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Management Development in European Small and Medium Enterprises Colin Gray Advances in Developing Human Resources 2004 6: 451 DOI: 10.1177/1523422304268381 The online version of this article can be found at: http://adh.sagepub.com/content/6/4/451
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10.1177/1523422304268381 Advances in Developing Human Resources Gray / MANAGEMENT DEVELOPMENT: EUROPEAN ENTERPRISES
November 2004
Management Development in European Small and Medium Enterprises Colin Gray The problem and the solution. Of the 20 million or so firms in Europe, 99% are small and medium enterprises (SMEs) that employ fewer than 250 people and account for two thirds of the European workforce. Faced with increased global competition, mainly from Asian and U.S. firms, Europe’s policy makers are concerned with improving the quality of management in the SME sector. Because of the marginality (economic, cultural, personal) of small firms, however, it is generally assumed that these firms are too preoccupied with entrepreneurial activity and/or survival to take a sustained interest in management development. Is this the case? Keywords:
management development; SMEs; entrepreneur; organizational growth
This article draws on recent U.K. and European Union (EU) studies to demonstrate that there is a significant segment of more active small and medium enterprises (SMEs). These are distinguished from the mass of more traditional small firms by factors such as workforce size, sales turnover, the strategic and personal motivations of owners and managers, and a more structured and systematic approach to their development of management capabilities. These differences are then explored in more depth through analyzing the findings of a major pan-European management development study of some 700 firms (about one half SMEs) in seven western European countries. Comparisons are made between SMEs and larger enterprises. The implications concerning organizational growth are then discussed. These issues include growth in not only workforce and managers but also in the firms’ capabilities, capacity for learning, business potential, and strategic horizons. For the past decade and more, there has been a steady increase in public policies aimed at improving European managers in terms of their compeAdvances in Developing Human Resources Vol. 6, No. 4 November 2004 451-469 DOI: 10.1177/1523422304268381 Copyright 2004 Sage Publications
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tence, competitiveness, effectiveness, efficiency, innovativeness, leadership, quality, and so on. The main drivers spring from global competition and Europe’s competitive position vis-à-vis the United States and eastern Asia. Since 1994, with the publishing of the U.K. government’s Competitiveness White Paper (Department of Trade and Industry [DTI], 1994), the links between management development and competitiveness have been widely recognized (Council for Excellence in Management and Leadership [CEML], 2002; DTI, 1998; DTZ Pieda, 1998). At the EU level, these links have been reinforced through the establishment of an EU Competitiveness Council at the 2002 Copenhagen EU Council. Although the larger enterprises and multinational corporations lead the management development agenda, increasing attention is now paid to the management of SMEs, firms that have fewer than 250 employees according to EU definitions. This reflects a shift away from the policy focus of the 1970s and 1980s when SMEs were the source of new jobs to a sharper focus on the entrepreneurial role of SMEs in promoting flexibility and innovation. However, it is also widely recognized that SMEs’ demand for and participation in management development has been significantly lower than that for large corporations and public organizations.
SMEs in Europe The size of the SME population in Europe and the United States are roughly the same. The EU’s SME observatory study (European Commission, 2002) reported that there are 20.15 million SMEs (from a total of 20.45 million firms) compared with the Small Business Administration’s 2002 figures of 22.9 million in the United States (which can include firms that employ up to 500 employees). European SMEs account for two thirds of the 122 million private sector workforce and 54% of private sales (compared with 50.1% of the workforce and 40.9% of private sales in the United States). Clearly, SMEs are of enormous economic importance on both sides of the Atlantic. Even so, it is worth noting that roughly two thirds of SMEs in Europe employ no other people than the owner. The marginality and isolation (cultural, economic, and personal) of these very small firms means that their strategic choices are limited. Indeed, the instability and uncertainties that riddle the secondary sectors in which most SMEs are located, means that notions of strategy itself—whether human resources (HR), marketing, production, or overall business strategy—is alien to the vast majority. In the sense that strategy implies some degree of intentionality and planning, most SMEs are reactive rather than strategic in their responses to changes in their business environments. This is particularly true of the selfemployed and microfirms with fewer than 10 employees, which account for
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Gray / MANAGEMENT DEVELOPMENT: EUROPEAN ENTERPRISES
