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Human Resource Development (HRM-627)

Lesson 15

LEADERSHIP

ORGANIZATIONAL DEMOCRACY, STRUCTURES AND STRATEGIC LEADERSHIP

The study of leadership has progressed from a simple description of traits to examining complexities of

interaction between leaders and followers and since 1940s, the main approach in studying leadership focuses on

leadership styles (Athanasaw, 2003).

Hambrick and Pettigrew (2001) note two distinctions between the terms leadership and strategic leadership;

first, leadership theory refers to leaders at any level in the organization, whereas the strategic leadership theory

refers to the study of people at the top of the organization, second, in contrast to the micro focus of leadership

research on relationship between leaders and followers, strategic leadership research focuses on executive work,

not only as a relational activity but also as a strategic activity and a symbolic activity. One branch of leadership

research which has proven useful to the study of CEO-level management is the framework of

transactional/transformational leadership (Vera and Crossan, 2004). This framework stems from the visionary

or charismatic school of leadership theory, which along with other five main schools, trait school, behavioral or

style school, contingency school, emotional intelligence school and, competency school, formulate the six main

themes or schools of leadership theories over the past 70 years or so (Dulewicz & higgs, 2003; Handy, 1982;

Partington, 2003). Recent work has suggested that the positive relationship between charismatic leadership and

performance found in earlier studies also holds true at the strategic (CEO) level (Waldman et al., 2004).

Transactional leadership, primarily task-focused (Turner & Muller), motivates individuals primarily through

contingent-reward exchanges. These leaders set goals, articulate explicit agreements regarding what the leader

expects from organizational members and how they will be rewarded for their efforts and commitment, and

provide constructive feedback to keep everyone on task (Howell & Hall-Merenda, 1999; Jung and Avolio,

1999). Operating within an existing system, transactional leaders seek to strengthen an organization's culture,

strategy, and structure and hence is similar in nature to the cultural maintenance for of leadership described by

Trice and Beyer (1993) They clarify the performance criteria for followers and also explain to them what they

would receive in return (Hartog, Muijen and Koopman, 1997; Waldman et al., 2001).

Transformational leadership, primarily people-focused (Turner & Muller, 2005) in contrast, is charismatic,

inspirational, intellectually stimulating, and individually considerate (Avolio et al., 1999; Carless, 1998; Hartog et

al., 2004). Some researchers have treated charisma and transformational leadership as distinct concepts but

others mention transformational leaders talking of articulating a vision, which creates considerable loyalty and

trust among the followers (Tichy and DeVanna, 1986) which sounds very similar to charisma. Similarly, some

researchers use the term empowering leadership to capture five themes of this type of leadership, the themes

are leading by example, participative decision making, coaching, informing and showing concern for team

members (Srivastava, Bartol and Locke, 2006). These five themes of empowering leadership are no different

than the definition of charismatic/transformational leadership. In this paper, therefore, the terms

transformational and charismatic leadership are used interchangeably. Similarly, House and Shamir (1993)

propose that charisma is the central concept in the theories of charismatic, transformational or visionary

leadership. Transformational/charismatic leaders help individuals transcend their self-interest for the sake of

the larger vision of the firm. They inspire others with their vision, create excitement through their enthusiasm,

and have everybody do the same. These leaders seek to raise the consciousness of followers by appealing to

higher ideals and moral values such as liberty, justice, equality, peace, and humanitarian, and not to basic

emotions such as fear, greed, jealousy, or hatred. Transformational leadership has been specified as an

important mechanism for introducing organizational change in the recent research literature (Masood, Dani,

Burns and Backhouse, 2006).

Based on these research findings, following is the second proposition formulated in this paper:

Proposition 2: Organizational democracy would be implemented more successfully in organizations with an organic structure and

where the strategic leadership style is that of empowering or transformational/charismatic type.

Organizational Democracy, Structures, Strategic Leadership and Turbulent Environment

The relationship between organizations and environment is perhaps the most popular and conceptually

appealing aspect of the structural-contingency model (Hrebiniak and Snow, 1980). Present day theorists view

the interaction between the organization and the environment as the critical variable in determining the nature

of internal strategies and processes and point to the need to develop appropriate systems of differentiation and

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Human Resource Development (HRM-627)

integration, depending on the degree of turbulence within the environment (Shipton, Dawson, West and

Patterson, 2002).

The organizational environment is typically divided into two levels. The most influential level is termed the task

environment and consists of firms that directly influence the setting and achievement of goals for a particular

organization. The general environment, on the other hand, has no out boundary and includes the source of

conditions, trends, political pressures, norms and social trends. Changes originate in the general environment

and, in turn, influence task environment phenomena (White, 1998) and it is also suggested that organizational

uncertainty is derived from failure to understand a task environment and from interdependence with elements

of task environment (Lang and Lockhart, 1990).

