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Leadership and Management in Small Businesses Research Paper

Outline

In the 21st century era, small and large, private and public businesses are all aiming towards economic growth. However, this growth has slowed following emergence of unprincipled leaders whose main aim has been satisfaction of individual needs as opposed to their employees and customers. With such unethical practices, it is obvious that a strong impact has been witnessed in economic growth, which boils down to declining capital investments and unemployment for small businesses. Emergence of economic uncertainty can be traced back to WorldCom and e-business sector failure (Luthans, Luthans, Hodgetts, & Luthans 2001). Before the famous 9/11 attack, United States economy was already declining following increased unemployment and reduced consumer spending. This condition was further worsened by the 9/11 attack that resulted in increased uncertainty in economic change (Shaw & Shapiro 2002). These changes have challenged the need for leadership and management at all levels of business focusing on ensuring nothing but absolute success. For leadership and management to achieve these roles, there is need for redefinition from the commonly held perspective.

Management and leadership are two terms that are commonly and differently used in small businesses and importantly in rejuvenating a dwindling economy. To some people, these terms are seen as synonyms and hence used frequently and interchangeably. From other perspectives, these words are perceived as two different business approaches. Those identifying these terms as extremes maintain the possibility of an individual being a bad manager and good leader simultaneously. Others have resided somewhere between the terms insisting that while management and leadership inherently presents two different business approaches, it is possible to navigate in both positions for a successful business.

In modern business environment, businesses – whether small or large- will importantly require effective managers and effective leaders if any operation is going to be regarded as successful. While some perspectives argue that their contributions to organizational success vary, it is conclusively understood that management and leadership will apparently contribute positively towards any business success. For the purpose of this article, management and leadership are understood differently. Whether utilized simultaneously or differently, many businesses will give a precise testimony of significant impacts that leadership and management have on any successful business. Therefore, the main objective here is not to evaluate how the two terms vary, but rather how they contribute to success of small business. This essay will hence understand the fundamental characterizations of management and leadership, the components of effective leadership and management in small scale businesses and their underlying theoretical perspectives. Ideally with appropriate training, it is possible for managers and leaders to develop a successful small scale business.

Leadership versus management

In any small scale business, adopting an entrepreneurial spirit is perceived as critical for economic growth, enterprise growth, and overall nation wellbeing. Therefore in these entrepreneurs, the passion is motivated towards ensuring development of businesses that will outline success. As this business is continually natured, the aim is providing the best services and products at friendly prices that can easily be afforded by their customers. Therefore, without even contemplating on what constitutes leadership and management, business developers embark on a journey that is entirely perceived to be geared towards the overall goal. Ironically, these business leaders or managers hardly possess appropriate expertise, background, and desire of managing their businesses in a strategic manner. Leadership and management are important for success and hence if undermined, these businesses are likely to eventually fall or fail to achieve the overall objectives (Kouzes & Posner 2007).

Kouzes and Posner (2007) understand leadership as a process that enables a group member to influence fellow members towards achieving a common goal. Further, the same authors explain that while indeed there exists various leadership styles, there are particular leadership components that will inherently exist in all these definitions. These varying definitions will undeniably agree that leadership is a process; it incorporates influence, involves attainment of a well labeled goal, and occurs in a group context. Hence, regardless of how leadership is operationalized, these aspects will undeniably play a contributing role in the utilized theory and definition of leadership.

From a different perspective, Kouzes and Posner (2007) argue that management is understood from varying definitions. Conversely, this does not imply that both management and leadership roles cannot be held by one individual, but management is perceived to follow a definition quite different from leadership. Management definition incorporates supervisory, administrative, and executive direction of an organization or group. Therefore, management and leadership are perceived to share numerous similarities. For instance, going by the understanding of Gordon and Yukl (2004), both leadership and management are ways of impacting influence and collaborating with people for achievement of the overall goal. However, management and leadership fields can also be observed to be different.

