Entrepreneurial management is typically used when firm is young small. Features include centralised decision making and informal control. General manager usually makes decisions, as structure is simple enough for one person to comprehend all information for decision-making. There is little need for formal procedures, systems and structures because activity can be monitored via personal supervision of the entrepreneur.
Professional management, on the other hand, is more suitable when firm grows up and thus requires more structure. Characteristics include delegation of decision-making responsibility and use of formal control system. General managers delegate responsibility to hierarchy of middle managers. CEO does not personally make all decisions. A set of systems guide and evaluate performance against objectives. Policies and standard procedures are developed to guide the actions of firm executives.
Strategies of coordination
There are two key dimensions in strategy coordination. First, delegation of responsibility i.e. if general manager makes decisions of delegates those to middle managers. Second, use of formal control systems i.e. if formal systems to set objectives, monitor performance and control activities of organisational members are present.
There are four archetypal strategies of coordination:
- Entrepreneurial management involves centralised decision making and informal, personal control
- Professional management utilises delegation of responsibility and extensive formal control
- Laissez-faire management involves delegation of responsibilities but control remains informal
- Bureaucratic management involves centralised decision making and formal control
Companies seek efficiency and effectiveness. Efficiency refers to ability to achieve goals with minimum resources and effectiveness is its ability to adapt goals and stay innovative to meet changing needs of the environment. Choices that favour delegation have the potential to increase effectiveness but simultaneously decrease efficiency.
Transition to professional management steps
Transition to professional management involves fundamental change in entrepreneur’s orientation. Founder is likely to lose getting personal satisfaction from direct action. Instead, one needs to develop a sense of accomplishment coming from achievement of results from others. The transition steps are described below. However, one needs to keep in mind that delegation of responsibility does not mean entrepreneur loses opportunity to have input into any decision-making process.
1. Recognising the need for change
There are several sources to assist one in recognition of transition from entrepreneurial to professional management. Knowledge of outsiders such as board members and consultants might suggest there is a need for transition, for example. Warning signals include lack of follow up details, increase level of stress on individual entrepreneur and sense of organisational disarray.
2. Developing human resources
Venture creator should be able to overcome personal loyalties that could threaten organisation. For instance: right-hand persons often are unable to develop more specialised skills needed to grow the company. In order for firm to develop, entrepreneur must be able overcome personal relationship and find more suitable employees.
3. Delegating responsibility
Placing responsibilities close to source of information require sound decision-making. This means delegating responsibility to managers who are close to customers, suppliers and competitors. General managers must be careful not to give up responsibility of key policy issues that require personal perspective.
4. Developing formal controls
Development of formal controls means entrepreneurs no longer can track the behaviour of individuals in the organisation. Instead, one needs to focus on performance rather than behaviour. Practical policies thus should be adopted. Entrepreneurs should also devote time and effort to develop policies that inspires creative solutions and build commitment.
Self-concept behaviour makes transition process difficult. Entrepreneurs want to stay involved in decision-making and know who works for their company. Transition to professional management therefore requires fundamental change in the attitudes and behaviour of entrepreneurs.
Stevenson, H.H. and Jarillo, J.C., 2007. A paradigm of entrepreneurship: Entrepreneurial management. In Entrepreneurship (pp. 155-170). Springer, Berlin, Heidelberg.
Baron, R. and Shane, S., 2007. Entrepreneurship: A process perspective. Nelson Education.
Learn what are different exit strategies for private equity firms. One can name a family business successor, sell it outsiders, and lead firm to IPO.
What is the difference between entrepreneur and professional manager? What are transition steps to professional management. Learn more here.
There are different sources of finance: savings, friends and family, crowdfunding, business angels, venture capitalists, corporations and other.
There are different ways of minimizing risks associated with investing: self-financing, contract provision, specialisation syndication.
Three financial statements are described in this article: balance sheet, income statement, statement of cash flow. Learn more here.
Business plan allows the founder to crystallise business ideas, thinking through the problems that they will face before having to cope with it.
What questions to ask an entrepreneur? Clarify current goals, evaluate strategies for attaining those goals and assess capacity to execute the strategy.
How to find opportunities for business? Follow effectuation process, bring the idea to market with close to zero resources, listen to customers.