2011 International Conference on Advancements in Information Technology
With workshop of ICBMG 2011
IPCSIT vol.20 (2011) © (2011) IACSIT Press, Singapore
The Relationship between Effective Leadership and Employee Performance
Durga Devi Pradeep 1, N.R.V. Prabhu 2
1 Research Scholar, Sathyabama
University, Chennai
2 Director, Sunshine Group of
Institutions, Rajkot.
Abstract. Leadership has drawn great attention from scholars in various
fields in the recent years. The present work, however, focus on the
transformational, transactional and laissez‐faire leadership model and the
relationship between these leadership styles and employee performance. The
study is a comparison between selected public and private sector enterprises
and the data comprises of 43 middle‐level managers and 156 subordinates.
The paper looks first at various factors that add to the effectiveness of
leadership through Garrett scores. It then discusses whether there is any
differences in the leadership choice between the public and private sector
enterprises. Finally, the relationship between transformational, transactional,
laissez‐faire leaderships and employee performance is explored through
correlation and regression analysis. The results are likely to suggest that
leaders must have the ability to attract / influence their subordinates, be able
to set clear standards of performance to their peers and act as a best role
model to the subordinates. The subordinates expect that their achievements
must be recognized and rewarded either with monetary or with non‐monetary
terms. The Garrett’s score that gives the preferences of the Middle level
managers and the subordinates from among various leadership styles
recommended the transformational leadership style in both the public and in
the private sector enterprises. The results of correlation and regression
analysis suggests that the transformational leadership style has significant
relationships with performance outcomes; The study thus adds some
additional knowledge for a better understanding of the preferred leadership
approach and appropriate style for use with subordinates in various
professional levels.
Keywords: em ployee performance, garrett scores, leadership, leadership
effectiveness, public and private sector enterprises.
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1. Introduction
In a competitive business environment, organizations rely upon their leaders to
facilitate the changes and innovations required to maintain competitive advantage.
Leaders are perceived as persons who can single handedly create order out of chaos,
navigate organizations through unthinkable environmental turbulence, bring
mightiness out of mediocrity, and thrive where lesser mortals will quickly fade away.
Leadership has been altered over time, with the change in employee requirements
resulting in a demand for change in the relationship between a leader and his
subordinates. Leaders have been found to influence followers in many ways,
including coordinating, communicating, training, motivating, and rewarding (Yukl,
1989).
It is argued that effective leadership has a positive sway on the performance of
organisations (Maritz, 1995; Bass, 1997; Charlton, 2000). Behling and McFillen
(1996) confirmed the link between high performance and leadership in the United
States by developing a model of charismatic/transformational leadership where the
leaders’ behavior is said to give rise to inspiration, awe and empowerment in his
subordinates, resulting in exceptionally high effort, exceptionally high commitment
and willingness to take risks. Effective leadership is helpful in ensuring
organisational performance (Cummings and Schwab, 1973; Hellriegel, Jackson,
Slocum, Staude, Amos, Klopper, Louw and Oosthuizen, 2004). As a result, many
leadership theories have been proposed in the last fifty years which are claimed to
have influenced effectiveness of organisations where they have been employed
through employee performance.
The present study adds to the existing literature of finding the extent of
relationship between leadership effectiveness and employee performance in the
Indian context with the following objectives: To ascertain the various factors that
affects the effectiveness of the existing leadership styles;
To determine whether there is any difference in the leadership choice between
public and private sector enterprises; To find out the relationship between effective
leadership and employee performance as measured by extra effort, employee
effectiveness, satisfaction and dependability.
2. Leadership styles and employee performance – a causal
link
The success of an organisation is reliant on the leader’s ability to optimise human
resources. A good leader understands the importance of employees in achieving the
goals of the organisation, and that motivating the employees is of paramount
importance in achieving these goals.
It has been widely accepted that effective organisations require effective
leadership and that organisational performance will suffer in direct proportion to the
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neglect of this (Fiedler and House, 1988). Furthermore, it is generally accepted that
the effectiveness of any set of people is largely dependent on the quality of its
leadership – effective leader behaviour facilitates the attainment of the follower’s
desires, which then results in effective performance (Fiedler and House, 1988;
Maritz, 1995; Ristow, et al., 1999). Leadership is perhaps the most investigated
organisational variable that has a potential impact on employee performance
(Cummings and Schwab, 1973).
