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Leader driven organizational adaptation

Melody Seah Department of Business Administration, Chih Lee Institute of Technology,

Taipei City, Taiwan

Ming-Huei Hsieh Department of International Business, College of Management,

National Taiwan University, Taipei City, Taiwan, and

Hsiu-Ying Huang Department of International Trade, Feng Chia University,

Taichung City, Taiwan

Abstract

Purpose – Earlier research has identified adaptive leadership strategies and organizational culture as two key factors that influence a firm’s adaptive capabilities. However, little is known about how leadership and organizational culture affect each other. Nor do the authors know how the combined effects of adaptive leadership and culture facilitates organizational adaptation over time. The purpose of this paper is to address this gap by using a co-evolutionary perspective to enhance the understanding of this phenomenon. Design/methodology/approach – Data were collected through informant interviews, observations and archival material. Findings – Study findings reveal that leaders can enhance organizational adaptability by creating an appropriate context to guide the co-evolutionary interactions between their leadership strategies, organizational culture and employees towards the ongoing achievement of firm goals. Originality/value – The study enhances the understanding of how leaders facilitate organizational adaptability, especially in a family business context.

Keywords Organizational culture, Adaptive leadership, Co-evolutionary theory, Organizational adaptability, Leadership strategies

Paper type Case study

1. Introduction Organizational adaptability is a key pre-requisite for firms seeking to survive, grow and succeed in today’s fast moving and hyper-competitive business environment. Adaptive firms are not only more competitive (Long, 2001), they also tend to perform better than their peers (Dreyer and Gronhaug, 2004; Tuominen et al., 2004). In this study, organizational adaptability refers to a firm’s ability to alter or modify its components to match the changes in their external environment.

Leaders can enhance their firm’s adaptive capabilities by recognizing the needs and demands of various stakeholders (Heifetz and Laurie, 1997) and by establishing a conducive organizational culture (Volberda, 1997). Strong cultures serve as a powerful tool to align employees’ efforts with firm goals (Smircich, 1983) and by doing so, facilitate adaptability (Kotter and Heskett, 1992). Although previous studies have linked leadership and culture to organizational adaptability, little is known about how

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Management Decision Vol. 52 No. 8, 2014 pp. 1410-1432 r Emerald Group Publishing Limited 0025-1747 DOI 10.1108/MD-07-2013-0380

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these variables interact and affect each other over time. Therefore, this research attempts to fill this gap by answering the following research questions:

RQ1. What is the combined effect of adaptive leadership and culture on organizational adaptability?

RQ2. How does this relationship co-evolve over time?

According to Bourgeois (1984), organizational evolution is the joint outcome of managerial adaptation (Child, 1972) and environment selection (Hannan and Freeman, 1977). In other words, firms evolve in response to the changes in their external environments (i.e. competitors, customer demands), as well as to the changes in their micro level environments (i.e. organizational culture, employees). However, little is known about how these macro and micro level organizational changes (Baum and McKelvey, 1999; McKelvey, 1997) affect the leadership and management of a firm over time. To understand these links between leadership behaviors, organizational culture and adaptability, this study will use a single case to provide an in-depth insight into how leaders facilitate organizational adaptability. This study will also use a co-evolutionary lens perspective shed light on how this relationship evolves over time.

This research is organized in the following way. First, we will unravel the effects of leadership and culture on organizational adaptability. Next, we provide an overview of the co-evolutionary theory and discuss how this theory can be suitably applied to our study. The remaining sections are based on the case investigations that follow. Finally, this paper ends with some concluding comments on the limitations and contributions.

2. Theoretical background The impact of leadership and organizational culture on adaptability Leaders can enhance corporate performance by defining, clarifying and reinforcing the actions and beliefs that build a desirable organizational culture (Schein, 2004; Siehl, 1985). Well-aligned cultures enable leaders to better integrate their firm’s internal processes, which in turn leads to organizational adaptability (Denison et al., 1995; Schein, 2004) and superior

Performance (Ouchi, 1981; Peters and Waterman, 1982; Schein, 2004). Here, we define organizational culture as a set of deeply rooted beliefs, values, assumptions and symbols that shape the identity and behavioral norms of a firm and its employees (Barney, 1986).

This interplay between organizational culture and leadership was also noted by Schein (2004), who observed that firms tend to reflect the values and beliefs of their founders cum leaders during their formative years. However, the dynamics of this relationship will evolve when firms mature and establish their own corporate cultures (Bass and Avolio, 1994; Schein, 2004). Together these studies suggest following: First, the relationship between a leadership and organizational culture is iterative and evolves over time. Second, this interplay between leadership and organizational culture can have a substantial impact on organizational adaptability (Kotter and Heskett, 1992). Despite these links, our understanding of the processes through which leaders facilitate organizational adaptability is still limited. Nor do we know enough about how this relationship between leadership, organizational culture and adaptability evolves over time.

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To fill this gap in literature, we will examine this relationship through the lens of the co-evolutionary theory. We will briefly review the co-evolutionary theory in the next section and explain why the use of this concept is appropriate for the purpose of this study.

The Co-evolutionary lens perspective The co-evolutionary perspective, though more commonly used within the scientific academic community, has since gained more attention in the field of organizational science (Boulding, 1968; Lewin and Volberda, 1999; Lewin et al., 1999; McKelvey, 1997; Van Den Bosch et al., 1999; Volberda, 1996; Volberda and Lewin, 2003). Researchers have applied the co-evolutionary lens to strategic management (Barnett and Hansen, 1996; Volberda and Lewin, 2003), strategic alliances (Koza and Lewin, 1998) and new organizational forms (Lewin and Volberda, 1999). However, because most of these studies examine the co-evolution that occurs at the macro-level (Barnett and Hansen, 1996; Koza and Lewin, 1998; Lewin et al., 1999; Volberda and Lewin, 2003), we know little about the co-evolutionary exchanges that occur within a firm.

