Leadership style & organizational effectiveness in Indian IT & banking industry.

AuthorBudhiraja, Sunil
PositionInformation technology

Information Technology (including ITeS) Industry

Services are the largest sector in the world, accounting for more than 70 per cent of global output. Indian service sector contribute more than 54% to Indian economy. The Indian IT Industry has been making a marked shift by offering services in IT consulting, system integration, remote infrastructure management, network consulting, KPO and integration processing services. The number of Indian software firms has grown from around 38 in 1988, who together contributed to nearly 65% of the industry revenue to over 1100 in 2007, who together contribute to over 95% of the revenue. The sector has increased its contribution to India's GDP from 1.2% in FY1998 to 7.5% in FY2012 (India Information Technology Report. 1012)). Given the abundant availability of manpower it becomes important for the industry to ensure that they develop and nurture effective leaders to motivate and retain the talent available.

Banking Industry

The banking industry has moved gradually from a regulated environment to a deregulated market economy. It has been seen that Indian banking industry had played a tremendous role in reinforcing the economy of India, by servicing the needs of three sectors of the economy: agriculture, manufacture, and service. The banking system of India was not hassle - free but was able to meet new challenges posed by the external and internal factors. India's gross domestic saving in 2006-07 as a percentage of GDP stood at a high 32.7%. The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. Since liberalization, the government has approved significant banking reforms. While some of these relate to nationalized banks, like encouraging mergers, reducing government interference and increasing profitability and competitiveness, other reforms have opened up the banking and insurance sectors to private and foreign players.


"Leadership is one of the most observed and least understood phenomena on earth" (Burns, 1990). Although leadership has been widely discussed, written about, and practiced for thousands of years, it still remains an illusive area of inquiry and understanding (Bass, 1990a; Bennis, 1989; Bennis & Nanus, 1985; Yukl, 1981). Leadership has been regarded as a critical factor in the success or failure of institutions (Bass, 1990b).

Leadership has been studied informally by observing the existence of great thinkers and leaders and formally by attempting to identify the personality traits of acknowledged leaders through assessment techniques in the past. Trait theories assume that successful leaders are born and that they have certain innate qualities which distinguish them from non-leaders (Stodgill, 1948). Style and behavioral theorists shifted the emphasis away from the characteristics of the leader to the behavior and style the leader adopted (Hemphill & Coons, 1957; Likert, 1961). The principal conclusion of these studies appears to be that leaders who adopt democratic or participative styles are more successful. In this sense, these early studies were focused on identifying the 'one best way of leading'.

The major weakness of style and behavioral theories is that they ignore the important role which situational factors play in determining the effectiveness of individual leaders (Mullins, 1999). It is this limitation that gives rise to the "situational' and 'contingency" theories of leadership (for example, Fiedler, 1967; House, 1971; Vroom & Yetton, 1974) which shift the emphasis away from "the one best way to lead' to context-sensitive leadership.

Fiedler (1996) has provided a recent evaluation on the importance of leadership by arguing that the effectiveness of a leader is a major determinant of the success or failure of a group, organization, or even an entire country. However, in an apparent return to the "one best way of leadership', recent studies on leadership have contrasted 'transactional' leadership with "transformational' leadership. Transactional leaders are said to be instrument and frequently focus on exchange and relationship with their subordinates. In contrast, transformational leaders are argued to be visionary and enthusiastic, with an inherent ability to motivate subordinates (Bycio et al, 1995; Howel & Avolio, 1991).

Four dimensions of leadership have emerged after reviewing the literature, which seem to comprise the basic structure of what one may term "leadership":

  1. Supportive--Behavior that enhances someone else's feeling of personal worth and importance. The leader ensures that the team members are provided with ample amount of resources and opportunities to achieve common goals. Personal welfare of the team members is taken care of.

  2. Participative--Behavior that encourages members of the group to develop close, mutually satisfying relationships. Feedback and consultation are the foundation stone of this kind of leadership style.

  3. Goal emphasis--Behavior that stimulates an enthusiasm for meeting the group's goal or achieving excellent performance. This is much similar to the task oriented leadership style.

  4. Work facilitation--Behavior that helps achieve goal attainment by such activities as scheduling, coordinating, planning, and by providing resources such as tools, materials, and technical knowledge.

    Small (2002) has taken four leadership perspectives as suggested by Bolman & Deal (1984, 1991a, 1991b) who synthesized theories of leadership within organizations into four traditions and labeled them as frames. The four frames defined by Bolman & Deal include the structural frame, the human resource frame, the political frame and the symbolic frame.

    Venkatapathy (1991) has attempted to study the perception of leadership styles and the climate created by practicing such styles. The three leadership styles viz., benevolent, optical and developmental show considerable promise from the application point of view among different organizations. The private and public sector executives differ on their leadership styles and, therefore, the climate created through such styles is also different in various organizations.

    The measure of perceived leadership style of House (1971a,b) and House & Dessler (1974), which in turn was principally based on the earlier work of Fleishman (1957) and Stogdill (1963), was presented as reliable and valid by a number of respected authors and texts. Indeed, this measure of leadership style has been widely used in a variety of literatures and is generally accepted as a good measure of perceptions of leadership style. This measure categorizes the leadership style in three parts namely instrumental, supportive and participative leadership style.

    The instrumental style is quite similar to transactional style which makes an assumption that they operate with some objectives and agendas. Participative leadership style assumes that the leader consults his team members before making important decisions and takes their feedback on various assignments. The third kind of leadership style which is supportive ensures that the leaders take a step further to help the subordinates and positively seek for their welfare.

    Organizational Effectiveness

    Organizational outcomes such as profitability, productivity, quality, innovation, return on investment, efficiency, and competitiveness are often quoted whenever we discuss about organizational effectiveness. However, some authors have adopted a broader definition which blends financial and economic data with measures such as employee involvement and satisfaction, labor turnover and rates of sickness and absenteeism.

    The effectiveness of organizations in achieving goals at the organizational level is called organizational effectiveness (Cameron & Whetten, 1983; Quinn & Rohrbaugh, 1983). The organizational effectiveness is also defined as the extent to which an organization fulfills the objectives (Thibodeaus & Favilla, 1995).

    Effective organizations, as defined by...

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