The Leadership Quarterly 19 (2008) 708722

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The Leadership Quarterly

j o u r n a l h o m e p a g e : w w w. e l s ev i e r. c o m / l o c a t e / l e a q u a

How leaders inuence organizational effectiveness

Gary Yukl
Management Department, University at Albany, Albany, NY 12222, USA

a r t i c l e

i n f o

a b s t r a c t
The exible leadership theory explains how top executives and other leaders can inuence the nancial performance of a business organization. Three key determinants of nancial performance are efciency, adaptation, and human capital. A wide range of leadership behaviors, management programs, structural forms, and external initiatives can be used to inuence these performance determinants. Management programs 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 organization, and they must be exible and adaptive as the situation changes. The theory provides a way to integrate ndings from several different and largely separate literatures. 2008 Elsevier Inc. All rights reserved.

Keywords: Strategic leadership Organizational leadership Flexible leadership

1. Introduction Interest in strategic leadership has been increasing in recent years (Boal & Hooijberg, 2000; Canella & Monroe, 1997; Finkelstein & Hambrick, 1996; Hitt & Ireland, 2002; Zaccaro & Klimoski, 2001). One of the most important research questions is how top executives inuence the nancial performance and survival of an organization. Relevant research has been conducted by scholars in several distinct subelds, including leadership, strategic management, human resource management, and organizational change. The core leadership literature provides only limited insights about strategic leadership. Most empirical studies on leadership effectiveness during the past half century involved middle or lower-level managers rather than top executives (Osborn, Hunt, & Jauch, 2002; Yukl, 2006). The key research question was to discover how an individual leader can inuence followers to do more work or perform better than initially expected. During the past too much of the empirical research on leadership behavior was guided by theories of transformational and charismatic leadership (e.g., Bass, 1985; Conger & Kanungo, 1998; Shamir, House, & Arthur, 1993). Evidence from a large number of studies indicates that transformational leadership can enhance subordinate motivation and performance (see Lowe, Kroeck, & Sivasubramaniam, 1996). Nevertheless, these leadership theories are too narrowly focused to explain how top executives inuence the nancial performance of a large corporation (Klein, Dansereau, & Hall, 1994; Yukl, 1999). Most successful rms do not have a CEO who is considered charismatic, and a visionary CEO is no guarantee that a rm will avoid nancial disaster (e.g., Bennis & Nanus, 1993; Collins, 2001; Finklestein, 2003; Hogan, Raskin, & Fazzini, 1990; O'Connor, Mumford, Clifton, Gessner, & Connelly, 1995; Sandowsky, 1995). The literature on strategic management, strategic human resource management, and organizational change provides additional insights about the inuence of top executives on rm performance. Succession studies nd evidence that a CEO can have a moderate amount of inuence on the nancial performance of an organization (Giambatista, Rowe, & Riaz, 2005; Lord & Maher, 1991; Thomas, 1988). Studies of executive discretion identify situational constraints that limit CEO inuence on rm performance (e.g., Burt, 1992; Hambrick & Finkelstein, 1987). Studies of strategic decisions provide additional insights about the inuence of top executives on rm performance (e.g., Eisenhardt, 1989; Finkelstein & Hambrick, 1996; Mintzberg, Raisinghani, & Theoret, 1976). Studies of organizational change describe how top executives can implement new initiatives or major changes effectively (e.g., Beer
Tel.: +1 518 442 4932. E-mail address: G.yukl@albany.edu. 1048-9843/$ see front matter 2008 Elsevier Inc. All rights reserved. doi:10.1016/j.leaqua.2008.09.008

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& Nohria, 2000; Hambrick, Nadler, & Tushman, 1998; Kotter, 2002). Studies of strategic human resource management show that management programs and systems can be used to enhance human capital and rm performance (e.g., Hitt & Ireland, 2002; Huselid, Jackson, & Schuler, 1997; Wright & Snell, 1998). Each of these different perspectives on strategic leadership is narrowly focused, and only limited progress has been made in integrating them into a more comprehensive theoretical framework. A theory of strategic leadership should explain how top executives inuence the organizational processes that determine a rm's nancial performance and long-term survival (Boal & Hooijberg, 2000; Finkelstein & Hambrick, 1996). The explanation should take into account the inuence of top executives on strategic objectives, competitive strategy, the formal structure, management systems and programs, the corporate culture; and the members' skills and motivation. The theory should also include relevant aspects of the situation that inuence the actions and decisions of top executives (Osborn et al., 2002). The theory should take into account how multiple leaders in an organization share power and interact to inuence performance (Gronn, 2002; Pearce & Conger, 2003). Finally, the theory should help to bridge the gulf between the leadership and management literatures. The exible leadership theory (FLT) was formulated in response to the need for a more comprehensive theory of strategic leadership that integrates relevant ideas from several distinct literatures. The exible leadership theory is conceptualized primarily at the organizational level, and it includes four sets of variables: (1) organizational effectiveness, (2) performance determinants, (3) situational variables, and (4) leadership decisions and actions. The effectiveness of an organization is dened as the extent to which it is able to survive, perform its mission, and maintain favorable earnings, nancial resources, and asset value. Key indicators for business rms include long-term prot growth, return on investment, and stock returns. Effectiveness depends on three primary performance determinants: (1) efciency and process reliability, (2) human capital, and (3) adaptation to the external environment. The performance determinants are inuenced by the decisions and actions of a rm's leaders. The relative importance of the performance determinants, and how difcult it is to inuence them, are affected by aspects of the situation such as the type of organization or industry, turbulence in the external environment (resource availability, intensity of competition, economic, political, or technological change), and constraints on executive action (involving oversight by owners or government agencies, or stemming from legal restrictions). The key propositions of FLT are presented in the following sections, along with examples of relevant theory and research that support the propositions. 2. Efciency and innovative adaptation The determinants of organizational performance have been studied for several decades and are a central topic in the literature on management and organization theory (e.g., Barnard, 1968; Katz & Kahn, 1978; Lawrence & Lorsch, 1969; Melcher, 1976; Mintzberg, 1979; Thompson, 1967). Insights about the determinants of organizational performance are also provided by the literature on corporate strategy (e.g., Barney, 1991; Peteraf, 1993; Porter, 1980; Teece, Pisano, & Shuen, 1997; Zajac, Kraatz, & Bresser, 1999) and by many practitioner-oriented books based on studies of effective rms (e.g., Collins, 2001; Collins & Porras, 1997; Joyce, Nohria, & Roberson, 2003; Kaplan & Norton, 1996; Yukl & Lepsinger, 2004). Taken together, these sources provide ample evidence that nancial performance for business organizations depends jointly on the efciency of internal processes and timely adaptation to external threats and opportunities. Proposition 1. Efciency and innovative adaptations jointly determine the nancial performance of a business organization. Proposition 2. The relative importance of efciency and innovative adaptations depends on the type of organization and aspects of the external environment. 2.1. Efciency Efciency is the extent to which the organization minimizes the cost of people and resources needed to carry out essential operations. Business rms 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. Efciency also depends on process reliability, which is the extent to which work processes are conducted without unnecessary delays, errors, or accidents. Key indicators of efciency include the costs as a percentage of revenues, costs relative to those of competing companies, and employee productivity relative to labor costs. Case studies and survey research provide evidence that reducing unnecessary costs can improve a company's performance (e.g., Ebben & Johnson, 2005; Ghosn & Ries, 2005; Hammer & Champy, 1993; Key, Reed, & Sclar, 2005; Lieberman & Demester, 1999). There are many ways to improve efciency, and they include redesigning work processes, using new technology, reducing the cost of energy or materials, reducing excess inventory, and reducing the cost of labor or outsourcing jobs to low wage countries. Efciency 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 (Miron, Erez, & Naveh, 2004). It is easier to improve efciency when the organization's operations are relatively stable for a considerable period of time rather than constantly changing (Tushman & Romanelli, 1985). It is more difcult to improve efciency if there are constraints on the reduction of costs (e.g., mandated quality standards and safety requirements, laws for minimum wages and benets, requirements for guaranteed employment, shortages of necessary inputs such as materials or energy). Efciency is especially important when the competitive strategy of the organization is to offer its products and services at a lower price than competitors (Porter, 1980, 1996). This cost leadership strategy is most common for generic products and services

