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Leadership theories

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

This chapter will detail the emergence of transformational and transactional theory from trait, behavioral and situational theories of leadership, previous studies done in Malaysia and also other countries. The relationship of transformational and transactional leadership theory to the outcome variable of job performance will also be examined.

2.2 Leadership Theories

Since the early 1900s, researchers have used numerous theoretical approaches to elucidate leadership which includes trait, behavioral and situational approaches. Concept derived from these lines of leadership can be found in present-day theories of transformational leadership, which encompass leader traits, behavior and situational variables (Yukl, 1989).

2.2.1 Trait Theory

Trait theory is one of the initial approaches in leadership. Leadership trait theory implies that leaders are born rather than made. It places emphasis on the personal attributes of individuals as indicators of leadership success (Linda Van Loan, 1994). Such leaders were assumed to be endowed with certain traits which are not possessed by other people. According to Yukl (1989), the kind of traits studied most often during the early leadership research, included physical characteristics (e.g., height, appearance), personality (e.g., self-esteem, dominance, emotional stability), and ability (general intelligence, verbal fluency, creativity, social insight).

Hundreds of studies using the trait approach to leadership were conducted during the 1930s and 1940s, but little evidence was found to support any specific traits that would ensure success in leadership (Stodgill, 1974). Furthermore, with the influence of behavioral and psychological studies, researchers began to accept that leaders are not born, but these traits require learning and experience. In addition to that, Yukl said that a person also needs considerable skills like technical skills, interpersonal skills and conceptual skills in order to be an effective leader. Stodgill's review of the varied evidence found in trait research, along with negative reviews by other writers, contributed to a disappointment with research on leadership traits.

2.2.2 Behavioral Theory

During the late 40s, organizational leadership research shifted away from the study of leaders' traits to the investigation of leadership style or behavior as a way to describe what leaders do. Particular emphasis was placed on identifying the kinds of leadership behavior that increased the effectiveness of subordinates. The shift from research to behavioral approach also resulted in a new consideration of the practical implications of leadership research. Many researchers postulated that once effective leadership behaviors were revealed, leaders could then be trained to develop those specific behaviors (Bryman, 1992). Behaviors can be learned more readily than traits and this enables leadership to be reachable to all.

An early series of studies on leadership behavior was conducted at Ohio State University (Ghee Soon Lim, 2004). Researchers at Ohio State developed the Leader Behavior Description Questionnaire (LBDQ) and administered it to the employees. The analysis resulted in two dimensions of leadership which includes consideration and initiating structure. The initiation of structure indicates the degree, to which a leader initiates activity in a group, organizes the group and details the way work is to be accomplished. Consideration describes the concern a leader demonstrates for the welfare of the other members of the group (Bass, 1990).

A second major program of research on leadership behavior was carried out by researchers at the University of Michigan. The focus of the Michigan research was identification of relationships among leader behavior, group processes and measures of group performance (Yukl, 1981). Michigan researchers established two dimensions of leadership which consist of employee-centered leaders and job-centered leaders. Employee-centered leaders display focus on the human needs of their subordinates and job-centered leader directs activities towards efficiency, cost cutting and scheduling (Ghee Soon Lim, and Richard L.Daft, 2004). The two dimensions are parallel to those found in Ohio State Leadership Studies.

Initial results of the University of Michigan Leadership studies found higher employee productivity and higher job satisfaction with the employee-centered leadership dimension. Additional follow up studies have resulted in inconsistent and inconclusive findings (Stodgill, 1974).

2.2.3 Situational Theory

The failure to find universal leader traits or behaviors that would always determine effective leadership led researchers in a new direction (Ghee Soon Lim, and Richard L.Daft, 2004). This fostered situational approach to leadership. Situational approach examined how leadership changes from situation to situation as behavior effective in certain circumstances may be ineffective in other.

