When management become the owners of the company, there is an expectation that productivity in the company will rise due to changes introduced by management.
This report sets out to investigate the significance and nature of productivity gains in a sample of management buy-out firms. It examines the managerial influences behind actions taken to improve performance and looks at the role entrepreneurship plays.
Research for this study centred on interviews with six managers from different management buy-outs and six financiers from institutions involved in financing management buy-outs. Analysis is purely qualitative. Thus, results of the analysis must be interpreted with caution. However, the results do provide insight into the relative effects of managerial and entrepreneurial performance.
Findings showed real productivity gains are made in a management buy-out and that these gains can be significant. The changes introduced by management to increase performance were not seen as entrepreneurial by managers or financiers. However, these actions have definite entrepreneurial traits. It is proposed that they are not recognised as entrepreneurial because they are not seen to involve high levels of risk. The judgement of risk is subjective. Because management are highly experienced and feel comfortable in assessing risks associated with their business, the changes they introduce are not perceived as being risky.
The primary incentive for management to introduce change into an organisation was found to be self-interest through expected financial reward. Other employees are motivated to increase performance through the stimulation of widened responsibility, the feeling of teamwork, and the knowledge of being fairly rewarded for their efforts.
A team with a strong common commitment to the venture is needed to ensure the motivation for change is successfully spread throughout the organisation. The study highlighted the advantage of a planned approach to the team formation process. Particular consideration should be given to the increased stress team members operate under after a buy-out. Overall, management were able to make productivity increases because they were generally aware of these factors.