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Employee Retention in Small Businesses- Challenges and Opportunities


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Employee Retention in Small Businesses- Challenges and Opportunities

  1. 1. Employee Retention in Small Businesses Challenges and possible solutions Mathew J Mampra School of Business Alliance University 19 May 2012
  2. 2. AgendaResearch Question and MethodologyMotivationDefinitionLiterature ReviewChallengesSolutionsFuture ResearchReferenceLearning and Conclusion
  3. 3. • Research QuestionCan we make people motivated to stay insmall businesses in this era of vastopportunities? How to do that by paying less,compare to larger enterprises?MethodologyThis presentation is based on systematicliterature review and the compilations offindings and lessons learned from my ownexperience as an owner-manager for a smallenterprise
  4. 4. Definition (of Small Businesses)Every country has its own definitions for SmallBusiness.CountryIndia Small Business Plant & machinery INR 25- 500 Lakhs 10-200 Lakhs(Service Sector)Europe Up to 50 employeesUS Up to 500 employeesA small business is an enterprise with an employeestrength between 10-100 (This definition is considered for this study)Peterson, Albaum, and Kozmetzky, 1996;Stewart, Watson, Carland, and Carland,1999Micro, Small and Medium Enterprises Development Act, 2006, India
  5. 5. Annual employee turnover of smallbusinesses Turnover % 0-2 % - 28% 3-5 % - 12% 6-8 % - 15% 9-10 % - 17% >10 % - 28% 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
  6. 6. 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).
  7. 7. What an employee needs Money Salary Incentive Bonus Job Satisfaction Career Satisfaction to be a contributor Pride of being consulted Sense of ownership Respectability Work life balance Security Job Security Pension Education 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
  8. 8. 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 2011 2012
  9. 9. Possible Solutions Creating 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
  10. 10.  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
  11. 11. 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)
  12. 12. Understand and Fulfil Psychological ContracttermsPsychological contracts , in general, are theset of promises held by an individual employee about the terms ofthe 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
  13. 13. .Most employees come to expect salaries andbenefits and are therefore not motivated bythem (Henricks, 2006; Smither, 2003)
  14. 14. Performance s eturn ing R inish of Dim Law Incentive
  15. 15. Framework for employee retentionin Small Businesses
  16. 16. 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 employeesWhat if they leave ? Succession/replacement plans “Eveready all-rounders” Providing entrepreneurial encouragement.
  17. 17. Gaps & Research Opportunities1. 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?
  18. 18. Research & ReferencesAuthor Year Journal Title Methodolog Gaps and directions for future y Followed researchBruce H. 2008 Journal of Small Employee Retention Survey, Studied only about firms less than 12Kemelgor Business Strategy in growth oriented interviews years old.&William R. entrepreneurial &HypothesisMeek firms- An exploratory studyAbhishek 2011 Journal of Security Talent acquisition Case Study The data is collected by interviewing theBhati & and Sustainability and retention in stake holders and the possibility ofMathew Issues social enterprises certain amount of bias exists.ManimalaGertrude I 2009 International Relationship in Studied only the Sri Lankan aspectHewapathiran Council for Small business is likea Business (ICSB). family World Conference ProceedingsRajesh Singh 2007 South Asian Comparative study ANOVA, Limitations of perceptionsand Deshmukh Journal of on strategies t-tests Management of Indian small, medium and large scale organisationsRajesh Singh and Deshmukh to be continued………
  19. 19. Other ReferencesJill Kickul ,“Promises Made, Promises Broken: An Exploration of Employee Attraction and RetentionPractices in Small Business”, Journal of Small Business Management 2001 39:4, pp. 320-33Stumpf, 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 EntrepreneurialExecutive, Volume 13, 2008Wayne, 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 ingaining competitive advantage, Human Resource Management, 37: 1, 31-46.Bhatnagar, J. (2007). Talent management strategy of employee engagement in Indian ITESemployees: key to retention, Employee Relations, 29: 6, 640-663. to be continued………
  20. 20. 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.OReilly III, C, Chatman, J, & Caldwell, D. (1991). People and organizational culture: A profilecomparison approach to assessing person-organization fit, Academy of managementjournal, 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. TheEntrepreneurial Executive, 3, 22 – 52.Taylor, M, & Collins, C. (2000). Organizational recruitment: Enhancing the intersection ofresearch and practice, Industrial and organizational psychology: Linking theory withpractice, 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-BassHandbook of Nonprofit Leadership and Management, 623-659.Harris, J.H., & Arendt, L.A. (1998). Stress reduction and the small business: Increasing employeeand customer satisfaction. SAM Advanced Management Journal, 63(1), 13 – 29.
  21. 21. 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 onLove your employees genuinely and care for the ones they care. The employees will care for you and take care of your small business. Thanks