Source: The Journal of Product Innovation Management 19(2002) 424-438
Managing radical innovation: an overview of emergent strategy issues
By: Christopher M. Mcdermott*, Gina Colarelli O'Connor
I like this article. this is very interseting article about management of redical innovation. In this article authors describe radical innovation in much effective way. in this article they discuss in detail about redical innovation and it management.
Innovations are of two types incremental and radical. Incremental innovation relates to Refining existing products or processes .e.g. Next version of MS Word, Sony Ericsson or Nokia mobile while introducing totally new concepts .e.g. Transistors, instant photography, digital photography, I Phone shares to Radical innovations. Most breakthrough innovations requires long-term ( typically ten years or longer development time and millions of investment dollars). Management of these innovations is very critical to the long-term success of the firm. Unfortunately, research has shown that it is often difficult to get support for the radical projects in large firms. More than ten years ago, Tushman and Nader (1986) has also predicted that managing innovation would become the most important organizational task of the future.
There are three overarching themes for the management of radical innovations
1) The choice market scope.
2) Competency management.
3) The people side of radical innovation
The choice market scope.
There are two type of radical innovations . The first serves to strengthen the firm’s position with familiar markets by bringing breakthrough technologies to them and advancing the state of the art with big leaps.There are three sets of challenges with the familiar market all of which revolve around countering resistance and breaking down barriers, both within and outside the organization. These includes 1) ensuring delivery of a perceptible benefit, 2) managing the threat of cannibalization, and 3) overcoming market resistance to the technology.
The second type of innovations are those for which market has not been clearly identified or developed. The challenges of unfamiliar markets lie in the requirements to proactively invest in building and creating new domain both within and outside the cooperation. This type of innovation require investment not only in developing the new technology, but also another investment to develop the market as well.
Competency management.
Competency is the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies ( Prahalad and Hamel,1990 ). Three defining attributes of competencies are that they are not easily imitated and that they provide firms access to new markets. Competencies can either be enhancing, where they further a firm’s leadership position through extension of strengths, or destroying , where they replace existing strengths and incumbent firms ( Tushman and Anderson). Furthermore competency stretching make the firm moving to a new direction and It requires the creation of truly new abilities and knowledge within the firm. It is more than just enhancing and destroying the competencies.
There are three approaches to reduce the risk associated with radicals innovation process. These include 1) leveraging from known capabilities. Unique manufacturing knowledge and history in working with a material, for example ,acted to make developing the product less uncertain for the innovating firms than it would be for a competitor.,2) outsourcing, out sourcing is a second approach to manage risk. Alliances of some form or another are created to fill the competency gap. and 3) choosing not to face the issues of the uncertainty. This mechanism used to manage the risk is simply to ignore it.
The people side of radical innovation.
The role of individuals in managing radical innovation is of primary importance .This includes the leadership role, the composition of the team, and informal networks. Leadership role is very significant in terms of financing the radical innovation process and encouragement for the team members.
The members of the team are also very important. it depends what kind of experiences they have and how they share their experience with other team members while managing radical innovations.
Deep formal networks that could help access information at any time, and experimental knowledge of the most of their firms, business is also invaluable in developing and managing the radical innovations.
Friday, December 19, 2008
Importance of innovation
Innovation is a necessary proportion in strategic marketing management, which could create the new markets and induce substantial shifts in existing ones. Innovation seems a two-waged weapon for the companies. On the one hand, there are some risks and complexities in the innovation and some large companies prefer to barriers it rather than encourage it. On the other hand, without innovation, it is difficulty for the organisations to earn competitive advantage and have a good performance in the market.
Technically novel is not indispensable to the marketing innovation. The most important thing for the companies is let their customers perceive the novel. That means innovation could be regarded as a new product & service, process or system to the marketing, in the other word, Innovation is create the new markets and new advantages.
Marketing innovation relies on a process which brings on the change of customers’ attitudes and values gradually. This is radically a social phenomenon which is including some basic propositions as followed: the propensity to attempt innovative things, the speed of adoption, innovations are learned from kinds of sources.
The development of the marketing follows the “S” curves which begins bit by bit, then grows steadily until moving into quick growth, which maintains until saturation, when increases approximately and plateaus in the end. What has mentioned above imply that, if the organisations pursue to become the leaders or at least survived in the market, they have to develop. Technological innovation plays an important role in the development of the companies which is searching a market application. And the performance improvement of the technology approaches also follows the “S” curve. In the emerging technology, it is high cost of time and money. And in the developing technology, the best R&D returns are acquired.
Innovation is an excellent method of gain a sustainable competitive advantage in growing and mature markets. In the early, entry is rather significant to being powerful at the shakeout which could create a defensible position in the cut-throat competition. Early entrants must confront with the high risk, however, they could create the entry barrier and own a potential market. Nevertheless, innovation is very useful in the mature market as well as the new and growing markets. Consequently, innovation is more significant than technological breakthroughs in the market.
Innovation Is not merely a market research techniques, or just a concept testing. It is a long-term strategic view and a high risk take. So some managers believe there are more barriers to innovation in their cooperation, which includes the pressure for quick volume sales, decreasing the risk by market research, ignoring the limits of technology, systems of rewards rather than high danger entrepreneurial approach and the limitation of the organization structures and financial systems.
Technically novel is not indispensable to the marketing innovation. The most important thing for the companies is let their customers perceive the novel. That means innovation could be regarded as a new product & service, process or system to the marketing, in the other word, Innovation is create the new markets and new advantages.
Marketing innovation relies on a process which brings on the change of customers’ attitudes and values gradually. This is radically a social phenomenon which is including some basic propositions as followed: the propensity to attempt innovative things, the speed of adoption, innovations are learned from kinds of sources.
The development of the marketing follows the “S” curves which begins bit by bit, then grows steadily until moving into quick growth, which maintains until saturation, when increases approximately and plateaus in the end. What has mentioned above imply that, if the organisations pursue to become the leaders or at least survived in the market, they have to develop. Technological innovation plays an important role in the development of the companies which is searching a market application. And the performance improvement of the technology approaches also follows the “S” curve. In the emerging technology, it is high cost of time and money. And in the developing technology, the best R&D returns are acquired.
Innovation is an excellent method of gain a sustainable competitive advantage in growing and mature markets. In the early, entry is rather significant to being powerful at the shakeout which could create a defensible position in the cut-throat competition. Early entrants must confront with the high risk, however, they could create the entry barrier and own a potential market. Nevertheless, innovation is very useful in the mature market as well as the new and growing markets. Consequently, innovation is more significant than technological breakthroughs in the market.
Innovation Is not merely a market research techniques, or just a concept testing. It is a long-term strategic view and a high risk take. So some managers believe there are more barriers to innovation in their cooperation, which includes the pressure for quick volume sales, decreasing the risk by market research, ignoring the limits of technology, systems of rewards rather than high danger entrepreneurial approach and the limitation of the organization structures and financial systems.
Friday, December 5, 2008
The Fashion of Management Fashion
By: Timothy Clark
Durham Business School, UK
I like this article because this is new topic and hot issue of this era. Every organization is working on new ideas. Thay are trying to impliment new ideas in thier for getting competitive advantage. Management fashion is basically the fashion of ideas. Now a days everyone is trying to get new ideas which are beneficial for their businesses.
In this article author says that in recent years there has been growing interest in the notion that management ideas and techniques are subject to swings in fashion in the same way as in the aesthetic life such clothing styles, hair length, music tastes, furniture design, paint colours become much popular and then declines. In this study author describe that this era is the era ideas. New and new ideas are coming and more and more innovations are created. We can say that this is the time of management fashion. This fashion is fashion of ideas.
Gill and Whittle says that management fashions are seen to progress through a series of discrete stages:
1. Invention, when the idea is initially created
2. Dissemination, when the idea is initially brought to the attention of its intended audience.
3. Acceptance, when the idea becomes implemented
4. Disenchantment, when negative evaluations and frustrations with the idea emerge
5. Decline, or the abandonment of the ideas
In this study three issues are discussed:
1. The (over) use of citation analysis
2. The focus on the dissemination/broadcasting phase of the fashion cycle
3. The incorporation of ideas into different domains within the management fashion-setting community.
They use the citation analysis to identify the life cycle of fashionable management. They mainly focus on diffusion process and the degree to which ideas become institutionalized within organizations and profess that one outcome of their research is the development of the criteria to assist managers in detecting those ideas/techniques which are potentially transient and toxic, they rarely provide direct empirical evidence of organizational implementation. Abrahamson (1996: 264-7) identifies a four-fold fashion-setting process:
1. Creation
2. Selection
3. Processing
4. Dissemination
This is the study of ideas that ideas collected from different ways and then interpret the ideas according to organization point of views. All the management fashions are not equally implement for all the organizations. It depends upon the organization. The key feature of popular management ideas is their malleability and plasticity.
Findings:
After reading and discussing about this article I came to know that management fashion means the new ideas which are very important for all the organizations to get in the market. This is new name of management. It is not possible for all the organizations to adopt this fashion because they have much barriers for adaptation. We can say the innovative ideas about management are the fashion of management now a days. This topic need more research and study. This is the hot issue now a days. This also give us little information about the new ideas and ways to implement those ideas and what is the impact of those ideas on the managers of the organization.
Durham Business School, UK
I like this article because this is new topic and hot issue of this era. Every organization is working on new ideas. Thay are trying to impliment new ideas in thier for getting competitive advantage. Management fashion is basically the fashion of ideas. Now a days everyone is trying to get new ideas which are beneficial for their businesses.
In this article author says that in recent years there has been growing interest in the notion that management ideas and techniques are subject to swings in fashion in the same way as in the aesthetic life such clothing styles, hair length, music tastes, furniture design, paint colours become much popular and then declines. In this study author describe that this era is the era ideas. New and new ideas are coming and more and more innovations are created. We can say that this is the time of management fashion. This fashion is fashion of ideas.
Gill and Whittle says that management fashions are seen to progress through a series of discrete stages:
1. Invention, when the idea is initially created
2. Dissemination, when the idea is initially brought to the attention of its intended audience.
3. Acceptance, when the idea becomes implemented
4. Disenchantment, when negative evaluations and frustrations with the idea emerge
5. Decline, or the abandonment of the ideas
In this study three issues are discussed:
1. The (over) use of citation analysis
2. The focus on the dissemination/broadcasting phase of the fashion cycle
3. The incorporation of ideas into different domains within the management fashion-setting community.
They use the citation analysis to identify the life cycle of fashionable management. They mainly focus on diffusion process and the degree to which ideas become institutionalized within organizations and profess that one outcome of their research is the development of the criteria to assist managers in detecting those ideas/techniques which are potentially transient and toxic, they rarely provide direct empirical evidence of organizational implementation. Abrahamson (1996: 264-7) identifies a four-fold fashion-setting process:
1. Creation
2. Selection
3. Processing
4. Dissemination
This is the study of ideas that ideas collected from different ways and then interpret the ideas according to organization point of views. All the management fashions are not equally implement for all the organizations. It depends upon the organization. The key feature of popular management ideas is their malleability and plasticity.
Findings:
After reading and discussing about this article I came to know that management fashion means the new ideas which are very important for all the organizations to get in the market. This is new name of management. It is not possible for all the organizations to adopt this fashion because they have much barriers for adaptation. We can say the innovative ideas about management are the fashion of management now a days. This topic need more research and study. This is the hot issue now a days. This also give us little information about the new ideas and ways to implement those ideas and what is the impact of those ideas on the managers of the organization.
Wednesday, December 3, 2008
reflections About middle managers Lecture
In the lecture Mica Wulff Kamm tell us about the roles of middle managers in an organization, dilemmas, tools and her personal approach about the middle managers. She gave us too much information about the middle managers in organization. She discuss middle managers in different prospective and provide us effective information.
“…middle managers as we have known them are cooked geese.”
Tom Peters, Liberation Management (1992)
“…in knowledge intensive industries middle managers are definitely needed”
- My theory (Mica Wulff Kamm)
I agree with the statement that middle managers are definitely needed for an organization. Middle managers play a key role in the organizational development.
Almost every company has them. They may number six or 6,000 and they all share the same job category -- middle managers. They are often referred to as the "glue" that holds companies together, bridging the gap between the top management team and lower level workers. They implement strategy and organizational changes, keeping workers engaged during both good and bad economic cycles.
Most of the organizations didn’t give importance to the middle management they mainly focus on the top management or lower management. They ignore the middle managers to many extent. Due to which middle managers become disappointed from the job and they start thinking to switch from the job.
According to a 2007 Accenture survey of middle managers around the world, 20% reported dissatisfaction with their current organization and that same percentage reported that they were looking for another job. One of the top reasons cited was lack of prospects for advancement.
"Many companies are seeing significant turnover in middle management ranks, and with significant turnover, they don't have the ability to execute strategy," says vice dean of Wharton Executive Education Thomas Colligan. "Top management can spend all their time creating strategy, but without someone there to implement it, where are you at the end of the day?"
Colligan noted that one large partnership facing a 20% turnover rate did a calculation in which it concluded that for each 1% it could reduce turnover, it would increase partner earnings by $80,000. "Middle managers are very important to attract, develop and retain, and some companies are becoming painfully aware of that."
David Sirota, co-author of The Enthusiastic Employee: How Companies Profit by Giving Workers What They Want, predicts that middle managers will "again bear a significant part of the pain that the current economic conditions will bring."
Joe Ryan, who teaches in Wharton Executive Education, agrees. As companies go through economic cycles like the current one, middle managers get hit with the elimination of rewards and incentives and, in some cases, layoffs. This is particularly true now in the financial services industry, he says. "In cost-cutting times, knee-jerk reactions happen. There is a paradox where
middle managers are essential, but end up sacked when restructuring occurs. It's a rough situation because the people needed to run the most important projects are in the middle."
If companies don't manage change well, they will confront a "frozen" middle management and "vicious cycles of low morale and low engagement," Ryan says. "Regardless of the economic climate, companies need to build a resilient workforce and engage the middle to go forward, because this is where change occurs."
Middle managers are essential for an organization because they make a link between the top management and rest of the organization. Sirota describes them as "the glue across upper and lower levels as well
as horizontally with other departments."
According to Jane Farran, a senior fellow in Wharton Executive Education and managing partner of the consulting firm C4, with the economy under siege these days, "a lot of belt tightening is occurring. Many companies are nipping and tucking to make their numbers." That's not a good strategy, she suggests. Indeed, when companies have tried flattening their hierarchies in the past
-- thinking that middle managers are extraneous and a few layers of them could be eliminated -- the result was not what they expected.
"These intermediaries have a very important role," she says. "The middle managers translate strategy and the big picture so that it makes sense and is applicable for the day-to-day workers."
“…the death of the middle manager is an overstated rumor…they are big contributors to strategy development and execution”
(ABC för mellanchefer, Härje Fransén 2004)
The question is If middle managers are so valuable, why would they report dissatisfaction and leave their companies? A primary reason is lack of advancement opportunity, says Sirota. "When companies downsize, they will often cut middle management ranks. But even if companies just stagnate,
advancement opportunities are limited. This hits people very hard, particularly people in their late 30s and 40s."
It is analyzes the plight of middle managers--they have a boss's responsibility without a boss's authority; they function as specialists and generalists at the same time; and they must meet the conflicting demands of superiors, subordinates, and peers. Although middle management positions are increasingly common in divisionalized corporations, they are often misunderstood.( Hugo E.R. Uyterhoeven, Harvard Business, General Managers in the Middle)
Middle managers as innovators:
Entrepreneurial middle managers are the key to innovative growth in organizations and are a source of hope for a slowed economy. In fact, strategic directives from senior executives mean nothing without efficient middle managers just below officer level who are able to design the systems and carry out the plans. Rosabeth Moss Kanter's article, first published in 1982, reports on a study of effective middle managers working in large corporations. It distinguishes between managers who fostered basic accomplishments (those that occurred within existing frameworks) and managers who achieved innovative accomplishments (those that increased long-term capacity). Basic accomplishments differ from innovative ones not only in scope and long-run impact but also in what it takes to achieve them. Innovative accomplishments tend to involve highly problematic situations that require creative solutions, power, and influence. Innovative middle managers are not necessarily extraordinary individuals. They do, however, share several characteristics, including comfort with change, clarity of direction, thoroughness, and a participative management style. Such managers also understand that achieving their goals takes time--and tact. Achieving goals also takes the support of a collaborative organization. Entrepreneurial managers require access to abundant information, support, and resources, and they need the power to go beyond the limits of their formal positions.
The important roles middle managers play in organizations, including balancing continuity and change, enhancing organizational resilience, and identifying potential innovations
Stereotypes about middle managers abound--including "they're boring, bureaucratic, rigid." But middle managers play critical roles in your company. Unlike ambitious, volatile stars, these "best supporting actors" care more about their company's well-being than their own. Prizing stability, they often step off the fast track to balance career with family.
Findings:
A middle manager is good leader if he have following:
Loyal: He must be loyal to employees and customers. He must be loyal to organization. All are loyal with themselves.
Centralization: A middle manager can become good leader if he have power. He must be in a agree to delegate power to lower management. Some middle managers are not willing to delegate power to lower management.
Operations vs Leadership: An effective manager must have operational and leadership abilities. Managers having both abilities can handle all situations in an effective way.
Information: They should have all the information about the organization in much detail. He should be in a position to accept and give information to others.
Long term vs short term goals: They should have some goals which may short term or long term goals. But the effective short term goals are those which leads to long term goals. Which are very helpful in achieving organizational goals.
Downsizing: in downsizing process most of the companies influence much on the middle management. They tries to eliminate the size of middle managers in the organization which is not good for middle managers.
There are three main things which a middle manager should have:
· Be there, when the ground shakes
· I’m good when my co-workers are visible
· If I do a good job I’m not needed in the end.
Conclusion:
From all the above discussion we came to know that middle managers are much needed for an organization. Organizations should give much importance to the middle managers. They should give them some power to make decisions. Because they are bond to top management for decisions and implementation of changes in the organization. They only work as a gate keeper who only see the things coming in and out of the organization but don’t have power stop any activity which is mot good for organization.
References:
Lecture by Mica Wulff Kamm
Rosabeth Moss Kanter, Quy Nguyen Huy, Thomas J. Delong, Don't Underrate Your Middle Managers, Harvard Business articles.
.( Hugo E.R. Uyterhoeven, Harvard Business, General Managers in the Middle, Harvard Business articles
Karen Golden-Biddle, Trish Reay and Denise Thomson, Implementing Change: The Crucial Role of Middle Managers
Caught in the Middle: Why Developing and Retaining Middle Managers Can Be So Challenging
Published : May 28, 2008
“…middle managers as we have known them are cooked geese.”
Tom Peters, Liberation Management (1992)
“…in knowledge intensive industries middle managers are definitely needed”
- My theory (Mica Wulff Kamm)
I agree with the statement that middle managers are definitely needed for an organization. Middle managers play a key role in the organizational development.
Almost every company has them. They may number six or 6,000 and they all share the same job category -- middle managers. They are often referred to as the "glue" that holds companies together, bridging the gap between the top management team and lower level workers. They implement strategy and organizational changes, keeping workers engaged during both good and bad economic cycles.
