Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective in Eight Countries

INTMAN-00498; No of Pages 13 Journal of International Management xxx (2013) xxx–xxx

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Journal of International Management

Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective in Eight Countries Andreas Engelen a,⁎, Susanne Schmidt a, Lis Strenger b, Malte Brettel b a b

Department for Strategic and International Management, TU Dortmund, Martin-Schmeiβer Weg 12, 44227 Dortmund, Germany Center for Entrepreneurship, RWTH Aachen, Templergraben 64, 52056 Aachen, Germany

a r t i c l e

i n f o

Article history: Received 24 September 2011 Received in revised form 9 April 2013 Accepted 9 April 2013 Available online xxxx Keywords: Transformational leadership Leadership Innovation orientation National culture

a b s t r a c t This study builds upon the established relationship between top management's transformational leadership and firm-level innovation. It extends current research by determining how specific transformational-leader behaviors influence the firm's innovation orientation and how national culture moderates this relationship. The study examines these behaviors empirically in 954 firms from eight countries. Findings reveal that six transformational-leader behaviors positively influence innovation orientation but with differing levels of intensity. Only two of these relationships, “providing an appropriate model” and “accepting group goals,” are culturally independent, while the other behaviors' effects tend to be culturally dependent. For example, “providing intellectual stimulation” has a stronger effect in collectivist cultures, cultures with high power distance, and low uncertainty-avoidance cultures than in other cultures. Similar culture-dependent findings emerge for other leader behaviors. © 2013 Elsevier Inc. All rights reserved.

1. Introduction Innovativeness is a major driver of firm performance, as Rubera and Kirca (2012) find in their meta-analysis of 153 innovation studies with more than 36,000 companies. Because of the importance of innovativeness, many studies focus on the organizational and managerial factors that drive it; and transformational leadership in particular has been established as a major determinant (Gumusluoglu and Ilsev, 2009; Jung et al., 2003). The present research builds on this relationship and extends it in two major ways. First, while the leadership literature has shown that transformational leadership is comprised of several behaviors with differing effects (e.g., Podsakoff et al., 1990), most studies that link transformational leadership and innovation examine transformational leadership as a composite, second-order construct (e.g., Gumusluoglu and Ilsev, 2009; Kirkman et al., 2009). To acquire more fine-grained insights into this relationship, the present research links to firms' degree of innovation of each of the six transformational-leader behaviors: articulating a vision, providing an appropriate model, accepting group goals, having high performance expectations, providing individualized support, and providing intellectual stimulation. Second, most of the studies on the effects of transformational leadership are conducted in a single country (Grant, 2012; Jung et al., 2008). However, since much of an employee's response to managerial stimuli is culturally predetermined prior to his or her entering a firm, the effects of management activities in general may depend on the national culture in which a firm operates (Hofstede, 2001; Lytle et al., 1995). Although some conceptual arguments suggest that the effectiveness of leadership depends on national cultural influences (Elenkov and Manev, 2005), empirical evidence, especially on the cultural dependency of transformational-leader behaviors, is lacking.

⁎ Corresponding author. Tel.: +49 1634613546. E-mail addresses: [email protected] (A. Engelen), [email protected] (S. Schmidt), [email protected] (L. Strenger), [email protected] (M. Brettel). 1075-4253/$ – see front matter © 2013 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.intman.2013.04.003

Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

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A. Engelen et al. / Journal of International Management xxx (2013) xxx–xxx

