Leadership

Leadership: A simple definition of leadership is

that leadership is the art of motivating a group of
people to act towards achieving a common goal.
• Getting others to follow
• The use of authority in decision- making
• A personal characteristic
• An ability to achieve effective performance
in others
 Rarely can entrepreneurs make a company succeed by
themselves. This is much like the fact that the greatest athlete doesn't
ensure that their team will win if the other players cannot perform.
As such, entrepreneurs need to be able to identify staffing needs,
expertly fill them, and lead the team to success. It is a relationship
through which one person influences the behavior or actions of
other people.
Entrepreneur Leadership Qualities:
 Seeking self-improvement
 Possessing technical skills
 Accepting responsibility for actions
 Making decisions
 Being a role model
Importance of leadership in modern business:
• Changing organizational structures
– Flatter + greater delegation
– Teamwork + focus on quality assurance
– Coaching, support and empowerment
• Rapid environmental change
– Change is becoming a constant feature of business life
– Soft skills of leadership and management increasingly
important
The role of strategic leadership:
• Strategic leaders are the people who influence or control
the corporate strategy of a business

• Often personally identified with the strategy

• Occurs both in small firms (e.g. the founder) and large

corporates
 How strategic leadership is demonstrated
Where leaders take Where leaders set
direct control the vision and core
beliefs

Leadership as Leadership
command as vision

Leadership as
Leadership as
decision-
symbolic making
Where the leader is Where the leader
the embodiment of weighs up the
the strategy, but not options and
involved day-to-day decides
 Leadership or Management?

Leaders Managers
Inspire people Enact the plan
Build relationships Use their authority
Take risks Manage risks
Have followers Have subordinates

In reality, both are closely linked

 What is a leadership style?

The way that the functions

of leadership are carried
out
The way that a leader
behaves
 Classifications of Leadership Style

Authoritarian Paternalistic

Democratic Laissez-faire
 Authoritarian
• Focus of power is with the
manager
• Communication is top-down and
one-way
• Formal systems of command and
control
• Use of rewards and penalties
• Very little delegation
 Paternalistic
• Leader decides what is
best for employees
• Addressing employee
needs
• Similar to a parent/child
relationship
• Still little delegation
• A softer form of
authoritarian leadership
 Democratic
• Focus of power is more with the group as a whole
• Leadership functions are shared within the group
• Employees have greater involvement in
decision-making
• Emphasis on delegation and consultation
• A trade-off between speed of decision-making and
better motivation and morale
 Laissez-faire
• Leader has little input into day-to-day decision-making
• Conscious decision to delegate power
• Managers / employees have freedom to do what they think
is best
• Effective when staff are ready and willing to take
on responsibility
 Why move away from autocratic leadership?

• Changes in society’s values

• Better educated workforce
• Focus on need for soft HR skills
• Changing workplace organisation
• Greater workplace legislation
• Pressure for greater employee
involvement
 McGregor Theory X and Y
Grouped Managers into Two Types

Theory X Theory Y
Managers Managers
Average worker is lazy Most people enjoy work
and dislikes work Workers will take
Workers need to be responsibility and
controlled and directed organised themselves
Centralised organisation Decision-making can be
and exercise of authority delegated
 Factors affecting leadership style
• Personal value • Type of organisation
systems (size, structure)
• Manager’s • Effectiveness of teams
experience and groups
• Confidence in • Skills and
subordinates experience of
• Feelings of subordinates
security • Pressure (time,
• Nature of the business costs)
problems
 Which leadership style is best?
• Many alternative forms and styles
• Right leader for the right situation
– Autocratic makes more sense when business is
in trouble (e.g. rapid turnaround)
– Autocratic would be inappropriate where
performance highly dependent on effective
team-working and decentralised operation
– Stage of business: start-up v established and
complex
1 Courage
2 Confidence Five essential
qualities of a
3 Concentration leader
4 Passion
5 Values
The six tasks of leaders:
• Be clear about what change is required
• Turn ideas into action points and motivate
others to act on them
• Win commitment based on honest,
realistic, two-way discussion
• Create a climate of learning, so people
know it is safe to make mistakes
• Keep going – persistence is vital
• Learn from experiences and mistakes
 Leadership and business change

Successful management of
change requires positive
action from top management
and a leadership style that
gains a commitment to
change
 “Change leaders”
Effective change management involves…
• Effective, open communication of the
reasons for change
• Championing innovation and creativity as
a response to change
• Setting a good personal example
Moral hazard - when a party whose actions are unobserved can affect the probability
or magnitude of a payment associated with an event.
 
The possibility that an individual’s behavior may change because she has insurance is
an example of a problem known as moral hazard.
 
The concept of moral hazard applies not only to problems of insurance, but also to
problems of workers who perform below their capabilities when employers cannot
monitor their behavior (“job shirking”).
 
Moral hazard is a problem not only for insurance companies. It also alters the ability of
markets to allocate resources efficiently.
Principal–agent problem - problem arising when agents (e.g., a firm’s managers)
pursue their own goals rather than the goals of principals (e.g., the firm’s owners).
 
An agency relationship exists whenever there is an arrangement in which one
person’s welfare depends on what another person does.
 
Agent – an individual employed by a principal to achieve the principal’s objective.
 
 
A principal–agent problem arises when agents pursue their own goals rather than
the goals of the principal.
 
 
Principal – an individual who employs one or more agents to achieve an objective.
The Principal–Agent Problem in Private Enterprises

Managers can often pursue their own objectives, rather than focusing on the objective
of the stockholders, which is to maximize the value of the firm.
 
One view is that managers are more concerned with rapid growth and larger market
share, which provide more cash flow and in turn allows managers to enjoy more perks.
Another view emphasizes the utility that managers get from their jobs, the power to
control the corporation, the fringe benefits and other perks, and long job tenure.
 
However, there are limitations to managers’ ability to deviate from the objectives of
owners. First, stockholders can complain loudly when they feel that managers are
behaving improperly. Second, a vigorous market for corporate control can develop
unless managers pursue the goal of profit maximization. Third, there can be a highly
developed market for managers. If managers who maximize profit are in great demand,
they will earn high wages and so give other managers an incentive to pursue the same
goal.
 Asymmetric Information: Efficiency Wage Theory

• Efficiency wage theory - explanation for the presence of unemployment and wage
discrimination which recognizes that labor productivity may be affected by the wage
rate.
 
In the presence of high unemployment, why don’t we see firms cutting wage rates,
increasing employment levels, and thereby increasing profit? Can our models of competitive
equilibrium explain persistent unemployment?
 
• Shirking model - principle that workers still have an incentive to shirk if a firm pays
them a market-clearing wage, because fired workers can be hired somewhere else for the
same wage.
 
Once hired, workers can either work productively or slack off (shirk). But because
information about their performance is limited, workers may not get fired for shirking.

• Efficiency wage - wage that a firm will pay to an employee as an incentive not to shirk.