These days, one of the complex endeavors is managing organizations because many of these organizations operate in highly dynamic and uncertain environments. These environments need new approaches to manage human capital and teach how to handle everyday complex situations. The modern business environment requires effective leadership where leaders can appreciate environmental complexities, understand organizational needs, and motivate employees to attain the goals of an organization. While no single theory has solved all the problems concerning leadership, many consider the transformational view of leadership as the most effective approach. The literature review investigates how transformational leadership impacts organizational performance. Evidence of transformational leadership on organizational performance from the literature reviewed was numerous. The results suggest a significant relationship between transformational leadership and organizational performance. Leaders who adopt a transformational leadership style enhance intrinsic motivation among the workers, cultivate a culture of knowledge sharing and innovation, and subsequently increase individual and organizational performance.
Keywords: Impact, transformational leadership, organizational, performance, research
Organizations face complex challenges from the ever-changing business environment that intensely affect operational performance and threaten their survival and long-term success. For this reason, there is a need to innovate and improve an organization’s capabilities to address these difficulties effectively. One of the foundational characteristics of organizational success in the 21st is innovation for most operation models. In addition, through innovative culture, organizations can keep up with the trend of the rapidly changing market, improve structural capacity, and adapt proactive managerial tactics to optimize the use of available resources. Transformational leadership is one of the most substantial factors stimulating innovation and spurs organizational performance. In addition, this leadership style is crucial in influencing individual and corporate performance. For instance, it instills a positive cultural environment and equips leaders with the right skills and expertise to develop processes, structure, and climate for firms to become innovative. This research paper investigates the impact of transformational on organizational performance. The research is completed using a literature review design underpinned by evidence-based literature from peer-reviewed articles on transformational leadership and organizational performance.
Background of the Problem and Research Methodology
According to Meraku (2017), effective organizations balance the need and expectations of shareholders, employees, customers, the public, and other stakeholders. Leadership is essential in attaining this balance because leaders are responsible for establishing the mission, culture, and change tolerance through which the demands of each stakeholder group are addressed. Furthermore, the literature demonstrates that leadership is instrumental in accomplishing organizational goals and aligning resources and people (Qalati et al., 2022). Whether a public or private organization, the leaders directly impact organizational performance, which according to Meraku (2017), is determined by the firm’s ability to maximize the use of the available resources to satisfy the needs of each stakeholder.
The role of leadership in shaping the direction of an organization has become an important topic that several studies have been conducted to evaluate the impact of different leadership provisions and their effect on organizational performance to help the current leaders identify the most suitable style to apply in the changing institutional contexts and achieve expected organizational outcomes. The current research explores transformational leadership as one of the modern approaches by evaluating its impact on organizational performance and offering insights to help practitioners make informed decisions regarding leadership style.
The study conducted exhaustive online research for published peer-reviewed articles on transformational leadership on organizational performance. The study explored electronic databases such as Emerald Insight, Google Scholar, and Science Direct, using the keywords transformational leadership and organizational behavior. More than ten articles met the study criteria and were included in the analysis.
Definition of Key Terms
Qalati et al. (2022) described organizational performance as a progress indicator that represents an enterprise’s ability to succeed in a competitive industry. Al Khajeh (2018) also postulated that organizational performance consists of the actual results of an enterprise, which can be measured against intended goals and objectives. The performance is associated with three major indicators, financial performance, value added to shareholders, and market performance of the product or market, and they are directly influenced by the leadership style employed within the organization.
Scholars have proposed many definitions of leadership. Benmira & Agboola (2021) defined leadership as a process directed at influencing others to meet a defined goal. Meraki (2017) stated that leadership is the process of influencing individuals such that their efforts are geared toward attaining the organization’s vision. Therefore, leadership is equated to guiding and directing the behavior of others to pursue a particular course of action. At the organizational level, leadership entails influencing individuals and teams within the enterprise to meet specific objectives and achieve the required organizational performance. A crucial managerial concept, effective leadership is critical to organizational success.
