Bringing in simple practices related to target setting, establishing incentives and monitoring performance can bring about substantial improvements in productivity, sales growth and even reduction in product defects of these enterprises.
In November 2012, Harvard Business Review (HBR) celebrated its ninetieth anniversary by publishing an article that appeared to question its very raison d'etre. Nicholas Bloom, an economist from Stanford University and his fellow researchers, posed a simple but provocative question; does management really work?
To answer it, they conducted a survey of thousands of small and mid-sized companies across several countries, including India.
The results spared HBR’s blushes. It showed that good management can produce tangible improvements. That’s not surprising.
But what does make one sit up and pay attention to is that good management is not prevalent widely, at least in the small and mid-size segment.
More interestingly, even a little nudge in the direction of good management — bringing in simple practices related to target setting, establishing incentives and monitoring performance — can bring about substantial improvements in productivity, sales growth and even reduction in product defects of these enterprises.
The implication of these findings, for a country where 63 million micro small and medium enterprises (MSMEs) employ more than 110 million people and contribute close to 29 per cent of the economy, are potentially far reaching.
So, what does it take to inculcate such practices?
Training entrepreneurs obviously appears to be the most time-tested and feasible intervention to bring about change. But, what makes such an intervention effective for entrepreneurs and their enterprises is not what is on offer in the marketplace.
We spoke to multiple entrepreneurs from asafoetida manufacturers to furniture makers; rice mill owners to small jewellers. Our perspective on the potential intervention became sharper and nuanced.
We realised that the solution was not just another training programme but an intervention that was innovative and customised enough to take into account the particularities of the Indian entrepreneurs’ mental matrix, the decision-making style it engenders and the context in which all of it is embedded.
Any book on entrepreneurship would repeatedly underscore the importance of managing finance. Multiple chapters are dedicated to expounding the virtues of this function. Cliches that signify it abound; lifeblood, the soul of an organisation, engine of growth and so on and so forth.
But, to our surprise, we found that, for many entrepreneurs, this is an area that least time is spent on. Arcane terms, workings and calculations make this part of the business almost mysterious.
Faced with this incomprehensibility, entrepreneurs leave it to the accountants and auditors to grapple with its intricacies. It’s relatively easy to deal with markets and production, is the common refrain that you hear from these entrepreneurs.
A report highlighted this blind spot and indicated that entrepreneurs, particularly in developing countries, have limited capabilities when it comes to matters like constant monitoring of expenses and revenue of their enterprises, budgets and deviations and in general ‘to live within one’s means’.
The typical response from policymakers in the face of such lacuna is to introduce training programmes on finance. But, interactions with entrepreneurs suggest that such programmes are bound to have limited impact as the reasons for this inadequacy stems from a combination of issues, which the conventional programmes do not address.
For some entrepreneurs, accounts or book-keeping was an unpleasant chore reminding them of their unsuccessful tryst with Mathematics either in their schools or higher education days. An entrepreneur said “his mind froze when he saw numbers and tables”. And so they had avoided it to the extent possible.
Others, in particular, second or third-generation entrepreneurs learnt enterprise finance from their experienced family members. This informal learning had some benefits as it is rooted in the context of their business. But, the focus and relevance of these methods are rather limited in today’s business environment.
More importantly for these entrepreneurs, these financial practices have become more or less ossified making it that much more difficult to unlearn. And even if they do, they face a herculean task of convincing the elders in the business to introduce change.
For other entrepreneurs, who do not necessarily carry the burden of legacy practices and have attended formal training systems the concepts taught in the classrooms are, more often than not, far removed from the reality of businesses (as an entrepreneur pointed out "what would I gain from knowing PE ratio when I am still battling with working capital").
For a few others, even if the concepts were relevant there were no handrails for them to customise it to their needs and requirements.
Furthermore, listen to a typical MSME entrepreneur’s narration on how decisions are made and the first thing that strikes you is the emphasis placed on action.
Analysis, if it is done at all, becomes secondary. This impulsiveness in decision-making pushes to the background the need to; think through conditions that necessitate a particular decision, or systematically examine the decision’s fitment or lack of with the problem situation; or to gauge the potential operational and financial consequences of a decision.
Machines are purchased, additional product lines are introduced and promotional schemes are launched with scant analysis.
Yet, unlike large businesses, the price for making a wrong decision is pretty steep for an MSME.
Hasty decisions come back to haunt the enterprise in more ways than one. It becomes a fire-fighting exercise every day and the first casualty under such a scenario is the ambition of the entrepreneur to scale up.
When we spoke to these entrepreneurs what became clear is this impulsiveness stems from a lack of awareness about the importance and usage of data-driven decision-making frameworks. That, and a general lack of direction — an absence of clarity on the path and destination of the enterprise.
So, a training intervention cannot be a workshop that offers just tools and techniques.
In addition, it has to act as a platform where entrepreneurs could reflect and work on what the business means to them and a rough idea of how it would shape up in the future.
In addition, a recent survey of MSMEs across the globe highlighted the following factors as important for the future success of these organisations; attraction, retention and empowerment of employees, developing resilience, adaptability and competitiveness to face the changing environment and the need for a clear vision and strategy.
But, this is predicated on the assumption that the owners/promoters of MSMEs have a fair grasp about key dimensions of leadership and leadership styles.
However, interactions with the entrepreneurs indicated that most saw leadership through a narrow prism of task and power distance.
To put it together, a training intervention for MSME entrepreneurs to be impactful should be relevant and relatable to their business, demonstrate applicability, provide opportunities for entrepreneurs to use their own enterprises for action learning and instil in the entrepreneur’s mind the need to have a destination and the discipline to reach there.
