SEA - Practical Application of Science

Volume III, Issue 1 (7) / 2015

Raluca-Elena HURDUZEU
Faculty of International Business and Economics,
The Bucharest University of Economic Studies

THE IMPACT OF LEADERSHIP Literature

reviews
ON ORGANIZATIONAL
PERFORMANCE

Keywords
Leadership
Transformational leadership
Organizational performance

JEL Classification
L 20, L 25, M 10

Abstract

An organization is considered to be effective if it finds the balance between the demands of

various stakeholders (owners, employees, customers, community) and the needs of the
employees. We believe that an appropriate leadership style can influence and ensure the
prosperity and the economic growth of both the organization and employees. Therefore, the
aim of the paper is to explore the impact of leadership styles on the organizational
performance. Our main focus is on transformational leadership and its role in facilitating the
increase in organizational performance. Transformational leaders inspire individuals within
the organizations to work harder and to strive for the highest levels of performance. We
begin by underlining the connection between transformational leadership and organizational
performance, we provide examples on transformational leadership practices impact the
organizations and we conclude by making some future research propositions.

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Introduction Charisma is central to the transformational process

It is considered that a companys success because it develops a connection between leaders
is due to organizational performance, employee job and subordinates and the shared mission. It
satisfaction and employee affective commitment involves gaining trust, respect and confidence of
(Bass, Rigio, 2006; Drucker, 2007). Some others.
researchers have suggested that leaders motivate Inspiration. Leaders inspire by communicating the
and help their employees to be competitive by values of the organization with fluency and
using effective leadership styles (Bass, Rigio, 2006; confidence in a positive manner.
Luftman, 2004). Therefore, the leaders use of Intellectual stimulation. Leaders give the
effective leadership styles is due to promote subordinates the opportunity to perform their work
standards of excellence in the professional autonomously. The latter use their experience,
development of the members of the organization creativity and innovation to achieve their tasks.
(La Rue, Childs, Larson, 2004). Individualized consideration. The leaders pay
Effective leadership also involves attention to subordinates needs and delegate tasks
motivation, management, inspiration, remuneration with guidance, mentoring and coaching.
and analytical skills. When all these are present, the As Walumbswa, Lawler, Avolio, Wang and Shi
organizations record increased employee (2005) state that leaders use a situational approach
satisfaction that positively that positively to practicing different leadership patterns and styles
influences the productivity and the profits. The according to the maturity of the subordinates.
positive effect of leadership on organizational Therefore, the maturity level of the subordinate
performance was measured by some researchers determines the leadership style to be used (Hersey,
(Sila, Ebrahimpour, 2005) through human Blanchard, Johnson, 2001). Thus, the leader may
resources (turnover rate and job performance), use the following situational leadership styles:
organizational effectiveness (cost and quality) and 1. telling or directing the leader uses one-
financial performance (market share, profit, return way communication,
on asset). 2. selling and coaching the leader uses two-
To increase the organizational performance a leader way communication. Both leaders and
must have the ability to promote creativity and subordinates agree on what to do.
innovation, stimulate the subordinates to challenge 3. participating the leader is supportive and
their own value systems and improve their works with the subordinates.
individual performance. 4. delegating there is little involvement
A number of studies on leadership styles (Bass, from the part of the leader. The
Riggio, 2006; Kouzes, Posner, 2007, Yukl, 2009) subordinates work on their own and are
suggest that the practices of the transformational independent.
leadership have a positive impact on the According to Richard and Clifford (2008),
organizational performance. transformational leaders in order to achieve the
desired performance: actively engage the
Transformational leadership subordinates personal value systems and provide
Transformational leadership originated ideological explanations which connect
with James MacGregor Burns in 1978 (Burns, subordinates identities to the collective identity of
1978) and it is characterized by positive, optimistic their organisation, thus increasing the
and trustful leaders who are emotionally intelligent, subordinates intrinsic motivation to perform their
encourage teamwork, set high expectations and job; articulate an important vision and mission for
promote innovations. the organisation, so increasing subordinates
Transformational leaders change their understanding of the importance and values
organizations culture by inspiring a sense of associated with desired organizational
mission and purpose about the importance of the performance; raise the performance expectations of
groups work and stimulating new ways of thinking subordinates so increasing their willingness to
and problem solving. They inspire the individuals transcend their self interests in the name of the
within the organization to achieve high collective entity.
performance. Scott and Peter (2009) mention that by providing
Bass, Riggio (2006) and Dvir, Kass, Shamir (2004) intellectual stimulation, transformational leaders
consider that transformational leadership involves encourage subordinates to adopt generative and
the concept of motivation, mutually beneficial explorative thinking process. They stimulate their
goals, emotional bond, common values and vision. subordinates to think about old problems in new
According to Bass and Rigio (2006), ways and encourage them to challenge their own
transformational leadership is made up of four values, traditions, and beliefs.
main parts: charisma, inspiration, intellectual
stimulation and individual consideration.

