Idea Transcript
Leading organic growth
“Which leadership style is most effective in leading organic growth?”
Bachelor Thesis Organization and Strategy
Name: Kees Lavrijsen Anr: 566369 Academic Year: 2009-2010 Supervisor: Drs. M. Stienstra Number of words: 6419 Date: 11-6-2010
Management summary This thesis focus on the relationship between organic growth and leadership styles. The defined problem statement in this context is: Which leadership style is most effective in leading organic growth? Organizational growth is a frequently discussed topic in the past years and is something for which most companies strive. The most commonly studied determinants of organizational growth are industry attributes, organization strategies and top-management characteristics. But because the various factors that can be related to organizational growth, it can mean different things to different organizations. Growth deals also with changes, therefore change management can play a key factor in gaining success.
The most
influencing characteristics of organizational growth are experience in the industry, the use of new and advanced technologies, close customer contact, strategic intent, and leanness and resources, although leading change is one of the most complicated executive tasks. Organizational growth can also be seen as an evolutionary process. In this view a company that grow moves along different stages of development and each stage has its own managerial implications and needs an appropriate leadership style. A specific form of organizational growth, is organic growth. This means growing via internally generated profitable revenue expansion. It is also referred as core growth or internal growth, with a focus on the competencies and capabilities of the firm. It mostly performs in young and small industries. Leadership is another widely studied phenomena. It is stated as the ability of an individual to influence, motivate, and enable others to contribute toward the effectiveness and success of the organizations of which they are members. In every situation leadership could be different. A common used classification of leadership styles are the transactional and transformational leadership style. Another way to look at the topic of leadership is to dived it in seven action logics. This are seven ways of leading, with each way has its own characteristics and strengths. Because there is no single style of leadership that is successful in all situations a framework exist whereby the situation determines which leadership style will be most effective. In the past, implementing changes has lead to many failures due to a lack of effective leadership. To overcome that problem a model exist, which consist of four change leadership styles which are related to four scales of organizational change. The combination between the scale of changes and the leadership styles leads to four possibilities. Based upon the different theories and models there are some relationships possible to create an effective combination between organic growth and leadership style. These combinations depends on the situation, the changes a firm want to make, and the point of view of reasoning.
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Table of contents Chapter 1. Introduction……………………………………………………………….4 1.1 Problem indication………………………………………………………………….4 1.2 Problem statement and research questions……………………………………..4 1.3 Methodology………………………………………………………………………...5 1.4 Structure……………………………………………………………………………..5
Chapter 2. Changes in the organization as a result of organic growth……...7 2.1 Organizational growth……………………………………………………………...7 2.2 Growth determinants……………………………………………………………….8 2.3 Processes and stages……………………………………………………………...8 2.4 Characteristics of organizational growth…………………………………………10 2.5 Organic growth……………………………………………………………………...10 2.6 Changes……………………………………………………………………………..14
Chapter 3. Which types of leadership styles are most suitable for the implementation of these changes?..................................................16 3.1 What is leadership………………………………………………………………….16 3.2 Differences manager and leader………………………………………………….17 3.3 Different leadership styles and effectiveness……………………………………17 3.4 Relation leadership and changes…………………………………………………20
Chapter 4. Conclusions and recommendations………………………………….23 4.1 Conclusions………………………………………………………………………….23 4.2 Recommendations………………………………………………………………….24 4.3 Limitations…………………………………………………………………………...24
References………………………………………………………………………………25 Appendix………………………………………………………………………………...28
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Chapter 1 Introduction 1.1 Problem indication The globalization process, technological innovations and new upcoming countries on the market, argues for new opportunities of organizational growth. Autonomous growth is such a type of organizational growth that can be a successful process along mergers and acquisitions.
Autonomous or, organic growth means changing and transforming the
organization from the inside to increase revenues rather than by acquiring other companies. These changes are not a problem, the problem with changing the organizations lies in an inability on the part of leaders to lead change (Burns, 1978). Growing organically means modifying the organization by transforming, influencing and changing the way people think and behave across the organization. Doing this not just once, but year after year will bring sustained organic growth. (Meyer, Anzani, Walsh, 2005). This is a task of the business leader. However, every leader is different and has some form of a leadership style. Leadership is typically defined by the qualities, traits, and behaviors of a leader (Horner, 1997). Northouse, who identified four common topics in the way leadership now is conceptualized, defines leadership as “a process whereby an individual influences a group of individuals to achieve a common goal” (Northouse, 2004). This means that there are various forms of leadership and leadership styles with all have its own advantages and disadvantages. The aim of this research is to find and explain the relation between the factors organic growth, as a type of organizational growth, and the different leadership styles to find the most effective combination.
