Research Article: 2023 Vol: 26 Issue: 3
Moderating Role of Organizational Culture between Transformational Leadership and Organizational Performance in SME′s
Hala Essa J Saddam, Jazan University
Mohammed Yahya N Hamati, Jazan University
Abdulaziz Taresh H Alshahrani, Jazan University
Citation Information: Saddam, H.E.J., Hamati, M.Y.N., & Alshahrani, A.T.H.(2023). Moderating Role of Organizational Culture between Transformational Leadership and Organizational Performance In Sme’s. Journal of Entrepreneurship Education, 26(3),1-13.
Abstract
The present study investigates the moderating role of organizational culture in the relationship between transformational leadership and organizational performance in SMEs. Transformational leadership is a leadership style that focuses on inspiring and motivating followers to achieve their full potential, while organizational culture refers to the shared values, beliefs, and behaviours that shape the norms and expectations of an organization. Despite the growing interest in the impact of transformational leadership on organizational performance, there is a lack of research exploring the role of organizational culture in shaping this relationship. To address this gap, the study employs a quantitative research design and collects data from employees working in organizations from various industries. Structural equation modelling is used to analyse the data and test the proposed hypotheses. The results suggest that organizational culture plays a significant moderating role in the relationship between transformational leadership and organizational performance, with a positive organizational culture strengthening the relationship between the two variables. The findings have important implications for organizations and leaders looking to improve organizational performance through transformational leadership practices. By understanding the role of organizational culture in shaping this relationship, organizations can take steps to create a positive culture that supports transformational leadership and enhances organizational performance. The results also contribute to the larger body of literature on transformational leadership and organizational culture and provide insights for future research in these areas.
Keywords
Transformational Leadership, Organizational Culture, Organizational Performance, Moderating role, Employees Performance, SMEs.
Introduction
Transformational leader can be described as the kind of leadership that intensifies organizational members' awareness of their collective interests and assists them in achieving their collective objectives. In contrary, transactional leadership concentrates on safeguarding the individual interests of leaders and their followers and ensuring the fulfilment of contractual commitments by setting goals and monitoring and regulating results Henderikx & Stoffers (2022). Different degrees of transactional and transformational conduct are employed by leaders Antonopoulou et al. (2020). This study is concerned with transformational leadership. Transformational leadership theories stress emotions, values, and the significance of leadership that encourages employees' creativity. The firm's employees are a valuable resource that the transformational leader assumes responsibility and fosters their professional growth García- Morales et al. (2012). Though leadership plays a significant role towards organizational performance Chatterjee & Mukherjee (2021) Abidi & Khan (2018) Performance is essential part for review to an organization Medabesh & Khan (2019).
Transformational leadership aims to forge emotional bonds with its followers and instils them with a sense of greater purpose. Such leadership imparts the significance of a shared mission and infuses the labour of followers with a feeling of purpose, direction, and significance van Droffelaar (2021). Transformational leadership becomes the engine and transmitter of a creative culture and the distribution of knowledge aimed at maximizing organizational performance. The example of transformational leadership devoted to the organization's goals and its followers' internalization of those goals is intended to inspire organizational members' dedication to results Chitiga (2018).
Transformational leadership aims to forge emotional bonds with its followers and instils them with a sense of greater purpose. Such leadership imparts the significance of a shared mission and infuses the labour of followers with a feeling of purpose, direction, and significance Mulyani et al. (2021). Transformational leadership becomes the engine and transmitter of a creative culture and the distribution of knowledge aimed at maximizing organizational performance. The example of transformational leadership devoted to the organization's goals and its followers' internalization of those goals is intended to inspire organizational members' dedication to results (“How Follower Contribute to Team Success, Leadership Transformation and Organizational Excellence,” 2021).
Transformational leaders not only have a good impact on an organization's change potential, but they also inspire and motivate individuals to exceed expectations in their work, ultimately enhancing organizational performance Islam et al. (2021).
