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Leadership Styles in SMEs: A Mixed-Method Approach

Article  in  International Entrepreneurship and Management Journal · June 2013

DOI: 10.1007/s11365-013-0283-2

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Int Entrep Manag J
DOI 10.1007/s11365-013-0283-2

Leadership styles in SMEs: a mixed-method approach

Mário Franco & Pedro Gonçalo Matos

# Springer Science+Business Media New York 2013

Abstract Despite the vast quantity of studies in the domain of leadership, very little
work has been done on small and medium-sized enterprises (SMEs). Taking
into account the relevance of this research topic, this paper aims to identify and
understand leadership styles in SMEs. To reach this goal, a mixed-method
approach was applied in three Portuguese SMEs (multiple case studies). Data
were obtained from the Multifactor Leadership Questionnaire (MLQ), from
SMEs’ collaborators and interviews with their owner-manager/leader. Descrip-
tive and content analyses were used. The findings attested to the central role of
leadership in SME management. Different levels of leadership results were
identified in the SMEs selected. Thus, the findings give additional support to
the argument that leadership plays an important role in management results in
SMEs. The practical implications of findings are also discussed.

Keywords Leadership styles . Leader . Management . Results, SMEs . Portugal

Introduction

The current business environment, characterized by global markets, competition,

technology and innovation (Rijal 2010; Rebelo and Gomes 2008) and other political
and social factors, has called for the development of new and effective organizational
forms (Cacioppe 1998; Gunasekaran 2001). According to Avolio et al. (2003), firms are
increasingly placed in, and exposed to, the global market and in this context it is
important to understand what this means for leaders’ performance and how they face
the challenges arising from this globalization. Today’s firms need effective leaders who

M. Franco (*)
Management and Economics Department, NECE–Research Center in Business Sciences, University of
Beira Interior, Estrada do Sineiro, 6200-209 Covilhã, Portugal
e-mail: mfranco@ubi.pt

P. G. Matos
University of Beira Interior, Estrada do Sineiro, 6200-209 Covilhã, Portugal
e-mail: goncalo_matos@iol.pt
 Int Entrep Manag J

understand the complexities of the rapidly changing global environment (DuBrin 2001;
Sakiru et al. 2013).
These global transformations are particularly important in current small and
medium-sized enterprise (SME) policy. The present context, marked by the economic
crisis, unemployment, increasing need for competitiveness and social exclusion,
“forces” SMEs to reconsider their responsibilities and the impact of their performance
on society. Therefore, given the prominent role of SMEs in the European economies
their specificities and particularities (see Ghobadian and Gallear 1997; Lewin and
Massimini 2003), it becomes pertinent to study the role of the leader in this type of
firm. Leadership has an increasingly fundamental role in SME management. SMEs are
the backbone of the private sector worldwide (Schiemann 2009) and also exert a strong
influence on the Portuguese economy. According to data supplied by the INE (2010),
Portuguese SMEs represent 99.7 % of the business sector, generate 72.5 % of employ-
ment and account for 57.9 % of turnover. Hence, they play a major role in the
Portuguese economy in terms of employment and their contribution to national wealth,
and are also seen as the driver of future economic growth.
In these circumstances, SMEs’ owner-managers play a vital role in encouraging and
supporting the initiatives of individual employees and in improving work procedures
for the benefit of the organization (Moriano et al. 2011). An effective leader influences
followers in a desired manner to achieve desired goals. Entrepreneurs have become the
heroes of economic development and contemporary enterprises (Sathe 2003).
According to Hargreaves (2006), the leader should adopt characteristics of sustain-
ability, i.e., he should seek a consensus between the objectives of the firm, his
collaborators and the environment. While there are several definitions of leadership,
in essence leadership is an act of motivating people to act by non-coercive means
(Popper and Lipshitz 1993). Here, we define leadership as “a process that influences
others to understand and agree on what needs to be done and how it can be done
effectively. It is a process to facilitate individual and collective efforts and reach a
common objective“(Yukl 2006, p. 3).
Understanding leadership is vitally important not only for the firm itself but also for
its environment, since any SME is inserted in a social, economic and environmental
context where its actions will have an impact (Sakiru et al. 2013). This idea is defended
by Porter (1996), when he states that keeping a dynamic balance between the firm and
its environment depends on a key factor: the style of leadership adopted. Leadership
style is the relatively consistent pattern of behavior that characterizes a leader (DuBrin
2001).
Despite the great interest in the topic of leadership, at the moment there is a limited
amount of empirical research (Easterby-Smith 1997; Garvin 2000; Popper and Lipshitz
2000). This situation is found even more in the context of SMEs (Short et al. 2002).
Little has been done to examine the relationship between leadership styles and man-
agement in SMEs. To our knowledge, only Matzler et al. (2008), Thorpe et al. (2009),
Langowitz (2010) and Lindgren (2012) have carried out studies aiming to identify
leadership styles in SMEs. In fact, despite the efforts made, there is still a gap in
identifying and understanding leadership styles in SMEs. Especially in the Portuguese
context, there are only a handful of studies in this realm. Consequently, the main
objective of the present paper is to fill this research caveat, answering the following
question: What are the leadership styles in SMEs?
Int Entrep Manag J

In view of the research gap and lack of information concerning leaders and
leadership styles in SMEs, more studies are needed to determine the types of leadership
styles adopted in these organizations in the Portuguese context. Knowing and following
certain leadership styles can help managers and owners of SMEs to ensure their firms’
growth and competitiveness. In this connection, our study contributes to better under-
standing of SME leadership. This paper adds to knowledge in the area of SMEs and
leadership research as it investigates leadership styles and their influence on results,
something which has not been investigated to date in the Portuguese context.
The article is organized as follows. The next section gives a theoretical overview of
the main aspects of leadership and demonstrates that this topic provides a useful
framework to explain SME management. The third section, based on a qualitative
approach, presents methodology and data from multiple case studies of SMEs. The
fourth section presents and discusses findings, paying special attention to leadership
styles. Finally, the last section concludes, puts forward suggestions for owner-managers
and practitioners, and presents some limitations of the study.

Theoretical framework

Leadership and styles

Over time, leadership has been widely dealt with by various authors, with the emer-
gence and development of different theories, approaches and styles of leadership to
explain this phenomenon (Ammeter et al. 2002; Tirmizi 2002), however, as yet there is
no complete and universally accepted definition (Bowditch and Buono 2002; Schaffer
2008). As shown by Burgoyne et al. (2004) and Van Vugt et al. (2008), after 50 years of
research, the concept of leadership remains undefined. Leadership is a universal
phenomenon inasmuch as it appears in one form or another in different organizations
and contexts (Tirmizi 2002). Even today, it is not easy to define leadership, and given
the complexity of the subject, there is no general consensus about delimitation of the
field of analysis. According to Bass (1999), definition of leadership is related to the
purpose associated with the attempt to define it, and so presents a wide range of
possibilities.
Hirtz et al. (2007, p. 22) state that “leadership can be defined as the process
managers use so that those under them work towards the firm’s objectives”. The
concept of leadership, for Senge (1990), is also associated with stimulants and incen-
tives that motivate people to reach common objectives. Hersey et al. (2001) state that
the essence of leadership involves achieving objectives with and through people.
Vardiman et al. (2006) and Yukl (2006) also describe leadership as a process of
influence towards the accomplishment of objectives.
Leadership can be seen as a group process, an attribute of personality, the art of
inducing complaisance, an exercise of influence, a particular type of action or behav-
iour, a form of persuasion, a power relationship, an instrument to achieve goals, the
result of an interaction, a differentiated role or initiation of a structure (Bass 1999, 2000;
Zacharatos et al. 2000; Weihrich and Koontz 1994).
According to Kotter (1990), without leadership, the probability of mistakes occur-
ring increases and the opportunities for success become more and more reduced. For
 Int Entrep Manag J

