what makes them so unique. We continue by offering a detailed overview of our review method. We then present our analysis of extant research alongside promising avenues for future research, which we also present in a summarizing framework. Lastly, we discuss the implications of our review for both research and practice.

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The New Venture Context

New firms are often attributed the role of driving forces behind job creation, technological advancement, and regional development (Audretsch et al., 2006; Delmar et al., 2003; Eckhardt & Shane, 2011). However, most new firms fail to reach a mature status as they are unable to overcome the multiple hurdles and challenges specific to the process of building and growing a new venture. In particular, while established firms are striving to sustain their viability, new ventures are battling to obtain viability and, in doing so, are faced with a unique set of opportunities, challenges, and constraints (Aldrich & Fiol, 1994; Stinchcombe, 1965). For decades, scholars have studied these challenges, also referred to as the liabilities of newness and smallness, and their impact on new venture survival and success (Aspelund et al., 2005; Zimmerman & Zeitz, 2002). As new ventures often enter markets and industries without any form of track record or experience, they are forced to find ways that signal their legitimacy as new actors. Furthermore, new ventures suffer from being small and therefore having few resources at their disposal. As such, they have less chance to explore into new opportunities or to withstand bad economic conditions (e.g., Yamakawa & Cardon, 2017). In contrast to established firms, new ventures have yet to undergo multiple steps of the entrepreneurial process, like developing the internal organization. So, in addition to the liabilities of smallness and newness, the new venture context is also characterized by an ‘un-design’ or an amorphous state (Burton et al., 2019). In particular, new ventures lack norms, routines, and structure as these are still being developed. Given this emergent nature, formal human resource management practices, i.e., guidelines, policies, and rules that determine incentives, hiring, firing, and training, are mostly absent. As a consequence, HRM and HRM problems are often only attended to when entrepreneurs perceive HRM as problematic (Tocher & Rutherford, 2009) and when they attend to it, entrepreneurs do so in an informal, ad hoc manner (Hornsby & Kuratko, 2003). Another element specific to new ventures is the central role and high involvement of the founders. Specifically, the vast majority of new ventures is the result of a team rather than an individual endeavour

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(Klotz et al., 2014). It is the founding teams that are typically at the heart of the firm, having multiple roles such as attracting finance, developing new products, or managing joiners. So, forming a new venture team is a crucial process that foregoes any entrepreneurial actions or activities (Lazar et al., 2020). It is only later that entrepreneurs attract joiners, when their time becomes more valuable than the financial resources they are allocating when hiring a first employee (Yoo et al., 2016). The first joiners are often sourced from the personal networks of the entrepreneurs as they look for like-minded individuals with a similar background. Later on, once the new venture undergoes significant growth, they attract joiners that offer diversity in terms of experience and human capital (Leung et al., 2006; Zolin et al., 2011).

7.3

Getting to Grips with the Relevant Literature

To map current research on joiners in a new venture context, we applied the systematic review methodology of Tranfield et al. (2003) (see Table 7.1 for detailed description). First, we created a list of keywords to create an initial sample of papers as broad as possible (see Table 7.1). For new firms, we searched for terms linked to, or synonym for, new firms, such as “new venture”, “new firm”, or “entrepreneurial firm”. Similarly, we selected keywords related to joiner such as “employee”. As time span, we opted for research on joiners published up to December 2021. By combining joiner- and entrepreneurship-linked search strings, we identified a list of papers to be analysed. To assess their fit, we read and categorized each paper. We excluded some papers for specific reasons. First, we excluded conference proceedings and editorials from our analysis. Second, we excluded papers referring to joiners without studying them, such as studies on resources or human capital. We then analysed our final sample of 20 papers. By means of a coding table, we categorized and coded each paper, considering distinct elements of interest, such as variables studied, research design, sample country, etc. With papers published in journals such as Strategic Entrepreneurship Journal , Small Business Economics, or International Small Business

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Table 7.1 Description of systematic review methodology Research questions/objectives – to provide insights into the current state of knowledge on the transdisciplinary study of entrepreneurship and human resource management (overarching goal) • to map extant research on the nature and motives of joiners • to identify areas for future research • to offer relevant insights and practical implications to both research and practice Conceptual boundaries – Joiners = “early-stage non-founder entrepreneurial employees” (Roach & Sauermann, 2015) – New ventures = “a firm that is in its early stages of development and growth” (Klotz et al., 2014) Keywords New firms Joiners “new firm$”, “new venture$”, “new “joiner$”, “employee$”, “hire$”, business*”, “young firm$”, “young “staff*”, “team member$” venture$”, “young business*”, “startup$” Inclusion criteria – Search boundaries • Leading management journals (peer-reviewed academic articles) • Management, business and applied psychology • Web of Science – Search terms: see Appendix – Cover period: … –December 2021 Exclusion criteria – Conference proceedings, meta-analyses, or editorials – Studies mentioning joiners but not considering their nature or motives

journal , our final sample contains high-quality papers that, surprisingly, are mostly published in entrepreneurship, and to a lesser extent in HRM, journals. Our coding further revealed that joiner research has been studied by means of diverse research designs including case studies and experiments and building on diverse data including surveys, archives, and databases.

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A Walk Through of Existing Research

In what follows, we first discuss current research on joiners. Based on our analysis, we propose three categories illustrating existing research. Specifically, we start by giving an overview of research that examines the defining features of joiners, followed by studies that focus on the influence of the new venture context on joiners, to then end with research that studies the impact of joiners on new ventures. Then we continue by presenting several avenues for future research in each of these three categories. Moreover, in addition to these categories, we propose a fourth category that we felt was missing in current studies, namely a process perspective on the role of joiners. Extant and future research is summarized in Fig. 7.1.

Defining Features of Joiners A first category of research focuses on the defining features of joiners. In particular, five studies have been published that focus on the characteristics of joiners and how they differ from founders and established firm employees. Roach and Sauermann (2015) and Sauermann (2018) were the first to explicitly study the difference between founders and joiners. Their work is concerned with understanding whether factors, such as risk-taking, predominantly attributed to founders may also extend to joiners. They propose that founders and joiners share similar preferences for the same work attributes, namely risk-taking, autonomy, and independence. At the same time, they also argue that differences between founders and joiners exist. Specifically, interests to become a founder are less pervasive than interests to become a joiner. Furthermore, founders and joiners also have dissimilar sensitivity to contextual factors, such as norms and role models, that encourage entrepreneurial activity. Following this work, Sauermann (2018) continues to study the intricacies of joiners and examines whether joiners have different pecuniary and nonpecuniary motives than employees in other types of firms. His study shows that independence and responsibility is of higher importance to joiners than job security and salary. Moreover, in contrast to employees in

Fig. 7.1 Overview of current research and avenues for future research

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other types of ventures, joiners show more risk-taking behaviour which translates into higher patent output. Ouimet and Zarutskie (2014) add to these findings by studying the demographics of joiners. They find that young people disproportionally work for new ventures, hereby assuming that they do so as young people are more risk-taking. Along this line, Nyström (2011) shows that joiners are often labour market entrants, immigrants, or recent graduates. As such, new ventures may have an important role in employing individuals with a weaker position on the job market. Likewise, Coad et al. (2017) provide evidence that joiners are more likely to come from unemployment or to be less educated. In conclusion, these studies show that joiners have distinct characteristics, preferences, and motivations that are particularly apt in the context of new ventures.

Impact of the New Venture Context on Joiners Next to understanding who joiners are, scholars have also focused on the impact of new ventures and the new venture context on joiners. As mentioned above, the new venture context is unique in its characteristics such as a high involvement of the founders, elevated uncertainty, and little resources and legitimacy to build on. In what follows, we first present insights into the impact of founder characteristics, and subsequently elaborate on the role of venture characteristics on joiners. A first category relates to founders, their defining characteristics and their relationship to their joiners. Similar to dyadic relations in more established firms (e.g., Cropanzano et al., 2017), founders (i.e., supervisors) have a large influence on the actions and behaviour of their joiners (i.e., subordinates). In this regard, scholars have studied the impact of founder characteristics. Specifically, they have considered founder passion, decision-making and communication on joiners. First, studies have looked into the role of founder passion for the behaviour of joiners. For instance, Breugst et al. (2012) examine how joiner commitment to the venture is influenced by their perception of entrepreneurial passion. In their study, they show that three types of passion, namely for inventing, founding, and developing, have a different

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impact on joiner commitment. More specifically, passion for founding reduces joiner commitment while perceiving an entrepreneur’s passion for developing and inventing positively impacts joiner commitment. Likewise, Hubner et al. (2020) focus on how employees’ perception of entrepreneurial passion is created and influenced by founders’ identity and emotional displays. They suggest that entrepreneurs displaying entrepreneurial passion induce a passion response of their employees which further impacts employee-related outcomes. As such, passion is contagious, leading to enhanced employee work-related outcomes, such as performance and affective commitment. In other words, employees can become passionate about participating in entrepreneurial activities when entrepreneurs communicate and signal their passion either through positive emotions or through displaying their entrepreneurial identity. Second, besides being impacted by entrepreneurial passion, joiners are also influenced by entrepreneurial decision-making. In particular, perceived distributive justice with regard to the allocation of ownership influences the commitment of joiners (Noack et al., 2018). They argue that joiners will be more committed to the new venture when they perceive the share of ownership they received from their founders to be fair in comparison to the share other joiners received. Third, joiner behaviour is also influenced by how entrepreneurs communicate within their venture. In particular, Men (2021) and Men et al. (2021) examine the effect of CEO communication on joiner outcomes in new ventures. Their findings indicate that entrepreneurs employing a particular communication style, that is, making use of motivating language and being responsive, authentic, and assertive, positively impacts the ‘joiner—new venture’ relationship. So, through their ways of communicating, founders can nurture positive behaviour such as organizational citizenship behaviour, organizational identification, and psychological need satisfaction. Lastly, founders also have an impact on joiners’ later career choices and their preferences for entrepreneurship. Specifically, Rocha and Van Praag (2020) show that female founders serve as a role model for their female joiners. This means that female founders have the ability to break some of the gender-related stereotypes specific to entrepreneurship. As such, in conclusion, entrepreneurs have a central role in the day-to-day work life of joiners. By exhibiting

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certain behaviour, entrepreneurs can stimulate joiners to become more committed to the firm. It is therefore not surprising that elements such as passion or organizational justice have an impact on joiners and joinerrelated outcomes. Furthermore, these studies add to the impression that, in new ventures, the close connection or bond between founders and joiners is crucial as it impacts joiner behaviour. As such, to some extent, it may be a substitute or predecessor of HRM. A second category relates to the specificities of new ventures or thus venture characteristics. In particular, as mentioned before, new ventures cannot build on the same resources or track records as their more established counterparts. In that regard, scholars have looked into the monetary effects of new venture employment and found inconclusive evidence. While some authors suggest that joiners earn less than employees working in established firms, meaning that there is a wage penalty of working in a new venture, there is also some evidence that suggests that joiners earn a small premium. For example, Fackler et al. (2021) show that joining a new venture is linked to receiving a lower daily wage and income. Similarly, Nyström and Elvung (2014) find that new labour market entrants face an average wage penalty of 3% if they join a new venture, while Dahl and Klepper (2015) add that new ventures, when they grow at a higher rate and when they are relatively larger in size, consistently pay higher wages in comparison to smaller counterparts. Additionally, Sorenson et al. (2021) focus on the longterm earnings of joiners. They show that joiners earn up to 17% less than established firm employees. To explain the existence of this wage penalty, the aforementioned authors refer to a number of mechanisms. First, they point to sorting as one of the major mechanisms that leads to earning penalties. In particular, new ventures attract more individuals with lower levels of human capital, which results in a lower wage. Additionally, they also believe this earnings differential potentially stems from atypical job-mobility patterns, i.e., joiners rarely consider or return to larger employers who pay more. Lastly, they suggest that unemployment after new venture failure also contributes to earning less in the longer run. Interestingly, Sorenson et al. (2021) also propose that there is an exception to this earning penalty. Particularly, they indicate that new ventures that are already successful, and that have, for instance, attracted funding, typically offer a small premium to attract highly skilled joiners.

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Furthermore, aside from venture characteristics related to liabilities of smallness and newness, scholars have studied another firm-level characteristic that is important in the context of new ventures, namely entrepreneurial orientation (hereafter: EO). EO refers to a firm’s propensity to take risk, innovativeness, and proactiveness, and is linked to increased new venture performance (e.g., Wang et al., 2017) and new venture survival (e.g., Shan et al., 2016). As such, EO can be interpreted as ‘a firm’s strategic posture towards entrepreneurship’ (Anderson et al., 2015, p. 1), which results on the one hand in a managerial attitude towards risk and on the other hand in entrepreneurial behaviour. As such, EO has an impact on joiners and their behaviour. A study by Andersén (2017) shows that joiners experience higher levels of role ambiguity when there is a high level of EO in their firm. So, in contrast to research that positively links EO to new venture performance (Wiklund & Shepherd, 2005), Andersén (2017) shows that the reality is more complex as it may cause negative joiner-related outcomes. However, on the upside, this increased level of role ambiguity can be mitigated by social support of co-workers, pointing to the relevance of having a supporting team. Kang et al. (2016) then suggest that EO-inspired organizational climates positively influence joiner innovative behaviour. In specific, they study the co-existence of three organizational climates that each focus on the core premises of EO, namely pro-activeness, risk-taking, and innovativeness. Their findings indicate that a passion for inventing mediates the relation between an innovative climate and joiner innovative behaviour. Moreover, having a proactive climate enhances the relation between innovative climate and a passion for inventing, while a risktaking climate strengthens the link between a passion for inventing and joiner innovative behaviour.

Impact of Joiners on New Venture Development Scholars have already dedicated significant attention to the impact of the new venture context on joiners. This however is not the case for the reversed relationship, namely the impact of joiners on new ventures and their development. We identified two papers that focus on this particular

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relationship. The first study by Braun et al. (2018) focuses on the role of joiners in deepening the venture’s relationships with external stakeholders. Interestingly, they suggest that the networking efforts of joiners are more effective than the individual efforts of the entrepreneurs themselves. They also indicate that collectively involving joiners in building and maintaining external relationships can have a positive outcome for new ventures as it stimulates organizational innovativeness. The second study in this category takes a different focus and studies the impact of joiners on the performance of new ventures’ initial public offerings. In particular, Liu and Arthurs (2019) propose that being dependent on key employees influences IPO performance, although this effect is contingent on the type of key employee. They show that having long-tenured executives onboard has a positive influence on IPO performance, while disclosing dependence on key employees in the IPO prospectus is linked to lower IPO performance. As such, these papers provide first insights into the potentially important role that joiners play in new ventures. In what follows, we offer multiple avenues of future research, organized according to the same categories, to further advance this field of research.

