Leadership

Leadership Definition:
o Leadership is about the exercising of authority and it is done both formally (based on authority of
rank) and informally (based on the willingness of others to give service to a person whose special
qualities of authority they admire).
o indicates taking action and getting results
o is what leaders do; the process of influencing a group to achieve goals
- Ideally, all managers should be leaders
- Dynamic leadership influences the attitudes of the people.
- Leaders must be charismatic, inspirational, respectful, and stimulating when leading

Leader:
- The job of a leader in any organization is to get people to do things they have never done before, to do
things that are not routine and to take risks.
- The basic task of leader to make people more capable as a cohesive (solid) group that they are

Necessary to Influence Others:

o Build and use power effectively.
o Empower followers.
o Develop perceptions of credibility.
o Make effective use of verbal and nonverbal indications.
o refuse to accept inappropriate or unethical power.
o Communicate positive expectations for others.
o Foster creativity and manage change.
o increase agreement.
o Develop challenging competence.
o discuss productive solutions.
o Adapt to cultural differences.
o Shape public view.
o Organize and deliver effective presentations.
o Engage in self-leadership.
o Challenge and correct out of order personal assumptions.

Types of leadership power

1. Expert power based on perception that the leader possess some special knowledge or
expertise
2. Referent power based on the follower’s liking, admiring the leader
3. Reward power based on the leader ability to mediate rewards for the follower
4. Legitimate based on the follower perception that the leader has the legitimate right to
power exercise influence over him
5. Coercive power based on the follower’s fear that noncompliance with the leader’s wishes will lead
to punishment
Leadership and Management
Management Leadership
cannot be bestowed on a person by a higher
involves power bestowed (give) on the occupant of authority but is based on the charisma (the
apposition by a higher organizational authority compelling (powerful) personality of the leader
rather than on formal position).
- Effective managers must be leader and many leaders become managers.
- “Not all leaders are managers, nor are all managers leaders”

Leaders and Managers

Managers Leaders
Persons with managerial and personal power who
Persons whose influence on others is limited to the can influence others to perform actions beyond
appointed managerial authority of their positions those that could be dictated by those persons’
formal (position) authority alone
Stability Innovators
Problem solvers Change
Focus-Maintaining status quo Focus-ultimate direction of group
Efficiency Effectiveness
Motivating Inspiring

The Leader/Follower Relationship

- We learn when we are in a follower position.
- Can be both a leader and a follower at the same time.
- Give credit to followers.
- Listen to followers.

Functions of leaders (3 essential)

1) Provide a system of communication.
2) Promote (support) the securing (protecting) of essential efforts.
3) Formulate and define the purpose and goals of an organization.

