THE EFFECT OF TRANSFORMATIONAL LEADERSHIP ON EMPLOYEE WORK ENGAGEMENT & TURNOVER INTENTION (Banking Sector of Pakistan) I. INTRODUCTION 1.1 BACKGROUND OF THE STUDY In the current economic recession, organizations are experiencing tremendous challenges to maintain a competitive advantage on the global front. Change has become a constant, as organizations need to reinvent themselves and become more innovative to deal with more competitive pricing structures and branding strategies to position themselves optimally in a cutthroat environment. Today more than ever, the "people component", and more specifically the ability to attract and retain the "knowledge worker", has become one of the most important predictors of organizational success (Kahumuza & Schlechter, 2008). This holds important implications for organizations that strive to be the best in their markets and to maintain a competitive advantage. They need to outsmart their competition in terms of attracting and retaining talented workforce. They need to find ways to understand and manage the psychological mechanisms that do not only deliver excellent performance, but also hinder their talent from further development (Alam & Mohammad, 2009).
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THE EFFECT OF TRANSFORMATIONAL LEADERSHIP ON EMPLOYEE WORK ENGAGEMENT &
TURNOVER INTENTION(Banking Sector of Pakistan)
I. INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In the current economic recession, organizations are experiencing tremendous challenges
to maintain a competitive advantage on the global front. Change has become a constant, as
organizations need to reinvent themselves and become more innovative to deal with more
competitive pricing structures and branding strategies to position themselves optimally in a
cutthroat environment. Today more than ever, the "people component", and more specifically the
ability to attract and retain the "knowledge worker", has become one of the most important
predictors of organizational success (Kahumuza & Schlechter, 2008). This holds important
implications for organizations that strive to be the best in their markets and to maintain a
competitive advantage. They need to outsmart their competition in terms of attracting and
retaining talented workforce. They need to find ways to understand and manage the
psychological mechanisms that do not only deliver excellent performance, but also hinder their
talent from further development (Alam & Mohammad, 2009).
Employee turnover, or the lack of retention, as some refer to it, has become a contentious
issue in the current economic climate. Most employees are dissatisfied with the leadership since
they are not given the benefits, especially when companies lose critical talent in times when they
most need to retain their knowledge capital if they are to remain competitive during an economic
downturn. Besides the increase in skills demands brought by organizational change, reliance on
these skills and experience becomes illuminated in providing a sustainable competitive
advantage in times of such economic challenge. This makes employee turnover a sustainability
concern, especially in the light of the time and money invested in recruitment, training and
advancement of critical talent. Identifying critical organizational, job and individual factors that
contribute to the employee turnover process is therefore important in this respect (Armstrong,
2009).
A considerable volume of literature supports the fact that intention to quit is one of the
most important and immediate antecedents of turnover decisions (Elangovan, 2001). Whatever
approach is adopted to mitigate turnover behaviour within an organisation requires a good
understanding of what contributes to employees harbouring intentions to quit. The antecedents to
intention to quit, however, remain an area of exploration in the literature and, while job
satisfaction and commitment are the most explored factors, there is hardly any trace of the
influence of transformational leadership and engagement on the attitudinal or cognitive
manifestation of the behavioural decision to quit (Elangovan, 2001).
Buckingham holds the view that when employees decide to leave a company, they leave
their managers, not the company. This brings the assumption that leadership practices have
strong implications in the harboured intentions of employees to quit. In essence, this implies that
an engaged workforce is less likely to quit their jobs. Furthermore, managers essentially affect
the extent of such employee engagement at workplace (Buckingham & Coffman, 2005).
While barriers to engagement are well explored in the literature, the leadership practices
that could be deployed to foster engagement remain under-scrutinised (Shuck & Wollard, 2009).
The link between transformational leadership and engagement becomes more evident in the the
work of Burns (1978), Bass and Avolio (1992). Conceptualised by Burns, transformational
leadership style is considered an expansion of transactional leadership, focusing not only on the
transactional relationship between leader and follower, but also on the construction of an
inspirational vision that has a very compelling effect on its followers. Through the application of
various behavioural practices relating to influence, consideration, stimulation and inspiration,
these leaders manage to create an environment characterized by an innate sense of empowerment
to achieve a shared vision (Burns, 1978; Bass & Avolio,1992).