The present study examines the effects of six transformational-leader behaviors on firms' innovation orientation and the degree to which three major national cultural dimensions – power distance, individualism/collectivism, and uncertainty avoidance – influence this relationship. Therefore, our exploratory study addresses two research questions (1) How does each transformational-leader behavior influence innovation orientation? (2) How does national culture moderate the influence of transformational-leader behaviors on innovation orientation? These research questions are examined empirically with a sample of 954 firms from eight national cultures. The study contributes to the literature of leadership and innovation in two major ways: First, it extends prior research by providing exploratory evidence about the relationship between transformational leadership and innovation on the level of six transformational-leader behaviors, leading to new insights on this relationship. Second, it is the first study to investigate the national cultural dependency of the effects of transformational leadership on the level of the six underlying leader behaviors. Thus, the study shows which transformational-leader behaviors, as the new paradigm in the leadership literature (Bass, 1997), depend on national culture and which are universal in their effects. The remainder of the paper is structured as follows: First, we outline the theoretical foundations by introducing the concepts of transformational leadership, innovation orientation, and national culture. Then we elaborate on the two research questions and explain how we explore them empirically. Next, we explain the methodology in terms of samples, measures, and method of analysis. Finally, we present our findings and discuss them in terms of their theoretical and practical implications. 2. Theoretical premises 2.1. Top management's transformational leadership Transformational leaders appeal to their followers' intrinsic motivations so the followers will bypass their own self-interests for the good of the organization (Avolio et al., 1995). Thus, transformational leaders “transform or change the basic values, beliefs, and attitudes of followers so that they are willing to perform beyond the minimum levels specified by the organization” (Podsakoff et al., 1990, p. 108) and “offer a purpose that transcends short-term goals and focuses on higher order intrinsic needs” (Judge and Piccolo, 2004, p. 755). According to Podsakoff et al. (1990), transformational leadership is comprised of six leader behaviors: Articulating a vision involves communicating a strong and compelling vision of the future based on values and ideals. Providing an appropriate model refers to setting an example for employees “that is consistent with the values the leader espouses” (Podsakoff et al., 1990, p.112). By accepting group goals, transformational leaders foster “collective identities and encourage self-sacrifice for the sake of the group” (Mackenzie et al., 2001, p. 119). Having high performance expectations refers to trusting followers to deliver superior performance. Providing individualized support relates to coaching, mentoring, and consulting followers (Judge and Piccolo, 2004). Providing intellectual stimulation means encouraging followers “to challenge existing assumptions, to reframe problems, and to approach old situations in new ways” (Eisenbeiss et al., 2008, p. 1439). 2.2. Innovation orientation Little research has focused on an organization-wide innovation orientation, although market orientation and customer orientation have been extensively researched (e.g., Kirca et al., 2005). In the past twenty years only a few studies have “acknowledged innovation orientation as a construct in its own right” (Siguaw et al., 2006, p. 557). Siguaw et al. (2006), who define innovation orientation as “the organizational strategies and actions toward specific innovationenabling competencies and processes” (p. 556), propose a conceptualization of innovation orientation along three dimensions: learning philosophy, strategic direction, and transfunctional acclimation. Learning philosophy refers to “organization-wide understandings about learning, thinking, acquiring, transferring, and using knowledge in the firm to innovate” (Siguaw et al., 2006, p. 562), while strategic direction highlights the future-orientation of the company (Amabile, 1997; Gatignon and Xuereb, 1997). The prerequisite that the learning philosophy and the strategic direction pervade all functional areas of a firm captures the third component of innovation orientation, the transfunctional acclimation. 2.3. National culture Kluckhohn (1951, p. 86) provides the most prominent definition of national culture as “patterned ways of thinking, feeling, and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievements of human groups, including their embodiment in artifacts; the essential core of culture consists of traditional (i.e., historically derived and selected) ideas and especially their attached values.” The dimensions of national culture used most frequently in academic research are individualism, power distance, and uncertainty avoidance (Triandis, 2004). Individualism refers to the degree of “I” consciousness within a culture (Hofstede, 1984). In individualist cultures, each person is considered primarily as an individual, while collectivist cultures are “we” conscious, considering social groups primary and regarding each person as a member of a social group (Triandis, 1994). Power distance refers to “the extent to which less powerful members of organizations and institutions […] accept and expect that power is distributed unequally” (Hofstede and Bond, 1988, p. 10). In high power-distance cultures, decision power typically lies only in the hands of leaders (Hofstede, 1984), while in low Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

