Group & Organization
Management
http://gom.sagepub.com/
Transformational Leadership in a Management Game Simulation:
Impacting the Bottom Line
Bruce J. Avolio, David A. Waldman and Walter O. Einstein
Group & Organization Management 1988 13: 59
DOI: 10.1177/105960118801300109
The online version of this article can be found at:
http://gom.sagepub.com/content/13/1/59
Published by:
http://www.sagepublications.com
Additional services and information for Group & Organization Management can be
found at:
Email Alerts: http://gom.sagepub.com/cgi/alerts
Subscriptions: http://gom.sagepub.com/subscriptions
Reprints: http://www.sagepub.com/journalsReprints.nav
Permissions: http://www.sagepub.com/journalsPermissions.nav
Citations: http://gom.sagepub.com/content/13/1/59.refs.html
>> Version of Record - Mar 1, 1988
What is This?
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
Transformational
Leadership in a
Management Game Simulation
IMPACTING THE BOTTOM LINE
BRUCE J. AVOLIO
DAVID A. WALDMAN
SUNY-Binghamton
WALTER O. EINSTEIN
Southeastern Massachusetts University
This investigation examined the practices of transformational and transactional
leadership in a management simulation game that spanned a 3-month period.
Transformational and transactional leadership were measured by using Bass’s (1985)
Multifactor Leadership Questionnaire (Form 4). Participants were second-year, parttime and full-time MBA students who worked in teams, each composed of seven to
nine members. Each team represented the senior management of a hypothetical
manufacturing organization. Data were collected from 27 teams on the perceived
leadership of team presidents and the financial performance of their respective
teams. Financial performance was based on five traditional indicators of organizational effectiveness,that is, market share, stock price, earnings per share, return on
assets, and debt-to-equity ratio. Analyses of leadership data collected independently
of financial performance demonstrated significant and positive relationships between active transactional leadership, transformational leadership, and organizational effectiveness.
Transformational leadership, as defined by Burns (1978) and
Bass
(1985), represents
important addition to previous conceptualizations of leadership, in that both authors view leadership affecting
lower- and higher-order change in followers and organizations.
Bass describes lower-order change with respect to a leader satisfying
a follower’s current needs and maintaining organizational performance standards by using transactional-style leadership. In contrast,
transformational leadership involves a higher-order of change in
an
Group & Organization Studies, Vol. 13 No.1, March
@ 1988 Sage Publications, Inc.
1988 59-80
59
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
60
that followers are encouraged to take on more challenge and
responsibility while also contributing to organizational change and
innovation.
The purpose of this
study was to examine the relationship of
transactional and transformational leadership to group effectiveness in a management simulation game. Group effectiveness was
operationalized here by using standard financial business ratios
(e.g., return on assets). Transactional and transformational leadership were operationalized based on Bass’s (1985) model.
TRANSACTIONAL LEADERSHIP FACTORS
Transactional leadership can be either passive or active. Passive
transactional leadership, or management-by-exception, allows the
status quo to exist as long as the old ways are working. If things go
wrong, however, a leader practicing management-by-exception
will take action that often has a negative connotation, for example,
&dquo;if this mistake happens again,I will have to write you up.&dquo; In
contrast, active transactional leadership involves an interaction
between leader and follower that emphasizes a more proactive
positive exchange-for example, providing appropriate rewards
when followers meet agreed-upon objectives. Emphasis with active
transactional leadership is on rewarding followers for achieving
expected performance. Such leadership includes the acquisition of
information to determine what the current needs of subordinates
are, as well as helping them to address the task and role requirements that result in desired outcome(s). By linking individual needs
to what the leader expects to accomplish, as well as to rewards
desired by followers, motivational levels of followers can be
enhanced. Bass’s conceptualization of active transactional leadership is similar to the path-goal theory (Evans, 1974; Graen &
Cashman, 1975;
House & Mitchell, 1974).
Ample support is available in the leadership literature concerning
the effectiveness of leadership that emphasizes active transactional
contingent reward leadership (e.g., Hunt & Schuler,1976; Komaki,
1986; Luthans, Paul, & Baker, 1981; Podsakoff, Todor, & Skov, 1982;
Sims, 1977). When properly implemented, active transactional
leadership forms a basis for effective lower-order change (Avolio &
Bass, 1987).
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
61
TRANSFORMATIONAL LEADERSHIP
Transformational leadership differs from transactional in two
distinct ways. First, although effective transformational leaders also
recognize followers’ current needs and objectives, they differ from
active transactional leaders to the degree that they attempt to
elevate the needs of followers. Heightened levels of motivation are
achieved by raising the expectations that followers have for their
own needs and performance (Avolio & Bass, 1987). For example,
followers may be encouraged to take on more responsibility and
autonomy in their work as the leader develops them over time.
Second, transformational leadership also differs from active
transactional to the degree that the leader attempts to develop
followers into leaders. One objective of transformational leadership
is to improve the ability of a follower to solve his or her own
problems-and eventually the problems of others.
