Chapter 5 - Skills development for small business
Compelling evidence
exists, world-wide, to support the view that building managerial competence is
the key ingredient in unlocking the potential of the SME sector.[1]
If this Senate inquiry achieves nothing else it will have
succeeded if it helps create a climate and the environment for small business
employment development. This will mean training and educational opportunities,
the only route which will lead to increased small business prosperity and
employment opportunities.[2]
5.1
Strategies to improve the
business management skills of small business owners and the skill level of the
small business workforce were identified during the inquiry as one of the most
important measures that governments could take to enhance the capacity of the
sector to employ more people. Appropriate strategies can include measures to
promote the value and importance of business management skills and skills
development of the workforce, and to develop the capacity of the formal and
informal education sector to meet the training needs of small business owners
and employees.
5.2
That business management
skills in small business could be better is not a new finding. It has been the
theme of reports on small business issues at least since the Bolton Committee
in 1971 identified a lack of training and information on finance, marketing,
personnel management, technological change and production scheduling. In the
intervening years governments have become more active in investing in programs
to support business management training, but the investment has been uneven and
falls short of providing an effective framework for business management
development.
The importance of business management skills
5.3
Managing a successful small
business generally requires a combination of technical skills, entrepreneurial
skills and management skills. Technical skills are those required to produce
goods or services, whether manufactured goods, or professional, trade, business
or personal services. Entrepreneurial skills include vision, drive and the
capacity to identify and exploit an economic opportunity. Core business
management skills include financial management skills, the capacity to
implement systems to support the production of goods or services (such as stock
control systems), marketing skills, an understanding of any relevant legal or
compliance obligations and the capacity for effective business planning,
including strategic planning. Employing businesses require skills in human
resources management and an understanding of the regulatory framework relating
to employment. Specialised business management skills include those necessary
to manage growth and to successfully export. In most small businesses, these
skills must reside in the owner/manager.
5.4
The lack of business management skills is
regarded as one of the main causes of small business failure. Less visibly, but
no less importantly, it can also result in an erosion of the owner’s equity in
a business, a problem which may only be realised at the time of sale, perhaps
in preparation for retirement.[3] The costs of this failure go beyond the individual to the
community at large:
Small businesses continue to suffer a
high percentage of failure and in doing so, add to the burden of other
businesses and community social services. These costs to our society remain
hidden and immeasurable. Statistics of small business failure seem to be
accepted as a given and an acceptable casualty of life. This same thinking
used to be applied to child mortality.[4]
5.5
This problem has been
recognised for at least 25 years and while there have been constructive efforts
made at all levels of government to address it, these have been piecemeal and
uncoordinated. And yet in today’s more competitive environment, effective
management skills are more essential than ever. As one witness told the
Committee:
I think it was a lot easier postwar to
get a foothold into a small business in Australia, because you just seemed to
need to sacrifice a lot of things for your children by working very hard and long
hours...But today, we are having to caution people that you need more than that
now. You need a fair bit of cash, a fair bit of money, behind you. You need to
know the rules of the game, which are much tougher today. It is not just about
competition, although competition is a lot fiercer. In Victoria, until
recently, our corner stores—our once ubiquitous milk bars—had an advantage in
that there were restricted trading hours and the big end of town closed up at
the weekends and late in the day. That is all out the door now, so that segment
has taken a shock. You cannot, any more, just walk into a milk bar type
operation and hope to make a living; you have to be a skilled operator.[5]
5.6
The growing complexity and
sophistication of the regulatory environment also demands greater management
skills. The implementation of the Goods and Services Tax (GST) is a case in
point. The reporting requirements and training programs for the GST clearly
assumed a level of record-keeping and financial management capability that many
small businesses currently lack. Evidence to the committee suggests that,
without additional support in developing basic business management skills,
including financial management, and arguably some improvements to the current
compliance requirements, many small businesses will continue to struggle with
the complexities of the tax system.
5.7
Inadequate business
management skills can also result in significant business under-performance,
representing an opportunity cost not only for the individual business, but also
for the broader economy and society. The Karpin task force into enterprise
management highlighted the importance of management skills, including strategic
management skills, in improving the productivity of Australian enterprises,
large and small. Effective business management skills also underpin the
capacity to innovate, successfully adopt new technologies such as e-commerce,
and to export successfully. The SETEL report on e-commerce found that
strategies to promote the adoption of e-commerce must include an emphasis on
broader business planning and strategy.[6]
Austrade identified the financial and human resource management skills of small
business as critical to the government’s strategy of doubling the number of
small business exporters.[7]
5.8
While most witnesses strongly support the proposition that sound
business skills are essential to business survival and success, not all agree
that the relationship is so simple. Mr Brian Gibson of
the University of Newcastle
advised the Committee that:
...we do not know that, simply because a
person does not have that mix of skills we think is important, they will
necessarily run a business poorly—or, alternatively, that they will run a
business well because they have those skills. There is very little evidence to
go one way or the other. I have been involved in areas which are associated
with this. In the managerial skills area there are constant requests for small
businesses to be more involved in developing good, solid business plans because
that captures the essence of good management practices. I have conducted some
research recently which suggests that successful, continuing small businesses
that plan are no more likely to succeed or have better performance over time
than those that do not. There is simply no correlation.[8]
5.9
In the committee’s view, however, the weight of evidence suggests that
there is a strong and positive relationship between business management skills
and business performance and profitability.
5.10
It
has long been recognised that, while most small business people have excellent
technical skills, many lack strong entrepreneurial and management skills. This
phenomenon is the basis for a well-known guide to small business management,
‘The E–Myth’ by Michael Gerber. According to Gerber, there
are two aspects to the ‘E-Myth’. First is the ‘entrepreneurial myth’ that most people who
start small businesses are entrepreneurs; and the fatal assumption that an
individual who understands the technical work of a business can successfully
run a business that does that technical work.