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power-distance cultures, decisions are typically dispersed and delegated to lower hierarchical levels (Nakata and Sivakumar, 2001). Uncertainty avoidance refers to the degree of structure required for people to feel comfortable with a situation (Hofstede, 2001). In high uncertainty-avoidance cultures, people try to avoid uncertain situations because they perceive uncertainty as a threat (Luque and Javidan, 2004), whereas in low uncertainty-avoidance cultures people feel comfortable with uncertain situations and tend to see uncertainty as opportunity (Kemper et al., 2011). 2.4. Research model Our objective is to conduct an exploratory study that links all six transformational-leader behaviors to the degree of firm-level innovation and explores the moderating effect of national culture on this relationship. In doing so, we follow upper echelons theory, which suggests that top managers' behaviors are reflected in strategic choices and organizational outcomes (Hambrick, 2007; Hambrick and Mason, 1984). The leadership provided by top management is a major driver for innovation, since employees typically need stimuli from upper echelons to engage in the usually uncertainty-laden and risky endeavors that come with innovation (Elenkov and Manev, 2005). Specifically, research has shown that transformational leadership is a major determinant of a firm's innovativeness (e.g., Jung et al., 2003). However, none of this research includes the six transformational-leader behaviors individually in one study to determine the influence of each behavior on innovation. Therefore, the present study examines empirically the relationship between transformational leadership and innovation on the level of the six underlying leader behaviors in order to determine which behaviors influence innovation more and which less. Building on the relationship between transformational-leader behaviors and innovation orientation, we also seek to determine to what degree the relationships depend on the national culture in which the firm operates. National culture may be an important driver of these relationships since cross-cultural research finds that national culture explains 25–50% of variation in attitudes (see Gannon, 1994 for a review) and fundamentally shapes “peoples' perceptions, dispositions, and behaviors” (Steenkamp, 2005, p. 6). Most studies on transformational leadership's effect have been conducted in a single country and have tacitly assumed that the effects of transformational leadership are universal (e.g., Gumusluoglu and Ilsev, 2009). In the organizational context, Lachman et al. (1994) note that national “cultural values permeate organizations by defining role relations as culturally acceptable, relatively neutral, or in conflict with culturally prescribed norms and, therefore, unacceptable” (p. 44). More specifically, organizational effectiveness is influenced positively, if the core value assumptions of the national culture that guide and legitimize the corresponding behavioral patterns are congruent with the core values that underlie top management's leadership style. Elenkov and Manev (2005) also argue that leadership depends on national culture. However, Bass (1997) states that, as a universal phenomenon, transformational

Fig. 1. Research model.

Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

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leadership “transcend[s] organizational and cultural boundaries.” Therefore, we seek to determine whether the effects of each of the six transformational behaviors on innovation orientation are universal or differ across cultures. Fig. 1 summarizes the research model. 3. Methodology 3.1. Sample For this exploratory study, we conducted an international survey of 951 firms in the automotive, construction, biotechnology, chemicals/pharmaceuticals, IT, electrical/appliances, energy services, financial services, engineering, and other industries. Data were generated from firms in Austria (99 firms), Germany (198 firms), Singapore (139 firms), Switzerland (70 firms), Thailand (209 firms), the United States (75 firms), Argentina (80 firms), and China (81 firms). Databases of the local chambers of commerce provided the bases for the data collection. Data were gathered in spring and summer 2010 in Austria, Germany, Singapore, Switzerland, Thailand, and the United States, while data from Argentina and China were gathered in spring 2012. We selected the countries for their divergence in terms of the cultural dimensions of individualism/collectivism, power distance, and uncertainty avoidance based on their Hofstede scores. This approach is in line with literature from linked research in anthropology and sociology and with recent management publications (e.g., Engelen et al., 2012; Hutzschenreuter et al., in press) (Table 1). We contacted the top management of each firm via e-mail and invited him or her to complete an online survey. To increase the response rate, we offered respondents an individualized report on the findings and sent two reminders, one two weeks and one four weeks after the initial invitation. We focused on SMEs since these firms have “fewer intervening levels that can dilute the influence of [top management] on firm-level outcomes” (Ling et al., 2008, p. 562). Most of the respondents are managing directors or leading managers, who are likely to be the most knowledgeable persons in the context of the study. Table 2 shows the breakdown of respondents and organization size. Since both the dependent and the independent variables were collected from the same respondent, common method bias could be a problem in the data, so we included an additional factor in the research model on which all items were loaded in addition to their original construct. The path coefficients of the core model were unchanged after integrating this additional factor so, following Podsakoff et al. (2003), we concluded that common method bias is not a serious problem in our data. 3.2. Measures The questionnaire is based on constructs that are present in the literature. All scales employ a 7-point Likert scale (1 = strongly disagree and 7 = strongly agree). As Brislin (1980) suggests, the measures were first translated into the local language and then back-translated by a third person. 3.2.1. Independent variables We drew on Podsakoff et al.'s (1990) Transformational Leadership Inventory to measure the top managers' transformationalleader behaviors. The inventory is comprised of six first-order constructs: articulating a vision (5 items), providing an appropriate model (3 items), accepting group goals (4 items), having high performance expectations (3 items), providing individualized support (4 items), and providing intellectual stimulation (4 items). Respondents were asked to judge their leadership behavior with regard to all employees in their firms, not just those who report directly to them. While a key informant approach is consistent with prior research, for thirty German firms in our sample we also generated survey responses from a second member of the top management team to ensure that our informants, most of whom were CEOs, were not biased in their responses. Intraclass correlation coefficients (ICC) for ICC(1) are between .4 and .44, and those for ICC(2) are between .61 and .64 for the six

