Leadership Theories and Models - Essay Example

Introduction Change has become inevitable in the current business environment but change has to be managed. Since it is a continuous and a dynamic process, change should be planned. Change can occur in an organization for various reasons which include redundancy, layoffs, when new policies are introduced or even during mergers and acquisitions. Managing change requires several steps such as planning, implementing and evaluating any changes in business operations to achieve the desired objective (Hoang, 2007). However managing change may require adaptation and assessment of the current environment. During any change there is resistance to change by the employees. Managing change requires leadership and leadership during mergers and acquisitions can be challenging. Mergers and acquisitions (M&A) are seen as long-term strategic orientation of the firm and not a one-time business tactic for short-term goals (Lin, Hung & Li, 2006). Industry consolidation and privatization, and the liberalization of economies are the most significant factors that have fueled M&A at the international level. They continue to be a popular form of corporate development and industry and firm specific factors finally govern the reason and the purpose of the mergers and acquisitions. M&As are ‘among the most important strategic decisions companies ever make’ (cited by Duncan & Mtar, 2006). However, there are many instances when M&As have failed even when the mergers take place between firms within the industry. One such example is the merger of Daimler-Chrysler – two giant automobile companies – that was supposed to be a merger of equals. Covin, Kolenko, Sightler & Tudor (1997) find that leadership style impacts post merger satisfaction and that leadership should be a key consideration for mergers. This heightens the importance and the role of a leader during the change management when mergers take place. Since our organization is planning a cross-border merger, it is essential to plan and implement change. Difference between Managers and Leaders While both managers and leaders are necessary for a healthy organization, leadership differs from management. While management is the "mental and physical effort to coordinate diverse activities to achieve desired results", leadership is defined as "natural and learned ability, skill, and personal characteristics to conduct interpersonal relations which influence people to take desired actions" (Handbook for Excellence, n.d.). "You lead people; you manage things" is how John Pejza expresses the difference between the two in this book. Through leadership goals can be accomplished more effectively than through the usual management methods of trading rewards for performance. Leaders are able to inspire commitment, capture the imagination and earn trust. Causes of failures of mergers Mergers fail because the leaders fail to spend sufficient time in analyzing and anticipating current and future trends as well as integration issues. Most mergers fail during the integration process and integration fails due to lack of clear vision, lack of communication, improper managing and strategy and culture differences (Nguyen & Kleiner, 2003). Top managers often remove themselves from the equation once the merger deal is signed and this leads to poor management and strategic planning (SD, 2004). This results in leadership vacuum precisely when the employees start to feel uncertain about their own future. They in fact seek reassurance from a powerful figure which is not forthcoming. Managers that are left to deal with post merger integration are not competent to deal with such situations. Culture differences are often to lead to failures. If a large company with a strict hierarchy and strict reporting system acquires a small, informally run company, the culture shock may be too much for the acquired staff. It usually takes five to seven year for a merged company to emerge. Integration is hence an ongoing task. These make it important study the various leadership theories and model and determine which style of leadership would best suit the change process during mergers and acquisition. Leadership Theories and Models Traits theory According to Wolverton, Gmelch, Montez, and Nies (2001), leadership is the essential element that holds an organization together while moving it forward (RIG, 2005). Multiple perspectives about leadership have emerged as different thinkers and researchers in different eras have been sharing their thoughts. The traits theory explains why certain individuals succeed as leaders while others do not (Knes, 2006). According to this theory leadership characteristics are innate and include traits such as include intelligence, self-confidence, determination, integrity and sociability. This theory however assumes that individuals that do not posses such traits cannot be a good leader. It also fails to take into account situational factors that affect leadership. This brings to light that fact that the style approach of the leadership in which the behavior of the leader is important in a given situation and not the traits. Hence for leading an organization during change, this style of leadership would not suffice. Situational approach In the situational approach the leadership style depends upon the situation (Working Futures, 2005). This approach is based on the belief that humans have needs and these needs can change across nations while also depending upon the size of the companies. These needs influence the choices and determine how leaders make decisions. The contingency theory, a part of the situational approach, according to Stansfield (2006) is when a leader behaves in appropriate ways in different situations. Thus, depending on these factors, leadership can be autocratic or democratic. A democratic style of leadership is people-oriented rather than task-oriented. In this style of leadership the group goals are clearer and the members are