Bass (1985) identified, through factor analysis of data collected
with military officers, three primary factors composing a higherorder factor he labeled transformational leadership. Those three
factors were Charisma/Inspiration, Intellectual Stimulation, and
Individualized Consideration.
The first factor, charismatic/inspirational leadership, is central to
the transformational process and accounted for the largest percentage of common variance in transformational leadership ratings in
the military sample. Bass (1985) defined charismatic leadership with
respect to how followers perceive and act toward the leader. For
example, followers are seen striving to emulate their charismatic
leaders; they place a great deal of trust in their leader’s judgment, as
well as mission; they support the leader’s values and typically adopt
them, and frequently form strong emotional ties to the leader.
Transformational leadership differs, however, from earlier conceptualizations of charisma (such as House, 1977), in that the leader also
demonstrates individualized consideration and intellectual stimulation.
Through individualized consideration, transformational leaders
demonstrate concern for individual needs of followers, treating
followers on a one-to-one basis. Using processes such as mentoring,
transformational leaders also raise need perspectives and the goals
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
62
of followers; that is, they not only identify individual needs, but also
raise them appropriate to the challenges confronting followers.
Intellectual stimulation is the third key component in the
transformational leadership process. With intellectual stimulation,
transformational leaders encourage followers to question their old
way of doing things or &dquo;to break with the past.&dquo; Followers are
supported for questioning both their own values, beliefs, and
expectations and those of the leader and organization, which may
be outdated or inappropriate for current problems. Here there is a
fundamental difference between the purely charismatic leader,
who has trained followers to blind obedience or habituated
subordination (Graham, 1987), and the transformational leader,
who encourages followers to think on their own, address challenges
and, more important, develop themselves.
More recent factor analyses of Bass’s Multifactor Leadership
Questionnaire (MLQ) with 360 managers not used in Bass’s (1985)
derivation sample, have confirmed the three-factor structure of
charisma, intellectual stimulation, and individualized consideration
(Hater, 1986). With data from a variety of organizations involving
over 1,000 managers, nonmanagerial technical leaders, and senior
executives, the internal consistency estimates (using coefficient
alpha) for the three scales representing transformational leadership
have been .80 or higher. For active and passive transactional
leadership, the reliability estimates have been in the .80 and above
range. Interrater reliabilities have generally ranged from the high
.70s to .80s for the transformational and transactional leadership
scales (Bass, Avolio, & Goodheim, 1987).
In sum, transformational leaders are able to get followers to
perform at maximum levels. They achieve maximum performance
because of their ability to inspire followers, to raise their followers’
criteria for success, and in getting them to apply alternative
methods for solving problems (Bass, 1985).
TRANSFORMATIONAL LEADERSHIP:
QUALITIES AND CONSEQUENCES
Evidence has been found in data collected
at
all levels of
educational, military, and industrial organizations that transformational leadership behaviors are frequently observed (Avolio & Bass,
1987; Bass, Waldman, Avolio, & Bebb, 1987; Waldman & Bass, 1987;
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
63
Waldman, Bass, & Einstein, 1987). In fact, many leaders from all
three settings have been identified as exhibiting transformational
leadership behaviors fairly often. In a government agency (see Bass
et al., 1987), some degree of transformational leadership was
observed at different levels but, as predicted by Bass (1985), Tichy
and Ulrich (1984), and Tichy and Devanna (1986), more of it was
observed at higher levels. Sufficient data are now available to show
that transformational leadership is not limited to world-class
leaders or CEOs; nor is it limited to males or to upper-level
managers. Current data support the position suggested by House
(1977), Oberg (1972), Dow (1969), and Shils (1965) that charismatic/
transformational leadership is widely distributed in organizational
setti ngs.
Transformational leadership has been significantly and positively
related to ratings of leader effectiveness, how much effort followers
are willing to expend, satisfaction with the leader, and ratings of job
performance for supervisors at middle and lower levels of public
and private organizations (Bass et al., 1987; Waldman et al.,1987).
Hater (1986) reported that managers who were independently
judged by their supervisors as having high potential based on their
prior job performance, were seen by subordinates as being
significantly more transformational than a randomly selected commanagers from the
parison sample of
same
organization.
SUMMARY AND HYPOTHESIS
The current investigation was undertaken to examine the degree
which transformational and transactional (active and passive)
leadership related to team performance over a 3-month period.
According to Bass’s (1985) model, transformational leaders should
produce more effective teams by inspiring followers to perform
beyond minimal expectations to levels higher than competitors.
The management simulation in which data were collected for the
current study offers a useful opportunity to examine charismatic/
transformational leadership. Charismatic leaders are often associated in the leadership literature with crisis situations in which the
leader is seen turning &dquo;threats to opportunities.&dquo; The management
simulation exposes teams to a wide range of crisis situations-for
example, a rapid rise in inflation-that provide charismatic/
to
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
64
transformational leaders ample opportunity and justification for
motivating followers to perform. Coupled with charisma, transformational leaders are expected to use intellectual stimulation to
provide alternative solutions to perplexing problems, thus improving organizational effectiveness. Finally, transformational leaders
will elevate the needs of followers through individualized consideration, getting those followers to take on more responsibility-as
is necessary in a competitive simulation in which people are the
leader’s primary tangible resources.
