Leadership SME Leadership Strategy from the Top Down: Lessons from the Boardroom in Small and Medium Enterprises

Leadership and management theories and strategies have proliferated at a rapid rate in the twentieth and twenty-first centuries, as organizations have grown larger and more complex and have faced pressures of a much faster pace of business. The demands made on leaders of business organizations and the need for strong leadership in navigating the ever-more changeable waters of modern business have grown along with businesses themselves, in both the degree to which leadership can affect operations and overall success as well as in the number of tasks and knowledge areas that leaders are supposed to be able to handle. Much of the diversification and increased scrutiny of leadership theories, processes, and practices can be attributed to the increased importance and complexity of leadership positions.

In something of an irony, however, the many different leadership theories and perspectives that have been put forth in the modern era can make the task of leadership more complex and burdensome by offering too much information, some of which is mutually exclusive. Selecting a leadership theory, or a bouquet of leadership theories, with which to helm a company can be an onerous task in and of itself given the number to choose from, and different organizations and situations often call for different strategies and overarching theoretical frameworks. Grounding this task in relevant research does not necessarily make it easier, but is the only way to ensure it is carried out properly and objectively.

The following literature review presents is constructed around the somewhat novel concept of cross-purposing leadership theories and research, attempting to see how an understanding of leadership at a large publicly traded corporation might inform leadership theirs and practices for small and medium enterprises. A summary of one specific piece of research detailing boardroom decision-making and leadership is provided, then contextualized and further examined through the support of other research focusing on specific leadership styles and small and medium enterprise success. This analysis allows for practical recommendations to be made as to how leadership theories and practices might be properly implemented in small and medium enterprises, and for an identification of organizational contingencies that may either promote or inhibit the implementation of the identified leadership skills, traits, and practices. Through this, it is hoped that this review contributes to the efficacy of leadership and the clarity of leadership research available today.

Heterogeneity and Fault-lines in Boardrooms

The research article selected for close inspection in this review examined the existence of "faultlines" in boards of directors and their relationship to entrepreneurial thinking, and evidence of other leadership qualities and practices in the organization in relation to these faultlines. Heterogeneity -- more simply put, diversity -- amongst these groups of organizational leaders is also explored in its effects on the actions, discussions, and decisions, of the boards. This leads to some conclusions regarding overall leadership theories and strategies.

Tuggle et al. (2010) set out to study how faultiness -- the existence of clear divisions within groups, which are often the results of a low-level of diversity that creates distinct and then typically competing homogenous subgroups -- affect other elements of decision-making and discussion amongst boards of directors. Specifically, the researchers focused on the level of entrepreneurial-type discussions and decision-making patterns, which can be seen as a measure of broader organizational and leadership innovation and flexibility (Tuggle et al., 2010). Their findings suggest that entrepreneurial discussions and decision-making patterns were increased by weak faultlines -- generally caused by the existence of a great deal of diversity and thus many divisions that become less important due to their number -- and by other more specific factors of the groups' heterogeneity (Tuggle et al., 2010).

A variety of backgrounds, age, and tenure at the boards in question was seen to increase the level of entrepreneurial discussion and decision-making, and the proportion of directors with output-oriented backgrounds increased such patterns overall, regardless of diversity patterns (Tuggle et al., 2010). All of this suggests that variegated leadership perspectives lead to great revels of innovation, and also that collaboration in leadership can be an effective way of contributing to organizational growth and adaptability so long as proper measures to control for conflict are taken (Tuggle et al., 2010). The corporate boardroom, of course, is very different from the singular cluttered office of the small business owner or manager, as are the leadership demand of the organization, yet these findings might still be applicable.

Practical Applications for SME Leadership

The article summarized above is appealing...

Practical applications of the lessons of this research to smaller organizations might not be immediately obvious, given the lack of an extensive leadership team that would be analogous to a board of directors, but careful examination of certain details in Tuggle et al.'s (2010) findings can yield relevant practical recommendations. These recommendations are further supported and made more comprehensive by additional research more directly focused on small and medium enterprises.
Knowledge creation and generation has always been tied to innovation, and though the research does not specifically address this it is reasonable to assume that the knowledge diversity of boards of directors with weak faultlines contributed to their success. Small business managers can apply this lesson by recognizing and nurturing the knowledge assets in their organization, which they are much better positioned to do than managers and leaders in larger corporations, which can spark creativity and innovation from the bottom-up (Von Krogh et al., 2012; Gong et al., 2009; Demmer et al., 2011). Studies have also shown that age diversity in small organizations is conducive to greater levels of overall productivity when age discrimination is controlled, directly applying the age and faultline lessons of Tuggle et al. (2010) (Kunze et al., 2011).

In order to apply these lessons in a practical manner, leadership individuals and managers at small and medium enterprises need to implement policies that promote diversity and the tolerance of this diversity, establishing projects, arranging shifts, and otherwise organizing operations to encourage or require direct and conscious collaboration. Encouraging a diversity of opinions in leadership opinions and discussions, as suggested by Tuggle et al. (2010), can also be applied to smaller organizations even without a group of leaders, and in fact employee input and collaboration on change initiatives is seen as required for true success in such endeavors (Kotter & Schlesinger, 2008; Weber et al., 2009). As collaboration amongst employees has been directly linked to innovation and thus to organizational success for small and medium enterprises and is suggested at least amongst leaders in larger enterprises, it would make sense to implement policies that mandated such collaboration at the operational level and in decision-making, even if there is a single final decision-maker (Rubio & Aragon, 2009; Tuglle et al., 2010; Kunze et al., 2011).

Means for achieving this level of collaboration can be as simple holding regular meetings that involve all levels of staff, seeking input not just from department heads but from others as well. One-on-one meetings with lower-level employees on a regular basis might also be beneficial, reducing the pressure to give what are perceived as "desirable" responses in open meetings in front of superiors. This would enable a small- to medium-sized organization to remain very well integrated and collaborative, helping to generate greater levels of success.

Other practical means of achieving the benefits noted by Tuggle et al. (2010) and supported by other research regarding diversification, collaboration, and innovation can be found in the human resources management areas of the organization's operations. Ensuring diversity in the organization through hiring practices and specific retention strategies based both on tenure and performance will help retain older and more experienced talent while attracting younger and newer individuals to the company. Achieving this age and tenure diversity and encouraging employee creativity by reducing fears of reactionary measures will help encourage the innovation and entrepreneurial attitudes linked with general adaptability and long-term success (Tuggle et al., 2010; Gong et al., 2009; Kotter & Schlesinger, 2008). Care will need to be taken to ensure compliance with equal opportunity employment laws such that diversity classifications do not limit employment opportunities.

Organizational Contingencies

Despite being well-established in current research, achieving collaboration and innovation through creativity throughout an organization, and especially amongst organizational leadership, is easier said than done. There are many contingencies that must be controlled for in order for the above-outlined approaches and the learning they stem from to be properly implemented in any organization, no matter what the size. Leadership attitudes and employee knowledge bases are two of the most fundamental and pressing contingencies involved in carrying out these plans, and these lead to other areas of consideration, as well.

While appropriate leadership attitudes and perspectives can go a long way in promoting and establishing overall creativity and innovation in an organization, the wrong approach to leadership combined with practical attempts…