Transformational leadership and firm performance: evidence from IT businesses in Thailand.

• Author: Ussahawanitchakit, Phapruke
• Position: Report - Survey

1. INTRODUCTION

   Nowadays, business environments have been changing, turbulent, complex, heterogeneous, and dynamic at all times. They include customers, competitors, markets, economics, technologies, socials, and politics. Firms have distinctively attempted to search, implement, exploit, and utilize critical strategies in order to have valuable business practices, enhance outstanding competitive advantage, gain superior organizational performance, and achieve long-term sustainability. Similarly, executives of these firms must have more potential competencies in learning the environments and identify their personalities and characters that are appropriate and become key determinants of firms' success and survival. Transformational leadership is one of the personalities and characters and it can enhance firms to meet their goals and objectives successfully. It refers to the ability of leaders to motivate subordinates to achieve performance beyond expectations by transforming the followers' attitudes, beliefs and values as opposed to simply gaining compliance (Rafferty and Griffin, 2004). Leaders with transformational mindset tend to move their people beyond their own self-interests for the benefits of the group, organization or society (Ergeneli et al., 2007). Accordingly, transformational leadership is likely to become a main driver of employee creativity and organizational innovation that influence greatly business outcomes, such as efficiency, effectiveness, performance, success, survival and sustainability.

   Interestingly, transformational leadership has played a significant role in explaining and determining firm performance. It is a key tool in helping firms survive and sustain in turbulent markets and environments. It consists of charismatic role modeling, individualized consideration, inspirational motivation, and intellectual stimulation. First, charismatic role modeling is the ability of leaders to behave in charismatic ways that cause subordinates to identify with them (Piccolo and Colquitt, 2006). Second, individualized consideration is the degree to which leaders attend to subordinates' needs, acts as mentors or coaches, and listen to the subordinates' concerns (Piccolo and Colquitt, 2006). Third, inspirational motivation is the ability of leaders to instill a sense of vision by setting high work standards and expectations (Menguc and Auh, 2008). Last, intellectual stimulation is the support offer in nurturing creative and innovative solutions to old problems (Menguc and Auh, 2008).

   To expand and increase the benefits and advantages of the transformational leadership-firm performance relationships, strategic flexibility, corporate proactiveness and market-driving strategy are hypothesized to become mediators of the relationships. Strategic flexibility is the ability of firms to respond and successively adapt to environmental changes (Combe and Greenley, 2004); corporate proactiveness is the ability of firms to provide the opportunity-seeking, forward-looking perspective that involves introducing new products and services ahead of the competition and acting in anticipation of future demand to create change and first mover advantage-seeking efforts to shape the environment (Kropp and Zolin, 2005); and market-driving strategy is the ability of a firm to lead fundamental changes in the evolution of industry conditions by influencing the value creation process at the product, market and industrial levels (Hills and Sarin, 2003).

   Accordingly, the relationships among transformational leadership, strategic flexibility, corporate proactiveness, market-driving strategy, and firm performance are examined. To clearly verify the aforementioned relationships, information technology businesses in Thailand are the sample of the study. Transformational leadership included charismatic role modeling, individualized consideration, inspirational motivation, and intellectual stimulation. Interestingly, transformational leadership is hypothesized to become a key determinant of driving and explaining firm performance via mediating effects of strategic flexibility, corporate proactiveness and market-driving strategy. Hence, the objective of this study is to investigate the influences of transformational leadership on firm performance through strategic flexibility, corporate proactiveness and market-driving strategy as mediators of information technology businesses in Thailand. In this study, the key research questions are: (1) how transformational leadership has a significant effect on strategic flexibility, corporate proactiveness and market- driving strategy, (2) how strategic flexibility, corporate proactiveness and market-driving strategy has an important influence on firm performance, (3) whether the aforementioned relationships are positive, and (4) whether strategic flexibility, corporate proactiveness and market-driving strategy are mediators of these relationships.

