This study sought to investigate the impact of leadership styles and business strategy on the organizational performance of Small-Medium Scale Enterprises (SMEs) in the manufacturing sector of Ghana. This had become necessary due to the fact that available literature on the subject matter lacked precision in terms of the specific leadership style and strategy which could better be employed to improve performance in the chosen area of study.
A field survey (by means of questionnaires) was conducted in Accra, involving 60 CEOs and Senior managers drawn from 10 organizations, which were randomly sampled for the study. In addition, a time series data from 2008 to 2013 on sales, profits before tax and employment from the 10 organizations were collected to develop performance indices for the organizations. Regression and analysis of variance (ANOVA) were then run to examine the relationship between leadership, strategy and organizational performance.
The study revealed that leadership and business strategy statistically and significantly impacted on organizational performance but strategy had the greater influence. Again, transformational leadership style and cost leadership significantly influenced organizational behaviour (p=.000<.01) but transactioanal leadership style, differentiation and focus strategies did not. The study recommends that SMEs should take advantage of transformational leadership style and cost leadership to enhance growth and induce greater organizational performance.
TABLE OF CONTENTS
DECLARATION
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
CHAPTER ONE INTRODUCTION
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Research Objectives
1.4 Research Hypothesis
1.5 Significance of the Study
1.6 The Scope of the Study
1.7 Organization of the Study
1.8 The Research Environment
1.9 Definition of Key Terms
1.10 Chapter Summary
CHAPTER TWO LITERATURE REVIEW
2.1 Leadership in Perspective
2.1.1 Antecedents of leadership
2.1.2 Leadership styles
2.2 Understanding Business Strategy
2.2.1 Classifying strategy
2.2.2 The Generic Strategies in the manufacturing sector of Ghana
2.3 Interaction between Leadership and Strategy
2.4 Organizational Performance
2.4.1 Peformance measurement
2.5 The Link between Leadership, Strategy and Performance
2.6 The Performance of the SMEs in the Manufacturing sector of Ghana
2.7 Chapter Summary
CHAPTER THREE THE THEORETICAL FRAMEWORK
3.1 The Path-Goal Model
3.2 Theories of Leadership
3.2.1 The "Great Man" theory:
3.2.2 The trait theory
3.2.3 Behavioral leadership theories
3.2.4 The leadership grid theory
3.2.5 The Fiedler theory model
3.3 The Theoretical Framework for Strategy
3.3.1 Mintzberg's deliberate and emergent strategies
3.3.2 Chandler’s theory
3.3.3 Miles and Snow theory
3.3.5 Resource-based theory
3.4 Chapter Summary
CHAPTER FOUR METHODOLOGY
4.1 Research Design
4.2 Population and Sample
4.3 Sampling Technique
4.4 Sources of Data
4.5 Data Collection Instruments
4.6 Validation of Research Instruments
4.7 Research Instruments Administration Procedure
4.8 Data Presentation and Analysis
4.8.1 The specified regression model
4.9 Ethical Consideration
4.10 Research Reliability and Validity
4.11 The Study Area
4.12 Chapter Summary
CHAPTER FIVE PRESENTATION OF DATA AND ANALYSIS
5.1 The Demographic Characteristics of the Respondents
5.2 The Link between Leadership and Organizational Performance
5.3 The Effect of Transformational and Transactional Leadership Style on Organziational Performance of the SMEs
5.5 The Link between Organizational Performance and Generic Competitive Strategy of cost leadership, differentiation and focus
5.6 The Relationship between Leadership and Strategy
5.7 Chapter Summary
CHAPTER SIX DISCUSSION, CONCLUSION AND RECOMMENDATION
6.1 Summary of Findings
6.2 Discussion
6.3 Conclusion
6.4 Limitations and Implications for future Research
6.5 Recommendations
6.6 Chapter Summary
BIBLIOGRAPHY
DECLARATION
I do hereby declare that this thesis is the result of my own effort. With the exception of works cited and acknowledged, the work is a compilation of my own research.
JOHN PARKER YANNEY
SUPERVISORS:
DR. JACKLIN BURTON
DEPARTMENT OF BUSINESS ADMINISTRATION
ATLANTIC INTERNATIONAL UNIVERSITY
HONOLULU, HAWAII USA.
DEDICATION
To My wife, Ama Korantemaah
then Children:
Elsie,
Jessie and Jessica
Godwin
and
Francis
ACKNOWLEDGEMENT
This study on business strategy, leadership styles and organizational performance, has been brought to a successful end due to the tremendous cooperation and support I enjoyed from others.
Dr. Jackie Burton, my supervisor, will forever be remembered for his valuable criticism and suggestions while evaluating my draft scripts. The immense efforts have resulted in the final structure of this thesis. I am very grateful to him.
I also appreciate the help offered me by Joe and Dennis with the processing of the field data.
I say "thank you’’ to all of them.
Atlantic International University
Honolulu, Hawaii USA
ABSTRACT
This study sought to investigate the impact of leadership styles and business strategy on the organizational performance of Small-Medium Scale Enterprises (SMEs) in the manufacturing sector of Ghana. This had become necessary due to the fact that available literature on the subject matter lacked precision in terms of the specific leadership style and strategy which could better be employed to improve performance in the chosen area of study.
A field survey (by means of questionnaires) was conducted in Accra, involving 60 CEOs and Senior managers drawn from 10 organizations, which were randomly sampled for the study. In addition, a time series data from 2008 to 2013 on sales, profits before tax and employment from the 10 organizations were collected to develop performance indices for the organizations. Regression and analysis of variance (ANOVA) were then run to examine the relationship between leadership, strategy and organizational performance.
