Theoretical Foundations on transformational leadership on performance
A theoretical foundation involves an analysis of the underlying theory of the study and
this is an important aspect in academic research. A theoretical framework is a mix of
related theoretical ideas with a set of propositions anchored on a general set of
assumptions regarding a given phenomenon (Kombo & Tromp, 2016). Kombo and
Tromp (2006) explain that theories offer examples and indicators of what needs to be
incorporated in the framework; theories are therefore utilized as a guide to the work and
plays an important role in interpreting the findings. The researcher in this study used two
different but complementary theories; the upper echelons theory and the theory of
transformational leadership. The next section presents a brief discussion of the two
theories.
Upper Echelons Theory
There is sufficient literature to deem as acceptable the idea that an organization’s fortunes
mirror its top management, whose perception of its collective environment determine to a
substantial extent how the organization will in turn respond to the environment. Hence
firms are exactly what their leaders envisage, sight, believe and perceive. This idea is the
linchpin of the corpus by Hambrik and Mason (1984) in the name of Upper Echelons
Theory (UET). UET has aroused considerable interest in strategic management and is one
of the most researched theories in the realm of organization and management
(Sadeghinejad, 2013). It encapsulates the ideas of Donald Hambrick and Phyllis Mason
as first published in 1984 in the journal of Academic Management Review (Hambrik &
Mason, 1984). Upper echelons theory argues that organizational outcomes have partial
proportionality to the top-level management team’s managerial background
characteristics.
The theory attempts to unpack the correlation between organizational outcomes and
managerial background traits. Herman and Smith, (2015) contend by noting that the
characteristics of the top management team, including previous experiences, values and
personalities have a say on how they make their strategic and organization decisions.
Precisely, the theory holds that the perception of the top managers about their corporate
terrain influences the choices they strategically make, which subsequently has an impact
on organizational performance. Hambrik and Mason (1984) disquisition had three
ambitions intended to provide three main perks to scholars, human resource practitioners
tasked with head-hunting upper level executives and strategists.
For the scholars and in the context of this study, this theory may lend substantial impetus
to anticipate organizational fortunes and outcomes than the current theories do. The
theory has found use in the human resources field as a foundation for hiring new top
managers. Additionally, it can be used to predict the future strategic decisions of CEOs
by analyzing competitors and other listed companies. The ternary ambition of the corpus
was hinged on how the upper echelon traits may become echoed in the organizational
outcomes, secondly, review discourse on upper echelons viewpoint and, provide platform
for the analysis of the nexus between managerial background and organizational
outcomes.
2.1.1 Transformational Theory of Leadership
According to this theory, the transformational leadership refers to a leader’s ability to
motivate and influence his followers to work beyond their personal goals for the benefit
of a company (Yamak, Nielsen & Escribá-Esteve, 2014). According to Bass (2005),
transformational leadership emanate from strong uncompromised personal values which
appeals to the followers’ sense of moral obligation and values. Transformational leaders
are therefore characterized as articulate, visionary and assured and able to imbue
confidence in their followers; they do not merely hold transactional leadership skills
because their actions and plans motivate others in the company to pull towards meeting
the firm’s goals and objectives leading to a high performance (Erkutlu, 2018).
It is also assumed that these leaders depict high levels charisma, intellectual stimulation,
individualized consideration as well as inspirational motivation. These leaders have the
ability to model others behavior through respect and faith and they can transmit the group
mission to others in a humble way. Additionally, these leaders depict high moral
standard and believe in ethical conduct in almost all the organization activities and
programs (Carpenter & Geletkanycz, 2004).
In this study, the theory would be used to promote and determine the transformation
leadership influence on company’s performance. This is because it has been noted that
transformational leaders inspire through motivation so that the workers become
motivated and committed to the organization (Carter et al., 2013). They value team
spirit; communicate high expectations to followers as well as providing proper coaching
and teaching to their subordinates (Kerandi, 2015). This leadership challenges not only
their own beliefs and values, but also those of the organization they lead and this is how
they help to encourage their followers to increase creativity at work and enhance the
performance capacity of their workers leading to high productivity in the firm (Barare &
Wambua, 2018).