1.2 Problem statement and research questions Based on the described problem in the introduction, the problem statement is formulated as: “Which leadership style is most effective in leading organic growth?” In order to be able to successfully answer the main question, several other questions have to be addressed. First,
the definition of
organizational growth
must be defined
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including the different aspects and effects on change. Thereafter, leadership styles and related factors in relation to organic growth should be investigated. In sum, the main question is divided in the following sub-questions: -
What are the characteristics of organic growth as a type of organizational growth?
-
Which leadership styles are most suitable for the implementation of the changes that should occur as a result of organic growth?
1.3 Methodology The type of research in this thesis is normative. The target of normative research is to gather facts and also give necessary improvements. To answer the research questions a literature survey is conducted. Existing literature is discussed and possibly linked to each other to create a clear understanding about the theories already known on the topics related to the problem statement. Topics such as leadership styles, organic growth, and change management are used to find appropriate information. This thesis is based on secondary sources gathered out of academic journals. In particular, the catalogs and information sources the University of Tilburg has access to are used. Furthermore, the link to the information portal available on blackboard by the Department of Organization & Strategy leads to appropriate information. The search terms most used are organic growth, internal growth, organizational growth, leadership styles, and management changes. To get the best and correct information the so called ‘snowball effect’ is used (Sekeran, 2003). This means that the references in founded literature are used to find new papers. When all relevant information is gathered, these theories and opinions are combined to make this thesis and to be able to answer the questions. Next to it, some conclusions and recommendations could be drawn from it.
1.4 Structure This chapter serves as an introduction. Then in the following chapters will be started with the theory. In chapter 2, first organizational growth in general is explained. When this is clear defined organic growth is explained and an introduction of leading change is given. Chapter 3 deals with
leadership styles. Different styles of leaderships are illustrated and the
relationship with organic growth will be described. After that, the most suitable leadership
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styles in relation with changes in an organization as short is mentioned in chapter 2 are discussed. Chapter 4 consist of the conclusions. The different theories and models which are explained in the previous chapter will be combined and the results are shown. Furthermore some recommendations and limitations are given. A graphical representation of the conceptual framework is presented below:
Organic growth as a type of organizational growth
Most effective leadership styles
Graphical representation of the conceptual framework
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Chapter 2 Characteristics of organic growth as part of organizational growth This chapter examines the various ways in which a company can grow. First the term organizational growth will be explained. Then the different growth determinants, the processes and stages which a company goes through during growth and the characteristics of organizational growth will be discussed. After that, there will be a closer look at the phenomenon of organic growth. Finally, a number of issues related to changes in the organization are discussed.
2.1 Organizational growth Organizational growth is a frequently discussed topic. There has been much attention paid to the field of organizational growth and a lot of reviews about this subject appeared in the literature (e.g. Collings and Porras, 1994; Siegel et al., 1993). To give a good definition of organizational growth, first must be looked at the two underlying terms, namely organizations and growth. Organizations can be seen as complex, open and social systems (Katz & Kahn, 1966), as mechanisms which transform input taken from the larger environment into different presented output. On the other hand, Forcadell (2007) describes growth as a dynamic resource-based practice with its origin and effect in the assets and resources be in possession of the firm. The resources are utilized to implement strategies, and the strategies, on its turn determine the quantity, nature and strategic value of its resources.. Growth is an organizational goal for many companies. Some firms desire growth just to survive while other desire growth in order to prosper. Because small firms will grow to become big, while big firms even wants to grow bigger. As a result of the different ways in which organizations can grow organizational growth means different things to different organizations.
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2.2 Growth determinants Although the used growth determinants in the literature can vary from zero to infinity, Weinzimmer stated that, based upon an exhaustive review of literature from 1985 to 1994, the most commonly studied determinants in the management literature used to examine organizational growth were industry attributes, organization strategies, and top-management characteristics (Weinzimmer L.G., 2000). Furthermore, he presents understandable documentation that these three levels of determinants are significant concurrently. As a consequence, explaining organizational growth must be determined by the three determinants, instead of
exclusively studying a single determinant. Further, relative
examination among the three levels of determinants make clear that organization strategies are the most significant, followed by top management characteristics and industry attributes. In short, firms grow in the direction shown by their specific core resources, which change, slowly expand and are used at different paces (Mahoney & Pandian, 1992; Penrose, 1959).
