Asia Pacific Journal of Human Resources-2010-Wiesner - Bleak House

Asia Pacific Journal of Human Resources 2010 48(2) 151
Bleak house or bright prospect?:

HRM in Australian SMEs over 1998–2008
Retha Wiesner
University of Southern Queensland, Toowoomba, Queensland, Australia
Peter Innes
University of the Sunshine Coast, Maroochydore, Queensland, Australia
The aim of this paper is to determine whether Australian small and medium
enterprises (SMEs) could be described as ‘bleak houses’ or whether they have
developed over the last decade into ‘bright prospects’ typified by human resource
innovations. This study builds on empirical work (n = 1425) from ten years ago
(1998), and re-examines the prospects of SMEs through the lens of human
resource management (HRM) practices. Uniquely, the 2008 cross-sectional data
provides for the large-scale tracking of strategic HRM practices. Specifically, 110
HRM practices over five traditional areas across 1230 SMEs are analysed. The
prevalence, change, and patterning of HRM practices used by Australian SMEs in
2008 are investigated. It was found that SMEs need less of a make-over in
relation to the adoption of HR practices, compared to a decade ago. From a
practitioner viewpoint, the study provides cross-sectional benchmarking against
the previous time-point, 1998, as well as extending that work with an
examination of a more extensive range of new and emerging HRM practices.
Keywords: Australia, human resource management, SMEs
Recent economic turbulence has underscored Australia’s dual reliance on

volatile international financial relations and its somewhat robust national
performance and productivity at work. Of the latter, we focus this paper on
the less examined position of small and medium enterprises (SMEs), which
This project was conducted with a USQ research grant.
Correspondence to: Associate Professor Retha Wiesner, Faculty of Business, University of

Southern Queensland, Toowoomba, Queensland, Australia; fax: +617 4631 1533;
e-mail: wiesner@usq.edu.au
Asia Pacific Journal of Human Resources. Published by SAGE Publications (Los Angeles, London, New Delhi,
Singapore and Washington DC; www.sagepublications.com) on behalf of the Australian Human Resources
Institute. Copyright © 2010 Australian Human Resources Institute. Volume 48(2): 151–184. [1038-4111]
DOI: 10.1177/1038411110368465.
Downloaded from apj.sagepub.com at Edith Cowan University on November 19, 2016

152 Asia Pacific Journal of Human Resources 2010 48(2)
appear to attract less attention in research than would be their proportional

representation across Australian employment. Furthermore, the increasing
importance of SMEs has been acknowledged as a global phenomenon brought
about by market forces, technological advances, personal career aspirations and
the underlying demographic changes of the population (Curran and
Blackburn 2001).
In the international arena, the development and strengthening of SMEs is
a priority area for the Asia-Pacific Economic Cooperation (APEC) due to the
significant potential that SMEs hold for future economic growth (APEC 2002).
SMEs have also been identified as key to the economic future in Australia for
a number of reasons including the fact that SMEs are the major provider
of jobs in Australia (54% of jobs, 89% of private sector firms, calculated from
ABS 2001) and are very active in knowledge-based sectors such as the high-
technology sector, business and consultancy services and other areas where
economic development comes from creativity and innovation (ABS 2005).
SMEs contribute significantly to the Australian economy. Representative
productivity contributions of small business are difficult to provide and tend
towards industry subdivisions; however, the ABS has measured selected indus-
tries which feature high and low contributions of small business share in overall
industry turnover. For example, of mining firms, 75% (942 of 1259) were clas-
sified as small representing 12.1% of industry turnover ($5.1b). Among manu-
facturing firms, small businesses in textile, clothing , footwear and leather
contributed 21% of the total turnover in that industry’s subdivision (ABS 2001).
Furthermore, despite the fact that SMEs are by far the modal organisa-
tional architecture among private sector firms in Australian (approximately
89%; ABS 2001), the majority of published work on HRM focuses on large
organisations and despite the strategic significance of SMEs to both national
employment and economic sustainability, there remains a paucity in research
on SMEs (Curran and Blackburn 2001McAdam 2002). Even though SMEs are
assumed to not only survive, but to grow and contribute to the Australian
economy and the Asia Pacific, very little attention has been given to the devel-
opment of their ability to meet these expectations, especially in relation to their
ability to utilise and implement human resource capabilities.
More specifically, it is as important now, if not more than ever, that we
understand those firm characteristics of, and practices engaged by, Australian
SMEs, from which management of human resources is understood to drive
performance. In short, this paper focuses on human resource management
(HRM) practices in Australian SMEs.
This paper represents the first release of results from the second time-point
(2008) of what is now two extensive cross-sectional surveys of the practices and
characteristics of Australian SMEs. The initial study, of 1425 Australian SMEs
in 1998, was reported in a key paper by Wiesner and McDonald (2001). In that
paper, the authors found exemplar SMEs as ‘bleak houses’ or ‘bright prospects’,
but concluded that the overall outlook was somewhat bleak given the negative

HRM in Australian SMEs, 1998–2008 153
influence of an absence among critical variables, specifically the presence of

HR managers, strategic plans, and unionised workforces. Results also indicated
the importance of mediation and moderation of the influence of size between
small and medium firms. Nonetheless, such results also speak optimistically
by revealing those pathways to employment of HRM practices. In this paper,
not only can we recast, ten years later, the status of HRM practices among our
most recent sample of 1230 SMEs in Australia, but we study existing and
emerging practices over time.
At this point, it might be useful to ask, ‘do SMEs matter?’ in order to
consider the significance of the research. Despite a growth in international
HRM research in SMEs, only a few Australian studies have explored the nature
and extent of HRM in SMEs (Barrett and Mayson 2007; Kotey 1999; Kotey and
Sheridan 2001; Kotey and Slade 2005; Kotey, Slade and Gadenne 2000; Mayson
and Barrett 2005; Mazzarol 2003; Wiesner and McDonald 2001). The majority
of these studies are regional and small-scale studies with the exception of
Wiesner and McDonald’s (2001) study which employed survey data compiled
from their 1998 survey; and Barrett and Mayson’s (2007) study that utilised 2002
data derived from telephone interviews. The Australian Bureau of Statistics
(ABS) and the Australian Workplace Industrial Relations Surveys (AWIRS)
also provide two well-known and well-established sources of information about
Australian firms with some focus diverted to SMEs. For example, Bartram
(2005) utilised AWIRS data very effectively to investigate the character of small
Australian firms. Conversely, our current study engages a much wider range of
specific issues with regards to human resource management. This study repeats
and extends the Wiesner and McDonald (2001) work regarding the ‘bleak
house’ thesis in Australian SMEs, with a second longitudinal panel, ten years
later, in 2008.
The contribution of this study is therefore to build on the previous
empirical work, from ten years ago, and re-examine the prospects of SMEs
through the lens of HRM practices. We investigate the prevalence and change
in HRM practices used by Australian SMEs in 2008. From a practitioner
viewpoint, the study is able to provide benchmarking against the previous
time-point – 1998 – as well as extending that work with an analysis of a more
extensive range of new and emerging HRM practices.
Uniquely, the 2008 data provides for the large-scale tracking of strategic
HRM practices. Specifically, 110 HRM practices over five traditional areas
(recruitment, selection, compensation, training and development, and perform-
ance appraisal) across 1230 SMEs are considered. Furthermore, where somewhat
dated ABS and AWIRS data provide only descriptive outlines of SME activity,
our study exclusively inspects beyond simple prevalence. Our research, through
a representative large sample survey, provides an insight into the contemporary
usage and change in practices across ten years. We also explore the relative
profile of firms undertaking such practices in order to indicate the importance
of several organisational and professional characteristics.

By studying these issues, the aim of this paper is to determine whether

Australian SMEs could be described as ‘bleak houses’ or whether they have
developed into ‘bright prospects’ characterised by HR innovations, over the
last decade.
Analysing the prospects of SMEs through the lens of HRM
SMEs are an important part of the national economies in the Asia Pacific
region and make a significant contribution to the international and Asia Pacific
economies. Furthermore, the Asia-Pacific Economic Cooperation has identi-
fied the development and strengthening of SMEs as a priority area (APEC
2002) and argues that SMEs are unlikely to survive in their present form
without making significant changes to improve the quality of their output, cost
competitiveness, and management practices (Hall 2008). Within the Asia
Pacific region, SMEs make up about 99% of all enterprises. SMEs’ contribu-
tion to GDP is estimated as somewhere between 30% and 60%, even though
estimates for the Asian region are difficult to obtain. The contribution of SMEs
to employment growth is significant, for example SMEs employ between 40%
and 80% of the workforce in the Asia Pacific region (Hall 2008). Part of the
variability in estimates of SME impact falls to equivalent complexities in the
definition of its indicators.
In Australia, SMEs are significant not only by their impact on the organ-
isational landscape and labour-force experience, but also by their potential to
generate and regenerate productive capacities in an increasingly changing and
turbulent economic context. The SME sector in Australia represents a signifi-
cant, large employer group, and is regarded as playing a pivotal role in focusing
on the behavioural and interpersonal aspects of leadership and management
required by Australian industry to address business challenges such as global-
isation (Bartram 2005; Wiesner, McDonald, and Banham 2007). On the other
hand, what is less understood about SMEs is in relation to their ubiquitous
nature with respect to creativity and innovation. Scrutiny of the Australian
Bureau of Statistics efforts in otherwise disparate research streams shows some
interesting overlaps. For example, in the ABS’ most recent survey of small and
medium enterprises, the highest growth in business numbers was clustered in
three industries: education, health and community services, and property and
business services (ABS 2001). When cross-referenced with the ABS study of
advanced ‘selected qualifications’ a year later (ABS 2002), the same three indus-
tries represent those most-dominated by knowledge-worker representation and
participation. In almost direct contrast, later research noted a general trend for
greater skills in larger organisations in the context of innovation (ABS 2005, 21).
Despite the fact that APEC identified the improvement of management
capabilities and human resource development as essential in ensuring that
SMEs can acquire the skills and advice necessary to increase their competi-
tiveness (Hall 2008), the research, and its indicators, rarely provides a clear
insight into the dynamics of organisational context and innovation, especially

