1. Leadership and Decision Making
Business Essentials
Eleventh Edition
Chapter 9
Leadership and Decision Making
Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

2. Introduction In this chapter we look at the nature of leadership
describe early approaches to leadership, as well as the situational perspective accepted today
examine leadership through the eyes of followers as well as alternatives to leadership
describe the important related concept of decision making

3. Learning Objectives (1 of 2)
Define leadership and distinguish it from management.
Summarize early approaches to the study of leadership.
Discuss the concept of situational approaches to leadership
Describe transformational and charismatic perspectives on leadership.

4. Learning Objectives (2 of 2)
Identify and discuss leadership substitutes and neutralizers.
Discuss leaders as coaches and examine gender and cross-cultural issues in leadership.
Describe strategic leadership, ethical leadership, and virtual leadership.
Relate leadership to decision making and discuss both rational and behavioral perspectives on decision making.

5. The Nature of Leadership
the processes and behaviors used by someone, such as a manager, to motivate, inspire, and influence the behaviors of others
Because leadership is a term that is often used in everyday conversation, you might assume that it has a common and accepted meaning. It is also, however, a word that is often misused. We define leadership as the processes and behaviors used by someone, such as a manager, to motivate, inspire, and influence the behaviors of others.

6. Distinctions Between Management and Leadership
A person can be a manager, a leader, both, or neither. Some of the basic distinctions between the two are summarized in Figure 9.1.

7. Leadership and Power (1 of 2)
the ability to affect the behavior of others
Legitimate Power
power granted through the organizational hierarchy
Reward Power
the power to give or withhold rewards
Coercive Power
the power to force compliance by means of psychological, emotional, or physical threat
To fully understand leadership, it is also necessary to understand power. Power is the ability to affect the behavior of others. In organizational settings, there are usually five kinds of power: legitimate, reward, coercive, referent, and expert power.
Legitimate power is power granted through the organizational hierarchy; it is the power defined by the organization to be accorded to people occupying a particular position.
Reward power is the power to give or withhold rewards. Rewards that a manager may control include salary increases, bonuses, promotion recommendations, praise, recognition, and interesting job assignments.
Coercive power is the power to force compliance by means of psychological, emotional, or physical threat.

8. Leadership and Power (2 of 2)
Referent Power
power based on identification, imitation, loyalty, or charisma
Expert Power
power derived from information or expertise
Compared with legitimate, reward, and coercive power, which are relatively concrete and grounded in objective facets of organizational life, referent power is abstract. It is based on identification, imitation, loyalty, or charisma. Followers may react favorably because they identify in some way with a leader, who may be like them in personality, background, or attitudes.
Expert power is derived from information or expertise. A manager who knows how to interact with an eccentric but important customer, a scientist who is capable of achieving an important technical breakthrough that no other company has dreamed of, and an administrative assistant who knows how to unravel bureaucratic red tape all have expert power over anyone who needs that information.

9. Early Approaches to Leadership (1 of 2)
Trait Approach to Leadership
focused on identifying the essential traits that distinguished leaders
intelligence, dominance, self-confidence, energy, activity (versus passivity), and knowledge about the job
Early researchers believed that notable leaders had some unique set of qualities or traits that distinguished them from their peers and endured throughout history. This trait approach to leadership led researchers to focus on identifying the essential leadership traits, including intelligence, dominance, self-confidence, energy, activity (versus passivity), and knowledge about the job. Unfortunately, the list of potential leadership traits quickly became so long that it lost any practical value.

10. Early Approaches to Leadership (2 of 2)
Behavioral Approach to Leadership
focused on determining what behaviors are employed by leaders
In the late 1940s, most researchers began to shift away from the trait approach and to look at leadership as a set of actual behaviors. The goal of the behavioral approach to leadership was to determine what behaviors were employed by effective leaders. These researchers assumed that the behaviors of effective leaders differed somehow from the behaviors of less effective leaders, and that the behaviors of effective leaders would be the same across all situations.