1.2 PROBLEM STATEMENT
The application of transformation leadership into organizational settings has borne fruitful results for followers in the last two decades. Nevertheless; transformational leaders provoking exceptional performance is a topic of further debate. The current study scrutinizes the effect of transformational leadership inflicted over employee work engagement and turnover intention.
1.3 SIGNIFICANCE OF THE STUDY:
The present study highlights the prominent components of transformational leadership i.e., individualized consideration, idealized influence and inspirational motivation and appraises whether the very components affect work engagements of employees in Banking Sector of KPK, Pakistan.
The study further contributes an addition to the existing literature that could be further explored in future followed by enhancement of HR policies in the sampled organizations.
1.4 OBJECTIVES
To find out the effect of transformational leadership style on employee work behaviors.
To investigate the effect of transformational leadership on employee engagement.
To examine the employees turnover in the Banking sector.
1.5 HYPOTHESIS OF THE STUDY
H0: There is no effect of transformational leadership on employee engagement.
H1: There is a effect of transformational leadership on employee engagement.
H0: Transformational leadership is not related to employee turnover.
H2: Transformational leadership is related to employee turnover.
H0: Transformational leadership is not related to employee work behaviors.
H3: Transformational leadership is related to employee work behaviors.
II. LITERATURE REVIEW
2.1 Leadership Theories: An OutlineAccording to the leadership theories, several overarching trends can be distinguished.
Although there is no agreed upon classification among researchers, we can nonetheless draw up
a picture of the major trends: An early period, consisting of such well known theories as Traits
Theories, Behavior Theories, and Contingency/Situational Theories; followed by consisting of
Multilevel Approaches; the New Leadership period, which emerged in the 1980s and included
both Transformational and Charismatic theories; and finally, Post Charismatic and Post-
transformational Leadership, which emerged in reaction to New Leadership theories. Although
these approaches are presented chronologically, some approaches (for example, Leader-Member
exchange, one of the Multilevel Approaches) are still relevant to current empirical and
theoretical works.
2.2 Traits Theory
It can reasonably be argued that the first three groups of theories (Traits Theories,
Behavior Theories, and Contingency/Situational Theories) are uncontroversial in the scientific
literature. Essentially, the Traits Theory postulate that personal characteristics (e.g. personality
traits, cognitive skills, interpersonal skills) determine an individual’s potential for leadership
roles (Furham, 2005). Thus, according to the Traits Theory, leadership is something intrinsic to
the individual. As Parry and Bryman (2006) suitably put it, “nature is more important than
nurture” that is to say, an individual’s predisposition to leadership has a greater influence than
the context. (Avolio, Sosik, Jung, & Berson, 2003).
2.3 Behavior Theory
Behavioral Theories advances the idea that an effective leader is discernible by his or her
actions (Krumm, 2001). The Ohio State Studies have been especially influential for this
approach with works on consideration behaviors and initiating structure behaviors. After an
analysis of a list of behaviors, the researchers presented two categories: consideration (1)
behavior] denotes a leadership style in which leaders are concerned about their subordinates as
people, are trusted by subordinates, are progressive to them, and promote camaraderie. Initiating
structure, on other hand refers to a style in which the leader defines closely and clearly what
subordinates are supposed to do and how and actively timetable work for them.” (Avolio et al.,
2003).
Another influential model whose classification of leadership behavior is quite similar to
the categories proposed by Ohio State Studies is that of Black and Mouton (1964): their
managerial grid, now called Leadership Grid (Langton & Robbins, 2007), proposes two styles of
behavior: concern for people and concern for production. These behavior styles are similar to
consideration behaviors and Initiating structure presented by The Ohio State Studies, i.e.
behavior oriented toward individuals and behavior oriented toward task concern for production.
