the entrepreneurship

Halmstad University 2014-12-01 School of Business and Engineering Business Management Navid Ghanad Fall 2014

Project Exam: Entrepreneurship and Innovation • The Role of the Entrepreneur in the Professionalization of the

Company

Aditya Ishan 870213T577

1

1. Abstract: ................................................................................................................................................... 2 2. Introduction: .......................................................................................................................................... 3 3. Theory: ...................................................................................................................................................... 4 3.1. Entrepreneur and Manager ..................................................................................................... 4 3.1.1. An Entrepreneur and A Manager-‐ Significantly Different ................................. 4

3.2. The Self-‐Management Concept: ............................................................................................. 5 3.2.1. Dilemma: ................................................................................................................................ 6

3.3. The Professionalization of the Company: A New Paradigm ...................................... 7 3.3.1. States of Growth ................................................................................................................... 7 3.3.2. Role of entrepreneur in decision making ................................................................. 7 3.3.3. The case of family business ............................................................................................. 8 3.3.4. Is the growth rate a parameter? ................................................................................... 8

3.4. How a company reacts on the merging of entrepreneur and professionalization? ................................................................................................................................ 8 3.4.1. Growing pains ....................................................................................................................... 8

4. Methodology: ....................................................................................................................................... 11 5. Summary: .............................................................................................................................................. 12 5.1. The Polaris’s Case ..................................................................................................................... 12 5.2. The Index’s Case ........................................................................................................................ 13 5.3. The Liko’s Case ........................................................................................................................... 14

6. Analysis: ................................................................................................................................................ 16 6.1. The Polaris’s Case: .................................................................................................................... 16 6.1.1. Entrepreneur and Manager ......................................................................................... 16 6.1.2. The Professionalization of the Company: A New Paradigm .......................... 16 6.1.3. How a company reacts on the merging of entrepreneur and professionalization? ........................................................................................................................ 17

6.2. The Index’s Case: ....................................................................................................................... 19 6.2.1. Entrepreneur and Manager ......................................................................................... 19 6.2.2. The Professionalization of the Company: A New Paradigm .......................... 19 6.2.3. How a company reacts on the merging of entrepreneur and professionalization? ........................................................................................................................ 20

6.3. The Liko’s Case: ......................................................................................................................... 20 6.3.1. Entrepreneur and Manager ......................................................................................... 20 6.3.2. The Professionalization of the Company: A New Paradigm .......................... 21 6.3.3. How a company reacts on the merging of entrepreneur and professionalization? ........................................................................................................................ 22

7. Conclusion ............................................................................................................................................ 23 8. References ............................................................................................................................................ 24

2

1. Abstract:

The growth of a company is a complex process. The researchers discuss the reasons and engines for the growth widely. It can be defined by the increasing size of a company, in terms of employees, of turnover, or network but none of these definitions really explain the essence of growth. According to us, the growth of the company is a mix between matters of size and another ingredient: the maturity of the company. The maturity of a company is not measurable easily by looking at the company. There is here a need for models describing the process of maturation, of growth, of a company. The aim of this paper is to explore one key stage of the maturation process, used by many researchers: the professionalization of a company. The professionalization is the passage from inadequate managerial skills, often coupled with a paternalistic atmosphere, to a functional structure, delegation of authority and formal communication systems and analysis. This is the transformation we chose to lay the emphasis on. In the theory part, a lot of concepts have to be explored. The professionalization is firstly about an entrepreneur gaining some aspects of the manager. He has to obtain some of the qualities of the manager, without giving up the characteristics that make him a successful entrepreneur. Thus, we have to study closely the difference between the entrepreneur and the manager, and find out what qualities make them what they are. Then, we will look closely the learning process of the entrepreneur. Can he acquire the manager’s qualities by his own? How can he do it? The next part will outline the theoretical framework of the professionalization: what are the different steps of the growth, and what are the criteria of the maturation of the company? Finally, we have to describe the possibilities of reaction of the company itself, for instance if the entrepreneur fail to acquire the managerial competences. All these questions will be confronted with empirical data from the cases Polaris, Liko and Index.

3

2. Introduction:

After all long discussions and analysis by authors and analysts, we still have a vague picture on the roles of entrepreneur in the professionalization of the company. The main aim here is to explore the relation between the entrepreneur and the professionalization of its company.. There are many questions, which are at most important to be clear. To mention clearly and to link the descriptions and analysis we will point out some of the questions and distribute our analysis according to the in the theory. Following questions are to be answered to understand the subject:

o What is the difference between a manager and an entrepreneur? o What is the professionalization of the company? o What are the factors affecting professionalization? o What are the roles of the entrepreneur in professionalization of the company?

How can he learn the management skills? o How a company can when the entrepreneur fails to start the

professionalization? There are numerous scholars and models dealing with the above questions. Here we are using the cases of the three firms, which are Polaris, Liko and Index. The analysis of these firms further will give the idea on the work through and analysis of the subject. We will use many other supporting articles for the analysis of the case in support of the topic. Our flow will be very clear in support of the notion of the topic using the articles provided and the new articles, which has been discovered. To proceed further we will discuss in general and try to provide the answers to the basic questions raised using new articles and link articles provided to feed our conclusion. By using the support articles by Lowell W. Busenitz, Gibson, Carolyn, Galarza, Pablo, Flamholtz, Eric G, Randle and Yvonne, we will describe and analyze our article and will support to extend the research about the topic. Entrepreneurs obviously play an essential role in company’s Professionalization conceptually. An entrepreneur is that who is creative, innovative and a perfect risk taker. An entrepreneur knows how to handle and organized the organization keeping his personal as well as commercial life on stake. Therefore, the aim of this article is to explore the role of entrepreneurs in the context of companies and affects on the companies by the change and implications of the concepts. More precisely, we will scrutinize the interaction of personal and business aspects of entrepreneurs, managers and resources provided by those entrepreneurs in the professionalization process. Now the manager is the person who is much into managerial part and administrative part working on deadline and has defined structure to work upon. There is no creation and innovation of his side.

