THE RELATIONSHIP BETWEEN TRANSFORMATIONAL LEADERSHIP AND EMPLOYEE OUTCOMES DURING ORGANIZATIONAL CHANGE: THE MEDIATING ROLE OF TRUST IN THE LEADER IN SME’S

THE RELATIONSHIP BETWEEN

TRANSFORMATIONAL LEADERSHIP AND

EMPLOYEE OUTCOMES DURING

ORGANIZATIONAL CHANGE: THE

MEDIATING ROLE OF TRUST IN THE

LEADER IN SME’S

CECILIA NEDERLOF

UNIVERSITY OF GRONINGEN

FACULTY OF ECONOMICS AND BUSINESS

SMALL BUSINESS AND ENTREPRENEURSHIP

Schuitendiep 17b

9712 KD Groningen

The Netherlands

cecilia_nederlof@hotmail.com

Student number 1980793

22-06-2015

Word count: 14.122

First  supervisor:  prof.  dr.  P.S.  Zwart   University:  Rijskuniversiteit  Groningen  

Abstract  –  Until  this  day,  little  effort  has  been  made  to  examine  transformational  leadership  and   its   influence   in   SMEs.   In   SMEs   the   leadership   style   of   the   top   management   can   have   a   strong   impact  on  the  attitudes  of  employees  and  the  performance  of  the  firm.  The  aim  of  this  study  is  to   investigate   the   mediating   role   of   employee’s   trust   in   the   leader   on   the   relationship   between   transformational   leadership,   and   employee’s   affective   commitment   to   change,   and   employee’s   job  satisfaction  during  change.  In  addition,  these  relationships  were  analyzed  in  the  context  of   SMEs.  Drawing  on  a  study  of  62  employees  in  the  service  and  manufacturing  industry,  several   relationships   were   found   among   the   variables.   Results   have   shown   positive   relationships   between   transformational   leadership   and   the   employee   outcomes,   affective   commitment   and   satisfaction.  Furthermore,  the  results  showed  a  positive  relationship  between  transformational   leadership   and   employee’s   trust   in   the   leader.   Also,   two   positive   relationships   were   found   between   employee’s   trust   in   the   leader   and   the   two   employee   outcomes.   Moreover,   the   mediating   role   of  employee’s   trust   in   the   leader   on   the   relationship   between   transformational   leadership   and   employee’s   job   satisfaction   during   change   was   supported.   However,   the   mediating   role   of   employee’s   trust   in   the   leader   on   the   relationship   between   transformational   leadership  and  employee’s  affective  commitment  to  change  was  not  supported.  The  findings  of   this  study  therefore  indicate  that  employees  are  satisfied  with  their  jobs  during  change  because   they   trust   their   transformational   leader.   This   paper   ends   with   the   implications   for   theoretical   research  and  organizational  practical  implications,  along  with  the  limitations  of  this  study  and   directions  for  future  research.    

Table  of  Contents  

1     Introduction  ...  4  

2     Theoretical  Framework  ...  8  

2.1.1   Components  of  Transformational  Leadership  ...  8  

2.1.2   Transformational  Leadership  in  SMEs  ...  10  

2.2  

2.2.1   Commitment  to  change  ...  12  

2.2.2     Job  Satisfaction  ...  14  

2.3  

2.3.1  The  Mediating  role  of  trust  in  the  leader  ...  19  

3     Research  Design  ...  22  

3.1  

3.2

3.2.1     Transformational  Leadership  measurement  ...  23  

3.2.2   Affective  Commitment  to  Change  ...  23  

3.2.3   Job  Satisfaction  during  Change  ...  23  

3.2.4     Trust  in  the  Leader  ...  23  

3.3

3.4

3.4  

4.   Results  ...  27  

5.   Discussion  ...  31  

5.4  

1    

Introduction  

During  the  last  two  decades,  organizations  have  increasingly  been  facing  rapid  changes  in  order   to   stay   competitive.  One   main   driver   for   these   changes   has   been   the   growing   pressure   on   organizations   to   be   more   competitive,   agile   and   customer   focused   (Heerwagen,   Kelly   &   Kampschroer,  2010).  As  Charles  Darwin  stated,  ‘  It  is  not  the  strongest  or  the  most  intelligent   who  will  survive  but  those  who  can  best  manage  change’.  However,  Attaran  (2004)  found  that   most   change   initiatives   that   organizations   undertake   tend   to   fail.   This   failure   to   adapt   and   transform  to  the  changing  business  environment  can  be  detrimental  to  a  company’s  profitability   and  even  their  very  survival.  A  primary  reason  for  this  failure  has  been  attributed  to  employee’s   lack   of   commitment   to   enacting   and   enduring   changes   in   work   behaviours   (Beer,   Eisenstat,   &   Spector,  1990).  Therefore,  understanding  employees’  psychological  reactions  to  change  within   organizations   is   becoming   increasingly   critical   in   terms   of   change   management.   Lewin   (1952)   defines   organizational   change   as   the   process   through   which   an   organization   moves   from   its   present   state   to   some   desired   future   state   in   order   to   improve   its   effectiveness.   Research   has   shown  that  transformational  leadership  is  particularly  relevant  in  the  context  of  organizational   change   and   in   predicting   employees’   commitment   to   change   (Caldwell,   Herold,   Fedor,   &   Liu,   2008).   Furthermore,   Armenakis   and   Bedeian   (1999)   found   that   transformational   leadership   might  also  be  positively  related  to  other  employee  outcomes  such  as  satisfaction.  In  addition,  the   two   authors   noted   that   two   key   outcomes,   commitment   and   satisfaction,   could   be   used   to   measure  the  ultimate  success  of  an  organizational  change.    