Most of the organizations didn’t give importance to the middle management they mainly focus on the top management or lower management. They ignore the middle managers to many extent. Due to which middle managers become disappointed from the job and they start thinking to switch from the job.
According to a 2007 Accenture survey of middle managers around the world, 20% reported dissatisfaction with their current organization and that same percentage reported that they were looking for another job. One of the top reasons cited was lack of prospects for advancement.
"Many companies are seeing significant turnover in middle management ranks, and with significant turnover, they don't have the ability to execute strategy," says vice dean of Wharton Executive Education Thomas Colligan. "Top management can spend all their time creating strategy, but without someone there to implement it, where are you at the end of the day?"
Colligan noted that one large partnership facing a 20% turnover rate did a calculation in which it concluded that for each 1% it could reduce turnover, it would increase partner earnings by $80,000. "Middle managers are very important to attract, develop and retain, and some companies are becoming painfully aware of that."
David Sirota, co-author of The Enthusiastic Employee: How Companies Profit by Giving Workers What They Want, predicts that middle managers will "again bear a significant part of the pain that the current economic conditions will bring."
Joe Ryan, who teaches in Wharton Executive Education, agrees. As companies go through economic cycles like the current one, middle managers get hit with the elimination of rewards and incentives and, in some cases, layoffs. This is particularly true now in the financial services industry, he says. "In cost-cutting times, knee-jerk reactions happen. There is a paradox where
middle managers are essential, but end up sacked when restructuring occurs. It's a rough situation because the people needed to run the most important projects are in the middle."
If companies don't manage change well, they will confront a "frozen" middle management and "vicious cycles of low morale and low engagement," Ryan says. "Regardless of the economic climate, companies need to build a resilient workforce and engage the middle to go forward, because this is where change occurs."
Middle managers are essential for an organization because they make a link between the top management and rest of the organization. Sirota describes them as "the glue across upper and lower levels as well
as horizontally with other departments."
According to Jane Farran, a senior fellow in Wharton Executive Education and managing partner of the consulting firm C4, with the economy under siege these days, "a lot of belt tightening is occurring. Many companies are nipping and tucking to make their numbers." That's not a good strategy, she suggests. Indeed, when companies have tried flattening their hierarchies in the past
-- thinking that middle managers are extraneous and a few layers of them could be eliminated -- the result was not what they expected.
"These intermediaries have a very important role," she says. "The middle managers translate strategy and the big picture so that it makes sense and is applicable for the day-to-day workers."
“…the death of the middle manager is an overstated rumor…they are big contributors to strategy development and execution”
(ABC för mellanchefer, Härje Fransén 2004)
The question is If middle managers are so valuable, why would they report dissatisfaction and leave their companies? A primary reason is lack of advancement opportunity, says Sirota. "When companies downsize, they will often cut middle management ranks. But even if companies just stagnate,
advancement opportunities are limited. This hits people very hard, particularly people in their late 30s and 40s."
It is analyzes the plight of middle managers--they have a boss's responsibility without a boss's authority; they function as specialists and generalists at the same time; and they must meet the conflicting demands of superiors, subordinates, and peers. Although middle management positions are increasingly common in divisionalized corporations, they are often misunderstood.( Hugo E.R. Uyterhoeven, Harvard Business, General Managers in the Middle)
Middle managers as innovators:
Entrepreneurial middle managers are the key to innovative growth in organizations and are a source of hope for a slowed economy. In fact, strategic directives from senior executives mean nothing without efficient middle managers just below officer level who are able to design the systems and carry out the plans. Rosabeth Moss Kanter's article, first published in 1982, reports on a study of effective middle managers working in large corporations. It distinguishes between managers who fostered basic accomplishments (those that occurred within existing frameworks) and managers who achieved innovative accomplishments (those that increased long-term capacity). Basic accomplishments differ from innovative ones not only in scope and long-run impact but also in what it takes to achieve them. Innovative accomplishments tend to involve highly problematic situations that require creative solutions, power, and influence. Innovative middle managers are not necessarily extraordinary individuals. They do, however, share several characteristics, including comfort with change, clarity of direction, thoroughness, and a participative management style. Such managers also understand that achieving their goals takes time--and tact. Achieving goals also takes the support of a collaborative organization. Entrepreneurial managers require access to abundant information, support, and resources, and they need the power to go beyond the limits of their formal positions.
The important roles middle managers play in organizations, including balancing continuity and change, enhancing organizational resilience, and identifying potential innovations
Stereotypes about middle managers abound--including "they're boring, bureaucratic, rigid." But middle managers play critical roles in your company. Unlike ambitious, volatile stars, these "best supporting actors" care more about their company's well-being than their own. Prizing stability, they often step off the fast track to balance career with family.
Findings:
A middle manager is good leader if he have following:
Loyal: He must be loyal to employees and customers. He must be loyal to organization. All are loyal with themselves.
Centralization: A middle manager can become good leader if he have power. He must be in a agree to delegate power to lower management. Some middle managers are not willing to delegate power to lower management.
Operations vs Leadership: An effective manager must have operational and leadership abilities. Managers having both abilities can handle all situations in an effective way.
Information: They should have all the information about the organization in much detail. He should be in a position to accept and give information to others.
Long term vs short term goals: They should have some goals which may short term or long term goals. But the effective short term goals are those which leads to long term goals. Which are very helpful in achieving organizational goals.
Downsizing: in downsizing process most of the companies influence much on the middle management. They tries to eliminate the size of middle managers in the organization which is not good for middle managers.
There are three main things which a middle manager should have:
· Be there, when the ground shakes
· I’m good when my co-workers are visible
· If I do a good job I’m not needed in the end.
Conclusion:
From all the above discussion we came to know that middle managers are much needed for an organization. Organizations should give much importance to the middle managers. They should give them some power to make decisions. Because they are bond to top management for decisions and implementation of changes in the organization. They only work as a gate keeper who only see the things coming in and out of the organization but don’t have power stop any activity which is mot good for organization.
References:
Lecture by Mica Wulff Kamm
Rosabeth Moss Kanter, Quy Nguyen Huy, Thomas J. Delong, Don't Underrate Your Middle Managers, Harvard Business articles.
.( Hugo E.R. Uyterhoeven, Harvard Business, General Managers in the Middle, Harvard Business articles
Karen Golden-Biddle, Trish Reay and Denise Thomson, Implementing Change: The Crucial Role of Middle Managers
Caught in the Middle: Why Developing and Retaining Middle Managers Can Be So Challenging
Published : May 28, 2008
Tuesday, December 2, 2008
The role of middle managers
The role of middle managers in the transmission and integration of organizational culture.
Publication: Journal of Healthcare Management
Publication Date: 01-NOV-04
Author: Valentino, Caterina Lucia
In this article the authors discuss the role of middle managers in terms of transition and integration of organizational culture. When organizations merge, the role of the middle manager as an agent of change is to make sense of, unite, and transmit the organization's culture. This process is complicated because the managers must have deep knowledge about the needs of the employees and organizational culture. They have short period of time to weld all the employees together into a smoothly functioning entity. Schein (1999) proposes eight essential steps that the manager must accomplish if cultural change is to occur. Bennis's (1989) four competencies of leadership is a framework to categorize and record actions that create a milieu of clear-cut goals, values, and basic assumptions for the organization's employees. Combining these two theoretical models illustrates how middle managers are able to create a "pull" style of influence (Kotler 2000) to attract and energize people to enroll in the new organization's vision of the future.
The data for this research came from interviews with the middle managers, the chief executive officer, and other staff members of a recently merged healthcare organization.
Here are the Bennis’s competencies and scheinäs steps which are much affective for change to make the organization culturally fit.
Integrated Framework for the Transmission and Integration of an
Organization's Culture
Bennis's Competencies Schein's Steps
1. Management of Attention
Create a compelling vision that moves the employees beyond their
present vision to a new vision.
2. Management of Meaning
Communicate the meaning of the vision to the employees.
3. Management of Trust
The ability of managers to
demonstrate reliability or
constancy, keep their word, and always let the staff know where
they stand.
4. Management of Self liaisons.
The ability of managers to make
not just decisions but also
collective decisions.
Schein's Steps
1. Create a compelling positive vision.
2. Coach and provide feedback.
3. Be a positive role model
4. Provide opportunities for
formal training.
5. Create in employees a sense that the organization's leaders will allow them to manage and
be in control of their own personal learning process
6. Create interdepartmental groups and cross-departmental liaisons.
7. Provide support groups
8. Align the organization's reward and discipline systems with the new way of thinking and
working.
They also suggest that Chief executive officers should take the following steps to facilitate culture integration:
1. Acknowledge and reward the work of middle managers by involving them in the planning and implementation of organizational changes.
2. Undertake early and focused activities that identify the merging organizations' basic underlying cultural assumptions.
3. Be cognizant of the change anxiety associated with mergers, and seek methods of increasing the employees' psychological safety.
Middle managers should initiate the following efforts when dealing with culture issues for merged entities:
1. Identify and bring to the surface any differences between the CEO's and middle managers' basic underlying assumptions.
2. Create support groups, composed of members from other departments, to talk about frustrations and difficulties associated with the merger process.
3. Explore the implications of applying business tools, such as the balanced scorecard, to assess the ability to achieve the desired results.
As long as mergers continue to take place, the findings presented here will be useful to inform decision makers as they attempt to make progress in newly formed organizations.
Findings:
Although the concepts of culture are abstract, they turn out to be highly related to creating effective organizational change.
As long as the organization's internal environment remains stable and the organization continues to experience success, its culture will remain strong. However, when the organization's internal environment changes, "some of those shared basic assumptions can become liabilities, precisely because of their strength" (Schein 1999, 165).
Middle managers are important. They help develop and translate the organization's vision and ideas into action and change (Bennis 1989; Schein 1999).
Middle managers know well to the employees of the organization. They are much important for making the change process effective. They are much familiar with the employees their needs. They understand them well as compared to the top management because they are close to the employees. They have much relations to the employees.
Leaders and managers who understand the construct of organizational culture and its potential affect the employees' willingness to identify with and become emotionally attached to the organization's basic underlying assumptions and, through the transmission and integration of an organization's culture, potentially affect and contribute to the development of the employees' affective commitment (Meyer and Allen 1997).
As organizational entities continue to merge, both to survive and to achieve economies of scale, research is needed to discover how an organization's culture evolves and who plays the key roles in the transmission and integration of its culture (Yin 1994).
The study give us much guide line to deal with change. How top management can make the transition process much effective. They face less barriers while implementing the change. Middle managers play a key role in communicating the change among the organizational employees. They listen both the parties (top management and employees). They also work as a communicator between the top management and employees.
Publication: Journal of Healthcare Management
Publication Date: 01-NOV-04
Author: Valentino, Caterina Lucia
In this article the authors discuss the role of middle managers in terms of transition and integration of organizational culture. When organizations merge, the role of the middle manager as an agent of change is to make sense of, unite, and transmit the organization's culture. This process is complicated because the managers must have deep knowledge about the needs of the employees and organizational culture. They have short period of time to weld all the employees together into a smoothly functioning entity. Schein (1999) proposes eight essential steps that the manager must accomplish if cultural change is to occur. Bennis's (1989) four competencies of leadership is a framework to categorize and record actions that create a milieu of clear-cut goals, values, and basic assumptions for the organization's employees. Combining these two theoretical models illustrates how middle managers are able to create a "pull" style of influence (Kotler 2000) to attract and energize people to enroll in the new organization's vision of the future.
The data for this research came from interviews with the middle managers, the chief executive officer, and other staff members of a recently merged healthcare organization.
Here are the Bennis’s competencies and scheinäs steps which are much affective for change to make the organization culturally fit.
Integrated Framework for the Transmission and Integration of an
Organization's Culture
Bennis's Competencies Schein's Steps
1. Management of Attention
Create a compelling vision that moves the employees beyond their
present vision to a new vision.
2. Management of Meaning
Communicate the meaning of the vision to the employees.
3. Management of Trust
The ability of managers to
demonstrate reliability or
constancy, keep their word, and always let the staff know where
they stand.
4. Management of Self liaisons.
The ability of managers to make
not just decisions but also
collective decisions.
Schein's Steps
1. Create a compelling positive vision.
2. Coach and provide feedback.
3. Be a positive role model
4. Provide opportunities for
formal training.
5. Create in employees a sense that the organization's leaders will allow them to manage and
be in control of their own personal learning process
6. Create interdepartmental groups and cross-departmental liaisons.
7. Provide support groups
8. Align the organization's reward and discipline systems with the new way of thinking and
working.
They also suggest that Chief executive officers should take the following steps to facilitate culture integration:
1. Acknowledge and reward the work of middle managers by involving them in the planning and implementation of organizational changes.
2. Undertake early and focused activities that identify the merging organizations' basic underlying cultural assumptions.
3. Be cognizant of the change anxiety associated with mergers, and seek methods of increasing the employees' psychological safety.
Middle managers should initiate the following efforts when dealing with culture issues for merged entities:
1. Identify and bring to the surface any differences between the CEO's and middle managers' basic underlying assumptions.
2. Create support groups, composed of members from other departments, to talk about frustrations and difficulties associated with the merger process.
3. Explore the implications of applying business tools, such as the balanced scorecard, to assess the ability to achieve the desired results.
As long as mergers continue to take place, the findings presented here will be useful to inform decision makers as they attempt to make progress in newly formed organizations.
Findings:
Although the concepts of culture are abstract, they turn out to be highly related to creating effective organizational change.
As long as the organization's internal environment remains stable and the organization continues to experience success, its culture will remain strong. However, when the organization's internal environment changes, "some of those shared basic assumptions can become liabilities, precisely because of their strength" (Schein 1999, 165).
Middle managers are important. They help develop and translate the organization's vision and ideas into action and change (Bennis 1989; Schein 1999).
Middle managers know well to the employees of the organization. They are much important for making the change process effective. They are much familiar with the employees their needs. They understand them well as compared to the top management because they are close to the employees. They have much relations to the employees.
Leaders and managers who understand the construct of organizational culture and its potential affect the employees' willingness to identify with and become emotionally attached to the organization's basic underlying assumptions and, through the transmission and integration of an organization's culture, potentially affect and contribute to the development of the employees' affective commitment (Meyer and Allen 1997).
As organizational entities continue to merge, both to survive and to achieve economies of scale, research is needed to discover how an organization's culture evolves and who plays the key roles in the transmission and integration of its culture (Yin 1994).
The study give us much guide line to deal with change. How top management can make the transition process much effective. They face less barriers while implementing the change. Middle managers play a key role in communicating the change among the organizational employees. They listen both the parties (top management and employees). They also work as a communicator between the top management and employees.
Saturday, November 29, 2008
Managing Stress - Hire the Right People
"By Lorraine Pirihi"
In this article the author says that managing stress is not easy if you don't have the right people in your business or team.
In his point of view every business owner or manager has a challenge to hire right people for a specific job in the organization to reduce stress in the organization. Its very difficult to assess the right person for right job or objective or goal.
He asked Nathan Chanesman, Managing Director of Myprofile Pty Ltd. to please explain…
"Without quality employees who share your vision and work ethic your business is not going anywhere.
So how do you find the "right" employee?
He also mentioned that we do bad experiences by hiring wrong employees for different jobs which causes organizational stress because they are not fit for the goals and objective of the organization. They don’t have skills and abilities to meet the organizational goals.
“People problems take the most toll on us personally producing significant emotional wear and tear.
What if you had a tool that could tell you in advance of hiring, if the candidates applying have the right attitude and behavioural style to do that job successfully?
Now that would be something! Well read on. It's now possible to predict behaviour quickly and accurately.”
Author said people can do more jobs if they are qualified and skilled for that position. However some people have natural aptitude and behavioural style which is much effective for the job. Those are self motivated they didn’t feel any stress to do that job. These are the people need to hire.
The question is how we can select to right employees? Which type of behavioural style they should have in their personality?
Author also mentioned that whilst we are all different, our behavioural habits and style are more predicable than we think. We each have a dominant style and this determines how we manage at work, at home, in our relationships, how we communicate and importantly what careers we are best suited to.
D - Drivers. These are people who want to get things done. Active and fast paced, more interested in tasks than relationships. Often strong willed and very assertive, they push to have things done their way.
P - Promoters. These are people who want to be noticed. Active and fast pace they are relationship oriented rather than tasks. Often very expressive, chatty, friendly and usually dramatic. Do things more intuitively.
S - Supporters. These are the people who want to get along. Very social and relationship oriented and not as vocal or enthusiastic as Promoters. Very dependable, work slower, great team players, amiable, want to help, show concern and want take care of everyone.
A - Administrators. These are people who want to get it right. Task oriented, not big on relationships, not very social and don't express their feelings. Very analytical, cautious and risk averse. They work at a slower more methodical pace and are less assertive and less expressive.
Each style has it's own behavioural patterns. Some styles don't get along, others are more suited to each other.
Interestingly the population is evenly spread, in other words 25% are one of four styles and more significantly 75% are of a style different to yours.
Conclusion:
Managing stress at work can be kept at a healthy level if you understand what behaviourial type you are and those around you.
Using a simple tool such as MyProfile for yourself and your people will be of great benefit. Stress is caused by many factors and often it's because the wrong people have been put into jobs that they are totally unsuitable for.
Stress can be reduced in many organizations if they people do what they supposed to do. There may be possibility of mistake in hiring process. There may be some persons who don’t much knowledge and experience to choose suitable candidate. If all the hiring authorities are qualified and they have much experience and knowledge about the selection of candidates then its much better for an organization to manage stress easily.
It is necessary to consider all the elements while making the hiring process more effective. Myprofile is the best way to choose a suitable candidate for any job. It makes the selection and assessment so easy for owners or managers. They can make effective decision regarding selection of employees.
In this article the author says that managing stress is not easy if you don't have the right people in your business or team.
In his point of view every business owner or manager has a challenge to hire right people for a specific job in the organization to reduce stress in the organization. Its very difficult to assess the right person for right job or objective or goal.
He asked Nathan Chanesman, Managing Director of Myprofile Pty Ltd. to please explain…
"Without quality employees who share your vision and work ethic your business is not going anywhere.
So how do you find the "right" employee?
He also mentioned that we do bad experiences by hiring wrong employees for different jobs which causes organizational stress because they are not fit for the goals and objective of the organization. They don’t have skills and abilities to meet the organizational goals.
“People problems take the most toll on us personally producing significant emotional wear and tear.
What if you had a tool that could tell you in advance of hiring, if the candidates applying have the right attitude and behavioural style to do that job successfully?
Now that would be something! Well read on. It's now possible to predict behaviour quickly and accurately.”
Author said people can do more jobs if they are qualified and skilled for that position. However some people have natural aptitude and behavioural style which is much effective for the job. Those are self motivated they didn’t feel any stress to do that job. These are the people need to hire.
The question is how we can select to right employees? Which type of behavioural style they should have in their personality?
Author also mentioned that whilst we are all different, our behavioural habits and style are more predicable than we think. We each have a dominant style and this determines how we manage at work, at home, in our relationships, how we communicate and importantly what careers we are best suited to.
D - Drivers. These are people who want to get things done. Active and fast paced, more interested in tasks than relationships. Often strong willed and very assertive, they push to have things done their way.
