The effect of a transformational leader on innovation ambidexterity: the moderating
effect of balanced resource allocation and environmental dynamism.
University of Amsterdam
Faculty of Economics and Business (MSc BA, Strategy track)
Student: Paul Beukers (6150292)
Supervisor: Michiel Tempelaar
Statement of originality
This document is written by Student Paul Beukers, who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Table of Contents
Introduction.………5
Literature Review.………...9
Methodology.………..18
Analysis and Results.………...26
Discussion and Conclusion..………29
Abstract
While the effect of leadership on ambidexterity has been widely studied, the current research focuses on the ongoing debate about the effect of transformational leadership and innovation ambidexterity. The e-mail addresses of the respondents were obtained via the Integrand Nederland database, and via the Chamber of Commerce. The questionnaire was sent to 5721 respondents, of which 186 responded representing a 3.25% response rate. Results confirm a positive effect of transformational leadership on innovation ambidexterity. However, the expected moderating effects of environmental dynamism and balanced resource allocation were not confirmed. Limitations and implications are discussed.
Introduction
“Innovation distinguishes between a leader and a follower”.
- Steve Jobs
Floyd and Lane (2000) state that because of the fast changing environment and the increasing intensity, firms need to renew themselves constantly. This is done through exploitation which is focussed on the existing competencies and exploration which centers on new opportunities in undiscovered markets or products, the combination of both concepts within a firm are inherently inconsistent and contradictory (Lin & Donough III, 2011). The combination of both exploitation and exploration within a firm is called ‘ambidexterity’ (Tushman & O’Reilly, 1997; March, 1991).
Whereas most studies have examined the importance of leadership on ambidexterity (Jansen, Vera & Crossan, 2009; Smith & Tushman, 2005), as of yet there is no conclusive evidence about the effect of transformational leadership on innovation ambidexterity. Previous research has made a distinction between two different leadership styles, which both have an effect on innovation ambidexterity: transformational leadership and transactional leadership (Jansen et al., 2009; Nemanich & Vera, 2009; Jansen, George, Van den Bosch & Volberda, 2008). In the current research, the effect of transformational leadership on innovation ambidexterity is studied, because ambidexterity is about more than merely combining both exploration and exploitation. It is about creating synergies by integrating the two constructs (He & Wong, 2004). A transformational leader is a kind of leader that guides his subordinates with the integration to create ambidexterity. He does this by compelling a vision and stimulating his employees to enact on that vision (Bass, 1991). Some authors were not in agreement
about the effect transformational leadership has on innovation ambidexterity. Jansen et al. (2008) and Nemanich and Vera (2009) both argue that a transformational leader has to manage both forms of innovation in order to maximize the performance of the innovation. This is in contrast with the view of Jansen et al. (2009), who argue that transformational leadership has a significant effect in pursuing exploratory innovations. By addressing this debate, this study will provide new theoretical and empirical insights which link transformational leadership to innovation ambidexterity at the senior management level.
To shed light on the ongoing debate about the effect of transformational leadership and innovation ambidexterity, this research uses a model that looks at the effect of transformational leadership on innovation ambidexterity. The model also takes two moderators into account and looks for a possible influence the moderators have on the effectiveness of the main relationship. The first is environmental dynamism, which is used because it is believed to have an interesting moderating effect on the main relationship. As quoted by Raisch and Birkenshaw (2008, p. 394-395): “Very few studies have formally considered external conditions influence on the structural, contextual, and leadership-based antecedents of organizational ambidexterity”. It is important to take environmental dynamism into account and examine the moderating effect. Examining environmental dynamism is necessary to fully understand the effectiveness of transformational leaders (Jansen et al., 2009). Wu, Levitas and Priem (2005) conclude that in a dynamic environment, transformational leadership has a strong contribution to the organizational outcome of a firm. The second moderator is balanced resource allocation. Klingebiel and Rammer (2014) argue that the resource allocation strategy of
firms on innovation has gotten a minimum amount of attention, despite the managerial relevance of this subject. The research of this effect is important because resource allocation is an important factor within the innovation domain. Because the increasing competitive pressures within each industry, firms are obliged to invest continuously in different kinds of product innovations to ensure the companies survival (Klingebiel & Rammer, 2014; Lubatkin et al., 2006). Both moderators are chosen because they are strongly linked to each other. When the environment is dynamic, a firm is more effective if it allocates more resources to exploration, and vice versa (Jansen, Volberda & Van Den Bosch, 2006; Jansen, Volberda & Van Den Bosch, 2005)
This research contributes to the current literature in at least three ways. Jansen et al. (2009) argue that testing the coexistence of both concepts (ambidexterity) is an interesting subject in the transformational leadership literature, because both exploration and exploitation are expected to be present within the same individual, but the amount in which these concepts are present varies in the amount and intensity. It is important that leaders can master the ability to play different roles at the same time. As concluded in the research of Jansen et al. (2009) transformational leadership has a positive effect on exploration in a dynamic environment, but that this form of leadership is inappropriate for exploitation in a dynamic environment. The moderating effect of environmental dynamism on the relationship of transformational leadership on either exploration or exploitation has been researched before, but the coexistence of both concepts has not received any attention (Jansen et al., 2009).