Transformational   leaders   are   defined   as   leaders   that   engage   in   behaviours   that   demonstrate   enthusiasm,   passion,   articulate   a   clear   vision,   inspire   and   motivate   employees   to   work   hard   (Caldwell   et   al.,   2008).  These   leaders   concentrate   their   efforts   on   longer-­‐term   goals   and   are   often  being  described  as  inspirational.  According  to  the  self-­‐concept-­‐based  motivational  theory   of  leadership,  transformational  leadership  is  linked  to  various  aspects  of  employee  commitment   by   increasing   employee’s   performance   (Shamir,   House   &   Arthur,   1993).   An   example   of   a   transformational  leader  can  be  found  in  the  American  entrepreneur  and  cartoonist,  Walt  Disney.   Disney’s   leadership   style   focused   on   trust   building,   personalized   leadership,   influencing   and   motivating  his  employees.  Walt  Disney  had  a  vision  and  did  everything  in  his  power  to  make  this   vision   reality.   Among   other   things,   Walt   Disney   embodied   inspirational   motivation,   motivated   people  through  his  animation  and  helped  to  portray  his  ideals.    

important  for  leaders  to  create  strong  relationships  with  their  employees,  because  it  will  have  a   positive   effect   on   their   commitment   and   satisfaction.   However,   in   order   for   these   strong   relationships  to  exist  it  is  first  imperative  that  employees  have  trust  in  their  leader.  Therefore,   the  role  of  employee’s  trust  in  the  leader  should  be  considered  when  studying  the  relationship   between   transformational   leadership   and   employee   outcomes.   Mayer,   Davis   and   Schoorman   (1995)  define  trust  as  the  ‘’willingness  of  a  party  to  be  vulnerable  to  the  actions  of  another  party   based  on  the  expectation  that  the  other  will  perform  a  particular  action  important  to  the  trustor,   irrespective  of  the  ability  to  monitor  or  control  that  other  party’’.    

In   spite   of   the   extensive   research   conducted   on   the   relationship   between   transformational   leadership   and   several   employee   outcomes,   there   has   been   little   attention   paid   to   evaluating   certain  key  factors  that  may  help  explain  the  impact  of  transformational  leadership  on  employee   outcomes.   For   example,   little   research   has   been   done   to   examine   trust   in   the   leader   as   a   mediating  role  on  the  relationship.  Nevertheless,  research  implies  that  critical  situations,  such  as   organizational  changes,  are  particularly  important  for  the  development  of  trusting  relationships   between  employees  and  their  leaders  (Neves  &  Caetano,  2009).  Moreover,  the  current  body  of   research   lacks   detailed   insight   into   the   relation   between   transformational   leadership   and   employee   outcomes   in   the   context   of   SMEs   (Matzler,   Schwarz,   Deutinger   &   Harms,   2008).   Organizational   changes   are   extremely   important   for   SMEs,   as   they   constitute   the   basis   for   acquirement  and  retention  of  a  sustainable  competitive  advantage.  Hence,  they  are  also  crucial   for  the  economic  survival  of  SMEs  (Hyland  &  Beckett,  2004).  To  address  this  gap  in  knowledge,   the  objective  of  this  study  will  be  to  explore  the  mediating  role  trust  in  the  leader  plays  on  the   relationships   between   transformational   leadership   and   the   two   employee   outcomes,   organizational  commitment  and  job  satisfaction,  in  SMEs.    

1.1     Research  Questions  

The  aim  of  this  paper  is  to  increase  insight  in  the  relations  between  transformational  leadership,   employee’s   organizational   commitment   to   change   and   job   satisfaction   during   change.   In   addition,  this  paper  aims  to  develop  understanding  in  the  role  that  employee’s  trust  in  the  leader   plays  on  these  relationships  in  SMEs.    

The  following  research  questions  will  be  addressed:  

• How   is   transformational   leadership   related   to   employee’s   affective   commitment   to   change  and  employee’s  job  satisfaction  during  change?  

• How  is  trust  in  the  leader  related  to  the  employee’s  affective  commitment  to  change  and   employee’s  job  satisfaction  during  change?  

• What  is  the  mediating  role  of  employee’s  trust  in  the  leader  on  the  relationship  between   transformational   leadership   and   employee’s   affective   commitment   to   change   and   employee’s  job  satisfaction  during  change?  

1.2     Methodology    

This   study   will   strive   to   answer   the   research   questions   through   a   detailed   discussion   and   the   examination  of  theoretical  and  empirical  data.  There  has  been  an  abundance  of  research  done  on   leadership   theory   and   this   field   is   considered   by   many   to   be   mature   (Bass   &   Riggio,   2008;   Caldwell  et  al.,  2008).  However,  for  the  purpose  of  this  study  a  literature  gap  was  found,  which   had   both   theoretical   and   practical   interest.   Therefore,   this   study   will   adopt   a   theory   testing   research   approach   to   test   several   hypotheses.   In   order   to   perform   this   research   approach   a   quantitative   analysis   will   be   used   to   answer   the   research   questions.   This   paper   will   use   the   database  created  by  Romanian  researcher  A.  Dranca-­‐Iacoban.  Ms.  Dranca-­‐Iacoban  has  worked  at   the  Rijksuniversiteit  Groningen  as  a  teacher  and  researcher  from  2013-­‐2014.  With  the  help  of   fifteen   students   in   their   final   year   of   their   bachelors   program,   she   created   a   database   investigating   change   leadership   styles.   Respondents   were   asked   to   fill   out   a   questionnaire   containing   multiple   questions   about   leadership   styles.   They   were   also   asked   to   name   a   recent   change   in   their   organizations   and   to   provide   two   main   consequences   of   this   change.   The   different  variables  were  measured  by  using  multiple  items  based  on  previous  research.  Firstly,   transformational  leadership  will  be  measured  by  using  twenty-­‐two  items  based  on  the  research   of   Podsakoff,   Mackenzie,   Moorman   and   Fetter   (1990).   Secondly,   employees’   affective   commitment  to  change  will  be  measured  by  using  six  items  based  on  the  research  of  Herscovitch   and  Meyer  (2002).  Thirdly,  the  variable  job  satisfaction  during  change  will  be  measured  by  using   five   items   based   on   the   research   of   Judge,   Parker,   Colbert,   Heller   and   Ilies   (2001).   Lastly,   employee’s   trust   in   the   leader   will   be   measured   by   using   seven   items   based   on   Robinson   and   Rousseau’s   research   (1994).   In   order   to   test,   draw   conclusions,   and   provide   answers,   hypotheses  will  be  analyzed  with  SPSS.    

