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By Dr. Jack G. Nestell with contribution from Dr. Justin Goldston
Private Equity Often Implies Transformation

Private Equity and Transformational LeadershipPrivate Equity firms don’t invest resources into an organization to remain static and stagnant. Organizational leaders of these firms understand that learning and creative and innovative thinking is required to stay competitive. Transformational leadership is key.

As mentioned in a previous Nestell & Associates article (https://nestellassociates.com/what-do-private-equity-and-erp-organizational-change-research-have-in-common/), a high-level definition of private equity would be:  to build healthy and vibrant organizations with organizational cultures oriented towards teamwork, organizational learning, innovation, and creativity while providing customers with exceptional value through quality products and service. And, often to build healthy and vibrant organizations requires significant transformational change.

The act of organizational performance improvement requires some level of change, and sometimes this change can be rather significant. We are confident that all PE firms will tell you that a positive and sustainable performance outcome only occurs when organizational culture continues to transform. To transform, it requires the development and the support of the people, processes, and technology that are well-aligned with the organization’s mission, vision, and values. That goal is often easier said than done. This goal also requires a purpose-driven transformational culture lead by a transformational mindset.

Leadership Styles

If years of the anecdotal case study and sound objective research is any indication, transformational leadership should be a concept known to all organizational leadership teams. Organizational leaders consist of many different characteristics, attributes, and styles and all leaders are certainly not alike. Moreover, not all leaders are best suited for significant organizational change.

In his book, Leadership: Theory and Practice, Dr. Northouse describes that leadership styles “consist of the behavior pattern of a person who attempts to influence others” (p. 94).  Dr. Northouse describes several leadership styles, including transactional leadership, transformational leadership, authentic leadership, servant leadership, and adaptive Leadership. Leadership styles (individual and as teams) come in many forms. While all leadership styles are beneficial for organizational leadership teams to understand, in this article, we will focus on transformational leadership specifically. There are many different leadership styles that can be identified, observed, and measured. As in our own independent studies, along with many others, the authors of this article would argue that during large scale ERP organizational change, transformational leadership is a critical success factor of an organization.

Transformational Leadership Defined

Organizational change literature suggests that executive teams and leaders who tend to have real -not perceived, assumed, or desired- transformational leadership qualities may benefit from a known ERP organizational change critical success factor. In his book, Leadership: Theory and Practice, Dr. Northouse, describes transformation leadership as “a process that changes and transfers people. It is concerned with emotions, values, ethics, standards, and long term goals” (p. 161). Dr. Northouse goes on to add that transformational leadership involves an exceptional form of influence that moves followers to accomplish more than what is usually expected of them.  Furthermore, Northouse (2016) describes transformational leadership as the consistent act of engaging with others and connecting in a way that increases motivation and morality, being perceptive to needs and motives, and helping followers reach their greatest potential. In their book, Reframing Organizations: Artistry, Choice, and Leadership, Bolan and Deal (2016) describe the central idea of transformational leadership as one in which “transformational leaders use inspiration, idealized influence, and the like to generate followers’ trust, respect, and willingness to go above and beyond” (p. 341). Those leaders who are more satisfying to their followers and who are more effective as leaders are more transformational and less transactional (Avolio & Bass, 1991). Additionally, transformational leadership enhances commitment, involvement, loyalty, and performance of followers and helps deal with stress among followers (Bass, 1998).

The Organization Needs a Culture of Transformational Leadership

The concept of transformational leadership is a recurring theme in ERP organizational change research. Transformational leaders inspire and motivate, are intellectual in their approach, and are intellectually considerate of employees. These attributes are signs of a transformational leader in comparison to transactional leaders who practice a contingent reinforcement style of leadership (Bass, 1999). Transformational leadership advocates for an organizational culture that transitions employees beyond self-interests, creates a highly motivated culture, promotes a strong learning environment, and is highly considerate of others’ well-being. Transformational leaders are well suited for ERP organizational change through encouraging, inspiring, and establishing trust in order to best accomplish a successful implementation (Goldston, 2020; Nestell, 2020). Research suggests that transformational leaders are strong advocates of the organizational change process through the creation of team decision making while being mindful of and managing and behavior with empathy and understanding.

