Embedded HR-practices in SMEs How do they enhance performance and learning?

Embedded HR-practices in SMEs – How do they enhance performance and learning? Essi Saru

Turku School of Economics

Department of Management and Organization Rehtorinpellonkatu 3

20500 Turku, Finland [email protected]

Entrepreneurial and Small Business Learning

Abstract

Both organizational learning and HRD are often embedded in the small organizations practices and are difficult to explicate. The concept of embeddedness explains how the social network can have an effect on learning and development in a work place. HRD and organizational learning can be seen to occur through the job and not just on the job. The purpose of this paper is to study the meaning of learning at work in two different case organizations. The main interest is in how learning takes place during job performance and through which kind of processes. This study applies a qualitative case study approach and it is mostly descriptive in nature. This research is conducted in two Finnish SMEs. Both of these case organizations operate locally in the western part of Finland; one in the field of designing heating and plumbing systems and the other is a sales organization in IT-field. The design agency employs 10 and the sales organization 20 people. Both of these organizations face the limitations of small firms but on the other hand have developed their own ways to manage the uncertainty and lack of resources. One solution to it has been learning at work. The data for this research has been gathered from interviews with the case organizations’ owner-managers and some of the sales organization’s employees. One conclusion from this analysis is that learning on the job during job performance is part of the daily routines in both of these companies.

1. Introduction

SMEs are heterogeneous group of organizations although they are often treated as one entity (Kotey & Slade 2005). In addition to being small SMEs have special features that affect their HR-practices and learning. There are inhibiting factors like lack of financial resources, HR expertise and time (Hill & Stewart 2000; Marlow 2000; Subramony 2006) and enhancing factors like more direct communication, flexibility and the more clear impact of each employee’s work on organizational performance (Sels, De Winne, Maes, Delmotte, Faems & Forrier 2006b; Bacon, Ackers, Storey & Coates 1996). Based on these enhancing factors small firms can be seen as an ideal field for studying the connection between HR-practices and performance (Sels et al. 2006a). SMEs may have a competitive advantage in their size and they should take advantage of being small flexible and sensitive. (Nguen & Bryant 2004). There has been a separate discussion about human resources in small organizations in the fields of HRM (e.g. Harney & Dundon 2006; Bacon & Hogue 2005; Chandler & McEvoy 2000) and HRD (e.g. Skinner, Pownall & Cross 2003; Hill & Stewart 2000). There is a desire to understand more fully how the human resources can be managed in a small context because it has been established that human resource development and management have an effect on the overall performance of organizations (Sels et al. 2006a). The HRD discussion aims at bringing the human resource development issues into the small business management discussion. Despite the amount of literature on HRD in SMEs, it is still not clear how these two fit together (e.g. Bacon et al. 1996; Jennings & Beaver 1997; Gibb 1997; Hill & Stewart 1999; Anderson & Boocock 2002; Mazzarol 2003). This is because both learning and HRD are often embedded in the small organizations practices. They are difficult to explicate but they do guide the management process intuitively. Despite the fact that there is not a clear consensus on what constitutes HRD in small organizations, there is agreement on that it is far from simple because of the heterogeneity of small businesses and their owner-managers (Devins & Gold 2004).

HRD and organizational learning are closely connected to each other. Organizational learning has been studied intensively for almost two decades but its roots are in the mid 20th

century. After the classic writings on learning in organizations (e.g. March & Simon 1950s; Argyris & Schön 1970s; Fiol & Lyles 1985; Huber 1991; Easterby-Smith 1997) there have been others that attempt to capture the process of learning in organizations (e.g. Kim 1993; Crossan, Lane & White 1999; Babuji & Crossan 2004). Kim (1993) presents a model that explains the connection between organisational learning and individual learning. The organisational learning framework by Crossan et al. (1999) also demonstrates how learning occurs at individual, group and organisational levels. Babuji and Crossan (2004) have talked about the increase in empirical work and the emergence of a learning perspective. Just recently Kelliher and Henderson (2006) applied the Crossan and others (1999) learning framework to the small context. Based on that model they introduced a small business learning framework which captures the elements of learning in small context. Their framework is divided into macro- and micro-level issues.

