The human resource management is a very broad concept. Each and every company should have HRM practices within their firms. Australian economy is fully depending on small businesses because 60% of the businesses are small firms. There are two types of small firms one is micro firms having less than 5 people and second one is other small firms having 4 to 20 people. As the firm increasing their employees the owner must learn and develop the HRM policies. These days valuing the human capital is essential to being successful in the business whether the business small or big or family firms or non family firms. This essay firstly defines the small and big firms in Australian context. Then it will demonstrate the HRM practices changes as the firm grows and discuss the growth cycle. Finally, this essay will explore the pros and cons of the HRM practices within small firms.

As per the Australian tax office the small organizations are those who having income lower than $ 10 million. However on the other side Australian Bureau of statistics states that an organization is small if it employs less than 20 employees and medium if it employs up to 199 employees. (Kotey & Sheridan, 2004).

The small firms of the Australia are very small if compare with Europe and the US. According to them small firm if it employs 200 to 500 employees. For that reason these concepts of formalizes and non formalized HRM function only applicable to Australian firms and Australian context only. (Barret & Mayson, 2007).

HRM practices in small and big firms:

According to Kotey and Slade (2005) they did survey on the small and medium firms they found that HRM practices increases as the firm growing from small to larger organization. ( Price, 2007).

Some studies in Australia found that in the small firms HRM functions like recruitment, selection and training are not done at a big scale. They are not very formal way. (Kotey, & Sheridan, 2004).

Recruitment means the finding the right staff for the organization. According to author, recruitment in a small firms generally very random. The small firms recruit family members, friends and employees whom they trust. They usually find people from their surroundings. (Marlow and Patton, 1993; Carroll et al., 1999). On the other side recruitment in larger organization is very formal. As the firm increases their size there is great need for the formalized recruitment sources like advertise in the news papers, private agencies and Government and other means of recruitment. (Kotey & Sheridan, 2004).

After the recruitment, selection is the process to decide whether the hired candidates for a short term or long term position. (Kotey & Sheridan, 2004). Effective selection procedure can improve the productivity of the organization. In the small firms selection is based on the personal decision or sometimes it is done through face to face or one to one interview.( Golhar and Deshpande,1997). In small firms owner give less focus on the previous qualification and past job experiences. ( carroll et al., 1999). This is called random selection because owners always choose candidates one level inferior to them so for this reason some times small organizations loose the best employees for the enhancement of the firm. (stanworth & Curran, 1989).

As the firms grows selection practices change in to lengthy procedure follow many steps like one to one interview, group discussion, panel interview lastly final interview panel interviews like that larger organization need to follow multiple steps for the selection. Documentations increases as the firm achieved growth. In the larger organization middle management manage the charge of HRM practices and they give more emphasis to candidate's previous qualification and past experiences. So, selection procedure is very complex in larger organization compare to smaller firms.

In the smaller organization training method is very informal generally they held on the job training that is very brief training without any supervision. (Kotey & Sheridan, 2004). In the smaller organization the owner takes the responsibility of training and owner provides all the necessary training to the employees. (Timmons, 1999)

In the small firms an employee having only one or two day training that is informal way. As the firms grow there is a need of formal training methods like in house training, online training and external training for the managers. (Price, 2007).On the other side in the larger organization, the economies of scale can be achieved through training.

Difference between family firms and non family firms:

Family firms are the main asset of the Australia. 30% to 40% businesses in Australia are the family firms. The economy is depending on these family and non family businesses. ( Miller, 2003).

The research found that the 30% to 40% of small and medium firms are family firms. The common family firms are construction, printing and publishing firms. The textile, Clothing and footwear industry are in very small amount. (Kotey, 2003). According to author the family firms differ from non family firms in terms of their goals, management functions and performance. Daily and Dollinger (1993). According to Dyer and Handler (1994), in the family firms the HRM practices and the precise documentation are not found .The way is purely informal. The family firms are not growth oriented they maintain their business within the family members. Small family firms having flat structure, they having wider span of control and very few hierarchical levels. (Samson & Daft, 2003., Kotey, 2003)

As the firm increases their size and the span of control become wide middle managers are taking the responsibility for the day to day operations and manage the operational staff. (Collins and McLaughlin, 1998).

As the firms grow the owner of the firm cannot manage whole organization by their own. The owners of the firms need middle management for that. The owner of the small firms needs to give more responsibilities to middle management so they can manage well other employees. (Slade, Peter, 2005).

compare the large firms from the smaller firms, the HRM practices are very expensive in terms time, money and resources because the owners of the small firms are not very expertise in HRM fundamentals and to take advice from the HR professional can be very costly. (Barret & mayson, 2007). Sometimes the owners of the small firms are too busy so they cannot spend time to explain HRM functions to the employees. (Walker, et al, 2007).

According to the author each and every firm should grow whether it is small or medium or family or non family. For the survival point of and to remain competitive with other businesses in the market growth is required. Non family firms are more favor to the growth than family firms and they are goal oriented. Sometimes growth is become very essential to reduce the disadvantages of resource limitation. (Kotey, 2003).

Growth cycle in small and big firms:

Most of the business always remains small, and many are not very successful. During the late 1970s and early 1980s it was believed that the small business is the past and big is beautiful was the current view. In the Hongkong, Singapore, UK and USA, that small firms are the root of the successful economy if compare to the larger organization.