11. Behavioral Approach to Leadership
Task-Focused Leader Behavior
leader behavior focusing on how tasks should be performed in order to meet certain goals and to achieve certain performance standards
Employee-Focused Leader Behavior
leader behavior focusing on satisfaction, motivation, and well- being of employees
This research led to the identification of two basic forms of leader behavior:
Task-focused leader behavior: Task-focused leader behavior occurs when a leader focuses on how tasks should be performed to meet certain goals and to achieve certain performance standards.
Employee-focused leader behavior: Employee-focused leader behavior occurs when a leader focuses on the satisfaction, motivation, and well-being of his or her employees.

12. The Situational Approach to Leadership (1 of 2)
The situational approach to leadership assumes that appropriate leader behavior varies from one situation to another. This approach is shown in Figure 9.2.

13. The Situational Approach to Leadership (2 of 2)
Path–Goal Theory
theory of leadership that is a direct extension of the expectancy theory of motivation
Decision Tree Approach
approach to leadership that provides decision rules for deciding how much participation to allow
Leader–Member Exchange (lmx) Model
approach to leadership that stresses the importance of variable relationships between supervisors and each of their subordinates
The path–goal theory of leadership is a direct extension of the expectancy theory of motivation discussed in Chapter 8. The path–goal theory of leadership suggests that the primary functions of a leader are to make valued or desired rewards available in the workplace and to clarify for the subordinate the kinds of behavior that will lead to goal accomplishment and valued rewards.
Another major contemporary approach to leadership is the decision tree approach. Like the path–goal theory, this approach attempts to prescribe a leadership style appropriate to a given situation. It also assumes that the same leader may display different leadership styles.
The leader–member exchange (LMX) model stresses the importance of variable relationships between supervisors and each of their subordinates.8 Each superior–subordinate pair represents a “vertical dyad.” The model differs from previous approaches in that it focuses on the differential relationship leaders often establish with different subordinates.

14. Leadership Through the Eyes of the Followers (1 of 2)
Transformational Leadership
the set of abilities that allows a leader to recognize the need for change, to create a vision to guide that change, and to execute the change effectively
Transactional Leadership
comparable to management, it involves routine, regimented activities
Transformational leadership is the set of abilities that allows a leader to recognize the need for change, to create a vision to guide that change, and to execute the change effectively. Some experts believe that change is such a vital organizational function that even successful firms need to change regularly to avoid becoming complacent and stagnant.
In contrast, transactional leadership is essentially the same as management in that it involves routine, regimented activities. Only a leader with tremendous influence can hope to perform both functions successfully. Some experts believe that change is such a vital organizational function that even successful firms need to change regularly to avoid becoming complacent and stagnant; accordingly, leadership for change is extremely important.

15. Leadership Through the Eyes of the Followers (2 of 2)
Charisma
a form of interpersonal attraction that inspires support and acceptance
Charismatic Leadership
type of influence based on the leader’s personal charisma
Charismatic leadership is a type of influence based on the leader’s charisma, a form of interpersonal attraction that inspires support and acceptance. Charismatic leaders are likely to have a lot of confidence in their beliefs and ideals and a strong need to influence people. They also tend to communicate high expectations about follower performance and to express confidence in their followers. Many of the most influential leaders in history have been extremely charismatic, including entrepreneurs Mary Kay Ash, Steve Jobs, and Ted Turner; civil rights leader Martin Luther King, Jr.; and Pope John Paul II.

16. Crucial Elements of Charismatic Leadership
Charismatic leaders envision likely future trends and patterns, set high expectations for themselves and for others, and behave in ways that meet or exceed those expectations.
Charismatic leaders energize others by demonstrating personal excitement, personal confidence, and consistent patterns of success.
Charismatic leaders enable others by supporting them, empathizing with them, and expressing confidence in them.

17. Special Issues in Leadership
Leadership Substitutes
individual, task, and organizational characteristics that tend to outweigh the need for a leader to initiate or direct employee performance
Leadership Neutralizers
factors that may render leader behaviors ineffective
Leadership substitutes are individual, task, and organizational characteristics that tend to outweigh the need for a leader to initiate or direct employee performance. In other words, if certain factors are present, the employee will perform his or her job capably, without the direction of a leader.
In other situations, even if a leader is present and attempts to engage in various leadership behaviors, those behaviors may be rendered ineffective—or neutralized—by various factors that can be called leadership neutralizers.

