Take me to Your Leader

Companies are famously non-democratic. A CEO sits at the apex of the day-to-day running of the firm, followed by a cascade of other hierarchical positions handing down orders to the minions below, all the way down to the grunt level.

But ever-sharper competition has prompted companies to flatten hierarchies and rely more on team-based structures, in which cross-functional teams are confronted with complex, non-routine analytical tasks. These teams, as a rule, lack a formal leader; if at all, a leader “emerges” more or less organically (in economic parlance, is “chosen endogenously”) as the task progresses. However, when multiple individuals share responsibilities and challenges, the role of leaders becomes somewhat ambiguous.

Much has been written on how this translates into greater efficiency and creativity, on the effects of different styles of leadership and on the role of monetary incentives. But nothing so far on what happens if a leader is chosen right at the outset.

CESifo Fellow Florian Englmaier and his colleagues Stefan Grimm, Dominik Grothe, and Simeon Schudy of the University of Munich, plus David Schindler of Tilburg University, set out to explore this angle. Their latest CESifo Working Paper, The Value of Leadership: Evidence from a Large-Scale Field Experiment, reports their findings.

Our researchers resorted to a natural field experiment with 281 teams encompassing 1273 participants, who were tasked with solving a series of demanding cognitive tasks to succeed in an escape room setting. Of course you are familiar with the concept, but here it goes anyway: an escape room is a type of game in which players have to cooperatively accomplish cognitive tasks, discover clues and solve puzzles in order to, well, escape a room (or a complex) in a given amount of time. (The idea is so useful that many companies now use them in real life to recruit highly skilled workers and to assess and improve an individual’s teamwork ability.)

The key in this particular experiment was to encourage one portion of the teams—dubbed Leadership—to select a leader right at the outset; the other group of teams—the Control—was not asked to do so. The results were surprising.

When team performance was measured in terms of completing the tasks, the amount of time needed and the creativity of the solutions, the Leadership teams scored significantly better than the Control ones. While only 44% of the Control teams accomplished their task in the allotted time, the Leadership teams clocked a healthy 63%—and they had 75% more time remaining at the end than the Control group did.

A bit counterintuitively, the researchers found that, as choosing a leader also alters team organisation, team members “tend to be more likely to acquire information individually and less likely to stand together in order to jointly reflect on subtasks”. While that sounds a bit less team-y for a set-up formed around teams, it does have the effect of improving perceived coordination among the team members. And it does not impair the originality of the solutions adopted one bit.

So far, one of the most effective tools for companies to increase team performance and foster idea creation has been to provide monetary incentives. The approach demonstrated by our researchers achieves the same results—and it costs nothing.

So that’s one for an added bit of democracy in company lore.  

Other CESifo Working Papers by Florian Englmaier

Other CESifo Working Papers by Simeon Schudy

Other CESifo Working Papers by David Schindler

Other CESifo Working Papers on Leadership