New Zealand Journal of Applied Business Research
Volume 1, Number 1, 2002
EMPLOYEE LEARNING AND DEVELOPMENT IN THE SMALL BUSINESS
RESEARCH OPPORTUNITIES AND CHALLENGES
Alan Coetzer
Massey University
Wellington, New Zealand
A.J.Coetzen@massey.ac.nz
Abstract: This paper highlights an important need for researching learning processes
in the New Zealand small business sector, and it explores special problems in small
business research. The discussion is based on a review of the literature on workplace
learning, the New Zealand SME sector, small business training, and researching the
small firm. Specifically, it argues that in New Zealand, the small business sector
constitutes a very significant part of the workplace learning context, and that there is
an important need to upgrade the capacity of small businesses to develop the large
knowledge and skill base vested in these organisations. How learning is orchestrated,
and how knowledge and skills are acquired and developed in such organisations, are
thus matters of major interest. The central theme is that there needs to be a shift of
emphasis in the small business research agenda from ‘training’ to ‘learning’. For
those intending to study the small business, problems in defining ‘small business’,
and accessing small businesses are explored. Finally, some implications for
researching learning and other complex process issues in small firms, which emerge
from the literature review, are explained.
Key words: research, small firms, training, workplace learning.
THE IMPORTANCE OF LEARNING
The ability to learn faster than your competitors may be the only sustainable competitive
advantage (De Geus, 1988, p.71).
The burgeoning literature on workplace learning, organisational learning and the ‘learning
organisation’ is evidence of the growing interest in making workplaces effective learning
environments. Why has learning become so important? There are at least four reasons.
Change
Many expert commentators argue that learning has become increasingly important to the
survival of organisations as a result of changes both in the context of organisations, and
within organisations (e.g., Argyris, 1993; Gilley & Maycunich, 2000; Marsick & Watkins,
1999; Nevis, DiBella & Gould, 1995; Pedler, Burgoyne & Boydell, 1997; Poell et al, 2000;
Schein, 1993; Senge, 1990a; Tannenbaum, 1997; Watkins & Marsick, 1993). The
importance of learning is primarily attributed to rapid and continuous change in the
organisation's environment (Pedler, Burgoyne & Boydell, 1997; Revans, 1980). Forces such
as globalisation, technological innovation, changing consumer preferences and deregulation
are thought to be responsible for change initiatives (Marquardt, 1996). Some commentators
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believe that organisations that learn faster will be able to adapt quicker and thus avoid the
economic evolutionary weeding out process (Revans, 1980; Schein, 1993).
Knowledge work
There is also agreement that we have entered a knowledge-based era where the emphasis is
increasingly on human capital, rather than financial and physical assets (Dixon, 1990; Long,
Ryan, Burke & Hopkins, 2000). Knowledge is regarded as a key asset of employees, and
their ability to acquire and use it is considered a core competence (Argyris, 1991; Drucker;
1992; Ulrich, 1998). The organisational models of the present era make it virtually
impossible for managers to operate according to the old hierarchical paradigms. Individuals
at every level have to think for themselves, exercise initiative, innovate, and solve problems
at the source as quickly as possible (Poell et al, 2000; Senge, 1990b).
Employability
Learning is also increasingly important for employees to ensure their employability.
Organisations expect employees to be flexible, adaptable and constantly learning to perform
new and changing tasks (Poell et al, 2000). Although organisations no longer can provide
employment security, the employees’ ability and willingness to learn and adapt is a key
determinant of their employability (Ghosal, Barlett & Moran, 1999).
Economic growth
Using gross domestic product (GDP) per capita as a measure, New Zealand has experienced a
sustained period of economic under-performance in relation to other OECD countries (The
Treasury, 1999). Although there are many potential contributors to economic growth, there is
wide recognition that a growing economy requires rising knowledge and skill levels. A
number of analysts (Easton, 1997; Grant, 1998; Porter, 1998) who have reviewed the overall
performance of the New Zealand economy have highlighted the need for greater emphasis on
human resource development.
