Impact of Leadership on Business Performance – Leadership Analytical Concept

Managing employees is a demanding job in all organisations, especially in the ones that have many employees or the ones that have many employees around the world (multinational organisations). Additionally, management is made more difficult by the growing generational differences and the fact that each leader manages employees who belong to different generational groups. Since the coronavirus pandemic has opened the door to remote work, there is no need to further explain the complex environment in which today's leaders find themselves.

The paper aims to conduct research on several dimensions that can help to improve employee management. The motivation behind this research was the need for a better understanding of the elements that influence the quality management of employees, and to explore the possibilities of a more comprehensive overview of these elements as well as their mutual connection. Through this connection, the theoretical framework will be transformed into a concept that, in a practical sense, can help leaders set initial frameworks for managing employees, and focus on the parts that need improvements in operational management. Finally, the question that this paper should answer is: Is there a theoretical framework that unifies the important elements of leadership and their mutual influence on management, organisation and business results?

To build this concept, the focus will be on four elements that are important in leadership process: engagement, employee value proposition (EVP), types of employee and leadership styles. Firstly, all these elements will be observed independently; then, they will be connected to each other in a novel concept that will show their interdependence and influence on each other. Through literature research and the author's long-term experience in the field of leadership, dimensions essential for creating an organisational culture that have a positive effect on business results are highlighted. To design the concept, it is necessary to explore the abovementioned key elements and the theories that describe them. In this sense, employee engagement, employee value proposition (EVP) and employee types, as well as leadership theories and styles, will be researched. All these theories have been researched in detail in the past and many valuable papers can be found about them, but during this research no sources were observed that would unite them completely into a more comprehensive concept. Each of these elements is essential in management and the literature describes them quite well while highlighting the need for their consideration. All these elements complement each other, but in the literature, it is only partially possible to observe their mutual relation and influence in the form of a theoretical concept. Heger (2007) made the biggest contribution with his developed EVP concept, but again only partially.

This is the reason why the development of such a comprehensive concept was imperative in this paper. Such a concept will make it possible to see the wider picture, as well as views on a synthetic and analytical level.

The theoretical scientific contribution of the paper is revealed through the observation of different theories and their integration into one concept. The practical contribution of this paper is manifested in the ability for the leader to analyse each of the elements, together with their mutual connections, and to quickly locate the problems that they have in the organisational culture. Based on this, leaders could decide more efficiently on the necessary corrective actions.

The paper is designed in such a way that the second section deals with the engagement dimension. By reviewing the literature (Albrecht 2010; Kahn 1990, Wiley, Kowske and Herman 2010 and others) it has been demonstrated that engagement is crucial in order to have the culture that brings positive business outcomes. Attridge (2009) made a literature overview on employee engagement levels with the focus on the employee engagement framework. Finnegan (2014) explained employee engagement's correlation to productivity and profitability mostly using the results of Gallup's research survey. The research showed the comparison of the business results among the top 25% with respect to engagement level, and the bottom 25%. Those with high engagement level scored 22% higher in profitability, 21% higher in productivity and 10% higher in customer satisfaction. The research also showed that in this top 25%, the employee turnover was lower by 65% and the organisations had higher earnings per share. Due to its importance, various authors also introduce engagement level measurements to transform subjective level assessments into objective measures. Some of the measures are ‘Ultrecht Work Engagement Scale (UWES)’ (Schaufeli et al. 2002), ‘Intellectual – Social – Affective (ISA)’ (Soane et al. 2012), ‘Job Engagement Scale (JES)’ (Rich, Lepine, and Crawford 2010) and ‘Institute for Employment Studies Scale (IESS)’ (Robinson, Hooker, and Hayday 2007). The importance of the EVP concept will be highlighted in the third section. It describes the value an employee perceives about the organisation and answers questions such as: ‘What benefits do I have in this company?’ or ‘Is the strategy of the company in line with my personal goals?’ Browne described the EVP's influence on the company performance. The most comprehensive model was provided by Heger (2007), who recognised the strong connection between EVP and engagement, and measured the impact of these two dimensions on business results. The leader must be aware of how employees view the organisation (including himself) to realistically see the necessary strategic and operational activities to improve employees’ perception.