Previous data indicate that transformational leaders also use
active transactional-style leadership to achieve their objectives.
Although conceptually and empirically distinct, both dimensions of
leadership have been frequently displayed by &dquo;effective&dquo; leaders.
Based on Bass’s (1985) model, the following hypothesis was
tested: Teams with leaders who are rated higher by their followers
on transformational and active transactional leadership will have
significantly higher game team performance as measured by five
standard business ratios. Passive transactional-style leadership (management-by-exception) will not relate to team performance.
METHOD
PARTICIPANTS
in the current study were 190 second-year MBA
were 98 males and 92 females composing 27
participating teams. The age range of the sample was 20 to 49 with a
mean of 30.2 and a standard deviation equal to 8.3. The age range of
the team presidents was 23 to 48 with an overall mean of 27. There
were 11 female team presidents and 16 males.
Participating
students. There
GAME SIMULATION
The game is a complex simulation that exposes students to
opportunities and problems typically confronting a medium-sized
publicly held manufacturing corporation. Students participate in
the game as a required course for six semester credits in teams
composed of seven to nine members, depending on the class size.
Students were randomly assigned to each team at the end of the
semester preceding the start of the game. Participants in the current
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
65
study voluntarily agreed to complete the survey instruments. For
the current sample, analyses of between-team differences indicated
no significant average differences between teams concerning
grade point averages and Graduate Management Aptitude Test
(GMAT) scores. Thus potential variance in team performance
should not necessarily be attributed to differences in individual
abilities across teams. Prior to beginning the game, team members
were responsible for organizing their corporation. Specifically,
they selected or nominated a president who then worked with team
members in deciding who would take responsibility for the various
functional areas (e.g., vice president of finance, vice president of
marketing, vice president of production, vice president for human
resources, and so on). Because team presidents were selected for
the position at the beginning of the semester, the basis for
presidents being chosen was dependent upon what team members
had observed in their first year-and-a-half in the MBA program
concerning the president’s behavior. With some teams, a majority
voting procedure was used to select presidents, whereas other
teams reached consensus on who would best lead the organization.
Oftentimes, the selection of the president was based on who was
most willing to come forth and take responsibility for running the
organization. However, there was no one specific strategy applicable to all of the teams participating in the game.
Presidents were designated as the legitimate or formal leader of
the teams; therefore, we will refer to them as the &dquo;focal leaders&dquo; for
the remainder of this article. Each team reviewed a technical
manual to learn how to enter decisions into an I BM-4381 mainframe
computer. They also were given a year’s worth of data on their
respective organizations to review to help establish a basis for
deriving their first-quarter decisions.
Throughout the spring semester, each team was responsible for
making weekly decisions concerning all facets of managing a
publicly held manufacturing organization, including activities such
as new market ventures, capital improvement projects, and securing
loans. Experiences for each team within the game can vary,
depending on the decisions members make, the organizational
structure they adopt, and capital projects they choose to pursue.
How each team operated depended to a large degree on how the
president makes decisions and coordinates team activities.
The game simulated within one academic semester a 2-year
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
66
period composed of eight quarters.
Nine teams competed in each
that the game was run. The game was designed such that
the nine teams were divided into three separate industries, three
teams in each respective industry.
Each team had a board of directors that was composed of
community leaders who volunteered to come to the university to
review the team’s progress. Members of the board were assigned to
teams both randomly and based on individual schedules. Faculty
members also volunteered to participate as board members as
needed.
Each team was responsible to both an academic game administrator and its board of directors. The board evaluated the team’s
performance at the end of the semester and submitted a grade to
the game administrator. Its evaluation generally composed 20% of a
student’s grade. The board critiques what its team has done and
proposals for what members intend to do for each simulated year,
allowing students a great deal of autonomy in running their
respective organizations. Teams, on average, made three formal
presentations to their respective boards of directors. It was the
responsibility of the team and its president to convince board
members that the strategy for running the organization was
appropriate. The president of each team was responsible for
leading the effort as in any real-world, publicly held corporation.
Presidents of each team had formal authority to the degree that
they were responsible for providing written evaluations at the end
of the semester on the performance of each team member, which
then composed 20% to 30% of the team member’s grade. All team
members were also graded on peer ratings and on how well their
respective teams did on the five financial ratios. To further bolster
the formal authority of presidents, access to the game administrator
was restricted for individual team members, but less so for
presidents, who had freer access. Because of the restricted access,
team members became dependent on their presidents to convey
their needs to the game administrator. Presidents could reward
team members in both tangible and intangible ways. For example,
they rewarded team members with more desirable projects,
bonuses for effective performance, and promotions. In a less
tangible manner, they offered team members recognition, verbal
praise, and their time. The five financial ratios used to measure
organizational effectiveness were as follows:
semester
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
67
(1) Market share: This was measured in percentage of total
dollars of goods sold in a team’s respective industry.
