Small business growth: expansion of the workforce.
Howard, Jack L.
ABSTRACT
While growth of sales, profits and geographic expansion of small
businesses have been examined in numerous studies, little research
exists examining when a small business should increase the size of its
workforce. The present study attempts to address this gap in the
literature by examining if organizational planning, communication, human
resource management problems, and trusting employees might indicate when
a small business should increase its number of employees. The findings
indicate that as human resource problems begin to emerge, increasing the
size of the workforce might begin to resolve some of these problems.
INTRODUCTION
Over the past 20 years, interest and research in small business has
grown considerably (Barringer & Greening, 1998; Davidson, 1987;
Kotey & Slade, 2005; Nicholls-Nixon, 2005). In addition to increased
interest in small business, small business represents more than 75
percent of the nation's new jobs, employing more than 50 percent of
the private sector workforce (Scarborough & Zimmerer, 2003). These
numbers have increased while big business and corporate America continues to shrink their workforces (Holt, 1993; Howard, 2001). Even
though the evidence indicates that small businesses are a big player in
the U.S. economy, most of the research to date has focused on profits
and sales, with little focus on growth of the workforce in small
businesses. Additionally, most of the research on the growth of the
workforce has been largely descriptive and exploratory, not providing
much insight into when the conditions might be right for a small
business to expand its workforce (Howard, 2001).
The present study attempts to extend the research to date by
attempting to identify factors that might indicate when a small business
should consider expanding its workforce. Recently, scales designed to
measure organizational planning, communication, trust and human resource
management problems have been developed specifically for small business
(Howard, 2006). These scales will be used to determine the influence of
these concepts as antecedents of small business growth. Additionally,
sales, profits, market share and organizational size will be controlled
to determine the independent effects of planning, communication, trust
and human resource management problems on growth of the number of
employees. First, this study will discuss the literature on growth of
small businesses, planning in small businesses, communication in small
businesses, trust of employees in small businesses, and human resource
management problems in small businesses. Relationships between planning,
communication, trust and human resource management problems with growth
in employees will be presented. A brief statement concerning the control
variables will also be presented. Second, the research methods will be
described. Third, the results of the study will be presented. Finally, a
discussion of the results and their implications on future research will
be presented.
SMALL BUSINESS GROWTH
There exist many different definitions of small business.
Additionally, numerous conditions that apply to different definitions
exist, further influencing what is considered to be a small business.
While one could spend endless amounts of time trying to develop their
idea of a perfect definition of a small business, the definition to be
used in the present study is "one that is independently owned,
operated, and financed" (Hatten, 1997, p. 5). Additionally, the
business is one that would not be dominant in its field of operation,
having little impact on its industry (Hatten, 1997; Hodgetts &
Kuratko, 1995). Finally, the following criteria are also considered as
they pertain to the present study (Hodgetts & Kuratko, 1995):
Manufacturing firms employ fewer than 250 employees;
Annual sales of less than $22 million in the wholesale sector;
Annual sales of less than $7.5 million in the retail sector;
Annual sales of less than $10 million in the service sector.
Historically, most of the literature on small business focuses on
firm growth, with a specific examination of either revenues and profits
or challenges facing small businesses as they grow (e.g., Box, Crouch
& Clow, 1998; Covin, Slevin & Covin, 1990; Gray, 1999; Hambrick
& Crozier, 1985). More recently, additional factors such as
planning, communication, trust and human resource problems have been
examined as factors that might influence small business growth (e.g.,
Dyer, 1996; Howard, 2001; Kotey & Slade, 2005; Nicholls-Nixon,
2005). In the following sections of this paper, the literature
associated with firm growth will be presented. Following this
information, the literature associated with planning, communication,
trust and human resource problems will be presented. Hypotheses
regarding the relationship of these factors on firm growth will be
presented as each factor is discussed. Finally, a brief discussion of
control variables will be presented prior to moving on to the research
methodology.
