Methods of Measuring Leadership Effectiveness in Organizations - Coursework Example

? Leadership Table of Contents Introduction 3 Literature Review 4 Methods of measuring leadership effectiveness in organisations 8 Justification of approach 11 Reasons why measuring leadership effectiveness harnesses organisational productivity 13 Conclusion 14 Reference 16 Introduction This project makes an attempt to identify how the measurement of leadership proves to be effective in organisations. It presents a comprehensive method of evaluation and measurement of leadership in organisations. A justification for using the method is also provided. The project also provides an academic literature on the effectiveness of measurement of leadership in organisations. A number of examples of organisations have been provided in this context. The subject of leadership has gained tremendous interest in the sine the past few decades. Leadership is considered to of critical interest for adding value to the organisation. It is important to measure the effectiveness of leadership and its influence in driving the performance of employees and the organisations. A leader has a much bigger and important role to play than just being a person who is the biggest or the most powerful. The term leader has been interpreted as a person who sets the direction with an effort to influence individuals to follow the direction. However, the term leader needs to distinguished form that of a manager. It is different from planning, coordinating and organising and is more concerned with the power to influence people and guiding them through the direction of attaining organisation goals and objectives (McNamara, n.d.). It is important to assess the quality of leadership development programs to identify the possible actions which can be taken towards improving the quality of the programs. It is also important to assess the short term as well the long term impacts of these programs to find out the extent to which the organisations provide support or behave as barriers for transferring the leanings to performance (Martineau, 2006, p.1). However, the assessment and evaluation of the effectiveness of leadership should not be restricted to just the management programs. Overall, the objective should be to capture the essence of the term leadership and what it is all about. It requires to be evaluated if the leadership is able to bring about the changes as per the objectives. Leadership should be measured at various levels of the organisation and at all positions. This project aims at bringing out the purpose of measuring the effectiveness of leadership at various levels of the organisation. Literature Review The importance of measuring the effectiveness of leadership can be viewed from different perspectives. It has an impact on the performance measures, on the followers, and finally at the bottom line of the organisation. In order to make leadership effective, the leader must have all the critical data at the point of his fingertips which would allow him to have the best understanding of whatever is going on in the organisation. The evaluation of leadership involves identifying whether leadership is being effective in finding the solution to a problem through collective efforts or by combining the efforts of the people to promote survival and success. The leaders’ performance may be evaluated on the ground that it can influence the people towards contributing towards the betterment and good of the group. It can also be measured by understanding how the organisations objectives are attained and achieved through the combined efforts of the group members. However, it must be noted goals vary between organisations. The goal of General Motors is different from that of Microsoft, Wal-Mart or other organisations. However, all of them work towards the common goal of attaining the maximum output and profits. Organisations remain competitive towards each other for attaining the scarce resources and having the maximum return on their assets (Kaiser, Hogan & Craig, 2008, p.1). Some traditions follow the measurement of leadership through evaluation of the managers. There are other studies which define “leadership effectiveness in terms of how managers affect employee satisfaction, motivation, and unit results” (Kaiser, Hogan & Craig, 2008, p.2). A large variety of measurement methods of leadership also exists. Leadership ratings may be gathered from the superiors as well as the subordinates. Apart from the subjective measures, a number of objective methods exist, like the productivity of the organisation or even the voluntary turnover rates. There are certain recent measures like team dynamics and the financial measures of performance of organisations (Kaiser, Hogan & Craig, 2008, p.2). According to a recent survey, it was found that leadership effectiveness had a direct relation with the performance of organisations. The survey was conducted on the top 100 public organisations in Canada. It was seen that the best performing organisations has been practicing the transformational style of leadership (Hancott, 2005, p.4). Group performance is one important aspect of measurement of leadership. The performance of the team which the leader is responsible for leading comprises of a method of measuring effectiveness of the leader. If the leader has the required qualities for leading his team, it is reflected through the performance of his team. Consequently the team performance is directly reflected through the performance of the organisation. Thus it is seen how the measurement of leadership is critical for the organisation and its performance (Kaiser, Hogan & Craig, 2008, p.3). Not only does the leader influence individual performance but also has impact on the collective behaviour of teams. Leaders have considerable influence on the team dynamics. A team performing efficiently under the influence of the leader directly results and reflects through an improved performance of the organisation (Kaiser, Hogan & Craig, 2008, p.4). Leadership is considered to be one of the most difficult measures to be addressed. Apparently, it seems that leadership can be measured easily as “effective leadership leads to effective organisations” (Phillips, Breining & Phillips, 2007, p.224). The most difficult part is allocating a monetary value to the consequences of