HRM practice clusters in relation to size and performance: an empirical investigation in Canadian manufacturing SMEs.

Fabi, Bruno ; Raymond, Louis ; Lacoursiere, Richard 等

Introduction

It is increasingly accepted that certain organizational factors, such as the nature of the human resource management (HRM) system, can explain in part business performance. As Hansen and Wernerfelt (1989: 409) have suggested, the building of an effective, directed, human organization can be a critical issue in firm success and development. This was a weighty argument in favor of the resource-based theory to which Wernerfelt (1984) largely contributed; Prahalad and Hamel (1990), Barney (1991), Peteraf (1993), Teece, Pisano and Shuen (1997), among others, subsequently enhanced this theory by their own contributions.

Putting the emphasis on an enterprise's internal resources as a source of competitive advantage, the resource-based theory allows bridges to be built between HRM practices and strategy (McMahan, Virick and Wright, 1999). "Clearly the HR function, through either directly controlling or strongly influencing the characteristics of human resources in organizations, plays an important role in developing and maintaining a firm's competitive advantage," affirmed in this regard Barney and Wright (1998: 36).

Research carried out in large-scale organizations has already shed light on the contribution of different HRM systems or bundles of practices to the performance of these organizations, whether by favoring employee retention, increasing productivity, or even by improving profitability (Arthur, 1994; Delery and Doty, 1996; Huselid 1995; MacDuffie 1995). According to MacDuffie (1995: 199), "the HR system must be integrated with the firm's production strategy for (worker's) discretionary effort to be appropriately channeled toward performance improvement."

However, a major difficulty to take into consideration regarding strategic HRM resides in the ability of management to make the right choice of practices when it is time to prepare a "made-to-order" HRM system for their enterprise. In this respect, Becker et al. (1997: 43) point out that the human-resource managers must not only be able to understand these systems, but also the underlying cause and effect relationships. Now, it seems that if most managers are capable of carrying out traditional HRM activities, they are far less capable of translating the goals and objectives of the enterprise into actions that set the human resources to work contributing to the realization of these objectives (Huselid, Jackson, and Schuler, 1997).

In the specific case of SMEs, it is known that their HRM practices are not as developed and are less structured than in the large enterprises (Fabi and Garand, 2005; Hornsby and Kuratko, 1990, 2003; Kerr and McDougall, 1999; Marlow and Patton, 1993) and that there is an overall lack of expertise on HRM methods and techniques (D'Amboise and Garand, 1995). It would appear that key managers, rather than taking a coherent strategy-based approach to the implementation of SHRM, are taking a more "pick and mix" contingency approach (Cassel et al., 2001: 687). Similarly, Katz et al. (2000: 9) argued: "Clearly, entrepreneurial knowledge of human resource practices ultimately derives from a mix of individual experience, connections within networks, learning from others, and blind variation." It thus appears unlikely that one could find in SMEs bundles of HRM practices comparable to those found in large businesses, which does not preclude the possibility of finding some correlation among practices, i.e., identifying "clusters" of practices that could be applied in SMEs without any formal, systemic view or clearly defined strategic goals. Unlike bundles, such clusters could consist of correlated but not necessarily logically related practices.

As one can see from the preceding, it is not clear whether one can expect to find in SMEs some relationships between HRM practices and performance comparable to the ones observed by many researchers in large businesses. This explains the repeated calls, again very recently, in favor of increased research in this field (Cardon and Stevens, 2004; Hornsby and Kuratko, 2003; Katz et al., 2000; Tansky and Heneman, 2003).

Many of the empirical studies investigating HRM issues in North American and European small businesses have focused on identifying applied HRM practices, looking at the perceived importance of these practices, and identifying the different factors that act as determinants of these practices. A few studies also investigated the potential impacts of HRM practices on firm performance. As far as is known, however, there has been no study yet that attempted to verify if one can observe, in SMEs, the existence of clusters of HRM practices or the relationships between such clusters and business performance.

In what follows will be carried out a review of the empirical studies having examined the nature of HRM practices found in SMEs and the relationship between certain practices of HRM and different indicators of performance. Next, it will be determined if one can observe, in SMEs, different clusters of HRM practices, and if so, if these clusters are related with firm size. It will then be examined, based on various indicators, if certain clusters of practices characterize the more successful SMEs. Finally, a discussion of the results will bring out the consequent implications for management.