P - Promoters. These are people who want to be noticed. Active and fast pace they are relationship oriented rather than tasks. Often very expressive, chatty, friendly and usually dramatic. Do things more intuitively.
S - Supporters. These are the people who want to get along. Very social and relationship oriented and not as vocal or enthusiastic as Promoters. Very dependable, work slower, great team players, amiable, want to help, show concern and want take care of everyone.
A - Administrators. These are people who want to get it right. Task oriented, not big on relationships, not very social and don't express their feelings. Very analytical, cautious and risk averse. They work at a slower more methodical pace and are less assertive and less expressive.
Each style has it's own behavioural patterns. Some styles don't get along, others are more suited to each other.
Interestingly the population is evenly spread, in other words 25% are one of four styles and more significantly 75% are of a style different to yours.
Conclusion:
Managing stress at work can be kept at a healthy level if you understand what behaviourial type you are and those around you.
Using a simple tool such as MyProfile for yourself and your people will be of great benefit. Stress is caused by many factors and often it's because the wrong people have been put into jobs that they are totally unsuitable for.
Stress can be reduced in many organizations if they people do what they supposed to do. There may be possibility of mistake in hiring process. There may be some persons who don’t much knowledge and experience to choose suitable candidate. If all the hiring authorities are qualified and they have much experience and knowledge about the selection of candidates then its much better for an organization to manage stress easily.
It is necessary to consider all the elements while making the hiring process more effective. Myprofile is the best way to choose a suitable candidate for any job. It makes the selection and assessment so easy for owners or managers. They can make effective decision regarding selection of employees.
Thursday, November 27, 2008
The 5 P’s of Change:
The 5 P’s of Change:
Leading Change by Effectively Utilizing Leverage Points within an Organization
RAIG M. MCALLASTER
Organizational Dynamics, Vol. 33, No. 3, pp. 318–328, 2004 ISSN 0090-2616/$ – see frontmatter
_ 2004 Published by Elsevier Inc. doi:10.1016/j.orgdyn.2004.06.008
www.organizational-dynamics.com
In this article author looks at some ways to lead change. Successfully executing change initiatives, influencing others and moving the organization towards your point of view are clearly dependent on your ability to lead and manage. One of the keys to successful change is recognizing the different approaches that people and organizations go through when dealing with the reality that things will be different. He developed an integrated approach to handling change. The focus of that approach is the Five P’s of Change. The Five P’s focus on different leverage points that, when used as an integrated approach, can help organizations and their members accept and cope with change. The Five P’s can work independently, but change is most effective when they are leveraged together. While utilizing these leverage points can make a significant difference in the successful execution of a change effort, many times they are overlooked and the opportunity to move an organization to a new sustainable competitive advantage is lost.
The Five P’s are as follows:
• Pain
• Process
• Politics
• Payoff
• Persistence
Pain:
Pain is a fundamental driver of change. Many people and organizations change only when faced with a level of pain that leaves them without options. Basically, there are three types of pain—bad, good, and imposed.
By bad pain means organizations going down day by day and they didn’t think about change. After some time when they reached to end point at which it is difficult for them to survive then they make some change for getting in the market otherwise they didn’t think about any change.
For organizations, bad pain comes with red ink, and when the future is cast with almost certain doom and extinction.
The second type of pain found in organizations is ‘‘good’’ pain. Good pain can occur when an organization experiences phenomenal growth, when opportunities are breaking, and business is booming. In good times people work overtime and are tapped out trying to meet demand. Resources aren’t the issue. The issue is time and energy.
A third type of pain is imposed pain. This type of pain can be the most effective type when it is used in a proactive manner. When using imposed pain, the manager makes the decision that he will not wait for other factors, good or bad, to be the catalyst for change. Imposed pain is an example of leadership providing a stimulus for motivation and requires a firm determination and focus by the person leading the change. This is very difficult to handle employees in case of imposed change. Managers have to face a lot resistance against change. Large amount of risk is involved in this change process because employees are not ready for change and its very difficult for them to adjust themselves according to the situation.
Process:
Process is the essence of how one goes about changing the environment. The process used by many companies today to fix their organizational problems and drive change is referred to as ‘‘management by best seller (MBBS).’’
The process that should be used to determine and implement change varies by organization and by the problems and opportunities they face. In their article on the psychology of change, Lawson and Price (2003) state that four conditions are required to impact change:
• employees must see the reason for change and concur with those reasons;
• organization structures must support the change;
• employees must have the skill sets needed to implement the change;
• they must see those around them in positions they respect actually supporting and modeling the change.
Author suggests a process which is much effective for change in the organization. These include:
o Research problems and identify the causal problems or fundamental opportunities.
o Identify possible solutions.
o Communicate, communicate, and communicate.
o Select and announce the chosen course of action as soon as possible.
o Execute, execute, execute.
People in organizations are continuously bombarded with new flavor of- the-month programs. Successful execution of change initiatives requires the full attention of management and a dedication to doing it right.
Politics
Politics are ever present in society and in organizations of all types. Politics is, indeed, an important element of culture. Politics can and does make a major impact on influencing change. The effective agent of change will factor politics into the equation and effectively leverage it into any change activity. A successful leader must understand the politics of the organization; for example, who are their supporters and antagonists, and who are the undecided. This knowledge allows a leader to position the proposal to take advantage of its strengths, adapt it to address the perceived weaknesses of antagonists, and motivate the undecided. Building coalitions going into a change initiative helps to prevent the dreaded defeat or deadlock, or need to go back for further refinement or study.
Payoff
Payoff addresses the age-old question: ‘‘what’s in it for me?’’ Too often managers and executives implement sweeping changes in organizations, and never think about the payoff for people affected by the change. Sure, senior management receives bonuses, promotions, new opportunities, and the satisfaction of doing a challenging and exciting job.
There are following rewards which play an important roll in payoff:
• Money
• Relationship
To use relationships as a payoff, management could talk in terms of:
1. What the new relationships could mean to the person,
2. How relationships with management would be strengthened and what that might mean,
3. How the process of meeting new people helps a person grow emotionally, psychologically, socially, and
4. How the new relationships would be just as good as the old or maybe even better because of the change.
• Opportunity and development
• Pride
Persistence
In this point author said that the managers must be in touch with the employees continuously and providing in time information to the employee for making the change successful. It is same like marketing process that tells the employees what you want to do. What are your ideas about the change? What you want to do in the future?
Success is built upon creating momentum through persistent efforts to overcome resistance. Organizations are constantly formulating new ideas and initiatives for change, and this constant bombardment is often met with skepticism and a desire on the part of people for stability and sanity in their lives. Part of persistence relates to the fact that the first time a manager or leader of an organization does something that is different or in conflict with the new initiative, it provides the rationale and excuse for others not do it.
Conclusion& Findings:
Change is constant. Change is a normal part of evolution. It is essential to survival. Yet many organizations take change lightly and don’t think about how to aggressively and strategically make change happen. The assumption the change is good, and therefore irresistible, is common in our society. The 5 P’s are integrated leverage points that can provide key insights into the way an organization can affect change to improve its success. Can change happen without the 5 P’s, or with just a few of them? Yes, but the odds are stacked against a successful change initiative.
Without 5 P’s changes can be happen in the organizations but it provide us guide line for change so that we have to face less resistance against change. These are the leverages for change which have high success ratio for change. The organizations using these leverages for change have greatly probability for success..
Leading Change by Effectively Utilizing Leverage Points within an Organization
RAIG M. MCALLASTER
Organizational Dynamics, Vol. 33, No. 3, pp. 318–328, 2004 ISSN 0090-2616/$ – see frontmatter
_ 2004 Published by Elsevier Inc. doi:10.1016/j.orgdyn.2004.06.008
www.organizational-dynamics.com
In this article author looks at some ways to lead change. Successfully executing change initiatives, influencing others and moving the organization towards your point of view are clearly dependent on your ability to lead and manage. One of the keys to successful change is recognizing the different approaches that people and organizations go through when dealing with the reality that things will be different. He developed an integrated approach to handling change. The focus of that approach is the Five P’s of Change. The Five P’s focus on different leverage points that, when used as an integrated approach, can help organizations and their members accept and cope with change. The Five P’s can work independently, but change is most effective when they are leveraged together. While utilizing these leverage points can make a significant difference in the successful execution of a change effort, many times they are overlooked and the opportunity to move an organization to a new sustainable competitive advantage is lost.
The Five P’s are as follows:
• Pain
• Process
• Politics
• Payoff
• Persistence
Pain:
Pain is a fundamental driver of change. Many people and organizations change only when faced with a level of pain that leaves them without options. Basically, there are three types of pain—bad, good, and imposed.
By bad pain means organizations going down day by day and they didn’t think about change. After some time when they reached to end point at which it is difficult for them to survive then they make some change for getting in the market otherwise they didn’t think about any change.
For organizations, bad pain comes with red ink, and when the future is cast with almost certain doom and extinction.
The second type of pain found in organizations is ‘‘good’’ pain. Good pain can occur when an organization experiences phenomenal growth, when opportunities are breaking, and business is booming. In good times people work overtime and are tapped out trying to meet demand. Resources aren’t the issue. The issue is time and energy.
A third type of pain is imposed pain. This type of pain can be the most effective type when it is used in a proactive manner. When using imposed pain, the manager makes the decision that he will not wait for other factors, good or bad, to be the catalyst for change. Imposed pain is an example of leadership providing a stimulus for motivation and requires a firm determination and focus by the person leading the change. This is very difficult to handle employees in case of imposed change. Managers have to face a lot resistance against change. Large amount of risk is involved in this change process because employees are not ready for change and its very difficult for them to adjust themselves according to the situation.
Process:
Process is the essence of how one goes about changing the environment. The process used by many companies today to fix their organizational problems and drive change is referred to as ‘‘management by best seller (MBBS).’’
The process that should be used to determine and implement change varies by organization and by the problems and opportunities they face. In their article on the psychology of change, Lawson and Price (2003) state that four conditions are required to impact change:
• employees must see the reason for change and concur with those reasons;
• organization structures must support the change;
• employees must have the skill sets needed to implement the change;
• they must see those around them in positions they respect actually supporting and modeling the change.
Author suggests a process which is much effective for change in the organization. These include:
o Research problems and identify the causal problems or fundamental opportunities.
o Identify possible solutions.
o Communicate, communicate, and communicate.
o Select and announce the chosen course of action as soon as possible.
o Execute, execute, execute.
People in organizations are continuously bombarded with new flavor of- the-month programs. Successful execution of change initiatives requires the full attention of management and a dedication to doing it right.
Politics
Politics are ever present in society and in organizations of all types. Politics is, indeed, an important element of culture. Politics can and does make a major impact on influencing change. The effective agent of change will factor politics into the equation and effectively leverage it into any change activity. A successful leader must understand the politics of the organization; for example, who are their supporters and antagonists, and who are the undecided. This knowledge allows a leader to position the proposal to take advantage of its strengths, adapt it to address the perceived weaknesses of antagonists, and motivate the undecided. Building coalitions going into a change initiative helps to prevent the dreaded defeat or deadlock, or need to go back for further refinement or study.
Payoff
Payoff addresses the age-old question: ‘‘what’s in it for me?’’ Too often managers and executives implement sweeping changes in organizations, and never think about the payoff for people affected by the change. Sure, senior management receives bonuses, promotions, new opportunities, and the satisfaction of doing a challenging and exciting job.
There are following rewards which play an important roll in payoff:
• Money
• Relationship
To use relationships as a payoff, management could talk in terms of:
1. What the new relationships could mean to the person,
2. How relationships with management would be strengthened and what that might mean,
3. How the process of meeting new people helps a person grow emotionally, psychologically, socially, and
4. How the new relationships would be just as good as the old or maybe even better because of the change.
• Opportunity and development
• Pride
Persistence
In this point author said that the managers must be in touch with the employees continuously and providing in time information to the employee for making the change successful. It is same like marketing process that tells the employees what you want to do. What are your ideas about the change? What you want to do in the future?
Success is built upon creating momentum through persistent efforts to overcome resistance. Organizations are constantly formulating new ideas and initiatives for change, and this constant bombardment is often met with skepticism and a desire on the part of people for stability and sanity in their lives. Part of persistence relates to the fact that the first time a manager or leader of an organization does something that is different or in conflict with the new initiative, it provides the rationale and excuse for others not do it.
Conclusion& Findings:
Change is constant. Change is a normal part of evolution. It is essential to survival. Yet many organizations take change lightly and don’t think about how to aggressively and strategically make change happen. The assumption the change is good, and therefore irresistible, is common in our society. The 5 P’s are integrated leverage points that can provide key insights into the way an organization can affect change to improve its success. Can change happen without the 5 P’s, or with just a few of them? Yes, but the odds are stacked against a successful change initiative.
Without 5 P’s changes can be happen in the organizations but it provide us guide line for change so that we have to face less resistance against change. These are the leverages for change which have high success ratio for change. The organizations using these leverages for change have greatly probability for success..
Saturday, November 22, 2008
6 Key Contributors To Successful Team Leadership
Leading teams is challenging but in truth, certain contributors can result in you being a more successful team leader. So what are the 6 key contributors to successful team leadership?
Contributor 1: Relevant and meaningful purpose and goals
Teams that prosper need to have a clear purpose which is meaningful to them and matters to them. Additionally, they need to have goals that act as milestones or checkpoints along the way. In successful teams, the team will be passionate and enthusiastic about what they want to achieve and will get behind it if it is meaningful. Ask yourself what the team is trying to create, the reputation it wants to have and the results it wants to achieve. As the leader, get clear on the role you want to play, your style of operating and how you want to be seen by your team.
Contributor 2: Confidence and commitment building
As the leader of the team you need to build the confidence and commitment of individuals in the team. Part of your role here is to create an environment where people are encouraged and supported to take risks. How you respond to setbacks will be an excellent indicator of how well you do this. Another part is providing meaningful feedback on the good and not so good things.
Contributor 3: Skill mix
In your capacity of the team leader you have a role to play in getting the right skills in place and then continually strengthening these skills. The team does not operate in a static environment so you need to adapt to changing circumstances and people will only adapt if they have the skills to do so.
Contributor 4: Relationship management
The team you are leading might be totally motivated and be full of belief. However, you cannot expect that to be replicated throughout the organisation. People will be envious and may even try to derail your efforts. It is important that you as the team leader create good relationships outside of the team and leverage these relationships to overcome obstacles.
Contributor 5: Opportunity creation
As team leader you could decide to personally take all of the best opportunities that come up. Successful leaders know that it important not just to think about their own situation but also to look at creating opportunities for others to learn, grow and develop.
Contributor 6: Do the work
Teams are generally small in size so there is no space for people who distance themselves. Team leaders who are successful don't sit in an Ivory Tower, dishing out instructions. They get involved and do real work rather than watching in the wings.
Bottom line - By focusing on some key contributors we can make a step change in your performance as a team leader.
Reflections:
These are the main contributors which are very helpful in making effective and innovative teams.By these leaders can cope with difficulties which they face during the change process while making teams. Leaders motivate their subordinates towards their goals. They always make them confident to do the work right. They train them how they can handle different situations during the performance of duties.
The person having these abilities which are mentioned can become an effective and innovative leader..
Duncan Brodie of Goals and Achievements (G&A) works with teams in organisations who want to be more effective and achieve sustained success. He is an authorised Facilitator for Team Coaching International's Team Diagnostic Assessment. Sign up for his free e-course and monthly newsletter at http://www.goalsandachievements.co.uk/
Contributor 1: Relevant and meaningful purpose and goals
Teams that prosper need to have a clear purpose which is meaningful to them and matters to them. Additionally, they need to have goals that act as milestones or checkpoints along the way. In successful teams, the team will be passionate and enthusiastic about what they want to achieve and will get behind it if it is meaningful. Ask yourself what the team is trying to create, the reputation it wants to have and the results it wants to achieve. As the leader, get clear on the role you want to play, your style of operating and how you want to be seen by your team.
Contributor 2: Confidence and commitment building
As the leader of the team you need to build the confidence and commitment of individuals in the team. Part of your role here is to create an environment where people are encouraged and supported to take risks. How you respond to setbacks will be an excellent indicator of how well you do this. Another part is providing meaningful feedback on the good and not so good things.
Contributor 3: Skill mix
In your capacity of the team leader you have a role to play in getting the right skills in place and then continually strengthening these skills. The team does not operate in a static environment so you need to adapt to changing circumstances and people will only adapt if they have the skills to do so.
Contributor 4: Relationship management
The team you are leading might be totally motivated and be full of belief. However, you cannot expect that to be replicated throughout the organisation. People will be envious and may even try to derail your efforts. It is important that you as the team leader create good relationships outside of the team and leverage these relationships to overcome obstacles.
Contributor 5: Opportunity creation
As team leader you could decide to personally take all of the best opportunities that come up. Successful leaders know that it important not just to think about their own situation but also to look at creating opportunities for others to learn, grow and develop.
Contributor 6: Do the work
Teams are generally small in size so there is no space for people who distance themselves. Team leaders who are successful don't sit in an Ivory Tower, dishing out instructions. They get involved and do real work rather than watching in the wings.
Bottom line - By focusing on some key contributors we can make a step change in your performance as a team leader.
Reflections:
These are the main contributors which are very helpful in making effective and innovative teams.By these leaders can cope with difficulties which they face during the change process while making teams. Leaders motivate their subordinates towards their goals. They always make them confident to do the work right. They train them how they can handle different situations during the performance of duties.
The person having these abilities which are mentioned can become an effective and innovative leader..
Duncan Brodie of Goals and Achievements (G&A) works with teams in organisations who want to be more effective and achieve sustained success. He is an authorised Facilitator for Team Coaching International's Team Diagnostic Assessment. Sign up for his free e-course and monthly newsletter at http://www.goalsandachievements.co.uk/
Wednesday, November 19, 2008
Visit to ITAB
We visited ITAB Company this week on 17 Nov. It was an interesting and informative visit. We got lot of information from the company Managing Director and Production Manager. They provide us lot of information about their products, production process, methods of working, and how they market their products. What are the main things which are very important for them to sustain competitive advantage.
Turnover of the company:
Its turnover is round about €360 million per annum.
Suppliers and customers:
They didn’t prepare all the things by own. They have supplier from where they get material according to the order of the customer and give it final shape according to the demand of their customers.
Main products:
They prepare so many products e.g. wood, plastic, steel, metal etc.
Their main product is metal sheet products. They mostly work on concept.
Innovations:
Their radical innovation is auto scan check out system. Their other innovations are check out systems, out gates of big stores.
No of employees:
There are total 150 employees working in head office and production area.
The thing which I like more after the visit is their working environment and their structure. They don’t have so many people for controlling the quality of their products. They have only one quality control manager and four assistants which reports to the quality control manager. They train the employee in a way that every employee himself control the quality of the products on which he is working. There is no need of extra employees for controlling the quality.
They only check the quality at the end when product is in end stage of production. They also give priority to the people who are their customers and employees who work for them. They also have a logistic chain for providing in time delivery to the customers. They have only few products in their warehouse which are very important for quick delivery. From which they prepare the things after getting order. They believe on quick delivery for maintaining their customers. They also invite others to come with creative ideas.
