The Influence of Leadership on Market Performance - Case Study Example

The Influence of Leadership on Market Performance Introduction Over time, numerous studies have been conducted in a bid to determine the factors that influence the performance of companies in the market. Some studies suggest that organisational culture plays a significant role in determining the market performance of companies (Chan et al 2004; Denison et al 2004; Hartnell, Ou & Kinicki 2011). Other studies have linked market performance to effective human resource strategies (Sims 2002; Burke & Cooper 2008) and employee motivation (Chew 2005; Peterson 2007). Nevertheless, there is substantial evidence in literature that suggests that leadership is one of the overarching factors that significantly influences the market performance of companies (Chi, Lan & DorjGotov 2012; Igbal 2011; Yukl 2008; Wang, Tsui & Xin 2011). In essence, there is compelling evidence in literature that suggests that leadership significantly enhances aspects that determine market performance such as innovation, employee productivity, effective service delivery, employee satisfaction and commitment among many other factors (Chi et al 2012; Simosi & Xenikou 2010). A critical look at the nature of leadership exemplified in companies listed in the Business Review Weekly magazine’s Fast 100 companies list for 2013, it is evident that leadership plays a significant role in influencing market performance. The companies in this list such as Aussie Commerce Group, Schnitz and Real Institute among others have over the years managed to enhance and maintain incredible market performance in the various industries that they operate in. Much of their success can be attributed to effective leadership (BRW 2014). Drawing on the leadership exemplified in some of these companies, this paper seeks to critically discuss the extent that leadership is responsible for market performance. Firstly, it will briefly examine what leadership entails. Secondly, through a critical review of relevant literature, this paper will explore the extent in which leadership influences the market performance of companies. Subsequently, this paper will explore the nature of leadership exemplified in companies listed in the Business Review Weekly magazine’s Fast 100 companies list for 2013 and determine the extent in which leadership has over the years influenced their market performance. What is Leadership? Essentially, leadership is a multidimensional concept that lacks a definite or standard definition. There are different views and perspectives on what leadership entails. According to Northouse (2007) leadership is an ongoing process that largely involves an individual (i.e a leader) influencing a group of individuals so as to achieve mutual goals. Similarly, Ciulla (2004) argues that leadership entails exerting influence so as to achieve a common purpose. He further argues that leadership is an influence relationship between leaders and their followers with the aim of achieving certain outcomes or objectives. On the other hand, O’Neil (2011) notes that, leadership involves guiding commanding and exerting power over others so as to attain certain goals. Although these definitions vary in the terminologies used, it is apparent that they have a certain common ground. They all emphasise that leadership entails influencing others in order to achieve goals. In this regard, Wart (2005) argues that in order for an individual (leader) to effectively influence others towards the achievement of goals, they must possess certain traits or characteristics. He argues that some of the distinctive traits of leadership include; charisma, effective communication skills, confidence, emotional maturity, confidence and flexibility. The Trait model or theory of leadership also accentuates that in order for leaders to be able to influence others towards the attainment of goals they must possess distinctive characteristics such as dependability, self-confidence, persistence, decisiveness and adaptability and ambitiousness among other qualities (Clawson 2011). Babcock-Roberson & Strickland (2010) argues that such leadership traits play an invaluable role in influencing employee performance and the overall success of the organisation. Leadership and Market Performance As earlier observed in this paper, there is compelling evidence in literature that suggests that leadership plays a significant role in influencing the market performance of companies (Chi, Lan & DorjGotov, 2012; Igbal 2011; Yukl 2008; Wang, Tsui & Xin 2011). Since leaders are often charged with the mandate of overseeing affairs in the organisation and ensuring that employees are guided and motivated to achieve their goals, leadership plays an integral role in influencing market performance (Yukl 2008). A study conducted by Mackey (2005) explored the extent to which leadership influences firm performance. The findings of the study established that companies’ Chief Executive Officer (CEO) play a significant role in influencing the performance outcomes of firms. Their influence on companies’ performance outcomes in the market is stronger than that of industry or firm forces. Similarly, a study by Collins (2001) established that senior leadership positions in a firm significantly determine firm performance and survival in the market. In this regard, Schein (1992) argues that top leaders often help to create a collective purpose, organisational values and culture that significantly influence the performance of employees in their various work roles, which in turn translates to the overall performance of the company in the market. The type of leadership style used in