The purpose of this paper is to study the meaning of learning at work in two different case organizations. The main interest is in how learning takes place during job performance and through which kind of processes. This is part of an ongoing research and therefore the results presented here are preliminary results from the fieldwork. The literature review on the theoretical foundations of HRD and organizational learning were reported in a previous paper (Saru 2007) and now the aim in this paper is to concentrate on the empirical findings.

The literature review will bring front some of the most recent work on HRD and small business learning. The idea of embeddedness is also elaborated because it could be one of the explanations for informal learning in small organizations. Then the research method and the data collection are introduced. The findings section presents the case organizations and descriptive analysis from the interview data and the paper ends with conclusions and future research possibilities.

2. Literature review

2.1 Recent development in HRD and organizational learning

It has been stated in the previous literature that small organizations do not apply HRD practices because of the lack of resources but like Hill (2004) states it is not unreasonable to think that small firms have HRD practices because they do survive in the competition. This assumption is probably due to the fact that small organizations do not have formal models and definitions for HRD but they apply informal practices that have the same outcomes and effects. Hill (2004; 12) provides an alternative conceptualization for HRD in SMEs and it is based on the assumption that learning is the focus of HRD. The managers in small companies are more familiar with training and development than HRD and they favour informal training and learning (Hill 2004) because of the resource limits. Therefore Hill (2004; 12) suggest that “learning and HRD occur not juts on the job, but through the job, whereby work becomes a process of learning”. Hill explains this further and states that this line of thinking makes HRD as part of the normal work and can be described as business as usual and not HRD. This supports the idea that HRD is embedded in the daily routines of the manager and therefore is difficult to explicate and recognize.

The term work-related learning is used to mean all forms of learning activity that take place within the work context (Sambrook 2004). Sambrook (2004) separates three types of work-related learning: outside work (learning that takes place away from work), at work (formal courses at the work place) and in work (learning embedded in work processes through coaching or on-the-job activities). I find this classification very relevant in this research context. It fits well with the idea that learning is multidimensional concept and involves individuals both from the organization and outside it. Organisations can learn, independent of any specific individuals, but not independent of all individuals (Kim 1993).

Because of this connection to individual learning, one of the great challenges in researching learning in organisations is that people learn very differently (Anderson & Bookock 2002). It can be difficult to trace a change in behaviour because people may not be able to implement new ways of doing things to their daily routines right away. Huber (1991) brought this perspective to academics’ attention by stating that learning does not always increase learners’ effectiveness or result in visible changes in behaviour. New skills or knowledge can become visible later in a different context or situation (see also Lee 1995, 39).

Managers in SMEs are more able to engage with employees in an informal way and at personal level. They are in closer contact with them which means that it easier for the

employees to express their feelings and they are also understood better. (Smith, Thursfield, Hamblett & Holden 2004) This openness helps also in creating a positive environment for learning and development.

Organisations are forced to look for immediate results from learning and to be able to show a link to business performance (e.g. Lee 1995; Hill & Stewart 2000). This is not a big problem if the organization already is involved in training its employees and sees the value of investing in keeping the professional knowledge of the employees up-to-date. Therefore like Zhang, Macpherson and Jones (2006) conclude there are clear differences in learning processes between innovative and stable SMEs. Stable firms are more reactive and outputs from learning are fewer. Innovative SMEs are more proactive and learning tends to be on a higher level. This conclusion is similar to the one of Spicer and Sadler-Smith (2006). They found a difference in organizations that engaged in lower order learning (single loop, adaptive) and higher order learning (double loop, generative). Therefore the learning orientation is clearly an aspect in considering learning outcomes in small organizations. I see that innovative firms can be equated with new firms or firms with new or young management because then new management initiatives are used more frequently.

2.2 Embeddedness to the network or to the job?

The concept of embeddedness and its roots are in the social sciences (economic sociology). The concept explains how the social network can have an effect on learning and development in a work place. It also brings forth a concept of job embeddedness which links an employee to the job (s)he is doing. This discussion is relevant because the embedded practices in small organizations seem to be prevailing and their effect on the employee performance is meaningful.

