What is Leadership?
Leadership Studies and Analysis
Since its introduction over twenty years ago, charismatic leadership has been strongly emphasized in the US management literature (Bass, 1985; House, 1977). The benefits of charismatic or transformational leadership are thought to include broadening and elevating the interests of followers, generating awareness and acceptance among the followers of the purposes and mission of the group, and motivating followers to go beyond their self-interests for the good of the group and the organization (Bass, 1985). Charismatic or transformational leaders articulate a realistic vision of the future that can be shared, stimulate subordinates intellectually, and pay attention to the differences among the subordinates. Tichy and Devanna (1990) highlight the transforming effect these leaders can have on organizations as well as on individuals. By defining the need for change, creating new visions, and mobilizing commitment to these visions, leaders can ultimately transform organizations (Hartog et al., 1999).
According to Bass (1985) the transformation of followers can be achieved by raising the awareness of the importance and value of desired outcomes, getting followers to transcend their own self-interests and altering or expanding followers’ needs. Bass (1985) defined the transactional leader as one who recognizes what followers want to get from their work and tries to see that followers get what they desire if their performance warrants it; exchanges rewards for appropriate levels of effort; and responds to followers’ self-interests as long as they are getting the job done. Numerous research studies have been conducted in this area, and, collectively, the empirical findings demonstrate that leaders described as charismatic, transformational, or visionary have positive effects on their organizations and followers, with effect sizes ranging from .35 to .50 for organizational performance effects, and from .40 to .80 for effects on follower satisfaction, commitment, and organizational identification.
Studies have been carried out in many different countries, and research in this area also shows that transformational leadership is closer to perceptions of ideal leadership than transactional leadership. As Lord and Maher (1991) note, being perceived as a leader is a prerequisite for being able to go beyond a formal role in influencing others. They hold that leadership perceptions can be based on two alternative processes. First, leadership can be inferred from outcomes of salient events, and attribution is crucial in these inference-based processes (Lord ; Maher, 1991). For example, a successful business ‘turnaround’ is often quickly attributed to the high quality ‘leadership’ of top executives or the CEO (Hartog et al., 1999). Leadership can also be recognized based on the fit between an observed person’s characteristics with the perceivers’ implicit ideas of what ‘leaders’ are (Hartog et al., 1999).
Cultural groups may vary in their conceptions of the most important characteristics of effective leadership. As such, different leadership prototypes would be expected to occur naturally in societies that have differing cultural profiles (Bass, 1990a; Hofstede, 1980). In his book Leadership and Performance Beyond Expectations, Bass (1985) drew a sharp contrast between a leader who is transformational as opposed to merely transactional. Transactional leadership proves instrumental in bringing about anticipated or expected outcomes in which the leader not only ‘recognizes the role the follower must play to attain the outcomes desired by the leader’ but also, crucially ‘recognizes what the follower needs and clarifies how those needs will be fulfilled in exchange for the follower’s satisfactory effort and performance’ (Bass, 1985, p. 13).
Further, Hater (1988) states:
The dynamics of transformational leadership involve strong personal identification with the leader, joining in a shared vision of the future, or going beyond the self interest exchange of rewards for compliance (Hater, 1988, p. 695).
Bass’ (1990) definition of transformational leadership has four dimensions:
1) Charisma. The leader provides vision and a sense of mission; instills pride, faith and respect; excite, arouse, and inspire their subordinates.
2) Individual consideration. The leader provides coaching and teaching; delegates projects to stimulate learning experiences; provides for continuous feedback; and treats each follower as an individual.
3) Intellectual stimulation. The leader provides subordinates with a flow of challenging new ideas; motivates followers to think in new ways: emphasizes problem solving and the use of reasoning before taking action.
4) Inspiration. The leader acts as a model for subordinates; behaves in ways that motivate and inspire followers by providing meaning and challenge; communicates a vision.
Historical research indicates that in some cultures, one might need to take strong decisive action in order to be seen as a leader, whereas in other cultures consultation may be a better approach. Additionally, the evaluation and meaning of many leader behaviors and characteristics may also strongly vary in different cultures. In a culture that endorses an authoritarian style, leader sensitivity might be interpreted as weak, whereas in cultures endorsing a more nurturing style, the same sensitivity is likely to prove essential for effective leadership (Hartog et al., 1999).
