Empowering Leaders Not Always Best for New Business Ventures

Newswise — "Empowering leaders" who give employees room to think and behave independently are often perceived as superior to "directive leaders" who give specific orders. But it's not necessarily so.

In certain business environments—including fast-moving entrepreneurial fields—the directive leadership style can be more effective. So says a study by two management researchers.

"The empowering style of leadership has been oversold regarding new ventures with heterogeneous teams in dynamic environments," says Dr. Keith M. Hmieleski, assistant professor of management at the Neeley School of Business at Texas Christian University in Fort Worth. "In fact this combination works terribly."

That's because people with significantly different backgrounds and patterns of thought and behavior take too long to reach consensus on goals in business environments requiring rapid action. Thus they miss critical windows of opportunity, report Dr. Hmieleski and co-researcher Dr. Michael D. Ensley of Rensselaer Polytechnic Institute in Troy, NY.

Their study, "A Contextual Examination of New Venture Performance: Entrepreneur Leadership Behavior, Top Management Team Heterogeneity and Environmental Dynamism," is the first to examine the relationship of these variables. It will appear in an upcoming special edition of the Journal of Organizational Behavior focused on organizational context.

Hmieleski and Ensley surveyed 168 managers at 66 firms from the Inc. 500 list of America's fastest-growing startups. They also surveyed 417 top managers at 154 U.S. firms randomly selected from Dun and Bradstreet.

They examined two styles of entrepreneur leadership behavior: "empowering" and "directive." They also probed the differences in function, education and skills of top managers, the rate of unpredictable change in the industry, and the effects—defined as growth in revenue and employment—of these variables on new venture performance.

Entrepreneurs with an empowering style of leadership encourage team members to think and behave independently, to take advantage of opportunities and to participate in goal setting. Directive leaders, by contrast, assign nonnegotiable goals. They instruct followers to carry out designated tasks, and reprimand those who stray from their tasks.

In recent years, the general wisdom has been that companies with empowering leaders possess the competitive advantages of flexibility, innovation and creativity, Dr. Hmieleski says. Directive leaders are seen as old-fashioned and possibly downright stifling.

Reality, however, is not that simple.

"Leadership is clearly contextual and highly complex," Dr. Hmieleski notes.

Both styles of leadership have pros and cons tied to the internal variable of team heterogeneity and the external variable of industry dynamism.

Most striking among the study's results is that the empowering style of leadership, commonly thought to be most effective with heterogeneous teams in industry environments of rapid change, was clearly shown to falter under those very conditions.

"Fast-moving environments demand fast decisions," notes TCU's Hmieleski. That's where directive leadership comes in. A directive leader can rapidly clarify what work needs to be done in the moment and by whom.

"The benefits of directive leadership and the drawbacks of empowering leadership have been downplayed recently," says Dr. Hmieleski.

The new study shows that both styles have their place, depending on the circumstances. For instance, with heterogeneous teams in stable industry environments, empowering leadership shines as the clear choice because stable environments provide time for team members to reach cohesive decisions. In that environment, directive behavior can grate on team members and reduce their commitment to the venture.

With teams that are more homogeneous, the opposite effects were found. In dynamic environments directive behavior is unnecessary because team members already tend to share the same goals. In those circumstances, companies performed best when led by empowering leaders.

In stable environments, ventures with homogenous top management teams had the most success when led by directive leaders.

The study's findings were consistent across both samples.

"The main point that can be drawn from this research is that entrepreneurs must take into account the type of environment and the type of team, then consciously choose the most effective leadership style to address the internal and external factors alike," Dr. Hmieleski says. "It's not easy to do."

But according to the study the effort is worthwhile and may reap substantial performance gains for new ventures.