Leadership and Motivation at Southsea Engineering - Case Study Example

INFORMAL REPORT Leadership and Motivation at Southsea Engineering plc Produced at the request of Yvonne Worrell. By David Stacey, Personnel Assistant, February 2006 CONTENTS PAGE INFORMAL REPORT 1 CONTENTS PAGE 2 INTRODUCTION 3 FINDINGS / ANALYSIS 4 Managing Organizational Change 4 Leadership 5 Motivation 7 CONCLUSIONS AND RECOMMENDATIONS 9 Leadership 9 Motivation 10 INTRODUCTION The purpose of the report is to present a detailed analysis of key leadership and motivational issues, including the role of the psychological contract, and to identify problem areas confronting Southsea Engineering plc. This evaluation was initiated at a request from the Personnel Director. The results highlight that the company currently operates an extremely democratic leadership style, which has been successful for many years. However, concern has been raised due to a recent decline in financial results and this merits further investigation that could lead to a possible organisational change. The company is facing managerial challenges in terms of goal setting, assessment, high performance working, motivation and productivity. Employees accept transformational leadership, although some of its aspects within the company need reconsidering to improve both work performance, and financial stability and results. This will also mean that a good understanding is needed regarding the process of managing change within the company. There are summarised conclusions, and recommendations, at the end of the report. FINDINGS / ANALYSIS Managing Organizational Change My analysis at Southsea Engineering plc ascertained that many of the issues regarding leadership and motivation need to be analyzed in the prism of organizational change, which has been an ongoing process at Southsea over the years. When Rachel Southsea first headed the company, she introduced a range of organizational changes at all company levels. These changes proved to be not just simple structural reorganizations, but affected employees' attitudes and expectations, also their behaviour and dedication to the work processes. In other words, these novelties caused dramatic cultural changes and influenced the state of the psychological contract within the company. The psychological contract at Southsea plc, as defined by Schein (1978) represents "a set of unwritten reciprocal expectations between a single employee and the organization" (cited by Guest, 2003, p. 10). By the time Rachel Southsea headed the company, employees and even senior managers had an established positive psychological contract with clear expectations, presumably high degree of subjective employment security, and organizational commitment (Guest, 2003) within the "conservative structure" of an engineering company. Introducing new working approaches, such as relaxation of organizational controls caused confusion and irritation among senior managers, who felt that their expectations for their future within the company were no longer to be delivered (Guest, 2003). Release of control also influenced employees in that they felt insecure in the changing organizational environment, and exercised the freedom of not obeying to strict rules. Kurt Lewin, and later on Edgar Schein (1995, cited by Wirth R. 2004) defined this early stage of organizational change as "unfreezing", meaning removing old structures and cultural influences. As Schein ascertains, culture is deeply seated in people's minds (cited by Jossey-Bass, 1992) and change at Southsea Engineering plc was a difficult and time-consuming process. Senior management had to fight anxieties about the uncertain future. The duration and the intrusiveness of these changes made it difficult for employees to accept them and to adapt. The disrupted state of the psychological contract decreased employees' dedication, as they could not identify their role in the new organizational environment. This all lead to impaired work performance and financial results. It was by the mid-1990s that these anxieties were overcome, and the company entered into the second stage of organizational change (Lewin, cited by Wirth R. 2004), which was denoted by improving performance and rising profits. What was indicative about this second stage in organizational change is that change at this point was already accepted and supported by employees (Wirth R. 2004). Resistance and irresponsible performance were left in the past. In this second stage Rachel Southsea implemented further changes some of which affected working conditions, performance measures or remuneration packages. Gradually, time made those changes permanent, thus moving the company into the third stage of organizational change - "refreezing" (Lewin, cited by Wirth R. 2004). Working practices such as budget-setting or decision-making patterns were established, thus creating the feeling of greater subjective security among employees and managers. This improved employees' perceptions and hence the state of the psychological contract, leading to greater employee commitment and satisfaction (CIPD, Managing Change, 2005). Leadership My analysis of the leadership style in the company shows that it can be defined as an extremely democratic management style (Tannenbaum & Schmidt, 1973) that is certainly uncommon amongst management today. It can also be defined as a participative management style as opposed to the authoritarian management described by McGregor (1960) in the X-Y theory. My investigations into the overall management practices show