You are on page 1of 3

Unnatural Control – The importance of diversity in operational control for small and mid-sized businesses The division

of control for larger companies is well defined; they have multiple executive employees, many times they have an independent board of directors, they may also have shareholders who represent a modicum of control within the organisation. This division of control provides a system of built-in checks and balances that mitigates operational, financial, and infrastructure risks within the organisation while also providing the type of differentiation from a decision-making standpoint that fosters innovation and growth within the organisation. While it is an imperfect system of management, there are significant benefits to this type of diversity as it relates to the internal controls within an organisation. Without these controls larger organisations would be subject to the decisions and management of a singular individual and group of similar-minded individuals. Not only does this increase the operational risks associated with that company, it also decreases the attractiveness of that company to investors, consumers, strategic partners, and lending institutions. When one defined management structure is in full control of the company the reality of the situation is that eventually that group or individual will be wrong. With that understanding it is much less likely that another entity will want to have a vested interest in the organisation. Taking these issues into consideration, small and medium-sized organisations must understand that the same benefits of diversity that benefit larger companies would also benefit smaller entities if they were implemented correctly. In trying times, smaller organisations have much less room for error and are generally in a less-advantageous position to grow and develop; and in these times there may be problems that threaten the solvency and sustainability of the organisation. In these times only depending on one set of views from the management team can be both dangerous and counterproductive. While many organisations that are considered small or mid-sized have partners running the organisation (and are not under the management of a singular individual) they are being run by like-minded individuals who don’t have diverse views on running the organisation. This article is directed at those organisations and its purpose is to discuss the advantages of implementing a diverse management infrastructure more similar to larger corporations than simply depending on the views of a single management body. When we are discussing diversifying the management team we don’t necessarily mean developing a board of directors, because for small (closely-held) organisation a board of advisors can be just as effective. In addition we are also not solely focusing on external management bodies as I have found that an internal management body that focuses on bringing diverse personnel together for the purpose of organisational decision-making also provides a major advantage. Below I have specified some of the ways that privately held organisations can diversify their management infrastructure; and in coming articles we will review each of these in further detail.

1. An external board of advisors – Simply creating a board from some key executives, strategic alliances, industry experts (or professional experts), and possibly from customers or people who represent your customer base. 2. An internal management body – Taking division heads for key operational departments and bringing them together for the purpose of decision-making and operational direction. 3. Division of Executive Power – When the owner or the president of the company goes outside of the organisation to fill key operational positions (such as CEO, Vice-President of Marketing, Chief Informational Officer (depending on industry), Vice-President of Sales, etc.) 4. Equity Sale (Strategic Partnership) – From this perspective I am generally referring to a Venture Capital or Private Equity situation. When companies are entering a new stage of business and the current management team believes that they may not be equipped to handle the growth of the business, the ownership may decide to sell off some of the equity to one of these entities in exchange for cash and management direction. In these instances the Venture Capital firm or the Private Equity firm will not only provide financial assistance, they will also provide organisational support by providing access to strategic alliances, potential customers, and most importantly they can appoint experts to the board and insert experts into the management team which can be extremely beneficial for management. While these aren’t the only methods of diversifying the management or decision-making infrastructure they do provide examples of how a company can mitigate its operational risk by diversifying the method upon which they make decisions and take risks. The benefits of this are many, but for this article we will only concentrate on three: 1. Risk Management – The old saying goes “Never put all of your eggs in one basket”, well a company should never let all its decision be made by one person. – As it relates to risk, being overly dependent on one entity (be it one person or a few people who have similar interests) is in a word – dangerous. Even the most expert managers and owners make mistakes, and in times where each operational risk carries with it the sustainability of the organisation, it is not prudent for all decision making to be centralized in one entity. Through proper diversification companies can benefit from multiple perspectives as it relates to running the company. Be it financial decisions, strategic decisions, human resource decisions, or development decisions, the ability to have a multitude of informed people making those decisions is generally more advantageous. Furthermore, if this is done properly and with full transparency then individual goals, interests, or wants shouldn’t put the company in a poor position. The fact is that everybody has independent interests and when those conflict with the interests of the company a singular management perspective can be extremely detrimental, where diversity can generally make sure that those independent interests don’t cause undue harm to the entire organisation.

2. Growth and Development – The easiest way for an organisation to grow is to take advantage of opportunities when they arise. When you have a diverse management structure that values the ideas and thoughts of a multitude of individuals the company is in a much better position to find growth and development opportunities. When a singular management vision is the only one that is adhered to then the company is at the mercy of that singular ideology; if it is too conservative or too aggressive the company is forced to deal with it. The issue is that when that ideology is singular; that single-mindedness will undoubtedly miss opportunities. When multiple people are tasked with making these decisions then they are going to be focused on finding these opportunities which (in basic math terms) means there will be more opportunities. Furthermore, the diversity gives the company choices as to what direction to go into; which can be extremely beneficial. 3. Access - When a company has strong partners, or multiple decision makers, that company makes itself more attractive to those entities that are capable of drastically improving operations and selling opportunities. When a company obtains venture partners who have well-respected industry contacts then they obtain access to strategic alliances, suppliers, logistical partners, and customers that they wouldn’t have had access to. When a company has strong sales or development partners, they can then make themselves more attractive to lending institutions or public relations entities that can help the company grow. If the company chooses the right partners, they can have access that would simply be unobtainable if they didn’t have the diverse management structure. Simply stated, diversity has its drawbacks; decision-making is a slower process; there will be conflicts, and there is the potential that the system of checks and balances will mean that some lucrative opportunities are missed. However, this type of set-up also insulates companies against many of the risks that have destroyed small and mid-sized companies over the last three years. There is a reason why even the most respected leaders (the Buffets, the Gates, the Bransons) have a team of advisors; because not doing this leaves the fate of companies in the hands of an individual; and eventually leads to failure. By - Vijay Mistri: Assists and advises CEO's, Directors, Executives, Entrepreneurs and professionals, achieve standards of excellence on the four core pillars- Strategy, Risk, Finance and Best practice in order to build stronger brands and increase performance and efficiency. www.rentadirector.com email: vijay@rentadirector.com