Exploration and exploitation battle for the firms’ resources, and the managers make the trade-off between the division of resources amongst exploration and
exploitation (He & Wong, 2004). It is expected that there will be an inverted-U effect for balanced resource allocation, because all firms face a trade-off while engaging in resource allocation (Lavie, Stettner & Tushman, 2010; He & Wong, 2004; Levinthal & March, 1993).
The findings of this research will help firms to get more insight into the advantages of transformational leadership in the innovation ambidexterity context. This study will also contribute to the emerging dialogue on the moderating effect of balanced resource allocation, and the environmental dynamism on innovation ambidexterity. Furthermore, it is the first study to examine the moderating role of resource allocation on the relationship between transformational leadership and innovation ambidexterity. The findings of this study can help managers make better decisions on how to allocate resources and to anticipate to the changing environment.
The research question of this thesis is as follows:
What are the effects of transformational leadership on the coordination of innovation
ambidexterity of a firm? How do the resource allocation and the dynamism of the
environment moderate this relation?
In the next section, the existing literature on transformational leadership, innovation ambidexterity, and the moderator’s environmental dynamism and resource allocation is reviewed. The hypotheses are also presented in this section. Next, and drawing upon data used from the surveys, the method is discussed and subsequently the empirical findings are presented. This study concludes with a discussion of the results, the theoretical and practical implications and suggestions for further research.
Literature Review Innovation Ambidexterity
Several researchers have argued that ambidexterity is a crucial aspect for a firm to enjoy sustained organizational performance (Jansen et al., 2009; Gibson & Birkinshaw, 2004; He & Wong, 2004). Tushman and O’Reilly (1996, p. 11) define ambidexterity in the following manner: “An ambidextrous firm has the capabilities to both compete in mature markets (where cost, efficiency, and incremental innovation are critical) and develop new products and services for emerging markets (where experimentation, speed, and flexibility are critical)”. In this research, ambidexterity is defined more precise because of the ambiguity of the concept of ambidexterity. Lin and Donough III (2011) focussed on the innovation ambidexterity of a firm: incremental innovation and radical innovation need to have attained high levels. The attainment of both high incremental innovation as well as high radical innovation is likely to lead to greater business performance (Lin, McDonough, Lin & Lin, 2013; Barney, 1991). According to Benner and Tushman (2003), innovation ambidexterity is seen as the best way to engage in continuous technological innovation, organizational learning, and eventually leading to long-term performance and growth. Lin et al. (2013) concluded in their research that innovation ambidexterity has a direct and significant impact on firm performance.
March (1991) argues in his research that exploitation and exploration are two fundamentally different activities. Firms need to divide both attention and resources between those activities (Raisch & Birkenshaw, 2008). Jansen et al. (2009) argue that organizations that pursue new knowledge and develop products and services for emerging customers and markets are engaging in exploratory innovation. On the other
hand, there is exploitative innovation. This form of innovation is built on existing resources and knowledge. Firms that engage in exploitative innovation are extending existing products and services for current markets. Firms need to engage in both exploration as in exploitation to reap the benefits of ambidexterity. Moreover, it is not about simply combining exploration and exploitation; they need to integrate the two constructs. By integrating exploration and exploitation, synergies will arise (He & Wong, 2004). To guide the integration, and therefore create synergies, leadership is needed. The management of the ambidextrous workforce is a complex matter, and needs a leader who can see the complexity of integrating both exploration and exploitation (Rosing, Frese & Bausch, 2011).
Transformational Leadership and Innovation Ambidexterity
He and Wong (2004) argue that because the concepts of both exploitation and exploration are inherently different, the need to manage these tensions is extremely important. Unless these tensions are managed in a good manner, the firm will have a negative effect of the interaction between exploitation and exploration, instead of a positive effect (He & Wong, 2004). There are difficulties in managing those concepts, because they are in conflict with one another regarding time and resource allocation (Benner & Tushman, 2004; Eisenhardt, Kahwajy & Bourgeois III, 1997; Tushman & O’Reilly, 1996).