1.3     Chaptering    

explain  how  the  data  has  been  collected  and  how  it  will  be  analysed.  The  results  of  the  analyses   will  be  provided  in  the  fourth  chapter.  The  final  chapter,  chapter  five,  will  include  a  discussion   about   the   findings,   which   will   be   related   back   to   the   theory   provided   in   the   second   chapter.   Furthermore,   this   chapter   will   provide   several   implications,   future   research   directions   and   address  the  limitations  of  this  study.    

2    

Theoretical  Framework      

The  purpose  of  this  chapter  is  to  provide  a  comprehensive  discussion  of  the  concept  variables   used   within   this   study.   This   is   a   multi-­‐faced   process   that   encompasses   transformational   leadership   and   its   relationship   with   employee   commitment   and   employee   job   satisfaction.   Furthermore,  the  concept  of  employee’s  trust  in  the  leader  is  discussed  and  linked  to  the  other   concept   variables.   Lastly,   the   final   hypotheses   are   developed   and   the   conceptual   model   is   provided.      

2.1  

Transformational  Leadership    

During  the  last  few  years,  there  has  been  an  exponential  growth  of  interest  in  leadership.  Almost   every  day  stories  appear  in  the  newspapers  discussing  instances  of  successful  leadership,  as  well   as   significant   failures   of   leadership   (Bass   &   Riggio,   2008).   Prior   research   has   described   ‘’leadership’’  as  a  process  of  ‘’influencing  others  to  understand  and  to  agree  about  what  needs  to   be  done,  how  it  can  be  done  effectively,  and  the  process  of  facilitating  individual  and  collective   efforts   to   accomplish   a   shared   objective’’   (Yukl,   2002).     According   to   Bass   and   Riggio   (2008),   leadership  can  occur  at  all  organizational  levels  and  by  any  individual.  It  is  therefore  important   for   leaders   in   organizations   to   develop   and   nurture   leadership   within   the   company   at   all   organizational   levels.   Moreover,   the   principles   derived   from   this   theory   are   fundamental   to   effective  leadership  and  are  widely  applicable  to  many  segments  of  life.  Bass  and  Riggio  (2008)   note   that   several   aspects   of   fundamental   leadership   can   be   seen   in   work   life   and   family   relationships,  as  well  as  having  a  primary  role  in  social  change.  Transformational  leadership  has   rapidly  become  the  approach  of  choice  for  much  of  the  research  and  application  of  leadership   theory.  Why  has  there  been  such  interest  in  transformational  leadership?  A  possible  reason  for   this  is  the  fact  that  transformational  leadership  provides  a  better  fit  for  leading  today’s  complex   work   groups   and   organizations;   where   followers   not   only   seek   an   inspirational   leader   to   help   guide   them   through   an   uncertain   environment   but   also   want   to   be   challenged   and   to   feel   empowered,  if  they  are  to  be  loyal,  high  performers  (Bass  &  Riggio,  2008).    

2.1.1   Components  of  Transformational  Leadership    

is   supposed   to   elevate   the   follower’s   level   of   maturity   and   ideals   as   well   as   self-­‐actualization,   concerns  for  achievement,  and  the  well  being  of  the  organization.    

The  components,  Idealized  influence  and  inspirational  motivation  occur  when  a  leader  envisions   a   desirable   future,   establishes   how   it   can   be   reached,   sets   high   standards   of   performance   and   shows   confidence   and   determination   in   achieving   the   pre-­‐set   goals   (Bass,   1999).   Idealized   influence   is   referred   to   as   the   ability   to   provide   vision,   pride   and   value   to   the   employees   (Ashikali   &   Groeneveld,   2015).   According   to   Bass   and   Riggio   (2008),   transformational   leaders   often  behave  in  ways  that  allow  them  to  become  central  role  models  for  their  employees.    These   leaders   are   often   admired,   respected   and   trusted.   Employees   who   identify   with   their   leaders   have   shown   to   want   to   emulate   them   and   sometimes   may   see   their   leaders   in   superior   light,   possessing   extraordinary   capabilities,   persistence,   and   determination   (Bass   &   Riggio,   2008).   This  leads  to  the  conclusion  that  there  are  two  aspects  linked  to  idealized  influence:  the  leader’s   behaviours   and   the   elements   that   are   attributed   to   the   leader   by   employees   and   other   associates.   In   addition,   leaders   who   have   a   great   deal   of   idealized   influence   are   said   to   be   consistent   rather   than   arbitrary   and   are   willing   to   take   risks.   Furthermore,   these   leaders   also   often   demonstrate   high   standards   of   ethical   and   moral   conduct   (Bass   &   Riggio,   2008).   In   the   literature   inspirational   motivation   is   referred   to   as   the   extent   to   which   the   leader   articulates   high   expectations   for   achievements   (Bass,   1999).   This   component   is   also   often   referred   to   as   ‘’charisma’’   (Bass,   1985).   By   providing   meaning   and   challenge   to   their   employees’   work,   transformational   leaders   behave   in   ways   that   motivate   and   inspire   those   around   them   (Ling,   Simsek,   Lubatkin   &   Veiga,   2008).   In   this   way,   team   spirit   is   encouraged   and   enthusiasm   and   optimism   are   displayed.   Moreover,   leaders   create   clear   communicated   expectations   that   employees  want  to  meet  and  demonstrate  commitment  to  goals  and  the  shared  vision  (Bass  &   Riggio,  2008).    

According   to   Bass   (1999),   when   a   leader   supports   followers   to   become   more   creative   and   innovative,   intellectual   stimulation   is   being   displayed.   Leaders   achieve   this   by   questioning   assumptions,   reframing   problems,   and   approaching   old   situations   in   new   ways.   With   transformational  leaders,  no  public  criticism  of  individual  members’  mistakes  takes  place  (Bass   &   Riggio,   2008).   Furthermore,   employees   are   included   in   the   process   of   addressing   problems,   finding   solutions   and   their   ideas   are   not   criticized   because   they   differ   from   the   leaders’   ideas   (Ling  et  al.,  2008).  

consideration  is  being  exhibited  (Ashikali  &  Groeneveld,  2015).  By  acting  as  a  coach  or  mentor,   transformational   leaders   show   personalized   attention   to   each   individual   followers   needs   for   achievement   and   growth.   In   this   way,   employees   are   encouraged   to   grow   and   can   reach   significantly  higher  levels  of  potential.  Scholars  speak  of  individualized  consideration  when  new   learning   opportunities   are   created   along   with   a   supportive   climate   (Ling   et   al.,   2008).   In   addition,  transformational  leadership  often  encourages  a  two-­‐way  exchange  in  communication,   and   a   ‘’management   by   walking   around’’   is   practiced.   This   entails   that   interactions   with   followers   are   personalized   and   the   transformational   leader   listens   effectively.   Furthermore,   a   transformational   leader   delegates   tasks   as   a   means   of   developing   his   employees,   who   are   monitored  to  see  if  they  need  additional  support  or  direction  (Bass  &  Riggio,  2008).    

