Managerial Economics and Strategy EC: 15 30 July 2017 The Effect of Leadership Style on Team Performance Wen Gai 11085711 University of Amsterdam 1 ABSTRACT This study aspires to extend the systematic research on the effect of leadership style on team performance through unconventional source – reality TV show. The candidates, before putting into diversified challenges, have been strictly screened to make sure they have an above-average level of business knowledge. Interested in how leadership style, as a key branch of leadership, acts on the probability of winning the task, this research investigates the connection between authoritarian, democratic and laissez-faire leadership and winning, by controlling for other factors such as leadership experience, individual capability, and sex difference. The results from the statistical analysis provided no solid evidence for a direct linkage between leadership style and team performance, but showed significant correlation between task success and experience and ability of project managers, and proved certain leadership style more effective under specific type of task. I. INTRODUCTION As failure of efficiency maximization of resources has been a primary potential cause of sales decline or even bankruptcy of companies, increasing attention has been given to managerial supervision that takes either responsibility of bad judgments or credit for uniting the monetary and human resources through coherent strategies. Even fairly equal economy entities vary in the rate of economic growth under different presidency. Similarly, a team may get varying results for homogeneous tasks with different project managers, as there are many ways to approach the art of leadership. What brings different outcomes, given all project managers in the observation group reach an average level of business knowledge, is the style of leadership he/she follows in the interaction with people, planning and decision-making process. However, one’s style of leadership can either form naturally as personality, or developed through years of experience. Hence, understanding of the linkage between leadership styles and team performance can be intriguing to both businesses and scholars for bringing a potential enhancement of efficiency and employee morale by hiring a suitable person to a company, and generating fresh thoughts on academic subjects such as managerial economics, behavioral science and even gender equality. The aim of 2 Figure 1 Managerial Grid, by Blake and Mouton, 1964, retrieved from http://psycnet.apa.org. Copyright 2016 by APA. this study is to test previous findings about the effectiveness of different leadership styles on team performance using media resources under the assistance of statistical modeling approach. Before thinking of how different styles work, what is the leadership style to look at? Over the past 40 years, there has been considerable concern in identifying leadership style. There is a wide variety of emphasis for frameworks. In terms of morality and motivation, for example, the Managerial Grid (Blake et al. 1964) in Figure 1 gives a graphic explanation of the distinction between task-oriented leadership and people-oriented leadership by expressing concern for production on the horizontal axis, and concern for people on the vertical axis on a scale ranging from 1to 9. The former leadership, appears as a 1,1 style on the axis, pay no extra effort on a relationship as long as minimum effort is enough to get the task done, while the latter leadership, appears as a 9,9 style on the axis, think highly of people’s commitment and see trust and respect within the team a crucial part of task accomplishment. On the other hand, as leadership is always 3 being judged under circumstances with more than a person, the chemistry between individuals may to some extent influence their performance and even afterwards if there are future cooperation opportunities for the same group of people. Taking into account the interdependency between relationship, efficiency and satisfaction, Burns (1978) introduced the concept of “transforming leadership” and “transactional leadership”. According to Burns, transforming leadership is a mutual process where leaders manage to “transform” something and leaders and followers “raise each other to advance to a higher level of morale and motivation”. Transactional leaders, on the contrary, are more interested in maintaining the status quo - the accomplishment of the current task. And instead of stimulating intrinsic motivation of people as transformational leaders do, they secure followers’ compliance using rewards or punishments. Psychologist Kurt Lewin and his colleagues made the first systematic study of leadership styles and mentioned three styles of leadership - authoritarian, democratic, and laissez-faire - in their experiments regarding patterns of aggressive behavior. While there is no firmly established way to identify leadership styles, the extraordinary aspects of the distinctions between leadership styles in this paper lie in its helping us to understand the approaches and consequences of different leadership by simply focusing on the level of delegation reflected in leaders’ verbal expressions and strategic decision-making process as well as its building a foundation for future studies following the interest of aggression and artificial "social climate" (Lewin et al, 1939). Convinced by the arguments in this study and interested in their applicability on other population, this paper is going to adopt its framework of the three leadership styles, and extend the previous study in the effect of leadership styles upon performance by investigating the consequences of three leadership styles on team performance in a public setting – a reality TV show. Contestants face a weekly challenge regarding business issues and they will be assigned to one of the two teams/leaders either predetermined by the boss or elected democratically by contestants within a team. At the end of each task, teams report back at the boardroom and the winning team will be decided by the boss, according to the amount of net profit (cash/credit) they bring back, or feedback from professionals involved in the task arrangements. Every week at least one candidate including the project manager from the losing team will get “fired”, till the final two fight it out in week twelve. The setting enables researchers to observe how, conditional on the average level of business skills/knowledge, leadership styles affect team performance and push forward to win the task over the other team. 4 Rather than analyzing delicate emotional change in some frameworks, the simplicity of looking at the delegation level makes investigation through TV screen much more feasible and easier, and hopefully provides more precise data for later breakdown. However, on the other hand, other studies using game show as a tunnel found that individual behavior is sometimes inconsistent with expected-utility theory and this unique setting somehow encourages risky behavior of the contestants and overestimation of their own abilities (Gertner, R., 1993; Metrick, A., 1995). The setting also adds uncertainty to the application of the framework in terms of valuable details neglected in the clip due to length limitation of the show and “leader-follower” role play comes along with a competition nature which incentivizes every member to seek for an opportunity for individualistic heroism while at the same time being a team-player. While such strategy sounds contradictory, it makes sense as candidates are generally asked for leadership and teamwork skills as what usually put under a job qualification column, but outstanding individual ability also plays an important part as it makes the one shines distinguishingly. After all, only one candidate will take the first place and get the job offer or the investment fund from the boss. Hence, in addition to the correlation between leadership style and team performance, we are going to test how individual ability influence team performance and the distribution of leadership style adopted by project manager of high individual performance. Classification criteria of leadership styles in this study will, basically, adopt the idea in the paper of Lewin and his colleague, but will be adjusted to fit the public setting more appropriately, and will be discussed in details in later sections. This study finds that democratic leaders are likely to have 15% higher possibility than authoritarian leaders, and 13% higher chance than laissez-faire leaders in leading the team to win the task, regardless of type of task. Unfortunately, this finding lacks solid support as the correlation coefficient was found insignificant under 90% confidence level. However, this study does find significant results after taking task type into consideration. Authoritarian leadership reduces the winning probability by 63% in a creative task, and laissez-faire leadership can completely write off any advantage and turn an entrepreneurial task into, as described by the boss, a “total shambles”. The role of project manager is demonstrated as his/her individual capability and experience is clearly relevant to task performance, while other factors such as gender and team size are proved to be irrelevant. 5 The rest of this paper is organized as follows. Section II shows the predictions based on theoretical analysis. Section III elaborates data characteristic and the measurement of leadership styles. Section IV introduces the regression model