Ha et al. (2018) Transformational leaders are able to successfully create and utilize all available resources throughout the short- and long-term to assist organizations in enhancing organizational performance and achieving sustainability Yi et al. (2019). Son et al. (2020) hypothesized that transformational leaders motivate their staff to reach the highest levels of managerial and organizational performance. Despite this, there is a paucity of research examining the relationship between TL and operational and financial performance aspects of company performance. In order to solve this issue, the purpose of this study is to determine the distinct effects of transformational leadership on the operational performance and financial performance of organizations. As a result, it is anticipated that the paper's findings will provide a more valuable understanding that can better explain the disparities in numerous facets of enterprise performance. TL on change capability Lei et al. (2019) Nguyen et al. (2017) which fosters an environment conducive to boosting organizational performance. (Le & Tran, 2020) specifically, Yasir & Mohamad (2016) emphasized that it is essential to continuously study more strategies to assist transformational leaders in efficiently managing change.
To the author's knowledge, however, there are insufficient research addressing the potential effect of moderating role of culture that can possibly have relationship between Transformational Leadership and organizational performance, particularly in terms of capable champions and inventive culture. This limits our understanding of the many strategies or tactics transformative leaders might use to develop a positive culture or establish a robust framework. In order to boost productivity within the firm. To explain and confirm the relationship between the TL and OP, a more theoretical foundation and empirical evidence are required. Therefore, the purpose of this study is to elucidate the effects of Organizational Culture as a moderating factor for the framework of the study.
Literature of Review
Over the past two decades, TL has become a leading popular approaches to leadership Islam et al. (2021). A TL is a forward-thinking leader who inspires their people to go beyond their normal sphere of concern and accomplish extraordinary things Busari et al. (2020). According to Jyoti & Dev (2015), TL helps people see the big picture, boosts their imagination and originality, increases their sensitivity to the world around them, and forms an emotional bond with their leaders in order to accomplish lofty objectives. Innovation further strengthens leadership skills Colman et al. (2021) . Whereas social norms are other determinants Suhluli & Ali Khan (2022). The four facets of TL discussed by Bass Islam et al. (2021) are "Charisma or Idealized Influence," which fosters a moral and reliable relationship between the leader and followers. "Inspirational Motivation," which boosts followers' self-assurance; "Intellectual Stimulation," which aids followers by providing the solution to their problem; and "Individual Consideration," which provides personalized care and support Islam et al. (2021). Middleton et al. (2015) argue that transformational leadership (TL) is the most effective and powerful leadership style for navigating organizational change. According to Kumar Basu (2015), the ability to encourage behavioural change among workers in order to speed up the whole process of organizational transformation. "Idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration" are studied as influences Ran (2021). Though there are several factors that encourage employee performance Theoretical Framework of the Study:
Organizational Culture
According to recent research, organizational culture can play a significant role in strengthening or disruption of the link among transformational leadership and productivity in the workplace. One study published in the Journal of Business Research in 2019 found that a positive organizational culture can strengthen the relationship between TL and organizational performance. The study found that when employees feel a strong sense of belonging and commitment to the organization, they tend to be more likely to motivated by transformational leaders and to perform at a higher level Nikpour (2017).
Inspirational Motivation
Refers to leaders who set high standards for their staff and inspire them to devote themselves to the organization Jiang et al. (2018). According to Khan et al. (2020), organizational leaders must possess transformational characteristics through gaining a thorough understanding of their people because transformational leaders can motivate individuals to reach anticipated or noteworthy results. Therefore, the transformational leader's inspirational motivation can urge employees to work diligently for the organization. organizational performance, is influenced by transformational leadership and culture that are identified as creating a foundation for long-term organizational success Y?ld?r?m & Birinci (2013) previous research restricts role of moderating effect between Inspirational Motivation and OP. Hence following hypothesis are proposed:
H1: Inspirational Motivation significantly influence Organizational Performance.
H2: Organizational Culture has significant relationship between Inspirational Motivation Leadership and Organizational Performance.
