The Effect of Transformational Leadership on Business Performance: A Case study of ICT Companies in Taiwan and Bosnia& Herzegovina

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(1)The Effect of Transformational Leadership on Business Performance: A Case study of ICT Companies in Taiwan and Bosnia & Herzegovina. by Tatjana Tica. A Thesis Submitted to the Graduate Faculty in Partial Fulfillment of the Requirements for the Degree of. MASTER OF BUSINESS ADMINISTRATION Major: International Human Resource Development. Advisor: Cheng-Ping Shih, Ph.D. National Taiwan Normal University Taipei, Taiwan June, 2016.

(2) The Effect of Transformational Leadership on Business Performance: A case study of Taiwan and Bosnia & Herzegovina ICT Companies by Tatjana Tica. A Thesis Submitted to the Graduate Faculty in Partial Fulfillment of the Requirements for the Degree of. MASTER OF BUSINESS ADMINISTRATION Major: International Human Resource Development. ____________________________ Dr. Cheng-Ping, Shih Thesis Advisor ___________________________ Dr. Chih-Chien, Lai Committee Member ____________________________ Dr. Pai-Po, Lee Committee Member ____________________________ Dr. Chu-Chen, Yeh Director of the Graduate Program. Graduate Institute of International Human Resource Development National Taiwan Normal University Taipei, Taiwan June 6, 2016.

(3) ACKNOWLEDGEMENT The decision to study in Taiwan was one of the best choices I have ever made in my whole life. It was not easy, but it was definitely worth it. My journey called “Taiwan” broadened my horizons and made me the person I am today. Finally, I finished my thesis, so I would like to express my deepest gratitude to my professors, friends and my family. Big thanks go to Dr. Tony who kept on giving me directions and support in one way or the other while writing my thesis. He was not just my professor, but he also played a role of being my father in Taiwan. He was that kind of a person who was always willing to share his broad knowledge with his students. Thanks for his immense support and all kind of advice that he gave me. His words had a huge impact on my life! Thank you so much, Dr. Tony. I would also like to show my deepest appreciation to Dr. Lee and Lai for their valuable comments and guidelines in the course of writing my thesis. Furthermore, I would also like to my gratitude to the incumbent IHRD programme director, Dr. Yeh as well as Dr. Chang and Dr. Lin. Thank you for sharing your precious knowledge and preparing me for my next adventures in my life. Further appreciations are directed to Ms. Tracy, my TaiwanICDF project manager. I am also greatly indebted to TaiwanICDF who paid for my Master’s degree education. Ms. Tracy was not just only my project manager, but also my friend. Thank you for taking care of me and for being a so considerate person. Thanks to you and your valuable help it was much easier to adapt to Asian lifestyle with your assistance. Big thanks to Shih team: Fanny, Axana, Hildeberto, Eduardo, Aibo. It was great to have you in the team and I hope to work with you in the future. No one knows what life brings and where will we meet in the future. I would also like to thank all my IHRD classmates especially Taiwanese ones. Without you guys this journey would not be the same. It was always so interesting to be you as my team members. And thanks for teaching me some not very useful Chinese words. However, I will implement it in my vocabulary! I cannot finish writing this acknowledgment and not to mention Ruby. Thank you so much for all the time we spent together and your support. It was always so fun to spend time with you. You are the person who was always there for me. Thank you for all those crazy days and nights and for a lot of fun. I am sure that our friendship will last for a lifetime my dear Ruby. Wish you all the best in your future endeavors. Looking forward to enjoy adventures with you in the near future. Keep in mind that Europe is waiting for you..

(4) I need to emphasize my deepest gratitude to my brother Wiseman. He was the one who was supporting me and spending the most of his time with me. Thank you for teaching me many useful and important things in life as well as teaching me some basics of the Swazi language. This Taiwan would not be the same place without you. You made it a much more interesting place. See you soon in your continent. Looking forward to seeing you in the near future. Thanks for everything. In the end, I need to extend my thanks to my sister Cindy! If it was not her, I wouldn’t ever come to Taiwan. Our friendship was very strong, so after Finland it was meant for us to meet again in Taiwan and continue our life’s journey together. Thank you for helping me to adapt to the Taiwanese culture and for believing in me. You enriched my life. I couldn’t ask for a better sister other than you. Let see where life brings us next. Love you and thank you for everything, Moja Cindy. Lastly, I would end by thanking my family for unconditional support. Thank you for encouraging me and believing in me. I now believe that I have the best parents in the whole words. I love you!! Most especially, a lot of thanks go to Goran, who was patient enough with me for all these months and who was waiting for me all the time. Thank you for going with me throughout this journey. Hvala ti na neizmjernoj podrški, G. Pipka, thanks for all these years of friendship. We spent childhood together and I sincerely hope that we will get old together and still enjoy life just the way we know. You will be my one and only friend for my whole life. Thanks for searching for the PhD positions and encouraging me on my adventures. Wait for me so we can celebrate our birthdays together. Najdraži moji, napokon da napišem nekoliko riječi i na srpskom, najljepšem jeziku na cijelom svijetu. Željela bih Vam se zahvaliti na svemu što se učinili za mene. Znajte, da nikada ne bih bila ovdje da nije bilo Vas i Vaše neizmjene podrške. Imam najbolje roditelje na cijelom svijetu. Hvala Vam na bezuslovnoj podrški i ljubavi. Nadam se da ćemo proći još mnogo avantura zajedno. Dragi moji Mikerini, volim Vas od Tajpeja do Banja Luke. Napokon, da spomenem moje uzore, baku i djeda. Deda, hvala što si uvijek bezuslovno dijelio svoje znanje sa mnom i bodrio me na svim mojim putovanjima a tebi bako (da ne kažem, Stara) što si mi davala životne savjete i uvijek učila kako trebam biti dama. Najbolji ste! Trudim se… Nadam se da ću uspjeti sa vremenom. I na kraju, hvala Vam što ste prolazili vremenske zone sa mnom, druge kontinente, razlicite kulture i jezike. Iako smo bili kilometrima daleko uvijek sam osjećala Vašu ljubav. Zahvalna sam Vam od Banja Luke do Tajpeja..

