In Hungary, small businesses sooner or later must face the problem of the need for organizational development.
Most of the time they struggle with the problem of disorder, excessive workload, waste of information and the lack of competitive advantages due to the formal problems inside their “organizations”. They, as time goes on and their market share is growing, have an instinctive demand for being a real organization with structure, hierarchy, strategy, management, administration, effective and informative communication, human resource management, well-defined positions (jobs) with experts.
One of the advantages of small businesses is the higher profit margin as compared to larger corporations, due to the small company having lower overhead costs and paying fewer expenses, therefore, small companies can be profitable and easier to manage than larger ones. They are having less number of employees which are easier to manage, so managers can focus on the core functions. However, the owners experience a high amount of waste ineffectiveness and complaints from both the clientele (e.g. wrong or late shipping) and the employees (e.g. loss or misunderstanding of information between them). While they are flexible, they are also unprofessional. As they are unprofessional, they are also unprofitable. This, and more likely the recognition of it, causes the primary demand for organizational development.
Meanwhile, the idea and the processes of satisfaction of this well-justified demand seem very survival regarding the small businesses’ future, these enterprises pay too much of a price for becoming better organized and more successful on the market. Due to the lack of professional change management knowledge and practice, the stakeholders – employees, customers, suppliers, investors, partners, experts, etc. - (and sometimes even the owner is also amongst them) got very afraid of the change of the situation, the culture, the day-to-day business and “everything”. They, unfortunately, handle their fears by quitting, blocking, undermining, and other destructive actions. They suppose that they will not be needed, they will not match, they will not be able to cope with or handle the new scene and the challenges, so try to keep the comfortable status quo or find a new place, which is as comfortable as the old had been.
It is a very interesting problem, as well-managed and stable small businesses are the backbone of every economy in the world, but without organizational improvement, these enterprises cannot fulfill their missions in the long run. That is why it is worth finding the solution for this problem of too high a price for development. A professional assessment of the environment (inner and outer) can reveal the underlying fears about change, the real reason behind the resistance. When the manager of the change project understands the current mental state and hidden interests of the stakeholders, he can work out an efficient and effective communication strategy to handle the resistance, and get the needed buy-in and support for his endeavor.
SMEs (small and medium-size enterprises) at some point – when they are becoming more in demand in the market - decide to formulate and implement a strategy regarding organizational development. To design a strategy they need to communicate with different stakeholders who might have several emotional reactions and responses due to the possibilities of changes that might influence their interests unfavorably. The stakeholders are generally afraid of changes and do everything to resist them in the implementation phase, too. They are very reluctant to leave their comfort zones. As changes happen not only during strategy implementation or organization development, but they are the part and parcel of daily business too, managers encounter several ‘storms of emotions’ in their everyday practice.
Besides strategy making, organization development, and change management, risk management is another area of unwanted but necessary to be handled emotional reactions. Managers in their endeavors of mitigating the threats and exploiting the opportunities of any strategy, project, or innovation, will face certain negative feelings regarding risks, as risks are the signals of uncertainties and potential changes for employees or middle managers.
It can be a justified expectation for managers to remain rational in every situation, especially regarding their business decisions, however, being humans these superiors will react emotionally to the emotions of their subordinates. As everything that managers deal with either on a strategic or operational level contains changes that induce fear of losing the comfort zone and active or passive resistance toward those changes, managers have to improve their soft skills to handle others’ feelings and even their own emotions.
While people like to think that they handle the problems or challenges of their work rationally and decide over solutions by reason, in new or stressful situations they tend to be rather emotional. That is why a manager needs to enhance his EQ to be able to cope with his own and his subordinates’ reactions to changes and uncertainties. ‘EQ measures your ability to understand not only your own emotions but the emotions of others. It reflects how well you manage conflict, gets along with others, and motivate yourself and others. Research suggests that the higher one’s EQ, the more they can help raise profits at work because not only can they motivate themselves to work more productively they can inspire others to work better in teams.’
Recently there has been research conducted on the subject of risk management. This study has very interesting findings regarding the emotional side of management in a much wider spectrum than only handling risks. The research involved 55 people (18 CEOs, 16 top managers, and 21 middle managers) from 26 small a middle size companies. Most of the CEOs taking part in this research are also the owners of their companies.
These businesses are mostly commercial or trading firms. The minority of them are in the construction industry. There is one language school, a dental clinic, a veterinary clinic, a music agency, an insurance agency, an IT services company, and a courier service firm. These CEOs are between 45-62 years old people with at least 20 years of managerial experience. Their businesses employ between 40-50 people. There are only 2 exceptions: one company that has around 200 employees (a family business), and another one that has around 500 people (a retail store chain). However, these 2 companies are not very much different from the others concerning risk management attitudes, behavior, and actions.
The top managers are also from these companies. They are younger people, their ages are between 30-40 years. They have between 3 and 10 direct reports (some of them are those interviewed as middle managers). These top managers have 5-10 years of managerial experience.
The middle management of this research consists of very different age of people. They are between 23 and 55 years. Generally, they have less than 5 years of managerial experience. They lead and manage teams with 5-10 members.
These businesses are not start-ups. They have been in the market for at least 6 years, many of them even for more than 30 years.
The managers interviewed claimed that they decide over risks and their handlings most of the time (73% of the decisions) rationally and only 27% of their decisions are emotional. This shows that there are many cases where the feelings as the product of past experiences make decision-makers give some stimulus-reaction answer to present or future problems. 78% of these managers said that they had bad experiences regarding risks and 82% of this 78% (64% of the total number of managers asked) admitted that these bad experiences were influencing their attitudes, decisions, and actions later.