Historical Evolution of Leadership Theories
The concept of leadership is underpinned by longstanding research on leadership theories that have evolved in main eras – trait, behavioral, situational, and modern leadership. 19th-century leadership was focused on the innate attributes of leaders and the identification of the personality traits of influential leaders (Benmira & Agboola, 2021). The Great Man theory was founded on the notion that leaders are born, not trained; thus, only a few individuals possess distinct characteristics to be influential leaders. The examples of such leaders were drawn from Abraham Lincoln and Mahatma Gandhi, who were believed to have had the natural traits which enabled them to make historical changes that shaped the future of humanity (Benmira & Agboola, 2021). The theory evolved into trait theories which argued that leaders could be born or made. Thus, the traits that make an effective leader can be acquired at birth or through training and practice. Today, organizations use psychometric tools in recruitment to highlight personality traits beneficial for individual and team performance. The trait theory transitioned to behavioral theory, which according to Kovach et al. (2018), emphasizes particular behaviors, such as social skills and emotional intelligence, which can be learned to enhance leadership effectiveness. The theory asserts that context is essential in leadership and assumes that no specific traits or behaviors can suit all leadership environments. The model is attributed to authoritative, servant, autocratic, and democratic styles in different organizational contexts.
In the late 1900s, researchers recognized that focusing on particular aspects of leadership was impossible to address the phenomenon’s complexity (Benmira & Agboola, 2021). There was a need to formulate leadership theories that support changing situations of rapid change, disruptive innovations, and increasing globalization in an increasingly complex and challenging world. The change in perspective led to a new leadership era that moved away from the theories mentioned above that defined leadership as a top-down, unidirectional process to a focus on the complex interactions among the leaders, followers, and the whole organizational system, with a particular emphasis on the latent abilities and effects of the followers (Benmira & Agboora, 2021). The changing context encouraged the adoption of transformational and transactional leadership models, which help deal with ever-changing situations and the increasing complexity of the issues facing organizations.
Impact of Transformational Leadership Style on Organizational Performance
The phenomenon of transformational can be traced to Burns (1978), who defined transformational leadership (TL) as a leader’s ability to motivate and inspire followers to attain organizational goals rather than focusing on individual interests (Qalati et al., 2022). The concept was further redefined by Bass and Riggo (2012), who asserted that a leadership style is an approach in which leaders change and transform the behaviors and perspectives of others. The leaders raise motivated individuals and teams by demonstrating four distinct attributes – idealized influence, intellectual stimulation, idealized consideration, and inspiration- directly impacting employee performance.
According to Al Ahmad and Easa (2021), inspirational motivation is defined as the ability of a leader to formulate and express a strategic vision and create a challenging work environment for the workforce. The process is underpinned by supportive actions intended to enhance employee motivation by being optimistic about the future and by ensuring that each person understands the vision of the company and its impact of actualizing the purpose at the individual and organizational levels. Thus, the leaders picture the firm’s future and its effect on their personal and professional lives to enhance and maintain workplace motivation. Secondly, idealized influence is used in an environment where individuals feel appreciated and recognized and have faith in their leaders. The concept covers the leader’s emotional connection with employees and how their ethical practices inspire others to believe in their vision. Budur (2020) observed that TL leaders strongly impact their followers because they are related to the company’s goals and actively engage in their actions.
Thirdly, individual consideration is termed as the leader’s ability to focus on the needs of individual employees for development and achievement and take the role of a coach or a mentor (Al-Ahmad & Easa, 2021). The leaders take time to communicate with the workers individually and listen to their needs while allowing them to voice their views and concerns. The tactic helps identify the employees’ or teams’ weaknesses and strengths and helps them get the required knowledge or expertise to optimize their talents to benefit the organization. Finally, intellectual simulation happens when leaders reassess current organizational beliefs, assumptions, and policies to develop innovative ways of accomplishing tasks and dealing with critical organizational issues (Qalati et al., 2022). The dimension encourages intelligence in the workplace by developing structures, culture, and processes that enable employees to share knowledge and skills and collaborate with others to develop fresh perspectives. These actions enhance the employee’s awareness of organizational issues, beliefs, and values within the firm (Alharbi et al., 2020). In practice, the four leadership attributes encourage employees to be innovative since leaders collaborate with subordinates to brainstorm, suggest new problem-solving methods, and offer meaning to their work. Studies indicate that the four behavioral variables are reliable in enhancing organizational performance. Transformational leadership impacts organizational performance by affecting workers’ intrinsic motivation, citizenship behaviors, and culture, directly impacting organizational goals (Bhargavi & Yaseen, 2016; Alrabi et al., 2020).
