HOW MISFITS BETWEEN LEADERSHIP STYLE AND STRATEGY AFFECTS

PERFORMANCE

by

Dorthe Døjbak Håkonsson

Jørgen Lauridsen

Børge Obel

Richard Burton

Department of Organization and Management and Department of Economics, University of

Southern Denmark, Odense, Denmark

Fuqua School of Business, Duke University, Durham, NC, USA

Tel.: +456550 3278

Fax: +456593 1766

Keywords: Leadership Style, Strategy, Contingency Theory

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 HOW MISFITS BETWEEN LEADERSHIP STYLE AND STRATEGY AFFECT

PERFORMANCE

Abstract

We examine how misfits between leadership style and organizational strategy affect firms’

economic performance. We test this relationship using data from 407 small and medium-sized

Danish manufacturing enterprises. We measure the CEO’s own perception of his or her

leadership style and strategy. The CEO’s view is particularly relevant in the companies

studied as decision-making in small and medium-sized firms is highly influenced by the CEO.

We develop refined measures for leadership style and strategy, thereby permitting a detailed

understanding of the relationship between leadership style and strategy. We find a negative

effect on the firm performance, measured as return on assets, when the CEO leadership style

is not in balance with the strategy. In particular, our results indicate that irrespective of

whether CEO’s are willing to delegate decision-making authority or not, high uncertainty

avoidance is a mismatch with very explorative strategies. The implications are that managers

should be aware how misfits between various aspects of leadership styles and strategy

diminish the firm’s performance and that the potential misfit relationships may be more

diverse than previously thought.

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Introduction

Does a failure to co-align leadership style and strategy lead to negative performance

consequences?

In an earlier study, Burton, Lauridsen, and Obel (2002) showed that any strategic

misalignment or misfit in the Burton and Obel (1998) multi-contingency model negatively

affects the firm’s Return on Assets (ROA). Their model includes the firm’s strategy,

technology, leadership style, climate, environment, and size as contingency factors. Their

result suggests that the relationship between the firm leadership style and strategy is important

to the firm’s performance. However, Burton et al. used aggregated measures and did not

investigate the effect of the individual misfits and their implications.

In this paper, we investigate specific misfit hypotheses between the firms’ leadership style

and strategy. Using data from 407 Danish small and medium-sized manufacturing enterprises

(SME), we measure the CEO’s leadership style and strategy, by means of new leadership

style and strategy measures.

We develop a simple measure of CEO leadership style to apply in the multi-contingency

theory of organization. Following Cyert and March (1963) we find that two dimensions

(preference for delegation and uncertainty avoidance) describe leadership style well, and we

further demonstrate that leadership style can be categorized into four types: leader,

entrepreneur, manager and producer.

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A classical study on strategy by Miles and Snow (1978) developed a typology of prospectors,

analyzers, defenders, and reactors. The Miles and Snow typology is widely used empirically,

and it is very robust (Doty et al., 1993). In this study, we map March’s (1991) exploration and

exploitation strategic dimensions onto the Miles and Snow approach. This allows us to more

naturally develop misfit hypotheses between leadership style and strategy.

The main contributions of this paper are: 1) to extend measures of leadership style and

strategy, 2) thereby permitting a more detailed understanding of the relationship between

leadership style and strategy, and 3) to use these dimensions to create a more detailed

demonstration of the negative effect of specific misfits between leadership style and firm

strategy.

The paper is structured as follows: In the following section, we first review literature on the

relationship between leadership style and strategy, then we develop a theoretical framework

which first develops our leadership style and strategy measures, and finally we present the

specific research hypotheses. Five hypotheses of misfits between leadership style and strategy

are presented. The empirical section develops the measures of leadership style and strategy,

and the hypotheses are tested using a regression model. Finally, we conclude with a

discussion and managerial implications.

THEORY AND HYPOTHESIS

Leadership style and strategy

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In leadership theory, there is an extended debate whether the co-alignment or fit between

leadership style and situational demands is a necessity for organizational performance. The

universalists (Blake and Mouton (1964, 1985) argue that one style of leadership is effective in

all situations; the contingency researchers (Fiedler, 1967, 1971; Hersey and Blanchard (1969,

1982) argue that it is the coalignment between situational demands and the exerted leadership

style that matters. Common for both stands, however, is that they usually describe leadership

by the two dimensions of task vs. people orientation, stemming from the research done at

Ohio State University (Kerr and Shriesheim, 1974, Fleishman and Harris, 1962), and

Michigan (Likert, 1961, 1967) leadership research programs.

It has been argued by many (Arvonen and Ekvall,1996; McElroy and Hunger, 1988, Stogdill,

1974, Yukl, 1987) that leadership theory has suffered from a lack of clear definition of

situational and leadership variables and that could be the reason for the controversies about

whether a “best practice” or a contingency relationship exists (Arvonen and Ekvall,1996).

Perhaps this explains why, to our knowledge, none of the otherwise extensive number of

contingency studies relating leadership style and strategy have used these classical leadership

concepts in linking leadership to strategy.

Based on the strategic choice argument (Child, 1972), several studies have examined the

effect of the relationships between managers and firm strategy. While various perspectives

have been taken, a preponderance of studies has used proxies of leadership characteristics to

reflect the skills and attitudes that best match effective strategy implementations. Examples

include Wissema et al.’s (1980) model linking a taxonomy of six strategies with six matching

leadership archetypes showing, e.g., an “explosive” strategy is best administered by a

“pioneer” type manager. Other examples include Leontiades’ (1982) matching of strategy and

leadership style arguing, e.g., that the “steady state” strategy is best not administered by an

5
entrepreneur and an R&D oriented manager. Miles and Snow (1978) also discuss how

different management models are more suited for different strategies. They relate job

requirements of their strategies to different management models, yet their discussion of

managerial skills and behaviors is limited to the identification of whether the management

model would reflect a traditional human-relations, or human-resources philosophy.

As argued by Gupta (1984) as well as by Szilagyi and Schweiger (1989) a major weakness of

the literature relating managerial characteristics to strategy is its tendency to use vague,

unanchored and untestable terms for operationalizing managerial characteristics, as well as for

using non-concise definitions of what particular skills and behaviors are associated with

particular managerial prototypes. A similar lack of inconsistency is marked in the definition

of strategy where this literature tends to use vague definitions of overall strategic ideas rather

than focusing on what activities are involved in given strategies. According to these authors

this lack of relating specific activities required by strategies with specific managerial

characteristics makes it difficult to use the empirical results to prescribe managerial actions.

