Enterprise logic and small firms: a model of authentic entrepreneurial leadership

Abstract
Purpose – The purpose of this paper is to draw on emerging ideas related to the concept of
entrepreneurial leadership which emphasises a “distributed” model synonymous with terms which
indicate that authority is decentralised (“shared”, “team”, “democratic”, “representative” and
“dispersed”).
Design/methodology/approach – A model of authentic entrepreneurial leadership was developed
based on a review of the literature. Eight small manufacturing companies were selected to empirically
examine, via interviews, the extent to which authentic entrepreneurial leadership was adopted by
owner-managers.
Findings – Interviews with owner-managers indicated that they did in fact rely on an approach to
leadership which emphasised the role of employees as genuine stakeholders in the business. This
finding can be related to the concept of what Dovey and Fenech, describe as “enterprise logic” which
the authors link to the emergence of knowledge-based capitalism. Owner-managers were keen to
involve their employees in development of the businesses through the development of new products
and new services.
Practical implications – This study confirms earlier work which points out the importance of
entrepreneurs adopting an authentic approach to leadership. Authentic leadership means that
employees are encouraged to develop their individual strengths and owner-managers adopt an ethical
approach to their dealings with all stakeholders.
Originality/value – The paper develops a model of entrepreneurial leadership which sets out the
links to organizational innovation. The empirical study provides clear evidence of links between this
approach to management and higher levels of innovation within small firms.

Introduction
The starting point for this paper was a desire to explore ideas associated with
entrepreneurial leadership in the context of small, owner-managed firms. Carland et al.
(1984), drawing on the work of Schumpeter (1934), suggest that a commitment to
innovation distinguishes entrepreneurs from owner-managers. Recently, Beaver and
Jennings (2005) argue that researchers still fail to discriminate between the two forms
of small business management. Essentially, owner-managers found and manage small
businesses to further their personal goals. In contrast, entrepreneurs are characterised
by innovative behaviour with a primary focus on profit and business growth (Beaver
and Jennings, 2005, p. 11). Links between entrepreneurship and leadership are brought

together in a process which combines innovation and opportunity exploitation (Darling
et al., 2007). Therefore, our intention is to examine the existing literature as a basis for
conceptualising entrepreneurial leadership in small firms. We will then demonstrate
the utility of this model by means of a study of eight SMEs based in the Northwest of
England.
Rapid changes have occurred in the business environment as a result of new
information technologies and the emergence of major new economic actors such as
India and China. Dovey and Fenech (2007) claim that these changes will lead to a new
form of “enterprise logic” based on distributed learning and creativity. The term
enterprise logic refers to the ideological underpinnings on which organizational
activities are based (Miles et al., 1997). These shared assumptions, everyday practices
and organizational routines represent the structural arrangements which influence
cultural norms. Consequently, enterprise logic symbolises a rejection of traditional
forms of industrial capitalism (Gee et al., 1996) with a shift towards knowledge-based
organizations. Rather than being concentrated in specific functions (R&D for example)
or embodied in individuals (the charismatic leader or owner-manager), knowledge is
more widely distributed which emphasises the need for collaborative working. This
emphasis on “communities of practice” (Wenger, 1990) draws attention to the
importance of networking and the creation of social capital (Newell et al., 2004). Social
capital is an outcome of strong relational bonds between various actors which are
based on cooperation, trust and reciprocity (Lee and Jones, 2008). Hence, the idea of
enterprise logic is built on the need for shared values and creative participation by
employees in all organizational activities.
In such an environment of decentralised authority, risk would be managed through the
socialisation of all members to cultural norms that dictate the framing of all decision making
by the mission and values of the collective (Dovey and Fenech, 2007, p. 577).
The authors go on to say that knowledge-based organizations which are trying to
compete through innovation are characterised by shared ownership and
non-authoritarian power bases. We suggest that the idea of creating organizations
based on enterprise logic has strong links with entrepreneurial leadership. The
entrepreneurial leader has the ability to create visionary scenarios that are capable of
mobilising a “supporting cast” to enact that vision (Gupta et al., 2004). Central to our
understanding of the entrepreneurial process is the importance of entrepreneurial
leaders creatively responding to new opportunities by establishing new businesses
(Chen, 2007). Kuratko (2007, p. 2) argues that entrepreneurship goes beyond the
creation of new businesses:
The characteristics of seeking opportunities, taking risks beyond security, and having the
tenacity to push an idea through to reality combine into a special perspective that permeates
entrepreneurs.
Others point out that the ability to motivate others is crucial to entrepreneurial success
(Eggers and Smilor, 1996). Despite recognising the importance of the “human element”
in entrepreneurship, according to Jensen and Luthans (2006a), leadership issues have
not received a great deal of attention in the literature. Similarly, the “organizational
leadership” research has tended to ignore smaller and newer organizations. Jensen and
Luthans (2006a, b) attempt to integrate leadership and entrepreneurship by drawing on
ideas associated with “authentic leadership”.

