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Kenyan businesses must grow up

Oct 09, 2005 Management, Sunday Nation

We have a vibrant and energetic business sector in Kenya. Our entrepreneurial fervour is envied in the region and often regarded as a model in Sub-Saharan Africa. We are fortunate to have a multiplicity of communities engaging in a wide variety of businesses.

But it’s not enough.

We have an enviable base of vigorous entrepreneurs in this country. To a large extent, the energy unleashed by these thrusting, ambitious wheeler-dealers is what’s kept us afloat all these years. Given the degradations and ransacking presided over by successive political leaders, without the spirit of self-help and enterprise so prominent in our people we would have simply become defunct many years ago. Kenya’s economic resilience is a testament to the buoyancy of our businesspeople.

But it’s not enough.

It’s not enough to be innovative, to devise one business idea after another, to take different products and services to market. It’s not enough to sit on the pulse of the consumer and produce exactly those goods and services that are needed. It’s not enough to have high energy and motivation levels, and personally to do what’s needed, day and night, weekdays and weekends.

It’s necessary, but it’s not enough.

For us to take our place in the developed world, many of our businesses need to grow up. To understand this, we need to consider that businesses all over the world follow a fairly standard evolution path. Most businesses start as a gleam in the eye of a visionary and unusually motivated individual. This person will raise the money, invest the capital, commence operations and start selling – often through sheer force of personality.

Businesses at this stage tend to be owner-managed, with a very simple organisational structure (everyone reports to the boss), rudimentary systems and processes (the boss runs everything), and eyeball control (the boss checks everything). Any business you can think of – from a restaurant to an insurance broker to a dry-cleaner – tends to start off in this way. At this stage in its evolution, energy levels are very high and the management style is very direct. The key strategic issue is to find and capture enough customers to ensure the viability of the business.

As businesses grow, however, different issues start to take centre stage. After survival is ensured, growth becomes the next imperative. Matching revenues to expenses and extracting an economic profit takes priority. Market research and product development becomes necessary as the business diversifies away from its original base. As the span of activity increases, the owner-manager needs to delegate more and more tasks to others. Administrative duties start taking a new importance. New sources of capital, beyond the capacity of family and friends, become necessary. And complexity brings with it a need for automation of key business processes.

The businesses that survive beyond this critical stage then enjoy a true ‘take-off’: into a multi-line organisation with a complex structure; professional managers in place; delegated responsibilities; information technology enabling efficient business processes; and an emphasis on teamwork and knowledge sharing. These mature businesses enjoy great diversity in their personnel. They spend a good deal of time planning, budgeting, researching new markets and systematically developing new innovations.

The problem we have in Kenya is that too many of our businesses, even those with billion-shilling turnovers, are stuck in the early stages of evolution. We have accomplished growth without achieving maturity. We all come across companies employing hundreds of people where the original founder, old Njoroge or Maganbhai (to play on accepted stereotypes), is still calling the shots. And calling them as he did in his heyday in the 1960s and 1970s. So he still barks orders to everyone from his chief accountant to his driver; checks all transactions personally; regards his workforce as a necessary evil and a dangerous cost item; and views new customers with suspicion. Of course, the old mogul does not run a business of this size without employing a few professional managers; but they will usually be selected for their timid natures and will be thoroughly emasculated when it comes to decision-making.

In these businesses, the internet is a dangerous fad that encourages wastage of company time; individual e-mail accounts are not allowed due to the fact that staff will use them for personal matters; computers are limited to the finance staff; control systems are organised just as they were in 1975, with the old founder glaring over every book entry and signing every cheque.

Corporate governance? Don’t even go there. The ‘board of directors’ consists of Mr, Mrs and assorted offspring and relations, including the family idiot. Board minutes and resolutions are prepared as necessary without the need for unnecessary meetings. And of course there is no conceivable need for external expertise on the board – far better to pack it with the people you know and can control.

If you think this picture reflects a few dukas and medium-sized enterprises, you’re mistaken. Some of our biggest corporations are run in this manner. Dominant shareholders even get to rule the roost in publicly listed companies. They hire and fire, veto necessary investments and scrutinise all the operations of the company. The rights of minority shareholders are routinely trampled over.

This failure to understand business evolution might well be our undoing. What worked when the business was small and growing fast is not what is needed when it is mature and complex. At some point, investments in human capital must take precedence over the whims of the founder. A comprehensive management-information system becomes more important than the gut instinct of one person, no matter how impressive. Boring routines and procedures become more necessary than ‘by-the-seat-of-the pants’ excitement.

Renewal is important in every part of life, and businesses must renew themselves at every stage of their development. Quite a few of our emerging big businesses have taken this leap to the next level. Many, many more need to join them at the high table. They need to raise capital through institutional sources. They need to quote on the stock exchange and embrace the responsibilities and standards of public listing. They need to invest in class-leading technology and world-class managers. Then we will have a business sector of the scale necessary to achieve economic take-off.

The bubbling, bustling, larger-then-life, know-it-all entrepreneur must eventually give way to diverse teams and faceless systems. That is the nature of business. Too many of our businesses are preoccupied with fighting nature. If they do not make the change needed to take themselves to the next level of evolution, they will go the way of the dinosaurs. Our ancient mental models are keeping us stuck in recruitment based on ethnicity and kinship. They are keeping us suspicious of technology and modern methods. It’s time to give the good old ways their rightful (and honourable) place in the evolution of business, and move on.

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