Other studies have focused on CEO demographics operating with the assumption that

managerial demographics reflect underlying psychological orientations and knowledge bases

(Kiesler and Sproull, 1982; Datta and Rajagopolan, 1998) and thus consequentially are likely

to be reflected in managerial decisions, as consistent with the strategic choice paradigm

(Child, 1972). Within this field, Wiersema and Bantel (1992) found that low age, low tenure

and high education among top management teams was related to more absolute changes in

firm diversification level. Hambrick, Geletkanycz and Frederickson (1993) found a negative

relationship between executive firm tenure and strategic change. Thomas, Litshert and

Ramaswamy (1991) found positive relationships between executive education levels and

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prospector strategies. While using demographics provide advantages such as objectivity and

testability (Pfeffer, 1983), such measures are, however, still only proxies for mangers’

cognitive orientations.

It appears from the above that there is general support for the hypothesis of matching

managerial profiles with strategies but that the relationship is somewhat unclear due to a

variety of measures in previous studies.

It would seem to bring clarity to the field by focusing on leadership as measured through

decision making characteristics rather than using proxies of different characteristics for

measuring these tendencies. These differences in decision making characteristics would result

in different foci in strategic decisions, reflecting the idiosyncrasy inherent in managerial

decision making to explain the link between executive characteristics and strategy. This view

brings clarity to the discussion on the relationship between leadership style and strategy as it

focuses on the managerial decision making process related to the choice of strategy. Focusing

on decision making thus seems worthwhile and it is consistent with Child’s strategic choice

idea (Child, 1972) that managers’ perception of the firm’s situation helps form the manager’s

strategic choices. This fits well with relating the leadership style (as measured through

decision-making characteristics) with strategy using the Miles and Snow (1978) typology.

Theoretical perspectives on leadership style and strategy

Leadership style

Consistent with the idea of the strategic choice paradigm where it is managers’ subjective

perception and evaluation that forms the link between the environment’s objective features

and organizational action, we argue that the decision making perspective is worthwhile in

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examining the relationship between leadership style, as measured in managerial decision

making style, and strategic typologies in a contingency framework.

In their behavioral theory of the firm, Cyert and March (1963) describe how decisions are the

result of what they call problemistic search, which is motivated by the problem, simple

minded and biased by the experience of the decision-maker. Further, they describe how

decision-makers avoid the uncertainty of long run anticipation and commitments by focusing

on the immediate problems and utilizing short term feedback. Thus, leaders use reasonable

heuristics rather than normative optimization.

Burton and Obel (1998, p. 255) summarize several leadership models by six dimensions, all

reflecting leaders’ decision making preferences: Leaders preferences for delegating decisions,

leaders’ attitudes towards proactive or reactive decision making, leaders’ time horizon of

decisions, the level of detail in decision making processes, degree of risk aversion, and

preference for motivational or control oriented leadership. Leaders characterized by low

preference for delegation, reactiveness, short term horizon, high level of detail, high risk

aversion, and preference for control over motivation would thus be similar to literature’s

theory X, as opposed to Y leaders (McGregor, 1969), autocratic as opposed to democratic

leaders (Likert, 1967); or leaders, as opposed to managers (Zalesnik, 1979; Kotter, 1990). The

question is whether such a dichotomous picturing of leadership style as rating either high or

low on the six dimensions adequately represents the variety of leadership styles existing. In

fact, it may well be possible that one leadership style could be characterizing leaders having a

low preference for delegation while simultaneously having a high preference for risky and

long term decision making.

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The Cyert and March (1963) decision-making dimensions of decision making delegation and

uncertainty avoidance for problemistic search patterns, capture well the six Burton and Obel

dimensions. For instance, the managerial propensity to delegate is an efficient decision

making heuristic whenever leaders find it efficient in terms of their time available as well as

when they believe decisions made will be congruent with their own preferences, as formed by

their experiences. Similarly, the Burton and Obel dimensions of risk avoidance, preference for

detail, reactiveness, short term decision making, and control vs. motivation seem related to

the notion of uncertainty avoidance. One way to avoid the uncertainty of long run anticipation

and commitments is to simply avoid correctly anticipating events in the distant future by

using short-run reaction to short-run feedback, i.e. solve pressing problems rather than

developing long run strategies and avoid anticipating the environment by negotiating with it.

Thus we hypothesize that leadership styles can be described by:

- Managers’ preference for delegation

- Managers’ preference for uncertainty avoidance.

We suggest that leaders may rate high or low on either of these dimensions simultaneously;

depending on how CEOs rate on uncertainty avoidance and preference for delegation,

leadership styles will represent four profiles. This is depicted in figure 1 below.

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 High
uncertainty
avoidance
Manager Producer

Low High
preference preference
for delegation for delegation
Entrepreneur Leader

Low
uncertainty
avoidance

Figure1: Categorization of Leadership Style

As appears from figure 1, the two-dimensional depicturing of leadership styles gives a more

detailed picture of leadership styles as opposed two the traditional dichotomous presentations

of leaders as being either X or Y (Mc. Gregor, 1969); either autocratic or democratic (Likert,

1967), etc. The two dimensional depicturing thus seems to provide a fuller and richer

description of potential leadership styles, including entrepreneur and producer styles.

• Leaders have a high preference for delegation and low uncertainty avoidance: They are

confident that decisions are congruent with their own experiences, and thus find

delegation an efficient way to save time. Moreover, they do not avoid long term

uncertainty, but rather prefer more strategic, overall decisions, think long term, take risks

and don’t need high control. The strengths of leaders of this type are their ability to initiate

new ideas and projects, and that they exploit subordinates’ management competencies.

Potential weaknesses are their limited focus on carrying through projects. In addition, they

may have a tendency to make risky decisions.

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• Entrepreneurs rate low on their preference for delegation as well as low on uncertainty

avoidance. Entrepreneurs are likely to intervene directly, and to assure that decisions are

made congruent with their own experiences. At the same time, they do not try to avoid the

uncertainty of long-term decisions by reactive decision making etc. Managers of this type

are efficient at benchmarking and thereby positioning the organization close to

competitors. Weaknesses are that they risk becoming bottlenecks given their preference

for being involved in the carrying through of their many initiatives. This is in part due to

the fact that they do not exploit subordinates management resources.

• Managers have high uncertainty avoidance and a low preference for delegation. This

means that they avoid long run uncertainty by making reactive and short time decisions,

and by assuring a fine level of detail. Managers are likely to focus more on operating than

strategic decisions, and do not delegate decision making authority. Strengths of this

management profile include their ability to assure efficiency and goal accomplishment.

Weaknesses are a lack of ability to see the need for development, given their lack of focus

on environments. Similar to entrepreneurs, they also do not exploit subordinates’

management competencies, but instead prefer to control execution of decisions

themselves.

• Producers have a high preference for delegation and high uncertainty avoidance.

