Assignment Topic: ‘Creating, establishing and running a small business require different skills, approaches and management styles from those required to operate large ones.’

Assignment Topic: ‘Creating, establishing and running a small business require different skills, approaches and management styles from those required to operate large ones.’

Baral Abita                                                                                     

Getting engage in businesses involve working with different types of legal entity with appropriate development of business plan (particularly if finance needs to be raised) and market research.  And many aspects of operating and running a business need to be always under control. The aspects which needs to be under control are sales promotion, pricing, merchandise control, accounting, cash flow reporting, strategies for increasing (profit), taxation, insurance and computing systems. Different skills, approaches and management styles are requires for creating, establishing and running businesses. But the approaches, style and skills required for creating, establishing and running small business and large business are different. Different ideas, sources of finance, market analysis, management structure, communication structure and so on are followed by small and large business. However, many of large business such as Mac Donald, Wal-Mart, Tesco, etc first started as a small business (Michael Hannan 2003).

A small business can be defined differently depending on a number of factors, including the employee, revenue flow, annual turnover and current value of capital investment.  Different countries have different consideration of these factors. For example, according to European Union, small business should have employees from 0 to 49, turnover of 10 million Euros and balance sheet of 10 million Euros.  And in USA the small business may have 1 to 200 employees while in United Kingdom small business may have 1 to 50 employees (University of Toronto). Similarly, large business is defined differently depending upon factor such as number of employee, revenue flow, annual turnover and current value of capital investment. For large business, different countries have different criteria.  (Carter and Jones-Evans, 2006)

Idea generation for creating business comes from identification of business opportunity. The business opportunity can generate from many sources. The sources can be business owner themselves, hobbies, interaction in groups, changing pattern of customers taste and preferences, new product, changing life style of consumers, etc. Generally speaking the idea for creating small business is emerged from willingness and preference to self employment nature of the small business owners. Therefore, business owner/ entrepreneur are one who generates idea for creating business. The idea generation for large business start from team or group of people involves in accomplish business together. However, the idea for large business may generate from small business. Initially large business starts as a small business starting from one roof in one locality to enlarging itself to thousand of roofs in many localities and many countries operating as an international and multinational company. For example: Adidas a sport brand was first open by two German brother as a small business in their garage, but now Adidas is expanding its brand in different countries and it  is one of largest sport brand in the world.

Market Analysis is the ideal guideline for all strategic planners, market analysts, and marketing researchers (E. Stevens et al, 1993). For the market analysis of small business, the entrepreneur or business owners with two or more members describe and conduct research in target market with customers. Marketing research for product and service is tested with family and friends. Secondary data are usually the marketing research information for the small business product or services offerings which are further compiled by the research team of small business as per the requirement of the business. In case of the large business, different marketing research groups conduct market analysis in which research information are compiled from wide range of primary data and secondary data. In that research analysis a detailed description of the major benefits to consumers provided by new product or service should be included. One of the reasons of such intensive research carried out by the big business is that they need the detail description of the major benefit of their product or service offerings to their target customers. To achieve this need, each market is analysed, segmented, positioned, and targeted even considering the need of small niche market if necessary.

The main source of finance for start-up of small business is someone’s own resources and from family and friends or via personal saving. Other sources of finance are bank loan, bank overdraft, commercial credit union, supplier through late payment, etc. According to Barclays bank (Bank of England), 64 percent of start-ups use personal funds as an initial source of finance. Further, it is equally common for micro enterprises to do their banking through a personal account rather than to have a proper business account (Westall et al, 2000). The main sources of finance for start-up for large business are investor, shareholder, long-term bank loan, issuance of bonds, debenture mortgage, suppliers and so on. The small business has to invest relatively low sum of money for creating, establishing and running the business but the profit margin of small business is high; while large business need large sum of money for creating, establishing, and running business and profit margin is relatively low. Since large business need huge sum of long term borrowing, payback period of large business is high compared to small business and vice versa. For small business, source of capital is usually a bank loan and loan amount is also not too high. Hence the weighted average cost of capital is also low for small business, while the large business has multiple alternatives to create funds.  Therefore, cost of capital of large business is payment of interest for bank, bond holders, and debenture holders, dividend for shares holders. Therefore the weight cost of capital is high for large business.