these same authors, and in this context, leadership allows cooperation, diminishes
conflicts, contributes to creativity and has an integrating role, as it keeps people united
even when not physically so.
More recently, Alas et al. (2007) view leadership in terms of individual traits, leader
behaviour, interaction patterns, role relationships, follower perceptions, influence over
followers, influence on task goals and influence on organizational culture. This view of
leadership generally focuses on the dyadic relationship between a leader and followers,
but not on what conditions need to be in place for effective leaders to emerge or
develop (Vardiman et al., 2006).
For several decades, scholars have researched and identified a multiplicity of
particular styles or behaviours. In reviewing the leadership literature, Fleishman et al.
(1991) brought to light 65 typologies. Subsequent analyses (e.g. Avolio et al. 2003;
Pearce et al. 2003) underpinned the huge diversity of leadership styles. According to
O’Regan et al. (2005), there is still no agreement among the various authors regarding
leadership styles. However, among the leadership theories in organizational research,
transformational leadership has captured scholars’ interest most over the past two
decades (Bass 1985; Bass and Bass 2008; Lowe et al. 1996). Transformational and
transactional leadership continue to intrigue many academics in the present era (Sakiru
et al. 2013).
In this sense, based on additional research approximately between 1985 and 1995,
the theory was expanded to denote three types of leadership styles: transformational,
transactional, and passive-avoidant leadership (Bass 1985; House 1977; Bass and
Avolio 1990; Bass and Bass 2008). This typology has become quite a popular concept
in recent years (Avolio and Bass 2004) and is referred to as the full range of leadership
(Antonakis et al. 2003). The influence exerted by these types of leader has to do with
changing the way subordinates perceive themselves, highlighting the opportunities and
challenges presented by the environment (Bass and Avolio 2004).
Different leadership styles may affect organizational effectiveness or performance
(Nahavandi 2002). This study focuses on these three different leadership styles:
transformational leadership, transactional leadership, and passive-avoidant leadership
measured through the Multifactor Leadership Questionnaire (MLQ; Bass and Avolio
2004). Among the different authors dealing with types of leadership, the typology that
seems most applicable to SMEs is the one presented here because recent research has
shown this style stimulates employees’ creativity and innovation (Elenkov and Manev
2005; Eyal and Kark 2004; Jung et al. 2003; Ling et al. 2008; Langowitz 2010).
The term ‘transformational leadership’ was first coined by Burns (1978, p. 20) who
described it as an interaction where “leaders and followers raise one another to higher
levels of morality and motivation”. Transformational leadership refers to leaders
inspiring their followers to adopt the vision of the organization as if it was their own
and focus their energy on achieving collective goals (Moriano et al. 2011). Yukl (2006)
and Bass (1985) define transformational leadership based on the effect of the leader on
his followers, and of the behavior shown by followers to attain that effect. This type of
leadership presents high commitment and identification with the leader and organiza-
tion’s objectives on the part of subordinates (Bass and Avolio 2000; Tipu et al. 2012).
Burns (2003, p. 26) defined also transformational leadership as leader-follower
relations in which leaders “take the initiate in mobilizing people for participation in
the processes of change, encouraging a sense of collective identity and collective
Int Entrep Manag J

efficacy, which in turn brings stronger feelings of self-worth and self-efficacy” into
people’s work and lives. Bass and Riggio (2006) noted that transformational leaders
motivate their subordinates to perform beyond expectation.
Transformational leaders are seen as pro-active individuals who show their efforts to
achieve the development not only of the organization but of the group and individuals,
reaching both high levels of performance and high moral and ethical levels. Burns
(1978) and Bass (1990, 1997) attributed transformational leaders with courage, deter-
mination, persistence, responsibility, justice, empathy, passion, dedication and self-
control.
On the other hand, transactional leadership is the second major style identified by
the literature (Bass 1985; Bass and Avolio 2004; Bass and Bass 2008). Transactional
leaders aim to create clear structures and roles that allow their subordinates to reach
goals. The relationship between leader and subordinates is “transactional” (i.e. “if you
give me that, I will give you this”), where the leader controls the rewards and
contingencies (Moriano et al. 2011). Transactional leadership is sustained on the
process of recognition associated with the results achieved by subordinates. “Transac-
tional leadership refers to the relationship of exchange between the leader and subor-
dinates to respond to their own interests” (Bass 1999, p.10). Bass (1985) also states that
in this type of leadership, subordinates who reveal good performance are rewarded, and
those who do not are penalized.
This type of leadership occurs when a person makes contact with another with the
aim of exchanging. He “authorizes” rewards to subordinates in exchange for
performing their tasks and their submission. The leader performs his work with
subordinates through understandings to carry out tasks by mutual agreement, and
clarifying the rewards foreseen if the forecast results are achieved (Bass and Avolio
1997). Transactional leadership is based on clarifying expectations, adopting rewards
and punishments according to the employee’s performance.
The last style used in our study is passive-avoidant leadership. Avolio and Bass
(1999), Geyer and Steyrer (1998), Den Hartog et al. (1997), and Avolio and Bass
(2004) suggested using the term ‘passive-avoidant’ instead of ‘laissez-faire’. Passive-
avoidant leadership is composed of two components (Avolio and Bass 1999): laissez-
faire, i.e., leadership that exhibits passive indifference to tasks and to subordinates; and
passive management-by-exception, which uses contingent punishments and other cor-
rective actions when faced with deviations from performance standards. Such passive
leaders avoid specifying agreements, clarifying expectations, and providing goals and
standards to be achieved by followers (Bass and Bass 2008).
Passive-avoidant describes the leader that avoids responsibilities, fails to follow up
on issues, and basically demonstrates a lack of any kind of leadership (Antonakis et al.,
2003; Bass 1985; Avolio and Bass, 2004; Avolio and Bass 1999: Geyer and Steyrer,
1998; Sarver, 2008).
Considering types of leadership, the conclusion is that pure leadership styles do not
exist, i.e., no leader “uses” just one type of leadership (Azevedo 2002). What is seen in
practice is that leaders show more or fewer characteristics of one or another leadership
type. As argued by Bowditch and Buono (2002, p. 126), “(…) there is no ideal way to
lead in all situations, but rather the most effective leadership style (…) depends on the
situation”. Bergamini (1994) states that a leader uses three leadership processes ac-
cording to the situation, the tasks and the people who must perform them. According to
 Int Entrep Manag J

this author, the leader has tasks carried out, approaches his subordinates before making
a decision and also suggests that some element of his team performs a given task.
In short, various leadership styles exist, but transformational, transactional and
passive-avoidant leadership have warranted most attention (Bass 1985; Matzler et al.
2008) in the SME context (Ling et al. 2008; Langowitz 2010).

