the abuse of entrepreneurial power—an explanation of management failure?

Graham Beaver Nottingham Business School, The Nottingham Trent University, Burton Street, Nottingham NGl 4BU, UK

Peter L. Jennings Sheffield Business School, me Old Hall, Totley Hall Lane, Sheffield S17 44B, UK

Introduction

The 1971 Bolton report explicitly highhghted the fervently guarded sense of independence which is seen to be a prime motivator for many small business owner managers. Contrary to popular belief, and a great deal of economic theory, money and the pursuit

The abuse of entrepreneurial power-an explanation of management failure? 0

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The majority of studies examining small business success and failure invariably fail to distinguish between the symptoms and the causes of under performance and ultimate enterprise failure. i%e management process in the smaller enterprise is seldom a readily visible one. It often has an abstract rather than concrete form. There is a need for an appreciation of the nature of small business management which reaches far beyond traditional management understanding. Entrepreneurship is portrayed as an economic necessity in a modern economy, yet the actions and behaviour of many entrepreneurs often result in business collapse.

of a personal financial fortune are not as significant as the desire for personal involve- ment, responsibility and the independent quality and style of life which many small business owner managers strive to achieve. However, the pursuit and eventual attainment of independence brings with it the power to influence events and other people surrounding

152 G. Beaver and P. L Jennings

the small business and the owner manager. Whilst there can be little doubt that the power, capability and influence of the entrepreneur, which according to Chell et al. (1991) the rarely gifted individual exhibits, are of vital importance in determining the creation and development of the organization, the relentless drive for personal achievement may inhibit the growth potential and ultimately, the survival potential of the small firm.

Researchers, such as Foley and Green (1989) who have studied small business success and failure, have attempted to provide a taxonomy of causal factors which are said to be the root cause of failure. However, the majority of studies fail to distinguish between the symptoms and the causes and seek to provide explanations within the context of ‘rational management theory’. Equally, many surviving small businesses are seen, in terms of rational theory, to operate at sub-optimal levels of performance. In both instances the actual root cause may be seen to lie with the apparently non-rational behaviour of the entrepreneur who does not obey the ‘rules’ of classical management theory.

Using case study examples the divergence between prescribed and assumed models of entrepreneurial behaviour and the real, observed and reported behaviour of small business owner managers is examined. The

Abuse of entrepreneurial power may lead to the failure

of the small business

dichotomy between expected and actual behaviour in typical management situations is highlighted and it is suggested that the almost egotistical attitude displayed by many entrepreneurs constitutes an abuse of the trust and power placed in the hands of small business owner managers. In extreme instances the abuse of this entrepreneurial power may lead directly to the failure of the small business and may, ultimately, cost the entrepreneur far more in terms of personal

esteem, psychological dissatisfaction with personal behaviour and reputation, than the financial loss which is the focus of more traditional investigations of failure situations.

Entrepreneurs and entrepreneurs hip

Society would appear to be fascinated by entrepreneurs who start up small businesses and facilitate their growth and development. Entrepreneurs are commonly seen as the self- made business people of today, creating their own wealth rather than inheriting it. The popular press, as well as more serious academic and business publications, frequently contain articles describing their business and social activities and exceptionally successful entrepreneurs, such as Richard Branson, Anita Roddick and Alan Sugar, are revered as the role models which aspiring business graduates should seek to emulate. Furthermore, the act of entrepreneurship is portrayed as an economic necessity within a modem economy, promoting structural balance, employment choice, economic growth and functioning as a restraint to the misuse of corporate power.

Entrepreneurship has been the subject of a great deal of important research but as yet there is no unified, generally accepted definition or model of entrepreneurial development and activity. Collectively such research projects have examined entrepreneurs and entrepreneurship from a host of alternative perspectives - attitudes, backgrounds, personality traits, economic factors, contextual circumstances, aspects of social marginality and even geographical location. Each alternative perspective brings with it a particular set of assumptions and difficulties for the researchers. Whilst areas of agreement and overlap are apparent, alternative perspectives often provide opposite and conflicting explanations of observed behaviour. For example, when examining socioeconomic background influences upon entrepreneurs, researchers

Strategic Change, June 19915

me abuse of entrepreneurial power 153

such as Meager (1989), Curran and Burrows (1988), and Boswell (1973) have tended to examine the selfemployed, which may or may not conform to the view of entrepreneurs provided by other researchers such as Chell (1985), Binks and Vale (1990), and Storey and Johnson (1987) who regard entrepreneurs as employing and managing other people.

