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SMEs and Banks: Understanding Key To Success

Small businesses and banks need to develop a better understanding of each other if they are to work more effectively during the economic downturn, University of Ulster marketing expert Professor Mark Durkin claimed today. 

The Ulster Business School academic argued owners of small firms and bank managers needed to acquire a better appreciation of each others’ working practices  in order to forge better relationships.    

He said: “For Northern Ireland the economic contribution of the private sector is firmly lodged in the degree of success enjoyed by the dominant small business economy. In turn the success of the small business economy is highly dependent on the quality of relationship that exists at a macro level between the banking sector and the small business community.” 

Professor Durkin said many of the relationship problems between small businesses and banks often stemmed from internal organisational issues as opposed to strictly policy, marketing or financial management issues.  Different organisational characteristics often led to problems of perception, misunderstanding, clashing objectives, opposing logic and potentially relationship breakdown.  

“The entrepreneurial small firm is organic and informal in behavioural terms and power tends to be vested in the owner-manager - thereby giving a situation of centralisation and rapid-decision-making. Unanticipated problems are the norm,” he observed.  

“Counter to this, the bank is formalised, bureaucratic, regulated. Highly routine tasks, functional departments and decision processes that follow an established chain of command are the norm. Unanticipated problems upset systems and managers. On almost every level, the criteria employed to examine and describe organisations, the bank and the small firm sit at opposite ends of a continuum.”

Professor Durkin said the profound differences in the working lives of bank officials and entrepreneurs meant they found it hard to empathise with each other.  

“The branch bank manager has been socialised in process, procedure and standardisation of work. This leads the bank manager to tend to analyse, prioritise and impose a kind of order on the small firm whose internal and external environments are radically different from those of the bank. This is the opposite of the entrepreneur’s view and understanding of the world of what makes a successful manager (i.e. taking risks, informally planning, following hunches).  

“Research has shown that small firm owner-managers and bank managers often have self-perceptions and perceptions of each other that can be mis-matched. For instance, the research showed that where the bank felt itself, (indeed prided itself), on being procedural, systematic and prudent, the small firm perceived the bank to be  obstructive, procrastinating and fearful.   

“On the other hand where the small firm perceived itself to be risk-taking, entrepreneurial and innovative the bank perceived it to be foolhardy, immature and lacking an appreciation of commercial consequence.” 

In order to bridge the gaps between them, Professor Durkin said there needed to be a real desire on the part of banks to understand the world of small businesses and the kind of situations owner managers found themselves in. They could do this by visiting clients in their workplace and adopting a more personal approach. 

Owner-managers of small firms would also have to demonstrate a realisation and appreciation of the realities of banking, especially in the current climate, by conforming to the requirements set by the bank.  

He continued: “At the micro level where individual bank managers and small firm owner managers forge relationships and business partnerships daily, the onus is on the entrepreneurs in both organisations to help foster mutual understanding and bypass the inherent barriers presented by organisational structure and culture and focus instead on the longer term benefit of a meaningful future relationship.”