leadership. Leadership can make a difference when considering the organisations success or failure. Inappropriate behaviours on the part of the leader of the organisation might result in the misapplication of resources, wastage of resources or may even result in resources remaining underutilised (Phillips, Breining & Phillips, 2007, p.224). The success of the Mumbai’s ‘Dabbawalas’ is an example of high leadership quality which have accounted for the success of the organisation for more than 100 years. It was given the six sigma rating by the Forbes Global magazine in the year 1998. The organisations’ work process constituting of its delivery process combined with the employee’s team work towards attaining a common goal is a reflection of high leadership quality in the organisation and its influential power (ICMR, n.d.). In the recent years, a lot of popularity has been generated towards the business leaders. However, it must be noted that along with the characteristic of being change agents, and entrepreneurs, leaders are also associated with certain risks and liabilities. It is the efficiency with which these risks and liabilities are handled by the leader that determines how successful would the organisation be. A number of organisations have been able to attain stupendous success out of the sheer ability of its leaders to take risks and handle liabilities (Hickmann, 1998, p.250). It is common that the competencies of leadership at different levels of the organization are different. Leaders are required at the managerial level, senior level and the functional level. It is the capacity of a leader at a particular level which accounts for the effectiveness of his group. The competencies or behaviour of a leader at the managerial level would be different from that required at a lower functional level. Measuring the competency at various levels is critical for the organization to perform efficiently. Recently many organisations have been developing the competency models of leadership. IBM is one such organisation which has actively developed and implemented the leadership competency model. The competency models so developed are also effective in aligning the culture of the organisation with the goals and objectives of the same (Wollinski, 2010). Organisations have realised the importance of measuring leadership. Leadership performance can be improved only if it can be measured. The attention has increasingly moved towards performance in production, manufacture, sales, marketing, human resource, innovation and finance. Leadership capacity has emerged as an organisational capability. Like every other business capability it also requires to placed on the foundation of measurement. It is critical that organisations develop the means of measuring leadership capacity to be able to know whether they are being able to build that which is required for attaining success in the future (Weiss, Molinaro & Davey, 2007, p.149). Measuring the leadership capacity by organisations places them in a better position than to fix weaknesses and shortcomings in leaderships they have widespread repercussions in business. A clear and distinct definition of leadership and implementing a corresponding measure of leadership capacity, organisations remain in a better position to make the needful improvements (Weiss, Molinaro & Davey, 2007, p.152). Methods of measuring leadership effectiveness in organisations Development of a method of measuring leadership is helpful in improving the productivity of organisations. The leadership measurement program would include the following steps. It would assess the program quality, the possible actions to improve the program. It would also assess the short term and the long term impacts of the leadership development programs. The success of a leadership development also depends on the support which organisations provide or the barriers they create. Thus it is seen that organisations success can be attributed to the success of the leaders while the opposite is also true. The effectiveness of leadership would also depend on the support it can gain from the side of the organisation. The methods used for measuring leadership effectiveness include making assessments for the prediction of leadership abilities. This would include assessments for selection, placements, investment decisions in venture capital, assessments for the appraisal of performance etc. A number of measurement techniques are in use these days, out of which the following methods have been presented in this project (Conger & Riggio, 2007, p.49). In this process, psychologists are called by the companies to conduct assessment tests of the individual candidates. The psychologists assess the requirements of the job and then compile the assessment methods to identify the degree to which each candidate has the required characteristics to meet the expectations. Conducting interviews is one of the most common methods of assessing the executives. Interviews must carry a structured approach and must be objected at the core questions which would be the same for all candidates, rather than having an unstructured approach. A structured interview always has a greater validity than an unstructured one because it focuses more on the constructs which are strongly related to the job performance such as the application of mental skills, like solving problems, making decisions, giving judgements, thinking critically, planning and organising. It also takes account of the executives’ social skills like his or hers ability to work efficiently in different social situations. However, informal interviews would be susceptible to the legal challenges and would have two individual candidates experiencing two different questions for similar positions (Conger & Riggio, 2007, p.49). Structured questions would be aimed at asking questions about the candidates’ experience or the way in which he would react at various hypothetical situations. Another method of leadership assessments is through assessments centres. Ratings by the assessments centres may be used for identifying people having the potential fit for the senior management. It might comprise of various exercises like giving presentations or task prioritising and decision making. Observers evaluate the behaviour of participants in different situations. Inspite of the fact that this method is