Synthesis Paper – Leadership Behavior

Impact of Transformational and Servant Leadership on Organizational Performance: A Comparative Analysis

Ali Iftikhar Choudhary • Syed Azeem Akhtar •

Arshad Zaheer

Received: 24 October 2011 / Accepted: 20 August 2012 / Published online: 7 September 2012

� Springer Science+Business Media B.V. 2012

Abstract The purpose of this study is to examine the

impact of two comparative leadership styles on organiza-

tional performance outcomes. The leadership styles

undertaken is transformational and servant leadership. A

sample of 155 participants is taken from profit-oriented

service sector of Pakistan. Data through survey gathered on

a five point likert scale from organizations. AMOS and

SPSS are used for statistical analysis. The result shows

that, transformational leadership has more impact on

organizational learning than servant leadership. Further-

more organizational learning enhances organizational per-

formance. Managers and leaders of corporate sector can get

benefited from this study. Their main objective is to

maximize the profitability of organization thus, they can

choose leadership style which polishes their abilities and

helps them to achieve profit maximization.

Keywords Servant leadership � Organizational performance � Transformational leadership

Introduction

In the past few decades, business practices around the

world have raised some serious issues to managers

regarding leadership styles and policy matters. Global

economic recession has provoked researchers to evolve and

define new models of ethical leadership styles. Styles that

in turn can solve the uprising challenges in the corporate

world.

Leader, follower relation is most important discussion

now a day in corporate world. If one needs to get maximum

output from employees then a good leader is essential. The

leadership model being used, engage ethical, moral and

relational dimensions as the facet to measure leadership

effectiveness, in contrast to the ‘‘input’’ and ‘‘performance

output’’ conventional approach.

This study is finding answer, which leadership style

helps manager to get maximum profit for them and their

organization?

‘‘It would be interesting to see if servant leadership has

more impact than transformational leadership in for-profit

Organizations’’ (Schneider and George 2011). The concept

of servant leadership has gained enormous popularity in the

modern age. While transformational leadership style is in

use from some years. These two concepts have few simi-

larities but some major differences which need to be

checked across organizational performance.

Many researchers have worked in the realm of ethical

leadership and its comparison to other leadership concepts

such as spiritual, transformational, and authentic leadership

style. Among the various concepts of leadership styles,

servant leadership is the one that embarks various behav-

ioral and emotional aspects in a very useful way, leaders

who take leadership as an opportunity for the valuable

service to employees and customers.

Transformational leadership style is an Inspirational

way through which one can motivate and use that moti-

vation thinking ability (Avolio et al. 2004; Dvir et al.

2002). Organizational performance can be measured in

terms of return on asset, return on equity, net growth rate,

and return on sales etc. while efficiency and effectiveness

is also a measuring tool for organizational performance

(Li-an 2011). To check the impact of transformational and

servant leadership on organizational performance, a

A. I. Choudhary (&) � S. A. Akhtar � A. Zaheer Iqra University, Islamabad Campus, Islamabad, Pakistan

e-mail: [email protected]

123

J Bus Ethics (2013) 116:433–440

DOI 10.1007/s10551-012-1470-8

comparative analysis of both leadership styles in accor-

dance to profitability for an organization is of vital

importance.

• To check the impact of two comparative leadership styles on organizational performance outcomes through

organizational learning.

• To analyze which leadership style, induce more orga- nizational learning.

A comprehensive academic research in the area of ser-

vant leadership will increase the understanding of how

leaders can achieve long term goals and make organiza-

tions successful. With more advancement in research

regarding servant and transformational leadership, a clear

distinction would be possible (Stone et al. 2004).

An empirical research relating to performance of an

organization with the impact of ethical leadership style

such as servant leadership would enrich the understanding.

Research advances can also use conceptual models to test

weather changes in leader’s conduct affects followers and

performance of an organization (Sendjaya and Pekerti

2010). Keeping in view the utmost importance of leader-

ship in any organization, this study provides an ample

chance for managers in any organization to enhance their

relationships with employees and to improve their perfor-

mance for the betterment of organization.

Along with other limitations, this study cannot be gen-

eralized for non-profit organization. This study is not

applicable widely in manufacturing and public sector. The

study undertook a limited sample size and cultural context.

Literature Review

Leadership in relation to ethics has long been studied by

researchers and scholars, most studies pertains to what

leaders are supposed to do to be ethical but scientific and

philosophical basis of leadership style is still scattered

(Brown and Trevino 2006).