In this paper we also use the emerging literature to examine the nature of
entrepreneurial leadership. We suggest that understanding differences between
success and failure or stagnation and growth in a small firm context requires a clear
understanding of the role played by entrepreneurial leaders particularly in light of
changes outlined by Dovey and Fenech (2007). We begin by reviewing key
contributions to the literature dealing with entrepreneurial leadership. This is followed
by an account of our research methods and we then present our data. In the discussion,
we examine the implications of our research for entrepreneurial and leadership
theories.
Entrepreneurial leadership
Defining entrepreneurial leadership
Fernald et al. (2005) see the upsurge in entrepreneurial activity as a function of
widespread technological change in information systems, new materials and
organizational forms (networks). The authors draw on McClelland’s (1961) view that
entrepreneurship is primarily based on the individual’s personality and their
upbringing. Similarly, leadership is also seen as strongly linked to trait theory with
focus on key characteristics such as: vision, problem-solving, decision-making,
risk-taking and strategic initiatives. Because large and small organizations have to
undertake radical rather than incremental change leaders must adopt an
“entrepreneurial mentality”. Future organizational archetypes will “reflect
entrepreneurial thinking” based on characteristics such as problem-solving and
being action-oriented (Fernald et al., 2005, p. 4). In an attempt to resolve debates about
the distinction between entrepreneurial and leadership characteristics, Fernald et al.
(2005) surveyed “journal articles, dissertations and theses, books and magazine
articles”. Characteristics were compared and eight identified as common between
entrepreneurs and leaders (Table I). The apparent randomness of these eight factors
confirms the authors’ conclusion that “much remains to be done in clarifying the role
and characteristics of tomorrow’s leaders” (Fernald et al., 2005, p. 8).
According to Gupta et al. (2004) entrepreneurial leadership involves the fusing of
three concepts: entrepreneurship (Schumpeter, 1934), entrepreneurial orientation
(Covin and Slevin, 1988) and entrepreneurial management (Stevenson, 1986) with
leadership (Bennis and Nanus, 1985). Gupta et al. (2004) suggest that entrepreneurial
leaders face two interrelated challenges summarised in the terms scenario enactment
and cast enactment. The former term refers to the way entrepreneurial leaders must

envisage and create scenarios which can change the way in which their business
operates. The latter term refers to the way in which entrepreneurial leaders must
convince internal and external stakeholders to provide the resources necessary to
achieve their goals. Entrepreneurial leadership is concerned with something more
dynamic than simply organizational adaption or evolution:
The actions that entrepreneurial leaders precipitate in pursuit of their vision constitute
proactive “enactment” of new combinations of capabilities within the organization –
reconfigured and focused to forge an entirely reconstructed transaction for the firm (Gupta
et al., 2004, p. 247).
The authors go on to identify five entrepreneurial leadership roles associated with
scenario and cast enactment: framing the challenge, absorbing uncertainty,
path-clearing, building commitment and specifying limits. The first three factors are
related to scenario enactment and the last two factors are linked to cast enactment
(Gupta et al., 2004). As we discuss below, all five of these roles rely on the effectiveness
of the entrepreneurial leader’s ability to communicate with employees and other
stakeholders.
Darling et al. (2007, p. 5) argue that leadership exercised through successful
entrepreneurship can be described as “a process that creates value for organizational
stakeholders by bringing together a unique innovation and package of resources to
respond to a recognised opportunity”. In doing so, entrepreneurial leaders operate on
the basis of three clear dimensions: innovativeness, risk-taking and proactiveness
(Morris et al., 2004; Covin and Slevin, 2002). Entrepreneurial leaders can operate within
the context of large organizations (corporate entrepreneurship) as well as in
“founder-driven” organizations (Darling et al., 2007). Entrepreneurial leaders are driven
by the desire for organizational excellence which is based on three criteria: constant
innovation, care of customers and committed people. In enacting these factors,
entrepreneurial leaders rely on four strategies: attention through vision, meaning
through communication, trust through positioning and confidence through respect
(Darling et al., 2007, p. 9). Figure 1 illustrates the way in which these four
entrepreneurial strategies are linked to organizational excellence.

Self leadership
Effective communication is central to the enactment of organizational excellence which
focuses on innovation and concern for customers. The ability to move from equivocal
to non-equivocal events distinguishes successful entrepreneurs from the less
successful (Gartner et al. 1992; Jones, 2005). This depends on the entrepreneurial
leader’s ability to create “a sense of sharing meaning and interpretations of reality
which facilitate coordinated activity” (Darling et al., 2007, p. 11). The management of
meaning via verbal and non-verbal communication is also important in building
respect with both employees and customers: “entrepreneurial leaders who are trusted
make themselves known and their positions clear in all arenas of the organization”
(Darling et al., 2007, p. 12). This is similar to the concept of cognitive social capital
which is essential for nascent entrepreneurs to access the resources necessary for
successful business start-up (Lee and Jones, 2008).
Within the context of smaller organizations, the concept of self-leadership takes on a
particular significance. As D’Intino et al. (2007) point out most start-ups struggle to
gain legitimacy and support among stakeholders including customers, employees,
suppliers, venture capitalists and bankers. Successful entrepreneurs develop personal
strategies to help them remain focused on their goals and these can be clustered into
three categories: behaviour-focused, natural rewards and constructive thought
patterns (D’Intino et al., 2007). The authors then go on to argue that developing
effective self-leadership is essential for those entrepreneurs starting new business
ventures with real potential for growth or those trying to develop existing businesses.
The model of self-leadership developed by D’Intino\ et al. (2007) is informed by a
number of factors regularly discussed in the entrepreneurship and leadership
literatures (Figure 2).
Not only do D’Intino et al. (2007) see optimism as an important element of
entrepreneurial leadership they also suggest that it can be learnt (see Seligman, 1998).
For example, learning to be more optimistic means replacing dysfunctional thoughts or
beliefs with a more positive outlook by visualising successes rather failure. Three
personality attributes are included in the model and all these are well-known and
widely discussed in the entrepreneurship literature (Burns, 2007, p. 32). Locus of

