As businesses evolve, so do their management styles. Let's explore the shift from entrepreneurial management to professional management.
Entrepreneurial management: nurturing the startup
Entrepreneurial management prevails in young, small firms. It's characterized by centralized decision-making and informal control. Typically, a general manager handles all decisions, given the simplicity of the organizational structure. Formal procedures and structures are minimal, as personal supervision by the entrepreneur suffices for monitoring activities.
Professional management: maturity brings structure
As a firm grows, professional management becomes more fitting, demanding greater structure. This approach involves delegating decision-making responsibilities and adopting formal control systems. General managers delegate authority to a hierarchy of middle managers, and a set of systems guides performance evaluation against objectives. Policies and procedures are established to steer the actions of company executives.
Coordinating strategies: four approaches
Strategy coordination hinges on two vital dimensions: delegation of responsibility and the use of formal control systems. Four primary strategies of coordination emerge:
1. Entrepreneurial management: Centralized decision-making with informal, personal control.
2. Professional Management: Delegated responsibilities with extensive formal control.
3. Laissez-Faire Management: Delegation of responsibilities but with informal control.
4. Bureaucratic Management: Centralized decision-making with formal control.
Balancing efficiency and effectiveness
Companies aim for both efficiency (achieving goals with minimal resources) and effectiveness (adapting to changing environmental needs). Delegation can enhance effectiveness but may simultaneously reduce efficiency. Striking the right balance is crucial.
Steps in transitioning to professional management
The shift to professional management involves a profound change in the entrepreneur's mindset. Personal satisfaction from direct action gives way to achieving results through others. Here are the transition steps:
1. Recognize the need for change: External inputs like board members or consultants may signal the need for transition. Warning signs include neglect of details, increased stress, and organizational disarray.
2. Develop human resources: Overcome personal loyalties that could hinder organizational growth. This may involve replacing close associates with employees possessing specialized skills.
3. Delegate responsibility: Place responsibility closer to the source of information for informed decision-making. Be cautious not to delegate key policy issues that demand a personal perspective.
4. Develop formal controls: Shift focus from monitoring behavior to evaluating performance. Adopt practical policies and invest effort in crafting policies that encourage innovation and commitment.
Transitioning to professional management requires a fundamental shift in attitude and behavior. Entrepreneurs must be prepared to relinquish some decision-making and adapt to this new phase of organizational growth.
Adapted from: Baron, R., & Shane, S. (2007). Entrepreneurship: A process perspective. Nelson Education.