(2) Debt-to-equity ratio: This was measured in terms of the
outstanding debt that a team carried at each simulated quarter in
the game. Debt-to-equity ratios generally varied with respect to the
number of outstanding loans a team carried, the simulated economy, and how well the team was performing within its industry.
With respect to the simulation, it is risky not to carry some debt,
because, by carrying debt, a team is usually provided with the
necessary capital for expansion. It is more risky to depend on the
organization’s quarterly performance for financing projects,
because, to do so, a team would have to operate quarter to quarter
very close to the margin.
(3) Return on assets: This was a combination of profit and asset
turnover from quarter to quarter over the simulated 2-year period.
(4) Earnings per share: This represented the ratio of net profit,
after taxes, to the number of outstanding shares of common stock.
(5) Stock price: The algorithms in the game were designed to
reward team performance that demonstrated consistent upward
performance over the 2-year interval based on the financial ratios
specified above.
SOME ADVANTAGES OF THE MANAGEMENT GAME
The management game we used as our source for data collection
had several primary advantages. First, participants in the game were
second-year MBA students, many of whom were already employed
in local industry, government, and public nonprofit organizations.
Second, the game is a complex simulation that can be adjusted to
reflect problems and opportunities confronting &dquo;real-world&dquo; managers. For example, company takeovers were often attempted in
the game; bank loans were accepted or refused by real loan officers
from local banking institutions who were asked to evaluate the
merits of a team’s request; unions went on strike for higher wages;
inflation rates rose unexpectedly. As far as the simulation can
realistically go, it has a high degree of correspondence with many
situations and problems typically confronting real-world business
organizations. The management simulation does not simply entail
planning and quantitative decision making. In fact, a survey of
previous graduates, who had participated in the game over the last 5
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
68
suggested that the most important aspect of the game was
learning how to motivate people to perform under severe time
constraints and with limited resources. Another advantage of the
game for researching leadership was that it ran a full semester,
allowing team members ample opportunity to observe their respective team presidents leading meetings with board members (real
managers from local industry and faculty), dealing with personal
problems within the team, and negotiating contracts with a union
(undergraduates from a labor relations class who role-play union
officers). There are few opportunities to collect data on leaders
when the focal leader is so extensively observed by followers. The
final advantage of the management game simulation is that each
team’s performance in the game was measured using the five
business ratios previously defined-that is, market share, debt-toequity ratio, return on assets, earnings per share, and stock price.
years,
LEADERSHIP INSTRUMENT
Five scales from the MLQ
(Bass, 1985, chap. 12) were used in the
study. Respondents completing the leadership survey
indicated how frequently they observed behaviors of the focal
leader and also reactions they had regarding the leader on a scale
ranging from 0 not at all to 4 frequently, if not always. These
options bear a magnitude estimation-based ratio to each other of
current
=
=
(Bass, Cascio, & O’Connor, 1974). All items have been
identified by response allocation and previous factor analyses as
either transformational or active/passive transactional (Bass, 1985,
4:3:2:1:0
chap. 11; Hater, 1986).
For each leadership scale,
items were summed and divided by
the number of items to form a scale range from 0.0 to 4.0. The three
transformational scale titles and typical items were
(1) Charisma-&dquo;I am ready to trust his or her capacity to overcome any
obstacle&dquo;; &dquo;makes me enthusiastic about assignments&dquo;
(2) Individualized Consideration-&dquo;gives personal attention to neglected members&dquo;; &dquo;delegates responsibilities to me to provide me
with
learning opportunities&dquo;
(3) Intellectual Stimulation-&dquo;enables me to think about old problems
in
new
ways&dquo;;
which I had
&dquo;has forced
never
rethink
before&dquo;
me to
questioned
The active transactional scale title and
some
typical
of my
items
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
own
were
ideas
69
(4) Contingent Reward-&dquo;tells me what to do ifI want to be rewarded
for my efforts&dquo;; &dquo;arranges that I get whatI want in exchange for my
efforts&dquo;
leadership was measured using a scale that
management-by-exception. Some typical items were:
Inactive
represents
(5) Managing-by-Exception-&dquo;is content to let me do things the same
way
as
always;
takes corrective action when I make mistakes&dquo;
PROCEDURE
The present research and analysis of leadership ratings was based
the average leadership style (ALS) approach to studying leadership and its effects. The ALS model focuses on a leader’s average or
typical behavior toward followers, treating deviations in average
follower perceptions as error variance (Dienesch & Liden, 1986). In
contrast, the leader-member exchange (LME) model focuses on
dynamic relationships between individual followers and the leader.
The ALS model was chosen here as a basis for analyzing leadership
because group indices, rather than individual performance, served
as the dependent variables of interest. Vecchio (1982) has shown
that the LME model was not able to predict individual task
performance above and beyond the ALS model. Dienesch and
Liden (1986) also suggest that it may be more appropriate to
combine leadership ratings by followers, as recommended according to the ALS model, when attempting to predict group versus
individual performance. Based on these reasons, scale scores of
team members were summed for each leader and divided by the
number of team members, providing an average leadership rating
for each focal leader.