HRM in SMEs

Incidence and Perceived Importance of HRM Practices

In regard to the applied practices, Cardon and Stevens (2004), who reviewed extant research on managing people in small firms, provide a useful summary of what is known about HRM practices related to staffing, compensation, training and development, performance appraisal, organizational change and labour relations. According to these authors, it appears, for instance, that staffing in SMEs is very important, but also problematic; that SMEs have a greater focus on a total rewards perspective than do large firms; that training employees is important in SMEs; and that formal appraisals are usually not done in SMEs.

Hornsby and Kuratko (2003) found that HRM practices in SMEs of all sizes (1-150 employees) have generally stagnated over the past decade. Their study of 262 US small businesses demonstrates that HRM practices related to recruitment, selection, and training are implemented in more than 70% of SMEs. However, practices related to incentive plans, performance appraisal, and job analysis are implemented to a lesser extent, especially in the smaller SMEs (1-50 employees) where their incidence is below 50%.

Cassel et al. (2002), for their part, found in an empirical study that recruitment and selection procedures were used in a medium-to-great extent by 61% of SMEs, followed by appraisal systems, which were used to an average or large extent by 58% of SMEs. The least used HRM practices in their sample were those related to employee rewards, such as incentive schemes, which were used to an average-to-large extent by only 40% of SMEs. Both practices of decentralized decision-making and widespread employee development appeared to be somewhat used within the majority of firms.

In regard to the perceived importance of HRM practices, Ng and Maki (1993) report that the employee retention function was seen as the most important by the SMEs in their sample, followed by activities associated with recruiting employees. Golhar and Deshpande (1997) found that open communication, training new employees and employee participation initiatives were the three most important practices for the SMEs in their sample. Hornsby and Kuratko (2003), identified availability of quality workers and benefits as the issues of greatest concern in all three size categories of SMEs comprised in their sample.

Size as Determinant of HRM Practices

With regard to determinants, firm size has been found to be an important predictor of HRM practices. In this regard, Ng and Maki (1993) observed that the main difference between small (fewer than 50 employees) and large (more than 200 employees) firms with respect to their HRM practices (recruitment, performance appraisal, job evaluation, pay-for-performance) were found in the recruitment and the job evaluation process. Large firms attempting to attract new recruits relied less on external advertising than did the small firms. With regard to the job evaluation process, these authors found that large firms were comparatively more apt to adopt the point rating method whereas smaller firms were more willing to adopt the ranking method. Wagar (1998) also found important differences between very small firms (fewer than 25 employees) and larger employers (100-500 employees), the former being much less likely to adopt most of the 10 HRM practices examined in his study. For their part, Kotey and Slade (2005) noted in their recent study that HRM in small (5-19 employees) and medium-sized (20-100 employees) firms changes with size toward more enunciated and prescribed practices; they also found that the changes in HRM begin early in the growth process and proceed at a faster rate than during the later phases. Similarly, Heneman and Berkley (1999) found that a greater percentage of large firms (50-99 employees vs. 20-49 employees) used more formalized and systematic recruitment and selection practices, more formalized compensation practices, and more special hiring inducements and hiring bonuses. Finally, in their study of 16 small Dutch firms (10-41 employees), De Kok and Uhlaner (2001) found company size to be associated with more formal HRM practices, including greater regularity of performance appraisal and greater likelihood of employer-based training. While size appears to be an important predictor of the HRM practices, it seems, however, that some practices could be unrelated or even negatively correlated with it, as was the case in Wagar (1998), who found job sharing to be largely unrelated to size and information sharing to be negatively correlated to it.