4

3. Theory: 3.1. Entrepreneur and Manager

3.1.1. An Entrepreneur and A Manager- Significantly Different When it is stated that the entrepreneur and manager are two different identities, there comes the bigger question as how they are different (ISEMI, Prof. Liora Katzenstein, Jan 2014). There are different writers who have expressed their different ways to state the differences. In general way we can say that the entrepreneurs are people who love challenges and take risks instead managers are the people who are perfect followers and follow the administratively assigned jobs to them. When a new venture or new organization is being setup, somewhere in the organizational part there always exists conflict in structure that acts as a major threat for the organization to exist. Sometimes qualities that are helpful for setting up of new business and also create threat zone for the same organization. The conflicts in the structure of the firm are create by its own entrepreneur as they take high personal and commercial risks. These are the reasons why in many literatures and cases with the company every entrepreneur should ask one question that if they are in control or not. Following are the listed significant difference between the entrepreneur and the manager (ISEMI, Prof. Liora Katzenstein, Jan 2014):

1. Differences in Behaviour: The basic property of the entrepreneur is that he likes to be in control of own and that is one of the reason he starts any new venture. The entrepreneur wants to control his business and employees too. Instead the managers are the people who are appointed under entrepreneurs and they do the administrative kind of job managing the resources as instructed.

2. Difference in Management Style: An entrepreneur differs a lot in management style with the managers. They are a lot demanding making it a one-man show and they insure there are no failures and no errors. But when we talk about the managers they need to tolerate much about the failures and errors and develop an administrative team as it is assumed that it’s a learning process for them about technology and business.

3. Difference in the Moving Force: Here in this type of character the management pie of entrepreneur consists of flavours like creativity, entrepreneurship and innovation and thus clearly shows that they have tendency for creating something out of nothing. Instead managers have limited pie of completely different flavours as procedure, order and organization using which they maintain only the existence of business.

4. Difference in Growth: The entrepreneurs are active towards the growth and change and are very open to the new opportunities in business thus helping in the rapid growth of the organization. Instead managers follow the long term strategic planning and thus the growth is controlled very much.

5. Difference in organizational Structure: One of the major characteristics of the organizations that are entrepreneurial is that the organizational structure is very flexible and informal, due to which the adaptability of the organization increases and helps in rapid growth. Instead in organizations where there is managerial culture the organization structure is too rigid as they follow the orders and the growth is very much restricted.

5

6. Difference in context of decision-making qualities:

It is found that generally all the entrepreneurs are taking risks and they take decisions on what they feel, which is just an intuition. Instead managers take decision based on several professional calculation and very calculative manner to avoid any risks involved.

7. Difference in the definition of their aims: The entrepreneurs are the people who define their aim as having vision and a dream to success and growth. Instead the managers are those who concentrate on the employee basis and they just say the same aim that the organization says.

8. Difference in attitude toward Money: It is very well known and believed that the entrepreneurs are more interested towards the money and power, but from the several studies it was found out that the entrepreneurs are people who really wants success instead of these. Thus there is difference in the reason why they do business, not because of only money but for the success and name. Now with the case of managers, they see everything financially and think of profiting organization and are very keen about it.

9. Difference in the attitude towards several Risks: There is a notion that the entrepreneurs are risk takers and that too very wild as they take risks very openly and without caring. But from the several studies, it is found that entrepreneurs are very calculative towards the risks. They analyse the same to the depth of the market and then take risks. Instead the managers are the people who are more responsible for the maintaining the company’s decorum and do not take risks.

10. Difference in culture of the company: Generally the entrepreneurs are the people who does not state as what is the culture of the organization but in the entrepreneurial cultured organization there is lot of manipulation and innovativeness. Instead in the organization where managerial culture is found is just for pursuing the orders and what is defined instead of creativity.

3.2. The Self-Management Concept: The use of management has always been a crucial factor when considering the considering the likelihood of a company to succeed. Many writers, analysts and researchers have been studying the management effects on a company but only few have been going deep in the self-management aspect. Self-management:

• Self-management Concept is personally identifying the management techniques that are required for an entrepreneur to be able to manage a business.

The entrepreneur has to fulfil a lot of role and tasks inside the company. His functions can be planning, organizing, coordinating, controlling, etc. The ability to manage all this functions is a success factor for an enterprise. The entrepreneur has to be able to manage himself before managing others (Akintola 2011). It is always more difficult for an entrepreneur to divide the work with other people than himself but it is the only things can be done and goals attained. Self-management will help the entrepreneur to work on a more effective way by using management tools such as planning, organizing, staffing, directing, (Bennet 2007). The conceptual framework: This framework shows that all these factors are linked. The self-management has an influence on the Entrepreneurs' Effectiveness and on the firm's performance.

6

The Entrepreneurs effectiveness is his ability to achieve his personal objectives and goals, which will on the long-term, reflect on the company’s performances. This Framework shows us the importance of the Entrepreneur and his self-management. He is the central figure of the company and the performance of the company depends on his management and effectiveness.

3.2.1. Dilemma:

During his career the entrepreneur is confronted to various dilemmas. One of the most important ones is the choice they have to make between the level of control over their company and the financial gains. Of course most entrepreneurs want to in control with the maximum financial gains but it is a very rare situation. This situation is called, according to the “trade-off model”, the exception. It is entrepreneurs that have managed to stay in control of their company and obtaining the maximum of the company’s financial potential. Examples of the situation could be Bill Gates with Microsoft or Anita Roddick with the Body Shop. 8 The other situation occurs when the entrepreneur or the investors decide to take strategic decision. The entrepreneur can keep his initial position but will not maximize his profit or he can take a step aside and let another CEO rule at his place. The last situation and in this case the least, is the entrepreneur who don’t want to let the control of his company go and lead the failure.

7

3.3. The Professionalization of the Company: A New Paradigm

3.3.1. States of Growth Charles Hofer and Ram Charan in the transition to professional management: Mission Impossible? He distinguish four types of growing models: • The life cycles models, for instance those of Steinmetz and Kroeger, are following

a pattern and are very linked to time. But they have a lot of weaknesses. They are too similar to a biological life cycle and they postulate the death of a company. Finally, according to Hofer and Charan, they have to be closely attached to the time line to be accurate.

