Relationship building in small firms: The development of a model

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Human Relations DOI: 10.1177/0018726705055964 Volume 58(5): 577–616 Copyright © 2005 The Tavistock Institute ® SAGE Publications London, Thousand Oaks CA, New Delhi www.sagepublications.com

Relationship building in small firms: The development of a model Elizabeth Chell and Paul Tracey

A B S T R AC T

This article investigates relationships between Owner Managers and First Line Managers (supervisors) in small firms. A model comprising four components – competency, role, style and vision – was developed to consider the operating reality of this dyad, and its robustness considered using an embedded case study design (n = 15). The analysis relied upon ‘pattern matching’ in which a set of a priori propositions were examined, and (a) the predicted outcome (based on the model) compared with (b) the observed outcome (based on respondents’ assessment of the relationship). Two types of factor were identified: style and vision were found to be contingent, varying according to the dynamic of the relationship and expectations of those involved, while competency and role were deemed to be core elements without which effective interrelating is unlikely. Finally, the model was revised to include a fifth dimension – an emotional bond comprising trust/mutual respect – which appeared to be a crucial feature of effective relationships.

K E Y WO R D S

First Line Manager 䊏 interpersonal effectiveness 䊏 leadership 䊏 Owner Manager 䊏 relationship building 䊏 small firms

Introduction While the capability to develop relationships and networks is widely recognized as a crucial component of entrepreneurial activity (Larson, 1992; Baum 577

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Human Relations 58(5)

et al., 2000; Chell & Baines, 2000; Tracey & Clark, 2003), the skills required to interact effectively (a prerequisite for relationship building) and the social processes involved in doing so have been largely neglected in entrepreneurship research (Downing, 1998). Where such issues have been considered, they have tended to focus on partnerships and entrepreneurial teams consisting of founding members of the business (Thurston, 1986; Welles, 1989; Watson et al., 1995), and ‘top’ teams comprising horizontally related, executive members (Kamm et al., 1990; Durkan et al., 1993). In both cases, the individuals in question are very likely to hold a financial stake in the businesses they manage, profoundly affecting the dynamics of these relationships. By way of contrast, this article is concerned with the interaction between Owner Managers (OMs) and the (non-shareholding) tier of management immediately below him or her in small firms. In the early stages of a firm’s development, OMs are likely to assume responsibility for most aspects of its operation (Miller, 1983). However, growing ventures inevitably reach a point at which the all-encompassing role of the OM must give way to new structural arrangements (Churchill & Lewis, 1983). This could manifest itself in a number of forms, through delegation, the development of a management team and/or a small directorate. A common response is to create another level of management between the OM and the workforce. Thus, the appointment of a First Line Manager (FLM) is one way in which the OM can both control, and delegate responsibility for, the performance of the business as it develops. We contend that the creation of this new layer of management is often a crucial step forward in the development of small firms, with wide-ranging implications for their long-term growth trajectories. And yet no one appears to have considered the potential synergy operating through the vertical team rather than the horizontal ‘top’ team in small firms. This is surprising as firms with 20 or fewer employees tend to be managed in a personalized way (see Storey, 1994). Moreover, given their limited human resources, the performance of each employee tends to take on a greater significance than in larger ventures. This suggests that OMs may leverage more effective performance by developing their relationships with lower tiers of management rather than standing aloof and directing operations. In this article we seek to explore these interactions by developing a model of effective interrelating between OMs and FLMs in small firms based on a qualitative research design. The article proceeds in the following manner. In the subsequent section, a four-part conceptual framework which considers effective interrelating in small firms, and which forms the basis of the empirical work, is developed. Following on from this, we outline our method, and describe how the data

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Chell & Tracey Relationship building in small firms

were collected and analysed. The fourth section reports the results of the case studies. The conceptual framework is examined deductively by comparing the predicted outcome in terms of effective/ineffective interrelating (based on the model) with the observed outcome (based on respondents’ assessment of the relationship). Finally, the model is revised in the light of our findings.

Effective relationships in small firms: A preliminary conceptual framework As noted, the research began with a clear objective – to build a model of effective interrelating between OMs and FLMs in small firms. In this section we consider the characteristics of an effective relationship prior to outlining the development of our framework. The complex and multifaceted nature of human relations means that conceptualizing and measuring relationship effectiveness is fraught with difficulties. To date, analyses of relationships in management and organization studies are largely dominated by a concern with organizational performance. This body of work is neatly summarized by Graen and Uhl-Bien (1995), who give an overview of the key measures used to consider relationship effectiveness. These include firm turnover (Ferris, 1985; Vecchio et al., 1986), organizational innovation (Tierney, 1992; Scott, 1993) and organizational citizenship behaviour (Scandura et al., 1986; Yammarino & Dubinsky, 1992). Both theoretically and methodologically it could be argued that these measures offer appropriate and tangible reference points with which to assess relationships, particularly in the context of small firms where the ramifications of decisions made by owners and managers may be more immediate and apparent than in larger ventures. But we think that this is misleading. For example, factors out of the control of individual actors, perhaps the loss of a key customer or market, might have a significant negative impact on company performance without necessarily reflecting on the effectiveness of the relationship on the part of the OM and FLM. Similarly, good fortune and serendipity might lead to strong sales or organizational innovation despite the existence of an ineffective relationship. There are other problems with this approach. For instance, what represents the appropriate turnover or levels of innovation in a given market or sector? In the context of this study, strong figures for a printing firm might represent mediocre ones for an engineering firm. And from an HR perspective, strong company performance cannot account for the extent to which members of the dyad feel that the relationship allows them to be fulfilled in their working lives.

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An alternative approach, and the one we adopt in this article, is to focus upon the quality of the relationship from the perspective of OMs and FLMs as a measure of effectiveness. This allows the relationship to be evaluated in terms of process rather than (or perhaps as well as) in terms of its outcomes (Graen and Uhl-Bien, 1995). Moreover, OMs and FLMs have different priorities and expectations, reflecting their respective statuses and power bases as employers and employees, and any conception of effectiveness must be sensitive to these contingencies. In any case, relationship effectiveness is not a dichotomous variable, it is a dynamic construct that varies over time; a given relationship that works well in one set of circumstances may be highly dysfunctional in another set of circumstances. By framing effectiveness from the respondents’ standpoint, we seek to capture this complexity and to incorporate it into our analysis. We do not wish to argue that we have developed a definitive approach to evaluating relationships or to call in to question the validity of previous studies, many of which are quantitative in nature. Methodologically, however, in developing our model we think that our measure of effectiveness constitutes the most reliable approach given the qualitative nature of our research design.1 Turning to the development of our framework, we note that although vertical relationships have been largely neglected in entrepreneurship research, other social scientists have for many years taken an interest in hierarchically formed organizational relations. This is clearly evident in the literature on social and economic exchange. Homans (1961), for example, was concerned with reciprocal behaviour in a two-party exchange. He identified that actions such as ‘giving help’ were often reciprocated by another’s action such as ‘giving approval’. In other words, the responses of each party were believed to act either as positive or negative reinforcement. In a similar vein Blau (1964) suggested that individuals in two-party exchanges are motivated by social and/or monetary rewards (Ekeh, 1974). These ideas continue to form the basis of much contemporary scholarship on leadership, as expressed in the so-called ‘leader–member exchange’ (LMX) perspective on vertical relations, which posits that the quality of a relationship between a supervisor and his or her subordinates is contingent upon the exchange of valued resources (see, for example, Settoon et al., 1996; Sparrowe & Linden, 1997; Uhl-Bien & Maslyn, 2003). While we consider that reciprocity and exchange have credence and relevance to the dyadic relationship under investigation in this study, these concepts, and associated theoretical perspectives such as equity theory (Anderson, 1976; Walster et al., 1976), imply a somewhat mechanistic and one-dimensional interpretation of behaviour, which ignores the dynamic nature of a relationship between two people. In developing our model we

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draw instead upon a range of perspectives across management and organization studies. The resulting framework consists of four components, all of which are deemed essential for effective interrelating between OMs and FLMs in small firms. Each component of the model is outlined below. (See Figure 1.)

Competency Entrepreneurial competencies have been defined as ‘underlying characteristics such as generic and specific knowledge, motives, traits, self images, social roles, and skills’ (Bird, 1995: 51). While competencies operate at different levels (Boyatzis, 1982) research has increasingly focused on cognitive competencies such as the ability to recognize or envision opportunities (Krueger, 2000; Shane, 2000), the ability to exercise judgement (Casson, 1982) and heedful interrelating (Weick & Roberts, 1993). Entrepreneurial competencies also refer to the quality of the action taken (Weick & Roberts, 1993) and are often related to practical capability (Boyatzis, 1982; McClelland, 1987). When considering cognitive competency in the OM–FLM dyad, shared environmental comprehension, it is suggested, is a higher order competency that assumes shared perception, communication and judgement about external circumstances that may impact upon the firm. The ability to interpret and respond to changing market, technological and other external conditions has long been a central feature of the strategic management literature (e.g. Aguilar, 1967; Ansoff, 1975; Porter, 1980).