Producers want to be held up to date on what is going on, but do no need to make the

decisions themselves. They avoid the uncertainty of the future by reactive decision

making, (perhaps focus more on operational decisions) yet find it efficient to delegate in

terms of their time availability especially when they believe decisions made are congruent

with their own beliefs. Strengths of this profile include exploitation of subordinates’

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 managerial resources. Weaknesses include a lack of courage to undertake changes, and

ignorance of environmental demands of adaptation.

Strategy

To describe strategic choice, Miles and Snow (1978, p. 29) developed a four-category

typology: defenders, prospectors, analyzers, and reactors. Miles and Snow (1978) viewed

their categories as being points on a scale going from defenders to prospectors with the

analyzers in between and reactors as outliers. Nicholson, Rees, and Brooks-Rooney (1990)

presented a typology that extended the Miles and Snow typology dividing the analyzers into

two groups. Based on this research Burton and Obel (1998) used five categories: defenders,

prospectors, analyzers without innovation, analyzers with innovation, and reactors; where

analyzers with innovation contrary to analyzers without innovation have innovations that run

concurrently with the regular production.

The original Miles and Snow (1978) model addresses organizational adaptation seen as

responses to three simultaneous problems: entrepreneurial, engineering, and administrative

problems. According to Miles and Snow (1978) responses to these problems are confronted

differently in each of their suggested strategies. While the Miles and Snow (1978) model

encompasses environmental, organizational, managerial, and strategic issues, in this paper we

focus only on the strategic issue inherent in the model, thereby focusing uniquely on how

different strategic responses to the above lead to different strategic use of organizational

resources. When focusing on the strategic issues, it is firm differences in solutions to the

entrepreneurial and the engineering problems that are primarily important.

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Thus, as suggested by Miles et. al. (1978) different solutions to entrepreneurial problems will

be reflected in different price levels and quality of products; and by either focusing on growth

through product and market development or through market penetration. Similarly, different

solutions to the engineering problem will be reflected in different degrees of technological

improvements, and choices of single core highly efficient technologies versus dual or flexible

and multiple technologies.

Burton and Obel (1998) operationalized the Miles and Snow (1978) strategies by the

following nine measures: Product innovation, process innovation; product and market

breadth, concern for quality, price level, control level, technology routineness, and capital

requirement.

Comparing these measures with the Miles et al. measures (1978) it seems that product and

process innovation; as well as price level and concern for quality are similar to Miles et al.’s.

(1978) suggestions for how solutions to the entrepreneurial problem are reflected. Similarly,

Burton and Obel’s technology and capital requirement measures seem related to Miles et al.’s

(1978) suggestions for how solutions to the engineering problem are reflected in choices of

technology to enable a proper serving a domains. Control level is, however, mostly related to

the administrative problem. Technology routineness is in the Burton and Obel (1998) model a

separate contingency factor. Product and market breadth can be argued to be a description of

the environment. Thus, in this study we end up with five measures related to the strategic core

of the Miles and Snow categories: product innovation, process innovation, concern for

quality, price level, and capital requirement.

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The Miles and Snow typology maps the strategy on a scale from effectiveness to efficiency.

The prospector is on one end of the scale with respect to high effectiveness and low

efficiency, while the defender is on the opposite end with low effectiveness and high

efficiency. Analyzers are in between. Using the above measures, the high effectiveness of the

prospector strategy would be reflected in high ratings on product innovation as opposed to

process innovation to reflect the outwards focus of this strategy. This will necessitate a high

capital requirement, and usually this will lead to a high price level. Defenders would rate

opposite on these measures, as reflective of their high efficiency; and analyzers would rate in

between on the same measures.

The question is, however, whether dichotomous ratings as the above, rating strategies as

either high or low on effectiveness and efficiency sufficiently capture the richness of strategic

typologies. Instead it could be argued that the two dimensions efficiency and effectiveness

should be seen as uncorrelated, thereby making it possible to conceptually capture whether

organizations pursue strategies, which are high on efficiency and effectiveness

simultaneously. This possibility is also suggested in the dual strategies of the analyzer with

and without innovation, respectively, where firms emphasize product innovation (as reflective

of effectiveness) together with process innovation (as reflective of efficiency) simultaneously.

March (1991) discussed how organizations must continuously search for a balance between

exploration and exploitation. Exploitation includes: refinement, choice, production,

efficiency, selection, implementation, and execution (March, 1991:71). Exploration includes:

search, variation, risk taking, experimentation, play, flexibility, discovery, and innovation

(March, 1991:71). Organizations must search for a balance between the two; exploration

14
alone creates innovativeness, but is likely to lead to too many underdeveloped ideas; and

exploitation alone, although assuring competitiveness, is likely to lead to inertia.

In comparing the two dimensions effectiveness and efficiency to March’s (1991) exploitation

and exploration, effectiveness seems similar to exploration since effectiveness is related to

innovation, and a generally more “outwards directed” focus, whereas efficiency seems related

to exploitation, since efficiency is more related to a refinement of processes. March’s (1991)

concepts, as well as the concepts of efficiency and effectiveness, have usually been used as

constituting two ends on a continuum. However, it seems intuitively reasonable to argue that

organizations can rate high on both exploration and exploitation simultaneously, since they

are independent concepts.

In relation to strategy, organizations can also be seen to pursue strategies which are high on

exploration and exploitation simultaneously. The Prospector strategy, with its high focus on

product innovation, would be expected to rate high on exploration, while low on exploitation.

The opposite would be the case for the Defender strategy, which has a focus on process

innovation and refinement of existing processes, consistent with high exploitation. An

analyzer with innovation strategy, however, would be expected to rate high on both

exploration and exploitation, as given by this strategy’s simultaneous focus on both new and

existing products areas. The analyzer without innovation would be expected to rate high on

exploitation, but less high on exploration than the analyzer with innovation, because the

organization pursuing the analyzer with innovation frequently undertakes new product

innovation. As noted, operating with two dimensions rather than just one, may give more

accuracy in the description of strategy types.

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This suggests that exploitation and exploration are not end-points on the same scale, but may

be orthogonal dimensions in a two-dimensional space and that the Miles and Snow categories

are not on a single dimensional scale either as originally suggested by Miles and Snow

(1978). The idea is illustrated in figure 2 below.

High
exploitation

Defender Analyzer Analyzer with

without innovation
innovation

Low High
exploration exploration

Reactor Prospector

Low
exploitation

Figure 2: Categorization of the Miles and Snow Categories on March (1991)

exploration/exploitation

Where;

• Defenders: Organizations whose strategy is to produce efficiently a limited set of

products directed at a narrow segment of the total potential market. Defenders therefore

rate low on exploration while high on exploitation.

