This work is licensed under a Creative Commons Attribution 4.0 International License.
The Role of Transformational Leadership in Moderating the Relationship of Innovation to MSME Performance in the City of Denpasar
Corresponding Author(s) : I Made Jamin Yasa Jamin
American Journal of Economics and Business Management,
Vol. 5 No. 10 (2022): American Journal of Economics and Business Management
Abstract
The pressure of the global COVID-19 pandemic has not only resulted in a health crisis but also a crisis in the world economy. Countries in the world have implemented policies to control the spread of COVID-19, including contact tracing, isolation, quarantine, working from home, imposing restrictions on community activities, to large-scale social restrictions. Indonesia itself experienced an impact on social activities as a result of the restriction policy. COVID-19 has stopped economic activity because many companies are losing money and even closing their businesses, which has a big impact on layoffs. This study aims to examine the effect of transformational leadership on the relationship between innovation and marketing performance of SMEs in Denpasar City. Furthermore, this study further examines the extent to which transformational leadership influences the relationship of innovation to marketing performance and how this influence can be managed for SME development. Cross-sectional survey data were collected from 395 SMEs throughout Denpasar City. Quantitative methodology used with partial least squares structural equation modeling (PLS-SEM) approach with bootstrap procedure on Smart-PLS 3.2.9 software was adopted to test the hypothesis. The results show that this study contributes to the existing literature by revealing the strategic role of transformational leadership style in a direct relationship with the marketing performance of MSMEs in Denpasar City. However, theoretically the model has not shown that the relationship between transformational leadership, innovation, and the marketing performance of MSMEs are more deeply connected. Therefore, managers must be critical in their implementation when it is expected to achieve higher levels of MSME marketing performance. In addition, empirical tests and theoretical models have not been able to prove expanding the marketing performance literature in the moderating role of transformational leadership as an important resource and capability in the MSME service sector.
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- Abor, J., & Biekpe, N. (2006). Small business financing initiatives in Ghana. Problems and Perspectives in Management, 4, 69–77.
- Abor, J., & Quartey, P. (2010). Issues in SME development in Ghana and South Africa. International Research Journal of Finance and Economics, 39, 215–228.
- Aboshaiqah, A. (2016). Strategies to address the nursing shortage in Saudi Arabia. International Nursing Review, 63, 499–506.
- Acquaah, M., & Agyapong, A. (2015). The relationship between competitive strategy and firm performance in micro and small businesses in Ghana: The moderating role of managerial and marketing capabilities. Africa Journal of Management, 1, 172–193.
- Afriyie, S., Du, J., Appiah, K., & Musah, A.-AI (2018). The Nexus between types of innovation and marketing performance of SME in an emerging economy. International Review of Management and Marketing, 8, 78–92.
- Agyapong, FO, Agyapong, A., & Poku, K. (2017). Nexus between social capital and performance of micro and small firms in an emerging economy: The mediating role of innovation. Cogent Business & Management, 4, 1309784.
- Akgün, AE, Ince, H., Imamoglu, SZ, Keskin, H., & Kocoglu, . (2014). The mediator role of learning capability and business innovativeness between total quality management and financial performance. International Journal of Production Research, 52, 888–901.
- Aksoy, H. (2017). How do innovation culture, marketing innovation and product innovation affect the market performance of small and medium-sized enterprises (SMEs)? Technology in Society, 51, 133–141.
- Anning-dorson, T. (2016). Interactivity innovations, competitive intensity, customer demand and performance. International Journal of Quality and Service Sciences, 8, 536–554.
- Asiedu, M. (2016). SME owners' perception and innovation practices in a developing nation context: A descriptive study. Journal of Advocacy, 6, 113–119.
- Avolio, BJ, & Bass, BM (1995). Individual consideration viewed at multiple levels of analysis: A multi-level framework for examining the diffusion of transformational leadership. The Leadership Quarterly, 6, 199–218.
- Azaranga, MR, Gonzalez, G., & Reavill, L. (1998). An empirical investigation of the relationship between quality improvement techniques and performance—A Mexican case. Journal of Quality Management, 3, 265–292.
- Bagozzi, RP, & Yi, Y. (2012). Specification, evaluation, and interpretation of structural equation models. Journal of the Academy of Marketing Science, 40, 8–34.
