Impact of leadership styles on employee performance in small and medium enterprises

Abstract

This study focuses on the relationship between leadership styles and employee performance within the framework of European small and medium enterprises (SMEs). The study conducted interviews with 50 leaders and employees of different SMEs to collect data and reach the findings. The study shows the mixed influence of leadership styles and contextual moderation through qualitative interviews of leaders and employees from various SMEs in Europe. It sheds a spotlight on the various styles of leadership that typify many European SMEs, such that transformational leadership dominates significantly. The sense of dedication and zeal encouraged by charismatic leaders prompts professionals to action. Transactional leadership, however, does facilitate task-oriented accomplishment but it adversely affects employee’s vitality. The lack of common feedback on laissez-faire leadership highlights the essence of flexibility and considering the preferences of team members. Social psychological and other contextual aspects — organizational culture and the SME developmental stage — are, therefore, very important moderators of styles. With transformational leadership, innovative SMEs can thrive; transactional leadership might cause SMEs from regulated industries to grow fat on them. The preferential leadership according to the start-ups and the mature SMEs is different. Its implications for practice point out the importance of coherence with respect to the personality style of the leader concerning the context of the organization and the needs of employees.