According to researchers Lewin and Volberda (1999), co-evolutionary induced changes: first, take place at multiple levels (i.e. within the firm and between their niche) (McKelvey, 1997); second, may occur in all interacting populations of within the firm (Baum and McKelvey, 1999; Kauffman, 1993; McKelvey, 1997); third, subsumes non-linear feedback between interacting variables (Lewin and Volberda, 1999); fourth, results in a recursive and bi-directional view of mutual causality (i.e. leaders influence and are in turn influenced by organizational culture) (Lewin and Volberda, 1999); and fifth, is path-or-history dependent (Calori et al., 1997; Kieser, 1989; McKelvey, 1997). Together, these properties make the co-evolutionary lens ideal for the purpose of our research, because it will not only enable us to account for both the micro and macro level changes that occur as our case firm evolves in response to changing business requirements, but also allow us to examine the impact of these multi-level/directional changes on organizational adaptability.

Leader-driven process of organizational adaptability The purpose of this paper is to examine how leaders facilitate the processes that underlie organizational adaptation to changing business requirements. From a review of similar studies (Auster and Choo, 1993; Giberson et al., 2009; Haleblian and Finkelstein, 1993; Mackey, 2008; Nadkarni and Herrmann, 2010; Schein, 1993; Tsui et al., 2006), we propose that a leader-driven process of organizational adaptability consists of the following three phases (refer to Figure 1). Specifically, to facilitate and enhance organizational adaptability, leaders must: First, actively detect and respond proactively to adaptational triggers (Auster and Choo, 1993; Haleblian and Finkelstein, 1993; Mackey, 2008; Nadkarni and Herrmann, 2010). Second, leaders should iteratively develop and shape their firm’s culture (Giberson et al., 2009; Schein, 2004; Tsui et al., 2006) to match new goal or purpose. Finally, leaders need to actively manage, improve

Leader detects and responds to adaptational

triggers

Leader initiates adaptation

through firm culture

Firm achieves a new level of

organizational capability

Figure 1. A generic process model of leader-driven firm adaptation

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and sustain dynamic balance during and after each adaptation attempt (Ireland and Hitt, 2005; Orgland and von Krogh, 1998). We will discuss each of these steps in greater detail.

In the first step of the process, leaders must have the ability to sense and extract cues from their external and internal organizational environments that trigger the need for change. Here, we can define these external triggers for adaptation in terms of the drivers identified in Porter’s (1998) five forces framework: customers, competitors, suppliers, costs, technology and etc. The firm leader’s desire to gain reputation, power, status, information and/or to leverage on their employees’ capabilities may also provide further impetus for change. However, while these trigger events may provide the impetus for change, leaders must themselves be capable of engaging and re-aligning their employee behaviors and actions to achieve the changes necessary. In other words, leaders must be able to evoke firm level changes (micro-level) to meet with demands of their macro-level business environment (Heifetz and Laurie, 1997). With this, we propose that adaptability of an organization depends very much on their leaders’ ability to shape and mold their firms’ micro-co evolutionary processes (Lichtenstein and McKelvey, 2002).

In the next step of the process, the model predicts that leaders can initiate organizational change by realigning their firm’s culture to support and facilitate the achievement of (new) firm goals (Kuhlmann, 2010; Wei et al., 2008). For example, leaders can manipulate culture by what they pay attention to (measure and control) on a regular basis; how they allocate resources; how they select, recruit and promote; and through deliberate role modeling, teaching and coaching (Schein, 2004). However, this influence process is not unidirectional (i.e. top-down influence downwards). Consistent with the co-evolutionary theory (Lichtenstein and McKelvey, 2002), we expect the direction of this influence process to change as the relationship between the leader and their employees evolve. Specifically, we predict that both horizontal and vertical co-evolution will take place as employees grow and develop into their job roles. Therefore, when employees become more skilled and experienced, they will not only influence each other (i.e. horizontal co-evolution), but also begin to exercise their influence upwards upon their leader (i.e. vertical co-evolution). When this happens, leaders themselves must adapt to these changing circumstances (Heifetz and Laurie, 1997) to create a work environment that is conducive to employee motivation.

Finally, we assert that the relationship between leaders, organizational culture and employees will continue to change and evolve in tandem with the firm’s changing need seven upon the achievement of its set goal(s). We propose that these ongoing and iterative (non-linear) micro-evolutionary changes will inadvertently set the stage for the next round of leader-driven organizational adaptation. Hence, we expect this leader-driven firm adaptation process to be iterative and ongoing throughout the lifespan of the business (as denoted by the feedback loop in Figure 1).

Prior research on the relationships between leadership and adaptability (Heifetz and Laurie, 1997); as well as organizational culture and adaptability (Denison et al., 1995; Schein, 2004) suggest that organizational adaptability is derived from aligning leadership with culture. Based on this cumulative body of knowledge, a process model depicting how leaders can facilitate organizational adaptability was inductively derived to address the research questions set forth at the beginning of the paper. This research also uses the co-evolutionary perspective to examine how this relationship between leader, organizational culture and adaptability evolves in response to the

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changes in the firm’s external (i.e. competition, customer demands) and internal environments.