 Moreover,  transformational  leaders  support  followers’  growth  and  development  into  leaders  by   responding   to   each   individual   follower’s   needs,   by   empowering   them,   and   by   aligning   the   objectives  and  goals  of  the  followers,  the  leader,  the  group,  and  the  larger  organization  (Bass  &   Riggio,   2008).   Research   has   accumulated   to   demonstrate   that   transformational   leadership   can   move   followers   to   exceed   expected   performance,   as   well   as,   lead   to   high   levels   of   follower’s   satisfaction  and  commitment  to  the  group  and  organization  (Bass,  1985;  Bass  &  Riggio,  2008).      

In   sum,   transformational   leadership   provides   a   better   fit   for   today’s   organizations,   with   employees  who  are  not  only  looking  for  inspiration,  but  also  want  to  be  challenged  and  to  feel   empowered   by   their   leaders.   Transformational   leaders   appeal   to   their   employees’   sense   of   values   and   persuade   them   to   accept   new   visions   and   encourage   them   to   realize   these   visions.   Moreover,   the   four   interrelated   components,   idealized   influence,   inspirational   motivation,   intellectual  stimulation,  and  individual  consideration  help  describe  transformational  leadership   in  organizations.  In  short,  these  components  occur  when  a  leader  is  able  to  give  extra  meaning  to   his  employees’  work,  resulting  in  increased  employee  willingness  and  capability  to  do  more  than   is  expected  of  them.  

2.1.2   Transformational  Leadership  in  SMEs  

making   power   in   organizations.   Furthermore,   SMEs   are   characterized   by   flat   hierarchies   (Mintzberg,  1979),  which  implies  that  they  have  a  large  span  of  control.  In  addition,  Mintzberg   (1979)  notes  that  many  SMEs  tend  to  be  managed  in  an  informal  way,  which  again  opens  up  a   large   degree   of   decision-­‐making   power   to   the   top   management.   It   is   therefore,   the   role   of   the   leader   that   has   been   shown   to   hold   great   importance   in   the   current   literature   on   SMEs   and   entrepreneurship.    

Despite   the   importance   of   top   management   in   SMEs,   little   research   has   been   conducted   analysing  transformational  leaders  in  SMEs  with  their  potential  influences  on  followers  (Matzler   et  al.,  2008).  According  to  the  knowledge  of  Matzler  et  al.,  (2008)  there  has  been  only  one  paper   published,   that   addresses   transformational   leadership   in   the   context   of   SMEs   performance.   However,  Matzler  et  al.,  (2008)  argue  in  their  paper  that  transformational  leadership  may  be  of   particular   relevance   in   the   context   of   SMEs.   Firstly,   it   is   argued   that   the   dominant   role   of   the   entrepreneur   can   assist   top   management   in   carrying   out   transformational   leadership.   Since   entrepreneurial   firms   are   commonly   relatively   small,   the   entrepreneur   is   often   the   one   who   provides   the   vision   and   direction   (Idealized   influence),   and   is   able   to   communicate   his   expectations   to   each   employee   personally   (inspirational   motivation,   individualized   consideration).   In   addition,   it   is   argued   that   leaders   in   SMEs   not   only   ratify   and   direct   their   firm’s   strategies,   but   they   also   participate   more   directly   in   the   day-­‐to-­‐day   implementation   of   those  strategies  (Ling  et  al.,  2008).  This  leads  to  leaders  having  more  opportunities  to  be  active   in  a  larger  number  of  discretionary  domains  and  to  directly  influence  employee  outcomes.     Secondly,   the   authors   argue   that   transformational   leadership   could   be   a   particularly   useful   leadership  style  in  the  context  of  SMEs,  as  it  explicitly  addresses  the  intrinsic  motivation  of  the   employees.  Ryan  and  Deci  (2000)  define  intrinsic  motivation  as  the  ‘’  inherent  tendency  to  seek   out   novelty   and   challenges,   to   extend   and   exercise   one’s   capacities,   to   explore,   and   to   learn’’.   Even   though   extrinsic   motivation,   for   example   monetary   incentives,   does   work   to   align   the   actions  of  the  employees,  its  effect  may  be  diminished  as  employees  get  used  to  a  certain  level  of   rewards   or   can   even   undermine   intrinsic   motivation   (Bénabou   &   Tirole,   2003).   In   addition,   Matzler  and  his  colleagues  (2008)  state  that  in  order  to  maintain  a  high  level  of  performance,  the   amount   of   monetary   incentives   may   have   to   be   increased.   Based   on   the   idea   that   SMEs   are   relatively   low   on   excess   resources   (Storey   &   Greene,   2010),   it   would   be   safe   to   assume   that   many  may  not  have  the  financial  leeway  to  continuously  utilize  another  type  of  leadership  style,   e.g.  transactional  leadership  style.    

them,   a   high   degree   of   flexibility   is   needed   (Storey   &   Greene,   2010).   Hence,   a   leadership   style   such   as   transformational   leadership,   which   rewards   intellectual   curiosity   and   taking   chances,   may   be   more   effective   in   the   given   business   environment   of   SMEs   (Matzler   et   al.,   2008).   Furthermore,  such  a  business  environment  also  affords  transformational  leaders  to  better  wield   their  influence  by  being  the  ‘’givers’’  and  the  ‘’definers’’  of  adaptive  organizational  culture  and   promoting  cohesion  and  effort  among  their  employees,  thus  enhancing  commitment,  motivation,   and  effort  (Ling  et  al.,  2008).      

