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18 Professional Management in the Entrepreneurial Firm

|— |CHAPTER 18 LECTURE NOTES |

|1 |Discuss the importance of leadership skills to small business management | |

|PPT 18-1 |Entrepreneurial leadership |

|Professional Management in the |Leadership roles differ greatly depending upon the size of the business |

|Entrepreneurial Firm |What is leadership? |

| |Leadership entails providing direction for others |

|PPT 18-1 |Leadership qualities of founders |

|Looking Ahead |Discuss the qualities needed to start a business |

| |What makes an effective leader? |

|PPT 18-3, 4, 5, 6 |Discuss the qualities of a good leader in small business ventures |

|Entrepreneurial Leadership |Leadership styles |

| |Have students discuss which of the six leadership styles best describes them |

| |Empowering employees gives them authority to make decisions |

| | |

|2 |Discuss the distinctive features of small firm management | |

| PPT 18-7/TM 18-7 |Distinctive characteristics of small firm management |

|Issues Affecting Small Firm |( Ask students to consider the following statement from the chapter: "Unless you thrive on chaos, a small |

|Management |company can be tough." Do they agree or disagree? |

| |Professional level management |

|PPT 18-8 |( The management habits/approaches of entrepreneurs run the gamut, from seat-of-the-pants to highly |

|Distinctive Characteristics of |analytical and professional. |

|Small Firm Management |Limitation of founders as managers |

| |Review the differences in orientation between founders and managers. |

| |Discuss the nature of professional management. (Use fitting examples to illustrate. One useful approach is|

| |to talk about features of enterprises profiled in the opening case and other illustrations that stress the |

| |point.) |

| |Discuss the need for transition as a firm grows. |

| |Managerial weaknesses in small firms |

| |What were some of the managerial weaknesses at American Dixie Group (see illustration in chapter)? Are |

| |these weaknesses typical for small, growing firms? |

| |Ask students for examples of weaknesses they have seen working for small firms. |

| |Conclude this section on a positive note: poor management in the small business is neither universal nor |

| |inevitable. |

| |Constraints that hamper management |

| |What are these constraints? (Answer: limited resources, specialized marketing research skills, staff, etc.)|

| |How would they affect a small restaurant, for example, that wished to conduct a market survey to measure |

| |customer satisfaction? |

| |Firm growth and managerial practices |

| |Examine the four stages (one person operation, player-coach, intermediate supervision, formal organization) |

| |and the organizational configurations of each. Using students’ employers or family firms as examples, |

| |classify each according to its stage. |

| |Review the increasing managerial demands at each stage. |

| |Point out how management weakness obviously hinders growth. |

| | |

|PPT 18-9/TM 18-9 | |

|Firm Growth and Management | |

| | |

|PPT 18-10 | |

|Organizational Stages of | |

|Small Business Growth | |

|[Acetate 18-10] | |

| | |

|PPT 18-11 | |

|Managing Versus Doing | |

|2 |Identify the various kinds of plans and approaches to planning. | |

| |Managerial tasks of entrepreneurs |

|PPT 18-12/TM 18-12 |Planning activities |

|The Nature of Managerial Work |Small businesses typically plan less than what is ideal, and the planning they do is often haphazard. |

| |Thinking issues through improves productivity. |

| |Decisions can be guided by the plan, ensuring that managers work toward the same goal. |

|PPT 18-13 |Evidence of planning increases credibility with bankers, suppliers, and other outsiders. |

|Planning Activities | |

|PPT 18-14/TM 18-14 |Types of plans |

|Planning Activities: |Long-range, or strategic—governs all other planning activities |

|Types of Plans |Short-range—looking forward one year (e.g., budgeting) |

| |Business policies—statements that guide business decision making |

| |Procedures—methodology determining how things are done (which can become Standard Operating Procedures)|

| |Planning time |

| |What is "tyranny of the urgent"? Ask students what this means in their lives. |

| |How can business managers find time? |

| |Ask students to give suggestions to facilitate planning. |

|3 |Describe the nature and features of an organizational structure for small | |

| |businesses. | |

| |Creating an organizational structure (defines relationships within the firm) |

|PPT 18-15/TM 18-15 |The unplanned structure |

|Creating Organizational Structure |Ask students who work to give examples of unplanned structure. |

| |What are the strengths and weaknesses of this type of structure? |

| |The chain of command |

| |Line organization used by very small firms |

| |Line-and-staff organization includes specialists (explain differences between line and staff positions)|

|PPT 18-16 |What is the purpose of the chain of command? (communication and decision making) |