Leadership in SMEs

The response to the challenges faced today by SMEs is only possible through adoption
of leadership roles by the various people in charge (Ladzani et al. 2010). It is important
to develop the competences and effectiveness of leadership at various levels, defining
mobilizing goals, ensuring the clarity of objectives, building high performance teams,
concentrating on developing the best talents, creating a climate favourable to innova-
tion, stimulating permanent learning and creating a culture of merit always based on the
cohesion of teams and the quality of service provided (Kilpatrick, 2009).
For Avolio et al. (2003), even small firms now have a global position. It is important
to understand, in this new setting, how leaders face the challenge of working with a
culturally diversified workforce which includes differences in values, traditions, cus-
toms and beliefs and what constitutes effective leadership.
In the current business environment, besides factors such as finance, strategy and
innovation, it becomes important to find out about SME leaders, due to the increasing
need to understand the road to success and the process of creating sustainable compet-
itive advantages.
Some authors (e.g., Anderson 2009; Richbell et al. 2006) found several organiza-
tional factors that can influence leadership in SMEs. Nevertheless, according to Short
et al. (2002), so far researchers have not reached a consensus about these factors.
Therefore, the better the understanding of the leadership’s influence on SMEs, the more
they can be helped in their growth process.
Among other aspects, leadership takes on increasingly fundamental importance with
regard to global competition and the level of requirements observed in customers.
According to Porter (1996), effective leaders must be able to give the company the
necessary discipline for it to decide what has to be done and respond to changes in the
industry and in clients, avoiding the dispersion of organizational objectives and holding
on to the company’s identity.
Anderson (2009) proposes three categories to classify the factors that can influence
the work of the leader as an element stimulating SME growth and performance: (1) the
leader’s characteristics and features; (2) the leader’s aspirations, motivations and
intentions; and (3) the leader’s behavior or role.
The first aspect relates to how experience and education (Richbell et al. 2006; Gray
and Mabey 2005), motivation for fulfillment, tendency towards risk, attitude to inno-
vation (Stewart et al. 1999) and personal values can influence or stimulate the leader’s
role. The second has to do with determining how the leader’s aspirations and intentions
are shown and reflected in his actions and attitudes (Ajzen 1991, 1998). As for the third
aspect, this is based on the leader’s behavior concerning his capacity for the firm’s
administrative planning (Slevin and Covin 1990).
Increasingly, the leadership style adopted (Avolio and Bass 1999; Bycio et al. 1995)
has a considerable impact on organizations’ management. Indeed, in the dynamic
Int Entrep Manag J

market climate of SMEs at present, leaders must be able to cope with the volatility and
competitiveness arising from market globalization (Fiedler 1996; Hennessey 1998).
Also Pfeffer and Sutton (2000), in their studies, highlight the fundamental impor-
tance of leaders’ critical spirit in transforming knowledge and information into action.
In this connection, leadership style increasingly becomes a factor to consider as
fundamental in maintaining and improving SME competitiveness. This idea is
defended by Ireland and Hitt (1999) when they state that the formulation and devel-
opment of certain behavior by leaders results in competitive performance and achieve-
ment of above average results. Schwenk and Shrader (1993) also claim that firm growth
and performance are related to the behavior and direction they adopt, and in this aspect
the leader and the style of leadership adopted play a significant role.
However, and due to the fact that all SMEs are more and more exposed to a
competitive, dynamic environment full of changes and difficulties, the way they deal
with human resources also changes. Nowadays, people are seen as human capital
(Youndt et al. 2004), as an integral part of the organization’s success, able to add more
or less value to the organization. But for this to happen, the organization has to
appreciate them and motivate them to demonstrate their capacities and understand
how they can contribute to the firm’s good performance. There must be reciprocity
of behavior, which the leader must encourage, and its success depends on the style of
leadership. Langowitz (2010), in a study related to the importance of SME founders,
concludes that the leader is the founder and argues that many SME leaders present pro-
active behavior.

Methodology

Type of study and case selection

In this study the mixed method was adopted, consisting of both quantitative and
qualitative approaches (Sam et al. 2012). Nevertheless, more emphasis was placed on
the qualitative methodology of research due to the understanding that it is more
appropriate when the aim is to study phenomena of an organizational nature, as argued
by Eisenhardt (1989), Yin (2009) and Patton (1990). In this type of approach, “re-
searchers are more interested in the investigation process than only in the results or
products arising from it“(Yin 2009), and so it can be concluded that what is most
important is comprehension of the phenomenon studied.
Therefore, and for this type of research in particular, the case study method was
chosen. Triviños (1995) goes as far as to say that “among the types of qualitative
research, perhaps the case study is one of the most relevant”. Patton (1990) also argues
that case studies aim to analyze the results arising from individual cases, which provide
more complete, detailed and useful information for the phenomenon studied. Qualita-
tive methods have been gaining acceptance in the leadership research community (e.g.,
Bryman et al., 1996; Berson et al., 2001). For Avolio et al. (2003), Bryman (2004) and
Gardner et al. (2010), in the last three decades a growing number of studies have used
qualitative research methods.
Regarding the conception of this investigation, three cases were studied so as to be
able to draw conclusions about each of them, as well as compare the results obtained at
 Int Entrep Manag J

the end. The cases selected for this study were three SMEs (Firms A, B and C). One of
the selection criteria was the fact of being classified as SMEs, according to the
recommendation adopted by the European Union (cf. European Commission Recom-
mendation 2003/361/EC). In fact, SMEs represent 99.7 % of all businesses in Portugal
(INE 2010).
Aspects associated with the experience and education of leaders and collaborators,
as well as firms’ level of innovation, were other criteria considered. Finally, the
intention was also to study firms operating in different traditional sectors of activity,
with the expectation that the results obtained could be different and therefore allow
comparison. A brief characterization of these three SMEs will appear in sub-
section 4.1.

Data selection and instrumentation

The fieldwork was conducted using several data collection methods (qualitative and
quantitative). Qualitative empirical data were gathered via in-depth interviews and
documental analysis, while quantitative data were obtained through a survey. As Yin
(2009) states, the adoption of various data sources is relevant, as it allows increased
validity of the construct and reliability of a case study. The same author adds that one
strength of case studies is the opportunity to use multiple data-gathering sources, i.e., to
use triangulation of data to obtain evidence.
In the qualitative method, to identify leadership style, a semi-structured interview
was held with the owner-managers of the SMEs selected. The interview protocol (Yin
2009) was subjected to a pre-test so as to validate the vocabulary used in the questions
and ensure the latter allowed us to reach the intended objectives. A synthesis of the
interviews held, together with the socio-demographic characteristics of the
interviewees/leaders appears in Table 1.
In the quantitative method, leadership styles and leadership results were also
examined. Thus, to measure these dimensions, a version of the Multifactor Leadership
Questionnaire - MLQ (Bass and Avolio 2004) was applied to all collaborators in the
three SMEs selected.
The MLQ was developed by these authors with the aim of assessing the transfor-
mational, transactional and passive-avoidant styles of leadership, as well as leadership
results. This instrument was chosen because, as Bass (1985) and Langowitz (2010)
mention, the most commonly observed leadership typology in SMEs is the one

Table 1 Socio-demographic characteristics of leaders and interviews

Leader firm A Leader firm B Leader firm C

Gender Male Male Male

Age (Years) 48 42 51
Formation Primary education Diploma in mechanical Technical course in
Engineering Electromechanics
Position Owner-manager Owner-manager Owner-manager
Date of interview 22 April 2012 24 April 2012 16 April 2012
Duration 30 min 45 min 35 min
Int Entrep Manag J

presented here. Originally, the MLQ is formed of 73 questions, but this research used a
reduced version adapted to Portuguese and made up of 45 questions (Barreto, 2009),
which are elaborated for subordinates to assess their leader (see Appendix).
The responses to the MLQ were classified on a 5-point Likert-type scale; (0=Not at
all; 1=Once in a while; 2=Sometimes; 3=Fairly often; 4=Frequently, if not always).
In turn, the 45 questions are divided into nine scales: (1) idealized influence
(attributes), (2) idealized influence (behaviour), (3) inspirational motivation,
(4) intellectual stimulation, (5) individualized consideration, (6) contingent
reward, (7) management by exception (active), (8) management by exception
(passive), and (9) laissez-faire. These scales are distributed in 3 groups (Table 2):

1. Transformational Leadership: Includes 5 scales, idealized influence (attributes),

idealized influence (behaviour), inspirational motivation, intellectual stimulation
and individualized consideration;
2. Transactional Leadership: Includes 2 scales, contingent reward and management
by exception (active);
3. Passive-Avoidant Leadership: Includes 2 scales, management by exception
(passive) and laissez-faire.

