Yukl Organizational Effectiveness

The Leadership Quarterly 19 (2008) 708722
Contents lists available at ScienceDirect
The Leadership Quarterly

j o u r n a l h o m e p a g e : w w w. e l s ev i e r. c o m / l o c a t e / l e a q u a
How leaders inuence organizational effectiveness

Gary Yukl
Management Department, University at Albany, Albany, NY 12222, USA
a r t i c l e i n f o a b s t r a c t
Keywords: The exible leadership theory explains how top executives and other leaders can inuence the
Strategic leadership nancial performance of a business organization. Three key determinants of nancial
Organizational leadership performance are efciency, adaptation, and human capital. A wide range of leadership
Flexible leadership
behaviors, management programs, structural forms, and external initiatives can be used to
inuence these performance determinants. Management programs and systems are usually
more effective when they are mutually compatible and appropriate for the situation. Effective
performance requires a cooperative effort by the multiple leaders in an organization, and they
must be exible and adaptive as the situation changes. The theory provides a way to integrate
ndings from several different and largely separate literatures.
2008 Elsevier Inc. All rights reserved.
1. Introduction
Interest in strategic leadership has been increasing in recent years (Boal & Hooijberg, 2000; Canella & Monroe, 1997; Finkelstein
& Hambrick, 1996; Hitt & Ireland, 2002; Zaccaro & Klimoski, 2001). One of the most important research questions is how top
executives inuence the nancial performance and survival of an organization. Relevant research has been conducted by scholars
in several distinct subelds, including leadership, strategic management, human resource management, and organizational
change.
The core leadership literature provides only limited insights about strategic leadership. Most empirical studies on leadership
effectiveness during the past half century involved middle or lower-level managers rather than top executives (Osborn, Hunt, &
Jauch, 2002; Yukl, 2006). The key research question was to discover how an individual leader can inuence followers to do more
work or perform better than initially expected. During the past too much of the empirical research on leadership behavior was
guided by theories of transformational and charismatic leadership (e.g., Bass, 1985; Conger & Kanungo, 1998; Shamir, House, &
Arthur, 1993). Evidence from a large number of studies indicates that transformational leadership can enhance subordinate
motivation and performance (see Lowe, Kroeck, & Sivasubramaniam, 1996). Nevertheless, these leadership theories are too
narrowly focused to explain how top executives inuence the nancial performance of a large corporation (Klein, Dansereau, &
Hall, 1994; Yukl, 1999). Most successful rms do not have a CEO who is considered charismatic, and a visionary CEO is no guarantee
that a rm will avoid nancial disaster (e.g., Bennis & Nanus, 1993; Collins, 2001; Finklestein, 2003; Hogan, Raskin, & Fazzini, 1990;
O'Connor, Mumford, Clifton, Gessner, & Connelly, 1995; Sandowsky, 1995).
The literature on strategic management, strategic human resource management, and organizational change provides additional
insights about the inuence of top executives on rm performance. Succession studies nd evidence that a CEO can have a
moderate amount of inuence on the nancial performance of an organization (Giambatista, Rowe, & Riaz, 2005; Lord & Maher,
1991; Thomas, 1988). Studies of executive discretion identify situational constraints that limit CEO inuence on rm performance
(e.g., Burt, 1992; Hambrick & Finkelstein, 1987). Studies of strategic decisions provide additional insights about the inuence of top
executives on rm performance (e.g., Eisenhardt, 1989; Finkelstein & Hambrick, 1996; Mintzberg, Raisinghani, & Theoret, 1976).
Studies of organizational change describe how top executives can implement new initiatives or major changes effectively (e.g., Beer
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E-mail address: G.yukl@albany.edu.
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doi:10.1016/j.leaqua.2008.09.008
G. Yukl / The Leadership Quarterly 19 (2008) 708722 709
& Nohria, 2000; Hambrick, Nadler, & Tushman, 1998; Kotter, 2002). Studies of strategic human resource management show that
management programs and systems can be used to enhance human capital and rm performance (e.g., Hitt & Ireland, 2002;
Huselid, Jackson, & Schuler, 1997; Wright & Snell, 1998). Each of these different perspectives on strategic leadership is narrowly
focused, and only limited progress has been made in integrating them into a more comprehensive theoretical framework.
A theory of strategic leadership should explain how top executives inuence the organizational processes that determine a
rm's nancial performance and long-term survival (Boal & Hooijberg, 2000; Finkelstein & Hambrick, 1996). The explanation
should take into account the inuence of top executives on strategic objectives, competitive strategy, the formal structure,
management systems and programs, the corporate culture; and the members' skills and motivation. The theory should also include
relevant aspects of the situation that inuence the actions and decisions of top executives (Osborn et al., 2002). The theory should
take into account how multiple leaders in an organization share power and interact to inuence performance (Gronn, 2002; Pearce
& Conger, 2003). Finally, the theory should help to bridge the gulf between the leadership and management literatures. The
exible leadership theory (FLT) was formulated in response to the need for a more comprehensive theory of strategic leadership
that integrates relevant ideas from several distinct literatures.
The exible leadership theory is conceptualized primarily at the organizational level, and it includes four sets of variables: (1)
organizational effectiveness, (2) performance determinants, (3) situational variables, and (4) leadership decisions and actions.
The effectiveness of an organization is dened as the extent to which it is able to survive, perform its mission, and maintain
favorable earnings, nancial resources, and asset value. Key indicators for business rms include long-term prot growth, return on
investment, and stock returns. Effectiveness depends on three primary performance determinants: (1) efciency and process
reliability, (2) human capital, and (3) adaptation to the external environment. The performance determinants are inuenced by the
decisions and actions of a rm's leaders. The relative importance of the performance determinants, and how difcult it is to inuence
them, are affected by aspects of the situation such as the type of organization or industry, turbulence in the external environment
(resource availability, intensity of competition, economic, political, or technological change), and constraints on executive action
(involving oversight by owners or government agencies, or stemming from legal restrictions). The key propositions of FLT are presented
in the following sections, along with examples of relevant theory and research that support the propositions.
2. Efciency and innovative adaptation
The determinants of organizational performance have been studied for several decades and are a central topic in the literature
on management and organization theory (e.g., Barnard, 1968; Katz & Kahn, 1978; Lawrence & Lorsch, 1969; Melcher, 1976;
Mintzberg, 1979; Thompson, 1967). Insights about the determinants of organizational performance are also provided by the
literature on corporate strategy (e.g., Barney, 1991; Peteraf, 1993; Porter, 1980; Teece, Pisano, & Shuen, 1997; Zajac, Kraatz, &
Bresser, 1999) and by many practitioner-oriented books based on studies of effective rms (e.g., Collins, 2001; Collins & Porras,
1997; Joyce, Nohria, & Roberson, 2003; Kaplan & Norton, 1996; Yukl & Lepsinger, 2004). Taken together, these sources provide
ample evidence that nancial performance for business organizations depends jointly on the efciency of internal processes and
timely adaptation to external threats and opportunities.
Proposition 1. Efciency and innovative adaptations jointly determine the nancial performance of a business organization.
Proposition 2. The relative importance of efciency and innovative adaptations depends on the type of organization and aspects of the
external environment.
2.1. Efciency
Efciency is the extent to which the organization minimizes the cost of people and resources needed to carry out essential
operations. Business rms have many different types of costs, including employee compensation, expenses for materials, supplies,