costly and time consuming, they are considered to be popular tools because their “strong record of criterion-related validity, long-term predictive validity, and face validity” (Conger & Riggio, 2007, p.50). They are also useful in predicting future performance, measuring the present job performance and appear to be realistic. Guidelines are provided to the assessment centres on how to develop the contents, and enhance construct and on predictive validity. This includes providing training to the assessors, observers and the rate providers on the understanding of differences between the performance elements and how the same performance elements may be reflected through different situations (Conger & Riggio, 2007, p.50). Cognitive ability tests are also conducted to assess the leadership positions of candidates. It measures the leaders’ ability to learn and implement new skills. Mental ability is measured through cognitive assessments. This method is considered to be best predictor of leadership performance. It predictive validity becomes higher for the jobs at higher levels having greater complexity. However it is suggested that this method is not reliable by itself and should act as a part of an assessment test (Conger & Riggio, 2007, p.50). Measures are taken to assess the personalities of candidates, like his psychological character and motivation. Projective tests are one of these measures. In this test the candidates might be presented with pictures with people interacting among themselves and then asked to describe what is going on in the situation. This is based on the perception that different personalities interpret, organise and perceive different situations differently. The way in which they do so would reflect their skills and potential of leadership. The candidates might have to complete an incomplete sentence like “my primary goal is” (Conger & Riggio, 2007, p.50). The complete sentence would give an idea of what would be the potential of the candidate would be when placed in the position of a leader. The objective measures of personality would give an assessment about the attitudes, values and preferences of the candidates. The ‘Big Five’ personality constructs make an assessment of the persons’ conscientiousness, agreeableness, extraversion, openness and emotional stability. All of the personality dimensions of the above test are used for the prediction of the performance in leadership skills and other dimensions of personality (Conger & Riggio, 2007, p.51). Financial performance is considered to be one of the most important component of measuring leadership skill and potential of executives. Objective indicators and financial performance like sales, units produced in the organisational and business unit level are some of the indirect ways measuring the leadership performance of executives. The popular technique is to align the leadership performance of the executive with the business unit objectives. Using a financial metrics have gained popularity and has been used by many organisations for assessing performance of the senior leaders in the organisation. The importance of such financial metrics has increased over the years because they are directly linked to the structure of compensation of the leaders (Conger & Riggio, 2007, p.51). Financial metric appear to be highly objective at the first glance, but a number of dilemmas arise while taking such measurements. Ideally, the method must identify measures which reflect how much the leader contributes and then make the adjustments for factors which go beyond the control of the leader. However, this goal is not met using this measure. One issue that arises is whether the focus should be more on team performance or performance of individuals. The second issue which arises is whether the emphasis should be on the present or short term performance or on long term measures (Conger & Riggio, 2007, p.51). The third issue that arises is whether the short term financial performance measures should be aligned with interests of the shareholders or the long term shareholders value. The problem lies in the fact that measures must be selected in such a way that when it is pursued by the leaders, the organisation’s goals are advanced. Whatever is not measurable are likely to be overlooked and ignored by the leaders (Conger & Riggio, 2007, p.52). Justification of approach The financial performance measures like sales and the number of units produced are popular measures of evaluating the leaders’ performance. Moreover it ensures that the data are kept in record and can be used for improving skills of the leader. Particularly, the financial metrics plays a vital role for this purpose. Most importantly, this method becomes useful for the purpose of compensation of the leaders. The sales figure generated under his leadership or the units produced under him would play the important role of determining how much would be his compensation. This method also ensures justice and rationality of the compensation structures. Moreover this method also reflects how much the leader has been contributing towards the organisation. The ratings also identify the areas which require adjustments or are lagging behind. The leader would be able to work accordingly in the areas of weaknesses and requiring attention. The assessment centres are also considered to useful for the purpose of measuring leadership effectiveness. The assessment centres usually provide ratings for the behaviour of participants in different situations. The ratings are provided against different criterion, out of which leadership is one. It provides a criterion related validity, face validity and also long term predictive validity. The most important usage of this tool is that it can predict future performance, apart from measuring the present performance of the employees. Moreover, these assessments are provided with proper guidelines on how the content would be developed, how the constructions would be enhanced and on the predictive validity. The predictive role of this method is not available in any other measure. For instilling the qualities of a leader in a person, the cognitive ability test would be most relevant. It one of those rare measures which finds usage in finding how effective the leader would be to learn new skills and implement them. The requirements of a job role might