The study revealed that leadership and business strategy statistically and significantly impacted on organizational performance but strategy had the greater influence. Again, transformational leadership style and cost leadership significantly influenced organizational behaviour (p="<"/i.000<.01) but transactioanal leadership style, differentiation and focus strategies did not. The study recommends that SMEs should take advantage of transformational leadership style and cost leadership to enhance growth and induce greater organizational performance.
LIST OF TABLES
Table 5.1: The demographic data of the respondents
Table 5.2 The Test Variables Entered/Removeda
Table 5.3: Leadership Regression Model Summary
Table 5.4: Leadership ANOVAa
Table 5.5 The Means of Organizational Performance and Leadership
Table 5.6: Correlation between Organizational Performance and Leadership
Table 5.7 : Organizational Performance and Leadership Style
Table 5.8 Regression Model Summary for Tranformational, Transacional Leadership Style and Organisational Performance
Table 5.9: Coefficientsa of Transformational and Transactional Leadership styles
Table 5.10: ANOVAa for Strategy and Organiazationl Performance
Table 5.11: Regression Model Summary for Strategy and Performance
Table 5.12 ANOVAa of the Generic Competitive Strategies
Table 5.13: Coefficientsa of the Generic competitive stragies
Table 5.14: The Extent to which leadership and strategy influence Peformance
Table 5.15: Correlation between Leadership and Strategy
Table 5.16: The t-Statistic for Leadership and Strategy
Table 5.17: How Leadership and Strategy influence variation in Performance
Table 5.18: ANOVAa for Leadership and Strategy
Table 5.19: Coefficientsa of Leadership and Strategy in relation to Performance
LIST OF FIGURES
Figure 1.1: Situational leadership style
Figure 1.2: The Situational Leadership Model
Figure 3.1: Blake, Mouton and McCanse Leadership Style Grid
Figure 3.2: Three Generic Strategies
CHAPTER ONE INTRODUCTION
1.1 Background to the Study
The impact of leadership and business strategy on organizational performance is a subject that has gained so much attention, particularly in this era of increasing globalization and market competition. Matzler et al. (2008) for instance, are of the view that the leadership behaviours of the top management of Small/Medium-sized Enterprises (SMEs) can have a strong impact on the performance and level of innovaation of the firms; therefore, as the business becomes globally competitive, SMEs need to develop new sets of vision to sustain their businesses and to become more competitive. In this regard, the leadership behaviours of the business owner or manager play a major role in providing the needed direction and a clear vision, which must be shared by all the employees in the establishments (Yang, 2008).
As regards the leadership behaviours and performance of SMEs, transformational leadership is believed to have a positive impact on the performance of SMEs, a relationship which is found to be significant (Pedraja et al., 2006; Matzler et al., 2008). However, the findings on how transactional leadership impacts on organizational performance appear contradictory. For example, whereas Yang (2008) found a significantly positive relationship (although small) between transactional leadership and the performance of SMEs, Pedraja et al. (2006) discovered a significantly negative relationship between the same variables. In one of those studies also, Yang (2008) found that only the transformational leadership was the significant predictor of organisational performance but transactional leadership was not. Perhaps these differences in the findings could be accounted for by the research setting or the industry concerned.
It needs to be emphasized that, the performance of SMEs is also a product of strategy, in which the business owner or manager plays an important role in the formulation of the firm's strategy (Philipsen and Kemp, 2003). The owner/manager’s competitive development and personal goals determine the understanding and use of strategic management and planning (Postma and Zwart, 2001). A meta-analysis of existing studies by Schwenk and Shrader (1993) has indicated a positive linkage between strategy and growth. Porter (1991) has also observed that strategy leads to superior and sustainable performance. As a result, when a company develops and implements effective long-term strategies, it could impact on the competitive positioning of that company on the market.
Based on these postulations, this study examines the extent to which leadership and strategy impact on the performance of SMEs in the manufacturing sector of Ghana. Although much has been written on SMEs in Ghana, very little of the literature focuses on the specific leadership behaviours and business strategies which the SMEs can adopt to improve upon their business performance (Hanlon and Scott, 1993, and Pelham, 2000). This study is therefore significant in the sense that it properly addresses the issue of leadership and strategy in the context of Ghanaian SMEs operating in the manufacturing sector.
1.2 Statement of the Problem
The SME's in the manufacturing sector in Ghana are dominated by sole-proprietors, who make business decisions, based not on broad consultations, but rather on their personal inclinations and leadership behaviours which do not help the businesses to perform as expected, in some cases. Besides, most SMEs are busily engulfed with operational problems, which prevent them from devoting adequate time to quality leadership and strategic management issues. Thus, the business owners and managers place very little value on formal planning, strategic thinking and a developing long-term visions (Pelham, 2000). In the face of weak leadership and managerial capabilities, most SMEs do not survive after their second "anniversaries" (Kayanula and Quartey, 2000; Mensah, 2004).
This notwithstanding, not much has been studied on SMEs, as regards how they can take advantage of effective leadership styles and strategies to improve upon their performance for better growth. This study is therefore intended to bridge that literature gap.