Owner Manager

Competencies Role perceptions (of self and others)

Management style

Vision

Figure 1

First Line Manager Heedful inter-relating Environmental comprehension Role attribution Role conflict

Authoritative/democratic

Vision talk Strategic exchange

Owner Manager–First Line Manager relationships

Competencies Role perceptions (of self and others)

Management style

Vision

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The main thrust of this work presupposes that environments establish ‘constraints and contingencies’ upon organizations, and that firms’ ability to monitor and adapt to environmental trends is a crucial component of their competitiveness (Boyd & Fulk, 1996: 1). More sophisticated analyses have argued that the boundaries between organizations and their environments are rather more blurred than is suggested by these authors. Thus Child (1972, 1997) considers that firms have the capacity to shape or ‘enact’ (Weick, 1979; Smircich & Stubbard, 1985) the boundaries of their environments through, for example, decisions with regard to the location of an organization’s production facilities, the markets in which it competes, the kinds of customer it caters for, the technology it adopts, and the training it provides. Similarly, the ‘dynamic capabilities’ perspective (Teece & Pisano, 1994; Teece et al., 2000), which has gained prominence in the strategy literature in recent years, suggests that innovative firms simultaneously react to, and have a bearing upon, their strategic contexts.2 However, in order to respond effectively to changing circumstances, the environment needs to be interpreted congruently by key actors in the organization (in our case the OM and FLM). We contend that in effective relationships OMs and FLMs will conceptualize firm environments in similar ways, and this in turn will lead to a co-ordinated approach to problem solving and decision-making. Weick and Roberts (1993) argue that effective interrelating requires ‘collective mind’, while Asch (1952) talks of ‘mutually shared fields’ and Reger et al. (1994) of converging ‘mental models’ – views of the world which become increasingly similar through interaction, communication, shared norms and social rules.3 Reflecting the varying balances of power within relationships, and the varying emphasis on commitment versus control-based strategies on the part of OMs, it is assumed that in some cases the responsibility for monitoring external forces will lie primarily with the OM, the FLM principally performing an operational role. In other instances, we envisage that both the OM and FLM will have some responsibility for strategic development. Regardless, we think it crucial that the OM and FLM have an accurate view of the competitive pressures faced by the firm – one which is broadly shared by both parties and which allows for an integrated approach to problem solving and decision-making. Indeed, there is a strong body of empirical work which shows a positive correlation between effective environmental comprehension and organizational performance (Daft et al., 1988; Yasai Ardenkani & Nykstrom, 1996; Rogers et al., 1999). This leads to our first proposition: P1a: An effective relationship will exhibit shared comprehension, with both parties conceptualizing competitive circumstances in similar ways.

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Roles Katz and Kahn (1978) placed the concept of role at the centre of their theory of organizations. Indeed, they defined organizations as ‘a system of roles’. Each position or ‘office’ in an organization comprises a set of expected behaviours, which constitute the role to be performed by the person who holds that position. Role behaviours are therefore relational and constructed because expectations are shaped through social interactions embedded in a broader ‘role-system’, and each role or position is defined in relation to others. The closeness of the relationship is a function of the work flow of the organization and the lines of authority: in some cases, relationships will be tangential and limited; in other instances they will be directly related. The OM–FLM dyad is clearly an example of a direct and significant relationship, although the activities and expected behaviours of both parties are likely to differ considerably between firms. Moreover, role behaviours are informed by reference to wider environmental comparators. That is, they are constructed from notions of relevant capacities, not only in the organization in which people work, but also referencing similar positions in comparable organizations. There is a significant body of empirical work concerning role behaviours and their relationship to organizational performance. Two role constructs feature prominently – role ambiguity and role conflict – and the evidence mostly indicates a strong negative correlation between both and indicators such as job satisfaction, organizational commitment and job performance (see, for example, Kahn et al., 1964; Jackson & Schuler, 1985; Abramis, 1994).4 Role ambiguity refers to ‘uncertainty about what the occupant of a particular office is supposed to do’ (Katz & Kahn, 1978: 206), but there may be other uncertainties relating to, for example, the purpose of the role, how the role is perceived by others, and the ways in which the role relates to others. It occurs when members either fail to communicate expected behaviours, or communicate ineffectively by intimating ambiguous, contradictory and/or misleading signals. Role conflict, on the other hand, is defined by Katz and Kahn (1978: 204) as ‘the simultaneous occurrence of two or more expectations such that compliance with one would make compliance with the other more difficult’. It occurs when the expected behaviour of one or more ‘role-senders’ is inconsistent with that of the role holder, but it may also be the case that there is conflict between two or more roles held by the same person (e.g. role of mother and role of employee). We think that both role ambiguity and role conflict are likely to be prominent in small organizations because there tends to be less formality and standardization than in larger firms, and therefore greater scope for (a) individualized

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conceptions of one’s role, (b) explicit negotiation of role boundaries, and (c) misconceptions of the roles of others. Thus, our second proposition is: P2a: Effective interrelating requires role clarity and role complementarity.

Style Given the vertical nature of the relationships in question, our model must be sensitive to issues of power and hierarchy, and this manifests itself most obviously through the concept of management style. ‘Style implies the existence of a distinctive set of guiding principles, written or otherwise, which set parameters to and signposts for management action in the way employees are treated and particular events handled’ (Purcell, 1987: 535). The tension between management approaches that emphasize direct forms of control through formal and position power, and those that seek to build commitment through autonomy, figures prominently in management studies, most notably in the HRM literature. Friedman’s (1977) somewhat crude distinction between a management strategy of ‘responsible autonomy’ involving high levels of discretion, authority and responsibility in the hope of building loyalty, and ‘direct control’ involving coercive threats, close supervision and strict adherence to formal procedures in the hope of maximizing productivity, has been augmented by more subtle approaches (see, for example, Eisenhardt, 1985; Walton, 1985). Of particular note is Purcell (1987) who, building on Fox’s (1974) seminal work on pluralist and unitary frames of reference, suggested that management style consists of two dimensions – individualism and collectivism – that, crucially, may operate independently of one another. The former refers to the extent to which employers seek to develop and reward their staff, while the latter refers to the extent to which employees have a collective voice in decision-making. The assumption that high levels of autonomy may be accompanied by low levels of control (and vice versa), allows for a variety of managerial approaches to emerge, and consequently for a more nuanced conception of management style. In another important contribution, Goss (1991) emphasized four types of employer control strategies (fraternalism, paternalism, benevolent autocracy and sweating) that essentially form a commitment–control continuum. From this perspective, power and control are intertwined with the perceived value of the FLM in terms of the prospects for the firm and the ability of employees to mount effective resistance against their employers. A range of management styles with different emphasis upon autonomy

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and control is likely to be evident. We anticipate, therefore, a rich seam of data, which indicate, for example, the extent to which the OM involves others, emphasizes status, shares problems, consults, gives instructions, listens and respects the views of the FLM. However, given the critical nature of the OM–FLM dyad to most small firms, we consider that relationships that rely upon commitment-based strategies will be more effective than those that rely on control-based ones. There is strong empirical support for this view in the literature. For example, Korsgaard et al. (1995) argue that the effect of allowing members of a team to have a voice shows that the team leader values their views, and that this affirms the members’ status in the organization. Perceived fairness of procedures is associated with positive attitudes towards a decision such as feelings of satisfaction, agreement and loyalty, and serves to strengthen an individual’s relationship within a group, an organization and towards the group/team leader (Korsgaard et al., 1995). The perception of fairness also increases the likelihood of an individual’s commitment to a decision or a strategy, sense of attachment to the team and feelings of trust in the team leader. Furthermore, recent scholarship, building on ideas generated in studies of participation (see, for example, Chell, 1985) and organizational change (Kanter, 1983), has emphasized the importance of democratic conditions and flat organizational hierarchies for learning, knowledge sharing and innovation (Teece, 2000; Clark & Tracey, 2004). Gherardi (2003: 424) suggests that: [t]he concept of participation highlights the fact that learning does not take place principally or solely in the minds of individuals but rather stems from the participation of individuals in social activities. [Further] The concept of participation . . . gives access to a practice-based theorising of learning that takes place in action and through action. In other words, individuals and teams are able to develop skills more effectively if they are active in decision-making processes, and receive positive reinforcement and encouragement. This leads to our third proposition: P3a: Effective interrelating requires democratic/participative conditions.