- Bass, BM (2000). The future of leadership in learning organizations. Journal of Leadership Studies, 7, 18–40.
- Bass, BM & Riggio, RE 2006. Transformational leadership, Psychology Press. Baumgartner, H.,
- Birasnav, M., Albufalasa, M., & Bader, Y. (2013). The role of transformational leadership and knowledge management processes on predicting product and process innovation: An empirical study developed in Kingdom of Bahrain. Tekhne, 11, 64–75.
- Boateng, G. (2016). Rural banks financing of small and medium-scale enterprises (SMEs).
- Burns, P. 2016. Entrepreneurship and small business, Palgrave Macmillan Limited.
- Dobni, CB (2008). Measuring innovation culture in organizations: The development of a generalized innovation culture construct using exploratory factor analysis. European Journal of Innovation Management, 11, 539–559.
- Dzisi, S., & Ofosu, D. (2014). Marketing strategies and the performance of SMEs in Ghana. Marketing, 6, 102–111.
- Hair, JF, Ringle, CM & Sarstedt, M. 2013. Partial least squares structural equation modeling: Rigorous applications, better results and higher acceptance.
- Han, JK, Kim, N., & Srivastava, RK (1998). Market orientation and organizational performance: Is innovation a missing link? The Journal of Marketing, 30–45.
- Hashim, F. (2012). Challenges for the internationalization of SMEs and the role of government: The case of Malaysia. Journal of International Business and Economy, 13, 97–122.
- Hassan, MU, Shaukat, S., Nawaz, MS, & Naz, S. (2013). Effects of innovation types on firm performance: An empirical study on Pakistan's manufacturing sector. Pakistan Journal of Commerce and Social Sciences, 7, 243.
- Hayat, N., & Riaz, MT (2011). The influence of the SMEs top-level managers' leadership styles and their entrepreneurial orientation on the business performance.
- Hayes, AF 2012. PROCESS: A versatile computational tool for observed variable mediation, moderation, and conditional process modeling. University of Kansas, KS.
- Hoang Nam, V. (2014). The roles of human and social capital in the development of manufacturing SMEs in Vietnam. Journal of Economic Development, 16, 5.
- Jayawarna, D., Jones, O., Lam, W., & Phua, S. (2014). The performance of entrepreneurial ventures: Examining the role of marketing practices. Journal of Small Business and Enterprise Development, 21, 565–587.
- Kark, R., Van Dijk, D., & Vashdi, DR (2018). Motivated or demotivated to be creative: The role of self-regulatory focus in transformational and transactional leadership processes. Applied Psychology, 67, 186–224.
- Katona, F. 2014. Examination of marketing activities of small businesses in Hungary. Online Journal of Modeling the New Europe.
- Katsikeas, CS, Morgan, NA, Leonidou, LC, & Hult, GTM (2016). Assessing performance outcomes in marketing. Journal of Marketing, 80, 1–20.
- Khan, S., Asghar, M. & Zaheer, A. 2014. Influence of leadership style on employee job satisfaction and firm financial performance: A study of the banking sector in Islamabad, Pakistan. альні облеми економіки, 374–384.
- Lam, W., & Harker, MJ (2015). Marketing and entrepreneurship: An integrated view from the entrepreneur's perspective. International Small Business Journal, 33, 321–348.
- Leigh, NG & Blakely, EJ 2016. Planning local economic development: Theory and practice, SAGE publications.
- Lu, Y., Zhou, L., Bruton, G., & Li, W. (2010). Capabilities as a mediator linking resources and the international performance of entrepreneurial firms in an emerging economy. Journal of International Business Studies, 41, 419–436.
- Mansuri, G. & Rao, V. 2012. Localizing development: Does participation work?, The World Bank.
- Matzler, K., Schwarz, E., Deutinger, N., & Harms, R. (2008). The relationship between transformational leadership, product innovation and performance in SMEs. Journal of Small Business and Entrepreneurship, 21, 139–151.
- Ng, TW (2017). Transformational leadership and performance outcomes: Analysis of multiple mediation pathways. The Leadership Quarterly, 28, 385–417.
- Northouse, PG 2018. Leadership: Theory and practice, Sage publications.
- Nyoni, T. & Bonga, WG 2018. Anatomy of the small & medium enterprises (SMEs) critical success factors (CSFs) in Zimbabwe: Introducing the 3E model.
