The Effect of Ownership Structure on Human Resource
Management in Small Businesses
Master thesis, Msc Human Resource Management Faculty of Management and Organization
Table of contents
ABSTRACT……….………...2
INTRODUCTION……….3
CHAPTER 1: Human resource management……….5
CHAPTER 2: HRM in small businesses………..…...………...11
CHAPTER 3: Ownership structure and HRM……….19
CHAPTER 4: Theoretical explanations ……….…...25
CHAPTER 5: Research model ……...34
CHAPTER 6: Research instrument……….………...……...…41
CONCLUSION.………...54
LIMITATIONS and RECOMMENDATIONS……….56
ABSTRACT
INTRODUCTION
Recently, research on Human Resource Management (HRM) in small businesses is receiving increased attention (e.g. Cassell et all., 2002; de Kok, 2006; Duberley & Walley, 1995; Golhar & Desphande, 1997; Hornsby & Kuratko, 2003; Sels et al., 2006; Way, 2002). It has been suggested that effective human resource management is an important part of small business success (McEvoy, 1983, 1984; Desphande & Golhar, 1994; Hornsby & Kuratko, 1990). The majority of studies on HRM in small businesses is descriptive and compares the use of HRM practices in large and small organizations (Sels et al, 2006). The major findings from these studies indicate that smaller firms generally make less use of HRM practices in comparison to large firms (e.g. Bayo-Moriones & de Cerio, 2001; Ng & Maki, 1993). It is also found that HRM is fairly ad hoc and informal in small businesses (e.g. Kotey, & Slade, 2005; Matlay, 1999). Harney and Dundon (2006) criticize the literature on HRM in small businesses as being dominated by investigations on size determinism and argue that size per se does not determine HRM. Rather, size is only one of the characteristic of the organizations. Labor and product markets, supply chain relationships, managerial styles and political context in which organizations operates also determine HRM (Harney & Dundon, 2006). Wilkinson (1999) also proposes that research is needed to show interactions between the size and other factors such as product market influences, ownership, dependency relationships with other organizations.
One exemplary attempt to analyze the interaction of the organizational size with one of these organizational characteristics is that of Brand, Croonen and Kneppers-Heijnert (2006). In this study, the effect of ownership structure on HRM in small businesses is explored and it is concluded that the type of ownership structure has an impact on HRM in small businesses (Brand et al., 2006).
Before explaining the aim of this paper, it is important to give the brief definitions of the concepts that are going to be used throughout this thesis. HRM refers to all activities associated with the management of human resource in an organization. HRM
practices consist of analyzing work, determining human resource needs, recruitment,
owned and managed by the same person (i.e. the owner manager) and central ownership refers to the ownership structure that the firm is owned by a larger company and run by a manager who is not the owner of the firm.
This thesis studies how to extend and improve the theoretical and methodological ground of the study of Brand, Croonen and Kneppers-Heijnert (2006).The objective of this thesis is to describe and explain the influence of ownership structure, specifically local ownership versus central ownership, on HRM in small businesses. Additionally, a research model and a research instrument will be developed to analyze the differences with respect to HRM between businesses that have different ownership structures.
Thus, the research questions of this thesis are:
1- What are the theoretical explanations for the effect of ownership structure (local ownership and central ownership) on HRM in small businesses?
2- What is the research model for analyzing the effect of ownership structure (local ownership and central ownership) on HRM in small businesses?
CHAPTER 1: Human resource management
In this thesis it is aimed to adopt a broad and inclusive definition of human resource management (HRM). As stated before, HRM refers to all those activities associated with the management of employment relationships in organizations (Boxall & Purcell, 2003). Thus, HRM is an umbrella term that encompasses specific human
resource practices such as recruitment practices, selection practices and performance
appraisal; human resource policies, which direct and partially constrain the development of specific practices; and overarching human resource philosophies, which specify the values that inform an organization’s policies and practices (Jackson & Schuler, 1995). Ideally, these human resources practices, policies and philosophies form a system that attracts, develops, motivates and retains employees that ensure the effective functioning and survival of the organization (Jackson & Schuler, 1995). HRM practice domains are analyzing work, determining human resource needs (HR planning), attracting potential employees (recruiting), choosing employees (selection), teaching employees how to perform their jobs and preparing them for the future (training and development), rewarding employees (compensation), evaluating their performance (performance management), and creating a positive work environment (employee relations) (Noe, Hollenbeck, Gerhart and Wright, 2006).
1.1. Strategic HRM and normative theories of HRM
critical for organizational effectiveness (Boxall & Purcell, 2000, 2003). These two models are the ‘Best-fit’ and the ‘Best-practice’ schools of HRM.
The ‘Best Practice’ school makes universal prescriptions and argues that all firms will better off if they identify and adopt ‘best practices’ in the way they manage people. In other words, the best practice school suggests that there is a universally superior approach for managing people and certain HRM practices are associated with improved organizational performance. These HRM practices are labeled as ‘best practices’, ‘high performance work systems’ or ‘high commitment work systems’ and are believed to improve organizational performance irrespective of the organizational context (Boxall & Purcell, 2003). On the other hand, the ‘Best-fit’ school of HRM makes contingency based prescriptions and argues that HRM will be more effective when it is appropriately integrated with its specific organizational context. This school deals with two types of fit for HRM, one is the external-fit and the other one is the internal-fit (Boxall & Purcell, 2000, 2003). While the theories of external fit makes prescriptions for the alignment of HRM with competitive strategy, the theories of internal fit makes prescriptions for internal coherence of HRM policies and practices. Most of the theories of this school are concerned with what is meant by external fit and the ways to achieve it (Boxall & Purcell, 2000).
As will be discusses in the next section, both of these normative models have limitations to provide adequate framework for analyzing HRM in small businesses (Harney & Dundon, 2006).
1.2. Limitations of normative theories for analyzing HRM in small businesses
(McMahan, 1996). The reason of this vulnerability is related to the considerations about cost effectiveness. The economies of scale presents unique challenges for small businesses as HRM decisions tend to be highly influenced by labor and product market contingencies (McMahan, 1996; Reid & Adams, 2001). Moreover, it has been suggested that in many small businesses, performance can be achieved by modest HRM practices (Carroll, et al., 1999; Brand & Bax, 2002). Research findings that indicate the prevalence of diversity in HRM in small businesses based contextual contingencies severely undermine the best practice school (e.g. Harney & Dundon, 2006; McMahan, 1996, Wagar, 1998). In the light of this argument, the adoption of the best school of thinking which ignores contextual contingencies of HRM is an inadequate approach for analyzing HRM in small businesses.
