AN EXPLORATORY STUDY OF THE CRITICAL MANAGERIAL … · 2016. 4. 15. · (1997:508) recommend that...

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AN EXPLORATORY STUDY OF THE CRITICAL MANAGERIAL SKILLS-SET

FOR FORMAL SECTOR VENTURE SUCCESS IN TOWNSHIPS AND

DISADVANTAGED COMMUNITIES

Jacobus H Oosthuizen Faculty of Management and Leadership, Milpark Business School

P.O. Box 91714, Auckland Park, 2007 Republic of South Africa

[email protected]

Estelle van Tonder Faculty of Management and Leadership, Milpark Business School

P.O. Box 91714, Auckland Park, 2007 Republic of South Africa

[email protected]

ABSTRACT

It is widely accepted that small businesses play an important role in the stimulation of a

country‟s economic growth. In a developing economy such as that of South Africa it is also

evident from the attention small business development is enjoying. However, despite

numerous government and private sector initiatives, the sustainability rate of small businesses

in South Africa remains low. In addition, formal sector small business development in

townships and disadvantaged communities seemingly does not attract the attention it deserves

as a potentially significant contributor to the mainstream economy in South Africa. Hence the

question, “What can be done to improve the sustainability and growth of formal sector small

businesses in townships and disadvantaged communities?” The authors argue that, because

the entrepreneur is central to entrepreneurship, human capital is a key imperative. This paper

therefore focuses on the human capital determinant, with specific reference to the skills

required to manage and grow sustainable ventures effectively. The authors posit that a

particular managerial skill-set is required for successful entrepreneurship, not only in general,

but for formal sector small businesses in townships and disadvantaged communities, and sets

out to explore the criticality of administration, legal and regulatory, marketing, operational,

finance, information technology, and interpersonal skills/competencies.

KEYWORDS

Entrepreneurship, managerial skills, townships and disadvantaged communities

1. INTRODUCTION

Townships and disadvantaged communities present attractive opportunities for business

owners. Research shows that since the late 1990s many African consumers have shifted to

the middle-income group (Ligthelm & Risenga, 2006:13). Most township dwellers also have

no intention of moving to high-density city centres or other residential areas (Gluemetric and

Lilanda Holdings, 2006). In a study conducted in Soweto, Tembisa, Soshanguve, Mamelodi,

KwaMashu, Mangaung and Khayelitsha, it was found that 86% of all middle-income people

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who lived in townships had resided in the area for more than four years. The study further

showed that three in every five inhabitants had resided in the township for longer than ten

years and that only 2% of the middle-income residents had stayed in the area for less than one

year (Ligthelm & Risenga, 2006:57).

Small business owners in townships, such as Soweto (Kgafela, 2009) and Kagiso (Mbonyane,

2006:iii), however, are not very successful in exploiting this market potential. In Soweto, for

example, only 57% of the small businesses still conducted their businesses from the same

premises in 2008 as in 2007. During the same period, 13% of the businesses moved to other

premises and 30% of the businesses failed completely (Kgafela, 2009).

What can be done to improve the sustainability and growth of small businesses in townships

and disadvantaged communities?

Literature abounds with research on the determinants for small business success. Among

others, researchers refer to determinants such as human capital, financial capital, social

capital, keeping up with developments relevant to the business (Bosman, van Praag & de

Witt, 2000). Others refer to psychological factors, education, experience and founding team

composition (Sørensen & Chang, 2006). There are also those that refer to entrepreneurial

variables, industry structure variables, business strategy variables, resource variables,

organisational structure, systems and process variables (Chrisman, Bauerschmidt & Hofer,

1998), and others even to national culture, regional and urbanisation influences and family

involvement influences (Chrisman, Chua & Steier, 2002). Ligthelm and Risenga (2006:60)

in contrast indicate that small business owners in townships could concentrate on aspects

such as good and friendly customer service, credit facilities and availability of merchandise in

small units to counter the threat of chain stores in shopping malls.

Small businesses, however, not only have to consider competitors from shopping malls, but

also have to address numerous other obstacles that can threaten their survival. The problems

small business owners face can be divided into four categories, namely general management

problems, operational problems, financial problems and marketing problems (Poutziouris,

Binks & Bruce, 1999:140). It appears to be imperative for small business owners to address

these types of problems. According to Dodge and Robbins (1992) the estimated 55% failure

rate for small businesses in the first five years and 81% within ten years indicate that if they

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do not address these problems, find possible solutions and implement the necessary strategies

to deal with the factors hindering their growth, they will not survive. (The small business

failure rate in South Africa is 78% and the average lifespan of a small business is only 18

months [UNISA, 2007]).

Consequently, in an attempt to assist small business owners in townships and disadvantaged

communities to survive and grow their businesses, this paper specifically explores the most

important skills required for managing ventures effectively. Given the four major categories

of problems that can be experienced, the investigation predominantly focuses on the

marketing function, operational function, financial function and general management

function of a small business.