• Prospectors: Prospectors rate high on exploration but low on exploitation because the

purpose of these strategies is to find and to exploit new products and market

opportunities,

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• Analyzers without innovation: Organizations whose strategy is to move into new products

or new markets only after their viability has been shown, yet they maintain an emphasis

on their ongoing products. Analyzers of this kind have limited innovation and the innova-

tion is related to the production process and generally not to the product. Therefore,

analyzers without innovation rate high on exploitation, and medium on exploration.

• Analyzers with innovation: Organizations whose strategy is to combine aspects of the

defender and the prospector. They move into production of a new product or enter a new

market only after viability has been shown. However, unlike the analyzers described

above, they do have innovations that run concurrently with their regular production. They

have a dual technology core. This positions them as high on exploration, and high on

exploitation.

• Reactors: Organizations whose strategy follow inconsistent and unstable patterns. They

rate low on both exploration and exploitation.

Leadership style and strategy performance hypotheses

Miles and Snow (1978: 30) asserted “we believe that our formulation specifies relationships

among strategy, structure, and process to the point where entire organizations can be

portrayed as integrated wholes in dynamic interaction with their environments.” Indeed, the

empirical evidence supports their claim (Doty et al, 1993). To validate the Miles and Snow

strategy typology, researchers have performed empirical research studies, using cluster

analysis. The clusters are generally few in number and match the Miles and Snow typology

remarkably well (Smith, Guthrie, and Chen, 1989; Roth and Miller, 1990). Further, the

relationship between the Miles and Snow approach and performance has been empirically

analyzed with very good results (Doty et al., 1993).We hypothesize that some combinations

17
of leadership style and strategic choice align or fit well together and yield good performance.

Complementarily, there are combinations of leadership style and strategic choice which do

not fit and yield poorer relative performance; we call those combinations – misfits. Here, we

develop five misfits between leadership style and strategy.

Following Donaldson (2001), fit is a balance between levels of the contingency and structure

that produce higher performance. A misfit produces “a negative effect on organizational

performance.” Therefore a misfit is a condition that calls for the organization to move back to

fit. Since fit recommendations are triggered by misfit conditions, fit recommendations are

operational only if the organization has a misfit. That is why this article focuses on misfit

relationships rather than fit relationships.

When relating our hypothesized leadership style and strategy dimensions, it would seem that

high exploration, described as search, variation, risk taking, experimentation, play, flexibility,

discovery, and innovation (March, 1991) would not go well with a leadership style

characterized by a high uncertainty avoidance, as defined by risk aversion, short term decision

making etc. Similarly high exploitation, characterized by refinement, choice, production,

efficiency, selection, implementation, and execution (March, 1991); would not seem to go

well with a leadership style characterized by a high preference for delegation, since leaders of

this type would not be likely to have the needed focus. This relationship is illustrated in figure

3 below together with five suggested hypothesis.

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 High exploitation
High preference
for delegation

Leader Producer
H4
H1
Analyzer without Analyzer with
Defender
innovation Innovation

Low exploration H3
High exploration
H5
Low uncertainty High uncertainty
avoidance avoidance
Entrepreneur Manager
H2

Reactor Prospector

Low exploitation
Low preference
for delegation

Figure 3: Hypothesized misfit relationships between leadership style and strategy

Figure 3 generally hypothesizes that strategies requiring high exploitation do not go well with

leadership styles rating high on preference for delegation (and vice versa). Also, strategies

requiring high exploration are hypothesized to mismatch leadership styles rating high on

uncertainty avoidance (and vice versa). Some enforcements on this overall relationship are

made, since any level of exploration is generally expected to be inconsistent with high

uncertainty avoidance and/or low preference for delegation (as reflected in hypotheses 3 and

5). Since the reactor strategy is generally not a profitable strategy, this strategy is not related

to any leadership styles. These hypotheses follow the misfit development in Burton and Obel

(1998) and Burton et al (2002) and are consistent with Wissema et al.’s (1980),

Leontiades(1982), and Miles et al. (1978).

• Hypothesis 1: Leaders misfit with a defender strategy

• Hypothesis 2: Managers misfit with a prospector strategy

• Hypothesis 3: Entrepreneurs misfit with an analyzer without innovation strategy

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• Hypothesis 4: Producers misfit with an analyzer with innovation strategy

• Hypothesis 5: Producers also misfit with a prospector strategy

The leader type is characterized as an individual rating low on uncertainty avoidance and high

on preference for delegation, i.e. the leader prefers long term strategic type decision making,

has a proactive decision making style, and prefers to delegate decision making authority. This

leader type is not well suited for the defender strategy, whose focus is on process innovation,

as reflected in its high exploitation.

The manager type prefers direct involvement in decision making and control within narrow

ranges of information (high uncertainty avoidance, and low preference for delegation)

therefore this type is not likely to fit the needs of a prospector strategy which demands a

projection into the unknown with new and innovative products and services, where the returns

are uncertain (high exploration, low exploitation).

The entrepreneur type does not prefer to delegate decision making authority and has a high

uncertainty avoidance. (S)he is likely to initiate a range of options, which (s)he will undertake

upon his/her own demand. Important for the entrepreneur is the ability to survey execution of

these decisions. This is hypothesized to be inconsistent with the analyzer without innovation

strategy, simultaneous high focus on exploitation and medium focus on exploration, which is

expected to overload the entrepreneur who is unwilling to give away decision making

authority.

The producer manager prefers to delegate decision making authority but at the same time has

a high uncertainty avoidance, meaning that he is an individual who is willing to give

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employees a good deal of freedom of action, but action that is monitored. The analyzer with

innovation strategy continuously searches for new opportunities which are not within the

current activities (high exploration and high exploitation). This requires a longer term view

which the producer is not likely to have. For the same reason, producers will also not fit the

needs of a prospector strategy with this strategy’s need for new and innovative products in

uncertain environments, as reflected in its high exploration.

Data

Data come from a survey data from 1097 small and medium-sized Danish service and

manufacturing firms in the western part of Zealand, Funen and the triangular area of Southern

Jutland. The survey comprised of all the firms within the sampled geographical area. It was

conducted as a combined telephone and mail survey in the spring of 1997. The questions were

related to technology, strategy, organization, leadership style in the Burton and Obel (1998)

multidimensional contingency model, as well as purchasing and marketing patterns.

The data used in this study were drawn from a subset of 407 small and medium-sized (i.e.

firms with more than 10 and less than 500 employees) manufacturing firms. Of the 407

enterprises, 135 were medium-sized (50-499 employees) and 272 were small (10-49

employees). The response rate of medium sized enterprises was 49% and the response rate of

small manufacturing enterprises was 28%. This makes it possible to generate to the sample

with some confidence.