1.3 Research Objectives
The general objective of the study is to investigate the impact of leadership behaviours and strategy on the performance of SMEs in the manufacturing sector of Ghana. In order to achieve this, the following specific objectives were pursued:
a. to examine the impact of leadership behaviours on the performance of SME's in the manufacturing sector.
b. to assess the relative contributions of transformational and transactional leadership styles to organizational peformance.
c. to examine the impact of strategy on organzational performance.
d. to ascertain the contributions of the generic competitive strategies of cost leadership, differentiation and focus strategies to organizational performance, and
e. to compare the relative importance of leadership and strategy to the performance of the SMEs.
1.4 Research Hypothesis
This study is guided by the following hypotheses:
a. H0 = Leadership behaviours do not have any impact on the performance of SMEs in the manufacturing sector of Ghana.
H1 = Leadership behaviours have an impact on the performance of SMEs in the manufacturing sector of Ghana.
b. H0 = Transformational leadership style is not more significantly related to organizational performance than transactional leadership style.
H1 = Transformational leadership style is more significantly related to organanizational performance than transactional leadership style
c. H0 = Business strategy does not have any impact on the performance of SMEs in the manufacturing sector of Ghana.
H1 = Business strategy has an impact on the performance of SMEs in the manufacturing sector of Ghana.
d. H0 = Cost leadership, differentiation and focus strategies do not have any significant positive relationship with organizational performance.
H1 = Cost leadership, differentiation and focus strategies have significant positive relationship with organizational peformance
e. H0 = Leadership does not contribute more greatly to organizational performance of the SMEs than strategy.
H1 = Leadership contributes more greatly to organizational performance of the SMEs than strategy.
1.5 Significance of the Study
This study is very important because the findings can be used as a guide by SMEs in the manufacturing sector to determine the kind of leadership style and strategies which can be harnessed to improve performance and increase their level of competitiveness on the international market.
Furthermore, this study is relevant for the academia because it fills a literature gap on the specific leadership styles and strategies which the SMEs need in order to improve upon their performance. The study is therefore a source of reference for researchers, students and academicians who have interest in the subject matter.
1.6 The Scope of the Study
The study focuses on SMEs in the manufacturing sector operating in the key industrial areas of Accra, namely the Spintex Road, North Industrial Area, Light Industrial Area and Osu.
The performance of the SMEs is limited to their financial performance taken for the period between 2003 and 2013.
Based on earlier studies conducted by Acquaah (2011), Amoako-Gyampah and Acquaah (2008) and others, the leadership styles were limited to transformational and transactional, while the strategies used were based on Porter's (1980) generic competitive strategy, namely: cost leadership, differentiation and focus strategies.
1.7 Organization of the Study
This study has been organized into six chapters. The first chapter is the introduction, which consists of the background to the study, the statement of the problem, objectives of the study, research hypothesis, the significance and scope of the study, organization of the study, the research environment and definition of key terms.
The second chapter reviews available literature on business strategy, leadership styles and business performance. The chapter looks at the situation as it exists in other countries, and also in Ghana. It thus includes information on the business history in Ghana including leadership styles adopted by business owners.
In the third chapter, the theoretical framework based on which the hypotheses were formulated is treated.
Chapter four discusses the methodology employed for the study, including the research design, population and sampling method, data collection and instruments, methods for data analysis and presentation, the ethical considerations, as well as research validity and reliability.
The fifth chapter presents an analysis of data collected from the study area in connection with the research objectives.
Chapter six discusses the findings made in the previous chapter, makes conclusions and recommendations for implementation
1.8 The Research Environment
The research environment is Ghana, specifically the SMEs operating in the industrial areas of Accra such as the Spintex Road, the North Industrial Area, the Light Industrial Area and Osu.
Geographically, the country covers a land area of 238, 535, square kilometers, and 560 kilometers of coastline. Ghana is a tropical country along the west coast of Africa. The southern portions of the country have an evergreen forest, while the northern part consists of savannah or grassland. The country is endowed with a great deal of wetlands, consisting of rivers, lagoons, lakes and coastland (Said 1993).
The Capital is the hub of business activities. It has various economic facilities and social infrastructure, which influence rural-urban migration (GSS: 2002). In all, 50.9 percent of the population live in urban areas, with Accra as the most populated city. The least populated region is Upper East with 702,110 persons or 2.8 percent of the total population.
The period following Ghana's independence in 1957 marks a major milestone in the industrialization efforts of the country, during which large state-owned enterprises in agriculture and industries to facilitate socio-economic development were set up (Buame, 2012).
Currently, the business environment is dominated by the private sector, which has become the heartbeat of Ghana's economy. The sector encompasses over 90 percent of the companies operating in both the formal and informal sectors of the economy, most of which are small-to-t-medium scale enterprises (SMEs) in character. According to Steel and Webster (1991), SMEs contribute 85% to manufacturing sector employment. This is a significant figure which indicates that SMEs are propellers of economic (Ghanaian Manufacturing Enterprise Survey, 2000).
The contribution of the private sector to economic growth is partly responsible for Ghana's rating by the World Bank as the number 10 among the countries in Sub-Sahara Africa that are reforming the way business is done (AfDB, 2011).
In spite of the private sector's contribution, a number of factors combine to slow down the performance and development of the sector. Among the constraints are weak managerial skill, lack of technology and inadequate infrastructural capacity. However, under a Public-Private Partnership (PPP) regulatory framework, the government is making efforts to sustain and stimulate confidence in the business environment, and to increase the performance of private sector by seeking to improve access of MSME to become competitive in the global market (AfDB, 2011).
