ACCA F1 Accountant in Business - 2010 - Study text

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Chapter 7: Management and leadership

- Disseminator. Managers disseminate information, acting as a channel of

information within the group and with others.

- Spokesman. Managers act as a spokesperson for the group, in a ‘public

relations’ capacity.

 Decision-making role. Managers make decisions.

- Initiator of change or improvements. They have an entrepreneurial role, and

take initiatives.

- Disturbance handler. They have a role in resolving conflicts and disputes,

and dealing with other similar unexpected problems.

- Resource allocator. They decide how resources should be used, for example

what the available money should be spent on and how employees should use

their time (what work they should do).

- Negotiator. They negotiate with others, and reach decisions through joint

agreement.

Mintzberg and organisation structure

Mintzberg also challenged the view that the bureaucratic organisation structure is

the ideal form of organisation in all circumstances. He suggested that there are five

elements or ‘building blocks’ in an organisation, and the way that the organisation

operates depends on which of these elements is dominant.

 Strategic apex. This is the top management in the organisation.

 Operating core. This represents the basic work (basic operations) of the

organisation, and the individuals who carry out this work.

 Middle line. These are the managers and the management structure between the

strategic apex and the operating core.

 Support staff. These are the staff who provide support for the operating core,

such as secretarial staff, cleaning staff, repair and maintenance staff, and so on.

 Technostructure. These are staff without direct line management

responsibilities, but who provide technical support to the organisation. They

include accountants and IT specialists.

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Mintzberg argued that the way in which an organisation functions depends on

which of these five groups has the greatest influence.

 When the strategic apex is powerful, the organisation is entrepreneurial. The

leaders give the organisation its sense of direction and take most of the

decisions.

 When the technostructure is dominant, the organisation often has the

characteristics of a bureaucracy, with organising, planning and controlling

prominent activities The technical exerts have a strong influence over the way

the organisation is managed. The organisation continually seeks greater

efficiency.

 When the organisation is divisionalised and local managers are given extensive

authority to run their own division in the way that they consider best, the

middle line is dominant.

 Some organisations are dominated by their operating core, where the basic

‘workers’ are highly-skilled and seek to achieve proficiency in the work that they

do. Examples might be schools, universities and hospitals, where the teachers

and doctors can have an exceptionally strong influence.

 Mintzberg identified a type of organisation that he called an ‘adhocracy’. This is

an organisation with a complex and disordered structure, making extensive use

of teamwork and project-based work. This type of organisation will be found in

a complex and dynamic business environment, where innovation is essential for

success. These organisations might establish working relationships with external

consultancies and experts. The ‘support staff’ element can therefore be very

important.

3.4 William Ouchi: Theory Z

William Ouchi made a study of Japanese companies and compared them with

companies in the US. His aim was to identify the reasons why Japanese companies

performed better than US companies, and in particular why Japanese companies

produced better-quality products than their US competitors and achieved much

better productivity.

His study of Japanese companies found that in Japan, managers have a high level of

trust in their workers, and assume that workers have a strong loyalty towards their

company and are interested in team working. Companies in turn show loyalty to

their employees, who have employment for life; however, promotion and career

progression is slow. Decision-making in Japanese companies is also ‘collective’, with

workers participating in decision-making and management trying to achieve

universal agreement and acceptance before decisions are taken.

Ouchi was not the first management theorist to suggest that companies in other

countries could learn from the success of Japanese companies. However, his work is

notable because he suggested that the most efficient type of organisation for the US

might be one that combined features of ‘typical’ US and Japanese companies.

He called his recommended approach to management ‘Theory Z’, and he put

forward his ideas in a book Theory Z: How American management can meet the Japanese

challenge (1981).

Chapter 7: Management and leadership

The essential features of Theory Z, and how Theory Z compares with typical US and

Japanese management practice, is set out below.

Typical American

company

Typical Japanese

company

Theory Z

Short-term employment Lifetime employment Long-term employment:

not necessarily for life,

but much longer than the

current average in the US

Decision-making by

individual managers

with the authority to

decide

Collective (or

‘consensual’) decision

making

Collective (or

‘consensual’) decision

making

Individual responsibility Collective responsibility Individual responsibility

(Notice that here, Ouchi

favours the American

model over the Japanese

model)

Rapid promotion. Quick

career progression

Slow evaluation of

performance and slow

promotion. Take time to

learn the business

Slow evaluation of

performance and slow

promotion

Formal control

mechanisms and control

measures

Implicit (informal) control

mechanisms

Implicit(informal)

control, but with explicit

(formal) control measures

Specialised career path

for employees

Non-specialised career

path

Moderately specialised

career path

Concern for the

employee as an

employee

Wider concern for the

employee as a person

Wider concern for the

employee as a person,

including concern for the

family of the employee

3.5 Differences between classical and modern theories of management

Classical theories of management attempted to identify general rules of

management and organisation that should apply to all types of organisation.