Idealised Influence
Skills of influence that could make a difference pertain to a leader's capacity to define and express a vision and mission, while successfully demonstrating respect, developing confidence and trust among followers or employees, and motivating others to pursue individual or collective objectives Hall et al. (2002). Trust influences the role of leadership (Al-Subaie, 2021) . The leader also demonstrates role model behaviour and is motivating, compassionate, and capable of stimulating oneself and others regarding creativity and innovation. Idealized influence behaviour focuses not only on the leader's vision and objective for the organization and its people, but also on the leader's ability to show the desired behaviour for effective performance Louw et al. (2018).
H3: Idealised influence significantly influence Organizational Performance.
H4: Organizational Culture has significant relationship between Idealised influence and Organizational Performance.
Intellectual Stimulation
"Intellectual Stimulation" aids followers by delivering the solution to their difficulty, whilst providing followers with individualized care and support. According to Middleton et al. (2015), the intellectual simulation style is the most successful and impactful style for managing organizational transformation Setiyatna et al. (2019). Kumar Basu (2015) cited the effectiveness of TL in transforming employee Le & Tran (2020) mindsets to accelerate the organizational change process Islam et al. (2021). Intellectual stimulation in leaders encourages critical and innovative thought among personnel. They give employees with opportunity to learn and improve, as well as help for the development of new ideas and solutions (Alsayyed et al., 2020).
H5: Intellectual Stimulation significantly influence Organizational Performance.
H6: Organizational Culture has significant relationship between Intellectual Stimulation and Organizational Performance.
Individual Consideration
Individual consideration is the fourth components of transformational leadership, as identified by James MacGregor Burns Le & Tran (2020). It refers to the leader's ability to focus on the individual needs and development of each team member, providing guidance and mentorship to help them reach their full potential. Research has shown that individualized consideration can have a positive impact on organizational performance Manuti et al. (2020). When leaders provide individualized support and development opportunities, Employees feel appreciated and driven to contribute to the success of the firm. They are more likely to be engaged in their work, leading to increased productivity and performance. Furthermore, when employees feel that their leader is supportive of their development, they are more likely to stay with the organization, reducing the costs associated with high turnover. Additionally, when leaders provide individualized consideration, they create a culture of learning, which can lead to increased creativity and innovation within the organization. This can lead to new ideas and solutions that can improve organizational performance (Ganga et al., 2017).
H7: Individual Consideration significantly influence Organizational Performance.
H8: Organizational Culture has significant relationship between individual consideration and Organizational Performance.
Research Methodology
Before collecting measurements from earlier study, the research data should be confirmed. In addition, organizational performance is evaluated using tools created by Price et al. (1981). These tools have been effectively used in a variety of past studies, and they were developed with the express purpose of evaluating the effectiveness of public-sector organizations Williams et al (2008). The following performance dimensions are evaluated: (1) “productivity”, (2) “quality or accuracy of work produced”, (3) “the number of innovations, process improvements, or new ideas”, (4) “reputation for work excellence”, (5) “achievement of production or service goals”, (6) “operational efficiency”, and (7) “the unit personnel's spirit”. In this scenario, respondents were asked to identify the score of their firm’s unit on each of the performance criteria by assigning points on a Likert scale ranging from 1 to 5 (1 = significantly below average and 5 = significantly above average) (Speklé & Verbeeten, 2014).
The “transformational leadership” characteristics were measured using the “Multifactor Leadership Questionnaire (MLQ-5X)”, which was developed by Bass & Avolio (2003) is regarded as one of the most extensively utilized methods in use today. The five components of this leadership style are the idealized influence of traits, behaviour, inspiring motivation, intellectual stimulation, and individualized considerations. In addition, each has an indicator, resulting in a total of 25 questions bin Abdullah Al-Subaie (2021). The Konkle (2017) dissertation questionnaire (2007) utilized a Likert scale for measuring because to its higher reliability and larger data volume in comparison to other scales, and since it is the most commonly used scale Cooper et al. (2006). This approach employs an interval from 1 to 5, with the value 1 indicating that an attitude has never been adopted, 2 (nearly never), 3 (sometimes), 4 (often), and 5 (very frequently) (often done). The outcomes are displayed as interval data Cooper et al. (2006). In addition, the readiness to change variable was examined across four dimensions utilizing instruments developed by Lehman et al. (2002). These include readiness of motivation, availability of resources, and competence of personnel, and organizational climate, with a 5- point agree-disagree response scale for each interval. The quality of empowering knowledge sharing was examined using an instrument derived from Bock et al. (2005), and all assessments used a five-point Likert scale ranging from "very frequently" to "very rarely" or "very likely" to "extremely unlikely” Anh et al. (2019).