Vision Vision concerns the ability of an individual to conceptualize their plans in vivid mental pictures, and feeds into the issues of power and hierarchy discussed in the previous section. In the entrepreneurship literature, such a

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conceptualization is likely to be triggered by an idea construed as a business opportunity, which is developed into a pleasing imaginative plan for the purpose of anticipating and thinking through likely future events (Filion, 1991). In sharing this vision with others, an assessment of the practicalities of the scheme is likely to arise. This assumes that there is a process whereby the mental imagery of the vision is articulated and the vision made explicit by the entrepreneur. Thus a common approach to the study of vision is to consider it in the context of a ‘transformative’ leadership style (Bass, 1985; Trice & Beyer, 1986; Kouzes & Posner, 1987). At the core of this conception of leadership is the role of the leader as an inspirational and charismatic figure. He or she develops a vision for the organization, communicates it to organizational members, and relies upon it as a means to guide behaviour. Subordinates are empowered to fulfil the vision through an emphasis on devolved decision-making, personal development, and a co-operative and supportive working environment, but are not able to shape it directly. Although this approach has a number of strengths, in our view it can be criticized because of the power it accords to leaders, and the ‘blind faith’ expected of other organizational members. For Westley and Mintzberg (1989: 18) it ‘assumes a mechanical quality which surely robs the process [of strategic visioning] of much of its appeal’. They propose instead a dynamic model of visionary leadership where action and communication are intertwined. They contend that (1) visions should stem from an intimate knowledge of relevant products and markets; (2) a vision needs to be communicated in words and actions; and (3) leaders and followers should both participate in communicating the vision. Each of these components occurs simultaneously and leads to visions being jointly created and executed, which in turn leads to greater levels of commitment, loyalty and trust among organizational members. In addition, we consider that an important component of a vision concerns the extent to which it allows organizational members to achieve their personal aspirations and to be fulfilled in their working lives. For the OM these aspirations are likely to be closely linked to the success of the business. For the FLM, too, being part of a successful venture may be important. But as an employee, he or she may also have career ambitions, which relate to his or her personal development. This might involve joining the executive team, assuming ownership or part-ownership, and/or succeeding the present owner (Hendry et al., 1995; Chell, 2001). The retention problems of small firms are often exacerbated by the limited career and promotion opportunities available to staff (Hendry et al., 1991), but we believe that a successful vision must allow the career aspirations of the FLM to be met. In

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our view this reinforces the need for a shared vision. And so our final proposition is: P4a: Effective interrelating requires a clear vision which is developed and shared by both parties.

Methods Data collection The fieldwork was confined to the small firms’ population of Tyneside in the North East of England.5 Three factors played a part in the decision to adopt this geographic boundary for the project: (a) convenience and economy; (b) urbanization (the region was a rich source of small companies); and (c) the population data supplier (Business Link) had comprehensive quantitative coverage of this region. In seeking firms displaying the dyadic structure it was decided to target those firms employing between 11 and 20 full-time equivalents (FTEs). This was because in firms beyond this size category there is usually a deeper organizational structure, making the Owner Manager more remote from the first line (supervisory) management position. In the size band, employs 11–20 FTEs, the database revealed 410 firms in selected standard industrial groups. To reduce the variation in industrial context, it was decided to concentrate on three groups: manufacturing, construction (including building services) and transport (excluding public transport and taxi firms). Thus, of the 410 firms, 248 were manufacturing firms, 87 firms were in the construction industry and 75 firms were in the transport and related industries. The firms were listed randomly. Two hundred and fifty-six (62.4%) were contacted by telephone by way of an initial screening. Ninety-three of these either no longer existed or were not suitable due to their size or the nature of their ownership. Of the remainder (163 firms), 141 companies either did not have the requisite OM–FLM relationship or refused to participate in the study, and 22 accepted. However, 15 cases were used in this study because these cases met the precise criteria for selection.6 This was a response rate of 10.6 percent. The response rate might be considered low were the study a quantitative sample survey. However, this study required the existence of a particular phenomenon. Thus our major concern was to attempt to satisfy the criterion that in a multiple, embedded case study design the number of cases is acceptable if and only if it allows each type of case to be replicated and theory developed (Yin, 1994). See Table 1 for a summary of the cases.

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Table 1

Summary of the cases Year founded

Sector

Employees

Turnover (£)

CAB BR

1971 1989

15 18

1.5 million –

R ENG CDC GLS

1996 1978 1991

13 15 12

240,000 550,000 680,000

ALS SSM T&WM JMFP TSB NM TED SDC BIC SS

1978 1975 1986 1988 1975 1986 1990 1989 1981 1967

Fashion design and manufacture Coin-operated machine rental (e.g. fruit machines, pool tables) Machine tools Publishing/ printing Design and manufacture of air conditioning systems Steel grinding and profiling Ship blind manufacture Marine engineering Printing Machine tools Specialized drilling/mining Marine engineering Graphic design Construction Electrochemical engineering

14 12 12 11 36 10 15 6 20 4

850,000 1 million 400,000 450,000 3 million 360,000 1 million 480,000 1.2 million 165,000

Interviews were conducted first with the OM, and then with the FLM, in each firm. An Owner Manager (OM) was considered to be that person who owned the majority of shares in the business and actively managed the business on a day-to-day basis. The First Line Manager (FLM) was defined as an employee who held no shares in the business but was the first level of management beyond shop floor. The interview consisted of three parts. Initially, a topic guide was used to establish factual information about the demographics of the firm and, where possible, some performance data such as turnover and employment for at least three financial years. The second part consisted of a semi-structured interview designed to elicit data about the OM–FLM relationship in terms of the four components of the model, and relied mainly upon the critical incident technique (Flanagan, 1954; Chell, 1998, 2004). The advantage of this approach is that it enables the researcher to understand behaviour in situations of crisis or trauma that require the incumbents to marshal an effective response and to deal with the consequences over a period of time (e.g. Cope & Watts, 2000). This yields a rich seam of context-specific information based around a narrative that can be cross-checked through other informants, and is particularly suited to the study of relationships. OMs were asked to identify two or three incidents, episodes or events

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that they considered to be critical and that had occurred over the previous three to five years. The interviewer sought to identify the problem or opportunity that the OM associated with the incidents. In particular, the interviewers were interested in the following issues: (1) how the OM understood the incident; (2) the action taken in response to the incident and the process through which strategies and/or solutions were developed; (3) the OM’s perception of the nature of the contribution of the FLM to idea/solution generation; (4) the role of any third party. This was followed up by more direct and specific questions about competency, role, style and vision (see Appendix 1A). For the second interview, with the FLM, the interviewer explored the critical incidents identified by the OM. The aim was to obtain his or her perspective about the relevant issues and about the roles of both parties with regard to the action initiation and resolution phases of the incident. Again, further questions were asked about the four components of the model (see Appendix 1B). The third part of the interview was designed to establish respondents’ views of the relationship being studied. Respondents were each asked to consider their relationship with their OM/FLM in terms of the functioning of the organization and their own personal fulfilment, and to identify it as (a) effective or (b) ineffective. The interviewers then asked respondents about the strengths and weaknesses of the relationship, and why respondents thought it effective/ineffective. We were careful to ensure that we did not lead the respondents to give answers which related to the four components of the model.

Data analysis The interviews were tape-recorded and case studies written for each participating firm. The preparation of the case studies constituted the first stage of the analysis, and a standard format was used for each one. The case studies began with background information about the industry, the firm and the management team. Following on from this, each critical incident was described in some detail, with care taken to ensure that the perspectives of the OM and FLM were articulated in a balanced way. From the critical incidents, as well as the more direct questioning about competency, role, style and vision, data relating to the four components of the conceptual framework were abstracted and developed. Finally, the dyadic relationship between the OM and FLM was summarized from the perspective of respondents, focusing upon whether they thought the relationship was effective or otherwise. The average length of the case studies was 15 pages of typescript. Tape cassette recordings of the interviews were retained for consultation as required.

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The second stage of the analysis proceeded by the method of ‘pattern matching’, that is, comparing our empirical results with the a priori propositions derived from the model (Yin, 1994). In order to do this, two assessments of the relationships were conducted: one which measured effectiveness in the context of the conceptual framework (predicted outcome), and one which considered effectiveness from the perspective of respondents (observed outcome). E1: Predicted outcome – Relationship deemed effective in terms of the conceptual framework (i.e. all propositions satisfied). The first assessment (E1) considered effectiveness in the context of the conceptual framework and is thus the predicted outcome. Each proposition was assessed separately for each case study on the basis of the critical incidents, as well as the more direct questions about competency, role, style and vision.7 Where a proposition was deemed to be satisfied, a Y was entered into a table of results. Where a proposition was not deemed to be satisfied an X was entered into the same table (see Table 2). Thus we were able to assess the effectiveness of the dyad in each case study in relation to our model. Conceptually, each part of the model was given equal weighting.

