SOTA Review

Is there a Link between Small Business Leadership and Productivity?

SOTA Review No 55

Associated Themes

Leadership quality has been proposed as an important explanation for differences in the productivity performance between so-called ‘frontier’ and ‘laggard’ firms. Quantitative studies have sought to understand if human resource management systems and skills can improve SME performance, including productivity. Other influential international research on management practices has motivated survey data collection and analysis covering SME populations. Performance gaps amongst SMEs have provoked substantial policy interest in the funding and provision of leadership development programmes. Twenty years of experience with this provision, supported by other research evidence on entrepreneurial learning has identified several areas of best practice and good programme design, including action learning, peer learning networks and peer mentoring. Although qualitative and participant evaluation evidence provides useful insights, quantitative evidence which assesses apparent productivity gains against a robust counterfactual case is scarce. A clear conclusion is the need for improved ‘designed-in’ evaluation methods. A further conclusion is that, since the cost of provision at scale is very high given the size of the UK SME population, careful targeting of leadership development support is required. Those SMEs most receptive to support may not necessarily be the laggards. Improved leadership skills in SMEs with already above average performance may work more effectively by sharpening the competitive forces faced by those laggards.