One variation of the situational approach has been concerned with identifying aspects of the situation that determine what traits, skills and behaviors are required for a leader to be effective in a given situation (Yukl,1981). Thus, the effectiveness of leader behavior is contingent upon organizational situations. According to (Ghee Soon Lim, and Richard L.Daft, 2004), contingency means that one thing depends on other things, and for a leader to be effective there must be an appropriate fit between the leader's behavior and style and the conditions in the situation. There are several theories of situational leadership that have been developed such as Fiedler's contingency theory and path-goal theory.

Fiedler's contingency model was designed to enable leaders to diagnose both leadership style and organizational situation. It presents the leadership situation in terms of three key elements which are leader-member relations, task structure and position power.

Leader-member relations

Leaders who give importance to the leader-member relations will try to get support from the members through close relationship. A leader who has the loyalty and support of members can depend on them to comply readily with his directions. Should the subordinates dislike him, the leader must be vigilant that they do not ignore his directions.

Task structure

Task-oriented leader gets satisfaction when the task is accomplished efficiently. A task is highly structured when the task performed by the members has specific operating procedures, have clear goal, routine and it is easy for the leader to determine how well the work has been performed. When the task structure is high, the situation is considered favorable to the leader. If the situation is highly unfavorable, the leader will stress on the organization structure and will give various directions in order to complete the task resourcefully.

Position power

When a leader has substantial position power, he is able to administer rewards and punishments to increase subordinate compliance with his directions and policies. Leaders with little or no position power must rely on other sources of influence over subordinates (Yukl, 1981).

A Least Preferred Co-worker (LPC) instrument was used to test Fiedler's theory. When using the LPC, leaders are asked to utilize a list of 16-24 items to describe a coworker with whom the leader can work least well, and rate this individual on a set of bipolar adjectives scales (e.g. friendly-unfriendly, boring-interesting, efficient-inefficient). The LPC score is the sum of the ratings and is construed as representative of factors related to the leader, not the specific individual the leader rates (Yukl, 2002). Fiedler's studies shows that when all the three elements above are at the highest level or lowest level, the leadership style is the most effective or ineffective for the latter.

In addition to contingency approach, the Path-Goal Theory of Leadership was developed to explain how the behavior of a leader influences the motivation and satisfaction of subordinates. According to the path-goal theory, the leader's responsibility is to increase subordinates' motivation to attain personal and organizational goals. The leader increases follower motivation by either clarifying the follower's path to the rewards and desires or increasing the rewards with subordinates to help them identify and learn the behaviors that will lead to successful task accomplishment and organizational rewards. In path-goal theory leaders change their behaviors to match the situation whereas the Fiedler theory made the assumption that the new leaders could take over as situations change (Ghee Soon Lim, and Richard L.Daft, 2004).

The path-goal theory has four categories of behavior that leader can adopt and include based on the situation. They are supportive leadership, directive leadership, participative leadership and achievement-oriented leadership.

Supportive Leadership

Giving consideration to the needs of subordinates, displaying concerns for their well-being and creating a friendly climate in the work unit (Yukl, 1981).

Directive Leadership

Letting subordinates know what they are expected to do, giving specific guidance, asking subordinates to follow rules and procedures, scheduling and coordinating the work (Yukl, 1981). Subordinates do not have any involvement under this leadership.

Participative Leadership

Consulting with subordinates and taking their opinions and suggestions into account when making decisions (Yukl, 1981). However, the final decision is in the hands of the leader.

Achievement-Oriented Leadership

Setting challenging goals, seeking performance improvements, emphasizing excellence in performance and showing confidence that subordinates will attain high standards (Yukl, 1981).

The expansion of scholars of the early leadership theories, as well as the recognition of the theories' intrinsic strength and weakness, have contributed much to the establishment for the present day studies regarding transformational and transactional leadership. Burns (1978) articulated the concepts of transformational and transactional leadership in his study which was then further expanded by Bass (1985). Today, transformational and transactional leadership has captured widespread attention.