control, in particular, seems to be closely aligned with those individuals who have an
optimistic rather than a pessimistic outlook. Diversity factors, or what might more
accurately be described as human capital are also important influences on
self-leadership and they include: age, culture, gender, education and experience.
Emotional intelligence has been widely adopted in the literature particularly in terms
of differentiating between distributed, transformational and transactional forms of
leadership (Goleman, 1998, 2000; Jung et al., 2003; Keller, 1992). Although, many
authors increasingly question the nature of emotional intelligence and its importance to
leadership (see Antonakis et al., 2009). The final factor discussed by D’Intino\ et al.
(2007) is “happiness and flow”. The authors draw on the work on Csikszentmihalyi
(1990) who developed the concept of “psychological flow” by focusing on the need for
individuals to concentrate “on the moment and the process” rather than thinking about
longer term rewards or outcomes. For an entrepreneur this involves taking enjoyment
and gaining fulfilment from activities associated with creating a business and
satisfying customers instead of focusing on longer-term financial outcomes.
Authentic leadership
Where typically leadership has been regarded as something definite, directional,
consistent and robust, under conditions identified above these qualities emerge in more
open and flexible cultures. As Clarke (2006) argues “representative leadership” is more
appropriate in organizations in which leaders are required to work with “varied and
competing interests”. This is similar to the concept of distributed leadership which
entails a rejection of “heroically informed understandings of leadership” (Gronn, 2008,
p. 142). In other words, because of the knowledge-based nature of smaller firms, owner
managers and employees have to rely strongly on their “emotional intelligence” (Leban
and Zulauf, 2004) to innovate successfully. The main dimensions of emotional
intelligence include: encoding skill, skill in recognizing and decoding messages from
others and skill in regulating and controlling communication behaviours (Riggio and
Reichard, 2008). Therefore, we argue that the success of smaller firms depends heavily
on the ability of owner-managers to use their social skills (Edwards and Jones, 2008) to
enhance “social capital” within their businesses (Cooke and Wills, 1999; Shaw, 2006).
Jensen and Luthans (2006b) point out that creating and sustaining a new business
(enacting) relies not only on vision and financial capital but the ability to transform
those assets into a successful reality. While key authors such as Chandler and Hanks
(1994) have identified leadership with successful entrepreneurship there has been
surprisingly little research devoted to the topic of entrepreneurial leadership. The
concept of authentic leadership is suggested as a way of resolving this gap in the
literature (see Avolio and Gardner, 2005; Avolio and Luthans, 2006; Gardner and
Avolio, 1998). Authentic leadership is defined as that which “creates the conditions for
higher trust, helps people build on their strengths and be more positive, to broaden
their thinking, to add value and a sense of what is right to their decisions, and to
improve the performance of their organization over time” (Jensen and Luthans, 2006b,
p. 648). The model of authentic leadership (Figure 3) is based on the proposition that
the entrepreneur’s life experiences (human capital), psychological capital and
organizational capital have a positive effect on employees (Jensen and Luthans, 2006a).
Life experiences relate to the entrepreneur’s human capital in the form of education
and experience (Becker, 1964; Ucbasaran et al., 2008; Shrader and Siegel, 2007; Serneels,

2008). Three constructs, optimism resiliency and hope combine to form the basis of
psychological capital which has a positive impact on the entrepreneur’s authentic
leadership. Jensen and Luthans (2006a) argue that authentic leadership itself has three
dimensions: first, leadership behaviours which help employees develop their strengths
while feeling that they are treated with respect. Second, future orientation stresses the
importance of innovation, risk-taking, decision making and well-planned competitive
posture. Finally, ethical climate relates to the importance of developing the company
for the benefit of all stakeholders not just entrepreneur themselves. Avolio et al. (2004)
posit that the idea of authentic leadership is likely to be more effective in organizations
typified by simple structures (Mintzberg, 1979); such structures are most likely to be
found in small firms (Burns, 2007). An entrepreneurial leader is defined “as one who
holds the core belief that not only does every individual within the organization have
something positive to contribute, but also the ability to identify and help employees
build on those individual strengths is fundamental” (Jensen and Luthans, 2006b, p. 651).
The authors sought to examine their model by a study based on 62 businesses
representing 179 employees and 62 business owners. The results demonstrated that
employees who perceived their leader to be “authentic” had higher levels of
organizational commitment, job satisfaction and work happiness. Jensen and Luthans
(2006b) argue that “meta analysis” has also demonstrated a positive link between such
employee attitudes and outcomes such as productivity, customer satisfaction and
profit. In their recent review of current leadership theories, Avolio et al. (2009, p. 424)
suggest that four factors “cover the components of authentic leadership”:
(1) balanced processing refers to the importance of data analysis prior to decision
making;
(2) internalised moral perspective refers to self-regulating behaviours;
(3) relational transparency refers to the importance of open information sharing
with appropriate level of emotionality;
(4) self-awareness refers to understanding personal strengths and weaknesses and
sense-making processes.
The evidence for the influence of authentic leadership on “positive organizational
behavior” is debated by Yammarino et al. (2008). Their basic argument is that studies
of authentic leadership need to move beyond individual perceptions to the meso level of
groups/teams and organizations.
Transformational leadership
A number of authors have promoted the importance of entrepreneurs who can
communicate a clear vision to their employees (Baum et al., 1998; Chandler and Hanks,