A large body of empirical evidences has demonstrated that leadership behaviors
influence organizational performance that strong leaders outperform weak leaders,
and that transformational leadership generates higher performance than transactional
leadership (Burns 1978; Bass 1990; Hater and Bass 1988; Howell and Avolio 1993).
Kirkpatrick and Locke (1996) identified over 35 studies reporting positive
relationships between leadership and performance. Transformational leadership or its
components have been associated with the increases in individual, unit, and/or
organizational performance in a variety of meta‐analyses (Lowe et al. 1996),
historical archival studies (House et al. 1991), laboratory experiments (Howell and
Frost 1989; Kirkpatrick and Locke 1996), field experiments (Barling et al. 1996), and
field studies (Baum et al. 1998; Curphy 1992; Hater and Bass 1988; Howell and
Avolio 1993; Keller 1992). Recent leadership studies have continued to affirm the
positive relationship between transformational leadership and performance at various
levels (e.g., Dumdum et al. 2002; Dvir et al. 2002; Howell et al. 2005). Thus the
researchers aim to discuss whether the transformational leadership does really
stimulate the employees for higher performance or not.
The proposed hypothesis is:
H01: There is a significant positive relationship between Transformational
leadership and Employee performance.
Transactional contingent reward leadership behaviors have also been positively
associated with performance, although to a lesser degree than transformational
leadership (Klimoski and Hayes 1980; Podsakoff et al. 1982, 1984; Boerner et al.
2007). Although they are sometimes treated as a dichotomy, it is entirely possible for
a given leader to exhibit neither, one, or both transformational or transactional
leadership behaviors in varying degrees, in different situations. From the foregoing
the following hypothesis is proposed:
H02: There is a significant positive relationship between Transactional
leadership and Employee performance.
Bass et al. (1997) conceptualised a third type of leadership, laissez‐faire
leadership, which was hypothesized to occur when there is an absence or avoidance
of leadership. In this case the decisions are delayed, and reward for involvement is
absent. No attempt is made to motivate the followers, or to recognise and satisfy their
needs (Bass & Avolio, 1997). And hence:
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H03: There is a negative relationship between Laissez‐faire leadership and
Employee performance.
3. Methodology of the study
The data is collected from Fenner (India) Ltd., Madurai, Hindustan Lever Ltd.,
Pondicherry, Solamalai Automobiles Pvt. Ltd., Madurai and TVS (India) Pvt. Ltd.,
Madurai. A self‐structured questionnaire assessing the various leadership behaviors
and employee performance measures were distributed to a random sample of 215
respondents. A total of N = 199 surveys were returned representing a response rate of
92.56 per cent. The sample consisted of 43 middle level managers (21.61 per cent)
and 156 sub ordinates (78.39 per cent) who were under the direct control of the
middle level managers. 62.80 per cent of the middle level managers (27 respondents)
belonged to the Public sector enterprise whereas 37.2 per cent (16 respondents)
belonged to the Private sector enterprises. Likewise, Sixty two per cent of the sub
ordinates (96 respondents) belonged to the Public sector and thirty two per cent of the
respondents belonged to the Private sector enterprises who were sixty in actual
numbers. Their age ranged from 23 to 37, with a mean age of 32.7.
4. Research Instrument and Measures
The questionnaire consisted of 50 items out of which 29 items were used to assess
the various leadership behaviors (transformational, transactional and laissez‐faire
leadership behaviors), 11 items were administered to measure the employee outcomes
(performance) and the remaining 10 items were used to assess the rank scores of
various leadership behaviors. In all the cases, Likert’s Five Point scaling ranging
from “1” (Never) to “5” (Always) was used. In case of Laissez – Faire leadership
reverse scoring was used and for employee performance terms ranging from “Rarely”
to “Very Often” was used.
5. Leadership measures
Transformational Leadership:
Six scales were identified and defined as characteristics of transformational
Leadership (Bass 1985; Bass, Avolio, & Goodheim, 1987). They are as follows:
Charisma: The leader instills pride, faith and respect, has a gift for seeing what is
really important, and transmits a sense of mission which is effectively articulated.