Turnover of the company:
Its turnover is round about €360 million per annum.
Suppliers and customers:
They didn’t prepare all the things by own. They have supplier from where they get material according to the order of the customer and give it final shape according to the demand of their customers.
Main products:
They prepare so many products e.g. wood, plastic, steel, metal etc.
Their main product is metal sheet products. They mostly work on concept.
Innovations:
Their radical innovation is auto scan check out system. Their other innovations are check out systems, out gates of big stores.
No of employees:
There are total 150 employees working in head office and production area.
The thing which I like more after the visit is their working environment and their structure. They don’t have so many people for controlling the quality of their products. They have only one quality control manager and four assistants which reports to the quality control manager. They train the employee in a way that every employee himself control the quality of the products on which he is working. There is no need of extra employees for controlling the quality.
They only check the quality at the end when product is in end stage of production. They also give priority to the people who are their customers and employees who work for them. They also have a logistic chain for providing in time delivery to the customers. They have only few products in their warehouse which are very important for quick delivery. From which they prepare the things after getting order. They believe on quick delivery for maintaining their customers. They also invite others to come with creative ideas.
Monday, November 17, 2008
Characteristics of innovative leaders
Innovate: (Word Net definition):
1: to create (a new device or process) resulting from study and experimentation [syn: invention] 2: to create something in the mind [syn: invention, excogitation, conception, design] 3: the act of starting something for the first time; introducing something new...
Lead:
1: To show the way to by going in advance; 2: To guide or direct in a course [syn: guide]; 3: a) To serve as a route for; b) To be a channel or conduit for; 4: To guide the behavior or opinion of; to induce; 5: a) To direct the performance or activities of; b) To inspire the conduct of; 6: To play a principal or guiding role in; 7: a) To go or be at the head of...
By definition Innovation is a creative act that has implicit leadership characteristics. Leadership itself does not necessarily require innovation.
Characteristics of Innovative Leaders
Fast and action oriented.
Innovative leaders believed on speed and action orientation. They are much speedy in identifying the opportunities. Speed, responsiveness, and agility are everything to innovative leaders who analyze situations, make decisions and act on opportunities. They find shortcuts to slash red tape. They’d rather make a wrong decision than blow a potential opportunity by cautiously sitting still and playing it safe until all the data are in.
Immersed in progressive change:
Innovative leaders build organizations and foster a culture of on-going, never-ending change. They plan a change in very effective manner. They ensure that their organizations continually learn, adapt, evolve, and improve. Their first objective is to deal with turbulent change around them, then become master of that change.
Future-obsessed:
The beckoning horizon ahead excites them. These leaders visualize their organization’s future and plot its course. They’re always asking, “What next?” “Where else?” They create the future by visualizing it now.
Masters of motivation and inspiration:
Vanguard leaders first get people excited, then committed, and finally moving swiftly. They tap into secret chambers of the minds, hearts, and souls of people and know which “buttons to push” to activate their staff’s pride, faith, hope, drive, and perseverance. Innovative leaders make their followers feel special as if they were an elite exclusive team fulfilling some noble destiny. They help their employees fulfill a deep longing for creativity and innovation. They impart a sense of invincibility, power and control over their situations. These leaders accomplish two overwhelmingly important things: they make people feel good about themselves and they make them feel good about what they’re accomplishing.
Passionate:
Innovative leaders are incredibly driven. And that rubs off on their followers. They express emotions freely and showcase their excitement about new ideas and change.
Super-salespeople and evangelists:
The secret of innovative leadership is not authority, but influence and loyalty. President Dwight Eisenhower noted, “You do not lead by hitting people over the head—that’s assault, not leadership.” Innovative leaders persuasively communicate an optimistic, bright, enticing picture of the future for their followers. They elicit support along the way. They’re “dream merchants.” They keep the dream alive by referring to the grand vision or goal at every opportunity. They convince people to get on board and stay on board.
Rule breakers:
The only rule they have is, “There are no rules.” Bureaucratic thinking, even in small organizations, focuses on strictly (oftentimes “blindly”) following rules, regulations, methods, procedures, formulas, policies, and playing it safe. It’s about “running a tight ship.” Unfortunately, it stays in the harbor a lot and that’s not what ships are built for. Innovative leaders get followers to discard their policy and procedures' manuals and, instead, create common sense, flexible, and ethical guidelines to creatively operate. Set sail!
Mountain climbers:
What do Alexander the Great and Eckard Pfeiffer, CEO of Compaq Corporation, have in common? Both got their “troops” conquering more territory by repeatedly giving them challenging battles to fight and mountains to climb. But before the arrogance of complacency of victory set in, they announced yet another new and exciting goal—a new peak—to reach. “Are you ready for a bigger game?” they ask their followers. By creating on-going inspiring short-term visions and galvanizing followers to rush toward them, will innovative leaders keep interest and motivation peaked at all times.
Opportunists:
Innovative leaders aggressively seek out and grab ideas and opportunities before others are even aware of their existence. They study trends, technological developments, and are well-rounded readers. They’re always asking themselves questions like, “How does ‘this’ apply to my organization?” How can I use it or get ideas from it?”
Builders:
You can’t build good products in poor factories. The factory of creativity is the organization’s culture and operating climate. A major role of the leader is to create an environment where imagination, smart risk-taking, aggressive initiatives, and bold tactics are encouraged and rewarded. As builders, they design their organization’s infrastructure to support every aspect of innovation by helping to create or modify the organization’s collective values, beliefs, attitudes, and behaviors.
High-gain risk-takers:
You won’t find innovative leaders thinking small. Their plans are grandiose; their actions big and daring. They seek large gains and aren’t afraid to take smart calculated risks. These are people who create industries and fortunes, not by cautiously holding back, but by boldly leaping far ahead of the average crowd.
“We probably won’t remember the innovative person who couldn’t drive an idea from concept to reality -- or the leader who managed well but never really led an innovation. However, we will almost always remember the innovative leader.” (posted by Leigh Duncan)
However, what leaves the indelible impression on us are usually not the quirks of the innovative leader, but the unconventional thoughts, ideas, inventions, discoveries, institutions, products and experiences they bring to life.
Innovative leaders:
• Marry the art of invention with the discipline of management
• Are motivated by what is possible, not by what seems probable
• Consistently push the envelope – for themselves and all who follow
• Fear stagnation more than taking risks
• Are unflagging excellence junkies who resist the status quo
• Embrace failure as a step toward success
• Welcome change and challenge like fine, old friends
• Hunger for learning, stimulus and discovery
• Are motivated by internal drive, rather than external forces
• Inspire others by "doing" and "demonstrating"
• Admit to a strong inner sense of direction, mission or calling
These are the characteristics which should be present in a leader. Without these characteristics its difficult to become a good leader. These are most common factors which are important for an innovative leader.
Here are some names of famous leaders.
C.S. Lewis wrote that "Even in literature and art, no man who bothers about originality will ever be original: whereas if you simply try to tell the truth... you will, nine times out of ten, become original without ever having noticed it." There's something unmistakably original and truthful about innovative leaders. I'd name the following to the roll call:
• Abraham Lincoln
• Benjamin Franklin
• George Washington
• Winston Churchill
• Martin Luther King
• Marshall MacLuhan
• Jesus Christ
• Mother Theresa
• Albert Einstein
• Bill Gates
• Steve Jobs
• Meg Whitman
• Howard Hughes
• Richard Branson
References:
• Northhouse,P.G.(2007)Leadership Teories and practices, 4th Edition
• Bass, B. M. (1985) Leadership and Performance Beyond Expectation, New York: Free Press.
• Bennis, W. (1998) On Becoming a Leader, London: Arrow.
• Blake, R. R. and Mouton, J. S. (1964) The Managerial Grid, Houston TX.: Gulf.
• Blake, R. R. and Mouton, J. S. (1978) The New Managerial Grid, Houston TX.: Gulf.
• Burns, J. M. (1978) Leadership, New York: HarperCollins.
• Covey, S. R. (1989) The Seven Habits of Highly Effective People,
• Fiedler, F. E. and Garcia, J. E. (1987) New Approaches to Effective Leadership, New York: John Wiley.
1: to create (a new device or process) resulting from study and experimentation [syn: invention] 2: to create something in the mind [syn: invention, excogitation, conception, design] 3: the act of starting something for the first time; introducing something new...
Lead:
1: To show the way to by going in advance; 2: To guide or direct in a course [syn: guide]; 3: a) To serve as a route for; b) To be a channel or conduit for; 4: To guide the behavior or opinion of; to induce; 5: a) To direct the performance or activities of; b) To inspire the conduct of; 6: To play a principal or guiding role in; 7: a) To go or be at the head of...
By definition Innovation is a creative act that has implicit leadership characteristics. Leadership itself does not necessarily require innovation.
Characteristics of Innovative Leaders
Fast and action oriented.
Innovative leaders believed on speed and action orientation. They are much speedy in identifying the opportunities. Speed, responsiveness, and agility are everything to innovative leaders who analyze situations, make decisions and act on opportunities. They find shortcuts to slash red tape. They’d rather make a wrong decision than blow a potential opportunity by cautiously sitting still and playing it safe until all the data are in.
Immersed in progressive change:
Innovative leaders build organizations and foster a culture of on-going, never-ending change. They plan a change in very effective manner. They ensure that their organizations continually learn, adapt, evolve, and improve. Their first objective is to deal with turbulent change around them, then become master of that change.
Future-obsessed:
The beckoning horizon ahead excites them. These leaders visualize their organization’s future and plot its course. They’re always asking, “What next?” “Where else?” They create the future by visualizing it now.
Masters of motivation and inspiration:
Vanguard leaders first get people excited, then committed, and finally moving swiftly. They tap into secret chambers of the minds, hearts, and souls of people and know which “buttons to push” to activate their staff’s pride, faith, hope, drive, and perseverance. Innovative leaders make their followers feel special as if they were an elite exclusive team fulfilling some noble destiny. They help their employees fulfill a deep longing for creativity and innovation. They impart a sense of invincibility, power and control over their situations. These leaders accomplish two overwhelmingly important things: they make people feel good about themselves and they make them feel good about what they’re accomplishing.
Passionate:
Innovative leaders are incredibly driven. And that rubs off on their followers. They express emotions freely and showcase their excitement about new ideas and change.
Super-salespeople and evangelists:
The secret of innovative leadership is not authority, but influence and loyalty. President Dwight Eisenhower noted, “You do not lead by hitting people over the head—that’s assault, not leadership.” Innovative leaders persuasively communicate an optimistic, bright, enticing picture of the future for their followers. They elicit support along the way. They’re “dream merchants.” They keep the dream alive by referring to the grand vision or goal at every opportunity. They convince people to get on board and stay on board.
Rule breakers:
The only rule they have is, “There are no rules.” Bureaucratic thinking, even in small organizations, focuses on strictly (oftentimes “blindly”) following rules, regulations, methods, procedures, formulas, policies, and playing it safe. It’s about “running a tight ship.” Unfortunately, it stays in the harbor a lot and that’s not what ships are built for. Innovative leaders get followers to discard their policy and procedures' manuals and, instead, create common sense, flexible, and ethical guidelines to creatively operate. Set sail!
Mountain climbers:
What do Alexander the Great and Eckard Pfeiffer, CEO of Compaq Corporation, have in common? Both got their “troops” conquering more territory by repeatedly giving them challenging battles to fight and mountains to climb. But before the arrogance of complacency of victory set in, they announced yet another new and exciting goal—a new peak—to reach. “Are you ready for a bigger game?” they ask their followers. By creating on-going inspiring short-term visions and galvanizing followers to rush toward them, will innovative leaders keep interest and motivation peaked at all times.
Opportunists:
Innovative leaders aggressively seek out and grab ideas and opportunities before others are even aware of their existence. They study trends, technological developments, and are well-rounded readers. They’re always asking themselves questions like, “How does ‘this’ apply to my organization?” How can I use it or get ideas from it?”
Builders:
You can’t build good products in poor factories. The factory of creativity is the organization’s culture and operating climate. A major role of the leader is to create an environment where imagination, smart risk-taking, aggressive initiatives, and bold tactics are encouraged and rewarded. As builders, they design their organization’s infrastructure to support every aspect of innovation by helping to create or modify the organization’s collective values, beliefs, attitudes, and behaviors.
High-gain risk-takers:
You won’t find innovative leaders thinking small. Their plans are grandiose; their actions big and daring. They seek large gains and aren’t afraid to take smart calculated risks. These are people who create industries and fortunes, not by cautiously holding back, but by boldly leaping far ahead of the average crowd.
“We probably won’t remember the innovative person who couldn’t drive an idea from concept to reality -- or the leader who managed well but never really led an innovation. However, we will almost always remember the innovative leader.” (posted by Leigh Duncan)
However, what leaves the indelible impression on us are usually not the quirks of the innovative leader, but the unconventional thoughts, ideas, inventions, discoveries, institutions, products and experiences they bring to life.
Innovative leaders:
• Marry the art of invention with the discipline of management
• Are motivated by what is possible, not by what seems probable
• Consistently push the envelope – for themselves and all who follow
• Fear stagnation more than taking risks
• Are unflagging excellence junkies who resist the status quo
• Embrace failure as a step toward success
• Welcome change and challenge like fine, old friends
• Hunger for learning, stimulus and discovery
• Are motivated by internal drive, rather than external forces
• Inspire others by "doing" and "demonstrating"
• Admit to a strong inner sense of direction, mission or calling
These are the characteristics which should be present in a leader. Without these characteristics its difficult to become a good leader. These are most common factors which are important for an innovative leader.
Here are some names of famous leaders.
C.S. Lewis wrote that "Even in literature and art, no man who bothers about originality will ever be original: whereas if you simply try to tell the truth... you will, nine times out of ten, become original without ever having noticed it." There's something unmistakably original and truthful about innovative leaders. I'd name the following to the roll call:
• Abraham Lincoln
• Benjamin Franklin
• George Washington
• Winston Churchill
• Martin Luther King
• Marshall MacLuhan
• Jesus Christ
• Mother Theresa
• Albert Einstein
• Bill Gates
• Steve Jobs
• Meg Whitman
• Howard Hughes
• Richard Branson
References:
• Northhouse,P.G.(2007)Leadership Teories and practices, 4th Edition
• Bass, B. M. (1985) Leadership and Performance Beyond Expectation, New York: Free Press.
• Bennis, W. (1998) On Becoming a Leader, London: Arrow.
• Blake, R. R. and Mouton, J. S. (1964) The Managerial Grid, Houston TX.: Gulf.
• Blake, R. R. and Mouton, J. S. (1978) The New Managerial Grid, Houston TX.: Gulf.
• Burns, J. M. (1978) Leadership, New York: HarperCollins.
• Covey, S. R. (1989) The Seven Habits of Highly Effective People,
• Fiedler, F. E. and Garcia, J. E. (1987) New Approaches to Effective Leadership, New York: John Wiley.
Tuesday, November 4, 2008
Characteristics of innovative leaders
Four Characteristics of Innovative Leaders
Jun292007 Filed under: Leadership Author: Tony Morgan
Craig Groeschel from LifeChurch.tv had the unenviable task of presenting the after-lunch session yesterday. I had a meatball sandwich. Craig had to be better than that meatball sandwich. Even though he was competing with lunch and my lack of sleep, he certainly delivered.
Craig talked about the challenges of innovation. He suggested:
Limited Resources + Increasing Passion = Exponential Innovation
He then went on to talk about four characteristics of innovative leaders.
They heal the sick.
Not just physical healing. “In order to reach those that no one else is reaching, we will have to do things that no one else is doing.” We have to be driven to bring people to Jesus. We have to be passionate about that. “When is the last time you had a non-believer in your home?” We need to lead our people to love those that don’t know Christ. They need to be real people with names that people know. That type of ministry looks very different than the typical church ministry looks today. “Who is God calling you to reach that no around you is reaching?”
They break rules.
We don’t break away from the Truth of Jesus Christ. We need to do less “preaching” and more “listening.” Jesus healed people on the Sabbath. Martin Luther put the Bible in the hands of the common man. John Wesley preached outside the church walls. Bill Hybels combined the passion of parachurch with the power of the local church. “We have to care more about reaching people than following man’s rules.” Sometimes you have to stop watching what others are doing to hear from God. It’s your turn. Break some rules. “What is God calling you to try that hasn’t been done before?”
They offend Pharisees.
“When you do something new, the Pharisees will attack you like you never dreamed possible.” The things that are accepted today in the Church world, were hated ten years ago. When they do criticize, you must handle their criticism with grace. A lot of you are angry, and you
have to get over your anger. Don’t shoot back. “What new thing is God calling you to create that will be hated today and embraced tomorrow?”
They redefine success.
John 3:30. Less of me and more of God. We have to do that…in everything we do. For example, a 2,000-person church in a metro area like Washington, D.C. is a “microchurch.” We can’t be impressed with ourselves. Craig explained for him: Success is going to be if my children know Jesus. Success is going to be when my wife gets the best of me and not the leftovers. Success is going to be spending time with God…just me and God. Success is getting people out of our building and out impacting the world. Instead of counting the number of people that are showing up, what if we started counting the number of people who we lost?
Reflections:
I like this article because in this author describes the four major characteristics of an innovative leader. According to him if a person have these characheristics he can be a good innovative leader.
An innovative leader heal the sickness he like to fight with the challanges. He always accept challanges. He give courage to others for doing new things in an eefective way..
He did not care any rules. If he follow the rule the he can not be an innovative leader. Some times rules become a barrier for innovation. He work according to his thinking.He do the things in new way.Thats why he break the rules for some times.
He define the ways a success by participating in it for a project.He not only give courage to the others but also actively participate in the activities for setting an example of effctively doing the things..
I agree with the author without following or without these characteristics a person can not be an innovative leader.
Jun292007 Filed under: Leadership Author: Tony Morgan
Craig Groeschel from LifeChurch.tv had the unenviable task of presenting the after-lunch session yesterday. I had a meatball sandwich. Craig had to be better than that meatball sandwich. Even though he was competing with lunch and my lack of sleep, he certainly delivered.
Craig talked about the challenges of innovation. He suggested:
Limited Resources + Increasing Passion = Exponential Innovation
He then went on to talk about four characteristics of innovative leaders.
They heal the sick.
Not just physical healing. “In order to reach those that no one else is reaching, we will have to do things that no one else is doing.” We have to be driven to bring people to Jesus. We have to be passionate about that. “When is the last time you had a non-believer in your home?” We need to lead our people to love those that don’t know Christ. They need to be real people with names that people know. That type of ministry looks very different than the typical church ministry looks today. “Who is God calling you to reach that no around you is reaching?”
They break rules.
We don’t break away from the Truth of Jesus Christ. We need to do less “preaching” and more “listening.” Jesus healed people on the Sabbath. Martin Luther put the Bible in the hands of the common man. John Wesley preached outside the church walls. Bill Hybels combined the passion of parachurch with the power of the local church. “We have to care more about reaching people than following man’s rules.” Sometimes you have to stop watching what others are doing to hear from God. It’s your turn. Break some rules. “What is God calling you to try that hasn’t been done before?”
They offend Pharisees.