It might sound like a tall order. But, we did find evidence that suggests its feasibility.
Surveys of entrepreneurship development programmes, particularly programmes that are hosted by business schools and universities, indicate a plethora of courses for the entrepreneur.
For instance, a survey by Winkel D and others (Journal of Entrepreneurship Education, Volume 16, Pages 15-29) of 321 universities across the globe indicated that on an average four to five courses were taught in entrepreneurship programmes.
Though comprehensive, one of the criticisms that we heard from entrepreneurs was that it was too comprehensive. It meant that most of the inputs went unregistered or underused by the participants.
Poornatha, an initiative started by Bharath Krishna Shankar, an entrepreneur from Madurai, launched a pilot project called Journey in Joy (JnJ) a couple of years back to train MSME entrepreneurs in a few southern districts of Tamil Nadu.
JnJ diverged from the general trend and focused on the most critical or must-know concepts for managing enterprises.
For instance, its finance module distilled and simplified key concepts that an entrepreneur should know and ensured that they understood the essence of such concepts. There is evidence to suggest that such ‘barebones’ programmes can be effective.
A World Bank report in 2015 featured Rules of Thumb, an entrepreneurship development initiative in Dominican Republic which demonstrated that an accounting course which simplified financial concepts (with focus on estimating business profits, separating business funds and personal funds and paying oneself a fixed salary) had a strong impact on the financial practices of entrepreneurs.
In JnJ, a strong emphasis was also placed on the application of concepts to the businesses that the participants run. It took several shapes.
For instance, feedback mails from the participants after every session ensured that they not only understood the concepts but also demonstrated evidence of having applied some of it to either their personal lives (for example, time management) and/or organisational lives (for example, how they used an employee matrix). Exercises and activities conducted in the classes also strongly linked back to their businesses.
For instance, participants were encouraged to fill in their enterprise numbers in pre-designed Excel sheets to see the financial impacts of decisions or role-plays hovered around actual situations they face in their organisations.
The third important aspect of customised design and delivery was focused on participants’ learning from their peers through listening to others’ presentations or joint exercises or even, as in some cases, visiting others’ organisations to gain an understanding of how some practices work.
Recent studies show that peer learning can have a significant and positive impact on the entrepreneur and enterprise.
A randomised experiment, published in the Quarterly Journal of Economics in 2018 by Cai and Szeidl of business owners in China showed that self-organised monthly meetings for a year by the experiment group was impactful. The members traded information and learnt better management practices from each other.
A key pivot around which JnJ turned was the fact that the trainer was an entrepreneur; someone who has walked the talk.
In the literature on entrepreneurship, there is a debate on whether entrepreneurship can be taught and if so by whom.
Essentially, the divide could be caricatured as between practice and theory. At one end, some have argued, quite vehemently, that the training of entrepreneurs is better left to other entrepreneurs.
On the other, it has been suggested that academicians are better suited to the job. There are pros and cons to both these perspectives. It might not be feasible to scale up a training intervention with only entrepreneurs driving the programme.
The number required will be unbridgeable and more importantly, not all entrepreneurs can turn out to be enthusiastic and committed trainers.
Though scholars can transmit generic knowledge (for example, the preparation of P&L statement or balance sheet) not all might be capable of translating it to specific contexts (for example, explaining the perceived divergence between P&L statements as it is prepared by the entrepreneur's accountant and the classroom derivation).
There are no simple answers to this dilemma. But some recent studies do show that bridges could be built between these wedges. Evidence shows that a mix of faculty and practitioners — the blend of theory and practice — provides a better balance and favourable outcomes. Other effective practices include structured programmes for training the trainer.
More recently, the plethora of Internet-based learning platforms that are available to provide basic inputs on entrepreneurship can also be leveraged to deliver the ‘theoretical’ parts of the programme online while other ‘practical’ sessions could be anchored by ‘entrepreneurs-in-residence’.
A major feature of JnJ was the creation of a robust business plan by the participants. This was the capstone component of the training programme. It was impactful for two reasons.
One, the formulation of a business plan drew the entrepreneur’s understanding of different management elements that have been introduced in the course.
For example, entrepreneurs were able to see how a reduction in their ‘cost of goods sold’ can affect their profit or how an estimated increase in revenue (and proportionately expenditure) leaves them with a larger pie that can then be distributed as incentives for employees or how to focus on key segments can improve profitability.
Second, business plans also provided the participants with a map to orient themselves to the future. This is a significant step forward because, as indicated earlier, entrepreneurs are so trapped in day-to-day issues that the larger picture and the journey is often ignored.
The initiative of Poornatha in designing and delivering JnJ, the entrepreneurship development programme has both practical and policy insights and relevance.
At the practical level, it has shown to entrepreneurs that they have it in them to do a lot better and that they could imagine a bolder future than incremental improvements.
The programme has also shown them that methods that help productivity in businesses can also work at home, creating a conducive atmosphere for entrepreneurs to be able to perform at or above their potential in both settings.
Third, it has shown them that employee rewards and profitability of the business are not mutually exclusive and that, in most situations, they could be mutually compatible.
At the policy level, there are at least two important lessons. One is that much of the discourse on entrepreneurship focuses on traditional interventions such as infrastructure, tax incentives and financing.
Skills, attitudes and knowhow are neglected. They stand in the way of growth and scaling up. That has macroeconomic consequences.
Second, the JnJ programme has shown that, given the massive numbers of entrepreneurs in the country, a simple, relevant and effective training intervention can be designed and that it can have huge multiplier effects both at the firm level and for the economy.