2. RESEARCH OBJECTIVE

The research objective of this study can therefore be formulated as follows: To determine the

managerial skills-set that is critical for formal sector venture success in townships and

disadvantaged communities.

3. LITERATURE REVIEW

A number of important skills have been highlighted in the literature. The authors, however,

argue that because the entrepreneur is central to entrepreneurship, human capital is a key

imperative. Hence this section only focuses on the human capital determinant, which refers

to the skills, knowledge and techniques used by individuals to conduct the business activities

of a venture. Furthermore, this study mainly investigates potential skills that small

businesses in the formal sector might require to manage their businesses effectively. Lack of

institutional regulation of informal sector microenterprises and its heterogeneity makes this

sector a less than ideal field to study (Barreira, 2004:18).

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3.1 Marketing skills

Marketing is defined as decisions made to determine customer needs and to develop

organisational responses to those needs (Swiercz & Spencer, 1992). According to Macleod

and Terblanche (2005:50-51) it is important for small business owners to conduct market

research to determine the amount of products they can expect to sell, how many customers

will visit them and how much they will spend. Appropriate market knowledge would enable

small business owners to design effective strategies for their businesses (Macleod &

Terblanche, 2005:50-51). Small business owners would further need to make use of the most

appropriate pricing strategy for their products. In a study conducted among 40 small business

owner managers in Northern Ireland, it was found that some of the small business owners

used a cost-plus approach, which involved adding up all the expenses plus a percentage

markup. Others took competitor actions into account, although the quality of their competitor

knowledge was sometimes questionable. Most of the small businesses, however, conformed

to industry norms when prices were established. This practice made the small business

owners very vulnerable to price changes in the industry (Carson, Gilmore, Cummins,

O‟Donnell & Grant, 1998). Macleod and Terblance (2005:65-66) recommend from a local

perspective that more inexperienced small business owners (who have not been trading for

many years and cannot rely on their experience) should rather follow the market when

determining their pricing strategies.

According to Timmons (1999:250), sales management for entrepreneurs refers to the

“…ability to organise, supervise, and motivate a direct sales force, and the ability to analyse

territory and account sales potential and to manage a sales force to obtain maximum share of

market.” Direct selling in small businesses is needed when the target market is small and

where the product on offer could generate questions that will have to be addressed by skilled

staff members” (Macleod & Terblanche, 2005:74).

Longenecker, Moore and Petty (1997:151) believe that all small businesses should focus on

providing good customer service, as this could lead to a competitive edge for the business,

regardless of the nature of the business. They are also of the opinion that entrepreneurs often

consider the distribution function to be less exciting than other marketing activities, such as

packaging and choosing a name for the product. An effective distribution system, however,

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is just as important to a small business as good packaging, a clever name, or an original

promotional campaign (Longenecker et al., 1997:350).

3.2 Operational skills

According to Swiercz and Spencer (1992) operational competencies refer to management

systems and procedures that are implemented to produce the firm‟s products or services.

Amer and Brain (1990:54) define operational planning as “…a detailed, quantitative plan that

specifies both how the goals for the coming year will be attained and the procedures for

managing daily operations.” Depending on the nature of their business offering, small

business owners should prepare manufacturing, retail or service operational plans for their

businesses (Macleod & Terblanche, 2005:75).

Small business owners would need to consider a number of important aspects in their

planning. The level of desired quality needs to be determined and maintained through regular

inspection. Production cost would need to be determined and controlled (Macleod &

Terblanche, 2005:84-85). Production scheduling also needs to be planned to avoid the

occurrence of a bottleneck (Longenecker et al., 1997:427).

According to Timmons (1999:251) it is also important for small business owners to identify

appropriate sources of supply, to bargain contracts with suppliers, to manage the incoming

flow of products into the business and to analyse and address employee productivity.

Small business owners should make use of modern technology to assist them with their

activities. This includes the skill to perform spreadsheet analysis, using the microcomputer

and knowledge of electronic mail and word processing (Timmons, 1999:251). According to

Van Akkeren and Cavaye (1999) the adoption of Internet technologies by the small business

sector is imperative for its continuous existence.

3.3 Financial skills

Finance is defined as decisions made regarding the acquisition and management of the firm‟s

capital resources (Swiercz & Spencer, 1992). For entrepreneurs the key to growing beyond

their own means is to convince financiers of the potential of their businesses (Garnsey,

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1998:533). Small business owners should have their business plans reviewed by a certified

accountant before presenting them to a prospective financier and should include an income

statement, balance statement, statement of cash flows and break-even analysis (Hormozi,

Sutton, McMinn & Lucio, 2002:758).

