THE RELATIONSHIP BETWEEN LEADERSHIP AND ORGANISATIONAL PERFORMANCE

1.      ABSTRACT

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. Several researchers have examined the relationship between them. Most have concluded that transformational leadership has a significant impact on changing organizational practices. However, in academic literature, there is not enough theoretical evidence to suggest that there is a clear association because both the concepts of organizational performance and leadership have no absolute statements and hence a clear concise relationship is hard to be found.

1.      LITERATURE REVIEW

It is well understood in recent times that the performance of the employee matters in an organization, but little has been dealt with the leadership influencing performance (Kashan Pirzada, 2016). Relevant theories will be discussed and critically evaluated. This paper 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. The main goal is to discuss the relationship between leadership and its impact on the organizational goal and behaviour directing towards the performance of an organization.

2.1 Leadership

Leadership is an extremely powerful term, but it is often very weakly represented. According to Jiménez-Jiménez (2011) leadership is defined as a concept that eludes the behaviour in an organization and takes a completely different and complex form. Hence there have been endless debates and discussions on leadership, but none of us has clearly defined it sufficiently. In simple words, it is still a very vague concept that scholars are working on (Pollitt, 2011).

Various scholars (Harwiki, 2016) have studied this concept extensively and one common citing that is identified is that leadership is a process of influence. The influence works parallel with the leadership practices, whereby it forms an influential structure to guide, provide a direction and facilitate certain activities within an organization. Taking this concept as a general baseline we can say that scholars have categorized leadership based on their capacities. There are two core leadership styles as stated by Jacobsen (2015); transformational and transactional leadership.

2.2 Transformational and Transactional Leadership

In both of the core styles too, there are broad concepts and various highlights by numerous authors. In a political seminar, Jacobsen (2015) focused on the moral aspects of transformational leadership. According to Yukl, the transformational leaders ‘transform’ 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. Knippenberg and Sitkin in 2013 contradict this idea and states that both the core concepts of leadership in the modern world have several components which are necessary to understand the relationship behaviour (Knippenberg, 2013). They state that there are four major components; firstly, the idea of the influence that is discussed by Yukl depends on the charismatic behaviour of a particular leader. They must be capable enough so that the followers identify them as a role model. Secondly, inspirational motivation is all about communicating to the follower regarding a concept that they find motivating and not the other way round. Knippenberg further states that the first two components are co-related and together they form the ‘charisma’ factor in a leader. The third component is the simulation of intellect to the followers. This challenges the followers to focus on a new and innovative perspective of a problem. This is important for creativity and idea generation and aids an organization in problem-solving decision making. Fourthly, the consideration is personalized. Ultimately leadership concentrates on the follower being an individual entity, supporting them, guiding them and giving them individual attention to perform better.

In transactional leadership again, components are available which is the subject to a lot of discussions is again. According to Meier and O'Toole (2014), contingent rewards, passive exception and active exceptions have been identified. Contingent rewards are about rewarding the employees for achieving a set goal. 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. This directly links to the organizational performance getting better. As stated by Abdulla Ahmed Al-Ali, (2017) in the passive exception, the leaders wait until something has gone wrong and then suggests correctional methods.

2.3 Performance

Like leadership, performance is also a very broad concept and can be defined differently by different scholars. Cambridge (2015) defines performance as how well a person does a particular activity or work. However, in organizational behaviour, performance has various levels and aspects which need to be analyzed before making a conclusion. The three basic concepts as stated by Otara (2011); organizational, team and individual level.

Coming to the concept of Yukl again, any organization can be defined as an instrument of purpose (Belle, 2013). But when stating organizational performance Knippenberg (2013) states that figuring out which performance factor stands out depends on the organization itself. For many business organizations, sales, net profit and revenue is a clear indicator of performance and growth. For school, the performance indicator is the grades produced by the student. Richard (2011) reviewed various journal articles on organizational performance and found out that there are as many as 207 different factors by which performance is measured. It does not solely depend on the organization.

Team performance is also a significant component of performance which deals with leadership. This is especially helpful in relationship conflict where a task needs to be solved. De Dreu and Weingart in 2003 stated that team performance and measures depend on product quality, quality of decisions taken by the team and more. He does not state that there is any relation between the leader individual. The stress is more on the team as a whole. They further argue that leadership in this respect may involve leading a team, but it cannot be the whole factor in judging an organizational performance.

Diane et al. state that there are arguments however on the individual performance where ‘role performance’ is of great importance. They stated importance on identity and role theory were five key elements were the influencing factor, namely job performance, career performance, innovator performance, team performance and external organizational performance (Puni, 2014).

