Christoph Loch (pictured), dean of Cambridge Judge Business School, says start-ups and small businesses need to look beyond simple excuses for their lack of financing, growth and innovation
THERE is a common refrain heard from entrepreneurs and small-business owners: banks and other lenders simply won’t provide the capital they need to flourish. (Regulators seem to agree.) But I have some candid news for such companies: it’s not only them, it’s also you.
One reason start-ups and other small and medium-sized businesses (SMEs) have a hard time getting access to capital is that such firms are simply not transparent, and many are downright opaque. Banks often don’t know what is going on at these companies, and if there is one thing that lenders particularly dislike it is being in the dark. The last thing they want is to invest in an SME, only to find out later that the firm is struggling or going bankrupt. Why take a risk on a company they don’t properly understand?
Reporting standards for SMEs are far less stingent than for large public companies, so less information is provided and that which is supplied is not standardised. But any company seeking growth should open up. It should be transparent by supplying data on current indicators such as turnover, profit, costs and staffing levels. Not only that, investors should be clear about its strategy, its position in the eyes of customers, the scalability of its processes, and the motivation of its employees. This can open the door to fresh capital.
Many young companies resist transparency because they fear leaking information to competitors, or they simply don’t like being in the spotlight. Secrecy can make people feel safe. But sometimes external scrutiny can force them to take a hard gaze at themselves. In addition to looking at management capabilities, young companies need to look hard at three notions that can often be a barrier to growth.
First, because many SMEs don’t grow into larger firms, they feel it is unrealistic to set ambitious growth targets. We need to turn this argument on its head, because the evidence clearly shows that without ambitious growth targets SMEs just don’t grow. There are a variety of ways to set such goals: attract more revenue from existing services to existing customers, offer new services to current customers, and find new customers. But without ambitious targets SMEs will stagnate and remain roughly where they are.
The second canard is that SMEs can’t attract good people. But many start-ups manage to find talented employees, even though they have fewer resources than SMEs. They do it by promising excitement—perhaps offering shares rather than salary, or a leadership role in a likely-looking venture. Smaller firms also need to stoke workers' enthusiasm. That doesn’t happen if the chief executive treats employees badly and will not delegate. But it does when he offers people the opportunity to be involved throughout the whole business, and to be responsible for a chunk of it, which large companies often can’t do because they are compartmentalised.
Third, some SMEs feel they can’t innovate. They blame this on not having the money to invest in technology. But that’s another poor excuse. In fact, investment in developing technology is often risky for SMEs and doesn’t lead to growth. There is plenty of technology that can be bought from the outside, such as computers, process manuals and software packages. SMEs that grow use such technology in clever ways, even ways the tech vendor may not have foreseen.
In any case, innovation doesn’t have to come through technology. It can be generated through understanding customers: not just what they say (because that usually only unearths current irritations) but by looking at their long-term needs. That insight can be used to change how a company operates—in relation to suppliers, sales and more besides—so as relentlessly to improve service to customers.
Such an outlook means being open to scrutiny. Looking in the mirror is hard, but it is usually more effective than simply casting about for an easy target to blame for a lack of growth.
by C.S-W.
STUDENTS may pay business-school professors’ salaries, but it is research that wins faculty its reputation. Unfortunately for Britain, the standard of research coming out of its business schools has been lacking. Though business school attendance grew there in the 1990s, its representation in academic journals, and its ability to win funding from research councils, lagged behind. So in 2002, the Advanced Institute of Management Research (AIM) was launched with the goal of redressing the substandard work academics were producing. The best part of £30m ($43m) was spent in an attempt to bolster the quality of research by directly funding superstar academics, rather than their research. That project ended in 2012, so what impact did that all that money have?
Not much, according to a paper soon to be published by Stuart Macdonald of the University of Leicester and two colleagues in the British Journal of Management. “The passing of AIM has been little mourned,” reckon the authors. “The vast majority of management academics in the UK had little chance of joining AIM and gained little from it,” they go on.
by Rodolphe Durand | HEC Paris
THE concept of the modern, open democracy that embraces freedom, diversity and human rights, is under threat. We live in a time of conflict unlike any other. A war is underway that is not just being fought out on conventional battlefields among state powers, but on the internet and the streets of our towns and cities, as the citizens of Paris found to a shocking cost in November.