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Organizational performance corporate goals by inspiring a sense of importance

Organizational performance may be defined as the of the teams mission, stimulates employees to
transformation of inputs into outputs for achieving think innovatively about a problem or task, and
certain outcomes. With regard to its content, places the group goals over personal self-interest
performance informs about the relation between (James, 2005).
minimal and effective cost (economy), between Transformational leaders behaviours are
effective cost and realized output (efficiency) and influential in motivating the employees, to make
between output and achieved outcome them more aware of the task outcomes, they
(effectiveness) (Chen, Barnes, 2006). stimulate their order needs and develop their self
There is no general agreement in the literature on interest for the organizations performance.
the criteria to be used in assessing the In his study on the transformational
organizational performance (Bolman, Deal 2003; leadership practices in Russian companies;
DeClerk, 2008; La Rue et al, 2004; Scott, Davis, Elenkow (2002) examined the former impact on
2007). However, there are four main dominant organizational performance. Using a Multifactor
approaches: Leadership Questionnaire, he analysed the
Goal Approach. People create organizations for a leadership behaviour of 253 leaders. The analysis
specific purpose which is determined by the underlined a strong correlation between
stakeholders. The organizational performance is the transformational leadership practices and
ability of the organization to achieve its goals. organizational performance.
The System Resource Approach. This approach In their study on the connection between
explores the relation between the organization and the transformational leadership style and
the environment. As Boman and Deal (2003) state organizational performance, Zhu, Chew and
an organization is performant and effective when it Spanger (2005) identified within 170 companies
takes advantage of its environment in the from Singapore, a positive relationship between the
acquisition of high value and scarce resources to transformational leadership and the organizational
endorse its operations. performance. They also demonstrated that effective
Constituency Approach. According to Agle et all human resources management arbitrates the
(2006) an organization is effective when multiple relationship between leadership and performance
stakeholders perceive the organization as effective. through increased commitment, higher motivation
The organizations with more control over resources and intellectual motivation.
are likely to have the most influence on the Moreover, a positive relation between the
performance (Scott, Davis, 2007). long-term income growth and transformational
Competing Values Approach was developed by leadership was depicted in a study on 94 companies
Cameron and Quinn (2006) and it states that investigating the impact of transformational
organizational goals are created in different leadership practices on the financial performance of
directions by the various expectations of multiple the organization in terms of profitability, increased
constituencies. Therefore, organizations may have sales or revenue and stock measures (Roi, 2006).
different criteria to measure performance. Moore (2007) in his research within the
According to Cameron and Quinn (2006) United Way of America organization found out that
stakeholders support the adaptability of their there is a significant positive relationship between
organizations, they want them to be flexible, stable female transformational leaders and the revenue
and effective. A performant and effective element of organizational effectiveness.
organization has a high degree of collaboration and In another study on leadership styles and
commitment among stakeholders through work organizational performance, Kieu (2010) on 151
groups, team projects and management (Cohen and companies from IT industries underlined that
Bradford, 2005). transformational leadership relates positively and
For Scott, Davis (2007), the flexibility and the significantly to organizational performance. The
ability of the organization to take advantage of its study used a Multifactor Leadership Questionnaire
environment in the acquisition of internal and (5X) and it revealed that transformational
external resources are indicators of performance, its leadership is a stronger predictor for the
value being measured by the stock market and it is performance, satisfaction and commitment within
the key metric to measuring organizational organizations by building commitment,
performance. empowerment and demanding a higher degree of
Other means to increase organizational efficiency respect and trust for the leader.
and effectiveness include strategic initiatives Intellectual stimulation and inspirational
focused on organizational performance. motivation were found to improve the
organizational performance (Hancott, 2005).
Leadership and Organizational Performance Taking into account that the organizations today
The transformational leader wants to achieve have to be performant and to meet the competing
results beyond what is normal and sets higher expectations of the stakeholders in a manner which

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