Research indicates that leadership exists in all societies and is essential to the functioning of organizations within societies (Wren, 1995). Because individuals have their own ideas about the nature of leaders and leadership, they develop idiosyncratic theories of leadership. As such, an individual’s implicit leadership theory refers to beliefs held about how leaders behave in general and what is expected of them. This type of attribution process provides a basis for social power and influence (Lord & Maher, 1991). In recent years, decision-making models in business organizations have emerged as a significant factor in the determination of the organization’s success or failure. Organizations require that individuals carry out job assignments dependably, make creative suggestions, and carry out self-training (Katz, 1958). However, the organization does not obtain all these behaviors simply through hiring the employee.
Research has noted the distinction between membership and decision making behaviors required by organizations and the quite different sources of these behaviors. In one such study, the motivation to acquire and keep organizational membership from productivity was distinguished (March & Sharipo, 1987). Membership motivation results from a favorable inducements-contributions balance. Employees must perceive a continuing favorable balance if they are to remain members. The motivation to perform represents a much more complex psychological contract between the individual and the organization involving perceived alternatives, perceived consequences of these alternatives, and individual goals (March & Simon, 1987). Organizations have no choice but to provide membership motivation if they wish to remain organizations.
Process or theories explain the operation of motivation, or the factors that influence an individual to choose one action rather than another. Process theories are subdivided into cognitive and non-cognitive approaches. Cognitive theories see behavior as involving some mental process. Non-cognitive theories see behavior as caused by environmental contingencies. The major cognitive theories are equity theory, goal-setting theory, and expectancy theory. All of them focus on perceptions of the outcomes that flow from behavior.
Equity theory suggests that motivated behavior is a form of exchange in which individuals employ an internal balance sheet in determining what to do. It predicts that people will choose the alternative they perceive as fair. The components of equity theory are inputs, outcomes, comparisons, and results. Inputs are the attributes the individual brings to the situation and the activities required. Outcomes are what the individual receives from the situation. The comparisons are between the ratio of outcomes to inputs and some standard. Results are the behaviors and attitudes that flow from the comparison, but other standards of comparison, including oneself in a previous situation, seem equally probable (Adams, 1965).
Goals setting theories argue that employees set goals and organizations can influence work behavior by influencing these goals. The major concepts in the theory are intentions, performance standards, goal acceptance, and the effort expended. These concepts are assumed to be the motivation. Participation in goal setting should increase commitment and acceptance. Individual goal setting should be more effective than group goals because it is the impact of goals on intentions that is important. In goal-setting theory the crucial factor is the goal. Tests of the theory show that using goals leads to higher performance than situations without goals, and that difficult goals lead to better performance than easy ones (House & Mitchell, 1974). Although participation in goal setting may increase satisfaction, it does not always lead to higher performance.
Expectancy theory supports the contention that people choose the behavior they believe will maximize their payoff. It states that people look at various actions and choose the one they believe is most likely to lead to the rewards they want the most. This theory has been tested extensively. It has been found that expectancy theory can do an excellent job of predicting occupational choice and job satisfaction and a moderately good job of predicting effort on the job. Expectancy theory implies that the anticipation of rewards is important as well as the perceived contingency between the behaviors desired by the organization and the desired rewards. The theory also implies that since different people desire different rewards, organizations should try to match rewards with what employees want (House & Mitchell, 1974).
The way in which the social environment is interpreted is strongly influenced by the cultural background of the perceiver. This implies that the attributes that are seen as characteristic or prototypical for leaders may also strongly vary in different cultures (Hartog, et al., 1999). Hunt, Boal and Sorenson (1990) propose that societal culture has an important impact on the development of superordinate category prototypes and implicit leadership theories. They hold that values and ideologies act as a determinant of culture specific superordinate prototypes, dependent on their strength.
The research in this area mentions three elements attributable to the leadership styles of different cultures; a stress on market processes, a stress on the individual, and a focus on managers rather than rank and file employees. The choice of these elements assumes that the distinct leadership style of a culture is an aggregate of these factors: some factor of the external environment –i.e. market processes, and on managers as those who are the main vehicles of leadership and change within their respective organizations. There is a growing awareness of the need for a better understanding of the way in which leadership is enacted in various cultures and a need for an empirically grounded theory to explain differential leader behavior and effectiveness across cultures (House, 1995). Culture profiles derived from Hofstede’s theoretical dimensions of cultures, yield many hypotheses regarding cross-cultural differences in leadership. Hofstede’s dimensions of culture are: uncertainty avoidance, power distance, masculinity-femininity, individualism-collectivism, and future orientation. High uncertainty avoidance cultures, with the resulting emphasis on rules, procedures and traditions may place demands on leaders not expected in low uncertainty avoidance cultures. High power distance societies are those which accept large power disparities between individuals, groups, and power strata, a view this state of affairs as right and natural. Collectivist societies are those where the stress is not so much on the individual and his or her interests, but on the maintenance of the collectivity and the continuation of harmonious relationships of members within it. According to Hofstede, innovative behaviors may therefore be expected in low uncertainty avoidance cultures. Cultures that are more masculine are probably more tolerant of strong, directive leaders than feminine cultures, where a preference for more consultative, considerate leaders appears likely (Hartog et al., 1999). Research indicates that preferences for a low power distance in societies could result in other desired leader attributes than a preference for high power distance (Hartog et al., 1999).