1994). Others have focused on the importance of entrepreneurs understanding how to
develop human and intellectual capital within their organizations (Jones et al., 2007;
Shane and Venkataraman, 2000; Zahra and Dess, 2001). In contrast, Baron et al. (1999)
assert that the founder’s “employment model” represents a “blueprint” for the
administrative structures adopted as the business grows. Drawing on a survey of 76
technology-based companies in Silicon Valley the authors confirmed the presence of
five basic employment models (engineering, star, commitment, bureaucracy and
autocracy) based on three dimensions: attachment, selection and coordination/control
(Baron et al., 1999). The findings represent something more complicated that a simple
deterministic model describing the personality or idiosyncrasies of individual
entrepreneurs. As the authors go on to say, “blueprints are associated with a number of
factors including the intended business strategy and the early influence of important
external constituents such as venture capitalists” (Baron et al., 1999, p. 542). This
research has important implications for entrepreneurial leadership in small firms
because it suggests that individual agency is constrained by a range of institutional
factors (Edwards and Jones, 2008).
Most small firms have a common set of problems; they lack formal structures, are
dominated by the owner-manager, beset by environmental uncertainty and have a
limited customer base (Floren, 2006; Wynarczyk et al., 1993). In addition, managers
often find it difficult to remove themselves from operational concerns in order to focus
on longer-term strategy (Macpherson, 2005). Various “life-cycle” models of firm-growth
(Greiner, 1972, 1998) suggest there are clearly defined stages through which firms
move to maturity. Churchill and Lewis (1983) highlight changes in the approach of
owner managers if organizations are to increase in size. Both models see an explicit
switch to a more overt leadership role based on the entrepreneur’s strategic vision of
how growth can be achieved (Greiner, 1972; Churchill and Lewis, 1983; Macpherson
et al., 2004; Phelps et al., 2007). Ghobian and O’Regan (2006) point out the longstanding
interest in the relationship between ownership and performance which dates back to
the work of Berle and Means (1932). The authors examine the impact of ownership on
the performance of 194 SMEs (117 independent and 77 subsidiaries) in the engineering
and electronic sectors. Independent SMEs had a much stronger emphasis on
transformational leadership whereas subsidiaries favoured a transactional
management style. This “strong emphasis on a transformational leadership style is
not surprising” because of the need for owner-managers to develop effective personal
relationships which help induce desired behaviours among employees (Ghobian and
O’Regan, 2006, p. 570). In contrast, a transactional style means there is more emphasis
on a rule-based approach to management. This is supported by data related to
empowerment which was also significantly higher in the independent firms. Recent
research indicates that the impact of transformational leadership is moderated by
employees’ goal orientation. Moss and Ritossa (2007, p. 448) established that a learning
orientation promotes intrinsic motivation and “increases the likelihood that
management directives are internalised and embraced”.
A model of entrepreneurial leadership
Drawing on work reviewed above we suggest that the likelihood of owner-managers
developing or adopting an entrepreneurial style of leadership depends on a number of
factors (Figure 4). First, and most importantly, the owner-manager’s human capital

creates opportunities and shapes key internal factors such as communication
strategies, organizational structures, people management and vision/enactment (Baron
et al., 1999; Mosey and Wright, 2007). Owner-managers must delegate authority,
implement communication technologies or mediating artefacts that provide space to
focus on strategic renewal and change (Macpherson and Jones, 2008; Thorpe et al.,
2008). To do this, they must use their discursive and social skills to open-up (bridging
and bonding) to wider networks (Caniels and Romijn, 2003; Lee and Jones, 2008; Newell
et al., 2004). Research suggests that to capitalize on knowledge available through a
firm’s human and social capital, attitudinal and relational competences are necessary
(Caniels and Romijn, 2003; Tjosvold and Weicker, 1993; Wright et al., 2007).
Two important external influences on entrepreneurial leadership are those key
individuals who exercise influence over the owner-manager and the institutional
context which includes the sector, nature of competition and influence of customers. A
number of writers have identified the importance of individuals such professional
advisors (Lee and Jones, 2008), mentors (Ozgen and Baron, 2007) and venture
capitalists (Baron et al., 1999) who shape both business strategy and the managerial
approach adopted by entrepreneurs. Dovey and Fenech (2007) describe the role played
by the “business environment” via institutional influences such as the market,
competition, new information technologies as well as regulation. Others (Floren, 2006;
Wynarczyk et al., 1993) argue that dealing with environmental uncertainty is a major
problem for entrepreneurs managing their own businesses. Edwards and Jones (2008)
point out that the agency of owner-managers is constrained by various institutional
and structural factors.
The need for “authentic” leadership is particularly pronounced in smaller
organizations where regular contact between leader and employees reinforces
high-performance relationships (Atkinson, 2007). Most key contributions to the
literature are primarily concerned with the psychological dimensions of authentic
leadership (Avolio and Gardner, 2005; Avolio and Luthans, 2006; Avolio et al., 2009;
Yammarino et al., 2008). While Jensen and Luthans (2006a, b) also emphasise the
importance of “positive psychological capital” the central factors of “authentic
entrepreneurial leadership” have a strong social element. For example, treating
employees with respect and developing their strengths; stressing the importance of
innovation and risk-taking; and developing the company for the benefit of all
stakeholders. Undertaking such wide-ranging activities demands high-level social