5.11
Evidence to the inquiry
confirmed that many, and perhaps the majority, of small business proprietors in
Australia lack basic enterprise management skills, including an
understanding of financial fundamentals. Many examples of limited financial
understanding were cited to the committee:
- poor financial management has been one of the top three reasons
for small business failure over [...the past 17 years];[9]
- a recent survey in a small town in NSW revealed that 85 per cent
of businesses were not keeping records and so had no idea whether their revenue
would increase or decrease;[10]
- small business people attending information seminars on the New
Tax System in regional Western Australia were often unable to benefit from the
information because ‘they didn’t even know what a profit and loss statement
was...or what a profit margin was’;[11]
- some small businesses do not know their financial position until
the end-of-the-year financial statements and most do not undertake any
long-term business planning;[12] and
- CPA Australia reported that many small businesses seem to lack a
fundamental understanding of whether they are making a profit and of how to
manage their cash flow.[13]
5.12
More general management
skills, including strategic management, are also lacking. The committee heard a
range of examples:
- representatives of the housing industry told the committee that
management training is almost non-existent in the housing industry: ‘It is not
a good ethic with regard to training and we do not know how we fix that; we do
everything we can to get people trained’;[14]
- small business people in regional Western Australia told the
committee that the sector operates in ‘an atmosphere of salvage rather than of
strategic planning’ and businesses tend not to seek help unless and until in
dire straits;[15]
- a Gold Coast City Council identified a paucity of ‘higher order’
management skills amongst small business owner–operators in the marine
industry, especially in business planning (less that a quarter of small
businesses on the Gold Coast have a business plan), marketing, financial and
human resources management;[16] and
- the Melbourne Development Board advised that, of the
approximately 45,000 small businesses in their district, many are:
excellent widget makers or whatever the specific skill of the
business involves, but they invariably lack the planning, entrepreneurial, new
technology and training skills that go hand in hand with running a successful
business in today’s market.[17]
5.13
The most recent report on Australia’s
comparative performance regarding entrepreneurship found that, while Australia rates
highly on some entrepreneurial dimensions, including the number of business
start-ups, our small businesses often lack meticulous planning, acquisition of
necessary skills, knowledge intensity and focus on export from the outset. As a
result, the businesses we create are small, ‘getting smaller and dying
younger’.[18]
5.14
The majority of witnesses argued that, in this context, developing
the management skills of small business is one of the best investments that
governments can make in building a more dynamic and prosperous small business
sector:
In terms of education, I think we do
no favours to people who want to invest money in small business with the amount
of education that is around at the moment. I do not believe that really tells
the truth about the demands upon small business...education in my view is the
most important area which is lacking for small business. I do not know how to
solve it. I have no great answers for you, other than to say that somewhere
along the line there has to be a partnership between government and business,
and not big business but small business and maybe through the associations.[19]
5.15
The committee agrees that
governments need to provide improved opportunities for developing the skills of
small business owners and employees. More effective ways of promoting to small
business owners the value of a greater investment in their own management
development and the skills development of their employees should also be found.
Current arrangements for business skills training
5.16
While it is possible to
identify the ‘core competencies’ of effective small business management, small
businesses have varying needs for business management development and support.
A person proposing to open a small business with no business experience and no
employees has different needs from the manager of an established business of
several years’ duration, or the manager of an employing business or a business
that begins with a complement of staff and a high growth and or export focus.
Support needs also vary at different stages in the business life cycle, and in
some cases, with the industry in which the business operates. A range of
different training products or services has been developed in response. These
include business counselling, particularly initial advice for business
intenders on the viability of a business proposal, training courses on business
fundamentals, business diagnostics or one-on-one assessments, mentoring and
coaching, advisory and referral services and support for the formation of
business networks and clusters.
5.17
Several agencies and
organisations are involved in providing management support to small business,
with some specialising in different types of support. The main providers are:
- Business Enterprise Centres (BECs) which provide one-on-one
counselling and training courses with a particular focus on business intenders
and start-up businesses in most states. (State Development Centres provide this
form of assistance in Queensland and the Victorian government provides this
service through its own agencies in Victoria);
- Business incubators which provide
intensive assistance and mentoring to a segment of newly established or growing
businesses;
- State government agencies which may fund a range of business
assistance programs including mentoring programs, programs for women in small
business and other specialised or general business programs. In some cases
these are delivered by BECs or other agencies. Some state governments also
provide more intensive and tailored assistance to high growth or high growth
potential small businesses;
- ACCs, local councils, regional development organisations and
other organisations may draw on Commonwealth and state and territory funding
under programs such as the Small Business Enterprise Cultures Program and the
Regional Assistance Program to develop and deliver support programs for local
businesses; and
- the Vocational Education and Training sector (VET) conducts
training courses for small business, based on the Business Services Training
Package. Courses provided by Technical and Further Education (TAFE) institutes
usually lead to the awarding of certificate and diploma level qualifications.
Private providers or registered training organisations (RTOs) may also draw on the training package to provide
smaller modules of training and some of these, along with the BECs, may be
contracted to provide training under the New Enterprise Incentive Scheme
(NEIS).
5.18
The
introduction of the Business Skills Training Package in late 2001 under the
Australian National Training Authority (ANTA) framework, has the potential to
promote a more consistent and flexible approach to small business management
training. The package outlines the competency standards for business management,
provides a framework of qualifications for occupations or occupational levels,
and sets out assessment guidelines for competency measures. Elements of the
package can be provided as separate components or modules, or in combinations
of modules to meet a specified need, including for award of certificate or
diploma qualifications. The committee suggests that the package be evaluated
after the first eighteen months, with input from BECs and NEIS managing agents
and other providers of small business training, as well as from the VET sector,
accountants and small business people.
5.19
Proposals
for increased investment in small business management training raise a number
of questions including: how the assistance should be targeted; what type of
development support should be provided; and, which organisations or agencies
should be responsible. The committee heard both that there is a need for a
greater focus on training for new business owners and that the current
arrangements over emphasise assistance for business start-ups at the expense of
support for established business. There were also arguments for greater
investment in business skills training for the small proportion of businesses
that have the desire and capacity to grow significantly.