Many researchers in recent times have worked in the

realm of leadership styles, transformational, and servant

leadership is the most prominent among them (Dvir et al.

2002; Ehrhart 2004; Whetstone 2002).

Transformational leadership affects the overall behavior

and thinking of followers in any organization, forming a

unified understanding to achieve organization’s learning.

Transformational leadership draws intellectual consider-

ation to problems at hand. It promotes learning and inno-

vation thus enhancing the overall performance (Argyris

and Schön 1996; Glynn 1996; Hurley and Hult 1998; Senge

et al. 1994). While, Servant leadership style usually gen-

erates superior organization performance as compared to

transactional leadership (Bass and Avolio 2000). Servant

leadership is another extreme case, where a leader is pri-

marily interested with serving others. Servant leaders focus

on follower’s development and well being.

The difference between servant and transformational

leadership is the focus of leader. Both these leadership

styles focus on the followers, servant leaders pay more

attention on service to the followers, while transforma-

tional leaders use their energies to engage followers toward

goal attainment. Transformational and servant leaders

involve followers in learning and development.

The study began by analyzing the current trends of

various ethical leadership styles, their underlying proce-

dures and methods. In this area a fundamental topic of

interest is the impact of leadership on organizational per-

formance. There is a shared belief that leadership can

enhance performance of organizations (Rowe et al. 2005).

Both transformational and servant leadership are people-

oriented leadership styles. Their relation with organiza-

tional learning has been established by many researchers.

The style of leadership is also considered to be very crucial

in achieving organizational goals, learning, and perfor-

mance (Barling et al. 1996; Berson et al. 2001; Zacharatos

et al. 2000).

‘‘It would also be interesting to see if servant leadership

has more impact than transformational leadership in for-

profit Organizations’’ (Schneider and George 2011).

Transformational Leadership

Transformational leadership is an ethical leadership style

that involves a leader’s capability to promote intellectual

stimulation through inspiration. Transformational leader-

ship is guidance through individualized consideration,

intellectual stimulation, inspirational, and idealized influ-

ence (McColl-Kennedy and Anderson 2005). Transforma-

tional leaders usually focus in following the organization

goals, while doing so violate the ethical norms of employee

development (Stephens et al. 1995). A transformational

leader uses and convert the values of a followers and

articulate them to promote the vision and goals of an

organization (Bass 1985).

In this study transformational leadership is evaluated on

a scale of four items. This scale is taken from Morales et al.

published in 2008, which had five items four measuring

transformational leadership, out of which four relevant

items have been taken for questionnaire and analysis.

Servant Leadership

(Greenleaf 1977) for the first time initiated the idea of

servant leadership in the article ‘‘The servant as leaders’’ he

proposed that a leader should see himself as a servant first.

Servant leadership can be broadly defined as a desire from

434 A. I. Choudhary et al.

123

leaders to motivate, guide, offer hope, and provide a caring

experience by establishing a quality relationship with the

followers and subordinates (Greenleaf and Spears 2002).

There are two main constructs of servant leadership which

are,

(1) Ethical behavior

(2) Concern for subordinates (Ehrhart 2004).

(Contee-Borders 2003) found that servant leaders are

dedicated toward the growth and welfare of people.

Altruism, simplicity, and consciousness is a servant lea-

der’s characteristic (Johnson 2001). A servant leader has a

moral differentiation from transformational leader in

scarifies and altruistic services toward followers high pri-

ority needs (Parolini 2007).

For this research, servant leadership is evaluated on a

scale of nine items. This scale was taken from (Jacobs

2006). (Jacobs 2006) measured servant leadership on a

seven point likert scale, which was converted to a five point

likert scale in this research for convenience and uniformity

in survey questionnaire.

Organizational Learning

Organizational learning can be understood as a process, in

which information is gathered, shared and interpreted, pro-

moting organization outcome. Organization learning builds

a competitive environment in an organization that promotes

a continuous improvement in organization structure (Slater

and Naver 1995). Organization learning is conducive to

employee’s growth and performance (Morales et al. 2008).

The scale for organizational learning is measured on four

items and is taken from (Morales et al. 2008). One out of the

four mentioned items was an open-ended question which was

modified to a close-end five point likert scale.

Organization Performance

The main aim of any organization is to sustain competitive

advantage. There are various facets on which performance

of an organization can be evaluated, most of which are

tangible. Cost reduction, profits, sales volume, asset turn-

over, equity turnover, and inventory turnover are most

common tangible indicators. Alternatively some intangible

performance indicators satisfaction of customer and prod-

uct development is used fewer times (Rhodes et al. 2008).