Even though the ‘Best-fit’ school acknowledges contextual contingencies, it does it in a static and narrow way. This school mostly focusing on the alignment between HRM and the competitive strategy, fails to recognize many other contextual factors that influence HRM, such as legal requirements, managerial styles, relationships with unions etcetera (Boxall & Purcell, 2003). Research produced evidence that legislation in the form of minimum wage, EU directives, and taxation can impinge on HRM decisions (McMahan, 1996). Relationships with unions and management styles are also found be important factors to affect HRM in small businesses (Ng & Maki, 1994; Wagar, 1998). Thus, HRM practices are not only the results of decisions to meet competitive needs but also are the results of compliance with labor laws and social norms for employing labor, which is prevalent in collective agreements and management styles. Therefore, the best fit school of HRM by simply focusing on the alignment between HRM and competitive strategy misses much of the complexity in organizational context that influence HRM. In the light of this argument, this school of thinking, which considers contextual contingencies in a narrow way, is therefore an inadequate approach for analyzing HRM in small businesses.
Therefore, they assume that HRM is realized as intended. However, HRM may be crafted rather than designed particularly in small business contexts (Wilkinson, 1999; Harney & Dundon, 2006).
Table 1: Normative models of HRM, organizational context and HRM
Normative models of HRM
Organizational Context HRM
Best Practice School Ignores Intended HRM
Best Fit School Limited consideration Intended HRM
Overall, consideration of the research findings in the area of HRM in small business contexts exhibits the inadequacies of the existing normative theories of HRM for analyzing HRM in small businesses. The descriptive research in the area indicates that small businesses are more vulnerable to environmental forces in comparison to their larger counterparts (McMahan, 1996), HRM is a result of emergent strategy to respond these environmental forces (Arthur & Hendry, 1992) and HRM decisions are more reactive rather than proactive (Harney & Dundon, 2006). Moreover, HRM in small businesses are found to be highly complex and heterogeneous (e.g. Duberley & Walley, 1995; Mc Mahan, 1996; Cassell et al., 2002). Thus, the two normative models of HRM, with their inadequacy for considering contextual contingencies in a comprehensive way and their exaggerated conceptions about strategic choice (see Table 1), fails to recognize the complexities and distinctiveness of small businesses with respect to their HRM activities.
between local and central ownership structure already involves an assumption in itself that the difference is because of contextual contingencies, in this case because of ownership structure. On the other hand, the best fit school although argues for the alignment between HRM and the competitive strategy, makes its prescriptions in the form of exaggerated conceptions about meeting competitive needs and ignores many other determinants of HRM. Nevertheless, the difference hypothesized in terms of HRM between local and central ownership structure is not only a result of meeting different competitive needs. Rather the difference is a result of considerations for the compliance to the requirements of central organization, which will be explained in detail in the following chapters.
1.3. Conclusion
Because of the aforementioned inadequacies of the existing normative models of HRM generally for capturing the complexity of HRM in a small business context and particularly for theorizing about the effect of ownership structure on HRM, this thesis does not adopt either of these normative theories. There are two important implications of this argument for this thesis.
First of all, the objective of this thesis, which is exploring the effect of ownership structure on HRM in small businesses, requires a theoretical framework which involves contextual contingencies of HRM in comprehensive way. Moreover, the theoretical framework that can guide this thesis should also highlight the reactive nature of HRM in small businesses rather than totally relying on the exaggerated conceptions of strategic choice. Therefore, this theoretical framework should provide a more holistic and analytical approach for capturing the complexity and distinctiveness of HRM in small businesses. In the next chapter, a theoretical framework which provides a better background for studying HRM in small businesses will be presented and elaborated in detail.
Secondly, and most importantly, due to the inadequacies of these two normative models, which make prescriptions about the effectiveness of HRM, in this thesis an explanatory approach is opted for instead of a prescriptive approach. In other words, this thesis only concerns with the difference between central owned businesses and local owned
in terms of HRM outcomes, HRM performance and the contribution of HRM to
CHAPTER 2: HRM in small businesses
As mentioned in the previous chapters the aim of this thesis is to develop a theoretical background and a research model for analyzing the effect of ownership structure on HRM in small businesses. This kind of examination apparently requires a comparison between locally owned businesses and centrally owned business with respect to the type and form of HRM adopted. However, the question is which aspect of HRM will be compared across these two different types of ownership structure. Thus, before theorizing about the effect of ownership structure there is an important step that will guide the theorizing. This is the selection of an aspect of HRM that can guide the comparison between locally owned and centrally owned businesses. For the selection of this aspect, this thesis relies on the literature on HRM in small businesses. Hence, in this chapter by giving an overview of the literature on HRM in small businesses, it is aimed both to have a clear picture of HRM in the small business sector and also to find out the aspect of HRM -that is the dependant variable-for theorizing the effect of ownership structure.
In this chapter, next to selection of the aspect of HRM, a conceptual framework which provides a potential for capturing the complexity and distinctiveness of HRM in small businesses will be given and explained. This conceptual framework will guide this thesis for exploring the effect of ownership structure on HRM.
2.1. The main findings in the literature
types of HRM practices in large and small organizations (Sels et al, 2006). Findings from all of these studies show that there is an effect of size on the use of HRM practices in organizations. These studies indicate that HRM is fairly ad hoc and informal in small businesses. It is also found that smaller businesses generally make less use of HRM practices in comparison with the large organizations (Bayo-Moriones & Merino-Diaz de Cerio, 2001; Jackson, et al., 1989; Ng & Maki, 1993). However, these aforementioned studies make use of different terms when describing the use of HRM in small businesses such as informal HRM, ad hoc HRM, non-sophisticated HRM, or less level of use of HRM practices. Sels et al. (2006) points out to the fact that the findings from all of these studies indicate the intensity of HRM as generally lower for small businesses. Therefore, HRM intensity is the main aspect of HRM that is studied in the small business literature, even though it is studied with different labels or even in the absence of any terminology.
Table 2: Definitions and implications of HRM intensity related terms
Terminology Definition Implications
Formality (formal HRM vs. informal HRM)
The degree of use of established procedures and methods for HRM practices
Systematic functioning of HRM practices Ad hoc (ad hoc HRM vs. coordinated HRM policy)
The degree of coordination within HRM system/between HRM practices
Systematic functioning of HRM as a whole
The level of use (high level of use vs. low level of use of HRM)
The extent of use of HRM practices Extensiveness of HRM. Sophistication (sophisticated HRM vs. non sophisticated HRM)
The degree of complexity in HRM system
Extensiveness of HRM and systematic functioning of HRM
Table 2 shows that HRM intensity consists of several dimensions, rather than being a one-dimensional concept. There are mainly two dimensions of HRM intensity. The first one is the professionalism dimension which involves the degree of formality and systematic approach with regard to HRM and the second one is the extensiveness of HRM.