Table 2

CAB BR R ENG ALS SSM JMFP TSB GLS T&WM CDC NM TED SDC BIC SS

Summary of the results P1 (Competency)

P2 (Role)

P3 (Style)

P4 (Vision)

OM

FLM

E1

E2

Y Y Y Y Y Y Y Y X Y X X X X X

Y Y Y Y Y Y Y Y Y X Y Y X X X

Y Y Y Y Y X X Y Y Y X X X X X

Y Y Y X X X X X X X X X X X X

Y Y Y Y Y Y Y Y X Y Y Y X X X

Y Y Y Y Y Y Y X Y X X X X X X

Y Y Y X X X X X X X X X X X X

Y Y Y Y Y Y Y X X X X X X X X

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Of the 16 possible patterns our model predicted that only one pattern would result in effective interrelating: YYYY. Cases which achieved 4Ys were thus deemed to have satisfied the conditions necessary for E1, and a Y was placed in the results table under E1. It follows from this assumption that according to the model ‘failure’ in one or more aspects of interrelating would spill into the other dimensions, thereby contaminating the relationship. In other words competency, role, style and vision were each thought to represent crucial components of an effective relationship, and it was predicted that each of the other 15 possible patterns would result in ineffective interrelating and not to have satisfied the conditions necessary for E1, and an X was placed in the results table under E1. E2: Observed outcome – Relationship deemed effective by the respondents. Our second assessment (E2) is the observed outcome and consisted of an evaluation of the relationship from the perspective of the OMs and FLMs in each of the case studies. Specifically, we were concerned with two issues: (1) the extent to which both parties believed the relationship to be working well and were satisfied with the behaviour of the ‘other’; and (2) the extent to which both parties felt fulfilled within the relationship. In this respect, and as noted earlier in the article, a distinction was made between an effective relationship with regard to organizational performance and effective from the point of view of the members of the dyad. Only when both parties declared themselves satisfied that the relationship was working well and felt fulfilled within it, did we deem it effective. Where a relationship was deemed to be effective by both parties, and thus to satisfy the conditions necessary for E2, a Y was placed in the results table under E2. When the converse was true, an X was placed in the results table under E2. The third stage of the analysis sought to examine E1 in relation to E2. The cases were grouped according to the four possible combinations of predicted and observed outcomes. Where predicted and observed outcomes differed, we looked for evidence in the case in order to explain this discrepancy, so that the relevant component of the model could be adjusted accordingly. With respect to the components of the model that were consistent with the observed outcome, we sought evidence from the cases about their effects upon relationship effectiveness. In sum, the final stage of the analysis allowed for the robustness of the original model to be explored, and for possible revisions to be identified. In the following section the empirical findings are reported. Given the constraints of space, the authors have had to be selective and at times crudely

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general with regard to the presentation of data – it is not possible to do justice to the complexities of the individual cases. Nevertheless, it is the authors’ view that the data presented support in a meaningful way the arguments posited.

Results Table 2 illustrates the patterns obtained for the 15 cases in relation to the four dimensions of the conceptual framework (P1–P4), each respondent’s assessment of the relationship under investigation, and the predicted and observed outcomes (E1 and E2) for each case. As noted, a preliminary assessment of the robustness of the model was made by grouping the cases according to the four possible combinations of predicted and observed outcomes, as shown in Table 3: (1) E1 = Y, E2 = Y; (2) E1 = Y, E2 = X; (3) E1 = X, E2 = Y; (4) E1 = X, E2 = X. Of particular interest to us were cases where the predicted and observed outcomes differed (i.e. E1 = X, E2 = Y, and E1 = Y, E2 = X). In fact, there were no instances where the model predicted effective interrelating, and either or both of the respondents considered the relationship to be ineffective (E1 = Y, E2 = X). However, in four cases the model predicted ineffective interrelating, but both the OM and FLM believed the relationship to be effective (E1 = X, E2 = Y). In the 11 remaining cases the observed matched the predicted outcome: in eight instances this was that the relationship would be ineffective (E1 = X, E2 = X), while in three cases it was that the relationship would be effective (E1 = Y, E2 = Y). Our next step was to examine the four cases where the model predicted ineffective interrelating, but respondents considered the relationships to work well (ALS, SSM, JMFP, TSB). Our aim was to understand why the

Table 3

Preliminary assessment of the robustness of the model E1: Predicted outcome X

X

GLS, CDC, T&WM, NM, TED, SDC, BIC, SS

Y

ALS, SSM, JMFP, TSB

E2: Observed outcome

Y

CAB, BR R ENG

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model did not hold, and to consider what adjustments might be necessary in the light of our analysis. The relationships observed between the OMs and FLMs in ALS and SSM were similar. In both cases respondents deemed the OM–FLM dyad to be effective (E2 = Y) despite the fact that the FLMs were not involved in developing, nor necessarily shared, the vision of the firms (E1 = X). Both FLMs were production managers who were allowed to manage the production process as they saw fit, and both had achieved significant gains in productivity during their period of employment. At SSM the high levels of discretion were explained partly by the OM’s lack of technical expertise. The firm operated in the specialized and very lucrative ship blinds market.8 Unlike many small manufacturing firms, the OM was an entrepreneur with no engineering or production management experience. He admitted that he was not able to make a meaningful contribution in these respects, and delegated all production-related matters to the FLM. The OM told us that the FLM was extremely dedicated to the firm. However, at 61 years of age, he was approaching retirement and had no desire to be involved in shaping the future of the firm, or more generally in its strategic management: I don’t think my position will expand any more than production manager, full stop. Because that’s what I do . . . I’m purely hands on get it out the door sort of a thing . . . My position will be purely production until such time as I retire . . . in four years time. (FLM, SSM) At ALS the OM had a technical background, but chose not to intervene on the shop floor because it enabled him to focus on the strategic development of the firm, and because the FLM had shown himself to be extremely competent. For the first seven years of its existence the firm was a supplier of finished steel to the Nissan car factory at Sunderland, which was the company’s main customer. However, as is common with Japanese corporations, Nissan had wanted to assume part-ownership of their key UK-based suppliers, including ALS, and sought to have a much greater voice in its management. The OM of ALS had fought to protect his company’s independence, the result being that the firm lost the Nissan contract. This clearly threatened the firm’s survival, and the OM devoted much of his efforts to building a new customer base and developing the strategic direction of the firm. He had little opportunity to be more involved with production-related matters, where the FLM enjoyed complete control. Indeed, the OM and FLM had remarkably little to do with one another given the small size of the firm. However, the FLM was content with this situation, and appeared to thrive

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in his role and to enjoy the high levels of autonomy he was given. Like SSM, the FLM at ALS saw himself as a production manager, and had little desire to be involved in shaping the future direction of the firm. It is important to make the distinction between operational and strategic discretion in these cases. Neither FLM was involved in strategic decisionmaking, including the development of the companies’ visions, in any meaningful way, but neither did they have any desires to do so: they were engineers whose job satisfaction derived mainly from the technical aspects of their work. However, the division of labour worked well because it suited the expectations and aspirations of all of the parties. Both TSB and JMFP fail to meet the criteria for propositions three and four (style and vision) (E1 = X) and yet both relationships were observed to be effective by respondents (E2 = Y). In the case of JMFP, we consider that this can by explained by the ‘master–apprentice’ relationship observed between the OM and FLM. The FLM was in his mid-20s and was being ‘shown the ropes’ by the more experienced OM. The FLM had no input into the strategic direction of the firm, and the management style adopted by the OM is perhaps best described as a mixture of authoritarian and paternalistic. The FLM had been a professional footballer prior to joining JMFP in 1997, but his career had been cut short through injury. This created a significant power imbalance from the outset that had significant implications for the relationship as it developed. He was initially employed as a machine operator, but was quickly promoted. The OM said that it was immediately apparent to him that the FLM had managerial potential. He was very pleased with the FLM’s contribution, and articulated this to us on several occasions: He [the FLM] is extremely dedicated. I couldn’t have asked for a better person for the job he’s doing . . . He’s a dead honest, what you see is what you get, sort of lad . . . He’s dead straightforward . . . he knows what needs to be done and he just goes out and does it. (OM, JMFP) The OM also said that he enjoyed his mentoring role, and it was important to him that he was the dominant figure around which the company revolved. For his part, the FLM viewed the OM’s decision to promote him to such a senior position at an early age as a ‘second chance’, and an opportunity to build an alternate career following his injury. (Clearly, this placed him in a position of weakness relative to the OM.) He held the OM in very high esteem and was grateful for the opportunity he was being given:

