Why Should Business Owners Develop an Effective Management Team?
As an SME grows it becomes more difficult for the owner to control and decide everything in the way they used to. They start to become the main constraint on further growth.
Sensible business owners address this issue by delegating more. They introduce a more formal structure with reporting lines and clearer accountabilities. A layer of management starts to form –possibly even people other than the owner with the title “director”. The organisation moves through the difficult transition from everyone reporting to the owner to something more hierarchical.
The owner introduces regular meetings where those people who report direct to her review business performance. This is a big step forward, although at this stage the scope will usually be limited to short-term operational matters.
The owner is still the custodian of the organisation’s vision. She still makes all the important decisions pretty much unaided. The other attendees are reluctant to challenge the owner or each other. They understand and accept responsibility for their own areas to a greater or lesser degree but feel little involvement in setting or achieving the wider organisation’s long-term objectives. They may be ill-equipped to contribute to strategic thinking, owing their position to functional experience and having had little invested in their development as managers.
By delegating functional, operational tasks the owner has freed up her time and is no longer a short-term constraint, with insufficient time to control people or do things. However, she is still a constraint on sustainable, long-term growth, being the only person who sees the big picture, or able to think and plan strategically.
The business once again starts to plateau and stress to build. The owner starts to realise that although the business is better organised and more scalable than it was, its resilience and value to anyone else is severely limited by the reliance on her to sustain and drive it forward.
To move beyond this, to become scalable, the organisation must develop an effective management team – one that runs the business. The thing is, like Blackadder’s evil plots, effective management teams don’t just make themselves.
Creating an effective management team will:
- Improve business results by improving business strategy. As with most things, involving different perspectives and informed discussion will almost always result in better decisions and more buy-in
- Make the business more scalable and productive by underpinning delegation and strengthening accountability
- Reduce reliance and stress on the owner so making the business more resilient
- Make the business more valuable. Depending on the nature of the transaction, potential acquirers put a high value on the quality and performance of the management team – after all, the owner won’t be there any more
What Does a Management Team Do?
In functional terms, the management team:
- Creates the organisation’s vision
- Defines the most effective strategy to achieve this
- Sets priorities for resources and actions (the plan)
- Reviews performance against plan
- Decides and assigns actions to keep the organisation on track
Creating the Vision
No organisation can perform well without a common vision,whether that is to win the league, put a man on the moon or achieve a sales target. It follows that a great deal of the management team’s time is spent in discussing the vision, whether that is articulating it in the first place or validating it against real-world results.
Defining Strategy
A vision can only become shared and compelling if there is a credible means to bring it about – a strategy. The formal strategy may exist as a document or a slide deck but the real strategy is a shared mental model of the organisation and its market; a model that exists in the minds of the management team. This shared set of beliefs about causes and effects emerges not only from formal strategic reviews but also from hundreds of discussions about results good and bad.
Creating the Plan
A long-term strategy requires a plan to make it happen. A plan requires decisions about priorities and resources. It sets objectives and completion dates. It assigns responsibility and co-ordinates activities across the growing business so that marketing, sales and operations budgets and targets match the required financial outcome.
Reviewing Performance
Reviewing performance against what was expected to happen serves two purposes. Firstly, it identifies where action is required to correct things. Secondly, it ratifies (or challenges) the vision, strategy and plan created by the management team – the shared mental model.
Taking Corrective Action
The loop is closed by the team deciding what action is required and assigning responsibility and resource to this. Sometimes the action will lie in a single part of the business, sometimes there will be a choice of actions and sometimes multiple actions must be co-ordinated.
In practice, in an experienced team, these five tasks are not discrete and sequential but iterative and combined. However, when you are starting to develop your team (and at regular intervals when you have established things) you should set time aside to work on the first three. Otherwise the danger is that the team slips back into a purely operational focus.
What Makes a Management Team Effective?
A management team is an open-ended, dynamic process rather than a result. To start with, team members may only feel able to contribute to conversations about their own area– or they may be inexperienced even in that. They may be reluctant to ask questions about other aspects of the business for fear of looking stupid or offending other members. They may be more concerned with avoiding blame than understanding causes.
Over time, the best teams will start to demonstrate the following behaviours:
Members Are Competent Withing Their Own Functions
Trust underpins teams. Members must know that their colleagues will deliver. This doesn’t mean that mistakes don’t happen, or that results are never impacted by external factors, or that team members must all be brilliant leaders in their field. It does mean that persistent incompetence or laziness in an individual must be dealt with if the team is to believe in itself.
Members Are Emotionally Intelligent
Trust underpins teams. Members must have the emotional intelligence to empathise with their colleagues, to challenge constructively and to accept challenge without feeling threatened. They must be supportive of colleagues. Destructive behaviours or a lack of respect will destroy trust.
