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The Need for Transformational Leaders in Procurement

In this article Carlos Mena, Remko van Hoek and Martin Christopher examine how leading companies have implemented transformational leadership to impact supplier relationships, and ultimately drive competitive advantage

Leadership scholars distinguish between transactional and transformational leadership. Transactional leadership focuses on exchanges that take place between leaders and followers. It is an exchange process akin to that taking place in transactional supply chain relationships. On the other hand, transformational leadership is a process of engagement between the follower and the leader, which raises the level of motivation and performance (Northouse, 2013). To achieve this, the leader needs to attend to the needs and motives of the followers and try to help them reach their full potential. This is akin to a win-win relationship, which should be the main objective of supplier relationship management.

A transactional approach to leadership relies upon two key factors: (1) contingent rewards, which involves providing positive feedback and rewarding followers for their efforts, and (2) management-by-exceptions, which involves negative feedback to correct a situation. This leadership style follows a traditional management control approach and often leads to delivering expected results. However, it is not transformational because it lacks the ability to inspire others to perform beyond expectations.

Four key factors define transformational leaders: idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration (Northouse, 2013). We discuss how each of these factors influence supply chain leadership.

1. Idealized influence

This factor, which is sometimes simply called charisma, refers to the emotional component of leadership. Leaders become role models for followers who place trust in them and want to emulate them. Here the leader provides the followers with a vision and a sense of mission.

An example of idealized leadership in a supply chain context is that of Toyota and its Lean philosophy. Here, Toyota has led the way with a very clear set of principles and practices, which suppliers at multiple tiers have tried to emulate. Toyota, on the other hand, has provided guidelines and support so that suppliers can achieve their full potential. The idealized influence of Toyota has become so solid and durable that it has reached many organizations outside their supply chain, even beyond the automotive industry.

2. Inspirational motivation

Transformational leaders are able to motivate their followers around a shared vision of the future, convey a team spirit, and raise performance expectations.

IKEA’s efforts to create a more sustainable supply chain provide a good example of an organization that has provided inspirational motivation to members of its wood supply chain. As one of the world’s largest consumers of wood, IKEA has a responsibility for sustainable growth. While wood is a renewable raw material, it takes a long time to replace a tree and this presents IKEA and its suppliers with a challenge that is both environmental and economic. In response, they have developed a sustainability strategy with clear goals and responsibilities.

As part of this strategy they have invested in sustainable forests, established clear forestry requirements, developed a code of conduct for suppliers and implemented comprehensive audit and transparency procedures across the supply chain. Furthermore, they have engaged with stakeholders, such as the Forest Stewardship Council (FCS) and the World Wide Fund for Nature (WWF), to gain legitimacy and ensure IKEA addresses wider concerns.

3. Intellectual Stimulation

Transformational leaders stimulate followers to innovate, encouraging out-of-the-box thinking and creative problem solving. In a supply chain context, this means promoting suppliers’ innovative capabilities, allowing them room for experimentation, and encouraging them to come up with creative ideas. Procter & Gamble (P&G), for example, follows an open innovation approach that taps into the creative thinking of inventors outside of the organization, enabling innovation beyond P&G’s areas of expertise, reducing the risks of innovation and turning potential competitors into collaborators. They claim that more than 35% of their new products have elements that originated externally.

4. Individualized Consideration

This final factor refers to a supportive climate in which the leader listens to the needs of individual followers, acting as advisor and coach, trying to liberate the followers’ full potential. In supply chains, Japanese automakers such as Honda are well known for spending time with their suppliers, understanding their needs and supporting them in their development. These suppliers pay them back with loyalty and a willingness to share their resources, such as innovative ideas.

Supply chain leadership not only involves working with suppliers; it also requires active engagement with all functions of an organization, shaping strategy and representing the entire supply chain in strategic conversations. Supply chain leaders not only have to align their strategies with the rest of the organization, but shape strategy by creating a vision that contributes to the success of their organization and their supply chain. For this reason, supply chain leaders require a broad set of transformational, visioning and influencing skills. They need to be able to convince their internal colleagues and suppliers of the benefits of building stronger supply chains.

The shift to supply chain leadership involves a radical change within the organization and an even greater change in the relationship with suppliers. Supply chain leaders need to move from aligning with strategy towards formulating strategy in sync with other functions and organizations. In other words, procurement and supply chain professionals need to move from a transactional approach to a transformational approach to leadership.

This is an extract from an article that originally appeared in the October 2014 edition of Supply Management. View the original article here: http://www.supplybusiness.com/analysis/skilful-conductor/

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