According to Khan (2020), TL can enhance organizational performance by developing human resources capacity and creating modified justifications by cultivating a highly motivated workforce. Khan et al. (2020) conducted a study to evaluate the effects of transformational leadership on employees’ work outcomes by focusing on intrinsic motivation as the mediating aspect between TL and performance indicators. The research incorporated a cross-sectional survey that collected data from 308 workers working in the telecommunication sector in Asia (Khan et al., 2020). The findings established that TL is positively linked with intrinsic motivation and subsequent workplace performance. Khan et al. (2020) defined intrinsic motivation as the execution of tasks for inherent satisfaction instead of external rewards. Transformational leadership develops intrinsic motivation by presenting clear and justified vision and mission statements, developing mutual associations with the workforce, considering individual needs and expectations, helping them optimize the use of their talents, and participating in attaining outcomes of the organization.
Studies indicate that improving employee motivation is one of the most impactful human resource strategies for achieving organizational objectives (Manzoor et al., 2021). Intrinsically motivated workers focus on their jobs because they find their jobs more exciting and rewarding, are more optimistic, and gain contentment from fulfilling their tasks, a situation that is enabled by TL’s idealized influence and inspirational motivation. According to Manzoor et al. (2021), the workers must be motivated to take responsibility for the process and formulate innovative solutions to allow the organization to stand out in the competitive market.
Employees have a direct influence on a firm’s performance by influencing the use of the financial and physical resources of a firm. They implement the daily objectives of the organization, including product design, budgeting, sales and marketing, and consumer engagement, which affect the overall performance of an enterprise. For instance, the marketing team is responsible for formulating promotional strategies to reach customers and make sales, which subsequently affect the sales volume and profitability of the firm. Through intellectual stimulation, transformational leaders give workers a voice to share ideas and collaborate with others, attain the needed skills and expertise to excel in their roles, and optimize their capabilities to develop strategic solutions for the firm. The leaders make the workers feel appreciated and valuable members of the organization, propelling them to increase their productivity and overall organizational performance.
The research by Qalati et al. (2022) established that TL has a mediating effect between citizenship behavior and organizational performance. The study employed a survey design to collect data on employees’ views from multiple Small and Medium Enterprises (SMEs) in Pakistan. The outcomes suggested that the social bonding between leaders and workers impacts the workers’ performance in SMEs. According to Galati et al. (2022), transformational leadership practices encourage employees to participate in citizenship behaviors, which is voluntary work done to benefit the organization by allowing them to participate in decision-making share information through meetings and, newsletters, and emails to remind them to help each other. Engaged and highly motivated workers are likelier to form bonds with their colleagues and the organization, propelling them to share insights and knowledge that help create strategic decisions (Tian et al., 2020). Transformational leadership encourages shared vision and links employees’ needs to these goals, forming a social bonding by engaging in social behavior, which encourages the subordinates to do the same. Employees are more likely to share knowledge, help their colleagues handle challenging tasks, and mentor their juniors when leaders engage in similar citizenship endeavors. Through idealized influence, transformational leaders participate in model behaviors that align with the expected citizenship behaviors.
Cultivation of Positive Organizational Culture
A positive organizational culture is directly linked to employee productivity and workplace performance (Srimulyani & Hermanto, 2019). Leaders act as the providers of organizational culture by creating the values, beliefs, and practices appropriate for the organization. An influential working culture makes employees feel empowered, motivated, and satisfied with their jobs and the organization, prompting them to work harder to achieve the defined organizational objectives. According to Srimulyani and Hermanto (2019), employees are more likely to perform when they feel they derive benefits from the employer. Through inspirational motivation and idealized consideration, transformational leaders offer employees a challenging work environment, develop their careers through training and development opportunities, and make them feel like part of the organization, motivating them to act in ways that benefit the firm.
In a study on transformational leadership and culture in the Dutch public sector, Celik (2018) observed that a transformational leader is charismatic and increases employee motivation by building a culture of trust, open communication, and putting the needs of individual employees and teams at the center. Managers that use the leadership approach are more willing to take risks, solve problems, and address issues proactively. As a result, they are driven by a forward-moving vision founded on maintaining collaboration with employees to meet the changing market demands. The resulting workplace culture is attributed to several work outcomes directly associated with organizational performance, including knowledge sharing and innovation.