Growth process:

Flamholtz and Randle (2000) recognized the seven stages of growth of a successful business

1. New business enterprise

2. growth

3. Professionalization

4. Consolidation

5. Diversification

6. addition

7. Decline and revitalization

At the operational and managerial level, there is need for the educated managerial staff to connect the gaps or fulfill the requirement in the management as the firm growing. The increases use of the various selection techniques was greater between micro and small firms than between small and medium firms, indicating greater increases in the acceptance of formal practices during the early stages of growth than during the later stages. (Kotey & Sheridan, 2004).

Shifting responsibility for training operatives from owner manager to middle management is consistent with increasing delegation of operation to middle management as the firm grows. As the firm increases grows, there is an increased focus on external training of the manager, which emphasizes the concern for both their training and development to be provided in-order to enhance their HR abilities and strengths which contribute organizational success. Adoption of formal HRM practices increases at a more rapid rate during the early stages of growth than the latter stages of growth. (Mazzarol, 2003).

There is one example of one small firm AIRCON showing growth as firm increases their size. This firm starts expanding from 6 employees to 120 employees. During the early stages of growth firm enjoyed the close environment but as the gradually firm increases there is a need for the formal HRM practices. To achieve high quality product and services the owner of the firms need to motivate the staffs to achieve stated goal. (Mazzarol, 2003).

In the growth oriented firms formal HRM policies and practices are necessary to cope with the increase in complexity resulting from greater number of employees if growth is to be balanced. (Arthur, 1995). However, as small firm grows; managers should try to discontinue informal staffing contacts and need to develop more formal methods to recruiting employees to uphold the growth. There is a direct connection between the performance growth of the firm and its ability to motivate and retain its present employees. A number of successful companies like Sony and Honda began to grow in size and eventually joined the ranks of truly big business.

Author did survey on micro, small and medium firms in Australia on acceptance of growth in the small firms. As the number of employees increases and firm in the growing stage there is a great need to emphasis on division on labor, hierarchical structures, lengthy documentation other HRM practices. The taking up the formal HRM practices starts early in the growth process, initially at the fast rate and then at a slower rate. In the small business HRM practices are not very formal. As the firm growing the HRM practices like recruitment, selection, training, performance appraisal and documentation must done in the formalized manner. Kaman et al. (2001).

According to author, because of lack of resources like technology, people and lack of time and money small firms can not adopt formal HRM practices. As the firm increasing their size there is a greater need for the formal HRM practices and proper understanding of HRM practices for the owner manager of the firm. (Bartram, 2005).

Compare to the larger firms having HRM practices and apply these HRM practices to the small firms very costly in terms of time and money. Generally small firms do not have formal HR so for them to seek for a HR advice is very costly they cannot afford these kinds of practices because of lack of resources. To remain competitive with other firms formalization of HR is essential. (Barret & mayson, 2007).

Drawbacks having HRM in small firms:

Small firms are not having so many resources like time and money. They also have very small investment in the market for that reason they cannot afford HRM practices within their organization. (Bartram, 2005). The other barrier is that the owners of the small firms do not have greater understanding of HRM functions they only have practical knowledge of some HRM functions. The owners of the small of firms do not have time to participate in the HRM practices so this may be a reason for not adopting HRM functions efficiently.

HRM functions in small growing firms:

The importance of having formal HRM system within the growing firms leads to many advantages like reduce the complexity of firm as well as it concern to economic performance. Strategic HRM also helps the firms to sustain against the competitive environment by strengthen the HRM practices.

Many data shows that growing small firms should adopt the HRM practices if they increasing their size gradually. There is greater need of formal HRM functions in the growing firms. Many authors found that as the firms increasing their size HRM functions should be more precise and otherwise small firms cannot reach to the peak of the success. (Barret & mayson, 2007). Many authors believed that formalized HRM functions only for the medium or larger firms not for the smaller firms. Some small organization only having 20 employees in their firm so there is no requirement of formal HRM system. (Barret & mayson, 2007). All the other functions like training & Performance appraisal having different criteria than the smaller firms.


In conclusion, the research finds that to remain competitive and become more successful small firm needs to adopt formal HRM practices within the organization. For that there is a great need for the advance understanding and appropriate knowledge of HRM functions. But, it is also evident that some small firms and family owned firms either do not want to expand or take up more advancement. These types of firms always remain at the same level and will not need formal human resource practices; as it will be just an additional cost. As the firm increase size HRM practices like recruitment, selection, performance appraisal must be done on a formal scale and must follow a complex yet important process. Lastly, to survive in this competitive business world it is a key essential to adopt human resource functions in a formal way.


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Kotey, B. (2003). Goals, management practices, and performance of family SMEs. International Journal of Entrepreneurial Behaviour & Research, 1(11), 3-24.

Lo'neill,G., & Kramar, R. (1999). Australian Human Resources management. Australia: Robert Coco

Mazzarol, T. (2003). A model of small business HR growth management. International journal of Entrepreneurial Behaviour & Research, 9(1), 27-49.

Miller, s. (2003). Real teams in small Australian firms. Journal of Managerial Development, 9(22), 809-823.

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