Mathew J Mampra School of

Business Alliance University 19 May 2012

Employee Retention in Small

BusinessesChallenges and possible solutions

Agenda Research Question and MethodologyMotivation DefinitionLiterature Review Challenges SolutionsFuture ResearchReferenceLearning and Conclusion

• Research QuestionCan we make people motivated to stay in small businesses in this era of vast opportunities? How to do that by paying less, compare to larger enterprises?

MethodologyThis presentation is based on systematic literature review and the compilations of findings and lessons learned from my own experience as an owner-manager for a small enterprise

Definition (of Small Businesses)Every country has its own definitions for Small Business

.

A small business is an enterprise with an employee strength between 10-100 (This definition is considered for this study)

Peterson, Albaum, and Kozmetzky, 1996; Stewart, Watson, Carland, and Carland,1999 Micro, Small and Medium Enterprises Development Act, 2006, India

Country Small Business

India Plant & machinery INR 25-500 Lakhs 10-200 Lakhs(Service Sector)

Europe Up to 50 employees

US Up to 500 employees

Annual employee turnover of small businesses

Nearly three fourth have less than 10% employee turnover in spite of less monetary benefits

Bruce H Kemelgor ,William R Meek,”Employee retention in growth oriented entrepreneurial firms: An exploratory study”Journal of Small Business Strategy, Volume 19,Num.1,2008

Turnover %

0-2 % - 28%

3-5 % - 12%

6-8 % - 15%

9-10 % - 17%

>10 % - 28%

Why employee retention is so important?

“Few imperatives are more vital to the success of small companies than retaining key personnel” (Baron and Hannan, 2002; 21)

The total cost of voluntary employee turnover (i.e., voluntary quits) varies between 150% (Ramlall, 2003) to 250% (Henricks, 2006) of the employee’s annual salary.

Organizational memory within a firm is developed from the constant repetition of activities within an organization and related codifications (Nelson and Winter, 1982).

What an employee needs Money

SalaryIncentive

Bonus Job Satisfaction

CareerSatisfaction to be a contributor

Pride of being consultedSense of ownership

RespectabilityWork life balance

SecurityJob Security

PensionEducation for Children

Shelter (Vigoda &Cohen 2003)

Bruce H Kemelgor ,William R Meek,”Employee retention in growth oriented entrepreneurial firms: An exploratory study”Journal of Small Business Strategy, Volume 19,1,2008

Challenges of retention One challenge that small businesses face is that they do

not have the same ability to pay as large organizations (Milkovich & Newman, 2008).

From the employee’s perspective Lack of clarity about expectations, Lack of clarity about earning potential, Lack of feedback about performance,  Limited career growth options, and 

failure to provide a framework within which the employee perceives he can succeed

Lack of brand image

Susan M Healthfield 2011humanresources.com 2012

http://udini.proquest.com/read/doc:4f7c2f4ba96f3f61c75e8990/

Possible SolutionsCreating a family atmosphere and bonding and making it part

of the organisational culture. Small business owners have an advantage over larger

businesses by being able to know their employees and treating them as individuals

Family is considered as a nuclear system in which family members develop invisible loyalties and generational bonds due to genetic relatedness.Family, thus, develops hierarchy of obligations  (Hartman and Laird, 1983, p. 80)

Employing relatives of loyal employees

The success is not in recruiting the best, but to create congruence between people and organisations so that they would stay and work in the organisation

(Lynn 2003);(Vigoda &Cohen 2003)

Enhancing the credibility of the organisation through brand building (Abhishek& Manimala 2011)

Providing opportunities for personal growth like giving them an opportunity to do higher studies (Abhishek& Manimala 2011)

Creating a sense of ownership among employees through participation in decision making

By creating entrepreneurial opportunities within the organisation Providing attractive fringe benefits to the employees

Outsider paradigm & Insider paradigm (Manimala 2010) Creating a sense of ownership among employees by giving profit share

Manager Support( Owner-manager) People leave

managers and supervisors more often than they leave companies or jobs. (Susan M Healthfield 2011)

Manager support exists when employees perceive their immediate manager as leading by example, giving them the support needed to do the job well, is perceived to be personally effective, and is good at developing people. (Mitchell et al. 2001)

Manager-employee relationships & peer group bonding is very critical in linking people to their job and organization. (Mitchell et al. 2001)

Perceived supervisory support had independent effects on turnover intentions than perceived organizational support. (Maertz et al. 2007)

Understand and Fulfil Psychological Contract termsPsychological contracts, in general, are theset of promises held by an individual employee about the terms of the exchange agreement between the employee and"his/her organization (Rousseau 1989)

Perceived unfulfilled promisescan have a considerable impact on workplace attitudes, commitment, and intentions to leave the organization.

Jill Kickul,“Promises Made, Promises Broken:An Exploration of Employee Attractionand Retention Practices in Small Business”Journal of Small Business Management 2001 39(4), pp. 320-335 13

Most employees come to expect salaries and benefits and are therefore not motivated by them (Henricks, 2006; Smither, 2003)

.

