Entrepreneurship and Small Business - Coursework Example

Entrepreneurship and Small Business August 2006 Introduction Entrepreneurship can be defined as the creation of new enterprise (Fucini and Fucii 1985), and enterprises are also more commonly associated with entrepreneurs. Entrepreneurs generally create small businesses which are defined as employing fewer than 500 people (Bartol and Martin 1998). Small businesses also tend to be independently owned and are profit-oriented (Bartol and Martin 1998) and in doing so they make enormous social and economic contributions to their societies through a variety of factors. For instance, small businesses contribute to economic growth through the creation of new businesses (Bartol and Martin 1998) which increases the tax base for a country's economy through contributions. Small businesses are also innovative as they are responsible for many of the new products or services on the market (Fucini and Fucini 1985). These factors have a knock-on effect of increasing employment opportunities, particularly amongst women and minorities who find this as an alternative avenue into business. This can be demonstrated by the high number of Asian, Chinese, Italian and other restaurants across the country. Women are also likely to start their own business as they are sometimes discriminated against when they take maternity leave. As small businesses are mainly innovative or arise from this situation, their organisational culture is of great importance as it influences whether they business can react to its environment; and whether the business can survive int the current environment. Organisational culture is a system of shared values, assumptions, beliefs and norms about the way things are done, and it is often referred to as corporate culture (Bird 1989). Culture is also important to small businesses as it has an impact on organisational effectiveness (Bartol and Martin 1998, Mullins 1999). The development of organisational cultures often comes from a variety of sources that often reflect the drive and imagination of the individuals involved. The three main aspects of organisational culture are particularly important in analysing the likely impact of culture on a given organisation which includes direction, pervasiveness and strength. Direction refers to the degree to which a culture supports rather than interferes with, reaching organisational goals (Hisrich and Peters 1995). Small businesses have to maintain a culture that is focussed as they are often striving to achieve growth levels and increase profits. This would not be possible without a direction or focus for the organisation to maintain. Pervasiveness addresses the extent to which a culture is widespread among members, as opposed to being unevenly distributed (Hisrich and Peters 1995). Small business will look at employing individuals who share similar drive and ambition to the entrepreneur. It would defeat the purpose of the small business if individuals who are not passionate about the innovation are employed. Strength refers to the degree to which members accept the values and other aspects of a culture (Hisrich and Peters 1995). The employees also have to believe in the innovation or the small business concept for it to be effective. These three factors embedded in organisational culture demonstrate how important it is for small businesses and entrepreneurs to adopt an enterprise culture, as it will determine how well they can react to factors present in the external environment in which they operate. This paper will briefly demonstrate the characteristics of enterprise culture and how this culture can be affected by the external environment. Enterprise culture Most successful organisations foster an adaptive entrepreneurial culture in which members view growth and change as desirable and believe that they can affect the competitive environment to their advantage, which differs to bureaucratic organisations which are more likely to have members who prefer the status quo and have little faith in their ability to influence the competitive environment (Siropolis 1994). This is characteristic of small businesses and entrepreneurs as they are focussed on achieving high growth levels, and this filters to the employees who also regard growth as being an important milestone as they will benefit from it as well. This is different to large organisations where growth has already been achieved and this can sometimes lead to complacency on the part of the employees as they often feel secure in their positions and the strength of the organisations against its competitors. One example of this is John Dyson's innovative vacuum cleaner, which totally changed the operating environment of the industry. The growth experienced by Dyson was unparallel as his invention became widely recognised in the UK and is growing in the United States. Entrepreneurial cultures are also driven by perceptions of opportunity compared with controlled resources (Stevenson and Gumpert 1985, Kotter and Heskett 1994). Most small business are opportunistic by nature and arise out of spotting gaps in the market. In some cases the resources may not be available and time is often of the essence. For instance, EasyJet arose out of identifying the unmet demand for low-cost airfares, and the popular website, Friends Re-United arose out of an individual's desire to contact a long lost friend. Some of these ideas may have also been dismissed as unprofitable by the larger businesses that are often after stabilising the market by offering a standard service on a large scale. One example of this is evident in