HRM and Performance

Among the rare empirical studies devoted to the potential impacts of HRM on SME performance, some have analyzed the effects of only one or two practices. Chelius and Smith (1990) thus established that the application of a profit-sharing program was associated with a reduction in layoffs during periods of economic downturn. Chandler and McEvoy (2000) found that training and group-based incentive compensation practices had a moderating effect on the relationship between a total quality management strategy and firm performance. Examining the training practice, De Kok (2002) observed a positive relationship between the importance of resources devoted to the management of training activities and their impact on productivity, while Devins and Johnson (2003) reported the positive perception of employers on the impact of training activities upon the performance of their enterprise (competitiveness and staff retention). For their part, Welbourne and Cyr (1999) showed that an ownership program had a positive impact on the financial performance of the enterprises when accessible to all employees, but that this same program had a negative impact when accessible to a limited number of managers.

Investigating practices (communication, participation, and compensation) likely to favour employee involvement, Bryson (1999) observed that the impact of these practices on financial performance depended on whether they were applied in an SME (178 enterprises with 25-199 employees) or in a large firm (386 enterprises with more than 200 employees). Concerning SMEs specifically, Bryson's study shows that the practices of systematic use of the management chain and of direct communication with employees (for example, team meetings), as well as the practice of individual performance-related payments, are significantly associated with a greater financial performance. However, suggestion programs and employee consultation in order to resolve problems were HRM practices negatively associated with the financial performance of SMEs.

Some other studies have established the connection between the application of diversified HRM practices and the performance of SMEs. Measuring the effect of a dozen practices, Guzzo, Jette, and Katzell (1985) observed a positive relationship between the presence of training practices and performance appraisal on one hand and an increase in productivity on the other. No significant effect was measured for the practices linked to recruitment and to incentive compensation. These authors also found that the effect of HRM practices was more strongly felt in small businesses than in medium-sized (100-1000 employees) or large firms.

In a study of 271 French SMEs (6-500 employees), Liouville and Bayad (1995) established that firms having a strong "qualitative" orientation toward HRM were also those that showed the best economic performance. According to these authors, a qualitative HRM orientation means that human resources are perceived by the enterprise as an asset to develop and there is no hesitation to implement a number of practices such as those linked to training, compensation, motivation, information, participation, recruitment, and performance appraisal. Liouville and Bayad reported no result on the individual effects of HRM practices.

Relying on a sample of 221 small Australian furniture manufacturers (less than 100 employees), Kotey and Meredith (1997) tested the relationships among personal values of owner/managers, their operational strategies (including HRM practices), and the performance of their businesses. Among other results, these authors found that firms that were above average with regard to performance also emphasized HRM activities such as implementing clear personnel policies, emphasizing employee welfare, and assessing employee performance and job satisfaction.

A study by Way (2002) of 446 SMEs (fewer than 100 employees) in the United States has shown that those who implement HRM practices generally associated with high performance systems (staffing, job rotation, training, teamwork, communication and compensation) experienced a decrease in the rate of employee turnover as well as an increase in perceived productivity. However, this improvement in productivity could no longer be verified when determined from objective data (labour productivity). Complementary analyses directed at identifying the individual contribution of each of these practices have shown that only the group-based performance pay was significantly associated with the measures of performance (employee turnover and productivity).

In a study of 46 branches of Canadian cooperative-type financial institutions, Arcand, Bayad, and Fabi (2002) reported a significant positive correlation between the use of certain HRM practices and various indicators of performance. More precisely, incentive compensation was associated with employee satisfaction; performance appraisal and work organization were associated with both employee satisfaction and productivity; communication and employment security were associated with all four performance indicators, that is, employee satisfaction, productivity of human resources, profits, and the return on investment. No significant relationship was seen for training and staffing practices. Finally, relying on a sample of 233 canadian manufacturing SMEs, Lacoursiere, Fabi, St-Pierre and Arcand (2005) found that information sharing was linked with turnover and return on assets, that training was linked with productivity, and that recruitment and performance appraisal were linked with sales growth.

While highlighting the strategic importance of HRM practices, the preceding studies have been less successful in describing the relative importance of these practices in the specific context of manufacturing SMEs. With two exceptions (Liouville and Bayad, 1995; Kotey and Meredith, 1997), most of these studies involved sampling a significant proportion of firms outside the manufacturing sector and one of them (Arcand, Bayad and Fabi, 2002) included enterprises in the financial services sector exclusively. According to certain authors, this nuance merits some consideration since the impact of the HRM practices could turn out to be more easily perceptible in the services sector than in the manufacturing sector (Capelli and Crocker-Hefter, 1996; Bowen, Gilliland and Folger, 1999). In the case of studies having considered but a single practice, these could give rise to misleading results, since this practice could appropriate beneficial effects potentially attributable to other applied practices in the enterprise (Ichniowski, Shaw and Prennushi, 1997).

