HR & Management

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UK economic growth may soon be hampered by lack of management and entrepreneurial skills in SMEs

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According to chancellor George Osborne, unemployment is at its lowest rate since 1975.

In his 2015 Budget speech he said: “We are reminded that the most important consequence of our plan is more people in work – with each job meaning a family more secure. The pace of net job creation under this government has been three times faster than in any other recovery on record.”

For the first time in 35 years, the UK boasts a higher employment rate than the US and Yorkshire has created more jobs than the whole of France.

However, Geraint Johnes, director at Lancaster University’s Work Foundation, suggested that sustaining an economic recovery would mean an increase in pay. In turn, he stressed, the turnaround in productivity would need to be realised. 

“If productivity can rise at a steady state once more, the budgetary plans look as though they can be achieved,” he said. “But if it cannot, meeting deficit targets will be an impossibility.”

According to Warwick Business School research, one area which could hamper both growth and productivity alike is the current levels of management and leadership skills within SMEs.

Professor James Hayton, of Warwick Business School, suggested that when looking at the distribution of skills in the population, there is a “long tail” of SMEs not employing management best practice. 

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To better understand the SME sector, Hayton examined the association between entrepreneurship skills, leadership and management skills, the implementation of management best practices and how these factors are related to three measures of performance: turnover, productivity and employment growth.

The results demonstrated that leadership and management skills are under-developed in many SMEs, argued Professor Hayton.

The most important predictor of positive performance is entrepreneurship skills, Hayton said. He found that across all firm types and contexts, the benefits of top managers with good leadership and entrepreneurship skills appeared in terms of both revenues and growth, as well as indirectly with productivity and turnover.

“The results indicate that skills matter, but not all skills matter equally,” said Hayton. “Given limited resources, especially time, SME owner-managers may benefit most significantly from ensuring that their entrepreneurship skills and leadership skills are well polished.

“An important practical takeaway from this research therefore is owner-managers should understand the fundamental benefits of a formal approach to strategic planning, communication, and adaptation, as well as being able to connect HRM practices to the strategic planning process.”

He admitted that there has been evidence that entrepreneurship skills are trainable and that many managers would benefit from taking advantage of this type of “personal development opportunity”.

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