The concept has gained popularity since the publication of Granovetter’s (1985) writings. When Granovetter (1985, 481) introduced the concept of embeddedness he argued that behavior and institutions are constrained by ongoing social relations and they can not be studied independently. In the beginning of 1990s the need to understand the effect of social structures on economic performance was increasing (Uzzi 1996). Uzzi (1996) has argued that organization networks operate on a different logic than markets and this logic is referred to as embeddedness. It has been called network embeddedness and these networks are said to be related to both individual and group performance (Granovetter 1985; Uzzi 1996; Sparrowe et al. 2001; van Emmerik – Sanders 2004). It seems that network embeddedness can be seen as a relationship between employees in one company (van Emmerik – Sanders 2004) or between several companies (Granovetter 1985; Uzzi 1996; Sparrowe et al. 2001). For the purpose of this paper the network between employees in one company is more relevant than the relations between different organizations.

An employee may also become embedded to the job he or she is doing. Job embeddedness was introduced by Mitchell, Holton, Lee, Sablynski and Erez (2001). They describe it like a net or web in which an individual can become stuck. Job embeddedness consists of three aspects: first, formal and informal connections between a person and institutions or other people (links); second, employee’s compatibility or comfort with an organization and with his or her environment (fit); and third, the cost of material or psychological benefits that may be forfeited by leaving a job (sacrifice) (Mitchell et al. 2001). This means that the more an employee is connected to the organization he works for and the better he fits in the more embedded he is and less likely to leave. Also if there is a big financial sacrifice (lose of vacation days, lose of benefits etc.) for leaving, it is usually not done.

It depends on the job and the company sector whether a person is more embedded in the social network or the actual job (s)he is doing. In a high profile expert job the professionalism is the main driver in the work. In a lower skill job the social network can become the driver for good performance and a reason to stay in one company. This means that the manager has a role in creating the positive drive in the company and therefore the embedded management practices could have a significant role. This embedded management has implications for performance and also the working conditions. It can therefore be argued that the more embedded a person is to an organization the more he is willing to learn and develop.

3. Methodology 3.1 Case study

The case-study approach has a long history in social sciences, but there has been very limited discussion about the philosophical consequences of applying the case-study approach to the small business area (Perren & Ram 2004, 84). Despite that case research has been popular in small business research for some time (Curran & Blackburn 2001). Case study has also been used to research HRD and OL issues in small organizations. This is very understandable first of all because, in a small context, it is easier to keep the approach simple and secondly because the previous quantitative studies have come to the conclusion that more in-depth empirical case studies are needed to clarify the small business context.

In recent HRD and OL studies multiple different methods have been used. First McGuire and Cseh (2006) described the development of the field of HRD with a Delphi study. Their intension was to find out what the historical milestones in HRD research are and what the disciplinary base looks like and also about its components and future directions. They interviewed HRD experts. They came to the conclusion that the only agreement on these HRD issues is disagreement. Also Garavan and Morley (2006) discussed similar issues in their article but it is based on previous HRD literature. They conclude that HRD as an academic field is now defined to include the development of learning and the enhancement of performance in organizations. These studies were not specifically about SMEs but tell otherwise about recent developments in the field of HRD.

Organizational learning has also been studied from many perspectives recently. First it has been studied in small manufacturing firms with a postal survey by Chaston, Badger and Sadler-Smith (2001) and by Spicer and Sadler-Smith (2006). In this more recent study the aim was to build a measure to assess OL orientation and to find a connection between OL and organizational performance. They came to the conclusion that especially higher order learning and performance are connected. Folguera and Trullen (2000) reported about their exploratory study which applied in-depth interviews. They were interested in small businesses training and competitiveness and they reported on preliminary results on their field work. Birdthistle (2006) studied family businesses’ training and learning strategies and combined the methods of mail survey and personal interviews. Also action learning has been studied by Clarke, Thorpe, Anderson and Gold (2006). Their study covers 100 manufacturing and service firms and studies 19 different learning sets and 15 members were also interviewed and asked to fill in learning diaries. The study is quite extensive and reports that action learning could be a way for an SME to engage in useful training. In addition to these studies, which included several organizations also single case study has been applied. As was already mentioned, Kelliher and Henderson (2006) proposed a learning framework for small firms by applying Crossan et al.’s (1999) learning framework in their interpretive study. They carried a longitudinal case study in one small firm that was in the middle of implementing a new IS-system. This study is an example how the large organizations’ models and frameworks can be adjusted to the small context.

