Archive for October, 2012

An Opportunity for Small Business Collaboration in Global Markets


Today small businesses find it tough enough to survive let alone expand in the global markets. Opportunity does exist, however, in the global markets through making alliances with strategic partners. The partners to alliances look at alliances as temporary or until considered no longer necessary and the alliance has served its need (Grosse, 2000).

The idea behind strategic alliances is to co-create value, but often businesses find it difficult because of the unwillingness to share or a lack of common values. The small business alliance depends on trust and openness to work toward a common value. The parties to a strategic alliance have to negotiate to fill in their strategic weaknesses and improve the competency of the alliance (Grosse, 2000; Mockler & Gartenfeld, 2001). Mockler and Gartenfeld argued effective negotiation at the start of the alliance cements the likelihood of a successful partnership.

Liu (2009) asserted international alliances should collaborate to find critical technology and knowledge in a strategic alliance and negotiate learning activities leading to competitive advantage. The partners to an alliance should structure the alliance so it becomes a “race to learn” by mixing competition in with cooperation, but this structure leads to instability. Grosse (2000) argued a one-sided alliance leads to unstable relations and the objective should seek to strengthen weaknesses in the competencies of the alliance partners.

Grosse (2000) claimed the strategic alliance partners need to find a strategic fit by settling the cooperation level, the effectiveness of the cooperation level, and molding the culture of the alliance. Partners should seek a significant understanding of each other to form an effective alliance. An understanding will help foster a successful work relation and avoid failure. A successful partnership will promote value creation through knowledge gathering. Planning has a critical role in forming successful strategic alliances.

Do you have what it takes to expand through inter-firm alliances to succeed into global markets? If you need help planning for global expansion contact us to learn more.

References

Grosse, R. E. (2000). Thunderbird on global business strategy. New York: John Wiley & Sons.

Liu, W. K. (2009). Advantage competition of inter-partner learning in international strategic alliance. Journal of Global Business Issues, 3(2), 123-128. Retrieved from http://search.proquest.com/docview/223750245?accountid=35812

Mockler, R. J., & Gartenfeld, M. E. (2001). Using multinational strategic alliance negotiations to help ensure alliance success: An entrepreneurial orientation. Strategic Change, 10(4), 215-215. doi: 10.1002/jsc.536

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Business Culture: Groupthink vs. “Teamthink”


Gibb and Schwartz (1999) argued groupthink paralyzes companies creating a culture that dismisses all social issues as unsuitable for management consideration. Gibb on and Schwartz claimed the best employees in the future will not tolerate a stifling top-down culture because better educated and networked employees will demand more participation. Chen, Lawson, Gordon, and McIntosh (1996) argued good decisions come from leaders who encourage an open decision-making process. Maharaj (2008) argued strict adherence to rules masks open decision-making and evaluation of alternatives and corporate boards should seek diverse skills and avoid groupthink. A well-rounded board leads to improved decision-making that considers its members knowledge and skills instead of perpetuating the good old boys club.

Solomon (2006) challenged the idea that dissent is undesirable and rational deliberation and consensus results in group decision-making. Neck and Manz (1994) explained “teamthink” as an alternative to groupthink as characterized by highly cohesive and conforming groups. “Teamthink” offers encouragement of divergent views, open idea expression, recognizing threats and limitations, valuing unique members’ views, and discussion of doubts. Neck and Manz argued self-managing teams can promote these values to encourage better decision making.

I believe companies still encourage groupthink at top echelons of an organization, but promote “teamthink” at lower levels. I believe this allows an organization to create a double standard to preserve top-down management culture, while promoting improved production from lower levels. The idea is that ultimately “the buck stops here” at the C-level. Does this double standard help or hinder building trust to make the right decisions?

Gibb and Schwartz (1999) suggested without improved participation good employees will leave a company they do not trust and seek employment elsewhere where they can use their education and experience. What do you think? Please leave a comment with your thoughts. If you need help organizing your company more productively I encourage you to learn more.

References

Chen, Z., Lawson, R. B., Gordon, L. R., & McIntosh, B. (1996). Groupthink: Deciding with the leader and the devil. The Psychological Record, 46(4), 581-581. Retrieved from http://search.proquest.com/docview/212668876?accountid=35812

Gibb, B., & Schwartz, P. (1999). When good companies do bad things. New York: John Wiley & Sons.

Maharaj, R. (2008). Corporate governance, groupthink and bullies in the boardroom. International Journal of Disclosure and Governance, 5(1), 68-92. Retrieved from http://search.proquest.com/docview/196323941?accountid=35812 http://linksource.ebsco.com/linking.aspx?genre=article&issn=17413591&volume=5&issue=1&date=2008-02-01&spage=68&title=International+Journal+of+Disclosure+and+Governance&atitle=Corporate+governance%2C+groupthink+and+bullies+in+the+boardroom&au=Maharaj%2C+Rookmin&isbn=&jtitle=International+Journal+of+Disclosure+and+Governance&btitle=

Neck, C. P., & Manz, C. C. (1994). From groupthink to teamthink: Toward the creation of constructive thought patterns in self-managing work teams. Human Relations, 47(8), 929-929. Retrieved from http://search.proquest.com/docview/231490747?accountid=35812

