Small Business Management Chapter 19 PowerPoint

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CHAPTER
19
Professional
Management and the
Small Business

LEARNING OBJECTIVES
By studying this chapter, you should be able to…
19-1 Understand the entrepreneur’s leadership role.
19-2 Explain the small business management process
and its unique features.
19-3 Identify the managerial tasks of entrepreneurs.
19-4 Describe the problem of time pressure and
suggest solutions.
19-5 Discuss the various types of outside management
assistance.

19-1 SMALL BUSINESS
LEADERSHIP
• Leadership roles differ greatly, depending on
the size of the business and its stage of
development.
• Thus, leadership cannot be reduced to simple rules
or processes that fit all situations.

19-1a What Is Leadership?
• The first task of the small business owner is to
create and communicate a vision for the
company.
• An entrepreneur must convey his or her vision of
the firm’s future to all other participants in the
business so that they can contribute most effectively
to the accomplishment of the mission.

19-1b Leadership
Qualities of Founders
• Founding entrepreneurs need a tolerance for
ambiguity and a capacity for adaptation.

19-1c What Makes
a Leader Effective?
• Effective leadership is not so much about wanting to
be in charge as it is about having the ability to take
charge by setting the right priorities, finding good
people and sorting them into the right roles, and then
making the relationships work for everyone involved.
• An effective leader needs to be committed to serving
as a role model so that others will feel motivated to
follow.
• An entrepreneur exerts strong personal influence in a
small firm, which can create a competitive advantage
over corporate rivals.

19-1d Leadership Styles (slide 1 of 2)
• Psychologist Daniel Goleman and his colleagues have identified
the following six distinct leadership styles:
1. The visionary mobilizes people toward a shared vision.
2. The coach develops people by establishing a relationship and trust.
3. The team builder promotes emotional bonds and organizational
harmony.
4. The populist builds consensus through participation.
5. The paragon sets challenging and exciting standards and expects
excellence.
6. The general demands immediate compliance.
• Goleman and his colleagues found that effective leaders shift
fluidly and often between the first four styles listed above, and
they make very limited but skillful use of the last two styles.
• For most entrepreneurial firms, leadership that recognizes and
values individual worth is strongly recommended.

19-1d Leadership Styles (slide 2 of 2)
• A caring approach is more effective for eliciting more
output from fewer employees.
• Research shows that desirable leadership qualities such as
decisiveness, resilience, and confidence must be balanced with
a more sensitive touch if a leader is to have a greater impact.
• Many progressive managers seek some degree of
employee participation in decisions that affect
personnel and work processes.
• Empowerment – Authorization of employees to make
decisions or take actions on their own.
• The manager who uses empowerment goes beyond solicitation
of employees’ opinions and ideas by increasing their authority to
act on their own and to make decisions about the processes
they’re involved with.

19-1e Shaping the Culture
of the Organization (slide 1 of 3)
• The organizational culture establishes a tone that
helps employees understand what the company stands
for and how to go about their work.
• It is the factor that determines the “feel” of a business, the
“silent teacher” that sets the mood for employee conduct, even
when managers are not present.
• A company’s culture unfolds over the lifetime of the
business and usually reflects the character and style of
the founder.
• If a founder is honest in his or her dealings, supportive of
employees, and quick to communicate, he or she will likely set
a standard that others will follow.

• Creating an organizational culture that fosters
innovation tends to draw employees into the
work of the company and often provides a
boost to commitment and employee morale.
• An entrepreneur can create an innovative cultural
environment by:
• Setting aside his or her ego and opening up to the ideas of
others.
• Supporting experimentation through the elimination of
unnecessary penalties for failure.
• Looking for and tapping into the unique gifts of all
employees.

• Deliberate physical design efforts can also influence
the organizational culture, thereby helping to shape the
way people in the organization think, how they interact,
and what they achieve together.
• Examples: Open-office layouts; not giving “higher-ups” private
offices.
• Another important factor in shaping culture is hiring
new employees based on their attitude, style, and fit
with the personality of the company.

