The Relationship Between Leadership Style And Organizational Performance In Family Owned Small Manufacturing Enterprises In Sri Lanka

Sri Lankan government has come to recognize the importance of small-scale enterprises and their contributions to economic growth, social cohesion and employment, regional and local development recognizing the growth potential of small-scale entrepreneurs. The small-scale entrepreneurs enjoy advantages when compare to large size. These types of enterprises are easy to establish, but the evaluation of leadership styles and performance is very rare in Sri Lanka. Normally small-scale entrepreneurs considered as individual owner of their business. The individual owner is called as leader of the business. The leader is answering in his belief that effective leaders are necessary to achieve such goals as improved profitability, productivity, quality and customer services. The entrepreneur believes that the organization cannot remain competitive without effective leadership style.This study consists of six chapters. As a starting point chapter one attempts to introduce four sections. They are the small scale industries in Sri Lanka, significance of the research, research design, and organization of the text. The brief history of Sri Lanka which is included socio, economic development of Sri Lanka, the different definitions of small scale industries in Sri Lanka mentioned by the different institutions, the strategic role of small business in economic development, and the problem faced by the leaders in Sri Lankan small industries are clearly included in the section one. The second section explains the theoretical and practical significance of the research. The significance of the research may pave the way for the future researchers to develop further in this topic. It is therefore assumed that this study will fulfill an important knowledge gap and provide a base for further studies. The research design consists of problem statement, objectives of the research, scope of the research, and methodology. This research aims to study the relationship between leadership styles and organizational performance in family owned small manufacturing enterprises and to investigate the moderating effects of environmental factors and the mediating role of decision-making, employee turnover, and employee morale. In this study the leadership styles - task-oriented, relationship-oriented, and participative-have been chosen as independent variables and firm performance- profitability-is the dependent variables. And finally the organization of the text explains briefly in the fourth section.On the basis of the review of the prior literature, in chapter two different definition of leadership styles are expressed (Bass, 1990a; Yukl, 1989b; Jago, 1982; Bass and Stogdill, 1990), second the different types of leadership styles, that are, autocratic, democratic, laissez-faire, participative, directive, task-oriented, relationship-oriented, Blake & Mouton's managerial grid styles, supportive, and achievement, are included. The great man and traits theories, the behaviorist, situational or contingency theories, and transactional, transformational, and charismatic leadership theories are included in historiography of the study of leadership. The literature of industry, family and non-family controlled firm, and firm's development stages are included in environmental factors. Decision-making (autocratic decision, consultation, joint decision, and delegation), employee turnover, and employee morale are included in mediating factor literature. Performance of family firms is discussed. Finally the literature of leadership and organizational are discussed along with limitations and comments of the prior study. From the literature survey, it was observed that many researchers argued that leadership and organizational performance. The researches, which correlate the leadership styles and organizational performance, are having different coverage areas. Those researches considered the whole public sector or whole private sector or the both the sectors as a whole. Chapter three based on the arguments in the chapter two, by reviewing existing research, this study has been reviewed to cover all the variables depicted in the conceptual model with theories, quotations, and research findings in the appropriate places in support of the arguments.The aim of fourth chapter is to outline the design of this dissertation research project and how its framework is derived from the existing body of literature. Specially, chapter four describes the sample methodology; the operationalization of the variables used to analyse the leadership styles and organizational performance, pilot study, sample of the final study, questionnaire data collection, and are outlined the appropriate statistical methods to be used in order to analyze the data obtained from the sample firms. Collected data are analyzed in the following manner. Firstly factor analysis of leadership styles, decision-making, and employee morale has been measured for reducing the variables and the ratio of employee leavers and stayers has been treated as a measure for examining the employee turnover. The firms' profitability relative to significant competitors has been measured as firm performance of this study.Results and data analysis are discussed in the chapter five. The chapter five consists of descriptive statistics, analysis of hypotheses in leadership styles and firm performance, moderating effects of environmental factors, the relationship between leadership styles and mediating variables, mediating effects of decision-making, employee turnover, and employee morale, and the relationship between decision-making, and employee morale and employee turnover. The hypotheses are tested through appropriate statistical packages. After the hypotheses are tested by using the regression model, this model is used to measure from hypothesis 1 to hypothesis 9. The path model analysis is used to measure hypotheses 10 and 11. The results show that task-oriented, relationship-oriented, and participative leadership styles of leaders of small enterprises are directly linked to firm performance. The influences of leadership styles on firm performance are moderated by environmental factors. The high industry technology of environmental factor have not influence on the firm performance. Next the firm controlled by the family members has strongly influence on firm performance than those with non-family controlled firm. Finally the earlier development stage of firm is insignificant effect on firm performance. The effect of leadership styles on firm performance are mediated by decision-making, employee turnover, employee morale. The decision-making plays an important mediating role in the relationship between leadership styles and firm performance and has positively significant relationship. The employee turnover has positive significant relationship with firm performance and the negative relationship found between employee morale and firm performance in this study.Chapter six is to provide findings and conclusion of the study. In this analysis, the findings of this research, implications for management, are presented along with an examination of both the study's limitations. Finally, potential directions for future research and the conclusion of the study are discussed. This study contributes a new direction in the research on organizational performance by opening up a debate on the importance of leadership styles in the development of organizational performance. The fact statically significant correlations are only found between leadership styles and organizational performance can assist with the understanding of how the leadership style affects the organizational performance in family owned small manufacturing enterprises. This study also contributes to the researcher understanding of the importance of leadership style in building employee turnover, employee morale, and decision making. Leadership style and organizational performance are positively associated with and decision making. But leadership style is negatively associated with employee turnover and positively associated with employee morale. In conclusion, the leaders of the family owned small manufacturing enterprises obtain more discretion and exert stronger influence on firm performance. By building and maintaining the strong decision-making, leader can achieve a high level of firm performance.