• The stage models, such as those of Filley or Scott, are dependent on factors other than time line. But they don’t indicate the problems clearly, which are responsible for the transitions. They are the improvements over the known life cycles but need more researches.

• The evolutionary models, particularly the Greiner model, postulate stages that are related by a direct cause and effects processes. They acknowledged the difficulty of the transitions, but do not develop a theory of how they be accomplished.

• Finally, it’s the transition models, which state of growth, which focuses on the transitions. A good example is Christensen who focused on the most interesting and the most difficult: from a one person entrepreneurially managed firm to one run by a functionally organized “professional” management team. Those models are interesting in our studies as well as the analysis, which we are performing.

In Flamholtz and Randle’s “Growing pains, transitioning from an entrepreneurship to a professionally managed firm”, the authors try to present a new framework explaining the maturation of a company. For them, there are four transitions: creation, expansion, professionalization and consolidation. The interesting transition for us is the professionalization. It is motivated by a need of qualitative change. It demands a metamorphosis of the structure of the company.

3.3.2. Role of entrepreneur in decision making For Erich Bergiel, James J Chrisman and Jen H. Chua professionalization is defined by the transition from centralized to decentralized decision making. According to Hofer and Charan, we can define it by the passage from a company with inadequate managerial skills and training and paternalistic atmosphere to one with functional structure, delegation of authority, formal information analysis and communication systems, freedom from an over-dependence on one or a few individuals. Flamholtz and Randle in “Growing pains, transitioning from an entrepreneurship to a professionally managed firm” have the same definition but they add a new element. The key of success is to preserve the entrepreneurship state of mind. Indeed, stating the transition from entrepreneurship to professional management does not mean that entrepreneurship is a bad thing. For Flamholtz and Randle, “the entrepreneurship as a state of mind is an essential component of an organization’s culture and must be preserved”. Thus, the real challenge is to abandon the very informal approach of management of entrepreneurial firms. For some people also professionals, management is synonymous of bureaucracy. Flamholtz disagrees with this statement, explaining that it’s not inevitable. A company must never be bureaucratic. Flamholtz and Randle are using professionally managed firms to define a entrepreneurial company which, keeping its entrepreneurial spirit but not as its only strength, have added a well managed structure. According to Bergiel Chrisman and Chua, the most necessary change concerns the style of the entrepreneur, his behavior. For Hofer and Charan, if the entrepreneur does not make changes because he does not see the necessity of it, the transition is very

8

unlikely to happen. A lot of changes are contributing to the transition toward professionalized management. For instance, there is a need of institutionalization of key tasks and development of middle level managers.

3.3.3. The case of family business For Bergiel Chrisman and Chua, any study about professionalization must take into account that a lot of the companies will also be family firms. It is defined by the involvement of family members in decision-making and ownership and a trans- generation vision when the entrepreneur’s children are approach maturity. Their goal is also to prove that the transition to family firm is linked to the transition to professionally managed firm. They are using the agency theory. This theory states that a manager who does not own the company will be less diligent in their endeavours than a manager who owns the company, the entrepreneur. Their conclusions concern the conduct of the decentralization. The latest will indeed be more difficult in family firms because evaluating the performance of managers and act about, it if they pursuit their own economic and short-term goals, is harder when those managers are part of the family.

3.3.4. Is the growth rate a parameter? According to Flamholtz and Randal, the question of the growth is not linked to the number of employees and the revenues. It depends on the state of mind and the “entrepreneurial ethos”. Thus, large companies can be said entrepreneurial and small companies have never been entrepreneurial.

3.4. How a company reacts on the merging of entrepreneur and professionalization?

Now we will analyse the effect of entrepreneur and the professionalization of the company and how the company will react. When the company grows, it is evident to make choices and make some fundamental transformation. The company has to move from an entrepreneurship to an entrepreneurially oriented towards the organization. So the Entrepreneur has to take a decision because it goes beyond his limitations to follow all projects and to do keep control on the organization’s day-to-day work. So the entrepreneur has to choose: (Gibson, 2002)

• Develop new skills and act like a manager • Leave the company and hire someone who is better

for this job • Continue to operate and ignore all the problems.

To understand how the company is going to react we have to study he organizational structure

3.4.1. Growing pains 1.1.1.1. Definition

• The growing pains are the problems that result of a inadequate organization

structure and development. Those pains can happen even if the company is a success. • These Growing pains are the reaction that can happen in any company

(Gibson, 2002) & (Galarza, 1993)

9

1.1.1.2. The most common growing pains

The theory explains the ten most common growing pains that we can notice most of the time because of the structure organization. (Galarza, 1993) & (Gibson, 2002) a) People fell that there are not enough hours in the day

People can work 24 hours per day they will have the feelings that it is never enough. They are complaining about the stress. Employees may have some physical illnesses because of the stress that is their shoulders.

b) People spend too much time “ putting on fire” There is no planning or no strategic plan. When you don’t have a plan, you are in the rush and all the employees are under pressure.

c) People are not aware of what other people are doing Another problem is that if you are not aware your job and you don’t get how all the different job in the company is related. So you arrive in a situation of all departments is doing whatever it wants. They will reject the responsibility on the others.

d) People lack understanding about where the firm is headed Because the management is not providing enough information, the employees don’t have enough information, they don’t understand the company. It can lead to a breakdown communication.

e) There are not enough good managers The role of manager is very important, only have the title of “manager” is not enough. The manager has to work for the others. By example a department can have a lower productivity because of him, because he is not giving a good feedback or it is too late. You can see that manager who are all the time complaining, they have a negative impact on their employees.

f) People feel that “I have to do it myself if I want to get it done correctly” Because people are frustrated to get information from the manager they prefer to do it by themselves. This lack of information is the result from a lack of clearly defined roles, responsibilities.

g) Most people feel that meetings are a waste of time There is a need of better coordination and communication. In a meeting they don’t have a plan or an agenda so they are on their phone, PDA, computer but they are not listening the others. At the end people are frustrated because nobody listen.

h) When plans are made, there is a very little follow-up, so things just don’t get done Another sign of a lack of management, plan is when you can recognize that you begin something and then nobody is following the project and finally is not done. The entrepreneur has to set up a clearly planning process.

i) Some people feel insecure about their place in the firm When a company is growing, the entrepreneur has to take some choice good or bad, but the fact that they hire people; there is a lot of change. The employees are anxious about their place in the firm. It may result in many problems to the moral of the employee

10

j) The firm continues grows in sales, but not in profit You can have a company who is selling but they have no profit. It depends on the way you manage your company. By example if you think it is necessary to travel in first class. You are increasing your cost and you will not have profit because your cost will be too high. (Galarza, 1993) & (Gibson, 2002).