19-2 THE SMALL FIRM
MANAGEMENT PROCESS
• Professional managers – Managers who use
systematic, analytical methods of
management.

19-2a From Founder to
Professional Manager (slide 1 of 3)
• The way businesses and other organizations are
managed can vary greatly.
• At the less-developed end of the continuum are entrepreneurs
and other managers who rely largely on past experience, rules
of thumb, and personal whims in giving direction to their
businesses.
• Other entrepreneurs and managers are analytical and
systematic in dealing with management problems and issues.
• The challenge for small firm leaders is to develop a
professional approach, while still retaining the
entrepreneurial spirit of the enterprise.
• This can be especially difficult because founders of new
businesses are not always good organization members.

• Many experts believe it is extremely difficult, indeed
often impossible, for entrepreneurs to make the
transition from founder to professional manager.
• When an entrepreneur cannot make the transition as the
venture grows and becomes more complex, and refuses to
hand the reins of control to someone better suited to take
over, the enterprise is very likely to fail.
• A founder’s less-sophisticated management style can
adversely affect business growth, and many find it
difficult to adopt more effective models.

EXPANDING BEYOND THE COMFORT ZONE
• Small companies are particularly vulnerable to managerial
inefficiency, which may even lead to a firm’s failure.
• Many companies perform quite well when ventures are small, but
problems begin to mount when the business expands beyond
some comfortable point.
MANAGING THE CONSTRAINTS THAT HAMPER SMALL
BUSINESSES
• Small firm managers face special financial and personnel constraints.
• A small firm often lacks the money for advertising, marketing
research, and employing an adequate number of support staff.
• Because small firms typically have few specialized staff members,
most small business managers have no choice but to be generalists.

19-2b Firm Growth and
Managerial Practices (slide 1 of 4)
• As a newly formed business becomes
established and grows, its organizational
structure and pattern of management will need
to be adjusted.
• To some extent, management in any organization
must adapt to growth and change.
• However, the changes involved in the early growth stages
of a new business are much more extensive than those
that occur with the growth of a relatively mature business.

• There are four stages of organizational growth
characteristic to many small businesses:
1. One-person operation.
• The startup at this point is simply a one-person operation.
2. Player-coach operation.
• Eventually, the entrepreneur becomes a player-coach,
which implies continuing active participation in business
operations.
• In addition to performing the basic work—whether making
the product, selling it, writing checks, keeping records, or
other activities—the entrepreneur must also coordinate the
efforts of others.

3. Intermediate supervision.
• When an intermediate level of supervision is added, the
entrepreneur must rise above direct, hands-on management
and work through an intervening layer of management.
4. Formal organization.
• Conversion to a formalized management typically requires
that the company begin to:
• Adopt written polices.
• Prepare plans and budgets.
• Standardize personnel practices.
• Computerize records.
• Put together organizational charts and job descriptions.
• Set up control procedures.

19.1 Organizational Stages of Small Business Growth

• From Stage 1 to Stage 4, the following occurs:
• Layers of management are added.
• The entrepreneur will need to demonstrate great skill if he or she
wants to preserve a “family” atmosphere while introducing
professional management.
• The formality of operations is increased.
• Growth requires greater formality in planning and control.
• The pattern of entrepreneurial activities changes.
• The small business owner becomes less of a doer and more of a
leader and manager.
• Small firms that hesitate to move through the various
organizational stages and acquire the necessary
professional management often limit their rate of growth.

19-3 MANAGERIAL RESPONSIBILITIES
OF ENTREPRENEURS
• Managerial responsibilities of entrepreneurs
include the following:
1. Planning activities.
2. Creating an organizational structure.
3. Delegating authority.
4. Controlling operations.
5. Communicating effectively.
6. Negotiating.

