Volume 23 Issue 2 Article 2 
August 2021 
Accommodating HRM in Small and Medium-Sized Enterprises Accommodating HRM in Small and Medium-Sized Enterprises 
(SMEs): A Critical Review (SMEs): A Critical Review 
Brian Harney 
Dublin City University Business School, Dublin, Ireland, brian.harney@dcu.ie 
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Harney, B. (2021). Accommodating HRM in Small and Medium-Sized Enterprises (SMEs): A Critical 
Review. Economic and Business Review, 23(2). https://doi.org/10.15458/2335-4216.1007 
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ORIGINAL ARTICLE
Accommodating HRM in Small and Medium-Sized
Enterprises (SMEs): A Critical Review
Brian Harney
Dublin City University Business School, Dublin, Ireland
Abstract
The significance and imprint of SMEs as dominant employers is not proportionally reflected in people management
scholarship.Inanefforttomapouttheprospectsforgreaterunderstanding,thispapercriticallyevaluatestheprevailing
understanding in HRM. First, a case is made for definitional clarity to avoid aggregate interpretations of SMEs and ill-
defined applications of HRM. The paper then explores four key theoretical frames of reference, namely universalism,
best fit, cultural and ecological theories, highlighting their merits and limitations as applied in the SME context. This
assessment results in a call for more holistic, integrative and context sensitive theory and research to understand the
dynamics of talent management in an SME context. This provides a pathway to better capture, and inform, the realities
of practice in this area.
Keywords: SMEs, Small firms, People management, Determinants, HRM, Talent management, Context, Critical review
JEL classification: M12, M13, M50
Introduction
F
inding, managing and retaining talent is a
perennial challenge for organisations (PwC,
2019). This is especially the case for small and
medium-sized enterprises (henceforth SMEs), as
they are likely to lack the resources, capability
and time for dedicated talent management con-
siderations (Krishnan & Scullion, 2017). Indeed,
SMEsfacesomethingofaparadoxwhenitcomes
to talent management; the liability of smallness
means that SMEs are especially reliant on the
productivity and engagement of employees, but
equally SMEsare lesslikely to have sophisticated
practices or dedicated talent managers for these
tasks.SMEsalsoconfrontadditionalchallengesin
termsofvisibilityandperceptionsoflegitimacyas
a viable employer, especially when it comes to
young talent. Most education systems have a
‘large firm bias’, exposing future practitioners to
examples of large, multi-national firms which are
taken to be the norm. Thisis problematicas, with
respect to both the number of firms and the
numbers employed, large firms are the exception
rather than the rule across all economies (OECD,
2019).
Efforts to address this impasse have been hin-
dered by limited research attention on human
resource issues in SMEs (Festing, Sch€ afer, & Scul-
lion, 2013; Marlow, 2002). Where people manage-
ment concepts have been applied, they tend to
uncritically assume that large firm solutions have
universal relevance (Heneman, Tansky, & Camp,
2000).Aquarter-centuryreviewofHRMresearchon
SMEs finds a research base that is dramatically
underrepresented, underdeveloped and dominated
by managerial perspectives (Harney & Alkhalaf,
2021). Unsurprising therefore that we see calls for
greater acknowledgement of the small firm context
in HR (Delery & Roumpi, 2017) and intersection
across the entrepreneurship and employment liter-
atures (Burton, Fairlie, & Siegel, 2019; Pearce,
Received 30 January 2020; accepted 2 April 2021.
Available online 19 August 2021.
E-mail address: brian.harney@dcu.ie.
https://doi.org/10.15458/85451.1007
2335-4216/© 2021 School of Economics and Business University of Ljubljana. This is an open access article under the CC-BY-NC-ND license (http://creativecommons.
org/licenses/by-nc-nd/4.0/).

Harney, Zupan, & Stalker, 2019; Wapshott & Mal-
lett, 2016). Of particular significance is a lack of
critical reflection on the key assumptions under-
pinning dominant HR research and how they may
(ormaynot)translatetoanSMEcontext.AsMarlow
noted some time ago, “engaging with, and even
challenging, contemporary analyses of HRM when
conceptualisingthem insmallfirms will ensurethat
ensuingresearchquestionsadoptamoretheoretical
and contextualised approach” (Marlow, 2006, p.
475).Todate,sucheffortshaveprovideddescriptive
rather than analytical accounts (Heneman et al.,
2000) and static rather than dynamic understanding
(Jack, Hyman, & Osborne, 2006). As Krishnan and
Scullion recognize “to date there is a real dearth of
conceptual and theoretical research on talent man-
agement in SMEs and we need to know more about
the distinctive challenges and TM practices in the
specific context of SMEs” (2017: 469).
This paper takes up this task by providing a crit-
ical review of dominant perspectives and under-
standingofHRM.Insodoing,itmakesanumberof
contributions. First, it provides a detailed explora-
tion of the definitional parameters of what consti-
tutes an SME and subsequent implications for
HRM. Katz et al. argue that “with so many ways to
defineHRMandtheSME,almostanythingcouldbe
studied”(2000:8).Thepapercontributestoon-going
calls for definitional clarity (e.g. Harney& Alkhalaf,
2021;Lai,Saridakis,Blackburn,&Johnston,2016)by
making a case for studies to avoid aggregate in-
terpretations of SMEs and simplistic, ill-defined
applicationsofHR.Second,itrespondstocallsfora
critical evaluation of dominant HRM theory as
applied to the SME context (Barrett & Mayson,
2008). Harney and Alkhalaf conclude from their
systematic review that “existing research exploring
HRM in SMEs has been hindered by a paucity of
conceptual papers, limited critical evaluation of
theory or exploration of underlying theoretical as-
sumptions” (2021, p. 21). Specifically, the paper
critically examines four key theoretical frames of
reference,namelyuniversalism,bestfit,culturaland
environmental theories, highlighting both their
merits and limitations as applied to the SME
context. Finally, the paper leverages this review to
map a pathway for further research and under-
standing, including via a more holistic, integrative
and context sensitive approaches. This aligns with
calls to better accommodate context in HRM
(Cooke, 2018; Lee, 2020) and offers a pathway
through the barren choice between universal sup-
port for the applicability of HRM (cf. denaturing) or
simply declaring it is irrelevance (cf. specificity) to
the SME context (Curran, 2006).