3. Method Research design The case study methodology is particularly appropriate for this study because the leadership-organizational adaptability phenomena under investigation is both complex and context dependent (Glaser and Strauss, 1992; Yin, 2003). An in-depth case study approach also facilitates the development of new theory (Eisenhardt, 1989) to help make sense of the findings and observations of the phenomena.

Upon obtaining permission from Franz’s CEO and senior PR personnel, we began collecting various types of data to establish a rich and solid foundation for theory development and data triangulation (Eisenhardt, 1989; Yin, 2003). These include semi-structured in-depth interviews, field observations and archival material. Over 400 pages of transcribed notes and documents were collected in the process. Our data collection process lasted 11 months and involved several rounds of site visits.

Purposive sampling We conducted a total of 17 interviews with Franz’s CEO, senior managers and employees representing the firm’s design, research and development, marketing, planning and sales departments. (Please refer to Appendix 1 for a list of informants who participated in this study) Prior to conducting these interviews, we briefed our informants on the purpose and nature of our research. We also informed them about their rights to participate and to withdraw from the process at any time during our research. Further, to protect the confidentiality of these informants, we have replaced their actual names with code names.

Interviews were conducted using the mirroring technique advocated by Myers and Newman (2007) to encourage our informants to tell us their stories in their own language. Interviewees were asked to explain daily aspects of their work before they were asked to provide a retrospective account of the events that have unfolded. On average, each interview took about 90 to 150 mins. Preliminary analysis of the data collected in the first round data revealed that Franz’s founder-CEO played an instrumental role in facilitating the firm’s transformation from a low-end gifts manufacturer original equipment manufacturer (OEM), to an original design manufacturer (ODM) and to its present original brand manufacturer (OBM) business strategy. To validate this observation, we asked interviewees to answer more specific and focussed questions about their leader and his contributions in the second round of interviews. Based on these insights, we proceeded to organize relevant data to examine the impact of leadership on organizational adaptability.

Further, to clarify and verify information for completeness and accuracy, we interviewed three key participants (Franz’s founder-CEO, informants F&G) twice. Interview data were also supplemented by field observations and archival materials to provide a rich and solid foundation for theory development and data triangulation (Eisenhardt, 1989; Yin, 2003) (please refer to Table I for a brief description of our data collection methods).

Data analyses Case data were coded and analyzed in accordance with the grounded theory methodology advocated by Glaser (1992). This method entails iterating between

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empirical data and relevant literature. From the emergent data, researchers observed that Franz went through three distinct phases of leader-led organizational change, from an OEM to ODM/OBM. Based on these observations, researchers categorized the events, leadership actions and decisions that transpired at Franz into three phases to analyze how their leader helped to pave the way for organizational adaptability. This data were subsequently used to build a specific narrative to articulate the relationship between leadership and organizational adaptability.

4. Franz collection incorporated Taiwan-based Franz Collection Inc, started out as a manufacturer and exporter of home décor and figurines. The firm was formerly known as Seagull (1984-2002). Under the strategic leadership of the firm’s founder cum CEO Francis Chen, Seagull successfully scaled the value chain in 1995 to become an ODM manufacturer to global gift companies such as Enesco and Lenox of the USA, Goebel and Kiaser of Germany and Halycon Days of the United Kingdom. Seven years later, in June 2002, the firm launched their own brand of porcelain and fine china. Today, the firm sells and markets its products under the Franz Collection label in over 5,000 retail establishments worldwide, alongside the works of world renowned Meissen from Germany and Lladro from Spain.

This case study is arranged in a chronological order to clearly articulate the events leading up to each phase of Franz’s transformation from an OEM to an ODM, to an OBM, under the leadership of founder-CEO Francis Chen.

Phase I: laying the foundation for organizational growth and development (1984-1994) When Seagull entered the OEM industry in 1984, the still emerging industry was already highly competitive. Hence CEO Chen chose to differentiate his firm’s products by focusing on the delivery of product quality and value. To achieve this, Chen constantly sought outways to keep operating costs down while improving manufacturing quality.

Unfortunately, Chen’s attempts strategic ambitions were thwarted by the lack of skilled workers – most of Seagull’s employees were not only new to the firm and industry, but also lacked the necessary expertise. As a result, Seagull could not keep up with their clients’ demands and deadlines. Seagull also suffered from high rates of rework and rejection.

Data collection methods Detailed descriptions

Semi-structured interviews

Founder-cum-CEO of Franz Collection Inc (twice) Designers (seven interviews with seven representatives including the leader of Franz’s design team) Other senior members of staff (seven interviews with six individuals representing Franz’s R&D, projects, public relations and marketing departments)

Field observations New product design and cross-functional meetings Owner cum President’s public speeches on FRANZ’s global market strategy (twice at different occasions)

Field visits Factory visits, marketing events and promotions and new product press conferences

Archival data Feature articles in magazines, web articles, newspapers and internal documents

Table I. Data collection methods

and data description

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To salvage the situation, Chen promptly implemented a series of initiatives to improve quality and also closely supervised every aspect of Seagull’s operations to ensure that their products met with and surpassed customer expectations. Through these initiatives, Seagull’s employees were forced to become more operationally efficient.

In addition to focussing on quality, Chen also devoted a lot of time and energy to mentoring his employees. For example, he would not only hold employee meetings on a regular basis to give them ongoing feedback and guidance, but also gave them generous bonuses and incentives to gear their efforts toward the achievement of the firm’s quality and efficiency goals. These human resource strategies also helped to pave the way for Seagull’s employees to become more skillful and aligned with the firm’s customer driven strategy.