firms or organisations can also play a significant role in influencing market performance (Bass & Avolio 1993). According to Martindale (2011), there are different types of leadership styles. Key among them include; democratic, authoritarian, laissez-faire, transactional and transformational leadership styles. The type of leadership style used may determine the performance outcomes of the organisation. For example, Martindale (2011) observes that in an organisation where a leader employs an autocratic leadership style, the organisational culture is likely to be characterised by strict regulations, direct supervision, little consultation and hierarchical power relations. Some of the positive outcomes that this leadership style may bring about is that it may minimise the tendency of employees “slacking off” from their duties, it may result to increased speed in work performance and efficient utilization of resources since employee are governed under strict rules and are being monitored regularly. However, an autocratic leadership style may diminish employee innovation, creativity and work engagement which are important prerequisites of market performance (Chi et al 2012; Martindale 2011; Simosi & Xenikou 2010). On the other hand, Murugan (2007) observes that laissez-faire leadership style often tends to instill a high sense of employee commitment and responsibility thus promoting innovation and creativity. This may in turn lead to positive performance outcomes of the firm in the market. Nevertheless, this type of leadership style may in some cases cause employees to “slack-off” due to its “hands-off” approach (Murugan 2007). In a study carried out by Samad (2012), it was established that a transformational style of leadership significantly helped to enhance product/service innovation in organisations. As a result of the increased product/ service innovation organisations involved in the study managed to enhance and maintain high performance in the markets that they operate in (Samad 2012). Therefore, based on the findings of this study it is plausible to conclude that, the type of leadership style used in firms or organisations plays an important role in influencing market performance (Bass & Avolio 1993; Samad 2012). According to Simosi, & Xenikou (2010) leadership has a direct and strong effect on employee commitment to their work and the organisation. In essence, leadership plays a significant role in determining employee engagement. Albretch (2010) observes that employee engagement is the extent in which employees are motivated to work toward the achievement of organisational goals. Dernovsek (2008) argues that, employee engagement is synonymous with employee commitment and attachment the organisation. Many studies have found that employee engagement or commitment are vital prerequisites of organisational performance and the overall performance of the organisation in the market. When employees are committed or enagaged in their work, they are likely to go an extra mile in ensuring that organisational goals are achieved. Leadership plays a fundamental role in ensuring employees are committed to their organisation and engaged in their work. Leaders have the responsibility of overseeing affairs in the organisation and ensuring that employees are guided and motivated to achieve their goals thus leadership plays an integral role in enhancing employee commitment and work engagement (Yukl 2008). Consequently, employee commitment and engagement plays an integral role in enhancing their work performance. In the long-run, this is likely to contribute to improved market performance of the organisation (Balain & Sparrow 2009; Simosi & Xenikou 2010). In their study Wang, Tsui & Xin (2011) found that there is a positive correlation between CEO’s leadership behavior and organisational performance. The findings of their study showed that CEO who exhibited leadership behaviors aimed at building positive employee relations helped to improve employees’ attitudes towards their work and the organisation. This in turn helped to enhance firm performance (Wang, Tsui & Xin 2011). Some studies have shown that a leader’s level of emotional intelligence can play an integral role in enhancing employee relations, motivation and eventually lead to improved firm performance (Jordan 2005; Singh 2007; Sosik & Megerian 1999). According to Salovey, Brackett & Mayer (2004) emotional intelligence is the ability to perceive, assess regulate and direct emotions so as to achieve certain goals. Studies have shown that leaders who have a high level of emotional intelligence tend to know how to effectively manage and motivate employee towards the attainment of high performance outcomes in the market. Therefore, emotional intelligence as an attribute of leadership can lead to positive market performance (McKenzie 2011; Singh 2007; Sosik & Megerian 1999). Influence of Leadership on Market Performance of BRW Fast 100 Companies List Aussie Commerce Group (ACG) A critical look at the nature of leadership exemplified in companies listed in the Business Review Weekly magazine’s Fast 100 companies list for 2013, it is evident that leadership plays a significant role in influencing their market performance. For example, following the formation of Aussie Commerce Group (ACG) in the 2010, the company has witnessed significant growth and success. Currently, the company is considered as the fastest growing company in Australia (276% growing) with an annual revenue of $43.1 million. The company‘s performance in the market can be attributed to its visionary, strategic and exemplary leadership. Innovation is one of the notable aspects that the company hinges on in