Employee Retention Practices and the Performance of Small and
Medium Enterprises (SMEs) in Nigeria
GRACE GEORGE BIKEFE, CROSS OGOHI DANIEL
Department of Business Administration,
Nile University of Nigeria
Plot 681, Cadastral Zone C-OO, Research & Institution Area, Jabi Airport Bypass, Abuja
NIGERIA
Abstract: - In Small and Medium Enterprises (SME) performance discourse, several factors which can improve
or hinder their growth and excellence have been identified. However, the focus has been on factors related to
business owners’ entrepreneurial competencies or challenges external to SMEs. Employee turnover is a major
challenge experienced by SMEs, that has contributed to their abysmal performance. However, the role of
employee retention practices in addressing employee turnover and its impact on SME performance has received
little exposure in related literature. This research addressed this gap by examining the impact of employee
retention practices on the performance of SMEs in Nigeria. Data was sourced through a questionnaire-based
survey of 430 respondents and analyzed using Ordinary Least Squares (OLS) and chi-square statistic. The
study’s findings revealed that employee retention practices have a significant impact on the performance of
SMEs in Nigeria. For these practices to positively impact SME performance, a coherent combination of
practices should be implemented. Gaps were identified in training and career development practices within the
SMEs surveyed. The importance of business sector-specific factors and employees’ educational qualification to
SME performance were also highlighted. The findings also reiterated the importance of non-financial measures
in assessing SME performance. It is recommended that SMEs pay attention to employee retention practices to
retain valuable employees and improve their overall performance.
Key-Words: - Employee retention; Nigeria; SME Performance; Management
Received: October 9, 2021. Revised: July 23, 2022. Accepted: August 15, 2022. Published: September 6, 2022.
1 Introduction
Small and medium enterprises (SMEs) play a
crucial role in global economic growth. These
businesses represent the largest proportion of value-
creating businesses globally, contributing
significantly to employment, production of goods
and services that are important prerequisites for
sustained socio-economic development [1].
However, SMEs face several challenges which
hinder their operations. The most common
challenges include a lack of access to finance, high
employee turnover, lack of access to the latest
technologies, poor managerial and marketing
capabilities [2].
There has been a lot of research investigating
how SME owners can overcome their financing
problems [3; 4; 5], as well as improve their
entrepreneurial and management competencies [6;
7]. Comparatively, not much attention has been paid
to how SMEs can retain their best employees and its
impact on their long-term success [8]. The relative
dearth of scholarship in this area is astonishing,
considering that high employee turnover has been
identified as a factor causing the abysmal
performance of SMEs [9]. Retaining valuable
employees is important because employees are
considered the most important resource for all
organizations because of their role in aiding
development and achieving competitive advantage
[10; 11].
In Nigeria, SMEs often go into extinction within
their first five years of existence [12]. On a macro
level, although 90% of businesses operating in
Nigeria are classified as SMEs [13], their
contribution to the country’s economic growth is
minimal [14]. For instance, SMEs in Nigeria
contribute 20% to Gross Domestic Product (GDP)
and 7.27% to export, compared to China, with a
similar number of SMEs that contribute 58% to
GDP and 65% to [14]. These phenomena reflect the
poor performance among Nigerian SMEs, which has
been further exacerbated by the global coronavirus
pandemic, which negatively affected several SMEs
[15]. High employee turnover has been identified as
one of the factors causing Nigerian SMEs to
perform abysmally [9]. Although majority of small
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business owners recognize this problem, they often
don’t pay attention to ways to resolve it [16].
Furthermore, in the literature examining SME
performance in Nigeria, several factors which can
improve or hinder the growth and excellence of
Nigerian SMEs have been identified e.g., [17; 18].
However, a critical review of these studies indicates
that they tend to focus on factors associated with
entrepreneurial competencies of business owners or
challenges external to the SME, such as lack of
finance and lack of basic entrepreneurial
infrastructure. Despite the critical role employees
play in SMEs, little attention has been given to how
factors related to them may impact SME
performance; the strand of literature in this area
appears emerging. This current study’s objective is
to examine the impact of employee retention
practices on the performance of SMEs in Nigeria.
Employee retention practice is an unexplored area in
SME performance literature. The findings of this
study will further highlight ways Nigerian SMEs
can improve their performance. This study
contributes to SME employee retention studies, as
the strand of literature in this area is scanty. A
significant number of studies have examined
employee retention in large organizations; adopting
information from these studies may not be
appropriate due to idiosyncrasies in the structure of
SMEs.
This study’s specific objectives were to:
I. Determine the impact of skill-enhancing
practices on the financial perspective
performance of SMEs in Nigeria.
II. Identify the impact of skill-enhancing
practices on the customer perspective
performance of SMEs in Nigeria.
III. Assess the impact of skill-enhancing
practices on the internal process perspective
performance of SMEs in Nigeria.
IV. Evaluate the impact of skill-enhancing
practices on the organizational capacity
perspective performance of SMEs in
Nigeria.
V. Determine the impact of motivation-
enhancing practices on the financial
perspective performance of SMEs in
Nigeria.
