Managing Human Resources in Entrepreneurial Firms

中国经济管理大学 MBA公益课堂

（加里·德斯勒）

Managing Human Resources in Entrepreneurial Firms

Lecture Outline

Strategic Overview

The Small Business Challenge

Why Entrepreneurship is Important

How Small Business HR is Different

The Entrepreneur’s Risky HR Situation

Why HRM is Important to Small Business

Using Internet and Government Tools to Support HR

Complying with Employment Laws

Employment Planning and Recruiting

Employment Selection

Employment Training

Employment Appraisal and Compensation

Employment Safety and Health

Leveraging Small Size

Flexibility in Benefits and Rewards

Employee Selection Process 

      Flexibility in Training

      Fairness and the Family Business

Building Communications

Using Professional Employer Organizations

How do PEOs Work?

Why Use a PEO?

Caveats

Guidelines for Finding and Working with PEOs

Managing HR Systems, Procedures, and Paperwork

Introduction

Basic Components of Manual HR Systems

Automating Individual HR Tasks

Human Resource Management Information 

 Appendix

SHRM - HRCI

In Brief:  This chapter discusses that entrepreneurs have some special human resource management needs.  The main purpose of this chapter is to outline and apply effective human resources principles and practice to running a small business.  The main topics addressed include the small business challenge; using Internet and government tools to support the HR effort; leveraging small size with familiarity, flexibility, fairness, and informality; using professional employer organizations; and managing HR systems, procedures, and paperwork.  

Interesting Issues:  

Most people graduating from college in the next few years either will work for small businesses or will create new small businesses of their own, those with fewer than 200      employees.

ANNOTATED OUTLINE

I. The Small Business Challenge

More than half the people working in the United Sates—about 68 million out of 118 million—work for small firms.  Small businesses as a group account for most of the 600,000 or so new businesses created every year, as well as for most of business growth.

A. How Small Business Human Resource Management is Different – Managing human resources in small firms is different for four main reasons: size, priorities, informality, and the nature of the entrepreneur.

1. Size – The general guideline is that it’s not until a company reaches the 100-employee milestone that it can afford a human resource specialist.  However, even five- to six-employee organizations must recruit, select, train, compensate and retain qualified staff. 

2. Priorities – It is not just size but the realities of the entrepreneur’s situation that drive them to focus their time on non-HR issues. 

3. Informality – Human resources management activities tend to be more informal in smaller firms.  Entrepreneur must be able to react quickly to changes in competitive conditions.

4. The Entrepreneur – Entrepreneurs are people who create businesses under risky conditions, and starting new businesses from scratch is always risky.  Entrepreneurs therefore need to be highly dedicated and visionary.

B. The Entrepreneur’s Risky Human Resource Management Situation – Small business face at least five HR-type risks:  

1. First – Small business owners run the risk that their relatively rudimentary human resource practices will put them at a competitive disadvantage.  

2. Second – There is a lack of specialized HR expertise as compared with larger firms that have a full range of HR functions. 

3. Third – The smaller firm is probably not adequately addressing potential workplace litigation.  Most small business owners are well aware of the threat of employment-related litigation.  

4. Fourth – The small business owner may not be fully complying with compensation regulations and laws.  

5. Fifth – Duplication and paperwork leads to inefficiencies and data entry errors.  For small businesses, employee data often appears on multiple human resource management forms. 

C. Why HRM is Important to Small Business – Entrepreneurs need all the advantages they can get, and for them effective human resource management is a competitive necessity.  Small firms that have effective HR practices do better than those with less effective practices.

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NOTES Educational Materials to Use

II. Complying with Employment Law

A. Complying with Employment Laws – Small business owners spend much of their time tackling employment law-type issues.  These owners can quickly find the answers to many such questions online at federal agencies’ Web sites such as the following: 

1. The DOL – The U.S. Department of Labor’s First Step Employment Law Advisor (www.DOL.gov) helps small employers determine which laws apply to their business. 

2. The EEOC – The U.S. Equal Employment Opportunity Commission (www.EEOC.gov) guides small employers on all laws pertaining to employment discrimination. 

