Critical Issues in Business Banking Industry in the UK

Literature Review

Abstract

Leadership is an extremely important tool for an organisation in the modern-day world. The key factors which contribute to organisational performance are training and development, efficient workforce, motivation and employee engagement and finally leadership. Organizations, agencies, industries and even countries get an effective leadership style from their organizational performance. Leadership helps to achieve set goals by them, thereby improving the performance of that particular facet. This following literature review has focused on leadership development in the field of banking sectors in the UK, mainly in the finance and explores its relationship with the organizations.

1. Introduction

Employee turnover has been a key factor in the organisations in spite of the nature of the business, the size, structure and profitability. Having said this, there is no doubt saying that the success of every organization in this sector depends generally on the nature of its labour force. The managers in such an organisation must have the capability to lead the labour force towards success and commitment in fulfilling the goals as set by the management. The below literature presents a critical review in the field of management research which is supported by various arguments, limitations and contradictory variables which brings to the conclusion that assessing the impact of leadership in an organization is quite a challenging task. For this reason, it is very important that leaders select the appropriate leadership style as suited in the industry. To be mentioned is the transformational style which most banks in the UK adopt.

Banking is a complex business industry that requires participation and engagement from all levels of management. In addition to land, labour and human resource, the asset of the organisation here is extremely important. It helps in achieving goals and smooth operation of the working environment and helps the industry to compete with the global market. The significance of leadership therefore in the banking sector is of utmost importance as it is directly related to the economy of the country. The banking sector in the UK is growing rapidly with respect to increased competition and foreign investment in the country. The management has therefore decided to effectively organize and inspire human resources by employing different leadership styles.

1.1 Transformational Leadership

According to Kuchinke (2016), the banking sector is facing several problems like the stress of the job, lack of commitment, absenteeism and various emotional instability conditions among the employees. Therefore the importance of leadership has increased. Hence the author states that the banking sector requires something higher than transformational leadership. In order to foster growth, bank management needs to develop contemporary and innovative strategies than goes beyond the traditional leadership style. But Anderson (2016) argues that transformational leadership is necessary as it forms a kind of visionary leadership by which leaders motivate their employees towards a certain task. Transformational leaders bring about changes in the behavioural patterns of the subordinates and the dynamics of the task undertaken by them. It develops a sense of ‘charisma’. Various scholars have studied this concept extensively and one common citing that is identified is that leadership is a process of influence. The ‘charisma’ factor is also seen in the studies of Knippenberg(2013) where he states that this is important for creativity and idea generation and aids an organization in problem-solving decision making. He further stresses that the charismatic behaviour of a particular leader ‘transforms’ by offering their followers a sense of purpose. The purpose is linked to moral values and ethical practices that motivate the employee to perform better in their organization and be more innovative and focused on their workings.

Authors like Herman et al (2014) argued that there were strong effects on the perception of an individual in selecting the right leadership style that is suitable in a particular environment. He identified transformational leadership as creating an identity in an individual. The transformational leaders aim to stretch beyond focus and develop a strong system of operation which pushes employees to the threshold that helps them to emerge victorious even in a difficult situation. Many forms of operational processes like decision-making skills etc. are easier because of the presence of transformational leaders.

1.2 Transactional Leadership and Performance

Bronkhorst et al (2015) identified another form of leadership which he states is important in the banking sector. They stress the importance that transformational leadership should only form a part of the leadership style and not the entire style. Transactional leadership must also be included which emphasizes on completion of a set task or a goal which is beneficial for the organisation. This is what drives an organisation for better performance. The management in an organization also takes up an active role where the leader continuously follows the activity of the follower and suggests correctional methods. In these types, rewards, compensations, compliments and praises form an essential component since they act as motivation for the subordinates. Any task which has a scope of good rewards is automatically completed by the employees. Especially in service sectors like banks, the stress on transactional leadership is high.

