1

Management of Australian water utilities: The significance of transactional and

transformational leadership

Abstract

What organisational factor has the most significant impact on the management of water

utilities? This paper seeks the views of middle managers in several water utilities across four

Australian states to address this question. It also examines their views of leadership in their

organisation. It draws upon Bass’s full range leadership theory to examine their views on

three models of leadership: transactional leadership, transformational leadership, and a

combination of both transactional and transformational leadership. The respondents identify

leadership as the most critical enabling factor for the effective management of water utilities.

They believe that effective leadership requires a mix of transactional and transformational

leadership skills. They state that their supervisor’s leadership skills are below their

expectation of an effective leader. These leadership issues are discussed in the paper.

To cite: Taylor, Jeannette. forthcoming. Management of Australian water utilities: The

significance of transactional and transformational leadership. Australian Journal of Public

Administration.

2

Australian water utilities are facing an increasingly complex and uncertain external

environment in their delivery of water services to citizens. Increased water demand from

factors, such as population growth, coupled with climate change and reduced rainfall

reliability, mean that water utilities have to find better ways to meet citizens’ demand for

water. Like other organisations, the effective management of water utilities is dependent on

the willingness of employees to put forth high levels of effort towards meeting organisational

goals. This is where leadership can make a difference. On one hand, the water utility sector is

typically characterised as being dependent on the specialist technical skills rather than the

general leadership skills of its leaders; “traditional urban water management systems can be

characterised as centralised, large-scale, highly engineered, linear systems built for efficiency

and expansion, and managed by technical elites who in turn work within a strict regulatory

framework” (Brown et al. 2011, p.4039). On the other hand, despite differences in their

missions and goals, studies in public and private sector organisations have both emphasised

the importance of leadership for eliciting desirable employee outcomes, such as improved

satisfaction, commitment, and particularly productivity (e.g., Bass et al. 2003; Jacobsen and

Andersen 2015; Shamir et al. 1993). Accordingly, it is important to examine how significant

leadership is for the effective functioning of water utilities.

This research sought the views of middle managers on leadership practices in a group

of Australian corporatised water utilities. Middle managers have been referred to as the

“fulcrum”, playing a critical role between top management and employees (Podger and

Wanna 2012). They can use downward influence to implement innovative initiatives within

their unit. They can also use upward influence to champion issues and communicate

information for possible inclusion at the top management level (Currie 2000, Floyd and

Wooldridge 1997). Given their critical role in water corporations, it is useful to tap into their

views of organisational leadership, particularly when perceptions of leadership shape

3

subsequent performance. Jacobsen and Andersen’s (2015) study found that high school

teachers’ perceptions of their principals’ leadership practices are significantly related to

objectively measured school performance. Their study suggests the importance of taking into

account employees’ views when examining leadership practices; employees’ attitudes and

actions are only affected by leadership if they notice it. Middle managers are thus well placed

to comment on their senior managers’ leadership practices.

Specifically, this study addresses four questions. First, compared to other

organisational factors, such as systems and structures, how important is leadership to middle

managers for the management of water utilities? Second, what are their perceptions of

effective leadership practices? What is their preferred leadership style? Third, what are their

views of the leadership practices of their senior managers or supervisors? Fourth, do they

believe that the leadership practices of their supervisors closely match the practices of

effective leaders? Do they perceive a large gap between the actual and expected leadership

skills of their supervisors? In investigating the middle managers’ views of leadership

practices, this study distinguishes between transactional leadership, transformational

leadership, and a combination of both transactional and transformational leadership. This

study thus has the capacity to deepen our understanding of leadership in Australian water

corporations.

This research can contribute to the leadership literature in at least two ways. The first

relates to the research setting or context, and the second relates to the leadership models

tested. First, our understanding of leadership has been largely based on studies conducted in

the private sector and in countries outside Australia, particularly the US (Judge and Piccolo

2004). Although it has grown in the recent two decades, public sector leadership research in

Australia makes up a small proportion of the international literature. Public sector leadership

research also tends to focus on the public service (Trottier et al. 2008; Van Wart 2013).

4

Under New Public Management (NPM) reforms, public utilities in many countries have been

corporatised. They are often publicly owned but have separate legal and financial status.

Their unique location at the intersection between politics and markets implies that public

corporations are likely to be shaped by both political and economic forces, which can in turn

affect leadership. Yet, public corporation leadership has not been studied as extensively as

political and public agency leadership (Hahm et al. 2013). This research therefore has the

capacity to contribute to the leadership literature.

Second, this study draws upon one of the best-known leadership theories – Bass’s

(1985) “full-range” leadership theory. This theory is often applied to public sector leadership

research (Moynihan et al. 2012; Paarlberg and Lavigna. 2010; Trottier et al. 2008; Wright

and Pandey 2010). It contains laissez-faire, transactional, and transformational leadership.

Bass (1996) states that laissez-faire leadership is least effective, and transformational

leadership is most effective. Public sector leadership studies tend to focus on transformational

leadership, and to a lesser extent, transactional leadership. Although Bass (1996) argues that

transactional leadership is an important part of the foundation upon which transformational

leadership efforts are built, many studies in the public sector and private sector tend to

examine the effects of transformational leadership, or the effects of transactional leadership

separately from those of transformational leadership. Few studies have investigated their

combined or blended effects, particularly in water corporations. Few have also differentiated

the distinct effects from the combined effects of leadership. By comparing the distinct effects

of transactional and transformational leadership with the combined effects of transactional

and transformational leadership, this research aims to address this gap in the leadership

literature.

