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December 21, 2010 10:23 WSPC/S0218-4958 108-JEC
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Journal of Enterprising Culture
Vol. 18, No. 3 (September 2010) 331–354
DOI: 10.1142/S0218495810000604
LEADERSHIP STYLES, MANAGEMENT SYSTEMS
AND GROWTH: EMPIRICAL EVIDENCE FROM UK
OWNER-MANAGED SMEs
YONG WANG∗,‡and PANIKKOS POUTZIOURIS†,§
∗Wolverhampton Business School
University of Wolverhampton
Wolverhampton, WV1 1AD, UK
†CIIM-Cyprus International Institute of Management
Akademias Avenue, P.O. Box 20378
CY-2151 Nicosia, Cyprus
‡
yong.wang@wlv.ac.uk
§
poutziouris@ciim.ac.cy
Apart from starting, growing and/or sustaining a business, owner-managers in
small firms have the responsibility to balance business goals and managerial pri-
orities, with ownership control tendencies and family values (as in the case of
the prolific family enterprise) in a fashion that can comfort all business stakehold-
ers. Understanding the inter-relationship among owner-manager’s leadership style,
intra-organisational management systems, and business growth can enable us to
develop insights into how small business leaders masterfully construct a manage-
ment approach that is conducive to sustainable performance. This empirical paper
draws evidence from a large-scale postal survey (5710 respondents) of small and
medium sized enterprises (SMEs) in the UK and exploresthe association of small
business managerial style and performance. Logistic regression analysis reveals
that the managerial style of entrepreneurs is influenced by a series of demographic
and situational factors. Moreover, owner-managed businesses characterised by del-
egation of authority appear to achieve higher growth in sales and operationalise in
a more professional way. The paper concludes with a discussion of the implica-
tions. The role of managerial style in interpreting business’s growth performance
will complement the leadership literature.
Keywords: Small business; leadership style; performance; situational factor; management
system.
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INTRODUCTION
Entrepreneurial micro-enterprises and SMEs are credited as agents of inno-
vation, wealth creation and employmentgeneration. Paradoxically, evidence
suggests owner-managers’ immature managerial skills, coupled with defi-
cient resources and increasingly intense market competition, often prevent
this entrepreneurial sector from achieving its great potential (Storey, 2005;
Berryman, 1983). It is estimated that about 55 percent of small businesses
cease trading within five years since inception, and over 80 percent within ten
years (Dodge and Robbins, 1992). Empirical studies are therefore required
to enable us to appreciate how small businesses survive and succeed and
understand what factors can influence small business strategic management
and subsequent performance.
The remainder of this article includes four sections. In the literature review
section, the extant studies that relate to leadership style, situational leader-
ship theory, and management system are reviewed to form the foundation
of the current study. Grounded in this review, four hypotheses are posited.
Following this, the research methodology section focuses on the description
of sampling and data collection. Research results arising from multinomial
regression and one-way ANOVA analyses are then presented. This is fol-
lowed by a discussion of practical implications and directions for further
research.
LITERATURE REVIEW
Leadership Styles in Small Firms
Prior research on leadership shows that emergence and performance of lead-
ers are a complex phenomenon (Bass, 1990; Marta, Leritz, and Mumford,
2005). Yukl (1989) indicates that ‘the field of leadership is presently in
a state of ferment and confusion’ (p. 253) and that the knowledge and
understanding of the domain, as a whole, are premature. In the literature, a
number of approaches have been employed to interpret emergence and per-
formance of leaders. These include social perception (Hall and Lord, 1995),
exchange relationships (Liden and Mitchell, 1989), individualised consider-
ation (Dansereau and Yammarino, 2000), path-goal theory (House, 1996),
behaviourally based model (Fleishman, 1973) and situational demands (Pod-
sakoff and MacKenzie, 1998) etc. Nonetheless, instead of untangling the
complicated leadership knot and proffering clear understanding to the sce-
nario, these diversified approaches cause ambiguities and confusion as to
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which approach is more convincing in interpreting what governs small firms.
Furthermore, researchers argue that the intrinsic nature of the leadership
notion is still not well understood (Yukl, 1998). Most widely recognised the-
ories are beset with conceptual weakness and lack robust empirical support.
The traditional trait perspective holds that leaders possess idiosyncratic
attributes that set them apart from others. For example, the founding work
on entrepreneurship by Schumpeter (1934) implies that entrepreneurs, often
leaders of small businesses, are special people who can bring about changes
or innovations to businesses through introduction of new products/services
and processes. By synthesising different researchers’ leadership studies,
Stodgill (1974) lists about 100 traits which are claimed to be responsible
for leader’s success. Nonetheless among these traits, rarely does any com-
monality exist; sometimes they even latently conflict with each other. In
fact, studies on traits have failed to produce any set of attributes that can
clearly discriminate between leaders and non-leaders, or good leaders and
unsuccessful leaders (Stogdill, 1974; Yukl, 1989).
