Firm success can be inferred as dependent on various factors especially the effective utilization of available resources, both tangible and the intangible such as the input of a company’s workforce, finances, technology and elements like leadership. Of note however, is the contribution of a firm’s management or leadership in organizing and mobilizing these resources that are used towards firm goal accomplishment, which highlights leadership as a vital factor which provides a firm foundation towards firm success. This is affirmed by Jensen & Zajac (2004) who show that leaders do indeed affect firm performance, both on a personal and firm level. Despite this influence on firm performance, other factors which are beyond the control of a manager or leader can also determine a firm’s overall performance, which Misangyi et al (2006) shows to include varied industry and corporate elements including firm resources and industry concentration and munificence. Essentially, leaders are not the primary determinant of organizational performance because many of the things that affect a firm’s success and/or failure such as politico-legal regulations and other industry elements, are outside of the leader’s control.
Leadership and Firm Performance
Concentration of industries and businesses in specific locations due to factors such as proximity to consumer markets and availability of specific resources, among other elements that enhance competitive advantage are shown by Boasson et al. (2005) as enhancing superior firm performance. Essentially, firm success is primarily determined by location factors where the presence or absence of leadership would not affect a negative outcome with regards to firm performance. Mithas, Ramasubbu & Sambamurthy (2011) shows that a firm’s information technology capabilities influences firm performance through positive impacts on specific firm processes like customer, process and performance management. This integrates elements like data security, information accuracy and reliability which relies more on technical knowledge and abilities to achieve, which restricts the influence of leadership on the associated processes. This also ties in with the contribution of resources to firm performance where intangible resources like knowledge, among others, as well as tangible ones are shown by Inmyxai & Takahashiw (2010) as pivotal to firm success. In this case, the presence of technical knowledge and operational processes of machines become the principal determinants of the firm’s performance especially when leaders would not be able to influence these two elements.
Considering firm performance is measured and represented by different variables including market share among others, the study by Derfus, et al. (2008) on the Red Queen effect, highlights how firm performance is influenced by elements beyond leadership. Specifically, firm performance is negatively affected by the presence of numerous competitors, who are also subject to other market forces that are above human action or influence, and whose entry negatively affects a firm’s performance. Relatedly, review of literature by Osamwonyi & Tafamel (2013) confirms that political connections do indeed influence a firm’s performance especially when the society is considered corrupt. In this case, political connections provide a gateway by which firms influence or circumvent government laws and regulations among other activities which Sheng, Zhou & Li (2011) affirm are also subject to institutional and market environments. However, new business laws and regulations enacted through transparent legal and political procedures can influence a firm’s performance negatively or positively especially where new regulations are accompanied by increased regulatory costs that may even force business to close such as mining operations. As such, regulations enacted through legal and political processes influence a firm’s performance in a way that is beyond the control of a single firm’s leader.
Despite the lack of influence on varied external events that influence a firm’s performance, the contribution of leadership to firm performance is quite significant as through a leader’s direction and guidance, a firm can succeed or fail. In extreme circumstances, Meglich & Eesley (2011) shows that a one-man-show leadership style is more likely to have negative results as in the case of Leona Helmsley’s (of the Helmsley hotel chain) autocratic leadership which degenerated into unacceptable and abusive behavior. Basically, it is through their efforts and moderation in leading others by establishing positive relationships with others, among other ways, that enables leaders to effect positive changes that ultimately influence firm performance. This is affirmed by Brandeis, Dharwadkar & Wheatley (2004, p. 276-7) who emphasize the centrality of social exchange in leadership where formation of positive relationships is seen as pivotal to leader’s contribution to firm success through influence on employees. Specifically, Dalakoura (2010) identifies a positive relationship between leadership and differentiation strategies as measured through various market and financial variables where differentiation represents a major success business factor. However, it is clear that other numerous elements and factors in the corporate and industry environment are more influential on firm performance compared to leadership especially since these conditions are beyond a leader’s control like laws and regulations, among others.
Discourse on business and management indicates that having a figure, whether a manager or a leader, to guide firm administration and operations, is quite important for firm success. However, researchers in the field also indicate the influence that other factors such as a firm’s resource capabilities, politico-legal regulations, machine-related processes and external influences like fierce competition and location factors, have on a firm’s performance. As such, leadership ceases to become the only primary determinant of an organization’s performance especially since those other factors and elements are beyond a leader’s control. However, this should not mean that leadership does have a considerable influence on a firm’s performance especially some of the identified factors that are beyond a leader’s control like politico-legal regulations may be indirectly influenced by leaders as shown by Osamwonyi & Tafamel (2013).
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