How do executives affect their respective organizations? This question has been asked by many top researchers in the field of leadership. Hambrick (2007) believes those leaders within the upper echelons behave on the foundation of their personal views and understanding of “strategic situations”, as well as their cultural values, personal experiences and individual personalities. This has been the basis of the upper echelon theory for many years, which was developed on the principle of bounded rationality (Cyert & March, 1963; March & Simon, 1958). However, regardless of these types of utterly complex situations and “uncertain situations” (Mischel, 1977), leaders within the upper echelon of an organization have specific processes through which they can influence and change an institution.
Specifically, six influence processes allow leaders to shape the strategic direction and performance of the organization. Beginning with direct decisions, leaders have the ability to shape the choices their followers have based solely on the control they have of the vision and mission of the organization (Nahavandi, 2006). These two variables (i.e., vision and mission) thus affect the culture of the institution by clearly focusing on what the organization deems important and valuable (Nahavandi, 2006). In addition to the ability for leaders to affect the vision, mission and strategy of an institution – upper echelon leaders have a direct relationship with management, which plays a vital role in shaping (or re-shaping) strategy, dictating decision making and setting the climate or structure of the organization (Miller and Droge, 1993; Nahavandi, 2006). Leaders determine the organizational structure through the “direct decisions” of variables that affect the structure or indirectly through the people they influence (Nahavandi, 2006). As a fictitious example, Stanley Wang of Acme Toys joined the company just prior to the founder’s retirement. The founder, James Green, was forced to make a direct decision as to whether or not to make Stanley the new Chief Executive Officer (CEO) of the company. This decision would directly impact the organizational structure and influence the culture of the organization based on Stanley’s personal values and experience.
The allocation of resources is also another way upper echelon leaders have significant impact to an organization (Schein, 2004). These leaders are the top decision makers on the allocation of resources (i.e., human, technology, money, etc.) to both individuals and organizational units (Nahavandi, 2006). For example, a CEO may want to push the sale of a series of new products, so the CEO may dedicate a large portion of the overall budget to the sales and marketing business units and pull funding from other business units which are of lesser concern. In this example, the allocation of resources supports specific objectives (i.e., mission) in support of corporate strategy and creates a structure that enables the aspired outcomes (Nahavandi, 2006; Miller, 1987).
In addition to direct decisions and the allocation of resources, reward systems (formal and informal) also have a significant impact on the culture of an institution or its employees (Schein, 2004; Nahavandi, 2006). Most of us are familiar with this type of behavior in the form of monetary incentives when we adhere or conform to specific behavioral standards and/or achieve goals that reflect the mission of the organization. For example, an employee may receive a 10% bonus if he/she obtains a specific sales revenue or gross margin target of a product or service.
However, reward systems are not only limited to monetary gain, but also through the selection and promotion of other leaders (Nahavandi, 2006). Those who adhere and fit the organizational culture and structure, as well as meet individual goals and objectives are much more likely to be promoted to top leadership positions – as opposed to those who do not (Nahavandi, 2006). This process can be true for almost any situation; those who naturally fit well into an organization’s mission and culture are more apt to be selected and rewarded in some fashion.
Both of these influence processes can be seen across the board in our example scenarios. Again using Acme Toys as an example, Stanley Wang was rewarded significantly by his boss, James Green, by giving him all the company’s high profile projects. He was then given every possible award the company had to offer; thus justifying his future selection for CEO.
According to Nahavandi (2006) while rewarding employees encourages specific “behaviors and decisions” that fall in line with the culture of the organization, leaders who act as role models and enact standards for decision making have a greater impact to the organization. For example, an upper echelon leader may ask their top sales managers to develop a strategic sales plan that will accomplish the goals and objectives of the organization. Although, he does not dictate how they accomplish those objectives, he can be assured they will accomplish the desired outcome by setting decision making standards and clear guidelines.
An additional way leaders affect organizations is through their own behavior or role modeling (Nahavandi, 2006; Schein, 2004). A leader who is passionate about customer service will focus on this passion in information that is transferred to his or her employees. This can also be shown in terms of ethics, and how a leader communicates and expects employees to behave. This might be communicated through the vision and/or mission or through regular communication to employees. For example, as President of Uniform Data Link, Leslie Marks made it a point to become a role model for her employees. She moved her office from the third floor to the first floor to show that everyone was equal and your title within the company does not dictate the level of importance you have. She regularly encouraged everyone to share ideas and worked directly with engineers instead of working through layers of management. Leslie also reinforced her values of comfort in the workplace by coming to work in jeans almost every day.
Whether it’s direct decisions, rewards, role modeling or the allocation of resources – leaders have many influence processes that impact their organizations (Nahavandi, 2006). By utilizing these processes, upper echelon leaders essentially create a mirror image of their own personal style, values, preferences and experience.
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