Management styles and strategies in small firm Essay Example for Free

Management styles and strategies in small firm Essay Management literature provides us a number of management styles practiced by managers and leaders across the globe through the years. A manager’s style is largely determined by many factors in the organization including the structure and the size of resources available as well as the managerial capacity of the owner. The mode of operations and styles in small firms are determined by the transactional nature of the firm as well as the nature and capacity of the manager-cum-owner. Authoritarian Management Style. Some managers of small firms practice the authoritarian management style. With the inherent characteristics of being small, managers of small firms take absolute control of a workplace situation, without reference to the views and inputs of the employees. According to Davidmann, in authoritarian organizations it is orders which are passed down from above and the managers role is to pass orders down the chain of command. In small firms, owner-cum-managers are the only ones who decide on innovations and changes in the business operations. Innovation in small firms is usually linked up with the entrepreneurial skill of the owner-cum manager. To Meulenberg Verhees (2004), â€Å"in a small firm, innovativeness implies a wiliness of the owner to learn about and to adopt innovations, both in the input and output markets. High innovations of small firm do not mean that the owner is innovative in all domains†. Workers in small businesses can also contribute to the innovative process of the firm but only through the direction of the organization’s leaders. It is still the owner-cum-manager’s decision that is implemented in the end. As Slatter (1992:159), puts it, â€Å"strong leadership provides a key role in overcoming the confusion that usually accompanies growth and is necessary to build and maintain the cohesiveness of the organization†. Participative Management Style Participative management style is also practiced by managers of small businesses. The main goal of participative management is to enhance the quality of the employees’ working life and the management must be responsive to the requests of the employees (Lewis Renn, 1992). This style allows information sharing and involvement of employees in the decision making. Participative management is a process whereby the employees are involved in the decision-making of the organization through formal and informal means (Chan). As a small firm with small organizational structure, there is the need to focus on people issues, and trust-based relations; such a perspective neglects the probability of conflict, even in ostensibly high trust work settings (Collins Ram, 2003). In small firms, employees are encouraged to be involved in decision making. Managers share information directly to the employees and ask inputs before making decisions about policies and processes. This type of management styles promotes and boosts the morale of employees and prevents low productivity. According to Davidmann, smaller company is more effective when compared with larger company both in terms of both employee utilisation (turnover per employee) and capital utilisation (turnover per unit of issued share capital). The adherence to informal structure and system in small firm operation is another noticeable fact that has affected how managerial pattern is determined. According to Blackburn (2003:12), â€Å"the relatively low use of the formal systems by small firms may also mean that a reliance on patent counts etc. is an inaccurate measurement of innovative or research activity. Hence, there is a need to ‘unpack’ the approaches to innovative and intellectual property management by owner-mangers†. In the same parlance, Moore (1996), cited in Blackburn (2003), opined that SMEs rely on more informal methods to protect their intellectual property, such as maintaining a lead time advantage over competitors in bringing new products to market. Also, this can come through the development of high-trust. Adaptive Management Style Ken Blanchard and Paul Hershey, renowned management gurus, created a management style that analyzes the needs of the situation a manager or a leader is dealing with, and then adopts the most appropriate style. This is ideal for small businesses since management styles are considered to be difficult due to the flexible nature of small businesses. In this view, Slatter (1992:159) puts it that â€Å"managing fast growth in entrepreneurial firms is one of the most difficult challenges that exist†. â€Å"Owners often struggle to balance the flexibility required to keep pace with customer demands, with a sense of continuity and security. Hence, management essentially comprises a careful balancing act between strong leadership and decentralized task-oriented management; entrepreneurial and professional management; and processes involving organizational cohesion and those promoting individual responsibilities† (Collins Ram, 2003). The availability of strong leadership in small firms provides a key role in overcoming the confusion that usually accompanies growth and is necessary to build and maintain the cohesiveness of the organization. Thus, â€Å"achieving the balancing act between stability and flexibility is difficult, but potentially attainable through such means and a strong but democratic leadership style† (Slatter 1992:126). Small firms have been observed to be adapting operational plan rather than strategic plan. While strategic plan is conceived as â€Å"a written long – range plan, which includes both a corporate mission statement and a