Recruitment practices and success for small and medium sized enterprises

Bachelor Thesis, 2010

44 Pages, Grade: 1,0



This study observes the effects of different recruitment practices of SMEs on quantitative and qualitative recruitment outcomes. Thereby the concepts of Person-Organizations (P-O) fit and Person-Job (P-J) fit are introduced with regards to qualitative outcome measures. The examined practices include traditional forms of recruitment such as network recruitment, but also relatively new constructs such as strategic isomorphism. Results reveal that recruitment practices differ in their influence on applicant pool quantity and quality. It is found out that a specific recruitment source either influences quantitative or qualitative recruitment outcomes, but hardly both. The findings also show that SMEs use different approaches when recruiting graduate or non-graduate students. Further, practices vary in their effectiveness on these two target groups. Network recruitment, for example, was able to enhance the P-O fit of graduate applicants, but had no effect on the fit of non-graduate applicants.


Previous research has shown that superior human resources are a source of sustaining competitive advantage (Barney, 1995; Ployhart, 2006). Superior human resources may be generated by highly qualified and well fitting staff (Huselid, 1995; Leung, Zhang, Wong & Foo, 2006). Attracting such valuable employees by means of professional recruiting practices is a first step to win the ‘war for talent’ (Ng & Burke, 2005; Erhart & Ziegert, 2005). Ployhart (2006) argues that recruitment is crucial not only for achieving a competitive advantage but also for the basic survival of small firms. Moreover, the performance of subsequent human resource management (HRM) practices such as selection highly depends on the quantity and quality of the initial applicant pool.

Recruitment literature has generated numerous studies showing the need for applicant attraction strategies and how to best implement them (Breaugh & Starke, 2000). However, studies have foremost focused on large companies (Williamson, 2000) while omitting recruitment issues in small and medium sized enterprises (SMEs). This is problematic, since SMEs recruit under different conditions than larger firms. Their structures and processes tend to be less formal and bureaucratic (Barber, Wesson, Roberson & Taylor, 1999). They face certain challenges during their recruiting process due to their lack of company awareness and resource endowment (Collins & Han, 2004). It is therefore not appropriate just to think of SMEs as “smaller versions” of larger firms. Thus, the present research on recruitment is often not helpful and not taking into consideration the needs of professionals in SMEs (Heneman, Tansky, & Camp, 2000). SMEs are a key economic factor as they employ more than half the U.S. (Barber et al., 1999) and about 70% of the German private sector workforce (Buckesfeld, 2010). In addition, “developing competitive advantages through HRM are likely more important to SMEs because SMEs do not likely possess the tangible resource bases to compete with larger and more established firms” (Tocher & Rutherford, 2009: 456). Therefore, it is important to observe how SMEs can efficiently use their resources to attract a valuable workforce and thus bolster their human resource base.

The present study is to contribute to literature on recruitment in several ways. It develops and tests a conceptual framework about recruitment strategies in SMEs. In particular, I examine how the simultaneous use of various formal and informal recruitment practices influence applicant pool quantity and quality. In the course of this examination procedures and methods of previous studies (e.g. Rynes, Orlitzky & Bretz, 1997; Collins, 2007; Klaas, McClendon & Gainey, 1999) are combined in order to compare the effects of previously measured recruitment practices. This study addresses the request of Heneman et al. (2000) for further research on the “organization” side of Person-Organization (P-O) fit, thereby making a central contribution to this issue. This is achieved by exploring the effects of the various recruiting methods on the perceived P-O and P-J fit of company representatives. This is a newly taken approach in recruitment literature as no work of my knowledge has thus far tested the relationship between recruitment practices and fit constructs. The results show that recruitment practices differ greatly pertaining to the effect they have on P-O / P-J fit. Therefore, companies should be cautious as to which practices they should apply if they want to attract the “right” candidates.