Individualized Consideration: The leader delegates projects to stimulate learning
experiences, provides coaching and teaching, and treats each follower as a respected
individual.
Intellectual Stimulation: The leader arouses followers to think in new ways and
emphasizes problem solving and the use of reasoning before taking action.
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Inspirational Motivation: The leader provides followers with challenges and
meaning for engaging in shared goals and undertakings. Individual Consideration:
The leader takes care of each and every follower of the group.
Confidence: The leader trusts the followers.
Transactional Leadership: Three scales are identified and defined as being
characteristics of transactional leadership (Bass, 1985; Bass, Avolio, & Goodheim,
1987):
Contingent Reward: The leader provides rewards if followers perform in
accordance with the contract or expend the necessary effort.
Task Completion: The leader has a firm belief on achieving the goals and that
should have higher priority than any other objectives.
Management by Exception (Active): The leader concentrates fully on dealing
with employees’ mistakes, complaints and failures.
Laissez Faire Leadership: Two scales are identified and defined as being
characteristic of Laissez – Faire leadership; Management by Exception (Passive): The
leader will not interfere in any problems until it becomes serious.
Laissez – Faire: The leaders who have less involvement in performance or who
has no involvement at all in performing.
5.1. Outcome Measures
Extra Effort: The followers’ interact in putting the efforts which were beyond
their ability for higher performance.
Effectiveness: The ability of followers to think more methodically and effectively.
Satisfaction: Quantum of satisfaction the followers’ does have with their leaders.
Dependability: Ability of the followers to work with Zeal and confidence even in
the absence of leaders.
6. Data Analysis
Descriptive statistics, Garrett Scores, Correlations and Regression Analysis were
used to analyze the data set. Garret ranking technique was used to convert the order of
preference given by the sample respondents into ranks. The following formula was
used to convert the order of merit: Per cent position = jjN 100(Rij − 0.5)
Where,
Rij = rank given by the jth individual for the ith
factor, and Nj = number of factors ranked by the jth
individual.
After obtaining the per cent position of each item, it was further converted into
scores by using Garret’s table. The computed scores of the individual respondents for
each factor were added and divided by the total number of respondents who had
responded. The mean scores of all the factors thus arrived at were arranged in a
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descending order and ranks assigned according to the scoring. The hypotheses framed
for the relationship between dependent and independent variables were analyzed
using correlations and regression analysis.
7. Review of Literature
In a survey conducted by Bono and Judge (2003) as to whether the followers of
transformational leaders exhibit higher performance, motivation, job satisfaction, and
organizational commitment in service and manufacturing organizations, it was found
that Transformational Leadership behaviors, as evaluated by followers, was positively
related to followers’ job performance. From the answers given by the employees
about the transformational leadership, Nemanich and Keller (2007) concluded that the
Transformational Leadership behaviors had a significantly positive relationship with
acquisition acceptance and to be positively related to goal clarity, creative thinking,
and follower performance. The authors suggest Transformational Leadership be used
to face challenges, such as those encountered during an acquisition.
In a similar study of Piccolo and Colquitt (2006) the authors found Leadership
Transformational behaviors had a significantly positive relationship with task
performance. They also found intrinsic motivation and goal commitment to
significantly mediate the relationship between Transformational Leadership behaviors
and task performance. The authors suggested for training and manager development
plans for Transformational Leadership. Wang et al. (2005) studied 81 managers
enrolled in master of business administration courses at a Chinese university and 162
of their immediate subordinates (68% response) to assess the two‐way relationship
between the leader and follower. Each manager rated task performance and
organizational citizenship behavior of his/her followers and each follower rated
Transformational Leadership behaviors of the manager and the leader member
exchange between them self and the leader. The authors found Transformational
Leadership behaviors and the leader‐member exchange to have significant
relationships with task performance and organizational citizenship behavior. The
authors also found the leader member exchange to fully mediate the relationship
between Transformational Leadership and task performance. The authors believe
Transformational Leadership strategies, especially those that enhance the leader
member exchange, should be included in management training.
