LITERATURE REVIEW

Enhancing performance in small professional firms through vision communication and sharing

Fenwick Feng Jing & Gayle C. Avery & Harald Bergsteiner

Published online: 21 March 2013 # Springer Science+Business Media New York 2013

Abstract Despite evidence of a positive relationship, vision’s effects on performance are not fully understood, particularly in small professional service settings. This study advances prior research using a multi-stakeholder, multi-measure approach. It reports a positive relationship between vision-communication and -sharing on performance in Australian retail pharmacies using five measures—financial assessments, employ- ee and customer satisfaction, productivity, and staff retention. Organizations whose managers communicate the vision to staff and whose employees share this vision outperform their peers across all business indicators and retain their employees longer. Financial performance and productivity were higher with long-term staff and managers.

Keywords Vision . Performance . Small business . Pharmacies . Professional service .

Staff tenure . Manager tenure

It is becoming increasingly clear that leadership involving employee commitment to a shared vision—often termed transformational, charismatic, or visionary leadership— is associated with enhanced organizational performance (e.g., meta-analyses by Judge & Piccolo, 2004; Lowe, Kroeck, & Sivasubramaniam, 1996; Wang, Oh, Courtright,

Asia Pac J Manag (2014) 31:599–620 DOI 10.1007/s10490-013-9345-9

F. F. Jing School of Public Administration, East China Normal University, No. 3663, North Zhongshan Road, Shanghai 200062, China e-mail: [email protected]

G. C. Avery (*) Macquarie Graduate School of Management, Macquarie University & Institute for Sustainable Leadership, Sydney, NSW 2109, Australia e-mail: [email protected]

H. Bergsteiner Faculty of Business, Australian Catholic University & Institute for Sustainable Leadership, 40 Edward Street, North Sydney, NSW 2060, Australia e-mail: [email protected]

& Colbert, 2011). The literature suggests that when leaders work with a vision, a variety of important outcomes at the individual, group, and organizational levels are achieved. These outcomes include lower staff turnover intentions, enhanced employee and customer satisfaction, and better financial performance (Bass, 1985; Baum, Locke, & Kirkpatrick, 1998; Cole, Harris, & Bernerth, 2006; House & Aditya, 1997; Howell & Shamir, 2005; Kantabutra & Avery, 2002, 2004). However, much of the existing research into the effects of a leader’s vision on performance has been conducted in large organizations, which are typically led by professional managers with more human and other resources at their disposal than smaller businesses. For example, Purcell, Kinnie, Swart, Rayton, and Hutchinson (2009) found that large high-performance corporations in the UK have a clear vision based on what the authors refer to as a “big idea”—a clear direction and purpose embedded in the organizational systems— that engages, energizes, and unites employees. Similarly, Kohles, Bligh, and Carsten (2012) concluded that vision-sharing was positively associated with organizational commitment, job satisfaction, and follower performance in a large multi-state grocery store. But little is known about vision in small professional service firms.

Although small business forms the backbone of many economies, comparatively little research has explored the nature of leadership and management in this sector and its link to business performance (Cope, Kempster, & Parry, 2011). This matters because small businesses are a key source of innovation, growth, and employment. In Australia, for example, small businesses account for around 30 % of economic production, cover every industry, and generate over 50 % of private sector job growth (Australian Bureau of Statistics, 2007).

While some small business operators have been found to work with a vision (e.g., Baum et al., 1998; Kantabutra & Avery, 2010), other researchers suggest that leadership styles among small business operators, whether owner or manager, are inconsistent, including with regard to using a vision. Wang and Poutziouris (2010) postulated that the leadership culture in owner-run businesses simply reflects the owner’s ethos, acting as a defensive strategy to maintain the owner’s independence and protecting the business from interference by outsiders. Accordingly, these small business operators often adopt a directive, classical leadership style, which does not require a communicated and shared vision (Avery, 2004). Wang and Poutziouris’ (2010) investigation into managerial patterns among over 5,000 British SME owner- managers confirmed that a hands-on directive approach was common among small service firms, although the study was silent on the role of vision. About 40 % of small operators in the Australian wine industry do not have a clear business vision and many lack a vision completely (Alonso & Northcote, 2010).

In other words, the adoption and application of a vision appears variable in small firms. One reason for this may be that small business owners and managers execute a multiplicity of roles, forced upon them by their small size and limited time and staff. Lack of a vision is of concern given findings that poor management strategy and inadequate use of vision play an important role in the underperformance and failure of small businesses in particular (Franco & Haase, 2010). Even where a vision exists, small business operators tend not apply the vision or mission optimally in implementing their strategies (e.g., van der Walt, Kroon, & Fourie, 2004).

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Visions may influence small firms differently from larger enterprises for several reasons. In their pioneering study of start-up firms, Baum et al. (1998) pointed out that the smaller firm represents a simpler and more integrated social system, with fewer people, fewer hierarchical levels and less subdivision of work. Physical distance between managers and staff, if not psychological distance, is less in small enterprises, which as Antonakis and Atwater (2002) noted appears to be a defining element of the leadership influencing process. Leaders in small organizations should therefore be better able to influence employees more directly, monitor performance efficiently, as well as hold employees accountable. Given the potentially close working relationships between employees and their managers in small businesses, the effects of vision may be magnified there compared with larger firms, which are characterized by complex systems, more hierarchical levels, more employees, and hence potentially lower levels of direct contact between the purveyor of the vision and employee. In small businesses with few hierarchical levels, the interaction between employees and managers is likely to be relatively frequent and direct, which means that a manager’s vision can have powerful effects on employee behavior in this sector—positively or negatively: negatively for example, when an employee does not share the manager’s vision, or worse still, disagrees with it. Furthermore, Bernhard and O’Driscoll (2011) found that leadership styles that rely on the use of vision lead to higher levels of psychological ownership and involvement than other lead- ership styles. This effect is expected to be particularly marked in small busi- nesses where the vision is espoused by leaders with whom the employee has close daily contact as opposed to the more removed relationships likely to be found in larger businesses.

