Leadership thinking for small business (part 2)

Leadership for small business is essential but so often forgotten. We scanned some of the theories in the last of these. So what should a small business person do with all this theory?

Most importantly, to be aware. Be aware of the need to lead as well as to manage your business; be aware of the dynamics of the group and the potential (for good and ill) of the individuals in the business; be aware of the different management types and styles and therefore make conscious decisions on how to handle companies and individuals within them, whether they are your customers, your suppliers or your staff.

Be aware especially of your own style and, by being conscious of it, be prepared to adapt it when the time is right. I can remember at one stage being Sales & Marketing Director to a pretty fiery Managing Director. So he would usually be Mr Nasty and I was the one who poured oil on the troubled waters. Until an IT project with which he had been very deeply involved started to go wrong – quite badly wrong. He was not in a position to take his usual approach, and, as we discussed it, it was clear that in this instance I would have to be Mr Nasty, whilst he played the role of conciliator. And that worked very well.

Although, of course, I am too nice a guy to stay in that role for long!

So don’t sink under the theory, but do be aware of what the theory tells you, and therefore have a better understanding of what is really happening in and around your business and the options open to you to make the most of it.

Leadership thinking for small business (part 1)

We have been looking at some of the motivational theories and how they apply to small business. In the area of leadership, the gurus come by the pile, with lots of theory and not much evidence. What it is critical for a small business to know is that leadership is not the same as management, and that even a one man band needs leadership.

 Leadership is about direction; in a business choosing an appropriate path in given circumstances and guiding the business along it. Management is about making the practical stuff happen, handling situations. Even a one-man band can have a problem of leadership if, as so often happens, the owner becomes so engrossed in managing that he ceases to have a direction. And of course, if the business involves any more than one person, the problems of leadership take on a whole new dimension of differing aims, aspirations, views of the world etc. (and sometimes it can be easier to lead 200 people than one person!)

So leadership is relevant, however large or small your business is. So let’s have a quick scan of theories. 

Originally there were the Great Man theories that leaders are born not made, and theorists studied their characteristics. This led to Traits Theories - that leadership can be defined by certain traits and skills – this had so many answers that it did not lead anywhere. These theories were about identifying leaders. But it encouraged the Behavioural Theorists (on the back of McGregor’s Theory X and Y see earlier blog). An example is Blake & Mouton’s Managerial Grid, which looks at the concern for people  and for output as the two axes on a grid where managers can be defined by their style. This raised the question of whether one style was more suited to a particular situation than another and led to Situational Theories so that by identifying the situation one could adopt an appropriate style. Then Transactional Theories look at how the leader and the group interact. Increasingly we have gone from identifying to learning how to.

Perhaps one of the most  influential of the theories has been John Adair’s Action-Centred Leadership model which looks at the leader’s role in three overlapping dimensions: achieving the task, building the group to deliver it, and supporting and developing individuals within the group. It is focused on skills which can be learned; a person can learn to be an effective leader.

We can look at this in the context of a small business such as a shop. The first leadership dimension is the task: probably initially a marketing one of deciding where the shop fits in the competitive environment, what image it needs to portray and what values it has. (In a large organisation this might be a team activity but most usually not in a small business). Without some vision of how the business should be and where it should go, there can be no leadership, as this implies direction.

The second leadership dimension is the team, getting the staff to buy into this overall concept of the business and where you are trying to go. Without the commitment of staff, you end up with a business that sends out mixed messages (The newsletter from the WOW Awards for customer service today gave the example of 2 uniformed staff from a health foods shop standing smoking outside the front door!).

The third leadership dimension is working with individuals to contribute as much as they are able, and at least as much as is required, to achieve the results you want. This might, for instance, involve developing one person into a supervisory role for when you are not there, or developing specific skills for certain tasks.

Where does leadership stop and management begin? Does it matter? But whether you employ people or are on your own, setting the direction and making sure the motivation is there is clearly separate from making it happen, and it is particularly crucial that managing the day-to-day does not happen instead of determining the course and ensuring the resources are there to reach the destination, but as well as.

Douglas McGregor’s Theory X and Theory Y for small business

McGregor published his book, The Human Side of Enterprise, back in 1960, and it has been influential ever since. He suggested 2 approaches to management. Theory X managers believe that employees do not like work and have to be managed with carrot and stick to get anything done; Theory Y managers believe that people get intrinsic satisfaction from work and can be motivated by involvement and inclusion – the hard and soft schools of management, if you like, and with a strong relationship to Herzberg’s hygiene factors and motivators (see previous blog).