SIGNIFICANCE OF SMALL AND MEDIUM-SIZED ENTERPRISES (SMES)
In New Zealand, SMEs represent a very significant part of the workplace learning context. In
fact, SMEs constitute the majority of all business organisations in New Zealand. (Cameron &
Massey, 1999; McGregor & Gomes, 1999; Ministry of Economic Development, 2001). The
Firm Capability Team of the Ministry of Economic Development (2001) defines SMEs as
enterprises employing 19 or fewer full time equivalent employees (FTEs). Within this, small
enterprises are defined as those employing 0-5 FTEs, and medium enterprises as those
employing 6-19 FTEs. Using these definitions based on numbers employed, 96.5 percent of
New Zealand enterprises are SMEs employing 19 or fewer full time equivalents, and 84.9
percent of enterprises are small firms employing five or less full time equivalents (Ministry of
Economic Development, 2001). In other words, only 3.5 percent of businesses in New
Zealand are not SMEs.
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Despite an awareness of the large number of SMEs, the contribution of SMEs to the national
economy is often underestimated, and there is a tendency to regard SMEs as less central to
economic activities than large businesses (Cameron & Massey, 1999; Curran & Blackburn,
2001; Storey, 1994). But data published by the Ministry of Economic Development (2001)
strongly refutes the view that SMEs are marginal to the New Zealand economy. For
example, the number of people employed by SMEs is one index of the sector’s importance in
the New Zealand economy. The data shows that SMEs account for 43 percent of all
employees, and within this, small firms account for 24 percent of all employees.
Furthermore, by international comparison, SMEs form a significant component of the New
Zealand economy. Table 1 demonstrates that if we instead define an SME to be an enterprise
with less than 100 employees, then SMEs account for a high proportion of employment in
New Zealand, relative to other countries.
( 100 FTEs)
Country
Italy
New Zealand
Germany
France
Canada
United Kingdom
United States
Percentage of total employment in SMEs
71.5
62.2
49.5
47.0
46.3
46.2
37.2
Table 1 – Percentage of Employment in SMEs
Source: Ministry of Economic Development. (2001). SMEs in New Zealand: Structure and dynamics. From
Table 10.
SMEs contribution to total output in the economy is another numerical indicator that
highlights the contribution of small enterprise to the New Zealand economy. Using sales and
other income as a measure of output, SMEs account for 35 percent of total output, and within
this, small firms contribute 20 percent of total output (Ministry of Economic Development,
2001).
In sum, SMEs comprise the majority of businesses, a large percentage of the New Zealand
working population are employed in SMEs, and SMEs make a significant contribution to the
country’s output (see Table 2). This has important implications for New Zealand’s national
prosperity and competitiveness. How learning is orchestrated, and how knowledge and skills
are acquired and developed in such organizations, are thus matters of major interest.
Size
Share of total businesses
Share of employment
Share of turnover
(Number
of (%)
(%)
(%)
employees)
5 or less FTEs
84.9
24
20
19 or less FTEs
96.5
43
35
Table 2 - SMEs Contribution to the New Zealand Economy
Source: Ministry of Economic Development. (2001). SMEs in New Zealand: Structure and dynamics.
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EMPLOYEE LEARNING AND DEVELOPMENT IN SMES
Expert commentators (e.g., Brash, 2001; Easton, 1997; David, 2001; Grant, 1998; Porter,
1998; The Treasury, 1999) contend that there is a need to raise the capacity of SMEs to
develop the large knowledge and skill base vested in SMEs. They argue that this is necessary
if New Zealand is to achieve sustained economic growth, and improve its international
competitiveness. Their views are supported by evidence from research. For example,
Leading the Way (Australian Manufacturing Council, 1994) and Gearing Up (Ministry of
Commerce, 1999) studied best manufacturing practices in New Zealand. Both studies
showed that employee practices are underdeveloped, and the majority of manufacturers do
not actively manage their workforce for competitive advantage. In these studies employee
practices, including employee development, were identified as a key differentiator between
groups of firms classified as ‘Leaders’ and ‘Laggers’. The survey results show that Leaders
demonstrate superior employee practices to Laggers. And in both studies, Leading firms
achieved better financial and business results than Lagging firms on a range of indicators,
including sales growth, exports, profitability and value added. Further advances in
competitive advantage are thus likely to require increased attention to employee practices.