In particular, the literature reveals a lack of understanding of how professional service firms are managed, many of which are small businesses (Australian Small Business Summit, 2007). This paper focuses on one category of professional service firm that is expected to make significant contributions to many economies, namely the retail pharmacy, by investigating pharmacies in Sydney, Australia. Retail phar- macies in many countries face numerous business challenges, including increasing government regulation as well as an impending shortage of available workers until 2030 (Ivey, 2009; Australian Government Productivity Commission, 2005). Furthermore, pharmacies appear to be underperforming as a sector. Although IBISWorld (2007) predicted that the retail pharmacy industry would achieve over 6.7 % average compound annual growth rates (CAGR) between 2007 and 2012, nearly twice the projected average CAGR for Australia as a whole over this period, this appears utopic. Between 2006 and 2011, average annual growth was reported at only 1.8 %, and 2011 pharmacy profits at 2.5 % were well below the Australian industry average of 4.5 % (Kordamentha, 2011). Kordamentha (2011) predicts average annual pharmacy growth between 2012 and 2017 of only 2.4 %. Taken together, these data suggest that retail pharmacies are not capitalizing on the potential promised by increasing health needs for Australia’s aging population. In short, it appears that pharmacies already have performance problems, and like many other businesses, will become increasingly dependent on maximizing productiv- ity and performance in order to grow, particularly in the context of a labor shortage. One way to enhance performance is through a leadership style that is associated with a vision, as discussed above.

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Given that adopting a vision is a relatively straightforward task and has been found to benefit performance and lessen the likelihood of firm failure, this paper reports on an investigation into whether small firm performance is enhanced when operators articulate a vision, and communicate that vision to employees. This study focuses on the professional services sector and links the extent of vision-communication and vision-sharing to multiple stakeholders and multiple measures of performance, there- by extending previous research in various respects.

Vision-performance link

Scholars are yet to agree on a widely accepted definition of vision, which is frequently used synonymously with mission, goals, strategy, values, and organizational philosophy (e.g., Baetz & Bart, 1996). Following Baum et al. (1998) and Kantabutra and Avery (2005, 2006a, b, 2010), we accepted vision as whatever each respondent defined it as, given that it is the leader’s actual vision that guides his or her choices and actions.

From a theory development point of view, lack of a standard definition is prob- lematic since it allows the possibility of comparisons being made between vastly different conceptions of a construct. Therefore, consistent with the researchers men- tioned above, we focused our concept of vision on a mental image or idea of what a manager or employee imagines the business will be like in the medium to long term. To make the concept less abstract for respondents, interviewees were advised that “a vision is a future envisioned for your particular store. It is how you want it see it develop in the future, rather like an overall goal that one sets for the store… Any mission, goal or dream that you have for your store will be regarded as a vision.”

The conceptual framework of this paper is shown in Fig. 1. Existing research suggests that not only having a vision but also communicating and sharing that vision are positively associated with a variety of important performance measures at the individual, group, and organizational levels. Measures include staff turnover inten- tions (Cole et al., 2006; Collins & Porras, 1996; Oswald, Mossholder, & Harris, 1994); employee satisfaction (Jing & Avery, 2008; Kantabutra & Avery, 2004, 2005, 2010; Kantabutra & Vimolratana, 2010); customer satisfaction (Jing & Avery, 2008;

Financial Performance

Performance

Staff Satisfaction

Customer Satisfaction

Productivity Staff/Manager Tenure

Vision Communication

Vision Sharing

Fig. 1 Conceptual framework

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Kantabutra & Avery, 2004, 2005; Kantabutra & Vimolratana, 2010); individual job performance (Bass, 1985; House & Aditya, 1997; Nanus, 1992); productivity (Purcell et al., 2009); and financial performance of various kinds (Howell & Shamir, 2005; Kantabutra & Avery, 2006a, b; Reardon, 1991; Sashkin, 1985; Senge, 1990).

Although a manager’s vision can positively affect performance in organizations such as manufacturing plants, banks, startups, and retail stores, it may not be a discriminating factor in professional service organizations. One reason for this is that professional employees often adhere to their own strong personal visions of helping others or excelling in their profession (Hassali, Khan, & Shafie, 2009), which can enhance performance irrespective of whether their particular manager creates, es- pouses, and shares a vision. For example, some health care workers have been found to provide high quality care even where the environment they work in does not reward their efforts (Leonard & Masatu, 2010; Purcell, 2012). In other words, a personal vision may attract people to a profession and enable them to work towards their personal vision, thereby benefiting performance. One characteristic of profes- sional service firms is that employees tend to be well trained, which enables them to make more independent decisions that are guided by a shared vision rather than relying on the managerial directives that would be required in a low-training context.

The rationale for the hypotheses tested in this study follows.

Hypotheses

Building on the above, the following hypotheses were developed linking vision- communication, vision-sharing, productivity, and employee retention; and organiza- tional performance as assessed by a range of measures.

Vision communication

Communicating a vision has direct effects on organizational performance, according to previous research in start-up businesses (e.g., Baum et al., 1998) and retail stores (Kantabutra & Avery, 2005, 2010). Overall, Kantabutra’s empirical findings (e.g., Kantabutra & Avery, 2004, 2005; Kantabutra & Vimolratana, 2010) indicate that a positive relationship exists between the extent to which a leader communicates the vision and levels of customer and follower satisfaction in the retail apparel industry. Thus, communicating a vision would be expected to have positive effects on pharmacy performance, other things being equal, because they are small businesses in a retail context, albeit in professional services, and because many staff members are not only close to the manager but also to the customer—such as when pharmacy assistants screen customers’ concerns to determine whether the pharmacist should intervene (e.g., Roberts, Benrimoj, Chen, Williams, & Aslani, 2008). Therefore the following hypoth- eses incorporate a number of key measures suggested by the above literature in relation to the effects of vision communication on organizational performance:

Hypothesis 1 Organizations in which managers communicate the vision to their staff, compared with organizations in which such managers do not communicate the vision to their staff, exhibit enhanced financial performance.