the vast bulk of SMEs in Europe. Strategic considerations and planning become more evident among SMEs that employ more than 20 people and are actively engaged in managing their subcontractual arrangements with other firms or else producing leading edge consumer goods or services (Storey, 1994). The second important point is that, in many cases, a self-employed or microfirm culture of individualism and antiparticipation limits the economic role of many SMEs. The desire for personal independence is consistently the most commonly cited career-choice motive reported by SME owners (Bolton, 1971; Gray, 1998; Hakim, 1988). This is particularly linked to size of firm and has the effect of inhibiting cooperation with other firms, effective use of external support, and effective delegation of responsibilities to subordinates (and their associated skills development). Furthermore, the smallest firms have been shown consistently over time to be generally growth averse and resistant to training, staff development, and other support initiatives (Bolton, 1971; Confederation of British Industry [CBI], 1986; Constable & McCormick, 1987; Curran, Blackburn, Kitching, & North, 1996; Gray, 1998; Mangham & Silver, 1986; Stanworth & Gray, 1991; Storey, 1994). The current economic downturn across the EU, with increasing levels of small business liquidations and personal bankruptcies, reveals that much previous growth in small firms, especially those in low barrier-to-entry industries such as small-scale retailing, transport, and construction, was not particularly resilient. By implication, therefore, most jobs within much of the SME sector are low-skill jobs with few prospects for development. Sixteen years ago, Hakim (1988) demonstrated that most selfemployed jobs are in the secondary sectors on the periphery of the core modern sectors (business services, finance, knowledge-based industries, etc.) that lie at the forefront of global competition. Apart from a few specialized high-technology and business services industries, little has changed since. However, a recent study for the Organization of Economic Cooperation and Development (OECD), while confirming the marginal status of most very small SMEs in Europe, also pointedly concluded that high failure rates among European SMEs appear to be linked to managerial weaknesses (Storey, 2002).
Enterprise Training and Development in U.K. Small Firms In Britain, the national employers’ organization, the Confederation of British Industry (CBI), has found a consistent pattern of noninvolvement in formal management development since the publication of the U.K. government’s Bolton report (Bolton, 1971) more than 30 years ago. However, the CBI has also found interesting differences in management development
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Advances in Developing Human Resources TABLE 1:
November 2004
HRD Approaches in SMEs by Firm Size (Small Business Research Trust Sample 2002, Column Percentages)
Staff Development
< 10 Staff
10 to 19 Staff
20 to 49 Staff
50+ Staff
No formal training External training Time off for training Internal training Other Sample (n) Sample (%)
55 26 16 12 7 523 67
31 49 33 30 7 120 16
13 68 48 57 4 102 13
13 61 48 65 3 31 4
All
%
339 285 179 175 50 776
44 37 23 23 6 100
Note: HRD = human resource development; SMEs = small and medium enterprises.
needs and practices between small and medium firms (CBI, 1986, 1995) such as a stronger focus on operational areas among small firms against a much stronger focus on HR among medium firms. Research conducted by the Small Business Research Trust (SBRT) among a more representative sample of smaller SMEs in Britain revealed clearly the size effects that influence training and development. The small firm human resource development (HRD) gap can be seen in Table 1, which summarizes responses to the SBRT survey in the final quarter of 2000 on skills and staff development practices. The survey covered management and staff development, and it is clear that microfirms, with more than one half reporting no formal training at all, are significantly less active than larger SMEs. Even excluding them from the sample, however, the expected size effects remain. There is a direct relation between the firm size and the provision of internal and external training courses, as there is in allowing employees time off to pursue their own development. These appear to be directly related to the resource and time constraints faced by very small firms with even the firms with more than 20 employees less inclined to offer internal development than the larger SMEs. It is interesting to note that the small firm respondents to this survey who reported increased sales over the past year (40% of the total) were far more likely to provide some form of training to their staff and far less likely to have no formal training system. However, it should be noted that many small SMEs are active in providing informal and on-the-job training and development. A 1996 survey by the University of Kingston found similar patterns with respect to formal management development and that some 80% of small firms provide informal training to their staff and managers (Curran et al., 1996). The Council for Excellence in Management and Leadership (CEML, 2002) confirmed this pattern of nonengagement in external management development programs
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Gray / MANAGEMENT DEVELOPMENT: EUROPEAN ENTERPRISES TABLE 2:
Management Development Policy by Firm Size (Column Percentages)
Formality of Policy
1 to 9 Staff
Explicit formal policy Informal policy None, react to need No system at all Sample (n) Sample (%)
5 33 50 13 117 30
10 to 19 20 to 49 50+ Growth Response Staff Staff Staff Firms Size (n) %
6 46 36 12 108 28
11 44 39 6 109 28
11 39 46 2 54 14
19 42 38 2 48 12
32 158 165 34 389 100
8 41 42 9 100
by U.K. SMEs, particularly the smaller firms. This follows a pattern noted since 1988 by the National Audit Office. This is partly because of the informality that characterizes small business culture and partly because of SME owner-managers are generally not keen on growth and few wish to do anything other than earn a living (Gray, 1998). Nevertheless, these reports also note a minority of SMEs that is very active in providing HRD and that the preferred option is generally for internal targeted courses or training. It is inevitable, perhaps, that these attitudes that so influence the practice of HRD among SMEs will be reflected in SME approaches to management development as well—small islands of progressive practice in a sea of reluctance and indifference.