New entrants
5.20
There
is a view that much of Australia’s current investment in business skills training targets new businesses,
either ‘intenders’ or ‘start-ups’ (new firms). As noted, the BECs, and in some
cases state government agencies, assist intenders and start-ups by providing
counselling on the feasibility of proposals, business planning advice, and in
some cases introductory training programs. In the VET sector, many TAFEs and
some RTOs also provide small business management courses for business owners or
intenders. Unemployed people who meet certain criteria can obtain management
training and mentoring support as well as income support under the NEIS.
5.21
Tens
of thousands of new businesses are established each year in Australia. There is no way of
knowing how many of the owners obtain some form of business skills training
from BECs, TAFEs or private providers, in part because not all TAFEs keep
statistics on business owners or intenders attending their courses. It is
reasonable to assume from the evidence to the inquiry, however, that the
greater majority of new entrants do not undertake any significant training,
partly because they do not recognise the need and also because they are not
aware of the available assistance. As one small business adviser told the
committee:
...they do not know what they do not know. In other words,
they do not know anything about cash flow, bank recs and all those sorts of
things. Therefore, they do not ask and they do not look. I am saying that
somewhere along the line they need to be informed about these issues so they
can actually say: ‘Hang on, there’s a problem here. Can I afford to go into
this?’ I think that needs to start before they go too far down the track into
the business, because they do not know that they do not know.[20]
5.22
Various
suggestions were proposed as a means of ensuring a better take-up of business
management training by new starters. One proposal was to require licensing of
all new entrants, as occurs in some European countries. The Holiday Coast Area
Consultative Committee put the argument this way:
Only 20 per cent of business start-ups
survive past year five (ABS figures). In part this is due to a lack of
management skill provided by the business operator. If business operators were
better able to reach business sustainability then the prospects for better use
of the community’s financial and human capital and for employment growth would
be considerably enhanced. One simple mechanism to assist in this regard would
be the introduction of a license to operate a business, required by all those
starting a new business. The license would require passing a short operators
course covering legal, finance and management information and skills.[21]
5.23
A compelling argument for
compulsory pre-start-up training is that once a business is in operation, it is
extremely difficult for the owner/manager to find the time or opportunity to
undertake training. One small business operator commented that:
I think that the horse has bolted once
you have gone into business and are finding it hard. Whatever help you get
after that, you are only ever going to get a small percentage of the benefit
you could have had if there were rules in place to say, ‘You must do a course
before you start.’ Then you would think twice before you went into business.[22]
5.24
Responses
to the licencing proposal were mixed. Many, including small business owners
were in favour, but there were also many others opposed in principle or
believing that such a ‘regulatory approach’ would not be successful in Australia. The following sample of
responses provides a flavour of the reaction. From a supporter of the concept:
I am a long-time, laissez-faire,
right-wing entrepreneur—somewhat less so now—and I have thought a lot about the
business licence idea. I must say I have come to the conclusion that, yes, it
would be a great thing—well, a good thing. You could say it is like licensing a
gun so that somebody can shoot themselves in the foot, but at least you know
that the gun is bloody well there.[23]
From a small business person
opposed to the concept:
If I wanted to start a new business—and
I would not want to lose my equity and I would not like to lose my money or whatever—if
I had a dream, and I had to fill in a form and get an official okay for my
dream, I would start to feel confined. I would be so regulated that I could not
even have my dream. I would like us to leave people alone. I would like us to
be intelligent enough to pick up a course if we need one...I want to do my
business. I do not want to be getting a licence for a dream.[24]
And in response:
I understand what you are saying, but
I do not necessarily agree with that point...If I had had a specific level of
knowledge that I had to achieve before I started my business, I know I would
have achieved my dream a lot more easily and a lot sooner than I did...you need
help not only to protect yourself and make sure that you achieve the dream but
also to protect other people like your employees or those who are using your
business and your facilities—to protect everyone involved. It would be not
another complicated thing but a helping thing.[25]
5.25
Some witnesses suggested a
less prescriptive approach could be effective, without some of the drawbacks of
a mandatory program. Key elements of such an approach would be a mechanism to
prompt intenders to assess their skills against those needed to run a business
and identify available training and similar support services. Participants in
roundtables in Sydney and Adelaide suggested that those seeking
to register a business with the Australian Taxation Office (ATO) should be
required to complete a checklist or questionnaire identifying the skills
required to operate a small business successfully. Contacts for suitable training programs and information on compliance
requirements should also be included.[26]
In a similar vein, one witness suggested that there should be some incentive to
undertake a ‘NEIS based program’ before starting a business.[27]
5.26
Incentives to undertake
start-up training could include an accreditation system, under which those
completing an approved program or being assessed as having basic management
skills are officially recognised or certified. A marketing program could also
highlight the benefits of training and access to any government sponsored
finance scheme could also be tied to achievement of agreed competencies.