19-3a Planning Activities (slide 1 of 2)
• Both long-range planning and short-range
planning are required.
• Long-range plan (strategic plan) – A firm’s overall
plan for the future.
• Strategy decisions concern issues such as identifying
niche markets and establishing features that differentiate a
firm from its competitors.
• Short-range plans – A plan that governs a firm’s
operations for one year or less.
• An important part of a short-range operating plan is the
budget.
• Budget – A document that expresses future plans in
monetary terms.

19-3a Planning Activities (slide 2 of 2)
• Small business managers all too often succumb to
what is sometimes called the “tyranny of the urgent”—
that is, fighting the everyday fires of the business—and,
as a result, planning is often postposed or neglected.
• However, investing the time and effort required to plan
effectively can pay off for a small business in a number of
ways:
• The process of thinking through the issues confronting the
company and developing a plan to deal with those issues can
improve productivity.
• Planning provides a focus for the firm: Managerial decisions over
the course of the year can be guided by the annual plan, and
employees can work consistently toward the same goal.
• Evidence of planning increases credibility with bankers, suppliers,
and other outsiders.

19-3b Creating an
Organizational Structure (slide 1 of 3)
• While an entrepreneur may give direction through personal
leadership, she or he must also define the relationships among
the firm’s activities and among the individuals on the firm’s payroll.
• Without some kind of organizational structure, operations eventually
become chaotic and morale suffers.
THE UNPLANNED STRUCTURE
• In very small companies, the organizational structure tends to
evolve with little conscious planning.
• Certain employees begin performing particular functions when the
company is new and retain those functions as it matures.
• This natural evolution is not necessarily bad; however, unplanned
structures are usually far from perfect, and growth typically
creates a need for organizational change.

19-3b Creating an
THE CHAIN OF COMMAND
• Chain of command – The official, vertical channel of
communication in an organization.
• Line organization – A simple organizational structure in which
each person reports to one supervisor.
• Most very small firms (those with fewer than 10 employees) use this
form of organization.
• Line-and-staff organization – An organizational structure that
includes staff specialists who assist management.

19.2 Life-and-Staff Organization

19-3b Creating an
SPAN OF CONTROL
• Span of control – The number of employees who are supervised
by a manager.
• The optimal span of control is a variable that depends on a
number of factors, including:
• The nature of the work.
• The manager’s knowledge, energy, personality, and abilities.
• The extent and effectiveness of the use of communication tools in the
organization.
• The abilities of subordinates.
• Once a span of control exceeds the entrepreneur’s reach and
demands more time and effort than she or he can devote to the
business, the entrepreneur must establish intermediate levels of
supervision and dedicate more time to management, moving
beyond the role of player-coach.

19-3c Delegating Authority (slide 1 of 2)
• Delegation of authority – The process of granting to
subordinates the right to act or make decisions.
• Successful delegation of authority allows entrepreneurs to devote
more time to important duties that drive the business forward.
• Although failure to delegate may be found in any organization, it is
often a special problem for entrepreneurs, given their
backgrounds and personalities.
• Because they frequently must pay for mistakes made by
subordinates, owners are inclined to keep a firm hold on the reins of
leadership in order to protect the business.
• Many entrepreneurs become accustomed to doing everything
themselves, which makes it difficult to turn over some tasks to others
when the business grows and they truly need help with their
expanded responsibilities.
• Many entrepreneurs feel they can do things better than employees.

19-3c Delegating Authority (slide 2 of 2)
• The following suggestions can make delegation for an
entrepreneur easier:
• Accept the fact that you will not be able to make all of the decisions
anymore.
• Prepare yourself emotionally for the loss of control that small
business owners feel when they first start to delegate.
• Manage carefully the process of finding, selecting, hiring, and
retaining employees who are trustworthy enough to handle greater
responsibility.
• Start by delegating those functions that you don’t do well and are most
comfortable giving up, and continue to provide reasonable oversight to
smooth the transition and to ensure the quality of the work.
• Plan to invest the time needed to coach those who are taking over
new responsibilities so that they can master required skills.
• Focus on results, and give subordinates the flexibility to carry out
assignments.