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that are viewed as commodities (e.g., chemicals, metals, paper, cement, building materials, airlines, grocery stores, printing and duplicating, fast food restaurants, consumer electronics). Efciency is also very important for a rm with a few large customers who can demand cost reductions. Efciency is relatively less important when an organization is able to pass along high costs to customers by increasing prices. Examples include companies that have cost-plus contracts with a sole client such as the federal government to provide a unique product or service, and organizations that are the exclusive providers of a product or service that customers need regardless of variations in the price. Likewise, an organization has less need to maintain a high level of efciency if it is highly subsidized by the government or a wealthy patron. 2.2. Adaptation The effectiveness of an organization 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 (e.g., 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 organizational 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. Successful adaptation often requires innovative changes, not just incremental adjustments in traditional practices (Nadler et al., 1995). Innovation in products and services is facilitated by strong cultural values for creativity, exibility, tolerance of mistakes, product quality, and customer service (Baer & Frese, 2003). It is easier to make innovative changes in an organization that is exible with regard to operational processes and the types of products and services provided (Adler, Goldoftas, & Levine, 1999). Successful adaptation is unlikely when top management fails to recognize 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 (Finklestein, 2003; Tushman & O'Reilly, 1996). On the other hand, there are good reasons to be cautious in responding to threats and opportunities. Untested innovations and bold new ventures can be very risky, and a nancial disaster may result if a new initiative or major change is based on wishful thinking rather than careful analysis of risks and capabilities (Finklestein, 2003). Innovative adaptation is more important when the external environment is dynamic and uncertain, which is likely when there is rapid technological change, political and economic turmoil, rapidly changing customer preferences, intense competition, and shortages of essential resources for conducting operations (Miller & Friesen, 1984; Tushman & Romanelli, 1985). Innovation is especially important for an organization with a competitive strategy that emphasizes unique, leading edge products or services designed to satisfy the changing needs of customers and clients (Porter, 1980, 1996). Examples of these organizations 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. There is much less pressure to improve customer service or product quality when an organization has strong demand for its products or services and there is little competition. Examples include the sole source of a miracle drug, or the only provider of a necessary service in a protected domestic market. However, rapid technological and social changes and the continuing trends toward privatization, deregulation, globalization, and internet commerce in most nations have increased the need for business organizations to systematically monitor changes in their external environment and respond in a timely way to new threats and opportunities. Few organizations today can afford to disregard changes in their external environment. 3. Human capital Human capital is the extent to which the members of an organization have the skills and motivation needed to do the work effectively (Hitt & Ireland, 2002). Research in strategic human resource management indicates that human capital is another determinant of organizational performance (Becker & Gerhart, 1996; Becker & Huselid, 1998; Bowen & Ostroff, 2004; Gelade & Ivery, 2003; Hitt et al., 2001; Jackson & Schuler, 1995; Pennings, Lee, & van Witteloostuijn, 1998; Pfeffer, 1994, 1998). Proposition 3. The nancial performance of an organization depends on the quality of human capital. Proposition 4. The effects of human capital on organization performance are mediated by efciency and innovative adaptations. 3.1. Human resources and relations Dened broadly, human capital includes both human resources and human relations. Human resources (or employee talent) for an organization include the task-relevant skills and experience of the members. Potential indicators of human resources include the level of relevant skills, experience, and education of employees. There is considerable evidence that the acquisition and retention of human capital have a stronger impact on business results than was previously recognized. Talented employees with unique knowledge and skills are increasingly being viewed as a valuable asset and a source of competitive advantage (Adner & Helfat, 2003; Barney, 1998; Collins, 2001; Grant, 1996; O'Toole & Lawler, 2006; Pfeffer, 2005).