Firm Growth
The growth of small businesses has been studied and modeled for a
considerable time, with books dedicated to the process that firms go
through as they grow (e.g., Flamholtz, 1990). Much of the research has
focused on firm growth based on sales, revenues, profits and market
share (Boardman, Bartley & Ratliff, 1981; Roper, 1999). Certainly,
without sales and profits, an organization will likely have a short
life, and this is widely known fact to small business owners and
students of small business issues (Johnson, Conway & Kattuman, 1999;
Kuratko & Hodgetts, 2001; Stephenson, 1984).
Over the years, there has been increasing interest in the growth of
small business in areas other than sales and profits. An area that might
relate to the size of the firm in terms of the number of employees
focuses on geographic expansion (Barringer & Greening, 1998;
Greening, Barringer & Macy, 1996). As one expands into new markets,
typically additional employees are required to service those new
markets. Given this, these studies, while focusing on geographic
expansion, begin to address growth of the number of employees in the
firm. However, more recently there have been attempts to examine the
growth of the organization specifically in terms of the number of
employees (Howard, 2001). While this research was largely exploratory,
it begins to address a gap in the research. Specifically, the actions an
organization should take when expanding the workforce occurs are
addressed. While this is information that small business owners and
managers need to be aware of when they expand, it could also be
interpreted as the conditions that exist when a small business is ripe
for increasing the size of its workforce.
Planning
As organizations grow, it is common for the organization to develop
plans (Flamholtz, 1990). In some cases these plans will be formalized,
while in others the plans will be informal, focusing on employees
sharing a common understanding about the direction of the organization
and the actions that need to occur as the organization moves forward.
For example, approximately 21 percent of successful businesses have been
found to have formal business plans (Bhide, 2000), indicating that the
majority of successful businesses do not have formal, written plans.
While many businesses do not have formal plans, it has been found that
shared business logic does exist among growing small businesses
(Nicholls-Nixon, 2005). This might indicate that even though formal
plans do not exist, small business owners are thinking about and
considering the business decisions and moves that they need to consider,
since planning can take many forms and may not always be in written
form.
Small business research has begun to incorporate human resource
management concerns into the research issues, such as planning in small
business (Howard, 2006). This research has begun to examine the question
of when a small business should expand its workforce (Hodgetts &
Kuratko, 1995; Howard, 2001; Tucci, Wyld & Cappel, 1997). Given that
only a small percentage of business owners have formal business plans
(Bhide, 2000), it is very likely that human resource planning does not
occur either (Howard, 2001). This indicates that many businesses move
forward without a sound business plan, let alone a developed plan of
when to increase the size of their workforce.
While not having a written, formal plan is not an earth shattering
finding, there exists evidence that planning does influence the success
of small businesses. When examining businesses that have formal plans,
the evidence indicates that these businesses grow at faster rates than
businesses that do not have formal plans (Morrison, Breen & Ali,
2003). Many reasons might exist causing businesses with plans to grow
faster than businesses without plans, and one of these reasons could be
that these businesses understand that there is a relationship between
increasing the number of employees and increasing the revenue of the
firm (Box et al., 1998; Gray, 1999). Specifically, it has been found
that in order to successfully expand the workforce in small businesses,
planning for growth needs to be undertaken carefully, so that human
resource practices and policies are adjusted appropriately, and in some
instances formalized (Barringer & Greening, 1998; Greening et al.,
1996; Kotey & Slade, 2005). This provides evidence that these
businesses understand that planning in small business might be one
indicator of when the business should expand its workforce (Howard,
2001).
Considering the research to date, while formal planning is not
conducted in the majority of small businesses, efforts appear to be made
to ensure that as small businesses move forward that everyone
understands the direction of the organization (Bhide, 2000;
Nicholls-Nixon, 2005). Nonetheless, evidence exists that growth is
faster among firms with formal business plans, and that the
decision-making of the small business owner and managers has a
significant effect on small business growth (Morrison et al., 2003;
Packham, Brooksbank, Miller & Thomas, 2005). Specifically, a lack of
planning and development of a strategic direction has been found to
inhibit growth among small firms (Beaver & Price, 2004; Hankinson,
Bartlett & Ducheneaut, 1997). Given this, the following hypothesis
is proposed:
H1: Planning in small businesses will exhibit a positive
relationship with growth of the number of employees.