very little external pressure on issues such as personnel activities, with a heavy reliance on self-control and an upward evaluation by subordinates. These elements are indicative of the Y theory of management, basically adopting a transformational approach towards the entire workforce. Since the beginning of her career as Southsea's executive manager, Rachel Southsea has promoted transformational leadership, using her charisma, personal vision and energy to inspire subordinates and implement changes (Bass B.M. 1990). This shows in her determination for organizational change, her willingness to treat subordinates differently and her own self-confidence of the benefits of her methods. Her management approach is very different from the transactional style previously promoted in the conservative company structure. Rachel Southsea discarded transactional elements such as stringent deadline requirements, fixed working hours or top-down goal-setting. She gradually managed to broaden employees' perspective of company's purpose and mission by empowerment and delegation of responsibilities. The positive effect of Rachel Southsea's leadership approach is mostly because the "sells" and "consults" styles of Tannenbaum & Schmidt (1973) Leadership Continuum, and also Hersey Blanchard (1982) Situation Theory are usually much preferred by employees. Rachel Southsea's style offers employees room for personal development, freedom and creativity and this enhances their motivation and work performance. The main question that has to be asked here is whether this high level of independence can be justified. This style of management, which is at the far end of the Tannenbaum & Schmidt Continuum (1973) grants huge freedom but can only be effective with teams that are experienced, competent and have equal knowledge and contribution capabilities. Otherwise the end result could be poor work performance due to incompetence and ineffective work processes. As the historical records show, the company has already experienced these negative implications during the "defreezing" stage of transformational change (Lewin), when the previous structure was gradually dismantled. When senior executives left the company, Southsea Engineering plc was left with less experienced managers who at that time were also suffering the impaired status of the psychological contract, previously explained (Guest, 1998). Rachel Southsea's participative management style (McGregor, 1960) without appropriate control mechanisms also leaves room for misjudgements in the way people's performance is evaluated. The company uses a bottom-up appraisal method, relying on employees' discretion of whether managers are effective. I found the worrying case of a woman, expelled from the company by her own subordinates due to personal problems. There was no evidence of lack of performance, just emotional problems with depression, and her subordinates' negative attitude that caused her dismissal. My opinion is that her temporary inability to be a good leader, in the eyes of her subordinates, was not a justifiable case for her dismissal. Rachel Southsea's reliance on employees' competences and disregard of subjectivity in assessment were in this case misleading. I also compared this extremely democratic leadership style to another area of successful leadership practices - task orientation. I have used the Blake and Moulton (1985) Management Grid to determine the company's higher than average concern for people and lower concern for task accomplishment and result ("Country Club Management"). Evidence points to the fact that no alterations are made to low targets; the main concern of management is that of employee motivation. Motivation Motivation at Southsea Engineering plc is strongly influenced by the leadership style of Rachel Southsea. As I mentioned before, the present management style at the company is extremely democratic (Tannenbaum & Schmidt, 1973), people focused and flexible. Previously Southsea's organization comprised of clear lines of subordination. This "conservative structure" gave little space for motivator factors (Herzberg F. 1966) such as personal growth, wider range of responsibilities and recognition by managers. In the period of transformational change Rachel Southsea introduced managerial changes that shifted focus from hygiene to motivator factors. By "dismantling the company's conservative structure" Rachel Southsea improved some of the hygiene factors - discontinued searching for employees after the end of the working day is one example. Still, improved hygiene factors alone are not enough to improve motivation; they are merely the basis for effective work processes (Herzberg F. 1966). Rachel Southsea also introduced motivator factors (Herzberg F. 1966), by giving employees a wider scope of responsibilities, alongside the bigger picture of the company. I identified a range of managerial tools that increase involvement and enhance personal growth and recognition - for example meetings are open to everyone, business units are responsible for planning their own budgets, and day-to-day control has been removed, while managerial responsibility remains in place. It is already acknowledged by the company that motivation means different things to different employees. According to Alderfer (1972) people differ in their needs; some employees may resist high degrees of personal freedom being satisfied with basic existence at work, while others may be motivated by satisfying their "relatedness" and "social" needs. The company demonstrates