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This essay is going to analyse how employees and owner-managers experience the transition towards more formalization. Moreover I will strive to explain which terms and conditions related to formalization can constitute huge challenges.
The owner-managers have to administrate the process of formalization.
It is a tactful process to increase the level of employment formality. It influences the manner in which formalization is carried out and generates apprehension on how the interrelation between workers and owner-managers will evolve. It is understandable that everyday social-interactions have to be studied in a thorough manner.
On one hand, I intend to show the impact of the formalization, on the relationships of employment and the working practices. On the other hand, I will put in perspective the implications on everyday bases for the organisation itself.
The first challenge that owner-managers encounter is to prepare the employees to the formalization and help them to welcome the new provisions in a good way.
It constitutes a significant challenge because the employees may be destabilized; they may be not receptive or feel betrayed by the people that they used to work with. As a matter of fact, the difficulty lies in the fact that owner-managers have to take into account the employees' expectations and combine the whole with the current needs of the firm. It generates a cycle of negotiations and trade-offs between them.
Indeed, getting the approval and the workers' voluntary consent is not an easy task. According to XXXX, "Despite the narrowing to scope for informality, management still had to persuade workers to accept these conditions, and secure their consent to the process of change." (Monder RAM, Paul Edwards, Mark Gilman and James Arrowsmith, 2001)
Owner-managers, as well as employees, consider work relationships as valuable. Owner-managers should then show the consideration that they have towards their employees' affects in adjusting their behaviours to reassure their fellow workers and insure their support to the prescriptions applied concerning the formalization process.
Quality of the Relationship
In this aim, ensuring the harmony and the same quality in the relationship through the formalization process, as it was previously, should be first and foremost a matter of concern for owner-managers.
Informal structures are regarded as the Holy Grail because they are said to guarantee a good work atmosphere. However formality is seen as a way to hold employees in check.
It explains why most of the companies are afraid of being involved in such a process and try desperately to remain the same, in order not to shake the relationships.
So to rally people's opinion, owner-managers have to prove the well-founded of the approach. It is not as easy as it might seem, because employees are reluctant to change for several reasons: they don't want to loose the "spatial and social" and special "proximity" they know as mentioned by Mallett and Wapshott, (2012), they are afraid of becoming anonymous â€¦
But as human we always perceive first the negative aspects involved by changes. Therefore, another owner-managers' challenge, following up the first challenge mentioned above, is to show people the positive points that such a transition may occur and that it won't necessarily have derogatory impacts on their well-beings.
So owner-managers may highlight the fact that increasing formality is also synonym of establishing more policies which generate more rights. In SME's, employees are hard workers; they are not reluctant to do a task and more, if required. It also allows to define more precisely what kind of attribution each job required and which kinds of mission are attributed in order to be more efficient, but also to allow employees to have some rest. Furthermore, it could mean hire new people and raise the level of delegation, which could relieve the staff, but paradoxically may frustrate them due to the loss of the flexibility that they had.
Later on, the challenges which recover the last point that I have just mentioned above, will be analysed in further details later in this essay.
Change of Practices
Then a modification of the behaviour and a deep change in the work practices happen. The owner-managers are thereby facing "practical difficulty of changing work." They are no longer able to run the business "as usual", but it requires some adjustments. It challenges the management of 'the internal-organisational relationship: formal mission statement, communications, training, employee development'. (Barringer, B. R. and Jones, F., (2004))
First of all, they have to redefine the relation of work, setting up some level of staff, define statute, promoting some people. All of these measures will make way for antagonist feelings from the employees being torn between resentment, jealousy, rivalry and rise of elements such as the motivation and the joy.
For example, creating more clarity of the roles' requirements of each members may reassure some employees, because they will know exactly what owner-managers are expecting from them; and paradoxically some others may be afraid or even anxious not being able to fit the job expectations.
Moreover, it might be stressed out that people are also looking for recognition as well as belonging-feeling, according to Maslow. Dealing with the effect of formality on human perception is really tricky and complex.
Then, it implies a change in the work methods. It leaves fewer places for informal arrangements, indeed the relationship are no more characterised by "give and take" (Ram, 1999; Wapshott and Mallett, 2012).
The practices are also altered by the new policies and procedures implemented. It modifies the practices from A to Z including more rigorous recruitment and selection, development of appraisal records. It also involves standards for behaviour and sanction procedures if the pre-required behaviour is not executed.
