Strategy

Importance of Management in Small Business

by Prithiraj Prodhan

Management is one of the most-used buzzwords in the world of business. It has been felt that management is highly essential in the business of all categories irrespective of their size, industry, objective, etc. Failing to ensure proper management results in the extinction of businesses. So, it is mandatory to know about the Importance of management in your organization. In this article, I will discuss why management is important in all kinds of organizations, especially its Importance in small businesses and its important functions.

What is Management?

Management is the process individuals/organizations use to achieve its objectives through co-ordination of its resources in an efficient manner and proper mechanism of planning, organizing, leading, and controlling performance & manpower. It is like a brain in a human body. Just like the brain commands our body what to do, the management commands all the entities of an organization.

Elaboration

According to the modern business scholar HBS Dean, Nitin Nohria, “I think of management as working with other people to make sure the goals an organization has articulated are executed.” [1] It means the management of an organization chooses the path the company should be on, and it’s their responsibility to manage the business in internal and external environments. Sometimes, management works with the people of the organization and gets work done by them through proper guiding and monitoring. Or sometimes, it involves the decision of what the company should produce, how it should go to market, which it should sell its solutions to etc. It is a concept of dynamic rather than stagnant existence in which events and interactions must be viewed as dynamic, continuous, and adaptable as a whole. As a result, management as a process encompasses a wide range of actions and sub-activities.

 To illustrate the concept more clearly, let’s take the case of Netflix and see how management is involved as an integral part of this organization. Suppose the company’s administration has planned to launch a new series for its consumer on the first month of next year. Here they have decided after evaluating the suitability and the objective is to acquire a new customer base. Then they organized necessary resources for the project, hired staff, trained them properly to operate all involved activities, led them during production, and finally monitored the outcomes that helped the company achieve its goals. So in this whole process, all the decisions the responsible individuals took in all levels of the hierarchy the processes they used to achieve Netflix’s business objective are the core activities of management. That’s what management does continuously in every organization in different ways. 

Functions of management

  • Planning: Planning is the process of thinking and then fixing what the organization will do in the future to achieve its goals.
  • Organizing: It refers to the assignment of tasks, the grouping of work into departments, the delegation of power with appropriate accountability, and the distribution of resources across the company in order to achieve shared objectives.
  • Staffing: It is concerned with employee recruitment, selection, training, development, appraisal, and compensation.
  • Directing: The process of training, guiding, and overseeing the performance of workers in order to achieve predefined goals is known as directing.
  • Controlling: Controlling is the process of ensuring that actual actions match the standards that had been set earlier.[2]

Types of Business Management in Small Business

  • Financial management: Financial management is the process of planning, sourcing, regulating, and controlling financial assets of an organization to utilize its resources efficiently. It is concerned with investment decisions, financing decisions etc.
  • Marketing management: Marketing management is the study, planning, execution, and monitoring of programs meant to achieve desired interactions with target markets in order to achieve organizational goals. In small businesses, It includes sales management, brand management and supply chain management under this department of management. [3]
  • Accounting: The process of acquiring and evaluating financial data on business activities, documenting transactions, and preparing financial statements is known as business accounting. Sometimes, small businesses do not distinguish between financial management and accounting.
  • HRM: Human Resource Management refers to all of the systematic processes designed to assist in the management of workers and other stakeholders inside a business. This Important function is concerned with staff recruiting and remuneration and work assignments.
  • Strategic management: Strategic management is the systematic use of a company’s resources to achieve its goals and objectives. This type of management is essential in a business of small size to achieve its goals successfully.
  • Operations management: It is a branch of business dealing with the management of business procedures in order to increase the efficiency of an organization. It entails planning, managing, and supervising the organization’s procedures in order to generate the best feasible operational profit by balancing income and expenses.This function has significant Business importance as it ensures maximum efficiency through proper utilization of the resources. 

Importance of Management in Small Business

Management is an integral part of every business organization. But when it comes to small businesses, the Importance of managementbecomes much more intense. A single decision by the management can completely change the route of the business. In this section of the article, I will discuss Why management is important in small businesses.

Ensures Maximum Efficiency

In every small business, it is mandatory to ensure efficiency for more profitability and proper utilization of the resources. Management can help your organization be more efficient and productive in its operations. Generally, operations management is concerned with such tasks. This important function makes sure that the production output is maximum with the possible minimum amount of input. Management provides the right person with the right skill at the right time, enabling maximum productivity rate in the organization’s production of goods or services. It also works to create synergy between different production systems and ensure a smooth supply chain so that the production does not hinder. [4]

For example, suppose you have a software firm that develops different software for its clients. Previously, you used to need 15 software engineers in every month to meet the market demand. But you have predicted that the demand will increase in the next quarter. So here you need to increase the number of devices, pieces of machinery, and definitely manpower. Here comes the magic of operations management. Proper operations management can help you to hire the staff with the right skills and devices that can provide optimum output. Also, the same number of devices and manpower can be used to produce a greater amount of output with the right management. Proper Management practice will ensure maximum efficiency and help your business to be more profitable.

