This chapter presents a brief review of the literature that is relevant to making a case for this thesis. The chapter offers an overview of the definitions used in this research, and then describes the relations between variables, then proceeds to describe previous research that has been done on transformational leadership and innovation. Finally the chapter describes the organizational context in which this study was conducted.
Leadership Theories
The old paradigms focus primarily on the more traditional, individualistic views of the leader, based on identifying the key characteristics of successful leaders, the task-oriented or relations-task-oriented leadership, directive or participative leadership, and autocratic or democratic leadership and related exchange theories of leadership ignored effects on leader-follower relations of the sharing of vision, symbolism, imaging, and sacrifice (Bass, 1997). However during 1980s and 1990s a substantial number of leadership researchers shift to studying new types of styles. Bolden, Gosling, Marturano and Dennison (2003) highlight some of the theories of leadership and its approach as shown below:
Table 2.1.
Review of Leadership Theory
Theory Approach
Great Man Theories
Based on the belief that leaders are exceptional people, born with innate qualities, destined to lead. The use of the term 'man' was intentional since until the latter part of the twentieth century leadership was thought of as a concept which is primarily male, military and Western. This led to the next school of trait.
Trait Theories The lists of traits or qualities associated with leadership exist in abundance and continue to be produced. They draw on virtually all the adjectives in the dictionary which describe some positive or virtuous human attribute, from ambition to zest for life.
Behaviourist Theories
These concentrate on what leaders actually do rather than on their qualities Different patterns of behavior are observed and categorized as 'styles of leadership'. This area has probably attracted most attention from practicing managers.
(continued)
9 Table 2.1. (continued)
Theory Approach
Situational Leadership
This approach sees leadership as specific to the situation in which it is being exercised. For example, whilst some situations may require an autocratic style, others may need a more participative approach. It also proposes that there may be differences in required leadership styles at different levels in the same organization.
Contingency Theory
This is a refinement of the situational viewpoint and focuses on identifying the situational variables which best predict the most appropriate or effective leadership style to fit the particular circumstances.
Transactional Theory
This approach emphasizes the importance of the relationship between leader and followers, focusing on the mutual benefits derived from a envisioning and implementing the transformation of business performance.
Note. Adapted from “A review of leadership theory and competency frameworks,”
by R. Bolden, J. Gosling, A. Marturano and P. Dennison. 2003, Centre for Leadership Studies Exeter. Report for Chase Consulting and the Management Standards Centre, Centre for Leadership Studies, University of Exeter, UK.
Due to the purpose of this research is to predict business performance from an effective leadership style, other work environment variables, and innovation; this research chooses to use transformational leadership approach by Bass (1985, 1998) to conduct the study.
A central thesis of Bass's (1985) theory is that transformational leadership goes beyond exchanging inducements for desired performance by developing, intellectually stimulating, and inspiring followers to transcend their own self-interests for a higher collective purpose, mission, or vision. Bass (1985) asserted that transformational leadership would result in followers performing beyond expected levels of performance as a consequence of the leader's
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influence. Specifically, followers' level of extra effort may be due, in part, to their commitment to the leader, their intrinsic work motivation, their level of development, or the sense of purpose or mission that drives them to excel beyond the standard limits.
Transformational Leadership
The more recent work on leadership emphasized that effective leaders inspire their followers and nurture their ability to contribute to the organization (Eagly, Johannesen-Schmidt, & Van Engen, 2003). This paradigm initially emerged in Burns (1978) evolving a type of leadership that he labeled transformational. Subsequently elaborated by Bass (1985, 1998), transformational leadership involves establishing oneself as a role model by gaining the trust and confidence of followers, such leaders state future goals and develop plans to achieve them, skeptical of the status quo, they innovate, even when the organization that they lead is generally successful. Transformational leaders encourage their follower to develop their full potential and thereby to contribute more capably to their organization, by mentoring and empowering them (Eagly, Johannesen, & Van, 2003). Transformational leaders optimize the interaction between members of the organization via setting an example for subordinates and concerns of their subordinates (Xu & Wang, 2008). The transformational leader motivates followers to do more than originally expected. Such a transformation can be achieved by (a) raising an awareness of the importance and value of designated outcomes, (b) getting followers to transcend their own self-interests, or (c) altering or expanding followers' needs on Maslow's hierarchy of needs (Hater & Bass, 1988). In Bass model of leadership, four dimensions comprise transformational leadership behavior (Bass & Avolio, 1993) including Individualized Consideration, Intellectual Stimulation, Inspirational Motivation, and Idealized Influence.
