PowerPoint Presentation by Charlie Cook The University of West Alabama Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Part 5 Managing Growth in the Small Business Professional Management in the Entrepreneurial Firm

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–2 Looking Ahead After studying this chapter, you should be able to: 1. Discuss the entrepreneur’s leadership role. 2. Explain the distinctive features of small firm management. 3. Identify the managerial tasks of entrepreneurs. 4. Describe the problem of time pressure and suggest solutions. 5. Explain the various types of outside management assistance.

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–3 Entrepreneurial Leadership What is Leadership? –Involves pointing the way: creating and communicating the entrepreneur’s vision of the firm –Varies in a business as it grows larger and more mature Leadership Qualities of Founders –A tolerance for ambiguity –A capacity for adaptation

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–4 Entrepreneurial Leadership (cont’d.) What Makes an Effective Leader? –One who is focused intently on attaining the firm’s business goals –One who creates a significant personal relationship with employees based on loyalty and respect –One who directly influences employees’ understanding of how the firm operates (e.g., its ethics) –One who makes the firm attractive to new employees

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–5 Entrepreneurial Leadership Leadership Styles –Coercive leaders demand immediate compliance. –Authoritative leaders mobilize people toward a vision. –Affiliative leaders create emotional bonds. –Democratic leaders build consensus. –Pacesetting leaders set high standards and expect excellence. –Coaching leaders develop people.

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–6 Entrepreneurial Leadership (cont’d.) Leadership That Builds Enthusiasm –Empowerment Giving employees authority to make decisions or take actions on their own –Work teams Groups of self-managed employees with the freedom to function without close supervision –Benefits Workers are more satisfied with their working environment Productivity and profitability are enhanced

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–7 Issues Affecting Small Firm Management Resource Constraints Professional Management Founders as Managers Managerial Weakness Small Firm Management The Manager as Negotiator Firm Growth and Management

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–8 Distinctive Characteristics of Small Firm Management Professional Manager –A manager who uses systematic, analytical methods of management Limitations of Founders as Managers –Are not always good organizational members –Have difficulty fitting into conventional roles –Have a different orientation from that of professional managers

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–9 Stages in Firm Growth and Management

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–10 Exhibit 18.1 Organizational Stages of Small Business Growth

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–11 Managing Versus Doing STAGE 1STAGE 2STAGE 3STAGE 4 One-Person Operation Player-Coach Intermediate Supervision Formal Organization Time spent managing Time spent doing

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–12 The Nature of Managerial Work ControllingControlling PlanningPlanningLeadingLeading OrganizingOrganizing Managerial Work

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–13 Planning Activities The Benefits of Formal Planning –Improved productivity –Better focus on goal attainment –Increased credibility with stakeholders Planning Time –“Tyranny of the urgent” –Planning requires discipline –Planning should not be postponed Employee Participation –Employees are an excellent planning resource

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–14 Planning Activities: Types of Plans

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–15 Creating an Organizational Structure The Unplanned Structure –Structure evolves as the firm evolves –Growth creates the need for structural change Chain of Command –The official, vertical channel of communication in an organization –A channel for two-way communication Span of Control –The number of subordinates supervised by one manager

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–16 Creating Organizational Structure (cont’d.) Line Organization –A simple organization in which each person reports to one supervisor Line and Staff Organization –An organizational structure that includes staff specialists who assist management –Line activities Activities contributing directly to the primary objectives of the firm –Staff activities Activities that support line activities

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–17 Exhibit 18.2 Line-and-Staff Organization

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–18 Factors Determining Optimum Span of Control Greater Number of Subordinates Simple work Very experienced workers Superior with much ability Fewer Subordinates Complex work Inexperienced workers Superior with limited ability More Subordinates Moderately difficult work Moderately experienced workers Superior with moderate ability

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–19 Creating Organizational Structure (cont’d.) Understanding Informal Groups –They are composed of people with something in common, such as jobs, hobbies, carpools, or affiliations with civic associations. –They are an informal leadership hierarchy. –Groups with goals aligned with those of the organization can facilitate work performance and make the workplace more enjoyable for everyone.

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–20 Delegating Authority Delegation of Authority –Granting to a subordinate the right to act or make decisions –Benefits of delegation Frees up superior to perform more important tasks Develops subordinate’s skills Improves two-way communications

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–21 Measuring Performance Exercising Control Establishing Standards Planning and Goal Setting Taking Corrective Action

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–22 Exhibit 18.3 Stages of the Control Process

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–23 CommunicatingCommunicating Stimulating Two-Way Communication –Conduct periodic performance review sessions to get employee feedback. –Use bulletin boards to keep employees informed about developments affecting them. –Make suggestion boxes available to solicit employees’ ideas. –Hold staff meetings to discuss current issues and problems. –Hold informal meetings with employees to socialize and talk.

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–24 NegotiatingNegotiating Negotiation –Two-way communication used to resolve differences in needs, goals, or ideas –Win-lose negotiations One party must win and the other party must lose –Win-win negotiations Both parties find a solution that satisfies both parties’ basic interests End result of negotiations promotes long-term continuing relationships

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–25 Personal Time Management The Problem of Time Pressure –Many owner-managers work hours per week –Effect of overwork is inefficient work performance Time Savers for Busy Managers –Effective use of time (time management) Analyze how time is normally spent. Eliminate practices that waste time. Carefully plan available time. Use a daily planner to prioritize activities. Don’t avoid unpleasant or difficult tasks. Limit conference and meeting times.

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–26 Outside Management Assistance Student Consulting Teams Service Corps of Retired Executives (SCORE) Small Business Development Centers (SBDCs) Management Consultants Entrepreneurial Networks Other Business and Professional Services Business Incubators

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–27 Exhibit 18.5 Services Provided by Business Incubators to New Firms

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–28 Reasons Small Firm Managers Shun Outside Advice 1.“I can solve the problem myself.” 2.“I don’t want anyone throwing up roadblocks to my plans.” 3.“Professional advisors should be used only as a last resort.” 4.“An outsider could never understand my business.” 5.“High-powered experts wouldn’t be interested in my business.” 6.“An advisor will raise a lot of issues I don’t have time to bother with right now.” 7.“I don’t want to share any information with an outsider.” 8.“Professional advisors cost too much.” 9.“Our long-time attorney (or accountant or banker) is a friend and knows us best. We don’t need anyone else.” 10.“I’m unsure of how relationships with professional advisors work.” Source: Craig E. Aronoff and John L. Ward, “Why So Few Business Owners Get and Accept Good Advice,” Small Business Forum, Vol. 14, No. 2 (Fall 1996), pp. 26–37.

Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 18–29 Key Terms professional manager negotiation management functions long-range plan (strategic plan) short-range plan budget business policies procedures standard operating procedure empowerment work teams line organization chain of command line-and-staff organization line activities staff activities unity of command span of control delegation of authority Service Corps of Retired Executives (SCORE) small business development centers (SBDCs) networking