Management Development in SMEs In 1997, as part of a wider 10-year follow-up to the Constable and McCormick (1987) management development study (Thomson et al., 1997), Open University Business School surveyed a sample of SMEs drawn from SBRT and CBI databases. The 389 respondents composed 39% manufacturers, 18% in the distribution sector, and 41% in services. More than one half (58%) had fewer than 20 employees, and as Table 2 reveals, very few of which had written management development policies. Another major difference between SMEs, however, was linked to their growth orientation. One half did not expect to increase their number of employees; however, some 20% expected rapid growth in the coming year, including 12% of growth-oriented SMEs that reported an explicit intention to expand their workforce. As SMEs overwhelmingly use sales turnover, not numbers of staff, as their preferred measure of growth (EC, 2002; Gray, 1998), it is likely that the stated intention to increase workforce size is strategic. As expected, the smallest firms were, on balance, generally averse to adopting a formal management development policy. Those with more than 20 employees were twice as likely to have written management development policies, a feature that was most striking in the high growth-oriented
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Advances in Developing Human Resources TABLE 3:
November 2004
Monitoring Management Development Needs by Firm Size (Column Percentages)
Monitoring Activities
1 to 9 Staff
Assess managers on performance 51 Appoint managers for specific jobs 44 Managers assessed for training needs 46 Set individual performance targets 38 Sample (n) 117 Sample % 30
10 to 19 20 to 49 50+ Growth Response Staff Staff Staff Firms Size (n) %
62
70
65
81
238
61
58
66
76
71
227
58
59
56
65
67
214
55
43 108 28
46 109 28
56 54 14
58 48 12
170 389 100
44 100
firms where 1 in 5 had an explicit, written management development policy. This compared with the study’s parallel survey of larger organizations where 43% of large firms reported having a written policy (Thomson et al., 1997). Similar differences were observed in management development practices. Table 3 is based on multiple responses and shows the differences between the different categories of firm with respect to monitoring managers’ performance and the setting of management development objectives. There are clear size effects concerning individual performance targets and the monitoring of management performance. To some extent, this reflects fewer tiers of management in smaller firms (only 8% of microfirms had more than 2 levels compared with an average of 21% for the whole sample). It is interesting to note the high importance that high growth-oriented firms place on assessing managers’ performance. This suggests a strong link with the firm’s strategy. Indeed, growth-oriented SMEs were above the norm in all management development activities, providing further supporting evidence for strong links between management development practice and an explicit strategy to grow. This notion of strategic choice determining management development policy and practice supports the findings of other studies (Thomson & Gray, 1999). The small firms with explicit management development policies generally had a stronger focus on meeting the development needs of the organization (47%) and of individual managers (58%). Another survey into the links between management development and performance (DTZ Pieda, 1998), found that management development activities were mainly used by U.K. firms to address such specific needs as to (a) improve communication skills of managerial staff, (b) improve flexibility in responding to customer needs, (c) broaden managers’ understanding of core managerial skills, and (d) in small firms, to train non-
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Gray / MANAGEMENT DEVELOPMENT: EUROPEAN ENTERPRISES
managerial staff for future promotion to managerial levels. This study also found that in manufacturing firms the average manager-to-employee ratio was 1:9 and led to a wider spread of management development benefits to more people in the firm. The generally low participation of small firms in formal management development activities was again confirmed. However, this study (DTZ Pieda, 1998) provided useful insights into the impact on SMEs of management development and concluded that its effects were most evident in • larger SMEs with between 50 and 100 employees • firms who are already active and sympathetic to HRD issues in
general
• situations where the management development is delivered to indi-
viduals from a similar working environment, thus increasing the opportunity to share experiences informally in addition to the formal training being undertaken • firms already achieving significant growth in their sector, or those exhibiting relatively low or no growth at all. What emerges from all these U.K. studies is that a minority of larger SMEs with a strong business-oriented, growth strategy and with a strong internal HRfriendly organizational culture does adopt and make effective use of explicit management development activities. The main aims of this article are to explore the determinants and practices of management development in SMEs, what distinguishes them from larger firms, and what links there may be to business strategy. Comparing management development across SMEs and large firms in seven European countries does this. In particular, two main hypotheses are tested: (a) that SMEs generally provide fewer management development opportunities than large firms and (b) that SMEs with management development systems in place have much clearer growth strategies than most SMEs and link their management development to the achievement of their growth objectives.
