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Compassion Kills The Business

How far can emotion build your business, and when does it start breaking it?

Dr Frances Wright

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In an entrepreneurial business it’s easy to get really close to clients, suppliers and most of all staff. In theory, this is a good practice and relationships are often what hold an entrepreneurial business afloat, but that is only when such relationships are not interfering with sound business decisions.

Whether in a corporate or an SME, decision making should be based on cold data that is efficiently analysed in order to determine the correct decision to be made – there is no room for emotion.

When a client requests a discount because of its own budget restraints, the entrepreneur should have the cost of sale figures available to determine at which point a loss will be made on a job and have the courage to walk away if the job is no longer profitable, even if the client has become a close friend.

Making tough choices

Similarly, when suppliers are charging too much and thus affecting profitability negatively, it is the duty of the entrepreneur as custodian of the business’ finances to find alternative suppliers. If one has been working with a specific supplier for years, then this can become difficult to do, as it could mean disrupting an otherwise good relationship – but not doing so will be even more hazardous to the longevity of the business.

The most intricate and difficult area is that of staff. There is a basic principle in life; spend less than what you make. Especially in the service industry, salaries can easily become a huge portion of the company’s expenses and when there is free capacity in human resources it is as good as having wasted stock in the warehouse of a manufacturing business.

It’s the duty of the entrepreneur to ensure that there is just enough capacity to service the clients and fulfill on the requirements of the business. Extra capacity should be cut. It seems like a heartless approach to take, but keeping wasted capacity for the sake of relationships or compassion will put the sustainability of the business and, ultimately, everybody’s jobs at risk while compromising the credibility of the entrepreneur.  Another pitfall is to tolerate non-delivery by staff or suppliers due to relationship and for the sake of keeping the peace.

Related: Wonder Jonamu Explains How To Be A Good Leader

Finding solutions

Difficulties arise when suppliers and employees are fulfilling on all requirements, but an over supply of capacity is forcing an entrepreneur to cut back. The word retrenchment is probably one of the most feared words an entrepreneur can use. Not just for the employees, but also for the entrepreneur. It accompanies a feeling of failure.

When managing a small business, relationships will be much closer than in a corporate environment and it is always a hard decision to let go of talent and allow someone to re-enter the market when they have intimate knowledge of the company’s intellectual property. But the hard reality is that stock availability should match requirements and, similarly, human resource capacity should match service requirements or the business will burn money and will therefore not be sustainable.

Retrenchments

There are two ways in which retrenchments can be rolled-out; operational requirements or last-in- first-out (LIFO), each with their own set of procedural requirements. Once again an entrepreneur has to be careful not to let personal relationships cloud sound judgment.

When a retrenchment principle has been chosen, it has to be adhered to regardless of personal feelings or relationships. When choosing to retrench on operational requirements, decisions have to be based on which employees have too much spare capacity or whose absence will not negatively affect the business. It is important to be able to justify the decisions made.

Managing a business, especially a small business, is not an easy task and requires continuous planning, organising, leading and control.  Management of any business needs to be approached in an unemotional and analytical manner in order to make sound business decisions. While in some instances compassion is a good thing and can foster wonderful working relationships, without balance and objectivity it can easily kill a business.

There are many tools available to entrepreneurs to ensure sound running of the business. When business processes have been developed and quality and HR policies and standards are in place according to client requirements, there are measurements available to measure the performance and profitability of each client, supplier and employee. Any variance from standards or policies and any non-compliance with processes should be addressed immediately, regardless of the relationship involved.

Related: Passion Is The Key To Entrepreneurial Success

Finding your tools

According to Churchill and Lewis (2000), the tendency of entrepreneurs to focus on their own skill and relationships often leads to them ignoring the ‘science’ of business and operational management.

They contend that this is the main reason for the low entrepreneurial success rate. Systems development is neglected and the owner-manager remains the main survival factor of the enterprise. During the life cycle of an entrepreneurial enterprise, the rapid growth phase is often followed by chaos, especially where there are no processes in place.

The need for sound processes increases as the enterprise progresses to a rapid growth phase. Hall, Daneke and Lenox (2010) argue that without processes and an awareness of sustainability, entrepreneurship will remain uncertain. Hung and Whittington (2011) believe that process and system theory will institutionalise entrepreneurship. They contend that entrepreneurs should use systems and technology to build legitimacy and mobilise resources.

Other tools which entrepreneurs should be using include role definitions and performance management systems. Service level agreements should be in place with suppliers and clients. Both the performance management system and the service level agreements should be used on an ongoing basis to track whether value is derived for the organisation.

When an entrepreneur realises that profitability will be affected by the performance of employees and suppliers, it becomes easier to manage the business based on facts and action, which leads to the creation of a win-win situation for the business itself, its employees, suppliers and its clients.

When running a business, there are various elements affecting its success and sustainability. The most important aspect for an entrepreneur is to ensure that the business is profitable. This cannot be achieved when relationships interfere with sound decision making processes.