“When you do something new, the Pharisees will attack you like you never dreamed possible.” The things that are accepted today in the Church world, were hated ten years ago. When they do criticize, you must handle their criticism with grace. A lot of you are angry, and you
have to get over your anger. Don’t shoot back. “What new thing is God calling you to create that will be hated today and embraced tomorrow?”
They redefine success.
John 3:30. Less of me and more of God. We have to do that…in everything we do. For example, a 2,000-person church in a metro area like Washington, D.C. is a “microchurch.” We can’t be impressed with ourselves. Craig explained for him: Success is going to be if my children know Jesus. Success is going to be when my wife gets the best of me and not the leftovers. Success is going to be spending time with God…just me and God. Success is getting people out of our building and out impacting the world. Instead of counting the number of people that are showing up, what if we started counting the number of people who we lost?
Reflections:
I like this article because in this author describes the four major characteristics of an innovative leader. According to him if a person have these characheristics he can be a good innovative leader.
An innovative leader heal the sickness he like to fight with the challanges. He always accept challanges. He give courage to others for doing new things in an eefective way..
He did not care any rules. If he follow the rule the he can not be an innovative leader. Some times rules become a barrier for innovation. He work according to his thinking.He do the things in new way.Thats why he break the rules for some times.
He define the ways a success by participating in it for a project.He not only give courage to the others but also actively participate in the activities for setting an example of effctively doing the things..
I agree with the author without following or without these characteristics a person can not be an innovative leader.
Monday, October 27, 2008
Top 10 mergers in 2008
1. $85.6 billion – The acquisition of BellSouth by AT&T in the technological sector.
2. $35 billion – The acquisition of Burlington Resources by ConcocoPhillips in the energy sector.
3. $25.1 billion – The acquisition of Guidant by Boston Scientific in the healthcare sector.
4. $24.2 billion – The acquisition of Golden West Financial by Wachovia in the financial sector.
5. $21.3 billion – The acquisition of HCA by private equity buyers from Bain Capital, Merrill Lynch, KKR, Global Private Equity and the founder of HCA, Thomas F. Frist Jr. in the healthcare sector.
6. $16.2 billion – The acquisition of Freescale Semiconductor by private equity buyers from the Blackstone Group, Carlyle Group, Texas Pacific Group and Permira Advisers LLC in the technological sector.
7. $16 billion – The acquisition of Kerr-McGee by Anadarko Petroleum in the energy sector.
8. $13.6 billion – The acquisition of North Fork Bancorp by Capital One in the financial sector.
9. $11.7 billion – The acquisition of Lucent Technologies by Alcatel in the technological sector.
10. $10.5 billion – The acquisition of AmSouth Bancorp by Region Financial in the financial sector.
Reflection:
These are the top ten mergers of 2007.
We can say these as the big mergers of the year 2007. This is just for an information about the big mergers in the world..
2. $35 billion – The acquisition of Burlington Resources by ConcocoPhillips in the energy sector.
3. $25.1 billion – The acquisition of Guidant by Boston Scientific in the healthcare sector.
4. $24.2 billion – The acquisition of Golden West Financial by Wachovia in the financial sector.
5. $21.3 billion – The acquisition of HCA by private equity buyers from Bain Capital, Merrill Lynch, KKR, Global Private Equity and the founder of HCA, Thomas F. Frist Jr. in the healthcare sector.
6. $16.2 billion – The acquisition of Freescale Semiconductor by private equity buyers from the Blackstone Group, Carlyle Group, Texas Pacific Group and Permira Advisers LLC in the technological sector.
7. $16 billion – The acquisition of Kerr-McGee by Anadarko Petroleum in the energy sector.
8. $13.6 billion – The acquisition of North Fork Bancorp by Capital One in the financial sector.
9. $11.7 billion – The acquisition of Lucent Technologies by Alcatel in the technological sector.
10. $10.5 billion – The acquisition of AmSouth Bancorp by Region Financial in the financial sector.
Reflection:
These are the top ten mergers of 2007.
We can say these as the big mergers of the year 2007. This is just for an information about the big mergers in the world..
Important Terms used Mergers
Important Terms Relating To Mergers And Acquisitions
• Takeover
Takeover may be referred to as a corporate activity when a company places a bid for acquiring another company. The company, which intends to take over the target firm makes an offer of the "outstanding shares" in case the target firm is traded publicly.
• Hostile takeover
Is defined as an "unfriendly takeover". Such actions are usually revolted against by the managers and executives of the target firm.
• People pill
Under some circumstances of hostile takeover, the people pill is used to prevent the takeover. The entire management team gives a threat to put in their papers if the takeover takes place. Using this strategy will work out provided the management team is very efficient and can take the company to new heights. On the other hand, if the management team is not efficient, it would not matter to the acquiring company if the existing management team resigns. So, the success of this strategy is quite questionable.
• Sandbag
Sandbag is referred to as the process by which the target firm tends to defer the takeover or the acquisition with the hope that another company, with better offers may takeover instead. In other words, it is the process by which the target company "kills time" while waiting for a more eligible company to initiate the takeover.
• Shark Repellent
There are instances when a target company, which is being aimed at for a takeover resists the same. The target firm may do so by adopting different means. Some of the ways include manipulating shares as well as stocks and their values. All these attempts of the target firm resisting its acquisition or takeover are known as shark repellent.
• Golden parachute
Is yet another method of preventing a takeover. This is usually done by extending benefits to the top level executives lest they lose their portfolio/jobs if the takeover is effected. The benefits extended are quite lucrative.
• Raider
May be referred to an acquiring company, which is always on the look out for firms with undervalued assets. If the company finds that a company (target) does exists whose assets are undervalued, it buys majority of the shares from that target company so that it can exercise control over the assets of the target firm.
• Saturday Night Special
Saturday Night Special is referred to as an action of the corporate companies, whereby one company makes an attempt to takeover another company all of a sudden by executing a public tender offer. The name is derived from the fact that such attempts were made towards the weekends. However, such practices have been stopped as per Williams Act. It has now been obligatory that if a company acquires more than 5% of stocks from another company, this has to be reported to the SEC or the Securities Exchange Commission.
• Macaroni defense
This is referred to the policy wherein a large number of bonds are issued. At the same time the target company also assures people that the return on investment for these bonds will be higher with the takeover has taken place. This is another strategy embraced by the target firm for not succumbing to the pressures of the acquiring company.
Comment:
I posted these terms because in these terms there are some terms which make confusion about the other things. These are commonly used terms for megers and acquisitions.
I find these terms much intersting and like to share with others. Mergers and acquisitions are the main issues of this era. Most of the companiae goes towards megers either there are fews megers which got succeeded. About 70% maregers become fail due to many reasons.I am going to mention some reasons:
Incompetability between the systems
Cooperation problem between top management
Egoism
Barriers in decision making.
Lose of identity.
• Takeover
Takeover may be referred to as a corporate activity when a company places a bid for acquiring another company. The company, which intends to take over the target firm makes an offer of the "outstanding shares" in case the target firm is traded publicly.
• Hostile takeover
Is defined as an "unfriendly takeover". Such actions are usually revolted against by the managers and executives of the target firm.
• People pill
Under some circumstances of hostile takeover, the people pill is used to prevent the takeover. The entire management team gives a threat to put in their papers if the takeover takes place. Using this strategy will work out provided the management team is very efficient and can take the company to new heights. On the other hand, if the management team is not efficient, it would not matter to the acquiring company if the existing management team resigns. So, the success of this strategy is quite questionable.
• Sandbag
Sandbag is referred to as the process by which the target firm tends to defer the takeover or the acquisition with the hope that another company, with better offers may takeover instead. In other words, it is the process by which the target company "kills time" while waiting for a more eligible company to initiate the takeover.
• Shark Repellent
There are instances when a target company, which is being aimed at for a takeover resists the same. The target firm may do so by adopting different means. Some of the ways include manipulating shares as well as stocks and their values. All these attempts of the target firm resisting its acquisition or takeover are known as shark repellent.
• Golden parachute
Is yet another method of preventing a takeover. This is usually done by extending benefits to the top level executives lest they lose their portfolio/jobs if the takeover is effected. The benefits extended are quite lucrative.
• Raider
May be referred to an acquiring company, which is always on the look out for firms with undervalued assets. If the company finds that a company (target) does exists whose assets are undervalued, it buys majority of the shares from that target company so that it can exercise control over the assets of the target firm.
• Saturday Night Special
Saturday Night Special is referred to as an action of the corporate companies, whereby one company makes an attempt to takeover another company all of a sudden by executing a public tender offer. The name is derived from the fact that such attempts were made towards the weekends. However, such practices have been stopped as per Williams Act. It has now been obligatory that if a company acquires more than 5% of stocks from another company, this has to be reported to the SEC or the Securities Exchange Commission.
• Macaroni defense
This is referred to the policy wherein a large number of bonds are issued. At the same time the target company also assures people that the return on investment for these bonds will be higher with the takeover has taken place. This is another strategy embraced by the target firm for not succumbing to the pressures of the acquiring company.
Comment:
I posted these terms because in these terms there are some terms which make confusion about the other things. These are commonly used terms for megers and acquisitions.
I find these terms much intersting and like to share with others. Mergers and acquisitions are the main issues of this era. Most of the companiae goes towards megers either there are fews megers which got succeeded. About 70% maregers become fail due to many reasons.I am going to mention some reasons:
Incompetability between the systems
Cooperation problem between top management
Egoism
Barriers in decision making.
Lose of identity.
Monday, October 6, 2008
Crossing the Threshold from Founder
Crossing the Threshold from Founder
Management to Professional Management:
A Governance Perspective
Eric Gedajlovic, Michael H. Lubatkin and
William S. Schulze
University of Connecticut School of Business; University of Connecticut and EM Lyon School of
Business; Case Western Reserve University, Weatherhead School of Management, Cleveland
We argue that the challenges faced by threshold firms are deeply rooted
in governance characteristics (i.e. the incentives, authority and legitimacy) which
imbue them with characteristic capabilities, disabilities and path dependencies.
Whereas Zahra and Filatotchev (2004) reason the principal problem facing threshold
firms relates to organizational learning and knowledge management, we posit
resource acquisition and utilization to be equally important. Moreover, we argue
governance theory is more able than a knowledge-based perspective to explain the
root causes of the learning and resource issues faced by threshold firms as well as the
complex set of processes involved in their effective management.
INTRODUCTION
Around the globe, over history, and across diverse social contexts, foundermanaged
firms (FMFs) have functioned as a primary engine of economic development
and growth. While FMFs often fail at a relatively young age, many of those
that survive seem to hit a juncture in their evolution at which stagnation sets in
and their resources are no longer able to support their growth opportunities. Daily
and Dalton (1992) refer to firms at this defining moment in their evolution as
‘threshold firms’. They argue that in order to obtain the resources needed to
surmount this threshold, founders must cede control to professional managers.
Journal of Management Studies 41:5 July 2004
0022-2380
© Blackwell Publishing Ltd 2004. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ,
UK and 350 Main Street, Malden, MA 02148, USA.
Address for reprints: Eric Gedajlovic, University of Connecticut, School of Business; Management
Department, 2100 Hillside Road Unit 1041, Storrs, CT 06269-1041, USA (egedajlovic@
business.uconn.edu).
They also suggest that most threshold FMFs are incapable of successfully negotiating
this transition.
What is not well understood, however, is why these events occur. In a companion
paper, Zahra and Filatotchev (2004) offer an explanation based on a
knowledge-based perspective. We, on the other hand, use a variant of governance
theory drawn from Carney and Gedajlovic (2003), which defines governance, not
only in terms of incentives, as do agency theorists, but also in terms of authority
structures and norms of legitimacy. We argue that such a theory of governance
can shed important light on how knowledge and capabilities develop in FMFs. We
also discuss how governance theory provides insights regarding the evolutionary
processes by which FMFs are born, fit (or misfit) their environment, approach their
threshold, and attempt to cross over to become a Professional-Managed Firm
(PMF), as well as the path dependencies that inhibit this transformation.
Whereas Zahra and Filatotchev reason the principal problem facing threshold
firms has to do with organizational learning and knowledge management, we posit
resource acquisition and utilization to be at least as important a problem. Moreover,
we argue that governance theory is more able than a knowledge-based
perspective to explain the root causes of the learning and resource issues faced by
threshold firms as well as the complex set of processes involved in their effective
management.
We proceed by first describing how founder-management imbues FMFs with a
particular blend of incentives, authority relations, and norms of legitimacy that
makes this governance form particularly well-suited for growth and survival in
nascent and/or fragmented and heterogeneous markets. Next, we discuss how this
blend of incentives, authority and legitimacy interacts with the external environment
to affect the nature and pace of learning and capability development within
the FMF. Specifically, we reason that FMFs are more likely to be born and prosper
when the environment they face is low in munificence and complexity, but high in
dynamism. We then describe why successful FMFs tend to reach a knowledge and
resource crisis as organizational and ecological evolutionary forces propel them
into environments that become increasingly munificent, complex, and stable –
conditions that FMF governance leaves them poorly equipped to deal with. We
explain that to successfully surmount this crisis, underlying governance problems
must first be addressed and then attention must turn to the legacies of foundermanagement
that are embedded in the firm’s resources, processes, values and
culture (Christensen and Overdorf, 2000). We conclude by discussing our paper’s
theoretical and managerial implications, points of intersection with Zahra and
Filatotchev’s paper, and offer some general comments regarding the potential contribution
of governance theory to organizational analysis.
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GOVERNANCE AND THE PRE-THRESHOLD
FOUNDER-MANAGED FIRM
Alchian and Demsetz (1972), Jensen and Meckling (1976) and Fama and Jensen
(1983) each contributed seminal insights that put the economic incentives of FMFs
under the microscope. That these agency theorists chose to ground their theory
on the case of the FMF suggests the quintessential character of this governance
form. However, their analysis of firm governance, which reduces relationships
within firms to simple dyadic principal-agent relationships between economically
rational and motivated actors, offers an arid and superficial portrayal of the FMF.
And, while this reduction may be theoretically elegant and parsimonious, it
seriously underspecifies what organizations and their actors are about. Although
incentives may play a role in defining and motivating self-interested behaviour, not
all conduct can be properly characterized as such (Becker, 1981; Kahneman and
Tversky, 1979). Moreover, a singular focus on incentives ignores important
sociopolitical factors that affect the probability that particular individuals, or
groups of individuals will engage in self-interested pursuits (Granovetter, 1985;
Lubatkin et al., 2004). Such limitations raise serious concerns regarding the usefulness
of agency theory and its conceptualization of corporate governance for
management theory and practice.
In this section, we propose that a more fully specified treatment of FMF governance
and its influence on organizational learning and capability development
requires a consideration of not only incentives, but also the character of authority
relationships and norms of legitimacy that prevail in FMFs (Carney and
Gedajlovic, 2003).
Applying this governance view, our initial argument is that because authority
in FMFs is largely conditioned by the coupling of ownership and control in the
hands of the founder, it tends to be highly centralized and vested in that
person. The founder, therefore, has the largely unchallenged discretion to
share (or not share) authority with family members and a few trusted associates.
Moreover, the strategic, organizational and resource allocation decisions of
owner-managers in FMFs have the inherent legitimacy afforded the owners
of private property. In contrast, authority in firms managed by professional,
salaried managers is generally widely diffused across a managerial hierarchy
and is vested in the position, or function, not the individual. Managers in such
PMFs hold fiduciary powers ‘in trust’ and must justify decisions in terms of
their impact on the welfare of others. In the remainder of this section, we
describe how the system of incentives, authority relations and norms of
legitimacy inherent to FMF governance provides these firms with advantages
and disadvantages that are manifest in characteristic capabilities and
disabilities.
From Founder Management to Professional Management 901
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FMF Governance and Capabilities
Founders are individuals who demonstrate the alertness, character and temperament
needed to exploit a discovered opportunity (Kirzner, 1985). Founders are also
the source of at least some of the firm’s initial equity capital, typically provide
labour and technical expertise, and hold the decision rights afforded top managers.
The coupling of ownership and control grants founders the classic property rights
of usus (the right to use one’s property as one sees fit), abusus (the right to alter,
modify, or destroy one’s property) and usus fructus (the right to the profit generated
by the asset). Because of the concentration of these rights in the hands of the
founder, authority in FMFs tends to be highly centralized and vested in that person.
The founder, therefore, has the largely unchallenged discretion to share (or not
share) authority with family members and trusted associates. Moreover, the
strategic, organizational and resource allocation decisions of owner-managers in
FMFs have the inherent legitimacy afforded the owners of private property. In
contrast, authority in PMFs is generally widely diffused across a managerial hierarchy
and vested in the position, or function, not the individual. In this regard,
managers in PMFs hold fiduciary powers ‘in trust’ and must justify their decisions
in terms of their impact on the welfare of others.
A consequence of this concentration of power is that founders have the ability,
and the incentive, to pursue options that they perceive as ‘first best’ in terms of
their personal (subjective) utility. This helps explain why FMFs tend to strongly
reflect the expertise and personality of their founder (Miller et al., 1982), which
itself is the product of a multitude of background (informal) institutional influences,
including their upbringing, education, social contacts, cultural heritage and
work experience. In this regard, the nascent FMF is very much an incarnation of
its founder and has the essential character of a ‘tool’, or ‘goal-attainment’ device
for the advancement of the founder’s particular goals (Selznick, 1957). The result
is that the decisions reached and the strategies pursued by FMFs are often highly
idiosyncratic.
Idiosyncratic strategies and their strong reliance on their founder for critical
resources make FMFs highly prone to failure. On the other hand, such idiosyncrasy
may spark the discovery of truly de novo opportunities and frame-breaking
innovations. Moreover, the wide discretion afforded the founder facilitates dealmaking
and promotes the organizational agility necessary to exploit unrecognized
niches and address unmet market needs. Said differently, the governance structure
of nascent FMFs can facilitate their identification and pursuit of entrepreneurial
opportunities (Shane and Venkataraman, 2000).
A second source of FMF advantage stems from the fact that its governance
structure provides strong incentives for efficiency and parsimony (Brickley and
Dark, 1987). In contrast to public corporations, which use widespread shareholding
to diversify risk and raise capital, founders are generally unwilling, or at least
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© Blackwell Publishing Ltd 2004
highly reluctant to reduce their control (i.e., their ownership stake) in the firm.
This constraint makes them highly reliant on retained earnings and organic growth
for capital investment (Carney and Gedajlovic, 2002a). Founders thus have strong
incentives to maintain efficiency in their operations and be parsimonious in their
use of capital.
A third source of advantage is rooted in the veil of secrecy that FMF governance
provides. While founders of nascent FMFs must bear the consequences of their
actions, they rarely need to justify, or expose their decisions to the scrutiny of others,
nor need they disclose the terms and conditions of the deals they make with business
partners and suppliers and buyers of resources. This veil can be a benefit in
circumstances where the terms of exchange are potentially controversial, such as
when deals need to be cut with gatekeepers in emerging markets, or when decisions
are made to shed and/or re-deploy firm resources from an existing activity to newer,
and perhaps less legitimate economic pursuits. These properties also allow the FMF
to operate effectively in environments where property rights and formal contacts
are difficult to specify or enforce (Khanna and Palepu, 1997).