these differences by allowing the self-setting of working times, goals and salaries. Further on, individual motivation depends on people's expectations (Vroom, 1964) that effort will produce the intended performance goals, hence the desired outcome for them. Vroom's theory can be readily related to the status of the psychological contract (Schein, 1978) at Southsea Engineering plc. During the "unfreezing" stage (Lewin) motivation fell to dangerously low levels, because people's expectations about their future in the company were no longer to be delivered. This resulted in degradation in working discipline, and resignation of managers. At present the positive status of the psychological contract is sustained by shared expectations, whereby employees actively participate in the decision-making process. This leads me onto another problem area identified during the evaluation process - management's approach in setting performance expectations and standards. Goal setting (Locke, 1968) is a demanding but essential process, because it predetermines the working standards of teams and individuals. My findings discovered that the business units set their own goals and yet no action is taken by higher management towards improving or adjusting them. According to Rachel Southsea, if goals are "sound", and therefore do not threaten the financial stability of the company, then all is okay. This goal-setting process though has two negative implications. One aspect is lost opportunities. If one unit can achieve 18 per cent and obtains them; while another can also achieve 18 per cent, but only obtains 2, then the entire organization is suffering from potential lost profits. The second aspect is motivational. Locke (1968) states that motivation is "goal directed". Easy goals do not motivate, they are a poor steer for individual motivation and do not add value to overall performance. What is more, according to Adam's (1965) Equity Theory the feeling of inequity may arise once employees believe they are not receiving adequate awards for the efforts they make. Employees at Southsea Engineering plc perform these evaluations by comparing the perceived fairness in terms of goal setting, rewards and advancement opportunities. My research found out that two thirds of employees are paid according to performance. Yet, different business units work to different targets and performance criteria are not comparable, because business unit budgets are taken at their face value without adjustments. There is a significant risk of people being overpaid for the same quantity and quality of work as others of similar positions. Such a situation is likely to underrate the state of the psychological contract within the company (Schein, 1978) with obvious injustice with regard to efforts put and rewards received, which inevitably leads lower dedication by employees who feel they are treated unjustly. Overpaid workers lower the quantity of their performance and increase the quality, while underpaid employees do the opposite - increase the quantity, but lower the quality. CONCLUSIONS AND RECOMMENDATIONS Rachel Southsea's practices have been effective for many years. The state of the psychological contract (Guest, 1998) has dramatically been improved, rising motivation and work performance. Recent signs of impaired financial results suggest that other managerial approaches may be given due consideration. Undefined clarity in remuneration packages, shortcomings in the goal setting process and exceptionally delegated freedom are possible problem areas that can affect motivation within the company. Leadership Varying leadership styles bring different values to different organizations. According to Fiedler's Contingency Theory (1967) different tasks and positions require change in leadership style. Rachel Southsea has taken her previous experience gained in a rock band to manage her company. Although transformational leadership, inspired in this particular case by Rachel Southsea's previous experience, is deemed to be more effective than transactional leadership, it does not have the same success in all organizations (Bass B.M. 1990). It must be accepted that the nature of the tasks, the structure of the two organizations, and the required degrees of creativity and flexibility are different, therefore different leadership methods are more appropriate. It would be beneficial for some transactional elements to be integrated into the business, for instance more structured work processes and deadline requirements. Implementing a more formal system of discipline will sustain future quality operations and financial stability of the company. Therefore a combination of transformational and transactional leadership will be more beneficial in managing the company performance. Southsea's management should promote greater focus on task and business results. The thought behind this recommendation is that the basic purpose of business is profit. Democratic and consultative styles (Tannenbaum & Schmidt, 1973) are appropriate only when the workforce is capable and willing to take the offered responsibility. While Southsea Engineering plc today has experienced managers, and reliance on people's knowledge and know-how is justified, task consideration is crucial for a structured engineering business. According to the Blake and Moulton (1985) Management Grid maximum results are achieved through the formula of high concern for production and people. Quality is the main issue here. Standard operating procedures are part of best practices for many engineering