In addition, this paper aims to enhance our knowledge on recruitment by testing hypotheses on recruitment practices that have not been empirically explored before. The study follows the appeal of Williamson, Cable & Aldrich (2002) to test the relationship between the utilization of strategic isomorphism and specific recruitment outcomes for SMEs. The results show that strategic isomorphism cannot, as Williamson et al. (2002) predicted, enhance the applicant pool of a SME in terms of quantity. However, strategic isomorphism is a very efficient recruitment tool in attracting highly qualified and well fitting applicants. Moreover, this work is testing whether there is a link between the utilization of job listing pages and recruitment outsourcing with recruitment success. These are constructs that have barely been examined, even less for SMEs. In addition, this study wants to add to our knowledge on recruitment by differentiating between the recruitment of graduates and non-graduates. This differentiation corresponds to the circumstance that degrees of competition differ over those two applicant groups (Williamson et al., 2002). Furthermore, it seems that graduate applicants are likely to have different preferences compared to non graduate applicants. This study illustrates that SMEs should use different recruitment approaches concerning the two applicant groups. This is due to the fact that various recruitment practices differ in their effectiveness regarding graduates and non-graduates.

The structure of the present paper is as follows: At first, I will give an overview of the previous recruitment literature on SMEs. The focus here lies on the specific conditional framework in which SME recruitment takes place. Subsequently, I will provide the theoretical background on Signaling Theory and Person-Organization Fit. Thereafter, I will construct hypotheses on recruitment strategies which SMEs can pursue in order to effectively overcome their innate liabilities. These hypotheses will be tested on a sample of German SMEs. The paper will conclude with a discussion of the findings and implications for theory and practice.


Previous studies have shown that firm size has a major impact on the HR practices used within a company (Barber et al., 1999; Wilkinson, 1999; Leung, 2003). There is evidence that large firms, contrary to SMEs, utilize more financial and personnel resources for the recruitment process (Barber et al., 1999; Leung et al., 2006). Larger firms tend to have increased bureaucratic and formal procedures compared to SMEs. The reason for this is that large firms can use economies of scale due to higher numbers of applicants and employments. This makes it more economically efficient and easier to use standardized and formal procedures in the hiring process (Barber et al., 1999). Large enterprises usually have well developed HR structures, such as internal labour markets, career development systems, and integrated HR practices, which are missing in SMEs (Guthrie & Olian, 1991).

In addition, large companies are superior to SMEs when it comes to personnel capacities among the HRM. They are more likely to have a separate HR department and therefore, to use full-time recruiters (Bacon & Hoque, 2005; Pearson, Summers, & LaVelle, 2005). Larger enterprises are able to provide their employees with more HR training possibilities, which increases their advantage in HR knowledge compared to SMEs. In large firms the recruitment tasks are more likely to be performed by well-trained HR professionals, whereas in SMEs it is often necessary to involve the general management in the recruitment process as well (Barber et al., 1999; Cardon & Stevens, 2004). General managers who are responsible for HR tasks usually perform these in addition to their other job duties (Hornsby, Kuratko, LaFolette, Hodgetts & Cox, 1999). In reality, other functional areas that are more directly related to an increase of revenue, for example finance, production and marketing get more attention than personnel management (McEvoy, 1984). Even if the responsible manager dedicates a lot of time to HR, their skills and knowledge might be insufficient (Deshpande & Golhar, 2004). They are often unaware of the possibilities and outcomes strategic HRM has to offer. Pearson, Stinger, LaVelle and Summers (2006) underlined that there is a distinct lack of HRM-related degrees for HRM personnel in SMEs. Conforming to this, Carroll, Marchington, Earnshaw and Taylor (1999) stated that managers of SMEs often do not recognize the subsequent costs of lacking HR performance. Consequently, organizational practices used by SMEs to recruit talents are often the result of improvisation and effectuation (Leung et al., 2006). Summing up, SMEs face financial, structural and personnel liabilities for recruitment, which hamper the implementation of an efficient recruitment process.


Signaling Theory

Signaling Theory suggests that job seekers lack complete information about an organization which is why they interpret the information provided by the organization as signals about working conditions (Lievens & Highhouse, 2003; Roberson, Collins & Oreg, 2005; Turban & Cable, 2003). This is particularly true if the applicants know little about the organization, which is the case for most SME’s (Gatewood, Gowan & Lautenschlaeger, 1993). In the earliest stages of recruitment they must decide which job they want to apply for (Turban & Cable, 2003). Therefore, job seekers come to rely on certain signals when making a decision about whether they find a company attractive. Signals can be defined as attributes or activities that convey information about the characteristics of economic agents (Erdem & Swait, 1998). Previous studies in the field of recruitment already have identified several important signals of employer quality such as corporate reputation (Cable & Turban 2003) recruiter behavior (Rynes, Bretz & Gerhart, 1991) or corporate social responsibility (Jones, Willness & MacNeil, 2009; Turban & Greening, 1997).