VI. Identify the impact of motivation-enhancing
practices on the customer perspective
performance of SMEs in Nigeria.
VII. Assess the impact of motivation-enhancing
practices on the internal process perspective
performance of SMEs in Nigeria.
VIII. Evaluate the impact of motivation-
enhancing practices on the organizational
capacity perspective performance of SMEs
in Nigeria.
The subsequent sections of this paper are
structured as follows: First, a literature review
section where relevant literature is reviewed, and
research gaps are highlighted. This is followed by a
methodology section, which discusses the method
employed in this study. Subsequently, a section
where the results are presented and discussed
follows. After which the last section provides the
study’s conclusions.
2 Literature Review
2.1 Employee Retention
Employee retention is defined as how managers
manage to keep employees within their current
working roles or within the organization, measured
over time [19; 20]. The term is often defined as
efforts to incentivise employees rather than a
comparison explaining retention rates [21]. The
rationale is based on the supposition that
maintaining low levels of employee turnover
indicates the effectiveness of the practices
implemented targeted at retaining employees.
Employee retention practices are targeted at
keeping talented employees because they are in high
demand. Having talented employees is beneficial to
any organization because employees are involved in
daily processes; they contribute skills, capacity and
knowledge that aids the achievement of
organizational goals [22]. The ability to retain
talented employees preserves knowledge within the
organization and saves the cost that would have
been incurred in the process of hiring and training
new employees [21]. In addition, due to experience,
long-term staff are naturally more productive than
new hires, regardless of the competency and
potential the new hire brings to the role [23; 24].
To retain employees, their needs must be met;
these needs are diverse and differ for each employee
[25]. Consequently, employee retention is
influenced by several factors. A manager must
efficiently combine several practices to create an
environment where employees with different needs
decide to continue working for the organization
[21].
Some employee retention practices have been
examined within SME context, and they include;
adequate compensation [26], flexible working hours
[27], servant leadership style [14] and recruitment
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procedures [28]. Unlike other studies that focused
on specific practices, [29] used a holistic approach
to examine practices effective in achieving
employee retention in SMEs. In the study, employee
retention practices were classified into three groups
based on their goal in achieving employee retention:
skill-enhancing, motivation-enhancing, and
opportunity-enhancing practices. From their
perspective, skill-enhancing practices aim to
improve the abilities of employees. Motivation-
enhancing practices aim to increase the willingness
of employees to apply their skills and knowledge in
the workplace and align individual and
organizational interests and goals. Finally,
opportunity-enhancing practices aim to facilitate
employee empowerment and create opportunities
that allow employees to participate in the decision-
making process. All three perspectives influence job
satisfaction and organizational commitment and,
consequently the decision of employees to remain in
an organization [29].
Based on the foregoing, this current study
adopted a holistic approach in evaluating employee
retention practices, similar to what is described in
[29] because it constitutes diverse practices that
influence employee retention amongst SMEs.
However, opportunity-enhancing practices were
excluded from this study’s analysis because these
practices are not directly related to the financial
outcomes of businesses. Both skill-enhancing and
motivation-enhancing practices have a direct
relationship with business financial outcomes [30],
this study further examined this relationship within
SME context. In addition, the relationship between
both dimensions and other non-financial
perspectives of SME performance was examined.
2.2 SMEs
Although various definitions of SMEs are available
in literature because Nigeria is the context of study,
the definition by Small and Medium Enterprises
Development Agency of Nigeria (SMEDAN) was
adopted. SMEDAN is the agency instituted to
provide development support for SMEs in Nigeria.
Based on SMEDAN’s definition, small enterprises
are businesses that have between 10 and 49
employees with assets worth between N5 million
and less than N50 million, and medium enterprises
are those with between 50 and 199 employees with
an asset value of between N50 million and less than
N500 million [31].
2.3 SME Performance
Organizational performance measures the extent to
which an organization can achieve its goals [32]. To
assess the performance of a business, financial and
non-financial indicators are used. Financial
indicators are based on information about a
company’s finances. Using financial indicators to
access business performance is limited in scope,
because the parameters used for assessment are only
linked to the company’s results [33]. Also, financial
indicators are inefficient in accessing business
performance because businesses have various
stakeholders, and financial indicators only focus on
profitability for shareholders [33]. Due to the
limitation of financial performance indicators, non-
financial performance indicators were introduced,
these indicators access other areas related to
businesses such as; customers’ preferences,
organizational capacity, influence of technological
developments, competitors’ actions etc. [34].
Some SME performance studies have used only
financial indicators [35; 36; 37; 38], while others
used non-financial indicators [39; 40] and some a
combination of both measures [41; 42]. No
consensus exists on what indicator to use when
assessing the performance of SMEs. Frequently,
financial indicators are used to access the
performance of SMEs, because the performance
assessment in SMEs is often based on the
satisfaction of the owners/managers [32]. However,
using a combination of both financial and non-
financial indicators has been described as more
appropriate because the inclusion of non-financial
indicators helps address the limitations of financial
indicators and provides valuable insights [32].
