Tag: Peter Boumgarden

The last three years have tested the strength and resiliency of American small businesses. While there are signs the economic conditions are improving — inflation has come down faster than expected and the labor market continues to add jobs — small businesses are likely to feel the pinch of rising interest rates, a looming recession threat and persistent labor shortages in 2023, according to Peter Boumgarden, the Koch Family Professor of Practice in Family Enterprise at Olin Business School at Washington University in St. Louis.

“Small businesses are a significant driver of the U.S. economy, accounting for two-thirds of net new jobs and nearly half of U.S. economic activity,” said Boumgarden, who also is director of the Koch Center for Family Business at Olin Business School.

“Understanding and addressing the challenges facing small businesses will be key to promoting long-term economic recovery. This can be done both by favorable policy conditions, but also by giving these leaders and owners the framing to know how to approach this market with agility.”

Challenge No. 1: Rising interest rates

In 2022, the Federal Reserve increased interest rates seven times to a 15-year high in an aggressive attempt to address inflation. More interest hikes are expected for 2023.

“Rising interest rates will be one of the biggest challenges for small business across sectors because it will limit their access to capital, which in the past would have been relatively easier to get,” Boumgarden said.

With the cost of borrowing increasing, Boumgarden said that many small business owners will rethink plans to expand or take on large projects that traditionally would require an injection of a business loan. In some cases, those projects may be put on hold in 2023. Or, perhaps they’ll look for other ways to fund the project, like dipping into existing cash reserves.

“Many privately held businesses have to choose on whether they prioritize growth, liquidity or control, and a change in access to capital might also shift that decision point.”

Challenge No. 2: The economy

Some economic challenges — inflation in particular — will not be felt equally across industries.

“If we enter into recessionary headwinds, you want to be thinking how sensitive your consumer is to these pressures, and how it impacts buying behavior,” Boumgarden said.

‘If we enter into recessionary headwinds, you want to be thinking how sensitive your consumer is to these pressures, and how it impacts buying behavior.’

Peter Boumgarden

Typically, the industries hit hardest — small or large — by recession are real estate, construction, manufacturing, retail, leisure and hospitality, Boumgarden said.

“What makes these industries particularly vulnerable is that consumers are more sensitive to price changes. They have the choice to push off the purchase, cut back or find cheaper alternatives, all of which can cut into your top line,” he said.

Restaurant owners, for example, already are feeling the effects of rising food prices and wage growth, he said. With a relatively small profit window, many have no choice but to raise menu prices. But that means cost-conscious consumers will have to make choices like eating out less and choosing less expensive chain restaurants. 

“If your buyer is unwilling to pay more, you have to eat the higher cost of goods, and thus live with tighter margins. All of this implies the need for the business owner to play out the chess match of how these subtle shifts will impact the financial outcomes of their business,” Boumgarden said.

Challenge No. 3: Labor

“We’ve all heard people gripe, ‘nobody wants to work anymore,’ but the problem is actually much more complex,” Boumgarden said.

“Research at the Brookings Institution suggests many systemic issues, including lower immigration, lack of child care, underinvestment and uneven investment in talent, discrimination and more, are impacting the labor pool available to small businesses. While small businesses can do small things to address these issues, policy innovation is needed as well.”

Economists believe there is a 70% chance of recession in 2023, according to a recent Bloomberg study. Ironically, this could prove to be beneficial for low-wage employers most impacted by current labor shortages. Recessions tend to push more people into the job market and will cool rising wages.

Small business advantage

The coming year will undoubtedly be challenging; however, small businesses have some advantages over large corporations. If they play their cards right, Boumgarden said they may face less disruption in the coming year. For starters, small businesses have the advantage of being nimble — a skill many perfected during the pandemic.   

“Because they’re not bogged down by bureaucracy, small businesses are often able to experiment and pursue new opportunities more easily,” Boumgarden said. “If I were a small business owner, I would be asking what kinds of small experiments I can run in the next six months that help me address the coming headwinds.”

“Compared with publicly traded corporations, smaller, privately held companies also have the benefit of being able to give their business plans time to develop with a longer time horizon for performance. They do not have investors breathing down their neck expecting an immediate return, and thus might benefit from this patient capital. During times of economic downturn, this can be a very big advantage.”

Small businesses also have another priceless advantage over large corporations: public trust.

“Consumers are increasingly skeptical and critical of large businesses, especially big tech. Small businesses, on the other hand, enjoy significantly higher levels of trust among consumers,” Boumgarden said.

“The opportunity for small business is to find ways to highlight and leverage that trust to differentiate them from larger competitors. Think shopping at your local corner bookstore rather than ordering from Amazon. Amazon may be able to offer two-day shipping, but local bookstores can offer the personal touches like personal reviews and community meeting spaces. Plus, consumers like knowing they support businesses that support their local community. The opportunity for these owners is to leverage trust into business.”