In relation to the manufacturing sector, Mensah (2012) states that the performance and growth of the manufacturing sector are declining. This is also reflected in investment flows into the sector. For example, out of the projected increase in investment of 7% in 2011, only 1.7% was realized (Khanna and Palepu, 2006). The sector also faces major challenges such as inadequate technological development, energy problems, unstable macro and micro-economic environments, over-reliance on imported raw materials and poor access to credit facilities from the banks, among others (Kuffour, 2008). All these and more affect the performance and competitive strength of the sector. According to Acquaah, (2007) there is an influx of inferior and usedd goods in the country which compete strongly with similar goods produced locally, particularly in terms of pricing. For instance, the International Trade Centre reports indicate that Ghana imports over $43 million of used clothing every year compared with a local of production of $4 million (Crawley, 2004). Crawley further notes that, the textile industry, for example, used to employ over 25,000 people, but the current number is slashed down to less than 3000 and still declining. This indicates that if steps are not taken to reverse the situation, most SMEs may have to close down.
Bawumia (2014), for instance, has observed that Ghana can become a manufacturing powerhouse in Sub-Sahara Region in Africa, if supportive policies are well implemented. Mensah (2004) has also suggested that one major intervention is for the government to sponsor research and development in the sector. Aryeetey (2013) also states that SMEs require enormous investment in the manufacturing industries to propel African economies to create jobs and to reduce poverty. This requires only a sound business level strategy in the manufacturing sector, but also effective leadership behaviours.
It needs to be emphasized that undertaking reforms in the manfucturing sector has a long history. As already noted, the country's industrialization efforts began soon after independence in 1957. From 1966-69, trade liberalization policies were initiated, during which Sate Owned Enterprises (SOEs) were sold to foreign partners. In 1969-72, the free enterprises system was promoted, a move which contributed to the foundation for local government and rural development. The late 1970s saw the introduction of operation-feed-yourself, but the established Industries ended in economic mismanagement, social and moral degradation.
From 1982 to 1992, the ideology of economic liberalization and divestiture of state-owned enterprises was vgorously pursued under the Economic Recovery Programme (ERP) and Structural Adjustment Programmes (SAP) initiated by the World Bank (1987). The SAP was also introduced to consolidate the gains of the ERP and to further place the economy of Ghana on the right footing for sustained national development. The key objective of (SAP) was to strengthen the institutional reforms in the sphere of trade and exchange rate management, to harness the public sector resources management, particularly the cocoa, State Owned Enterprises, (SOE) reforms financial policies, public sector management and private sector development (World Bank 1990). Steel and Webster (1991) agree that under the ERP, the overall environment was improved despite some shortcomings.
From 2000 onwards, the country moved into a free market economic system, which urshered in deliberate efforts at developing the private sector, attracting foreign direct investments, and carrying out industrial reforms to increase the exporting capacity of the country, particularly non-traditional exports.
Currently, a number of manufacturing outfits sprawl along the industrial areas of Accra, located in such places as the Spintex Road, North Industrial Area. Light Industrial Area and Osu. It is worth noting that, over the past two decades, there has been the emergence of the Levantine Group termed as "a strong second front' consisting mainly of Indians, Lebanese and Syrians. To some extent they can be categorized as socially managerial entrepreneurs in the context of Africa (Buame 2012). The Levantine Groups were primarily in the domain of commerce (shops, stores and manufacturing and non-industrial product) and subsequently Europeans, Lebanese, Indians and Syrians expanded to traded activities, the supermarket and haulage or logistics services (Buame 2012).
The Lebanese and Syrians have been prominent in the investment drive in Ghana. They constitute a successful entrepreneur group who are seen as presenting a competitive front to established Euro-American multi-nationals. Today, the Laventine group continues to play a key role in the country's industrialization efforts, owning over 90% of the manufacturing sector of the economy.
In addition to the challenges which have already been identified as confronting the SMEs, Pupulampo (2010) also identifies that very little research on organizational leadership has so far been carried out, with very little theory to support the practice. It is common to see that leadership styles in most SMEs are autocratic in nature, and what the business owners say is final. Most times, ownership is by family successio, in order of seniority. Otherwise, there are no formal criteria for selecting or building succession plan for future leaders in most cases. Moreover, there is lack of training and development programmes for the leaders of the SMEs when they assume their leadership status, because developing the skills and talents of both employees and managers is seen by many as a cost rather than investment. Thus, the performance of the SMEs (both financial and non-financial) is affected also by lack of strategy and ineffective leadership (Acquaah, 2008).
1.9 Definition of Key Terms
The following key terms used in the study were intended to have the following meanings assigned for them.
1.9.1 Business strategy: A plan to guide as a guide to organizational objectives to allocate resources to business unit using economies of scales to a lower cost in order to achieve organizational goal (Chandler, 1962)
1.9.2 Cost leadership strategy: The extent to which a firm uses resource to produce low-cost products and services to achieve organizational goals. A firm uses cost leadership strategies to achieve economies of scale in their industry and also prevent competitors from entering the industry (Porter 1980)
1.9.3 Differentiation strategy: The degree to which a firm produce high-quality product to help absorb the increase of output cost. Differentiation strategy commands a high-value product and sells its product at a premium price (Porter 1985)
1.9.4 Focus strategy: In business circles strategy is defined as the extent to which a firm produces at a particular, specific geographical location within its industry with limited market (Porter 1985).
