Leadership and management skills in SMEs

ERC Research conducted by Professor James Hayton cited in Invest NI updated Research Note.

Deficiencies in Leadership and Management Skills (LMS), and not implementing management best practices, are a key constraint on business performance in the UK. 

To provide evidence of how LMS influence the adoption of best practice and how they may shape business performance, the Department for Business, Innovation and Skills (BIS) ( add link ) commissioned the Enterprise Research Centre (ERC)  to undertake research involving 2,500 English SMEs. The research report, ‘Leadership and management skills in small and medium sized businesses’ is available here.

Invest NI was provided with an opportunity to include a sample of 300 supported SMEs within the study.

The research found that skills levels and the adoption of best practices are uneven across the SMEs sector and that there are many businesses with poorly developed skills, and which do not use management best practices. The research also showed that variations in LMS are associated with variations in SME performance.

Key Findings:

  • The skill sets most consistently and strongly associated with good management practice and SME performance are entrepreneurship skills and leadership skills.
  • Across all business types and contexts, entrepreneurship skills are positively and significantly associated with turnover and productivity.
  • Leadership and entrepreneurship skills are positively related to strategy formalisation and responsiveness – key drivers of performance and growth.
  • Strategy formalization is positively associated with turnover while strategy responsiveness is positively associated with business growth.
  • Best practice strategic management is also related to the implementation of best practices in human resource management (HRM) – which are in turn, positively and significantly associated with turnover and productivity.
  • Skills differences are more important than structural (e.g. industry sector) and contextual factors (e.g. ownership, age and size) for explaining variation in implementation of best practices.
  • The overall impact of LMS on firm performance tend to be particularly strong for firms with between five and nineteen employees.