Reduces Cost Significantly

Management can reduce the cost of your business significantly through proper utilization of the financial resources and all other assets of the organization. Cost is a big factor in small businesses and can impact its profitability more intensely than the big corporations. This is Why management is important for small businesses. Organizations’ management teams put a lot of work into differentiating the costs that genuinely drive their competitive advantage from those that don’t. They make judgments about where to trim and where to invest based on the need to sustain their most valuable assets: the capabilities that allow them to provide distinctive value to consumers. Especially, the cost management department finds the cases where cost can be minimized, and the financial management team takes financial decisions that reduce the cost of capital of your organization. It is really important for small businesses to be cost-efficient in order to compete in the market.

For example, if you have a business organization that manufactures pet food and distribute it to the local market. Your products need to be cost-efficient for the consumers. Otherwise, they will go for the solutions of the big companies who have more reputation in this field. Only management can help you in such cases by minimizing the costs of your raw materials.  by selecting proper sourcing, reducing the marketing expenditure and optimizing it according to the market situation, increasing the productivity rate of your labor by proper motivation and leadership, monitoring the operations and solving the deviated result for constant improvement.

Ensures Long-term Growth

Management makes sure your business grows continuously and achieves its-long term goals. Strategic management is concerned with this kind of objective. The primary goal of strategic management is to improve the firm’s long-term strategic competitiveness. It is feasible to devise and implement strategies that add value to the firm. It focuses on identifying opportunities and risks and the firm’s strengths and limitations to build plans for the firm’s survival, development, and expansion. To sustain in the long-term and grow consistently, your small business needs to achieve both short-term and long-term goals. Only proper management can ensure that by making appropriate & timely decisions as well as utilizing your organization’s resources properly. 

Reduces Risk of your Business

Management is essential in business to reduce risks of all types. Management helps a business to maintain a balance between its risks and profit. Especially, financial management is involved in risk mitigation activities. By creating a diversified investment portfolio and deciding the appropriate business routes, management reduces the risk and ensures that the farm does not go extinct because of its decisions. Also, proper monitoring and controlling minimize the risk of making a mistake again in the future. In small businesses, it’s highly important that the organization have a proper risk management team. Otherwise, it can wind up easily, as small businesses have the weaker financial capability. Only adroit management can ensure that.

Helps to Build a Consumers-centric Business

To strengthen the position in the market, small businesses need to deliver the value that consumers want. A consumer-centric business can grow rapidly and escalate it into other forms of business. Efficient management can be the most effective way to build a consumer-centric business. The introduction of MIS can help your management team use the consumer data and make data-driven management decisions to serve the consumer in the best ways.

Ensures Constant Improvement

Management boosts the performance of your business as well as the products or services you produce improve constantly. The business performance improved through the management’s proper controlling and monitoring practice. After each business period or project, the management team evaluates the performance and compares it with the standard they set previously. They also compare it with the previous performance. Then they find loopholes and factors that can be improved. Small businesses need to improve their performance constantly to grow the business. in that case, only management can help your small business grow by improving its performance.

Build an Enriched Workplace Culture

Human resources are considered to be the most valuable assets of any business organization. Especially in small businesses, the fate of the organization largely depends on its human resources. Thus, the dimension of HRM was created to utilize manpower appropriately. Management can make the best use of the human resources of your small business through staffing, leading, motivating, and directing. Mainly the HRM function is involved with these managerial actions. Management trains the employees according to the organizational need, directs them under the right leadership, and provides motivation to increase productivity and reduce employee turnover rate. The proper practice of management helps small businesses build an enriched workplace culture and utilize their human resources at an optimum level.

Getting Social Goals Accomplished

Any organization receives resources from society for its business, such as people, transportation and communication, infrastructure, etc. In exchange, the organization should meet its social obligations by paying the right taxes, paying fair salaries, reducing waste and pollution, providing high-quality products and services, and avoiding unfair trade practices, among other things. Small businesses are more involved with societal factors. Management helps the organization to meet its social responsibilities and build goodwill in society.

Bottom Line

Efficient management is the key to the success and growth of small businesses. It helps your organization make effective decisions in every stage and department. Ensuring proper management system in the organization from initial stage will minimize its barriers to grow and sustain in the long-term.

References

  • Leadership vs management – Harvard Business School official website;
  • Management: Principles and Practice – Book by Ricky W Griffin;
  • Principles Of Marketing – book by Philip Kotler;
  • Operations Management- book by William J Stevenson (14th edition);
  • How to cut costs more strategically – HBR;

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