In Kotler’s leadership theory, leadership is an old concept that has been employed in business for many centuries. Management on the other hand is a concept that has been developed over the last 100 years as a result of industrial transformation. Kotler’s perspective is undeniably shared by many scholars when it comes to understanding leadership and management. For instance, according to theorists Nanus & Bennis as qtd. by Gordon & Yukl (2004), management is perceived to be an approach through which activities are accomplished in such a way that routines can be mastered. Leading hence implies influencing others and development of a vision through which change may be enhanced. Rost (Chemers, 2002) on the other side understands leadership as a relationship with multidisciplinary influence while management is perceived to be authoritarian leadership that is lined towards one direction. Chemers (2002) adds that leadership and management are two different business approaches that should be handled by different individuals. Moreover, an overlap exists in the two fields. For instance, when management activities are aimed at assisting employees to achieve organizational goals, this form of management is observed to be operating under leadership. As the leaders are involved in features such as organizing, planning, controlling, and staffing, they are observed to be operating under management. This is a simple indication that these two aspects will undeniably involve interchanging and similar roles and hence can hardly be fully isolated.

Literature review

In the United States, a larger section of economy is mainly centered on small businesses. In small businesses, leaders have used various approaches that have been employed to enhance organizational positioning in such a way that these business objectives and goals can be achieved (Howard, 2006). Based on the fact that economic condition has been a major concern, this market has witnessed a rapidly changing demand for small business. According to Pellerin’s (2007) perception, small businesses are individually owned and operated, hence hardly dominate in their field of operation. The last three decades have seen United States, among other global nations, witness a dominant development of small businesses (Kuratko, 2007). These small businesses have, in United States, resulted to the GDP growth by more than half, serving as a main source of job creation through incorporation of more than 50& of the workforce.

Therefore from studies, it is apparent that when it comes to the economic growth, small businesses are hardly detachable. From the United States Census (2005) statistics, 13.3 million United States organizations were registered as small scale businesses by the year 2004. The small business increase has come as a boost to economic growth and as a means of employment creation. Growth in small businesses has been linked to economic improvement and most importantly creation of new employment. According to Kurakto (2007), small business growth has been attributed to increased competition, profitability, and well framed organization goals. In order for these achievements to be enhanced, Kurakto (2007) has noted the importance of effective leadership. However, this has not always been the case because as earlier highlighted; poor leadership is inherent in many small businesses.

Beaver (2003) and Perry (2001) affirms that one of the reasons for failure in much small business is simply because of poor leadership. Based on this understanding, Gordon and Yulk (2004) have mainly targeted their reteach in understanding important leadership skills that affect small scale environment. More than two decades ago, Beaver (2003) analyzed 200 small scale businesses that had recorded bankruptcy. From the study, it was clearly observed that the main reason behind failure of small business was management neglect, and lack of knowledge on leadership. Therefore, if these small businesses have to be successful, it is important to incorporate leadership styles.

As Pellerin (2007) observes, the rate of failure in small businesses is high. This author observes that by the end of the third year, the rate of failure hits more than 62% in many small businesses. However, this study does not incorporate another burning issue: management incompetence. Scheers and Radipere (2007) add that within the first ten years of business operation, 90% of small business fail. These authors strongly agree that failure in these businesses is mainly caused by poor skills in management and leadership. As a result, for any economy to be successful, small business have to be competitive and productive (Beaver 2003). For any economic growth, the central role of small businesses can hardly be undermined. For these businesses, leadership and management skills should be understood as main steps towards increased returns. These skills are well incorporated in different theoretical perspectives. From various authors, leadership has been understood differently although there is a common agreement in these varying perspectives.

Leadership has always been perceived to be a process through which one person is able to support and aid others to accomplish common tasks. Through leadership, a way is created through which contribution is enhanced by ensuring that extraordinary things are implemented (Pellerin 2007). In addition, if these leaders have to be successful, they should importantly portray internal control locus.