|Creating Organizational Structure |Span of control – the number of employees supervised by a manager |

| |Understanding informal group |

|PPT 18-17/TM 18-17 |Describe informal relationships among faculty in your school, or ask students to describe those at |

|Line and Staff Organization |their workplaces. |

| |What are the benefits? (social satisfaction; work facilitation—e.g., your colleagues “pinch-hit” for |

| |you when you are ill) |

|PPT 18-18 |What are the drawbacks? (possible anti-management bias or exclusive cliques) |

|Factors Determining |Ask for examples. |

|Optimum Span of Control |Delegating authority |

| |Ask students who work to rate their supervisors as strong, average, or weak delegators. |

|PPT 18-19 |Ask for examples of delegation by strong and weak delegators. |

|Creating Organizational Structure |Discuss benefits of good delegation (e.g., more time, development of employee skills, balancing |

| |work/family obligations). |

|PPT 18-20 |Stewardship delegation vs. gofer delegation -- the former benefits both Parties. |

|Delegation of Authority | |

|5 |Discuss the ways in which control is exercised in a small firm. | |

| |Controlling operations |

|PPT 18-21/TM 18-21 |The basic idea is keeping operations on track. |

|Exercising Control |Targets or standards may be used—e.g., a projected increase in sales. |

| |A quality-control process is an example of a control process, but these must be established in all |

|PPT 18-22 |areas of the business. |

|Stages of the |The nature of corrective action depends on the type of problem and the nature of the operation. |

|Control Process |The budget is the cornerstone of financial management. |

|[Acetate 18-22] |Communicating |

| |Discuss how to foster two-way communications. |

| |Open communications between managers and employees is a key to solving problems and seizing |

| |opportunities. |

| |Must cultivate an atmosphere of trust and respect |

|PPT 18-23 |Negotiating |

|Communicating |Negotiating skills are critical to the success of small businesses. |

| | |

| | |

| | |

| | |

|PPT 18-24 | |

|Negotiating | |

|6 |Describe the problem of time pressure and suggest solutions. | |

| |Personal time management |

| |The problem of time pressure |

|PPT 18-25 |( This affects everyone. Discuss with the class their own feelings regarding time pressure. What |

|Personal Time Management |proportion feel time pressure? What do they perceive is the biggest cause of time pressure? (Categorize|

| |answers.) What is neglected? (Categorize answers.) How much more time do they feel they need? |

| |Time savers for busy managers—Brainstorm ways for managers to save time and reduce pressure, such as: |

| |Survey present use of time to determine time wasters. |

| |Make a written plan of daily and weekly work activities. |

| |Establish priorities. |

| |Get meetings under control. |

|7 |Explain the various types of outside management assistance. | |

| |Outside management assistance |

|PPT 18-26/TM 18-26 |The need for outside assistance |

|Outside Management Assistance |To offset managerial deficiencies |

| |To reduce the sense of isolation |

| |To get an objective point of view and new perspectives |

| |Sources of management assistance |

| |Business incubators |

|PPT 18-27 |If the situation permits, have a presentation by an incubator director or visit an incubator. |

|Services Provided |Review the services or benefits to tenant firms. |

|by Business Incubators |Student consulting teams |

|to New Firms |Note the weaknesses. |

| |Discuss the benefits. |

|PPT 18-28/TM 18-28 |Service Corps of Retired Executives (SCORE) |

|Reasons Small Firm Managers Shun |Note its potential. |

|Outside Advice |Point out, however, that SCORE touches only a small percentage of firms, and mostly marginal ones at |

| |that. |

| |Small Business Development Centers (SBDCs) |

| |Fashioned after the agricultural extension service. |

| |Explain that they are affiliated with universities. |

| |If possible, have a development center staff member explain their function. |

| |Management consultants |

| |Note the costs. |

| |Discuss the benefits. |

| |Review Figure 18-6: Reasons Small Business Managers Shun Outside Advice |

| |Entrepreneurial networks (often informal) |

| |Point out textbook examples of networking. |

| |Explain the following: |

| |► Instrumental ties |

| |► Affective ties |

| |► Moral ties |

| |Ask what local events (e.g., Rotary Club meetings) may provide networking opportunities for local |

| |entrepreneurs. What is the evidence that networking occurs? |

| |Other business and professional services (including lawyers, bankers, CPAs, insurance agents, trade |

