The Effect Of The Human Resource Management Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Abstract: The relationship between HRM and firm growth has been a hotly argument topic over the recent decade, with the scientific research coming from the USA or the Nordic. As for the fast growing process of the small firms, they have a strong desire to enhance their turnover and marketing shares in the fierce market competition. With the purpose to examine strategic human resource management in small company, focusing on its effect on company's growth, this paper intention only one growing company. The empirical evidence of this research had shown that if the small firms want to grow and continue growing, they need effectively managing and develop the human resource. This viewpoint must be attained to the owners and managers in the small firm growth.

Keywords: Human resource management; Growth; Small firm


In this introductory given a closely insight of current of the extent and a short describe of human resource management significances on small firm growth. Later on, this section will present the study's main subject and purpose.

1.1 Background

In order to gain the comparative advantage and improve the efficiency and effectiveness to grow, firm must implement an effective strategy to be able to exploit firms' resources (Barner, 1991). Firm resources existed by including all asserts controlled by firm to be able to improve it efficiency and effectiveness, which had classified by Barner (1991) in three categories: physical resources; human resources; and organizational resources. Within the global economic integration since 20th century, the competitions between companies become more and more drastic with each passing days. When firms developing the internal resources to make the firm become more competitive, the strategic value of human resource was well known by the people, and also become a key factor to determine firms' success on business competition. How to manage and develop the human resource becomes a key point to help firms to reach their strategic objectives (Esther & Elegwa, 2012).

Human resource (HR) and Human resource management (HRM) is a topic field which is discussed by more and more researchers in nowadays. The concept of "human resources" as early as by Drucker (2006) in his book "The Practice of Management" defined clearly. He believes that human resources have the quality that other resources do not have, that is included "the capacity for coordination, integration capabilities, judgment and imagination". At the same time, human resource is a special resource that enterprise has to manage effectively and then bring the substantial economic value (Drucker, 2006). However some researchers would focus on analysis the neglect of managing the human recourses influence the development of small intermediate size company (Deshpande & Golhar, 1994; Duberley & Walley, 1995; Heneman & Berkely, 1999; Hornsby & Kuratko, 2003; Kotey & Sheridan, 2001). Its external environment factors, it not only relies on the traditional financial capital operations, must also rely on competitive advantages in human resources to maintain and cultivate the firms' competitive advantage. This change trend, encourage to research human resource management on strategic viewpoint. As such this paper makes a contribution to SMEs growth where HRM is accepted to be the creation of new operation activity (Chaganti et al., 2002; Heneman et al., 2000) and therefore HRM need play an important role in the growing of SMEs (Williamson, 2000).

The effect of human resource management (HRM) performance on firm is an important topic in the fields of human resource management, industrial relations, and industrial and organizational psychology (Huselid, 1995).The combined with growth and small firms may further supplement human resource approaches with a more institutional perspective, to discover the researchers limitations and have opportunities for future research design on HRM and Small firms in Growing.

In this paper, data collected the specific ¬rm is used to examine the role of HRM practices in growing. And pay more attention to resolve the issues. This article is aim to resolve how does management of HR will effect a firms growth.

1.2 Research question and purpose

What is the contribution of HRM will affect the company's growth?

This question will help us to explain the significance of the HRM to explore the contributions and the effect of human resource management on the firm's growth.

Our main purpose of this research is to understand and highlight how a small but growing company manages human resource to influence its growth. To achieve that, this study is based on the framework of theories such as the theory which was presented by Huselid (1995) about the function of HRM, the relationship between HRM and individual performance extend to the firm operating and growth, also we attend to make some model to explain how the HRM affect the employees performance and affect the firms' growth at last. As the firm wants gradually growth and gain sustained the competitive advantage, which pay more attention to human resource management match the firm's strategy. Finally, we hope to give a good conclusion on the significant role of human resources management in SMEs Company. By our aim to explain the valuable of the human resource management roles on growth in the SMEs company can be very useful and important to scholar and practitioner.

