STUDY GUIDE

BMSB5103

Small Business Management

Topic 9: Managing Human Resources

Learning Outcomes
By the end of this topic, you should be able to:
1.

Explain the importance of employee recruitment and list some sources that
can be useful in finding suitable applicants;

2.

Identify the steps to take in evaluating job applicants;

3.

Describe the roles of training and development for both managerial and
non-managerial employees in a small business;

4.

Explain the various types of compensation plans, including the use of

incentive plans; and

5.

Discuss the human resource issues of co-employment, legal protection,

labour unions and the formalising of employeremployee relationships.

Topic Overview
Various resources are normally found in a small business. A unique patent, a
business money in the bank and input materials from suppliers are considered
as resources of technology, finance and inputs respectively. Employees
represent another essential resource and perhaps one of the most important
resources other than the entrepreneur himself. To enable a small business to
compete in the marketplace, an entrepreneur needs to strategically plan on how
to find and hire the best available people per given resources. This is simply due
to the fact that many strategies of the human resource management (HRM)
practised by multinational corporations (MNCs) do not necessarily work for small
business. Small businesses are found to be less likely to use professional HRM
practices related to recruitment, training, performance assessment, and other
business operations. This may contribute to less efficiency and productivity in
some small businesses, if not many. Thus, there is a clear need to present HRM
practices that work best for small business and this topic represents what it takes
to be a successful business.

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Small Business Management

Focus Areas and Assigned Readings

Focus Areas

Assigned Readings

9.1 Recruiting Personnel

Explain the importance of employee
recruitment and list some sources
that can be useful in finding suitable
applicants.

Moore et al. (2010). Chapter 20, pp 521-528

Extra Readings:
Scarborough (2012). Chapter 19, pp 651655; Schaper et al. (2011). Chapter 13, pp
318-321.

9.2 Evaluating Prospects and Selecting

Employees
Identify the steps to take in
evaluating job applicants.

Moore et al. (2010). Chapter 20, pp 529-533

Extra Readings:
Scarborough (2012). Chapter 19, pp 655658; Schaper et al. (2011). Chapter 13, pp
322-324.

9.3 Training and Developing Employees

Describe the roles of training and
development for both managerial
and non-managerial employees in a
small business.

Moore et al. (2010). Chapter 20, pp 533-537

Extra Readings:
Scarborough (2012). Chapter 19, pp 658661; Schaper et al. (2011). Chapter 13, pp
326-327.

9.4 Compensation and Incentives for

Employees
Explain the various types of
compensation plans.

Moore et al. (2010). Chapter 20, pp 537-539

Extra Readings:
Scarborough (2012). Chapter 19, pp 662673; Schaper et al. (2011). Chapter 13, pp
331-332.

9.5 Special Issues in Human Resource

Management
Discuss the human resource issues
of co-employment, legal protection,
labour unions, and the formalising
of employer-employee relationships.

Moore et al. (2010). Chapter 20, pp 540-545

Extra Readings:
Scarborough (2012). Chapter 19, pp 674687; Schaper et al. (2011). Chapter 13, pp
332-335.

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BMSB5103

Small Business Management

Other Sources
1. The
role
of
human
resource
management
in
corporate
social
responsibility
http://corostrandberg.com/wpcontent/uploads/files/CSR_and_HR_Ma
nagement1.pdf
2. Managing
human
resources
for
innovation and creativity
http://utminers.utep.edu/asinghal/Report
s/Gupta-SinghalManaging%20Human%20Resources...
%20%2012.12.06.pdf
3. The Human Challenge, part of the
Venturing:
The
Entrepreneurial
Challenge series produced by Vermont
ETV, illustrates several creative ways in
which founders of entrepreneurial
companies
have
involved
their
employees in the growth and success of
their ventures. When business owners
understand and embrace the notion that
motivated employees can make a major
contribution
to
a
companys
development, they are then able to work
with employees to promote structures
and activities that increase employee
motivation,
satisfaction,
and
performance. The series is distributed
by NIMCO, Inc. and is available at
http://school-careers.nimcoinc.com
4. PriceWaterhouseCoopers provides an
Internet-based video with Michael
Rendell, partner and leader of Human
Resource Services, talking about the
challenges of managing tomorrow's
people. The video and transcript are at
http://www.pwcmultimedia.com/1007_hr
_mgmt/1007_hr_mgmt.html
5. Small
Business
School
video
http://www.modernpostcard.com
American
Society
for
Control
http://www.asq.org