statement of organizational objectives†¦operational planning , on the other hand, is defined as the setting of short term objectives for specific functional areas such as finance, marketing, and personnel† (Shrader et al, 1989). The limited resources available to small firms have resulted in their continual practice of operational plans. â€Å"Strategic planning has not commonly been practiced by smaller firms because they do not have the staff or the time to engage in strategic planning. Rather, the top manager in a small firm must be concerned more with operational, day-to-day, functional area problems† (ibid). Robinson, Logan, and Shalem, cited in Shrader et al, (1989), found that strategic planning was not related to improved financial performance of small firms, but that operational planning was positively related to performance. It is argued that small businesses do not benefit from strategic plans primarily because they do not take time or effort to formulate them. Robinson concluded that small businesses which hired outside help in strategic planning performed better than those that did not plan (ibid). Operational planning allows more flexibility on the part of the owner-cum-managers of small firms. This type of planning allows them to be more adaptive in their management style depending on the need of the situation. Most research works and write ups have been about the management of human resources in large organizations. However in recent times, the focus has shifted to HRM in small firms. Major concerns and predictions for the failures of small businesses relate to financial issues. But in the argument of Marlow Patton (1993), the effective management of employees is also emerging as a key variable in the survival of small firms. The limited size of many small firms justifies the absence of full-time HR professionals in their organizations. The complex and time consuming nature of many HR activities can result in a significant drain on existing managerial resources. Small firms also face the problems and challenges of lacking high skilled HR. â€Å"Attractive and retention is clearly linked to the ability to offer a competitive benefits package† (Williams Dreher 1992, cited in Klaas et al, 2000). There is a need for a well-skilled and well-motivated workforce for small firms in order for them to compete effectively in the global marketplace. â€Å"There is growing empirical evidence linking HRM activities and organizational performance† (Holt 1993, cited in Wager 1998). As Odaka Sawai (1999), puts it, â€Å"small business has sometimes been criticized for its economic ‘vices’: retrace competition, the exploitation of employees through low wages, poor working conditions, paternalistic labor relations, and so on. In so far as small firms are characterized by the relatively labor-intensive choice of technology, they contributed to society by enhancing the employment capabilities of the latter†. Lack of technological processes of small firms also constitutes as basis of inefficient HR relationships. Collins Ram (2003) identified four types of employment relations in small firms: â€Å"a ‘factory’ model, which emphasized pecuniary attachment and managerial control: a ‘commitment model based upon peer and ‘cultural’ control: a professional model that stressed attachment to work; and an ‘engineering’ that exhibited a more instrumental approach to work relations’. The concept of informality is invoked to describe social relations at work. But the substance of informality needs to be investigated, together with the shaping power of the context in which the small firm is operating. The ranking of importance of HRM activities differs between small and large scale businesses. According to Ng and Maki (1993), quoted in Wager (19980, â€Å" for smaller firms, the three most important activities were the ‘retaining function’ (which included administering personnel records, payroll processing, health and safety compliance, public relations, and vacation processing), ‘obtaining function’ (which involve pre-employment testing, recruiting, and hiring), and the ‘identifying function’ (which included human resource planning and job evaluation). On the other hand for larger firms, the most important activity was the ‘adjustment function’ (which addresses promotion, transfer, and separation, union-management relations, employee assistance plan administration, and disciplinary issues, followed by the ‘identifying function’, and the developing function’ (which included skill training, orientation, and career development). CONCLUSION So going back to the question Is small beautiful? , my discussion in this paper would say yes. Small is beautiful indeed. Although many literature and management experts would disagree with this conclusion, this paper concludes that small is beautiful. Nooteboom (1994) and Rothwell and Dodgson (1994) as cited by Voosen, find that the relative strengths of large firms are predominantly material. According to Voosen, it is not always easy to separate the effects of market power and firm size, as these two are obviously correlated. But despite the obvious advantage of large organizations over small firms, this paper concludes that small is beautiful. There is beauty in managing small businesses. The beauty of small firms lies in its inherent characteristic of being small. Small allows flexibility, creativity, innovativeness, responsiveness, and efficiency in decision making. Nooteboom (1994) and Rothwell and Dodgson (1994), as cited by Voosen, concluded that in general, the relative strengths of small firms lie in its behavioral characteristics. 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