In summarizing contemporary research Stanworth and Gray (1991) suggest most of these analyses can be classified into three principal categories:

(a) examining socioeconomic background factors. These include gender, age, social class, marital status, education and ethnicity. An example would be Birley and Norburn (1986) who found that contrary to popular belief, recent studies have found the entrepreneur to be as well educated, if not better educated than the population in general. Similarly, Birley (1986) reports that entrepreneurs are often in their thirties and reaching a crisis of identity point in their lives.

(b) examining characteristics of owner managers. These include economic, trait and social psychology, personal needs and preferences, attitudes and dispositions which have been used to create a variety of typologies of small business owner managers. For example, Burns and Dewhurst (1990) suggest that to many of these entrepreneurs ‘. . . money is not a motivator but rather a pleasant by-product of being in charge of their own destiny.’

(c) examining situational or contextual factors. These include socioeconomic structures, the influence of the wider economy and enterprise culture in the locality. An example would be Cooper (1981) who examines the influences upon the entrepreneurial decision and identifies a number of potential factors such as:

Antecedent influences

1. Genetic factors 2. Family intluences

3. Educational choices 4. Previous career experiences.

Incubator organization

1. Geographical location 2. Nature of skills and knowledge acquired 3. Contact with possible fellow founders 4. Motivation to stay with or leave

organization 5. Experience in a ‘small business’ setting.

Environmental factors

1. Economic conditions 2. Accessibility and availability of venture

capital 3. Examples of entrepreneurial action 4. Opportunities for interim consulting 5. Availability of personnel and supporting

services; accessibility of customers.

However, the majority of projects which are included within Stanworth and Gray’s classification examine only those factors which are likely to influence a person becoming an entrepreneur and do not analyse, consider or explain entrepreneurial behaviour per se. The extent to which many of these factors also continue to act as intluences upon the behaviour of the entrepreneur within the organization which they create is left open to debate.

Entrepreneurs and smaUfirm owner managers

Small business research frequently fails to distinguish explicitly between entrepreneurial behaviout and the behaviour of small business owner managers. The fundamental questions which have yet to be answered satisfactorily are whether small firm owner managers are entrepreneurs and whether there are specific characteristics which separate entrepreneurs



from small business owner managers. Furthermore, whilst very small businesses are likely to exhibit a congruence of ownership and management and therefore potentially entrepreneurship and owner management, as the small firm grows there comes a point at which the owner must delegate management responsibilities to others if the organization is to survive and prosper. Thus a separation of ownership and management does occur in businesses which are still regarded as small firms and raises questions of the relationship between the three key players in small business - the entrepreneur, the owner and the manager.

For example, Carland et al. (1984) focus upon the essential factor of growth in distinguishing the small business venture from the entrepreneurial venture, and the ‘small business owner’ from the ‘entrepreneur’. The small business venture is seen as any business that is independently owned and operated, not dominant in its field, and does not engage in any new marketing or innovative practices. An entrepreneurial venture is one that engages in at least one of Schumpeter’s (1934) four categories of behaviour; that is, the principal goals of an entrepreneurial venture are profitability and growth and the business is characterized by innovative strategic practices. A small business owner is an individual who establishes and manages a business for the principal purpose of furthering personal goals. The business must be the primary source of income and will consume the majority of one’s time and resources. The owner perceives the business as an extension of his or her personality, intricately bound with family needs and desires. An entrepreneur is an individual who establishes and manages a business for the principal purpose of profit and growth. The entrepreneur is characterized principally by innovative behaviour and will employ strategic management practices in the business.

An alternative but complementary view is provided by Stanworth and Curran (1976) who distinguish three types of small business activist:

(a) the artisan who seeks intrinsic satisfaction from business activity

(b) the manager who seeks recognition for managerial excellence in business

(c) the ‘classic entrepreneur’ who seeks to maximize profits.

