Study of the Impact of Effective Leadership on Organizational Performance (Case Study: University of Medical Sciences and Health Services of Bushehr)

Transcription

1 Study of the Impact of Effective Leadership on Organizational Performance (Case Study: University of Medical Sciences and Health Services of Bushehr) Parvaneh Rastgoo Expert of Public Management, Vice-Chancellor for Culture & Student Affairs, Bushehr University of Medical Sciences, Bushehr, Iran Abstract Profitability and success of organizations in the present competitive era demands effective use of leadership. Employees within an organization, as an effective and efficient leader and supervisor, should have sufficient knowledge and skills in order to remain in the competition and improve its performance. Hence, the study and investigation on effective leadership and organizational performance is very important. In the present investigation, the effective leadership of 130 individuals in Bushehr University of Medical Science and Health Services was studied and its impact on the performance of the organization was measured. Data analysis and hypothesis testing were carried out after distribution and collection of 122 questionnaires using Structural Equation Modeling and Smart PLS software 2.0 in two parts of measurement model and structural. Technical features of the questionnaire including reliability, convergent and divergent validity specified to PLS method were investigated in the first part and necessary modifications were performed. The significance coefficient of the software was used in the second part in order to check the research hypotheses. The results demonstrated the significant impact of effective leadership and its dimensions on organizational performance in University of Medical Sciences and Health Services of Bushehr. Keywords: effective leadership, organizational performance, university of medical science of Bushehr Introduction Theoretical principles of management are full of discussion that indicates the important role of leadership in organizations' success and promotion of their performance. This indicates the importance researchers attributed to the concept of leadership (Couzin et al., 2005). The reason of this significant attention is that it is generally assumed that leadership has the most important role in the effectiveness of individuals and organizations (Yukl, 2012). Therefore, leader is the first issue that comes into mind in studies on the concept of leadership. However, the characteristics of a leader are very important, and the effectiveness of leaders is one of the most important properties in the meantime. Undoubtedly, managers and leaders have one of the most important and most sensitive roles in organizations and institutes. In fact, their decisions have a direct impact on competitive advantage and progress towards the competitors (Cho and Jung, 2014). For this reason, if leaders can provide a condition that actualizes the potential of employees, then the performance of the organization improves obviously (Wafa et al., 2005). Hence, paying attention to characteristics and issues of leadership and its impact on performance is necessary. On the other hand, employees should feel that their managers and leaders and their execution methods are effective in order to perform assigned tasks and activities, and this factor helps the organizations to improve their performance directly. Many researchers agree on the fact that leadership styles have impact on management and performance when they are effective and efficient (Williams and Gardner, 2012; Harvey and Jenkins, 2014). The

2 significance of the contents makes the need for research and study in this regard obvious. In this regard, many investigations have been carried out on the relationship between leadership styles and organizational performance (such as Jung Sosik, 2002 and Sirvastava et al., 2006). Moreover, identification and determination of the methods (leadership methods) leads to better efficiency and improvement of organizational performance to a large extent (Caligiuri and Tarique, 2009). It should be mentioned that a little number of investigations has been carried out on the impact of indices of effective leadership on organizational performance. Identification of useful and comprehensive indices for effective leadership has been performed in the present investigation and these indices have been categorized into five classes including prospect, empowerment, appropriate relationships, continuous improvement and self-assessment. Hence, the following question has been answered in order to fill the research gap in the theoretical literature. Do effective leadership and its dimensions affect organizational performance significantly? Determination of indicators and patterns of leadership effectiveness and investigation of its impact on organizational performance of employees of university of medical science and health services of Bushehr, it has been tried to present a new model through a scientific approach and they have been tested through a statistical approaches. It can be stated in defining leadership that it is art of influence on individuals so that they take steps towards achieving specified goals voluntarily. Leadership means monitoring the cooperation of all members of a group together and cooperation of the under leadership group with rest of the organization coordinately in order to achieve organizational goals. Leadership could be considered as motivation of others to decision-making and supporting pathways, which puts the spotlight on organizations and cannot have progress without focusing on individuals. Leadership is the process of influencing on individuals and groups in order to set and achieve goals. Organizational leadership means the ultimate task of decision-making and judgment at the top of the organizational pyramid. According to Ardichvili and Kuchinke (2002), leadership is a dynamic process in which one is affected to take part in group activities. Moreover, beyond having initiative or sense of empowerment, leadership is defined as critical reception of knowledge, independent decisionmaking in personal assessment, adventure and vigilance in maintaining an organization in order to achieve the objectives. Effective leadership within an organization is the main and fundamental factor in order to develop sympathy and empathy, and effective leaders are those who are able to integrate different people a unit intellectual umbrella and lead other to the understanding that slight and individual differences are negligible and collective spirit is very important. In addition, it is stated in another definition that effective leadership is personal ability to effectively influence others. Most of the previous researches such as Bronze et al. (1978), House (1976) and Bass (1985) presented effective leadership as transformational leadership. Other recent researches stated that effective leadership employs a full range of leadership behaviors from transformational to transactional (Jung and Sosik, 2002). Effective leadership consisted of group process with the leader as the main navigator. Moreover, effectiveness is achievement of predetermined goals. Effectiveness is primarily dependent to influence, but there are questions about it at the next stage such as how are works performed and came to conclusion. Transactional approach to leadership effectiveness emphasizes on the relationship between the leader and follower in two major