Research Questions

As mentioned above, to date, no study has attempted to verify if one can observe, in SMEs, the existence of clusters of HRM practices. It follows from this that there has been no study of either the potential relationships between such clusters of practices and firm size or performance. This raises three research questions that can be formulated as follows: (1) Can one observe, in SMEs, the existence of clusters of HRM practices? (2) If so, is firm size a determinant of these clusters? (3) Do the more successful SMEs stand out from the others in the application of clusters of HRM practices? More to the point, one seeks to verify if some clusters of HRM practices can be associated with SME performance in matters concerning employee retention, innovation, growth and profitability.

Methodology

Sample

The required information concerning the HRM practices, strategy, and performance of enterprises was taken directly from the database of the PDG[R], set up by a university research group (St-Pierre and Delisle, 2005). This database contains information on Canadian manufacturing SMEs located in the province of Quebec. Included in this database is general and financial information collected using a confidential questionnaire to which the respondents were asked to add their financial statements over the past five years. The enterprises were contacted directly to provide this information in exchange for a complete comparative diagnosis of their overall situation in terms of performance and vulnerability. This process of data collection ensured a highly reliable database. Eliminating enterprises for which too many data were missing, as well as the very small enterprises (less than 20 employees) and the larger enterprises (more than 249 employees), provided a sample of 176 SMEs. More than 15 industrial sectors are present, including metal products (30% of the sampled firms), wood (14%), plastics and rubber (9%), electrical products (8%), food and beverages (7%), and machinery (5%). These firms are fairly representative of the range and diversity of Canadian manufacturing SMEs in terms of size and sector (Industry Canada, 2005; Statistics Canada, 2005).

Measurement of HRM Practices

As the source of data on manufacturing SMEs used in this study, the database contains information on a total of 11 HRM practices including job description, recruitment, performance appraisal, training, dissemination of information (strategic, economic and operational), consultation, and incentive compensation, including bonuses, profit sharing, and employee stock ownership plan. For measurement purposes, a range of coverage or a level of intensity (Boselie, Dietz and Boon, 2005) was attributed to each of the practices. Thus, for the practices of recruitment, job descriptions, performance appraisal, compensation with bonuses, profit sharing and access to stock ownership, the range of coverage was determined from the number of personnel categories (management, office workers, sales representatives, production supervisors, and production employees) affected by the application of the practice. A level of zero indicates that the practice is not applied to any personnel category, while a level of five indicates that the practice is applied to all categories. The intensity of the consultation practice was measured by assessing the nature of the consultations carried out among the production employees on decisions concerning management operations (1 = informed after the fact, 2 = informed ahead of time, 3 = consulted, 4 = decision-making partners, 5 = mandated to make decisions).

The dissemination of information was measured for three types of information (strategic, economic, and operational) consisting of between three and six indicators each and targeting four categories of employees. Thus, strategic information involved four indicators (mission, objectives, productivity, and profitability) that could be disseminated among the four categories of employees; economic information consisted of three indicators, and the coverage range of the operational information involved six indicators. The level of intensity of the training practice was measured as the percentage of sales turnover devoted to training activities.

Measurement of Performance

Enterprise performance can be measured at several levels (individuals, service units, organization, partners) and ties in with various dimensions, both internal (that is, innovation, growth, and profitability) and external (that is, impact on the community or on the environment). It then follows that measuring performance may require a multitude of indicators related to the strategic objectives of the enterprises (Kaplan and Norton, 1992; Neely et al., 1997).