Organization performance is a measure of an organization

progress, shows how well an organization is attaining its

goals (Hamon 2003). Organizational performance points

out the achievement in any group performance. Organiza-

tional performance in this article is measured on scale of

four items. The scale for organizational performance is

taken from Morales et al. published in 2008.

Research Hypothesis

Relationship of Transformational Leadership

with Organizational Learning

Transformational leadership is vital in advancing organi-

zational learning (Senge 1990). It provides organizational

with an opportunity to learn through experimentation,

dialogue, and communication (McGill and Slocum 1993).

Transformational leaders increase job performance of

employees (Bono and Judge 2003). Whereas, transforma-

tional leadership style undertakes individual based con-

sideration which is essential in organizational learning

(Sarros et al. 2002), Transformational leadership draws

intellectual consideration to problems at hand. It promotes

learning and innovation thus enhancing the overall per-

formance (Senge et al. 1994; Argyris and Schön 1996;

Glynn 1996; Hurley and Hult 1998).

H1 Transformational leadership is positively related to

organization learning.

Relationship of Servant Leadership with Organizational

Learning

Servant leadership influences learning and growth in fol-

lowers which in turn promotes learning in an organization

(Bass 2000). Learning environment is enhanced with the

help of servant leadership (Crippen 2005; McClellan

2007). When leader keeps in view the needs of an

employee and educate them through training, workshops

and seminars, it increases the knowledge capability of an

organization, and thus increase organization’s knowledge.

H2 Servant leadership is positively related to organiza-

tion learning.

Relationship of Organizational Learning

with Organizational Performance

Organization learning promotes organization knowledge,

learning, and fosters organization performance. Organiza-

tions better in learning shows more organizational perfor-

mance. Organization learning may not always increase

performance, but in most cases it does (Argyris and Schön

1996). Organizational with deep learning cultures usually

performs better (Hurley and Hult 1998). Organizational

learning enhances the capabilities of the organization thus

increases the performance of the organization (Snyder and

Cummings 1998; Morgan and Turnell 2003; Morales et al.

2008).

H3 Organization learning is positively related to organi-

zation performance (Table 1, Fig. 1).

Impact of Transformational and Servant Leadership 435

123

Methodology

Since the study is conducted to check the impact of trans-

formational and servant leadership in profit-oriented service

sector organization, therefore the population is selected

from service sectors such as hotels, telecommunication, and

banking sector of Pakistan. This research has used quanti-

tative method and structured questionnaire for collecting

data. It is a descriptive research study. Survey held through

personally administrated questionnaire. 400 respondents

were asked to elicit their responses on the questionnaire, out

of these 155 used for analysis purpose. Respondents were

mainly the line managers of service sector organizations. A

few top executives were also included in the survey. SPSS

and AMOS were used to quantify the results.

Sampling

The sampling method used in this research is non-proba-

bility judgment sampling. The reason for selecting this

sampling technique is the nature of the study, since the

research is conducted for particular sectors and profit-ori-

ented organization, only ‘‘experts’’ who have the informa-

tion regarding leadership styles and who are immediately

affected by leader’s behaviors, were considered (Fig. 2).

Scale

Scale for measuring variables taken from two different

researches. The responses were evaluated on a five point

likert scale in an order of 1 for Strongly Agree and 5 for

Strongly Disagree.

The scale for measuring transformational leadership,

organizational learning, and organizational performance,

consisted of four items were taken from (Morales et al.

2008). Scale for servant leadership consisted of nine items

was taken from (Jacobs 2006) (Table 2).

Analysis and Discussion

The various ethical leadership styles will continue to

evolve with further research, but scholars and researchers

seem to argue their link with organization effectiveness and

organization performance. While some researchers are in

favor of visionary leadership, suggest that there is no any

single leadership style that is the most effective in gener-

ating superior organization performance. Transformational

leadership improves the absorptive capacity of an organi-

zation, which enables organization to transfer knowledge in

a better way thus improving organizational performance

(Kogut and Zander 1996).

The aim of this research was to check the relationship

with servant leadership and transformational leadership

style. Both these forms of ethical leaderships have positive

relationship with organizational learning. Through quanti-

tative analysis it was found that transformational leadership

has a more positive relationship with organizational

learning.

The study has undertaken a second-order relationship.

First, transformational and servant leadership impact is

evaluated on organizational learning. Second, organization

learning impact is measured on organizational performance.