Nowadays, when differences between people are substantial, the leaders should think about individual approaches to their employees or groups of employees with similar characteristics. Because of that, in the fourth section, this paper deals with different types of employees. Some employees like greater independence at work, while some prefer the support of a leader and constant guidance. In general, different things are important to different employees, even within the same generation. Increasing regulatory activities in the form of better treatment of employees, as well as their rights, is also one of the challenges for the leader. This relates to sustainable development, which also emphasises the need for equality of all employees and the equal right for development. The already heavy burden on the leader is additionally weighed down with this. Considering the heterogeneity of the employees’ population, it is almost impossible for leaders to devote themselves to each employee separately and have a management and leadership strategy for each employee. The only way is to put employees into groups that will be homogenous regarding certain characteristics. The leader, in that case, manages each of the employee groups separately and makes decisions that are appropriate for a certain group. Aziz, Wuensch and Brandon (2010) divide workers into six categories: ‘Workaholic’, ‘Positively engaged’, ‘Worker enthusiast’, ‘Relaxer’, ‘Disenchanted worker’ and ‘Unengaged worker’. The categories were designed to observe the homogeneity of the group regarding dimensions such as engagement, loyalty and others. Romero (2016) divided employees in three groups: ‘Freeloader’, ‘The Worker’ and ‘The Entrepreneur’. Heim (2017) introduced four types of employees: ‘Adventurer’, ‘Warrior’, ‘Guide’ and ‘Diplomat’. Chong et al. (2011) grouped employees into three categories: ‘Necessities’ – high engagement level and focus on results with significant impact; ‘Commoners’ – do regular work with no desire for creativity and innovation; and ‘Parasites’ – tend to be negative and negatively influence organisational culture.

Oehler (2015) and many others emphasised that strong leadership is a very important ingredient for good employee performance in the organisation's overall success. Strong leadership is also essential for a company to be successful, which explains why it is important to look at different ways of leadership and to adapt to each group of employees, as well as to the business situation. For this reason, in the fourth section, the paper will focus on different leadership styles and the appropriateness of their use in different situations.

The last (fifth) section deals with the designing of a conceptual framework through the dimensions of the employee type, EVP, engagement and leadership, a task that is also the final goal of this paper. In the previously mentioned sections, every element has been described through research of different literature. In this one, everything will be united and connected through the presentation of mutual influences, which is the added value of this concept. The proposed framework is intended to be a guide for leaders in establishing a culture of highly healthy engagement and high EVP, considering different groups of employees and leadership styles. The concept is divided into four main aspect areas: Environment (Culture), People, Leadership and Performance. The dimensions explored and described in the previous sections are incorporated in each of these aspect areas, with the addition of the Satisfaction, Potential and Work–life balance dimensions. After that, the mutual connection and influence of individual dimensions on each other will be described.

This proposed concept could be a basis for analytical insights and further research on the relationship between leaders and their followers as well. The use of the concept will be demonstrated, and its usefulness validated, through a real business case done on a Croatian bank's analytical department (within the IT organisation unit). Through this validation it will be demonstrated how this theoretical concept can be applied in real business situations. One of the important elements of research used for this real case would be the one from Talajić, Vrankić and Kopal (2021), where they proposed different groups of employees and the proportion of every group in the population in order to obtain optimal business results.

In the conclusion, in addition to summarising the obtained results, the recommended concept will also be critically reviewed and guidelines for further improvements will be given.

In general, this could ultimately have a positive effect on society as a whole and the principles of sustainable development. Leaders are required to be creative, work hard and motivate themselves to make the transition from good leaders to great ones. All this should be an opportunity for innovation in business and an opportunity for breakthroughs that may have been unimaginable until now.

Every organisation needs and wants engaged employees. It will improve their performance and culture. An engaged employee is more devoted to the company, cares more and gives more. This is the reason why many companies try to improve this part and measure the level of engagement. Different studies have been carried out related to this topic and the level of engagement has been used, together with some other dimensions, for the distinction and grouping of employees into homogenous groups.

Albrecht (2010) describes engagement as a state wherein an employee invests more effort in work, attending to work with greater energy and passion. For Kahn (1990) the level of effort the workers devote to work is connected with employee engagement. It includes emotional, physical and cognitive effort. He also explored how the organisation's culture and working environment influence the level of engagement. For Attridge (2009), employee engagement can be improved by improving the organisational culture, working environment and leadership.

Kumar and Pansari (2015) designed the engagement framework with five dimensions: identification, commitment, loyalty, performance quality and satisfaction. The engagement level could be measured by using this framework as well. Identification is defined as an emotional state in which employees stay with the company no matter what. Commitment is more connected with the state of being committed to work despite potential difficulties. Loyalty describes how loyal employees are to the company. Performance quality is related to work efficiency while satisfaction comprises employees’ satisfaction with the organisation's culture and working environment. The employee engagement scorecard that the authors developed can be seen in Table 1 below. Within certain dimensions of the proposed framework, some key items were identified that will be used for the score of each dimension. In the satisfaction dimension they identified five items and five is the maximum score. For the identification dimension seven items were recognised with the maximum score of seven for that dimension. Commitment and loyalty have three items each and performance quality has two items. The maximum total engagement score is 100.

Jewel and Reznik (2016) introduced another engagement framework (Figure 1).

Figure 1.

They identified engagement drivers that influence the engagement level: growth, relationships, autonomy, fairness, well-being and security. Leaders should focus on these drivers to improve overall engagement level in the organisation. In order to be engaged, the employees need to feel growth (both personal and professional), have good relationships within teams, sense that they are treated fairly compared to other employees, and see a fair financial aspect and additional benefits that make them feel relaxed; additionally, it is also necessary for the company to take care of them and make them feel safe.

