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Procedia - Social and Behavioral Sciences 230 (2016) 351 358

3rd International Conference on New Challenges in Management and Organization: Organization

and Leadership, 2 May 2016, Dubai, UAE

Relationship between Leadership Styles and Organizational

Performance by Considering Innovation in Manufacturing
Companies of Guilan Province
Pejman Ebrahimi, Seyedeh Marzieh Moosavi*, Ebrahim Chirani
Department of Management, Rasht Branch, Islamic Azad University, P.O. Box,3516-41335, Rasht, Iran

Abstract

The purpose of this research is to investigate the relationship between leadership styles (transformational and transactional styles)
and organizational performance by considering innovation (exploratory and exploitative) in manufacturing companies of Guilan
province. The present research is a descriptive study with an emphasis on the causal model in terms of execution and it is an
applied research in terms of purpose. It is also a field research in terms of data collection. The statistical population of the
research includes the manufacturing companies of Guilan province. The sample size was estimated to be 401 by using Cochran
formula. Questionnaire was distributed among the managers of the manufacturing companies after confirming the validity and
reliability of the research. In order to analyze the data and to test the hypotheses, the structural equation modeling was used by
LISREL software. The test results show that there is a relationship between transformational leadership and exploratory
innovation; but there is a negative relationship between transformational leadership and exploitative innovation. In addition, it
was found that there is a negative relationship between transactional leadership and exploratory innovation and there is a
relationship between transactional leadership and exploitative innovation.
2016
2016TheTheAuthors.
Authors.Published
Publishedby by Elsevier
Elsevier Ltd.Ltd.
This is an open access article under the CC BY-NC-ND license
Peer-review under responsibility of the Ardabil Industrial Management Institute.
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the Ardabil Industrial Management Institute
Keywords: Organizational performance, Exploratory Innovation, Exploitative Innovation, Transformational Leadership, Transactional Leadership

* Corresponding author. Tel.: +98-938-132-4277; fax: +98-133-325-2095.

E-mail address: seyedeh.marzieh.moosavi65@gmail.com

1877-0428 2016 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the Ardabil Industrial Management Institute
doi:10.1016/j.sbspro.2016.09.044
352 Pejman Ebrahimi et al. / Procedia - Social and Behavioral Sciences 230 (2016) 351 358

