The measuring and the making of 'good' HR practice in SMEs

1. The measuring and the making of 'good' HR practice in SMEs Liz Doherty Professor of Human Resource Management Sheffield Hallam University Manchester Metropolitan University, 11 February 2009 (with acknowledgement to Ann Norton and Sarah Carmody)

2. Structure • Background to HR in SMEs and to Fosters Bakery • Measuring 'good' HR practice • Evaluating the main factors which make 'good' HR practice • Conclusions • Discussion

3. HR practice in SMEs • Despite their economic importance, relatively little research into their HR practice • Defining SMEs (less than 250 employees, turnover, ownership) • Much existing commentary/research polarises into: 'small is beautiful' (harmonious, family style, little bureaucracy, good HR) v bleak house (conflict, authoritarian, instability, poor HR practice) (Wilkinson, 1999) • 'Small is brutal, not beautiful' (Rainnie, 1989)

4. Some key features • Resource poverty (Welsh and White, 1981) • Dependence on large firms: less power, lower profits, higher risks, more labour exploitation (Rainnie, 1989) • As companies grow a 'leadership crisis' demands formalisation and professionalisation (Greiner, 1972) • Managers can make more of an impact in SMEs than in large organisations (Storey, 1995) • Employees often seem surprisingly loyal even when conditions are rather poor (Wilkinson et al, 2007) • Assumed that SMEs 'should learn from large firms' (Cassell et al, 2002)

5. Fosters Bakery • A family owned bakery in Barnsley, South Yorkshire employing 225 FTEs • Organic growth plans (from £10 m turnover) • Serious, presenting HR problems (high labour turnover and absenteeism, recruitment difficulties, customer complaints) • A Knowledge Transfer Partnership Project • To develop an HR strategy, together with policies, procedures and initiatives

6. Methods • Action research • In-depth interviews with directors • Participant observation on the factory floor by the KTP Associate • Review of company information and statistics • Reflections on action interventions

7. Measuring HR practice against a benchmark: my 1994 survey • IR/PM • HRM • 'Good practice' required or encouraged by legal provisions' (contracts, recruitment and selection, discipline) • Random sample of UK hotels and restaurants (median size 25, 241 responses)

8. Findings • Clear co-relation between size and formality • Practice rather poor and only a 'veneer' of good practice in larger workplaces • Unwilling to pay a commercial rate for management training • 'We work in a truly family atmosphere…' • 'Benign paternalism is no substitute for…substantive and procedural arrangements to guarantee fair treatment' (Price, 1994; 51)

9. HR practices in South Yorkshire SMEs (Cassell et al, 2002) • Survey of 100, interviews with 22 managers • Informed by SHRM debate of 1990s • EO policies claimed to be most widely used, yet 'intuitively we felt that there was very little evidence of EO at work…..' • Wide range of recruitment and selection methods, but considerable emphasis on 'word of mouth' • Some use of IiP, but training mostly focused, targeted and reactive

10. Challenge how we think about HR in SMEs • HR management is necessarily less formal • Better to be flexible and not extend bureaucracy in an arena of 'scarce managerial resources' • 'Strategic' HRM 'as a package' is not practical or appropriate • Rather HR practices are needed to address HR issues relevant to current business priorities

11. The WERS 1998 benchmark (adapted by Bacon and Hoque, 2005) • HRM practices based on 8 measures drawn from WERS 1998 (388 SMEs) • Measures not justified, but • Some represent 'best practice' as legislative compliance • Some represent 'best practice' as investment in people and winning motivation • Others more about SHRM and associated more with 'best fit'

12. Measuring Fosters against the benchmark

13. Beyond the benchmark • Building an image as a good employer (outreach to colleges and schools, and rehabilitation of offenders) • Developing people (NVQs, English language training for migrant workers, IoD qualifications) • Seeking recognition for excellent HR practice (Food manufacturing excellence award on diversity and recruitment; short-listed for CBI human capital award)

14. The making of good HR practice: market position • Skill mix: investment v 'sweating' (Bacon and Hoque, 2005) • Although a low skill industry, consciously a niche differentiator with an emphasis on innovation: 'We make innovative and different but mainstream breads…..we are rapid innovators...products with an ethical story behind them' (MD) 'We try to enhance products like we have for Pret a manger, so they are difficult to copy….we have invested in technology…to develop our own improvers and we use enzyme technology' Operations Director

15. People are key 'The more we put into up-skilling and motivating the masses, then generally the better we will be' (MD) 'We are nothing without our people. They are very skilled, loyal, knowledgeable. You can`t put a value on that - this is why we are doing the training, and we are trying to put in a bit of academic qualification too, to sharpen their brains…..to create a knowledge base.' Operations Director

16. The making of good HR practice: the pressures for compliance • Coercive external networks: trade unions, large customers (Bacon and Hoque, 2005) • Key customers (eg major supermarkets and pub chains) exert their buying power to keep prices low, but also require high quality • Need to conform to British Retail Consortium standards • Also industry standards, eg occupational health • Bakery and Allied Workers TU exerts little pressure

