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A leadership guide for the SME Leader

By Malcolm Orchard on 22/11/2016 - 0 Comments

The role of a leader is crucial in any organisation but especially so in small- and medium-sized enterprises (SMEs). Compared to corporate life, decisions in SMEs are about using the scarce resources of time, team and money to generate success for the business. For example, a decision to allocate one person to develop a new revenue stream is not a significant commitment for a corporate CEO. For an SME, losing an employee or a client is likely to have a far more noticeable impact. How do business owners in SME’s navigate their way to survival and ultimately success? A key element in determining the fate of any business is down to leadership. The cliché that ‘leaders are born not made’ is nonsense. SME leaders have three roles, and you can improve at each one. The first is to take responsibility for the finances, without which you won’t have a business. The second is to make good decisions that enable your business to compete successfully in a crowded industry. And the third is to inspire your team, encouraging them to feel invested in you and the company so that they will work harder and stay around for longer.  Research conducted by the CIPD (May 14) ‘Effective Leadership and Management in SMEs’ offers guidance in getting leadership right.
Leadership is often viewed as the person responsible for overseeing the running of a company – someone you look to for direction. However, the type of leadership approach may be affected by the scale of the business and external factors such as market conditions. The CIPD research identified three areas that impact the quality of leadership and management for SMEs.

1. Individual Capability of Leaders and Managers

A key factor in defining the quality of leadership is the skills and experience of the business owner(s). As the business moves from start-up to growth phase a new set of skills may be required which include commercial acumen, a focus on sustainability, and people management. Where firms have been run by the founder or typically in family run companies’ new skills must be learned to delegate effectively as the interests of the business’s sustainability and people within it may not be aligned with the interests of the owners.  As the company grows there is the need for the owners to be supported by others to assist with day to day management. This heralds the shift to formal working practices and change in working relationships from ‘friends’ to ‘partners’ and ‘colleagues’. Establishing professional relationships between individuals running a company can be a common issue for SMEs.

Finding the right talent to adopt leadership roles in the company should not be a factor of the amount of time they have worked in the business, but in their ability to share and build upon the culture of the business and their skills and competencies to enable growth. This may necessitate training to help develop individuals into these new roles. However, the CIPD research identified that the ability to provide training is dependent on the size of the business. It is the ‘micro’ level business that invests least in development of the new wave of leaders as shown by the results below:

Training received by those with responsibilities for managing others (%)
  Micro (2-9) Small (10-49) Medium (50-249) Large (250+)
Any Training 47 50 58 74
People Management Skills 20 25 20 41
Leadership Skills 24 24 15 47
Developing Staff 15 20 25 34

Source: the CIPD (May 14) 'Effective Leadership and Management in SMEs'

2. Implications of Size and Structure for Leadership and Management

The CIPD research found that the type of leadership that an SME needs changes as the company grows. It found that while in the early stages a directive leadership approach is often adopted, as a company grows in needs to invest more trust in junior managers and employees as the company consolidates, with leadership beginning to devolve down to the front line. At the formative stage for a business the leaders or the entrepreneurs have multiple roles, as they balance the day to day activities of the business. They are often involved in all facets of decision making, and may become overwhelmed by the short term ‘survival’ tasks.

As the business starts to transition in scale the entrepreneur must learn the art of ‘letting go’ and delegating. At this stage functions tend to diversify and specialise with the more experienced staff educating newcomers. The SME leaders then need to delegate operations to a team of trusted senior managers whilst shifting to a more strategic management role. As the new functions develop the SME leader needs to devolve decision-making to senior managers. Failure to do this will mean these people will become ‘figure-heads’ with no real responsibility or authority.

Part of the key challenge for the SME leader is to keep the focus on creativity and flexibility of approach which is often at risk and can damage competitiveness as a business grows. The key to success is to develop and nurture leaders at all levels of the business so that the business can establish a culture of leadership from within. This requires effective empowerment of all leaders within the business and is a challenge to many business owners who do not want to let go. Teams should not be concerned about making decisions within parameters that meet the strategic plan – they should be empowered.

3. The Impact of the External Context on the Nature of Leadership and Management

Some aspects of change are driven by the trends in the external environment such as intense competition and economic recession and this may require a different form of leadership. For example, in times of rapid change a more directive approach from the business owner may be more suited, as the capabilities of the team may not have grown enough to deal with these new challenges. In a recession, the requirement is to act quickly which may require strategic decision making to be taken back by business owner.

Empowering staff in the context of a fast paced trading environment is a balancing act – as the business must respond quickly to these external factors. While a directive decision making approach may be required, business owners should take every opportunity to step back, empower, and coach staff to deal with the problem solving on their own. This is to benefit the long-term leadership of the business.

In summary, the nature and shape of leadership changes as a company grows, but there is no right or wrong leadership style. One thing is guaranteed is that business owners don’t know what they don’t know and so the development of the leadership approach is a learning process that must be changed to meet the needs of the internal and external environments.

Individuals should be recruited throughout the business to adopt leadership roles as a decision making should not be seen as the sole preserve of the business owner. Get this process right and the company will grow profitability based upon shared values and a common purpose and culture.


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