Economics and Education

Effects of Leadership on Organizational Performance

MITRA MADANCHIAN a, NORASHIKIN HUSSEIN a, FAUZIAH NOORDIN a AND
HAMED TAHERDOOST b
a
Faculty of Business and Management, Universiti Teknologi MARA, Malaysia
b
Research and Development Department, Ahoora Ltd | Management Consultation Group, Malaysia
mitra_madanchian@yahoo.com http://www.ahooraltd.com

Abstract: - The main aim of any organization is to sustain competitive advantage and considered to be effective
between the demands of various stakeholders and the needs of the employees. Based on the previous studies in
related field, it has been demonstrated that an appropriate leadership style can influence the success and the
economic growth of both the organizations and employees. Therefore, the purpose of this paper is to explain
the effects of leadership styles on the organizational performance. Our main focus is on transformational
leadership and its role in enabling the increase in organizational performance. We start by underlying the link
between transformational leadership and organizational performance and clarify the effects of leadership style
on organizational performance and conclude by making some future research propositions.

Key-Words: - Leadership style, Transformational Leadership, Organizational Performance

1 Introduction 2 Transformational Leadership

The aim of any organization is to survive and Transformational leadership initiated with James
sustain its presence by improving performance. MacGregor Burns in 1978 (Burns, 1978) and it is
According to Arslan & Staub (2013) with the aim of categorized by optimistic, trustful and positive
meet the needs of the highly competitive markets, leaders who are emotionally encourage teamwork
organizations should increase their performance. As and set support innovations. According to Dvir,
said by earlier researchers such as (Peterson, Smith, Kass, & Shamir (2004) transformational leadership
Martorana, & Owens, 2003) the role of leadership is includes the concept of mutually beneficial goals,
critically important for achieving the performance of motivation, emotional connection, vision and
organizations. common values.

On the other hand, it is considered that a company’s Transformational leadership helps organizations
success is attributable to organizational attain their current objectives more proficiently by
performance, employee job satisfaction and linking job performance to valued rewards and by
employee affective commitment (Bass & Riggio, ensuring employees have the resources needed to
2006)(Drucker, 2007). Some studies have suggested get the job done. Transformational leaders create a
that leaders motivate and help their employees by strategic vision, communicate that vision through
using effective leadership styles to be competitive enclosing and use of symbol, model the vision by
(Luftman, Bullen, Liao, Nash, & Neumann, 2004). “walking the talk” and acting consistently, and build
Consequently, due to promote standards of quality commitment towards the vision (Avolio, Bass, &
in the professional development of the employees of Jung, 1999)(McShane & Von Glinow).
the organization the leader must use the effective
leadership styles (LaRue, Childs, & Larson, 2006). Based on prior empirical research and Meta
A number of studies on leadership styles (Kouzes & analyses the transformational leadership has a
Posner, 2007)(Yukl, 2009) propose that the positive effect on individual performance and
performs of the transformational leadership have a organizational outcomes (Howell & Hall-Merenda,
positive effect on the organizational performance. 1999). Most recently, many empirical studies have
reported that transformational leadership has a
positive impact on follower performance and firm
outcomes (Bass, Avolio, Jung, & Berson, 2003)
(Jung & Sosik, 2002)(O. F. Walumbwa, 2002).

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According to Bass and Rigio (2006), The System Resource Approach. This approach
transformational leadership is made up of four main discovers the relation between the organization and
parts: charisma, inspiration, intellectual stimulation the environment. As said by Cutler et al. (2003) an
and individual consideration. organization is effective when it takes advantage of
its environment in the attainment of high value and
Charisma. It includes achieving trust, respect and rare resources to approve its operations.
confidence of others and it is vital in the
transformational process because it develops a link Constituency Approach. According to Agle, et al.
between leaders and subordinates and the shared (2006), an organization is effective when multiple
assignment. stakeholders perceive the organization as effective.
The organizations with more control over resources
Individualized consideration. The leaders follow the are likely to have the most influence on the
subordinate’s desires and give tasks with guidance, performance (Scott, Davis, 2007).
mentoring and coaching.
Competing Values Approach. It was developed by
Intellectual stimulation. Leaders give the Cameron and Quinn (2006) and it states that
subordinates the opportunity to perform their work organizational goals are created in different ways by
separately. The later use their experience, creativity the various expectations of multiple districts.
and innovation to achieve their tasks. Therefore, organizations may have different criteria
to measure performance. According to Cameron, et
Inspiration. Leaders inspire by interactive the values al. (2014), stakeholders support the adaptability of
of the organization with facility and confidence in a their organizations, they want them to be flexible,
positive way. stable and effective. According to Cohen &
Bradford (2005), a performant and effective
As Walumbwa, et al. (2005) state that leaders use a organization has a high degree of collaboration and
situational approach to practicing different commitment among stakeholders through work
leadership patterns and styles according to the groups and management.
maturity of the subordinates. Therefore, the maturity
level of the subordinate determines the leadership 4 Leadership and Organizational
style to be used (Paul, Blanchard, & Johnson
Dewey, 2001). Performance
Leadership is one of the vital factors for improving
firm performance. Leaders, as the key decision-
3 Organizational Performance makers, determine the acquisition, development, and
deployment of organizational resources, the
According to Chen, et al. (2006), organizational conversion of these resources into valuable products
performance means the “transformation of inputs and services, and the delivery of value to
into outputs for achieving certain outcomes. With organizational stakeholders. Thus, they are strong
regard to its content, performance informs about the sources of managerial and sustained competitive
relation between minimal and effective cost advantage (Avolio et al., 1999)(Rowe, 2001).
(economy), between effective cost and realized
output (efficiency) and between output and achieved Numerous studies have stated positive relationships
the outcome (effectiveness)”. between transformational leadership and outcomes
at the individual level and firm levels (Avolio
According to Bolman & Deal (2003), DeClerk 1999)(Kirkpatrick & Locke, 1996). Likewise, a
(2008) and Scott & Davis (2015), there is no general number of relative studies (Waldman, Ramirez,
agreement in the literature on the standards to be House, & Puranam, 2001) have also reported that
used in measuring the organizational performance. transformational leadership behaviors are more
However, there are four main dominant approaches: positively related to subordinate effectiveness in a
Goal Approach. People create organizations for a variety of organizational settings than are
specific purpose which is determined by the transformational behaviors. The transformational
stakeholders. The organizational performance is the behavior of leaders influences employee’ motivation
ability of the organization to achieve its goals. to make them more aware of their duties outcomes

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