Charismatic leadership

Charisma in leadership is highlighted and defined in numerous ways. It is however perceived to be an exemplary character that is natured in an individual person. According to Kouzes and Posner (2007), charismatic leadership is perceived as a behavioral inclination of leaders that result in development of exceptionally strong relationship between leaders and their followers. For these charismatic leaders, Robbins and Coutler (2003) has highlighted three exceptional leadership characteristics which are; expression of high confidence, strong convictions, and dominance in their beliefs. The same authors also add that these charismatic leaders should be able to demonstrate optimism, determination and confidence, and collective ability of accomplishing mission and realizing the vision. These authors arguably add that these leaders are also required to engender trust as well as the ability to take personal risks to prove that their approach is indeed justified. Therefore, there is a high likelihood of charismatic leaders focusing to develop a clear and distinct group.

Charismatic leadership has a high likelihood of being found in emerging and struggling small businesses than in stable and successful organizations. Emphasizing on the importance of this leadership, Kouzes and Posner (2007) have highlighted five important attributes that must be found in any leader to be categorized as charismatic. They are: (1) Articulation and vision; (2) Sensitivity to the needs of employees; (3) Personal risk taking; (4) Sensitivity to the business environment in which the business is operating; and (5) Execution of progressive behavior. Schermerhorn (2005) has summarized charismatic leaders as leaders or managers who are capable of sparking a sense of belonging towards the business. In addition, these leaders have been able to inspire their employees towards a direction in which organizational objectives and goals may be achieved (Schermerhorn 2005).

Transformational leadership

According to Pryor et al. (2007), transformational leaders are able to impact movement and change in their organization. Such leaders are able to seek ways of altering the prevailing structure while ensuring that people are continuously convinced to support new responsibilities and vision. For the excellent transformational leaders, power and authority is utilized as motivational and inspirational tools to the people they follow and trust. This leadership is hence able to provide energy producing characteristics through which new changes are likely to be generated in a business. Furthermore, these leaders are capable of motivating followers to transcend their individual interests for other combined purposes while at the same time ensuring that these followers are assisted to increasingly satisfy their individual needs. Pryor et al. (2007) have revealed inner transformational leadership characteristics in small business. These characteristics are highlighted to be inclusive of honesty, integrity, and personal values. These characteristics are positively influential to the leader’s behavior. For effective performance, a major ingredient is connection of transformational leadership with life experiences. This inner connection is combined with the resulting behaviors do develop external behaviors through which a business is transformed. For instance, a group vision is produced by a sense of personal involvement.

Management models

Conventionally, small businesses have been seen to have a low likelihood of utilizing strategic management models in comparison to large organizations based on a number of reasons. They are: (1) Small businesses are in most cases owned at the family level; (2) The leaders in small businesses are in most cases focused on daily operations thereby paying minimal-if any- attention to strategic management systems and management models; (3) Small businesses are mainly less endowed in financial resources that can comfortably be utilized in improving business performance through training; and (4) Competitors at their levels apply similar business approaches, without incorporation of any managerial models and implementation of systems through which improvement can be enhanced.

Additionally, entrepreneurs involved in development of small business are hardly interested in development of procedures and processes. On the other side, large organizations obviously incorporate people with a clear understanding of management models by the time they have completed their studies in colleges. Moreover, these organizations have large amounts of finances that can resourcefully be allocated to training. Large scale businesses compete with large business opponents that are competitively and strategically driven.

Strategic management approach

This approach was initially developed by Toombs, White, and Pryor (1998) with a perception that small scale business leaders or managers incorporate strategic management elements in their business. This ideal incorporates the SWOT analysis together with the vision, mission, objectives, goals, values, competitive advantage, critical success factors, measurement, and feedback. Various theorists strongly insist that strategic management is an important aspect for a small business targeting enhancement of quality initiatives. Numerous authors have mostly insisted that as a result of incorporating various business theories, models, standards, tools, strategies, surveys, and training, it becomes possible for small businesses to be improved. These theorists mainly insist on the need for integrating quality initiatives into the organizations strategic management (Pryor et al. 2007). As a way of creating additional emphasis on this point, Chemers (2002) explain that total quality management must be linked to the strategy of a business because most strategies incorporate goals. Chemers also adds that TQM must be guided by a senior team in management and project selection must be based on their importance when it comes to achieving success in a business. Robbins and Coulter (2003) supports the perception above. However, they argue that customer impact must be integrated with strategic management as a way of achieving the desired results.