Small business owner-managers often run sole proprietorship or partnership which increases the riskiness of the business as it is owned by the relatively small number of the people sometime single ownership. Sole trader partnerships have a personal liability to creditors’ limited companies and company can be run by only two people. Not only this, but also small business is highly risky while comparing with that of big business because it is relatively less diversified in terms of product and services offerings and market exposure. And small business owners have a legal obligation to its creditors. While in case of the big business, riskiness of the business is comparatively low due to huge diversification in terms of product and service offerings and market exposure. Beside this, big business is a legal entity which is why the owners or the shareholders have no legal obligation.

The main difference in strategic planning of a large business and a small business is normally a matter of resources availability. Generally the larger businesses have huge source of financial resources and can afford to bring an expensive consulting team to lead the effort and mange the process for these periodic planning activities. Smaller businesses often rely upon its internal resources, especially human resources or personnel resource to do the job and thus must be more direct and efficient in executing the process (Richard E. Hall, 2005).

The executive differences are usually in the scope and depth of the analysis required to produce a reliable end product. As an example, most small businesses do not have an extensive product line, with broad international distribution and competitive issues that are typical of larger corporations these days (Richard E. Hall, 2005). Big business has wide array of divergent product and service offerings to the huge target market, generally speaking a global market place but reverse is true in case of small business which might have few product or service offerings to the limited number of customer base some time may be a small community or locality.

The small business follow simple management structure in which owner as a manager makes all major decisions and monitors all business activities. The owner/manager uses combined management practices. S/he supervises and handles all the function of organization such as function of human resource department, operating department, finance department, marketing, etc. The management structure of small business is characterised as informal relationships, few rules, limited task specialization, and unsophisticated information systems. Frequent and informational communication between the owner/manager and employees make coordinating the work to be done relatively easy (Hitt et al, 2009). Large businesses follow functional, multidivisional and decentralized structure of management. The functional structure consists of a chief executive officer, corporate staff with functional line mangers in an organisational area such as production, accounting, marketing, operational, human resource, etc. The structure allow for functional speciation. Formal and hierarchal structure of communication is used between management and employees (Hitt et al, 2009).

In small business planning activities are done by owner/manager. Usually, planning of small business is short term. Time frame of planning for small business may vary from two months to maximum of one year. In large business planning activities are done in different level of management and in different functional area. Thus planning procedures is long in large business. Time frame of planning for large business may vary from one year to 10 years and more. Operational level managers involve on operational planning and usually time frame of operational planning is within one year. For example: HR manager plan about recruitment and selection of employee for company. Middle level managers involve on planning which usually have time frame of two to four years. Top level mangers involve on corporate level planning and time frame of corporate planning is usually five to ten years depending on mission, objectives and goal of company. Example of corporate level plans are expansion of company’s product line, going for related and unrelated diversification, launching of new product to new market or existing market, segmenting and targeting of products into new market, etc.

In small business the owner/manager involve on planning activities and actively engaged on implementation of those planning. Hence, Implementation of planning is easy and fairly straight forward. Once planning is done implementation of that plan is most likely to be happened. While in large business planning is done by different personnel in different level of management and those plans are implemented in different level of management by different people. Therefore, implementation of that plan is very complex and some of the planning of large business may not even implement. Usually planning is done in top level in the form of vision, mission and goals, different methods are prepared in middle level to execute that plan in the form of strategies and objectives, and plan is actually execute in lower level. Planning is difficult for small business while implementation is difficult for large business.

In small business owner/manager performs all the function of leading. Owner/manager is a leader and s/he exercises all powers by herself/himself, all the final decisions are made by owner and usually group approach is used for running organization where authorities are centralized to owner. So usually in small business autocratic leadership style is used where employee are under the direct supervision of owner/manager.  While in large business leadership role have different hierarchical level and usually decentralized approach of leadership is used. Decisions are made by several top, middle, and operating level mangers in their respective level within the authority and responsibility being delegated to them. Employees are responsible for their immediate supervisor or manger and they report to their supervisor for their concerns and issues and supervisors and managers are accountable towards the job done by their followers.  For example, HR manager perform leading role for human resource department and solves all the issues and concern related to human resource department. Usually, formal approach of leadership is used in larger business. Beside this difference, in small business, owner or the manager is all in all with unlimited authorities regarding his/her business and literally he/she can to anything in his/her will. However, in big business, leaders or the managers have concrete authority and responsibility which clearly explains what he/she can and cannot do. Controlling function in small business is done in informal manner. Manager or the owner does controlling in each and every aspect of the business. He/she controls the behaviour of the employees, set goals or the objectives for the employees and compares his/her predetermined set of standard goals with that of actual goals achieved by the employees and immediately communicates his response to the employee’s performance. Therefore, in small business, controlling is direct and prompt. The action of the leader or the owner of the business is concrete, bold, and straightforward with direct linked with result or the outcome. However, in big business there is formal mechanism of controlling. In almost every organization, there is standard approach of employee’s performance appraisal. Employees performance is compared in systematic manner within certain timeframe and result of such appraisals are communicated to the employees for corrective actions. In some big organization, employees are categorized as per their performance appraisal and those appraisals results are used to promote the employees.