(5) ABSTRACT Globalization and technology have exerted considerable influence on customer relationship management, product development, and business performance. The purpose of this research was to investigate the effect of transformational leadership on organizational trust, customer relationship management, innovation capabilities, and business performance. To meet this purpose, data was collected from Taiwan and Bosnia & Herzegovina. A TOKSIP structural research framework model was created, and Partial Least Square (PLS) was employed to conduct a comparative analysis of the results. After sending out 300 questionnaires, the researchers received 225 usable completed forms, and this brought the response rate to 75%. The empirical results indicated that transformational leadership has a positive and highly significant effect on organizational trust, in which organizational trust has significant effect on customer relationship management, as well as customer relationship management on innovational capabilities. Furthermore, the results showed that innovation capabilities have a significant positive effect on business performance. This comparative study contributes a lot to the investigation of transformational leadership similarities and differences between Taiwan and Bosnia & Herzegovina. The study ends by providing practical implications and suggestions for future research. Keywords: transformational leadership, business performance, ICT companies. I.

(6) TABLE OF CONTENTS ACKNOWLEDGEMENT ................................................................................. iii ABSTRACT........................................................................................................ I TABLE OF CONTENTS .................................................................................. II LIST OF TABLES .......................................................................................... IV LIST OF FIGURES.......................................................................................... VI CHAPTER I INTRODUCTION........................................................................ 1 Background of the Study ....................................................................................................1 Purpose of the Study ...........................................................................................................2 Questions of the Study ........................................................................................................3 Significance of the Study ....................................................................................................3 Delimitations and Limitations .............................................................................................4 Definition of Terms ............................................................................................................5. CHAPTER II LITERATURE REVIEW ............................................................ 7 Leadership ..........................................................................................................................7 Transformational Leadership ..............................................................................................8 Organizational Trust ......................................................................................................... 11 Knowledge Sharing .......................................................................................................... 15 Customer Relationship Management ................................................................................. 16 Innovation Capabilities ..................................................................................................... 18 Business Performance ....................................................................................................... 21. CHAPTER III METHODOLOGY ................................................................... 23 Research Framework ........................................................................................................ 23 Research Hypothesis ......................................................................................................... 23 Research Procedure .......................................................................................................... 24 Research Method .............................................................................................................. 26 II.

(7) Instrumentation ................................................................................................................. 26 Construct Coding and Scales ............................................................................................ 27 Validity and Reliability of Instrument ............................................................................... 34 Data Analysis Method ...................................................................................................... 36. CHAPTER IV. DESCRIPTIVE STATISTICS AND PILOT STUDY. FINDINGS ....................................................................................................... 38 Sample Characteristics ...................................................................................................... 38 Descriptive Analysis ......................................................................................................... 40 PLS Result for Pilot Test ..................................................................................................42. CHAPTER V MAIN STUDY FINDINGS ...................................................... 45 Correlation Analysis ......................................................................................................... 45 Validity and Reliability Analysis ...................................................................................... 47 Partial Least Square (PLS) Analysis ................................................................................. 47 A Comparative study of Taiwan and Bosnia & Herzegovina ............................................. 52 PLS Results and Discussion .............................................................................................. 60. CHAPTER VI CONCLUSIONS AND RECOMMENDATIONS ................... 62 Research Conclusions ....................................................................................................... 62 Research Recommendations ............................................................................................. 63 Recommendations for Future Research ............................................................................. 64. REFERENCES ................................................................................................ 66 APPENDIX A PLS RESULTS ....................................................................... 74 APPENDIX B TOKSIP MODEL II ................................................................. 78 APPENDIX C QUESTIONNAIRE (ENGLISH AND SERBIAN VERSION) . 83 APPENDIX D QUESTIONNAIRE (CHINESE VERSION) .......................... 102. III.