11

4. Methodology: This chapter presents the methodology used in this study. The research question is “What is the role of the entrepreneur in a the professionalization of the company?” The research problem should be the guiding star when deciding on methodology for a research project. It has, however, also been pointed out that the choice and adequacy of a particular method embodies a variety of interrelated assumptions regarding the nature of knowledge, the methods through which that knowledge can be obtained, and the very essence of the phenomenon to be investigated (Morgan & Smircich, 1980). Often this discussion starts in the debate concerning whether social reality should be perceived as ‘objective’ or as a subjective product of ones mind (Burrell and Morgan, 1979). Such a discussion, which is conducted in the first section of this chapter, is important as it colours the methodological and analytical issues of any given study. For example, the usage of the “crystallization” method is a direct consequence of this study’s epistemological viewpoint. Secondly, the methodological process, including discussions regarding the research purpose, approach, strategy, data collection, and finally analyses, are discussed. This methodological process is simultaneously affected by quality criteria, such as credibility, transferability, dependability and confirm ability, which are also discussed in this chapter. According to Van de Ven and Poole (1995) this last theory or motor does not specify or presume any necessary sequence of events and it needs no assumption about historical necessity. Still, it implies a standard for judging the change, i.e. the development is something that moves the entity toward its final state. Furthermore, the teleological theory emphasizes the purpose of the actor or unit as the motor for change; it also recognizes the limits on action. The environment and the resources at disposal constrain the actors’ possibilities. It operates under the assumption of equifinality, where there are several equally effective ways to achieve a given goal, thus the trajectory is not determined in advance (Van de Ven 1992). The development can be analysed by purpose, the theory that we are going to use to understand it regarding the 3 examples to come up with a conclusion that can be use in general.

12

5. Summary: 5.1. The Polaris’s Case

Polaris Optic AB is a privately owned niche company that manufactures and sells a wide range of rimless eyewear and is located in Northern Sweden near the Arctic Circle. Staffan Preutz established the company together with an associate in 1979. Producing and selling frameless eyewear is the business idea of the company, followed by new-world revolutionary products such as the SP collection, featuring rimless and frameless eyewear. The company’s size has been constant in the past decade, with around 60 to 80 employees over time and 93 employees worldwide in 2007. From 1981 until 2007, the group’s turnover significantly increased from 9 million SEK to 90 million SEK. Today, almost 95 per cent of the total sales are generated from markets abroad.

In 1971, Staffan started an optical store of his own in Lulea, near a larger town close to Boden. Staffan designed plastic frames in 1975 was be lived to the future eyewear. As a owner-manager and founder of the firm, Staffan's first priority was to internationalize his company, his main reason for internationalizing his business was to travel and meet new people. When Polaris was already established, Staffan was responsible for the production, the design and especially for the networking with suppliers and customer. Staffan 7also used his personal network to establish his company Polaris. He contacted his old friend, Lars Kabin who was working in business administration to that time to asked him whether they could start the business together because he needed someone working with all the paperwork, and in 1979, they founded the company on a 50-50 basis.

In March 1979, Polaris moved from backstage of the optical store of Lulea to a top end production facility in Boden. The New production facility was financed by loan from NUTEK local development agencies and commercial banks. These lenders and credit institutes demanded a professional board of directors, the banks told Staffan that they could not allow only his wife and children in the board they required to have someone external with good knowledge and experience of doing business. As a result Rolf Back was appointed. Moreover the second partner Lars also felt the requirement of having a strong board, though at first Staffan didn't quite understood the importance of this at first, but at the end both Staffan and Lars came to an agreement deciding to appoint Rolf as the right for the business.

In the early 1980s, Polaris glasses received a publicity boost in the United States, and Polaris products sold like hot cakes in the American market. However after 1983, when Meg resigned from the manager's position due to failing health the problems for Polaris in USA started to increase. Polaris was forced to appointed Kent Carlsson. However after one year Staffan and Lars regretted on the Kent hiring due to company's downturn, and decided to get rid of Kent. Since Kent had 18 months contract with Polaris he took legal against them. This Led to the tension between Staffan and Lars, as Staffan blamed Lars for the USA blunder. Consequently Staffan and Lars decided to end the partnership and Staffan bought the 50%, which Lars owned.

The Polaris Board played a vital role in its success where, at an earlier stage the Polaris board of directors consisted of ix people for the firm’s establishment. Those were Rolf Back, Erik Rosen, Arne Andersson, Staffan Preutz and Lars Karbin. However due to the negligence of Staffan of realizing of heavy losses abroad, resulted in losing of its

13

influential and skilful external members. As Elisabeth remembers, "at the end of the 1980s USA was bleeding,

Germany was bleeding and Australia was bleeding. And though board advised Staffan to close the subsidiaries and get agents instead, he didn't list to them. Consequently Lars and Arne Left in 1984, Erik also resigned in 1990 resulting Polaris with powerless board. In 1984, the first five years of company growth it faced many problems such as production, quality, control, logistics, and marketing due to its rapid growth, but it was not dealt with by entrepreneur, as explained Rolf, “We tried to find someone, but nobody was good enough. I introduced him to a number of skilled people, but he the entrepreneur wasn’t interested. Finally, we said, “Let’s give up”. I think the entrepreneur has difficulties estimating the competence of external people. He would, for example, never think it’s worth paying for consultants – he thinks they are worthless.” on this Staffan verified adding, “I didn’t want anybody who was thinking that they knew better than I did. I must admit that I was afraid that it would be someone else’s agenda and opinion that would be decisive, instead of what I thought and felt”. Rolf in summer 2003 after 24 years on the board Rolf choose to resign because he thought that he had lost his "arm-length".