Other research indicates that managers in high power distance countries report more use of rules and procedures than do managers from low power distance countries. The most cited study, by Gerstner and Day (1994 in Hartog et al, 1999) focused on cross-cultural comparisons of leadership prototypes. In this study, respondents completed a questionnaire asking them to assign prototypically ratings to 59 leadership attributes. Comparing the ratings from a sample of American students (n=35) to small samples (n= between 10 and 22) of foreign students from 7 countries, they found that the traits considered to be most, moderately or least characteristic of business leaders varied by respondents country or culture of origin. However, this study has several limitations; small sample sizes, student samples, only foreign students currently in the US to represent other cultures in the sample, and employing a not cross-culturally validated English-language trait-rating instrument (Hartog et al., 1999). Despite these limitations, presenting conservative biases, reliable differences in leadership perceptions of members of various countries were found.
How Do Organizations Develop Leaders?
Organization 1: Leader Empowerment at Sinopec Corporation
Sinopec Corporation, more popularly known as China Petroleum ; Chemical Corporation, is a publicly listed company. It is distinguished by integrated upstream and downstream operations, high-flying core businesses and a full range marketing network. The Company was established on February 28, 2000 by China Petrochemical Corporation (Sinopec Group) as the sole sponsor. This is in accordance with the Company Law of the People’s Republic of China and consistent with the principle of “separation of core business from non-core business, performing assets from non-performing assets, and enterprise functions from the social”, through the restructuring of its business portfolio, assets, debts and creditor’s rights, organization and personnel. The justification behind the establishment of Sinopec Corp. was to “diversify the ownership structure, abide by the rules of the market economy, and establish a modern enterprise system”. Sinopec Corp. issued 16.78 billion H shares in Hong Kong, New York and London on Oct. 18th and 19th, 2000. The Company floated 2.8 billion A shares in Shanghai Stock Exchange on July 16th, 2001. The Company’s current total number of shares is 86.702 billion, of which 67.92% is held by the State through Sinopec Group, 9.5% by domestic banks and assets management companies (AMCs), 19.35% by foreign investors and 3.23% by investors at home.
The Company is acknowledged as one of the biggest energy and chemical firms in China. The scope of its business primarily encompasses oil and gas exploration, development, production and marketing; oil refining; production and sales of petrochemicals, chemical fibers, chemical fertilizers and other chemical products; storage and pipeline transportation of crude oil and natural gas; import, export and import/export agency business of crude oil, natural gas, refined oil products, petrochemicals, chemicals, and other commodities and technologies; research, development and application of technology and information. It is the biggest player in the production and distribution of oil products in both wholesale and retail channels. Moreover, it is the leader in the production and supply of major petrochemical products and is the 2nd largest crude oil producer. With a market share of 60.5%, the annual sales volume of oil products reached 94.6 million tons, among which retail was 53.25 million tons.
With global models as templates, Sinopec Corp. has set up a standardized structure of corporate governance, with centralized decision-making, delegated authorities in management, and business operations handled by specialized business units. It has more than 80 subsidiaries, either wholly-owned, or with equity participation and majority controlled, engaging in exploration and production, refining, chemicals, marketing, R;D and foreign trade. Majority of the Company’s operational assets and principal market is located in China’s most developed eastern, southern and central areas.
One way of ensuring that leaders are empowered is through the annual Employee Morale Survey that is conducted by the company on an annual basis. From the results of this empowerment initiative, the company mandates that its leaders, from supervisory positions and up, be able to undertake action planning with their respective functional units. This exercise guarantees that there is ownership of people initiatives and that leaders, in turn, are able to develop and empower their subordinates. The analysis proceeds with an internal evaluation of the unit, in terms of the following critical issues: 1) Pride, Commitment, and Dedication, 2) Leadership, 3) Work Relationships, 4) Employee Involvement, 5) Sense of Job Security, 6) Work / Job Fulfillment, 7) Reward and Recognition, 8) Communication, 9) Training and Growth, 10) Teamwork, 11) Supervision, 12) Compensation, 13) Family Life and 14) Work Conditions.