2.4 Relation between Leadership and Organization

As stated by Puni (2014) leadership is an interpersonal relationship which thrives in an organization characterized by two or more people working on a continuous basis on the same set goal. Hence three major elements must be present for leadership to thrive. Firstly, the management of the organization secondly, the time people and thirdly the task and goals within an organization. Leadership comes in this management level, where the leader uses the power of influence to accomplish the set task using proper time management and human resources.

Looking into other sources of leadership, organizational performance largely depends on the energizing aspect of empowerment. Nam (2007) states that great leaders empower others to translate their vision into reality. This is again linked to transformational leadership, where the empowerment as an instrument of transformation. The ‘charisma’ factor also goes hand in hand. He stresses on the fact that rewards and punishments are fewer effects when compared to empowerment.

However several other theories also exist which link the above concept to the Machiavellian view of power and empowerment. This is seen as a negative sense because empowerment means making someone do something that they otherwise would not do. It contradicts with their own free will and holds a negative impact on the organization. This empowerment leads to the authorization of power, which ultimately is a cause for rebellion, conflict and discord. The power struggle and power shifting often undergo which can lead to a sea of change in the organization. Here, individuals who develop their own resources participate in the conflict of power and presents grievances and claims regarding tasks and organizational behaviour. The ability to act increases and thus the management in power faces a downfall. Change is a major consequence which is seen by those who are powerless (Boerner, 2007).

In other academic literature that are two schools of thought governing the relationship; the constraints school and the leadership school. There are also contradictory statements which mention that leaders have a very limited role when it comes to performance. This is mainly due to contextual constraints and various aspects of internal and external influences of the organization. Hart (2014) states that the impact of leadership performance is nothing but a social construction. It is simply a psychological factor and has no impact whatsoever with the results an organization produces. The cause and effect here are hard to separate and leadership is only seen as a compensation method for the public (Eagly, 2003).

On the other hand, there are other researchers who argue that the top management of any organization has sufficient influence on the performance Wart (2013). Wart states that leaders have a strategic choice in influencing a decision of the firm. An organization’s strategy, culture, roles and responsibilities are significantly influenced by the leaders. They are the motivational factor in an organizational which leads to better performance for the future.

2.5 Empirical Evidence for the Relation between Leadership and Performance

The relationship between the two concepts has been a subject for empirical studies for generations. Scholars and researchers have used different types of conceptualization techniques between the two variables like transactional and transformation leadership and so on. Researcher Seaver (2010) mentioned in terms of an independent variable there can be an endless number of outcomes that can be achieved within an organization. Relevant outcomes involve citizenship behaviour, the attitude of the employee, the behaviour of the performance of the employee and many such others. In these contexts, the relationship between the two is studied in different organizational and sectorial contexts. Such detailed and numerous empirical studies raise an important question that where should a researcher start when assessing the impact. The most recent evidence can be seen in Wang (2010) that since the 90s five major researchers and meta-analysts have proven to build an accurate relationship between the two concepts. Wang further states that ‘satisfaction with the leader’ is the strongest motivational factor that looms in an organization. The overall performance needs to be effective and that can only be achieved through internal and external satisfaction levels in an organization. The relation between the two can never be generalized.

Scholars like Bass (2010) further modifies the theory of Wang to include 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.

Another theory of leadership that is related to satisfaction is Laissez-faire leadership (Skogstad, 2007). However, this theory links satisfaction in the opposite direction. Transformational leadership is also linked to this theory, but in the case of transactional leadership, the effectiveness of a leader is stronger than the satisfaction factor. This satisfaction and effectiveness is a major part of the public sector firm. This holds true for the Laissez-faire leadership, but the difference between the coefficients is much lesser. The researchers could not find any data regarding transactional leadership in a private firm.

Another study related to satisfaction Saleem (2015) focused on the effects of transformational and transactional leadership on the levels of satisfaction with a firm. Several satisfaction levels like follower leader satisfaction, job satisfaction, follower motivation, the performance of the leader and performance of the team were studied. The study showed a positive relationship when it came to team performance. Through this study, it has been predicted that transformational leadership directly influences the outcome controlling the transactional leadership. It was concluded that transformational leadership was the strongest when it came to team or group performance of the organization but it was the weakest when it came to individual-level performance. To be more specific, it can also be said that the relationship between transformational leadership and individual level performance is stronger for contextual performance rather than a task-based performance in an organization.

2.6 Conclusion

Drawing a conclusion from the above-mentioned analysis it is noticed that performance varies when the strength of the correlations varies. An important point that needs to be highlighted is that it is quite difficult to evaluate the impact of leadership on performance. According to Belle (2013), early academic research has a considerable impact that stresses the impact of leadership on performance. But nowadays the variables are independent as several other influence factors internal and external can be found. In recent times a balance between the constraint school and the leadership school seems to have shifted in the favour of the latter.

 

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