7.5

Uncovering Avenues for Further Research

Defining Features of Joiners Though scholars have already provided some understanding of what defines joiners, there is still much to be discovered. Future research could continue focusing on the characteristics of joiners and how these are different from the defining features of their more established counterparts and of founders. Our current understanding of the drivers and motivations of joiners is limited to their preferences for particular job attributes such as autonomy and independence. Scholars could therefore further investigate what drives people to join new firms. Our review shows that new ventures attract a lot of young workers and job market entrants. Why is this particular group so interested in joining these

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firms? Is there a shift in the preferences of new generations? And are there alternative motivations to join a new venture? It could be that young workers who aspire to start their own firm join a new venture, awaiting an entrepreneurial opportunity they could pursue themselves, to learn all about new venture creation and the hurdles it entails. Furthermore, scholarly work that focuses on how joiners differ from employees in established firms may offer relevant insights. In particular, future research can challenge existing theories, such as job demands resources, by applying them to joiners and the new venture context. For example, it could be that what is perceived as a job demand (e.g., high work pressure or role ambiguity) for an established firm employee may be a job resource for a joiner. Along this line, studies on joiners and new venture context may add to or challenge theories such as leader-member exchange or social exchange theory. Likewise, scholars can look into the differences in characteristics between founders and joiners. Sauermann (2018) proposes that joiners, similarly to founders, have a preference for autonomy and independence. Interestingly, previous research also states that founders have a desire to remain in control and have problems with letting go (Flamholtz & Randle, 2012; Wasserman, 2017). These opposing needs may give rise to frustrating or conflicting situations for joiners. Future scholars could thus focus on the potential tensions that may arise between joiners that wish to receive autonomy and work independently and founders in need of control. For instance, does this need for control of founders lead to joiner turnover? And how does founder micromanagement influence joiner engagement? What about joiners with particular characteristics (e.g., similar characteristics to, or a good bond with, founders) that earn independence more easily?

Impact of New Venture Context on Joiners So far, researchers have mostly paid attention to how the new venture context, i.e., founder and firm characteristics, influence the behaviour of joiners and the returns joiners receive for their engagement in these firms. While such perspectives are interesting and relevant for research and

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practice, we propose a number of compelling topics that are particularly appropriate to move this field forward. A first important avenue for future research relates to how joiners are impacted by the uncertainty and ambiguity that characterizes new ventures. As new ventures are trying to tap into new markets, often with state-of-the-art and yet to-be-proven products and services, they are dealing with a great level of uncertainty. More specifically, they have no roadmap on how to achieve product-market fit or on how to implement a strategy that fits their needs. Furthermore, as the founders are ‘jacks’ and ‘jackies’ of all trades, founders may face difficulties and time constraints addressing the needs of their joiners. Even though joiners prefer a certain level of risk-taking and uncertainty, there may be a limit to this. Therefore, future research could focus on how this uncertainty and ambiguity impact joiner-related outcomes, such as wellbeing, motivations, or turn-over intentions. Along this line, we have little insights into the reactions and behaviour of joiners during new venture distress or new venture failure. Future research could thus focus on new ventures in distress and the influence on joiners. While we know that joiners have a high willingness to bear risk, it may be that, once the new venture shows signs of distress, they become highly stressed or on the contrary combative to save the venture. A second stream of future research relates to the dark side of working for a new venture. New ventures undergo continuous changes as they adapt to new opportunities, challenges, or changes in their complex environment (Aldrich & Fiol, 1994; Stinchcombe, 1965). As a result, the internal organization and the work to be done also varies over time and joiners may at some point find themselves in a role or job they initial did not sign up for. Although joiners have a high preference for autonomy and independence, they are not necessarily open to high levels of unclarity and role ambiguity in their day-to-day job. Future researchers could focus on how joiners deal with these changes in their job, role, and work context. For instance, do joiners have particular coping mechanisms or strategies, e.g., job crafting, to adjust to change? To what extent will joiners take matter in their own hands and start shaping their own job? It could be that, in line with previous research (Miner, 1987, 1991), joiners create their own jobs and as such give rise

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to idiosyncratic roles emerging. However, more recently, this assumption has been questioned as founders increasingly use formal job descriptions to hire and attract skilled workers for predetermined roles. As such, future research could focus on this phenomenon and study whether there is tipping point at which idiosyncratic roles replace formally described roles. Additionally, while the context may be a challenging one to work in, founders can be challenging to work with. To date, founders and entrepreneurs are mostly seen as heroes who contribute to society by means of job creation and new product introductions. Yet, more recently, researchers (Brownell et al., 2021; Tacke et al., 2022) have pointed to potential dark personality traits (e.g., greed, Machiavellism, or psychopathy) associated with founders and entrepreneurship which may lead to unethical behaviour. While research on the dark side and dark traits of leadership in established firms is more common (e.g., Ate¸s et al., 2020), the knowledge on dark side traits in entrepreneurship is only emerging. Therefore, scholars could uncover how certain traits, such as psychopathy, greed, or cockiness, influences joiner-related outcomes. For example, to what extent does founder cockiness influence joiner innovative behaviour, personal initiative, or wellbeing? It may be that, even though founders and joiners get along well, joiners may not share new ideas or take initiative as founders turn them down frequently. Similarly, joiners may feel less motivated to contribute and exhibit organizational citizenship behaviour as they perceive their founders to be greedy or having the wrong intentions. Lastly, a third stream of future research could uncover how certain defining firm-level characteristics, e.g., innovativeness or financial resources, impact joiners. For example, while scholars seem to agree to some extent that joiners earn less, our review points to contradictory findings. While Sorenson et al. (2021) suggest that sorting explains the majority of these lower earnings as joiners have less human capital, they also find evidence in favour of an earnings premium in successful new ventures aiming at attracting highly specialized human capital. Similarly, some scholars find that new firms attract highly educated joiners, while others point to a high share of less educated joiners. These contradictions may be caused by the inclusion (or exclusion) of certain definitional characteristics such as innovativeness or growth orientation. In other words,

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findings on who joins new ventures, and what their remuneration is, may be contingent on the type of venture. For example, the literature has distinguished between lifestyle entrepreneurs and profit or growth maximizing entrepreneurs; with the first ones operating businesses that are closely aligned with their personality, beliefs, interests, and passions (Henricks, 2002; Marcketti et al., 2006), and the latter focusing on growth and wealth generation. This distinction and its impact on the joiners in these new ventures may be of interest for future researchers.

Impact of Joiners on New Venture Development Given the few studies on the impact of joiners on new venture development, and the importance and relevance of the subject, there is much room for future research. We therefore present a number of avenues for future research that we consider particularly promising to advance this field of research. A first direction for future research centres around the role of joiners in new venture development and success. Developing and growing a new venture is a process that requires many efforts and resources. To date, it seems as if new venture creation and development is limited to founders only as scholars mostly pay attention to what founders do to make their venture a big success. Still, just like established companies cannot survive without the input and efforts of their employees, new ventures would find it difficult to develop and become a success without joiners. Scholarly attention to how, and under which conditions, joiners impact new ventures is therefore crucial to move this field of research forward. Joiners can impact new ventures in different ways. First, they could affect the future hiring of new joiners, and could be involved in the attracting, selection and funding of new joiners. In specific, joiners bring psychological, human, and social capital to the firm. These forms of capital can particularly help founders in identifying and attracting new employees. Joiners are especially well-placed to for example judge the fit between a new hire and the new venture as they know both parties well. As such, it is highly likely that they make excellent corporate recruiters. Second, joiners may help in gaining access to other, much-needed resources as

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they may offer important connections to relevant stakeholders or interesting parties to collaborate with. It is also possible that some joiners are of high value to venture capitalists or investors as they signal the professionalism of, and knowledge within, the new venture. Third, as they bring much needed internal resources, and at the same allow reaching out to external resources, joiners may affect important entrepreneurial outcomes such as survival, performance, or funding. Fourth, apart from their influence on entrepreneurial outcomes, joiners can have a central role in the development of the new venture’s internal organization. Founders most likely have the upper hand when it comes to organizational design, i.e., what it should look like, which cultural values matter, or how decision-making authority is divided (e.g., Burton et al., 2019). Still, even when they have a higher say, joiners will also influence this process as they are the ones that have to enact these choices and abide by them. Furthermore, they may even offer their insights or provide feedback or suggestions on how to organize things. So, future research can study the influence of joiners on the process of turning a new venture into a more organized firm. Do joiners have a say in the matter? And are joiners with prior start-up or new venture experience added value when shaping the firm? To what extent do founders transfer responsibility of organizational aspects such as coaching or hiring to their joiners? What dynamics unfold between control-minded founders and autonomy-minded joiners? Would they implement a different structure? And how does this influence their relation? Or how do joiners respond when founders one-sidedly design the internal organization in a manner they do not agree with? Studying the influence of joiners on the process of shaping the internal organization is a highly relevant avenue for future research as research has shown that early choices have a long-lasting impact and often become a blueprint of the later organization (e.g., Burton & Beckman, 2007). Second, while joiners may impact new ventures by proposing new ideas and taking on responsibility, they may also considerably influence new ventures when they leave or when there is a mismatch between them and the new venture. Future research can study the impact of losing a key joiner. For example, how do new ventures fill the void after losing firmspecific human capital embedded in joiners? How do other joiners react

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to a sudden resignation of a colleague, or even to the dismissal of a fellow team member? Similarly, what happens if founders hire a so-called bad apple, someone who does not fit their team or view on the future? Given the small size of new ventures, having someone around who is not a fit may have more far-reaching consequences and challenges than when this happens in large, established companies.

7.6

A Process Perspective on the Role of Joiners

Aside from the need to better understand the defining features of joiners and how joiners and the new venture context have an influence on one another, it is pertinent to also understand joiners from a more dynamic perspective. Just like new ventures develop and evolve, joiners also evolve and change over time. We therefore proffer that a process view on joiners and their evolution within new ventures also offers significant opportunities to contribute to research. While new venture creation was previously seen as an event, scholars now share the idea that it is a process, consisting of multiples activities and efforts to turn an idea into an actual business (e.g., Baron & Markman, 2018; Davidsson & Gruenhagen, 2021). Part of this journey is the arrival of joiners and eventually the introduction or development of formal HRM practices. So, a first important avenue for future research links to the evolution and specificities of HRM practices in new ventures. Researchers could add to the ongoing debate of what constitutes HRM in new and entrepreneurial ventures by studying how certain practices emerge in new venture and how these differ because of the specific nature of joiners. In this regard, it could also be interesting to study how joiners experience the transition from informal and ad hoc HRM to a more structured approach over time. Second, the career perspective on joiners also provides promising questions for future research. As Sorenson et al. (2021) and others have proposed, working for a new venture does not necessarily open up the road to new and interesting career opportunities. In particular, working for a new venture may not be seen as a valuable experience to

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more established firms. It may be that leaving a successful new venture leads to relevant new opportunities, but given the high rates of new venture failure, this is a risky approach for career management. Yet, even though external opportunities may be slim, new ventures tend to offer a steep career path. Therefore, scholars could focus on career management in new ventures. For example, who gets promoted? What joiner characteristics are important in the view of founders? How does the employee team react on a joiner being promoted? Furthermore, while current research mostly focuses on monetary returns to working in a new venture, scholars could take a broader view in the future. Particularly, scholars have shown that joiners earn less in the long run. However, they still prefer working for a new venture instead of joining a more established firm. Future scholars could draw specific attention to why they do so and how this phenomenon is influenced by elements germane to new ventures, and how this evolves over time. For instance, to what extent does the close collaboration with founders and the informal culture that is often associated with these firms impact joiners’ retention choice? And what is the impact of job alternatives on their choice?

7.7

Practical Implications

Based on our review, we also provide several key take-aways for practice, namely for entrepreneurs, joiners, the press and policy makers. First, our review could prove helpful for entrepreneurs in their quest for an HR policy that serves their organizational goals, but also motivates their joiners. Indeed, our review shows that joiners have a lot in common with entrepreneurs, but also differ significantly. Entrepreneurs may, for instance, want to take this into account when thinking of introducing more structure and hierarchy. For example, although new ventures are typically known for their ‘un-design’, at some point, it becomes beneficiary to introduce some structure and clarity, while retaining the entrepreneurial spirit, particularly if this spirit and related attributes are features attracting joiners to new ventures in the first place. As such, founders may want to develop HR practices that allow joiners to experience the entrepreneurial spirit, and to develop their (entrepreneurial)

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skills, without necessarily expecting the (psychological) ownership which is typical for founders (often considering their firms as their ‘babies’ (Cardon et al., 2005)). A second relevant insight is that joiners significantly differ from employees in established organizations. Our review provided an overview of these differences, which may be useful for entrepreneurs looking for employees who can have the right background, attitude and motivation to join their venture and help it develop. At the same time, it may be helpful for employees, who may be potentially attracted by the characteristics of the new venture context. Third, our review indicates that joiners have a more central role in the success and development of new ventures than what is typically communicated (by entrepreneurs and the press). For instance, articles that praise founders like Mark Zuckerberg or Elon Musk abound, but these stories often fail to recognize the input and efforts of their core employees. Offering more examples of how joiners are crucial for entrepreneurship may give aspiring joiners that final push to apply for a job at a new venture. Our review invites the press to not only highlight the (obviously) important role of the founding team, but to also pay attention to joiners, who are often to a limited extent in the spotlight, but who may also have a highly valuable role in new ventures. Finally, our review also offers interesting insights to policy makers. Several studies posit that working in a new venture entails implicitly accepting a wage penalty (Nyström & Elvung, 2014; Sorenson et al., 2021). Moreover, in some cases, working for a new venture may lead to less promising or fruitful careers due to firm failure or limited opportunities. Policy makers could therefore provide made-to-measure guidance to both founders and joiners, via government programs or locally supported accelerator programs. For example, as new ventures have a higher chance of bankruptcy, outplacement programs specifically focusing on joiners and how they can turn their peculiar set of experiences into a unique selling point can be helpful to limit the duration of joiners’ unemployment.

