Small Business Management Functions - Essay Example

Small Business Management Total Number of Words: 3,062 Table of Contents I. Introduction ……………………………………………………………. 3 II. Key Arguments Presented by the Authors …………………………….. 4 a. The Impact of Ownership on Small Firm Behaviour and Performance ………………………………………………. 4 a.1 Support Argument ……………………………………… 4 b. Recruiting Outside Board Members in the Small Family Business: An Ideological Challenge ………………….. 6 b.1 Support Argument ……………………………………… 7 III. Methodological Evaluation …………………………………………….. 7 a. The Impact of Ownership on Small Firm Behaviour and Performance ………………………………………………. 7 b. Recruiting Outside Board Members in the Small Family Business: An Ideological Challenge ………………….. 8 IV. Difference and Similarities between the National (British) and International Context ………………………………………………. 9 V. Conclusion ……………………………………………………………… 11 References ……………………………………………………………………… Introduction Small businesses are usually classified as family-owned businesses. For this reason, a lot of these small businesses have been passed down to the business owners from their ancestors. There are also some cases wherein small businesses have been established by competitive individual(s). Numerous factors that contribute to the success of a small business enterprise have been identified through a long-term keen observation, personal experiences, researches and studies. It is possible that some of the most successful small businesses are being handled by a group of professionals who has earned their knowledge by going through intensive challenges within the industry. Perhaps, someone who has been successful in his educational attainments has contributed a lot in enabling the small business to become competitive and profitable. The two articles I have chosen are both referring to the functions of Small Businesses. These articles have been chosen to give us a better understanding on the factors that may contribute to the success of a small company. The first article, an international based journal, highlights the effect of recruiting outside board members to handle a small family business. The UK-based journal discuss about the impact of ownership on the behaviour and performance of a small company. In line with the outstanding performance of a small company, it is important that we determine the impact of both internal and external factors that could directly and/or indirectly affect the efficiency of the business operations and profitability. Internal factors that may contribute to the success of an organization include the type of management, type of business ownership, the leadership style of the managers, the size of the business organization, organizational culture and traditions, emotional attachment of the owners to the business, organizational performance, and the barriers to the implementation of a strategy. Based on the articles gathered, this study will only focus on the internal factors. This study aims to analyse the point-of-view of the authors by considering the key arguments in each article. The theory behind the small business functions used in the articles will be discussed thoroughly. As part of the conclusion, this paper will compare and contrast the main evaluation of the two selected articles. Key Arguments Presented by the Authors The Impact of Ownership on Small Firm Behaviour and Performance According to Ghobadian and O’Regan (2006), the transformation leadership style is more common in independent plants than the transactional leadership style. The authors has concluded that the transactional leadership style is usually adapted by the subsidiary plants because these type of business organization normally adapts a formal strategic planning better than the independent plants or operating units. Another point of argument is that no signs of significant were detected between the ownership types in relation to culture. However, the organizational culture together with the leadership style could affect the capability of the small business to adapt a strategic planning. Even though the subsidiary plants could benefit more with the use of a strategic planning, the independent plants also prove to have a better performance than the subsidiary plants. The authors suggest that independent plants should also consider the use of a formal strategic planning since it could enable them to reduce problems that are caused by lack of strategic system in their operations. Also, the independent plants could have a competitive advantage in comparison to the subsidiary plants. Support Argument Transactional leadership is not so effective in enabling the subordinates to have a sense of belonging, encouragement, and motivation because this type of leaders are using power to enable his subordinates to complete a tasks. (Burns, 1978) On the other hand, transformational leadership is a more preferred style of leadership because the leaders tend to motivate their followers and enabling them to engage in the process of work with less supervision. (Bass, 1985) For this reason, independent plants are becoming more successful than subsidiary plants despite the fact that strategic planning is not effective within their operational system of independent plants. According to Bono and Judge (2003), there is a strong evidence-based study to prove that transformational leaders can affect their subordinates positively by enabling them to perceive their activities as something that is very important and making them feel satisfied each time a task is properly done well. Due to the positive encouragement, subordinates in an organization tend to be more willing to help out and do better in performing a task. Shamir et al. (1998) also has a similar point-of-view with Bono and Judge (2003); leaders who give emphasis on collective identity have followers that have a self-fulfilment and enjoy working. Marshall et al. (1993) concluded based on research findings that financial assistance through government intervention on SME could enable small businesses to improve their business performance. Through a financial support, SME could hire consultants to train and develop their management staffs in terms of transformational leadership skills and an organized business and workforce planning. Based on trait theories, there is a significant correlation between a successful leadership and the personality traits of the leader. (Stogdill, 1974, Bentz, 1990) Therefore, personality trait of the leader should be suitable in handling people. In the past, leaders tend to use a direct command instead of influencing and supporting their subordinates. (Horner, 1997) Based on a more recent theory, leadership is now seen as a social process wherein leaders musts coordinate efforts with his subordinates and move together as a group. (Drath and Palus, 1994) Up to now, there is no single consistent definition of a successful leader that can be derived from the literatures. In many cases, it is believed that interventions through a constant training and other development activities are more