2.3 Processes and stages As organizations grow, they move through different processes and stages. One of the first research studies to the processes is the work of Lewin (1947). His work is later often cited and it shows that the most basic level of change consist of 3 phases, namely unfreezing, moving, and refreezing. These various phases requires different assumptions and orientations at different times in the process. The business leader has to overview what needs to be changed, how this process of change looks like, and the results of what has been changed (Benne, 1976). Research done by Isabella (1988) gives implications for the actions of leaders during the different events of change. She argued that there are four stages (anticipation, confirmation, culmination, and aftermath) which are connected with the 3 phases described by Lewin. Each stage has its own managerial implications. During anticipation, managers assemble rumors and other concrete information individuals have into an in-progress frame of reference. During confirmation, a frame of reference is set by the leader drawn on traditional explanations and comparisons to past actions. During culmination, individuals compare conditions before and after a phase for symbolical meaning. Especially the management symbols that pass on what is crucial to the business are compared. Finally, during aftermath, the managers review the results of the event and the overall perspectives.
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A model for understanding how managerial implications evolve as a change unfolds is given in Figure 2.1 Evolving interpretations of key events. It gives an identification what kind of references managers share during particular changes. In the model, four distinct stages are characterized through which interpretations progress. Besides, each stage has its own frame of reference, an interpretive task, and a construed reality. The most important note of this model is that leaders have to act different in the different processes of changes, or in other words, the interpretative stage differ when change unfolds. The upper part is based on Lewin, while the lower part shows Isabella’s findings. Figure 2.1 Evolving interpretations of key events
Process of change
--------Unfreezing--------
--------Moving--------
------Refreezing-----
Interpretive trigger
Announcement that event
Event occurs
Derivative events; passage of time
is pending
Personalization of
‘what will event mean to
‘what will event mean
‘what has event
trigger
me?’
to my work?’
meant overall?’
Anticipation →
Confirmation →
Culmination →
Aftermath
Construed
Rumors, scattered
Conventional
Double
Consequences;
reality
information and
explanations;
exposures;
strengths and
observations
references to past
symbols
weaknesses;
Interpretive stage
winners and
similar events
losers Interpretive task
Assembly
Standardization
Reconstruction
Evaluation
Predominant
In-progress
Conventional
Amended
Evaluative
frame of reference Zand and Sorenson (1975) found that the three phases (unfreezing, moving, and refreezing) posited by Lewin, are unequal in importance for predicting success. Implementation, or refreezing, is according to them more heavily related with success than unfreezing and
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moving, the other two phases. This findings reinforces that change management can play a key factor in gaining success. In short, there are 3 processes of change that can be compared with 4 interpretive stages, but they are not all equal in importance to predict a successful change.
2.4 Characteristics of organizational growth In addition to section 2.2, which described the determinants of growth, in this section will be looked at the characteristics of organizational growth. How firms grow is related to the characteristics of the company and its environments. There is some kind of order in how firms grow, so knowing the characteristics of this process can give crucial knowledge to the managers of the firm. Siegel, Siegel, and MacMillan (1993) have studied the characteristics that distinguish high-growth companies from low-growth companies. Therefore, the characteristics they found are the most important to achieve growth. Out of their two phases of analysis five influencing characteristics were revealed. The first characteristics is experience in the industry. There is a strong link between experience and venture success. Academic research done by van de Ven, Hudson and Schroeder (1987) supports this finding. Second, new and advanced technology, would enable a firm to compete in aggressive, fast-growing markets by isolating the firm from competition. And isolation from competition is one of the few criteria that was a standardized predictor of performance. The third characteristic is close customer contact. This variable is another adjustable which helps to insulate a firm from competition, and can result in predicting growth. Strategic intent is another influencing characteristic. Product and market strategy have a significantly impact on a companies performance, while the appropriateness of a strategy is highly dependent of the maturity of the firm. The last, leanness and resources implies that fairly new companies should exercise on a lean basis with minimal overload. However as a company grows and expands, performance hinges less on leanness but considerably on competent expansion of physical and human resources needed.
