How poor management is harming UK small businesses

28 May 2015 -

Warwick Business School puts underperformance down to a failure to apply best management practice

Jermaine Haughton

UK small and medium-sized companies are unable to grow as fast as they could because of their owners’ poor management skills, according to research from Warwick Business School. Published this week, its report – Leadership and Management Skills in SMEs: Measuring Associations with Management Practices and Performance – identified a failure to apply best management practice as the reason for underperformance among the UK’s smaller firms.

To understand the challenges facing small businesses, author Professor James Hayton surveyed 2,500 English firms with between five and 250 staff, conducting more than 2,900 interviews – 371 of which were with managers at firms led by “senior management teams”, rather than single individuals. Armed with that material, Hayton plotted links between entrepreneurial savvy, management and leadership skills and the implementation of management best practices, to see how these factors affected three performance measures:

i) turnover;

ii) productivity, and

iii) employment growth.

Hayton explained: “When looking at the distribution of skills in the population, there is currently a ‘long tail’ of SMEs not employing management best practice. This is important because … well-developed skills are associated with the use of management best practices and, consequently, with firm performance and growth.” In that sense, he added, “the evidence shows under-developed leadership and management skills and a widespread failure to adopt management best practices are constraining the performance and growth of a large number of SMEs.”

He added: “Across all firm types and contexts, the benefits of top managers with good leadership and entrepreneurship skills appear in terms of both revenues and growth, as well as indirectly with productivity and turnover via [the] effect on good people management practices. Skill levels and the adoption of best practices are uneven across the SME sector … variations in leadership and management skills are associated with variations in SME performance”

The findings chime with a 2012 report from the Department of Business, Industry and Skills (BIS), which highlighted a lack of management nous as responsible for 56% of small-business failures. Indeed, recent research conducted by the UK Commission for Employment and Skills found that only one third (36%) of firms with five to 24 employees had provided staff with management training in the past 12 months.

With that in mind, the Chartered Management Institute (CMI) has launched Growing Your Small Business – a roadshow of regional events that aims to bring business owners together with local business schools, professional networks and Local Economic Partnerships to help small firms enhance their management skills. Each event features owners of high-growth businesses sharing their experiences, along with specialists providing practical information on how firms can find the support they need.

CMI chief executive Ann Francke said: “Businesses that employ fewer than 50 people make up more than 99% of the UK’s private sector. Growing these businesses is essential to boosting the productivity of the UK economy. We’re showing small businesses how this can be done, simply by raising their management and leadership capabilities. This is something every business can do.”

Click here for details of forthcoming Growing Your Small Business events.

For the full Warwick Business School report, click here.