1.9.5 Leadership: The process of influencing followers to achieve organizational goals.
1.9.6 Leadership style: The leader's pattern of behavior exhibited when interacting with followers (Achua and Lussier 2012). Leadership style has significant influence in decision making and determining how the organization structure process is managed. Effective leadership style refers to the organization direct action which serves as evidence based on decisions and behavior of the leader (Day and Lord 1988)
1.9.7 Idealized influence: This refers to a leader having high standards moral and conduct regarding loyalty demonstrating to followers. This concept is used in this study to mean the leader has moral and ethical conduct. (Bass 1985)
1.9.8 Inspirational motivation- refers to a leader who has a strong vision and predicts the future of the organization based on values and ideas. This means the leader's behavior stimulates, and builds motivation to inspire followers through the use of symbols of action to influence follower confidence (Bass 1985)
1.9.9 Intellectual stimulation- intellectual means leaders who challenge organization beliefs and norms and encourage followers to think strategically to become innovators, in this study, it means the leader stimulates followers to become innovative (Bass 1985)
1.9.10 Individual consideration- Means the leader's behavior aims of recognizing an individual uniqueness to ensure that the needs of the follower is achieved through coaching and monitoring of path-goals (Bass 1985)
1.9.11 Transactional leadership- refers to a leader who manages to maintain focusing systems controls, at the short-term. The leader monitor's followers progress for a short term and note knowledge to predict for the future (Bass 1985).
1.9.12 Transformational leadership-refers to a leader who focus on the innovation and development of people. The leader inspires followers by creating trust in them at any given period. This means the leader is having inspirational knowledge to trust and develop followers to certain degree (Bass 1985)
1.9.13 Contingent reward refers to a leader who focuses on the transfer of resources, thus, the leader provides support to followers in exchange of their effort and performance (Bass1990).
1.9.14 Management by exception objective (Active) refers to leaders who monitor performance of followers and immediately correct mistakes committed by the followers where necessary. The leader intervenes to ensure the standard skills is applied to achieve performance. (Bass1990)
1.9.15 Management by exception (Passive) refers to a leader who adopts inactive approach and involves followers when serious problems occur; as a result, of performance.(Bass 1990)
1.9.16 Laissez-faire leadership: implies to a leader who performs no-leadership role or avoid taking leadership responsibilities (Bass1996).
1.9.17 Organizational performance: refers to control mechanisms used to measure for firm performance for achieving profit for the organization.
1.10 Chapter Summary
Being the introductory chapter for the study, this chapter has laid a clear foundation to serve as the basis for developing the research further. Its aim was to give a brief background to the study, describing the nature of the problem to be investigated, specify in clear terms the objectives and hypothesis, as well as the scope and significance of the study. In addition, how the study has been organized, the environment within which the study was undertaken and the key terms used in the study were dealt with. The next chapter reviews relevant literature on the subject matter.
CHAPTER TWO LITERATURE REVIEW
This chapter is dedicated to reviewing relevant literature on the subject matter. The early sections dwell on leadership and the various forms in which it is exhibited. The second section solicits an understanding of strategy, and the forms in which it can exist. The section also explores firm's strategic choice, and different levels of business strategy. The concept of organizational performance is discussed in relation to business strategy and leadership style. The final section provides an overview of leadership and strategic management in the Ghanaian context.
2.1 Leadership in Perspective
Leadership has been defined in different ways by different people and therefore makes a universal agreement on its deinition elusive. To some, leadership is synonymous with management, although the two concepts are entirely different from each other. According to Tead (1935) leadership is an act of influencing people to cooperate towards the same goal which they come to find desirable. Day (2000) also defines leadership as a creation and maintenance of a sense of vision, culture, and interpersonal relationships. In their view, Hersey and Blanchard (1969) see leadership as working with and through people so as to accomplish goals. English (1992) defines leadership in a slightly different way by looking at the necessity of leadership. According him, when people are at peace, happy and satisfied there is hardly any need for leadership. However, when there are turbulence, and the situation urges someone to step forward and initiate change, the need for leadership is high. One thing that is clear from these definitions is the fact that leadership can only take place when there are two constituents, namely, leaders and followers. Slater, (1995) buttresses this point by asserting that leaders do not exist without followers and vice versa.
On the other hand management deals with the tasks of coordinating activities, monitoring everyday operation of the organization and allocating resources and tasks to achieve organizational goals (Day, 2000). Whereas leaders come in during periods of turbulence, managers, on the other hand are associated with periods of stability. According to Hersey and Blanchard (1969) leadership is a broader concept than management; thus, making management a sub-skill of leadership.
2.1.1 Antecedents of leadership
According to Bass (1990) though the appearance of the word ‘‘leader' 'in the English language goes back as early as the year 1300, ‘‘leadership'' did not appear until the first half of the nineteenth century. He further asserts that the situation was no different to other modern languages. The word "leadership" did not reveal itself until recent times.
The evolution of leadership has been a complex phenomenon with people seeking direction, purpose and meaning to guide their collective activities. Most organizations were small and managed by a single individual who was considered to be a "great man" with inherent leadership qualities (Daft, 2010).
At the turn of the 20th century, there was a shift from "Great Man" leadership to leadership learning. It is not an easy task to require one more task to perform. Leadership and learning are two different components. Brown and Posner (2001) of Santa Clara University note that there is a difference between how people learn and at the same time, lead people. It is their view that learning and leadership are not interconnected in literature. Taylor (1997) found that transformational learning theory needs more attention since adult learning theory requires the learner to develop interest in order to motivate them to learn more. Mezirow (1994) defines transformational learning as the process of constructing and appreciating a new or revised interpretation or meaning of one's experience and used as a guide to action.