5.27
Proposals for a licencing or
accreditation arrangement raise the question of whether the current ‘supply’ of
management training programs for new businesses is sufficient to meet the
current level of demand, let alone any increase that would follow the
introduction of a licencing/accreditation regime. The evidence to the inquiry
on this matter was inconclusive. Small business training programs that may be
suitable for start-ups are available through TAFEs and private providers, from
BECs and equivalents, and also through the NEIS program. The number of training
programs provided by BECs depends not only on demand, but also on available
funding, which is often limited. Training under NEIS is limited to eligible
unemployed people and has a set number of places each year. A common message
throughout the inquiry was that the NEIS program should be expanded and made
available to a broader range of people beyond the unemployed, implying that
there is an unmet demand for this form of initial training. For example, a
witness from the Micro Business Network advised the committee that:
A number of
people have told me that they have made out that they are unemployed to be able
to qualify for [NEIS] because they recognise that they need the training. I
guess if you want to improve the success rate of small businesses, you do need
to educate them in proper management techniques and you need them to understand
how to work with government, local people and the media et cetera. The NEIS
program is an excellent way of doing that...That is an example of a federal
scheme that really does work.[28]
5.28
The NEIS program, with its
combination of structured training program, mentoring and support, appears to
be widely viewed within the small business community as an excellent model for
training those starting a business. Training programs provided through TAFEs
and the BECs may include some of the same general skills and principles, but
without the benefit of the personalised support and mentoring through NEIS. The
National NEIS Association supports the
extension of the training, and possibly mentoring components of the program
beyond the unemployed and has estimated up to 22,000 people annually could
benefit from an expanded program.[29] This compares with current program numbers
of 7,500,[30] for eligible unemployed people. When asked
about the case for an expanded program, officials from the Department of
Employment and Workplace Relations suggested that any expansion beyond current
levels could lead to problems, including a decline in the quality of business
proposals and concerns from existing businesses about additional competition.[31]
In the committee’s view, while these concerns might apply to the expansion of
places in the ‘fully-funded’ version of NEIS, that is including income support,
they are not persuasive arguments against extending the availability of the
training and mentoring components of NEIS. It is difficult to see how a greater
availability of this form of training would, in itself, lead to greater
competition: the great majority of people who wish to start a business will do
so anyway, irrespective of whether they are trained. Moreover, as the committee
heard from representatives of Restaurant and Catering Australia, unskilled
new entrants can have a very significant negative impact on an industry by driving down prices to unsustainable levels.[32]
5.29
Any strategies to increase
small business participation in training will need to involve the small
business network. Small businesses often look to their trusted advisers,
including accountants, and industry or similar associations for advice and
information. These networks are important channels for both promoting the value
of training and the availability of training programs, as well as, in some
cases, providing training using centrally developed materials. The GST training
model, under which core materials are developed and then distributed freely
through a multitude of different avenues and channels to the small business
community, was identified as an ideal way to reach small business. A
representative of CPA Australia commented that:
There is no one perfect way for every
person coming into business to learn those skills. For some, TAFE is
appropriate. For some, industry associations are more effective. Others want to
know neither of those bodies; they might get the information from their local
council or from a business enterprise centre or from a local accountant who is
running sessions in their own community. Developing the core modules and then
disseminating them through as many channels as possible is probably the most
appropriate way to go.[33]
5.30
Technology related skills,
including internet use and an understanding of the principles and potential of
e-commerce, are arguably now core competencies for small business proprietors.
Training for new starters should include the fundamentals of these technology
skills.
Comment
5.31
While some witnesses
question the value of a focus on training for start-up businesses, the
committee believes that it is fundamental to any strategy to improve the
performance and profitability of the small business sector. Investment in basic
business training at this point is likely to reduce business failures,
resulting in a net employment benefit and provide a sound foundation for new
businesses to develop a learning culture and orientation. It will also provide
an opportunity to develop better channels of communication between small
business and government, through establishing contacts with service providers
at an early stage.
5.32
The committee is attracted
to the licencing proposal as a means of ensuring that small business owners
undertake some minimum standard of training before starting a business. A
licence would have the added benefit of providing an opportunity to ensure that
intenders are made aware of the regulatory requirements associated with
starting and opening a business, and of the range of government information and
assistance resources and contact points. The committee recognises, however,
that despite the merits of a mandatory licencing regime, some significant
cultural and attitudinal barriers would need to be overcome before it would
gain the acceptance of the small business community. It also has a concern,
given the evidence on the unmet demand for new start training along the NEIS
lines, as to whether the current availability of training places is sufficient
to meet the any increased demand that would result from a licencing
requirement.
5.33
There is, however, the need
to improve on the current situation. As a first step, those registering a new
business with the ATO should be provided with a ‘Business Start-up kit’
comprising a checklist of the skills required to successfully run a business
and contact points for training courses and information, including on licensing
and regulatory requirements in their state or territory. There may be scope, as
part of this process, for small business people to choose to undergo some
brief, informal assessment process, such as a referral to a BEC for a
competency assessment using an interview or on-line quiz. As a related measure,
consideration could be given to the introduction of an accreditation system for
people who complete the required training or possess the relevant skills.
5.34
An assessment also needs to
be made of whether the supply of training programs for business start-ups cross
Australia can meet the demand associated with an accreditation or
licensing program. Extension of the training and mentoring elements of the NEIS
program to all new starters or, given the cost of that model, those new starts
assessed as having the desire and capacity to grow employment or develop an
export orientation, should form part of the assessment. In the longer term, the
effectiveness of the voluntary system should be reviewed and the feasibility or
appropriateness of a mandatory system be evaluated.
Recommendation Twelve
The committee recommends that the Small Business Ministers Council
examines the feasibility of introducing a small business training and
accreditation program with the following components:
- a start-up kit, including a checklist of the skills required to
run a business, contact details for training course providers, and advice on
regulation requirements, to be provided to all those registering a new
business;
- a system of accreditation in business management for those who
have successfully completed an approved business management skills course and
are able to demonstrate appropriate competencies; and
- an analysis of the availability of training programs for
start-ups across Australia against current and future needs, with a view to
developing an expanded range of opportunities if required.
Consideration should be given to the introduction of a mandatory
licencing regime once the voluntary program has been in operation for two
years.
Business incubators
5.35
One means of supporting
newly established, or ‘fledgling’, businesses is through the program of
business incubators. Business incubators can assist new and growing businesses
to become established and profitable by providing premises, access to shared
equipment and services and business advice and other support. They also provide
access to a ready-made business network. The Commonwealth, state and territory
governments support incubators by the provision of facilities at peppercorn
rentals and funding establishment costs and business and management development
support.[34]
Incubators are expected to be financially viable, taking account of government
support, occupant charges and other sources of income. The ‘incubation period’
for an individual business is normally from one to three years.
