Human Resources, Financial Resources and Performance in Small Business

When reviewing the literature regarding human resources in small business we found out that the small business’ entrepreneur/owner is to be emphasized as a resource of paramount importance. According to Story (1994), the entrepreneur’s experience, expertise and abilities are generally considered a primary parameter of influence over the firm’s survival and development. Mullins (1996) claims that the entrepreneur’s decision-making capacity strongly affects organizational processes that constitute the foundation for competitive advantage as well as for growth. Rangone (1999) has defined the entrepreneur as a “unique” resource which supports the rest of the resources. Financial resources is more scarce in relate to small business literature, we can cite Westhead, Wright and Usbasaran (2001) who suggested that human and financial resources are those that need to be incorporated into the research model, which they had constructed.

Several studies were conducted in order to learn about the relationship between human or financial resources and small business performance. Cooper, Gimeno-Gascon and Woo (1994) have found that human resources, and especially the owner’s education, are correlated with growth. Moreover, knowledge of the industry and financial resources contribute to growth as well as to the firm’s survival. According to Westhead (1995), the founder’s experience affected performance and survival in hi-tech enterprises over a period of six years from the day of foundation. Brush and Chaganti (1999) examined small trade and service oriented businesses. Their study designates two dimensions of human resources – owner resources and owner commitment. A significant positive correlation was found between the two dimensions and net cash flow. No correlation has been found to the log of employment growth. Westhead et al. (2001) findings support the hypothesis that, if the firm’s founder possesses a significant prior knowledge of the industry, it is to be expected that the firm would register profitability beyond the means of its competitors. Premaratne (2001) indicates at a correlation between subsidies granted to the firm and increase in sales. However, he does not support a correlation between subsidies and profitability. Wiklund and Shepherd (2005) have found a significant positive correlation between access to capital and performance. Pena (2004) examined the relationship between human resources (education; management experience; prior entrepreneurial experience; entrepreneurs' relatives; implementation of ideas acquired in previous workplaces) and increase in profit, increase in sales and increase in the number of employees. A positive correlation was found between education and the implementation of ideas acquired in previous workplaces, and an increase in the number of employees and in sales. Chrisman, Mcmullan and Hall (2005) utilized education and prior experience as control variables. A correlation was found between prior experience and an increase in the number of employees and in sales. No such correlation with education was found.

About the Author:
Dr. Rami Schayek combining the academic world as a researcher and a lecturer at the ben gurion university with a fieldwork as the CEO of several small businesses coincident with coaching many other small and medium businesses. You can see more from his work at www.small-medium-business.blogspot.com

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