Guest opinion: Richard Scase, Emeritus professor of organisational behaviour, Kent Business School

The rise of China and India as economic powers means large employers need to find new ways of motivating and inspiring staff, but smaller firms may have the answers they are looking for, says Richard Scase, Emeritus professor of organisational behaviour, Kent Business School, University of Kent

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The world economy is changing. But the magnitude of this change and how this will affect how we do business in the future is still not fully appreciated. The rise of India and China as world economic powers has brought 2.5 billion people into the global economy. With their low labour costs – sometimes a tenth of those of the European economies – how do Western companies compete?To be successful, employers will have to fundamentally review their business models and particularly their employment strategies. The old management models of the 20th century are totally inappropriate for today’s high-performing companies. These become redundant when, in a remixed global economy, organisations can only survive by rolling out innovative products for ever-changing markets.

In these conditions, staff have to be motivated, inspired and enthused to come forward with new ideas and suggestions. The model of management is no longer that of the large corporation but of the small entrepreneurial firm. The principles that underpin the success of these are quite the opposite to those of larger companies. In small firms, the prevailing culture is one of inspirational leadership that incorporates the energy and commitment of all employees. Relations with staff are open, honest and highly personalised.

This is why leadership in a small firm is far more demanding than management in a large corporation. It demands the exercise of emotional, intuitive skills. Empathy and understanding are prerequisite leadership capabilities. The psychological contract that binds employee and employer is tense and personal. There is no place for disaffected, de-motivated staff in a small firm.

Small business cultures encourage innovation through the expectation that all employees have something to contribute to the success of the business. The outcome of this is a heavy emphasis on informal sociability – something that many large companies discourage. In high-performing small firms, there is often a buzz about the place. People talk to each other by the water and coffee machines. They will have intense discussions during the lunch break and, after working hours, they will go to local bars and pubs. This is why location in congested towns is often seen as more important than being on industrial estates or green-field sites.

In these informal gatherings, colleagues are discussing sport and leisure interests. But inter-mingled with these are business issues, new potential products, customer solutions, and ideas for operational improvements. In other words, small firm cultures lead to the abolition of the lunch break, the creation of the longer working day and other time-saving practices as there is no need for strategic planning meetings. It is not surprising that small firms generally perform better than larger counterparts.

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Similarly, corporate get-togethers, which have been much maligned in recent years, have a unique potential to bond workers and set out an inspirational agenda for the future, while simultaneously making everyone feel good about themselves and their brand. Despite recent periods of economic downturn, companies have been reluctant to cut annual celebrations from the budget. On the contrary, they have been spending more than ever on events that are bigger, grander and more exotic.

So what are the implications for large companies? Is it possible to imitate these smaller businesses? According to highly successful corporate leader Jack Welch, the former CEO of General Electric, it is. Indeed, it is a necessity, if large companies are to compete against their Asian counterparts. As he says, companies have to break themselves into small operating units, albeit trading under global brands, to introduce leadership practices as a replacement for old-fashioned management styles. This is the basis for a new employee playlist. The iPod generation of young future staff will not be managed and told what to do. But they will respond to inspirational leadership. It is the responsibility of HR practitioners to re-design cultures and structures so this can be implemented.