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Conclusion

Understanding who joiners are and what roles they fulfil within new ventures and new venture development proves to be relevant to further develop theories and practices in the fields of human resource management and entrepreneurship and to inform practitioners. By summarizing extant research and offering a broad range of avenues for future research, we hope to encourage scholars to pursue this novel and flourishing scholarly debate and further study this intriguing group of employees.

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8 HRM in SMEs Under Turbulence: An Employee-Centric Perspective Margarita Nyfoudi

8.1

Introduction

Recent exigencies, such as the COVID-19 pandemic, the RussoUkrainian war, global inflation, and the semiconductor chip shortage, have revealed the great extent to which the world is interconnected. Crises, which a decade ago could have been locally contained, have exposed the vulnerability to turbulence of local, national, and international organisations as well as national economies. “Facing crisis upon crisis” (Georgieva, 2022) is a key implication of operating within a VUCA world and SMEs, which represent about 90% (The World Bank, 2022) of the businesses worldwide are called to develop strategies and implement measures not only to overcome existent turbulence but also to prepare for future crises. M. Nyfoudi (B) University of Birmingham, Birmingham, UK e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 C. Nolan and B. Harney (eds.), Reframing HRM in SMEs, https://doi.org/10.1007/978-3-031-34279-0_8

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Yet, extant work on crisis management focuses primarily on large, often multinational, organisations (e.g., Uitdewilligen & Waller, 2018; Wood & Ogbonnaya, 2018). Paying little attention to how SMEs manage turbulence is problematic not only because they employ over 50% of the world population (The World Bank, 2022), but also because SMEs are more vulnerable to crises than their larger counterparts (Herbane, 2010). Put simply, SMEs operate differently from large organisations and thus, the lack of research may lead to the application of ineffective or even damaging practices. Moreover, from the small body of work that examines the way in which SMEs respond to crises, the majority of studies have either focused on the role of the owner-manager (e.g., Doern, 2016) or SMEs as a unit (e.g., Irvine & Anderson, 2004; Williams & Vorley, 2015). Thus, we know very little about the role of employees and human resources in terms of crisis management in SMEs, despite evidence suggesting that SMEs often resort to crisis mitigation initiatives that heavily affect employees’ work experience (Psychogios et al., 2019; Thorgren & Williams, 2020). Furthermore, employees play a key role in the effective management of a crisis. Indeed, not only are employees tasked with seeing through any change initiatives (Maitlis & Sonenshein, 2010) but also are often the ones on the frontline who experience the effects of the crisis the most (e.g., healthcare staff treating COVID-19 infected patients and salespeople dealing with global supply shortages). The aim of this chapter is to examine how internal or external turbulence may influence employees’ experience of work and to explore which existing HR practices can help remedy any negative repercussions. In doing so, I adopt a multilevel perspective and specifically, ‘Coleman’s boat’ (Coleman, 1990), which allows for a more in-depth examination of the influence of macro-level entities (e.g., turbulence) on other macro (e.g., organisational) or micro (e.g., individual) elements. Subsequently, I develop a framework in which HR practices as situational mechanisms influence the way employees perceive turbulence, leading employees to act in differing ways, and ultimately shaping the emergence of organisational outcomes. The contribution of this work is threefold. First, it repositions our understanding of HRM in SMEs by adopting an employee-focused

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perspective. Thus, the chapter not only heeds calls for more such studies in SMEs (Harney & Alkhalaf, 2021), but also elaborates on employee practices that are more relevant and meaningful for the SME context per se. Second, the work introduces a framework that captures how implemented HR practices influence SME employees’ experience of work in times of crisis. In this way, it offers original insight of how macrolevel influences (e.g., external turbulence) and micro-level elements (e.g., individual employee perceptions and behaviour) interact and influence the emergence of SME-specific HR outcomes (Ostroff & Bowen, 2016). Third, the work broadens the research agenda about HRM in SMEs by identifying underexplored but potentially highly impactful areas for future research (e.g., bottom-up and people-related transformational mechanisms facilitating the emergence of employee actions into firm-level outcomes). The chapter is organised as follows. First, I discuss the context of turbulence and how it may manifest in affected SMEs. Thereupon, I draw on Coleman’s boat to elaborate on the different HR practices, employee action-formation mechanisms, and employee work outcomes in SMEs under crisis. Thereafter, I develop a multilevel framework for future research on HRM in turbulent SMEs. Finally, I discuss how the key debates examined in the chapter may inform extant literature and practice.

8.2

The Context: Crisis in SMEs

King (2002, p. 237) defines a crisis as “an unplanned event that has the potential of dismantling the internal and external structure of an organization” and that “may affect the legitimacy of an organization”. Indeed, it is the unexpected and unforeseen element that makes a crisis a significant organisational event that may even place in jeopardy the survival of an organisation (Shrivastava et al., 1988). Although organisations may often be pro-actively preparing for unanticipated eventualities and trying to detect early warning systems (Mitroff et al., 1987), it is often the organisational response to crises that impacts the sustainability of the organisation (James et al., 2011). In particular, SMEs often lack

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the resources needed for a pro-active detection of threats. Moreover, the centrality of the owner-manager (Harney & Alkhalaf, 2021) may delineate a response to crises, especially in relation to people management, within the confines of the actions of a single individual since the “burden” of HR management often falls on owner-managers (Williamson, 2000). This is particularly problematic during turbulence, not least because the attention of the owner-manager is needed on multiple fronts. Organisations can be affected by a plethora of crises and as such, extant literature has developed different crisis typologies. For example, Mitroff et al. (1987) differentiated crises based on whether they are internal or external and whether they are technical/economic or peoplerelated. Based on this typology, bankruptcies would fall under the internal and technical/economic categories, while consumer boycotts under the people-related and external categories. In a different typology, Coombs and Holladay (1996) differentiated crises in terms of accidents, transgressions, faux pas, and terrorism depending on whether the inducing of the crisis was intentional, and whether the control of the crisis was internal or external. As discussed, previous work on organizational turbulence in SMEs has focused either on the firmlevel (e.g., Williams & Vorley, 2015) or on the actions of the owner/ manager (e.g., Doern, 2016). Only a handful of studies have adopted an employee-centric approach and examined employees’ work experience and the implementation of HR practices in SMEs under crisis (e.g., Prouska et al., 2022; Psychogios et al., 2019). Indeed, despite recent work acknowledging that top-down communication, employee voice, and team information sharing are instrumental HR practices in SMEs during turbulence (Nyfoudi et al., 2022b; Prouska et al., 2022), we still have little understanding of how a crisis changes SME employees’ work experience and the way they perceive different HR practices (e.g., redundancies and salary freezes). This scarcity is in line with a general dearth of studies in SME literature focusing on employees (Harney & Alkhalaf, 2021). Nevertheless, given the importance of employees for SMEs, especially in times of calamity and turbulence (Nyfoudi et al., 2022b), the lack of an in-depth understanding of the lived work experiences of employees may lead to inefficient and ineffective work practices that further accentuate rather than diminish the impact of the crisis

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in the organisation. The rest of the chapter elaborates on a theoretical framework that places HR practices and employee work experience front and centre with the aim to provide a more comprehensive theoretical examination of the topic and encourage future research.

8.3

Coleman’s Boat

Recently, Coleman’s boat has been identified as a useful framework to theoretically explain the causal links between macro and microlevel phenomena (Cowen et al., 2022). Specifically, Coleman (1990) argued that macro-level phenomena cannot be fully understood unless we also examine the role of human agents. Indeed, Hedström and Ylikoski (2010) highlighted that simply linking two macro-level properties is theoretically problematic because it creates causal gaps. Rather a more layered explanation is needed to identify the causal mechanisms that underpin a relationship between two macro-level properties. Hedström and Swedberg’s (1996) work extended Coleman’s framework by elaborating on situational, action-formation, and transformational mechanisms that explain the transition of influence between macro and micro levels. They highlighted that attention needs to be paid to the situational mechanisms through which macro-level factors influence micro-level desires and beliefs, which in turn inform individual actions successively leading to higher-level outcomes. Coleman’s framework is highly relevant in the examination of HRM in SMEs under crisis. Not only turbulence is a macro-level factor that affects individual employees, but also how employees react during crises influences the sustainability of the SME. Specifically, the implementation of HR practices (a situational mechanism) influences how organizational turbulence (a macro-level factor) affects individual employee desires and beliefs about their work experience (micro-level factors). In turn, employees choose a course of action through action-formation mechanisms, which through different transformational mechanisms may translate into higher-order outcomes. The following sections elaborate on the role of these different mechanisms.

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HR Practices in SMEs as Situational Mechanisms

Situational mechanisms are instrumental in the contextualisation of micro-level phenomena (Cowen et al., 2022). Indeed, although a macrolevel phenomenon could be present in many organisations (e.g., a crisis), the situational mechanisms are what mould individual desires, belief systems, attitudes, and behaviours. A key situational mechanism is the implementation of HR practices. Ostroff and Bowen (2016) highlight that consistency matters in HR implementation. The more consistently the HR practices are implemented the more pervasive their influence will be on employees’ interpretation of the macro-level phenomenon, i.e., the crisis. This is highly important because, in times of turbulence, employees’ job insecurity and stress are heightened (Chatrakul Na Ayudhya et al., 2019); especially, in SMEs which are in general more vulnerable to turbulence (Herbane, 2010; Irvine & Anderson, 2004). In other words, in times of crisis, HR practices may help accentuate or alleviate employees’ thoughts and feelings concomitant of an organisational crisis. Extant studies indicate that SMEs adopt an ad hoc, informal, and often incidental approach regarding the implementation of HR practices (Agarwal & Jha, 2015; Della Torre et al., 2021). Furthermore, a large part of HR practices in many SMEs is outsourced to an external company, among others for cost-reduction purposes; however, the outsourcing is often sought in an opportunistic way rather than as part of an informed strategic decision (Edvardsson & Teitsdóttir, 2015). This haphazard approach to HR practices is highly problematic in times of crisis because not only does it send employees inconsistent messages in terms of the intentions of the management but also it further accentuates employees’ insecurity and uncertainty. Be that as it may, previous work highlights that the focus for many SMEs during crises in relation to HR is cost savings through workforce reduction practices (e.g., redundancies and reduction of working hours), wage cuts and freezes, and leaves of absence (Burhan et al., 2021; Irvine & Anderson, 2004; Psychogios et al., 2019). These HR practices correspond to the “bleak house” scenario where SME employees

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face adversity (Wilkinson, 1999). Nevertheless, studies also elaborate on the implementation of different HR practices amidst turbulence, such as employee communication and retention strategies (Burhan et al., 2021; Prouska et al., 2022) that correspond more to the “small is beautiful”, family-like image parable. Harney and Alkhalaf (2021) caution against a polarised approach when examining HR practices in SMEs. Indeed, it is possible for many SMEs undergoing turbulence to adopt a variety of HR practices from either of the aforementioned scenarios. Developing a nuanced understanding of the implementation of HR practices in SMEs under crisis is important since employees’ attributions of the enactment of HR practices influence their actions in the workplace (Sanders et al., 2021). The following section expounds on SME employees’ action-formation mechanisms in times of crisis.

8.5

Employees’ Action-Formation Mechanisms

Hedström and Ylikoski (2010) highlighted that individual actions are primarily triggered by psychological processes. Respectively, in SMEs under turbulence, HR practices influence employees’ “affect, behavior, choices, cognition, decisions, preferences, values” (Cowen et al., 2022, p. 2) and idiosyncrasies, which in turn shape their actions in the workplace. For example, Psychogios et al.’s (2019) study on SME employees’ citizenship behaviour revealed that cost-reduction HR practices amid a crisis are negatively related to employees’ job satisfaction, and in turn, citizenship towards the organisation (OCBO). In contrast, the authors found a positive relationship between cost-reduction HR practices and employees’ citizenship towards their colleagues (OCBI). The HR attribution theory (Nishii et al., 2008) could help explain these findings. In particular, employees might have attributed the implementation of cost-reduction HR practices to internal management choices (hence, the negative relationship between cost-reduction HR practices and OCBO) which could be different from what they and their colleagues would have chosen (hence, the positive relationship between cost-reduction HR

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practices and OCBI). Nevertheless, Uçanok and Karabati (2013) highlight that conservation values, work centrality, and affective commitment play an important role in terms of SME employees’ citizenship behaviour during turbulence. Although cost-reduction HR practices seem to relate negatively to employee-related actions, previous work has also examined more resilient HR practices. Specifically, a recent study demonstrated that top-down employee communication is an HR practice that encourages employee voice and solidarity among SME employees during times of turbulence (Prouska et al., 2022). The authors drew on social exchange theory (e.g., Cropanzano et al., 2017) to explain that when management discloses important information to employees, especially during times of crisis, employees appreciate this as a gesture indicating “psychological and social closeness”, which they then reciprocate, not only by speaking up and suggesting ways to help the SME sustain the crisis, but also by helping their colleagues out (Prouska et al., 2022, p. 4). Information appears to be an important resource in SMEs under turbulence. Indeed, another study that focused on team information sharing found that it plays an important role in diminishing the negative workplace repercussions of workforce and cost reduction strategies (Nyfoudi et al., 2022b). The authors built on Foa and Foa’s (2012) resource theory of social exchange to explicate that employees are less likely to go the extra mile for their employer in the midst of redundancies and salary freezes unless important information is shared freely within their teams. These studies are highly relevant because instead of adopting a polarised approach focusing on either cost reduction or resilient employee practices, the authors examined both.