Due to the limitation of the trait approach, the notion of organisational
leadership commences to shift its focus to the behaviour of leaders (Wofford
and Liska, 1993) and the effect of prevailing situation on leadership (Bass,
1990) (cf. Ensley, Pearce, and Hmieleski, 2006). Burns (1978) and Bass
(1985) originate the behavioural style theory of leadership, which classifies
leadership into transactional and transformational types. Transactional lead-
ership has a focus on exchange relationships between leaders and their sub-
ordinates/followers (Burns, 1978). Transactional leaders ‘capitalise’ on the
self-interests and extrinsic motives of their subordinates/followers through
rewards and punishment (Ensley et al., 2006). On the other hand, transforma-
tional leadership focuses on motivating subordinates/followers by appealing
to their ideals and intrinsic motives (Burns, 1978). Transformational leaders
inspire subordinates/followers and guide their energy toward accomplish-
ing high level of goals, rather than simply obtaining rewards or avoiding
punishments (Ensley et al., 2006).
Aligning with the behavioural style approach, House (1996) claims the
leadership behaviour towards subordinates can be classified by a four-fold
typology as follows: directive, supportive, participative and achievement-
oriented. Small enterprises, in contrast to large business organisations where
ownership is often independent from management control (Birley, Ng and
Godfrey, 1999), normally operate as an extension of the ethos of their owner-
managers. To safeguard the ownership control and independence from out-
siders, small business owner-managers often exhibit an antipathy against
external interference and are sceptical about employee’s participation on
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decision-making. These imply that the directive leadership style may be more
prevalent,where owner-managersarelikelytoexerciseauthorityaloneforpol-
icy determination and subordinates are only expected to follow instructions.
In addition, since the British culture is typified by low power distance and
high individualism (Hofstede, 1981), it is reasonable to infer that the majority
of junior managers- subordinates in small private companies would accept
the supportive and participative leadership styles of the owner-managers,
who often create a caring familial climate that accommodate the needs and
welfare of subordinates. The achievement-oriented leadership, where man-
agers consciously set goals for subordinates and allow them freedom of
action, may rarely be observed, given the general conservative and inward-
looking culture characterising small family business entrepreneurs. Based
on the abovementioned theoretical arguments the following hypotheses can
be elicited:
Hypothesis 1. The participative leadership style is the most prevalent man-
agerial pattern in the owner-managed business,followed by the supportive,
directive and achievement-oriented style.
The Situational Approach
The ‘Population Ecology’ (PE) school of theory, as a unique organisational
perspective, has been extensively elaborated in the organisation management
literature and can provide effective interpretation to organisational homo-
geneity. PE represents a metaphorical comparison between organisations
operating in an economy and biological organisms that strive for survival
within a specific ecological community or environment. The distinctive fea-
ture of the PE theory is its focus on the population (Boone and Witteloostuijn,
1995).
Aldrich (1979) and Baum (1999) both argue that changes in organisa-
tional population reflect the operation of four basic processes: variation,
selection, retention, and competition. In a business environment, variations
arise not only as a consequence of failures of organisational control but also
as a result of deliberate plan (Aldrich, 1979; Baum, 1999). Variations may
spread out in an organisation population via diffusion. Over time, success-
ful variations are retained and characterise those surviving organisations
(Baum, 1999). Hannan and Freeman (1977) conclude that ‘it is the envi-
ronment which optimises’ (p. 939). Overall, the PE perspective offers a
conceptual interpretation why many owner-managed, privately held SMEs
demonstrate homogeneous leadership patterns (e.g. the popular democratic
style in the UK) and managerial structures (e.g. the flat and bureaucracy-free
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system) and why their strategic orientation is tuned to survival and status-quo
maintenance.
Unlike the PE theory emphasising on the homogeneity within the popula-
tion, the contingency perspective proclaims that no single managerial style,
organisational structure, or strategy can be effective for all organisations and
the essence of successful administration lies in the ‘fit’ between managerial
issues and organisational intrinsic nature (Donaldson, 1999). Researchers
confirm that even for the same business, the leadership pattern may vary
throughout the business life cycle (Greiner, 1972; Churchill and Lewis, 1983;
Clarke and Pratt, 1985). For example, Greiner (1972) divides business life
into five stages, varying from growth via creativity, direction, delegation,
co-ordination to collaboration. Each stage has a specific leadership style cor-
responded and is characterised by a crisis that may be encountered (Burns
and Harrison, 1996). Greiner’s model implies that owner-managers in small
firms must alter their leadership pattern continuously in order to safeguard
their sustainable survival or prosperity.
