Encyclopedia
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Subjects:
Business, Finance
Leadership is generally viewed as a social influence process whereby a leader attempts to influence the activities of individuals and groups to meet set objectives. Firm growth is a significant indicator of company performance and business success and is at the core of entrepreneurship. It is important to understand the leadership styles that induce or influence the growth of Fintech start-ups.
- leadership styles
- financial technology
- Fintech
- growth
- start-up
- entrepreneurship
1. Introduction
Fintech has been defined as “advances in technology that have the potential to transform the provision of financial services by stimulating the development of new business models, applications, processes and products” [16]. Fintech is also defined as the technology that has enabled innovation in financial services and could lead to new business models, applications, processes, or products with a material effect associated with the provision of financial services. Ref. [17] refers to Fintech as, “innovative applications of digital technology for financial services”. Ref. [18] links Fintech with innovations, information technology, and financial sector. Fintech firms are start-ups that utilize innovations that have brought disruption to the financial sector and business ecosystems by providing speedy delivery, flexibility, and customer satisfaction [19,20], thereby, providing an alternative to traditional banking services. Some of the products and services provided by Fintech firms include crowd funding, mobile payments, block chains, invoice trading, peer-to-peer (P2P) lending, and digital currency. Systematic literature reviews indicate that mobile payments have been widely studied [21,22].
The rise in digital technology adoption opens up new business potential for Fintech start-ups, thereby providing entrepreneurship and growth [19,23]. Business growth was noted, especially during the COVID-19 lockdown, with an increase in the use of digital technologies. Some of the outcomes from Fintech start-ups are growth in entrepreneurship, income, financial inclusion, innovation, improved cash flows, and firm growth [24].
Studies on Fintech come from a variety of disciplines and subject areas. Ref. [25], for instance, looked into how platforms’ Fintech levels affect word-of-mouth. Findings demonstrate that communications can be improved by raising the level of Fintech. Ref. [26] Zarifis and Cheng (2022), on the other hand, looked at the relationship between people’s faith in artificial intelligence (AI) and the adoption of Fintech and insurtech, or specialized technology used in insurance. They also provided a model that illustrates how psychological tendencies to trust, sociological factors that influence trust, trust in the financial or insurance organization, and trust in AI and related technologies all contribute to the formation of trust in Fintech and Insurance. Ref. [27] Gonçalves et al. (2023) investigated consumers ‘reactions to AI (vs. humans). Results show that customer responses to AI (vs. human) credit choices vary depending on the type of credit. Due to perceived role congruity, rejection by an AI for personal loans results in a higher level of satisfaction than rejection by a credit analyst. The results also show that customers’ rejection sensitivity affects how they view the role and congruence of financial services.
Other focus areas studied so far include antecedents of adoption, regulations, concepts, history and evolution, and the impact of financial technologies in the financial sector, including the effect on profit and the economy [19,20]. Among the antecedents of Fintech adoptions, there is a need to understand the characteristics of founders. However, the push towards the upscaling of Fintech start-ups in the global economy requires not only a conducive business environment for firms but also enhanced entrepreneurial enthusiasm among small-scale businesses. For this trajectory to continue and not be a temporary phenomenon, start-ups must continue to outgrow themselves and constantly develop competencies that will help them survive and thrive. Thus, leadership has become one of the driving forces that help to achieve the required transformation in making decisions for the required change, especially in the era of new digital technologies [28].
2. Leadership
Ref. [29] defines leadership as “the process of influencing others to agree about what needs to be done and how it can be done effectively, and the process of facilitating individual and collective efforts to accomplish the shared objectives”. Leadership is generally viewed as a social influence process whereby a leader attempts to influence the activities of individuals and groups to meet set objectives. Ref. [30] noted that leaders with appropriate goal-achieving styles typically give instructions, spend time planning, emphasize deadlines, and provide explicit schedules of work activities. It is important to note the connection between entrepreneurship and leadership.
3. Leadership and Entrepreneurship
Literature indicates that several entrepreneurs have unique and distinct characteristics that differentiate them from the rest [31]. This distinctiveness among entrepreneurs is more apparent during the inception stage; enterprise leaders (entrepreneurs) are perceived as unique from the rest. They are endowed with an appetite for risk needed for goal accomplishment; they are intuitive, and have high self-esteem, which is reflected in their attitudes [32]. An assessment of the definitions of an entrepreneur indicates that most authors seem to suggest different perspectives. For example, an entrepreneur is defined as an innovator [33] and a risk-taker [34]. Some would say an entrepreneur should find a business [35]. Others have argued that entrepreneurs are more alert to opportunities [36]. While these definitions cover different perspectives, it can be argued that an entrepreneur has special characteristics that enable him/her to succeed. Ref. [37] mentioned the characteristics of a successful entrepreneur as being able to take risks, having knowledge and manufacturing know-how, innovativeness, and marketing skills. This distinctiveness among entrepreneurs is more apparent during the inception stage; enterprise leaders (entrepreneurs) are perceived as unique from the rest. They are endowed with an appetite for risk needed for goal accomplishment; they are intuitive, and have high self-esteem, which is reflected in their attitudes [32].
