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The Relationship Between Leadership Styles and Organizational Performance: Focus on Innovation


In any organization, leadership primarily impacts the organization’s outcomes, whether good or bad, which reflects the organization’s leadership. A leader is an individual who directs, supervises, and manages other individuals in addition to making certain decisions to accomplish a particular task. There exist different leadership styles that influence organizational outcomes. This paper explores the different leadership styles and how they affect organizational performance. The paper emphasizes the impact of different leadership styles on corporate Innovation. Innovation enables organizations to mitigate uncertain times, explore new opportunities, and exploit existing ones. Innovation is, therefore, a key driver of organizational competitive advantage.

Keywords: Leadership styles, organizational performance, Innovation, competitive advantage.


A leader is an individual who possesses specific abilities and qualities that make them knowledgeable in certain positions and situations, which enables them to influence other individuals towards achieving a particular objective. Leadership entails managing people, making critical decisions, and following up on implementations to ensure success. Certain leadership styles have emerged over time and have been tested over time to determine their effectiveness. According to Khan et al. (2015, p.1), leadership styles include autocratic, democratic, Laissez-faire, delegative, and bureaucratic. Leadership can entail coaching, mentoring, vision provision, and supporting followers (Costa, Padua, and Moreira, 2023). Some leadership styles encourage Innovation in an organization, while others discourage it. Experimental research shows that transactional and autocratic leadership styles negatively impact Innovation, while democratic and transformational leadership styles complement Innovation (Costa, Padua, and Moreira, 2023). Leaders play a crucial role in creating vision, mission, objectives, policies, strategies, and implementation methods to attain the organization’s goals (Al Khajeh, 2018, p.2). Good leadership is essential for the efficiency of an organization as leaders influence human resources and the organization’s competitive advantage source, as well as motivate and engage their followers (Gemeda and Lee, 2020). Leadership enables organizational efficiency, which is, however, determined by the style of leadership and the consequent conditions and environment created by the environment to accomplish set goals and objectives (Benson, 2021).

Leadership styles

Different factors influence leaders and the adaptation of different leadership styles. Some leadership styles include autocratic, dictatorial, transactional, and transformational leadership. Leaders must thoroughly handle finances, marketing, and human resources and connect to workers to successfully direct followers to attain organizational objectives (Benson, 2021). Leaders must increase efficiency, achieve growth and motivate followers; hence, leadership styles constantly evolve to improve organizational performance (Valldeneu et al., 2021). Leadership styles influence organizational culture, impacting organizational performance (Al Khajeh, 2018). A range of different factors, including stress, performance, and job satisfaction, are affected by leadership style (Valldeneu et al., 2021). Let us briefly explore some of the critical leadership styles below. Different circumstances encountered by leaders require the adaptation of different leadership styles. Leadership styles have different impacts on organizational performance. Uncertainty requires organizations to be creative and innovative to gain a competitive advantage and attain organizational goals and objectives.


In a dynamic world that is constantly evolving, Innovation remains a solution to ensure organizational performance despite the shift in factors. Innovation shields organizations from uncertainty and instability, thus empowering them to seek new opportunities while efficiently capitalizing on the existing ones (Huang, Wu & Lu, 2016). The competitive advantage of contemporary organizations largely depends on organizational performance and Innovation (Huang et al., 2016). To compete sustainably, innovation management is critical for organizations since it allows the creation of new products, the improvement of processes, and the lowering of costs while improving the product or service quality (Riana, Saparna, Suwandana and Kot, 2020, p. 109). In the continuously dynamic business environment, ICT and Innovation can significantly influence corporate competitive advantage (Yunis, Tarhini, and Kassar, 2018).

Leadership Styles and their influence on Innovation

Transformational leadership style

Transformational leadership style entails trusting in followers, effectively communicating and instilling a sense of purpose and direction, and having the ability to inspire motivational, intellectual stimulation, and personalized considerations (Valldeneu, Tarrats-Pons, and Farras, 2021). The transformational leadership emphasizes empathizing with followers and developing general values, motivations, skills, and morals (Al Khajeh, 2018). According to Al Khajeh (2018), the transformational leadership style bridges the gap between followers and leaders by broadening follower interests. Transformational leaders anticipate and communicate organizational goals, vision, and values and lead by example (Gemeda and Lee, 2020). Leaders who adopt transformational leadership styles influence individuals and their social systems to adopt specific values and changes. Transformational leaders are open-minded and capable of leading, motivating, and communicating their vision (Thanh and Quang, 2022). Transformational leaders influence attitudes, behaviors and act as role models to followers (Thanh and Qaung, 2022). Transformational leaders believe in their followers and pay attention to their needs creating a conducive environment for increased organizational performance. Some values like honesty, justice, honor, and fairness cannot be compromised and encompass transformational leadership (Thanh and Quang, 2022).

Transformational leadership mobilizes collective intelligence and innovative ideas and creates an environment for active learning, fostering creativity (Thanh and Quang, 2022). Transformational leaders advance and elevate employees by setting an example of what they expect from their followers (Gemeda and Lee, 2020). Transformational leaders inspire employees to put aside their self-interests and work together to attain certain objectives. Organizational performance is influenced by knowledge, abilities, skills, and motivation, all of which are impacted by the leadership style in the organization (Al Khajeh, 2018). According to Velldeneu et al. (2021), transformational leadership positively impacts Innovation and creativity by communicating an inspiring and mutually desired vision that creates a strong with followers and motivates them to attain fits greater than what they believe. Transformational leadership positively impacts organizational performance through Innovation and intellectual capital (Alrowwad, Abualoush, and Masa’deh, 2020). Transformational leadership is appropriate for stimulating new ideas and creativity, fostering Innovation, and implementing innovative ideas (Kesting, Ulhoi, Song, and Niu, 2016).

