The making of entrepreneurial service institutions

All service institutions started as entrepreneurial individuals. Expect an enterprise to vanish if the entrepreneurial individual is unable to build the entrepreneurial institution.

Beauty salons, barbershops, automotive repair shops, vehicle air-conditioning shops, electrical repair shops, plumbing repair shops, radio and electronic repair shops, accounting and auditing services, consultancy services, and transport services are examples of enterprises in the service sector. At start-up stage, the critical factor is the perceived competence of the founder. Typically, the market judges the capability of a service organization on this basis.

In the case of car repair shop, for example, the owner’s specialty sets the tone. This can be in the form of a vehicle brand or a system, i.e. cooling, transmission, electrical and charging system/s or body repair and painting.

When it comes to radio and electronics service, the driver is the owner’s brand competence. Likewise, the beauty salons are judged by the known competence of the owner/beautician.

Start by building the entrepreneurial person

In the initial phase of the service business, it is critical to build the person behind the service provided. The credibility and the competence of the individual must be the basis of any marketing projections. At this stage, the enterprise will live or die on this basis. If the entrepreneur is great in servicing and repairing vehicle air-conditioning systems, then the marketing job is to project this unquestionable capability. If it is an accounting and auditing service, then the focus should be on the qualifications and track record.

However, building the person has its downside. The capacity of a person is limited. Since there are only 24 hours a day, seven days a week, and 365 days a year, what happens if there are more service jobs than the entrepreneur’s available time?

Carry on by building the entrepreneurial organization

If the building of the person is done correctly, this will yield more jobs than available time to deliver the required service. This is the time to start building an organization which will allow other people to do just as good a job as the entrepreneur. The public perception should be precisely that both owner-entrepreneur and worker are equally competent. This only means that the entrepreneur must train the other members of the organization to the same level of competence.

In addition, the entrepreneur must check for values congruence and compatibility with his/her people. These are precisely what the market is contracting for. When such an organization is built, there should be no difference in the service delivered by the original entrepreneur and by the other members of the organization.

But then, building the organization has also its downside. First, the founder must be willing to train people. The founder must be willing to spend less time with the customers and more time training his/her people. It is difficult for founders to refrain from servicing the customers. This is the one thing that they usually love to do.

In addition, since the competence and values now lie in many individuals in the organization, what happens if some of the persons leave the organization? There may be a tendency for the customers to follow the particular service provider, something that happens quite frequently in most service organizations. For example, when mechanics or service advisers of a large automotive shop go on their own, the next thing that happens is the migration of the customers to their enterprise. The usual impression is that the same service will be provided at a lower cost, the logic being that the perceived lower overhead cost would lead to lower service fees.

And when this starts to happen, and it will, the next phase of enterprise development must start.

Work on building the entrepreneurial institution

This building process will enshrine the entrepreneur’s competence in systems and technology rather than just rely on other people. This makes the delivery of quality service dependent on things that will be difficult to bring out the institution.

In the example of the automotive shop, it can be in the form of special tools, diagnostics equipment, shop manuals, and other similar institutional properties.

However, it must not be forgotten that the founder’s values must still be found in the people who operate the systems and technologies. Their combined competence and values will deliver the service.

But again, building the institution has a downside. The founder must be willing to back it and build the institution’s systems and technology. As noted earlier, it is very tempting for the founder to continue the practice of servicing and meeting the customers. While this can still be done, he/she must now spend more time building systems and technologies.

Servicing-the-customer activities must be used to test and validate the systems and technologies being used by the institution. The next question is: Who ensures that the systems and technologies reflect the founder’s competence and values upon the latter’s retirement or ultimate departure, granted that founders do not live forever?

This is where the entrepreneurial institution kicks in. The founder must not only develop the systems and technology to imbed his/her competence and values but he/she must also build the system to make the updating process a continuous improvement and customer-focused.

In sum, service organizations must follow the sequential order of building the person, building the organization, and building the institution. Their founders must know when to shift to the next plane of existence. Thus, the role of a founder must be transformed.

(Alejandrino Ferreria is the dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further comments and inquiries, you may contact him at: ace@aim.edu.ph. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//: www.aim.edu.ph).