Table 1 Classifications based on the cultural dimensions from Hofstede (2001) and on macroeconomic measures based on the Human Development Report (2011). Nation

Power distance (PD)

Individualism/collectivism (IND)a

Uncertainty avoidance (UA)

HDI

Austria Germany Singapore Switzerland Thailand US Argentina China

11 35 74 34 64 40 49 80

55 67 20 68 20 91 46 20

70 65 8 58 64 46 86 30

.955 .947 .944 .960 .783 .956 .797 .687

a

High values reflect strong individualism.

Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

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Table 2 Sample composition. Industry

Austria

Germany

Singapore

Switzerland

Thailand

US

Argentina

China

Position of respondent Managing director Leading manager Other staff

76% 16% 8%

68% 26% 6%

28% 48% 24%

71% 20% 9%

53% 44% 3%

60% 24% 16%

32% 36% 3%

22% 42% 12%

Organization size b100 100–200 >200

87% 4% 9%

33% 49% 17%

70% 8% 22%

85% 5% 10%

47% 24% 29%

75% 8% 17%

80% 4% 14%

23% 6% 46%

transformational-leader behaviors, indicating high inter-rater reliability (Bliese, 1998) and increasing our confidence that we have valid scores for our leadership measures. Dependent variable: Following Siguaw et al. (2006), we measured a firm's innovation orientation using three first-order constructs. The first dimension of innovation orientation, learning philosophy, is based on Sinkula et al.'s (1997) learning orientation (11 items). We operationalized the second dimension, strategic direction, with a 9-item construct from Green and Medlin (2003), which was originally developed by Wheelen and Hunger (2000). We took the measurement model for the third element of innovation orientation, transfunctional acclimation, from Song et al. (1997). To increase the confidence in our innovation measure, we generated secondary data from publicly available sources for a subset of fifty-five (mostly German- and US-based) firms in our sample for which these data are available. We correlated our survey-based innovation measure with the number of new products introduced and financial performance (measured as return on sales) and found that both correlations for this subsample are positive and significant (.59, p b .01; .62, p b .01).

3.2.2. Moderating variables We used national culture as our moderating variable and the Hofstede dimensions of individualism, power distance, and uncertainty avoidance to describe national culture. As suggested by Tellis et al. (2009) and in line with previous research studies (e.g., Engelen et al., 2012), we applied Hofstede's (2001) scores to assess these three cultural dimensions for the surveyed nations, which has the advantage of reducing common method bias (Morosini et al., 1998). Critics of the national culture concept claim that cultural similarities may go beyond national borders and/or that cultural differences and subcultures may be present within a national border (Sondergaard, 1994). However, Minkov and Hofstede (2012) find that national culture is a valid construct with which to measure culture, that basic cultural values vary across countries, and that the regions within each country share basic cultural values and show no extreme cultural variations.

3.2.3. Control variables We control for firm size, industry, differentiation focus, respondent level, and Human Development Index (HDI). Firm size: We employed firm size as a continuous variable, using the number of employees as an indicator. Industry: We employed industry as a dummy variable, using four categories: automotive and construction industries (group 1); biotechnology and chemistry/pharmaceuticals (group 2); IT, electrical, and engineering (group 3), and financial services and energy services (group 4). Differentiation focus: We employed differentiation focus as a dummy variable that indicates whether the surveyed company focuses on cost leadership or leadership through differentiation. Respondent level: We employed the respondent level as a dummy variable that indicates whether the CEO or another member of the top management team answered the questionnaire. HDI: HDI is a continuous variable that measures a country's life expectancy, literacy, and purchasing power (Cano et al., 2004).