5

Literature review

Transactional leadership

According to Bass (1985), transactional leadership consists of three components. First,

contingent reward involves clarifying to followers the leader’s performance expectations, and

providing rewards and recognition contingent on the followers meeting the expectations.

Second, active management by exception involves monitoring followers’ performance, and

taking corrective action as quickly as possible when deviances and mistakes occur. Third,

passive management by exception involves waiting passively for followers’ mistakes to be

called to attention before taking corrective action. Transactional leaders communicate goals

and instructions to followers, monitor their followers’ behaviour, and respond with rewards

or disciplinary actions. This approach is aligned with the principal-agent logic. Transactional

leaders use performance monitoring to address information asymmetry. By monitoring

followers’ performance, they know when followers are shirking or not meeting their goals.

Transactional leaders also tie followers’ performance to organisational rewards in order to

address any goal conflict. In this way, followers are able to gain recognition for their work.

Several empirical studies show a positive link between transactional leadership and

follower outcomes. Using the US Federal Human Capital Survey, Trottier et al. (2008) report

a positive association between followers’ satisfaction and two components of transactional

leadership: contingent reward and management by exception. According to Fernandez et al.

(2010), task-oriented leadership, which is akin to transactional leadership, improves the

performance of US federal sub-agencies. Oberfield’s (2014) study of US federal agencies

over a seven-year period shows an increase in transactional leadership leads to improvements

in followers’ satisfaction, cooperation, and perceptions of work quality. Jacobsen and

Andersen’s (2015) study of Danish high schools indicate a positive relationship between

follower-perceived transactional leadership and objectively measured school performance.

6

Despite the empirical support, transactional leadership is labelled “lower order”.

Although it is fundamental to organisational functioning, it is argued to be insufficient for an

organisation to achieve its full potential. For this to occur, leaders must display the “higher

order” transformational leadership (Avolio et al. 1999; Bass et al. 2003).

Transformational leadership

Transformational leadership contains four components (Bass 1985; Bass and Avolio 1993).

First, charisma or idealised influence (attributed or behavioural) relates to leaders behaving in

admirable ways that cause followers to respect, identify with, and want to emulate them. An

example is serving as a role model to followers. Second, inspirational motivation refers to

leaders behaving in ways that motivate followers by providing meaning and challenge to their

work. An example is articulating an appealing vision to followers. Third, intellectual

stimulation involves leaders stimulating followers to be innovative and creative by

questioning assumptions and reframing problems. An example is soliciting creative ideas and

solutions to problems from followers. Fourth, individualised consideration pertains to leaders

attending to each follower’s needs by serving as a mentor to the follower.

Empirical evidence of the positive outcomes of transformational leadership in the

public sector is quite strong. For example, Vigoda-Gadot and Beeri’s (2012) study in a public

health setting shows a positive association between transformational leadership and

followers’ organisational citizenship behaviour. Wright et al. (2012) indicate that

transformational leadership improves the clarity of organisational goals and fosters the public

service motivation levels of followers, which in turn improves their perceptions of the

importance of organisational goals. Many public sector leadership studies focus on

transformational leadership. This is likely to be due to the fact that transformational

leadership is often reported to have a more powerful effect than transactional leadership on

7

employee outcomes (Lowe et al. 1996; Judge and Piccolo 2004; Oberfield 2014; Trottier et

al. 2008).

Transactional and transformational leadership: Blended model

The above review shows a clear distinction between transactional and transformational

leadership. Transactional leaders focus on a quid pro quo with their followers, clarifying what

behaviours will be rewarded and what will not be rewarded. In contrast, transformational

leaders are able to transform how employees feel about themselves and their leaders, and in

turn perform beyond expectations (Bass 1985). Partly as a result of a desire to determine

which is the more effective leadership strategy, many studies have examined the separate

effects of transactional and transformational leadership (Jacobsen and Andersen 2015; Judge

and Piccolo 2004). Some scholars seem to view them as competing approaches to leadership.

For example, Burns (1978) argues that leaders can display transactional leadership or

transformational leadership, but not both.

Although Bass (1999) views transactional and transformational leadership as distinct

strategies, he insists that they are not substitutes. Instead, he and other leadership scholars

(e.g., Avolio 1999; Conger and Kanungo 1988) see them as complementary. Transactional

leadership provides the essential foundation upon which transformational leadership efforts

can be developed. Transactional leadership informs followers about a base level of fairness in

which decisions are made. Transactional leadership also allows them to receive recognition

for their work achievements. Transformational leadership then enables them to feel inspired

and empowered. The importance of both leadership strategies is supported by Maslow’s

(1943) hierarchy of needs; leaders must satisfy followers’ lower-level needs (e.g., security,

fairness) through transactional leadership, before they can proceed to satisfy their higher-

8

level needs (e.g., self-actualisation) through transformational leadership (Oberfield 2014;

Trottier et al. 2008).

A few leadership studies in the private sector support Bass’s (1990: 21) assertion that

“the best leaders are both transformational and transactional”. For example, Conger and

Kanungo (1988) propose that leaders who use contingent rewards, a component of

transactional leadership, and charisma, a component of transformational leadership, are most

successful in empowering followers. In their study of 73 leaders from non-profit

environmental organisations and for-profit environmental product and service organisations,

Egri and Herman (2000) conclude that these leaders tend to engage in both transactional and

transformational leadership behaviours. Martin et al.’s (2013) field experiment of business

leaders in the United Arab Emirates report the importance of both directive and empowering

leadership for improving the task proficiency of work units.