- Screwdriver, BA, Robson, P., & Haugh, H. (2014). Strategic entrepreneurship and small firm growth in Ghana. International Small Business Journal, 32, 501–524.
- Odoom, R., Anning-dorson, T., & Acheampong, G. (2017). Antecedents of social media usage and performance benefits in small-and medium-sized enterprises (SMEs). Journal of Enterprise Information Management, 30, 383–399.
- OECD 2005. Oslo manual. Guidelines for collecting and interpreting innovation data. Afriyie et al. Journal of Global Entrepreneurship Research (2019) 9:40 Page 24 of 25
- Paracha, MU, Qamar, A., Mirza, A., Hassan, I., & Waqas, H. (2012). Impact of leadership style (transformational & transactional leadership) on employee performance & mediating role of job satisfaction. Study of private school (educator) in Pakistan. Global Journal of Management and Business Research, 12, 55–64.
- Parashakti, RD, Haryadi, A. & Nashar, M. 2018. Effect of styles and leadership work discipline to employee performance (case study of PT. telecommunication Indonesia Tbk DKI Jakarta). KnE Social Sciences, 3. Perkins, LD 2010. Nurse managers transform nursing: A study of leadership behaviors and the relationship to leadership training and employee satisfaction. Capella University.
- Philomina, Q., Emmanuel, A., & Emmanuel, A. (2012). Influence of micro finance and small loan center (MASLOC) on the development of small scale enterprises in the Wa Municipality. European Journal of Business and Management, 4, 1–10.
- Todorovic, ZW, & Schlosser, FK (2007). An entrepreneur and a leader!: A framework conceptualizing the influence of leadership style on a firm's entrepreneurial orientation—Performance relationship. Journal of Small Business and Entrepreneurship, 20, 289–307.
- Van Hemert, P., Nijkamp, P., & Masurel, E. (2013). From innovation to commercialization through networks and agglomerations: Analysis of sources of innovation, innovation capabilities and performance of Dutch SMEs. The Annals of Regional Science, 50, 425–452.
- Visser, VA, Van Knippenberg, D., Van Kleef, GA, & Wisse, B. (2013). How leader displays of happiness and sadness influence follower performance: Emotional contagion and creative versus analytical performance. The Leadership Quarterly, 24, 172–188.
- West, MA, Borrill, CS, Dawson, JF, Brodbeck, F., Shapiro, DA, & Haward, B. (2003). Leadership clarity and team innovation in health care. The Leadership Quarterly, 14, 393–410.
- Yang, Y.-F. (2009). An investigation of group interaction functioning stimulated by transformational leadership on employee intrinsic and extrinsic job satisfaction: An extension of the resource-based theory perspective. Social Behavior and Personality: An International Journal, 37, 1259–1277.
- Yıldız, S., Baştürk, F., & Boz, . T. (2014). The effect of leadership and innovativeness on business performance. Procedia-Social and Behavioral Sciences, 150, 785–793.
- Zaefarian, G., Forkmann, S., Mitręga, M., & Henneberg, SC (2017). A capability perspective on relationship ending and its impact on product innovation success and firm performance. Long Range Planning, 50, 184–199.
References
Abor, J., & Biekpe, N. (2006). Small business financing initiatives in Ghana. Problems and Perspectives in Management, 4, 69–77.
Abor, J., & Quartey, P. (2010). Issues in SME development in Ghana and South Africa. International Research Journal of Finance and Economics, 39, 215–228.
Aboshaiqah, A. (2016). Strategies to address the nursing shortage in Saudi Arabia. International Nursing Review, 63, 499–506.
Acquaah, M., & Agyapong, A. (2015). The relationship between competitive strategy and firm performance in micro and small businesses in Ghana: The moderating role of managerial and marketing capabilities. Africa Journal of Management, 1, 172–193.
Afriyie, S., Du, J., Appiah, K., & Musah, A.-AI (2018). The Nexus between types of innovation and marketing performance of SME in an emerging economy. International Review of Management and Marketing, 8, 78–92.
Agyapong, FO, Agyapong, A., & Poku, K. (2017). Nexus between social capital and performance of micro and small firms in an emerging economy: The mediating role of innovation. Cogent Business & Management, 4, 1309784.