1 SMEs and human resource management:
What do you mean?
Reaching any definitional consensus on what
exactly constitutes either SMEs or HRM has been
fraught with difficulties, with efforts in both do-
mains separately deemed ‘contentious’ (Bryson &
White, 2019; d'Amboise & Muldowney, 1988). In
considering definitions of SMEs, the most basic
insight is that they are clearly not large (Storey,
2000). Attempts atsophisticated definitions typically
combine an aggregate statistical definition, which
varies by sector, with additional qualitative di-
mensions (e.g. Bolton Report, 1971). This favours
local, intra-industry distinctions, but at the expense
of facilitating broader systematic comparisons
allowing for a greater range of firms. The response
to such difficulties has been a recourse to numbers
employed as the most relevant measure of size
(Kalleberg&VanBuren,1996).Onecentralproblem
with employment-based, numerical definitions is
that actual categories used to distinguish between
large and smaller firms can be somewhat arbitrary,
with SMEs constituting anything from a firm with 5
employees to 500 (Harney & Alkhalaf, 2021). In
attempting to tread some middle ground, the Eu-
ropean Union criteria for SMEs proves a useful
framing device, as it distinguishes between micro
firms (less than 10 employees), small businesses
(10e49 employees) and medium-sized enterprises
(50e249employees).Inaddition,thisdefinitionuses
eligibility dimensions concerning annual turnover
and ownership. What is important to recognize is
that people management challenges will inevitably
differ across micro (De Grip& Sieben, 2009), small
(de Kok& Uhlaner, 2001) and medium-sized firms
(Psychogios, Szamosi, Prouska, & Brewster, 2016).
The use of SME as a catch-all-term therefore hides
the reality that there is as much diversity within the
SME category as between SMEs and larger firms
(Harney & Alkhalaf, 2021). Moreover, definitions
andunderstandingneedtoappreciatethesocialand
cultural constructions of firm size.
Beyond this there are further definitional param-
eters which directly inform the nature of HRM
challenges in SMEs. The first is a critical distinction
between newness versus smallness. The liability of
newnessexperiencedbystart-upventuresresultsin
“underappreciated” HR issues associated with
attracting talent, inexperience and gaining legiti-
macy (Bryant & Allen, 2009). By contrast, more
established SMEs will have overcome liabilities of
newness, but still confront liabilities of smallness in
the form of resource constraints, difficulties in
developing and retaining staff, pressures to
ECONOMIC AND BUSINESS REVIEW 2021;23:72e85 73

standardize, coupled with greater challenges in
innovating. It follows that the respective contexts of
either newness or smallness will each yield specific
HR challenges (Cardon& Stevens, 2004; Harney&
Alkhalaf, 2021). Second, it is important to recognize
thatnotallentrepreneurialfirmsareSMEs,andthat
not all SMEs are entrepreneurial. Only a small mi-
nority of SMEs are purely motivated by the goals of
profit and business expansion (Ciavarella, 2003;
Storey, 1994). For the majority of small firms, the
reality often reflects a culture of survival and/or a
drive by owner managers to achieve their desired
status of independence, succession or viability
(Stanworth& Gray, 1991). Such distinctions are lost
as long as the terms entrepreneurial and small
business are used interchangeably and
indiscriminately.
Finally, it is important to accommodate the
context of the firm with respect to growth ambition
and intent. Notably, the vast majority of SMEs ex-
press little desire to expand or grow (Ram, Jones,
Abbas, & Carter, 2005). More exceptional growth-
focused, or IPO-intended, SMEs may well take on
board the upfront costs of investment in HRM (e.g.
appointment of a dedicated HR manager) conscious
of a trade-off for longer-term benefits (Chadwick,
Guthrie,&Xing,2016;Welbourne&Cyr,1999).This
means that “the HR experiences and challenges for
those SMEs that are growth-oriented will be quali-
tatively different contingent on growth stages or
state” (Harney & Alkhalaf, 2021, p. 13). Table 1
provides a summary of key definitional parameters
and their subsequent implications for HRM, high-
lighting their significance in informing policy and
research.
Turning to HRM, a considered focus on talent in
SMEs has been blinkered by two overriding per-
spectives. First is a narrow focus on the individual
‘heroic’ entrepreneur to the neglect of all others
employed by the firm (Welter, Baker, Audretsch,&
Gartner, 2017). Second is a dominant focus on
certain types of firms and regions (e.g. high-
technology firms and Silicon Valley-type clusters)
and away from the diversity inherent to the SME
sector. Unsurprising therefore that Burton and col-
leagues call for alternative perspectives, which
providethe “strategic context for entrepreneurs and
shape the career opportunities for workers” (2019:
1050). While definitions of HR and talent manage-
ment vary significantly, applicability to the SME
context comes from the basic recognition that
“human resources are strategic to basic viability as
wellasadvantage”(Boxall,1998,p.273).Aparticular
significant development in this area concerns talent
management and the ‘war for talent’. This was ex-
pected to create an impetus for firms to dedicate
attention and resources to talent management.
