Leadership, Wellbeing, and Performance - a Strategic Convergence in the Digital Age?

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School of Business | Master's thesis
Degree programme
Global Management
105 + 22
It is a simple equation: employees expend their time going about their work while their company in return reimburses them monetarily. For most executives there is nothing more to it and so they can otherwise focus all their attention on the one and only business rule which is the maximization of profit for the owners of the company. Yet, since many decades an increasing number of scholars has argued that the differentiation between investments into employees and their welfare and those designed to increase profits is false because it implies a contrariety between these two purposes that does not exist. Rather, they argue, meaningful investments into a company’s workforce may in themselves serve to increase profits because an employee who is better off is more productive. This idea is at the heart of the domain of Strategic Human Resource Management (SHRM) which views employees as a strategic asset and the source of competitive advantage. It is the core premise of this thesis that the notion of SHRM has never been more relevant than today amid the onslaught of Digitalization which appears to overwhelm employees and puts them under increasing strain. To prove this premise, I in the review of literature first seek to identify suitable organizational practices which are designed to support employees to rise above the challenges posed to them, establishing the installation of responsible leadership as the most suitable approach. Second, the review then endeavours to determine a concept that encapsulates the welfare of employees whereby designating psychological wellbeing. Third and last, employee performance is foregrounded as the concept to assess the impact the chosen organizational practices unfold in respect to the organizational goals. These three concepts are subsequently brought into relation with one another whereas the thesis’ four hypotheses are construed: responsible leadership positively influences both psychological wellbeing and employee performance, while wellbeing impacts performance, also in a positive manner. Thus, I expect to identify wellbeing as a full mediator of the nexus between leadership and performance which is the core of the fourth hypothesis. These hypotheses are tested by means of Multilevel Structural Equation Modelling, employing two distinct models and using data collected from 10 companies in Finland via the Exponential research project at Aalto University. While establishing psychological wellbeing as a mediator of the relationship between responsible leadership and employee performance and thereby supporting the thesis’ premise, the underlying nexus between leadership and performance in the direct model appears insignificant, whereas plausible reasons are noted. Generally, I in my thesis substantiate the value that investments in employee welfare can generate for an organization, before the particular background of Digitalization with the continuous introduction of new technology and the transformation of business models. Further, I provide a thorough account of the various disagreements among scholars in the SHRM field, scrutinizing issues such as the possibility of obverse effects of HR practices or the persistence of level issues. By addressing those issues, I furnish proof of the continuous relevance of SHRM and offer a point of departure for like studies.
Thesis advisor
Riikkinen, Rilana
SHRM, Responsible Leadership, Digitalization, Organizational Change, Employee Welfare, HRM, Wellbeing
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