Akgün, AE, Ince, H., Imamoglu, SZ, Keskin, H., & Kocoglu, . (2014). The mediator role of learning capability and business innovativeness between total quality management and financial performance. International Journal of Production Research, 52, 888–901.
Aksoy, H. (2017). How do innovation culture, marketing innovation and product innovation affect the market performance of small and medium-sized enterprises (SMEs)? Technology in Society, 51, 133–141.
Anning-dorson, T. (2016). Interactivity innovations, competitive intensity, customer demand and performance. International Journal of Quality and Service Sciences, 8, 536–554.
Asiedu, M. (2016). SME owners' perception and innovation practices in a developing nation context: A descriptive study. Journal of Advocacy, 6, 113–119.
Avolio, BJ, & Bass, BM (1995). Individual consideration viewed at multiple levels of analysis: A multi-level framework for examining the diffusion of transformational leadership. The Leadership Quarterly, 6, 199–218.
Azaranga, MR, Gonzalez, G., & Reavill, L. (1998). An empirical investigation of the relationship between quality improvement techniques and performance—A Mexican case. Journal of Quality Management, 3, 265–292.
Bagozzi, RP, & Yi, Y. (2012). Specification, evaluation, and interpretation of structural equation models. Journal of the Academy of Marketing Science, 40, 8–34.
Bass, BM (2000). The future of leadership in learning organizations. Journal of Leadership Studies, 7, 18–40.
Bass, BM & Riggio, RE 2006. Transformational leadership, Psychology Press. Baumgartner, H.,
Birasnav, M., Albufalasa, M., & Bader, Y. (2013). The role of transformational leadership and knowledge management processes on predicting product and process innovation: An empirical study developed in Kingdom of Bahrain. Tekhne, 11, 64–75.
Boateng, G. (2016). Rural banks financing of small and medium-scale enterprises (SMEs).
Burns, P. 2016. Entrepreneurship and small business, Palgrave Macmillan Limited.
Dobni, CB (2008). Measuring innovation culture in organizations: The development of a generalized innovation culture construct using exploratory factor analysis. European Journal of Innovation Management, 11, 539–559.
Dzisi, S., & Ofosu, D. (2014). Marketing strategies and the performance of SMEs in Ghana. Marketing, 6, 102–111.
Hair, JF, Ringle, CM & Sarstedt, M. 2013. Partial least squares structural equation modeling: Rigorous applications, better results and higher acceptance.
Han, JK, Kim, N., & Srivastava, RK (1998). Market orientation and organizational performance: Is innovation a missing link? The Journal of Marketing, 30–45.
Hashim, F. (2012). Challenges for the internationalization of SMEs and the role of government: The case of Malaysia. Journal of International Business and Economy, 13, 97–122.
Hassan, MU, Shaukat, S., Nawaz, MS, & Naz, S. (2013). Effects of innovation types on firm performance: An empirical study on Pakistan's manufacturing sector. Pakistan Journal of Commerce and Social Sciences, 7, 243.
Hayat, N., & Riaz, MT (2011). The influence of the SMEs top-level managers' leadership styles and their entrepreneurial orientation on the business performance.
Hayes, AF 2012. PROCESS: A versatile computational tool for observed variable mediation, moderation, and conditional process modeling. University of Kansas, KS.
Hoang Nam, V. (2014). The roles of human and social capital in the development of manufacturing SMEs in Vietnam. Journal of Economic Development, 16, 5.
Jayawarna, D., Jones, O., Lam, W., & Phua, S. (2014). The performance of entrepreneurial ventures: Examining the role of marketing practices. Journal of Small Business and Enterprise Development, 21, 565–587.
Kark, R., Van Dijk, D., & Vashdi, DR (2018). Motivated or demotivated to be creative: The role of self-regulatory focus in transformational and transactional leadership processes. Applied Psychology, 67, 186–224.
Katona, F. 2014. Examination of marketing activities of small businesses in Hungary. Online Journal of Modeling the New Europe.
Katsikeas, CS, Morgan, NA, Leonidou, LC, & Hult, GTM (2016). Assessing performance outcomes in marketing. Journal of Marketing, 80, 1–20.
Khan, S., Asghar, M. & Zaheer, A. 2014. Influence of leadership style on employee job satisfaction and firm financial performance: A study of the banking sector in Islamabad, Pakistan. альні облеми економіки, 374–384.