It is further important for small business owners to select the most appropriate finance vehicle

for their specific needs. The financial industry has designed a large variety of funding

options, specifically suited for businesses. They differ in terms of size, fees, methods of

repayment and types of collateral required (Macleod & Terblanche, 2005:152).

Festerv and and Forrest (1991) postulate that small businesses struggle with limited cash

flow, which is often caused by management ignorance. To address this problem,

Longenecker et al. (1997:508) recommend that small business owners make use of cash

budgeting (a planning document that monitors the inflow and outflow of cash in the

business). Timmons (1999:251) believes that small business owners need to be able to

develop credit policies for their businesses and should know when to progress with legal

action.

3.4 General management skills

Small business owners should have the ability to foresee potential problems, to gather

information about the problems and to plan effective strategies to solve them (Timmons,

1999:249). According to Holland (1998) the old saying “…people don‟t plan to fail, they fail

to plan” holds true in relation to small business success. He recommends that small business

owners need to strategise for business success. This includes performing market research,

identifying target markets and developing a five- to ten-year plan (taking into consideration

cash flow, financing and expansion decisions).

Effective communication in a small business is important to ensure a healthy organisation.

To communicate effectively, managers should make sure employees know where they stand,

how the business is doing and what the business‟s strategy for the future is. Positive

feedback is key for establishing good human relations (Longenecker et al., 1997:380). Small

business owners also need to be able to communicate effectively to the media, public and

clients (Timmons, 1999:249).

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According to Timmons (1999:249) project management includes activities such as organising

project teams and setting project goals, as well as determining and monitoring project tasks.

It is important for small business owners to manage the projects they have launched and to

have good negotiation skills (Timmons, 1999:249). In a study conducted among business

owners in Ekurhuleni, one small business in Benoni specifically admitted that lack of

negotiation skills could limit the growth of a small business (Chabane, 2003). Another study

in the UK revealed that this important skill is not always present among small business

employees (Martin & Chapman, 2006).

Timmons (1999:249) further indicates that ventures should have good relationships with

outside professionals. Other researchers have similar views. Mazzarol (2004), for example,

conducted a study of small businesses in the UK and Australia to investigate the connection

between their operational practices and the high sales growth they displayed. The results

revealed that the relationships these small businesses had built with their clients, employees,

suppliers and support networks were a critical factor in their success. Another study that was

conducted by Coopers and Lybrand (1993) among 400 high sales growth small businesses

indicated that the small businesses with strategic alliances experienced 11% more sales

turnover than those that had no network relationships (Anon, 1993:5).

Small business owners also need to be aware of and follow a number of business laws and

regulations, such as tax laws, licensing to conduct a business, copyright and registration of

trademarks (Macleod & Terblanche, 2005:205-212). In South Africa, small business owners

are further obliged to follow the requirements specified in the Labour Law Act, when

performing personnel administration duties, such as hiring and compensating their employees

(Macleod & Terblanche, 2005:166-192). These regulations affect the performance of small

businesses. According to the Department of Trade and Industry (2008:49-50), “…the

regulatory environment remains not only one of the most important factors impacting on the

growth of small businesses, but also a matter of great complexity, as it aims to balance

various tensions. As an example, this complexity is reflected in labour regulation being

identified by many small business owners as a major obstacle, yet deregulation remains out

of the question.”

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Finally, Timmons (1999:248) believes that managers of entrepreneurial businesses need to

recognise and deal with innovation and risk taking. They need to respond to situations

quickly and should also be able to absorb major setbacks. To be successful, entrepreneurs

need to display characteristics of leadership, conflict management, teamwork, people

management and trust.

4. RESEARCH METHODOLOGY

The research methodology of this study includes the development of the survey, the study

population, the process to gather the information and the statistical analysis as set out below.

4.1 Development of the measuring instrument

The literature study provided valuable insight into the identification of managerial

competency issues in entrepreneurship. Based on the literature study and the findings of

Timmons (1999:248-251), seven competency clusters were identified that could be used to

assess the criticality of skills affecting successful entrepreneurship. These are:

administration; legal, regulatory and taxes; marketing; operations; finance; information

technology and interpersonal skills.

A measuring instrument was designed to evaluate these clusters. The measuring instrument

assessed the seven competency clusters with 44 skill/competency descriptors on the basis of a

4-point Likert-type scale ranging from „Not Necessary‟ (1) to „Critical‟ (4). In respect of each

descriptor, respondents had to indicate the degree to which they agreed or disagreed on the

criticality thereof (Welman & Kruger, 1999:155; Huysamen, 1994:125). Refer to Appendix 1

for the wording of the descriptors (items) measuring the seven clusters.

4.2 The study population

The target population of this study was MBA students from Milpark Business School, which

included students who grew up and/or had resided in townships and/or disadvantaged

communities, and students who did not grow up and/or had resided in townships and/or

disadvantaged communities.