in relation to innovative employee management initiatives, and specifically

among smaller firms.
Therefore, the understanding of the deliberate management of such
organisational contexts through strategic human resource management has the
potential to provide size-specific and generalisable models critical to driving
productive capacity within a relatively understudied organisational context.
The focus of our paper is in initially presenting the study’s research
findings with respect to the prevalence and change in contemporary HRM
practices in Australian SMEs. For practitioners, this represents an important
benchmark against which changes in both the internal and external environ-
ments for SMEs must be considered. The pertinent questions left unanswered
by large-scale studies concern how such SMEs strategically manage their
internal human resources, in an externally turbulent and changing environ-
ment. To some extent, our paper intends to raise as many questions as it
answers in the presentation of the results. We would wish to highlight here
that our results should be of interest to practitioners and academics alike. The
scope of this paper, while somewhat descriptive, engages one of the polemics
around the role and use of HRM underpinned by assumptions about SME
resources, planning, flexibility, and managerial control/conflict, unionisation
and access to HR professional knowledge. While not always presenting a
consistent thread, these debates are useful in setting the rubric of, and culmi-
nating in, positioning SMEs as ‘bleak houses’ or ‘bright prospects’.
One of the major themes running through employee management research
in SMEs is the ‘formal’ versus ‘informal’ debate. One the one hand, it is argued
that SMEs are characterised by informal HRM practices (Kotey and Slade 2005;
Marlow 2000) even though small firms are utilising workplace innovations
(Bartram 2005). The argument is also made that an informal approach to HRM
is more suited to small firms because this flexibility assists them in coping with
environmental uncertainty (Hill and Stewart 2000). However, according to
Golhar and Deshpande (1997) informal HRM practices are the result of a lack
of foresight and resources in small firms ,and one explanation for firm-size
differences in HRM practices is a lack of understanding of HRM issues. Barrett
and Mason (2007) argue that that the informal and ad hoc nature of planning
in small firms, in terms of business strategies and HRM, contributes to the diffi-
culty of developing a strategic approach to HRM. Dyer (1993) and Pfeffer (1994;
1998) argue that a strategic approach to managing employees is vital for the
success of all firms, including small ones (Deshpande and Golhar 1994;
Heneman, Tansky and Camp 2000; Hornsby and Kuratko 2003; Rutherford,
Buller and McMullan 2003). On the other hand, it has been argued that
employee management in SMEs are characterised by a greater extent of sophis-
tication in HRM practices than would be expected (see for example de Kok and
Uhlaner 2001; Duberley and Walley 1995). In addition, arguably, small firms
lack the kinds of institutional forces which drive structural inertia in large firms
(Chaston 1997; Gibb 1997; Hendrickson and Psarouthakis 1998). Overall, the
‘formal/informal’ debate raises as many questions as it answers. It is difficult to

determine if such concepts are truly mutually exclusive (e.g. flexibility may help
to drive strategic selectivity of formal practices).
Alternatively, there have been contradictory positions on the nature of
managerial control and employee flexibility in SMEs. First, there is the
argument that working relationships are much more harmonious in SMEs than
in larger firms since SMEs provide a better environment which has easier
communication, greater flexibility and lower levels of conflict (Wilkinson 1999).
This presents a ‘small is beautiful’ scenario (Wilkinson 1999) or ‘bright prospect’
scenario (Wiesner and McDonald 2001). The ‘family’ atmosphere which often
characterises SMEs also contributes to this positive picture (Wilkinson 1999).
Second, various studies address the question whether the applied HRM
practices are applied with a specific goal in mind and integrated with other
(HRM) practices, or whether they are the result of legal obligations and ad hoc
decisions. In other words, to what extent does the way in which these firms
manage their workforce aim to satisfy purely normative HRM models? In this
second argument, the way in which SMEs manage their employees resembles
the ‘bleak house’ concept, where employment relations can be typified by ‘direct
management control, poor terms and conditions, high staff turnover and little
training’ (Bacon et al. 1996, 82; Bolton Committee Report 1971). It is around
this concept of ‘bleak house’ which much debate has emerged.
Sisson initially defined ‘bleak house’ as an absence of human resource
practices or a trade union (1993). The finding that smaller firms, in general,
pay lower wages and provide less training than larger firms do (Black, Noel
and Wang 1999; Patton, Marlow and Hannon 2000) seems to support the
‘bleak house’ notion. In addition, it is argued that ‘individual HRM changes in
most organisations do not add up to a consistent integrated package deriving
from a long-term coherent management strategy’ (Duberley and Walley 1995,
905). The bleak house scenario also asserts that smaller firms are highly
controlled by owner-managers who run their businesses in an autocratic
manner, with employees suffering poor working and inadequate safety condi-
tions and have little involvement in the running of the business (Rainnie 1989).
There are also low levels of unionisation and few strikes owing to the absence
of the collective element (Harney and Dundon 2006; Matley 2002).
Therefore, the ‘bleak house’ scenario suggests neither collective represen-
tation nor participation and employee involvement in HR practices, a situation
described by Guest and Conway (1999) as a ‘black hole’. They teased out the
impact of low labour unionism and HRM respectively by examining the
assumption that employees are more likely to be treated in an unfair and
arbitrary way in organisations that are characterised by an absence of a trade
union and human resource practices. They found that on many issues where
the union presence had a significant impact, it was negative. Contrary to this
finding their results showed that the impact of HRM, whenever significant,
was unfailingly positive. They further found evidence that the concept of the
psychological contract was useful as an intervening variable explaining how
HRM policies and practices have an impact on attitudes. They argue that HRM

practices contribute to perceptions of fairness and trust and increase the likeli-
hood of employees reporting that management delivers on its side of the
‘contract’ or ‘deal’. This in turn leads to greater satisfaction and commitment.
Furthermore, trade union presence did little to enhance these perceptions of
fairness and trust and adds little to delivery of the contract. Yet, they found that
the major differences between the responses of union members in organisations
with a high and low uptake of HRM practices suggests that it would be in the
best interests of unions and their members to promote the adoption of HRM.
It should be noted that the emphasis of our study is on the extent of
adoption of HRM in SMEs. An analysis of the adoption of specific employ-
ment relations practices falls outside the scope of this study.
An alternative perspective is provided by authors such as Hill and Stewart
(1999) and Hornsby and Kuratko (1990), who assert that the ‘bleak house’
scenario is incorrect, or at least does not apply to a large group of SMEs. They
argue that smaller firms may even have a behavioural advantage over large
firms when it comes to managing people because the lack of formal or profes-
sional policy towards employee management enables flexibility within the
labour process, and an individual approach to the employment relationship.
Other authors argue that HRM in SMEs is neither beautiful nor bleak but
rather is best understood as ‘complex’ (Harney and Dundon 2006). They argue
that SMEs are characterised by complexity and unevenness with HR practices
mediated through a web of social and economic relationships. Ram (1991, 601)
supports this notion by noting that HRM in SMEs is ‘complex, informal, and
contradictory’ instead of simply either pleasant or repressive. Other authors
also support this view (Bacon et al. 1996; Hill and Stewart 2000; Ram and
Holliday 1993; Storey 2004).
Two Australian studies that were the first to focus on the ‘bleak house’
notion in the Australian context were Deery, Walsh and Knox (2001) and
Wiesner and McDonald (2001). Deery, Walsh and Knox (2001) used the 1995
Australian Workplace Industrial Relations Survey (AWIRS) data to explore
whether non-union workplaces can best be characterised as human resource
innovators or ‘bleak houses’. Their findings suggest that non-union workplaces
are distinctly less innovative in some of their employee relations practices and
tend to have less favourable industrial relations outcomes than unionised
workplaces. Wiesner and McDonald (2001) ask the question whether
Australian SMEs constitute an estate of bleak houses or houses with a bright
prospect. They utilised their own 1998 national survey data and found that
while there were examples of both extremes, the SME neighbourhood was
neither a slum nor an elite suburb. They described the adoption by Australian
SMEs of HR practices as moderate, and concluded that within a context of
low application of participative practices, low unionisation and a low incidence
of collective relations, many SMEs needed a make-over if they were to meet
the demands of the market. Though, both these studies employed data of a
decade ago. There has been no recent study appraising recent trends in relation
to the ‘bleak house’ notion.