Wiley, Kowske and Herman (2010) introduced the concept of global employee engagement and defined it as: ‘The extent to which employees are motivated to contribute to organisational success, and are willing to apply discretionary effort to accomplishing tasks important to the achievement of organisational goals.’ They recognised 10 global drivers of employee engagement and four ‘macro drivers’ of engagement (Table 2):

For them, work–life balance is one of the key drivers for highly engaged employees. In some companies, hard work is perceived as a high engagement, but organisations very often underestimate the fact that hard work can influence work–life balance negatively at some level, which can consequently lead to a decrease in level of engagement.

The framework can be seen in Figure 2 below.

Figure 2.

The model is composed of four areas: values and behaviours, macro drivers, desired state, and consequences. The above-proposed drivers can be found in the part values and behaviours. In the second part, those drivers are migrated and mapped to the area of macro drivers. Management of these drivers leads to the third stage of the framework (desired sate), which is employee engagement. Metrics such as profit or sustainable revenue, which are better with the higher level of engagement, can be found in the last part (consequences), and correlation has been found among these metrics and engagement.

Employee value proposition (EVP) is a type of framework that posits a mechanism that can be used for gauging the value that an employee attaches to the organisation in which he is employed, as well as for ascertaining how the employee perceives it. This is an important concept because it represents the opinion that the employee has about the organisation in terms of benefits, culture, working environment and other important dimensions that represent the general image of the organisation.

Browne (2012) designed the EVP framework based on the research of relation between EVP and company performance (Figure 3).

Figure 3.

There are five elements in his EVP framework: benefits, pay, affiliation, work content, and career. Within every element there are key drivers that affect the final EVP results the most. An organisation should find the gap between the desired EVP and present culture (EVP), and try to decrease this gap. Special focus is put on different age groups within every element of the framework. The conclusion states that different age groups have different performance in some drivers and the importance of each driver changes during the work–life cycle. Above all, leadership is very important in building a high EVP.

Heger (2007) introduced a very important concept where he conducted research on connection between the EVP framework and employee engagement. He enriched the EVP framework with the engagement dimension to obtain a more robust EVP model and proposed the possible outcomes of business performance. He recognised the two parts related to the employee: rational and emotional, and also defined the level of engagement as a level of how much an employee invests each of these parts during work. The rational part considers intellectual attributes, which include knowledge, resources and tools that employees need during working time. The emotional part considers emotions, which include inspiration, passion and purpose. The proposed model has three main parts: EVP measures, engagement measures and business outcomes (Figure 4). The EVP measures part consists of three groups: EVP importance, EVP fulfilment and EVP discrepancy. At the beginning, 41 measures are introduced and grouped into 11 categories. In a survey, the employees first mark the importance of each attribute, and then they mark the same attributes with the level of fulfilment. The calculated difference between EVP importance and EVP fulfilment is EVP discrepancy value. The smaller the discrepancy value, the better. Engagement index is calculated in the part of engagement measures. The inputs for this calculation are EVP discrepancy value and survey results related to specific engagement attributes divided into three groups: discretionary effort, organisational advocacy and intention to stay. In this part, labour market opportunity is introduced as an independent variable because the level of labour market opportunity has an impact on the engagement results. If an organisation has a low level of engagement and the level of market opportunity is low as well, the organisation will worry less than in the case when the market opportunity is high. In the case when market opportunity level is high, there is higher risk of employee turnover. The ‘business outcomes’ part consists of business outcomes driven by EVP measures and engagement measures grouped into the three measure groups: account receivable, productivity and profit margin. Voluntary turnover is an independent variable.

Figure 4.

The proposed framework comprehensively describes the connection between EVP and engagement, and consequently their joint impact on the business results.

Different employees bring different traits, attitudes and competencies. For this reason, people management is a difficult and complex task for every leader. One employee could be very creative and innovative, but another might prefer repetitive and less creative work. They are both valuable for the organisation, but each of them needs a different leadership approach. For the leader it is impossible to have a different approach for each employee, but the grouping of employees with similar characteristics and needs could be a valuable concept. In that case, leaders do not have to consider the same approach for each employee. Instead, leaders have the same approach for all employees within one group. It does not mean that leaders do not have to consider an individual approach in many situations, but in the strategical thinking process a leader should consider the group, not individuals.

One of the differentiators between different groups is, as mentioned in the previous sections, the level of engagement. On the other side, engagement cannot be the only attribute by which groups will be made.

Aziz, Wuensch and Brandon (2010) introduced six groups with different levels of engagement, but they also recognised the work–life balance as an important factor for employees related to the final performance. For that reason, work–life balance should be considered as an important differentiator whilst dividing the employees into homogeneous groups. Positive correlation between employee engagement and performance has been demonstrated in many researches, but a lacuna observed in almost all researches is that the possibility of having ‘too many’ engaged employees has not been considered. In this case there is a risk of work–life balance decrease, which can consequently lead to burn-out and performance decrease.