Therefore, by adapting his leadership style (i.e. Chen’s exemplary attitude, persistence, generosity and hands on approach to leadership) to support Seagull’s dominant logic of positioning strategy in phase I, Chen led Seagull to become one of the leading OEM suppliers to the giftware industry. In this study, a “positioning strategy” refers to the gaining or sustaining of competitive advantage through low cost and/or differentiation. Table II provides a summary of the events leading up to the achievement of Seagull’s OEM endeavor.

Seagull continued to thrive as an OEM until the mid 1990s and then things began to change. Increasing competition from manufacturers in China started to erode the firm’s

Triggers for adaptation Business environment Faced with tremendous competitive pressures as the barriers to

entry in the OEM subcontracting market are relatively low Firm’s internal conditions Product quality problems resulting from new and

inexperienced staff: A Japanese client angrily chastised me after receiving a late delivery on his order. He told me that he would have committed Hara Kiri (suicide) if he were in my position. I have never felt more embarrassed. (Respondent A)

Firm’s dominant logic evolved in relation to its strategic intent

Logic of positioning to obtain a competitive advantage by producing high quality products at a lower cost In line with this dominant logic, CEO Chen had to develop a customer driven and quality focused organizational culture to improve employee productivity and performance

Leader initiates adaptation process Leader actions and behaviors that promote employee accountability

Chen’s dedication to task helped him to assure the control and effectiveness of Seagull’s manufacturing process in this phase:

Strict attention to detail: Even if Chen had a million things to attend to he would

make sure that everything is done to perfection. CEO Chen is so meticulous that he would not let go of even the smallest of details. (Respondent A)

Developing a quality and customer focus: Our boss would issue orders and assign each of us with

specific tasks to complete. He’d also keep a close eye to make sure that each order is being processed according to customer requirements. (Respondent I)

(continued)

Table II. Phase I: adapting leadership style to initiate and build firm’s organizational resources (1984-1994)

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profit margins and Seagull’s customers also began to demand for greater product variety and customization. To cope with these changes, Chen decided to move Seagull up the skills ladder from an OEM to an ODM.

Phase II: paving the way for further organizational growth and development (1995-2001) To ensure the success of Seagull’s ODM initiative, Chen ploughed more resources into the training and education of his employees. For example, Chen not only sent his designers on all-expense paid trips to international trade shows on a regular basis, but also roped in Sun Chao – a highly revered master of ceramics to serve as Seagull’s chief consultant and mentor to the firm’s artisans. Aside from this, Chen also encouraged employee participation by initiating the use of cross functional work teams to facilitate the exchange of knowledge and information among his employees. He also gave every Seagull employee, regardless of their rank or seniority, to serve as a spokesperson for their respective departments. During this two month stint, these “spokespersons” not only get to represent their departments at firm meetings, but also have to report directly to Chen. Through these interactions, CEO Chen not only gained a firsthand understanding of his employees’ concerns and problems, but also won over the affective commitment of his employees.

Unlike in the OEM phase, Chen learned to be more tolerant and supportive of his employees’ mistakes. By humbly taking the back seat (i.e. allowing his employees more discretion and autonomy over how they perform their own tasks), Chen enabled his employees to grow and develop the skills necessary to ensure Seagull’s ODM success. As a result of Chen’s support and encouragement, Seagull’s artisans went on

Leader actions and behaviors that engender employee admiration and respect

Chen’s knowledge and expertise enabled him to engender the respect and admiration of his employees:

Shares knowledge and expertise with employees: CEO Chen has never failed to answer any of my work-

related questions. He is truly an expert in our field. Chen not only knows the best way to design products, but also keeps himself abreast of the latest developments in our field. He is like a walking encyclopedia. I take my hat off to him. (Respondent F)

Leader actions and behaviors that enhance employee motivation

Chen’s exemplary approach to leadership has in turn motivated his employees to go above and beyond their designated jobs.

Leads by example: CEO Chen will always go out of his way to see to our clients’

needs. For example he would work with us, even over weekends or holidays to accommodate rush orders. Although he can be demanding at times, but he has consistently led by example. I cannot help but feel guilty whenever I see how hard CEO Chen works. (Respondent I)

Adaptation outcomes Organizational efficiency In response to Chen’s leadership in phase 1, Seagull’s employees

became more flexible and efficient; thus leading to improved productivity and a lower incidence of manufacturing defects

CEO Chen responded by evolving his approach to leadership (i.e. from tight controls towards participative management) to elicit employee behaviors that would facilitate the firm’s move towards the next stage of organizational growth. Table II.

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to develop a series of complex and innovative glazing techniques that led Seagull to produce exquisitely crafted and extravagant porcelain pieces. Soon, Seagull-designed products began to outsell those of their ODM customers.

Despite these achievements, Seagull’s success as an ODM was short-lived due to intensifying competition from low cost manufacturing countries i.e. China. Aside from this, the retirement of Enesco’s CEO (Seagull’s largest and most loyal business customer) also caused a major upheaval within the firm. Unlike his predecessor, Enesco’s newly appointed CEO was more concerned with price than with maintaining a long-term business relationship with Seagull. However, Chen having painstakingly built Seagull’s reputation for quality design and service, was no longer willing to go back to competing on price. For all these reasons, Chen decided to push ahead with Seagull’s OBM strategy. In 2001, Seagull launched its own line of porcelain and fine china under its own Franz.