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4.3 Data collection

The questionnaires were distributed, completed and returned via email. The names of the

students were solely used for the purpose of capturing the relevant demographical data.

Confidentiality was therefore ensured for each participant. A total of 210 questionnaires

were distributed and 42 usable questionnaires were returned.

4.4 Statistical analysis

The data collected were statistically analysed, using Microsoft Excel Data Analysis (Excel,

2003). The construct validity of the measuring instrument was assessed by means of

calculating Cronbach alpha coefficients. The relationship between the seven factors was

examined by means of Pearson‟s correlation analysis. Thereafter, the association between the

demographic variables and the variables (competency factors) was explored by means of

paired tests.

The following propositions were formulated to address the objectives of this study:

P1

: The seven variables, administration, finance, information technology, legal,

regulatory and taxes, marketing, operations and people skills are all very desirable

to critical.

P2

: The measuring instrument has acceptable reliability.

P3 : There is a relationship between the variables administration, finance, information

technology, legal, regulatory and taxes, marketing, operations and people skills.

P4 : There is a statistically significant difference between the findings of the participants

who grew up and/or had resided in townships and/or disadvantaged communities and

those who did not.

5. RESULTS AND DISCUSSION

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The findings of this study include a discussion of the demographic information, the results of

the competency criticality assessment, the reliability of the questionnaire and the relationship

between the variables.

5.1 Demographic information

The majority of the 42 participating MBA students (55%) grew up and/or had resided in

townships and/or disadvantaged communities. Most of the respondents who participated in

the study are males (71%). The majority of participating MBA students are in middle

management (43%), with 31% in senior management, 12% in executive positions and 7% in

each of junior management and professional positions. MBA students who participated in this

study represent, among others, the financial, manufacturing, mining, information technology,

telecommunication, FMCG, retail and wholesale, medical and government sectors.

5.2 Findings of the competency criticality assessment

The competency survey embodies the respondents‟ collective perceptions about the criticality

of the seven competency clusters consisting of 44 skills/competencies required to manage

ventures in townships and/or disadvantaged communities effectively. The findings of the

survey are depicted in Table 1 and are also presented from the highest to the lowest

calculated arithmetic mean value in Figure 1.

Table 1: Results of the skills and competency criticality assessment

Competency Cluster n s Cronbach α

Administration 42 3.40 0.29 0.84

Finance 42 3.27 0.23 0.83

Information Technology 42 2.59 0.36 0.66

Legal, Regulatory and Taxes 42 2.55 0.27 0.91

Marketing 42 3.08 0.18 0.85

Operations 42 3.07 0.24 0.78

People Skills 42 3.43 0.23 0.61

x

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The construct people skills ( x = 3.43) obtained the highest arithmetic mean value, followed

by the constructs administration ( x = 3.40), finance ( x = 3.27); marketing ( x = 3.08) and

operations ( x = 3.07) respectively. The constructs information technology ( x = 2.59) and

legal, regulatory and taxes ( x =2.55) obtained the lowest scores.

Figure 1: Competency cluster ranking

0

0.5

1

1.5

2

2.5

3

3.5

Cri

tic

ali

ty R

ati

ng

People skills Administration Finance Marketing Operations Information

Technology

Legal,

Regulatory and

Taxes

Competency Cluster

Noticeably, people skills rank highest. The graph further depicts that people skills,

administration, finance, marketing and operations fall in the very desirable (3) to critical

range (4), and information technology and legal, regulatory and taxes in the less desirable (2)

to very desirable (3) range. Proposition 1 (P1) can thus not be accepted.

5.3 Reliability of the measuring instrument

To assess the internal consistency between the items of the measuring instrument, Cronbach

alpha coefficients were calculated (Page & Meyer 2000:292). The Cronbach alpha coefficient

is based on the average correlation of variables within a variable (SAS Institute, 2005:295).

The greater the Cronbach alpha coefficient is, the more reliable the scale. Nunnally and

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Bernstein (1994:265) suggest that for acceptable reliability the Cronbach alpha coefficient

should be greater than 0.7.

The 42 participants‟ responses were used to determine the reliability of the measuring

instrument. The results indicate that five of the seven clusters used in this study have

acceptable reliability, with Cronbach Alpha values above the customary cut-off value of 0.70

suggested for internal consistency (Nunnally & Bernstein, 1994:265). The remaining two

clusters, information technology and people skills, yielded a Cronbach alpha coefficient of

0.66 and 0.61 respectively, that could, according to Field (2005), also be interpreted as an

acceptable alpha coefficient. Proposition 2 (P2) can thus be accepted.

5.4 Response bias

To test for response bias, participating respondents were compared with respect to their

opinions expressed. ANOVAs found statistically significant differences on all the variables as

presented in Table 2.

