Motivational theory in small business strategy

The purpose of this article is to help students of business strategy to appreciate the application of motivational theory in this new context. Five types of motivational theory have been identified:

Need theory
This focuses on what people require to live fulfilling lives.

Figure 1 enables a simple view of the basic logic of need theory.

People have needs, and different things are important. The need will generate a drive or motivation to fulfil that need. In the traditional work context, behaviour will be directed to fulfilling that need and eventually satisfying it. Once it is satisfied, then another need must be found and the process repeats itself. This will become very apparent when consideration is given to the Maslow Hierarchy.

Five need theories have been identified. The first of these, and probably the best known, is Maslow’s Hierarchy of Needs.

Maslow’s Hierarchy of Needs
This is usually displayed in the form of a pyramid.

As has already been suggested, students will see in the basic needs model, that the fulfilment must be followed by another need if the motivation momentum is to be maintained.

Physiological needs
Maslow starts with the most basic need, that of the physical or physiological requirement. People have to live, and in any economy, this means work. This may be the basic initial motivator. People have been made redundant, often at an age where they cannot easily find a new job, so they strike out on their own. This also satisfies a second need — safety and security.

Safety and security
The small business entrepreneur is his own boss. As a result, he dictates the hours and provides the security. In the context of the small businessman, this is especially important. He may well have been a victim of downsizing, and seen his needs at the top of the pyramid removed and replaced by insecurity.

Belongingness
This is Maslow’s third need. In the traditional context, where employees are well paid and feel secure, a sense of belonging is needed. Traditionally, this could be achieved through works amenities — possibly the Japanese approach through company songs — but the idea is to build cohesive teams where workers bond.

The small business has no such environment. The sense of belonging will come from the feeling that the former employee now has his own business. It is his. It is his name over the door. It is his name on the stationery.

However, belonging can have another advantage. Many small businesses take the form of a franchise. The type of business can vary, accounting practice, vehicle maintenance, even running a fast food outlet. The belonging in such a context can reinforce the security — there is a back up, a support team, and also removes the loneliness of command.

Belonging can also be about networking. Small businessmen can always join Chambers of Commerce and meet with others who are in similar positions. Chambers of Commerce usually have access to information that may be vital to the planning process — details of new road schemes, traffic restrictions and planning permission. This can provide a useful avenue if protest is needed, or if a case needs to be made.

Esteem
This is all about how people perceive themselves and whether self worth is being satisfied. In the traditional environment, this was about the feeling of a job well done and suitable recognition. In the small business, this has to come from the customer. Esteem might be about repeat business, it might be about being recommended by a satisfied customer or client.

Marketing experts may suggest that a business must grow to achieve a certain critical mass. At that point, it is moving from having grown or having been grown, to a point where it just takes off.

Self-actualisation
This is a difficult term to define. A close definition might be "reaching the top of the mountain". Such an approach is in keeping with reaching the very top of one’s profession. It may come from some social accolade. It does, however, present the problem as to where one goes from the top. One answer might be sell out and start again.

Many traditional employees look for meaning and personal growth in their work and actively seek out new responsibilities. In this, the idea is close to MacGregor’s Theory Y. However, it is at this level where individual differences are most marked.

Maslow’s pyramid does provide an insight into what motivates people. However, it has serious drawbacks. First of all, it does not describe a universal human motivational process. Rather it is confined to one specific cultural group, that of the American middle class who are probably located in the mid west or the north east, and have European origins. As a result, if the culture is changed, then the order of values in the pyramid may also change. Maslow does not consider the possibility that a small businessman may be content to make a living, and satisfy his other Maslow needs outside the workplace.

Needs also change over the course of one’s working life. This can be seen from a group of accountants, all sole practitioners, but working in a network and covering different parts on mainland UK. For example, Renfrew is driven by the desire to be the biggest. He wants a good living, and this will also provide for his safety and security needs. Hallam has similar appetites, but is driven by the needs of his family. School and university fees still have to be paid. Thus, he is driven by his high physiological needs. Riverside is much older. His children are working; he already draws a service pension. He can comfortably satisfy the lower needs of the pyramid, and the higher ones have little importance.

Maslow also may have missed two other points. First, his traditional American middle class assumed that one only moved up the hierarchy. In the mid 1960s, when there was virtual full employment and many thought in terms of " jobs for life", Maslow’s suppositions were probably true. Now, however, with downsizing and de-layering, people can go down the hierarchy. The small businessman, possibly a victim himself of such an exercise, may well move down the hierarchy before moving back up again.