Communication
Communication within an organization is essential if the
organization is going to survive. Communication as a firm expands its
workforce might be even more important, given that communication
difficulties have been found to exist as organizations grow (Greening et
al., 1996). It is important to understand that communication will
experience challenges during growth, and one way to address these
challenges is to be proactive. This can be accomplished by ensuring that
employees understand what is occurring, the implications of what is
occurring, and being involved through communication (Dyer, 1996;
Nicholls-Nixon, 2005). In other words, involving employees in the
changes so that they understand what is happening and how the changes
tie into the organization's objectives might be critical as a small
business grows. Quality communication in organizations has been found to
influence the empowerment of employees, job commitment, and the ability
to achieve organizational goals (Brunetto & Farr-Wharton, 2004). As
a result, effective communication can enable employees to better assist
the organization as it grows.
While increased communication can assist organizations as they
grow, communication has also been found to have a positive relationship
with organizational profits (Howard, 2001). However, the question
remains as to how communication might begin to indicate when a business
should consider expanding its workforce (Howard, 2006). When members of
an organization communicate more, they are more likely to clearly
understand the entire situation that faces them, since they have more
information (Dyer, 1996; Nicholls-Nixon, 2005). Specifically, small
business owners and managers should not only communicate more often, but
they should also provide more detail of the direction of the
organization, and its processes, when communicating with employees.
Additionally, employees need to increase the amount of their
communication so that small business owners and managers can ensure that
they understand the organization's direction. Given this, the
expectation is that as the amount and quality of communication
increases, members of an organization will have a better idea of the
resources they have, as well as the resources they need to support the
achievement of their objectives. In some cases, this might mean more
productivity, more material resources, or even more human resources. As
it pertains to the number of employees, the expectation is that as
communication increases, small businesses will have a better idea of
when they need more employees (Howard, 2001). However, one must remember
that it is both the quality and the quantity of the communication that
is important, as that influences job commitment and the ability to
achieve organizational goals (Brunetto & Farr-Wharton, 2004). Thus,
the following hypothesis is proposed:
H2: Communication in small businesses will exhibit a positive
relationship with growth of the number of employees.
Trust
Trust can be defined as "terms of confident positive
expectations regarding another's conduct" (Lewicki, McAllister
& Bies, 1998, p. 439). In order to develop trust, a positive history
needs to exist between the parties, so that the positive expectations
have time to develop, leading to trusting behavior (Tzafrir & Dolan,
2004). Trust has been found to reduce conflict within organizations, as
well as allowing employees to work together, building on each
other's strengths, resulting in positive situations as businesses
are started (Perren, 1998; Sharif, Kalafatis, & Samouel, 2005).
Small business owners need to develop trust in their employees if their
employees are going to be effectively utilized. By trusting employees to
do their jobs and step in as needed, small business owners and managers
create a situation that allows them to attend to organizational issues
that come with owning a small business. A lack of trust in employees can
create situations where small business owners and managers fail to
delegate tasks, creating an overload for themselves, since they will
still need to attend to other issues, such as marketing, bookkeeping and
managing their personnel (Gomez & Rosen, 2001). Additionally,
failing to delegate tasks to employees leads not only to their
underutilization, but also might lead to small business owners and
managers burning out (Howard, 2006).
Trust has been found to have a number of positive effects on
organizations, to include increased productivity among employees with
managers who trust them (Ferres, Connel, & Travaglione, 2004). Trust
also has been found to have a positive relationship with profits
(Howard, 2001). While no research has examined the potential influence
that trust might have on increasing the number of employees, it is
plausible that as small business owners and managers increase the trust
in their employees, these owners and managers might be more likely to
increase the size of their workforce, given that employee productivity,
and potentially profitability, benefits from trusting owners and
managers. Given this logic, the following hypothesis is proposed:
H3: Trusting employees in small businesses will exhibit a
positive relationship with growth of the number of
employees.
