Leadership is the key to economic growth – by Stewart Barnes

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As the UK Chancellor wrestles with macro-economic matters, Stewart Barnes argues that there is a way that he can clear the national debt and achieve his budget surplus.

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As a nation, we hold an extra £60bn of potential GDP within the quarter of a million small and medium businesses (SME) that employ between 10 and 249 staff. That’s the equivalent of more than half of the NHS budget each year.

What’s needed to unlock that potential cash – every year – is better leadership in those businesses. And the great news is, we know more now than ever before about how leadership in these businesses is learned, with tried and tested leadership programmes that are generating results: growing revenues, increasing profit and creating jobs.

So what’s holding us back? An astounding record of successive governments ignoring the research – including their own research – and as a consequence, directing resources wrongly. Far too much emphasis is placed on encouraging new start-ups and micro businesses that, frankly, lack ambition and have a high probability of failure.

The need for re-balance

The time is right for a re-balance of government strategy to avoid pouring scarce resources into a funding sink-hole of failed business start-ups and unambitious micro companies (those employing between two and nine people).

The government’s own statistics show that more than half of new businesses don’t survive beyond five years, and a massive eight out of every ten start-ups don’t get to celebrate a tenth anniversary in business. Identifying which winners to back in those early years is a tough call, and while solutions and support for entrepreneurs are necessary, there is a danger we are placing too many funding eggs in a weak and holey basket.

And of those micro businesses that survive start up, what are the opportunities for significant growth and job creation? Three-quarters of companies that start with less than five employees never employ more than five staff. They do not grow any further, so they are not the answer to future economic prosperity.

We are simply perpetuating our limitations by encouraging more start-ups.

The hidden workhorses of the UK economy

In contrast, just 5% of all the companies in the UK are responsible for employing almost a third of the working population and producing almost a third of our GDP. These are the 233,000 SME; the UK’s equivalent of the German ‘Mittelstand’, small and medium sized enterprises, privately owned and many that are family-run, credited with great responsibility for their country’s economic growth. The German business model focuses on growing businesses employing 50-500 people, and while Mr Osborne says he wants to emulate this strategy in the UK, we are failing to do so effectively.

The evidence that potential exists

So what makes me so sure that our small and medium enterprises have this great potential for growth? A body of research recently published by Edward Elgar, which I co-authored with Steve Kempster, Professor of Leadership Learning and Development at Lancaster University Management School, and Sue Smith, Director of the Centre for SME Development, University of Central Lancashire.

Our book, LEADing Small Business – Business Growth through Leadership Development, draws together the most renowned academic theorists on the subject of leadership learning in owner-managed businesses, with the real-world evidence of business leaders themselves as they develop their learning on LEAD.

LEAD is a 10-month leadership development programme designed to enable business leaders of small and medium enterprises (we call them owner-managers) to have the time and space to take a strategic perspective, identify challenges and deliver practical solutions for business growth.

More than 2,000 people have been through the programme since its launch in 2004, and I have worked closely with more than 100 owner-managers through my role delivering LEAD in the past four years.

Research conducted among alumni in 2014 revealed they had grown their businesses by well over a quarter (27%) in the year following their participation on LEAD, with delegates reporting taking on more staff too, growing their teams by an average of 13%.

Improving the quality of leadership in our owner-managed businesses is essential if we are to achieve the levels of growth and productivity the economy needs.

But.

Not all leadership courses are born equal. The real breakthrough of our research in the book is the insight and analysis about HOW owner-managers learn to lead.

A recipe for leadership learning

Through the use of an innovative research approach, co-constructed autoethnography, the book follows three individuals during their experience on LEAD during 10 months. Drawing upon several comprehensive data sources associated with the three owner-managers, and revealing their thoughts, fears, realisations and insights through a novel-style of narrative, we help the reader to stand in the shoes of the person undertaking the journey. This is punctuated by a ‘theory sandwich’ at the end of each chapter and some questions the reader can ask of them self.

This blend of narrative and theory sandwich reveals the process of ‘becoming’ experienced by each delegate; we see so very clearly that leadership isn’t learnt on a course, it is a complex and nuanced process of transition. We call it the LEADership Learning Cycle through Lived Experience.

Delegates learn the craft of being a LEAD delegate and enacting the non-sequential LEADership Learning Cycle to become an independent learner, learning through experimenting, through a learning cycle of experience. They reflect and contextualise, then apply this new knowledge and experience to their specific business context, changing their behaviour. In turn, they learn to become a better leader.

LEAD works. There’s lots of evidence, from thousands of businesses and dozens of leadership practitioners and world-class academics. And now we’ve shared everything we’ve learned about how and why it works with anyone who cares to listen. So what next?

Who needs to act?

We need leadership. Policy makers, local enterprise partnerships who funnel Whitehall money into the regions, universities and banks need to get behind initiatives that work.

Together, we need to provide timely and straightforward support for better leadership that will accelerate growth. It takes leadership to listen to an argument and act on it. Mr Osborne, your book is in the post.

Stewart Barnes is the Founder and Managing Director of QuoLux Ltd.

You can read the first chapter of his new book for free at elgaronline.

Join the LEADIng Small Business LinkedIn Group here.