The analysis and the change interventions are based on the Employee Morale Survey that is deployed within the company each year. The respondents were asked to express their agreement with the statements in the tool that discuss any one of the 14 employee morale clusters enumerated above.
Pride, Commitment and Dedication has yielded the highest average, suggesting that the employees of the HR Department agree to both the following statements: “If possible, I intend to stay with SINOPEC for good” and “I am proud to be working for SINOPEC.” There has been a direct link
The leadership cluster was second among the highest ranking clusters, tied with communication. This demonstrates that employees in the HR Department are satisfied with the following aspects: “Management in general is understanding and supportive of people’s problems and concerns”; “Managers of SINOPEC in general are taking the results of this survey seriously.”; and “The Executives/MT members of SINOPEC are running the business properly.” Employees are more satisfied when their managers are good leaders. This indicates motivating employees to do a good job, striving for excellence or just taking action. There are some recommendations to ensure or sustain effective leadership. First, one must ensure that managers are well trained. Leadership is a combination of attitudes and behavior. It can be learned. Moreover, it has been noted that people respond to managers that they can trust and who inspire them to achieve meaningful and challenging goals (http://www.employeesatisfactions.com/). Respondents have characterized Sinopec’s leadership as transformational, where “leaders and followers raise one another to higher levels of morality and motivation” (Bass, 1990) Followers are assumed to transcend self-interest for the good of the group , consider long-term objectives, and develop an awareness of what is important. Bennis (1993) notes that effective leaders perform the three functions of aligning, creating and empowering. Leaders transform organizations by aligning human and other resources, creating an organizational culture that fosters the free expression of ideas, and empowering others to contribute to the organization.
The high rating of leadership is related to the next highest ranking factor which is communication. On the whole, employees agree with the following statements: “I get the information that I need to know where SINOPEC is heading.”; “I can openly express my disagreements and still be regarded as interested in improving situations at work.”; and I am given proper information for forthcoming events and changes that affect me. SINOPEC management ought to ensure that communication channels are open, because this is a potent way of establishing partnerships with the ranks (High Performance Workplaces, 2002).
Employees also feel that they are involved in the organization’s major decisions. Involvement, participation, and consultation may be undertaken through various means. There are several examples of best practice that have been proven to increase employee involvement, such as team briefings, quality circles, direct manager to employee communication and involvement, to more formal representative involvement (High Performance Workplaces, 2002).
Another high ranking factor is training and growth. Overall, employees from the HR Department ironically agree with the following statements: “There are fair opportunities for advancement in this organization.” and “I am given sufficient opportunities to learn and grow professionally in SINOPEC.” It must be noted that SINOPEC does have an evident need to improve in this area.
Management has adopted a systematic approach to training which ensures a comprehensive training process that remains focused on the needs of the organization. The process included the phases:
1. Analyze the organization’s needs and identify training goals which, when reached, will equip learner’s with knowledge and skills to meet the organization’s needs. Usually this phase also includes identifying when training should occur and who should attend as learners.
2. Design a training system that learners and trainers can implement to meet the learning goals; typically includes identifying learning objectives (which culminate in reaching the learning goals), needed facilities, necessary funding, course content, lessons and sequence of lessons
3. Develop a training “package” of resources and materials, including, e.g., developing audio-visuals, graphics, manuals, etc.
4. Implement the training package, including delivering the training, support group feedback, clarifying training materials, administering tests and conducting the final evaluation. This phase can include administrative activities, such as copying, scheduling facilities, taking attendance data, billing learners, etc.
5. Evaluate training, including before, during and after implementation of training
In a systematic approach to training, each phase of the process produces results necessary for the next phase. For example, the training analysis phase brings forth learning goals that are used by the next phase, training design. Training design (often called instructional design) references the goals to design methods and materials from which learners can attain the goals and objectives. Each phase usually makes possible continuous evaluation feedback to other phases in order to enhance the overall systems process (McNamara, 2005).
In carrying out this approach, the organization first undertook competency framework development to ensure that the training and development interventions are anchored on business critical competencies. Next, once this framework is in place, employees are assessed in terms of their competency gaps. Management proposes different means of addressing these gaps such as published learning, e-learning or the conventional classroom learning. The Training and Development Department of HR monitors whether or not these gaps are closed. Other interventions such as coaching and mentoring may also be considered. Currently, such development thrust is apparent in SINOPEC, at least from middle management to ranks.
