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EFFECT OF LEADERSHIP STYLES ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES IN KADUNA STATE
ABSTRACT
The factors which lead to the failures of Small and Medium Scale Enterprises could be tied to their decision making process, hence their leadership. This study set out to analyze the effect of leadership styles on the performance of SMEs in Kaduna State. The study is based on a survey research design through which data were gathered using structured questionnaire retrieved from 158 owner-managers of SMEs operating in Kaduna State. The data were analyzed using simple linear regression, the result of which shows that democratic and laissez-fair leadership styles both have significant and positive effects on the performance of SMEs in Kaduna State. It was also found that autocratic leadership style has positive effect on the performance of SMEs in Kaduna State; however, it was insignificant. In addition, there is also a significant difference in performance of SMEs based on leadership styles. It was concluded that the three leadership styles have positive effect on the performance of SME. The study recommends that owner-managers should ensure that subordinates should be supervised less closely, with effective employees not given too many orders so as not to get them discouraged from putting in their best, it also recommends that SMEs owner-managers should always adopt democratic and laissez faire leadership styles except where situation warrants the adoption of the autocratic
Table of Contents
Title Page i
Declaration iii
Certification iv
Dedication v
Acknowledgements vi
Abstract vii
Table of Contents viii
List of Tables xi
List of Figures xii
List of Appendices xiii
CHAPTER ONE – INTRODUCTION 1
1.1 Background to the Study 1
1.2 Statement of the Problem 4
1.3 Research Questions 6
1.4. Objectives of the Study 7
1.5 Statement of Hypotheses 7
1.6. Significance of the Study 8
1.7. Scope of the Study 8
1.8. Limitations of the Study 9
CHAPTER TWO – LITERATURE REVIEW AND THEORETICAL FRAMEWORK .. 10
2.1 Introduction 10
2.2. Concept of Leadership Styles 10
2.3. Concept of Organization Performance 19
2.4. Concept of SMEs 21
2.5. Leadership and Performance 23
2.6. Review of Previous Studies on Leadership Styles and Performance 24
2.7. Theoretical Framework 40
CHAPTER THREE – METHODOLOGY 43
3.1 Introduction 43
3.2 Research Design 43
3.3 Population of the Study 43
3.4 Sample Size and Sampling Technique 44
3.5. Source and Method of Data Collection Methods 45
3.6. Instruments of Data Collection 46
3.7. Validity and Reliability of Instrument 47
3.8. Method for Data Analysis 48
3.9. Method of Justification 48
CHAPTER FOUR – DATA PRESENTATION AND ANALYSIS 50
4.1 Introduction 50
4.2 Data Presentation and Analysis 50
4.3. Factor Analysis 60
4.4. Measurement the Reliability of the Research Instrument 63
4.5. Correlation Analysis 64
4.6 Violation of Assumptions for Regressions 66
4.7. Test of Hypotheses 67
4.8. Findings 74
4.9. Implications of the Findings 75
CHAPTER FIVE – SUMMARY, CONCLUSION AND RECOMMENDATIONS 77
5.1 Summary 77
5.2 Conclusions 78
5.4 Suggestions for Further Studies 80
References 82
Appendix 91
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Leadership is one of the most essential factors that influence the organizational success. It helps to direct, guide and persuade the employees of any organization towards achieving its goals and objectives. Effective leadership is a pre-requisite for effective accomplishment of each business tasks (Talat, Sana, Samra & Abeera, 2015). Furthermore, effective leadership supports management development and training, and also provides the building block for organizational performance. Abdulazeez, Hakeem and Bisayo (2014) opine that leadership in business can affect both everyday activities and people; it can also determine participation, attention and acknowledgement of groups and individuals within an organization. Leadership style and its effects on the organizational performance have been a subject matter and core issue of many scholars such as (Puni, Ofei & Okone 2014). Leadership styles cover all aspects of dealing within and outside of an organization, handling or dealing with conflicts, helping and guiding the workforce to achieve or accomplish their tasks (Talat et al 2015). Thus, Leadership style assists organizations to be more creative and profitable.
Organizations exist in varying capacities in Nigeria and they are characterized as small, medium, or large scale businesses. World Bank report in (2008) estimates that, out of twelve (12) million businesses of all sizes operated in various parts of Nigeria, over 70% are small scale businesses. Though, large scale enterprises left alone cannot fast track the desired development and growth challenges that would venture Nigeria as one of the first 20 most viable economies in the world by the year 2020. Consequently, it becomes very vital for the development of the small and medium scale enterprises (SMEs) in order to take care of some local/rural developmental needs. SMEs are absolutely vital to the survival and growth of every business in organizations.