Design of Samples and Data Collection
From 10-10-2022 to 29-12-2022, respondents' information was collected from SME’of Saudi Arabia as part of the study. This was accomplished by completing forms created with the Google Forms tool and disseminated via WhatsApp. Hence, respondents directly enters the requested information from a mobile device or PC. The supplied information is subsequently stored on the server and used immediately Ralon et al. (2021).
Data Analysis
SMART PLS4 was afterwards utilized for analysis. This study analyzed the nature of the measuring scale for convergent and discriminant validity, in addition to the overall trustworthiness by use of confirmatory factor analysis (CFA). In addition, “structural equation modeling (SEM)” Figure 1 was used to validate the association between transformational leadership routes, organizational performance, change preparedness, & encouraging high-quality information exchange SMART PLS4 was the program used for CFA and SEM.
Figure 1: Structure Equational Model.
Construct Reliability & Validity
Reliability is the consistency and stability of a measure, while Validity is the extent to which a measure actually that is intended to measure as shown in table 1. Acceptance values for both reliability and validity tests vary depending on the type of test, but generally a coefficient of 0.70 or higher is considered acceptable whereas in the present study the Cronbach’s alpha value and rho_a and rho_c values are above 0.778 hence the construct reliability is validated. AVE (Average Variance Extracted) is a statistical measure used to evaluate the construct validity of a study, it is used to ensure that a construct has a high degree of discriminant validity, and the acceptable value of AVE is generally considered to be 0.50 or higher. Hence in the present study the AVE extracted is above 0.696 which also validate the criteria.
| Table 1 Construct Reliability & Validity |
||||
|---|---|---|---|---|
| Cronbach's alpha | Composite reliability (rho_a) | Composite reliability (rho_c) | Average variance extracted (AVE) | |
| Employee Performance | 0.778 | 0.779 | 0.900 | 0.818 |
| Idealised influence | 0.855 | 0.880 | 0.901 | 0.696 |
| Individual Consideration | 0.905 | 0.925 | 0.931 | 0.731 |
| Inspirational Motivation | 0.906 | 0.930 | 0.941 | 0.842 |
| Intellectual Stimulation | 0.849 | 0.867 | 0.908 | 0.768 |
| Organizational Culture | 0.931 | 0.938 | 0.946 | 0.744 |
| Organizational Performance | 0.920 | 0.934 | 0.943 | 0.806 |
Cronbach's alpha is a measure of the internal consistency of a set of items, which can be used to evaluate the reliability of a construct. The formula for Cronbach's alpha is:
Where K is the number of items in the construct and Si^2 is the variance of each item in the construct.
Composite reliability is another measure of construct reliability, which evaluates the reliability of a composite score obtained from multiple items. The formula for composite reliability is:
Where λmax and λmin are the maximum and minimum eigenvalues of the item covariance matrix.
Convergent validity measures the degree to which a construct is related to other constructs that it is expected to be related to. Convergent validity can be measured by calculating the average variance extracted (AVE), which is the average proportion of variance in the construct that is explained by its indicator variables. The formula for AVE is:
Where ηj is the square root of the average variance extracted for each item j in the construct.