3. OSHA – The DOL’s Occupational Safety and Health Administration site (www.OSHA.gov) supplies guidance for small business owners. 

B. Employment Planning and Recruiting – Internet resources can make small business owners almost as effective as their large competitors at writing job descriptions and building applicant pools.  Small business owners can use the online recruiting tools to post positions or popular Internet job boards. 

C. Employment Selection – For the small business, one or two hiring mistakes could wreak havoc.  Some tests are so easy to use they are particularly good for smaller firms. One example of such a test is the Predictive Index.  This test measures work-related personality traits, drives, and behaviors.  

D. Employment Training – Although small companies can’t compete with the training resources of larger organization, Internet training can provide, at a relatively low cost, the kinds of professional employee training that was formerly beyond most small employers’ reach. 

1. Private Vendors – The small business owner can tap hundreds of suppliers of prepackaged training solutions. 

2. The SBA – The federal government’s Small Business Administration (www.SBA.gov) provides a virtual campus that offers online courses, workshops, publications, and learning tools aimed toward supporting entrepreneurs. 

3. NAM – The National Association of Manufacturers (NAM) is the largest industrial organization in the United States.  NAM’s Virtual University (www.namvu.com) helps employees maintain and upgrade their work skills and continue their professional development. 

E. Employment Appraisal and Compensation – Even small employers now have easy access to computerized and online appraisal and compensation services.  Lack of easy access to salary surveys once made it difficult and time consuming for smaller businesses to fine tune their pay scales. 

F. Employment Safety and Health – Without human resource managers or safety departments, small businesses often don’t know where to turn for advice on promoting employee safety.  OSHA provides free on-site safety and health services for small businesses.  The OSHA Sharp program is a certification process through which OSHA certifies that small employers have achieved commendable levels of safety awareness. 

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NOTES Educational Materials to Use

III. Leveraging Small Size:  Familiarity, Flexibility, Informality, and HRM

Small businesses need to capitalize on their strengths, so in dealing with employees, they should capitalize on their smallness.

A.  Flexibility in Benefits and Rewards – The Family and Work Institute surveyed the benefits practices of about 1,000 small and large companies.  They found that large firms offer more extensive benefit packages than do small ones.  However, many small firms seemed to overcome their bigger competitors by offering more flexibility.

1. A Culture of Flexibility – Because of the familiarity that comes from owners personally interacting with the employees each day, small business did a better job of fostering a culture of flexibility. 

2. Work-Life Benefits – Even without the extensive resources that larger firms enjoy, small firms can offer employees work-life benefits that larger employers cannot match.  For example, additional time off, compressed workweeks, flexibility, and other benefits that can be offered because of their relatively small size. 

3. Recognition – Studies demonstrate that recognition can often be as powerful as financial reward.  The relatively personal nature of small business interactions makes it both easier and more important to recognize employees.

4. Simple Retirement Benefits – There are several ways that small firms can provide retirement plans for their employees.  The Pension Protection Act of 2006 contains a provision for a new type of retirement benefit that combines traditional defined benefit and 401(k) plans.

B.  Simple Informal Employee Selection Procedures – In general, small firms tend to rely on more informal employee selection and recruitment practices, such as employee referrals and unstructured interviews, than do large firms. 

1. Work Sampling Tests – A work sampling test means having the candidates perform actual samples of the job in question. 

C. Flexibility in Training – Small companies also typically take a more informal approach to training and development.  Smaller firms also tend to focus any management development training on learning specific firm-related competencies.

1. Informal Training Methods – Small businesses can do many things to provide job-related personal improvement without actually establishing formal training programs.  Some examples include tuition reimbursement, online training, sharing of best practices, attending association meetings, and networking.

D. Fairness and the Family Business – Most small businesses are family businesses, in that that the owner and one or more managers are family members.  Being a nonfamily employee here isn’t always easy.  They sometimes feel like outsiders.  Some best practices to avoid partiality are to set ground rules, treat people fairly, and erase privilege, to name a few.