Judge and Piccolo (2004) conducted a meta analysis of 87 studies measuring
transformational, transactional, and laissez faire leadership. From the study, the
authors found that the Transformational Leadership had shown the highest overall
validity, while contingent reward leadership was a close second. The authors found
more validity with Transformational Leadership than contingent rewards when
looking at leader effectiveness. Contingent reward was found to be more valid for
leader performance. The authors found the differences in validity were not significant
for follower motivation and group performance. The authors found, through their
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meta analysis, Transformational Leadership had a positive relationship with follower
job satisfaction, follower leader satisfaction, follower motivation, leader job
performance, group performance, rated leader effectiveness.
According to Mehra et al. (2006), when some organizations seek efficient ways to
enable them to outperform others, a longstanding approach is to focus on the effects
of leadership. This is because team leaders are believed to play a pivotal role in
shaping collective norms, helping teams cope with their environments, and
coordinating collective action. This leader centered perspective has provided valuable
insights into the relationship between leadership and team performance.
8. Results And Discussions
8.1. Leadership Effectiveness
By referring the Garrett’s table, the percent position estimated is converted
into scores. Then for each factor the scores of each individual are added and the
mean values are considered to be the most important. The Garrett’s score for the
various factors that turns out the ordinary leadership styles into an effective one has
been presented in Table 1. At its first level, ranks had been assigned to various factors
under every question in accordance with their relative mean scores. (The results were
too lengthy to be presented here. It may be given on requisition).
From the selected factors, the major factors that determine the effectiveness of
leadership were listed and the ranks were also assigned:
Table 1. Garrett Ranking Method for Leadership Effectiveness
Factors Total Score Mean Score Rank
Planning and controlling ability 11270.00 56.63 5
Role model
12290.00
61.76
3
Self‐Confident
11290.00
56.73
4
Sets standards of performance for group members
12430.00
62.46
2
Rewarding Achievement
11090.00
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55.73
6
Influencing
13170.00
66.18
1
In our study, all the respondents have given the scoring for all the factors since the
number factors given are only few. The table gives a clear picture that a leader should
be able to influence his/her subordinates for better achievement and also be able to set
the standards of performance for his/her peers that suit the individual capabilities as
well as the organizational targets. They must act as “Role‐Models” to encourage their
followers, instill self confident and has the ability to plan and control diverse
activities of their peers. Thus, it is consistent with the result that the qualities
possessed by transformational leaders were regarded the most effective than that of
the transactional leaders and Laissez Faire leaders.
At the same time, it is evident that Contingent Reward, one of the important
features of Transactional leaders also play a vital role in determining the effectiveness
of leadership but to a lesser extent than that of the transformational leadership
qualities.
8.2. Leadership Style Preferences In Select Enterprises
The Middle Level managers’ preferences on leadership styles among autocratic,
democratic, transformational, transactional and laissez‐faire leadership are
displayed in the selected enterprises. The result does not give a wider difference
between the selected public and private sector enterprises. The highest mean score of
63.33 indicates that majority of the respondents working in the middle level
management prefer transformational leadership followed by transactional (50.00) and
democratic leadership (47.04 per cent) in the selected public sector enterprises. The
lowest mean scores of 44.07 and 45.56 can be found for laissez faire leadership and
autocratic leadership.
Note: The Garrett’s scores were used to measure the middle level managers’
preferences on leadership styles that are supplemented with the questionnaire drawn
for the study. And so is the case for the middle level managers working in the
selected private sector enterprises. The highest mean score of 63.75 is found for
transformational leadership whereas the least score of 38.75 is found for autocratic
leadership. The mean scores of subordinates’ preferences on leadership styles in the
selected public and private sector enterprises are also given.
It is seen that the transformational leaders are more preferred by the subordinates
in the public sector enterprises with the mean score of 64.58, whereas transactional
leadership (53.33) scores is better in case of private enterprises. The least mean scores
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of 43.33 and 45.67 are found for laissez faire leadership in case of both public and
private enterprises. The comparison of previous two paragraphs suggest that the
transformational leaders are more preferred by majority of the respondents working
both in public and the private sector enterprises followed by the transactional
leadership qualities. The laissez faire leadership had the least preferences in case of
the selected enterprises.
The relationship between Effective Leadership and Employee Performance
Table 2 deals with the descriptive statistics for each of the variables involved in
this study.