8.6

People-Related Transformational Mechanisms in SMEs Under Crisis

According to Coleman (1990), a relationship between two macro-level phenomena can be causally explained through human agents’ actions and their relations. Based on this, Hedström and Ylikoski (2010) elaborated that the emergence of a macro-level phenomenon is facilitated

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by transformational mechanisms by which “individuals, through their actions and interactions, generate various intended and unintended social outcomes” (p. 59). In terms of people-related transformational mechanisms in SMEs under crisis, employee learning has been identified as a fundamental process. Employee learning in SMEs is usually informal and experiential (Saunders et al., 2014), whilst any training offered (to achieve learning) is primarily on-the-job (Uskov & Casalino, 2013). Many SME firms prioritise learning and promote a culture of learning and development (Kock & Ellström, 2011). In a study of over 1,000 UK SMEs, Saunders et al. (2014) found that those SMEs which were significantly more committed to and approached employee learning as an investment were more innovative and able to learn from crises. Similarly, in a study of 983 SMEs from Germany, Demirkan et al. (2022) found that employee training was positively related to SMEs’ innovation capabilities and that the strength of the relationship fluctuated depending on the employees’ level of education and size of the firm. Employee learning appears to be important not only for SMEs’ innovation but also for resilience and organisational performance during a crisis. A case in point is the study of Swedish textile and clothing SMEs (Pal et al., 2014), in which group/team learning appeared to influence SMEs’ economic resilience during the 2007–2009 macro-economic crisis. Furthermore, Prouska et al. (2016) examined 199 SMEs in South-East Europe and found that an organisational culture that promotes personal and professional development is positively related to organisational performance. Although we know little about other people-related transformational mechanisms in SMEs under crisis, a handful of studies have made significant contributions. Specifically, Prouska et al.’ (2016) study found that employees’ work-life balance and voice mechanisms were positively related to organisational performance. Moreover, Pal et al. (2014) found that trust among employees and sense of purpose were significantly related to organisational resilience. Further to the above, rightsizing, i.e., “seeking the appropriate size instead of focusing on how much to cut; and continuing to hire, grow, and develop in priority areas” has been acknowledged as an instrumental way for SMEs to cope with crisis (Chu & Siu, 2001, p. 847). Be that as it may, SMEs may select an

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unpopular course of action in terms of their people processes resulting in unfavourable social outcomes. For example, in their study of Canadian high-growth SMEs during the COVID-19 pandemic, Lim et al. (2020) demonstrated that low employee morale contributes to a spiral of growth reversal. More research is needed to understand how different people management choices lead to firm-level outcomes during turbulence. Coleman’s model provides a sound theoretical basis for future research. The next section proposes a conceptual framework based on the discussion so far and identifies unexplored areas for future research.

8.7

Framework and Directions for Future Research

Figure 8.1 depicts a proposed framework for research on HRM in SMEs under turbulence. The framework, which is based on Coleman’s boat (1990), takes the form of the letter “u” or a boat, explaining how and in what ways macro-level phenomena interrelate through the actions and interactions of human agents. In line with Cowen et al. (2022), the framework highlights ways to bridge macro and micro perspectives, which is much needed when researching the repercussions of turbulence in SMEs. In other words, the action and interaction of human agents in SMEs causally mediates the relationship between organisational turbulence as a macro-level phenomenon and other organisational-level outcomes (e.g. firm performance). Unless we are able to account for human agency, macro-level associations cannot be fully explored and accounted for (Cowen et al., 2022). According to Fig. 8.1, the starting point of the framework is organisational turbulence. Although previous work has developed different typologies of crises (e.g., Coombs & Holladay, 1996; Mitroff et al., 1987), we have limited understanding of whether different types of crises affect employees and people management differently. For example, it is possible that an internal type of crisis that is related to an accident in the production line (e.g., faulty product) triggers different types of HR practices and thereupon employee attributes than an external crisis, such as the COVID-19 pandemic. The differences could be even more

Fig. 8.1 A framework for research on HRM in SMEs under turbulence

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pronounced for SMEs since HR practices are often incidental and implemented on an ad hoc basis. Furthermore, the majority of previous work on SMEs under turbulence has focused on an economic type of turbulence (e.g., financial crisis). Yet, an important area for future research is people-related crises (Biron et al., 2021). The need for such research is highly pressing especially concerning SMEs, for the survival of which employees are highly instrumental (Nyfoudi et al., 2022b). The framework elaborates on HR practices as situational mechanisms that help employees make sense of and contextualise a particular crisis. Previous work on SMEs under turbulence has mainly adopted a selective approach in terms of HR practices. Specifically, although HR practices in SMEs are often examined in bundles during periods of growth and stability (e.g., Aït Razouk, 2011; Shahzad et al., 2019), we have little understanding of how HR bundles in SMEs influence employees’ affective and behavioural outcomes in times of turbulence. Furthermore, a different configuration of HR practices may be more relevant to turbulent contexts than already existing ones (i.e., high-performance work systems, high-commitment work practices). More work is needed to unravel whether and if so how and why different configurations of HR practices impact employee feelings and work behaviour. Action-formation mechanisms are paramount in the present framework. They explain how proximal micro-level characteristics and distal macro-level elements shape employees’ actions at work. The majority of previous work on micro-level dynamics on SMEs under turbulence focused on social-exchange theory to explicate how employees reciprocate a people-oriented initiative or rationalise what course of action to take in times of crisis (e.g., Nyfoudi et al., 2022b; Prouska et al., 2022). However, many other processes could be important in the formation of employee actions. For example, employees may perceive HR practices as signals (Guest et al., 2021), which depending on their interpretation, may influence how employees act in the workplace. Signalling theory (e.g., Connelly et al., 2011) could be a useful theory to draw on when examining how employees interpret people management practices in SMEs under turbulence. Another action-formation mechanism that is worth examining in SMEs under turbulence is how employees make sense of the crisis per se. Sensemaking (Maitlis & Sonenshein, 2010;

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Weick, 1988) heavily underpins extant work on SMEs under turbulence (e.g., Bettiol et al., 2012; Petersen & Rasmussen, 2021). Yet, we still know very little about employees’ sensemaking processes in SMEs undergoing a particular crisis. Timing may also be important. Crises create highly volatile and unstable environments whereby SMEs may need to keep adjusting their HR practices or alternatively employees’ responses may change depending on the internal and external exigencies. Adopting a temporal lens may help future studies capture change and action-formation mechanisms over time. SMEs’ shortage in resources and heightened vulnerability to turbulence in comparison to larger firms increases their reliance on labour flexibility (Nyfoudi et al., 2022b). This is perhaps the reason why prosocial behaviours, such as employees’ citizenship, solidarity, and voice have been the focus of attention of previous work on SMEs under crisis. Nevertheless, many other employee actions are important for SMEs. For example, employee task performance is not only relevant to the bottom line of the firm but also it has been found to relate to customer loyalty (Budur & Poturak, 2021). Similarly, employee learning is instrumental for SMEs in terms of their resilience during crisis, innovation, and organisational performance (Demirkan et al., 2022; Pal et al., 2014; Prouska et al., 2016; Saunders et al., 2014). We have a limited understanding of how different action-formation mechanisms shape important employee actions other than pro-social behaviours for SMEs under crisis. In addition, we know very little about how people-related transformational mechanisms enable the emergence of employee actions into firm-level outcomes that are important for SMEs. Previous work, albeit highly important in developing the field, has adopted a rather fragmented approach and we need more studies examining the different pathways to instrumental employee and firm outcomes. This chapter may be used as a starting point for such future endeavours.

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Theoretical Implications for HRM in SMEs

The chapter makes three major theoretical contributions. First, it shifts the attention of crisis management in SMEs from an owner-manager to an employee-focused perspective. Specifically, only a handful of recently published studies have elaborated on employees’ work experience and identified implemented HR practices in SMEs in times of turbulence (Nyfoudi et al., 2022b; Prouska et al., 2022; Psychogios et al., 2019). Harney and Alkhalaf ’s (2021) quarter-century review highlighted the lacuna of employee-oriented studies and cautioned that it contributes to lags in our understanding of HRM in SMEs. This knowledge gap is problematic because managers, who are often the focus of extant studies, may elaborate on their intentions, in other words, what they espouse to implement, whilst in contrast employees usually attest to what kind of practices are implemented in the workplace (Kuvaas & Dysvik, 2010). Put differently, unless we examine both managers’ and employees’ perspectives in relation to HRM in SMEs under turbulence, our understanding will remain partial and incomplete. Thus, by adopting an employee-focused approach, the chapter builds on the limited body of employee-focused work to reposition the examination of HRM in SMEs under crisis. Second, the chapter offers novel insight by introducing a multilevel framework that allows for a more comprehensive examination of HRM in turbulent SMEs. In particular, it draws on Coleman’s (1990) and Hedström and Ylikoski’s (2010) work to develop a framework that captures the relationship between macro-level and micro-level influences and vice versa. It explains how organisational turbulence may impact HR practices, which in turn influence employees’ attributes. In addition, it elaborates on action-formation mechanisms and people-related transformational mechanisms that facilitate the emergence of employee actions into firm-level SME outcomes. In so doing, the framework bridges macro and micro-perspectives in SME crisis management literature (e.g., Doern, 2016; Edvardsson et al., 2015; Psychogios et al., 2019) and corresponds to calls to account for the causal role of human agency in macro-level dynamics (Cowen et al., 2022).

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Third, the chapter broadens the research agenda on HRM in SMEs under crisis by highlighting areas that have not yet received significant academic attention. In so doing, the chapter develops a future research agenda that focuses not only on HR practices, action-formation, and transformation mechanisms, but also on the cross-level pathways that enable a more comprehensive understanding of employees’ experience of work during times of turbulence. Although it has been acknowledged that more studies are needed on HRM and crisis in SMEs (Harney & Alkhalaf, 2021), the current literature is fragmented, and little substantive theoretical underpinning exists to guide future work. The present chapter used the developed theoretical framework to identify obscure research areas for future studies and thus, guide future work on the topic.

8.9

Practical Implications for HRM in SMEs

The chapter has significant implications for SMEs. Specifically, ownermanagers and HR practitioners are encouraged to adopt an informed approach to the selection and implementation of HR practices in times of turbulence. Although cost-reduction HR strategies may seem highly relevant and easy to implement, they have significant ramifications in terms of employees’ morale and attributions, which subsequently affect their course of action. Indeed, although during a crisis, SME ownermanager expectations increase for the employees (Kroon et al., 2013), the latter may refrain from going the extra mile for their employer if working conditions have become adverse (Psychogios et al., 2019). A more resilient approach in terms of the implementation of HR practices may be more beneficial. For instance, owner-managers and HR practitioners may focus on employee communication to help employees make sense of the crisis per se and its repercussions for the SME. Furthermore, SMEs need to invest in people-related transformational practices both during turbulence and in prosperous times. Such transformational practices will enable SMEs to capitalise on employee outcomes that are instrumental for the firm’s innovation, performance, and resilience. For example, instead of an SME neglecting its talent pipeline during crises, it may adopt rightsizing, which will enable the

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SME to avoid creating gaps in skills, knowledge, and business acumen which are all needed for SME growth when the turbulence dissipates (Chu & Siu, 2001). Similarly, SMEs could adopt a culture that encourages and promotes learning, enabling employees to develop a more positive stance on the crisis and view it as an opportunity to learn and innovate (Saunders et al., 2014). Given the informality that exists within SMEs, a learning culture does not have to be implemented through formal and costly training programmes. Instead, managers could play an important role in promoting a learning culture by, for instance, coaching their direct reports during their everyday interactions (Nyfoudi et al., 2022a).

8.10 Conclusion The aim of the chapter was to examine how turbulence influences employees’ work in SMEs under crisis and what role HR practices play in shaping employee and organisational outcomes. To achieve this, the chapter examined different types of organisational turbulence and introduced Coleman’s (1990) boat as a multilevel theoretical lens that enables the examination of cross-level influences. Thereupon, the chapter developed a framework for SMEs under crisis with three key apparatuses: (a) HR practices as situational mechanisms that shape how organisational turbulence influences employees’ attributes, (b) action-formation mechanisms that mould employee attributes into actions, and (c) people-related transformational mechanisms that facilitate the emergence of employee actions to firm-level SME outcomes. The framework can be useful not only to guide future research but also as a blueprint for SMEs under crisis to guide them in relation to making important people-related decisions.

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9 Dynamics of Formality and Informality: Examining and Resolving Tensions Ciara Nolan and Brian Harney

9.1

Introduction

Dominant theorising in HRM has evolved from the study of larger organisations, where formalisation of activity is axiomatic and there is an assumption that generic models have universal relevance (Kitching & Marlow, 2013). This dominant discourse has served to sustain and support predominantly formal patterns of activity to the exclusion of informal approaches that frequently prevail in the SME setting. Scholars maintain that SMEs embody a number of unique characteristics that may preclude the adoption of more formal and sophisticated practices, C. Nolan (B) Technological University Dublin, Dublin, Ireland e-mail: [email protected] B. Harney DCU Business School, Dublin City University, Dublin, Ireland e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 C. Nolan and B. Harney (eds.), Reframing HRM in SMEs, https://doi.org/10.1007/978-3-031-34279-0_9

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including resource constraints, environmental vulnerability, and proximity of relations between owner-managers and employees (Harney et al., 2022; Wapshott & Mallett, 2021, see also Introduction). The aforementioned features of dominant theorising have led to the emergence of a deficiency model of HRM in SMEs, which implies that if small firms do not apply the same sophisticated HRM practices as used by large and leading companies then by definition they will not be able to obtain positive performance outcomes. However, this deficit perspective is fraught with problems as it does not aid in our understanding about what actually happens in SMEs and the logic underpinning particular approaches to HRM practice, particularly informality. In this chapter we argue that debates grounded in the deficiency model have offered a rather sterile, one-way street of analysis; describing something by what it is not does little to illuminate its qualities or characteristics. This also raises the question of whether SMEs must adopt formality or whether informal, distinctive approaches to HRM might be equally successful (Kitching & Marlow, 2013). Consideration needs to be afforded to whether the practices-in-use are achieving their objectives within a given context (Wapshott & Mallett, 2016). As Burrows and Curran (1991, p. 17) maintain, “what is required is an approach which focuses on small scale activities as a starting point rather than treating them as derivative or residual to larger firms”. Moving beyond a deficiency logic requires challenging conventional wisdom regarding the empirical elusiveness of HRM in SMEs. Traditional research in this area finds a predominance of informal HRM practice e.g. SMEs recruiting through personal networks and an emphasis on learning onthe-job (Forth et al., 2006). SMEs have been found to be much less likely to apply the likes of psychometric tests for recruitment, to deploy employee surveys or extensive voice procedures. There are of course variances across practices, with institutionally mandated formal policies, for example in the domain of grievances and health and safety more likely to be in place. Still, given the socio-economic footprint of SMEs and the predominance of informality found in this context, there is a need for alternative understanding which better captures and explains what actually happens in SMEs and why HRM assumes a particular nature and form.