1. Introduction

Nowadays, development of manufacturing organizations is key to economic development in the next decade.
Investigations show that manufacturing companies affect global economy through entrepreneurship and innovation.
In addition, increased global competition has led to increased uncertainty and growing demand for diverse products.
It issue has caused that greater attention to be paid to these organizations. Competition among producers will lead to
increased quality of products and services to gain more share of market. These companies have skill to find
opportunity, but their limited knowledge of their market share reduces their capability to exploit the opportunities
that the company is looking for them. Nowadays, organizations cannot survive with same approach to innovation
due to market competition, and they should find new opportunities to create new ideas. Therefore, manufacturing
companies need to improve their performance continuously to survive and thrive in the competitive arena.
Organizational performance has different meanings to different people; hence, there are uncertainties and conceptual
difficulties in its measurement. The definition of organizational performance is relatively complicated for non-profit
organizations (Winand, Rihoux, Qualizza, & Zintz, 2011). Organizational performance is "the ability to acquire and
process human financial and physical resources properly to achieve goals of the organization (Madella, Bayle, &
Tome, 2005). In fact, organizational performance is the outcome of an organization so that it is measured based on
its goals and objectives (Lee, 2008). Nowadays, due to increased competition among organizations as well as focus
on organizational transformation and change, each organization wants to achieve effective performance. This issue
has attracted the attention of researchers in the human sciences area, especially industrial and organizational
psychologists. Understanding of issues related organizations leads to their higher efficiency and performance
(Currie, Dingwall, Kitchener, & Waring, 2012). In a general definition of organizational performance, it is defined
as a product of the interaction among various departments and sectors in the organization (Stankard, 2002). It covers
both financial and non-financial dimensions (Ouekouak, Ouedraogo, & Mbengue, 2013). Fiscal scales are generally
based on financial statements data (Hamdam, Pakdel, & Soheili, 2012). These criteria are more tangible and they
include profit, profit growth rate, return on equity, return on sales, and return on assets.
However, Falshaw, Glaister, and Tatoglu (2006) claimed that the financial criteria of performance cover only one
part of the organizational performance (Falshaw et al., 2006). This view was supported by Garg and Ma (2005),
They advocated moving towards recognition of non-financial indicators or non-subjective measures such as
customer satisfaction, employee satisfaction with payments, technology, and innovation. They also proposed
alternative perspective for key behavior and performance supporting the positive financial performance. Current
scales of financial performance are largely determined by financial efficiency and performance, usually with a
management-oriented landscape. However, this approach ignores the role and involvement of employees to achieve
organization's performance (Prowse & Prowse, 2010). They listed non-financial indicators as follows: first, user or
beneficiary satisfaction with programs or services; second, increasing the number of exploiter users, and third, the
quality of general program and services; and finally the effectiveness and implementation of general services and
program (Hishamudin, Mohamad, Shuib, Mohamad, Mohd, & Roland, 2010). Non-financial indicators include
quality of service, service user satisfaction, supplier satisfaction, voluntarily activities, and the general effectiveness
of the programs (Mahmoud & Yusif, 2012). In the production cycle, eleven measures have been considered to
construct performance measure, including inventory turns, equipment failure, timely delivery, waste products,
reworking, frequencies of launching, labor productivity, operational time, the efficiency of the production cycle ,
vendor performance- quality of product, timely delivery vendor performance (Ramezan, Sanjaghi, & Rahimian
Kalateh Baly, 2013). Researchers have shown that sustainable organizational performance is rooted in the
exploitation of existing capacities and examination of the new opportunities (Gibson & Birkinshaw, 2004; He &
Wong, 2004).
The concepts of exploration and exploitation (Benner & Tushman, 2003) or exploratory innovation and
exploitative innovation (Benner & Tushman, 2003) have been referred frequently in organizational learning,
technological innovation and organizational adaptation issues (eg, Benner & Tushman, 2003; Holmqvist, 2004; Lee,
Lee, & Lee, 2003). Organizations paying attention to exploratory innovation focus constantly on new knowledge and
development of products and services for customers and emerging markets. On the other hand, organizations paying
attention to exploitative innovation focus on existing knowledge resources and expansion of existing products and
services in current markets (Jansen, Van den Bosch, & Volberda, 2006). Experimental studies have examined the
 Pejman Ebrahimi et al. / Procedia - Social and Behavioral Sciences 230 (2016) 351 358 353