Consequently, Polaris entered a decline phase for the next nine years, and only in 1992 did it again reach the same turnover as in 1984. Since 1992, the company has continued slow organic growth with the entrepreneur as its owner, CEO, and inventor/product developer. Despite having reached the official retirement age, he is dedicated to continuing to advance the firm’s growth. He explains: “I am like Kamprad5 – I will work for all eternity, until I die. I have no thoughts of retiring – I have too much fun for that”. As one board member put it, “Several times [we] tried to raise the issue of a future without [the entrepreneur], but he put the lid on the discussions. It is difficult to have such discussions with someone who owns the company”.

5.2. The Index’s Case

Index is a privately owned company that manufactures and sells high quality and technically advanced Braille printers. The company is located just outside one of the largest towns in northern Sweden, and is the world leader in selling single- and double-sided Braille embossers with high printing speeds. The company was established in 1982 by the present owner and currently employs 12 people with an annual turnover of approximately €4 million.

Bjorn was 25 years old when in 1978 started to develop a compact Braille printer. During product development process, Bjorn made use of his social network, as he asked his colleague Torvald Lundqvist to help him with electronics and the software in this new product. Four year later, he established Index Braille as the development of the first Braille printer prototype was finally coming to end and was persuaded by large Norwegians manufacturer Braille. In 1984, Bjorn asked Rolf Osterberg to be a minority partner and with his help Index was able to end contract with the Norwegians and started to look for new opportunities to sales its printers abroad. Five years after the establishment in 1982, the company entered numerous countries such as the Nordic, United Kingdom, Italy, Spain and USA. And Bjorn started travelling around different countries for demonstrating his product. In 1985 with increase in popularity for their printers in Europe Bjorn with Torvald, asks his younger brother Soren, friend Staffan syk, to help them assemble their printers. During following two year Index entered different markets that includes US.

14

Between 1984 and 1988 the firm grew from two to 12 persons, consisting of friends, wives and other family members, this led to Index lose its main focus, as everybody started to do what he or she believed in, and there was no common focus for Index. Staffan the minority owner with his wife started enlargement products, tape recorders and other blind aids in Sweden, Trovald engaged in developing technology and software of his own, and although Bjorn was CEO he had no control of the situation as was focused only on further development of the printers. In 1988 Index split into two different firms, Index Printer Company and Polar print AB as both Bojrn and Sykys had another agenda. Bjorn the CEO wanted to focus more on developing printers and to able to sell it abroad. Syks was the person who preferred to work on the current product and the domestic market.

After the breakup with other partners, in 1991 it was a though period as Index had severe costs and no incomes. This sudden shortage of money forced Bjorn to open the doors to an investment company to invest and partly control the firm. According to him the investment company was going to clean up the mess and make sense of Index. But however Bjorn did appreciate the financial and management tools such as reports, financial and strategic plans and started to regret the decision and felt that investment companies where killing his entrepreneurial spirit so he managed to get rid of them.

Today despite the fact that Bjorn is selling his products in 80 countries around the world, he believe that cultural difference doesn't have major impact on his company. Index could have grown into larger company by introducing new product line, but as Bjorn comments "15 years ago we were 12 people with a turnover of 9 MSEK. Today 2003 we are nine people with a turnover of 30MSEK. This is due to the fact that we are only concentrating on being the best in Braille printers nothing else. Bjorn predicts Index within next five years, will see growth between 200-250% while the number of employees will increase by three or four. Today, however, Bjorn seems to be less reluctant as he mentions there are two ways of living one's life: "Either you are living or you surviving. There are so many things I have lost, I have to get things back, " he want to spend more time in his family, let the company grow in size and earn some profits.

5.3. The Liko’s Case

Liko AB is located in Alvik, a small village with 770 residents, in northern Sweden. Liko AB is a niche company, specialized in developing, manufacturing and marketing lift and transfer equipment to people with impaired mobility. The company was established in 1979 by Gunnar Liljedahl and is located in Alvik. The main products are patient lifts, stationary lifting, mobile lifting, horizontal lifting, slings, leg extenders and other accessories for heavy lifting. This niche market includes 20 major players worldwide, half of them are Scandinavian companies. Liko is ranked the third largest company within this segment, having 20 percent of the world’s market share. It was established as a result of Gunnar’s frustration at the fact that nobody wanted to listen to revolutionary that he has to offer for improving the existing products. . In 2006, the company, including its subsidiaries employed over 300 people, and had a turnover of almost 510 million SEK. Liko AB has about 350 million SEK of this turnover, exporting 75 percent of their sales while having a lot of subsidiaries abroad.

In the case of Liko, Gunnar worked 13 years as an employed inventor at the County Council Public Health Board where he worked together with occupational therapists and physiotherapists. In these years he developed a powerful business network which provided

15

him with an idea generating input in developing products and helped him in promoting and selling his new products. Gunnar used his personal network especially in the beginning of the establishment of Liko. Due to the fact that the governmental agency and the bank did not want to borrow him more money, the entrepreneur used the capital resources from his personal network when lodging his parents’ house and land as security for the bank.

In 1981, Gunnar received order of 100 lifts from County council, from then Liko grew tremendously. After couple of year in 1986, as Liko going international Gunnar realised his limitations and therefore asked his brother with more experience in foreign trade, to join the company as export manager with Gunnar as the final decision maker. Soren as an export manager develop Norwegian as the first market to develop, but the problem with Liko was too many competitors and no capital in the company. Throughout the mid 1980s and 1990s Gunnar spent most of his time developing new products and running the firm and together with his brother also promoting Liko products abroad.

In 1987, Gunnar felt that he didn't have 100% control over the companies and confronted to his business acquaintances who advised, Liko entrepreneur was advised to write down all his thoughts and ideas regarding the firm and to distribute them to all employees. This resulted in a book, the Little Green Book of Liko, containing 42 principles for the firm and its strategies. This clearly articulated vision has helped keep the company together and is greatly appreciated by employees. Between 1987 and 1990 Liko entered more than 20 countries. During same Gunnar was able to develop some revolutionary products.