Performance

Incentive

Law of Diminishing Returns

Framework for employee retentionin Small Businesses

My Small Business Recruiting Ordinary Develop them to be self motivated extra ordinary task masters Support for their children’s education Making sure that their family is happy A Culture of respecting each other. Inducing strong values Strongly discouraging groupism and encouraging teamwork Being transparent. Make the growth visible to all employees & share with them Give them the reasons to tell others why they stick on. Turnover based incentive for key employees

What if they leave ? Succession/replacement plans “Eveready all-rounders” Providing entrepreneurial encouragement.

i.

Gaps & Research Opportunities

1. Is it always wise to retain employees for a very long period of time, in terms of efficiency?

2. How profit sharing schemes for employees would work in small organizations for employee retention?

.

Research & References Author Year Journal Title Methodolog

y FollowedGaps and directions for future research

Bruce H. Kemelgor &William R. Meek

2008 Journal of Small Business Strategy

Employee Retention in growth oriented entrepreneurial firms- An exploratory study

Survey, interviews &Hypothesis

Studied only about firms less than 12 years old.

Abhishek Bhati & Mathew Manimala

2011 Journal of Security and Sustainability Issues

Talent acquisition and retention in social enterprises

Case Study The data is collected by interviewing the stake holders and the possibility of certain amount of bias exists.

Gertrude I Hewapathirana

2009 International Council for Small Business (ICSB). World Conference Proceedings

Relationship in business is like family

Studied only the Sri Lankan aspect

Rajesh Singh and Deshmukh

2007 South Asian Journal of Management

Comparative study on strategies

of Indian small, medium and large scale organisations

ANOVA, t-tests

Limitations of perceptions

Rajesh Singh and Deshmukh

to be continued………

Other ReferencesJill Kickul ,“Promises Made, Promises Broken: An Exploration of Employee Attraction and Retention Practices in Small Business”, Journal of Small Business Management 2001 39:4, pp. 320-33

Stumpf, S.A., Doh, J.P. and Tymon, W. (2010), “The strength of HR practices in India and theireffects on employee career success, performance, and potential”, Human ResourceManagement, Vol. 49 No. 3, pp. 351-73.

Jack L. Howard.(2008),” The use of non-monetary motivators in small business” , The Entrepreneurial Executive, Volume 13, 2008

Wayne, S., Shore, L. and Liden, R. (1997), “Perceived organizational support and leader-memberexchange: a social exchange perspective”, Academy of Management Journal, Vol. 40 No. 1,pp. 82-111.

Tymon, W.G., Stumpf, S.A. and Doh, J.P. (2010), “Exploring talent management in India:theneglectedroleof intrinsicrewards”, JournalofWorldBusiness,Vol.45No.2,pp.109-21.

Vandenberghe, C. and Bentein, K. (2009), “A closer look at the relationship between affectivecommitment to supervisors and organizations and turnover”, Journal of Occupational andOrganizational Psychology, Vol. 82 No. 2, pp. 331-48.

Barney, J, & Wright, P. (1998). 'On becoming a strategic partner: The role of human resources in gaining competitive advantage', Human Resource Management, 37: 1, 31-46.

Bhatnagar, J. (2007). 'Talent management strategy of employee engagement in Indian ITES employees: key to retention', Employee Relations, 29: 6, 640-663. to be continued………

Huselid, M. (1995). 'The impact of human resource management practices on turnover, productivity, and corporate financial performance', Academy of management journal, 38: 3, 635-672.

O'Reilly III, C, Chatman, J, & Caldwell, D. (1991). 'People and organizational culture: A profile comparison approach to assessing person-organization fit', Academy of management journal, 34: 3, 487-516.

Osborn-Jones, T. (2001). 'Managing talent Exploring the new psychological contract'. small business and entrepreneurs. The Entrepreneurial Executive, 4, 41 – 64.

Howard, J.L. (1998). How small business and entrepreneurs can retain quality employees. The Entrepreneurial Executive, 3, 22 – 52.

Taylor, M, & Collins, C. (2000). 'Organizational recruitment: Enhancing the intersection of research and practice', Industrial and organizational psychology: Linking theory with practice, 304–330.

Watson, M, & Abzug, R. (2005). 'Finding the ones you want, keeping the ones you find: Recruitment and retention in non-profit organizations', RH Associates, The Jossey-Bass Handbook of Nonprofit Leadership and Management, 623-659.

Harris, J.H., & Arendt, L.A. (1998). Stress reduction and the small business: Increasing employee and customer satisfaction. SAM Advanced Management Journal, 63(1), 13 – 29.

Significant Learning Points and Conclusion

Recruit ordinary and develop and empower them to be extraordinary

Give your employees enough reasons to tell others why they stick on

Love your employees genuinely and care for the ones they care. The employees will care for you and take care of your small business.

Thanks