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Omega Journal of Scientific Research (ISSN:2383-0166)
2014-April
Evaluation of Leadership Role in Promoting the Activities of
Small and Medium Enterprises in Iran
Farzam Chakherlouy
Doctor of Business Administration Student, Mahan Business School
[email protected]
Abstract
Leading is very fundamental issue in management. Because the most important work of an
administrator is using the correct manpower to overcome the problems and implement
organizational program making goals ready available. Leadership is the art or science of
influencing people so they can move toward their willingness and desire to reach the targets.
Small and medium enterprises are the heart of the global economy today. Creating and
supporting small and medium enterprises is one of the main priorities in economic development
programs in many developed and developing countries. New organizations are facing with
developments and widespread threats; thus ensuring the survival and their survival depends on
finding new solutions and techniques to deal with problems. In this study, the role of leadership
in promoting the activities of small and medium enterprises of Tehran sector has been
investigated. In this study the role of leadership in advancing the activities of small and medium
enterprises was investigated. According to the results of the hypotheses there is a significant
relationship between the leadership role and promote the activities of small and medium
enterprises. Also there is a significant relationship between elements of leadership (motivation,
influence, power and communications) and progress of small and medium enterprises.
Keywords: leadership, small and medium enterprises
1- Introduction:
In the new century, the organizations, especially educational institutions are faced with a global
competitive environment, constantly need to radically change the work and creativity is felt.
Force of global competition has forced organizations that after decades of using working
methods and procedures examine new working methods. So that organizations do not have
working stability and are relatively stable (Geijsel, f.; Et.al, 2003). Most of these organizations
have focused their attention on organizational leaders because they don’t want to lose
competition and with brevity and courage attempt to radically change within their organizations.
Because the leadership is concerned with changes. Small and medium-sized enterprises in
creating jobs and economic growth have an important role, so that in Europe 99/9% of the total
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number of businesses and 65% of the turnover of the firms are allocated to small and medium
enterprises (Lipscomb, M. and McEwan, AM, 2001). Pay attention to small and medium
enterprises for sustainable development is an important approach. These enterprises utilizing
poor facilities and meet the needs of the domestic market are considered one of the most
important sectors in the economy of any country. Significantly are effective in GDP and in
developed countries to earn foreign exchange through exports contribute significantly. Several
studies indicate that the developing countries also 40 to 60 percent of the total value added in the
national economy is due to the firm's performance (Lipscomb, M. and McEwan, AM, 2001).
Small and medium-sized companies play important and high value role as value creators of
goods and services, capital formation and value added and provide effective ways to meet the
needs of individuals. It is said that small and medium sized companies are catalyst of national
economies and core of economic development.
2 - The role of leadership:
Despite much research in the area of leadership, yet this concept because of its complex nature
remains elusive. Signs of extraordinary leaders in the first place seems that emerge from the
followers Max D. Perry, in his book entitled "Leadership as an art," stated this issue. He also
added that the first responsibility of a leader is to describe the full extent of reality and the last
one is thanks to the followers that here the leader should be servant and indebted (Bishop John,
R. Schol. 2006). The process of influencing others and motivate them to work together to
achieve the target goals is called "leadership". Or we can say: the leadership is using the process
of communication in particular situation between people and directing them to specific
destinations. Or leadership is the process of influencing people so that they have the passion and
seriousness in their efforts to achieve organizational goals (Antonacopoulou EP and Bento RE,
2003). "Leadership" primarily is "the art of influencing others". It means that followers obey
leader arbitrarily not by impose. Therefore, the purpose of leadership in general, influence and
motivate people so that they attempt by desire, passion and enthusiasm to achieve the goal of
group work (Chappelow, C., 2004).
Leadership is influencing people to bring them to achieve a common purpose (Koontz, et.al,
1959).
Leadership is influencing on people trying to force them into the desired team goals (Terry, R.
George, 1960).
Leadership is the process of influencing the activities of an individual or group in order to try to
reach a target in a given situation. From this definition of leadership we come to the conclusion
that leadership process is a function of these variables: leader, followers, position. The leadership
means reach goals by helping others (Hersey and Blanchard, 1969).
Leadership is an influence process by which a person's conduct will cause a change in behavior
and opinions' of others this influence should have legitimacy and change should be in line with
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the objectives (Decotlis, et.al, 1979). In a general statement, leadership in organizational
meaning was not independent from management, but rather it was one of its main tasks.
