Understanding Enterprise

Entrepreneurship and Small Business, fourth edition

by Simon Bridge and Ken O'Neill

Case study: chapter 5

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This case study gives a description of a small business that designs software solutions for a handful of large nation-wide businesses that operate in a number of industries. Students should list the characteristics of the business in terms of structure and management, strategy and decision-making and market share, and discuss whether these would be typically associated with a small or large organisation.
Dean is the owner of a software development firm which specialises in designing custom-tailored solutions for clients who operate in a wide variety of industries. The owner is a keen believer in continuously exceeding the expectations of customers through working closely with clients in order to be able to go some way towards predicting their future needs. Dean has ambitions of one day being the market leader in software development and hopes to achieve this by encouraging innovation throughout the organisation. In order to accomplish this, he has assembled a close-knit team of experts in their field who share his visionary approach to doing business and enjoy the informal, although busy, atmosphere at work.

Dean has very strong feelings with regard to how the business is run and as a result is insistent on members of staff consulting him before any decision are made. This extends not only to customer-facing members of staff, but also to employees, like Jan the receptionist, who is responsible for ordering the catering for meetings and re-stocking the office supplies. Although this has been known to be a source of friction in the past, in general it is taken in good humour by employees - just accepting it as an eccentricity of their employer. Unlike many firms in the sector, Dean is eager to ensure that each programmer is directly responsible for at most two clients in order to ensure that team members do not stretch themselves too thinly and that clients feel that their custom is valued. The result of this is that the client base is relatively small compared to other industry participants although the revenue generated from each client is considerably more than industry averages. It is also true that the level of customer loyalty is very high and the nature of the high quality and tailored services and products that they offer mean that clients are reluctant to leave in favour of the competition.

Employees are encouraged to communicate with each other so that if one member is overwhelmed, a colleague with a lighter workload can offer support. In order to ensure that strong relationships are forged with their clients, and in an attempt to keep overheads down, Dean prefers customers to deal with the same members of staff on a number of issues including technical support for products, product development and assessing areas of potential need in the future. This has led to employees have to carry out a wide scope of tasks in addition to the product design process, such as costing and carrying out a form of market research in the form of simply liaising with customers to identify gaps in the marketplace.

Quality control and customer satisfaction are areas where a great deal of emphasis is placed. This said the business's plans to introduce a formal feedback procedure, which has been a priority for months, has yet to come into fruition. The reasons for this are not quite clear although the fact that no one has been delegated the responsibility to implement the system, and that each month there seems to be a new issue to which to respond, are more than likely the chief contributing factors. At present the business is reliant on staff members relaying the satisfaction, or lack thereof, to Dean after every contact is made. In addition to the formalisation of the customer feedback procedures, there is also the recognition that the recruitment and new staff orientation process needs to be looked at. This point has been raised a number of times by Liz, a recent recruit, who was asked to work-shadow Lucian for a few days in order to get a feel for what the organisation is about and how see is expected to deal with clients. Liz was of the opinion that new members of staff would also benefit from an employee handbook that would set out exactly what was expected of them in a formal manner as many of the roles and responsibilities carried out by staff are not actually in their job descriptions.

The increased success of the business had led Dean to begin to consider how he wanted the business to grow. Although he knew that he wanted to expand across a greater geographical area while offering the same products and services, he was not entirely sure about how to achieve this and so sought professional assistance. Though a mutual acquaintance, he was put in touch with an organisation that offered a consultancy services in this area and after a number of meetings the prospect of acquiring 'Lightbulb Solutions Ltd' was suggested to him. Dean was aware of the company which had a reputation for successfully offering a range of generic services to the market and was based in a location where his own business had little to no market penetration. The owner was eager to retire and, despite the fact that the business was a profitable one, he was willing to sell at a reduced price in order to speed up the process. Financially the deal would make sense although Dean was concerned about the cultural fit of the two organisations. He was assured that by placing a professional manager in charge of the organisation he would be able to maintain control on a strategic level while he would be able to concentrate his own efforts on continuing to grow the business. This however was not an appealing scenario as Dean was concerned that a manager would never have the interests of the business at heart the way he would and as a result the reputation for innovation and customer care might erode gradually over time. In the end he rejected the proposed takeover. He was convinced that in order to successfully grow the company while maintaining its integrity; he would need to have a direct input at all stages of the process and was not willing to allow major decision to be made by anyone other than himself.
  1. Discuss the characteristics of the business described above and comment on how these traits are/are not those of a small business. Areas to be considered are:
    · Organisational structure and management

