Effect Of Leadership Traits On Employee Performance Commerce Essay

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Within every company a leader is needed. Sometimes even more than one, when a company has grown and thus exists out of multiple divisions. These leaders are important because they give the company a direction to head to, and instruct the employees to do this in the best possible way. Especially when a company has just been started, it is very important to make sure that everyone does his very best and knows exactly what to do in order to decrease the chance of failure of the new venture.

Past research has shown that entrepreneurship forms a crucial part of every economy in many ways (Van Praag & Versloot, 2007). For example, the generating of employment (Sutton, 1997), economic growth through entrepreneurship (Carry & Thurik, 2003), the importance of small and medium sized firms relating to innovation (Biggs, 2002) and economic value creation (Parker, 2004). Therefore, it is very important to know as much about this whole process as possible. This can only contribute to increasing the percentage of successfully started ventures. Due to the financial crisis in 2009, the percentage of failures in new ventures has been very high (Graydon, 2010). As this has great consequences for the economy, it is important that this percentage goes down in the coming years. A lot of research has already been done on this subject, but clear evidence on leadership in combination with entrepreneurs that start up a new company is still missing.

In order to get to know more about the leadership of entrepreneurs, this research is aimed at the entrepreneurs in Amsterdam who have just started their own company. The research is done to get an answer to the question of what leadership traits lead to the biggest chance of bringing the new venture to a success. In Amsterdam, there are a lot of new start-ups every year and together with the easy accessibility to these entrepreneurs and their companies; this surrounding forms an outstanding possibility to do research in. Hopefully this study leads to a more clear vision on the success traits of entrepreneurs who have to act as leaders as well in bringing their start-ups to a success.

The next section, which is the theoretical framework, will discuss the existing literature on leadership traits, the characteristics that distinguish an entrepreneur from a non-entrepreneur and recent literature on leadership combined with entrepreneurship. Section three is the methodology section and discusses everything that is important in doing this research. For example, the research method that is going to be used, and the characteristics of the research.

Theoretical framework

2.1 Leadership

In the past, there have been hundreds of articles written on leadership. In the 1950's, Bales based his research on the distinction between two different leadership approaches, namely: task-oriented style and the interpersonally oriented style. The task-oriented style is often associated with the 'initiation of structure' as structure was what it was all about. The interpersonally oriented style is related with consideration, and was based on mutual relationships with followers and so on (Eagly & Johannesen-Schmidt, 2001). Later on, research was often aimed at the distinction between democratic and autocratic leadership (Vroom & Yetton, 1973) and thus differentiated leaders who allowed followers to participate in decision making and those who did not (Eagly & Johannesen-Schmidt, 2001). Burns (1978) argued that some important leadership traits were missing. Three new types of leadership were recognized. The transformational leader was someone who stood for individualised consideration, intellectual stimulation, inspirational motivation and idealised influence (Saunders et al., 2007). The second type was the transactional leader, someone who brought the contingent reward system, to only reward followers if they had performed well enough, and only changed something when it did not work, which was called management by exception (Saunders et al., 2007). The last type was the Laissez-faire leader. This leader was someone who probably did not have enough skills or motivation and thus avoided making decisions and being responsible.

Apart from dividing leaders into the styles they follow, the can be differentiated on leadership traits. There are also many studies aimed at the characteristics of people that make them a leader. Although none of these outcomes were exactly the same, the most articles did come to the similar characteristics that differentiate a leader from someone who is not. Stogdill (1974) and House & Baetz (1979) showed that leaders tend to be higher in (1) intelligence, (2) dominance, (3) self-confidence, (4) energy and (5) knowledge of the task than non-leaders. Throughout these studies, the most important question was what the most important characteristics of a born leader are. But research also showed that it is not about having these characteristics, but how to use them in a way that makes you effective as a leader. Therefore, Kouzes and Posner (2007) did research on the leadership behaviour and found that this behaviour can be identified through five factors, namely (1) inspiring a vision that is shared, (2) modelling the way, (3) encouraging the heart of the followers, (4) challenging the process and (5) enabling others to act.