Now this is a thory for management in large organisations, and many have interpreted it as suggesting a new style of management to be preferred over an old-fashioned rigid method. At this level it is not very interesting to small business perhaps. But McGregor’s own view was about making people aware of these styles in order to adapt their own behaviour. At this point it becomes much more relevant to small business.

First, what is your approach to management? It will probably be a mix depending on the circumstances but you will tend toward one or the other end of the spectrum. This will condition how you respond to others – and we may not be just thinking of staff here, but also customers and suppliers. And within those customers and suppliers, there will be similar issues, both as individuals and within their corporate culture.

Now in certain circumstances, getting a result requires precision and focus and does not allow much latitude for individual expression; but in other situations a very different approach will be more productive. For instance, organising a delivery for a client against a deadline may require primarily a strict adherence to process, which, if followed rigidly, will deliver the result. But handling a complaint about a missed delivery may be a very different matter.

At the customer level, they may feel comfort at a Thoery X approach to the management of shipping their product, which suggests clear rules, everyone told exactly what to do and expected to do it, but they would probably be less happy with that approach to their complaint: wait in the queue and you will be dealt with; here is the form to fill in etc. They are much more likely to respond to an attempt to understand what problem has been created for them and an exploration of what can now be done to create the best outcome in the circumstances (and that best outcome may not be obvious without understanding the client circumstances). So both styles have their place.

At an organisational level, a Theory X organisation will have very rigid rules on purchasing your product and if you try to circumvent the process you will lose the sale. Whilst in a Theory Y organisation, making the sale may require you to get various parties on board before anyone is ready to make the decision to buy. Mix up the two and you could lose both sales.

From a staff effectiveness point of view, there are times when you want to be Theory X: for instance, in health & safety issues the rules will be rigid; there will be serious penalties for not follwing them. But if the issue is how best to handle a piece of new business, then results are likely to be far better if all involved have been consulted, their issues taken into account and an agreed best process determined. Collaborative working will favour Theory Y approaches.

If your natural instincts are Theory X, then you will benefit from consciously modifying your approach when the result will be better from collaboration; similarly, it is no use taking a “what do you think?” approach when absolute adherence to process is required – it will confuse the message. By adapting appropriately to both situations you will send a clearer signal of what you want.

So by understanding both your own approach and that of your customers and suppliers, you can better achieve effective results. It was this that McGregor was seeking to achieve in defining and understanding these two contrasting modes.

Maslow’s Hierarchy of Needs and small business

Abraham Maslow published his theory in 1943 and it has been influential ever since. He believed a lot of psychological theory had been based on people with significant problems, so he studied people who were not clearly in difficulties, and came to a different perspective on motivation in particular. The theory is represnted as a pyramid with 5 layers, and suggests that, until the lower layers are satisfied, it is not possible to focus on the higher ones.

The lowest layer is PHYSIOLOGICAL needs: to breathe, food, water, shelter, sleep, sex. When these are satisfied, the next motivational level is SECURITY whether that is personal safety, security of employment or health. Above this are SOCIAL needs, which are about belonging to a social unit or group: family, team etc. Above this are ESTEEM needs, which are about how the individual sees themself against their society and hence the view they believe society, their peers etc have of them - the need to be valued. And at the top of the hierarchy is SELF-ACTUALISATION, which is about self-fulfillment rather than the perception of others. This may come from the satisfaction of growing as a human being, in knowledge or wisdom or spiritual growth. It probably applies to only a few per cent of the population.

Some people have argued with the rigid concept of the hierarchy (if it were so, then no one would buy a fast car before they had full pension provision and that clearly is not the case!) but at the same time, you would not try to sell a drowning man a new car, so the hierarchy has some validity of precedence. Herzberg’s motivators and hygiene factors (see previous blogs) are based on the hierarchy.

Organisational thinking often looks at the hierarchy concept both from the point of view of staff and of customers. But what of the small business?

Well first look at your own motivation. Assuming you have a roof over your head, are you in business for security reasons (perhaps several times redundant and see this as a greater guarantee of future income) or for social reasons, to be part of the business community or your workplace team? Or for reasons of esteem, to be seen as the Managing Director, the leader of your own business, a pillar of the business community, or perhaps to earn lots of money and be visibly successful? Or are you one of the small group who find running a business a learning process, a source of personal development, and a great source of personal satisfaction in itself? Whichever is true for you, it is possible to see how, depending on your motivation, you would behave differently in certain circumstances.