2 Theoretical Interviews

In the next section of this paper, we address the literature on the nature of HRM and HRM in small medium firm. Human resource management is a hot topic to the studies in the firm management and growth fields. It provides us more and more new information to understand firms' growth at the HRM part.

2.1 Human Resource Management (HRM)

Since the 1980s, further developed in practice, the theory of human resource management continues to establish. That makes widely accepted for enterprises and gradually replaces the theory of personnel management. The studies suggest that the implementation of the strategic management of the company's human resources is a very important factor to consider. Human resource management can help firm to create a source of continuing competitive advantage to grow (Begin, 1993; Jackson & Schuler, 1995). Many enterprises have realized that human resources are the most resources of sustained competitive advantage. Although largely conceptual, concludes that human resource management practices can help to create a source of sustained competitive advantage, especially when they are aligned with a firm's competitive strategy.

Fugure 1. Model of Human Resource Management (Huselid & Becker, 1997, p.40)

To study the connection and effect of human resource management and firm's growth, we are using model of human resource management (figure 1.) of Huselid and Becker (1997, p.40). By focusing on viewing the significances of human resource management on firm's growth, focus on small company. During this process, human resource management develops through three stages: Traditional Personnel Management, Human Resource Management and Strategic Human Resource Management.

2.1.1 Personnel Management

The conception of personnel management was formed from America, the thoughts and behaviors of the manager is need; in order to complete the administrative work of personnel management. It includes traditional personnel management and reactivity personnel management (Shimei, 2003). Traditional personnel management include personnel file management; employment, wages issue; also role analysis, effect achievement appraisal and system of reward and penalties, Personnel rules and regulations formulation, employees training and organization. At this stage personnel department was considered as a process department, which means, a back office, and what they do is secondary work of firms. Thus, personnel department always been ignored by the other departments.

2.1.2 Human resources management (HRM)

The conception of Human Resource was first proposed by Drucker (2006), in his point of view, the management functions of the organization are including business management, the management of the business managers as well as employees and work management. And "Employees" are deemed to be "human resources" where Drucker (2006) also believes that human resources had independent characteristics compared to other resources, like ability of assist, integration, judgment and imagine. Kaser and Miles (2002) provide the conception of "Human Resources Model", what he believed is experience and knowledge of the employees is the wealth of firms; firms need to fully use these wealth. The firm should use these to improve the quality of decision-making and employees' self-control.

2.1.3 Strategic Human Resources Management (SHRM)

Since the 1980s, the field of HRM had a significant change. It turned the HRM as a micro-research into macro-research or strategic research. This kind of HRM called Strategic Human Resources Management (SHRM). Walker (1978) proposed the linked between strategic planning and human resource planning, which was considered as the beginning of the SHRM. Faced with an increasingly competitive environment, the scholars had the common awareness about only the SHRM can provide sustainable competitive advantage for the business firms. Devanna et al. (1984) put forward a framework diagram of SHRM, they claimed the change of external environment (economic, political, cultural and technological) would influence the companies' internal elements (the organization strategic, organizational structure and human resources management). The internal elements have to make adjustments by all the departments' mutual cooperation to overcome the emergency condition. This is the way of build the complete SHRM by strategic way.

2.2 Human Resource Management (HRM) in the Small Firms

HRM theory and practice are able to conducive to understand facing the problems by the Small firms, such as searching human resource their needs of developing and growing, the devoted of the role of HRM practices would help to manage resource acquisition, allocation and development in the survival of new ventures, and also gives a high chance to direction of growth in SMEs (Kotey & Sheridan, 2001). However, HRM practices in SMEs ¬rms re¬‚ect business process needs and practical concerns: record keeping; staf¬ng activities, such as recruiting and selecting staff; and motivation and retention activities such as compensation and reward practices (Barrett & Mayson, 2007; Hornsby & Kuratko, 2003).

In order to adapt to the rapid development of the company requires, a lot of general staff and the introduction of professional managers recruited from outside, the rapid increase in the number of company personnel will aggravate the conflict between the airborne and the new managers and operational staff. By that, the Small ¬rms should have the ability of offering salaries and rewards which could attract, motivate and retain employees (Morris, 2001). Baron (2003) mentioned that the small business owner/manager has the responsibility for human resources management to develop growth in small medium size company. Churchill and Lewis (1983) suggest this will almost decide by the owner/manager's management style and personality. Indeed, Scott and Bruce (1987) analysis that those type of business owners who are unlikely to change their style regard as a barrier to firm growing and development (Penrose, 1959).