In addition, an entrepreneur runs a business or at least organizes factors of production, of which labor is part. This then entails that an “entrepreneur is a leader for the business” [38]. This leader, however, must be leading people (his workers) in the direction of profit-making. However, according to contemporary trait theory, this leader must possess certain traits to lead the business. These include openness to experience, conscientiousness, extraversion, and agreeableness. This, therefore, provides a connection between an entrepreneur and a leader. In particular, studies [39,40] have highlighted that openness (the disposition to be imaginative) and conscientiousness (seeking achievement) appear to be aligned with an entrepreneur’s characteristics of innovation, intellectual curiosity, and opportunity creation/recognition. A critical analysis of the leadership theories reveals similarities to the concept of entrepreneurship. It is for this reason that in the recent past, the term “entrepreneurial leadership” has been established to indicate that enterprises need leaders to succeed. To be precise, the concept of “entrepreneurial leadership” derives from a fusion of entrepreneurship and leadership and is associated with the notion that highly competitive circumstances require innovative leadership mindsets capable of implementing rapid change [41]. Business management entails managing people, which is somehow related to the concept of leadership. It is for this reason that [42] argues that the fusion of entrepreneurship and leadership, if applied, can enable an organization to take advantage of opportunities to gain a competitive advantage. It is from this view that a study focused on the effect of leadership on firm growth has been necessary.
Zambia has witnessed an increase in the number of Financial Technology (Fintech) companies operating and actively facilitating payments. This has led to increased participation in the financial payments space, which is predominantly ideal for commercial banks [11]. Zambia is therefore encouraging Fintech to develop financially more inclusive digital solutions [11]. Zambia has experienced steady growth in electronic money transfers in the past few years due to Fintech products and services. The products have contributed to national development through Fintech’ impact on social and economic sectors such as e-commerce, agriculture, health, education, insurance, and the creation of jobs, especially through mobile money agent distribution networks that play a significant role in reaching the last mile [11].
4. Leadership Styles
There are various leadership theories expounded in the literature, including traits, behavioral, and situational. Some of the leadership styles that are used today, along with related leadership theories, are autocratic, democratic, laissez-faire, transformational, charismatic, and transactional. According to [43], leadership styles are the approaches or ways used to motivate followers to achieve the goals of the firm. As such, leadership is not a “one size fits all” phenomenon. Different situations will require varying approaches to leadership styles, especially in the case of entrepreneurs [32]. It is for this reason that [44] argued that leadership styles should be selected and adapted to fit the entrepreneurs’ situations, workforce, and individual personalities. Furthermore, a leader should possess a thorough understanding of the different styles, as such knowledge increases the tools available to lead effectively. In other words, leadership style refers to the application of different leadership types in different situations to ensure the attainment of organizational objectives. Thus, the success of Fintech start-ups largely depends on the ability of the leadership to infuse a work culture through the use of new digital technologies for real-time synthesis of information [45]. For such opportunities to be well harnessed by start-ups in the Fintech space, organizational leadership styles may need to be developed to suit the business context.
5. Firm Growth
Firm growth denotes a change or increase in size, number of employees, profit, revenue, and sale volume [50]. Firm growth is a significant indicator of company performance and business success and is at the core of entrepreneurship [51,52,53]. The nature of entrepreneurship includes firm expansion as a key component. Entrepreneurs who expand their businesses would generally be regarded as successful, and their businesses would probably contribute to economic growth [50]. Firm owners who are actively motivated by business aim to grow the firm, while subordinates who are well motivated and empowered propel a company’s growth. It is therefore important to understand the leadership styles that induce or influence the growth of Fintech start-ups. Conversely, a lack of growth may drastically lower start-ups’ chances of surviving [54].
6. Leadership Style and Firm Growth
Ref. [55] claimed that the leadership style applied has a positive or negative effect on growth. Any leadership style adopted has ethical inspiration for organizational growth and the community [55]. An analysis of the literature shows that there is a connection between leadership styles and business growth.
