9 Leadership

In the context of business, leadership is the process of guiding and motivating others toward the achievement of organizational goals. A leader can be anyone in an organization—regardless of position—who is able to influence others to act or follow.

Example 9.1: Warren Buffett

Warren Buffett has become one of the wealthiest individuals in the world through his leadership of the holding company, Berkshire Hathaway Inc.

Figure 9.1: Warren Buffett.

As chairman, president, and CEO, Buffett is the obvious formal leader at Berkshire Hathaway, but his effective leadership is perhaps better demonstrated by the devoted following he has outside of the official structure of the company. Thousands of individuals read his annual shareholder letter and travel to hear him at Berkshire Hathaway’s annual meetings.

One of the easily identifiable reasons for this is his unparalleled success as an investor. However, there are also a number of key features of his leadership style that have strongly contributed to his effectiveness and influence with his followers.

One interesting element of Buffett’s approach is his “light touch” as a manager. One of his key tasks is to identify companies for purchase that he believes are well-managed and situated for success. As a rule, he buys only companies whose directors he trusts. Because he has confidence in them and their direction, he is happy to leave them to their work with as little interference as possible, which is a trait that appeals to many companies looking for a potential buyer.

Buffett is also a leader who presents a vision, stands firmly behind it, and inspires others to confidence and enthusiasm about that vision. His approach to investing is starkly different from that of many other investors. He emphasizes a deep understanding of companies and their industries, and urges the wisdom of buying proven companies and trusting in their long-term success. This approach contrasts sharply with an eager obsession to discover an unknown company that is about to explode in value and provide quick riches. Buffett’s patient, steady approach to long-term investing has proven effective in the extreme, and many others have placed their confidence in Buffett’s message and vision. As an important ingredient in this vision-casting, many have attested to Buffett’s skill in presenting his approach with a great simplicity that enables his followers to understand the vision easily and deeply, inspiring further confidence.

 

Leadership vs. Management

What is the difference between management and leadership? Sometimes the terms are used almost interchangeably, but there can be important differences between them. Leadership is primarily about establishing a direction and influencing others to follow. Management, on the other hand, is more about successfully administering the many complex details involved in a business’s operations. Leadership pursues change and challenges the status quo, whereas management seeks to provide stability within existing structures and processes.

Both management and leadership are necessary approaches, and they often overlap with one another. In most settings, the role of a manager includes both leadership and management functions. Leadership skills are needed to set the vision, and management skills are needed to implement a plan to achieve that vision. Recognizing the difference between leadership and management, however, can help individuals focus on developing their skills in both arenas. In many cases, successful outcomes are most likely when strong leadership is paired with effective management.

Leadership as a Process

Leadership is a complex and dynamic exchange relationship built over time between two or more people who are dependent on each another for goal attainment.[1] There are several key components to this relationship:

  • Leader
  • Follower
  • The context, or situation
  • The process itself
  • Consequences, or outcomes

Across time, each component interacts with and influences the other components, and whatever consequences (such as leader-follower trust) are created influence future interactions. As any one of the components changes, so too will leadership.[2]

The Leader

Leaders are individuals who take charge of or guide the activities of others. They are often seen as the focus or orchestrater of group activity, the people who set the tone of the group so that it can move forward to attain its goals. Effective leadership helps individuals and groups achieve their goals by focusing on maintenance needs, or the need for individuals to fit and work together by having, for example, shared norms, as well as task needs, or the need for individuals and groups to make progress toward attaining the goal(s) that brought them together.

The Follower

The follower is not a passive participant in the leadership process. It is, after all, the follower who perceives the situation and comes to define the needs that the leader must fulfill. In addition, it is the follower who either rejects leadership or accepts acts of leadership by surrendering to the direction of the leader.

The follower’s personality and readiness to follow determine the style of leadership that will be most effective. For example, followers who perform at high levels tend to cause their leaders to play a less directive role. Followers who are novices or poor performers, on the other hand, tend to cause their leaders to be more directive in their leadership style.[3]

The Context

Situations make demands on a group and its members, and not all situations are the same. Context refers to the situation that surrounds the leader and the followers. For example:

  • Is the task structured or unstructured?
  • Are the goals of the group clear or ambiguous?
  • Is there agreement or disagreement about goals?
  • Is there a body of knowledge that can guide task performance?
  • Is the task boring? Frustrating? Intrinsically satisfying?
  • Is the environment complex or simple, stable or unstable?