Dr Frances Wright is responsible for the overall management of Trinitas Consulting (Pty) Ltd. Frances has a BSc Honours in Industrial Technology, a diploma in operations management & a certificate in production management. Frances completed her MBA at NorthWest University in 2007, where she was honoured as the top Operations student. She was awarded her PhD in Entrepreneurship at North West University and acts as a business mentor and trainer for Business Partners and Enablis. Frances has written many published articles, is an accomplished speaker and also stars in the YouTube channel “The Wright Solution”.

Leading

Want To Achieve Greatness? Force Everyone Out Of Their Comfort Zones

Diverse teams are better performing teams, but only when they are inclusive.

Rob Jardine

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Working in a diverse team feels uncomfortable and that’s why we perform better. Discomfort arouses our brain, which leads to better performance.

Diverse teams are smarter teams. They have higher rates of innovation, error detection and creative problem solving. In environments that possess diverse stakeholders, being able to have different perspectives in the room may even enable more alignment with varied customer needs.

Being able to think from different perspectives actually lights up areas of the brain, such as the emotional centres needed for perspective taking that would previously not be activated in similar or non-diverse groups.

In a nutshell, you use more of your brain when you encourage different perspectives by including different views in the room. However, work done at the NeuroLeadership Institute has proven that this only works when diverse teams are inclusive, and this still remains a key challenge in business today.

When we consider the amount of diversity present in the modern workplace and the addition of more diverse thinking as a result of globalisation and the use of virtual work teams, it’s clear that the ability to unlock the power of diversity is just waiting to be unleashed.

Here’s how you can unlock this powerful performance driver.

The Social Brain

Despite the rich sources of diversity present in most workplaces, companies are still often unable to leverage the different perspectives available to them in driving business goals. Recent breakthroughs in neuroscience have enabled us to understand why. The major breakthrough has centred around the basic needs of the social brain.

We have an instinctual need to continually define whether we are within an in-group or an out-group. This is an evolutionary remnant of the brain that enabled us to strive to remain within a herd or group where we had access to social support structures, food and potential mates. If we were part of the out-group it could literally have meant life or death. We are therefore hypersensitive to feelings of exclusion as it affected our survival.

The brain is further hardwired for threat and unconsciously scans our environments for threats five times a second. This means, coupled with our life or death need for group affiliation, we are hypersensitive to finding sameness and a need for in-group inclusion.

When we heard a rustle in a bush it was safer to assume that it may be a lion than a gust of wind. It is this threat detection network that has kept us alive until today. The challenge is that society has developed faster than our brains. In times of uncertainty we often jump to what is more threatening.

Some of the ways that this plays out is when we leave someone out of an email and they begin to wonder why they were left out. The problem is that it’s easy to unconsciously exclude someone if we are not actively including. The trouble occurs when we incorrectly use physical proxies to define in-group and out-group, as this is the most readily available evidence used unconsciously by the brain.

Barriers to Inclusion

A study done between a diverse group and non-diverse group demonstrates how this plays out in the work place. Both groups completed a challenging task and were asked how they felt they did as a team after the exercise.

The effectiveness of the team and how they perceived effectiveness were both measured in the study. It’s no surprise that the diverse team did better in the completion of the problem-solving task, but what is surprising is that they felt they did not do well. In contrast, the non-diverse team did worse, but felt that they had done well.

Working in a diverse team feels uncomfortable and that’s why we perform better. Discomfort arouses our brain, which leads to better performance. It feels easier to work in a team where we feel at ease in sameness, but in that environment we are more prone to groupthink and are less effective.

Creating Inclusion

We can’t assume that when we place diverse teams together we will automatically reap the rewards of higher team performance. As discussed, we’re hardwired for sameness and if we’re not actively including, we may be unconsciously excluding.

If we want diversity to become a silver bullet, we need to actively make efforts to find common ground amongst disparate team members. This in turn will build team cohesion and create a sense of unity, including reminders of a shared purpose and shared goals. Many global businesses put an emphasis on a shared corporate culture that supersedes individual difference.

It’s the same mechanism that is used in science fiction films that bond individuals together against a common alien invasion. It can also be used to describe why we felt such a great sense of accomplishment during the 2010 World Cup as we banded together as a nation.

We must also make sure we uplift all team members by sharing credit widely when available and recognising performance. The last thing we can do to further inclusion is to create clarity for teams. By removing ambiguity, we allow individuals to not jump to conclusions about their membership within groups and calm their minds so they can use their mental capacity to focus on the task at hand.

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To Get A Job Or Not Get A Job. What Are We Teaching Our Children?

Remember the days where if you went to school and studied a degree, you got a job and built a career that enabled you to retire comfortably? I don’t, in fact I’m not sure those days ever really existed. If they did, they are long gone.

David Wilson

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Today STATS SA tells us only 1 in 3 of the youth in South Africa have a job, even worse still – 34% of graduates aged 15-24 are unemployed1. The bottom line is that there are not enough jobs to cater for every child that finishes school. Our children need to learn entrepreneurship. If we want a brighter future for them, we need to nurture, teach and develop the skills and behaviours required to create jobs of their own.