2.2     Employee  outcomes    

As  mentioned  in  the  introduction,  employee  outcomes  such  as  commitment  and  satisfaction  can   be   used   to   measure   the   successfulness   of   an   organizational   change   (Amernakis   &   Bedeian,   1999).   These   constructs   will   be   used   in   this   paper   to   analyse   and   monitor   the   influence   of   transformational  leadership  during  organizational  change.  

2.2.1   Commitment  to  change  

Commitment  to  an  organization  is  considered  to  be  a  key  variable  in  the  success  or  failure  of  a   change   process   (Herscovitch   &   Meyer,   2002).   Additionally,   organizational   commitment   has   multiple   linkages   with   various   workplace   outcomes   such   as   performance   and   withdrawal   behaviours   (Uçanok   &   Karabatı,   2013).   There   has   been   a   lot   of   research   performed   on   organizational  commitment  in  the  context  of  organizational  change  (Michaelis  et  al.,  2010).  It  is   argued   that   employees’   commitment   goes   beyond   positive   attitudes   towards   the   change,   and   includes  the  intention  to  support  it  as  well  as  a  willingness  to  work  on  behalf  of  its  successful   implementation  (Michaelis  et  al.,  2010).  Literature  states  that  the  definition  of  commitment  is  ‘’a   force   (mind   set)   that   binds   an   individual   to   a   course   of   action   of   relevance   to   one   or   more   targets’’   (Hersocvitch   &   Meyer,   2002).   In   addition,   Michaelis,   Stegmaier   and   Sonntag   (2010)   referred  to  commitment  to  change  as  a  ‘’mind-­‐set  that  binds  an  individual  to  a  course  of  action   deemed  necessary  for  the  successful  implementation  of  a  change-­‐initiative’’.  The  focal  behaviour   for  commitment  to  change  is  employee’s  compliance  with  the  explicit  requirements  for  change   and  any  failure  to  comply  is  considered  as  a  form  of  resistance  (Herscovitch  &  Meyer,  2002).      

Types  of  Commitment  

in   order   words   the   perceived   costs   of   not   participating   in   the   organizational   change.   The   perceived  obligation  to  remain,  or  the  perceived  obligation  to  participate  in  the  change  is  called   normative  commitment  (Allen  &  Meyer,  1990;  Herscovitch  &  Meyer,  2002).    

In   this   study   there   will   be   a   sole   focus   on   the   affective   commitment   of   employees   to   organizational  change.  Research  has  found  that  affective  commitment  best  reflects  the  alignment   with   a   change   effort   and   is   most   likely   to   be   influenced   by   leadership   styles   (Allen   &   Meyer,   1990).   Moreover,   in   previous   literature   affective   commitment   has   been   theoretically   and   empirically  linked  to  transformational  leadership  (Shamir,  House  &  Arthur,  1993).  According  to   the   authors,   transformational   leadership   is   linked   to   affective   commitment   by   increasing   employee’s   performance,   through   their   effects   on   followers’   identification   with   the   group   and   internalization   of   the   group’s   values.   Furthermore,   this   paper   chooses   to   focus   on   this   type   of   commitment   because   it   represents   the   most   reliable   and   strongly   validated   dimension   of   organizational  commitment,  with  the  greatest  content  and  face  validity  (Solinger,  Van  Olffen  &   Roe,  2008).  It  is  also  important  to  note  that  due  to  these  reasons,  affective  commitment  has  been   the  preferred  choice  as  the  core  concept  in  organizational  commitment  by  many  researchers  and   authors.    

Organizational  commitment  in  SMEs  

a   ‘community’,   which   are   all   beneficial   influencers   to   the   organizational   commitment   of   employees.    

Transformational  leadership  and  organizational  commitment  

Transformational  leaders  employ  numerous  methods  to  influence  their  employees.  For  example,   by   setting   a   good   example,   building   a   sense   of   belonging,   intellectual   stimulation   of   followers,   inspiring   account   of   a   vision,   and   empathizing   with   their   employees   (Caldwell   et   al.,   2008).   Furthermore,   Bass   and   Riggio   (2008)   have   shown   a   positive   relationship   between   transformational   leadership   and   employee’s   affective   commitment   to   change.   This   means   that   transformational  leaders  appear  to  receive  a  higher  affective  commitment  from  employees  for   an  organizational  change  regardless  of  their  behaviours  in  implementing  the  change  or  planning   (Caldwell  et  al.,  2008).    

Moreover,  individualized  consideration,  a  component  of  transformational  leadership,  is  likely  to   be  positively  related  to  employee’s  commitment  to  change  (Bass  &  Riggio,  2008).  When  leaders   apply   individualized   consideration   by   giving   individual   attention   and   supporting   their   employees,   they   show   respect   to   their   employees   by   overseeing   their   progress   and   showing   concern  to  their  personal  feelings  and  needs.  Employees  are  much  more  likely  to  be  persistent   during   an   organizational   change   when   they   perceive   their   leader   to   be   supportive   (Bandura,   1986).  Consequently,  employees  may  be  encouraged  to  stay  focused  on  the  vision  and  goals  of   the  change-­‐initiative  and  to  keep  trying  when  they  suffer  a  potential  setback.  Additionally,  when   leaders   demonstrate   the   previous   two   components,   idealized   influence   and   inspirational   motivation,   followers   will   often   work   hard   toward   achieving   the   goals   and   objectives   of   the   organization   (Shamir   et   al.,   1993).       In   sum,   the   personal   support   and   encouragement   of   the   leader   is   likely   to   enhance   employee’s   commitment   to   change.   Therefore,   the   following   hypothesis  was  developed:  

Hypothesis   1:   Transformational   leadership   will   be   positively   related   to   employees’   affective   commitment  to  change.    

2.2.2     Job  Satisfaction    

became   progressively   important   to   followers’   job   satisfaction   (Bass   &   Steidlmeier,   1999).  The   level   of   job   satisfaction   is   influenced   by   many   different   factors   and   it   has   been   a   considerable   challenge  for  scholars  to  study  these  complex  factors.  A  better  understanding  of  the  concept  of   job   satisfaction   could   result   in   a   more   effective   use   of   leadership   and   improve   employee’s   job   satisfaction  (Schmid,  2006).  Moreover,  employee’s  job  satisfaction  is  identified  as  an  important   factor  affecting  customer  satisfaction  (Morris,  1995).    