Enhancing performance in small professional firms through vision… 603

Hypothesis 2 Organizations in which managers communicate the vision to their staff, compared with organizations in which such managers do not communicate the vision to their staff, exhibit enhanced staff satisfaction.

Hypothesis 3 Organizations in which managers communicate the vision to their staff, compared with organizations in which such managers do not communicate the vision to their staff, exhibit enhanced customer satisfaction.

Vision sharing

In order for a vision to have maximum effect on performance it needs to be both communicated and shared (Bass, 1985; House & Aditya, 1997; Howell & Shamir, 2005; Kantabutra & Avery, 2006a, b, 2010; Reardon, 1991; Sashkin, 1985; Senge, 1990). Sashkin (1985) and Sims and Lorenzi (1992) emphasized that for broad visions to be effective they need to be integrated into the visions of others in an organization. Drath (2001) expressed this as an alignment between leader and follower visions. Daft (2005) has argued that an organization becomes self-adapting when each staff member understands, shares, and embraces a common vision. Followers make decisions, take initiatives and otherwise act in the same direction. Others term the process of sharing a vision as assimilating or institutionalizing it (e.g., Dvir, Kass, & Shamir, 2004) or integrating it (e.g., Kohles et al., 2012) into the organization. Followers’ behavioral responses to hearing about the vision are impor- tant because a vision reflects the organization’s central purpose and objectives, and can help followers determine which behavior is important, appropriate or trivial (Kantabutra & Avery, 2004, 2010). In addition, when followers are emotionally committed, they are willing, even eager, to commit voluntarily and completely to something that enables their organization to grow and progress (Nanus, 1992). Thus, followers who are emotionally committed to their leader’s vision can affect individual performance and through that, organizational performance. This effect is expected to be particularly marked in small businesses where the vision emanates from leaders with whom the employee has close daily contact as opposed to the more removed relationship likely to be found in larger businesses. It should also be marked in professional service firms where employees’ own and their manager’s visions align. Furthermore, Bernhard and O’Driscoll (2011) concluded that leadership styles that rely on the use of vision lead to higher levels of psychological ownership and involvement—particularly in small businesses—than other leadership styles. Therefore the following hypotheses were developed to relate vision-sharing to performance:

Hypothesis 4 Organizations in which the manager’s vision is shared by the staff, compared with organizations exhibiting little or no shared vision, exhibit enhanced financial performance.

Hypothesis 5 Organizations in which the manager’s vision is shared by the staff, compared with organizations exhibiting little or no shared vision, enjoy enhanced staff satisfaction.

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Hypothesis 6 Organizations in which the manager’s vision is shared by the staff, compared with organizations exhibiting little or no shared vision, engender more customer satisfaction.

Productivity

Given the positive effects of vision-communication and vision-sharing on business performance suggested in the literature (e.g., Bass, 1985; Lowe et al., 1996; Purcell et al., 2009; Wang et al., 2011), the following research hypotheses were formulated in relation to productivity:

Hypothesis 7 Organizations whose managers communicate the vision to their staff display greater productivity compared with low or no vision-communication organizations.

Hypothesis 8 Organizations where the manager’s vision is shared by staff achieve greater productivity compared with organizations not sharing a vision.

Retention

Overall, high staff turnover is associated with poor organizational performance and production (Argote, Insko, Yovetich, & Romero, 1995). Given that employee turn- over intentions are partially mediated by psychological ownership of the organization and the job (Bernhard & O’Driscoll, 2011), psychological ownership created through a shared vision may be a significant mechanism for influencing employee attitudes, including intentions to remain with the firm. Both vision-communication and vision- sharing have been reported to reduce staff turnover intentions (Cole et al., 2006; Collins & Porras, 1996; Oswald et al., 1994). This would be strengthened in the case of professionals whose personal visions align with those of their employer. Furthermore, turnover negatively affects staff morale, short and long-term productiv- ity, and organizational effectiveness (Gray, Phillips, & Normand, 1996). Finally, long-term staff and managers bring direct financial savings to a firm from not having to recruit and train new employees, plus indirect benefits from retaining firm-specific knowledge.

Based on this, the following hypotheses were generated about retention of both managerial and non-managerial employees and performance:

Hypothesis 9a Employees stay longer (i.e., report longer tenure) in organizations characterized by high rather than low levels of vision-communication.

Hypothesis 9b Managers stay longer (i.e., report longer tenure) in organizations characterized by high rather than low levels of vision-communication.

Hypothesis 10a Employees stay longer (i.e., report longer tenure) in organizations characterized by high rather than low levels of vision-sharing.

Hypothesis 10b Managers stay longer (i.e., report longer tenure) in organizations characterized by high rather than low levels of vision-sharing.

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Hypothesis 11a Stores where managers have been retained longer compared with stores with shorter-tenure managers exhibit higher levels of financial performance.

Hypothesis 11b Stores where managers have been retained longer compared with stores with shorter-tenure managers exhibit higher levels of productivity.

Hypothesis 12a Stores retaining their staff longer compared with those with higher levels of employee turnover exhibit higher financial performance.

Hypothesis 12b Stores retaining their staff longer compared with those with higher levels of employee turnover exhibit higher productivity.

Measures

This section provides the rationale for the measures adopted, starting with vision- communication and -sharing, and then covering the performance measures. All closed items were measured on five-point Likert scales.