Viewed collectively, these three sources of advantage point to a relationship
between governance (i.e., incentives, authority structure and norms of legitimacy)
within FMFs, and the development of interstitial capabilities – the ability to generate
rents by filling market and institutional niches left unrecognized and/or unexploited
by other forms of business enterprise. Such interstitial capabilities can take
a variety of forms. For instance, as described above, FMFs are effective at perceiving
market opportunities others miss, and entering into relational contracts,
for which firms conditioned by other forms of governance are ill suited. Their tendency
towards parsimony and their personal character also allows FMFs to operate
profitably in market niches and institutional contexts that are inhospitable to other
types of firms.
FMF Governance and Disabilities
While the governance structure of FMFs may engender advantages that make
them capable of entering and competing in marketplaces in ways that widely-held
PMFs may find difficult, these advantages come bundled with offsetting and sometimes
toxic disabilities that tend to accumulate over time. We say this for five
reasons. First, the nascent FMF is overly dependent on its founder, which makes
it highly prone to failure and can cause key stakeholders to discount the firm’s
legitimacy. Aldrich and Fiol (1994), for example, note that nascent ventures may
lack both cognitive or sociopolitical legitimacy needed to secure cooperative ties
with key stakeholders in the firm’s factor (e.g., capable employees and resources),
product (e.g., distribution channels), or capital markets. Legitimacy deficits, it
follows, can engender resource deficits in FMFs and result in the types of strategic
learning difficulties described by Zahra and Filatotchev (2004).
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Second, these resource and learning problems are exacerbated by the fact that
FMF equity shares are privately held. Private ownership not only makes capital
more costly (due to liquidity and other risks of investment), but also isolates the
FMF from the monitoring and disciplinary influence that external capital markets
provide. This increases the odds that the founder may make decisions that
inadvertently compromise the firm’s long-term viability. Private ownership also
promotes risk avoidance, because founders tend to have most of their wealth
invested in the firm and so bear the full financial burden of failed investments.
Third, the governance structure of FMFs makes their founders vulnerable to
self-control problems. These problems, which Thaler and Shefrin (1981) call
‘agency problems with oneself,’ are especially potent in FMFs because founders
have the authority and legitimacy to pursue options they perceive to be ‘first best’
in terms of their subjective utility. The problem, of course, is that absent the need
to justify their decisions in terms of their impact on the welfare of others, founders
may occasionally do as they wish as opposed to doing what they should. The risk
that the founder may make strategic decisions that promote their personal utility
at the expense of others exposes both existing and potential stakeholders to risks
of expropriation (Morck, 1996), or to what Perrow (1986) calls ‘owner opportunism’.
As suggested by Adams’ (1963) equity theory, Barnard’s (1938) theory of
inducements-contributions and Rousseau’s (1995) notion of psychological contracts,
such actions may lead key stakeholders (e.g., employees, suppliers, financiers)
to avoid making relationship-specific investments in resources and processes and
can lead them to withhold required capital, effort and valued information.
Such dynamics may result in FMFs being faced with serious resource constraints
and can constitute a formidable impediment to broad-based organizational
learning.
Fourth, private ownership and the threat of self-control problems may combine
to make it difficult for the FMF to match the terms of employment offered by
other types of firms. Founders tend to be possessive of their property rights and
thus are hesitant or unwilling to dilute their control of the firm to outsiders. Consequently,
they are less able and likely to use stock and stock options as compensation,
a factor that limits the FMF’s ability to compete in certain labour markets
(Morck, 1996). FMFs may thus have difficulty hiring and retaining high quality
employees and managers, which can result in a significant human resource deficit
(Carney, 1998).
Finally, to the extent that founders value the veil of secrecy that their governance
provides, it makes FMF’s poorly suited to raise external capital through
public equity markets. To participate in these markets, firms are required to disclose
important financial and strategic aspects of their business, including the rationale
for large-scale investments and the expected impact that these investments
will have on shareholder wealth. These disclosures place the firm under the
scrutiny of money managers, outside investors, and rivals.
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FMF GOVERNANCE AND ENVIRONMENTAL FIT
Up to this point, we have discussed FMF capabilities and disabilities without considering
the role played by the firm’s competitive environment; that is, the exogenous
set of influences, embodying the separate dimensions of munificence,
complexity and dynamism (Dess and Beard, 1984). In this section, we argue that
whether FMF governance results in a net competitive advantage is contingent
upon the attributes of the firm’s competitive environment. Specifically, we reason
that by virtue of their unique form of governance, FMFs are more likely to be
born, grow, and thrive when the environment they face is characterized by low
levels of munificence and complexity, but by high levels of dynamism.
Munificence refers to the degree of resource abundance and the richness of
investment opportunities in the firm’s environment, and therefore, its capacity to
support growth and profitability (Miller and Friesen, 1984). We reason that due to
its distinct blend of incentives, authority and legitimacy, the FMF organizational
form is well suited for scarce environments. In this regard, the FMFs ability to
operate effectively with a lean administration and to engage in informal contracting
increases the probability that these firms will be able to operate profitably in
small or highly fragmented markets, and in harsh, resource scarce and pricecompetitive
markets like OEM manufacturing (Hobday, 2000) that professionally
managed firms (PMFs) are likely to deem too unattractive to enter.
The rules of the competitive game, however, change in more munificent environments.
The high expected internal rates of return associated with projects in
these environments are likely to provide PMFs with the economic incentive to enter
the marketplace. The governance characteristics of PMFs also make them better
suited than FMFs for munificent environments, because they enjoy better access
to capital and labour markets, and are consequently better able to make investments
in, and leverage specialized and co-specialized assets (Chandler, 1990).
FMFs may thus find themselves at a competitive disadvantage relative to PMFs as
the economic value of economies of scale and scope rise.
Complexity refers to the heterogeneity and range of factors in various environmental
segments (Dess and Beard, 1984), as well as ‘differences in competitive
tactics, customer tactics, customer tastes, product lines, and channels of distribution’
across markets (Miller and Friesen, 1984, p. 277). As environments become
more complex, so too must organizations by using more elaborate formal routines
and coordinating mechanisms and by adding staff departments to buffer core
activities.
We reason that more complex environments represent a double-edged sword
for FMFs. On the one hand, FMF governance affords them unique abilities to discover
opportunities, due to their advantages with regard to interstitial capabilities
(i.e., their capabilities to discover de novo and frame breaking innovations and fill
market and institutional opportunities left unrecognized and/or unexploited by
From Founder Management to Professional Management 905
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other forms of business enterprises). On the other hand, FMFs are less well suited
to exploit opportunities in complex environments since their form of governance
inhibits the development of sophisticated organizational systems (Redding, 1990).
The latter effect occurs largely because FMFs tend to disdain formal routine and
resist delegation and decentralization of authority and responsibility (Schulze et
al., 2001). In contrast, the PMF is a superior governance tool for the exploitation
of complex environments because of its affinity for routines and its ability to
delegate and monitor decision-making using sophisticated strategic controls (Hitt
et al., 1990). Such exploitation advantages are often definitive in complex environments
(Chandler, 1990). FMFs therefore tend to face a net disadvantage in
complex environments, even when they may have been the first to discover market
opportunities and pioneered the industry, or niche.
Dynamism can be broadly conceptualized as the rate of change and the degree
of instability in the environment (Dess and Beard, 1984), and is reflected in the
amount and unpredictability of change in ‘customer tastes, production or service
technologies, and the modes of competition in the firm’s principal industries’ (Miller
and Friesen, 1984, p. 277).We reason that the more dynamic the environment, the
better suited is the governance structures of the FMF, all else (i.e., munificence and
complexity) being the same. In this regard, the authority, legitimacy, and incentives
that accrue to the founder promote entrepreneurial alertness. More specifically, the
wide discretion and legitimacy afforded owner-managers in FMFs and their incentive
to use less specialized assets and processes as a means of reducing financial risk
have positive implications regarding dynamic environments. This occurs because
less specialized assets support a wider range of uses (Chatterjee and Wernefelt, 1991)
and may promote the kind of organizational agility needed to respond quickly to
ephemeral business opportunities (Chen, 1995). Furthermore, because FMFs
operate under a veil of secrecy, they are advantaged in dynamic environments not
only in terms of speed, but also in terms of surprise.
In more stable environments, however, the balance of relative advantage favours
PMFs. Here, speed to market and strategic flexibility are less vital. Environmental
stability also allows firms to benefit from the superior efficiency of specialized
assets and increases the probability that their development costs will be recovered.
Finally, less dynamic environments are better suited to the types of complex
organizational processes that characterize PMFs. For example, formal information
technology systems that engage in deliberate search for specific information may
allow PMFs to gather and leverage market information in ways that FMFs cannot
(Leonard-Barton, 1992).
EVOLVING TOWARDS THE THRESHOLD
Like the mythical figure Icarus whose wax wings led him to fly so high that his
wings melted, successful firms often possess capabilities which at first lead to
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success, but which invariably sow the seeds of their own decline (Miller, 1990). In
this section, we describe how successful FMFs follow an evolutionary trajectory
that propels them towards a threshold where the capabilities that brought them
success in the past are insufficient to carry them forward.
Organizational forces drive one aspect of this evolutionary process. Successful
FMFs – that is, those firms with founders possessing capabilities well suited for
their competitive environments – are generally presented with opportunities for
continued growth through, for example, expansion of their geographic coverage
and by offering closely related products and services. Pursuing these opportunities,
however, expands the scale and scope of the firm’s operations, which in
turn, taxes the founder’s ability to exercise effective control and also their ability
to acquire the necessary additional human and financial resources. Pursuing these
opportunities also forces the successful FMF to deal with a progressively
more complex environment, in terms of the heterogeneity and range of environmental
factors, for which its form of governance leaves the firm ill-equipped to
address.
Ecological forces drive the second aspect of the evolutionary process. The governance
attributes of FMFs, which empower and embolden their founders to be
alert to entrepreneurial opportunities, make them particularly well suited to be
first movers in new industries or in previously undiscovered market niches
(Kirzner, 1997). In this regard, the threat of others entering such a niche is initially
deterred because the population lacks legitimate solutions; i.e., suppliers need
to be educated, employees are hard to find, capital sources are wary, and institutional
rules may need to be changed (Carroll, 1985). This allows the FMF a
brief window of opportunity to exploit its discovered opportunity, free from direct
competition.
To the extent that the FMF is successful during this window, however, it attracts
second movers, some imitators, others innovators, and some coming from the professional-
managed ranks, with their own distinctive set of governance-engendered
capabilities and strategies. Some firms may enter with a generalist adaptation strategy,
whereby they expand its scope in non-overlapping, or unrelated, resource
spaces. Others may enter via a specialist adaptation strategy, whereby they extend
its scope by diversifying into overlapping resource niches that facilitate the sharing
of value activities and the transferring of knowledge. With a rise in niche density,
however, legitimate solutions are discovered that reduce uncertainty about takenfor-
granted solutions (Aldrich and Fiol, 1994). At the same time, institutional
support emerges and evolves for newly selected organizational forms (Carney and
Gedajlovic, 2002b), which further develops the market and enhances its attractiveness.
Said differently, as density rises, environments tend to become more
munificent, more complex, and less dynamic – the very environmental features
that we proposed to be unfavourable to FMFs due to limitations stemming for their
form of governance as well as the relative advantages of PMFs.
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OVERCOMING THE THRESHOLD
In the prior section, we argued that organizational and ecological evolutionary
forces can propel the successful FMF on a trajectory towards a threshold point
where their resources are no longer able to support their growth opportunities.
Daily and Dalton (1992) noted that the successful resolution of these problems
usually requires that the founder cede control to professional managers. And, while
crossing the threshold to becoming a PMF is possible, we argue in this section that
the legacy of FMF governance makes such a transition difficult.
An important obstacle to a successful transformation stems from the fact that
founders derive both economic and non-economic benefits from ownership and
leadership of their firms.Crossing the threshold invariably means that some of these
benefits will be compromised or disappear altogether. For example, by delegating
decision authority to a management team, the scope of the founder’s property rights
is compromised. Transformation also means that the FMF’s personalized and
idiosyncratic nature is likely to be diluted. In this regard, crossing the threshold to
become more ‘professional’may involve substantial opportunity cost for the founder,
especially since the perquisites and privileges afforded owner-managers often yield
benefits that resist quantification and may be derived from activities (e.g., parental
altruism or nepotism) not perceived as legitimate in the context of a PMF.
As a result, the founder’s opportunity costs may remain uncompensated by new
owners, thus giving founders a real incentive to resist the transformation, even
when the financial or operational necessity for the transformation is apparent
(Burkart et al., 2003). This may explain why control battles between founders and
professional managers are commonplace in threshold firms, and why venture
capital firms are generally reluctant to invest in them, unless they are granted the
right to replace the founder should conditions warrant.
Changing the formal governance structure from FMF to PMF is one thing;
changing the artefacts engendered by founder-managed governance is quite
another. Difficulties in such a transformation arise because firms possess organizational
attributes and capabilities that reflect their founding conditions (Stinchcombe,
1965) and develop patterns of interacting with stakeholders and their task
environments that become deeply rooted in their organizational memories and
repertoires (Nelson and Winter, 1982). In this regard, the idea that the firm belongs
to the founder often becomes deeply ingrained in the values (goals, performance
targets) and culture of most FMFs, resulting in taken-for-granted and sometimes
fatalistic behaviours on the part of the firm’s other actors (e.g., ‘if that’s what the
boss wants . . . it’s his/her firm’). As a consequence, FMFs may fail to learn even
when presented with the data and opportunity to do so. Moreover, the transition
to professional management introduces a new set of values and culture that are
often incompatible with the firm’s founding values and culture, and are therefore
likely to be resisted.
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In this sense, FMF governance may put in place intractable path dependencies
and learning disabilities that hamper a firm’s ability to successfully cross the threshold,
even if the founders perceive the need for such change and are willing to relinquish
control of their company. These path dependencies constitute a legacy of
founder-management that needs to be successfully managed if the organization is
to take advantage of its new governance and alter its resources, processes, values
and culture to forms more consistent with its age, size and environmental conditions.
Such a gauntlet of inhibiting factors mean that the effective transition from
FMF to PMF will seldom be easy, and in the majority of cases, will not be undertaken
or successfully completed.
CONCLUSION
Like Zahra and Filatotchev, we explore the challenges faced by threshold firms,
which Daily and Dalton (1992) describe as FMFs faced with resource constraints
requiring founders to cede control to professional management. While Zahra and
Filatotchev present a knowledge-based theory, this paper presents a governance
theory of FMFs and their evolution towards the critical threshold described by
Dalton and Daily. Despite the disparate theoretical perspectives, the two papers
offer quite similar portrayals of the organizational problems FMFs encounter as
they approach the threshold. For instance, both papers indicate that FMFs rely
heavily on their founder’s abilities for their early success, have tendencies to exhibit
intuitive decision making processes and have a narrow range of capabilities reflecting
their nascent conditions and early niche selection. Importantly, both papers
also emphasize that the environments of successful FMFs tend to evolve in ways
that present them with new organizational challenges and which require fundamental
change to their organizational processes.
The two papers differ, however, with respect to the underlying causes and consequences
of these organizational issues. We argue that the organizational challenges
faced by threshold firms are deeply rooted in governance characteristics
(i.e., the incentives, authority and legitimacy), which imbue them with characteristic
capabilities, disabilities and path dependencies. In contrast, Zahra and
Filatotchev focus primarily on the management of learning and knowledge issues.
While their analysis suggests that path dependent processes play an important role,
they do not directly addresses the origins of those path dependencies. In this
regard, we believe that Zahra and Filatotchev’s underspecification of the governance
antecedents of these knowledge and learning problems may have led them
to underestimate the tractability of the issues that must be addressed by threshold
firms for their successful resolution. Our thesis has been that the management of
these problems involve more than functional, techno-economic considerations
since they are deeply rooted in the legacy of founder management and require
fundamental changes to an organization’s resources, processes, values and culture.
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In closing, we note that governance theory holds much promise with regard to
many issues of theoretical and practical importance to management scholars,
because it encompasses issues pertaining to human agency, power-dependence
relations and normative claims regarding the role and purpose of an organization
(Carney and Gedajlovic, 2003). At the same time, we think that this potential has
been unrealized, largely because most management scholars have borrowed
narrow conceptualizations of governance from the fields of economics and
finance. For years, such conceptualizations have been criticized for their stark and
unrealistic depictions of human and organizational character as well as their
failure to pay sufficient attention to contextual issues (e.g., Granovetter, 1985;
Lubatkin et al., 2004; Perrow, 1986).
Rather than ignoring such factors, or treating them as ceteris paribus conditions,
we have made them central to our governance theory by describing how the governance
of an organizational form can be usefully conceptualized as a coherent
system of incentives, authority relations and norms of legitimacy. We believe that
the result is a richer and more realistic treatment of governance and one that provides
the basis for generating practical and theoretical insights regarding the character
and capabilities of FMFs and other types of organizations as well. In this
regard, we firmly believe that a governance perspective need not entail a stark and
arid portrayal of organizations and actors and that both management theory and
practice would benefit greatly from richer and more realistic conceptualisations of
governance in management research.
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Ideas of this paper:
This is a research paper about “Crossing the Threshold from Founder
Management to Professional Management in governance prospective” written by Eric Gedajlovic, Michael H. Lubatkin and
William S. Schulze.
They argue that the challenges faced by threshold firms are deeply rooted in governance characteristics (i.e. the incentives, authority and legitimacy) which saturate them with characteristic capabilities, disabilities and path dependencies. Whereas Zahra and Filatotchev (2004) reason the principal problem facing threshold firms relates to organizational learning and knowledge management, they suggest resource acquisition and utilization to be equally important. Moreover, they argue governance theory is more able than a knowledge-based perspective to explain the root causes of the learning and resource issues faced by threshold firms as well as the complex set of processes involved in their effective management.
They give some information about the foundarmanaged firms that FMFs often fail at a relatively young age, many of those that survive seem to hit a juncture in their evolution at which stagnation sets in and their resources are no longer able to support their growth opportunities. They also suggest that most threshold FMFs are incapable of successfully negotiating this transition.
They first describe how founder-management imbues FMFs with a
particular blend of incentives, authority relations, and norms of legitimacy that
makes this governance form particularly well-suited for growth and survival in
nascent and/or fragmented and heterogeneous markets. Next, they discuss how this blend of incentives, authority and legitimacy interacts with the external environment to affect the nature and pace of learning and capability development within the FMF. Specifically, they give reason that FMFs are more likely to be born and prosper when the environment they face is low in munificence and complexity, but high in dynamism. They then describe why successful FMFs tend to reach a knowledge and resource crisis as organizational and ecological evolutionary forces propel them into environments that become increasingly munificent, complex, and stable – conditions that FMF governance leaves them poorly equipped to deal with. They conclude by discussing their paper’s theoretical and managerial implications, points of intersection with Zahra and Filatotchev’s paper, and offer some general comments regarding the potential contribution of governance theory to organizational analysis.
GOVERNANCE AND THE PRE-THRESHOLD
FOUNDER-MANAGED FIRM
In this part they discuss the theories about governance. Their analysis of firm governance, which reduces relationships within firms to simple dyadic principal-agent relationships between economically rational and motivated actors, offers an arid and superficial portrayal of the FMF.