skills to engage with those, inside and outside the firm, who are concerned with shared
actions to meet organizational goals (Baron and Tang, 2009; Edwards and Jones, 2008).
A key distinguishing element of smaller organizations is the owner-manager’s role
and influence (Smith, 2007). As Baron et al. (1999) suggest, founders have a “blueprint”
which influences the administrative structures as firms become more established. More
recently, Ghobian and O’Regan (2006) indicate that a transformational leadership style
is more effective than a transactional approach in promoting the appropriate
behaviours among their employees. Fundamental to this process in the idea of scenario
and cast enactment in which entrepreneurs envisage the way in which their business
will operate and then translate that vision into a plan of action (Gupta et al., 2004).
Effective enactment depends on the entrepreneur’s ability to create meaning for others
by means of their ability to communicate with employees and other stakeholders
(Darling et al., 2007). Possessing the appropriate emotional intelligence means that
entrepreneurs have the communication skills to build strong relationships with their
employees (Riggio and Reichard, 2008). Such communication must be accompanied by
meaningful delegation if employees are to play in full role in the success of their firm
(Thorpe et al., 2008). Small firms can only thrive if all employees are highly motivated
and committed to the vision as set out by the entrepreneur. Authentic leaders focus on
people management by helping all employees add value and contribute to improved
organizational performance of their organization over time’ (Avolio and Gardner, 2005;
Avolio and Luthans, 2006; Gardner and Avolio, 1998; Jensen and Luthans, 2006b). As
argued by Avolio et al. (2004) authentic leadership is more effective in smaller
organizations which have relatively simple structures. Similarly, according to Gronn
(2008) distributed leadership requires structural arrangements which enable all
employees to develop their creativity and innovation skills (Leban and Zulauf, 2004).
Consequently, we anticipate entrepreneurial leadership will be associated with what
Burns and Stalker (1994) described as “organic structures”. Figure 4 illustrates the way
in which these factors combine to influence organizational innovation which relates to
improvements in existing products and services as well as more radical changes in
terms of new products and services (Zhang et al., 2006).
In this paper we intend to explore the extent to which entrepreneurial leadership is
identifiable in mature small firms as they respond to a changing enterprise logic
typified by strong external forces which limit strategic choice. Such organizations are
usually typified by an “owner-manager” approach rather than the more dynamic style
associated with entrepreneurs managing innovation or technology-based companies
(Carland et al., 1984).
Research methods
Firms included in this paper are part of a larger study which examined 90 SMEs in the
Northwest of England operating in three sectors: services, client-based advice and
manufacturing. Firms also varied according to their levels of maturity: start-up, stable
and innovatory (Thorpe et al., 2008). SMEs, particularly those with less than 50
employees, are generally dominated by the entrepreneur (owner-manager). That is, the
characteristics of small business ventures generally closely reflect the founder’s
motivations. For example, there are strong links between organizational growth and
entrepreneurial style (Covin and Slevin, 1988; Macpherson and Holt, 2007;
Sadler-Smith et al., 2001). Consequently, small, owner-managed firms vary because

they reflect differences between individual entrepreneurs. Second, such firms are also
typified by their lack of structure, systems and rules with an emphasis on high levels of
informality. Third, the majority of external contacts are established through the
owner-manager and new knowledge tends to be channelled through him or her. Given
the pervasive influence of owner-managers we considered it essential to understand
how they themselves conceptualize the influences and responses to change.
Owner-managers were interviewed in each of the firms on two and, in some cases,
three occasions. These were open-ended, in-depth interviews, lasting between one and
one-and-a-half hours, in which the main questions (focus), follow-ups (more depth) and
probes (clarifications) were used flexibly to allow the interviewer to develop emerging
themes (Rubin and Rubin, 1995, pp. 146-151). All interviews were recorded, transcribed
and coded using NVivo software according to 20 pre-defined categories including
leadership style, methods of communication, business objectives and innovation. In this
investigation of entrepreneurial leadership we examined a sub-set comprising eight
firms from the manufacturing sector. These eight firms were selected for the study
because they were from the same sector, were similar in size and independently owned.
The intention is to map activities within the eight firms onto the model of entrepreneurial
leadership described in Figure 4. Our primary objective is to demonstrate the utility of
this model as a way of understanding the management of smaller organizations which
moves away from the owner-manager versus entrepreneur dichotomy (Beaver and
Jennings, 2005; Carland et al., 1984). This study cannot validate the model in the same
way as studies which utilise quantitative data based on large-scale surveys. We believe
that this approach is appropriate because it is important to better understand the
processes of entrepreneurial leadership and innovation in smaller firms.
As Bryman (2004) points out, there are some who regard issues of reliability and
validity as broadly similar in both quantitative and qualitative research (see Mason,
1994). Others believe that qualitative and quantitative methods are fundamentally
different and should, therefore, be evaluated according to different criteria. For
example, Guba and Lincoln (1994) suggest that qualitative research should be judged
by its trustworthiness and authenticity. According to Bryman (2004, p. 274) the main
reason for such a claim is that the application of validity and reliability criteria to
qualitative research is problematic because there can never be a “single absolute
account of social reality”. Such a view relates to distinctions between those who believe
there is an objective reality which can be observed and measured and those who
subscribe to the intersubjective nature of all reality (Shotter, 1993). As Cunliffe (2008,
p. 124) argues, social contructionist approaches are based on the idea that social reality
is not separate or distinct from actors engaged in everyday interactions. Hence, we do
not claim that data presented here are value-free because, as Denzin and Lincoln (2003,
p. 31) point out, all observations are socially situated between “the observer and the
observed”. Interview responses are also products of interpretive practices that rely on
“interaction between participants” rather than emerging “preformed or pure” (Holstein
and Gubrium, 1995, p. 126).
The study will investigate the role of entrepreneurial leadership in a range of
mature manufacturing SMEs. We suggest that it is possible to adopt an approach to
leadership which can be defined as entrepreneurial in any small organization. Our
objective is to present the data in a way that fulfils the criteria of trustworthiness and
authenticity rather than validity and reliability.