Professionalism. This dimension represents to the functioning of HRM in a
systematic approach in a methodical and organized way. It comes from the terms ‘formality-informality’ and ‘ad hoc-coordinated policy’. Indeed, these two terms are very close with each other and shows systematization of HRM at different levels. While the former one represents systematization within HRM practices with established procedures and methods, the later represents the systematization of HRM as a whole with coordinated HRM practices. Thus, together these two terms form one dimension and represents systematic functioning of HRM in a methodical and organized way. This dimension is called professionalism in this thesis.
Extensiveness. This dimension is rather a quantitative dimension when compared
of HRM system for HRM practices. In other words, this dimension represents if the organization makes use of a wide or limited range of HRM practices.
There is one important point that should be mentioned before giving a definition of HRM intensity. It is about the term ‘sophistication’ that is not included under any dimension of HRM intensity. It is believed that HRM sophistication which is defined as the complexity of HRM system has implications for both of the dimensions of HRM intensity, professionalism and extensiveness.
After considering the definitions of HRM intensity related terms and figuring out the dimensions of HRM intensity according to these definitions, it is possible to give a definition for the term HRM intensity. HRM intensity refers to the professionalism and the extensiveness of HRM. Thus, a high level of HRM intensity indicates professional and extensive use of HRM practices. Since, the term HRM sophistication involves both of the dimensions of HRM intensity; this term is undistinguishable from HRM intensity and will be used in an interchangeable fashion with HRM intensity in the remainder of the thesis.
information more effectively within the organization, which is likely to influence the level of HRM intensity (de Kok et al., 2006).
In addition to the low level of HRM intensity, research also indicates that there is a considerable diversity amongst small businesses in relation to their use of HRM practices (Cassell, et al. 2002; Duberley, & Walley, 1995). One of the reasons for this diversity is the fact that HRM practices in small businesses are determined by the ideology of the small business owner (Bacon et al., 1998; Wagar, 1998). Thus, the personal influence of the owner-manager or his\her family on HRM practices which leads to a personal atmosphere is one of the major reason for observing this diversity. Another reason for this diversity is that next to the size effect, there are many other contextual factors that affect HRM in organizations, such as labor and product market markets, supply chain relationships, managerial characteristics and political context in which of small organizations operated (Harney & Dundon, 2006). Harney & Dundon (2006) developed a comprehensive conceptual model which includes many contextual factors, rather than only size, by using the findings from other studies in the area such as Arthur & Hendry (1992), Cassell et al. (2002), McMahon (1996), and Wagar (1998). This conceptual model will be presented and explained in detail in the next section.
2.2. A conceptual model for analyzing HRM in small businesses
The conceptual model developed by Harney and Dundon (2006) provides a useful framework to analyze HRM in small businesses. Moreover, it overcomes the limitations of normative theories by including organizational context in a comprehensive way and indicating the reactive nature of HRM to these contextual contingencies (see Chapter 1). This model helps to capture the complexity and distinctiveness of HRM in small businesses with respect to HRM.
emphasized that external factors shape the parameters of HRM, it is also suggested that the actual form HRM takes is likely to be contingent on idiosyncratic firm responses (Harney & Dundon, 2006). Therefore, the conceptual model does not totally rely on the notion of environmental determinism that can be a critique. Environmental determinism is at the opposite end of the strategic choice notion of normative schools of HRM. It rejects the existence of choice and indicates external factors as the major determinants of HRM practices. Nevertheless, this model does not debate the existence of choice rather it suggests that conditions restrict or enlarge the breadth of the choice.
Figure 1: Conceptual framework for factors influencing HRM in small businesses
External Factors Product/market structure HR supply Industry sector Value chain Technology Legislation HRM Intensity
HRM
Small
Business
Emergent HRM Feedback Internal Factors Ownership structure Management style Trade union presence Size Employees
It is important to acknowledge that the internal and external factors in this model which are identified as affecting HRM in small businesses are identical to those affecting HRM in large organizations. However, it is believed that, it is the way in which these factors affect small businesses that makes the situation different for them. It is theorized that the effect of these internal and external factors on small businesses is different in terms of nature and direction (McMahan, 1996).
There are several important points that should be clarified about the conceptual model before concluding the chapter. Firstly and most importantly, as it can be observed in Figure 1, the conceptual model is very complex and indicates many contextual factors that can affect HRM intensity in small businesses. However, this model does not explain neither the specific content of interactions of these contextual factors with each other and nor the effect of individual contextual factors on HRM intensity. Thus, it is not possible to understand the specific content of the relationship between ownership structure and HRM intensity based on this model. Indeed, in this section by giving this conceptual model, it is not aimed to explain the effect of ownerships structure on HRM intensity. It is just aimed to give better understanding about the factors that can affect HRM intensity, in a small business context. In addition to this, it is also particularly aimed to show that ownership structure affect HRM intensity. In fact, the conceptual model developed by Harney and Dundon (2006) was chosen because of the fact that it is the only model that is particularly involves the effect of ownership structure on HRM intensity in addition to its comprehensiveness. After documenting ownership structure as a factor that effect HRM intensity by this conceptual model, the content of this effect will be discussed and explained in detail in later chapters.
Secondly, since this thesis only deals with examining the effect of ownership structure on HRM in small businesses, describing the other contextual factors and explaining their interactions with each other is beyond this paper. Next to the ownership structure itself, the contextual factors that interact with this particular factor can only a part of this thesis. The interaction of these other factors with ownership structure, will be specified and discussed in the research model of this thesis in later chapters.
outcomes of HRM (labor productivity, organizational flexibility and social legitimacy). The rationale for this approach is that, as explained clearly in the Chapter 1, this thesis only deals with HRM itself, not the outcomes of it.
2.3. Conclusion
This chapter aimed to review the literature on HRM in small businesses which determines the background and direction of this thesis when theorizing about the effect of ownership structure on HRM in small businesses.
First of all, this literature review showed that, as also pointed out by Sels et al. (2006), HRM intensity is the main aspect of HRM that is mostly studied in small business context. The main finding from this literature is that HRM intensity is lower in small businesses in comparison to their large counterparts. Because of the significance and dominance of this aspect of HRM in the small business literature, in this thesis HRM intensity is chosen as the aspect of HRM for theorizing about the effect of ownership structure on HRM and for making comparison between locally owned and centrally owned small businesses with respect to HRM.
