“Why Leaders Should Understand Employees in a Dynamic Business

Environment”
 1. Introduction

Leadership has an indirect impact on organisational performance through its direct impact on

employees. In order for employees to work towards the mission and vision of the firm, the leader

is required to provide an environment and culture that helps in motivating them. Creating a

culture and environment that motivates employees contributes towards an increase in employee

engagement, which in turn contributes positively towards organisational performance. The

current business environment is very “competitive and dynamic”. This means that it is very

critical for leaders to understand their employees. This paper provides a discussion of why it is

important for leaders to understand employees. The paper is based on a review of literature and

case studies. The paper aims at arguing that an understanding of employees by leaders helps in

improving the motivation of employees, which in turn results in higher levels of employee

engagement and organisational performance.

2. Importance of Understanding Employees by Leaders

Gessner et al. (1999) note that leadership is an elusive concept. It is not the interest of this paper

to define leadership. The paper is rather concerned with the relationship between leaders and

employees with particular emphasis on why it is critical for leaders to understand employees. In

addition, there is a wide range of “leadership theories” in existence. It is not the interest of this

paper to defined leadership or discuss leadership theories. The paper is rather concerned with

how a leader’s knowledge his/her employees or human capital can help the organisation operate

effectively in a constantly changing business environment. The interaction of leaders and

employees should contribute towards the development of the strategic flexibility necessary for
operating in a dynamic business climate. Human capital and social capital are critical for success

in global markets (Nahapiet and Goshal, 1998). The relationship between employees and leaders

is governed by a number of leadership theories such as transformational and transactional

leadership theories.

Human capital refers to the skills, knowledge and abilities of employees (Coleman, 1988).

Human capital is a critical feature of “competitive advantage” (Hitt et al., 2000). Social capital is

essential because it helps to leverage human capital (Meyerson, 2000). Social capital therefore

offers access to the organisational capabilities required for leveraging human capital which in

turn results in “competitive advantage”. In order for the organisation to achieve success

therefore, strategic leaders must be capable of developing and exploiting human and social

capital (Hitt et al., 2010).

Leadership in general and transactional and transorformational leadership in particular is critical

for employee creativity and innovation (Mumford et al., 2002; Jung et al., 2003; Deichman and

Stam, 2015). Leadership is central to the creativity and innovation process of an organisation

because leaders are responsible for setting goals for employees and for motivating employees to

enable them achieve those goals (Jung, 2001).

A leader with a transformational leadership style aims to inspire and actively engage employees,

as well as to transform them so that they are able to perform better than imagined by themselves.

Leaders show transformational behaviour when they articlate a shared vision of the future, act as

role models, encourage the acceptanace of collective goals, set high expecttaions and whey they

provide intellectual stimulus and support for the indivual development needs of employees.
Transactional leadership refers to a leadership style in which expectations of an exchange

relationship between the leader and the employee are clearly expressed by the leader. Hence

leaders with such a leadership style communicate specific expecttaions and offer rewards

contingent on whether their employees accomplish the objectives agreed upon (Deichman and

Stam, 2015).Transactional leadership is regarded as a process of exchange that focuses on the

achievement of the requirements stipulated in the psychological contract. Transactional

leadership involves the setting of objectives and monitoring/controlling outcomes (Aga, 2016).

Both transactional and transformational leadership influence employee innovation and creativity

because both create committment among employees.

In a constantly varying and fiercely competitive business environment, leaders must be aware of

what employees want. Such an understanding is important because it helps in enhancing

employee engagement, which is in turn important for ensuring that employees are innovative and

creative. In order for an organisation to survive in a ferociously competitive and dynamic

business climate, it must be able to distinguish itself from competitors by introducing products

that are of a higher quality than those offered by competitors. According to Cheung and Wong

(2011: 656) "creativity refers to the generation of new and useful ideas concerning products,

services, processes, and procedures in organisations". In addition, creativity is the ability of

workers to employ their diverse abilities, skills, views, knowledge and experience to formulate

new ideas for making decisions, providing solutions to emerging issues and efficiently

completing tasks (Cheung and Wong, 2011). Leadership contributes momentously to creativity

(Tierney et al., 1999). Peculiarly, "transformational leadership" has been strongly linked to

creativity at the individual level (Shin and Zhou, 2003; Gumusluouglu and Ilsev, 2009). When

employees operate in service jobs in which new ideas and services are not explicitly required,
transformational leaders can inspire them to go an extra step. "Transformational leadership is

realised by a transformational leader who influences followers by broadening and elevating

followers' goals and providing them with confidence to perform beyond the expectations

specified in the implicit or explicit exchange agreement” (Dvir et al., 2002). Without an adequate

understanding of employees, it might be practically impossible for transformational leaders to

offer employees the necessary inspiration. An understanding of employees is essential because it

enables the leader to better understand the type of incentive that motivates employees. It helps

them to understand what makes them to achieve job satisfaction as well as understanding what

makes the employee to achieve a good "work-life-balance".

