Leadership can be defined as a process through which a person influences others in achieving a goal and directs the organization in such a way that it becomes more cohesive and coherent. This method is carried out by leaders who apply qualities to their leadership, such as principles, values, ethics, character, experience, and skills. Entrepreneur, on the other hand, as defined in Webster’s Dictionary, is a person who organizes and manages a business undertaking, assuming risk for the sake of profit. Both, Leaders as well as Entrepreneurs are essential elements / factors for the growth and development of any business enterprise. We build plans and objectives that can be accomplished in a fixed amount of time and lay down guidelines for their employees / followers to follow attain those goals. It is of utmost importance for a company to be a successful venture to have its leader as a visionary. Considering future as an inevitable element of planning for an organizational strategy is thus, one of the crucial factors while aiming for the desired goals set by these leaders. The success of any organization is largely dependent on the various leadership styles, attributes, models applied during the process of achieving organizational goals, irrespective of the size, type or nature of the said business. The various leadership styles, models and attributes as well as the uncertainty of environmental factors in connection with Small and Medium Enterprises, as observed through various research findings and case studies are discussed elaborately in the following sections (Bass, Bernard, 2001).
Leadership Issues Faced by SMEs
The term SME refers to Small and Medium Sized Enterprise which employs fewer than 250 people, has an annual turnover of EUR 50 million or less or an annual balance sheet total, not more than EUR 43 million as per the Recommendation of the European Commission.
Some of the common leadership issues faced by SMEs include, lack of clear/ explicit vision and direction, focus on operational v/s strategic activity, no proper delegation of authority, shortage of space for leader’s personal development, lack of recognition of self-development needs, lack of time for or commitment to team development.
The sound strategic decision-making process in SMEs needs a positive attitude towards risk in the long term. Thus, the process of leadership in such small and medium sized enterprises should be future oriented, so as to encompass the various strategic obstacles that these firms might have to encounter in the long run. One of the key advantages for small firms, however, is the level of flexibility available to them within their domestic markets which enables them to adapt quickly to the changing market place in order to suit the demands of its customers. The strategic dilemma however, lies in the fact that dispersing their activities as well as market segments as widely as their larger competitors may not always be possible for the small enterprises leaving them with very few viable options / strategies for survival. In this situation, small and medium-sized companies should expect to address the challenges posed by the changing market place by responding rapidly to their needs and demands and thereby reducing them risks in the process. However, this limits their scope to increase and enhance their profitability by limiting their specialization required to achieve long-term goals. Therefore, although the combination of “flexibility” and “specialization” is considered desirable, it is not, in fact, a viable option for the small company.
SMEs, on one hand, are characterized by qualities of entrepreneurship, flexibility as well as product development which in turn are motivated by the need for generating growth and challenging, existing markets as well as the existing players. Small firms are generally considered to be at their best while catering to the needs and demands of a select small number of customers who are willing to buy quality products / services or to customers who demand frequent changes to a specialized product at a high price. While on the other hand, they are often characterized by informal structures, insufficiently developed administrative and accounting procedures and unsystematic, sometimes erratic, decision making processes, compounded by the inability or unwillingness to delegate responsibility to more experienced managers. These inherent weaknesses act as a setback in the path of growth and development of the SMEs and prevent it from taking wise and apt managerial decisions, hampering the profitability as well as credibility of the firms, in the process. The entrepreneurs / leaders in such small firms often lack the expertise to sustain the firm in the long run, which could be mainly attributed to the lack of business expertise, experience and will to withstand competition from the stronger market forces. Thus, the very strengths that the SMEs exhibit in the indigenous markets are often transformed into weaknesses while attempting to exploit the markets as well as threats posed by competition at the international level (Barlett, Goshal, 1991).
Increasing competition and development of markets are some of the major concerns faced by small businesses today. The basic area of concern among the SMEs is the focus on short term goals by the management rather than aiming for long term gains. The leadership in SMEs is not future oriented, with a majority of them looking for the satisfaction of short term goals of the organization. In UK, for example, 99% of the firms considered as small – businesses / SMEs employ 12.6 million people and are considered as an inevitable part of the industry for enhancing and improving productivity as well as innovation. But in spite of immense potential, many of these organizations are often stuck in a battle for survival by adopting “short term” measures to achieve instant success which is spurned by an instant reaction to the everyday problems faced by them. In such circumstances, the Leadership in such small firms, in spite of the availability of adequate knowhow, is often restricted to the fulfillment of short term goals mainly driven by the urge to sustain its position in the ever changing and rapidly expanding market place.