Finally Gunnar felt that he must start spending more time with his family and also try to concentrate on what he is best at, constructing and developing new products. Therefore in 1998, Gunnar took the tough decision to let someone else run his beloved firm. As the new CEO, Hardy Brannstrom entered Liko and the decision process became much more complex than previously. It has been very difficult for Gunnar to let someone from outside take charge of his company. He is however still having overall control by being the head of the board of direction.

16

6. Analysis: 6.1. The Polaris’s Case:

6.1.1. Entrepreneur and Manager According to the analysis from the articles, the terms Entrepreneur and Manager are considered same but they have altogether different meanings. To explain further author would like to put some of the list, which can state the difference between a manager and an entrepreneur as follows: • An entrepreneur starts a business for self-satisfaction taking all the risks on his head.

Instead manager follows the orders in the organization established by someone else. • An entrepreneur takes stands on all the risks involved for the organization instead the

managers they don’t take any risks and they don’t accept any sort of risks. The Basic qualities of the entrepreneur are that he is a go-getter. He can take risks. But in the case of managers they are taught for managerial processes and basic concept of business and procedures.

• An entrepreneur aim is to create and creativity is there in their mind. They are go-getter. He has innovative thinking. Instead a manager has a supervising mind and thus only implements the plans suggested by the entrepreneur

• An entrepreneur has a lot of ups and downs in the income graph but still needs to work for the growth of the organization, instead the managers income is least dependent on the fact that if the organization is performing or not.

An entrepreneur learns from his mistakes and uses the same to build the organization more strong, instead the managers are the one who avoid the mistakes as much as possible. Polaris: Staffan Preutz, the owner and establisher of Polaris, chose to separate from family business for his self-satisfaction taking all the risks. He also mortgaged his property for the sake of the organization. The Polaris entrepreneur was a Pioneer in learning how to use and colour a specific new material. During the 1950s and 1960s, Staffan Preutz embarks on his lifelong commitment to experimenting with glasses. His interest in the wide world has been stimulated at an early age and serves as a driving force throughout his life. At the age of 15, Staffan started to work as an apprentice in his father’s optician’s shop and soon begins to dream of his own glasses factory. In 1971, Staffan started an optical store of his own in Lulea, near a larger town close to Boden. Staffan designed plastic frames in 1975 was be lived to the future eyewear. He developed ne glass frames for the elite class and the other class of society. During the 1978, Staffan with his friend Lars started joint Business and names the company Polar that established in 1979. As an owner-manager and founder of the firm, Staffan's first priority was to internationalize his company, his main reason for internationalizing his business was to travel and meet new people. Thus we can see that Staffan had the clear property of an entrepreneur.

6.1.2. The Professionalization of the Company: A New Paradigm

6.1.2.1. States of Growth The three companies, Polaris, Index and Liko, seem to have a very different growth model. Indeed, when Polaris have grown from a very small company to a bigger company (90 employees), Index stayed a small company, and made a transition toward the model of family firms, and Liko hired an external manager as a CEO. For Polaris, we can say that the entrepreneurs are Staffan and Lars, even if Staffan was the real creator of the company. The growth was pulled by the quick rise of

17

the sales. The first step was the moving to Boden in March 1979. As a consequence, Polaris hired a lot of new employees, reaching 100 employees (only in Boden). In the spirit of Flamholtz and Randle, the company should have began its professionalization. And indeed, “also he (Staffan) became more of an administrator until he employed a production manager” (Lars). We will see in the next part if it was successful.

6.1.2.2. The professionalization of the company In 1979, in Polaris, a demand from the banks and from Lars emerged, that they had to professionalize the company and to integrate professional managers among the current family members. This led to the hiring of Rofl Back as director. As Lars said, “Staffan didn’t quite understand the importance of this”. We see that at this point, Staffan was already skeptical toward the professionalization of its company. The decentralization of the power has been a real problem for Polaris. Staffan had a real difficulty to trust someone more than he did. And this is probably due to the Carlsson episode. Carlsson was hired exclusively to take care of the US market but he turned out to be a swindler. Staffan blamed Lars and Lars quitted the company, losing its number two. After this episode, Staffan had a real difficulty in trusting is new US CEO, Hasse Ljungdal and finally decided not to have CEO in the English subsidiary. We can see from this example that professionalization can be failed easily. External managers were hired, but the entrepreneur never really decentralized his own power, leading to an unstable situation. Staffan should have abandoned his compulsive desire for total control.

6.1.2.3. The case of family business In the case of Polaris, we see that since the moving to Boden in 1979, according to RoflBack, “you cannot have only wife and children in the board”. The Polaris case shows then that the professionalization is indeed harder when family members are in stake in the board. The demand from the bankers, at this time, clearly opposed a well-managed company to the board exclusively reserved to family members.

6.1.2.4. Growth In Polaris, we can see that the entrepreneurs have a need for control. They want to control everything and work with people they trust like family or friends. This is typically, what we can see on the framework, the aim of being “King”. Meaning that they rather stay in full control with a lower financial outcome than to delegate some tasks to others and improve the benefits.

6.1.3. How a company reacts on the merging of entrepreneur and professionalization?

6.1.3.1. Growing pains For the case of Polaris we can highlight few problems that can occur during the professionalization of the company and we are going to use the theory of Gibson & Galarza to understand it.

• P e o p l e do not understand how the company is headed. You have few managers but the only one who has the power to take a decision is Staffan. At the end, employees don’t know if they have to ask a question to the manager of their department or if they have to ask directly to the owner of the company. It leads to a breakdown between the manager and the employees because they don’t

18

understand why a company appoints a manger if he is inefficient towards his own function and cannot take a decision.

• T h e r e are not enough good managers. Here we can see that friends, family of Staffan, occupy all the manager positions even if someone else was more qualified.

• P e o p l e are doing everything by themselves. Staffan was the only one to decide. If you want to do something you must ask the permission to him. But after a long time people are upset to ask all the time and so they will they take a decision by their own or they will not because, if they were taking a decision without asking to Staffan they were in trouble. Now we are going to take the point of view of Staffan, because he was the owner of the company, he wanted to take all the decision. He didn’t want to have someone who had a smarter idea than him. It leads all the time in trouble with other manager or employees.