However, both large and small firms alike still
demonstrate critical deficiencies in this regard
(Deloitte, 2019). It is clear though that Talent Man-
agement concepts such as employer branding, high
impactindividualsandkeyroles,coupledwithissue
of talent pools and succession hold great relevance
in the SME context (Collings& Mellahi, 2009; Lewis
& Heckman, 2006). In addition, both HRM and
Talent Management literatures stress the practical
significance of HR analytics and using a solid evi-
dence base to evaluate and inform future people
management decisions (Gubbins, Harney, van der
Werff, & Rousseau, 2018). However, unfortunately
for researchers much of the available evidence on
people management has a large-firm bias leaving
them bereft of insights and understanding of
smaller organisations.
The next section furthers understanding by
reviewingfourdominantperspectivesinHRM.This
illuminates how varying emphasis and definitions
determinewhatareseenaskeypeoplemanagement
challenges and solutions for SMEs. It becomes clear
from this review that SMEs are best accommodated
by inclusive, descriptive and analytical definitions
which broadly capture “all those activities associ-
ated with the management of work and people in
firms” (Boxall, Purcell & Wright, 2007, p. 4). This
Table 1. SME definitional parameters and their HRM implications.
Definitional
parameter
Key Criterion HR Implications HR debates
Smallness Micro, small, medium-sized firm? Differing HR challenges by size - Formed versus formulated HR
- Informal versus formal practice
Newness Start-up or established firm? Differing HR challenges by age - Attraction versus development&
retention
- Entrepreneurial team versus
organisation
Ambition Survival, succession, competitive
advantage?
Differing objectives for HR - Purpose and fit
Growth Stage/State of growth? Differing investments in HR - Nature of investment in Talent
74 ECONOMIC AND BUSINESS REVIEW 2021;23:72e85

review is not intended to be exhaustive, nor sys-
tematic. Instead, in the spirit of critical analysis and
theory refinement (Klein& Potosky, 2019), it draws
on illustrative papers that represent the perspective
under consideration.
2 Perspective 1: Universalistic best practice
The universalistic, best practice approach is
dominant in HRM research. This suggests that a
specific set of HR practices has a positive impact on
performance, irrespective of context (cf. Huselid,
1995). The various labels attached to HRM are
indicativeofthislogic,e.g.BestPractice HRM,High
Performance Work Practices/Systems (HPWS),
High Commitment Management and High
Involvement Practices. Typical HR practices advo-
cated as part of a ‘high-performing bundle’ include
sophisticatedrecruitmenttests,internalpromotions,
job security, extensive training, and performance-
related pay schemes (Boselie, Dietz,& Boon, 2005).
This stream of research has certainly been signifi-
cant in highlighting the value of HRM to an orga-
nisation, but is not without limitation, especially as
we consider the SME context. In the first instance,
most studies focus exclusively on the performance
enhancing side of the equation, whereas research
has shown that formal and sophisticated HR can be
both ‘value-creating and cost-increasing’, with a
likelihood for costs to cancel benefits in an SME
context(Selsetal.,2006;Way,2002).Second,thereis
afundamentalflawinabestpracticeargument,asit
implies standardisation and a focus on past prac-
tices. Increasingly, the term best-practice is seen as
‘inappropriate and misleading’, as it infers stan-
dardization (Delbridge & Whitfield, 2007). Contri-
butions in this area tend to focus exclusively on
factors conditioning how rather than whether best
practice should be implemented, and by so doing
arelargelyignorantoftheideathatwhatconstitutes
best practice may vary across time and place
(Delaney& Godard, 2001; Keegan& Boselie, 2006).
For example, in family firms what constitutes ‘best’
is likely to depend on the complex and multiple
goals of the family (Sharma, Chrisman, & Chua,
2007).
Third concerns the pragmatic validity of HR
practices, such as assessment centres and extensive
employeesurveys,inasmallerfirmcontext.Indeed,
thereisanironyhereinthatmanylargefirmstryto
artificially replicate teambuilding, job rotation, and
communication found more naturally in the smaller
firm context (Beaumont & Rennie, 1986). In many
smaller firms, performance can be achieved with
modest levels of wages, training and pay, so that
investment in ‘progressive’ practices may not be
viable, or even necessary (Brand & Bax, 2002).
Fourth, it is limiting to necessarily equate the form
of HRM with its impact; utilising the criteria of
training as typically measured by survey research
(e.g. formal courses attended), smaller firms are
deemeddeficient,however,moretacitappreciations
of aspects of skill development and learning pro-
cesses indicate a much more positive picture (Gibb,
2000; Kitching, 2007). Finally, with respect to per-
formance,ashintedatinthereviewofdefinitions,in
a smaller firm context immediate, short-ranged and
pragmatic goals linked with issues of survivability,
sustainability and independence may carry more
weight than the quest for competitive advantage
(d'Amboise& Muldowney, 1988). Boxall and Purcell
(2008)suggestthatthereismerelyaminimumHRM
‘table stake’ required to compete in each industry.
Thepointisnottobecompletelydismissiveofbest
practice. A focus on how HR practices work to sup-
port and reinforce each other is particularly appro-
priate to the SME context, as owner-managers
generally appreciate people management as a flow
‘interrelated’ HR activities versus a set of discrete
practices (Cardon& Stevens, 2004; Heneman et al.,
2000). Moreover, there is much to be said for pro-
moting the general principal and mind-set of sound
people management as proffered by best practice
scholars, while acknowledging that the specifics of
implementation will vary by context. Critical to note
is that a lack of sophisticated and/or formal practice
inSMEsshouldnotmeanthattheyareautomatically
read as deficient or backward (Harney & Nolan,
2014). Examining HRM practices among the Sunday
Times UK ‘50 best small companies to work for’,
Drummond and Stone found that each business
adopted “a distinct bundle of workforce related
practices, based upon its own perceived needs and
priorities” (Drummond & Stone, 2007, p. 196).