The second omission on the part of Malsow is to assume that the needs leave one another behind. This is not true. As one moves up the hierarchy, some of the lower needs move up as well. The obvious example is the successful employee or entrepreneur. As success moves him up the pyramid, his life style changes, so the cost of satisfying the physiological need increases.

ERG theory
Not surprisingly, there have been some criticisms of Maslow’s approach. Clayton Alderfer accepts the notion of a hierarchy, but reduces it to three levels which form the acronym ERG:

Existence = Maslow’s fundamental physiological and security needs.

Relatedness = need for interpersonal relations (close to Maslow’s belongingness and esteem).

Growth = need for personal creativity and/or productive influence.

The second feature of Alderfer’s ERG theory is that when higher needs are frustrated, then lower needs return even if they were once already satisfied. This is an all too familiar experience of the small businessman. Having had a successful career frustrated, either by a takeover or downsizing, the lower needs have to be satisfied often by striking out on one’s own.

McClelland
David C McClelland also identifies three aspects of motivation needs.

Achievement — nAch (= Alderfer’s growth)
Primarily, he identifies an almost inherent need for achievement. In this, the perceptive student should observe a strong link with MacGregor’s Theory Y. The small businessman has a primary problem, to survive. So he strikes out on his own. If he has a high need for achievement, he will solve the problems that may have arisen from redundancy and set out moderately difficult goals to achieve. People with the high need for achievement, will usually achieve them. They are the small businessmen who survive and succeed. They will put everything they have into making a success of things. However, there is an interesting psychological problem. Such individuals have a need for feedback. They need to be told how well they are doing.

Of the three accountants mentioned earlier, Riverside illustrates this well. Unlike Renfrew, he is not interested in being on top, and his psychological needs are less than those of Hallam, but he does value feedback. He wants to know if he is above average within the practice, is he above one standard deviation, is he growing better than average?

Feedback becomes difficult for the small businessman. In a franchise, meaningful comparisons can be made, but in a stand alone operation, it is less easy. Perhaps the answer lies in some self measuring of growth. If, as in an accounting practice, it is possible to measure growth through the number of new clients, the percentage of new clients obtained by recommendation from existing ones may answer a very real need.

McClelland also stresses that those with low achievement needs tend to perform poorly. This may be an important aspect of business strategy. Perhaps the secret of success for the small business is not to look purely at satisfying the fundamental or basic existence needs. Rather, there must be some form of achievement need, which will create better levels of motivation and hence, a greater potential for long term success.

Affiliation — nAff (relatedness)
Second of McClellands needs is for Affiliation (nAff). This is always a problem for the small businessman, and possible solutions have already been alluded to. Perhaps the student should note, when dealing with this whole question of belonging, that it has been suggested that the failure of teleworking to take off in quite the manner expected may be due to people needing to see and/or be around co-workers. Obviously, the ability to work with a much lower need for affiliation will be a bonus for anyone who has to work as a sole trader.

Power — nPow (existence)
Third of McClelland’s needs is Power (nPow). This is not about megalomania, but rather about control over an individual situation. The small businessman has some of this power. It is his business. He is in charge. However, satisfying the power need is a two edged sword. The fear of failure can be a tremendous motivator. Failure for a small business can have dire consequences — bankruptcy, loss of possessions, loss of face etc. That can be as powerful a motivator as Etzioni’s famous coercion. In contrast, there is a fear of success. Personal control is lost when the business is so successful it turns first into a company, and then the need for managers has to be satisfied.

McClelland emphasised that success among employees was about matching people with the right needs to the right job. If a venture is being planned, then the question must be asked:

Reinforcement theory
This is an approach to motivation based upon the law of effect. Behaviour that has positive consequences tends to be repeated, while behaviour with negative consequences is unlikely to be repeated. Essentially, it is about using needs to change human behaviour in order to achieve a desired result.

The essential elements are:

Positive reinforcement
The use of positive consequences such as praise, a bonus or even a raise commensurate with the level of achievement to further encourage desirable behaviour. It is important that rewards and feedback follow the event quickly, and relate to the level of achievement. It is also important to ensure that a reward is made. If it is not, then the disgruntled individual will not perform well the next time. For the small businessman, rewards equate to finding something that works and will create positive reinforcement. For example, the stimulus might be the need to increase the sales or the customer base. The lonely solution is telesales, cold calling by telephone. It is a hard job, often with little sign of result or reward. However, when there is a response, some interest expressed, then the long suffering individual feels a tremendous boost, and is motivated to carry on. This illustrates Hammer’s rule about telling people what they have got to do.

