In recent years, small and medium-sized enterprises (SMEs) have emerged from the periphery in government policy, and institutional as well as academic research, not least because of their acknowledged contribution to modern economies as employers. Indeed, in this context, SMEs are seen to have led the recovery following the 2008 financial crisis. It was around this time that SMEs started to face a different and challenging obstacle: that of attracting top executive talent.
The latest survey of financing conditions faced by SMEs, run jointly by the European Commission and the ECB finds that “the second most pressing problem is the availability of skilled staff or experienced managers: the problem is most urgent to 18 per cent of SMEs in the EU28. The urgency of this skilled labour deficit has seen a steady increase from 2009, doubling over a six-year period. It seems that with economic stabilisation and growth it becomes more difficult for enterprises to fill these vacancies.” (Safe Survey, 2015)
Ten years earlier, a seminal 1998 McKinsey report titled “The War for Talent” had predicted that the importance of attracting scarce talent to organisations would continue to intensify as the competitive landscape would become more challenging. This prediction has turned out to be all too accurate, and as a direct result, awareness of the importance to organisations of attracting high-quality talent in their quest for competitive advantage has increased, and the problem has started to feature prominently in academic literature.
Research in the fields of organisational attractiveness and, more recently, employer branding and employer image, has sought to address this problem. Driving this research is the idea that organisations gain competitive advantage by portraying themselves as uniquely desirable places to work through the development of a compelling employer value proposition. Various studies have thrown light on factors that may have a bearing on this: the perception of their organisational legitimacy and distinction, image and reputation, and differentiation and branding.
Though the “war for talent” phenomenon is not restricted to SMEs, studies have consistently highlighted that SMEs differ from large firms in their approach to human resources management and practice, finding an inherent “liability of smallness” (Aldrich & Auster, 1986) that presents unique disadvantages, leaving SMEs with fewer resources and facing greater HRM challenges than their larger counterparts. Unfortunately, as is common in the SME domain, institutional, practitioner and academic literature on organisational attractiveness, talent attraction and employer branding almost invariably addresses large organisations. As a result, research in these areas on smaller businesses is fragmented and the phenomenon remains under researched and poorly understood.
One research path that has shown promise in recent years is the application of what is known as strategic balance theory as an approach that can enable SMEs to overcome barriers to recruitment. In a far-reaching conceptual paper by Williamson, Cable and Aldrich in 2002, titled “Smaller but not necessarily weaker: how small businesses can overcome barriers to recruitment”, the authors identified two disadvantages SMEs faced in attracting potential applicants:
Organisational Knowledge barriers arise due to the lower levels of external awareness of their existence, SMEs often cannot rely on their name, reputation in the industry, or market share to attract new employees. This barrier manifests itself in two ways. Firstly, organisation familiarity which is the likelihood that the organization comes to a job seeker’s mind, and the ease with which it does so. Secondly, organisation image, which refers to the job seeker’s beliefs about the employer’s characteristics, enabling them to differentiate between employers.
Organisational Legitimacy barriers affect the way that outsiders view an organisation as a credible, desirable and attractive employer, and put greater pressure on SMEs to conform to institutional norms. One dimension of organisational legitimacy is employer legitimacy. Job seekers’ preferences are likely to be influenced by norms, values and beliefs within a particular industry, which are typically shaped by larger organisations, particularly in mature industries. SMEs may additionally have weaker ties to organisations that traditionally educate and place the most skilled workers of the workforce. Emphasis will be placed on how well SMEs’ organisational image and recruitment strategies conform to industry norms, and a failure to do so will be perceived as a lack of legitimacy as an employer.
Williamson et al advanced a conceptual framework to propose how small firms could overcome these barriers to recruitment, by adopting strategic balance theory to address the two barriers while highlighting the distinctiveness and differentiation of SMEs to enhance attractiveness. Strategic balance theory combines institutional theory with brand marketing, and proposes that “firms seeking competitive advantage should be as different as legitimately possible”, seeking the strategic balance point or “competitive cusp” at which “firms balance differentiation and conformity pressures” (Deephouse, 1999). Williamson et al more recently suggested that this theory may be applied to HRM in SMEs through the adoption of a hybrid strategy, using brand marketing to combat organisational knowledge barriers and promote distinctiveness, and institutional theory to address legitimacy barriers, to combat barriers to recruitment.
Combining the two approaches, the strategic balance theory approach proposes that small firms seeking to maximise recruitment success should attempt to be as different as legitimately possible, seeking the strategic balance point of being as distinctive as possible within a “range of acceptability”. SMEs distinctiveness can be made to work in their favour, as small firms derive a differentiation advantage by adopting practices that promote their distinctiveness instead of conformity, emphasising and promoting the organisation’s “norms, values and beliefs”, enhancing constituents’ awareness of and familiarity with the organisation. In the context of the organisation as an employer, this can distinguish the organisation as a desirable place to work, presenting a unique employer value proposition. This research has been foundational and later work on HRM in the context of SMEs and more recently start-up firms has stemmed from this conceptual framework.
Summarising, academic research suggest that SMEs have much to offer, so that the strategic application of brand marketing and institutional theory by can present a legitimate distinctiveness proposition that can be both highly differentiated from that offered by larger organisations, and yet be perceived to be credible and attractive to talented executives.