better motivated. Autocratic leadership does not involve the participants and the members do not have a sense of belonging to a group. Some researchers are of the opinion that in certain situations the leader may have to be autocratic. Hence the situational approach too would not be able to provide the right leadership to the organization during the merger process. Contingency approach According to the contingency theory, factors external to the organization influence the situation. These include factors such as the type of task, the expectations of the followers and the task and interpersonal competence. Contingency theory has found to be effective because different forms of organization and administrative leadership prove to be the most effective under different conditions (RIG, 2005). Contingency approach can either be task-oriented or relationship-oriented. This style of leadership does focus on interpersonal relations and goal attainment but the degree of situational control is important. In mergers situation can arise beyond expectations and the personality of the leader again gains importance. Mergers fail because of improper strategy and the strategy may have to be changed at the last minute. Leadership for mergers requires some deeper characteristics and strengths. The contingency approach however, can be directive, achievement-oriented, supportive or participative (Working Futures, 2005). A leader should have the ability to inspire others to give their best. There is always a resistance to change during mergers and a leader plays a crucial role in such cases where he has to inspire them to understand and accept the vision or the corporate goals. A leader would be one who is able to transform the current stagnating culture into a productive culture. He should be able to bring together people of different views, backgrounds, culture, education, and still achieve synergy as the whole is greater than the sum of the parts. This can be classified as participative leadership which promotes understanding and cohesive teamwork, increases satisfaction, resolves conflicts and improves decision quality (Sorenson, 2000). A leader is thus able to provide a platform to view multiple perspectives; he can induce people to work with commitment and achieve satisfaction. Transformational and transactional leadership According to the transactional approach, a leader is effective if he is able to enhance the group effectiveness. This gave rise to transformational and transactional leadership theories. A transformational leader would be able to establish one’s beliefs and values and be consistent with them (Working Futures, 2005). He would have the ability to influence others and determine the course of change. M&A can have a demoralizing effect on the employees but at Wolverhampton & Dudley Breweries plc (W&DB) UK, under the right leadership the company could overcome the initial imbalance (Pollitt, 2006). W&DB took over two breweries within 12 months, and this led to the closure of two head-offices, one distribution centre and downsizing. This bureaucratic approach affected the ‘survivors’. The morale of the staff was down as they felt that the company did not care for them. They complained that the training was not aimed at improving the performance of the employees and communication was inadequate. This situation requires more than just how to manage. The right leadership was not provided. To lead effectively in this situation would mean to inspire and win commitment (Goffee & Jones, 2004). Communication was poor but when the HR department realized the problems, transformational leadership helped to boost the morale of the employees and steer the company back to normal work. In transactional leadership, transaction or exchange takes place between leaders, colleagues, and followers and it involves setting things right for others (Working Futures, 2005). It does not serve any purpose to planned change. Transformational leadership has a long term focus and inspires others to act while transactional leadership has a short-term focus and is more of a bargain. In transformational leadership the leader simplifies the process for the followers and empowers them to take responsibility while transactional leadership is more of coaching and task-centered. As far as mergers are concerned, it has been established that transformational leadership has been able to bring synergies in mergers. Transformational leadership and mergers Transformational leadership has been positively associated with employees post merger success (Appelbaum, Lefrancois, Tonna & Shapiro, 2007a). Leadership style has to be a key consideration in planning a merger. The ability to bond two different organizational cultures is a challenge for the management. Covin, Kolenko, Sightler & Tudor (1997) contend that the power-influence approach and the behaviour approach are the two popular approaches to the study of leadership. The power-influence approach explains the leader effectiveness in terms of the source and amount of power available to the leaders. The behavior approach explains what leaders do. Transformational leaders are those that motivate the followers to work for transcendental goals and the self-actualization needs instead of working through simple exchange relationships. Transformational leaders have charisma and inspiration. Charisma is the leader’s ability to instill pride, faith and respect or to generate great symbolic power with which the employee wants to identify. Inspiration denotes how the leader passionately communicates. Transformational leadership has been found to be every effective in overcoming barriers to change than the transactional style. The transactional leadership style focuses on technical problem solving and there is tendency to neglect people and organization issues. Transformational leadership on the other hand has positive and significant relationship with the work group performance and employee satisfaction. The study