LEADERSHIP STYLES USED IN
THE BANKING INDUSTRY
A STUDY
Vandana Khare
N.Mohana
Mukesh Kumar
CAB, RBI Pune
Acknowledgements
The study team would like to thank Ms Kamala Rajan, former Principal & Chief General
Manager and Ms Meena Hemchandra,
Principal & Chief General of the College of
Agricultural Banking, Reserve Bank of India for their encouragement, support and guidance
in conducting the study.
We wish to thank all the bankers who took the test enthusiastically and enabled us in
completing the study. This study would not have been possible without their active
cooperation. This study, the which was conducted for the purpose of gaining an insight into
the working style of the Indian Banker in his day to day life, is dedicated to them . We hope
the findings of the Study and its recommendations would be of interest and value to them.
Introduction
A subject that has been of great interest and fascination to mankind is Leadership. One of
the most researched subject in the Behavioural Sciences, various researchers and different
schools of thought have emerged with the aim of understanding what is leadership or what
makes a successful leader.
But before we go into the details , it needs to be stated that for the purpose of this study, the
word leadership has been used as defined by Northouse - “a process whereby an individual
influences a group of individuals to achieve a common goal” .
Evolution of leadership Theories
We give a brief background of the evolution of leadership theories in the last couple of
centuries as this will enable us to understand the major milestones in leadership thought
and also place the leadership model we have chosen for study in context.
Great Man Theory (1840s)
The Great Man theory evolved around the mid 19th century. The Great Man theory assumes
that the traits of leadership are intrinsic. That simply means that great leaders are born, not
made. This theory sees great leaders as those who are destined by birth to become a
leader. The theory was popularized by Thomas Carlyle, who was inspired by the study of
influential heroes..
Even though no one was able to identify with any scientific certainty, which human
characteristic or combination of characteristics, were responsible for identifying great leader,
everyone recognized that just as the name suggests only a man could have the
characteristic (s) of a great leader!
In 1860, Herbert Spencer, an English philosopher disputed the great man theory by affirming
that these heroes are simply the product of their times and their actions the results of social
conditions.
Trait Theory (1930's - 1940's)
The trait leadership theory believes that people are either born or are made with certain
qualities that will make them excel in leadership roles. That is, certain qualities such as
intelligence, sense of responsibility, creativity and other values puts anyone in the shoes of a
good leader. The trait theory of leadership focused on analyzing mental, physical and social
characteristics in order to gain more understanding of which characteristic or combination
of characteristics were common among leaders.
There were many shortfalls with the trait leadership theory. However, from a psychology of
personalities approach, this was the first time that the behavioural approach was used for
the study of leadership.
Behavioural Theories (1940's - 1950's)
In reaction to the trait leadership theory, the behavioural theories offered a new perspective,
one that focused on the behaviours of the leaders as opposed to their mental, physical or
social characteristics. Thus, with the evolutions in psychometrics, notably the factor analysis,
researchers were able to measure the cause and effects relationship of specific human
behaviours from leaders. From this point forward anyone with the right conditioning could
have access to the once before elite club of naturally gifted leaders. In other words, leaders
are made not born.
The behavioural theories first divided leaders in two categories. Those that were concerned
with the tasks and those concerned with the people. Throughout the literature these are
referred to as different names, but the essence are identical.
Contingency Theories (1960's)
The Contingency Leadership theory argues that there is no single way of leading and that
every leadership style should be based on certain situations, which signifies that there are
certain people who perform at the maximum level in certain places; but at minimal
performance when taken out of their element.
To a certain extent contingency leadership theories are an extension of the trait theory, in
the sense that human traits are related to the situation in which the leaders exercise their
leadership. It is generally accepted within the contingency theories that leaders are more
likely to express their leadership when they feel that their followers will be responsive.
Several models (as given below) based on the Contingency Approach to Leadership were
developed by different experts.