As such, leadership is identified as an important determinant for ambidexterity (Jansen et al., 2008). Transformational leadership is defined by Bass (1991, p. 21) as follows: “Transformational leadership occurs when leaders broaden and elevate the interests of their employees, when they generate awareness and acceptance of the
purposes and mission of the group, and when they stir their employees to look beyond their own self-interest for the good of the group”. This definition is built on the concept of ‘transforming leadership’, which was first introduced by Burns (1978). Transactional leadership is another form of leadership, which focuses on a reward for good performance, and punishment for bad performance (Bass, 1991).
Ling, Simsek, Lubatkin and Veiga (2008) say that a transformational leader has four interdependent attributes. These attributes are (1) charisma, (2) inspirational motivation, (3) intellectual stimulation, and (4) individualized consideration (Ling et al., 2008; Bass, 1985). When the leader uses charisma, he ensures that everyone sees the importance of a collective effort in the mission. He accomplishes this by inspiring the followers with respect and loyalty. When the leader uses inspirational motivation, he helps his followers to achieve a certain goal by providing a good example of how it is done. Intellectual stimulation means that the leader engages his subordinates by broadening their interests. The last attribute is individualized consideration. The leader tries to build a relationship with his subordinate, via this relation the leader tries to unlock the subordinates full potential (Gumusluoglu & Ilsev, 2009; Ling et al., 2008).
Bass (1999) argues that organizations increase in innovativeness, because the aforementioned characteristics encourage communication processes. Gumusluoglu and Ilsev (2009) go one step further, and describe the dimension of charisma to the innovativeness in firms. Transformational leadership fuels creativity in their employees, which has a positive effect on the innovativeness of the firm. García-Morales, Jiménez-Barrionuevo and Gutiérrez-Gutiérrez (2012) argue that innovation is indirectly influenced by the communication process of a transformational leader. Bass
(1991) theorized that transformational leaders are innovative, bring forth new ideas, and can create change within a firm. Pieterse, Knippenberg, Schippers and Stam (2010) even argue that a transformational leader stimulates innovative behaviour with his subordinates. This is done through expressing the leaders vision, encouraging the subordinates to question the status quo, and allowing the subordinates to develop themselves. To create innovation ambidexterity, a leader must integrate exploration and exploitation, and empowers his employees to act accordingly (He & Wong, 2004). By breaking through knowledge domains, linking different ideas together, stimulating creativity, and creating an environment in which employees of different areas of expertise exchange knowledge and ideas, a transformational leader stimulates ambidexterity within a firm (Pieterse et al., 2010; Bass, 1999; Bass, 1991). Because of these findings in the literature the following hypothesis is proposed:
H1: A transformational leader has a positive effect on the innovation ambidexterity of a
firm.
The Moderating Effect of Balanced Resource Allocation
Resource allocation has been a discussed extensively in the literature about ambidexterity (Wei, Zhao & Zhang, 2014). Resources are defined in this study as “stocks of available factors that are owned or controlled by the firm” (Lin et al., 2013, p. 264). Firms that have many resources are able to explore and exploit simultaneously (Lubatkin et al., 2006), which is necessary if a firm wants to achieve innovation ambidexterity, leading to greater performance (Lin, McDonough, Lin & Lin, 2013; Barney, 1991). However,
according to March (1991), resources are a scarce commodity, and because of this scarcity, firms face a trade-off between exploration and exploitation (Gupta, Smith & Shalley, 2006). This trade-off requires that firms have to balance the available resources between exploration and exploitation. Levinthal and March (1993, p. 105) argue the following about balancing resources: “Survival requires a balance, and the precise mix of exploitation and exploration that is optimal is hard to specify”. Through the balancing of resources, firms can find an optimum on the continuum of exploration and exploitation (Wei et al., 2014; Gupta et al., 2006). This division of resources between exploration and exploitation is the main activity for managers who are engaging in innovation (Klingebiel & Rammer, 2014).
In their research, Levinthal and March (1993) argue that when a firm only focuses on exploitation, the firm will become trapped in a suboptimal equilibrium, this will make it harder for a firm to adapt to a changing environment. Furthermore, they argue that when a firm solely focuses on exploration, it will only carry the cost of innovating without reaping the benefits of capitalizing on the current opportunities (Lavie, Stettner & Tushman, 2010). For these reasons, organizations search for a way to balance the resource allocation between short-term efficiency and long-term effectiveness, and therefore engaging in ambidexterity (Lavie et al., 2010; He & Wong, 2004).
Levinthal and March (1993) discuss the myopia’s of learning. The first myopia is the ‘temporal myopia’. This problem of organizational learning argues that the long run is sacrificed to the short run. The returns of exploitation are closer in time and are therefore preferred; this is called the ‘success trap’. Thus, management allocates more
resources to exploitation instead of exploration. Furthermore, Levinthal and March (1993) talk about the ‘failure trap’. The failure trap means that exploration drives out exploitation. Because most innovations fail, management searches for other innovations, which in turn fail again. A transformational leader will allocate more resources to exploration, and tries to correct past failures.