18. Leadership Substitutes and Neutralizers
Table 9.1 Leadership Substitutes and Neutralizers
Individual factors
Individual professionalism
Individual ability, knowledge, and motivation
Individual experience and training
Indifference to rewards
Job factors
Structured/automated
Highly controlled
Intrinsically satisfying
Embedded feedback
Organization factors
Explicit plans and goals
Rigid rules and procedures
Rigid reward system not tied to performance
Physical distance between supervisor and subordinate
Group factors
Group performance norms
High level of group cohesiveness
Group interdependence
Table 9.1 identifies several basic leadership substitutes.

19. The Changing Nature of Leadership (1 of 2)
Leaders as Coaches
from directive overseer to mentor
Gender and Leadership
understanding the differences and dynamics in the approaches of women and men to leadership
Whereas leaders were once expected to control situations, direct work, supervise people, closely monitor performance, make decisions, and structure activities, many leaders today are being asked to change how they manage people. Perhaps the best description of this new role is for the leader to become a coach instead of an overseer.
Given that most leadership theories and research studies have focused on male leaders, developing a better understanding of how women lead is clearly an important next step. Some early observers, for instance, predicted that (consistent with prevailing stereotypes) female leaders would be relatively warm, supportive, and nurturing as compared to their male counterparts. But research suggests that female leaders are not necessarily more nurturing or supportive than male leaders. Likewise, male leaders are not systematically harsher, more controlling, or more task focused than female leaders.

20. The Changing Nature of Leadership (2 of 2)
Cross-Cultural Leadership
effects of an individual’s native culture on his or her approach to leadership when functioning in another culture
Another changing perspective on leadership relates to cross-cultural issues. In this context, culture is used as a broad concept to encompass both international differences and diversity-based differences within one culture. For instance, Japan is generally characterized by collectivism (group before individual), whereas the United States is based more on individualism (individual before group).

21. Emerging Issues in Leadership (1 of 2)
Strategic Leadership
leader’s ability to understand the complexities of both the organization and its environment and to lead change in the organization so as to enhance its competitiveness
Strategic leadership is a new concept that explicitly relates leadership to the role of top management. Strategic leadership is a leader’s ability to understand the complexities of both the organization and its environment and to lead change in the organization so as to enhance its competitiveness.

22. Emerging Issues in Leadership (2 of 2)
Ethical Leadership
leader behaviors that reflect high ethical standards
maintain high ethical standards
hold others in the organization to the same standards
Virtual Leadership
leadership in settings where leaders and followers interact electronically rather than in face-to-face settings
Business leaders are being called on to maintain high ethical standards for their own conduct, to unfailingly exhibit ethical behavior, and to hold others in their organizations to the same standards—in short, to practice ethical leadership.
Virtual leadership is also emerging as an important issue for organizations. In previous times, leaders and their employees worked together in the same physical location and engaged in face-to-face interactions on a regular basis. But in today’s world, both leaders and their employees may work in locations that are far from one another. Such arrangements might include people telecommuting from a home office one or two days a week to people actually living and working far from company headquarters.

23. Leadership, Management, and Decision Making
choosing one alternative from among several options
Decision-Making Process
recognizing and defining the nature of a decision situation, identifying alternatives, choosing the “best” alternative, and putting it into practice
Decision making can refer to either a specific act or a general process. Decision making is the act of choosing one alternative from among a set of alternatives. The decision-making process, however, is much more than this. One step of the process, for example, is that the person making the decision must both recognize that a decision is necessary and identify the set of feasible alternatives before selecting one. Hence, the decision-making process includes recognizing and defining the nature of a decision situation, identifying alternatives, choosing the “best” alternative, and putting it into practice.