In the case of HRM literature, the researchers retained various indicators linked closely for some and loosely for others with the activities of this function. Among the proximal indicators of performance, that is, those more directly linked to HRM practices, one finds satisfaction, absenteeism, and the rate of employee turnover (Arcand, Bayad and Fabi, 2002; Guzzo, Jette and Katzell, 1985; Liouville and Bayad, 1995); among the more distant, or distal, indicators let us mention the return on assets, return on equity, as well as the price of stocks (Bryson, 1999; Delery and Doty, 1996; Huselid, 1995; Welbourne and Cy, 1999); indicators such as productivity, flexibility, innovation, and customer satisfaction, that qualify also as intermediary indicators, find themselves between the proximal and the distal (Ahmad and Schroeder, 2002; Delaney and Huselid, 1996; Harel and Tzafrir, 1999; Way, 2002). For present purposes, four indicators of performance have been retained: a proximal indicator (employee turnover), two intermediary indicators (innovation, growth), and one distal indicator (return on assets). The proximal indicator can be associated to the firm's social performance. The two intermediary ones relate to the SME's level of strategic development (product and market development), whereas the distal indicator is one of financial performance.

The turnover rate was determined by dividing the number of voluntary departures occurring over one year by the total number of employees over this same period. The innovation rate was measured by the percentage of sales attributable to new products or to products modified during the past two years. The growth rate was measured by the percentage of sales growth during the past two years. Finally, the rate of return on assets was determined by calculating the ratio of the earnings before interest and taxes to total assets.

Statistical Tests

Frequency analyses were first carried out to see to what extent enterprises make use of various HRM practices. Second, an exploratory principal component analysis was undertaken in order to identify groupings (or clusters) of practices in the sampled SMEs. Third, a rank correlation test was run in order to see if one could observe a link between size and the practice clusters previously identified. To this end, the sample was divided in three size categories, that is, firms with 20-50 employees, 51-100, and 101-244 employees. Finally, a series of t-tests were run to verify if the most successful enterprises make greater use of certain clusters of HRM practices than do the less successful ones. For the purposes of this analysis, only the upper (successful) and lower (unsuccessful) thirds of the enterprises in the sample were retained for each performance indicator.

Results

A first glance at the frequency of use of the HRM practices allows us to see that a large proportion of the sampled SMEs apply them. Thus, one can see in Table 1 that eight of the eleven practices analyzed are applied by at least 65% of the SMEs. Only the practices of recruitment, profit sharing, and stock ownership are applied by 50% or less of the SMEs studied. Certain practices such as the dissemination of information and consultation are otherwise applied by all enterprises, although at different levels of intensity.

Clusters of HRM Practices

A principal component analysis with varimax rotation was carried out in order to verify if the HRM practices could be consolidated into components (or clusters of practices) that would permit a better understanding of enterprise behavior in the application of these practices. Recall that this type of analysis is intended to reduce a given number of variables into a smaller number of components or clusters of variables that happen to be strongly associated (correlated) with each other in the population being studied. Five components surfaced from the analysis, explaining a total of 67% of the observed variance in the intensity level of HRM practices. The results of this analysis are shown in Table 2.

The first component to emerge from the analysis comprises three practices of information dissemination (strategic, economic, and operational) and one practice of incentive compensation, that is, bonuses. This first component calls upon practices that are easily applicable even in smaller enterprises, which explains their wide distribution within the sample. This cluster of practices could be associated with the "information" component of HRM in the sense that the practices concerned are aimed at letting the members of the organization know what is going on inside and outside the walls. The presence of a fourth practice (bonuses) in this component appears to be coherent since the systems of compensation with bonuses, while being simple to apply to smaller businesses, must be accompanied by a dissemination of information sufficient so that the employees are able to see the connection between the added compensation and the objectives to realize.

A second component to emerge from the analysis consists of a cluster of practices that includes job descriptions, recruitment, and performance appraisal. This component appears to represent a coherent cluster of practices and could be associated with the "integration" component of HRM, as the practices involved are directed at ensuring that the employee selected (job description and recruitment) is well integrated into the organization (performance appraisal). This component is likely to be more developed as the SMEs sense the need to structure their HRM activities.

The third component to emerge from the exploratory analysis includes the practices of profit sharing and stock ownership, which are the less widely implemented in the sampled SMEs. This component could be qualified as "compensation" in the sense that it constitutes the HRM practices whose primary goal is to underline the relation between some financial rewards for all employees and the overall organizational performance; these practices can also have the effect of enhancing employee satisfaction. Employees who are more satisfied are more likely to identify themselves with the business and increase their commitment to it. The "compensation" component consists of practices applied mainly by larger SMEs possibly experiencing difficulties in recruiting and retaining qualified or highly qualified employees (CFIB, 2003).