Moreover, a singular focus on incentives ignores important sociopolitical factors that affect the probability that particular individuals, or groups of individuals will engage in self-interested pursuits (Granovetter, 1985;Lubatkin et al., 2004).
They propose that a more fully specified treatment of FMF governance and its influence on organizational learning and capability development requires a consideration of not only incentives, but also the character of authorityrelationships and norms of legitimacy that prevail in FMFs (Carney and Gedajlovic, 2003).
Moreover, the strategic, organizational and resource allocation decisions of
owner-managers in FMFs have the inherent legitimacy afforded the owners
of private property. In contrast, authority in firms managed by professional,
salaried managers is generally widely diffused across a managerial hierarchy
and is vested in the position, or function, not the individual. Managers in such
PMFs hold fiduciary powers ‘in trust’ and must justify decisions in terms of
their impact on the welfare of others. In the remainder of this section, we
describe how the system of incentives, authority relations and norms of
legitimacy inherent to FMF governance provides these firms with advantages
and disadvantages that are manifest in characteristic capabilities and
disabilities.
FMF Governance and Capabilities
Founders are individuals who demonstrate the alertness, character and temperament needed to exploit a discovered opportunity (Kirzner, 1985).
They perceive as ‘first best’ in terms of their personal (subjective) utility. This helps explain why FMFs tend to strongly reflect the expertise and personality of their founder (Miller et al., 1982), which itself is the product of a multitude of background (informal) institutional influences,
including their upbringing, education, social contacts, cultural heritage and
work experience.
The second source of FMF advantage stems from the fact that its governance
structure provides strong incentives for efficiency and parsimony (Brickley and
Dark, 1987).
third source of advantage is rooted in the veil of secrecy that FMF governance
provides. While founders of nascent FMFs must bear the consequences of their
actions, they rarely need to justify, or expose their decisions to the scrutiny of others,
nor need they disclose the terms and conditions of the deals they make with business
partners and suppliers and buyers of resources. This veil can be a benefit in
circumstances where the terms of exchange are potentially controversial, such as
when deals need to be cut with gatekeepers in emerging markets, or when decisions are made to shed and/or re-deploy firm resources from an existing activity to newer, and perhaps less legitimate economic pursuits.
FMF Governance and Disabilities
While the governance structure of FMFs may engender advantages that make
them capable of entering and competing in marketplaces in ways that widely-held
PMFs may find difficult, these advantages come bundled with offsetting and sometimes toxic disabilities that tend to accumulate over time. There are five
reasons.
1) The nascent FMF is overly dependent on its founder, which makes
it highly prone to failure and can cause key stakeholders to discount the firm’s
legitimacy.
2) These resource and learning problems are exacerbated by the fact that
FMF equity shares are privately held.
3) The governance structure of FMFs makes their founders vulnerable to
self-control problems.
4) Private ownership and the threat of self-control problems may combine
to make it difficult for the FMF to match the terms of employment offered by
other types of firms.
5) To the extent that founders value the veil of secrecy that their governance
provides, it makes FMF’s poorly suited to raise external capital through
public equity markets.
FMF GOVERNANCE AND ENVIRONMENTAL FIT
In this section, they argue that whether FMF governance results in a net competitive advantage is contingent upon the attributes of the firm’s competitive environment. Specifically, we reason that by virtue of their unique form of governance, FMFs are more likely to be born, grow, and thrive when the environment they face is characterized by low levels of munificence and complexity, but by high levels of dynamism.
Environmental stability also allows firms to benefit from the superior efficiency of specialized assets and increases the probability that their development costs will be recovered.
Finally, less dynamic environments are better suited to the types of complex
organizational processes that characterize PMFs.
OVERCOMING THE THRESHOLD
We argue in this section that the legacy of FMF governance makes such a transition difficult.
Conclusion:
An important obstacle to a successful transformation stems from the fact that
founders derive both economic and non-economic benefits from ownership and
leadership of their firms. Crossing the threshold invariably means that some of,
they provide us main factors about the crossing thresholds from FMFs to PMFs. ignoring such factors, or treating them as ceteris paribus conditions,
we have made them central to our governance theory by describing how the governance of an organizational form can be usefully conceptualized as a coherent system of incentives, authority relations and norms of legitimacy. They believe that the result is a richer and more realistic treatment of governance and one that provides the basis for generating practical and theoretical insights regarding the character and capabilities of FMFs and other types of organizations as well. In this regard, we firmly believe that a governance perspective need not entail a stark and arid portrayal of organizations and actors and that both management theory and practice would benefit greatly from richer and more realistic approaches of governance in management research.
Management to Professional Management:
A Governance Perspective
Eric Gedajlovic, Michael H. Lubatkin and
William S. Schulze
University of Connecticut School of Business; University of Connecticut and EM Lyon School of
Business; Case Western Reserve University, Weatherhead School of Management, Cleveland
We argue that the challenges faced by threshold firms are deeply rooted
in governance characteristics (i.e. the incentives, authority and legitimacy) which
imbue them with characteristic capabilities, disabilities and path dependencies.
Whereas Zahra and Filatotchev (2004) reason the principal problem facing threshold
firms relates to organizational learning and knowledge management, we posit
resource acquisition and utilization to be equally important. Moreover, we argue
governance theory is more able than a knowledge-based perspective to explain the
root causes of the learning and resource issues faced by threshold firms as well as the
complex set of processes involved in their effective management.
INTRODUCTION
Around the globe, over history, and across diverse social contexts, foundermanaged
firms (FMFs) have functioned as a primary engine of economic development
and growth. While FMFs often fail at a relatively young age, many of those
that survive seem to hit a juncture in their evolution at which stagnation sets in
and their resources are no longer able to support their growth opportunities. Daily
and Dalton (1992) refer to firms at this defining moment in their evolution as
‘threshold firms’. They argue that in order to obtain the resources needed to
surmount this threshold, founders must cede control to professional managers.
Journal of Management Studies 41:5 July 2004
0022-2380
© Blackwell Publishing Ltd 2004. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ,
UK and 350 Main Street, Malden, MA 02148, USA.
Address for reprints: Eric Gedajlovic, University of Connecticut, School of Business; Management
Department, 2100 Hillside Road Unit 1041, Storrs, CT 06269-1041, USA (egedajlovic@
business.uconn.edu).
They also suggest that most threshold FMFs are incapable of successfully negotiating
this transition.
What is not well understood, however, is why these events occur. In a companion
paper, Zahra and Filatotchev (2004) offer an explanation based on a
knowledge-based perspective. We, on the other hand, use a variant of governance
theory drawn from Carney and Gedajlovic (2003), which defines governance, not
only in terms of incentives, as do agency theorists, but also in terms of authority
structures and norms of legitimacy. We argue that such a theory of governance
can shed important light on how knowledge and capabilities develop in FMFs. We
also discuss how governance theory provides insights regarding the evolutionary
processes by which FMFs are born, fit (or misfit) their environment, approach their
threshold, and attempt to cross over to become a Professional-Managed Firm
(PMF), as well as the path dependencies that inhibit this transformation.
Whereas Zahra and Filatotchev reason the principal problem facing threshold
firms has to do with organizational learning and knowledge management, we posit
resource acquisition and utilization to be at least as important a problem. Moreover,
we argue that governance theory is more able than a knowledge-based
perspective to explain the root causes of the learning and resource issues faced by
threshold firms as well as the complex set of processes involved in their effective
management.
We proceed by first describing how founder-management imbues FMFs with a
particular blend of incentives, authority relations, and norms of legitimacy that
makes this governance form particularly well-suited for growth and survival in
nascent and/or fragmented and heterogeneous markets. Next, we discuss how this
blend of incentives, authority and legitimacy interacts with the external environment
to affect the nature and pace of learning and capability development within
the FMF. Specifically, we reason that FMFs are more likely to be born and prosper
when the environment they face is low in munificence and complexity, but high in
dynamism. We then describe why successful FMFs tend to reach a knowledge and
resource crisis as organizational and ecological evolutionary forces propel them
into environments that become increasingly munificent, complex, and stable –
conditions that FMF governance leaves them poorly equipped to deal with. We
explain that to successfully surmount this crisis, underlying governance problems
must first be addressed and then attention must turn to the legacies of foundermanagement
that are embedded in the firm’s resources, processes, values and
culture (Christensen and Overdorf, 2000). We conclude by discussing our paper’s
theoretical and managerial implications, points of intersection with Zahra and
Filatotchev’s paper, and offer some general comments regarding the potential contribution
of governance theory to organizational analysis.
900 E. Gedajlovic et al.
© Blackwell Publishing Ltd 2004
GOVERNANCE AND THE PRE-THRESHOLD
FOUNDER-MANAGED FIRM
Alchian and Demsetz (1972), Jensen and Meckling (1976) and Fama and Jensen
(1983) each contributed seminal insights that put the economic incentives of FMFs
under the microscope. That these agency theorists chose to ground their theory
on the case of the FMF suggests the quintessential character of this governance
form. However, their analysis of firm governance, which reduces relationships
within firms to simple dyadic principal-agent relationships between economically
rational and motivated actors, offers an arid and superficial portrayal of the FMF.
And, while this reduction may be theoretically elegant and parsimonious, it
seriously underspecifies what organizations and their actors are about. Although
incentives may play a role in defining and motivating self-interested behaviour, not
all conduct can be properly characterized as such (Becker, 1981; Kahneman and
Tversky, 1979). Moreover, a singular focus on incentives ignores important
sociopolitical factors that affect the probability that particular individuals, or
groups of individuals will engage in self-interested pursuits (Granovetter, 1985;
Lubatkin et al., 2004). Such limitations raise serious concerns regarding the usefulness
of agency theory and its conceptualization of corporate governance for
management theory and practice.
In this section, we propose that a more fully specified treatment of FMF governance
and its influence on organizational learning and capability development
requires a consideration of not only incentives, but also the character of authority
relationships and norms of legitimacy that prevail in FMFs (Carney and
Gedajlovic, 2003).
Applying this governance view, our initial argument is that because authority
in FMFs is largely conditioned by the coupling of ownership and control in the
hands of the founder, it tends to be highly centralized and vested in that
person. The founder, therefore, has the largely unchallenged discretion to
share (or not share) authority with family members and a few trusted associates.
Moreover, the strategic, organizational and resource allocation decisions of
owner-managers in FMFs have the inherent legitimacy afforded the owners
of private property. In contrast, authority in firms managed by professional,
salaried managers is generally widely diffused across a managerial hierarchy
and is vested in the position, or function, not the individual. Managers in such
PMFs hold fiduciary powers ‘in trust’ and must justify decisions in terms of
their impact on the welfare of others. In the remainder of this section, we
describe how the system of incentives, authority relations and norms of
legitimacy inherent to FMF governance provides these firms with advantages
and disadvantages that are manifest in characteristic capabilities and
disabilities.
From Founder Management to Professional Management 901
© Blackwell Publishing Ltd 2004
FMF Governance and Capabilities
Founders are individuals who demonstrate the alertness, character and temperament
needed to exploit a discovered opportunity (Kirzner, 1985). Founders are also
the source of at least some of the firm’s initial equity capital, typically provide
labour and technical expertise, and hold the decision rights afforded top managers.
The coupling of ownership and control grants founders the classic property rights
of usus (the right to use one’s property as one sees fit), abusus (the right to alter,
modify, or destroy one’s property) and usus fructus (the right to the profit generated
by the asset). Because of the concentration of these rights in the hands of the
founder, authority in FMFs tends to be highly centralized and vested in that person.
The founder, therefore, has the largely unchallenged discretion to share (or not
share) authority with family members and trusted associates. Moreover, the
strategic, organizational and resource allocation decisions of owner-managers in
FMFs have the inherent legitimacy afforded the owners of private property. In
contrast, authority in PMFs is generally widely diffused across a managerial hierarchy
and vested in the position, or function, not the individual. In this regard,
managers in PMFs hold fiduciary powers ‘in trust’ and must justify their decisions
in terms of their impact on the welfare of others.
A consequence of this concentration of power is that founders have the ability,
and the incentive, to pursue options that they perceive as ‘first best’ in terms of
their personal (subjective) utility. This helps explain why FMFs tend to strongly
reflect the expertise and personality of their founder (Miller et al., 1982), which
itself is the product of a multitude of background (informal) institutional influences,
including their upbringing, education, social contacts, cultural heritage and
work experience. In this regard, the nascent FMF is very much an incarnation of
its founder and has the essential character of a ‘tool’, or ‘goal-attainment’ device
for the advancement of the founder’s particular goals (Selznick, 1957). The result
is that the decisions reached and the strategies pursued by FMFs are often highly
idiosyncratic.
Idiosyncratic strategies and their strong reliance on their founder for critical
resources make FMFs highly prone to failure. On the other hand, such idiosyncrasy
may spark the discovery of truly de novo opportunities and frame-breaking
innovations. Moreover, the wide discretion afforded the founder facilitates dealmaking
and promotes the organizational agility necessary to exploit unrecognized
niches and address unmet market needs. Said differently, the governance structure
of nascent FMFs can facilitate their identification and pursuit of entrepreneurial
opportunities (Shane and Venkataraman, 2000).
A second source of FMF advantage stems from the fact that its governance
structure provides strong incentives for efficiency and parsimony (Brickley and
Dark, 1987). In contrast to public corporations, which use widespread shareholding
to diversify risk and raise capital, founders are generally unwilling, or at least
902 E. Gedajlovic et al.
© Blackwell Publishing Ltd 2004
highly reluctant to reduce their control (i.e., their ownership stake) in the firm.
This constraint makes them highly reliant on retained earnings and organic growth
for capital investment (Carney and Gedajlovic, 2002a). Founders thus have strong
incentives to maintain efficiency in their operations and be parsimonious in their
use of capital.
A third source of advantage is rooted in the veil of secrecy that FMF governance
provides. While founders of nascent FMFs must bear the consequences of their
actions, they rarely need to justify, or expose their decisions to the scrutiny of others,
nor need they disclose the terms and conditions of the deals they make with business
partners and suppliers and buyers of resources. This veil can be a benefit in
circumstances where the terms of exchange are potentially controversial, such as
when deals need to be cut with gatekeepers in emerging markets, or when decisions
are made to shed and/or re-deploy firm resources from an existing activity to newer,
and perhaps less legitimate economic pursuits. These properties also allow the FMF
to operate effectively in environments where property rights and formal contacts
are difficult to specify or enforce (Khanna and Palepu, 1997).
Viewed collectively, these three sources of advantage point to a relationship
between governance (i.e., incentives, authority structure and norms of legitimacy)
within FMFs, and the development of interstitial capabilities – the ability to generate
rents by filling market and institutional niches left unrecognized and/or unexploited
by other forms of business enterprise. Such interstitial capabilities can take
a variety of forms. For instance, as described above, FMFs are effective at perceiving
market opportunities others miss, and entering into relational contracts,
for which firms conditioned by other forms of governance are ill suited. Their tendency
towards parsimony and their personal character also allows FMFs to operate
profitably in market niches and institutional contexts that are inhospitable to other
types of firms.
FMF Governance and Disabilities
While the governance structure of FMFs may engender advantages that make
them capable of entering and competing in marketplaces in ways that widely-held
PMFs may find difficult, these advantages come bundled with offsetting and sometimes
toxic disabilities that tend to accumulate over time. We say this for five
reasons. First, the nascent FMF is overly dependent on its founder, which makes
it highly prone to failure and can cause key stakeholders to discount the firm’s
legitimacy. Aldrich and Fiol (1994), for example, note that nascent ventures may
lack both cognitive or sociopolitical legitimacy needed to secure cooperative ties
with key stakeholders in the firm’s factor (e.g., capable employees and resources),
product (e.g., distribution channels), or capital markets. Legitimacy deficits, it
follows, can engender resource deficits in FMFs and result in the types of strategic
learning difficulties described by Zahra and Filatotchev (2004).
From Founder Management to Professional Management 903
© Blackwell Publishing Ltd 2004
Second, these resource and learning problems are exacerbated by the fact that
FMF equity shares are privately held. Private ownership not only makes capital
more costly (due to liquidity and other risks of investment), but also isolates the
FMF from the monitoring and disciplinary influence that external capital markets
provide. This increases the odds that the founder may make decisions that
inadvertently compromise the firm’s long-term viability. Private ownership also
promotes risk avoidance, because founders tend to have most of their wealth
invested in the firm and so bear the full financial burden of failed investments.
Third, the governance structure of FMFs makes their founders vulnerable to
self-control problems. These problems, which Thaler and Shefrin (1981) call
‘agency problems with oneself,’ are especially potent in FMFs because founders
have the authority and legitimacy to pursue options they perceive to be ‘first best’
in terms of their subjective utility. The problem, of course, is that absent the need
to justify their decisions in terms of their impact on the welfare of others, founders
may occasionally do as they wish as opposed to doing what they should. The risk
that the founder may make strategic decisions that promote their personal utility
at the expense of others exposes both existing and potential stakeholders to risks
of expropriation (Morck, 1996), or to what Perrow (1986) calls ‘owner opportunism’.
As suggested by Adams’ (1963) equity theory, Barnard’s (1938) theory of
inducements-contributions and Rousseau’s (1995) notion of psychological contracts,
such actions may lead key stakeholders (e.g., employees, suppliers, financiers)
to avoid making relationship-specific investments in resources and processes and
can lead them to withhold required capital, effort and valued information.
Such dynamics may result in FMFs being faced with serious resource constraints
and can constitute a formidable impediment to broad-based organizational
learning.
Fourth, private ownership and the threat of self-control problems may combine
to make it difficult for the FMF to match the terms of employment offered by
other types of firms. Founders tend to be possessive of their property rights and
thus are hesitant or unwilling to dilute their control of the firm to outsiders. Consequently,
they are less able and likely to use stock and stock options as compensation,
a factor that limits the FMF’s ability to compete in certain labour markets
(Morck, 1996). FMFs may thus have difficulty hiring and retaining high quality
employees and managers, which can result in a significant human resource deficit
(Carney, 1998).
Finally, to the extent that founders value the veil of secrecy that their governance
provides, it makes FMF’s poorly suited to raise external capital through
public equity markets. To participate in these markets, firms are required to disclose
important financial and strategic aspects of their business, including the rationale
for large-scale investments and the expected impact that these investments
will have on shareholder wealth. These disclosures place the firm under the
scrutiny of money managers, outside investors, and rivals.
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© Blackwell Publishing Ltd 2004
FMF GOVERNANCE AND ENVIRONMENTAL FIT
Up to this point, we have discussed FMF capabilities and disabilities without considering
the role played by the firm’s competitive environment; that is, the exogenous
set of influences, embodying the separate dimensions of munificence,
complexity and dynamism (Dess and Beard, 1984). In this section, we argue that
whether FMF governance results in a net competitive advantage is contingent
upon the attributes of the firm’s competitive environment. Specifically, we reason
that by virtue of their unique form of governance, FMFs are more likely to be
born, grow, and thrive when the environment they face is characterized by low
levels of munificence and complexity, but by high levels of dynamism.