facilities, energy, inventories, shipping, marketing, and services provided by vendors, subcontractors, and consultants. Efciency
also depends on process reliability, which is the extent to which work processes are conducted without unnecessary delays, errors,
or accidents. Key indicators of efciency include the costs as a percentage of revenues, costs relative to those of competing
companies, and employee productivity relative to labor costs. Case studies and survey research provide evidence that reducing
unnecessary costs can improve a company's performance (e.g., Ebben & Johnson, 2005; Ghosn & Ries, 2005; Hammer & Champy,
1993; Key, Reed, & Sclar, 2005; Lieberman & Demester, 1999).
There are many ways to improve efciency, and they include redesigning work processes, using new technology, reducing the
cost of energy or materials, reducing excess inventory, and reducing the cost of labor or outsourcing jobs to low wage countries.
Efciency is facilitated by relevant cultural values, including the desirability of reliability, meeting deadlines, error-free
performance, adherence to rules and procedures, controlling costs, and responsible use of resources (Miron, Erez, & Naveh, 2004).
It is easier to improve efciency when the organization's operations are relatively stable for a considerable period of time rather
than constantly changing (Tushman & Romanelli, 1985). It is more difcult to improve efciency if there are constraints on the
reduction of costs (e.g., mandated quality standards and safety requirements, laws for minimum wages and benets, requirements
for guaranteed employment, shortages of necessary inputs such as materials or energy).
Efciency is especially important when the competitive strategy of the organization is to offer its products and services at a
lower price than competitors (Porter, 1980, 1996). This cost leadership strategy is most common for generic products and services
710 G. Yukl / The Leadership Quarterly 19 (2008) 708722
that are viewed as commodities (e.g., chemicals, metals, paper, cement, building materials, airlines, grocery stores, printing and
duplicating, fast food restaurants, consumer electronics). Efciency is also very important for a rm with a few large customers
who can demand cost reductions. Efciency is relatively less important when an organization is able to pass along high costs to
customers by increasing prices. Examples include companies that have cost-plus contracts with a sole client such as the federal
government to provide a unique product or service, and organizations that are the exclusive providers of a product or service that
customers need regardless of variations in the price. Likewise, an organization has less need to maintain a high level of efciency if
it is highly subsidized by the government or a wealthy patron.
2.2. Adaptation
The effectiveness of an organization also depends on how well it adapts to changes in the external environment. Key indicators
of adaptation include long-term sales increase, increase in market share, and the satisfaction and loyalty of customers (e.g.,
company reputation, repeated purchases by customers, sales to new customers). Successful adaptation requires accurate, timely
information about external threats and opportunities. Adaptation is facilitated by organizational learning about effective ways to
deal with threats and opportunities, and effective ways to leverage core competencies. Adaptation is also facilitated by the
availability of surplus resources that can be invested in new initiatives.
Successful adaptation often requires innovative changes, not just incremental adjustments in traditional practices (Nadler et al.,
1995). Innovation in products and services is facilitated by strong cultural values for creativity, exibility, tolerance of mistakes,
product quality, and customer service (Baer & Frese, 2003). It is easier to make innovative changes in an organization that is exible
with regard to operational processes and the types of products and services provided (Adler, Goldoftas, & Levine, 1999).
Successful adaptation is unlikely when top management fails to recognize an external threat or respond in a timely way to a
promising opportunity. Executives are more likely to ignore or deny the relevance of an external threat when there is strong
reverence for strategies that were previously successful (but are no longer appropriate), and a shared belief that there is nothing to
learn from competitors (Finklestein, 2003; Tushman & O'Reilly, 1996). On the other hand, there are good reasons to be cautious in
responding to threats and opportunities. Untested innovations and bold new ventures can be very risky, and a nancial disaster
may result if a new initiative or major change is based on wishful thinking rather than careful analysis of risks and capabilities
(Finklestein, 2003).
Innovative adaptation is more important when the external environment is dynamic and uncertain, which is likely when
there is rapid technological change, political and economic turmoil, rapidly changing customer preferences, intense competition,
and shortages of essential resources for conducting operations (Miller & Friesen, 1984; Tushman & Romanelli, 1985). Innovation is
especially important for an organization with a competitive strategy that emphasizes unique, leading edge products or services
designed to satisfy the changing needs of customers and clients (Porter, 1980, 1996). Examples of these organizations with a
dynamic environment include fashion clothing, pharmaceutical companies, telecommunications companies, medical equipment
companies, computer companies, advertising agencies, the entertainment industry, and companies in newly deregulated
industries.
There is much less pressure to improve customer service or product quality when an organization has strong demand for its
products or services and there is little competition. Examples include the sole source of a miracle drug, or the only provider of a
necessary service in a protected domestic market. However, rapid technological and social changes and the continuing trends
toward privatization, deregulation, globalization, and internet commerce in most nations have increased the need for business
organizations to systematically monitor changes in their external environment and respond in a timely way to new threats and
opportunities. Few organizations today can afford to disregard changes in their external environment.
3. Human capital
Human capital is the extent to which the members of an organization have the skills and motivation needed to do the work
effectively (Hitt & Ireland, 2002). Research in strategic human resource management indicates that human capital is another
determinant of organizational performance (Becker & Gerhart, 1996; Becker & Huselid, 1998; Bowen & Ostroff, 2004; Gelade &
Ivery, 2003; Hitt et al., 2001; Jackson & Schuler, 1995; Pennings, Lee, & van Witteloostuijn, 1998; Pfeffer, 1994, 1998).
Proposition 3. The nancial performance of an organization depends on the quality of human capital.
Proposition 4. The effects of human capital on organization performance are mediated by efciency and innovative adaptations.
3.1. Human resources and relations
Dened broadly, human capital includes both human resources and human relations. Human resources (or employee talent)
for an organization include the task-relevant skills and experience of the members. Potential indicators of human resources include
the level of relevant skills, experience, and education of employees. There is considerable evidence that the acquisition and
retention of human capital have a stronger impact on business results than was previously recognized. Talented employees with
unique knowledge and skills are increasingly being viewed as a valuable asset and a source of competitive advantage (Adner &
Helfat, 2003; Barney, 1998; Collins, 2001; Grant, 1996; O'Toole & Lawler, 2006; Pfeffer, 2005).
Human relations include organizational commitment, identication with the organization, mutual trust and cooperation, and
optimism about the future. Although conceptualized primarily at the organizational level for FLT, similar constructs are used in
dyadic and group level theories of effective leadership. Measures of individual attitudes can be aggregated to provide a measure of
the organizational level construct (assuming adequate rater agreement). Many studies have found that leaders can inuence
employee optimism, organizational commitment, collective identication, and mutual cooperation (e.g., Bass, 1990; Chen & Bliese,
2002; Mumford, Scott, Gaddis, & Strange, 2002; Zaccaro, Rittman, & Marks, 2001).
Most effects of human capital on rm performance are mediated by efciency and innovative adaptation. Employees with