Recently, a few public administration researchers examine the combined effects of

transactional and transformational leadership. Although transformational leadership is found

to be more important than transactional leadership, Trottier et al. (2008) conclude that US

federal employees perceive both elements to be important for effective leadership. In his

longitudinal study, Oberfield (2014) find that an increase of 1 point in transformational

leadership is associated with 0.22 of a point in cooperation, 0.64 of a point in improvement in

satisfaction, and 0.25 of a point in improvement in perceptions of work quality. In contrast,

an increase of 1 point in the combined leadership model is associated with 0.42 of a point in

cooperation, 0.77 of a point in satisfaction, and 0.39 of a point in perceptions of work quality.

On this basis, it is proposed that the middle managers in Australian water corporations

view a combination of transactional and transformational leadership skills to be more

important than either transactional or transformational leadership skills.

9

Methodology

Research setting and subjects

This research is based on data collected from two studies on water utilities in four Australian

states (two larger and two smaller Australian states). In the first study, the leader of each

water utility in the four states was approached and provided with details of the study. Fifteen

water utilities, some of which are major utilities, agreed to participate in the study. To meet

research ethical guidelines, the researcher did not directly contact the target audience but

liaised with a contact person who was appointed by the leader of the water utility. This

individual sent an email message containing information about and access to the online

survey to the target audience of middle managers. There were 133 respondents. A majority

were males (73%), aged 45 years and older (64%), held a university bachelor’s and

postgraduate degree (89%), occupied middle management level (75%), and had worked in

their organisation for more than 5 years (63%). Most worked in administration, strategy and

planning, including support services, such as HR and finance (49%), followed by operations,

infrastructure and asset management (38%), and customer service (13%).

The respondents in the second study are a subset of those of the first study. The last

question in the first study asks the respondents about their willingness to participate in a

small follow-up study. Thirty respondents across the four states surveyed earlier provided

their contact details as part of their consent. These individuals, most of which worked in

water corporations (75%), were directly contacted in the second online vignette study. The

demographic profile of 23 respondents in the second study was quite similar to that of the

first study. Most of them were males (78%), aged 45 years and older (65%), held a university

bachelor’s and postgraduate degree (100%), occupied middle management level (65%), and

worked in their organisation for more than 5 years (58%). Most had a science/ mathematics

10

disciplinary background (43%); the rest had an engineering background (35%), and a

business/economics/social sciences background (22%).

Data collection

Data were collected by an online survey. In the first study, the respondents were asked to

identify the most influential factor in their organisation that had facilitated them to (1)

respond to and prepare for external challenges; and (2) improve the management of their

organisation/unit. They were given a list of factors to choose from; they were also given an

opportunity to add any factor that was not included in the list. Further, they were encouraged

to explain their responses. While the first survey aims to find out the respondents’ views of

the most important organisational factor, the second follow-up vignette survey aims to gain a

deeper understanding of the respondents’ views of the identified factor.

In the second follow-up vignette online survey, three forms of leadership

(transactional, transformational, and the blended model containing both transactional and

transformational leadership) were presented as three distinct vignettes. A vignette is “a short,

carefully constructed description of a person, object, or situation, representing a systematic

combination of characteristics’’ (Atzmu¨ller and Steiner 2010: 128). This technique combines

ideas from classical experiments and survey methodology to counterbalance each approach’s

weakness. All respondents were given the three vignettes, the order of which was randomly

set in the online survey. The three vignettes are preceded by the following statement: “In an

effort to better understand your leader preferences, please read each scenario/vignette and

answer all questions about your views of the leadership style described”. The transactional

and transformational leadership vignettes are adapted from the vignettes by Benjamin and

Flynn (2006). The blended leadership vignette incorporates both of these vignettes.

11

In each vignette, the respondents were asked to (1) evaluate the effectiveness of the

leadership qualities described in the vignette; and (2) state the extent to which they agree that

the leadership qualities described in the vignette match those of their supervisor. Leadership

effectiveness was measured with two items by de Cremer and van Knippenberg (2004). The

Cronbach’s reliability value of this measure in the three vignettes ranged from .86 to .92. The

respondents’ perceptions of their supervisor leadership style were measured with a single-

itemed measure: “X’s leadership style is similar to that of my immediate supervisor”.

Responses were recorded on a seven-point Likert scale, ranging from “strongly disagree” (1)

to strongly agree (7). The respondents were also given an opportunity to elaborate on their

responses.

Data analysis

In the first study, analysis of variance (ANOVA) and t-test were conducted to investigate

whether the responses collected – the importance placed on leadership – were significantly

shaped by individual differences, such as gender and work section. In the second study, the

data were analysed using a one-way repeated measures ANOVA. Since all respondents were

given the three vignettes, the scores taken from different vignettes are likely to be related

because they come from the same source. The conventional F-test in ANOVA thus lacks

accuracy. The relationship between scores in different vignettes requires the inclusion of the

assumption of sphericity that there is equality of variances of the differences between

vignettes. Sphericity is assessed using the Mauchly’s test. The results suggest that the

sphericity assumption is not violated..

12

Findings

How important is leadership among water utility managers?

Table 1 shows the findings of the first study. Leadership receives the highest first preference

response. The respondents believe that leadership is the most important organisational factor

for responding to and preparing for external challenges, and improving the management of

their organisation. Although they acknowledge the importance of technical skills, such as

“maintaining skill sets in line with technology change”, they point to the greater importance

of leadership skills: “good governance stems from the leadership and direction setting”; and

“I think you respond most to the direction, guidance and leadership of your immediate

supervisor”.

< insert table 1 >

But what leadership practices are favoured by the respondents? And what are their

perceptions of the leadership practices of their supervisor? Is there a close match between

their perceptions of effective leadership and those of their supervisor’s leadership style?