Knowledge sharing is an important performance metric as it develops the innovative capacity of the organization and its ability to meet changing market trends and remain competitive. Al Ahmed (2020) postulated that knowledge sharing is a vital workplace factor because it contributes to individual learning and the development of new working practices, including products and processes. Transformational leaders cultivate a knowledge-sharing culture through idealized influence by emphasizing values that foster a collaborative culture. According to Ahmed (2020), leaders who reinforce a sense of loyalty among employees are more likely to foster knowledge sharing. Besides, cultivating trust and assisting individuals in accessing implicit knowledge ensures mutual trust, establishes an emotional bond with the leaders, and encourages workers to share their knowledge.
Similarly, by offering intellectual stimulation, the leaders help subordinates discover new knowledge and skills to perform tasks, which results in knowledge sharing. Studies argue that transformational leaders create an atmosphere favorable for knowledge creation and sharing by enabling discussions, exchange of ideas, and employee voice, which results in new perspectives that contribute to knowledge-sharing practices (Nasir et al., 2022). The emphasis on identifying new methods for new working practices and using different perspectives to find solutions lead to more employee engagement within the organization. This aspect is attributed to creativity and innovation.
Through intellectual stimulation and idealized consideration, transformational leaders encourage collaboration and a combination of ideas within the firm, accelerating innovation and the production of novel ideas. Innovation is one of the critical factors contributing to a firm’s ability to achieve defined strategic goals and perform in today’s competitive environment (Kiliq & Uludag, 2021). By considering the needs of individual workers and mentoring them to optimize their strengths and improve their weaknesses, transformational leaders stimulate learning experiences, which enables them to formulate innovative ideas for their respective functions. The leaders offer individualized training programs and career development programs that keep workers motivated and highly engaged with the organizational processes, giving them the needed expertise and inspiration to engage in innovative projects. For example, research by Nasir et al. (2022) established that companies that create a culture of brainstorming and individual development benefit from increased product innovations and processes that help them stand out in the market. Employees in a positive working environment are more likely to spend time with colleagues talking about tasks and have an increased willingness to donate and collect knowledge, influencing the speed and quality of a company’s innovation. Transformational leadership positively affects organizational performance by developing a healthy working culture and encouraging workers to optimize their skills and expertise to achieve organizational goals.
While the current research offers insights regarding the impact of transformational leadership on organizational performance, it has limitations that should be identified. First, the research is based on secondary findings of studies on different organizational contexts. Therefore, the research assumes that the conclusions are generalizable to different organizational contexts, which may be different. Thus, it is recommended to replicate this research in specific sectors, such as hospitality, the banking industry, or healthcare, and also perform comparative studies between different organizational sectors. Another limitation is that the research focuses on one leadership style. Comparative analysis of different leadership styles may offer a better comprehension of the topic. Future studies should focus on specific performance measures to further understand the role of TL on organizational performance.
The topic of transformational leadership on organizational behavior is essential in understanding the biblical provisions of leadership by the church. Proverbs 11:14 says, “Where there is no guidance, a people falls, but in the abundance of counselors, there is safety.” The verse encourages Christians to seek advice from others to gain a broader perspective of issues and make the right decisions. The verse confirms that people who employ transformational leadership are implementing the provisions of the bible since the model promotes mentorship, collaboration, and knowledge-sharing in the execution of leadership duties as advised in the bible.
The current research adds to the existing literature on the impact of transformational leadership on organizational performance. The research findings strengthen transformational leadership’s role in ensuring the optimal utilization of a firm’s human, capital, and financial resources. As revealed from the findings, TL impacts organizational performance through four attributes – idealized influence, idealized inspiration, intellectual stimulation, and idealized consideration. The factors which underpin the application of the leadership style in an organizational context directly affect employee motivation, citizenship behavior, and overall working culture, which influence individual and subsequent organizational performance. A highly motivated workforce is committed, engaged, and committed to the organization’s vision and strives to contribute by sharing knowledge and innovative projects to help the firm attain its goals. Workers directly influence organizational performance, and TL helps create a positive culture that promotes effective workplace behaviors and decision-making initiatives, which help organizations quickly adapt to changing market conditions and maintain a high performance rate. The TL style is underpinned by the bible, which claims that an abundance of counselors to offer guidance and direction is critical for the community to thrive. Future research should focus on the impact of transformational leadership on specific performance measures and different organizational contexts to get a broader understanding of the topic.