3 scopes: response of the group in achieving specific outcomes and guarantee of objectives that draw the highest attention to the group members. Effectiveness depends on way of doing things to achieve the desired results. Leadership effectiveness means optimal use of human and financial resources as far as possible. This category concentrates on organizational effectiveness and it is not focused on other issues. Maglioccoa and Christakis (2001) defined effective leadership as the process of making commitment to organizational goals and empowerment of the followers in order to fulfill the objectives. Bass and Bass (2008) emphasized that effective leaders try to encourage the followers to progress and success through idealized influence (proudness, charisma, undisputed respect and commitment of the followers to the leader who transfer idealized sense), inspirational motivation (through challenging and giving meaning to their followers' activities), intellectual stimulation (Motivating followers by the leader in order to find new solutions to organizational problems by the followers) and individual consideration (Distinct relationship with followers in order to realize different needs, skills and wishes) and improve performance. It could be specified by reviewing the theoretical literature that some of the factors as characteristics of leadership effectiveness are common in previous researches. These factors are prospect (goal-oriented), empowerment, good relationships, continuous improvement and self-assessment. It has been mentioned to the concept of organizational performance in addition to effective leadership in the present investigation. Organizational performance is the best criterion for the measurement and determination of level of efficiency and effectiveness of organizations in a certain time period that could be specified through signs in the market, customer and revenue (Adams and Sykes, 2003). Measurement of organizational performance is not easy and demands collection of comprehensive data (Covin and Slevin, 1990). However, many researchers investigated the measurement of organizational performance, because it is the most appropriate criterion to evaluate the organization s status. Some of the researchers believe that conducted analysis of financial statements and other accounting reports is the most common method in measuring the performance of companies (Lee, 2007). However, these traditional methods might not be appropriate for measuring alliance between organizations. This is because success alliance might not be apparent in the short time and components such as new products development demands more time to be evaluated. Review of the previous researches demonstrated that there is lack of existence of consensus on appropriate measurement of performance. Objective indices such as increase in selling rate, profit and rights of shareholders and non-objective indices such as new products development and customer satisfaction have been employed to measure organizational performance. On the other hand, many of the researches used non-objective indices beside objective indices to measure the amount of organizational performance (Haber and Reichel, 2005). Each of the researchers has introduced specific dimensions in relation with organizational performance, but balanced scorecard approach of Kaplan and Norton (2005) including a set of criterion, which provides a comprehensive and quick insight into the organization, has been welcomed by many researchers. According to the method, what is obtained due to access to some of the available information is measured most of the time. On other words, measurement of organizational performance is not only limited to organizational internal data such as