24. Types of Decisions Programmed Decision Nonprogrammed Decision
decision that is relatively structured or recurs with some frequency (or both)
Nonprogrammed Decision
Decision that is relatively unstructured and that occurs with low frequency
Managers must make many different types of decisions. In general, however, most decisions fall into one of two categories: programmed and non-programmed. A programmed decision is one that is relatively structured or recurs with some frequency (or both).
Non-programmed decisions, on the other hand, are relatively unstructured and occur much less often. Managers faced with such decisions must treat each one as unique, investing enormous amounts of time, energy, and resources into exploring the situation from all perspectives.

25. Decision-Making Conditions (1 of 2)
State of Certainty
when the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative
State of Risk
when the availability of each alternative and its potential payoffs and costs are all associated with probability estimates
When the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative, a state of certainty exists.
A more common decision-making condition is a state of risk. Under a state of risk, the availability of each alternative and its potential payoffs and costs are all associated with probability estimates.

26. Decision-Making Conditions (2 of 2)
State of Uncertainty
when the decision maker does not know all the alternatives, the risks associated with each, or the likely consequences of each alternative
Most of the major decision making in contemporary organizations is done under a state of uncertainty. The decision maker does not know all the alternatives, the risks associated with each, or the likely consequences of each alternative. This uncertainty stems from the complexity and dynamism of contemporary organizations and their environments.

27. Rational Decision Making (1 of 3)
Recognizing and defining the decision situation
Identifying alternatives
Evaluating alternatives
Selecting the best alternative
Implementing the chosen alternative
Following up and evaluating the results

28. Rational Decision Making (2 of 3)
Step 1: The manager recognizes and defines a decision situation. Example: A hotel manager sees that customer complaints have been increasing. Step 2: The manager identifies alternatives for addressing the situation. Example: The hotel manager can hire new staff, offer service quality training, or leave things are they are. Step 3: The manager evaluates each of the possible alternatives. Example: The hotel manager decides leaving things as they are is unacceptable but that the other two options may work.

29. Rational Decision Making (3 of 3)
Step 4: The manager selects the best alternative. Example: Hiring new staff is too expensive but the hotel has unused funds in its training budget. Step 5: The manager implements the chosen alternative. Example: A new training program is developed. Step 6: The manager follows up and evaluates the effects of the chosen alternative. Example: After six months the manager notices a significant decrease in customer complaints.

30. Behavioral Aspects of Decision Making (1 of 2)
Coalition
an informal alliance of individuals or groups formed to achieve a common goal
Intuition
an innate belief about something, often without conscious consideration
A coalition is an informal alliance of individuals or groups formed to achieve a common goal. This common goal is often a preferred decision alternative. For example, coalitions of stockholders frequently band together to force a board of directors to make a certain decision.
Intuition is an innate belief about something, often without conscious consideration. Managers sometimes decide to do something because it “feels right” or they have a hunch. This feeling is usually not arbitrary, however. Rather, it is based on years of experience and practice in making decisions in similar situations.

31. Behavioral Aspects of Decision Making (2 of 2)
Escalation of Commitment
condition in which a decision maker becomes so committed to a course of action that she or he stays with it even when it appears to have been wrong
Risk Propensity
extent to which a decision maker is willing to gamble when making a decision
Another important behavioral process that influences decision making is escalation of commitment to a chosen course of action. In particular, decision makers sometimes make decisions and then become so committed to the course of action suggested by that decision that they stay with it, even when it appears to have been wrong.
The behavioral element of risk propensity is the extent to which a decision maker is willing to gamble when making a decision. Some managers are cautious about every decision they make. Others are extremely aggressive in making decisions and willing to take risks.

32. Applying What You’ve Learned (1 of 2)
Define leadership and distinguish it from management
Summarize early approaches to the study of leadership
Discuss the concept of situational approaches to leadership
Describe transformational and charismatic perspectives on leadership

33. Applying What You’ve Learned (2 of 2)
Identify and discuss leadership substitutes and neutralizers
Discuss leaders as coaches and examine gender and cross-cultural issues in leadership
Describe strategic leadership, ethical leadership, and virtual leadership
Relate leadership to decision making and discuss both rational and behavioral perspectives on decision making