strong skills and motivation are likely to be more productive, because they will do the work faster and smarter. Research shows that
talented employees can improve efciency and process reliability (e.g., Hatch & Dyer, 2004; Ichniowski & Shaw, 1999). Talented
employees can also improve adaptation by helping to develop innovative products and services, by marketing them effectively, and
by providing excellent customer service (Baer & Frese, 2003; Pfeffer, 1998; Vermeulen, Jong, & O'Shaughnessy, 2005).
3.2. Conditions affecting the importance of human capital
Proposition 5. The importance of human capital for an organization depends on its need for highly skilled employees, and the
availability and cost of necessary employees.
Because efciency and adaptation mediate the effects of human resources and relations on rm performance, the importance of
human resources and relations increases when talented, dedicated employees are needed to achieve optimal levels for these other
two performance determinants. Human resources are more important when operations are labor intensive, the work is complex
and difcult to learn, successful performance requires a high level of skill and experience, and it is difcult to recruit and train
competent replacements for people who leave. Examples of organizations likely to have such conditions include hospitals,
consulting rms, law rms, advertising agencies, research universities, and companies that rely on advanced manufacturing
technology (Snell & Dean, 1992).
Human resources and relations are very important when the competitive strategy requires unique experts or celebrities to
attract and retain customers (Grant, 1996; Pennings et al., 1998). If unusually talented employees are dissatised, they can often
nd jobs in competing companies or start their own company. Voluntary turnover of key employees can be important not only for
the loss of unique skills, but also for the loss of their special external relationships with clients, suppliers, strategic partners, and
others (Dess & Shaw, 2001; Leana & Van Buren, 1999; Pennings et al., 1998). Examples of organizations with high dependence on
uniquely talented members include professional sports teams, advertising agencies, talent agencies, consulting companies, and
investment banking rms.
Human relations and resources are less important when much of the work can be done by unskilled workers, there are many
people who are able and willing to do simple repetitive work for low wages and benets, and there are few labor laws or other
limitations on how employees are treated (as in many third-world countries). Likewise, human resources and relations are less
important when an organization needs few employees except for the headquarters staff (e.g., a chemicals company with highly
automated processes, an internet services company, or a virtual organization for which nearly all functions are outsourced).
4. Inuence of leaders on the performance determinants
Leaders can improve the performance of an organization by inuencing the performance determinants. One form of inuence is
the use of specic leadership behaviors in interactions with subordinates, peers, and outsiders. A second form of inuence involves
decisions about management programs and systems, and organizational structure. A third form of inuence involves decisions
about the competitive strategy for the organization. The three forms of inuence must be used together in a consistent way for
effective strategic leadership.
4.1. Leadership behaviors
Proposition 6. The performance determinants can be enhanced by relevant task-oriented, relations-oriented, and change-oriented
leadership behaviors.
In decades of research on leaders and managers, many types of behaviors have been identied (Bass, 1990; Yukl, 2006). A
difcult challenge for scholars has been to organize the many specic behaviors into a hierarchical taxonomy that is meaningful in
terms of the effects of the behaviors. A distinction between task-oriented and relations-oriented behaviors was popular in the early
leadership literature (e.g., Blake & Mouton, 1982; Fleishman, 1953), and researchers later found that change-oriented behavior was
another distinct meta-category (Ekvall & Arvonen, 1991; Yukl, Gordon, & Taber, 2002). The three types of leader behavior each have
a different primary objective, and the objectives align with the three determinants of organizational effectiveness. Task-oriented
behaviors are most useful for improving efciency, change-oriented behaviors are most useful for improving adaptation, and
relations-oriented behaviors are most useful for improving human resources and relations. All three general types of leadership
behavior have implications for organizational effectiveness.
Task-oriented behaviors include short-term planning and scheduling of work activities, determining resource and stafng
requirements, assigning tasks, clarifying objectives and priorities, emphasizing the importance of efciency and reliability, directing
and coordinating activities, monitoring operations, and dealing with day-to-day operational problems. Task-oriented behaviors are
used to improve productivity and reduce costs by eliminating unnecessary activities, duplication of effort, wasted resources, errors,
and accidents. Extensive research using survey questionnaires, critical incidents, observation, and experiments show that task-
oriented behaviors can enhance the performance of individual subordinates and small groups (see Bass, 1990; Yukl, 2006).
Relations-oriented behaviors include showing support and positive regard, providing recognition for achievements and
contributions, providing coaching and mentoring, consulting with people about decisions that will affect them, delegating and
empowering subordinates, encouraging cooperation and teamwork, and building a network of information sources inside and
outside the organization. Decades of research show that relations-oriented behaviors by leaders are related to higher job
satisfaction and lower turnover (see Bass, 1990; Yukl, 2006). Relations-oriented behaviors can reduce stress, build mutual trust and
cooperation, increase collective identication with the team or organization, and facilitate performance by individuals and teams
(see Bass, 1990; Zaccaro et al., 2001).
Change-oriented behaviors include monitoring the environment to identify threats and opportunities; interpreting events and
explaining why major change is needed; articulating an inspiring vision; taking risks to promote change; building a coalition of
supporters for a major change; and determining how to implement a new initiative or major change (Yukl, 2006). Studies on
change-oriented aspects of transformational leadership such as inspirational motivation (vision articulation) and intellectual
stimulation (encouraging innovative thinking) show that this type of behavior can enhance individual and team performance (see
Lowe et al., 1996). Research on the determinants of creativity and innovation provides additional evidence for the relevance of
change-oriented leadership (Mumford et al., 2002; Reiter-Palmon & Illies, 2004; Shalley & Gilson, 2004). Leaders can also enhance
innovative adaptation by encouraging and facilitating collective learning, diffusion of knowledge, and the application of new ideas
in the organization (James, 2002; Senge, 1990; Vera & Crossan, 2004).
The change-oriented behaviors are especially relevant for top executives (e.g., Jacobs & Lewis, 1992; Katz & Kahn, 1978;
Mintzberg, 1973). Several recent survey studies found evidence of a relationship between CEO transformational or charismatic
leadership and indicators of company nancial performance (Jung, Chow, & Wu, 2003; Tosi, Misangyi, Fanelli, Waldman, &
Yammarino, 2004; Waldman, Ramirez, House, & Puranam, 2001; Waldman, Javidan, & Varella, 2004). Other evidence for the
relevance of change-oriented behavior of top executives is provided by intensive case studies of successful change efforts in
organizations (e.g., Beer, 1988; Beer & Nohria, 2000; Gabarro, 1987; Ghosn & Ries, 2005; Hambrick et al., 1998; Kotter & Cohen,
2002), and by studies on the inuence of CEO visions on company performance (e.g., Baum, Locke, & Kirkpatrick, 1998; Nanus, 1992).
A leader's behavior can inuence more than one performance determinant at the same time. For example, consulting with team
members about the action plan for a new project may increase member commitment (human relations), improve the use of
available personnel and resources (efciency), and identify more innovative ways to satisfy the client (adaptation). Sometimes the
side effects of leader behaviors on another performance determinant are negative rather than positive. For example, empowering