Demographics

The sample size for the study was 400, but 155 responses

considered for analysis. Out of this sample 69 % were male

31 % were female. 91 % respondents were below 35 years

of age, 5.8 % were 35–50 years of age, and 3.2 % were

above 50 years old. Education level of the respondents

were as follows, 94.2 % were university graduates, 3.9 %

were college graduates, 1.9 % were high school or below.

Income level of the respondents are as follows, 7.7 % earned

PKR 50,000 and above, 83.2 % earned PKR 10,000 to PKR

50,000, and 9.1 % were earning 10,000 and less (Table 3).

Instruments Reliability

Instrument used for the study was checked for reliability.

SPSS was used for this purpose. In transformational lead-

ership cronbach alpha is 0.720 for 4 items. In servant

leadership cronbach alpha is 0.842 for 9 items. Cronbach

alpha for organization learning is 0.709 and for organiza-

tion performance it was 0.763, reliable range for cronbach

alpha ranges from 0.7 to 1, so the scale is reliable in that

Table 1 Summary of studies linking SL and TL implementation to OP with mediating effect of OL

Relationships Between variables References

Transformational leadership ? Organizational learning

Senge (1990), McGill and Slocum (1993), Senge et al. (1994), Argyris and Schon (1996), Glynn

(1996), Hurley and Hult (1998), Sarros et al. (2002), Bono and Judge (2003), Morales et al. (2008)

Servant leadership ? Organizational learning

Bass (2000), Crippen (2005), McClellan (2007)

Organizational learning ? Organizational performance

Argyris and Scho (1996), Hurley and Hult (1998), Snyder and Cummings (1998), Morgan and Turnell

(2003), Morales et al. (2008)

436 A. I. Choudhary et al.

123

Fig. 1 Leadership styles impact on OP with mediating effect

of OL

2.26, .52

TL

2.55, .43

SL

.48

OL

.86

OP

0, .30

e2

1 .48

.33

.62

0, .24

e1

1

Fig. 2 Model fit

Table 2 Summary of scale items

Constructs Codes Items

Transformational

leadership

TL1 The firm’s management is always on the lookout for new opportunities for the unit/department/organization

TL2 The firm’s management has a clear common view of its final aims

TL3 The firm’s management succeeds in motivating the rest of the company

TL4 The firm’s management always acts as the organization’s leading force

Servant leadership SL1 When someone criticizes my supervisor, it feels like a personal insult

SL2 When I talk about my supervisor, I usually say ‘‘we’’ rather than ‘‘they’’

SL3 My supervisor’s successes are my successes

SL4 When someone praises my supervisor, it feels like a personal compliment

SL5 I feel a sense of ‘‘ownership’’ for my supervisor

SL6 If the values of my supervisor were different, I would not be as attached to my supervisor

SL7 My attachment to my supervisor is primarily based on the similarity of my values and those represented by my

supervisor

SL8 Since starting this job, my personal values and those of my supervisor have become more similar

SL9 The reason I prefer my supervisor to others is because of what he or she stands for, that is, his or her values

Organizational

learning

OL1 The organization has acquired and used much new and relevant knowledge that provided competitive

advantage over the last three years

OL2 The organization’s members have acquired some critical capacities and skills that provided competitive

advantage over the last three years

OL3 Organizational improvements have been influenced fundamentally by new knowledge entering the

Organization over the last 3 years

OL4 The organization was a learning organization?

Organizational

performance

OP1 The firm’s performance measured by return on assets

OP2 The firm’s performance measured by return on equity

OP3 The firm’s performance measured by return on sales

OP4 The firm’s market share in its main products and markets

Impact of Transformational and Servant Leadership 437

123

case. Table 4 shows the mean values of variables are

between 2.2 and 2.6.

In this case, the standard deviation range of variables in

between 0.62 and 0.73 and it is considered good standard

deviation. That shows that data is in good form not much

deviated from mean point and respondent have well

knowledge of required material.

Correlation Test

Pearson correlation test is used to check the correlation

among all the variables, especially two independent vari-

ables. Pearson correlation -1 to 0 is negative correlation, 0

no correlation, and 0 to ?1 positive correlation. ?1 is

perfect correlation. The Table 5 given below shows that

transformational and servant leadership have moderate

positive relationship with sig. value 0.000 same is the case

with transformational leadership and organizational learn-

ing with 0.664** moderate relationship. Servant leadership

with organizational learning and organization learning with

organizational performance also has moderate positive

correlation with sig. value 0.000.

