The Case for Organizational Leadership Audits
Ken W. Parry
Leadership improves the bottom line of organizations via a range of internal organizational outcomes and social processes. These outcomes and processes help to achieve the social goals of the organization and the community, in addition to the standard economic and financial outputs for which management is responsible. The data on leadership outcomes are readily available within organizations. These data should be systematically and routinely gathered and audited by organizations and should contribute to the performance management and career management systems in organizations. This should be done with the aim of developing the leadership capability of managers. The aim of this short take is to suggest strategies by which leadership outcomes and processes can be audited routinely as a measure of organizational effectiveness.
What Do We Know About Leadership?
Syntheses of the leadership literature by reputable scholars such as Bernard Bass (1990), Gary Yukl (1998), and Joseph Rost (1993) conclude consistently that leadership has a number of common characteristics. The associated components of leadership are:
• Presentation of a future. To lead others, it is axiomatic that one must be going somewhere.
• Willing following. It is also axiomatic that if one is leading, then others must be following. More importantly, followers must be willing.
• A desirable future state. Concomitant with the willingness of the following is the desirability of the future to which people are being led.
• An attainable future state. We know from the motivation literature that goals which are too easy or too hard to achieve will not motivate people to achieve them. Difficult yet achievable goals create optimum motivation.
• Mutually beneficial course of action. The leadership journey and outcomes are for the benefit of follower and leader alike.
• Socially responsible and ethical course of action. This assertion has been the source of some debate. However, a consensus is emerging that real leadership is socially responsible and ethical. Of course, these two characteristics are dependent upon the social and cultural mores of the day.
• Action and words. Ultimately, leadership is translated into actions and words. Leaders have their effect through what they say and what they do.
Therefore, an integrative definition of leadership might be that it is the presentation by a leader of some identifiable goal or vision or future state that people can desire; it is also the generation of a willingness within those people to follow the leader along a socially responsible and mutually beneficial course of action toward that goal.
We also know that leadership can be developed and trained. There are enough validated leadership training packages that have come from reputable research and scholarly sources such as the Center for Creative Leadership and the Center for Leadership Studies to draw this conclusion. The ageless debate about whether leaders are born or made is largely irrelevant. The reality of the matter is that all people can acquire the knowledge, understanding, skills, and behaviors to make them better leaders, no matter how effective or ineffective they are to begin with.
Leadership and the Bottom Line
Leadership improves the bottom line. A major meta-analysis of the transformational leadership literature, conducted at the Center for Leadership Studies in New York (Lowe et al., 1996), determined that effective leadership consistently has a positive impact on a number of financial and other measures of organizational performance.
Leadership is a source of sustained competitive advantage. Leadership is a long-term investment in the future, not a quick-fix for the balance sheet. Because the investment is long term, the advantages are also long term.
Figure 1. Leadership and Its Impact on the Bottom Line
Figure 1 shows that leadership has a positive impact on the bottom line of organizational output. However, that impact is not a direct impact. Leadership has an immediate effect on the psychology of the workforce. It improves the motivation, perceptions, attributions, commitment, persistence, understanding, and satisfaction of the workforce. These leadership outcomes can be identified and measured. In turn, improvements in these psychological outcomes will improve the behaviors and performance of the workforce, which in turn will have a positive impact on the bottom line.
Figure 1 emphasizes that managers must ensure the organization is meeting the intermediate outcome goals (i.e., social psychology of followers) as well as meeting the bottom line output goals. Meeting the intermediate goals indicates that effective leadership exists, and we know that leadership works. Meeting the intermediate goals also helps to ensure the achievement of the bottom line goals further down the line.
The problem of just concentrating on bottom-line output goals means that outputs might be achieved because of short-term and unsustainable actions, and in spite of the more sustainable benefits of leadership. For example, many organizations have pursued restructuring and downsizing strategies that have an immediate and quantifiable impact on the accounting bottom line. However, the loss incurred to the social capital of the organization has often outweighed any short-term financial gain. It is akin to an athlete taking painkillers: the performance is achieved short term, but the real problems are merely disguised. The athlete knows that sustained long-term advantage will accrue through a longer-term investment in treatment for the injury so that a career might be salvaged and lengthened.
Gathering Data about Leadership Outcomes and Processes
Sources of Data
Because leadership is about following, it is necessary that leadership outcome data come from the followers as well as from the leaders themselves. Both sources of data are necessary, but research has consistently shown that ratings by others have greater validity than self-ratings. Therefore, one challenge is to obtain leadership outcome data from people throughout the organization other than the prospective leaders themselves. Self-ratings should be avoided.