This study because of its efficacy, used the
Balanced Scorecard (BSC) to evaluate SME
performance. The framework contains both financial
and non-financial performance measures. Based on
the BSC, SMEs need to examine four perspectives
when measuring their performance. Financial
perspective, the first of these perspectives examines
data such as sales, cash flows, expenditures, and
income, it reflects how the organization is viewed
by its shareholders [43]. The second perspective,
customer perspective is evaluated based on
feedbacks from customers about their satisfaction on
metrics such as; quality, price, on-time delivery etc.
[43]. The third perspective, internal process
perspective is evaluated by inquiring into the
processes involved in the production process.
Internal metrics are concerned about what actions
need to be taken within the SME to increase
customer satisfaction, apart from achieving
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customer satisfaction, a business should introduce
metrics for its critical technologies and core
competencies [43]. The final perspective,
organizational capacity perspective evaluates how
well information is captured and how effectively
employees use and convert information to achieve
competitive advantage over their competitors. This
perspective is analyzed by investigating training and
knowledge resources [43].
The relationship between several factors and
SME performance has been examined in literature;
these factors may be internal or external. Internal
factors relating to owners/managers, which have
been discussed in SME performance literature
include dynamic capabilities of owners such as;
opportunity recognition [44], entrepreneurial and
learning orientation [42; 45]. Other factors also
discussed are owners’ entrepreneurial training [37;
46], financial management skills [47] social capital
[40] and experience [48]. On the other hand, internal
factors related to employees include employee
turnover [49] and Human Resources Management
(HRM) [50]. Although employee retention practices
are a component of HRM practices, HRM practices
are broad and target different goals. There is a need
for studies specifically focused on practices
targeting employee retention, due to their
importance in resolving the prevalent problem of
employee turnover experienced by SMEs.
External factors that have been examined in
SME performance discourse include, technological
innovation [51], floating exchange rate [52] and
support institutions [53].
2.4 Literature Gaps
Examination of the literature revealed that in the
assessment of internal factors that can influence
SME performance, the attention has majorly been
on factors associated with SME owners/managers.
This indicates a perception among scholars that
these owners/managers’ entrepreneurial
competencies are the most important factors in
determining the success of an SME. Despite the
critical role employees play in SMEs not much
attention has been given to how factors related to
them may impact SME performance; the strand of
literature in this area appears emerging. This current
study’s evaluation of the impact employee retention
practices has on SME performance addresses this
research gap.
Secondly, when assessing SME performance,
there was a skew towards financial performance,
with fewer studies utilizing non-financial measures
and combining both financial and non-financial
measures of performance. In today’s business
climate, SME performance is not measured based on
profitability alone; it includes non-financial metrics
such as customer satisfaction, corporate social
responsibility performance, environmental impact
etc. [54]. The use of the BSC framework in this
study contributes to SME performance research that
utilizes both financial and non-financial measures. It
also shows the efficacy of the BSC framework in
the assessment of relationships between
performance and other variables.
Finally, in terms of global representation,
focusing on the African context, especially Nigeria,
there is poor representation of scholarly work in this
area, and this study is opportune to address this gap.
For instance, studies discussing employee retention
practices in Nigeria often use a single practice in
their analysis e.g., [14; 28]. This current study uses
a combination of practices in its analysis because a
specific practice is not used in isolation.
2.5 Theoretical Framework
The resource-based theory is the most suitable
theory to anchor this study because it provides a link
between an SME’s ability to retain employees and
its subsequent performance in the marketplace.
Although theories such as Job embeddedness
theory, Maslow’s hierarchy of needs and Herzberg’s
two-factor theory have been employed in employee
retention discourse, these theories are focused on
how organizations can retain employees rather than
the outcome of successfully retaining employees.
The resource-based theory assumes that
resources are the key determinants of firms’
performance, also these resources must be scarce
and non-imitable. The theory acknowledges that
most factors of production may be elastic. This
implies that when the demand for a resource is high,
the price and supply of the resource will increase.
However, it argues that some resources are inelastic
in supply because they can only be developed over a
long period (i.e., path dependence), as it may not be
clear how to develop these capabilities in the short
to medium term, and some of these resources cannot
be purchased [55]. Supply inelasticity means that
firms that have these kinds of resources may be able
to generate above-normal profits without the
resultant effect of an increased supply of these
resources in the short term and even long term [55].
Consequently, supply inelasticity becomes a source
of competitive advantage.
Based on the resource-based view employees
have been identified as an important resource for
achieving competitive advantage [56]. It has also
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been opined that the practices used to recruit, utilize,
and retain employees are resources, because of their
ability to motivate and influence loyalty amongst
employees [57]. These practices are a potential
source of competitive advantage, and improved
business performance [57]. Both perspectives
elucidate the importance of employees to the
success of any firm.
3 Methodology
To achieve this study’s objective a survey of SMEs
operating in Nigeria’s capital, Federal Capital
Territory (FCT) was conducted from 6th September
2021 to 3rd November 2021. FCT was chosen
because being the country’s capital; it is an
attractive destination for all kinds of SMEs due to
the presence of wealth potential clients, Nigerians
and foreigners alike. Businesses operating here have
sufficient resources and exposure; hence, there is a
high probability that these businesses are
implementing employee retention practices.