5P’s model

While strategic management theory is perceived to be a model that should be incorporated by business leaders for long term success and survival, this model hardly incorporates the 5P’s model that was established by Pryor (1998). The strategic management model and strategic direction establishment is perceived to be incorporated in one of the five rudiments that should importantly be adopted to enhance a business success. For pneumonic purposes, this business approach has mainly been referred to as “Purpose.” The remaining elements are performance, people, processes, and principles. The 5P’s model is perceived to have some elements that are similar to those found in strategic management model that has earlier been examined. However, these elements have additional importance besides their individual importance. Moreover, their alignment is perceived to be equally important.

Business leadership approaches

Trait approach to leadership

Trait approach is developed from “great man” model as an approach through which key characteristics can be identified for successful leaders. This approach is centered on the perception that through this approach, it is possible for leadership approaches to be isolated. Therefore, individuals possessing such traits can be selected, recruited, and installed into the positions of leadership. This theory has resulted in development of numerous traits. After numerous years characterized with continuous research, it is apparently hard to identify consistent traits. Although some traits have been found in various studies, these studies results have been inconclusive. It is possible for some leaders to possess certain traits. However, in case these traits are not present in an individual, this is not sufficient reason to disqualify such a person as a leader. In order to qualify an individual as effective leader, various traits should be processed. Nevertheless, there is a high likelihood of some traits to be more frequently observed than others. Some of the commonly observed traits in an effective leader are inclusive of friendliness, technical skills, task motivation, supportiveness to group tasks, emotional control, social skills, intelligence, and general charisma.

Behavioral leadership

The trait studies results were not conclusive. The inconclusiveness is based on the perception that it is hard to measure traits amongst other things. For instance, it is hard to measure such traits such as integrity, diligence, loyalty, and honesty. This inconclusiveness is what has challenged development of behavioral model. In this model, the focus is based on human relationships alongside performance and output.

In McGregor’s theory Y and theory X managers, it is observed that an average individual is more likely to develop an inherent work dislike and will make all efforts possible to avoid working. In theory X, it is observed that this individual characteristic is highly likely to provoke the need for controlling, coercing, or even threatening individuals if they are to be encouraged to make efforts required for organizational goal achievement. Theory X is also based on the perception that an average individual highly prefers being directed as a way of avoiding responsibility. In theory Y, the managers believe that mental or physical effort expenditure is as natural as rest and play. In addition, the managers believe that employees are likely to exercise self-control and self-direction as a way of achieving the objectives that define their commitment. Moreover, the ability of exercising high level of ingenuity, imagination, and creativity in organization problem solution is widely (as opposed to being narrowly) disseminated in the people and human being potentials. From this theory, it is possible to conclude that theory X leader is more drawn towards an autocratic approach while theory Y leader is more drawn towards a participative style.

In the managerial grid, developed through collaboration of Jane Mouton and Robert Blake, the focus has mainly been drawn to managers, employees (people), and task (production) orientation together with a combination of concerns between these two limits. Mouton and Brake model therefore suggest that team management, a major concern to production and employee, is the most effective leadership approach.

Situational or contingency leadership approach to business

Even as behavioral model is likely to assist management in a business when it comes to development of a specific leadership behavior, little guidance is given in understanding the constituents of effective leadership in varying situations. Undeniably, most modern researchers conclusively agree that indeed there exists no one appropriate leadership style for every manager under all settings. Therefore, development of contingency models was aimed at indicating that the utilized style is dependent upon such aspects as the people, the situation, and business among other surrounding variables. In contingency approach, it is understood that there hardly exists one specific approach through which managers can be able to lead. As a result of situations, varying leadership requirements are likely to be created for a leader. For this leadership situation, the solution is dependent on the factors affecting the situation. For instance, in a high routine environment characterized with repetitive tasks, a comparatively directive management approach it likely to yield best results. However, a more participative approach will be required in a dynamic environment.

