Influence of OM Experience on the Formality of HR Practices

It has been noted in the literature review that informality of human resource practice is not inevitable in small firms, with Ram et al (2001, p846) stating that informality in such firms is ‘a matter of degree and not kind’ and Goss (1994) arguing that formal, strategically consistent and internally focused HR practices may begin to appear with the very first employees. However, it may be argued that informality, while not inevitable, is more likely in small firms and that formal structures and codified practices are more likely to emerge later, as the firm grows beyond the micro stage (de Kok et al, 2003; 2006; Kotey and Sheridan, 2004). Harney and Dundon (2006) identify that environmental factors such as technology, HR supply, market structure and industry sector, and their interaction with internal factors such as ownership, management style, trade union presence, company size and employees have an influence on the emergent formality or informality of employment relations.

While examination of all of the influencing factors proposed and examined by Harney and Dundon (2006) is beyond the scope of this thesis, there is evidence from the respondents that the owner-manager’s experiential history and the behaviour of the recruited employees, in terms of the introduction of new skills and trustworthiness, influenced the owner-managers to an extent that determined the introduction of some formal practices within the firm. It is not possible within this exploratory, qualitative study to examine the effect of company size on formality, as this would be more suited to a statistical survey. Within the employer sample selected for this study, however, there remained a significant degree of informality of practice, with some evidence of early company structures but more commonly close relationships and ‘tacit understandings’ (Ram et al, 2001, p846) that reflected the strong influence of a small number of employees on the firm’s economic destiny.

171 Where a degree of formalisation existed, this could be attributed in part to the experiential history of the owner-manager. Clive Holder, for example, had spent his career from his early twenties to his late thirties as a deputy manager and then manager of a number of large superstores. He attributed his expectation for his first line manager to produce a yearly business plan and training plan as a consequence of management practices he had learned in large firms. He stated that he had decided to ‘manage exactly as I would have in (a large national superstore)’ (CH838). Such an approach could clearly be described as strategically focused and internally consistent and thus evidence of formalisation (Goss, 1994).

It has been recognised that owner-managers of small firms are less likely to provide staff training than those of large firms because they may have concerns that the employees in which they invest may be easily poached by other companies (Storey and Westhead, 1997). Yet Clive did invest in training and showed little concern about losing those staff. Further, he also sought to involve his business with local charities and community work, something again that the large superstore had required of him.

Similarly, Norman Daniels had at least six years’ experience of a management role within a local authority and had also acted as a first line manager in another small business, which had developed a supervisory hierarchy. Norman had then established a three level hierarchy within his own company and immediately installed a first line manager. Neil Jones, who had for six years been ‘Vice President for the East Coast’ in a North American multinational, established a hierarchy similar to Norman’s in his own company. Peter Martin, who had been employed by a national insurance agency, also introduced a formal structure into his business, with clearly delineated employee roles and a first line manager.

John Stuart had not established a clearly delineated structure in his company, with employees instead sharing similar core business roles and administrative duties. He had consciously developed this approach, placing much value on a familial culture. His employment background as a freelance graphic designer and lecturer suggested that he had little experience of formal management structures before he started his business and this was reflected in his owner- management choices. Cathy Cole, with her academic background and uncomfortable experiences of line management when in employment, as has been noted, modelled her company in such a way that would avoid the need for more than one or two employees. Both John and Cathy could be said to have taken the most ‘informal’ approach to employment

172 relations and they were also the employers with the most limited prior experience of management.

The employers who did attempt to impose more formal practices also sought to introduce first line managers. It has already been noted that the role of first line manager was given to the most trusted employees, who also had experience in employee and organisational management. These FLMs were discovered after a period of time in which the owner-managers adjusted their own beliefs about the trustworthiness of employees. The discovery of these FLMs, who may be considered to be rare in the small firm labour market, may have also contributed to a further formalisation of the company structure and employment practices. This was most clear in the case of Mike Hart, who employed an HR professional is this role but there was similar evidence in the responses of Peter Martin, Norman Daniels, Clive Holder and Neil Jones.

It can be seen therefore that, for the employer respondents, their desire to introduce an FLM was at least partially dependent on their prior managerial experiences but also on the success of introducing similar practices within their businesses. The formalisation and continuation of the role depended on them finding an employee who could skilfully fulfil the line management, organisational and supervisory duties that it involved. This required perseverance on the part of the owner-manager, in spite of previous experiences of relations with earlier employees that diminished trust. This, as has been noted, is consistent with the application of effectual logic. The ultimate reward of this perseverance was the discovery of the most trusted employee and this provided owner-managers with more time to pursue core business activity.

Such a process of formalisation could not be said to be inevitable though; Robert Dougall had been a very experienced manager in a large firm but those experiences had discouraged him from employing at all. Among the other non-employers, Robert Cain had also expressed a strong reluctance to introduce formal practices into his firm, which appeared to be heavily influenced by negative experiences of what he termed ‘the politics, which I don’t handle well at all’ (RC58). The same could be said for the effect on Cathy Cole. Therefore, it can be argued that, if elements of formalisation are to occur early in the life of the firm, the owner-manager’s prior experiences before they begin to employ should encourage a positive view of the employment experience. The absence of these early positive associations will not necessarily prevent employment but may make it less likely that a formal structure will quickly emerge.

173 This analysis is consistent with the arguments of Goss (1994) and Ram et al (2001) regarding the possibility of early formality in small firm HR practices. Furthermore, it does not preclude the findings of de Kok et al (2003; 2006) and Kotey and Sheridan (2004) that such formality is more likely later, although a wider sample, together with a broader set of research objectives, encompassing later growth, would be required to explore this issue further.

The arguments regarding formality and informality, are encapsulated by Harney and Dundon (2006, p69), who argue that HRM in small firms resembles:

a quilt composed of a distinct mix of policies and practices, in some cases uneven and contradictory, imbued with varying levels of formality and informality, each reflecting the unique context from which they emerged.

While the authors examine a variety of influencing factors, both external and internal to the firm, including the ‘ideology’ of the owner-manager, it might be helpful to add to these, as a result of the research conducted in this thesis, the experiential history of the owner-manager and the associated likelihood of discovering trusted employees. It should be noted however, that far from smoothing the uneven and contradictory mix of outcomes, these discoveries contribute to the complexities of the development of HR processes in the small firm context.