Chen ensured the success of Seagull’s ODM endeavor by adapting his leadership style (i.e. from micromanagement toward a participatory style) to facilitate the achievement of Seagull’s logic of leverage strategy (Bingham and Eisenhardt, 2008). Here, we refer to the “logic of leverage” as the attempts to strengthen a firm’s competitive advantage by developing, leveraging and enhancing its existing capabilities (i.e. infrastructure investments and employees’ skills, expertise and talents) (Esienhardht and Martin, 2000). Table III provides a summary of the events leading up to Seagull’s transformation from an OEM into an ODM.

Phase III: leading the innovation and institutionalization of organizational resources (2001-present) To ensure the success of Franz’s OBM endeavor, Chen knew that he would have do more to create an organizational environment that would motivate his employees to excel. Therefore, Chenpoured more money into research and development (so as to further develop manufacturing technologies and techniques for crafting porcelain) and also gave complete autonomy to his artisans to explore and develop new product possibilities. A “co-branding” strategy (whereby the artisan’s names and signatures are embossed on their creations) was also introduced to recognize Franz’s artisans for their contributions and perhaps more importantly, to give them ownership of their work.

As a result of Chen’s efforts, Franz’s R&D team went on to develop a series of manufacturing techniques that allowed them to integrate porcelain with metal, glass and other types of materials. These manufacturing breakthroughs not only led to the creation of a new range of leading edge products, but also enabled Franz to win the highly coveted United Kingdom’s “Best Ceramic Gift” award in 2004.

Today, Chen remains very much involved in the firm’s day to day operations and continues to work alongside his employees at the firm’s design studio and operational headquarters in Taipei, Taiwan. Chen is also actively learning how to broaden his reach to build a strong rapport with his increasingly diverse and multicultural workforce. For example, Chen would regularly run seminars and workshops for his employees. Under Chen’s dynamic approach to leadership, Franz successfully established a strong foothold position as a purveyor of fine china and porcelain in both local and overseas markets.

By adapting his approach to leadership (i.e. from participative towards an empowering approach) to support the firm’s logic of leverage strategy (Bingham and Eisenhardt, 2008), Chen effectively motivated his employees to develop their talents and creativity. These achievements efforts eventually in turn led to the

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achievement of Franz’s OBM endeavor. Table IV provides a summary of the events leading up to Seagull’s transformation from an ODM into an OBM.

5. Discussion Based on case study findings of how Franz’s founder-CEO facilitated his firm’s advancement across the three distinct phases (from OEM to ODM to OBM), a process model of a leader-driven organizational adaptation (refer to Figure 2) was inductively derived. As our model suggests, this leader-driven process of organizational adaptation can be decomposed into three cyclical steps. The following sections explain how existing literature corroborates with our proposed model, as well as how

Triggers for adaptation Business environment Trend towards increasing specialization in value chain activities,

i.e. design and research capabilities Faced with low cost competition from emerging economies

Firm’s internal conditions

High sunk costs due to the nature of the investments made in factories and machinery make firm’s investments irreversible Firm is well established and enjoys a reputation as being one of the largest and finest manufacturers for the gift industry

Firm’s dominant logic evolved in relation to its strategic intent

Logic of leverage to achieve organic growth by catering to evolving needs of both existing and new customers (i.e. design and marketing services) In line with this dominant logic, CEO Chen had to create a culture of learning to help his employees develop capabilities that will enable them to meet evolving customer needs (i.e. customized services ranging from product design, development and marketing)

Leader initiates adaptation process Leader actions and behaviors that support and encourage employee learning

Chen’s patience and dedication (i.e. devoting his time, energy and money to groom his employees) led to employee learning and experimentation:

Show tolerance for mistakes: CEO Chen became more failure-tolerant and gave us more of

room to grow and learn from our mistakes. So it became part of our organizational culture to recognize that mistakes are inevitable and to treat them as opportunities to learn. (Respondent F)

Personal investment of time, energy, dedication and resources: CEO Chen would routinely take time out from his busy schedule

to discuss and share his forecasts and outlook on the industry with us. (Respondent K) When we first started experimenting with porcelain, we didn’t know what to expect nor did we know what the limitations were. CEO Chen was very supportive and encouraged us to keep trying and so we did. Little by little, we continued to build our knowledge and skills. Soon we were able to use porcelain in ways that were never before pursued. (Respondent F)

Adaptation Outcomes Organizational Learning Under Chen’s leadership in this phase, Seagull’s employees not only

became more creative, autonomous and knowledgeable, they also excelled in their responsibilities. Thus enabling Seagull to adapt fast enough to survive and thrive in the ODM industry

CEO Chen responded by evolving his approach to leadership (i.e. from participative management towards empowerment) to elicit employee behaviors that would facilitate the firm’s move towards the next stage of organizational growth

Table III. Phase II: adapting leadership style to

facilitate the upgrading of organizational resources

(1995-2001)

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this model enriches our existing perspectives on the relationship between leadership, organizational culture and adaptability.

Step 1: detecting and responding to adaptation triggers Based on the empirical evidence across the three phases of organizational adaptation at Seagull/Franz, our model suggests that while a trigger is necessary for the initiation of the leader-driven adaptation process, leaders also need to be able to sense, detect and interpret triggers (internal or external) to initiate their firm’s adaptation process. To do this, study findings indicate that these leaders must first have a good understanding of

Triggers for adaptation Business environment Decreasing returns in terms of profit margin as competition in

the ODM segment intensifies. Firm’s internal Conditions Conflict with biggest customer due to goal incompatibility

Firm has accumulated substantial knowledge and experience at both the individual and organizational level (i.e. superior design and manufacturing capabilities).

