Defining success in the entrepreneurial company

A study of entrepreneurial cultures by W. P. Carey School of Business management professor Angelo Kinicki revealed similarities in leadership styles of the most successful companies. Kinicki's advice to managers of entrepreneurial companies: Try to achieve a group-rational culture by getting results through people. "Hold people accountable, but give them the resources and environment where it's fun and where people feel you care. When you do that as a leader, employees will deliver the results."

What makes some entrepreneurial companies flourish while others flounder? The CEO's leadership style? The company's organizational culture? Corporate strategies?

A yearlong study conducted by W. P. Carey School of Business management professor Angelo Kinicki in conjunction with TEC International suggests that each of these factors play a key role in a firm's financial health. Kinicki administered a survey to CEOs nationwide to identify their organizational cultures and corporate strategies. He used another survey to collect candid assessments of CEO's leadership styles from senior staff reporting to them.

To answer the question, "Does an organization's culture, CEO leadership style and choice of business strategies influence a firm's financial performance?" Kinicki analyzed responses from the survey's top financial performers — those organizations whose financial performance was in the top 15 percent of a sample of 200 small-to medium-sized privately held businesses across the nation.

He discovered striking similarities in the leadership styles, organizational cultures and corporate strategies employed by the most financially successful firms. A company's financial success was measured by its percentage of pre-tax profit per employee.

Based on a subjective measure in which CEOs rated their company's market share, sales growth and profitability were ranked from well-below, matching or well-above their competitors.

Leadership style standouts: accountability, communication and empowerment

What kind of leader fares well? A team player? An authoritative leader? Someone who monitors performance? A good listener?

The survey measured the CEOs' "monitoring performance," asking them to rate from "rarely" to "very frequently" if they did the following: evaluated direct reports against standards of performance, checked direct reports' work for accuracy and quality; collected information about the performance of direct reports; asked direct reports a lot of questions about their work activities.

CEOs who emphasized performance monitoring tended to have the lowest profit margins. Conversely, CEOs of the companies identified did not closely monitor the performance of their direct reports. Angelo indicated that this very detailed kind of task is better left to another management level employee to conduct.

The study indicated that successful companies did not generally participate in these activities with any frequency. In fact, the companies with the highest profit margins were the ones in which the CEO's leadership style focused on effective communication, holding others accountable and empowering people.

"Effective CEOs delegated the monitoring of results," said Kinicki. "An important point for a senior leader to understand is that one succeeds by empowering others; you have to give away control to gain success."

The leadership style portion of the survey asked top-level executives reporting directly to the company president to rate their CEO on the frequency with which he used the following tools in his leadership style:

• Support and coaching
• Setting performance objectives and expectations
• Feedback
• Communication
• Monitoring performance
• Providing consequences based on performance
• Team empowerment
• Accountability

Kinicki wasn't surprised that accountability, communication and empowerment were keys to financial success. "Entrepreneurial firms have to be nimble to survive," he says. "Checking work for accuracy and hounding employees about work activities is counterproductive for a CEO."

Rather, Kinicki's results suggest that leaders should establish a corporate vision and goals and then cascade both of them throughout the organization. "And communicate, communicate, communicate," adds Kinicki. "Hold people accountable, and use discretionary empowerment — empower only those people who have the necessary competencies and knowledge."

A case for culture: group, development, hierarchical, rational

What type of organizational culture allows a company like Southwest Airlines to earn a net income of $313 million annually makes it the most popular choice for college graduates entering the work force, and earns the company countless prestigious awards?

The same organizational cultures represented by the top moneymakers in Kinicki's research: companies with group and rational organizational cultures.

As part of the study, CEOs evaluated the extent to which their culture matched the characteristics of four standard types: group, development, hierarchical or rational.

1. Group culture: emphasizes the development of human resources and values member participation in decision-making. Strategic decisions tend to be made through consensus-building.
2. Development culture: driven by positive orientation toward change. Growth and resource acquisition are key strategic orientations for this type of firm.
3. Hierarchical culture: reflects the values and norms associated with a bureaucracy. Values stability and supports individuals who comply with mandates and formally enforced and stated rules and regulations.
4. Rational culture: focuses on achievement, planning, productivity and efficiency. Competent performance is rewarded.

The most financially successful companies in Kinicki's study were those with people-friendly group cultures, and productivity-oriented rational cultures. The least productive cultures were hierarchical, focusing on formalization and rules.

"An optimum situation for a company is to have a people- and results-focused culture — a very tall order," says Kinicki. "It is hard to be both because group culture and rational culture focus on different means and ends." Group cultures gain productivity by treating employees well — HR programs, good work environment; rational cultures gain productivity by focusing on efficiency and goals.

But a combination of the two can be achieved, says Kinicki, as witnessed by Southwest Airlines, which touts a group and rational organizational culture that includes both team-based and individualistic performance-based reward systems. Group cultures, like Southwest, are people-friendly organizations with a focus on good perks and benefits, including the option to buy stock in the company. The profit sharing plan is at the heart of Southwest's benefits program.

Southwest's strategy is based on the belief that people take better care of things they own, and that this special care is passed on to the customer. Nearly all of the employees are rewarded with a percentage of the company's profits divided up and allocated by relative salary.

Kinicki's management advice to entrepreneurial companies is to achieve a group-rational culture by getting results through people. "Hold people accountable, but give them the resources and environment where it's fun and where people feel you care. When you do that as a leader, employees will deliver the results."

Strategize to find the best strategies

Companies employ a variety of strategies to achieve success. Even though the choice of strategies should support a company's specific vision, the survey revealed that top performers — across all industries — consistently focused on three dominant approaches: quality products and services, better service and fast response to changes in markets.

Kinicki says that "the key is to choose strategies that best support the organization's vision, and then use leadership to create a culture that supports this pursuit."

The sample

Kinicki traveled across the United States, distributing surveys and collecting responses at TEC International meetings, which provide networking and business development opportunities to teams of CEOs in a range of entrepreneurial industries. Nearly 100 respondents, representing small to medium-sized businesses ranging from 25-1,000 employees, participated in the study.

At the conclusion of the research project, Kinicki provided 99 customized reports to participants in the study, allowing them to visually and numerically compare their results with those of other successful CEOs.

More than 10 percent of the respondents took advantage of Kinicki's recommendation to complete a performance audit using the survey results. The audit enabled CEOs to compare their leadership styles, organizational culture, and preferred strategies against the most financially successful firms. The resulting gap analysis allowed CEOs to pinpoint areas for leadership development and overall organizational improvement.