the UK supermarkets, where the local greengrocer has been driven out of businesses by the larger corporations, who offer almost every single product and service available. The entrepreneurial culture allows small businesses to undertake revolutionary change within a short period of time, something which larger organisations find difficult to undertake, as they often have to evolve over a longer period of time (Bartol and Martin 1998, Mullins 1999). As small business often have very little to lose, it is relatively easier for them to undertake major changes when compared to larger organisations. This was perfectly demonstrated by the arrival of EasyJet in the UK, when all the major airlines experienced a rapid decline in sales and passenger numbers, and their size prevented them from reacting quicker and undertaking revolutionary change, as they had to go through a set of processes before this could happen. This is even more evident in the electronics industry where the smaller manufacturers have often been instrumental in bringing innovative products to the market. For instance, Acoustic Solutions started selling the first multi-regional DVD players commercially through the Argos catalogue, when all the major manufacturers were still manufacturing single region devices. In terms of commitment of resources, small businesses have many stages with minimal exposure at each stage compared to large business that have to undertake a commitment of resources in one stage based on one decision (Stevenson and Gumpert 1985, Mullins 1999). Small businesses have many milestones, and each one represents a huge achievement for the business. As resources are often limited, small businesses have to undertake growth in small steps. Larger business often have to go through processes and procedures, as this is often the most effective method of managing their operations, considering their size and scope of business. This puts small businesses at an advantage as they can often react quickly to situations as they do not allocate all their resources for one cause, but tend to save some to deal with periods of uncertainty. This also minimises the amount they stand to lose. Small businesses also often use freelance help and rent or hire required resources in order to control to their resources, whilst larger organisations often employ or own the resources (Stevenson and Gumpert 1985, Bartol and Martin 1998). The classic example is that of the greengrocers and the big supermarkets where the humble greengrocer cannot afford the large warehousing and transporting requirements so they often have to contract our their transport and sometimes forego their warehousing. In contrast, the large supermarkets are able to purchase their own transport trucks and buy land to keep their goods. In the short-run this may benefit small businesses as it frees up resources to further develop the business, however in the long term, they are at a disadvantage as the large corporations are able to buy them out and out price them from the market. In terms of management structure small businesses have few levels with emphasis on informal communication patterns instead of the multiple levels that often emphasise formal hierarchy (Stevenson and Gumpert 1985, Bartol and Martin 1998). This is only characteristic of growth stages, as small business inevitably start of with fewer employees and informal communication can be a life saver. With large businesses, formal communications are the order of the day, as these businesses often have to document business decisions and their rationale for implementing actions. However, this often puts them at a disadvantage as formal communication is slow and does not allow for reacting to the current environment. Therefore an enterprise culture is one which allows the business to respond to changes in its environment, through its lack of formal structures and procedures which often slow down the ability of a business to react and adapt to long term changes in the environment. The enterprise culture can be vulnerable to the external environment but this can usually be counteracted by implementing various systems and practices to minimise the impact. Enterprise culture and the external environment The external environment is important to small businesses and entrepreneurs because they often have to balance adaptability and flexibility with resources. Therefore in more ways they do face uncertainty as they cannot accurately predict or assess any trends. This is even more important in the current operating environment where customer demands are constantly changing. This uncertainty is also difficult to manage because more time and effort has to be spent on monitoring the environment and assessing the implications for the organisation and deciding on the course of action to take (Mullins 1999). This makes the environment complex and dynamic (Bartol and Martin 1998, Mullins 1999): complexity refers to the number of elements in an organisation's environment and their degree of similarity, whilst dynamism refers to the rate and predictability of change in the elements of an organisation's environment (Bartol and Martin 1998, Mullins 1999). This means that organisations following an enterprise culture can often deal with the complexity as they are dissimilar from their competitors, i.e. large businesses; and the enterprise culture allows the business to be dynamic as small businesses often have to be dynamic to ensure stability and survival. Organisations therefore would like to find themselves in an environment which is homogenous and one in which the rate of change is slow and