Business Models for SMEs
The entrepreneurial model is representative of the widespread perceptions concerning SMEs and entrepreneurship which is based on the determination of the concept of an executive entrepreneur which is synonymous with the individual leadership style, the persistent pursuit of total autonomy and independence, relatively simple and approachable business strategies, characterized by a short strategic horizon with an emphasis on operational concerns.
The managerial model that is typically found in the manufacturing sector builds on simple export strategies, at the same time retaining the local operating space as well as other traditional management practices, despite the integration of professional managers into management teams. While some of the SMEs in the said sector may be perceived as early adopters on the innovation front, other, potentially innovative enterprises might exhibit certain levels of initial setbacks in the course of translating the new imperatives and trends and weaving them into their own strategic decisions.
The global model, however, defies the characteristics of traditional SMEs by opposing to them organizational modes and relatively complex strategic and organizational capabilities. The leadership in this model is open and intricately woven with the internal as well as external networks and facilitates better and smoother operation of the enterprises functioning global and highly competitive market spaces within integrated value chains (Ouellet, Trudeau, 2001).
Competing Demands of Stakeholders
A stakeholder could be defined as an individual or a group (single issue groups, government or the society at large), that has the effect of influencing / being influenced by the organizational activities, both current and future.
Leaders across all types of organizations, irrespective of its size or type of business, often have to deal with the competing demands from different stakeholders whose support and co-operation for facilitating strategic business decisions are inevitable for the organizations. The three main types of stakeholders, as identified / defined by business writers include: employees, customers and owners (shareholders) of the business, while other stakeholders include the local community, government agencies and special interest groups. Reconciling tradeoffs between the conflicting demands of stakeholders belonging to the above mentioned groups is a difficult job on the part of the leaders who are often faced with critical decision making issues involving influencing the conflicting stakeholders and persuading them to accept decisions that may or may not meet all their expectations, yet are crucial for the growth and development of the organization as a whole.
An organization having different subunits within itself, might also fall prey to conflicting demands of internal stakeholders on account of different priorities being accorded to the performance determinants such as functional specialization for one. For example, a company involved in the manufacture and sale of products for customers with diverse tastes and preferences, might face severe opposition on trivial issues from the marketing and production subunits who might have different priorities, with the marketing department’s preference giving higher priority in offering a large variety of different models with an aim of facilitating better adaptation in the dynamic market place, while the production department may confer higher priority in making a small variety of models with an aim of increasing and improving the efficiency levels as well as reducing the difficulty or obstacles faced during production scheduling. In such a case, the “managers” responsible for reconciling the different and conflicting priorities of both these departments has to make strategic decisions which involves striking a perfect balance, and adapting to the ever changing customer preferences as well as the entry / exit of new competitors into the marketplace with cheaper or better products and services (substitutes).
The approach of the “leaders” in resolving such conflicts by adopting proper styles of leadership is of critical concern in relation to the SME environment. The leadership style should not be authoritarian, but should involve the active participation of the concerned parties, and the final decision should be based on the common consensus, whereby the stakeholders involved might often have to relinquish some of their interests for the betterment of the organization as a whole. This however involves, better decision making on the part of the leaders who should act as a servant or a steward who represents all the respective stakeholders and seeks to find out ways for resolving the ongoing conflicts by coming with solutions that although, might not be optimum, but should consider and integrate the primary concerns of all the stakeholders involved. According to management scholars, the leaders who purposely ignore the opinions or views of certain stakeholders, for the interests of a chosen few, and in order to satisfy their own personal gain by encouraging negative stereotyping leads to a mutual distrust in the organization and hampers its growth in the process. Ethical leaders, are those who recognize such conflicts of interest among stakeholders, and facilitates proper decision making by openly acknowledge them (rather than pretending they do not exist), and find integrative ways of resolving them (Yukl, Lepsinger, 2007).