Modern theories of management have successfully challenged many of the ideas in

classical management theory. However some aspects of classical management

theory are still valid – for example, a scientific management approach to

improvements in efficiency has some validity, and the ideas of Mayo have been

substantially developed and extended by more modern writers.

Modern theories include the view that the most suitable approach to management

varies according to circumstances, and what is best in one situation is not

necessarily the best in another. Each organisation, and each management problem,

should therefore be considered according to the circumstances. This approach to

management is called ‘contingency theory’.

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Leadership style

 The importance of effective leadership

 Effective leadership and leadership style

 Trait theories of leadership

 Lippitt and White’s leadership styles

 Blake and Mouton’s grid

 Tannenbaum and Schmidt’s leadership continuum

 The Ashridge model

 Likert’s leadership styles

4 Leadership style

4.1 The importance of effective leadership

Leadership involves interpersonal skills and an ability to motivate others.

Effective leadership within an organisation involves:

 guiding and directing others to achieve the goals of the organisation

 making the best use of the knowledge, skills and talent of others in the

organisation

 developing the knowledge, skills and talent of others in the organisation.

Effective leadership therefore increases the effectiveness of the organisation, by

getting the best out of employees to achieve the aims and objectives of the

organisation.

4.2 Effective leadership and leadership style

Since leadership is an aspect of management, it is necessary to establish whether

there are any particular skills that a manager should have to be an effective leader.

What makes a person a good leader? Are people born to be leaders? Can leadership

skills be taught and learned?

Several writers have considered whether effective leadership is a matter of how the

leader behaves –the leader’s style – and there are differing views about what

personal characteristics or style might make a good leader.

There are several types of theory about effective leadership style:

 Personal characteristics (‘traits’ or ‘qualities’). There is a view that a leader

must possess certain personal qualities of leadership. The best leaders are

‘charismatic’. These characteristics are natural, and some individuals are born

with them. They cannot be taught.

 It depends on circumstances. ‘Contingency theories’ of effective leadership take

the view that the requirements for effective leadership vary according to

circumstances. Different styles of leadership are the most effective in different

circumstances and situations.

Chapter 7: Management and leadership

- Leadership styles range from domineering (autocratic or authoritarian) to

democratic or even ‘laissez-faire’. The most suitable leadership style

depends on circumstances.

- Some writers have argued that there is a ‘best’ leadership style.

- Others have argued that the most appropriate leadership style depends on

circumstances (‘contingency theory’ of leadership).

The differing views about effective leadership can probably be appreciated by

looking at several theories of leadership style.

4.3 Trait theories of leadership

A trait theory of leadership is that there is a set of personal qualities and

characteristics that make a good leader. Individuals either have these qualities or

they do not. Some people are therefore ‘born leaders’.

Trait theory may have an immediate ‘popular’ appeal. Descriptions of great leaders

in history often refer to the leader’s personal qualities that distinguished him or her

as someone special and a natural leader.

However, a serious problem with trait theory is that there are many different traits

that could be attributed to an effective leader. Some of the more ‘obvious’ traits are

listed below:

 Physical vitality and energy

 Intelligence and good judgement

 Eagerness to accept responsibility

 Enthusiasm and self-confidence

 Competence in the tasks

 Understanding their followers and their needs

 Skill in dealing with people (interpersonal skills or ‘soft skills’)

 Having a powerful need for achievement

 A capacity to motivate others

 Decisiveness

 Trustworthiness

 Assertiveness

 Flexibility.

It is not necessarily obvious which of these traits are more important than the others

in making an effective leader.

Another problem with trait theory is that if leadership skills are natural skills that

an individual either has or does not have, this means that leadership skills cannot be

learned. Organisations would therefore have to look for natural leaders and

promote them, without being able to do anything to improve leadership skills

through training and development.

Trait theories of leadership are now largely discredited as a means of identifying

leaders. However, if an effective leader is identified and described, it is almost

certain that he or she will possess some of the traits in the above list.