CHAPTER 3: Ownership structure and HRM
Ownerships structure is believed to be one characteristic of small business that influences HRM (Arthur & Hendry, 1992; Harney & Dundon, 2006). However, it is not specified and explained clearly how it influences HRM and over what kind of aspects of HRM the influence is apparent. Arthur and Hendry (1992) theorize that aspects of ownership likely to influence HRM activity and its outcomes in small businesses include: the founding entrepreneur ownership, family ownership, employee ownership and outside investors. However, these authors neither clearly describe these aspects, nor clearly explain how they can influence HRM. The effect of family ownership is the only one type of ownership structure that was investigated empirically by several studies in the literature (e.g. de Kok et al., 2006; Reid & Adams, 2001). It is found that family owned small businesses have less professional HRM practices than their non-family counterparts (de Kok et al., 2006). This finding is explained by lower need for monitoring of the management by the owner and of the employees by management in family owned firms. In addition to this, it is proposed that family owned business have less professional HRM practices due to certain organizational characteristics associated with them such as less organizational complexity and less resource availability (de Kok et al., 2006).
power to control and keep constant most of these factors, such as industry sector, product market structure, legislation, technology. Due to this fact, in this thesis the same empirical setting will be adopted to study the effect of ownership structure on HRM. Thus, it is very important to understand business format franchising and the dynamics of this system.
3.1. Business format franchising
Business format franchising is a specific type of replication strategy that entails
creation and adoption of a large number of business units that all operate under the same business format (Winter, & Szulanski, 2001). The essence of franchising is capitalizing on both the economies of scale associated with large systems and the benefits derived from small localized adaptations (Kaufmann, & Eroglu, 1998).The relationship is embedded in franchise system that consists of the franchisor and its franchised and possible company owned units that all operate under more or less the same business format (Elango, & Fried, 1997). When the system consists of a mixture of company owned and franchised business units, it is known as plural form (Bradach, 1997). The ownerships structures and managerial characteristics are different for these two types of units. Bradach (1997) explains the differences between these two units as:
“In company owned units, the franchisor organization owns the physical facilities and operates them by hiring employees who are then managed through hierarchical structures. An authority relationship binds the managers of company owned units to the franchisor. On the other hand, in franchised units, the franchisor organization contracts with the franchisee who invests capital in business unit. Thus, the franchisee pays to the franchisor organization an initial fee and ongoing royalty and agrees to adhere to certain operating standards specified in the contract. In return the franchisee may use the franchisor organization’s trademark and receives the unit’s profits, minus the royalty payment.”
remainder of this thesis, central ownership structure refers to company owned business units and local ownership structure refers to franchised businesses.
In business format franchising, the franchisor organization, that is the creator, builder and guardian of the unique business format, face a great tension to maintain a delicate balance between preserving the system’s uniformity and allowing for local adaptation (Kaufmann, & Eroglu, 1998). This tension applies to all elements of business format, not only the elements that represent system’s shared identity towards customers and but also elements that are not directly visible to customers. The later type of elements refers to format facilitators and compromises the management and operational infrastructure of the entire franchise system. These format facilitators define the organization, operation and governance of the franchise system, such as training and the use if ICT (Kaufmann, & Eroglu, 1998). One such format facilitator is HRM that deals with the policies and practices of employment relations.
3.2. HRM in company owned and franchised business units
Brand, et al., (2006) theorized that there will be differences between company-owned and franchised units with regard to HRM practices adopted and based this proposition on the ground of the tension between standardization and adaptation. According to these authors, franchised units have considerable room to adopt their own HRM practices, while company owned units adopt the HRM practices that are standardized in the business format. This difference stems from two reasons. To begin with, as mentioned earlier, franchised units and company owned units experience different kind of relationships with the franchisor organization. While managers of company owned units have a hierarchical relationship with the franchisor, owner managers of franchised units correspond to independent business owners. Therefore, company managers are inclined to stick to format’s routines and procedures due to the fact that they are monitored and rewarded (Sorenson, & Søensen, 2001). On the other hand, although the owner manager of the franchised unit experiences some monitoring by the franchisor, monitoring is less stringent and systematic in comparison to manager of company owned unit (Sorenson, & Søensen, 2001).
development of sophisticated HRM practices (Brand, et al., 2006). In addition to this, because of the same reason, it is likely that there is considerable personal influence of one or few individuals (owner manager and his/her family) on HRM policies and practices in franchised businesses. Then, the personal atmosphere that dominates the adoption and usage of HRM practices will lead to less intense HRM practices (Brand, et al., 2006). Moreover, because of each franchise may have its own motives and objectives regarding HRM activities, there might be a wide variety in the adoption of HRM practices among franchised units in the same system. All in all, this study theorized that since franchised business units show typical small business behavior regarding HRM, they will have less intense HRM practices. In the next chapter, the effect of ownership structure, company ownership and franchisee ownership, on HRM intensity will be explored in depth by analyzing main theories in the field of HRM.
Even though franchised business units are considered to generally have a considerable degree of freedom to adopt their own HRM practices, it is important to mention that the degree of freedom depends on another factor. This factor is the hardness of the franchise system (Croonen, 2006). Hard franchise systems formulate rules about every aspect of unit’s operations that the franchisee is obliged to follow. In that case it is possible that not only the business format elements regarding the system’s shared identity toward customers, but also format facilitators including HRM practices are standardized and obligatory for franchised units (Brand, et al., 2006). On the other hand, soft franchisee systems involve less rules and the franchisee have more freedom in running the business (Croonen, 2006).
the franchisee from being regarded as an employee of the franchisor with all its legal consequences.
3.3. Limitations of the study of Brand, Croonen and Kneppers-Heijnert (2006) The study of Brand et al. (2006) is one of the pioneers in small business literature which analyze the effect of ownerships structure, local ownership and central ownership, on HRM empirically. However, it is has several limitations at theoretical and methodological levels.
At theoretical level, this study does explain the effect of ownership structure on HRM intensity, by relying on only the Agency Theory and its implications about monitoring. However, implications of other theoretical perspectives of HRM, which will be examined in the next chapter, are not examined for explaining the effect of ownership structure on HRM intensity in the study.
At the methodological level, this study does not control many contextual factors in addition to the size and ownership structure that can differ between business units and affect HRM intensity in these business units. Moreover, although the study of Brand et al. (2006) aims to assess HRM intensity, the research instrument used in the study was inadequate to measure HRM intensity for several reasons. First of all, the data collected by the research instrument does not allow making quantitative comparison between franchised and company owned business units with respect to HRM intensity. Therefore, although these authors aimed to measure HRM intensity, they ended up with a qualitative kind of comparison between these two type business units with regard to the use of HRM methods, rather than calculating a score for HRM intensity. Secondly, the research instrument consist of questions that are not HRM policies or practices, but rather the end result of these policies and practices, such as employee commitment, culture etcetera.
