Employee Engagement & Financial Performance of SMEs in Lagos State, Nigeria.

AuthorAkinwale, Akeem Ayofe
PositionSmall and medium sized enterprises


Achievement of competitive advantage depends on the productive use of human resources and other materials (Woodruff, 2018). An engaged employee is a person who is fully involved in, and enthusiastic about his work (Seijts & Crim, 2006). Employee engagement can be regarded as an important input in the production functions of SMEs. The National Policy on Micro, Small and Medium Enterprise (2012) described small-scale enterprises as those whose total assets, excluding land and building, are between five and fifty million naira with a total workforce of 10-49 employees, while medium-scale enterprises are those whose total assets, excluding land and building, are between 50 and 500 million Naira with a total workforce of 50-199 employees.

Several studies have confirmed the role of SMEs in the development of entrepreneurial activities and economic growth in many countries (Ali & Najman, 2018; Horodnic, Ciobanu, Williams, & Rodgers, 2018; Ibiwoye et al, 2020; Pereshybkina, Conde & Kalyesubula, 2017; Wornell, Jensen & Tickamyer, 2018; Wang, 2016). SMEs employ two-thirds of the global workforce and have been instrumental in alleviating poverty (Akinyemi et al, 2017; World Economic Forum, 2015).

Despite the aforementioned importance of SMEs in different countries, inadequate access to financing is the number one barrier to the growth and development of SMEs around the globe (International Labour Office, 2015; Wang, 2016). Available evidence shows that SMEs have far more difficulties with access to finance than larger firms (Ahmed et al, 2016). The International Finance Corporation (2017) made it clear that SMEs in developing countries face a $930 billion financing gap.

A close observation of the experience of SMEs shows that financial service providers are often reluctant to finance SMEs due to their weak financial performance or lack of information about their operations. Therefore, this article examines employee engagement and financial performance of SMEs in Nigeria, with a focus on the following research questions: What is the degree of financial performance of SMEs in Lagos state, Nigeria? How does employee engagement affect the financial performance of SMEs in the study area? These research questions were addressed through secondary data and a survey of 450 respondents in various SMEs in Lagos state, Nigeria.

This article is an attempt to contribute to knowledge on the linkage between employee engagement and financial performance of SMEs, given that studies on performance of SMEs largely focused on different issues such as technological change, socio-demographic factors, social capital, market orientation, entrepreneurial orientation, and corporate social responsibility (Akinyemi et al, 2017; Durowoju, 2017; Ibiwoye et al, 2020; Vyas & Jain, 2020).

Performance of SMEs in Developing Countries

The performance of SMEs cannot be ignored owing to the fact that majority of them fail within their first year of existence, while those that survive keep struggling throughout their business lives due to several reasons, such as hostile business environment, mismanagement of resources, and lack of access to adequate financing. Vyas and Jain (2020) discovered that market orientation was the most important determinant of financial performance of SMEs in India. They also discovered that the other determinants of financial performance of SMEs in India comprised entrepreneurial orientation and corporate social responsibility, respectively.

Serwanja (2017) noted that many SMEs in Uganda responded well to the international financial reporting standards whose application enhanced the profitability of SMEs in that country. Durowoj u (2017) observed a significant positive relationship between technological change and organizational performance of SMEs in Nigeria, while Akinyemi et al (2017) discovered that age, gender, number of years in business, and involvement in mentorship activities influenced the performance of SMEs in Nigeria. They also discovered that female business owners with tertiary education had higher business performance than their counterparts with less than tertiary education. Similarly, Akintimehin et al (2019) revealed that social capital had a significant effect on performance of SMEs in Nigeria.

In a recent study of the survival of SMEs in Nigeria, Ibiwoye et al (2020) confirmed a positive relationship between enterprise risk management (ERM) practices and survival of SMEs, with an understanding that only internal environment led to 65.7 percent of the success recorded in survival of SMEs, while internal environment and risk assessment resulted in 92.4 percent of the success recorded in survival of SMEs, and internal environment, risk assessment and control activities jointly produced 93.7 percent of the success recorded in survival of SMEs. Moreover, based on the Enterprise Survey from the World Bank, including data from 119 developing countries, Wang (2016) showed that access to finance was the most significant obstacle to the growth of SMEs.

Employee Engagement & Financial Performance

Employee engagement is a positive psychological condition that encourages employees to actively devote themselves to their job and organization (Galagan, 2015; Jnaneswar, 2020; Sandhya & Sulphey, 2019; Schaufeli et al, 2002). In this context, engaged employees can make a valuable contribution to organizational performance.

Joshi and Sodhi (2011) identified the drivers of employee engagement as follows: Work Life Balance, Job Content, Monetary Benefits, Team Orientation, Labor-management Relations, and Rewards Management. These policies and practices are consistent with the ten Cs of employee engagement identified by Seijts and Crim (2006): Connect, Career, Clarity, Convey, Congratulate, Contribute, Control, Collaborate, Credibility, and Confidence. For Macleod and Clarke (2009), the drivers of employee engagement are leadership, engaging managers, employees' voice, and integrity. Ireland and Hitt (2005) described strategic leadership as a person's ability to anticipate, envision, maintain flexibility, think strategically, and work with others to initiate changes that will create a viable future for the organization. The success story of Guaranty Trust Bank (GTBank) is relevant here.

GTBank is a prominent bank in Nigeria and other countries such as Ghana, Liberia, Sierra Leone, and the Gambia (Olukoju, 2017). Tayo Aderinokun and Fola Adeola established GTB in 1990 to provide excellent banking services (Knox & Maklan, 2005; Olukoju, 2017). They recruited and personally trained all management-level staff for the first five years of the bank's operations and the bank grew rapidly as a result of employee engagement. Olukoju (2017: 370) described the process of recruitment that culminated in the culture of employee engagement in GTBank as follows:

Head hunting, rather than job advertisements, was undertaken. Banks where Adeola and Aderinokun had worked were fertile hunting grounds. All prospective staff underwent the sifting process leading to recruitment. Only university graduates were engaged. All fresh employees underwent four months of rigorous training.

The promoters guided the employees towards professionalism, ethics, integrity, customer service, and innovation. The engaged employees remained committed to GTBank. Table 1 shows categories of employee engagement.

A Towers Perrin 2005 Global Workforce Survey involving about 85,000 full-time employees showed that only 14 percent of all employees worldwide were highly engaged in their job, while 62 percent of the employees were moderately engaged and 24 percent were actively disengaged (Seijts & Crim, 2006). The survey also revealed a country-by-country distribution of the percentages of highly engaged, moderately engaged, and actively disengaged employees. Mexico and Brazil had the highest percentages of engaged employees, while Japan and Italy had the largest percentages of disengaged employees.


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