However, detailed studies have been made about the differences between the two groups, for
example research by Professor John Cutter at Harvard University (Kotter, P. John, 1990) or
Robert House of the University of Pennsylvania (House, RJ, 1997). Support management and
leadership has a key role in the success of knowledge management in organizations (Holsapple,
CW and Joshi, KD, 2000) and (Horak, BJ. 2001) (Pan, SL and Scarbrough, H., 1998) and
(Ribiere, VM and Sitar, AS, 2003). Leaders in procedures and activities are considered as a good
example and model. Especially in actions such as sharing knowledge, continuous learning,
attempt to achieving knowledge such as all programs that create changes in organizations,
support and commitment of top management in related actions to knowledge management are
crucial and determinant (Davenport, TH et.al, 1998) (Martensson, M., 2000) and (Manasco, B.,
1996) and (Truch, E., 2001) and (Jarrar, YF, 2002) and (Sharp, D., 2003).
3- Key Elements of Leadership:
Important factors that should be considered in effective leadership, motivation, influence, power,
and communications, each of which can have an impact on the leadership and the guidance and
leadership will be dominated.
1- Motivation:
The essence of management, leadership and guidance of people who have come together to
achieve a common goal depends on the motivation. Studies showed that in average 60% of each
persons' capabilities depends on his motivation and it will suffice to point out the importance of
the issue.
Frederick Herzberg (1966), that his professional experiences have a significant impact on
management ways of many professionals and managers, said that motivation is like a generator
or internal generator (Hertzberg, Fredrick, 1966).
2- Influence:
Influence is a process that can affect or change an individual's behavior (Yukl, A. Gary, 1981).
3. Power:
Concepts of leadership and strength during the evolution of management thought, causes
attachment vigorously, arguing and sometimes confusion. The concept of power is closely
related to the concept of leadership, since power is one of the means by which leaders can
Influence the behavior of followers.
4- Communication:
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Leadership is: interpersonal influence exercised in one or more specific location through the
communication process in order to achieve the goals or objectives of a person or organization
(Tennenbaum RI R, 1961). Interestingly, this definition pointed out the dependency of leadership
to communication so the leadership cannot exist without relying on communication. In the field
of communication tasks leaders it should be said that in general the leader duty is to impress the
group to accomplish two main goals: Achieve group goals; Protection and Promotion Group.
4 - Small and medium enterprises:
SMEs is the abbreviation for Small & Medium Enterprises and includes all small and medium
enterprises, such as industrial, services, commerce and agriculture enterprises. SMEs generally
divided to small, medium and micro enterprises due to factors such as the number of personnel
or the extent of working capital. These firm are unique due to their special features, including:
1- Job Creation
2- The distribution of wealth in society
3 - The development of marginal areas
4- Supplying demands of the country
5 - Trained manpower required for industries and large enterprises....
Small and Medium Enterprises (SMEs) are manufacturing- commercial units which in terms of
size are classified far lower than large firms. Usually classification of these firms is based on the
following four major characteristics:
1. Number of workers in firm
2. Total net assets of firm
3. Level of firm sales
4. Investment amount of enterprise
The most common criteria for defining small and medium-sized enterprises (SMEs) is the
number of its employees. Although this index is different in terms of number in different
countries, But in most countries, small and medium enterprises are defined in terms of the
number of employees in a certain range from one to two hundred and fifty workers.
Interpretations and definitions of SME's have been conducted. There is no universally accepted
definition of SME. Some analysis define SME in terms of overall efficiency, while others
consider the number of employees as an indicator. Europe Union define an enterprise with
normal size an organization with 250 employees, a small company with fewer than 50 employees
and a micro enterprise (very small) defines the maximum number of 10 employees. OECD
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adopts the following convention for the SME category: Micro 1 to 4 employees, very small: 5 to
19 employees small: 20 to 99 employees, medium: 100 to 500 employees. In most OECD
countries, for example, the labor force as the main criteria are respected. Although it is possible
to define small manufacturing enterprises in Belgium or Greece have 50 employees, in the
United States100 employees, in Canada, Italy and Spain 200 employees and in Denmark, France,
Germany and Ireland have up to 500 employees, almost all of these countries, organizations with
fewer than 20 employees as small enterprises or micro enterprises are known or can be removed
from the official statistics. In Iran small Industries and Industrial Estates in SME definition has
based the number of employees. So the firms with fewer than 50 workers are considered small
firms and 50 to 100 firms are considered medium firms. SME are important in employment,
value added, shares in GDP, need for technological innovation in new products or processes. In
addition, there are important social and political aspects of the SME. These groups of firms have
great contributions in transformation of economic into competitive, dynamic, knowledge-based
economy and have the ability of continuous growth, create jobs and strengthen their cohesion. In
order to understand small and medium businesses can say that these businesses have commercial
and administrative law. For each industry, based on annual income and employment, define
particular standard. Any company with fewer than 500 employees is placed in the area of small
and medium businesses. This is the most common defined standard. Various experts have
divided stages of creation and development of small businesses into several stages. Traditionally
this type of business life cycle can be analyzed in terms of five stages:
1. Create a business process: the first stage includes activities associated with the initial
formation of the business. At this stage, entrepreneurial and creative process required. For
accumulation and acquisition of financial and non-financial resources, creativity, evaluation and
networking are needed. Overall philosophy, mission and direction of the business in terms of
entrepreneurial strategy is determined at this stage.
