ENTREPRENEURSHIP means “to undertake; to pursue opportunities; to fulfil needs and wants through innovative ideas and starting business”. Entrepreneurs are leaders; however, not all leaders are entrepreneurs, and one of the critical success factors of entrepreneurs is their leadership styles.
Though there are many of definitions of leadership, it is generally defined as “the ability to influence or inspire a group of people to achieve particular objectives”.
Leadership is a very important determinant of organisational success as leaders are the ones who make changes in an organisation.
Entrepreneurs need to understand the difference between transformational leadership and transactional leadership as they need to demonstrate both leadership styles to ensure entrepreneurial success.
Burns (1978) defined leadership as inducing followers to pursue a common purpose that represents the values and motivations of both leaders and followers. He was the first to define transformational leadership.
He proposed that a leadership process occurs in one of two ways; either transactional or transformational. Transactional leadership involves an exchange of valued things, based on current values and motivation of both leaders and followers. Transactional leaders emphasise the clarification of tasks, work standards, and outcomes.
In contrast, Burns characterised transformational leadership as a process
that motivates followers by appealing to higher ideals and moral values. Transformational leaders are able to define and articulate a vision for their organisations and their leadership style can transform their followers towards higher performance.
Bass and Avolio (1994) identified the four dimensions of transformational leadership as follows:
* Inspirational Motivation (IM): This dimension is reflected by behaviour that provides meaning and challenge to the followers’ work. It includes behaviour that articulate clear expectations and demonstrate commitment to overall organisational goals, and arouse a team spirit through enthusiasm and optimism. It involves envisioning a desired future state, making followers see that vision, and showing followers how to get to that state. Former Malaysian Prime Minister Tun Dr Mahathir Mohamad is one example of such a leader, creating a vision for the year 2020.
* Idealised Influence (II): This is described as behaviour that results in follower admiration, respect and trust. Idealised influence involves risk sharing on the part of leaders, a consideration of followers’ needs or personal needs, and ethical and moral conduct. Idealised influence also refers to the leader’s charisma.
* Intellectual Stimulation (IS): Leaders who demonstrate this type of transformational leadership solicit new ideas and creative solutions for problems from their followers and encourage novel approaches for performing work. Intellectual stimulation arouses in the followers the awareness of the problems and how they may be solved, and stirs the imagination and generates thoughts and insights. The intellectual stimulation provided by the leader forces the followers to rethink some of the ideas that they have never questioned before.
* Individualised Consideration (IC): This is reflected by leaders who listen attentively and pay special attention to followers’ needs for achievement and growth. A transformational leader gives personal attention to followers who seem neglected, treats each follower individually and helps each follower get what each wants. These leaders have empathy or the capacity to sense intuitively the thoughts and feelings of others.
On the other hand, Bass (1985) found that transactional leadership consists of two factors, namely:
* Contingent Reward (CR): Leaders who reward followers for their effort and support, and do what needs to be done by clarifying the followers’ roles and task requirements to meet their personal goals and organisational missions.
* Management by Exception (ME): Leaders taking corrective action only when followers deviate from expectations or fail to meet goals.
A number of researchers have suggested that transformational leaders, in general, motivate followers to perform at higher levels and to exert greater effort than transactional leaders.
Due to constant change and ever-increasing turbulence in the marketplace, every organisation should focus on developing transformational leaders.
The transformational approach is likely to be more effective in overcoming barriers to change than a transactional style that concentrates on technical problem-solving and neglects organisational issues.
Entrepreneurs who are transformational leaders will most likely cultivate a positive and significant relationship with their employees and enhance entrepreneurial success.
Dr Lew Tek Yew is a senior lecturer in management in Curtin Sarawak’s School of Business.