Inspired by the contingency theory, Hersey and Blanchard (1969) develop
the situational leadership theory. Similar to the contingency theory, the sit-
uational leadership theory assumes that ‘effective leadership depends upon
the ability of the leader to accurately diagnose situational conditions and
to respond with appropriate combinations of behaviours’ (Goodson, McGee
and Cashman, 1989, p. 446). The situational theory concentrates on the inter-
play among the leader’s guidance and directive behaviour, the leader’s socio-
emotional support, and follower readiness/maturity for performing a specific
task or function (Hersey and Blanchard, 1988). Researchers recognise that
a variety of individuals with differing personalities, backgrounds, and busi-
ness involvementshas transformed to be effective leaders. This suggests that
situational factors rather than only personal or behavioural attributes deter-
mine or ‘select’ the leadership pattern. For instance, if followers within an
organisation have not obtained sufficient ability and expertise, the leader has
to consider using a directive style by offering detailed instructions, mentor-
ing and coaching and closely monitoring subordinates’ performance. On the
other hand, if subordinates overall have achieved reasonable understanding
of business processes but suffer from a low morale, the leader is inclined
to adopt a supportive style by proffering counselling and designing incen-
tives and inducements for followers. Representative studies of the situa-
tional perspective such as Tannenbaum and Schmidt (1973) and James and
White (1983) suggest that three contextual factors are critical in determin-
ing what types of leadership are practicable and desirable. These include the
nature of organisational context, the leader’s personal characteristics and the
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delegation of authority — power distribution features. Using these tenets as
a foundation, the following hypothesis follows:
Hypothesis 2. The leadership style in small business is dependant on the
business,leader and authority distribution context.
Effectiveness of Leadership
The small business and entrepreneurship literature suggests that a diversity of
personal, organisational, and strategic factors may influence small business
performance (Chandler and Jansen, 1992; Siegel, Siegel and MacMillan,
1993; Barringer and Greening, 1998). Nonetheless, rarely has any consis-
tent view on the effect of leadership on performance been achieved. Diverse
array of leadership research recognise that owner-managers in small firms are
likely to exert crucial influence on firm functioning (Bass, 1990; Sorenson,
2000; Anderson, Mansi, and Reeb, 2003). They are intensively involved in
business administration through supervising operations, controlling finance,
and handling personnel. Their leadership style therefore becomes an essen-
tial ingredient in the mixture of factors that shape business success (Yukl,
1998; Chaganti, Cook and Smeltz, 2002).
According to House’s leadership continuum, the people-oriented lead-
ership pattern (i.e. supportive, participative and achievement-oriented
leadership styles) is often featured by power delegation and interaction with
subordinates (House, 1996). Leaders of these styles tend to empower follow-
ers, consult with them in advance, seek their feedbacks and recommenda-
tions, and criticise the work rather than the employees if any mistakes occur
(Chaganti et al., 2002). Researchers claim that the people-oriented approach
is likely to provoke effective group and individual performance since subor-
dinates are apt to be motivated by empowerment and hence be more partic-
ipative in the decision-making process (Tack 1984; Mullins, 2002), whilst
strategies outlined by a collective intelligence are more likely to capture mar-
ket needs and trends accurately. On the other hand, the leader-centred task-
oriented style (i.e. the directive style in House’s (1996) typology) emphasises
on clear definitions of tasks and close monitoring activities on subordinates’
performance. This leader may set up standards for performance and demand
adherence to the standards (Chaganti et al., 2002). Occasionally, this type of
leadership style is productive, as subordinates sometimes prefer a more direc-
tive, task-oriented approach, especially when they have not obtained suffi-
cient knowledge and expertise on jobs. In the literature, studies rarely show
any consistency on the performance implication of a leader’s managerial
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behaviour. For the explorative purpose, an initial proposition is therefore
posited as follows:
Hypothesis 3. Business performance is associated with leadership patterns.
Management System
Krech, Crutchfield and Ballachey (1962) summarise a range of business
functions associated with the roles played by leaders, such as leader as a
planner, a controller, a mediator, and a purveyor of rewards and punish-
ment etc. Researchers find that strategic planning (Bracker and Pearson,
1986; Ward, 1988), management control system (Sauers, 1983; Boag, 1987),
reward system (Lee, Lucius and McNeil, 1999; Besser, 1995), and usage of
IT (Garsombke and Garsombke, 1989) are all essential elements of modern
management activities.
The establishment of management system is dependent on available
resources. Due to scarcity of resources, management structure in small enter-
prises is relatively flat, with owner-managers heavily involved in most aspects
of business management and holding the position as the central decision-
maker (Goffee and Scase, 1985; Poza, Alfred and Maheshwari, 1997). This
autocratic role (i.e. low degree of delegation) often creates a situation that
leaders have to resort to emergent strategies to direct firms to enable busi-
nesses to quickly respond to changes in marketplace. The emergent decisions
made upon the limited market research and inadequate collective intelligence
tend to be pragmatic and judgemental, involving an element of improvisa-
tion (Casson, 2005). On the other hand, the people-oriented style (i.e. high
degree of delegation) is likely to consider more stakeholders’ benefits and the
coordination among stakeholders. This management approach will lead to the
development of more managerial tiers in the management structure between
owner-managers and subordinates, and among employees, customers and
suppliers. Therefore management practices are more likely to be formalised.