The internal consistency of the MLQ instrument and the level of consistency between
scales were measured by the Cronbach Alpha (α) reliability analysis. All these internal
scales and 3 scales associated with leadership results yielded an internal reliability alpha
greater than 0.70 (see Table 2) with the exception of passive-avoidant leadership scales.
However, according to Churchill (1979), for the type of exploratory study undertaken
here, Cronbach alpha values of 0.60 or higher are interpreted as acceptable.
In addition, in this study, the reliability coefficient for the transformational leadership
group was α=0.931, transactional leadership group was α=0.786, passive-avoidant
leadership group was α=0.603, and leadership results was α=0.900. Thus, as the

Table 2 MLQ – Multifactor leadership questionnaire and reliability analysis

Groups Scales Questions Cronbach’s

alpha

Types of Leadership Transformational Idealized Influence (Attributes) 10–18–21–25 0.719

(α=0.931) Idealized Influence (Behavior) 6–14–23–34 0.704
Inspirational Motivation 9–13–26–36 0.812
Intellectual Stimulation 2–8–30–32 0.758
Individualized Consideration 15–19–29–31 0.727
Transactional Reward for objectives attained 1–11–16–35 0.715
(α=0.786) Management-by-Exception (Active) 4–22–24–27 0.703
Passive/Avoidant Management-by-Exception (Passive) 3–12–17–20 0.623
(α=0.603) Laissez-faire 5–7–28–33 0.604
Results of Leadership (α=0.900) Extra Effort 39–42–44 0.798
Effectiveness 37–40–43–45 0.842
Satisfaction 38–41 0.722
 Int Entrep Manag J

majority of groups have Cronbach alphas above 0.78, these guarantee good reliability
of the psychometric instrument used in this study.
The results of each group are calculated through the average of the scales corre-
sponding to each group. The result of each scale is the average of the value of the
responses corresponding to each scale, then dividing that value by the number of
corresponding questions. As for the questions, the values of responses are added for
each of them, then dividing that value by the total number of responses. The highest
values in each scale correspond to the most frequently observed behaviors of the leader,
and so to greater or lesser evidence of observation of a given style of leadership.
As with the interview with leaders, the MLQ underwent a pre-test in order to
validate the vocabulary used in the questions and ensure this would be interpreted as
intended with a view to gathering and analyzing the desired information. The results
obtained were seen to be easily understood and interpreted. All the questionnaires were
left in the firm under study on the day of interviewing the leader and collected about
1 week later in each case.
It is also of great interest to make a brief description of the meaning of each scale
mentioned above. In relation to the scales making up Transformational Leadership, the
following are found:

1) Idealized Influence (Attributes) where leaders possessing these attributes manage

to exercise great power and influence on their subordinates, in such a way that the
latter form feelings about their leaders that they are unique and exemplary people,
placing complete confidence in them and showing the will to identify with them
and their mission;
2) Idealized Influence (Behavior) where leaders inspire and implant dynamics in their
group through the vision they believe the organization can reach. Therefore,
idealized influence is the charismatic element of transformational leadership
whereby leaders become models that are admired, respected and imitated by their
followers. Consequently, followers demonstrate a high degree of confidence in
such leaders (Jung and Avolio 2000). For Walumbwa et al. (2008), leaders with
idealized influence tend to place followers’ needs above their own, share risks with
followers and demonstrate dedication to a set of underlying principles and values.
3) Inspirational Motivation where transformational leaders inspire and motivate
others, which means proposing goals and challenging their followers (Avolio
and Bass 2002). Team spirit is aroused, while enthusiasm and optimism are shown.
The transformational leader builds relationships with followers through interactive
communication that forms a cultural link between the two participants and leads to
a change of values by both parties towards common ground;
4) Intellectual Stimulation. For Avolio and Bass (2002), in this scale transformational
leaders stimulate their followers’ efforts to be innovative and creative through
questioning, reformulating and solving old situations in new ways. In this group,
followers’ mistakes are not criticized publicly and creativity is openly stimulated,
which implies encouraging followers to question old assumptions or dogmas
(Walumbwa et al. 2008). Transformational leaders ask their followers for ideas
and look for creative solutions to problems, as well as encouraging followers to
solve problems. The leader stimulates followers intellectually to try out and test
new approaches, but emphasizing rationality (Bass 1990).
Int Entrep Manag J

5) Individualized Consideration, a characteristic observed in the leader, which lets

him treat each subordinate individually, through understanding and sharing their
worries and needs. Besides recognizing subordinates’ capacities and trying to
satisfy their needs, by showing this characteristic, the leader intends to create an
atmosphere in which each subordinate can develop and express himself, and
develop his capacities, thereby creating an organizational culture facilitating that
individual growth (Bass 1997; Avolio and Bass 1995). In this consideration, the
transformational leader gives personal attention to his followers based on their
needs for fulfillment and growth (Avolio and Bass 2002). For Walumbwa et al.
(2008), leaders who show individualized consideration are seen as those who pay
attention to the needs of individual followers for fulfillment and growth, acting as
trainers or mentors, creating learning opportunities and promoting an atmosphere
that favors individual growth.

As for the scales making up Transactional Leadership, Reward for Objectives and
Management by Exception (Active) (Bass 1985; Bass and Avolio 1990; Tracey and
Hinkin 1998) are identified. Reward for objectives is based on leaders defining, besides
organizational objectives, recognition and reward for attaining them. This characteristic
is based on the assumption that reward leads to improved performance, in terms of both
individuals and the group. Management by Exception (Active) has to do with leaders
adopting a “penalizing” attitude towards subordinates who do not meet previously
established objectives. This characteristic calls for rigorous, methodical and constant
control of failures and deviations so that whenever they occur corrective measures can
be taken.
In relation to Passive-Avoidant Leadership, we identify Passive Management-by-
Exception and Laissez-faire. Passive Management-by-Exception occurs when leaders
only act when problems get worse. Laissez-faire is associated with the absence of
leadership behavior in the “leader”, i.e., leaders do not get involved in important
matters, they are normally absent when it is necessary to make important decisions
and even avoid making those decisions (Bass and Avolio 1990).
Besides allowing identification of the type of leadership shown by a leader, the
MLQ also allows assessment of Leadership Results. In this context, the following
scales make up leadership results:

1) Extra Effort, which reveals leaders’ capacity to lead their subordinates to do more
than is expected
2) Effectiveness, which analyzes how a leader manages to be effective dealing with
individual and group interests as a whole, and if they possess the capacity to
represent the team effectively at higher hierarchical levels;
3) Satisfaction, where subordinates’ satisfaction with the leader’s action is assessed
with regard to his leadership style, and indicates whether the leader’s way of acting
leads to an organizational climate which is productive and perceived as appropriate.