   This study is outlined as follows. The first section reviews existing significant literature in the areas and streams of transformational leadership, strategic flexibility, corporate proactiveness, market-driving strategy, and firm performance, links between the concepts of the aforementioned variables, and develops the key research hypotheses of those relationships. The second explicitly details research methods, including data collection, measurements, and statistics. The third gives the results of the analysis and the corresponding discussion. The final summarizes the findings of the study, points out both theoretical and managerial contributions, and presents suggestions for further research and the limitations of the study.

2. TRANSFORMATIONAL LEADERSHIP AND FIRM PERFORMANCE

   [FIGURE 1 OMITTED]

   In this study, transformational leadership is a main determinant of driving firm performance through mediating functions of strategic flexibility, corporate proactiveness and market-driving strategy. The transformational leadership-firm performance relationships are systematically investigated. Thus, the conceptual, linkage, and research model presents the associations between transformational leadership and firm performance as shown in Figure 1 on previous page.

   2.1 Charismatic Role Modeling

   Charismatic role modeling is the first dimension of transformational leadership and it refers to the ability of leaders to behave in charismatic ways that cause subordinates to identify with them (Piccolo and Colquitt, 2006). It definitely captures their efforts to impart a collective sense of mission and purpose. Thus, leaders with greater charismatic role modeling tend to achieve higher admiration, respect and trust from subordinates. They seem to have an attainable mission and vision, do a right thing, and demonstrate a high standard of ethics and moral conducts (Ergeneli et al., 2007). Also, charismatic role modeling is defined as the ability of leaders to behave consistently with their promises and gain the trust of subordinates (Colbert et al., 2008). It explicitly brings admiration, respect and loyalty, and distinctively emphasizes the importance of having a collective sense of mission. Then, leaders with charismatic role modeling are likely to place subordinates' needs over their own needs, share risks with subordinates and present adherence to a set of underlying principles and values (Jung et al., 2008). They definitely create greater personal and professional commitments from the subordinates toward higher-level needs like self-esteem and self-actualization as intrinsic motivation.

   Interestingly, charismatic role modeling becomes a key determinant of subordinates' employee creativity and firm innovation that influence firms' competitive advantage, performance, success, survival, and sustainability. It is a significant factor of employee behaviors and attributions, and firms' business practices, corporate activities and organizational strategies under uncertain and turbulent environments. Firms with executives' charismatic role modeling may encourage their best operations, practices and activities via providing strategic flexibility, corporate proactiveness and market-driving strategy. Hence, charismatic role modeling is likely to influence firms to enhance their strategic flexibility, corporate proactiveness and market-driving strategy. Therefore, the aforementioned relationships are hypothesized as shown below.

   Hypothesis 1a: The greater the charismatic role modeling is, the more likely that firms will achieve higher strategic flexibility.

   Hypothesis 1b: The greater the charismatic role modeling is, the more likely that firms will achieve higher corporate proactiveness.

   Hypothesis 1c: The greater the charismatic role modeling is, the more likely that firms will achieve higher market-driving strategy.

   2.2 Individualized Consideration

   Individualized consideration is the second dimension of transformational leadership and it is defined as the degree to which leaders attend to subordinates' needs, acts as mentors or coaches, and listen to the followers' concerns (Piccolo and Colquitt, 2006). It shows great individual attention to subordinates through delegating leaders' authorities, and coaching and treating the subordinates equally and individually. Thus, leaders with great individualized consideration tend to promote subordinates' aspirations and needs for the growth and achievement by acting as mentors or coaches for them, and develop them to achieve high level achievement and potential (Bodla and Nawaz, 2010). Also, the leaders explicitly recognize the developmental needs of others and clearly provide support to their subordinates by paying attention to their needs, showing empathy and presenting appreciation of their initiatives and viewpoints (Shin and Zhou, 2003), and creating learning opportunities and enhancing climate to grow (Jung et al., 2008). Then, executives with more individualized consideration are likely to promote superior employee...