The above factors create different contexts within which leadership unfolds, and each factor places a different set of needs and demands on the leader and on the followers.

The Process

The leadership process is a complex, interactive, and dynamic working relationship between leader and followers. To the extent that leadership is the exercise of influence, part of the leadership process is captured by the surrender of power by the followers and the exercise of influence over the followers by the leader.[4] Thus, the leader influences the followers and the followers influence the leader, the context influences the leader and the followers, and both leader and followers influence the context.

The Consequences

A number of outcomes or consequences of the leadership process unfold between leader, follower, and situation. At the group level, two outcomes are important:

  • Have the group’s maintenance needs been fulfilled? That is, do members of the group get along with one another, do they have a shared set of norms and values, and have they developed a good working relationship? Have individuals’ needs been fulfilled as reflected in attendance, motivation, performance, satisfaction, citizenship, trust, and maintenance of the group membership?
  • Have the group’s task needs been met? That is, has the group accomplished the work it set out to do? Has the group reached its goals or achieved its purpose?

Formal vs. Informal Leadership

As we attempt to understand what leadership is all about, it is worth noting that not all leadership is based on an official position. That is, the title and official role of an individual within an organization do not always correspond to actual leadership influence.

Generally speaking, individuals who are assigned titles and positions of authority are expected to provide leadership. When a leadership role is officially recognized, it is known as formal leadership. Unfortunately, there are plenty of individuals who have formal leadership positions but do not actually provide strong leadership. This can leave groups or organizations lacking in direction and purpose.

However, there are also individuals who do not have official positions of leadership but who exhibit leadership qualities and practices. Such individuals help create vision and inspire and motivate their coworkers. When leadership is exhibited without an official position, it is known as informal leadership.

Paths to Leadership

People typically come to leadership positions in one of two ways. In some instances, people are put into positions of leadership through formal processes. For example, university-based ROTC programs and military academies (like West Point) formally prepare individuals to be leaders. These types of leaders are referred to as designated leaders.

Emergent leaders, on the other hand, arise from the dynamics and processes that unfold within and among a group of individuals as they endeavor to achieve a collective goal. Many leaders emerge out of the needs of a given situation. Different situations call for different configurations of knowledge, skills, and abilities. A group often turns to the member who possesses the knowledge, skills, and abilities that the group requires to achieve its goals.[5] People surrender their power to individuals whom they believe will make meaningful contributions to attaining group goals.[6]

It is important to recognize that the traits possessed by certain individuals contribute significantly to their emergence as leaders. Research indicates that people are unlikely to follow individuals who, for example, do not display drive, self-confidence, or integrity.

Influence and Power

As described earlier, leadership is the exercise of influence over those who depend on one another for attaining a mutual goal in a group setting. But how do leaders effectively exercise this influence? Social (or interpersonal) influence is one’s ability to effect a change in the motivation, attitudes, and/or behaviors of others. Power, then, essentially answers the “how” question: how do leaders influence their followers? The answer often is that a leader’s social influence is the source of his power.

A well-known typology identifies six distinct sources and types of power that may be at the disposal of leaders (Video 9.1): reward, coercive, legitimate, expert, referent, and informational.[7]

  • Reward power: the power a person has because people believe that they can bestow rewards or outcomes, such as money or recognition that others desire.
  • Coercive power: the power a person has because people believe that the person can punish them by inflicting punishment or by withholding or taking away something that they value.
  • Legitimate power: the power a person has because others believe that the person possesses the “right” to influence them and that they ought to obey. This right can originate from cultural values, social structures, and designation (i.e., designated leadership, as described above).
  • Expert power: the power a person has because others believe that the person has and is willing to share expert knowledge that they need.
  • Referent power: the power a person has because others want to associate with or be accepted by them.
  • Informational power: the power a person has because they have access to or control over valuable information.

Watch Video 9.1: Leading with Influence to learn about the 6 sources of power. Closed captioning is available. Click HERE to read a transcript.