Therefore, the support stage growth model, small businesses and small companies transition centralized stage idea is consistent as such there is consistency here with the ideas underpinning the staged growth models of small ¬rms which concentrate on the stages through which small ¬rm's transition (Matlay,1999; Mazzarol,2003). These models suggest that excessive dependence on the internally ability and management ability. It is capable of overcoming the "managerial capacity problem" (Goffee & Scase, 1995) aware of the company's performance depends to some extent on the owner / manager of the importance of human resource management (Barringer et al., 1998). By comparing with the larger ¬rms, human resources management practice is a kind of waste cost of time and money for Small firms (Klaas et al., 2000). Their characteristics demands imply that they cannot realize economies of scale and they had few area resources management and professional knowledge (Harris, 2000);(McLarty, 1998). Access to the special department of human resource management (or employment), some companies is usually not specified, because the establishment of specialized human resources is expensive management views (Chandler & McEvoy, 2000; Hornsby & Kuratko, 1990).

2.3 Human Resource Management and Growth

During the fast developing of the firm, the market and product can be the bottleneck. At this time, the problem of the firm will be on the human resources aspect, lack of talent. The radical expansion will bring out the demand of talents. On the other hand, managers and the firm founders will be busier than usual, and need more mid-level employees to help him to manage the company, to dealing with some marketing problems. At this stage, the firm leaders need to consider hiring someone to help the firm to construct the firm's human resource system. And at last, combine the HR system with the firm's operation (Kotey & Sheridan, 2004).

3. Methodology

This following chapter will explain for which scientific point of departure of the study process together with the description the choice of the method. Given the suitable theory, we discuss about approach choice and its following consequences.

3.1 Qualitical Method

According to Jacobsen (2002) there are two types of methodologies to do a research, which are qualitative and quantitative. With this paper we have chosen a qualitative approach to study the effect of human resource management on small company growth, since we want to enlighten the phenomenon of these contexts (Backman, 1998). By using this approach, we enables to gain a deeper understanding the field of human resource management and small company growth through the case study which base on a depth interview with respondent from case company. The depth interview considered appreciated in order to gain a deeper understanding of phenomenon and focusing on specific entity, supported by Brinkmanm and Kvale (2009). Jacobsen (2002) mentioned that by the qualitative approach allowed the researcher to gain more validity by meeting the respondent with an openness, which enhances the understanding of the conceptual of HRM and small company growth.

3.2 Case Selection

To explore and understand the phenomenon of the effect of human resource management on the firm growth, this study is based on personal interviews and supplemented with the secondary data. The method is, supported by Brinkman and Kvale (2009) considered appropriated to obtain a deeper knowledge in particular phenomenon and consequently deepen understanding the context of the effect of human resource management on firm growth (Yin, 1994). This exploratory study is researched only focus on one case of small size company that is growing rapidly since founded. By choosing this type of company, we intent to get a deeper understanding on the phenomenon of context on the specific company. As this study purpose to explore the effect of human resource on growth of small company, we considered that Applika is appropriated to highlight the phenomenon of the contexts. To be able to gain the relevant information we choose to interview one respondent who is owner, sale & and marketing director and HR manager who considered holds an appropriate knowledge in the focus area and have a high influences on growth strategy. Moreover, there are some secondary data was gathered via the companies' websites and used in this study.

3.3 Data collection

There are two differences data resource used in this study, which are included primary data and secondary data. The primary data is collected directly information's through the interview of chosen company, considering the manager appropriate respond our questions who conceivably of providing a correct information as well as have a good knowledge experienced in our studies area. The secondary data is gained in form of scientific articles, which collected through the Halmstad University library, Google scholar, and Emeralds. To understand the concept of entity (Jacobsen, 2002), this study based on proceeds from existing and considerable relevant theories in order to gain a clarify of the phenomenon. Furthermore, this study aim to explore the effect of human resource management on the firm growth, we have used the keywords such as: human resource management, growth, small firm and so on. When searching for the secondary data.

