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Leadership is seen as fundamentally important for improving public sector performance, but the existing literature has severe endogeneity problems. Using a field experiment with 720 Danish leaders and 23.000 employees, this project will overcome these problems. Analysing the effects of leadership training and leadership strategies on organizational performance, we will contribute to the international literature on leadership and the domestic debate on public sector steering and performance.
How can government continually improve performance so as to earn the respect of citizens who pay for it and whose lives are affected by its activities? The literature (Wright & Pandey 2010; Buelens et al. 2006) indicates that leadership and leadership training are important parts of the answer, and this project therefore asks how leadership training affects leadership strategies, and how these strategies affect organizational performance. We also investigate whether performance information use and psychological working environment mediate part of the effect of leadership strategy on organizational performance.
We primarily focus on public sector leadership, but we include private organizations to test whether public sector leadership differs from private sector leadership. We distinguish between transactional leadership based on exchange of rewards for effort and transformational leadership where leaders are focused on changing their followers’ motivation and values.
Leadership has become a mantra, although it is often unclear what is meant by leadership in the public debate, and what effects the decision-makers expect it to have (Mac & Hagedorn-Rasmussen 2008). More knowledge about what constitutes good leadership is needed, and the economic crisis makes it even more important to find ways to combine low cost and high performance. Additionally, systematic leadership training (Personalestyrelsen 2009) could be even more beneficial if we knew more about the effect of different types of leadership training. This could enable us to decrease absenteeism (Flatau et al. 2004; Andersen, Kristensen & Pedersen 2011), increase performance (Park & Rainey 2008) and attract more motivated employees to the public sector (Andersen et al. 2012).
To improve the Danish public sector, we need research on public sector leadership in Denmark, because the impact of leadership depends on context factors (Lim & Ployhard 2004; Wofford et al. 2001; Avolio et al. 2009). We have a strong Public Management community in Denmark (e.g. Calmar Andersen & Winter 2011; Klausen et al. 2011; Greve 2011), but Danish studies have not included the distinction between transformational and transactional leadership. In this project, political scientists, public administration researchers, economists and leadership scholars will join forces to find ways to improve organizational performance in Denmark and elsewhere. Doing this, we will also contribute to the knowledge about the effects of leadership training. Although international research strongly indicates that transformational leadership training has the expected effect (Dvir et al. 2002; Hassan et al. 2010; Kelloway et al. 2000), we have no experimental evidence about the effects in Denmark.
Finding new ways to improve public sector performance is one of the key objectives of research in Public Management (Nasi 2011), and the project intends to contribute to this rapidly developing research field (O’Toole & Meier 2011; Walker, Boyne & Brewer 2010). Although the project is primarily focused on public organizations, it is also relevant for mainstream leadership literature and includes insights from this literature (Van Wart 2011).
The key theoretical contribution is that the project theoretically establishes a causal chain from leadership training to leadership strategy (self-reported and perceived by employees) to organizational performance (Avolio et al. 2009). It also contributes by investigating to very important potential mediators (performance information use and psychological working environment), and we explicitly theorizes about potential differences between public and private organizations, enabling us to understand the special characteristics (if any) of public sector leadership (Allison 1992; Boyne 2002; Delfgaauw & Dur 2010; Andrews et al. 2011).
In recent years the literature on leadership has focused on transactional and transformational leadership. Although the latter is being championed by international policy makers (Coggins 2009; Inamori Foundation 2001), scientific research on the topic is lagging far behind because of common source bias and endogeneity problems (Lynn, Heinrich & Hill 2000; Meier & O’Toole 2010a & b). Leadership strategies are often chosen in response to existing problems, organizations with specific profiles attract and select specific types of leaders, and self-reported performance data are biased. In this project, we will advance the state of knowledge and contribute to the literature methodologically by performing a field experiment and by using objective performance data to assess the impact of various leadership strategies. Compared to existing studies (Jung & Avolio 2000; Dvir et al. 2002) our treatments are stronger and include more leaders (n=720) and more employees (n=23.000).
