Why do some SMEs grow more than others?

In our latest blog, ION Leadership Programme Director and Associate Professor at the Swansea University School of Management, Gary Walpole, discusses findings from his own research into why some SMEs grow more than others.

Policymakers (BIS, 2015; UKCES, 2010), academics (Bloom, 2014; Morgan et al., 2020) and professional institutions (FSB, 2016; NatWest; 2018) in the UK have long bemoaned the ‘long tail’ of productivity within UK businesses, particularly SMEs. I recently completed a study that conducted in-depth semi-structured interviews with leaders of thirty-eight growth and high growth SMEs. My research analysed the behaviours and practices of the leaders of high-growth firms (HGFs) in order to ascertain what enables them to grow and be more productive than the majority of their SME counterparts.

The study I wrote put forward the following conceptual model, based on the empirical data collected. The model suggests that leaders of high-growth firms develop and employ a combination of contemporary leadership knowledge and skills as well as ‘promising practices’ in terms of innovation knowledge and skills which, in combination, facilitate the growth of their businesses. The contemporary innovation and leadership knowledge and skills enable the businesses to develop and deploy processes and practices that enhance productivity and lead to higher levels of business growth.

The model I have put forward makes a sound contribution to the nascent HGF and SME literature and supports the contentions of Bloom (2014) and Morgan et al., (2020). The processes and practices discovered enable me to assert that high-growth firms practice a blend of contemporary leadership styles and employ contemporary innovation practices that incorporate both new product development and continuous improvement processes and practices. The ability to develop and employ continuous improvement and new product development within a business is referred to as ‘ambidextrous leadership’ (Zacher et al., 2016; Rosing, 2011) and ambidextrous leaders Zacher et al., (2016) argued are more likely to enjoy success than their counterparts. The conceptual model answers the call of the aforementioned policymakers, academics and professional institutions.

My study suggests leaders require a level of self-awareness in order to get the best out of followers and allows leaders to understand where their efforts are most effective.  Therefore, leaders should reflect more and learn from actions as individuals and as organisations. An awareness of one’s own professional education and development is helpful as it can limit thinking and ways of problem-solving and artificially stifle innovations proposed by followers.

Leaders should encourage followers to develop as it motivates them and enhances the dynamic capabilities of the business. It also enables the leader to delegate more to them, which in turn drives innovation and productivity. Effective delegation leads to higher levels of productivity and more motivated followers.

My study also found that leaders should exhibit a level of humility and encourage followers to provide constructive criticism. It leads to more effective work relationships and greater productivity. Facilitation of open knowledge sharing enhances productivity within an organisation and often leads to an ‘innovation culture’ - when followers are aligned with company goals and ideas are translated into innovation.

Leaders should understand their operating context and how it moderates and mediates their leadership practices. This can be achieved through externally facilitated coaching of leaders and their direct followers. Leaders should regularly review technology and management practice developments, a form of environmental scanning for innovation to ensure the business exploits opportunities for profitable growth. Leaders should understand their business model and value proposition within their marketplace, in order to ensure the business remains profitable.

If you have any questions or thoughts please do comment or drop me an email g.l.r.walpole@swansea.ac.uk.