Vision measures

Where a manager’s vision existed, the respondent was asked what the vision was and how managers communicated the vision to staff. Baum et al. (1998) measured vision communication via employees’ responses to two items: (a) “Does your firm have a written vision?” and (b) “Has your manager talked about a vision…?” with high composite reliability of .81. Kantabutra (2008) expanded on this, suggesting that vision communication can be operationally defined as the extent to which staff perceive a leader as communicating the vision through (a) spoken, (b) written, and (c) technology-mediated channels. In this study, communication was measured by employees’ responses to three items based on Kantabutra (2008), “Does your store manager have a vision?,” “My store manager talks with me about his/her vision,” and “My store manager writes to me about his/her vision.” The item concerning use of technology-mediated channels used by previous researchers was omitted because it was not considered very relevant for small businesses. It was replaced with “My store manager mentions his/her vision in staff meetings regularly.”

Since a communicated vision that is also shared is expected to have increased effect (Kantabutra & Avery, 2005, 2010), staff members were asked if they shared the store vision (sample items: “I share my store manager’s vision” and “All staff members share a mutual vision in this store”).

Performance measures

The use of appropriate measures is fundamental to social science studies (Dionne, Yammarino, Atwater, & James, 2002) and this paper seeks to improve on previous studies in this respect. Many investigators (e.g., Hofmann & Jones, 2005; Lim & Ployhart, 2004) have relied on the correlation between financial performance and the satisfaction levels of customers and employees, rather than using direct

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financial and non-financial measures. de Hoogh, den Hartog, Koopman, Berg, van den Berg, van der Weide, and Wilderom (2004) criticized most vision research for its limited focus on only a few subjective outcome measures, and a possible bias in performance ratings of leader behavior and performance due to knowledge of prior performance. Dawes (1999) suggested that researchers should attempt to validate their results by using both objective and subjective performance measures given a strong correlation between both types of measures. Several studies have measured so-called objective organiza- tional outcomes, such as net profit margin (Koene, Vogelaar, & Soeters, 2002; Waldman, Ramirez, House, & Puranam, 2001), business unit sales (Barling, Weber, & Kelloway, 1996; de Hoogh et al., 2004), and percentage of goals met regarding business- unit performance (de Hoogh et al., 2004; Howell & Avolio, 1993). Considering the limitations of each type of criterion and the multidimensional nature of performance, the use of multiple performance indicators obtained through different methods seems desirable. Comparing relationships with different performance outcomes may reveal information about the magnitude of possible measurement biases, while providing a more accurate estimate of the relationship between vision and organizational perfor- mance (de Hoogh et al., 2004; Lowe et al., 1996).

Therefore in this study, multiple performance measurements were used. Since vision-communication and -sharing are predicted to have positive associations with staff satisfaction, customer satisfaction, financial performance, productivity, and staff turnover (Bass, 1985; House & Aditya, 1997; Howell & Shamir, 2005; Jing & Avery, 2008; Kantabutra & Avery, 2006a, 2010; Nanus, 1992; Reardon, 1991; Sashkin, 1985; Senge, 1990), the following five measures of organizational performance were employed:

Staff satisfaction Staff satisfactionwas measured in terms of employees’ stated overall job satisfaction as well as specific aspects of satisfaction, such as pay, policies, and opportunities for advancement, consistent with Kantabutra and Avery (2006b) and Slavitt, Stamps, Piedmont, and Hasse’s (1986) Index of Work Satisfaction (IWS) Questionnaire. These measures had already been tested for reliability and validity.

Customer satisfaction This measure assessed customers’ overall satisfaction level with the pharmacy’s services and other specific aspects, and was also adopted from Kantabutra and Avery’s (2006b) measures derived from Hackl, Scharitzer, and Zuba (2000).

Financial performance Financial performance was necessarily measured indirectly because obtaining concrete financial data (such as financial reports) in any consistent way can be difficult in small businesses. Studies from the UK and Australia show that most small business owner-managers rely on very basic financial measurement systems, attributed to their lack of time and skills to maintain more comprehensive systems (e.g., Palmer, 1994; Perera & Baker, 2007; Sian & Roberts, 2009). For example, about 50 % of UK small business owners rely just on bank statements and annual reports for managing the business (Sian & Roberts, 2009). Furthermore, even if they had access to more sophisticated measures, not all managers may be willing to share their private figures with the interviewers. Therefore, since some

Enhancing performance in small professional firms through vision… 607

scholars (e.g., Crampton & Wagner, 1994; de Hoogh et al., 2004) suggest that indirect measures (such as self-reports) can be reliable, financial performance was measured indirectly by asking the manager to report perceived increases and decreases in net profits, sales turnover, and controllable business costs. This also allowed compara- bility across stores of different sizes.

Productivity Productivity was assessed by asking managers how many prescriptions the pharmacy typically filled daily, a measure that has to be officially reported, and is an important productivity indicator for pharmacies (e.g., Iyer & Doucette, 2003).

Staff tenure Staff tenure was measured by asking employee and manager respondents how long they had worked in that store.

Methods

Adopting a multi-perspective approach, managers, employees, and customers were interviewed face-to-face in 100 retail pharmacies in Sydney city and suburbs, chosen systematically from the Yellow Pages phone listing based on their proximity and accessibility to designated suburban centers. Staff included pharmacists, pharmacy assistants, and salespersons who were not classified as the manager. Three criteria for sampling staff were used, namely that respondents (a) were employed in a staff position in that store, (b) worked under the manager interviewed, and (c) were on duty when they were approached. Customers comprised the set of individuals who visited the pharmacies when the manager was on duty and were observed buying a product or service when the researcher collected the data.

The pharmacy manager and up to three staff members and three customers were interviewed using separate questionnaires, ensuring that managers were not present when staff and customers were interviewed. Participation in the study was voluntary, resulting in staff and customer samples being necessarily opportunistic.

In all, 131 pharmacies were approached, yielding a response rate of 76.3 %, of which 41 stores belonged to a parent company or pharmacy chain, while 59 were independently operated. Of the 580 respondents, 100 (17.3 %) were managers, 217 (37.4 %) staff, and 263 (45.3 %) customers. The male/female gender split was managers 48 %/52 % and staff 14.3 %/85.7 %. Two thirds of the managers were aged under 40 years, viz: 20 to 29 years (42 %) and 30 to 39 years (26 %). Staff also tended to be young: 20 to 29 years (66.8 %), with just over 13 % aged 40 plus years. Regarding tenure, 53.5 % of staff interviewed had worked in the pharmacy for one to two years, while 27 % of managers had managed their pharmacy for less than 1 year.