Local communities can help

“Building regional support groups to help share best practices is one way local governments and business communities can help small businesses thrive,” Boumgarden said.

“The research is also very clear on the value of educational interventions, so finding ways for universities to offer support for the educational needs of these companies to increase their ‘professionalism’ can really drive the economic growth of these companies, and thus our regions,” he said.

Burnout affects more than half the employee population in the United States.

In a recent article in Forbes, Olin’s Peter Boumgarden shared some tips for employers about how to stem the tide of workers who regularly experience intense and unwanted symptoms such as fatigue, reduced productivity and a cynical attitude.

Boumgarden recommends basing your understanding of burnout on a definition from the psychologists Christina Maslach, Wilmar B. Schaufeli and Michael P. Leiter: “a prolonged response to chronic emotional and interpersonal stressors on the job.”

All workforces are unique, so take the time to evaluate what’s burning out people, Boumgarden suggests. Could one of your corporate policies unintentionally be causing a problem that affects performance and morale?

“Let’s say you are an organization that desires greater collaboration,” Boumgarden told Forbes. “You ask for people to come back to the office at a higher rate than your competitors. If the average commute time is an hour each way, what is the impact on work outcomes and burnout of having to find two more hours in the day?”

Every decision will cause ripples. Do they create more issues than a policy solves?

Boumgarden is the Koch Family Professor of Practice in Family Enterprise, director of the Koch Family Center for Family Enterprise, and academic director of the Center for Experiential Learning at Washington University in St. Louis. 

Read more in the article “7 strategies to help your employees avoid serious burnout.”

Peter Boumgarden contributed this post to the Olin Blog. He is the Koch Family Professor of Practice in Family Enterprise and director of the Koch Family Center for Family Enterprise.

Given COVID’s impact on the global economy and our ability to travel, it has been nearly three years since we were able to take Olin’s MBA class to Spain as a part of their award-winning global immersion. And so, it was with great anticipation on March 26th that we hopped on a plane and headed to Barcelona with the class of 2022. 

My colleague Sam Chun, professor of management practice, and I were able to lead the first of three courses in Europe. Our class, “Foundations of General Management,” integrates insights from strategy, organization and financial management to provide a practical way to think about developing and implementing a strategic vision.

Different dynamics in play

Throughout the coursework, one of the things that Sam and I ended up exploring was the different dynamics in play based on who owns a company. The five cases we used (Kodak, Chateau Margaux, Pandora, Aravind, Southwest) provided unique ways to think about how different forms of ownership (public versus private, VC- or PE-backed versus family held) lead to distinct goals and different competitive pressures. Fresh off the “Ownership Insights” course with Spencer Burke, an adjunct lecturer at Olin, it was fun to continue to explore the role of ownership in shaping the dynamics within an organization, a framing too often left behind the scenes.

Students’ task: Set up a wine distribution business

For the core project of the course, we tasked the student teams with setting up a wine distribution business. The group then visited three family-owned Spanish vineyards to understand better what a vineyard might look for in the distributor relationship. In addition to walking us through the strategic choices of product distribution, owners and key employees at Pere Ventura Family Wine Estates, Gramona, and Familia Torres offered unique perspectives on how their organizations sought to balance innovation and continuity over time. This theme resonated with this year’s Data+Design series on balancing continuity and change. Many thanks to St. Louis’ own JiaMin Dierberg for sharing insights with our students on how a winery like theirs thinks about the strategy of distributor relationships. 

Specific to best practices around family ownership, it was wonderful to hear of the Familia Torres group and their involvement in the Primum Familiae Vini (PFV) group. PFV is an “international association of some of the world’s finest wine-producing families from France, Germany, Italy, Portugal, and Spain.” This network of families has worked to generate, test and share several creative practices in sustainability and product quality across these some of the world’s leading wine-making families. It was a wonderful learning experience and one that I think continued to give our students insight into ownership and competitive strategy.

Top photo: Olin’s MBA class of 2022 in Spain in March 2022.

Many employers have already begun transitioning employees back to the office, while others plan to resume in-office work in the coming months. But after more than a year of working from home, is returning to business as usual even possible? Or desirable?

Employees have changed amid this pandemic. The more a company can match employee preferences and the optimal work conditions required for a given role, the better off they’ll be in terms of hiring and employee retention, according to Peter Boumgarden, an organizational behavior expert at Washington University in St. Louis.

“Working from home has a level of flexibility that is hard to match in a traditional environment,” said Boumgarden, the Koch Professor of Practice for Family Enterprise at Olin Business School. “Research by Nicholas Bloom and colleagues suggests that employees value this benefit, even seeing it as equivalent to the value they would get from a non-significant pay raise.”

And it’s not just flexibility that employees want.

