As anyone who has attempted to grow a business from start-up to an established mid-sized company understands, there is more to the process than getting the headcount right.
Deciding how to adjust management styles and managing that change consistently is essential. When high-growth companies struggle during this transition, mismanagement can disrupt working relationships and undermine management aims. While researching the challenges presented by growth for an article to be published in the British Journal of Management, we made some striking findings, particularly regarding the frequent misuse of humour.
Informal beginnings and formalisation
For as long as a business is still small, working relationships can remain largely informal. The absence of manuals, rules and policies can suit managers and employees, allowing flexibility. It’s also practical where everyone works alongside one another on a daily basis, employing informal give-and-take in place of rigid procedures.
For example, staff may leave early during quiet periods on the tacit understanding that they?ll contribute more during busier times.
As headcounts increase, along with other demands on management time, managers no longer have the luxury of personally knowing every employee or maintaining an informal system. Management is likely to face greater pressure from clients and employees to demonstrate that the business acts fairly and consistently. Personal trust and give-and-take are therefore, by necessity, replaced by formal rules.
To develop sustainable growth, SME owners and managers need to successfully manage this transition from relatively informal working relationships to the formality required in many larger organisations. Although not all companies need to revolutionise their management styles, trying to carry on in the old, informal manner may hamper the ability to grow. A striking example of the disruption caused by a well-meaning holdover from less formal business practices comes in the seemingly harmless guise of humour.
Challenges of formalisation: the case of humour
Our research found that owner-managers of small, growing firms often relied on humour as a means of preserving a degree of informality while introducing policies and practices designed to formalise the business.
When managers deploy humour as a management tool, however, it can create new and otherwise avoidable problems.
The temptation to use humour when tackling serious or sensitive topics and seeking to reduce tension is understandable. Managers want to retain the close, friendly tone that can characterise a company’s start-up phase. However, humour, which often relies on ambiguity or contradiction, is not at all helpful when trying to convey specific, important information.
In small businesses where relationships are closer, managers can judge their audience better and repeat or refocus messages that miss their target. These options might not be available in high-growth businesses with less personal interaction and greater scope for misunderstanding.
Our research found that attempts to formalise were undermined by humour. Owner-managers’ functional use of humour masked underlying problems rather than resolving them, or backfired altogether.
For example, owner-managers unhappy with staff working hours would make jokes about people’s leaving time (?Oh, look the bell’s gone!?). This caused pressure and stress, even on those individuals whose working hours weren’t a problem, but were exposed to the jokes.
Raising the issue in this way also gave little opportunity for staff to defend their actions, for example that they had started early. The ambiguity created by these situations often went unresolved, festering to a point where sterner, direct attention became necessary.
The balance between informality and formalisation
Our findings suggest the need to resist the functional use of humour and that straight-talking is the ideal practice when managers need to achieve specific goals, negotiate or give instructions.
This is especially important where managers” and employees” interests or behaviours are in conflict and need to be clearly addressed. While informality is useful for building relationships, frank, respectful engagement is required to successfully formalise and prepare for further growth.
The imposition of new rules and procedures can be undermined by informal communication and decision-making. Using informal means such as humour to outline procedures can cause inefficiency and uncertainty due to a lack of clarity, and can even lead to hostility. An uncomfortable and ambiguous transition may cause employees to question their commitment to the business right when it needs them and their skills most.
High-growth businesses need to successfully manage this transition from relative informality to the greater formality often necessary in larger organisations. This is not only about introducing the right policies and procedures, but addressing leadership styles within the business’s growth plans.
Of course, not everything can be planned for or controlled by policies and not all relationships or interactions require a formal tone. Yet, informality requires boundaries, especially when negotiating the changes to working practices and relationships brought about by business growth. Informality, for example in the form of humour, has a role to play in businesses of all sizes, but its limits must be recognised and respected.
This article is based on research conducted with Dr Robert Wapshott, with funding from the UK’s Economics and Social Research Council. It will be published in the British Journal of Management.
Dr Oliver Mallett is a lecturer in Management at Durham Business School. His research is focused on follower perceptions and experiences of leadership in SMEs and the processes of SME growth.