However, in small and medium scale enterprises (SMEs) the owner/manager has different leadership roles to play; he is the chief risk bearer, chief administrator and strategy implementer, crises solver, policy maker etc. towards organizational goals. However, the extent of success depends on the style of leadership adopted and the environmental situation created for employees to function well (Puni, Ofei & Okone 2014). Lewin, Lippit and White (1939) view that leadership style is one of the factors that determines owner/manager’s choice of decisions making process in organizations.
In reality, what is found in various organizations, including SMEs, is one (or a combination of two or more) of the leadership styles predefined by authors. Some owner/managers run their businesses using autocratic style where he/she takes all the decisions, issues instructions and expects others to carry them out without demand or deliberation. In some other organizations, a participative style exists (where the owner makes decision on the basis of agreement) works best. However, in some others, leadership roles may be highly visible and widespread, time committed, while at times, the leadership roles may be less demanding and require a brief ceremonial performance with the details delegated to subordinates (Akoma, Adeoye, Binuyo & Akinwole 2014, Lewin at al 1939). Therefore, the way in which SMEs owner/manager chooses to exercise leadership is likely to have a strong encouragement on the organizational performance, motivation and confidence of subordinates. As such, an understanding of leadership is imperative to even SMEs (Uchenwamgbe, 2013).
In recent years, leadership styles have drawn more attention due to its role in the failure or success of an organization. Puni, Ofei and Okone (2014) view leadership style as one of the most important human resources-related effect, and most deliberated topic in management and psychology. However, in organizations, it was contended that despite the situational challenges being encountered, the objective of any business is to attain goals and leaders must play a vital role to achieve that organizational goals (Nwokocha, as cited in Abdulazeez et al 2014). Avolio and Bass (2005), Abdulazeez et al (2014) and Obiwuru, Okwu, Akpa and Nwankwere(2011)opines that no leadership style is perfect for all organizations rather; truly effective and influential leaders are those who adapt themselves and their team according to the situation of the organization to comprehend and adopt suitable leadership styles in carrying out their activities. Therefore, efficiency in resource mobilization, allocation, utilization and improvement of organizational performance depends, on the leadership style used
On the other hand, performance according to Obiwuru et al (2011) refers to ability of an organization to achieve such objectives as high profit, quality product; large market share, good financial results and survival at pre-determined time using relevant strategy for action. Therefore, performance can also be used to view how an organization is doing in terms of market share, volume of products, customer demand, loyalty and investment. Consequently, Wang (2010) views performance as product accomplishments, results and achievements in an organization. Williams and Andersons (1991) also define performance as employees achievement level in her responsibility and duties assigned in the workplace. Meanwhile, Ojokuku, Odetayo and Sajuyigbe (2012) stress that, the role and responsibilities of the leaders can influence the organizational success.
Furthermore, leadership style controls interpersonal reward and punishment that shapes employee behavior, motivation and attitude which impacts on organizational performance (Kendra 2012). The debate whether leadership style can lead to organizational performance has basically been contested. Those who support the reality and efficacy of leadership style and organizational performance believe that the nature of leaders, their roles and responsibilities in decisions-making assist organizations to find solution to challenges and adapt to the complex competitive environment which can influence performance (Kozak & Uca 2008).
1.2 Statement of the Problem
Organizational system in Nigeria is yet to be fully conversant with the development and relationship that leadership style has with their subordinates in the workplace especially Small and Medium Scale Enterprises (Ahmad, Carlene & Nuttawuth 2013). At the same time, business units in their varying capacities operate under the same environment in Nigeria and are faced with similar opportunities, problems and prospects depending on their respective industry. It therefore, becomes very pertinent to examine what constitutes the failure of SMEs in Nigeria.
According to a report by Small and Medium Enterprise Development Agency of Nigeria SMEDAN (2008), only about five to ten percent of young companies survive and grow to maturity and most SMEs die within five years of existence. Various challenges which seem to confront SMEs around the globe include recession, poor management, and low trade barrier from currency barrier among others (SMEDAN 2012). Studies, examples are (Obiwuru et al, 2011; Ahmad et al, 2013; Uchewangbe 2013; & Akoma et al, 2014) Abdulazeez et al, 2014) also put forward many factors as the possible causes of early failure of SMEs in Nigeria. These can be attributed to internal factors of an organization, such as; lack of access to finance, poor infrastructural facilities, lack of market research, lack of expertise and lack of management abilities among the key players in the organizations. All of these constitute factors that inhibit many SMEs from achieving their objectives (Obiwuru et al, 2011).