And of course the same is true of your customers and your staff and all other stakeholders. For example, you may have a person marked out for a great promotion which will involve more responsibility, time and perhaps travel. But if that person is motivated more by the desire to spend time with family or perhaps sports commitments (social needs) than by money of status (self-esteem) then they are unlikley to respond in the way you would hope. And they may even then be tempted to move in if they believe that they are now poorly regarded by you.

So Maslow’s hierarchy can be used to focus on what motivates your clients (or at  least the majority or best ones) for your marketing, and what your key staff. It serves as a good discipline in both your marketing activities and personnel activities to do the appropriate research, because if you cannot answer that question, then you are going to be less effective than you could be – but it is often relatively easy to get feed back from customers and, in the case of small businesses, from individual staff to avoid getting it wrong. So what have you got to lose?

Frederick Herzberg and executive pay – and MPs expenses!

My last post on Frederick Herzberg’s theory of motivation has given rise to a few thoughts in relation to the recent hot topics of pay and expenses. Just to remind you, Herzberg’s research identified that pay is what he called a ‘hygeine’ factor: if it is not adequate it will cause dissatisfaction but it is not a factor which will motivate to improved performance. Motivating factors are usually associated with the satisfaction of the work itself, achievement, recognition, responsibility, advancement and the individual’s personal growth.

In this context it was interesting listening to the Chief Executive of Network Rail  on Radio 4 recently agreeing to forgo his bonus this year, but justifying the need to pay high bonuses to his staff, and presumably himself, on the grounds of the need to motivate. So has he not heard of Herzberg, or does he disagree with what is recognised as a generally validated motivational theory?

Of course, he may be working on an alternative theory that, although itself not a motivator, money in very large quantities (with a little natural greed thrown in) and associated with specific targets will focus an individual’s activities on those very specific targets at the expense of everything else. They will tend to get them achieved. However, the corrollary of this is that the overall responsibility of the job, the interests of all stakeholders, the long-term interests that should be the focus of all senior management, will be neglected in the interests of a few short-term goals. (Do I hear the words ’cause of the banking crisis’ whispered here?)

The fact is that these bonuses are nothing to do with motivation, but have become VERY expensive hygiene factors – no senior manager in a large corporation will consider himself valued if he does not have access to this ‘gravy-train’. And this culture has spread to the public sector, and is in danger of percolating further down- to the extent that a news bulletin recently reported a school Head as suspended for arranging to pay himself a bonus to which, of course, he had no entitlement. This could possibly be regarded as fraud.

This brings us to our MPs! Allegedly the activities of some amount to blatant fraud. Others are exploiting the letter but not the (written and instructed) spirit of the rules. But some have come out of this as incredibly moral people who have resisted the temptation spread before them. We should value these people dearly and not forget them in the focus on the worst.

I am disgusted as many are at what has happened, but also have some sympathy with them, working in a system which has been corrupted. Faced with the choice of keeping to the principles which they may have had, but at the expense of ‘losing out’ and being ‘taken for an idiot’ – they have compromised those principles and become lesser people – richer financially but poorer personally for it.

MPs have difficult job, but not one that carries individually a great deal of responsibility. But they tend to mix with the wealthy, the powerful and the highly paid. They can feel that they are undervalued by comparison, and is that a factor in the readiness of many to try to exploit the expenses system? Sometimes it is difficult to resist this insidious temptation. (By the way, why so much heartache over who should now ensure that the new rules are policed – what is wrong with HMRC which does the job for the rest of us?).

So what’s today’s lessons for small businesses?

1. Beware of setting up schemes which encourage corruption – if staff do not think they are treated fairly they can feel justified in helping themselves. 
2. Beware of the law of unintended consequences of any incentive scheme
3. Be aware of what hygiene factors you need to address to attract and keep good people but also be aware of what really motivates when you want to get your people working with you to achieve the best long-term result for your business
4. Be aware of your own motivation and how others and yourself can easily become poorer people in the pursuit of greater wealth! If you run a good business, hopefully the wealth will follow.

Frederick Herzberg and motivation for small business

A while since I added a post, so I thought it might be time to consider some gurus on the people side of business. Herzberg’s 1959 book, The Motivation to Work, has had a great influence – and if you do not employ anyone, please do not stop reading now as this is just as relevant to your own motivation. He introduced the matched concept of ‘motivation and hygeine factors’ which are now well accepted as basic truths, partly as a result of Herzberg’s research and that of many researchers since.

The premise states that factors which drive dissatisfaction are not that the same as - or opposite to – those that drive positive motivation. The ‘hygeine factors’ are about salary and work conditions, relationships of all sorts, status etc. But the motivators are about the satisfaction of work itself, recognition, achievement, responsibility and personal growth.