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Human relations include organizational commitment, identication with the organization, mutual trust and cooperation, and optimism about the future. Although conceptualized primarily at the organizational level for FLT, similar constructs are used in dyadic and group level theories of effective leadership. Measures of individual attitudes can be aggregated to provide a measure of the organizational level construct (assuming adequate rater agreement). Many studies have found that leaders can inuence employee optimism, organizational commitment, collective identication, and mutual cooperation (e.g., Bass, 1990; Chen & Bliese, 2002; Mumford, Scott, Gaddis, & Strange, 2002; Zaccaro, Rittman, & Marks, 2001). Most effects of human capital on rm performance are mediated by efciency and innovative adaptation. Employees with strong skills and motivation are likely to be more productive, because they will do the work faster and smarter. Research shows that talented employees can improve efciency and process reliability (e.g., Hatch & Dyer, 2004; Ichniowski & Shaw, 1999). Talented employees can also improve adaptation by helping to develop innovative products and services, by marketing them effectively, and by providing excellent customer service (Baer & Frese, 2003; Pfeffer, 1998; Vermeulen, Jong, & O'Shaughnessy, 2005). 3.2. Conditions affecting the importance of human capital Proposition 5. The importance of human capital for an organization depends on its need for highly skilled employees, and the availability and cost of necessary employees. Because efciency and adaptation mediate the effects of human resources and relations on rm performance, the importance of human resources and relations increases when talented, dedicated employees are needed to achieve optimal levels for these other two performance determinants. Human resources are more important when operations are labor intensive, the work is complex and difcult to learn, successful performance requires a high level of skill and experience, and it is difcult to recruit and train competent replacements for people who leave. Examples of organizations likely to have such conditions include hospitals, consulting rms, law rms, advertising agencies, research universities, and companies that rely on advanced manufacturing technology (Snell & Dean, 1992). Human resources and relations are very important when the competitive strategy requires unique experts or celebrities to attract and retain customers (Grant, 1996; Pennings et al., 1998). If unusually talented employees are dissatised, they can often nd jobs in competing companies or start their own company. Voluntary turnover of key employees can be important not only for the loss of unique skills, but also for the loss of their special external relationships with clients, suppliers, strategic partners, and others (Dess & Shaw, 2001; Leana & Van Buren, 1999; Pennings et al., 1998). Examples of organizations with high dependence on uniquely talented members include professional sports teams, advertising agencies, talent agencies, consulting companies, and investment banking rms. Human relations and resources are less important when much of the work can be done by unskilled workers, there are many people who are able and willing to do simple repetitive work for low wages and benets, and there are few labor laws or other limitations on how employees are treated (as in many third-world countries). Likewise, human resources and relations are less important when an organization needs few employees except for the headquarters staff (e.g., a chemicals company with highly automated processes, an internet services company, or a virtual organization for which nearly all functions are outsourced). 4. Inuence of leaders on the performance determinants Leaders can improve the performance of an organization by inuencing the performance determinants. One form of inuence is the use of specic leadership behaviors in interactions with subordinates, peers, and outsiders. A second form of inuence involves decisions about management programs and systems, and organizational structure. A third form of inuence involves decisions about the competitive strategy for the organization. The three forms of inuence must be used together in a consistent way for effective strategic leadership. 4.1. Leadership behaviors Proposition 6. The performance determinants can be enhanced by relevant task-oriented, relations-oriented, and change-oriented leadership behaviors. In decades of research on leaders and managers, many types of behaviors have been identied (Bass, 1990; Yukl, 2006). A difcult challenge for scholars has been to organize the many specic behaviors into a hierarchical taxonomy that is meaningful in terms of the effects of the behaviors. A distinction between task-oriented and relations-oriented behaviors was popular in the early leadership literature (e.g., Blake & Mouton, 1982; Fleishman, 1953), and researchers later found that change-oriented behavior was another distinct meta-category (Ekvall & Arvonen, 1991; Yukl, Gordon, & Taber, 2002). The three types of leader behavior each have a different primary objective, and the objectives align with the three determinants of organizational effectiveness. Task-oriented behaviors are most useful for improving efciency, change-oriented behaviors are most useful for improving adaptation, and relations-oriented behaviors are most useful for improving human resources and relations. All three general types of leadership behavior have implications for organizational effectiveness. Task-oriented behaviors include short-term planning and scheduling of work activities, determining resource and stafng requirements, assigning tasks, clarifying objectives and priorities, emphasizing the importance of efciency and reliability, directing

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and coordinating activities, monitoring operations, and dealing with day-to-day operational problems. Task-oriented behaviors are used to improve productivity and reduce costs by eliminating unnecessary activities, duplication of effort, wasted resources, errors, and accidents. Extensive research using survey questionnaires, critical incidents, observation, and experiments show that taskoriented behaviors can enhance the performance of individual subordinates and small groups (see Bass, 1990; Yukl, 2006). Relations-oriented behaviors include showing support and positive regard, providing recognition for achievements and contributions, providing coaching and mentoring, consulting with people about decisions that will affect them, delegating and empowering subordinates, encouraging cooperation and teamwork, and building a network of information sources inside and outside the organization. Decades of research show that relations-oriented behaviors by leaders are related to higher job satisfaction and lower turnover (see Bass, 1990; Yukl, 2006). Relations-oriented behaviors can reduce stress, build mutual trust and cooperation, increase collective identication with the team or organization, and facilitate performance by individuals and teams (see Bass, 1990; Zaccaro et al., 2001). Change-oriented behaviors include monitoring the environment to identify threats and opportunities; interpreting events and explaining why major change is needed; articulating an inspiring vision; taking risks to promote change; building a coalition of supporters for a major change; and determining how to implement a new initiative or major change (Yukl, 2006). Studies on change-oriented aspects of transformational leadership such as inspirational motivation (vision articulation) and intellectual stimulation (encouraging innovative thinking) show that this type of behavior can enhance individual and team performance (see Lowe et al., 1996). Research on the determinants of creativity and innovation provides additional evidence for the relevance of change-oriented leadership (Mumford et al., 2002; Reiter-Palmon & Illies, 2004; Shalley & Gilson, 2004). Leaders can also enhance innovative adaptation by encouraging and facilitating collective learning, diffusion of knowledge, and the application of new ideas in the organization (James, 2002; Senge, 1990; Vera & Crossan, 2004). The change-oriented behaviors are especially relevant for top executives (e.g., Jacobs & Lewis, 1992; Katz & Kahn, 1978; Mintzberg, 1973). Several recent survey studies found evidence of a relationship between CEO transformational or charismatic leadership and indicators of company nancial performance (Jung, Chow, & Wu, 2003; Tosi, Misangyi, Fanelli, Waldman, & Yammarino, 2004; Waldman, Ramirez, House, & Puranam, 2001; Waldman, Javidan, & Varella, 2004). Other evidence for the relevance of change-oriented behavior of top executives is provided by intensive case studies of successful change efforts in organizations (e.g., Beer, 1988; Beer & Nohria, 2000; Gabarro, 1987; Ghosn & Ries, 2005; Hambrick et al., 1998; Kotter & Cohen, 2002), and by studies on the inuence of CEO visions on company performance (e.g., Baum, Locke, & Kirkpatrick, 1998; Nanus, 1992). A leader's behavior can inuence more than one performance determinant at the same time. For example, consulting with team members about the action plan for a new project may increase member commitment (human relations), improve the use of available personnel and resources (efciency), and identify more innovative ways to satisfy the client (adaptation). Sometimes the side effects of leader behaviors on another performance determinant are negative rather than positive. For example, empowering employees to make decisions about how to do the work may increase their motivation and satisfaction (better human relations), but if employees are focused on improving customer service, the number of customers handled by each employee may decline (lower efciency). 4.2. Management programs, systems, and structures Proposition 7. The performance determinants can be enhanced by relevant management programs, systems, and structural forms. Many different types of improvement programs, management systems, and structural forms can be used to inuence the performance determinants and organizational effectiveness (Yukl & Lepsinger, 2004). CEOs and leaders of major subunits usually have more authority than lower-level managers to implement or modify management programs, systems, and structural forms (Hambrick et al., 1998; Hunt, 1991). Top management has the primary responsibility for determining what programs are relevant and mutually compatible, but a coordinated effort by leaders at all levels in the organization is necessary to ensure that a program or management system is effectively implemented. Relevant programs, systems, and structural forms can improve efciency and process reliability (e.g., Benner & Tushman, 2003; Ho, Chan, & Kidwell, 1999; Lawler, Mohrman, & Benson, 2001; Powell, 1995; Waterson et al., 1999). Examples of programs used to improve efciency include cost reduction programs (downsizing, outsourcing, just-in-time inventory), process and quality improvement programs (total quality management, Six Sigma, business process reengineering); performance management and goal setting programs (e.g., management by objectives, zero defects); and appraisal, recognition, and reward systems that emphasize efciency and reliability. Management programs involving standardized procedures provide a way to ensure that common activities are carried out in an efcient and uniform way across subunits. Efciency is also affected by aspects of an organization's formal structure such as formalization, standardization, and the use of functionally specialized subunits (Mintzberg, 1979). Relevant programs, systems, and structural forms can improve innovation and adaptation (e.g., Damanpour, 1991; Dougherty & Hardy, 1996; Gibson & Birkinshaw, 2004; Powell, 1992; Teece, 1996; Van de Ven, Poley, Garud, & Venkataraman, 1999; Vermeulen et al., 2005; Waterson et al., 1999). Several types of programs and processes can be used to support collective learning and diffusion of new knowledge in the organization (e.g., James, 2002; Yeung, Ulrich, Nason, & Von Glinow, 1999). For example, linkage analysis can be used to help managers visualize the complex processes of change and nd ways to ensure that local changes have benecial effects for the overall organization (Goodman & Rousseau, 2004). A variety of programs can be used to encourage and facilitate development of new products and processes (e.g., innovation goals and incentives). Adaptation is also facilitated by programs and systems that improve understanding of customer preferences and competitor actions (e.g., market surveys, focus groups, customer