Based on the abovementioned theoretical debate, the following hypothesis is
proposed:
Hypothesis 4. The formality of the business management system is associ-
ated with the leadership patterns.
METHODOLOGY
Sample and Data
The principal purpose of this study is to explore the determinants of manage-
rial styles and examine the impact of leadership on business performance and
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management system in the small business context. In our investigation into
small business management practices, sponsored by the UK-Department of
Trade and Industry, a questionnaire with a cover letter was posted to thirty
thousands businesses which were randomly selected from members of the
Forum of Private Business (FPB), the Federation of Small Businesses (FSB)
and the Rural Development Commission (RDC). In addition, an extra thou-
sand ISO 9000 registered small businesses were randomly chosen. Usable
responses were received from 5,710 firms, yielding an 18.4 percent response
rate. Given the fact that the response rate between 10 ∼19 percent is often
reported in the small business literature (McDougall and Robinson, 1990;
Welsch, 1993; Cook, Chaganti and Haksever, 1998), the rate obtained in the
current study via a single wave of posts with no blanket following up due to
the cost concern is considered as satisfactory.
To assess the possible non-response bias, a telephone survey was con-
ducted by randomly selecting businesses from those non-respondents. Six
questions on business demographic information, such as legal form, sec-
tor distribution, business age, number of business ownership, gender and
industrial tenure of the managing director(s), were included in a simple
questionnaire and enquired through phone calls. Two hundred and thirty-
seven companies completed the questionnaire in this round. Data from these
firms were further compared with those of respondents in the first wave of
the survey. Results indicate that there was no evidence of statistically sig-
nificant differences between the two groups of businesses. This suggests
that the respondents (i.e. 5,710 firms) can be representative of the thirty
thousands sampled firms and the findings arising from the respondents (i.e.
5,710 firms) will be generalisable to those in the sample frame (Wallace and
Mellor, 1988).
Variables Included in the Analysis
The dependent variable of the multinomial logisticregression model utilised
in this study has a categorical nature, categorising managerial leadership
into four types: directive, supportive, participative and achievement-oriented
leadership. Definitions and descriptions of these leadership styles based on
House (1996) were rendered in the postal survey questionnaire. Businesses,
by referring to these descriptions, were invited to specify their managerial
styles by selecting one of the descriptions that mostly matches their leader-
ship experience.
The independent variables selected for the multinomial logistic regres-
sion model are encapsulated into three clusters, as follows: the nature of
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Leadership Styles, Management Systems and Growth
owner-managers, the nature of the business, and the characteristic of author-
ity distribution. In particular, the nature of owner-managers is reflected by
the gender of owner-managers, their industrial-managerial tenure, and multi-
venture ownership. The nature of the business is mirrored by demographic
variables, such as business age, size of operation, sector, legal form, cus-
tomer base and sophistication of the production line, while the feature in
relation to authority distribution is described by layers of authority.
Business performance in the current study is indexed by the percent-
age growth of sales over the past year before the survey (ex-ante) and
perceived growth in the following year (ex-post). The business economic
and performance management literature suggests that business performance
can be evaluated through an objective financial approach (Venkatraman and
Ramanujam, 1987; Brush and Van der Werf, 1992; Murphy, Trailer and Hill,
1996). Murphy et al. (1996) find that growth, profitability and efficiency are
the most commonly employed performance dimensions in entrepreneurship
studies. Similarly, Covin and Slevin (1991) delineate that a firm’s economic
performance has primarily two dimensions: growth and profitability. In the
current paper, the sales growth was employed because the macro level con-
tribution of small ventures has often been indexed by sales turnover. Further-
more, the increase in sales performance can effectively reflect the business
capabilities in coping with marketplace.
The availability of management systems were examined in four fields,
respectively strategic planning system (i.e. formal strategic objective setting,
financial planning, and sales forecasting), control system (i.e. accounting
management, production control, and stock management), reward system,
and computerisation. The availability of a specific management system was
assessed by a binary variable, where 1 =functional system in place and
0=no functional system in operation.
RESULTS
Demographic Characteristics
Table 1 describes the profile of the responding companies, which is charac-
terised as follows:
•Multi-venture ownership: the majority of owner-managers (80.9 percent)
of the sample firms own and operate one small firm;
•Legal form of businesses: the limited company represents the main stream
(43.5 percent) of the sample firms. The other two types (i.e. sole propri-
etorship and joint proprietorship) feature the rest of the sample;
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Table 1. Profile of Sampled Small Companies (N =5,710).