Table 2: Test for response bias (ANOVA)

Source of Variation SS df MS F P-value

Administration 25.85 7 3.693 6.559 0.000*

Finance 11.26 5 2.251 3.428 0.005*

Information Technology 10.75 2 5.374 7.212 0.001*

Legal, Regulatory and Taxes 17.9 6 2.983 4.021 0.001*

Marketing 11.76 8 1.470 2.313 0.020*

Operations 14.57 6 2.429 3.607 0.002*

People Skills 6.604 3 2.201 4.112 0.008*

*ANOVA statistically significant at 0.05 alpha level

5.5 Relationship between the variables

To investigate the relationship between the seven competency clusters, namely

administration; legal, regulatory and taxes; marketing; operations; finance;

information technology and interpersonal skills, the Pearson correlation coefficients (r)

were calculated and are presented in Table 3 (refer to Field, 2005:111). Cluster scores for

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each participant were computed as the average of all items contributing to the relevant

cluster.

In order to determine whether the effect of the relationship between two variables is

important or meaningful, the size of the effect should be measured. Effect sizes are useful

because they provide an objective measure of the importance of an effect (Field, 2005:32). A

correlation coefficient of 0 means there is no visible relationship, and a value of 1 means that

there is a perfect relationship. Cohen (1992:155-159) gave the following widely accepted

guidelines about the interpretation of effects:

r = 0.10 (small effect): in this case, the effect explains 1% of the variance

r = 0.30 (medium effect): the effect accounts for 9% of the variance

r = 0.50 (large effect): the effect accounts for 25% of the variance (refer to Field,

2005:32; Cohen, 1992:155-159).

Table 3: Results of the Pearson correlation coefficients (r) between variables

Admin Finance IT Legal Market Ops People

Administration 1.000 0.608** 0.474 0.310 0.620 0.042 0.204

Finance 0.608** 1.000 -0.404 0.076 0.207 0.010 -0.647

IT 0.474 -0.404 1.000 0.697** 0.706** 0.634** 0.957**

Legal 0.310 0.076 0.697** 1.000 -0.063 0.961** 0.573**

Marketing 0.620** 0.207 0.706** -0.063 1.000 -0.067 0.608**

Operations 0.042 0.010 0.634** 0.961** -0.067 1.000 0.573**

People Skills 0.204 -0.647 0.957** 0.573** 0.608** 0.573** 1.000

** Correlations significant at the p = 0.01 level (2-tailed)

The results in Table 3 indicate that there are statistically significant (p < 0.01) correlations

between only some of the cluster combinations, namely administration and finance, IT and

legal, IT and marketing, IT and people skills, legal and operations, legal and people skills,

marketing and administration, marketing and people skills, and operations and people skills.

Furthermore, practically significant (large effect: r > 0.500) correlations between

administration and finance, IT and legal, IT and marketing, IT and people skills, legal and

operations, legal and people skills, marketing and administration, marketing and people

skills, and operations and people skills were calculated. Based on Cohen‟s guidelines (Cohen,

1992:155-159), proposition 3 (P3) can thus not be accepted.

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5.6 Comparing the mean differences between demographic variables

The differences in the means between the extracted factors, namely administration; legal,

regulatory and taxes; marketing; operations; finance; information technology; and

interpersonal skills, for the demographic variables of participants who grew up and/or

havdresided in townships and/or disadvantaged communities and those who did not were

examined by an independent t-test (p-values) and effect sizes (d-values).

Statistical significance tests have the tendency to yield small p-values (indication of

significance) as the size of the data set increases. The effect size, however, is independent of

sample size and is a measure of practical significance (Ellis & Steyn, 2003: 51). In this study,

the recommendations will, therefore, be based on the findings of the effect sizes (d-values).

These effect sizes (d) will be interpreted according to Cohen‟s guidelines: small effect (d =

0.2), medium effect (d = 0.5) and large effect (d = 0.8). Results with medium effects can be

regarded as visible effects and with d ≥ 0.8 as practically significant, since it is the result of a

difference having a large effect (Field, 2005: 32; Ellis & Steyn, 2003: 51-53; Thompson,

2001: 80-93; Cohen, 1992: 155-159).

Table 4 shows the relationships between the seven clusters and the demographic variable

township residence, with the mean ( x ), standard deviation (s), independent t-test (p-value)

and effect sizes (d-value).

