The alternative to best practice in the world of strategic HRM is the ‘fit’ approach, again the name gives a reasonable suggestion as to the methodology. Here the view is that HRM practices need to be suited to the strategic position of each organisation and integration with internal and external factors is required to allow HRM practices to achieve performance improvements.As with best practice, researchers supporting the fit approach have produced some empirical research to support their view. While it can also be criticised for methodological flaws it has still allowed for strong support within the academic and practitioner communities for the fit approach; (MacDuffie et al 1995; Purcell 1999; Sisson and Storey 2000; Chow 2008; Wang and Shyu 2008).But as with best practice the opponents of the fit approach have responded with criticisms including: that a tight fit between HRM practices and organisational strategy during times of change will have a negative effect on performance as change will be more difficult to implement (Lengnick-Hall and Lengnick-Hall 1988); and that a fit is difficult to achieve in the complex, changing organisational environments in which many companies operate (Boxall and Purcell 2003).Despite the amount of research conducted into the strategic HRM–organisational performance link its applicability to SMEs should be viewed with a large degree of caution. The overwhelming majority of the evidence produced so far has been from studies within large firms, often in developed western economies particularly the USA.
This is problematic for drawing comparisons with respect to SMEs as they should not be viewed as small versions of large organisations, and often use HRM approaches in a different way (Storey 2002).Bacon and Hoque (2005) have sought to explain something of the variation in the adoption of HRM in the SME sector and their findings give some support to the view that it is better not to adopt a ‘best practice’ approach to HRM in the SME sector as this is clearly what SMEs themselves are doing. Bacon and Hoque state that, “a number of influences both internal and external to the firm are important in explaining variation in the adoption of HRM practices” (2005, 1978).Given this need for SMEs only to adopt HRM practices that are in accordance with the internal and external influences they are under the fit approach seems to be the approach to adopt.
While there has been some research specifically on the link between HRM and performance within the SME sector (Brand et al 2002; Grip and Sieben 2009; Tsai 2010) which does seem to support a link it is still a relatively newly researched area.Bacon and Hoque (2005) point out that while there have been issues of several journals given over to this area of research much more work is required. Most of the current research focuses on very specific localities such as Denmark, Belgium Taiwan and at specific point in time for the groups of SMEs considered.
The point in time issue is of relevance as the part in the business cycle at which the SME finds itself has been suggested as a particularly relevant factor as to whether HRM practices are a worthwhile investment (Harney and Dundon, 2006).A recent study that does consider HRMs effectiveness in an SME context was undertaken by Georgiadis and Pitelis who attempted to identify the key HR features that are associated with improved financial performance within micro-SMEs in the UK Tourism, Hospitality and Leisure sector. Their study uses both the ‘fit’ and ‘RVB’ approach to explore the link between HRM and financial performance for SMEs.
This is useful as it is often the case that a combination of different theoretical approaches can be the most practically effective way of approaching an issue for the HR practitioner.With respect to the ‘fit’ approach Georgiadis and Pitelis have proposed that “SME performance is strongly associated with the deployment of product differentiation strategies, based on quality of service and personal attention to customers combined with a generous compensation package and attention to employees development” (2012, p. 820). This is an interesting finding, even if it has to be accepted on a limited scale due to its particular sector focus, as it also shows just how particular the fit has to be to find a positive correlation.Virtually any other combination of differentiation strategy, such as cost leadership or focus (in accordance with Porter 1985) and HR practices actually evidenced a negative performance indicator. Georgiadis and Pitelis also suggested, citing Way 2002, that the RVB theoretical approach may be of more value in the SME sector as “gaining access to a workforce that produces superior employee output is both valuable and rare” (2012 p.
810).This links to the view that in order for an organisation to achieve competitive advantage through its HR practices these need to be; valuable, rare, inimitable and non-substitutable (Wright et al 2005). Georgiadis and Pitelis, again citing Way 2002, propose that as “micro-SMEs are typically more labour intensive compared to their larger counterparts” (2012, p. 810) they are likely to rely more heavily on superior human capital than other potential sources of competitive advantage as these are not readily available to them.