When Extrinsic Motivation Fails Implementing Transformational Leadership Style

Transformational Leadership in the Financial Services Industry

Abstract

The problem of motivation among workers in the banking industry is one that has been exacerbated by recent pullbacks in extrinsic motivational factors, such as bonuses. Managers need a new method or leadership style that will allow them to motivate intrinsically their workers. This proposal assesses the role that transformational leadership could play in solving that problem. It hypothesizes that bank managers may profitably implement transformational leadership in order to motivate their workers and help them to reach their full potential.

Introduction

To understand the role of leadership in the financial services industry, it is important to discuss the history and background of leadership and how leadership has manifested in banking. This section provides a brief explanation of this history. It defines leadership and discusses both transactional and transformational leadership. Finally, it describes the topic of this proposal, which is transformational leadership in banking.

History/Background

The history of leadership is one in which many theories have developed over time, from Great Man Theory to Trait Theory to Transactional and Transformational Theories. The continuous evolution of leadership theory occurs because leadership is such a unique phenomenon that it has prompted researchers to reassess previously held assumptions based on new evidence uncovered by new studies year after year. Great Man Theory, which posited that great leaders are born, gave way to Trait Theory, which posited that great leaders share common traits and characteristics. Gradually, this theory gave way to more precise dissection of how leaders interact with followers in different environments, what challenges they face, and how they overcome them. The scholars of leadership research have thus endeavored to explain leadership in more fundamental terms.

Leadership. De Vries (2010) has noted that there is a strong relation between communication styles and leadership styles. The six main communication styles that are found in a work environment are verbal aggressiveness, precision of speech, expressiveness of voice, assuredness of manner, supportiveness in feeling, and persuasive argumentativeness (DeVries, 2010). Each of these styles can contribute to the success of a leader in managing, supporting, motivating, and building relationships with followers. The more precise a leader is with words, the more definite the understanding of followers tends to be. The more supportive the leader shows himself to be, the more positive the feelings of followers are. The more persuasive the leader is, the more likely followers are to accept the vision he presents to them. Whether one is a transactional or a transformational leader, communication is linked to these styles (Sethuraman & Suresh, 2014).

Transactional leadership. Transactional leadership is one of the more common approaches in the business world today. It is based on a system of rewards and punishments. In a work environment context a transactional leader is defined as one who adopts a goal-oriented attitude to motivate workers, doling out rewards or punishments based on workers’ performance (Belias & Koustelios, 2014). The theory of transactional leadership is based on the idea that followers follow because they are incentivized to do so by the leader. However, one of the main problems with this theory is that it does not emphasize relationship building between the leader and the follower. The worker’s incentive to follow is based on extrinsic rather than the more powerful intrinsic motivational factors.

Pseudo-transformational leadership. There are many examples of famous leaders in history who can be labeled as transformational leaders, but one must be careful to recognize what is known as the pseudo-transformational leader. Pseudo-transformational leaders have an ill-spirited agenda. Many leaders with charismatic personalities tend to be thought of when discussing transformational leaders, because one imagines transformational leaders to be charismatic, energetic, spirited and revolutionary. For this reason, the typical range of transformational leaders goes from Jesus Christ to Adolf Hitler and Jim Jones and everything in between. However, leaders who lack a good, positive agenda must not be included in the spectrum of transformational leaders for they are pseudo-transformational leaders. They advocate for negative change rather than for positive, good change (Cote, 2017).

Statement of the Topic

Transformational leadership. Transformational Leadership is a model that can be used within all industries where group leaders help to motivate and inspire their employees and colleagues. This style of leadership is used to create beneficial change and successful results by increasing motivation within the work environment. The transformational leader must be able to communicate a vision, generate support for that vision among the workers, motivate them to work towards that vision, and give them the tools, knowledge and means of achieving the goal. It is a useful style of leadership in change management situations. It is also one to which some resistance from workers beholden to sacred cows might be expected.

Research has shown that in today’s era of competitiveness, transformational leadership is the most effective style of leadership for achieving competitive results (Indira, 2018). Transformational leaders embrace change and encourage feedback through behavioral changes and open mindedness among workers. Walumbwa (2005) shows that even in situations of cultural differences transformational leadership may be successful. It is assumed in this style that employees are the most valuable assets of organization and that to utilize them as the valuable assets that they are, their commitment level needs to be increased; and transformational leadership style is one of the determining factors that can influence the commitment level of the workforce (Riaz, Akram & Ijaz, 2011).

Transformational leadership in banking. Transformational Leadership in the banking sector is the focal point of this paper because of the personal experiences of the author within that industry. The author has noticed a lack of motivation and encouragement on the part of workers within his own personal work environment and believes that this lack of motivation leads to a feeling of complicity and undesirable results for the firm.

Iqbal (2016) demonstrated that within the banking sector transformational leadership can help to reduce organizational politics and therefore increase the commitment and motivation of workers. The results from this research validate that through embracing transformational leadership style, it is likely upper management may too find work extra satisfying. If subordinates are delighted with their job, they are going to perform far better and thus satisfy superiors. This atmosphere is better for all and ultimately leads to the effectiveness of the organizations (Abouraia, 2017).

It is futile in the current economic environment to find new ways to motivate employees. Gone are the days of huge monetary bonuses for anyone other than the top ranks of big business banking. No longer does the little guy in the office feel the monetary boom at the end of the year. That being said, leaders must find other ways to motivate subordinates and based on the documentation uncovered in this pursuit it is evident that transformational rather than transactional leadership indicates the best way forward. Indeed, Kark (2003) shows that transformational leadership in the form of recognition and approval promotes empowerment in the employee, giving the worker a sense of psychological assurance and the ability to work with confidence and productivity.

Methodology

Problem to be Solved

A lack of motivation, sense of encouragement and innovation are all key characteristics missing from the work environment of this author. As an Assistant Vice President at BNP Paribas, it is this author’s personal responsibility to oversee a team that is responsible for all post-trade activity within the Capital Markets division of the firm. With regulations becoming stricter over the years, Wall Street has had to succumb to the strain of lowered profitability. It is the belief of this author that due to lack of resources industry-wide innovative spirit has dwindled. The one resource available to management is the pool of followers—the staff that has the necessary talent to right the ship and perform to expectations. Tapping that potential is the main problem faced by leaders in the industry today.

Proposed Solution

Transformational leaders are believed to be able to transform their subordinates to higher levels of performance and other positive work-related outcomes using four main tactics: personal charisma, inspirational motivation through speeches and personal example, intellectual stimulation through the application of logical argument and the opportunity for workers to develop themselves and their skills, and individualized consideration, i.e., personalized attention (Lowe et al., 1996). Transformational leaders generally offer a vision that inspires followers to look beyond their needs for the good of the group. Research strongly supports the relationship between transformational leadership and positive work-related outcomes in areas like performance and job satisfaction (Lowe et al, 1996). Thus, the proposed solution to the problem described above is to implement transformational leadership.