INTRODUCTION
Leadership style which supports the organisation’s HR strategy and practices are essential elements in producing balanced psychological contracts which not only benefits the employees but the employer as well. When the style of the leader is not in synchronisation with the HRM practices, it can lead to lower level of employees performance due to unfulfilled psychological contracts (Llego, 2014).
The style of leadership plays a vital role in influencing organisational culture and enhancing the employee’s satisfaction and motivation. The definition of leadership can be sketched ‘as an interaction between two or more than two members of a group which involves modifying the situational needs, perceptions and expectation of the members’. Leadership is a changing force which can modify the level of engagement, motivation or competencies in a member of the group (Bass and Stogdill, 1990).
According to (Guest et al., 1996), a positive psychological contract is something should be taken seriously because this is what drive a higher level of employee satisfaction, employment relationship and a commitment to the organisation and for the very same reason why organisation need to pursue progressive HRM practices. Leadership is a key factor in coordinating and aligning (Lewis, Packard and Lewis, 2011).
The aim of this coursework to unearth the relationship between styles of leadership in John Lewis and how it shapes HRM practices to generate Human Capital Advantage (HCA) and its effectiveness on employee’s psychological contract and motivation and commitment to their work and organisation.
LITERATURE REVIEW
Leadership
When we scrutinise transformation leadership, they also employ participative leadership style for decision making, they tend to create a sense of inclusiveness by share the problem with followers and seeking consensus before the final decision (Bass, 1985). However, with transactional leadership style, the final say remains with the leader and employees may not feel empowered and merely be motivated to participate because of extrinsic value and employment agreement (Piccolo and Colquitt, 2006).
Leader-member exchange theory (LMX) focuses on the two-way relationship between leaders and subordinates. This theory assumes that leaders and subordinates develop an exchange with each other (Deluga, 1998).However, it is a divergence from the common leadership theories because LMX focus on the relationship which can be affected by personal characteristics of leaders and followers rather than an emphasis on the characteristics of effective leaders (Graen and Uhl-Bien, 1995). (Wang et al., 2005) argues that “LMX makes transformational leadership more personally meaningful.”
Human Resource Management
Human resource management (HRM) relate to a system to increase the effectiveness of utilisation of human capital and related productivity through developing relationship and objective of the employment between organisation and staff (Armstrong and Taylor, 2014). HRM involves setting policies which are aligned with business strategy and seek to achieve competitive advantage by reinforcing appropriate organisational cultural change (Legge, 1995).
Leader’s actions affect HRM practices; it is considered the reflection of leadership intents and, therefore it shapes the psychological contracts of the employees (Rousseau, 1995). When there is an inclusiveness within the organisation (participation) or shared leadership style, it creates an atmosphere to produce HRM practices focusing on training and development of the employees and job redesign (Hackman and Oldham, 1980) which improve motivational needs of employees.
The way leadership styles is linked to HRM practices in John Lewis is through two dimensions; soft HRM and hard HRM, the hard HRM practices is more associated with correcting leadership style (transactional), whereas, the soft HRM practices if more related to stimulating leadership style (transactional) (Guest, 1987). The Hard HRM is seen as to put less weight on worker’s concerns’ but soft HRM is acknowledged to put more attention on employee’s outcome.
Psychological contracts
Psychological contracts is an implicit and unwritten contract between employees and employers; both parties develop perceptions about employment relationship, promises and obligation. It is a contextual belief which directs the actions which employees believe expected of them and what response they expect in return from employers and vice versa, reciprocally (Guest, 2007).
However, there is an element of interpretation that how this psychological contract is interpreted although they both are tied up in the same employment relationship, they can have completely different views regarding expectation (Rousseau and Wade‐Benzoni, 1994).
Psychological contracts can be split into transactional and relational psychological contracts, values of intrinsic and extrinsic are both embedded within them (Rousseau, 1995). It is important to point out that the psychological contract is dynamic in nature and it develops as the time passes and it has an aggregation within itself, and it can change if the employment conditions change (Guest et al., 1996).
Human Capital Advantage
(Pfeffer, 1998) states that the link between HRM practices (Human Capital Advantage) and organisational performance can be explained through two broad perspectives, the contingency (best fit) approach and the universal (best practice) approach.
If the ‘best practices’ are identified and implemented it will raise the business performance but on the other hand, ‘best fit’ will improve business performance if it is aligned with business strategy (Jahanian et al., 2012). However, the ‘best practice’ approach might make more sense if the focus is to grasp underlying principles of the practices as opposite to practice them. Hence, it would be ideal to think as a ‘good practices’ as opposite to ‘best practices’ (Becker and Gerhart, 1996).