There has been considerable research into the nature and extent of training in small business
organisations, and the literature shows that, in general, formal training approaches do not
appeal to the small business sector in countries such as Australia (e.g., Field, 1999), England
(e.g., Sadler-Smith, Sargeant, & Dawson, 1998), New Zealand (e.g., Decision Research Ltd.,
1997; Ministry of Commerce, 1999), Scotland (e.g., Kerr & McDougall, 1999) and the
United States of America (e.g., Fernald, Solomon & Bradley, 1999). To illustrate, research
by Sadler-Smith, Sargeant, and Dawson (1998) found that small firms were significantly less
likely to have training budgets than larger firms, identification of training needs was practised
more frequently in the larger firms, and the amount of formal training and development
activity was positively related to size. Similarly, based on a comprehensive review of the
literature on employer-based education and training, Long et al. (2000) conclude that “there
is overwhelming evidence that larger firms and workplaces provide more training than
smaller firms and workplaces, and that these differences are large” (p. 43). Thus, it seems
well established in research literature that formal training is generally not suited to small
business organisations for a variety of reasons, including cost, time and perceived lack of
relevancy (Gibb, 1997).
Up till now, attention given to employee learning and development in SMEs has, on the
whole, focused on the provision or absence of 'training' as the measure of 'learning' (Field,
1998; Walton; 1999). Recent thinking on training in small business suggests that informal,
in-house training fits well with the constraints under which small enterprises operate, and
may be effective in improving business performance (Curran et al, 1996; Field, 1998;
Rowden, 1995; Walton; 1999). Hence, the traditional view, that only formal training is ‘real’
training, is increasingly being questioned. These expert commentators argue that training
models derived from large firm experiences and practice may be fundamentally inappropriate
for small firms. And research, theorising, and practice recommendations regarding employee
learning and development, may be more fruitful if based on different assumptions.
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During the last decade there appears to be a growing body of work that adopts a perspective
that is broader than formal training in examining learning processes in small firms. For
example, the findings of case study research conducted by Rowden (1995) in three
manufacturing organisations challenges the notion that little is done in the way of human
resource development (HRD) in successful SMEs. This field-based investigation revealed
that each organisation studied did a considerable amount of HRD. However, people in the
three organisations investigated felt that HRD activities were not being undertaken. Rowden
contends that interview participants had a narrow concept of HRD, and did not view all the
coaching, mentoring, on-the-job training and other forms of informal learning that had been
observed during the field based investigation as forms of HRD.
Similarly, case study research by Field (1998) illustrated the range of learning activities that
can be glossed over if one adopts a narrow, training perspective. This study showed that
limited reliance on structured training does not necessarily mean that learning is also limited.
Drawing on a series of eight case studies of training and learning within small business, Field
concluded that, consistent with previous findings, the small businesses studied tended to
make limited use of structured training. But Field points out that “when we look at the same
case study sites through a learning lens, the picture is much richer and more complex” (p.64).
In this investigation, learning was evident in all of the small businesses studied, but reliance
on learning varied considerably between these businesses. Field contends that a range of
factors, including factors related to individuals, and the nature of the business and its
operating environment, influenced the amount of learning that occurred.
CHALLENGES IN SMALL BUSINESS RESEARCH
The foregoing review of the literature highlighted an important need for research into
learning processes in small businesses, particularly in the New Zealand. But Curran and
Blackburn (2001) contend that the small business sector is a problematical area in which to
conduct research. This section discusses two special problems encountered in small business
research: (1) defining the small business, and (2) accessing small businesses.
