When Leadership Styles contradict the Organizational Culture
The Competing Values Framework
After the outbreak of the financial crisis in 2008 and based on several dubious business transactions, the reputation of the banking sector is still badly affected. In order to reduce the economic risk potential to a minimum in the future, the European and the US Financial Market Authorities have issued numerous new regulations specified in thousands of pages. The banks must adhere to the strict regulations in order to avoid paying hefty fines. At the same time, the rapidly growing digitalization is under the Fintech concept also creating new business models, new financial products and thus also bring new market players as competitors of traditional banks.
Thus, the challenge banks are facing consists in doing a balancing act between the compliance requested by the financial markets supervisors and the pressure to innovate. Since such a polarity requires contradictory orientations, this question can be analyzed based on the Competing Values Framework by Cameron and Quinn (2011).
Applying the Competing Values Framework
The texts of the European banking and capital market supervisory authorities on banking regulation since the beginning of the financial crisis have grown into a mountain of paper that is a real challenge for the institutions that need to apply them. It is about strict rules for protecting investors and reducing the so-called systemic risk, whereby the failure of a single major bank would plunge numerous other financial institutions into the abyss due to a chain reaction. So, it is about a set of rules that should ensure the stability of not only the entire banking sector but of the whole economy.
In order to ensure strict compliance with the market supervisors’ rules,, numerous operating instructions within the bank guide employees and their managers throughout the daily operations. The term “compliance” can be heard very often as a clear requirement for everyone. Managers are encouraged to actively monitor compliance with operational instructions. In the competing values approach, these circumstances speak for the “hierarchy” culture type, if looking at the above-mentioned Competing Values Framework. It is about efficiency, meeting deadlines, consistency and uniformity. The goal should be achieved through control, efficiency and capable processes. The leadership style in such an organizational culture is rather transactional.
In addition to regulation, another phenomenon is changing the financial sector. “FinTech” describes the trend, according to which not only the banks, but also numerous technology companies and startups have ushered in a new era in the digitization process of the financial sector. On the one hand, banks are circumvented, as the phenomenon of fund crowding shows, according to which investors and borrowers conduct their transactions directly on Internet platforms, i.e. can process without intermediation from banks. On the other hand, the new technologies are used to bring new, highly digitized financial products onto the market. The banks themselves are also involved in the digitization trend. However, the new competitive conditions give the pressure to innovate an additional boost.
According to the competing values model, an innovation culture goes hand in hand with values such as innovative outputs, transformation and agility. The organization follows a vision that, together with new resources, e.g. creative and technology-savvy employees to ensure their effectiveness. This is an organizational culture of the adhocracy type. For its part, the organizational structure should be flexible and able to implement transformations. That is the ideal leadership style in such an organizational culture is rather transformational.
Thus, the banks must embed both the principles of hierarchy (inward control) and that of adhocracy (flexible outward) in their organizational culture. This mixture does not have to be used within the same organizational unit. Marketing and development departments, for example, can operate according to the principles of adhocracy and operational departments according to the hierarchy.
The competing values model clearly illustrates how organizational cultures are composed of several tendencies, with sometimes contradicting features. Schein (2012) write: “The Cameron and Quinn Competing Values Framework is also based on the theoretical idea that the poles of any given dimension are inevitably in conflict with each other and the cultural solution involves reconciling them”.
Leadership plays an essential role in this. In this regard, Cameron and Quinn (2011) write: “Our research has confirmed a congruence hypothesis between culture and competencies. When the leadership strengths of an individual are congruent with the dominant organizational culture, those leaders tend to be more successful, as are the units they manage. Congruence predicts success”. Burns, quoted by Pundt & Nerdinger (2012), is in line with this principle when he underlines that “particularly successful leaders transform their followers. Transforming means convincing the followers of a higher goal to inspire and mobilize them. ” Burns has thus described the transformational leadership style that an adhocracy culture needs. For his part, Bass, quoted by Pundt & Nerdinger (2012), describes the transactional management style as a style “in which the manager either actively tries to avoid deviations from the plan or mistakes or – rather passively – only reacts when there are deviations from the plan or mistakes”. Transactional management is therefore more suitable for the hierarchy culture than for the adhocracy culture. However, Grote (2012) adds that in the sense of the full-range model, it is assumed that managers use all the behaviors outlined.