The impact of these two different engagement stages can be seen in Figure 5. In the stage of healthy engagement, work–life balance and engagement level are in positive correlation and consequently improve the performance as well. The line between these two stages is the moment where engagement level is high enough and the maximum level of work–life balance is reached. When an employee is in an unhealthy stage, work–life balance starts to decrease and performance level decreases as well. At the beginning of the unhealthy stage, the performance still increases because the decrease in work–life balance level still does not have a significant impact on performance. As the work–life balance further deteriorates, it starts to have a significant impact on performance and leads to its decrease.

Figure 5.

Another dimension that differentiates employee groups is the EVP measure. EVP is in close relation with engagement. If leaders influence the EVP, they could improve employee engagement.

Heger (2007) made a clear distinction between satisfaction and employee engagement and put satisfaction as an attribute that should be considered when differentiating groups of employees. An employee could be satisfied, but not engaged (for example: someone who is very satisfied at work can feel satisfied just because they can shirk and not work a lot; this is a disengaged employee). An engaged employee should be satisfied.

Potential is the dimension that leaders should consider when dividing their employees into groups. An employee with high potential could drive innovation, is creative, and wields the capability for creating an impact within and outside the enterprise. It is interesting that these employees can be in an engaged or disengaged status. It is best to have an employee who has high potential and a high level of healthy engagement. It may seem that it would be the best for an organisation to have just this type of employees. However, it should be kept in mind that such employees are very demanding to motivate and it is very difficult for leaders to manage them. On the other hand, such employees do not like simple and repetitive work. Talajić, Vrankić and Kopal (2021) showed in their model that there should be around 30% of such employees for the organisation to have an optimal business result.

The dimensions that should be included during the division of employees of an organisation into groups are: engagement level, work–life balance, EVP, satisfaction and potential.

Talajić, Vrankić and Kopal (2021) divided employees into three groups: Enthusiast, Worker and Parasite, and their characteristics by the above-mentioned five dimensions are provided below (Tables 3–5).

They concluded that in the long run the ‘Parasite’ should not exist; and that 29% of all employees should be ‘Enthusiasts’, with the remainder (71%) needing to be the ‘Worker’ type. This will be a very important metric in the proposed concept.

Leaders should justify the goals of the company in respect of profit and they must motivate their employees to invest more effort, use their full potential and discharge their day-to-day tasks as well as creative functions with a high degree of engagement. These three aspects are not in a positive correlation sometimes, which makes the role of a leader very demanding and difficult.

Rush (2012) stressed the important skills of great leaders, such as active listening, good conflict management, good decision making, strategic thinking and subordinates’ empowerment. Stowell and Mead (2020) identified eight categories that followers like in their leaders: communication, being interpersonal, ethics, personality, coach and feedback giver, credibility, strategy envision and basic management. They defined leadership as ‘the accomplishment of a goal through the direction of human assistants—a human and social achievement that stems from the leader's understanding of his or her fellow workers and the relationship of their individual goals to the group's aim.’ Pretince (2004) thinks that leaders should have an individual leadership pattern for every employee, making it possible to activate employees’ intrinsic motivation for work. Sharma and Jain (2013) extended this with the fact that different people need different leadership styles. According to them, the followers are the ones who assess if the leaders are successful. They defined leadership ‘as a process by which a person influences other to accomplish an objective and directs the organisation in a way that makes it more cohesive and coherent.’

Dries and Pepermans (2012) undertook research on leadership potential with recognition of 77 identification criteria grouped into 13 factors (Figure 6).

Figure 6.

They grouped factors in four quadrants and named them Analytical skills, Learning agility, Drive and Emergent leadership. In the first quadrant they measured leaders’ analytical skills, which include factor-related intellectual curiosity, strategic thinking, problem solving and potential of decision making. In the second quadrant about learning agility, the focus is on emotional intelligence, adaptability and willingness to learn. The third quadrant provides insights into the potential that leaders possess to awaken and sustain the drive in employees working under them to, in turn, realise their maximum potential with regard to both day-to-day tasks and creative functions, by using the factors of dedication, results orientation and perseverance. The final quadrant is dedicated to emergent leadership with motivation to lead, self-promotion and stakeholder sensitivity as a crucial factor to measure. The above model suggests one possible means that can be employed for the measuring of every factor including the coefficient of determination (R²), which indicates the effect size range across studies that included a specific factor as a predictor of leadership efficiency, as indicated in Tables 6–9.

Different leadership theories have been introduced and often connected with a specific leadership style. Bass (1990) introduced three different theories: trait, event and transformational. For the trait theory, people become leaders because of their personality traits, while for the event theory, people become leaders because of an important event that inspires them to take up the mantle of leadership. The transformational theory supposes that people become leaders because they want to grow that way and they are ready to learn all the necessary skills.