What is effective leadership in water utilities?

There are three notable results from the second study. First, when the three leadership models

were tested – transactional only, transformational only, and the blended model containing

both transactional and transformational leadership – most respondents give the highest

evaluation to the blended model for effective leadership. This is followed by transformational

leadership, and finally transactional leadership. The results are shown in table 2.

< insert table 2 >

The main effect of leadership practices on the respondents’ views of effective

leadership is found to be significant (F = 64.77, p < .001). Under post hoc pairwise

comparisons, the difference in the respondents’ ratings appear to be larger between the

13

blended leadership model and transactional leadership model (∆ = 3.24), than between

transformational and transactional leadership models ((∆ = 2.13).

The respondents describe a few issues associated with transactional leadership. They

believe that supervisors who adopt only transactional leadership practices encourage “self-

interest; staff would be motivated by a self-reward focus and not a teamwork focus”; and

“discourage innovation, ideas and working to a common vision”. A respondent states that

although its “carrot and stick approach will provide some level of motivation to perform at a

high standard, in my experience staff really want to know how they fit into the big picture of

an organization, and how their efforts contribute to the success of the organization”. A

respondent comments on the shortcoming of relying solely on transactional leadership;

particularly its management by exception component; s/he argues that leaders should be

“looking for better ways to work rather than just solving problems”. In instances where their

performance deviates from expectations, a respondent mentions a preference for a “coaching

style” in the feedback provided. They also advocate mentoring for facilitating succession

planning.

Although transformational leadership practices receive better ratings than

transactional leadership practices, several respondents are concerned about the former

model’s failure to closely tie employee performance to tangible rewards. A respondent states

that although the transformational leadership style “aims to inspire employees to develop and

contribute at higher levels – proficiency and strategically – …it is not clear if individual

performance is managed effectively”. Respondents mention that managers “who require

rewards and recognition to motivate them to perform will not be satisfied…” with this

leadership style.

The blended leadership model containing both transactional and transformational

practices appears to be highly favoured by the respondents. They believe this model is “able

14

to get the balance right in leadership style, balancing reward, motivation and correction in

the right levels”. Another respondent emphasises the importance of leaders to articulate “a

strong vision, what the business imperatives are, and a plan of action to address. Also

ongoing monitoring of plan, and communicating back to staff”.

What is my supervisor’s leadership style?

Second, when asked which one of the three leadership models best describes the leadership

style of their supervisor, the blended model containing both transactional and

transformational leadership practices also receives the highest ratings. The main effect of

leadership practices on the respondents’ assessment of their supervisor is significant (F =

12.11, p < .001). Under post hoc pairwise comparisons, the difference in the respondents’

ratings appears to be larger between the combined leadership model and transactional

leadership model (∆ = 2.09), than between transformational and transactional leadership

models ((∆ = 1.74). It appears that most respondents’ supervisors display a mix of

transactional and transformational leadership practices.

Are there individual variations in the managers’ views of leadership?

Third, the respondents’ views of leadership are not found to be affected by individual

differences, such as gender and age, at the five percent level of significance. In the first study,

the respondents, regardless of differences in gender, age, education, section and organisation,

emphasise the importance of leadership for the effective management of water utilities. In the

second study, there is no significant interaction between the individual characteristics of the

respondents and their views of leadership practices. Respondents from different gender and

age groups, and those from different disciplinary backgrounds and organisations provide

15

answers that are not significantly different to each other. These insignificant findings are not

reported but can be obtained from the author.

Is there a significant gap between actual and expected leadership skills?

Further, this study examines whether the respondents’ views of their supervisor’s leadership

skills closely match those of effective leaders. Table 3 shows the paired t-test results.

< insert table 3 >

The respondents’ preference for two leadership styles – transformational and the

blended model – is significantly higher than their perceptions of their supervisor

demonstrating these leadership practices. No significant difference is found for transactional

leadership. The respondents “slightly disagree” that effective leaders engage solely in

transactional leadership practices (M=2.98). They also “slightly disagree” that their

supervisor demonstrate only transactional leadership practices (M=2.61). On average, the

respondents “agree” that individuals demonstrating both transformational and transactional

leadership qualities are effective leaders (M=6.22). In comparison, their perceptions of their

supervisor engaging in such leadership practices fall between “neutral” and “slightly agree”

(M=4.70). The respondents also “slightly agree” that effective leaders engage solely in

transformational leadership practices (M=5.11). However, when asked whether their

supervisor adopt such leadership practices, their response is “neutral” (M=4.38). The results

are summarised diagrammatically in figure 1. They illustrate a significant gap between

perceptions of actual and expected leadership skills.

< insert figure 1 >

The respondents raise a few issues with their supervisor’s leadership. They include:

1. A competency gap, particularly on leadership skills. As mentioned in the first study,

some respondents mention about the importance of subject know-how. For example,

16

“developing policies without subject knowledge is a critical issue”. A respondent

mentions that “executives deliver inferior performance at best due to being woefully

underqualified (and under-/overpaid dependent on your perspective). Managers all have

mortgages and barely manage in survival mode, they take no risks which leads to

middle-of-the-road decisions (where all accidents happen). Drones and five year olds

would do a better job”. The respondents, however, emphasise that technical skills must

be supported or complemented with good leadership skills. Individuals who have

assumed leadership positions based on their technical expertise must acquire good

leadership skills, as evident in this comment: “some …have reached their position on

technical skills but are somewhat deficient on the modern leadership skills”.