Model Fit and Hypothesis Testing

Amos is used to quantify the result from the given data.

The results in Table 6, Chi-square = 96.564, df = 3 and

p value = *** C0.05. The values of RMSEA and CFI are

0.450 and 0.658, respectively, the criteria is C0.9 given by

McAulay et al. (2006, Roh et al. (2005).

From Table 7 relationship of variables can be concluded

with each other.

Transformational leadership has an estimated regression

weight of 0.477 on organizational learning. Servant lead-

ership has an estimated regression weight of 0.326 on

organizational learning. Result shows that transformational

leadership and servant leadership have positive impact on

organizational learning but transformational leadership

shows more positive impact than servant leadership on

organizational performance. On the other side, organiza-

tional learning has an estimated regression of 0.621 on

organizational performance, which shows that organiza-

tional learning has a high positive impact on organizational

performance. Finally, it can be concluded that

Table 3 Respondents profile

Frequency (N = 155)

N % age

Gender

Male 107 69

Female 48 31

Age

Below 35 141 91

35–50 9 5.8

50 above 5 3.2

Income level

Less than 10,000 14 9

10,000–50,000 129 83.3

50,000 above 12 7.7

Education

Below or high 3 1.9

College graduate 6 3.9

University Graduate 146 94.2

Table 4 Description of measures

Measures Mean SD Cronbach’s alpha

Transformational leadership 2.2581 0.72323 0.720

Servant leadership 2.5520 0.65886 0.842

Organizational learning 2.3403 0.70070 0.709

Organizational performance 2.3839 0.69628 0.763

Table 5 Pearson correlation table

Relationships Pearson correlation Sig. 2-tailed

TL-SL 0.549** 0.000

TL-OL 0.664** 0.000

SL-OL 0.580** 0.000

OL-OP 0.617** 0.000

** correlation significant at level of .001

Table 6 Index of fit of the Model

Fit measure Value Suggested minimum values

(McAulay et al. 2006;

Roh et al. 2005)

Chi-Square 96.564

Df 3

p value *** C0.05

GFI C0.9 or C0.95

CFI 0.658 C0.9

AGFI C0.8 or C0.95

RMSEA 0.450

Normed Chi-square

(Chi-square/Df)

32.188 B2.0 or B3.0

*** P value significant at .005

Table 7 Hypotheses testing based on regression weights

Variables Estimates S.E. Critical ratio P value Results

OL / TL 0.477 0.054 8.755 *** Accepted

OL / SL 0.326 0.060 5.453 *** Accepted

OP / OL 0.621 0.070 8.882 *** Accepted

*** P value significant at .005

438 A. I. Choudhary et al.

123

transformational leadership has a relatively more positive

impact on organizational performance than servant lead-

ership, through the mediating organizational learning.

Schneider and George (2011) in his article suggests to

check whether servant leadership has more impact than

transformational leadership on organization performance.

Hypothesis justifies here that both transformational and

servant leadership have positive impact on organizational

learning, which further enhance the performance of orga-

nization in a positive way. Given in Table 7 the hypothesis

results are positive and thus accepted.

Conclusion and Recommendations

This study empirically, relates two ethical leadership styles

to organizational learning and performance. Both servant

and transformational leadership have many facets in com-

mon they influence followers, empower followers, encour-

age them for good performance, communicate, and listen to

subordinates. Both the styles exhibit wonderful leadership.

In the present times, organizations have become very

complex and thus require dynamic leadership (Williams

1998). Both transformational and servant leadership are

diverse in nature. Through this research it has been

acknowledged, that transformational leadership has more

impact on organizational learning than servant leadership.

The main idea that both leadership styles affect organiza-

tional leadership stands true. Empirical research and sta-

tistical results show that both leadership styles promote

organizational performance through the mediating effect of

organizational learning.

Keeping in view the utmost importance of leadership in

any organization, this study provides an ample chance for

managers in any organization to enhance their relationships

with employees and to improve their performance for the

betterment of organization.

Limitation and Future Research

Along with many limitations, this study cannot be general-

ized for non-profit organization. This study is also not

applicable widely in manufacturing and public sector. The

study undertook a limited sample size and cultural context.

Further research can address how these concepts apply to

manufacturing sector. Research can also be extended to

check how servant and transformational leadership affect

innovation, and behavior of followers. Managers and leaders

of corporate sector can benefit from this study. Their main

objective is to maximize the profitability of organization

thus, they can choose leadership style which polishes their

abilities and helps them to achieve profit maximization.

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