Transactional leadership style

This leadership style entails a transaction process between a follower and a leader, constituting a contingent reward and management by exception (Gemeda and Lee, 2020). According to Al Khajeh (2020), a transactional leader is always willing to offer something in return, for instance, pay raises, promotions, and more responsibilities. The transactional leadership style positively impacts organizational performance by motivating employees to attain tangible and intangible goals (Al Khajeh, 2020). However, Al Khajeh (2020) points out that this leadership style does not foster Innovation and creativity. Transactional leaders mainly focus on task completion, and only those who accomplish the leaders’ demands are rewarded (Costa, Padua, and Moreira, 2023). According to Costa et al. (2023), Negative feedback, corrective criticism, and negative reinforcement may be used for non-compliant employees. The transactional leadership style does not meet employees’ needs, motivation, and development (Costa et al., 2023). Contrary to strategic orientation, this type of leadership style is management oriented. It can be likened to carrot-and-stick leadership, where those who meet leaders’ expectations are rewarded, and those who do not are punished (Thanh and Quang, 2022).

A transactional leadership style can positively influence organizational performance through reward and punishment systems. This style creates and sustains the environment where organizational and human resources are maximized to attain the organizational goals and milestones set out by leaders (Al Khajeh, 2018, p.4). According to research by Alrowaad (2020), Innovation mediates organizational performance and transactional leadership. Creativity and Innovation amongst followers are limited to the expectations of leaders, and as such, a transactional leadership style does not encourage Innovation and creativity (Al Khajeh, 2018). Being innovative and creative can sometimes be punished if employees do not align with the process set out by leaders since transformational leadership is management oriented. Transactional leadership is ideal for keeping projects on track but not for inspiring and stimulating creativity and radical innovations (Kesting et al., 2016).

Democratic style

Democratic leadership entails decentralized decision-making where followers are actively involved in the leadership process. According to Al Khajeh (2018), there is a high risk of poor decision making and weak execution. Since employee needs and views are taken into consideration, the democratic leadership style has the potential to positively impact organizational performance (Al Khajeh, 2018). Democratic leaders encourage followers’ participation in decision-making, offer support and guidance, and value contributions from subordinates. Rather than simply issuing commands and instructions, a democratic leadership style is consultative, where the leader is a facilitator, and all members actively participate in the decision-making (Benson, 2021).

The democratic leadership style creates a sense of responsibility among followers as they are actively involved in the decision-making, and rewards and punishment are objectively administered (Al Khajeh, 2018). Al Khajeh (2018, p.5) points out that democratic leadership allows employees to express and implement creative ideas. Participative leadership encourages group-level Innovation through early involvement and continued support while allowing the team to explore innovative solutions (Kesting et al., 2016). Kesting et al. (2016) highlight the positive organizational performance driven by creativity and developing new ideas within the democratic leadership context.

Laissez-faire leadership style

This leadership style is characterized by non-involvement, overlooking follower needs and accomplishments, indifference towards followers, and absenteeism when needed (Gemeda and Lee, 2022). It comes from the French words for ‘to let go,’ in this type of leadership, decision-making and policy implementation are left to followers. Some scholars consider this leadership style ineffective as it equates to a lack of leadership and abdication of responsibility (Igbal, Abid, Arshad, Ashfaq, Athar, and Hassen, 2021). Igbal et al. (2021), however, point out that followers are empowered through involvement in decision making which instills a sense of participation, motivating them to direct their energy toward attaining the organization’s objectives. It is difficult to determine the impact of a laissez-faire leadership style on Innovation since leaders are not actively inv

Synthesis of literature review

Leadership is essential in the functioning of an organization. Different leadership styles impact organizational performance differently. Therefore, leaders must find ways to engage with their followers, inspire and motivate, and effectively communicate the organizational vision, mission, goals, and values to increase organizational performance. Regarding Innovation, some leadership styles positively impact Innovation, while others inhibit creativity and Innovation. Leadership styles include transformational, transactional, democratic, and Laissez-faire leadership styles. Transformational leaders inspire and motivate followers by setting an example of desired values. Transformational leadership offers the context to inspire creativity and performance, positively impacting organizational performance. Transactional leadership, on the other hand, entails a transaction process between a leader and a follower where leaders reward and punish followers depending on their accomplishment of stipulated objectives. Such a leadership style is not ideal for Innovation and creativity despite being ideal for implementing objectives. Democratic leadership entails followers’ participation in the decision-making and implementation of policies and objectives. A democratic leader is a facilitator and encourages followers to be creative and innovative. The laissez-faire leadership style entails leaders that are rarely concerned about their followers. Such leaders show indifference and are not concerned about the needs of their followers. In this leadership style, Innovation is limited since followers’ needs are unmet, and little support is offered to foster creativity and Innovation.


In conclusion, organizational performance is influenced by many factors like availability of resources, Innovation, market dynamics, and, most important of all, good leadership to synergize all aspects of the organization to achieve competitive advantage. Innovation enables organizations to explore emerging opportunities and capitalize on existing ones. Research of leadership styles and their influence on organizational Innovation reveals that; some leadership style support innovation and empower followers to be creative, while other leadership styles inhibit creativity and Innovation. Transformational and democratic leadership styles create a platform for leaders to inspire and motivate followers to explore creative and innovative solutions. A transactional leadership style inhibits Innovation since it is management-oriented and rewards compliance with the stipulated procedures. It isn’t easy to assess the influence of the Laissez-faire leadership style on Innovation since leaders are not involved in influencing followers, and decision-making is left to followers.


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