| |associations, and chambers of commerce) |

|— |SOURCES OF AUDIO, VIDEO, AND OTHER INSTRUCTIONAL MATERIALS |

South-Western’s BusinessLink Video Series presents Valassis Communications: A Study in Teamwork (11 minutes, 59 seconds), free to adopters. Valassis Communications, which prints coupon inserts for various publications, developed a corporate culture of teamwork to help it achieve its goals of satisfying customer demands. Top management believed strongly that teamwork would allow workers to benefit from each other’s knowledge in meeting tough challenges. For example, teams figured out how to reduce waste in paper consumption. The teamwork culture is supported by cross-training, visiting other departments, and working in open cubicles. Closely related to teamwork is company-wide goal setting, in which teams of workers gear their activities to reaching corporate goals. Although Valassis is a medium-sized company, the concepts of teamwork and empowerment depicted in this video apply to small as well as medium-sized and large businesses. This video can also be used with Chapter 19 on quality management in a growing firm.

The BusinessLink video Kropf Fruit Company: A Study in Planning may also be used with this chapter. For a description of it, see the video section in Chapter 7 of this manual.

To request your free copy of all five BusinessLink videos that accompany this text, contact your South-Western/ITP sales rep or ITP Faculty Support (fax (415) 592-9081 or E-mail review@). Ask for ISBN 0-538-86708-6.

INTELECOM’s Something Ventured series offers a 30-minute videotape entitled Making the Pieces Fit: Managing a Small Business, described as follows: “As we watch small business managers at work, a realistic picture of what it means to be the manager of a small business emerges. Although the basic functions of management are the same, whatever the size of the business, the small business manager often juggles the managerial aspects of the operation by him/herself. As the program depicts, life in the managerial seat requires a very different set of skills than that which is necessary to be a successful entrepreneur.” Contact your South-Western/ITP sales rep or ITP Faculty Support (fax (415) 592-9081 or E-mail review@).

Managing Growth is a videotape offered by Vermont ETV as a part of their Emmy Award–winning series Venturing: The Entrepreneurial Challenge. The series of 13 tapes is available for under $100 and comes with suggestions for use, discussion questions, and suggestions for student activities. You can contact Vermont ETV at (800) 866-1666.

Inc. Business Resources offers two videotapes entitled Smart Solutions for Managing Your Time, 40 minutes, $49.95, and Managing People, 120 minutes, $99. Call (800) 468-0800.

Nation’s Business offers a videotape entitled How to Supervise People, which will help build leadership skills—including team building, delegation, and coping with conflict—that will make you the supervisor you need to be. It is 42 minutes long and costs $99.95. Call (800) 429-7107.

Practical Coaching Skills for Managers is the title of a four-volume video set and four-volume audio set offered by CareerTrack Publications. Learn how to keep people motivated and involved, create team bonding, get loyalty and commitment, learn the art of being demanding and supportive, and manage the stress and energy levels of a team. The cost is $199.95 for the video set, $59.95 for the audio set. Call (800) 334-1018.

|— |Answers to end-of-chapter |

| |discussion questions |

1. Would most employees of small firms welcome or resist a leadership approach that sought their ideas and involved them in meetings to let them know what was going on? Why might some employees resist such an approach?

p. 400 - 401 Most students will probably like the idea. In practice, some employees may be uncomfortable with it. For example, employees with limited ability or employees who have been conditioned over years of employment to take direction without question might find a participative approach disturbing.

2. Is the quality of management likely to be relatively uniform in all types of small businesses? If not, what might account for differences?

p. 399-401 The quality of management differs, depending on a number of factors. One of these is size. The term small business includes a range of firms, and the somewhat larger ones of necessity give greater attention to the managerial process. Some firms, for example, require substantial amounts of capital to begin operations. In order to start, the entrepreneur must demonstrate to investors enough managerial or promotional ability to assemble these resources. In contrast, an independent tradesman may simply “hang out his shingle” and begin operations without having any particular managerial expertise.

3. What are the four stages of small business growth outlined in this chapter? How do management requirements change as the firm moves through these stages?

p. 402 - 404 The four stages outlined in the chapter are one-person operation, player-coach, intermediate supervision, and formal organization. The entrepreneur moves from being a “doer” to being a manager as the business moves through these stages. Initially, the entrepreneur is little more than a self-manager. As intermediate levels of supervision are introduced, the managerial process becomes much more complicated, difficult, and challenging for the entrepreneur. This individual must learn to work through other managers. In stage 4, the stage of formal organization, the manager must learn to perform as a professional manager.

