Understanding the Organizational Embeddedness of Leadership and Its Link to Financial Performance

• In Event: Leadership Education in Practice: Transcending the Self to Consider the Process

Short Description

This research demonstrates that leadership systems — instruments, structures, and processes — can explain financial performance and that it is valuable to strategically invest in the development of this system. The researchers developed and will share a scale for the organizational embeddedness of leadership that can be used for additional macro-level research.

Detailed Abstract

Since many decades researchers predominantly discuss the issue of the best leadership models and leadership behaviours (e.g. Dinh et al., 2014). However, there was only little research on how to develop leadership effectively and efficiently from an organisational point of view. In other words, researchers and practitioners often forget to provide the necessary resources and support for leaders to fulfil their challenging leading positions. This becomes important having in mind the changing environment and context leaders face every day. They need to fulfil their role models, function as motivators, controllers, experts, contact persons for employees' needs and are responsible for employees' performance. Moreover, they act in a more globalised, more faster developing environment that is characterised by higher demands for a flexible organised workforce (Ketkar & Set, 2009; Way et al., 2015; Lepak & Snell, 2002).

Based on the research field of leadership emergence and development (Day, 2000; Day, Fleenor, Atwater, Sturm & McKee, 2014) we aimed to investigate the role of leadership instruments, structures and processes for explaining financial performance. Doing so, we developed and validated a leadership scale measuring the so called organisational embeddedness of leadership (OEL). Within the scale development process we followed recommendations by Churchill (1979), Rositter (2002, 2011) and MacKenzie, Podsakoff and Podsakoff (2011). Based on theory analysis and experts interviews (thirteen German experts from the field of human resource management) the authors derived and defined organisational conditions enabling good leadership. Content validity was tested within a further qualitative pretest (N=12) referring to Anderson and Gerbing (1991). The newly developed scale is tested in two further independent German cross-sectional and cross-industry quantitative research studies using exploratory factor analysis (first study, N=73) and confirmatory factors analysis (second study, N=172). Structural equation modelling results indicate a single factor model with five sub-dimensions (GFI = 0,891; AGFI = 0,851; NFI = 0,931; TLI = 0,975, CFI = 0,979; RMSEA = 0,047). The sub-dimensions are leadership training and career development, leadership alignment, evaluation and feedback, implementation of employee interviews and supporting resources for leadership. Internal consistency reliability was assessed through composite reliability with values between 0,84 and 0,92. Within the model 33.6 percent of variation in self-reported financial performance is explained indicating a high relevance of this newly developed leadership scale.

Thus, the findings contribute to the leadership and human resource management literature by providing a broader understanding on leadership emergence and development from an organisational perspective. On the basis of the resource based view (Barney, 1991; Barney & Clark, 2009) it can be argued, that a leadership system may constitute a sustained competitive advantage.
The results indicate high practical relevance for the HR management providing evidence for the necessity to invest into a strategically developed leadership system. We encourage top managers to define and implement structures, processes and instruments to select, train, develop leaders, to provide appropriate leadership instruments such as structured interview procedures, define a leadership philosophy, act as role models, implement leadership evaluation and feedback procedures and offer resources to sustainably fulfil a leadership position. If a firm considers these enabling conditions for leadership, leaders are more likely to show positive leadership behaviour to finally enhance employees' knowledge skills and abilities (KSAs), their satisfaction, motivation, identification and performance to reach the firm’s goals. In other words, leaders get organisational support to handle multiple tasks.

Researchers can further use the new validated OEL scale for organisational level or multi level research – e.g. in the research field high performance work systems. Thus, we hope to support a better understanding about the mediating paths between different HR practices and organisational performance as demanded by Jiang, Lepak, Hu and Baer (2012).

Note: This study has not been published yet. If you are interested, visit our presentation!

Participants

• Lothar Winnen, HMKW Cologne - University of Applied Sciences

• Rafael Wilms, South Westphalia University of Applied Sciences

• Ralf Lanwehr, University of Applied Sciences