2.5 Organic growth Although organizational growth is already been defined this section will take a closer look at the phenomenon organic growth. As stated before, there are various ways in which a company can grow and expand. The most common are growth through mergers and acquisitions. Other types are partnerships and alliances between firms. Another way to grow,
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which is nowadays commonly used, is organic growth, also called internal or autonomous growth. This means growing via internally generated profitable revenue expansion. Growing organically means to try finding a balance between the collective and the individual needs, as well as to try finding a balance between the interior side and the exterior side of people. Organic growth is also sometimes referred as core growth. According to Beijerse (2000):”It requires a focus on the core competencies and capabilities of the firm and often leads to new improved customer relationships”. In comparison with growth through acquisition, whereby current existing jobs are displaced from one company to the other, organic growth just is supposed to represent genuine job creation. Further it is argued that firms that grow organically shows a smoother pattern of growth over time in comparison with firms that grow mainly through acquisitions (Penrose, 1959). According to her, organic growth should occur more in emerging industries, because she associate organic growth with smaller and younger firms. Emerging industries are characterized as technological and strategic uncertain, with poor and inadequate information about the market, the competition and the possibilities. In this industries successful firms distinguishes from unsuccessful firms by the entrepreneurial leaders. This leaders has some broader experience in business, work longer, are personal concerned with the firm, and can good communicate with others. This results in firms that are more flexible and participative, which can adapt to the changing organizational conditions, and these firms have more specialized employees (Duchesneau and Gartner, 1990). Davidsson and Delmar (1998) also have studied the influence of organic growth in firms. They came to the same conclusion of Penrose. Based on the size of a company in relation to the organic growth as a percentage of total growth they concluded that small and young companies had a stronger tendency to organic growth than mature and larger ones. The results of their study are showed in Table 2.2 The total and organic growth of different firm ages and in Table 2.3 The total and organic growth of different firm sizes. Although young and small firms are often related to organic growth, it is important to note that most of these firms don’t grow anyway.
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Table 2.2 The total and organic growth of different firm ages
Firm age
No. of
Cum.total
Cum.organic
Organic as
cases (n)
employment
employment
percentage
growth
growth
of total
2
148
3319
3191
96.1
3
205
8865
7052
79.5
4
137
6984
6118
87.6
5
77
7043
6619
94.0
6
40
3912
3429
87.7
7
42
6364
4401
69.2
8
38
3920
2992
76.3
9
29
6919
4038
58.4
10 or more
437
137938
22200
16.1
Total
1153
185264
60040
32.4
The pattern of this table is clear, organic growth is higher when the firms are younger. This leads to a strong negative relationship between the age of a firm and the percentage of organic growth. Table 2.3 The total and organic growth of different firm sizes
Size class
No. of cases (n)
Cum.total
Cum.organic
Organic as
employment
employment
percentage of
growth
growth
total
20-49
342
8124
7963
98.0
50-249
532
44320
34208
77.2
250-499
127
22340
12497
55.9
500-2499
127
57752
15682
27.2
2500+
25
52728
-10310
(-19.6)
Total
1153
185264
60040
32.4
This table shows that the smaller the firm, the larger the organic growth impact. The smallest size class, with between 20 and 49 employees, has an organic part of growth of 98.0 percent. But this percentage reduces when the company becomes bigger in size. For instance, the size class 500-2499 shows an organic growth percentage only of 27.2
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Acquisition growth, on the other hand, is more likely to occur in older and larger firms, that is in mature industries. Therefore, organizational age and the organizational size are two of the most fundamental characteristics of internal growth. Organic growth can be reached through innovations in the core services of the firm, or by using new products. Also growth through geographic expansion is possible. But in every situation, the company requires a competitive advantage. Efficiency and adequate investment along with a clear strategy are crucial to reach a successful growth. An internalfocused leader, who is enthusiastic and dedicated is the right person for this task. Organic growth is well related to the personal qualities of a leader, and it puts a heavy emphasis on the managerial style which is used. According to Friedman (2005), autonomous growth is now more than ever a crucial factor of an organization’s success. Efficient designs and models will become important factors in the next decade. This implies that organic growth is a characteristic of true managerial excellence. Like every growth strategy, growing organically has some advantages and disadvantages. From a managerial point of view, executives and investors are informed about how well the management is using the internal assets, cash and other input to increase the output. The management itself can perform better through a well known understanding of their own firm and assets, and by a better planning and efficiently use of the internal investments (Hess and Kazanjian, 2006). For this reason, and because it makes analyzing the business easier only showing the true growth of the core firm, investors are in favour of organic growth. Furthermore, internal growth avoid workforce problems that can arise as a result mergers and acquisitions like a culture clash. Furthermore the management stays independent, while compared to mergers and acquisitions whereby the control must be divided between the different companies. A strategic view shows that firms that are growing organically
creates a sustainable competitive advantage because their growth
strategies are difficult to imitated or duplicated by other companies (Aktas, de Bodt, & Samaras, 2008). Some disadvantages are the time consuming way of growing because often companies start from scratch. The dangerous way of bearing every risk by the core company is another disadvantage. Also the quality of the control, and the possibility of control are some problems in the field of organic growth (Hess and Kazanjian, 2006). From a financial perspective, internal growth in the short run is negatively related to performance, but in the longer run organic growth is positively related to performance. Once the company can realize economies of scale and some other cost reduction actions while their sales increases (Aktas, de Bodt, & Samaras, 2008). Another related issue to the field of organic growth come from a study of Lockett et all (2009). They show the impact of previous organic growth and previous acquisitive growth on future organic growth of a firm. Their results point out that there is a negative connection
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between the rate of organic growth in the previous period and the rate of the current internal growth. Because the firm already has make benefit of the advantages. Although, the greater the rate in the past, the lower the rate in the future. Meanwhile, acquisitive growth in the past shows positive effects in the short run of the internal growth in the future. This as a result of an increase in knowledge and resources.