Similarly, exploring Talent Management in Spanish
medium-sized companies, Valverde, Scullion, and
Ryan (2013) found that while firms were not neces-
sarily aware of formal TM policies, they were
nonetheless able to define and identify talents in
their company, focusing on employee attitudes and
performance(Raby&Gilman,2012).Moreover,even
where more sophisticated practices are in existence,
these may be directed solely at attracting and
retaining a selected few or group of core employees
(Matlay, 2002) or are deployed indiscriminately, as
Gilman and Edwards (2008) found in their study of
fast-growth, high-tech smaller firms. This of course
holds true for small and large firms alike.
ECONOMIC AND BUSINESS REVIEW 2021;23:72e85 75

3 Perspective 2: Matching models
Matching models of HRM are guided by the im-
plicit assumption that the most successful organi-
sations are those that display a ‘Chinese box’ type
consistency between the external environment and
internal organisation (Miles& Snow, 1984). Match-
ing models do a better job with the key contin-
gencies likely to shape people management. Much
of this literature has focused on the vertical linkage
between HRM and strategy (e.g. Schuler& Jackson,
1987) or alternatively advocated matching HRM re-
sponses to the stage of development of the organi-
sation (e.g. Baird & Meshoulam, 1988). A focus on
strategic priorities hascertainlyhelped HR research
find greater traction. However, despite being intui-
tively appealing, empirical evidence for a positive
impact is hard to find (Han, Kang, Oh, Kehoe, &
Lepak, 2019). The limitations of matching models of
HRM become particularly clear, when considering
the SME context. In the first instance, matching
models assume classic definitions of strategy, over-
estimatingtheclarityandrationalityofthematching
process. Strategy may often emerge retrospectively
with the classic sequence of formulation and
implementation reversed, while the rigid ‘fit’ pre-
scribed may actually hinder the innovativeness and
flexibility mandated for strategic success (Harney&
Collings,2021).HRMinsmallerfirmsofteninvolves
a more emergent, stepwise, and iterative approach,
where the management of employees is likely to be
crafted rather than designed (Wilkinson, 1999).
Mintzberg neatly captured this tendency for emer-
gence in smaller firms observing that “by closely
controlling ‘implementation’ personally, the leader
isabletoreformulateenroute,toadapttheevolving
vision through his or her own process of learning”
(Mintzberg, 2003, p. 319). It follows that attempts to
capture the unique planning processes in smaller
firms through ‘hard measures’ of written docu-
mentationwill beinsufficient(McKiernan&Morris,
1994). A strategic approach allowing for emergence
and informality may be both ‘more appropriate and
efficient’forsmallerfirms (Beaver& Prince, 2004,p.
40). This is supported by research on pay determi-
nation and workplace learning in SMEs (Gilman,
Edwards,Ram,&Arrowsmith,2002;Kitching,2007).
A further criticism concerns organisational
developmental models, which match HR challenges
topre-determinedandsequential-phasesgrowth.In
practice, drivers of change and change efforts will
be uneven and complex, as organisations exhibit
non-linear and dis-continuous growth process
(Kidney, Harney & O'Gorman, 2017). An extensive
survey of HRM in 2903 family-owned SMEs
indicated dramatic diversity in HR at different
stages, therefore concluding that a traditional life
cycle was not evident (Rutherford, Buller, &
McMullen, 2003). A third criticism directed at
matching models is that they ignore power, politics
and agency. The approach assumes that HRM can
simplybe ‘readoff’strategyorstageofdevelopment
and that suitable HR interventions can be found to
‘fit’ in thefirst place. Assuming a consensus on end
objectives is likely a flawed starting point as people
management challenges are likely to be messy,
contested and shaped by power relations empha-
sising that “politics cannot be simply left to the end
as part of the problem of application” (Wood, 1979,
p. 342). Matching models leave little room for
managerial agency, in either directing the organi-
sation or ‘interpreting’ the environment (Harney&
Collings, 2021). Research on SMEs has long shown
the significant role that the owner-manager or
foundercanhaveincreatinganimprintofHRbased
onanunderlyingideologyonhowpeopleshouldbe
managed at work (Goss, 1991). This importance is
picked up by Baron and Hannon's longitudinal
researchontechnologystart-ups,whichemphasises
the importance of the founders' expectations and
‘mentalmodels’ofproperhumanresourcepractices
(termed ‘organisational blueprints’). In this sense
the owner-manager is a natural conduit for vertical
fit( Mayson& Barrett, 2006), and one that can facil-
itate or fracture positive employment relations and
outcomes (Allen, Ericksen, and Collins (2013);
McClean & Collins, 2019; Messersmith and Wales
(2013).
It is clear that matching models provide a useful
template and logic to inform choices around HRM.
There is much to be said for exploring the desired
employee role behaviours required of a given
strategy and to design HR practices which
encourage and recognize this. Moreover, there is
research which shows how key contingencies,
including the nature of employee skills (Bacon &
Hoque, 2005) and leadership styles (McClean &
Collins, 2019), impact on HR. Nonetheless, by pre-
scribing very specific HR solutions, matching
models whicharefoundedonchoiceironicallyend-
uppromotinganimplicitdeterminismwhicherodes
managerialoremployeeagency(Harney&Collings,
2021). Important questions to explore include the
ideology, intent and desire of owner-managers
making HR decisions, which might be far from
purely rationally determined. This holds true also
for the desired outcome of HR which is likely to
include survivability, succession, local competitive
dynamics as much as anything informed by the
illusive notion of ‘competitive advantage’.
76 ECONOMIC AND BUSINESS REVIEW 2021;23:72e85

4Perspectives1&2:Domainassumptionsand
limitations
Overall, universalistic theory largely excludes
messy real-world details, while matching models
provide the design at the expense of designing. In
terms of their utility in understanding HRM in
smaller firms, both focus exclusively on formal, so-
phisticated HRM practices assuming a ready-made,
large-scale, bureaucratic corporation manned with
HR professionals (Harney & Dundon, 2006).