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panels, comparative product testing, and benchmarking of competitor products and processes). Structural forms that can facilitate innovation and adaptation include research and development departments, cross-functional product development teams, product managers, and semi-autonomous divisions based on products, market segments or different types of customers (Galbraith, 1973; Mintzberg, 1979). Many types of management programs and systems are used to improve human capital (e.g., Becker & Gerhardt,1996; Guzzo, Jette, & Katzell,1985; Huselid,1995; Huselid et al.,1997; Ichniowski & Shaw,1999; Kirkman & Rosen,1997; Lawler et al., 2001; Molina & Ortega, 2003; Singh, 2003). Human resources can be improved with recruiting and selection programs, talent management and succession planning programs, and employee development programs (e.g., training, mentoring program, 360 feedback, education subsidies, corporate university). Human relations can be improved with quality of work life programs (extime, job sharing, child care, tness center), employee benet programs (compensation, health care, retirement, sabbaticals), socialization programs (orientation sessions; celebrations, rituals and ceremonies), employee empowerment programs (self managed teams, employee stock ownership, industrial democracy), and recognition and reward programs based on loyalty, service, and skill acquisition. Despite some dramatic successes, many improvement program and management systems fail because they are irrelevant, poorly implemented, or incompatible with the organization's culture and competitive strategy (Abrahamson, 1996; Abrahamson & Fairchild, 1999; Beer, 1988; Benner & Tushman, 2003; Carson, Lanier, Carson & Guidry, 2000; Powell, 1995; Staw & Epstein, 2000). Management programs and systems often have side effects for other performance determinants besides the one that is the primary target. Even if a program is able to improve the targeted performance determinant, adverse side effects may cause it to be abandoned. 4.3. Joint effects of leader behaviors and formal programs Proposition 8. The positive effect of programs, systems, and structural forms on a performance determinant is enhanced by relevant leader behaviors. Proposition 9. The positive effect of leadership behaviors on a performance determinant is enhanced by relevant programs, systems, and structural forms. Proposition 10. Relevant programs, systems, and structural forms reduce the need for some types of leadership behaviors. The two different approaches for inuencing performance determinants are complementary rather than mutually exclusive (Barley & Tolbert, 1997). The direct behaviors can be used to facilitate the implementation of management programs or systems and their successful use (Zhu, Chew, & Spangler, 2005). Improvement programs and major change initiatives seldom succeed without strong support by top management and middle management (e.g., Douglas & Judge, 2001; Kotter, 2002; Nadler et al., 1995). Examples of facilitating behaviors include explaining why a new program or system is needed, planning how to implement it, and guiding the change process. For example, a new training program will be more successful in improving employee skills if managers encourage subordinates to attend the program and provide opportunities for them to use newly learned skills on the job. Management programs and systems can enhance the effects of direct leadership behaviors. For example, encouraging innovative thinking (called intellectual stimulation in transformational leadership theory) is much more likely to increase innovation when an organization has a program to facilitate innovation, a climate of psychological safety for risk taking, and appropriate rewards for creative ideas about improving products and processes. In their absence, employees may doubt that innovative ideas about products or processes will be supported and eventually adopted by the organization. Programs and structures can also limit the use of leadership behaviors or nullify their effects. For example, it is difcult to empower subordinates when they must follow elaborate rules and standard procedures for doing the work (Spreitzer, 1996). Management programs and systems can also serve as substitutes for some types of direct behaviors (Kerr & Jermier, 1978). For example, company-wide training programs can reduce the amount of training that managers need to provide to their immediate subordinates. Over a period of time the corporate culture can be inuenced by the joint effects of leader behaviors and management programs (Schein, 1992; Trice & Beyer, 1991; Tsui, Zhang, Wang, Xin, & Wu, 2006). The culture of an organization includes shared values and beliefs about its primary mission and purpose, the essential qualities of its products and services, and how members should be treated (Schein, 1992). Leaders can inuence the culture with behaviors such articulating a compelling vision, leading by example, and the use of symbols, rituals, ceremonies, and stories. Corporate culture is also inuenced by management programs and systems involving employee selection, socialization, training, performance appraisal, and rewards. A strong corporate culture can facilitate organizational performance if the shared beliefs and values are consistent with the strategy necessary to adapt to the external environment (Barney, 1986; Camerer & Vepsalainen, 1988; Dennison, 1990; Detert et al., 2000; Gordon & DiTomaso, 1992; Kotter & Heskett, 1992). Once a strong, relevant culture is established, it can serve as another substitute for direct action by individual leaders. 4.4. Decisions about competitive strategy Proposition 11. Decisions about competitive strategy can affect the relative importance of the performance determinants and the difculty of keeping them at optimal levels. Competitive strategy includes the types products or services to offer, the basis for appealing to potential customers (e.g., price, quality, customer service, uniqueness, patriotism), the methods used to inuence potential customers or clients (e.g., advertising,