effective in developing and improving the leadership style within an organization. (Burgoyne, Hirsh and Williams, 2004) Recruiting Outside Board Members in the Small Family Business: An Ideological Challenge This article focuses on the role of the board of directors in a small family business. There are three possible ways of managing in a small business. These are: entrepreneuralism, paternalism, and managerialism. These three types of family business have contrasting ideologies. Because of a mixed emotional attachment and rational decision-making, small business under paternalism and entrepreneurial requires outside self-made board members to run the small business. However, the authors also concluded that there are signalling effects on recruiting outside or non-executive directors because external factors such as banks could influence the hired managers and initiate dramatic changes that could affect the role of board of directors within the business. Also, personal networking is important because it could bridge the gap between the contrasting ideologies. It is said that these ideologies and the entrepreneur/patriach could be interlinked because of the personal chemistry that characterizes these relationships. This bridging the gap between these ideologies is important in enhancing the efficiency and success of the small businesses. Support Argument In most Asian countries, family influence in a small business remains strong even though they have employed professional managers to handle the business. (Menkhoff and Kay, 2000) Specifically the cohesiveness of the family as well as the feelings of loyalty and kinship obligations has been considered as the ‘secret weapons’ of the small businesses. (Goldberg, 1985) Ideologies are proven to be contrasting. In many cases, the authoritative and paternalistic management style and controlling of the business is normally characterized by a strong overlapping between the emotional attachment as the business owner and management. (Menkhoff and Kay, 2000) Since it is not good to rely basically on pure emotional attachment to the business, it is often assumed that a combination of the owners and the managers would help lessen the ‘agency’ problems that are commonly found in Western businesses. (Redding, 1993: 143 - 181) Methodological Evaluation The Impact of Ownership on Small Firm Behaviour and Performance This article collected the data on culture, leadership style, strategy making, among others using intrusive methods like questionnaire surveys, field study and action research. (Chakravarthy and Doz, 1992) Existing data sets and secondary data based on a survey approach were gathered from the initial sample of 1000 randomly selected small and medium-sized manufacturing operating plants in UK. All of these companies employ less than 250 people. A self-reporting postal survey was distributed to the selected companies addressed directly to the senior managers or CEO of the plant/operating units. It is necessary to choose the appropriate respondent since it will affect the accuracy of the survey. (Avolio et al., 1991) In order to enhance the validity of the research study, the five-stage process in line with the best practice recommendation was adopted. (Gill and Johnson, 2002) This includes: extensive literature review in relation to the relevant theories; extensive semi-structure interviews with the CEO/MDs of the six SMEs in order to know their point-of-view regarding the issues that were covered in the survey instrument; an extensive discussions with the employer representative including the Chamber of Commerce and the Confederation of British Industry in order to clarify some issues related to the study; a relevant scales were deployed in the previous studies; and lastly, the surveyors uses a pilot sample of 20 companies which is used as the main sample. However, there are areas of error related to the data gathered because of respondents’ lack of time and resources to complete the survey; company policy that does not allow employees to participate in the survey; reluctance to spread the information; and refusal to participate without any given reason. Recruiting Outside Board Members in the Small Family Business: An Ideological Challenge Normally, family-business research in general is lacking in terms of empirical studies. According to Sharma et al. (1997), based on their review of more than 200 papers that was published in 32 journals between the years 1980 to 1994, there is only a slightly more than one-third that includes empirical data. For this reason, a more qualitative research is needed. (Dyer and Sanchez, 1998) Research based data usually includes a pilot study and a main study wherein both are based on case data. (Johannisson and Huse, 2007) The first phase of the studies is to conduct an interview on 12 small business owner-managers and directors in order to empirically state some related emergent ideological framework. This data is further refined by confirming the criteria for the selection of the company during the second phase of the study. In theoretical sampling, the authors will first search for a family owned businesses. In most cases, CEO of the company is also the owner of the business. In line with those companies managed by both the owner and a manager, both individuals are being interviewed in order to minimize a bias judgment and report. The second interview is normally conducted two and a half years after the first interview. All interviews were recorded in an audiotape to make sure of the accuracy of the statement gathered. Once all the necessary data has been gathered, the authors would conceptualise the data that was provided by the interviewees. Difference and Similarities between the National (British) and International Context Although both articles are pertaining to the internal aspects of a small business, both journals have a different way of pointing out the management skills. The ‘Impact of Ownership on Small Firm Behaviour and Performance’ – a British based article focuses on the type of leadership affecting the success, efficiency, and long-term profitability of the company. On the other hand, ‘Recruiting Outside Board Members in the Small Family Business: An Ideological Challenge’ – an international article focus more on the different types of family business structure and how each ideologies is better than the other as well as the effects of hiring a non-family member as the manager. The British article focuses more on the type of leadership and the importance of a strategic planning as factors that could have a great influence over the success of a small business organization. It talks about the type of leadership suggesting that transformation leadership style is better than the transactional leadership style. It has been determined that the business trend has out grown the effectiveness in the use of transactional leadership style. The international article has a different way of looking at this issue. Sweden highlights the importance of having a personal networking in order