Another reason for this perception is the clear and meaningful connection between competence and promotion. Employees believe that there is a merit culture existing within the organization, where those who are competent necessarily get to be promoted. There are clear performance and promotion guidelines that are used for assessing employees’ performance. There is a thorough review of the existing performance management process, to check if the criterion used for evaluation are still relevant and apt. This review encompasses all facets of performance management, including strategic alignment, performance planning, performance monitoring, performance evaluation, and rewards and recognition. This suggests that all issues related to each of these phases are surfaced and addressed. Moreover, there are clear promotion guidelines for all levels to see that there are objective criteria for promotion and retention. This is linked to other high-end HR systems such as succession planning, career management and retention strategies for retention of top talent. These leadership and people development initiatives certainly make SINOPEC a more robust organization where employees are motivated and empowered.
Organization 2: Succession Planning at Asia’s Largest Battery Manufacturer
The focal point in the next case is the Ramcar Group of Companies, a medium-sized battery manufacturer in Asia. Running records have been requested from the company to be able to assess the status of the company before and after the leadership transition in which from an employee president took over the son of the owner. The same issues that confront old leadership have remained the same issues for the new leadership. While such a smooth transition has been possible, there were certain issues that surfaced from the qualitative data. These are consistent with the assertions of Davis (1983) who has purported that the construct of “smooth succession” in a family business was an irony of sorts. The conflict lies in the idea that such a move necessitates not only structural modifications but a more deeply rooted changed anchored on culture. One manager of the company even commented, “The initial difficulty of senior management to adjust to the new president’s leadership lies in the culture itself. They have gotten used to the norms of the old president; however, there have been so many changes that speak of new ways of doing things. The new president advocates a new set of norms. That took some time to get used to, especially among us old guards.”
Kuratko and Hodgetts (1989) enumerated several issues that need to be evaluated in succession strategies. Those that were determined encompassed comprehending “the contextual aspects such as time, type of venture, managerial capabilities, and environment; identifying succession qualities such as technical skills, business knowledge, perseverance, etc., and carrying out the succession plans which includes the grooming and preparation of a successor.” (p. 23). The controversies behind succession decisions is aggravated by the intricate nature of family dynamics that are not observed with strictly official, non-family enterprises.
Industry Strategic Analysis
Because the new president is a lot younger than his predecessor, there is an issue of lack of maturity and expertise. While this may not be valid, perceptions, especially at the top level, is very critical in image building. Drozdow (1989) accounts that senior management frequently accord younger managers with concepts and skills about how the business works, but fail to transfer to them more strategic skills encompassing identification of novel opportunities and leveraging on them. One other senior executive of the company commented, “There is a lack of credibility amongst us top managers. We feel that we know better and we have much more experience. But we must accept the fact that they are the owners of the business and they have the prerogative to direct us, in strategic matters as well as in the operations.” Drozdow (1990) has recommended that family businesses within rapidly changing industries
Drozdow (1990) suggested that, in family businesses in industries undergoing significant change, successors should be selected who can restructure the business or establish a new business. Levinson (1971) suggested that businesses with significant growth should professionalize the business by eliminating family members and hiring non-family managers. There have been no investigations that focused on these factors and related them to succession issues.
The question of business first or family first is conventionally addressed by family business consultants to the effect that the business’s strategic needs should take priority over benefits to individual family members. The literature in the field of business strategy purports that prior to the development of a strategic plan, a profound comprehension of the industry is imperative. The contentious issues of growth of demand, technological impacts, financial requirements, competitive environment, personnel required, governmental regulations, and economic strength of customers, suppliers, and competitors are all important industry factors that have a direct impact on the strategic plan of a family business (Drozdow, 1998). Looking at the financial and operating status of Company, managers would have to admit that for a green horn, the current president has done well, considering his 1-year old term. One of the managers asserted: “He has learned very quickly. I think he also owes that to the more senior managers who were very willing to mentor him. We were never stingy with sharing knowledge or competence, especially at the [manufacturing] plant.”
Family Business Analysis
It is a rarity that transitions as smooth as what transpired in company X, happens. However, because of the tutelage and the mentorship of his father, the current president has finally been able to adjust to the new role. However, when there are very critical decisions to make, it is still necessary that his father be consulted (who is also currently Chairman of the Board). One of the senior managers lamented, “When we do not know what to do and are arguing intensely, we seek the advice of MUA [referring to the Chairman of the Board]. Somehow, this gives us greater confidence that we are heading towards the right direction.”