2. A lack of commitment to improved change and innovation: “Inadequate focus on a few

strategic priorities hinders success. While the organisation wants to change, it lacks a

burning ambition”; and “The word innovation is merely paid lip-service to… Any

discussion of successful and proven innovation overseas is being squashed as a dream”.

3. Unfair practices in a few instances: “At times there is favouritism and this is where

organisations fail to follow good governance”. Many discuss about the need for leaders

to “walk the talk”: “Leaders need to set the example when it comes to management”; and

“It is critical that the leaders all talk the same talk and walk their message to ensure

their credibility and their commitment to the journey ahead”.

4. Too much emphasis on the “stick approach”: “they lead by fear”; and “an environment

where ‘performance’ is enforced by means of the exertion of authority”.

5. A failure to adequately motivate staff: “people will not perform at their best if they don't

love their work. Much like parents, this is leadership's primary concern. Sadly there is

not a lot of love being shared at work...”. A respondent points to the issue of “finding

and retaining people with the skills and motivation to undertake the ‘dry’ and often

17

thankless task of asset management”. According to a respondent, managers must be

“challenged and retained within the organisation through training and diversification of

skillsets”. A respondent emphasises “improved development of staff, mentoring, retention

strategy, and knowledge transfer strategy”. Similarly, another suggests the “development

of skills matrix, succession planning, mentoring and personal development”.

They also discuss about other issues in their organisation which senior leadership has failed

to address, such as a failure to remove siloed structures/functions and red tape: “Siloed

structures and behaviours lead to duplication and inefficiency. There is a focus on reporting,

not leading and managing strategically”; and “Many functions are very disaggregated - with

too many interfaces having to be managed. Often divided/shared accountability so no

accountability taken”. They also raise the issue of poor integration of multiple systems,

especially with respect to technology: “Poorly integrated systems make it difficult to respond

to external challenges”; and “Lack of integrated IT systems which can turn data into

information that can be used to make decisions which drive activity”.

Some respondents state that the implementation of performance monitoring associated

with transactional leadership has led to other problems, such as reduced productivity and

innovation.

Recording and reporting is slowly killing productivity. Activity needs to be

recorded as a natural consequence of doing work, not as a major component of the

work …We need to focus on the “do it and record it” without going over the top

with what we record. At present there is a gulf. The organisation (or modern

governance practice) wants detailed recording and even more detailed reporting,

whilst the culture within the workforce is that the average employee will not record

18

or report anything if they can get away with it. Consequently the value of what is

recorded and reported is fairly suspect.

Everyone talks flexibility, resilience, responsiveness. This can't happen with

increasing levels of reporting, more stringent approvals and constant audits that

plague modern organisations. Leaders need to provide space for the innovation to

happen.

It should be pointed out that the respondents are not averse to performance

measurement and reporting per se. They recognise its value for improved accountability.

They also advocate it, or more specifically, benchmarking (e.g., asset performance and

operating performance) for identifying improvement opportunities: “To become more

commercially-focused, we need to measure what we are doing and compare our performance

to others in the industry and establish benchmarks”. Their complaints of performance

monitoring relate more to its design and processes, particularly the additional administrative

demand on their time and effort without necessarily providing easier access to better data

(e.g., “simple and transparent measures”) to support decision-making and accountability.

Finally, in a period where organisations, including water utilities are facing a rapidly

changing environment, they suggest three desirable leadership practices for change

management. First, leaders should be responsive to external changes for a reasonable and

valid reason. A respondent notes that “at times [leadership] appears to be "too responsive"

leading to knee jerk reactions, poor planning, etc.”. Another complains about change leaders

who engage in “window dressing when the structure is working and there is no need for

changes”. Constant changes are viewed as hindering rather than facilitating effective

organisational management. In particular, “constant and significant changes have resulted in

19

an unengaged workforce”. They appear to associate constant major changes with an

indecisive and incompetent leadership.

Second, the issue of indecisive leadership leads several to insist that “strong

leadership is important to manage the changes that are currently occurring in the industry”.

They argue that leaders must be committed to purposeful changes. Third, this strong

leadership must, however, be balanced with a willingness of leaders to reach out and engage

in a frank discussion with subordinates. Respondents talk about the ability of leaders to foster

an open and ethical organisational climate. Many emphasise the importance of open

communication channels in the midst of change, or what some refer to as an inclusive and

consultative style of leadership: “providing an open, collaborative and inclusive style of

leadership where managers and staff feel they are part of the success story through strong

leadership”; “strong, clear leadership. Consultative to an extent but visionary and purposeful

and setting clear direction for the business”; and “a strong clear thinking CFO and MD who

consult assists greatly in managing these external challenges”.

In short, “maintaining staff engagement through organisational change” is critical.

Failure to communicate effectively to staff “may lead to whispers, rumours, lower morale,

and negative symptoms like higher resignation rates”. With an inclusive and consultative

approach associated with transformational leadership, leaders could “garner commitment for a

response and facilitat[e] a bottom up solution, owned by the entire business”. Respondents

discuss about the importance of leadership that engenders trust and a collaborative approach.

They suggest the importance of “investment in skills and knowledge to facilitate change

management, and provide recognition and motivation for change management”.

20

Discussion and conclusion

Before discussing this study’s findings and implications, it is important to

note its limitations. One of these is the small group of middle managers in

the second study. Although the demographic profile of the respondents in

the second study is quite similar to that in the first study, it is possible

that its findings are not generalisable to other water utilities in the states

surveyed, or those in other Australian states. In addition, although Bass’s

theory is supported by considerable empirical evidence, it is not all-

encompassing. There are other equally important theories and strategies

that can contribute to effective management (Oberfield 2014). Future

research can adopt these approaches or a multi-theoretical approach to

examine the management of water corporations. Finally, this study relies

on respondents’ views and concentrates on two employee attitudinal

outcomes: evaluation of effective leadership, and evaluation of

supervisor’s leadership. Future studies can incorporate employee

behavioural outcomes, such as effort levels to see how they are shaped

by different leadership practices.