Research objective and questions
In view of the discussion above, the objective of this research is to determine

whether Australian SMEs could be typified as ‘bleak houses’ or whether they
have developed into ‘bright prospects’ differentiated by HR innovations, over the
last decade (1998 to 2008). A bright prospect suggests that there is a high rate of
adoption of HR practices, especially in relation to those which enhance employee
commitment. According to the literature (Banker et al. 1996; Becker and Gerhard
1996; Huselid 1995; Wiesner, McDonald and Banham 2007), such practices penul-
timately make a significant contribution to organisational performance.
Three research questions have been developed to inform the research
objective above. The first two research questions focus on HRM practice
prevalence and change over time. The third research question provides an
insight into the profile of HRM practices in terms of associated SME firm
characteristics. All three research questions focus on 110 HRM practices over
five functional areas of recruitment; selection; compensation; training and
development; and performance appraisal.
The research questions are:
Question 1. What is the current prevalence of HRM practices in
Australian SMEs?
This research question focuses on providing descriptive trend data on the
prevalence of HRM practices in SMEs. In other words, collectively, which
practices are most common and which are marginalised among our large
sample of SMEs?
Question 2. To what extent have the prevalence of HRM practices changed
from 1998 to 2008?
Given the nature of our two-point longitudinal panel data, this research
question uniquely investigates the extent of change in HRM practices over the
last decade.
Question 3. To what extent do key firm characteristics differentiate the
patterning and prevalence of HRM practices?
This research question examines the patterning of HRM practices by size or
by presence of a professional HR manager.
Research methodology
The survey
The survey questionnaire was originally developed and validated for the study
of HR practices in Australian SMEs during 1998. This questionnaire was

adapted for the 2008 study by adding relevant emergent HR practices which
were not included in the original questionnaire. These emergent practices were
identified by conducting an in-depth research and literature review on HRM
practices. The original questionnaire measured 13 recruitment methods, 12
selection practices, 13 compensation practices, 14 training and development
practices and 8 performance appraisal practices. In comparison, the adapted
2008 questionnaire measures 29 recruitment methods, 18 selection practices,
22 compensation practices, 22 training and development practices and 19
performance appraisal practices. The content validity and reliability of both
questionnaires was addressed. The content validity was determined by asking
a panel consisting of SME managers, HR experts and academics in HR to
comment on the suitability of each item. A reliability analysis was conducted
which indicated Cronbach alpha coefficients of between 0.70 and 0.90 for each
section in relation to both surveys. A comparison of the matched (both time-
points) and unique measurement of practices (2008 only) is noted in the results
tables with the latter indicating ‘na’ in comparative statistics columns. Both
questionnaires included a range of demographic variables and a range of
questions measuring the five mentioned HR functions.
In this study, small businesses are constituted by 100 or fewer employees
(applying the Australian Bureau of Statistics definition of small business in
manufacture to all industries) and medium-sized businesses range from 101
to 200 employees. We did use 10 employees as the lowest extremity for size
because the research project is about human resource management and such
organisations are expected to have a management structure.
While both questionnaires were sent out to 4000 Australian small and
medium-sized enterprises, they effectively represent two cross-sectional
surveys conducted across two time-points (1998 and 2008). The research
therefore did not employ a panel longitudinal study of the same sample frame
from time 1 to time 2. Nevertheless, the same population was sampled. As such
the same instrument (with enhancements) was used on a new, albeit large,
random sample from the population. This large sample size may result in
many of the firms in time 1 repeated measurement in time 2 – yet the
anonymity used in driving up the response rate and sample size prohibits, by
design, any notion of repeated measures or panel longitudinal study.
Both studies used a Dun and Bradstreet database stratified according to
the following criteria: all ABS industry categories excluding agriculture;
employee size between 10 and200 employees; a personalised address label
targeting the CEO or MD; and representation of each state and territory in
Australia. After allowing for incorrect mail addresses, closed businesses and a
follow-up letter to remind respondents, a response rate of 36% was achieved
(N = 1435) in relation to the 1998 survey and 34% in the 2008 study (N = 1230).
Action to encourage organisations to respond to the survey included a covering
letter explaining the purpose of the survey, provision of a reply-paid envelope,
follow-up letters and an assurance of confidentiality.

Data was entered into SPSS for analyses. Current prevalence and change
percentages (1998 to 2008) are provided for all tables reporting practices across
the five HRM functional areas. Because the large number of practices presents
any data analysis with an increased risk of Type I error (rejecting a null
hypothesis when it is actually true), standard errors of a percentage are used to
indicate critical ratios (CR). Generally, readers may interpret the CR as indica-
tive of the effect size of the difference between 2008 and 1998 prevalences: CRs
over ± 1.96 represent percentage changes outside of a 95% confidence interval
or changes whose probability is less than 5% (for specific formulae see Grissom
and Kim 2005, 180). Simple percentages are also presented each for size and
HR manager effects on practice usage.
Wiesner and McDonald (2001) argue that a bright prospect suggests a high
rate of adoption of HR practices, especially in relation to those which have a
participative element, because, according to the literature, such practices make
a significant contribution to organisational performance (Banker et al. 1996;
Becker and Gerhard 1996; Huselid 1995. Furthermore, they defined a high
level of adoption of an individual HR practice as occurring where 70%or more
of SMEs employ that practice. This criterion was decided upon after giving a
panel of 10 SME managers a choice between various cut-off points in relation
to what constitutes a high level of adoption in their view. The same interpre-
tation of these concepts is employed in this paper.
Sample characteristics
Small businesses (fewer than 100 employees) constituted 77% of the 1998 sample
and medium businesses (100–200 employees), 23%. In the 2008 sample, small
businesses constituted 49% of the sample and medium businesses, 51%. The ABS
industry categories were used to describe the main operations of the organisa-
tions. In both surveys the manufacturing category represented the highest
percentage of respondents (36% in 1998 and 19% in 2008). In both surveys each
of the remaining categories represented less than 15% of the respondents.
In the 1998 survey 46% of organisations were family organisations of which
family members managed 60% of these organisations, compared to the 2008
survey in which 39% of organisations were family organisations of which family
members were working directors of 59% of these organisations. In the 1998
survey, 57% exported their products or services, of which 85% had been exporting
for more than three years; compared to the 2008 survey in which 60% exported
their products or services, of which 87% had been exporting for more than three
years. Less than 5% of SMEs were franchise operations in both surveys.
In both surveys, almost one-third of organisations operated from a single
location, more than halve of the respondents operated in 2–10 locations and
the remainder in more than 10 locations; nine out of ten SMEs could be said
to generally be ‘surviving’ businesses with more than 90% of businesses having
been established for more than 5 years.

In the 1998 survey, 69% of respondents did not have a designated manager
whose principle responsibility covered human resource management and a HR
department was found in only 22% of SMEs. In comparison, 45% of SMEs in
the 2008 survey did not have a designated manager whose principle responsi-
bility covered human resource management and 50% reported having a HR
department. In both surveys, 53% of respondents said their organisation has
at least one union member with more than two-thirds of the sample estimating
that there was less than 10% union membership.
Sixty-six percent of respondents reported the existence of a formalised
strategic plan in the 1998 study compared to 58% of respondents in the 2008
study who indicated they have a formalised strategic plan that is used to
develop operational plans and drive day-to-day operations.
As far as the personal demographics of respondents are concerned, in the
1998 survey, 77% had a post-secondary school qualification, 72% were older
than 45 years, 52% were owners or part owners of their companies, and only
13% were female. In the 2008 survey, 85% claimed to have a post-secondary
school qualification, 69% were older than 45 years, 40% were owners or part
owners and 34% were female.
Results
This section reports the results regarding the study’s three research questions:
current prevalence of HRM practices in Australian SMEs; the extent to which the
prevalence of HRM practices changed from 1998 to 2008; and the extent to which
firm characteristics such as organisational size or the presence of a manager whose
principle responsibility is HR, differentiate the prevalence of HRM practices.
Recruitment practices
The analysis of recruitment practices is presented in table 1. Apart from the

recruitment practices listed in table 1, respondents were asked to ‘specify any
other recruitment practices used’. Only two individual responses were
recorded, including: ‘returning people train overseas’ and ‘apprentices through
group training’.
It is evident from table 1 that there was a high level of adoption in 11 of
the 29 recruitment practices; a moderate level of adoption in relation to 10
practices and a low level of adoption in 8 practices regarding recruitment
practices measured in 2008. The most popular practices included written job
descriptions and specifications; general internal and external recruitment
practices; and newspaper advertising. Between 80 and 90% of firms also
employed referrals by employees and other sources. Role specifications were
among the most popular recruitment practices.
Eleven of the 15 initial recruitment practices measured in both surveys
showed an increase, with only 4 practices indicating a decrease. Some noticeable

162
Table 1 Recruitment practices
% Critical ratio Without

Change (% change / Size: Size: With HR HR
2008− standard small medium manager manager
Recruitment practices 2008% N 2007% N 1998 error±) % % % %
Written job description/specification 96.2 1154 95.9 1317 0.3 0.4 95.4 97.0 97.7 94.2
External recruitment methods 95.0 1142 na na na na 92.8 97.1 95.4 94.1
internal recruitment methods 94.5 1139 na na na na 90.8 98.1 97.2 91.3
Asia Pacific Journal of Human Resources
Newspaper advertising 91.4 1085 94.6 1300 −3.2 −3.2 90.2 92.6 92.0 91.1
Referrals by employees 89.4 1034 84.9 1082 4.4 3.3 90.0 88.7 92.3 86.1
Role specification 88.5 1019 na na na na 86.2 90.8 92.6 83.7
Referral from other sources 81.3 929 74.5 876 6.9 4.0 80.9 81.8 85.9 76.7
2010 48(2)
Job analysis 78.3 887 88.0 1095 −9.7 −6.3 71.8 84.5 84.7 69.6
Private employment agency 76.2 884 81.0 1072 −4.8 −2.9 68.7 83.3 83.4 64.6
Internet recruitment 72.7 845 9.2 103 63.5 40.5 69.9 75.4 77.3 68.1
Advertising via bulletin board/news letter 72.4 840 na na na na 62.4 82.1 80.8 62.0