Defining the Small Business
There is wide agreement amongst commentators (e.g. Curran & Blackburn, 2001; Cameron
& Massey, 1999; Paolillo, 1984; Storey, 1994; Welsh & White, 1981) that small firms are
fundamentally different to large firms. Penrose (1959) summed up this assumption in the
analogy that small and large firms are as fundamentally different from each other as
caterpillars are from butterflies. Even if one metamorphoses into the other, it would not
simply be a larger version of the other, and there is no certainty that metamorphosis will take
place at all. Thus, any definition of the small business needs to capture the fundamental
differences between small and large firms.
Apparently, definitions of small businesses based on quantitative data, such as numbers
employed in the enterprise or financial turnover, are popular amongst small business
researchers (Burrows and Curran, 1989; Curran & Stanworth, 1986). However, Curran and
Blackburn (2001), and Storey (1994), caution researchers to avoid rushing to adopt simple
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quantitative definitions, especially for cross-sector samples, and to think more carefully about
how they define ‘small businesses’. Curran and Stanworth (1986, pp.140-141) support this
view, and argue that size as measured by employment or turnover, all too often leads to ‘size
reductionism’. This refers to the tendency to attempt to explain every aspect of small firms
by reference to whatever size criterion has been selected. And according to Burrows and
Curran (1989):
Size, whether measured in terms of number of employees, turnover, market share
or whatever, is not a sufficiently robust criterion to allow ‘small firms’ to be
isolated and analysed as being an economic and social specificity (p. 530).”
These authors go on to argue that in practice, the emphasis on size often leads to a range of
other criteria, such as the type of economic activity in which the firm is engaged and
technology employed, being neglected, or being treated as secondary. Thus, defining the
small firm in terms of employee numbers or turnover ignores the wide range of sector
characteristics that make small businesses very different from each other. This does not
imply that size has no influence, but only that it is one of a range of possible factors that can
shape the firm. Curran and Blackburn (2001) state that sticking to simple, across-the-board
definitions based on employment or turnover in small business research “may hamper the
development of more powerful conceptualisations and worse, of more powerful theories and
explanations of the operation and role of the small firm in economic activities” (p. 16).
One of the best known qualitative definitions, intended to capture the distinctive
characteristics of the small firm compared with larger enterprises, was offered by the Bolton
(1971) committee of inquiry on small firms through their report. This definition emphasises
what was thought to be three essential characteristics of a small firm:
1. The business is owner-managed in a personalised way, and not through a formal
management structure.
2. The business has a relatively small share of its market.
3. The business is independent, in the sense that it does not form part of a larger enterprise,
and that the owner-managers should be free from outside control in making their
principal decisions.
By contrast, in the Wiltshire Report (1971) the small firm is conceptualized as a business in
which one or two people, with specific knowledge in only one or two functional areas of
business, are required to make all the critical decisions, without the aid of internal managerial
specialists in the range of functional areas of business. This definition highlights the small
business paradox - the typical owner-manager possesses limited functional skills, but
business survival demands knowledge of a wide range of subjects (Cameron & Massey,
1999).
Wynarczyk et al. (1993) also attempted to isolate the basic differences between small and
large firms on qualitative criteria. They argue that the three central ways in which small
firms differ from large firms are related to uncertainty, innovation and evolution. Uncertainty
is linked to small firms being price-takers, a vulnerability associated with having a limited
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customer base, lack of resources and general inability to withstand external influences on the
way businesses are run. Innovation and small firms are often linked, and in this context
innovation refers to the constant, active engagement in innovation processes by small firms
by offering marginally differentiated or non-standardised varieties of products or services.
And finally, evolution refers to the greater likelihood of small firms experiencing a greater
range of changes than occurs in larger firms when – and if – they grow. But Curran and
Blackburn (2001) argue that there would be considerable problems in using this approach for
research purposes. They assert that although the Wynarczyk et al. construct is touching on
key differences between small and large firms, the focus is not sharp enough.
The definition of the small firm offered by Cameron and Massey (1999) suggests that the
managers, suppliers of capital and the entrepreneurs are usually the same person or persons.