Empirically, we will make a major contribution to the literature on public sector leadership if we show that leadership training significantly affects leadership strategy and ultimately objectively measured performance. Even a null finding on either the relationship between leadership training and leadership strategy or between leadership strategy and performance is highly relevant because the international literature strongly expects positive effects (Bass 1999; Avolio et al. 2009; Dvir et al. 2002). If we find no effect of the investigated leadership strategies, it suggests that the investigated types of leadership may not be a feasible way to improve performance. If our leadership treatments do not affect the participants’ leadership strategies, although the treatments are stronger than existing treatments in the literature, which had a strong effect (e.g. Hassan 2010; Dvir et al. 2002), this finding would also contribute to our understanding of how we should (not) design leadership training. Regardless of the results, the project will contribute by being the first Danish experimental study of public sector leadership impact. After this project, we will continue the investigation of public sector leadership and performance in a comparative study via an application for an ERC Advanced Grant (as part of Horizon 2020).
The basic distinction between “hard” leadership based on stick or carrot and “soft” leadership based on increasing the employees’ motivation to achieve organizational goals has been known a long time and has been conceptualized in many different ways. For example, McGregor (1960) developed Theory X and Theory Y, where Theory X assumes employees are inherently lazy and will avoid work if they can and therefore need to be closely supervised, while Theory Y assumes that employees are self-motivated. In line with modern leadership literature (Avolio et al. 2009), we capture this basic distinction with the concepts of transformational and transactional leadership.
First conceptualized by political scientist James Burns (1978), transformational leadership has become one of the most prominent leadership theories (Northouse 2010; Antonakis et al. 2003). To direct and inspire individual effort, transformational leaders try to transform (and motivate) their followers by raising their awareness of the importance of organizational values. This leadership strategy does, in other words, aim at affecting performance indirectly through the employees’ motivation and values. In contrast, transactional leadership is based on transactions of pecuniary and non-pecuniary character (Bass 1985; Antonakis et al. 2003; Avolio 2004). Transactional leaders reward employees for doing what the leaders want them to do or sanction them if their work effort is unsatisfactory (Bass 1985). Transformational and transactional leadership strategies were originally posited as contrasts (Burns 1978), but they do not necessarily conflict (Waldman et al. 1990), and the two leadership strategies are therefore seen as different continua.
The literature strongly suggests that leadership strategy can be affected through systematic leadership training. Transformational leadership training (see Dvir et al. 2002 for an example) is thus expected to increase leaders’ ability to foster acceptance of group goals and their attention to employees’ motivation and values, while transactional leadership training is expected to increase the leaders’ use of conditional rewards and sanctions (Barling et al. 1996; Kelloway, Barling and Helleur 2000; Poppor et al. 1992, Hardy et al. 2010; Hassan et al. 2010). Our expectations are:
H1: Leaders, who have received training in transformational leadership is expected to have a more transformational leadership strategy.
H2: Leaders, who have received training in transactional leadership is expected to have a more transactional leadership strategy.
H3: Leaders, who have received training in both transactional and transformational leadership is expected to have a combined transformational and transactional leadership strategy.
Performance is defined as achievement of the objectives formulated by elected politicians in public organizations and by owners in private organizations. Existing research has consistently found that transformational leadership is positively associated with employee performance both generally (Bass 1999; Lowe et al. 1996; Bass & Riggio 2006; Avolio et al. 2009) and in the public sector (Dvir et al. 2002; Trottier et al. 2008; Wofford et al. 2001). Transformational leadership is expected to clarify organizational goals and increase the congruence between organizational and employee values and thereby positively affect motivation (Paarlberg & Lavigna 2010; Ritz 2009; Bass & Riggio 2006). This is expected to lead to lower absenteeism and ultimately higher performance (Lee et al. 2011; Kuoppala et al. 2008):
H4: Absenteeism in organizations where the leaders use transformational leadership is lower than in corresponding organizations where the leaders do not use transformational leadership.
H5: Organizational performance in organizations where the leaders use transformational leadership is higher than in corresponding organizations where the leaders do not use transformational leadership.