In Kaduna State, which is one of the largest‟ SME-concentrated regions in Nigeria SMEDAN (2012), SMEs in Kaduna State had a total loan of N23.6 billion distributed to them in 2014 at 8% interest rate for their expansion and establishment of new businesses (Guardian newspaper, August 2014). Other things being equal, this would have taken care of the financial challenges which researchers put forward as the causes of SMEs failure. In the same Kaduna State, some studies example, (Samuel and Sule 2014, Usman and Abdallah, 2014; Alabi, Awe & Musa, 2015) show that 60% of SMEs failed within the first three years of establishment due to lack of inability to access funding, poor good strategies etc. All these affect the performance of SMEs. Thus, the above studies were carried out within and shortly after the period of the loans. However, in 2014 the loan given to the various SMEs in Kaduna State could not be recovered because of misuse of the funds owing to incompetence on the side of the management, manager Kaduna State SMEDAN branch office 2015. Specifically, the non-payment of loan had discouraged many financial institutions especially the deposit money banks from giving out loan to SMEs. The aforementioned empirical studies in Kaduna State also reveal that the entire sub-sector of SMEs is facing quite a number of problems militating against its growth and development.
Primarily, the factors given by the aforementioned studies could greatly be tied to their decision making process in these businesses. In some businesses, mostly SMEs – where almost all decisions are influenced by the owner(s), there is likely to exist an overconcentration of decision making on one (key) person. As such, various SMEs, like other organizations, need leadership styles (autocratic leadership style, democratic leadership style and laissez-faire leadership style) that will determine the levels of owners‟ participation, as well as the inputs of others (managers and/or employees) in the decision making process and the way businesses are run. It is in this light that the study examined how leadership style affects the performance of SMEs in Kaduna State.
1.3 Research Questions
In line with the above research problem stated, the following research questions were raised:
i. Does autocratic leadership style affect the performance of SMEs in Kaduna State?
ii. Does the democratic leadership style affect the performance of SMEs in Kaduna State?
iii. Does laissez-faire leadership style affect the performance of SMEs in Kaduna State?
iv. Is there any significant difference in the performance of SMEs based on leadership style?
1.4. Objectives of the Study
The main objective is to examine the effect of leadership styles on the performance of SMEs in Kaduna State. Specifically, the study will be guided by the following objectives to:
i. Determine the effect of autocratic style of leadership on the performance of SMEs in Kaduna State.
ii. Examine the effect of democratic leadership style on the performance of SMEs in Kaduna State.
iii. Determine the effect of laissez-faire leadership style on the Performance of SMEs in Kaduna State.
iv. Determine the difference in the performance of SMEs based on leadership style.
1.5 Statement of Hypotheses
Based on the objectives, the following hypotheses were formulated in null form:
H01 Autocratic leadership style has no significant effect on the performance of SMEs in
Kaduna State.
H02 Democratic leadership style has no significant effect on the performance of SMEs
in Kaduna State.
H03 Laissez-fair leadership style has no significant effect on the performance of SMEs
in Kaduna State.
H04 There is no significant difference in performance of SMEs based leadership style.
1.6. Significance of the Study
This study is important because it reveals the relationship between leadership styles and SMEs performance in Kaduna State. Since effect of Autocratic, democratic and laissez-faire leadership styles were tested in the same model and how the styles of leadership should be applied to SMEs industry bearing in mind the organizational situations.
This study shall enable or provide a guide for SMEs operators and other government agencies formulating and implementing of policies.
The study shall enable future researchers, academics and students in understanding the effects and importance of these styles of leadership (authoritarian, democratic and laissez-fair) on the performance of the SMEs since it revealed new findings and adding to the existing knowledge.
The study shall also enable SMEs owner/manager in any sector have a stronger influence on their employees. Since owner/managers leadership styles play a vital role in enhancing performance of their various businesses and the result shall be of great help to stakeholders in such understanding how leadership styles affects performance of SMEs in Nigeria.
1.7. Scope of the Study
The study mainly focused on the effect of leadership style on the performance of SMEs in Kaduna State and covers all the registered SMEs with SMEDAN in Kaduna State as at November 2015. Kaduna State was chosen because of its large concentration of SMEs among other state various states in Nigeria, and its ranking as the 4th largest concentration of SMEs after Lagos, Kano and Oyo (Smedan, 2012). The study was limited to only the registered SMEs in Kaduna State. SMEs Owners/manager were chosen as the respondents‟ unit of analysis, they were selected because they have the knowledge, are familiar with the running of their own businesses and are able to provide the researcher with required adequate information. In this study, leadership styles were the independent variable while the dependent variable was SMEs performance.
1.8. Limitations of the Study
The followings were the limitations of this study. Firstly, its arises from its scope that is limited to SMEs operating in Kaduna State; therefore, its findings may not be generalized among all SMEs as a whole in Nigeria. Specifically, only 201 registered SMEs with Kaduna State SMEDAN office were captured in the study due to the fact that there is no available data on the total number of SMEs in Kaduna State. Thus, the study needs to be replicated in other parts of the state or Nigeria as a whole. Another limitation is that, the findings of this study cannot be generalized in a large extend or context among all SMEs sub-sector because the study did not look at the SMEs sector individually. As such, various studies are needed to look at the effects of the variables on the performance of SMEs sub-sectors such as manufacturing, services, hotel and restaurants businesses, building and construction, real estate, etc.
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