Nonetheless, within the boundaries of its empirical investigation, this small study of

middle managers in a group of Australian water corporations shows four notable findings.

First, it illustrates the importance of leadership to middle managers for the effective

management of water utilities. In an industry where technical depth is important, “it is simply

not enough to be a technical expert, or a good project manager” (McIntosh and Taylor 2013,

p.46). The respondents rated leadership as the most important factor for improving

organisational management, and preparing for external challenges. Studies in private

organisations and the public service have long emphasised the importance of leadership for

21

the effective management of organisations (e.g., Bass 1990; Van Wart 2013). This study

shows that middle managers in a group of Australian water corporations appear to share this

view.

The importance of leadership skills has long been recognised in the Australian Public

Service (APS). Although the APS Integrated Leadership System (ILS) emphasises a mix of

leadership, management and technical skills, it sees leadership capabilities as more important

among those at senior levels (SES) compared to those in EL and APS5/6 positions. While the

respondents comment on the importance of a mix of hard and soft skills among their senior

supervisors, they insist that their supervisors’ leadership skills should be improved. Their

evaluation of their supervisor’s leadership skills, particularly on a combination of

transactional and transformational leadership skills, is below their expectations of an effective

leader. They identify issues that range from the supervisor’s poor leadership skills, and unfair

treatment of employees, to the supervisor’s failure to adequately motivate staff. This study

supports the call by other researchers, such as Taylor (2009) for the application of appropriate

leadership development programs within the industry. In particular, this study identifies the

urgency to develop and facilitate leaders to apply authentic transactional and transformational

leadership practices, as will be discussed later (Bass and Steidlmeier 1999).

Second, this research supports other studies that transformational leadership is more

effective than transactional leadership (Lowe et al. 1996; Judge and Piccolo 2004; Trottier et

al. 2008). The respondents rate transformational leadership higher than transactional

leadership for effective leadership. The effectiveness of transformational over transactional

leadership in the public service appears to extend to the water utility industry.

Third, this study emphasises the importance of authentic transactional and

transformational leadership, or transactional and transformational leadership with a strong

moral compass. It is not enough for charismatic leaders to inspire followers with words.

22

Respondents mentioned about the importance of leaders to lead by example, particularly to

“walk the talk”. According to Bass and Steidlmeier (1999), unlike pseudo transformational

leadership, authentic transformational leadership is grounded in moral foundations. Each

component of either transactional or transformational leadership has an ethical dimension: “It

is the behavior of leaders—including their moral character, values and programs—that is

authentic or inauthentic” (Bass and Steidlmeier 1999, p.184). In the water utility sector,

McIntosh and Taylor (2013) state that leadership without a strong ethical foundation is

increasingly seen as socially unacceptable. There have been significant reforms in the

Australian water utility sector over the past decade (McKay 2005), one of which have

included workforce downsizing in some organisations (e.g., ABC 2012; Courier Mail 2015).

In times of uncertainties, employees are likely to place strong emphasis on the capability of

their leaders to win their trust, not merely through words, but also through actions, such as

honesty and fair practices and procedures. For example, an organisational survey of

employees in an Australian state’s electric utility found only 27 percent thought that their

leaders were “open and honest” (Mercer 2015). Managers who engage in authentic

transactional and transformational leadership practices are thus particularly essential in times

of change.

Fourth, this study demonstrates the utmost importance of effective leaders to display

both transactional and transformational leadership practices. It suggests that just because

transformational leadership is often rated higher than transactional leadership in leadership

studies does not discount the relevance of transactional leadership for effective management.

Although the respondents perceive transformational leadership to be more effective than

transactional leadership, they consider the most effective leaders to have a blend of

transactional and transformational leadership skills. This study supports both private and

23

public sector studies on a combination of transactional and transformational leadership for the

effective management of organisations.

Both are essential for effective leadership. Van Wart (2013) maintains that

“transformational leadership rarely interferes with transactional leadership; it supplements it,

and generally, proves difficult if transactional leadership does not precede it” (p. 558).

According to John Mellors (1996), the then Secretary of the Commonwealth Department of

Administrative Services, “the public sector of the next century will require a blend of

leadership skills at the most senior levels” (p.89). While transactional leadership is necessary

for meeting basic or lower level needs, such as reward and recognition, and fair and equitable

treatment, transformational leadership is essential for meting higher level needs, such as self-

actualisation, achieved through mission articulation, vision, and inspirational motivation.

It is possible that different leadership styles are necessary for managing different

situations. In their study in the United Arab Emirates, Martin et al. (2013) find that directive

leadership improves proactive behaviours in work units that are highly satisfied with their

leaders, while empowering leadership improves proactive behaviours in work units that are

less satisfied with their leaders. Similarly, Zhang et al.’s (2014) study in China find that

transactional leaders tend to be more influential in buffering the negative effects of work

hindrance stressors, such as role conflict, red tape, and job insecurity. In contrast, they find

that transformational leaders are more effective at enhancing the positive effects of challenge

work stressors, such as workload, time pressure, and complexity.

If both leadership practices are considered to be important, then studying their

combined effects will be more useful than investigating their isolated effects. Most public

sector leadership studies, however, tend to concentrate on transformational leadership,

probably because public sector leaders tend to demonstrate more competence in transactional

skills than transformational skills, and transformational leadership is often reported to be

24

more effective than transactional leadership (Bass 1985; Trottier et al. 2008, Van Wart 2013).