relatively predictable (Pfeffer and Salanick 1978, Dess and Beard 1984, Kotter and Heskett 1994). This affects the enterprise culture by encouraging the use of copy cat techniques which slows down the rate of change. For instance, ever since the Dyson vacuum cleaner was invented, most of the businesses in this industry have produced numerous variations of this prototype; as it means that they will be able to survive by capturing the market that cannot afford the price of an original Dyson cleaner. This copy cat action slows down the rate of change in the market, and allows other businesses to catch up to the new technology. It also makes the market more predictable by giving the industry enough time to assess the impact of the changes and predict growth avenues. The external environment has also meant that the enterprise culture has got to be a continuous process, and cannot be implemented as a one off process. So for instance, organisations can no longer rely on a single invention or innovative service, but have to constantly focus on innovation if they are to survive. Another important characteristic is environmental munificence which is the extent to which the environment can support sustained growth and stability (Castrogiovanni 1991). This also depends on the level of resources that are available to the organisation within the environment (Mullins 1999). This affects the enterprise culture as it turns it into a fast-paced culture, where all employees in the business become involved in driving and pushing the business forward, instead of that function being the domain of the management level. When organisations operate in a rich environment they are able to build up a cushion of internal resources such as capital, equipment and experience, something which is often easier for larger businesses. On the other hand, this forces small businesses and entrepreneurs to streamline their processes and maximise every possible avenue at their disposal, as they stand to lose more than their larger counterparts. As a result of this, the enterprise culture has evolved into one of streamlining and reducing wastage on an organisational level. This can be observed by the change from tall hierarchical structures to more horizontal ones, with the emphasis on team working and collaboration. A high level of internal resources can subsequently fund the innovations and expansions that may help an organisation sustain its position as well as weather leaner times (Bartol and Martin 1998). This works to the advantage of larger organisations as they possess adequate resources and in doing so can influence the market and its characteristics. This affects the enterprise culture by aiding the creation of opportunities through industry groups and trade associations to share and maintain good practice in the small business sector and among entrepreneurs. This has the effect of constantly updating the enterprise culture, through formalising the informal nature of communications. Conclusion This paper sought to find out the nature of an enterprise culture and how this culture is affected by factors in the external environment. The enterprise culture is one which allows the business to respond to changes in its environment, through absence of formal structures and procedures which are responsible for slowing down the ability of a business to react and adapt to long term changes in the environment. This culture is increasingly being adapted by most organisations, as it can be applied to the current environment and it also encourages the minimisation of wastage. Whilst this culture was more common with small businesses and entrepreneurs, the success of entrepreneurs and small businesses like Dyson, Acoustic Solutions and other service providers such as Carphone Warehouse and Primark, has prompted the larger organisations to act on this success. The competitiveness present in the external environment has then led to the increasing formalisation of the enterprise culture, as large businesses and organisations are adopting this, possibly in a bid to minimise the effect of the competitive advantage that is present in small businesses. This also highlights the constant battle small and medium sized businesses face in their development from their competitors, i.e. large business and organisations. The main concern small businesses will have is that once the enterprise culture becomes standard in the business environment, they could face even more instability and uncertainties as the relative number of opportunities are reduced. References Bartol, K M., & Martin, D C. (1998) Management. 3rd Edition, Irwin McGraw-Hill, New York. Bird, B J. (1985) Entrepreneurial Behaviour. Scott, Foresman, Glenview III Castrogiovanni, G J. (1991) Environmental Munificence: A Theoretical Assessment, Academy of Management Review;16, pp. 542-562 Dess, G G & Beard, D W (1984) Dimensions of Organisational Task Environments, Administrative Science Quarterly; 29, pp. 52-73 Fucini, J J. & Fucini, S. (1985) Entrepreneurs. Hall, Boston Hisrich, R D & Peters, M P. (1995) Entrepreneurship. 3rd Editio, Irwin, Chicago Kotter, J P & Heskett, J L (1992) Corporate Culture and Performance. Free Press, New York Mullins, L J. (1999) Management and Organisational Behaviour, 5th Edition. Financial Times, Pitmans Publishing, London. Pfeffer, J & Salancik, G. (1978) The External Control of Organisations. Harper and Row, New York. Siropolis, N P. (1994) Small Business Management. 5th Edition, Houghton Mifflin, Boston. Stevenson, H & Gumpert, D E. (1985) The Heart of Entrepreneurship. Harvard Business Review, March-April 1985 Read More