Table 2. Descriptive Statistics (all i.e. Public and Private sector)
Variables Valid N Mean SD Range Min Max
Idealised Attributes 199 3.61 0.62 3.33 1.67 5.00
Idealised Behaviors 199 3.61 0.61 2.67 2.30 5.00
Inspirational Motivation 199 3.72 0.58 3 2.00 5.00
Intellectual Stimulation 199 3.49 0.64 3 2.00 5.00
Individual consideration 199 3.49 0.75 3.5 1.50 5.00
Confidence 199 3.82 0.83 4 1.00 5.00
Contingent Reward 199 3.67 0.84 3.5 1.50 5.00
Task Completion 199 3.88 0.44 2 2.75 4.75
Management‐by‐ Exception(Active)
199 2.12 0.62 3 1.00 4.00
Management‐by‐Exception(Passive)
199 1.95 0.62 3 1.00 4.00
Laissez‐faire 199 1.51 0.40 1.67 1.00 2.67
Extra Effort 199 3.55 0.62 3 2.00 5.00
Effectiveness 199 3.72 0.84 4 1.00 5.00
Satisfaction 199 3.62 0.60 3 2.00 5.00
Dependability 199 3.83 0.54 2.33 2.67 5.00
Pearson’s ‘r’ was used to measure the magnitude and the direction of the
correlations between leadership styles and performance variables.
The correlations are presented in Table 3.
Table 3. Correlation Analysis Results
Measures IA IB IM IS IC C CR TC MBEA MBEP LF EE EFF SAT DEP
** p < .01 (one‐tailed); * p < .05 (one‐tailed). IA = Idealised Attributes, IB =
Idealised Behaviors, IM = Inspirational Motivation, IS = Intellectual Stimulation, IC
= Individual consideration, C = Confidence, CR = Contingent Reward, TC = Task
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Completion, MBEA = Management by Exception (Active), MBEP = Management by
Exception (Passive), LF = Laissez ‐ faire, EE = Extra Effort, EFF = Employee
Effectiveness, SAT = Satisfaction, DEP = Dependability.
From the table, it can be seen that the employee effectiveness is positively
influenced by the charisma. Inspirational motivation is positively correlated with
employees’ effectiveness and satisfaction at p < .01 and p < .05 but negatively
correlated with dependability. Interestingly, the individual consideration given by the
leaders to every subordinate tend to increase the effectiveness and satisfaction level
of employees at 1per cent significance level. At the same time, it is seen that the
capability of the employees to work even in the absence of the leaders tend to
decrease with the individual care and consideration given by the leaders. Thus it is
advisable for the leaders to be very optimum in showing chariness to their peers who
are working under them.
Contingent reward is likely to increase the willingness of employees to put forth
extra efforts for task completion, increases satisfaction level of employees and
dependability at p < .01 but negatively correlated with the effectiveness of the
employees at p < .05. As expected, the laissez faire leadership is negatively
correlated with employee effectiveness, extra effort and satisfaction level of
employees at 1 per cent significant level does not show any correlation with
dependability.
The results of the correlation analysis clearly indicates that transformational
leadership style can create work effectiveness, satisfaction, dependability and extra
effort more than transactional leadership. The laissez faire leadership styles do not
help for better employee performances in the selected public and private sector
enterprises.
9. Hypotheses Testing
Table 4 presents the results of hypothesis testing. From the table it is clear that this
model has very high correlation between transformational leadership and employee
performance as the adjusted R2 is high (Adjusted R² = 0.632), i.e., 63% of the
employee performance is explained by this model. The researcher accepts the null
hypothesis (H01) and concludes that there is sufficient evidence, at the 5% level of
significance, that there is a linear positive relationship between transformational
leadership and employee performance.