relationship between innovation and performance and they have suggested that the strength of this relationship is
moderated according to the type of innovation (Calantone, Harmancioglu, & Droge, 2010). Researchers emphasize
that exploratory innovation and exploitative innovation require different managements (Rogers, 1995; Van de Ven,
Andrew, Polley, Garud, & Venkataraman, 1999). This is due to degree of differences, changes, and combinations of
various environmental, organizational, managerial and structural force factors (Ylinen & Gullkvist, 2013). There is
evidence about the impact of transformational leadership and transactional leadership on exploratory innovation and
exploitative innovation at the organization level (Jansen, Vera, & Crossan, 2009). Many definitions have been
offered for leadership and almost every expert has provided different definition. However, most of them believe that
leadership is the process of affecting the people (Hogg, 2001; Jung, 2001; Roussel, 2006; Winkler, 2010). In many
previous studies, it has been suggested that transformational leadership promotes and enhances the creativity of
employees. This style of leadership found high popularity among organizational researchers due to its unique
method (Wang & Cheng, 2010). Among different leadership styles, organizational researchers have paid the greatest
attention to transformational leadership. In many studies such as Bass and Avolio (1995), it has been proposed that
transformational leadership has four important dimensions, including idealized influence, inspirational motivation,
intellectual stimulation and individualized consideration (Mittal & Dhar, 2015). Transactional leadership refers to
charismatic role and inspirational actions of leader affecting employees to do their formal works and tasks beyond
the specified expectations (Dvir, Eden, Avolio, & Shamir, 2002). However, transactional leadership is a style of
leadership that prefers transactional relations between leader and member in which leader meets the needs of
followers (security, belonging and recognition) (Leban & Zulauf, 2003). This leadership aims only to maintain the
existing situation and to supply organizational goals through meeting the needs and giving reward to subordinates
(Avolio & Gardner, 2005; Mandell & Pherwani, 2003). Some studies have examined the impact of transformational
leadership and transactional leadership on innovation. For example, Garca-Morales, Jimnez-Barrionuevo, and
Gutirrez-Gutirrez (2012) investigated the impact of transformational leadership on organizational performance
through dynamic capabilities of organizational learning and innovation, analyzing 168 Spanish companies. The
findings indicated that transformational leadership has a positive effect on the organizational performance through
the application of organizational learning and innovation. Furthermore, organizational learning also has a positive
effect on the organizational performance through organizational innovation. Finally, this organizational innovation
can have a positive impact on the organizational performance. Additionally, in another study, Jansen et al. (2009)
examined the relationship between strategic leadership and exploratory innovation and exploitative innovation and
mediating role of environmental dynamics. Results of their study indicated that there is a relationship between
transactional behavior of strategic leaders and exploitative and exploratory innovation. They showed that
transformational leadership behaviors play an important role in adapting with constructive thinking followed by
exploratory innovation. On the other hand, transactional leadership behaviors led to improved and developed current
knowledge. The relationship between leadership and innovation and its impact on organizational performance
require understanding of mediating variables such as environmental dynamics and impact of transactional and
transformational behaviors on organizational performance at different environmental dynamics.
Thus, according to the literature mentioned, this study aims to find an appropriate response to main problem of
study that is the relationship between leadership styles and organizational performance with respect to innovation in
manufacturing companies.

2. Research Methods

2.1. Research Model and Hypotheses

The conceptual model of study derived from Jansen et al. (2009) model was presented. This model was developed
by researchers of this study, see Fig. 1.
354 Pejman Ebrahimi et al. / Procedia - Social and Behavioral Sciences 230 (2016) 351 358

Fig. 1. Research conceptual model

According to the proposed model, the following hypotheses are presented:

Hypothesis 1. There is a relationship between organizational performance and exploratory innovation.

Hypothesis 2. There is a relationship between organizational performance and exploitative innovation.
Hypothesis 3. There is a relationship between transformational leadership and exploratory innovation.
Hypothesis 4. There is a relationship between transformational leadership and exploitative innovation.
Hypothesis 5. There is a relationship between transactional leadership and exploratory innovation.
Hypothesis 6. There is a relationship between transactional leadership and exploitative innovation.

2.2. Sample and Data Collection

Population of study includes about 5000 manufacturing companies in Guilan province. As variables
(questionnaire questions) are multi-value with interval scale and population size is limited, In a pre-test, 20
questionnaires were distributed among the managers of manufacturing companies that pre-test sample variance was
0.53. According to Cochran formula, required sample size was estimated over 401.

2.3. Variables Measurement

The transformational leadership and transactional leadership variables were derived from the questionnaire
developed by Bass and Avolio (1995). Transformational leadership variable was tested by 20 items, in which
inspirational motivation, intellectual stimulation and individualized consideration were measured by 4 items and
idealized influence was measured by 8 items. Transactional leader was measured by 4 items and active management
was measured by three items. The questionnaire related to measure exploratory innovation (6 items) and exploitative
innovation (6 items) was derived from items of a questionnaire developed by Jansen et al. (2006). The dependent
variable of organizational performance was measured using seven items that were derived from a questionnaire
developed by Lee and Choi (2003). In the present study, filed method and questionnaire were used and response
scale was from I am totally agree to I am totally disagree. Questionnaires were distributed using convenient
sampling method.