Therefore, there are a good choice to use to
investigate if employee retention practices impact
SME performance.
Data obtained from Abuja Enterprise Agency
showed that there are 73081 SMEs in the FCT as of
30th August 2021. Based on this, a sample size of
398 was calculated using the Taro Yamane formula
(see [58]). In Nigeria SMEs are classified into
sixteen economic sectors as follows; i) agriculture,
ii) manufacturing, iii) construction, iv) education, v)
real estate activities, vi) information and
communication, vii) wholesale/retail trade, viii)
transportation and storage, ix) accommodation and
food services, x) administrative/support services, xi)
mining and quarrying, xii) Professional, Scientific
and Technical Works, xiii) Water supply, sewerage,
waste management and remediation activities, xiv)
Arts, entertainment and recreation, xv) Human
health and social works, xvi) other services
activities [59]. This study was a multi-industry study
that included SMEs in these different sectors.
Proportional stratified sampling was the sampling
technique used, and each sector formed a stratum in
this study. Participating SMEs in each sector were
chosen randomly.
This study employed 5-point Linkert scale
structured questionnaires, which were administered
to SME owners/managers, to obtain data on the two
dimensions of employee retention practices and four
perspectives of SME performance conceptualized
by this study. Measures used in the questionnaires
were derived from relevant literatures, [29] and [43]
for employee retention practices and SME
performance respectively. Information was obtained
regarding the extent to which SMEs have integrated
skill-enhancing practices and motivation-enhancing
practices as part of their strategy to retain employees
and how well their businesses are performing vis-à-
vis in their financial, customer, internal process, as
well as organizational capacity perspectives. It is
important to note that though objective measures of
financial performance obtained from financial
statements would be more appropriate; this study
like some earlier studies e.g., [60; 61] adopted
subjective measures to examine financial
performance. This is because when dealing with
SMEs, there is typically an issue of poor financial
record keeping, because they are not obligated to
publish their financial information [62; 63]. The
reliability of the measures used was accessed using
cronbach alpha (see table 1).
Table 1. Cronbach Alpha Analysis.
Variables
Cronbach’s
Alpha
Skill-enhancing
Practices
0.788
Motivation-
enhancing
Practices
0.745
Financial
Perspective
0.812
Customer
Perspective
0.898
Internal Process
Perspective
0.787
Organizational
Capacity
Perspective
0.902
Source: Author’s Computation (2021)
In the course of this study, eight different models
were estimated to achieve this study’s specific
objectives, and are presented as follows;
𝐹𝑃 = 𝑓(𝑆𝐸𝑃, 𝑆𝑀𝐸𝑆, 𝐸𝑄)
𝐶𝑃 = 𝑓(𝑆𝐸𝑃, 𝑆𝑀𝐸𝑆, 𝐸𝑄)
𝐼𝑃𝑃 = 𝑓(𝑆𝐸𝑃, 𝑆𝑀𝐸𝑆, 𝐸𝑄)
𝑂𝐶𝑃 = 𝑓(𝑆𝐸𝑃, 𝑆𝑀𝐸𝑆, 𝐸𝑄)
𝐹𝑃 = 𝑓(𝑀𝐸𝑃, 𝑆𝑀𝐸𝑆, 𝐸𝑄)
𝐶𝑃 = 𝑓(𝑀𝐸𝑃, 𝑆𝑀𝐸𝑆, 𝐸𝑄)
𝐼𝑃𝑃 = 𝑓(𝑀𝐸𝑃, 𝑆𝑀𝐸𝑆, 𝐸𝑄)
𝑂𝐶𝑃 = 𝑓(𝑀𝐸𝑃, 𝑆𝑀𝐸𝑆, 𝐸𝑄)
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Where FP is the financial perspective
performance, CP is the customer perspective
performance, IPP is the internal process perspective
performance, OCP is the organizational capacity
perspective performance, SEP is skill-enhancing
practices, and MEP is motivation-enhancing
practices, while the control variables are SMES and
EQ which stand for SME sector and educational
qualification of employees respectively.
The choice of SME sector as a control variable is
because this study involves SMEs in different
sectors, and dynamics differ in each sector. The
influence of any variable is likely to differ in the
various sectors. For instance, comparatively, some
sectors are highly prone to employee turnover, an
adverse effect of low employee retention. [9] found
that among SMEs employee turnover is high in the
manufacturing sector compared to the service
sector, this was because of factors peculiar to these
sectors. Hence, the sector an SME is operating is
likely to influence employee retention and
subsequently the impact it has on performance. The
second control variable educational qualification of
employees will have effect on the knowledge and
abilities of employees; hence it can affect business
performance when employees are retained.
Educational qualification was also used as a control
variable in a similar study [64].
The vectors SEP and MEP contained some
variables which enabled the measurement of their
impacts on the respective dependent variables.