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Small Business Management

Content Summary
9.1

Recruiting Personnel
(Explain the importance of employee recruitment and list some sources
that can be useful in finding suitable applicants).
Sources of Employees

Figure 9.1: Sources of employees

Source: Moore et al. (2010), Chapter 20

The Need for Quality Employees

(a)

No substitute for high-quality employees

(b)

Recruitment and selection of employees establish a foundation

(c)

Most successful companies move ahead of competition because

they recognise that employees are the business to customers
and others

The Lure of Entrepreneurial Firms

(a)

Requires small firms to identify their distinctive advantages

(b)

Small firms are able to offer professional, managerial and

technical personnel greater job variety and freedom than larger
businesses

(c)

Drawbacks such as limited employee benefits may be offset with

potential advantages

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9.2

BMSB5103

Small Business Management

Sources of Employees
(a)

Walk-ins

(b)

Help wanted advertising

(c)

Schools

(d)

Public employment offices

(e)

Private employment agencies

(f)

Temporary help agencies

(g)

Internet recruiting

(h)

Employee referrals

(i)

Executive search firms (possibly using head-hunters)

Diversity in the Workforce

(a)

Workforce diversity

(b)

Diversity in itself can bring innovation and have a positive effect

on problem solving

Job Descriptions
(a)

Personnel must fit the positions

(b)

A job description needs to outline or summarise the work to be

performed

(c)

Job specifications are a list of skills and abilities needed to

perform a specific job

Evaluating Prospects and Selecting Employees

(Identify the steps to take in evaluating job applicants)
x
x

Step 1: Using application forms

Step 3: Checking references and other background information

Step 2: Interviewing the applicant

Step 4: Testing the applicant

Step 5: Requiring physical examinations

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STUDY GUIDE

9.3

BMSB5103

Small Business Management

Training and Developing Employees

(Describe the roles of training and development for both managerial and
non-managerial employees in a small business)
x

x
x
x

Basic Components of Training and Development

(a)

Employee training

(b)

Management development

Orientation for New Personnel

(a)

New employee introduction to the job

(b)

Recognise employee sensitivity

Training to Improve Quality

(a)

Training designed to promote high-quality workmanship

(b)

Ongoing supervision with special classes and seminars helpful

to all employees

Training of Non-Managerial Employees

From Training to Implementation
Barriers to implementation of training based in human nature
Features of T&D programme
(a)

Put it on paper

(b)

Measure results

(c)

Get peers to help

(d)

Involve supportive superiors

(e)

Provide access to experts

Development of Managerial and Professional Employees

Management development programmes require serious consideration
of the following factors:
(a)

The need for development

(b)

A plan for development

(c)

A timetable for development

(d)

Employee counselling

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9.4

Small Business Management

Compensation and Incentives for Employees

(Explain the various types of compensation plans, including the use of
incentive plans)
x

9.5

BMSB5103

Wage and Salary Levels

(a)

Small firms must be competitive in order to attract well-qualified

personnel

(b)

Payments based on increments of time or vary with the output of

the employees (commission basis)

Financial Incentives
(a)

Designed to motivate employees to increase their productivity

(b)

Piecework is pay based on number of units products

(c)

Keys to developing effective bonus plans

(d)

Set attainable goals

(e)

Include employees in planning

(f)

Keep updating goals

Stock Incentives
(a)

Sometimes used to attract and hold key personnel

(b)

ESOPs may provide employees a share of ownership in the

business which should result in improvements in productivity

Employee Benefits
(a)

Supplements to compensation

(b)