Recruitment consultants 66.1 761 na na na na 54.4 77.7 78.2 50.3
Competency profiling 62.9 701 na na na na 51.3 74.3 72.6 51.6
Walk-ins 52.7 597 46.2 552 6.5 3.2 51.4 53.9 52.2 53.2
Labour hire firms 51.2 588 na na na na 38.5 63.7 59.3 41.8
Employee requisition forms 48.1 533 na na na na 35.8 60.2 59.4 33.5
(Continued)
Table 1 (Continued)

2008− standard small medium manager manager
Recruitment practices 2008% N 2007% N 1998 error±) % % % %
Executive search firms 40.7 468 na na na na 27.7 53.6 51.0 28.7

Internal data base search for internal applicants 38.9 438 na na na na 28.2 49.2 50.5 24.7
Professional associations 37.5 425 27.4 305 10.1 5.2 34.3 40.7 45.0 29.0
Educational institutions’ recruitment services 36.7 413 22.9 257 13.8 7.2 30.4 43.1 46.3 23.8
Government employment agency 35.7 404 58.1 692 −22.4 −11.1 37.3 34.0 37.7 32.7
Acquiring new staff through mergers or acquisition 29.6 335 na na na na 21.0 38.3 33.5 25.5
Middle–level managerial agencies 29.4 329 na na na na 17.4 41.6 37.5 20.1
Recruitment strategy specifically targeting older workers 20.9 234 na na na na 13.5 28.2 26.5 13.8
Job analysis computer software 17.7 194 na na na na 16.0 19.6 19.5 16.0
Advertising in magazines 16.1 180 8.0 89 8.1 5.9 8.7 23.4 19.0 11.3
Direct mail 15.3 174 8.0 89 7.3 5.4 12.7 17.8 16.5 14.4
Radio advertising 6.9 78 1.1 12 5.8 7.1 4.8 9.0 7.4 6.3

Television advertising 6.9 78 0.3 3 6.6 8.6 4.3 9.4 6.4 6.8
± The standard error of a percentage difference is the square-root of the sum of the percentages p (100 – p) each divided by the total sample sizes N.
HRM in Australian SMEs, 1998–2008
163
changes since previous data collection, ten years ago, were in the somewhat
predictable rise in internet recruitment (up 63.5% to 72.7% overall prevalence;
CR of 63.5). Also on the rise, with more modest increases in the order of
10–15% were the use of educational institutions’ recruitment services and
professional associations (CRs of 7.2 and 5.2 respectively). Only 4 practices
showed a decrease.
While there were very marginal increments in the otherwise low levels of
usage of traditional forms of media (magazine, mail, television and radio), the
decrements were more dramatically located in the use of government employ-
ment agencies (down 22.4% to 35.7% overall prevalence). While the use of
private employment agencies was noted as quite popular, their patronage has
decreased around 5%, perhaps indicative of the new forms of engaging recruit-
ment consultants on a more individual basis and in more specialised tasks
(bringing rather than outsourcing recruitment entirely). Somewhat more
unusually, our data indicates a 10% decrease in the use of job analysis, possibly
suggesting the further external commodification, segmentation, and profes-
sionalisation of skill sets sought in employees (skills as lumpy sets).
In terms of the profiling of the recruitment practices, there were some
large effects across the firm size and HR professional characteristics. Generally,
increasing organisational size tends to increase the likelihood of recruitment
practice. There were only two exceptions where a reverse effect towards small
firms appeared. The largest effects for firm size were in internal recruitment,
executive search firm usage, and middle-level managerial agencies. Interestingly,
the percentages for internet usage did not suggest a large power bias towards
medium-sized firms over small firms, unlike advertising in magazines which
tended to indicate the greater prevalence by increasing firm size (medium
firms were just under three times more likely to advertise in magazines than
their small firm counterparts). In all, the size effects were logical given that
the larger the firm, the greater the hierarchical specialisation and the more
popular were practices needed to uniquely recruit managers rather than
employees in general. The presence of the HR manager also tended to work
to increase the prevalence of all but a few practices. Those with nominally large
effects, were internal recruitment methods, using an internal database for
internal applicants, and the use of recruitment consultants. It should be noted
that despite the logic and explanation of such effects of either incumbent HR
professionals or of increasing firm size, neither represent results which are fully
co-dependent.
Selection practices
Table 2 reports the results regarding selection practices in Australian SMEs.

Only one additional individual response to ‘please specify any other selection
practices used’ was recorded. This was: ‘stakeholders representative on
selection panel’.

Table 2 Selection practices

2008– standard small medium manager manager
Selection processes 2008% N 2007% N 1998 error±) % % % %
Formal selection procedures 94.2 1127 86.1 1102 8.1 6.9 90.3 98.0 97.7 89.9
Structured interviews 93.4 1109 na na na na 91.7 95.0 95.3 90.4
Verbal (telephone) reference checks 93.2 1109 98.1 1338 –4.9 –6.0 88.8 97.5 95.3 90.5
One-on-one interviews 92.3 1107 94.1 1286 –1.7 –1.7 93.6 91.1 90.7 94.2
Other managers/employees have input in selection 87.6 1013 86.0 1087 1.6 1.1 83.5 91.4 88.1 87.0
design
Written reference checks 80.9 953 na na na na 76.2 85.4 83.3 78.0
Application forms 78.6 935 64.9 790 13.7 7.5 72.5 84.3 82.2 74.0
Panel interviews 77.0 905 77.3 1000 –0.3 –0.2 68.7 85.0 85.2 66.7
Line manager makes selection decision 76.1 890 79.2 1018 –3.1 –1.8 63.8 87.9 85.5 65.5
Other employees have input in final selection decision 67.7 765 63.1 773 4.6 2.4 64.4 70.8 69.8 65.9
Informal selection procedures 64.6 722 74.7 928 –10.1 –5.3 70.0 59.1 60.4 69.1
Unstructured interviews 61.8 708 na na na na 64.5 59.3 58.3 64.0
Work samples 57.7 669 na na na na 52.2 62.9 66.8 45.5
Use consultants in selection process 49.5 570 na na na na 39.2 59.5 56.8 39.0

Behaviourally based interviews 46.9 528 na na na na 37.7 55.8 58.2 33.5
Psychological tests 32.1 366 31.2 386 1.0 0.5 19.4 44.3 39.5 22.4
External consultant have input in the final selection 28.9 318 na na na na 17.9 39.4 34.5 21.4
decision
Assessment centre 16.5 186 na na na na 10.2 22.5 21.4 11.1
165
Table 2 reveals a high level of adoption in half of the 18 selection practices;

a moderate level of adoption in 7 practices and a low level of adoption in
relation to only 2 practices measured in 2008. Most popular, with over 90%
usage, were formal selection procedures, structured interviews, and verbal
reference checks. One-on-one interviews were also popular, though it should
be noted that otherwise dramatic firm-size effects differentiated formal
selection procedures (medium over small firms) and one-on-one interviews
(small over medium firms). While unstructured interviews (62%) were also
more likely to be used by small(er) firms, such selection practices were not
clustered with one-on-one interviews. The results represent only a marginal
bias of structured interviews towards medium firms, implying that small firms
are nearly as likely to employ a structured interview within a one-on-one
format. The resourcing differential between small and medium firms might
explain the size effects of selection practices.
Of interest, a second set of practices is spearheaded by the popular selection
practice of using managers/employees for input into selection (88%) with other
employees, line managers and panel interview formats (60% to 70% usage).
Again, there appears to be a size effect for medium over small firms for using
a line manager as input into selection, but arguably this is expected given the
increased likelihood of hierarchical levels in medium over small firms.
Those practices less commonly employed (16% to 50%) encapsulate stand-
ardised testing through psychological tests, assessment centres, and the use of
consultants in the process or in the input into the final selection decision. There
was some size effect with psychological tests and using external consultants in the
final selection decision used more often by medium in contrast to small firms.
Behaviourally based interviews and work samples were flexibly deployed.
In terms of change, half of the initial 10 selection practices measured in
both surveys show increments. Our results indicate that application forms
showed the greatest increase in usage over the last ten years (up 13.7% to
78.6%; CR 7.5), followed by increases in the use of formal selection procedures.
Decrements were also found in 5 of the initial 10 selection practices included
in both surveys, most notable, informal selection procedures (down 10% to
65%; CR –5.3).
Training and development practices
The results regarding training and development (T&D) practices in Australian

SMEs are presented in table 3. Apart from the responses to the practices listed
in table 3, no additional individual responses were provided by respondents to
the statement ‘please specify any other training and development practices used’.
At first glance, table 3 reveals a generally high level of indications for the
use of T&D practices. The great majority of prevalence percentages of T&D
practices are in excess of 70% (19 of the 22 practices) and a moderate level of
adoption in relation to the remaining 3 practices. For example, despite the