Theories of Leadership
1. Early leadership theories
1) Trait Theories (1920s -1930s)
- Research focused on identifying personal characteristics that differentiated leaders from non-leaders
was unsuccessful.
- The trait approach suggests that leaders have unique characteristics that are distinct from followers,
and that leaders are born and not made.
- Later research on the leadership process identified seven traits associated with successful leadership:
Drive, the desire to lead, honesty and integrity, self-confidence, intelligence, job relevant
knowledge, and extraversion (adaptation)
- The theorists could never identify which traits make an effective leader.
- The situation strongly influences leadership.
Seven Traits Associated with Leadership:
1. Drive:
They have a high desire for achievement, they are ambitious and they have a lot of energy, they are
tirelessly persistent in their activities and they show initiative.
2. Desire to lead:
They have strong desire to influence and lead others. They demonstrate the willingness to take
responsibility.
3. Honesty and Integrity:
Leaders build trusting relationships with followers by showing high consistency between word and
deed (action)
4. Self-confidence:
Followers look up to leaders and sometimes rely on leaders. Therefore, leaders need to show self-
confidence in order to convince followers of the rightness of goals and decisions
5. Intelligence:
Leaders need to be intelligent enough in order to synthesize and interpret large amount of
information, they also need to be able to create visions, solve problems and make correct decisions
6. Job-relevant knowledge:
Leaders need to have high degree of knowledge about the company, industry and technical matters
which allow them to make well-informed decisions and to understand about implications of those
decisions.
7. Extraversion:
Leaders are energetic, lively people. They are sociable, assertive and rarely silent or withdrawn.
2) Behavioral Theories
Behavioral dimension Conclusion
• Identified three leadership styles: • No specific style was consistently
1) Autocratic style: centralized authority, better for producing better
low participation. (dictating work performance.
University
methods, centralizing decision making, • Employees were more satisfied under
and limiting participation) a democratic leader than under an
of IOWA
Studies 2) Democratic style: involvement, high autocratic leader.
(Kurt participation, feedback. (involving • Democratic style of leadership was
subordinates, delegating authority, and most effective, although later
Lewin)
encouraging participation) studies showed mixed results.
3) Laissez faire style: hands-off
management. (giving group freedom to
make decisions and complete work)
• Identified two dimensions of leader • High consideration/high structure
behavior: leaders generally, but not always,
1) Initiating structure: the role of the leader achieved high scores on group task
in defining his or her role and the roles of performance and satisfaction.
Ohio State group members. (structuring work & (achieved high subordinate
Studies work relationships to meet job goals) performance and satisfaction, but not
2) Consideration: the leader’s joint (shared) in all situations)
trust and respect for group members’ • Evidence indicated that situational
ideas and feelings. (being considerate of factors appeared to strongly
followers’ ideas and feelings) influence leadership effectiveness.
 • Identified two dimensions of leader
behavior: Leaders who are employee oriented are
University
1) Employee oriented: emphasizing personal strongly associated with high group
of Michigan
relationships. productivity and high job satisfaction.
Studies
2) Production oriented: emphasizing task
accomplishment.
• Evaluates leadership styles using two
dimensions:
1) Concern for people: measured leader’s
concern for subordinates on a scale of 1:9
(low to high)
2) Concern for production: measured leader’s
The Leaders performed best with a 9,9 style
concern for getting job done on a scale of 1:9
Managerial (high concern for production and high
(low to high)
Grid concern for people)
• Places managerial styles in five categories:
1) Impoverished (poor) management
2) Task management
3) Middle-of-the-road management
4) Country club management
5) Team management
The Managerial Grid:
Decision Theory
Decision Theory
• Alternative: Course of action or choice. Decision-maker chooses among alternatives.
• State of nature: An occurrence over which the decision maker has no control.

Types of Decision-Making Environments

Decision Making Under Uncertainty
Decision Making Under Risk - Expected Value (EV) or (EMV)
Decision Making Under Certainty

Decision Making Under Uncertainty

• Maximax - Choose alternative that maximizes the maximum outcome for every alternative. (Optimistic
criterion).
• Maximin - Choose alternative that maximizes the minimum outcome for every alternative. (Pessimistic
criterion).
• Expected Value - Choose alternative with the highest average expected value.
Example:
States of Nature
Alternatives Favorable Market Unfavorable Market
Construct large plant 200,000 -180,000
Construct small plant 100,000 -20,000
Do nothing 0 0
Solution:
- Choose maximum in row and minimum in row
States of Nature
Maximum in Minimum in
Alternatives Favorable Unfavorable
Row Row
Market Market
Construct large plant 200,000 -180,000 200,000 -180,000
Construct small plant 100,000 -20,000 100,000 -20,000
Do nothing 0 0 0 0

Choose the maximum in each column as to maximize profit or minimize the loss in both optimistic and
pessimistic options:
- Maximum of maximum in column means the most profitable option
- Maximum of minimum in column means the most profitable option or the lowest loss which is the
pessimistic option
• Maximax choice is to construct a large plant (Optimistic)
• Maximin choice is to do nothing (Pessimistic)
Decision Making Under Risk
• Probabilistic decision situation.
• States of nature have probabilities of occurrence
• Probabilities must sum to 1
• Select alternative with largest expected value (EV / EMV) or expected profits.
Example1:
Given the following, determine appropriate decision. The probabilities are 0.3 for big demand, 0.5 for average,
and 0.2 for small demand; determine decision under Uncertainty and under risk (EMV).
Alternatives Big Average Small
Large Stock 22,000 12,000 - 2,000
Average Stock 14,000 10,000 6,000
Small Stock 9,000 8,000 4,000
Solution:
a) Decision Under Uncertainty:
Big Average Small Maximum in Minimum in
Alternatives
(0.3) (0.5) (0.2) Row Row
Large Stock 22,000 12,000 - 2,000 22,000 -2,000
Average Stock 14,000 10,000 6,000 14,000 6,000
Small Stock 9,000 8,000 4,000 9,000 4,000
• Maximax choice is Large Stock (Optimistic)
• Maximin choice is Average Stock (Pessimistic)

b) Decision Under Risk:

