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Chapter: Business Science : Enterpreneurship Development : Management of Small Business

Effective Management of small Business

Manage a business effectively, manage staff effectively, is the key to the establishment and growth of the business. The key to successful management is to examine the marketplace environment and create employment and profit opportunities that provide the potential growth and financial viability of the business.

Effective Management of small Business


Manage a business effectively, manage staff effectively, is the key to the establishment and growth of the business. The key to successful management is to examine the marketplace environment and create employment and profit opportunities that provide the potential growth and financial viability of the business. Despite the importance of management, this area is often misunderstood and poorly implemented, primarily because people focus on the output rather than the process of management.


Toward the end of the 1980s, business managers became absorbed in improving product quality, sometimes ignoring their role vis-a-vis personnel. The focus was on reducing costs and increasing output, while ignoring the long-term benefits of motivating personnel. This shortsighted view tended to increase profits in the short term, but created a dysfunctional long-term business environment.


Simultaneously with the increase in concern about quality, entrepreneurship attracted the attention of business. A sudden wave of successful entrepreneurs seemed to render earlier management concepts obsolete. The popular press focused on the new cult heroes Steve Jobs and Steve Wozniack (creators and developers of the Apple Computer) while ignoring the marketing and organizing talents of Mike Markula, the executive responsible for Apple's business plan. The story of two guys selling their Volkswagen bus to build the first Apple computer was more romantic than that of the organizational genius that enabled Apple to develop, market and ship its products while rapidly becoming a major corporation.


In large businesses, effective manage business skills requires planning. Planning is essential for developing a firm's potential. However, many small businesses do not recognize the need for long-range plans, because the small number of people involved in operating the business implies equal responsibility in the planning and decision-making processes. Nevertheless, the need for planning is as important in a small business as it is in a large one.


This guide focuses on the importance of good management practices. Specifically, it addresses the responsibilities of managing the external and internal environments.




Three decades ago, Alvin Toffler suggested that the vision of the citizen in the tight grip of an omnipotent bureaucracy would be replaced by an organizational structure of ad-hocracy. The traditional business organization implied a social contract between employees and employers. By adhering to a fixed set of obligations and sharply defined roles and responsibilities, employees received a predefined set of rewards.


The organizational structure that Toffler predicted in 1970 became the norm 20 years later, and with it came changed concepts of authority. As organizations became more transitory, the authority of the organization and firm was replaced by the authority of the individual manager. This entrepreneurial management model is now being replicated throughout society. As a result, the individual business owner must internalize ever increasing organizational functions.


Another change in today's business environment is dealing with government agencies. Their effect on the conduct of business most recently appears to have increased. As industries fail to achieve high levels of ethical behavior or individual businesses exhibit specific lapses, the government rushes in to fill the breach with its regulations.






Ensuring Open Communications


Effective communications play an integral role in managing and operating any successful business. With open communications changes and their effects on the organization are quickly shared. Your firm then has the time and skills needed to respond to changes and take advantage of evolving opportunities.


The following checklist addressing how you would respond to an employee's suggestion provides an assessment of the communication process in your business. Place a check next to the statements that are commonly heard in your business.




Face facts it's unrealistic. -----


Who else has done it? -----


It's not your problem. -----


Fill out form XX/xx revised. -----


It won't work. -----


Bring it to the committee. -----


We don't have the time. -----


We tried it before and it failed. -----


You think what? You're joking! -----


Everybody knows that that's foolish. -----


We can't afford to think about it. -----


Don't you have better things to do? -----


Are you some kind of a radical? -----

We're too small/big for that. -----


Impossible; our main product line would be obsolete. -----


The boss would never consider it. -----


It's contrary to company policy. -----


Carefully consider any statements that you have checked. This may indicate that management is inflexible and unresponsive to employee suggestions. Management that is unable to respond immediately to changes in the market signals an inflexible unstable firm. In the rapidly changing business environment such management can mean eventual failure for your business. If you haven't developed such a checklist do so. It will help you determine if and where adjustments are needed in your management staff.


Balancing Schedules Stress and Personnel


Without organization and good management the compressed time schedules associated with modern business can cause stress and make extraordinary demands on people. An effective management structure can reduce stress and channel the productive capacity of employees into business growth and profits.


Setting Duties Tasks and Responsibilities


An organization is characterized by the nature and determination of employees' duties tasks and responsibilities. While many organizations use different methods for determining these it is essential that they be clearly defined.