Table 3 Training and development practices

Training and development practices 2008% N 2007% N 1998 error±) % % % %
Does your organisation provide informal on-the- 98.2 1145 98.2 1316 0.0 0.0 97.4 99.0 98.1 98.2
job training
Formal in-house training provided by own staff 90.5 1061 85.0 1148 5.5 4.2 89.0 92.0 92.5 87.1
Management and development training 89.2 1037 73.4 986 15.8 10.5 82.7 95.4 93.3 84.1
Provide external training (e.g. provided by a training 88.4 1026 82.7 1107 5.7 4.1 83.4 93.4 91.5 84.5
body or institution)
Conduct an informal training needs analysis 86.9 977 na na na na 82.4 91.2 89.2 82.8
Formal in-house training provided by an external 86.7 998 70.7 945 16.0 10.0 79.3 93.8 92.4 79.2
consultant
Management values all forms of learning (work-related 85.3 989 na na na na 84.6 86.3 89.9 81.7
or not)
Provision of formal mentoring 83.5 959 78.3 1033 5.2 3.3 80.1 86.8 86.5 80.2
Provision of informal mentoring 83.3 956 78.3 1033 5.0 3.1 79.5 86.8 86.5 79.6

Does the organisation have formal individual 81.2 915 na na na na 75.0 87.3 81.6 80.0
development plans for employees
Management values learning as long as it’s related 80.4 897 na na na na 73.2 87.4 87.8 71.1
to performance
(Continued)
167
168
Table 3 (Continued)

Training and development practices 2008% N 2007% N 1998 error±) % % % %
Has your business increased training where a 79.6 914 71.3 923 8.3 4.8 68.7 90.2 88.5 67.5
program previously existed
Introduced formal training where none previously existed 78.7 908 76.9 1013 1.8 1.1 73.0 84.2 85.5 72.4
Formal individual development plans for employees 78.3 896 na na na na 68.1 87.8 85.8 68.8
Conduct a formal training needs analysis 77.9 887 na na na na 66.4 88.4 83.4 69.4
Evaluate the satisfaction of trainees regarding 76.7 881 na na na na 67.3 85.7 84.6 66.9
training programs
Training of a vocational or technical nature 76.5 887 72.3 972 4.1 2.4 71.2 81.4 80.4 71.2
2010 48(2)
Introduced new career paths 74.2 839 67.7 876 6.6 3.6 63.0 85.0 81.6 65.0
Does your business have a formal training budget? 70.6 830 61.3 814 9.3 4.9 59.6 81.1 78.7 62.0
Provide computer-based/aided instruction/training 66.4 756 62.1 824 4.3 2.2 60.3 72.2 77.2 52.5
Evaluate the results of training (ROI) 61.3 695 na na na na 54.3 68.0 68.3 52.5

Utilise web-based learning 52.1 597 na na na na 42.0 61.7 63.6 38.4
± The standard error of a percentage difference is the square-root of the sum of the percentages p (100 – p) divided by the sample size N.
featuring of the popularity and increase in the internet in recruitment, web-

based learning is by far the least utilised at 52% somewhat paired with a low
66% for computer-based/aided instruction T&D practices.
In terms of change over time, 12 of the 13 initial training practices measured
in both surveys reveal increments. The initial core of T&D appears to show both
the greatest increase over time (with formal in-house training provided by an
external consultant increasing by 16% over the last 10 years to 87% usage) and
the greatest likelihood of influence by larger firm size and presence of a HR
manager. Our results showed that there were no reductions in T&D practices,
underscoring an overall increase in the volume of such practices.
Compensation practices
The analysis regarding compensation practices in Australian SMEs is

presented in table 4. High levels of adoption in compensation practices were
found in only 7 of the 21 compensation practices measured in 2008; moderate
levels of adoption of 9 practices and low levels of adoption of the remaining 5
practices. While generally the range of usage of compensation practices is quite
diverse, there is a general trend of net reductions in the prevalence of practices
over the last ten years. Unlike the ubiquitous increases in T&D practices,
almost all compensation practices have experienced some degree of decline
since 1998 (12 of the 13 initial compensation practices measured in both
surveys). Affirmative responses to our general statement in the questionnaire,
‘Employees are recognised in other ways (than take-home pay)’ fell by a
massive 41% from 1998 to 2008 to a current 59%. On the other hand, the most
commonly deployed compensation practices centre on a combination of
market competitive wages (90%), pay-based performance (87%), pay based on
acquired skills (87.7%), individual merit pay (76.2%), use of job evaluation to
set pay levels (82.8%) with a further pairing of salary packaging approaches
(76% and 79% salary sacrificing), and finally a generic pay levels based on
awards classification (85%).
Less prevalent compensation practices bracket incentive compensation
(56% including those based on company performance at 47%) with bonus plans
(59%) and then individual incentive programs (50%), group/team incentive
programs (46%) and business unit-based performance pay (41%). With even
lower usage rates are employee share scheme and plan (16%), commission
plans (28%), profit sharing/gain sharing schemes (28%) and project team incen-
tives (21%). The greatest calculated decrement in specific compensation
practices over ten years is with the latter profit sharing showing a 15% drop to
28% usage. Similarly there was a 12% drop in the use of bonus plans from 1998
to 2008.
Of all functional HR practices, the compensation practices show the least
influence of firm size and presence of HR manager effects.

170
Table 4 Compensation practices

Compensation practices 2008% N 2007% N 1998 error±) % % % %
Market competitive wages 90.5 1055 89.4 1168 1.0 0.9 89.1 91.8 91.8 88.7
Pay based on acquired skills 87.7 1022 90.9 1200 –3.3 –2.6 84.9 90.3 88.3 86.3
Pay based on performance 87.0 1028 92.5 1258 –5.5 –4.5 88.1 86.1 88.1 85.3
Pay levels based on awards classification 85.3 1010 86.9 1163 –1.6 –1.2 82.9 87.6 86.9 82.6
Use of job evaluation in setting pay levels 82.8 965 90.5 1185 –7.7 –5.6 78.2 87.2 86.7 77.4
Flexible salary packaging (with salary sacrificing) 79.3 915 na na na na 74.2 84.2 82.9 73.5
Salary packaging (with fixed benefits) 76.2 893 na na na na 72.5 79.8 80.0 71.3
Individual merit pay 76.2 879 na na na na 76.2 76.2 78.5 72.3

Employees recognised in other ways (than take-home 59.0 668 100.0 667 –41.0 –28.1 54.7 63.2 66.5 48.8
pay, etc.)
Bonus plan 58.6 674 70.5 923 –12.0 –6.2 55.9 61.1 60.8 54.2
Incentive compensation 56.5 650 na na na na 53.6 59.4 61.8 50.0
2010 48(2)
Individual incentive program 49.8 570 56.2 713 –6.4 –3.2 49.6 50.0 52.0 46.3
Incentive compensation pay (pay based on performance 46.9 536 na na na na 43.1 50.8 54.0 38.6
of the company)
Group/team incentive programs 45.5 525 46.4 586 –0.9 –0.4 42.7 48.2 48.3 41.6
Pay (based in performance of business unit) 40.5 461 na na na na 36.4 44.5 47.0 32.3

Pay base on seniority 39.9 456 39.9 507 0.0 0.0 39.3 40.5 37.9 42.1
Benefits other than superannuation(e.g. life insurance, 38.3 437 48.0 604 –9.7 –4.8 30.8 45.8 45.6 29.6
health insurance)
Profit sharing/gain sharing schemes 28.4 324 43.1 550 –14.7 –7.7 26.4 30.4 33.8 20.9
Commission plan 28.1 321 na na na na 27.9 28.3 32.5 24.4
Project team incentive plan 20.9 237 na na na na 18.0 23.8 22.3 19.1
Employee share plan 16.4 186 na na na na 10.1 22.8 23.0 7.5
Employee share scheme 15.6 177 16.4 206 –0.8 –0.5 10.1 21.2 21.4 8.6
± The standard error of a percentage difference is the square-root of the sum of the percentages p (100 – p) divided by the sample size N.
Forty-two (3.5% of total sample) individual respondents also provided

additional responses to the statement ‘please specify any other compensation
practices used’. These included: gifts (such as product discounts, books, CDs,
DVDs, gift cards, gift vouchers, flowers, knock-off drinks, meals in a restaur-
ant, reward holidays, entertainment; fruit baskets; trips away, vouchers for
restaurant, spa treatments; one-off vouchers, payments of club fees); paid gym
membership; travel and vehicle benefits (such as company vehicle, private use
of company vehicles, paid car-parking fees, travel opportunities; petrol;
commuter allowance); social events (such as red balloon day; morning teas);
recognition reward and recognition program (such as awards, monthly
awards, discretionary bonuses, employee-of-the-month scheme, employee
suggestion box, material bonuses, tools, certificates, five-year service awards);
education (such as time off for study relevant to employment, paid for
education); working time flexibility (time in lieu, flexibility, time off; flexible
work hours, up to 25 days additional annual leave, home/workplace balance).
Performance appraisal practices
Finally, the results regarding performance appraisal (PA) practices in Australian

