Abstract

This study investigated the effect of leadership style on organisational performance, achievement and goal realisation in small-scale enterprises. Its main objective was to determine how leadership styles affect performance. Two styles were considered. For transformational leadership, the behaviours examined were charisma, inspirational motivation and intellectual stimulation or individual consideration, and the outcomes were effectiveness, extra effort and satisfaction. For transactional leadership, the behaviours were constructive (contingent) reward and corrective (management-by-exception) action, and the outcomes were effort, productivity and loyalty or commitment. A survey design and a quantitative evaluative method were used. Primary data were collected with the structured Multifactor Leadership Questionnaire (MLQ). Responses were scaled and coded into dependent and independent variables, and OLS multiple regression models were specified, estimated and evaluated. The results showed that transactional leadership had a significant positive effect on performance, while transformational leadership had a positive but insignificant effect. The study concluded that transactional leadership is more appropriate for inducing performance in small-scale enterprises. It recommended that small enterprises adopt this style, with built-in strategies for moving to transformational leadership as the enterprises grow and mature.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The concept of leadership, and of leadership style, varies from person to person and from one situation to another. The word is used in politics, business, education, social work and many other fields. Early views treated leadership as a personal ability, but modern approaches recognise that it depends on the leader's characteristics and also on the situation and environment in which the leader operates (Northouse, 2021). Leadership is generally understood as a process in which an individual influences a group to achieve a common goal. Because people join organisations to meet personal objectives, their activity and commitment depend on whether they believe the organisation will help them reach those objectives. If they do not, their interest declines. Leadership style is one of the factors that most strongly enhances or weakens the interest and commitment of members, and for this reason managers need to identify and adopt a style suited to their organisation.

Small enterprises pursue profit, survival and growth. In doing so they allocate scarce resources among competing ends, and they also provide employment, supply goods and services and contribute to the wider economy. Their importance in Nigeria is large. According to the NBS and SMEDAN survey data summarised by PwC (2024), Nigeria had about 39.65 million micro, small and medium enterprises in 2020, and the sector contributed roughly 46 per cent of gross domestic product. The same data show that the number of enterprises fell between 2017 and 2020, which raises concern about their survival. The effectiveness of small enterprises depends on access to personnel, finance, machinery and raw materials, and on their ability to supply their immediate community and the nation. How well members of an organisation contribute to harnessing these resources in turn depends on how well managers understand and adopt appropriate leadership styles. Efficiency in resource mobilisation, allocation and utilisation, and ultimately organisational performance, therefore depend to a large extent on leadership style, alongside other factors such as attitude to work and motivation.

Two styles dominate the research on this question. Transformational leaders inspire followers, stimulate them intellectually, consider them as individuals and act as role models. Transactional leaders clarify expectations, reward good performance (contingent reward) and correct deviations (management by exception). These styles are usually measured with the Multifactor Leadership Questionnaire (Avolio & Bass, 2004). Meta-analytic evidence shows that both transformational leadership and contingent reward are positively related to followers' satisfaction and motivation and to leader effectiveness (Judge & Piccolo, 2004). A later meta-analysis found that transformational leadership is positively associated with performance across several performance criteria and at individual, team and organisational levels (Wang, Oh, Courtright, & Colbert, 2011).

Evidence from small and medium enterprises in Nigeria, however, is mixed. Ossai (2021) found that transformational, transactional and passive-avoidant styles taken together correlated positively with innovation performance in SMEs, but taken separately only transformational leadership predicted innovation performance. Odinaka (2024) reported that transformational leadership fosters innovation and engagement, that transactional leadership improves operational efficiency and that laissez-faire leadership also shows promising outcomes. Ogunlade (2023) found that the performance of micro, small and medium enterprises in South West Nigeria was substantially affected by the mix of leadership styles, and that leaders should assess the situation and adopt the most suitable style. These findings suggest that no single style is best everywhere, and that the effect may depend on the size, age and stage of development of the enterprise. This is the question the present study examines for small-scale enterprises.

In this study, a small-scale enterprise is one with fewer than fifteen employees and capital outlay of less than three million naira. Leadership in this setting is understood as the action of managers to contribute their best to the purpose of the enterprise. The study evaluates the effect of leadership style on the performance of small enterprises, contributes to the empirical literature on leadership style and business performance, and offers quantitatively grounded recommendations for policies and programmes that can strengthen small enterprises as an integral part of the engine of economic growth in Nigeria.

1.2 Statement of the Problem

Workers have needs to satisfy, and the way the organisation helps them to meet those needs affects their performance. Leaders are sometimes unaware of the factors that influence the achievement of organisational objectives. The leadership style adopted can strongly affect workers' performance, particularly when it helps subordinates to achieve their own goals through the organisation. Workers' satisfaction with their superiors' style in meeting their needs can therefore influence how they perform.

Yet many leaders find it difficult to choose and apply a style that fits their workers and their organisation, and this limits improvement in performance. Low levels of education among workers can add to the difficulty. In small enterprises the consequences are serious, because limited resources leave little margin for error. The decline in the number of small and medium enterprises in Nigeria between 2017 and 2020 (PwC, 2024) underlines the cost of weak organisational performance. Existing research is divided on whether transformational or transactional leadership is more effective in such settings (Ossai, 2021; Odinaka, 2024; Ogunlade, 2023). This study therefore examines the effect of leadership style on performance, achievement and goal realisation.