1.3 Strategic Leadership

Doucet et al (2015) said that in the modern world the focus on sustainable development has grown and various ethical issues have come to the forefront. Therefore, leaders who support such sustainable strategies must also take up something called the strategic leadership style. This is not only limited to the banking industry but to the whole global industry as well. Their actions are in alignment with ethical practices and corporate social responsibility of a firm. This kind of leadership is all about being in the right path and to continuously develop any industry with proper values, culture and vision. This is important because the same values and culture are then followed by others in the industry creating a strategic environment for success and growth.

1.4 Laissez-Faire Leadership

Many other research scholars like Bashaer Almatrooshi et al (2016), the importance of Laissez-faire leadership style cannot be undermined. It too has a significant impact on the performance of the organisation. It states that the employees must be given time to do the specified task in their own time and avoid what they do not deem fit. However, Jyoti and Bhau (2015) argue that laissez-faire leadership is not suitable for a bank environment as it will diminish their performance.

2. Performance

The Cambridge Dictionary (2015) defines performance as how well a person does a particular activity or work. In banks, performance is measured by net profit, revenue, number of customers, liquidity positions, efficiency and others. It is therefore instrumental that the leadership styles are able to work on these factors for the betterment of the organisation. A very strong behavioural aspect is the contribution of an individual’s behaviour on the objectives of the organisation. Researchers like Yawar (2017) mentions that performance has various factors upon which an individual act. The organisation and the management may be affected by economic, social and cultural influences that target their performance in a major way. Hence modern-day organisation all stress the importance of corporate social responsibility and its implementation and audits. Negrao et al (2017) stated that individual performance is the result of the saturation point which is seen by inspiration. He states that performance will last as long as the inspiration to do a task lasts. This is especially true for a stress-related job as in the banking industry. They state that there is a single most determinant and that is the inspiration and motivation to perform a task.

Scholars like Asif and others(2013) further include that there are more variables related to performance. They state that leadership effects subordinate performance and subordinate satisfaction. If subordinates are satisfied and motivated, this will automatically lead to the performance of the firm. Leadership effectiveness needs to be measured where the subordinate factor is the benchmark. Furthermore, the study urges future researchers to avoid the common source bias and use the factors from various independent sources.

3.Relationship between Leadership and Organizational Performance

Organisational performance is the summation of the overall performance of an organisation from every organisational perspective. Organisational performance not only means the financial performance of the organisation but also the performance of each and every department associated with the organisation which triggers the overall growth and development of the organisation. As already discussed many scholars have argued that transactional and strategic leadership are the most important styles that a banking sector cannot do without. Leadership at the management level is truly responsible for the changing environment in the organisation. Looking into other sources of leadership, organizational performance largely depends on the energizing aspect of empowerment. Kim and Goon (2015) state that great leaders empower others to translate their vision into reality. This brings us back to the transformational leadership which can be included as a part of management style.

However, the banking sector must be envisioned with a mix of all leadership styles in order to achieve success and growth in their industry. Authors M.A. LePine et al (2015) argue that performance is not only based on leadership style but an impact of job satisfaction levels and employee turnover. Empirical studies suggest that in order to bring job satisfaction, the lower order needs must be fulfilled before the higher-order needs are satisfied. Hygiene and motivation factor was also identified which contributed greatly to increase the job satisfaction level. It triggers the employee behaviour and the managers could manipulate an outcome by presenting the employee with enough policies and regulations to satisfy their needs. The most common need as identified by the authors is salary, security, working conditions, supervisions and work recognition. In times of tough competition, employee turnover intent is also an influencing factor that must be taken into account. Turnover intent is the intention of the employee to leave the organization permanently in the near future. An effective leadership style has been proved to reduce employee turnover intention. It is also one of the major reasons why the strategic leadership style is coming to the forefront. Concentration is more on the human resources of the organization and how to keep them satisfied and motivated. This is where strategic leadership becomes important for its effects on CSR policies and ethical practices.