Table 4: Results of the differences in means between the variables for the demographic

variable township residence

Township Residence

Competency Cluster

yes no Comparison

n s n s p d

Administration 23 3.440 0.699 19 3.355 0.887 0.338 0.11

Finance 23 3.457 0.674 19 3.053 0.939 0.000* 0.49

Information Technology 23 2.623 0.842 19 2.544 0.983 0.632 0.09

Legal, Regulatory & Taxes 23 2.646 0.862 19 2.429 0.923 0.039* 0.24

Marketing 23 3.150 0.732 19 3.000 0.888 0.078 0.18

Operations 23 3.174 0.779 19 2.940 0.894 0.019* 0.28

People Skills 23 3.446 0.717 19 3.421 0.788 0.834 0.03

* Statistically significant at the p = 0.05 level (2-tailed)

x x

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The results indicated a statistically significant difference (p < 0.05) in the mean values

between the perceptions of participants who grew up and/or had resided in townships

and/or disadvantaged communities and those who did not with regard to the variables

finance (p = 0.000), legal, regulatory and taxes (p = 0.039) and operations (p = 0.019).

Although participants who grew up and/or had resided in townships and/or disadvantaged

communities rated the three variables more positively than those who did not, the differences

were not practically significant and only a small effect (d = 0.49; d = 0.24; d = 0.28;

respectively) could be determined. The results therefore indicate that, although the average

scores for participants who grew up and/or had resided in townships and/or disadvantaged

communities are higher than those for participants who did not, it could not be viewed as a

practically significant difference between the perceptions of the two groups regarding these

variables. Based on Cohen‟s guidelines (Cohen, 1992:155-159), proposition 4 (P4) can thus

not be accepted.

6. CONCLUSIONS AND IMPLICATIONS

This study reports some evidence of reliability of an instrument to measure the criticality of

managerial skills/competencies required for formal sector venture success in townships and

previously disadvantaged communities. Seven factors describing the theoretical dimensions

of administration; legal, regulatory and taxes; marketing; operations; finance;

information technology; and interpersonal skills were investigated. It is recommended that

more advanced statistical procedures for scale validation, such as structural equation

modelling, be utilised for further development of the measuring scale.

No practically significant relationship could be found between the variables (competency

clusters) and the demographic variables of participants who grew up and/or had resided in

townships and/or disadvantaged communities and those who did not. It should, however, be

highlighted that participants who grew up and/or had resided in townships and/or

disadvantaged communities rate the competencies higher in comparison with participants

who did not grow up and/or had resided in townships and/or disadvantaged communities.

Furthermore, although P4, based on Cohen‟s guidelines, cannot be accepted in this study

(Cohen, 1992:155-159), it is important to take note of Thompson‟s argument (Thompson,

2001:80-93) not to use Cohen‟s guidelines in an overly rigid manner to interpret the

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differences in means between variables. More empirical research is, therefore, needed to

examine these differences further and to establish norms for future interpretation.

This study further confirms the findings of other scholars such as Kuratko and Hodgetts

(2004:121), Rwigema and Venter (2004:63), Bolton and Thompson (2003:63), Kaplan

(2003:12) and Oosthuizen (2006), among others, that highlighted the importance of

entrepreneurs‟ interpersonal skills to drive well-motivated teams (that could assist in growing

and developing the venture) as well as to engage the energies of everyone in their domain to

gain the commitment and drive of the organisation‟s members, customers and suppliers.

General management skills appear to be more important for the success of a small business

than financial, marketing or operational skills. (The competency descriptors listed under the

clusters people skills and administration - that received the highest rankings - formed part of

the general management discussion in the literature review.) The importance of general

management skills is corroborated by others scholars such as Bates (2002:3), Hisrich and

Peters (2002:42), Coulter (2003:16), Kuratko and Hodgetts (2004:117), Rwigema and Venter

(2004:62), and Timmons and Spinelli (2007:12). Policy makers and educators need to take

note of these findings and ensure they provide the necessary support to small business owners

in townships and disadvantaged communities to enhance and strengthen their general

management skills.

Information technology, legal, marketing, operations and financial skills, however, also

seems to be necessary for business success, since there was a statistically significant

correlation between these skills and people skills and administration skills. It is therefore

recommended that educators also focus on these types of skills as part of their training

interventions.

An additional policy recommendation is that government agencies devoted to small business

development, such as SEDA, could determine whether the small business owners applying

for funding do have the identified competencies and skills required to be successful.

Appropriate interventions could then be initiated to address any development areas.

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In conclusion, based on the findings of this study, the authors propose what they dub the “5-

Factor Competency Framework” for improving the managerial prowess of small business

owners of formal sector ventures in townships and disadvantaged communities.

Figure 2: 5-Factor Competency Framework

As indicated in Figure 2, the five competency clusters, i.e. interpersonal skills,

administration, finance, marketing and operations, form the critical managerial skills at

the core. These five clusters fell within the very desirable to critical range and the authors

propose that small business owners in townships and disadvantaged communities need these

skills to survive and grow. The interpersonal skills and administration clusters were

combined, as they form part of the general management function of the business. They should

definitely be included in future training interventions for small business owners, in view of

their first and second rankings.