3.3. Measurement equivalence We checked for measurement invariance for our first-order constructs (i.e., each of the six behaviors) by means of two-group analysis (Steenkamp and Baumgartner, 1998). We divided our sample into two sub-samples (western countries, including Argentina, and eastern countries), since the size of some of our country samples was not sufficient for confirmatory factor analysis at each level. Based on a configural model, we tested metric equivalence by constraining loadings across groups. With the exception of providing intellectual stimulation, where we had to relax one item loading to obtain metric invariance, there was no significant increase in χ 2 for any measure; so we can conclude full metric invariance. Next, we constrained the intercepts across groups but found some significant increases in χ 2 for some measures; so we cannot conclude full scalar invariance. However, after relaxing some constraints on intercepts, we observed partial scalar invariance, which is sufficient for our purposes. Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

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Construct

1

IO Firm size Differentiation focus HDI Respondent level Business field 1 Business field 2 Business field 3 Business field 4 Articulating a vision Providing an appropriate model Accepting group goals High performance expectations Providing individualized support Providing intellectual stimulation Power distance Individualism Uncertainty avoidance

.79 −.01 .14⁎⁎⁎

Statistics Mean SD

2

.06⁎ –.06⁎ −.09⁎⁎⁎ .03 .08⁎⁎ −.04 .73⁎⁎⁎

3

4

5

6

7

8

9

10

−.06 −.03 .06⁎ .07⁎⁎ −.06

−.10⁎⁎⁎ −.12⁎⁎⁎ −.12⁎⁎⁎ −.01

−.07⁎⁎ −.07⁎⁎ −.02

−.08⁎⁎ .06⁎

−.04

.86

11

12

13

14

–.09⁎⁎⁎ .05 .04 .04 .07⁎⁎ −.02 .04

.08⁎⁎ –.09⁎⁎ −.02 .01 .03 .03 .15⁎⁎⁎

−.04 −.04 −.05 −.05 .06⁎

.12⁎⁎⁎

.09⁎⁎⁎

−.14⁎⁎⁎

−.00

−.04

.02

−.04

.68⁎⁎⁎

.93

.70⁎⁎⁎

.02

.12⁎⁎⁎

.07⁎⁎

−.12⁎⁎⁎

−.04

−.00

.07⁎⁎

−.02

.69⁎⁎⁎

.71⁎⁎⁎

.91

.46⁎⁎⁎

.01

.13⁎⁎⁎

.16⁎⁎⁎

−.01

.01

.01

.05

.48⁎⁎⁎

.37⁎⁎⁎

.40⁎⁎⁎

.87

.50⁎⁎⁎

−.01

.10⁎⁎⁎

.23⁎⁎⁎

−.18⁎⁎⁎

−.01

−.05

−.01

−.06⁎

.46⁎⁎⁎

.54⁎⁎⁎

.57⁎⁎⁎

.24⁎⁎⁎

.92

.64⁎⁎⁎

.03

.20⁎⁎⁎

.12⁎⁎⁎

−.09⁎⁎⁎

−.02

.00

−.03

.63⁎⁎⁎

.62⁎⁎⁎

.66⁎⁎⁎

.45⁎⁎⁎

.56⁎⁎⁎

−.01 .03 −.06⁎

−.62⁎⁎⁎ .60⁎⁎⁎ −.10⁎⁎⁎

.33⁎⁎⁎ −.24⁎⁎⁎ −.30⁎⁎⁎

−.03 −.03 .06⁎

.06⁎⁎ −.06⁎ −.03

−.09⁎⁎⁎ .09⁎⁎⁎

−.12⁎⁎⁎ .11⁎⁎⁎

.03

.05

−.08⁎⁎ .10⁎⁎⁎ −.00

−.09⁎⁎⁎ .13⁎⁎⁎ −.07⁎⁎

−.20⁎⁎⁎ .17⁎⁎⁎ .05

.73 .44

.88 .09

.45 .50

.15 .36

.06 .23

5.59 1.08

5.58 1.20

5.32 .89

17

18

⁎⁎−.18⁎⁎⁎

.03

−.05

16

−.03

.63⁎⁎⁎

−.04 .07⁎⁎

15

.11⁎⁎⁎ −.08⁎⁎ −.11⁎⁎⁎

1784.64 16237.54

AVEs for all multi-item constructs in the diagonal. ⁎⁎⁎ p b 01. ⁎⁎ p b .05. ⁎ p b .1.

A. Engelen et al. / Journal of International Management xxx (2013) xxx–xxx

Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

Table 3 Descriptives and correlation matrix, with the square root of AVE in the diagonal.