CHAPTER 4: Theoretical explanations
Wright and McMahan (1992) stressed the need for theoretically based empirical research in the field of HRM and claimed that theoretical perspectives might provide the necessary foundations for understanding the determinants of HRM practices. In this chapter, in order to have a clear understanding about the content of the effect of ownership structure on HRM intensity in small businesses, it is aimed to examine main theoretical perspectives of human resource management. In the field of HRM there are several theoretical perspectives -based on sociology, economics, management and psychology- which are useful for understanding the determinants of HRM (Wright and McMahan, 1992). The theories that will be examined for the possible empirical relationship between ownership structure and HRM intensity are resource based theory, behavioral perspective, institutional theory, resource dependency theory, agency theory, transaction cost theory, human capital theory, and open systems theory (e.g. Jackson & Schuler, 1995; Wright & McMahan, 1992). These are the main theories that are used in HRM literature and guided a number of empirical studies in the field. Each section begins by giving brief summaries of theory and continues with its explanation for the difference of HRM between local and central ownership structure.
4.1. Resource Based Theory
other words, this theory is an inside out rather than outside in perspective, such that it does not particularly deal with the determinants of the HRM practices, but rather concern with how HRM practices can provide competitive advantage. Hence, resource based view does not seem to be very useful to explain the effect of ownership structure to HRM practices.
4.2. Behavioral perspective
The behavioral perspective assumes that HRM practices are used as a means for eliciting and controlling employee attitudes and behaviors. Then, the attitudes and behaviors that facilitate the functioning of organizations are expected to differ according to various characteristics of organizations (Jackson, Schuler, & Rivero, 1989). Thus, different organizational characteristics that require different role behaviors also require different HRM practices to elicit and reinforce those behaviors (Wright and McMahan, 1992). Taking ground from this perspective, organizational characteristics which are found to be factors that influence the HRM are organizational strategy, industry sector, organizational structure, manufacturing technology, and etcetera. (Jackson, Schuler, & Rivero, 1989).
higher than franchised businesses where owner managers are relatively autonomous for the adoption of their own HRM practices.
4.3. Institutional Theory
Although, the institutional perspective consists of a variety of approaches, the common thesis of these approaches is that many structures, programs and practices in organizations attain legitimacy through the social construction of reality (Wright and McMahan, 1992). From this perspective, HRM practices are adapted by organizations as legitimacy-enhancing responses to broader structural relationships (Jackson & Schuler, 1995). According to this theory, there are a variety of processes through which institutional factors influence HRM practices in organizations. HRM practices may be introduced in an effort to seek approval of super-ordinate entities, or HRM practices maybe imposed coercively as mandated by legislation, or as a consequence of pressures exerted by other organizations (Harney & Dundon, 2006). In addition to these processes, HRM practices may be adopted by one company through modeling its practices based on practices of other organizations as a means of appearing legitimate or up-to-date, or alternatively through an imprinting process whereby the practices adapted at the beginning of the organization’s history remain embedded in the organization (Wright and McMahan, 1992).
of these aforementioned influences of franchisor organization on company owned businesses for the adoption of HRM practices, HRM in company owned businesses will be more sophisticated than franchised businesses.
4.4. Resource Dependence Theory
According to resource dependency theory, groups and organizations gain power over each other by controlling valued resources. HRM activities and processes tend to reflect the distribution of power within the system and among organizational stakeholders (Jackson & Schuler, 1995). It is proposed that HRM in small businesses might therefore partially reflect the dynamics of the system within which the organization operates (Harney, & Dundon, 2006).
Resource dependency theory can be a valuable theory to explain the effect of ownership structure on HRM intensity in small businesses. From this perspective, HRM practices in company owned businesses are the reflections of the resource dependency on franchisor organization, since this central organization is the one which controls the scarce resources and is relatively powerful in comparison to the small business unit. On the other hand, franchised businesses does experience less level of resource exchange with the franchisor organization in terms of HRM issues, which makes the locally owned small business units less dependent on the franchisor organization in terms of HRM resources. A lower level of resource dependency of company owned units to the franchisor in terms of HRM issues will ultimately make them relatively autonomous with respect to adoption of their HRM practices in comparison to company owned business units. Thus, based on this theory, it is possible to predict that HRM in company owned businesses will be more sophisticated than franchised firms which use their own resources for the development and implementation of HRM practices.
4.5. Agency Theory
contracts align the goals of principles and agents at the possible lowest costs (Jackson & Schuler, 1995).
From agency perspective, the relationship of franchised and company owned businesses with the franchisor organization differs. In franchised business units, ownership and management is at the same hands. On the other hand, in company owned business units, the owner of the unit delegates the operation of the unit to the manager, therefore ownership and management functions are separate. Based on this separation, managers in company owned businesses are monitored more extensively by the franchisor organization in comparison to owner managers of franchised business units in order to prevent self interested behavior. Franchisors can sanction managers when they fail to act in the system’s self interest, for example when the manager does not adopt prescribed HR practices (Brand, et al., 2006). Thus, managers of company owned business units will be more inclined to use more sophisticated HRM practices than owner managers. As a result, HRM in company owned units will be more sophisticated than HRM in franchised units.
4.6. Transaction Costs Theory
Transaction costs theory is closely related to agency theory and it assumes that business enterprises chose governance structures that economize transaction costs associated with establishing, monitoring, evaluating and enforcing agreed upon exchanges (Williamson, 1979, 1981; cited in Jackson & Schuler, 1995). According to transaction theory, an agency problem exists when one party requires services from another in a situation where uncertainty exists and both parties will behave self interestedly (Wright and McMahan, 1992). To solve this problem explicit and implicit contracts are established, monitored, enforced and revised (Jackson & Schuler, 1995).
application of HRM practices, which will result in more sophisticated HRM in company owned business units.
4.7. Human Capital Theory
According to human capital theory, the productive capacity of employees can be enhanced by investing in their knowledge, skills and abilities (Becker, 1964). The investment in HRM, which aims at enhancing knowledge, skills and abilities of employees, entails direct and indirect costs. These investments are only justified if they produce future returns in the form of increased productivity (Sels, et al, 2006). Human capital theory suggests that because of the costs associated with many aspects of HRM, acceptable economies of scale must be reached before sophisticated HRM systems can be implemented (Jackson & Schuler, 1995). In human capital theory, contextual factors such as market conditions, unions, business strategies, and technology are important. Since these factors affect the costs associated with alternative approaches to using HRM to increase the value of the organization’s human capital and the value of anticipated returns, as productivity gains (Jackson & Schuler, 1995).