(8) LIST OF TABLES Table 2.1. The Characteristics of Transactional and Transformational Leaders .......................8 Table 2.2. Different Ways of Transactional and Transformational Leaders Influences Followers ...............................................................................................................................9 Table 2.3. Definition of Organizational Trust........................................................................ 13 Table 2.4. Definition of Customer Relationship Management ............................................... 17 Table 2.5. Definition of Innovation and Innovation Capabilities ........................................... 19 Table 2.6. Definition of Business Performance ..................................................................... 21 Table 3.1. Items Measuring Organizational Trust..................................................................28 Table 3.2. Items Measuring Customer Relationship Management (CRM) ............................. 30 Table 3.3. Items Measuring Business Performance ............................................................... 30 Table 3.4. Items Measuring Innovation Capabilities.............................................................. 31 Table 3.5. Items Measuring Transformational Leadership ..................................................... 32 Table 3.6. Reliability of Instrument ...................................................................................... 34 Table 3.7. Validity of Instrument ......................................................................................... 35 Table 4.1. Sample Characteristics Based on Demographic Variables (N=225) ...................... 39 Table 4.2. Dimensions by Likert Scale, Mean and SD (N=225) ............................................ 40 Table 4.3. PLS Path Analysis Result (Pilot Test, N=33) ........................................................ 42 Table 5.1. Correlation Analysis (Main Study, N=225) .......................................................... 46 Table 5.2. Cronbach’s Alpha Results for All Dimensions (Main Study, N =225) .................. 47 Table 5.3. Measurement Model Results (Main Study, N =225) ............................................. 48 Table 5.4. PLS Loadings (Main Study N=225) ..................................................................... 48 Table 5.5. PLS Path Analysis Results (Main Study N=225) .................................................. 50 Table 5.6. Research Hypothesis Results ................................................................................ 52 Table 5.7. Taiwan (N=102) and Bosnia & Herzegovina (N=123) Cronbach’s Alpha results, Composite Reliability Results for All Dimensions ................................................................ 53. IV.

(9) Table 5.8. Taiwan (N=102) and Bosnia & Herzegovina (N=123) Measurement Model Results ............................................................................................................................................. 54 Table 5.9. PLS Results for Indirect Effects between Variables (Taiwan, N=102) .................. 54 Table 5.10. PLS Results for indirect effects between variables (Bosnia & Herzegovina, N=123) ................................................................................................................................. 55 Table 5.11. PLS Path Analysis Result for Taiwan (102) and Bosnia and Herzegovina (123) . 55 Table 5.12. PLS loadings Taiwan (N=102), Bosnia & Herzegovina (N=123) ........................ 57 Table 5.13. Cronbach’s Alpha Results for All Dimensions (Main Study, N =225) ................ 80 Table 5.14. Measurement Model Results (Main Study, N =225) ........................................... 80 Table 5.15. PLS Results for Indirect Effects between Variables (Main Study, N=225) .......... 80 Table 5.16. PLS Loadings (Main Study, N=225) ..................................................................81 Table 5.17. PLS Path Analysis Results (Main Study, N=225) ............................................... 81. V.

(10) LIST OF FIGURES Figure 2.1. Model of transformational leadership ................................................................ 10 Figure 2.2. Model of organizational trust ........................................................................ …14 Figure 2.3. Model of innovation capabilities ........................................................................ 20 Figure 3.1. TOKSIP model ................................................................................................. 23 Figure 3.2. Research procedure............................................................................................ 25 Figure 4.1. Pilot study (Taiwan, N=33) ................................................................................ 44 Figure 5.1. PLS structural model (Main study, N= 225) ....................................................... 51 Figure 5.2. PLS structural model (Taiwan, N=102) .............................................................. 59 Figure 5.3. PLS structural model (Bosnia & Herzegovina, N=123). ..................................... 60 Figure 5.4. TOKSIP model II............................................................................................... 80 Figure 5.5. PLS structural model TOKSIP II (Main Study, N=225). .................................... 81. VI.

(11) CHAPTER I INTRODUCTION This chapter includes six sections. First, the background and the purpose of the study will be presented. It will be followed by questions and the significance of the study. The last section of this chapter will provide delimitations and limitations of the study as well as definition of terms.. Background of the Study Leadership is one of the most important aspects of society. The role of leadership style has changed over the past 20 years. It all started with transformational and transactional leadership style. Nowadays, a leader is a person who provides a vision of the future and motivates employees. Furthermore, the leader is a mentor and a coach of workers (HernezBroome & Hughes, 2004). Nonetheless, there is no unique definition of the leadership. It is the ability to influence employees to achieve their vision or goals (Robbins & Judge, 2014). However, the leadership development is changing rapidly, involving international markets and world economic trends (Cacioppe, 1998). The role of technology in today's society went through some changes due to globalization and rapid change in the leadership style (HernezBroome & Hughes, 2004). Trust is one of the most important terms both for personal and professional lifestyle. It also encompasses the social aspect of one’s life observed from the psychological, philosophical and economical point of view. It reduces conflicts, promotes real reactions to crises (Rousseau, Sitkin, Burt & Camerer, 1998) and enhances supportive behavior (Gambetta, 1988). Organizational trust is especially significant in the work environment. It has always been a meaningful concept in organizations. As a result of globalization, many contracts are signed very quickly or without a prior meeting with the person. This procedure happens because of the development methods and technology. Wayne Hutchens, the president of the University of Colorado Foundation, pointed out that trust is the most important thing in the organization. In the new era of knowledge economy, organizations have realized that customer relationship management (CRM) is beneficial in bringing higher organizational performance. CRM represents a set of processes that support business strategy to build a strong relationship with their customers (Ling & Yen, 2001). Furthermore, Chalmeta (2006) defined CRM as one of the most crucial business strategies. Taking into consideration customer's opinions and suggestions is important to get feedback and is the only way to achieve a remarkable success.. 1.