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In an effort to advance understanding in this area this chapter commences by examining the overarching conceptual properties of formality and informality and how these concepts have been deployed in the study of HRM in SMEs. We then consider the nature of the formality-informality relationship within the unique SME setting, as well as tensions inherent in this relationship surfaced by owner-manager and employee perspectives. We contribute to the ongoing debate of the formality-informality dichotomy and suggest that formal and informal HRM can be simultaneously complementary and substitutive, but ultimately highly contingent on the firm context. Finally, we outline an agenda for future research that may serve to better capture and accommodate the formality-informality dynamic.

9.2

Examining Prior Use of the Terms Formality and Informality

Accounts of the informal nature of HRM in SMEs are plentiful, as borne out by recent systematic reviews (Harney & Alkhalaf, 2021; Van Lancker et al., 2022). Equally prevalent are studies criticising this informality (Bryan, 2006; Rauch et al., 2005). SMEs are frequently encouraged to adopt formality in their approach to managing the employment relationship with researchers extolling its superiority (Chhinzer, 2022). However, what is frequently lacking in these analyses are explicit definitions of the key concepts of formality and/or informality. As Marlow et al., (2010, p. 956) argue, “at best, ‘common sense’ renditions dominate or there is an assumption that ‘formal’ equates to rule based and ‘informal’ to social negotiation”. The HRM literature is not unique in this regard. For example, Morand (1995) bemoaned the fact that while formality and informality are terms frequently invoked by organisational researchers, rigorous attempts to define and validate these constructs have been avoided. Useful insights concerning definitional matters can be gleaned from Child (1994, p. 294) who defines formalisation as the degree to which “work and responsibilities in organisations are formally laid down to

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standard procedures and allocated to designated specialists”. Significantly, Morand (1995) conceptualises formality and informality as modes of social activity that govern individual behaviour. Informality is defined by its “behavioural spontaneity, casualness, and interpersonal familiarity”, while formality refers to “situations and social relations that are more regimented, deliberate, and impersonal in nature” (ibid, p. 831– 2). Such definitions suggest that formality serves as a means to control the employment relationship through the use of uniform and consistent procedures, often in the presence of a dedicated expert. Informality, on the other hand, is characterised by idiosyncrasy, close relationships, and social interaction between organisational members. From this understanding behavioural control is said to be more viable in smaller entities, because as the size of an organisation grows there may be more of an emphasis on output and rules. While the particular challenges of defining and operationalising these constructs are acknowledged (Marlow et al., 2010), some authors (see Table 9.1) have endeavoured to map out the territory and establish key features. Upon closer examination of these sample definitions, informality appears to be used in a rather loose manner and in a number of alternative and competing ways. For example, there is a lack of emphasis and depth afforded to definitions of informality in comparison to its formal counterpart. Informality appears to be defined by conditions of absence and deficiency, with many studies abstaining from offering any insights. Informality also appears to signal an ad-hoc means of operating, which carries implications for the manner in which employment relationships are managed on a day-to-day basis. Definitions of informality strongly emphasise the centrality of close, personal interactions and working relationships. A desire to “evade or challenge formality” (Marlow et al., 2010, p. 957) is evident, as is a reliance on custom and practice. In contrast, there is a stronger degree of consensus amongst researchers regarding definitions of formality, as well as its identifying features (Misztal, 2000). This may be attributed to its visibility via the presence and measurement of particular HRM practices, which have attracted greater research attention. Typical examples of indicators of a formal

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Table 9.1 Definitions of formality and informality in a sample of HRM in SMEs investigations

Authors

Definition of formality/ key indicators

Amarakoon and Colley (2022)

• Formality is associated with rule-based standardised practices/ approaches

Burham et al. (2023)

• Degree of adoption of a bundle of HRM practices, whereby the more organisations implement the practices, the formal their HRM systems are • Documentation and standardisation of rules, procedures and instructions; their prescription and regular application; conformance to legal requirements and professional standards; and practices stimulating employee commitment and competence • HRM formality refers to the extent to which HRM practices are documented, standardised and institutionalised into the firm

Kim and Ghao (2010)

Definition of informality/key indicators • Informality is associated with social negotiation, spatial and social proximity • Lack of a systematic approach towards managing human capital • Less efficient people management practices • Lack of formal and standardised practices • Systems grounded in strong personal relationships underpinned by mutual obligation-bonding, loyalty and harmony

(continued)

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Table 9.1 (continued)

Authors Lai et al. (2017)

López et al. (2019)

Marchington and Suter (2013)

Definition of formality/ key indicators • Formality of HRM is defined as the extent to which HR policies and practices are documented, systemised, institutionalised and integrated into the firm, with the highest indicator of HR formality being the presence of a specialist HR professional to manage HR issues • The adoption of a set of rules and documented procedures about human resource management • Codified, pre-arranged, and regular practices/ concrete structures

Definition of informality/key indicators • Close working relationships, flexible working patterns, negotiable work responsibilities and more opportunities to participate

• Not defined

• Ad-hoc or non-programmed interactions between managers and their staff (continued)

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Table 9.1 (continued)

Authors Marlow et al. (2010)

Marlow and Thompson (2008)

Martin et al. (2008)

Definition of formality/ key indicators • The presence, recognition, and consistent and appropriate use of dedicated written policies and procedures within key areas of the employment relationship • Embedded formality refers to the presence of policies in place can be identified and their consistent and appropriate use in practice can be traced • The presence of policies both in place and in practice • Formal policy that has been introduced and the degree it has become embedded within the management of employment relationship • Written procedures to carry out HR functions and the development of documentation and processes

Definition of informality/key indicators • Informality tends to be conceptualised as residual, a nostalgic relic of pre-modernity. At best, informality is embedded in a common-sense way as practices that evade or challenge formality, face-to-face rather than procedural or bureaucratic

• Ram et al. (2001) definition used (see below)

• Little regard for formal workplace practices • Little standardisation or documentation • Loose and informal working relationships (continued)

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Table 9.1 (continued)

Authors Nguyen and Bryant (2004)

Pajo et al. (2010) Psychogios et al. (2016)

Definition of formality/ key indicators • HR formality is defined as the extent to which HR practices are documented, systemised, and institutionalised • Formal HR practices have identifiable policies, rules and regulations that are documented and integrated into the firm • A planned, structured, and delimited activity • The extent to which policies and procedures are written down, the degree to which policies are regularly applied, the degree to which the employer has given assurances that an activity should take place and the extent to which HRM practices conform to legal requirements • Formal regulations and policies to “control” employees and a more professionalised and structured management approach

Definition of informality/key indicators • An informal mechanism exists when no system is in place and decisions are made on a personal, case-by-case basis by the owner-manager

• Not defined • Emergent and reactive, fairly piecemeal and “hands on”, rather than applied through a holistic or systematic approach • Absence of a formal HRM department or HRM specialist • Less bureaucratic control

(continued)

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Table 9.1 (continued)

Authors

Definition of formality/ key indicators

Ram et al. (2001)

• Not defined

Singh and Vohra (2009)

• Presence of a department or specialist to manage HR issues • Formal plans • Formal policies and procedures • Employment of a HR professional • Documented formal procedures, practices and systems • Existence of a formal strategic plan • The presence of written procedures, rules and policies to regulate the employment relationship • Long-term orientation

Storey et al. (2010)

Townsend et al. (2017)

Definition of informality/key indicators • A process of work engagement, collective and /or individual, based on mainly unwritten customers and tacit understandings that arise out of the interaction of the parties at work. As such, informality is dynamic rather than a fixed characteristic, and is highly context specific • Unwritten, fluid procedures and practices • Lack of strategic integration

• Not defined

• An absence of written procedures with custom and practice dominating decisions • Ad-hoc, short-term arrangements (continued)

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Table 9.1 (continued)

Authors

Definition of formality/ key indicators

Verreynne et al. (2013)

• Not defined

Wang et al. (2022)

• A specified HR role staffed by a HR professional • Formal employment policies to ensure consistent employment practices

Definition of informality/key indicators • Informal HR is a flexible set of practices, understood best by those who enact them • Not having a professional HR manager in post; arbitrary management approach to employment relations

system include the presence of an HR specialist, and documented policies and procedures for core HRM practices. Further important features of formality are its institutionalisation, consistency in use and delimited nature.

9.3

The Role and Function of Formality and Informality

There is a nascent, yet growing body of evidence concerning the role and function played by formality and informality within the context of the SME employment relationship. Such evidence stems primarily from studies that have investigated the impact of employment regulation in the smaller firm setting (e.g. Arrowsmith et al., 2003; Kitching, 2016; Mallett et al., 2019; Marlow, 2002; Saridakis et al., 2013). Other studies have explored employee involvement and participation (Marchington & Suter, 2013), attraction and retention challenges (Amarakoon & Colley, 2022), training and development (Nolan et al., 2019, 2020), employee voice (Gilman et al., 2015) and recruitment practices (Barrett et al., 2007).

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Formality Beginning with formality, research suggests that it is utilised to facilitate legal compliance and mitigate the risk of employment tribunals (Atkinson et al., 2016; Barrett, 2015; Kim & Ghao, 2010). Formality sends a signal that the firm is ‘doing things properly’, according to professional standards (Marlow & Thompson, 2008). It also plays an important legitimising function because it enables the firm to portray a sense of fairness and consistency in how employees are managed, often with the presence of a dedicated HR specialist (Wang et al., 2022). By way of illustration, Marchington and Suter (2013) maintain that formal employee involvement and participation practices provide a safety net to ensure that communications reach all staff, as well as an audit trail which is transparent. Moreover, the adoption of particular practices that conform to industry norms may also be an important driver of formalisation (Kaman et al., 2001; Nolan et al., 2020). The use of formal management practices is positively correlated with firm size (Forth & Bryson, 2019). Larger firms may introduce more formalised HRM approaches due to their greater capacity and resources to absorb potentially high costs (Kim & Ghao, 2010). Formality may also be borne of necessity as a firm grows. The concept of the ‘formalisation threshold ’ (Atkinson & Meager, 1994) points to the requirement for a shift from informality to formality due to greater organisational complexity and the imperative to delegate responsibility. Some studies suggest that the limitations of informality become apparent when a firm reaches a threshold of 20 employees (Kotey & Slade, 2005; Roberts et al., 1992). At this point, the capacity of the owner-manager to assume full control is diminished, and delegation of responsibility becomes advantageous (Johnson & Beaver, 1997). There is much contradictory evidence concerning the fundamental presence of HRM in SMEs and the merits of introducing formality to the SME context. While research suggests that SMEs make less use of formal HRM practices, what is less clear is whether formality is truly beneficial to SMEs and under what circumstances. A range of studies have found a positive relationship between the adoption of formal HRM

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practices and a wide range of SME performance outcomes such as profitability (Jones et al., 2013; López et al., 2019), labour productivity (Sheehan & Garavan, 2022), innovation (Do & Shipton, 2019), sales level (Messersmith & Guthrie, 2010), and resilience (Lai et al., 2016). Several studies have also confirmed the positive impact of formal practice on firm growth (Gray & Mabey, 2005; Heilmann et al., 2020), while others emphasise the importance of formality for successful internationalisation (Chi et al., 2008; Onkelinx et al., 2016). A further stream of research has concentrated on employee behaviour and performance outcomes. For example, employee participation in formal development opportunities may lead to higher levels of job satisfaction, increased motivation, decreased turnover intentions and neglectful behaviour (Pajo et al., 2010). Formality may also help to elicit employee commitment and increase organisational citizenship behaviours in SMEs (Giauque et al., 2010; McClean & Collins, 2011), as well as exerting a positive effect on absenteeism, the number of dismissals and staff perceived collective trust in management (Wang et al., 2022). Despite the aforementioned advantages, for some researchers the idea that formality adds value in an SME context ‘remains contentious’ (Bryson & White, 2019, p. 750). Some even argue that formality may interfere with the distinctive advantages of smallness such as flexibility and informality (Forth & Bryson, 2019; Verreynne et al., 2013). It is also suggested that the introduction of formality may be harmful to the informal culture of SMEs (Chadwick & Li, 2018; Kitching & Marlow, 2013). For example, formality may be damaging to interpersonal relationships and negatively impact upon job satisfaction, trust and engagement (Storey et al., 2010). Other research points to the constraining role that formality plays in the ability of employees to negotiate on their salary and benefits (Michiels, 2017) and obtain access to flexible working arrangements (Kotey & Koomson, 2021). Several studies emphasise the complex trade-off between investments in formal HRM and the potential benefits within the SME setting (Chadwick et al., 2013; De Winne & Sels, 2010). Some report that the costs of introducing formalised HR practices may well outweigh the benefits (Sels et al., 2006) and undermine productivity gains (Verreynne et al., 2013). Such costs may involve the upgrading of firm structure,

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which SMEs may find prohibitively costly (Patel & Cardon, 2010). As Sheehan (2014, p. 551) observes “before a formal practice is introduced, there are likely to be at least some implicit (if not explicit) calculations about the possible returns associated with the implementation”. Hence, the introduction of formality may only be justified if the investment pays off in the long term. Despite this economic reality, the resource investment in terms of expertise, time and finance required of HRM practices is something that is rarely considered in the literature (for one exception see Sels et al., 2006).

