Human resource practices are crucial in the operational and financial performance of small businesses and the achievement of business goals. Small companies rely on many HR management functions, usually implemented in a less sophisticated manner than in larger companies. Better knowledge of HR practices helps small business mangers better motivate employees and use the potential of their human capital to achieve business goals.
Employee Selection
Hiring is the key function that ensures the business has the right employees, and companies rely on three strategies in the selection process. Companies that use a person-job fit strategy match the knowledge and skills of the applicant to the job requirements. Other companies seek to select people who are a good fit with the culture and values of the organization and can collaborate with other employees. Some companies emphasize the long-term contribution of the applicant to the company. This latter strategy is more effective in aligning employees with the long-term goals of the company.
Employee Management
Employee management includes the more traditional and routine functions of HR management. An HR management system formalizes the compensation system and provides employee training and appraisals. This opens the door to employee empowerment that in turn improves motivation and leads to better organizational performance.
Tackling Competitive Challenges
Unresolved competitive challenges thwart the achievement of business goals, and HR practices are critical in meeting these challenges. The globalization challenge requires competing with companies from all corners of the world and sourcing from a global supplier base. IT technological advances have increased the speed, agility and the reach of competitors, and businesses increasingly need to embrace e-commerce to survive. The sustainability challenge requires that companies consider environmental issues, local community concerns and employee welfare in doing business. Tackling these challenges requires hiring the right people, training and empowering them.
Gaining Competitive Advantage
Managers need to build competitive advantage to attain their business goals. In today’s knowledge-based economy, competitive advantage rarely comes from physical facilities and machinery. Increasingly, gaining competitive advantage requires differentiating the company from the competition based on intangible assets, even more so for small companies with limited physical assets. Human capital — the knowledge, skills and abilities of the employees of a company — is an important component of the company’s intangible assets. A company’s human capital is difficult to imitate, and it potentially can offer a lasting competitive advantage. The HR management of a company develops and safeguards the company’s human capital.