The research findings have also highlighted a number of correlations between the different

clusters. The seven clusters that were investigated in this study are therefore listed as

supporting skills orbiting around the core. The authors believe that small business owners in

townships and disadvantaged communities could not, for example, only focus on good

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interpersonal skills to survive, but would also need to rely on other business skills to be

successful over the long term.

7. LIMITATIONS AND SUGGGESTIONS FOR FURTHER RESEARCH

This study was exploratory in nature and attempted to make a contribution to the body of

knowledge on the managerial skills and competencies required for formal sector venture

success in townships and disadvantaged communities. The study, however, only investigated

some of the human capital determinants for successful entrepreneurship in a relatively small

sample of participants. To enhance understanding of these issues, more comprehensive

research is still needed to clarify all the underlying dimensions of human capital affecting

venture success in townships and disadvantaged communities.

Furthermore, a future study could also investigate factors such as financial capital, social

capital, psychological factors, education and experience, founding team composition,

industry structure variables, business strategy variables, resource variables, organisational

structure, systems, and process variables, national culture, regional and urbanisation

influences and family involvement influences, and their impact on formal sector venture

success in townships and disadvantaged communities.

Although MBA student participants over a relatively wide spectrum of industries in South

Africa took part in this study, because of the relatively small sample, this cannot be

considered to be representative of all MBA students in South Africa. Care should therefore be

exercised in the interpretation and utilisation of the results, and the findings of the study

cannot be generalised. In other words, the typical MBA student could be underrepresented in

the sample.

Finally, the measuring instrument used in this study provides some evidence of reliability, but

further research is needed before it can be used among a wider audience. It is recommended

that more advanced statistical procedures for construct validation, such as exploratory factor

analysis, should be used in further development of the measuring instrument. Supplementary

research on the use of this instrument is also necessary to refine its norm

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ANNEXURE 1: COMPETENCY CLUSTERS WITH SKILL DESCRIPTORS

Administration

Problem solving

Ability to anticipate potential problems; ability to gather facts about

problems, analyse them for real causes, and plan effective action to solve

them and ability to be very thorough in dealing with details of particular

problems and to follow through.

Communications Ability to communicate effectively and clearly - orally and in writing - to

media, public, customers, peers and subordinates.

Planning

Ability to set realistic and attainable goals, identify obstacles to achieving

the goals, and develop detailed action plans to achieve those goals, and

the ability to schedule personal time very systematically.

Decision-making Ability to make decisions on the best analysis of incomplete data when

decisions need to be made.

Project management

Skills in organising project teams, setting project goals, defining project

tasks and monitoring task completion in the face of problems and

cost/quality constraints.

Negotiating

Ability to work effectively in negotiations and the ability to balance

value given and value received quickly. Recognising one-time versus

ongoing relationships.

Managing outside

professionals

Ability to identify, manage and guide appropriate legal, financial,

banking, accounting, consulting and other necessary outside advisors

Personnel administration Ability to set up payroll, recruiting, compensation and training functions

Legal, Regulatory and Taxes

Company law

Familiarity with the uniform commercial code, including forms of

organisation and the rights and obligations of officers, shareholders, and

directors, as well as pros and cons of different forms of organisation.

Contract law

Familiarity with contract procedures and requirements of government

and commercial contracts, licenses, leases and other agreements,

particularly employment agreements and agreements governing the

vested rights of shareholders and founders.

Patents and trademarks

Skills in preparation and revision of patent applications and the ability to

recognise a strong patent, trademark copyright and privileged

information claims, including familiarity with claim requirements, such

as to intellectual property.

Tax law

Familiarity with local, provincial and national reporting requirements,

including specific requirements of a particular form of organisation.

VAT, PAYE and income tax, levies and the like.

Property law Familiarity with leases, purchase offers, purchase and sale agreements,

and so on, necessary for the rental or purchase and sale of property.

Bankruptcy and

sequestration law

Knowledge of bankruptcy and sequestration law, options, and the

liabilities of founders, officers and directors.

Labour law Knowledge of the Basic Conditions of Employment Act, the Labour

Relations Act and Employment Equity Act.

Marketing

Market research and

evaluation

Ability to analyse and interpret market research study results, including

knowing how to design and conduct studies and to find and interpret

industry and competitor information, and familiarity with questionnaire

design and sampling techniques.

Marketing planning

Planning skills in planning overall sales, advertising, and promotion

programmes and in deciding on effective distributor or sales

representative systems and setting them up.

Product pricing Ability to determine competitive pricing and margin structures and to

position products in terms of price and ability to develop pricing policies

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that maximise profits.

Sales management

Ability to organise, supervise and motivate a direct sales force, and the

ability to analyse territory and account sales potential and to manage a

sales force to obtain maximum share of market.

Direct selling

Skills in identifying, meeting and developing new customers and in

closing sales. Without orders for a product or service, a company does

not really have a business.

Service management

Ability to perceive service needs of particular products and to determine

service and spare-part requirements, handle customer complaints and

create and manage an effective service organisation.