Data analysis

After selection of the data-gathering instruments, we proceeded to organization and

analysis of the data. In the qualitative method, content analysis technique for the
 Int Entrep Manag J

interview and document analysis was used. Weber (1985) and Patton (1990) define
content analysis as a technique of investigation that allows objective, systematic and
quantitative description of the content shown in communications, with the aim to
interpret it. Content analysis is a “distinctive approach to analysis” that seeks to
quantify the content of text in “a systematic and replicable manner” (Bryman 2004,
p. 181). For the survey used (quantitative method), the data were treated with descrip-
tive analysis using MLQ functioning. The data were analyzed using SPSS 19.0 version.
To summarize, scientific validation was made of all the information treated through
the technique called triangulation, which consists of comparing information from the
multiple sources of evidence (interview and questionnaires), so as to determine coher-
ence, accuracy and reliability.

Findings and discussion

Characterization of participants and SMEs

Table 3 gives a brief socio-demographic characterization of the respondent collabora-

tors and the characteristics of the three SMEs studied.

Leadership styles and their results

Case 1: firm A

From analysis of the data resulting from the collaborators in Firm A, we can observe a
balance between the groups of Transformational Leadership and Transactional Lead-
ership, as they present very similar values (Table 4). Therefore, subordinates identify in
the leader, between sometimes and very often, behavior associated with both leadership
styles. This situation has to do with the fact that this leader attributes annually a bonus
to his collaborators, although not in a generalized way.
On this matter, the interviewee/leader states that, “according to the performance of
each one, at the end of the year I award a bonus”, although “not to all elements”. He is
convinced of his collaborators’ job satisfaction and says that “each one must give of
their best, as that effort, besides enriching the person, provides experience and
knowledge which one day may be decisive factors in professional development,
whether inside or outside the organization.” This evidence is in accordance with the
studies by Chen (2005), Spector (2008) and Sakiru et al. (2013), who concluded that
transformational and transactional leadership behaviors are important factors contrib-
uting to employees’ job satisfaction.
Within the Transformational Leadership Group, collaborators/subordinates who
identify this leadership style as observed in their leader, also attribute as most frequent
behaviors Idealized Influence (Behavior), Inspirational Motivation and Intellectual
Stimulation.
Idealized Influence can be explained by this leader being fully aware that all his
collaborators demonstrate trust in his leadership, through his daily performance, which
agrees with what is stated for this scale, i.e., that subordinates show it when they have
full confidence in the leader.
Int Entrep Manag J

Table 3 Characterization of SMEs and collaborators

Case 1: firm A Case 2: firm B Case 3: firm C

Founded 1998 2006 2000

Number of partners 2 2 2
Legal form Limited Company Limited Company Limited Company
Headquarters Seia - S. Romão Fundão – Industrial Estate Covilhã- Orjais
Sector of activity Major Food Distribution Brass Metal Polishing Clothing Industry
Turnover (2011) 7,5 million euros Between 800 thousand Between 600 and
euros and 1,2 million 800 thousand
euros euros
Total no. of collaborators 50 45 77
Final sample 41 36 76
% Response 82.0 80.0 98.7
N % N % N %
Gender
Male 11 26.8 21 58.3 5 6.5
Female 30 73.2 15 41.7 71 93.4
Age
<25 5 12.2 2 5.6 1 1.3
25>35 23 56.1 11 30.6 11 14.5
36>45 10 24.4 16 44.4 31 40.8
46>55 2 4.9 7 19.4 26 34.2
56>65 1 2.4 0 0.0 7 9.2
Marital status
Single 28 68.3 11 30,6 5 6.6
Married 12 29.3 17 47,2 65 85.5
Other 1 2.4 8 22,2 0 –
Education
Primary education 12 29.3 11 30,6 46 60.5
Secondary education 27 65.9 23 63,9 29 38.2
Higher education 2 4.9 2 5,6 1 1.3

In relation to Inspirational Motivation, the leader advocates that both the firm’s
objectives and collaborator satisfaction are interlinked. Indeed, the results show that
through their behavior leaders motivate the group leading to a team spirit that includes
common objectives, both those of the firm and of collaborators, and by showing this
scale collaborators do in fact take on and identify with these values held by their leader.
However, Firm A has not defined any special method for motivating its collaborators.
The interviewee states that in the current climate”motivation should arise from the
existence of a job, and all collaborators should defend it through their performance, as
if they do not do so and there are no clients then certainly they will become demotivated”.
Regarding Intellectual Stimulation, the evidence of this scale is supported by the fact
the leader considers his collaborators as creative, and they understand that their
creativity is stimulated by him.
 Int Entrep Manag J

Table 4 MLQ results-firm A

Groups Scales Average Group average

Types of leadership Transformational Idealized influence (Attributes) 2.68 2.53

Idealized influence (Behavior) 2.43
Inspirational motivation 2.71
Intellectual stimulation 2.54
Individual consideration 2.28
Transactional Reward for objectives reached 2.38 2.47
Management by exception (active) 2.55
Passive/Avoidant Management by exception (passive) 1.73 1.52
Laissez-faire 1.32
Results of leadership Extra effort 2.56 2.63
Effectiveness 2.71
Satisfaction 2.62

Based on the interview held with the leader regarding how he perceives his
relationship with his collaborators, the leader considers it to be a normal relationship
with some intimacy, as he understands that proximity and respect contribute to his
collaborators making an effort and giving a little more than is asked of them.
The interviewee also says that his “leadership is based on bilateral communi-
cation between himself and his collaborators”. He therefore considers his
collaborators as being loyal, efficient and creative, and is sure they trust his
leadership through their daily performance. As a leader, he characterizes himself
as trusting, attentive and motivating.
The results show that transformational leadership sets the most favorable managerial
circumstances for this SME. Consequently, the owner-manager is most effective in
facilitating entrepreneurial behavior within the organization when he shares a sense of
mission (i.e. inspirational motivation), provides mentoring or coaching (i.e. individual
consideration), arouses employees to think in new ways (i.e. intellectual stimulations),
and gains employees’ trust and confidence (i.e. idealized influence). This is in line with
other studies that found these transformational leadership components foster em-
ployees’ creativity and innovation (Jung et al. 2003; Shin and Zhou 2003).
In the Transactional Leadership Group, the scale that stands out most is active
management by exception, which is shown when leaders adopt a penalizing attitude
in relation to subordinates who do not meet established objectives. Identification of this
behavior by subordinates relates to the behavior of this leader penalizing recurrent
situations and even resorting to dismissal.
Based on the interview, concerning the firm’s objectives, these are known to all
collaborators and are defined by the top of the hierarchy, always taking into account
collaborators’ opinion so that they can be achieved, although the means of doing so are
always defined by the leader. In this connection, this leader considers that “both the
firm’s objectives and collaborator satisfaction are of crucial importance and only make
sense if taken together, as giving more importance to one would make it impossible to
achieve the other”.
Int Entrep Manag J

This businessman/leader also makes a point of always keeping abreast of what is

happening in the firm so that he can solve all possible problems quickly, and he
generally supports his collaborators when they are not “up to their usual standard”.
He only penalizes if situations arise recurrently, with dismissal being the solution
adopted in these cases.
Under transactional leadership, employees are extrinsically motivated (i.e. contin-
gency rewards and active management-by-exception) and thus they are less willing to
go beyond their job responsibilities to try out innovative ideas for the benefit of the
organization.
Based on the empirical evidence obtained, Passive-Avoidant Leadership and the
behavior associated with it are rarely identified by collaborators in this SME (Case 1).
This leadership style appears to be the antithesis of the leadership construct because
there are generally neither transactions nor agreements with followers. In this sense,
passive-avoidant managers may either not intervene in the work affairs of their
followers or may completely shirk their supervisory responsibilities (Topa et al. 2008).
As for Leadership Results, in the Transformational and Transactional leadership
styles identified, the most significant results are found to be Effectiveness (2.71) and
Satisfaction (2.62), with Extra Effort also presenting a considerable value (2.56). In this
case, Effectiveness indicates that the leader considers individual and group interests as a
whole and has the capacity to represent the team at higher hierarchical levels. On the
other hand, Satisfaction indicates that subordinates feel satisfied and consider the
leader’s form of acting as suitable, leading to an organizational climate which is
productive and perceived as appropriate.
From analysis of the interview with the leader of Firm A, we can conclude he does
not show a pure leadership style, i.e., according to the literature review and as argued
by Azevedo (2002), leadership style depends on the situation and the actual context
faced by the leader.