2.6 Changes One of the most complicated executive tasks is leading change. Although there is a strong desire to change in organizations there is only a limited know-how in which manner to lead this change successfully. Leadership is one of the most critical parts in any change effort, and managing change is really a people issue. Leaders need to concern how to change organizations. In most of the cases, there is only one best way for organization to grow organically. To reach that, the way people act and think across the firm needs to change fundamentally (Karp, 2006). Therefore, the competencies, values, culture, and behavior of the personnel must be changed. This is an ambitious sequence of actions which must result in changing the minds and thoughts of many people in a transformative way. Hence, to lead a successful organic growth the ‘inner’ shift in people’s behaviors, aspirations, values and mental models need to come together and combined with the ‘outer’ shifts in procedures, methods, strategies, and systems. But unfortunately, there is no simple manual about how to lead change. Therefore leaders need to find out the directive and the patterns of change. A specific form of change, which has almost the same characteristics of organically growing firms, is developmental change. These form of change is based upon a continuous growth idea which avoids radical and turbulent adaptations. The firm search for developmental possibilities in its internal and external environments. A competitive advantage is achieved through continuous yet manageable changes (Abrahamson, 2000). The problem why changes often fail, or makes the situation worse is a lack of effective leadership (Gill, 2003). To reach organizational growth some parts of the organization has to change and this is a difficult task. Not only adaptation in the quality of the work and in the plans of action requires major changes, but also the structure, and the way employees are directed has to change. This chapter outlines how organizational growth is achieved. It appears that it can be interpreted in different ways and various theories describe this phenomenon. It is important to note that every theory has its own interpretations and conclusions. Because there is no
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one best way to achieve organizational growth, and especially organic growth, a leader has to consider all relevant influences. Characteristic of organic growth is that it mostly happens in small and young firms. Thus age and size are determinants. Furthermore, organic growth take place in flexible organizations with enthusiastic leaders who try to build a competitive advantage. In the next chapter will be looked at which leadership style is most suitable to lead organic growth.
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Chapter 3 Most suitable leadership styles for the implementation of the changes that occur as a result of organic growth Leadership styles are the main subject of this chapter. First will be looked at what leadership is, thereafter the differences between managers and leaders are mentioned in short. Then, different leadership styles are described and the characteristics of an effective leader are given. Finally, the relation between leadership and changes in the organization as a result of organic growth are discussed and the most suitable type of leadership to implement these changes are given.
3.1 What is leadership Leadership is a widely studied phenomena in the scientific literature but it is hard to give a consistent and comprehensive definition of it. This is, according to Grint (2004), due to lack of agreement on four problems which are related to leadership. The first problem is the process problem and deals with the question of leadership is derived from the personal qualities, or is it a social process. The second, the position problem, is concentrated on the formally allocated authority in comparison with informal influence of the leader. The philosophy problem is about the context and situation of actions, or is it determined by intentional influence. The last problem, the purity problem, ask the question is leadership an individuals or a group phenomenon? In the same year of Grint’s research publication, Northouse also reviewed his theory about leadership. He stated that leadership is a process and involves influence, occurs in a group and involves goal attainment. However, an universal used definition of what is meant by organizational leadership is stated by House et al.(1999) as: “the ability of an individual to influence, motivate, and enable others to contribute toward the effectiveness and success of the organizations of which they are members”. In short, leadership is a combination of the leader’s traits, his or her behaviour, and the situation in which the leader exist .
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3.2 Differences manager and leader In many management books and scientific articles the terms ‘manager’ and ‘leader’ are used interchangeably which imply that these words have the same meaning. Because this is not correct and can lead to misconception, the main differences and comparisons between a manager and a leader, based on an article of Abraham Zaleznik (1977), are given in short and can be found in Appendix model 1. In this thesis is chosen for leadership. This on basis of the attitudes toward goals. A leader can change how people think about what’s desirable and can set a company’s direction.
