The Impact of Leadership on Business

Keywords: business impact leadership, leadership business impact, effect leadership business

This essay will discuss the impact of leadership on businesses. Leadership concepts can be categorised into three main theories. Transactional leadership which is mainly applied in a relatively stable situation, Transformational leadership which can be well used in an atmosphere where big changes have happened and contextual leadership which is used in a constantly changing and chaotic situation. Therefore the main difference is the environment within they function. Good and effective leadership has many details which are going to be described trough appropriate academic theories. Leadership has many aspects such as attitude towards objectives and operations or representation of the company. All of these aspects link together in order to achieve competitive advantage. Probably the most important factor is the influence of leadership on other members of the business, particularly on the followers. The main body of the essay will investigate how leaders’ behaviour and attitude navigates the company trough controlling employees.

There are many opinions about which extent leadership describes a pattern of behaviour, a bundle of personal characteristics or its role fulfilled in a group. This part of the essay will give a better understanding of these criteria, however it must be pointed out that there is not a perfect answer for that, because of the waste number of academic arguments on this topic. “In its essence, leadership in an organizational role involves (1) establishing a clear vision, (2) sharing (communicating) that vision with others so that they will follow willingly, (3) providing the information, knowledge, and methods to realize that vision, and (4) coordinating and balancing the conflicting interests of all members or stakeholders. A leader comes to the forefront in case of crisis, and is able to think and act in creative ways in difficult situations. Unlike management, leadership flows from the core of a personality and cannot be taught, although it may be learnt and may be enhanced through coaching or mentoring.” (www.businessdictionary.com) The popular view is that it does matter who is in charge, leadership quality determines the performance of the group and poor group performance can be overcome by leadership. A group of people is capable of working on their on, but only in a limited extent. Sooner or later one or more individuals will arise from the team because they think differently or imagine the solution in other ways. External factors will also cause the team to change in structure, for example someone has to represent the group and it is also necessary to monitor the tasks, consequently a member has to take responsibility. Without an appointed leader the management would be extremely difficult in an organisation. Living examples are all around us, the parliament, educational institutions, and successful businesses – all with appointed leaders. There are some; however who believe in contrary view and argue that it does not matter who is in charge because there is no real power (Chester Bernard) and that there are few differences between leaders and followers. (Skogdill 1949, Mann 1961) The contingency theory explains that the effectiveness of leadership depends on situation and Pfeffer (1978) argues that the group performance is determined by factors beyond the power of the leader. However the belief in the importance of leadership gives us comforting illusion of control. The theory further explains that there is not a best way to lead and in certain new situations the well developed leadership style may not be successful. This may result in certain very successful leaders become ineffective when they are “transplanted into another situation or when the factors around them change.” (www.snc.edu) This statement refers to how great leaders who were very successful made wrong decision when the business changed. A good example is Jurgen Schrempp and Robert Eaton, the CEOs of the Daimler-Chrysler merger. Both of them were very effective leaders in their own companies. These organisations are famous worldwide so naturally the leaders enjoy a prestigious position which assumes that they are people who really are the best and do not make mistakes. However, when the merger began and the cultural differences occurred, the lack of adaptation of leaders led to failure. Contingency theory does not differ much from situational theory because both assume that there are more options about the right way to do things. Situational leadership assumes that “the best action of the leader depends on a range of situational factors. Contingency theory involves a wider view which includes contingent factors about the individuals’ capability and situational theory focuses on the behaviour of the leader in different situations.” (www.changingminds.org) For example in a given situation the good leader will not act in a single style i.e. transactional method but will be able to adjust his behavioural pattern so he makes the most out of the situation. A clear example is the army where leadership is highly situational complemented by transformational effects. Soldiers without motivation are performing totally differently and just a little lack of performance can lead to total failure, meanwhile the general or whoever is in command needs to adapt to the current situation quickly and reasonably as possible. There are many aspects which will influence the decisions such as the capability and motivation of followers and their relationship with the leader. External factors such as stress and mood will also affect the leader’s behaviour. Yukl (1989) distinguishes between six main variables: “Subordinate effort: the motivation and actual effort expended. Subordinate ability and role clarity: followers knowing what to do and how to do it. Organization of the work: the structure of the work and utilization of resources. Cooperation and cohesiveness: of the group in working together. Resources and support: the availability of tools, materials, people, etc. External coordination: the need to collaborate with other groups.” (www.changingmins.org) According to Tannenbaum and Schmidt (1958) there are three main forces which influence the leaders’ decisions and actions. These forces are present in both the leader, followers and in the situations which causes the leaders behaviour variable. Liputt and White’s (1943) research on “after school club” shows that leaders adopted one of three leadership styles which affects the performance of the members of the group. These are: Autocratic, whereas followers are just told what to do and good performance is only achieved when the leader is present. This style involves low morale. Laissez faire style can be described with the phrase “just let people get on with it”, meaning there are no strict instructions. In this case there is a moderate moral and the performance is generally low and only rises when the leader is absent. The Democratic style provides the best results -high morale and performance and it is achieved by involving people in the decisions and encouraging discussions. There are radical examples for these styles out there. One of the simplest is politics. Parliaments in most of the countries operate in a democratic style. People work together and they are equal but a formal leader is present. Whereas in autocratic societies it is inevitable to notice low moral in certain groups and opposition towards autocratic parties.