Different types of tasks often ask for different leader characteristics and behaviours. Therefore it is important that a leader knows how to adapt to certain circumstances. This makes him other than his followers and thus someone with whom they can interact. Fiedler (1967) argues through his contingency theory that the ultimate leadership behaviour is dependent upon the situation. Thereby, Fiedler has also stated that experience is more important than intelligence in some difficult situations. This means that leaders also grow as they gain working experience, and use this experience in situations that require more than innate traits. This is very important because of the fact that the leader influences all sorts of employee variables like organizational commitment, job satisfaction, performance and so on. (Kouzes & Posner, 2007).

Research done on leadership has a lot of things in common with research in other fields. One example is the research on traits of a specific type of person. This research is also done in the field of employees as followers of leaders, but also for example the characteristics of employees in combination with job satisfaction and organizational commitment. Another example is research on characteristics of people with respect to working-groups or career management. One of the most similar types of research compared to studies on leadership is the research on entrepreneurs. What are the traits of a real entrepreneur? Why is one entrepreneur more successful then another? In a lot of ways this research is comparable.

2.2 Entrepreneurship

The research on entrepreneurship and leadership is very similar in many ways (Ensley et al., 2006). The aspect that is most similar is the search for traits that makes someone good and efficient in his role. This type of research is called the "traits approach". Throughout the years, a lot of research was done on two aspects within this traits approach. The first aspect is the effect of the situation on entrepreneurs (e.g. Kirzner, 1997) or leaders (e.g. Wofford and Liska, 1993) and the second aspect is the behaviour of entrepreneurs (e.g. Shaver and Scott, 1991) or leaders (e.g. Bass, 1990).

Just like with a leader, an entrepreneur also influences the performance of his organization. He can be the one who makes the difference between success and failure of the new venture. Some researchers say that this is due to his characteristics that divide him from others, such as risk-taking propensity (Stewart & Roth, 2001), high self-efficacy (Chen, Greene & Crick, 1998) or to discover opportunities that others do not (Alvarez & Busenitz, 2001). But other researchers say that it is due to the behaviour of the entrepreneur that businesses increase the chances to succeed, so how he uses these characteristics (Bass, 1990). Either way, a lot of similarities are found between leaders and entrepreneurs, which makes it interesting to study the combination of the two.

2.3 Combining leadership with entrepreneurship

As leaders and entrepreneurs have a lot in common, it is not a surprise to know that the two can be combined. In fact, research has showed that being a leader while starting a new venture, and thus being an entrepreneur, is important in order to get the most out of the company. As stated above, leaders are able to influence aspects such as the motivation, productivity, and commitment of employees and thus influence the overall performance (Kouzes & Posner, 2007). As entrepreneurs are depending heavily on the employees in the beginning phase of the new venture, it is important to bring up the best out of these employees (….).

Different types of leaders have different sorts of influence on their followers. This is an important thing to keep in mind while doing research. Each type of leadership has its own advantages and disadvantages and thus react different to a specific situation. For example, transformational and charismatic leadership are often related to a better performance of workgroups and organizations (Saunders et al., 2007). Another example is that a transformational leader wants to be seen as 'the great leader' and does not pay any attention to the situation or his followers, while a democratic leader is someone who joins the group and works as hard as the rest (Saunders et al., 2007). In order to let the employees work as efficient as possible it is important to know what type of leader fits best in the start-up.

Up till now there has been little previous research on the combination of leadership traits and entrepreneurship. Therefore there are few researches to rely on for now. What is useful is research that has been done on leadership in different situations. One of the most important in this field is that of Fiedler, who did research on different factors influencing leadership performance. For example, his cognitive research theory, which was aimed at stressful-situations, leadership intelligence and leadership experience. Although not everyone was fully convinced by these theories (Vecchio, 1992), there have not been any fundamental challenges of the theory.


3.1 Research setting

The setting of this research is based on Amsterdam and its surroundings. This is because of the fact that these companies are easily accessible for the researcher. Thereby comes that a lot of the entrepreneurs in Amsterdam are united in several associations. For example, the 'Ondernemersgroep Amsterdam', 'het Ondernemershuis' and MKB Groot Amsterdam. Furthermore, the 'Kamer van Koophandel', which is Dutch for Chamber of Commerce, is located near the centre of the city. These associations will probably be able to give all the information that is needed for this research.