SEP = f (selective staffing {SS}, training {T},
career development {CD})
MEP = f (compensation{C}, performance appraisal
{P})
The models are expressed in statistical form as
follows:
𝐹𝑃𝑖= 𝛽0+ 𝛽1𝑆𝑆𝑖+ 𝛽2𝑇𝑖+ 𝛽3𝐶𝐷𝑖+ 𝛽4𝑆𝑀𝐸𝑆𝑖+
𝛽5𝐸𝑄𝑖+ 𝑢1𝑖 (1)
𝐶𝑃
𝑖= 𝜕0+ 𝜕1𝑆𝑆𝑖+ 𝜕2𝑇𝑖+ 𝜕3𝐶𝐷𝑖+ 𝜕4𝑆𝑀𝐸𝑆𝑖+
𝜕5𝐸𝑄𝑖+ 𝑢2𝑖 (2)
𝐼𝑃𝑃𝑖= ∅0+ ∅1𝑆𝑆𝑖+ ∅2𝑇𝑖+ ∅3𝐶𝐷𝑖+ ∅4𝑆𝑀𝐸𝑆𝑖+
∅5𝐸𝑄𝑖+ 𝑢3𝑖 (3)
𝑂𝐶𝑃𝑖= 𝛼0+ 𝛼1𝑆𝑆𝑖+ 𝛼2𝑇𝑖+ 𝛼3𝐶𝐷𝑖+ 𝛼4𝑆𝑀𝐸𝑆𝑖+
𝛼5𝐸𝑄𝑖+ 𝑢4𝑖 (4)
𝐹𝑃𝑖= 𝜃0+ 𝜃1𝐶𝑖+ 𝜃2𝑃𝑖+ 𝜃3𝑆𝑀𝐸𝑆𝑖+ 𝜃4𝐸𝑄𝑖+ 𝑣1𝑖 (5)
𝐶𝑃
𝑖= 𝜗0+ 𝜗1𝐶𝑖+ 𝜗2𝑃𝑖+ 𝜗3𝑆𝑀𝐸𝑆𝑖+ 𝜗4𝐸𝑄𝑖+ 𝑣2𝑖 (6)
𝐼𝑃𝑃𝑖= 𝜇0+ 𝜇1𝐶𝑖+ 𝜇2𝑃𝑖+ 𝜇3𝑆𝑀𝐸𝑆𝑖+ 𝜇4𝐸𝑄𝑖+ 𝑣3𝑖 (7)
𝑂𝐶𝑃𝑖= 𝜌0+ 𝜌1𝐶𝑖+ 𝜌2𝑃𝑖+ 𝜌3𝑆𝑀𝐸𝑆𝑖+ 𝜌4𝐸𝑄𝑖+ 𝑣4𝑖 (8)
The regression analysis was done using Eviews
version 10, Ordinary Least Squares (OLS) was the
method used to examine the relationships between
the variables, and chi-square was used to test the
null hypotheses. Based on this study’s specific
objectives outlined in the introduction eight
corresponding null hypotheses were formulated.
4 Results
4.1 Overview of Data
A total of 430 questionnaires were administered.
However, in coding and assessing the questionnaires
only 404 were valid and used for this analysis.
Tables 2 and 3 presents the relevant demographic
characteristics analysis for this study based on the
valid responses. Table 2 shows that 55.4% (224 out
of 404) of the respondents were male, and 44.6%
(180 out of 404) were female. This indicates that the
owners/managers of the SMEs surveyed were
predominately males.
Table 2. Gender Distribution of Respondents.
Male
N=224
Female
N=180
Overall
Total
N=404
Gender
Male
224
0
224(55.4%)
Female
0
180
180(44.6%)
Source: Field Survey (2021)
Table 3 presents the highest educational
qualification among employees within the SMEs
surveyed. Evaluating this was important because it
shows the level of educational skills present within
the surveyed SMEs, which they are expected to
retain. From the responses received, 7.4% (30) had
postgraduate qualifications, 37.9% (153) had
bachelor’s degrees, 21.8% (88) had National
Certificate Examination (NCE) qualifications, 8.2%
(33) had Diplomas and 24.7% (100) respondents
had other qualifications other than the ones
specified in the checklist. The results show that the
majority of the SMEs surveyed had bachelor’s
degree qualification as the highest educational
qualification among their employees. This suggests
that the SMEs surveyed employ a high number of
graduates; hence, they are able to attract skilled and
educated personnel. Retaining these educated
individuals increases the probability of these SMEs
having a positive performance.
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Grace George Bikefe, Cross Ogohi Daniel
E-ISSN: 2224-2899
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Volume 19, 2022
Table 3. Educational Qualification of Employees.
Education
al
Qualificati
ons
Postgradu
ate
Bachelo
r’s
degree
NC
E
Diplo
ma
Othe
rs
Tota
l
Postgraduat
e
30
0
0
0
0
7.4
%
Bachelor’s
Degree
0
153
0
0
0
37.9
%
NCE
0
0
88
0
0
21.8
%
Diploma
0
0
0
33
0
8.2
%
Others
0
0
0
0
100
24.7
%
Total
100
%
Source: Field Survey (2021)
4.2 Correlation Analysis
Table 4 shows the pairwise correlation coefficient
between this study’s variables. From the result we
see that there is no issue of multicollinearity, as the
independent variables are not highly correlated. A
correlation coefficient between two independent
variables which is greater than 0.8 or 0.9 indicates
the presence of multicollinearity [65].