to minimize the gap between the chosen of different managerial style. In other words, flexibility is necessary in order to maximize the benefit of using the preferred style in management. In most cases, this scenario is widely applicable to Asian businesses more than the Western companies. The job of a manager is to get things done through the process of designating tasks to the employees. In order to be able to successfully achieve a good result, the manager should be able to motivate the employees. Among the common strategies for motivation includes: positive praises and reinforcement, implementation of effective disciplinary measures and punishment, treating people fairly, satisfying the needs of the employees, setting achievable work related goals, restructuring jobs wherein the people can be motivated to work, and provide rewards for a good job performance. Sometimes, giving simple praising also helps a lot in motivating the employees. Motivation practice and theory is a very broad and difficult subject related to several disciplines because managers deal directly with humans. According to Bass (1985), to be a successful leader or manager, one must be able to adopt the transformation leadership style. Motivation is the primary key to performance improvement. Therefore, it is critical that a manager knows how to motivate his subordinates. Authoritative technique does not give as good result as compared to someone who understands the nature of humans. Human nature is very complex. In line with understanding the human nature, a lot of theorists came up with different theories. This includes: Abraham Maslow – Hierarchy of Needs; Frederick Herzberg – Two Factor Motivation Hygiene Theory; Douglas McGregor – Theory Y; Elton Mayo – Hawthorne Experiments; Chris Argyris, Rensis Likert and David McClelland – Achievement Motivation. The Human Resource Manager plays an important role in manpower handling. In line with this responsibility, the manager needs to adopt the transformation leadership style in order for them to be effective in performing their role and responsibilities in the company. This is true in the case of a Western-oriented business organization. In the case of the Asian businesses wherein the Chinese culture is strongly evident, most of these small businesses are still using the transactional style of leadership. Since the owner of the business is strongly in control of the company, there is a bigger chance for them to have a better economic performance as compared to a business that is managed by a more lenient manager. Since everything that is too much is not good in the sense that too much exercise of power and authority may not contribute to a detriment in the welfare of its employees, it is still best to be flexible in handling the internal business management. The same is true in the case wherein the manager or the business owner is too lenient over its employees. The leader will still not be able to get the best performance from the current employees. There are really no specific rules that could determine whether the overall performance of a small business will become more effective and efficient because each business organization has its own organizational culture and traditions. In line with this matter, it is important that both theories that have been discussed separately in the two different articles should be applied in the small business management in order to enhance the current operational and profitability status of the business organization. Flexibility is always necessary to enable the company to adopt with the needed changes that could enable the business to become successful. Conclusion The ‘Impact of Ownership on Small Firm Behaviour and Performance’ – a British based article focuses on the type of leadership affecting the success, efficiency, and long-term profitability of the company. On the other hand, ‘Recruiting Outside Board Members in the Small Family Business: An Ideological Challenge’ – an international article focus more on the different types of family business structure and how each ideologies is better than the other as well as the effects of hiring a non-family member as the manager. Both articles contribute to success of a small business organization by enhancing the efficiency of its internal operations. The transformation leadership style is recently viewed as a better leadership strategy more than the transactional leadership style since the transformation leadership style is more effective in motivating the employees. This process enables the company to have a better operational flow that could lesser the internal errors as it increases the company’s productivity level. Flexibility is very important in any business organizations as it allows the company to maximize the benefit of using their preferred style in management handling. There is really no strict rule on how one should manage the company. In most cases, one strategy can always be better than the other. Therefore, innovativeness in ways to adopt and incorporate the best business theories in accordance to the needs of the organization is necessary. The future research for this study includes developing a further in-depth quantitative and qualitative analysis on small business enterprises in terms of the types of leadership and management styles. For the leadership style, this study restricts the use of sample in terms of mature products and stable technology, short-term products as well as the changing technologies. Another area for future research is an in-depth analysis on how to successfully motivate the employees. This study has tackled a portion of this topic but not in concrete details and explanation behind the theory on ways to motivate the people. Studying the cultural differences between several countries could also enable us to understand the reason behind the different approaches of the small businesses owners globally. Since we are now widely practicing globalisation, is it possible for the Western and Asian style of managing a business to merge? Would it be a better solution in terms of creating a new theory behind a more preferred management style? Since China is now considered as the fastest growing economy, is it possible for the Chinese to let go of their transactional leadership style in exchange with the use of a transformation leadership style? Given that transactional leadership style is considered as a less preferred leadership style, why is it that China is becoming one of the most promising countries in terms of economic performance? *** End *** References: 1 Avolio, B. et al. (1991) ‘Identifying Common Methods Variance with Data Collected from a Single Source: An Unresolved Sticky Issue’ Journal of Management. 17: 571 – 587. 2 Bass, B.M. (1990) ‘From Transactional to Transformational Leadership: Learning to Share the Vision’ Organizational Dynamics, 18, 19 - 31. 3 Bentz, V.J. (1990) ‘Contextual Issues in Predicting High-level Leadership Performance’ in Clark, K.E. and Clark, M.B. 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