Designing & Delivering Business Development Services (BDS) for Growth Enterprises
Why do small business hesitate to invest in
people management and training?
by Karsten Weitzenegger, February 2005
Advisers to growing small enterprises often identify a need for investment in people management and training. This analysis might be correct, but what if it is not shared by the owner-manager? What can business development organisation do to convince more growing small businesses to improve staff productivity? We want to look at the possible reasons behind the owner-manager's resistance to people management and training.
Importance of investment in people management and training
Growth businesses have by definition a high potential for growth in the market, based on potentials within the business. They have proven to create employment, products and services, as well as wealth. Growth businesses are crucial for economic development. They are the avant-garde of economic development. Where the conditions for growth are not established, it makes no sense the start-up new enterprises. Each BDO should try to have growth business in the portfolio. They can afford to pay for services. They serve as examples for smaller enterprises and can bat politically for a better business environment.
Again in the growth phase, an advisor can assist by coaching the team building and by bringing in additional knowledge. Growth businesses are more demanding for quality services than business starters, who mostly have similar initial problems. Business advisors may have a hard time building relationship with an owner-manager who is not used to accept advisors, but to invent and solve everything out of own capacity. To higher degree than in the star-up phase, advisors need to know the particular market segment well in order to gain credibility.
External factors are still main problems of growth business. As they are already in the market, now the own business must make part of the market analysis. Internal factors are in the later stage main problems when shifting to a team management. The success secret of the owner-manager needs to be well revealed and analysed, then made into common principles and operations of all staff. The business need to learn from the market and the competitors, while defending its unique market share.
Traditional small enterprises are known for poor training, leading to low quality products. Themore developed markets today have high technical and environmental standards, quality certification and consumer protection. The market share for low quality products is reducing world-wide, because cheap quality products enter even remote markets. This put small producers under more pressure.
The Springfield Centre for Business in Development found the historic and current reality of market disconnectedness in the case of South Africa. Due to limited exposure to wider competition, opportunities and learning, the informal small-scale economy remains disconnected from the formal large-scale industry. Hitchins et. al. see BDS as bridge for providing access to procedures and practises, standards and innovation.
Disconnects in an Era of Knowledge-Based Economies:
A Role for Business Services1
Investing in people management and training is the clear path to success when making a
- business grow. This investment is needed to
- develop adequate management control systems;
- defining internal management roles;
- make people competent to fill these roles.
In general, management can support labour productivity by structure (hard skills, exact rules, strong hierarchy, discipline) or consideration (soft skills, team work, good working conditions, social benefits). Which approach is more successful depends much on the social and cultural circumstances. Businesses in industrialized countries tend to focus on consideration aspects in growth times, while coming back to structure aspects when a sector is in crisis. Consideration is a key to growth, but can only be successful, if structure is there as the base. A balanced training is needed for both pillars of the productivity development.
Resistance to training investment in small enterprises
In the growth phase of an enterprise, the owner-manager remains the key actor. This person can draw many lessons from the own start phase and has gotten through so far. However, the growth phase often requires a behaviour change of all stakeholders. The owner-manager suddenly needs to leave responsibility with staff, in order to concentrate on the most crucial issues.
Advisors often face resistance of owner-managers, when it comes to the investments necessary for training and management development. Generally, the lesser was invested in thepast, the bigger is the need now to adjust.In some cultural environments, training itself has become a bad aspect. There is are rumour that employers send staff to training only if they work too badly. If staff volunteers for training, the employer is suspicious that they want to look for another job. Bosses of course are alreadyperfect and do not need further training.2Initial small enterprise training is often done by watching others and imitate their behaviour ("sitting by Nellie").3 There is nothing wrong with this approach, it was the natural way oflearning throughout human development. In a small enterprise it is used for a cheap and social integration of new workers. However, this imitation also copies the bad aspects of others.4 A supervisor must later correct the errors, or even fire a worker and try a new one. It's always better, if the individual learner get an own criteria for success in order to direct the own skills development. This can only be achieved, if the operations and strategies of the enterprises are transparent to the entire team. Delegation is a critical first stage of the business growth strategy. A reason behind resistance to staff training might be that the owner-manager generally has difficulties delegating management functions to staff. If the second-tier managers do not have possibilities for learning (meaning room to commit own errors and try again), training indeed can be a wasted investment.
Resistance should not be equated with inability to pay. Entrepreneurs accustomed to free services are likely to resist paying for those services later. Reasons behind resistance can be various economic or socio-cultural ones.
Economic reasons
- Recruiting cheap unskilled staff might still be sufficient for the level of technology used.
- Recruiting trained staff from elsewhere might be cheaper that train existing staff.
- The owner-manger and staff might be too busy in this change period to cool down go somewhere else for formal training.
- Staff might be busy with technical training on new equipment.
- Growth is often marked by physical changes (new premises, new equipment, new geographical coverage) that demand high investment of time and money. Any additionalcost is seen as unnecessary at this moment.
- Equity investment may need to be introduce to the business. The owner-mangermight want to reduce the risk by saving on additional investments.Lack of consideration makes an employment unattractive. Staff might be willing to
- leave the company after training, trying to sell the new skills on the job market oreven start an own competing business. Employees will want formal training certificates,employers might fear they go immediately to the job market with them.
- Investment in staff means a long-term commitment by the employer. Formal commitmentsto long-term contracts with a fine for early termination might keep trained staffin the enterprise, but also raises fixed costs.
Socio-cultural reasons
- Knowledge is power that the owner-manager likes to keep.
- Former attempts to train staff might have gone wrong.