Also case study itself has been used for single and multiple cases and with quantitative as well as qualitative methods (Yin 1984) which means that a case may be very simple or very complex (Stake 1998). Case study can be used to test theory, generate theory, and provide descriptions (Eisenhardt 1989) and therefore it can be classified as explanatory, descriptive or exploratory (Yin 1984) and this can also be seen from the previous studies listed above.

This study applies a qualitative case study approach. It is descriptive and interpretive in nature. Descriptive case study attempts to describe what happens in a case setting (Gummesson 1991). The literature review preceded the data collection and analysis and therefore the findings were interpreted based on the previous literature. The case-study approach has been criticized for providing few possibilities for scientific generalization, for being time-consuming and for being biased (Yin 1984, 21). However, as the case here is qualitative, the intention is not for it to be generalized to other contexts. The aim is to describe the situation in the case companies and link learning to overall firm performance with the help of a learning framework for small firms.

3.2 Data collection

This research is conducted in two Finnish SMEs as a qualitative case study. Both of these case organizations operate locally in the western part of Finland; one in the field of designing heating and plumbing systems and the other is a sales organization in IT-field. The design agency employs 10 and the sales organization 20 people. Both of these organizations face the limitations of small firms but on the other hand have developed their own ways to manage the uncertainty and lack of resources. One solution to it has been learning at work.

The data for this research has been gathered from interviews with the case organizations’ owner-managers and some of the sales organization’s employees. The interviews have been conducted in October 2006 and December 2006 and January 2007. There are 11 interviews altogether – two managers and 9 employees. The interviews lasted from 30 minutes to an hour and half.

In the interviews with the managers the general management processes of the firms were discussed. They talked about the market situations and described the company generally. The idea was the get a thorough picture about the companies and there operations and also what issues are important to them. Besides these the main goal was to talk about learning and training issues. Both of the organizations operate in such a field that requires either a high education combined with learning at work or learning at work combined with a previous interest in the field. The managers described how their employees work and what competencies are required from them. Learning at work is an essential part of the job. Both formal and informal learning methods were in use.

The employees talked about their work and about the social side of the work environment. The aim was to gather their views about the management process in the company to be able to detect the possible areas of agreement and disagreement. It is important to have both employee and manager views and I intent to interview the employees in the expert organization also. In the interviews the employees also talked about their education and about situations were they learn best at work. Learning seemed to be a natural part of their work and it was easy to talk about it with these employees. From the interviews can be detected individual and group learning as well as organizational learning aspects (cf. Crossan et al. 1999).

This research has a practical perspective. The case organizations face the limitations of small firms but on the other hand have developed their own ways to manage the uncertainty and lack of resources. The organizations are good examples of two different small firms and two different ways of managing their people and organizational learning. The case descriptions will reveal this in more detail.

4. Findings

Next I will introduce the case organizations and present examples on how these organizations learn and what skills are demanded from the employees. I will present the organizations separately and I will start with the sales organization. The analysis on the sales organization is more thorough because there is more interview data from that.

Sales organization

The sales organization sells and markets IT-equipment and software to public and private sector companies and organizations. It consists of a group of organizations with affiliations in two other cities and a separate service organization. The parent company and the service organization together employ about 20 people and these two are included in this research. There are about 10 more employees in the affiliations

.