Not all forms of power are equally effective, nor is a leader’s total power base the simple sum of the powers at his or her disposal. Different types of power elicit different forms of compliance. Reward and legitimate power (that is, relying on one’s position to influence others) produce inconsistent results. Sometimes these powers lead to follower performance and satisfaction, yet they also sometimes fail. Coercive power can result in favorable performance, yet follower and resistance dissatisfaction are not uncommon. On the other hand, leaders who use referent and expert power commonly experience a favorable response in terms of follower satisfaction and performance. [8]

Good leaders, whether formal or informal, develop many sources of power. Leaders who rely solely on legitimate power and authority seldom generate the influence necessary to be successful in the long term. In the process of building their power base, effective leaders have discovered that the use of coercive power tends to dilute the effectiveness of other powers, while the development and use of referent power tends to magnify the effectiveness of other forms of power. A compliment or reward from a person we like generally has greater value than one from someone we dislike, and punishment from someone we admire and respect is typically less offensive than the pain inflicted by someone we do not respect.[9]

In sum, one key to effective leadership, especially as it pertains to the exercise of social and interpersonal influence, relates to the type of power employed by the leader. Leaders are generally most effective when people follow because they want to follow.

Leadership Styles

Individuals in leadership positions tend to be relatively consistent in the way they react to people and situations as well as how they attempt to influence the behavior of others. Such a pattern of behavior is referred to as leadership style. As Figure 9.2 shows, leadership styles can be placed on a continuum with an autocratic (boss-centered) style on one end and a free-rein (subordinate-centered) style on the other.[10]

 

Figure 9.2: Leadership styles.

Autocratic leaders are directive leaders, allowing for very little input from subordinates. These leaders prefer to make decisions and solve problems on their own and expect subordinates to implement solutions according to very specific and detailed instructions. In this leadership style, information typically flows in one direction, from leader to subordinate. When autocratic leaders treat employees with fairness and respect, they may be considered knowledgeable and decisive. But often autocrats are perceived as heavy-handed in their unwillingness to share power, information, and decision-making in the organization.

At the opposite end of the continuum from an autocratic style is free-rein or laissez-faire (French for “leave it alone”) leadership. Leaders who use this style typically turn over all authority and control to subordinates. Employees are assigned a task and then given free rein to figure out the best way to accomplish it. The leader generally doesn’t get involved unless asked. Under this approach, subordinates often have unlimited freedom as long as they do not violate existing company policies.

Although one might at first assume that most subordinates would prefer a free-rein style, this approach can have several drawbacks. If free-rein leadership is accompanied by unclear expectations and lack of feedback from the leader, the experience can be frustrating for an employee. Employees may perceive the leader as being uninvolved and indifferent to what is happening or as unwilling or unable to provide the necessary structure, information, and expertise.

The trend in organizations today is away from the directive, controlling style of the autocratic leader. Instead, many businesses are looking more and more for participative leaders, meaning leaders who share decision-making with group members and encourage discussion of issues and alternatives. Participative leadership falls between autocratic and free-rein leadership on the leadership-style continuum.

No leadership style is effective all the time. Effective leaders recognize employee growth and use situational leadership, selecting a leadership style that matches the maturity and competency levels of those completing the tasks. Newly hired employees may respond well to more authoritative leadership until they understand the job requirements and demonstrate the ability to handle routine decisions. Once established, however, those same employees may perform better under a more participative or even free-rein leadership style.

Employee Empowerment

Participative and free-rein leaders use a technique called empowerment to share decision-making authority with subordinates. Empowerment means giving employees increased autonomy and discretion to make their own decisions, as well as control over the resources needed to implement those decisions. When decision-making power is shared at all levels of the organization, employees feel a greater sense of ownership in, and responsibility for, organizational outcomes.

Use of employee empowerment is on the rise. This increased level of involvement comes from the realization that people at all levels in the organization possess unique knowledge, skills, and abilities that can be of great value to the company.