Individualized Consideration
Individualized Consideration (IC) is the first of the ‘‘transformational’’ styles. The IC leader demonstrates concern for their followers, treats them as individuals, gets to know them well and listens to both their concerns and ideas, by using individualized consideration, the leaders deal with others as individuals and understand that each individual has different needs, abilities, aspirations and requires personal attention, builds a one-to-one relationship with his or her followers, and understands and considers their differing needs, skills, and aspirations.
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Intellectual Stimulation
Intellectual Stimulation (IS) essentially involves the leader stimulating the followers to think through issues and problems for themselves and thus, to develop their own abilities.
By using intellectual stimulation, leaders know that creativity, knowledge creation, and continuous improvement, and elevates the interests of his or her employees (Bass, 1990b), and stimulates followers to think about old problems in new ways (Bass, 1985). Intellectual stimulation is generally associated with encouraging subordinates to think about problems in different angles, which should be of particular importance in private organizations seeking competitive advantage (Lowe, Kroeck, & Sivasubramaniam, 1996).
Inspirational Motivation
The inspirationally Motivating (IM) leader has the ability to motivate the followers to superior performance. Such leaders tend to be able to articulate, in an exciting and compelling manner, a vision of the future that the followers are able to accept and strive towards. Such leaders can also often succeed in elevating the expectations of followers so that they achieve more then they, or others, thought they could do. By using inspirational motivation, the leader communicates a vision with fluency and confidence in a compelling manner, shows the followers how to achieve the goals, and has the ability to motivate the followers to outstanding performance.
Idealized Influence
The final transformational style refers to the leader who has become an idealized influence (II) or ‘‘role model’’ for those around them. Such leaders are regarded as a role model either because they exhibit certain personal characteristics, attitudes or ‘‘charisma’’ or because they demonstrate certain moral behaviors. Such leaders are often seen as being high on morality, trust, integrity, honesty and purpose. By using Idealized Influence, the leader inspires admiration, trust, respect, and loyalty, and emphasizes the importance of having a purpose, commitment, values and collective sense of mission. The idealized influence is divided into idealized attributes and idealized behaviors.
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Empowerment
Empowerment has been defined by different authors throughout the years and some writers on the concept had similar views on what empowerment is although other explains it slightly different. There are two major approaches of empowerment, one refers to empowerment as behavior of a supervisor who empowers his/her followers and the other refers to the psychological state of a subordinate resulting from his/her supervisor’s empowering as suggested by Lee and Koh (2001). Conger and Kanungo (1988) defined empowerment as a process of enhancing the feelings of self-efficacy among organizational members, which would also include that the employees perceive themselves to be empowered. On the other hand Brymer (1991) defined empowerment as the process of decentralizing decision-making in an organization, by means of which managers give more discretion and autonomy specific employees. Additionally, it is shown that empowering employees involves helping them take ownership of their jobs so that they take personal interest in improving the performance of the organization (Byham & Cox, 1992). Thomas and Velthouse (1990) emphasized that psychological empowerment is multifaceted and cannot be fully explained by one concept like explained by Conger and Kanungo (1988).
Thomas and Velthouse (1990) explained empowerment to be influenced by two personality traits and two aspects from the work context. Thomas and Velthouse (1990) defined psychological empowerment as four cognitions reflecting an employee’s orientations towards his/her job namely meaningfulness, competence, impact and self determination.
Meaningfulness: Meaningfulness is the value of a work goal or purpose, judged in relation to an individual's own ideals or standards (Thomas & Velthouse, 1990).
Competence: Competence, or self-efficacy, is an individual's belief in his or her capability to perform their work and activities with skill (Gist, 1987).
Self-determination: Where competence is a mastery of behavior, self-determination is an individual's sense of having choice in initiating and regulating actions (Deci, Connell, &
Ryan, 1989). Self-determination reflects autonomy in the initiation and continuation of work behaviors and processes; examples are making decisions about work methods, pace, and effort.
Impact: Impact is the degree to which an individual can influence strategic, administrative, or operating outcomes at work (Ashforth, 1989). Ability of employees has to affect organizational outcomes.
