Human Capital

5 Leadership Theories you Need to Know

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In this article, we outline the basis of leadership theory and discuss five major leadership theories that can help you nurture leadership ability in yourself, and across your organisation.
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Why are some leaders successful, while others are not? This is an age-old question which we now understand does not have a clear-cut answer. Today’s article outlines the basis of leadership theory and discusses five major leadership theories that can help you nurture leadership ability in yourself and across your organisation.

Human Behaviour: The Basis of Leadership Theory

Human behaviour and group mechanics (i.e. the interactions between members of a group, and between different groups) are the two common threads that underpin all leadership theories. It’s an understanding of these two factors that separates today’s great business leaders from their stuffy, inflexible, cigar-smoking predecessors who were so far removed from the needs and motivations of their employees that they may as well have been from another planet, or galaxy.

In the not-too-distant past, leadership required little more than the power to issue instructions and dole out rewards or punishments based on performance. It was a strict yet simple formula, which more or less anyone fortunate enough to land themselves a management position was capable of wielding. 

The role of the leader was once to say, “Do this, and do it well, or we’ll find someone else who can.” Thankfully, over the past 50 or so years, things have moved on considerably and this dictator-like leadership style has been relegated to the history books - where it most definitely belongs.

Now, we understand that the outcome of this particular ultimatum rests on far more than innate ability or work ethic. It is, in fact, largely determined by:

  • an employee’s relationship with the work environment
  • their level of personal investment in company goals
  • team dynamics
  • hierarchical interactions
  • leadership strategies

Plus, a tonne of other factors can all be predicted and managed with an understanding of… (drum roll).. human behaviour.

The myth of the amenable leader

There is a common misconception that being “good with people” is all it takes to be a great leader. While social intelligence and the ability to put people at ease are important additions to every leader’s toolbox, these attributes alone are not enough.

In addition to making people comfortable and happy in the “now” in the hope that they’ll perform, leaders must be able to read the wider context of any challenge or goal, to figure out how a situation must be managed at scale. Sometimes, the right course of action is not the one that will make you immediately popular with your employees. The best leaders can:

  1. Identify this when it’s the truth of the situation, and
  2. Act on it appropriately without then crying under their desks for the rest of the day (of course, a 10-minute micro-breakdown is sometimes warranted - nobody is perfect!)

Why knowledge of leadership theory is important

Leadership theories are not like leadership tools; they’re not cookie-cutter strategies that tell you how to act or what to do in any given situation. 

The theories discussed in this article are summary schools of thought that have been presented by researchers, psychologists, cognitive experts and philosophers over many decades. They provide a lens through which to view and understand different leadership situations, how people respond to them, and what makes for effective leadership.

It’s wise to think of these theories as neither “right” nor “wrong” but as frameworks to help you better comprehend and improve your leadership practice.


5 Major Leadership Theories

Without further ado, here are five major leadership theories that every leader and manager should be familiar with. We’ve also linked to some fabulous resources that will give you jumping-off points to dig deeper into each theory if you’d like to find out more.

1. The Contingency Theory

The Contingency Theory recognises that what constitutes effective leadership behaviour differs and is dependent on a whole host of situational variables. These include:

  • Relationships between coworkers
  • The maturity levels/performance readiness of employees
  • The ages of the employees involved
  • Pace of work
  • Work schedule
  • Specific goals and objectives
  • Employee work styles
  • Employee morale
  • Company policies & behavioural standards

Several models are used within Contingency Theory to assess the effectiveness of a leadership decision. Essentially, this theory ranks leadership ability based on how well a leader can intuitively weigh up all contributing factors to determine the best course of action.

To give you an extremely simplified example of how this might play out: a leader who has a largely under-30 workforce and needs to incentivise performance would be better served to offer pop concert tickets as a reward, as opposed to a foot spa, or a weekend coach trip.

This is about as reductive as an example can be and only considers ONE of the above variables - but you get the gist.

The Contingency Theory is closely linked to the Situational Leadership model designed by Paul Hersey and Ken Blanchard. This model recognises leadership style and performance readiness or employee maturity as the two factors which determine an appropriate course of action.