There was a change in management in this company couple years ago. The organization is now lead by a young owner-manager who has a strong desire to develop the company and make the workers enjoy what they are doing and that way also working towards a common goal and better performance. The new management started to train the workers and demand more results from them. They also brought in new work values that appreciate respect for others, togetherness and joy of working. This has lead to improved performance. They aim at keeping the organization flat and flexible and therefore the responsibility has been divided to the workers. Since the change in management many new things have happened. There are now more employees, financial results have improved, a separate service organization has been established and two new affiliations have been acquired.

The company does not require the new workers to be professionals or have formal training when they begin but they educate the ones that seem to have potential to grow and develop. They take young people seeking their first or second permanent job to the company to grow side by side with the older workers. The new workers start with smaller projects and then continue to bigger ones when they have acquired enough skills.

“I do not care whether the sellers are highly educated or not. If you have the right sales attitude and human relations skills you can do the job. To get a good commission you need to cope in this job.”

The organization invests in training and keeping up the professional knowledge. They also aim at learning and developing all the time both individually and in the business. They feel that it is a prerequisite to survive in the competition. The most important skill in the sales job is to have human relations skills. It seems that it is the personality that counts the most. The sellers need to be able to find the right solution to the buyers’ problem so the main task is actually problem solving. The seller can not know everything about the products but he needs to know where to find the relevant information and translate it so that it is understandable to the customer.

Compared to the service side the desired skills are different. The service people need to be more solution oriented. They are more of these IT nerds and they do not need to have similar human resource skills because their job is to fix the hardware and not to negotiate with the buyers. They do not necessarily need a formal training; the main thing is to be very interested in working with computers. Most of the service people have been working with computers since their teen ages and it seems to be a way of life more than a job.

The company has recruited quite many new workers during the past two years. This means that there have been quite many workers learning to do the job recently. This requires patience and investments from the fellow workers and from the company also. The new workers are given a chance to learn and develop. The manager describes it like this:

“We just throw the new workers in and see if they can swim. If they do they can stay and if not then they probably figure it out themselves and leave after a while. We discuss very openly here with the workers about how they fit in to this organization and to this job.”

So there is a lot of informal training going on during the job performance. The employees learn from each other and also from their own mistakes. The company also aims at training the employees regularly. The most of the training is done by the represented product line heads. The salesman that has responsibility over the certain product line attends training to keep the licenses valid. The manager describes it as follows:

“When you train yourself several times a year you do not necessarily see the benefits of just that training but if you miss trainings two years in a row then you are automatically out of the game. You always learn something that you do not notice. The product information changes so rapidly that we need to train. We also encourage people to train themselves, learn more about the sales job and about dealing with customers and grow as humans.”

The employees have also realized that learning happens while working. This is how one of the sellers describes it:

“The best way to learn is through doing. I have been on this sales job for only a short time and I have had to learn a lot of new things. When you receive a new order you need to first figure out what the customer wants and why to be able to offer the right kind of equipment. I do not just gather the things together that the customer wants but I do want to understand why they need what they need. First I ask from our other sellers and then from the importers.”

“You have to get along with people and you need to be able to solve problems. You also need to be able to adapt the information you have to the different situations and to be unprompted.“

Also the service side workers feel the same way about training and learning. They describe it like this:

“There is a lot of information in the internet. If you do not know something you start to look for answers from the net or ask from your workmates.”

“Some more training would be good but I have never really enjoyed sitting in school. I rather learn by doing. You just need keep up your knowledge on the new equipment that comes to the market and old ones that are withdrawn by reading professional magazines.”

“The most important skill you need to have when you work with computers is patience. Then you need skills to acquire knowledge fast and to know where to find information. You need to have professional knowledge otherwise you do not manage in this business. Our management is aware of this and encourages us to train and develop.”

The strengths in this company are the provisional pay which means that pay is tide to the performance and that ensures that people are hardworking and the manager does not need to get involved in supervising the staff. The sellers and the service workers work well together. They form teams case by case very flexibly and they have learned to rely on each others talent.

“The idea in this company is that the people that work here can work very independently and do not need watching over. The best way to manage is carrot and stick -style; you get a reward when you deserve it and some feedback when things go wrong. The most important thing is that you get a feedback also from the positive things. It is important for an individual worker to know that the management thinks they are doing the job right.”