Distribution management

Ability to organise and manage the flow of a product from manufacturing

through distribution channels to the ultimate customer, including

familiarity with shipping costs, scheduling techniques, and so on.

Product management

Ability to integrate market information, perceived needs, research and

development, and advertising into a rational product plan, and the ability

to understand market penetration and breakeven.

New-product planning

Skills in introducing new products, including marketing testing,

prototype testing and development of price/sales/merchandising and

distribution plans for new products.

Operations/production

Manufacturing

management

Knowledge of the production process, machines, manpower, and space

required to produce a product and the skill in managing production to

produce products within time, cost, and quality constraints.

Inventory control Familiarity with techniques of controlling in-process and finished goods

inventories of materials.

Cost analysis and control

Ability to calculate labour and materials costs, develop standard cost

systems, conduct variance analyses, calculate overtime labour needs and

manage/control costs.

Quality control

Ability to set up inspection systems and standards for effective control of

quality of incoming, in-process, and finished materials. Benchmarking

continuous improvement.

Production scheduling

and flow

Ability to analyse work flow and to plan and manage production

processes, the ability to manage work flow, and the ability to calculate

schedules and flows for rising sales levels.

Purchasing

Ability to identify appropriate sources of supply, to negotiate supplier

contracts and to manage the incoming flow of material into inventory,

and familiarity with order quantities and discount advantages.

Job evaluation

Ability to analyse worker productivity and needs for additional help, and

the ability to calculate cost-saving aspects of temporary versus permanent

help.

Finance

Raising capital

Ability to decide how best to obtain funds for start-up and growth, ability

to forecast funds needs and to prepare budgets and familiarity with

sources and vehicles of short- and long-term financing, formal and

informal.

Managing cash flow

Ability to project cash requirements, set up cash controls and manage the

firm‟s cash position, and the ability to identify how much capital is

needed, when and where one will run out of cash and break even.

Credit and collection

management

Ability to develop credit policies and screening criteria, and to age

receivables and payables, and an understanding of the use of collection

agencies and when to start legal action.

Short-term financing

alternatives

Understanding of payables management and the use of interim financing,

such as bank loans, factoring of receivables, pledging and selling notes

and contracts, bills of lading, and bank acceptance, and familiarity with

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financial statements and budgeting/profit planning.

Bookkeeping, accounting,

and control

Ability to determine appropriate bookkeeping and accounting systems as

the company starts and grows, including various ledgers and accounts

and possible insurance needs.

Finance specific skills

Ability to read and prepare an income statement and balance sheet and

the ability to do cash flow analysis and planning, including break-even

analysis, contribution analysis, profit and loss analysis and balance sheet

management.

Information technology

Spreadsheet analysis Ability to perform spreadsheet analysis using the microcomputer,

including databases.

Basic computing Word processing, electronic mail and so forth.

Web interfaces Knowledge of search engines, web applications, websites, blogs, wikis,

desktop research and the like.

Interpersonal (People) skills

Leadership/vision/influence

Ability to create clarity skilfully out of confusion, ambiguity and

uncertainty. Ability to define and gain agreement on who has what

responsibility and authority. Building motivation and commitment to

cross-departmental and corporate goals. Clarifying roles, tasks and

responsibilities, and making sure there is accountability and appropriate

approvals. Willingness to relinquish priorities and power in the interest

of an overall goal. Ability to ensure the appropriate people are included

in setting cross-functional or cross-departmental goals and in making

decisions.

Coaching and conflict

management

Creative and skilful in handling conflicts, generating consensus

decisions, and sharing power and information. Able to get people to

open up. Facilitate a rapid flow of information in all directions. Able to

get potential adversaries to be creative and to collaborate by seeking a

reconciliation of viewpoints. Willing to risk personal vulnerability,

often giving up own power and resources. Swiftness and decisiveness in

actions and follow-through. Ensuring both high clarity and broad

acceptance of the overall goals and underlying priorities.

Teamwork and people

management

Building confidence by encouraging innovation and calculated risk-

taking, rather than by punishing or criticising whatever is less than

perfect. Breeding independent, entrepreneurial thinking by expecting

and encouraging others to find and correct their own errors and to solve

their own problems. Accessible and willing to help when needed, and

provide the necessary resources to enable others to do the job. When

appropriate, they go to bat for their peers and subordinates, even when

they know they cannot always win. An ability to make heroes out of

other team members and contributors and to make sure others are in the

limelight, rather than accept these things themselves.

Generating trust

Trustworthy; behaving in ways that create trust. Doing what they say

they are going to do. Open and spontaneous, honest and direct,

reputation of getting results, creative problem solvers who have a knack

for blending and balancing multiple views and demands. Reputation for

developing human capital (i.e. they groom other effective growth

managers by their example and their mentoring).

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