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The data collection process consisted of telephone interviews with the total population of the

firms where some initial data were collected and permissions were asked to send a

questionnaire to the CEO. Questionnaires were sent out in March and April 1997 to 365

CEOs. Thus, using the CEO as the informant, the data in this study are not publicly available;

they represent the management’s view of the organization and its situation. This view is

particularly relevant in the companies studied as the influence on decision making in small

and medium sized firms is highly influenced by the CEO. Here, we follow the sampling

strategy advocated by Seidler (1974) using the same type of key informant in all of the

sampled organizations, thus holding the sample bias constant across the organizations.

The data collection procedure and data are described further in Eriksen and Døjbak (1998a,

1998b).

Financial data for 1999, 1998, 1997 and 1996 were collected from public sources, i.e. the

electronic database CD-Direct. CD Direct is published by Købmandsstandens

Oplysningsforbund, a Danish purveyor of credit information about business. Because all firms

in the database were incorporated firms with limited liability (A/S and ApS), all firms were

required by Danish law to publish their annual financial results. The database contains the

publicly available financial statements. As our measure of financial performance we used

return on assets, where income is measured before tax but after interest payments and

depreciation. ROA is one of the most widely used profitability rations in organizational and

strategic analysis (Hax et. al., 1984).

Measures and results

Leadership measures

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Data for measuring Burton and Obel’s six leadership dimensions were a set of 18 questions

which were (Burton, Lauridsen, Obel, 2002) demonstrated to capture the six dimensions

discussed above well. The actual questions and their original mapping to the six dimensions

are shown in the Appendix 1. Table a, appendix 2 shows descriptive statistics for the

leadership variables employed in the study, including means and standard deviations.

To asses the validity of our leadership constructs, we conducted a confirmatory factor analysis

(Sharma, 1996:128) based on the 18 questions measuring the six Burton and Obel (1998)

leadership dimensions. The results are reported in table 1 below.

Table 1: CFA results, Leadership Style

Manifest var. Loading on factor t value R-square

L1 L2

A27_1 (PREF FOR DELEGATION) 1.00 1.00

A37_1 (SOLUTION OF HUMAN PROBLEMS) 0.07 0.84 0.00
A37_2 (STIMULATE COOPERATION) 0.13 1.42 0.01
A37_3 (FORMULATE IDEAS/VISIONS) 0.00 0.03 0.00
A37_4 (GUIDE EMPLOYEES) 0.61 7.59** 0.22
A37_6 (IMPLEMENT NEW ROUTINES & METHODS) 0.50 5.88** 0.15
A37_7 (CONTROL ACCOUNTS & BUDGETS) 0.65 8.36** 0.26
A37_8 (RULES & PROCEDURES FOLLOWED) 0.88 12.78** 0.46
A37_10 (REASONABLE USE OF RESOURCES) 0.33 3.75** 0.07
A29_8 (DETAILED INFORMATION) 0.46 5.32** 0.13
A29_11 (WAIT AND SEE BEFORE ACTION) 0.30 3.34** 0.05
A29_5 (PREFERENCE FOR MINIMIZING RISK) 0.50 5.91** 0.15
A24_5 (LEADING EMPLOYEES FOLLOW RULES) 0.89 13.05** 0.48
A25_5 ((NONLEADING FOLLOW RULES) 0.74 9.95** 0.33
A24_8 (CONTROLS THAT LEADING EMPL. REACH EXPECTED RESULTS) 0.37 4.26** 0.09
A25_8 (CONTROLS THAT NONLEADING EMPL. REACH EXPECTED RESULTS) 0.43 5.02** 0.11
A24_11 (USES RESULTS BASED SALARIES TO LEADING EMPL. ) 0.06 0.71 0.00
A25_11 (USES RESULTS BASED SALARIES TO NON LEADING EMPL.) 0.14 1.56 0.01
*p<.05 **p<.01

GFI : 0.8516 AGFI: 0.8106

Covariance among L1, L2: 0.06 (1.09)

Correlation among L1, L2: 0.08

23
The results of the factor analysis indicate a good model fit (GFIi 0.8516), and the results show

that the coefficients, as expected from the theory, have positive signs and that the coefficients

are significantly positive. Except for the coefficientsii for A37_1, A37_2, A37_3; A24_11,

and A25_11 which are insignificant, all remaining coefficients are significant at the 5 per cent

level. The R-square values indicate that the manifest variables cover varying amounts of

information about the structure. The results further support the suggestion of establishing a

confirmatory factor analysis with two common factors by:

- Leaving a27_1 as a unique factor

- Combining the remaining questions into a common factor.

Creating the following weighted dimensions:

for L1 = A27_1 * 1

And, for L2 = A37_1*0.07 + A37_2*0.13 + A37_3*0.00 + A37_4*0.61 + A37_6*0.5 +

A37_7*0.65 + A37_8*0.88 + A37_10*0.33 + A29_8*0.46 + A29_11 * 0.3 + A29_5*0.5 +

A24_5*0.89 + A25_5*0.74 + A24_8*0.37 + A25_8*0.43 + A24_11*0.06 + A25_11*0.14

where the original values are standardized.

This gives measures ranging potentially from minus to plus infinity. In order to avoid scale

problems in the following regression analysis, the scores were rescaled into the interval from

0 to 1. The formal calculations are:

24
L1* = (L1-min(L1))/(max(L1)-min(L1)) and

L2* = (L2-min(L2))/(max(L2)-min(L2))

As suggested by the questions loading on the two dimensions, preference for delegation loads

on one dimension, L1; whereas the remaining questions constituting the five dimensions of

reactiveness, short time horizon, risk aversion, level of detail, and control (cif. Appendix 1)

all load on a separate dimension, L2. In relation to the previous discussion on Cyert and

March’s (1963) problemistic search patterns, delegation is likely to serve as an efficient

heuristic whenever leaders find it efficient in terms of their time available as well as when

they believe decisions will be congruent with their own preferences, as formed by their

experiences. Therefore L1 captures an element of Cyert and March’s (1963) notion of

problemistic search, which we denoted as “preference for delegation.”

Similarly, L2 captures Cyert and March’s (1963) notion of uncertainty avoidance, where

leaders avoid correctly anticipating events in the distant future by using short-run reaction to

short-run feedback, i.e. solve pressing problems rather than developing long run strategies and

avoid anticipating the environment by negotiating with it. This fits well with the dimensions

loading on L2 because managers can avoid the uncertainty of long run anticipation and

commitments by pursuing a fine level of detail, a reactive style, short term decision making,

risk avoidance, and high control. Therefore the dimension L2 will be called “uncertainty

avoidance”.

