The bottom line is, after all, the bottom line when it comes to business success. No profit, no business. But should money be the sole measure for evaluating and rewarding the effectiveness of a leader?
In a new Harvard Business School working paper, three experts on organizational behavior revisit the meaning of leadership. Most scholars (not to mention boards of directors) gauge the effectiveness of leadership almost exclusively through a lens of economic performance, specifically return on investment, say professors Joel M. Podolny and Rakesh Khurana, and doctoral student Marya Hill-Popper. Yet the focus on economic results usually gives a one-sided picture of what leaders can accomplish.
For the well-being of business and society, the HBS scholars say, future research on leadership effectiveness should also look at leaders' ability to forge new meaning and purpose for an organization and its employees.
Podolny, Khurana, and Hill-Popper collaborated on an e-mail interview to explain their latest research for HBS Working Knowledge.
Martha Lagace: As you wrote in your working paper, the past century saw a major shift in focus in the study of leadership. Most of today's organizational scholars assume that leadership equals economic performance—an assumption that is a source of deep concern to you. Can you give us some background to the debate?
Joel M. Podolny, Rakesh Khurana, and Marya Hill-Popper: One of the main ideas running through the work of late-nineteenth-century and early-twentieth-century social scientists is what we call "the meaning and organization problem." One of the main trends of modern society was the rise of large formal work organizations. Capitalists and managers encouraged the development of large formal work organizations because they perceived them to be extremely efficient. At the same time, large work organizations destabilized extended family and community relations: first, by removing individuals from their family and community and placing them in factories for considerable fractions of their day and, second, by serving as ongoing sources of geographic and social mobility. Because individuals derived most of their meaning from institutions grounded in enduring social relations—institutions like family, community, and religion—the leading social thinkers of the late nineteenth and early twentieth century, scholars like Max Weber and Emile Durkheim, worried that these large work organizations threatened the ability of individuals to derive meaning from life.
Yet, Weber and Durkheim were followed by other prominent scholars who looked to the leaders atop these organizations (as well as those atop smaller organizations) as a corrective to this trend.
We are concerned that by not attending to the impact of leadership on meaning, we miss a potential opportunity.
In the 1930s, Chester Barnard, a retired AT&T executive who became a lecturer at Harvard Business School, expressed such a view in Functions of the Executive, a theoretical treatise regarded as one of the foundational classics of organizational behavior. Barnard was strongly influenced by other researchers at HBS—most notably Elton Mayo and Fritz Roethlisberger, the scholars behind the famous Hawthorne studies. These scholars saw organizations as more than mechanistic structures that defined work roles and regulated economic action. Mayo, Roethlisberger, and their followers saw organizations as social systems characterized by ideals, values, and, ideally, a purpose. An individual experiences work as meaningful when it is perceived to be an enactment of values and a purpose to which the organization subscribes. Barnard came to define the role of the organizational leader as the creator and steward of the purpose and values, where an important aspect of the stewardship activity is balancing short-term efficiency concerns of the organization against the enduring purpose and values that is the foundation for meaningful action.
Other scholars built on and refined this view of leadership as meaning-making. One of the most important was Philip Selznick, whose 1957 work Leadership and Administration also became a classic in the field of organizational behavior.
Our ideas have been profoundly influenced by these early scholars.
Q: What concerns you about the emphasis of leadership studies on economic performance rather than social impact?
A: In more recent organizational scholarship as well as in management practice, the link between leadership and meaning-making has been lost. Most contemporary organizational researchers—both those who advocate the study of leadership and those who argue that it is of little value—talk about leadership almost exclusively in terms of its impact on economic performance.
There are a number of reasons why the leadership literature has been recast so that it is solely focused on economic performance, but we believe probably the most important thing is that the obsession with shareholder value beginning in the 1980s led organizational scholars to assume that the relevance of all aspects of organizations is circumscribed by their impact on financial results. The social impact of organizations essentially took a back seat.
This tendency concerns us for two reasons.
First, as many critics of leadership have argued, the ability of individual leaders to impact the ROI of large, complex, formal organizations may be quite limited. Indeed, there is a large body of quantitative research that shows that it is difficult for one individual to exert a significant impact on the economic performance of a large, complex organization. If that is so, then by implication the leadership of a single individual cannot have a large, systematic effect on performance.
If scholars assume that the sole purpose of leadership is to improve economic performance, such research would seem to suggest that scholars should stop focusing on leadership and focus on other aspects of organizations that do exert a more significant impact on performance. In fact, if one reads the leading scholarly journals, such a judgment seems to have been made; there is remarkably little work within the academy on leadership.
However, we believe that drawing this conclusion from these quantitative studies has been a real mistake. Put simply, even if it turns out that leaders do have little impact on the economic value of an organization, great leaders can still be of tremendous value to organizational members and society; however, this value is overlooked if the value of leadership is solely understood in terms of economic impact.
Relatedly, and more practically, we are concerned that by not attending to the impact of leadership on meaning, we miss a potential opportunity available to leaders. We are not arguing that meaning-making is required of leaders; rather we view it as a powerful opportunity, one that we believe can be quite important to the long-term survival of organizations and the contribution they make to society at large. As organizational scholarship and management practice have shifted away from thinking about the connection between leadership and meaning, this opportunity is increasingly lost.
Q: When and why did most organizational scholars essentially stop attaching importance to any "meaning-making" capacity of leadership?
A: The shift away from considering the meaning-making capacity of leadership began shortly after World War II. Despite scholars' embrace of Barnard's work and the favorable public reception of the Hawthorne studies, the idea that the central concern of leadership was to create meaning for organizational members was not significantly advanced. We've identified two possible reasons.
The leader is both architect and visionary, and both roles impact on the meaning [that] individuals experience through work.
