Small can be beautiful!

Section: Strategy
Author(s): Dr. h.c. phil. Kurt Bleicher, Professor emeritus at the University of St.Gallen (HSG)
Posted: March 24, 2003
Hits: 4729

With the exception of a very few, most family businesses can be categorised under the heading of "Small Business", so called SME (Small and Medium-sized Enterprises). In a period when it seems the business press reports daily on gigantic mergers, it would seem expedient to point out the advantages these companies have to offer. Throughout its Company history, Callus has demonstrated that "small" can at the same time also be "beautiful". Not only because of the immense macroeconomic significance are the reasons for this easy to recognise.

Vision through Intuition

"As soon as we had lost sight of the goal, we doubled our efforts"
(Mark Twain).

The complexity of many large corporations has reached a mass which led the organization by division of labour to its limits — the high monitoring and coordination costs clearly prove this. The strategic focus of various activities and business fields on one common goal has become a problem. Hyper-complexity often leads to a hyper-activity of short term measures which often follow the latest management trends, so-called management fads. They spread more a lack of orientation and uncertainty than they do a continual and consistent pursuit of acknowledged long-term goals. It may be said that when the overview has been lost, foresight suffers. But it is the vision of the entrepreneur as a complex aggregate of learning processes on market developments, technological feasibility and the realistic appraisal of his own potential-limited possibilities that lend the company a consistent course, and that offers the employees orientation and a sense of meaning for their involvement.

"The vision is a specific image of the future, near enough to see the possibility of materialisation, but far enough to awaken the enthusiasm of the organization, allowing them to see new realities" (BDG).

Without the intuition of the entrepreneurs, visions are virtually unthinkable and can hardly be implemented in large corporations. It may appear interesting that the leadership theory has just recently rediscovered the significance of intuition, as has been shown by the American social scientists Stewart Shapiro and Mark T. Spence. Visionary entrepreneurs create discomfort to avoid self-satisfaction and foster movement before they are forced to do so by the environment. A family-run business led by a visionary can offer an excellent platform for this.

Entrepreneurialism Moves the Economy

Innovation presupposes intuition and vision, both of which are rooted in the learning experience of the company. Pioneer spirit, the courage to discover new paths, the willingness to venture onto new things, and the persistence in their implementation necessitate action and reaction capability. Entrepreneurialism spawns the New, which in turn powers the economy, and serves to fill the pipeline of products and services at the beginning of a product life cycle. Large corporations are traditionally lethargic when it comes to new ventures; they usually source these from smaller businesses after they have passed the difficult and risky pioneer phase.

In this context of very personally influenced trial and error processes of searching and realisation of the New, it is a matter of the primacy of improvisation and not that of organization in its striving for standardised and channelled routine. Here, administrators have no chance against entrepreneurs, charismatic leaders and technocratic thinking and acting managers. Ideal would be if the person of the entrepreneurs espouses entrepreneurial skills, and if managerial skills combine themselves with exemplary leadership skills. Innovation becomes, as it were, the litmus test of the successful entrepreneur of medium sized companies (illustration 1).

Entrepreneurial thinking and action lead to innovation

Illustration 1: Entrepreneurial thinking and action lead to innovation

Customer Preference Strategically Sustains the Niche

It has become the predominant paradigm of management theory and consultation to, wherever possible, search for the sizeable in order to achieve and exploit economies of scale in mass production. It is assumed that market leadership is attainable only by virtue of low cost mass production and the resulting price advantage. This may basically hold true for standard goods, commodities, which are subject to price competition. In many regions in Europe we would, in the face of both our wage costs and our incidental wage costs, stand a chance only if we would constantly innovate and launch new product life cycles. A special chance, on the other hand, presents itself in offering custom tailored comprehensive packages, allowing the establishment of a preference for the offerings of another supplier on the strength of the individualised special solution. This is an opportunity to escape the predatory pricing policy by retreating into a niche, by becoming a systems or solutions provider.

In order to do this, many medium-sized enterprises — who have grown because of being specialists — lack the competence, and in many cases, especially for longer term projects, the credit standing. The pathway to partnership with other independently acting companies -who add complementary competencies to a virtual network — is predestined. This appears to have the potential of becoming the royal route to the vanquishing of limitations in areas such as capacity, market, customer ties, technological know-how, financial possibilities and management. In this respect, large corporations gravitating back to their core competencies are moving top down through outsourcing, and small businesses are moving toward each other bottom up through co-operation by networks, as Dr. Gunther Schuh, professor at the Institute of Technological Management (ITEM) at the University of St.Gallen shows in illustration 2. The result is the change of the entire food chain in the mega value-added of a given industry.

Virtual networks, tomorrow's chance

Illustration 2: Virtual networks, tomorrow's chance

In the Medium-Sized Organization, Personality Replaces Bureaucratic Formalism

The medium-sized family-run business is personality driven. Here, the rule is more "organization ad personem", and not so much "organization ad rem". The dominant roles of organization and leadership, usually embodied by the entrepreneurial personality in family-run businesses, are, as is widely recognised, not without problems. Where there is much light, there are many shadows. In this context, at least two questions need to be addressed:

  1. Must disadvantageous, because unbalanced, influences emanating from the owner, be countered? This necessitates either a strong administrative council, which in family-run businesses poses a special problem, or a very open corporate culture free from autocratic influences and tendencies.
  2. The question critical for the survival of the company and its future development is the question of the succession of leadership. Not all talents of the founder guarantee the success of the succeeding generation! Combined with this is the question of the point in time for the retirement of the owner. Attributes, which, in a different environment, were good and appropriate for a pioneer situation, may prove counter-productive in a new, changed environment and a subsequent consolidation phase. Discernment cannot always be presupposed. As a result, it can be observed time and time again that, at an advanced age, many significant entrepreneurs are not able to let go, resulting in the destruction of that which they built up with so much energy and competence.

The Bridging of the Gap Between Economic Expedience and Social Conscience

Under the auspices of the attempt to enhance the value of the corporation, especially to the advantage of the shareholders, many large corporations are embarking on a partially necessary, partially exaggerated technocratic restructuring process which is leading to great demotivation, uncertainty and fear amongst the employees ("as you treat those that leave, so they that remain think"); certainly this is not a fertile ground for risky innovations. In the course of this development, the social conscience has in the face of the predominant trend of the primacy of shareholder value, no advocacy. In order to prevent dramatic tensions within society because of this, the wide net of medium-sized and especially family-run businesses, who are also largely decoupled from the pressures of international capital markets, should take on the responsibility of compensation of economic and social issues in a positive atmosphere of personal employee relationships. Family operations are in the position to exercise a substantial stabilising function in their respective environments and for the good of our society. They are today called upon in a special way to assume responsibility in their circle of concern towards customers and employees. If this succeeds, these companies offer us all great hope in difficult times.

Gallus International

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