Human Resource Problems
Any organization that has employees needs to effectively manage
their human resources if they want to succeed. Regardless of the amount
of technology or the quality of the product being sold, employees are
the critical difference in organizations. Without quality employees, no
product can sell itself, and while technology can assist in
decision-making, technology follows rules, while employees exercise
judgment. It is important that small business owners understand this,
ensuring that they address human resource management issues when running
their small business.
In terms of human resource management practices, small businesses
have been found to rely on techniques that are not formalized. For
example, hiring decisions have been found to be based largely on the
decisions of owner-managers, focusing on how well the applicant might
fit into the organization, rather than on experience, education and
skills (Kotey & Sheridan, 2004). Additionally, training is largely
on the job, and does not focus on the overall development of the
employees (Kotey & Sheridan, 2004). By not formalizing policies and
procedures, if the manager-owner steps away from the business for an
extended period of time, there is the chance that the organization will
not move forward in a direction consistent with the owner-manager's
vision, given that no else might know what this vision is.
Some small businesses have been found to proactively address human
resource management concerns as they grow, formalizing human resource
policies and increasing their recordkeeping of human resource management
issues as they grow (Kotey & Sheridan, 2004; Kotey & Slade,
2005). These businesses have recognized that addressing these concerns
will only help the business as it continues to grow, since legal
regulations addressing discrimination exist in the United States with
which organizations must comply once they reach a certain number of
employees, most notably, 15 employees (Sovereign, 1994). Even though
some businesses might attempt to proactively address human resource
problems, it is still possible that as small businesses grow some of the
challenges they face will be associated with human resource management.
Problems can develop, and have been found to center around having the
right number of people for the job, having employees with the right
skills for the job, as well as being able to provide salaries high
enough to attract quality employees (Howard, 2001). This might indicate
that the number of human resource challenges or problems facing
organizations might possibly indicate that the organization is in need
of increasing the number of employees, since there might not be enough
employees to do the job, or employees might not have the right skills.
Thus, the following hypothesis is proposed:
H4: Human resource problems in small businesses will exhibit a
positive relationship with growth of the number of employees.
Control Variables
While the discussion thus far has focused on preliminary
investigations which indicate that planning, communication,
organizational trust in employees and human resource management problems
appear to be consistent concerns for small businesses as they expand
their workforce, there are certainly a wide variety of other influences
on growth in small businesses. In order to effectively ascertain the
influence of planning, communication, trust and human resource problems
as indicators of when a firm should expand its workforce, other
variables with known influences on increasing the number of employees
need to be controlled.
Growth in sales, market share and profits have all been found to be
related to firm growth in terms of the number of employees (Kuratko
& Hodgetts, 2001; Stephenson, 1984). Unless goods or services are
sold to consumers, organizations cannot survive, let along grow. Given
the historical data supporting this relationship, these three variables
will be controlled for when examining the hypotheses presented in this
study.
The size of the organization will be controlled for as well.
Because of the nature of the legal environment in the United States,
organizations must seriously consider formalizing human resource
management policies and procedures once they have 15 employees. This is
because organizations must comply with Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act and the Civil Rights Act of
1991 once the organization has 15 employees (Sovereign, 1994). Because
of the legal requirements associated with having 15 or more employees in
the United States, it is reasonable to believe that once an organization
has taken action to comply with these regulations, the mere fact of
increasing the number of employees is not as daunting a task as it might
be if an organization employs fewer than 15 employees. Organizations
with fewer than 15 employees might be more reluctant to increase the
number of employees, since it might not have the policies and procedures
in place to ensure compliance with these regulations. Given this, size
of the organization will be controlled for, such that a dummy variable for organizations with more than 15 employees will be included as a
control variable.
METHOD
Sample
In order to test the proposed hypotheses, a systematic, random
sample was drawn from a 10 county area in the Midwestern section of the
United Sates. Two thousand small businesses were sampled from a list of
4000 small businesses that was obtained from the State of Illinois Department of Commerce and Community Affairs. In order to arrive at a
sample of 2000 small businesses, a rule of selecting every other
organization was utilized. Responding organizations ranged in size from
2 to 600 full time equivalent (FTE) employees, with a mean of 48.6 FTEs.