Evidently, a formal HRM framework “simply does
notencapsulatethebulkofemploymentpracticesin
smallfirms” (Blackburn, 2005, p. 58). Research, such
as Doeringer et al.’s (1986) study of the New En-
gland fishing industry, indicates that rules and
strategies are often informal understandings
embodied in the custom and traditional practices of
each workplace, rather than being driven by eco-
nomic logic per se. One consequence of a focus on
formal structures and performance outcomes is that
the underlying processes remain implicit or
assumed (see Table 2).
Universalistic theory and matching models ap-
proachesconsider HRM as a rationally induced tool
deliberately designed to maximise financial perfor-
mance. In so doing they succumb to many of criti-
cisms that March (2006) directs at the ‘technology
and ideology of rationality’. Exhibiting high
contextual independence, universal and matching
models tend to dislocate organisations from their
totality, providing limited information on the
contextual determinants of HR practices and the
underlying processes by which they operate. Such
closed system approaches suffer from a normative
bent, meaning that they are “less interested in
studying variation in what management actually
does than in establishing what management should
do” (Godard & Delaney, 2000, p. 494). This is
secured by a positivist-driven methodology, which
insists that behaviour is everywhere rational in the
calculative sense (Harney, 2009). This stress on sci-
entifictechniquesandquestforblueprintsresultsin
limited understanding about the ‘common-sense
reasoning’ of organisational members or the insti-
tutionalstructuresandnatureofembeddednessthat
shape their actions (Thompson & McHugh, 1995).
Arguably, the proximity to environmental forces,
current of informality, centralised control, familial
relations and embedded networks characteristic of
small firms amplifies such criticisms. In addition,
the unitarist agenda of HRM blurs the questions of
goalsandinterests(Boxall&Purcell,2000).Workers
cannot be accurately depicted as passive recipients
ofpracticesinapredeterminedfashion(Geareetal.,
2014). In terms of outputs, Child (1973) noted that
performance metrics are only meaningful to deci-
sion makers in relation to their own criteria of per-
formance. In smaller firms, owner managers are
frequently characterised by ‘satisficing’ rather than
‘maximizing’ behaviour (McKiernan & Morris,
1994). Haugh and McKee's (2004) study found a
‘culturalparadigmofthesmallfirm’theconstitutive
elementsofwhichincluded independence,survival,
control and pragmatism. Notably, none of these
characteristics would warrant a mention in domi-
nant HRM accounts. In any case, more open and
explanatory accounts are needed to capture infor-
mality, politics and emergent processes, while also
embracing broader market forces, societal norms
and institutional settings.
5 Perspective 3: Resource-based approaches
Resource-informed theories move to explore the
micro processes thatconstitute HRM. Theresource-
based view (RBV) suggests that for an advantage to
besustainable,itneedstobeembeddedinthefirm's
distinctive resources and capabilities (Harney &
Trehy, 2016; Wright & Snell, 1991). As such, the
focus is on discovering how firms can build ‘an
exclusive form of fit’ (Boxall& Purcell, 2003, p. 71).
Some may question the basis of analytically dis-
tinguishingtheRBVfromothermodesoftheorising.
However, the paradox of linking it to the univer-
salistic approach is that HRM is at once assumed
generic, while also considered rare and inimitable
(Wood& Wall, 2007). The application of a resource-
based perspective to HRM has not been without
difficulty, including contested definitions and an
unclear unit of analysis (Boxall, 1998). Thus, what
the RBV provides to HRM by way of rationale, it
Table 2. Domain assumptions of universalistic theory and matching models and common characteristics of small firms.
Universalistic and Matching Models Domain Assumptions Characteristics of Smaller Firms
Organisations have HR departments and HR professionals No HR department, limited dedicated HR professionals
Formal practices prevail Informality more likely
Strategy as rational and formulaic Emergent, ad hoc strategy
Controllable environment Environmental dynamism and uncertainty
HRM structures as given, static solutions Likelihood of change, HR as process
Focus on narrow corporate and/or operational performance Multiple and subjective performance criteria
ECONOMIC AND BUSINESS REVIEW 2021;23:72e85 77

lacks in specifics. The logic of RBV arguments have
been criticised for underemphasising the costs
associated with the acquiring and developing re-
sources(Lavie,2006).Further,theRBVassumesthat
economic motives and rational decisions drive firm
conduct and outcomes so that the process of
resource selection and deployment is largely
deemedunproblematic(Oliver,1997).Theresultisa
very benign view of social organisations, leaving no
room for consideration of political factors or the
influence of non-economic determinants of
resource-deployment decisions. Interestingly, RBV
concepts such as path dependency can just as easily
militate against organisational advantage by
creating core rigidities and blinkered outlooks. At a
macro level, Sisson (2007) argues that a strong case
can be made for ‘path dependency’ as an explana-
tion for the limited movement in the direction of
high performance working in the UK, while at the
organisationallevel,Miller(1992)demonstrateshow
organisations easily fall victim to complacency born
of success. The RBV therefore oscillates uncom-
fortably betweentheconcrete rationalconceptionof
reality of its economic heritage, and the social-
constructive nature of the inimitable characteristic
ofcultureandambiguitythatitprescribesasabasis
for advantage.
The RBV does, however, seem to hold some
promise when applied in the domain of the smaller
firm, as their lack of market power encourages
greater attention to the use of internal resources in
survivability and market adaptation. Resource
poverty and the labour intensive nature of smaller
firms means that leveraging employee skills and
ability is likely to be a valuable and firm-specific
resource (Mayson & Barrett, 2006; Way, 2002).