4 selling rate and revenue but external factors such as customer satisfaction should be considered. For this reason, both financial scales and operational scales are employed in organizations with high performance in order to measure organizational performance. Balanced scorecard approach provides a set of scales for the managers to carry out a quick and comprehensive evaluation of their business (Geuser et al., 2009). Balanced scorecard approach was presented by Kaplan and Norton and considers performance in four balanced perspectives: A) Finance: measures of the perspective tell us that successful implementation of objectives determined in the other three perspectives leads to what financial results and achievements eventually. Emphasizing on shareholders' satisfaction, objectives and measures in this perspective are profitability, return on investment, economic value added, sales growth, market share and cash flow. B) Customers: nowadays, many of the company's philosophy statement emphasizes on customers. This perspective concentrates on features such as product/service that provides value from the customer point. A combination of internal and external measures such as time, quality, performance, expense and services defines this perspective (Thakkar et al., 2007). C) Internal processes: this perspective concentrates on organizational internal operation that reviews financial perspective by creating value for customers, customer perspective and increasing shareholder wealth. These processes should be developed in terms of determined internal processes and appropriate measures such as cycle time, quality, employee skills and productivity. D) Development and Learning: organization's ability to grow and learn is of the important factors of performance, which help significantly to the realization of determined objectives in terms of internal processes, customer and shareholders. Indices of growth and leaning of empowerment of determined objectives measure the company's capacity for innovation, continuous improvement and learning. Reviewing of existing data sources indicated that there has been little research related to investigation on the impact of effective leadership on organizational performance. Evaluating the financial performance of a few companies, Pillai and Williams (2004) stated that transformational leadership was the reason for the success of some of these companies. Moreover, they introduced transformational leadership as a strategy to create value for organizations and stated that synergy is the most important motivation of the managers for greater effectiveness. Dinwoodie et al. demonstrated that participatory leadership styles can provide mechanisms for interacting with new organizational environment and can lead to synergy and value added by the organization. Evaluating organizational performance through the Balanced Scorecard, Cravens et al. (2000) presented dynamism and complexity of the environment of organizations as the main factors for pushing them to work together. They believe that Balanced Scorecard Method consisted of financial, administrative, physical and technical criteria could be an appropriate tool for performance assessment. In addition, Pansiri (2007) conducted an investigation on the impact of characteristics of the partner organizations on their performance and concluded that commitment and trust between partner organizations are the two variables that positive impact on their performance has relationship with increase market share and profitability criteria and raise their level of satisfaction obviously. Chen et al. (2007) performed a research on the relationship between social capital, entrepreneurship orientation, organizational sources and performance in new businesses and demonstrated that there is a significant correlation between social capital, entrepreneurship orientation and organizational

5 sources. Moreover, they approved that there is a significant and direct relationship between each of the components and performance. Hypotheses and theoretical framework of the research Review of the research literature demonstrated that effective leadership is known as an effective construct in organizational performance. Study of the dimensions of each of the two main constructs leads to the following hypotheses. Main hypothesis (Ha): effective leadership has a significant and positive impact on organizational performance. First sub-hypothesis (Hb 1 ): prospect has a significant and positive impact on organizational performance. Second sub-hypothesis (Hb 2 ): self-assessment has a significant and positive impact on organizational performance. Third sub-hypothesis (Hb 3 ): empowerment of employees has a significant and positive impact on organizational performance. Fourth sub-hypothesis (Hb 4 ): continuous improvement has a significant and positive impact on organizational performance. Fifth sub-hypothesis (Hb 5 ): appropriate relationship has a significant and positive impact on organizational performance. According to the main hypothesis of the research, which is the impact of effective leadership on organizational performance, and also the rest of the research hypotheses, the theoretical framework is figured in the following. Prospect Self-assessment Effective leadership Empowerment Organizational performance Continuous improvement Appropriate relationship Methodology Figure 1. Theoretical framework of the research The present investigation was practical in terms of objective and correlational-descriptive in terms of method of data collection so that