2. Business initiating stage: At this stage, the activities necessary to create a formal business
plan, find funding, conduct marketing activities and create an effective entrepreneurial team is
done.
3. Growth Stage: This stage requires significant changes in the entrepreneurial strategy. Because
competition and other market forces are busy to change their strategies and new challenges are
facing businesses. At this stage, the development and transfer of individual entrepreneurial
leadership, to team-oriented management leadership is discussed.
4. Business consolidation phase: This phase is the result of market conditions and the efforts of
entrepreneurs. During this stage, competition and customer apathy towards entrepreneurs goods
and services increased market becomes saturated. In addition the business sale rate become
steady and the company plans for the next three to five years. Innovation is vital for the future
success of the business.
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5. Innovation or Decline stage: companies that do not pay attention to innovation, will be
destroyed at the end. Companies that are financially successful, often trying to become the owner
of the other innovative companies to ensure their growth. The number of companies follow
producing new products or services. All stages of the life cycle of entrepreneurial business from
strategic vision have importance and each of these stages require different strategies (Yahya et
al, 2011). The role of small and medium enterprises in international trade, small and medium
enterprises can help growing international trade in different roles or use it. Among which we can
mentioned followings:
1. Providing products and services to large export firms
2. Exporting new products
3. Provide support services for international trade transactions (such as domestic transportation,
load transport, customs brokerage)
5 - Background of the research:
In the past there were many studies about management skills. A study conducted by Yusuf,
1995)) showed that managerial skills is one of the key success factors of entrepreneurial activity
in Neshinam Island in the South Pacific Ocean. In a study (Mcewen, huck, 1991) that was
conducted on small business owners in Jamaica, three managerial skills as the most important
skills for successful entrepreneurship have identified:
1. Efficient management
2. Contingency planning and budgeting
3. Action Sales and Marketing
In this study, efficient management, maintenance of financial records, interpersonal
communication skills and setting goals are clearly defined.
Ioa University researches: A survey that was conducted in 1930 at the University of Ioa in
America, was the first series of studies examining the practices of leadership and group behavior.
These researches were performed by two leading psychologists Ronald Lipit and Ralph White
and under-renowned scientist, Kurt Lewin (Koonts, et.al, 1998). In these investigation, led by the
three methods was evaluated on the following three ways: 1. democratic leadership style; 2.
autocratic leadership style, 3. without intervention, leadership style (Fiedler, E. Fred,, 1970).
Research of Ohio in 1945 began by bureau of Business Research at Ohio State University. These
research was intended to identify various dimensions of leader behavior. Began a research team
led by Ralph stogdill (Fiedler, E. Fred and Chemers, M. M, 1985).
The researchers used mathematical techniques could make and describe two types of behavior
associated with leadership responsibilities: 1 – Innovative creation, 2 - circumspect. Ohio studies
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on the effectiveness of performance management applications depend on both task-oriented
approach (building initiative) and human relationships (circumspect) in behavior that have been
recorded on a matrix with four quadrants (Stogdill, RM and Coons, AE (Eds.), 1957).
Michigan studies: These studies that start after World War II, in the local office of the New
Jersey State Life Insurance Company is focused on scientific research and effects of leadership
style on efficiency and productivity of employee satisfaction. In brief and in general we can say
that this article believes that leaders behavior should be based on a focus that in one side work
and on the other side humanism are placed (Fiedler, E. Fred and Chemers, M. M, 1985).
In small and medium-sized organizations, certain factors such as perceived strategic value of IT
to the adoption of information technology and electronic commerce are effective. Iacovou and
colleagues (1995) state that perception of benefits, organizational readiness, and external
pressure in the use of electronic data interchange (EDI) has been effective in small and medium
firms (Iacovou, CL, et.al, 1995). Chwelos and colleagues (2001) earned similar factors in
investigating 286 small and medium organizations. They considered partners as effective
external pressure (Chwelos P., et.al, 2001). Kuan and Chau (2001) determined factors in the use
of EDI technological factors (direct and indirect perception of EDI advantages) organization
(financial understanding and appreciation of competition) and the environment (similar to the
external pressure in Iacovou study). In this study understanding of the indirect benefits was
detected as unimportant (Kuan K., K. & Chau P., Y., K., 2001). From Nepal and colleagues point
of view, in the least developed countries, small and medium enterprises are heavily dependent on
imported technology. For these countries, the main sources obtaining technology is foreign
sources (Nepal, C., et.al, 2001).