This proves that past negative happenings will have emotional effects on management decisions and make it impossible for the decision-maker to understand the situation with a clear head and plan is measured rationally. However, the research conducted in this subject presented evidence for some contradictions. While the interviewees admitted only 27% of emotional inclination, the deeper study revealed that 56% of the managers asked do not possess any method or system for risk handling, and 64% of them do not have any process worked out to mitigate risks. Moreover, the average time consumed for deciding on minor risks is between 8 and 45 minutes, and regarding major risks, it is between 2 and 6 days.
These numbers seem relatively fast and show there is no strategic planning and thinking with rational and logical steps in a decision process. They were also asked when and about what decide quickly. They do it when they have a repeating risk, have little time, it is a small risk, they have the needed knowledge or experience, it is a simple situation, someone is waiting for the decision, it is a mild threat, it is an urgent or important situation when they feel what to do, there is no enough resource, it is a short term activity or a dangerous situation.
These data reflect that at the studied companies top managers mostly deal with urgent and operative problems and do not have time for strategic planning where decisions would need more time to be made after some deeper analysis of the potential risks being threats to be mitigated or opportunities to be exploited. It can be stated then that around 60% of the managers must be making fast decisions without enough time to really understand and analyze the situation, and conclude with a logical and long-term solution. They have to decide quickly and that is why they are ‘forced’ to respond emotionally. They will present emotional answers to not only risks but any change they encounter with. As a manager’s life is about creating or being confronted with changes constantly (being these changes risk elements or not), in the absence of a method and enough time to think about the potential problems and the possible solutions over rationally, his practice will be almost totally emotion-driven.
The research has found the answer to the question of how these managers got into this situation of not having enough time and energy to analyze strategic problems and work out complex and long-term solutions in a logical and rational way. The keyword here is delegation. The interviewed managers claimed that their superiors handle risks professionally and have extraordinary skills in understanding business problems, negotiation, problem-solving, and diplomacy. They say that the upper ranks take an optimal range of risks all the time. Lower ranks actually admire top management in regard to risks and handling them. However, when the same managers were inquired about their subordinates they had the opposite opinion. They said that the lower ranks do not really care about risks, try to avoid them, and tend to push them toward their superiors to be dealt with. This shows that the subordinates are happy as they do not have to work on solutions, while top managers are drowning in the everyday, operational problems. This sorrowful situation is the ‘product’ of the practice of not delegating authority, responsibility, and duties. Top managers are reluctant to delegate because they want to micro-manage their subordinates. “A few reasons why managers indulge in micromanagement: fear; narcissism; need to be in control; lack of trust; leaders do not know how to let go; need for perfection; leaders think only they can do it; afraid of sharing credit with others.” These reasons are mostly of emotional origin. The answers of the lower ranks to this managerial behavior are also of emotional origin (do not care about or are afraid of responsibility and happy about not being responsible for decisions).
The research revealed two special and very fascinating cases of emotional responses toward rational and logical solutions on the part of top managers. Those leaders interviewed were provided with a very simple and effective tool (a checklist) for identifying and handling risk elements regarding strategies and innovations in their organizations. There was a survey conducted after some time of application of the tool to see how this checklist had helped and what mental or attitude changes it had caused in the managers involved in the research project. One top manager, a Chief Financial Officer, gave feedback that explains that this tool had made his job harder. He claimed that this list had made him look at things that he had not to want to and had forced him to leave his comfort zone, which had just made his work inconvenient. For him not foreseeing the potential risk elements means ideal life as this way he will not have to experience bad feelings, at least in the short run. However, following this ostrich policy is not the most rational decision ever. The other example is a female manager, a CEO. She confessed that she did not like the checklist as this tool would take her female intuition from her. She said she did not want to be controlled in her thinking this much. This was actually the confession of reserving the right to be emotional anytime I want to. Meanwhile, the logical contemplation over risk elements does not bar the application of intuition. On the contrary, intuition is very important in foreseeing the real potential threats and opportunities, and also in finding out the best countermeasures for mitigating or exploiting them.
The above-mentioned survey revealed that 82% of the managers had felt stressed concerning risks and 61% of them experienced a significant decrease in this bad feeling after the application of the checklist. At the same time, 92% of them felt changes in their attitudes toward risks and risk management. They have become more willing to identify and handle threats and opportunities and delegate more and more of them to the lower ranks. This shows that after emotional changes behavior will change, too. That proves that emotion is the basis of management and life itself.
In a conclusion, it can be asserted that managers, who are basically emotional beings will have to cooperate with their subordinates, who are also emotional beings, and both these two sides can create situations where they will not have any other choice but get emotional. As managers handle the problems of delegation with emotions, they find themselves in a never-ending fire-fighting lifestyle in their organizations. They will not have enough time to think, so they will handle challenges with instant emotional responses. That is why the enhancement of emotional intelligence and soft skills of managers and employees is not an optional possibility but a vital and urgent strategic objective in every business (small or large) that wants to survive.
- Ganapathy, Venkatesh. Strategic Management of Human Capital. Venkatesh Ganapathy & bookboon.com. 2018. ISBN 978-87-403-2036-7.
- Jonas, Crystal. Emotional Intelligence Secrets. Crystal Jonas & bookboon.com. 2019. ISBN 978-87-403-2928-5.
- Middlesex University. (2015.Date of citation: 12.2.2018). Definitions. Microbusiness Research Portal: Middlesex University. www.microbusiness.ac.uk/definitions/
- Nagy, Géza. Effective Change Management in Small Businesses during Organization Development. LIGS University, 2018
- Nagy, Géza. Risk Management in Small Businesses as Part of the Organizational Development and everyday Work.LIGS University, 2018
Author: Nagy, Géza, LIGS University student, under the supervision of Dr. Minh Nguyen.