Building a successful business

According to Howard (2006), business performance is perceived to be a multifaceted construct incorporating customer, operational, and financial oriented performance domains. The non-financial measures are inherent in Howard study. This performance measurement approach is incorporated as a result of limitation connected with small businesses financial data measurement. The satisfaction of the owners through performance of business is perceived to be one significant success indicators. Small business success is defined as performance level equal to or exceeding the firms owner expectations. The indicators that have mainly been employed in performance measurement are: profitability, annual earnings, and return on investments.

Standards of a small business

The small business standards have been developed by Chartered Quality Institute (CQI) (2007) in collaboration with the management consultants. This is a business model that is perceived to be important for managers targeting continuous growth in their business. Designing of the small business standards is aimed to be utilized in various investments that include small and medium size businesses, and micro businesses (CQI 2007). In the places where “management” term is utilized to imply micro business, it is likely to imply the “proprietor.” In the standard business model, there are nine main sections: (1) Customer care; (2) Business reviews; (3) Employees and staff; (4) management responsibility; (5) suppliers; (6) processes and work environment; (7) Correction and prevention of services complications; (8) Records; and (9) Documentation. While the standard is mainly perceived to be simplistic in comparison to the 5P’s model and Strategic management model, it incorporates numerous small business management key ingredients. Therefore for small businesses, it is likely to be a good starting point as the business moves towards management and improvement of its organization (CQI, 2007).

In relation to the small businesses standards application, one British Standards Institute website has observed that it is possible for real business standards to be achieved by small scale businesses. If this approach is well utilized, it hence has a high likelihood of resulting in: (1) elimination of inefficiencies witnessed when it comes to allocation of already limited resources; (2) improvement of marketing speed and risk reduction; and (3) enhancement of an effective competition with bigger businesses (British Standards Institute 2007).

From the general leadership perspective, it is apparent that indeed success or failure in results production will mainly depend on leaders’ character. For these leaders to be viewed as effective, they have to be viewed as essential for the business success. However, the achievement of organizational success will not depend on adoption of similar leadership styles in all organizations. Nonetheless, these leaders will have an influential role on how the organizational goals are to be achieved by the employees in the organization. For this to be enhanced, small business leaders will require advanced understanding of the leadership styles to portray progress and development in achievement of organizational objectives and goals. With small business research, these leaders will be provided with understanding of leadership activities that are necessary for specific position if achievement of organizational objectives and goals is to be enhanced. These businesses will hence have to establish working environment for their business; this will be enhanced through leadership style. For organizational effectiveness, leadership will obviously have an important role. If employee empowerment will not be fulfilled in these organizations, there will be a high likelihood of employee dissatisfaction that will undeniably divert from achievement of organizational objectives and goals. Therefore, if a healthy working environment has to be maintained in these businesses, leadership should play an integral role.

Conclusion

Indeed the theoretical underpinnings evaluated in this article clearly demonstrate need for robust leadership existence in any small business. The failure of these businesses is indeed due to failure to adopt the necessary and fundamental requisites of a successful organization; effective leadership and management skills. This essay is very relevant; for instance in the current economic conditions that desperately require an influential intervention. Leadership hence should be trailed towards ensuring employee satisfaction and effectiveness as a way through organizational success and profitability will be enhanced. Consequently, robust leadership will eventually affect the success and profitability of small business. The way through which this will be enhanced is through incorporation of leadership and management theories analyzed in this essay. These leadership and management hence need to be employee motivation towards adaptation of organizational vision and mission.

If these small organizations have to improve their operations, various leadership and management models should importantly be utilized. In fact, the strategic management should be integrated with effective leadership styles. Various models have been highlighted in this article and they are all important in enhancing business success. Although these models cannot be simultaneously used in business, any business striving towards a…

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