Analysis of the theory of recruitment practices in SMEs

The focus of this essay is to use observations from an ethnography study conducted in a small Chinese restaurant in the city of Bradford in carrying out an analysis of the theory of recruitment practices in small and medium – sized enterprises (SME’s). It will begin with a brief description of the study and the organization involved with details of all that was observed during the period of the period of the study. The results will thereafter be linked with theories relating to recruitment practices in SME’s drawing from a wide range of academic literature and a conclusion will be drawn based on what has been found and the overall implication with regard to knowledge in the field.

It was a cold Thursday afternoon at the end of a seemingly endless array of lectures and tutorials. I decided to visit a Chinese restaurant in the Bradford city center for a taste of oriental cuisine and particularly make some observation on how small businesses operate in this environment. On arrival at the restaurant, a relatively cozy setting existed which created a sense of warmth and relaxation; exactly what I needed. I was greeted warmly by a female waitress who appeared to be Chinese although I’m aware she could be from anywhere in that region.

There were quite a number of customers in the restaurant at that moment mostly busy with one meal or the other. Being a buffet, there was a lot of moving around with people getting up to take their meals from the service sections. I took a sit in a nice corner, place the order for my drinks and decided to look around for a while before my meal. The aesthetics of the restaurant was quite impressive with the walls painted in a combination of orange and brown, the lighting just right for the atmosphere, tables of various sizes depending on the number of guests and the right amount of decorations on the walls. How can I forget the soft music playing in the background? Even though I couldn’t understand a word of what was being sung as it was in Chinese, the melody was just right.

The nationalities of the guests appeared to be all encompassing. There were six middle-aged Caucasian males, two elderly females with a toddler, tow male Asians, a black female couple and three other young black female guests already seated in the restaurant. Three female Chinese waitresses were on hand to attend to guest needs and there was a male waiter at the bar who was in charge of the drinks. The kitchen staff that came out every now and again to replenish the stock of food was also of Chinese origin. This set me wondering on what criteria was required for employment in this restaurant. During the period of my observation, more guests came into the restaurant which comprised of two young female Caucasians, two adult female Pakistanis, one male Pakistani and a group of twelve made up of eleven males and one female all appearing to be from the same workplace as they were all dressed as having come for a formal lunch or to celebrate a successful business deal.

As I sat down in the restaurant, I began to imagine the size of the business in terms of turnover judging by the number of guests I had observed. I decided to find out from one of the waitresses how many guests the place could take at a time and to my surprise, she told me 300 which is quite a number. So how is recruitment done here I wondered? To satisfy my curiosity, I went a step further to see the manager to ask a few questions about their recruitment process. He said the ability of speak either Chinese, Cantonese or Mandarin is essential and a major criteria for employment in the restaurant. This he said was informed by the need to communicate with the kitchen staffs who were generally non English speakers. How then are employees recruited I asked? Do you conduct any form of tests or interviews? Are openings advertised locally? The manager replied that it is usually via referrals from existing employees and word of mouth such that these new recruits are introduced by people who know them and can account for their character as well as their whereabouts if need be. On the number of employees, he said the restaurant had an overall staff strength of 25. The manager’s response immediately brought back to mind the existing argument concerning formality and informality in relation to human resource management (HRM) practices in small firms.

The study of SMEs is approached theoretically, from the HRM perspective. Cassell et al (2002) while citing Hendry et al (1995) suggest that mainstream HRM and management continues to place emphasis on large firms even though their economic significance has declined in recent years and there is an obvious increase in the important role that SMEs play in the European economy and other economies around the globe. The heterogeneity of small firms in relation to their large counterparts therefore makes it imperative to pursue a different approach in managing them.

According to Wilkinson (1999), existing literature on small firms tend to show two scenarios. The small is beautiful assumption according to the Bolton Committee report (1971) as cited by Wilkinson (1999) depicts a small firm as providing a better work environment for the employee than large firms and as a result, staff turnover is low with fewer occurrences of industrial disputes. While citing Rainne (1989), Wilkinson (1999) also showed that the bleak house assumption on the other hand disputes the assumption that harmony exists in small firms by suggesting that small firms are run dictatorially with employees suffering poor working conditions, having little involvement in the running of the business and are exploited due to lack of representation. Harney and Dundon (2006) however suggest that HRM in SMEs is neither beautiful nor bleak rather; it is best understood as complex and supporting the work of Ram (1991) who earlier suggested that the workplace relations in SMEs may be complex, informal as well as contradictory.

The complexity involved in the definition of what a small firm is creates a challenge for research in SMEs (Wilkinson, 1999).The concept of what constitutes an SME differs between countries. According to the European commission (2003), enterprises can qualify as either micro, small or medium-sized depending on various criteria which include the number of employees, turnover and or balance sheet size. Micro firms employ less than 10, small firms less than 50 while medium-sized firms employ less than 250 people. These SMEs are of economic and social importance in the European Union (EU) since they represent 99% of all enterprises, provide about 65million jobs and contribute to entrepreneurship and innovation with the region (Europa, 2003).

In the United States, where small businesses are said to be the backbone of the economy (SBA, 2008), the U.S. Small Business Administration (SBA) provides a standard definition of a small business as having between 500 to 1500 employees depending on the type of business.

In the UK, the Department for Business Innovations and Skills (BIS) statistics which was published in 2010 shows that out of about 4.9 million businesses, 99.9% of them were SMEs having less than 250 employees (BIS,2010).