Case 2: firm B

From the results generated by analysis of the data in Case 2, the group with the highest
score is found to be the Transactional Leadership Group (2.64), i.e., followers identify,
between sometimes and often, leadership behavior of this type (Table 5).
Within the Transactional Leadership Group, the Reward for Objectives Attained
scale is most prominent. The interviewee is convinced that all collaborators identify
with the firm’s objectives, to the extent that as a form of motivation a monthly
production bonus is defined for whoever reaches the proposed objectives. As a whole,
this strategy is effective, however, “even so, some collaborators only think about
putting in the hours, and are not always willing to give a little more of themselves”.
This leader also states that “besides this mechanism, I consider psychology very
important for motivating my team, and creating a good working atmosphere”. In fact,
this informant says it is frequent, if not a daily occurrence, to say “that one of the main
requirements to integrate the firm’s team is to arrive every morning with a smile on
your face”. To keep this positive attitude and satisfaction, the person in charge of this
SME also says that whenever possible he takes care to match each element with his job.
Therefore, whenever the leader notices that a collaborator performs below what is
expected, this is penalized if the situation is recurrent, or in the case of a more serious
 Int Entrep Manag J

Table 5 MLQ results-firm B

Groups Scales Average Group average

Leadership types Transformational Idealized influence (Attributes) 2.32 2.26

Idealized influence (Behavior) 2.15
Inspirational motivation 2.46
Intellectual stimulation 2.47
Individual consideration 1.93
Transactional Reward for objectives attained 2.70 2.64
Management by exception (active) 2.58
Passive/Avoidant Management by exception (passive) 1.55 1.42
Laissez-faire 1.30
Leadership results Extra effort 2.37 2.32
Effectiveness 2.15
Satisfaction 2.46

situation and finding it is not worthwhile intervening as the contract is almost at an end,
he does not intervene and when the contract ends the employee is dismissed. However,
this leader also always tries to find out the reasons for poor performance and if he
considers it worthwhile he gives support, but due to the objectives and tight deadlines
they deal with, that behavior is not always possible.
Within the Transformational Leadership Group, collaborators also identify Inspira-
tional Motivation and Intellectual Stimulation as the most frequent behaviors. Inspira-
tional Motivation states that the leader’s behavior motivates the group and leads to a
team spirit incorporating common goals. This fact is defended by the leader, who
understands that “both the firm’s objectives and collaborator satisfaction are two factors
that cannot be considered in isolation”. That is to say, “without motivated collaborators,
the results proposed are not reached, and if objectives are not reached, satisfaction and
personal fulfillment will certainly decrease also”. However, and as objectives have
almost always been met, the interviewee considers his collaborators feel fulfilled
professionally, despite also having a notion that “some take things easy and do not
develop”. By noting this behavior as frequent, followers show this fact stated by the
leader is transmitted successfully. In addition, this scale also states that the leader’s
behavior promotes positive expectations. As for the scale of Intellectual Stimulation,
followers also consider their leader shows behavior that encourages them to be innova-
tive and creative, which agrees with the leader’s perception of his subordinates, who he
considers creative. With intellectual stimulation, leaders are able to increase the aware-
ness of problems and persuade employees to deal with them from different perspectives.
Moreover, leaders challenge assumptions, take risks and seek ideas from employees to
stimulate and encourage their creativity (Hyypia and Pekkola 2011).
As a leader, the interviewee sees himself as trusting, motivating and attentive, and
considers his collaborators loyal, committed and creative. When asked about how
employees see him as a leader, he states “demanding, certainly”. This businessman
also says he believes “that anyone working with demanding people manages to learn
and develop his capacities more than someone who deals directly with less demanding
Int Entrep Manag J

people/bosses”. The firm’s strategy is always defined by the firm, setting annual, half-
yearly, monthly and weekly objectives. As the interviewee mentions, “a meeting is held
weekly where the week’s objectives are communicated and here the opinions of some
collaborators are taken into account”.
Finally, it is of note that Passive-Avoidant Leadership behavior is rarely identified by
collaborators in Firm B. This finding also adds to knowledge in the area of leadership by
providing new data and conclusions on the ineffectiveness of this leadership style in SMEs.
As for Leadership Results, and considering the style of Transactional Leadership
identified as most frequent (perceived by collaborators), the most significant are
Satisfaction (2,46) and Extra Effort (2.37).
Indeed, and with identification of “pure” Transactional Leadership, this is seen to
have the capacity to lead to extra effort by followers, getting them to do more than is
asked and expected of them. In turn, greater collaborator satisfaction with the leader’s
actions and style of leadership creates a productive organizational atmosphere. These
facts correspond to the actual situation, as this SME has grown, with further growth
forecast, and its collaborators feel satisfied and fulfilled.

Case 3: firm C

After analyzing the results obtained for Firm C, the Transformational Leadership Group
is seen to have the highest score (2.38), i.e., followers identify, between sometimes and
often, transformational leadership behaviour in their leader (Table 6).
Within this type of leadership, followers also identify as the most frequent scales
Idealized Influence (Attributes), Idealized Influence (Behaviour) and Individual Con-
sideration. Idealized influence/charisma refers to a leader’s behavior in admirable ways
that cause followers to identify with him. Charismatic leaders appeal to followers on an
emotional level. This is about the leader’s ability to provide a role model for his
followers, having a clear set of values and demonstrating them in every action (Hyypia
and Pekkola 2011).