.08⁎⁎

.03 −.03 −.04

.08 .27

.07⁎⁎

.06⁎ .02 −.04

.07 .26

5.59 1.14

5.33 1.30

5.23 1.31

.91

−.07⁎⁎ .11⁎⁎⁎ −.08⁎⁎

5.30 1.18

−.75⁎⁎⁎ −.61⁎⁎⁎

45.08 24.44

.36⁎⁎⁎

49.96 20.93

53.78 22.97

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4. Findings 4.1. Results of the exploratory study Table 3 reports the correlations between all constructs and the square roots of average variance extracted (AVEs) for all multi-item constructs. For each construct, the square root of the AVEs is larger than all correlations of the constructs with all other constructs, so the Fornell–Larcker criterion is fulfilled, indicating discriminant validity for our measures (Fornell and Larcker, 1981). By applying the AVE to ensure discriminant validity, we follow previous management studies (e.g., Barnard and Pendock, 2013). We chose to analyze the interaction between leader behaviors and cultural dimension using regression analysis rather than structural equation modeling (SEM). Regressions provide more accurate results than SEM when analyzing interaction effects since SEM builds on group comparisons (Cohen et al., 2003). This difference is especially important since we build upon data from eight countries; interaction terms allow us to depict the differences in cultural dimensions among these eight countries in detail, while group comparisons typically make simple comparisons without accounting for nuanced differences (Engelen and Brettel, 2012). Regression analysis also allows us to control for several factors, which is important in our case (Becker, 2005). Table 4 shows the estimated regression models (1–7) with data from all eight countries. We find that each transformational-leader behavior overall affects innovation orientation in a positive way (model 2). As for the individual behaviors, articulating a vision enhances innovation orientation the most, while providing individualized support enhances it the least. As for the cultural dimensions, low power distance and low uncertainty avoidance tend to enhance innovation orientation, while individualism has no significant effect (model 3). Next, we examine the influence of the interaction terms between the six behaviors and each of the cultural dimensions on innovation orientation (models 5–7). The interaction models significantly increase the explanatory power over that of the main model, model 4. The interaction analysis shows that the effect on innovation orientation of articulating a vision, having high performance expectations, and providing individualized support is stronger when individualism is high than when it is low. While the opposite effect occurs for providing intellectual stimulation, individualism has no effect on the relationships between providing an appropriate model or accepting group goals and innovation orientation (model 5). We also find that the effect on innovation orientation of having high performance expectations and providing individualized support is stronger when power distance is low than when it is high. While the opposite effect occurs for providing intellectual stimulation, power distance does not influence the relationship between innovation orientation and articulating a vision, providing an appropriate model, or accepting group goals (model 6). Finally, the regression results indicate that providing intellectual stimulation has a stronger effect on innovation orientation in cultures low in uncertainty avoidance than in those high in this dimension, but having high performance expectations has the opposite effect. The relationship between the remaining four transformational-leader behaviors and innovation orientation is not influenced by the level of uncertainty avoidance (model 7). As a robustness check, we looked for non-linear effects of the six transformational-leader behaviors on innovation orientation by testing a model with quadratic terms of each behavior against the linear model. We find significant results for the linear model of each behavior but not for the quadratic models of providing an appropriate model, accepting group goals, or providing individualized support. While the quadratic model of articulating a vision, having high performance expectations, and providing intellectual stimulation is significant, the change in R 2 from the linear to the quadratic model is so low that the change accounts only for the increase in exponential power. Therefore, the quadratic terms do not improve the model, and they are not included in our regression models. 5. Discussion 5.1. Implications for research Our findings show that each transformational-leader behavior drives innovation orientation, but the intensities of the influence differ. The behavior that has the strongest effect on innovation orientation is articulating a vision, perhaps because innovation orientation develops best when employees share a clear vision and adopt the companies' goals as their own, motivating them intrinsically to be creative and work hard to achieve those goals. The study's finding that each of the six behaviors has a positive influence on innovation orientation across countries is in line with previous research that demonstrates the positive influence of transformational leadership on a firm's strategic orientation, which Menguc and Auh (2008) also show in the related research stream of market orientation. We add to that research by showing which transformational-leader behavior influences innovation orientation most (articulating a vision) and which least (providing individualized support). Some leadership researchers suggest that leadership is universally endorsed and effective (e.g., Bass, 1997), while other researchers argue that the effects of leadership depend on national culture (e.g., Elenkov and Manev, 2005). Our findings on the influence of each leadership behavior in different cultural settings contribute to this debate by showing that the specific behavior determines whether the intensity of the transformational leadership effect on innovation orientation depends on national culture. For two behaviors, by providing an appropriate model and accepting group goals, we found no cultural dependency, suggesting that the effect of these two behaviors on innovation orientation is universal. However, the other four behaviors demonstrate some Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

