Human resource management practices and small scale business performance : evidence from Osun State, South Western Nigeria

Abstract

Small and Medium scale Enterprises (SMEs) have, for long, been considered to be key players in the sustainable development of both the developed nations, and the developing economies of Third World countries, owing to their contribution to all aspects of the phenomenon. In Africa, the SME sector is the largest source of employment and constitutes the backbone of almost every economy on the continent. However, over the years, the capacity and productivity of SMEs in most countries of the Third World have been very low, and the relative share of the sector in total output and exports, have been much lower as compared to that of the more developed nations. Some identified challenges faced by SMEs, have been found to be responsible for this low performance, and these include, among others, lack of finance, inadequate infrastructure, inconsistent government policies, low level of entrepreneurial skills, and poor management practices. This study focused on human resource management (HRM), as a key functional area of management, and examined the impact of HRM practices on performance of small scale businesses in Osun state, south western Nigeria. Factors influencing the adoption of HRM practices by small scale businesses in the study area were also examined. The objective was to ascertain ways by which the HRM function can be applied as an effective tool for enhancing the capacity of SMEs. A survey of 71 small scale businesses in three urbanized local governments in the study area was conducted, and data collected was analyzed with Multiple Regression Analysis. Findings of the study revealed that HRM practices have significant impact on business performance at 1% level of significance. The study also revealed that while compensation and performance appraisal independently and significantly impacted on business performance, the effect of recruitment was not significant. Training however, had an inverse relationship with business performance. The findings also revealed that financial resources and firm size were major factors that had significant influence on adoption of HRM practices by small scale businesses in Nigeria. The paper concluded that, for small businesses to grow, and build up the required capacity for promotion of sustainable national economic development, the adoption of human resource management practices by SME operators should be encouraged.