Khan and Nawaz (2016), although their research was conducted using different literature as a basis, recognised these consolidated theories: ‘great-man’ theory (a special event is made for someone to be a leader), the trait theory (someone is a leader because of their personality traits), the situational theory (leaders adjust the leadership style to the situation and there is no unique style), the behaviour theory (every person has a unique style of leadership with which they feel most comfortable), the process theory (the role and focus of leaders is the well-being of others, and social responsibility), the transactional theory (followers are rewarded for goal accomplishment while leaders are more focussed on results and less focussed on people) and transformational theory (the focus is on people and motivation, including ethics and team benefits as well).

Leaders do not use the same style all the time and they mix them, even though they can prefer one style over another. It depends on the situation they have to manage factors such as company culture, employee type, etc.

Murari (2011) introduced five distinct leadership styles: transactional, transformational, abusive, servant and ethical. These styles are more often used, and they will be used in the final proposed framework of this paper. The transactional leadership style is oriented towards the results and less focussed on people. There is low trust and almost no education focus. The transformational style is more focussed on people motivation and mentoring. This style is especially used in the situation of change. Leaders that use servant leadership style are those who listen with empathy, help people grow and build a culture of trust. This style is similar to transformational leadership but is more used in more ordinary situations. Ethical leadership style is characterised by reliability, transparency, integrity, non-discrimination and honesty. Leaders with abusive leadership style have low self-esteem, and they typically tend to be unreliable and unethical. This leadership style will not be included in the framework because this style is not the one that drives a positive effect on business results.

Nandasinghe (2020) emphasised that leadership styles have an impact on the performance of the organisation. For them, the relation-oriented style in general has a better impact on an organisation's performance than the task-oriented one. It should be pointed out here that some urgent situations necessitate giving preference to the task-oriented style over the relation-oriented one.

Tannenbaum and Schmidt (1958) introduced the concept of ‘forces in leadership’. They recognised ‘forces in the leader’, ‘forces in the subordinates’ and ‘forces in the situation’. The ‘force in the leader’ includes the leader's personality, value system, confidence in subordinates, preferred leadership style, and self-confidence in an uncertain situation. The ‘force in the subordinate’ deals with the fact of the followers being characterised by different expectations and personalities (the numerous variants among which might admit categorisation across a wide spectrum). ‘In a climate of mutual confidence and respect, people tend to feel less threatened by deviations from normal practice, which in turn makes a higher degree of flexibility possible in the whole relationship’ (Tannenbaum and Schmidt 1958). The ‘force in the situation’ is driven by the type of organisation, specific situational problems and the pressure of deadlines.

Xu and Thomas (2011) used 360-degree feedback for the organisation from New Zealand, where they calculated the correlation of leadership attributes with employee engagement level. They found a positive correlation of team support, performance effectiveness and integrity with level of engagement. Team support had the highest correlation factor, which means that leaders should pay attention to creating team spirit and support as a priority in the leading process.

‘Employee engagement is harnessing of organisation members’ selves to their work roles; in engagement, people employ and express themselves physically, cognitively, and emotionally during role performances.’ (Kahn 1990). This means that through availability, safety and meaning the leader can influence employee engagement.

Judge and Piccolo (2004) found a strong positive correlation between transformational leadership and satisfaction. This could lead to a higher engagement level. Erkutlu (2008) and Lee (2005) found a connection between transformational leadership and commitment. They showed a positive correlation, which can lead to an engagement level increase as well. Griffin, Parker and Mason (2010) found that a clearly stated leader's vision can have a positive impact on adaptivity and proactivity. Those two are important forces that influence engagement.

Ashfaq, Abid and Ilyas (2021) discovered that ethical leadership has an impact on self-efficacy and commitment, which in turn increases engagement.

Devi and Narayanamma (2016) demonstrated strong positive correlation between two leadership styles (transformational and transactional) and the level of engagement. They used the UWES tool for measuring employee engagement, together with a multifactor leadership questionary to measure the leadership style. The transformational leadership style had a greater impact on engagement than the transactional one. Jayanto and Basbeth (2021) found that transformational leadership is positively correlated to employee engagement, and that the inspirational motivation is the dimension of leadership that has the highest impact on employee engagement. Benazir (2015) conducted research on the impact of leadership and rewarding on employee engagement in the banking sector of India. The estimated correlation between reward and engagement was 0.283, while the correlation between leadership and engagement was 0.355.

Many studies have shown the importance of leadership in reaching a high level of engagement. For that reason, leadership will be an important part of the concept that will be presented in the next section.

