This chapter will provide the literature of all the variables important to this research study. Every variable of the research will be explained in detail together will their dimensions.
First, the organizational trust will be explained, followed by leadership, customer relationship management, innovation and organizational performance.
Leadership
Leadership refers to ability which can influence followers to achieve a goal or a vision (Robbins & Judge, 2014). It is important that a company has good workers but also a good leader. Moreover, organizations need leaders that will provide a vision and inspire employees to achieve their tasks and goals. There are several theories of leadership:
Trait Theories: mainly focused on the personal qualities and characteristics.
Behavioral Theories: specific behavior can make a distinction between leader and non leaders.
Contingency Theories:
Fiedler contingency model depends on the match between leader’s and followers’ style of interacting and the degree of the situation in which the leader controls.
Situational Leadership Theory focuses on the followers. It depends on the leader’s and followers’ readiness to fulfill a task.
Path - goal theory: The leader’s task is to provide help to followers and ensure that their goals are similar to the objectives of the company.
Leader-participation model: Leaders should provide a set of rules that followers should obey.
According to Vroom and Yetton (1973), leadership-participation model connects leadership style and participation in decision making.
Leader-Member Exchange (LMX) Theory emphasizes that because of some external stimuli such as stress leaders will develop attachment with a smaller group of followers.
Charismatic Leadership Theory points out that follower’s virtue of great leadership abilities when they perceive certain behaviors.
Transformational Leadership Theory emphasizes that leaders inspire followers to fulfill their tasks and own goals for the good of the company. Furthermore, Transformational Leaders have a strong impact on followers.
Transactional Leadership Theory emphasizes that leaders guide their followers to achieve tasks by analyzing roles and task requirements.
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Eagly, Johannesen-Schmidt & Van Engen (2003) emphasized some the characteristics of Transactional and Transformational Leaders.
Table 2.1.
The Characteristics of Transactional and Transformational Leaders Transactional Leaders
Contingent Reward: Promises rewards for excellent performance, acknowledge accomplishments.
Management by Exception (active): Observes deviations from rules and takes appropriate actions.
Management by Exception (passive): Interferes only when standards are not satisfied or met.
Laissez – Faire: Avoids decision making.
Transformational Leader
Idealized Influence: Ensures vision and sense of mission, respect and trust.
Inspirational Motivation: High expectations, expresses important things in simple ways Intellectual Stimulation: Advertises intelligence and rational problem solving
Individualized Consideration: Provides personal attention, treats every employee individually and equally.
The researchers stressed that transactional and transformational leadership do not oppose each other. The best leader is the one who possesses the characteristics of both transactional and transformational leadership style.
Transformational Leadership
Two decades ago, researchers gave a new dimension to leadership. The term
“transformational leadership” was coined. Some of them refer it to “charismatic” and
“visionary” leadership.
According to Eagly et al. (2003) transformational leadership inspires followers and nurtures their ability to contribute to their company. Furthermore, transformational leadership can be seen as a total contrast to transactional leadership which is based on providing rewards for good performance.
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Transformational leaders are mainly focused on the interaction between their employees via setting (Xu & Wang, 2008).
The transformational leader motivates followers to do more than originally expected.
According to Bass (1999) transformational leadership can be seen as a role model for pursuing the trust and confidence of the followers. Furthermore, leaders provide a vision, future goals and encouragement to their followers. Some researchers labeled those leaders as charismatic (Conger & Kanungo, 1998, Eagly et al., 2003).
Bass emphasized in his works that transformational leadership is highly connected to employees’ satisfaction, job performance and self-reported effort. According to Podsakoff, MacKenzie, Moorman & Fetter (1990) transformational leadership produces better performance, greater satisfaction and enhanced role perceptions. Dvir, Eden, Avolio &
Schamir (2002) provided a model with differences between transactional and transformational type of leadership.
Table 2.2.
Different Ways of Transactional and Transformational Leaders Influences Followers Transactional Leaders Transformational Leaders
- Leaders Setting goals, - Providing feedback
- Exchanging rewards for accomplishments
- Broadening and elevating followers goals -Providing followers with confidence to perform beyond the expectations.
Transformational leaders encourage followers motivating them, giving them a vision and intellectual stimulation. The main focus of transformational leadership is on followers’
development. (Dvir et al., 2002). Bass (1999) emphasized the important distinction between transactional and transformational leadership. Transactional leaders expect followers to achieve agreed goals. While transformational leaders appreciate fulfilling the current tasks, it also encourages fulfilling their future tasks and roles in the organization (Dvir et al., 2002).
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Dimensions of Transformational Leadership
According to Bass (1999) transformational leadership has the following dimensions:
Intellectual Consideration, Intellectual Stimulation, Inspirational Motivation and Idealized Influence. They will be explained in depth in the following paragraphs.