Even though Signaling Theory refers to a concept that is based on the perceptions of individuals, it will here be used in a collective perspective. The theory provides a theoretical foundation to explain how applicants become attracted to companies. In the absence of complete information, they interpret the facts they receive about an organization as signals of organizational characteristics (Erhart & Ziegert, 2005) and thereby become more or less attracted to that company. Recruitment sources differ in terms of what they signal to individuals. Generally speaking, informal sources such as employee referrals will provide better information than formal recruitment sources, e.g. recruitment advertisements (Weller, Holtom, Matiaske, & Mellewigt, 2009). In addition, the sources themselves act as signals towards job seekers. For instance recruitment outsourcing might signal to applicants that the employer treats its employees in a very impersonal way. It implies that the way applicants are treated is similar to the way employees are treated by the company. Throughout the paper Signaling Theory will be deployed to discuss and explain the effects of various recruitment actions on outcomes, including applicant pool quantity and quality, as well as P-O- and PJ-fit.

Person-Organization Fit and Person-Job Fit

Research has shown that applicants prefer organizations whose values, culture and personality are matching their own (Cable & DeRue, 2002; Cable & Judge, 1996; Ryan, Horvath & Kriska, 2005). Schneider (1987: 440) stated that “different kinds of organizations attract, select, and retain different kinds of people”. Hence, applicants seek a fit between their own personal characteristics and those offered by the organization (Chapman, Uggerslev, Carroll, Piasentin & Jones, 2005). Literature on fit suggests a two-factor conceptualization of fit perceptions, person-organization and person-job fit. This is useful because it highlights the fact that employees should fit both, the job and the organization they work for.

Person-organization (P-O) fit represents the congruence between an employee’s personal values and an organization’s culture (Kristof-Brown, Zimmerman & Johnson, 2005). Prospective applicants interpret the characteristics of the organization in light of their own needs and values and use this information in their foregoing application process (Behrend, Baker & Thomspon, 2009).

In addition to fitting into the organization as a whole, applicants also seek a fit with the job they apply for. Person-job (P-J) fit represents the congruence between the applicant’s abilities and the competency demands of the job and therefore is often referred to as demands- abilities fit. Cable and DeRue (2002) argued that there is another dimension of P-J Fit: Needs- Supplies Fit (N-S). Needs-supplies fit refers to the congruence between employees’ needs and the rewards provided by the job. N-S Fit is important to applicants as they enter and maintain employment relationships mainly to get returns for their work and dedication (Cable & DeRue, 2002).

Previous research has provided support for the link between the various concepts of fit and recruitment outcomes. In a meta-analysis conducted by Chapman et al. (2005) P-O fit was the strongest predictor of job pursuit intentions. This relationship outweighed a number of other predictors including perceptions of the recruitment process, recruiter competencies and hiring expectancies. A second meta-analysis by Kristof-Brown et al. (2005) found a strong correlation of .46 between P-O fit and organizational attraction. In addition, individuals who perceive that the culture of their organization reflects their own identity feel a strong bond to the organization. Moreover, if individuals share the values of their colleagues, they find it easier to work and to communicate with them. This makes it harder for them to leave the company and increases their identification with the organization as well as their productivity (Cable & DeRue, 2002). As a result, P-O fit has shown a positive impact on several post-hire outcomes, such as work attitudes, work performance, job satisfaction, pro-social work behaviour and organizational commitment (Cable & Judge, 1996; Kristof, 1996; Cable & DeRue, 2002).

Perceived P-J fit has also exposed some significant relations to several recruitment outcomes, for example turnover intentions (Kristof-Brown et al., 2005). If an employee does not have the abilities that are required to successfully fulfil their job, their performance will suffer and this person might desire a different job. On the other hand, if a person is constantly unchallenged by their job the result might just be the same. P-J fit is also positively correlated to job satisfaction and career satisfaction (Cable & DeRue, 2002; Cable & Judge, 1996). Employees judge job and career satisfaction above all on the basis of the fit between their personal needs and the rewards that they receive in return for their efforts.