Expert Organization

The design agency is an expert organization. The field itself does not attract highly educated workers because it can be described as uninteresting. The educational institutions have had difficulties attracting enough competent students. This means that the competencies and motivation of the students are not as high as expected and hoped for. This has a straight effect of their performance in school and also at work. Luckily during last couple of years the image of the field has improved a little due to extensive investments in marketing the education to the students in polytechnic schools. Due to this long lack of interest to the field there is a whole age group of workers missing and the company suffers from lack of competent experts who would be committed to the organization for a longer period of time.

The employees are highly educated and the work is demanding. You need to be familiar with the computer software and the specific area of planning the heating and plumbing systems. Despite the high education the young employees need to work with an experienced tutor when they start their working career. Learning at work is a prerequisite to learn the job. At this point this causes a problem for the organization. The present workforce is close to retirement age and there is a threat that valuable knowledge is lost when they retire. That puts more pressure on the manager to find younger professionals to replace them. The central factors to think about in this case are how to find committed professionals to fill the gap and how to keep them committed to the company.

These factors affect the performance of the organization and make the human resource questions especially relevant. Learning in this organization is mostly informal. They need formal training when the software changes or when the government issues new regulations concerning the field. The courses are expensive for the small companies and they need to consider closely whether the course is really worth the money.

“With a good team a small firm can make a profit and survive in the competition. But the age division of workers in the field in general leads to the fact that many small companies have to fight with larger ones to get workers to work for them rather than for a large corporation.”

The management job requires creativity and the greatest challenge here is to make sure that the young recruits do not use the company as a stepping stone on a way to bigger organizations and challenges. Small firms can not afford to train employees for the big firms. The recruitment problems need creative solutions to be solved and one of these in this company has been to invite the already retired workers back to work for short periods of time. “In a company full of engineers I feel that a kind of unnecessary waffling does not fit in. The engineers just want to do their job and if there is a problem, it is discussed and then they continue working. That way the manager’s job is quite clear. I feel that

the appreciation comes from good quality equipment and the possibilities to attend courses once in a while”

“I work on the principle that every one of the designers does their work very independently, but every day I talk with them and make sure they know what they are doing and try to help if there is a problem. I give them all the information about the budgets and timetables that I have, so that they know the limits and possibilities in that particular project.”

This work is quite different from the sales job and here the more crucial thing is to find committed employees who are competent designers. So far the good reputation of the company as a good employer with interesting work projects has ensured that they have had enough workers.

5. Conclusions

The main issues that connect these two very different case organizations is that the employees need to be willing to learn and develop in their work. In the IT organization the products change very fast and the sellers need to be familiar with the newest inventions and the service people need to be able to assemble and service them. Intensive training is required to keep the professional knowledge up to date. This is done both trough formal and informal training. In the design agency, on the other hand, formal training is a basic requirement to enter the company and then through informal learning you actually learn how to do the job. This means that learning on the job during job performance is part of the daily routines in both of these companies. This finding is in line with what Hill (2004) stated that learning occurs through the job. It also connects with Sambrooks (2004) in work learning. In both of these organizations learning was embedded in the daily work processes.

Kelliher and Henderson (2006) divided the small business learning framework in two: macro-level and micro-level issues. The micro-level part of the framework is more relevant this research because the aim is to find out how people learn in their jobs. As Kelliher and Henderson state the challenge for organizations is to manage the tension between what is known, what must be retained and what needs to be learned. This model needs a closer look into. It seems like a simple enough model to capture the elements of learning in a small organization. Already there can be found connections to the individual, group and organizational learning aspects of the model and the case organizations learning processes.

Learning overall seems like a natural part of the working environment in the case companies and especially the sales organization. It is very informal in acquiring the job related skills and more formal when it comes to the product knowledge. The people in the sales organization are embedded in the social network which makes them want to work for the common goals and therefore improves performance. In the design agency the embeddedness is more both – to the job and to the social network.

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