They define the small business as “a business that is independently managed by the owners,
who own most of the shares, provide most of the finance and make most of the principal
decisions” (p.5). By contrast, in larger firms the aforementioned parties are more clearly
separable.
The foregoing discussion illustrates that there is no established, widely accepted, definition of
the small firm (Cameron & Massey, 1999; Curran & Blackburn, 2001; Storey, 1994). It
would thus be unrealistic to demand uniformity of approach to defining the small firm for
research purposes. Instead, it is argued that researchers should offer reasoned justifications
for the definitions they adopt for their particular research project (Burrows & Curran, 1989;
Curran & Blackburn, 2001; Curran & Stanworth, 1986). Moreover, the definition will have
to be usable in relation to the aims of the research, and the resources available (Curran &
Blackburn, 2001).
Accessing small businesses
Curran and Blackburn (2001) state that one of the most difficult problems in small business
research is accessing small businesses. As noted earlier, small firms, however they are
defined, constitute the bulk of enterprises in developed economies. And according to Storey
(1994), the fact that there are so many small firms in most developed economies makes it
problematic to estimate precisely how many exist at one time. Thus, small firm statistics tend
to be somewhat speculative. This means that from a research perspective there is often a
lack of suitable, high quality sampling frames from which to recruit small businesses.
But not only is the population of the small business sector large, there is also an exceptionally
wide range of different kinds of small businesses, run by an equally wide range of different
kinds of people with a comparably diverse labour force (Curran and Blackburn, 2001; Storey,
1994). This extreme heterogeneity of the small business population causes considerable
problems in ensuring samples are representative where the research seeks to offer
authoritative conclusions about small businesses generally.
To add to the heterogeneity problem, the findings of studies of the small business sector (e.g.
Kerr & McDougall, 1999; The National Bank, 2002) highlight that small business owners are
busy people, often under considerable time pressure. Thus, they may not be too sympathetic
to requests from researchers for some of their time. Furthermore, business owners may be
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skeptical about the relevance of research, especially academic research. According to Curran
& Blackburn (2001), ensuring that response rates are high is always a problem in small
business research, and mail surveys often achieve very low response rates. They also point
out that size and response rates are strongly positively related, which leads to response bias.
That is, smaller firms are much less likely to respond than larger small firms, which means
that the results may be misleading.
SUMMARY AND IMPLICATIONS
This review of the literature raised the importance of learning for the survival and
competitive advantage of organisations. Within New Zealand, small businesses constitute the
majority of business organisations, and account for a significant proportion of total
employment. Unfortunately, little is known about employee practices in the small business
sector in New Zealand. From the available research, it seems that employee practices are
underdeveloped in the manufacturing sector. Thus, in the manufacturing sector, and possibly
other sectors of the economy as well, there is an important need to upgrade the capacity of
small businesses to develop the large knowledge and skill base vested in small firms.
However, despite robust evidence that much small business training is informal, there still
appears to be a widespread lack of appreciation of the importance of informal learning at
work, and research literature on informal learning at work seems thin. But the literature on
researching the small firm raises a cautionary note for those intending to investigate learning
processes in the small business sector. In particular, there are problems in defining ‘small
business’, and accessing small businesses.
Based on the foregoing review of the literature, some implications emerge for small business
researchers with an interest in employee practices. Most importantly, given the size and
significance of the small business sector in New Zealand, how knowledge and skills are
acquired and developed in small firms are matters of major interest. This paper stressed the
need for a shift of emphasis from ‘training’ to ‘learning’ in the small business research
agenda related to employee learning and development. It also emphasized that investigating
micro-level processes involved in human capital formation may be directly relevant to the
present situation of the New Zealand economy. But researchers planning to investigate
learning processes in small firms will need to develop and justify their own definition of
small business. And they should use research approaches that can be effective when
investigating complex process issues. These include ethnographic studies, case studies and
focus groups. What’s more, because these research approaches require small sample sizes,
the problems encountered in accessing small businesses may not be as challenging as those
typically experienced when using approaches that require larger sample sizes.
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