2.4 Contingency/Situational Theory
The Contingency/Situational Theory is more concerned with the context of applied
leadership, which is left unaccounted for in both the Traits and Behavioral theories. Here, the
focus is on situational variables: the leader modifies his or her leadership style according to the
context (Krumm, 2001). According to proponents of this theory, an effective leader knows how
to adapt his personal characteristics to the context. Many different models draw from this trend,
such as the Path-Goal Theory (1971), Fiedler’s Contingency Theory (1967), Hersey and
Blanchard’s Situational Leadership Theory (1984), and the Vroom and Yetton’s Decision-
Making Model (1973).
According to House (1971) discussed the Path-Goal Theory. According to this theory, an
effective leader guides his employees to help them attain shared goals: he or she supports
employees in order to ensure that employees’ goals and collective goals coincide. The Path-Goal
Theory is rather complex and House has modified it on several occasions. House and Mitchell
(1975) identified four leadership styles: directive, supportive, participative and results oriented.
The choice of style depends upon a combination of subordinates’ personal goals, subordinates’
personal characteristics, and the work situation (Krumm, 2001). According to the situation (hazy
work instructions with an unmotivated subordinate, the leader will choose which leadership style
to favour (e.g. directive, supportive, participative, or results oriented).
According to Fiedler’s Contingency Theory (1973), group performance is the result of
the combination of its leader’s characteristics and the leader’s degree of control over the
situation. Thus, the leader is either task-focused or relational focused. An effective leader,
according to Krumm (2001), tries to incorporate both orientations according to the work
situation. The leader’s orientation to either the task or the person is measured by the Least
Preferred Co-Worker (LPC) Scale, which measures the leader’s degree of orientation to one or
the other. A good leader tries to combine these two orientations to different degrees according to
the work situation. Fiedler’s work outlines three “contingency dimensions” that serve to define
the situation the leader faces: The leader-member relations, the task structure, and the position of
power. Thus, according to Fiedler, elements of context determine the leadership style (Krumm,
2001).
Hersey Situational Leadership Theory (1984) claims that an effective leader adapts his or
her leadership style to subordinates’ capacity to accomplish tasks. That degree corresponds to the
maturity of the subordinates. Thus, the leader will choose a type of leadership according to the
subordinates’ maturity.
Vroom Decision-Making Model (1973) focuses on the decision-making process. As
mentioned by Krumm, usually is classified as a prescriptive theory, meaning that it provides
leaders with a way to choose the best decision-making method before going ahead”. A series of
questions allows the leader to choose from among five methods of decision-making, ranging
from entirely authoritative to completely participatory (Krumm, 2001).
2.5 New Leadership Approaches
Beginning around the 1980s, the concept of leadership changed direction with what is
referred to as the New Leadership. Instead of considering leadership as an influence process, the
New Leadership views leaders as “managers of meaning”, i.e. the individual who create the
meaning, who make sense of events. Researchers have most often tended to include
Transactional Leadership, Transformational Leadership, Charismatic Leadership and Visionary
Leadership in this trend (Parry & Bryman, 2006).
2.6 Transactional and Transformational Leadership
Essentially, transactional leadership is distinct from transformational leadership in its use
of a reward system, while Transformational Leadership, implies the transformation of
subordinates. Although both approaches are different, according to Bass, they are not mutually
exclusive. Thus, both types can be used by the same leader at different times for different
situations (Yukl, 1998).
2.7 Charismatic Leadership
Charismatic Leadership is also very closely related to Transformational Leadership; this
approach is differentiated mainly by the fact that the charismatic leader transforms the
subordinates’ interests to match those of the leader, while the transformational leader transforms
the subordinate’s interests toward group interests (Parry & Bryman, 2006).
2.8 Levels Analysis of Transformational Leadership
Transformational Leadership is a dyadic process (i.e., between manager and subordinate),
and must therefore be examined differently according to the nature of each specific dyad. Since
the relationship between a manager and each different subordinate is unique, an analysis of these
different relationships could reveal both striking similarities and salient differences. Furthermore,
relationships can vary both within a group or between groups. If one accounts for all this, it
becomes clear that a subordinate’s individual perception of a transformational leader may differ
from that of his or her colleague according to each specific context. In order to frame their
analysis of this phenomenon, Yammarino and Bass (1990) utilized four distinct categories:
Average Leader Style (ALS)
Leader-Member Exchange (LMX)
Information-Processing Approach
Relationships involving the leader and all of his or her subordinates (within the group)
are homogeneous in this case; the interaction style is consistent within the group. However, the
style can be different from one leader to the next. According to the LMX perspective, the various
relationships between a leader and each of his or her individual subordinates (within the group)
can be different the leader’s style will thus vary to accommodate each individual subordinate.