The fourth component has but a single practice: consultation, which is widely used by the firms in the sample. This component attests to a generalized tendency in SMEs to consult production employees when faced with operational problems. The fifth component is also constituted of a single practice, that is, "training." It should be noted that most of the SMEs in the sample declare having training activities, which is consistent with a legal obligation, peculiar to the province of Quebec, according to which firms with a turnover greater than $250,000 (Canadian) must invest at least 1% of their payroll in training.

Firm Size

One can observe in Table 3 that the size of an enterprise is positively and significantly correlated with two clusters of HRM practices, "integration" (p [less than or equal to]0.05) and "compensation" (p [less than or equal to]0.01), which means that larger SMEs make a greater use of HRM practices such as job descriptions, recruitment, performance appraisal, profit sharing and stock ownership. A third cluster, the "consultation" one, is negatively correlated with size (p [less than or equal to]0.1), which means that smaller SMEs allow a greater participation in decision making than is the case in larger ones. The two other clusters of practices, that is "information" and "training," are not significantly correlated with size. These results suggest that HRM practices such as consultation, training and information sharing, are applied in most of the SMEs, including the smaller ones. These smaller enterprises will to a lesser extent apply some form of incentive compensation (bonuses). As they grow in size, SMEs will resort to a greater extent to practices of integration (job descriptions, recruitment and performance appraisal) and then to practices that favour commitment (profit sharing, stock ownership).

HRM and Performance

The descriptive statistics of the performance indicators are presented in Table 4. The median value for employee turnover is 13%, while the innovation rate is 25%, the sales growth 14%, and the return on assets (ROA), 6%. With regard to correlations between firm size and the performance indicators, none of the four were statistically significant.

The comparative analysis results shown in Table 5 demonstrate that the most successful SMEs in terms of employee retention resort to a greater extent to the "information" (p [less than or equal to]0.05) and "compensation" (p [less than or equal to]0.01) components. Resorting more to the practices of dissemination of information (strategic, economic and operational), compensation with bonuses, profit sharing, and stock ownership could thus help SMEs to retain their employees.

Furthermore, one can see that the SMEs posting the greatest rate of innovation resort more intensively to the consultation component (p [less than or equal to]0.01) than do the less innovative SMEs. The SMEs posting the greatest sales growth resort to a greater extent to the "integration" component (p [less than or equal to]0.05), which means that these SMEs invest more in practices like job descriptions, recruitment, and performance appraisal. Finally, concerning the SMEs showing the strongest rate of return on assets, they are not distinguishable by any component. This last result suggests that it could be easier to link HRM practices to proximal or intermediate performance indicators such as turnover, innovation, and growth than it is to relate them to distal indicators such as return on assets.

Discussion and Conclusion

The goal of this study was to answer the three following questions: Can one observe, in SMEs, the existence of clusters of HRM practices? If so, is firm size a determinant of these clusters? Do the more successful SMEs stand out from the others in the application of clusters of HRM practices? The results obtained in the different analyses contribute substantially to answer these questions.

First, it turns out from the principal component analysis that one can identify among the HRM variables of the sample three clusters of two or more HRM practices, that is, an "information" cluster comprising four practices (strategic information, economic information, operational information, and bonuses); an "integration cluster" comprising three practices (job descriptions, recruitment, and performance appraisal); and a "compensation" cluster comprising two practices.

Second, the HRM systems of the SMEs seem differentiable by the particular emphasis they place on the "integration" and "compensation" clusters, both becoming more observable as the firms grow in size. The need to structure their HRM activities and to address difficulties in attraction and retention of qualified personnel could explain why the larger SMEs resort more to these clusters of practices. In a sense, these findings reflect the high importance accorded to the retention function of HRM, as established by Ng and Maki (1993) as well as the issue of availability of quality workers, as identified by Hornsby and Kuratko (2003). While relying on clusters of practices rather than on individual practices, these results may nevertheless be compared to those obtained by Wagar (1998), who found the smaller employers to be much less likely to have adopted most HRM practices. These results are also similar to those obtained by Heneman and Berkley (1999), who found more formalized practices of recruitment, selection and compensation to be related with size.