Barnes and Hershon (1976) purport that such transitions – those within the company and within the family – occur concurrently. They assert that while pressure might be markedly strong during these changes, the synergy between these two frequently results in a smooth transition from a relationship standpoint. Drozdow (1990) further indicates that prior to the selection of a successor, the following important issues must be addressed: Is it a source of employment, an investment, or a vehicle to bring the family together? Is the business operating efficiently and profitably? She proposes that answers to these questions will determine what type of leader is needed to achieve the goals. In the case of Ramcar Group of Companies, the replacement of the previous President has been undertaken by default because he has already reached the retirement age. This is actually the only reason because at that time when the transition took place, the company has remained profitable and competitive. Moreover, the old management thinks that the new president ought to become a “clone” of the previous.
Malone (1989) asserts that strategic planning and continuity planning are associated. Rosenblatt, Mik, Anderson, & Johnson (1985) purport that there is frequently pressure and stress because of friction between the family system and the organizational system. Ward (1987) points out that strategic planning needs to integrate the strategic plans of the family as well as of the business. Finally, Rutigliano (1986) suggested that there is a tendency to put the needs of the family before those of the business. In the current study, no manager has made mention of family needs taking precedence over business needs. The family at least has this level of maturity in running the business.
Davis (1982) indicated that family businesses are inclined to have a strong degree of intentionality of commitment to achievement and perseverance that stems from individual pride, family pride, and family tradition. The frequency with which family businesses reinforce the positive value of family ownership of the business to their customers indicates that a relationship does exist. There is a substantial volume of research necessary to illustrate the effect of family business succession from a marketing viewpoint.
The Selection of the Successor
One of the more crucial factors influencing succession planning is the family’s attitude (Birley, 1986). If there is lack of support from the family for a specific family member taking on the post, it will not probably be carried out. In the present study, the decision to elect the eldest brother to the presidency was unanimous. P. Davis (1986) asserted that personal relations among relatives are frequently prioritized more than profitability. Thus, there are numerous researchers who purport that prospective successors ought to build credibility among family members who are engaged in the organization (Goldberg & Woolridge, 1992; Horton, 1982; Lansberg & Astrachan, 1994). One specific issue that needs to be addressed is the degree of interest of the younger generation (Longenecker & Schoen, 1978; Ward, 1987; Churchill & Hatten, 1987; Handler, 1989a). One other factor that had to be sufficiently considered is the willingness of the successor to take on the leadership role. Fortunately, this has not been an issue with the current study. The son was very much willing and eager to become president of the company. This eagerness and willingness to learn has been noted by senior managers, “He is very eager to learn new things, and has his hands on everything. He really wants to learn everything about the business. In an investigation of university students, Stavrou (1999) asserts that intentions to join the family business were associated with the “individual needs, goals, skills, and abilities.” Moreover, she asserts that the decision not to enter the business is related to family issues and not to business issues.
Increasingly, the selection criteria have become more objective. The following criteria are often used in evaluating a potential successor’s abilities to meet the strategic plans of the family business: education, technological skills, managerial skills, and financial management skills. Of lesser importance are age, sex, and birth order. Drozdow (1989) pointed out that there has been an ever-increasing tendency by family businesses to select a successor who was not the eldest son, thereby setting aside a long-established norm. A daughter or youngest son is increasingly selected as the person best able to be the new leader of the family business. Chrisman, Chua, and Sharma (1998) found integrity and commitment to business more important than gender and birth order. It is frequently acknowledged that the eldest may not always be the best and sons may not necessarily be better than daughters (Ayres, 1990; Kaye, 1992). Barnes (1988) suggested that one reason for a persistence in choosing the eldest is that incongruity develops between the successor’s standing in the business and the family when a younger son or a daughter takes over the business, which thus leads to ambiguity and rivalry within the family. As a result, incumbents, in order to preserve family harmony, may be discouraged from choosing a younger son or a daughter as successor.
The Development of the Successor
Longenecker and Schoen (1978) purport that the transfer of management is a long one, starting in childhood, with the two primary points in time being when the successor enters the business on a full-time basis and when the leadership role is transferred. P. Davis (1986) believes that personal skills and organizational development are needed for a family firm to develop through different phases. Along similar lines, Handler (1990) found that succession is a multiple-stage process. This finding is supportive of the findings of corporate executive succession (Farquhar, 1989; Friedman, 1987).