keep changing according to the requirements. So executives must be open to learning and adapting to these changes. He must also be open to adapting the new skills and techniques. This test is most critical for this purpose. In fact, it finds greater usage as the job complexity increases at higher levels. Today the importance of ethics and psychological character in organisations has also gained importance. Projective tests would reflect how the leader would behave at different situations and circumstances. It is important that the leader is able to understand and predict how his team would behave at different situations. This test reveals his ability to do so. Moreover, the test also reveals if the person concerned has the required potential or the qualities of a leader and whether he would be able to do justice if he was placed in the leader’s position. Reasons why measuring leadership effectiveness harnesses organisational productivity Leadership evaluation and measurement is significantly important for attaining organisational efficiency. However, the style of leadership varies according to the kind of organisation. During crisis situations like the economic recessions the role of leadership becomes significantly critical for the organisation’s success. External changes cause dramatic changes in the management paradigms. The management of human resources comes into play during such times and so does leadership styles. Because of external disturbances, the organisation’s goals also keep changing. During the changing times, leaders are increasingly finding that a number of background assumptions and the honoured business models to be inadequate for application and dealing. It is important to measure the effectiveness of leadership against these goals. Leaders constantly have to adapt to the changes in situations and improvise on their styles of leadership. It is also required to understand how the changes in leadership make a difference to the organisation (Mihhailova & Kulno, 2008, p.2). Leadership has a direct influence over the financial indicators, for example, the sales revenue or the production. When leadership activities are efficient, the financial indicators automatically reflect improvement and vice versa. Thus during the time when the financial indicators reflect poor performance, it is realised that leadership activities requires revising or improved. The shortcomings or loopholes can be identified promptly and acted upon. Improvement in the leaders’ performance results in the improved performance of the organisation. Leadership effectiveness can also be measured through the improved group performance and individual performance. Today organisations try to find out if the group has been able to develop as a team. Leaders are responsible for uplifting the level of motivation of his team which relates closely to the satisfaction level of employees. In fact, organisations have been increasing investments to raise the satisfaction of employees. It is a known fact employees with higher work satisfaction accomplish their task better and faster. Thus measuring the leaders’ performance is a key towards his group’s performance (Mihhailova & Kulno, 2008, p.4). Finally, the leader’s activity is not only restricted to the development of his team members but also fostering healthy relationship with the other groups. The leadership styles used are different for different leaders and for different situations. Leadership style may be autocratic, democratic or laissez-faire (Mihhailova & Kulno, 2008, p.5). It is primarily the situation which decides which style of leadership would be undertaken. This is where the importance of measurement comes into play. The style which yields the maximum productivity is chosen as the most appropriate over the other styles. Nowadays, the pragmatic style of leadership has gained popularity because it takes account of the social and economic activities which is necessary for the achievement of goals in the organisation. This method also focuses on the non personal work aspects as well as the basic requirements of the personnel. This directly results in increasing the efficiency of work (Mihhailova & Kulno, 2008, p.6). Conclusion During the course of the project it was found that implementing an effective measurement technique of leadership would be helpful in gaining organisational success. However, proper steps must be taken and implemented for measuring leadership. Extensive research was conducted for identifying the relationship between leadership measurement and organisational success. It was found that organisations implementing proper leadership measurement techniques were more productive than those without the same. In this regard, competency has an important role to play. It must be realised that leadership must exist at all levels of the organisation. However, the competencies do not remain the same for all levels. It is important that the competencies at each level must be in alignment with the goals and objectives at that level. A number of organisations have even started developing and implementing the competency model for the purpose. A well known organisation doing the same is IBM. It was seen that the competency models were effective in providing the direction for the leaders to follow in order to be able to attain the desired outcomes. Competency model today is associated with the “advanced levels of leadership and desired outcomes in an organization” (Wolinski, 2010). Among the instruments of measuring leadership effectiveness, the assessment centres have been given prime importance. This is because not only does it estimate the present performance but can also predict the future performance. The importance of cognitive ability test lies in the fact that it measures the leaders’ ability to learn new skills and techniques. Projective tests emphasises on how the different leaders would perceive different situations. It primarily measures the extent to which a person would handle a situation when he was placed in the leader’s position. Finally the financial performance indicators have been used for determining the effectiveness of leadership. The units produced under a person’s leadership or the sales generated under the same, are considered to be directly related to the leader’s ability. 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