Fiedler's contingency theory

Hersey-Blanchard Situational Leadership Theory

Path-goal theory

Vroom-Yetton-Jago decision-making model of leadership

Cognitive Resource Theory

Strategic Contingencies Theory
Transactional leadership Theories (1970's)
The contingency theories were succeeded by transactional theories, also known as
exchange theories of leadership. These focussed on the transactions made between the
leader and the followers. In fact, the theory values a positive and mutually beneficial
relationship.
According to these theories, the leader must find a means to adequately reward (or punish)
his follower, for performing leader-assigned tasks. In other words, transactional leaders are
most efficient when they develop a mutual reinforcing environment, for which the individual
and the organizational goals are required to be in sync.
The transactional theorists state that humans in general are seeking to maximize
pleasurable experiences and to diminish un-pleasurable experiences. Thus, we are more
likely to associate ourselves with individuals who add to our strengths.
Transformational Leadership Theories (1970s)
The Transformational Leadership theory states that the leadership process is one by which a
person interacts with others and is able to create a solid relationship that results in a high
percentage of trust, that will later result in an increase of motivation, both intrinsic and
extrinsic, in both leaders and followers.
The essence of transformational theories is that leaders transform their followers through
their inspirational nature and charismatic personalities. Rules and regulations are flexible,
guided by group norms. These attributes provide a sense of belonging to the followers as
they can easily identify with the leader and its purpose.
Focus of this study
As we noted earlier, many theories about Leadership have evolved, have had enthusiastic
adherents and dissenters over the years. However as the subject matter of this study we
chose the Situational Leadership Theory of Hersey and Blanchard over many other theories
for several reasons. The main reason being that as trainers we have always believed in
imparting knowledge and practical tools which a trainee will be able to apply in his day to day
life. As such the Situational Leadership Theory instead of being merely a theoretical
exposition offers a doable solution which helps a leader to select behaviour or relationship to
maximise outcomes. It also has the advantage of:

being well known and frequently used; it has stood the test in the marketplace 400/500
fortune 500 companies have used it successfully

being intuitively simple.