Demographic variables Percent
Multi-Venturing
1business 80.9
2+business unit 19.1
Legal Form
Sole-trader 26.9
Partnerships 29.5
Limited companies 43.5
Sectoral Distribution
Construction/Mining 7.2
Manufacturing 29.3
Transport/Distribution 2.9
Retail and Wholesale 20.6
Agriculture/Forestry/Fishing 2.8
Services 26.0
Other 11.2
Gender of Owner-Managers
Male 56.9
Female 5.7
Mixed 37.5
Industrial Tenure of Owner-Managers
<10 33.3
10–19 32.2
20–29 20.1
30+years 14.4
Business Age
<515.6
5–9 21.0
10–19 29.3
20–29 15.1
30+years 19.1
•Sectoral distribution: the sample firms are more prolific in traditional man-
ufacturing, service, and retailing and wholesaling activities and less pro-
lific in agriculture/forestry/fishing and transport/distribution;
•Gender of owner-managers: male owner-managers mainly characterise
the top management in the sample (56.9 percent). Interestingly, a large
number of businesses are managed by ‘copreneurs’ (37.5 percent),
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Leadership Styles, Management Systems and Growth
indicating that marital entrepreneurial partnerships can share workloads
and responsibilities on the basis of trust;
•Industrial tenure of owner-managers: evidence suggests that the industrial
tenure of owner-managers tend to vary, and most of them have a short-to-
medium term of tenure (33.3 percent have less than 10-year experience
and 32.2 percent between 10 and 19 years);
•Business maturity: the majority of the sample firms do not have a long
business history (36.6 percent are less than 10-year old and 29.3 percent
between 10 and 19 years) which confirms the conventional viewpoint that
small businesses are constrained by deficiency of resources and challenged
by the intense market competition which leaves their long-term survival
in jeopardy.
In summary, the responding firms are typified as male-dominated, young, and
incorporated businesses. Most of them are involved in the traditional sectors
and their owner-managers tend to have short to medium term’s industrial
tenure.
Leadership Typology
As Table 2 demonstrates, the most prevalent form of leadership is the par-
ticipative style where leaders are inclined to provide their advice, evaluation
and suggestions to their subordinates, while empowered shop-floor employ-
ees and line managers are more involved in the day-to-day business man-
agement activities. The prevalence of the participative style is in line with
the British culture, which is featured by the low power distance and high
level of individualism. The next popular managerial pattern is the support-
ive style where managers take on a friendly and approachable manner and
accommodate the needs and welfare of subordinates. In the third place is the
directive style, where managers attempt to guide and inform subordinates
exactly what is expected. Rules and regulations are designed for subordi-
nates to follow. Finally, as expected, less prolific is the achievement-oriented
Table 2. Leadership Pattern in Small Firms.
Observations (%) Chi-square test
Directive 21.6χ2: 1816.95
Supportive 27.3Df:3
Participative 46.5 Significance: 0.000
Achievement-oriented 4.5
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leadership which rarely is adopted by small business owner-managers, given
their general conservative attitude and minimum trust on others.
To explore whether small businesses equally adopt the four types of lead-
ership, a nonparametric Chi-square test was conducted. The significant result
indicates that the leadership configuration is not well balanced with a high
proportion of businesses adopts open and democratic approach to orches-
trate their strategic management and development. Thus, hypothesis H1 is
confirmed.
Situational Impact on Leadership
The multinomial logistic regression was executed with a set of indepen-
dent variables. To assess the overall fit of the model, chi-square (χ2)value
and pseudo R2were examined. The chi-square test can be used to identify
the change in the log likelihood (-2LL) value from the base model (inter-
cept only) to the proposed model (with intercept and independent variables).
Results indicate that the chi-square difference is significant at 0.000 level.
Therefore it is reasonable to reject the null hypothesis of H2 that the inde-
pendent variables are not associated with the dependent variable. Pseudo
R2is another indicator displaying the overall fit of the multinomial logistic
regression model. Multinomial logistic regression provides two R2mea-
sures, respectively the Cox and Snell R2and the Nagelkerke R2. Usually the
Nagelkerke R2is preferred since it can maximise the R2value. The Nagelk-
erke R2value in the currents study is 0.382, indicating that the whole model
can explain 38.2 percent of the variance of the dependent variable. Multi-
collinearity was further checked among independent variables because ofthe
regression nature. This can be diagnosed by the standard errors of Beta coef-
ficients in the regression model (Hong and Zhu, 2006). In this study, none
of the standard errors is larger than 2.0, implying that multi-collinearity can
be ignored in the current study.
The results of the logistic regression are presented in Table 3. In general,
the chi-square value suggests a significant relationship between the lead-
ership style and independent variables. Thus, the regression model can be
accepted and the hypothesis H2 is confirmed. More specifically, results iden-
tify that five out of ten independent variables offer an explanatory power (at
least at the 0.05 significance level). They are business size, business sector,
legal form, business’s product line, and the levels of authority — delegation
characteristic. Furthermore, the achievement-oriented style was utilised as
the base group to examine the predicting power of the independent variables
in differentiating the other three groups from the base group. The results of
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Table 3. Multinomial Logistic Regression Analysis on Managerial Styles.