Data were collected on 27 teams participating in the management game in the spring semesters of 1984-1986. It should be noted
that part of the time period was prior to the publication of the MLQ.
Bass (personal communication) made the prepublished version of
the questionnaire available to the current authors in 1984.
In all three academic years of data collection, leadership ratings
were obtained in the last quarter of each game using the measures
described above. Financial data were collected throughout the
semester on a quarter-by-quarter basis. All of the financial data
collected constituted a direct function of the decisions made by
each team. For the purpose of the current investigation, average
on
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
70
team performance scores were computed over
semester-or two simulated business years.
the
course
of
a
RESULTS
Means and standard deviations
are presented in Table 1 for all
Internal consistency reliability coefficients are also
shown for the leadership scales. Internal consistency estimates
using coefficient alpha replicate earlier findings with the MLQ in
that all reliabilities for transformational and (active/passive) transactional leadership were above .80. Also shown in Table 1 is how the
means and standard deviations obtained with the current sample of
team presidents were generally comparable to scale scores obtained
from a sample of real-world managers in a Fortune 500 manufacturing company. The mean computed scale scores for the realworld managers are presented in parentheses in Table 1.
Intercorrelations among leadership scales and performance
indices are shown in Table 2. Active transactional and the three
transformational leadership factors were significantly intercorrelated. As expected, the performance indices were somewhat less
intercorrelated. Results presented in Table 2 also summarize the
relationships between the computed leadership scale scores and
the five financial ratios. These correlations provide support for our
hypothesis. Active transactional and transformational leadership
ratings collected independently of the performance criteria were
significantly and positively related to financial performance. The
average intercorrelation between the three transformational scales
and the five performance measures was r
.40. The average
intercorrelation for contingent reward was r = .42, whereas for
managing-by-exception, the average intercorrelation was r .08.
The negative correlations for debt-to-equity ratio signify that more
transformational/active transactional leadership was associated
with teams that maintained lower debt. Also, low debt tends to be
associated with higher performance in other areas-for example,
return on assets. It should be noted that these debt-to-equity ratio
findings may not reflect typical real-world patterns or strategies
under all circumstances.
To determine which leadership factors accounted for the greatest
amount of variance in performance, a step-wise regression analysis
was also employed. The five financial indices were combined into
measures.
=
=
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
71
TABLE1
Means, Standard Deviations, and Alpha Coefficients
~
-----
Values in parentheses represent scores from data collected on 256 middle-level
managers employed by a Fortune 500 manufacturing firm.
b. Alpha coefficients were computed based upon individual team member responses.
The N was a total of 190 team members.
c. The mean and standard deviation for all financial indices are computed on 27
teams. Market share is a percentage based on performance compared with two other
teams in a respective team’s industry; therefore, 33.33 is automatically the mean.
a.
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
0)
£
...
...
III
...
c:
co
U
°E ©
°G @@
in &dquo;0
L
= 3:
B-20
.~
F
.-co ...
C,4
5 ’S
11
N c0
N
H
I
0)
III ....
....
H
0
a)
4~ ..2
-0
111&dquo;0
c
~ c
cu
.......
III 0)
0
c
’ss
m
100
N
E
c
0
0 a) 0
L
m
U
C
m
0) III
a-
C
OL
CL
U O
-70
0
.....
― ~
, ~ .£:-
c
<0
c
C4
a)
Ln N
o .0) E
u-
w -0
-i
<w
c
m
M
...~
i’s
0
«
U
t0
CC
Q
3s
F2
.C +’
0)
(a L
U-
t
07 ?
ti
(D
’H a
N
>(ijE w
N
V c
J
’~ .9
.T ’X
c
«
...a) III0
I%
en
0
....
E
<
0
f0
~n
NM ’3N
c
- U) 1) a-
m
H
-T
...’&dquo;
a)b
f0
0
-,
0
0
0)
a)
cw
c’>
O
>
c0
’Y C7Q)II0)c:
L CI
U~
.
’?
>a,
0
o
z
72
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
73
an
overall
organizational effectiveness index. Due to differences in
the five financial measures, the measures were first
transformed intoz scores and then summed for regression analysis.
A step-wise regression was performed using the five leadership
factors as independent variables and the overall organizational
effectiveness index as the dependent variable. Individualized
consideration entered into the regression equation first, accounting
for 22% of the variance, which was statistically significant at the .01
level. Charismatic/Inspirational leadership then entered on the
second step, adding 9% more variance for a total of 31% of the
variance explained in overall organizational effectiveness (multiple
r=.56). Intellectual stimulation, contingent reward, and managingby-exception did not add significant, unique variance to the
prediction. Because charisma is central to the process of transformational leadership, we entered it into the regression equation first
to examine the proportion of variance it accounted for by itself.
