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Successful leadership is paramount for the progress of any organization, especially in this era of globalized competition. To achieve this, leadership and management styles should be considered keenly by any leader.
The successes of Lou Gerstner as a manager began in 1985 when he became the president of American Express. Gerstner’s leadership skills coupled with marketing and administrative abilities were essential in helping the company benefit from the credit card market. In 1989, Lou Gerstner became the CEO of RJR Nabisco Inc.,an organization dealing in food and tobacco. His strategic skills came in handy when the company underwent a public battle that resulted in a buyout by KKR (Kohlberg Kravis Roberts & Co.). Gerstner had to deal with the declining domestic cigarette market and huge interest bills that kept profits low. His transformational leadership was essential in revitalizing the company’s workforce, as well as transforming the company’s corporate culture. He cultivated a spirit of teamwork among the employees, emphasizing quality and cutting on bureaucracy. The company gained about 50 percent in stock and increased its operating profits by 31 percent.
Another impact of Gerstner’s strategic skills was felt when he joined struggling International Business Machines (IBM) in 1993. The company suffered losses of $2.9 billion and $5 billion in 1991 and 1992 respectively. The company’s losses exceeded $8 billion by 1993, and its stock value dropped from $42.6 billion to $19.7 billion. It was facing stiff competition in computer and laptop business, with competitors beating it by launching innovative new products and cutting prices. Gerstner took a step towards shrinking the company’s operations by reducing the workforce by almost 50 percent. He also worked towards improving global ties and customer relations. He changed the formal culture among employees at IBM, and the company experienced a positive trend in 1994 by making a $3 billion profit.
Other measures undertaken by Gerstner in the transition of the company included aggressive campaigns to promote the IBM brand. Gerstner also identified customers’ needs, such as servicing and implementing changes in such fast growing areas. Gerstner also changed IBM’s compensation culture which he felt was essential in transforming the company. His belief in involving the people as a team was instrumental in reviving the company (Hall, Wysocki and Kepner, 2002). According to Gerstner, strategy was absolutely important for implementing any structural changes. He identified a strong team to help rebuild the company, and this involved changing the chief finance officer, HR head and head of Corporate Marketing.
It is Gerstner’s IBM transformation that demonstrates his leadership strategies of engaging followers, focusing on higher order intrinsic needs and raising the consciousness of achieving high efficiency (Barbuto, 2005). To compete favorably in the environment, the organization needed to make significant organizational changes. These changes included downsizing and adopting new forms of organizational arrangement. As is evident in Gerstner’s improvement of the struggling companies, his transformational leadership fostered capacity development of employees and brought out higher levels of commitment in them for the attainment of organizational objectives.
According to Bass (1990), transformational leadership is characterized by elevating the interests of employees and cultivating awareness and acceptance of a company’s mission and vision, as well as stirring employees to look beyond their self-interests for the good of the company. Increased commitment and capacity leads to additional efforts and greater productivity. The attributes of transformational leadership are demonstrated by the below diagram:
Idealized influence (attributes and behaviours)
Performance Beyond Expectations
(Gordon , 1999)
According to Bono & Judge (2004, p. 901), idealized influence concerns building the confidence and trust of followers by being their role model. Building the confidence of employees establishes a foundation for embracing organizational change. If the employees trust their leader, it becomes easier for them to accept the proposed changes. These attributes are clear in the case of Gerstner reviving IBM.
Inspirational motivation is closely related to idealized influence, but it seeks to motivate the whole organization to embrace new ideas. This is achieved by making the future plans clear, increasing the meaning of followers’ work and challenging followers to achieve high standards. The whole organization then becomes a team in organizational culture and environment (Bono and Judge, 2004). Gerstner achieved this by displaying optimism and enthusiasm, stimulating teamwork and highlighting positive outcomes. He also built the capacity of followers to be aware of problems and deal with them through creativity and innovativeness. And as proposed by Stone, Russell and Peterson, he encouraged the employees to propose new ideas with freedom to solve old problems in new ways.
The other aspect that makes transformational leadership successful is individualized consideration. To ensure they are involved in the transformation of the organization, Gerstner also took care of the unique and special needs of his followers. By treating his followers according to their talents and knowledge, he allowed them to assist him in reaching high levels of achievement (Barbuto, 2005).