2.2 Empirical Studies and Knowledge Gaps
Several past studies done on the topic has provided a number of mixed reactions. For
Instance, Indrianawati (2010) looked into the effect of leadership on revenue performance
at East Jawa in Indonesia. His study made use of leadership traits related to
transformational leadership and established that it significantly led to increased revenue
in the country. However, the study researched only probed the single construct of
transformation leadership based on the items developed by varied traits such as on
matters dealing with fairness, transparency, accountability, openness and charisma.
However, it was noted that these traits are also applicable for employee perspective
because they help employees in combating employee misconducts such as corruption
while motivating them to work hard towards the achievement of the organization goals
(Barare, & Wambua, 2018).
Another study done by the Malaysian Local Government Authorities noted that
transformational leadership lead to good governance and helps in solving employee
corruption in the Malaysian Local Government Authorities (Olson, Parayitam & Twigg,
2016). Therefore, this literature review shows that transformational leadership is critical
factor in enhancing good governance and promoting worker performance through the
more cooperative, humanistic and charismatic leader behaviors that results into valuable
employees’ characteristics. Firms with transformational leadership in most instances have
good corporate governance practices.
Therefore, the efficiency of transformational leadership depends on the leader’s
individual traits that serve as role model and plays a critical role in influencing the
employees towards the adoption of such traits (Kerandi, 2015). Transformed employees
would at the end possess competency thus enhancing quality delivery devoid of unethical
misconduct because such employees become answerable and responsible without for self-
interest but for the interest of their jobs. This is important towards the promotion of the
firm performance.
According to a study by Erkutlu (2018), leadership is the process of imbuing an influence
on others to not only understand but also to agree on the next course of action and how
the action should be taken as well as the facilitation of individual and collective efforts
aimed at accomplishing the organization’s goals. This means that a good leader will
promote and have the ability to motivate and influence others so that they can contribute
towards the company’s success. However, this study fails to consider transformation
leadership effects on workers’ productivity.
Moreover, in the context of strategic management, a study done by Menguc, Auh and
Shih (2017) found out that leadership was an art and process in which leaders influenced
followers to willingly and enthusiastically strive to achieve the firm’s mission.
Leadership is thus an important contributor to the success of organizations. All the levels
of an organization have some form of leadership. Dent (2015) identifies three levels of
leadership; the team leadership which operates at a team level whose sole responsibility
is the achievement of the goals for which a group of people who work together are
grouped. The study also indicated that there is also the operational leadership whose role
is that of a functional area within a firm where it manages the human capital and
contributes to decisions in their specific special areas. Finally, transformational
leadership that is responsible for diverse organizational functions as well as responsible
for making major decisions in the organization (Dent, 2015). However, this study mainly
focused on the organizations within the United States of America and failed to consider
the application of transformational leadership in other contexts.
A study by Wilderom, Berg and Wiersma (2012) on how charismatic leadership as well
as organizational culture affect commercial banks in Netherlands where the researchers
collected data from one thousand two hundred and fourteen staff from forty-six bank
branches and assessed areas such as charismatic initiative, work culture and philosophy,
and aspects of authoritarian management. The outcome of that study pointed out that
charismatic leadership increased organizational financial returns among the commercial
banks surveyed. Leaders who exhibit idealized influence make followers endeared to
them, and that followers like to be identified with them (Feinberg, Ostroff & Burke,
2015). However, this research was conducted in the Netherlands and it may not be
applicable within the Kenyan context.
From the analysis of these past studies, it is clear that there is need of a study to
underscore the relationship between transformational leadership and performance of
banking institutions. Thus, this study filled this gap by looking into and evaluating the
links between the two variables. This research provides a clear relationship between study
variables thus filling the knowledge gaps identified in the literature and empirical review.
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