3.4 Case analysis

This study will be an analytical study of the topic, about the relationship between the small company growth and human resource management. We should begin with the existing theoretical (Figure 1) part before we could form the question for the interview. Afterward we could possible gather the empirical information and data that could help this study to analysis our main question by combining the theoretical data and empirical data after this the process to describe our study conclusions. In order to gain a deeper understanding of phenomenon by analyzing the qualitative data, this study was using concurrent processes such as data reduction, display, and conclusion drawing (Miles & Hubeman, 1994).

4. Empirical

Initially, this chapter is given a short overview of case study later followed analysis of the Applika. The collected empirical data gained from Applika described and highlighted about what is contribution of the HRM will affect on the company's growth is presented.

4.1 Company overview

Applika was founded eight months ago by three founders, Pierre Orsander; Kristian Ledel; and Hannes Remahl, as they mentioned " 3 killar, 1 företag". The company started as the founders saw opportunities of the significant need of application and adaptation websites to mobile devices. These three founders are however specialist and expert in different area such as: design development; Sales & marketing; and production development. With these different characteristic and competent that the founders hold, the company can offer the special product with a good design, efficient functions, crucial marketing to their customers who in need of mobile applications. As Applika is about enabling web-apps in an affordable way for every potential customer, the company has rapidly growth in turnover from 759 SEK insertions to about 5 million SEK in eight months. Moreover has Applika also growth in employees from 3 persons to 16 persons who are employed in the company by August 2012.

At present, Applika has a headquarters and the development department in Malmö and sales office in Helsingborg. As Applika growth, they plane to begin its international markets in Germany, UK and USA incoming year by building their sales office overseas. Ccontinuing, Applika has a five years plan as the company aim to develop and expanding their marketing share in other European countries therefore needed of its recruitment, base for sellers and technicians, in order to carry out more effectively as a result to increase the company's growth.

4.2 HRM and Growth of Applika

In the beginning there are only three persons working at Applika. Although as Applika are producing and selling a new innovation production to a very new market segment, the company along with these three high competent founders who hold a very different expertise in different characteristic make it possible for the company to grow very fast in its industry. These variant of characteristically expertise recognized by Kristian as a human resources that have supported to a rapidly growth of Applika. Moreover has Kristian also described the feedback from their customers as a valuable human resources that have contributed to improvement of their products even more perfection and attractive for the market.

As a small company with a high innovation of the production, Kristian explains that Applika want to be able to trust their employees by this reason the company's strategy of recruitment their employees is frequently throughout recommendations from closely friend and customers. With this strategy, Applika also believes that they could reduce time of recruiting along with cost of training and managing of new employment. Moreover, new employment by recommendation is believed could reduce even control cost since they trust their closely friends and customers.

With intention to grow, Applika has used the specific rewarding system to motivate employees in order to achieve company's goal. Through a very clearly goal, both the company's goal and the individual goal, it would be easier for employees to know and work toward the objective as well as understanding for employees to know what to aim contained by their work assignment. According to Kristian, employees enable to contribute company's growth by keeping in mind that:

" To work at Applika, the employees need to provide their sole, need to love Applika and have family feeling"

(Personal communication, Kristian, L., 28 November 2012)

Kristian puts emphasis also on company culture as an important strategy using to manage personnel in such a small company. Applika, according to Kristian, a strong culture of teamwork and freedom for the employees to perform their work have significant affect on firm. Although freedom is within the company's guidelines. He believes this culture contained in organization will enhance the relationship between the colleagues and pull out to the customers as well. As a good relationship inside the organization, this will create and to be able to assist or integration to perform or do a judgment of assignment.

Nevertheless, Applika have a very restriction personnel rules and regulations formulation about some important information of company. The company set up a high penalty if some employee will break that rule. Kristian believes also that the company has gained a very high-sustained comparative advantage by their high competent of employees they carefully recruited. HRM according to Kristian and as he said:

"Applika could trust their employees by employees could give trust to their customers and in turn their customers could trust Applika".