employees to make decisions about how to do the work may increase their motivation and satisfaction (better human relations),
but if employees are focused on improving customer service, the number of customers handled by each employee may decline
(lower efciency).
4.2. Management programs, systems, and structures
Proposition 7. The performance determinants can be enhanced by relevant management programs, systems, and structural forms.
Many different types of improvement programs, management systems, and structural forms can be used to inuence the
performance determinants and organizational effectiveness (Yukl & Lepsinger, 2004). CEOs and leaders of major subunits usually
have more authority than lower-level managers to implement or modify management programs, systems, and structural forms
(Hambrick et al., 1998; Hunt, 1991). Top management has the primary responsibility for determining what programs are relevant
and mutually compatible, but a coordinated effort by leaders at all levels in the organization is necessary to ensure that a program
or management system is effectively implemented.
Relevant programs, systems, and structural forms can improve efciency and process reliability (e.g., Benner & Tushman, 2003; Ho,
Chan, & Kidwell, 1999; Lawler, Mohrman, & Benson, 2001; Powell, 1995; Waterson et al., 1999). Examples of programs used to improve
efciency include cost reduction programs (downsizing, outsourcing, just-in-time inventory), process and quality improvement
programs (total quality management, Six Sigma, business process reengineering); performance management and goal setting
programs (e.g., management by objectives, zero defects); and appraisal, recognition, and reward systems that emphasize efciency and
reliability. Management programs involving standardized procedures provide a way to ensure that common activities are carried out in
an efcient and uniform way across subunits. Efciency is also affected by aspects of an organization's formal structure such as
formalization, standardization, and the use of functionally specialized subunits (Mintzberg, 1979).
Relevant programs, systems, and structural forms can improve innovation and adaptation (e.g., Damanpour, 1991; Dougherty &
Hardy, 1996; Gibson & Birkinshaw, 2004; Powell, 1992; Teece, 1996; Van de Ven, Poley, Garud, & Venkataraman, 1999; Vermeulen
et al., 2005; Waterson et al., 1999). Several types of programs and processes can be used to support collective learning and diffusion
of new knowledge in the organization (e.g., James, 2002; Yeung, Ulrich, Nason, & Von Glinow, 1999). For example, linkage analysis
can be used to help managers visualize the complex processes of change and nd ways to ensure that local changes have benecial
effects for the overall organization (Goodman & Rousseau, 2004). A variety of programs can be used to encourage and facilitate
development of new products and processes (e.g., innovation goals and incentives). Adaptation is also facilitated by programs and
systems that improve understanding of customer preferences and competitor actions (e.g., market surveys, focus groups, customer
panels, comparative product testing, and benchmarking of competitor products and processes). Structural forms that can facilitate
innovation and adaptation include research and development departments, cross-functional product development teams, product
managers, and semi-autonomous divisions based on products, market segments or different types of customers (Galbraith, 1973;
Mintzberg, 1979).
Many types of management programs and systems are used to improve human capital (e.g., Becker & Gerhardt,1996; Guzzo, Jette, &
Katzell,1985; Huselid,1995; Huselid et al.,1997; Ichniowski & Shaw,1999; Kirkman & Rosen,1997; Lawler et al., 2001; Molina & Ortega,
2003; Singh, 2003). Human resources can be improved with recruiting and selection programs, talent management and succession
planning programs, and employee development programs (e.g., training, mentoring program, 360 feedback, education subsidies,
corporate university). Human relations can be improved with quality of work life programs (extime, job sharing, child care, tness
center), employee benet programs (compensation, health care, retirement, sabbaticals), socialization programs (orientation sessions;
celebrations, rituals and ceremonies), employee empowerment programs (self managed teams, employee stock ownership, industrial
democracy), and recognition and reward programs based on loyalty, service, and skill acquisition.
Despite some dramatic successes, many improvement program and management systems fail because they are irrelevant, poorly
implemented, or incompatible with the organization's culture and competitive strategy (Abrahamson, 1996; Abrahamson & Fairchild,
1999; Beer, 1988; Benner & Tushman, 2003; Carson, Lanier, Carson & Guidry, 2000; Powell, 1995; Staw & Epstein, 2000). Management
programs and systems often have side effects for other performance determinants besides the one that is the primary target. Even if a
program is able to improve the targeted performance determinant, adverse side effects may cause it to be abandoned.
4.3. Joint effects of leader behaviors and formal programs
Proposition 8. The positive effect of programs, systems, and structural forms on a performance determinant is enhanced by relevant
leader behaviors.
Proposition 9. The positive effect of leadership behaviors on a performance determinant is enhanced by relevant programs, systems,
and structural forms.
Proposition 10. Relevant programs, systems, and structural forms reduce the need for some types of leadership behaviors.
The two different approaches for inuencing performance determinants are complementary rather than mutually exclusive
(Barley & Tolbert, 1997). The direct behaviors can be used to facilitate the implementation of management programs or systems
and their successful use (Zhu, Chew, & Spangler, 2005). Improvement programs and major change initiatives seldom succeed
without strong support by top management and middle management (e.g., Douglas & Judge, 2001; Kotter, 2002; Nadler et al.,
1995). Examples of facilitating behaviors include explaining why a new program or system is needed, planning how to implement
it, and guiding the change process. For example, a new training program will be more successful in improving employee skills if
managers encourage subordinates to attend the program and provide opportunities for them to use newly learned skills on the job.
Management programs and systems can enhance the effects of direct leadership behaviors. For example, encouraging
innovative thinking (called intellectual stimulation in transformational leadership theory) is much more likely to increase
innovation when an organization has a program to facilitate innovation, a climate of psychological safety for risk taking, and
appropriate rewards for creative ideas about improving products and processes. In their absence, employees may doubt that
innovative ideas about products or processes will be supported and eventually adopted by the organization. Programs and
structures can also limit the use of leadership behaviors or nullify their effects. For example, it is difcult to empower subordinates
when they must follow elaborate rules and standard procedures for doing the work (Spreitzer, 1996). Management programs and
systems can also serve as substitutes for some types of direct behaviors (Kerr & Jermier, 1978). For example, company-wide training
programs can reduce the amount of training that managers need to provide to their immediate subordinates.
Over a period of time the corporate culture can be inuenced by the joint effects of leader behaviors and management programs
(Schein, 1992; Trice & Beyer, 1991; Tsui, Zhang, Wang, Xin, & Wu, 2006). The culture of an organization includes shared values and
beliefs about its primary mission and purpose, the essential qualities of its products and services, and how members should be treated
(Schein, 1992). Leaders can inuence the culture with behaviors such articulating a compelling vision, leading by example, and the use
of symbols, rituals, ceremonies, and stories. Corporate culture is also inuenced by management programs and systems involving
employee selection, socialization, training, performance appraisal, and rewards. A strong corporate culture can facilitate
organizational performance if the shared beliefs and values are consistent with the strategy necessary to adapt to the external
environment (Barney, 1986; Camerer & Vepsalainen, 1988; Dennison, 1990; Detert et al., 2000; Gordon & DiTomaso, 1992; Kotter &
Heskett, 1992). Once a strong, relevant culture is established, it can serve as another substitute for direct action by individual leaders.