“We know that autonomy — especially perceived autonomy — is a huge driver of employee satisfaction,” said Markus Baer, professor of organizational behavior at Olin Business School. “Just having the sense that you have control of your schedule and when to do certain tasks can boost motivation.”

Of course, there are benefits to working in the traditional office setting for individuals and teams. Interdependent work that requires coordination and input from multiple people is easier to accomplish in person. So are nonlinear tasks like brainstorming. Being co-located also helps employees feel connected to the team and provides networking opportunities that can help them advance their careers. This kind of rich social connection can be hard to mimic online, Boumgarden said.

Despite some of the benefits, some employers are seeking a return to more traditional working conditions.

“In my view, the return to office is driven by some mix of companies trying to recapture some of those lost elements, the desire to use expensive office real-estate set up for this strategy and, perhaps, because the old world still feels a bit more familiar,” he said. 

No one-size-fits-all approach

The question should not be whether to return to the office, continue working remotely or some hybrid option, but rather: What is the nature of the employee’s work? That’s what should drive return-to-work plans, Baer said.

For individual contributors, going into the physical office is less essential. In fact, many people have found over the past year and a half that they are more productive working at home without the typical office disruptions.

However, co-location becomes increasingly important as work becomes more interdependent and complex — especially when frequent communication is required, Baer said. Collaborative tasks such as ideating or coordinating projects are accomplished more efficiently in person.

But that doesn’t necessarily mean employees need to be in the office full time. For many teams, the ideal arrangement will change week to week based on current work needs, Baer said.

“There’s some research that shows that teams do really well when they have bursts of activity. I could envision teams coming together for a week or a block of intense activity to solve a problem and then disband when the problem is solved and it’s clear who is going to do what. Once those tasks are complete, the team can reconvene,” Baer said.

Hybrid challenges

From a productivity standpoint, a well-planned hybrid arrangement offers the best of both worlds: time in the office to plan and coordinate work, and uninterrupted time at home to complete tasks. Hybrid arrangements also enable employees to retain an office footprint while keeping some of the flexibility they’ve enjoyed over the past year and a half. For these reasons, Boumgarden believes hybrid work will be the future for many organizations. However, the challenges of hybrid work are significant, perhaps even more so than traditional in-person offices and fully remote work environments, he said.

“There’s some research that shows that teams do really well when they have bursts of activity. I could envision teams coming together for a week or a block of intense activity to solve a problem and then disband when the problem is solved.”

Markus Baer

“Very few of our offices are technologically or socially set up for a world where half of the workers are in the office and half are working from home,” Boumgarden said. “Managers needs to be thinking very hard about workflows required to drive efficiency and innovation in this new set-up. Overcoming these challenges will require investment of time and capital on the part of leaders.”

There are also employee management issues to overcome in a hybrid model. For example, if one person decides to work from home more frequently and another stays in the office, will they be seen equally by their superiors?

“I would argue that true clarity of expectations is critical. Workers should know both what the stated expectation is, but also what is the implicit norm,” Boumgarden said.

Lessons learned

For those who plan to return to a traditional office work arrangement, there are still lessons to be learned from the great work-from-home experiment. For starters, leaders need to revisit how frequently they schedule meetings, Baer said.

“When people are co-located, it’s easy to call a meeting to discuss something, but oftentimes these meetings are unproductive and nothing is really accomplished that couldn’t have been done in a simple email exchange,” Baer said.

The same communication tools that kept teams running while working remotely — such as Microsoft Teams, Skype or Slack — can still be used to inform employees or collect information without forcing them to sit through yet another meeting.  

Boumgarden hopes the experience of managing remotely will ultimately change how leaders do their jobs when they’re back in the office.

“For managers, I hope there are lessons learned about how one manages toward outcome versus micromanaging process alone,” he said. “Let’s start by acknowledging true contribution cannot be linked to minute and hours alone. For example, I might have an exceptionally productive hour that is equivalent to my typical four hours of output. The next day, I might have four hours of time that distill down to less than an hour of true ‘productivity.’ Or what about the breakthrough that occurs on a run or while lying awake at night? How should this be managed? Does it count as work time? These are the questions our next generation leaders should be asking.

“All this said, as soon as we realize that contribution does not neatly map onto time blocks, our way of assessing work should evolve,” Boumgarden continued. “I hope managers start to think about how they might creatively evaluate progress toward goals, while at the same time realizing that people work in different ways to reach this value.

“By not being able to micromanage over the last year-plus, I think many people had a realization that their actual management was much more superficial than truly additive of value,” he added.  

But perhaps the most important lesson we all learned over the past year and a half is the importance of remaining flexible.

“I think there is value in saying new models are still experiments. A company might roll out one approach to hybrid for some time and then adjust back as the data gives insight around what is and is not working,” Boumgarden said.