Firm’s dominant logic evolved in relation to its strategic intent

Logic of leverage – created a brand to further capitalize on the firm’s manufacturing and design capabilities Logic of opportunity – enhance the firm’s ability to recognize and exploit new opportunities faster than its competitors In line with this dominant logic, CEO Chen had to pave the way for an organizational culture that promotes innovation and creativity to enhance the value-creating potential of his employees.

Leader initiates adaptation process Leader actions and behaviors that encourage and support employee innovation and autonomy

Chen facilitated organizational innovation and learning by clearly communicating his expectations and priorities to his employees (i.e. via the firm’s mission statement and his teachings), as well as by engendering their trust and respect in his leadership Give employees freedom to act within a clear set of organizational boundaries and priorities:

We are given a high degree of freedom to create and innovate. Chen’s only request is that we keep our designs consistent with the firm’s core values – unique, intimate, trendy, artistic and humanistic.” (Respondents C, D and E)

Although CEO Chen gives us a lot of autonomy in our jobs, he has incredibly high expectations that we have to live up to – that is, the need for speed, quality and to uphold our firm’s values. CEO Chen has always made his expectations very clear.” (Respondent L)

Leader actions and behaviors that support organizational learning

Disseminate insights and knowledge across the firm: This week, our boss will be giving us a talk on marketing. Each

time, he’d prepare a new topic to share with us. Although attendance is strictly voluntary, I’d always find time to go because his lectures are usually interesting and very insightful. (Respondent I)

Adaptation outcomes Organizational Effectiveness

Under Chen’s leadership in this phase, Franz’s employees became more proactive and capable of contributing to the growth and success of the business, thus enabling Franz to grow and flourish as an OBM

Table IV. Phase III: adapting leadership style to facilitate reorientation and transformation of organizational resources

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their business context to be able to diagnose and interpret the meaning of these changes for themselves and their firms.

Case findings also reveal that leaders can enhance their abilities to detect and respond appropriately to adaptation triggers by: first, staying abreast of the latest industry trends, second, updating their skills regularly and third, listening and learning from their employees (Beer and Eisenstat, 2000). For example, CEO Chen’s responsiveness to his firm’s needs stems from his hands-on approach to leadership as well as his efforts to keep himself up to date with industry trends and current events. This observation concurs with earlier findings by Schein (1993) who assert that leaders who have a good insight into their business tend to be able to manage the process of organizational change more effectively (Table V).

Step 2: iterative cycles of developing and shaping organizational culture Consistent with the predictions of our process model, case findings show that when firm leaders adapt their leadership styles, behaviors and strategies in their attempts to bring about the organizational changes necessary; the change in their behaviors will inadvertently cause a shift in their firms’ organizational culture.

These changes to the organizational environment will in turn, oblige employees to realign their behaviors with the new demands and expectations of their leader. For instance, Seagull’s value driven culture during the firm’s startup phase evolved as a

Step 1:

Leader detects and responds to adaptational triggers

Step 2:

Leader, employees and organizational culture co- evolve in support of adaptation process.

Step 3:

Firm achieves a new level of organizational capability

External Adaptation Triggers: -Increased competition

-Suppliers

Adaptation Outcomes - Organizational Productivity

- Organizational Learning (at both an individual and organizational level)

- Organizational Effectiveness

Firm’s Dominant Logic

Internal Adaptation Triggers:

- Continuous quality improvement

- Contain operational costs

- Enhanced employee firm capabilities

- Leader's personal motivations

- Improve profit

Corresponding changes in Employees

-Flexible and efficient -Creative, autonomous and knowledgeable

- Proactive and more capable of taking independent action

Leader’s Adaptive Response Behaviors

Micromanaging to Participative to Empowering

Organizational Culture -Customer driven and quality focused.

-Organizational Learning and Participation

-Organizational Proactiveness

Changing customer demands

Technological improvements

Figure 2. Process model of

leader-driven organizational adaptation

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result of their leader’s insistence on quality enhancement and tight cost controls. By personally modeling behaviors that promote employee accountability (i.e. strict attention to detail and quality and customer focus), Chen was able to forge an organizational culture that obligated his employees to become more vigilant, careful and responsible. This observation also concurs with earlier findings by Schein’s (1993) who argued that organizational culture can be used as a lever to affect employee behaviors and outcomes, and those of Ribiere and Sitar (2003) who highlighted the importance of leaders in bringing about a required change in organizational culture.

Moreover, our study corroborates with previous research showing that the leadership-organizational culture-employees influence process is dynamic and bi-directional. For example, study findings indicate that Franz’s founder-CEO adapted his approach to leadership (from a micro-managing leadership style towards a more egalitarian approach to leadership in Phase II) in response to the growth and development of his employees. These findings corroborate the ideas of Yukl and Lepsinger (2004), who suggest that leaders can enhance the adaptive capabilities of their firms by strategically adjusting their styles to match evolving firm needs; as well as those of Hersey and Blanchard (1988) who emphasized the need for leaders to correspond their styles to the employees’ evolving needs. Study findings also indicate that aside from employee readiness, a firm’s external environments and goals also influence the style a leader uses (Table VI).

