Abstract
This paper is an attempt to consolidate the published scientific knowledge about the impact of leadership styles on the relationship between innovation and organisational performance. Concepts, statements and conceptual frameworks were used as structure to analyse the body of scientific knowledge. After consulting 31 major research databases using the systematic literature review methodology, only seven journals articles that examined the link between leadership, innovation and organisational performance were identified. The synthesis of the journal articles revealed (a) that consensus exists among researchers as far as the relevant concepts are concerned; (b) that most agree on the definition of leadership and innovation but that a uniform understanding of what constitutes organisational performance is lacking; and (c) that conceptual models are too simplistic and do not consider mediator variables or multiple financial criteria measures. The findings further reveal that innovation is significantly and positively related to superior organisational performance, and that, although transformational leadership style is significantly and positively related to innovation, transactional leadership style is more appropriate when the aim is to instil a culture of innovation. Transformational leadership style, by contrast, is mostly associated with organisational performance. In addition, the findings further reveal that none of the studies investigate the mediating effect of the nature of innovation (incremental and radical) on the relationship between leadership and organisational performance, and that none of the studies use the objective measures of financial performance such as ROA, ROE, price/earnings (P/E) and Tobin’s Q calculated from annual financial reports.
Highlights
Innovation is broadly seen as an essential component for competitiveness and survival, embedded in organisational structures, processes, products, and services within the organisation (Gunday, Ulusoy, Kilic & Alpkan, 2011)
The seven articles that explicitly investigate the relationship between leadership style, innovation and organisational performance were analysed according to the three building blocks of science identified by De Vos et al (2011)
The results reveal overwhelming evidence that transformational leadership style is positively associated with innovation, and in turn, innovation is positively associated with organisational performance (García-Morales et al, 2008; García-Morales et al, 2008; Matzler et al, 2008; Overstreet et al, 2013; Noruzy et al, 2013)
Summary
Innovation is broadly seen as an essential component for competitiveness and survival, embedded in organisational structures, processes, products, and services within the organisation (Gunday, Ulusoy, Kilic & Alpkan, 2011). Innovation is considered by many scholars as one of the most important determinants of firm performance (Adegoke, Walumbwa & Myers, 2012; Durán-Vázquez, Lorenzo-Valdés & Moreno-Quezada, 2012; Grant, 2012). According to GarcíaMorales, Matías-Reche and Hurtado-Torres (2008), leadership style has been recognised as one of the most important factors influencing the relationship between innovation and organisational performance, because leaders have the authority to set specific goals and encourage innovative initiatives from subordinates. The general consensus among scholars is that transformational leadership style is significantly and positively related to organisational creativity and innovation (Al-Husseini & Elbeltagi, 2012; Hu, Gu & Chen, 2012; Tipu, Ryan & Fantazy, 2012). Several studies (Adegoke et al, 2012; Nybakk & Jenssen, 2012; Durán-Vázquez et al, 2012) show that innovation is positively related to superior financial performance. Some studies show no relationship (Selby, 2010; Lööf & Heshmati, 2006; Kandybin & Kihn, 2004), others show mixed results with non-innovative firms outperforming innovators in some instances (Martin, 2012; Forsman & Temel, 2011; Kannebley, Sekkel & Araújo, 2008)
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