Entrepreneurial leadership in practice
Table II summarizes the findings of our study by illustrating each of the eight
owner-managers in terms of the elements of entrepreneurial leadership described in
Figure 4. Human capital is, we suggest, the key influence on the way in which small
businesses develop (Thorpe et al., 2008). Six of the eight owner-managers had either a
Bachelor’s or a Master’s degree while the remaining two had left school without formal
qualifications. All those except Case E, had at least four years experience before
setting-up their own businesses. Crucially, for the six of the eight owner-managers this
experience included some time spent working in larger organizations (the exceptions
were Cases E and F). For example, one of the two owner-managers without formal
qualifications had worked for a large organization in both new product development
and sales. The other individual without formal qualifications had completed an
apprenticeship but then joined the family business eventually taking over from his
father (Case F).
In terms of the institutional influences on their activities, all eight owner-managers
made reference to market conditions, competition or regulation. This meant that they felt
constrained in the way in which they managed their companies on a day-to-day basis.
Company B adopted a fairly positive response to competitive pressures from both the UK
and overseas as the owner-manager invested in the development of new products, new
equipment and machinery as well as staff training. The MD of Case B responded to
increased competition and regulation by off-shoring some activities to reduce their cost
base. Decisions within were also influenced by environmental regulations:
With us moving site, things that wouldn’t actually affect us for another two years, we’re
being classed as a new facility so we’re having to rapidly get in line with the new law.
Whereas before we thought “oh great we’ve got two years we can ease our way in”. Suddenly
we haven’t, we’ve got to get arrangements made for next year so the new paint shop blast and
things like that we will make sure that we are completely in line with the strict targets that we
have to meet.
With regards to the influence of market conditions, most owner-managers indicated
that they were facing a much more competitive environment. The owner-manager of
Case C was particularly direct in explaining the problems he faced:
Now they’re (customers) much more diligent about the company that they buy from and the
product that they buy so sales cycles are much longer than they used to be. You have to jump
through hoops you know, reference visits, umpteen demonstrations, business cases, return on
investment models so a sales cycle that might have been three months is now nine months.
But they are active projects you know, whereas if you look back two years ago people would
just shut up shop and say, we ain’t going to spend any money on IT, that’s not the case now
but it’s still a very a competitive market, it’s very difficult to sell into.
There was less agreement about which individuals were most influential on the
business practices adopted by owner-managers. These ranged from family and friends
to professional advisors (solicitors and bankers) as well as board members and
shareholders (Case H). Family and friends were certainly most important in situations
which required them to invest in the business. Two owner-mangers described more
formal relations with external actors:
Historically there are several companies which still do these types of products and we
actually all regularly meet and its basically there’s a consortium of companies called Newma

(Needle Felt Underlay Manufacturers Association). We meet every six months and just
discuss new developments in the industry, current climates and current products and we can
all co-exist quite nicely . . . they are competitors and of course we do compete for the same
business, there are overlaps between what we can manufacture. So clearly it is always good to
keep good relations with your co-manufacturers (Case B).
My product manager’s involved and my quality manager as well, I keep them abreast of
what’s going on. The university thing is early stages and there’s three people coming up and
two of them focus on structure and the way we do things, procedures and all that. One’s
looking at training so they’re sort of assessing where our needs are at this particular moment.
They seem pretty good (Case F).
All eight companies except G were small, rather than medium-sized, in terms of the
number of employees. Therefore, we used the owner-managers’ response to issues of
teamwork and democracy as a proxy for “organizational structure”. Only two companies
(D and G) adopted an autocratic approach to management. The remaining six
owner-managers subscribed to an approach based on the principles of team-working and
democratic decision-making. In other words, organizational structure was not a barrier
to getting things done. For example, the MDof Case B liked the informality of working in
a small company compared to his previous experience in the corporate world:
I feel committed to work here because it’s a great company to work for and I’m very loyal to
the company and a lot of people who work here would say the same thing. That’s a testament
to the company and the people who work here, it’s not impersonal, it’s a big family. I just feel
that is something that I would commit to all my working life.
For the remaining three factors, communication and delegation, people management
and vision and enactment (Figure 4; Table I) there was unanimity among the eight
companies. With the minor exception of Case D in which the owner-manager provided
conflicting evidence with regards to his commitment to the full and active involvement
of his staff.
I tend to be able to delegate what I want but I’m also very approachable and very much a
people person.
I’m not very good at having regular meetings, I suspect that’s one of my biggest failings
because they don’t really know what’s going on a lot of the time, I’m not a great, I just let them
get on with it I suppose.
The approach to people-management by the owner-manager of Case H was much more
typical of the group as whole. Good staff relations including a caring attitude towards
employees’ livelihoods and a good working atmosphere was the key to relationships
between the managers and their employees:
One of the policies that we’ve introduced is whenever we recruit a member of staff it doesn’t
matter whether we recruit them for the office, the warehouse, or wherever. We’re always
looking for somebody who can step up the next level and that will help us in our succession
planning. If we find somebody who is perfectly capable then really we have no reservation
about fast-tracking that person through the organisation so then at least people can see if you
are prepared to take responsibility and prepared to work you will be rewarded.
Similarly, there was a considerable amount of agreement related to the
owner-managers’ vision for their companies. There was a strong belief in the