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discounts, promotions), and approaches to grow the organization and expand into new markets (e.g., acquisitions, mergers, joint ventures, franchises). Competitive strategy also includes external initiatives such as acquisitions, mergers, strategic alliances, joint ventures, and partnering with suppliers. The formulation and revision of competitive strategy is an especially important source of inuence on organizational performance (Adner & Helfat, 2003; Hambrick & Mason, 1984; Porter, 1996). Top management usually has primary responsibility for decisions about competitive strategy in business rms. However, the amount of discretion the CEO and other top executives have for making major changes in the strategy, structure, and membership of the organization depend on aspects of the situation such as the type of organization, its ownership, the relative power of different stakeholders, and constraints imposed by economic and market conditions (Hambrick & Finkelstein, 1987). There is less discretion when the CEO must satisfy a dominant owner (e.g., the organization is a family-owned rm or the subsidiary of another rm), answer to an independent board of directors, satisfy strong external stakeholders (e.g., banks, regulatory agencies, institutional investors, labor unions), and comply with legal requirements and restrictions (e.g., product quality and warranties, employee compensation and job security, working conditions and safety provisions). Discretion is greater when surplus nancial reserves are available to fund new ventures, or the rm's prosperity and reputation make it easy to nance innovations by borrowing funds. Decisions about competitive strategy affect the relative importance of the performance determinants and their optimal level. The primary focus of strategy is on adaptation, but the interdependence among performance determinants makes it difcult to improve adaptation unless consistent changes are made in efciency and human capital. For example, the decision to offer lower prices as the primary basis for increasing sales and prots may require a reduction in the cost of operations (e.g., by using improved technology, by using less expensive materials, by reducing the pay and benets of current or newly-hired employees, or by outsourcing high paying jobs to low wage countries). The decision to provide more unique products or improve customer service may make it necessary to retrain current employees or to recruit more skilled employees. Strategy formulation is facilitated by the use of specic leadership behaviors such as monitoring the external environment, assessing threats and opportunities, identifying core competencies, and evaluating alternative strategies. Some types of programs and systems for monitoring the external environment provide additional information necessary to identify an appropriate strategy for the organization. Several leadership behaviors can be useful for implementing a new strategy or major change (Yukl, 2006). Examples include inspiring enthusiasm for it, building a coalition of supporters, identifying competent change agents, forming task forces to plan and guide major changes, and monitoring the change processes to ensure adequate progress is maintained. Implementing a new strategy usually requires some modications of management programs, systems, and structures in the organization, and it may also involve negotiation of new agreements with other organizations (e.g., clients, distributors, suppliers, strategic partners). 5. Tradeoffs and synergies Efforts to improve one performance determinant may have an adverse effect on another performance determinant, and sometimes the net effect is to reduce organizational effectiveness instead of increasing it. Furthermore, the potential benets from using several different programs or systems may not be realized unless they are compatible. For example, an inadequate compensation system can undermine the potential benets from an intensive training program to enhance employee skills if many of the newly-trained employees subsequently leave to take better paying jobs in other companies. Insights about potential tradeoffs and possible remedies are provided by the literature on strategic management, organization theory, and organizational change (e.g., Beer, 2001; Ebben & Johnson, 2005; Eisenhardt & Tabrize, 1995; Miller, 1990; Quinn, 1988; Quinn & Rohrbaugh, 1983; Smith & Tushman, 2005; Stacey, 1992; Sutcliffe, Sitkin & Browning, 1999; Tushman & O'Reilly, 1996; Tushman & Romanelli, 1985). Proposition 12. Management programs and systems have a stronger positive effect on organizational performance when they are mutually consistent, enhance more than one performance determinant, and minimize negative side effects. Proposition 13. Leaders who understand the complex relationships among performance determinants and the reasons for tradeoffs and synergies are more effective in their decisions and actions. 5.1. Efciency vs. adaptation Efforts to improve efciency can reduce innovative adaptation. Efciency can be increased by rening work processes, establishing norms and standard procedures, investing in specialized personnel, facilities, or equipment, organizing around the strategy, and implementing process management systems and programs. However, these practices tend to reduce exibility and make it more difcult to change strategies and work processes in response to environmental threats and opportunities (Benner & Tushman, 2003; Grinyer & McKniernan, 1990; Miller, 1990; Miller & Friesen, 1984; Sterman, Repenning & Kofman, 1997). When efciency is the dominant concern, leaders tend to focus effort and resources on rening the existing strategy rather than in discovery of new approaches. Opportunities may be overlooked until long after they are feasible to exploit. Emerging threats may be ignored or discounted until they are nally so serious that it will be more difcult and costly to deal with them. Conversely, efforts to improve adaptation often result in a period of lower efciency before any benets are realized (Lord & Maher, 1991). Many programs and initiatives used to enhance innovative adaptation require a costly initial investment (e.g., research and development programs, installation of new technology, construction of new facilities, acquisition of another