Berson   and   Linton   (2006)   define   employee’s   satisfaction   as   ‘’the   fulfilment   of   desires   and   needs’’.  Job  satisfaction  has  received  wide  interest  by  both  researchers  and  practitioners  and  is   considered   a   suitable   indication   of   employees   being   treated   fairly   and   with   respect   (Spector,   1999).   Most   individuals   spend   a   large   majority   of   their   lives   working,   so   a   thorough   understanding  of  the  factors  involved  in  job  satisfaction  is  relevant  and  important  for  improving   the  well  being  of  a  significant  number  of  individuals.  Another  important  reason  for  investigating   job   satisfaction   is   the   belief   that   increasing   job   satisfaction   will   increase   productivity   and   therefore   the   profitability   of   the   organization   (Gruneberg,   1979).     Weiss,   Nicholas   and   Daus   (1999)   describe   job   satisfaction   as   ‘’the   overall   job   evaluation   one   makes   of   one’s   job’’.   The   results  of  a  research  study  by  Williams  (1998)  showed  that  satisfaction  with  the  job  appears  to   be  associated  with  respondents’  perception  of  their  own  or  teams’  effectiveness  and  satisfaction   with   their   workload.   Furthermore,   job   satisfaction   is   assumed   to   have   cognitive,   affective   and   behavioural   components.   Thus,   this   suggests   that   if   you   are   satisfied   with   your   job,   you   will   generally  like  your  job,  you  will  have  positive  thoughts  about  it  and  you  will  behave  in  ways  that   enhance  your  performance  (Ellis  &  Dick,  2003).    

Employee’s  job  satisfaction  in  SMEs  

higher   in   larger   businesses.   In   addition,   Forth,   Bewley   and   Bryson  (2006)   found   that   smaller   businesses  experienced  lower  levels  of  absenteeism  and  voluntary  resignations.    

Transformational  Leadership  and  Employee’s  job  satisfaction  

Different  strategies  are  used  by  organizations  to  influence  job  satisfaction  from  which  primary   concepts   include   job   design,   empowerment,   culture   and   employee   involvement.  Additionally,   different   management   styles,   such   as   transformational   leadership,   have   a   great   influence   on   employee’s   job   satisfaction   (Weiss,   2002).   In   prior   research,   transformational   leadership   has   been  positively  linked  to  job  satisfaction,  because  transformational  leaders  transform  the  needs   and   expectations   of   followers   to   higher   levels   (Bass,   1999;   Yukl,   1999).   Moreover,   transformational   leaders   communicate   an   appealing,   exciting   and   meaningful   possible   future;   which  results  in  followers  portraying  higher  levels  of  job  satisfaction  (Felfe  &  Heinitz,  2010).  In   addition,   these   leaders   try   to   motivate   employees   and   increase   job   satisfaction   by   making   the   followers  highly  committed  to  the  leaders’  mission  and  performing  above  and  beyond  the  call  of   duty   (Shamir   et   al.,   1993).   Furthermore,   they   allow   their   employees   to   participate   in   the   decision-­‐making   processes.   This   may   lead   to   increased   job   satisfaction,   as   the   employees   are   more   involved   in   setting   the   goals   (Ellis   &   Dick,   2003).   In   sum,   transformational   leadership   is   expected   to   increase   employee’   job   satisfaction   through   linking   motivational   aspects   in   a   way   that  connects  employees’  goals  to  self-­‐actualization.    

There   has   been   relatively   little   research   performed   on   the   relationship   between   transformational   leadership   and   employee   satisfaction   in   context   of   organizational   change   (Bass,  Avolio,  Jung  &  Berson,  2003).  However,  a  recent  study  by  Hinduan,  Wilson-­‐Evered,  Moss   and  Scannell  (2009)  shows  that  transformational  leaders  promote  employee  satisfaction  during   change,  since  these  leaders  provide  support,  meaning,  and  advice  while  enhancing  a  desirable   future   in   ambiguous   situations.   Furthermore,   transformational   leadership   has   been   positively   linked  to  employee  satisfaction  because  these  leaders  transform  the  needs  and  expectations  of   employees  to  a  higher  level  (Bass,  1999;  Yukl,  1999).  Subsequently,  these  leaders  communicate   a   meaningful,   appealing   and   exciting   possible   future   (Yukl,   2005).   As   a   result,   employees   perform   beyond   expectation   and   portray   higher   levels   of   satisfaction   (Felfe   &   Heinitz,   2009).   Therefore,  the  following  hypothesis  was  developed:  

2.3     Trust  in  the  leader  

Although   transformational   leadership   has   been   conceptually   and   empirically   linked   to   several   employee   outcomes,   there   has   been   little   research   performed   focussing   on   certain   key   factors   that   may   help   explain   the   impact   of   transformational   leadership   on   different   employee   outcomes   (Bass,   1999).   Recognizing   that   a   variety   of   different   factors   may   be   involved   in   transformational   leadership,   the   objective   of   this   study   is   to   explore   the   potential   role   of   employee’s   trust   in   the   leader   with   respect   to   the   relationship   between   transformational   leadership   and   the   two   employee   outcomes,   organizational   commitment   and   job   satisfaction.   Previous   research   has   often   referred   to   trust,   as   being   a   key   concept   in   transformational   leadership   (Conger,   Kanungo   &   Menon,   2000)   and   the   creation   and   facilitation   of   an   environment   based   on   this   trust   is   necessary   for   leadership-­‐driven   learning   to   occur   (Taylor,   2000).