This section presents previous research related to employee motivation and the dimensions that particularly affect this motivation. As a general conclusion from the previous research publications, the following dimensions were highlighted through which a leader can influence employee motivation: engagement, EVP, potential, satisfaction and work–life balance. Through these dimensions, leaders not only motivate employees but also build an organisational culture that will lead to better business results. This puts the leader at the centre of the entire process. The entire process will be shown in the creation of the leadership concept in the next section. The concept that follows is a novelty in relation to previous researches, because unlike the previous ones that analysed the dimensions of motivation in silos (separated from each other), all these dimensions will be integrated and interconnected into a concept through which leaders will be able to comprehensively see the culture of the organisation and work on its improvement. This will be done in the next section.

A review of the above researches shows how complex the entire process of developing a culture that promotes business growth and satisfaction of the organisation's employees is. In this section, the above researches will be integrated into a unique conceptual framework that will serve as a guide for leaders in terms of what they must take into account when building a culture of business growth, how each part of the framework affects the entire system and how the added value of the organisation is actually generated. Until now, mostly individual areas have been observed separately. The novelty of this paper is the design of a framework that integrates everything into one system. This framework, together with its inputs (especially those from the Environment section), provides not only the possibility of additional data analysis in the form of prediction of employee behaviour but also the prescription of future activities for the improvement of the entire system.

The duality of this concept is manifested through scientific and practical contribution. The scientific theoretical contribution is manifested through the unification of different theories into one new comprehensive concept that is not found in recent available literature. On the other hand, in a practical sense, leaders can, based on this concept, practically use it to set their strategic goals in a way that would support the business growth of the organisation. In addition to setting strategic goals, leaders can practically use the concept to take a deeper look at each element, analyse the data they collect for each of the elements and narrow their views on those parts that can have the most influence on improving the organisation's culture and bringing about better business results.

In general, the framework consists of four main areas: Environment, Leadership, People and Performance.

The ‘Environment’ area represents the culture of organisations and the general working environment. There are five sub-areas in this area. Sub-area 1 (EVP) represents the part related to the employment value proposition, where, by surveying employees, the gap among the fulfilment of expectations for a certain attribute and the importance of a particular attribute is calculated. The obtained gap (discrepancy) is an important indicator for the leader as to the direction in which the strategy should be adjusted, and the attributes with which the employee is not satisfied. Sub-area 2 (Engagement) abuts on this part. In sub-area 1, the leader already receives signals about the potential level of engagement, and in sub-area 2 it is further calculated using the attribute groups’ discretionary effort, organisational advocacy and intention to stay. Through these two sub-areas, the leader already has an overall picture of the level of employee engagement and how the employees perceive the company. In sub-area 3 (Potential), the leader monitors the potential of the employees. Potential can be monitored either through achieved results or through various knowledge tests. This part is important for the leader in order to be able to assign adequate tasks to the employees according to the levels of their potential, but also to be able to know what kind of employee is needed for the required position when hiring a new employee. In sub-area 4 (Satisfaction) the leader measures employee satisfaction. Although this sub-area is partly connected with sub-area 2, it is important to measure it separately, since there can be situations of an employee who is engaged and not satisfied, and vice versa (that the employee is satisfied but not engaged). For example, an employee can be satisfied because he can slack off and rest at work, which means that he is not engaged. That is why leaders must monitor this part with special focus. The final sub-area 5 (Work–life balance) is also closely related to sub-areas 1 and 2, but it needs to be additionally monitored. This is especially important in the context of engagement and the possibility that due to an imbalance in the work–life balance, the employee goes into the phase of unhealthy engagement, which can result in burn-out and deterioration in all elements of business performance.

The next big area is ‘Leadership’. In this area there is one sub-area (sub-area 6) related to leaders. Leaders play an extremely important role in this framework. Their task is to build the culture of the organisation (area: Environment), motivate employees (area: People), monitor business results (area: Performance) and make adjustments in management accordingly. Their main tool is the leadership style and the results of the analyses they get from the Environment area. Using the results and data obtained from this area, they carry out suitable adaptations in their leadership style, and innovatively formulate programmes using which to periodically identify areas requiring improvements, as well as define activities needing to be implemented that would result in the execution of those improvements, simultaneously leading to better business performances. The leadership styles they use are transformational, transactional, servant and ethical.