• The company was growing and it became more international. But they were no more profit. In fact in most of every country the company implanted, it didn’t work. We can take as reference what Elisabeth said “ at the end of 1980s USA was bleeding, Germany was bleeding, Australia was bleeding” It shows us that even if you are growing it does’ t mean that you are making profit. But hey were also another problem, because Staffan decided of everything when he had the idea to buy a new machine he did even if the board were saying that it was a bad idea.

19

6.2. The Index’s Case:

6.2.1. Entrepreneur and Manager

6.2.1.1. The Entrepreneur and the Manager - Are they different? Bjorn, founder of Index, since his childhood was very fascinated with mechanics as he used to play with his father's tools and repairing things in their garage. After nine years of compulsory studies, his interest motivated him to continue studying technology. In this case the level of education played a role in the initial stages of the company's lifespan. The knowledge of how to create a Braille printer was learned autonomously, but is an outcome of interplay between his education and personal interest and desires. Bjorn life experience and its importance to Index can be linked to the fact that his mother was blind, which made him understood the basic needs of the blind, none of his other work experience has been of significance for the development of Index. Bjorn was 25 years old when in 1978 started to develop a compact Braille printer. During product development process, Bjorn made use of his social network, as he asked his colleagues to help him with electronics and funding and his former university teachers to help with the product design. Four year later, he established Index Braille as the development of the first Braille printer prototype was finally coming to end and was persuaded by large Norwegians manufacturer Braille. In 1984, Bjorn asked Rolf Osterberg to be a minority partner and with his help Index was able to end contract with the Norwegians and started to look for new opportunities to sales its printers abroad. The involvement with all the shares and extreme expansion of the company shows how Bjorn was and what were his intensions. Here it is seen that Bjorn had the clear property of an entrepreneur and self-management skills.


6.2.2.1. States of Growth In Index, Bjorn was the entrepreneur and creator, and he started to delegate its power in 1988 by hiring Rolf Osterberg as a board member. It was the first step towards professionalization, for Rolf who had a legal skill and experience.

6.2.2.2. The professionalization of the company As for the Index case, even if a beginning of professionalization seemed to appear before 1988, the split between Index Braille Printer Company and Polar Print AB led to a re-centralization of the powers in the hands of Bjorn. In the early 90s, another attempt to professionalize the company was made when an investment company came to “clean up the mess”, by implementing management and financial tools that professionalization started again. According to Bjorn, the investment companies were “killing the entrepreneurial spirit”. Though it is a risk that Flamholtz and Randal took very seriously, we can argue that Bjorn had some prejudices toward those investors. As he did not trust them, he managed to get rid of them. Index never really tried to begin with professionalization. The entrepreneur of the company was not ready to give up the control of the company. It is difficult to tell if the many problems Index was confronted with was the result of that refusal. But we can see a link between the lack of professionalization and the difficulty to expand the number of employees: year 1988 is a good example. Today, however, Bjorn seems to be less reluctant: he want to spend more time in his family, let the company grow in size and earn some profits.

20

6.2.2.3. Growth Index is a good example of the difference between growth defined like maturation and growth only stated as the augmentation of the turnover or number of employees. Index has never passed the number of 14employees, and the growth of its sales is not closely related to it. In the three cases, we can see that the entrepreneurs have a need for control. They want to control everything and work with people they trust like family or friends. This is typically, what we can see on the framework, the aim of being “King”. Meaning that they rather stay in full control with a lower financial outcome than to delegate some tasks to others and improve the benefits. They always had close friends or family to export their products. It looks like that when the entrepreneur is entering a new market he is looking for something he is used to, something he can trust and control. This is also related to the self-management. The three entrepreneurs are not able to manage themselves like they should. They have a problem with delegating tasks and they lose time on doing things that could be done by someone else and perhaps even better.


6.2.3.1. Growing pains We are going to explain the moment when Index decided to split in two firms. We are going to explain why it came to this separation.

• The only plan of Bjorn was to spread worldwide. But the problem is that there were no plan to do it. So everybody had to work a lot and they were all under the pressure of their boss.

• Y o u had Bjorn who wanted to continue working on the technology and find something new and wanted to spread much as possible in every country. And you had Syks who preferred to work on the current product and the domestic market. So you had two visions and it is all the time difficult for the employees to understand the goal of the company and their role inside this one.

• O n e of the problems is that at the beginning it was family company. So you have to turn to a family company rules by you, your wife, friends, … to a professional company.

• B e c a u s e they had few views in their company, you have certain people who want to do by themselves. It led to the fact that Index has lost his main focus. Everybody was doing what he or she believed in. And in 1988 we will see that the company will split because they had different vision.

• The number of employee continue to growth, there are expanding but the profit is the same or less.

6.3. The Liko’s Case:

6.3.1. Entrepreneur and Manager

6.3.1.1. The Entrepreneur and the Manager - Are they different? Liko as an organization was established as a result of Gunnar’s frustration at the fact that nobody wanted to listen to revolutionary that he has to offer for improving the existing products. Gunner had no formal higher education. After seven years of compulsory elementary school he continued for another three years by studying engineering at senior

21

high school and started to work afterwards. As a teenager Gunner spent his holidays working with his father at different construction sites. He also experienced working at his uncle’s sawmill during a number of summers. Experiencing the hard hitting blue collar work and witnessing the difficulties his family had at the times father was unemployed gave him motivation and inspiration to continue his studies. At the age of 14 he designed his first timber cottage with timber from torn down chicken farm. After completion of his studies Gunnar was able to establish some professional experience before establishing Liko. Gunnar did not possess any health industry experience before his time with County Council. Prior to this Gunnar also had experience of four year working experience, such as taking part in training program, participating in different interesting projects. He also enjoyed his year work with LKAB where he was given challenging job with high responsibilities. Gunnar spent 13 years travelling around the country, together with occupational therapists and physiotherapists contrasting individually based aids for the handicapped, which was fundamental for Liko as it helped Gunnar to learn industry thoroughly from many different aspects. Soon Gunnar realized that his solutions could help more people, in 1977, Gunnar started selling his first invention a furniture leg extender, which still Liko's best selling product. In two years with increase in turnover Gunnar realize the potential Gunnar was 34 years old when he first established Liko AB in 1979, the company that originated from Liljedahl Konstruktion. Gunnar developed an improved stationary lift for lifting patients by upgrading the faults of lift manufactured by Arjo Swedish company. His prototype was installed in 1980 and spread with a word of mouth, more and more people and organization got interested. Thus a perfect example of working of an innovative mind of entrepreneur can be seen.


