The Impact of Leadership on Organisational Innovation Performance ...

The Impact of Leadership on Organisational Innovation Performance among Malaysia’s Multimedia Super Corridor (MSC) SME Mohd Shamsuri Md Saad UWA Business School University of Western Australia & Universiti Teknikal Malaysia Melaka (UTeM) [email protected]

Tim Mazzarol UWA Business School University of Western Australia & Burgundy School of Business, Groupe ESC Dijon, Bourgogne, France. [email protected]

Introduction The purpose of the present study is to investigate the role of leadership in influencing the level of organisational innovation performance among small and medium enterprises (SMEs). A theoretical model was developed where transformational and transactional leadership was posited as having direct influence on the types of innovation that the SMEs undertook. It was also suggested that the types of innovation undertaken by the SMEs will mediate the relationship between leadership and their innovation performance. The article proceeds in the following manner. First, we briefly review the literature regarding leadership and innovation. Based on this, we develop hypotheses concerning the relationship between leadership styles and types of innovation. Second, we looked into our theoretical analyses and discuss the mediating role the product and process innovation towards the SME innovation performance. Next, we test our hypotheses using data from 87 SMEs from Malaysia’s Multimedia Super Corridor (MSC). We briefly explain in detail the data collection method and analytical procedures. Finally, we provide the research findings and conclusions for the present study.

Literature Review Since leadership in small organizations has been identified as the central element in influencing the firm’s competitive advantage, the role of the entrepreneurial leader is increasingly becoming an important determinant of innovation (West et al, 2003). Jung, Chow and Wu (2003) argue that leaders have the ability to influence innovation in the firm by introducing new ideas, setting specific goals, and encouraging innovation initiatives from their subordinates.

Paper presented at International Conference on Applied Business Research (ICABR), Ras Al Khaimah, UAE 29 November to 3 December 2010.

Transformational leadership is said to possess a combination of positive behavioural components recognised as improving performance and innovation among the followers within organisations (Bass & Yammarino, 1992; Jung, 2001; Sosik, Kahai & Avolio, 1998). For example, Pawar and Eastman (1997) have suggested that transformational leaders are associated with certain environmental conditions such as complexity, uncertainty, and novelty of the work, which involve constant changes that are a suitable environment for innovation to prosper. Meanwhile transactional leadership, which is based on the exchange of rewards between leaders and followers (Northouse, 2006), is more reactive than pro-active in nature, thereby engendering less risk taking behaviour than is common for transformational leadership. In short, it prefers to maintain the statusquo than seek change. Conceptually a transformational leadership style displays behaviour that creates an environment conducive for innovation prosper, while a transactional leadership style prefers the status-quo where stability and minimal changes are the hallmark. From an innovation perspective technological product innovation involves the commercialization of a new product with significantly improved performance characteristics. By comparison a technological process innovation involves significantly improved production or delivery methods that may involve equipment, personnel and work practices (OECD, 2001). While both are innovations, the product innovation requires significantly more external, market oriented behavior than is typically the case for process innovations. Based on this argument, the following hypotheses are formulated: H1:

Transformational leaders will have a stronger emphasis on product innovation than process innovation.

H2:

Transactional leaders will have a stronger emphasis on process innovation than product innovation.

The transformational leadership style is also more open to the facilitation of unconventional and innovative thinking and working processes that might lead to new knowledge and technology, so fundamental to a firm’s innovation (Dougherty & Hardy, 1996). By contrast, the transactional leadership style focuses more on maintaining the status quo (Bass, 1985) and emphasizes more on processes to achieve organisational outcomes. Thus we can propose that: H3:

Transformational leaders who put stronger emphasis on product innovation will likely improve their firms’ innovation performance transactional leaders.

H4:

Transactional leaders who put stronger emphasis on process innovation will likely improve their firms’ innovation performance than transformational leaders.


Method Data collection employed a cross-sectional survey of 500 Malaysian-owned SMEs operating in the MSC. The study used single respondents involving the Chief Executive Officer or the most senior manager in the SMEs with responsibility for the strategic direction of their firm. Managerial perceptions were solicited because these people play an important role in influencing the strategic behaviour of the firm (O’Regan & Ghobadian, 2006). This approach is consistent with earlier studies conducted related to innovation (i.e. Jung et al, 2003; Howell & Avolio, 1993). Leadership within the firm was measured using a 32-item scale from the Multifactor Leadership Questionnaire (MLQ) developed by Bass & Avolio (1997). Innovation was measured using a scale developed by Soutar and McNeill (1993) of organisational innovativeness which looks into types of innovation activities undertaken by the firm. Finally, the organisational innovation performance construct was developed from multiple sources to cover the area of product and process innovation success (Miller & Friesen, 1982; Griffin & Page, 1993; Prajogo & Ahmad, 2006; Subramanian and Nilakanta, 1996; Allard et al, 2004). A structural equation modelling (SEM) analysis using a Partial Least Squares (PLS) technique was then employed to test the structural and measurement of the theoretical model that was postulated earlier in the study. The result of the analysis will be presented in the next section of this article.

Findings A two-stage approach PLS analysis technique employed ensure that all the constructs fulfilled the conditions of the reliability and discriminant validity before proceeding with the testing of the structural model. Transformational leaders were found to have a significant impact on both product and process innovation undertaken in the SMEs. Transactional leaders were found to put an emphasis on process innovation albeit at a lower significance than transformational leaders while negatively associated with product innovation. Thus, both hypothesis 1 and 2 were supported by the findings. It was also found that transformational leaders emphasising on product innovation is having a stronger innovation performance than those focusing on process innovation. No significant impact on organisational innovation performance was found among transactional leaders who emphasised on either product or process innovation in their firms. As a result, only hypothesis 3 was supported by the findings.

Conclusions The study has tested the direct and mediated effect of leadership styles on SMEs innovation performance. Our results suggest that there is a direct and positive effect of Paper presented at International Conference on Applied Business Research (ICABR), Ras Al Khaimah, UAE 29 November to 3 December 2010.

transformational leadership style on SMEs innovation performance and a simultaneous emphasis that on product innovation. It was also interesting to find that this leadership style also appears to have a strong influence on process innovation. The results also shown that a transactional leadership style has a minimal role in enhancing the firms’ innovation performance. From a practice perspective, these findings highlight the need for senior managers to fit their leadership styles and behaviours to the task environment in which their firms operate. Senior managers like the CEO have sufficient authority to select and influence some of the variables, such as the types of innovation activities that mediate the link between their leadership styles and organizational innovation. As a result, it amplifies the effects of their leadership styles and behaviours (House & Aditya, 1997; Miller, Droege & Toulouse, 1988; Pillai & Meindl, 1998). The present study provides a unique insight into the importance of process innovation for small firms to produce successful new products. Even though the creation of product innovation is known as an ill-defined venture (Ford, 2000), the small size of the SMEs make it unavoidable to do away with process oriented approach because it can very well determine their product innovation success and failure (Cooper, 1993; Huang, Soutar & Brown, 2002).

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