E. Building Communications – Effective communications are important for any manager, but especially for those managing small businesses.  Simple programs, such as newsletters and online reporting, can prove effective.  

IV. Using Professional Employer Organizations

Outside vendors that are used to outsource all or most human resource functions are generally called professional employer organizations, human resources outsourcers, or sometimes staff leasing firms.

A. How do PEO’s Work? – These vendors range from payroll companies to those that handle all of an employer’s human resource management requirements.  PEOs have several characteristics.  By transferring the client firm’s employees to the PEO’s payroll, PEOs become co-employers of record for the employer’s employees. 

B. Why Use a PEO? – Employers turn to PEO’s for several reasons:

1. Lack of Specialized HR Support – Up to 100 or so employees, small firms typically have no dedicated HR managers, and even larger ones may have few specialists. 

2. Paperwork – The Small Business Administration estimates that small business owners spend up to 25% of their time on personnel-related paperwork.  This includes background checks, benefits sign-ups, and so on.

3. Liability – Staying in compliance with pension plan rules, Title VII, OSHA, COBRA, the Fair Labor Standards Act, and other personnel-related laws can be distracting.

4. Benefits – Insurance and benefits are often the PEO attraction.  Obtaining health and other insurance is often more challenging for smaller firms.

5. Performance – The professionalism that the PEO brings to recruiting, screening, training, compensating, and maintaining employee safety and welfare will hopefully translate into improved employee and business results. 

C.  Caveats – Many employers view their human resource management processes as a strategic advantage, and are not inclined to turn over strategy-sensitive tasks like screening and training to third-party firms. 

D. Guidelines for Finding and Working with PEO’s – Small business managers need to choose and manage the PEO relationship carefully.  Suggestion for doing so include: conducting a needs analysis, review services, and determining if the PEO is accredited.

V. Managing HR Systems, Procedures, and Paperwork

Recruiting and hiring an employee might require a help wanted advertising listing, an employment application, interviewing checklist, various verification of education, and immigration status, just to name a few.

A. Basic Components of Manual HR Systems – Very small employers will probably start with a manual human resource management system.  This would include obtaining and organizing a set of standardized personnel forms covering each important aspect of HR.

1. Basic Forms – Forms that should be considered include an application, reference check, employee record, performance evaluation, vacation request, corrective counseling, and exit interview.

2. Sources of Forms – Several direct-mail catalog companies offer a variety of HR Materials.  Firms such as HRdirect (www.hrdirect.com), or G. Neil Company (www.gneil.com) can provide a comprehensive source of all needed HR forms.

B. Automated Individual HR Tasks – As the small business grows, it becomes increasingly unwieldy and uncompetitive to rely on manual HR systems.  A company with 40 to 50 employees should consider computerizing individual human resource management tasks.

1. Packaged Systems – There are a variety of resources available.  At the International Association for Human Resource Information Management (www.ihrim.org), a categorical list of HR software vendors can be found.  

C. Human Resource Management Information Systems (HRIS) – The term information system refers to the interrelated people, data, technology, and organizational procedures a company uses to collect, process, store, and disseminate information.

1. Levels of Information Systems – Organizations tend to instill information systems from the bottom up, level by organizational level.  As organizations grow, they tend to increase the type of HRIS systems they need based on their size and scope of employment and complexity.

2. Improved Transaction Processing – HRIS packages substitute powerful computerized processing for a wide range of the firm’s HR transactions.

3. Online Self-Processing – HR information systems make it possible to make the company’s employee part of the HRIS.  For example, an organization can allow employees to self-enroll in all desired benefit programs.

4. Improved Reporting Capability – The HRIS system integrates numerous individual HR tasks, thereby increasing HR’s reporting capabilities.

5. HR System Integration – When the HRIS’ software components, such as payroll and record keeping, are integrated, the employer can dramatically reengineer its HR function.

6. HRIS Vendors – The Web site for the International Association for Human Resource Information Management (www.ihrim.org), lists a comprehensive list of HR vendors.

7. HR and Intranets – Employees can access the organization’s employee benefits home page and other useful HR information from this site. 