Figure 2.1. Model of transformational leadership. Adopted from Re‐examining the components of transformational and transactional leadership using the Multifactor Leadership by Avolio, Bass & Jung (1999). Journal of occupational and organizational psychology, 72(4), 441-462.
Individual consideration.
Individual Consideration is observed as an important factor in the workplace.
Individual Consideration focuses on understanding needs, skills and aspirations of every follower and encourages them continuously to develop their potentials to the fullest (Bass, 1999). Furthermore, IC is manly focused on the individual development of followers (Seltzer
& Bass, 1990).
Intellectual stimulation.
Intellectual Stimulation (IS) encourages followers to question the ways of solving problems and inspires them to question used methods so they can improve them later (Bass,
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1999). Moreover, IS triggers creativity in finding new methods and ideas in order to solve the old problems (Seltzer & Bass, 1990).
Inspirational motivation.
Inspirational motivation refers to leaders that passionately communicate a future idealistic organization that can be shared (Hater & Bass, 1988). Furthermore, it means energizing followers by providing them a vision (Avolio, Bass & Jung, 1999).
Idealized influence.
Idealized influence is represented by a leader who can give a vision to the followers, explain them how to achieve the goal, provide them an example, set up high standards and display confidence. This inspires followers to become similar leaders (Bass, 1999).
Organizational Trust Concept and Definition of Organizational Trust
In order to understand organizational trust, trust in general will be explained first.
Trust can be seen in multidisciplinary view. Even economists gave their definition of trust.
They view it as “calculative” (Williamson, 1993) or “institutional” (North, 1990). It is an important term in sociology and psychology as well. “Trust is an individual’s belief that the sincerity, benevolence, and truthfulness of others can be relied on” (Fugelli, 2001, p. 575).
Moreover, Fugelli divided trust into two categories: personal trust and social trust. Personal trust represents the trust you have in your closest ones such as: wife, husband, friend and doctor. On the other hand social trust is trust in the institutions such as the government and the health care system of the country you are living in (Fugelli, 2001).
Similarly, researchers (Beugelsdijk & Smulders, 2003; Portes, 1998) highlighted the distinction between in-group and out-group trust. In-group trust refers to people that we are already familiar with such as our friends and neighbors, while out-group trust is based on people who have different origins and nationalities.
There is no universally accepted definition of trust. Researchers agreed trust is an important concept. It reduces conflicts, promotes real reactions to crises (Rousseau, Sitkin, Burt & Camerer, 1998) and enhances supportive behavior (Gambetta, 1988). Nevertheless, cooperation can be connected to some other terms so it is important to define trust in the correct way. Trust can be explained as “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another”
(Rousseau et al., 1998, p. 395).
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It is important to observe trust from the psychological perspective as well. There were many psychologists who were interested in this concept. Trust is “the willingness of a party to be vulnerable to the actions of another party, based on the expectation that the other will perform a particular action important to the trustier, irrespective of the ability to monitor or control the other party” (Mayer, Davis & Schoorman, 1995, p. 712).
Furthermore, Jones and George (1998, p. 531-2) define trust as “an expression of confidence between the parties in an exchange of some kind-confidence that they will not be harmed or put at risk by the actions of the other party or confidence that no party to the exchange will exploit the other’s vulnerability”.
Trust is very important for both personal and professional life. It is a ‘concept’ that many researchers were investigating. It influences our relations in many ways. Trust represents one of the most powerful and appreciated values in modern society. Nowadays a lot of companies depend on team-work. It influences sharing knowledge, ideas and management of tasks.
Huotari and Iivonen (2004) defined trust “as expectations and acts of members of the community towards each other”. Therefore trust can be seen as something intangible and related to many abstract matters.
Organizational trust can be observed as “the degree to which a person is willing to react on the basis of another’s words and behaviors” (Debowski, 2006).
According to Kramer and Tyler (1996) organizational trust is very important in the organization. It involves different forms of trust such as: trust in competence, trust in openness and honesty, and trust in reliability.
13 Table 2.3.
Definition of Organizational Trust
Source Definition
Mitzal (1996, p. 10) “Trust, by keeping our mind open to all evidence, secures communication and dialogue.”
Shockley-Zalabak et al. (2003, p. 37) “Expectations individuals have about networks of organizational relationships and behaviors.”
Gilbert and Tang (1998, p. 322) “Confidence and support in an employer”.
According to Shockley-Zalabak et al. (2003) organizational trust represents the main thing in the organizational success. Wayne Hutchens, the president of the University of Colorado Foundation emphasized the focus in the organization. His famous saying is: “The main thing is always the main thing” (Shockley-Zalabak et al., 2003, p. 4). In this case main thing is “trust”. Trust is very important and there will always be a high cost to distrust.