While studies focusing solely on transformational leadership have advanced our

understanding on leadership in important ways, this study calls for more research to examine

the blended effects of transactional and transformational leadership. This may include

research on how readily leaders handle the blended style.

In conclusion, the effective management of Australian water corporations appears to

partly rest on the capability of senior managers to achieve the right balance between authentic

transactional leadership practices and authentic transformational leadership practices. An

effective leader requires both leadership skills; “one cannot be sacrificed because of superior

skills in the other” (Podger et al. 2004: 116). The fact that most studies report the efficacy of

transformational leadership over transactional leadership also does not reduce the significant

contribution of transactional leadership. Finally, this blend of transactional leadership and

transformational leadership must rest on a moral foundation of legitimate values.

References

2015. ‘WA’s Water Corp Cuts 300 Jobs.’ Courier Mail, 14 April. Available from

http://www.couriermail.com.au/news/breaking-news/was-water-corp-cuts-300-jobs/story-

fnihsfrf-1227303647848

ABC (Australian Broadcasting Corporation). 2012. ‘Sydney Water Workers’ Strike Stink

Over Job Cuts.’ ABC News, 5 July. Available from http://www.abc.net.au/news/2012-07-

05/sydney-water-workers-strike-stink-over-job-cuts/4111194

Atzmüller, C., and P.M. Steiner. 2010. ‘Experimental Vignette Studies in Survey Research.’

Methodology 6(3):128–138.

Avolio, B. J. 1999. Full Leadership Development. Thousand Oaks, CA: Sage.

Avolio , B.J., D.A. Waldman, and F.J. Yammarino. 1991. ‘Leading in the 1990s: The Four I’s

of Transformational Leadership.’ Journal of European Industrial Training 15(4): 9–16.

Bass, B.M. 1985. Leadership and Performance Beyond Expectations. New York: Free Press.

Bass, B.M. 1990. Bass and Stogdill’s Handbook of Leadership: Theory, Research, and

Managerial Applications. New York: Free Press.

25

Bass, B.M. 1996. ‘Is There Universality in the Full Range Model of Leadership?’

International Journal of Public Administration 19(6):731–761.

Bass, B.M. 1999.’ Two Decades of Research and Development in Transformational

Leadership.’ European Journal of Work and Organizational Psychology 8(1): 9–32.

Bass, B.M. , and B.J. Avolio. 1993. ‘Transformational Leadership: A Response to Critiques.’

In M.M. Chemers and R. Ayman (eds.), Leadership Theory and Research: Perspectives

and Directions (pp.49–80). San Diego, CA: Academic Press.

Bass, B.M., B. J. Avolio, D. I. Jung, and Y. Berson. 2003. ‘Predicting Unit Performance by

Assessing Transformational and Transactional Leadership.’ Journal of Applied

Psychology 88(2): 207–218.

Bass, B.M. and P. Steidlmeier. 1999. ‘Ethics, Character, and Authentic Transformational

Leadership Behavior.’ Leadership Quarterly 10(2): 181–217.

Benjamin, L. and F.J. Flynn. 2006. ‘Leadership Style and Regulatory Mode: Value from Fit?’

Organizational Behavior and Human Decision Processes 100:216–230.

Brown, R., R. Ashley, and M. Farrelly. 2011. ‘Political and Professional Agency Entrapment:

An Agenda for Urban Water Research.’ Water Resource Management 25:4037–4050.

Burns, J. M. (1978). Leadership. New York: Harper & Row.

Conger, J.A. and R.N. Kanungo. 1988. ‘The Empowerment Process: Integrating Theory and

Practice.’ Academy of Management Review 13(3):471–482.

Currie, G. 2000. ‘The Public Manager in 2010: The Role of Middle Managers in Strategic

Change in the Public Sector.’ Public Money & Management 20(1): 17–22.

De Cremer, D. and D. van Knippenberg. 2004. ‘Leader Self-Sacrifice and Leadership

Effectiveness: The Moderating Role of Leader Self-Confidence.’ Organizational Behavior

and Human Decision Processes 95(2): 140–155.

Egri, C.P., and S. Herman. 2000. ‘Leadership in the North American Environmental Sector:

Values, Leadership Styles, and Contexts of Environmental Leaders and their

Organizations.’ Academy of Management Journal 43(4): 571–604.

Fernandez, S., Cho, Y.J., and Perry, J.L. 2010. ‘Exploring the Link Between Integrated

Leadership and Public Sector Performance.’ The Leadership Quarterly 21(2): 308–323.

Floyd, S. W., and Wooldridge, B. 1997. ‘Middle Management’s Strategic Influence and

Organizational Performance.’ Journal of Management Studies 34(3): 465–485.

Hahm, S.D., K.H. Jung, and M.J. Moon. 2013. ‘Shaping Public Corporation Leadership in a

Turbulent Environment.’ Public Administration Review 73(1): 178–187.

26

Jacobsen, C.B. and L.B. Andersen. 2015. ‘Is Leadership in the Eye of the Beholder? A Study

of Intended and Perceived Leadership Practices and Organizational Performance.’ Public

Administration Review 75(6): 829–841.

Judge, T.A., R.F. Piccolo, and R. Ilies. 2004. ‘The Forgotten Ones? The Validity of

Consideration and Initiating Structure in Leadership Research.’ Journal of Applied

Psychology 89(1): 36–51.

