The Role of Human and Social Capital Traits in SMEs Over-Performance During Industrial Downturns: Theoretical Development

Abstract

In this study we investigate the firm specific factors which facilitate organizational over-performance in declining industries. Despite the extant rich literature on firm growth factors, we are still far from a comprehensive picture on which of them contribute to firm growth the most, especially when adverse environmental contexts are present. Yet, the cyclical nature of industrial downturns and the current economic climate add additional urgency to the above question. Building on the resource based view, the entrepreneurship and small firm growth literatures, while combining the findings from our recent empirical study on 20 highly growing UK SMEs in 19 poor performing sectors, we develop a set of propositions which re-examine the role of leaders, their teams and networks on achieving firm over-performance in adverse conditions. Our findings reveal that these outliers are run by managers with long firm tenure, long output experience and entrepreneurial attitude. They invest in human capital with high levels of firm-specific skills, promote vigorous training and encourage employee participation in the decision making. They also foster multiple informal and formal external networks by building long-term personal relationships with external actors and participating in industry-related events. Overall, by developing and testing an integrative model of SME over-performance in adverse conditions, we address an overlooked gap in the literature, set the foundations for further research and provide practical value to SME managers.