Chapter 18 Professional Management in the Entrepreneurial Firm1

18Professional Management in the Entrepreneurial Firm

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CHAPTER 18 LECTURE NOTES

1 / Discuss the importance of leadership skills to small business management
PPT 18-1
Professional Management in the Entrepreneurial Firm
PPT 18-1
Looking Ahead
PPT 18-3, 4, 5, 6
Entrepreneurial Leadership /
  1. Entrepreneurial leadership
  2. Leadership roles differ greatly depending upon the size of the business
  3. What is leadership?
Leadership entails providing direction for others
  1. Leadership qualities of founders
Discuss the qualities needed to start a business
  1. What makes an effective leader?
Discuss the qualities of a good leader in small business ventures
  1. 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
Issues Affecting Small Firm Management
PPT 18-8
Distinctive Characteristics of Small Firm Management
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 /
  1. Distinctive characteristics of small firm management
Ask students to consider the following statement from the chapter: "Unless you thrive on chaos, a small company can be tough." Do they agree or disagree?
  1. Professional level management
The management habits/approaches of entrepreneurs run the gamut, from seat-of-the-pants to highly analytical and professional.
  1. 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 (seeillustration 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.

2 / Identify the various kinds of plans and approaches to planning.
PPT 18-12/TM 18-12
The Nature of Managerial Work
PPT 18-13
Planning Activities /
  1. Managerial tasks of entrepreneurs
  2. Planning activities
  3. Small businesses typically plan less than what is ideal, and the planning they do is often haphazard.
  4. Thinking issues through improves productivity.
  5. Decisions can be guided by the plan, ensuring that managers work toward the same goal.
  6. Evidence of planning increases credibility with bankers, suppliers, and other outsiders.

PPT 18-14/TM 18-14
Planning Activities:
Types of Plans /
  1. Types of plans
  2. Long-range, or strategic—governs all other planning activities
  3. Short-range—looking forward one year (e.g., budgeting)
  4. Business policies—statements that guide business decision making
  5. Procedures—methodology determining how things are done (which can become Standard Operating Procedures)
  6. Planning time
  7. What is "tyranny of the urgent"? Ask students what this means in their lives.
  8. How can business managers find time?
  9. Ask students to give suggestions to facilitate planning.

3 / Describe the nature and features of an organizational structure for small businesses.
PPT 18-15/TM 18-15
Creating Organizational Structure
PPT 18-16
Creating Organizational Structure
PPT 18-17/TM 18-17
Line and Staff Organization
PPT 18-18
Factors Determining
Optimum Span of Control
PPT 18-19
Creating Organizational Structure
PPT 18-20
Delegation of Authority /
  1. Creating an organizational structure (defines relationships within the firm)
  2. The unplanned structure
  3. Ask students who work to give examples of unplanned structure.
  4. What are the strengths and weaknesses of this type of structure?
  5. The chain of command
  • Line organization used by very small firms
  • Line-and-staff organization includes specialists (explain differences between line and staff positions)
  • What is the purpose of the chain of command? (communication and decision making)
  • Span of control – the number of employees supervised by a manager
  1. Understanding informal group
  • Describe informal relationships among faculty in your school, or ask students to describe those at their workplaces.
  • What are the benefits? (social satisfaction; work facilitation—e.g., your colleagues “pinch-hit” for you when you are ill)
  • What are the drawbacks? (possible anti-management bias or exclusive cliques)
  • Ask for examples.
  • Delegating authority
  • Ask students who work to rate their supervisors as strong, average, or weak delegators.
  • Ask for examples of delegation by strong and weak delegators.
  • Discuss benefits of good delegation (e.g., more time, development of employee skills, balancing work/family obligations).
  • Stewardship delegation vs. gofer delegation -- the former benefits both Parties.

5 / Discuss the ways in which control is exercised in a small firm.
PPT 18-21/TM 18-21
Exercising Control
PPT 18-22
Stages of the
Control Process
[Acetate 18-22]
PPT 18-23
Communicating
PPT 18-24
Negotiating /
  1. Controlling operations
  • The basic idea is keeping operations on track.
  • 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 areas of the business.
  • The nature of corrective action depends on the type of problem and the nature of the operation.
  • The budget is the cornerstone of financial management.
  1. 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
  1. Negotiating
  • Negotiating skills are critical to the success of small businesses.

6 / Describe the problem of time pressure and suggest solutions.
PPT 18-25
Personal Time Management /
  1. Personal time management
  1. The problem of time pressure
This affects everyone. Discuss with the class their own feelings regarding time pressure. What 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?
  1. 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.
PPT 18-26/TM 18-26
Outside Management Assistance /
  1. Outside management assistance
  2. The need for outside assistance
  3. To offset managerial deficiencies
  4. To reduce the sense of isolation
  5. To get an objective point of view and new perspectives

PPT 18-27
Services Provided
by Business Incubators
to New Firms /
  1. Sources of management assistance
  1. Business incubators
  2. If the situation permits, have a presentation by an incubator director or visit an incubator.
  3. Review the services or benefits to tenant firms.
  4. Student consulting teams
  • Note the weaknesses.
  • Discuss the benefits.

PPT 18-28/TM 18-28
Reasons Small Firm Managers Shun Outside Advice /
  1. Service Corps of Retired Executives (SCORE)
  • Note its potential.
  • 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
  1. Entrepreneurial networks (often informal)
  2. Point out textbook examples of networking.
  3. 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?
  1. 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 ). 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 ).

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 - 401Most 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.

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

p. 399-401The 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.

  1. 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 - 404The 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.

  1. 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 - 406We 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.

  1. 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. 405Line 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.

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

p. 408Planning 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.

  1. 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. 405It 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.

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

p. 410 - 411Practices 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.

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

p. 411-412A 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.

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

p. 412Student 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.

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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.