Lowe, K.B., K.G. Kroeck, and N. Sivasubramaniam. 1996. Effectiveness Correlates of

Transformational and Transactional Leadership: A Metaanalytic Review.’ Leadership

Quarterly 7(3): 385–425.

Martin, S.L., H. Liao, and E.M. Campbell. 2013. ‘Directive Versus Empowering Leadership:

A Field Experiment Comparing Impacts on Task Proficiency and Proactivity.’ Academy of

Management Journal 56(5): 1372–1395.

Maslow, A. 1943. ‘A Theory of Human Motivation.’ Psychological Review 50(4): 370–396.

McIntosh, B.S., and Taylor, A. 2013. ‘Developing T-shaped Water Professionals: Reflections

on a Framework for Building Capacity for Innovation Through Collaboration, Learning

and Leadership.’ Water Policy 15(S2): 42–60.

McKay, Jennifer. 2005. ‘Water Institutional Reforms in Australia.’ Water Policy 7(1): 35–52

Mellors, J. 1996. ‘Managing and Leading in the Next Century.’ Australian Journal of Public

Administration 55(3) 83-89.

Mercer, D. 2015. ‘Power Staff Don’t Trust Their Bosses.’ The West Australian 26 May: 9.

Moynihan, D.P., Pandey, S.K., and Wright, B.E. 2012. ‘Setting the Table: How

Transformational Leadership Fosters Performance Information Use.’ Journal of Public

Administration Research and Theory 22(1):143–164.

Oberfield, Z.W. 2014. ‘Public Management in Time: A Longitudinal Examination of the Full

Range of Leadership Theory.’ Journal of Public Administration Research and Theory

24(2):407–429.

Paarlberg, L. and B. Lavigna. 2010. ‘Transformational Leadership and Public Service

Motivation: Driving Individual and Organizational Performance.’ Public Administration

Review 70(5):710–718.

Podger, A. and J. Wanna. 2012. ‘Introduction.’ In J. Wanna, S. Vincent, and A. Podger (eds.),

With the Benefit of Hindsight: Valedictory Reflections from Departmental Secretaries,

2004–11 (pp. ix-xvi). Canberra: ANU e-Press.

27

Podger, A., J. Halton, A. Simic, P. Shergold, and T. Maher. 2004. ‘Integrated Leadership

System in the Australian Public Service.’ Australian Journal of Public Administration

63(4):108–118.

Shamir, B., R.J. House, and M.B. Arthur. 1993. ‘The Motivational Effects of Charismatic

Leadership: A Self-Concept Based Theory.’ Organization Science 4(4): 577–594.

Taylor, A.C. 2009. ‘Sustainable Urban Water Management: Understanding and Fostering

Champions of Change.’ Water Science & Technology 59(5): 883–891.

Trottier, T., Van Wart, M., and Wang, X.H. 2008. ‘Examining the Nature and Significance of

Leadership in Government Organizations.’ Public Administration Review 68(2):319–333.

Van Wart, M. 2013. ‘Lessons from Leadership Theory and the Contemporary Challenges of

Leaders.’ Public Administration Review 73(4): 553–565.

Vigoda-Gadot, E. and I. Beeri. 2012. ‘Change-Oriented Organizational Citizenship Behavior

in Public Administration: The Power of Leadership and the Cost of Organizational

Politics.’ Journal of Public Administration Research and Theory 22:573–96.

Wright, B. and S. Pandey. 2010. ‘Transformational Leadership in the Public Sector: Does

Structure Matter?’ Journal of Public Administration Research and Theory 20:75–89.

Zhang, Y.W., J.A. Lepine, B.R. Buckman, and F. Wei. 2014. ‘It’s Not Fair…Or Is It? The

Role of Justice and Leadership in Explaining Work Stressor-Job Performance

Relationships.’ Academy of Management Journal 57(3): 675–697.

28

Table 1. Water utility managers’ views of the most important organisational factor: Frequency distribution of first preferences

(a) For facilitating the organisation/unit to better respond to and prepare for external challenges

Factor Frequency distribution

Policies and plans 29Structures 5Systems 13Processes 18Leadership 55People 29Resources 19Work relationships 9Organisational culture 33Other (e.g., regulation) 1

(b) For improving the management of organisation/unit

Factor Frequency distribution

Organisation's goals mandates 28Organisation's policies and plans 8Organisation's structures 8Organisation's resources 9Organisation's processes 7Organisation's leadership 48Organisation's culture 28Organisation's workforce 8Work relationships in organisation 9Other 2

29

Table 2. Analysis of variance (repeated measures) results: Managers’ views of supervisors’ leadership

Within-subjects effects df F p Pairwise comparisons Mean difference S.E. of mean pExpected leadership skills of supervisor

2 64.8 .000 Transformational versus transactional leadership 2.13 .35 .000

Combination versus transactional leadership 3.24 .23 .000 Combination versus transformational leadership 1.11 .27 .001

Actual leadership skills of supervisor

2 12.1 .000 Transformational versus transactional leadership 1.74 .46 .003

Combination versus transactional leadership 2.09 .51 .001 Combination versus transformational leadership 0.35 .39 N.S.

30

Table 3. Pairwise t-test results: Managers’ views of supervisors’ expected and actual leadership skills

Leadership style Expected leadership

skills

Actual leadership

skills

t

Transactional leadership 2.98 (1.16) 2.61 (1.34) 1.62

Transformational leadership 5.11 (1.32) 4.35 (1.77) 2.39*

Transactional and transformational leadership 6.22 (.50) 4.70 (1.55) 4.17***

Mean values, followed by standard deviation in parentheses.Level of significance, p: * = p<.05; ** = p<.01; *** = p<.001.