6.3.2.1. The professionalization of the company In the Liko case, we can see that Gannar took the decision to let someone else run the firm while he was doing what he liked best: inventing and being with his family. And according to him, the decision process became more complex and more formal. Gunnar stepped aside and was trying not to run over Hardy, the new CEO. This is an example of a well-done professionalization. It is now obvious that the core parameter of the professionalization is the will of the entrepreneur himself to step aside. Indeed the other cases allowed us to understand that the very interesting issue is the agreement of the principal capital owner and it is often the entrepreneur.

6.3.2.2. The case of family business As for Liko, Gunnar states that in 1996, the fact that his brother was CEO of the centre in south Sweden was an issue for the culture of the company. He had lost total control and disliked it. So family firms can be a danger when the professionalization comes.

6.3.2.3. Growth In Liko, we can see that the entrepreneurs have a need for control. They want to control everything and work with people they trust like family or friends. This is typically, what we can see on the framework, the aim of being “King”. Meaning that they rather stay in full control with a lower financial outcome than to delegate some tasks to others and improve the benefits.

22

They always had close friends or family to export their products. It looks like that when the entrepreneur is entering a new market he is looking for something he is used to, something he can trust and control. This is also related to the self-management. The three entrepreneurs are not able to manage themselves like they should. They have a problem with delegating tasks and they lose time on doing things that could be done by someone else and perhaps even better.


6.3.3.1. Growing pains In this case, we can see that the owner of the company decided to leave the company to let a CEO managed his company. Because it was impossible for him to control everything and he wanted to spend more time with his family.

• It was a family company, but when you have to professionalize your company. Gunnar understood that he had to hire external manager.

• In the history of the company Gunnar explained that he had to write a book to explain the goals, purpose of the company because other people wanted to do something different from the basis product. When you have half of the people want to do something and another half who want to do something else the employees are lost. They don’t know what are they doing in the firm. They don’t know what is the goal of the company.

• People were afraid to take decision because Gunnar wanted to control everything; he wanted to have an eye on everything.

• Gunnar was making plan but only for himself so it was very difficult for the employees to follow the project. Because they were not sure of what they had to do.

23

7. Conclusion After going through the articles and the analysis of the theories as well as present scenario we can see that it is important to understand the difference between the manager and an entrepreneur. The different roles of the entrepreneurs and managers states us how and where these two people are different and how they are effective in an organization. Now we know how the entrepreneurs act and react and how they are responsible for the growth and development of the organization. We have also seen how the company or the organization turns from family firm to a professional organization. Form the provided articles and the subject to understand we can hereby conclude that the professionalization of the company is totally dependent on the roles and the acting and reacting of the entrepreneur and also involves the management part of the individual entrepreneur for the development of his organization. The various factors which involves the different characteristics of the entrepreneur for the development of the organization that is for the professionalization of the organization is much or importance. Here we have also found out that managerial structure for the company is very important. The managerial structure has a direct impact on the employees and all the related businesses in the market. An entrepreneur has the responsibility to understand himself and then change the behaviour according to the demand and situation of the organization. It very important for the entrepreneur to change the organization from a family firm to a professional organization and the entrepreneur should understand the change. Growth is a key element to understand the professionalization. As a transitional state, professionalization is dependent from the growth. However, Index’s example shows that professionalization is more linked to the turnover and the need of cash than to the number of employees. However, it is still a important parameter. Professionalization is indeed the most important transition in the life of a company. All three companies have tried to professionalize their structure, with more or less success. It depends mostly on the good will of the entrepreneur. Family firms are subject to a lot more difficulties in professionalize their structure than the others. It can be an internal or an external incentive, but family firms must recognize the professionalization as one of their priority. On the basis of the articles and researches hereby we can conclude that the role of entrepreneur in the professionalization of the organization is very important and crucial to understand and work upon. The analysis is not yet ending and instead of stopping the research we will like to extend the same, as it’s the subject of analysis.

24

8. References Book references

• Gibson, C. Growing pains. Journal of Property Management, 2002 • Galarza, P. Growing pains. Forbes, 1993 • Flamholtz, E G. Randle, Y. Transitioning from an entrepreneurship to a

professionally managed firm. Jossey-Bass management serie. 2007 • Lowell, W. Busenitz, J. Barney, B. Differences between entrepreneurs and managers

in large organizations: Biases and heuristics in strategic decision-making. Journal of Business venturing. 1997. Volume 12. Issue 1. pp 9-30.

• Katzenstein, L. The Entrepreneur and the Manager – The significant Difference. RTL Digitial Agency in Israel. 2014.

• Kirkwood.J (2009), From entrepreneur to Mayor, published in the Australian Marketing Journal

• Praveen, P. Distinction Between an Entrepreneur and a Manager. 2007. • Hofer,C W. Charan,R. The transition to Professional Management: Mission

Impossible?. American Journal of small Business. 1984. Vol IX. No,1. • Scott, M. Bruce, B. Five stages of growth in Small Business. Long Range Planning.

1987. Vol 20, No.3, pp. 45-52. • Bergiel,B.E. Chrisman, J.J. Hua, J.H. Transition to professional management: an

angency theoretic comparison of decentralization in family and non-family firms. Entrepreneurship Theory and Practice. 2009. Vol 33, No.2, pp. 355-372.

Internet sources

• Guanzi Institute (2013), What’s the definition of the self-management concept?,

retrieved from: <<http://www.guanzi.com/glossary/Self-management_Concept>> on 02/ 11/14

• Noah Wasserman (2008),The founder’s dillema, Harvard Business Review, retrieve from:<<http://hbr.org/2008/02/the-founders-dilemma/ar/1#disqus_thread>> on 05/11/ 14

• Peter.D.Freeman (2012), managing polarity, paradox and dillemma during the leader transition, The Emerald Insight, retrieve from <<www.emeraldinsight.com/2046- 9012.htm>> 09/11/14

the entrepreneurship

Documents