Avoidance learning
This about avoiding unpleasant consequences. In Hammer’s terms this is telling people where they are going wrong. Perhaps the best example for the small businessman is better record keeping to avoid the more unhappy consequences of a Section 9 investigation by the Inland Revenue.

Extinction and punishment
This is about withdrawing the perceived encouragement of undesirable behaviour to get the best out of individuals. The small businessman does not possess the time for fools, or the consequences of their actions. If he has unsupportive subordinates that are poor time keepers, fail to show loyalty, fail to carry out instructions, then he has to be a line manager, move quickly from extinction to punishment and discreetly fire them.

Students will see that it is a dreadful combination of Eztioni’s coercion and the worst perceptions of Taylorism. Such attitudes might even be criticised if the approach was used for discipline and training a pedigree dog. (Curiously, some of the original research, published in 1911, was on animal responses). It has no place in the workplace of the 21st century and certainly not in the small business.

Equity theory
A theory that emphasises the role played by an individual’s belief in the equity and fairness of rewards in determining performance and satisfaction. The textbook definition includes reference to punishment. In an era 100 years beyond Taylor and Fayol, such a view has little place in the modern workplace.

Equity itself can be defined as a ratio between an individual’s job inputs (effort/skill) and rewards (pay/promotion). The motivation comes from what an employee receives in proportion to the effort applied. This is a dangerously subjective and emotive area. An employee who does well with his sales figures deserves a reward. However, what about the situation where one employee does well because his product is in demand, and his territory easy, while another has a difficult product and/or territory. Should the second be better rewarded because of the difficulty?

For the small business, the problems are likely to arise with inequity. Once there is a feeling of inequity, of being taken for granted, of being expected to give too much, then there is potential for serious problems. Equity theory really emphasises that the workplace is about human relationships. Only when this is properly recognised, can any meaningful equity assessments be made. The small business needs to be like a family, with everybody gaining from and sharing in the successes. This may mean that everybody is treated as a team member, each has a role and each shares in an objective and clearly equitable manner.

Expectance theory
This is defined as "a theory of motivation where people choose how to behave from among an alternative course of behaviour based upon their expectations of potential gain from each behaviour." Students should recognise a certain closeness to equity theory, but with more thought put into what really motivates people.

Expectancy theory is based upon:

From these assumptions, the expectancy model can be developed. This has three major components:

1 Performance-outcome
Here the individual expects a certain consequence of his behaviour. Students should not find this strange. Part of the motivation to pass the examinations is the prospect of an increase in salary and a possible promotion. In a small business, an employee might expect financial rewards for generating more sales.

There is a negative side to this. An employee might pass an examination, or improve sales, but not get the reward or recognition. This may result in a completely dysfunctional event. The successful student may feel disgruntled if technical effort is not rewarded by a raise and/or promotion, and as a result, leave for perceived better prospects elsewhere.

2 Balance
This is the power to motivate and it can vary between individuals. Some employees may well be motivated by the prospect of a promotion even if it means a move. Others, in contrast, may have external values that would case them not to value such a prospect very highly.

3 Effort/performance
This is based upon how difficult it will be to perform a task successfully. It is suggested that individuals select the level of performance that seems to give the best chance of achieving the outcome they desire or value.

This seems to have something of Theory X about it. There is a suggestion that people, while not actually hating work, will always go for the less difficult option. True, if a task is difficult, and the prospects of the outcome not very favourable, there will be a distinct reluctance if not a refusal to undertake the task. Also, by the same token, the prospect of a valued reward will be greeted with enthusiasm.

The entrepreneur has to create the right working environment. This means a working environment where people feel they are rewarded in a meaningful way, want to go the "extra mile" and want to grow with the business. This means that the fundamental strategy must go beyond just providing for the physiological and security needs. This means selecting a certain type of individual who will work well in a small but growing business. Certain people, no matter how technically suitable they are, may not fit in. Small businesses are demanding. They demand long hours of both owner and employees. Those who are reluctant to give that degree of response, sadly have no place. The work place has two components, it has to be right, and the people have to be right.

