Leadership Can Make a Difference to Organisational Performance - Essay Example

Critically evaluate the ment that 'leadership can make a difference to organisational performance'. Introduction Leadership is a term whichis used widely in many aspects of our lives. It is one of the most revered qualities of human beings. Its definitions consequently are wide and varied. Here we are concerned mainly about leadership seen in the context of business/ manufacturing organisations. According to Sadler (2003 p, 2), in the recent past, process of development of people for top jobs was seen as a management or executive development. In an environment that is predictable and relatively stable, organisations found it adequate to have people doing the functions of management. The renewed interest in interest in leadership has come from the constantly changing environment in which organisations began facing from the later part of the last century. The new challenges have brought out the importance of leadership in organisations as executive jobs become more a leadership job rather than a management job. What is leadership' In general the concept of leadership is very powerful and "capable of conveying much more than can be contained within a concise definition". (Sadler 2003 p, 2)The definition of leadership can be viewed from two angles; one as a process in an organisation where persons at various levels exert non-coercive influence to direct and coordinate various members of organisation towards its goals and the other from the point of view of property of individuals i.e. as a set of behavior characteristics, personal qualities by which an individual successfully exerts influence, again, to direct and coordinate (Moorhead 2000, p, 352). The word coercive is what distinguishes between the act of a manager who (could if necessary) exerts influence by virtue of the power and position he holds and the leader who does it without. Leadership and management are different. A good manager necessarily need not mean a good leader and vice versa. In the organizational contest, a good leader will have to be a good manager, if he were to be successful. There are many ways in which the difference between managerial way of seeing and doing things and leader ways of doing and seeing things can be distinguished. "Managers does things right, the leader does the right things. "(Bennis 1989, p4). A manager's role in an organisation is described in terms of goal setting, planning organizing and controlling. Very often he gets people to do things by virtue of authority of his office, his dealings with people (customers, employees) is based on contractual aspects and position. The leader's role is to create and articulate vision and create directions; communicate and persuade all stakeholders to work towards it; empower, energize, facilitate, align and motivate people to work in a way that organisations and the individual goals are met. However an ideal leader in terms of domain knowledge, technical competence, conceptual skills etc. will be as good as the manager. Describing the performance of Jell Barad as CEO of Mattel, Moorehead (2000, p 354) shows her to be an ideal combination of manager and leader. These differences are somewhat derived from the transactional and transformational theories of leadership. The manager way of doing things is attributed to the transactional theory of leadership, whereas leader ways of doing things is related to transformational theory of leadership. Lee Iacocca's turnaround of Chrysler motors is shown as a typical case of transformational leadership. Typically a manger kind of role for executives is described as one that is suitable in an environment that is stable, orderly and predictable and the leader role as one most important in a changing and dynamic environment, a situation of constant change such as one organisations face today. Leadership theories There are several theories of leadership based on property. Early theories tried to identify traits and behavior which were the hallmark of good leaders, based on a historical study. Initially studies tried to differentiate between task oriented and people oriented style of leadership and suggested people with focus on both as the best leaders. Later contingency theory tried to identify leadership associated with situation or context. LPC theory suggested that leadership effectiveness depends upon the match between the leadership style (which it believed was fixed) and the favorableness of the situation. Path Glory theory focused on analyzing the situation based on three variables and prescribed the best leadership style that fitted the situation. The Vroom-Jetton-Jago model gave an elaborate model on decision making in which a leader could arrive at a appropriate solution on how much to involve subordinates in decision making. This was the first time that a theory talked about the process of involving co employees in decision making. Morehead (2000, p-372) gives the example of the turnaround story of Continental Airways in 1994 as an outstanding example of how the CEO, Gordon Bethune, by showing a leadership style of high task orientation and people orientation was able to transform the airline. Leadership is also viewed as a process by which the members are influenced to behave in a manner desirable for the effectiveness of the organisation. The transformational theory of leadership is one of the all about how leaders, create a vision for the organisation, articulate it and influence members to achieve to work towards it. Generally transformational theory is all about change, is also supposed to be equally applicable to non-change situations. Interest in this theory has come basically out of organisations need for a style of leadership that will develop its human endowment and moreover cultivate commitment, flexibility, innovation and more importantly change (Bratton 2003, p 60). Interest in this theory has also come about because of change factor in the external environment, which made it necessary for organisations to respond or be prepared to respond to these in order to survive. However Sadler (2003, p 28) believes