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company, extensive advertising and discounts). Major changes often involve a period of difcult adjustment and relearning by individuals and groups, which is another reason for a temporary reduction in efciency. 5.2. Efciency vs. human capital Efforts to improve human resources and relations may reduce efciency. Providing a high level of compensation and benets will increase member satisfaction and willingness to remain in the organization, but it is difcult to remain efcient if the organization is overly generous about allocating resources for the personal benet of members. To achieve high efciency, the organization must avoid unnecessary costs for lavish salaries and benets, luxurious working conditions, or unproductive people. Conversely, some approaches for improving efciency may have an adverse effect on human relations and resources. Cutting spending on salaries and benets may seriously reduce organizational commitment and increase voluntary turnover of skilled employees. A downsizing program that involves early retirement of experienced older employees can result in a serious decline in essential expertise and tacit knowledge, and there is likely to be less satisfaction and commitment for the remaining employees (Hoskisson & Hitt, 1994). Extensive rules and procedures and elaborate control mechanisms (e.g., quality inspectors, television cameras in the workplace, monitoring of telephone conversations and email messages) may reduce errors and wasted time but undermine employee commitment and job satisfaction. 5.3. Innovation vs. human capital Efforts to improve adaptation may have a negative side effect on human relations. Successful adaptation to a changing, environment usually requires a substantial investment of resources diverted from other uses. The changes necessary to deal with an economic crisis for the organization may leave fewer resources available to satisfy the individual needs of members. In this situation, leaders must ask for sacrices and make unpopular changes that affect members. When leaders are preoccupied with responding to external threats, there is less time for people-oriented concerns such as being supportive and developing member skills other than those directly relevant for the change. There will be less tolerance of people who lack the competencies or commitment necessary to implement necessary changes. Major change is likely to be very stressful for members of the organization. There will be signicant effects on roles, relationships, power, and status. People may be uprooted and moved to different locations. Important aspects of the old culture may be lost. Expertise that was important may become irrelevant. If the change is not considered necessary or appropriate, there will be attempts to reverse or delay it. Controversial changes will increase conict, distrust, and dysfunctional political activity. Even when change is not actively resisted, the disruptive effects of implementing a major change can undermine commitment to the organization and increase turnover among members who have more attractive options for employment. Conversely, efforts to improve human relations may have negative side effects on adaptation. When the organization uses a large proportion of its surplus funds to improve compensation and benets for members, there will be less investment in activities that promote future adaptation, such as research and product development. When there is a high priority for protecting member privileges, benets, and job security, necessary steps to implement major change successfully may be avoided. For example, the organization may be unwilling to reassign or dismiss members who have become obsolete, or who refuse to accept the changes. 5.4. Synergies and ambidexterity Leaders who understand the complex relationships and recognize potential tradeoffs and synergies can often nd ways to avoid negative side effects and enhance more than one performance determinant at the same time. The term ambidexterity is sometimes used to describe rms that are able to simultaneously achieve high levels of efciency and exible adaptation (Gibson & Birkinshaw, 2004; Tushman & O'Reilly, 1996). One way to achieve ambidexterity is through the effective use of human resources. A good example is provided by Costco, a chain of warehouse retail stores. Costco pays higher wages and benets than competitors, and it has one of the most loyal and productive work forces in the retailing industry. The cost savings from lower turnover and the increased revenue from higher sales per employee more than offset the cost of providing better compensation, and the result is that Costco has higher prots than competitors (Holmes & Zellner, 2004). Two different learning processes are useful for achieving ambidexterity (e.g., Benner & Tushman, 2003; He & Wong, 2004; Holmqvist, 2004; March, 1991). Exploitation is renement of existing approaches through incremental improvements, and exploration is the discovery of new approaches. Exploitation is more relevant for improving efciency, and exploration is more relevant for improving adaptation, but both types of learning can be used to improve all three performance determinants. Top executives can encourage both types of learning by their selection of relevant programs and systems, and by building a corporate culture with appropriate values (e.g., James, 2002; Miron et al., 2004; Vera & Crossan, 2004; Yeung et al., 1999). 6. Distributed leadership In much of the literature on strategic leadership there is an implicit assumption that the fate of an organization depends primarily on the decisions and actions of a single heroic leader such as the CEO (Meindl, Ehrlich, & Dukerich, 1985). This assumption is unrealistic, because organizations have multiple leaders who can inuence important decisions and determine if

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they will be implemented successfully (McCall & Kaplan, 1985; Mintzberg et al., 1976; Schweiger, Anderson, & Locke, 1985). It is only through cooperation and coordinated action that these leaders are able to achieve a high level of nancial performance for their organization. The term distributed leadership has been used to describe leadership processes in an organization that involve multiple leaders with overlapping but different responsibilities (Gronn, 2002; Yukl, 2006). To understand how leaders can inuence the performance of an organization, it is helpful to examine the inuence processes and relationships among leaders at different levels and across different subunits. 6.1. Cooperation and coordination across management levels Proposition 14. The collective inuence of leaders at different levels in the organization is greater when their decisions are mutually consistent and coordinated. Proposition 15. The performance of an organization is better when the inuence of middle and lower-level leaders on important decisions is commensurate with their unique, relevant knowledge. If managers at different levels make decisions that are incompatible, the performance of an organization is likely to suffer. The difculty of achieving effective cooperation and coordination across levels has received much less attention in the leadership literature than in the management and organization change literature. Leadership scholars usually assume that strategic decisions are made by the CEO and inuence cascades down the authority hierarchy as managers at each level interact with their own subordinates (e.g., Yammarino, 1994). However, the research on organizational change and strategy implementation nds that major changes initiated by top executives often elicit strong resistance by managers at middle and lower levels, and without their support a change effort is likely to fail (Beer, 1988; Beer, Eisenstat, & Spector, 1990). Even in organizations with a powerful CEO, prolonged conict about the CEO's vision or competitive strategy can prevent it from being implemented effectively (Connor, 1995; Kotter, 2002; Robbins & Duncan, 1988). A charismatic CEO can polarize people by creating strong opponents as well as strong supporters, and the resulting conicts are likely to prevent successful implementation of new strategies (Bass, 1985). Resistance by managers at different levels may stem from disagreement about the nature of external threats and opportunities, the reasons for past success or failure, the priorities for different objectives, and the feasibility of alternative strategies. A good understanding of these diverse perceptions is needed to identify a vision or strategy that will elicit sufcient cooperation and commitment. Moreover, top executives do not have a monopoly on relevant information or ideas, and innovative changes in organizations often originate from lower levels (Marion & Uhl-Bien, 2001). There are several ways top management can increase the involvement of middle and lower-level managers in making important decisions (Denis, Lamothe, & Langley, 2001; Galbraith, 1973; Sundaramurthy & Lewis, 2003). Managers at different levels can be invited to participate in face-to-face or virtual meetings about strategic decisions. Task forces with representatives from different levels can be formed to develop a new initiative or determine what types of changes are necessary. Relevant programs and systems can be used to encourage and support proposals from lower-level managers for improving efciency, adaptation, and human relations. Even when a strategic decision is initiated by top executives, it is usually worthwhile to involve middle and lower-level managers in planning how to implement the decision (Wai-Kwong, Priem, & Cycyota, 2001). Meaningful participation by people who have unique and relevant expertise can increase decision quality as well as commitment to implement decisions successfully (Vroom & Jago, 1988). Special task forces or committees can be used to facilitate participation of middle and lower-level managers in planning how to implement major change. If subunits are not highly interdependent, the managers should be allowed considerable discretion in determining how to implement a major change or new program in their own subunits (Beer, 1988; Huy, 2002). 6.2. Lateral differentiation and integration Proposition 16. Top executives have a stronger positive inuence on the performance of their organization when they cooperate and nd integrative solutions to disagreements and tradeoffs involving the performance determinants. Proposition 17. Highly differentiated leadership roles for executives increase the difculty of nding integrative solutions for tradeoffs involving the performance determinants. Proposition 18. Top executives are more likely to nd integrative solutions for improving rm performance if they have shared values and shared mental models that are relevant for understanding the causes of performance. The need for coordination and cooperation among executives is greater when the major subunits of an organization are highly interdependent but also highly differentiated with regard to their function or objectives (Galbraith, 1973; Lawrence & Lorsch, 1969). Differentiated subunits increase the amount of attention and effort devoted to each function and reduce cognitive overload for individual subunit managers, but differentiation often increases conicts and communication barriers. The leaders of specialized subunits in an organization often have different assumptions, knowledge, and priorities with regard to the performance determinants, and their decisions are often biased by their unique perspective. For example, the decision by a marketing manager to promote sales of customized products is inconsistent with the decision by a manufacturing manager to purchase equipment for increased production of standardized products. The decision by a marketing manager to initiate an