4.8. Open Systems Theory
According to open systems theory, organizations can be described as input, output and throughput systems involved in transactions with a surrounding environment (Wright and McMahan, 1992). Open systems theory emphasizes two important characteristics of organizations; system character and openness to the environmental influences (Wright & Snell, 1991). Wright and Snell (1991) who applied the system model to HRM practices treated skills and abilities as inputs, employee behaviors as throughputs and employee satisfaction and performance as outputs of HRM system. More recently, Harney and Dundon (2006) developed an open system conceptual framework of factors influencing HRM intensity in small and medium sized enterprises (SMEs).
Open systems theory is a very useful theory to explain the effect of ownership structure on HRM intensity. When we consider the fact that franchised units have considerable room to adopt their own HRM practices while company owned units adopt the HRM practices that are standardized in the business format, it is likely to suggest that franchisor’s business format is an important input to HRM system of company owned units to shape its aspects. On the other hand, there is not such kind of input flow to HRM system in franchised business units, except training provisions by the franchisor organization. As a result of this, it is possible to expect that HRM in company owned business units, which are provided standardized HRM practices by the franchisor, will be more sophisticated in comparison to franchised business units.
4.9. Conclusion
organization is the main factor that differs between company owned and the franchised units. Even though this intervention is labeled with different terms by these theories, such as monitoring, resource dependency, input flow and etcetera (see Table 3), all of these theories suggest that the degree of intervention of the franchisor organization with respect to HRM is the main theme for the explanations of the difference between company owned and franchised units in terms of HRM sophistication. In other words, in the light of these theories, the degree of intervention of the franchisor is the main factor that result in different kinds of behaviors with respect to HRM in franchised and company owned business units. Because of the lower level of intervention of the franchisor to franchised firm, in franchised business units HRM sophistication will be low. On the other hand, because of the significant intervention of the franchisor to company owned business units, such as requirements for standardization, extensive monitoring, higher resource dependency, higher input flow and etcetera, company owned units will possess more sophisticated HRM system.
Table 3: The main motivations of theories that explains the difference between local ownership and central ownership with respect to HRM sophistication
Theories of HRM Differences between franchised (F) company owned (CO) business units
F CO
Behavioral perspective
The degree of standardization required by franchisor for the adoption and implementation of HRM practices
LOW HIGH
Institutional theory
The degree of pressure exerted by franchisor for the adoption and implementation HRM practices
LOW HIGH
Resource
dependency theory
The degree of resource dependency on
franchisor with regard to HRM issues LOW HIGH
Agency theory The degree of monitoring by franchisor for the
adoption and implementation of HRM practices LOW HIGH
Transaction costs theory
The degree of monitoring by franchisor for the
adoption and implementation of HRM practice LOW HIGH
Human capital theory
The degree of access to HRM practices that are already developed and implemented by reaching advantages of economies of scales
LOW HIGH
Open systems theory
The degree of input-standardized HRM
practices- provided by franchisor to the business unit
CHAPTER 5: Research model
This chapter aims to develop a research model to test the effect of ownership structure on HRM intensity in a context of a plural form business format franchise system. The development of the research model of this thesis is guided by the explanations of the theoretical perspectives of HRM (see Chapter 4) and the conceptual model of Harney and Dundon (2006) (see Chapter 2). As pointed out earlier, by using this empirical setting, it is possible to control the influences of most of the external factors on HRM intensity. The external influences that are kept constant across different ownerships structures are product market structure, legislation, industry sector and technology.
However, even this powerful research design is limited in terms of controlling the effect of other factors that can influence HRM intensity next to the ownership structure. These external and internal factors that can not be controlled and should be controlled by the research model are HR supply, managerial characteristics, size of the business unit, and labor union influences (see Figure 1). These organizational characteristics can differ between businesses and account for the level of HRM intensity differences, next to the ownership structure.
Before presenting the research model, there are several points that are important to clarify about the research model. First of all, although the employees of the small
business are indicated as one of the internal factors that can effect HRM intensity in the
conceptual model (Harney and Dundon, 2006) (see Figure 1), this variable is not included in the research model. Since, this factor is not clearly explained and its effect on HRM intensity is not clearly specified, neither in the article of Harney and Dundon (2006) nor in the literature that is referred in the study of Harney and Dundon (2006). Since there is no implication in the literature about which aspects of employees of the organization effect HRM intensity and how it affects HRM intensity, this factor is not included in the research model.
inter-organizational relationship between large and small companies. Since this thesis deals with the local versus central ownership structure, the definition of ownership structure in this thesis already includes the inter-organizational relationships of small businesses with a large central organization that is the franchisor. Thus, in this thesis, this factor is not a totally different factor than ownership structure. Hence, in order not to confuse the research model by showing the same concept in multiple ways, this factor is not included in the research model.
Thirdly, although the conceptual model Harney and Dundon (2006) presents trade
union presence, in the research model this factor is specified in the form of collective
agreements. The rationale for this approach is that, in the Netherlands, although union membership is low, the coverage of collective agreements between employers and unions is very high (Jacobs, 2004). Only 15 percent of Dutch population is not covered by collective agreements (Jacobs, 2004). As a result, it is a better approach to theorize about the influence of trade unions in the form of collective agreements.
Finally, the management style which is indicated by the model of Harney and Dundon (2006) as another contextual factor that affects HRM intensity, in the research model this factor is specified as managerial characteristics which involves the knowledge and the attitude of the manager with respect to HRM issues. The rationale for this specification is not to confuse the reader with the concept of personal style of the manager that is present in the franchised business units.
Figure 2: Research model
5.1. Relationship 1
This relationship deals with the predictions based on behavioral perspective, institutional theory, resource dependency theory, agency theory, transaction costs theory, human capital theory, and open systems theory. According to these theories, the difference between franchised and company owned business units with respect to HRM intensity is a result of the degree of intervention of the franchisor on HRM functioning. In the light of these theories, level of HRM intensity will be high in company owned business units, due to the high degree of intervention of the franchisor organization with respect to HRM. These theories describe this intervention with different labels such as resource dependency on franchisor, standardization requirements from franchisor, extensive monitoring by franchisor, accessibility to HRM practices developed by the franchisor organization, the pressure exerted by the franchisor for the adoption of certain HRM practices, input flow in the form of standardized HRM practices from franchisor and etcetera (see Table 3). On the other hand, in franchised business units, due to the low degree of intervention of the franchisor organization, the level of HRM intensity will be
- Unit size - Managerial characteristics - Collective agreements - HR supply Ownership Structure HRM Intensity (1b)
(1a) intervention of the The degree of franchisor organization with
respect to HRM
low. Therefore, it is expected that HRM intensity in franchised units will be on average lower than HRM intensity in franchised units.
