Managing Human Resources in Entrepreneurial Firms

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Managing Human Resources in Entrepreneurial Firms


Human Resource Management (HRM) is a fundamental part in the running of entrepreneurial firms. There is a strong link between HRM and the success of a firm as the success of the enterprise is significantly dependent on the HRM practices in the enterprise. HRM is a broad aspect of entrepreneurial management, which comprises of many facets of varied significance. Different studies and academic researches have been performed on the topic of HRM, some of which are reviewed in the current paper. HRM impacts directly the occupational growth and productivity of the company. It plays a shaping role in the running of operations in different entrepreneurial firms, and its understanding is vital for the effective fulfillment of businesses by the entrepreneurs. In the current business environment, HRM is essential in implementing strategies for competitive gains, particularly in the continuously volatile business atmosphere. HRM configurations and practices used can institute feasible competitive advantage by enabling the establishment of competences that are custom-made for the individual firm of interest. There are positive realistic association between the implementation of appropriate HRM practices and the improvement of the overall firm’s performance.


There exists a strong link between the Human Resource Management (HRM) and the success of an entrepreneurial firm. Growth is a top agenda in most entrepreneurial firms but only a few of them can attain it, and even fewer firms can maintain such growth. It is, without a doubt, a fundamental fact that HRM is an essential aspect in both attaining and maintaining growth at business firms. HRM is a broad topic with different aspects to consider, depending on the type and objective of the entrepreneurial firm. Although the success of an enterprise depends on HRM to a significant extent, there are other key factors, such as economics and technological advancements that need to be integrated into the general structure of the business to ensure its success. The current paper reviews literature on several features of HRM in diverse firms from different arrangements all over the globe.

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Literature Review

HRM and Entrepreneurship

An inquiry by Vlachos (2009) pursued to find a link between HRM and administrative growth, in addition to establishing the influence of HRM practices on the development of entrepreneurial firms. HRM practices reviewed here include information sharing, training and development, compensation policy, selective hiring, job security, and training and development. The research found that the choice of HRM practices is a strategic decision that greatly contributes to the achieving of the specific solid results regarding the firm growth goals. The results have interesting inferences for HRM practitioners. First, all HRM practices have a direct link to firm growth. For a firm to achieve its specific target goals and priorities, the process is largely dependent on human capital investment starting from selecting, training, developing, and rewarding a team of employees alongside with the working on the firm’s objectives. Selective hiring, training and development, and compensation policy are the greater contributors to firm’s growth. Information sharing and decentralization have lesser significant contribution to the firm’s market share growth (Vlachos, 2009).

There are only a few researches regarding the insight of businesspersons on the premeditated roles of HRM. Safak & Deniz (2012) sought to determine the critical part of HRM in creating viable entrepreneurship and provided a description of HRM procedures and practices to guide businesspersons in running their companies. The study determined the aspects that play a shaping role in influence of HRM on entrepreneurial firms, in addition to understanding the perspective and understanding of HRM by such businesspersons (Safak & Deniz, 2012). Before performing the study, the researcher hypothesized that money plays a central role in motivating such entrepreneurs. Still, it turned out that money and profits are not the only influential factors in entrepreneurial firms. The study established that entrepreneurs have, at least the “average level” of HRM and its purposes. It also found consistent results showing that in order to establish effective HRM on firms, the entrepreneurs have an orientation towards HRM (Safak & Deniz, 2012).

Dabić, Ortiz-De-Urbina-Criado & Romero-Martínez (2011) reviewed available literature on HRM, with the objective to determine progress made in different aspects of HRM on entrepreneurial firms. The research describes the available published works, explores the topics addressed in literature, identifies the evident limitation of literature and finally outlines future researches in the field. The results indicate that not much has been done addressing HRM in entrepreneurial firms. Innovation is the product of brilliant minds, but the process of design, production and distribution is entirely reliant on the efficiency of management, efforts and the commitment of employees. There is a need for more relevant perspectives to entrepreneurial firms, where HRM encourages vibrant employee’s contribution to the organizational needs of inducement, build professional affiliations between the workers and the firm, which are essential for the flow of information. The paper concludes that the scholars face a substantial challenge to produce better performances in addressing the files of HRM in entrepreneurial firms, as there exists significant gaps in varied areas regarding the given topic (Dabić, Ortiz-De-Urbina-Criado & Romero-Martínez, 2011).

Employee Motivation

The choices of HRM practices affect the levels of employee’s motivation and commitments, which, in turn, affect the organizational outcomes of the firm. In addition, such practices may facilitate the creation and incorporation of knowledge to advance the features of the firm (Özbağa, Esen, & Esen, 2013). Özbağa, Esen, & Esen (2013) used field survey questionnaires to study the facilitating consequence of knowledge administration competences and invention on firms in Turkey. The study established that HRM competences have both direct and indirect impacts interceded by knowledge administration competences on innovation. A well implemented HRM in an entrepreneurial firm is less likely to be copied or imitated by competitors as the essential knowledge belongs to the employees, and is unstated and cannot be collected. Firms, therefore, are highly dependent on the abilities of employees, and they should ensure they are motivated and committed for the success of the enterprise. The results also show that the proficiencies of HRM in selecting, training, developing, and compensating employees have a direct positive effect on the innovation aptitudes of the firm (Özbağa, Esen, & Esen, 2013).