Dunkleberg and Cooper (1 982) differentiate on the basis of motivation and distinguish between the growth-orientated, the independence-orientated and the craftsman- orientated small business owner.

Birley (19W) comments upon the motivation to become an entrepreneur. Several factors denote a challenging of accepted routine e.g., the ‘eureka syndrome’, the ‘if only syndrome’, the ‘misfit syndrome’, the ‘moonlighter syndrome’. The accepted routine may involve employment in a large, medium or small organization or indeed, activity as a small business owner manager. Birley, therefore, shows that entrepreneurial behaviour can be distinguished from small business owner manager behaviour by dissatisfaction with the current environment triggering specific actions to modify accepted practices. The creation of a small business,

therefore, does not require me- preneurial activity as an essential prerequisite. The artisan who drifts into small business ownership, perhaps on the basis of the ‘unfriendly push’ syndrome or the ‘no alternative’ syndrome may have absolutely no intention or desire to maximize profits and growth through risk-taking strategic management. Equally, entrepreneurial behaviour is not limited to the creation of new, small businesses. A manager in an established business, irrespective of size, may at times engage in innovative strategic behaviour designed to challenge established routines and to maximize profits and growth.

Management in the smaUJirm

The management process in the small firm is unique. It bears little or no resemblance to


The abuse of entrepreneurial power 155

management processes found in larger organizations, which have been the subject of substantial academic research resulting in numerous models, prescriptions and constructs.

m e management process in the smallJim is unique

In the larger organization management is seen primarily as a predictive process concerned with the clarification of long-term objectives, the formulation of appropriate policies to meet such objectives, and the feedback of information to indicate successful or unsuccessful achievement of the goals established. (See for example Faulkner and Johnson, 1992.) In contrast, management in the smaller firm is primarily an adaptive process concerned with adjusting a limited amount of resources, usually, in order to gain the maximum immediate and short-term advantage. In the small firm efforts are concentrated not on predicting but on controlling the operating environment, adapting as quickly as possible to the changing demands of that environment and devising suitable tactics for mitigating the consequences of any changes which

In the smaller enterprise, the management process is characterized by the highly personalized preferences, prejudices and attitudes of the firm’s entrepreneur, owner and/or owner manager. The nature of managerial activity expands or contracts with the characteristics of the person fullilling the role@). Such expansion or contraction is partly conditioned by the adaptive needs of the context in which the business operates, and is partly dependent upon the personality and needs of the owner, manager or entrepreneur. Consequently, the management process in the smaller enterprise cannot be viewed in isolation from the skills demanded of the three key roles (entrepreneur, owner and manager) identified earlier. However, in the

occur.

smallest firms all these roles may be enacted by one individual whilst it is only following a period of business development, leading to a certain quantity of growth and expansion, that each role may become enacted by separate individuals. The smaU firm management process cannot be separated from the personality set and experience of the key role player or players.

Another characteristic of the small firm management process is the closeness of the key role players to the operating personnel and activities being undertaken. This provides the key role players with extraordinary opportunity to influence these operatives and activities directly. However, these relationships are often informal, there being no precise definition of rights and obligations, duties and responsibilities. Appointment and promotion are often made on the basis of birth or personal friendship rather than on the basis of educational and technical qualifications.

Organization structures, in so far as they exist, are likely to develop around the interests and abilities of the key role players. Such organization structures are likely to be organic and loosely structured rather than mechanistic and highly formalized. Thus the management process in the smal l firm is seldom a readiiy visible process. It often has an abstract rather than concrete form.

Notwithstanding the above, the key role players must fulfil a number of basic managerial functions, duties and roles if the organization is to survive and prosper. These essential managerial activities have been defined and refined throughout a long history of management research.