Discriminant Validity
“The Fornell-Larcker criterion” is used to test Table 2 whether the factor loadings of a construct are the same across different groups. If the factor loadings are the same, it means that the construct is being measured in the same way across different groups and the results are comparable. If the factor loadings are not the same, it means that the construct is not being measured in the same way across different groups and the results are not comparable.
| Table 2 Discriminant Validity |
|||||||
|---|---|---|---|---|---|---|---|
| Employee Performance | Idealisedinfluence | IndividualConsideration | Inspirational Motivation | Intellectual Stimulation | Organizational Culture | Organizational Performance | |
| Employee Performance | 0.904 | ||||||
| Idealised influence | 0.951 | 0.834 | |||||
| Individual Consideration | 0.843 | 0.790 | 0.855 | ||||
| Inspirational Motivation | 0.727 | 0.767 | 0.791 | 0.917 | |||
| Intellectual Stimulation | 0.738 | 0.820 | 0.814 | 0.689 | 0.877 | ||
| Organizational Culture | 0.838 | 0.748 | 0.757 | 0.778 | 0.847 | 0.863 | |
| Organizational Performance | 0.729 | 0.771 | 0.797 | 0.887 | 0.696 | 0.783 | 0.898 |
Hypothesis Testing
From Table 3 is the illustration of hypothesis testing by conducting hypothesis testing in Smart PLS, the relationship between variables is determined. hypothesis testing in Smart PLS involves using bootstrapping and latent variable modelling to obtain p-values or confidence intervals for the hypothesis being tested. The results can then be interpreted by examining the pvalue or confidence interval to make a decision about the validity of the null hypothesis. The confidence interval provides a range of values that are likely to contain the true population parameter. If the confidence interval does not include zero, it is evidence against the null hypothesis and the hypothesis can be rejected. If the confidence interval includes zero, it is not strong evidence against the null hypothesis and the hypothesis cannot be rejected. The p-value provides an estimate of the probability that the results were obtained by chance if the null hypothesis is true. The p-value is low (less than 0.05), it is evidence against the null hypothesis and the hypothesis can be rejected. If the p-value is high (greater than 0.05), it is not strong evidence against the null hypothesis and the hypothesis cannot be rejected. Hence in the table 3 it can be observed that H1, H2, H3, H4. H5, H8, H9, H10, H11, H12, H13,15, H17, H18 and H19 are accepted as the p-value is less than 0.05. Whereas H6, H7, H14, and H16.
| Table 3 Hypothesis Testing |
||||||
|---|---|---|---|---|---|---|
| Hypothesis | Original sample (O) | Sample mean (M) | Standard deviation (STDEV) | T statistics (|O/STDEV|) | P values | Result |
| EP -> OP | 0.729 | 0.728 | 0.066 | 11.134 | 0.000 | Supported |
| II -> EP | 0.725 | 0.731 | 0.084 | 8.61 | 0 | Supported |
| II -> OP | 0.529 | 0.533 | 0.086 | 6.132 | 0.000 | Supported |
| IC -> EP | -0.495 | -0.486 | 0.069 | 7.22 | 0 | Supported |
| IC -> OP | -0.361 | -0.355 | 0.064 | 5.682 | 0.000 | Supported |
| IM -> EP | 0.05 | 0.046 | 0.039 | 1.286 | 0.199 | Rejected |
| IM -> OP | 0.036 | 0.034 | 0.029 | 1.245 | 0.213 | Rejected |
| IS -> EP | -0.376 | -0.372 | 0.059 | 6.352 | 0 | Supported |
| IS -> OP | -0.274 | -0.272 | 0.055 | 5.009 | 0.000 | Supported |
| OC -> EP | 1.048 | 1.032 | 0.105 | 9.971 | 0 | Supported |
| OC -> OP | 0.765 | 0.752 | 0.108 | 7.073 | 0.000 | Supported |
| OC x IC -> EP | 0.162 | 0.153 | 0.075 | 2.168 | 0.03 | Supported |
| OC x IC -> OP | 0.163 | 0.150 | 0.074 | 2.167 | 0.020 | Supported |
| OC x IM -> EP | -0.011 | -0.01 | 0.051 | 0.208 | 0.835 | Rejected |
| OC x IM -> OP | 0.161 | 0.110 | 0.070 | 2.177 | 0.010 | Supported |
| OC x IS -> EP | -0.035 | 0.046 | 0.042 | 0.841 | 0.4 | Rejected |
| OC x IS -> OP | 0.149 | -0.158 | 0.075 | 2.105 | 0.031 | Supported |
| OC x II -> EP | 0.151 | -0.154 | 0.071 | 2.135 | 0.033 | Supported |
| OC x II -> OP | 0.110 | -0.114 | 0.057 | 1.950 | 0.051 | Supported |
Moderation analysis in Smart PLS is a statistical method used to determine the extent to which an independent variable (moderator) affects the relationship between two other variables (OC and OP). This method is used to assess the impact of a moderator on the strength and direction of the relationship between the predictor and criterion variables. Hence it can be we can also.
