The flexible leadership theory explains how top executives and other leaders can influence the financial performance of a business organisation.
Three key determinants of financial performance are efficiency, adaptation, and human capital. A wide range of leadership behaviours, management programmes, structural forms, and external initiatives can be used to influence these performance determinants.
Management programmes 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 organisation, and they must be flexible and adaptive as the situation changes.
The theory provides a way to integrate findings from several different and largely separate literatures
Efficiency is the extent to which the organisation minimises the cost of people and resources needed to carry out essential operations. Business firms 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.
Efficiency also depends on process reliability, which is the extent to which work processes are conducted without unnecessary delays, errors, or accidents. Key indicators of efficiency include the costs as a percentage of revenues, costs relative to those of competing companies, and employee productivity relative to labour costs. Case studies and survey research provide evidence that reducing unnecessary costs can improve a company's performance.
Ways of improving efficiency
There are many ways to improve efficiency, and they include redesigning work processes, using new technology, reducing the cost of energy or materials, reducing excess inventory, and reducing the cost of labour or outsourcing jobs.
Efficiency 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. It is easier to improve efficiency when the organisation's operations are relatively stable for a considerable period of time rather than constantly changing.
Challenges in improving efficiency
It is more difficult to improve efficiency if there are constraints on the reduction of costs (for example, mandated quality standards and safety requirements, laws for minimum wages and benefits, requirements for guaranteed employment, shortages of necessary inputs such as materials or energy).
Importance of adaptability
The effectiveness of an organisation 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 (For instance, 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 organisational 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.
Hindrances to adaptability
Successful adaptation is unlikely when top management fails to recognise 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.
Importance of innovation
Innovation is especially important for an organisation with a competitive strategy that emphasises unique, leading edge products or services designed to satisfy the changing needs of customers and clients.
Examples of these organisations 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.
Impact of technological change
Rapid technological and social changes and the continuing trends toward privatisation, deregulation, globalisation, and internet commerce in most nations have increased the need for business organisations to systematically monitor changes in their external environment and respond in a timely way to new threats and opportunities.
Influence of leaders
Leaders can improve the performance of an organisation by influencing the performance determinants. One form of influence is the use of specific leadership behaviours in interactions with subordinates, peers, and outsiders.
A second form of influence involves decisions about management programmes and systems, and organisational structure. A third form of influence involves decisions about the competitive strategy for the organisation. The three forms of influence must be used together in a consistent way for effective strategic leadership.
Mandeya is an executive leadership coach, trainer in human capital development and corporate education, a certified leadership and professional development practitioner and founder of the Institute of Leadership, Research and Development (LiRD).