David De Cremer, a professor at Cambridge Judge Business School, says business leaders need to use irrational tendencies in constructive ways
BUSINESS today is characterised by the growing number of connections, both between people and across countries. Such a change of pace is hard to manage. Business executives are supposed to act rationally and stay in control. Unfortunately, research on human biases shows that the quicker the change the more irrationally executives will act. So it is important that managers who pass through business schools are prepared to recognise their irrational tendencies and use them in constructive ways.
Ever since Daniel Kahneman—a psychologist—won the Nobel prize in economics, business schools have become aware that much of what they teach is limited. The business world does not act in ways that can entirely be captured by business models, relying on rational actors, as recent financial failures have shown. We would not be crying out for ethics and trust if those notions could easily be replaced by contracts, corporate governance and rule-driven compliance systems.
Recognising the imbalance between what we expect from the business world and the irrational nature of its decision-makers, business schools have revised their curriculums. But most have not gone far enough. Rarely do they develop full-blown courses that make students understand the meaning of an irrational act and the consequences it has. Instead, demonstrations of irrationality are regarded as funny illustrations of human nature. What we need is a more balanced view of the role that psychology plays in influencing the workings of business. Only then will students be able to relate their own irrational thinking to the challenges they will face as future business leaders.
It is therefore worth discussing three irrational tendencies that can trip up business executives. The first, which contributes to many executive failures, concerns how badly relationships are managed. No matter how smart managers are, they do need relationships with others to succeed. Unfortunately, those climbing the career ladder tend to express overconfidence in their ability and influence. They risk becoming detached from their social environment and relying too much on their own perspective.
The other extreme may also be true. Successful executives often come from the same top business schools and social networks. They can become accustomed to a particular way of seeing the world. If that social environment is well-informed, acts in ethical ways and has good intentions, not much will go wrong. But if not, then it can spell disaster. As a business executive, the important thing is to find the optimal balance between acting as an individual and acting as a member of the social group.
A second challenge is how to motivate people. Humans are impelled to establish control over uncertain situations. As a result, rule-based management systems are popular. Unfortunately, this does not elicit a true sense of control, but rather the illusion of it. Executives think they are getting things done; in reality not much is achieved. A management style based on control disempowers employees, so workers experience no ownership of their job and take little responsibility and initiative.
The final challenge that complicates the life of many business executives is knowing when they are right and when they are not. In the corporate world, there is a belief that intellect is an important requirement for success. So being recognised as the one who is right becomes a treasured ambition. This desire is further fuelled by the idea that being successful in business equates to the ability to compete. The result is that the business world is still populated by too many executives who value winning an argument rather than making the best decision.
The key question, then, is how to mitigate the influence of these irrational tendencies. A first line of defence is without a doubt to make executives aware that those tendencies are not simply a funny fact of life but—without them even knowing it—shape their business life. Working with that awareness executives can promote their forecasting skills and operational decisions. Yet the biggest challenge for business schools will be translating this into workable action plans based not on the assumed and predictable, but rather on the unpredictability of human nature.
David De Cremer is the KPMG professor of management studies at Judge Business School, University of Cambridge. He was mentioned as the most influential economist in the Netherlands in 2009-2010 and was recently awarded the mid-career award by the British Psychology Society, section social psychology.
by M.S.
Adapting to the unique French management style
THE modern manager drinks cappuccino in a British coffee chain while consulting his American smart phone which was assembled in China. But despite an increasingly homogenous world, every nation remains, at least in some way, unique. And of all national groups, to misquote George Orwell, the French may be more unique than others.
After all, France prides itself on its individuality; on its continuing refusal to accept English as the world’s lingua franca; on its resistance to the Americanisation of its shopping streets (notwithstanding its love of McDonald’s restaurants). L'exception française even extends to an enlightened attitude to the personal lives of politicians.
by J.L.H.D.