Transformational Leadership Value and ERP Organizational Change

Organizations may benefit from recognizing the value and application of transformational leadership during ERP organizational change. As ERP organizational change agents, it is important to understand, assess, and be honest about leadership styles and their strengths and weaknesses. ERP organizational change efforts often consist of:

  • An iterative process of improvement
  • Business process re-engineering
  • Increased demands on internal time and effort
  • Diversity in terms of experience, perspectives, opinions, and knowledge
  • Organizational change mitigation strategies

In other words, ERP organizational change can be quite disruptive to the norm and require significant organizational resources (time, money, effort). Burns and colleagues (2013) further describe that transformational leaders possess organizational cultural characteristics such as strategic vision, celebrating successes, employee support, innovation, goal setting, and organizational culture orientations and identification that exceed some of the cultural orientations of transactional leadership. Burns et al. also suggested that in times of crisis and significant organizational challenge, transformational leaders may be best oriented to provide, promote, and develop a more adaptive organizational culture. Bass and Avolio (1990) state that transformational leaders can stay in tune with the desires of employees but also maintain alignment of realities and expectations that would be required for a successful ERP organizational change.

Strong transformational leadership tendencies drive the organization to outperform expectations, work through difficult situations, and adapt to change. As a result, transformational leadership is a significant cultural influence on the success of ERP organizational change.

Successful ERP Organizational Change is Dependent Upon Transformational Leadership

Three highly relevant principles contribute to the notion that successful ERP organizational change is dependent on transformational leadership. The first principle is that those leaders who are more satisfying to their followers and who are more effective as leaders are more transformational and less transactional (Avolio & Bass, 1991). Second, transformational leadership enhances commitment, involvement, loyalty, and performance of followers and helps deal with stress among followers (Bass, 1998). And third, there are strong links between aspects of transformational leadership and work performance (Lowe et al., 1996). These principles suggest that executive stakeholders would benefit from furthering understanding, and not assuming, their leadership abilities, characteristics, weaknesses, and strengths. Furthermore, these principles would also suggest that executive stakeholders understand the different categories of leadership characteristics and that their leadership style be identified. Accordingly, the recommendation is that the executive team take a survey to determine leadership style and then participate in educational sessions to discuss results as well as the value of transformational leadership during an ERP organizational change effort.

Transformational Leadership: Learning From Others
  • Shao and colleagues (2012) presented one of the first studies that examined the triad of transformational leadership, organizational culture, and knowledge sharing in the context of ERP success. They collected and analyzed data from 115 information systems executives and 413 ERP system end-users across 115 organizations. Results indicate that transformational leadership is indirectly related to, but critical to, ERP organizational change success. Furthermore, Shao and colleagues suggest that the research can be beneficial in guiding executive stakeholders in promoting organizational culture in a way that facilitates ERP organizational change success.
  • Elkhani and colleagues (2014) suggested that transformational leadership and ERP system self-efficacy are critical success factors for ERP assimilation. Elkhani and colleagues deployed a survey with 151 usable responses in which their findings suggest that transformational leadership can directly impact the recognition and understood usefulness via the utilization and understanding of self-efficacy application and measures. The work of Elkhani and colleagues has practical implications because transformational leadership development programs would encourage ERP organizational change methodology that could increase assimilation and application of self-efficacy when deploying and utilizing ERP systems. Elkhani and colleagues contribute a better understanding of how ERP practitioners can leverage transformational leadership knowledge and behavior to motivate and promote employee self-efficacy for the achievement of ERP assimilation.
Summary in A Sentence

Transformational leadership begets transformational culture. What is your leadership style? How do you know that?

References:

Bolman, L. G., & Deal, T. E. (2013). Reframing Organizations Artistry, Choice and Leadership. San Francisco: Jossey-Bass. https://www.amazon.com/Reframing-Organizations-Artistry-Choice-Leadership/dp/1118573331

Elkhani, N., Soltani, S., & Ahmad, M. N. (2014). The effects of transformational leadership and ERP system self-efficacy on ERP system usage. Journal of Enterprise Information Management, 27(6), 759-785.

Northouse, P. G. (2018). Leadership: Theory and practice. Sage publications. https://www.amazon.com/Leadership-Practice-Peter-G-Northouse/dp/1483317536


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