The more resources are allocated towards exploitation; the less effective a transformational leader is expected to be in managing ambidexterity. When a transformational leader allocates all the resources towards exploitation, no innovations will arise within the firm. The other way around is also true. The more resources are allocated towards exploration; the less effective a transformational leader is anticipated to be in managing ambidexterity. This occurs when a transformational leader allocates all his resources to exploration, he empowers his employees to innovate constantly, without capitalizing on those innovations. For this reason, it is assumed that resources need to be balanced for a transformational leader to reap the benefits of ambidexterity. Because of these findings and expectations the following hypothesis is proposed:
H2: Balanced resource allocation between exploration and exploitation positively
moderates the relationship between transformational leadership and innovation
ambidexterity.
The Moderating Effect of Environmental Dynamism
Dess and Beard (1984, p. 56) argue that “dynamism should be restricted to change that is hard to predict, and that heightens uncertainty for key organizational members”.
Waldman, Ramirez, House and Puranam (2001) argue that the more dynamic the environment is, the more uncertainty, anxiety, and stress there is inside a firm. In a stressful, and dynamic environment, a transformational leader is the most effective leadership style (Jansen et al., 2009). The effect that the external environment has on both innovativeness, as well as performance, is already widely acknowledged (Jansen et al., 2009; Jansen, et al., 2005). The findings of Jansen et al. (2006) reveal that different environmental aspects can have contradictory pressures. Pursuing exploratory innovation is more effective in dynamic environments, whereas pursuing exploitative innovation is more beneficial in more competitive environments (Jansen et al., 2006; Jansen, et al., 2005). As stated before, Jansen et al. (2009) did examine the moderating effect of environmental dynamism on the relation of transformational leadership on both explorative as well as exploitative innovation, but he did not examine the ambidexterity of the two concepts. The study showed that transformational leadership has a positive effect on exploration in a dynamic environment, but that this form of leadership is inappropriate for exploitation in a dynamic environment. They further argue that the presence of an internal misfit leads to increased ambiguity and stress, which will have a negative effect on the innovations. Within a dynamic environment, a transformational leader will have a positive effect on exploration and a negative effect on exploitation, thus creating an internal misfit. This will increase ambiguity and stress within the firm, and therefore will dominate the presumed positive effect, creating an expected negative influence on the main relationship.
As argued earlier, ambidexterity is not simply combining exploration and exploitation; it is about the integration of the two constructs (He & Wong, 2004).
However, it is not possible to explain the hypothesis solely on the findings of Jansen et al. (2009), it is interesting to argue that the negative effect dominates the positive effect of a transformational leader in a dynamic environment.
Eisenhardt and Martin (2000) concluded in their article that the ‘selection’ criterion gets more important when the environment gets more dynamic. The reason is that in a dynamic environment learning can be too rapid, and firms should select what to keep in. As such, a leader might divert employees from carrying out important standard tasks (Ensley, Pearce & Hmieleski, 2006), this is a reason why a dynamic environment needs a leader who sets clear guidelines. Crossan, Vera and Nanjad (2008) argue that the job of leaders in a dynamic environment is to offer a comprehensible unifying approach. A transformational leader does not set goals for his employees, and therefore does not select; he inspires them and gives them the opportunity to question the status quo (Gumusluoglu & Ilsev, 2009; Ling et al., 2008; Bass, 1991). Based on the literature described above, this research argues that environmental dynamism will have a negative effect on the relationship between transformational leadership and innovative ambidexterity.
H3: Environmental dynamism will have a negative effect on the relationship between
transformational leadership and innovation ambidexterity, so that this relationship is
Conceptual model H2 H1 H3
H1: A transformational leader has a positive effect on the innovation ambidexterity of a
firm.
H2: Balanced resource allocation between exploration and exploitation positively
moderates the relationship between transformational leadership and innovation
ambidexterity.
H3: Environmental dynamism will have a negative effect on the relationship between
transformational leadership and innovation ambidexterity, so that this relationship is
stronger for lower levels of environmental dynamism.
Transformational
Leadership Ambidexterity Innovation
Balanced Resource Allocation
Environmental Dynamism
Methodology Setting and Data Collection
This research is of explanatory character and aims to provide insights into the influence of transformational leadership on innovation ambidexterity, moderated by balanced resource allocation and environmental dynamism. To test the hypotheses in this research, data will be collected by the means of a survey. A survey is used because many respondents can be reached in a short period of time (Saunders & Lewis, 2012). For this reason, a survey is particularly interesting for this research. The survey will be sent out digitally to senior managers, because the focus of this research is on leadership. After the collection of data, the results will be analysed and the hypotheses will be tested.