Independent variables
Overall model
Directive vs.
achievement-oriented
Supportive vs.
achievement-oriented
Participative vs.
achievement-oriented
d.f. Sig. Beta Sig. Beta Sig. Beta Sig.
The Nature of OMDs
Gender Feature of OMDs 6 .070
Male −.155 .486 −.209 .321 −.369 .059
Female .525 .423 −.142 .828 −.090 .887
Mixed Baseline Baseline Baseline
Industrial Tenure of OMDs 3 .087 .022 .035∗.013 .208 .010 .293
Multi-venturing 3 .517 −.202 .203 −.155 .289 −.066 .597
The Nature of Business
Business Age 3 .370 .004 .484 .007 .197 .006 .229
Business Size 3 .000∗∗∗ −.021 .004∗∗ −.040 .000∗∗∗ .000 .605
Business Sector 18 .000∗∗∗
Construction/Mining .237 .632 .302 .540 .009 .984
Manufacturing .252 .468 .628 .067 .131 .679
Transport/Distribution −.668 .317 −.002 .998 −.110 .852
Wholesale/Retail −.464 .232 −.007 .985 −.269 .450
Agriculture/Forestry/Fishing −.428 .556 .278 .689 .156 .814
Service −1.060 .002∗∗ −.384 .251 −.581 .060
Other Baseline Baseline Baseline
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Tabl e 3. (Continued)
Independent variables
Overall model
Directive vs.
achievement-oriented
Supportive vs.
achievement-oriented
Participative vs.
achievement-oriented
d.f. Sig. Beta Sig. Beta Sig. Beta Sig.
Legal Form 6 .000∗∗∗
Sole Proprietorship 1.576 .000∗∗∗ 1.162 .000∗∗∗ .665 .039∗
Partnership .462 .061 .559 .017∗−.052 .814
Limited Baseline Baseline Baseline
Customer Base 3 .256 .000 .170 .000 .488 .000 .090
Product Line 3 .000∗∗∗
Single Product Line 1.060 .000∗∗∗ .796 .002∗∗ .614 .013∗
Multi-product Line Baseline Baseline Baseline
The Nature of Authority Distribution
Level of Authority 3 .000∗∗∗ −1.547 .000∗∗∗ −.819 .000∗∗∗ .103 .266
Cox and Snell R2=.345
Nagelkerke R2=.382
χ2: 1218.220 Sig.=.000
Note: ∗p<.05; ∗∗ p<.01; ∗∗∗ p<.001
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the first separate regression demonstrates that the set of significant variables
in the overall model can generally differentiate the directive style adopters
from the achievement-oriented style adopters, suggesting that smaller sized
(negative Beta) service firms, sole traders, firms with single product line
and flat structures (negative Beta) are more likely to employ the hand-on
directive approach. In addition, small business owner-managers with longer
industrial tenure (positive Beta) are inclined to demonstrate their directive
preference.
In the second separate regression model, the significant predictors in
differentiating the supportive style adopters from the achievement-oriented
style followers are almost the same as those indicated in the first model. Nev-
ertheless, most of the Beta values (except the Beta for the level of authority)
are smaller than those in the first model, which suggests that the difference
between supportive and achievement-oriented style adopters is smaller than
that between directive and achievement-oriented style adopters. In the third
separate regression model, only legal form and business product line feature
are recognised as significant predictors, which exemplifies that the partici-
pative style is closer to the achievement-oriented style compared to the other
two styles.
Interestingly, a number of selected independent variables do not con-
tribute to the explanation of the relationship between management style
configuration and situational factors, such as owner-managers’ gender and
multi-venture ownership profile, business maturity, and business’s customer
base. Overall, the situational factors in relation to the business and authority
distribution demonstrate more effectiveness in interpreting the leadership
pattern than the owner-managers’ individual characteristics.
Impact of Leadership on Business Growth
Sales growth in this study was assessed on a 6-point scale, where 1 =decline
by more than 5 percent and 6 =grow by more than 20 percent. One-way
ANOVA tests were executed to compare sales growth performance among
businesses adopting different leadership styles for administration in the year
before and after (i.e. the expected performance) the survey was conducted.
Results of the tests show that significant differences exist among different
leadership groups of firms. This indicates that the more power small busi-
ness owner-managers delegate to their subordinates, the better sales growth
performance could or would be achieved. Additionally, to explore whether
the relationship between authority delegation and growth performance can
be moderated by business size, one-way ANOVA tests were conducted in
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Yong Wang and Panikkos Poutziouris
Table 4. Business Sales Growth versus Leadership Patterns.