Gaining experience outside the business has been recommended by Nelton (1986) and Danco (1982). Many consultants recommend at least three to five years in another business. Others suggest that at least one promotion should transpire, thus illustrating the person’s ability. External experience enhances the successors development of an identity and prepares him for a broader array of problems that may face the company (Barnes, 1988; Correll, 1989).
There is a implicit belief that the junior generation needs broader management responsibilities and breadth and diversity of experiences in the family business. This encompasses contacts with key suppliers, customers, lenders, and others. Experience in the family business allows the successor to develop relationships within the company and understand the culture and intricacies of the business (L. Danco, 1982; Lansberg & Astrachan, 1994). Lansberg (1988) supports the importance of the junior generation family member’s skills and overall ability to do the job. This was exactly the case with the current company where the president has grown from the ranks, to Plant Manager, General Manager, and finally to president. He has expended 12 years going through these positions. Danco (1982) recommended that performance evaluation is a critical part of development. An instrument to enhance succession effectiveness is academic courses for successor family members. Family business courses have become more usual over the past 10 years, but there has been limited empirical work undertaken on the effectiveness of these courses.
The effective succession planning of Ramcar Group of Companies has allowed it a smooth transition despite the fact that it is a family owned business. With this, other family owned companies may aspire to emulate their leadership development best practice: succession.
There were no significant changes in the status of the battery family-owned business both on the financial and people side of the business following the transition to new leadership. While this is the case, it is rarely found in the literature that such transitions are undertaken smoothly. While it has not been made explicit, the current president needs to go out of his way to improve and leverage on his relationships with the top management who have had the chance to interact with the past president. Moreover, he needs to prove his credibility further by showing that he is competent and deserving of the post, and not just because “he is the son of the owner.” There are many issues relating to succession planning within small and medium sized enterprises that need to be sufficiently addressed with apt and valid research methods. It is hoped that future research into family business succession issues will be undertaken in a more rigorous methodological way, but will maintain the thrust of much of the past research that has served to provide direct benefit to family business owners, their families, and the other stakeholders.
An Audit of My Company’s Leadership Development Practices
Assessing human resource requirements and capabilities is done holistically at my company. Such requirements are related and rooted on the strategies drafted by my company as a ‘whole’ entity. The HR platform of the company then, is heavily dependent on overall business strategy. The HR planning process is both externally and internally aligned. By external alignment, we mean alignment to overall business strategy – considering the diverse business requirements of each unit and responsiveness to business needs. On the other hand, internal alignment refers to alignment of the HR functions of acquiring, developing, motivating and retaining to internal HR strategy. In brief, we mean the alignment of functions to HR strategy.
Encouraging Inputs in the Development of Strategic HR Plans
After the annual Corporate Planning Session, HR separately conducts its own Planning Session. This involves key managers, supervisors and staff in the formulation of HR strategies. During the activity, each HR unit is asked to draft their own SWOT analysis, including challenges and support requirements. This also promotes cooperation across HR functions, with members of other units allowed to critique or encourage another’s output. The strong involvement and open surfacing of issues to the different organizational climate tools deployed by the Organizational Development Department is also a means of encouraging bottom-up input in the development of strategic HR plans. These are neutral media through which employees are free to express their sentiments without fear of reprisal from their superiors.
Key Human Resource Requirements and Plans Based on Strategic Objectives and Action Plans
Anchored on my company’s strategy map, HR focuses on key priorities in the Human Resource perspective. The HR agenda also addresses the total strategy of HR’s value chain from acquiring, developing, motivating and retaining.
Building a Culture of Performance
My company has a performance management system that is also linked strongly to leadership development. The LEAP, or the Leading Edge for Accelerated Performance, is the main vehicle through which a performance-based rewards framework is implemented across my company. Under this framework, employees have shared goals and responsibilities. By ‘shared’, we mean the alignment of corporate objectives to division, department down to individual objectives and the allocation of corresponding weights to these objectives across levels. That the system is performance-based suggests that pay-outs are dependent on performance ratings; thus, the actual pay-out rating is determined by the budget, corporate scorecard rating and the individual’s performance rating. The LEAP also determines the annual pay-out (i.e. incentives).