This expansion portrays what is called transformational learning, which advances what is already known (Keagan, 2000). Yitah (2013) perceives transformational leader as someone who can guide, guard, direct and sometimes take painful decisions to bring about the needed changes in society
2.1.2 Leadership styles
Modern organizational structures clearly show the adoption of different leadership styles by leaders. There are as many leadership styles as there are many writers on leadership. According to Giri and Santra (2010), leadership has been a crucial topic for organizational effectiveness. However, different leadership styles have been studied over the years such as the modern leadership model proposed by Bass (1985). This model is namely Transformational, Transactional, and Laissez-Faire Leadership. These come in addition to democratic, situational, transformational and transactional leadership styles:
2.1.2.1 Democratic leadership
The democratic (participative) leadership style is one in which members of the group are more involved in the decision-making process (Cherry, 2013). This leadership style is one of the most effective because it allows followers to perform well without close supervision and develop their decision making skills (Cherry, 2013). Cherry (2013) further states that due to the greater participation of members under this leadership style, better ideas and more creative solutions to problems arise which can lead to greater productivity. Cherry (2013) identifies three basic characteristics of the democratic leadership style, as described hereunder:
In the first place, the group members are encouraged to share ideas and opinions, even though the leader retains the final say over decisions. Members of the group feel more engaged in the process. Creativity is therefore encouraged and rewarded.
In additoin, while democratic leadership has been described as the most effective leadership style, it leads to communication failure in situations where roles are unclear or where time is of the essence (Cherry, 2013). Cherry (2013) further explains that in some cases, group members may not have the necessary knowledge or expertise to make quality contributions to the decision-making process. Hence democratic leadership works best in situations where group members are skilled and eager to share their knowledge.
2.1.2.2 Situational leadership
As the name suggests situational leadership style is one in which there is variance in the leadership style based on prevailing situation such as size of the organization, social and psychological climate and patterns of employment. Paul Hersey and Ken Blanchard, in the late 60s and 70s developed a model for Situational leadership, according to which leaders adapt their leadership style to cater for the development skills and motivation of their followers (Paul Hersey Ken Blanchard, 1977) Hersey Blanchard (1993) identified four different types of the situational leadership style. These are directing, coaching, supporting and delegating. The appropriate leadership style for various development level according to (Blanchard, Zigarmi Nelson 1993) are discussed in the the paragraphs following:
Low competence/High Commitment: indicates that at the developmental level the employee is inexperienced but nonetheless needed support is given to be motivated to do more. The employee needs to be though, and supervised, and, therefore, requires a direct leadership style which is structured and organized.
Some competence/ Low commitment- At the developmental stage; the employee has gained some ability, but at the same time lacks motivation causing him to be low committed. Together with direction, the employee needs support and hence, requires coaching leadership style.
Moderate-to-high Competence/Variable Commitment- As an employee's skills advance, he needs less direction. In order to harmonize his ongoing motivation, the employee needs praise and to be listened to. Therefore, a supporting style, which helps rather than direct, is appropriate at this level.
High competence/High Commitment- Employee who has the highest developmental levels are both highly skilled and motivated. The best leadership style for such employee is delegating style. The employee responsibility for decision - making on daily business activities.
illustration not visible in this excerpt
Figure 1.1: Situational leadership style
Adapted from R. Likert, 1961
Hersey and Blanchard (1993) developed the Situational Leadership model based on the four Types discussed above. The grid model (Figure 2) is classified into four situations. In the upper left part is the supporting leader who passes routine decision to the follower on task allocation and purpose. Next, in the upper right section is delegating leaders who leave control for followers but are involved in decisions and problem solving. In the bottom left is the directing leader who describes the high and low roles and tasks of followers and supervises them closely. The last section captures the coaching leader who describes roles and tasks, but seeks ideas and suggestions from the follower.
illustration not visible in this excerpt
Figure 1.2: The Situational Leadership Model
2.1.2.3 Transformational leadership
Transformational leadership involves rallying people around, inspiring vision, experiencing optimism about the future, helping followers develop and empowering people to make change happen (Daft, 2010).
According to Burns (1978) transformational leaders influence people around, motivating them to get job done. By motivating people to do more than originally expected, transformational leadership style has a positive impact on follower's development and performance.
Transformational leaders make followers aware of the importance of organizational goals and the need to make these goals transcend their own immediate interest for the betterment of the whole organization (Bass, 1995). Researches conducted by (Bromley Krischner-Bromley (2007), Muniapan (2007) as well as Bono and Judge (2004) identified four dimensions of leadership behavior that are typical of the transformational leadership style. The first is inspirational motivation (Charisma). Leaders with charisma have the ability of developing symbolic power to influence followers. The second behavior is inspiration which enables the leader to passionately communicates goals to followers.
Transformational leaders also have the power of intellectual stimulation to change thinking style of members to achieve desired goals. Leaders who adopt the transformational leadership style also have the behavior of individual consideration. They attend to and treat individual employees by addressing their needs, listening attentively, furthering their development, advising and coaching (Detert Burris 2007; Russel 2004 Bass, 1985).