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4.4 Lippitt and White’s leadership styles

In 1938/1939 Lippitt and White carried out an investigation into leadership styles,

using groups of schoolchildren working on arts and crafts projects, such as making

masks. Three different types of leaders were assigned to the groups, and the

behaviour of the children with each of the different types of leader was studied.

The three types of leadership style for the groups were:

 Authoritarian or autocratic leadership style. The leader continually gave orders

and instructions without offering any consultation.

 Democratic style. The leader offered guidance and encouragement to the

children, and participated actively with the group.

 Laissez-faire style. The leader gave the children the knowledge they needed to

do the work, but did not become involved and did not participate in the

activities of the group.

The study looked at the effects of the different leadership styles on the behaviour

and the output of the group members. Their findings are summarised below.

Groups with democratic

leaders

Groups with autocratic

leaders

Groups with laissez-

faire leaders

Morale was high. Two types of behaviour were

found in group members:

These were the worst-

performing groups.

Relationships between the

group members and

between the group members

and the leader were

friendly.

Aggressive behaviour:

These individuals were

rebellious. They constantly

demanded attention from the

leader and often blamed

others when things went

wrong.

Productivity

(quantity produced)

was low.

Quality of output was

low.

Satisfaction of group

members was low.

The group members showed

themselves capable of

working independently,

with the leader out of the

room.

Apathetic behaviour:

These group members placed

few demands on the leader

and showed not much interest

Group members were

unable to work

independently.

There was a reasonable

amount of originality in the

work done by the group

members

The quality of the output of

cildren in this group was less

than the quality produced by

groups with a democratic

leader.

Group members did

not co-operate with

each other.

The quality of their output

was higher than the quality

produced by groups with an

authoritarian leader.

The quantity of their output

was higher than the quantity

produced by groups with a

democratic leader.

The quantity of their output

was lower than the quantity

produced by groups with an

authoritarian leader.

Chapter 7: Management and leadership

The conclusions from the study were that:

 The democratic style of leadership was ‘best’, providing high quality of output,

reasonable originality and productivity, and high satisfaction of group members.

 However, some of the boys in the study preferred the authoritarian style of

leadership.

4.5 Blake and Mouton’s grid

Robert Blake and Janet Mouton (1964) argued that there are two basic elements in

leadership behaviour:

 Concern for the task. This includes a concern for achieving targets, the volume

of output, work efficiency and so on.

 Concern for people. This includes personal commitment, ensuring good

working relationships with others (particularly subordinates), maintaining good

interpersonal relationships, and keeping the trust and respect of the group.

These two concerns are independent of each other, and a leader or manager can be

either weak or strong in showing either concern.

Blake and Mouton devised a grid, often known as Blake’s grid, which shows these

two elements of leadership, one on each axis of the grid. Each axis of the grid is

numbered from 1 to 9.

 A score of 1 indicates lowest level of concern.

 A score of 9 indicates the highest level of concern.

 Individual managers or leaders can be placed on the grid, according to their

concern for the task and their concern for people.

1 2 3 4 5 6 7 8 9

Concern for

people

Concern for the task

(1,9)

(1,1)

(9,9)

(5,5)

(9,1)

Paper F1: Accountant in business

Style

(1,1): Impoverished style The leader gives little effort to getting work done and

has a lazy approach. The worst type of leader possible.

(1,9): Country club style Low concern for getting the task done, but high concern

for people and maintaining good relations.

(9,1): Authoritarian,

compliance style

The leader concentrates on efficiency, and getting the

work done, with little concern for people. Will seek to

eliminate people from the work if at all possible (for

example through automation).

(5,5): Middle-of the road

style: ‘organisation man’

Does enough to get the job done, buy may not be

pushing to extend the boundaries of what is possible.

(9,9): Team management High concern for the task and high concern for people.

Provides effective leadership to the team. The most

effective type of leader.

Managers/leaders show differing amounts of concern for the task and concern for

people, and so may be laced anywhere on the grid.

Blake and Mouton argued that the most effective leaders show high concern for

both the task and for people.

4.6 Tannenbaum and Schmidt’s leadership continuum

Tannenbaum and Schmidt (1958) developed a model to describe different styles of

leadership. They did not argue that one style was the best. Instead, they suggested

that leaders might start with one style (an authoritarian or autocratic style), and

then change their style (towards more delegation of authority to subordinates) as

the group members gain experience and become more mature.

They argued that providing leadership has two main elements:

 Leaders may exercise their authority and make all the decisions for the group.