5.36
One criticism of incubators
is that they are based on erroneous assumptions about the demand from those in
home-based businesses to move into office accommodation, in some cases to
overcome local government regulations restricting the numbers of employees or
types of business operations. The Micro Business Network argued this view,
noting that home-based business is a lifestyle choice for many and is an
ultimate goal, not simply a step along the path to becoming a larger and
employing business.[35]
5.37
While a number of incubators
have failed, the committee heard that these are a minority that did not conform
to the principles of good incubator policy and practice. A review of incubators
undertaken on behalf of the Commonwealth in
late 1999 found that they are a worthwhile concept, contribute to the
achievement of employment outcomes and can be effective in assisting in the
development and survival of new small businesses around Australia. Changes were recommended
to the administration and design of the incubator program to improve its
overall effectiveness and the committee understands that these have
subsequently been implemented. Representatives
of the Capital Region Enterprise and Employment
Development Association (CREEDA) submitted that incubator
support and management policies have been refined over the past few years and
that there is a view in the industry that the current policy settings are about
right. In support of the value of incubators, they cited survival rates for
their graduates of 80 per cent after several years compared with an average new
business survival rate of approximately 20 per cent.[36]
5.38
CREEDA argued that the time
has now come for the business incubation program to be integrated with other
Commonwealth, state and local government programs and targeted more closely at
those businesses that want to grow and have the capacity to employ. It also
identified a need for a clear agreement between state and Commonwealth
governments on funding and support principles for incubators and for a program
to develop the capacity of business incubator managers. Incubation management
is a specialised skill and CREEDA argued that Australia
needs access to the professional, specialised training now available in other
countries, so that incubator managers can provide more effective support. The
committee agrees that this form of professional development and capacity
building is an appropriate area for the Commonwealth to support.
Recommendation Thirteen
The committee recommends that the
Commonwealth Government supports the establishment of a professional
development program for incubator managers across Australia.
Established businesses
5.39
A common refrain throughout
the inquiry was the relative lack of training and management support for
established businesses. One witness told the inquiry that, while there are many
courses for businesses starting up, there are few for those who, several years
after commencement, have a greater appreciation of the importance of business
plans, cash flow issues and regulations.[37]
Representatives from the WA Department of Training endorsed this view, noting
that once someone is in business, there is an expectation that they ‘look after
their own development.’[38]
A similar view was put by a small business management training expert with
extensive experience in the United
Kingdom, Europe and
more recently Australia. He observed that the small business support
industry in Australia appears to have ‘stalled’ at the business
start-up stage:
it has not made the evolution that
other developed countries have made about trying now to develop the stock that
has already been established.[39]
5.40
One consequence is that the
sector is not able to realise its growth and employment potential. The Western
Australian Business Enterprise Managers’ Association suggested that a greater
emphasis on support for established businesses might lead to a better return on
the training investment:
Too often government assistance
programs are targeted at novice entrepreneurs with an aim to encourage more
small business start-ups. However, the high ‘churn over’ rate among small
businesses means that such new venture creation may have limited sustainable
impact on employment growth and that established businesses might offer greater
potential for development and thus employment.[40]
5.41
A possible explanation for
this relative neglect is that established business requires a more
sophisticated, customised, flexible response than current structures can easily
support. Generic training courses, with a set ‘curriculum’ or menu of
management issues are often of little interest or relevance. The ideal training
for an established business is that which addresses the businesses’ individual
needs and circumstances,[41]
and can be delivered in the workplace, on a one-one-one basis, both for
practical reasons[42]
and out of ‘privacy’ concerns. One witness explained:
...they are time poor, so people need to
be taught before they go to work or after they finish work and they need to
have their training in pieces. They do not want to do a course. They have an
immediate issue that needs to be addressed, so there needs to be a module that
can address that issue.[43]
Mentoring and business advisory
programs
5.42
In practice this means an
extensive range of business advisory, counselling, coaching and mentoring
services, as well as a broad menu of short, sharp training programs on specific
issues such as e-commerce or marketing, to address a specific need. At this
point it is necessary to define what we mean by a mentor. One witness described
a mentor as an experienced business person who:
can facilitate information, contacts and other...needs...and be a
reflective counsel...The most effective mentors are those who can help open a
door somewhere when you need it and get you to think the right way.[44]
5.43
While there has been an
increase in the number and range of mentoring programs in recent years,
including under the Small Business Enterprise Culture Program, the committee
heard that the demand still falls well short of supply, particularly in
regional areas. Representatives from the ACC in Far North Queensland identified
mentoring support as the greatest need in their region, particularly for those
businesses that are outside the larger towns and are struggling.[45] Established
businesses would also benefit from assistance in the form of ‘diagnostics’ or
business counselling and advice: ‘That is where that third person comes in,
sits around the table and says, ‘Hey, what do you need?’[46] A variation on
this would be visits from an experienced small business person who could assess
a small business’ bookkeeping arrangements, for example, and suggest practical
improvements.
5.44
A case was also made for
additional mentoring assistance for graduates of the NEIS program to help them
manage the early phase and, ideally, expansion of their business.[47] A representative
of a Queensland ACC told the committee that:
It is okay to
get a person to the point of understanding how to fill out a business plan and
do a cash flow projection and get them to the point where they have identified
their market—that is great. But when they are ready to rock and roll and get
into business they are out on their own. They walk out of that NEIS program and
there is nothing to flow on from that. The coaching and mentoring is required
to take them on from that NEIS step...Coaching
and mentoring is also required for businesses that are ready to expand. Many of
the successful businesses tend to stay where they are, in their comfort zone. I
think quite often we have an opportunity to grow our regional areas through the
existing businesses that are already working well and we need to coach and
mentor them into export markets et cetera.[48]
5.45
NEISA also acknowledged the
need for more training or support for NEIS graduates but suggested that this be
confined to the small percentage that are likely to grow employment, even to a
modest extent.[49]
5.46
Industry organisations also
supported the value of mentoring as the best, and perhaps only, way to upgrade
some of the management skills of their small business members. This was
regarded as being particularly important in times of significant change, such
as during the introduction of de-regulated trading hours in Tasmania:
We believe that there is a need for
innovative approaches to the skilling and training of people. Getting people
away from small business is a challenge. We spent time earlier this morning
talking about a couple of initiatives we are working on with our training
partner to develop a fairly targeted mentoring arrangement to help small
business to look at not only how they develop their product or service but also
how they manage, market and administer themselves. At the moment it is going to
be an area of some considerable challenge—when do seven-day-a-week operators
running a small business get the time? Forget getting them to come out into a
formal class environment. At the end of the day it almost has to be a
one-on-one mentoring arrangement.[50]
5.47
There are two main constraints on the expansion
of mentoring services to meet the demand: limited funding by Commonwealth,
state and local governments and the supply of suitable mentors.[51]
The latter problem may be more a manifestation of the fragmented nature of
small business support programs than a genuine shortage of mentors: the
National NEIS Association indicated that they have a large network of qualified
mentors who could be available to contribute to other programs if agreed.[52]
Other mentor programs currently operating, including Mentor Resources Tasmania
and the e-mentoring program introduced by the Association of Professional Engineers
and Managers of Australia (APESMA), also draw on the resources of small
business mentors.