EMV (large stock) = 0.3(22,000) + 0.5(12,000) + 0.2(–2,000) = $ 12,200
EMV (average stock) = 0.3(14,000) + 0.5(10,000) + 0.2(6,000) = $ 10,400
EMV (small stock) = 0.3(9,000) + 0.5(8,000) + 0.2(4,000) = $ 7,500
The best decision for EMV is large inventory = $12,200
Example2:
Given the following, determine appropriate decision under uncertainty.
State of nature
Alternatives
Very favorable market Average market Unfavorable market
Build new plant $350,000 $240,000 -$300,000
Subcontract $180,000 $90,000 -$20,000
Overtime $110,000 $60,000 -$10,000
Do nothing $0 $0 $0
Solution:
Very favorable Average Unfavorable Maximum Minimum in
Alternatives
market market market in Row Row
Build new plant $350,000 $240,000 -$300,000 $350,000 -$300,000
Subcontract $180,000 $90,000 -$20,000 $180,000 -$20,000
Overtime $110,000 $60,000 -$10,000 $110,000 -$10,000
 Do nothing $0 $0 $0 $0 $0

• Maximax (Optimistic decision) is to build new plant.

• Maximin (Pessimistic decision) is to do nothing.
Example3:
Given the following, determine appropriate decision under uncertainty, and under risk find the EMV (EV).
Market
Size of first station Good market Fair market Poor market
P=0.3 P=0.4 P=0.3
Small 50,000 20,000 -10,000
Medium 80,000 30,000 -20,000
Large 100,000 30,000 -40,000
Very large 300,000 25,000 -160,000
Solution:
a) Decision Under Uncertainty:
Size of first Good market Fair market Poor market Maximum in Minimum in
station P=0.3 P=0.4 P=0.3 Row Row
Small 50,000 20,000 -10,000 50,000 -10,000
Medium 80,000 30,000 -20,000 80,000 -20,000
Large 100,000 30,000 -40,000 100,000 -40,000
Very large 300,000 25,000 -160,000 300,000 -160,000
• Maximax choice is to build vary large station (Optimistic)
• Maximin choice is to build small station (Pessimistic)
b) Decision making under risk EMV
A1 = (50,000x0.3) + (20,000x0.4) – (10,000x0.30) = 20,000
A2 = (80,000x0.3) + (30,000x0.4) – (20,000x0.3) = 30,000
A3 = (100,000x0.3) + (30,000x0.4) – (40,000x0.3) = 30,000
A4 = (300,000x0.3) + (25,000x0.4) – (160,000x0.3) = 52,000
The best alternative is to build very large station.
Example4:
Use the following data to determine the decision under uncertainty and under risk. Which alternative
maximizes the expected value of payoff?
Probability 0.4 0.2 0.4
Decision Low Medium High
A 40 100 60
B 85 60 70
C 60 70 70
D 65 75 70
E 70 65 80
Solution:
a) Decision Under Uncertainty:
 Maximum in Minimum in
Decision Low Medium High
Row Row
A 40 100 60 100 40
B 85 60 70 85 60
C 60 70 70 70 60
D 65 75 70 75 65
E 70 65 80 80 65
• Maximax choice is decision A (Optimistic)
• Maximin choice is to decision D OR E(Pessimistic)
b) Decision making under risk EMV
E(A) = 0.4(40) + 0.2(100) + 0.4(60) = $60
E(B) = 0.4(85) + 0.2(60) + 0.4(70) = $74
E(C) = 0.4(60) + 0.2(70) + 0.4(70) = $66
E(D) = 0.4(65) + 0.2(75) + 0.4(70) = $69
E(E) = 0.4(70) + 0.2(65) + 0.4(80) = $73
Choose Alternative B.
Example5:
Use the following data to determine the decision under uncertainty and under risk. Which alternative
maximizes the expected value of payoff?
Probability 0.4 0.2 0.4
Alternatives Low Medium High
A 30 -40 -20
B 100 -55 -10
C 28 -240 28
D 0 -11 -13
E 45 0 0
Solution:
c) Decision Under Uncertainty:
Decision Low Medium High Maximum in Minimum in
Row Row
A 30 -40 -20 30 -40
B 100 -55 -10 100 -55
C 28 -240 28 28 -240
D 0 -11 -13 0 -13
E 45 0 0 45 0
• Maximax choice is decision B (Optimistic)
• Maximin choice is to decision E(Pessimistic)