Communication and Deployment of Strategic Objectives, Action Plans and Performance Measures/Indicators to Achieve Overall Organizational Alignment
Strategic objectives, action plans and performance measures / indicators are communicated and deployed to employees through the Balanced Scorecard cascades conducted all throughout the company. BSC cascades for frontline managers, supervisors and team leaders are spearheaded by the Organizational Development Department, in coordination with the HR Team of each unit. On the other hand, such cascades at the corporate and executive levels are done by the Quality Department. These cascades are venues for team enhancement / work-out activities and Unit Planning. Performance planning for rank and file employees is done through their immediate superiors. Thus far, the BSC as a strategic management tool has been proven to be a very effective means of establishing organizational alignment in terms of objectives. It has been potent in aligning corporate, SBU, team and individual objectives.
The mechanics of the use of the BSC have been explicitly laid down in the company’s Performance Management Policy.
Encouragement and Motivation of Leaders to Develop and Utilize Their Full Potential
One way of encouraging leaders to develop and utilize their full potential by ensuring their involvement in the drafting of their Individual Development Plans (IDPs). Through this collaborative effort, they are made aware of their critical skill gaps, which may be addressed through on-the-job interventions or through training course offerings. Another training feature that the company takes pride in are the immersion trainings accorded to leaders. On occasion, high potential leaders are sent abroad to familiarize themselves with processes, through internship and cross country postings.
Support of High Performance
Our performance management system, through the Leading Edge for Accelerated Performance (LEAP) program, envisions a strategy focused workforce. It effectively supports high performance by using an integrated approach to performance evaluation, including not only BSC objectives but also competencies and corporate values. The outcome is a value-driven, value-creating and performance-based workforce – a high performance organization.
Encouragement of Leaders to Provide Input on Their Own Work
At my company, a culture of openness, transparency and two-way communication is highly encouraged. Leaders, then, do not have difficulty expressing their sentiments to their immediate superiors, whether these issues be concerns at the individual, group, unit or corporate level. For instance, at the individual level, the employee is encouraged to openly give feedback to his superior. At the group or team level, group critiques and focus group discussions are conducted during which anyone may receive and also give feedback about their own output. At the unit level, updates, assessment measures, project meetings, project post-mortems, training evaluations and learning sessions are venues where individuals may solicit and give their evaluation of their own work / performance.
Reinforcement of High Performance Through Compensation, Recognition and Incentive Practices
Our compensation and performance management systems are firmly based on performance / results. Necessarily, high performers and strong potentials are those who are most rewarded. In particular, monthly performance incentives are given to Production employees. Moreover, compensation is tied with compensable factors critical to the business, including education and premium technical skills. One feature of the company’s rewards system that sets it apart from other companies is the structure of its rewards system. An employee is rewarded at the individual, unit and corporate or organizational levels.
Leader Education, Training and Development
Balancing Short and Long Term Organizational and Employee Needs Through Training and Development
Competencies are at the center of the our training and development philosophy. The five (5) competency clusters – namely, Managing Self, Managing Customers, Managing People, Managing Business Performance and Managing Strategy set the training and development programs in the executive, manager, supervisor and team member levels. With the competency model in place, the learning academy is able to organize a host of programs that are more strategic than prescriptive. The Employee Development Series 101 to 103, which is one of the key programs under the learning academy, is executed based on a three-year curriculum plan; thereby addressing competency gaps within a three-year period. At the end of the three-year period, a competency gap analysis will again be implemented. Individual development plans will again be created to address other competency gaps.
Delivery and Evaluation of Education and Training
Trainings, particularly the Employee Development Series, are assessed at the first level through immediate feedback of the training; to second level evaluation using assessment of concepts and principles using the awareness survey; to third level evaluation through behavior change assessment using the behavior assessment form. Informal training sessions such learning sessions on HR Policies, Data Management Service, Human Resource Information System (HRIS), Work-Life Balance, Corporate Social Responsibility, Budget Management are also held as education and learning opportunities in the company.
Addressing Key Developmental and Training Needs
Key developmental and training needs as well as management and leadership development are addressed by the competency-based Employee Development Series. Trainings on safety are also done on a regular basis.
Addressing Leadership Performance Excellence in Education and Training
The LEAP program addresses the performance management program and training for the company. The program not only puts in place an effective performance management system in the company but also creates a culture of performance for the company by rewarding high performers. To achieve this, the program puts into place a continuing training program on performance metrics and standards using the Balance Scorecard. Performance assessors are certified via training sessions on performance and continuing orientations are held for the company’s leaders.
Reinforcing Leadership Knowledge and Skills on the Job
Leadership education and training in the company does not start and end in classroom training and workshops. Complementary to learning are the pre and post course assignments that are given to participants to enhance knowledge and skills on the job.
Overall, these leadership development best practices indicate a robust and sustainable leadership bench for my company.
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