Effects of Leadership on Financial Performance at the Local Level of an Industrial Distributor

An important component in the industrial products supply chain is the distribution segment of the channel. The health and success of industrial distributors can often influence the success of manufacturers whom they represent. Although research has demonstrated how leadership is a key ingredient in the success of large corporations across industries, very little leadership research has been conducted in the industrial distribution market segment—especially at the local level. This research fills the gap between what is known about leadership in larger organizations, and the need for greater understanding of leadership at the local level of an industrial distributor. The authors of this study ask: how does leadership style affect the branchlevel sales and margin performance of industrial sales organizations? To answer this question, this study collected transformational and transactional leadership data from 100 branch-office locations of a national wholesale distributor using the Multifactor Leadership Questionnaire (MLQ). Both leader and follower data were collected at each location. In all, nearly 300 people participated in the study. The authors calculated the predictive relationship between leadership style and average change in year-over-year sales and profit margin using a multiple regression analysis. The results show that a leader’s self-reported transformational leadership was positively associated with sales and profit margin performance at the local level of an industrial distributor, while followers’ ratings of a leader’s transactional leadership style was negatively associated with sales performance. INTRODUCTION Scholars and practitioners have been examining the effect of leadership in organizational performance for many years. The leadership of chief executive officer’s (CEO’s) in large corporations has been documented to be a key ingredient in the revitalization of companies (Tichy & Devanna, 1986), as well as in the ongoing management of these larger organizations (Collins, 2001). While the research on corporate CEO’s is clear evidence that leadership plays an important role in the success of these organizations, there is less data to support the idea that leadership plays a similarly vital role in other levels of the supply chain, including the industrial distribution segment. The dearth of research in the wholesale distribution channel is surprising considering the important role of distribution in the supply chain. Wholesale distribution, which includes companies involved in the distribution of industrial products, facilitates the transfer of product from the original manufacturer of said product to the end user, the service/repair facility, or to the original equipment manufacturer (OEM). Figure 1, on page 3, illustrates the typical flow of product from the factory to the final use and/or installation. In the world of industrial products manufacturing, the industrial distributor is the lifeline to the market for the manufacturer. It provides both manufacturers and their customers a cost effective path to sales, distribution, marketing, logistics, and product service within specific geographic territories and industries. Within the last two decades, some in the supply chain industry have developed a list of “best practices” for efficient business models. These best practice models often include in-depth analysis of inventory, supplier stratification, fleet management/logistics, purchasing practices and strategies, customer stratification, forecasting, process improvement, quality procedures, and other measurable variables that consider ways to improve efficiencies, cut waste, and generally improve the business model to allow for improved profits. Rarely, however, have these studies included an indepth look at the effect of leadership on the success of the organization. Significant consideration has been given in the literature over the last two decades to the idea of transformational leadership and the effect it has on an organization. Bass (1985) posited that transformational leadership can help followers, and thus organizations, exceed performance expectations. Research over the last two decades has added to the body of knowledge on the positive relationship between transformational leadership and organizational performance (Geyer & Steyrer, 1998; Howell & Avolio, 1993; Waldman, Ramirez, House, & Puraman, 2001). While the research provides evidence of the value of transformational leadership, there is a lack of empirical data on the effect of Dr. Rod Flanigan is an Assistant Professor of Industrial Technology at the University of Nebraska at Kearney (UNK). He earned his Ph.D. from Utah State University. He spent over 25 years in the wholesale distribution industry before joining the UNK faculty in 2011. He teaches courses in fluid power, power transmission, project management, and leadership principles in the Industrial Distribution program. He is the current President of the Management Division of ATMAE, through Fall, 2014. Dr. Flanigan can be reached at flaniganrl@unk.edu. Dr. Gary Stewardson is an Associate Professor of Technology and Engineering Education at Utah State University. Dr. Stewardson earned his Ph.D. from the University of Maryland. He teaches courses in manufacturing processes, automation and controls, engineering design, and specializes in the history of engineering education. Dr. Stewardson can be reached at gary. stewardson@usu.edu. Dr. Jeffrey Dew i s a n A s s i s t a nt Professor in the D e p a r t m e n t o f Family, Consumer, and Human Development at Utah State University. He teaches family studies courses and graduate level statistics courses. He researches the association between family resources (money and time) and family relationships. Dew received a dual-title PhD in Demography and Human Development and Family Studies from the Pennsylvania State University. Dr. Dew can be reached at jeff.dew@usu.edu.