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«Erkko Autio, Professor Imperial College Business School UK Enterprise Research Centre erkko.autio Background Paper International ...»

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Promoting Leadership Development in High-Growth Firms

Erkko Autio, Professor

Imperial College Business School

UK Enterprise Research Centre

erkko.autio@imperial.ac.uk

Background Paper

International Workshop on “Management and Leadership Skills in High-Growth Firms”

Warsaw, 6 May 2013

Summary

This discussion paper focuses on how to support the development of leadership and managerial skills

in high-growth ventures. The paper has been written as a discussion paper for the OECD LEED Programme’s initiative on leadership and management skills in high-growth firms.

The objectives of this paper are:

- To provide a brief overview of the entrepreneurship and leadership literatures, focusing specifically on the narrow intersection of the two literatures

- Elaborate a theoretical synthesis of the two literatures, with a particular focus on entrepreneurial leadership

- Develop a model categorising policy support initiatives using the theoretical synthesis as a lens to assess the ability of each to contribute to entrepreneurial leadership and management skills development in high-growth ventures

- Review six initiatives to support leadership and management skill development in high- growth new ventures, including new business accelerators, high-growth support initiatives, mentoring programmes, business angel networks, and technology programme networks

- Based on the above, identify good practices for supporting the development of leadership and managerial skills in high-growth new ventures This paper is structured as follows. First, I review received literature on leadership, with a specific focus on what is known about leadership in new ventures. I use this brief review to elaborate implications for supporting leadership in high-growth new ventures. Based on this review, I develop a leadership support model that tracks highlights the emphasis of leadership support provided by different support initiatives. I highlight this model in the context of selected high-growth support initiatives, each of which incorporates a leadership support component. I conclude by discussing good practice in supporting leadership in high-growth new ventures.

2 Leadership and Entrepreneurship Literatures: An Overview Definition of leadership Leadership is one of those concepts that everyone has an idea of what it means – yet everyone’s intuitive idea might be a little different from anyone else’s. In the leadership literature, numerous definitions have been given for the concept of leadership over time. Most definitions describe leadership as an influencing process – as a process by which some individuals inspire others to work towards shared goals. By definition, leaders lead others. I therefore define leadership as: "the nature of the influencing process—and its resultant outcomes—that occurs between a leader and followers and how this influencing processes is explained by the leader’s dispositional characteristics and behaviours, follower perceptions and attributions of the leader, and the context in which the influencing process occurs [italics added]” (Antonakis, Gianciolo, et al., 2004:5).

The above definition highlights several important aspects relevant for our discussion here:

First, it distinguishes between leaders and followers. Leaders lead, and followers “follow” – I.e., they perform the actions the leader seeks to induce. As I will elaborate later, high-growth new ventures are likely to differ quite drastically from large, established firms when it comes to defining exactly who those followers are and where they reside.

- The second point to note is that leadership is an influencing process: leaders seek to influence others, through a continued process of interaction between the ‘leader’ and the ‘followers’.

This draws natural attention to the question of how this influencing occurs. Again, keeping in mind the focus of this discussion paper, one may speculate that high-growth new ventures differ from large organisations in terms of the repertoire of influencing mechanisms that they require.

- Third, according to the definition, leadership effectiveness is co-determined by leader characteristics and follower perceptions. In other words, it is follower perceptions, rather than what the leader actually does, that matter for the leader’s ability to induce desired outcomes. This resonates with the importance of, e.g., symbolic actions that new ventures have been reported to occasionally employ when seeking to access and mobilise resources for opportunity pursuit (Zott and Huy, 2007).

- Fourth, the above suggest that leadership effectiveness may be contingent upon the context within which leadership behaviours are performed (Antonakis and Autio, 2006). In other words, different leadership styles may be required in new venture contexts and mature firm contexts, for example.

To understand the leadership process, therefore, one has to account for the context in which the influencing process occurs. For example, contextual factors influence which types of leadership characteristics are effective in inducing desired behaviours in followers (see, e.g., Palich and Hom, 1992; Crossan et al., 2008). This is important, because entrepreneurial organisations are quite different from corporate contexts. From the perspective of supporting leadership development in highgrowth new ventures, the big gap is that most of the received leadership research has focused on mature corporate context while virtually ignoring the context of entrepreneurial firms (Vecchio, 2003;





Cogliser and Brigham, 2004; Antonakis and Autio, 2006). This being an under-researched topic, there is relatively little systematic research on what leadership actually means in new organisations and

–  –  –

Leadership theory: Overview Before focusing more closely on the distinctive aspects of leadership in high-growth new ventures, it is useful to briefly summarise what is currently known about leadership theory. Today, the ‘full-range leadership theory’ provides perhaps the most widely used (although not the only) framework in leadership research (Bass, 1985, 1998). The important contribution by Bass and others was to move beyond leader characteristics and traits to considering leadership styles, such as transactional, transformational, instrumental, charismatic, and visionary leadership. Bass’s (1985) theory was

essentially a behavioural theory of leadership that focused on three major classes of leader behaviour:

(a) transformational leadership, which explains value-based, visionary, emotional, and charismatic leader actions, which are predicated on the leader's symbolic power; (b) transactional leadership, a quid pro quo influencing process utilising reward and coercive power; and (c) laissez-faire leadership, which actually represents the absence of leadership. This theory was subsequently extended by others who added more leadership behaviours into the palette (Howell and Avolio, 1993; Antonakis, Cianciolo, et al., 2004). As such, this theory is well supported, as noted in several meta-analyses (Derue et al., 2011; Oh et al., 2011).

