Management Capability: Perspectives from New Zealand Small Firms
37 Pages Posted: 16 Apr 2010
Date Written: Februaryl 2010
Empirical evidence suggests that improving the management skills of owner-managers of SMEs contributes to their survival and growth, and that there is considerable scope for further improvement in skills and competences of owner-managers. In particular, small firm owner-managers’ capability to manage regulation is considered to be important and is of continuous concern for policy makers.
There is limited research internationally (Clarke et al 2006; Downs 1999) and particularly in New Zealand that contributes to a more situational and contextual understanding of how small firm owner-managers acquire their management knowledge and skills and the factors that affect their capability to manage regulation.
To this end, the Ministry of Economic Development (MED) commissioned a study to assess the nature of management development of small firm owner-managers in New Zealand and to specifically assess small firm owner-managers’ capability to manage regulation. The study formed part of BusinesSMEasure, a yearly longitudinal study of SMEs in New Zealand, targeted specifically to survey micro and small sized firms.
The number of firms that completed the survey was 1539. Fifty-eight percent of these firms were micro (0 – 5 FTEs)1 40 percent were small (6 – 49 FTEs) and 2 percent were medium (50 – 99 FTEs). About two thirds of the firms operated in the services sector while the remainder were from the manufacturing and primary sectors.
DEVELOPING MANAGERIAL CAPABILITY The majority of small firm owner-managers recognize the critical role of managerial capability development in firm success (between 79 and 86 percent) and personal development (74 percent).
To identify developmental needs, practice-based sources such as encountering business problems (69 percent) or recognizing business needs that cannot be met with existing managerial capability (75 percent), were most frequently reported by respondents. Proximal social sources like feedback from business peers (69 percent) or employees (66 percent) were other commonly reported sources when it comes to identifying developmental needs.
Incidental learning was by far the most frequently reported form of management development (57 percent), followed by informal learning through social interaction with trusted advisors (22 percent). Formal learning is reported by only 6 percent of respondents.
The activities most small firm owner-managers engaged in was learning by doing (61 percent). However, such learning requires self-reflection to take place for it to be successful. Slightly more than half of the respondents (55 percent) explicitly mentioned to include this reflective element in their learning process by reviewing what they have done and thinking about how to do it better. Further, about half of the respondents reported to actively engage in what can be described as learning from mistakes i.e. trial and error. Although this is a frequently reported way of how small firm owner-managers develop their managerial capability, it can prove costly for the business. Despite these limitations, the majority of respondents (between 74 and 81 percent) attached high importance to these three types of learning when attempting to improve their managerial capability.
On average, respondents spent $1,000 in the last tweleve months on developing their managerial capability.
Four variables emerged that significantly differentiated between respondents who engaged to a very large or large extent and those who engaged to a very small extent or not at all. The extent to which respondents engaged in managerial development varied significantly in relation to four variables. These variables were gender, age, learning orientation and belief of self-improvement - and are discussed in the following paragraphs.
Results showed that there was a strong link between innovation and management development. Firms with at least one type of innovation activity reported to be more engaged in management development across all three types of learning i.e. incidental, informal and formal.
DEALING WITH GOVERNMENT REGULATION Across all areas of regulation between 27 and 43 percent report to manage regulation extremely well or with ease. Between 43 and 60 percent report to cope with regulation and between seven and 18 percent report to struggle or to be unable to manage regulation.
Results showed that respondents who reported to manage regulation extremely well or with ease were more likely to be female and to have stronger beliefs of self-improvement. Ethnicity seems to be a relevant factor for tax and employment related regulation only. For example, 85 percent of NZ Europeans reported to manage tax and employment related regulation extremely well or with ease, compared to 68 percent of non NZ European, i.e. Maori, Pacific Islander, Chinese, Indian and others.
No statistical differences between firm sizes (measured by employment as well as turnover) was found, indicating that, within the SME sector, compliance capability is not necessarily better in small firms than it is in micro firms.
Results showed that there is a statistically significant relationship between the capability to manage regulation and firm performance. Respondents reporting high firm performance in the last twelve months were significantly more likely to report that they manage regulation extremely well or with ease. While only 6 percent of high performance firms reported difficulties with tax and employment related regulation, 31 percent of low performance firms did.
To effectively manage government regulation at least 90 percent of respondents agreed that the following four factors were important: easy to follow methods to comply with regulation, communication skills, numeracy skills, reliable access to internet. Of low importance, however, were access to advice from family, from business peers, formal education or qualification and financial or legal penalties for non-compliance.
CONCLUSIONS Although SMEs might be largely disconnected from formal training and/or from government funded training programmes, they are not disconnected from management development per se.
The firms in the sample were predominantly mature, well-established firms that do not fall within the high-growth category (i.e. firms with ten or more employees with average annualised growth rate greater than 20 percent per annum, over a three year period). Therefore, they are often considered to have only low, or even no concerns for growth and development. This group, however, makes up the majority of the business population and we argue that it is still a potentially valuable group to consider. As they are more mature, their needs tend to be more diverse and complex than those of start-up firms which partly explains their dislike for formal training which tend to be standardised with fewer possibilities to attend to individual needs. The learning and developmental needs of owner-managers of well-established SMEs that are seeking to grow are more varied and is a factor that needs to be taken into account in the design of management development activities.
Overall results indicate that owner-managers in the sample are generally capable (at least the majority are coping) of dealing with various government regulations (with the exception of consent applications), regardless of firm size. However with regard to changes to regulation, it is important to note the high number of firms that are ‘coping’ with government regulations. It may imply that any additional or significant changes in government regulations may have significant impacts on these owner-managers’ ability to comply with those regulations, in addition to the existing ones in the near future.
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