Table 4. Correlation Coefficient.
FP
1.
00
CP
0.
72
1.
00
IP
0.
55
0.
17
1.
00
OC
P
0.
47
0.
55
0.
42
1.
00
SS
0.
66
0.
44
0.
32
0.
48
1.0
0
T
0.
56
0.
57
0.
51
0.
41
0.5
9
1.
00
CD
0.
12
0.
23
0.
11
0.
17
-
0.0
6
0.
52
1.0
0
EQ
0.
24
0.
18
0.
04
0.
02
0.1
8
0.
13
0.0
6
1.0
0
SM
ES
0.
11
0.
14
0.
06
0.
02
-
0.0
3
0.
06
-
0.0
3
-
0.0
8
1.
00
C
0.
78
0.
57
0.
58
0.
59
0.6
5
0.
49
0.1
3
0.1
9
0.
01
1.
00
P
0.
56
0.
74
0.
08
0.
41
0.4
4
0.
54
0.1
8
0.1
2
0.
10
0.
57
1.
00
Source: Author’s computation (2022)
4.3 Regression Results
Table 5 shows the regression results of the impact of
skill-enhancing practices (SEP) which include
selective staffing, training, and career development
respectively on the four different performance
perspectives measures.
Table 5. Skill-enhancing Practices Model
Regression Results.
Dependent Variable
Variable
FP
CP
IPP
OCP
selective staffing
0.479**
*
(0.034)
0.145**
*
(0.043)
-0.081*
(0.046)
0.406**
*
(0.047)
training
0.166**
*
(0.036)
0.427**
*
(0.056)
0.496**
*
(0.045)
0.002
(0.047)
career development
0.057
(0.056)
0.003
(0.093)
-
0.268**
*
(0.067)
0.230**
*
(0.059)
educational qualification
0.153**
*
(0.042)
0.148**
*
(0.054)
-0.010
(0.044)
-
0.088**
(0.045)
SME Sector
0.037**
*
(0.012)
0.041**
*
(0.013)
0.002
(0.012)
0.007
(0.011)
Constant
-
0.784**
*
(0.208)
-
0.805**
*
(0.230)
0.016
(0.198)
0.205
(0.178)
𝑅2
0.50
0.36
0.29
0.28
𝜎2
1.09
1.36
1.10
1.14
𝐹 − 𝑠𝑡𝑎𝑡
80.63**
*
45.01**
*
32.24**
*
31.30**
*
Source: Author’s computation, (2022)
*** p < 0.01; ** p < 0.05; * p < 0.1
It can be observed from the FP regression result
that all the variables except career development
significantly impact financial perspective
performance (FP). It can be deduced that an increase
in selective staffing increases financial perspective
performance by about 0.479 units. Also, increased
skill enhancement through training is shown to
increase financial perspective performance by about
0.166 units. In terms of the control variables, we
identified that improvement in the educational
qualification of employees will bring about
improvement in financial perspective performance
by 0.153 units. Improvement in the SME sector will
bring about 0.037 units increase in the financial
perspective performance.
Like the FP regression result, there is no
evidence that career development impacts consumer
perspective performance (CP). Also, it can be
deduced that increased skill-enhancement through
selective staffing increases consumer perspective
performance by about 0.145 units and increased
skill enhancement through training increases
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2022.19.134
Grace George Bikefe, Cross Ogohi Daniel
E-ISSN: 2224-2899
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Volume 19, 2022
consumer perspective performance by about 0.427
units. Both control variables also influence customer
perspective performance positively.
Unlike the first two regression results, career
development negatively impacts internal process
perspective performance. The result shows that an
increase in career development brings about 0.268
units decrease in the internal process perspective
performance. Similarly, selective staffing impacts
internal process perspective performance negative
by 0.081units. Conversely, an increase in skill
enhancement through training brings about 0.496
units increase in internal process perspective
performance. The control variables educational
qualification of employees and SME sector
insignificantly impact the internal process
perspective performance.
In respect of the impact on organizational
capacity perspective performance, the result shows
that an increase in skill enhancement through
selective staffing increases organizational capacity
perspective performance by 0.406 units. Also,
enhancing career development is shown to increase
organizational capacity perspective performance by
0.230 units. Skill enhancement through training had
no significant impact on organizational capacity
perspective performance. The control variable SME
sector is found to be insignificant, while
improvement in the educational qualification of
employees decreases organizational capacity
perspective performance by 0.088 units.
Table 6 contains the regression result showing
the impact of motivation-enhancing practices
(MEP); compensation and performance appraisal,
on the four performance perspectives.
Table 6. Motivation-enhancing Practices Model
Regression Results.