Milliken (1987), in a review of the literature and research on environment, developed a general definition of

environmental uncertainty, calling it "an individual's perceived inability to predict an organization's

environment accurately" because of a "lack ... of information" or "an inability to discriminate between relevant

and irrelevant data" (Buchko, 1994). Key managers in the industry rely on, "some minimum level of perceived

predictability specifically, predictability relating to customer demands and competitor actions" to formulate

strategies to cope with the environmental uncertainty (Dickson and Weaver, 1997).

Environmental uncertainty has also been defined as the degree to which an environment is stable-unstable,

simple-complex, and concentrated-dispersed (Karimi, Somers and Gupta, 2004). The stable-unstable dimension

refers to whether the elements in organization task environment are dynamic. Organizational task

environments, "include all the sectors with which organizations interact directly and have the potential to

impact organizations' ability to achieve their goals and typically include industry, market sectors, raw materials,

human resources, and, perhaps, international sectors" (Daft, 2001). Under unstable conditions, organization

task environment shift abruptly, and companies react with aggressive moves and countermoves regarding

advertising and new products. Dynamism is characterized by the rate of change and innovation in production

and service technologies, as well as the uncertainty of customer taste and actions by the firm's main industries.

Firms in more unstable environments face a number of similar external elements that change frequently and

unpredictably. Environmental dynamism poses the challenge of planning and control as managers must cope

with unpredictable external events and must seek to integrate and improve operating processes. To do so the

managers and decision-makers require detailed, timely information that allows them to coordinate the flow of

activities, at all levels in organization, with an understanding of process dynamics and their relationship to

organizational performance. As environmental uncertainty increases, interdependency becomes more important

due to increased need for coordination for internal resolutions and the need to link the organization with the

key elements in the task environment to detect, bring, and send information about changes in the environment

(Maier et al. 1997; Schwab et al. 1985).

The simple-complex dimensions concern environmental complexity and refer to heterogeneity, which is the

degree of similarity or differentiation within the organization task environment. Firms in these environments

face many distinctive elements that remain the same or change slowly and require very different marketing,

production, and administrative practices. Organizations in such environment have a great need for information

processing to reduce uncertainty and it is expected that the decision-makers in these organizations are more

likely to face a higher frequency of non-routine and interdependent tasks.

The concentrated-dispersed dimensions refer to scarce material and financial resources and the need to ensure

the availability of resources. Hostile task environments are characterized by severe regulatory restrictions, a

harsh and overwhelming business climate, intense competition in price, product, technology, and distribution, a

shortage of labor or raw material and the relative lack of exploitable opportunities and resources (Miller and

Friesen, 1983). Under these conditions, the organizations' responses can be in the forms of greater integration

and coordination and establishing favorable links with key elements of its task environment. These responses

can be in the form of joint ownership, contract, joint ventures, interlocking directorates, executive recruitment,

buffering, advertising, and public relations (Daft, 2001; Kopp and Litschert, 1980). Some companies also use

innovation, marketing differentiation strategies, high quality, auxiliary services, convenient distribution, and

comprehensive warranties to induce customer loyalty in the face of a changing and turbulent environment

(Miller, Droge and Toulouse, 1988). The firm's perception of environmental uncertainty has been attributed to

its perceptions of the level of control it exerts over its environment (Perrow, 1967). Research evidence further

suggest that firms operating in highly uncertain environments are more likely to form exchange relationships

that mitigate their organizational risk levels; conversely, firms that perceive that they have a greater degree of

control over their current and future technologies (more certain environment) are less likely to forge relational

customer-supplier exchange relationships (Pfeffer and Salanick, 1978; Fink, Edelman and Hatten, 2006).

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The use of uncertainty as an environmental variable flows from an information-processing view of

organizations, a view that explains organizational adjustments, like changes in structure, by variations in

information, as filtered by managerial perceptions of their external environment (Koberg, 1987). Duncan

(1972) made a distinction between the internal and external environments of a company. The internal

environment refers to all those internal forces operating within an organization itself, such as the company's

goals and objectives, nature of its' products and services, communication processes and networks within the

organization, and the educational background of the employees; the external environment refers to all those

forces outside the company, such as customers, competitors, suppliers, governments, and trade unions (Tung,

1979). Overall, the literature suggests that firms should adopt a more organic structure to cater to a more

complex environment where jobs are less specialized and more complex, companies should apply a mechanistic

structure to a more predictable environment with greater subdivision of tasks and similar job assignments

(Chang, Lin and Sheu, 2002). Similarly, other theorists and researchers have suggested that increase in

environmental complexity increases need for strategic activities like developing interorganizational linkages to

cope with complexity and uncertainty of the environment (Stearns, Hoffman and Heide, 1987). The

recognizable pattern of organizational responses to environmental conditions is determined not so much by the

objective characteristics of organization-environment interactions as by managerial perceptions of the strategic

importance of the critical areas contained within different organizational functions. Researchers investigating

the link between perceived environmental uncertainty (PEU) and the relative strategic importance of different

organizational functions have found that "externally oriented functions (e.g., market research and product

development) received emphasis with high PEU but internally-oriented functions (e.g., production) assumed

more strategic importance with low PEU (Hitt, Ireland and Palia, 1982). Organizational contingency theories

traditionally have argued that when contextual variables (technology, environmental conditions) are matched

with appropriate organizational responses (centralization, communication, formalization, subdivision of work),

effectiveness of the unit will be enhanced (Morrow, 1981).