In like manner, a transactional leader can only get only set goals effectively and ensure that

employees are working towards those goals if the leader has an adequate understanding of

employees. In addition, adequate rewards for achieving goals can only be given when the leader

has a good mastery of employees. Employee creativity and innovation are essential

In addition to employee creativity, employee innovation is an essential ingredients of

differentiation, which helps in the achievement of sustained “competitive advantage”.

Organisations can increase their innovativeness by capitalising on the ability of their employees

develop innovative ideas (de Jong and Hartog, 2007). Work is no longer completely rigidly

defined like in the past. Rather, work is based more on the knowledge of employees (Ibid). In

this light, employees have the ability to enhance the performance of the business by generating

new ideas and employing these ideas as foundations for innovative and enhanced products, work

processes and services (Ibid). The innovative ability of individual workers contributes

enormously to the attainment of organisational prosperity (Ibid). Employees can only achieve

sustainable levels of innovations if they are able and willing to innovate. Common management
principles such as total quality management (TQM) have individual innovation at their centre

(Ehigie and Akpan, 2004). Continuous improvement is also influenced by employee innovation

(Boer and Gieskes, 1998).

Unless the leaders understand employees it can be very difficult for them to understand their

ability and willingness to innovate. Understanding employees can enable leaders to better

understand the knowledge-base of each employee and decide on how to make each employee

more engaged. Understanding employees’ ability and willingness to innovate can enable leaders

design training programs that can help employees improve in weak areas. Understanding

employees can also enable leaders to motivate employees and increase their willingness to

engage the generation of new ideas that can in turn help the organisation to introduce new

products, services and better work processes that are better than those of competitors.

Moreover, every organisation is interested in having engaged workers. It is no surprise that many

organisations invest significantly to measure and enhance the level of “employee engagement”.

Leadership is critical precursor of “employee engagement”.

Understanding employees can help leaders to implement strategies to improve the affective

commitment of employees. Affective commitment is important because it helps in enhancing

both "in-role" and "extra-role" performance (Vanndenberghe et al., 2004). Employees who are

affectively committed tend to perform better on their jobs than those that are not affectively

committed (Meyer et al., 2002). In addition, employees who are affectively committed tend to

focus on “work related goals” in a more rigorous fashion because affective commitment is a

reflection of the intrinsic work motivation of the employee (Meyer et al., 2004). Affectively

committed workers tend to be highly motivated and willing to significantly contribute towards
the success of the organisation than those that are not affectively committed. Workers with a

high degree of “affective commitment” tend to be more interested in the success of the

organisation are often willing to enhance “organisational performance” as well as performing

better on their jobs. Leaders can play a critical role in ensuring that employees are affectively

committed. This can be achieved through the development of an understanding of employees,

their shortcomings, their grievances and what motivates them. By so doing, leaders can increase

the level of affective commitment and ensure that employees are working towards the success of

the organisation.

Knowledge of employees helps in building trust between the leader and employees as well as

between employees and the organisation. In order to build trust, the leader needs to know

employees or a more personal level. Such knowledge enables employees to believe that they are

valuable and worth knowing. Investing time to know employees indicates that the leader has a

greater concern for employees which goes beyond what the employees are doing (Sparrow,

2013). Knowledge of employees therefore serves as a basis of trust which in turn contributes

towards open and honest communications. Trust also creates a work environment in which

employees feel supported and believe that they have something important to contribute to the

organisation. This helps in bringing out the best in employees and contributes towards employee

“creativity and innovation”, which are essential ingredients for achieving sustained “competitive

advantage” (Sparrow, 2013).

Trust can make a significant different in the manner in which organisations deliver and perform.