Solomon, M. (2006). Groupthink versus the wisdom of crowds: The social epistemology of deliberation and dissent. The Southern Journal of Philosophy, 44, 28-42. Retrieved from http://search.proquest.com/docview/218152905?accountid=35812

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Small Business Risk Taking: History Repeats Itself


“History repeats itself” is a saying I hear on occasion and often wonder about. Today, for example, some businessmen say they cannot work because of uncertain conditions, yet Adam Smith designed capitalism as the “epitome of risk taking” (Bernstein, 1996, p. 19). According to Bernstein, up to the time of the reformation, the stable Protestant tradition stressed abstinence to avoid risk. Protestants considered the danger inherent in risk-taking as akin to gambling. Adam Smith (1904) introduced capitalism believing the danger attached to risk also came with opportunity. Instead of looking at risk as a zero-sum game where someone wins and someone loses, Smith believed trade resulted in a mutually worthwhile pursuit. Smith believed both parties to trade and risk taking could become wealthier contrary to practice before the reformation that relied on exploitation to gain wealth (Bernstein, 1996).

Recent conversations have talked about how unacceptable the transfer of wealth is from the elite to its underlings. Some business people espouse the pre-reformation idea that wealth transfer should only come from exploitation of underlings, while others see wealth transfer more like Adam Smith did. Smith believed business is risky, but full of opportunity and new wealth came to those adventuresome people willing to innovate (Bernstein, 1996). Today with the coming of supply-side economics, some want to return to the days of exploitation and stymie adventuresome entrepreneurs willing to innovate and create new trade. Does history repeat itself? Has the pendulum swung too far in the wrong direction?

I believe an efficient economic system has to balance opportunities with risk taking. If business people do not take risk, I do not see where innovation comes from under such conditions. Stable well-established businesses do not like to remove themselves from their comfort zone and their products and services eventually become stale and do not satisfy consumer needs. Meanwhile, society needs to provide more incentives to entrepreneurs to innovate and create new trade.

What do you think? Is our economic system returning to the stable pre-reformation days bereft of any risk taking relying solely on exploitation? Are you willing to take a risk in today’s economic setting? What incentives do you believe would help entrepreneurs to resume their efforts to innovate new trade? Please leave your thoughts here. Do you want to know more about incentives to small business entrepreneurship to its rightful role? Click here.

References

Bernstein, P. L. (1996). Against the gods: The remarkable story of risk. Hoboken, NJ: John Wiley & Sons, Inc.

Smith, A. (1904). The wealth of nations (5th ed.). London: UK: Methuen & Co., Ltd.

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Human Capital: Are Employees a Small Business’s Most Valuable Asset?


I have heard the words “employees are our most valuable asset” many times, but have rarely seen accountants embrace the idea of capitalizing human capital as an asset on the balance sheet. The theory goes that companies expense wages as employees earn them. If employees are an asset I believe the part of workers’ employment cost that adds value to the organization should appear on the balance sheet.

Although accounting rules forbid capitalizing human capital, they only recognize human capital on the income statement. Despite this oversight, many call accounting the language of business. At least one article admitted the problem and recommended alternatives for capitalizing human capital. Chen and Ku (2004) concluded, “The succession of the human intellect over machines and equipment in the contribution to industrial value makes a financial statement that relegates human capital expenditure to expenses inadequate if not obsolete” (p. 129). If accounting is the language of business why is the value of its most valuable asset excluded from the balance sheet?

This disparity leads one to believe companies’ accounting standards look at employees not as an asset, but as a liabilities. For example, in finance the main goal of the firm is to maximize shareholder wealth and accounting rules treat human capital as a period cost (expense) instead of an asset. In recent years many companies have reconsidered the view shareholders are the only stakeholders in a firm, and have expanded stakeholders to include customers, suppliers, and employees. Even with the coming of triple bottom-line reporting I have not seen accounting rule-making bodies espouse the capitalizing human capital (Elkington, 1994; Slaper & Hall, 2011).

Similarly, Reimers-Hild, Fritz, and King (2007) described human capital as a continuous investment leading to increased earning power. Reimers-Hild et al. further described human capital as responsible for innovation, creativity, and keeping pace with change.  Chen and Ku (2004) developed a theoretical classification framework that would capitalize certain formation and acquisition costs in early stages of development, learning costs in middle stages of development, and replacement costs in final stages. Chen and Ku argued for disclosing these costs as investments if the costs are unique and add value.

Do you believe employees are your greatest asset? I would like to hear your thoughts. Should your greatest asset show on the balance sheet? Please let leave your comments? Click here if you want to understand more about accounting for human capital.

References

Chen, H. M., & Ku, J. M. (2004). The role of human capital cost in accounting. Journal of Intellectual Capital, 5(1), 116-130. doi: 10.1108/14691930410512950

Elkington, J. (1994). Towards the sustainable corporation: Win-win-win business strategies for sustainable development. California Management Review, 36(2), 90-100. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9410213932&site=ehost-live

Reimers-Hild, C. I., Fritz, S. M., & King, J. W. (2007). Entrepreneurial Career Development: Using Human Capital, Social Capital, and Distance Education to Achieve Success. Advancing Women in Leadership, 24, 1-N_A.

Slaper, T. F., & Hall, T. J. (2011). The triple bottom line: What is it and how does it work? Indiana Business Review, 86(1), 4-8. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=66506015&site=ehost-live

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