Environment and Strategic Leadership Link

While developing a theoretical model of the impact of CEO and top management leadership styles and

practices on organizational learning, Vera and Crossan (2004) argue that, "in times of change, these

(organizational learning) processes make evident the need to alter a firm's institutionalized learning a task best

suited to transformational leadership....in times of stability, organizational learning processes serve to refresh,

reinforce, and refine current learning a task best suited to transactional leadership".

Howell and Higgins (1990) suggest that champions of innovation have characteristics of transformational

leaders. These leaders rely on innovation and risk taking more than non-champions. Pinto and Slevin (1989)

found that aspects of transformational leadership, such as mission awareness, predicted the success of R&D

projects. Similarly, Keller's (1992) work found that transformational leadership of project leaders in R&D

organizations predicted performance at two times, concurrently and a year after leadership was measured. Thite

(2000) notes that transactional leadership also predicts project success but to a lesser extent than

transformational leadership (Berson and Linton, 2005).

Organizations exhibit three types of inertial forces; cognitive inertia, motivational inertia and obligation inertia

(Gersick, 1991). During changing environments, overcoming these organizational inertial forces is viewed as an

important condition for improving organizational performance (Tichy & DeVanna, 1990). Charismatic leaders

overcome cognitive inertia (inability to think beyond one's own schema) because their strong values shape

choices concerning strategy as they can create exciting visions of future and promote unconventional problem-

solving approaches. Motivational inertia (desire to avoid change) can be overcome through a leader's ability to

provide followers with confidence that changes can be positive. Finally, obligation inertia (commitment to

constituencies) can be overcome through leader's ability to change current contractual relationships with

various stakeholders (Agle et al., 2006).

Transformational leaders, in unstable, shaky, risky, or crisis situations take on greater symbolic importance as

the followers feel the need for direction and guidance under these conditions, and therefore, willingness to a

follow a leader may be more pronounced in unstable and turbulent environments (Agle et al., 2006). Studies

also suggest that crisis and the associated stress and uncertainty may foster the emergence of charismatic

leadership and Waldman's (2001) study empirically prove that charismatic leadership of CEO is highly related

to an organization's performance when the environment is perceived to be uncertain and volatile, and the same

link between charismatic leadership and performance, does not come strongly in the face of certain and stable

environment.

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Based on the above discussion, following is the third proposition of this paper:

Proposition 3: Organizational democracy would be implemented more successfully in organizations with an organic structure and

where the strategic leadership style is that of empowering or transformational/charismatic type and where the surrounding task

environment of the organization is dynamic (complex and unstable).

Concluding Remarks

This paper raises the critical question of the suitability of the application of organizational democracy in

different organizations and under the influence of the interaction between their structural and contextual

dimensions, resulting in unique settings or organizational designs and as such should serve as a food for

thought for researchers to probe the following research areas:

· Empirical testing of the underlying theme of this paper and the proposed model (figure 1) that

organizational democracy cannot be justified in mechanistic structures with stable environments

around them and that it would be more successful in organic set ups in turbulent environments and

where the leadership style of the top management is empowering or transformational/charismatic.

· The cultural differences across various nations and their role in preparing organizations for

organizational democracy also need to be empirically studied. For example, Western societies with

their long history of involvement with democracy are perhaps more suited to apply democracy in

organizations in contrast to those nations where democracy has not been the preferred style of

governance.

· Certain industrial sectors, for example service sector, have inherently different structural requirements

as compared to organizations in production sector. It would make an interesting study to examine the

possibility of employing organizational democracy principles in service organizations and to gauge

their success in terms of productivity and performance to those service sector organizations where

principles of democracy are not applied.

· Similarly in high-velocity industries like Information Technology and Electronics, where the

environment is dynamic and turbulent and the rate innovation is high, the need for empowering

leadership, horizontal structures and organizational democracy would be more pronounced as

compared to other traditional production-focused industries.

· Organizational democracy as a construct needs further development in the sense that measuring

instruments be developed to try to measure it empirically. Their relationships with other

organizational variables like performance, job satisfaction, strategic leadership style and, uncertain

environment would also shed further light on this construct.

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