When entered in first, charisma accounted for 14% of the variance
in the outcome measures.
In sum, active transactional and transformational leadership, as
defined by Bass (1985), were shown to be correlated with higher
levels of organizational effectiveness. Given the design of this
study, however, we can only conclude that members of successfull
teams attributed more transformational and active transactional
qualities to their leaders. The issue of whether transformational and
transactional leadership caused higher levels of team performance
was not examined. This was due to the fact that team members had
sufficient performance data on their team prior to completing the
leadership survey (see Binning & Lord, 1980, for a further discussion
of this topic).
scaling
across
DISCUSSION
This study attempted to demonstrate the connection between
active transactional and transformational leadership and the performance of an organization in a simulated management game. As
predicted, a moderately strong relationship was found between the
transformational and active transactional leadership shown by team
leaders and the financial performance of the team. Managing or
leading by exception was not correlated with the level of effectiveness of teams.
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
74
These results are not surprising given that the game is a peopleintensive process; that is, the game provides an excellent opportunity to observe the effects of leadership because team presidents
have few resources other than the effort and ingenuity of their team
members and themselves to accomplish their objectives. Although
the game is only a simulation of the real world, many of the same
sorts of competitive business and interpersonal conditions exist.
Also, as presented in Table 1, the degree of leadership shown in the
game was comparable to leaders in real world organizations.
More specific reasons for the obtained relationships can be
better understood by examining the decisions that directly led to
team performance in the game. Effective decision making in the
game requires extra effort from team members in the form of
spending more time in problem-solving activities. Such effort may
not be readily forthcoming when the team members (who are still
students) begin to face time pressures from their other classes and
activities. Because the individual team members work relatively
independently from formal authority, that is, the game administrator and board of directors, the impetus to motivate teams must
come from the team and its president. Evidence from the current
study indicates that, at the very least, more successful teams like to
think of their leaders as being active transactional and transformational leaders.
Results from the regression analysis provided support for one of
Bass’s basic propositions. Specifically, transformational leadership
accounted for the largest percentage of unique variance in the
financial performance of teams. However, given the relatively small
number of participating groups in the current study, additional data
must be collected before any definitive conclusions can be reached
regarding the results of the regression analysis. We do know,
however, that similar patterns regarding the amount of variance
accounted for by both transactional and transformational leadership were reported by Waldman and Bass (1987) with a much larger
sample.
Bass’s (1985) model indicated that transformational leadership
should be more predictive of individual and group performance
than transactional. The findings of the current research suggest that
both forms of leadership were associated with higher levels of
organizational effectiveness. Inactive leadership, or the practice of
managing-by-exception, was not correlated with team perfor-
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
75
The current results provide added support for prior
research that has shown the exclusive use of managing-by-exception to be an ineffective leadership style (Bass, 1985; Bass, Avolio, &
Goodheim, 1987; Waldman et al.,1987).
mance.
THE RECIPROCAL EFFECTS OF LEADERSHIP AND PERFORMANCE
As we suggested earlier, the issue of causation in the relationship
between leadership and performance was neither directly
addressed nor resolved by the present research. However, perhaps
the following proposal of reciprocal causation may shed some light
on this issue. There are a number of reasons why a person may have
the potential for being viewed as a charismatic/transformational
leader. Most notably, if a person has been highly successful in
previous endeavors, others may attribute charismatic qualities to
him or her based on performance record. They may then allow this
person to influence their behavior because they perceive him or
her to be an effective leader. Hence, leaders are allowed to
continue leading on the basis of prior accomplishment. Prior
performance of the leader (and his or her group) has been shown to
influence perceptions or attributions of leadership (Binning & Lord,
1980; Binning, Zaba, & Whattam,1986;
Rush, Thomas, & Lord, 1977).
Having successful track record helps an individual to function as a
leader, which in turn can result in better group performance
a
(Dienesch & Liden, 1986).
An underlying theoretical assumption of the present research is
that certain aspects of leadership will impact group performance.
However, it could be argued that in the present context, individual
team performance affected how leaders were perceived and rated
because leadership ratings were collected in the last quarter of the
game. Similarly, team members may perform well, which allows the
team president to feel comfortable, thus affecting the type of
leadership exhibited.
To begin addressing the issue of what leader characteristics
resulted in effective teams, we videotaped nine team leaders at two
&dquo;informal&dquo; meetings with team members, as well as at one formal
meeting with the board of directors. This strategy was employed
because we could not feasibly manipulate leadership behaviors to
assess their impact on performance due to the fact that participants
were students involved in the management game for a grade.
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
76
Cameras
were
focused
directly on the leader in each of the three
meetings observed.
To reduce the impact of videotaping on the behaviors of team
presidents and members of the organization, an undergraduate
research assistant, who was unfamiliar with members of the teams,
completed all of the taping. The teams were also told that their
behaviors and actions on tape would have no impact on how they
were evaluated as a team. Moreover, they were also told that the
tapes would
not be viewed until the game was completed.