6 questionnaire was used in order to check the research hypotheses. Moreover, it was a quantitative one in terms of type of collected data. In this regard, questionnaires were distributed among the participants in order to collect their opinions and the results were recorded. Structural Equation Modeling (SEM) was used in the form of conceptual model to analyze the collected data. The SEM consisted of measurement model and structural model and the variables are categorized into hidden and obvious variables (Byrne, 2013), which effective leadership and organizational performance were hidden variables and the questions used to measure them were obvious variables. Moreover, Smart PLS 2.0 software was employed to analyze the SEM method. Using the software, model fitting indices such as reliability, convergent validity and divergent validity were studied firstly and the research hypotheses were checked in the following. The population consisted of all employees in Bushehr University of Medical Science and Health Services, which were 306 individuals. Moreover, stratified random sampling method was utilized to choose the participants. In this regard, departments of education, student and research, treatment, food and drug, health, development and management of human resources and presidency were selected as the categories and the participants were chosen randomly from each of the categories. Cochran formula was used to calculate the sample size and 170 individuals were determined. Eventually, the same number of questionnaires was distributed and 158 of them were returned (93% respond rate). The research questionnaire consisted of 36 items (questions), which 15 questions were related to effective leadership and 21 of them were related to organizational performance. In addition, the five dimensions of effective leadership were assessed by three questions for each of them. Moreover, the dimensions of customer, internal processes, financial perspective and growth and learning were evaluated by 6, 4, 6 and 4 questions, respectively. Assessment of factor loadings between the indices of a construct and the construct was used to check the reliability of the research questionnaire. If the value is equal to or more than 0.4, then this approves that variance between the construct and its indices is more than the variance of the measurement error of that construct, so the reliability of the measurement model is acceptable (Hulland, 1999). The first implementation of the model demonstrated that the factor loadings of the questions number 6, 11, 16 and 17 were less than 0.4. Therefore, these questions were eliminated and the model implemented again (figure 2). As it is obvious, all the factor loadings were more than 0.4. Thus, no more elimination was needed and the reliability of the questionnaire was approved. It should be mentioned that effective leadership is shown with A and its dimensions are shown with A1 to A5 in figure 2. In addition, performance is shown with B and its dimensions are shown with B1 to B4.

7 Growth and learning Financial perspective Internal processes Customer Appropriate relationship Continuous improvement Empowerment Self-assessment prospect Figure 2. Final research model together with standardized coefficients The validity of the questionnaire was investigated using two criteria of convergent and divergent validity, which is specified to SEM with PLS approach. In convergent validity, we used Average Variance Extracted (AVE) and the results for the research variables are shown in table 1. Table 1. Average variance extracted values of the dimensions for convergent validity evaluation Organizational performance Effective leadership Main variables Dimensions of variables AVE The criterion value for acceptable level of AVE is 0.5 (Hulland, 1999). As it is demonstrated in table 1, all the values are more than 0.5 and this indicates acceptable convergent validity of the research questionnaire.

8 In divergent validity, the differences between the indices of a structure are compared with the indices of other structures in the model. This is done through comparing the root square of AVE for each structure with the correlation coefficient values between the structures. To Dimensions of variables Prospect Self-assessment Empowerment Continuous improvement Appropriate improvement Customer Internal processes Financial perspective Growth and learning Table 2. Investigation of divergent validity do this, a matrix should be formed in which the main diagonal consisted of AVE coefficients of each structure and the lower and above values of the main diagonal are the correlation coefficients between each structure and other structures. This matrix is shown in table According to table 2, the root square of each structure (the main diagonal values) are more than the correlation coefficient of that structure with other structures (the same column and same row values) and this shows that the divergent validity of the structures are acceptable. After checking the model fitting in three parts of reliability, convergent validity and divergent validity, it is turn to evaluate the cause and effect relationship between effective leadership along with its dimensions and organizational performance. As it is obvious from the output of the Smart PLS software (figure 3), the impact of effective leadership on organizational performance is positive and significant because the t-value of the path between the two variables is positive and more than Moreover, figure 2 indicates that 56% of the changes in organizational performance variable in the case study can be explained by effective leadership. In addition, the software output (table 3) approves the research main hypothesis and the subhypotheses. According to the table, since all the t-values are more than 1.96, all the hypotheses are approved. Moreover, empowerment has a greater impact on organizational performance than the other dimensions of effective leadership.

9 Figure 3. Final model of the research together with t coefficients Result Approved Approved Approved Approved Approved Approved Table 3. Test results of the research hypotheses t-value Standardize d coefficients Hypotheses Effective leadership Organizational performance Prospect Financial performance Self-assessment Operational performance Empowerment Organizational effectiveness Continuous improvement Organizational effectiveness Appropriate relationship Organizational effectiveness Conclusion In today's world of evolution, prosperity is for communities and organizations that develop a significant relationship between rare resources and management capabilities and effective leadership. On other words, an organization or community can have an accelerated moving