In   previous   literature,   employee’s   trust   in   the   leader   is   found   to   be   crucial   for   effective   leadership   (Mcallister,   1995;   Podsakoff,   MacKenzie   &   Moorman,   1990).   As   mentioned   in   the   introduction,   employee’s   trust   in   the   leader   is   defined   as   ‘’the   willingness   of   a   party   to   be   vulnerable  to  the  actions  of  another  party  based  on  the  expectation  that  the  other  will  perform  a   particular  action  important  to  the  trustor,  irrespective  of  the  ability  to  monitor  or  control  that   other  party’’  (Mayer,  Davis  &  Schoorman,  1995).  A  more  specific  definition  for  trust  in  the  leader   is   given   by   Rousseau,   Sitkin,   Burt   and   Camerer,   (1998)   suggesting   that   employee’s   trust   in   leadership  is  a  ‘’psychological  state  comprising  the  intention  to  accept  vulnerability  based  upon   positive  expectations  of  the  intentions  or  behaviour  of  another”.    Mayer,  Davis  and  Schoorman   (1995)  further  argued  that  the  antecedents  to  trust  include  perceptions  of  the  trustee’s  ability,   integrity,  and  benevolence  towards  the  trustor  in  the  workplace.  

Trust  in  the  leader  in  SMEs  

stronger  than  in  larger  firms,  as  leaders  and  employees  are  often  working  more  closely  together.   In  addition,  employees  working  in  SMEs  usually  stay  employed  at  the  same  organization  for  a   longer   period   of   time   (Koch   &   Van   Straten,   1997).   Forth   and   his   colleagues   (2006)   also   found   that   employee   trust   varied   markedly   depending   on   the   size   of   the   business.   According   to   his   research,   small   business’   employees   believed   their   leaders   were   more   likely   to   keep   their   promises,   more   sincere   in   understanding   employees’   views,   more   likely   to   deal   honestly   with   employees  and  treated  them  fairly.    

Transformational  Leadership  and  Trust  in  the  Leader  

Trust   is   considered   to   be   a   key   concept   in   transformational   leadership   literature   since   transformational   leaders   aim   to   acquire   trust   in   their   leadership   (Conger   et   al.,   2000;   Russell,   1996).   According   to   Kirkpatrick   &   Locke   (1996),   transformational   leaders   develop   trust   by   showing   concern,   demonstrating   involvement,   acting   as   role   models,   and   demonstrating   the   capability   to   achieve   vision.   Furthermore,   research   has   shown   that   transformational   leaders   often  develop  a  collective  identity  with  their  employees  as  they  commit  to  the  same  values  (Bass,   1985).  In  their  research,  Lewicki  and  Bunker  (1995)  argue  that  a  collective  identity  and  shared   values  between  the  leader  and  employees  will  lead  to  trust.  Moreover,  transformational  leaders   demonstrate  behavioural  integrity,  meaning  that  the  words  and  deeds  of  the  leader  are  aligned.   This   creates   trust   between   the   leader   and   employee,   because   it   provides   the   leader   with   credibility  (Simons,  1999).  In  addition,  Dirks  (2000)  identified  the  importance  of  the  role  of  trust   in  the  leader  by  claiming  that  trustworthiness  is  an  important  trait  of  transformational  leaders   and  these  leaders  require  trust,  because  of  the  uncertainty  inherent  in  changing  the  status  quo.   Mayer,  Davis  and  Schoorman  (1995)  therefore  state  that  trust  in  the  leader  is  highly  important,   since  it  is  an  antecedent  of  risk-­‐taking  behaviour.  In  order  for  leaders  to  have  their  employees   cooperating   and   fully   committed   to   their   vision,   they   need   their   followers   to   trust   their   leadership  (Bass,  1985).  Therefore  the  following  hypothesis  was  developed:  

Hypothesis  3:  Transformational  leadership  is  positively  related  to  employee’s  trust  in  the  leader.     Trust  in  the  Leader  and  Employee’s  Affective  Commitment  

organization  and  have  some  opportunity  to  protect  their  own  interests  (Korsgaard,  Sapienza  &   Schweiger,  2002).  Under  these  circumstances,  employees  are  more  likely  to  concentrate  on  the   positive   outcomes   of   change-­‐initiatives   instead   of   questioning   them.   Thus,   employees   who   perceive  that  the  leader  treats  them  with  dignity  and  respect  through  difficult  times  of  change,   should  have  higher  levels  of  affective  commitment  to  change  than  those  who  believe  that  they   are  treated  unfairly.  

Moreover,   trust   in   the   leader,   which   is   mostly   evoked   through   open   communication   and   disclosure,  may  give  employees  a  sense  of  control  by  feeling  protected  by  the  good  intentions  of   the   leader   (Byrne,   Kacmar,   Stoner   &   Hochwarter,   2005).   These   feelings   are   likely   to   lead   to   affective  commitment  to  change,  because  by  providing  support  and  encouragement,  employees   are  more  likely  to  respond  to  change  initiatives  (House  &  Mitchell,  1974).  Taken  together,  trust   in  the  leader  is  likely  to  be  associated  with  high  levels  of  affective  commitment  and  therefore,   the  following  hypothesis  was  developed:    

Hypothesis   4a:   Trust   in   the   leader   is   positively   related   to   employee’s   affective   commitment   to   change.    

Trust  in  the  Leader  and  Employee’s  Job  Satisfaction  

In  his  research,  Rich  (1997)  recognized  that  leaders  are  responsible  for  many  duties  that  have  a   major  effect  on  employees’  job  satisfaction,  such  as  promotion,  training,  guidance  and  assistance   with   job   responsibilities,   and   performance   evaluations.   According   to   Mayer,   Davis   and   Schoorman  (1995),  individuals  are  likely  to  feel  safer  and  more  positive  about  the  leader  making   these  decisions  when  they  believe  the  leader  is  trustworthy.  In  the  contrary,  having  a  low  level   of   trust   in   a   leader   is   likely   to   be   psychologically   distressing   when   the   leader   has   power   over   important  aspects  of  an  individual’s  job,  and  this  distress  is  likely  to  affect  one’s  attitudes  about   the   workplace   (Dirks   &   Ferrin,   2002).   The   implication   of   these   arguments   is   that   trust   in   leadership  should  be  associated  with  higher  levels  of  job  satisfaction.  Moreover,  Spreitzer  and   Mishra  (1999)  have  shown  that  employees  are  motivated  to  increase  their  job  satisfaction  when   the   relationship   is   based   on   trust   in   their   leader.   Therefore   the   following   hypothesis   was   developed:  

Hypothesis  4b:  Trust  in  the  leader  is  positively  related  to  employee’s  job  satisfaction  during  change.      