Hence, the firm has to face another challenge: if one keeps the same amount of employees whereas the firm is growing, there would have "no room for manoeuvre." So the necessity for you to hire new people and have to integrate them to the culture of the company can be perceived as a challenge.
Penrose (1959) underlines that acquired enough managerial capacity is another challenge to overcome, and that hiring managers is only the first step, because after it is a long process for them to be accepted by the other employees and develop a 'trusting relationship with' them, and to 'socialized into the cultures of their firms'.
The other challenge after having detected the lack of managerial capacity is to decide what is better for the company: hired new managers or opting "through partnering with other organizations". Most organisations opt for the first solution, but this one may be not the easiest one.
Indeed, at the beginning one is most of the time surrounded by relatives, family or friends who help to set up the business. But as far as the business enlarges, owner-managers have to hire new people and develop a direct monitoring.
The selection is critical "As the number of employees that a firm needs increases, it becomes increasingly difficult for the firm to find the right employees, place them in appropriate positions, and provide, adequate supervision. Therefore, firms face continual uncertainty about the availability and quality of new employees to help increase their managerial capacity." (Barringer, B. R. and Jones, F., (2004))
Hambrick and Crozier (1985) show as well the sensitive challenge that finding the right people to surround you is: "In regard to adverse selection, as the number of employees that a firm needs increase, its become increasingly difficult for a firm to find the right employees, place them in appropriate positions, and provide adequate supervision." (Barringer, B. R. and Jones, F., (2004))
After having found the right co-workers there is a need to train, evaluate and supervise their performances. For not having a company with a jerky work in progress are training sessions for the newcomers necessary to become familiar with the culture of the company. Penrose (1959) underlines the fact that "it takes time for new managers to be socialized, acquire firm-specific skills and knowledge, and work with other firm members long enough to establish trusting relationship." (Barringer, B. R. and Jones, F., (2004))
Being sure that the work is done and that there are no lazy people in the company is another matter of concern and it requires the owner-managers to find a solution inasmuch as they still cannot be everywhere at once. That is the reason why mechanism to monitor employees are implemented. The challenge is to be sure of the efficiency of the last one and showing to the employees that making a tighter control of their work will not affect them, that it won't disturb the relations or destroy the family spirit, the camaraderie they knew.
Otherwise, it also mean for the current employees to adapt and being proactive and able to get out of their usual routines if it is no longer relevant. Not being able to succeed in doing that may have significant consequences on the firm. For example, Donegal China collapse because the members of the product department thought their way of doing things didn't required improvements , and that they had the right skills and the right framework.
Finally in what employment relationships and working practices are concerned, finding a way to maintain some elements of informality and make them coexist with the existing formality might also be challenging for owner-managers. It may be not the most obvious challenge faced by the owner-managers, but as XXX said, "Establishing more formal relationships does not deny a role for informality." One possible example is to resort to humor. Oliver Mallett and Robert Wapshott (2012) highlight for instance that "Humour, by its nature ambiguous, multiple in meanings and implications, can come to compound the underlying tensions that formalization processes produce."
So finding a way to still include informality in the day-to-day life through several practices could guarantee the stability and allow avoiding brutal changes. It would be reassuring for everyone.
Increasing the formality of the employment relationship also has several implications on the organisation.
"Owner-managers themselves also commonly prefer forms of personal supervision and may seek to informally defend their authority even while they replace unwritten understandings with more formalized practices (Marlow, Taylor and Thompson, 2010; Nadin and Cassell, 2007)."
It is said that it is in the managers' attitudes to want to keep the control over everything. Mill (1848) points out that among all the entrepreneurial functions are control and superintendence. Some authors emphasize on the huge need of autonomy and have a "reluctance to delegate". (Susan Marlow, Scott Taylor and Amanda Thompson, (2009)) On the other hand, some others stressed out that it may be more fulfilling their expectations in term of control to work in a broader structure.
So according to what it is said, as owner-managers' scope of intervention would be reduced, they face an internal-personal challenge against themselves: learning to back off and delegate more and accept the change of practices like the others.
Ensure that the relevant information are passed up on time:
One of the main challenges for the owner-managers is to remain close to their co-workers and remain alert. They have to keep in touch with the day-to-day reality of the firm in order to react adequately to any disruptive change or threat.