On the other hand “best fit” might seem more realistic model, but in this approach, it’s difficult to quantify all micro and macro variables and difficult to interlink them, and it doesn’t take account of processes change (Purcell, 1999). HCA elements in John Lewis are both mix of ‘best practice’ and ‘best fit’.
Motivation and Commitment
(Herzberg, 1986) identify that factors leading to job satisfaction are different from those leading to dissatisfaction known as motivation and hygiene factors. Hence, the individual job design should be seen as a positive resource of motivation which can be further explained by goal setting theory which states that if individual feels that the job tasks is stretching, they will typically be motivated to increase their effort to finish the desired goals (Locke and Latham, 2006).
However, the efforts to achieve the goals depend on the condition that performance will produce the reward and that reward is valued by the employee (Vroom, 1962), these elements of a psychological contract and motivation are fully aligned with John Lewis’s Total reward model (Purcell, 2007).
LEADERSHIP STYLE AND ITS INFLUENCE ON HRM PRACTICES AND PSYCHOLOGICAL CONTRACT
If we just merely look at John Lewis’s constitution, we actualize one common theme repeating within it “Partnership”. The firm bond of partnership exists because of the extraordinary vision of its Founder John S. Lewis, and this Vision has provided a sound basis for constitution framework which defines how a partner should operate, this partnership includes all the employees including leaders (JLP Constitution, 2015). The chairman is the head of partnership board but all 88,900 partners (employees) across 48 John Lewis and 351 Waitrose supermarkets, share the partnership and ownership (JLP, 2016)
This sets the tone of organisational leadership, this can be referred as a participative leadership where all partners have a part in profit shared and have a voice within the organisation as explained by (Bass, 1985). However, the Principal 1 of constitution draws three key elements 1) Build relationship powered by our principal, 2) Take responsibility for our business success 3) Create real influence over our working lives (JLP Constitution, 2015) , explicitly directs us to concept of transformation leadership styles, (Bass and Avolio, 1993), in addition, being in a highly competitive environment of retail business it is unlikely to avoid the transactional leadership style which can be seen in JLP total reward model, an approach of “give and take” (Burns, 1978). As we know that there are different layers of leadership embedded within the organisation, therefore, the main focus is centred around organisational leadership rather than on individuals; it is also fair to say that the constitution is the main drive behind leader’s and partner’s behaviour.
This amalgamation of different leadership styles influence HRM practices in many different ways, but the heart of the HR strategy are values set known as “powered by our principles (PbOP). They can broadly be divided into soft HRM and hard HRM practices (Guest, 1987). John Lewis ‘training and development’ program or ‘profit share’ can be seen as soft HRM practices, where the focus is to gain employees commitment. This is accurately aligning with a transactional constituent of the leadership style.
However, the introduction of ‘4P’s (Performance, Productivity, Pay, Progression) manifesto in 2015 (JLP, 2016) can be interpreted as a Hard practice because the emphasize on achieving organizational goals using people as a resource, the employee has no choice but to progress into new role or up in the partnership with the expectation that no partner shouldn’t be underperforming more than a year, this can be referred as a transactional element of the leadership style.
However, this can be reasoned looking at the following table from Partner Survey 2016 that these relational psychological contract (intrinsic) changes with a change in the transactional psychological contract (extrinsic). The relational psychological contract was higher previously with annual higher bonus, but it would also be worth pointing out that the interpretation of a psychological contract can differ from one employee to another (Rousseau and Wade‐Benzoni, 1994).
Variables 2011/12 2012/13 2013/14 2014/15 2015/16
Partnership bonus 14% 17% 15% 11% 10%
I would recommend the Partnership as a great place to work 84% 82% 87% 87% 81%
I value the range of benefits available to me n/a 95% 94% 95% 92%
We create real influence over our working lives 75% 74% 76% 76% 74%
It is fair to say that John Lewis is able to influence partners psychological contract through their HRM practices positively but they need to be careful about the transactional psychological contract (extrinsic) of their employees and continue to improve in order to keep their competitive advantage during difficult financial times.
STRATEGIES TO GENERATE HCA AND ITS INFLUENCE ON EMPLOYEES’ MOTIVATION AND COMMITMENT
Another way to approach HRM practices is to conceptualise them as a tool to generate human capital advantage (HCA) through training, talent management and continuous improvement to develop core competencies against competitors.
The co-owned / partnership is one of the prime element that gives John Lewis a competitive edge to build their HCA and JLP puts significant level of efforts in their rigorous recruitment and selection processes (Online tests, Application form, Video Interview, Assessment centre) to secure partnership behaviour from the beginning and hire candidates who are not only skilful and talented but also align overall with organizational cultural values. This approach is based on universalist / ‘best practices’ (Preffer, 1998), however, due to the rigorousness and length of the recruitment and selection process JLP incurs huge cost to hire people, hence, it is imperative for JLP to keep employee turnover low; one of the way they encounter this problem is to offer higher rate in comparison to industry’s pay rate.