Members Think in Terms of the Whole Organisation Not Just Their Own Function
Members accept responsibility for the overall organisational performance not just that of their own function. This means that they must build up an understanding of the other areas of the business by asking questions of and,when appropriate, constructively challenging, their colleagues. It means that they must welcome questions and challenge from others on their own functional areas in return.
Should the organisation be struggling to achieve its goal then this is not “Marketing’s problem” or “Operations’ problem” – it is “our problem”.
Conversations Move Easily Between Operational and Strategic Perspectives
In weak teams, regular conversations are almost exclusively operational and short-term whilst strategic conversations are separate events. The result is that strategy is detached from reality to the point of irrelevance and operational decisions are reactive and directionless.
In stronger teams, operational decisions are informed by strategy and strategy is continuously validated against reality. This happens implicitly in many conversations throughout the team meetings and elsewhere.
There is a Shared Conceptual Model of the Business and its Strategy
The conversations described in the previous point serve to develop a mental model of the business – cause and effect, where it is going and how – that is shared by all team members. This makes decision-making, co-ordination and prioritisation much more efficient and robust.
The Leader Coaches, They Don’t Control
A leader who dominates the conversation, wins all the arguments and makes all the decisions will be leading a weak team. This will be the case whether the behaviouris rooted in a psychological need to control, a lack of trust in others,impatience – or simply habit.
Leaders of effective teams see their primary role as developing others. They are more likely to ask questions than make decisions. They recognise the need to invest time and coach others to understand issues and arrive at decisions. They balance the need to achieve today’s results with the need to develop individuals and the team for the future.
A Model for Management Teams
Patrick Lencioni, in his book “The Five Dysfunctions of aTeam”, develops an elegant model that informs many of the points in this section:
He says that high-performance teams demonstrate
- Individual accountability based on
- Commitment to the goals of the team gained through
- Challenge and constructive conflict enabled by
- Trust between members
Developing an Effective Management Team
The way to create an effective management team is not to go fire-walking together, fun as that might be. It is to work together on running the business. We have already looked at what, functionally,this means but to develop an effective team you must work on three things:
- Managing the performance of the business to achieve the planned results
- Developing the team, including a common goal, shared commitment to its achievement, a shared understanding of how this is tobe brought about, trust, open communication and accountability
- Developing the commercial, managerial and leadership capabilities of the individual team members
(John Adair in his book “Effective Leadership” calls this balancing Task, Team and Individual)
For business owners, who are accustomed to make all the decisions and whose own money is at stake, changing to run their business this way is challenging. It is also a challenge for employees, who are accustomed to the boss making all the decisions (it’s their business, after all).
This means that it won’t happen naturally. You, the owner, need to take steps to make it happen. Here are some suggestions:
Prepare the Ground
If you do not already run a regular review meeting with your direct reports or functional heads then set this up – monthly immediately after your accounts are completed is the best time. Get it in everyone’s diaries as a recurring meeting.
If it isn’t already the case, make sure that each part of the meeting uses numbers presented and explained by the person responsible. If you do most of the talking now, start to reduce this. Encourage others to talk more and come up with solutions by making sure you ask questions rather than give answers.
Raise Their Horizons
Introduce some longer-term items under any other business or as opportunities present – “What do we think the business is trying to achieve?” or “What do we think we are good at?”. Don’t terrify people by saying “Right, now we are going to discuss strategy”.
Return to, reinforce and build on the results of these discussions whenever you can.
Build Trust
Encourage constructive challenge – “Fred, what do you thinkabout Jane’s proposal?” or “I’d like you all to write down the pros and cons of the suggestion I’ve just made.”
Treat performance (good or bad) as an opportunity to improve– “8 is pretty good – what would need to happen to make that a 10?”. Make sure everyone understands that targets are to promote discussion about performance improvement, not a stick to beat people with. Make it clear that blame and excuses are Bad Things and unacceptable by calling them out – “Tom, how could you reframe that problem so it is something under your control?”.
Improve Individual Performance
Where necessary improve the contribution of members by providing individual training, feedback and coaching.
If someone is a technical wizard but has no aptitude or desire for leadership, management and teamwork then create them a role wherethey can deliver value and put someone more suitable in charge of their function.
If someone fails to respond to support and development within a reasonable time then don’t keep throwing good money after bad (or keep trying to put in what God left out) – remove them. Any immediate pain and disruption will be worth it.
Summary
An effective management team is one that is running the business. Without such a team, the owner becomes a constraint on growth and the business remains fragile.
An effective management team improves business performance, promotes accountability, makes a business scalable, reduces stress and dependence on the owner and makes the business more valuable.
Developing an effective management team is an open-ended process that requires explicit development of the team and the individuals whilst working together to improve business results.
For more insights on developing your management team you might like to attend one of these events.