4. Some professional football coaches have written game plans that they consult from time to time during games. If coaches need formal plans, does it follow that small business owners also need them as they engage in their particular type of competition? Why?

p. 404 - 406 We believe that the answer is “yes” for many types of small businesses. In a game, the competition is intense during a period of two or three hours. Business competition occurs over a longer time period. Therefore, a small firm’s actions in the competitive arena should be chosen carefully, which requires planning.

5. What type of small firm might effectively use a line organization? When might it be necessary to change the firm’s structure? To what type of structure? Why?

p. 405 Line organization structure would logically be used only in very small firms, such as those with fewer than ten employees. A newly opened frozen yogurt shop provides an example. It should be changed to a line-and-staff structure when specialized management services are required.

6. Explain the relationship between planning and control in a small business. Give an example.

p. 408 Planning includes goal setting. The goals become standards to be used in controlling. If performance falls short of a standard, some type of corrective action is required. A product specification, for example, sets a quality standard. As a product is produced, it is inspected to discover whether it meets the product specification. If it does not, the cause of the deviation (for example, inferior raw material or careless workmanship) must be identified and corrected.

7. There is a saying that goes, “What you do speaks so loudly I can’t hear what you say.” What does this mean, and how does it apply to communication in small firms?

p. 405 It means that actions speak louder than words. A message that is not backed up with appropriate behavior will not be believed. Managers in small firms must be sure that their decisions affecting employees reflect integrity and fairness. The actions of management are its most eloquent form of communication.

8. What practices can a small business manager use to conserve time?

p. 410 - 411 Practices that can be used by a small business manager to conserve time include effectively delegating authority to subordinates, performing tasks more efficiently, adequately planning work prior to its execution, carefully scheduling work, attending to higher priority matters first, and limiting meetings with subordinates to a reasonable amount of time. There are undoubtedly many more practices that might be suggested.

9. What are some advantages and possible drawbacks for a startup retail firm of locating in a business incubator?

p. 411-412 A primary advantage is the management counsel and practical advice available to an inexperienced entrepreneur. In addition, various management services--such as secretarial, copying, and computer services--are made available and affordable. One limitation for a new firm is the location itself. Some new businesses require locations that are in high-traffic areas or are otherwise accessible to customers, and an incubator location may not provide such access.

10. Are student consulting teams of greater benefit to the client firm or to the students involved?

p. 412 Student consulting teams, under the direction of a faculty member, work with owners of small firms in analyzing business problems and proposing solutions. The use of student consulting teams apparently benefits both client firms and students. In any particular case, of course, the advantages to the business depend on the students’ ability and relationship with the entrepreneur, the degree of cooperation that is possible, and the nature of faculty guidance received in the process.

|— |COMMENTS ON CHAPTER “YOU MAKE THE CALL” SITUATIONS |

Situation 1

1. Is such a loosely organized firm likely to be as effective as a firm that defines jobs more precisely and monitors performance more closely? What are the advantages and the limitations of the management style described above?

This company’s leadership philosophy is unusual in the extent to which it emphasizes individual responsibility. It has the potential for encouraging enthusiastic performance. Effectiveness cannot be assumed, however. Much depends on the quality of personnel and the extent to which they have learned to respond to such supervision. Such a management style is limited in that it would not work well with incompetent employees or with employees who had been conditioned to distrust management and to do as little as possible. Also, some individuals are less comfortable in a work environment that is loosely structured.

2. How might such management methods affect morale?

We believe that most students would respond positively and that most employees would also respond positively. This approach might not lead to high morale for the type of employees mentioned above, however. Also, management might try to stretch an employee beyond his or her abilities, and that can be discouraging.

3. Would you like to work for this company? Why or why not?

The respondents’ answers will indicate their supervisory preferences. Our prediction is that most will be favorable.

Situation 2

1. Is this founder’s problem one of time management or general managerial ability? Would it be feasible to engage a management consultant to help solve the firm’s problems?

A lack of general management skills must take at least some of the blame. Other firms run successfully with less frantic administrative activities. The situation appears ideal for analysis by a well-qualified management consultant. The entrepreneur is aware of the problem and concerned about solving it. However, he apparently lacks knowledge of how to deal with it. He should run to the nearest qualified consultant.

2. If this founder asked you to recommend some type of outside management assistance, would you recommend a SCORE counselor, a student consulting team, a CPA firm, a management consultant, or some other type of assistance? Why?

The answer will reflect the respondent’s experience and bias. If the firm is strapped for cash, the entrepreneur could consider SCORE or a student consulting team. The quality of such services is unpredictable, however. The business is profitable and so may be able to pay for consulting services. A CPA firm may be able to offer management assistance or to recommend another source of qualified help.