May include such things as vacation time, holidays, health

insurance, retirement compensation

Special Issues in Human Resource Management

(Discuss the human resource issues of co-employment, legal protection,
labour unions, and the formalising of employer-employee relationships)
x

Co-Employment Agreements
(a)

An alternative to direct hiring

(b)

Professional employer organisations (PEOs)

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Small Business Management

Legal Protection of Employees

(a)

Civil Rights Act

(b)

Occupational Safety and Health Act

(c)

Fair Labour Standards Act (FLSA)

(d)

Family and Medical Leave Act

Labour Unions
(a)

Unionisation less common in service businesses

(b)

Labour unions complicate the relationship between the small

company and its employees

Formalising Employer-Employee Relationships

(a)

As employees are added, the benefits of informality decline and

the costs increase

(b)

Goals must be specific, measurable, achievable, realistic and

time-bound

The Need for a Human Resource Manager

(a)

Small firms may not be able to afford a full-time specialist

(b)

Certain conditions favour the appointment of a human resource

manager in a small business

(c)

Substantial number of employees (100 or more suggested as a

guideline)

(d)

Employees are represented by a union

(e)

Labour turnover rate is high

(f)

Need for skilled or professional personnel creates problems in

recruitment or selection

(g)

Supervisors or operative employees require considerable

training

(h)

Employee morale is unsatisfactory

(i)

Competition for personnel is keen

(j)

Owner typically functions as human resource manager in small

business

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STUDY GUIDE

BMSB5103

Small Business Management

Study Questions
1.

Why is it so important for small companies to hire the right employees?

What can small business owners do to avoid making hiring mistakes?

2.

Explain the differences among job simplification, job enlargement, job

rotation and job enrichment. What impact do these different job designs
have on workers?

3.

In what ways is the workforce becoming more diverse and how do these
changes affect recruitment by small companies?

4.

What are the positive and negative features of background checks? How
important are these checks to the selection of high-quality employees?

5.

What problems are involved in using incentive plans in a small company?

How would the nature of the work affect managements decision concerning
the use of such a plan?

6.

Based on this case study, answer the questions that follow.

ZAMAN ENTERPRISE SDN BHD

Zaman Enterprise Sdn Bhd, is a clothing manufacturer which supplies branded
mens clothes to supermarkets across the country. It distributes 15 percent of its
profits quarterly to its eight employees. This money is invested for their benefit in a
retirement plan and is fully vested after five years. An employee, therefore, has a
claim to the retirement fund even if he leaves the company after five years of
service. The employees range in age from 25 to 59 and have worked for the
company from three to 27 years. They seem to have recognised the value of the
programme. However, younger employees sometimes express a preference for
cash over retirement benefits.
Source: Adapted from Moore (2010), Chapter 20

(a)

What are the most important reasons for structuring the profit-sharing
plan as a retirement programme?

(b)

What is the probable motivational impact of this compensation

system?

(c)

How will an employees age affect the appeal of this plan? What other
factors are likely to strengthen or lessen its motivational value?
Should it be changed in any way?

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STUDY GUIDE

6.

BMSB5103

Small Business Management

Based on this case study, answer the questions that follow.

NEW JOB
The following is an account of one employees introduction to a new job:
It was my first job out of high school. After receiving a physical exam and a
pamphlet on benefits, I was told by the manager about the dangers involved in the
job. But it was the old-timers who explained what was really expected of me. The
company management never told me about the work environment or the
unspoken rules. The old-timers let me know where to sleep and which supervisors
to avoid. They told me how much work I was supposed to do and which shop
steward to see if I had a problem.
Source: Adapted from Moore (2010), Chapter 20

(a)

To what extent should a small firm use old-timers to help introduce

new employees to the workplace? Is it inevitable that newcomers will
look to old-timers to find out how things really work?

(b)

How would you rate this firms orientation effort? What are its
strengths and weaknesses?

(c)

Assume that this firm has fewer than 75 employees and no human
resource manager. Could it possibly provide more extensive
orientation than that described here? How? What low-cost
improvements, if any, would you recommend?

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