Human resources
Robert L. Heneman and Judith W. Tansky
Recent research has shown that human capital (rather than financial capital or other tangible resources) is the major issue with which entrepreneurs must cope to grow profitably (Hene man, Tansky, and Camp, 2000). Brush, Greene, and Hart (2001) argued that the development and composition of initial resources are vital to the success of a new venture. However, entrepreneurs often overlook or underestimate the importance of initial resource investments. In fact, Brush, Greene, and Hart (2001) point out that a substantial number of new ventures fail each year because of ineffective management, human failings, or the inability of the firm to attract and maintain qualified personnel. This perspective is consistent with Penrose’s (1959) argument that managing human resources is a critical variable in the growth of emerging firms. In addition to entrepreneurial ventures, we know that small firms are important to the US economy. In 2002, for example, 99.7 percent of the 5,652,544 companies in the United States had fewer than 500 employees (USSBA, 2002).
Long ago, Tead and Metcalf (1933) acknowledged that human resource management decisions were becoming increasingly complex and 146 human resources that line managers did not have the time or expertise to deal with laws and regulations. In their discussion of resource choices that entrepreneurs must make, Brush, Greene, and Hart (2001) recognized that human resources are complex and often intangible, making them difficult to identify and measure. In start up ventures, the entrepreneur must assemble and attract the necessary people to combine with various other resources to ensure the firm’s survival and its subsequent growth. On the other hand, in existing entrepreneurial firms, be they high growth or small firms, managing human capital requires careful matching of people to jobs and to the organization to positively affect some important measures of organizational effectiveness. Attendance, retention performance, satisfaction, safety and health, cost minimization, and customer service are examples of organizational effectiveness measures on which human capital has a direct effect.
Regardless of the type of entrepreneurial firm (e.g., a start up venture, a fast growth enterprise, or a stable entrepreneurial venture), entrepreneurs or a managerial team must make a variety of decisions about the acquisition, development, and effective deployment of human capital. These human resource decisions can be grouped into the following categories: (1) staffing, which includes recruiting talent, hiring, and branding the image of the company to attract and retain the best people; (2) training and developing people; (3) rewarding people, together with compensation and benefits; (4) employee relations, including mental and physical well being at work and non related problems that affect job performance; and (5) organizational development or the decisions that are made to guarantee that the entrepreneurial venture or firm successfully evolves over time in terms of structure, process, and people.
Although research has been limited in this area, some best practices to achieve growth in entrepreneurial ventures have been identified (Tansky and Heneman, in press; Heneman, Tansky, and Camp, 2000; Heneman and Tansky, 2002). When examining best practices, we should note that the firm’s growth stage is based on the arguments that organizations evolve in a consistent and predictable manner (Hanks et al., 1993). As firms move through the various stages of growth, several problems must be addressed. Unique management skills, priorities, and structures are required to effectively manage the factors associated with the firm’s stages of growth. Firms can also be examined based on size measured by number of employees. Best practices include the following:
- Human capital should be emphasized over social capital (e.g., social networks) and organizational capital (e.g., policies and procedures), regardless of the firm’s growth stage.
- Maintenance activities related to human re sources (e.g., payroll administration, com plying with employment regulations, and dealing with labor/union issues) are a necessary, but not sufficient, condition for organizational effectiveness.
- Visionary human resource practices (e.g., training and development, setting competitive compensation levels, maintaining productivity, and managing morale) are more likely to contribute to entrepreneurial growth than are maintenance activities.
- Regardless of size or growth stage, the venture’s human resource practices must be aligned with the firm’s culture and strategy.
- The vision of the CEO/founder must be clearly communicated to employees.
- Learning and growth opportunities are needed to develop high potential employees who can perform multiple roles during startup of the firm and high growth.
Research supports these best practices. Hene man and Tansky (2002), for example, found that in start up ventures, entrepreneurs normally perform the duties associated with human resources. However, further growth leads to hiring consultants to perform some of the functions. With still additional growth, a human resource department may be added for efficiency and to support the unique capabilities the entrepreneurial venture has developed. Eventually, time consuming services such as payroll and benefits may be outsourced. In both start up ventures and high growth entrepreneurial firms, Heneman and Tansky (2002) also discovered that (1) an emphasis is placed on hiring the right people and training and developing current employees; (2) very few formalized human resources 147 systems exist at the time of the venture’s launch; (3) it is more likely that employees will go out of their way to help new employees learn their jobs; (4) employees are more relationship oriented and work together for the firm’s benefit; (5) it is more likely that profit sharing, stock options, and pay rises based on individual performance will be offered to employees; (6) employees are more likely to shape their own job description.
Other issues also affect human resource practices in entrepreneurial ventures. For example, entrepreneurs must be prepared to help their venture contend with external shocks that can affect the management of people (Jacoby, 2003). As an example, when the business cycle is on an upturn, labor often becomes scarce. Human re source professionals are needed to apply the best available techniques to attract and retain talent for the entrepreneurial venture. As another example, laws and regulations concerning the management of human resources in organizations have proliferated over the past fifty years (Kauffman, 1997). Staff assistance may be needed to verify that the venture is complying with all relevant laws and regulations.
In summary, human resource concerns have been identified by CEOs/founders as the most crucial issue affecting the growth of entrepreneurial ventures. The need for human resource staff assistance is particularly acute when the economy is in an upswing and when new laws and regulations are passed. Organizational out comes influenced by human resource decisions include attendance, retention, performance, satisfaction, safety and health, cost minimization, and customer service. Best human resource practices for entrepreneurial firms include the careful alignment of human resource decisions with the vision of the CEO/founder and the venture’s strategy and culture.
Bibliography
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