Organizational sales ranged from $60,000 to $175 million, with mean
sales of $9,373,840. Organizational profits ranged from -$450,000 to
$50,000,000, with mean profits of $1,237,322, while organization's
market share ranged from one percent to 100 percent, with a mean market
share of 37 percent. One organization did report a market share of 100
percent, but this was the market share for one county, not the industry
as a whole, consistent with the definitions used in this study. While a
variety of definitions exist defining small business, when comparing
these numbers to those of the definitions provided by Hatten (1997) and
Hodgetts and Kuratko (1995), all of the numbers meet the criteria laid
out in their definitions. In other words, the size, sales, profits and
market share of the organizations was consistent with the type of
business that the organization was in, whether that was manufacturing,
wholesale, retail or the service sector.
Procedure
Surveys were sent to the owners of small businesses, if the owner
could be identified. If the owner could not be identified, the surveys
were mailed to the president of the small business. A cover letter
describing the study, indicating that participation was voluntary and
confidential, accompanied the surveys. Sixty days after the surveys were
sent to small businesses, a follow-up letter was sent to encourage the
organizations to complete the survey. Of the 2000 surveys mailed to
small businesses, 154 usable surveys were returned, resulting in a 7.7
percent response rate. While the response rate is lower than desired,
enough data was collected to test the proposed influences of planning,
communication, trust and human resource problems on increasing the
number of employees in small businesses.
Measures
As part of a comprehensive survey, participants evaluated several
statements associated with their small business concerning planning,
communication, trust and human resource problems. The participants rated
these items on 5-point scales, ranging from 1 (strongly disagree) to 5
(strongly agree). Additionally, the organization's size was
measured based on information provided by the survey respondent.
Finally, growth in the number of employees, profits, sales and market
share over the past 5 years were all measures, using a 5-point scale,
ranging from 1 (strongly disagree) to 5 (strongly agree). Each measure
is discussed below.
Planning.
Planning in small businesses was measured by a nine-item scale
developed by Howard (2006). Scale items addressed a variety of planning
concerns, and included the following two items: Planning is conducted in
the business; the business ensures that all appropriate parties
understand the business's plans. The items in the scale assess
information regarding the level and type of planning in the
organization, as well as how well understood the plans are by all
parties in the organization. The alpha reliability of the scale was .88.
Communication.
Communication in small businesses was measured by a five-item scale
developed by Howard (2006). Items in the scales addressed the amount and
type of communication, and included the following items: Employees are
informed of changes in the organization verbally; managers communicate
verbally with employees on a regular basis. The items in the scale
assess the different types of communication in the organization, the
regularity and effectiveness of meetings in the organization in terms of
communicating information. The alpha reliability of the scale was .79.
Trust.
Trust in employees in small businesses was measured by a three-item
scale (Howard, 2006). The scale addressed the level to which the
business trusts employees and manager's to do what is in the best
interest for the business, and included the following item: The business
supports managers and/or employees in the decisions they make. The items
in the scale assess the level of trust of management in employees, as
well as the trust that employees can step in as needed. The alpha
reliability of the scale was .83.
Human resource problems.
The human resource problems in small businesses scale was measured
by a four-item scale (Howard, 2006). Scale items focused upon human
resource concerns that have been found to influence the success of small
businesses, and included the following items: Some problems in the
business are associated with hiring the right person; some problems in
the business are associated with having enough people for the job. The
items assess the problems associated with proper staffing and
compensation in the organization. The alpha reliability of the scale was
.81.
Size.
The size of the small business was measured to ensure that the
small businesses complied with the definitions of small business laid
out by Hodgetts and Kuratko (1995). Once the data was collected, size
was coded into a dummy variable, with 1 representing small businesses
with 15 or more employees and 0 representing small businesses with 14
and fewer employees. The cutoff of 15 employees represents the point at
which organizations must comply with a variety of employment
legislation, as described earlier in this paper (e.g., Sovereign, 1994).
Finally, organizations with 14 and fewer employees represented 48.4
percent of the sample, with organizations with 15 or more employees
representing the remaining 51.6 percent of the sample. This item was
constructed to control for the influence that the size of the
organization might have on the increase of the number of employees in a
small business.