(12) As a result of globalization and technological change, innovation capabilities represent a significant impact in the business world. Slater and Narver (1994) pointed out that globalization and technological change have an effect in the world and form a core valuecreating capability in the market-performance orientation. Innovation capabilities facilitate nowadays' life. Many studies showed that there is a positive and direct relationship between innovation and business performance (Damanpour & Schneider, 2006; Damanpour, Szabat & Evan 1989; Han, Kim & Srivastava, 1998; Khan & Manopichetwattana 1989; Zahra, De Belardino & Boxx, 1988). Business performance represents the ultimate goal of every company. The higher the revenue, the better benefits employees will have. Hult, Hurley & Knight (2004) defined business performance as the achievement of organizational goals (profitability and market share) and accomplished planned objectives. In this research study, business performance will be observed in two parts: market leadership and financial performance. Furthermore, business performance represents one of the most examined variables in the strategic marketing (Hamann, Schiemann, Bellora & Guenther., 2013). This research study will be beneficial to Bosnia & Herzegovina and Taiwan. The main purpose of the study is to compare results obtained in different countries. The comparative study has a great importance because it will emphasize what employees value the most in the two different cultures.. Purpose of the Study The purposes of this research are described as follows: 1. Examine and analyze the effect of transformational leadership on organizational trust. 2. Examine and analyze the effect of organizational trust on customer relationship management (CRM). 3. Examine and analyze the effect of customer relationship management (CRM) on innovation capabilities. 4. Examine and analyze the effect of innovation capabilities on business performance. The purpose of this study is to compare the results from Taiwan and Bosnia & Herzegovina. In order to investigate the effects of transformational leadership on business performance the TOKSIP model was developed.. 2.

(13) Questions of the Study Deriving from the research purposes, the research questions were formulated as follows. 1. What effect does Transformational Leadership have on Organizational Trust in ICT industry? 2. What effect does Organizational Trust have on Customer Relationship Management in ICT industry? 3. What effect does CRM have on Innovation Capabilities in ICT industry? 4. What effect does Innovation Capabilities have Business Performance in ICT industry?. Significance of the Study Numerous studies pointed out the relationship between organizational trust and knowledge sharing while the other focused on the link between knowledge sharing and innovation capabilities (Liao, Fei & Chen, 2007). Nevertheless, the researchers did propose the integrative model which examines the link between transformational leadership, organizational trust, customer relationship management, innovation capabilities and business performance. This research will investigate the relationship between these variables using TOKSIP model. The study examines the influence of the Transformational Leadership (Intellectual Consideration, Intellectual Stimulation, Inspirational Motivation, Idealized Influence attributes and Idealized Influence behavior) on Organizational Trust (Concern for Employees, Openness and Honesty, Identification, Reliability, Competence), Customer Relationship Management. (Win-back. management,. Production/Service. customization,. Customer. Information Management), Innovation Capabilities (Product Innovation and Process Innovation) and whether it all leads to greater Business Performance (Market Leadership and Financial Performance). This research study is relevant to practitioners and academics. The study will provide three important contributions. First, it theoretically connects organizational trust, customer relationship management and innovation capabilities. Second, it practically develops a model that supports theory. The final contribution of this study is to provide information about two countries from different parts of the world, Taiwan and Bosnia & Herzegovina. First, this study provides link between transformational leadership, customer relationship management and business performance. Furthermore, it shows the relationship between these variables. The present study is important for academics because it offers new. 3.

(14) perspective of transformational leadership on organizational trust, customer relationship management, innovation capabilities and business performance. Second, it develops a framework that supports a theory. It is based on the impact of transformational leadership affecting organizational trust, knowledge sharing (customer relationship management), innovation capabilities and business performance. Finally, it is a cross-cultural study. This research study is beneficial for two countries Taiwan and Bosnia & Herzegovina. It will have an immense importance and contribution because it will represent western and eastern point of view on this topic.. Delimitations and Limitations Delimitations of the study are the scope of the investigation in order to make research feasible. Limitations are barriers of the study, which includes restrictions of resources.. Delimitations This study has some delimitations. First, it is delimited to Taiwan and Bosnia & Herzegovina. Second, it is delimited to ICT industry in these two countries. Finally, this study will explore only the relationship among variables of transformational leadership, organizational trust, customer relationship management, innovation capabilities and business performance.. Limitations Some of the major limitations are: the study was conducted only among the workers who are working in the ICT companies in Taiwan and Bosnia & Herzegovina. Moreover, the study cannot be generalized to another research context. Taken into the consideration the amount of time and resources available, the case study will help to narrow down the scope of the research to facilitate a more manageable research process.. 4.