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I want big things for myself. I’m 27 and I think that if . . . [the OM] teaches me the right things and he puts me down the right avenues, I can only do well. Because I look at . . . [the OM] and he’s 37 now, and I look at what he’s got. He’s doing really well. It may not happen to me here, but I may move on from here with good experience. (FLM, JMFP) There are clear implications for the firm should the OM, for whatever reason, be absent for even a relatively short time, and the period for which the FLM will be satisfied with his current role and levels of responsibility and autonomy is not clear. For the time being, however, the relationship was an effective one from the perspective of both participants, and in terms of the management of the firm. The situation at TSB was somewhat different. Like JMFP the OM did not have an inclusive management style, clearly enjoyed being involved in every aspect of the company’s operation, and delegated very little at either an operational or a strategic level. However, unlike JMFP there was no sense in which the FLM was being groomed for the future. Nevertheless, the FLM claimed to be comfortable with the centralized approach adopted by the OM. The FLM appeared to be risk averse, reluctant to assume responsibility, and he shared (or at least was happy to go along with) the OM’s approach to problem solving: he was more comfortable ‘following orders’ than challenging existing norms and practices or making strategic decisions. This extended to his production management role, where the OM was involved to a much greater extent in an operational sense than in almost any other of the firms we visited, and clearly enjoyed the high levels of control that he exerted across all aspects of the firm’s activities. Indeed, the FLM had a much less prominent role than in many of the other cases. This rather idiosyncratic relationship does not conform to the kind of interrelating normally associated with ‘best practice’ in the management studies/HR literature (Hendry et al., 1995), but in this case it appeared to suit the dynamic of the people involved. In all four cases the OMs and FLMs believed that their relationships were working well, and both FLMs felt that their professional ambitions were being met despite their limited strategic roles. These cases lead to the conclusion that an inclusive style of management and a shared vision are not always prerequisites for effective interrelating. Given this finding, we were interested to examine the style and vision components of the other three relationships that exhibited effective interrelating (CAB, BR and R ENG) and which met the conditions for P3a and

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P4a. In each of these cases we found the style and vision components to be crucial factors underpinning the relationships. The researchers were left with the impression of a partnership of equals – the FLMs were involved in virtually all aspects of management at a strategic level, and shared, and indeed helped to shape, the OMs’ visions of the future. We found that the FLMs had a strong desire to assume high levels of responsibility, and there was a corresponding willingness on the part of the OMs for the FLMs to play a leading role in their organizations. These cases were also notable for the OMs’ high level of dependency on their FLMs. Indeed, in all three instances it was obvious that the firms would encounter profound difficulties if, for whatever reason, the FLM was to leave the organization. For example, at R ENG the OM had acknowledged that his FLM was extremely competent and was more able than him to perform some functions (such as decisions about technology adoption and the development of product lines) that are normally the responsibility of the OM. This led to a situation where the FLM had assumed a role that was at least as prominent as the OM, and in some technical respects more so. Clearly, this kind of dynamic has important implications for the power relations between the parties, and the extent to which an OM is able to control his or her FLM. It could be argued that in these cases the high levels of autonomy and status that OMs conferred on their FLMs was a ‘trick’ to secure their maximum efforts (Friedman, 1977). Another interpretation is that they nurtured the relationship not only because of its value to the firm, but also because of the personal satisfaction that they derived from the relationship (Graen and Uhl-Bien, 1995). This is clearly a complex issue, and one to which we return in the Discussion section. There appear to be three key differences between the latter three cases (CAB, BR and R ENG) and the four reported above (ALS, SSM, JMFP, TSB): (1) the ambitions of the FLM; (2) the willingness of the OM to accede control; and (3) the importance of the FLM to the operation of the firm. Thus we concluded that style and vision are dynamic constructs which vary according to the expectations of the OMs and FLMs in a given relationship. Further evidence for this position emerged in other cases. Perhaps surprisingly, we only found one instance (SDC) where the OM was frustrated at (in his view) the FLM’s reluctance to assume responsibility and show initiative. In this case the FLM was, by her own admission, lacking in confidence, and her ‘failure’ to cope with the high level of expectations placed upon her had led the OM to revert to an autocratic approach, and ultimately to a breakdown in the relationship. We also found four cases where an autocratic management style and/or the absence of a shared vision led to tensions because of the FLM’s desire to have a greater say in the strategic direction of the firm. For example at GLS

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the OM had limited ambitions for his firm, and indeed was considering selling it. The FLM, meanwhile, had been giving a lot of thought to the future of the business and had some clear ideas as to how it could become more productive, and ultimately expand sales. He became frustrated at the OM’s limited vision for the company and his own inability to enforce change (i.e. to impose any authority). Clearly, this conflict was rooted in the imbalances in power and control that exist between the owners of capital and employees, and which was highlighted earlier in the article. In this case, the FLM’s frustration had begun to sour what was in many ways an effective working relationship. Having acknowledged the need to revise the model in order to take account of our findings in relation to proposition 3a (style) and 4a (vision), we next considered the competency and role dimensions. There were no cases where the results for propositions 1a (competency) and 2a (role) contradicted the observed outcome (E2) – in other words, the model held in all cases for the competency and role components. However, we felt that it was important to examine the relevance of the competency and role dimensions and how they manifested themselves in our case studies, especially as there were no instances where an ineffective relationship was attributed only to competency or role. Turning first to the competency component, we found that in all seven relationships that were deemed effective by both OMs and FLMs (E2 = Y), there was evidence to suggest that shared environmental comprehension was an important component of effective interrelating. For example, BR was a company that rented and serviced coinoperated machines such as pool tables and fruit machines. The industry had been undergoing considerable turmoil in the mid-1990s. In particular, large nationally organized companies had come to dominate the industry, and were increasingly targeting the head offices of chains of pubs and negotiating contracts at a national level. This had meant that many of BR’s customers had been forced to switch away from BR, despite the fact they had established close relationships with the OM and FLM and were satisfied with the service they had received. During recent years the OM and FLM had considered carefully their future, on several occasions coming close to a decision to shut the firm down. In the end, however, they decided to pursue a forceful strategy vis-à-vis their competitors, and according to the respondents, had the same view of the challenges facing the firm, and the actions needed to turn it around. The agreed response was threefold. First, they had decided to target the customers of the firm’s major clients aggressively. Second, they tried to ensure that the standard of service was better than their major competitors (well-trained and motivated staff, and the effective use of technology were seen as crucial in

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this regard). Most significantly, BR was increasingly teaming up with other small companies around the country so that it could compete with much larger companies on a more equal basis. The OM and FLM had become actively involved in the Independent Operators’ Association (IOA), a trading association for small companies which rent coin-operated equipment. By acting as a single concern, the IOA could use its considerable buying power to negotiate competitive prices on a wide range of goods. The IOA also provided a forum for the exchange of information and the discussion of ‘best practice’. According to the OM and FLM, it was the ability of both parties to understand the strategic challenges faced by the firm, and to develop a solution which they both believed was viable and worth fighting for, that had allowed the company to succeed in the face of very difficult circumstances. Both were strong-willed characters, and seemed to thrive in the face of adversity. Indeed, the OM declared that his FLM ‘thinks the same as me’. We also found instances where an absence of environmental comprehension led to problems for the relationship. At T&WM poor environmental comprehension, primarily on the part of the OM, led to serious concerns on the part of the FLM with the way the company was managed, which emerged during both of the critical incidents – (1) a severe financial crisis, and (2) the downsizing of the company. In the case of the former, the financial crisis was precipitated by T&WM entering into a vague and loosely worded subcontracting agreement, and which ultimately left T&WM to pay ‘hidden’ costs. The OM claimed to have secured a verbal agreement with the main contractor, but he had not paid sufficient attention to the contractual details, a mistake that ultimately cost the firm £80,000. This rather naïve attitude to business led to the firm lurching from one crisis to another. According to the FLM, the OM did not have a good understanding of the commercial environment in which the firm was competing, of which opportunities to grasp and which to ignore. And although the management style adopted was open and participative, there was little in the way of discussion about the strategic position of the firm and the environment in which it operated, and there certainly was not a shared view of how the firm should proceed. This was a source of much concern to the FLM, who felt that repeatedly poor judgement had led to the company being placed in a very difficult position. Finally we considered the role component of the model. We found that role clarity and complementarity were widespread in our case studies, with 11 of the 15 dyads exhibiting these characteristics. Indeed, in two relationships that we would otherwise describe as highly dysfunctional (NM and TED), a focus on role was evident. Moreover, the role component was widely discussed by our respondents, both in terms of the critical incidents and the more general discussions about effective relationships: it seems that the need