(Personal communication, Kristian, L., 28 November 2012)

Thus, Kristian believes that a good HRM has contributed and effected to Applika's growth in many area of the organization.

5. Analysis

This section includes the analysis of the empirical data based on the theoretical framework. The aim of analysis is to consider the role of human resource management in the Applika thereby compare it to the theoretical data.

5.1 Human Resource Management in Small Firm

Wright and Boswell (2002) pointed out that the Human resource has an important function as well as the accounting, manufacture, financial and marketing. In Applika, a small company makes use of the employees to connect closely with the customers to permit the companys' productions and services to fulfilled their customer s' need.  The conception of "Human Resources Model", which believes that the employees with the skills of experience and knowledge would be wealth of firms and firms need to fully use this wealth to perform effectively (Kaser & Miles, 2002). The firm should use these human resources to improve the quality of decision-making and employees' self-control. Due to this, Applika is using the "freedom "strategy for managing the employees in their company as they also believe the freedom allow the employees perform high-speed and effectively with their work. Moreover, the company culture, allocate employees to feel the sprint of belonging to the firm therefore they will work hard to contribute company to success. As well as the company is choosing the teamwork strategy in order to enhance the effective working. To manage human resources, Applika will let employees to feel as is a family when working in Applika. Kristian mentioned (personal communication, 28 November, 2012) that in Sweden, there is very usually word as "Just let employee know the company is your family" and by that reason they rather to recruit employees through their closely friends and good customers in order to gain trust and strong family feeling all the time.

HRM practices in SMEs ¬rm are about staffing activities, such as recruiting, selecting staff also motivation and retention activities such as compensation and reward practices (Barrett & Mayson, 2007; Hornsby & Kuratko, 2003). Generally, the small firms form employs less than a hundred people and there are 16 persons employed in Applika by Augusti 2012. Even though the number of the employees in Applika is small, professional human resource management activities considered high, which will contribute to working competence in the company (Hornsby & Kuratko, 2003). Human resource management contains the physical and mental labor with the basis of the work force for the goods products and services products in the small firms. The Applika want to recruit employees that can be trusted. They believe that will reduce the costs of controlling, training and managing. Trust relationship between the friends and colleagues and the network will help establish the productivity and effectiveness in business, according to Kristian (personal communication, 28 November, 2012). At the same time, the motivation and the rewarding system have a significant on employees to work hardly to gain achieve the goal. So small ¬rms should have the ability of offering salaries and rewards, which could attract, motivate and retain employees (Morris, 2001). As Applika have both company's goal and individual goal, which would make target that make the employees understand their goal in their work assignment.

In addition, Applika set up a high penalty if some employee will break the companys' rule. The employees they recruited are awarded of these penalties. HRM is not just recruitment, salary, new staff training, and gradually establish the system position and ranking system, a comprehensive performance evaluation system, whether internal fairness and external competitiveness of the salary system (Reid et al., 2002). The Applika also needs to be aware about Swedish law regulation, such as a pregnant woman, dismissal and vocation. Moreover, employees in Applika are not allowed to start to work in the similar position in other company that offer the similarly the same production and services.

5.2 Human Resource Management and Growth

HRM is very important role in the company that will make the degree of growing development, according to Kristian (Personal communication, 28 November, 2012). And now the key person is basically the three founders because they have future plan and culture for the company, and then the sellers because they will research the further plan and feedback make true our products more perfection and satisfaction by customers. Kristian (Personal communication, 28 November 2012) explained that the company's growth arise rapidly because Applikas' employees have a high competent to make the good design, high function product and importantly work effectively marketing namely work closely to customer relationship in every area. Kristian (personal communication, 28 November, 2012) believes also that the company has gained a very high-sustained comparative advantage by their high and mixture competent of employees that cover in every area in the company.