Lam, W., & Harker, MJ (2015). Marketing and entrepreneurship: An integrated view from the entrepreneur's perspective. International Small Business Journal, 33, 321–348.
Leigh, NG & Blakely, EJ 2016. Planning local economic development: Theory and practice, SAGE publications.
Lu, Y., Zhou, L., Bruton, G., & Li, W. (2010). Capabilities as a mediator linking resources and the international performance of entrepreneurial firms in an emerging economy. Journal of International Business Studies, 41, 419–436.
Mansuri, G. & Rao, V. 2012. Localizing development: Does participation work?, The World Bank.
Matzler, K., Schwarz, E., Deutinger, N., & Harms, R. (2008). The relationship between transformational leadership, product innovation and performance in SMEs. Journal of Small Business and Entrepreneurship, 21, 139–151.
Ng, TW (2017). Transformational leadership and performance outcomes: Analysis of multiple mediation pathways. The Leadership Quarterly, 28, 385–417.
Northouse, PG 2018. Leadership: Theory and practice, Sage publications.
Nyoni, T. & Bonga, WG 2018. Anatomy of the small & medium enterprises (SMEs) critical success factors (CSFs) in Zimbabwe: Introducing the 3E model.
Screwdriver, BA, Robson, P., & Haugh, H. (2014). Strategic entrepreneurship and small firm growth in Ghana. International Small Business Journal, 32, 501–524.
Odoom, R., Anning-dorson, T., & Acheampong, G. (2017). Antecedents of social media usage and performance benefits in small-and medium-sized enterprises (SMEs). Journal of Enterprise Information Management, 30, 383–399.
OECD 2005. Oslo manual. Guidelines for collecting and interpreting innovation data. Afriyie et al. Journal of Global Entrepreneurship Research (2019) 9:40 Page 24 of 25
Paracha, MU, Qamar, A., Mirza, A., Hassan, I., & Waqas, H. (2012). Impact of leadership style (transformational & transactional leadership) on employee performance & mediating role of job satisfaction. Study of private school (educator) in Pakistan. Global Journal of Management and Business Research, 12, 55–64.
Parashakti, RD, Haryadi, A. & Nashar, M. 2018. Effect of styles and leadership work discipline to employee performance (case study of PT. telecommunication Indonesia Tbk DKI Jakarta). KnE Social Sciences, 3. Perkins, LD 2010. Nurse managers transform nursing: A study of leadership behaviors and the relationship to leadership training and employee satisfaction. Capella University.
Philomina, Q., Emmanuel, A., & Emmanuel, A. (2012). Influence of micro finance and small loan center (MASLOC) on the development of small scale enterprises in the Wa Municipality. European Journal of Business and Management, 4, 1–10.
Todorovic, ZW, & Schlosser, FK (2007). An entrepreneur and a leader!: A framework conceptualizing the influence of leadership style on a firm's entrepreneurial orientation—Performance relationship. Journal of Small Business and Entrepreneurship, 20, 289–307.
Van Hemert, P., Nijkamp, P., & Masurel, E. (2013). From innovation to commercialization through networks and agglomerations: Analysis of sources of innovation, innovation capabilities and performance of Dutch SMEs. The Annals of Regional Science, 50, 425–452.
Visser, VA, Van Knippenberg, D., Van Kleef, GA, & Wisse, B. (2013). How leader displays of happiness and sadness influence follower performance: Emotional contagion and creative versus analytical performance. The Leadership Quarterly, 24, 172–188.
West, MA, Borrill, CS, Dawson, JF, Brodbeck, F., Shapiro, DA, & Haward, B. (2003). Leadership clarity and team innovation in health care. The Leadership Quarterly, 14, 393–410.
Yang, Y.-F. (2009). An investigation of group interaction functioning stimulated by transformational leadership on employee intrinsic and extrinsic job satisfaction: An extension of the resource-based theory perspective. Social Behavior and Personality: An International Journal, 37, 1259–1277.
Yıldız, S., Baştürk, F., & Boz, . T. (2014). The effect of leadership and innovativeness on business performance. Procedia-Social and Behavioral Sciences, 150, 785–793.
Zaefarian, G., Forkmann, S., Mitręga, M., & Henneberg, SC (2017). A capability perspective on relationship ending and its impact on product innovation success and firm performance. Long Range Planning, 50, 184–199.