Step 3: firm achieves a new level of organizational capability The final step of the leadership-driven adaptation process involves the derivation of adaptational outcomes. Consistent with our process model, case findings show that

Elements Illustrative examples from case data Corroborating arguments

Adaptation triggers Competition Faced with increasing competition

from emerging economies Firms need to adapt to changing circumstances to stay successful (Porter, 1979)

Customer demands Growing demand for more customization and value

Strategies that enhance leader’s detection and response capabilities Continuous Learning CEO Chen sought every

opportunity available to learn from his customers, industry experts and his employees

Leaders can in turn heighten their sensitivity to business environment changes and challenges by learning on an ongoing basis (Kouzes and Posner, 2007)

Keep up to date with development and trends in the industry

CEO Chen attended many relevant industry events, exhibitions and competitions. Chen would also shop at his competitor’s stores on a regular basis to check out their new product offerings

Leaders must have a good understanding of their business context to be able to diagnose and interpret the meaning of changes for themselves and their firms (Schein, 1993)

Notes: A brief overview of adaptation triggers and the leadership response to these triggers, along with the illustrative examples of each element from our case study and propositions from prior research that corroborate our arguments

Table V. Detecting triggers for adaptation

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Elements Illustrative examples from case data Corroborating arguments

Leader’s actions and decisions that shaped the firm’s culture Exemplary leadership Chen consistently modeled

behaviors he wanted his employees to emulate, i.e. attention to detail and a hands-on approach to leadership

Leaders can enhance employee satisfaction, commitment and performance through hands-on coaching. (Wageman, 2001)

Matching leadership style with firm requirements

Chen evolved his approach to leadership, through learning and experimentation, to match changing business needs

Leaders need to learn and develop skills that would enable them to alter aspects of their firm’s organizational culture to improve performance (Brown, 1993)

Leader’s commitment to continuous improvement and learning

CEO Chen invested heavily in new equipment and technology to enable his employees to better meet customer requirements. Chen also invested in the education, training and development of his employees to upgrade and improve their capabilities

Leaders can also enhance employee commitment and self management by establishing a supportive organizational context that not only rewards, but also enable them to work competently (Wageman, 2001)

Effective and consistent communication of leader’s expectations

Chen effectively channeled his employees’ efforts towards the achievement of firm goals by giving them clear guidelines of his expectations

Clearly stated organizational goals can help foster employee self management and performance effectiveness (Locke et al., 1981)

An enabling team structure

CEO Chen initiated the use of cross functional work teams to facilitate the exchange of knowledge and information amongst his employees

Team members have diverse, yet task relevant skills (Ancona and Caldwell, 1992; Hackman and Oldham, 1976; Jackson, 1992); and members are dependent upon each other to accomplish the collective work of the team (Campion et al., 1993)

Rewards, promotion and recognition

Chen introduced the use of a co-branding strategy to recognize the firm’s designers for their contributions

Leaders shape and reinforce their firm’s climate by what they pay attention to, how they react to crises, how they behave, allocate rewards and how they hire and fire individuals (Sims and Brinkman, 2002) Leaders can transmit and embed organizational culture through the use of rewards, selection and promotion (Schein, 1969)

Influence of employee’s behavior and firm’s culture on leader’s behaviors Employees’ behavior, i.e. employee maturity and development

When Franz’s employees more capable and independent, Chen responded by adopting a more flexible and engaging approach to leadership

Solutions to adaptive challenges reside in the collective intelligence of employees at all levels Therefore, leader should encourage employees to use one another as resources and learn their way to those solutions (Heifetz and Laurie, 1997)

(continued)

Table VI. Iterative development of

organizational culture

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a well orchestrated leader-driven adaptation process facilitates the development of organizational capabilities that can lead to the achievement of firm goals. For example, by varying his strategy and approach to leadership with each phase of the adaptation process, Franz’s leaderpaved the way for the development of organizational capabilities that subsequently led to the achievement of firm goals. The Franz case study also corroborates the explanatory potential of the co-evolutionary model, which allowed us to integrate and account for the internal, contextual and processual aspects of the leader driven adaptation process. Specially, the co-evolutionary perspective helps us to explain how Franz’s culture and organizational capabilities evolved from the macro and micro-organizational changes that took place during each phase of the leader-driven adaptation process. Through the co-evolutionary lens, this study sheds new light on how the relationship between the firm leader, organizational culture and employees co-evolves with changing business requirements to facilitate organizational adaptability (Table VII).

6. Research limitations and directions for future research Finally, a number of important limitations need to be considered. First, study findings demonstrate how the co-evolutionary perspective can be used to trace how leaders orchestrate the ongoing development and changes in their organizations. However, because firms differ on various dimensions that influence their co-evolutionary processes and capabilities, future research should verify the empirical observations in firms from other industries and/or from different national and cultural backgrounds.

Second, this research focussed on the leadership of a founding CEO, who has a long- term and continuing interest in the well-being of the firm, thus the generalizability of this paper’s findings may be limited. Future research should examine how professional CEOs influence organizational adaptability. Finally, because this study is based on a single case, its findings may not serve as an adequate basis for generalization. Future studies may attempt to replicate these findings on a larger scale.

7. Concluding remarks This study contributes to existing literature by answering the research questions set forth at the beginning of this paper. First, this study has provided an empirically grounded framework that uncovers that process of how leaders facilitate their firm’s ongoing adaptation to changing business requirements. We found that leaders can enhance organizational adaptability by creating an appropriate context to guide the

Elements Illustrative examples from case data Corroborating arguments

Firm’s culture In line with the Seagull’s/Franz’s quality culture (i.e. relentless focus on delivering premium quality products and best in class customer service), Chen turned down a key customer’s request to compromise quality for lower prices

A leader’s thoughts, actions and behaviors are influenced by their firm’s organizational culture (Bass and Avolio, 1994; Schein, 1993)

Notes: A brief overview of the process of adaptation, along with the illustrative examples of each element from our case study and propositions from prior research that corroborate our argumentsTable VI.