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NOTES Educational Materials to Use

Appendix to Chapter 18

HRCI Appendix – This section deals with the Human Resource Certification Institute’s certification examinations for the Professional in Human Resources (PHR) and Senior Professional in Human Resources (SPHR) designations.  The knowledge base for the exam is discussed and relative percentages of content areas are estimated.

DISCUSSION QUESTIONS

1. How and why is HR in small businesses different than that in large firms?  Human resource management activities tend to be more informal in smaller firms.  For example, one study analyzed training practice in about 900 family and nonfamily small companies.  Training tended to be informal, with an emphasis, for instance, on methods like coworker and supervisory on-the-job training.  Such informality isn’t just due to lack of expertise and resources; it is also partly a matter of survival.  Entrepreneurs must be able to react quickly to changes in competitive conditions.

2. Explain why HRM is important to small businesses.  Small firms need all the advantages they can obtain, and for them effective human resource management is a competitive necessity.  Small firms that have effective HR practices do better than those with less effective practices.  For many smaller firms, effective human resource management is also a condition for getting and keeping big customers.  This means that even smaller businesses must attend to their human resource processes.

3. Explain and give at least four examples of how entrepreneurs can use Internet and government tools to support the HR effort.  Small business owners spend much of their time tackling law-type issues.  These small business owners can quickly find the answer to many such questions online at the following:  The Department of Labor or DOL.gov, the EEOC or EEOC.gov, the Occupational Safety and Health Administration or OSHA.gov, and the Society of Human Resource Management or SHRM.org. 

4. Explain and give at least five examples of ways entrepreneurs can use small size—familiarity, flexibility, and informality—to improve their HR process.  Small businesses need to capitalize on their strengths, so in dealing with employees they should capitalize on their smallness.  Smallness should translate into personal familiarity with each employee’s strengths, needs, and family situation.  And it should translate into the luxury of being able to be relatively flexible and informal in the human resource management policies and practices the company follows.

5. Discuss what you would do to find, retain, and deal with a professional employer organization on an on-going basis.  Small business managers need to choose and manage the PEO relationship carefully.  Some suggestions are as follows:

• Conduct a needs analysis

• Review the services of the PEO

• Determine if the PEO is accredited

• Review the service agreement

• Check out the prospective PEO’s staff

• Ask how will the firm deliver the service

6. Describe with examples how you would create a startup, paper-based human resource system for a new small business.  Very small employers will probably start with a manual human resource management system.  From a practical point of view, this generally means obtaining and organizing a set of standardized personnel forms covering each important aspect of the HR recruitment, selection, training, appraisal, compensation, and safety process, as well as some means for organizing all this information for each of your employees.

INDIVIDUAL AND GROUP ACTIVITIES

1. Form teams of five or six persons, each with at least one person who owns or has worked for a small business.  Based on their experiences, make a list of the “inadequate-HR risk” the business endured, in terms of competitive disadvantage, lack of specialized HR expertise, workplace litigation, compensation laws compliance, and paperwork/data-entry errors.  Lack of effective and sophisticated recruitment strategies, additional legal issues due to lack of HR expertise, lack of training which may lead to employment discrimination or sexual harassment claims, small business may not comply with complex regulations and laws, lack of an HRIS system may lead to more timely processing of data as well as more manual errors.

2. You own a small business, and you are confused about which of your employees is eligible for overtime pay.  The employees in question include you secretary, two accounting clerks, one engineer, and two inside salespeople.  Individually or in groups of four or five students, use the DOL’s Overtime Security Advisor and DOL’s Calculator to determine who gets overtime pay.  The secretary and two accounting clerks should be classified as non-exempt, and the engineer and two inside salespeople should be classified as exempt.

3. You have about 32 employees working in your factory.  Working individually or in teams of four or five students, find and create a list of five online sources you could use to provide training to them, at no cost to you or to them.  www.DOL.gov, www.strategichr.com, www.ASTD.org, www.legalworkplace.com, and www.articlebased.com.

