Structure, transformational leadership, knowledge management, performance: how are they linked?

A prominent scholar that is well known in the Academy of Management, one of the largest leadership and management organizations in the world by the name of Peter Senge says that successful organizations enhance their competitiveness and financial performance by focusing on knowledge management.

The key function of knowledge management is to help executives use it for goals achievement. Knowledge management has been a focal point of executive span of control but has not been associated with transformational leadership enough to make it an integral part of business success. One tool for executives to use when considering on lessening the gaps between success and possible failure, is to adopt transformational leadership and become a transformational leader.

Transformational leaders can positively impact knowledge management through enhancing the dynamic relationships among employees and departments, but most importantly, through manipulating corporate structure. Also, transformational leaders contribute to financial performance through improving knowledge management performance that will increase the rate of responses to environmental changes. Transformational leaders know that financial aspects of firm performance include return on assets, return on sales, earnings per share, and stock price performance. Armed with these tools, transformational leaders can effectively increase financial performance for companies.

Corporate structure has been defined as a pattern by which companies can divide their activities and tasks as well as control them to achieve higher degrees of coordination. Corporate structure, therefore, refers to the bureaucratic division of labor accompanied by control and coordination between different tasks in order to develop communication within companies.

Corporate structure can be reshaped by transformational leaders when they develop knowledge sharing and inspire employees to create new ideas for a better environment among business-units and departments. An informal structure could facilitate new idea generation to build a more innovative climate within companies. Transformational leaders can implement organizational changes that develop better collaboration among subordinates and managers.

Centralized versus decentralized decision making is a topic that transformational leaders must deal with. More emphasis on formalized and mechanistic structures can negatively impact the transformational leader’s ability to exert such changes. On the contrary, a more decentralized and flexible structure may improve departmental and managerial interactions. The mechanical or centralization at the commanding level of leadership impairs the opportunity to develop relationships among managers, business units, and departments.

Transformational leaders inspire followers to generate new solutions and a better environment. A highly centralized structure has a negative impact on transformational leadership practices, while decentralization positively contributes to transformational leaders in developing a more innovative climate. This is enhanced by the crucial role of decentralized structures in facilitating the exchange of ideas and the implementation of more innovative solutions based on stipulating the power of decision-making at all levels of the company. Furthermore, highly formalized structures are more bureaucratic, and this negatively contributes to the effectiveness of transformational leadership in changing the existing situations and creating a better environment. Thus, transformational leaders reshape corporate structure to be more effective when the command center of companies can disseminate information in a decentralized and organic way as opposed to the mechanical and centralized command center.

Transformational leaders that implement structural changes may improve knowledge management. For example, decentralized structures shift the power of decision-making to the lower levels and subsequently inspire organizational members to create new ideas and even implement them while centralized structures may negatively impact interdepartmental communications and inhibit knowledge exchange. Recent research affirms that the there is a negative impact of centralization on various knowledge management processes such as knowledge acquiring, creating, and sharing among both managers and departmental units. On the contrary, a more decentralized and flexible structure may enable companies to identify best opportunities that can potentially lead to improve knowledge utilization process. Ergo, transformational leaders can positively contribute to organizational knowledge management through building more decentralized structures within companies. And if corporate structure is not completely in favor of supporting knowledge management, companies cannot effectively implement knowledge management projects to improve financial performance and they may become obsolete or taken over.

In conclusion, executives can now see how corporate structure constitutes the foundation of a supportive workplace to share and synthesize organizational knowledge and subsequently improve financial performance. In fact, financial success can be achieved by the implementation of knowledge management and facilitated by a transformational leader acting as a change agent. My primary focus is on corporate structure but there are many more important components of the managerial function that can be enhanced when transformational leadership is embraced. The key here is that there are significant effects of corporate structure on knowledge management. Without a grasp on this one tenet executives are bound to fail. Scholars can take these ideas and continue to conduct research using executives as the focal point so that academic scholarship can meet the needs of managerial implications at the higher echelons of organizations worldwide.

Mostafa Sayyadi is a Senior Management Consultant and Former Leadership Team Member of San Diego-based The Change Leader Consulting Inc. He is an| Associate Fellow of the Australian Institute of Management, a Book Author and Business and Technology Journalist.

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