Environmental Uncertainty and Entrepreneurial Orientation
Entrepreneurial Orientation refers to the strategic orientation that reflects the organizational processes, methods, and decision making styles that managers use within a firm to make strategic decisions (Lumpkin & Dess, 1996). A firm with a stronger entrepreneurial orientation, that is, a higher EO, will more actively engage in product- market innovation, undertake ventures that are somewhat risky, will proactively develop new opportunities (Miller, 1983; Covin & Slevin, 1989). Thus, firms with a stronger EO may be expected to experiment in an attempt to develop new opportunities, commit resources to perceived external opportunities even when outcomes remain uncertain, Try to anticipate future opportunities in a bid to build first-time mover benefits (Wiklund & Shepherd, 2005).
Environmental Uncertainty: Case Study
Leadership while facing Insurmountable Odds: Community Transit, Lynwood, Washington
Community Transit, headquartered in the rapidly – growing Snohomish county served a vast expanse of area with just a handful of employees, was hit by a legislative law (Initiative – 695, popularly known as I – 695) that imposed taxes on the motor vehicles (excise tax), which led to a 30% loss in operating revenues. As a consequence, Joyce Olson, the Executive Director was forced to impose service cuts of up to 25%, shelve capital projects under way and halt new recruitments. But these measures taken by the organization weren’t enough. In spite of cost cutting on several prudent issues, Community Transit was forced to reduce service, cut routes and institute hiring and salary freezes, using retirements and attrition to reduce staff. Subsequently, the legislature authorized local transit agencies to seek an additional 0.3 percent in local sales tax from their voters. Almost two years after I-695 passed, Community Transit’s voters approved such a measure by 53%.
Joyce Olson’s approach in the wake of such a strategic dilemma is representative of the transparent leadership style that involves free communication between not only the employees but also the customers. Her approach of being frank, honest and clear communication of the issues faced by the organization to the employees as well as continually keeping them updated about the whole situation is what makes her a true leader in the real sense of the word. Thus rather than being a victim of change she chose to become an architect of change through appropriate adoption of leadership style. She remained optimistic of the whole situation and was continually supported by her staff and her board which remained united in such dire adversity, which played a vital role in bringing the organization back on track. It was not until 2005 that Community Transit’s ridership returned to its previous 1999 levels. Olson proudly noted that Community Transit brought back “every employee who wanted to come back.”
As we emerge from the market slump, build and grow our enterprises, and navigate the dynamic seas of change, to steer the organization towards a path of development and growth the three most interdependent and significant factors that help the organizations in surviving all odds include: · leaders, who can inspire and mobilize; · managers, who can coordinate, control and evaluate; and · employees, who can make it all happen. The organizations that understand the critical, but distinct, contributions of leaders and managers, and cultivate an environment where leaders, managers and employees can collaborate have the best chance of enduring success (Keith Sinclair, 2002).
- Anderson, P. & Tushman, M. L. (2001) “Organizational Environments and Industry Exit: The Effects of Uncertainty, Munificence and Complexity.” Industrial and Corporate Change, 10: 675-711.
- Sinclair K. (2002) “Leadership versus Management: Critical Agents for Organizational Success”
- Marino L, Lohrke F, Tang Z, Dickson P, K. Weaver M. (2006) “Entrepreurial Acuity: The Relationship Between Entrepreneurial Orientation And The Convergence Of Archival And Perceptual Measures Of Environmental Uncertainty”
- Bass, Bernard. (1990). “From transactional to transformational leadership: Learning to share vision”. Organizational Dynamics, Vol.18, Issue 3, 19 – 31.
- Barlett C A, Goshal S. (1991). “Global Strategic Management”, Strategic Management Journal, 12, 5 – 16.
- Yukl G, R Lepsinger. (2007) “Why Flexible, Adaptive Leadership is Essential for Organizational Effectiveness”
- Chartered Secretaries Australia (CSA) is the peak professional body for governance professionals, June 28, 2008. Available at <www.csaust.com>
- Ouellet P, Trudeau A. (2001). “Trends and Issues for Quebec SMEs”. June 28, 2008. Available at<http://www.dec-ced.gc.ca/Complements/Publications/Observatoire-EN/tendancesAffElec.pdf>