4.4. Decisions about competitive strategy
Proposition 11. Decisions about competitive strategy can affect the relative importance of the performance determinants and the
difculty of keeping them at optimal levels.
Competitive strategy includes the types products or services to offer, the basis for appealing to potential customers (e.g., price,
quality, customer service, uniqueness, patriotism), the methods used to inuence potential customers or clients (e.g., advertising,
discounts, promotions), and approaches to grow the organization and expand into new markets (e.g., acquisitions, mergers, joint
ventures, franchises). Competitive strategy also includes external initiatives such as acquisitions, mergers, strategic alliances, joint
ventures, and partnering with suppliers. The formulation and revision of competitive strategy is an especially important source of
inuence on organizational performance (Adner & Helfat, 2003; Hambrick & Mason, 1984; Porter, 1996).
Top management usually has primary responsibility for decisions about competitive strategy in business rms. However, the
amount of discretion the CEO and other top executives have for making major changes in the strategy, structure, and membership
of the organization depend on aspects of the situation such as the type of organization, its ownership, the relative power of
different stakeholders, and constraints imposed by economic and market conditions (Hambrick & Finkelstein, 1987). There is less
discretion when the CEO must satisfy a dominant owner (e.g., the organization is a family-owned rm or the subsidiary of another
rm), answer to an independent board of directors, satisfy strong external stakeholders (e.g., banks, regulatory agencies,
institutional investors, labor unions), and comply with legal requirements and restrictions (e.g., product quality and warranties,
employee compensation and job security, working conditions and safety provisions). Discretion is greater when surplus nancial
reserves are available to fund new ventures, or the rm's prosperity and reputation make it easy to nance innovations by
borrowing funds.
Decisions about competitive strategy affect the relative importance of the performance determinants and their optimal level.
The primary focus of strategy is on adaptation, but the interdependence among performance determinants makes it difcult to
improve adaptation unless consistent changes are made in efciency and human capital. For example, the decision to offer lower
prices as the primary basis for increasing sales and prots may require a reduction in the cost of operations (e.g., by using improved
technology, by using less expensive materials, by reducing the pay and benets of current or newly-hired employees, or by
outsourcing high paying jobs to low wage countries). The decision to provide more unique products or improve customer service
may make it necessary to retrain current employees or to recruit more skilled employees.
Strategy formulation is facilitated by the use of specic leadership behaviors such as monitoring the external environment,
assessing threats and opportunities, identifying core competencies, and evaluating alternative strategies. Some types of programs
and systems for monitoring the external environment provide additional information necessary to identify an appropriate strategy
for the organization. Several leadership behaviors can be useful for implementing a new strategy or major change (Yukl, 2006).
Examples include inspiring enthusiasm for it, building a coalition of supporters, identifying competent change agents, forming task
forces to plan and guide major changes, and monitoring the change processes to ensure adequate progress is maintained.
Implementing a new strategy usually requires some modications of management programs, systems, and structures in the
organization, and it may also involve negotiation of new agreements with other organizations (e.g., clients, distributors, suppliers,
strategic partners).
5. Tradeoffs and synergies
Efforts to improve one performance determinant may have an adverse effect on another performance determinant, and
sometimes the net effect is to reduce organizational effectiveness instead of increasing it. Furthermore, the potential benets from
using several different programs or systems may not be realized unless they are compatible. For example, an inadequate
compensation system can undermine the potential benets from an intensive training program to enhance employee skills if many
of the newly-trained employees subsequently leave to take better paying jobs in other companies. Insights about potential
tradeoffs and possible remedies are provided by the literature on strategic management, organization theory, and organizational
change (e.g., Beer, 2001; Ebben & Johnson, 2005; Eisenhardt & Tabrize, 1995; Miller, 1990; Quinn, 1988; Quinn & Rohrbaugh, 1983;
Smith & Tushman, 2005; Stacey, 1992; Sutcliffe, Sitkin & Browning, 1999; Tushman & O'Reilly, 1996; Tushman & Romanelli, 1985).
Proposition 12. Management programs and systems have a stronger positive effect on organizational performance when they are
mutually consistent, enhance more than one performance determinant, and minimize negative side effects.
Proposition 13. Leaders who understand the complex relationships among performance determinants and the reasons for tradeoffs
and synergies are more effective in their decisions and actions.
5.1. Efciency vs. adaptation
Efforts to improve efciency can reduce innovative adaptation. Efciency can be increased by rening work processes,
establishing norms and standard procedures, investing in specialized personnel, facilities, or equipment, organizing around the
strategy, and implementing process management systems and programs. However, these practices tend to reduce exibility and
make it more difcult to change strategies and work processes in response to environmental threats and opportunities (Benner &
Tushman, 2003; Grinyer & McKniernan, 1990; Miller, 1990; Miller & Friesen, 1984; Sterman, Repenning & Kofman, 1997). When
efciency is the dominant concern, leaders tend to focus effort and resources on rening the existing strategy rather than in
discovery of new approaches. Opportunities may be overlooked until long after they are feasible to exploit. Emerging threats may
be ignored or discounted until they are nally so serious that it will be more difcult and costly to deal with them.
Conversely, efforts to improve adaptation often result in a period of lower efciency before any benets are realized (Lord &
Maher, 1991). Many programs and initiatives used to enhance innovative adaptation require a costly initial investment (e.g.,
research and development programs, installation of new technology, construction of new facilities, acquisition of another
company, extensive advertising and discounts). Major changes often involve a period of difcult adjustment and relearning by
individuals and groups, which is another reason for a temporary reduction in efciency.
5.2. Efciency vs. human capital
Efforts to improve human resources and relations may reduce efciency. Providing a high level of compensation and benets
will increase member satisfaction and willingness to remain in the organization, but it is difcult to remain efcient if the
organization is overly generous about allocating resources for the personal benet of members. To achieve high efciency, the
organization must avoid unnecessary costs for lavish salaries and benets, luxurious working conditions, or unproductive people.
Conversely, some approaches for improving efciency may have an adverse effect on human relations and resources. Cutting
spending on salaries and benets may seriously reduce organizational commitment and increase voluntary turnover of skilled
employees. A downsizing program that involves early retirement of experienced older employees can result in a serious decline in
essential expertise and tacit knowledge, and there is likely to be less satisfaction and commitment for the remaining employees
(Hoskisson & Hitt, 1994). Extensive rules and procedures and elaborate control mechanisms (e.g., quality inspectors, television
cameras in the workplace, monitoring of telephone conversations and email messages) may reduce errors and wasted time but
undermine employee commitment and job satisfaction.
5.3. Innovation vs. human capital
Efforts to improve adaptation may have a negative side effect on human relations. Successful adaptation to a changing,
environment usually requires a substantial investment of resources diverted from other uses. The changes necessary to deal with
an economic crisis for the organization may leave fewer resources available to satisfy the individual needs of members. In this