3.3 Different leadership styles and effectiveness To achieve success, a leader needs an appropriate leadership style which fits within the whole organization. Therefore it is crucial to know which different leadership styles there are and which of them are most effective in certain circumstances. Although there are several studies about these topics, just some theories and styles will be explained in this section. The two most fundamentally different and common used leadership styles are transactional leadership and transformational leadership. These leadership styles are valuable because they made a distinction between
people management and task
management, as also between incremental changes and radical changes. Transactional leaders adjust their style to the existing organizational culture and operates within that framework. The structure is given in which their goals and needs have to be reached. This leaders implement only incremental changes. In contrast of that, transformational leaders have a clear vision of what have to be done, and the organization has to alter to reach this vision. This means, the group’s wants and needs and the organization’s culture need to change. They lead trough implementing radical changes (Bass, 1990). Rooke and Torbert (2005) looked at another way to the topic of leadership. They argues that there are seven transformations of leadership, although seven ways of leading, which they called action logics. Each of the seven transformations is a leader’s dominant way of thinking and leaders have the possibility to move through these categories. These dynamic view to leadership styles is new and can give other insights in the field of leadership styles. Out of their research of thousand leaders, they observed the next action logics showed in table 3.1 Seven ways of leading, with their characteristics, their strengths and the percentage of the sample that belongs to it.
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Table 3.1 Seven ways of leadingthis action logic
Action logic
Characteristics
Strenghts
% of research sample profiling at this action logic
Opportunist
Wins any way possible. Self-oriented; manipulative; “might makes right.” Avoids overt conflict. Wants to belong; obeys group norms; rarely rocks the boat. Rules by logic and expertise. Seeks rational efficiency. Meets strategic goals. Effectively achieves goals through teams; juggles managerial duties and market demands. Interweaves competing personal and company action logics. Creates unique structures to resolve gaps between strategy and performance. Generates organizational and personal transformations. Exercises the power of mutual inquiry, vigilance, and vulnerability for both the short and long term. Generates social transformations. Integrates material, spiritual, and societal transformation.
Good in emergencies and In sales opportunities.
5%
Good as supportive glue within an office; helps bring people together. Good as an individual contributor.
12%
Well suited to managerial roles; action and goal oriented.
30%
Effective in venture and Consulting roles.
10%
Effective as a transformational leader.
4%
Good at leading society-wide transformations.
1%
Diplomat
Expert Achiever
Individualist
Strategist
Alchemist
38%
The managerial implications of these findings is that the Opportunist, Diplomats, and Experts are associated with below average corporate performance. The Achievers are associated with effective implementing of organizational strategies, but only the Individualist, Strategists,
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and Alchemist (which accounted for 15% of the sample) have the capacity to innovate and to transform organizations in a successfully way. Because there is no single style of leadership that is successful in all situations, Flamholtz (1990) created his Leadership Effectiveness framework whereby the situation determines which style of leadership will be most effective. According to Flamholtz, leadership effectiveness is dependent on leadership tasks, situational factors, leadership styles and the combination of the style-situation fit. An overview of Flamholtz Leadership Effectiveness framework can be seen in figure 3.2 The Flamholtz leadership effectiveness framework. Figure 3.2 The Flamholtz leadership effectiveness framework
Leadership tasks Work Orientation People Orientation
Situational factors Organization Work to be done People doing the work
Leadership styles Directive –autocratic -benevolent autocratic Interactive -consultative -participative Nondirective -consensus -laissez-fair
Style-Situation Fit
Leadership Effectiveness
The leadership tasks consist of work orientation and people orientation. Work orientation, which means that the work has to be done, is related to goal emphasis and task facilitation. People orientation gives care to the needs of the individuals doing the labour, and is related to personnel development, interaction facilitation and supportive behaviour. The situational factors can be divided into the degree of task programmability, the extent to specify a project, and the likely for job autonomy, the level of working without supervision. Each leadership category in Flamholtz framework pertains two leadership styles. Autocratic and benevolent autocratic belong to the directive category. This styles declares what is to be done respectively without, and with an explanation. Consultative and participative belong to the interactive style. A leader with such a style respectively gets opinions beforehand he or she decides on the plan presented, or first formulates alternatives with a group and then decides. The last two styles, consensus and laissez-fair, belongs to
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the nondirective category. By the consensus style has every member of the group an equal voice in making decisions, a leader who led decide the group what to do, follows the laissezfaire style. Overall, to achieve a high level of effectiveness a leader has to find a balance between the work, the people orientations and the leadership tasks.
