THEORY OF MARGINAL THINKING IN A SMALL BUSINESS SETTING

THEORY OF MARGINAL THINKING IN A SMALL BUSINESS SETTING

In a small business scenario, management, at times, engages in the marginal thinking where they prioritize the short-term gains of their decisions, rather than the long-term impact of such decisions. This might result in suboptimal decision-making, as individuals may be more likely to pick behaviours with a little immediate gain, even though these acts may be deleterious in the long run. This can appear in numerous ways in a small business.?

More often, the company owners consider the immediate benefit and ignore the opportunity cost, marginal thinking can also be detrimental. Opportunity cost is the value of the next-best alternative foregone because of a decision. For instance, the board of directors might be more concerned about saving money on a manufacturing machine in the short run, but they might end up spending twice the cost in maintenance, power consumption, and loss of production hours due to downtimes in the long run (Shane, 2013). This might adversely impact the quality of the final product resulting in the daunting of the brand image, shortages in the supplies leading to the loss of business, etc. The article cited an example of the General Motors, where just to save an immediate expense of $1 per car, they ended up spending $4.1 billion on repairs, victim compensations, and other costs. The company lost its image, and they had to appear for a congressional hearing (5 Signs That Your Family Business Might Have an Ethics Problem, 2021).

A few of many warning indicators listed in the article are all readily disregarded. The theory of marginal thinking might assist individuals in comprehending why a family business may have an ethical dilemma. These six indicators listed in the article are:?

1. The position of authority belongs to the family members.?
2. Small number of family members manage the business. There is a lack of trust on the people outside the family.?
3. The business is passed down through the generations.
4. The next generation takes over the management irrespective of their capabilities and leadership qualities.
5. The family owns a majority stake in the business.
6. The span of control is narrow.
7. Family members exert considerable influence over the business.
8. Only a few “credentialed” people are allowed in the room for key decisions.

Personally, I have worked in small family-owned businesses for almost a decade, and I can share, based on my experience, that most of the small businesses fall in the trap of marginal thinking. The main challenges I have personally faced in the leadership role in a family-run small businesses are as follows?

1). AUTHORITY OVERLAPS – board members often bypass the hierarchy thereby diluting the authority of the departmental heads.

2). LACK OF GROWTH OPPORTUNITIES – The growth of an individual depends on their goodwill with the important family members rather than based on their performance.

3). SLOW UPGRADATION – It takes a lot of time and energy to convince the board members to upgrade the business model by implementing new technologies like KMS, AI, etc.

?4). LACK OF TRUST - Only a few peope are trusted for key decisions as there is a lack of trust on the people from outside the family.

Shane, S. (2013, October 28).?Small Business Owners Should "Think at the Margin."?Retrieved from Small Business Trends:?https://smallbiztrends.com/2013/10/think-at-the-margin.html??

5 Signs That Your Family Business Might Have an Ethics Problem. (2021, August 30). Harvard Business Review. Retrieved October 14, 2022, from?https://hbr.org/2019/05/5-signs-that-your-family-business-might-have-an-ethics-problem