order to drive its performance in the market. In the four years that the company has been in operation, it has implemented a number of service and product innovations such as MyTable, Ouffer and Deals.com among others that have doubled its revenue from $24.3 million in the previous year to $43.1 million in the 2012-13 financial year (BRW 2014). As evident in some of the literature reviewed in the previous section, leadership plays a fundamental role in facilitating innovation (Chi et al 2012; Simosi & Xenikou 2010). The type of leadership style used is likely to determine the level of innovation in a company (Chi et al 2012; Martindale 2011). The fact that the company’s performance in the market has been driven by innovation, shows that leadership plays an invaluable role in influencing market performance. Additionally, the ACG’s performance in the market can be linked to its organisational culture. Studies by Shahzad et al (2012) and Ogbonna and Harris (2000) show that there is a close connection between leadership, organisational culture and the overall performance of the organisation in the market. In essence, leadership determines organisational culture which in turn influences the performance of the organisation. In an article in the Sydney Morning Herald, ACG’s CEO, Adam Schwab notes that one of his key strategies to success is developing the right organisational culture that centers on motivating employees (Schwab 2014). Since organisational culture plays a significant role in determining the market performance of companies (Chan et al, 2004; Hartnell, Ou & Kinicki, 2011) and leaders play a key role in developing organisational culture Schein (1992), it is plausible to argue that in the case of ACG, it market performance is influenced by leadership. Real Institute Real Institute is also another fast growing company that has witnessed significant growth and success in the market since its formation in 2007. Since the company’s core business entails the provision of education and training, it success largely hinges on the effective management and motivation of its employees. In order to realise this, the company’s key leaders Ross Robinson and Adam Cryer employ a democratic leadership style. For example they note” But next year will be even better and to do that we needed people to step up, take responsibility and we needed to let go.” (BRW 2014). The market performance of the company is a clear indication that the leadership styles that the key leaders in this company use helps in the effective management and motivation of its employees. As Bass & Avolio (1993) observe, the type of leadership style used in firms or organisations can play a significant role in influencing market performance. Planet Innovation Pty Ltd Planet Innovation Pty Ltd is also another fast growing company featured in Business Review Weekly magazine’s Fast 100 companies list for 2013. Similar to Aussie Commerce Group (ACG), the market performance of Planet Innovation also hinges of innovation. Since the formation of the company in 2009, the company has managed to enhance its competitive edge in the market through technological innovation. For instance, the company developed technology for freezing human embryos and a tracking system for cattle. These innovations have propelled the company’s brand name, revenue and overall performance in the market (BRW 2014). As Chi et al (2012) and Simosi & Xenikou (2010) suggest, leadership plays a fundamental role in facilitating innovation. Hence, the fact that the company’s performance in the market has been driven by innovation shows that leadership plays an invaluable role in influencing market performance of companies (Chi et al 2012; Martindale 2011). Conclusion Drawing on the leadership exemplified in companies featured in the Business Review Weekly magazine’s Fast 100 companies list for 2013, this paper has discussed the extent that leadership influences market performance. The findings of this paper show that, leadership is one of the overarching factors that significantly influences the market performance of companies. Since leaders are often charged with the mandate of overseeing affairs in the organisation and ensuring that employees are guided and motivated to achieve their goals, leadership plays an integral role in influencing market performance. It was established in this paper that the type of leadership style used in firms or organisations can also play a significant role in influencing market performance. Some leadership styles are likely to encourage innovation and employee commitment and motivation while others may stifle these prerequisites of market performance. It was further established that a leader’s level of emotional intelligence can play an integral role in enhancing employee relations, motivation and eventually lead to improved firm performance. A critical look at the nature of leadership exemplified in companies listed in the Business Review Weekly magazine’s Fast 100 companies list for 2013, it became evident that leadership plays a significant role in influencing market performance. In a nutshell, overall performance and success of these companies can be linked to leadership. Therefore leadership is a significant force that drives market performance. References Albretch, S.L., 2010, Handbook of Employee Engagement: Perspectives, Issues, Research and Practice, Edward Elgar Publishing, Cheltenham, UK. Babcock-Roberson, M.E & Strickland, O. J., 2010, ‘The relationship between charismatic leadership, work engagement and organisational citizenship behaviours’, Journal of Psychology vol 144, no. 3, pp. 313-326. 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