Chapter Review

 

Optional Resources to Learn More 

Articles
“Getting Beyond the BS of Leadership Literature” https://www.mckinsey.com/featured-insights/leadership/getting-beyond-the-bs-of-leadership-literature
“Great Leaders Are Confident, Connected, Committed, and Courageous” https://hbr.org/2018/07/great-leaders-are-confident-connected-committed-and-courageous
“Understanding Leadership” https://hbr.org/2004/01/understanding-leadership
Podcasts
Wisdom from the Top https://try.luminarypodcasts.com/listen/wisdom-from-the-top/65280dac52b38a00118a0cb7
Videos
Leadership Models, Theories, and Tips (playlist) https://www.youtube.com/playlist?list=PLrjP20LtSCNqVK8IwLd0rAiUVs8fwS0YQ
“What Makes a Great Leader?” https://youtu.be/ME5arjlSTGQ
Websites
Center for Creative Leadership https://www.ccl.org/insights-research/

Chapter Attribution

This chapter was created using the following sources:

Chapter 12 of Black, J. S. & Bright, D. S. (2019). Organizational behavior. OpenStax. https://openstax.org/books/organizational-behavior/pages/12-introduction. Licensed with CC BY 4.0.

Chapter 6 of Gitman, L. J., McDaniel, C., Shah, A., Reece, M., Koffel, L., Talsma, B., & Hyatt, J. C. (2018). Introduction to business. OpenStax. https://openstax.org/books/introduction-business/pages/6-introduction. Licensed with CC BY 4.0.

Module 10 of Spencer, A. (n.d.). Principles of management. Lumen Learning. https://courses.lumenlearning.com/wmopen-principlesofmanagement/chapter/what-is-leadership/. Licensed with CC BY 4.0.

Media Attributions

Figure 9.1: USA International Trade Administration (2015, April 17). Warren Buffett [Photograph]. Wikimedia Commons. https://bi.wikipedia.org/wiki/Warren_Buffett#/media/File:Warren_Buffett_at_the_2015_SelectUSA_Investment_Summit.jpg. Public domain.

Figure 9.2: OpenStax. (2019, June 5). Tannenbaum and Schmidt’s leadership continuum. OpenStax. https://openstax.org/books/organizational-behavior/pages/12-3-leader-emergence. Licensed with CC BY 4.0.

Video 9.1: Heidrick & Struggles. (2016, October 21). Leading with influence the 6 power bases. [Video]. YouTube. https://youtu.be/A3sTrfvMdo4

  1. Hollander, E. P., & Julian, J. W. (1969). Contemporary trends in the analysis of leadership process. Psychological Bulletin, 7(5), 387–397. ↵
  2. Murphy, A. J. (1941). A study of the leadership process. American Sociological Review, 6, 674–687. ↵
  3. Greene, C. N. (1975). The reciprocal nature of influence between leader and subordinate. Journal of Applied Psychology, 60, 187–193. ↵
  4. Hollander, E. P., & Julian, J. W. (1969). Contemporary trends in the analysis of leadership process. Psychological Bulletin, 7(5), 387–397. ↵
  5. Murphy, A. J. (1941). A study of the leadership process. American Sociological Review, 6, 674–687. ↵
  6. Smircich, L., & Morgan, G. (1982). Leadership: The management of meaning. Journal of Applied Behavioral Science, 18(3), 257–273. ↵
  7. French, J. R. P., Jr., & Raven, B. (1959). The bases of social power. In D. Cartwright (Ed.) Studies in social power (pp. 150-167). University of Michigan, 150– 167. ↵
  8. Yukl, G., & Tracey, J. B. (1992). Consequences of influence tactics used with subordinates, peers, and the boss. Journal of Applied Psychology, 77, 525–535; Hinkin, T. R., & Schriesheim, C. A. (1990). Relationships between subordinate perceptions of supervisor influence tactics and attributed bases of supervisory power. Human Relations 43, 221–237; Podsakoff, P. M., & Schriesheim, C. A. (1985). Field studies of French and Raven’s bases of power: Critique, reanalysis, and suggestions for future research. Psychological Bulletin, 97, 398–411. ↵
  9. Hinkin, T. R., & Schriesheim, C. A. (1990). Relationships between subordinate perceptions of supervisor influence tactics and attributed bases of supervisory power. Human Relations, 43, 221–237. ↵
  10. Tannenbaum, R., & Schmidt, W. H. (1958). How to choose a leadership pattern. Harvard Business Review, 95–101; Tannenbaum, R., & Schmidt, W. H. (1973). How to choose a leadership pattern. Harvard Business Review, 162–175. ↵
definition

License

Icon for the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License

Foundations of Commerce Copyright © 2024 by Charlotte Hoopes is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.