Method Description The SMEs management development study described and analyzed in this article is part of a broader European study of firms of all sizes conducted by seven partners in Britain, Denmark, France, Germany, Spain and Romania, as part of the European Management Development (EMD) project under the EC’s Leonardo program. It is important to note that the current study involved structured samples in each participating country and was not intended to be a general survey of management development in Europe. The
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Advances in Developing Human Resources TABLE 4
List of Key Factors
Factor Label
Organizational performance HR integration Size Perceived importance MD ethos
MD systems Provision Growth
November 2004
Description
Output quality, R&D activities, employee recruitment and retention, client satisfaction, manageremployee relations, general employee relations Active role of HR, HR link to business strategy Number of employees, sales turnover Management development link to business strategy, link to competency, priority Management development link to competency, reliance on internal promotion, retention of managers, focus on long term, training for potential, organizational responsibility for management development Discussion of management development needs, career planning, review of management development, policy statement, fast track Management development days per year, number of internal and external techniques, average extent of internal and external technique used Recent change in sales, expected change in sales, recent change in managers, expected change in manager
Value
.83 .77 .76 .76 .70
.69 .59 .53
Note:HR = human resources;MD = management development;R&D = research and development.
project aim was to examine in detail the determinants, practice, and effects of management development. Each partner recruited and surveyed 100 firms, the aim being to construct samples distributed equally between the manufacturing-processing, distribution-transport, and services sectors. For reasons outlined above, firms with fewer than 20 employees were excluded. Approximately one half the overall sample was SMEs with 20 to 249 employees (see Table 5). To take into account different perspectives, at least two telephone surveys were conducted in each firm during mid-2002 with senior and/or HR managers and with line managers (as the subjects of the firm’s management development policies). Roughly 10% of each national sample was then interviewed personally (again separate interviews with between three to five senior and line managers) to produce case studies. The analysis in this article focuses only on the findings from the telephone interviews. Apart from descriptive items and dichotomous categories, most of the items in both questionnaires were scored as 5-point Likert-type scales. A final part of the analysis compares the means of the variables derived from factoranalysis as described by Mabey (2004). These are reproduced in Table 4. The data are used to examine, in more detail, issues identified above in relation to management development in small firms, compared with large
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Gray / MANAGEMENT DEVELOPMENT: EUROPEAN ENTERPRISES TABLE 5:
SMEs National Sample Differences (Row Percentage)
Country
SMEs
Britain Denmark France Germany Norway Romania Spain All Sector Total
53 52 49 37 47 54 57 50 349
Large Firms
47 49 51 63 53 46 43 50 352
Employee-per-Manager Ratio
12 13 11 43 9 24 68 26
Total (n)
100 101 100 100 100 100 100 100 701
Note: SMEs = small and medium enterprises.
firms, such as extent of management development, formality of management development policy, and links with organizational performance. The findings are presented as cross-tabulations of either response frequencies or differences between mean scores followed by a regression analysis of the factors on organizational performance as the dependant variable. Sample Characteristics Most national samples split, more or less evenly as Table 5 shows, between 349 SMEs and 352 larger firms with 250 or more employees. According to Eurostat (EC, 2002), there are some 38,000 of these larger firms in the EU. This is less than 1% of the EU’s 20 million firms, accounts for one third of the workforce, and dominates the management development agenda. The German sample stands out with a significantly lower proportion of SMEs, which is reflected in the wider average managers’ span of control and responsibility (average employee per manager). On this last measure, the national samples that stand out are Spain with a very high 68 employees per manager and Norway with its very tight 9 employees per manager. The wide variance between national samples in their employee-permanager ratios suggests (a) strong national or corporate influences and/or (b) definitional variations between countries on which roles are treated as management. Some of these differences may be due to industry effects. In the German and Scandinavian samples, the service sector dominates, whereas in Britain and Romania, manufacturing has a higher prominence. Table 6 shows the sector distributions of SMEs and large firms plus average employees per manager in each of the three sectors in the study.
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Advances in Developing Human Resources TABLE 6:
November 2004
Differences in SMEs Sector Distribution (Column Percentage) and Employee-per-Manager Ratio
Manufacturing/processing Distribution/transport Services Sample (n) Sample %
SMEs
Large Firms
All
30 21 49 348 50
39 21 40 349 50
34 21 45 697 100
Employee-perManager Ratio
Sector Total
22:1 38:1 24:1 26:1
240 147 310
Note: SMEs = small and medium enterprises. χ2 = 6.284, df = 2, p < .04.