Table 6 – MLQ results-firm C

Groups Scales Average Group average

Types of leadership Transformational Idealized influence (Attributes) 2.48 2.38

Idealized influence (Behavior) 2.38
Inspirational motivation 2.29
Intellectual stimulation 2.34
Individual consideration 2.41
Transactional Reward for objectives attained 1.46 1.79
Management by exception (active) 2.12
Passive/Avoidant Management by exception (passive) 1.61 1.53
Laissez-faire 1.45
Leadership results Extra effort 2.04 2.14
Effectiveness 2.43
Satisfaction 1.93
 Int Entrep Manag J

In addition, by stating that “between me and my followers there is a relationship of

intimacy and respect”, the interviewed leader explains that Individual Consideration is a
relevant scale within the leadership identified, regarding “adaptation whenever possible
of each element to the job” where he considers he can perform more efficiently.
Also concerning the relationship with his followers, the interviewee in this SME
considers that “normally, it is a good relationship and quite close”. This leader
mentioned, however, that “that proximity is always with great respect”, but adds “that
sometimes it is necessary to override that in order for things to function as intended”.
As a leader, this businessman characterizes himself as optimistic, attentive, motivat-
ing and something of a controller. As for his subordinates and from the hypotheses
presented, he says he is unable to point out any special characteristic in the way he sees
them. The interviewee also mentions that “they only comply rigorously with their
working hours to receive their pay at the end of the month”.
When questioned about satisfying the firm’s objective versus collaborator satisfac-
tion, the leader answered that “both are important, as without satisfied employees there
is no production, but if there are no clients and production, the employees will certainly
not be satisfied either”, i.e., he considers these two factors to be interlinked.
Company strategy is defined by top management, but taking line management and
workers’ opinion into consideration. “Every week there is a meeting where weekly
objectives are defined,, and how they should be met is defined, this being the task of line
management, who must take current problems into account”. As the informant from
this SME stated, what is most obvious is “absenteeism, which is in the order of 5 %”.
According to the leader, it is also usual to “consider each individual’s
suggestions/complaints, to improve their performance”. However, those
suggestions/complaints have to be “duly founded”, and if this is the case, leadership
attends to them, whenever possible trying to match each employee to the job where
they feel most efficient and effective.
At this moment, Firm C does not have any mechanism for motivation or reward,
because when there was a monetary reward for reaching objectives at the end of the month,
the leader found “that it was always the same ones making an effort, and the great majority
benefited from others’ efforts”. Therefore, the businessman decided to do away with this
mechanism, although he still occasionally rewards “one or other who deserves it but it is
very rare”. Even so, the leader of Firm C thinks his collaborators feel fulfilled profession-
ally, as they know they can progress in their “career and become a line manager”.
In this Case 3, the leader always tries to be aware of all situations so that, if
necessary, he can solve them rapidly. However, he tries as far as possible to avoid
mistakes, stoppages and surprises, stating that he tries “to plan all tasks and activities”.
The interviewee also underlined that “whenever I notice a collaborator performing
below what is expected, I first try to find out the reasons and only then do I decide to
give support or penalize”.
Concerning Leadership Results, Effectiveness (2.43) is shown to be the most
significant. These results show that this leadership style, despite producing Extra Effort
by followers, leading them to do more than expected, leads more to their Effectiveness
than to their Satisfaction.
After analyzing the interview with the leader of Firm C, we once again find a case
where no single leadership type can be said to dominate. Again, a case is identified
where the type of leadership exercised depends on the situation.
Int Entrep Manag J

A comparative analysis

Content analysis of the interviews with the leaders allowed identification of different
behaviors and/or characteristics belonging to various types of leadership. Nevertheless, as
approached and defended by Azevedo (2002), we chose to highlight more Transforma-
tional and Transactional Leadership Styles and their influence on Leadership Results. Bass
(1985) even argues these are the most commonly accepted leadership styles. Langowitz
(2010) also states that the most present leadership style in SMEs is transformational. In
any case, this study also considers another type of leadership, that of Passive-Avoidant.
Following the quantitative analysis of the MLQ applied to collaborators/followers,
we now present a summary table of the types of leadership identified in each of the
three cases studied, as well as Leadership Results.
Based on the results obtained, Transactional and Transformational Leadership were
identified in Firm A, Transactional Leadership in Firm B and Transformational Lead-
ership in Firm C (Table 7).
In Firm A, two types of leadership were identified (Transactional and Transforma-
tional) (see Table 7), essentially due to this SME using a reward mechanism, although
as its leader mentions, “not to all elements”. It therefore seems to us that this was one of
the reasons for identifying the leader’s Transactional Leadership style in some cases
and Transformational Leadership style in others.
Formulation and examination of transformational leadership has received significant
research attention (Bass and Avolio 2004) and has been found to relate to a large
number of important follower and organizational outcomes (Koene et al. 2002; Lowe
et al. 1996).
In Firm B, only one leadership style was identified (Transactional Leadership). In
this SME, the reward mechanism for objectives met is extended to all collaborators
who reach proposed targets. Here, the reward is monthly and previously defined. On
the other hand, in Firm A that reward is annual and is not previously defined, a situation
which could make it less obvious to collaborators.
In Firm C, a single leadership style was also identified: Transformational Leader-
ship. Of the three cases studied, this is the only SME that clearly does not have any
reward mechanism for results achieved. In this connection, for O’Regan et al. (2005), a
firm’s leadership should be in line with its goals, objectives and strategies, and therefore
act as an element facilitating the achievement of those goals and objectives.
As for the Leadership Result, Firm A was classified as having an “average/high”
level, since according to its leader, “the firm had shown sustained annual growth from
its foundation until last year when business stagnated”. In Firm C., the Leadership
Result had been “good”, however, in recent years “things have become more difficult”,
says this SME leader.

Table 7 Types of leadership identified and leadership results

Case 1: firm A Case 2: firm B Case 3: firm C

Type of leadership Transformational and Transactional leadership Transformational leadership

identified transactional leadership
Leadership result Average/High High Average/High
 Int Entrep Manag J

Different leadership styles may affect results. Transformational leadership is signif-

icantly more correlated to results than transactional leadership and passive-avoidant
leadership. Among the three different leadership styles, transformational leadership is
the best predictor of results (Gardner and Stough 2002). However, this study supports
that transactional leadership is more effective than transformational leadership.
As common, transversal factors to the three cases studied, we identify that: 1) all
leaderships demonstrate and believe there is a good relationship between the leader and
his respective collaborators, 2) despite firms’ objectives being defined at the top of the
hierarchy, the opinion of collaborators is always taken into consideration, and 3) all the
leaders are aware that the firm’s objectives and collaborator satisfaction are inseparable
aspects. This idea is defended by Hargreaves (2006), when he says the leader must
adopt characteristics of sustainability, and seek a balance between the firm’s objectives
and those of his collaborators.
Regarding the differences found in the three SMEs studied, the main one has to do
with the (non) existence of motivation and reward mechanisms. Indeed, when consid-
ering perceived performance, it is easily understood that Firm B, the only one with a
duly defined and implemented motivation and reward mechanism, is the one showing
clearest growth as well as more solid perspectives for future growth and greater
collaborator satisfaction. In addition, it is the only SME studied that manages to
conjugate as Leadership Results, Extra Effort with collaborator Satisfaction, a situation
that will not be easily achieved. As Schwenk and Shrader (1993) state, the leader and his
leadership style have a determining influence on the behavior and direction firms adopt.
It should also be noted that all the leaders consider their collaborators feel satisfied
and fulfilled, but only in Firms A and B do the leadership results demonstrate this
significantly. In Firm C, this situation does not agree to the same extent with the
leader’s idea. It is also important to point out that this firm is the only one showing a
“pure” Transformational Leadership style without any reward or motivation mechanism
implemented or known. This line of argument is based on the premiss that transforma-
tional leadership is not limited to specialized professionals, but is applied to all
collaborators. In this regard, the positive effects of satisfaction and performance at
work through intrinsic motivation and orientation and vision can also be shared by
other departments.