In small firms, it is observed from existing literature that management and HRM practices are characterized by informality (Carroll et al., 1999, Cassell et al, 2002, Barrett and Mayson, 2007, Marchington et al, 2003). The existence of informality in SMEs has been linked to what Welsh and White (1981) as cited by Barrett and Mayson (2007) refer to as resource poverty; a term that simply implies the scarcity of resources that small firms experience by virtue of their size and various conditions that are unique to smaller firms. The various HRM practices that exist in SME’s include recruitment and selection, training and development, rewards and recognition as well as performance appraisals.

The recruitment and selection process in SMEs as shown in various academic works is led by informal methods such as word of mouth, networking and referrals from existing employees (Carroll et al., 1999, Marchington et al, 2003, Barrett and Mayson, 2007, Behrends, 2007). According to Marlow and Patton (1993), as cited by Marchington et al. (2003), owners of small firms believe that informal recruitment channels based on the owner’s previously held knowledge or trusted employees provide a more comprehensive profile of prospective employees than the more formal methods. The emphasis for most owner managers is the hiring of “known quantities”. Jameson (2000) however argued that the informal process used by small firms may result in the recruitment of inappropriate people in the long run leading to high labour turnover for such firms. This was also supported by Barrett and Mayson (2007) who argued that though small firms may prefer informal methods since it provided the obvious advantage of speed and minimal cost (Carroll et al., 1999) and could be an effective measure of ensuring new recruits fit in, they could also lead to the employment of the not quite right person as the larger pool of suitable recruits remain untapped.

Training and development through formal means is found to be rare in most SMEs (Cassell et al., 2002, Barrett and Mayson, 2007, Horque and Bacon, 2006). The approach taken by most firms is characterized by informality and with on the job training being commonly used (Jameson, 2002, Barrett and Mayson, 2007) which for most owner mangers was faster and more cost effective. A major reason for the reluctance to train is however linked to the fact that once employees are trained and appear to be better, they move to another firm (Cassell et al., 2002).

There is limited research in the area of reward and recognition in SMEs (Wapshott, 2010). In most cases, owner managers were found to set pay and reward schemes with some complexity involved in the use of formal incentives schemes (Cassell et al., 2002).The practice of performance appraisal in SMEs is rare and formal systems limited (Cassell et al., 2002). Employee performance is monitored on a daily basis and in some cases informally outside the work environment (Marchington et al., 2003). The cost associated with having a structured formal appraisal system could also account for this unavailability of appraisal systems as most firm lack the resources to set up one.

Overall, the adoption of informality by SMEs should not be seen as ineffective as it can be an appropriate response to organizational context (Marchington et al., 2003). Small firms should be judged on their own terms and according to Jameson (2000), they require separate treatment as they are not microcosms of large firms. It has been argued that the rate of adoption of formal HRM practices increase as firms increase in size and organizational complexity (Kotey and Slade, 2005, Barrett and Mayson, 2007). However, the set notion that small firms must ultimately move from formality to informality was challenged by Marlow et al., (2010) who suggest dualism that is; a situation where firms adopt a combination of both formal and informal practices.

In analyzing the restaurant observed in the ethnography study, relating it to the previously discussed theories, the focus will be on the adoption of HRM practices by the organization particularly in the recruitment process. From the interview conducted with the manager a shown earlier, it was observed that the process of recruiting new employees was largely informal with a lot of reliance on word- of- mouth and networks of existing employees. This confirms the findings of Carroll et al. (1999) who conducted studies in small firms cutting across various sectors in the UK where he considered to what extent firms followed the prescribed process of recruitment in HRM literature which involved assessing the need to fill a vacancy, job analysis, production of a job description and specifications of persons fit for the job. What was found however, was the use of more informal methods such as word- of – mouth recruitment, referrals from existing employees and the hiring of “known quantities” which was also evident in the case of the restaurant since according to the manager, they were concerned about someone being able to guarantee the new recruit’s character as well as whereabouts if need be. Jameson (2000) who also conducted studies in the hospitality industry and his findings showed that the recruitment process in these firms was characterized by informality. This is also true in the case of Marchington et al., (2003) who conducted studies in the UK road haulage industry.

The advantages of speed and cost are associated with the recruitment of known quantities (Carroll et al., 1999) will be relevant in the case of the restaurant because judging from their size; they may not likely have the resources to adopt more formal methods. The obvious disadvantage as stated by the same authors is the fact that such firms may be exposed to accusations of indirect discrimination against certain groups. This is particularly true in the case of the restaurant being studied since according to the manager; a major criterion for employment was the ability to speak Chinese, Mandarin or Cantonese and this may be interpreted as being discriminatory since the chances of those from other ethnic groups being employed in the restaurant is minimal and almost inexistence. This confirms the observation of the waiters and other staff being of Chinese origin. The restaurant has only one known outlet at the moment. However, it could be assumed that as the business grows and possibly expands, there will be adoption of more formal methods of recruitment as is characteristic of growing firms (Kotey and Slade, 2005, Barrett and Mayson, 2007).

In conclusion, from the observations made in the ethnographic study carried out and the overview of the theories relating to HRM practices in SMEs, it has been deduced that in dealing with small businesses, there is a need to see them as different and recognize that the practices that are applicable in large firms may not apply to them rather informality which characterizes how HRM is practiced in these small firms should be viewed in their own organizational context. This practice of informality specifically in the recruitment process of the restaurant that was studied should not necessarily be viewed as deficiency but as part of the heterogeneity which the organization possesses. Most importantly, the fact that adoption of formal practices increases as firms increase in size makes relating with the current informal practices better since it can be assumed that as long as the firm is growth oriented, the adoption of formal practices is inevitable. Most striking however, is the recent works of Marlow et al. (2010) which provides more knowledge regarding formality and informality particularly the suggestion that there is a possibility of combining both formal and informal practices successfully in the management of SMEs. In all, it can be said that small firms should be judged on their own terms.