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for role clarity and complementarity was widely recognized. In particular, OMs appeared to have a clear set of competencies in mind when making appointments at supervisory level. These fell broadly into two role categories: (1) technical skills required for the management of production processes, and (2) the ability to manage and organize other organizational members.9 The extent to which roles changed over time varied between cases. In most of the case studies respondents reported that roles had remained relatively fixed, but in some cases the FLM had taken on increasing responsibility as the OM attempted to take more of a ‘back seat’ in the operation of the business. There was considerable evidence across the cases that role clarity and complementarity were important components of effective interrelating. For example, CAB designs, manufactures and sells high fashion menswear and sportswear. The OM was a very creative individual who had developed designs for a wide range of high street retailers. However, he did not have the technical skills required to draw or cut patterns. The FLM was less creative, but was able to translate the OM’s ideas on to paper, and to produce the designs. He was also a source of inspiration for the OM. The result was a strong synergy, which had transformed the company into a rapidly growing business since the FLM’s arrival. The OM described himself and the FLM as a ‘double act’, and used the following sporting analogies to describe the way in which they worked: To me, he’s like an inside right. I’m a centre forward and he’s an inside right . . . Or to put it in netball terms, I’m the shooter and he’s the goal attack. So, for instance, when I picked up an old second hand Second World War flying suit like I did in Tokyo about six weeks ago. I brought that flying suit back and I said ‘Gary, I want a suit like this in a new fabric so we can put it into the collection’, and he cut the pattern for it. Plus he travels to the fabric fairs with me around the world and we’re usually brain storming all the time . . . I see our business as being very much a team effort. It’s not just one person. We were surprised by the relatively small number of cases where role conflict was evident, but there was evidence within the cases to show that such conflict can lead to an unstable relationship. At CDC the FLM was a relatively recent appointment. He was in his mid-40s and had left his previous role as a computer programmer four years ago in order to embark on a new career challenge. Bored with what he saw as the repetitive nature of programming, he studied graphic design at university and joined CDC in the hope that it would allow him to use the ‘creative side’ of his personality. Since his arrival the company’s fortunes had improved dramatically, mainly because

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the FLM’s IT expertise had enabled the company to modernize its production processes. The improvements in productivity led the OM to believe that the company should move towards improving profitability through high volume, low cost design and production. However, this view was not shared by the FLM who wanted to pursue a strategy of high quality, high value added, low volume, largely because this would allow him to develop the design skills that he was so desperate to employ. He had studied graphic design because he wanted to move away from working with computers, and the OM’s desire to see him become more involved with IT and productionrelated matters was the source of considerable distress for him. Partly because of the OM’s participative management style, this led to significant tensions within the relationship and it was unclear how these would be resolved. In the light of our analysis, we came to the conclusion that propositions 1a (competency) and 2a (role) are valid – both shared environmental comprehension, and role clarity and complementarity appear to be prerequisites for effective interrelating.

Discussion The survival, development and growth of small firms have been key issues that have exercised the minds of policy makers and researchers in the UK and elsewhere for many years (Bolton, 1971; Stanworth & Gray, 1991; Storey, 1994). Access to finance, business support and the quality of the environment are among the most commonly identified reasons for business failure and low levels of firm growth. Attention to relationship building and related aspects of human relations have not been greatly in evidence. Where these have been considered, the focus has tended to be at a strategic level, the scholarship on human resource management being the most obvious example (Hendry et al., 1995; Smallbone et al., 1995). As a consequence, little is known about the management of relationships in small firms, and their implications for organizational behaviour. It was in the context of these issues that our study of relationships in small firms was developed and conducted. In this section we first summarize the findings from our research, and present a revised model of effective interrelating. We then discuss some of the wider theoretical issues along with some of the limitations of the research. Finally we draw out the methodological issues raised by our study. The model was found to hold true for 11 of the 15 cases, indicating that it is reasonably robust, but that adjustments are needed in order to account for the cases where there is a discrepancy between predicted and

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observed outcomes. In all seven cases where effective interrelating (E2) was observed, the competency and role propositions were met. With regard to the former, environmental comprehension and a shared approach to problem solving were found to be crucial, although the role of the FLM differed between cases: in some instances the FLM was happy to go along with the OM’s views about the main issues facing the firm and how these should be tackled (ALS, SSM, JMFP and TSB), in other cases it was the synergy of the dyad which allowed for shared environmental comprehension, and for an effective approach to problem solving to emerge from this (CAB, BR and R ENG). With respect to role, effective interrelating required clarity of role definition and for complementarity between roles. This need not imply rigidity, but it was found to be important that any scope and flexibility within the role were articulated and understood by both parties in order to avoid a mismatch of expectations. Expectations may concern levels of responsibility, degrees of autonomy, power and career development prospects. In the three cases where all four aspects of the conceptual framework were satisfied (CAB, BR and R ENG), the relationship appeared to be a partnership of equals. In this context, the democratic/participative style, and the development of a shared vision constituted crucial components of the relationship. The participative approach underpinned the dyad in these cases because it allowed the relationship to become greater than the sum of its parts. The shared vision enabled the strategic aims of firms to be articulated, and so provided a benchmark against which performance could be judged. It also engendered the FLMs with a sense of belonging which appeared to lead to high levels of motivation and commitment. For Goss (1991) this kind of ‘fraternalism’ is: not merely the result of an empathy between employer and employed . . . [It is] sustained in no small measure by prevailing market conditions: namely, a tight labour market for key workers, who expect to be afforded a high degree of trust and direction in the exercise of their skills and whose commitment is vital to the success of the business. (p. 76) And for Barker (1993) such strategies are merely a more subtle way of exerting control and minimizing resistance in order to ensure that employees ‘act in ways functional for the organization’ (p. 412). (See also Courpasson, 2000 on ‘soft domination’.) It is certainly true that in all three cases the FLMs played a crucial role in the operation of the business, and that losing them would have caused significant disruption on the part of the OM, not least because of the difficulties of replacing them. But as is noted below, we also

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believe that there was an emotional dimension to the relationship which belied their relative positions. Nevertheless, we accept that it would be misleading to suggest that these relationships were literally equal, or that the authority and levels of control that ownership confers were somehow irrelevant in the face of a democratic approach to leadership – ultimately it is the OMs who are the main beneficiaries of the FLMs’ efforts, and more generally of strong firm performance (Friedman, 1977). Regardless of the motivations of the OM, it is clear in all three cases that the FLMs enjoyed and appreciated the high levels of autonomy and respect they were afforded, and demonstrated very high levels of commitment as a result. Following Yammarino and Dubinsky (1992), perhaps perceived equity is more relevant than actual equity for explaining vertical relations which exhibit these characteristics. In the four cases where effective interrelating was observed but not predicted due to the vision and/or style propositions not being fulfilled (ALS, SSM, JMFP and TSB), there were clear and overt power imbalances in the dyad, with the FLM not involved in any meaningful way in shaping the strategic direction of the firm. In two of these cases the OMs’ reach extended to operational matters (JMFP and TSB), the OMs adopting a somewhat autocratic approach. Again, the work of Goss (1991) is helpful for contextualizing and refining our findings. We consider that the type of relationship observed at these four firms corresponds to Goss’s conception of ‘paternalism’ – a strategy by the owners of small firms which involves, on the one hand, encouraging employees to identify with and show commitment to the OM (and more generally to the firm), while, on the other hand, emphasizing the hierarchy and status differential that exists between them in an effort to exert a degree of control (see also Newby, 1977). This kind of relationship is likely to arise where the FLM is important, but not critically so, to the operation of a firm, thereby weakening his or her bargaining power: [T]he articulation of dependence and resistance is . . . complex: employers are indeed dependent on employees to a considerable extent for the economic success of their enterprise but, simultaneously, paternalism is only viable where workers are also heavily dependent upon an individual employer for jobs. Under these conditions workers may appear to endorse the moral authority of the employer – and even to benefit from it – but this harmony, frequently attributed to personalised employer–employee interactions, is in practice as much the outcome of a complex economic relationship reflecting the distribution of socioeconomic power as personal preference. (Goss, 1991: 78)

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Thus the style and vision components of the original model arguably contain simplistic assumptions about autonomy, participation and commitment which partly neglect deeply embedded economic forces and power relations that characterize interactions between employers and employees in some circumstances. (As is discussed below, unequal relationships may be more likely in locations and in industries where labour markets operate in favour of employers.) From this perspective, power and control are strongly linked with the perceived importance of the FLM to firm performance. It should be noted, however, that there are limits to OMs’ ability to manage and control relationships of this kind. In particular, market forces (in the form of poor firm performance and/or changes in the labour market) may lead the expectations of both parties to fluctuate. Thus a seemingly stable relationship can very quickly turn sour as external circumstances change. It was concluded that in circumstances where the OM is not critically dependent upon the FLM, the FLM has no inclination to be involved at a more strategic level in the operation of the business and the OM does not seek a ‘right-hand man’, or where a ‘master–apprentice’ dynamic is evident, relationships which emphasize a degree of control and hierarchy can be effective providing there is: (1) role clarity and complementarity, (2) environmental comprehension and (3) there is a belief that the personal development/career prospects of the FLM will eventually be met. This led to the conclusion that style and vision are contingent factors, which vary according to the dynamic of the relationship in question and the expectations of those involved. By way of contrast, competency and role are deemed to be core factors without which ineffective relating is unlikely to occur. By using Goss’s analysis we do not seek to imply that the relationship that forms the focus of this study can be reduced to economics – while power and status differentials undoubtedly play an important part in the OM–FLM dynamic, like Purcell (1987), we believe that employers have preferences for managing employees which exist beyond the scope of markets, technology and other external factors, ‘albeit in constrained circumstances’ (p. 547). It would be wrong to characterize issues of control and autonomy simply in terms of market forces. The strategies of employers are influenced by moral, political and aesthetic considerations as well as economic ones, and not all employees seek autonomy and discretion in their working lives (Argenti, 1976). The earlier review of the literature noted and rejected ‘mechanistic’ interaction within an interpersonal relationship. We suggested that such relations are ‘organic’, that is, there is an intangible nexus that characterizes the relationship in the present and prospectively into the future. In reviewing