(15) Definition of Terms Organizational Trust (OT) Theoretical Definition: Organizational trust represents an essential factor for explaining group behavior, managerial effectiveness and social and political stability (Hosmer, 1995). Operational Definition: The organizational trust is measured by competence (Comp), openness and honesty (Op/h), concern for employees (Conc), reliability (Reli) and identification (Iden), which are 29 items in total (Shockley-Zalabak, Ellis & Cesaria, 2003).. Transformational Leadership Theoretical Definition: Transformational leader inspires and stimulates followers to achieve great outcomes and develop their leadership capacities (Bass, 1999; Robbins & Judge, 2014). Furthermore, transformational leaders help followers to grow and develop their full potentials responding to individual followers’ needs by aligning objectives and goals of the individual followers the leader, the group and the larger organization (Bass, 1999). Operational Definition: Transformational leadership is measured by intellectual consideration (TLIC), intellectual stimulation (TLIS), inspirational motivation (TLIM), idealized influence attributes (TLIIA) and idealized influence behavior (TLIIB), which are 20 items in total (Bass, 1999).. Customer Relationship Management Theoretical Definition: Customer Relationship Management (CRM) is a business approach that integrates people, process, and technology to maximize relationships with customers. CRM increasingly leverages the Internet to provide seamless coordination among all customer-facing functions (Goldenberg, 2008, p. 3). Operational Definition: Customer relationship management is measured using 8-item scale adapted from Öztaysi, Sezgin, & Özok (2011). The 8 items are divided into three categories: win-back management (WbM), product/service customization (P/SC), customer information management (CIM).. Innovation Capabilities Theoretical Definition: Innovation is a combination of new factors of production into the production system. It refers to a new technology and the new product which will make customers more satisfied. Innovation represents the new product, the new market and the new technology.. 5.

(16) Operational Definition: Innovation capabilities are measured using 9-item scale adapted from Samson (1991). These 9 items are divided into two categories: product innovation (ProdI) and process innovation (ProceI).. Business Performance Theoretical Definition: Business performance represents one of the most examined dependent variables in the field of management (Richards & Jones, 2008; Hamann et al., 2013). Operational Definition: Business performance is measured by: market leadership (ML) and financial performance (FP), 10 items in total.. 6.

(17) CHAPTER II LITERATURE REVIEW 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.. 7.

(18) 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.. 8.

(19) 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,. - Broadening and elevating followers goals. - Providing feedback. -Providing followers with confidence to. - Exchanging rewards for accomplishments. 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).. 9.

(20) 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, 10.

(21) 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).. 11.

(22) 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.. 12.

(23) 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.. 13.

(24) Concern for Employees. Perceived Effectiveness. Openness and Honesty Identification. Organizational Trust. Reliability Job Satisfaction. Competence. 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). 14.

(25) 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).. 15.

(26) 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.. 16.

(27) 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, perceptions. and of. shapes the. customers'. 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.”. 17.

(28) 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).. 18.

(29) 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). 19.

(30) 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.” “A firm’s innovation capability is defined as. Tsai et al. (2001, p. 537). 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 knowledgeintensive 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. 20.

(31) 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 attaining obtaining the main goal, of achieving better organizational performance (Liao et al., 2007).. Business Performance Many researchers started emphasizing major factors of knowledge management. There are three factors: enablers, processes and organizational performance. Business performance can be defined as the degree to which that company achieved ther business objectives (Lee & Choi, 2003). In addition to, Hult et al. (2004) refer to business performance as the achievement of organizational goals (profitability and market share) and the accomplishement planned objectives. Business performance represents one of the most examined variables in strategic marketing (Hamann, Schiemann, Bellora & Guenther, 2013). According to Hamann et al. (2013) strategy has a great impact on business performance while Han, Kim & Srivastava (1998) emphasize that innovation has greater impact on business performance. A market leader often dominates its competitors through customer loyalty, distribution coverage, image, perceived value, price and profit. Financial performance is a measure of how well a company uses its assets to generate revenues. There are many different ways to measure financial performance, however, the most common used items are: after tax return on sales, after tax return on assets and profit growth. Table 2.6. Definition of Business Performance Source. Definition. Combs et al. (2005, p. 261). “The economic outcomes resulting from the interplay among an organization’s attributes, actions, and environment”.. 21.

(32) Dimensions of Business Performance Business performance in this research is divided into two categories: market leadership and financial performance. Market leadership. Market leadership represents how successful an organization’ products or services are in the existing market and the customers thoughts about organizations in the future. It is comprised of three parts: market development, market share and the development of products. Furthermore, it indicates the largest percentage of total sales revenue. Financial performance. Financial performance is how well the resources were utilized in the company. It contains four parts: profitability, return on investment, cash flow and cost control. It refers to the measure of the company’s capability to use assets in order to generate revenues.. 22.