According to Maslow’s theory of needs, the predominance of needs depends on what has already been satisfied, and behavior is directed by these needs. People have drastically different needs, and therefore, their motivators are different. However, other needs come up with advancement, a fact that Gerstner acknowledged and used to his management’s advantage. According to Herzberg’s theory of motivation, the absence of job contentment factors, also referred to as hygiene factors, affects the motivation of employees to the level which they are either present or absent. For instance, one’s relationship with their supervisor has as important influence on job satisfaction, just as the quality of the physical environment. Gerstner seems to have taken into consideration these factors in his leadership.
By combining these four attributes, Gerstner made significant changes in all the organizations he was associated with (Bass, 1990). He proposed a compelling need for change, inspired a shared vision and instilled urgency for implementing this change. He dealt with the weaknesses of those organizations by implementing changes in strategy, mission, culture and structure. He did that by focusing on such qualities as vision, shared culture and beliefs, as well as relationship building.
On the other hand, Greg Brenneman focused on offering incentives across the board. This form of leadership is implemented in the hope that offering employees incentives, such as bonuses, employee stock ownership, and profit sharing, will inspire them to work harder towards the achievement of the company’s objectives. Though believed to be mostly ineffective in large groups, the experience of Continental Airlines showed that implementing an incentive program in all areas of a company can produce remarkable differences (Gordon, 1999).
Until 1995, one of the worst performing airlines was Continental Airline. The company was very popular in customer complaints and was ranked among the bottom ten in luggage handling and on-time arrivals. The company was on the brink of bankruptcy by 1994, with its losses hitting $613 million. Greg Brenneman introduced a group incentive scheme as part of this turnaround plan (Julie and Emily, 2005). Any of its non-managerial workers would get a bonus of $65 on any month that the airline would rank among the top five airlines for on-time departures. Contrary to the expected free-rider problem, the program was very successful. Employees put more efforts in their work, and the frequency of on-time departures increased.
However, Brenneman’s incentive program worked well due to the way it was implemented. First and foremost, the company identified the right performance measure to tie its bonus to. Relating bonuses to on-time departures was attractive in many ways. For one, it was a performance measure that could be measured easily and accurately compared with data from competitors (Gordon, 1999). The times of departure and arrival are recorded automatically when planes leave or arrive at the airport, and this information is collected and recorded by the department of transport. Secondly, it was a measure that could be directly affected by the actions of the crew members and other workers in the airport. Lastly, the target was a definite determinant of the company’s competitiveness.
The other important aspect that the company introduced to avoid free riding was mutual monitoring. This involved placing the responsibility of supervision on fellow employees. This appears difficult to implement in large companies, since workers fear the risk of rejection when they appear very imposing to their co-workers. It is considered easier to rely on other people for monitoring and sanctioning in large groups (Julie and Emily, 2005). However, mutual monitoring was successful in Continental mainly due to two factors. Firstly, although the airline has thousands of employees, they work separately in smaller autonomous teams in individual airports. Smaller teams are easier to motivate and keep their members on check. Secondly, the work of all teams in an airport is highly interrelated, and the level of performance in one team affects the performance of the other team. Therefore, all the teams had to improve their performance without affecting the bonus.
The other aspect that made the scheme a success was offering visible rewards. It would have been administratively easier for Continental to include the bonuses in the employees’ regular paychecks. But the airline recognized that having supervisors hand a separate check for a bonus immediately after an achievement would have a much greater impact. To the employees, this money appeared like a windfall, and thus a more effective incentive (Emily & Bryan, 2007).
The airline also assured early momentum at the same time they introduced the incentive program. The changes to the flight schedule allowed the on-time schedule to be achieved more easily. As a result, the incentive program yielded positive results in the very first month it was started. This impression led the other teams to believe that the bonus incentive was effective, and everyone improved their performance. The airline’s bonus program became such a great success that the management was compelled to raise the incentive to $100 if they ranked among the top three airlines.
The management also saw reductions in sick days, employee turnover and on-job injuries. The threat of bankruptcy was over by the end of 1996, and the profits rose by $385 million by 1997. Though there were other positive changes in the administration of Continental Airline, the incentive program was a major contribution to the motivation of workers and improving their productivity (Emily and Bryan, 2007).The attitudes of the employees were definitely changed, and this led to strengthened performances.
The performance of any organization is highly dependent on the type of leadership and the motivation of its employees. There are many ways available to leaders to motivate their employees and improve organizational performance. Every organization should take care of all the normal compensation mechanisms characteristic to their type of employment. However, total reward packages mean more than just money. The self-realization people want is multi-dimensional and unique for each employee. The total reward package should include support for employees to attain their own goals and align them with the organizational goals. Both the transformational and incentive styles described above are successful, and management teams considering using any of them can learn a lot from these managers.