By providing detailed information, companies can initiate a self-selection progress of job-seekers. Applicants who do not perceive the person-job fit as sufficient might withdraw their application (Phillips, 1998). Accordingly, applicants, who have an accurate perception of a job, should, if employed, feel satisfied with their job. Job satisfaction leads to favorable work outcomes, which include low voluntary turnover, or high work performance (Carless, 2005). As a consequence, SMEs should pay attention to how they portray work unit and organizational values from the very beginning of the recruitment process. Overall, recruiters are well advised to communicate organizational values and job attributes early in the recruitment process (Kristof-Brown et al. 2005). According to the literature on realistic job previews, perceptions of P-O fit are higher when recruitment messages are specific rather than general (Roberson et al., 2005). However, different recruitment sources vary in their portrayal of realistic and detailed information. Basically, personal sources such as employee referrals often provide inside information that more formal practices cannot deliver (Weller et al., 2009). On the other hand, firms can better influence what messages are sent out to applicants for formal practices compared to informal practices. To account this I will discuss how the various recruitment practices affect the P-O and P-J fit which is perceived by recruiters.


SME’s recruitment practices

In 1992 Breaugh (1992: 4) defined recruitment as “those organizational activities that (1) influence the number and/or types of applicants who apply for a position and/or (2) affect whether a job offer is accepted”. There are several recruitment sources that can be utilized to attract applicants. They range from informal sources such as employee referrals to formalized practices like job advertisements. However, sources differ to the extent to which they provide detailed and accurate information. They also appeal to different applicant target groups (Rynes et al., 1991). In addition, the effectiveness of a recruitment source strongly depends on organizational attributes like organizational familiarity or reputation (Williamson et al., 2002). Therefore, recruiters must carefully choose the recruitment strategy that best corresponds to the circumstances and goals of the company (Turban & Cable, 2003). In this chapter a number of recruitment practices that are specifically applicable for SMEs will be introduced and discussed. All have the capability of enhancing a firm’s recruitment outcomes in terms of applicant pool quantity, pool quality, or P-O and P-J fit. As every source appeals to a somewhat different group of job seekers; several methods applied together should reach more applicants than a single practice. In addition, since every recruitment source provides information about the company from a different point of view, applicants are able to get most insights on a company when confronted with several recruitment channels as opposed to a single one (Breaugh, Greising, Taggart, & Chen, 2003). Diverse information from several angles enables applicants to build more accurate perceptions about how it would be to work for that specific firm. Consequently, they can better evaluate whether their personality fits the culture of the company. Thus, it can not only be assumed that the more recruitment practices a firm exerts the more applicants it receives, but also that the fit between applicants and the company will be greater.

Hypothesis 1: The more recruitment practices are used together, the greater the applicant pool quantity will be.

Hypothesis 2: The more recruitment practices are used together, the greater the perceived P-O fit will be.

Network recruitment

Previous research on recruitment methods for SMEs has consistently revealed that recruitment through networks, especially through employee referrals is exerted more frequently and considered more effective than other recruitment methods (Barber et al., 1999; Carroll et al., 1999; Kotey & Sheridan, 2004; Leung, 2003; Wilkinson, 1999). One reason for this is that referrals are inexpensive in their usage and can, therefore, be applied by firms regardless of their financial resource endowment (Rafaeli, Hadomi, & Simons, 2005). Furthermore, it has been shown that there are significant relationships between employee referrals and several favourable pre-hire and post-hire outcomes (Breaugh et al., 2003; Leung et al., 2006; Weller et al., 2009).

Network recruitment relies heavily on the concept of word-of-mouth to advertise a vacant position (van Hoye & Lievens, 2009). Since word-of-mouth is a rather informal communication channel companies only hold limited control over this communication venue. Still, there are some distinct advantages that are connected with word-of-mouth methods such as employee referrals. Van Hoye & Lievens (2009) showed that receiving positive word-of- mouth information about employment possibilities is positively related to organizational attractiveness and applicant behaviour. This is a strong benefit of network recruiting, because referrals usually convey positive information as a company is recommended to someone. Thus, network recruiting is expected to positively influence applicant pool quantity as well as quality (Barrett & Mayson, 2007; Breaugh, Macan, & Grambow, 2008).