Hater and Bass (1988) identified nine qualities useful in enabling transformational leaders to bring about transformation. These include:
i. The transformational leader must raise people's awareness about the importance and values of certain rewards and achievement.
ii. The transformational leader must help group members search for self-fulfillment. The transformational leaders must help group members understand the need for change both emotionally and intellectually.
iii. Transformational leaders must be able to create and develop managers and instill in them the urgency for change. This promotes shared leadership which is recognized among corporate leaders to drive the vision necessary to achieve organizational goals. The transformational leader must adopt a long-range view of issues to allow for a broader perspective of organizational issues. The transformational leader must build Trust among followers and between leaders and flowers.
iv. The transformational leader must concentrate resources on areas that are highly in need of change and have potential payoff. Transformational leader builds trust between leaders and follower. Building trust mean leaders must show transparency between leaders and followers to achieve organizational success (Ghosn 2000)
v. The transformational leader needs resources in areas that require change in the organization. Change cannot happen when these resources are not available (Kim and Mauborgne, 2010).
2.1.2.4 Transactional leadership
Transactional leadership deals with motivation of members through contingent reward or punishments based on compliance to clearly set objectives and goals (Burns 1978). The principal objective of transactional leadership style is based on the goal setting to establish a link between performance and reward for leaders to provide useful feedback to followers for the achievement of desired goals. Bass (1995) observes that employees need to be rewarded with a valuable prize if they accept leader's instructions to complete their tasks. Avolio and Bass (2001) have identified three components of transactional leadership. These are the contingent reward, management by exception and Laissez-faire.
Contingent Reward as a form of leadership involves agreement between the leader and the follower to the effect that upon a satisfactory execution of an assignment on the part of the member the leader would honour his part of the agreement by promising or issuing a reward to the follower.
In the case of management by exception, there are two components, namely: active and passive. With the former, the leader actively monitors the follower's activities for errors and deviances from the standards and corrects them when necessary. In the case of the latter the leader waits for errors and deviances from the standards to occur, before taking corrective actions.
In relation to laissez-faire, the leaders offer tasks to their subordinates, without knowing what is happing. Nothing is transacted, and the leader refuses to take sides in disputes. This form of leadership promotes an individual career path and freedom of action for goal and skill settings, and is very effective when leading a team of highly motivated and skilled people who have produced excellent work in the past. However, Laissez-faire style is a form of a delegation of authority by the leader to subordinates, including planning, motivating and controlling, where the assistant is responsible for his or her own actions. In all, the leader has little control over subordinate.
2.2 Understanding Business Strategy
The word 'strategy' has been defined and used in a wide variety of ways (Mintzberg, 1990) but there are five different perspectives of the definitions which are worth discussing. These include strategy as a resource allocation; strategy as creating a unique position; strategy as a process; strategy as an integration, and strategy as a plan for action. Clearly, the meanings in some of the definitions overlap at some point. For instance, Chandler (1962) defines strategy in relation to the basic long-term organizational goals and the courses of action taken to achieve those goals (strategy as plan of action), in addition to allocating resources which are required to carry out these goals (strategy as resource allocation). According to the author, a strategy serves as the basis of determining the long-term goals of the organization. He writes that, firms are supposed to adopt different types of strategies in order to make it easier to measure organizational performance rather than relying on a single strategy applied over the long-term. This is in contrast to what Buzzell et al. (1975) write about business level strategy.
According to Buzzell and Gale (1987), strategy is used in reference to the policies and key management decisions which are intended to have major impacts on the financial performance of an organization. The implementation of these policies and decisions normally require significant commitment of resources, and as a result, cannot be easily reversed. Thus, resource allocation arises out of the decisions taken in relation to the selected strategy, and as such, will be in context if the strategic decision has not been taken. In this regard, Buzzel and Gale (1987) further segregate strategy into business unit strategy and corporate strategy, with the former referring to how an entity competes in a given business, while the latter (corporate strategy) deals with how to allocate resources among businesses and the design of a portfolio of strategic business units (SBUs) which support each other.
Porter (1996) also considers strategy as the process by which unique and valuable position is created, relying on a set of activities that are different from those of an organization's competitors. It needs to be emphasize however that, creating a unique and valuable position should aim at motivating the organization's competitors to use some of the selected activities as benchmark in their own processes. It is through this means that an advantageous position can be createdand consolidated.
In the words of Mintzberg (1990), the term strategy refers to a plan, a ploy, a pattern, a position or a perspective - or the 5 Ps. In this regard, Mintzberg considers strategy as a process because it relates to what an organization's leadership plans to do in the future, that is to say, an analytic process for creating goals and action plans for implementation in the short and long terms. When considered as a ploy, the strategy is intended to outsmart an organization's rivals or competitors. As a pattern, the strategy is to be used in making series of decisions, by isolating sets of behaviour to which strategies can be applied as patterns or consistently in such streams. Strategy as a position has to do with comparing an organization's position in relation to those of the competitors or the interrelations among the various positions. Then, as a perspective, a strategy focuses on the group of strategy makers, and how their views, preferences, choices and other characteristics impact on the organization.
Similar to Mintzberg (1990), Seth and Thomas (1994) see strategy as a pattern or plan which synchronizes an organization’s major goals, policies and action sequences into one cohesive whole. Thus, a well-formulated strategy must help to organize and allocate available resources into a unique and viable position based on internal competencies and shortcomings inherent in the strategy, expected changes in the environment, and what competitors are likely to do on the market. This definition requires an organization to exhibit a purposive and entrepreneurial capability, using unique resources, which can interact with the environment in order to become viable in the long term.