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expensive campaign designed to increase sales of a current product is inconsistent with the decision by a product development manager to quickly roll out a new product that would make the current one obsolete. Top management teams often include executives with specialized roles related to the performance determinants (Edmondson, Roberto, & Watkins, 2003; Pettigrew, 1992). In a manufacturing company with functional specialization for major subunits, primary responsibility for adaptation may reside in the marketing VP and the VP for research and product development. Primary responsibility for efciency and cost containment may reside in the VP for operations, the chief operating ofcer (COO), and the chief nancial ofcer (CFO). Primary responsibility for human resources and relations may reside in the VP for human resources. If there is no advocate for a performance determinant in the top management team, it may not receive adequate consideration in strategic decisions. A rm's performance depends in part on how well top executives deal with subunit competition and disagreements about objectives and priorities (Edmondson et al., 2003; Smith & Tushman, 2005). It is important for each executive to understand the complex interdependencies that determine the consequences of strategic decisions for other executives and for the overall organization. When members of the top management team have differentiated roles, the CEO may have primary responsibility for achieving integration, and it can be facilitated with the use of appropriate decision processes (Edmondson et al., 2003). An alternative approach is to make the entire team responsible for integration. The facilitating conditions and essential processes for a leader centric or team centric approach are described by Smith and Tushman (2005). Making strategic decisions jointly is more likely to yield high quality decisions if the executives have an accurate, shared mental model about the determinants of organizational performance (Cannon-Bowers, Salas, & Converse, 1993; Klimoski & Mohammed, 1994; Senge, 1990). Mental models include assumptions, perceptions, and beliefs about the determinants of organizational performance, their relative importance, and how they can be inuenced to improve performance. More accurate models can be developed by explicit discussion of differences among executives in how they view the world, by improving measures and information systems (to ensure accurate, relevant, timely information about key variables), and by conducting experiments on the effects of different types of changes and improvement programs (Senge, 1990). It is difcult to achieve cooperation and coordination across levels and subunits in an organization unless the managers have shared ideals and values to guide their decisions. Companies with a strong, relevant core ideology are more likely to survive and be successful over a long period of time (Collins & Porras, 1997). A primary responsibility of top management is to ensure that the organization has a relevant core ideology, but leaders at all levels must help to build support for the core ideology and ensure it is understood and used to guide daily actions. 7. Concluding comments To survive and prosper in today's turbulent, uncertain environment, organizations need leaders who are exible and adaptive. These leaders must be able to understand the complex relationships among performance determinants and recognize what can be done to inuence them in a benecial way. Top executives must be prepared to modify their leadership behavior, the competitive strategy, and the formal programs and structures to meet the challenges that confront them in an increasingly turbulent and uncertain environment. By clarifying how leaders can inuence and improve organizational effectiveness, the new leadership theory offers several benets to scholars and practitioners. These benets, potential extensions of the theory, and recommendations for future research are discussed in this nal section. 7.1. Benets for scholars and practitioners For scholars, FLT provides a way to integrate ideas from diverse literatures, including leadership, human resource management, strategic management, change management, and organization design. FLT bridges the gap between the leadership and management literatures, and between micro theories of interpersonal inuence and macro theories of organizational effectiveness and change. The effects of direct leader behaviors, management systems, and decisions about competitive strategy cannot be understood if examined in isolation. Effective strategic leadership by top executives requires a consistent and appropriate combination of these different ways of inuencing the performance determinants. Some scholars dene leading and managing as distinct roles, but there is considerable disagreement about the appropriate denitions and the relative importance of the two roles (Bennis & Nanus, 1985; Hickman, 1990; Kotter, 1990; Mintzberg, 1973; Rost, 1991; Yukl & Lepsinger, 2005; Zaleznik, 1970). Managing and leading are usually dened very narrowly in terms of the performance determinants and how they can be inuenced. Overly narrow denitions impede progress in understanding that efforts to inuence the performance determinants must be coordinated and mutually consistent. The two roles could be redened to reect this interdependence, but a better alternative may be to identify three inter-related roles that correspond to the three performance determinants, and perhaps a fourth role that involves efforts to facilitate integration among the other three roles. Despite the differences between FLT and leadership theories that emphasize interpersonal or group processes (e.g., transformational leadership, leader-member exchange), they are complementary rather than competing perspectives. The psychological and interpersonal processes emphasized in these other leadership theories can be used to explain some of the relationships described in FLT, especially the effects of leader behavior on subordinate attitudes and commitment. The organizational processes and situational variables in FLT can be used to help clarify the context for which the dyadic theories are most relevant, and their limiting conditions. The emphasis in FLT on nding synergistic ways to inuence the performance determinants is consistent with the growing interest of management scholars in understanding paradoxes and competing objectives in organizations (Brown & Eisenhardt, 1998; Ebben & Johnson, 2005; Leana & Barry, 2000; Lewis, 2000; Quinn, 1988; Sundaramurthy & Lewis, 2003). The complex causal

