SMBs (small and mid-sized businesses), or SMEs (small and medium-sized enterprises) as they are also known, contribute more than 99% to the U.S. GDP while accounting for more than two-thirds of all new jobs in recent decades. In spite of their economic importance, very little information exists on leadership development practices in smaller organizations. Most studies review talent management best practices in large organizations where budgets, people resources, and subject matter expertise are greater.
With this gap in mind, AJO set out to identify challenges and best practices among SMBs in the New Jersey/New York market in particular, and to benchmark SMBs with larger organizations with whom they compete for talent.
For the purpose of our study, we focused on organizations with 25 to 2,700 employees. We leveraged our network of contacts, all of whom were HR leaders, with the exception of one organization where the President/CEO responded. The participating industries were representative of the NJ/NY industrial base (pharma, biotech, healthcare, medical devices, manufacturing, etc.) By statistical standards, our sample of 18 participating organizations would be considered small. However, the themes that emerged were remarkably consistent. In this post, we share some of the study highlights.
If you are interested in learning more, we invite you to download the full complimentary report - The State of Leadership Development in Small and Mid-Sized Businesses.
Talent identification and development does matter in SMBs
Every participant agreed that identifying and developing talent is important in his/her organization. In fact, over half consider this to be extremely or very important. SMBs can already anticipate challenges when competing for talent in their industries. An increasingly tight labor market; greater speed and volatility; and global competition presents both hurdles and opportunities for smaller organizations.
Current leadership capabilities are stronger than pipelines
We asked SMBs to weigh in on the strength of their organization’s current leadership capabilities and their leadership pipelines. While current leadership capabilities are considered to be strong (39%) or moderately strong (44%), the same does not hold true when it comes to future leadership capabilities. Only 6% believe their pipelines are strong and a further 17% indicated that pipelines are weak or very weak.
What's holding SMBs back from developing their leaders?
While the reasons are numerous, three factors floated to the top:
- Lack of budget/financial resources
- A lack of time/HR resources
- Fragmented approaches
When you combine these key challenges with self-reported low talent/leadership development sophistication levels (only 11% designated their capability as sophisticated), SMBs run the real risk of making no investments and/or investing poorly. Half of our study respondents characterized their leadership development initiatives as ad hoc, based on needs identified. This can result in a reluctance to spend, a difficulty in justifying the spend, and a lack of senior leadership sponsorship........ not to mention difficulty hiring and retaining top talent – all challenges reported by our study participants.
While SMBs often lack the resources, a more structured and sophisticated approach to talent management becomes an imperative to remain competitive. It isn’t all bad news, however, SMBs do have some advantages over larger organizations if they can successfully capitalize on them. AJO recently reviewed the opportunities and recommended steps in “Six Steps to Secure Millennial Leadership Talent.”
What's working in talent/leadership development in SMBs?
From interviews, comments and survey responses, we learned:
- The most important factor in successful team/leadership development is CEO/ Senior Leadership sponsorship, selected by 78% of respondents.
- Having clearly defined strategic, measurable goals is also deemed to be an important success factor (56%).
- More than two-thirds (67%) of SMBs are leveraging leadership coaching, reflecting the significant growth and effectiveness of this development approach.
- SMBs are focusing on developing leaders for future roles (78%) versus addressing gaps in current roles (39%). This is consistent with what large organizations are doing.
- SMBs are investing in team coaching/team development (56%) to a much greater extent than large organizations.
How to identify leaders in SMBs
Based on our work in organizations of all sizes, we have distilled the following best practices for SMBs:
- Agree on leadership criteria. While a competency model isn’t essential, agreement on a set of criteria/common language that is used across the organization to measure leadership potential should be. There are many good models that can be used or customized for this purpose. E.g., “Twelve Critical Behaviors that Highly Engaging Leaders Master”. Incorporate your leadership criteria to the talent acquisition process.
- Ensure managers apply clear criteria when evaluating or nominating high potentials. Leaders should be involved in the process and guided in recognizing and applying the agreed criteria. They should be sensitive to personal bias and halo effects. Finally, they should be sensitive to the pitfalls in over-weighting four characteristics at the expense of strategic and leadership capabilities, as highlighted in the research by Zenger and Folkman. (See: "Companies Are Bad at Identifying High-Potential Employees.")
- Align performance management systems. Embed your leadership criteria to formal evaluation processes. Replace vague evaluation measures such as, “will be ready to assume a leadership role within two years” and “has the potential to operate at one or two grades above” with specific, actionable steps and time frames.
- Leverage 360 tools/assessments. To supplement manager recommendations with additional and broader viewpoints, incorporate 360 feedback and assessments to the review process.
How to develop your SMB leaders
Based on our work, AJO would highlight the importance of designing holistic leadership development programs that focus on:
- Driving Business Results—All leadership development efforts should be focused on turning the organization’s strategic intent into desired business results. Leaders need to possess the skills, knowledge, and attitude necessary to drive strategic change.
- Strategy Mapping—Aligning and mapping the organization’s leadership, talent, culture and teamwork with its business strategy.
- Team-Based Strategic Execution—Creating and implementing a team-based strategic execution process that is designed to have leaders, managers, and employees aligned and working together at the highest levels of performance.
![SMB Leadership Development report cover]()
Summary
Several themes, when viewed together, suggest that for leadership development to be effective in SMBs, CEOs and Senior Leaders need to buy in before investments are likely to be made in identifying and developing leaders.
SMB HR Leaders understand that they have to achieve what has been an elusive goal for many organizations of all sizes – to structure programs that are not only seen as credible by organizational leaders and participants but most importantly, yield tangible business results/ROI.
While they typically lack the resources of large corporations, where leadership development is integrated to the strategic mindset at all levels, SMBs should invest wisely in programs that are designed to align team and leadership development with the skills, knowledge, and attitude necessary to drive strategic change.