19-3d Controlling Operations
• Managers must monitor operations to discover
deviations from plans and make corrections when
necessary.
• The control process begins with the establishment of
standards, which are set through planning and goal
setting.
• Performance measurement occurs at various stages of
the control process.
• Corrective action is required when performance
deviates significantly from the standard in an
unfavorable direction.
• For a problem to be effectively controlled, corrective action
must identify and deal with the true cause.

19.3 Stages of the Control Process

19-3e Communicating Effectively
(slide 1 of 3)
• Effective two-way communication is important
in building a healthy organization.
• To communicate effectively, managers must tell
employees where they stand, how the business is
doing, and what the firm’s plans are for the future.
• Giving positive feedback to employees is the
primary tool for establishing good human relations.
• Perhaps the most fundamental concept managers
need to keep in mind is that employees are people,
not machines.

(slide 2 of 3)
COMMUNICATION TOOLS
• Many practical tools and techniques can be used to stimulate two-
way communication between managers and employees:
• Periodic performance review sessions to discuss employees’ ideas,
questions, complaints, and job expectations.
• Physical or virtual bulletin boards to keep employees informed about
developments affecting them and/or the company.
• Blogs for internal communication, especially in companies that have
open organizational cultures and truly want transparent dialogue.
• Microblogging tools that enable employees to communicate,
collaborate, and share brief thoughts and observations about the
business in real time.
• Physical or virtual suggestion boxes to solicit employees’ ideas on
possible improvements.

(slide 3 of 3)
• Wikis set up to bring issues to the surface and draw feedback from
employees.
• Formal staff meetings to discuss problems and matters of general
concern.
• Breakfast or lunch with employees to socialize and just talk.
• These methods and others can be used to supplement the most
basic of all channels for communication—the day-to-day
interactions between each employee and his or her supervisor.
PUBLIC SPEAKING
• Entrepreneurs need to develop their public speaking skills to meet
the demands of being the leader of a growing business.

19.4 Presentation Tips (slide 1 of 3)
1. Do your homework. Know the purpose of the presentation and to whom you
will be presenting. If you can find out in advance who will be attending your
presentation, you will be able to adapt your comments to their needs and
concerns.
2. Know your material. The better you know what you plan to talk about, the
more you can concentrate on the delivery. And being prepared inspires
confidence.
3. Be interactive. Listeners may be lulled into disinterest when they are not
engaged. Find ways to get the audience involved in what you have to say.
Don’t, for example, read from your notes for extended periods of time—doing
so will ensure that the communication goes in only one direction, and your
audience will know it immediately.
4. Make vivid mental connections in the minds of listeners. Telling stories
helps, but so can other tools and techniques. For example, use props to
focus attention, or employ a metaphor throughout the presentation to draw
listeners back to a central theme. Humor is entertaining and can provide
comic relief, but it can also be used to make a point unforgettable.

5. Emphasize relevance. Your listeners are busy people, so be sure to deliver
information that they will find useful and worth their time.
6. Be dynamic, but be yourself. Let your listeners know that you are
passionate about the topic by the way you invest yourself in the presentation.
It is much easier for an audience to remain engaged when the presenter is
energetic and uses inflections, gestures, movement, and facial expressions
to show it. Maintaining eye contact communicates that you want to connect
with each individual in the room, which is motivating.
7. Use PowerPoint with care. Text-laden slides can produce the same effect
as sleeping pills. If a picture paints a thousand words, then adding pictures
and graphics can certainly help the audience access the ideas you want to
convey (as long as they are not flashy to the point of distraction). Limit the
text on each slide, and do not read from the slides you are showing. Try to
imagine how you would respond to the slides if you were not particularly
interested in the topic, and then make adjustments accordingly.