After completing the tapes on each leader, two raters, who were
not familiar with the game or the outcomes of each team’s
performance, were asked to observe the tapes and rate each leader
using the MLQ Form 4. The two raters were student research
assistants who were hired for the summer to work with faculty on
their research programs. The research assistants were asked to read
literature on transformational and transactional leadership to help
familiarize them with the factors and behaviors that constitute both
transactional and transformational leadership. Follow-up discussions with the research assistants took place to assure that they
understood the material.
Sets of tapes on each leader were presented in random order to
both raters for all nine teams. The primary objective was to
determine whether the two independent raters would attribute
leadership characteristics to team presidents similar to those
attributed by team members who were familiar with performance.
We also wanted to see whether the leadership ratings of the two
independent raters would correlate with overall team performance.
Because the results of the independent raters were based on an
n-size of nine teams, they should be viewed with some caution. For
the three transformational scales, the combined average interrater
agreement for the nine presidents was r = .60. With respect to their
agreement with actual team members, Rater 1 had an average
interrater agreement of .45, whereas Rater 2’s agreement level was
substantially lower and equal to .28. Thus, although the independent raters moderately agreed with each other, their ratings
were not as strongly correlated with average ratings of leadership
produced by team members. For both raters, their ratings of
transformational leadership were correlated in the predicted direction with the five financial ratios. For Rater 1, the average relationship between transformational leadership ratings and overall team
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
77
performance was r .37; for Rater 2, r .46. Ratings of active
transactional leadership correlated with team performance r .12
for Rater 1, for Rater 2, r .35. With management-by-exception,
Rater 1’s evaluations correlated r -.11 with organizational effectiveness ; Rater 2’s ratings correlated r -.49.
The opportunity provided to the independent raters to observe
the presidents in meetings did not totally eliminate the awareness
of performance data on each team. Teams did discuss within their
meetings their progress and performance in the game. We should,
therefore, be cautious in assuming that the raters did not allow
knowledge of team performance to influence the leadership that
they ascribed to team presidents.
To summarize, evidence was provided by the current study
supporting the notion that active transactional and transformational leadership, as rated by team members, did relate significantly
=
=
=
=
=
=
predicted direction with five financial measures of
organizational effectiveness. Given the labor-intensive qualities of
and in the
the management game, to do well on these measures was at least in
part due to the focal leader’s ability to gain extra effort from team
members. Ideally, Bass’s (1985) leadership model could be used in
future research to directly predict measures of follower extra effort
(e.g.,
a problem). However, our research
study restricted by the fact that these
participating in a course for a grade and, to that
time spent
represents
a
solving
correlational
students
extent, there were limitations on the data we were able to collect.
Nevertheless, the financial performance of the 27 teams composing
were
this study does provide for an independent evaluation of leader
effectiveness that was not contaminated by the typical causes of
single-source bias often found in other leadership research.
IMPLICATIONS FOR ORGANIZATIONAL LEADERS AND MANAGERS
Results from the current investigation provide justification for
leaders to use a more active (both transformational and transactional) form of leadership in running an organizational team. It is
clear that teams that performed at higher levels in the game
evaluated their team presidents as showing a more active style of
leadership. Given the highly competitive nature of the management
game, and the changes that take place over a semester, it seems
appropriate that a more active form of leadership would result in
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
78
more
effective team
part in
or
outcomes.
Furthermore, organizations taking
considering changes may find these results useful in
to adapt to change as well as to put into
training their managers
effect needed change.
Because specific behaviors have been identified for each of the
factors that compose transformational and active transactional
leadership, training programs could be developed to work on
improving the behaviors and skills that result in effective transformational and transactional leadership. Preliminary findings from a
supervisory training program developed to improve transformational and transactional leadership have already produced some
promising results.
In sum, the current study provided additional evidence to
support the use of transformational and transactional leadership to
increase organizational effectiveness. The current study also demonstrated that there was a substantial relationship between organizational behavioral factors, such as leadership, and &dquo;hard criteria,&dquo;
such as a firm’s financial performance.
REFERENCES
Avolio, B. J., & Bass, B. M. (1987). Charisma and beyond. In J. G. Hunt, B. R. Baliga, H.
P. Dachler, & C. A. Schriesheim (Eds.), Emerging leadership vistas. Boston:
Lexington Books.
Bass, B. M. (1981). Stogdill’s handbook of leadership (2nd ed.). New York: Free Press.
Bass, B. M. (1985). Leadership and performance beyond expectations. New York:
Free Press.
Bass, B. M., Avolio, B. J., & Goodheim, L. (1987). Biography and the assessment of
transformational leadership at the world-class level. Journal of Management, 13,
7-19.
Bass, B. M., Cascio, W. F., & O’Connor, E. J. (1974). Magnitude estimations of
expressions of frequency and amount. Journal of Applied Psychology, 59,
313-320.
Bass, B. M., Waldman, D. A., Avolio, B. J., & Bebb, M. (1987). Transformationalleadership and the falling dominoes effect. Group & Organization Studies, 12,
73-87.
