Business: Employment structures in SME's

final yr

Potential exam Questions:

Q1) What are the costs and benefits of more informal employment structures in small business? If there are benefits, what are the reasons for this? Answer structure:

- ‘Working in a small business’

- Various characteristics of small business workplace: informality of relations, not top down.

- Define what mean by formality and informality of relations i.e. no practices in place in relation to HR so recruitment done in a different way. Closer with manager and other employees which is good for a happy workplace.

- Small firms pay less and provide less benefits and working conditions not always as good (H&S) but workforce much happier because of informalities.

- Small businesses do not have written procedures in place may place them in danger i.e. open to litigation and often the employee that wins in employment tribunals. ??? NO IT ISN’T!!!!

- Benefits: informal, flexible and thus individuals can be more creative, influential and small firms can act quickly

- Happy workforce!!!

1 of 6

The differences of small vs. large firm

- Edith Penrose 1959 'Theory of the growth of the firm': Differences in admin structure of very small+very large firms are so great that in many ways it is hard to see that the two species are of the same genus....we cannot define a caterpillar and then use the same defintion for a butterfly'. 

Small firms: the juggler=responsible for everything in the business (this may be detrimental), more likely to face a challenging environment (external uncertainty), flat structure (cannot set prices unless niche). Create more jobs than larger firms if gazelle (Birch 1979). Tend to employ lower pay groups (women, young, low skilled: hence why many young grads will discount small firm work and thus unemployment=high!), less training and entrepreneurs often unaware of value of training and costs lots and increases poaching, unlikely to have headhunting or poaching thus less competition for best employees. Small firms dont like grads as they may lack experience to work in SME's and unable to diversify to other areas of business when needed. Does allow broader spectrum for employees into other areas of the business (non-specialist) and therefore greater learning opportunities+better communication levels and enable autonomy more. 

Large firms: the conductor=shared responsibility and delegation (difficult to translate their vision which can cause internal uncertainty to employees), top-down structure (can set prices). More market power, better qualified workforce, pay more, higher performance standards, more training offered. Like graduates as can mould them through training (500+employee size firm=58%of employees have degree or higher). 

2 of 6

Further differences between small and large firms

Health & Safety: Small businesses provide less safe working conditions due to desire to minimise costs and general lack of awareness of H&S issues. Fatality rate highester in companies with 1-19 employees (Rand 2006).

Formality/Business size: formality greater in larger firms but employees more discontented

Pay satisfaction: Small firms=9% very dissatisfied with salary and 7% very satisified. Large firms=15% very dissatisfied with salary and 4% very satisified with salary. (Forth et al 2006)

Work life balance (management understanding of outside of work responsibilities): Small firms=24% strongly agree and 4% strongly disagree. Large firms=11% strongly agree and 7%strongly disagree. (Forth et al 2006). 

Small firms for grads: hands on experience (skills for SME), voice noticed (growth), work with all levels of people (productivity), flexibility in hours/style (innovation), autonomy (culture), personal development through development of business (strategy/development), progression on achievements (leadership/management) (Sear et al, 2012)

Conclusions: Large firms=pay better, better fringe benefits, more formal training, safer to work in VS. Small firms= workforce more likely to trust managers, paid less but happier!

3 of 6

Management processes in SME's

Small firms: happier and more motivational working environment: communication=less problematic and clearer relations between what employees are doing and objectives and performance of the firm as a whole.

Small firms: conflictual relations: less disputes, dependent on sector and individual circumstances of the firm, labour instability, external pressures. 

Employee involvement in small firms: Small firms=11% decided and 9% no involvement vs. Large firms=3%decided and 19% no involvement! (Forth et al 2006). 

Employees perception about managers to keep them involved: Small firms=financial matters=40% and changes to job=61% and changes to staffing=59% and changes to way organisation being run=60%. (Forth et al 2006). 


Large firms=financial matters=44% and changes to job=49% and changes to staffing=45% and changes to way organisation being run=51%.(Forth et al 2006). 

4 of 6

Types of management control in SMEs

Rainnie 1989:

Types of management control in SMEs

1. Dependent: SME's that exist to serve the interest of larger businesses through sub-contracting

2. Dominated: SME that competes w/larger businesses through intense exploitation of capital

3. Niche: SME that operates in safe niche market unlikely to be invaded by bigger firms as profit/growth likely to be low

4. Innovative: SME that develops new products/ideas but vulnerable to take over/competition once product has potential. 

5 of 6

Academic Commentary:

1. Barrett and Rainnie 2002 'what's so special about small firms? The contention in this article is that an integrated approach can be used to analyse industrial relations in small firms and to investigate the image of industrial harmony. This integrated approach, incorporating the dialectical relationship between structural forces and human agency, is underpinned by Marxist labour process theory, and can be used to explain the variety of small firm industrial relations and the conditions under which they are produced. The integrated approach points to a way forward from the old stereotype of `small is beautiful'.

2. Storey and Greene 2010: chapter 4 (look into when get book)

6 of 6


No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all Employment structures resources »