8. Dress appropriately. Although your audience may be wearing more casual
clothing, dress in business professional attire. Avoid distracting clothing (like
a tie that draws attention from what you have to say), and check to be sure
that everything you’re wearing is in order before standing up to speak.
9. Avoid food and drink that make speaking difficult for you. Caffeinated
drinks and sugary foods can make you jittery, which will only add to your
nervousness. If you find that you need to clear your throat often after
consuming certain foods or beverages, avoid them before speaking
engagements.
10.Practice, practice, practice. The more presentations you give, the more
you will feel confident while giving them. And one of the best ways to
conquer stage fright is to spend time speaking in front of others. Recognize
that your discomfort with public speaking is likely to fade with experience at
the podium.

19-3f Negotiating
• To have a successful business, a manager
must be able to reach agreements that both
meet the firm’s requirements and contribute to
good relationships over time.
• Negotiation – The process of developing
workable solutions through discussions or
interactions.
• Managers should focus on win-win strategies,
which will satisfy the basic interests of both
parties.

19-4 PERSONAL
TIME MANAGEMENT
• Time is a scarce resource for most small
business owners.
• Time management is about managing activities
within the limited time that you have available.

19-4a The Problem
of Time Pressure
• Time pressure creates inefficiencies in the
management of a small firm because the
entrepreneur’s energies are scattered.

19-4b Time Savers
for Busy Managers
• The greatest time saver is the effective use of
time, which requires firmly established
priorities and self-discipline.
• A manager can reduce time pressure through
such practices as eliminating unnecessary
activities and planning work carefully by using
tools like a “to-do” list and prioritizing activities
according to their urgency and importance.

19-5 OUTSIDE MANAGEMENT
ASSISTANCE
• Because entrepreneurs tend to be better doers
than they are managers, they should consider
the use of outside management assistance.
• Such support can supplement the manager’s
personal knowledge and the expertise of the few
staff specialists on the company’s payroll.

19-5a The Need for
Outside Assistance
• Outside management assistance can be used
to reduce an entrepreneur’s sense of isolation.
• Peer groups and other sources of outside
managerial assistance can offer a detached,
often objective point of view and new ideas.
• They may also possess knowledge of
methods, approaches, and solutions beyond
the experience of a particular entrepreneur.

19-5b Sources of
Management Assistance (slide 1 of 3)
U.S. SMALL BUSINESS ADMINISTRATION (SBA)
• The SBA is an important source of information and support for
small companies, and it is often the first place that small business
owners turn for help.
• The SBA offers the Service Corps of Retired Executives program
and its Small Business Development Centers to provide
consulting and other forms of assistance.
• Service Corps of Retired Executives (SCORE) – An SBA-
sponsored group of working and retired executives who give free
advice to small business owners.
• Small Business Development Centers (SBDCs) – SBA-sponsored
centers offering consulting, education, and other support to small
business owners.

19-5b Sources of
EDUCATIONAL INSTITUTIONS AND FOUNDATIONS
• Many colleges and universities have student consulting teams
willing to assist small businesses.
• These teams of upper-class and graduate students, under the
direction of a faculty member, work with owners of small ventures in
analyzing their business problems and proposing appropriate
solutions to them.
MANAGEMENT CONSULTANTS
• Assistance may be obtained by engaging management consultants.
• For small companies that decide to pursue the consulting option
directly, the owner and the consultant should reach an
understanding on the nature of the assistance to be provided
before it begins.
• Fees should be specified, and the agreement should be put in writing.

19-5b Sources of
SMALL BUSINESS NETWORKS
• Entrepreneurs can gain management assistance from peers
through networking.
• Networking – The process of developing and engaging in mutually
beneficial informal relationships.
OTHER BUSINESS AND PROFESSIONAL SERVICES
• Valuable management assistance can be sought from business
and professional groups such as:
• Bankers.
• Certified public accountants (CPAs).
• Attorneys.
• Insurance agents.
• Suppliers.
• Trade associations.

Key Terms
budget
chain of command
delegation of authority
empowerment
line-and-staff organization
line organization
long-range plan (strategic plan)
negotiation
networking
professional managers
Service Corps of Retired
Executives (SCORE)
short-range plans
Small Business Development
Centers (SBDCs)
span of control

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