Directive Supportive Participative Achievement-
oriented
Growth Over the Past Year
Growth Mean (all firms) 2.990 3.041 3.443 3.928
ANOVA F=41.599 Sig.=.000
Growth Mean (firms with
employees <10)
2.992 3.032 3.362 3.818
Growth Mean (firms with
employees 10 ∼49)
3.119 3.327 3.533 4.197
Growth mean (firms with
employees 50+)
2.222 3.363 3.518 3.787
Growth Assumed for the Next Year
Growth Mean (all firms) 3.361 3.433 3.696 4.106
ANOVA F=39.829 Sig.=.000
Growth Mean (firms with
employees <10)
3.368 3.428 3.689 4.136
Growth Mean (firms with
employees 10 ∼49)
3.412 3.510 3.718 4.202
Growth mean (firms with
employees 50+)
3.111 3.603 3.800 3.941
Notes: Sales turnover growth is measured on a 6-point scale where 1 =decline by more
than 5%; 2 =decline by 5 −0%; 3 =grow by 0−5%;4=grow by 6−10%;5=grow by
11−20%;and 6 =grow by more than 20%.
three business groups clustered according to the business size. Results unan-
imously demonstrate that business growth performance is associated with
the degree of authority delegation, but is not influenced by scale of operation.
Thus, proposition H3 is affirmed.
Availability of Management System in Small Firms
A linkage has been envisaged between the leadership pattern and the formal-
ity of business management system in the current study, therefore a one-way
ANOVA test was executed. The availability of the management system in
this study was assessed by a binary variable. Results of the exploration
reveal significant disparity of availability of the management system among
firms governed by different types of leaders. Overall, the finding is consis-
tent with the posited proposition, suggesting that the more people-oriented
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Table 5. Management Systems versus Leadership Patterns.
Directive Supportive Participative Achievement ANOVA F Sig.
oriented value (df)
Availability of
Strategic
Planning
Strategic visioning .4837 .4872 .6572 .9065 75.36 (3) .000
Financial planning .7177 .7943 .9086 .9531 75.30 (3) .000
Sales forecasting .4154 .4991 .6713 .8719 91.34 (3) .000
Availability of
Process Control
System
Accounting
management
.7245 .7827 .8995 .9617 67.03 (3) .000
Production control .5096 .5378 .6737 .6868 31.77 (3) .000
Stock control .6560 .6828 .7333 .7663 15.79 (3) .000
Availability of
Reward System
.1233 .1790 .3218 .5365 78.64 (3) .000
Availability of
Computerised
Management
System
.4820 .6383 .8149 .8358 126.98 (3) .000
Notes: the formality of business management system is measured by a binary variable, where
1=yes (i.e. the business has a specific functional system) and 0 =no (i.e. the business is
not equipped with the specific functional system).
the owner-managers are, the more formal managerial system the business is
likely to possess. Thus, proposition H4 is affirmed.
DISCUSSION
Business management is about co-ordinating people’s behaviour and activi-
ties within the firm and directing their efforts towards the goals and objectives
of the organisation. In this process, a bespoke leadership with emphasis on
communication, negotiation and empowerment can function effectively and
guide businesses towards success. High performing leaders are often found
diplomatic, intelligent and able to motivate followers to contribute for the
collective good of the business, while subjugating their own interests.
This explorative research paper examined issues in relation to leadership
in the SME context, which comprise leadership configuration, antecedents
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that determine leadership configuration, impacts of leadership on business
growth and the association between leadership and business management
system. Empirical data render supporting evidence to the assumption of
the leadership configuration that participative style is the most preferable
form of administration, followed by supportive, directive and achievement-
oriented styles. This finding is in harmony with the UK socio-cultural milieu,
where individualism is regarded and people are enthusiastic to have oppor-
tunities to participate in managerial activities. Research on large businesses
suggests that a dominant leadership style often exists throughout the sec-
tor although disparate styles are observed (Yukl, 1998). The result surfac-
ing from the current study seems to proffer support to this viewpoint and
also implies that the dominance of a leadership pattern may not only be
legitimate in the large business terrain, but also in their small counterpart
domain.
A combination of individual and organisational situational factors is
recognised to be associated with the leadership configuration. Surprisingly,
owner-managers’ profile is not as influential as anticipated, specifically the
gender characteristics and their firm ownership portfolio. This suggests that
the leadership pattern is primarily ‘determined’ by the business nature rather
than personal attributes. The finding further lends support to the contin-
gency theory that the ‘recipe’ of successful managerial administration is
‘fit’ (Donaldson, 1999). No single managerial style and management struc-
ture will be a panacea for the entire organisation cohort. Leaders aiming to
lead firms towards success should therefore understand the business contexts
comprehensively, and on this basis work out a ‘fit’ orchestrating scheme and
strategy to match organisational intrinsic and extrinsic nature.