(33) CHAPTER III METHODOLOGY In this chapter the focus will be on the research methodology. It is composed of five sections: research framework, research procedure, data collection method, instrumentation and data analysis method.. Research Framework Model was developed by Cheng-Ping Shih and Tatjana Tica (fugure 3.1.). TOKSIP model served as the research framework for this study (see figure 3.1.). In Appendix will be presented additional model, TOKSIP II (see Appendix B).. Figure 3.1. TOKSIP model, developed by Cheng-Ping Shih and Tatjana Tica. Research Hypothesis The following null- hypothesis are based on the research questions, literature review and research framework: H1: Transformational leadership has no effect on organizational trust. H2: Organizational trust has no effect on customer relationship management (CRM). H3: Customer relationship management has no effect on innovation capabilities. H4: Innovation capabilities have no effect on organizational performance.. 23.

(34) Research Procedure The researcher reviewed some literature on customer relationship management and innovation capabilities. Furthermore, there are some articles that emphasize the importance of transformational leadership, organizational trust and business performance. The greatest advantage of this research is that it combines all the variables together and investigates the importance of transformational leadership on organizational trust, customer relationship management, innovation capabilities and business performance in the theoretical and practical field. Moreover, the focus of this research is the ICT industry in Bosnia & Herzegovina and Taiwan. This study will provide a more comprehensive perspective for innovation to improve the HR field in the ICT industry. The research study was conducted following the processes mentioned below (see figure 3.2.).. 24.

(35) Research Motivation Review of Literature Identify Problems. Identify Research Questions and Hypothesis Develop Theoretical Framework Develop Research Method Develop Instrument Translation and Expert Review of Instrument Proposal Meeting Conduct Pilot Study. Review of Instrument Data Collection Data Coding Data Analysis Conclusion and Suggestions Figure 3.2. Research procedure. 25.

(36) Research Method The purpose of this study is to investigate the relationship and the effects of transformational leadership on organizational trust, customer relationship management, innovation capabilities and business performance. The data in this research were collected using a survey. Surveys represent the most used data-gathering technique in social science. Therefore, quantitative measurement was implemented. The quantitative measurement was chosen because the researcher wants to gather numerical data and draw a conclusion, if there is a strong relationship between variables. In quantitative studies the data are standardized which mean it uses numbers.. Sample The target population for this study consists of full-time employees who are working in ICT industries in Bosnia & Herzegovina and Taiwan. The pilot test (paper questionnaire) was done on 33 employees working in ICT Companies. After gathering and analyzing data for pilot study the questionnaire was used to collect data for the main study. In order to answer the research questions of this study, data were collected first from a small group of employees who participated in a pilot study, and second from a larger sample of the target population in the main study. Regarding the main study, there were 225 questionnaires collected from employees in both Taiwan and Bosnia & Herzegovina ICT companies. 123 questionnaires were collected from ICT companies in Bosnia & Herzegovina and 102 questionnaires from ICT companies in Taiwan. The participants who were employed in ICT companies in Taiwan filled in internet based questionnaires. On the other hand, some employees in Bosnia & Herzegovina filled in an internet based questionnaire and also a paper based questionnaires. Questionnaires were later scanned by HR working in the ICT company and sent via e-mail to the researcher.. Instrumentation The questionnaire used for this study consists of 5 variables and 80 questions. The instrument was first tested on pilot study. After the results have been collected and statistically analyzed the validity of the instrument was proved. The questionnaire was divided in 6 parts. They were: part I-Organizational Trust; part II-Customer Relationship Management; part III-Business Performance; part IV-Innovation capabilities; part VTransformational Leadership and part VI-Demographics.. 26.

(37) The instructions were provided in the beginning of the questionnaire. The respondents had to choose on a scale from 1 (strongly disagree) to 5 (strongly agree). The 5 point Likert scale “provides an ordinal-level measure of person’s attitude”. In the last part (Demographics) respondents were asked to choose one of different available options. Part I, Organizational Trust (29 items) was measured by Organizational Trust Index (OTI) developed by Pamela Shockley-Zalaback, Donald Morley, Ruggero Cesaria and Kathleen Ellis. The measurement is composed of five dimensions: competence, openness/honesty, concern for employees, reliability and identification. Part II-Customer Relationship Management (8 items): Adopted from Öztaysi et al. (2011), the variables of customer relationship management (CRM) consist of win - back management (WbM), production/ service customization (P/SC), customer information management (CIM). Part III-Business Performance (10 items): Adapted from the empirical research of Lee and Choi (2003), the variables of market leadership (Mark) and financial performance (FinP). The validity and reliability of the items, as established in the authors’ original work, are suitable for this research. Part IV-Innovation capabilities (9 items): Adopted from Liao et al. (2007), the variables of innovation capabilities consist of product innovation (ProdI) and process innovation (ProcI). Part V-Transformational Leadership (20 items): Adopted from Multifactor Leadership Questionnaire (MLQ), the variables of intellectual consideration (TLIC), intellectual stimulation (TLIS), inspirational motivation (TLIM) and idealized influence (TLIIA,TLIIB). Pilot test was conducted to ensure the validity of each item, before gathering data for the main study.. Construct Coding and Scales The following tables show the items that measure variables of the research study. For every construct will be provided specific code and a questionnaire item. Every item has a code that will be used in the statistical analysis of data. The last part of the questionnaire, part 6 represents demographic questions. The last four questions are concerned about gender, age, highest degree of education and working experience.. 27.