3.2 Research characteristics

This research will be done through using a cross-sectional approach. This can be described as a 'snapshot' time horizon. Due to time constraints and data availability it is probably the best option to use. Of course, being able to study changes and developments of certain companies over time, and thus using a longitudinal approach, would probably lead to even more specified results (Saunders et al., 2007), but this option would take too much time. So, data from companies that are in their first or second year of business will be used, this data is still recent and should not lead to much trouble when collecting. Thereby comes that the entrepreneurs should still be clearly aware of how they fulfilled their leadership roles, with respect to the traits of their leadership type. Clear should be that the level of analysis is on the firm-level and that the research is practice-driven. This research could be valuable to the theoretical science as it is trying to get a better understanding of certain phenomena, but also in practice where entrepreneurs and leader can learn from. By knowing more about the traits of each role, and especially for entrepreneurs how to combine the traits of these two roles could be very valuable (Ensley et al., 2006). The societal relevance thus plays a bigger role than the scientific relevance.

The companies that are going to be used in this study are probably all established within Amsterdam and its surroundings. Also, they have to be registered at one or more of the above mentioned associations so that the access to the entrepreneurs and necessary data will be available. Variables used in this study will be traits of entrepreneurs as they are also perceived as leaders within their company, and the company's performance. For many companies the term of one or two years after start-up will probably be too short to be able to speak of a success or failure of the company. Therefore, the company's performance as in being well on track compared to what was planned before, the chance of surviving the next years, and employee performance will be used to measure the company's situation.

3.3 Limitations

The goal of this research is to get an indication of the effects of leadership traits on the performance of small entrepreneurial ventures that have just started. In this first stadium, it is important to let the employees be as efficient as possible, as most of the resources such as money and time are limited and competitors are often watching the company closely to make use of any mistakes made. A quantitative approach will be used through looking at company's performance in relation to leadership traits of the entrepreneurs. Hopefully, afterwards the knowledge on this specific subject will be deepened and be useful for science as well as in practice. For example, a relation between the traits of a leader that inspires his employees to work towards a certain goal as efficient as possible is highly related to a well performing start-up.

In Figure 1, a schematical view on the research is given. The normal line between 'leadership traits' and 'start-up performance' is the main relation that will be investigated in this research. The dotted lines, between 'leadership traits' and employee performance, and between 'employee performance' and start-up performance' will probably also be investigated, although this is still a bit uncertain because of the fact that gathering the data will be relatively difficult and there may also be too many other aspects that could influence this relationship. Therefore, a bit more research has to be done first on the 'employee performance' as a moderating/mediating variable.

Figure 1. A schematical view on the variables and their relation to each other.

An advantage of this study can be that the combination of leadership and entrepreneurship on the level of small start-ups is still relatively blurry and thus has the possibility to open up a new part of this field. Thereby comes that this research is primarily aimed to improve the knowledge of entrepreneurs on leadership traits that are helpful in the beginning phase of a company, which means that the situation can be seen from the firms point of view, instead of a theoretical point of view which sometimes differs too much from reality (Saunders at al., 2007).

This study will have a lot of limitations. One of them is the sample size. Through limits on time and resources it will be impossible to get a very large sample size. Amsterdam will be taken as the main area of the start-ups of which data will be gathered. Thereby comes, that there is a limit on the amount of start-ups, as the number of new ventures depend on all sorts of variables and conditions. Also, not all data may be available for every company due to privacy reasons or unwillingness to cooperate of entrepreneurs. Another limitation can be the use of Amsterdam as the main region of entrepreneurial activity. Several factors within Amsterdam and its surrounding can be of influence on the results and thus results do not have to be generalizable in other parts of the world. Amsterdam being a large city, the capital of the Netherlands, and for example a large tourist attraction. Furthermore, This research is aimed at start-ups and thus is not generalizable for every company, as several resources such as time, money and employees are often very limited.

Small Planning table


Starting date

Finishing date

Discussing the topic, with Ms. van Eerde and supervisor


Improving the literature review and methodology


Middle of February

Starting with survey's etc, because this will always take longer than expected.

Middle of February

Middle of March

Gathering data through surveys

Middle of March

Beginning of April

Processing the data, results section

Beginning of April

End of April

Writing the Conclusion and Discussion section

End of April

End of May

I know that this planning is very optimistic, but I have to start with everything as soon as possible, as I know from past experience that everything takes much longer than panned. Therefore, I set my finishing date early, as this will surely be postponed.