4. The HRCI “Test Specifications” appendix at the end of this book lists the knowledge someone studying for the HRCI certification exam needs to have in each area of human resource management (such as in Strategic Management, Workforce Planning, and Human Resource Development).  In groups of four to five students, do four things:  (1) review that appendix now; (2) identify the material in this chapter that relates to the required knowledge the appendix lists; (3) write four multiple-choice exam questions on this material that you believe would be suitable for inclusion in the HRCI exam; and (4) if time permits, have someone from your team post your team’s questions in front of the class, so the students in other teams can take each other’s exam questions.  The material from this chapter that is applicable to the HRCI certification exam would include:  the HR challenges of small business, how small organizational differences affect HRM, how to implement a small business, HR system, staffing the small organization, and training and maintaining employees of small business.

EXPERIENTIAL EXERCISES & CASES

Experiential Exercise: Building an HRIS

The purpose of this exercise is to give you practice in creating a human resource management system (HRIS). From your HR training, there are various sources of paper-based and online systems.  Develop and write a two-page proposal outlining exactly what your team would recommend, based on its accumulated knowledge, and from online research.

Application Case:  The Liquidity Crisis and the New Hedge Fund

1. In terms of staffing or human resource management, where should we start? Do we put in the HR system first? Or hire the people first?  The most important initial step would be to develop the HR system first.  The result of the finalized HR system would be a policy to hire staff and the procedures necessary to hire a qualified staff.

2. Should we hire the fund manager first, and let him or her do all the necessary staffing/human resource management?  Or should we have some HR process in place first, so that we do a better job of hiring the fund manager?  In order to avoid any hiring mistakes, an HR process is important before any hiring is initiated.  An effective HR process will outline how hiring/staffing should be conducted.

3. If we are going to institute an HR system first, what’s the best way to go about doing that? What would you suggest in terms of the sorts of HR policies, procedures, and practices we will need, and where should we get them?  Since the firm will more than likely have ten employees or less, a manual human resource system will probably work best.  This generally means obtaining and organizing a set of standardized personnel forms covering each important aspect of HR.

4. We know there are professional employment organizations that will essentially handle most of the personnel-related matters for our fund. In our brief case synopsis, we’ve told you something about starting a hedge fund and the sorts of employees we need. Based on that, would you suggest we use a PEO? Why?  Initially, a PEO should be considered to handle required transactions such as payroll and perhaps benefits and legal compliance.  As the firm grows, a PEO could prove even more cost effective to the point where professional on-site HR staffing can be considered.

Continuing Case: Carter Cleaning Company – Going Abroad

1. Assume that we don’t want to terminate any of our employees. What work-scheduling–related changes could we make that would reduce our payrolls by, say, 20% per week but still keep all our employees on board?  One of the benefits of a small employer is their ability to adapt to changing market conditions.  Therefore, flexible work scheduling could be easily implemented to cover all required costs while keeping staffing costs at a minimum.  Even offering the staff the option to take time without pay could prove beneficial to the employer while maintaining current staffing levels.

2. We are currently handling most of our personnel-related activities, such as sign-ons, benefits administration, and appraisals manually. What specific suggestions would you have for us in terms of using software systems to automate our HR processes?  A packaged system would probably prove cost effective for this size employer.  These types of systems offer programs for controlling attendance, employee record keeping, writing job descriptions, and other HR-related requirements.

3. Suggest at least five free Internet-based sources we could turn to for helping us to lower our total employment costs.  The International Association for Human Resource Information Management (www.ihrim.org), the Small Business Administration (www.sba.gov), the U.S. Department of Labor’s – First Step Law Advisor (www.dol.gov/elaws/firstep), OSHA’s Small Business Handbook (www.osha.gov), and the National Association of Manufacturers (www.namvu.com).

Translating Strategy into HR Policies and Practices Case: The Hotel Paris

1. Using any benchmark data that you can find, including information from this textbook, what are some benchmark metrics that Lisa could be using to assess the efficiency of her human resource management operations? To what extent does the Hotel Paris’s quality service orientation enter into how Lisa’s metrics should compare?  Lisa should consider looking at benchmarking data on the following HR activities:  benefits, work schedules/locations, compensation options, workforce demographics, training, development, and technology.  Lisa should review carefully the Hotel Paris’s quality service orientation as it compares to Lisa’s metrics to determine the cost effectiveness of each activity. 