LAST month Jonathan Chait, a columnist for New York magazine, wrote an essay on the return of “political correctness”, which he described as a “system of left-wing ideological repression”. The “system” Mr Chait wished to identify was hard to define, as he lumped together an attack on an anti-abortion protester by a professor in California, an internal debate in a journalists’ Facebook group, and various mocking Twitter tags. (One sprang up in the wake of his essay: #ChaitLiberalism.) But his argument was easily understood: that allowing debates to be constrained by the potential hurt suffered by their listeners was “dour puritanism” and “exhausting”.
Administrative Science Quarterly, a sober academic journal, rarely (if ever) tries to time the news; so the recent publication of “Creativity from Constraint? How the Political Correctness Norm Influences Creativity in Mixed-sex Work Groups” has to be a fruitful coincidence. Written by Jack Goncalo of Cornell and three others, the article suggests an alternative to Mr Chait’s condemnation: that, rather than suppress ideas, political correctness may provide enough social structure to allow ideas to flow more freely.
by B.R.
MOST people would probably recognise the following scenario: you are wandering around a new town with your partner looking for a restaurant, but you cannot agree on where to eat. So you discuss the merits of every establishment you pass until, at long last, a mutually acceptable choice presents itself. But because you have spent so long searching, the restaurant is now full and there is no hope of a table. Tired and hungry, there is only one thing to do: have a blazing row.
This is an example of what Vincent Mak, a professor at Cambridge University’s Judge Business School, calls “oversearching”. In retrospect, the best thing you could have both done would have been to agree quickly on an eaterie that neither of you actively hated, rather than hold out for the perfect fit.
by B.R.
THE protection racket was one of the first businesses the Sicilian mafia entered into. Mafiosi have shaken down firms, large and small, on the island for over 150 years. In the 1990s it is thought that 90% of business owners paid a “pizzo”—slang for beak, as in “wet your beak”—to keep hoodlums from their doors. The custom is so entrenched that many people assume it to be intractable.
Some brave figureheads have attempted to rally businessmen to take a principled stand against the crime syndicates. Yet when such heroes arrive, they can end up fighting an unwinnable war on two fronts. They must not only be wary of mafiosi with guns, but also the wrath of other merchants, for whom paying up has simply become a habit built up over decades.
by J.L.H.D. | ATLANTA
IF A college education is so necessary to expand career choices and grow richer, why doesn’t everyone go? And in particular, why don’t all working-class aspirants go? Policy makers have long puzzled over how to expand access to college: will lowering tuition and providing more financial aid help? Are poorer teenagers simply lacking the grades, or the intention to go to college? No, no, and no, say the authors of a new working paper. Jennifer Silva of Bucknell University, Kaisa Snellman of INSEAD, and Carl Frederick of Harvard’s Kennedy School of Government argue that while in individual cases there may not be enough money, academic success, or desire, a larger problem, yet to be addressed, is the lack of “savvy” of working-class students and their families.
This is not meant as a criticism of those families. “Savvy” is the authors’ shorthand for a combination of social, financial and cultural capital that becomes extremely useful when negotiating the college-application process. That process is not simple; and the more exclusive and highly regarded the university targeted, the less simple it becomes.
by J.L.H.D. | ATLANTA
In “Mrs Piggle-Wiggle”, a 1947 children’s book by Betty MacDonald, the titular character helps a young girl who hates washing dishes. Together, Mrs Piggle-Wiggle suggests, they can pretend to be princesses, who will be imprisoned by a wicked witch if they cannot produce spotless dishes. The dishes get washed; the witch is foiled; the girl has a delightful time; and Mrs Piggle-Wiggle emerges as a pioneer of gamification. “Gamification” is, put simply, making a game out of a task.
There is now a slew of productivity-boosters-cum-games available online: you can earn rewards for exercise via Fitocracy, defeat your own witches in Chore Wars, or retrain yourself via HabitRPG (which “treats your life like a game”). Not surprisingly, companies are now trying to bring the potential benefits of gamification into their offices. IBM has “kudos badges,” which employees get by posting information and sharing files. Xerox and Samsung have internal “quests” and “missions” for their workers to complete. For project managers, there is software that can track completed items and issue reward points—that can be converted into actual cash.
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