The sector distributions of the total sample reflect EU distributions of firms with more than 20 employees. To the left of the table, the crosstabulation comparing sector distributions between SMEs and large firms reveals significant differences. As expected, and in line with the EU data on industry distributions (EC, 2002), manufacturing is significantly more of a large-firm sector while services are dominated more by the SMEs. To the right side of the table, the larger proportions of manual staff in retail and transport are also reflected in the larger employee-per-manager ratio in distribution and transport. The employee-per-manager ratios are an indicator of likely productivity in the sense that the higher overheads borne by each worker, including the costs of management, will adversely affect labor productivity. They are particularly high in the distribution and transport sector. Indeed, productivity levels in most sectors are well below U.S. levels, which is causing some concern in the EU about the effectiveness of management development. Overall, they confirm the message from the EC data that there is still plenty of room for improvement in management development in large enterprises and SMEs.
Findings Although there are clear differences in scale between SMEs and large firms, SMEs are clearly not just large firms scaled down. They are significantly different forms of organization as the differences between means in Table 7 reveal. The scale of the mean differences between the firm categories in numbers of staff and managers underscores the underlying organizational and resource differences between SMEs and large firms. This can be seen more clearly in the significant differences between the employee-per-manager ratios. Calculated on a firm-by-firm basis, managers in larger firms appear to have an average management span of about 39 staff, which is almost 3
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Gray / MANAGEMENT DEVELOPMENT: EUROPEAN ENTERPRISES TABLE 7:
Size Characteristics of SMEs Versus Large Firms (Comparison of Means) SMEs M (SD)
Large Firms M (SD)
t
Significance (p)
Number of employees** 110.1 (71.4) 4267.7 (23956.7) –3.25 Number of managers* 10.6 (8.6) 428 (3480.3) –2.22 Employee-per-manager ratio** 14:1 (14.2) 39:1 (94.1) –4.80 Senior manager development days 11.8 (16.3) 13.9 (33.62) –.99 Line manager development days 10.8 (12.56) 10.2 (10.83) .721
.001 .027 .000 .324 .471
Note: SMEs = small and medium enterprises. *p < .05. **p < .01.
times wider than SME managers (14 staff). This could account for (a) some of the economies of scale enjoyed by many large firms and (b) the stronger need for management development in larger firms. However, differences in average days per manager spent on management development as seen by senior managers and line managers were not significant, suggesting that size per se may not be a strong determinant of the reported amount of management development. Looking at business performance, there were also no significant differences in business performance as measured by growth in sales turnover between the two size sectors. A very high 71% of SMEs and large firms reported an increase in sales over the previous 3 years even though EU economies were beginning to slow down, and the stock markets in the United States and Europe were sliding at the time the fieldwork was completed in 2002. This is not an effect of excluding microfirms from the sample because they tend to be more resilient during economic downturns (Storey, 1994). The high proportion of respondents in small and large groups reporting an increase in sales over the past 3 years suggests a systematic sampling bias, and only Britain stands out with a lower percentage of increases, even though the U.K. economy was performing better than its EU counterparts. The pattern is slightly different when comparing the number of managers hired and fired over the past 3 years and future expectations of changes in numbers of managers employed (Table 8). Overall, there was a positive balance (percentage increasing less percentage decreasing) of 22% of firms taking on managers over the past 3 years; however, the anticipated balance drops to 13% for the coming 3 years (almost certainly a reflection of the prevailing economic climate). However, there were significant differences between SMEs and large firms. The resilience of the SMEs, and their tendency to defend their status quo, stands out
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Advances in Developing Human Resources TABLE 8:
November 2004
SMEs Versus Large Firms Changes in Managers (Column Percentage)
Recent Changes Over Past 3 Years
SMEs
Decreased Remained the same Increased Balance Total (n)
10 56 35 25 347
Large Firms
17 47 36 19 354
All
13 51 35 22 701
Note: SMEs = small and medium enterprises. 2 χ = 10.872, df = 2, p < .004. Expected Changes Over Past 3 Years
SMEs
Decrease Remain the same Increase Balance Total (n)
6 71 23 17 347
Large Firms
15 61 24 9 354
All
11 65 24 13 701
Note: SMEs = small and medium enterprises. χ2 = 16.071, df = 2, p < .001. TABLE 9:
Management Development Policy by Firm Size
No Yes Total
SMEs
Large Firms
All
63 37 347
41 59 354
52 48 701
Note: SMEs = small and medium enterprises. χ2 = 34.480, df = 1, p < .000.