Transactional leadership is expected to have a positive price/disciplining effect on performance, while the direction of the motivation crowding effect depends on the perception of the relevant reward/command systems as either commanding or supportive (Frey 1997; Frey & Jegen 2001; Weibel et al. 2010, Andersen & Pallesen 2008; Jacobsen & Andersen 2011, Georgellis et al. 2011). Importantly, existing studies indicate that transformational leadership plays a key role in shaping this perception (Egger-Peitler et al. 2007; Gabris & Ihrke 2000), suggesting that the effect of transactional leadership depends on the level of transformational leadership. In line with this, Waldman et al. (1990) argue that the best leadership is both transformational and transactional, because transformational behaviours reinforce the positive effect of contingent reward behaviours and lead to greater levels of subordinate effort and performance. The existing few studies of the combined effect of the leadership strategies (Rowold 2011; Hargis et al. 2011; O'Shea et al. 2009; Bass et al. 2003) also suggest that combined transactional/transformational leadership leads to even higher performance than any of the leadership strategies separately.
H6: If leaders combine transactional and transformational leadership, their employees perform better compared to employees with leaders who use one (or none) of the leadership strategies.
Originally, transformational leaders were expected to be less effective and less common in public organizations compared to private organizations, because public organizations were thought to rely more on bureaucratic control mechanisms than private organizations (Bass & Riggio 2006). Employee efficacy (the employee’s ability to affect the desired outcome, see Miller & Whitford 2007) is also low in many public sector jobs, and this may weaken the relationship between leadership and organizational performance. Contrary to these expectations, Dumdum et al. (2002) found that transformational leadership is at least as common and effective in public organizations as in private organizations, and Wright & Pandey (2010) found that bureaucratic characteristics in the public sector had little, if any, adverse effect on the prevalence or practice of transformational leadership. This is consistent with Grant’s (2012) quasi-experimental study of the impact of transformational leadership on performance. He finds that transformational leadership is most effective in motivating employees when they interact with the beneficiaries of their work. This is often the case in public organizations, but can also happen in the private sector (Andersen & Jakobsen 2011). We therefore do not expect substantial differences in leadership impact between public and private organizations, but the literature’s ambiguity makes it relevant to test it.
H7: There is a positive relationship between transformational leadership and organizational performance for both public and private organizations.
H8: The positive effect on performance of having leaders with combined transactional and transformational leadership holds in both public and private organizations.
In addition to testing the hypotheses below, we also plan to go into depth with the context-dependency of leadership, exploring differences in the effects of leadership between different organizations. In this part of the project, a more inductive approach will be applied to capture that leadership can be situational (e.g. Papworth et al. 2009).
Two aspects of the psychological working environment are especially relevant in a study of leadership and performance: Bullying and work stress. Observed consequences of bullying are amongst others social isolation, low self-esteem, sleep problems, concentration difficulties, anger, psychological distress and post-traumatic-stress disorder (Nielsen and Einarsen, 2012; Finne et al., 2011, Zapf et al., 1996; Mikkelsen & Einarsen, 2002). Leadership has long been seen as a major antecedent of workplace bullying (Samnani & Singh, 2012). The definition of bullying highlights the imbalance in the power structure between the target and perpetrator of bullying. This imbalance is imposed between employees and managers, and it is therefore important how managers use their power to reach the goals of the organization. Both the abuse of power and a passive leadership strategy can lead to increased levels of bullying, either because targets are directly abused by the manager, or because passive leaders tend to avoid conflict, thereby creating a working environment where bullying is allowed to thrive (Ashfort, 1994; Strandmark & Hallberg, 2007).
Transformational leadership is unambiguously expected to decrease bullying, because transformational leaders strive to create an environment of trust, admiration, loyalty and respect, and they are also involved in the work process and focus on helping all individuals in the workplace to succeed (Nielsen, 2013a).
Transactional leaders operate under a carrot or stick approach, rewarding employees if they reach the goals and punish them if they do not (Podsakoff et al. 2006). The clear power structure in this type of leadership could potentially give rise to increased bullying, but when rewards and punishment are administered on the basis of clear performance standards they are more welcomed and satisfying to employees than when delivered arbitrarily (e.g. Peng and Peterson, 1998). This suggests that transactional leadership reduces bullying, although we expect transformational leadership to have a larger effect.
H9: Transformational and transactional leadership reduces bullying in the workplace.
H10: Transformational leadership reduces bullying to a larger extent than transactional leadership.