Zaccaro, Fotit and Kenny carried out a research questioning what kinds of people occupy leadership positions: (Four Tasks Model) Do the same people emerge as leaders irrespective of the task, or does it depend on the task? (This leads back to contingency theory.) Participants completed Snyders self monitoring scale and the results show that only individuals who are able to be flexible can emerge as leaders across different tasks. Lord and Alliger’s meta analysis shows, (1986) (A meta analysis treats all evidence as if it came from a single study using statistical techniques) that same people will not always make good leaders and they will not be always preferred in different groups, same kinds of people will not become leaders in real organisations -but it depends on situation and factors influence perception of leadership. (Contingency theory) Leadership is positively associated with quality of speech, quality of ideas and friendliness (Malloy and Ianowsky 1992)

Leaders acquire their positions in different ways. It could happen by seizing power by force, which is called usurpation or it can be inherited. Other ways are election/popular acclaim or appointment. It is essential to investigate how leaders emerge and what kinds of people become successful in this position. One of the theories discussing this topic is the Great Man Theory. It assumes that „Leaders are born and not made and great leaders will arise when there is a great need.” (www.changingminds.org) Studies on leadership in the past examined individuals who were already great leaders. There were almost always from aristocracy because it was difficult for lower class people to emerge amongst the ranks of society. However there are exceptions such as Robin Hood. He represented a very appealing organisational vision and he gained a waste number of followers via communicating the right policies. He created a very successful organisation by advertising his company values, so successful that even the present formal authority – which represents for example a big competitor company – had troubles gaining market share. This suggests that the quality of leadership is indeed what wins in business. The notion that great men would arise in the time of need often bare mystical aspects and it was easy to justify by mentioning historical characters such us Churchill or Jesus. Many studies discuss which kind of personalities are the best suited for leadership positions. Leaders are generally good in handling people but this does not necessary mean being friendly over the top. Keeping a bit of distance can keep up the respect and authority. While leaders, especially transformational ones tend to care a lot about the feelings of their followers, it does not mean that they would not be task oriented. They are indeed achievement focused but they realise the importance of filling up followers with enthusiasm in order work together towards the vision. The work of Hua Guofeng represents (leader of China for a perioid after of Mao’s death) real transformational leadership. He himself did not take credit for his work that caused fundamental changes in the governance of the nation but instead aimed to influence many others to work towards his vision.

The Trait Theory assumes that “People are born with inherited traits. Some traits are particularly suited to leadership. People who make good leaders have the right (or sufficient) combination of traits.” (www.12manage.com) There are several researches about these traits, usually studying great and successful leaders. According to McCall and Lombardo (1983), there are four main traits and Stogdill (1974) summarised the typical traits and skills a good leader probably possesses. „Emotional stability and composure” – People with these characteristics are able to handle stress, they are self confident, organised and cooperative. A leader should be adaptable to situations, learn from their mistakes instead of covering them up. Good interpersonal skills are a requirement; the leader’s manner of speech has to be diplomatic, fluent, intelligent and able to persuade others. It is essential to have knowledge about many areas, to be assertive and reactive to social situations and be able to take responsibility. It is undeniable that leadership skills can be coached and an individual can learn to become a better leader and some argue that situational factors are much more important then inherited characteristics. An interesting study about twins who were separated at birth however reveals that there are far more genetically inherited traits then previously supposed. Another interesting fact that many historical leaders lived with some handicap that they had to overcome. It could be traumatic childhood or reading problems or just being relatively short compared to others. There are very well known examples such as Hitler or Napoleon.