situation, leaders must ask for sacrices and make unpopular changes that affect members. When leaders are preoccupied with
responding to external threats, there is less time for people-oriented concerns such as being supportive and developing member
skills other than those directly relevant for the change. There will be less tolerance of people who lack the competencies or
commitment necessary to implement necessary changes.
Major change is likely to be very stressful for members of the organization. There will be signicant effects on roles,
relationships, power, and status. People may be uprooted and moved to different locations. Important aspects of the old culture
may be lost. Expertise that was important may become irrelevant. If the change is not considered necessary or appropriate, there
will be attempts to reverse or delay it. Controversial changes will increase conict, distrust, and dysfunctional political activity.
Even when change is not actively resisted, the disruptive effects of implementing a major change can undermine commitment to
the organization and increase turnover among members who have more attractive options for employment.
Conversely, efforts to improve human relations may have negative side effects on adaptation. When the organization uses a
large proportion of its surplus funds to improve compensation and benets for members, there will be less investment in activities
that promote future adaptation, such as research and product development. When there is a high priority for protecting member
privileges, benets, and job security, necessary steps to implement major change successfully may be avoided. For example, the
organization may be unwilling to reassign or dismiss members who have become obsolete, or who refuse to accept the changes.
5.4. Synergies and ambidexterity
Leaders who understand the complex relationships and recognize potential tradeoffs and synergies can often nd ways to avoid
negative side effects and enhance more than one performance determinant at the same time. The term ambidexterity is
sometimes used to describe rms that are able to simultaneously achieve high levels of efciency and exible adaptation (Gibson &
Birkinshaw, 2004; Tushman & O'Reilly, 1996).
One way to achieve ambidexterity is through the effective use of human resources. A good example is provided by Costco, a
chain of warehouse retail stores. Costco pays higher wages and benets than competitors, and it has one of the most loyal and
productive work forces in the retailing industry. The cost savings from lower turnover and the increased revenue from higher sales
per employee more than offset the cost of providing better compensation, and the result is that Costco has higher prots than
competitors (Holmes & Zellner, 2004).
Two different learning processes are useful for achieving ambidexterity (e.g., Benner & Tushman, 2003; He & Wong, 2004;
Holmqvist, 2004; March, 1991). Exploitation is renement of existing approaches through incremental improvements, and
exploration is the discovery of new approaches. Exploitation is more relevant for improving efciency, and exploration is more
relevant for improving adaptation, but both types of learning can be used to improve all three performance determinants. Top
executives can encourage both types of learning by their selection of relevant programs and systems, and by building a corporate
culture with appropriate values (e.g., James, 2002; Miron et al., 2004; Vera & Crossan, 2004; Yeung et al., 1999).
6. Distributed leadership
In much of the literature on strategic leadership there is an implicit assumption that the fate of an organization depends
primarily on the decisions and actions of a single heroic leader such as the CEO (Meindl, Ehrlich, & Dukerich, 1985). This
assumption is unrealistic, because organizations have multiple leaders who can inuence important decisions and determine if
they will be implemented successfully (McCall & Kaplan, 1985; Mintzberg et al., 1976; Schweiger, Anderson, & Locke, 1985). It is
only through cooperation and coordinated action that these leaders are able to achieve a high level of nancial performance for
their organization. The term distributed leadership has been used to describe leadership processes in an organization that
involve multiple leaders with overlapping but different responsibilities (Gronn, 2002; Yukl, 2006). To understand how leaders can
inuence the performance of an organization, it is helpful to examine the inuence processes and relationships among leaders at
different levels and across different subunits.
6.1. Cooperation and coordination across management levels
Proposition 14. The collective inuence of leaders at different levels in the organization is greater when their decisions are mutually
consistent and coordinated.
Proposition 15. The performance of an organization is better when the inuence of middle and lower-level leaders on important
decisions is commensurate with their unique, relevant knowledge.
If managers at different levels make decisions that are incompatible, the performance of an organization is likely to suffer. The
difculty of achieving effective cooperation and coordination across levels has received much less attention in the leadership
literature than in the management and organization change literature. Leadership scholars usually assume that strategic decisions
are made by the CEO and inuence cascades down the authority hierarchy as managers at each level interact with their own
subordinates (e.g., Yammarino, 1994). However, the research on organizational change and strategy implementation nds that
major changes initiated by top executives often elicit strong resistance by managers at middle and lower levels, and without their
support a change effort is likely to fail (Beer, 1988; Beer, Eisenstat, & Spector, 1990). Even in organizations with a powerful CEO,
prolonged conict about the CEO's vision or competitive strategy can prevent it from being implemented effectively (Connor, 1995;
Kotter, 2002; Robbins & Duncan, 1988). A charismatic CEO can polarize people by creating strong opponents as well as strong
supporters, and the resulting conicts are likely to prevent successful implementation of new strategies (Bass, 1985).
Resistance by managers at different levels may stem from disagreement about the nature of external threats and opportunities,
the reasons for past success or failure, the priorities for different objectives, and the feasibility of alternative strategies. A good
understanding of these diverse perceptions is needed to identify a vision or strategy that will elicit sufcient cooperation and
commitment. Moreover, top executives do not have a monopoly on relevant information or ideas, and innovative changes in
organizations often originate from lower levels (Marion & Uhl-Bien, 2001). There are several ways top management can increase
the involvement of middle and lower-level managers in making important decisions (Denis, Lamothe, & Langley, 2001; Galbraith,
1973; Sundaramurthy & Lewis, 2003). Managers at different levels can be invited to participate in face-to-face or virtual meetings
about strategic decisions. Task forces with representatives from different levels can be formed to develop a new initiative or
determine what types of changes are necessary. Relevant programs and systems can be used to encourage and support proposals
from lower-level managers for improving efciency, adaptation, and human relations.
Even when a strategic decision is initiated by top executives, it is usually worthwhile to involve middle and lower-level managers
in planning how to implement the decision (Wai-Kwong, Priem, & Cycyota, 2001). Meaningful participation by people who have
unique and relevant expertise can increase decision quality as well as commitment to implement decisions successfully (Vroom & Jago,
1988). Special task forces or committees can be used to facilitate participation of middle and lower-level managers in planning how to
implement major change. If subunits are not highly interdependent, the managers should be allowed considerable discretion in
determining how to implement a major change or new program in their own subunits (Beer, 1988; Huy, 2002).
6.2. Lateral differentiation and integration
Proposition 16. Top executives have a stronger positive inuence on the performance of their organization when they cooperate and
nd integrative solutions to disagreements and tradeoffs involving the performance determinants.
Proposition 17. Highly differentiated leadership roles for executives increase the difculty of nding integrative solutions for tradeoffs
involving the performance determinants.