Another important aspect of the psychological working environment is stress. According to the Job Demand-Control model, employees become stressed if they work under heavy job demands and low decision latitude (Karasek, 1979). Thus, having no control or overview over job tasks is likely to produce a more stressful working environment. As both leadership strategies focus on goals, using different ways of motivating employees to achieve these goals, we expect both strategies to increase planning and structure and give employees a sense of control. This will reduce stress, because they become more aware of which goals they have to reach.
H11: Transformational and transactional leadership reduce stress in the workplace.
Bullying has been shown to increase absenteeism (Hoel & Cooper, 2000; Kivimaki et al., 2000), and stress is believed to negatively affect individuals’ health, again leading to increased absenteeism (see e.g. North et al., 1996; Tennant, 2001). Absenteeism will increase the use of substitutes, decreasing continuity in the planned activities and curriculum, and our expectation is therefore:
H12: Organizations with a low level of bullying and stress have lower absenteeism and higher organizational performance.
The leadership strategies may also directly affect the users (e.g. children in schools and day care centers). An active leader may secure that bullying is not tolerated in the entire organization, meaning that leadership affects the working environment of both employees and users. The employees’ better working environment may also spill over to the users, creating a better learning environment. We therefore expect that:
H13: Leadership strategy will affect the level of bullying amongst users and ultimately organizational performance, partly mediated by the working environment of the teachers and pedagogues.
Leadership may contribute to performance improvements through increased performance information use and better decisions. Transformational leadership is expected to increase the use of performance information in organizational decision-making by creating greater goal clarity and fostering a developmental organizational culture (Moynihan et al. 2012). Transactional leadership may also affect performance information use, because the contingent rewards and sanctions can be administrated based on this information. We will test this, but existing evidence does not suggest that there is an association (Moynihan et al. 2010). Hypothesis 11 therefore focuses on transformational leadership.
H14: In organizations with transformational leaders, the level of performance information use is higher than in other corresponding organizations
Performance information use is expected to improve performance, because it creates a stronger focus on results and outcomes (Moynihan 2008; Nielsen 2013b) and facilitates organizational learning by identifying performance problems and potentials for improvement (Greve 2003; Moynihan & Landuyt 2009; Nielsen forthcoming). Furthermore, this positive effect is expected to be stronger for organisations with transformational leaders. If employees perceive performance management as controlling, it reduces employee motivation (Jacobsen et al. 2013) and such reactions are detrimental to organizational performance. Transformational leadership is expected to make employees more appreciative of the potential usefulness of performance information by increasing employee awareness of organizational values and goals (Moynihan et al. 2012).
H15: Organizations with a high level of performance information use have higher organizational performance, and the association is strongest for organizations with transformational leadership
Our choice of research design is closely related to the literature’s two key challenges: Endogeneity and common source bias. After our discussion of endogeneity in this section, section 4.2 explains how we avoid common source bias. Endogeneity is a very relevant problem, because leadership strategy will often be correlated with the error term, since the dependent variable (performance) often has an effect on leadership strategy or unobserved variables are correlated with both dependent and independent variable. Wright & Pandey (2010) therefore argue that future research should establish the causal sequence by using experimental designs.
Only few experiments have investigated the effect of transformational and transactional leadership in the public sector, and participants have primarily been students working under transformational and transactional leadership conditions (e.g. Jung & Avolio 2000). Inspired by Dvir et al. (2002), we have chosen to experimentally induce different leadership strategies by giving different leadership training to real public and private leaders, and our key challenges therefore relate to selection of participants and content and strength of the treatments.
Self-selection of participants in a field experiment is unavoidable, and our control group therefore also consists of leaders who have self-selected into the project. In other words, the public leaders will voluntarily select to be part of the project and then have an equal chance to have treatments which the literature unambiguously considers to be advantageous. All leaders receive survey L0 (see page 8), which presents the opportunity to be part of the experiment, explicating that this means that they have 75% chance of receiving one year leadership training, corresponding to an FMOL course. FMOL is one of the two Danish Master of Public Governance educations, and the students can get credit for 5 ECTS points for participating if they (after the treatment period) hand in a paper which is evaluated according to the normal FMOL criteria. The state education subsidy [studietrinstilvækst=2915 DKR per student for 5 ECTS] covers exam and administration expenses for FMOL. Leaders, who have started an FMOL education before they receive survey L0, are not offered the opportunity to participate in the experiment. Kurt Klaudi Klausen and Søren Serritzlew (leaders of FMOL) have accepted this plan.