SMEs are presented in table 5. Apart from the practices summarised in table 5,
only two individual responses were recorded to the statement ‘please specify
any other appraisal practices used’. These included ‘internal self generated
system’ and ‘appraisals are offered to staff if they want them or if we deem
necessary’.
Only 3 of the 19 PA practices in table 5 revealed a high adoption rate. A
moderate level of adoption was found in 12 practices and a low level of
adoption in the remaining 4 practices. In terms of greatest usage, formal PA
system and management by objectives (goal setting) were most prevalent at
82%, with appraisees receiving formal feedback on their PA next most
commonly used at 78%. With the addition of a slightly less-used practice of
rating performance on a scale (63%), these four practices make up the most
common PA practices.
A moderately popular use of informal PA (68%), or (not and) examining
critical incidents are most flexibly associated with two further identifiable
subgroupings of PA practices. These comprise both managers (appraisers, 58%)
employees (appraisees, 60%), and linking performance to strategy (52%),
informal mentoring (65%) and formal mentoring (48%). Other elements
include the usage of the balanced scorecard and 360 degree feedback.
Less prevalent PA practices include usage of assessment centres (11%),
consultants (18%), behaviourally anchored scales (15%), forced choice
surveys (22%), narrative essays (37%) and finally ranking employees on job
performance (34%).
Increases in the prevalence of practices over the last ten years were found
in 4 of the initial 5 practices measured in both surveys. In terms of change in

172
Table 5 Performance appraisal practices

Performance appraisal practices 2008% N 2007% N 1998 error±) % % % %
Management by objectives (goal setting) 82.0 941 76.7 1013 5.3 3.3 76.2 87.8 89.8 74.1
Formal PA system 81.5 950 74.1 1001 7.3 4.4 72.9 90.2 91.0 70.6
Do appraisees receive formal feedback on their PA 77.7 890 na na na na 69.0 86.7 87.5 66.9
Informal PA 67.7 753 78.9 1035 –11.3 –6.3 67.2 68.1 63.6 72.8
Informal mentoring is use as part of the PA system 65.4 749 na na na na 62.2 68.6 69.6 59.6
Performance is rated on a rating scale 62.8 719 48.4 621 14.4 7.2 54.4 71.2 74.3 49.4
Provide training to employees who receive PA 59.5 680 na na na na 48.1 71.3 71.8 46.0
Provide training to managers who appraise performance 58.4 674 na na na na 44.8 72.3 71.6 42.3
Critical incidents (dairy keeping of on-the-job behaviour) 57.0 647 na na na na 54.9 58.9 60.0 55.0
PA system links individual performance to business unit 52.2 581 na na na na 40.1 64.8 67.5 35.0
or company strategy
2010 48(2)
360 degree appraisal ( feedback by multiple sources 49.4 563 na na na na 41.3 57.7 54.6 42.2
i.e. supervisors, sub, peers, customers)
Formal mentoring is used as part of the PA system 47.7 540 na na na na 41.3 53.9 54.4 40.0
Narrative essay (unstructured report on performance) 37.0 413 20.6 255 16.5 8.9 36.4 37.7 45.0 27.8
Ranking (ranks employees on job performance) 34.0 381 na na na na 32.0 36.0 43.8 20.1

Balanced score card approach (measures contribution 33.3 371 na na na na 25.1 41.8 44.2 21.4
to org vision and strategy)
Forced choice (chooses description that most applies 22.4 248 na na na na 19.7 25.1 29.6 14.1
to employees)
Are consultants use as part of the PA system 18.3 207 na na na na 12.2 24.3 24.9 10.7
Behaviourally anchored rating scales (BARS) 15.3 168 na na na na 13.5 17.1 22.8 6.4
Assessment centre 10.9 120 na na na na 8.0 13.9 16.2 4.5
these 5 initial practices since the 1998 data, the 2008 data shows several poten-
tially unrelated trends. First, there is a marked increase in the use of narrative
essays (up 16.5% to 37%) possibly indicative of requirements for employees to
reflect and utilise written text to articulate their performance progress. Second,
there is an unrelated (not shown) increase in respondents indicating that
performance is rated on a rating scale (up 14.4% to 63%). Arguably, this may
represent a movement towards overarching performance appraisal guidelines
and policy which are not necessarily related to specific practices in undertaking
appraisal. Finally, there is a decline in the prevalence of informal PA of the
order of 11% down to a usage of 68%.
The relative profile of PA practices by firm size and presence of HR
professional reveals some interesting results. Those most prevalent practices
first discussed (e.g. formal PA system, MBO, formal feedback) tend to be more
likely to be engaged by larger (medium) over small firms and by those firms
with a HR professional employed over those without. The declining informal
PA (currently in moderately high use at 68%) is more likely in those firms
without a HR professional. Looking at the first subgroup of training and
mentoring, we can see a division between PA training among managers and
employees towards larger and HR professional incumbent firms; then again,
formal and informal mentoring is much more equitable. Finally, among our
second set of PA practices, which tend to comprise specific PA practices
relating to measurement (e.g. assessment centres, narrative essays, etc), PA
practice likelihood increases with the presence of a HR professional; though,
size tends not to have the same effect.
Discussion: Bleak house or bright prospect?
Our paper has three research questions suspended under the objective of deter-
mining whether Australian SMEs could be described as ‘bleak houses’ or
whether they have developed into ‘bright prospects’ characterised by HR innov-
ations, over the last decade. It is necessary to apply these research questions in
order to understand the nature of the results in the context of firm and profes-
sional characteristics. Our first question focuses on the prevalence of HRM
practices over five traditional areas. The second question addresses the extent
to which these prevalences have represented change over ten years to 2008.
The third research question determines the extent to which key firm charac-
teristics, such as firm size and the presence of a HR manager, differentiate the
patterning and prevalence of HRM practices.
The five areas of HRM practices
In relation to the prevalence of recruitment, overall, SMEs have a moderate to

high affinity for the ‘bright prospect’ (Wiesner and McDonald 2001) rather

than the ‘bleak house’ scenario (Sisson 1993). Regarding the prevalence of
recruitment in SMEs, there was a high level of adoption in 2008 (an adoption
rate of more than 70% by SMEs) in 11 of the 29 recruitment practices; a
moderate level of adoption was revealed in relation to 10 practices and a low
level of adoption in 8 practices regarding recruitment practices measured in
2008. Therefore 72% of the recruitment practices presented in this paper were
adopted by Australian SMEs to a moderate or high level. This presents a
‘bright prospect’ recruitment picture for Australian SMEs in view of Delaney
and Huselid’s (1996) work. They argue that incompatibility between the indi-
vidual and the organisation can hamper performance levels, while a
stringent/sophisticated recruitment and selection system that takes personal
characteristics and long-term potential into account, and tests candidates’ suit-
ability for the organisation, can succeed in finding the best candidate. They
found a positive correlation between staff selectivity and firms’ perceived
performance in 590 for-profit and non-profit firms.
The results suggest the dominance of certain types of practices amidst an
undercurrent of at least two important changes. The first is the rise of different
modalities in media, specifically the internet, which is embraced into main-
stream practices. In short, the internet represents a modality in its own right,
and is embedded into popular core recruitment practices. The second is the
rise of externally organised institutional engagement associated with educa-
tional institutions and professional associations. We couple the decline in job
analysis as indicative of this shift from internally defined skill requirements
and the firms’ preference for, or usage of, externally defined skill sets.
Nonetheless, the shifts in recruitment have not been unidirectional.
Among recruitment practices our findings are suggestive of a trade-off
between an increasing reliance on external recruitment (notably, informal
selection procedures were down 10% from 75% to 65%) and non-internalised
technologies such as the internet.
In relation to the prevalence of selection practices, overall, SMEs have a
moderate to high affinity for the ‘bright prospect’ scenario (Wiesner and
McDonald 2001). There was a high level of adoption in half of the selection
practices measured in 2008; a moderate level of adoption was revealed in
relation to 7 of the 18 measured selection practices and a low level of adoption
in only 2 selection practices. Therefore 89% of the recruitment practices
presented in this paper were adopted by Australian SMEs to a moderate or high
level. As in the case with recruitment, this represents a ‘bright prospect’ picture.
The most common selection practices were led by formal and structured
interviews with verbal telephone reference checks. As well, using internal
managers and employees with more unstructured interview approaches may
include panel interviews (but somewhat surprisingly not one-on-one inter-
views). The least used practices appear to be the use of standardised assessment
tests and centres with the assistance of external consultants. The popularity of
interviews found in the present study is consistent with the results of studies

by Heneman III and Berkley (1999); Hornsby and Kuratko (2003); Kotey and
Sheridan (2004); Kotey and Slade (2005) and Golhar and Desphande (1997).
The studies by Golhar and Desphande (1997) and Tanova (2003) were the only
two that qualified the type of interview as a ‘one on one’ (informal) interview.
The remaining studies did not qualify whether it was a one-on-one or panel
interview. Yet, Henemann III and Berley (1999) discovered that evaluation was
in fact decentralised with a number of people such as the candidate’s potential
supervisor and fellow employees being consulted about the suitability of candi-
dates. This is consistent with the finding in the present study that panel inter-
views are relied upon by the majority of respondents.
The size effects showed that small firms tended towards using unstruc-
tured, one-on-one interviews and informal selection procedures, although our
data indicates (not shown in table 2) that such practices were not used concur-
rently. However, all three unique practices were also found to represent the
same kinds of effects associated with the absence of a HR manager. The larger
medium-sized firms tended to use formal interviews with reference checks,
and psychological tests. Where the presence of a HR manger tended to differ-
entiate the increased use of a practice, we found formal selection procedures
and the use of line managers to make selection decisions.
There are some interesting implications of these results in relation to
selection. First, smaller firm size tends to align with the absence of a HR
manager in favouring informal, unstructured, and one-on-one approaches to
selection. Nevertheless, we cannot claim our results indicate any kind of
systemic danger in the use of such practices as (i) informal practices are in
decline generally and (ii) one-on-one interviews are not always associated with
unstructured interviews. On the other hand, selection practices seem to utilise
internal managers logically with increasing firm size, or empirical selection
techniques with incumbent HR professionals. While the rise in application
forms, and formal selection procedures appear to match the decline in informal
selection procedures, it is possible to align this effect with larger firm size and
the presence of a HR professional. Against the general trend, smaller firms
without a HR professional do appear to more strongly support informal
selection practices.
Our results with regards to training and development practices give us the
most hope that SMEs in Australia have at their core an interest in developing
skills within their employees which are expected to return productivity to the
firm. Hughes et al. (2002) provide evidence that SME managers in the UK
have a mixed reaction to formal T&D. On one hand, formal T&D is seen by
SMEs to lead to better motivated staff, higher productivity and larger business
growth, but on the other hand, they see formal training as resulting in
increased wages, more disruption in the workplace and poaching of staff by
competitors and larger firms. There is significant evidence in the literature
that informal training is the most widely used T&D method by SMEs (Smith
et al. 2008; Torrington and Huat 1994; Wexley and Latham 2002).