Applying these principles to the small firm management process discussed earlier, suggests the following model of key skills and abilities shown in Figure 1. The complexity of the small business situation dictates that all of these skills must be utilized in establishing and operating a successful organization, irrespective of the precise definition of success which is applied to a particular case. Particular operating circumstances will demand a unique blend of



ENTREPRENEURIAL SKILLS

(ADAPTIVE & ORGANIC)

OWNERSHIP SKILLS (PREDICTIVE & MECHANISTIC)

STRATEGIC LEVEL

INNOVATION RISK TAKING

TACTICAL PLANNING

OBJECTIVE SETTING POLICY FORMULATION STRATEGIC PLANNING

COMMON CORE SKILLS T DECISION MAKING PROBLEM SOLVING

INFORMATION PROCESSING

MANAGERIAL SKILLS MANAGERL4L LEVEL

NEGOTIATION TROUBLE SHOOTING INTER-PERSONNEL COMMUNICATIONS

these skills whilst inherent dynamism will demand fluidity. A small business practitioner may be asked to enact any one of seven roles at any one time.

1. entrepreneur 2. owner 3. manager 4. entrepreneur owner 5. entrepreneur manager 6. owner manager 7. entrepreneur owner manager.

In any given small business management situation these seven roles can be considered to be seven different stakeholders, each demanding the possession and application of specific skills and abilities. As Mitroff (1983) points out ‘. . . different stakeholders do not generally share the same definition of an organisation’s “problems,” and hence, do not in general share the same “solutions.”’ Each stakeholder approaches the organization’s problems from a unique perspective and

ORGANISING COORDINATING

FORMAL COMMUNICATION MONITORING STABILISING

Beaver and Jennings 1993b. and 1995

Figure I. The smail firm management process.

demands a unique solution. Traditional concepts of decision making would emphasize the need to achieve consensus and agreement between alternative stakeholders in order to lead to effective decision outcomes. However, Mitroff (1983) goes on to argue that in fact individual human psyche or personality contains a plurality of selves - alternative and sometimes conflicting perceptions of self- which constitute stakeholders influencing behaviour. The small business practitioner is therefore subject to a number of competing and conflicting influences which may cause dissonance leading to erratic, unpredictable and unacceptable behaviour which is in complete contrast with the rational, professional and acceptable management behaviour portrayed by Mintzberg and others. Frequently, as Osborne (1991) points out, the power which accompanies majority ownership cannot be challenged by other stakeholders in the smaller enterprise situation and therefore the ability of the key role player(s) to cope with absolute power and


The abuse of entrepreneurialpower 15 7

leadership responsibility has a significant impact upon the survival and growth potential of the enterprise.

Small business failure

Of the many surveys of contemporary small business survival and growth (Ganguly, 1983; Hall and Stark, 1986; LBS, 1987; Robson Rhodes, 1984; Stanford, 1982; Storey et aZ., 1987) both in the UK and the other developed economies, most seem to identify situational, operational and personalitydriven reasons for failure. It is interesting to note that in many respects the approach to researching small business failure has been very similar to the approach to researching entrepreneurs and entrepreneurship thereby establishing an inextricable link between entrepreneurial activity and small firm performance. According to Stanford (1982), the causes of small business failure may be:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11 . 12. 13. 14. 15. 16. 17. 18.

Inadequate accounting systems Poor location Lack of marketing skills Lack of a capital budget Inadequate provision for contingencies Lack of management skills Excessive inventory Incompetency Lack of experience Neglect Fraud Disaster Poor record keeping Reckless money management Lack of formal planning Insufficient marketing talents Indifferent employees Inability to cope with growth.

Jennings et aZ. (1992) point out that Stanford (as with most others) has not attempted to distinguish between symptoms and causes and the occasional exogenous event which may force a small business into liquidation. For example, a natural disaster may not be foreseen, and although it can

be argued that managers should make provision for such events, in reality such preparations are seldom adequate. Alterna- tively, a prime business location may be rendered less than attractive-either temporarily or permanently - by the actions of others beyond the control of the owner manager. For example, the rerouting of a new motorway, or plans to build a new housing estate. Generally it can be seen that whilst symptoms such as inadequate accounting systems, lack of a capital budget, excessive inventory, poor record keeping or demotivated employees may be the reason for a small business failure, the root cause may be ineffective management.