(38) Table 3.1. Items Measuring Organizational Trust Construct. Code. Questionnaire Items. Competence. Com1. I am highly satisfied with our company’s overall. (Com; 4 items). efficiency of operation. Com2. I am highly satisfied with the overall quality of the financial products and services of our company.. Com3. I am highly satisfied with the capacity of our company to achieve its objectives.. Com4. I am highly satisfied with the capability of our company’s employees.. Construct. Code. Questionnaire Items. Openness/Honesty. Op/h1. I can tell my immediate supervisor when things. (Op/h; 9 items). are going wrong. Op/h2. I am free to disagree with my immediate supervisor.. Op/h3. I have a say in the decisions that affect my job.. Op/h4. My immediate supervisor keeps confidences.. Op/h5. I receive adequate information regarding how well I am doing in my job.. Op/h6. I receive adequate information regarding how I am being evaluated.. Op/h7. I receive adequate information regarding how my job-related problems are handled.. Op/h8. I receive adequate information regarding how organizational decisions that affect my job are made.. Op/h9. I receive adequate information regarding the long-term strategies of our company. (continued) 28.

(39) Table 3.1. (continued) Construct. Code. Questionnaire Items. Concern for employees. Conc1. My immediate supervisor listens to me.. (Conc; 7 items). Conc2. Top management is sincere in their efforts to communicate with their employees.. Conc3. Top management listens to their employees’ concerns.. Conc4. My immediate supervisor is concerned about my personal well-being.. Conc5. Top management is concerned about their employee’s well-being.. Conc6. My immediate supervisor is sincere in his/her efforts to communicate with team members.. Conc7. My immediate supervisor speaks positively about subordinates in front of others.. Construct. Code. Questionnaire Items. Reliability. Reli1. My immediate supervisor follows through with. (Reli; 4 items). what he/she says. Reli2. My immediate supervisor behaves in a consistent manner form day to day.. Reli3. Top management keeps their commitments to their employees.. Reli4. My. immediate. supervisor. keeps. his/her. commitments to team members.. Construct. Code. Questionnaire Items. Identification. Iden1. I feel connected to my peers.. (Iden; 5 items). Iden2. I feel connected to my company.. Iden3. I feel connected to my immediate supervisor.. Iden4. My values are similar to the values of my peers.. Iden5. My values are similar to the values of my immediate supervisor.. 29.

(40) Table 3.2. Items Measuring Customer Relationship Management (CRM) Construct. Code. Questionnaire Items. Win-back. WbM1. Our department has processes (or tools) to win-back. management (WbM; 3 items). valued lost customer. WbM2. Our department has processes (or tools) to determine the value of lost customers.. WbM3. Our department has processes (or tools) to evaluate the cost of wining back the lost customers.. Construct. Code. Questionnaire Items. Production/ Service P/SC1. Our department has processes (or tools) to differentiate. customization. the customer acquiring efforts based on their value.. (P/SC; 3 items). P/SC2. Our department has processes (or tools) to provide customized product/service to customers based on their value.. P/SC3. Our department has processes (or tools) to manage expectations of high valued customers.. Construct. Code. Questionnaire Items. Customer. CIM1. Our department has processes (or tools) to get in. information. connection with potential customers using various. management. channels (e.g., e-mail, customer service center, phone,. (CIM; 2 items). FAX, face-to-face, etc.). CIM2. Our department has processes (or tools) to trace the status of our relationship with customers.. Table 3.3. Items Measuring Business Performance Construct. Code. Questionnaire Items. Market Leadership. ML1. Market share is better than that of others in the. (ML; 5 items). financial industry. (continued). 30.

(41) Table 3.3. (continued) Construct. Code. Questionnaire Items. ML2. Future prospect is better than that of other financial institutions.. ML3. Industry market leadership is better than that of other financial institutions.. ML4. Overall financial product and service innovation is better than that of other financial institutions.. ML5. Average sales growth has improved over the last three years.. Construct. Code. Financial Performance. FP1. (FP; 5 items). Questionnaire Items After tax return on sales is better than that of other financial institutions.. FP2. Profit growth over the years is better than that of other companies.. FP3. After tax return on assets is better than that of other financial institutions.. FP4. Average profit in the recent three years is better than that of financial institutions.. FP5. Overall business performance is better than other financial institutions.. Table 3.4. Items Measuring Innovation Capabilities Construct. Code. Questionnaire Items. Product innovation. ProdI1. Our company often develops new services well accepted. (ProdI; 5 items). by the market. ProdI2. A great majority of our company’s profits are generated by the new services developed. (continued). 31.