Analysis

The unit of analysis consists of the sampled pharmacies since this study concerns each manager’s communication and sharing of his or her vision and its relationship to staff and customer satisfaction, as well as to the financial performance and produc- tivity of a particular store.

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Multilevel structural equation modeling (ML-SEM) was used to test H1–6. Multiple regression and Pearson correlations were used for H7–10 and H11a–12b respectively, given SEM’s practical limit on the number of indicators for each latent variable of between 3 and 8 (Holmes-Smith et al., 2004). In this study, the five performance measures, plus financial performance, staff satisfaction, and customer satisfaction, each have 3–8 indicators, but productivity and staff tenure each have only one measure, making them unsuitable for SEM modeling and requiring other methods of analysis.

ML-SEM is appropriate where cluster sampling is employed (respondents were nested in stores) and because the hypotheses concerned the effect of individual and contextual manifestations of vision on store performance. ML-SEM explicitly ad- dresses the degree and effects of intragroup dependency and allows separate fitting of the between-groups covariance structure and the pooled within-groups covariance structure. A total covariance matrix ΣT is decomposed into two independent com- ponents, a between-stores covariance matrix ΣB, and a within-stores covariance matrix ΣW, that is ΣT = ΣB + ΣW. Our analysis is consistent with Muthén (1994), who recommended multilevel SEM be preceded by a conventional factor analysis of total structure using the sample total covariance matrix ST; estimation of between-variation or level of intraclass correlation (ICC); and estimation of within- group structure using SW and estimation of between-group structure using SB.

Table 1 presents means, standard deviations, and correlations. Using MPlus version 5.1 (Muthén & Muthén, 2008), the STanalysis of the five latent factor model yielded a reasonable fit: χ2(71) = 131.6, p < .01, CFI = .99, TLI = .98, RMSEA = .047, SRMR = .027. All scales showed evidence of appropriate unidimensionality (composite reliabilities ranged from .747 to .884). Convergent validity was supported by all factor loadings being significant (α < .05). Average variance extracted (AVE) for the latent variables ranged from .71 to .86. Discriminant validity was assessed using procedures consistent with Fornell and Larcker (1981). The square root of the AVE for each latent construct was larger than any corresponding correlation with another variable. A subsequent CFA was conducted using only the three latent variables hypothesized as multilevel constructs: financial performance, staff satisfaction, and customer satisfac- tion. Again, results of the ST analysis suggest the model is a reasonable fit to the data: χ2(20) = 74.62, p < .01, CFI = .995, TLI = .991, RMSEA = .064, SRMR = .015. SB was assessed by estimating ICCs for each variable (Muthén, 1994). All ICC values were moderate to strong (.11 to .16, see Table 2), appropriate for multilevel analysis (Duncan et al., 1997).

Table 1 Means, standard deviations, and correlations

Variables M SD CR 1 2 3 4 5

1. Vision communication 2.77 .46 .90 .83*

2. Vision sharing 2.64 .40 .72 .50* .68*

3. Financial performance 1.78 .34 .93 .23* .22* .90*

4. Staff satisfaction 3.40 .48 .95 .26* .32* .83* .93*

5. Customer satisfaction 2.79 .47 .94 .25* .27* .87* .91* .61*

*p < .05, one-tailed

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Results for the joint SW-SB two-factor model revealed adequate fit: χ2(23) = 89.43, p < .01, CFI = .997, TLI = .998, RMSEA = .024, SRMR(within) = .023, SRMR(between) = .04. Moreover, the multilevel model was a significant improvement relative to the three- variable ST model (Δχ2(5) = 45.83, p < .05). In sum, results from these initial analyses support an associative ML-SEM model with an unspecified structure involving five latent variables at the within level and three latent variables at the between level.

Results

Customers and helping people are recurring themes in the reported visions. Among managers, 61 % stated having a vision for their store and in 24 of these cases, manager visions explicitly contained the word ‘customers.’ Among the staff reporting their manager’s vision, 54 mentioned customers, helping people, and similar service messages. This is consistent with the suggestion that many employees in the health care sector adhere to a vision of helping others (Hassali et al., 2009).

The ML-SEM makes use of SW and SB simultaneously in designating relation- ships at the individual and store levels. The main effects structural model is repre- sented in Fig. 2. Results from the main effects ML-SEM model are presented in

Table 2 Measurement model (ST) and intraclass correlations (ICCs)

* p < .05

Variables ICC* Est SE

1. Vision communication factor loadings

Indicator 1 .114 .788 .02

Indicator 2 .112 .779 .02

Indicator 3 .123 .896 .02

2. Vision sharing factor loadings

Indicator 1 .124 .893 .02

Indicator 2 .117 .832 .02

3. Financial performance factor loadings

Indicator 1 .144 .929 .01

Indicator 2 .142 .939 .01

Indicator 3 .124 .842 .02

4. Staff satisfaction factor loadings

Indicator 1 .161 .935 .01

Indicator 2 .139 .952 .01

Indicator 3 .151 .913 .01

Indicator 4 .141 .915 .01

Indicator 5 .163 .947 .01

5. Customer satisfaction factor loadings

Indicator 1 .156 .924 .01

Indicator 2 .165 .931 .01

Indicator 3 .139 .948 .01

Indicator 4 .156 .942 .01

Indicator 5 .135 .896 .01

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Tables 3 and 4. The model’s chi-square is significant (χ2(221) = 413.0). By commonly accepted standards, alternative model fit statistics suggest that the proposed model represents an adequate fit to the data (RMSEA = .051, CFI = .96, TLI = .95). The SRMR for the within (SRMR = .09) and between (SRMR = .23) portions of the model suggests model misspecification occurring at the between group level is contributing most to the lack of perfect overall model fit.

