SME leaders should match their style to the internal and external context of their organisations

By Ksenia Zheltoukhova, CIPD Research Associate

For a few years now, the CIPD has been researching people management practices in SMEs, noting that the success of these organisations relies heavily on their people – their skills, enthusiasm, willingness and the ability to live the organisational values. Last week, at our conference in London, we launched research on how SMEs can retain their founding culture and values as they grow. This week, at our conference in Sheffield, we turn our attention to the unique leadership capabilities required in SMEs and have published a dedicated piece of research on this topic.

Since SMEs often have to balance short-term resourcing and survival priorities with the long-term health and growth of their business, it is usually down to every employee to lead on the business agenda, not just the owner or managing director. That said, without the right balance of direction and empowerment from the top, employees may struggle to make the right decisions on behalf of the organisation. One SME business leader told me:

‘It’s surprising how quickly you develop the practices of a large corporate
. There are seven people in the room and everyone could be saying ‘I’m not doing that.’
So it’s constantly bringing them back to what we are here to do.’

Our new report Hands-on or hands-off: effective leadership and management in SMEs explores what those heading up SMEs need to do to enable their staff to do what is right for the business. It concludes that three key factors should be considered when managing and leading others in a small or medium-sized business:

  1. Individual capability of the SME leader, middle managers (where they are present) and the ability of employees to lead themselves.  Although many SMEs are managed by their founders at least in the beginning, being a successful entrepreneur is not always similar to running a  growing business, which requires a different skills set, including managing other employees who do not necessarily ‘live and breathe’ the business from its origins. As the organisation matures, some founders recommend ‘letting go’ and appointing someone else to run the day-to-day operations.
  2. The degree of organisational maturity and its structure. Although SME growth is associated with an essential formalisation of business processes, people management practices and organisational structures, some of these processes, for example the emergence of hierarchies and greater definition of job roles, can act as barriers to organisational agility. While the early stages may require directive leadership and management styles aimed at overcoming the uncertainty of the business strategy and short-term effectiveness, as the organisation consolidates more trust should be invested in junior managers and employees, with leadership beginning to devolve down to the front line.
  3. The external context shaping operational and strategic demands on the business. Effective SME leaders lead both internally and externally, taking both sides into perspective, and aligning the internal organisational processes to the changes in the external environment. As part of that, they are required to balance consolidation and change, to identify the need and the appropriate moment for a transition and to bring their people along with them in the journey towards a more sustainable business model.

While it’s important to learn from the experiences of others, our findings suggest that people management solutions should be tailored specifically to the business, with consideration to various factors impacting leadership in the organisation. We hope that the insights of these reports will help SMEs avoid building the ‘empires’ of the corporate world and use innovative people management solutions to retain the agility of their organisations.

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