The leaders who agree to participate in the experiment are randomly assigned to one of four groups:
It is a key priority to ensure that the treatments are strong enough to enable us to contribute to the literature regardless of what our results show. All treatments have one year duration and consist of 28 sessions of leadership training headed by a researcher with extensive teaching experience (see below) combined with a 600 pages curriculum and coursework between meetings. The training corresponds to 1 month full-time work for the leaders. The training is done in teams consisting of 18 leaders in the same geographical area to allow active participation from the leaders. Compared to the existing studies (Barling et al. 1996; Kelloway, Barling and Helleur 2000; Dvir et al. 2002; Poppor et al. 1992, Hardy et al. 2010; Hassan et al. 2010), our treatments are very intense. Dvir et al. (2002) have the strongest treatment with a three-day leadership workshop for 54 military leaders. Barling et al. (1996) assigned 20 leaders randomly to training and control groups to test the effect of transformational leadership on performance. Their training programme included a 1-day group-based training session and four short individual sessions, and they found that the training significantly affected both subordinates' perceptions of leaders' transformational leadership and performance. The strength of our treatment is further increased by the fact that it is done by researchers who strongly believe in the treatments and have extensive teaching experience. This double role of the researchers is not problematic, because we use objective performance data (which the researchers can only affect through the leadership training), and because all participants are taught by researchers who are specialized in the leadership training they are responsible for. Still, a field experiment always presents multiple ethical dilemmas such as how much the participants should know about the treatments, and we will draw upon the experience from the medical scientific committee system to help solve these dilemma. Specifically concerning the information to the participants, we plan to inform them fully about the concrete elements in their training, while we will not tell them about our theoretical hypotheses. It is important to stress we will do our utmost to insure that none of the participants will be worse off by the experiment (all parts of the training programmes have for example been used before on leadership courses with satisfactory results in terms of exam scores and student ratings).
There will be seven teams with 25-26 participants for each treatment group. To control for potential teacher effects, Lotte Bøgh Andersen will teach four teams in the combined treatment and four teams in the transactional treatment. Christian Bøtcher Jacobsen will teach three teams in the combined treatment and four teams in the transformational treatment. The remaining three transactional teams will be taught by Niels Westergaard-Nielsen, and the remaining three transformational teams will be taught by Anne Bøllingtoft. Niels Westergaard-Nielsen and Anne Bøllingtoft are funded by the Sapere Aude project which also funds the main part of Lotte Bøgh Andersen’s participation. All teaching materials will be developed by all four researchers and will not vary between teams within a given treatment group. Leadership training will be hosted by participating leaders to minimize transportation..
We do not expect serious drop-out problems, because the treatments correspond to very popular (and expensive) elements on the existing FMOL education. We will, however, register turnout at each session. Leaders are required to commit themselves to follow only this leadership training in the given year, and individuals who have already initiated other leadership training cannot participate. Still, we ask the leaders in survey L1 whether they participated in other relevant activities in the treatment period.
Apart from endogeneity, the other key problem in relevant literature is common source bias. Leaders tend to respond to surveys in ways that reflect favourably on themselves in terms of organizational performance and adoption of current managerial practices, leading to spurious results (Meier & O’Toole 2010a & b). Our experimental design helps avoid this, because the investigated variation in leadership strategy is experimentally induced. We have also chosen five types of organizations where performance can be objectively measured: Secondary schools (stx, hhx and htx), tax sections, bank branches (parts of two biggest banks in Denmark, Danske Bank and Nordea), primary schools and day-care centers. This case selection ensure that we can investigate both public and private organizations and both welfare service provision and financial operations. While tax organizations and bank branches are focused on finances and have very similar employees and tasks (Jensen 2004: 113), they differ in ownership (public/private). For welfare provision, we focus on education of children of all ages, and the ownership variation is between public and private schools, public and private high schools and public and private daycare centers.