Informality As observed, there is a significant body of literature that emphasises the preference for informal approaches to managing and developing the workforce amongst SMEs: The notion of informality comprising particularistic/individualistic management of employees and the absence of professional HR managers, policies and practices is the underpinning construct informing contemporary analyses of HR practices in small firms. (Kitching & Marlow, 2013, pp. 30–31)

Informality is manifest in a number of ways, beyond the simple absence of formal policies, procedures and practices. For example, informality often persists as the firm is typically overseen by the owner or one general manager, in the absence of a dedicated HR specialist (Garavan et al., 2016). The prerogative of the owner-manager therefore has a greater influence on HR decision-making (Sheehan & Garavan, 2022). However, owner-managers usually lack professional understanding, preferring instead to adopt idiosyncratic approaches without recourse to formal procedures (Marlow et al., 2010). Indeed, the desire of owner-managers to remain ‘hands-on’ with labour management for as long as possible is strongly emphasised (Wang et al., 2022). A key motivating factor for many owner-managers is the desire to escape the formality and bureaucracy of the large firm (Nikolova, 2019). Hence, the small business setting permits owner-managers to pursue particularistic

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ways of operating, which extends to HRM (Arrowsmith et al., 2003). Indeed, Woods and Joyce (2003) argue that efforts to encourage SMEs to transcend their preferred informal style of management and adopt more formal methods of operating may be somewhat utopian. Many SMEs operate in highly dynamic and turbulent environments characterised by volatility, uncertainty, complexity, and ambiguity (VUCA) (Xing et al., 2020). The proximity of SMEs to these external environmental conditions leaves them particularly vulnerable and unable to exert significant power or influence (Psychogios et al., 2019). The ability to survive and successfully compete in a VUCA world requires the ability to anticipate and respond rapidly and effectively to external conditions (Zhang-Zhang et al., 2022). As a consequence, informality fits well with the constraints facing SMEs, as it can speed up decision-making and may even be more appropriate and effective in enhancing business performance (Chadwick et al., 2013; Úbeda-García et al., 2017). Informality therefore lends itself to the operational flexibility needed to effectively respond to evolving external pressures. For example, Nolan et al. (2020) found that formal approaches to training and development may constrain SMEs at a time when flexibility and adaptability is required, while Hubner and Baum (2018) argue that informality is strategically leveraged by SMEs to meet dynamic business needs. Such findings resonate with Harney and Alkhalaf ’s (2021) conclusion that even if HR practices are informal, they can still play a vital role in the success of SMEs. SMEs are frequently hindered by resource limitations which can exacerbate operating conditions, leaving little room for error or unexpected shocks (Kroon et al., 2013). SMEs invariably respond by adopting a short-term horizon, favouring projects offering rapid returns. HR interventions are thus appraised on the basis of their usefulness to practice and direct applicability in the firm setting, with informality being seen as delivering a more immediate and tangible payback (Morgan et al., 2008). Resource constraints (e.g. finance, time, operational pressures, lack of HRM expertise) may also coalesce to reinforce the informal, ad-hoc nature of HRM within SMEs (Wapshott & Mallett, 2021). Informality persists because it enables prompt, flexible and inexpensive responses to labour management issues (Marlow et al., 2010). For example, Chadwick

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et al. (2013) argue that formal HRM may impose significant burdens on the constrained resource context of SMEs in terms of managerial time and expertise. However, other studies suggest a more nuanced picture. In the context of small tourism firms, Nolan et al. (2020) found that informality may be adopted for legitimate reasons such as the development of critical customer service skills, rather than being an inevitable consequence of resource constraints or opportunities to utilise formal approaches. Informality is therefore not inevitable but may represent a choice by the firm. The close social and spatial proximity that characterises the employment relationship in SMEs is widely reported (Ram et al., 2001). Working space is shared, with employees and owner-managers working alongside each other, often in an interdependent manner (Nolan et al., 2019). However, Wapshott and Mallett (2016) caution against the assumption that spatial and social proximity will automatically lead to informality in SMEs, nor does it suggest that social interactions will always be harmonious and positive. These features may frequently coexist, but this is not always the case. Nevertheless, informality can offer a range of advantages to employees in the SME setting. By way of illustration, in their study of employee voice mechanisms in SMEs, Gilman et al. (2015) found that informality plays an important role in creating and maintaining close and collaborative working relationships, accompanied by high levels of trust, task autonomy, and demonstrated loyalty to the firm. It can also create opportunities for employees to voice their ideas and concerns (Marchington & Suter, 2013), thereby facilitating high levels of involvement and participation (Saridakis et al., 2013). Moreover, in their study of an HR services organisation, Amarakoon and Colley (2022) report that informality was leveraged to avoid standardised approaches to remuneration, thereby allowing the firm to provide a personalised remuneration and benefits package that was highly valued by staff. From this perspective dominant formal approaches may not be viable or even necessary in some SMEs contexts. In extolling the potential merits of informality, it is also imperative to acknowledge its potential limitations. While informality can offer many advantages to SMEs, it can carry negative implications for the

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firm and the workforce. Fundamentally, a reliance on informal practices can suggest a lack of strategic insight and sophistication to harness employee effort to enhance productivity and facilitate future growth (Cardon & Stevens, 2004; Kitching & Marlow, 2013). Informality can therefore “co-exist with confusion and uncertainty” (Gray & Mabey, 2005, p. 480). As Benmore and Palmer (1996, p. 114) maintain, “there is a fine line between the claim of an informal system and no system”. Importantly, informality may be associated with an autocratic work environment and disguise exploitative, arbitrary practices as typified by the ‘bleak house’ perspective (Dundon & Wilkinson, 2019). Philip and Arrowsmith (2021) suggest that informal and idiosyncratic HR practices can lead to sub-optimal employee outcomes in the form of inconsistent training, staff burnout, and high labour turnover. Informality may also result in the persistence of detrimental work practices or risk bad habits being passed on (Coetzer et al., 2019). This can be particularly problematic in SMEs where employees are inappropriately appointed to impart their skills to others. Moreover, in certain types of jobs, informality alone may not be sufficient to acquire the necessary knowledge, skills and attitudes to undertake complex work activities (Susomrith et al., 2019). On the basis of the above discussion, it is commonly asserted that SMEs are lacking in their adoption of formal HRM. However, a more accurate statement is that while formal systems are rare compared with the situation in larger firms, they are far from absent in SMEs (Edwards & Ram, 2019). In practice, the pattern of HR diffusion and implementation is mixed and variable (Doherty & Norton, 2014). By way of illustration, the Workplace Employment Relations Survey (WERS) has reported a degree of formality with respect to certain HRM practices such as disciplinary issues and dismissals (Forth et al., 2006), while other studies indicate a preference for informal approaches with respect to recruitment (Psychogios et al., 2016) and training practices (Coetzer et al., 2022). The same practices have also been found to oscillate between formality and informality within a single firm, according to particular business needs (Debrah & Mmieh, 2009). The empirical reality is that formality and informality often operate simultaneously within firms, and it is to this relationship that we now turn.

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9.4

221

The Formality-Informality Dynamic

Empirical evidence regarding the dynamic nature of the relationship between formality and informality within SMEs has emerged in a sporadic and patchy manner. However, there has been a tendency for researchers to uncritically associate informality and formality with small and large firms respectively (Marlow & Thompson, 2008). This stance has been questioned by more recent research, which argues that the polarisation of formality and informality is misleading because it draws attention away from understanding the contextual factors and managerial processes unique to SMEs that shape HRM (Marlow et al., 2010). As Kitching and Marlow (2013) observe, the employment relationship must be managed by SMEs, irrespective of the form that it assumes. Following Kaufman (2010), it is possible to conclude that HRM may be done, with no formal, tangible or measurable practice. For Ram et al., (2001, p. 846), informality and formality are dynamic constructs which co-exist in differentiated forms in time and space such that “informality in small firms is a matter of degree and not kind”. Hence, informality is not the sole preserve of SMEs and co-exists with formality in all firms (Edwards & Ram, 2009). More specifically, firm size in itself does not influence the presence/absence of informality/formality but rather its degree and the manner of its operation (Marlow et al., 2010). Indeed, it has long been accepted that the reality of managerial practice in all organisations involves navigating “between rationality, formality, personal preference and idiosyncrasy as the occasion demands” (Harney et al., 2018, p. 117). The achievement of synchronicity between formality and informality is emphasised in a number of studies. This synchronicity concerns the ability to achieve an optimum balance and complementarity between formality and informality to meet the needs of the firm. Amarakoon and Colley (2022) highlight the benefits of synchronising formal and informal HRM approaches to address attraction and retention challenges. Formalised approaches were created as appropriate, but informal and personalised approaches were also retained. Similarly the stronger social ties created by informal HRM practices may combine with the individual effects of formal practices to elicit positive organisational

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outcomes (Pittino et al., 2016). In addition, Marchington and Suter (2013) purport that formal and informal practices can operate in both a parallel manner (to address different issues) or in sequential manner (to address similar issues) but need to be combined for operational effectiveness. Further support for this is found in Nolan et al.’s (2020) study in the hospitality industry. Formal and informal training approaches were used in parallel to meet distinct regulatory and operational skill requirements. The ability of employees to express their voice was also facilitated in a sequential manner by informal daily interactions, as well as via the formal performance review process. The concept of synchronicity in relation to (in)formality suggests that both approaches can facilitate each other and generate synergies. A further cohort of studies suggests that informal practices can serve as a viable substitute for formal HRM (Harney & Alkhalaf, 2021). Useful insights about the aspect of the formality-informality dynamic can be gleaned from studies on small professional service firms (PSFs). In this context, client needs and project requirements dictate workflows and work activities, and employee roles are highly discretion based, resulting in little need for more formal and direct forms of managerial control (Scase, 2003). However, such discretion may be tempered by informal, tacit rules and a latent (silent) hierarchy (Brown et al., 2010). Swart and Kinnie’s (2003) study of a small software engineering consulting firm also demonstrates that informal training processes can hold equal significance to formal practices when managing PSF workers. Their study found an interplay between written HR policies, informally embedded development processes used for sharing tacit knowledge, and important formal mechanisms for exchanging explicit information. Similarly, Nolan et al. (2019) found further support for the notion that deeply embedded routines may serve as a proxy for formality as they create an informal, yet standardised approach to labour management within the particular context of small PSFs. The implication of these studies is that if informality is used as a substitute for formality, its ability to produce fair outcomes is of considerable importance (Morand, 1995). A further dimension to the formality-informality dynamic can be examined through the lens of the concept of ‘mock formality’ (Marlow, 2002). While SMEs may claim to have formal, written policies, these

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may not be utilised in practice at appropriate times, with ownermanagers preferring to pursue idiosyncratic approaches to manage HR issues. Formality may be pursued for legitimacy purposes or to secure reputational benefits, only to be forgotten over time, as studies of the Investors in People (IiP) accreditation in SMEs have shown (Hoque & Bacon, 2008; Ram, 2000). Thus, formality may represent nothing more than an ‘empty shell’ (Hoque & Noon, 2004; Kitching, 2016). While it is important to acknowledge that degrees of formality might be present in SMEs in the sense that indicators can be identified, what is more important is the examination of how formality is implemented and whether it is consistently and appropriately used to manage the employment relationship, what Marlow et al. (2010) refer to as embedded formality. To this end, it becomes vital to examine the role of key actors in the SME setting who play a central role in shaping the nature of (in)formality, as well as its operation. Ultimately, the relationship between formality and informality is likely to be dynamic, reflecting the interplay of internal and external contingencies (Heillmann et al., 2020). A notable feature of recent work is the attention given to the scope for action and strategic choice in SMEs, which combine with the aforementioned contingencies to shape firm behaviour (Barrett, 2015; Krishnan & Scullion, 2017; Mayson & Barrett, 2017). More nuanced analyses of people management practices that move beyond deterministic accounts which assume that internal dynamics flow direction from external conditions have emerged (Gilman et al., 2015; Wu et al., 2014), yet more are undoubtedly required. Beyond the issue of firm size, studies demonstrate that the degree of (in)formality adopted may be contingent on a range of factors such as industrial sector, skill mix, product markets, labour markets and firm resources (Edwards & Ram, 2019; Psychogios et al., 2016). The role played by firm growth has been acknowledged and the sustainability of informality during periods of growth may be problematic (Barrett et al., 2007). However, others challenge the notion that SMEs must, should or inevitably move from informality to formality as they grow (Marlow et al., 2010). Rather, informality is often retained due to the desire of owner-managers to maintain informal control over the employment relationship (Baron & Hannon, 2002). It is also argued that practices

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need to be understood with reference to the role and interpretation of owner-managers and their employees, because these actors are not passive recipients of external influences (Atkinson et al., 2016; Wapshott & Mallett, 2013). The orientation of actors in the SME setting towards formality and informality is invoked in the next section to examine the key tensions of the informality-formality dynamic.

9.5

Examining Key Tensions in the Formality-Informality Relationship

The nature of the relationship between formality and informality gives rise to a number of potential tensions and contradictions inherent in the SME employment relationship. When examining these tensions, it is important to consider the orientations and perceptions of ownermanagers and employees towards (in)formality. To begin with, there is a critical difference between the presence of formality and its acceptance as the norm. In order to achieve the successful adoption of formality, there is a critical need for both owner-managers and employees to accept and embrace it (Marlow & Thompson, 2008). Several studies point to the reluctance of SME owner-managers to adopt greater formality. This may be attributed to their beliefs about its benefits or a preference to maintain informality (Kitching & Marlow, 2013; Nguyen & Bryant, 2004). Formality may be undermined by the agency and actions of owner-managers (Edwards & Ram, 2019). Research has found that even in the presence of formal procedures, owner-managers may override these systems as they see fit (Tsai et al., 2007). A desire to retain personal supervision, avoid delegation and defend their authority in the face of replacing unwritten understandings with more formalised practices is observed by Mallett and Wapshott (2014). However, in their study of flexible working arrangements, Townsend et al. (2017) report that managerial discretion is restrained by the formality required to meet statutory requirements. This is not always the case, however, as managerial prerogative may simply be repositioned

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in its application rather than removed as suggested by Atkinson et al. (2016). Conversely, efforts of owner-managers to introduce formality can be met with resistance and resentment from employees, who may actively challenge such efforts. For example, Nolan et al. (2020) report managerial frustration in trying to introduce more formal approaches to training in the face of resistance from employees who preferred more traditional, informal approaches. This study surfaced the ongoing tension between the orientation of owner-managers towards formality and the reality of their ability to implement it. Efforts to institute formality may be perceived by employees as an unnecessary burden, encroaching on personal relationships and disrupting custom and practice within the firm (Kitching & Marlow, 2013). A number of studies have show that employees in SMEs exhibit greater levels of job satisfaction and work engagement in the absence of formal HRM (Bryson & White, 2019; Lai et al., 2017; Storey et al., 2010). Indeed, Saridakis et al. (2013) caution against the introduction of more formalised, bureaucratic HRM approaches, which may represent a threat to creativity, innovation, loyalty, trust and flexibility in SMEs. Others have highlighted how informality in SMEs facilitates significantly broader employee participation in decision-making beyond their work role, including those decisions related to HRM (Gilman et al., 2015; Wikhamn et al., 2022). Paradoxically, other research points to the desire for greater formality amongst SME employees. Mazzarol et al. (2021) reports that employees rate formality as more important than employers as it serves to introduce order and role clarity into the work environment. Furthermore, the introduction of formality bestows legitimacy on complex and emotive issues such as redundancy (Atkinson et al., 2016). Thus, efforts to formalise HRM may represent a vital means of enhancing employee perceptions of substantive fairness and trust in how the employment relationship is managed (Saridakis et al., 2013). It would be interesting for further research to unpack if the process by which a HRM practices is introduced e.g. level of communication and justification to employees, proves more significant than the ultimate form that practice takes. The owner-manager is widely regarded as holding the greatest power to ultimately shape HRM in SMEs. However, it is arguable that such

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a unitarist focus alone obscures the full picture. The power of ownermanager is not absolute but rather is tempered by the attitudes and perceptions of other stakeholders, notably employees. Relationships between employee and employer interests in the SME working environment will invariably involve trade-offs and have implications for the approach to HRM. Undoubtedly, employee compliance and cooperation play an important role in facilitating or resisting formality. Hence it is important to conceptualise the operation of HRM in SMEs in terms of particular formal and informal practices that may be subject to negotiation and renegotiation. The relationship is one of mutual dependency, whereby each party has some room to negotiate and/or bargain with the other party over time (Edwards & Ram, 2006).