Here, interaction styles are multiple within the group. The information-processing category
focuses on the subordinate’s cognitive interpretation of the leader’s behavior “There are
differences within and between groups and leaders so that leader-follower interactions are
individualized and not group-based. For example, a nature of a relationship with a
transformational leader can be perceived as unique by each follower and not dependant on the
other follower of that leader” (Yammarino & Bass, 1990). In other words, the same leader
behavior can elicit different interpretations and emotions from each individual follower.
Yammarino and Bass’s fourth category of analysis refers to the “inexplicable” aspect. As their
research results show, each individual relationship between leader and follower is different
therefore, it would appear as though the concept of adaptation is central for the leader. Also, the
participation of the follower ─ at least for the information-processing approach seems to be
essential in the construction of the relationship (Yammarino & Bass, 1990).
Building on this transactional base, leadership which is individually considerate,
intellectually stimulating, and generates confidence and the inspiration in the individual follower,
rather than in a group of followers, may result in even more heightened outcomes (Yammarino &
Bass, 1990).
2.9 Dimensions of Transformational Leadership
The most popular measure of Transformational Leadership is the Multifactor Leadership
Questionnaire (MLQ), written by Bass and Avolio (1990). This questionnaire measures
Transactional, Transformational, and Laissez-Faire Leadership. Essentially, the questionnaire is
completed by followers, who must rate the frequency of each leader behavior (Yukl, 1999). In
sum, this questionnaire measures the follower’s perceptions of leader behaviors. As mentioned
by Yukl (1999), the MLQ has changed over time, as the authors have added behaviors in some
versions of the questionnaire.
According to Yukl, (1999) the individualized consideration dimension is composed of
supporting and developing behaviors. “Supporting behaviors” refer to such interpersonal acts as
“being friendly, helpful, considerate, and appreciative of individual subordinates”, while
“developing behaviors” refer to actions of a more pedagogical nature, such as coaching and
mentoring. Yukl (1999) claims that it is preferable not to consider these behaviors as central to
Transformational Leadership, in light of research which has showed a weak effect of supporting
behaviors on subordinate outcomes.
Transformational leaders are theorized to influence their followers by heightening
followers self-awareness, instilling a sense of purpose and mission in followers, and influencing
them to transcend lower-order needs and goals for the sake of the long-term benefit of the group
to which they belong (Bass, 1995).
2.10 TRANSFORMATIONAL LEADERSHIP
Burns (1978) was the first who gave the concept of transformational leadership. He
claimed that transformational leadership is observed when leaders encouraged followers to boost
up the level of their moral, motivation, beliefs, perceptions, and coalition with the objectives of
the organization. Bass and Avolio (1995) forwarded the work of Burns and divided
transformational leadership into four components; charismatic role modeling, individualized
consideration, inspirational motivation, and intellectual stimulation. Yukl, G. (1999) claimed that
transformational leaders allowed employees to think creatively, analyzed the problem from
numerous angles and explored new and better solutions of the problem by using technology. Gill
et al. (2006) claimed that organizations can reduce job stress and burn out by applying
transformational leadership.
Transformational leadership is “the process through which leaders and followers help
each other to advance to a higher level of morality and motivation”, and transformational leaders
“raise the level of human conduct and ethical aspiration of both the leader and led, and thus it
has transforming effect on both” (Burns 1978). The transformational leadership theory has
evolved as a process of motivational effect. Such motivational effect appears when leaders create
changes and develop followers’ personal and professional characteristics by exhibiting four types
of behaviours (Yukl 2006). First is Idealized Influence, which is the degree of leaders’ ability to
build loyalty and devotion without any consideration for their own self interests which helps
followers to identify with the leaders. Second, Inspirational Motivation involves leaders’ ability
to create a vision in a way that appeals to followers and makes them a significant part of the