importance of small businesses and their contribution to the health of the UK economy.
Furthermore, survival and business success was deemed more important that personal
financial gain.
We’re not all driving round in Jaguars and BMWs but we’re able to say with pride that the
factory is in better condition now that it has ever been in the last 50 years. And the machinery
is well maintained and that’s obviously safeguarding the people who work here, it’s
safeguarding their lifestyle and their jobs. That’s more important than the top line and it’s
being wise with the money and investing it – which is what the company has done. So the
direction for the future would clearly be to put a lot of time and effort into understanding our
customer needs, meeting new potential customer and clients, developing new business,
developing new processes.
Other owner-managers did see developing the business, providing jobs and
satisfaction for employees could also be linked to their own personal wealth:
I suppose the first thing is like any of us, to do something, we need an incentive or a drive to
do anything in life really other than eat and drink and things that keep us alive. Work-wise
for me now we have an opportunity with this business to take it forward and so my personal
goal is to drive this business over the next 18 months to be in a situation where we make a
million pounds profit. That’s the goal and clearly from a personal perspective if that
happened then I have some equity in the business and therefore it would be financially
rewarding if that were to happen.
All eight firms were engaged in innovation but the extent of that innovatory activity
did vary (Table II). Companies D and F had the least commitment to innovation and
change tended to be limited to incremental process improvements designed to reduce
costs rather than enhance value. The remaining six companies saw innovation as a key
element of their long-term survival. For example, as the owner-manager of firm B
pointed out:
These are products we couldn’t make before so it just shows that we do greatly value our
R&D. We feel that because we have moved in that direction and remained strong in the
development and trialling side it’s enabled us to move into new trading where perhaps other
companies have closed down.
As well as developing new products, firm B were also strongly committed to
improving the interface with customers as a means of enhancing the services they
provided. The owner-manager of firm A had invested heavily in new IT systems to
reduce lead-times and improve internal efficiencies. He was also improving the
interface with customers particularly in relationship to providing quotations and
ensuring value for money:
In one instance we were able to advise a customer that they were actually using a material far
too technical for the thing that they were trying to do. Therefore we could supply them with a
cheaper material and they could save money. So we were able to reduce costs, we were able to
give advice and we were also able to help them with some technical issues.
The main difference was that in firm A the owner-manager instigated most of the
innovations while in firm B employees were undertaking many of the changes
themselves. In the remaining four firms (C, E, G and H) innovation took the form of
both product and process changes. Mainly, it was the owner-manager who took the
lead and this was often supported by interaction with their main customers. As with

the MD of Firm H, innovation was seen as a central activity which provided
value-added and enabled them to remain competitive in the marketplace.
It is our objective to maintain the company’s position at the forefront of bench-top autoclave
innovation. . . we are committed to continuous development to improve the performance of all
our products.
This study provides a rather different perspective on the approach and style of
owner-managers operating in mature sectors than the usual dichotomy between
managers and entrepreneurs (Carland et al., 1984). The data indicate that among this
group of owner-managers and MDs there was, in general, a strong commitment to
involve their staff in day-to-day decision making and to develop an entrepreneurial
vision for improving their businesses. In many ways this was quite surprising as all
eight owner-managers indicated that the economic climate in which their firms were
operating was extremely challenging. According to Rainnie (1989), such market
pressures generally lead to organizational retrenchment with the assertion of an
authoritarian management style. We suggest that all eight owner-managers in this
study adopted an approach consistent with the principles of entrepreneurial
management as outlined in Figure 4.
Discussion: the influence of enterprise logic
Building and sustaining a successful business requires skills other than the ability to
identify opportunities in the marketplace. Survival and growth means that
entrepreneurs must be capable of transmitting their enthusiasm to potential
employees and those already working in the business (Macpherson, 2005). This
requires leadership skills as well as entrepreneurial skills (Gupta et al., 2004). Effective
communication is certainly one of the most important requirements for entrepreneurial
leaders. As outlined by D’Intino\ et al. (2007), business success depends on the ability to
gain legitimacy with a wide-range of stakeholders including employees, customers and
resource providers. There is also much greater emphasis on “authentic” leadership in
smaller organizations in which the leader is far more “visible” than in larger, more
impersonal organizations (Avolio et al., 2004). In other words, as the entrepreneur is in
regular contact with staff members their authenticity is much more likely to be
scrutinized (Atkinson, 2007). Regular contact between entrepreneur and their
employees is likely to involve the genuine exchange of information rather than the
issuing of instructions (Jones, 2003).
In terms of the core elements of our entrepreneurial leadership model (structure,
communication and delegation, people management, and vision and enactment), most
owner-managers adopted an approach which was concerned with developing the
business rather than managing the status quo. Hence, emphasizing teamwork,
effective communication and delegation, responsible people management and a
coherent vision for the firm’s future development was commensurate with a focus on
improving the effectiveness of their own approach to management (Mayson and
Barrett, 2006). This adoption of an approach which can be described as entrepreneurial
leadership is linked to the idea of “enterprise logic” (Dovey and Fenech, 2007). Our
justification for this has two distinct dimensions. First, suggesting that small firm
management is based on “enterprise logic” is commensurate with the importance of
knowledge being distributed across the organization rather than being embodied in the