5.48
BECs may provide mentoring
services when they are funded for that purpose by the states or the
Commonwealth or they can support provision from their own resources.[53] Access under many
current programs is often restricted to the ‘target groups’ for which the
program was established; for example, the ‘Women in Business Mentors program’
or programs developed under the Small Business Enterprise Cultures Program or
Regional Assistance program, usually for businesses in a specific region as
part of a broader support strategy.
5.49
Lack of continuity is a
related complaint because mentoring is often funded under project-based grants,
such as the Small Business Enterprise Culture Program. The National Institute
of Accountants attested to the benefits of mentoring programs, but lamented the
lack of follow up: ‘So if there is a mentoring program it needs to be an
ongoing program’.[54]
5.50
With the proliferation of
mentoring programs, the question arises as to whether there is a need for a
more coordinated and professional approach, including quality assurance
arrangements and a better use of available resources. Mentor
programs are often established and then simply ‘let flow’,[55] without there
necessarily being any evaluation or follow up. BEC Australia also identified
this as an issue and recommended that Australia consider establishing a
national accredited mentor scheme, similar to the United States’ SCORE (Service
Corps of Retired Executives) program, to provide greater consistency and
continuity of assistance.[56]
The committee believes that the current range of mentoring programs should be
assessed and consideration given to the best way for these services to be
provided in future, including the need for professional development and
establishing best practice principles for mentors and service providers. The
feasibility of establishing a national mentor program based on the US
model, with a clear ‘brand’, continuity of service and the capacity for small
business people to apply directly for assistance as and when needed, should
also be investigated.
5.51
The committee also notes a proposal from CREEDA
for the development, in conjunction with CPA Australia, of an online program to
provide small business training and information, interactive business
assessment tools, business discussion groups and an on-line mentoring and
professional referral service.[57] This may be
particularly useful for small businesses in areas where there may be a lack of
suitable mentors. The committee considers that an online advisory program of
this kind could be a useful complement to a national mentor program and is
worthy of further consideration as part of the feasibility study. An examination of the need for and role of a national
mentor program should include consideration of the role of current mentoring
programs, such as Mentor Resources Tasmania, and government support for these
programs, as part of a broader national program.
Recommendation Fourteen
The committee recommends that the Commonwealth Government
undertakes a feasibility study of the establishment of a national mentor
program that would include training, accreditation and support for business
mentors across Australia. The study should also examine the scope for an online
advisory and mentoring service. A pilot study should
form part of the feasibility study.
Training programs
5.52
However mentoring alone is
often not enough; the best management development solution often requires a
combination of mentoring and formal training,[58]
or mentoring and networking. The committee was told that a program in Western Australia, funded under the Small Business Enterprise Culture
Program—based on a combination of mentoring, training and networking—had
significantly increased the profitability of participating businesses.[59] Representatives
from the BECs also submitted that many small businesses require a combination
of training and mentoring and that the ‘the two dovetail’. A similar view was
put by a trainer from the Small Business Centre at Adelaide TAFE, when
extolling the virtues of the Young Entrepreneurs program, although he noted
that it is a very expensive option.[60]
5.53
As with training for
start-up businesses, it is not clear whether the supply of training programs
for established small business meets the need, either in terms of availability
or relevance. TAFE is probably the largest single provider of business
management training in Australia, with more than 22,000 enrolments in units
related to small business management in 2000,[61]
although many BECs also provide training, often in the form of short courses,
workshops or seminars, on specific management issues such as marketing,
e-commerce and so on, depending on demand and available funding.
5.54
The committee heard many
complaints that training programs currently available are not adequate,
particularly for small businesses outside the major metropolitan centres.
Typical comments include:
- the complaint that there is ‘very little [training] support...on
the financial management of a business’ or...on the technical side of a
business...in Albany because the local BEC is only funded to provide marketing
training;[62]
- the submission from the Business and Professional Women in the Northern
Territory stated that that there is very little training available for
business owners in the territory; [63]
- while there are government subsidies to provide training courses
to industry association members ‘every time you get a good course going and you
get some sort of government subsidy to do it, it gets ripped away at the next
budget’;[64] and
- BECs acknowledge that the programs and services that they can
offer vary significantly, are limited by funding and that small business would
benefit if BECs could be better resourced to enable a more strategic approach.[65]
The role of VET
5.55
There are differing views on
the capacity of TAFE to meet the training needs of established businesses. In
many respects, the VET sector, with its broad responsibility for vocational
training, is the natural or obvious provider of small business training.
However most of the evidence to the inquiry suggested that, under current
arrangements, TAFE programs do not meet the needs of established businesses.
There are several criticisms. TAFE teachers are said to lack small business
experience, and therefore credibility with their small business clients. [66] Course times and
locations are often inflexible or unsuitable.[67]
The emphasis on formal qualifications, which requires completion of a 200 hour
program, usually needing three to four years to complete part-time, is at odds
with business preferences for short and sharp programs, with qualifications
being of secondary importance. There is also a well-recognised aversion by many
small business for formal, classroom type training and the TAFE ‘banner’. [68] TAFE is also seen
as focusing primarily on school-leavers. The result is that, in the common,
although by no means unanimous, view of witnesses to the inquiry, small
businesses are not interested in TAFE programs.[69] Industry
associations or other sector support bodies are, it has been argued, more
likely to appeal to small business as training providers.