2.3 Transformational Leadership

Burns (1978) derived his early theory of transformational leadership from Weber's (1947) model of charismatic leadership and from his own descriptive research on political leaders. Maslow's hierarchy of needs was seen by Burns (1978) as fundamental to the transformational process. Burns (1978, p.20) describes transformational leadership as a process in which ‘leaders and followers raise one another to higher levels of morality and motivation. According to Burns (1978), transformational leaders take their subordinates well beyond their day to day work dealing so that subordinates begin to realize their own potential.

Bass (1985) proposed a more detailed theory than Burns to describe transformational leadership. He defines transformational leaders primarily in terms of the leader's effect on followers. According to Bass (1985), a leader can transform followers by: (1) raising the follower's level of awareness and consciousness about the importance and worth of certain outcomes, and ways of reaching them, (2) inducing them to transcend their own self-interest for the sake of team, organization, or larger polity, and (3) altering the follower's need level on a hierarchy of needs such as Maslow's.

A strong correlation was found by Bass (1985) between transformational leadership behavior and increased job satisfaction for followers, increased motivation toward extra efforts for followers, and perceived leader effectiveness. Transformational leadership may be most effective during periods of transition and rapid change. Furthermore, this leadership style can motivate followers to create and promote a new vision, while continuing to increase followers' satisfaction (Bass, 1985). In addition, transformational leaders are responsible for motivating their employees to go beyond ordinary expectations by appealing to their higher order needs and moral values. This leadership has consistently shown advantages on a range of individual and organizational outcomes, such as objectives and performance (Bass, 1998).

Factor analytic studies by Bass (1985) have identified four dimensions of transformational leadership. These include idealized influence, inspirational motivation, intellectual stimulation and individualized consideration.

Idealized influenc e is a dimension that exhibits leaders to behave in ways that allow them to serve as role models for their followers (Bass B.M & Ronald E.Riggio, 2006). Followers identify the leader's competencies and develop a positive attitude towards them. As the leader serve as their role model, followers will emulate leader's behavior which would motivate them to perform better resulting better outcomes in the organization.

Inspirational Motivation leaders behave in ways that motivate and inspire those around them by providing meaning and challenge to their followers' work (Bass B.M & Ronald E.Riggio, 2006). This type of leader can communicate well with their followers and push them to accomplish more for the benefit of everyone in the organization. Being inspired by the leader, followers are willing to do more than what they are required to do in order to increase the individual and organizational performance.

Intellectual Stimulation is one dimension that shows a leader whom stimulates their followers' efforts to be innovative and creative by questioning assumptions, reframing problems and approaching old situations in new ways. The leader would encourage creativity and there would not be public criticism of individual member's mistake. New ideas and creative problem solutions are solicited from followers, who are included in the process of addressing problems and finding solutions (Bass B.M & Ronald E.Riggio, 2006).

Individualized Consideration leaders pay special attention to each individual's follower's needs for achievement and growth by acting as a coach or mentor (Bass B.M & Ronald E.Riggio, 2006). The leader finds time to listen and ensure that task assignments are within the scope, experience, and capability of the employee. The leader allows time in their busy work schedule for idea and knowledge sharing, thereby demonstrating to employees their importance and value to the organization (Bernadette M. Pollard, 2008).

Kark and Shamir (2002) suggested that transformational leaders can have a dual effect, exerting their influence on followers through the creation of personal identification with the leader and social identification with the work unit, and that these different forms of identification can lead to differential outcomes.

Jung, Chow, and Wu (2003) indicated that transformational leadership has significant and positive relations in terms of both empowerment and fostering an innovation-supporting organizational climate.

Study done by Khan et al. (2009) exhibited positive and significant impact of transformational leadership on organizational innovation. He revealed that organizational size significantly moderated the relationship between all facets of transformational leadership (Attributed Charisma, Inspirational Motivation, Intellectual Stimulation and Individualized Consideration) and organizational innovation except idealized influence.

The transformational leaders must be confident with their followers. They need to distribute responsibilities and authorities wisely and eliminate the bureaucratic barriers. Training and guidance should be provided to followers by the leaders to enhance their capability in problem solving and decision-making. Leaders should also encourage team meetings to share ideas and information in order to increase teamwork and cooperation among members.