6.1. Transformational Leadership Style and Firm’s Growth
By exploring the trait, behavioral, and contingency approaches to leadership, transformational leadership was conceptualized as one of the contemporary leadership theories [56]. According to [57], this theory was developed by Burns and later enhanced by [58] and others [59]. The major premise of transformational leadership theory is the leader’s ability to motivate the follower to accomplish more than what the follower planned to accomplish. Burns postulated that transformational leaders inspire followers to accomplish more by concentrating on the follower’s values and helping the follower align these values with the values of the organization. Transformational leadership encourages team members to be proactive and attain goals in a manner that exceeds expectations. Ref. [60] added that a transformational leader is a person who stimulates and inspires (transforms) followers to achieve extraordinary outcomes. To achieve that, this type of leader pays attention to the concerns and developmental needs of individual followers; they change followers’ awareness of issues by helping them to look at old problems in a new way; and they can arouse, excite, and inspire followers to put out extra effort to achieve group goals [56]. Ref. [61] added that transformational leadership theory is all about leadership that creates positive change in the followers, whereby they take care of each other’s interests and act in the interests of the group as a whole. Warrilow [61] identified five components of transformational leadership that are fundamental, i.e., inspirational motivation (IM), idealized influence attributed (IIa), idealized influence behavior (IIb), intellectual stimulation (IS), and individualized consideration (IC). IM is the extent to which leaders articulate their visions to inspire their followers with optimism about future prospects, goals, and outlook. Such leaders are also responsible for providing meaning and clarity to current tasks and responsibilities. II is the extent or degree to which a known leader behaves in an admirable way that exhibits conviction to positively influence his/her followers. This is achieved by setting a clear set of values and acting as a good role model. IS is the degree to which a leader challenges assumptions, stimulates, and encourages creativity in the followers—by providing guidelines for followers to assess how they can connect to their leaders, the organization, and each other and how they can innovatively overcome any obstacles in the path of their objectives. IC is the degree to which the leader attends to each individual follower’s needs, acts as a mentor or coach, and gives respect to and appreciation of the individual’s contribution to the team. This fulfills and enhances each individual team member’s need for self-fulfillment and self-worth, and in so doing, inspires followers to further achievement and growth.
Transformational leadership has the ability to positively contribute to the success or growth of the company [57]. In other words, attributes of transformational leadership styles such as encouraging team members to be proactive, attaining unexpected goals or goals exceeding expectations, and stimulating and inspiring followers to achieve extraordinary outcomes will positively affect firm growth. Transformational leadership significantly enhances the morale, performance, and motivation of employees through a variety of mechanisms and approaches. Such mechanisms include connecting the follower’s sense of identity and self to the project and the collective identity of the organization; being a role model for followers that inspires them and makes them interested; challenging followers to take greater ownership of their work; and understanding the strengths and weaknesses of followers so the leader can align followers with tasks that enhance their performance [62].
6.2. Transactional Leadership Style and Firm’s Growth
Transactional leadership focuses on exchanges that occur between the leader and his team. This leadership style focuses on helping followers attain their personal goals. Transactional leaders clarify team members’ responsibilities, their performance targets, and the tasks that must be completed [56]. This type of leadership deals with maintaining the current situation and motivating people through contractual agreements [62]. With a transactional leadership style, leaders promote the compliance of their followers through both rewards and punishments. In contrast to transformational leadership, transactional leaders do not seek change; they merely keep the status quo. To achieve this, they pay attention to followers’ work to find faults and deviations [56]. Transactional leaders use an exchange model, with rewards being given for good work or positive outcomes and punishment for poor work or negative outcomes.
Components of transactional leadership include contingent reward (CR), management-by-exception active (MbEA), and management-by-exception passive (MbEP). Contingent rewards (such as praise) are given when the set goals are accomplished on time, ahead of time, or to keep subordinates working at a good pace at different times throughout completion. Contingent punishments (such as suspensions) are given when performance quality or quantity falls below production standards or goals and tasks are not met at all. Within management-by-exception, there are active and passive routes. Active management-by-exception means that the leader continually looks at each subordinate’s performance and makes changes to the subordinate’s work to make corrections throughout the process. Passive management-by-exception leaders wait for issues to come up before fixing the problems. Ref. [63] argued that transactional leadership harmed organizational performance because it did not provide opportunities and freedom to employees. He recommended that organizations use a leadership style that enhances the capabilities and abilities of the people but also provides incentives for good work output.
6.3. Laissez-Faire Leadership Style and Firm’s Growth
Laissez-faire leadership refers to a “hands-off, let things ride” approach to influencing individuals in the workplace [64]. According to [65], laissez-faire leadership is “the absence of leadership” and “the avoidance of intervention”. As such, laissez-faire leaders tend to behave as if they are abdicating from the responsibilities and duties assigned to them [66]. Attributes of laissez-faire leadership such as avoidance of intervention, little guidance from leaders, people expected to solve their own problems, access to many resources and tools, constructive criticism from leaders, leaders taking charge only when necessary, and leaders taking responsibility for overall actions and decisions can lead to innovations and, consequently, firm growth in Fintech start-ups in Zambia. This approach may work better when dealing with highly competent and educated staff that require minimal supervision.
This entry is adapted from the peer-reviewed paper 10.3390/fintech2040039
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