Sales growth, profit growth, and market share growth.
Growth in these three categories was measured by a single item for
each category (i.e., sales, profits, market share), and represents
growth in these areas over the past five years. For example sales of the
organization were measured with the following item: The business has
experienced considerable growth in sales over the past 5 years. The
items for profits and market share were identical to this item in
structure. Each item was measured on a 5-point scale as described above
(i.e., 1 = strongly disagree, 5 = strongly agree), in order to control
for the influences that sales, profits and market share might have on
the increase of the number of employees in a small business.
Employee growth.
This item serves as the dependent variable in the present study,
and represents the growth of the number of employees over the past five
years, and was stated as follows: The business has experienced
considerable growth in the number of employees over the past 5 years.
The item was measured on a 5-point scale as described above.
Analyses
Hierarchical regression was utilized to test the influence of
planning, communication, trust and human resource problems on the growth
of the number of employees over the past 5 years. In order to determine
the influence of these variables on the increase of the number of
employees over a five year period, the organization's size, growth
in sales, growth in profits and growth in market share were all entered
into the regression equation in the first step. This allows for the
influence of these variables known to influence the growth of the number
of employees to be accounted for, prior to determining the influence of
the variables of primary interest in this study.
In the second step of the hierarchical regression, planning,
communication, trust and human resource problems were all entered into
the regression equation. By entering these variables into the equation
on the second step, the additional influence of these variables in
explaining the variance of the dependent variable, growth of the number
of employees over the past 5 years. Additionally, this also allows for
the determination of which independent variables entered in this second
step might significantly predict an increase in the number of employees
in the organization over the past 5 years.
RESULTS
Table 1 presents the means, standard deviations, and zero-order
correlations of the study variables. Growth in the number of employees
was significantly and positively correlated with growth in sales (r =
.65, p < .01), growth in profits (r = .41, p < .01), growth in
market share (r = .52, r < .01), size (r = .25, p < .01), and
human resource problems (r = .19, p < .05).
The results of the hierarchical regression are reported in Table 2.
The organization's size, growth in sales, growth in profits and
growth in market share were entered in step 1 to control for the amount
of variance explained by these variables, and these variables explained
45 percent of the variance in growth of the number of employees
([DELTA][R.sub.2] = .45, [DELTA]F = 27.41, p = .000).
Planning, communication, trust and human resource problems were
entered in the second step of the hierarchical regression in an attempt
to determine the additional amount of variance explained by these
variables ([DELTA][R.sub.2] = .04, [DELTA]F = 2.57, p = .041). Human
resource problems was found to significantly influence the growth of the
number of employees (b = .31, p < .01), supporting hypothesis 4.
These two findings indicate that these four variables collectively
provide additional variance explained beyond the control measures of
organization size, growth in sales, growth in profits and growth in
market share, providing evidence of the influence of planning,
communication, trust and human resource problems. Additionally, human
resource problems exhibited a significant positive relationship with the
number of employees, supporting the hypothesis that the presence of
human resource problems in a small business is an indication of the size
of the organization in terms of the number of employees.
DISCUSSION
Over the past several years, research on small business and
entrepreneurship has begun to examine the influence of planning,
communication, trust, and human resource management issues more closely
(Bhide, 2000; Howard, 2006; Kotey & Slade, 2005; Morrison et al.,
2003; Nicholls-Nixon, 2005). While this represents efforts to further
understand the processes that need to exist in order for small
businesses and entrepreneurs to succeed in their ventures, the influence
of these areas on increasing the size of the workforce has been largely
neglected. The present study was an attempt to address this need by
determining the ability of each of these concepts to explain the growth
of the workforce (Howard, 2001).
Hypothesis 4 received support, indicating that as human resource
problems associated with staffing and compensation increased, so did the
number of employees. This might indicate that small business owners and
entrepreneurs understand that in order to accomplish organizational
goals in a manner that supports the survival and success of
organizations, these same organizations need to consider investing in
their workforce by increasing the number of employees in the
organization. This is an important finding for both small business and
entrepreneurship researchers and practitioners, since in many instances
small businesses struggle with determining when they should expand the
workforce (Howard, 2001). Often times the perception is that in order to
expand the workforce, the organization needs to bring in additional
capital to support such expansion. However, the results of the present
study might indicate that when struggling with human resource problems,
such as not having enough people to complete the job or not having the
right number of people with the right skills in the right place at the
right time, might indicate a need to increase the size of the workforce.