Munificence refers to the degree of resource abundance and the richness of
investment opportunities in the firm’s environment, and therefore, its capacity to
support growth and profitability (Miller and Friesen, 1984). We reason that due to
its distinct blend of incentives, authority and legitimacy, the FMF organizational
form is well suited for scarce environments. In this regard, the FMFs ability to
operate effectively with a lean administration and to engage in informal contracting
increases the probability that these firms will be able to operate profitably in
small or highly fragmented markets, and in harsh, resource scarce and pricecompetitive
markets like OEM manufacturing (Hobday, 2000) that professionally
managed firms (PMFs) are likely to deem too unattractive to enter.
The rules of the competitive game, however, change in more munificent environments.
The high expected internal rates of return associated with projects in
these environments are likely to provide PMFs with the economic incentive to enter
the marketplace. The governance characteristics of PMFs also make them better
suited than FMFs for munificent environments, because they enjoy better access
to capital and labour markets, and are consequently better able to make investments
in, and leverage specialized and co-specialized assets (Chandler, 1990).
FMFs may thus find themselves at a competitive disadvantage relative to PMFs as
the economic value of economies of scale and scope rise.
Complexity refers to the heterogeneity and range of factors in various environmental
segments (Dess and Beard, 1984), as well as ‘differences in competitive
tactics, customer tactics, customer tastes, product lines, and channels of distribution’
across markets (Miller and Friesen, 1984, p. 277). As environments become
more complex, so too must organizations by using more elaborate formal routines
and coordinating mechanisms and by adding staff departments to buffer core
activities.
We reason that more complex environments represent a double-edged sword
for FMFs. On the one hand, FMF governance affords them unique abilities to discover
opportunities, due to their advantages with regard to interstitial capabilities
(i.e., their capabilities to discover de novo and frame breaking innovations and fill
market and institutional opportunities left unrecognized and/or unexploited by
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other forms of business enterprises). On the other hand, FMFs are less well suited
to exploit opportunities in complex environments since their form of governance
inhibits the development of sophisticated organizational systems (Redding, 1990).
The latter effect occurs largely because FMFs tend to disdain formal routine and
resist delegation and decentralization of authority and responsibility (Schulze et
al., 2001). In contrast, the PMF is a superior governance tool for the exploitation
of complex environments because of its affinity for routines and its ability to
delegate and monitor decision-making using sophisticated strategic controls (Hitt
et al., 1990). Such exploitation advantages are often definitive in complex environments
(Chandler, 1990). FMFs therefore tend to face a net disadvantage in
complex environments, even when they may have been the first to discover market
opportunities and pioneered the industry, or niche.
Dynamism can be broadly conceptualized as the rate of change and the degree
of instability in the environment (Dess and Beard, 1984), and is reflected in the
amount and unpredictability of change in ‘customer tastes, production or service
technologies, and the modes of competition in the firm’s principal industries’ (Miller
and Friesen, 1984, p. 277).We reason that the more dynamic the environment, the
better suited is the governance structures of the FMF, all else (i.e., munificence and
complexity) being the same. In this regard, the authority, legitimacy, and incentives
that accrue to the founder promote entrepreneurial alertness. More specifically, the
wide discretion and legitimacy afforded owner-managers in FMFs and their incentive
to use less specialized assets and processes as a means of reducing financial risk
have positive implications regarding dynamic environments. This occurs because
less specialized assets support a wider range of uses (Chatterjee and Wernefelt, 1991)
and may promote the kind of organizational agility needed to respond quickly to
ephemeral business opportunities (Chen, 1995). Furthermore, because FMFs
operate under a veil of secrecy, they are advantaged in dynamic environments not
only in terms of speed, but also in terms of surprise.
In more stable environments, however, the balance of relative advantage favours
PMFs. Here, speed to market and strategic flexibility are less vital. Environmental
stability also allows firms to benefit from the superior efficiency of specialized
assets and increases the probability that their development costs will be recovered.
Finally, less dynamic environments are better suited to the types of complex
organizational processes that characterize PMFs. For example, formal information
technology systems that engage in deliberate search for specific information may
allow PMFs to gather and leverage market information in ways that FMFs cannot
(Leonard-Barton, 1992).
EVOLVING TOWARDS THE THRESHOLD
Like the mythical figure Icarus whose wax wings led him to fly so high that his
wings melted, successful firms often possess capabilities which at first lead to
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success, but which invariably sow the seeds of their own decline (Miller, 1990). In
this section, we describe how successful FMFs follow an evolutionary trajectory
that propels them towards a threshold where the capabilities that brought them
success in the past are insufficient to carry them forward.
Organizational forces drive one aspect of this evolutionary process. Successful
FMFs – that is, those firms with founders possessing capabilities well suited for
their competitive environments – are generally presented with opportunities for
continued growth through, for example, expansion of their geographic coverage
and by offering closely related products and services. Pursuing these opportunities,
however, expands the scale and scope of the firm’s operations, which in
turn, taxes the founder’s ability to exercise effective control and also their ability
to acquire the necessary additional human and financial resources. Pursuing these
opportunities also forces the successful FMF to deal with a progressively
more complex environment, in terms of the heterogeneity and range of environmental
factors, for which its form of governance leaves the firm ill-equipped to
address.
Ecological forces drive the second aspect of the evolutionary process. The governance
attributes of FMFs, which empower and embolden their founders to be
alert to entrepreneurial opportunities, make them particularly well suited to be
first movers in new industries or in previously undiscovered market niches
(Kirzner, 1997). In this regard, the threat of others entering such a niche is initially
deterred because the population lacks legitimate solutions; i.e., suppliers need
to be educated, employees are hard to find, capital sources are wary, and institutional
rules may need to be changed (Carroll, 1985). This allows the FMF a
brief window of opportunity to exploit its discovered opportunity, free from direct
competition.
To the extent that the FMF is successful during this window, however, it attracts
second movers, some imitators, others innovators, and some coming from the professional-
managed ranks, with their own distinctive set of governance-engendered
capabilities and strategies. Some firms may enter with a generalist adaptation strategy,
whereby they expand its scope in non-overlapping, or unrelated, resource
spaces. Others may enter via a specialist adaptation strategy, whereby they extend
its scope by diversifying into overlapping resource niches that facilitate the sharing
of value activities and the transferring of knowledge. With a rise in niche density,
however, legitimate solutions are discovered that reduce uncertainty about takenfor-
granted solutions (Aldrich and Fiol, 1994). At the same time, institutional
support emerges and evolves for newly selected organizational forms (Carney and
Gedajlovic, 2002b), which further develops the market and enhances its attractiveness.
Said differently, as density rises, environments tend to become more
munificent, more complex, and less dynamic – the very environmental features
that we proposed to be unfavourable to FMFs due to limitations stemming for their
form of governance as well as the relative advantages of PMFs.
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OVERCOMING THE THRESHOLD
In the prior section, we argued that organizational and ecological evolutionary
forces can propel the successful FMF on a trajectory towards a threshold point
where their resources are no longer able to support their growth opportunities.
Daily and Dalton (1992) noted that the successful resolution of these problems
usually requires that the founder cede control to professional managers. And, while
crossing the threshold to becoming a PMF is possible, we argue in this section that
the legacy of FMF governance makes such a transition difficult.
An important obstacle to a successful transformation stems from the fact that
founders derive both economic and non-economic benefits from ownership and
leadership of their firms.Crossing the threshold invariably means that some of these
benefits will be compromised or disappear altogether. For example, by delegating
decision authority to a management team, the scope of the founder’s property rights
is compromised. Transformation also means that the FMF’s personalized and
idiosyncratic nature is likely to be diluted. In this regard, crossing the threshold to
become more ‘professional’may involve substantial opportunity cost for the founder,
especially since the perquisites and privileges afforded owner-managers often yield
benefits that resist quantification and may be derived from activities (e.g., parental
altruism or nepotism) not perceived as legitimate in the context of a PMF.
As a result, the founder’s opportunity costs may remain uncompensated by new
owners, thus giving founders a real incentive to resist the transformation, even
when the financial or operational necessity for the transformation is apparent
(Burkart et al., 2003). This may explain why control battles between founders and
professional managers are commonplace in threshold firms, and why venture
capital firms are generally reluctant to invest in them, unless they are granted the
right to replace the founder should conditions warrant.
Changing the formal governance structure from FMF to PMF is one thing;
changing the artefacts engendered by founder-managed governance is quite
another. Difficulties in such a transformation arise because firms possess organizational
attributes and capabilities that reflect their founding conditions (Stinchcombe,
1965) and develop patterns of interacting with stakeholders and their task
environments that become deeply rooted in their organizational memories and
repertoires (Nelson and Winter, 1982). In this regard, the idea that the firm belongs
to the founder often becomes deeply ingrained in the values (goals, performance
targets) and culture of most FMFs, resulting in taken-for-granted and sometimes
fatalistic behaviours on the part of the firm’s other actors (e.g., ‘if that’s what the
boss wants . . . it’s his/her firm’). As a consequence, FMFs may fail to learn even
when presented with the data and opportunity to do so. Moreover, the transition
to professional management introduces a new set of values and culture that are
often incompatible with the firm’s founding values and culture, and are therefore
likely to be resisted.
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In this sense, FMF governance may put in place intractable path dependencies
and learning disabilities that hamper a firm’s ability to successfully cross the threshold,
even if the founders perceive the need for such change and are willing to relinquish
control of their company. These path dependencies constitute a legacy of
founder-management that needs to be successfully managed if the organization is
to take advantage of its new governance and alter its resources, processes, values
and culture to forms more consistent with its age, size and environmental conditions.
Such a gauntlet of inhibiting factors mean that the effective transition from
FMF to PMF will seldom be easy, and in the majority of cases, will not be undertaken
or successfully completed.
CONCLUSION
Like Zahra and Filatotchev, we explore the challenges faced by threshold firms,
which Daily and Dalton (1992) describe as FMFs faced with resource constraints
requiring founders to cede control to professional management. While Zahra and
Filatotchev present a knowledge-based theory, this paper presents a governance
theory of FMFs and their evolution towards the critical threshold described by
Dalton and Daily. Despite the disparate theoretical perspectives, the two papers
offer quite similar portrayals of the organizational problems FMFs encounter as
they approach the threshold. For instance, both papers indicate that FMFs rely
heavily on their founder’s abilities for their early success, have tendencies to exhibit
intuitive decision making processes and have a narrow range of capabilities reflecting
their nascent conditions and early niche selection. Importantly, both papers
also emphasize that the environments of successful FMFs tend to evolve in ways
that present them with new organizational challenges and which require fundamental
change to their organizational processes.
The two papers differ, however, with respect to the underlying causes and consequences
of these organizational issues. We argue that the organizational challenges
faced by threshold firms are deeply rooted in governance characteristics
(i.e., the incentives, authority and legitimacy), which imbue them with characteristic
capabilities, disabilities and path dependencies. In contrast, Zahra and
Filatotchev focus primarily on the management of learning and knowledge issues.
While their analysis suggests that path dependent processes play an important role,
they do not directly addresses the origins of those path dependencies. In this
regard, we believe that Zahra and Filatotchev’s underspecification of the governance
antecedents of these knowledge and learning problems may have led them
to underestimate the tractability of the issues that must be addressed by threshold
firms for their successful resolution. Our thesis has been that the management of
these problems involve more than functional, techno-economic considerations
since they are deeply rooted in the legacy of founder management and require
fundamental changes to an organization’s resources, processes, values and culture.
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In closing, we note that governance theory holds much promise with regard to
many issues of theoretical and practical importance to management scholars,
because it encompasses issues pertaining to human agency, power-dependence
relations and normative claims regarding the role and purpose of an organization
(Carney and Gedajlovic, 2003). At the same time, we think that this potential has
been unrealized, largely because most management scholars have borrowed
narrow conceptualizations of governance from the fields of economics and
finance. For years, such conceptualizations have been criticized for their stark and
unrealistic depictions of human and organizational character as well as their
failure to pay sufficient attention to contextual issues (e.g., Granovetter, 1985;
Lubatkin et al., 2004; Perrow, 1986).
Rather than ignoring such factors, or treating them as ceteris paribus conditions,
we have made them central to our governance theory by describing how the governance
of an organizational form can be usefully conceptualized as a coherent
system of incentives, authority relations and norms of legitimacy. We believe that
the result is a richer and more realistic treatment of governance and one that provides
the basis for generating practical and theoretical insights regarding the character
and capabilities of FMFs and other types of organizations as well. In this
regard, we firmly believe that a governance perspective need not entail a stark and
arid portrayal of organizations and actors and that both management theory and
practice would benefit greatly from richer and more realistic conceptualisations of
governance in management research.
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Ideas of this paper:
This is a research paper about “Crossing the Threshold from Founder
Management to Professional Management in governance prospective” written by Eric Gedajlovic, Michael H. Lubatkin and
William S. Schulze.
They argue that the challenges faced by threshold firms are deeply rooted in governance characteristics (i.e. the incentives, authority and legitimacy) which saturate them with characteristic capabilities, disabilities and path dependencies. Whereas Zahra and Filatotchev (2004) reason the principal problem facing threshold firms relates to organizational learning and knowledge management, they suggest resource acquisition and utilization to be equally important. Moreover, they argue governance theory is more able than a knowledge-based perspective to explain the root causes of the learning and resource issues faced by threshold firms as well as the complex set of processes involved in their effective management.
They give some information about the foundarmanaged firms that FMFs often fail at a relatively young age, many of those that survive seem to hit a juncture in their evolution at which stagnation sets in and their resources are no longer able to support their growth opportunities. They also suggest that most threshold FMFs are incapable of successfully negotiating this transition.
They first describe how founder-management imbues FMFs with a
particular blend of incentives, authority relations, and norms of legitimacy that
makes this governance form particularly well-suited for growth and survival in
nascent and/or fragmented and heterogeneous markets. Next, they discuss how this blend of incentives, authority and legitimacy interacts with the external environment to affect the nature and pace of learning and capability development within the FMF. Specifically, they give reason that FMFs are more likely to be born and prosper when the environment they face is low in munificence and complexity, but high in dynamism. They then describe why successful FMFs tend to reach a knowledge and resource crisis as organizational and ecological evolutionary forces propel them into environments that become increasingly munificent, complex, and stable – conditions that FMF governance leaves them poorly equipped to deal with. They conclude by discussing their paper’s theoretical and managerial implications, points of intersection with Zahra and Filatotchev’s paper, and offer some general comments regarding the potential contribution of governance theory to organizational analysis.
GOVERNANCE AND THE PRE-THRESHOLD
FOUNDER-MANAGED FIRM
In this part they discuss the theories about governance. Their analysis of firm governance, which reduces relationships within firms to simple dyadic principal-agent relationships between economically rational and motivated actors, offers an arid and superficial portrayal of the FMF.
Moreover, a singular focus on incentives ignores important sociopolitical factors that affect the probability that particular individuals, or groups of individuals will engage in self-interested pursuits (Granovetter, 1985;Lubatkin et al., 2004).
They propose that a more fully specified treatment of FMF governance and its influence on organizational learning and capability development requires a consideration of not only incentives, but also the character of authorityrelationships and norms of legitimacy that prevail in FMFs (Carney and Gedajlovic, 2003).
Moreover, the strategic, organizational and resource allocation decisions of
owner-managers in FMFs have the inherent legitimacy afforded the owners
of private property. In contrast, authority in firms managed by professional,
salaried managers is generally widely diffused across a managerial hierarchy
and is vested in the position, or function, not the individual. Managers in such
PMFs hold fiduciary powers ‘in trust’ and must justify decisions in terms of
their impact on the welfare of others. In the remainder of this section, we
describe how the system of incentives, authority relations and norms of
legitimacy inherent to FMF governance provides these firms with advantages
and disadvantages that are manifest in characteristic capabilities and
disabilities.
FMF Governance and Capabilities
Founders are individuals who demonstrate the alertness, character and temperament needed to exploit a discovered opportunity (Kirzner, 1985).
They perceive as ‘first best’ in terms of their personal (subjective) utility. This helps explain why FMFs tend to strongly reflect the expertise and personality of their founder (Miller et al., 1982), which itself is the product of a multitude of background (informal) institutional influences,
including their upbringing, education, social contacts, cultural heritage and
work experience.
The second source of FMF advantage stems from the fact that its governance
structure provides strong incentives for efficiency and parsimony (Brickley and
Dark, 1987).
third source of advantage is rooted in the veil of secrecy that FMF governance
provides. While founders of nascent FMFs must bear the consequences of their
actions, they rarely need to justify, or expose their decisions to the scrutiny of others,
nor need they disclose the terms and conditions of the deals they make with business
partners and suppliers and buyers of resources. This veil can be a benefit in
circumstances where the terms of exchange are potentially controversial, such as
when deals need to be cut with gatekeepers in emerging markets, or when decisions are made to shed and/or re-deploy firm resources from an existing activity to newer, and perhaps less legitimate economic pursuits.
FMF Governance and Disabilities
While the governance structure of FMFs may engender advantages that make
them capable of entering and competing in marketplaces in ways that widely-held
PMFs may find difficult, these advantages come bundled with offsetting and sometimes toxic disabilities that tend to accumulate over time. There are five
reasons.
1) The nascent FMF is overly dependent on its founder, which makes
it highly prone to failure and can cause key stakeholders to discount the firm’s
legitimacy.
2) These resource and learning problems are exacerbated by the fact that
FMF equity shares are privately held.
3) The governance structure of FMFs makes their founders vulnerable to
self-control problems.
4) Private ownership and the threat of self-control problems may combine
to make it difficult for the FMF to match the terms of employment offered by
other types of firms.
5) To the extent that founders value the veil of secrecy that their governance
provides, it makes FMF’s poorly suited to raise external capital through
public equity markets.
FMF GOVERNANCE AND ENVIRONMENTAL FIT
In this section, they argue that whether FMF governance results in a net competitive advantage is contingent upon the attributes of the firm’s competitive environment. Specifically, we reason that by virtue of their unique form of governance, FMFs are more likely to be born, grow, and thrive when the environment they face is characterized by low levels of munificence and complexity, but by high levels of dynamism.
Environmental stability also allows firms to benefit from the superior efficiency of specialized assets and increases the probability that their development costs will be recovered.
Finally, less dynamic environments are better suited to the types of complex
organizational processes that characterize PMFs.
OVERCOMING THE THRESHOLD
We argue in this section that the legacy of FMF governance makes such a transition difficult.
Conclusion:
An important obstacle to a successful transformation stems from the fact that
founders derive both economic and non-economic benefits from ownership and
leadership of their firms. Crossing the threshold invariably means that some of,
they provide us main factors about the crossing thresholds from FMFs to PMFs. ignoring such factors, or treating them as ceteris paribus conditions,
we have made them central to our governance theory by describing how the governance of an organizational form can be usefully conceptualized as a coherent system of incentives, authority relations and norms of legitimacy. They believe that the result is a richer and more realistic treatment of governance and one that provides the basis for generating practical and theoretical insights regarding the character and capabilities of FMFs and other types of organizations as well. In this regard, we firmly believe that a governance perspective need not entail a stark and arid portrayal of organizations and actors and that both management theory and practice would benefit greatly from richer and more realistic approaches of governance in management research.
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