With no intention of knocking the school system it would seem for the most part it discourages entrepreneurial thinking on a fundamental level; it prepares students to become good employees. Tuck your shirt in, sit still, stand in line, do your homework, focus on the task, check this box, you get the picture. Three decades ago this may have worked but it won’t work when we are trying to teach our children to survive the forth industrial revolution and prepare for jobs that don’t yet exist!

It may sound like a cliché, but kids are our future. As a parent I believe one of the most important duties we have is to give our children the best possible start. We need to prepare them on how to live, survive and thrive in a world that is rapidly changing, mostly unpredictable and often unforgiving. This starts by identifying the skills and nurturing the behaviours that will give them the best chance for success.

Related: Watch List: 11 Teen Entrepreneurs Who Have Launched Successful Businesses

Teaching entrepreneurship prepares our children for the future

Entrepreneurship encompasses so much more than starting and running a business. It’s a shift in mindset, a different way of thinking. Entrepreneurship views problems as opportunities and fuels creativity in the pursuit of solutions. All these skills can be applied to life.

Successful entrepreneurs are resourceful, self-confident and tenacious. They are great communicators and marketers, good at identifying and understanding risk. They have learnt from failure and made mistakes. Entrepreneurs are financially literate, understand cash flow and how to manage money. Again, these are skills that every child and student can benefit from.

To make it in the workplace of the future you will need to be self-confident, innovative, creative, motivated and curious.

Employers will need to hire staff that have the creative ability to innovate and ensure the longevity of their organisations. Those people that show entrepreneurial flair will be in demand in a world that is ever and more rapidly changing.

Exposing our children to entrepreneurship, teaching them the fundamental skills and behaviours required to start a business, and letting them know it is a career choice should be a requirement in all schools and endorsed and supported by all parents.

References:

  1. Youth unemployment still high in Q1: 2018 http://www.statssa.gov.za/?p=11129

Read next: Kid Entrepreneurs Who Have Already Built Successful Businesses (And How You Can Too)

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How To, In Practice, Distinguish Between Executive, Non-Executive And Independent Directors And Their Functions

Learn more about the differences in executive and non-executive directors.

RSM

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Definition of a director in terms of the Companies Act

Section 1 of the Companies Act 71 of 2008 (Companies Act) defines a Director as “a member of the board of a company, as contemplated in section 66, or an alternate director of a company and includes any person occupying the position of director or alternate director, by whatever name designated”.

Powers of directors

Section 66 of the Companies Act determines that the business and affairs of the company must be managed by or under the direction of its board and that the board has the authority to exercise all of the power and perform any of the functions of the company, except to the extent that the Companies Act or the Company’s Memorandum of Incorporation provides otherwise.

The board of directors, for the first time in our current Companies Act has been assigned the legal duty and responsibility and play a very important role in managing the affairs of the company and making vital decisions on behalf of the company.

Related: What You Need To Know Before Transitioning From Business Owner To Director

Number of directors required on a board

In the case of a private company, or a personal liability company, the board must consist of at least one director and the case of a public company, or non-profit company, the board must consist of at least three directors. A JSE listed company requires at least four directors. The company’s Memorandum of Incorporation may however specify a higher number, substituting the minimum number of directors required.

How to distinguish between executive, non-executive and independent directors and their functions

A clear distinction is noticeable between the different types of directors in practice, even though the Act does not distinguish between executive, non-executive and independent directors.

The below table gives a clear understanding of the differences between executive and non-executive directors:

Executive directors

Non-executive directors

Member of the board of directors with directors’ duties.

Part of the executive team, as an employee of the company and generally under a service contract with the company. Not an employee of the company.
Involved in the day-to-day management of the company. Not involved in the day-to-day management of the company.
In addition to a salary, does not receive directors’ fees. May receive Directors’ fees, but does not receive a salary.
Shareholders are not involved in approving their salary packages. Shareholders must approve their fees by way of special resolution, in advance.
Employee entitlements apply, such as annual and sick leave. No entitlements apply.
Has an intimate knowledge of the workings of the company. They contribute to the development of management strategies and monitor the activities of the executive directors.
They carry an added responsibility. Entrusted with ensuring that the information laid before the board by management is an accurate reflection of their understanding of the affairs of the company. Plays an important role in providing objective judgement, independent of management on issues the company are facing.

 

Independent, non-executive director

An independent, non-executive director does not have a relationship, directly or indirectly with the company other than his or her directorship. They should be free of any relationship that could materially interfere with the independence process of his or her judgement and they do not represent the shareholders of the company.

An independent, non-executive director should be evaluated on an annual basis to determine if they are still considered independent.

Related: The Role, Responsibilities and Liabilities Facing Non-Executive Directors

The role of these directors

All directors should apply objective judgment and an independent state of mind, regardless of the classification as an executive, non-executive or independent non-executive director.

Executive directors may be appointed as non-executive directors on other boards if this does not influence their current position and is in accordance with company policy.

Before a director accepts the appointment, they should be familiar with their duties and responsibilities and be provided with the necessary training and advice.

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