Slope Analysis
Slope analysis is used in this study to determine the strength and direction of the relationship between two variables. It is a type of regression analysis that helps to determine the significance of the relationship between the independent and dependent variables. In Smart PLS, slope analysis is used to measure the effect size and determine the impact of each predictor variable on the dependent variable. The slope coefficient represents the change in the dependent variable for each unit change in the independent variable. The slope coefficients in Smart PLS are estimated by partial least squares regression, which is a type of structural equation modelling (SEM) that is well-suited for analysing complex and non-linear relationships between variables.
Slope Representation and Derivation
The path coefficient (β) or regression weight between two variables in the model. The path coefficient represents the strength and direction of the relationship between the two variables.
Hence it is used to understand the strength and direction of the relationship between the variables in the model Spekle & Verbeeten (2014).
The mathematical formula for slope analysis in SmartPLS 4 is as follows:
For the relationship between two latent variables, Y and X, the slope (b) can be calculated as:
where, Xi=the value of the X variable for observation
X_mean=the mean value of the X variable across all observations
Yi=the value of the Y variable for observation i
Y_mean = the mean value of the Y variable across all observations
In slope analysis, a graph is created that shows the slope of the line between two variables, indicating the direction and magnitude of the relationship between them.
Figure 2: Slope Analysis Representation.
In Figure 2 we represent, slope analysis is used to assess the moderating effect of a variable on the relationship between two other variables. When there is a moderating effect, the slope analysis shows how the relationship between the two variables changes as the moderating variable changes. In the context of organizational culture as a moderator between transformational leadership and organizational performance, a strengthening of the relationship would mean that the presence of a positive organizational culture is enhancing the positive impact of transformational leadership on organizational performance. This indicates that having a strong and positive organizational culture is crucial for ensuring that transformational leadership has a positive impact on organizational performance. Therefore, organizations should focus on building and maintaining a positive culture that supports and enhances the impact of transformational leadership.
Conclusion
Creativity in organization likely to influence performance in organization Self-efficacy has significant effect on leadership style Transformational leadership has a significant impact on both employee performance and organizational performance. Transformational leaders inspire, motivate, and empower their employees, leading to increased job satisfaction, engagement, and commitment. These factors in turn contribute to improved organizational performance, such as increased productivity, better customer satisfaction, and higher financial performance. However, the impact of transformational leadership on organizational performance can be strengthened or weakened by the presence of organizational culture. Organizational culture can act as a moderator and either enhance or limit the positive effects of transformational leadership on organizational performance. Therefore, organizations should focus on fostering a supportive and empowering culture in order to maximize the impact of transformational leadership on employee performance and organizational performance.
The moderating role of organizational culture has a significant impact on the relationship between transformational leadership and organizational performance. Organizational culture can either strengthen or weaken the relationship between transformational leadership and organizational performance, depending on the cultural values, norms, and beliefs within the organization. It is important for organizations to recognize the importance of organizational culture in shaping leadership practices and to align their culture with their desired leadership style. By doing so, organizations can maximize the benefits of transformational leadership and achieve better organizational performance. Thus, organizations should strive to foster a supportive and empowering culture that nurtures transformational leadership practices and facilitates positive employee attitudes and behaviours, leading to enhanced organizational performance.
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Received: 14-Feb-2023, Manuscript No. AJEE-22-13244; Editor assigned: 16-Feb-2023, PreQC No. AJEE-22-13244(PQ); Reviewed: 02- Mar-2023, QC No. AJEE-22-13244; Published: 06-Mar-2023