Hypotheses 1–6 were all supported (p < .01) (see Table 5). Vision-communication was positively related to financial performance (β = .22, t = 1.96), staff satisfaction (β = .24, t = 2.01), and customer satisfaction (β = .26, t = 2.16). Similarly, vision-sharing was positively associated with financial performance (β = .23, t = 1.99), staff satisfaction (β = .26, t = 2.09), and customer satisfaction (β = .27, t = 2.22).

.24

e4 .98

VISSHA1

e5 .94

VISSHA2 VISSHA

.99

.97 FIN1

FIN2

FIN3

STFSAT1

STFSAT3

STFSAT2

STFSAT4

STFSAT5

CUSSAT1

CUSSAT3

CUSSAT2

CUSSAT4

CUSSAT5

.53

.37

.56

.37

.32

.54

.31

.45

.36

.41

.77

.32

.41

e6

e7

e8

e9

e10

e11

e12

e13

e14

e15

e16

e17

e18

.61

.73

STFSAT

.61

.75

.57

.60

.73

CUSSAT

.56

.67

.64

FIN

.84

.56

.65

e1 .79

VISCOM1

e3 .96

VISCOM3

e2 .61

VISCOM2 VISCOM

.89

.78

.96

.25

.27

.14

.25

.23

.22

Fig. 2 Structural model of effects of vision-communication and vision-sharing on organizational performance

Table 3 Within- and between-store correlations of vision and performance variables

1 2 3 4 5

1. Vision communication 1.00 .57* .74* .52* .61*

2. Vision sharing .39* 1.00 .50* .62* .70*

3. Financial performance .42* .21* 1.00 .55* .59*

4. Staff satisfaction .53* .37* .24* 1.00 .51*

5. Customer satisfaction .51* .42* .30* .36* 1.00

Within-store correlations are on the lower diagonal and between-store correlations are on the upper diagonal

* p < .05, one-tailed

Enhancing performance in small professional firms through vision… 611

Multiple regression analyses supported H7–10. Vision-communication and -sharing were positively related to pharmacy productivity (F2,95 = 12.228, p < .005, Adjusted R2 = .188). In other words, pharmacies displaying vision-communication were associated with significantly more prescriptions filled (approximately twice as many) than the group lacking vision-communication (β = 1.539, p < .005, H7). Similarly, pharmacies where the vision was shared filled significantly more prescriptions per day, more than double the number, than those without vision-sharing (β = 1.983, p < .005, H8).

Vision-communication and -sharing were positively related to staff tenure (F2,215 = 22.656, p < .005, Adjusted R

2 = .304). H9a relating staff tenure to vision-communication was supported (β = 1.444, p < .005). Similarly, H9b linking manager tenure to vision-communication was supported (β = 1.109, p < .005). In support of H10a, vision-sharing was associated with longer staff tenure (β = 2.003, p < .005), as was H10b, which showed that vision sharing is also associated with longer manager tenure (β = 1.693, p < .005). These results show that pharmacies engaged in vision-communication and -sharing retain staff longer than their counterparts without vision-communication and -sharing.

H11a–b and H12a–b linking manager and staff tenure to financial performance and productivity were supported. Significant positive correlations were found between manager tenure and both financial performance (.553, p < .01, H11a) and productivity (.495, p < .01, H11b); and between employee tenure levels and financial performance

Table 4 Within- and between-store effects of vision on performance

Within-store effect Between-store effect Contextual effect

Est SE R2 Est SE R 2 Est SE

1. VC—FP .33 .01 12.5 % .51 .07 45.8 % .19 .07

2. VC—SS .41 .01 18.6 % .60 .07 55.5 % .19 .07

3. VC—CS .25 .01 1.2 % .47 .06 49.9 % .22 .06

4. VS—FP .31 .01 12.1 % .49 .07 44.6 % .17 .07

5. VS—SS .40 .01 17.7 % .58 .07 52.3 % .18 .07

6. VS—CS .22 .01 9.4 % .44 .06 46.3 % .20 .06

VC Vision communication; VS Vision sharing; FP Financial performance; SS Staff satisfaction; CS Customer satisfaction

Table 5 Regression weights for structural model

Estimate SE CR P

Finance <— VISCOM .224 .104 1.989 .037

Staff <— VISCOM .238 .119 2.002 .045

Customer <— VISCOM .259 .120 2.160 .031

Finance <— VISSHA .233 .112 2.001 .038

Staff <— VISSHA .252 .121 2.094 .036

Customer <— VISSHA .269 .121 2.220 .026

612 F.F. Jing et al.

(.366, p < .01, H12a) and productivity (.914, p < .01, H12b). Like their managers, long-term employees were associated with enhanced organizational performance and productivity compared with their shorter-tenured colleagues.

Discussion

Contrary to expectations of visions not being widely used in small businesses (e.g., Alonso & Northcote, 2010; Wang & Poutziouris, 2010), 61 % of pharmacy managers reported having a vision, of which about 40 % explicitly mentioned serving or otherwise helping customers. Of all staff members interviewed, about 25 % also mentioned customers in reporting their manager’s vision. Thus, customers formed the most common theme in the vision perceptions of both managers and employees in this professional service setting, consistent with previous findings (Hassali et al., 2009). However, this study has not resolved the specific issue of whether the managers influenced employees with their visions or staff entered the pharmacy sector because of a pre-existing desire to help customers, or whether both visions reinforced each other.

Irrespective of the origin or content of the visions, positive relationships were found between vision-communication and -sharing and all performance measures used. This is largely consistent with previous scholars’ findings described above that leadership involving a vision enhances organizational performance. We employed diverse financial and non-financial measures, to address criticism of the narrow measures reported in existing studies.