Dimensions of Organizational Trust
Organizational Trust is measured by the scale of The Organizational Trust Index (OTI) which was invented by Shockley-Zalabak et al. (2003). This variable has five dimensions.
There will be a short introduction to all five dimensions.
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Figure 2.2. Model of organizational trust. Adopted from “Measuring organizational trust:
Cross-cultural survey and index,” by Shockley-Zalabak et al., 2003. IABC Research Foundation.
Competence.
According to Shockley-Zalabak et al. (2003) competence represents the effectiveness of the organization as a whole.
The competence dimension refers to an organization’s capacity to meet the challenges of the environment through leaders, decision making and strategy. Competence refers to both the overall quality of products and efficiency of the company (Morreale & Shockley-Zalabak, 2014).
Openness and honesty.
Openness and honesty refers to the amount, accuracy, sincerity, and appropriateness of information in the organization.
The openness and honesty dimension refers to how organizations communicate and solve their problems and how much they get involved in constructive disagreements. Openness and honesty are important key elements especially when a leader or supervisor assesses job performance and evaluates the performance (Morreale & Shockley-Zalabak, 2014). Openness and honesty represents an important dimension in organizational field.
Concern for employees.
It refers to sincere efforts to understand the feelings of employees. This dimension is mainly about interpersonal communication between people working in the same organization.
Employees show higher trust in cases when leaders express information about the people who will be affected by that decision (Morreale & Shockley-Zalabak, 2014).
15 Reliability.
Reliability represents the consistency of actions. Dimension reliability refers to commitments and fulfilling tasks. It is mainly about leaders who behave in a consistent way no matter if the situation is positive or negative (Morreale & Shockley-Zalabak, 2014).
Identification.
Identification refers to shared goals, values, norms, and beliefs. The identification dimension represents the connection between the company and its core values. In addition, identification is high when employees are certain their values are represented in the organization’s values (Morreale & Shockley-Zalabak, 2014).
Knowledge Sharing
Recently, many researchers showed a great interest in knowledge sharing.
Furthermore, knowledge sharing represents one of the main areas of knowledge management (Hendriks, 1999). It is manly expressed by outsourcing partnership and its effects on outsourcing success (Lee & Choi, 2003). Knowledge sharing is based on mutual trust. It also depends on the company because some companies have high levels of knowledge sharing while some have low levels of knowledge sharing. Knowledge sharing represents one type of communication where two parties should jointly participate. One party should transfer the knowledge and the other party should be willing to adopt that knowledge (Hendriks, 1999).
Nowadays knowledge sharing is very important in both personal and professional life which implies that the performance of knowledge management of the organization definitely depends on the knowledge sharing. According to Liao, Fei & Chen (2007) knowledge sharing has an impact on innovation. Therefore innovation will have an impact on business performance.
Definitions of knowledge sharing
Knowledge sharing can be defined as a ‘dispersing’ the knowledge with the colleagues in the company. Hendriks (1999) pointed out that knowledge sharing is composed of two parts: (1) “the knowledge owner externalizes the knowledge; (2) “the knowledge demander internalizes the knowledge” (Yesil, Koska & Büyükbeşe, 2013). It can be also defined as collecting the knowledge of your own organization and knowledge of other organizations.
Many research studies proved that knowledge sharing has an important role in strategic management because it increases both the innovation capability and performance of the companies (Yesil et al., 2013).
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Customer Relationship Management
“Customer Relationship Management” term appeared in information technology (IT) in the mid-1990s. At first, researchers were interested in building partnerships and with technological improvement the managers realized that the customer relationship management (CRM) represents an important part (Richards & Jones, 2008).
CRM can be defined as “customer-focused business strategy” (Chalmeta, 2006). It integrates many departments together such as sales, customer service and marketing to work together and enhance CRM’s importance to the company (Chalmeta, 2006). Many companies realized the importance of CRM in the improvement of their organization’s performance and competitiveness. Bergeron (2001) indicated some of the improvements that CRM can bring to the company:
- Higher custumer satisfaction together with better service provided, - Improving customer relationship,
- Creating business opportunities,
- Defining purposes that are connected to customer’s contentment, - High effectiveness in providing customer services,
- Lower costs (Chalmeta, 2006).
According to Ling & Yen (2001) CRM represents a set of processes that support business strategy to build strong relationship with their customers. The improvement of technology and the Internet changed the way relationship between the customers and companies was managed.
Many researchers agree that there is no one universal definition of CRM. The following table provides different definitions of Customer Relationship Management (CRM).
Definitions of Customer Relationship Management (CRM)
There are many definitions of Customer Relationship Management, some of them will be mentioned below.
17 Table 2.4.
Definition of Customer Relationship Management
Source Definition
Swift (2001, p. 12) “Enterprise approach to understanding and influencing customer behavior through meaningful communications in order to improve customer acquisition, customer retention, customer loyalty, and customer profitability.”