2.4. EFA, Scale reliability and CFA

In order to determine the validity of questionnaire, exploratory factor analysis (Table 1) and confirmatory factor
analysis (Table 2) were used, and Cronbach's alpha coefficient (Table 2) was used to examine the reliability of
questionnaire. According to the results of KMO and Bartlett tests (Table 1), data obtained from the questionnaire
showed that that research is suitable for confirmatory factor analysis. According to the obtained values for
significance numbers, distribution of data used in this study did not follow normal distribution (significance level
was less than 0.05). Accordingly, to estimate the covariance matrix that is the main tool for confirmatory factor
analysis and path analysis, the estimator of "Generalized Least Square" that is not sensitive to normal distribution of
data will be used, instead of the conventional estimation method of "maximum likelihood" (Kalantari, 2009).
 Pejman Ebrahimi et al. / Procedia - Social and Behavioral Sciences 230 (2016) 351 358 355

Table 1. Summary of exploratory factor analysis results to examine the validity of questionnaire
Transformational Transactional Exploratory Exploitative Organizational
leadership leadership innovation innovation performance
KMO 0.918 0.885 0.883 0.900 0.732
Bartlett's test Chi Square 3376.930 1433.328 1342.132 1616.617 446.628
df 190 21 15 15 21
sig 0.000 0.000 0.000 0.000 0.000

Table 2. Results of confirmatory factor analysis (CFA) and reliability of variables

Variable Number of Standardized t-value Cronbach's alpha Source of questions
question Coefficient
1 0.71 15.01
2 0.69 14.45
3 0.69 14.55
4 0.73 15.76
5 0.65 13.66
6 0.61 12.71
7 0.72 15.55
8 0.48 9.57
9 0.58 11.91
Transformational 10 0.71 15.40 (Bass & Avolio,
0.91
leadership 11 0.79 17.66 1995)
12 0.73 15.96
13 0.54 10.89
14 0.59 12.17
15 0.53 10.65
16 0.60 12.39
17 0.69 14.78
18 0.71 15.40
19 0.66 13.97
20 0.60 12.40
21 0.77 17.31
22 0.80 18.24
23 0.73 16.25
Transformational
24 0.75 16.80 0.892 (Bass & Avolio, 1995
leadership
25 0.71 15.31
26 0.80 18.05
27 0.76 15.31
28 0.73 16.43
29 0.79 18.55
Exploratory 30 0.85 20.82
0.897 (Jansen et al., 2006)
innovation 31 0.79 18.53
32 0.88 21.82
33 0.81 19.12
34 0.79 18.56
35 0.77 17.70
Exploitative 36 0.89 21.14
0.918 (Jansen et al., 2006)
innovation 37 0.79 18.51
38 0.84 20.49
39 0.78 18.29
40 0.43 7.90
41 0.73 14.08
42 0.59 11.10
Organizational
43 0.59 11.18 0.96 (Lee & Choi, 2003)
performance
44 0.56 10.47
45 0.33 5.89
46 0.49 2.85

Confirmatory factor analysis results should show that t-value is higher than 1.96 in significance state so that the
356 Pejman Ebrahimi et al. / Procedia - Social and Behavioral Sciences 230 (2016) 351 358

relationship between each question and considered variable to be significant. In Table 2, since the t-value for all
questions was higher than 1.96, the relationship between the variables and questions was significant. Therefore,
these questions can explain appropriately the considered variables. In standard estimation state, factor loads are
shown. When factor load is larger and closer to 1, the observed variable (question) can better explain the hidden or
latent variable.

3. Analyses and Results

As one of the assumptions of using causal relationships is lack of multiple co-linear relationships among
variables, correlation coefficients among the variables used in the study were calculated before causal analyses, in
order to examine the lack of multiple co-linear relationships among variables. As Table 3 shows, all values of
correlations were less than 0.8, so the assumption that there is a multiple co-linear relationship among the variables
was rejected (Tabachnick & Fidell, 1996).