We plan to use multiple performance measures to increase the robustness of our results. Examples are grades and pass rates for secondary schools, proportion of correct tax assessments and collection of arrears for tax sections, and revenue and profit for bank branches. Performance and absenteeism are measured with register data before and after the treatment.
Apart from the availability of objective performance data, other important considerations behind the choice of investigated organizations were the number of leaders and the comparability of private and public organisations. If half of the leaders accept our invitation to participate, there are more than enough tax sections, secondary schools and bank branches to ensure that we can recruit 120 leaders from each of these types of organization. There are enough schools and day-care centers to make sure that we can recruit 180 of each type (120 public and 60 private). We are able to compare private and public organizations, because there are both private and public primary and secondary schools and day-care centers, Employees and leaders working in tax sections and bank branches are also highly comparable (Jensen 2004).
We survey leaders and their employees twice, while we survey children and their teachers and parents three times and the municipal executives one time. Survey 1 measures initial leadership strategy and invites the leaders to participate in the experiment.
To supplement the quantitative data and to capture the situational aspects of leadership, we will conduct 48 qualitative semi-structured interviews with 24 leaders, interviewing them before and after the treatment period (six from each treatment/control group). We will code the interviews openly and then focused on the theoretical concepts and compare the results in displays.
We investigate the impact of training on leadership strategy by D-i-D (H1-H3). To identify the derived effects in H4-H15, we apply an IV strategy where assignment into treatment is used as an instrument for leadership strategy. This requires that the first stage test of H1+H2 satisfies the Staiger-Stock rule of thumb, requiring an F-statistic above 10 (for arguments regarding the strength of the treatment see above). Should it happen that our first stage is too weak, the extensive data sources allow us to use other analytical tools which rely on conditional independence (e.g. matching, ordinary least squares, etc.). Although this will not address causality it will allow us to provide the literature with estimates which are superior to currently published results. To account for moderating effects of the employees’ prior leadership experience and perceptions, we include interaction terms between these variables (measured before the treatment) and leadership strategy, and we also test whether leadership strategy produces uniform effects across different types of organizations. All analyses will include ownership sector as potential moderator.
We have formed an cross-disciplinary advisory panel consisting of leading scholars in the field: Peter Leisink, Edward Lazear, James L. Perry, Kathryn Shaw, Mike Gibbs, Wouter Vandenabeele, Gene Brewer, Jørgen Grønnegaard Christensen, Kurt Klaudi Klausen, Tor Eriksson, Carsten Greve, Ken Meier, Don Moynihan, John Antonakis and (hopefully) Arnold Bakker.
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March-June: First survey to managers and employees
April: Paper presentation at annual conference of International Research Society for Public Management (IRSPM) (panel: New directions in public leadership, innovation and change research). This paper contains a discussion of the research design, treatments and measures.
June 1st: Random assignment of participants to treatment and control groups.
June: First meeting of advisory panel
August: First survey to class teachers, parents and children
September 1st: Treatments start (leadership training)
October 1st: Performance data for pre-treatment situation acquired for day care centers
October: Fist article aimed at practitioners (describing the leadership strategies)
January-June: Analysis of data from first wave of surveys
June: Paper presentation at Public Management Research Conference. Differences between private and public sectors and five types of organization
July 1st: Treatments are finished
September: Submission of three articles (presented as papers at IRSPM and PMRC)
October-November: Second survey to managers, employees, parents and children
November: Paper presentation at APPAM
September-December: Data analysis including two waves of survey data and absence
November: Public communication: One article and a public conference
February-July Project leader stays at University of Georgia on facilitate international cooperation and comments to the research output
March: Paper presentation at ASPA
April: Paper presentation at IRSPM
May: Article aimed at practitioners (based on abovementioned papers)
May: Paper presentation at Society of labor Economists (SOLE)
August: Paper presentation at European Economic Association (EEA) (focus on relationship between absenteeism and performance)
September: Second meeting of advisory panel.
October-November: Third survey to teachers, parents and children
November: Paper presentation at the APPAM conference
May: Last performance data for post treatment acquired
June: Paper presentations at Public Management Research Conference
June: Paper presentation at International Workshop on Applied Economics of Education
November: Final communication to the public: One article and a public conference
December: All journal articles are finished or under review