5.56
The committee heard from the
Australian National Training Authority (ANTA) and the National Centre for
Vocational Education Research (NCVER) that the VET sector is aware of these
criticisms, recognises the need to better orient their training offer to the
needs of small business and has introduced several initiatives to achieve that
goal. A detailed active research program, the Small Business Professional Development
Best Practice Program, was undertaken in the late 1990s to explore effective
approaches to promoting small business professional development. The Program
identified the value of learning communities and networks and the combination
of mentoring and other business-specific approaches to training. A range of
‘How to’ Manuals, drawing on the program, have been distributed to VET
providers. [70]
ANTA has also identified the need for the VET sector to enhance its capacity to
meet small business needs, including a greater focus on small bites of training
that are directly relevant to a business need. Projects are trialing ways of
developing VET providers’ capacity to better those needs.[71] The need to better
orient VET to meet small business needs will also be one of the issues
considered during the national consultations as part of the process for
developing a national strategy for VET for 2004-2010.[72] ANTA also
identified the need to promote the value of the Business Services Training
Package to other organisations, such as BECS, which are outside the VET sector
but provide advice and training for small business[73] as well as to
small business networks. The underlying objective is to promote the value of
training, the resources that are available and a more consistent approach to
small business training, which will ultimately facilitate the integration of
formal and informal training.[74]
5.57
There are a number of
impediments to the VET sector meeting the training needs of small business.
Current funding arrangements are perhaps the most important. As ANTA
acknowledges, the current funding, planning and enrolment systems are designed
around attainment of qualifications, contrary to the focus of most small
business people.[75]
A representative from a regional association told the committee that the state
training plans, that are the basis of ANTA funds allocations, do not reflect
the needs of regional areas, which are for more flexible, patchwork training
arrangements.[76]
Despite these barriers, TAFE programs can meet the needs of small business, if
carefully planned. The committee heard that the Small Business Centre at
Adelaide TAFE, enrolled 30 per cent of small business people in its classes
(with the remainder being business intenders).[77]
Programs at the TAFE are ‘short, relevant and gutsy’; have a good selection of
subjects and are offered frequently, to enable learning when needed; trainers
have small business experience and credibility; price is pitched appropriately;
learning materials are small business orientated, assessment tasks are based on
participants’ own businesses; and delivery is flexible allowing enrolment in
any subject on any day of the year.[78]
Comment
5.58
The committee considers that
the VET sector has a potentially important role to play in meeting the training
needs of small business. It recognises and endorses the efforts that are being
made within the sector to provide more flexible ways of meeting those needs and
urges Commonwealth and state and territory governments to give priority to
these efforts and to ensure that future funding and planning arrangements
support more flexible, business-oriented training approaches. The committee
also supports efforts to promote the greater involvement of business networks
in promoting and delivering training for small business and to better integrate
formal and informal training for small business. Better integration is
desirable as a means of promoting a more consistent approach and also enhancing
the scope for the investment in informal training to count towards award of qualifications,
where that is a goal of the business owner.
5.59
The committee also strongly
endorses ANTA’s view that training needs to be better integrated with other
government support services for small business. This could form part of an
integrated strategy for small business support as recommended in Chapter 4.
5.60
The committee considers that
there is a need for an assessment of the complete range of small business
training programs targeting established business, including those offered by
the formal and informal sector, complemented by a needs analysis. This should
occur in conjunction with the development of the integrated national framework
for small business support recommended in Chapter 4 and the analysis of
start-up training programs. Particular attention should be given to the need
for training programs in the areas of e-commerce and technology, including internet skills in view of the growing importance of the
internet in business.
Recommendation Fifteen
The committee recommends that the Small Business Ministers Council
commissions a needs analysis of training programs targeting established small
business and an assessment of the extent to which the current range of training
programs meets the needs. This should occur in conjunction with the development
of the integrated national framework for small business support recommended in
Chapter 4 and the analysis of training programs for start-ups.
The role of universities
5.61
While universities offer a
range of business management programs, it is difficult to determine the extent
to which these meet the needs of small business. Courses in entrepreneurship,
commercialisation and new venture funding are conducted within the business
management schools of a number of universities but these are not specific to
small business and no records are kept on the participation by small business
people. There are also a number of programs targeting small business people,
including two programs at Curtin University, a Growth Program and a Business Improvement
Program. Other universities may offer units specialising in aspects of small
business management.[79]
The committee gained the impression that universities currently play a marginal
role, at best, in developing the business management capacity of the small
business sector.
5.62
The director of the business
training centre at Curtin University, Dr Tim Atterton, told the committee that
a major gap in skills training for small business in Australia is in the area
of management support for established ‘premium,’ or high growth small businesses.
A percentage of these businesses, which he estimated at about 15-20,000
businesses in Australia, stall after three to five years because they
lack the management skills for sustainable growth. In his view, the higher and
further education sector in Australia is currently ill-equipped to respond to
this management training need, partly because they do not understand the need
and also because they do not have the capability.[80] He suggested
government could address the current market failure by investing in the
development of a management development capacity for small business,
particularly growth oriented businesses.[81]
Investment could be in the form of pump priming several centres of excellence,
based on some key principles; including partnership with small business and
staff with real small business experience and a close understanding of
contemporary small business issues. The centres would aim to develop a new
cadre of small business educators combining real small business experience and
an understanding of business issues and to develop best practice training
models.[82]
The findings of the Global Entrepreneurship Monitor offer some support for this
view: the report found that Australia’s entrepreneurial capacity is low,
entrepreneurial skills are not widely taught, we have few experienced
entrepreneurs to act as mentors and few managers to work alongside
entrepreneurs to bring systematisation to fast-growing ventures.[83]
5.63
The committee considers that
there is value in considering this proposal as another means of promoting
improved business management in the small business sector. The diversity of the
sector suggests a range of different approaches and strategies may be needed,
and that the higher education sector may have a role to play in developing managerial
capacity, along with the VET sector and informal training providers,
particularly in relation to high growth potential businesses. The role of such
centres in a broader strategy of small business management development would
need to be clearly defined and appropriate links established.