Table 3. correlation matrix among main variables of study

Variable AVE SD 1 2 3 4 5
Transformational leadership 3.581 0.562 1
Transactional leadership 3.515 0.760 0.675 1
Exploratory innovation 3.411 0.826 0.517 0.742 1
Exploitative innovation 3.117 0.853 0.508 0.487 0.500 1
Organizational performance 3.032 0.370 0.135 0.407 0.546 0.421 1
*All correlations are significant at p<0.05 level

To confirm or reject the hypothesis, structural equation modeling was used by LISREL 8.8 software. To confirm
or reject the hypotheses, standardized coefficients and significance numbers were used (Table 4).

Table 4. Results of the tested hypotheses

Research variables relationship T value Direct impact (R) Indirect impact Total impact Result

H1 : organizational performance - 4.45 0.46 - 0.46 Confirmed

exploratory innovation
H2 : organizational performance - 2.69 0.31 - 0.31 Confirmed
exploitative innovation
H3 : transformational leadership - 5.25 0.56 - 0.56 Confirmed
exploratory innovation
H4 : transformational leadership - - 1.87 - 0.23 - - 0.23 Rejected
exploitative innovation
H5 : transactional leadership - - 1.52 - 0.18 - - 0.18 Rejected
exploratory innovation
H6 : transactional leadership - 3.43 0.37 - 0.37 Confirmed
exploitative innovation

2
Model fit indices show desirable values. The most important index in LISREL software is /df and as it is
lower than 3, it can be said that it has better fit. Another index is RMSEA. The index is constructed based on the
model errors. When the value of this statistic is less than 0.05, it can be said that model has good fit. If it is between
0.05 and 0.08, fit can be considered acceptable, and if it is between 0.1 and 0.08, fit will be moderate, and if it is
higher than 0.1, it will be weak (Ghasemi, 2010). General model fit indices in structural equation modeling were
shown in table (5). As shown in Table (5), research model has good fit and the level of acceptance of criteria has
been met.
 Pejman Ebrahimi et al. / Procedia - Social and Behavioral Sciences 230 (2016) 351 358 357

Table 5. Indices of final model fit

X2 /df RMSEA GFI RMR NFI NNFI
Acceptance level 1-5 0.1< 0.9> 0.1> 0.9> 0.9<
Model value 3.53 0.080 0.92 0.058 0.93 0.94

4. Conclusion

Lack of experimental evidence on transactional and transformation leadership effects on organizational

performance considering the innovation in manufacturing companies was the main motivation to do this research.
Using rich literature on transformational leadership, transactional leadership, exploratory innovation, exploitative
innovation, using statistical software that has higher ability in quantifying and investigating the mutual effects of
variables, and measuring accuracy of the model and their processing by collected experimental data, this study could
achieve its objectives and cover the gap between theoretical issues and what takes place in reality in the form of a
case study. It is considered as innovative aspect of this research. In addition, using exploratory factor analysis and
exploratory factor analysis, this study could meet confirmatory objectives and exploratory objectives. The results of
previous research (Jansen et al., 2009; Vera & Crossan, 2004) showed that transactional leadership improves
exploitative innovation using current educational methods and knowledge. Exploitative innovation has been created
based on existing knowledge that its goal is reforming, integrating, strengthening, and improving new knowledge
and skill. Exploitative innovation leads to development and expansion of skills and current knowledge, associated
often by efficiency and concentration. Based on results of this study, researchers believe that transformational
leadership style in the manufacturing companies can guide employees toward new products development, more
profitability, and improved performances by using exploratory leadership. Additionally, due to impact of both
exploitative innovation and exploratory innovation on organizational performance, it is recommended that senior
managers of organizations to pay more attention to innovation of human resources in their plans and strategic
horizons so that they can provide better performance for company considering the competitive space in the market.
Research shows that different behaviors of transformational leadership and transactional leadership are essential
components in support of innovation and desired performance (Mumford , Scott, Gaddis, & Strange, 2002).
Therefore, it is necessary for managers to pay attention to innovation, especially in manufacturing companies.

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