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the cases we felt that there was an intangible element to each effective relationship that was not captured in the preliminary conceptual framework – a personal bond and mutual understanding that led the parties to exhibit behaviour that goes beyond what might reasonably be expected. Thus we consider that effective relationships comprise an emotional dimension as well as a behavioural one, further reinforcing their dynamic and complex nature. Such issues are often neglected in the ‘science’ of management research, but in seeking to understand effective relationship building it is important to acknowledge they can be a vital factor. For example, in the case of BR the OM had been diagnosed with multiple sclerosis and the FLM went to extraordinary lengths to support him and his family. At JMFP the FLM was a professional footballer who was forced to retire in his early 20s due to injury. He viewed the OM’s decision to promote him to such a senior position as a ‘second chance’, and an opportunity to build an alternate career following his injury. At SSM the FLM had been unemployed for some years prior to his appointment, a victim of his age (he was in his late 50s at the time) and the North East’s rapid decline in industrial employment. With no formal qualifications, and no experience outside heavy engineering, the FLM thought he might never be re-employed. He was grateful to the OM who had given him ‘another chance’, and repaid him with remarkable levels of dedication and motivation. This finding is supported by other research. Graen and Uhl-Bien (1995) distinguished between developing and developed relationships between leaders and followers. The former are characterized by ‘career-oriented’ behaviour exhibiting a high degree of formality. As the relationship develops, it becomes increasingly social in nature. However, to make the transition to its most sophisticated form, that of a ‘mature partnership’ requires an emotional commitment by both parties: At this point, exchanges between members are highly developed: they are exchanges ‘in kind’ . . . The individuals can count on each other for loyalty and support. Moreover, the exchanges are not only behavioural but also emotional – mutual respect, trust and obligation grow throughout the process. (Graen and Uhl-Bien, 1995: 230) In another influential study Korsgaard et al. (1995) demonstrated the importance of respecting team members’ views for perceived fairness, commitment to a decision and the development of trusted relationships: effective relations were characterized by bonds comprising mutual respect and trust, whereas in many of the ineffective relationships, bonds had either

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not developed or had broken down due to, for example, the mismanagement of an incident. The researchers consider the development of an emotional bond encompassing trust/mutual respect to be a crucial component of effective interrelating which was not included in the original model. After careful consideration, it was decided to incorporate this component into our model as a core factor, even though we had not explicitly sought evidence for it during data collection nor tested it in the same way as our four a priori propositions. We recognize, of course, that this is not consistent with our deductive approach outlined earlier in the article. However, given that we found evidence of this kind of bond (which acted as a form of ‘social glue’) in each of the cases where both the OM and FLM declared themselves satisfied with the relationship (E2 = Y), we felt that it was right to include it. As social scientists concerned with understanding and explaining human relations, our priority must be to describe as fully and as accurately as possible our interpretation of the dyad under investigation. Nevertheless, we acknowledge that this aspect of relationship building needs to be explored further. We have modified our model to include this fifth dimension which we term ‘orientation’. The revised conceptual framework is illustrated in Figure 2. As well as revising the conceptual framework, the analysis led the authors to produce a revised set of propositions. The first two (relating to

Owner Manager

First Line Manager Heedful inter-relating

Competencies (core)

Environmental comprehension

Role perceptions (core) (of self and others)

Role complementarity

Competencies (core)

Role clarity

Role perceptions (core) (of self and others)

Democratic/participative

Management style (contingent)

Non-democratic/authoritarian

Management style (contingent)

Vision talk

Vision (contingent)

Strategic exchange

Vision (contingent)

Trust

Orientation (core)

Figure 2

Mutual respect

Owner Manager–First Line Manager relationships

Orientation (core)

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competency and role) have remained the same, reflecting their designated status as core factors. Propositions 3 and 4 (relating to style and vision) have been adjusted, reflecting their status as contingent factors. Proposition 5 reflects our findings with regard to ‘orientation’, outlined above. P1b: An effective relationship will exhibit environmental comprehension, with both parties conceptualizing competitive circumstances in similar ways. P2b: Effective interrelating requires role clarity and role complementarity. P3b: Effective interrelating is more likely to occur under democratic/participative conditions, but may also occur under authoritarian/non-democratic conditions, depending upon the dynamic of the relationship in question and the expectations of those involved. P4b: Effective interrelating is more likely to occur when there is a clear vision developed and shared by both parties, but may also occur where there is no shared vision, depending upon the dynamic of the relationship in question and the expectations of those involved. P5: An effective relationship has an emotional dimension that comprises mutual respect and trust between the two parties, which produces an intangible bond that secures the relationship in the present and prospectively into the future. Dominant theories of leadership focus on exchange, need fulfilment, contingency factors, path–goal motivational structures, and/or transformational leadership style (Drummond, 2000). In contrast our theory underlines the importance of reciprocal influence, even in the context of differential status. The picture is a complex one: envisioning, empowering and energizing (Kets de Vries, 1996), and the ability to structure relations and develop operational systems may be necessary in some sense for effective interrelating, but our research has demonstrated that they are not sufficient. The ability to focus externally on the position of the firm – ‘environmental comprehension’ – to construe it accurately and be able to articulate and share it with key others was found to be a necessary prerequisite to effective interrelating within the dyad. Further, ‘empowerment’ does not necessarily equate to ‘equality’. For example, it was apparent in some of the cases that the partnership, whilst very effective, was not one of ‘equals’; rather the FLM ‘knew his place’ and also ‘knew how to handle his boss’.

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The revisions to the style and vision components of the model, discussed above, illustrate that the behaviour of organizational members is shaped partly by conditions outside of the firm. We must therefore acknowledge that there are outstanding questions about the relevance of our framework for firms in other settings. Most obviously, our sample consisted predominantly of labour-intensive manufacturing firms that operated in industries which are increasingly subject to low-cost competition in developing countries. The difficult trading conditions that were faced by almost all of the firms, coupled with the relatively limited prospects for growth (given the nature of the industries in which they competed), is likely to have had a significant effect on the dynamic between the OMs and FLMs. It would thus be necessary to study the relationships between OMs and FLMs in other settings, say, the electronics industry in Cambridgeshire (or in Silicon Valley for that matter), where firms tend to grow much faster and hence the opportunities for career advancement and improved remuneration are likely to be greater, in order to test our model further. In addition, the relatively limited career opportunities in the North East, more generally, and the fact that the region continues to suffer from relatively high levels of unemployment (at least by UK standards), contrast sharply with the high-technology sector in Cambridgeshire, where the labour market is much tighter and more fluid. Under the latter circumstances, the retention of staff with high levels of skills becomes a key priority for employers (Goss, 1991). Moreover, organizational members who have experienced sustained periods of unemployment have been shown to exhibit distinctive attitudes towards employment. Specifically, they are likely to place greater emphasis on job security over and above other aspects such as job satisfaction, career prospects and remuneration (Payne and Jones, 1987). This is particularly relevant with respect to the North East, which suffered from high levels of unemployment in the 1980s and early 1990s, and where attitudes to employment are likely to be strongly influenced by the region’s industrial heritage (Bennett and McCoshan, 1993). Clearly, all of this has implications for the power relations between OMs and FLMs, the expectations of both parties, and the processes through which their relationships are negotiated. Furthermore, given the relatively small number of cases, and that only 6 of the possible 16 patterns were observed, the researchers must be cautious of the claims made about the model – additional research that examines more cases to saturation would clearly help strengthen and refine the findings. There is also a case for longitudinal research, especially with a view to investigating further those cases where E1 was not supported but there was deemed to be effective interrelating (E2), at least in the short term. The analysis suggests that the seeds of destruction of working relationships can run far deeper than can be reflected in a parsimonious theoretical model used

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to assess relationship effectiveness at a particular point in time. A badly managed past situation can continue to affect future relations leading to distrust, poor performance and dysfunctionality. Nevertheless, given these limitations and the caveat of the need for further work, we contend that our model represents an important step in understanding relationship building in small firms. Finally, our study raises a number of methodological issues. Qualitative research in management studies has tended to be confined to explorative studies based upon an inductive research design (e.g. Glaser and Strauss’s 1967 grounded theory). In contrast we have adopted a (primarily) deductive approach. To some, this may seem at best counter-intuitive and at worst to represent a fundamental misunderstanding of ontology and its relationship to assumptions about human behaviour. We take a broader view of qualitative research, arguing that it encompasses a range of perspectives and methods. This point was made eloquently some years ago in a seminal article by Morgan and Smircich (1980), who argued that qualitative research should be considered as an approach to the social world rather than a specific set of techniques for data collection and analysis. Furthermore, by predicting that all of the propositions would be necessary for effective interrelating, ‘testing’ this assumption across cases, and revising the model accordingly, the authors felt they would be able to build robustness into the model, which was not possible were the analysis to be conducted in an inductive fashion, with the attributes of effective interrelating emerging from the data. Following Yin (1994), we also took the view that this would allow us to make theoretical generalizations from our analysis. By adopting this approach, we do not seek to make the claim that our analysis is ‘objective’ – the data collected require interpretation and in this respect the analysis is a second or third order construction (Rosen, 1991). We believe, therefore, that the approach we have taken builds a bridge between positivist and interpretivist approaches, and calls into question the incommensurability of positivist and non-positivist paradigms.