The population that is examined are senior managers within firms. Because of the size of the population and because the sampling frame is unknown, a non-probability convenience sample will be used to conduct this research. The firms covered a broad range of different industries and also varied from small firms, to big multinationals. The e-mail addresses of the respondents were obtained via the Integrand Nederland database, and via the Chamber of Commerce. The questionnaire was sent to 5721 respondents, of which 186 responded representing a 3.25% response rate.
Measurements and Validation of Constructs
All the scales used in this study are found in existing literature. A multi-item scale was used to measure the constructs. These scales were verified through various analyses. First, the Crohnbach’s alphas were measured. This shows whether the construct is internally consistent. Furthermore, a factor analysis was done to measure the underlying
structure of the construct. To measure the moderating effects of both environmental dynamism and balanced resource allocation, all the independent variables had to be centralized in SPSS.
Innovation Ambidexterity
This construct is measured using the scale of Jansen, Van Den Bosch and Volberda (2006), and contains eight items. This construct contains both exploration (α=0.76) and exploitation (α=0.75) (Jansen et al., 2006; He & Wong, 2004). However, after the factor analysis, the eighth question had to be deleted, because instead of loading positive solely on the factor of exploitation, it also loaded on the factor of exploration. The construct is measured using a seven-point scale, as described in the research of Jansen et al. (2006). The construct innovation ambidexterity is measured by multiplying the scores of exploration and exploitation. This construct loaded on two components. The first component has a variance of 45.23%, with an Eigenvalue of 3.2. The second component explains 16.06% of the variance with an Eigenvalue of 1.1. The second construct is this is substantially less than the first component and for that reason, Innovation Ambidexterity is measured as one factor. Furthermore, all items had factor loadings above 0.5. However, the cross-loading of one item was above 0.4; this item was deleted. By deleting this item, all factor loadings were above 0.55, with cross-loadings below 0.31 and both factors having eigenvalues greater than one.
Table 4. Measurement of innovation ambidexterity
Innovation Ambidexterity
Q1 Our organization responds to demands that go beyond existing products and services
Q2 We commercialize products and services that are completely new to our organization
Q3 We frequently seek out new opportunities in new markets
Q4 Our organization regularly uses new distributions channels
Q5 We frequently make small adjustments to our existing products and services
Q6 We continuously improve our production’s efficiency of products and services Q7 We continuously increase economies of scale in existing markets
Q8 Our organization frequently expands services for existing clients* Note: *Counter-indicative item
Transformational Leadership
Transformational leadership (α=0.90) is measured using the scale of Hoch, Pearce and Welzel (2010), and contains the following five items: 1) vision, 2) idealism, 3) inspirational communication, 4) intellectual stimulation, and 5) expecting exceptional performance. This construct loaded on two components. The first component has a variance of 45.50%, with an Eigenvalue of 3.6. The second component explains 14.06% of the variance with an Eigenvalue of 1.1. The second construct is this is substantially less than the first component and for that reason, transformational leadership is measured as one factor. This construct is measured using a seven-point scale, as described in the research of Hoch et al. (2010).
Table 5. Measurement of transformational leadership
Transformational Leadership
Q1 My manager provides a clear vision of whom and what our team is
Q2 My manager is driven by higher purposes or ideals
Q3 My manager shows enthusiasm for my efforts
Q4 My manager encourages me to rethink ideas which had never been questioned before
Q5 My manager encourages me to go above and beyond what is normally expected of one (e.g., extra effort)
Environmental Dynamism
Environmental dynamism (α=0.78) is measured by the questionnaire used in Jansen et al. (2006), and contains four items. The Eigenvalue of environmental dynamism is 3.6 and 71.13% of the variance is explained. Based on the literature of Jansen et al. (2006), this construct is measured using a seven-point scale.
Table 6. Measurement of environmental dynamism
Environmental Dynamism
Q1 Environmental changes in our local market are intense
Q2 Our clients regularly ask for new products and services
Q3 In our local market, changes are taking place continuously
Q4 In our market, the volumes of products and services to be delivered change fast and often
Balanced Resource Allocation
This construct (α=0.75) is measured using a five-item scale of Tempelaar, Van Den Vrande and Van Neerijnen (2016). This construct is measured using a seven-point scale, as described in the research of Tempelaar et al. (2016). The Exploratory Factor Analysis
describes that 60.71% of the variance is explained, and that this variable has an Eigenvalue of 2.4.