It shouldn’t be a surprised that John Lewis also employs ‘best fit’ approach to generate human capital advantages (Pfeffer, 1998). JLP introduced an IT Apprenticeship with the Queen Mary University of London which will help apprentices to receive BSc (Hons) in IT while working in John Lewis’s IT department, which is aligned with business strategy to grow retail’s business through e-commerce in the digital world (JPL, 2016).
When it comes to partner’s development, it wouldn’t be an understatement that JLP is one of the best in retail’s industry, the partnership currently spends 56% more than similar organisations on partner development which is enshrined in Constitution (Rule No. 56) to encourage partners to fulfil their full potential and increase their career satisfaction.
The ‘Horizons’ training programme allows partners to choose their own development pathways and partners are allowed to work in any charity of their choice for six months fully paid (JLP, 2016). This example clearly shows JLP managed to blend beautifully both ‘best fit’ and ‘best practice’ approaches together for creating HCA (Pfeffer, 1998).
John Lewis has a very different approach when it comes to reward management system which is rare from the point of view that partners have involvement in formulating it. Partners (line managers and non-management staff) have the opportunity to come forward and put their ideas by engaging and looking at performance measures, pay-banding and appraisal system and have a real impact that how their performance should be appraised. This approach is very much in aligning with the organisational culture and partnership behaviour and unique way (‘best fit’) to motive partners and create HCA (Hutchinson and Purcell, 2007).
John Lewis total reward model offers intrinsic values (base pay, profit share, pension, flexible benefits) and also extrinsic values (career development, training, learning, employee voice and work design) which contribute significantly towards its partner’s high level of engagement, performance and job satisfaction as explained by Herzberg’s two factor theory of motivation (Herzberg, 1986).
John Lewis motivates their partners by treating them individuals rather than collectively because JLP realise that the social needs of one partner can be different than another partner, hence, partners who performance better are giving more challenging task/responsibility but this also reflects on their financial reward. Partners are allowed to take charge of their own goals and accomplish them (Locke, 1968). Nevertheless, this approach underestimates the importance of teamwork.
The unique co-ownership structure at JLP allows all partners to share its success. For the past 10 years, JPT has on average paid between 9% and 22% of annual bonus; JLP believes that the better performance of their partner should be rewarded through annual bonus, pension scheme and other partnership discount and bonuses (JLP, 2016). This profit share (annual bonus) also influences the motivational level of their partners as we have already seen in partnership survey 2016 as explained by expectancy theory of motivation (Vroom, 1964).
CONCLUSION
JLP is a unique organisation based on shared partnership values and governed by their constitution’s principal and rules which dictate the behaviour of their partners and leaders. The prevalence of different leadership styles in John Lewis may seem contradictory but all of them are elegantly align with overall organisational culture and business strategy to support HRM practices to achieve core purpose of the organization i.e. Principal 1. “The Partnership’s ultimate purpose is the happiness of all its members, through their worthwhile and satisfying employment in a successful business. Because the Partnership is owned in trust for its members, they share the responsibilities of ownership as well as its rewards –profit, knowledge and power”.
The need to fulfil the relational and transactional psychological contract of partners is well recognised, however, this is because all partners share the business and have a voice within decision-making process, yet, the sustainability of the psychological contract mainly transactional depends on the financial stability and profitability of the JLP, and this could be further tested in the time of downswing.
The constitution does provide them guiding principle, but JLP has the flexibility to adapt different approaches to create human capital advantage through various strategies. However, there is overly emphasise to filter through candidates who can fit with their partnership behaviour (spirit) and then can lose out a huge chunk of the talent pool. The total reward model has been crafted carefully with partner’s involvement which plays a substantive role in escalating the motivation and commitment of their partners to their job and organisation.
REFLECTION
The contextual scope of the society (power distance, individualism/collectivism and masculinity) enact a significant role in shaping the leadership style, in addition, the organizational culture (values, beliefs, customer, and practices) further provide refinement to it, yet, with self-awareness and training, one can allow himself to adapt/change different leadership styles.
Having worked in medium-scale insurance company for more than 8 years (in UK), I have realized with the help of this module that extrinsic values can only motivate a person in a short-term and for a perpetual high level of performance, engagement and job satisfaction, employer need to realize that there is also unwritten contract to discharge, otherwise, it could lead to despair, apathy and anger, consequently, detrimental effects on business viability.
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