2.4 Transactional Leadership

According to Burns, a transactional leader was someone “who approaches followers with an eye to exchange one thing for another: jobs for votes, or subsidies to include for campaign contributions” (Klinsontorn, 2007, p.35). An example using Burns definition, it would be like a boss paying extra incentive for its employee who does the most sales. Thus, followers obtain rewards for job performance, while leaders benefit from the completion of tasks. Transactional leaders are good at traditional management functions such as planning and budgeting and generally focus on the impersonal aspects of job performance (Ghee Soon Lim, and Richard L.Daft, 2004).

The definition of Burns was expanded by Bass (1985). He said that a transactional leader must also clearly define how the work is needed to be accomplished for the employee to obtain reward. This will give a clear understanding to the employees on how much of work is required to achieve their goals. According to Archold (2004), trust is essential to leaders credibility in fulfilling with the agreed upon reward once the task is completed within the present parameters. Despite the exchanging of rewards, a follower must trust that the leader would follow through his part if the work is accomplished as required. Should this not be the case, then the followers will not cooperate to complete the work as their needs are not satisfied.

Transactional leadership refers to a leadership that satisfies current needs through provision of rewards as motivation to the followers. The downside of this is it encourages the followers to be selfish. The followers will start demanding for more rewards as an exchange to accomplish the task given. Klinsontorn (2004) added that the focus on leading others solely from a contingent reinforcement perspective may result in subordinates maximizing short-term gains to reach their goals quickly, regardless of the long-term effects.

Bass (1985) research on leadership states that there are two dimensions in transactional leadership which includes contingent reward and active and passive management-by-exception.

Contingent Reward means to reward a follower that meets the expectation or punish for they fail to meet the expectation (Klinsontorn, 2007). For Bass (1985), the transactional leadership is contingent reinforcement. The leader and follower agree on what the follower needs to do to be rewarded or to avoid punishment. Should the agreed-upon performance is achieved; this dimension reinforces the effort to maintain the desired speed and accuracy of employee performance.

Active Management-by-exception occurs when the leader has a system for actively monitoring errors and gaps in expected performance and takes corrective action appropriately (Bass & Avolio, 1990).

Passive Management-by-exception occurs when the leader intervenes only when there is a gap between desired and actual performance levels. Accordingly, the leader pays attention to the subordinate only when corrective actions are necessary. Thus, there are no preventive actions or attempts by the leader to monitor or influence performance (Bass & Avolio, 1990).

According to Bass (1985), both types of leadership, transformational and transactional, are needed for the maintenance and growth of complex organizational systems. He added that though transformational and transactional leadership are conceptually different, both the leadership can be displayed by the same individuals in different amounts and intensities. A study of military officers and industrial managers by Waldman, Bass and Einstein (1986) also showed that although the effects of transformational leadership were generally much stronger than those of transactional leadership, those who had both transactional and transformational characteristics were much more successful than those who had only one.

We have discussed few of the leadership theories and the current leadership styles which are being practiced in organization. It is now important to have a broad overview on employee job performance and its relation to leadership.

2.5 J ob performance

According to Cascio (1992), job performance is defined as completeness of the work that has been undertaken by the employees. It is generally accepted that the effectiveness of any set of people is largely dependent on the quality of its leadership; effective leader behavior facilitates the attainment of the follower's desires, which then results in effective performance (Ristow et al., 1999).

Furthermore, it also has been broadly accepted that effective organizations require effective leadership. Organizational performance will suffer if this is ignored. Research done by Canty L.T (2005) has revealed that there was a significant relationship between the leadership styles and job performances scores of managers. The outcome revealed that transformational and transactional leadership styles are needed for the support and growth of multifaceted organizational systems.

According to Limsila et al. (2007), the transformational leadership style has a positive association with work performance and organizational commitment of subordinates than the transactional style. She added that transformational leaders produce higher leadership outcome as well.

