A businesswoman in a striking red suits climbs steps to success which are formed out of the bars on a financial performance chart. A black and white cityscape sits in the background and there are stacks of coins to indicate profitability and growth.

Can't touch this: Many leadership programmes overlook the importance of intangible skills

Small business growth has been a subject of significant interest to researchers and policymakers alike in recent years.

Given that small and medium-sized enterprises (SMEs) account for 99 per cent of UK firms and 48 per cent of all jobs, helping these companies to grow has the potential to drive the economy and benefit the local communities where these businesses are based.

This has led to a particular focus on so-called ‘high growth firms’ (HGFs), a definition created to help policymakers identify those high performing, rapidly growing businesses that make a disproportionate contribution to the economy.

The Organisation for Economic Co-operation and Development (OECD) classifies HGFs as firms with ten employees or more that have achieved an average growth in either sales or employment of 20 per cent per year for the last three years.

However, our research at the Enterprise Research Centre (ERC) highlights that firms don’t typically experience constant growth year-on-year. Instead, they tend to experience growth ‘episodes’ that can come at different points in the business lifecycle.

As a result, we argue that researchers must not get fixated with any single definition of a HGF, instead focusing on the factors that cause and sustain these growth episodes.

While policymakers increasingly recognise the potential of fast-growing firms to drive economic growth and job creation, there is still much to learn about patterns of growth, and the various factors that enable or hinder scaling processes in small firms.

However, there is mounting evidence that leadership quality is a key differentiator between firms that succeed in scaling and those that struggle to grow.

For example, previous ERC research has drawn attention to the importance of several ‘growth-oriented’ management practices in high performing SMEs.

These include inspirational leadership, strong people management, data-driven operational management processes, strategic investments, and product, market and tactical innovation.

Developing the skills to lead SMEs

But how do leaders develop the specific skills and capabilities required for this stage of business development?

Leadership development programmes offer one approach to enhancing the capabilities of SME leaders. These can offer a promising avenue for addressing the leadership challenges associated with scaling, and there is much we can learn from the experiences of successful programmes.

In an evidence review written for the ERC, Andrew Henley notes several areas of best practice – including action learning, tacit learning through peer networks, and peer mentoring – which contribute to improved self-confidence and leader vision.

Building on these observations, it seems a key element of leadership development programmes that is often overlooked in traditional evaluation methodologies is the role of ‘intangibles.’

While these are not directly measurable through metrics like revenue growth or productivity, they contribute to the development and success of business leaders, their teams, and their organisations. These include:

Leader evolution and strategic focus

This refers to enhancements in leadership skills, vision, and strategic thinking that drive the organisation forward.

Effective leadership requires developing a rich mix of skills and competencies including emotional intelligence, adaptation, and collaboration.

Many of these skills can be learned and refined over time. A good way to do that is by practising them with experts and fellow business leaders, so seek out opportunities to do that in your day-to-day interactions.

Organisational culture

Organisation culture combines the collective values, beliefs, and behaviours within a workplace.

There is a growing appreciation of the important role the values and behaviours play in influencing organisational success.

They do this by bringing about improvements in the employee engagement, morale and teamworking, enabling employers to maximise the discretionary effort of their employees.

Innovation and creativity

Fostering a mindset that encourages innovative thinking and creative problem-solving is associated with organisational success.

In an ERC paper, Tamara Friedrich reveals how leading for creativity and innovation is different to leading ‘standard’ performance. It involves setting a compelling vision, allowing autonomy, building trust, and psychological safety and positive role modelling.

Resilience and adaptability

Resilience and adaptability have become regarded as crucial characteristics in successful organisations, helping businesses to navigate challenges and adapt to changing market conditions.

An agile mindset enables organisations to ‘pivot’ when needed and adjust to changing conditions. A recent ERC evidence review found that resilient leaders have been strongly linked with businesses that grow.

Team dynamics

Strengthening cooperation, communication, and trust among team members is widely acknowledged as crucial for business success.

Business leaders should focus on creating positive team dynamics. This ensures team members feel comfortable asking questions and sharing their ideas, and that their unique qualities are recognised in the workplace. This in turn encourages innovation, a key catalyst for growth.

Customer relationships

A focus on customer relationships involves building stronger, more meaningful connections with customers that enhance satisfaction, retention, and loyalty. This is clearly important for businesses to achieve sustainable growth.

There are a range of different strategies and approaches that can enable an organisation to nurture these relationships, including regular communications, personalised interactions, and rewarding customer loyalty.

Brand and reputation

There has been a growing recognition of the value of positive brand image and reputation for SMEs, not just multinational corporations.

Brand may have originated with basics such as company logo and packaging, but it now transcends product appearance and even marketing.

For many successful firms, brand includes a wider appreciation of the range of associations that consumers make, based on every interaction they have with your business.

This can include the quality of your product and service, employee behaviour, and your core purpose, all of which begins with company leadership, not the marketing team.

Improving programmes for SME leaders

Understanding and nurturing these intangibles is crucial to ensure growth programmes create more agile, innovative, and resilient organisations that deliver more tangible rewards.

For instance, participants in the Goldman Sachs 10,000 Small Businesses Programme emphasised how intangible factors such as strategic leadership, innovation and creativity, and business culture were crucial in driving revenue growth and job creation.

Leaders particularly valued the fact that the programme gave them the time to ‘step back’ and take time out to reflect on their practices. They also highly valued the benefits they gained from learning from the real-life experiences of their peers.

Participants reported increased confidence in their ability to lead, a better understanding of the processes required to scale their businesses, and the development of valuable peer networks that support ongoing growth – all driven by these intangible qualities.

Taking this into account, it is important that the principles for designing leadership programmes need to be flexible, context-specific, and geared toward unique challenges of scaling. Raby and Hart use the acronym CAPABLE to highlight the core elements:

  • Context-specific content
  • Adaptive leadership for scaling
  • Peer learning and networking
  • Applied learning
  • Building intangibles such as emotional resilience
  • Leadership cognitive capability development
  • Evaluation frameworks that holistically assess both tangible and intangible outcomes

Together, these principles offer a structured approach to creating small business leadership programmes that empower SME leaders to thrive and adapt in dynamic environments.

As our research at the ERC highlights, it is important that these programmes do not focus on a small, exclusive group of narrowly-defined HGFs.

Instead, the emphasis should be on developing a pipeline of ambitious business leaders that are encouraged and supported to capitalise on a range of intangibles and successfully navigate and maximise growth episodes.

Further reading:

Growing pains: How to help small businesses scale

When should entrepreneurs trust their gut instincts?

Are entrepreneurs born or are they made?

Why are ambitious female founders punished by investors?

 

Mark Hart is Deputy Director of the Enterprise Research Centre and Professor of Entrepreneurship and Enterprise Policy at Warwick Business School.

Vicki Belt is Deputy Director for Impact and Engagement at the Enterprise Research Centre.

 

Discover more about Innovation and Entrepreneurship. Receive our Core Insights newsletter via email or LinkedIn.