9.6

Resolving Tensions: Moving the Debate Forward

A theme running throughout this chapter is the “the need to bring context back in” (Sergeeva & Andreeva, 2016, p. 257) by incorporating it “more mindfully and systematically” (Johns, 2017, p. 577) into analyses of HRM in SMEs. The contrasting evidence regarding the role, function and stakeholder perceptions of formality and informality in SMEs, coupled with the multidimensional tensions inherent in the formalityinformality dynamic suggest a need for future research to make sense of this contradictory evidence by privileging contextual factors. To this end, we now propose a research agenda to advance understanding and progress the line of thinking outlined in this chapter. A wealth of studies have concentrated on identifying measures or indices of HR formality as an independent variable and have neglected to identify informality as a separate construct (e.g. Burhan et al., 2023; Forth et al., 2006; Lai et al., 2016). This has led to limited and simplistic understandings of informality, apart from the fact that it is not formal (Nolan et al., 2016a). This is further compounded by a focus on measuring the level of formality of HR practices as the only basis for examining the effectiveness of HR activity (Harney & Alkhalaf, 2021; Nolan et al., 2016b). In adopting an undue focus on formal

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HRM, researchers fail to consider how and why informality may or may not be effective within SMEs (Wapshott & Mallett, 2016). Moreover, simplistic analyses of the presence or absence of formal HR policies and practices provides limited knowledge in terms of the dynamics, embeddedness, and substance of HRM in practice or how it is experienced on the ground (Edwards & Ram, 2009; Saridakis et al., 2013; Wilkinson et al., 2007). Such arguments underline the importance of producing more nuanced analyses of HRM practices in SMEs. Hence, an alternative perspective that may prove fruitful is the functional equivalence model (Behrends, 2007; Ram, 1999), which emphasises the need to analyse SMEs on their own terms (Gilman & Edwards, 2008) and ‘to engage with practice as we find it’ (Taylor, 2006, p. 480). Under an equivalence model, the suitability of an SME’s approach to HRM can only be evaluated “against the backdrop of its specific context and action requirements” (Behrends, 2007, p. 57). This suggests that HRM is not merely size-dependent; a narrow focus on formality should not be indicative of the substance of HRM, and the unique features of SMEs must be afforded attention. This requires researchers to be sensitive to the existence of different ways to manage HRM within SMEs. In further support of this trend, there is also acknowledgment that the decision not to adopt a formal approach to HRM may reflect rational and informed decision-making on behalf of the SME ownermanager (Forth & Bryson, 2019), which highlights the importance of understanding the logic behind the practices in use. Informality in HRM may be adopted for legitimate reasons and may represent the appropriate response in particular organisational contexts or circumstances (Marchington et al., 2003). It is therefore imperative that informality should not be dismissed as ineffective if it meets particular sectoral or business needs. The merits of adopting an equivalence model are also evident when seeking explanations for the diversity of HRM approaches amongst and within SMEs. SMEs are not a homogenous group when it comes to HRM, and thus key contextual influences must be at the forefront of analysis. As discussed earlier in the chapter, there is conflicting evidence regarding informality as the basis for competitive advantage within

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SMEs. Studies advocate the superiority of formality because it is indicative of some conscious thought being afforded to how employees’ knowledge, skills, attitudes, and behaviours can contribute to the achievement of strategic objectives (Barrett et al., 2007; Edwards & Ram, 2019). However, if we accept that informality may represent a viable alternative (or equivalent) in SMEs rather than merely reflecting a haphazard approach to HRM, its logic lies in its contribution to the successful operation and survival of the organisation (Watson & Watson, 1999). Indeed, Paauwe (2004, p. 67) acknowledges that “sometimes the most effective form of HRM is one that allows for a change in policies and practices quite flexibly on short notice”. Thus, while informality may superficially imply that HRM is not a priority, the logic needs to be understood in strategic terms because of its impact on firm viability (Hubner & Baum, 2018). Furthermore, combinations of formality and informality may represent a deliberate, pragmatic decision-making approach made by the owner-manager (Haugh & McKee, 2004), as well as reflecting employee influence. In advocating the adoption of an equivalence model, we suggest that HRM in SMEs, whatever shape or form it takes, can be more robustly captured and explained by drawing on a combination of theoretical perspectives. A single theoretical perspective in its own right may not be sufficient as an explanatory vehicle for the formality-informality dynamic of HRM in SMEs (cf. Lewin & Volberda, 1999). A theoretically pluralist approach may serve to provide a more holistic account of the unique HRM orientations, policies, practices and processes that develop within the SME setting over time, in interaction with the wider context. In addition, a contextually-based approach can facilitate a better exploration of what SMEs actually do and can serve to better explain how and why HRM assumes particular characteristics such as the degree of (in)formality. The development of context-informed understanding of HRM in SMEs may help to uncover subtleties in how HRM is formed and operates in this context. Greater recognition of the social and business context of SMEs is therefore vital given ‘the limitations of acontextual “best practices” thinking’ (Johns, 2017, p. 581). Furthermore, the adoption of an HR process perspective (Ostroff & Bowen, 2016) may also help to shed light on the formality-informality

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dynamic. This stream of research examines how external factors shape HRM practices, as well as emphasising how HR policies are implemented and subsequently understood and experienced by employees (cf. Atkinson et al., 2022). The utility of this perspective lies its focus on how and why formal/informal practices are implemented rather than which practices are implemented, thus representing a change of direction for research (Fu et al., 2018). An influential strand of HR process research concentrates on how employees make sense of the intentions behind HRM practices, known as HR attributions (Nishii et al., 2008). Thus, HR attribution may account for the shared consensus of the value of informal relationships amongst owner-managers and employees (Storey et al., 2010). It may also explain the differences between employee perceptions and managerial intentions regarding attempts to introduce formality (Nolan et al., 2020). The preceding discussion carries a number of methodological implications for future research. First, recognition of the complexity and heterogeneity of the employment relationship in SMEs has led to calls for narrow, sector-specific studies, rather than adopting a ‘broad brush approach’ (Edwards et al., 2010). This approach is advocated as an effective means to increase the confidence in research findings and characteristics ascribed to a particular sector rather than the idiosyncrasy of a particular firm (Sengupta et al., 2009). Second, this chapter illustrates that the denaturing thesis has served to perpetuate the myths regarding the deficiency model and obscures the reality of HRM practice in SMEs as experienced by employees and owner-managers. Hence, to enhance understanding it is argued that HRM is best assessed by how it operates in terms of the breadth and intensity of practices, as well as how it serves key firm objectives versus simplistic measures such as existence or not of practice, and/or the extent of formality versus informality (Harney & Alkhalaf, 2021). This mandates a need for research designs employing case studies or ethnography that afford significant attention to context to unpack the dynamics of formality and informality (Harney et al., 2022), but also highlights the importance of moving beyond owner-manager dominated accounts to incorporate employee perspectives (Nolan et al., 2019; 2020). Employee perspectives must be examined both as a point

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of principle as well as to fully inform debates (cf. Lai et al., 2016) and rebalance the HRM agenda.

9.7

Conclusion

This chapter has outlined how the informality of HRM practice is extensively documented but inadequately understood. The failure to sufficiently analyse informality and its relationship to formality has left a significant gap in the literature of how HRM actually operates in all firms. This omission is especially pertinent given the prevalence of and critical role played by SMEs, where informality tends to prevail. The stance of positioning formality as more sophisticated than informal HRM practice is a questionable one. The adoption of formal HRM practices is not simply a good versus bad debate, but a complex, nuanced issue contingent on the nature of the firm, its management, and the workplace environment (Atkinson et al., 2016; Della Torre & Solari, 2013). To present it as a binary assessment between two alternatives fails to recognise the co-existence of formality and informality that evolves as circumstances evolve. We would therefore argue that what is more important is consideration of the factors that influence when and how informality works and how well it does so. SMEs exhibit considerable diversity in their approach to HRM. Policies and practices tend to be heterogeneous, flexible and reflective of the particular sectoral and operating context of the individual firm. The nature and degree of (in)formality of HRM in SMEs is therefore contingent and reflects the outcome of enduring, dynamic and complex interactions within the idiosyncratic context of smallness. The nature of the relationship between formality and informality is undoubtedly multifaceted and complex. HRM in SMEs is therefore context-specific and context-dependent; it can only be understood in, and explained by, consideration of context. The dynamics of formality-informality HRM in SMEs firms thus represents a theoretical knot that is both intriguing and challenging, but one that needs to be untangled.

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10 Conclusion Reframing HRM in SMEs: Navigating Challenges and Dynamics Brian Harney and Ciara Nolan

10.1 Introduction All the chapters in this edited collection make clear the contributions that SMEs make to the global economy reinforcing that their socio-economic impact cannot be understated (Storey, 1994). SMEs serve as vital fulcrums for job creation, seedbeds for innovation, while playing a critical role in the eco-system of larger firms. The Covid-19 pandemic dramatically illuminated the vital role SMEs play in serving local communities. The chapters in this collection also make clear the significant challenges such firms confront when it comes to the management of people. The resource constrained and hierarchically contracted B. Harney (B) Dublin City University Business School, Dublin, Ireland e-mail: [email protected] C. Nolan Technological University Dublin City Campus, Dublin, Ireland e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 C. Nolan and B. Harney (eds.), Reframing HRM in SMEs, https://doi.org/10.1007/978-3-031-34279-0_10

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nature of SMEs make them especially reliant on talent, meaning that the impact of HRM decisions are transparent, telling and thereby transformative or detrimental to SME sustainability. Particularly noteworthy therefore is the scant attention paid to SMEs in HRM research and the limited engagement of SME research with HRM (Harney & Alkhalaf, 2021; Wapshott & Mallett, 2016). In contrast to historical assertions, SMEs are far from a relic of a bygone era. This type of thinking is exemplified in the work of R. Edwards who relegated smaller capital utilising ‘simple control’ to the status of a ‘modern day periphery’, “a declining sector, as the large corporations continually encroach on its markets” (Edwards, 1979, p. 35). By contrast the socio-economic imprint of SMEs and the significance of understanding HRM in such firms is only likely to be accentuated by digital disruption, the ‘gig’ economy and the ability of firms to be born global as ‘micro-multinationals’ (Harney & Nolan, 2022; ILO, 2017).

10.2 HRM and SME Research: Talking Past Each Other We commend our contributors who took up the challenge to (re)frame current understanding of HRM in SMEs beyond the conceptual impasse of a deficiency based logic (i.e. where more formal, sophisticated HRM is seen as the only route to progress). While there have been growing calls for more dedicated SME research (Festing et al., 2017; Krishnan & Scullion, 2017; Lai et al., 2016) progress has been hindered by a lack of critical assessments of the nature and applicability of HRM as applied to the SME context. Part of the problem resides in HRM’s normative compulsion to prescribe. Many studies abstain from theoretical reflection and perpetuate a large firm bias by either uncritically deploying established research instruments, and/or by casting the small firm as lacking or deficient if they fail to meet normative ideals. This is exemplified by a stream of research in HRM exploring mutually enhancing bundles of best practice HR known as high performance work systems (HPWS). For example, supported by the confidence wrought by a scientific agenda, the well cited work of Huselid asserted that “the use of high-performance

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work practices and good internal fit should lead to positive outcomes for all types of firms” (1995, p. 644 emphasis added). Founded on the assumption of a ready-made, large scale, well resourced and bureaucratic HR function for many SMEs the logic and effort of engaging uncritically in HPWS is more likely a highly-probable waste-of space (HPWS). From the perspective of SME research there has been a similar neglect of HR issues (Burton et al., 2019). This in part stems from a tendency to privilege the idea of a heroic, (male) entrepreneur, to the neglect of the broader team of employees or ‘joiners’ (Chapter 7 this volume). The limitations of an exclusive ‘entrepreneurial perception’ of the small firm are that it (a) fixates attention on the individual to the neglect of others employed within the firm (Curran, 1991); (b) focuses research on certain types of firm and regions (e.g. high-technology firms and silicon valley type clusters) and away from the small firm sector as a whole, and; (c) it leads to the perpetuation of an implicit ‘acorn to oak’ assumption concerning the desire for growth whereas it is only a small minority of SMEs that are purely motivated by the goals of profit and business expansion (Kidney et al., 2017; Ram et al., 2005). Welter and colleagues offer a strong critique of the current focus of entrepreneurship research, with clear implications for the study of HRM (or relative lack of ), arguing that research and themes have narrowed to become self-serving focusing almost exclusively on “the wealthy and successful” (2017, p. 317). Given this context, coupled with the limited exchange of ideas between HRM and entrepreneurship scholarship (Burton et al., 2019), it is unsurprising that extant work on HRM in SMEs has been described as “underdeveloped and equivocal” (Chadwick et al., 2013, p. 311) remaining at a very nascent stage of theory development (Barrett & Mayson, 2006). In order to make sense of contradictory evidence there is a requirement to move beyond universalistic stances to explore how HRM is appropriately conceptualised and operationalised in the SME context (Allen et al., 2013). This involves a greater accommodation of contextual conditions, exploring what organisations actually do in practice, and the conditions of possibility shaping what constitutes viable or effective HR practices (Gilman et al., 2015; Lai et al., 2016). This motivation formed the catalyst for this collection as we asked contributors to move beyond futile counts of the number and extent of ideal

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HR practices in place and/or attempts to simplistically demonstrate performance outcomes. Ultimately, whatever the terminology in use or expertise involved (or not), all organisations must confront and manage HR issues whether in a formal or informal manner (see Chapter 6). Once a firm goes beyond a single person entity (Wapshott & Mallett, 2021) it is thereby engaged in HRM.