Authors Wells and Peachey (2010) also further states that banks must go beyond the transformational as well as transactional approach to bring about change in their management. They conducted a study on 200 participants from the National Collegiate Athletic Association Division of softball and volleyball involving assistant coaches in the USA. This study showed the negative impacts of transformational and transactional leadership with respect to organization behaviour and turnover intentions.

4. Conclusion

It is very clear that leadership significantly impacts the performance of an organisation, but which style of leadership to uphold is still a matter of discussion. To be on the safe side, it can be said that complicated organisations like the banks, especially the department that deals with finances must use a mix of leadership styles to solve various management problems and its completion of their goals. In the above literature, we see that the stress is more and more on the employee and their ways of job satisfaction and employee retention. Employee motivation and engagement is also an important aspect which contributes equally to effective organisational performance. The strategic and transactional leadership approach has been effective in the modern-day market solely from the point of view of leaders who think that the workforce is not a mere input rather a key asset for the organisation which helps them to get the best output. Hence, it could be said that effective leadership changes the perspective of the organisation which in return largely improves the organisational performance. Managers must, therefore, concentrate on an amalgamation of leadership styles to suit their purpose. Moral, values and cultures also form the high ground.

 

 

 

 

5. References

Almatrooshi, B. S., K. F. S., 2016. Determinants of organizational performance: a proposed framework. International Journal of Productivity and Performance Management, 65(6), pp. 844-859.

Anderson, J., 2016. An old man and the “sea of leadership”. Journal of Leadership Studies, 9(4), pp. 70-81.

Asif, M. S. C. Z. A. &. F. O. A. M., 2013. An integrated management systems approach to corporate social responsibility. Journal of Cleaner Production, 56(1), pp. 7-17.

Bronkhorst, B. S. B. V. B., 2015. Transformational leadership, goal setting, and work motivation: The case of a Dutch municipality. Review of Public Personnel Administration, 35(2), pp. 124-145.

Cambridge, 2015. Performance, s.l.: Cambridge Online Dictionary.

Doucet, O. F. M. S. G. T. M., 2015. Leader profiles and their effectiveness on employees’ outcomes. Journal of Human Performance, 28(3), pp. 244-264.

Harris, A. M. D., 2014. Teacher Leadership: A Review of Research, s.l.: National College for School Leadership: Alma Harris.

Herman, H. a. C. W., 2014. Transformational leadership and job performance: A social identity perspective. Journal of business research, 67(1), pp. 2827-2835.

Jyoti, J. B. S., 2015. Impact of transformational leadership on job performance, s.l.: Sage Opening.

Kim, S. Y. G., 2015. An innovation-driven culture in local government: Do senior manager׳s transformational leadership and the climate for creativity matter?. Public Personnel Management, 44(2), pp. 147-168.

Knippenberg, V. S. B., 2013. A Critical Assessment of Charismatic—Transformational Leadership Research: Back to the Drawing Board?. The Academy of Management Annals, 1(7).

Kuchinke, M.-u.-H. a. K. P., 2016. Impact of leadership styles on employees’ attitude towards their leader and performance: Empirical evidence from Pakistani banks. Future Business Journal, 2(1), pp. 54-64.

M.A. LePine, Y. Z. E. C. B. R., 2015. Turning their pain to gain: Charismatic leader influence on follower stress appraisal and job performance. Academy of Management Journal, 59(3).

Nam, S., 2007. How innovation willingness influences the public organizational performance relationship: developments in how stakeholders (external organizational factors) and internal management affect, New Jersey: Rutgers The State University of New Jersey.

Negrao, L. F. G. M. G., 2017. Lean practices and their effect on performance: a literature review. Journal of Production Planning and Control, 28(1).

Wells J.E. Peachey, J., 2010. Turnover intentions: Do leadership behaviors and satisfaction with the leader matter?. Team Performance Management, Volume 17, pp. 23-40.

Yawar, A. S. S., 2017. Management of Social Issues in Supply Chains: A Literature Review Exploring Social Issues, Actions and Performance Outcomes. Journal of Business Ethics, 141(3), pp. 621-643.