being very practical, but still based on sound theories

being prescriptive: it tells you what to do and not to do in various contexts

emphasizing the concept of leader flexibility

reminding us to treat each subordinate differently based on the task at hand and to
seek opportunities to develop subordinates.
Hersey & Blanchard’s Situational Leadership Model
The Situational Leadership Model was developed in the late 1960’s by Ken Blanchard and
Paul Hersey. The model essentially says that the leadership method one employs depends
on the situation. Before one selects a leadership style to use, they must first understand the
situation and the importance of the possible outcomes. Then the leader may choose one of
the four leadership styles and act accordingly.
Situational Leadership is based on interplay among the amount of:
• Direction (task behaviour) a leader gives
• Socio-emotional support (relationship behaviour) a leader provides
• "Readiness" level that followers exhibit on a specific task, function, activity, or objective
that the leader is attempting to accomplish through the individual or group
The corner stone of this model is that successful leaders have the ability to adapt their
leadership style to the needs of the situation. The model created by the authors is given
below.
The two-dimensional graph shows a bell shaped curve that passes through 4 quadrants. The
x-axis of the graph represents Task Behaviour and the y-axis, the Relationship Behaviour.
Task behaviour is the extent to which a leader engages in one-way communication by
explaining what each follower is to do, as well as when, where, and how tasks are to be
accomplished.
Relationship behaviour is the extent to which a leader engages in two-way
communication by providing socio-emotional support, "psychological strokes", and
facilitating behaviours.
Performance Readiness (R1 to R4) is the ability and willingness of a person to take
responsibility for directing his/her own behaviour in relation to a specific task to be performed
and is measured on a scale parallel to the x-axis and below it.
People tend to be at different levels of readiness depending on the task that they attempt.
Also leaders may sometimes have to assess the readiness level of the group as a group,
rather than the individuals who comprise it. Thus ability is the knowledge, experience and
skill that an individual or group brings to a particular task or activity. Willingness, on the other
hand, is the confidence or commitment or motivation to accomplish the task.
The Four Quadrants and the Four Styles
Quadrant 1 (High Task & Low Relationship)
For a follower or group at performance readiness level I or R1, the leader should provide
higher guidance and lower support. This is the TELLING (directive) style or S1 style
corresponding to R1 level of performance readiness in which the worker is neither willing
nor able to perform the task or take responsibility. This style is appropriate when an
individual or group is low in ability and willingness. The appropriate leader behaviour is to
provide the follower step by step instructions and reduce his fear of making mistakes.
Followers at readiness level R1 need guidance. Too much supportive behaviour with people
who are not performing may be perceived as rewarding lack of performance. Without some
Coercion, attempts to influence could be ineffective. Followers need to know that if they do
not respond there may be costs to be incurred.
Quadrant II (High Task & High Relationship)
In this quadrant corresponding to performance readiness level II or R2 , the individual or
group is trying but still unable to perform the task. The task behaviour is appropriate because
people are still unable. However, since they are trying, it is important to support them. This is
the SELLING (persuading) style or S2 style in which the leader not only provides guidance
but also the opportunity for dialogue and clarification. It may be observed that not only is the
‘what’ and ‘how’ of the task is explained, the ‘why’ part is also taken care of. In this style, the
leader is encouraging questions and discussing details with his followers apart from
explaining the ‘why’ part of task execution.
Followers who are unable but willing would be amenable to change their behaviour if they
know that an enhancement of performance is likely to be rewarded. Rewards could be
tangible or intangible. However an organisation that rewards both high and average
performers equally results in high performers losing their motivation and commitment and
looking outside the organisation for opportunities.
Quadrant III (Low Task & High Relationship)
This quadrant corresponds to the R3 level of performance readiness and the use of
PARTICIPATING style or S3 style by the leader. The person is able but unwilling or lacking
in commitment to perform the task on his own. This level could include a person or group
that was able and willing but for some reason is slipping in terms of motivation. In either
case, the appropriate behaviour would be high amounts of two way communication and
supportive behavior. In this style the leader’s major role is supporting and encouraging. The
collaborative aspects of the task are emphasized.
In attempting to influence people who are able but insecure or unwilling, high relationship
behaviour is necessary. If a follower has a confidence problem, he needs to be encouraged.
If the follower has a motivation problem, he needs to be talked to. A manager high in referent
power is generally liked and admired by others because of his personality.
Quadrant IV (Low Task & Low Relationship)
Performance Readiness level IV or R4 is where the person is both able and willing where he
is confident and comfortable without the leader providing directions. The appropriate
leadership response would be to use the
DELEGATING style. While some amount of
relationship behavior and task behaviour is needed, it is miniscule. The appropriate leader
behaviour is encouraging autonomy, avoiding micro-management, listening, providing
resources and encouraging risk taking.
Followers who are competent and confident require little direction or supportive behaviour.
They are willing and able to perform on their own. The leader needs to use expert power to
influence such followers.
The model thus suggests that as workers pass through the various stages of performance
readiness (R1 –R4), the leader also needs to move from directive behavior to delegating
behavior (S1-S4) respectively. It begins by using a directive style with workers with low level
of readiness to make them productive. An increase in the readiness level of subordinates
should be rewarded by positive reinforcements. Finally, as the followers reach high levels of
readiness, the leader should respond by cutting down on both the task and relationship
behaviours since followers at this level do not need support but freedom and autonomy.
A leader may use different styles with different followers, or he or she may have a main style
and a backup style that comes into play when the main style doesn't seem to be working.
Still, other leaders seem only to have one main style. Hersey and Blanchard's research
focused on leaders who used two styles. By creating a style profile for a leader, trainers
using the situational leadership approach are able to pinpoint situations in which a leader