by the authors found that referent and expert power has significant relationship with merger satisfaction. When supervisors have used more referent and expert power, higher levels of consideration and initiating structure and transformational leadership, post merger satisfaction was high. The supervisors used less coercive power in such cases of success. Leader power enhancement and behavioral training for supervisors is essential to increase the social power and influence of managers. Hence to increase leadership effectiveness, the leadership development program should focus on referent and expert power. Transformational leaders can induce a deliberate organizational redesign, build new management teams and attain the internal fit with the external environment (Karsten, Keulen, Kroeze & Peters, 2009). A particular leadership style during the process of change is time-based and every period of time has room for limited palette of leadership qualities. A transforming leader must be able to communicate the organizational values and vision through stimulating language that appeals not only to language but also to the emotion. The essence of management is the effective use of getting things done. During the change process the existing and shared language is challenged. During the post-merger period the organization undergoes crisis, and the leader is forced to launch a break through. A transforming leader then has to choose monologue instead of dialogue. He transmits knowledge and does not discuss his insights. He tries to impose them on to others. His monologue contains a warning for a disaster. Change Model The change model that leaders should adopt is the ADKAR change model as suggested by Sande (2009). This change model has assessments built in at each stage that assesses whether the organization, the team or the individual is ready to move on to the next step. During mergers it is essential to monitor the progress because trying to hasten the process could have adverse effect. ADKAR refers to Awareness, Desire, Knowledge, Ability, and Reinforcement. The first and foremost requirement is to create awareness. People have to be made aware why change is necessary, without which they would not be willing to accept change or undergo behavioral change. This awareness should be able to create a desire to change. Creating awareness is a form of communication and communication is again essential for knowledge or information flow to navigate change. Ability is the capability to apply what has been learned. Reinforcement is the incentives and recognition for embracing the change. The leadership model For M&A management leadership is important through out the process but it is most important during the “limbo” phase. The limbo phase is the first one in the M&A process and is characterized by lack of information. This phase affects both the employees and the leaders. The executives of the acquired firm feel as they have been conquered and they experience a loss of social standing. According to Thach and Nyman, the model six main skill categories are required (Appelbaum, Lefrancois, Tonna & Shapiro, 2007a) – 1. The leader should have the ability to handle the employees’ reaction when the announcement of merger is made. This is known as emotional acknowledgement and requires that the leaders find time to talk to their employees. In addition, the leaders have to deal with their own emotions. 2. During the merger process decrease in productivity cannot be avoided but the leader has to ensure that customers’ needs are met as usual. This requires renegotiation of priorities and performance. 3. The level of communication has to increase to a magnitude of up to three times the usual rate of meetings. To meet this requirement open-door policies and feedback mechanisms help to keep in touch with the management. 4. The leader should have the ability to teach, mentor and direct the employees to the work they are interested in. Motivation and incentives help. 5. Creativity and involvement are essential as helps to review the general business processes that are usually not easy to change. 6. A leader must be M&A savvy which implies that he must have practical knowledge and ability to deal with things that are not “business as usual”. This is because M&S process requires a great deal of additional effort from all people involved. Thach and Nyman’s M&A Leadership Model Source: Appelbaum, Lefrancois, Tonna & Shapiro, 2007a Thus based on the leadership model, different leadership activity would be required at different stages of the merger. There are three phases in mergers – pre-combination, combination and post-combination (Thach & Nyman, 2001). The pre-combination or the limbo stage is when the organization waits for regulatory approvals. During this stage very little information is shared between the companies. This creates uncertainties and gives rise to rumor mills. Employees are beset with anxiety and fear resulting in loss of productivity. The combination stage denotes the close of the merger. During this phase strategy needs to be clarified and the goals put in place. This phase also requires role clarification, policy setting and work integration. The role of the leader here is to supervise the implementation and the working through cultural and system differences between the integrating companies. In the post combination stage all the systems have been integrated and require continuous improvement of the new organization. The role of the leader is to make sure people have the tools and the information to perform to the growth and success. As discussed above, lack of clear vision, lack of communication, improper managing and strategy and culture differences are the major reasons for failures of mergers. At each of three phases in mergers, leaders have to play their roles in different manner. Communication The pre-combination phase is marked with uncertainty and anxiety and this can be overcome by effective communication. To