According to Bales (1950) leadership has two key roles and one individual can not occupy both. Task specialist persons offer opinions and give directions in task oriented aspects of group life, and socio emotional persons respond and pay attention to feelings of other group members. According to the Contingency theory leadership effectiveness depends on situation. Fiedler (1965) differentiates between three contingencies: The first is about the quality of leader-member relation, the second is task clarity and the last one speaks about the amount of power the leader has. Combinations of these contingencies determine which side is most effective. According to Tetlock (1979) the behaviour of the leader is critical – does the leader encourage open discussion or not? Group decision making involves two main aspects: The risky shift: groups tend to recommend risky alternative rather then the individuals. Polarization: tendency for groups to make decision that are more extreme than the individual members’ initial decision – in the direction favoured by the mean. Polarization has four aspects: social comparison, persuasive arguments, self categorisation and repeated attitude expression. Sanders and Baren’s Social comparison model: Comparing behaviour and opinions with thoughts of others in order to establish correct (socially approved) way of thinking. People are influenced by information that supports their decision and thus become more extreme in their view. This is called persuasive arguments. (Burnstein and Vinokur)

When talking about Transformational leadership, various theories overlap both operationally and conceptually. Bass’ Transformational Leadership Theory assumes that „Awareness of task importance motivates people and a focus on the team or organization produces better work.” Others like Burns argues that „Association with a higher moral position is motivating and will result in people following a leader who promotes this. Working collaboratively is better than working individually”. (www.changingminds.org) He describes transformational leadership as „a process where leaders and followers engage in a mutual process of ‘raising one another to higher levels of morality and motivation.'” In general transformational leadership assumes that individuals will follow inspiring people. Someone with a “vision and passion” can reach goals and it is possible to achieve great things with enthusiasm. A good example is Mahatma Gandhi. He satisfied the needs of his followers, while remaining loyal to a higher purpose instead of using his position to seize power. His visions about a greater good and not about himself were passed on to many of his followers.

To work under a transformational leader may be a very good experience because such leaders are interested in success of others and they carry out their job utilising a great deal of energy. The first thing transformational leaders begin with is to develop a clear vision and plan the future which will motivate potential followers. Selling the vision is the second most important factor. This takes commitment and some people need more time to join but many individuals follow radical visions quickly. Therefore a transformational leader will use every opportunity to convince others to follow and these aspects all contribute towards winning in business. The leader has to be very careful who he trusts and in creating trust and personal integrity is critical because they are not only representing the vision but selling themselves as well. Looking forward on the way may be differ, some leaders already know the right path and simple needs others to follow, some do not have a developed plan but are willing to explore possibilities towards success. The important fact is to make progress and to accept occasional failures. The transformational leader who has a developed vision knows the direction and will be satisfied as long as progress is being made. Transformational leaders will want to represent their group and are always visible. This is the last stage during the development of the vision. They are acting as a role model by their actions, showing how their followers should behave. They also put constant effort into delegating and motivating their inferiors and listening to their opinions. According to Bass charisma is important but not sufficient. Leaders with such attribute will influence the followers’ emotions and cause identification with the leader. Bass also notes that “authentic transformational leadership has moral aspects”. These are “Idealized influence, Inspirational motivation, Intellectual stimulation, Individualized consideration, moreover The moral character of the leader, The ethical values embedded in the leader’s vision, articulation, and program (which followers either embrace or reject), The morality of the processes of social ethical choice and action that leaders and followers engage in and collectively pursue”. Their commitment encourages their followers to go on even when questions arise about the possibility of the fulfilment of the vision. If people are demoralised their efforts will eventually decrease causing the business to loose or to give advantage to its competitors. Methods of sustaining motivation include several techniques such as use of cultural symbolism of the company or ceremonies. According to Burns the usage of these motivational tools (social and spiritual values) is very useful because it gives people the feeling of “being connected to the higher purpose” giving their work a meaning and identity to themselves. Little changes and acknowledgement of people’s performance give them the feeling of significance and enhance their progress. The transitional leader has to keep a good balance between his attentions to actions which contribute towards progress and to constantly cultivate the mental state of their followers. They believe that success is being achieved trough commitment and they are naturally people oriented. Burns’ opinion is that transactional leadership is less effective because it involves selfish concerns. By appealing to social values people are encouraged to work together. Burns also clearly differentiates between transformational and transactional approach. The characteristics of transactional leadership will be explained in the next paragraph in more detail. Transformational leaders aim to constantly transform the organisation and this transformation naturally has an effect on the people in it. They might be transformed in a way as well, maybe to be like the leader himself. Bass’ emphasizes the way leaders transform their followers: Increases the followers task importance and values, influence them that instead of their own interest keep the organisational goal in front of them and “activating their higher-order needs”. „Transformational Leaders are often charismatic, but are not as narcissistic as pure Charismatic Leaders, who succeed through a belief in themselves rather than a belief in others.” (www.changingminds.org) „In contrast to Burns, who sees transformational leadership as being inextricably linked with higher order values, Bass sees it as amoral, and attributed transformational skills to people such as Adolf Hitler and Jim Jones.”