while the higher shedding of managers among large firms, and their lower rates of recruitment, do appear to reflect economic trends in the EU at the time of the surveys. These expected shifts in manager employment were presumably reflected in the planning and the setting of management development budgets. Most large firms (73%) had training budgets compared with just 58% of SMEs. This disparity in planned training expenditure reflects the expectation that small firms would be less likely to have explicit management development policies. However, the contrast is even starker than anticipated. In Table 9, nearly two thirds of small firms state clearly that they have no management development policies while 59% of large firms state that they do. This is an important finding because, in the earlier management development studies conducted by Open University Business School (OUBS), one of the strongest determinants of the amount of management development undertaken in small firms was the presence of an explicit management
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Gray / MANAGEMENT DEVELOPMENT: EUROPEAN ENTERPRISES TABLE 10: Management Development Activities: SMEs Versus Large (5-Point Scale Mean Scores) Senior Manager Activities
SMEs M (SD)
Large Firms M (SD)
t
Significance (p)
Use internal programs** Use external courses** Use mentoring Use qualifications** Use rotation** Use e-learning Use external placements*
3.41 (1.24) 3.32 (1.25) 2.82 (1.34) 2.61 (1.27) 2.22 (1.18) 1.88 (1.13) 1.77 (1.00)
3.85 (1.15) 3.58 (1.13) 2.96 (1.27) 2.94 (1.15) 2.68 (1.17) 1.88 (1.10) 1.97 (1.10)
–4.84 –2.93 –1.38 –3.38 –5.16 .006 –2.54
Line Manager Activities
SMEs M (SD)
Large Firms M (SD)
t
Significance (p)
Use internal programs** Use external courses* Use mentoring Use qualifications Use rotation* Use e-learning Use external placements
3.22 (1.22) 2.96 (1.30) 2.82 (1.28) 2.54 (1.21) 2.16 (1.21) 1.75 (1.08) 1.85 (1.15)
3.60 (1.21) 3.0 (1.21) 2.86 (1.26) 2.62 (1.17) 2.38 (1.24) 1.87 (1.07) 1.86 (1.10)
–4.17 –2.54 –.33 –.95 –2.34 –1.45 –.10
.000 .011 .741 .343 .018 .148 .919
.000 .004 .169 .001 .000 .995 .011
Note: SMEs = small and medium enterprises. *p < .05. **p < .01.
development policy (Thomson & Gray, 1999). Furthermore, it is clear that size effects remain important even when the smallest and most HRD-resistant firms are excluded though it needs to be noted that the proportion of large firms (41%) with no formal management development policy is also rather high. However, as the contrasting of mean scores in Table 10 reveals, large firms consistently undertake more management training than SMEs, even if this is perceived slightly differently by senior managers and line managers. There is little difference in the amount and types of activities as reported by the senior managers except that those in large firms reported significantly more use of internal and external programs while senior SME managers reported making significantly less use of qualifications, job rotations, and external placements. Although, large firms also made little use of job rotation and even less use of external placements. There was a similar picture with the line managers except the SME line managers felt that less use was made of external courses. So far, e-learning has made little impact on management development. Overall, small firms consistently reported that they engage in fewer management development activities than larger firms. Indeed, managers in SMEs are much less likely to have formal appraisals or even informal discussions on their training needs with 41% of SMEs report-
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TABLE 11: Internal Management Development Practices: SME Versus Large (5Point Scale Mean Scores) Senior Manager Activities
SMEs M (SD)
Large Firms M (SD)
t
Significance (p)
Link to business strategy* Link to competency** MD priority in firm** MD effects evaluated**
3.62 (1.0) 3.61 (1.10) 3.41 (1.20) 2.93 (1.23)
3.79 (1.10) 3.83 (.98) 3.85 (1.03) 3.26 (1.23)
–2.00 –2.83 –5.54 –3.53
.045 .005 .000 .000
Line Manager Activities
SMEs M (SD)
Large Firms M (SD)
t
Significance (p)
Link to business strategy Link to competency* MD priority in firm** MD effects evaluated**
3.26 (1.21) 3.40 (1.14) 3.22 (1.16) 2.86 (1.17)
3.38 (1.10) 3.60 (1.03) 3.47 (1.10) 3.16 (1.15)
–1.32 –2.42 –2.92 –3.41
.187 .016 .004 .001
Note: SMEs = small and medium enterprises; MD = management development. *p < .05. **p < .01.