‘People’ is another big area inside the framework. Employees are the ones who form the culture of the organisation. By their behaviour, they determine what the culture will be and further determine the key values in the ‘Environment’ area. In this area, two sub-areas are distinguished: 7a (Individual Employee) and 7b (Group of Employees). For the leader, 7a is important because of the individual approach to the employee that aims to recognise the employee's needs and for being able to calculate individual values from the ‘Environment’ area. On the other hand, each of these individual values make it possible to design 7b and group employees into relatively homogeneous groups. Through the group view, on the one hand, the leader makes general strategic management decisions adapted to each of the groups; but, on the other, he also manages the results of the organisation by optimising the share of individual groups of employees in the total population. As already mentioned, Talajić, Vrankić and Kopal (2021) calculated the optimal shares of individual groups in the population for business results to be optimal. A population composed only of the most ambitious, the most creative and the ones with the highest possible potential is not optimal. It is almost impossible for a leader to manage such a population because such employees are also looking for creative work. Very often, organisations have tasks that are operational in nature and are not interesting to the ‘best’ group of employees. That is why the leader must optimise through the optimal shares of groups. The same authors divide employees into the ‘Enthusiast’, ‘Worker’ and ‘Parasite’ groups (mentioned in previous sections). These groups are also suggested for using and managing this framework. In the long run it has been demonstrated by Talajić, Vrankić and Kopal (2021) that an employee population that consists of 29% of ‘Enthusiast’ and 71% ‘Worker’ is optimal for the organisation in order to derive optimal business results. They also observed that in the short run, there was a tendency of the employee population towards a composition largely dominated by Workers and Enthusiasts, but to a minimal extent also unavoidably involving Parasites, e.g. in one case, a mix of 24.26% ‘Enthusiast’, 58.58% ‘Worker’ and 17.16% ‘Parasite’ was observed; such observations lend credence to the view that in the short-run, it is inevitable that an organisation will have at least a few Parasites. A possible reason for this is the fact that it takes time to recognise the ‘Parasite’ type, and that they very often skilfully manipulate the organisation. However, in the long run, if the organisation monitors the work of ‘Parasite’ employees effectively, they should not survive, or they should be redirected to one of the remaining two types.

The last big area is ‘Performance’. In the end, everything is related to the performance of the organisation. Business results are a measure that determines how well a leader does the job and how good a culture the leader has built. Within this area, there is sub-area 8 (business outcomes). It includes productivity, profitability, margins, employee turnover, customer satisfaction and process efficiency. The organisation should set up the key performance indicator (KPI) values and monitor the actual performance.

The described framework is represented in Figure 7. The mechanism of the framework works as indicated by the arrows. The ‘Leader’ area affects the ‘People’ area. With leadership style, the leader manages employees on the individual and group levels. The ‘People’ area through employees (individual and group) influences the ‘Environment’ area, building the culture of the organisation and creating values in five sub-areas within this area. Through these values, ‘Environment’ affects the area of ‘Leader’ in such a way that the leader takes the data, analyses it and adjusts leadership method, and makes decisions in order to improve the values. This is a cyclical process that happens continuously. Ultimately, the ‘People’ area affects the ‘Performance’ area. It is the employees who, with their level of efficiency and effort, bring better results to the organisation in all aspects.

Figure 7.

The proposed concept was validated through its application in a department (within the IT division) within a Croatian bank. It was a department supporting the development of analytical systems and data warehouses (DWH). The department had 25 employees and was faced with a high turnover of employees (1 leave per month), with even those who had been employed for only a brief while contributing significantly to the turnover. The problem (at the time, it was assumed to be a problem) was that mostly the best (‘Enthusiasts’) employees left and it was difficult to find a suitable replacement. Together with the Human Resource (HR) department, an attempt was made through the mentioned concept to locate the potential problem and ascertain whether the department really had bigger problems because these employees left the company. Measurements and analysis of each of the components of the concept were made. The results showed quite a large ‘EVP discrepancy’ within ‘1. EVP’ and a low level of satisfaction within ‘4. Satisfaction’. In connection with the final output (‘8. Business Outcomes’) of the department, it was noticed that the more creative and more complex tasks were still efficiently performed and the productivity was at a high level. However, the problem was in the productivity and efficient realisation of less complex operational tasks, and in the delays in performing less complex tasks. Looking again at the concept as a possible problem source, the element ‘7b. Group of Employees’ was highlighted. Analysis of the structure of the department's employee population revealed that the ‘Enthusiast’ type amounted to 45% and the ‘Worker’ type 55% of this population, whereas the type ‘Parasite’ was not recognised. Comparing this result with the 29% ‘Enthusiast’ suggested by Talajić, Vrankić and Kopal (2021), a considerable deviation was noticed. Further analysis showed that the department did not have that many attractive activities that it could give to the ‘Enthusiast’ type. Consequently, the employees constituting this department were dissatisfied, which explains the facts of the ‘EVP discrepancy’ and the level of ‘satisfaction’ being unsatisfactory. The department had a lot of less-complex activities. The percentage of 55% ‘Worker’ type was not enough to finish all these activities. For that reason, some of those activities must be done by those coming under the ‘Enthusiast’ category. They are not interested in these activities and do not perform them efficiently. Owing to the requirement to carry out these activities, which might be perceived as mundane by those covered under this category, such individuals find their motivation levels falling, and accordingly, leave the organisation as the most likely outcome. The conclusion was that a higher turnover of employees can be solved (reduced) in such a way that the replacement for an ‘Enthusiast’-type employee that left should be a ‘Worker’ type. Productivity will continue to be high on complex tasks, and the hiring of additional ‘Workers’ will improve the efficiency and timely completion of more operational and less complex tasks that are important for the department as well. Using this strategy, in period of 1 year, the department reduced the share of ‘Enthusiasts’ to about 32% and increased that of ‘Workers’ to 68%. Follow-up measurements showed an increased level of ‘Satisfaction’ and a smaller ‘EVP discrepancy’. In the end the employee turnover was reduced to only 1 leave per 6 months. Owing to this helpful concept, which helped to understand the interdependence between all parts of building the culture of the organisation, the department managed to improve its own culture and identify the root cause of the problem.