Binning, J. F., & Lord, R. G. (1980). Boundary conditions for performance cue effects
on group process ratings: Familiarity versus type of feedback. Organizational
Behavior and Human Performance, 26,115-130.
Binning, J. F., Zaba, A. J., & Whattam, J. C. (1986). Explaining the biasing effects of
performance cues in terms of cognitive categorization. Academy of Management
Journal, 29, 521-535.
Burns, J. M. (1978). Leadership. New York: Harper & Row.
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
79
Dienesch, R. M., & Liden, R. C. (1986). Leader-member exchange model of
leadership: A critique and further development. Academy of Management
Review, 11, 618-634.
Dow, T. (1969). The theory of charisma. Sociological Quarterly, 10, 306-318.
Evans, M. G. (1974). Extensions of a path-goal theory of motivation. Journal of
Applied Psychology, 59,172-178.
Graen, G., & Cashman, J. F. (1975). A role-making model of leadership in formal
organizations: A developmental approach. In J. C. Hunt & L. L. Larson (Eds.),
Leadership frontiers. Kent, OH: Kent State University Press.
Graham, J. W. (1987). Transformational leadership: Fostering follower autonomy,
not automatic followership. In. J. G. Hunt (Ed.) Emerging leadership vistas.
Boston:
Lexington Books.
Hater, J. J. (1986). Leadership excellence study. Unpublished manuscript.
Hollander,
E. P.
(1978). Leadership dynamics.
New York: Free Press.
House, R. J. (1977). A 1976 theory of charismatic leadership. In J. G. Hunt & L. L. Larson
(Eds.), Leadership: The cutting edge. Carbondale: Southern Illinois University
Press.
House, R. J., & Mitchell, T. R. (1974). Path-goal theory of leadership. Journal of
Contemporary Business, 5, 81-97.
Hunt, J. G., & Schuler, R. S. (1976). Leader reward and sanctions: Behavior relations
criteria in
a
large public utility. Carbondale:
Southern Illinois
University Press.
Komaki, J. L. (1986). Toward effective supervision: An operant analysis and
comparison of managers at work. Journal of Applied Psychology, 71, 270-279.
Luthans, F., Paul, R., & Baker, D. (1981). An experimental analysis of the impact of
contingent reinforcement on salespersons’ performance behavior. Journal of
Applied Psychology, 66, 314-323.
Oberg, W. (1972), Charisma, commitment and contemporary organization theory.
Business Topics, 20,18-32.
Podsakoff, P. M., Todor, W. D., & Skov, R. (1982). Effects of leader contingent reward
and
punishment behaviors on subordinate performance and satisfaction. Acad
emy of Management Journal, 25, 810-821.
Rush, M. C., Thomas, J. C., & Lord, R. G. (1977). Implicit leadership theory: A
potential threat to the internal validity of leader behavior questionnaires.
Organizational Behavior and Human Performance, 20, 93-110.
Shils, E. A. (1965). Charisma, order and status. American Sociological Review, 30,
199-213.
Sims, H. F. (1977). The leader as a manager of reinforcement contingencies: An
empirical example and a model. In J. G. Hunt & L. L. Larson (Eds.), Leadership: The
cutting edge. Carbondale: Southern Illinois University Press.
Stogdill, R. M. (1955). Interactions among superiors and subordinates. Sociometry,
18, 552-557.
Tichy, N. M., & Devanna, M. A. (1986). The transformational leader. New York: John
Wiley.
Tichy, N. M., & Ulrich, D. (1984). The leadership challenge: A call for the
transformational leader. Sloan Management Review, 26, 59-68.
Tosi, H. J., Jr. (1982). Toward a paradigm shift in the study of leadership. In J. G. Hunt,
U. Sekeran, & C. N. Schriesheim (Eds.), Leadership beyond establishment views
(pp. 222-223). Carbondale: Southern Illinois University Press.
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014
80
P. (1982). A further test of leadership effects due to between-group
variation and within-group variation. Journal of Applied Psychology, 67, 200-208.
Waldman, D. A., & Bass B. M. (1987). Adding to leader and follower transactions. The
Vecchio, R.
augmenting effect of transformational leadership. Unpublished manuscript.
Waldman, D. A., Bass, B. M., & Einstein, W. O. (1987). Leadership and outcomes of
performance appraisal. Journal of Occupational Psychology, 60,177-186.
Bruce J. Avolio is Assistant Professor of Management, SUNY-Binghamton.
He has developed survey feedback procedures for use in leadership development and workshops. His other areas of expertise include industrial
gerontology.
David A. Waldman is Assistant Professor of Management, SUNY-Binghamconducted leadership development workshops and seminars for a
number of Fortune 500 companies and government agencies.
ton. He has
Walter O. Einstein is Associate Professor of Management at Southeastern
Massachusetts University. He has conducted workshops and seminars in
leadership development and performance appraisal design in numerous
companies and public agencies.
Downloaded from gom.sagepub.com at UNIV CALIFORNIA DAVIS on May 9, 2014