A similar research was done by Klinsontorn (2005). His study indicated that there were positive linear relationship between some dimensions of transformational and transactional leadership and all outcome variables (extra effort, effectiveness and satisfaction with leadership).

Good leaders whom comprehend the importance of achieving the organizational goals will motivate the employees in accomplishing it. Once the employees get motivated, they would perform efficiently which would then increase the organizational performance. Hence, effective leadership is required in order to have an effective organization.

2.6 Previous Studies in Malaysia

In Malaysia, there are many studies done on the issue of leadership. Aspects of leadership have been topic of interest for many local researchers to study in various areas whether it is public or private sector. Existing literature on leadership is mainly based on organizations in western countries. Comparatively, many studies have been undertaken in context of public schools and higher education institution in Malaysia. However, there is lack of studies done on the relationship between the transformational and transactional leadership style and job performance in Malaysia.

Mung -Ling Voon et al. (2009) studied on the preferred leadership style of academics in Malaysian public higher education institutions. She finds that universities leaders do not adopt only one leadership style when managing academics. Indeed, they are more likely to use the elements of transformational and transactional leadership together in order to both inspire and motivate academics. Overall, the finding shows that there is no single approach to leading academics in Malaysian public universities. Academics at different phases of their career have different expectations of leaders.

A similar study was done by Ismail Hussein Amzat. His study examined the perceptions of academic staff on leadership styles practiced by Heads of Departments at International Islamic University Malaysia (IIUM). He also investigated the perceptions of academic staff towards these leadership styles in relation to their own self-efficacy. The outcome revealed that the higher the Laissez Faire leadership style exercised by the Heads of IIUM, the higher is self-efficacy of the academic staff.

Noran Fauziah Yaakud & Ahmad Mahdzan Ayob (1993) examined the correlation between the principal's leadership style and some school background factors on overall school performance. The results showed that all the four independent variables in the regression model, i.e. principal's leadership style, age of school, small town & rural schools correlate significantly with overall school performance.

Furthermore, a study related to the issue of leadership was also done by May-Chiun Lo, T.Ramayah and Hii Wei Min (2009) in respect of leadership style and employees' organizational commitment on Malaysia manufacturing industry. About 156 Malaysian executives voluntarily participated in the study which the results have indicated that several dimensions of transformational and transactional leadership have positive relationship with organizational commitment but transformational leaders are more able to bring in commitment in employees than transactional leaders.

The issue of leadership also attracted Tinah binti Naim@Nain (2007) to investigate if there is a significant relation between the style of leadership of the school principle from the teachers' point of view and stress among teachers in the district of Muar, Johor. The outcome of the research showed that the teachers were at high opinion of the principal from both the dimensions which were initiating structure and consideration. Based on the research there were no significant differences between the teacher's level of stress and their age, experiences, marital status, form teacher, teaching exam classes and the sessions they are teaching. However, there was a significant difference between teachers' level of stress and their sex. There was a very weak negative relationship between structural dimension of principal's leadership and teacher's stress. There was no significant relationship between principal's leadership style and consideration dimension.

Nor Siah Jaharuddin (2006) investigated the relationships between corporate cultures and leadership styles toward organizational performance of local and foreign organizations in Malaysia. The findings showed that both local and foreign companies practiced different sets of culture at the workplace. As for the leadership style, no difference was found in both types of companies since results show the similarity of styles used by the leaders in both type of organizations. The results also indicate d that there is no association between corporate cultures and company's performance, and no association between leadership styles and company's performance in both types of organizations. This factor might lead to the facts of other more influence factors such as socio-economic conditions, global competition and technological advancement, a part of the culture and leadership style.

Ismail et al. (2009) examined the effect of transformational leadership characteristics and empower on service quality by using usable questionnaires gathered from employees working in the city based local authority in Sarawak, Malaysia. The outcome showed that the relationship between empowerment and selected transformational leadership characteristics (i.e. intellectual stimulation and individualized consideration) is positively and significantly correlated with service quality. The result confirms that empowerment does act as a full mediating variable in the leadership model of the organization under study.