that the transformational theory of leadership is equally relevant to organisations under all conditions and not at times of change alone. Another theory based on influence is the Charismatic leadership style theory. "Charisma is a form of interpersonal attraction that inspires support and acceptance from others." (Moorehead 2000, p 89). Charismatic leaders are able to influence better than non charismatic leaders. Generally they are more seen in political arena than in organisation, though not rare in the corporate world. Warren Buffet of Berkshire Hathaway Corporation, Branson of Virgin group, Herb Kelleher of South west airlines are all examples of leaders with charisma. Spectacular organizational success and effectiveness have been achieved during their tenure. However ethical concerns about charismatic leaders worry some people after examples of Enron (Jeffrey Keith "Jeff" Skilling) and the recent case in India of Ramalinga Raju of Satyam. Organisational Performance Organisation excellence and performance as per current practice is not just measured based on hard indices such as financial ratios, productivity, market share etc alone, but also on several soft issues. Ken Blanchard et al (2006, p 12) describe the characteristics of a high performing organisation as one that has a compelling vision, purpose and values shared and pursued by all passionately; ongoing learning and sharing knowledge; relentless focus on results and customer orientation; shared power and high involvement; shared information and open communication and information; and with energized systems and structures i.e. systems structures, process and practices aligned to values and strategic directions of the company . Similarly Alan Hooper (2001,p 39) measures and indices used by General Electric up to the early eighties, to compare themselves with competition were mainly financial (so called hard issues)using seven ratios and 12 trend-lines. Since then there has been a shift to measure also the so called soft issues of people, issues of organizational values, satisfaction of both customers and employees. These are perceived to be the factors that give sustainable competitive advantage to the company in the long run. Most of the literature reviewed in this essay, to understand the relationship between organisational performance and leadership, seemed to have this approach in deciding on the meaning of performance of organisations. Leadership and Organisational performance By and large, research and studies seem to indicate a positive correlation between leadership and organizational performance. There is no dearth of popular literature articles in business magazines, consultants, coaches on the virtues of good leadership in organisation and the contribution it makes to organisation it can make. There is a general public expectation that changes in top management will increase its performance and one of its stakeholders always respond positively to any change at the top-as can be seen by increase in share prices associated with change in top. Here evidence for leadership effect on performance is confined to research based/academic writings only. Firstly it is important to emphasize that when we talk about leadership in an organisation we are not talking about the CEO alone but the leadership that is prevalent in various layers of the organisation. Sadler (2003, p 7) points out that the common mistake made in leadership literature is focusing only on the truly greats and ignoring the thousands of other accomplished but not famous leaders. Unfortunately organizational effectiveness in such organisations is not studied adequately. O'Toole (2001, p 160) informs that in many high performance organisations, leadership is institutionalized and not dependent on changing leader at the top. He points out that this is more than the phenomenon where one powerful leader empowers other leaders within the organisation. In his study of 2001 he points out that in many high performing organisations performance of the company is not explained by top leadership alone but by what he calls the high Leadership Quotient (LQ) of these organisations. In these organisations he explains leadership is rooted in systems, processes and culture. Everyone in these organisations act more like owners of the organisations rather than as employees by assuming owner like responsibility and risk taking, taking initiative, living up to the values of the organisation and so on. Leadership is not a solo act in these organisations. Such organisations like Motorola, Intel are not affected by top management change but continue to perform at the highest level all the time Leadership is not a solo act is his conclusion. On the contrary note, Prof Pettigrew (2007) says that Leader competence and effectiveness is only as good as organisational competence and effectiveness. According to him Performance gains require doing many practices together and performance effects depend upon whole system thinking and action. Performance is more attributed to factors like external factors like economic, market and technological factors. The effect of leader on organizational person is often exaggerated. He also goes on to say that leaders magnify followers attributions by managing impressions and that luck and chance are key determinants of performance. The Northern Leadership Academy (Anon 2007) report starts with a premise that there is indeed a relationship between organisational culture and organisational effectiveness. It argues that leaders can shape and be shaped by the culture of the organisation and conclude the relations ship between leadership and performance. It later goes about listing the leadership attributes broadly that are necessary to bring organisational effectiveness. It therefore suggests ways by which leaders must adapt to culture of the organisation to be effective as well as how they should influence to shape its culture to make it a performing organisation. Its draws its conclusion on positive relationship between leadership and organisational performance based on an impressive list of academic studies on this issue. Bass and Avolio (1989) study on transactional and transformational leadership style suggests that how these two styles could complement each other. This study was performed on an army unit to evaluate leadership style on performance, but can have as much relevance to business and corporate sector that face alternate bouts of stability and turbulence. The study basically tries to answer the question "How do leadership ratings collected from units operating under stable conditions predict subsequent performance of those units operating under high stress and uncertainty'" The study says that working under stable conditions, a transactional style of leadership can establish clear standards of expectations, performance and rewards and create a trust between the two. Followers will come to clearly understand what is expected from them and perform reliably. Through the former the leader can build a level of trust by establishing a clear relationship with members on what is expected from them. Through this the transformational style of leadership can build "a deeper sense of identification among followers with respect to the unit's values, mission, and vision", which will make the organisation perform over a long term, during stable as well as times of turbulence and change. Drawing on conclusions of the study, it says that there is evidence to prove that such complementary leadership styles will be useful for business when they take on competition in an uncertain environment. Sandbakken (2007) study on organizational performance and leadership attempts to evaluate the relationship between leadership style and performance in the context of Norwegian leadership styles. He has evaluated the transformational style of leadership and three leadership practices associated with this style of leadership. Concept of organisational excellence (described earlier) has been used for measuring organizational performance. It argues that excellence is a multi-dimensional concept and measures performance over a wider criteria and this approach is more suited for comparisons of organisations across the world, for public sectors and not for profit organisations. The study once again indicates a strong relationship between transformational leadership and organizational performance. The study further indicates the relative importance of different leadership practices namely attributes of this kind of leadership to performance. Leadership practices of "Supporting Actions" was found to have the highest relative influence with "Transforming the Organization" being next most important. This suggests, he concludes, that each of these two factors make a statistically significant, positive and unique contribution to predicting organizational performance. The research report done by Burgoyne J and Hirsh W (2004) is concerned about whether investments in UK on management and leadership coaching and training, is justified. It therefore examines in depth whether there will be an increase in organizational performance through enhanced leadership capabilities. The study notes that companies in UK cannot consider being at a disadvantage in terms of competitive edge because of leadership factor. It however firmly concludes that there is a definite relationship between the two and recommends investment in leadership (and management) as a worthwhile expenditure. There are several other studies conducted that see positive impact of leadership on performance "Specifically, the findings indicate that enhanced effectiveness in communication and functional coordination are key drivers of the success of the strategy being pursued. The study also shows that leadership is a key factor in the implementation of strategic plans and a key link between the subsidiary and the holding company."(Oregan and Lehman, 2008) The study of Steyrer et al (2008) is about whether organizational commitment of subordinates contributes to company performance and whether leadership can influence this. They firmly conclude that leadership can indeed increase employee commitment and consequently increase organizational performance. Research conducted at the by NZ College of Management and Victoria Management School shows " the leadership demonstrated in the workplace and the culture of the workplace, impact upon each other in roughly equal amount. The research also shows that of these two variables, the leadership within the workplace has the greater direct impact upon the performance of the work unit." (Parry, 2003). Conclusions Thus literature and studies on leadership generally seem to agree that leadership within the organisation very significantly affect the performance of the organisation. Some conclusions can be drawn as follows: 1. Leadership is one of the important factors affecting organizational performance, though not the only one. 2. Leadership and management are different. All managers or not leaders. Leadership issue is now more crucial in current times. 3. What is measured as performance or effectiveness of an organisation today, is much more than measuring straight forward hard indices which are mainly financial in nature. Performance indicators must also include soft indices which reflect organisations ability to constantly adapt, transform and renew itself based on environmental changes and deliver returns to its stake holder in a sustained long term manner. 4. Leadership style that is seen as delivering this kind of performance is one that is described as transformational leadership with the central concept being the role of leadership in creating, articulating vision, creating and enabling all stakeholders in "implementing transformation of organizational performance" (Sadler 2003 p 15). Reference Anon, Northern Leadership Academy 2007, How Does Leadership Make Difference to Organisational Culture and Effectiveness' An overview for the public sector http://www.northernleadershipacademy.co.uk/portal/server.pt/gateway/PTARGS_0_237_3424_642_1643_43/http%3B/nlaas2/PublishedContent/Publish/info_and_media/manager_s_content/academic_papers/new_nla_paper_leadership_and_culture__2_.pdf accessed 16th Jan 09. 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