17. The need for compliance is recognised 'HR needs to keep things ticking over..doing the right thing with policies and procedures in place as everyone says you ought to have' HR 'like AA breakdown service' 'The law is good as it is definite. Policies are not quite the law - more of a rule book' 'Clear policies will help stop issues getting to top management as middle management can deal with it according to the rules.' MD

18. The making of good HR practice: the vision of a 'good' man • The MD is a Methodist Minister (adapted Porter's models to his church) • To move Fosters from 'a has-been baker with no planning…our customers thought we were crap…we were making no money' • …to the Swann Morton vision 'Their yardman is paid twice as much as the yardman in any other steelworks, but if there is a blade of grass out of place he gets the sack…so he gets a lot of money but he had better do his job right'

19. Tough love • Dealt early on with the 'dross', the 'dead-legs' and the 'liabilities' • Balance looking after people with drug dependency problems with them 'killing the business' • Of ex-offenders 'It's simple. If they do right by us, we'll do right by them'. • Create 'super-people'…when you cut them they've got Fosters running through them like rock - that's a super person' • Putting something back into Barnsley - chairs the Work and Skills Board

20. The making of good HR practice: the impact of an HR Champion • Before the Operations Director arrived, no interest in HR, no investment, massive absenteeism and a 'fed-up' workforce • First challenge: 'eradicate the dross', show 'we will not tolerate bad behaviour', recruit a workforce with a better work ethic • Second challenge: enhance the workforce - invest in training, apprenticeships, career pathways, multi-skilling • Establish the KTP and promote IiP case

21. Some countervailing forces • Profit margins are tight 'we gather up the crumbs from the giant's table' • Hard for the MD to devolve control • This feeds all through the factory - shopfloor staff feel not trusted like 'children', reluctance to share information, still a very Tayloristic factory • The creation of an HR function and new procedures leads line managers to abdicate responsibility (then this has to be 'trained' back in)

22. Back to measurement • How do we measure success? Both for the KTP, for Fosters, for research purposes • Fosters regularly measures financial performance: turnover, profit, return on capital investment 'does anything else matter?' only….. 'If the yard is tidy everything else is tidy….and we want our HR to be as clean as our yard' MD • Resistance to generating any KPIs related to HR - time not justified • Ad hoc measurement is done when required (eg factory wastage) then it ceases

23. HR measures for KTP • SSP payments have decreased • £43,021.79 annual cost for tax year 2006/2007 • £33,854.23 annual cost for tax year 2007/2008 • Number of disciplinary cases decreasing • 20 in the 6 months prior to March 2007 • 5 in the 6 months prior to March 2008

24. HR measures for KTP • Employee Turnover has decreased • 21.8% in March 2006 (Prior to the KTP project) • 9.1% in March 2008 (18 months into the KTP project)  • Retention rate of employees with over 1 year’s service has improved • 10.6% of leavers had more than 1 year’s service in March 2006 • 7.9% of leavers had more than 1 year’s service in March 2008

25. What really matters? • Not concerned about evidencing the value added through HR investment - it is a leap of faith • Current climate of increased costs of raw materials and fuel • Several competitors have gone out of business • 'The improvements made through the KTP have contributed to Fosters ability to stay in business and indeed win new contracts from failed competitors' (KTP Final Report)

26. Conclusions • Good HR practice in SMEs is different to that in large organisations (resource poverty, reactive to presenting issues and business interests, nimble, less formalised and bureaucratic, more influenced by a few key managers/directors) • Drivers toward formality are external networks and legislation (compliance) • Drivers towards investment in people (more aspirational practices) are market position and ideology of key managers/directors • Owner/MD likely to cling to control and to management prerogative • Routine measurement of HR impact is not cost-effective, likely to be ad hoc

27. Sources Bacon, N and Hoque, K (2005) 'HRM in the SME sector: valuable employees and coercive networks' International Journal of Human Resource Management, 16:11 Cassell, C, Nadin, S, Gray, M and Clegg, C (2002) 'Exploring human resource management practices in small and medium sized enterprises' Personnel Review, Vol 31, No 6 Dundon, T, Grugulis, I and Wilkinson, A (1999) 'Looking out of the black-hole: Non-union relations in an SME' Employee Relations, Vol 21, No 3 Greiner, L (1972) 'Evolution and Revolution as Organisations Grow' Harvard Business Review Price, L (1994) 'Poor personnel practice in the hotel and catering industry: does it matter?' Human Resource Management Journal, Vol 4, No 4 Rainnie, A (1989) Industrial Relations in Small Firms, Routledge, London Storey (1995) Human Resource management: a Critical Text, Thompson International, London Wilkinson, A, Dundon, T and Grugulis, I (2007) 'Information but not consultation: exploring employee involvement in SMEs' International Journal of Human Resource Management, 18:7

28. Sources Welsh, J and White, J (1981) 'A small business is not a little big business' Harvarad Business Review, July-August Wilkinson, A (1999) 'Employment relations in SMEs' Employee Relations, Vol 21, No 3 Wilkinson, A, Dundon, T and Grugulis, I (2007) 'Information but not comnsultataion: exploring employee involvement in SMEs' International Journal of Human Resource Management, 18:7