Table 7. Measurement of balanced resource allocation
Balanced Resource Allocation
Q1 Increasing the flexibility within your organization versus Increasing the efficiency within your organization
Q2 Experimenting with new knowledge and technology versus Applying current knowledge and technology
Q3 Discovering of new applications versus Implementing of new applications
Q4 Searching for new knowledge and technology versus Refining current knowledge and technology
Q5 Developing a variety of knowledge and technology versus Very specific development of knowledge and technology
Control Variables
In this research four control variable are added: firm size, firm age, senior management team (SMT) size, and firm industry. The SMT had a mean size of 4.25 members (SD = 1.85), the average size of the firm was 216.63 employees (SD = 2.87), and the average age of the firm was 16.6 years (SD = 3.40).
Respondents were also asked to specify the industry that their firm is in. There were nine different types of industries, so the top three industries are shown: other service industries 43.0%, manufacturing 16.1%, and selling, distribution and retailing 14.0%. There was only one participant in the industry group Armed Forces, and one in Professionals in Private Practice. These two respondents were recoded into Other Industries together with the six respondents of Civil Service and Local Government.
As shown by Table 1, the majority of the firms who participated in this survey had over 250 employees. This means that the results of the analysis may be biased by the answers from senior managers who work in bigger firms. The bigger firms get, the more managerial layers have to be added to manage the firm. The rate of adaption and rate of innovation can be affected by the number of managerial layers a firm has (Sharma, 1999).
Table 1. Size of the organization
Frequency Percentage Cumulative Percent
0 – 9 employees 9 4.8 4.8
10 – 49 employees 23 12.4 17.2
50 – 249 employees 39 21.0 38.2
250 + employees 115 61.8 100.0
Total 186 100,0
The age of the organization also plays a key factor in this analysis. Because younger firms are more likely to be innovative at first, and older companies are more prone to organizational inertia. When firms are innovative, they are the opposite of inert organizations (Sharma, 1999). Therefore, the age of the organization is selected as a control variable.
Table 2. Age of the organization
Frequency Percentage Cumulative Percent
0 – 3 years 19 10.2 10.2
4 – 10 years 51 27.4 37.6
11 – 25 years 51 27.4 65.1
25 + years 65 34.9 100.0
The size of the senior management team was also controlled for. Respondents also indicated the size of the SMT they were in. This control variable was added because the size of the SMT is a possible predictor of the diversity and the variety of the SMT (Vaccaro, Jansen, Van Den Bosch, & Volberda, 2012). In 77.4% the senior management team consists of up to 10 members.
Table 3. Size of senior management team
Frequency Percentage Cumulative Percent
0 – 5 members 88 47.3 47.3
5 – 10 members 56 30.1 77.4
10 – 20 members 24 12.9 90.3
20 + members 18 9.7 100.0
Table 8. Means, Standard Deviations, and Correlationsa
Notes. Numbers in the parentheses on the diagonal are Crohnbach’s alphas of the composite scales. an = 186
**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).
Mean s.d (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (1) Innovation ambidexterity 27.24 9.34 -
(2) Balanced resource allocation 6.50 1.52 -0.31** (0.75)
(3) Environmental dynamism 5.38 0.96 0.45** -0.12 (0.78)
(4) Transformational leadership 5.28 1.13 0.39** -0.03 0.24** (0.90) (5) Senior team size 1.85 0.99 0.17* 0.11 0.09 0.02 -
(6) Firm size 2.87 1,01 0.09 0.17* 0.12 -0.04 0.63** -
(7) Firm age 3.40 0.88 -0.13 0.23** 0.10 -0.10 0.29** 0.52** - (8) Primary (farming, fishing, mining,
etc.)
0.06 0.25 -0.05 -0.01 -0.07 -0.07 -0.03 0.03 0.16* -
(9) Manufacturing 0.16 0.37 -0.01 0.07 -0.09 -0.17* 0.04 0.09 0.13 -0.12 -
(10) Selling, distribution & retailing 0.14 0.35 -0.05 0.05 0.14 -0.08 -0.14 -0.07 0.06 -0.11 -0.18* -
(11) Finance & banking 0.11 0.31 -0.04 -0.00 0.01 0.04 0.11 0.10 0.06 -0.09 -0,15* -0.14 - (12) Other service industries 0.43 0.50 0.23** -0.09 0.05 0.27** -0.01 -0.15* -0.32** -0.23** -0.38** -0.35** -0.30** -
(13) Other industries 0.01 0.07 -0.05 -0.04 -0.11 -0.07 -0.06 -0.06 -0.12 -0.02 -0.03 -0.03 -0.02 -0.06 - (14) Education 0.05 0.23 -0.21** -0.03 -0.06 -0.10 0.01 -0.02 0.06 -0.06 -0.11 -0.10 -0.08 -0.21** -0.02 -
Analysis and Results
Table 8 presents all the descriptive statistics and correlations for the study variables. Table 9 presents the regression analysis with innovation ambidexterity as the dependent variable. In this analysis were four models specified. The first model (the baseline model) only includes the control variables. The second model explains the outcome for the relationship between transformational leadership and innovation ambidexterity. The third model adds the moderating effect balanced resource allocation.