1.3 Objectives of the Study

The general objective is to examine the impact of leadership style on organisational performance. The specific objectives are:

1. to determine the effect of transformational leadership behaviours on performance;
2. to determine the effect of transactional leadership behaviours on performance;
3. to examine the extent to which the management structure of the organisation influences performance and the execution of organisational plans.

1.4 Research Questions

1. What is the effect of transformational leadership on organisational performance?
2. What is the effect of transactional leadership on organisational performance?
3. To what extent does the management structure influence organisational performance?

1.5 Research Hypotheses

Hypothesis One
H₀: Transformational leadership has no significant effect on organisational performance.
H₁: Transformational leadership has a significant effect on organisational performance.

Hypothesis Two
H₀: Transactional leadership has no significant effect on organisational performance.
H₁: Transactional leadership has a significant effect on organisational performance.

1.6 Significance of the Study

The value of the study lies in the application of its findings to practice. It will show how leadership style affects organisational performance and will identify weaknesses in the variables of effective leadership.

Leadership is widely regarded as a driver of firm performance and a source of management development and sustained competitive advantage. Leaders help organisations to achieve their objectives more efficiently by linking performance to valued rewards and by making sure that employees have the resources they need. Theoretically, when organisations seek ways to outperform others, one long-standing approach is to focus on leadership, because leaders shape collective norms, help teams cope with their environment and coordinate collective action.

The study will benefit several groups:

1. Owners and managers of small enterprises, who will gain evidence on which style suits their stage of development.
2. Policymakers and agencies concerned with small enterprise development, who can use the findings to design leadership training and support programmes (PwC, 2024).
3. Researchers, who will have a further data point on leadership and performance in the Nigerian setting, set against the findings of earlier studies (Ogunlade, 2023; Ossai, 2021).

1.7 Scope of the Study

The study covers the National Youth Service Corps (NYSC) Kogi State Secretariat. Its focus is leadership and organisational performance. To help the reader understand the subject, it also covers related issues. These include the concept of leadership, the relationship between effective leadership and organisational performance, leadership and motivation, motivation and job performance, leadership effectiveness and job performance, leadership styles, organisational performance and how it is measured, leadership and communication, the qualities of good leaders and the management of subordinates.

1.8 Limitations of the Study

A major limitation was access to information. Some officials were unwilling to release detailed information, so the researcher relied on the limited information that staff of the secretariat could provide. This may have reduced the depth of the data, and the findings should be generalised to other organisations with caution.

1.9 Definition of Terms

Leadership: A process in which an individual influences a group of people to achieve a common goal (Northouse, 2021).

Leadership style: The pattern of behaviour a leader uses in influencing and directing followers.

Transformational leadership: A style in which the leader inspires, intellectually stimulates and individually considers followers and acts as a model, motivating them to go beyond expectations (Avolio & Bass, 2004).

Transactional leadership: A style based on exchange, in which the leader sets expectations, rewards performance (contingent reward) and corrects deviations (management by exception) (Avolio & Bass, 2004).

Organisational performance: The extent to which an organisation achieves its objectives, including effectiveness, productivity, effort and commitment of its members.

Small-scale enterprise: An enterprise with fewer than fifteen employees and capital outlay of less than three million naira, as operationally defined in this study.

1.10 Organisation of the Study

Chapter One introduces the study. Chapter Two reviews related literature and the theoretical framework. Chapter Three describes the research methodology. Chapter Four presents and analyses the data. Chapter Five summarises the findings, draws conclusions and makes recommendations.

References

Avolio, B. J., & Bass, B. M. (2004). Multifactor leadership questionnaire: Manual and sampler set (3rd ed.). Mind Garden.

Judge, T. A., & Piccolo, R. F. (2004). Transformational and transactional leadership: A meta-analytic test of their relative validity. Journal of Applied Psychology, 89(5), 755–768. https://doi.org/10.1037/0021-9010.89.5.755

Northouse, P. G. (2021). Leadership: Theory and practice (9th ed.). SAGE Publications.

Odinaka, O. H. (2024). The relationship between leadership styles and organizational performance of SMEs in Nigeria [Master's thesis, Universiti Utara Malaysia]. UUM Electronic Theses and Dissertations. https://etd.uum.edu.my/11239/

Ogunlade, J. J. (2023). Effect of leadership styles on performance of micro, small and medium enterprises in South West Nigeria. International Journal of Research and Scientific Innovation, 10(12), 1–17.

Ossai, E. C. (2021). Relationship between leadership style and innovation performance in small-to-medium-scale enterprises in Nigeria [Doctoral dissertation, Walden University]. ScholarWorks. https://scholarworks.waldenu.edu/dissertations/10358

PwC Nigeria. (2024, July). PwC's MSME survey 2024. PwC. https://www.pwc.com/ng/en/assets/pdf/pwc-msme-survey-report-2024.pdf

Wang, G., Oh, I.-S., Courtright, S. H., & Colbert, A. E. (2011). Transformational leadership and performance across criteria and levels: A meta-analytic review of 25 years of research. Group & Organization Management, 36(2), 223–270. https://doi.org/10.1177/1059601111401017