Topic Gateway Series No. 30 Prepared by Alexa Michael and Technical Information Service May 2007 1
About Topic Gateways Topic Gateways are intended as a refresher or introduction to topics of interest to CIMA members. They include a basic definition, a brief overview and a fuller explanation of practical application. Finally they signpost some further resources for detailed understanding and research. Topic Gateways are available electronically to CIMA members only in the CPD Centre on the CIMA website, along with a number of electronic resources. About the Technical Information Service CIMA supports its members and students with its Technical Information Service (TIS) for their work and CPD needs. Our information and accounting specialists work closely together to identify or create authoritative resources to help members resolve their work related information needs. Additionally, our accounting specialists can help CIMA members and students with the interpretation of guidance on financial reporting, financial management and performance management, as defined in the CIMA Official Terminology 2005 edition. CIMA members and students should sign into My CIMA to access these services and resources. The Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP United Kingdom T. +44 (0)20 8849 2259 F. +44 (0)20 8849 2468 E. tis@cimaglobal.com www.cimaglobal.com 2
Definition The process through which leaders influence the attitudes, behaviours and values of others. Hagen et al, 1998 Lead is an Anglo-Saxon word meaning path. The leader is therefore the one who provides the path. may be defined as the process of providing the path that others follow. Context CIMA students are unlikely to study leadership for their professional examinations, but they may well take on leadership responsibilities at all stages of their working life. Research has shown that all noted business leaders were given the opportunity to develop leadership skills very early on in their careers. Related concepts Authority; charisma; control; management; moral authority. Overview Business leadership occurs at all levels of an organisation, namely at team, operational and strategic levels. There are some universally recognised leadership qualities: vision enthusiasm integrity toughness confidence. 3
There are three main theories about leadership: 1. The personal characteristics approach some people are born to be leaders, while others are not. 2. The leader-follower situation approach the leader achieves a purpose while building an effective team and developing each individual. 3. The contextual (or contingency) approach considers leadership style, not behaviour. There are also different styles of leadership. These may be governed by an individual leader s personality but also by the organisation in which he or she operates. Transactional leadership optimises performance through incremental changes to existing organisational policy and structure. Transformational leadership aims to change the organisation s core beliefs and methods of working in order to improve it for the better. Leaders are not the same as managers, although managerial roles increasingly contain leadership elements. Application There is no one model of what business leadership should be. roles and styles vary, depending on organisational structure, methods of operation and individual personalities. The leadership role is not confined to the executive head of an organisation. Business leadership occurs on different levels: Strategic leader Leads the whole organisation, with overall accountability for the leadership levels below him or her. Operational leader Leads a unit within the organisation comprising a number of teams. The individual team leaders report to the operational leader. Team leader Leads a team of 15-20 people. 4
Project leader Leads for a limited time for a specific purpose. It can be argued that any employee within an organisation is a leader if he or she shows leadership qualities in his or her work. Leaders versus managers Leaders produce vision, inspire motivation and tackle change. The role is generally seen as creative and exciting. Managers deal with structure, organise staff and other resources. The role is seen by some as functional and mundane. There are differences between the two roles. However, making too great a distinction between leaders and managers is almost like expecting the latter to be mediocre. Management is also about leading a team and having a vision. Most management roles involve leadership, especially in organisations with flattened hierarchies. At any level, there are always three elements involved in leadership. 1. The leader personality and character. 2. The situation partly constant, partly variable. 3. The group followers, individual and organisational needs and values. theories and models There are three main leadership theories. The personal characteristics approach This theory states that some individuals are born to lead because they have a set of innate skills and abilities. There are individual qualities or traits which make somebody a natural leader. This seems valid up to a point because leadership is often described as an art and not a science, but studies have not shown any consistent patterns of leadership traits. No one pattern of behaviour that characterises good leadership has been identified. 5
The leader-follower situation approach This is an action focused approach which looks at three core leadership functions: 1. Achieving the desired result (the task). 2. Building an effective team. 3. Developing each individual. Each activity depends on the others, but the key objective is to achieve the task. It is true that achieving a purpose is a key part of leadership. However, this situational approach does not explain why effective leaders behave in a certain way. It ignores how leadership behaviour affects the behaviour of others. Additionally, this theory presupposes that leaders need to excel in technical matters; for example, knowledge of how everything works in a factory. In practice, a leader needs more than hard technical skills to take people with him or her. The contextual (or contingency) approach This approach recognises that a leader s effectiveness is dependent on the nature of the organisation in which he or she operates, as well as the personality of the individual leader. The contextual approach considers leadership style, not behaviour. In turn, the contextual approach states that leadership style depends on personality traits, behaviour and individual situations. It understands that one leadership style does not suit every situation and that leaders will alter their behaviour to meet changing demands. John MacGregor Burns (1978) identified two key organisational states, convergent and divergent, along with two leadership styles, transactional and transformational. Transactional leader In a convergent state, the organisation is operating under stable conditions. This gives rise to a transactional style of leadership which aims to optimise performance through incremental changes to existing organisational policy and structure. Contingent reward good performance rewarded, achievement recognised. Active management by exception searches for deviations from rules or standards, corrects behaviour. 6