Proposition 18. Top executives are more likely to nd integrative solutions for improving rm performance if they have shared values
and shared mental models that are relevant for understanding the causes of performance.
The need for coordination and cooperation among executives is greater when the major subunits of an organization are highly
interdependent but also highly differentiated with regard to their function or objectives (Galbraith, 1973; Lawrence & Lorsch,
1969). Differentiated subunits increase the amount of attention and effort devoted to each function and reduce cognitive overload
for individual subunit managers, but differentiation often increases conicts and communication barriers. The leaders of
specialized subunits in an organization often have different assumptions, knowledge, and priorities with regard to the
performance determinants, and their decisions are often biased by their unique perspective. For example, the decision by a
marketing manager to promote sales of customized products is inconsistent with the decision by a manufacturing manager to
purchase equipment for increased production of standardized products. The decision by a marketing manager to initiate an
expensive campaign designed to increase sales of a current product is inconsistent with the decision by a product development
manager to quickly roll out a new product that would make the current one obsolete.
Top management teams often include executives with specialized roles related to the performance determinants (Edmondson,
Roberto, & Watkins, 2003; Pettigrew, 1992). In a manufacturing company with functional specialization for major subunits, primary
responsibility for adaptation may reside in the marketing VP and the VP for research and product development. Primary responsibility
for efciency and cost containment may reside in the VP for operations, the chief operating ofcer (COO), and the chief nancial ofcer
(CFO). Primary responsibility for human resources and relations may reside in the VP for human resources. If there is no advocate for a
performance determinant in the top management team, it may not receive adequate consideration in strategic decisions.
A rm's performance depends in part on how well top executives deal with subunit competition and disagreements about
objectives and priorities (Edmondson et al., 2003; Smith & Tushman, 2005). It is important for each executive to understand the
complex interdependencies that determine the consequences of strategic decisions for other executives and for the overall
organization. When members of the top management team have differentiated roles, the CEO may have primary responsibility for
achieving integration, and it can be facilitated with the use of appropriate decision processes (Edmondson et al., 2003). An
alternative approach is to make the entire team responsible for integration. The facilitating conditions and essential processes for a
leader centric or team centric approach are described by Smith and Tushman (2005).
Making strategic decisions jointly is more likely to yield high quality decisions if the executives have an accurate, shared
mental model about the determinants of organizational performance (Cannon-Bowers, Salas, & Converse, 1993; Klimoski &
Mohammed, 1994; Senge, 1990). Mental models include assumptions, perceptions, and beliefs about the determinants of
organizational performance, their relative importance, and how they can be inuenced to improve performance. More accurate
models can be developed by explicit discussion of differences among executives in how they view the world, by improving
measures and information systems (to ensure accurate, relevant, timely information about key variables), and by conducting
experiments on the effects of different types of changes and improvement programs (Senge, 1990).
It is difcult to achieve cooperation and coordination across levels and subunits in an organization unless the managers have
shared ideals and values to guide their decisions. Companies with a strong, relevant core ideology are more likely to survive and
be successful over a long period of time (Collins & Porras, 1997). A primary responsibility of top management is to ensure that the
organization has a relevant core ideology, but leaders at all levels must help to build support for the core ideology and ensure it is
understood and used to guide daily actions.
7. Concluding comments
To survive and prosper in today's turbulent, uncertain environment, organizations need leaders who are exible and adaptive.
These leaders must be able to understand the complex relationships among performance determinants and recognize what can be
done to inuence them in a benecial way. Top executives must be prepared to modify their leadership behavior, the competitive
strategy, and the formal programs and structures to meet the challenges that confront them in an increasingly turbulent and
uncertain environment. By clarifying how leaders can inuence and improve organizational effectiveness, the new leadership
theory offers several benets to scholars and practitioners. These benets, potential extensions of the theory, and
recommendations for future research are discussed in this nal section.
7.1. Benets for scholars and practitioners
For scholars, FLT provides a way to integrate ideas from diverse literatures, including leadership, human resource management,
strategic management, change management, and organization design. FLT bridges the gap between the leadership and
management literatures, and between micro theories of interpersonal inuence and macro theories of organizational effectiveness
and change. The effects of direct leader behaviors, management systems, and decisions about competitive strategy cannot be
understood if examined in isolation. Effective strategic leadership by top executives requires a consistent and appropriate
combination of these different ways of inuencing the performance determinants.
Some scholars dene leading and managing as distinct roles, but there is considerable disagreement about the appropriate
denitions and the relative importance of the two roles (Bennis & Nanus, 1985; Hickman, 1990; Kotter, 1990; Mintzberg, 1973; Rost,
1991; Yukl & Lepsinger, 2005; Zaleznik, 1970). Managing and leading are usually dened very narrowly in terms of the
performance determinants and how they can be inuenced. Overly narrow denitions impede progress in understanding that
efforts to inuence the performance determinants must be coordinated and mutually consistent. The two roles could be redened
to reect this interdependence, but a better alternative may be to identify three inter-related roles that correspond to the three
performance determinants, and perhaps a fourth role that involves efforts to facilitate integration among the other three roles.
Despite the differences between FLT and leadership theories that emphasize interpersonal or group processes (e.g., transformational
leadership, leader-member exchange), they are complementary rather than competing perspectives. The psychological and
interpersonal processes emphasized in these other leadership theories can be used to explain some of the relationships described in
FLT, especially the effects of leader behavior on subordinate attitudes and commitment. The organizational processes and situational
variables in FLT can be used to help clarify the context for which the dyadic theories are most relevant, and their limiting conditions.
The emphasis in FLT on nding synergistic ways to inuence the performance determinants is consistent with the growing
interest of management scholars in understanding paradoxes and competing objectives in organizations (Brown & Eisenhardt,
1998; Ebben & Johnson, 2005; Leana & Barry, 2000; Lewis, 2000; Quinn, 1988; Sundaramurthy & Lewis, 2003). The complex causal
relationships and systems dynamics in FLT are also consistent with the growing interest in complexity theory and systems theory
as perspectives for understanding leadership in organizations (e.g., Brown & Eisenhardt, 1998; Gharajedaghi, 1999; Marion & Uhl-
Bien, 2001; Osborn et al., 2002). FLT is not a complexity theory of leadership, but it appears to be complementary in many respects
with them.
The theory is relevant for all types of leadership positions, but it is especially useful for CEOs, top management teams, and
managers of subunits organized as prot centers. The importance of efciency, human resources, and adaptation may seem
obvious, but many business failures and derailed management careers involve a lack of understanding and appreciation of these
performance determinants and their complex interdependencies. Even though there is no simple formula for leadership success,