From the results in table 1 it is furthermore seen that the low correlation among the two

factors L1 and L2 also supports the hypothesized orthogonality between the two dimensions.

25
Since the dimensions are not correlated, this suggests the establishment of four managerial

roles.

Strategy

Data for measuring strategy were questions relating to the dimensions described above:

product innovation, process innovation, concern for quality, price level, and capital

requirement (cif. Appendix 1)

To asses the validity of our strategy constructs, we conducted a confirmatory factor analysis.

The results from estimating strategy with two common factors are provided in Table 2.

Table 2: CFA results, strategy

Loading on Factor t value R-square

S1 S2

A (Capital requirement) 0.16 (1.48) 0.02

A6_2 (Product innovation) 0.34** (3.11) 0.12

A22_2 (Process innovation) 0.34** (1.65) 0.12

A23_11 (Quality concern) 0.30** 0.45* (3.01)/ (1.67) 0.30

A6_3 (Price concern) 0.62** (3.44) 0.39

*p<.05 **p<.01

GFI : 0.98 AGFI: 0.94

Covariance among S1, S2 = 0 (restricted)

The results of the factor analysis indicate an excellent model fit (GFI 0.98), and the low

correlation between S1 and S2 supports the hypothesized orthogonality between the two

dimensions.

26
Thus, the results of the factor analysis suggest establishing a CFA with two common factors

using the following weightings:

S1 = A6_2*0.34 + A23_11*0.30 + A6_3*0.62

S2 = A*0.16 + A22_2*0.34 + A23_11*0.45

where the original variables are standardized.

These scores were rescaled into 0 and 1 in order to enable a comparison with the leadership

scores, where:

S1*= (S1-min(S1))/(max(1)-min(S1)), and

S2*=(S2-min(S2))/(max(S2)-min(S2))

From the loadings on the two dimensions, it appears that product innovation loads on S1 and

process innovation loads on S2. Quality concern loads on both dimensions, whereas capital

requirement loads on S2, although it is not significant. With the strategy variables, the

loadings are less theoretically easy to define except for the variables product and process

innovation, which would be expected to load on exploration and exploitation respectively. As

mentioned above, March (1991) explains exploitation as being related to refinement,

efficiency, and production which seems consistent with process as opposed to product

innovation. Thus, S1 seems to capture March’s (1991) notion of exploitation well. Similarly,

March (1991:71) mentions that exploration includes such things as discovery, innovation,

variation, and risk taking, which seems consistent with product innovation. Therefore, S2

seems to capture exploration well. Whether organizations have a high or low concern for

27
quality may intuitively be related to both exploration and exploitation and as such it is less

surprising that this question loads on both.

A transformed measure for exploration (explore 1) was formed to capture that: 1) the

defender, analyzer without innovation, and analyzer with innovation are related positively on

exploitation, while having different rates of exploration; 2) with the analyzer with innovation

rating highest on exploration, the defender lowest, and that analyzer without innovation rating

in between.

Explore 1 was formed by “folding” scores on explore around the exploit dimension, thereby

separating the analyzer with innovation strategy from the two other strategy types. Scores on

0 on this dimension meant that the organization did pursue an analyzer without innovation

strategies, and scores on 1 indicated that organizations either pursued a prospector or an

analyzer with innovation strategy. This scale interval was then changed (by subtracting from

0), thereby reflecting whether the organization did pursue a strategy without innovation

strategy. The formal calculations were:

S2 -> S2(*) = |S2|

S 2(*) − min( S 2(*)) S 2(*)

S2(*) -> S2 ** = =
max(S 2(*)) − min( S 2(*)) max(S 2(*))

Return on Assets Performance

Financial data were obtained from the electronic database, CD-Direct (see above) as they

became available in 1998, 1999, and 2000. The performance measures in the study are:

28
ROA96 = (PROFIT96/ASSETS96)*100% and ROA97 = (PROFIT97/ASSETS97)*100% and

ROA98 = (PROFIT98/ASSETS98)*100% and ROA99 = (PROFIT99/ASSETS99).

Methodology

The first step of the analysis was to conduct descriptive analysis of the expected misfit

relationships. Table 4 shows means, standard deviations, and total number for return on assets

in the cases of an existence of a match between strategy and leadership type.

Table 4: Means/SD/N for ROA (1996, 97, 98, 99) where relationship present

Analyzer w. Prospector Reactor Defender Analyzer w/o

innovation innovation

Producer 7.5/9.7/6 -1.9/9.7/1 7.4/5.3/4 ././0?? 23.4/14.3/2

Leader 15.8/7.3/7 8.7/4.2/1 5.3/10.1/10 ././0?? 5.1/8.9/5

Entrepreneur 13.2/11.0/14 5.1/7.3/5 10.5/9.2/12 15.5/4.0/1 5.0/4.4/4

Manager 12.8/8.7/7 5.4/1.0/1 1.3/12.9/10 8.6/9.7/5 8.9/9.4/7

The categories for leadership style and strategy are derived as follows:

Producer: L1>0, L2>0

Leader: L1>0, L2<0

Entrepreneur: L1<0, L2<0

Manager: L1<0, L2>0

Analyzer with innovation: S1>0, S2>0, S2**>0.33

Prospector: S1<0, S2>0

Reactor: S1<0, S2<0

29
Defender: S1>0, S2<0, S2**>0.33

Analyzer without innovation: S1>0, S2**<0.33

Next, misfits were calculated. As suggested by the five hypotheses, five misfit variables were

coded. Since misfits were rescaled to a continuous scale ranging from 0-1, the coding

reflected the misfit hypothesis i.e. misfits of 0 would get no effect, and misfits of 1 would get

a full effect. Hence, the index for misfits reflects the degree of misfit, where high degrees of

misfits got higher weightings (index values).

- Hypothesis 1 = MIS1 = L1*(1-L2**) x (1-S2*)S1*

o Since this misfit relationship measures the mismatch of a leader with a defender

strategy, (leader ><defender), it was hypothesized that high delegation (i.e. L1* is

high) together with low uncertainty avoidance (i.e. 1-L2* is high) would mismatch

low exploration (i.e. 1-S2* is high) and high exploitation (i.e. S1* high).

- Hypothesis 2 = MIS2 = (1-L1*)L2*x S2*(1-S1*)

o Where managers, rating low on delegation (i.e. 1-L1* is high) and high on

uncertainty avoidance (i.e. L2* is high) were hypothesized to mismatch a

prospector strategy which is high on exploration and low on exploitation.