Conclusions and implications

In the current business environment, characterized by globalized markets, competition,

technology and innovation, SMEs must manage to find and adopt strategies that allow
them to overcome all these challenges. However, to attain these objectives successfully,
it must be taken into consideration that the main agents involved in this process of
change are, first and foremost, their leaders. The behavior, actions and attitudes of
leaders will be determinant in defining the leadership style adopted.
It is logical to suppose that owner-managers’ leadership style influences SME
management. However, up until now, this influence has not been confirmed empirical-
ly, and this was the main goal of this study. In fact, the aim of this study was to
understand the leadership styles present in SMEs. Therefore, based on a mixed
methodology (qualitative and quantitative), three Portuguese SMEs were studied.
Int Entrep Manag J

Based on the empirical evidence obtained, we conclude there is no pure leadership

style followed faithfully by SME leaders. Different leadership styles were found to
influence their result differently. Nevertheless, of the three cases/SMEs studied, the
SME following a transactional leadership style was the one showing the best leadership
result. By following this leadership style, this SME achieves not only an extra effort by
collaborators, who apply themselves to their tasks and duties with more determination,
but they also show a considerable degree of satisfaction with the firm’s performance
and leadership.
In addition, transformational leadership can be particularly relevant in the SME
context, because it has a dominant role in the way the business-person can help top
management. Due to the generally small size of SMEs, it is often the business-person
who communicates his expectations personally to collaborators (individualized consid-
eration and inspiration). Transformational leadership tackles explicitly collaborators’
intrinsic motivation, so becoming a particularly useful tool in SMEs.
Based on the results of this study, we also conclude that the appropriate leadership
style for an SME depends to a great extent on characteristics of its operating environ-
ment, such as dynamism or hostility, as well as on its sector and geographical region.
For example, according to Ensley et al. (2006), transformational leadership only
promotes improved performance in dynamic atmospheres, whereas in a context of
little dynamism this type of leadership will not be appropriate, since in this climate the
intention is only for collaborators to carry out routine duties effectively and efficiently.
The purpose of this study was to investigate the effectiveness of transformational,
transactional and passive-avoidant leadership in SMEs in the Portuguese context. This had
not been done previously in Portugal and would therefore be deemed a new contribution
to our understanding of a well-known theory. Besides an understanding of the leader’s role
in SMEs, our study contributes to making business-people aware of the potential influence
and impact their leadership style can have on the results of that leadership.
From a theoretical perspective, the current study contributes to the ongoing debate
by identifying the three different leadership styles in the context of a developed country.
Our findings regarding the interface among transformational, transactional and passive-
avoidant leadership in Portugal are consistent with the limited number of prior studies
conducted in developing countries. This consistency of results reinforces the argument
put forward by Bass (1997) regarding the universality of these leadership styles. The
findings also add to knowledge in the area of leadership by providing new data and
conclusions on the effectiveness of transactional and transformational and the ineffec-
tiveness of passive-avoidant leadership in SMEs.
The most important practical implication of the current study is for management
development in SMEs. If the style of leadership exhibited by SMEs’ owner-managers
has a significant role in explaining some organizational variables, then small and
medium firms need to encourage leadership of this kind.
Our findings also underline the importance of managers in influencing the organi-
zational environment in which they work. As suggested by previous researchers, the
ability of transformational leaders to positively influence organizational variables offers
the opportunity to amplify the effects of their leadership on other important variables
(House and Aditya 1997; Jung et al. 2003; Pillai et al. 1999). The transformational
leadership style could potentially increase employees’ likelihood to take risks (Yukl
2006) and their job commitment and satisfaction (Erkutlu 2008).
 Int Entrep Manag J

The existing literature also suggests that employees can be more receptive to
transformational and transactional leaderships in the less complex and more fluid
context of SMEs (Ling et al. 2008). Findings from the current study support this view.
In our study, subordinates were more likely to rate leaders higher on transformational
and transactional characteristics. Again, further research is needed to explore the reason
for this observation.
This study is not without limitations. The first has to do with the fact of adopting case
study methodology, which does not allow extrapolation of the results to the universe of
SMEs. Indeed, the behavior, results and conclusions obtained in this study are only valid
for the three cases studied and so should be interpreted with some reservation. Secondly,
the three cases/SMEs studied here belong to different sectors of activity. As only one firm
was studied from each sector, this is clearly an insufficient “sample” to be able to extend
the conclusions drawn to other firms in these sectors. Thirdly, all the firms studied are
located in the same geographical area, inland Portugal, and so in the future it would be
interesting to study more cases of SMEs from different sectors of activity and located in
different regions. Indeed, by carrying out this type of study in the future, certainly
showing other socio-economic and demographic situations potentially different from
those studied here, it would be possible to confirm if the results obtained are similar.
As a suggestion for future research, and in order to strengthen the conclusions
obtained in this study, this research could be applied adopting a quantitative approach
to firms of different sizes so as to allow a comparative analysis and consequently the
possibility of generalizing the results obtained. Another suggestion is the possibility of
analyzing the cases dealt with here again in the near future, in order to determine if the
results obtained remain as before or change.
Despite these limitations, we nevertheless believe the results obtained and the
conclusions drawn from this study can form a valuable contribution towards under-
standing the subject of leadership styles in SMEs.

Acknowledgments This study was supported by a Research Unit (NECE), financed by the FCT – Science
and Technology Foundation of Portugal. The authors thank the anonymous reviewers for their very helpful
comments that contributed to the development of this paper.

Appendix

Multifactor leadership questionnaire

Instructions: This questionnaire provides a description of your leadership style. Forty-

five descriptive statements are listed below. Judge how frequently each statement fits
you. The word “others” may mean your followers, clients or group members.

KEY:

0 Not at all
1 Once in a while
2 Sometimes
3 Fairly often
Int Entrep Manag J

4 Frequently, if not always

0 1 2 3 4
1 He gives help to others in exchange for their efforts
2 He examines situations critically asking if they are suitable
3 He does not interfere in problems until they become serious
4 He focuses attention on irregularities, mistakes, exceptions and deviations from
expected standards
5 He avoids getting involved when important matters arise
6 He converses about his most important beliefs and values
7 He is absent when they need him
8 He looks for alternative ways to solve problems
9 He speaks optimistically about the future
10 Others are proud to be beside him
11 He discusses who is responsible for attaining specific performance goals
12 He waits for things to go wrong before beginning to act
13 He speaks enthusiastically about what must be carried out
14 He shows the importance of having a strong sense of obligation
15 He invests time in teaching and training
16 He makes it clear what each one can expect to receive when performance targets are reached
17 He shows he believes in “if it isn’t broken, don’t fix it”
18 He goes beyond his own interest in the group’s well-being
19 He treats others as people rather than treating them just as members of the group
20 He demonstrates that problems must become chronic before he acts
21 He acts in a way that achieves others’ respect
22 He devotes his whole attention to dealing with mistakes, complaints and failings
23 He considers the ethical and moral consequences of his decisions
24 He is always aware of all mistakes
25 He demonstrates a sense of power and confidence
26 He articulates a positive and motivating vision of the future
27 He directs his attention to failings so as to attain the expected standards
28 He avoids making decisions
29 He considers each person as having needs, skills and aspirations that are
different from those of others
30 He gets others to look at problems from different angles
31 He helps others to develop their strengths
32 He suggests new alternatives, ways of carrying out and complementing activities
33 He takes a long time to respond to urgent matters
34 He emphasizes the importance of having a single mission direction
35 He expresses satisfaction when others correspond to his expectations
36 He expresses confidence in reaching targets
37 He is effective in dealing with others’ needs in relation to work
38 The leadership methods he uses are satisfactory
39 He gets others to do more than is expected
40 He is effective in representing his group at higher hierarchical levels
41 He works with others satisfactorily
42 He raises other people’s desire to obtain success
43 He is effective in dealing with the organization’s needs
44 He increases others’ will to work with greater dedication
45 He leads an efficient group
 Int Entrep Manag J

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