ing no appraisal system for their managers at all (compared with 27% of large firms). Table 11 summarizes the mean score differences on important elements of a formal management development policy. There are interesting differences not only between SMEs and large firms but also between HR-senior managers and line managers. SME senior managers, in many cases likely to be owner-managers, give priority to their management development and link it to their business strategy and to the development of competencies in their managers. On balance, they are not strong on evaluating management development in their firms. In contrast, HRsenior managers in large firms place significantly more weight on making management development a high priority, linking it to strategy and competency development, and are more likely than not to evaluate the outcomes. However, their line managers are less convinced on the priority given to management development in their organizations or on its links to strategy (and SME line mangers even less so). This may reflect organizational communication difficulties. Turning now to the factors that emerged from the factor analysis of the questionnaire responses, although external measures of company performance were identified for many of the respondent firms, inconsistencies between accounting systems between countries and differences in the quality of these data, which are collected for a variety of different purposes, meant that these could not be used as outcome measures. Instead, the outcome variable used was organizational performance, which captures the impact and outcomes of management development from the perspective of
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t
HR integration .205** Size .003 Perceived importance .322** Growth .049 Ethos .159* MD systems –.173** Provision .065
3.372 .060 5.047 .904 2.517 –2.971 1.081
Large Firms
Significance (p)
.001 .952 .000 .367 .012 .003 .281
.081 .001 .138* .118* .083 .057 –.024
t
Significance (p)
1.242 .019 2.071 2.045 1.132 .844 –.368
.251 .985 .039 .042 .259 .400 .713
Note: SMEs = small and medium enterprises; HR = human resource; MD = management development. 2 2 R adj. = .259, F = 14.682, p < .000; R adj. = .055, F = 3.438, p < .002.
the managers themselves. The contribution of all variables in explaining the variance in the whole sample were significant except for Provision and MD Systems and, as expected, Size was inversely related to the degree of Organizational Importance. However, as Table 12 reveals, when the regression was conducted separately among the SME (n = 274) and large firm (n = 294) subsamples, most of the significant effects were found among the smaller firms. Although Size was inversely related to organizational performance overall, it was not a significant determinant within each of the subsamples. However, it is worth noting that MD Systems, which includes practices not normally associated with small firms (such as formal HR and MD policy statements, career planning, etc.) are not significant in large firms where they are more likely to be the norm but have a strong inverse relation to organizational performance among SMEs, possibly linked to constraints on flexibility. Of more interest are the significant effects of the attitudinal and cultural variables, including the overall approach to HRD and its links to business strategy (HR Integration), the internal organizational management development culture (MD Ethos) and the strategic importance of management development as perceived by managers themselves (Perceived Importance). It is also interesting to note the lack of influence in small and large firms from the amount and diversity of management development activities undertaken (Provision). In other words, more may not necessarily mean better but may actually mean untargeted or inappropriate. This may be one good reason why small firms with their more limited resources engage in fewer management development activities.
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Discussion These findings are in line with the findings of previous SME management development studies (Tables 1, 2, and 3). Discounting the possible effects of growth on management development needs and practice for the reasons outlined in the discussion associated with Table 8 above, the findings are interesting not only for their implications on the process of management development in smaller organizations but also in relation to models of SME development. Size is confirmed as having an inverse relationship with the levels of management development (Tables 9 and 10) and the acceptance of practices associated with formal systems of management development (Table 11). This is consistent with the comparatively low level of management development activity engaged in by SMEs (Table 10) and the lower level of integrating management development practices in the routines of small firms (Tables 11 and 12). Thus, the first hypothesis that SMEs generally provide fewer management development opportunities than large firms is supported. The second hypothesis, that SMEs with management development systems will have them linked to explicit growth strategies, also received some support. The regression analysis in Table 12 indicates that the development of an internal culture that appreciates the business and organizational benefits of formal HRD practices (HR Integration) and values the development of the potential of all managers working in the firm (MD Ethos) are associated with a positive impact of management development on SMEs. The linkage of wider HR practices (HR Integration) and management development in particular (MD Ethos) to business strategy appears to be related to the positive impact that all managers feel that management development activities have on their organization. Although SME senior managers may not conduct much formal evaluation of management development activities in SMEs, their resource constraints generally mean they take an instrumental approach to most HR matters and are likely to be aware of which activities offer value for money. The development challenge is to encourage a virtuous circle whereby regular formal systems support a more positive culture that, in turn, encourages a positive perception of impact on the part of SME managers. It needs to be demonstrated to SME owners that attitudes and policies, in relation to management development and the internal organizational culture of the firm, can be linked to actual organizational performance and, by extension, to business performance. These factors may be stronger than prevailing industry effects or the temporary effects of external events although a large part of the unexplained variance in Table 12 may be due to these factors. This is consistent with other recent studies (Graham, Donoghue, Gray, & Mabey, 2000; Mabey & Gray, 2001; Thomson & Gray, 1999; Thomson
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et al., 1997; Thomson, Storey, Mabey, Gray, & Isles, 2001; Wong, Marshall, Alderman, & Thwaites, 1997). This may seem noncontroversial; however, it has important implications for policy and the design of SME education and support initiatives. Currently, there is little empirical evidence of links to business performance (Storey & Westhead, 1994), as opposed to strong evidence of benefits in terms of personal and organizational development reported by individual managers. Nevertheless, the findings reported here strongly suggest that certain types of growth-oriented SMEs with clear business strategies and linked management development systems are likely to report links between management development and performance. This is an important finding for providers of management development, such as business schools and private consultancies, where penetrating the undifferentiated mass of SMEs has historically been very hard. The implication is that SMEs, which are receptive to structured and systematic management development, adopt business practices and HR that are more similar to larger firms than to the vast majority of small firms. This finding is, therefore, also important for policy makers concerned with promoting local economic development by improving the quality of management in local businesses. Indeed, it is on these links between the development of their managers and small firm performance, as well as the links between strategy, growth, and HRD, that future research on management development in small firms needs to focus.