Recommendation Sixteen
The committee recommends that the Commonwealth Government
undertakes a feasibility study of a program to foster the establishment of
several centres of excellence in business development for the small business
sector, with a focus on the needs of high growth business. The study should
examine international experiences with this approach and ways in which any such
centres could be integrated with the broader structure of small business
development support.
Developing a training culture in small business
5.64
There is a widely held view
that small business owners do not see the value of training, particularly in
something that may seem remote from daily pressures, such as business
management. Statistics bear this out to some extent: ANTA surveys identify
small business owners as over-represented in the category of those who are ‘not
interested’ in formal training and under-represented in attendance at short,
sharp training courses conducted within the VET sector, even though the latter
are the types of programs that they identify as most appropriate to their
needs.[84]
Various reasons were suggested during the inquiry, including the fact that many
of those who establish small businesses are ‘fiercely independent and very
confident in their own abilities’; [85]
that proprietors ‘want to maximise their time in business as much as possible
and sometimes forget that some of the back-end stuff is just as important’[86]; and that
proprietors have difficulty in focusing on something that is not an immediate
problem.[87]
Negative attitudes to formal training are also said to be common.[88] Resistance may be
more to the idea than the reality and the right marketing is very important:
smuggling training to small business in the guise of solving a problem can be
effective[89]
and there is likely to be a greater response to a ‘workshop’ or ‘seminar’ than
a training program.[90]
5.65
The extent of this lack of
interest can, however, be over-stated, particularly with regards to less formal
training programs. The committee heard many examples of an active interest in
training by small business: a survey of small businesses conducted by a BEC in
NSW indicated that many business owners, along with their staff, would be
prepared to spend up to two hours a week on learning business related skills
and information, provided the time, topics and formats met their needs;[91] there are many
instances of night courses or similar programs run by councils and others which
are unable to meet the demand, including from outside the local region; a
program
conducted by Curtin University for small business regularly attracts interest
from 500 businesses. The import of this evidence was that ‘getting the training
offer right’ can go a long way to stimulate greater demand.
5.66
Small business also invests
in less training for its employees, or at least in less formal training, than
larger business. Once again several factors come into play: small businesses
lack the internal resources to design and deliver structured training programs.
They are therefore more reliant on external providers such as TAFEs.[92] The increasing use
of casual and contract labour and a fear that an investment in training will be
wasted if the employee leaves, possibly to start their own business in competition,[93] also act as
deterrents. With approximately 40 per cent of all Australian employees working
in the small business sector, this relative under-investment in skills
development can seriously undermine Australia’s efforts to develop a more
productive, competitive and innovative economy. A reluctance to invest in
training can also make it more difficult for small businesses to recruit, as
there may be a shortage of people with the full complement or combination of
skills required. The proposed training programs for small business recommended
in Chapter 3 should assist small business to develop the skills and confidence
to develop and conduct training programs for new staff or identify suitable
external courses.
5.67
At the same time, there is
significant training undertaken by the employees of small business. Employees
of small businesses enrol themselves in study towards full qualifications at
the same rate as employees of other businesses[94]
despite the fact that a smaller percentage of them receive employer support for
study. Small business employees are also more heavily represented in VET
enrolments than other employees: in 2001 one quarter already held VET
qualifications.[95]
Small businesses are also heavy users of the group training scheme.[96]
5.68
Attitudinal factors are also
important: proprietors who have undertaken training are more likely to invest
in training for their employees. Finding ways to lift the participation of
small business owners in training is therefore likely to lead to pay
significant dividends. Several states, including Western Australia, have used a system of training vouchers for small
business as a means of encouraging greater participation.[97] The Dusseldorp
Foundation suggested that a more coercive approach may be needed and that there
could be a case to introduce a variation of the former Training Guarantee Levy
scheme, requiring business to spend a minimum amount on training their
employees, or pay the equivalent in a levy.[98]
While most small business people and their representatives acknowledged the
importance of small business investing in more training for their employees,
few were enthusiastic about a levy. There was far greater support for more
extensive incentives: one small business person suggested that businesses be
able to seek a tax deduction not only for the cost of training programs but
also for the value of the employees’ time.
5.69
Changing the training
culture in small business is likely to be an important part of the solution,[99] although this is
not an easy task. It also requires a change to the culture of the broader
society and a public policy framework in which the value of training and
development is deeply embedded. In the view of a representative of the ACCI
training is:
a cultural issue; it relates to our
innovation culture, our entrepreneurial culture. It also relates to the
recognition that your own management skills and the skills of your employees go
to the very heart of the success of your business. Over time we would hope that
businesses recognise how important education and training are. They need to be
embodied in the government’s policies in terms of vocational education and
training and higher education. A need exists to bring together all of those
policies with its general policy on innovation. I do not have a simple answer
for you. We would not support a training levy; but we recognise that this is an
ongoing issue for business to address, together with governments at the state
and federal level and, more generally, with the community.[100]
5.70
Dr Atterton of Curtin
University suggested a range of ways that governments could stimulate demand
for management development for premium growth oriented small and medium
enterprises (SMEs) as part of a broader strategy for developing small business
managerial competence. These include greater links with SME stakeholders and
identification of the triggers to management development as part of a national
campaign to promote interest in growth-oriented SMEs.
Comment
5.71
The committee considers that
there is a role for government in promoting the value of business skills
development to small business owners. Promotion of the value of investing in
skills development for their workforce should form part of a broader campaign.
The small business network should be actively involved in any such campaign.
Summary
5.72
Small business is a critical part of the
Australian economy and needs to be included in strategies to develop a more
competitive, productive and export-oriented economy. Australia needs to build on past and current efforts to develop business management
skills by developing and upgrading training support structures, including
professional development programs and sharing best practice approaches. There
is a role for government in promoting the value of training to the small
business community, in partnership with the networks. Strategies are needed to
promote a better takeup of training by new starters and to ensure that there is
sufficient training and mentoring support to meet the needs of small business.
The ultimate goal is for all components of the formal and informal training
sector need to work together as part of an integrated framework for small
business management development. This needs to be integrated with the broader
program of small business support.
Navigation: Previous Page | Contents | Next Page