Further, the RBV not only accommodates infor-
mality and process orientations, but elevates these
to areas of strategic significance. These features of
small firms are said to contribute to the flexibility,
speed and customized focus which enable smaller
firms to compete with their largerfirm counterparts
(Chen& Hambrick, 1995).
Similarly,thecriticalroleoftheownermanagerin
infusing culture values and principles resonates
neatlywiththeprescriptionsoftheRBV.Yuoutlines
a capabilities perspective of the small firm, high-
lighting the greater influence that the owner can
exert in securing the internal co-ordination and di-
rectionofthefirm, as well as how “the specific form
of idiosyncratic human relationships in small firms
canbeastrategicasset”(Yu,2001,p.190).Ithaslong
been recognised that employers may purposefully
deploy unique employment practices as a distinc-
tive means of product market competition (Brown,
2008), manifest in the talent management literature
as employer branding. SMEs have long been found
to foster a greater sense of purpose and meaning at
work,eveninthecontextofofferingpoorerpayand
conditions (Harney& Alkhalaf, 2021). Others point
to the familial basis of many smaller firms arguing
that this can form a unique form of social capital
(Arregle, Hitt, Sirmon,& Very, 2007). The target of
advantage here, however, may include non-eco-
nomic goals such as sustainability leveraged
through loyalty and altruism rather than material
benefit. In their study of low-value added firms
(LVAs), Edwards and Ram (2006) note that many of
the factors stressed by the RBV have ‘limited
applicability’ and so move to explore how sets of
resources are deployed to maintain the survival of
the business rather than to leverage advantage.
The resource-based view clearly provides an
impetus to look internally within a firm, high-
lighting the role of resource endowments and
resource orchestration (Chadwick, Super, & Kwon,
2015). A focus on informality, values, culture, skills
and path dependence are important considerations
forexploringSMEs.However,theRBValsoexhibits
a predisposition towards some kind of ‘internal la-
bour market’, which may not sit easily with the
approach of all firms (Hendry, 2003). Pitelis (2006)
challenges the foundational RBV work of Penrose
(1959, 1995) on the basis that intra-firm decision
making and conflict are effectively absent. Conse-
quently, in its application to HRM, and smaller
firms in particular, the potential for internal conflict
between family members or owners and manage-
ment is ignored. Yet, accounts of small firms and
entrepreneurship typically stress the inherent ten-
sion between control and delegation, with owner
managers finding it difficult to address people
management issues (Brand & Bax, 2002) but also
reluctant to hire professionals. A key concern in
applying the RBV to HRM is that it lacks analytical
insights into the true nature of the employment
relationship (Redman & Wilkinson, 2006). More
political perspectives recognise that organisational
decisions and responses are unlikely to derive from
the rational adaptation of a harmonious system, but
rather evolve as the result of “conflicting interests,
distorted information and struggle” (Nord, 1978,p.
676). An internal leaning also leads to a focus on
idiosyncrasies to the neglect of the forces that pro-
motesimilarityratherthandifferencesamongfirms.
In their research on small haulage firms, March-
ington et al. note the requirement for a modified
RBV which ‘focuses on the notion that a minimum
set of ‘table stakes’ (HR) practices is necessary for
the continued survival ofsmallfirms'(Marchington,
78 ECONOMIC AND BUSINESS REVIEW 2021;23:72e85

Carroll, & Boxall, 2003, p. 5). Aligned with this
argument is the increasingly recognized reality that
understanding of HRM cannot stop at the bound-
aries of the firm. Instead, a range of external de-
terminants shape, and can ultimately define, the
existence of firms. The final perspective to consider
is an ecological one which captures these external
influences on HRM.
6 Perspective 4: Ecological theories
While resource-informed approaches move
beyond pure rational accounts of HRM in-
terventions, ecological theories elevate the unit of
analysis to consider non-strategic institutional and
political determinants of HRM (Wright & McMa-
hon, 1992). Open systems informed accounts focus
on the broader dynamics of system in which the
organisation is embedded (Harney, 2019). Resource
dependency theory captures the nature of supply
chain relations, including the power exerted by
customers and/or suppliers (Kinnie, Swart, & Pur-
cell, 2005). Research in smaller firms has invariably
hinted at the dynamics of power relations inherent
within ‘the political economy’ of smaller firms, as
they experience pressures exerted by larger sup-
pliers or dominant customers (Katz, Aldrich, Wel-
bourne, & Williams, 2000; Rainnie, 1989). It is
particularlylikelythatHRMactivitiesandprocesses
insmallerfirmswillreflectthedistributionofpower
and dynamics of the system within which they
operate(Fuller&Moran,2001).Inextremecases,the
adoption of new practices can be imposed from
outside the immediate work environment (Cassell,
Nadine, Gray,& Clegg, 2002). Appreciation of such
issues negates the criticism directed at closed sys-
tems HRM frameworks whose failings often derive
from exaggerated conceptions of strategic choice. It
would be wrong, nevertheless, to fall back on com-
plete determinism, as the impact of dependency
relations on small firms may not necessarily be
unilateral or negative, while supply chain develop-
ment may be uneven and complex. Where resource
dependency differs from other ecological theories is
thatitaffordsmanagersthecapacityto “managenot
only structures but their environments, reducing
dependencies and seeking adequate power advan-
tages” (Scott, 2004, p. 6). There is a risk, however,
thatinitsportrayalofchoice(seePfeffer&Salanick,
1978) RDP downplays the socially constructed na-
ture of relations and social dynamics of power by
reverting back to an overly narrow account of ra-
tionality. Uzzi's (1997) analysis of intense competi-
tion in the apparel industry focused on
embeddedness and the importance of
understanding social structure as a precondition to
the logics of exchange. Thus, while directing atten-
tion outwards from the firm, the RDP may err in
emphasising an under-socialised view of economic
resource exchange as the central feature of re-
lationships (see also Ram, 1994).