In small business, an individual small business owner is responsible for decision making.  Small business owner make a choice about all the aspects of the business from planning, organizing, leading, managing and controlling. In small business programmed and non-programmed decision are taken by individual business owner. And risk taking is generally low in decision making in small business. In large organisation, decisions are made by more than one people in their organisational roles in different layers of the organization and in different functional areas. They are still individual and will often be part of a decision making- but the decision is often made within the common wisdom of the organization following the organizational decision making criteria, procedures, guidelines and policies of each functional areas. Generally programmed decisions are well structured and can be taken in different level of organisation by different level of manager base on authority granted to them. And non-programmed decision are to deal with situations which are unstructured and require a unique solution, therefore it is taken by top level and middle level management of organisation. The risk taking in decision making is high.

Problem solving in small business is generally done by owner/manager, and hence problem solving is short and quick. Problem solving in small business may lack creativity and innovation and have may have a bias. In large business, problem solving is complex and takes long producers. Some problem may pass through different level of hierarchy, for the best solution and implementation. For example: if there is any issue in business, small business’ owner/manager himself/herself tries to solve the problem because it covers small market and has small scope. While problems of large business are complex as large business operates in different countries. Different country has different business environment, market, lifestyle and rules and regulation. Therefore large business has to find solution to problem depending on different country, market, based on lifestyle and environment. Beside this they have multilayered decentralized organization structure which lowers downs the role of central power or top level managers in decision making process. 

Usually, in supply chain management, large businesses perform all the functions of designing, manufacturing and delivering. The role and function of large business come first in supply chain. Generally speaking small business has the end responsibility in the supply chain management. It is because; small business usually performs retailing functions of the business. For example, a small grocery store sells different products produced by hundreds of companies around the world to the consumers. Therefore, they are the end players who have direct linked to the end users of the product. Sometime, small business may be establish or created as a franchise and may get license of retailer of large business. Large business may create new product or new service and let other supply chain players to do other role in supply chain such as wholesaler and retailer. However they sometime play multiple roles in supply chain as wholesaler and retailer by opening their own retail store in the mall or shopping complex.

Communication is skill which is required in all aspect of the business. Business has to interact with its customer, suppliers, employee, shareholders and other stakeholder. Effective communication (including non-verbal and verbal) skills are required to run business effectively. For running small business, owner/manager should have concept of combined managerial skill. And s/he should perform all managerial functions through two way effective communication. In general, small business has top-down communication process where manger communicates all major information to employees. While, in large business, the functional department are separate. So the expert in different field should have different communication skills. For example: expert in marketing department should have communication skills of informing and persuading customer, expert in finance and accounting department may not need persuading communication skills. Usually large business has both top-down and bottom-up communication process depending on the nature of business. For example, in government organization top-down approach of communication is most common while in privately own organization both the approach is common.

In conclusion, it can be said that both small and large business posses some similar business approaches and styles which are necessary for management of the overall business functions and activities. However, there are some functional differences which are widely prevailed among big and small business around the globe. But within those functional differences, one should not forget the fact that most of the large and multinational businesses of today were started as the small business. For example, world largest fast food restaurant MacDonald, one of largest sport brand Adidas, etc were established as a small business. But when the size of business increases the structure become complex and multifaceted. The complex structure of management, wide focus mission and vision, long term plan, wide target market are the  factor which differentiate large business from small one. As small business has simple structure of management with narrow target market and small scope vision and mission. Beside this, some other functional difference between small and big business lies in the core managerial functions such as marketing research, human resource, and communication. However, the management function that is required to run the small business is the same for the large business also but the difference in two lies in the scale of operation. For example both small and big business does planning. Small business does planning in simple unstructured and informal manner. However, big business does the same thing in structured, formal and specialized manner. 

Beside the functional differences, some other key differences in between big and small business lie in the employees or work force mix within the company. Small business is the work place for few but unique kind of people. However, in the big company organizational cultural and rules compels people to homogenise themselves.   Another major difference is in the structure of the company where big companies always have comprehensive job descriptions, HR handbooks, and management hierarchy which are missing in case of small business.

Word count: 3111

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