2. The Transactional Leadership Theory

Transactional leadership theory is what most of us would recognise as traditional leadership theory. It’s based on the idea that leading employees to success is based on simple transactions. For example:

  • Employee gives good performance = manager issues reward
  • Employee gives bad performance = manager issues punishment

This theory is fairly outdated in that it’s based on the idea that performance can be entirely controlled by reward or punishment, plus it doesn’t allow for degrees of success - the employee has either done well or not.

However, this is still a place for transactional leadership in the modern corporate environment. Sales leadership gives a particularly good example of this theory in use! Sales employees typically have set targets to hit to receive financial bonuses (good performance = reward); conversely, failing to hit targets three months in a row may mean the employee is placed on probation (bad performance = punishment).

Though Transactional Leadership has its place, modern leaders recognise that it must be used alongside more holistic leadership strategies, to achieve the most desirable outcome.

3. The Transformational Leadership Theory

Transformational leadership is a style of leadership that, unlike transactional leadership, is based on the idea that the ability to perform isn’t fixed. Transformational leaders foster relationships with employees and followers to guide and nurture their skills. This leadership model is based on encouragement and centres around realigning struggling employees and team members with the overall mission of the organisation, to help them achieve their personal goals in addition to the goals of the business.

Transformational leadership is reciprocal and iterative. It begins with identifying a team or individual’s weaknesses and establishing a clear pathway for improvement. The transformational leader then works closely with the individuals in question to support, evaluate and redirect their efforts as necessary, until the goal in question has been achieved.

This leadership model is hailed for its many positive effects, which include:

  • Nurturing company culture
  • Increasing creativity
  • Reducing staff turnover
  • Nurturing loyalty among staff members

4. The Great Man Leadership Theory

The “Great Man” (or woman) theory of leadership is arguably the most outdated and widely criticised theory on this list. We include it to illustrate how much leadership theory has progressed over the past 100 years and to serve as a benchmark for what doesn’t make great leaders.

The Great Man Theory was originally coined in the 19th century - we told you it was outdated! The basis of this theory is that great leaders are born, rather than made. It suggests that there are certain characteristics and abilities inherent to great leaders which are present in an individual or not.

These characteristics include:

  • Charisma
  • Intelligence
  • Diplomacy
  • Wisdom
  • Adaptability

Of course, we now know the Great Man theory of leadership to be narrow-minded and false. The skills, traits, and behaviours that make a successful leader absolutely can be learned, developed and wielded by more or less anyone with the correct attitude and approach to personal development.

Despite this, many of us are still guilty of putting too much stock in the idea of “natural” leaders; we tend to instinctively assume that people are either cut out for the job or not. While it is true that certain important leadership traits occur more readily in some people than others, buying into this idea too heavily can have serious detrimental effects on an organisation, for instance:

  • All leaders in an organisation end up being cut from the same cloth. Leadership styles are not varied, thus scope for creativity and “outside-the-box thinking is limited.
  • Hiring managers may overlook worthwhile candidates who do not appear to fit the “great man” stereotype.
  • Valuable candidates may never put themselves forward for a role, as they believe they are not natural leaders.

6. The Trait Leadership Theory

Trait leadership theory is an evolution of the Great Man leadership theory. It is almost as limited for many of the same reasons, however, it does provide some useful insights.

Trait leadership theory is also based on the idea that the skills and attributes of great leaders are inherent, not learned. Where this theory improves on the Great Man theory is that it goes as far as pinpointing certain personality and intelligence factors that can make someone an effective leader.

These factors are:

  • Emotional stability
  • Willingness to accept responsibility
  • Task-based competence
  • Empathy
  • Communication skills
  • Ambition

Trait leadership theory suggests that these factors can be measured in leadership candidates to determine overall suitability for a role. While our current understanding of leadership theory states that a low score on any one factor should not necessarily be cause to rule a candidate out, trait leadership tests can help identify areas for development in your chosen candidate.

Why learn about leadership theories?

A general understanding of leadership theory is important within organisations, and to leaders, themselves - aspiring or otherwise. All leaders lead differently, have different strengths, and face different challenges. With knowledge of common leadership theory, we can better understand our successes and failures. We can also identify pathways to improvement, both in individual leaders and company-wide leadership practices.