Managing people is a complex and difficult task. Leaders influence employees with their methods and thereby create an organisational culture that encourages better organisational performance. Within this paper the general leadership framework is created. The general framework consists of four major areas that influence each other: ‘Environment’, ‘Leadership’, ‘People’ and ‘Performance’. Various studies have shown the importance of each of these areas and their sub-areas, but a consolidated analysis of their mutual integration and integrated view was lacking. This paper connected all of this in one framework to make leaders conscious of the fact that these connections exist, to help them identify such connections, to make them aware of the complexity of the whole process and to point out the responsibility they need to shoulder in this regard.

The designed concept brings a dual benefit that manifests itself through scientific and practical contributions. The scientific contribution is manifested through the fact that the concept was created as a cluster of different theories and views united into one new system. This system offers a broader and comprehensive view of the mutual influences of the elements with which the leader manages employees and develops the culture of the organisation. Awareness of the existence of connections and relations between these elements is one of the key contributions of this model. This kind of theoretical basis helps the leader in the strategic reflection on the issue of improving the culture of the organisation through quality management of employees. This leads to a practical contribution that is manifested through the application of the concept in concrete business situations, one of which is described above in the paper itself. Leaders can use this concept in such a way as would enable them to examine the building blocks of it and analyse each of the elements. As the concept also shows the mutual influences of the components, the leader can immediately identify cause-and-effect relationships. With a comprehensive analysis employing this concept, it is possible to focus on the parts that have the most impact on a positive business culture at a given moment. In the above example, the leader together with the HR department found the problematic part, which properly directed the focus to the source of the problem and its solution in the form of a change in the proportion in the population comprised of ‘Enthusiast’ and ‘Worker’ types.

The beauty of this concept lies in the possibility of conducting this kind of analysis and systematically solving various problems.

This concept can also help in the classification of problems in managing employees and building a quality culture. In the example of the analytical support department, a more detailed analysis of the concept led to the identification of a non-optimal share of employees of a particular group, which precisely classified one type of problem. Over time, as the model is used, other types of problems will be recognised and classified, which will enable the design of standards for classified problems, and thus again help leaders to more quickly discover the areas of the source of problems and possible improvements obtainable resultant to such a classification.

Critically, what is missing from this concept and needs improvement are the standards for calculating the individual metrics behind each element of the concept. Almost each of the components can be quantified, and therefore measurement standards or scores for individual elements in the organisation can be proposed. Such a single metric standardisation and measurement recommendation would greatly help the leaders themselves in implementing the culture improvement strategy in the organisation. The first step in this improvement is the research of recent literature that will ultimately lead to the implementation of the concrete quantitative dimension of this model (for example, measures of engagement or EVP). In addition to the obvious practical contribution, with the quantification (score) of each of the elements, we strengthen the scientific contribution of the concept, since behind every quantification measure there is a scientific basis. In addition, prescribing measurement standards reduces the risk of subjective impressions and assessments, which ultimately leads to wrong conclusions and even manipulation.

An additional possibility of improving the concept is a clearer investigation of the area of ‘People’. This specifically refers to researching the approach that a leader can have towards an employee individually or in a group. Such a systematic research and proposals of approach with concrete activities would greatly help leaders in correcting the approach to each employee or a certain homogeneous group of employees. The contribution itself would be based on proposed approaches, which would open the eyes of leaders, enabling them to define new, more creative, and innovative approaches.

Damij et al. (2015) published a very interesting work on the motivation of the employee. Their main measuring instrument was a questionnaire based on Herzberg's dual-factor motivation theory. The questionnaire consists of 30 + 30 questions related two factors: motivators and inhibitors. Motivators are related to extrinsic motivational factors while inhibitors are related to intrinsic motivational factors. Using the questionary, they choose 30 factors and measured their importance on the motivation. The correlations among them were calculated as well. The immense novelty of their research lies in the fact that they proposed a social network analysis (SNA) model to see how one factor affects another in terms of network and how the decrease/increase in one factor can influence the others.

For the leadership concept proposed in this paper, the above research can be a great value addition in terms of adding the new tool to the concept. That tool (especially the part with an SNA) could help leaders to observe the connections and strength of connections among their employees, as well as the mutual influences of factors that have an impact on motivation.

Owing to all this, the importance of the designed concept is manifested in the fact that it essentially brings a new perspective and opens the door wide for all the improvements mentioned above.