Portraits of small business management failure

Researching small business management failure is fraught with difficulties. Few, if any entrepreneurs, owners or managers are willing to publicly admit to personal shortcomings. The links between organizational failure and management action (or inaction) are extremely tenuous and very difficult, if not impossible, to demonstrate conclusively. Only those persons immediately affected by organizational failure, or near failure, have sufficient knowledge of the precise circumstances to be able to suggest cause and effect relationships. Methods which rely upon self-reporting of information are likely to yield a distorted picture. Yet those persons closest to the centre of extreme organizational difficulties are simultaneously the only persons who can take action to reverse decline and the very people who are most likely to suffer the consequences of absolute power vested in the hands of majority ownership.

In order to maintain confidentiality the descriptions of the organizations and central characters which follow have been disguised. However, the actions, events and consequences are reported accurately and as observed.

____ ~


158 G. Beaver and P. I, Jennings

Company A was founded in the 1920s and manufactured basic commodities for the building and furnishing industries. Jason was the managing director of company A and is the son of the original founder. Active directors included Jason’s sons Cecil and Dean. Cecil was responsible for finance, Dean was responsible for sales, whilst Paul, a long- serving employee and personal friend of the founder, was responsible for production. Non- active directors, eventually included the wives of all four active directors. The company survived the recession of the thirties and the war years before growing steadily during the post-war reconstruction period of the 1950s and 1960s.

Jason had been made to ‘serve an apprenticeship’ on the shop floor by his father before assuming control in the 1960s on his father’s death. Jason was therefore well known and well respected by many employees, who had mostly been with the company for all their working life, and this helped to make sure the company survived this first succession crisis.

In keeping with family tradition, Jason made sure his sons also started working life on the shop floor. Dean, the older son, was also well liked and joined the other employees in many practical jokes and tricks which helped maintain a happy working atmosphere. However, Dean was regarded as a ‘less than effective worker’ by the skilled craftsmen on the shop floor and had a reputation for ‘making scrap’. Indeed, his favourite task was to break up unwanted material in the scrap bins and to keep himself amused Dean would often break up perfectly serviceable materials-much to the chagrin of his father.

Cecil, the younger son, on the other hand resented working on the shop floor. He considered himself to be above the level of the workers and made it perfectly clear he was not interested in learning anything about production. Yet he was perfectly willing to socialize with the employees, on his terms, and was instrumental in starting a company sports and social club which, given his attitude, was surprisingly well supported.

In the early 1970s the company had grown to two divisions, approximately 75 employees and a turnover of &1 million. The success of the company was reflected in the appointment of the two sons as directors. Similarly, the lifestyle of all the directors had steadily changed. All now lived in expensive houses in the top suburb of the city. All had expensive, fast, sporty cars -Triumph Stag, Jenson Healy, Porsche - as well as executive company cars. When the time came, Dean and Cecil were treated to expensive weddings with lavish receptions and their wives were able to join the board as shareholders and non- active directors. Children were sent to private boarding schools and wherever possible, Jason, Dean and Cecil were seen ‘in the right company’ of socialites and ‘at the right places’ such as Royal Ascot, Henley Regatta, Wimbledon and so on.

Cecil was seriously injured in a car crash on the way home from one society event. Months spent in hospital and recuperating seemed to increase his determination to enjoy life.

The company moved to purpose-built new premises, funded by a huge mortgage, in the mid 1970s. The offices were lavishly equipped whilst the factory was fitted with all the latest equipment. Internal decor was by leading professionals, personal offices were individually designed and fitted with stereo systems, TVs, cocktail cabinets and so on. The latest mainframe computer was purchased but no one really understood how to use it and it was left lying idle or performing the most rudimentary calculations for much of the day. Jason, Dean and Cecil lived by the watchword ‘style’ and believed the company was made for them. Money seemed to be no object providing it was spent noticeably!

Coinciding with the move to the new factory came the downturn in the construction industry and the loss of many orders from the building trade. For a while all three family members seemed oblivious to the mounting problems. Dean moved from his home in the suburbs to a property in the country, with fully equipped stables and facilities for breeding horses. A small sideline to amuse his wife.


Tbe abuse of entrepreneurial power 159

With the move to the new factory came the downturn in the construction industry

Jason was first to realize the company had serious financial difficulties and the stress began to adversely affect his health. Dean began to take more effective control of the company on a day-today basis thus neglecting sales. Orders were hard to find and the company relied very heavily on supplying one product to ZZ, the country’s largest user of the product at that time. Naturally there were frequent meetings with the directors of ZZ and much of the company’s marketing budget was spent on entertaining and socializing.

