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Managing small firms Essay

Operating small scale business has several advantages when compared to large firms. According to Bannock (2005), small and medium-sized enterprises (SMEs) are desirable because they promote competition and employment, and since a few innovate and grow into large firms that potentially generate even more of these things. Furthermore, starting a small business can be a means for an individual to achieve independence, self-expression, wealth, and perhaps even serve a broader purpose and address other social issues and concerns.

According to Bruchey 1980; Bunzel 1962, cited in Bannock (2005), “the presence of SMEs also helps to avoid an over concentration of political and economic power, a role traditionally greatly valued in the United States”. The advantages of small firms are usually due to their size and management strategies. Among these advantages are: greater government support, favorable environment to operate into, little resources required to start operations, relatively simple registration process, small taxes, quick decision making, and more flexibility to make innovative and operational changes compared to large businesses.

Success of small firms relies largely on the dedication, loyalty, and involvement of owners in the operation of the organization. Odaka & Sawai (1999), opined that “networking is an area where small firms have definite

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comparative advantages over big business. Each member of the network is an independent specialist in designing and/ or manufacturing intermediate products, while being simultaneously integrated into a coherent group of co-operation led by the core leader at the center, which generally serves as the designer- cum-assembler of the final product”.

The disadvantages associated with small scale businesses have to do with the vulnerability of the business to collapse and fold up within the few years of their creation. This is mostly adduced to the small human and financial resources that are readily available to small firms. “Hundreds of thousands of firms open and close each year in major countries, the vast majority of them very small…certainly, the smaller and younger the firm, the more likely it is to close: about two-thirds of closures take place within three years of the start-up” (Bannock, 2005).


Management literature provides us a number of management styles practiced by managers and leaders across the globe through the years. A manager’s style is largely determined by many factors in the organization including the structure and the size of resources available as well as the managerial capacity of the owner. The mode of operations and styles in small firms are determined by the transactional nature of the firm as well as the nature and capacity of the manager-cum-owner.

Authoritarian Management Style Some managers of small firms practice the authoritarian management style. With the inherent characteristics of being small, managers of small firms take absolute control of a workplace situation, without reference to the views and inputs of the employees. According to Davidmann, in authoritarian organizations it is orders which are passed down from above and the manager’s role is to pass orders down the ‘chain of command’.

In small firms, owner-cum-managers are the only ones who decide on innovations and changes in the business operations. Innovation in small firms is usually linked up with the entrepreneurial skill of the owner-cum manager. To Meulenberg & Verhees (2004), “in a small firm, innovativeness implies a wiliness of the owner to learn about and to adopt innovations, both in the input and output markets. High innovations of small firm do not mean that the owner is innovative in all domains”.

Workers in small businesses can also contribute to the innovative process of the firm but only through the direction of the organization’s leaders. It is still the owner-cum-manager’s decision that is implemented in the end. As Slatter (1992:159), puts it, “strong leadership provides a key role in overcoming the confusion that usually accompanies growth and is necessary to build and maintain the cohesiveness of the organization”.

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