2.3.1  The  Mediating  role  of  trust  in  the  leader    

attention  in  previous  research.  Nevertheless,  it  has  been  implied  that  organizational  changes  are   particularly   important   for   the   development   of   trusting   relationships   between   employees   and   their  leaders  (Neves  &  Caetano,  2009).  Conger  et  al.,  (2000)  argue  that  trust  is  essential  for  the   willingness  of  employees  to  be  influenced  by  a  leader.  In  addition,  Piccolo  and  Colquitt  (2006)   state   that   the   most   significant   process   of   the   transformational   approach   is   to   emphasise   the   mediating  role  of  employees’  attitudes  towards  their  leaders.  Hence,  in  studying  the  relationship   between  transformational  leadership  and  the  employee  outcomes,  the  potential  role  of  trust  in   the  leader  should  be  taken  into  consideration.    

In  order  to  address  this  gap  in  knowledge,  the  objective  of  this  paper  is  to  explore  the  mediating   role  of  employee’s  trust  in  the  leader  on  the  relationships  between  transformational  leadership   and   employee’s   affective   commitment   and   employee’s   job   satisfaction   in   the   context   of   organizational   change.   In   other   words,   this   study   is   first   going   to   explore   if   employees   show   affective  commitment  to  change  because  they  trust  their  transformational  leader.  Secondly,  this   study   is   going   to   explore   if   employees   are   satisfied   with   their   jobs   during   times   of   change   because  they  trust  their  transformational  leader.    

In  support  of  the  mediating  role  of  trust  in  the  leader,  previous  research  has  stated  that  a  key   reason   why   employees   are   motivated   by   transformational   leaders   to   perform   beyond   expectations   is   that   employees   trust   and   respect   them   (Yukl,   1989).   In   addition,   Kouzes   and   Posner  (1987)  advocate  that  the  leader’s  characteristics  most  valued  by  employees  are  integrity,   honesty,   and   truthfulness.   Furthermore,   Bass   (1985)   defines   transformational   leadership   in   terms   of   the   leader’s   effect   on   its   employees.   The   author   found   that   transformational   leaders   transform   employees   by   making   them   more   aware   of   the   importance   of   task   outcomes,   by   activating  their  higher-­‐order  needs,  and  by  elevating  follower’s  level  of  maturity.  As  a  result  of   this  effect,  employees  feel  respect  and  trust  towards  their  leaders,  and  they  are  motivated  to  do   more  than  they  were  expected  to.  In  extension  to  this,  employees  are  more  likely  to  feel  safe  and   comfortable   if   they   believe   that   their   leaders   have,   integrity,   benevolence,   and   truthfulness   (Mayer  et  al.,  1995),  as  leaders  are  responsible  for  many  activities  that  have  a  significant  impact   on  employee’s  commitment  (Bass  &  Riggio,  2006)  and  employee’s  job  satisfaction  (Rich,  1997).   Thus,   in   previous   literature   trust   is   viewed   as   playing   an   important   mediating   role   in   the   transformational  leadership  process.  

Hypothesis   5a:   Employee’s   trust   in   leader   mediates   the   relationship   between   transformational   leadership  and  employee’s  affective  commitment  to  change.    

Hypothesis   5b:   Employee’s   trust   in   leader   mediates   the   relationship   between   transformational   Leadership  and  employee’s  satisfaction  during  change.    

Based  on  the  literature  review  multiple  hypotheses  have  been  developed  for  this  study,  which   resulted  into  the  following  conceptual  model  (Figure1).    

3    

Research  Design  

This  chapter  consists  of  an  elaboration  on  the  methodology  of  this  study,  which  will  start  with  an   explanation   of   the   sample   that   is   used.   Furthermore,   a   discussion   about   the   measures   of   the   concept  variables  is  provided,  which  is  followed  with  an  elaboration  on  the  data  analysis.  This   chapter  ends  with  a  paragraph  elaborating  on  the  validity  and  reliability  of  this  study.    

3.1     Sample    

 In  order  to  test  the  hypotheses,  300  questionnaires  were  handed  to  different  organizations  from   the  service-­‐  and  manufacturing  industry  in  The  Netherlands.  The  questionnaire  was  developed   by  researcher  Ms.  Dranca-­‐  Iacoban  and  was  handed  out  by  15  students  in  their  last  year  of  the   Bachelors  program  Business  Administration.  Each  student  was  asked  to  reach  20  respondents   employed  at  organizations  in  the  Netherlands.  For  the  purpose  of  this  study,  the  definition  of  a   SME  developed  by  the  European  Commission’s  is  adopted  which  is  ‘’  enterprises  which  employ   fewer  than  250  persons  ’’  (Rezael,  Ortt  &  Trott,  2015).  Since  the  aim  of  this  paper  is  to  explore   the   relationship   between   transformational   leadership   and   employee   outcomes,   and   the   mediating   role   of   employee’s   trust   in   leader,   questionnaires   were   collected   from   employees   having   a   leader.   It   was   important   that   the   employees   chosen   were   employed   at   organizations   relatively  complex  enough  to  measure  how  change  management  influences  employee  outcomes.   Furthermore,  the  questionnaires  were  completed  in  a  one-­‐month  time  frame  in  April  2014.      

Paper   and   pencil   questionnaires   were   used   as   the   measurement   method,   which   collected   the   data  at  one  moment.  The  students  reached  their  respondents  with  face-­‐to-­‐face  meetings  in  order   to  provide  them  with  the  questionnaires.  The  employees  were  presented  with  the  questionnaire   starting   with   a   short   explanation   of   the   purpose   and   use   of   the   data   generated   (Appendix   A).   Furthermore,   the   confidentiality   of   the   respondents’   responses   was   guaranteed,   assuring   all   information   gathered   would   remain   anonymous.   In   addition,   the   employees   were   asked   to   describe  a  recent  change  that  occurred  in  their  organization  (Appendix  A.1).  To  ensure  that  the   various   aspects   of   the   change   were   salient   to   respondents   they   were   asked   to   describe   two   consequences   of   the   recent   change,   using   an   open-­‐ended   response   format.   The   questionnaire   continued   with   questions   related   to   change   management;   leadership   styles   and   ended   with   questions  regarding  employee’s  general  background  information.