Table 9. Results of Regression Analyses
Model 1 Model 2 Model 3 Model 4 Model 5
Control variables
Senior team size 1.67 1.51 1.66 1.64 1.76
Firm size 0.81 0.98 0.73 0.37 0.19
Firm age -2.07* -1.97* -1.59 -2.15** -1.87*
Primary (farming, fishing, mining, etc.) -1.83 -0.25 -0.18 0.26 0.12
Manufacturing -1.25 0.86 0.96 1.49 1.47
Selling, distribution & retailing -1.39 0.09 0.55 -0.96 -0.59 Finance & banking -2.96 -2.55 -2.32 -2.09 -1.94
Other industries -8.13 -3.91 -3.33 -0.83 -0.69
Education -9.16** -6.94* -6.46* -6.55* -6.24*
Direct effects
Transformational leadership 3.38*** 2.61** 2.69*** 2.01**
Balanced resource allocation squared 0.48 0.25
Environmental dynamism 3.64*** 3.54***
Moderating
Transformational leadership x balanced resource allocation
0.93 0.86
Transformational leadership x environmental dynamism 0.80 0.83 Constant 30.23 28.85 27.28 30.72 29.62 R2 0.12 0.24 2.67 0.38 0.40 ΔR2 0.12 0.12 0.01 0.01 0.01 F 2.72** 5.60*** 5.22*** 8.99*** 8.09*** df 9,176 10,175 12,173 12,173 14,171 * p < 0.05 ** p < 0.01 *** p < 0.001
The fourth model adds the interaction effect of environmental dynamism. Lastly, the fifth model contains all the variables used in this study. The variables were mean-centred before calculating the interaction effects. This is done to reduce the potential for multicollinearity. After the centration of the variables, the variance inflation factors (VIFs) were calculated to test for multicollinearity. The highest VIF score in the model was 1.73; this is a lot lower than 10, so there is no problematic multicollinearity. In the next section, the results of model 5 are discussed.
The results of the analysis show that the first hypothesis is supported. There is a positive significant relationship between transformational leadership and innovation ambidexterity (B=2.01; p < 0.01). For hypothesis 2 an inverted U-effect was expected for the moderating effect of balanced resource allocation. This was not supported after the analysis was conducted (B= 0.86; p > 0.05). The last hypothesis, which proposed that environmental dynamism will have a negative effect on the relationship between transformational leadership and innovation ambidexterity, is also not supported (B= 0.83; p > 0.05).
Although all the scales have been thoroughly tested in previous research (Tempelaar et al., 2016; Hoch et al., 2010; Jansen et al., 2006), an additional statistical procedure was taken to check for the fouling influence of common method bias. Harman’s one factor test (Podsakoff & Organ, 1986) was the statistical procedure that tested for common method bias in this study. The factor analysis showed that the first factor did not account for the majority of the variance (26.1%).
Post Hoc Analyses
Because the lack of significant results for hypotheses two and three, additional analyses were conducted. First, the results in the regression analysis showed that there might be a mediating effect of transformational leadership. A linear regression analysis looked for a significant relationship between balanced resource allocation and innovation ambidexterity, mediated by transformational leadership. The second analysis that was conducted, was a curve linear regression analysis between the same variables. Both results were not significant (p > 0.10).
The second part of the post hoc analysis was a split sample between other service industries and the other industries. A split sample was chosen since 43% of the companies who participated in the survey were located in the industry ‘other service industries’. This may have resulted in a potential sampling bias. For the interaction between transformational leadership and environmental dynamism no significant result was found (p > 0.10). However, an interesting result was found when conducting a regression analysis with the split samples for the interaction effect between transformational leadership and balanced resource allocation. Other industries almost reached a level of significance (B = 1.57, p = 0.05), other services did not significantly predict the outcome variable (p > 0.10).
After the regression analysis, a t-test was chosen to compare if the groups differed in their degree of ambidexterity. The result was significant. The group other service industries scored significantly higher than the group other industries (T (184)=-3.25, p < 0.01).
Discussion and Conclusion
Although previous research was inconclusive about the effect transformational leadership has on innovation ambidexterity (Pieterse et al., 2010; Bass, 1999; Bass, 1991), this research was set-up to shed light on this debate. There were two moderators incorporated on this main relationship: balanced resource allocation and environmental dynamism. The moderating effect of balanced resource allocation was added to see if there was an inverted-U effect. Environmental dynamism was added because it was hypothesized that this moderating variable has a negative effect on the main relationship. This study hoped to shed light on these hypotheses.