First, there has been a general tendency that has become manifest across much of modern economic life, that values and purpose are no longer important concepts, especially if there is little evidence that they impact performance. In place of values and purpose, we have come to privilege efficiency and rationality as paramount. This tendency is most marked in modern business organizations. It should not be surprising, therefore, that organizational scholars should no longer see meaning-making as central to organizational life. Meaning-making is simply not something that most modern economic organizations concern themselves with.
A second reason is that social processes involving meaning-making are complicated phenomena and difficult to quantify using the standard techniques of social science research. Beginning in the 1960s, organizational scholarship—like social science more broadly—turned rather resolutely away from theory toward statistical research and developed an intense preoccupation with narrowly circumscribed empirical studies. When compared to the more easily quantified indicators of economic performance, difficult-to-quantify constructs like meaning-making seem less useful as an analytical construct. Put more crudely, return on investment makes for a more tractable dependent variable than meaning.
Q: How do you think leadership matters to an organization?
A: For the last couple of years, the three of us have been engaging in research examining the linkage between meaning and economic life. Through informal discussions, we came to understand that while our methods were different, we were each absorbed in trying to answer similar questions. Among them are: How can meaning be created in a market society? How is meaning generated through work and other economic transactions? How is meaning linked to organizations for the sake of the common good?
Our initial work in exploring these questions suggests that leadership impacts on meaning in several ways. First, leaders make architectural choices—how to structure the organization, design jobs, and allocate roles and responsibilities—that shape how people who work in the organization experience their jobs. Second, leaders engage in symbolic actions—through the stories they tell, the symbols and rituals they create, and other highly visible actions. The leader is both architect and visionary, and both roles impact on the meaning individuals experience through work.
We cannot yet conclusively say whether the architect or visionary role is most important in creating meaning for organizational members, but these are the types of activities we are studying.
Q: What do you think is a more powerful way to study leadership?
A: Among the many functions of organizational leadership, one of the most important is the development of a worldview for participants. Organizations, like individuals, search for stability and meaning. This search often ends when organizations identify a set of morally sustaining ideals. Ideals animate and help direct decision making in an organization or a society. These ideals are never fully realized. We all recognize that compromise is an essential part of organizational life, but ideals create aspirations for an organization's members. This is also true at the societal level. For example, while we are far from the ideals of equality or a world without racism, these ideas remain essential to animating public discourse and to our evaluation of important governmental actions. One part of what makes our action meaningful is the fact that it is directed toward ideals that we value. To the extent that we understand our work within an organization as contributing to a goal or ideal that we value, our work will have meaning.
To the extent that we understand our work within an organization as contributing to a goal or ideal that we value, our work will have meaning.
Meaning is created not only when people express aspects of their own ideas (their beliefs or values), but also when this occurs through relationships with other people. This relational aspect of our actions is what we consider to be the second component of meaning, community. Work can play an important role in designating and maintaining social relationships. When our activity at work produces an acute sense of awareness with those with whom we share the same circumstances and often the same fate, we experience work as meaningful. Such an organizational setting is what organizational scholars call a natural community, a state in which self and surrounding are inseparable.
So, meaning has these two components—a component emphasizing the ability of individuals to engage in action that is directly connected to their own ideals, and a social component, where the pursuit of those ideals occurs in the context of enduring communal relationships.
Our proposal then is to look at how a leader's choices about vision and design impact on these two dimensions of meaning. We expect that the meaningfulness of work will be strongly impacted by:
- The leader's willingness to uphold organizational values especially when there is some perceived economic cost to doing so. (If values are violated when there is a perceived benefit in doing so, they are little more than guidelines and thus likely to be the object of suspicion and derision.)
- The leader's willingness to make sure (through design and training) that each individual's positional assignments fit their conception of self and their aspirations.
- The leader's willingness to commit her own time and organizational resources to ensuring that each individual understand how his or her own actions link up to the larger organization's purpose.
- The time and attention that goes into hiring and retaining those individuals who derive personal meaning from the organization's values and purpose.
Q: Does it matter if it turns out that meaning-making does not have a significant impact on economic performance?
A: When you start talking about purpose and meaning, it's often perceived as too soft for the business world. Managers, executives, and scholars often ask what that has to do with the bottom line. Yet, rarely do we ask the questions "Why do people come to work?" and "What guides their decisions and actions?" The answer is that people's decisions and actions are not created in a vacuum, but instead informed by the organizational setting, the nature of the work, and their personal philosophy.
The need for meaning and a sense for order we believe is a universal. It is a need that is deeply linked to the definition of what it means to be human. Pretending that this need does not exist or trying to suppress it—as scientific management tried to do in the early part of the century—will only make it come back with a vengeance. Sometimes it does so in relatively benign forms, such as small acts of nonconformity. But it can also emerge more brutally and with quite dysfunctional consequences. Without meaning, individuals tend to become rigid and hollow. Society itself seems shallow and lifeless. Organizational life seems petty and zero sum. People go through the motions, and do so amid distrust, cynicism, indifference, and a sense of alienation.
We believe that in order for organizations to contribute most fully to society, we must make room in organizational life to nourish human beings' need for meaning. The capacity for leaders to focus on meaning is not the anti-thesis of great organizations, but rather a crucial component of those organizations that contribute to the well-being of society.
To be clear, we believe there is a connection between meaning creation and performance. Most obviously, if individuals find meaning in those aspects of work that differentiate a firm from its competitors, then meaning can be the foundation for sustainable competitive advantage. The causality can also run in the opposite direction; superior performance can enhance meaning insofar as superior performance is a reflection of impact. Therefore, there is good reason to believe that meaning creation is positively related to performance. Our only concern is that the significance of meaning creation not be subordinated to a concern with performance. Meaning creation is too important as an end in and of itself.