The core of any organization is its people and their functions. Duties tasks and responsibilities often evolve in an ad hoc manner. A typical firm starts with a few people often one performing all duties. As the firm grows others are hired to fill specific roles often on a functional basis. Roles that were handled by consultants and specialists outside the firm now are handled internally. As new needs emerge new roles are developed.


Just as an emerging business develops an accounting system it should also develop a human resource system. For instance the following employee information should be available and checked for accuracy at least once each year.


-  Name


-  Address


-  Nationality (immigration status)


-  Marital status and dependents


-  Hire date


-  Company job history:



-  Title and code


-  Performance


-  Location


-  Salary rate and history


-  Education including degrees


-  Specialty training


-  Transcripts as appropriate


-  Pre-employment work experience:


-  Key responsibilities and levels


-  Professional licenses or certificates


-  Professional publication and speaking engagements


-  Teaching experience


-  Language abilities:


-  Reading


-  Writing


-  Speaking


-  Leadership evidence:


-  Company


-  Civic


-  Other


-  Relocation preferences and limitations


-  Travel experience and preferences


-  Career goals


Review your personnel files periodically to ensure that the information is correct and current. Implement a system that will make updating personnel files a fairly simple routine yet confidential process.


Business Team


The apex of an effective organization lies in developing the business team. Such a team involves delegating authority and increasing productivity. Assess the effectiveness of your business team with the following checklist:


The leader of the team is respected by the members. -----


The abilities of all team members are respected. -----


A team spirit is evident through activities. -----


Individual members compensate for weaknesses in each other. -----


Jokes are not disparaging. -----


A genuine feeling of being part of the best is exuded. -----


The work area is self-delineated and reflects a spirit. -----


Mistakes result in corrective action not retribution. -----


Each member understands the importance of his or her contribution. -----


The team can explore new areas of activity. -----


Security of employment is evident. -----


Controlling Conflict


Another key to successful management lies in controlling conflict. Conflict cannot be eliminated from either the business or the interpersonal activities of the enterprise. A measure of the organization's success is the degree to which conflict can be exposed and the energies associated with it channeled to develop the firm. Although establishing policies and procedures represents the tangible aspect of organization and management the mechanisms to tolerate and embody challenges to the established operation serve as the real essence of a firm that will survive and prosper.


Structural Issues




The effectiveness of a particular organizational form depends on a variety of internal and external events for example:


·        Competitors (number or activity)

·        Technology (internal or external)


·        Regulatory environment

·        Customer characteristics

·        Supplier characteristics

·        Economic environment

·        Key employees

·        Growth

·        Strategy (including new products and markets)


Even though you may discover that certain events are affecting your business be careful not to change the organizational structure of your firm without discussing it with your management team. Employees generally can accomplish goals despite organizational structures imposed by management. Because restructuring involves spending a lot of time learning new rules implementing a new organizational structure is costly.




The essence of a successful organization can be more simply summarized than implemented. The following checklist can help you determine measures to ensure your management structure is adequate. Check the entries that apply to your firm and also find out what measures your company needs to take to improve its management structure.


·        Key market and customers are understood. -----

·        Technology is mastered. -----

·        Key objectives are articulated and shared. -----

·        Major functions are identified and staffed. -----

·        A hierarchy of relationships is established. -----

·        A business team is in place and functioning. -----

·        Measurable results are well above industry standards. -----

·        Employees are the best source of new hires. -----


Policy and Procedural Issues




The central element of organizational management is authority. Through authority your firm develops the structure necessary to achieve its objectives.


A. L. Stinchcombe summarized the role of authority succinctly when he stated any administrative system that decides on the use of resources is also a system of authority directing the activities of people.


The authority that once was conferred by either owning a small business or having a position in the bureaucracy of a larger firm has been replaced by technical competence (including that of forming and running the business). Forces external to your business may emphasize the elements of granted versus earned authority. Once the owner-manager controlled the entire business but suppliers customers unions and the government have severely limited the ability of the business owner-manager to take independent action.


A primary component of authority is the exercise of control within the organization. A thorough system of controls ensures the firm's operation and provides a mechanism for imposing authority.

Internal controls include the provision that authority be delegated and circumscribed; examples of these provisions follow. Place a check by the provisions that apply to your firm. Consider implementing controls over areas that you have not checked.