Of the research conducted on SMEs, very few studies have attempted to examine the leadership styles in SMEs, particularly in the local context. Mohd Khairuddin Hashim, Sa'ari Ahmad and Ooi Lay Leng strived to address this issue by examining the relationship between leadership styles and job satisfaction among employees in SMEs. Findings of the study indicate that transformational and transactional leadership styles are associated positively to employees' job satisfaction in SMEs. They also suggested that the adoption of both leadership styles may be able to increase the level of job satisfaction among the employees in small and medium-sized enterprises.

2.7 Previous Studies in Overseas

A study done by Klinsontorn (2005) indicates that there were positive linear relationship between some dimensions of transformational and transactional leadership and all outcome variables (extra effort, leader effectiveness and satisfaction with leadership). The results further showed that there was a negative linear relationship between laissez-faire leadership and two outcomes: leader effectiveness, satisfaction with leader. The leader-outcome correlations showed higher scores between transformational leadership style and organizational outcomes than between transactional leadership style and organizational outcomes.

William B.Walsh (2009) investigated the relationship between managers' leadership styles and subordinates' job performance in an aviation security environment which took place in a medium sized International Airport located in southern Arizona. Based on the results, the researcher concluded that a manager did have a direct influence over the success of his or her subordinates regardless of the leadership style used.

In addition to the study on leadership style and job performance, Brett Anthony Hayward (2005) examined the relationship between employee performance, leadership and emotional intelligence in a South African parastatal. He found that there is a significant relationship between employee performance and an emotionally intelligent, transactional leader. However, no significant linear relationship was found between employee performance and an emotionally intelligent, transformational leader.

Similar research has been done by Lorita T. Canty (2005). She analyzed the leadership styles and job performances of the Midwest district managers of an Illinois international manufacturing company as perceived by their direct reports. The study revealed that there was a significant relationship between the leadership styles and job performances scores of managers. The results also indicated how leadership styles could affect the behaviors in job performances of managers. Furthermore, it revealed that transformational and transactional leadership styles are needed for the support and growth of multifaceted organizational systems.

Apart from that, Chung- Kai Li and Chia Hung-Hung (2009) studied the role of leader-member relationships (LMX) and coworker relationships (CMX) using the social-identity and social exchange theory in explaining the relationship between transformational leadership and task performance/organizational citizenship behavior. Results indicated all four dimensions of transformational leadership have positive effects on LMX, whereas only individualized consideration and inspirational motivation positively affect CWR.

Masi (1994) shows statistically that there is a positive correlation between transformational leadership and both individual empowerment and motivation but has negative correlation between transactional leadership and individual commitment to quality of organizational outcomes and organizational productivity.

In 1994, Green did a study at a small, post secondary, educational institution to determine the effect of perceived faculty leadership on the outcome variables, effectiveness, extra effort and satisfaction. The study concluded that the transformational leadership variables contribute more to the output variables than the transactional leadership variables and the laissez-faire leadership variable.

Besides that, Linda Van (1994) examined the relationship of transformational and transactional leadership to organizational culture, employee performance and employee attrition. She also analyzed the transformational and transactional leadership at different managerial levels of an organization. The study showed that there are significant differences between executive-level and first-level supervisors in the use of transformational leadership. It was also shown that leaders who used transformational leadership and leaders who practiced contingent reward linked to subordinate culture that exhibited high levels of humanism, affiliation, achievement and self-actualization. The results did not consistently support the hypothesis that the quality and quantity of subordinate performance were higher under transformational leadership. It was also concluded that this study support the development of transformational leadership in organizational settings.

In a nutshell, most of the past studies points out that the transformational leadership has significant relationship and consequences on job performance and organizational effectiveness. Therefore, this has becomes an interesting topic to study on. However, this topic is not widely studied in Malaysia, thus, this research is very timely.

2.8 Conclusion

This chapter's literature review covers various related topics that are fundamental to the research title. The third chapter will provide further information about the methodology used in this study, methods used to obtain the data and data analysis.


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