create awareness is the essence of communication. Lack of communication has been determined to give rise to uncertainties and anxieties. Communication is also important to avoid or overcome resistance to change. The management should know how to manage change and integrate the plan (Woodward, 2007). Employees need to understand why they need to know something. This suggests that awareness has to be created first among the employees. As soon news of M&A emerges, emotions range from fear and confusion to acceptance and excitement (Appelbaum, Lefrancois, Tonna & Shapiro, 2007a). Early communication and staff involvement right from the identification stage is essential to achieve success. Early communication includes honest and direct communication and a realistic assessment of the future problems and expectations. Staff involvement can guarantee staff cooperation and support post-merger. Resistance to change occurs when the employees have not been communicated the purpose of change and the expected benefits of change (Hoang, 2007). People are used to a certain pattern of working and do not like to disturb the equilibrium. During M&A resistance occurs when people apprehend a cultural misfit and these manifest in thoughts, actions and behavior of employees (Olie, 1994). As soon as mergers are announced, leaders have to deal with emotional fallout. The leaders need to recognize that all employees will experience some form of emotion which suggests that leaders would have to find time to talk about emotions with the employees (Thach & Nyman, 2001). They must hold discussion sessions and encourage employees to vent out their feelings and emotions. Leaders will also have to find time to deal with their own emotions and also explain this to the employees. Leaders must be authentic in their communication. They do not have to pretend that the announcement does not affect them. Tools such as counseling services, tipcharts and stress management work shops should be organized by the leader to help all to overcome the initial mental turbulence. The leaders should provide as much information as possible of the possibilities that can occur. They should provide the background of the merger, the expected results and the long-term strategy of the merger. In addition, the leaders have to promote two-way communication – with the employees as well, as with the upper management. Lack of clear vision During times of change there is loss of control and there is a tendency to withdraw. This is especially during the combination stage when all looks set. At such times a leader has to ensure that the clear vision of the merger has to be communicated to the employees to keep their morale high (Nguyen & Kleiner, 2003). Without a clear vision, the employees would not only be distracted from their job, they would also tend to search for information as what the merger means for their job and future career growth. This is what happened when Hewlett Packard announced its merger with Compaq. The employees became focused on preserving their jobs instead of serving their customers resulting in HP losing customers to competitors. Vision hence is the most important success tool for a leader to manage change during mergers. The lack of clear vision can lead to negative results in terms of shareholder value. Ambiguous visions led to the failure of AT&T and NCR merger and the consolidation between AOL and Time Warner. Merger success requires hands-on leadership and the executives have to move out of their routine and be involved in the integration process. In the case of Carlton and Granada that merged to become ITV, it was the structured leadership assessment prior to merger that brought it success (SD, 2006). Through courage and perseverance they could see through a major rationalization plan that brought them the maximum benefits from merger. The right strategy It is quite likely that during the change management the attention is not given to the employees because attention would have to be kept on running the business. However, the executives and leaders should not isolate themselves from employees at the integration stage. When NationBank acquired Barnett Bank, they had paid such a high premium purchase value that they were under pressure to carry out the post-acquisition integration in the shortest possible time (Nguyen & Kleiner, 2003). They started cutting costs but the strategy did not work and in the process they lost valuable customers. Having learned from their past experience when they again merged with Bank of America, they planned the integration process thereby achieving success in creating the synergies. As a leader it would be necessary to determine in advance the effect that change could have on the employees of the organization (Schramm, 2007). The initiatives by the organization have to be supported by the right leadership to manage the individuals through change. According to Doyle and Smith (2001), people who can take control of a crisis are leaders and in practice they become the role models. They have a vision what can and should be done and they can communicate this to others. Cultural differences The lack of post-merger success has been attributed to human factor. Cultural incompatibility has been found to be the most common cause of failure in mergers. Consolidating two companies’ culture into one requires right leadership to integrate the variances (Appelbaum, Lefrancois, Tonna & Shapiro, 2007). Culture can make or break the merger equation and the failure of Daimler-Chrysler is the best example of this. According to Olie (1994) decision-makers give disproportionate attention to strategic fit as compared to integration issues. Culture has been recognized as a strong determinant of beliefs, attitudes and behavior but expected synergies fail because the cultural fit is ignored. Cultures are deep-seated, pervasive and complex (Schein, 1992) and unless changes are Cultural differences cause differences in goals, expectations, values