Dependent Variable
Variable
FP
CP
IPP
OCP
compensation
0.721***
(0.046)
0.237***
(0.052)
0.724**
*
(0.031)
0.508**
*
(0.059)
performance appraisal
0.174***
(0.038)
0.747***
(0.065)
-
0.354**
*
(0.047)
0.109**
*
(0.042)
educational qualification
0.117***
(0.038)
0.107**
(0.046)
-0.064
(0.0.041
)
-
0.109**
*
(0.042)
SME sector
0.028***
(0.010)
0.027**
(0.011)
0.022**
(0.010)
-0.003
(0.010)
Constant
-
0.606***
-
0.567***
-0.005
(0.145)
0.348**
(0.154)
(0.160)
(0.185)
𝑅2
0.65
0.59
0.44
0.36
𝜎2
0.92
1.08
0.97
1.07
𝐹 − 𝑠𝑡𝑎𝑡
182.88**
*
144.42**
*
76.69**
*
57.15**
*
Source: Author’s computation, (2022)
*** p < 0.01; ** p < 0.05; * p < 0.1
It is observed from the first regression result that
all the variables significantly impact financial
perspective performance (FP). It can be deduced
that increased motivation enhancement through
compensation increases financial perspective
performance by about 0.721 units. Also, increased
motivation-enhancement through performance
appraisal is shown to increase financial perspective
performance by about 0.174 units. Improvements in
employees’ educational qualification and SME
sector will increase financial perspective
performance by 0.117 units and 0.028 units
respectively.
Similarly, in the second regression related to
customer perspective performance, it can be
deduced that an increase in motivation enhancement
through compensation increases customer
perspective performance by about 0.237 units. Also,
an increase in motivation enhancement through
performance appraisal increases customer
perspective performance by about 0.747 units.
Analysis of the control variables shows that an
increase in educational qualification of employees
brings about 0.107 units increase in the customer
perspective performance. Also, improvement in an
SME sector will bring about 0.027 units increase in
the customer perspective performance.
Unlike the first two regression results,
compensation impacts internal process perspective
performance positively, while performance
appraisal impacts it negatively. The result shows
that an increase in compensation brings about 0.724
units increase in the internal process perspective
performance. Conversely, an increase in motivation
enhancement through performance appraisal brings
about a 0.354 unit decrease in internal process
perspective performance. The control variable
educational qualification of employees had no
significant impact. While improvement within an
SME sector will result in a 0.022 units increase in
the internal process perspective performance.
In the organizational capacity perspective
performance (OCP) result, it is revealed that an
increase in motivation enhancement through
compensation increases organizational capacity
perspective performance by 0.508 units. Also, an
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DOI: 10.37394/23207.2022.19.134
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increase in performance appraisal brings about
0.109 units increase in the organizational capacity
perspective performance. SME sector had no
significant impact, however, increase in the
educational qualification of employees was found to
decrease organizational capacity perspective
performance by 0.109 units.
4.4 Tests of Hypotheses
Table 7 shows the results for the hypotheses tests
and the computed chi-square statistics. The first
column shows the dependent variables against
which the hypotheses are tested; the second column
contains the null and the alternative hypotheses; the
third column contains the chi-square test statistics
with the asterisks showing the level of significance,
the last column shows the remarks for each
hypothesis. The decision rule is that if the computed
chi-square statistic is significant (with at least an
asterisk), we reject the null hypothesis and accept
the alternative hypothesis, otherwise, we accept the
null hypothesis.
Table 7. Hypotheses Test Results.
Dependent
Variable
Hypotheses
χ2 stat.
Remark
FP
H0 :
SEP =
0
H1 :
SEP ≠
0
533.6***
Reject H0
and Accept
H1
CP
H0 :
SEP = 0
H1 :
SEP ≠ 0
167.2***
Reject H0
and Accept
H1
IPP
H0 :
SEP =
0
H1 :
SEP ≠
0
182.2***
Reject H0
and Accept
H1
OCP
H0 :
SEP =
0
H1 :
SEP ≠
0
134.8***
Reject H0
and Accept
H1
FP
H0 :
MEP =
0
H1 :
MEP ≠
0
728.4***
Reject H0
and Accept
H1
CP
H0 :
MEP =
0
H1 :
MEP ≠
0
448.2***
Reject H0
and Accept
H1
IPP
H0 :
MEP =
0
H1 :
MEP ≠
0
607.8***
Reject H0
and Accept
H1
OCP
H0 :
MEP =
0
H1 :
MEP ≠
0
232.5***
Reject H0
and Accept
H1
Source: Author’s computation, (2022)
4.5 Discussion of Results
The results show that the impact the proxies of skill-
enhancing practices and motivation-enhancing
practices had on the various performance
perspectives differ. In terms of skill-enhancing
practices, the insignificant relationships were three,
this is a minority when compared to nine significant
relationships, and hence we conclude that skill-
enhancing practices have a significant impact on all
four performance perspectives. On the other hand,
the relationships between all the motivation-
enhancing practices proxies and the four
performance perspectives were significant. Based on
this we conclude that motivation-enhancing
practices have a significant impact on all four
performance perspectives.