In a SME's are tacit understandings and direct report enough and easy to realized due to the small number of workers.
As the formalization of the employment is setting up, a more disciplined and hierarchical structure appears, as in the one in Appendix 1
In such formal structure the owner-managers will thenceforth rely on the effectiveness and the quality of the feedbacks that he received to make relevant decisions. Consequently the risk of a bias does exist due to different reason: bad restitution of information ('grapevine'), fear of telling what goes wrong to the managers and being reprimanded.
Oliver Mallett and Robert Wapshott (2012) underline the fact that "Straight-talking requires commitment from all parties to maintain an explicit focus on the matters in hand and not retreat." That supposes not being afraid of challenging your superior politely; tell him the truth about the health of the company and the Customer satisfaction... For instance, when the changed happened in the 1990s, the Top-managers of Marks and Spencer had no clue that the customer satisfaction was dropping because they were just looking at the sales 'rise and relied on the feedback they got.
Moreover the monitors previously employed to supervise employers have for consequences to create "a costly hierarchy and isolates the top management team from its rank-and-file employees". (Barringer, B. R. and Jones, F., (2004)) So the main challenge here is to avoid a communication breakdown.
But it is complex to manage several tasks at the same time. Owner-managers have to deal with some timing pressure. Getting timing right is another challenge faced by both owner-managers and employees who should still produce good results.
It also refers to execute policies within the time allowed and find the adequate workers. But the underlying problem is that "the faster a firm grows, the less time manager have to evaluate the sustainability of job candidates."
Furthermore, it means for owner-managers to seize on opportunities at the right time.
The only way of out-weight the short-time allocated to do each task with all the turbulence occasioned by the formalization process is to access rapidly to the know-how, for example HR expertise to implement the policies previously mentioned. In addition, it also implies solicited bids, conduct interviewsâ€¦ Donegal China for example asks the advices of an MBA worker.
Indeed, the owner-managers have to deal with all the influence that he is surrounded by, as well as the pressure his new function may occur. For instance, in the Dynamic of Informality article, the PatCo case study underlined that: "this expertise was required to handle the pressures emanating from the market and regulatory environment. (Monder RAM, Paul Edwards, Mark Gilman and James Arrowsmith, 2001)
Managing Costs and Resources in the bosom of the company may be complex for owner-managers.
All procedures have a cost and require allocating money for different purposes.
As mentioned previously, refining the structure involved defining statutes, hiring new managers, and so on. Hence the firms have to enhance the motivation of all the staff, knowing that a lack of motivation would prevent the firm from operating smoothly.
XXX notice that "Firms can use direct financial incentives to ensure that their managers are motivated to build sufficient managerial capacity to implement the entrepreneurial services of the firm." (Barringer, B. R. and Jones, F., (2004))
Then procedures are difficult to set up. Owner-managers have to deal with the impacts of the NMW and WTR formalism.
It is a challenge in term of costs and know-how: "compliance with the regulations might therefore have constituted a 'shock' in two ways: [...] impact on costs and procedurally." (Monder RAM, Paul Edwards, Mark Gilman and James Arrowsmith, 2001)
So the pill is hard to swallow and it would challenge the owner-managers in their decision-making process. For instance it could shape the managerial decisions as how to absorb the costs increase.
Owner-managers have to refer on experts to implement the policies, but it's not cheap and it requires time to seek for them and supervised their work.
Cost implications do not stop there. They have to pay for the job advertising in their quest of managerial capacity, and then bear the costs of monitoring the effectiveness of the last one.
I think that we emphasize a lot on the challenges in a negative way whereas it should be viewed as something which may stimulate the staff positively in their task and that may bring some unconsciously vital changes. For instance, a growing organisation will offer diversified career opportunities for their employees, it will allow promoting individual.
Owner-managers are problem solvers at the bases, so they will fit perfectly into this task and not necessary being nostalgic of the previous informality. One may have the impression that entrepreneurship goes hand in hand with informality but it is not always true. In a more formalized structure, the authority of owner-managers will be even greater, so we cannot bet on this argument to avoid formalization.
Formalization is like a self-triggered crisis that one has to survive and that would benefit from both the staff and the firm. The only solution to overcome the different challenges mentioned previously is (as demonstrated in this essay) to find a balance between "control and consent".