If the hygeine factors are not adequate, effort will be directed to trying to change this, but if these needs are met, this will not of itself generate any positive motivation; this comes from the higher factors. For some it is surprising that salary is not a positive motivator: how do we explain those enormous senior bonuses. Alfred Sloane at GM improved output figures by simply chalking numbers on the floor beside the production lines. The chalk meant recognition. Unfortunately for shareholders, taxpayers etc at the head of large organisations we have allowed it to be accepted that achievement is recognised by money. This was not the case as little as 30 years ago when senior managers did not generally get rewarded with astronomical salaries and the gap between top executive remuneration and the average employee was much smaller.

The implications of this for employers are clear: to keep your workforce happy and focussed you cannot ignore the hygeine factors. But once you have a good base, higher performance will not be delivered by more of the same. You need to move on to addressing the higher ambitions for advancement, responsibility, recognition, achievement and the satisfaction of a job well done. This can be an even more necessary process in a recession when it is more difficult to give recognition by financial means – and in truth this has often been a lazy response. To the extent that not paying an inflated salary is a dissatisfying hygeine factor not because of a restriction of the receiver’s lifestyle but because it implies lower status (See premiership football teams if you want to find obvious examples).

And for the one-man band? Well the same factors apply to your own motivation. You might be driven to slave at a boring function to make sure you can pay the mortgage, but once you are past the hygeine problems, what will raise the higher levels of performance? It will be achievement of goals, the recognition that comes with a successful business, and the pleasure of satisfied customers. So if you are running a business with a product or service that you believe in, you are likley to be more motivated and get more satisfaction than if your business has just become a chore to deliver the hygeine factors.

Money has tended to become the modern Western culture’s surrogate for the badge of achievement and to that extent it does motivate, but it is the achievement not the badge which is important. There are many more powerful motivators to performance so use them for your team and for yourself.

Corporate Strategy and Igor Ansoff for small business (part 2)

 Ansoff working on how corporates grew considered a number of important concepts taken up later by other writers, including the core capabilities of the organisation, its product and market scope (or marketing focus) and competitive advantage. The strategy for growth could exploit these factors and consider the options for development which Ansoff defined in his Product-market growth matrix.  

      

The matrix looks at the product and market growth options open to any business: these are to sell more of its existing products into existing markets (market penetration), to sell existing products into new markets (market development), to sell new products to existing markets (product development) and finally to sell new products into new markets (diversification).

As a business moves from market penetration into product and market development, the level of risk increases and is at its greatest when going furthest into the unknown – into diversification.

But surely all this is only relevant to corporates? Not so. Many small businesses seek to develop into new markets and new product areas before they have fully exploited their core market – sometimes before they have proved they can make a profit in the core business. And tough economic times sometimes encourage businesses to look into other products and markets. Of course, this can be a productive strategy, but it has a higher risk of failure than developing the core market – and it is likely to cost more, as penetrating new markets usually involves marketing expenditure, especially as the existing competitors in that market are likley to react to a new threat.

There is a tendency – at both small business and corporate level – to believe that ‘the grass is greener’ over the hill in that new market. But once there it often looks remarkably like the other side of the hill! And with the added disadvantage of being an outsider. Also whilst doing this, are you leaving gaps in your core market for a new competitor to enter? Ansoff understood the risk and also that such decisions were strategic and not short-term reponses to situations. Certainly for most businesses it is sensible to make sure that they are operating most effectively in the core market with existing products before pursuing any of the other options.

And as for diversification, the difficulty and risk is even greater to grow organically – and probably equally so by merger or acquisition. Small companies can grow in this way too, but the track record in corporate life is that most mergers or acquisitions do not achieve their objectives. For Ansoff synergy is the key where 1+1 = >2; thus merged sales forces may be able to maintain the same level of calling with smaller sales areas, less travelling and less sales numbers than separately: but will all the products get as much focus? This is where sometimes synergies exist in theory but prove elusive in practice.

Sometimes, if the core market is changing rapidly and there is no way forward for the business, diversification is the only way of surviving. And there are rewards to be achieved by diversification - but they are rarely as great as supposed and often the downside risk is very significant. So any such decisions require very careful analysis of both the potential reward and the potential risk.

But synergy can be sought in other ways without such large risks; for instance co-operative working with related companies. Tough times sometimes require drastic solutions, but often these are closer to home rather than in diversification. Look very carefully before you leap!