Third, the results also establish that the most successful SMEs resort to a greater extent to certain clusters of HRM practices than do the less successful ones. Of the four clusters presenting significant positive relationships with performance, it turns out that two are associated with turnover, one with innovation and one with sales growth. These results support the findings of Liouville and Bayad (1995) who demonstrated that SMEs adopting a strong HR orientation showed a better performance. The results also support previous findings related to practices included in the "information" (Bryson, 1999; Arcand, Bayad and Fabi, 2002), "integration" (Guzzo, Jette and Katzell, 1985), and "compensation" (Way, 2002) components. The fact that one found no significant difference between the training practice in the most successful SMEs compared to the less successful ones is also similar to the findings of Arcand, Bayad and Fabi (2002).

Furthermore, the results obtained in this study indicate that one can find in SMEs clusters of practices that seem logically related, although not necessarily implemented with a strategic goal. Regarding SMEs, size or growth could determine HR practices better than strategy. This would support the view that managers are capable of carrying out traditional HRM activities, although they could be far less capable of translating the goals and objectives of the enterprise into actions that set the human resources to work contributing to the realization of these objectives (Huselid, Jackson and Schuler, 1997).

The management applications that emerge from the results seem reasonably clear. SMEs have every advantage in seriously investing in the development of an HRM system that includes diversified clusters of practices. In accordance with their individual needs, SMEs can choose to place more emphasis on certain practices susceptible to enhance their ability to retain employees (dissemination of information and profit sharing), their capacity for innovation (consultation) and their growth (job descriptions, recruitment, performance appraisal). The fact that no association was found between training and performance is not unexpected since previous empirical studies have obtained inconsistent results in this regard (Patton, Marlow and Hannon, 2000; Westhead and Storey, 1996). This apparent absence of relation should not preclude SMEs from investing in training, which could be a necessary condition to--rather than a determinant of--business performance.

Furthermore, recalling that the results obtained were derived from a cross-sectional rather than longitudinal study, causality cannot be inferred. The question of whether enterprises are more successful because they make more extensive use of HRM practices or whether they apply these practices more extensively because they are more successful remains unanswered. Notwithstanding the variety of manufacturing sectors present in the sample, there may yet be industry effects that are unaccounted for. Noting also that the sample is made up of SMEs having voluntarily agreed to participate in a benchmarking activity, a certain preoccupation with the evaluation of their performance may induce a bias. Evidently, this type of situation limits the possibilities of generalization of the results to all manufacturing SMEs.

In spite of these limits, this study paves the way for further research. First, it would seem important to improve one's understanding of the response of SMEs to HRM by examining, for instance, the extent to which certain contingent variables other than size (for example, owner-manager profile, business strategy, power of customers) are determinant in the adoption of various practices. It would appear relevant, moreover, to verify the possible interactions between the business strategies adopted by SMEs, the HRM practices implemented, and different dimensions of performance. Finally, it would seem appropriate to make use of path-analytic methods such as structural equation modeling in order to examine the role played by certain proximal and intermediary indicators of performance (for example, employee satisfaction, innovation) when the time comes to measure the impacts of HRM practices on distal indicators of the SMEs' market and financial performance (for example, customer satisfaction, return on assets).

Acknowledgements

The authors would like to express their appreciation for the financial support of this research by the Canada Research Chair and the Canada Economic Development programs.

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Bruno Fabi, Universite du Quebec a Trois-Rivieres

Louis Raymond, Universite du Quebec a Trois-Rivieres

Richard Lacoursiere, Universite du Quebec a Trois-Rivieres

Contact Information

For further information on this article, contact

Bruno Fabi, Universite du Quebec a Trois-Rivieres, 3351, boulevard Des Forges, Trois-Rivieres,

Quebec, Canada G9A 5H7

Tel.: 819-376-5011, ext. 3139/Fax: 819-376-5079

email: [email protected]

Louis Raymond, Universite du Quebec a Trois-Rivieres, 3351, boulevard Des Forges,