The fact that business maturity does not exert any significant influence
on leadership suggests that mature businesses do not differentiate from
young newly established counterparts in mastering managerial art. This
seems to be contrary to Greiner’s (1972) finding that the leadership pat-
tern evolves/synchronises with business development/growth. One potential
explanation to this paradox is that small sized companies often operate as an
extension of the ethos of their owner-managers (Birley et al., 1999). Their
intention of operating a business is not only to generate wealth and job oppor-
tunities for the family but also to cherish autonomy and sustain an enviable
lifestyle. Thus, they often chart business survival and growth strategies to
safeguard their multi-dimensional personal and familial objectives which
are often contrary to breaking out, i.e. to open up the human and financial
capital base to outsiders central to the provision of support that can fuel
rapid growth. This conceptual antithesis to growth can restrain business’s
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entrepreneurial development (Ket de Vries, 1985; 2000) and also uphold a
stable leadership configuration over a long term.
The performance comparison result arising from the current study indi-
cates that owner-managers of those small-scaled fast growing firms tend
to adopt people-oriented style to administrate. The representative of this
approach, achievement-oriented style, does relate to superior sales growth,
though it is the least popular pattern of administration. Furthermore, busi-
nesses upholding this style usually are operated under the most formalised
management regime. They would use formalised working capital manage-
ment mechansims and long-range financial planning. In fact, although the
‘try everything’ logic seems to prevail in all aspects of small business man-
agement and these firms attempt to adopt disparate leadership patterns and
try a variety of formal and informal managerial systems to execute opera-
tions, the virtues of utilising formal management schemes are palpable. This
evidence achieved through the current study may incentivise leaders to con-
sider allocating more resources to design and construct management system
and operate the business with formalised procedures and processes.
LIMITATIONS
This empirical study can be regarded as an explorative attempt investigat-
ing antecedents and consequences of leadership. The study’s cross-sectional
nature means that it only provides a snapshot of the situation. Given that
the effects of leadership usually occur over a long run, longitudinal research
should be taken into account in the future to scrutinise whether the influ-
ence of leadership on business management changes over time, and, if so,
what are the features of these changes. Further, the employment of addi-
tional performance indicators beyond sales growth, such as profitability and
efficiency ratios, may provide a more comprehensive scenario on business
performance. This will unveil the impact of leadership on firm organisation,
administration and operation to a more thorough extent.
SUGGESTIONS TO OWNER-MANAGERS OF SMES
Notwithstanding the fact that in the literature rarely are studies on leader-
ship executed along the SME trajectory, it is rational to encourage leaders of
SMEs, based on the findings arising from the current study, to adopt people-
oriented style rather than task-oriented approach to orchestrate firms. In
practice, to facilitate this adoption process, businesses are recommended to
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Yong Wang and Panikkos Poutziouris
draft a ‘leadership training charter’ addressing the following issues: iden-
tification of strengths and weaknesses of leaders; clarification of the firm
long-term strategic vision; identification of opportunities and threats of the
business; definition of leadership training vision and objectives; recognition
of leadership training needs; development of training implementation pro-
gramme; institution of periodic and irregular appraisal of leadership training
performance.
Training programmes on leadership and entrepreneurial business admin-
istration could be offered by local government and development agencies
aiming to support the advancement of small business. Nonetheless, pro-
grammes should be tailored to meet aspirations of leaders, addressing variety
of strategic problems confronted by managers. Specifically, the contingency
model suggests that heterogeneous leadership patterns may co-exist in the
micro-economic business sector and the adopted leadership pattern for an
organisation is dependent on contingency factors. Thus training programmes
can be articulated with an emphasis on leader flexibility and adaptability.
Goodson et al. (1989) suggest that facilitating leaders to develop adaptive
skills is more crucial than coaching leaders to adopt one particular style.
In addition, training providers also need to be aware that small business
management is frequently characterised by a central power exercised by the
proprietors. In these businesses, even young generation people respect and
comply with the senior figure. How to address the balance between tradi-
tional autocratic managerial culture and open professional leadership art is
a subject worthy of significant concern.
Furthermore, dialogues established among small firms across different
industrial backgrounds and organisational cultures can ensure the design of
business development and serve the needs of growth inspired small firms.
The development of a Small Business Bureau may enhance inter-business
co-operations and offer business the opportunities for cross-fertilisation of
entrepreneurialism through the provision of managerial positions in counter-
part companies. Leaders under this exchange scheme may appreciate differ-
ent managerial scenarios and enrich their understandings on small business
administration.
CONCLUSION
Research on leadership in the small business domain remains immature,
although there is a growing demand to understand what genuine benefits
firms can attain through effective management. Motivated by the belief that
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the art and technique of leadership are rarely inspected in the SME milieu
and that the systematic approach may result in advanced understanding, this
paper reviews the literature on leadership and four hypotheses are posited.
One of the key contributions of this study is the confirmation of leadership
antecedents, which enables the differentiation of disparate leadership pat-
terns. In addition, the influence of leadership on business performance and
management system articulation has been confirmed. Overall, the findings
have rendered deeper insights into the leadership art in the SME territory.
Nevertheless, more work needs to be conducted in the field before one can
hope to develop domain-specific theories concerning the leadership context.
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