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co-evolutionary interactions between their leadership strategies, organizational culture and employees towards the ongoing achievement of firm goals. For example, firm leaders can enhance employee buy in and commitment to change by exemplifying the behaviors that they want for their employees to emulate. Leaders can also use human resource systems such as reward, training and employee appraisals to align their employees’ efforts with evolving firm goals (please refer to Table VIII for six specific adaptive leadership strategies that have a positive impact on employee productivity, satisfaction and commitment).

Second, through the co-evolutionary perspective, this paper has provided an insight into the factors that drive a firm’s adaptation process (i.e. intentional adaptation, competitive pressures and changing business needs) and demonstrated how this process can be captured and described. In doing so, this study contributes to existing literature by developing a process model that not only describes the necessary conditions for enhancing organizational adaptability, but also structures these findings in a step-by-step fashion to help firm leaders understand the impact of their behaviors on employee engagement. By opening up the “black box” of the relationship between

Characteristics Illustrative examples from case data Corroborating arguments

Multilevel effects Case findings showed that the firm’s adaptation process was triggered in response to changing business environment demands (i.e. macro-level changes such as customer demands, competition) as well as the changes within the firm (i.e. micro-level changes such as employee maturity, leader’s goals)

Co-evolutionary effects take place at multiple levels within firms (micro-co- evolution) and between firms and their niche (macro-co-evolution) (McKelvey, 1997, p. 360)

Multidirectional causalities

Case findings demonstrated Franz’s adaptation process was achieved as the result of the causes and consequences of change that took place between the leader, organizational culture, employees and its business environment

Co-evolutionary changes take place in all interacting populations of organizations (i.e. between changing organizational environment as well as parts within the organization) (Baum and McKelvey, 1999; Kauffman, 1993; McKelvey, 1997)

Non linearity Case findings showed that organizational adaptation is an ongoing and iterative process that occurs between micro and macro level organizational forces

Co-evolutionary approach accounts for all of the direct and indirect feedback that occurs in all interacting populations within and outside the organization (Lewin and Volberda, 1999)

Positive feedback Case findings highlight the importance of aligning business needs with the firm’s goals and capabilities, thus highlighting the recursive and interdependent relationship between the firm and its environment

Actions and interactions between firms and their environments are recursive and result in interdependencies and circular causality (Lewin and Volberda, 1999)

Path and history dependent

Case findings show that Franz’s evolution from OEM to ODM to OBM was path dependent

Adaptation is path and history dependent (McKelvey, 1997)

Note: A brief overview of how case findings corroborate with the properties of co-evolution

Table VII. Manage, improve and

sustain dynamic balance

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adaptive leadership strategies and organizational adaptability, this study has provided a foundation for more future research in this area.

8. Implications Theoretical implications In sum, this research has yielded new insights into the how leaders can enhance their firm’s adaptive capabilities. First, this study not only presents firm leaders with an opportunity to understand the potential impact of their actions (leadership style, actions and decisions) on employee morale and performance, but also provides them with ideas and strategies that they can draw upon to enhance the effectiveness of their leadership.

Next, this study also brings a multilevel and dynamic insight into the study of leadership by examining how a long-tenured leader mediated between the co- evolutionary changes that took place on both levels: macro and micro to facilitate the ongoing achievement of firm goals. Based on these findings, authors developed framework that not only linked leadership with organizational adaptation, but also identified their joint role for outcomes at two levels: individual (i.e. employee capabilities) and organizational (i.e. firm capabilities and the achievement of firm goals) outcomes (please refer to Figure 3). Aside from this, the framework also describes how firm leaders can facilitate the conditions necessary for organizational adaptation in a step-by-step fashion to provide an in-depth understanding of the process.

Managerial implications In addition to the theoretical contributions described, this research also provides new insights for the practical business management of family firms. For example, this research illustrates the importance for long-tenured leaders to continue learn and adapt their capabilities. Findings of this study found that employees are likely to respect and respond in kind to these types of leaders.

Second, this study identified six specific adaptive leadership behaviors that have a positive impact on employee productivity, satisfaction and commitment.

Leadership Adaptive Behaviors

2 Derived Organizational Outcomes/Capabilities

2 Employee response based on the findings of this dissertation

Appropriate matching of style with firm needs

2 Enhances organizational flexibility (Yukl and Lepsinger, 2004)

2 Resulting from improvements in employee efficiency, innovation and adaptation.

Flexibility in their leadership approaches

2 Positive impact on organizational climate and performance (Goleman, 2000)

2 Resulting from employees’ perceptions of leader effectiveness.

Exemplary leadership 2 Organizational responsiveness and adaptability (Kouzes and Posner, 2003; Kouzes and Posner, 2007)

2 Resulting from employee motivation, learning and participation

Use culturally congruent leadership strategies

2 Organizational effectiveness (Adler and Gundersen, 2008; House et al., 1999)

2 Resulting from employee receptivity and motivation

Engage and empower employees

2 Organizational responsiveness and adaptability (Heifetz and Laurie, 1997)

2 Resulting from employee trust, commitment and organizational citizenship behaviors

Table VIII. An overview of the relationship between leaders’ adaptive behaviors, employee and organizational outcomes

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By substantiating a link between these leadership behaviors with employee and subsequent organizational outcomes, this paper has provided clear strategies that firm leaders can use to enhance their firms’ adaptive capabilities (please refer to Table VIII for these managerial implications).

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External Triggers (from case studies): - Technology - Competition - Supplies - Consumer Demand

Internal Triggers (from case studies):

- Minimize Operational Cost

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