Trois-Rivieres, Quebec, Canada G9A 5H7

email: [email protected]

Richard Lacoursiere, Universite du Quebec a Trois-Rivieres, 3351, boulevard Des Forges,

Trois-Rivieres, Quebec, Canada G9A 5H7

email: [email protected]

Table 1. Descriptive Statistics of HRM Practices (n = 176)

 Implementation Median
HRM practices of the Practice Mean Intensity

Job descriptions 81% 2.9 3.0
Recruitment 50% 1.5 1.0
Performance appraisal 65% 2.2 2.0
Training 99% .005 .003
Strategic information 100% 11.1 11.0
Economic information 100% 8.1 8.0
Operational information 100% 18.6 19.0
Consultation 100% 2.2 3.0
Bonuses 67% 1.8 1.7
Profit sharing 35% 1.0 0.0
Stock ownership 11% .30 .00

HRM practices S.D. Minimum Maximum

Job descriptions 1.8 .00 5.0
Recruitment 1.9 .00 5.0
Performance appraisal 1.9 .00 5.0
Training .006 .00 .03
Strategic information 2.9 2.0 16.0
Economic information 2.9 1.0 12.0
Operational information 4.6 2.0 24.0
Consultation 0.9 1.0 5.0
Bonuses 1.6 .00 5.0
Profit sharing 1.7 .00 5.0
Stock ownership 1.1 .00 5.0

Table 2. Results of the Principal Component Analysis (n = 176)

Components 1 2 3

HRM practices Information Integration Compensation
Job descriptions .21 .66 -.12
Recruitment .07 .72 .32
Performance appraisal .18 .77 -.06
Training .13 .03 .13
Strategic information .69 .30 .32
Economic information .64 .16 .10
Operational information .76 .16 .06
Consultation .12 -.01 -.02
Bonuses .59 -.13 -.26
Profit sharing .12 .19 .74
Stock ownership .06 -.10 .76

Components 4 5

HRM practices Consultation Training
Job descriptions .36 -.07
Recruitment -.16 .01
Performance appraisal -.02 .10
Training -.06 .91
Strategic information .15 .12
Economic information .21 .01
Operational information .01 .15
Consultation .91 -.03
Bonuses -.24 -.39
Profit sharing -.03 -.15
Stock ownership -.01 .02

Note: The five components account for 67 % of the observed variance.

Table 3. HRM Behavior of Enterprises in Relation to Their Size

 20-50 empl. 51-100 empl.
 Mean intensity Mean intensity
Size (n=95) (n=51)

HRM components
Information -.05 -.04
Integration -.11 -.03
Compensation -.15 -.04
Consultation .10 -.11
Training .05 -.04

 101-244 empl. Spearman
 Mean intensity correlation
Size (n=30) (n = 176)

HRM components
Information .22 .039
Integration .39 .157 *
Compensation .56 .194 **
Consultation -.12 -.104 (a)
Training -.09 .014

(a) p < 0.1 *: p < 0.05 **: p < 0.01

Note: HRM component scores are standardized (mean = 0, s.d. = 1).

Table 4. Descriptive Statistics and Correlation with Size of
Performance Indicators (a)

Performance
indicators Mean Median S.D.

Employee turnover .20 .13 .20
Innovation .39 .25 .35
Growth .17 .14 .25
Return on assets .07 .06 .08

Performance Correlation
indicators Minimum Maximum with Size

Employee turnover .00 1.65 -.06
Innovation .00 1 -.06
Growth -.43 1.85 -.05
Return on assets -.16 .33 -.01

(a) n = 176 for all the variables except innovation, where n = 154

Table 5. Comparison of the HRM Components between Successful and
Unsuccessful SMEs

 Employee Return on
Performance Turnover Innovation Sales Growth Assets
indicators t (a) t t t

HRM components
Information -2.59 ** 0.07 -1.00 0.19
Integration -0.65 0.98 2.00 * 0.87
Compensation -2.06 * 0.44 -1.14 -0.65
Consultation -1.37 2.90 ** 0.57 -0.14
Training -0.03 0.29 -0.44 -0.19

(a) two-tailed t-test for equality of means *: p < 0.05
**: p < 0.01