Notes 1

2

Of course, we could have adopted a quantitative empirical strategy – for some, the analysis of questionnaire responses has the potential to offer a more objective approach. However, the problems of assuming objectivity in quantitative research are well known. Our view was that questionnaire responses would not be able to deal with the complexity of the processes inherent in interpersonal relationships of the kind under investigation in this study. The development of ‘distinctive competencies’ is assumed to be central to innovative firms. These must be sensitive to environmental conditions, but at the same

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3

4 5

6

7

time force other actors (e.g. competitors, suppliers and customers) to adjust their behaviour. We recognize, of course, that organizational and relational mindsets also have the potential to obstruct change and impede competitiveness. See, for example, Clark and Tracey (2004). The validity of aspects of these studies has been questioned. See Tubre and Collins (2000). There are economic structural factors that shape local economies such as industrial heritage, urban–rural location, level of business support activity, and demographic profile (Curran & Storey, 1993; Storey, 1994). The North East of England has been characterized as an old industrial economy that has struggled to adjust to the socioeconomic circumstances associated with the de-industrialization it has experienced since around the 1960s (Benneworth, 2002). During the 1980s and 1990s, and in an attempt to reverse the decline in industrial employment, regional policy in the North East was concerned mainly with attracting foreign direct investment (FDI) (Jones & Wren, 2004). As a consequence it is often labelled as a branch plant economy, with FDI accounting for a significant proportion of economic activity in both manufacturing (Phelps et al., 2003) and services (Richardson et al., 2000). However, and despite significant investment in a series of regeneration initiatives during recent years (Liddle, 2001), the North East continues to fare poorly across a range of indicators, such as employment levels and per capita income, compared to other UK regions. (See, for example, recent issues of Regional Trends, published by the Office for National Statistics.) Of particular concern for some commentators is that the North East has consistently exhibited low levels of entrepreneurial activity. This is consistent with the 2003 Global Entrepreneurship Monitor survey, which suggests that the North East has the lowest proportion of its population involved in business start-up activities (3.3%), and the lowest proportion of ownermanaged businesses (9.4%), of any UK region (Harding, 2004). Four of the 15 cases that were eventually selected fall outside of the 11–20 range, but were included because their change in size had happened in the very recent past and the OM–FLM relationship remained intact. Given the critical importance of this part of the analysis to the empirical strategy adopted by the researchers, great care was taken to ensure that this process was carried out in a thorough manner. Two types of coding were employed. The first consisted of basic descriptive codes that related directly to the four components of the model (i.e. ‘competency’, ‘role’, ‘style’ and ‘vision’). This initial coding process was very helpful in organizing the data, thereby facilitating storage and retrieval. It also prepared the data for the second stage of ‘higher order’ coding. This more sophisticated type of coding is sometimes called ‘pattern coding’, and involves ‘pull[ing] together material into smaller and more meaningful units . . . at a higher level of abstraction . . . which brings together less abstract, less descriptive codes’ (Punch, 1998: 205). We did not have pre-specified labels for this stage of the analysis, but the codes used were in general informed by the literature which shaped our conceptual framework (e.g. ‘strategic visioning’ and ‘joint sense making’). At the same time, we wrote memos in order to record our ideas and thoughts about each dyad as they related to the four components of the model. These memos formed a crucial part of the analysis. They did not serve simply to summarize the data. Rather, ‘they tie together different pieces of data into a recognisable cluster, often to show that those data are instances of a general concept’. As such, they are ‘one of the most useful and powerful sense-making tools at hand’ (Miles and Huberman, 1994: 72). For each case study, the relevant codes and memos were pulled together and entered into a simple matrix with the labels OM and FLM along the horizontal axis, and the four components of the model along the vertical axis.

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8

9

10

Evaluating these data in an iterative fashion allowed each component of the model to be assessed for each case study. The advantage of this kind of ‘within-case analysis’ (Eisenhardt, 1989) is that it ‘allows the unique patterns of each case to emerge before investigators push to generalize patterns across cases’ (p. 540). Ship blinds (sometimes referred to as marine blinds) are screens used on the navigation bridges of ships in order to control the effects of the sun’s radiation by reducing heat and absorbing UV rays, thereby improving navigation conditions. It is interesting to note that no explicit reference was made to the potential strategic involvement of the FLM; this may be because these small business owners, indeed small business owners generally, are not accustomed to the language of strategy. Note that, given the semi-structured nature of the interview, these questions were used as a topic guide, rather than a fixed set of questions. Often, the critical incidents were revisited at this stage in the interview in order to provide greater clarity with respect to the four components of the model.

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Appendix 1A: Interview questions to OMs about the four components of the model10 Competency In general, do you think that you and the FLM see the key challenges facing the firm in similar ways? Can you think of any examples where this happened? When you’re working on specific issues/problems, do you and your FLM tend to look at things in a similar way, or do you have quite distinctive ways of framing issues/problems? Can you think of any examples where this happened? Do you think that you and the FLM work well together with respect to problem solving and developing strategy?

Role Can you describe the key tasks that you are responsible for? Can you describe the key tasks that your FLM is responsible for? How was this decided? Has it evolved/changed over time? How much overlap is there between your responsibilities and your FLM’s responsibilities? Do you think that the division of responsibilities between you works well? Would you like to alter the roles and responsibilities of yourself and your FLM?

Style How would you describe your management style? Can you think of any instances where this approach came through?

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How do you think your FLM would describe your management style? Do you think your FLM is happy with your management style? Do you think that he/she would like you to be more/less democratic?

Vision What is your vision for the future of the firm (e.g. structure, roles, growth, succession, product lines)? Do you know your FLM’s vision/aspirations for the firm? Are these consistent with yours? To what extent has your FLM been involved in the development of your vision? Do you think that he/she would like to be more/less involved in this respect? What about your FLM’s personal/career ambitions. Do you know what these are, and do you think that they can be met within the firm?

Appendix 1B: Interview questions to FLMs about the four components of the model Competency In general, do you think that you and the OM see the key challenges facing the firm in similar ways? Can you think of any examples where this happened? When you’re working on specific issues/problems, do you and the OM tend to look at things in a similar way, or do you have quite distinctive ways of framing issues/problems? Can you think of any examples where this happened? Do you think that you and the OM work well together with respect to problem solving and developing strategy?

Role Can you describe the key tasks that you are responsible for? Can you describe the key tasks that the OM is responsible for? How was this decided? Has it evolved/changed over time? How much overlap is there between your responsibilities and your OM’s responsibilities?

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Do you think that the division of responsibilities between you works well? Would you like to alter the roles and responsibilities of yourself and your OM?

Style How would you describe the OM’s management style? Can you think of any instances where this approach came through? How do you think the OM would describe his/her management style? What do you think about the OM’s management style? Would you like him/her to be more/less democratic?

Vision What is your vision for the future of the firm (e.g. structure, roles, growth, succession, product lines)? Do you know the OM’s vision/aspirations for the firm? Are these consistent with yours? To what extent have you been involved in the development of the vision for the firm? Would you like to be more/less involved in this respect? What are your career ambitions? Do you think that these can be met in this firm, or do you think you will need to move elsewhere?

Elizabeth Chell is Professor of Entrepreneurship and Director of the Institute for Entrepreneurship, The University of Southampton, UK. She has held chairs at the University of Manchester (The Rory Brooks Chair of Enterprise) and at the University of Newcastle upon Tyne, UK (the Alcan Chair of Management). She is a Fellow of the Royal Society for Arts, Commerce and Manufactures and a Fellow of the British Academy of Management. [E-mail: [email protected]] Paul Tracey is Lecturer in Social Enterprise at the Judge Institute of Management, Cambridge University. He has also held posts at the School of Geography, Oxford University and the Centre for Entrepreneurship at Newcastle University. His research interests include entrepreneurship, competitiveness and innovation, and the social economy. [E-mail: [email protected]]