Transformational leadership enhances the motivation, morale, and performance of followers with a range of behaviours, such as enhancing followers’ identification with the project and the organisation and thus enhancing their sense of ownership of the project. Transformational leaders also act as inspiring role models that followers seek to emulate. Transactional leadership, on the other hand, emphasises monitoring and supervision. Transactional leaders set incentive mechanisms to incentivise desired behaviours, but they also intervene with sanctions if desired performance is not forthcoming.

Thus, whereas transformational leadership is proactive, emphasises identification with higher goals and moral values and promotes creativity and innovation in problem solving, transactional leadership is reactive, operates within and reinforces an already established organisational framework, and appeals to followers’ self-interest rather than higher ideals (Wikipedia; Bass, 1985, 1998; Hackman and Michael, 2009).

The palette of leadership behaviours recognised in the literature extends beyond transactional, transformational, and laissez-faire leadership. Of relevance for our discussion here are the notions of ‘instrumental’ and ‘strategic’ leadership. Instrumental leadership represents a task-oriented leadership style, which seeks to accomplish specific, defined goals. It represents a class of leader behaviours to enact the knowledge of the leader towards the fulfilment of organisational goals (Antonakis and House, 2002). Because of its goal and team orientation, this form of leadership almost represents coaching, and the role of the leader is to facilitate team performance. Strategic leadership, on the other hand, is distinguished by its external focus: it encompasses leadership behaviours that monitor threats and opportunities in the external environment of the organisation and translates these into strategy formulation and implementation within the organisation (Zaccaro, 2001).

Leadership in entrepreneurial contexts

The relevance of different leadership styles for our discussion goes back to the notion that different leadership styles may be effective in different contexts. For example, Jansen et al (2009) linked transactional and transformational leadership to organisational learning outputs and found transactional leadership to be more effective for exploitative learning, whereas transformational 4 leadership was more effective to support explorative learning (Jansen et al., 2009). This finding was consistent with the finding by Ensley, Pearce and Hmieleski (2006), who found the effectiveness of these two leadership styles to vary with the degree of environmental dynamism, with transformational leadership style producing better results in highly dynamic environments (Ensley, Pearce, et al., 2006). Similarly, Waldman et al (2001) found the impact of transactional and charismatic leadership on organisational performance to vary with environmental uncertainty and volatility, with more uncertain and volatile environments favouring more charismatic leadership (Waldman et al., 2001).

These and other empirical evidence point to potentially important differences between new venture contexts and established organisations. Whereas established organisations are more likely to operate in established markets and more predictable environments, where a high level of agreement may exist with regard to ‘good’ and ‘effective’ business practices, new ventures often seek to compensate for their underdog position relative to incumbents by trying to be different – in terms of products, services, business models and market niches targeted (MacMillan and McGrath, 1997). This implies that, on the whole, new ventures tend to face less predictable environments than large firms. Even when operating in established industry contexts, the quest for differentiation means that there may be few guideposts to help predict how customers, suppliers, and resource holders will react to the novelty introduced by the new firm. This suggests that leadership styles more appropriate for managing in uncertain and dynamic environments, such as transformational, visionary and charismatic leadership might be more appropriate for high-growth new ventures. On the other hand, because transactional leadership styles are more suited to exploitation within established development trajectories, their applicability in new venture contexts might be smaller.

As hinted previously, high-growth new ventures may also differ from established corporations in terms of where the followers reside. Remember that new ventures are created to pursue opportunity (Shane and Venkataraman, 2000). To this end, they need to access and mobilise resources external to the firm (Stinchcombe, 1965; Pfeffer and Salancik, 1978). This, then, implies that an important element of entrepreneurial leadership activities focus on parties and stakeholders external to the firm, rather than on employees internal to the firm. A couple of important distinctions derive from this difference. The most obvious implications concern the range and scope of influencing activities new ventures have at their disposal. Internally oriented leadership activities can rely on formal incentives and sanctions that operate within the organisational hierarchy. This is obviously not possible with external stakeholders, meaning that new ventures have to resort to informal motivational devices, such as symbolic actions (Zott and Huy, 2007), social capital building and leverage (Eisenhardt and Schoonhoven, 1996; Nahapiet and Ghoshal, 1998; Yli-Renko et al., 2002), charismatic leadership and visionary leadership to achieve their goals. Again, transactional leadership style would appear to fit only poorly in such situations.

With specific reference to entrepreneurial firms, the traits and behaviours that predict entrepreneurial success may also change over the life cycle of the firm (Antonakis and Autio, 2006; Ensley, Hmieleski, et al., 2006). For example, based on received research one may speculate that traits like extraversion will matter more in the expansion phase than in the startup phase, because this stage involves motivating sub-ordinates to work hard to effect organisational growth (Ensley, Hmieleski, et al., 2006). Similar differences might be observed for, e.g., supervisory leadership and strategic leadership (e.g., Antonakis and Atwater, 2002; Crossan et al., 2008; Jansen et al., 2009).

The key policy implication of the above is that high-growth new ventures may require different forms of leadership, and, by implication, different forms of leadership support relative to established firms.

In addition, high-growth firms may need to adjust leadership styles and behaviours in different life

–  –  –

Emphasise leadership styles that befit unpredictable and dynamic environments – e.g., transformational and visionary leadership

- Emphasise leadership styles that are suited to soliciting resource access and mobilisation relative to external stakeholders – e.g., charismatic leadership, visionary leadership, symbolic actions Emphasise the centrality of teams in organisational goal achievement – e.g., instrumental leadership



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