FLT provides a mental model to remind executives that organizational effectiveness depends on all three performance
determinants, and any attempt to change one of them is likely affect the others as well. The theory also makes it clear that
executives have many alternative ways to inuence the performance determinants, and it is important to select methods that are
relevant and mutually consistent. The theory does not attempt to specify strategy content, but it can be helpful in determining
what changes are necessary to implement a proposed strategy. Finally, the theory reminds CEOs that rm performance requires a
cooperative effort by many managers, not just the heroic actions of a single leader.
7.2. Potential extensions of FLT
The theory was conceptualized primarily at the organizational level, but as mentioned earlier it could be extended to include
more explicit treatment of psychological and interpersonal processes. This extension would explicitly incorporate relevant aspects
of dyadic leadership theories (e.g., transformational leadership, leader-member exchange), including the mediating processes
involved in explaining how leader behaviors inuence subordinate motivation and commitment. FLT emphasizes collective
leadership processes rather than individual leaders, but the theory could be extended to include traits and skills relevant for
understanding complex systems, building social networks, working effectively in teams, and nding integrative solutions to
disagreements. Previous research has identied differences in the types of skills relevant for top executives, middle managers, and
lower-level managers leaders, and for strategic leadership in different situations (e.g., Jacobs & McGee, 2001; Jacques, 1989;
Mumford, Campion, & Morgeson, 2007). Relevant skills include cognitive complexity, systems thinking, situational awareness,
ability to learn, social intelligence, emotional intelligence, behavioral exibility (Boal & Hooijberg, 2000; Yukl, 2006; Zaccaro,
Gilbert, Thor, & Mumford, 1991). Personality traits and values (e.g., integrity, emotional maturity, socialized need for power) are
also relevant for effective, ethical leadership (see Yukl, 2006).
The FLT emphasizes linear, unidirectional causality, but it is obvious that reciprocal and circular causality occurs as well. For
example, leadership decisions and actions are affected by feedback about the level of the performance determinants and overall
performance of the rm. Such feedback provides information about the effects of earlier decisions and actions, and it is another
source of information about the effects of the external environment. The FLT emphasizes hierarchical leadership but does not
exclude emergent processes such as bottomup change in an organization. For example, front-line managers who are close to
customers may perceive the need for revising the strategy before it is obvious to top management, and they may be successful in
initiating the changes in the organization. Reciprocal causality and emergent change processes are described in systems models
and complexity theories of leadership (e.g., Brown & Eisenhardt, 1998; Marion & Uhl-Bien, 2001), and FLT can be extended to
incorporate these features in a more explicit way.
The theory applies to business rms, but with some relatively minor modications it can be extended to include non-prot and
public sector organizations. One necessary change would involve the measures of effectiveness and adaptation. For a non-prot
organization (e.g., museum, hospital, charity) the indicators of adaptation would probably include its reputation and the amount of
funds received from donations in addition to revenue from the sale of products or services. Organizational effectiveness for a non-
prot or public sector organization might be the extent to which it provides valuable social and economic benets to society at an
acceptable cost, as well as the value of its assets and its long-term survival as an institution. It should be noted that social
responsibility is also relevant for assessing the effectiveness of business rms, and including it would make explicit the potential
tradeoffs between nancial and social objectives.
7.3. Recommended research
FLT is consistent with ndings in many empirical studies of leadership and organizational effectiveness over the past half century,
and with preliminary results from some recent tests of the theory. Nevertheless, some of the propositions have yet to be tested,
and other propositions need to be veried by research that is designed to directly test the theory. A broader systems approach is needed
to assess the overall theory and identify independent effects, mediating processes, and complex interactions. In particular, there is
need for more research on how to use leadership behaviors, management programs and systems, structural forms, external initiatives,
and competitive strategies in compatible ways. As yet there has been little research on distributed leadership, and studies are needed to
explore the collective, interactive effects of multiple leaders on the performance determinants.
Theories of strategic leadership usually involve causal processes that take place over a period of months or years, and
longitudinal research is needed to test this type of theory (Bertrand & Schoar, 2003; Mitchell & James, 2001). Most decisions and
actions of top executives have a delayed effect on the performance determinants, which in turn have a delayed effect on
organizational effectiveness. For example, implementing relevant new training and mentoring programs will improve human
resources and relations, which will result in better efciency or innovative adaptation, which will result in better rm performance.
In some cases leader decisions have a short-term effect that is different from the longer-term effect (e.g., a temporary decline in
efciency is followed by a larger increase in efciency). Here again the accurate assessment of leader inuence will require
repeated measurement over an appropriate period of time.
Longitudinal research is also needed to deal with overlapping constructs that involve reciprocal causality over time. For
example, the decisions and actions of top executives are a component of leadership, but they are determined in part by leader skills,
which are components of human resources. Moreover, leadership processes include decisions about selection, development,
assessment, and succession planning, and these decisions can improve skills for the organization's future leaders. Organizational
culture is another example of a construct involving reciprocal causality. The culture inuences leader decisions and actions in the
short-term, but it is inuenced by leaders over a longer period of time (Barley & Tolbert, 1997; Schein, 1992). A longitudinal study
makes it easier to assess these complex causal relationships.
A variety of different research methods could be used to directly test the theory, including survey eld studies, comparative case
studies, and simulation studies. Longitudinal survey studies could provide data to test the moderating effects of the situational
variables and identify organizational processes that mediate the effects of leader actions and decisions on organizational
performance. Intensive, longitudinal case studies can provide information about the ways effective leaders inuence the
performance determinants in different situations. Simulation experiments conducted over a period of weeks could verify causal
relationships among variables in the model. With a combination of complementary methods, it will be possible to evaluate the key
propositions of exible leadership theory.
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The Leadership Quarterly 19 (2008) 708722

Contents lists available at ScienceDirect

The Leadership Quarterly

How leaders inuence organizational effectiveness

Tel.: +1 518 442 4932.

2. Efciency and innovative adaptation

3.1. Human resources and relations

3.2. Conditions affecting the importance of human capital

4. Inuence of leaders on the performance determinants

4.1. Leadership behaviors

4.2. Management programs, systems, and structures

4.3. Joint effects of leader behaviors and formal programs

4.4. Decisions about competitive strategy

5. Tradeoffs and synergies

5.1. Efciency vs. adaptation

5.2. Efciency vs. human capital

5.3. Innovation vs. human capital

5.4. Synergies and ambidexterity

6.1. Cooperation and coordination across management levels

6.2. Lateral differentiation and integration

7.1. Benets for scholars and practitioners

7.2. Potential extensions of FLT

7.3. Recommended research

Abrahamson, E. (1996). Management fashion. Academy of Management Review, 21, 254285.

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