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DTZ Pieda Consulting. (1998, June). Evaluation of the business benefits of management development (Research Report No 66). London: Department for Education and Employment. European Commission. (2002). SMEs in Europe, including a first glance at EU candidate countries (Observatory of European SMEs Report 2). Brussels, Belgium: Author. Graham, R., Donoghue, K., Gray, C., & Mabey, C. (2000). Management development in the Republic of Ireland: Patterns and trends. Milton Keynes, UK: Open University Business School. Gray, C. (1998). Enterprise and culture. London: Routledge. Hakim, C. (1988). Self-employment in Britain: Recent trends and current issues. Work, Employment, and Society, 2(4), 421-450. Mabey, C. (2004). Developing managers in Europe: Policies, practices, and impact. Advances in Developing Human Resource, 6(4), 404-427 . Mabey, C., & Gray, C. (2001, June). Cross-national analysis of management development. Paper presented at the CRANET/ESADE Conference, Barcelona, Spain. Mangham, I., & Silver, M. (1986). Management training: Context and practice. London: Economic and Social Research Council/Department of Trade and Industry. National Audit Office. (1988). Department of employment/training commission: Assistance to small firms (Report to the Comptroller and Auditor General. Command No. 655). London: Her Majesty’s Stationary Office. Small Business Research Trust. (2002). NatWest quarterly survey of small business in Britain. Quarterly Survey of Small Business in Britain, 18(1), 1-32. Stanworth, J., & Gray, C. (Eds.). (1991). Bolton 20 years on: The small firm in the 1990s. London: Paul Chapman. Storey, D. (1994). Understanding the small business sector. London: Routledge. Storey, D. (2002). Management training in SMEs: Synthesis report. Paris: Organization for Economic Cooperation and Development. Storey, D., & Westhead, P. (1994). Management training and small firm performance (Working Paper 18). Coventry, UK: Warwick University, Small and Medium Enterprise Centre. Thomson, A., & Gray, C. (1999). Determinants of management development in small businesses. Journal of Small Business and Enterprise Development, 6(2), 113-127. Thomson, A., Storey, J., Mabey, C., Gray, C., Farmer, E., & Thomson, R. (1997). A portrait of management development. London: Institute of Management. Thomson, A., Storey, J., Mabey, C., Gray, C., & Isles, P. (2001). Changing patterns of management development. Oxford, UK: Blackwell. Wong, C., Marshall, J., Alderman, N., & Thwaites, A. (1997). Management training in small and medium-sized enterprises: Methodological and conceptual issues. International Journal of Human Resource Management, 8(1), 44-65. Colin Gray is the Professor of Enterprise Development and is responsible for small firm and entrepreneurship research and teaching at the Open University Business
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School (OUBS). He is based in the Centre for Innovation, Knowledge and Enterprise. He has produced more than 30 multimedia open-learning small firm management packs, written a number of books and learned journal articles, and is now developing e-learning materials to support the management development of entrepreneurs. He is also a trustee of the Small Enterprise Research Team, an independent nonprofit small firm research body, and vice president of the Institute of Small Business Affairs, the leading forum in Britain for entrepreneurship academics, researchers, and support bodies. Gray, C. (2004). Management development in European small and medium enterprises. Advances in Developing Human Resources, 6(4), 451-469.
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