First, the results of this research show that transformational leadership has a positive effect on innovation ambidexterity. This means that a transformational leader encourages his employees to integrate both exploration and exploitation, and thus creating synergies (He & Wong, 2004). He and Wong (2004) talk about balancing exploration and exploitation, this is not the case in this study, since the second hypothesis shows no significant results regarding the balancing of resources. Furthermore, by focussing on the senior management team and researching the innovation ambidexterity at the organizational level, this study reflects the impact that senior management has on the firm’s innovation agenda (Vaccaro et al., 2012).
This research did not find a significant effect for the second hypothesis. There was no inverted-U effect found, as was hypothesized. An interesting finding in the post hoc analysis was that this effect was ‘almost’ found when a split sample was taken between other service industries and the other industries. This result was found for the group ‘other industries’. An explanation could be that within service industries, the
resources are divided differently between those groups, and therefore, no significant result was found. A possible explanation is that the combined resources are not balanced within the other service industries, but that the focus is more on exploitation or exploration (He & Wong, 2014). This is in line with Wei et al. (2014). They argue that research has failed to answer if different firms allocate resources in different ways.
This research also failed to find a significant effect for the third hypothesis. Environmental dynamism is not a negative moderator on the relationship between transformational leadership and innovation ambidexterity. This result is most surprising since, when following the article of Eisenhardt and Martin (2000), the ‘selection’ criterion gets more important when the environment gets more dynamic. A transformational leader does not set goals for his employees, and therefore does not select; he inspires them and gives them the opportunity to question the status quo (Gumusluoglu & Ilsev, 2009; Ling et al., 2008; Bass, 1991). As shown by the results of this research, environmental dynamism does not affect transformational leadership; whether the environment is dynamic or not, transformational leadership has a consistent impact on innovation ambidexterity. If the environment is dynamic, transformational leadership is needed to help guide his subordinates through this environment. A transformational leader will do that by developing a vision, making sure that employees see the bigger picture. If the environment is calm and stable, a transformational leader is necessary to stimulate his employees to be creative and question the status quo (Pieterse et al., 2010; Jansen et al., 2009; Jansen et al., 2006).
This study contributes to research, but also to the managerial side of the firm. It is important for firms to have transformational leaders. This way of leading should be
taught to everybody in firms that strive for innovation ambidexterity. When hiring new personnel, one should look at his or her capabilities that are needed to succeed as a transformational leader. If someone in the firm misses some of the attributes that are necessary for a transformational leader, training could be given to those who need it. Furthermore, as described above, environmental dynamism does not affect the effectiveness of transformational leadership, whether the firm is located in a highly dynamic environment or not, does not in- or decrease the effectiveness of such leader.
Limitations and Future Research Suggestions
To enhance the validity of the research, a large pool of respondents is needed, and this is done through the convenience sample. However, because a convenience sample is used, the external validity of the research will be reduced. The external validity was also reduced since the number of questions that measured the constructs had to be reduced. Because the fact that the survey is only measured at one point in time, it was not possible to infer a causal relation between the four constructs. Since the sampling frame came largely from the Integrand Nederland database - and that the core business of Integrand is internship mediation – a sampling bias could occur for that 42% of the sample consisted of the industry other service. Furthermore, when using a survey, respondents may not give honest answers, because these answers may present them in an unfavourable manner. However, in this research, stressing the respondent about the anonymousness of this questionnaire reduced risk. Concluding, the unexpected results that we did not find a significant effect for the two moderating variables of balanced resource allocation and environmental dynamism can be explained by the above described (methodological)
limitations. Therefore, it would be very interesting to explore if future research can resolve these issues and also will be able to establish the expected relationship between described in both hypothesis two and three.
Assuming that future research will resolve the limitations that were described above, there are other aspects that will possibly enhance this research. This research only focuses on the senior management team of a firm, although they make the majority of the decisions, the CEO is the one who has the final responsibility. So for future research, it would be interesting to measure the results of different CEO’s.
Another suggestion for future research is to test transformational leaders in highly dynamic environments. Past research suggests that this type of leadership style is not appropriate in this setting, but since the environment is getting more dynamic, it is worth investigating whether transformational leadership has changed in that sense.
In the end, it is hoped that this research contributed to the current literature of transformational leadership and ambidexterity, and also was able to inspire future research to investigate the phenomenon even more. Furthermore, it is hoped that this research will open up doors for other research questions, and also look for a change in transformational leadership.
Acknowledgement
I want to thank Michiel Tempelaar for all his help and useful tips, which were all considerably helpful to improve this study.
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