person of the owner-manager themselves (Thorpe et al., 2008). Six of the eight firms
were typified by teamwork, democratic decision making and high levels of
communication between owner-managers and their employees. As indicated by
Dovey and Fenech, 2007) the traditional form of industrial capitalism is being replaced
by a shift towards knowledge-based organizations typified by distributed leadership
and employee participation.
Second, enterprise logic is typified by non-authoritarian approaches to management
in which key actors (owner-managers) mobilize the supporting cast to enact their
vision of the business (Gupta et al., 2004). Clearly, this is a very different approach to
the traditional, authoritarian style of management based on proprietary rights
traditionally found in many small firms (Jones, 2003). Part of the explanation for
evidence of entrepreneurial leadership among this group of owner-managers is linked
to their human capital. Overall, they had relatively high levels of academic
qualifications and the majority had some experience outside of the small firm sector.
We suggest that this broader experience enabled them to respond more imaginatively
to the threats posed to their firms by the rapidly changing business environment.
Instead of the retrenchment and adoption of an authoritarian management style
identified by Rainnie (1989) owner-managers in this study appeared to recognize the
need for all employees to contribute to the knowledge creation process which is the
basis of organizational innovation.
As discussed above, small, owner-managed firms are very different than large,
corporate organizations (Dandridge, 1979; Welsh and White, 1981). Ownership and
control are embedded in one individual rather than distributed among anonymous
shareholders and professional managers (Berle and Means, 1932). Furthermore, the
study of firms in Silicon Valley by Baron et al. (1999) indicates that owner-managers
have a “blueprint” which shapes the administrative structures of the firms which they
found. Direct interaction between owner and employee means that this blueprint can be
transmitted to employees much more effectively than it can in larger organizations. In
summary, we suggest that an entrepreneurial style of management will be more
pervasive and influential in small, owner-managed firms such as those discussed in
this paper; particularly if that style is authentic in the entrepreneur’s concern for
employee development as well as enhancement of the firm’s value and turnover.
Conclusions
We used our conceptualization of authentic entrepreneurial leadership (Figure 4) to
analyze data obtained from eight owner-managers operating manufacturing
companies. The main institutional influence was “market conditions” which all eight
regarded as detrimental to their business activities. There was much less consistency
in terms of individual influences on the owner-managers’ activities. Family members
were mentioned by only two individuals while others indicated the influence of board
members, professional advisors and shareholders. Nevertheless, it was clear from all
eight interviews that there was considerable reliance on assistance and advice from a
range of external sources. In contrast to much of the literature which distinguishes
between entrepreneurs and owner-managers (Carland et al., 1984; Beaver and Jennings,
2005) our data suggested that there was considerable congruence in the approaches
adopted by all eight owner-managers in this sample. We suggest that this style of
management fits with the principles of entrepreneurial leadership (Chen, 2007; Fernald et al., 2005; Gupta et al., 2004; Kuratko, 2007). In contrast to the suggestion made by
Beaver and Jennings (2005, p. 11) there was little evidence to suggest that there was a
focus on “the principal purpose of furthering personal goals”. This group of
owner-managers indicated that in their vision for development of the business they
placed considerable emphasis on the interests of employees (Jensen and Luthans,
2006a, b).
To conclude, in this paper we have examined a small sub-set (eight) from a larger
study which was concerned with the evolution of business knowledge in small firms.
Our intention was to investigate the extent to which it was possible to identify a style
of management which could be described as authentic entrepreneurial leadership. All
eight of the firms had existed for at least ten years and were certainly operating in
relatively mature manufacturing sectors. Nevertheless, it is possible to claim that the
owner-managers had adopted an approach which could be described as
entrepreneurial leadership. This, we suggest, undermines more traditional ways of
distinguishing between “owner-managers” and “entrepreneurs” (Carland et al., 1984;
Beaver and Jennings, 2005). We acknowledge that a limitation of this study is that it is
based entirely on the owner-managers’ view of the way in which their firms were
operating. The original study was primarily concerned with the way in which small
firms acquired and disseminated new knowledge. As a consequence, organizational
process, procedures and routines were examined in much greater detail than
management or leadership style. Nevertheless, future studies should focus on a
establishing the extent to which employees are aware of, and respond to,
entrepreneurial leadership.
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Corresponding author
Oswald Jones can be contacted at: [email protected]