organizations. The focus needs to be on two work streams; individual and group satisfaction to be balanced against focus on "task needs", (Adair, 1990) which is central to the success of a business. Without reducing too much freedom for employees, standards could be promoted throughout the organization so that safety and quality procedures are closely monitored. Appraisal methods used by the company are another area that requires strict observation. Subordinates appraising managers is not widespread in the industry as a rule, but can be democratic and effective, when certain conditions are met. Managers may object emotionally, if not intellectually, at the thought of their direct reports evaluating their performance. They may also feel a reduction in their power and feel obliged to be more popular rather than respected - highlighted by various studies by (Nevel, 1989). Appraisal should be on people-orientated issues like leadership and delegation with the objective to be improving managerial performance and not to be used as a lever for dismissal purposes. Alternative assessment could be introduced for all employees, for example rating by co-workers. Motivation Rachel Southsea has granted high levels of freedom to all structural levels, which significantly improved working conditions at the company. This state of independence is not common in engineering companies today and has two major implications within the company that should be revised. First, it should be noted that not all employees can acknowledge such high levels of independence and in turn be motivated by them. Motivator factors (Herzberg, 1966) like higher responsibility, self-control, or growth opportunities therefore cannot be equally distributed to all staff. People have different expectations, and since it is difficult to assess individual needs (Vroom), the company may guide behaviour by negotiating targets, salaries and responsibilities within the wider organizational context. Second, many of the changes Rachel Southsea introduced affected the working conditions in the company. Still, according to Herzberg (1966) the focus of management should be on job characteristics, not just on working conditions. The thought here is that this improves motivation while the "hygiene" factors alone take care of job satisfaction. A much more detailed focus on motivator factors is required, such as improved challenging objectives, whilst "hygiene" factors such as attractive and fair remuneration or flexible working conditions are kept in place. While trying to delegate budget setting to business units, Rachel Southsea underestimated the importance of setting challenging goals. Therefore I recommend a revision of the goal-setting practices. If employees have the necessary skills, and the confidence, goals that are moderately challenging will have the most successful effect on motivation and performance (Locke, 1968). Employees should be aware of the company's overall business targets and objectives; their budget proposals should be realistic and challenging, revised by senior management. The current situation allows for misjudgement on determining good and bad performance, meaning different standards for different individuals and business units. A valid performance evaluation method should be available for both managers and factory floor staff. Setting a comparable performance standard for workers will ensure a fair remuneration policy. At the same time the company should retain positive expectations by relating those goals to intrinsically meaningful values (Vroom 1964), such as free time, work promotion or financial incentives. Positive expectations about the future are likely to sustain a favourable psychological contract between company and employees and improve work involvement. High Performance Working has been a success in other manufacturing industries similar to Southsea Engineering plc operations and this could give the company a perfect opportunity to increase business growth and financial status. "Once the workforce is committed, they generate ideas and drive change forward", (Rees, 1993). This would be a win-win situation of the company, highly motivated employees and higher company profits. This theory can be linked into (Cassidy & Lynn, 1987), Achievement and Motivation, whereby there is a pursuit for excellence and a desire for one to perform to the best of one's ability. In summary, as Southsea Engineering plc evolves over time, the need for organizational change becomes more and more pressing. The recent evidence for dipping profits is only a symptom of a range of managerial issues that need revision. Rachel Southsea and executive managers face the challenging task to implement changes involving stricter control mechanisms while preserving employees' expectations and the subjective feeling of security. It is a very delicate task, because the changes are likely to affect the status of the psychological contract at the company. To avoid breaking trust and to improve commitment in the change process, management should ensure good communications throughout the company, support the "bottom up" style of managing business, and listen to employees' concerns and fears. Factory floor participation in decision making should remain. Careful explanation and clarification on the need for this change, the effect it will have on individuals, and assistance offered to adapt to these changes should be provided by management. REFERENCES 1. Arnold et al, (2005) Fiedler, F.E. 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