It could even be the case that if the workforce is expanded, then the
resulting increased efficiency of production might eventually lead to
increased sales and profits. This is an interesting and important
finding, since it could become an indicator of when to expand the
workforce for small business owners and entrepreneurs.
Clearly, human resource problems and its significant relationship
with the size of the organization represents a contribution of the
present study. However, human resource problems was only one of four
variables entered into the analysis during the second step. While this
variable supports hypothesis four and is the only variable that is
individually significant, it is the combination of this variable, along
with planning, communication and trust that explained an additional four
percent of the variance in employee growth in the organizations studied.
While this is not a large amount of variance, it does indicate that this
combination of independent variables does influence employee growth in
organizations, and is worthy of additional examination in future
research. For example, human resource problems may influence the
planning, communication and trust in organizations. Furthermore, this
might indicate the need to further refine the scale items in order to
better identify the constructs of planning, communication and trust, so
that the influence that these variables have on employee growth in
organizations might be more fully understood (Howard, 2006). Another
option would be to conduct a study that examines the influence of these
variables on actual growth in small business, focusing on the numerical increase in employees in small business. While obtaining this type of
data would be challenging, it would provide a more complete picture of
the processes that are occurring in small business, benefiting both
researchers and practitioners at the same time. Because of these
possibilities, these variables deserve additional attention in order to
determine the amount of variance that can be explained by them. This
could reveal much about what influences growth in small business.
A third significant contribution of the present research is that
employee growth can effectively be measured on a scale that requires
small business owners, small business managers and entrepreneurs to make
a judgment regarding how much they agree or disagree with the item.
While the ideal situation would be to measure actual growth in terms of
number of employees, as suggested in the previous paragraph, by
utilizing a Likert-type of instrument, it is anticipated that small
business owners and entrepreneurs will be more likely to complete and
return surveys to researchers. Measuring actual growth in terms of
numbers of employees over a specific time would require small business
owners and entrepreneurs to know specifically what the change was for
the time period, possibly reducing the number of returned surveys, since
some small business owners and entrepreneurs would need to research
these numbers, imposing additional work on them. By being able to have
small business owners and entrepreneurs use their judgment to indicate
employee growth, the likelihood of returned surveys is increased.
Additionally, the results of the study indicate that Likert-type items
can begin to reveal the relationships influencing employee growth in
small business, providing another avenue for which to study workforce
expansion in small business.
Further examining the results of the study, it becomes clear that
relationships exist between the size of the organization, planning,
trust and employee growth. It could be possible that since organizations
in the United States must comply with a considerable amount of
employment legislation once an organization has 15 or more employees,
they have taken necessary actions to ensure that they have effectively
planned for and developed appropriate procedures and policies to ensure
that they comply with this legislation (Kotey & Sheridan, 2004;
Kotey & Slade, 2005; Nicholls-Nixon, 2005; Sovereign, 1994).
Furthermore, once these policies and procedures are put in place in
organizations, there is no longer the issue of worrying about being in
compliance with the law, and as such, this would not be a reason holding
an organization back from expanding its workforce (Morrison et al.,
2003).
FUTURE RESEARCH
Hypotheses 1 through 3 did not receive support, indicating that
planning, communication and trust did not significantly predict growth
of the workforce in small businesses. While the results were not as
expected, the results do reveal some potentially interesting
relationships that might exist among these variables. First, the
relationships among these variables need to be more closely examined in
an attempt to determine if the relationships are correlational or causal in nature. For example, if the relationships are correlational in
nature, then as organizations increase planning, communication and trust
also increase at the same time. However, if the relationships are causal
in nature, it could be the case that planning requires and causes
increased communication and trust, and that this in turn might influence
employee growth in small business. This represents an additional
direction that future research should consider, as further understanding
and accurately identifying the interrelationships among these variables
could reveal important information for both researchers and
practitioners (Howard, 2006).