Cecil in turn had to shoulder more and more responsibility and as the financial crisis deepened, was in more and more demand to meet financiers, creditors and suppliers. Yet the more serious the situation became the more cavalier Cecil became. He regularly missed appointments, failed to issue promised press statements and was frequently ‘missing’ for days on end. Eventually, the reason for his absences was revealed when Cecil was discovered in bed with the wife of the managing director of 22.

This resulted in the loss of this major customer and quickly led to the bank calling in the overdraft and a failure to be able to maintain mortgage repayments. Within weeks the company had gone into receivership and was subsequently liquidated. It was only then that the extent to which the assets of the company and the assets of the family had become interwoven was fully revealed. Houses, cars and personal effects such as antiques were all part of the liquidation but no general creditors received settlements.

Jason retired because of ill health and increasing age. Dean went into partnership with a friend and now runs a moderately successful small business in the speciality products sector. Cecil lost more than

anyone-his wife, his home, his credibility and gained only limited access to his children. He found it very difficult to find employment and eventually after several failed attempts to become a financial consultant, now works in sales.

Company B owes its origins to the development of a new interactive leisure product developed by an American entrepreneur, Peter, in close liaison with an electronics company in Boston, Massachusetts in 1986. Essentially, Peter had produced an innovative computer game with mass appeal. It was, to quote Peter like ‘being in your own video game. It is exhilarating, challenging and addictive.’

What differentiated this concept from rival market offerings was the high level of design sophistication enabling regular options of increasing difficulty and skill to promote repeat business. The first such computer game centre opened in New England, USA in 1987 and was used to develop and perfect the new game system. Such was the success of this venture that Peter decided that he would establish a pilot European operation with the intention of achieving rapid market penetration if the concept was accepted. Peter obtained a lease of a derelict cinema in southern England and converted it into a new computer game centre. Despite starting the business with very little capital and even less business experience, the centre was an immediate success with the public, and the resultant publicity within the leisure industry led to a number of enquiries from potential operators who wanted to purchase their own systems. Indeed, one such operator achieved payback within 15 weeks, doubling the turnover of the bowling centre, where the computer game was played!

On professional advice Peter then made approaches to secure venture capital in order to provide the necessary funds for rapid expansion. After protracted negotiations, some &15 million was made available through a number of sources with the money being made available in a number of tranches, with strict banking covenants to be observed and

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I60 G. Beaver and P. L Jennings

sales targets to be achieved to enable each tranche of funds to be drawn down.

Within 18 months, 10 centres were established in the UK with the equipment being manufactured in America and flown to Britain for installation within the customer’s premises. All the sales effort was essentially reactive, selling the systems to individual entrepreneurs who approached the company as a result of visiting one of the few established game centres.

By the end of 1989, Peter was starting to feel the pressure from sustained business expansion and decided to recruit professional help. He desperately wanted to return to the USA and continue his work on electronics research and development, where his real interest lay. Accordingly he sold 51% of his share capital to Ralph-at the time a practising selfemployed management consultant. Ralph would become the new managing director and Peter would be retained as the organization’s technical director.

Ralph set out to make immediate changes to the way the company was being run, which he described as an absolute shambles. The few staff employed by the company, although enthusiastic about the product, had little commercial experience and low levels of ability within their areas of responsibility. There were very few control systems in place and very limited ideas as to corporate direction and objectives.

Ralph therefore designed a business plan for the company, with a chosen strategy both for the home and overseas markets to embrace ‘sustained differentiation through incisive marketing, while moving at lightning speed to achieve rapid market penetration.’

Ralph recognized the existing personnel were inadequate for the task in hand. He therefore set out to recruit new people who could take the company forward. He first recruited his common-law wife as the advertising and exhibitions manager. He also asked a 41-year-old friend, Malcolm, to join him as business development manager; Malcolm’s girlfriend, an ex-nurse was asked to take on the role of administration and

training manager. A financial controller had also been appointed who took over the financial management of the company from

The existing personnel were inadequate for the task in

hand

the business development manager. He told Malcolm that the accounts were ‘in a state worse than China,’ with a large number of county court judgements outstanding against the company, due to non-payment of creditors. Furthermore, the production centre in the USA was unable to purchase any components to build systems to fulfil orders, as the suppliers were refusing to move until outstanding invoices had been paid.