In our study, employee satisfaction was enhanced in the presence of a communi- cated and shared vision. Simply having a vision is insufficient; to benefit organiza- tional performance the vision needs to be communicated and shared by leaders and followers (Reardon, 1991; Sashkin, 1985; Senge, 1990). A shared vision influences employees’ work attitudes, particularly their job satisfaction (e.g., Baum et al., 1998; House & Aditya, 1997; Kantabutra & Avery, 2002, 2004; Nanus, 1992). Some scholars (e.g., Bycio, Hackett, & Allen, 1995) argue that a shared vision shapes employees’ perceptions and emotional responses to the work environment, particu- larly their job satisfaction and organizational commitment (Glisson & Durick, 1988), both of which are significant determinants of employee turnover.

As is becoming evident, the various performance measures used in this study are not independent, but influence each other. That staff satisfaction influences customer satisfaction has been well documented (e.g., Brown & Lam, 2008), including in a sales environment (Homburg & Stock, 2004). Among the theoretical reasons for this are attraction/selection theory and contagion theory (von Wangenheim, Evanschitzky, & Wunderlich, 2007). From the attraction/selection perspective, individuals in a small business come to share particular experiences, which leads them to exhibit similar attitudes and behaviors, such as how to treat customers. For professional service employees, aligning their personal visions, commonly of helping others, with those of their employers can make the organization more attractive. Where leader–follower vision-sharing is strong, customer service may be enhanced because of the vision’s potentiating effect encouraging employees to look after customers even better.

A widely applied alternative for explaining the link between customer and staff satisfaction is contagion theory, which proposes that emotions transfer between

Enhancing performance in small professional firms through vision… 613

people and influence other parties, such as customers, even if the staff member is not conscious of the emotion being transmitted. It is also possible that both these explanations apply, reinforcing each other, particularly in the case of small profes- sional services with shared visions focused on customers.

How might the variables in this study be related? Kantabutra (2009) argues that when leaders communicate a vision to followers, followers try to turn the vision into reality within their roles and responsibilities. In turn, this striving to fulfill a vision invokes a process in which employee self-esteem is enhanced, thereby having a strong and direct effect on staff satisfaction, and satisfied employees then strive harder. Stam, van Knippenberg, and Wisse (2010) suggest that enhanced self-esteem could derive from the vision defining a “possible self” that staff members can accept or modify. If the employee finds the possible self defined in the vision attractive, he or she may feel positively disposed to remain with the employer. Similarly, sharing a vision of the future of the business may strengthen psychological ownership and commitment in employees (Bernhard & O’Driscoll, 2011). In pharmacy settings, an appropriate employer vision can serve to reinforce employees’ self-image as helping professionals.

Staff satisfaction can influence performance in various ways, in turn affecting customer satisfaction, particularly as reference to customers was the most frequently mentioned vision theme among both pharmacy managers and their staff. Since satisfied employees tend to stay longer with the organization, pharmacy customers are likely to feel comfortable in raising personal issues with staff members whom they know. This familiarity can increase customers’ positive feelings towards the pharmacy, and induce them to engage in repeat business (increasing the prescription business), and recom- mend the pharmacy to others (increasing financial turnover). Since all employees in small pharmacies can connect with the customer at the point of sale, each employee can thus affect the level of customer satisfaction. Staff might also reinforce one another for dealing well with customers and discourage colleagues from offering poor customer service because it benefits the workplace climate. Assisting satisfied customers is likely to make staff feel good compared with serving disgruntled customers.

As a consequence, vision-communication and -sharing can exert a strong, direct effect on staff satisfaction and an indirect effect on customer satisfaction, particularly in pharmacies where many customers can be expected to seek personal advice from staff. This effect may be magnified because most pharmacies are operated as small businesses where the interaction between all employees is largely with the one direct manager rather than being filtered through middle managers and team leaders.

The positive relationship found between vision-communication and -sharing and staff/manager retention, is also consistent with others’ findings (Cole et al., 2006; Collins & Porras, 1996; Oswald et al., 1994). In other words, the more managers communicate the vision to their employees and the employees share this vision, the less likely the employees will be to leave the organization. Meta-analyses by both Vancouver, Millsap, and Peters (1994) and Bycio et al. (1995) revealed that a vision- based relationship between employees and their leaders increases loyalty and de- creases intentions to leave the organization. This line of thought is consistent with the theory of reasoned action (Fishbein & Ajzen, 1975), which postulates that attitude is consistently related to behavioral intention.

Retaining staff is associated with enhanced performance and productivity. Pharmacy employees with long tenure exhibit enhanced job satisfaction and engender

614 F.F. Jing et al.

higher customer satisfaction compared with their colleagues of short tenure. One interpretation of this finding draws on human capital theory. According to Shaw et al. (2005), short staff tenure negatively influences organizational performance, staff satisfaction, and customer satisfaction because of the loss of human capital, particu- larly firm-specific human capital. Firm-specific human capital increases as people gain experience in the firm, equating longer staff organizational tenure with greater firm-specific knowledge. However, short staff tenure reduces the organization’s return on its investment in its employees, and results in the loss of productive workers; thereby reducing organizational performance, staff satisfaction, and custom- er satisfaction.

The resource-based view of the firm would suggest that retaining managers will lead to more successful organizational outcomes, because these people apply organization-specific knowledge (Bergh, 2001; Simsek, 2004) and have a more intimate understanding of the organization—which helps these managers achieve enhanced financial performance, productivity, staff satisfaction, and customer satis- faction. The rich organizational wisdom gained from years of tenure enables long- term managers to provide insights into key factors in the implementation process, such as the traditions and history of the organization’s culture, reputation, and relationships with customers and suppliers (Bergh, 2001). By contributing to and improving organizational performance, the value, inimitability, rareness, and non- substitutability of company-specific knowledge associated with long organization tenure suggests that those leaders are important to retain (Simsek, 2004). This will become imperative in the impending labor shortage as enterprises strive for produc- tivity and growth in a competitive labor market.