Facing with an increasingly competitive environment, (Walker, 1978; Devanna, Tichy & Fombru, 1984) had the common awareness about only the SHRM can provide sustainable competitive advantage for the business firms. Kristian (Personal communication, 28 November, 2012) explained that to gain a sustained comparative advantage competitive Applika need the employees have a responsibility to build relationship between the colleagues and customers as well as employees with the right competent get the right assignment within the organization. Applika generate therefore a sustained comparative advantage by "Applika trust the employees then employee give trust to customers and customers trust Applika".

Baron (2003) mentioned that the small business owner/manager has the responsibility for human resources management to develop growth in small size company. Churchill and Lewis (1983) suggest this will almost decide by the owner/manager's management style and personality. Applika has 5 years growing plan to expand to European marketing, consequently on the number of employees in the different part in the organization. It means when the company expanding entry the other countries, they recruit the local employees to work. With intention to internationalize outside countries, Applika plan only expand the marketing & sales and service department, as they want to keep a full control on the production and some part of main service to enhance customer relationship, which considered important. But here, their plan always focuses on how to make the turnover of the company increasing quickly. Indeed, Scott and Bruce (1987) analysis that those type of business owners who are unlikely to change their style regard as a barrier to firm growing and development (Penrose, 1959). Compared with the larger ¬rms, human resources management practice is a kind of waste cost of time and money for small firms (Klaas et al., 2000). Their characteristics demands imply that they cannot realize economies of scale and they had few area resources management and professional knowledge (Harris, 2000; McLarty, 1998). Accesses to the special department of human resource management (or employment), some companies are usually not specific because the establishment of specialized human resources is expensive management views (Chandler & McEvoy, 2000; Hornsby & Kuratko, 1990).

6. Conclusions

In this final chapter, our question in this study is answered and conclusions presented included the suggestion to further study in this area.

Our purpose of this paper is to answer this question: What is the contribution of HRM will affect the company's growth? With question we aim to enlighten the significance of the HRM and explore the contributions and the effect of human resource management on the firms growth. With the theoretical framework have we gained a deeper understanding the field of human resource management and developed our knowledge of human resource management and its importance on firm's growth. As many contributions come from new growing fast businesses or start-ups small firms, which focus on expanding the number of employees. This is the mainly effect of business growth being included the variety internal and external factors. Therefore, our study has to deal with the human resources and the performance effects, which the role played in the firm and the corporate strategy through effective human resource management (HRM).

One conclusion is that, HRM needed to be developed and intentioned if the small firms want to maintain the degree of growing through the tough competition. The empirical study had shown that the recruiting measurement is the major HRM problem to determine which need to search for the right employee at the firm's fast growing stage. Therefore growth needs to be emphasis on HRM, such as compensation and reward, which have affect on employees working effectiveness, which in turn have effect on company's growth.

The second conclusion is that the role of HRM contributes to growth firm. At the core of the HRM is the view that the physical, organizational or human resources of a firm may be a strategic to sustain competitive advantage if the meet certain conditions. In the case of human resources, the employees' skills and knowledge must be valuable to the organization to sustained competitive advantage. Fast-growth firms considerate the cost pressures into the recruitment and training needs. Therefore these managers may use social and business networks of hiring practices that rely on organization fit and trust, rather than skills. While these practices will be easy and convenient to use, can significantly managing the employees as well as the scope of resources to be brought into the firm under the cost pressures. That is difficult for competitors to imitate and found in competitor organizations to discover the particular human resource to achieve their objectives.

6.1 Practical implication

Small firms should establish the concept of "to people-oriented" in the process of rapid development. They need to transform the concept of the "humane management" into effective practical action, which are used advanced concept of human resources management, combined with the actual situation of the firms, to develop clear, specific, operational human resource management. Build the full range of human resource management system as it is necessary to establishment the professional human resource management.

6.2 Future research

The focus on this study is to understand the effect of human resource management within a small firm that is growing. While this study has shown the effect of HRM within a small company we found the lack of knowledge regarding HRM outside the firm that can be contribute to firm's growth. For example that Applika considered feedback of the customers as a human resources that contributed to Applika growth. To the future research, in order to increase understanding conceptual of human resource management, we encourage the new study to research for this area and topic.