In the contemporary entrepreneurial environment, human resources are a vital factor for competitive advantage, especially in the constantly unpredictable competitive atmosphere. Nemli (2010) evaluates specific instances from academic studies concerning strategic HRM practices on administrative performance. HRM systems can create a sustainable competitive advantage by expediting the creation of proficiencies that are tailor-made for the specific firm. Strategic HRM is concerned with the making of a relationship between the inclusive tactical goals of the firm and the HRM approach and enactment. The research also found positive arithmetic relationships between superior implementation of HRM practices and the overall firm’s performance (Nemli, 2010). The pivotal linkage between HRM and administrative performance enables Human Resource (HR) managers to create programs that will result in better operational results and higher structural performance. The study concluded that the manner in which a firm manages its HR has a fundamental connection with the firm’s organizational performance (Nemli, 2010).

Shahnaei & Sang (2015), state that HRM is a fundamental factor for innovation. Therefore, employees require constant motivation, commitment and monitoring to ensure innovative strategies at both administrative and technical levels. HRM practices related to merchandise, process, and management have an essential part to play in a firm’s organization and competitive performance. Firms should participate in open innovative process and employ external sources of information for modernization. Employee’s participation is the innovative process being a fundamental aspect in the entrepreneurial world today. The current research also shows the need for tailor-made HRM practices alongside with the innovational needs and strategic objectives of the firm (Shahnaei & Sang, 2015).

Employee Training and Development

Tiwari & Banarsi (2013), state that in today’s world of globalization, entrepreneurial firms are exploring market opportunities overseas rather than being confined in a single country of origin. Entrepreneurship in the global front means management of various subsidiaries across the world in different states (Tiwari & Banarsi, 2013). The approach to various aspects, such as marketing, production operations, financing and most importantly HRM, has to be custom-made for the local business atmosphere where the business subsidiary operates (Tiwari & Banarsi, 2013). The selection of the appropriate incumbent for the foreign project should be founded on all-inclusive selection benchmarks of cultural adaptability. All employees should be trained before being assigned the job in new foreign atmosphere (Tiwari & Banarsi, 2013). It prepares them for the challenges they may face on the international front. Some firms may require their HRM to create repatriation through career progression plan for expatriate and employee counseling. Harmonious labor relations are fundamental in ensuring there is no confrontation with trade and labor unions in the host nation. Having a correct compensation strategy helps boost employee motivation in facing the foreign multination assignments (Tiwari & Banarsi, 2013).

Organizational innovation is a fundamental tool for firms to compete in the business niche. The Malaysian manufacturing enterprises strive to transform their structural model from labor-intensive to knowledge-intensive (Tan & Nasurdin, 2011). Such enterprises aim at engaging themselves in value adding activities such as the creation of new processes, products and services in order to sustain their competitiveness. A study on the Malaysian firms, by Tan & Nasurdin (2011), regarding the association between HRM practices and knowledge management indicates that HRM is an essential component in heightening organizational innovation in addition to effective knowledge management. Data analysis from the study shows that HRM practices have a positive effect on organizational innovation. More specifically, training is positively linked to three dimensions of organizational innovation, namely process, product, and administrative innovation. Knowledge management effectively intercede the relationship between training and the process of innovation (Tan & Nasurdin, 2011).

A research by Bloom & Reenen (2010), seeks to establish the relationship between HRM and productivity. The findings indicate that there have been dramatic changes in HRM over the past two decades, and more factors, such as labor economics, have to be integrated into HRM today. Available data indicates a noticeable trend towards the prevalence of more incentive pay, especially in the United States and the United Kingdom (Bloom & Reenen, 2010). High incentives on promotion, pay, hiring and firing are prevalent in the given regions, with wide distribution of productivity between and within countries, where HRM seem to follow such trends. There is suggestive evidence that modern HRM practices, such as individual and group incentive pay, improve productivity significantly. Combining technological aspects such as Information and Communication Technology with a right fit of HRM practices substantially contributes to the increased productivity (Bloom & Reenen, 2010).


Strubler & Redekop (2010) discuss a conversation they had with Dwight Carlson, a visionary entrepreneur with deep incendiary knowledge regarding communication, management, and team development. He is experienced in entrepreneurial leadership, and has many ideas on creation of business atmospheres that foster team work, innovation, hard work, and a sense of fun. All of them lead to high levels of motivation and productivity amongst employees. Mr. Carlson can act as a great business model as his administration style is founded on passion, frankness and veracity. Moreover, he and his work teams always take risks, which eventually bring positive results. He does not subscribe to the thought of managing persons, but he believes in leading personnel and managing the enterprise, headed for the contentment that comes from being a part of a winning team (Strubler & Redekop, 2010). Leadership founded on professional relationships in firms leads to positive impacts on the firm’s performance with greater intensity, compared to the participative leadership. Task oriented approach of leadership minimizes the chances of transmitting the entrepreneurial spirit to the work team by having negative impacts on the creation of collective entrepreneurship in the firm (Strubler & Redekop, 2010).

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Conclusion and Recommendations

In conclusion, although there are numerous researches conducted over the years on HRM, and relevant academic findings established, there are still many gaps that require further research on different dimensions of the topic. Simple things in human resource management, such as, hiring the right personnel for the corresponding job, proper motivation and remuneration and reward programs have the greatest influence on the company’s performance. It is caused by the fact that most employees have great potential and all HRM requires to do is make employees perform their duties in the best possible manner. When the employees are motivated to perform their work and are committed to the firm, it will easily reach its goals (Bloom & Reenen, 2010). Implementing HRM programs to start-up, small, and medium sized firms is fundamental in improving the ability to accurately and effectively manage the exceptional assets of human resource. The relations between HRM and productivity have changed significantly over the past two decades, and it seems that the two are now more linked than before. Future researchers should, therefore, develop integrated research programs on HRM and productivity, in addition to other aspects, such as contemporary labor economics. There is a need for further, more specific research on aspects of HRM in business firms, especially due to the considerable challenges for HRM in such companies.