Passive management by exception corrects only where standards are unmet. Laissez-faire decision making avoided. Example An example of a transactional business leader is Sir Alan Sugar, who tends to make gradual changes to his business over time, rather than attempting radical change. He will not attempt to intervene unless the situation demands it. Transformational leader In contrast, a divergent state occurs where environmental changes pose a challenge to the organisation s established goals and methods of working. Here, transformational leaders are needed to change the company s core beliefs and methods of working. Transformational leaders must unite their followers behind a new vision of their company s future (Burns, 2000). Charismatic provides vision, has mission, is respected and trusted. Inspires communicates high expectations, explains purpose but in simple ways. Intellectual stimulation values intelligence, rational thinking, problem solving. Individual attention personal attention, coaches and advises employees. Example An example of a transformational leader is Colin Marshall, who transformed British Airways (BA) from a failing company into the world s favourite airline in the 1980s. He did this by listening to the ideas and concerns of individuals inside and outside of BA to find out what company values, beliefs, attitudes and behaviour needed to change for BA to become successful. He then acted on his findings to make far reaching changes (Heifetz and Laurie, The work of leadership in Harvard Business School Review, 1998). Effect of personality on leadership The personality of an individual will also influence his or her style of leadership, whether the leadership is transactional, transformational or any other style. For example, some leaders will insist on implementing their strategy themselves while others will be content to let other people carry out the actual implementation process. Some leaders will be more inclined to consult with people and to seek input, while others will be far more autocratic. 7
Inspiration Business leaders can inspire others by: imagination the ability to bring about the new thinking beyond themselves and considering others giving a sense of meaning and purpose to others in the organisation developing the vision and building a consensus gaining commitment and engaging others. qualities Below are some of the qualities that are commonly seen in leaders. Vision Vision is discussed here from a strategic leadership perspective, although it is also relevant to leadership at other levels. This includes leading a team or department within an organisation. Vision is arguably the defining characteristic of leadership. A leader most often has an unwavering but not inflexible belief about the where the organisation is going and what must be done to get there. generally means having the ability to see the big picture before anybody else. involves setting a direction. To do this, a leader needs to gather a wide range of information, formally and informally. He or she observes patterns, relationships and connections that explain the organisation s current state. From here, the leader can set a direction and produce a vision which sets out what the organisation should become over the longer term. An accompanying strategy gives practical ways of achieving the goal. Business visions do not have to be highly innovative. Many successful ones are not. They may contain ideas or combinations of ideas that are already known. Three factors are crucial for an effective vision: 1. The vision must serve the interests of all stakeholders, including customers, shareholders and employees. 2. The vision must be conveyed throughout the company, so that everybody feels involved. 3. The vision can be easily translated into a feasible strategy. 8
Example When Jan Carlzon produced a vision to make Scandinavian Airline Systems (SAS) the best airline in the world, he said nothing original. However, he noticed that business travellers fly more consistently than other groups, and are also willing to pay higher fares. He therefore focused SAS on business travel, with a view to high margins, steady business and consistent growth. No other airline had ever followed this strategy before. SAS did, and it worked. Jan Carlzon had shown leadership by putting his visionary thinking about SAS into practice. As a result, SAS became one of the world s most successful airlines. Values A focus on values can improve relationships within an organisation and increase its effectiveness. The addition of values will be most effective when there is synergy between the leader s and the organisation s values. Examples of good business values include the will to make a difference, or to challenge and innovate. Trust and communication Some leadership styles involve actively listening to others points of view. This act of listening allows leaders to build trust with their followers. However, it is by no means impossible to lead without building trust. Many people are accidental leaders who gained followers because they actually took a direction while others prevaricated. For example, Rupert Murdoch was definitely a leader but not a listener. Enthusiasm and motivation Leaders bring enthusiasm to their work. Exceptional leaders make others want to work harder and more effectively because they are enthusiastic and have a sense of purpose. An example of a creative and enthusiastic leader was Walt Disney. Effective leadership should make individual employees realise how individual effort adds value. It should inspire all staff to strive for the very best of which they are capable of achieving. 9