Majority of the proxies of skill-enhancing and
motivation-enhancing practices impacted all SME
performance perspectives positively. The significant
positive relationship found between selective
staffing and SME performance is similar to the
findings of [66], which opined that carefully
selecting good people to fit into job roles is
important for the success of an SME. The
significant positive performance found between
training and SME performance concurs with the
findings of [67]. The positive relationship found
between compensation and SME performance is in
line with the findings of [20] which identified
compensation as one of the human resources
management practices that has a significant positive
relationship with SME performance. Finally, the
positive relationship between performance appraisal
and SME performance agrees with the result of [68].
Improper implementation of some of the skill-
enhancing and motivation-enhancing practices may
be why they had insignificant and negative
relationships with the performance measures. In
respect of skill-enhancing practices, training
insignificantly impacted organizational capacity
perspective performance, career development’s
impact was insignificant on both financial and
customer perspectives performance, while it
impacted negatively on internal process perspective
performance. The motivation-enhancing practice
proxy performance appraisal also had a negative
relationship with internal process perspective
performance. This suggests that training, career
development and performance appraisal within the
SMEs surveyed need improvement. Improving these
practices will further strengthen the overall positive
impact of skill-enhancing and motivation-enhancing
practices on all performance measures.
Combining human resource management
practices into a coherent bundle based on the needs
of SMEs has been described as appropriate, and
positively impacts business performance [69], this
study reiterates this. As it combined various
practices targeting employee retention. A specific
practice is rarely used in isolation, and the
effectiveness of any practice depends on other
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DOI: 10.37394/23207.2022.19.134
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practices in place. Although some of the skill-
enhancing practices and motivation-enhancing
practices had short-comings when examined
individually, the results in table 7 where the
hypotheses were tested grouping the variables of
skill-enhancing practices and motivation-enhancing
practices together, showed that their impact on all
the four performance perspectives were significant
and positive.
This study’s findings reiterate that of [30], which
identified a relationship between skill-enhancing
and motivation-enhancing practices and financial
outcomes. In addition, it elucidates that these
practices have a relationship with non-financial
outcomes. Except career development, all the
variables of skill-enhancing and motivation-
enhancing practices positively impacted financial
perspective performance. Although the relationship
between career development and financial
perspective performance was insignificant, career
development significantly impacted organizational
capacity perspective performance positively. This
shows that using financial measures alone to
measure SME performance may not be appropriate
because certain factors which can influence
performance may have no direct relationship with
financial measures, this concurs with [35; 50].
Regarding the control variables, SME sector
significantly impacted some performance
perspectives positively. This indicates that industry
dynamics are important determinants of SME
performance. On the contrary, the impact of
employees’ educational qualification on the
performance perspectives was both negative and
positive. While the positive impact reflects the
advantages derived from the current level of
education present within the SMEs, the negative
impact suggests that these SMEs need to hire more
individuals with higher level of educational
qualifications. Since a bachelor’s degree was the
highest educational qualification in the majority of
SMEs surveyed (see table 3), these SMEs should
consider recruiting individuals with postgraduate
degrees to improve their current performance.
5 Conclusion
This research shows that employee retention
practices are important predictors of SME
performance. In addition, it shows the efficacy of
the BSC framework in the assessment of
relationships between performance and other
variables. Recently there has been clamours for
SMEs to adopt HRM practices in their business
operations. HRM practices are diverse and often
require resources to implement. Due to the limited
resources of SMEs, it may be impossible for them to
cover all areas. In addition, several areas may not be
relevant to their needs. The choice of which HRM
practices to implement should depend on the goal an
organization aims to achieve and factors in its
business environment. Given the problem of
employee turnover prevalent among SMEs, this
study provides a guide SMEs can adopt to
incorporate HRM practices. To achieve a goal a
single practice should not be implemented in
isolation; rather, several practices targeting the goal
should be implemented. Consequently, it is
recommended that SME owners/managers
incorporate employee retention practices to retain
valuable employees and improve performance.
Also, SMEs should explore non-financial measures
in their performance assessments because certain
factors that can influence performance may have no
direct relationship with financial outcomes.
Based on the relevance of employee retention
practices revealed by this study, policymakers and
other SME stakeholders should consider enacting
statutes and policies mandating SMEs to incorporate
employee retention practices. This will help achieve
sustained business excellence on a macro level.
This research is not without limitations; firstly,
the study although focused on SMEs in Nigeria did
not include all SMEs in Nigeria. The exclusion of
some SMEs may affect the generalizability of this
study’s findings. However, the inclusion of SMEs in
different industries helps strengthen the
generalizability of its findings. It may be argued that
the data on SME performance used in this study is
biased because it was self-reported by the
owners/managers of the SMEs surveyed. Self-
reported data has been identified as appropriate for
entrepreneurship-related research and similar studies
have used self-reported data in their analysis e.g.,
[62; 70]. However, future research can explore
using SME performance data obtained from sources
other than the business owners/managers. To aid the
improvement of training in SMEs, it is suggested
that future research explore designing an appropriate
strategic training model for SMEs, showing various
components and dimensions, this will provide SMEs
with a guide for training implementation. [71] did a
similar study for Iran National Tax Administration.
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