- Hypothesis 3 = MIS3 = (1-L1*) x (1-L2*) x S1* x S2**

o Since this hypothesized a mismatch of an entrepreneur with an analyzer without

innovation strategy, it was measured in terms of managers rating low on

preference for delegation (i.e. 1-L1* is high) and low on uncertainty (i.e. 1-L2* is

30
 high) mismatching strategies characterized by high exploitation (i.e. S1* high) and

medium exploration (i.e. S2** high).

- Hypothesis 4 = MIS4 = L1* x L2* x s2* x S1*

o Since this misfit relationship measures the mismatch of a producer with an

analyzer with innovation (producer><analyzer with innovation), it was

hypothesized that high delegation (i.e. L1* high) together with high uncertainty

avoidance (L2*) would mismatch high exploration (i.e. S1* is high) and high

exploitation (i.e. S2* is high).

- Hypothesis 5 = MIS5 = L1* x L2* x S2* x (1-S1*)

o Where producers, rating high on delegation (i.e. L1* is high) and high on

uncertainty avoidance (i.e. L2* high) where hypothesized to mismatch a

prospector strategy, characterized by high exploration (i.e. S2* high) and low

exploitation (i.e. 1-S1* is high).

As appears the MIS3, relating to the analyzer without innovation strategy, uses the

transformed measure for exploration (explore1).

The five hypotheses are minimal null hypotheses that strategy is not a success for five

situations of leadership style. They map out the relationship between management decision

making style and type of strategy to ROA performance. In this sense misfit means that the

financial result of the strategy – leadership is problematic; where return on assets (ROA) is

used as the financial measure.

The impact of misfit was investigated using a regression model, specified as:

31
 ROAit = α0 + α1MIS1it + α2MIS2it + α3MIS3it + α4MIS4it + α5 MIS5it + µit,

i=1, .., nt , t=96,97, 98, 99,

where: nt is the number of firms observed in year t, µit a firm-time specific white-noise error,

α0 , .. , α5 are regression parameters, and misfits assumed constant in all four years.

Results

To test hypothesis 1 to 5 a regression model was estimated. The model included ROA as the

dependent value, and the misfit variables as independent variables. Table 5 shows the results

of the analysis.

Table 5: Results of regression analysis

Coef. s.e. Prob.1

MIS1: (LEADER><DEFENDER) -42.0 12.4 0.0004**

MIS2: (MANAGER><PROSPECTOR) -5.0 14.4 0.005**

MIS3: (ENTREPRENEUR><ANA. WITHOUT INNOVATION) 7.4 5.6 0.91

MIS4: (PRODUCER><ANA. WITH INNOVATION) 20.0 8.8 0.99

MIS5: (PRODUCER><PROSPECTOR) -47.4 21.6 0.01**

Const. 11.9 1.9 <0.0001

R2 = 0.09

*p<.05 ** p<.01
1
Prob: probability that coef. ≥ 0. For constant term: prob. that coef. ≠0.

From the results of table 5 we see that misfits 1, 2, and 5 were significant at the 0.01 level.

32
A significant impact of misfit 1 on performance means that a misfit between a leader and a

defender strategy has a negative impact on firm profits, significant at the 0.01 level. The

significance of misfit 2 means that a misfit between a manager and a prospector strategy also

has a negative impact on firm profits, significant at the 0.01 level. The lack of significance of

misfits 3 and 4 indicates that neither a misfit between an entrepreneur and an analyzer with

innovation strategy, nor a misfit between a producer and an analyzer with innovation strategy

has a significantly negative impact at firm profits. The significance of misfit 5 indicates that a

misfit between a producer and a prospector strategy has a significantly negative impact on

firm ROA, significant at the .01 level.

The overall model was significant and explained nearly 10% percent of the variance of firm

profits. Considering the fact that no control factors were used, this indicates that the

regression model, relating leadership style and strategy to performance through misfit

hypothesis is in fact a very good model.

Discussion and conclusion:

We have analyzed the relationship between CEO’s leadership style and firm’s strategy on the

firm’s performance. The leadership style and strategy data come from CEO’s of small and

medium-sized Danish service and production firms. In SME enterprises, the CEO is a relevant

source. In these firms, the CEO is central to decision-making and is very influential in the

choice of strategy, if not the principal individual in the choice.

We found that the Cyert and March framework is a good way to describe leadership style

based on decision making profiles. Additionally, we found that the exploration and

33
exploitation concepts developed by March (1991) could be used to gain new insights into the

Miles and Snow categorization of strategy. This finding suggests that the traditional

dichotomous ratings of leadership style and strategy may not be detailed enough to capture

relationships between leadership style and strategy. Based on this the paper provides deeper

insight into the performance effect of misfits between leadership style and strategy.

If a relationship exists between leadership style and strategy, a failure to coalign the two will

lead to negative performance results. This relationship was examined in a fit/misfit

perspective between leadership style and organizational strategy. Five hypotheses were

developed to test the effect of misfits between leadership style and strategy on the firm’s

performance. We hypothesized that a misfit between the leadership profile of a leader would

be a misfit with a defender strategy. The leader’s preference for proactive decision making

would misfit with the needs of a defender strategy. For similar but yet opposite reasons, we

hypothesized that managers and prospectors would misfit. This was because managers’

preference for narrow control would lead to too little innovation as required by a prospector.

The empirical results provided support for both of these two hypothesized negative

relationships.

As for the leadership style entrepreneur, it was hypothesized that it would misfit the strategy

type analyzer without innovation, since an entrepreneur manager is likely to initiate too many

initiatives and this will misfit with the analyzer without innovation’s focus on process

innovation. While this relationship is more or less confirmed in the descriptive statistics, the

relationship was rejected by the empirical regression results. One potential reason for this

could be that the entrepreneur, with his low uncertainty avoidance, is good at assuring

continuous process development to keep the organization’s products always price and quality

34
competitive. At the same time, the low preference for delegation of this management profile

might go well with the analyzer without innovation’s relative continuity.

For the management profile of the producer, it was hypothesized that this profile’s tendency

to focus on reactiveness and short term decision making would misfit with the analyzer with

innovation’s continuous search for new product opportunities. Empirical results however

disconfirmed this. The descriptive data confirm that the producer role is the one profile with

the lowest ROA mean score on the analyzer with innovation strategy, yet apparently, this low

score is not enough to be statistically significant. The reason might be found in this

management profile’s willingness to delegate decision making authority, thereby making use

of subordinates’ managerial competencies, and perhaps greater willingness to undertake risks,

and perhaps himself concentrating on the more stable aspects of the analyzer strategy.

Finally, it was hypothesized that the producer profile would mismatch the prospector’s

demand of projection into the unknown. The empirical results confirmed the negative effect

of this relationship.