3.4 Relation leadership and changes As can be seen in section 2.6 leading change is a very sophisticated and difficult task. And in the past, implementing changes has lead to failures and sometimes it makes the situation worse. Most of the times this is due to a lack of effective leadership. Therefore, the relation between leadership and changes will explained. A model by Dunphy and Stace (1988), which can be seen in Appendix model 2, consist of four change leadership styles which are related to four scales of organizational change. The scale of changes is ranging from fine tuning, via incremental adjustment and modular transformation to corporate transformation. The leadership styles are collaborative, consultative, directive and coercive. The combination between the scale of changes and the leadership styles leads to four possibilities: Participative evolution, forced evolution, charismatic transformation, and dictatorial transformation. Participative evolution is common when only minor adjustments had to be made and there is no resistance to change, forced evolution also implement minor adjustments but in this case there is some opposite to the change. Charismatic transformation is used when there is some support for radical change, and dictatorial transformation is implemented when radical change is needed despite strong opposition. These four possibilities can be combined with the transformational and transactional leadership styles by Bass (1990). The first two typologies of change strategies, participative evolution and forced evolution, can be related to transactional leadership. Because this type of leadership implement only incremental changes. The other two typologies can be matched with a transformational leadership style, in which it is more common to make radical changes. The interpersonal skills of a leader play a crucial role in effective implementing changes. Therefore it is important that a leader can motivate and clearly can communicate with its employees. Another perspective to look at the relation between leadership and changes is the view of Greiner (1972). In his view companies that grow move along different stages of development. Each stage is based on a combination of the age and the size of the
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organization. Furthermore each stage has its own managerial implications and needs an appropriate leadership style. This model can be seen in Appendix model 3 In phase 1, which is called Creativity, the organization is at the starting point of business. The firm is young and small in size. Growth in this phase is mainly achieved through creativity, but also bring some problems with it. Increased numbers of employees and larger productions runs requires another sort of knowledge. To resolve this problems a strong business leader is needed, someone with an autocratic style.. In the next phase, called Direction, the leader need to be able
to use this directive leadership style to reach
sustainable growth. After a period, when the organization become more complex and diverse, this style is not longer appropriate. The solution to this is found in stage 3 and is delegation. The leader give up some responsibility and the lower-level managers and employees gain a greater autonomy. A positive effect of this is higher motivation at lower levels. To stay in charge over this highly diversified firm other and special coordination techniques are used by the business leader to regain control. This is the start of the next phase. Phase 4 is the Coordination stage. The use of new coordination techniques leads to a more efficiently allocation of the available resources, which on its turn can result in achieving growth. The leader has still much decision-making power and responsibility, but his actions are more carefully justified. After a period to be managed through formal systems and programs, the firm can become to large and complex for this stage. Then the last phase, Collaboration, is reached. The leadership characteristics of this stage are interpersonal collaboration and a more flexible and participative approach. A table with the main features of the discussion of Greiner can be found in Appendix model 4. Given the various theories about leadership and leadership styles in this chapter, it is clear that there are similarities and differences between these. Bass made a distinction between transactional and transformational leaders. Rooke and Torbert shows seven transformations of leadership. Flamholtz gives 6 styles along with the orientation of leaders and the situational factors. Hereafter, Dunphy and Stace shows a model wherein they combine leadership style with four scales of organizational changes. Another person who combine leadership with changes is Greiner. He shows different stages in a firms growth process, each with its own managerial implications and requirements. Combining these theories along with the knowledge from the previous chapter is reveals that as a company grow organically it is often a small and young firm. In addition, the changes it applies to ensure growth are most of the time incremental. From this perspective, a transactional leadership style, as described by Bass, is most appropriate. But reviewed from the leadership theory, the action logics individualist, strategist and alchemist, as Rooke and Torbert them called, are the most effective to innovate and to transform organizations in
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a successful way. However, these are more transformational leadership styles. These conclusions can be compared with the model of Dunphy and Stace. In their model, participative evolution and forced evolution can be related to transactional leadership with the implementation of incremental changes. However, charismatic transformation and dictatorial transformation are implemented when radical change is needed. Another possibility to explain the most suitable leadership style is the theory of Greiner. According to him, a company starts as small and young in a certain phase with associated characteristics and an appropriate leadership style. Next, the company goes through a process of change and developments as a result of growth in size and age. Through a process of evolution the firm reach each time another phase. And each phase has its own characteristics and requires a different leadership style.
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Chapter 4 Conclusions and recommendations In this last chapter the defined problem statement, which leadership style is most effective in leading organic growth, is answered. After the conclusions to this question, some recommendations and limitations are discussed, and finally some direction for further research is given.