The coronavirus pandemic has shattered and shuttered businesses. Here, three Olin experts offer insights into potential opportunities as businesses struggle to emerge from the economic storm.

“The biggest question businesses are learning to ask themselves is, ‘Are we essential?’” said Doug Villhard, professor of practice in entrepreneurship and academic director for entrepreneurship. “If that answer was recently proven to be ‘no,’ then now is the time to form strategies to make your organization ‘essential’ in the future.”

How will businesses change because of the pandemic?

Minyuan Zhao, associate professor of strategy: “Businesses may have to rethink their value propositions. Before the pandemic, a nail salon was there just because women were ‘supposed’ to have their nails done, a florist was in business because flowers were ‘supposed’ to be at various events, and retailers invested in second-day delivery because consumers were ‘supposed’ to like fast delivery. The crisis will change all this. Collectively, we will redefine what is truly essential to our lives, and what we can do without.”

Peter Boumgarden, professor of practice in strategy and organization: “It’s important for businesses to think hard about the ways in which their short-term demand is impacted both by general consumer confidence, which is likely to be down in the short-run, and the social proximity people need to receive your products or services, which is potentially impacted due to changing social norms around public gathering.

“Think of a concert venue or a restaurant. They might want to creatively plan for some kind of viable model of reduced operations.”

What opportunities could exist as we emerge from the crisis?

Villhard: “Look for ways to solve the biggest problems you and your customers are now facing. It will be one of two things: supply or demand. Work quickly to become essential in one of these areas.”

Boumgarden: “Organizations should think hard about how to develop the flexibility to ramp up or down operations more quickly and seamlessly if a second wave of the virus forces a similar social distancing. Think of a hospital system that is opening up for elective services but also wants to be ready to move back to a COVID-19 response set-up. I can see new opportunities for those who can help organizations do this transition planning more effectively.”

Zhao: “The most obvious opportunity is the online businesses: virtual meetings, virtual classes, virtual concerts, virtual tourism, etc. But I think the opposite is also true: street corner coffee shops where you can say hi to the neighbors and connect with the offline world. 

“The new business models also create demand for robust infrastructure, especially the digital infrastructure in data storage, transfer and security.”

What can businesses do to position themselves for opportunity?

Zhao: “It’s probably too early to make costly strategic moves, but businesses can start to reassess their business models and all the assumptions that support their business models. It’s shocking how many assumptions are now in question.”

Villhard: “Re-read your website and marketing materials.  You’ll immediately be able to tell if those concepts are suddenly ‘dated’ in light of the crisis. Revise them to speak to the new challenges your customers now face. The world changed overnight. Your organization needs to adapt as well, and you need to show you are a thought-leader in the new world.”

Boumgarden: “I would encourage business leaders to find ways to run mini-experiments during this time. Use these as an opportunity to tease out creative hypotheses with your customers that you might not have done previously. If you can do this in inexpensive ways now, this is a great opportunity to learn.”

Villhard: “In entrepreneurship we teach to ‘start with empathy.’ Put yourself in the mindset of the problems your customers are now facing. If you do so, an unprecedented number of new ideas will immediately emerge for you.”

Do some businesses currently have an advantage over others?

Villhard: “If your solutions are both domestic and/or virtual/digital you are extremely well-suited. And if they are not, work quickly to get them there.”

Boumgarden: “I see leaders having to wrestle with new types of problems. Imagine trying to figure out the Paycheck Protection Program as you consider whether or not your loan will be forgiven. Or trying to predict the likelihood of viral reoccurrence and its impact on your supply chain. Many organizations do not have this expertise internally and have to look outside for support. Organizations and individuals with strong social networks can tap into new forms of expertise outside their own walls.”

Anything you recommend for business owners/managers to read?

Villhard: “Refresh on the classic book Innovators Dilemma. If you are an established company, you are about to be attacked by dozens of startups. And many of them will now be run by recently laid-off workers who have been sitting on an innovative idea in your industry for years and now find themselves in a perfect opportunity to strike against the establishment.”

Boumgarden: “I’m really enjoying a new rhythm of a weekly reading of The Economist. This is for two reasons. First, I find that a daily newspaper (like the New York Times or Wall Street Journal) makes me too attuned to the ups and downs of the news. A weekly is more emotionally digestible. Second, I find that in offering stories from around the globe, The Economist expands my understanding of the interconnectedness of our global economy.”

Zhao: “I’ve found it very helpful to look back into history and reflect on the big picture—how we came to where we are. More to that point, I find it helpful to write in addition to read. Write about how we see the world, and sometimes you’ll be surprised by what’s on your mind.”

She recommends the following: The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931, by Adam Tooze; The Last Kingdom, by Bernard Cornwell; The Great Influenza: The Epic Story of the Deadliest Plague in History, by John M. Barry; and The Silk Roads: A New History of the World, by Peter Frankopan.