(42) Table 3.4. (continued) Construct. Code. Questionnaire Items. ProdI3. The new services developed by our company always arouse imitation from competitors.. ProdI4. Our company can often launch new services faster than our competitors.. ProdI5. Our company has better capability in R&D of new services than our competitors.. Construct. Code. Questionnaire Items. Process innovation. ProcI1. Our company often tries different operation procedures to hasten the realization of the company’s goals.. (ProcI; 4 items) ProcI2. Our company always acquires new skills or equipment to improve the manufacturing operation process.. ProcI3. Our company can develop more efficient manufacturing process or operation procedure.. ProcI4. Our company can flexibly provide products and services according to the demands of the customers.. Table 3.5. Items Measuring Transformational Leadership Construct. Code. Questionnaire Items. Intellectual Consideration. TLIC1. My direct supervisor spends time teaching and. (TLIC; 4 items). coaching. TLIC2. My direct supervisor treats others as an individual rather than just as a member of a group.. TLIC3. My direct supervisor considers an individual as having different needs, abilities and aspirations from others.. TLIC4. My direct supervisor helps others to develop their strengths. (continued) 32.

(43) Table 3.5. (continued) Construct. Code. Intellectual Stimulation. TLIS1. (TLIS; 4 items). Questionnaire Items My direct. supervisor. re-examines. critical. assumptions to question whether they are appropriate. TLIS2. My. direct. supervisor. seeks. differing. perspectives when solving problems. TLIS3. My direct supervisor gets others to look at problems from many different angles.. TLIS4. My direct supervisor suggests new ways of looking at how to complete assignments.. Construct. Code. Intellectual Motivation. TLIM1. (TLIM; 4 items). Questionnaire Items My direct supervisor talks optimistically about the future.. TLIM2. My direct supervisor talks enthusiastically about what needs to be accomplished.. TLIM3. My direct supervisor articulates a compelling vision of the future.. TLIM4. My direct supervisor expresses confidence that goals will be achieved.. Construct. Code TLIIA1. Idealized Influence Attributes (TLIIA, 4 items). Questionnaire Items My direct supervisor instills pride in me for being associated with me.. TLIIA2. My direct supervisor goes beyond self-interest for the good of the group.. TLIIA3. My direct supervisor acts in ways that builds my respect.. TLIIA4. My direct supervisor displays a sense of power and confidence. (continued). 33.

(44) Table 3.5. (continued) Construct. Code. Idealized Influence Behavior. TLIIB1. (TLIIB, 4 items). Questionnaire Items My direct supervisor talks about their most important values and beliefs.. TLIIB2. My direct supervisor specifies the importance of having a strong sense of purpose.. TLIIB3. My direct supervisor considers the moral and ethical consequences of decisions. TLIIB4. My direct supervisor emphasizes the importance of having a collective sense of mission.. Validity and Reliability of Instrument Reliability refers to a measure’s consistency in producing similar results in different occasions. Validity refers to whether the instrument measures what is really intended to measure. There are two types of validity: internal and external (Coolican, 2004).. Table 3.6. Reliability of Instrument Reliability Type. Theoretical Meaning. Reliability of Instrument. Reliability of Analysis. It is the dependability or Cronbach’s. Alpha. is. consistency of the measure of calculated for each variable. a variable (Neuman, 2014).. All results above 0.70 are considered. acceptable. (Nunnnally, 1978). Average variance extracted (AVE) is computed as well. A cut – off value equal or above 0.50 is considered acceptable (Chin, 1998).. 34.

(45) Table 3.7. Validity of Instrument Validity Type. Theoretical Meaning. Validity of Instrument. Face Validity. It is a type of measurement validity in The questionnaire is checked which an indicator ‘makes sense’ as a and. translated. by. native. measure of a construct in the judgment of speaker in both Serbian and others,. especially. in. the. community (Neuman, 2014).. scientific Chinese. Bilingual experts will examine face validity of the questionnaire.. Content Validity. It is a type of measurement validity that The. questionnaire. was. requires that a measure represent all examined by two peer reviews aspects of the conceptual definition of a and expert construct (Neuman, 2014).. reviews.. Every. questionnaire items refers back to the definition.. Criterion Validity. It is a type of measurement validity that The questionnaire underwent relies. on. some. independent,. outside pilot tests.. verification (Neuman, 2014).. Face Validity A questionnaire was available in English, Serbian and Chinese language. The original version of questionnaire is in English language. However, the research was done in two countries Taiwan and Bosnia & Herzegovina so there was a need to translate it in other languages. The researcher translated questionnaire from English to Serbian language. The bilingual expert checked the translation of the questionnaire. A questionnaire was translated from English to Chinese language by Chinese speaking researchers. The bilingual experts revised the translation of the questionnaire. The questionnaire was undergoing a back translation in order to preserve the meaning of each item.. 35.