Leaders who behave in this way are authoritarian.

 Leaders might also give the group members freedom to make their own

decisions. A democratic leader delegates decision-making, although they also

identified an ‘abdicates’ style of leadership, which is similar to a laissez-faire

style.

Tannenbaum and Schmidt described the balance between using authority and

allowing freedom to subordinates as a continuum or spectrum. The balance can

range from strict authoritarian leadership at one end of the continuum to delegation

of virtually all decision-making responsibilities at the other end.

Their continuum is shown in the diagram below. Every leadership style involves a

varying balance between using authority and giving freedom to subordinates.

Use of authority

Area of freedom

for subordinates

Chapter 7: Management and leadership

It is important to remember that although the leader delegates authority, he must always

retain responsibility for the decisions, actions and performance of his subordinates.

A task of the leader is to develop the individual members of the team and the team

as a unit. He should therefore delegate authority and ask the team to make decisions

according to the level of their abilities and maturity. Over time, however, a leader’s

style should move from the left of the continuum towards the right hand side.

Tannenbaum and Schmidt identified seven levels of delegated freedom on their

continuum.

Level

1 Tells The manager takes the decisions and announces his decision to the

team.

2 Tells and

sells

The manager takes the decisions, but then ‘sells his decision to the

group. He explains the reasons for the decision, emphasising the

benefits for the team.

3 Tells and

talks

The manager takes the decision, presents his decision to the team with

the background ideas that led to the decision, and then invites

questions. This makes it easier for the team to understand the decision

and agree with it, and to understand the issues involved and the

implications of the decision.

4 Consults The manager announces a provisional decision and invites the group

members to discuss it. The manager then takes into consideration the

views of the team members, and may change his decision. The team

members therefore have some influence over the decision.

5 Involves The manager presents the problem to the team, perhaps suggesting

some options. He asks for suggestions about what should be done. He

then decides. The team members are therefore closely involved in the

decision. This style is appropriate when the team has a high level of

knowledge and experience.

6 Delegates The manager explains the situation to the team, defines the parameters

and asks the team to decide. The manager therefore delegates the

decision-making entirely, within the stated limits. This leadership style

requires a mature team.

7 Abdicates The manager allows the team to identify the problems, develop

options, make a decision and develop action plans for a solution –

within the stated limits of his own authority.

4.7 The Ashridge model

A research team from Ashridge College in the UK identified and explained four

different styles of leadership:

 Tells

 Sells

 Consults

 Joins

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Tells style

A ‘tells’ style of leadership is dictatorial. The leader makes decisions and imposes

them on his subordinates, expecting them to be obeyed without question.

The main advantages of the ‘tells’ style are:

 Speed of decision-making: the leader does not need to consult anyone before

making the decision.

 It will probably result in better decisions when the subordinate is inexperienced

or lacks the required understanding to contribute usefully to discussions of

problems.

The disadvantages of a ‘tells’ style are greatest when there is no requirement for fast

decisions and the subordinates have experience and skills that they can contribute

to discussions. When the leader has a ‘tells’ style:

 The views of subordinates are ignored

 Any initiative or creativity the subordinates might contribute is lost

 There is too much dependence on one person, the leader.

Sells style

A ‘sells’ style of leadership is autocratic. An autocratic leader makes his own

decisions but then tries to ‘ell’ them to his subordinates. This means that there is a

small amount of consultation about decisions, but not much.

The advantages of a ‘sells’ style are that:

 Subordinates at least know why certain decisions have been made

 The leader is not dictatorial

However, with a ‘sells’ style the leader is imposing his views on subordinates and

the communication is largely one-way.

Consults style

A ‘consults’ style is a democratic style of leadership. The leader asks for comments

from subordinates before making a decision, and the comments from subordinates

might persuade him to change his mind or alter his view about something.

The advantages of a ‘consults’ style are:

 Greater interest and involvement for subordinates

 Therefore possibly stronger motivation amongst subordinates

 The ability of subordinates to contribute their knowledge and experience to the

decision-making process

 The opportunity for subordinates to gain better insights and understanding

through being involved in the decision-making discussions.

The disadvantages of a ‘consults’ style are that:

 Subordinates might not have sufficient knowledge or experience to contribute

effectively

 The decision-making process might be slowed down too much, and is unlikely

to be desirable at times of crisis when quick decisions are needed.

ACCA F1 Accountant in Business - 2010 - Study text - Emile Woolf Publishing

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