The T&D picture in Australian SMEs seems to differ slightly from the
scenario presented by the previous authors. The findings of our 2008 study
indicate that there is a high level of adoption of both formal and informal
training practices by Australian SMEs. Nineteen of the 22 practices measured
in 2008 are adopted by more than 70% of participating SMEs and a moderate
level of adoption is found in relation to the remaining 3 practices.
There were net increases in every matched training and development
practice analysed over the ten year comparison. Despite this optimism, there
remain significant effects of reducing this focus for smaller firms and those
without HR professionals: This was most marked with respect to the least
utilised use of IT in training and development and the result is interesting
given the popularity of internet recruitment, but suggestive of the disjuncture
between engaging internet recruitment and internalising it through technology
uses which might flow into other areas of HRM. Clearly the latter is not the
case, at least among small firms or firms without a HR professional.
Regarding the prevalence of compensation practices in 2008, overall,
SMEs lean towards the ‘bright prospect’ scenario. Eight of the 22 compen-
sation practices were adopted at a high level, 9 at a moderate level and the
remaining 5 at a low level. Therefore 77% of the performance appraisal
practices presented in this paper were adopted by Australian SMEs to a
moderate or high level.
Conversely, in stark contrast to the flourishing of T&D practices, diversity
and prevalence of compensation practices have withered over the last ten years.
Among the top 4 most popular practices only one did not significantly indicate
decline: pay based on award classification. Given the incremental but funda-
mental changes to the Workplace Relations Act over the last ten years this
result would not be obvious or expected. The ubiquity of this effect is demon-
strated more equitably across both small and medium and firms with and
without HR manager effects.
Yet our analyses find that there are alternatives to the mainstream
compensations practices. The most prevalent ‘alternative’ compensation
practices revolve around incentive programs and plans as either individually
or group/team and company-based. A more rarely engaged set of alternatives
comprises employee share and profit share schemes, but perhaps most notice-
ably, both alternatives have main elements which appear to be reducing at a
greater rate than most common compensation practices. Our findings indi-
cating influence of firm size and presence of a HR professional tend to
implicate a greater externalisation of causes which is having a general impact
of reducing compensation practice diversity and usage.
In relation to the prevalence of performance appraisal practices, overall,
SMEs lean towards the ‘bright prospect’ scenario. There was a high level of
adoption in 3 of the appraisal practices measured in 2008; a moderate level of
adoption was revealed in relation to 12 of the 19 measured appraisal practices
and a low level of adoption in the remaining 4 practices. Therefore 80% of the

performance appraisal practices presented in this paper were adopted by

Australian SMEs to a moderate or high level.
Performance appraisal does not appear to reflect the kind of homogenisa-
tion occurring among compensation practices. With a significant decline in
informal PA, there were marked increases in the use of both rating scales and
narrative essays indicating the maintenance of a formal but flexible perform-
ance appraisal system. This is in contrast to Cassell et al.’s (2002) UK study
which found that SMEs employ mainly a variety of informal systems and
appraisals are employed in a fairly ad hoc manner. A worthwhile area for
future research that would explain the reasons behind the current perform-
ance appraisal picture found in our study is exploring the attitudes of
Australian SME managers regarding various types of appraisals as well as for
what purposes it is used in Australian SMES.
The dominant PA model is propelled by larger firm size and the presence
of a HR professional. HR professionals bring with them access to empirical
approaches to PA, and reductions in informal PA practices, which cannot be
solely put down to (covariation with) the size of the firm. Additionally, while
mentoring was moderately popular (and tends to be associated with training
related to PA practices), it is more likely to be free of any influence of firm size
or HR professional. Overall, we find the usage of PA practices complex and
somewhat related to the unique presence of a HR professional.
Overall assessment
According to the findings in this paper, SMEs have a moderate to high affinity
for the ‘bright prospect’ (Wiesner 2001) rather than the ‘bleak house’ scenario
(Sisson 1993) in relation to HRM. Regarding the prevalence of HRM practices
over five traditional areas, the findings of our study revealed a high adoption
of 49 of the 110 practices (44.5%) (an adoption rate of more than 70% by
SMEs). This includes: 11 of the 29 recruitment practices; 9 of the 18 selection
practices; 19 of the 22 training practices; 7 of the 22 compensation practices;
and 6 of the 19 PA practices. Thirty-eight of the 110 practices (38%) were
adopted at a moderate level (an adoption rate of between 31% and 69% by
SMEs). Therefore 82.5% of the practices presented in this paper were adopted
by Australian SMEs to a moderate or high level.
In relation to the extent to which these prevalences have represented
change over ten years to 2008, 44 of the initial 59 practices (74.5%) measured
in both surveys, across the five HR areas, have revealed increments in use.
Therefore, in all, there have been significant shifts in the prevalence of HR
practices across all functional areas.
Our findings also show a strong increase in the role and focus on training
and development which centres it in our results. If our study had started and
finished within training and development our overall assessment would be
extremely bright for Australian SMEs. There are, nonetheless, factors that

indicate that the ‘bright prospect’ may be rather murkier than indicated by the
overall prevalence of HR practices. Against the ‘bright prospect’ is an inter-
esting disjuncture between a formal and flexible performance appraisal system
and a homogenisation, or reduction in the diversity, of compensation practices.
To some extent the Australian political landscape explains part of this ubiqui-
tous result: legislative changes to Australia’s Workplace Relations Acts have
laid the operational conditions consistent with our highest compensation
practices as ‘Market competitive’, ‘Based on skills’ and ‘Performance’ and given
a 41% reduction in ‘Other ways of compensating’ and the relatively highly
prevalent salary sacrificing/packaging as flexible alternatives. We look eagerly
to the near future to explore the changing political and institutional environ-
ment and its impacts upon SME usage of compensation practices.
Our results show some interesting patterns of recruitment and selection
practice usage. In regards to recruitment practices, our results are consistent
with an increasing reliance on external sources of employees, which could be
related to a shift towards a compartmentalisation or packaging of employee
skills. Our results, at least in their descriptive form, do not yet show how this
move towards external sources of employee recruitment bears out on training
and development within SMEs. One possible explanation, not directly measured
in this study, is that outsourcing in some areas, but not others, represents
increasing strategic fit among SMEs (Woodall et al. 2009). While the positive
benefits are potentially in the standardisation of employee skills, the lessons from
the 1990s from firms reducing their T&D budgets and suffering from an
inability to cope with change are readily apparent in our contemporary times.
Our findings revealed that to some extent, organisational size covaries
with HR professional, but the results did not indicate a one-to-one relation-
ship between HR professionals and larger firm size (medium over small firms).
What this means, importantly, is that HR professionals are not instrumentally
a mediated agency of firm size and resources. The increase in prevalence of
HR professionals in SMEs is testament to this point. The advantages of size
we treat separately to the impact of incumbent HR professionals. The impact
of a HR professional can provide an insight into what relief HR professionals
can bring to the question of bleak house for SMEs.
Furthermore, even though our results indicate that the adoption by
Australian SMEs of HR practices in 2008 could be described as moderate to
high, an absence among critical variables, specifically the presence of HR
managers, unionised workforces and strategic planning, tarnishes the ‘bright
prospect’ scenario. Even though our findings indicate a greater presence of a
designated manager whose principle responsibility covered human resource
management in 2008 compared to 1998 (31% in 1998 compared to 55% in
2008), the lack of union membership remained the same, with both the 1998
and 2008 survey reporting that 53% of respondents indicated that their organ-
isation had at least one union member with more than two-thirds of the
sample estimating that there was less than 10% union membership.