By contrast, accounts inspired by institutional
analysis take normative and isomorphic pressures
astheirprimaryfocus. Specifically,institutionaland
political forces mean that particular HRM practices
maybeintroduced,orimposed,notasadirectresult
of market forces but rather as legitimacy enhancing
actions to facilitate acceptance and survival (Di
Maggio& Powell, 1983; Wright& McMahon, 1992).
A central thesis of institutional theory is that HR
activities may be adopted in a symbolic fashion as
the result of isomorphism, irrespective of their ef-
fects on performance. A key point is that such
behaviour, which might be otherwise signalled as
simply ‘economically irrational’, or dysfunctional is
insteadunderstoodas ‘sensible’,conferringprestige
and legitimacy (Eisenhardt, 1988; Oliver, 1991). It is
on this basis that Paauwe (2004, p. 3) argues that
assessment of HRM should not just be about eco-
nomic rationality, but also about ‘relational ratio-
nality’ manifest in efforts to achieve fairness and
legitimacy. The task of exploring how the social
embeddednessoffirmsinparticularcontextsshapes
theirstructuresandprocesseshasmuchsignificance
for smaller firms, given their heterogeneous nature.
Edwards, Ram, Sen Gupta, and Chin-Ju (2006)
suggest that an institutional approach is the best
platform from which to explore HRM in smaller
firms. However, the transposition of institutional
analysis to the domain of smaller firms is not un-
problematic. On one hand, a concern with confor-
mity is contingent upon factors such as employer
visibility and legitimacy needs, arguably shaped in
part by size effects. Small firms are much less
exposed to standardised practices diffused through
HR professionals, and are said to be much less
concerned with conforming to the accepted norms
of HRM than larger firms (Kalleberg& Van Buren,
1996, p. 49). On the other hand, small firms face
severe problems of legitimacy. For example, in the
start-up phase, Baron, Burton, and Hannan (1999)
note the importance of having certain desired
practices in order to satisfy external constituents.
Smaller firms also typically face ongoing difficulties
in gaining sufficient status and recognition in order
to attract and retain employees. Exploring IPO
firms, Welbourne and Andrews (1996) suggest that
utilising HRM to strengthen structural inertia may
be beneficial, particularly in the early life cycle
ECONOMIC AND BUSINESS REVIEW 2021;23:72e85 79

stages, as it increases the chance of organisational
stability and survival.
Importantly, HRM interventions need to be
adequately contextualised to understand their true
determinants and import (Jiang, Takeuchi, & Jia,
2020). For example, while Dietz et al. find a striking
picture of financial participation by employees
among their sample of small e-commerce firms,
they avoid automatically interpreting this as a
‘strategic innovation in HRM’ instead locating the
trend in its broader context as “a pragmatic
response to the going rewards package in the sector
atthetime”(Dietz,VanderWiele,Van Iwaarden,&
Brosseau,2006,p.460).Inaddition,itisimportantto
note the potential discrepancy between the ‘struc-
tural and technological facade’ of attempts to elicit
legitimacy and the actual behaviour of firms, as
exemplified in Holiday's (1995) study of quality
control in small manufacturing firms. While
capturing contextual influences, institutional theory
can have trouble accommodating change, stressing
convergence over uniqueness. Often interpretations
view sources of organisational action as purely
exogenous and ignore the actual processes of insti-
tutionalization (Heugens & Lander, 2009). Aldrich
captures the nature of the limitation succinctly,
statingthat “themodelsecologistsbuildthustendto
neglect individuals in organisations, decision-mak-
ing processes, and the micro-processes linking en-
vironments to organisations” (Aldrich, 1992, p. 19).
More recent work calls for attention to competitive
dynamics in the form of presenting issues and key
events, which are likely to serve as a trigger or
catalyst for HRM interventions in SMEs (Harney&
Alkhalaf, 2021).
7 Discussion
This critical review has shown how each
perspective offers a differing interpretation of the
definition, role and value of HRM and talent man-
agement in a smaller firm context. Complementing
the rational and performance focus of best practice
and matching models, resource-based approaches
provide a useful micro orientation and critique of
pure rational accounts, encouraging understanding
of informality and process-based insights. Ecolog-
ical theories open up analysis to the more macro
socio-economic determinants of HRM. Given that
small firms are likely to experience greater envi-
ronmentaluncertaintythanlargerfirms,theselatter
perspectivessitwellwithanalysisofthesmallfirms.
Small firm analysis falls victim to the broader ten-
dencyinHRMofexplainingdifferencesacrossfirms
purely by factors premised upon economic
rationality (e.g. Lepak & Snell, 1999) and thereby
ignoring the social forces manifested in normative
orrelationalrationality.Universalisticandmatching
models accounts proceed with a largely closed sys-
tem conceptions founded on a high degree of
contextual independence. As a result, they suffer
from an implicit determinism, arguably of equal
force to the explicit determinism of extreme
ecological theories. Interestingly, all four perspec-
tives have difficulty in accommodating agency,
which although forming the central foundation of
resource-informed theories, is here subject to its
own form of an ‘action determinism’ constitute of
internal political processes and collective un-
derstandings isolated from the totality of economic
and social relations (Child, 1997, p. 52). By way of
summary, Table 3 provides an overview of the four
modes of HRM theorising, capturing their key pro-
cesses,theirfocusandunitofanalysis,aswellasthe
roles they imply for the management of HR,
coupled with their respective key strengths and
weaknesses.