- Staff might lack basic formal education to build on.
- Quality and benefits of training offers are not known.
- It might be difficult to communicate and transfer skills which the owner-manager hasacquired informally over time.
- Staff might refuse co-operation.
- Staff might be employed for family or friendship relations
It might by even harder to convince the owner-manager to take own training. The ownermanager
will argue that she/he
- is to busy to leave the business in growth times;
- does not want to spent much money in own training without knowing the benefits;
- does not trust employees while away;
- does not trust in the experience of the trainers;
- does not feel comfortable to take classroom sessions;
- likes to leave business planning and controlling to family members or paid advisors;
- does not see the need for further development, is close to perfect.
How can a BDO assist?
Advisors have strong arguments to justify the investment in skills development. However, we have seen strong reason behind a possible resistance. Instead of pushing the owner-manager too much into this conclusion, BDOs can have better results, if the owner-manager can be assisted in developing own thoughts and strategies towards skills development. If the solutions are not owned by the owner-manager, the best plans will fail. If the target is set, let the entrepreneur find the most economic solution. This not only reduces the potential blame on the advisor, it also give the owner-manager the possibility to adjust if things go wrong. After all, the permanent management of skills is what the owner-manager has to learn in a growth situation. This is done best by actually doing it, initially under guidance of the advisor. If the identification of skill deficiencies as obstacle to growth is shared by the owner-manager at an early stage of the counselling process, a training needs analysis can be the next step.
A skills development plan should follow this, best if integrated into the overall business development plan and agreed by all stakeholders. The advisor must develop a strong and trustful working relationship with the owner-manager. This is especially important, if the advisor identifies other barriers to growth than the ownermanager. It the small enterprise has started a family business, the growth phase will imply many personal and social changes for all stakeholders. The advisor must professionally address this family issues, while respecting the privacy of the client.
Some aspects are important in the consultation process:
- Agree on a meaningful objective and keep it during the process.
- Counsel the owner-manager in a way that allows the owner-manager to use the conceptand ideas generated in the formal training to move the business forward.
- The owner-manager needs to be given the tools for monitoring and evaluation of theprocess. Of a staff member received training, the owner-manager needs to receive areport on the outcomes and new potentials of the participant.
- Staff has to be motivated to take training and use new skills and attitudes. The ownermanagermust give financial and non-financial incentives and rewards for this.
Additionally, if the owner-manager and staff are lacking time for training because they deal too much with non-productive activities (bookkeeping, supply purchasing, repairs, catering, marketing), the BDOs can assist by identifying possibilities to outsource these activities to service providers. The BDO of course can assist by identifying sources of subsidies for training. The core challenge for demand-driven training is bridging the gap between perceived and real needs. Nelson concludes from his 1997 study on two BDO cases in Kenya: "For demand- driven programs, the apparent lack of demand for their services poses an obvious marketing challenge. Demand must be stimulated, and stimulating demand requires (1) making up-front investments in marketing; (2) demonstrating real market opportunities that training will help clients access; (3) maintaining proximity to clients to respond to their emerging needs; and (4) linking the training to tangible, immediate benefits. In addition to being demand driven, training services must be relevant to entrepreneurs if they are to succeed in the marketplace."5
The PSME “Promotion of Small and Micro Enterprises” Project in Ghana carried out a market study and identified the training subjects and forms that growth business probably will buy. Then they trained trainers of independent training providers in three subject modules: Costing, Cash management, and Marketing. The trainers were supported by PSME on the market by a awareness campaign at the level of owner-mangers, by radio programmes, newspaper ads, recommendation by banks, and other means.
Important aspects for the marketing strategy of the BDO are:
- Sell the benefits: Increased productivity and efficiency, higher profits, better workplacesafety and health, better understanding and social environment.
- Make benefits of this investment tangible: The positive changes that the business willexperience from buying the services, such as becoming more aware of the cash position,or being able to motivate staff more effectively.
- Anticipate the reasons for resistance or make up a worst case example and suggestsolutions.
- Use additional arguments pro team management, e.g. that it will help in the familybusinesses generation shift and is the only way to sell the business later on.
- Mention the features of the services: How will it be delivered, who will deliver it, whatit will contain, what it will costs.
Conclusion
Investing in people management and training is the only chance for a small business to overcome market disconnectedness in an Era of Knowledge-Based Economies. BDS can be the bridge for providing access to procedures and practises, standards and innovation. Entrepreneurs accustomed to free services are likely to resist paying for those services later. Resistance should not be equated with inability to pay. Reasons behind resistance can be various economic or socio-cultural facts. Advisors must be conscious about the ownermanager's difficulties and resistance when passing on power and knowledge to the staff for reaching a team managed stage of organisation. Instead of pushing the owner-manager too much into this conclusion, BDOs can have better results, if the owner-manager can be assisted in developing own thoughts and strategies towards skills development. BDO can stimulate demand by marketing the benefits and possibilities of their services, considering the reasons behind resistance to training. 5 Nelson, Candace, Training Goes To Market. A Comparative Study of Two Kenyan Training Programs. Business Development Services Case Study, The SEEP Network, December 1997. 6 Legien, Katja, Ghana Report on the Short Term Mission on Product Development & Commercialisation, GFA Management GmbH, Hamburg 2003.
Authors address:
Karsten Weitzenegger, Dipl.-Pol.
German Association of Development Consultants AGEG (Coop.)
Grindelallee 32
D-20146 Hamburg, Germany
Tel. +49 40 41423351
US Fax: +1 314 6670417
karsten@weitzenegger.de
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