and proposed course of action (Friday & Friday, 2003). Opportunities for mergers to fail are the greatest during the integration process. During the integration process there is lack of proper vision, improper management and strategy, culture differences and delay in communication (Nguyen & Kleiner, 2003). At the same time employee uncertainty and the stress levels rise during mergers apart from decrease in satisfaction, commitment and loyalty and the organization’s trustworthiness, honesty and integrity. This is the time when the mergers require the right and effective leadership. The problem had started during the negotiating phase itself in case of Daimler-Chrysler. It was thus a combination of exacting German culture of technical elegance with a free wheeling American company, which could never attain the synergies (Scherer, Evarts, & Francis, 1998). Cross border mergers pose hurdles because of the difference in values, norms and beliefs, which can led to conflicts and failures. If Hofstede’s four dimensions of culture are understood and applied, these hurdles can be overcome to a large extent. Cross cultural training is also essential. Training of managers and leaders Managers need to be trained much ahead because they too are likely to become apprehensive of their own positions, power and responsibilities (Woodward, 2007). Trying to train them during the change could result in a negative attitude. There should be no time gap allowing the employees to develop any negative thoughts or attitude towards the leaders of the organization. Motivation and incentives To keep the motivation level high during the merger, the leaders can re-recruit the best talent (Thach & Nyman, 2001). Other ways are to give them challenging assignments and try to understand their needs. They must let the employees know that they are valued. They must also appreciate the employees as soon as they find something good that has been done. Small monetary rewards can also reinforce the right attitude towards work. Coaching, mentoring and giving the employees the power to influence the work and circumstances can help keep the motivation level high. Leaders also need to asses their own levels of motivation and identify and do things so that they remain motivated through out the process. Creativity and involvement Leaders need to take a bold step and be a role model by trying out creative methods of doing work instead of pursuing the traditional methods (Thach & Nyman, 2001). This could encourage the employees to be innovative too. This encourages employee involvement in the decision making process. The employees should also be involved in project work around the merger such as membership on the M&A transition team, if possible. M&A Savvy The leaders must understand that business is not usual and they need to recognize the situation and take action accordingly. Politics and power play usually increases with such mergers and leaders need to be able to protect themselves (Thach & Nyman, 2001). To combat the situation leaders should conduct periodic assessments (short surveys or informal discussions), of where employees are. Leaders can expect to make mistakes which are normal during the transition as stress levels and uncertainties increase. They need to protect the bottom-line of the organization. They also need to push for speed, communication and integration because slow integration can be torturing. Conclusion Thus it can be seen that change should always be planned whatever be the reason for change in an organization. Mergers and acquisitions give rise to numerous situations and learning from failures of other companies, an organization should prepare itself for all possible eventualities. This requires more than managing the change. It requires transformational leadership as such leaders have the ability to apprehend, recognize and respond to the needs of the employees in all the three phases of merger. Transformational leaders are able to motivate the employees to work. The success of the leader lies in effective and timely communication on various issues including allowing the employees to vent their emotions. The model as suggested by Thach and Nguyen requires certain abilities and all of these abilities can be found in a transformational leader. Transformational leaders have the ability to transform. A transformation is when the company or its employees have been transformed into another state or phase. This means the leader has been able to successfully motivate and inspire the employees at each stage of the merger. The process of change has to start at the integration stage even before the merger is made public. This is the limbo stage when most of the problems occur, giving rise to anxieties and apprehensions. Through effective communication the leader can help the employees to overcome the resistance. Resistance is a mental block which, through the use of the language can be changed. Leaders also have to ensure that express their own feelings and emotions also. Leadership requires them to ensure proper communication, pursue a planned strategy, develop and communicate a clear vision with clear goals to all the employees. However, the leader has to take action before the announcement of the merger reaches the employees. Culture plays a vital role in cross border mergers and cross-cultural training is essential for smooth transition. References Appelbaum, S. H., Lefrancois, F., Tonna, B., & Shapiro, B. T. (2007). Mergers 101 (part two): training managers for culture, stress, and change challenges. Industrial & Commercial Training. 39 (4), 191-200 Appelbaum, S. H., Lefrancois, F., Tonna, B., & Shapiro, B. T. (2007a). Mergers 101 (part one): training managers for communications and leadership challenges. Industrial & Commercial Training. 39 (3), 128-136 Covin, T. J., Kolenko, T. A., Sightler, K. W., & Tudor, R. K. (1997). Leadership style and post-merger satisfaction. 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