Accordingly, what does all this suggest for
advancing understanding of HRM in the context of
SMEs? First, it highlights the significance of
exploring and delineating the definitions that un-
derpin our scholarship (see Table 1). Consideration
of SME definitional parameters of newness, small-
ness, ambition and growth should form an inevi-
table starting point for researchers who wish to
consider the nature and purpose of HR in this
context. Deploying SMEs as an aggregate category
glosses over the heterogeneity both within and
across SMEs, resulting in a significantly diminished
research opportunity. Similarly, when it comes to
HR, comparison with dominant definitions and
ideals should form the beginning, rather than the
end of analysis. There is much scope for more
analytical considerations of HR which are more
phenomena and supply-side determined (Ployhart
& Bartunek, 2019), moving to capture “the way that
management actually behaves and therefore
privileging understanding and explanation over
prediction” (Boxall, 2007, p. 4). In this vein, Chad-
wick and Flinchbaugh (2020) usefully advocate a
move beyond HR practices to focus on various do-
mains of organisational effort within HRM as a
more encompassing set of ‘HR activities’.
Second key point highlighted by the review is the
importanceofsurfacing,challengingand ‘hanginga
question mark’ on dominant assumptions (Harney
& Collings, 2021) (see Tables 2 and 3). One vital
element of theory building is exploring how and
why theories, models, and vocabularies may be
limited in accounting for a phenomenon (Alvesson
80 ECONOMIC AND BUSINESS REVIEW 2021;23:72e85

& Karreman, 2007). Central to this endeavour is
using the SME context to inspire ‘problematization’
of extant HRM theory. To date, there have been
merelybeencallsforsuchcriticalengagement,most
forcibly by Marlow; “small firms should not be
excluded, there should be a greater critique of the
narrowness, or poverty, of so called global theories
or meta-narratives of HRM” (2006: 468), but little by
way of actual progress. Arguably, until the type and
form of HRM adopted by SMEs is empirically
examined,andthecomplexityusedtoshapecurrent
debates, then understanding of HRM can only ever
remain partial and incomplete. Notable advance-
ments would come from research which more
directly explores and tests underlying assumptions,
competing hypotheses, non-linear effects and mul-
tiple HR activities.
Third, the review highlights the importance of
more holistic and context-sensitive approaches
which are more likely to accommodate the key
characteristics of HRM in SME contexts. This might
include integrative theory, allowing for differentia-
tion and conformity in HR (Deephouse, 1999), or
accommodating agency and the environment in
exploring HR decisions, as per attention-based HR
(Lee,2020).Oliver(1997)suggeststhatbothresource
capital and institutional capital are indispensable to
advantage, noting that firms may be unwilling,
rather than unable, to imitate resources and capa-
bilities, especially where these lack legitimacy or
social approval. Vincent et al. (2020) highlight the
merits of theoretical bricolage when trying to un-
derstand and accommodate HR practices and the
practical/structural realities framing its existence
and operation. Nolan and Garavan (2016) provide
interesting recommendations for progress in ac-
commodating SMEs, including via complex
resource-basedtheory.Animportantcomplementis
research which provides a layered and multi-level
understanding. Across the dominant perspectives
reviewed, HR agents (be they owner managers,
consultants, outsourced providers, or employees)
risk appearing as ghost-like characters, either
assumed out of existence by unitarism or down-
played as a result of broader social determinants.
8 Conclusion
Calls for a critical analysis to accommodate ‘every
day HR practice’ have been made across both HR
(Harney & Collings, 2021) and SME research
(Welter et al., 2017). It is important to recognize that
the current review is a conceptual one drawing on
exemplary articles, as opposed to a systematic or
representative overview of current understanding.
Table 3. Key characteristics of the main modes of theorising in HRM.
Universalistic Theories Matching Models Resource Based Approaches Ecological Theories
Processes Universal Rational/Alignment Learning/Bargaining Satisficing Darwinian/Conformity
Focus Internal Internal, (aspects of external) Internal (cognition, politics) External (societal)
Unit of Analysis Firm Firm Strategy/Life Cycle Culture/Climate, Dominant
Coalition
Population, Network,
Organisation set
Contextual Independence High Medium Medium-Low Low
Role for the HR
Management (Agency)
Determined
- Implemented Efficiently
Determined
- Constrained Adaptation
Collectively Construct/
- Satisficing
Reactive
- Survival/Compliance
Strengths - Legitimise HRM
- Universal Laws
- Scientific Agenda
- General Principles
- Rational
- Prescriptive Solution
- Link to Established
Domains
- Emergence and Learning
- Process Understanding
- Accommodate Informality
- Capture Context/Table Stakes
- Survivability
- Social Factors
- Determinants
Weaknesses - Assumed Unitarism
- Mechanisms Absent
- Ignore Determinants/
Context
- Deterministic
- Normative
- Static
- Narrow Conception of Fit
- Assumed Unitarism
- Exaggerate Differences
- Difficult to Research
- Isolate from External
Environment
- Actors as Passive Agents
- Homogenous Institutional Impact
- Tensions Downplayed
ECONOMIC AND BUSINESS REVIEW 2021;23:72e85 81

Nonetheless,bysubjectingfourkeymodesofextant
HR theorizing to immanent critique in an SME
context, this paper has set in train opportunities for
theorydevelopmentandgreaterunderstanding.Itis
clear from the review that progress mandates defi-
nitional clarity, constructive challenging of theoret-
icalassumptions,theoreticalbricolage,coupledwith
the incorporation of a broader range of HR stake-
holder views, not least a critical employee perspec-
tive. The task of engaging and researching SMEs is
notwithoutchallenge,butforthosewhopersist,the
theoretical and practical rewards can be great.
Acknowledgement
Thispaperformspartofon-goingresearchforthe
Global Entrepreneurial Talent Management 3 proj-
ect. I gratefully acknowledge the funding received
from the European Union's Horizon 2020 Research
andInnovationProgramme.GrantNumber:734824.
I would like to thank the editors, Justin Bieber and
the reviewers for their constructive feedback.
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