Transformational Leadership - Principles of Management

Bethune was a transformational leader: He initiated radical change in Continental Airlines that improved the performance of that organization. Like Bethune, transformational leaders are agents of strategic and organizational change.

Transformational leaders reenergize troubled organizations, pushing them in new strategic directions and engineering wholesale changes in operational processes, organization architecture, and culture. Some of the most admired business leaders of our time—people like General Electric’s Jack Welch, Gordon Bethune, Lou Gerstner at IBM, and William Bratton at the New York Police Department—are described as transformational leaders.

In recent decades leadership experts have come to recognize the importance of transformational leadership. In a world where the only constant is change, long-established organizations periodically find their competitive position under attack from new rivals who are utilizing new technology and new business models to gain market share. If established organizations confronting such challenges are to survive, they must make substantial changes in their strategy, organization, and operations, and this requires transformational leadership.

Thus IBM, once the world’s most profitable enterprise, found itself losing billions of dollars in the early 1990s as the center of gravity in the computer industry shifted away from its mainframe computers toward personal computers, a business dominated by scrappy new rivals such as Dell Computer, Microsoft, and Intel. It took a transformational leader, Lou Gerstner, to implement much-needed changes at IBM. Gerstner remade IBM, building a big service business where none existed and replacing IBM’s bureaucratic, consensus-driven culture with a more dynamic and entrepreneurial ideology.

To drive home the importance of transformational leaders, a comparison is often made between them and transactional leaders. A transactional leader helps an organization achieve its current objectives. 39 He or she tries to run the ship as efficiently as possible but does not try to change the organization’s course. The contingency and behavioral theories described earlier adopt the transactional perspective:

They focus on leader behaviors that improve employee performance and satisfaction within a given context. In contrast, transformational leadership is about changing the organization’s context, altering strategies and culture to fit better with the surrounding environment. Transformational leaders are change agents who energize and direct employees to a new set of corporate values and behaviors.

ELEMENTS OF TRANSFORMATIONAL LEADERSHIP

What does it take to be a transformational leader? Writers on the topic have identified a number of behaviors that transformational leaders seem to share (see Figure below). First, transformational leaders envision a different future for the organizations they are leading. This new vision often embraces changes in both strategy and the architecture of the organization, including the culture of the organization as captured by values and norms.

Gordon Bethune envisioned a different strategic future for Continental Airlines: one where planes arrived and left on schedule and customers were satisfied. Second, transformational leaders persistently communicate this new vision to employees.

They use every opportunity to state what the vision is and what values employees must adopt to execute that vision. Again, Bethune used every opportunity he could to communicate his message to Continental employees. Transformational leaders frame messages around a grand purpose with emotional appeal that captivates employees and other corporate stakeholders.

Such framing helps transformational leaders establish a shared mental model that subordinates can adopt as their own. Transformational leaders bring their visions to life through symbols, metaphors, stories, and other vehicles that transcend plain language. Metaphors borrow images of other experiences, thereby creating richer meaning in the vision that has not yet been experienced.

Third, transformational leaders model desired behaviors. They recognize that to succeed, they must lead by example. They live by the values they espouse. They know that unless they do this, employees will not take them seriously, and any transformational change effort will fail. In one of the great historical stories of transformational leadership, when Lee Iacocca took over the CEO position at Chrysler, which at the time was teetering on the brink of bankruptcy, he famously announced that he would take only $1 a year in salary until the company became profitable. This symbolic act sent a very strong message to employees: We are all in this together, and we suffer and prosper together.

Behaviors of Transformational Leaders

Behaviors of Transformational Leaders

Fourth, transformational leaders empower employees to implement the grand strategic visions they have articulated. At Continental Airlines Gordon Bethune did this by asking employees to help him improve Continental’s performance and by splitting the benefits with them.

At General Electric Jack Welch empowered employees by introducing a methodology known as “workout,” where during a three-day event employees could suggest process improvements to their bosses, who had to say yes or no to proposals on the spot. Welch went further, tying the bonus pay of managers to their success at implementing process improvements that came out of workout sessions.

Fifth, transformational leaders make meaningful changes in the activities and architecture of an organization. They move quickly to show that they are serious, changing organizational structure, controls, and incentive systems to promote the behaviors they see as necessary to implement their strategic vision.

Transformational leaders recognize that without concrete actions, employees will soon lose faith in change efforts. They understand that to get employees’ support for organizational change efforts, they need to show immediately that they mean what they say. Gordon Bethune did this by tying employee bonuses to improvements in Continental’s customer service.

Sixth, transformational leaders lead with integrity. They recognize that people will not follow someone they do not trust, and that a reputation for fairness and candor is among the most important assets a leader can have. People respect leaders who tell them the truth (even if that truth is sometimes hard) and who manage in an ethical manner.

This does not mean that transformational leaders are not tough, but they are tough in a fair way. If they have to lay off employees, they do so in an open and honest way, explaining why they have to make this difficult choice. Thus although Stan O’Neal is regarded as a tough leader who did not flinch from announcing significant job cuts when he took over the helm of Merrill Lynch, he is also regarded as having integrity.

Finally, transformational leaders create an enduring organization that continues to operate efficiently and effectively long after they are gone. They do not lead through a cult of personality; rather they reengineer the organization to create a new system that will persist and produce benefits for years.

Although Jack Welch stepped down as CEO of General Electric in 2001, GE is still very much the organization that Welch built. Similarly, the changes William Bratton introduced in the New York Police Department persist today even though he left in the 1990s. Great transformational leaders make themselves redundant by building an organization and by developing people who can continue their work once they have moved on.

Note that we have not said transformational leaders are charismatic. They may be charismatic, but they do not have to be. Charisma is a personality trait that gives a leader power and influence over followers, whereas transformational leadership is a set of behaviors that managers use to lead a change process. 43 Charismatic leaders are born, but the aspects of transformational leadership can be learned.

However, transformational leaders certainly require high intelligence and superior reasoning ability to envision a different strategic future for the organization, and intelligence at least is a trait. Many successful transformational leaders were effective but not charismatic. Although Lee Iacocca and Jack Welch were charismatic, Lou Gerstner and William Bratton were not, but they all engineered significant and persistent changes in the organizations they led.

EVALUATING TRANSFORMATIONAL LEADERSHIP

The concept of transformational leadership has wide appeal, and it is probably the most popular perspective on leadership today. Moreover, research suggests that transformational leaders make a difference. Subordinates are more satisfied and have greater commitment to their organizations under transformational leaders. They also perform better, engage in more organizational citizenship behaviors, and tend to make decisions that are more creative. However, the concept of transformational leadership faces a number of challenges.

One problem is that some writers use circular logic by defining transformational leadership in terms of the leader’s success. They suggest that leaders are transformational when they successfully bring about change, rather than when they engage in certain behaviors that we call transformational. Another concern is that some writers present transformational leadership as a universal rather than a contingency-oriented approach.

However, recently writers have begun to explore the idea that transformational leadership may be more appropriate in some situations than in others. Transformational leadership seems most appropriate when organizations are in trouble and need to improve their performance and adapt to a changing environment. For an organization based in a stable environment that is performing well, transactional leadership may be just fine. Indeed, a transformational leader who tries to change a well-oiled machine might do more harm than good.


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