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relationships and systems dynamics in FLT are also consistent with the growing interest in complexity theory and systems theory as perspectives for understanding leadership in organizations (e.g., Brown & Eisenhardt, 1998; Gharajedaghi, 1999; Marion & UhlBien, 2001; Osborn et al., 2002). FLT is not a complexity theory of leadership, but it appears to be complementary in many respects with them. The theory is relevant for all types of leadership positions, but it is especially useful for CEOs, top management teams, and managers of subunits organized as prot centers. The importance of efciency, human resources, and adaptation may seem obvious, but many business failures and derailed management careers involve a lack of understanding and appreciation of these performance determinants and their complex interdependencies. Even though there is no simple formula for leadership success, FLT provides a mental model to remind executives that organizational effectiveness depends on all three performance determinants, and any attempt to change one of them is likely affect the others as well. The theory also makes it clear that executives have many alternative ways to inuence the performance determinants, and it is important to select methods that are relevant and mutually consistent. The theory does not attempt to specify strategy content, but it can be helpful in determining what changes are necessary to implement a proposed strategy. Finally, the theory reminds CEOs that rm performance requires a cooperative effort by many managers, not just the heroic actions of a single leader. 7.2. Potential extensions of FLT The theory was conceptualized primarily at the organizational level, but as mentioned earlier it could be extended to include more explicit treatment of psychological and interpersonal processes. This extension would explicitly incorporate relevant aspects of dyadic leadership theories (e.g., transformational leadership, leader-member exchange), including the mediating processes involved in explaining how leader behaviors inuence subordinate motivation and commitment. FLT emphasizes collective leadership processes rather than individual leaders, but the theory could be extended to include traits and skills relevant for understanding complex systems, building social networks, working effectively in teams, and nding integrative solutions to disagreements. Previous research has identied differences in the types of skills relevant for top executives, middle managers, and lower-level managers leaders, and for strategic leadership in different situations (e.g., Jacobs & McGee, 2001; Jacques, 1989; Mumford, Campion, & Morgeson, 2007). Relevant skills include cognitive complexity, systems thinking, situational awareness, ability to learn, social intelligence, emotional intelligence, behavioral exibility (Boal & Hooijberg, 2000; Yukl, 2006; Zaccaro, Gilbert, Thor, & Mumford, 1991). Personality traits and values (e.g., integrity, emotional maturity, socialized need for power) are also relevant for effective, ethical leadership (see Yukl, 2006). The FLT emphasizes linear, unidirectional causality, but it is obvious that reciprocal and circular causality occurs as well. For example, leadership decisions and actions are affected by feedback about the level of the performance determinants and overall performance of the rm. Such feedback provides information about the effects of earlier decisions and actions, and it is another source of information about the effects of the external environment. The FLT emphasizes hierarchical leadership but does not exclude emergent processes such as bottomup change in an organization. For example, front-line managers who are close to customers may perceive the need for revising the strategy before it is obvious to top management, and they may be successful in initiating the changes in the organization. Reciprocal causality and emergent change processes are described in systems models and complexity theories of leadership (e.g., Brown & Eisenhardt, 1998; Marion & Uhl-Bien, 2001), and FLT can be extended to incorporate these features in a more explicit way. The theory applies to business rms, but with some relatively minor modications it can be extended to include non-prot and public sector organizations. One necessary change would involve the measures of effectiveness and adaptation. For a non-prot organization (e.g., museum, hospital, charity) the indicators of adaptation would probably include its reputation and the amount of funds received from donations in addition to revenue from the sale of products or services. Organizational effectiveness for a nonprot or public sector organization might be the extent to which it provides valuable social and economic benets to society at an acceptable cost, as well as the value of its assets and its long-term survival as an institution. It should be noted that social responsibility is also relevant for assessing the effectiveness of business rms, and including it would make explicit the potential tradeoffs between nancial and social objectives. 7.3. Recommended research FLT is consistent with ndings in many empirical studies of leadership and organizational effectiveness over the past half century, and with preliminary results from some recent tests of the theory. Nevertheless, some of the propositions have yet to be tested, and other propositions need to be veried by research that is designed to directly test the theory. A broader systems approach is needed to assess the overall theory and identify independent effects, mediating processes, and complex interactions. In particular, there is need for more research on how to use leadership behaviors, management programs and systems, structural forms, external initiatives, and competitive strategies in compatible ways. As yet there has been little research on distributed leadership, and studies are needed to explore the collective, interactive effects of multiple leaders on the performance determinants. Theories of strategic leadership usually involve causal processes that take place over a period of months or years, and longitudinal research is needed to test this type of theory (Bertrand & Schoar, 2003; Mitchell & James, 2001). Most decisions and actions of top executives have a delayed effect on the performance determinants, which in turn have a delayed effect on organizational effectiveness. For example, implementing relevant new training and mentoring programs will improve human resources and relations, which will result in better efciency or innovative adaptation, which will result in better rm performance.

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In some cases leader decisions have a short-term effect that is different from the longer-term effect (e.g., a temporary decline in efciency is followed by a larger increase in efciency). Here again the accurate assessment of leader inuence will require repeated measurement over an appropriate period of time. Longitudinal research is also needed to deal with overlapping constructs that involve reciprocal causality over time. For example, the decisions and actions of top executives are a component of leadership, but they are determined in part by leader skills, which are components of human resources. Moreover, leadership processes include decisions about selection, development, assessment, and succession planning, and these decisions can improve skills for the organization's future leaders. Organizational culture is another example of a construct involving reciprocal causality. The culture inuences leader decisions and actions in the short-term, but it is inuenced by leaders over a longer period of time (Barley & Tolbert, 1997; Schein, 1992). A longitudinal study makes it easier to assess these complex causal relationships. A variety of different research methods could be used to directly test the theory, including survey eld studies, comparative case studies, and simulation studies. Longitudinal survey studies could provide data to test the moderating effects of the situational variables and identify organizational processes that mediate the effects of leader actions and decisions on organizational performance. Intensive, longitudinal case studies can provide information about the ways effective leaders inuence the performance determinants in different situations. Simulation experiments conducted over a period of weeks could verify causal relationships among variables in the model. With a combination of complementary methods, it will be possible to evaluate the key propositions of exible leadership theory. References
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