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Planning for growth helps SMMEs to grow

24 June 2021 University of Stellenbosch Business School (USB)

Learning from the big business playbook and using the science of organisational behaviour to plan ahead for the structure and culture of their businesses, small business owners will have a better chance at longevity and achieving their potential as engines of economic growth and job creation.

Small, medium and micro enterprises (SMMEs) make up 98% of formal businesses[i] in South Africa, but they contribute only 28% (3.8 million) of jobs1 in the formal economy and little more than a fifth (22%/R2.3 trillion) of all formal business turnover.[ii]

The economic importance of SMMEs is acknowledged annually on 27 June, the United Nations-declared Micro-, Small and Medium-sized Enterprises Day to raise public awareness of their contribution to sustainable development and the global economy.

SMMEs have a significantly high failure rate, but University of Stellenbosch Business School (USB) Postgraduate Diploma in Business Administration student Nicholas Lamohr says that as SMMEs mature, their job creation potential grows[iii] and that paying attention to organisational behaviour in their business planning and strategic thinking would help SMMEs move beyond start-up to sustainable, job-creating businesses.

He said that entrepreneurship and business training and support offered by SMME development agencies and institutions should also assist entrepreneurs and small businesses to “think big” and use the science of organisational behaviour to plan for how they would shift from a “one-man-band” to a business that empowers and develops its employees.

“If we are serious about supporting SMMEs towards growth and longevity, it is a serious omission that the business plans required by banks and funding agencies do not ask the vital question of what type of organisation the entrepreneur envisions building, as they move through the stages from start-up to maturity. This is a vital building block in the business plan.

“We need a new approach to the business model of small business, that takes a long-term view of the support needed for SMMEs, beyond the start-up phase and through to growth. We have to change the SMME development framework if we are to come close to achieving the National Development Plan (NDP) goal of SMMEs contributing 60-80% of South Africa's gross domestic product (GDP) and 90% of the 11-million expected new jobs by 2030,” said Lamohr, who is also a small business owner.

Organisational Behaviour is defined as “a field of study that investigates the impact that individuals, groups and structure have on behaviour within organisations, for the purpose of applying such knowledge toward improving an organisation’s effectiveness”. [iv]

“The science of organisational behaviour draws on psychology, sociology and anthropology to reflect on behaviour at an individual, team and organisational level. For the manager of a small business, these insights are invaluable to predict and support the desired behaviours and to be an inspiring, fair and focussed leader, able to harness diversity and enhance organisational performance,” Lamohr said.

He said that implementing effective organisation design, organisational structure, organisational culture and organisational change would support high quality skills transfer, improved employee retention and performance, and better quality of recruitment, which in turn have a positive influence on customer loyalty and revenues.

On organisational design, Lamohr said control and decision-making in most SMMEs is centralised in one person, the owner, which can result in a limited perspective in decision-making, lack of skills transfers and production inefficiencies.

“The owner has a wide span of control, with little decision-making power delegated to employees. This over-dependence on the availability of the owner to make decisions leads to production bottle-necks and longer turnaround times, for example in generating a quote or offering a discount, leading to dissatisfied customers.”

While the traditional, hierarchical mechanistic structure might work for a small start-up, Lamohr recommends rather adopting a decentralised, organic organisational design – a flatter structure, in which people work in horizontal clusters or networks, with task-driven teams and horizontal communication flow, giving employees greater influence and participation in decision-making, while establishing processes of accountability.

He said the organic structure offered the benefit of developing an inclusive, participative organisational culture where innovation is valued. It enables the flexibility and agility that SMMEs need, as team member’s tasks and roles can be adjusted more readily to respond to changes in the business environment.

“SMMEs must possess the ability to respond to change in often unstable environments. SMMEs using the organic model have the ability to process, analyse, and distribute information and knowledge very quickly, thus being able to respond and pivot the business as needed,” he said.

The “production approach” to organisational structure often adopted by SMMEs, where everyone is multi-skilled and can do every task, mitigates the risk of downtime when an employee is on leave or ill, but also often results in production waste, inefficiency and job dissatisfaction.

Lamohr argues that many SMMEs would benefit from adopting “work specialisation” and “departmentalisation” in their production workflow, where employees each specialise in a specific aspect of production, and creating departments that group activities by functions performed.

“Adopting this change in organisational structure would address production inefficiencies, promote high quality skills transfer and increased shared learning amongst staff; as well as improved customer loyalty due to the consistency and reliability in the delivery of the SMME’s service or product,” he said.

Organisational culture – the way employees interact and behave amongst themselves and with customers and suppliers – is often a product of the SMME owner’s personality, leadership style and approach to doing business, Lamohr said, and owners seldom consider the type of culture they want to establish and how to purposefully build a positive organisational culture.

“A culture built around the personality of the owner can become a blind spot in attracting new business or investors, and it doesn’t enable employees to play to their strengths. SMME owners need to remember that employees will treat customers as the organisation treats them, and so customers are the ultimate recipients of your organisational culture – positive or negative.”

Lamohr recommended being deliberate in defining the optimal culture for the business.

“Do this in collaboration with your team. Then entrench it throughout the business through behaviour, systems and processes and ensure new entrants are inspired and share your way of doing things.”

He said multimedia communication (or E-Learning) could be used to convey and inculcate the company culture in employee inductions, with regular refreshers and internal communication, and that organisational culture should be assessed as part of individual and organisational performance reviews.

“We live in a VUCA world – volatile, uncertain, complex and ambiguous. Constant and unpredictable change is becoming faster, and the Covid-19 experience was no exception. SMME owners often do not have the skills to navigate organisational change or manage resistance to change,” Lamohr said.

He recommends improved tactics to deal with organisational change; create awareness, harness buy-in across the business and empower employees to take ownership of new changes impacting their work.

Workshops, information sessions and internal communication platforms can be used to communicate major changes in the organisation that affect employees, share correct information, address misinformation and deal with negative or incorrect perceptions.

“This allows employees to receive the full facts and the logic for the change and will also strengthen relationships and the organisational culture. Employees will see management as more transparent, which will make them feel included and motivated to deal with the change,” Lamohr said.

As “custodians of the SMME narrative”, SMME-related government departments and agencies, state-owned enterprises, development institutions, banks and SMME owners themselves need to adjust the narrative and “lens” of SMME development to adopt a long-term view of assisting SMME owners with business planning and growth.

“It’s time to apply the critical thinking provided by Organisational Behaviour into our business plans, thereby serving those who are impacted by the need for a job and supporting hopeful small business owners to become leaders of people,” Lamohr said.

Quick Polls

QUESTION

South Africa’s Financial Sector Conduct Authority (FSCA) has the power to raise revenues by issuing administrative penalties and fines against non-compliant financial services providers, with this money flowing back to the Treasury… Does this, in your view, create a regulatory / government conflict of interest?

ANSWER

Absolutely, as conflicted as it gets
Maybe, I’m on the fence on this
No, the FSCA can do no wrong
The guilty must pay
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