The Relationship between Leadership Styles and SMES’ Growth in the Top 100 SMES in Kenya

Abstract

Though leadership styles are recognized to influence Small and Medium Enterprise growth in the developed world, there exists scanty literature in developing countries such as Kenya. Therefore, as a general objective this study sought to establish the relationship between leadership styles and SMEs growth. The study was guided by the following specific research objectives: To establish the relationship between democratic leadership style and SMEs growth, to determine the relationship between laissez faire leadership style and SMEs growth, to examine the relationship between transformational leadership style and SMEs growth, to examine the relationship between transactional leadership style and SMEs growth, and to establish the moderating effect of organizational culture on the relationship between leadership styles and SMEs growth.With regard to the methodology, the study adopted a pragmatic philosophical approach in order to facilitate data triangulation so as to have a clear understanding of the research problem and used a causal research design. The target population was 553 owners and managers of the top 100 SMEs of 2013. Two samples were drawn for this study. The first sample consisted 227 managers was for quantitative data. This sample was drawn using stratified proportionate random sampling technique. The second sample of 25 was for qualitative data was derived using purposive sampling technique. The study relied on primary data that was collected using closed-ended questionnaires as well as structured interview guides. The research instruments were pretested to examine the reliability of the questionnaire where by the constructs in the questionnaire that did not meet the threshold of 0.7 Cronbach’s alpha, were reconstructed and subjected to a retest, the validated tool was then used for the main data collection. Descriptive statistics were used to describe and summarize the data while inferential statistics where used to make inferences and draw conclusions about the quantitative data. Inferential statistics included Pearson’s correlation to test the association between the variables; regression analysis was used to make predictions about the dependent variable, and chi-square test used to test the research hypotheses. Qualitative data was coded; transcribed and thematic analysis was used for data analysis and presented in themes and subthemes showing the respondents’ views. The study findings established that democratic leadership style and SME growth had a positive and significant correlation(r =0.713, p = 0.021 (p< 0.05); The relationship was also found to be statistically significant (β1 = 0.019, t = 0.273, p> 0.015); the null hypothesis was rejected and alternative hypothesis accepted since the p value was less than alpha (2=62.146; d.f. = 52; p= 0.000(p<0.05) Laissez-faire leadership style and SMEs growth was also positively correlated and significantly related(r= 0.792, p= 0.011 (p< 0.025); (β1 = 0.143, t = 2.289, p> 0.023); the null hypothesis was rejected and the alternative hypothesis was accepted since the p value was less than alpha (2=213.143; d.f. = 60; p= 0.021 (P<0.05). Findings also illustrated that transformational leadership style had a positive and significant relationship with SME growth (r =0.715, p= 0.022 (p< 0.025); (β1 = 0.007, t = 0.092, p> 0.017); the null hypothesis was rejected and alternative hypothesis accepted since the p value was less than alpha (2=89.106; d.f. = 46; p= 0.019 (P<0.05) similarly, transactional leadership style had strong positive and significant correlation with SMEs growth(r= 0.702, p =0.007 <0.05); (β1 = 0.128, t = 1.470, p> 0.023); and the null hypothesis was rejected since the p value was less than alpha (2= 43.432; d.f. = 47; p= 0.023 (p<0.05). Results further showed that, organization culture had a significant moderating effect on the relationship between leadership styles and SMEs growth(r =0.811, p = 0.023 (p<0.05); (β1 = 0.123, t = 1.233, p> 0.021); the null hypothesis was also rejected since the p value was less than alpha (2=68.613; d.f. = 60; p= 0.001 (p<0.05) Overall, the results of the regression analysis indicated that the predictor variables, leadership styles and organisational culture explained 71.4% variation in in the criterion variable, SMEs growth.The study concluded that democratic leadership style had a high correlation with SMEs growth through creating positive relationship between employees and the managers in an organization. This relationship building affected the overall performance of an organization as the employees found satisfaction in their work which positively affected their morale and performance as well, which in turn affected the overall success and growth of the organization. Also, the study concluded that laissez-faire style of leadership in an organization allows full freedom and power to employees as seen in the study findings, this motivates employees and other low level management to be creative and approach work in a manner that is best for them without the leaders’ micro managing them. In transformational leadership style, the study concluded that the managers of an organization motivates by making employees more aware of the importance of their outcomes and productivity in their tasks. The managers encourage employees to think critically and seek innovative methods to approach their work and assignments, resulting in intellectual stimulation and consequently outstanding performance of the organization. The study further concluded that transactional style of leadership implies closely monitoring employees for mistakes and errors and then taking corrective action as quickly as needed. Finally, the study concluded that the adoption of a transactional leadership in management will affect performance as the leaders will identify and recognize any outstanding performance in employees and reward them accordingly. This practice in turn motivates employees encouraging their efficiency in performing tasks as well as leading to increased productivity and growth of the organization. Based on the study findings, it was recommended that a balanced approach should be applied by SME leaders when selecting leadership styles in their organizations. In democratic leadership style, the study recommended that leaders need to build mature teams with experienced and cooperative individuals who are capable of making good decisions as well as supporting team goals. The study also recommended that although laissez-faire leadership style is sometimes regarded as an ineffective style, however it can be effective where employees are professional, highly skilled, experienced, motivated and capable of working on their own. Further, the study recommended that transformational leadership should be adopted to ensure that challenges and obstacles in the operational process are identified and appropriate measures taken in order to facilitate consensus through the efforts of the leaders and the employees. On transactional leadership style, the study recommended that employees should be taken through personal growth and skill development, which will ensure the growth of the employees. Finally, the study recommended that managers should be mindful of the organizational culture in order to manage a dynamic environment and to promote a positive organizational climate.