On this basis, the small businessman, anxious to get the best out of his team, must:

1 Determine the rewards valued by each employee
This means identifying what motivates each individual.

2 Determine the desired performance
Perhaps this should come first. First, there should be agreement as to what is desired, it should be a clear indication as to the level of commitment expected. If walking on water is required, the employees should be in no doubt that success and reward requires just that.

3 Make the performance level attainable
This is again about the balance between the suitable employee and the workplace. There will always be those who perceive the employer, be it large corporation or small business, as one that reaps where he does not sow. Such people perceive tasks as impossible and will be poorly motivated and unresponsive. However, the employer should know what the employee is capable of, so some level of success, even with minimal risk is possible.

4 Link rewards to performance
There are two lessons to be learned. Successful employees should be given extra responsibility and then visibly praised.

5 Analyse what factors might counteract the rewards effectiveness
Nothing is ever simple or obviously straightforward. Work groups may not favour high productivity. They may be unwilling to walk on water. To be sure , such a situation may not exist in the small business, but the entrepreneur must be aware that he might acquire them He might inherent such a group, and he must mould it into what he wants.

6 Ensure that reward is adequate
If the reward is perceived as inadequate, then there will be little future motivation.

The entrepreneur must give some thought to the reward itself. Some rewards are intrinsic, felt directly by the individual. The partner in a small but growing accountancy firm will feel a sense of accomplishment and increased self-esteem when he lands a new client or successfully resolves a problem that he has never undertaken before. Members of the sales force will have similar feelings when they land new orders and/or new customers. By contrast, others are extrinsic such as bonuses, praise, all coming from an outside agency. Each reward is likely to be a combination of the two, and likely to produce different results in differing individuals.

This again emphasises that matching the individual to the job and workplace is the vital part of the motivation process, especially since expectancy recognises that not only do priorities change, people move in different directions on the pyramid, but expectancy balances can actually change from positive to negative. If there is a continual failure to recognise achievement, a progressive breakdown of trust, then even the best employee can become someone who is at best, just a time server.

This is defined as a "process theory of motivation that focuses on the process of setting goals". It is argued that the natural human inclination to set and strive for goals is useful only if the individual both understands and accepts a particular goal. The perceptive student will see these when Theory Y is compared with the study of Luton car workers. There was no dislike of work (Theory Y) but work was seen as the provider for the other aspirations, which were all outside the workplace. There was clearly no desire within the workplace to move above the second tier of the Maslow pyramid. Rather, the belonging was about being an accepted part of a culture that did the work but had little interest in developing things further within the workplace. Fundamental to goal getting is:

Behind this, there must be a level of trust that the employer will deliver on his/her promises. If trust is not present, and seen to be present and viable, then nothing will motivate an employee and they will get their satisfiers elsewhere.

In the small business, matching personal and business goals becomes one, so there is no conflict there. What the entrepreneur has to do is see a goal, decide that it is attainable and then work towards it. The small accounting practice might want fifteen new clients in the forthcoming year. It may also be that a fee income increase of £10k is also required. That can be achieved by:

Having reviewed the main need theories, we now refer back to the basic model. First, there is a need. For the small entrepreneur, this may be a basic physiological need, having been made redundant. However, it may be a burning desire to prove something, launch an idea into the market place. The use of the word "deprivation" in the model is a little unfortunate. The student should not confine his attempts at understanding the purely basic needs. Need could derive from an idea, or the recognition of a gap in the market place. That is why idea, ambition and vision have been added to the model. The individual must then drive to fulfill the need. In a small business it is important to ensure that those who are around the entrepreneur share the need, idea or vision. There then follows the sequence of action(s) towards satisfaction. Beyond satisfaction, especially in the context of the Maslow pyramid, there is always the notion of a new need — where do you go from the top of the mountain?

Success in small business is about two types of motivation. First, the employer/entrepreneur must have a level of aspiration above the physiological. Aiming to just "get by" is not enough. Whatever the faults of the Maslow model, something of its continual driving forward image must remain. McClelland’s need for achievement must always be present. Secondly, there is the motivation of the employees and the work culture/climate. People must be motivated. However true Theory Y may be, the potentially successfully entrepreneur is a high achiever, one who thrives on challenges and can take the pressure. He is taking the risks and has every right to expect the same from his team. He must select people who are prepared to take risks and deliver on their promises.

Finally, there is no single theory of motivation. If answering a case study question, the student may find he has to use bits of several theories: a lot of Maslow, certain assumptions from McGregor, a lot of McClelland. He should not be afraid to express his own ideas, nor should he forget that what works in one type of work place will not work in another.