Perhaps the most interesting finding of the study is that both the producer and the manager

profiles pursuing a prospector strategy show negative performance results. This indicates that

irrespective of whether managers are willing to delegate decision making authority or not, i.e.

irrespective of whether they employ subordinates’ managerial skills and competencies; as

long as there is high uncertainty avoidance, as reflected in short term decision making and

reactiveness, negative performance consequences will follow. This finding indicates that high

preference for delegation is not enough to pursue an explorative strategy profitably; low

uncertainty avoidance is also important. Moreover, this finding also indicates that potential

35
misfit relationships are more diverse than what can be captured by dichotomous measures of

leadership and strategy.

The idea that managers and strategy must match is not new, and has been studied extensively.

Few of the studies (with the exception of Burton and Obel, 1998) examine directly the

information processing and perceptual processes argued by Child (1972) to form managers’

strategic choices. In contrast to previous studies, this study does not use proxies for

managerial decision making propensities, but instead focuses on their actual information

processing behaviors, as captured in their decision making styles. This leads to a better

understanding in terms of how the influence of managers is exerted and it seems that our

understanding of the relationship between managers and strategy to organizational

performance has improved. The implication is that managers should be aware how misfits

between various aspects of leadership styles and strategy diminish the firm’s performance.

36
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APPENDICES

APPENDIX 1: MEASURES OF STRATEGY AND MANAGEMENT

STRATEGY:

Strategy was constructed from 5 Likert-scaled items, Where respondents were asked to which

they agreed with the below mentioned statements on 5-point Likert scales ranging from “total

disagreement” “partial disagreement” “neither disagreement not agreement” “partly

agreement” to “ “total agreement”. The measures included the statements below:

A: Capital Requirement: “Does the organization operate in an industry with a high or low

capital requirement”;

A6_2: Product Innovation: “We give higher priority to product innovation than our

competitors”;

A22_2: Knowledge of Production Methods: “We give high priority to a good knowledge of

the recent production methods in our branch”;

A23_11: Concern for Quality: “Our product have a better relationship between quality and

price than others’”; and

A6_3: Price Concern: “How is the organization’s price level compared to its competitors”.

LEADERSHIP STYLE:

Leadership style was measures by the variables below:

MP1: Management preference for strategic decisions: (A27_1)

The respondents were asked to rate the extent to answer the following statement “Who makes

41
strategic decisions” (CEO alone/CEO after discussion with leader group/leader group after

discussion with CEO/leader group with confirmation from CEO/leader group without

confirmation from CEO 1).

MP2: Management preference for long-term decisions

Defined from MP2a = (A27_1+A37_2+A37_3+A37_4+A37_6+A37_7+A37_8-A37_10)/8

Where respondents were asked to rate the extent to which they agreed with the statements on

5-point Likert scales. The scale ranged from “without importance” “important” “very

important” to “extremely important” (alpha = 0.82)

A37_1: Solutions of human problems/conflicts

A37_2: Stimulate cooperation among divisions

A37_3: Formulate ideas/visions

A37_4: Guide employees from day-to-day

A37_6: Develop/implement new routines and methods

A37_7: Govern economic decisions/control accounts and budgets

A37_8: Ensure that rules and procedures are followed

A37_10: Ensure reasonable use of resources

MP3: Management preference for decisions based on detailed information. (A29_8)

Respondents were asked to which they agreed with this statement on a 5-point Likert scale

ranging from “never” to “seldom” “sometimes” “often” “always”.

MP4: Management prefers to wait and see before action, if changes occur on the company’s

markets. (A29_11)

42
Respondents were asked to which extent they agreed with this statement on a scale ranging

from “never” “seldom” “sometimes” “often” to “always”.

MP5: Management preference for minimizing business risk (A29_5)

Respondents were asked to which extent they agreed with this statement on a 3-point Likert

scale ranging from “low” “medium” to “high”.

MP6: Management preference for motivation of employees through control (as opposed to

inspiration)

Based on MP6 = (A24_5+A25_5+A24_8+A25_8+A24_11+A25_11)/6

Where respondents were asked to which they agreed with the below mentioned statements on

5-point Likert scales ranging from “total disagreement” “partial disagreement” “neither

disagreement not agreement” “partly agreement” to “ “total agreement”

A24_5: “Management controls whether leading employees follow company rules”

A25_5: “Management controls whether nonleading employees follow company rules”

A24_8: “management controls whether leading employees reach the expected results”

A25_8: “Management controls whether nonleading employees reach the expected results”

A24_11: “Management uses results-based salaries and the like to motivate leading

employees”

A25_11: Management uses results-based salaries and the like to motivate nonleading

employees”

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APPENDIX 2: DESCRIPTIVES

Table A: Management variables applied in the study, descriptives.

Variable Mean Std Dev

A27_1 ”Who makes strategic decisions” 2.65 0.66

A37_1 "Solutions of human problems/conflicts" 3.70 0.85

A37_2 "Stimulate cooperation among divisions" 4.10 0.71

A37_3 "Formulate ideas/visions " 4.25 0.76

A37_4 "Guide employees from day-to-day." 2.26 0.76

A37_6 "Develop/implement new routines and methods " 3.36 0.81

A37_7 "Develop/implement new routines and methods " 3.77 0.92

A37_8 "Ensure that rules and procedures are followed " 2.88 0.82

A37_10 "Ensure reasonable use of resources " 4.35 0.68

A29_8 "Management preference for decisions based

on detailed information” 2.24 0.87

A29_11 "Management prefers to wait and see before action,

if changes occur on the company’s markets” 1.87 0.86

A29_5 "Management preference for minimizing business risk 2.65 0.83

A24_5 "Management controls whether leading employees

follow company rules” 2.60 1.15

A25_5 "Management controls whether non-leading employees

follow company rules” 3.29 1.05

A24_8 "Management controls whether non-leading employees

reach the expected results” 3.82 1.03

A25_8 "Management controls whether non-leading employees

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reach the expected results“ 3.68 1.02

A24_11 "Management uses results-based salaries and the like

to motivate leading employees” 2.65 1.37

A25_11 "Management uses results based salaries and the like to

motivate non-leading employees” 2.72 1.59

Table B: Strategy variables applied in the study, descriptives

Variable Mean Std Dev

A “Capital requirement” 3.58 1.04

A6_2 “Product innovation” 3.87 0.93

A22_2 “Process innovation” 4.36 0.82

A23_11 “Quality concern” 4.57 0.55

A6_3 “Price concern” 3.58 0.94

i
The GFI index provides a summary measure of the residual matrix which is the difference between the sample
and the estimated covariance matrix. GFI represents the amount of variances and covariances in the sample
covariance matrix that are predicted by the model, and is in this sense, analogues in interpretations to R square in
multiple regression. (Sharma, 1996:158)
ii
The question labels refer to the labels in the questionnaire.

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