The Effects of Environment Uncertainty and Leadership Styles on Organisational Innovativeness

Abstract

The paper aims to better understand the importance of a company’s external environment uncertainty level and the CEO’s leadership style for innovation. Different leadership styles were assessed in the context of a full range leadership theory, namely: transformational (Tfl), transactional (Tsl) and passive leadership (PL). Partial Least Squares-Structural Equation Model was developed, tested and validated to explain the effect of environment uncertainty and leadership style on organisational innovativeness. The hypotheses were tested using responses of managers from 159 medium and large organisations in the Republic of Serbia during 2017. The results suggest that there is a statistically significant relationship between environment uncertainty and organisational innovativeness, while transformational leadership was described as important leadership style that cannot be ignored if organisation wants to improve organisational innovativeness. Influence of transactional leadership was not statistically significant, while passive leadership style was found to have the negative influence on organisational innovativeness. Based on the results of the study, practical implication of creating a more supportive workplace for all types of innovation is emphasised. Encouraging managers to predominantly use proactive leadership, i.e. transformational style, facilitates significant innovative capacity. The effective use of leadership style and its innovativeness in South-eastern European countries is vastly unexplored. Thus, the results of the research fill the literature gap between Western leadership theory and South-eastern European context.