While trust can be an elusive concept, leaders who succeed in building a culture of trust tend to

be very intent and focused on exactly how to build trust. Trust is therefore not something that

should be left to chance. Leaders must make conscious efforts to ensure that trust is built by
adopting a series of behaviours that are capable of transforming trust into a tangible resource

rather than simply making sweeping statements of intent. Despite the consensus that trust is

critical for organisational success, leaders tend not to have a clear plan on how to build trust

among employees. In addition, it should be noted that trust is not static. It can change over time

with a change in the behaviour of the manager. Consequently, in addition to building an initial

level of trust, the leader must make conscious efforts to ensure that sustained levels of trust are

maintained (Sparrow, 2013). A leader can build and maintain sustained levels of trust by

knowing and understanding employees as well as consistently reminding employees that they are

valuable resources to the organisation (Sparrow, 2013). By so doing, employees feel good about

themselves and as such work towards contributing to the success of the organisation. On the

contrary, a leader who shows no interest in understanding his/her employees is likely to find it

difficult to build and maintain trust. The end result would be a workforce that is at best

disengaged, unmotivated and inclined to leave. The latter scenario has the potential of hurting the

performance of the organisation as well as bringing all what the organisation stands for into

disrepute. Building trust requires the leader to invest in relationships (Sparrow, 2013). This

implies that the leader must make time and be genuinely motivated to study employees and to

share more about him/herself too. Deliberately investing time in employees, creating links that

concentrate more on knowing employees than the details of transactions can contribute

enormously to performance enhancements. For example, “Gabby Redfern”, the “senior Vice

President of Discovery Networks” is a leader who spends enough time and resources to

understand her subordinates. She is the team leader of 250 employees who operate 4 shift

patterns to cover the successful management of “80 channels, 24/7”. With over 250 employees

reporting to her, understanding people was a huge challenge for her but she was bent to meet
every member of the team individually. The 1st 6 weeks in her post was spent visiting every team

across the 4 shifts taking everyone by hand and asking them the challenges they faced on a “day-

to-day basis” as well as their recommended ideas for improvement. This resulted in an elaborate

litany of challenges and opportunities to make necessary adjustments (Sparrow, 2013).

Most leaders today operate in a turbulent business environment. In particular, most leaders are

required to lead “multinational companies (MNCs)” with operations across many countries. This

implies that in addition to the issues highlighted earlier, modern day leadership must take into

account cultural differences that arise when operating across borders. What might work for

employees in one country might not work for employees in another country. Understanding

employees is therefore particularly important when looking at things from a multinational

context. The leader must understand the cultural background of each employee and take steps to

ensure that this is taken into account when managing the employee. For example, people from

cultures that are characterized by high levels of collectivism tend to value group dynamics.

People from such cultures might be more interested in working in teams rather than working on

an individual basis. In addition, people from cultures that are high in masculinity might value

male domination. Leaders must understand these issues and take them into account when

designing performance management and incentive systems.

From a multinational perspective, an understanding of the diverse cultures of employees can

actually help the organisation to enhance in level of “creativity and innovation”.

Acknowledgement of cultural diversity by managers can actually contribute to an improvement

in “creativity and innovation” in the sense that employees with different views see themselves as

valued by the organsiation and as are more willing to work towards the success of the

organisation.
By so doing, employees would be better motivated to contribute towards the organsiation than in

situations where the manger decides to adopt a lukewarm approach towards employees. Lack of

understanding of employees by leaders can contribute to a high degree of disgruntled and

disengaged employees, which can in turn result in an unsatisfied workforce. Lack of employee

satisfaction can in turn hurt customer satisfaction because employees are the ones that deal

directly with customers. Unless employees are satisfied, they would find it difficult to satisfy

customers. The latter situation has the potential of contributing to poor organisational

performance.

3. Conclusions and Recommendations

This paper provides a critical discussion as to why it is critical for a leader to understand

employees in a “dynamic and competitive business environment”. Based on the analysis above,

it is obvious that understanding employees is very important for “organisational success” in a

“dynamic and competitive business environment”. Understanding employees by leaders help the

leader to understand their grievances and take steps to resolve them early enough and by so

doing reduce the level of dissatisfied employees. It should be noted that if employees are

dissatisfied, such dissatisfaction will be reflected in the manner in which they serve customers.

The end result will be the creation of dissatisfied customers and a deterioration in the reputation

of the organisation.

Understanding employees builds a “culture of trust” which is essential for “employee

engagement”. It also contributes to an increase in “affective commitment” which is necessary for

improving the performance of workers on their jobs. Employees who are highly engaged,

affectively committed and have a high level of trust in their leaders in particular and the
organisation in general often see themselves as important resources to the organisation and as

such work towards ensuring that the organisation is achieving its objectives. This contributes to

an increase in the “competitive position” of the organsiation.

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