This paragraph aims to give an insight into transactional Leadership. The transactional style assumes that followers are encouraged by reward and motivated by punishment. It also argues that if clear commands are present then it will enchance the operation on social systems. When speaking about employees doing their job their also have to accept their managers as authority and that they role and purpose is to carry out the tasks their supervisors betrust them. This already starts when the potential employees sign their contracts whereby they are provided salary in return for their subordination. The typical transactional leader gives clear instructions to their subordinates whereas hes expressing what is expected to do in order to to fullfill their role and thus acquiring their rewards. Naturally it leads to disciplinary action in case of unsatisfying performance. These punisment measures are not always mentioned but employees usually know these formal systems. When the subordinate recevies his task, he is considered fully responsible of it and expected to be able to do it. In a sitation when things are not going according to plan, it is going to be the subordinates responsibility and fault. This will attract punishment measurements. Transactional leaders often do not pay attention when something operates as defined even if subordinates exceed their normal performance. However these situtations require extra appreciation to keep the moral of the subordinates up, to reward their extra effort in their work, because in the opposite case they will not feel that they should work with extra enthausism in the future. Transactional leadership does have many limitations but, however being a working method it is often used. When differentiating between management and leadership it is undoubtedly closer to management. There are several limitations in this approach as it only takes into account the rational follower who is driven by money and reward with a predictable behaviour. However it is not as simple to describe people’s behaviour because there are emotional and social factors. Behaviourism is what supports this leadership style but it has to be emphasized that in an economic situation where there is a need for skill and demand for employees this leadership styles would be often insufficient.

It is essential that we differentiate between Leadership and Management. Often people use these notions interchangeably however there are major differences which need to be adressed. The main difference is how leaders and managers motivate people. Managers become leaders as well if there is a need to follow a path which is different form usual or something new. People who are inferior to a manager are called subordinates and there is a formal authority present. Naturally there are levels of power which is called seniority. On the other hand, leaders have followers who may be subordinates in case they are managers but following is a voluntary behaviour and thus formal authorial control needs to be given up. To win in business there has to be cooperation between management and leadership. It is truth that the aspects are different but both are essential. “Leadership vision and strategy becomes the real achievement if it is managed effectively” (Mullins) If within an organisation there is good leadership present it still requires an effective management team to carry out the objectives. It servers as a pillar and without it the result will be inefficient. On the other hand a good management team can not get proper feedback and directions without effective leadership. These aspects of the business need to work cooperatively and to achieve competitive gain a “combination between skilled leadership and competent management is required.” (Kotter 1990) We have discussed transactional and transnational style already and generally we can apply these theories when distinguishing between managers and leaders. As described, managers bear with authority and their subordinates carry out task as ordered and in return expect an agreed reward. Managers work for a company and usually do not make fundamental decisions. They are getting payed to work within „tight constraints of time and money” so it is natural that they expect the same working style from their subordinates. Thus this is a transactional approach. However when leading people something more is needed than financial credit because followers have to want to follow you and perhaps go into certain situations they would not risk otherwise. Leaders have to inspire followers and appeal to them enough to make them believe in the goal. The power of this can be tremendous. A good example is Alexander the Great who was able to convince his warlords to be loyal for decades in his campaigns. This may happen trough a charismatic, transformaional style only when enough appreciation and attention is given. Leaders who have strong charisma often find that people will follow them and their ambitions because it does not only give them financial benefit but also has a positve effect on their lifes and personalities. „They are always good with people, and quiet styles that give credit to others (and take blame on themselves) are very effective at creating the loyalty that great leaders engender.” A different aspect is the attitude towards risky decisions and and new methods. Leaders generally investigate these ways in order to improve the business and constantly look out for opportunities. They consider it part of their job to encounter problems and come up with new and better solutions. In contrast managers are risk aware and they stick to well working procedures and rules.

In the always competitive world of businesses organisations need to constantly focus on improvement and change. Given the challenges which occur because of the competing companies over the market, the factor of leadership is very important. To complete the estimated mission and to make out the most of employee abilities trough the company’s vision, effective leadership is necessary. Leadership is a force which manages organisational procedures and coordinates the employees to achieve the company’s objectives. The actions of the leadership represent the organisation itself, motivate followers and encourage them to work in accordance of various ethics and values. To win in business coordination of the followers is fundamental because they are the core of the operation functions. Therefore a good relationship between leaders and followers is essential to achieve a good performance.