10.3 Navigating the Challenges and Dynamics of Exploring HRM in SMEs It is clear that advancing understanding of HRM in SMEs mandates ‘deeper contextualisation’ (Korsgaard et al., 2020). To create new knowledge, there is a requirement to update, renew and critically assess work which has sought to bridge SMEs and HRM (Harney, 2021). While HRM in SMEs has long been recognised as complex and diverse (Harney & Dundon, 2006), there has been little by way of critical reflection, theoretical advancement and dedicated discussion. The aforementioned ‘deficiency’ based understanding has encouraged limited regard for boundary conditions, the dynamics of growth and contraction or an appreciation of how, or whether, HR practices might be more organically developed. Allied with this has been a focus on the ostensive aspect of relations (e.g. abstract structures) and a desire for univariant relationships e.g. between size and person-organisation fit or variants of HRM and performance outcomes. By contrast the chapters in this volume avoid uncritical applications of HRM to the SME context, and instead provide alternative and novel ways to explore how HRM is actually practiced in SMEs. This includes engaging with a challenge agenda to (re)frame regulation as a managerial challenge (Chapter 2), to examine the challenges surrounding the use of external expertise in shaping HRM in small firms (Chapter 3), to explore the role of the owner-manager as an enabler of learning (Chapter 4) and to identify the theoretical basis and empirical necessity of exploring resilience in SMEs (Chapter 5). In these chapters contributors demonstrate how HR science is best understood as a process, not a predetermined position. A challenge based

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understanding encourages us to test, question and reconsider the fields self-evident truths (Harney & Collings, 2021). Chapters in the second half of the volume animate key dynamics shaping HRM including drawing on control to understand various typologies of small firms (Chapter 6), examining the impact of joiners for the development of new firms (Chapter 7), providing a multi-level understand to appreciate employee experiences of HRM in crisis contexts (Chapter 8) and finally, unpacking the dynamics of informality including its complementary and substitutive effects (Chapter 9). These chapters help progress understanding from dominant steady-state conditions towards embracing the dynamics of stability and change. As these chapters demonstrate there is much to be learnt from embracing context and accommodating uncertainty. As per Alvarez and Porac uncertainty should “be sought out for its generative capacity as much as it is avoided because of its vicissitudes” (2020, p. 12). Importantly these chapters also illuminate a pathway for research to move away from exclusively exploring certain HR practices to exploring broader underlying purpose (typology of control), the role of transition and change (on-boarding new hires), the situational value of HR in shaping employee experiences (signalling), and dynamic form and function of HR (synchronicity). All the contributions to this volume highlight the significant impact of the SME context on shaping the take-up, meaning, enactment and assessment of HRM. Briefly returning to the RECIPE framework of key SME characteristics (Harney et al., 2022) outlined in the introduction is instructive as it helps reinforce the newly found SME contextual emphasis evidenced across the chapters. In terms of resource constraints the chapters support the idea of the liability of smallness but also provide a layer of further understanding. This includes where and how SMEs might seek external expertise and indeed their willingness to engage with external supports in the first instance (Atkinson et al., 2022). Can resource constraints be mitigated through strategic collaboration, networking, co-opetition or other forms of delegating outwards beyond the firm boundaries? Related is the idea that much of the expertise and experience of SMEs is embedded in a tacit fashion, including across employees who might easily leave or be poached or indeed in the head of the owner-manager. How can SMEs create an infrastructure to nurture

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and leverage this form of understanding and what role may enabling digital technologies play in helping with this task? In the context of resource constraints, how do SMEs ensure an appropriate effort and allocation of investment and time so as to balance exploitation and exploration activity (Coetzer et al., 2022) and focus on institutional factors such as regulation that may seen more malleable and less relevant (Mallett et al., 2019). With respect to environmental vulnerability many of the contributions stress the VUCA (volatile, uncertain, complex and ambiguous) environment that SMEs operate under. How might firms best navigate this turbulence including developing capabilities in environmental scanning in order to develop new knowledge and insights? What might artificial intelligence and real-time nowcasting data analytical capabilities offer to SMEs in terms of people management and monitoring performance? HRM clearly has the potential to direct employee and firm attention to critical areas requiring deeper exploration. Environmental factors should not be considered in a deterministic fashion as SMEs owner-managers may reach some form of “accommodation with environmental conditions” (Child, 1997, p. 70). As Pondy and Mitroff remind us “the environment can be understood as a source of ‘information’ that makes internal organisation possible” (1979, p. 12). Importantly, HR can help owner—managers with internal management through signalling their interpretation and emphasis as a form of sense-making, especially relevant in the context of dramatic uncertainty and change (Prouska et al., 2023). In terms of centralised control the imprint of the owner-manager or dominant coalition is omnipresent. Evidently role modelling of desired behaviour can be critical. For example, owner-managers who value learning can rely on their role modelling behaviours as opposed to having to revert to traditional HRM practices (Chapter 4). How this prospective influence is translated to a remote or hybrid working context is an interesting question to explore. Whilst it has been traditionally understood that owner-managers hoard relevant strategic and financial information, emerging research highlights the merits of top-down information disclosure which can be reciprocated by employees in a form of social exchange (Prouska et al., 2023). While entrepreneurship research has long explored

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the passion motivating founders, the implications of this as a form of motivator and prospective signal for employees (including new hires) remains underexplored. Drawing further insights from entrepreneurship would also highlight the gendered nature of such roles and the implications of same. Informality is a prominent, though not necessarily a universal feature, (see Chapter 6) in SMEs. Informality fits well with the constraints facing SMEs, as it can speed up decision-making and may even be more appropriate and effective in enhancing business performance (Chadwick et al., 2013). Informality therefore lends itself to the operational flexibility needed to effectively respond to evolving external pressures. However the consequences of informality can be uneven and variable for employees. There is much to learn about employee expectations and preferences for the nature and form of HR that they experience at work and the respective outcomes of this. Interesting questions concern the concept of synchronicity between formality and informality. Marchington and Suter (2013) purport that formal and informal practices can operate in both a parallel manner (to address different issues) or in sequential manner (to address similar issues) but need to be combined for operational effectiveness. How might formal and informal approaches be used in tandem and is this something that forms or can be formulated? According to Harney and Alkhalaf “formality and informality often form two sides of the same coin, so that any approach which denies this risks being analytically short-changed” (2021, p. 23). The chapters also draw attention to important implications of the proximity of relations. This is a vehicle for guidance and establishing relationships and meaning for employees. This is likely to be especially important in socialising new staff or so called ‘joiners’ (Chapter 7) or in the context of diminishing certainty or fear, particularly in severe crisis situations (Chapter 8). The proximity of relations also informs where owner-managers receive and develop their HR expertise. It is frequently the case that owner-managers rely on a limited network of close contacts or ‘circle of acquaintances’, and this has implications in terms of the diversity and relevance of advice that they receive or are receptive to. HRM in SME research is dominated by managerial perspectives and an associated unitarist view of the employment relationship as opposed

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to employee dynamics (Harney & Alkhalaf, 2021). This is somewhat true of the contributions to this volume where a manager’s perspective is overrepresented. Focusing on transitioning and change, chapters on dynamics open up questions about what happens when circumstances change be this as a result of new hires (Chapter 7), crisis situations (Chapter 8) or the need to foster greater resilience (Chapter 5). Interestingly one line of research highlights the value of some form of constructive conflict to enable and embed learning in SMEs (Coetzer et al., 2022). Recent research also focuses on solidarity amongst employees and the role of information sharing across teams in SMEs in diminishing the negative workplace repercussions of workforce and cost reduction strategies (Nyfoudi et al., 2022). Research on Canadian high-growth SMEs during the COVID-19 pandemic, demonstrated how low employee morale contributed to a spiral of growth reversal (Lim et al., 2020). There is much to learn about employee experiences of work in SMEs, not least why employees choose to work in SMEs. There is also a wealth of insight to be gleaned from employee focused research in SMEs, including by engaging with classic work (e.g. Curran & Stanworth, 1979; Ingham, 1967) which has not yet found its way to inform HRM.

10.4 Progressing Forward The review of RECIPE characteristics helps surface some of the paradoxes related to HRM in SMEs. These include likely mixed performance effects, design that may be intentional or unintentional, formal and/or informal as well as the significance of temporal boundaries. There is a need to disrupt the assumed unitarism that prevails in much research including by exploring differences between employee groups, such as management versus employees (Verreynne et al., 2013) but also with respect to length of service, function, gender and ethnicity. The contributions variously point to novel and alternative approaches to progress forward with an agenda to (re)frame HRM in SMEs. Some common themes include moving beyond HR practices to embrace HR as a process capturing features such as challenge, consistency and communication, as well as the need for multi-level and longitudinal research. Notable for

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their absence is any detailed discussion or application of sustainability, digital disruption or gender and inequality. We have also treated the SME category quite loosely when in practice research should specifically recognise and unpack differences based on criteria such as size (liability of smallness), age (liability of newness), ambition (survival, succession etc.) and growth state (contraction, stability, scaling) (see Harney & Alkhalaf, 2021; Harney & Nolan, 2022). Allied to this, in the domain of SME growth and development there has been little sense of how firms might transition into and out of HRM approaches. While we have privileged the SME context we do so from a privileged context of WEIRD countries (Western, Educated, Industrialised, Rich, and Democratic). There is much to explore through greater comparative analysis across contexts and countries. Overall, we hope we have moved the dial forward in first drawing attention to SMEs and secondly in providing some novel perspectives to (re)frame our understanding of HRM in SMEs. This has only been possible thanks to the generosity and insight of the leaders in this space who took the time to pen their thoughts. The next task is for others to draw on their ideas and push the reframing agenda forward for the benefit of both SME research and practice.

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Index

A

Advice 24, 25, 27, 29–31, 35, 36, 38, 39, 55, 56, 59, 80, 81, 249

B

Bleak house 104, 138, 144, 145, 148, 149, 152, 188, 220 Brexit 25, 38 Business support 12, 29, 38–40, 42–44, 52, 56, 59, 61, 66

C

Context 2–4, 6–8, 10–14, 24, 25, 27–29, 31–39, 41–43, 52–55, 57–59, 62, 66, 78, 79, 90, 92, 103–106, 108, 121, 132, 134, 136, 137, 150, 151, 158–160, 162, 164, 167, 169–171, 174,

176, 185, 194, 206, 207, 214–216, 219, 222, 227–230, 244–249, 251 Control 2, 6, 8–10, 28, 105–108, 115–118, 120, 131–139, 142–147, 150–152, 169, 186, 208, 215, 222, 223, 247 Crisis 13, 93, 104–108, 115, 119, 121, 122, 184–192, 194–198, 247, 249, 250

D

Dehumanisation 110–112, 118–121 Dynamics 2, 3, 6, 7, 12, 108, 134, 151, 173, 194, 196, 223, 227, 229, 230, 246, 247, 250

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 C. Nolan and B. Harney (eds.), Reframing HRM in SMEs, https://doi.org/10.1007/978-3-031-34279-0

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256

Index

E

I

Employment tribunals 35, 36, 40, 43, 215 Equifinality 13, 134, 151

Informality 2, 6, 8, 9, 11, 13, 14, 28, 36, 41, 55, 84, 198, 206–208, 214–230, 247, 249 Informal learning 78, 80, 82–84, 86, 88, 90, 94

F

Formality 36, 55, 136, 150, 206–208, 214–217, 220–230, 249 Functional requirements 131, 132, 135–137, 139

J

Joiners 13, 158, 160–162, 164–177, 245, 247, 249 K

H

Health and safety 24, 206 HR challenges 11, 12 HR content 55, 56 HR dynamics 11–13 HR-performance 51, 53, 58 HR practices 3, 9, 10, 24, 51, 53–58, 84, 107, 134, 136–138, 142, 175, 184–190, 192, 194–198, 216, 218, 220, 226, 245–247, 250 HR process 55, 228, 229 HR support services 12, 58 Human resource management (HRM) 1–14, 23, 25, 30, 36, 39–41, 43, 44, 53, 54, 80, 81, 92, 103–108, 110, 111, 115, 117–123, 131, 132, 134–139, 142, 144, 145, 147, 149–153, 158, 159, 161, 166, 174, 177, 184, 185, 187, 192, 196, 197, 205–208, 214–222, 225–230, 244–251

Knowledge entrepreneur 136, 138, 143, 146, 148, 150, 151 L

Labour migrants 142 Learning environment 77, 82, 84, 85 N

New ventures 13, 157–160, 162, 164–177 O

Owner-managers 12, 24, 25, 27–34, 36, 38–40, 42–44, 71, 78–94, 136, 184, 186, 196, 197, 206, 207, 215, 217, 219, 223–229, 248, 249 R

Regulation 12, 24–27, 30–34, 36–43, 105, 134, 138, 145, 149, 214, 246, 248

Index

Resilience scaffold 13, 119–123 Review 2, 3, 13, 52, 53, 62, 65, 66, 88, 94, 136, 150, 158, 160, 161, 168, 171, 175, 176, 196, 207, 222, 250 S

Seasonal work 142 Small and medium-sized enterprises (SMEs) 52 Small business 5, 6, 12, 25, 26, 30, 32, 35, 41, 77–87, 89–94, 150, 152, 217 SME characteristics 6, 247 Strategic entrepreneur 136, 138, 142, 143, 147–149, 152

257

T

Tensions 11, 13, 36, 78, 86, 169, 207, 224–226 Theory of the Firm 104, 105, 107, 119, 122 Turbulence 4, 7, 13, 183–190, 192, 194–198, 248

W

Work experience 10, 184, 186, 187, 196 Workplace learning 83, 85, 88, 89, 91, 92, 94