may have some difficulty and can prepare them to deal with those situations.
For example, a leader with an S1 - S3 profile works with a high directive, low supportive style
or a high supportive, low directive style. Such a leader would have difficulty in working with a
group of followers where many are changing developmental levels by moving from R1 to R2.
This leader might either continue to use the now inappropriate S1 style, or move directly to
the more mature S3 style which will still be inappropriate in the situation.
A leader with an S1 - S4 style profile seems to judge everything on competence. If workers
are found lacking in competence, the S1 and S4 leader will "ride" the followers and closely
supervise their activities. Once a follower shows job competence, the S1and S4 leader pulls
back, showing neither directive nor supportive behaviour. Here again the leader may fail to
show supportive behaviour which when the follower matures to an R3 level of readiness he
may need.
An S2-S3 leader is able to vary the amount of directive behaviour, but maintains a high level
of supportive behaviour.
An S1-S2 leader is able to vary the amount of supportive behaviour shown, but maintains a
high level of directive behaviour.
An S2-S4 leader shows behaviour which is either high in both directive and supportive
behaviour or is low in both.
Finally, an S3-S4 leader is characterized by never showing a high level of directive
behaviour but varying his supportive behaviour from high to low.
Chapter II
THE LEADER EFFECTIVENESS ADAPTABILITY DESCRIPTION
(LEAD)
Methodology of the Study
In their work with leaders, Hersey and Blanchard have determined that most leaders have
some flexibility in the style of leadership they employ. To measure leadership style, Hersey
and Blanchard developed a tool they called LEAD. This tool has two parts. The first is called
the LEAD self, in which the leader himself responds to a variety of hypothetical situations.
The second part, the LEAD other, asks co-workers to describe the behaviour of one of their
colleagues. The two parts of the LEAD tool help to paint a clear picture of a manager's
leadership style.
For the purpose of this study, we have used the LEAD self, a questionnaire comprising 12
questions, designed by Hersey and Blanchard. (Annexure 1). Each question has 4 possible
responses corresponding to
the 4 leadership styles- Telling, Selling, Participating and
Delegating. The respondent selects the most likely response which he/she would normally
make.
The instrument was administered to different groups of officers from the financial sector. A
cross section of officers from commercial banks, RRBs, RBI and Insurance sector were the
respondents.
The data that emerged is given in the table below:
Organisation
Total
Respondents
Average Scores
S1
S2
S3
S4
RRB
25
3.2
5.6
3.1
0.2
Commercial Banks
111
2.5
5.3
3.9
0.3
RBI DRs at Entry
Level
56
1.9
6.2
3.7
0.1
RBI Officers
84
2.3
5.5
4.0
0.3
Insurance Sector
32
2.6
5.2
3.9
0.4
Gross Average
308
2.4
5.5
3.8
0.3
S1 –Telling Style ; S2- Selling Style; S3 –Participating Style and S4 –Delegating Style
.
7.0
6.0
5.0
4.0
S 1 Telling
3.0
S 2 Selling
S 3 Participating
2.0
S 4 Delegating
1.0
0.0
RRB
Commercial
Banks
RBI Direct
Recruits
RBI Officers
Insurance
Employees
Interpretation of scores
1. A score of less than 3 implies that at the moment the person is incapable of using the
style.
2. A score of 3 or above implies that the person concerned is capable of using the style
Findings
Dominant Style of Leadership
Based on the above data we calculated the dominant style of leadership used by the
respondents. The findings on the Dominant Style were as under:
Dominant style
S 1 as predominant style
S 2 as predominant style
S 3 as predominant style
S 4 as predominant style
More than one style equally used
Total
No.of
Percentage
Respondents to total
18
5.8%
182
59.1%
66
21.4%
0
0.0%
42
13.6%
308
100.0%
Dominant Style Used
14%
6%
S 1 as predominant style
0%
S 2 as predominant style
S 3 as predominant style
21%
S 4 as predominant style
59%
More than one style equally
used
The above data shows some interesting patterns.
1. Based on the sample the dominant leadership style displayed by the financial sector
as represented by commercial banks, Regional Rural Banks, Insurance and the
Central Bank is the Selling style (S2) of leadership (59.1% of the cases). This is
followed by the Persuasive style (S3 ) of leadership at 21.4% and directing style
(S1) at just 5.8% of the respondents.
2. The entire sample shows an almost complete inability to use the delegating style (S4)
of leadership. There were only 3 officers in the entire sample who showed an ability
to use the delegating style S4 and that too at a very low level.
3. Only 24% of the sample used the directing style (S1) to a small extent in addition to
S2 and S3. Hence 76% of the sample were seen to use the S2-S3 style profile
exclusively.
4. 14% of the respondents were using more than one style of leadership as equally
dominant style.
5. RBI officers at entry level have the highest score in the selling or S2 style. However
other RBI officers showed a slight reduction in the use of the S2 style and a
corresponding increase in the use of the adjacent styles of S1 and S3. This
difference could be due to either or both of the following factors :
a.
A change in the culture and approach to issues due to the generation gap
b. The natural growth in maturity due to experiential learning.
Since this is the sample of officers at the entry level; further research would be required
before arriving at any conclusion:
Gender based profile of leadership styles
Gender Based Profile
Males
Females
Total
Respondents
267
41
S1
S2
S3
S4
2.5
2.0
5.4
6.0
3.8
3.8
0.3
0.2
7.00
6.00
5.00
4.00
Male
3.00
Female
2.00
1.00
0.00
S 1 Telling
S 2 Selling
S 3 Participating
S 4 Delegating
The findings on Gender Based Profile are as under:
1. Selling (S2) and Participating styles (S3) of leadership continues to be predominant
styles irrespective of gender.
2. However, women are using less of directing style but more of selling style of
leadership as compared to men.
3. Neither men nor women as a group use the delegating S4 style.
Gender based profile of dominant leadership styles:
Dominant style
S 1 as Dominant style
S 2 as Dominant style
S 3 as Dominant style
S 4 as Dominant style
More than one style equally used
Total
Male
Female
6.0%
57.3%
22.5%
0.0%
14.2%
100.0%
4.9%
70.7%
14.6%
0.0%
9.8%
100.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
Male
20.0%
Female
10.0%
0.0%
S 1 as
S 2 as
S 3 as
S 4 as
More than one
Dominant style Dominant style Dominant style Dominant style style equally
used
The findings on Gender Based Dominant Style Profile are as under:
1. The S2-S3 style profile continues to be dominant styles irrespective of gender.
2. Two thirds of the women in the sample use Selling (S2) style as their dominant style.
3. The difference between men and women in their use of different styles of leadership
could be due to their inborn differences or socio cultural conditioning- the eternal nature
Vs nurture dilemma which needs further research,
Implications of the findings
As described in previous chapter the Situational theory states that the most successful
leaders are those who have the ability to use all the 4 styles of leadership based on the
demands of the situation.