5.2. Relationship 2
The size of the business unit, managerial characteristics, collective agreements, and HR supply are other organizational characteristics that affect HRM intensity (Harney & Dundon, 2006). Therefore, these organizational characteristics are other independent variables, next to the ownership structure, which influence HRM intensity. They do not necessarily correlate with the ownership structure; however they can influence HRM intensity. As a result, these variables should be controlled for in the empirical research. After specifying their effects on HRM intensity, the content of these effects will be explained.
Size of the business unit. In the light of the literature review in Chapter 2, it can be
All in all, the size of the business units is a factor which influences HRM intensity with its interaction with the ownership structure. The term interaction refers to that ownership structure moderates the relationship between size and HRM intensity. Since the ownership structure specifies the conditions for the operation of this size effect on HRM intensity, it is a moderating variable in this condition. While the relation between the size of the business unit and HRM intensity is strong in franchised units, it is non existent in company owned units.
Moderating variables refers to variables that change the strength/direction of the
relationship between an independent variable (here the size of the business unit) and dependant variable (HRM intensity).
Managerial characteristics. It is proposed that managerial characteristics are important
factors that influence the adoption and implementation of HRM practices in small businesses (Cassell et al., 2002; Matlay, 1999; Reid & Adams, 2001). Cassell et al. (2002) indicated that the awareness of current HRM trends and a positive attitude of the owner manager towards HRM can result in a high level of HRM intensity. Even though this variable is believed to be associated partly with the size of the business unit (Bayo-Moriones & Merino-Diaz de Cerio, 2001), in the research model it is treated as a separate variable. Since this factor is presented as a distinct factor from the size of the business in the conceptual model of Harney & Dundon (2006).
characteristics affect HRM intensity by interacting with the ownership structure as in the case of the effect of size on HRM intensity. The ownership structure moderates the effect of this variable on HRM intensity, such that while the effect of these managerial characteristics on HRM intensity will be strong in franchised firms, it will be less strong in company owned business units.
Collective agreements. The content of collective agreements is also likely to affect HRM
intensity. Mainly two aspects of the content of a collective agreement can influence HRM intensity; the scope of normative provisions and the other is its diagonal clauses about specific funds that change cost effectiveness structure of HRM activities. The scope of the collective agreements refers to the extent of its prescriptions for HRM activities, such as wages, social security benefits, pensions, pay supplements, direct or indirect consultation and information to employees about certain events and etcetera. In the business units which are subject to a collective agreement in where many HRM practices are obliged, HRM intensity is likely to be higher. Besides this effect, the content of a collective agreement can also affect HRM intensity by changing the cost effectiveness structure of certain HRM activities. One example is central training funds where financial resources are collected in advance in order to be used for later training needs.
The content of collective agreements is likely to affect HRM intensity irrespective of the ownership structures. In the presence of a collective agreement in which there are provisions of specific funds and many obligations about HRM practices, the HRM intensity will be higher in both franchised and company owned units. Since, it can not be expected that the content of collective agreement will affect HRM intensity in different ways for two types of ownership structure, this variable is expected to influence HRM intensity without any interaction with the ownership structure variable. However, this variable should be controlled for in the research, since it can account for the level of HRM intensity in a business unit next to the ownership structure.
HR supply. The labor market conditions of the business units form another factor that
attract and retain employees. On the other hand, where labor market is loose attracting and retaining employees is not a fairly major problem for companies and as a result HRM intensity is likely to be lower.
CHAPTER 6: Research instrument
This chapter discusses the development of the research instrument that can be used to observe the differences between franchised and company owned units. However, before discussing the construction of the research instrument, it is important to explain the rationale behind selecting the research instrument.
This thesis considers a structured questionnaire that can be used in surveying, as the most efficient research instrument in order to collect data from franchised and company owned units. There are many advantages of this kind of data collection approach to examine the differences between franchised and company owned business units with respect to their HRM intensity.
First of all, surveying with a structured research questionnaire which is a quantitative data collection approach is very suitable for testing hypothesis and making comparisons. It provides quantitative data that can be analyzed statistically. On the other hand, qualitative data collection approaches, such as in-depth interviews and case studies do not allow using large sample sizes and restrict the potential to make generalizations based on research findings. Although there are several advantages of qualitative data such as a deeper insight of the case and contextual conditions, it is highly susceptible to human error and bias in data analysis (Cooper, & Schindler, 2003).
Secondly, surveying the managers and owner managers of business units with a structured questionnaire is foreseen as both practical and economical. Since, in addition to the face-to-face interview, by this way it is possible to use a variety of communication channels, such as telephone, mail or Internet that expand the geographic coverage when conducting the surveying. This advantage of surveying with a structured questionnaire is especially important when the research setting of the empirical study is considered. By this way it is possible to use these communication mediums and collect data from many geographically dispersed franchised and company owned business units.
6. 1. HRM intensity measure
For the development of HRM intensity measure, the identification of HRM practice domains is realized according to Noe et al. (2006). These HRM practice domains are HR planning, job analysis, recruitment, selection, training, development, compensation, performance management, and employee relations. This selection is supported by Cascio and Aguinis (2005) who proposed eight of these nine domains as HRM functions. Support for this selection method is also found in empirical work of Sels et al. (2006), identifying virtually the same HRM domains. However, for developing the questionnaire, HR planning and job analysis are not used as separate HRM domains to measure HRM intensity. The indicators of these HRM practice domains are used as a dispersed pattern across other HRM domains. The rationale for this approach is that HR planning and job analysis are used as the fundamental blocks of all other HRM practice domains (Cascio & Aguinis, 2005; Noe et al., 2006). Therefore, they are not such kind of HRM practice domains likely to be used on their own, without the purpose of supporting the other HRM domains. Also, it is not possible to measure professionalism of other HRM practices domains, such as training, development and recruitment, without examining their interrelationships with HR planning and job analysis.
industries and sectors; different kind of training and development methods used. For instance, while in some industries and sectors the use of on-the-job training methods is reasonable to acquire job related competencies; in others information presentation methods are more reasonable. In addition to these, the ease of observing employee performance can be different across jobs, industries and sectors; therefore, performance appraisal methods are likely to differ. For instance for some jobs where employee output is difficult to observe, different kind of appraisal methods are used in comparison to jobs where employee output is very easy to observe. Moreover, the HRM methods used is also likely to differ across the jobs within a company.