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Climate for Innovation
Before providing previous definitions of Climate for innovation and in order to obtain a better understanding, it is presented a summary of approaches of organizational climate by Moran and Volkwein (1992) who highlight some of the approaches taken from literature on climate as shown below, they grouped the concept into four general categories, the structural, the perceptual, the interactive and the cultural approach.
Table 2.2.
Summary of Approaches to the Formation of Organizational Climate
Approach Description Representative researchers
and main influences Structural Climate is regarded as an objective manifestation
of the organization's structure. It forms because members are exposed to common structural characteristics of an organization. As a result of this exposure, they have similar perceptions.
These similar perceptions represent their own organization's climate
Guion (1973), Indik (1965), Inkson et al.(1970), Payne
and Pugh (1976)
Perceptual The basis for the formation of climate is within the individual. Acknowledges that individuals respond to situational variables in a manner that is psychologically meaninful to them. Climate is a psychological processed description of organizational conditions.
Interactive Basic contention is that the interaction of individuals in responding to their situation brings forth the shared agreement which is the basis of
14 Table 2.2. (continued)
Approach Description Representative
researchers and main influences Cultural Organizational climate is created by a group of
interacting individuals who share a common, abstract frame of reference, i.e., the organization's culture as they come to terms with situational
by E. Moran and J. Volkwein. 1992, Human relations, 45(1), 19-47.
This study will adopt the cultural approach, because when an organizational culture values initiative and innovative approaches, the tendency of employees to take risks, be creative and obtain satisfaction from their work, is higher. Schneider (1975) suggested that there are many types of climates, and it would be meaningless to speak of organizational climate without attaching a referent. According to Mumford, Scott, Gaddis and Strange (2002), organizational climate and culture represent collective social construction, over which leaders have substantial control and influence. This study will adopt the definition by Scott and Bruce (1994), climate is defined as individual cognitive representations of the organizational setting expressed in terms that reflect psychologically meaningful interpretations of the situation. The approach which is taken to this research posits that leadership, work group relations and problem-solving style affect individual innovative behavior directly and indirectly through perceptions of a "climate for innovation".
According to Scott and Bruce (1994), the scale to measure climate for innovation has two factors: support for innovation and supply of resources.
Support for innovation: the extent to which an organization is open to change, open to diversity, and supportive of innovative ideas.
Supply of Resources: this factor examines the adequacy of the resources in the organization.
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Innovation
In simple terms Neely and Hii (1998) defined innovation as involving the exploitation of new ideas and they classified innovation into product innovation and process innovation.
Drucker (1985) recognized that innovation was a particular tool with a purpose to competitive success for companies. Amabile, Conti, Coon, Lazenby and Herron (1996) defined innovation as the successful implementation of creative ideas within an organization.
Afuah (2003) defined innovation as being used to practice new knowledge in order to provide new products and services for customers. In this study, innovation is defined as how well a firm innovatively performed in terms of the extent of new service, process and organizational development (Simsek, 2002).
Previous studies have categorized innovation from different perspectives. This categorization can be the innovative degree perspective, such as radical or incremental innovation and the administrative angle, such as administrative innovation or technical innovation. Due to the fact that the dominant approach of innovation, within the targeted organization is more related to intangible products, this research chooses to use Chacke’s categorization to conduct the analysis. Discussion of the three different types of innovation based on the decomposition by Chacke (1988) is provided, which are process innovation, organizational innovation, and technical innovation.
Process Innovation:
Process innovation can be view as the introduction of a new or significantly improved method for the production or delivery of output that adds value to the organization. The term process refers to an interrelated set of activities designed to transform inputs into specified output for the customer. It implies a strong emphasis on how work is done within an organization rather than what an organization does (Davenport, 1993).
Innovation not only comes from Research and Development department, administration, sales, customer services also have opportunities to innovate in performing their value-adding activities. Process innovation has resulted in organizational improvements such as lower stock levels, faster, more agile manufacturing processes, and more responsive logistics.
Organizational Innovation: Organizational innovation is the creation of valuable and useful new services within an organizational context (Woodman, Sawyer, & Griffin, 1993).
Organizational innovation is more related to administrative innovation. Organizational innovation was defined as the outcome of the innovation adopting process, in which organizational learning took a significant part (Damanpour, 1991; Lund & Gjerding, 1996).
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Technical Innovation: Technical innovation refers to improve products. According to Damanpour (2001), product innovations are new products or services introduced to meet an external and market need, whereas process innovations are new elements introduced into an organization’s production or service operations, such as input materials, task specifications, work and information flow mechanisms, and equipment used to produce a product or render a service.