10 forward in the path to development that equip its human resources with effective knowledge and skills using required infrastructures so they can guide and manage other community and organization resources towards creating value and achieving growth and development using this valuable capability. Considering the phenomenon of economy globalization, some people believe that future markets are for firms that have effective and capable leaders, pay special attention to development of their intellectual capitals comprehensively, are hard workers in personal development and consider environmental conditions in their policies. Based on this, considering effective leadership and try to improve it have become as one of the most important activities in organizations. The main purpose of the present investigation was to study the impact of effective leadership and its dimensions including prospect, empowerment, appropriate relationships, continuous improvement and self-assessment on organizational performance in Bushehr University of Medical Science and Health Services. According to the results, the following practical suggestions have been made. A) The results demonstrated that effective leadership has positive and significant impact on organizational performance in Bushehr University of Medical Science and Health Services (B=0.56, P<0.01). Hence, it can be concluded that the under study organization can have considerable improvement in organizational performance through paying special attention to effective leadership. The related conducted researches also demonstrated that effective leadership is considered as a significant organizational process in today's challenging business environment, which helps to survival and organizational performance (Srivastava and Bartol, 2006; Cho and Jung, 2014). Rapidly developing technologies and short life cycle of products have made the organizations innovative and have forced them to develop novel ideas and new processes and products and adopt risks to cope with rapid changes. All these will be possible in organizations that have effective leaders. B) According to the results, prospect has positive and significant impact on organizational performance in Bushehr University of Medical Science and Health Services (B=0.63, P<0.01). Therefore, the under study organization should seek for designing and strengthening its prospect. Using consulting, help of all the employees and sources outside the organization for providing a good picture of the future can lead to proper design of organization s prospect. Subsequently, proper design of organization s prospect helps to performance improvement. C) The results indicated that selfassessment has positive and significant impact on organizational performance in Bushehr University of Medical Science and Health Services (B=0.71, P<0.01). Self-assessment is an important dimension of effective leadership. Organizations should have strong self-assessment, because performance improves in organizations that freedom is given to individuals and teams to improve their performance through learning from their experiences. D) The obtained results approved that empowerment has positive and significant impact on organizational performance in Bushehr University of Medical Science and Health Services (B=0.78, P<0.01). Since

11 empowerment of employees in new fields includes their high-level skills, organizations should pay special attention to empowerment. They should consider consequences of different opportunities and make necessary arrangements. According to nowadays' rapid changes and uncertain markets, prospects for success will decline in the absence of empowerment. E) As it is obvious from the results, continuous improvement has positive and significant impact on organizational performance in Bushehr University of Medical Science and Health Services (B=0.66, P<0.01). Organizations should establish a supervision and evaluation system of job performance to measure employees' productivity, help to rapid and effective transfer of knowledge and new information and identify strengths and weaknesses of the organization s performance in order to make changes. F) Eventually, it can be concluded that appropriate relationship has positive and significant impact on organizational performance in Bushehr University of Medical Science and Health Services (B=0.69, P<0.01). Enhancing employees' skills in ability to communicate with each other, ability to understand each other s emotions and ability to interact and comment and make suggestions to the upstream, organizations can establish appropriate relationships between their employees and enhance performance. Eventually, according to the research results, the following recommendations could be used in further investigations. - Considering the fact that questionnaire was used in the present investigation in order to collect data, it is suggested to other researches to utilize interview and other data collection techniques in addition to questionnaire. - It is also suggested to conduct similar investigations in other service organizations. - It is proposed to other researchers to conduct investigations on solutions to enhance and strengthen organizational performance, especially leadership styles in service organizations. References 1. Adams, B., & Sykes, V. (2003). Performance measures and profitability factors of successful African-American entrepreneurs: An exploratory study. Journal of American Academy of Business, 2(2), Ardichvili, A., & Kuchinke, K. P. (2002). Leadership styles and cultural values among managers and subordinates: a comparative study of four countries of the former Soviet Union, Germany, and the US. Human Resource Development International, 5(1), Bass, B. M., & Bass, R. (2008). The bass handbook of leadership: theory, research, and managerial applications (4th ed.). New York: Free Press. 4. Byrne, B. M. (2013). Structural equation modeling with AMOS: Basic concepts, applications, and programming. Routledge. 5. Chen, C-N., Tzeng, L-C., Ou, W-M and Chang, K-T. (2007). the Relationship among Social Capital, Entrepreneurial Orientation, Organizational Resources and

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