Table 4. Regression Analysis Results for Effective Leadership and Employee
Performance
Multiple R R Square Adjusted R Square Standard Error Observations
Transformational 0.800 0.640 0.632 0.191 199
Transformational
IA 1.00
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IB.17 1.00
IM .13 .02 1.00
IS.08 .05** .12** 1.00
IC .00 .05** .09* .14 1.00
C .08 .17** .32* .08** .13** 1.00
Transactional
CR .10 .04 .12 .24 .21 .14 1.00
TC .03 .20** .02** .00 .00 .21* .01** 1.00
MBEA .13 .14** .16 .09 .18 .12 .19 .06 1.00
Laissez‐Faire
MBEP .13 .01** .00 .11* .03 .08 .06 .02 .06 1.00
LF .09.19 .04 .01 .06 .03* .03 .09* .07 .08 1.00
Performance
EE .17 .07* .08 .67 .21 .16 .16** .09 .05* .11* .07* 1.00
EFF .18** .14** .40** .00 .53** .62* .06* .16* .00 .01* .
11 .18 1.00 SAT .06 .00 .18* .25 .13 .38* .79** .04 .23 .
12* .01* .08* .07* 1.00
DEP .06 .18 .06** .04** .00 .30* .06** .87 .02 .01 .08** .01 .21 .03* 1.00
Transactional 0.749 0.560 0.551 0.274 199
Laissez‐Faire 0.820 0.673 0.666 0.147 199
The model also explained a high proportion of the explanatory capacity for
transactional and laissez faire leadership (adj. R2 = 0.551 and 0.666 respectively).
H02 and H03 were also supported that “the transactional leadership has a significant
positive relationship with employee performance” but to a lesser extent than the
transformational leadership and “laissez‐faire leadership has a negative relationship
with the employee performance/outcomes”.
10.Conclusions
Though there are numerous studies (eg. Dvir et al. 2002; Bono and Judge 2003;
Bass et al. 2003; Nemanich and Keller 2007) that are extended in the area of
leadership; it is quite interesting that universally acceptable conclusions are not
arrived yet as to what is actually termed as effective leadership, what are the variables
contributes for the effectiveness of leadership and so on. This may be attributed to
several reasons like the differences in the culture, varying attitudes of the employees,
varying expectations of the employees about their leaders etc. More importantly, the
situation plays an important role in determining the success of leadership. A
leadership quality that is effective in one situation among a particular group of
members may not be effective with another situation or with another group of
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members. All these factors make the leadership process a tedious one, though not
actually so.
Hence, the researchers have attempted to make this study taking into consideration
the respondents both from the public and private sector enterprises. The paper was set
out to examine the various factors that increases the effectiveness of leadership and
explores the relationship between the effective leadership styles and the employee
performances. At its first level, the various factors that affect the effectiveness of
leadership styles are suggested. The key result is that the leaders must have the ability
to attract / influence their subordinates, be able to set clear standards of performance
to their peers and act as a best role model to the subordinates. Additionally, the
subordinates expect that their achievements must also be recognized and rewarded
either with monetary considerations (like bonus, promotions etc.) or with non‐
monetary terms (eg. Best performer Awards etc.).
The Garrett’s score which gives the preferences of the Middle level managers and
the subordinates from among various leadership styles recommended the
transformational leadership style in the public sector enterprises as well as in the
private sector enterprises.
From the correlation and regression analysis, the relationship between the
transformational, transactional, laissez‐faire leadership and employee performance
are measured. Leadership was positively linked with employee performance for both
transformational leadership behaviors and transactional contingent reward leadership
behaviors. The implication of this finding is that the managers, who are perceived to
demonstrate strong leadership behaviors, whether transformational or transactional,
will be seen as engaging in increasing the employees’ performance.
In summary, the transformational leadership style has significant relationships
with performance outcomes; viz. effectiveness in work, satisfaction, extra effort and
dependability. The study has added some additional knowledge for a better
understanding of the preferred leadership approach and appropriate style for using
with subordinate in various professional levels. By using the results, leaders can
adjust their behaviors in practical ways to enhance subordinates’ job performance,
thereby reaping increased productivity for their organizations as a consequence.
11.Limitations And Perspectives For Future Research
As the present study was conducted only in India, further research should replicate
the results in other countries. This idea echoes recent calls for cross cultural research
in the field of business ethics. Another limitation of the present studies was that they
relied on selected few organizations. Larger domain of study would certainly throw
more light on the various dimensions studied. And hence further studies should
include a large sample size that represents the leadership qualities. The results of the
present study however, can be used for future cross unit and cross institutional
studies.
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