A second challenge is to obtain leadership performance data about the lower level staff, not just from them. These data can be used for the identification of potential leaders, and for the identification of developmental opportunities for those people. These people are the leaders of the future. The leadership legacy is to develop leaders and leadership right through the organization. Also, leadership is about a developmental impact on the workers, so we must get these data about the impact that has been achieved on the workers. For example, we often gather data from CEOs about CEOs, and we regularly gather data from CEOs about their followers. However, we lack data from followers about CEOs, and we lack data from followers about followers.
Types of Data
A further challenge is to identify and, where possible, to measure, the outcomes of leadership. As discussed earlier, the value of these outcomes is well known. What is not so well known, nor built into organizational systems, is the routinized evaluation of the achievement of these outcomes. Some of the measurable leadership outcomes are:
1. Level of follower motivation. Increased motivation has long been identified as an outcome of effective leadership and several instruments exist with which to measure levels of follower motivation.
2. Types of follower perceptions. The perceptions of followers and others about the effectiveness of leaders can be assessed with a number of validated leadership instruments. An example is the Multifactor Leadership Questionnaire (MLQ) (Bass & Avolio, 1997). Also, employee perceptions about the integrity of their leaders can be measured with a range of validated instruments.
3. Level of follower commitment and persistence. The level of organizational commitment of followers can be measured with, for example, the Organizational Commitment Scale (Mowday, Steers, & Porter, 1979).
4. Nature of organizational culture. Scholars such as Edgar Schein (1992) have consistently written about the impact of effective leadership on the enhancement of organizational culture.
5. Degree of understanding of organizational vision. A clearly articulated direction for the organization is characteristic of the accepted notion of the vision of a leader. Open-ended and semi-structured interviews can determine whether or not followers have taken in, absorbed, and understood the strategic organizational vision of the chief executive officer. Such understanding cannot be measured easily in questionnaire format, but can be identified with a high degree of reliability via interviews.
6. Nature of follower attributions. It is an established phenomenon that followers attribute very successful and very unsuccessful organizational outcomes to leadership, and they attribute moderate organizational success to factors other than leadership. The presence of these attributions can be determined readily via questionnaires and interviews.
7. Nature of leader values and of follower values. The presence of a set range of validated values measures can be determined with, for example, the Rokeach Value Survey (Rokeach, 1973). In addition, organization-specific values can be identified via semi-structured, open-ended questions.
8. Employee satisfaction with their leadership. The satisfaction of followers with the leadership of their managers can be assessed with the Multifactor Leadership Questionnaire (MLQ) (Bass & Avolio, 1997).
9. Social processes. The social processes of leadership are more difficult to measure, although they can be identified with the use of interview checklists. Some social leadership processes have been identified recently by qualitative research. These processes include “optimizing” the value, effectiveness, and leadership potential of the human resources; “enhancing the adaptability” of followers and of leaders to change and turbulence; “resolving the uncertainty” of followers about the impact of organizational change; and “developing” the capability of people. Work is still being done to develop instruments to measure the manifestation of social leadership processes.
Conclusions and Recommendations
One possible conclusion to be derived from the preceding discussion is that the challenges for senior management currently revolve around the leadership issues of processes and outcomes, rather than just the management issues of inputs and outputs. More particularly, these challenges revolve around the identification and understanding of social processes internal to organizations, and of the internal outcomes of leadership.
The research of internal social processes is best conducted by in-depth qualitative research and case studies. The research of the internal outcomes of leadership is best conducted by quantitative research, although the use of qualitative case studies is certainly not precluded. This research should not be concentrated at the senior levels of organizations. It should be undertaken at all levels of organizations, and with people at all stages of their careers.
A second conclusion is that research findings about leadership outcomes and processes need to be translatable into performance management and career management systems. More particularly, these systems must be seen as a developmental imperative, and not as a reward/coercive imperative. Because the best leaders achieve desirable outcomes and generate effective processes within organizations, one of the performance accountabilities of managers should be the generation of these outcomes and processes. Accordingly, development initiatives for managers should center on strategies and tactics to improve the generation of these desirable outcomes and processes.
Therefore, a third conclusion is to have systematic, organization-wide data gathering on the follower outcomes achieved by those in leadership roles. We have systematic, organization-wide data gathering on financial and economic outputs. So, because outcomes are just as important, we should also have such data gathering on the leadership and social outcomes for which managers are responsible. Systematic and organization-wide data gathering about leadership outcomes and processes will assist organizations in making decisions about the leadership capabilities and development potential of the leadership role of managers and aspiring CEOs.
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Ken W. Parry, Ph.D. is an Associate Professor of Management at Victoria University, and Director of The Centre for the Study of Leadership, New Zealand. The Centre is a joint venture with the NZ College of Management, and researches leadership and conducts executive development programs. Ken.Parry@vuw.ac.nz