Although component supply was restarted, primarily through the controller’s manipu- lation of cash flow, the company was now in a very precarious position. Notwithstanding this factor, expensive plans for overseas expansion had been formulated, and were seen as being crucial to the company’s future. Continued cash generation was therefore essential and the UK sales force were charged with the task of keeping the money flowing in. Not surprisingly, profit on sales was sacrificed to obtain liquidity and the originally highquality requirements for the company’s centre locations and operators were considerably relaxed.

Towards the end of 1991, Ralph announced that he was taking a welldeserved holiday. Accordingly, he booked an executive package to South Africa with his wife for a 6-week holiday, during which time he confidently expected to sell several systems in South Africa itself, as he had identified this market as being a prime target. Upon his return to the UK in early 1992 no sales had been effected.

Sales in the UK continued to move forward but the international sales position was falling way behind plan. To rectify this situation Ralph recruited the pregnant wife of a close friend as vice president overseas sales, and gave her the target of 15 centres sold overseas


The abuse of entrepreneurial power 161

before she left to have the baby. However, health problems forced her early departure without any foreign centres being sold. At the end of June 1992, there had been no international sales in any markets, the banking covenants had as a result been broken and the expense of foreign sales trips had severely weakened the UK cash position in that &3/4 W o n had already been spent or committed to pay for exhibitions in the USA.

During the last 6 months the company had increased the cost of its basic package by an average 25%. However, Ralph and Malcolm refused to visit the major customers in the UK announcing that they were both far too busy with the USA deals. Not surprisingly this was viewed by previously loyal customers as shabby treatment. Further, Ralph stated that his intention was to move to America permanently and that Malcolm would also be spending the greater part of his time in the USA, helping establish the operation.

Throughout this period, the company was unable to pay its suppliers on several occasions and therefore production in the USA had to be halted, with resulting installations delayed or not completed. Additionally, Ralph announced that due to the refurbishment of their new office accommodation and a tightening of overheads generally, there would be no profit share or bonuses paid that year with the inevitable result that many key people who had been totally committed to the company became demoralized and demotivated. Many had serious doubts as to what their loyalty was worth and despite working 6@ and 76hour weeks, Ralph demonstrated his thanks by reneging on promised bonuses.

In an attempt to restrict the financial haemorrhage within the company, strict guidelines were laid down for expense claims for staff which resulted in creating even more ill-feeling as the staff could not see any restrictions being applied to the spending of Ralph and Malcolm.

To cap it all the licence agreements were also proving troublesome in that high legal costs were being incurred by the company’s

solicitors in dealing with customers’ requests for legal changes in the standard agreements. With this in mind Ralph stated ‘with hindsight it would have been better to sell the computer game package under a franchise arrangement rather than a licence; perhaps it’s not too late to change.’

Interpreting the observed behaviour

Case study A centres upon third generation owner managers and describes a small business which had achieved successful growth leading to non-family directorships and management appointments. This business is, therefore, relatively mature but has not experienced exceptional or rapid growth. The family members appeared to have coped with business development reasonably well and had allowed the management team to expand in Line with operational activity. All three family members exhibit entrepreneurial traits in their decision to continue expansion, take on new premises and so on. It is not however, clear whether one family member was leading these developments or whether all three contributed equally. Outside distractions have deflected attention away from the strategic management activities expected of owners and the team were caught unawares by the recession in the construction industry. However, even when the realities of the situation became apparent professional management decisions were not implemented and Cecil, in particular, seemed oblivious to his business responsibilities.

In his report to the creditors, Jason cited the cause of the business failure as the recession in the construction industry. The liquidator blamed a lack of professional management action, a failure of control systems and the inappropriate timing of the move to new premises. It is clear these are all symptoms of management failure. Despite a very close management team, mostly comprising family or friends, Cecil was able to abuse his


I 62 G. Beaver and P. 15 Jennings

positional power to the detriment of the business.

