Academic journal article Journal of Small Business Strategy

THE LINK BETWEEN LEADERSHIP, STRATEGY, AND PERFORMANCE IN MANUFACTURING SMEs

Academic journal article Journal of Small Business Strategy

THE LINK BETWEEN LEADERSHIP, STRATEGY, AND PERFORMANCE IN MANUFACTURING SMEs

Article excerpt

ABSTRACT

Sustainable competitive performance, in today's turbulent environment, is widely thought to depend on the quality of leadership and strategy. In this paper, we empirically examine the relationship between strategy, leadership and performance within a single study. Evidence is presented from 194 firms, outlining the association between strategy characteristics and the dimensions of leadership in a ranked order according to their degree of importance. The analysis indicates that a balanced transformational and transactional leadership style is likely to lead to better performance. The study also found that firms strongly emphasizing any of the leadership styles performed better than firms with uncertain or weak leadership styles.

The findings provide practical guidelines to enable senior managers to consider leadership style in the formulation and deployment of their strategic plan. Finally, the analysis indicates the need to consider and align leadership and strategy in order to achieve sustainable competitive performance.

INTRODUCTION

The quality of leadership and strategy is widely viewed as instrumental in maintaining and improving competitive performance. Ireland and Hitt (1999) eloquently summarize this relationship by stating that "the formulation and deployment of strategic actions by effective leaders result in strategic competitiveness and above-average returns". The relationship between strategy and performance has received much attention in the literature. For example, Schwenk and Shrader (1993) conducted a meta-analysis of existing studies and found that strategy was positively linked to growth. But what does this mean, and what drives the effectiveness of the strategy? Arguably, success arises from approaching the strategy process in the right way, both from formulation and deployment perspectives. Accordingly, leadership has an important role to play in strategic effectiveness. It is therefore no great surprise that the literature on leadership and its impact on strategy and performance is extensive. Indeed, the literature contends that it is difficult to formulate and deploy any type of strategy without the active involvement of the firm's leadership. Leadership can be either 'hands-on' or encompass a guiding role. Either approach depends on the impact of leadership characteristics on strategy and overall organizational performance. Interestingly, Mintzberg et al (1988), while acknowledging the role of leadership, contended that in the pursuit of strategic intent or performance, many leaders encountered significant difficulties in aligning organizational actions. In essence, this leads to one of the important questions often asked "which type of leadership is likely to lead to better strategic direction and ultimately organizational performance?" Existing studies largely point to the existence of a dynamic and circular relationship between leadership, strategy, and performance (see Figure 1). Most of the studies to date have focused on examining the bilateral relationship between two of these variables in a single study, rather than examining the relationship between the three variables simultaneously. The integrated approach pursued in this study has a number of advantages. First, it is possible to test the model presented in Figure 1 more vigorously by eliminating the contingency influences inherently present in different bilateral studies. Second, the bilateral studies can, at the very best, provide a partial view of the relationship between these three variables and any broader conclusion is necessarily based on conjecture.

The overall aim of the study is to test the relationships depicted in Figure 1.

AIMS OF THE RESEARCH

To date, most SME research focuses on factors that contribute to their survival such as financing, rather than a greater understanding of the growth process and the achievement of sustainable competitive advantage. The majority of the literature focuses on large firms, and there is a dearth of research on smaller organizations. …

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