Another reason for the positive association between manager tenure and staff and customer satisfaction may be that long organizational tenure gives leaders more time to implement a leadership style effectively in an organization, and to obtain feedback about their successes. This is particularly important for visionary and organic lead- ership paradigms (Avery, 2004), because both involve embedding into the organiza- tional culture a shared vision, and a warm and supportive climate, plus maintaining high levels of trust between leader and followers (Jing, 2009). This may indirectly enable long-tenure managers to improve both employee and in turn customer satisfaction.

How could vision-sharing positively affect manager tenure? One possibility is that satisfied employees who share their manager’s vision enjoy either a personalized or a socialized relationship with that manager (Howell & Shamir, 2005). Some employees are attracted to the leader as person and can then be influenced by the shared vision. Others subscribe to the vision to begin with rather than being attracted to the person of the leader. Where the individual and organizational visions align, both forces could act over time as managers and followers deepen their relationship by remaining with the firm, thereby enhancing the attractiveness of the workplace for both parties. This in turn would make the workplace more attractive for the managers and create a personalized attraction to their co-workers and customers. Through this process, effort and resources continue to be focused on the vision that is becoming increas- ingly shared. Where the vision refers to customers, as was often found in this study, customers are likely to have positive experiences and increase their patronage of the pharmacy. Retaining existing customers in turn benefits financial performance given

Enhancing performance in small professional firms through vision… 615

that the cost of acquiring new customers has been estimated at five times that of retaining existing ones (Reichheld, 1996). In short, vision-communication and - sharing between leader and followers has effects on retaining staff and customers, both of which are likely to improve financial performance.

Thus, through various mechanisms vision-communication and -sharing influence five diverse measures of performance—finances, staff satisfaction, customer satisfac- tion, employee/manager retention, and productivity. Logically, these performance outcomes interact to support the business further. For example, solid financial performance enables staff to be retained, be adequately paid, and feel confident that they are working for a successful enterprise. Satisfied employees are more likely to stay, thereby reducing recruitment costs, retaining knowledge, and providing conti- nuity for customers. Satisfied customers happy with the service quality and relation- ships they have with pharmacy employees are likely to return and purchase prescriptions and other products. Thus a virtuous cycle is created, enhancing overall business performance.

Limitations and further research

This paper provides some new insights into the positive effects of vision- communication and -sharing on multiple performance measures in small professional service settings. However, the research findings should be viewed in the light of some limitations.

The first limitation relates to the self-reported financial assessments, which can bias the findings. Financial performance in this paper was necessarily measured indirectly by asking managers to report increases or decreases in net profits, sales turnover, and controllable costs. Although analysis revealed no significant method bias, ideally financial measures would be better derived from official records—where available. Unfortunately, access to consistent financial data remains difficult to obtain from unlisted businesses. Similarly, manager reports had to be relied upon for estimates of the number of prescriptions processed daily even though precise records are required to be kept.

Another limitation is that all organizations participating in this study were based in one large city. Future researchers could extend the findings by including cross- cultural and city/rural components to enhance the generalizability of the results, as well as replicating the study in other professional service sectors. Finally, future researchers could usefully adopt a phenomenological approach to obtain a deeper understanding of the nature of the relationships under a shared vision, its components, and factors shaping the relationship between vision usage and performance.

Conclusion

This paper has made several contributions to understanding vision’s effects using multiple performance measures. According to the literature, visionary leadership is linked to enhanced performance in business organizations, but the efficacy of the vision itself in small professional firms had not been demonstrated and most prior studies had employed narrow sets of measures. Significant contributions of this study

616 F.F. Jing et al.

include employing both financial and non-financial assessments of performance and productivity; and collecting data from multiple perspectives, namely from managers, employees, and customers. This study also addressed a gap in the literature about the effects of vision on performance in small professional service settings, namely in retail pharmacies, for which enormous growth is predicted despite many challenges.

Vision-communication and -sharing were significantly related to retaining both managers and staff, which in turn enhances the bottom line, not only through direct savings, but also by retaining an understanding of the organization and its customers. Performance and productivity increase under both long-term managers and staff. Thus, the benefits of vision-communication and -sharing between leader and fol- lowers are important influencers of business success, particularly in sectors such as pharmacies that will face rapid growth in the context of a workforce that will decline over the coming decades. It becomes vital to provide a work environment that is attractive to both recruiting and retaining scarce future workers in order to satisfy customers, and enhance productivity and financial performance.

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Fenwick Feng Jing (DBA, Macquarie University) currently researches leadership, HR, and organizational performance in the School of Public Administration, East China Normal University, Shanghai. He holds a Doctor of Business Administration from Macquarie Graduate School of Management, Macquarie Univer- sity, Australia; an MSc from Lancaster University, UK; and a BA from Shandong Normal University, China. He previously served as a governmental official in China and management consultant in Shanghai, specializing in human resource services and designing management development programs. He is author of An Investigation of the Relationship between Leadership Paradigms and Organisational Performance in Pharmaceutical Sales Organisations.

Gayle Avery (PhD, Monash University) is professor of management at Macquarie Graduate School of Management, and founded the Institute for Sustainable Leadership in 2007, which she continues to head. She holds a PhD in psychology from Monash University, Australia. Her area of specialization is leadership, particularly leadership for creating and maintaining sustainable enterprises. Author of many books includ- ing Understanding Leadership and Leadership for Sustainable Futures, and co-author of Honeybees and Locusts: The Business Case for Sustainable Leadership, her research has appeared in many journals. She consults widely to senior executives on leadership and management development.

Harry Bergsteiner (PhD, Macquarie University) is an Honorary Professor at the Australian Catholic University, and co-founder of the Institute for Sustainable Leadership. His PhD is in management from Macquarie University, specializing in accountability and leadership, particularly in maintaining sustainable enterprises. He has written numerous academic papers and is author of Accountability Theory Meets Accountability Practice and co-author of Honeybees and Locusts: The Business Case for Sustainable Leadership, among other works.

620 F.F. Jing et al.