Van Gelderen, Frese and Thurik (2000) also consider stategy as a plan, but from the point of view of the individual and how their action plans influence their disposition and behaviour in the organization. It is usual for people to deal with all forms of situations by using a strategic plan of action, which serves as a model or templae that can be applied to various situations. To some other researchers, a strategy must include a statement of objectives, while others think that strategy is only the means by which the objectives can be achieved. The different perspectives of strategy are therefore discussed in the subsequent paragraphs to make the different meanings of strategy clearer.
The discussions above clearly bring out certain key elements associated with a strategy, which include goal-setting goals, resource allocation, and an action plan. A strategy then can be described as a coordinated plan, which provides an outling for making decisions and carrying out the activities of a firm, using the resources available to a company to create additional value to enable the company to achieve its own goals.
According to Hitt and Hoskisson (2000) business level strategy is an action plan which is used by firms to provide value to their customers to gain competitive advantage to explore core competencies in specific, individual product markets. The reciprocal is that core competencies need resources and capabilities to translate organizational efforts into a competitive advantage over its rivals.
Ansoff (1975) also defines strategy as a product market growth matrix, which integrates firm's activities with new markets and products. He sees that market competitiveness among new product developments are crucial for firm growth opportunities. In their view, (Knights and Morgan 1990) see strategy as a discourse between the business world overtime continue to change in process of control through people so as to accomplish organizational goals.
2.2.1 Classifying strategy
Nijssen (1992) has stated that a strategy can be classsified in different ways, but three main approaches, namely the business matrix approach, a theoretical approach and an empirical/statistical approach, can be used.
Leeflang (1994) regards the business matrix approach as pramagtic and useful, particularly in dealing with matters regarding business or product(s) expansion. According to the Boston Consulting Group (1971), the business matrix aims at helping corporate managers to determine when they should use profits to fund growth in other businesses.
The theoretical approach to classifying strategy has been highlighted by Chandler, (1962), Miles and Snow (1978) and Porter (1980) who are of the view that although a strategy can be theoretical, the actual ideas concerning the strategies are derived from practice. Within this category, strategy seeks to describe how firms can formulate their strategies (Mintzberg, 1985, Hart 1992, and Fletcher and Harris, 2002), and the actions taken to support the strategy (Huff and Reger, 1987). Porter (1980) and Miles and Snow (1978) have also concentrated on content strategies, which can be used in empirical studies or form the basis for carrying out that form of research.
A third method of classification is the empirical-statistical approach which deals with the strategic behaviour of companies, or groups of companies in order to examine the similarities or otherwise of their strategic behaviours (Dess and Davis, 1984, and Smith and Grimm, 1987).
Based on the the classification approachedsMintzberg and Waters (1985) make a difference between intended and realized strategies. Comparing intended strategy with realized strategy, help to distinguish between deliberate strategies - realized as intended - from emergent strategies - patterns or consistencies realized despite, or in absence of, intentions. The fundamental difference between deliberate and emergent strategy is that whereas the former focuses on direction and control, getting desired things done, the latter opens up the notion of strategic learning.
A deliberate strategy depends on three conditions which must be satisfied, namely: there must exist precise, detailed and well-articulated intentions; sharing of the defiended intentions for a complete acceptance by all stakeholders within the firm, and a predicatable environment which can be fully controlled by the organization. On the other hand, emergent strategies thrive on the existence of order, consistency over time, and without any pre-determined intentions. This means that there is no existing strategy or at least an unrealised strategy. The caution however, instead of looking for the existence of pure forms of deliberate and emergent strategies, one must look at a strategy between the two because the expectation is simply to determine the directions of the two forms of strategies instead of their perfect forms. Thus it is common to find most strategies sharing characteristics of both, whereby the strategy may be close to being deliberate initially, but end with something close to emergent strategy.
In-between deliberate and emergent strategies, Mintzberg and Waters (1985) identify eight different strategies, namely: planned, entrepreneurial, ideological, umbrella, process, unconnected, consensus and imposed strategies, each of which are discussed in detail under the theoretical framework sectoin of the work. What must be borne in mind is that not all strategies are formally written down. While the performance of some organizations is controlled by formally written strategies, others rely on unwritten strategies to induce high performance.
Other types of strategies called 'generic strategies' have also been highlighted by some researchers such as Mintzberg (1973), Miles and Snow (1978) and Porter (1980). The use of generic strategies helps firms to recognize that organizations are likely to compete differently with their rival firms by implementing different strategies to achieve competitive advantage. The emergence of business level strategy has been important to the strategic management research field. Strategy ties firm performance to situation or environment. Therefore, the essence of business level strategy is a vital phenomenon in most firms, particularly developing countries.
A study on business strategy by Mintzberg (1973) reveals that strategy models result in a number of strategy-making situations. These include planning mode which results from the process of attaining goals. Mintzberg identifies four streams of characteristics to describe the adaptive mode. They include non-existence of clear goal, and strategy-making process reflects a division of powers among organizational members in difficult coalition. second the strategy making process is characterized by the reactive solution to the existing problems rather than new opportunities existing in a proactive search. Third, the adaptive organization makes decisions that are in incremental, sequential steps and finally disjointed decisions are characteristics of the adaptive organization.
[...]
- Quote paper
- John Parker Yanney (Author), 2014, Business Strategy and Leadership Style: Impact on Organizational Performance in the Manufacturing Sector in Ghana, Munich, GRIN Verlag, https://www.grin.com/document/287315
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