Business Performance
The fundamental purpose of every business enterprise is to consistently outperform the competition and deliver sustained, superior returns to the owners while satisfying other stakeholders.
Various models and evaluation criteria of business performance have been suggested by researcher, such as the goal attainment model (Price, 1972), the system resource model (Yuchtman & Seashore, 1967), the multiple constituency model (Connolly, Conlon, &
Deutsch, 1980). In general the goal attainment implies that the greater the degree to which an organization achieves its goals the greater its effectiveness (Price, 1972); the resource model define the effectiveness of an organization in terms of its bargaining position, as reflected in the ability of the organization, the greater the ability of the organization to exploit its environment, the greater its effectiveness (Yuchtman & Seashore, 1967); and the multiple constituency model refer effectiveness not as a single statement, but as a set of several (or perhaps many) statements, each reflecting the evaluative criteria applied by the various constituencies involved to a greater or lesser degree with the focal organization (Connolly, Conlon & Deutsch, 1980). This study adopted the definition by Elenkov (2002), he defined business performance represented the degree to which a company achieved its business objectives.
Due to the complexity of the construct, however, there is no generally accepted model or conclusive evidence for a single best measure or a single set of measures of performance.
Consequently business performance may be manifested in multiple components and there are two major ways to measure performance, the subjective measure (based on perceptions) and objectives measures such as sales volume, profitability, return on investment (ROI), stock price, earning per share (EPS), sales or revenue growth, return on sales (ROS) return on assets (ROA) as well as broader operational measures such as market share and number of new products. In this study, business performance was formulated in five components to be assessed: sales, market share, operating income, profit, and return on assets.
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Those components (sales, market share, profit, ROA, Operating income) were chosen because they reflect goal attainment and resource acquisition. ROA is the most common measure of firm performance in management research (Gomez, Mejia & Palich,1997).
Relationship between the Variables Transformational Leadership and Innovation
Numerous writers have implicated leadership as critical in the innovation process.
The results of Howell and Higgins (1990) study demonstrated that transformational leadership can be empirically linked to the promotion of innovation in organizations. Those leaders can affect subordinate creativity and organizational innovation in several ways. By articulating a vision that emphasizes long-term over short-term business outcomes (e.g., growth and value rather than quarterly profit), leaders can direct employees’ individual and joint efforts towards innovative work processes and outcomes (Amabile, 1996).
Transformational leaders enhance innovation within the organization and they have a tendency into organizations to innovate, frequently promote creative ideas within their organizations, reflecting their “championing role” of transformational leaders (Howell &
Higgins, 1990). Elkin and Keller (2003) identified inspirational motivation and intellectual stimulation as critical for organizational innovation. According to Mouly and Sankaran (2002) leaders may do much to encourage innovation by taking actions that encourage intellectual engagement and role-modeling engagement (Ensor, Cottam, Band, 2001; McGourty, Tarshis, Dominick, 1996).
Transformational Leadership and Empowerment
Transformational leaders create a work environment where subordinates feel empowered to seek innovative approaches to perform their job. Avolio and Gibbons (1988) have gone so far as to argue that a major goal of transformational leaders is to develop followers’ self-management and self-development skills by allowing them to make and implement actions without direct supervision or intervention. An effective leader empowers team members by ensuring they have the authority to implement policies and by supporting members' decisions. Empowerment also involves creating a climate oftrust, respect, open communication and cooperation which facilitates a cooperative, participative group climate (Conger & Kanungo, 1988b). Jung (2001), argued that transformational leader’s encouragement for innovative ideas and a participative decision making process through
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empowerment is an important reason for creativity among followers. Moreover, opposite actions to give employees autonomy can be unfavorable, according to Amabile (1996) who found strict control by upper management as one of the main elements that can undermine creativity and in the same study, it was found that autonomy or freedom is an important determinant of organizational creativity because individuals produce more creative work when they perceive more personal control over how to accomplish given tasks.
Transformational Leadership and Climate for Innovation
Several studies have provided evidence that an organization’s or group’s climate for innovation is an important determinant of innovation. Researchers believed that innovation competency are connected to organizational culture and leaders’ perceptions (Delmas, 2002).
Organizations in which there is a stronger support for innovation and risk taking may be more
Organizations in which there is a stronger support for innovation and risk taking may be more