For further studies in leadership field we recommended following articles
(Franziska Tschan, et.al, 2013) ‫( و‬Burak Oc, Michael R. Bashshur, 2013) ‫( و‬Anca Văcar, Dan
Miricescu, 2013)
6- The research hypotheses:
The main hypotheses:
There is a significant relationship between leadership role and promote the activities of small and
medium enterprises of private sector
Sub-hypotheses:
- There is a significant relationship between leadership motivation and promote the activities of
small and medium enterprises of private sector.
-There is a significant relationship between leadership influence and promote the activities of
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2014-April
- There is a significant relationship between leadership power and promote the activities of small
and medium enterprises of private sector.
- There is a significant relationship between leadership relations and promote the activities of
7- Model of study
Leadership
motivation
Influence the
leadership
Promote the
activities of
small and
Leadership
Leadership
power
Leadership
relations
8- Statistical population:
Studied population is small and medium enterprises of private sector workers in Tehran.
9 - Sample size and sampling method:
For selecting population of small and medium enterprises of private sector workers in Tehran
statistical sampling with proportional allocation were used. The study sample consisted of 384
employees. In this study, the sample size using the formula N =
and SD 0/64, reliability=
95% (Z=1/96) and estimated relative error 0/065 is equal 384.
9 - Test of research hypotheses:
There is a significant relationship between leadership role and promote the activities of small and
medium enterprises of private sector.
In order to determine the relationship between "leadership" and "promotion of small and medium
enterprises activity" Spearman correlation coefficients test were used.
Based on the results (Table 1) there is very strong correlation between these two variables.
Table 1) the correlation coefficient between the leading role and promoting activities of small
and medium enterprises.
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2014-April
Variable
Test
Promote the activities
of small and medium
enterprises
Leadership role
Correlation
coefficient
0/:8
Significance
0/001
The first sub-hypothesis: there is a significant relationship between leadership motivation and
promote the activities of small and medium enterprises of private sector.
In order to determine the relationship between "leadership motivation" and "promotion of small
and medium enterprises activity" Spearman correlation coefficients test were used. Based on the
results (Table 2) there is very strong correlation between these two variables.
Table 2) the correlation coefficient between the leading motivation and promoting activities of
small and medium enterprises.
Variable
Test
of small and medium
enterprises
Leadership
motivation
Correlation
coefficient
0/:1
Significance
0/001
The second sub-hypothesis: There is a significant relationship between leadership influence and
In order to determine the relationship between "leadership influence" and "promotion of small
Table 3) the correlation coefficient between the leading influence and promoting activities of
small and medium enterprises.
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2014-April
Variable
Test
of small and medium
enterprises
Leadership influence
Correlation coefficient
0/:0
Significance
0/001
The third sub-hypothesis: There is a significant relationship between leadership power and
In order to determine the relationship between "leadership power" and "promotion of small and
medium enterprises activity" Spearman correlation coefficients test were used. Based on the
Table 4) the correlation coefficient between the leading power and promoting activities of small
Variable
Test
of small and medium
enterprises
Leadership power
0/99
Significance
0/001
The fourth sub-hypothesis: There is a significant relationship between leadership relations and
In order to determine the relationship between "leadership relations" and "promotion of small
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2014-April
Table 5) the correlation coefficient between the leading power and promoting activities of small
Variable
Test
of small and medium
enterprises
Leadership relations
0/97
Significance
0/001
Conclusion:
Leader not only direct his subordinates legitimately (legal) but also influence on subordinates.
The leader is someone that by special words and deeds do something that people with their
desires achieve common goals. Leadership requires people who as subordinates or followers
willingly accept the leader commands. Nowadays small and medium-sized enterprises according
to their special characteristics and their role in job creating play an important role in countries
economic. Job creation, increase productivity, economic growth, and are considered the most
effective way to reduce dependence on oil revenues. In this research leadership role in promoting
the activities of small and medium enterprises was investigated. According to the obtained
results, there is a significant relationship between leadership role and promote the activities of
small and medium enterprises. Also there is a significant relationship between leadership
elements (motivation, influence, power and relations) and progress small and medium
enterprises.
References:
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