Furthermore, our findings in 2008 indicate that a formalised strategic plan

which is used to develop operational plans and drive day-to-day operations is
employed in only 58% of SMEs compared to 66% of respondents who reported
the existence of a formalised strategic plan in 1998.
Considering these findings, a similar question asked initially by Legge
(2005) in relation to UK organisations could be posed: even though there is
considerable survey evidence for a significant adoption of practices associated
with HRM, there are question marks as to whether this adoption has much
depth, and how many of these HRM initiatives could be called strategic?
Legge (1995; 2005) argues that the strategic integration and coherence of
both ‘hard’ and ‘soft’ HRM models is the defining characteristic of ‘true’ HRM.
Hard HRM stresses the ‘resource’ aspect of HRM and is referred to as ‘utili-
tarian’ and soft HRM places an emphasis on ‘human’, is associated with the
human relations school of Herzberg and McGregor (Storey 1987) and is
referred to as ‘developmental humanism’ (Legge 1995, 66–7).
The lack of strategic planning in the majority of our respondent SMEs
could therefore contribute to the difficulty of developing a strategic approach
to HRM in SMEs (Barrett and Mason 2007). Legge (2005) also argues that
HRM initiatives in the UK were more frequently associated with unionised
workplaces. Furthermore, unionised firms were significantly more likely to
use a greater range of methods of employee communication and to utilise
forms of task participation.
Against this backdrop, our findings indicate a low up-take of HR par-
ticipative practices. This is significant for the effectiveness of both the manage-
ment of employees and the performance of the SME, given the links between
participation and the performance of firms. The claims made for employee
participation relate to SME performance: first, that it leads to increased
employee satisfaction; second, that improved productivity follows; and, third,
that it promotes improved rationality and legitimacy leading to greater effec-
tiveness of management decision-making (McNabb and Whitfield 1998;
Mariapa 1998). Participation can provide a means for management to improve
efficiency within the organisation, create industrial harmony between manage-
ment and employees, and provide a forum for grievance resolution as well as
constitute a means towards industrial democracy within the organisation
(McNabb and Whitfield 1998; Mariapa 1998).
Only one participative practice, ‘other managers have an input into
selection design’ in both the 1998 and 2008 results has a high adoption rate. All
other participative HR practices fell below the 70% threshold for a high level
of adoption including employee input in selection decisions (63% in 1998 and
67.7% in 2008), 360 degree appraisals (49.4% in 2008), profit sharing (43% in
1998 and 28.4% in 2008), employee share schemes (16% in 1998 and 2008), and
group incentive programs (46% in 1998 and 2008). The ‘bright prospect’ is
therefore fogged up by the relatively poor performance with respect to par-
ticipative HR practices.

Conclusion
In conclusion, ‘do Australian SMEs constitute an estate of bleak houses or

houses with a bright prospect’? While the neighbourhood clearly has indi-
vidual establishments that are examples of both extremes, it seems to be devel-
oping towards a middle class to elite suburb. The adoption by Australian
SMEs of HR practices may be described as moderate to high, which is a
positive shift away from the moderate picture portrayed in 1998 study. SMEs
therefore need less of a make-over in relation to the adoption of HR practices,
compared to ten years ago. Our findings also support the argument that
employee management in SMEs are characterised by a greater prevalence of
HRM practices than would be expected (de Kok and Uhlaner 2001; Duberley
and Walley 1995). Conversely, there are definite shades of grey when consid-
ering the absence among critical variables, specifically the presence of HR
managers, unionised workforces and strategic planning, which tarnishes the
‘bright prospect’ scenario. Finally, our study provides an objective summary
of SMEs’ HRM practices in Australia.
While the study has its strengths in its sample representativeness of the
population of SMEs, it does not provide rich descriptions of SMEs’ need for
particular practices, as such associated with qualitative approaches. Nor does
it address the complex and blurred interactions within organisational settings,
consistent with case study methodology. In spite of this, one limitation in
research on strategic HRM in SMEs is the qualitative nature of most of these
studies which are presented as ‘thought pieces’ and descriptive case studies
(Heneman et al. 2000). In view of this Heneman et al. (2000, 11) concluded
that the lack of information about human resources in SMEs is problematic
for theory, research and practice. Heneman et al. (2000) conducted an extensive
literature review of 403 articles on HRM, of which 129 specifically addressed
human resource topics in SMEs. Only 14 of these apply quantitative methods
to analyse the available information and only 17 (13 per cent) of 129 articles
used analytical statistics to test specific hypotheses.
While our survey did give respondents the opportunity to add additional
HR practices not measured in the questionnaire and very few respondents
added additional practices, it did not explore any obsolete practices in SMEs.
However, while our present paper falls short of providing scope for suggesting
or tracing any new or additional HR practices that are appropriate for
Australian SMEs or the Asia Pacific region, and does not provide specific the-
oretical testing of the need for HRM practices, it adds to HR knowledge by
demonstrating that SMEs in Australia have good prospect in terms of human
resource innovation and our initial release of the large-sample usages and
changes in HRM practices makes a significant contribution. Furthermore, the
fact that respondents added very few additional practices to the open-ended
statement: ‘please specify other practices used’ is an indication that our study
seems to have measured a quite exhaustive list of practices. Therefore, since no
other study could be identified that measures a more exhaustive list of HR

practices regarding the five particular HR functions measured in our survey,

this study makes a contribution to the measurement of HRM in SMEs generally.
Even though both samples in this study (1998 and 2008) maintain some
similarity, a particular shortcoming in the sampling process could be identi-
fied. The comparability of these two samples could have been improved by
using a greater degree of judgemental sampling which would have made the
two samples more comparable – by having the exact same proportion of small
and medium-sized enterprises, manufacturing and service industry distribu-
tion as well as area-wise distribution.
Our forthcoming research focuses on the effectiveness and patterning of
HRM practices among our sample and the contribution of specific HRM clus-
tering to firm performance. Furthermore, future issues point in several crucial
directions at this time. These include investigating the impact and importance
of both the changing political environment in the Australian context, and the
interrelated global financial crisis. To what extent do such environmental and
institutional changes disrupt, puncture, and provide a context to which SMEs
and the structural and operational changes to practices respond? We have
provided but the initial tracing of the direction and structure of change for
which future research could easily draw a number of pertinent research foci.
The significance of our findings to the Asia Pacific region lies in the
importance for SMEs to become more competitive. Owing to the major struc-
tural changes in the Australian economy, increasing internationalisation
through tariff protection for manufacturing, the introduction of a number of
microeconomic reforms including industry regulation and privatisation, recon-
figuration of the labour market, and the introduction of new competition
policy, there is a need for SMEs to engage in continuing efforts to increase
productivity through workplace change initiatives involving the better util-
isation of human resource capabilities (Mylett and Zanco 2002). It has been
argued that the source of sustained competitive advantage lies in the human
resources themselves, and not in the practices used to attract, utilise or retain
them (Ferligoj, Prasnikar and Jordan 1997; Wright, McMahan and
McWilliams 1994). Conversely it has also been argued that HRM practices
themselves can be viewed as organisational competencies, such as the ability
to attract and motivate employees and deal with internal politics and so forth
(Barney 1991; Narasimha 2000; Oinas and van Gils 2001; Paauwe 1998). Using
either interpretation, human resources could be viewed as important contrib-
utors to the success of SMEs within the Asia Pacific region. This necessitates
a constant redesign and review of work and human resource practices in order
to ensure responsive and successful change which contributes to the competi-
tive advantage of SMEs in the Asia Pacific region (Mylett and Zanco 2005).
The real benefit of the current study to the wider Asia Pacific context is
likely to become more apparent when the next phase in the current study is
realised, through comparative studies in other selected member countries of
the Asia-Pacific Economic Corporation. These direct HRM comparisons will
enable a better HRM conceptualisation of the Asia Pacific region.

Retha Wiesner (PhD) is associate professor in human resource management in the School of
Management and Marketing at the University of Southern Queensland, Toowoomba, Australia.
Her current research interests focus on human resource management, organisational change and
strategy in small and medium-sized enterprises.
Peter Innes (PhD) is senior lecturer in the Faculty of Arts and Social Sciences at the University of the
Sunshine Coast, Maroochydore, Queensland, Australia. His research focus is in organisational change
and research methods.
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Asia Pacific Journal of Human Resources 2010 48(2) 151

Bleak house or bright prospect?:

Keywords: Australia, human resource management, SMEs

Recent economic turbulence has underscored Australia’s dual reliance on

This project was conducted with a USQ research grant.

Correspondence to: Associate Professor Retha Wiesner, Faculty of Business, University of

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appear to attract less attention in research than would be their proportional

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influence of an absence among critical variables, specifically the presence of

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By studying these issues, the aim of this paper is to determine whether

Analysing the prospects of SMEs through the lens of HRM

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in relation to innovative employee management initiatives, and specifically

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Research objective and questions

In view of the discussion above, the objective of this research is to determine

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The analysis of recruitment practices is presented in table 1. Apart from the

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Table 1 Recruitment practices

% Critical ratio Without

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% Critical ratio Without

Executive search firms 40.7 468 na na na na 27.7 53.6 51.0 28.7

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Table 2 reports the results regarding selection practices in Australian SMEs.

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% Critical ratio Without

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Table 2 reveals a high level of adoption in half of the 18 selection practices;

Training and development practices

The results regarding training and development (T&D) practices in Australian

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% Critical ratio Without

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% Critical ratio Without

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featuring of the popularity and increase in the internet in recruitment, web-

The analysis regarding compensation practices in Australian SMEs is

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Table 4 Compensation practices

% Critical ratio Without

Individual merit pay 76.2 879 na na na na 76.2 76.2 78.5 72.3

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Forty-two (3.5% of total sample) individual respondents also provided

Performance appraisal practices

Finally, the results regarding performance appraisal (PA) practices in Australian

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Table 5 Performance appraisal practices

% Critical ratio Without

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Discussion: Bleak house or bright prospect?

The five areas of HRM practices

In relation to the prevalence of recruitment, overall, SMEs have a moderate to

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