Corporate Strategy and Igor Ansoff for small business (part 1)

Igor Ansoff (1918-2002) pretty much invented the concept of corporate strategy – all of course based on large corporate organisations (he worked with Rand Corp and Lockheed). But small businesses also have to make strategic decisions so what he had to say can be relevant. Ansoff drew a qualitative line between strategic decisions which were fundamental to where the business was going and had always to be taken at the highest level and those decisions which could be delegated because they were covered by policies or operating procedures. He came up with the 3S classification of decisons: Strategic-Structure-Systems, which might be interpreted for small business into deciding where we are going, how we are organising and resourcing to get there, and what we are actually going to do to make it happen.

Small businesses often struggle with each of these issues – and often get them in the wrong order! Building systems that cannot support what the business will require to move forward is not unusual; establishing a financial base that cannot support the growth that the business plans to have is equally common. And so often unfortunately the business has no strategy – no clear idea of where it is trying to go and how it will get there.

Without these elements and in the right order any business, whether small or large, is likely to lose its way or perform a long way below its capability. And when times are tougher the need for clear direction, adequate organisation and resource, and efficient operating systems are more critical than ever.

Management by Walking Around for small business

Bill Hewlett and Dave Packard are not just famous for their computer company – they named the concept of Management by Walking Around, which had a period of popularity and prominence some decades ago - and perhaps its a bit of a shame that it has been somewhat forgotten these days. In large corporates its easy for management to get out of touch with the workforce, and with suppliers and customers. But surely this is irrelevant to small companies?

Well, not in my experience. Although it should NOT be the case, those running small companies can also disappear. And the tougher times are, the more likley this is to happen. There are business owners who do not like being asked for discounts, so they stop talking to customers, or do not like to be asked about how well the company is doing, so they stop talking to their own people, and who do not want to be chased for payment, so they stop talking to suppliers.

Will any of these behaviours help solve any issue? No. What behaviour is most likley to identify solutions? Discussing problems and facing issues constructively. Interchanging possibilities with other parties is more likley to lead to 1) identifying what options there in fact are and 2) better understanding the implications of the options. This in turn leads to better decisions, and ones with a better chance of being successfully implemented.

So first lesson of challenging times: get out there with customers and suppliers and staff; be seen and be heard – and even more importantly, be seen to listen. The majority of world leaders have understood that in economic turmoil they have to act in some degree in unison if solutions are to be found and to be effective. The same is true at the micro level: solutions will be found when staff pull together, when suppliers and their customers identify that they have common aims, and when customers see their suppliers have a genuine interest in them.

There is much doubt and uncertainty; business is first and foremost about people and ideas – the numbers support and explain but they are a result not a cause; getting out there where business happens can change things. Difficult times are also times of opportunity, when people will alter their patterns of bahaviour more readily. So more than ever it is time to be visible in your market at all levels.

Michael Porter and Competitive Advantage for Small Business (part 8)

Having looked at the five forces Michael Porter identifies in Competitive Advantage, Porter goes on to develop a theory of  what he calls the Value Chain in business. This looks at the elements in any business (some of which will not be very applicable to certain types of business) including processes:  inbound logistics, operations, marketing and sales, services and outbound logistics. In addition there are infrastructure elements and costs for the business including facilities, IT, finance  etc. These have costs associated with them, and the business process should add value for the customer.  Some of Porter’s thinking has very much affected the trend for outsourcing – Porter’s view was to outsource wherever there was no real value added in that operation in the business and to focus the business activities on where it added the greatest value.

Some of the key ideas that are associated with Porter’s concept are those of “drivers” of the business including “cost drivers”. Thus in the mobile phone business there is a high degree of ‘churn’ – people change provider and equipment frequently so this is a heavily sales & marketing driven market and these both drive competitive position and costs: the need for heavy advertising, an expensive high street presence etc. Looking at how these drivers work and understanding what value they add for the business and for its customer become critical.

Is this all about giant corporations then? well, not necessarily. Understanding the customer and the cost drivers can lead to new solutions and these often come from small businesses. The High Street retailers have a strong presence to add value for their customers. If you are a clothes shop then that added value might be enabling customers to see and feel your product – and to try it on.  But if you are selling DVDs or insurance, then perhaps this value added is not very great. Thus in these areas internet businesses have been able to change the Value Chain for a large proportion of customers in the market to deliver better added value for the customer in the form of a better deal.

Small businesses can often take advantage of the structural situation in a market to develop an alternative Value Chain which better delivers for some customers at least.

And if a business does not add value, what is its purpose – and its long-term chances of survival? In today’s climate particularly, those businesses not adding enough value are likley not to survive. Make sure you enhance your chances of surviving and prospering: look at maximising the value you create for your customer and minimising the costs to create it; drive costs down, cut out processes that do not add value. Now is the best time to have a good hard look at your business.