Even though a large number of employees in the banking sector would be at a
performance readiness of R2 and R3, which corresponds to the S2-S3 style profile,
some of the employees would definitely be at R1 and R4. Also, depending on the job
or the situation, the same employee may at different points of time be at different
levels of performance readiness and the leader would need to adapt his/her style
accordingly. By restricting themselves to only 2 styles bankers are limiting their
effectiveness as leaders.

The S2-S3 style profile tends to be used more frequently in organisations and
cultures which abound in highly educated, white collar workers. Banking being a
predominantly white collar industry with highly educated
and trained employees
bears out this basic premise of the theory.

S1 is the least time taking style of decision making. It also ensures a basic level of
quality due to its high task content. By not using the S1 style, the leader’s, and
consequently, the organisation’s ability to cope with crisis situations also reduces
tremendously. In a crisis, time and the ability to take optimal decisions is essential.
By not using this style at all, the banking industry may find itself slow to react in a
crisis and lose valuable time.

The use of a Delegating style nurtures and empowers subordinates. The inability to
delegate (or use style S4) has far reaching consequences for the industry. By not
using this style leaders are failing in their duty towards grooming and empowering
subordinates. Disempowerment not only impacts career and succession planning in
the organisation, it is also a major cause for low morale and lack of motivation in the
industry.

People who use the S2 -S3 style profile predominantly tend to work well with people
having average levels of performance readiness. They might find it difficult to handle
discipline problems and work groups at low levels of performance readiness (R1).
They would also have difficulty in delegating to people at a high level of performance
readiness (R4).

Though the S2-S3 style profile is very safe due to its high relationship orientation as
compared to the S1 and S4 styles. Since the leader is always at the helm of affairs
the chances of a crisis are rare. However, it is also a highly stressful, time consuming
and enervating style of decision making. By spreading themselves out into the other
two quadrants, leaders might find that they are working lesser hours and achieving
higher results, both in terms of the bottom lines and personal health. If leaders want
to maximise their potential as leaders they need to spread themselves over all the
over quadrants and use the style which is relevant to the situation and performance
readiness of the team member.
Conclusion
The financial sector of the country in general and the banking sector in particular is
existing in a dynamic environment . There are a lot of demands on leaders in banking
industry be it expanding the reach of banking to hitherto unbanked segments through
Financial Inclusion, adherence to Basel III , aligning the differing aspirations of the Gen X
and Gen Y employees. The bottom lines of the banks are stressed and banks are
looking for innovative products and strategies to shore up their revenues. The dynamic
environment calls for a dynamic leadership on the part of bankers. Leaders who are able
to adapt to the demands of the situation and the individual needs of their team members
will definitely be able to set and achieve higher goals for the organisation as well as their
team and themselves.
References

Situational Leadership®: Conversations with Paul Hersey, John R. Schermerhorn,
2001, Center for Leadership Studies, Inc., pg. 1-2

Hersey, P., and Blanchard, K., Management of Organizational Behavior: Utilizing
Human Resources

Situational Leadership Theory: A Test of Leadership Prescriptions- Jane R.
Goodson, Gail W. McGee and James F. Cashman

A Review of Leadership Theories and Competency Framework- Bolden, R., Gosling,
J., Marturano, A. and Dennison, P.