3. If you were asked to improve this firm’s management system, what would be the first steps you would take? What would be your initial goal?

Some steps would be to interview key members of the company, examine organization structure and responsibilities, evaluate qualifications of key personnel, look for gaps in staffing, and study the entrepreneur’s administrative style. An initial goal might be to eliminate the owner’s need to sleep in the office at night and to cut his 16-hour days to a more modest 12 to 14 hours.

What Actually Happened    The entrepreneur hired a general manager, who was allowed to run the business. This freed the owner to reduce his working hours and also to devote more of his time to selling.

Situation 3

1. What kinds of practices or procedures will this entrepreneur need to adopt to enable the business to continue to operate successfully?

The entrepreneur needs to adopt some systematic methods of management to supplement his informal approach. Among these might be the following:

a. Create an organization structure.

a. Designate capable leasers for each segment.

b. Give leaders sufficient authority for needed decisions.

c. Establish some basic personnel policies.

d. Create a planning and budgetary process.

e. Arrange systems and relationships for communicating.

f. Develop control methods including methods for quality control.

2. What resources might this entrepreneur use to get good feedback to help him assess his competence and understanding the issues his growing business is facing?

The entrepreneur can secure help from a number of sources. These may include the firms banker and/or CPA and/or attorney to the extent the firm has made such connections. Other sources of help include SCORE, consultants, student teams, possibly locating in a business incubator.

|— |Answers to exploring the web exercises |

For each chapter, the instructor’s manual will include a short summary of suggested results students will have after completing the various Web exercises. Because the Web is a constantly changing medium, the answers may vary, and the links may change as well. Thus, answers are only suggested, and the URL for resources, where required, is provided.

Exercise 1

a. Answers will vary. Students need to list the title and author of three articles found on the Web site.

b. Answers will vary. Students should provide suggestions of how to implement suggestions from the articles into their small business.

Exercise 2

a. Students should have a print out of their time-management quiz results.

b. Answers will vary. Students should give their opinion of the advice of time-management provided on the Web site.

Exercise 3

a. Answers will vary based on the students’ opinions of what resources on the SCORE Web site they like the most.

b. Answers will vary based on the students’ opinion of what SBDC resources they like the most and how they would utilize those resources.

|— |SUGGESTED SOLUTION TO CASE 18: |

| |Douglas electrical supply |

1. How would you describe and evaluate the leadership of Douglas Electric Supply?

In this case, we get one person’s evaluation of a company’s leadership and management. We must assume this perception is not seriously flawed in some way. It appears the corporate leadership is deficient – certainly at the local level and evidently being tolerated by the CEO. There is no evident vision of the future or values that would encourage employees to “buy into” the company’s goals. In terms of the styles cited by Daniel Goleman in the text, the local boss is using a “coercive” style and even threatening the employee. Certainly, the style is dramatically different from an “affiliative” leader and from a “coaching” leader. In brief, the limited picture here is abysmally deficient leadership!

1. What are the apparent values and assumptions of management in this business?

Some sad examples suggested by this particular case”

a. Employees are a means to the end.

b. Employees must be driven, rather than led.

c. Money is more important than safety.

d. Don’t rock the boat.

e. People are expendable.

2. If you were asked to predict the effectiveness of this training effort, what would you say? Explain.

It seems likely the training effort will fail to enlist enthusiastic employee support – a necessary ingredient of effective quality programs. A company manager is shooting himself and his company in the foot by the hypocrisy being displayed. The natural reaction of an employee may be, “If they don’t care about me, why should I care about them?” In addition to failing to produce better performance in area of safety, such management reactions would lower morale and probably, as contemplated by this one employee, increase turnover. Also, a serious accident could lead to serious liability problems. Possibly the discussion leader might ask, what company management could do, if anything, if cost were in reality a major, major problem at the moment.

3. Based on this conversation, how would you size up the communication process in this business?

The interaction described in the case would put a damper on upward communication. For upward communication to work, an atmosphere of careful listening and polite attention must be created. Speaking to powerful people at higher levels is potentially frightening to employees who might attempt it. The atmosphere for this employee has shown to be chilling.

4. What is the proper role of a management consultant? Should Essinger try to intervene in the management process by discussing safety and personnel issues with management?

In this case, the consultant seems to have a specialized assignment and, therefore, the discussion with higher levels of management may be “touchy.” We need to know more about the consultant’s relationship with the company and its management to know whether he would have a possibility of bringing the situation to their attention without endangering the employee.

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