·        Approval for disbursements of cash and regular accounting. -----

·        Reconciliation of bank statements. -----

·        Periodic count and reconciliation of inventory records. -----

·        Approval of pricing policies and exemptions. -----

·        Approval of credit policies and exemptions. -----

·        Review of expense and commission accounts. -----

·        Approval of purchasing and receiving policies. -----

·        Review of payments to vendors and employees. -----

·        Approval of signature authorities for payments. -----

·        Review of policies. -----


Delegation is a key to the effective exercise of authority in your business. By delegating limited authority to accomplish specific tasks the talents of employees in the organization can be used to upgrade the skills and experience of the manager. The following checklist enables you to determine if you are taking advantage of opportunities to delegate authority.


Is your time consumed by daily chores? -----


Do you have time for the following:


-  Training and development of subordinates? -----


-  Planning? -----


-  Coordinating and controlling work of subordinates? -----


-  Visiting customers and subordinates regularly? -----


-  Remaining involved in new product development? -----


-  Visiting branch locations regularly? -----


-  Attending business meetings outside your business? -----


-  Participating in civic affairs? -----


Is no one on your staff as good as you are? -----


To effectively delegate responsibility and authority in your organization you must:


·        Accept the power of delegation.

·        Know the capabilities of subordinates.

·        Ensure that specific training is available.


·        Select specific responsibilities to be delegated.

·        Clearly define the extent and limits of delegation.

·        Match each with necessary authority.



·        Provide periodic monitoring and interest.

·        Restrain the impulse to insist on how to do something.

·        Remember there are many ways to accomplish a specific objective.

·        Assess results and provide appropriate feedback.

·        Praise and criticize.


The skills and abilities of each level of authority can be increased by effectively delegating authority throughout any organization.


Operating Reports


Operating reports form the organizational basis of your business. Such reports mirror the organization its structure and function. They define key relationships between employees and can either minimize or increase organizational stress.


For many businesses the following reports form the basis for analyzing the specific areas of a business (the frequency of each report depends on the nature size and organization of your business). Check the reports your firm currently generates.


Consider creating reporting systems where they are lacking.


·        Case reports (daily, weekly, monthly) -----

·        New orders and backlog (weekly, monthly) -----

·        Shipments/sales (weekly, monthly) -----

·        Employment (monthly) -----

·        Inventory out of stock (weekly, monthly) -----

·        Product quality (weekly, monthly) -----

·        Accounts receivable aging accounts (monthly) -----

·        Weekly overdue accounts -----

·        Returns and allowances (monthly) -----

·        Production (weekly, monthly) -----


Reporting must be kept current to allow for timely identification and correction of problems before serious damage to the organization occurs.


Too much reporting as well as inappropriate reporting can be as destructive as too little reporting. For instance the CEO of a major industrial firm who receives daily production and inventory reports by model can lose his or her ability to maintain an overall perspective. Thus operating managers must attempt to identify and solve local problems and take advantage of local opportunities within their own authority. Inappropriate reporting compromises management's ability to leverage individual skills and abilities.


Operating reports not only provide essential data that enable management to accomplish its objectives they also focus staff's attention on the organization's goals. If reporting is not taken seriously employees may deal with customers suppliers and each other in a similarly trivial manner.


To avoid inappropriate reporting review reporting policies annually to ensure that reports are appropriate and contain the information needed to make sound management decisions.




Successful management is founded on the mastery of a myriad of details. While management schools teach the importance of focusing attention on major issues affecting the business practical managers realize the major issues are the variety of small aspects that form the business. In an increasingly structured society inattention to even one minor detail can result in significant disruption of the business or even its failure.


Checklist for an Effective Organization


The following checklist will help you identify and determine the effectiveness of the management and organizational structure of the firm. If you answer yes to most of the following questions you are effectively managing your firm. A no answer indicates that you need to focus on this management issue.




·        Are responsibilities clear and matched by authority? -----

·        Is your business structure clear yet flexible? -----

·        Are communications focused on finding solutions rather than placing blame? -----

·        Do people have the information and resources necessary to do an excellent job? -----

·        Do you and your employees care about the business? -----

·        Does staff come in early and stay late on their own initiative? -----

·        Are mechanisms for conflict resolution working? -----

·        Is disorder minimized and channeled? -----

·        Can people joke with and about each other and you? -----

·        Does a corporate plan spell out the firm's vision? -----

·        Do employees pitch in unasked during a crisis? -----

·        Do customers and suppliers prefer to do business with you? -----



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