Company B represents a classical start-up situation with Peter apparently acting as an archetypal entrepreneur. However, the lure of a return to his roots became too strong and majority ownership and control passed to Ralph who acquired an ongoing business as practising owner manager. This suggests Peter’s real interests were not in accordance with traditional entrepreneurial theory but instead lay in research and development. Initially Ralph’s actions mirrored those of a professional manager but later degenerated into a serious abuse of positional power, favouring the satisfaction of personal aspir- ations and ego to the achievement of sound business objectives.

Conclusions

The aforementioned illustrations of particular small business personalities in their organizational contexts indicate the need for an appreciation of the nature of small business management which reaches beyond traditional management understanding. A number of interesting questions and issues are highhghted. It is true that there are some owner managers who see their organization as personal property to be used as a vehicle for satisfying personal ambitions. Equally, some

There are some owner managers who see

their organization as personal property to be

used as a vehicle for satisfying personal

ambitions

owner managers relegate organizational objectives to a position subordinate to their personal aims and therefore act in a misguided, mistaken and disappointing manner when faced with business

difficulties. This is not to say that these owner managers are deliberately trying to destroy their organizations. Rather, in their own minds they see their behaviour as being in the best interests of the organization at that point in time and would probably argue that they are indeed acting in a manner compatible with professional best practice .

In any given situation the interplay between the seven key roles identified earlier is fundamental to the adoption of a satisfactory course of action. The lack of any precise demarcation between the rights, responsibilities and duties of these roles creates confusion and overlap which prevents the role players from attaining a clear vision and articulating required outcomes. The demands of the seven roles constitute internal stakeholders within the unconscious mind of the small business practitioner and compete for dominance which will be manifested at the conscious level. When faced with a specific business problem, practitioners will unconsciously adopt the stance of the role which most closely conforms to their personal perceptions of the situation and provides the best vehicle for satisfying their personal expectations. These personal expectations may manifest themselves as strong needs for instantaneous self-gratification and egocentric behaviour.

The small business practitioner may appear to be disinterested in creating an effective organizational system. Often, this task is left to subordinates to perform as best they can. This may well conflict with the expectations and demands of other external stakeholders and leads to the interpretation of behaviour as selfish, egotistic and destructive. A further level of complexity is added in situations in which more than one key role player occupies a position of power and influence. Here the battle for dominance is not only restricted to unconscious conflict but is played out in the boardroom and/or amongst the management team.

In situations of organizational crisis there is a natural tendency for the small business practitioner to centralize control. Drawing


m e abuse of entrepreneurial power 1 63

responsibility inwards increases power by allowing the practitioner to deny the accuracy of information provided and reject the abilities of others who may be in a position to offer constructive help and advice. Such actions of owner managers may be interpreted as despotism preventing the successful marshalling of organization processes and people who must be trusted to implement leadership initiatives.

These conclusions have to be interpreted in the light of previous comments concerning the complexities of researching this area of small business management practice. The intention is to promote thought and debate on what is a difficult and poorly researched area of management rather than to claim generally valid and reliable accounts of the illustrated contexts. An ethnographic research approach commends itself. However, researchers should anticipate difficulties in gathering information about potentially em- barrassing and libellous issues. Additionally, researchers have the benefit of hindsight and it is relatively easy to be critical of managerial actions and decisions in the sure knowledge of their outcome. The question remains-if placed in exactly the same situation, with the same knowledge, experience and personality set, would any researcher act in any way Werent from the managers described? EquaUy, when observing entrepreneurs who are perfectly willing to accept and take risks in business, is it surprising that they are also willing to accept and take risks in their personal lives? Finally, it has to be acknowledged that both case illustrations concern male role players. Examples of female role players who appear to abuse entrepreneurial power have been reported second hand but these have not been observed directly.

Biographical details

Graham Beaver is a Principal Lecturer in Strategic Management and the MBA Programme Director at Nottingham Business School. He is responsible for much of the academic and consulmcy work on

Business Development and Small Business Management.

Peter Jennings is a Senior Lecturer in Management Strategy at Sheffield Business School. His specialist subjects include Strategic Management with particular reference to the Small Business sector.

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the abuse of entrepreneurial power—an explanation of management failure?

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