Al Khajeh, E. H. (2018). Impact of leadership styles on organizational performance. Journal of Human Resources Management Research, 2018, 1-10. https://doi.org/10.5171/2018.687849
Al-Ahmad Chaar, S., & Easa, N. F. (2021). Does transformational leadership matter for innovation in banks? The mediating role of knowledge sharing. International Journal of Disruptive Innovation in Government, 1(1), 36–57. https://doi.org/10.1108/IJDIG-04-2020-0002
Alharbi, I. B., Jamil, R., Mahmood, N. H. N., & Shaharoun, A. M. (2020). Transformational Leadership’s impact on organizational innovation: The mediating role of the management control system. Global Business Review, 97215092093464. https://doi.org/10.1177/0972150920934640
Benmira, S., & Agboola, M. (2021). Evolution of leadership theory. BMJ Leader, leader-2020.doi.org/10.1136/leader-2020-000296
Bhargavi, S., & Yaseen, A. (2016). Leadership styles and organizational performance. Strategic Management Quarterly, 4(1), 87–117. http://dx.doi.org/10.15640/smq.v4n1a5
Budur, T. (2020). Effectiveness of transformational leadership among different cultures. International Journal of Social Sciences & Educational Studies, 7(3), 119–129. https://doi.org/10.23918/ijsses.v7i3p103
Çelik, S. (2018). Transformational leadership and organizational culture: Keys to binding employees to the Dutch Public Sector. Vveinhardt, J. Organizational Culture, pp. 145–165. https://doi.org/10.5772/intechopen.81003
Khan, H., Rehmat, M., Butt, T. H., Farooqi, S., & Asim, J. (2020). Impact of transformational leadership on work performance, burnout, and social loafing: A mediation model. Future Business Journal, 6, 1-13. https://doi.org/10.1186/s43093-020-00043-8
Kılıç, M., & Uludag, O. (2021). The effects of transformational leadership on organizational performance: Testing the mediating effects of knowledge management. Sustainability, 13(14), 7981. https://doi.org/10.3390/su13147981
Kovach, M. (2018). An examination of leadership theories in business and sport achievement contexts. The Journal of Values-Based Leadership, 11(2), 14. : https://doi.org/10.22543/0733.62.1215
Manzoor, F., Wei, L., & Asif, M. (2021). Intrinsic rewards and employee performance with the mediating mechanism of employee motivation. Frontiers in Psychology, 12, 563070. https://doi.org/10.3389/fpsyg.2021.563070
Meraku, A. (2017). Role of leadership in organizational effectiveness. Journal of Economics, Business, and Management, 5(11), 336–340. https://doi.org/10.18178/joebm.2017.5.11.535
Nasir, J., Ibrahim, R. M., Sarwar, M. A., Sarwar, B., Al-Rahmi, W. M., Alturise, F., … & Uddin, M. (2022). The effects of transformational leadership, organizational innovation, work stressors, and creativity on employee performance in SMEs. Frontiers in Psychology, 13, https://doi.org/10.3389/fpsyg.2022.772104
Qalati, S. A., Zafar, Z., Fan, M., Sánchez Limón, M. L., & Khaskheli, M. B. (2022). Employee performance under transformational leadership and organizational citizenship behavior: A mediated model. Heliyon, 8(11), e11374-e11374. https://doi.org/10.1016/j.heliyon.2022.e11374
Srimulyani, V. A., & Hermanto, Y. B. (2022). Organizational culture as a mediator of credible leadership influence on work engagement: empirical studies in East Java, Indonesia private hospitals. Humanities and Social Sciences Communications, 9(1), 1-11. https://doi.org/10.32535/ijabim.v5i1.764
Tian, H., Iqbal, S., Akhtar, S., Qalati, S. A., Anwar, F., & Khan, M. A. S. (2020). The impact of transformational leadership on employee retention: mediation and moderation through organizational citizenship behavior and communication. Frontiers in Psychology, 11, 314. https://doi.org/10.3389/fpsyg.2020.00314