2. Throughout this textbook, we’ve discussed various specific examples of how human resource management departments have been reducing the cost of delivering their services. Keeping in mind the Hotel Paris’s service quality orientation, please list and explain with examples how Lisa Cruz could use at least five of these.  Information technology could greatly help Lisa reduce the human resource administration’s current costs; in addition, Lisa could look at the resources available from the Small Business Administration as well as the Department of Labor.  Also, Lisa could consider outsourcing some of the more costly HR activities to a PEO. 

3. Focusing only on human resource information systems for a moment, what sorts of systems would you suggest Lisa consider recommending for the Hotel Paris?  A packaged program would prove the most cost effective for the Hotel Paris.  Online self processing should prove especially beneficial to Lisa in order to help improve efficiency, accuracy, and cost reductions.

4. Explain with detailed examples how Lisa can use free online and governmental sources to accomplish at least part of what you propose in your previous answers.  Lisa could review the resources offered from the Small Business Administration as well as the Department of Labor.

5. Give three examples of fee-based online tools you suggest Lisa use. Transaction-processing systems, management information systems, and executive support systems.

6. Do you suggest Lisa use a PEO? Why?  Lisa should consider the use of a PEO for at least some of her HR programs.  For example, payroll and benefits administration could prove very cost effective for Lisa since her HR costs are currently running 30% higher than comparable organizations.  Very often PEO’s can offer comprehensive services at competitive fees.

Appendix to Chapter 18

HRCI Test Specifications Appendix – This section deals with the Human Resource Certification Institute’s certification examinations for the Professional in Human Resources (PHR) and Senior Professional in Human Resources (SPHR) designations.  The knowledge base for the exam is discussed and relative percentages of content areas are estimated.

VIDEO CASE APPENDIX

Video 9: Global Business and Ethics

This video suggests, among other things, that there is no absolute statement on what constitutes ethical behavior. Instead, ethics tends to be determined by social, cultural, and other value-laden factors, such as religion. Similarly, as the video points out, the degree of enforcement (for instance, regarding ethical lapses like bribery of customers) tends to vary

with social, cultural, and other factors, so what is considered ethical or unethical in one society might not be in another. This video also discusses the interplay between ethics and management practices.

For example, the video points out that “most people look first at how a company treats its employees when viewing its ethics.” Focus primarily on the introductory material in the video, the part on ethics and management practices.

Video 10: Labor Relations

In this video, Sarah has just accepted a position in HotJobs’ computer programming department as a full-time programmer. She has come to the HR department a bit nervously, to ask whether she has the option of joining the union there. As Sarah says, “I had a lot of benefits with my previous job and there was a union there.” HotJobs does not offer union

membership. The human resource representative goes on to explain that HotJobs is committed to its employees, and grievances are dealt with on a case-by-case basis. Therefore there is no need for a third party to intercede between the union and the employee, she says. This video also explains the importance of union membership in specific industries and the benefits that union membership provides to employees.

Video 11: Stress

As Chapter 16 explains, stress is an ever-present and potentially debilitating factor at work. In this video, the sources of stress include the employees’ own dedication and sense of responsibility, changes in job scope and workload that resulted from the company’s rapid growth, and the pressure to make the company a success. At Student Advantage, the stressors appear to be counterbalanced somewhat by most employees feeling that it’s fun to work at the company and that the atmosphere is collegial and the challenges are worthwhile. The fun and psychic rewards notwithstanding, it’s apparent from the video that stress at this company is a fact of life. For example, Vinny mentions that one source of stress is when someone comes to him and says something needs to be done “an hour ago.” Another source of stress here is that employees have to do a sort of balancing act, balancing the needs of their workplace and job with outside interests and family. Sympathy from coworkers helps, but employers still need to be able to refresh themselves and keep stress at tolerable levels.

中國經濟管理大學MBA公益課堂

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