A second area of future research should focus on the size of the
organization and its relationship with planning. Specifically, once an
organization has 15 employees, the legislation that the organization
must comply with changes. Compliance forces organizations to ensure that
they are not discriminating against individuals protected by Title VII
of the Civil Rights Act of 1964, as well as the Americans with
Disabilities Act (Sovereign, 1994). This could potentially trigger
additional planning within organizations. This could also influence the
level of communication within the organization, and the trust between
employees and managers. Given this set of relationships, it is important
for future research to begin to identify any possible causality among
these relationships, as well as the possibility that planning, trust and
employee growth might systematically and significantly vary among small
businesses, centered on the number of employees (15) which constitutes
government compliance with various employment laws.
A possible limitation of the present study is that the
organizations studied were from a 10 county area in the Midwestern
section of the United States. While the sample did pull from all major
SEC classifications, by surveying organizations from a larger region
within the United States, or the entire country, differences that might
exist between markets could influence the results, whereas the region
that was surveyed might possess characteristics that are more, or less,
conducive to successful, or unsuccessful, small businesses. These
possible implications may never be known, but are acknowledged, and
having a sample drawn from a larger region could effectively address
this concern.
A second limitation of the present study is that the size of the
organization was studied as a dummy variable; either an organization had
14 or fewer employees or it had 15 or more employees. While this cutoff
is consistent with compliance with various pieces of legislation, by
examining actual size of the organization, changes in the level of
planning, communication and trust might become apparent as an
organization increases its size. By examining the size of organizational
at the ordinal level through the use of ranges of size (i.e., 0--14,
15--25, 26--50, etc.), the influence of size as organizations grow might
be further revealed.
CONCLUSION
The present study demonstrates that researchers and small business
owners might have available to them indicators of when small businesses
should consider expanding their workforce. Human resource problems in
small business, such as not having enough employees, might indicate when
small businesses need to expand their workforce. This provides valuable
information to both researchers and small business owners, and should be
studies further to better identify the specific conditions that might
indicate when a small business owner should expand his or her workforce.
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AUTHOR'S NOTE
Jack L. Howard is a Professor of Human Resource Management at
Illinois State University, where he teaches courses on labor relations,
human resource management and human resource management for small
business. His research interests include employee rights and human
resource management for small business. The author would like to thank
Joshua Morgan for survey administration and Lucas Helmer for data entry.
The author would also like to thank John Lust for his helpful comments
on earlier drafts of this manuscript.
Jack L. Howard, Illinois State University
Table 1: Means, Standard Deviations, and Zero-Order Correlations
Variable Mean SD Range 1 2
1 Employee growth 2.93 1.13 1 - 5 -
2 Sales growth 3.41 1.09 1 - 5 .65 ** -
3 Profits growth 2.97 1.04 1 - 5 .41 ** .62 **
4 Market share growth 2.95 0.97 1 - 5 .52 ** .64 **
5 Size 0.52 0.50 0 - 1 .25 ** .12
6 Planning 3.71 0.62 1 - 5 .15 .13
7 Communication 3.92 0.55 1 - 5 .15 .20 *
8 Trust 4.05 0.59 1 - 5 .12 .05
9 Human resource problems 3.68 0.70 1 - 5 .19 * .07
Variable 7 8 9
1 Employee growth
2 Sales growth
3 Profits growth
4 Market share growth
5 Size
6 Planning
7 Communication -
8 Trust .48 ** -
9 Human resource problems .11 -.06 -
Note: Diagonals are omitted. ** p < .01. * p < .05
Table 2: Results of Regressing Employee Growth on the Independent
Variables
[DELTA]
Step Variable B [R.sup.2] [DELTA] F p
1 Sales growth .53 **
Profits growth .04
Market share growth .17
Size .36 * .45 27.41 .000
2 Planning -.08
Communication -.11
Trust .23
Human Resource Problems .31 ** .04 2.57 .041
[R.sup.2] = .49, F = 15.63, p = .000
Note: ** p < .01, * p < .05