In this thesis, it is believed that it is very simplistic and erroneous to measure HRM intensity by questioning the use of certain recruitment channels (e.g. magazines, internet, employment agencies), training and development methods (e.g. on the job training, information presentation methods), selection techniques (e.g. work sample tests, reference checks) performance appraisal methods (e.g. rating scales, management by objectives). Neither the use of particular instruments indicates HRM intensity, nor does the number of instruments used indicate HRM intensity. Since it is not the use of certain instruments, such as recruiting by internet/referrals, selecting by job interviews, training by information presentation methods, performance appraisal by rating scales, that indicates professionalism of HRM. Professionalism is rather the way how these instruments are decided to be used and implemented in a purposeful manner. Moreover, it is not the number of used HRM methods that indicates extensiveness of HRM. Rather, extensiveness of HRM is the comprehensiveness of HRM system at a macro level which represents if the organization makes use of a wide or limited range of HRM practices, not instruments HRM instruments.
Therefore, for the identification of HRM intensity indicators, this thesis does not rely on these kind of simplistic micro level approaches which question the use of certain instruments of HRM by listing them. Rather, it approaches measuring HRM intensity by questioning the extensiveness and professionalism of HRM at a macro level. The
extensiveness dimension is assessed by indicators which question the existence of
lacking in any kind of business enterprises, even if they are realized in ad hoc or informal basis. The professionalism dimension is assessed by using indicators which question the existence of a systematic approach for HRM functioning. As explained earlier, this dimension represents the functioning of HRM as a coordinated policy and in a methodical way. However, the nature and the course of activities are quite diverse for each HRM practice domain. Moreover, the purpose of the each practice domain is distinct and the coordination required with other practice domains is diverse for each practice domain. For instance, for performance management, the indicators of professionalism concern with its coordination with the job analysis, development and compensation practices, whereas for recruitment, they are rather about its coordination with HR planning and job analysis. All in all, since the purpose, nature and course of activities of each domain are diverse, the criteria of professionalism are diverse for each practice. Thus, it is not possible to apply a general approach that is used regularly for the identification of indicators under each HRM practice domain.
In addition to the complications for applying a general method for the identification of professionalism indicators of HRM practice domains, there are other complications which are more about the intersections of extensiveness and professionalism dimensions. For instance, when questioning the use of HR planning to determine recruitment (professionalism of recruitment), at the same time, the existence of HR planning (extensiveness dimension) is also questioned. In deed, all of the professionalism indicators are also extensiveness indicators for HRM intensity.
All in all, because of these aforementioned complications faced during the identification of indicators, in the next sub sections after giving a brief description the practice domain, the criteria for professionalism will be defined and identification of indicators will be realized based on this criteria.
Recruitment. Recruitment is defined as the process through which the organization seeks
channels are the three indicators of professionalism for recruitment. These indicators points that if the recruitment decision and selection of recruitment channels are made with a systematic approach. Thus, these three indicators are used for this practice domain in order to assess professionalism. The first indicator is whether or not the business unit makes an examination of how many and what types of recruitment are needed (Sels et al. 2006). The second indicator is whether or not it uses information from job analysis, such as job description and person specification, for recruitment purposes (Carroll et al., 1999). Since the analysis of the parameters of recruitment channels comes from post recruitment records, the third indicator is whether or not it evaluates the recruitment process systematically by utility analysis (Sels et al., 2006). By using these three indicators, it is possible to distinguish companies who have professional approaches for recruitment. Moreover, the first and the second of these indicators which question the existence of HR planning, and job description/ specification are used for assessing extensiveness dimension of HRM.
Selection. Selection is the process by which companies decide who will enter or will not
whether or not the business unit has a standardized interview procedure. The second indicator shows if the other selection instruments used in the business unit is chosen based on the considerations of predictive validity. Thus, the second indicator is the use of other selection techniques with high predictive validity (such as work sample tests, assessment center, and biographical questionnaire) (Sels. et al, 2006). The last indicator which is parallel with recruitment is whether or not the business unit systematically evaluates the selection process by utility analysis (indicator 3) (Sels et al., 2006). All in all by these three indicators, it is aimed to assess the professionalism of selection practices within a company by questioning their systematic approaches for the selection of techniques used.
Training. Training refers to a planned effort by a company to facilitate the learning of job
related competencies (Noe, et al., 2006). Selection of particular training methods is likely to yield maximum pay off when training efforts are planned in a two-step sequence; first specify clearly what is to be learned, only then choose a specific method that accurately matches training requirements (Cascio & Aguinis, 2005). Therefore, following this kind of systematic approach for the selection of a particular training method indicates professionalism for training decisions. In addition to the analyzing training needs before implementing training, evaluating the outcomes of training after the implementation of training gives clues for the preference of using certain training methods next time. Thus, evaluating training outcomes is the second indicator of a systematic approach for selecting training methods. Before questioning the professionalism of training, there is one step that aims to distinguish between companies for extensiveness of HRM; if the company provides training to its operational staff or not. Thus, from this practice domain, three indicators are used based on Sels et al. (2006): whether or not training is provided for operational staff (indicator 1), whether or not the training policy is rooted in a strategic training plan and training needs analysis (indicator 2) and whether or not training efforts are evaluated (indicator 3).This approach allows to differentiate not only training companies from non training companies (extensiveness dimension) , but also distinguish companies who has professional training approaches.
Development. Development is an effort by a company to improve the competencies of
employees for changes in their current jobs (Noe et al., 2006). Therefore, as in the line with recruitment decisions, forecasting about labor demand and internal labor supply is critical in order to examine how many and what types of positions are needed to be filled by internal development in a company. Then, this is used as an indicator of professionalism for development since it shows if the company has a systematic approach for development decisions. In addition to this examination, an examination of the strengths and weaknesses of the employees provides information for the development decisions. The examination here is at person level rather than at function level. Thus, analyzing the strengths and weaknesses of the employees provides information for deciding who will be developed with what kind of development techniques for certain functions. Together these two kinds of examinations indicate the systematic approach for development decisions and selection of development techniques in a company. Therefore, indicates the professionalism of development efforts in a company. However, as in line with the training domain, before questioning the professionalism, there is a prior step that aims to distinguish between companies for extensiveness of HRM. Hence, three indicators are used from this practice domain. The first indicator is the presence of developmental activities (such as job rotations, job enlargements, promotions, transfers, couching, mentoring) for operational staff in the company. The second indicator is whether or not the company makes an examination of how many and what kind of positions are needed to be filled by internal development. The third indicator is whether or not the developmental activities are rooted in strengths and weaknesses assessments of its employees. This approach allows to differentiate companies not only with regard to the reliance on internal markets (extensiveness dimension), but also distinguish companies who has professional approaches to employee development.
Performance management. Performance management is the process of identifying,