Confidence This seems to be common to all leadership styles. Followers appear to need a leader to have self-confidence and confidence in their vision of the future. Toughness A leader usually commands respect, although he or she is not necessarily always popular. Intuition Good leadership involves the use of intuition to select the right time and course of action. A leader s ability to collect and interpret soft information allows him or her to know when and how to act. Barriers to successful leadership Barriers to good leadership include: Personal barriers. Some people think and feel in such a way which prevents them from becoming good leaders. Low self-esteem is often the root cause. Such individuals are usually either the office tyrants or sycophants. They gain little respect because they are inconsistent and do not hold themselves or their team accountable. This creates a climate of distrust and dislike. Organisational barriers. The company way of doing things can have a negative impact on leadership. Organisations with rigid hierarchies are unlikely to produce successful leaders if employees feel powerless and have no opportunities to develop. training Anthony Jay argued that the only training for leadership is leadership. Organisations should aim to create the kind of environment which encourages leadership at all levels and as early as possible. Employees should be encouraged to show creativity and to make mistakes as part of their learning process. In this way, a leadership friendly culture is allowed to develop at all levels of the organisation. The relevant training can help to develop effective leadership in people, although it is no substitute for real experience. 10
Case studies There are any number of examples of different leaders and leadership styles. The following are just two of them: Crown Point Cabinetry In 1993, Brian Stowell, Chief Executive of family owned cabinet manufacturer Crown Point, produced a vision for his 85 employees. It focused on high quality products with less rework and wasted material. Production line management was abolished and replaced with a team based management approach. This was a high risk strategy, but it paid off with increased sales and profits. Nucor Steel Corporation Nucor Chief Executive Ken Iverson decentralised Nucor s structure, leaving just four management layers. Only 22 employees worked at the corporate headquarters, while the steel plants were located in rural areas across the USA. Each plant general manager had considerable autonomy and was encouraged to take reasonable risks. Employee relations focused on pay for productivity and there was an egalitarian approach toward employee benefits. Under Iverson's leadership, Nucor pioneered the mini-mill concept, built new plants, promoted staff internally and remained a domestic company. References Adair, J. (1999). skills. London: Chartered Institute of Personnel and Development. (Management Shapers Series) Kotter, J. P. What leaders really do in Notes on Harvard Business School Review on. (1998). Harvard: Harvard Business School Press Shaw, P. (2006). The four Vs of leadership: vision, values, value added, vitality. Hoboken, NJ: John Wiley and Sons W. F. Achtmeyer Center for Global, Tuck School of Business at Dartmouth skills an overview. (PDF 74 KB). CIMA Technical Briefing, May 2001. Available from: www.cimaglobal.com/technicalreports [Accessed 5 March 2008] 11
Further information Articles Full text articles available from Business Source Corporate through My CIMA www.cimaglobal.com/mycima [Accessed 5 March 2008] Daniel, M. for the battlefield of business. T & D, Volume 60, Issue 3, pp 42-45 Hopkins, M. Why leadership is the most dangerous idea in American business. Inc., June 2003, Volume 25, Issue 6, p. 86 Leck, C. and Wang, B. Five core ideas for developing leadership capacity to drive business results. Employment Relations Today, Spring 2004, Volume 31, Issue 1, pp 61-70 Malski, J. creates a winning team for your business. Fairfield County Business Journal, 22/1/2007, Volume 46, Issue 4, p. 18 Books Adair, J. (2005). How to grow leaders: the seven key principles of effective leadership management. London: Kogan Page Buckingham, M. (2006). The one thing you need to know about great managing, great leading and sustained individual success. London: Pocket Books Charan, R., Drotter, S. and Noel, J. (2001). The leadership principle: how to build the leadership-powered company. San Francisco: Jossey Bass Wiley Coffee, R. and Jones, G. (2006). Why should anyone be led by you?: what it takes to be an authentic leader. Boston: Harvard Business School Press Gillen, T. (2002). skills for boosting performance. London: Chartered Institute of Personnel and Development Horne, M. and Stedman Jones, D. (2001). : the challenge for all. London: Institute of Management James, K. and Burgoyne, J. (2000). development: best practice guide for organisations. London: Council for Excellence in Management and Kouzes, J. (introduction). (2003). Business leadership: a Jossey-Bass reader. San Francisco: Jossey-Bass. (Jossey-Bass Business & Management Series) 12
Little, G. (2000). Five steps to successful business leadership. Chalford: Management Books Martlew, C. (2004). recharged: business leadership & organisational architecture. Leicester: Troubador Mayo, A., Nohria, N. and Singleton, L. (2007). Paths to power: how insiders and outsiders shaped American business leadership. Boston: Harvard Business School Ulrich, D., Smallwood, N. and Zenger, J. (1999). Results-based leadership. Boston: Harvard Business School Press Williams, M. (1998). Mastering leadership: key techniques for managing a winning team. London: Thorogood Zenger, J. and Folkman, J. (2002). The extraordinary leader: turning good managers into great leaders. New York: McGraw-Hill Harvard Business Review on. (1998). Boston: Harvard Business School Press CIMA Mastercourses Liberating leadership: help, coach, counsel, teach, empower and ultimately inspire your people. To book via www.cimamastercourses.com please go to Find and key in the course code LIBL. 13
Websites BetterManagement.com BetterManagement provides articles, web casts and conferences addressing performance management, financial management, business intelligence, IT management and other critical business management issues to improve leadership and decision making. www.bettermanagement.com [Accessed 5 March 2008] The Forum The Forum improves business performance through better thinking. It is designed to ensure fresh perspectives, new thinking, and challenging ideas from the world's best business thinkers. www.learnleadership.com [Accessed 5 March 2008] Copyright CIMA 2007 First published in 2007 by: The Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP United Kingdom Printed in Great Britain No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publishers. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means method or device, electronic (whether now or hereafter known or developed), mechanical, photocopying, recorded or otherwise, without the prior permission of the publishers. 14 Permission requests should be submitted to CIMA at tis@cimaglobal.com