Kincaid (2003, p. 41) “The strategic use of information, processes, technology and people to manage the customer’s relationship with your company (Marketing, Sales, Services, and Support) across the whole customer life cycle.”
The Sales Educators (2006, p. 93) “The process that identifies customers, creates customer knowledge, builds customer relationships, and shapes customers' perceptions of the firm and its products/solutions.”
Parvatiyar and Sheth (2001, p. 5) “A comprehensive strategy and process of acquiring, retaining, and partnering with selective customers to create superior value for the company and the customer.”
Huang and Wang (2009, p. 737) “A customer-centered enterprise management mode, which discovers the customers’ value and satisfies their requirements to realize the interaction between enterprise management and customers.”
18 Dimensions of CRM
According to Öztaysi, Sezgin, & Özok (2011) CRM are including win-back management, production / service customization and customer information management.
These three dimensions are explained in the following paragraphs.
Win-back management (WBM).
WBM refers to staying in touch with the lost or inactive customers. The profitable customers are subject to WBM, proper customer information is needed in order to analyze and target the lost customers (Öztayşi et al., 2011).
Production / service customization (PSC).
Product / service customization represents making a differentiation on the products or services according to customer needs. Customization can be understood as a measurement for maintaining CS and CL. Furthermore, high‐value customers are mainly focused on customization of efforts. CIM should be done properly so it can maintain an effective customization (Öztayş et al., 2011).
Customer information management (CIM).
The companies should try to capture and manage the information of the potential customers. It is used for segmentation of the customers and defining the life time values and suitable communication channels (Öztayşi et al., 2011).
Innovation Capabilities
Nowadays innovation represents an immense part in our lives. People and companies are willing to follow the trends and innovation capabilities have a great importance. Due to global competition and technological innovation companies should “look for competitive advantage for survival” (Yesil et al., 2013, p. 217).
Innovation represents an important factor in management because it has a great impact on business performance. It is a multi-dimensional phenomenon (Rosenbusch, Brinckmann &
Bausch, 2011). Furthermore, many studies showed that there is a positive and direct relationship between innovation and business performance (Damanpour & Schneider, 2006;
Damanpour, Szabat & Evan 1989; Han et al., 1998; Khan & Manopichetwattana 1989; Zahra et al., 1988). In addition, innovation has a strong impact on the collectivistic culture such as in Asian countries. On the other hand, the relationship between innovation and performance is weaker in individualistic countries such as the United States (Rosenbusch et al., 2011).
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Innovation has “core value-creating capabilities” in market-performance orientation (Han et al., 1998). Furthemore, innovation capability is the capacity to “routinely achieve innovative outcomes” (Yesil, et al., 2013, p. 219).
Burgelman, Verschraegen, Degrave, & Nollet (2004) highlighted the importance of Technological Innovation Capabilities (TICs). It includes technology, product, process and organization. Therefore, TIC has a crucial significance in the company’s performance and competitiveness (Burgelman et al., 2004).
Table 2.5.
Definition of Innovation and Innovation Capabilities
Source Definition
Zahra and Covin (1994, p. 183) “Widely considered as the life blood of corporate survival and growth.”
Bessant et al. (2005, p. 1366) “Innovation represents the core renewal process in any organization. Unless it changes what it offers the world and the way in which it creates and delivers those offerings it risks its survival and growth prospects.”
Damanpour and Schneider (2006, p. 216) “Innovation is studied in many disciplines and has been defined from different perspectives.”
Burgelman et al. (2004) “As comprehensive set of characteristics of an organization that support and facilitate innovation strategies.”
(continued)
20 Table 2.5. (continued)
Source Definition
Akman and Yilmaz (2008, p. 74) “Innovation capability is defined as an important factor that facilitates an innovative organizational culture, characteristics of internal promoting activities and capabilities of understanding and responding appropriately to the external environment.”
Tsai et al. (2001, p. 537) “A firm’s innovation capability is defined as including product innovation, process innovation, and managerial innovation.”
Figure 2.3. Model of customer relationship management. Adapted from “Knowledge sharing, absorptive capacity, and innovation capability: an empirical study of Taiwan's knowledge-intensive industries” by Liao et al., 2007. Journal of Information Science, 33(3), 340-359.
Dimensions of Innovation Capabilities
According to Liao et al. (2007) innovation capabilities have three dimensions: product innovation, process innovation and management innovation. However, in this research study only product and process innovation will be taken into account.
21 Product innovation.
Product Innovation is defined as new products on the market that will bring the satisfaction of the consumers (Liao et al., 2007).
Process innovation.
Process innovation is a process that can improve manufacture or process service bz
Process innovation is a process that can improve manufacture or process service bz