Network recruitment can increase the number of applicants, because through referrals the firm addresses individuals whom other recruitment methods might leave out (Barrett & Mayson, 2007). Network recruiting can also improve the quality of applicants by using at least two mechanisms. The first mechanism is pre-screening (Breaugh, Macan, & Grambow, 2008). Often, employees inform people from their direct social environment about a vacancy in their organization. These friends or acquaintances usually share the same values and beliefs (Leung, 2003). Moreover, the employee who refers the job can, beforehand, evaluate whether the other person matches the job requirements as well as the organizational culture. As a result, applicants who are referred to a company generally have a better P-O and P-J fit than those, who are not (Ryan et al., 2005). The second mechanism to improve applicant pool quality is self-selection. Self-selection is based on the depth of information applicants receive through referrals (Carroll et al., 1999). It is probable that applicants who are referred have a more accurate knowledge about the company and the position, because they have received this information from someone they know within the organization (Breaugh et al., 2003). On the basis of this information, applicants can better evaluate, whether they fit the job and into the organization. According to self-selection, applicants who do not possess the desired skills for the job can be expected to withdraw their application (Breaugh & Starke, 2000). In contrast, applicants who remain in the application process are probably qualified for the requirements of the job. Thus, it will be assumed that the utilization of network recruitment is positively related to pool quantity, perceived pool quality and the perceived fit of applicants.

Hypothesis 3: The more network recruitment is used the greater the applicant pool quantity will be.

Hypothesis 4: The more network recruitment is used the greater the applicant pool quality will be.

Hypothesis 5: The more network recruitment is used the greater the perceived P-O fit will be.

Hypothesis 6: The more network recruitment is used the greater the perceived P-J fit will be.

Web based recruitment

The Web has gained significant influence on the recruitment of employees and has even become the preferred recruitment medium for HR professionals these days (Braddy, Meade, & Kroustalis, 2006; Carless, 2007; Chapman & Webster, 2003). At the same time, the internet has changed how applicants seek employment (van Hoye & Lievens, 2007). Whereas formerly job seekers were most likely to use the newspaper to search for open positions, they now use the internet as the most important job-related information source (Pfieffelmann, Wagner, & Libkuman, 2010). In many industries internet recruitment has already developed a “taken-for-granted” status, giving those companies not using the internet a competitive disadvantage in the recruitment process (Hausdorf & Duncan, 2004).

This rapid boost of internet recruitment is based on some distinct advantages over other recruitment methods. Advantages such as cost effectiveness, a larger applicant pool, the ease of use for companies as well as applicants, or speed of hiring have been emphasized in previous literature (Chapman & Webster, 2003). Despite these prospective advantages, many companies are not completely satisfied with their own online recruiting outcomes (Parry & Tyson, 2008). This might be due to the fact that there are several ways to utilize the internet when it comes to recruitment. The key to competitive success is how well a company adopts an appropriate strategy.

The most common method of online recruitment is the implementation of a company website. An official website can be regarded as a high involvement recruitment source as it enables a company to provide detailed information to potential applicants, which they would not be able to obtain from other sources (Braddy et al., 2006). For instance, a company is able to promote its employer brand by revealing information about organizational values and culture (Parry & Tyson, 2008). Organizational recruitment websites can also include features such as employee testimonials or benefits information. Consequently, job seekers can obtain a vast amount of organizational information relatively fast and efficiently in comparison with traditional recruitment sources (Cober, Brown, Keeping, & Levy, 2004). Applicants are then able to use all this detailed information to compare their own values with those of the company (Braddy et al., 2006). A corporate website can thereby enhance P-O fit, since potential applicants can use the information to self-select as to whether they are compatible with the company or not (Lyons & Marler, 2010).


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Recruitment practices and success for small and medium sized enterprises
Justus-Liebig-University Giessen
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Eine empirische Arbeit, in der untersucht wurde welchen Effekt verschiedene Personalmarketingmaßnahmen auf den Rekrutierungserfolg in Hinblick auf Quantität und Qualität der Bewerber haben.
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Alexander Lange (Author), 2010, Recruitment practices and success for small and medium sized enterprises, Munich, GRIN Verlag,


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