    · Strategy and decision making

    · Market share

Suggested solution

Organisational structure and management

  • Top down - Dean appears to have a very authoritarian style of management that is not uncommon in smaller firms as entrepreneurs are notoriously reluctant to share their power with other members of the organisation. Despite the fact that the business operates in a fast-changing environment and employs highly skilled workers who in theory should be capable of making many decisions, Dean still requests all decisions go through him. This would suggest a relatively small organisation.
  • Limited division of tasks - staff members are tasked with not only writing programmes for their clients but also costing jobs and offering technical support for existing products. They also have to liaise with clients in order to attempt to pre-empt their future requirements and discuss future opportunities. In a larger organisation these tasks would require the collaboration of a number of departments including accounts, research & development and marketing to name but a few, instead of being carried out by one individual.
  • Flexible roles - it could be argued that as employees carry out a number of roles that are not formally part of their job description, the enterprise is exhibiting a non-differentiated and flexible structure that would be common to many smaller businesses.
  • Information systems and procedures - while the introduction of customer feedback forms has been on the cards for a number of months, the fact that they have not yet been introduced illustrates how the business relies on less formal methods of feedback. Further evidence of an informal way of operating can be seen when Liz is asked to shadow Lucian in order to get an idea of how things are done. This is consistent with smaller businesses where control of issues such as production, quality, finance, customer service and employee performance is often informal, and done by 'feel' rather than by procedure.
  • Control - working closely with each team member and receiving almost daily updates on progress with each job shows how Dean is directly supervising his staff. This is not a luxury that most professional managers of large organisations have and the direct communication proved to be an advantage when dealing with Robotec Ltd.

Strategy and decision-making

  • Ambition - although eager to grow the business, illustrated by the fact that Dean has hired a consultant, the owner has his own ideas about how this should be done. Acquiring 'Lightbulb Solutions' made financial sense in that it would give access to another geographical market at a more than reasonable price. Dean's concerns however were with the cultural fit and the fact that he did not believe that the current management and staff of Lightbulb shared his vision of producing innovative market-leading products. The smaller the business, the more likely it is that it will be run by an owner-manager with an aim based on personal values.
  • Lack of objectivity - Dean's inability to separate the business from himself is also illustrated by the decision not to acquire Lightbulb. He was advised that a manager could be put in place to run the business but this relinquishing of power was too much for him. Hence he was willing to let an opportunity to maximise the value of the business pass him by.
  • Decision-making - As previously mentioned it is clear that decision-making is strongly centralised in the business. In a bigger business, strategic, administrative and operational decision-making can each happen at different levels and involve different people but here it is quite clear to see that decisions, from office supplies and catering to strategic positioning, are all made by one man. Small businesses have a heavy reliance on information gleaned from personal contacts, which can mean that the information available to decision-makers will be even moreinaccurate, incomplete and time-bounded than in other organisations. This is evident from the feedback provided at the staff meetings regarding clients' future needs.

Market share

  • Little influence - as noted the company has relatively few clients as each member of the team represents one large organisation. This would usually mean that the business has little to no influence in terms of negotiating price with customers although to an extent this is not the case. Due to the very customised nature of the products provided, the business has slightly more scope in terms of negotiating payment terms and although they have to work to the budget of their client, they have managed to carve out a niche in the market-place with relatively little competition.
  • Small product range and limited customer base - the loss of one of their few customers would undoubtedly be a major blow to the business which is the case for most small businesses. The nature of their product and the flexible structure of the business does permit them to respond relatively quickly to changes in demand from customers. And the fact that the owner constantly wants to develop their offerings to the market means they are free from the tendency of many entrepreneurs to resist change in the product/service offering, often due to an emotional attachment to it - as it is their creation.