4.1 Conclusions Based upon the different theories and characteristics of growth, with as topic organic growth, and upon the different leadership styles, there are some relationships possible to create an effective combination between growth and leadership style. The type of leadership that is most suitable depends on the changes a company is undergoing and wants to make. This is a complex happening because there are three processes of changes, unfreezing, moving and refreezing, which can be related to different interpretative stages. Although to make it easier, it can be stated that there are two extreme possibilities. The organization is small and makes some steady incremental changes with the purpose to grow. Or it carries through some radical changes. It is also important that other aspects are taken into account, like the growth determinants, growth characteristics and situational factors, as is indicated in the leadership effectiveness framework of Flamholtz. Two important factors that influence the extent to which organic growth happens are the size and the age of a firm. Often a firm that grow organically is young and small and requires an enthusiastic and dedicated leader. If the company also make some incremental changes in order to grow a transactional leadership, as described by Bass, is most appropriate. However, according to Rooke and Torbert, the leaders called individualist, strategist and alchemist are the most effective and successful in leading change. Dunphy and Stace states that the most suitable leadership style is dependent of the company implements incremental or radical change. If the organic growth is combined with incremental change, then a transactional leadership is necessary. If the growth is related with radical changes, a transformation style is required. Greiner, at last, stated that the style is totally dependent on the life-time stage of the company. Each phase in the evolution of the firm has its own characteristics and therefore needs a different leadership style.
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4.2 Recommendations Organic growth is nowadays becoming a big and hot issue in organizational growth. However, there is still little known about the practical implications for managers and leaders. Therefore it is advisable and may be necessary to do further research to this topic. It can be recommended to start some research projects on fairly new companies and follow the evolution of these firms to test the relation between organic growth and leadership styles in practice. This information could then be compared with other forms of organizational growth to see the differences and the similarities. However, this is a high time consuming activity and it is difficult to isolate the factors which must be investigated in a real world situation. Next to it, although there are made some relations and connections between the various theories and models from which conclusions can be drawn, little is known about their accuracy. Therefore some empirical research to this relations have to be made.
4.3 Limitations It may be possible that by defining the subject, some factors that may be important in the context of the subject are not discussed. Also, some used theories possible are outdated because the dynamic and ever changing character of this topic. Further it is assumed that changes occur as a result of organic growth without this is studied.
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Appendix Appendix model 1, an overview of the differences between a manager and a leader.
Attitudes toward goals
Conceptions of work
Managers Take an impersonal, passive outlook Goals arise out of necessities, not desires.
Leaders Take a personal, active outlook. Shape rather than respond to ideas. Alter moods; evoke images, expectations.
Negotiate and coerce. Balance opposing views.
Change how people think about what’s desirable and possible. Set company direction. Develop fresh approaches to problems.
Design compromises. Limit choices.
Increase options. Turn ideas into exciting images.
Avoid risk. Relation with others
Sense of self
Prefer working with people, but maintain minimal emotional involvement. Lack empathy.
Seek risk when opportunities appear promising. Attracted to ideas. Relate to others directly, intuitively, empathetically.
Focus on process, e.g., how decisions are made rather than what decisions to make.
Focus on substance of events and decisions, including their meaning for participants.
Communicate by sending ambiguous signals. Subordinates perceive them as inscrutable, detached, manipulative. Organization accumulates bureaucracy and political intrigue.
Subordinates describe them with emotionally rich adjectives; e.g., “love,” “hate.” Relations appear turbulent, intense, disorganized. Yet motivation intensifies, and unanticipated outcomes proliferate. Comes from struggles to profoundly alter human and economic relationships.
Comes from perpetuating and strengthening existing institutions. Feel part of the organization.
Feel separate from the organization.
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Appendix model 2, the Dunphy/Stace change matrix The Dunphy/Stace change matrix shows the relationship between the type of change and the style of change management. Out of this relation, four types of combinations exist, an explanation is found in section 3.4 Relation leadership and changes.
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Appendix model 3, The five phases of growth This figure (adapted from Greiner, 1972) is used to describe the five phases of organizational growth, in section 3.4 Relation leadership and changes.
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Appendix model 4, Organization practices during evolution in the five phases of growth In the table Organization Practices During Evolution in the Five Phases of Growth is the theory of Greiner summarized and the main features of his discussion are depicted. The Top Management Style of related to each phase is the most important to notice.
Organization Practices During Evolution in the Five Phases of Growth
Category
Phase 1
Phase 2
Phase 3
Phase 4
Phase 5
Management
Make & Sell
Efficiency of
Expansion of
Consolidation
Problem
Operations
Market
of Organization
solving &
focus
Innovation Organization
Informal
Structure Top
Individualistic
Management
&
Style
Entrepreneurial
Control
Market Results
Systems
Centralized &
Decentralized
Line-staff &
Matrix of
Functional
& Geographical
Product Groups
Teams
Directive
Delegative
Watchdog
Participative
Standards &
Reports &
Plans &
Mutual Goal
Cost Centers
Profit Centers
Investment
Setting
Centers Management Reward Emphasis
Ownership
Salary & Merit
Individual
Profit Sharing
Increases
Bonus
& Stock
Team Bonus
Options
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