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Table 4 Estimation results (dependent variable: IO). Independent variables Controls Firm size Differentiation focus Human Development Index (HDI) Respondent level Business field 1 Business field 2 Business field 3 Business field 4

Model 1 .012 .128⁎⁎⁎ .054 −.051 −.082⁎⁎ .026 .072⁎ −.057

Main effects Transformational Leader Articulating Vision Providing an appropriate model Accepting group goals Having high performance expectations Providing individualized support Providing intellectual stimulation Cultural Dimensions Individualism (IND) Power Distance (PD) Uncertainty avoidance (UA) Interaction effects Articulating Vision × IND Providing an appropriate model × IND Accepting group goals × IND Having high performance expectations × IND Providing individualized support × IND Providing intellectual stimulation × IND Articulating Vision × PD Providing an appropriate model × PD Accepting group goals × PD Having high performance expectations × PD Providing individualized support × PD Providing intellectual stimulation × PD Articulating Vision × UA Providing an appropriate model × UA Accepting group goals × UA Having high performance expectations × UA Providing individualized support × UA Providing intellectual stimulation × UA (Adjusted) R-square Change R-square F-value df

Model 2 −.040⁎ .001 −.030 .021 −.067⁎⁎⁎ .032 .022 −.013

Model 3 −.003 .124⁎⁎⁎ −.084 −.068⁎ −.084⁎⁎ .022 .061⁎ −.062⁎

.334⁎⁎⁎ .112⁎⁎⁎ .218⁎⁎⁎ .088⁎⁎⁎ .072⁎⁎ .154⁎⁎⁎

Model 4 −.047⁎⁎ −.002 −.029 .004 −.065⁎⁎⁎ .028 .022 −.016

.341⁎⁎⁎ .113⁎⁎⁎ .216⁎⁎⁎ .083⁎⁎⁎ .081⁎⁎⁎ .143⁎⁎⁎ .025 −.174⁎ −.201⁎⁎⁎

.026 .034 −.046

Model 5 −.047⁎⁎ −.005 −.002 −.002 −.057⁎⁎ .028 .025 −.008

.242⁎⁎⁎ .147⁎⁎ .293⁎⁎⁎

Model 6 −.048⁎⁎ .002 .001 .002 −.060⁎⁎ .028 .024 −.009

.439⁎⁎⁎ .036 .190⁎⁎ .279⁎⁎⁎ .232⁎⁎⁎

Model 7 −.048⁎⁎ −.002 −.019 .002 −.066⁎⁎⁎ .024 .021 −.010

.311⁎⁎⁎ .120 .284⁎⁎

−.070 −.020 .355⁎⁎⁎

−.129

−.060 .028 .340⁎⁎⁎

−.020 .060 −.023

.018 .116 −.018

.020 .036 .092

.374⁎⁎ −.127 −.309 .448⁎⁎⁎ .304⁎⁎ −.630⁎⁎⁎ −.221 .146 .010 −.374⁎⁎⁎ −.253⁎ .634⁎⁎⁎ .094 −.048 −.177 .307⁎⁎⁎ .117 −.428⁎⁎ .033

.645

.039

.647

4.198 759

98.757 753

3.813 759

82.178 753

.659 .015⁎⁎⁎ 64.288 753

.654 .009⁎⁎⁎ 62.763 753

.652 .008⁎⁎ 62.393 753

Standardized coefficients are reported. Change in R-square compared to R-square of model 4. ⁎⁎⁎ p b .01. ⁎⁎ p b .05. ⁎ p b .1.

cultural dependency. Specifically, having high performance expectations has more influence in individualist cultures, in cultures that are low in power distance, and in cultures with high uncertainty avoidance. Providing individualized support has more influence in cultures that are individualist and cultures that are low in power distance. Providing intellectual stimulation has more influence in collectivist cultures, cultures that are high in power distance, and cultures with low uncertainty avoidance. Finally, articulating a vision has more influence in individualist cultures. We explain the results for the four behaviors in accordance with Lachman et al. (1994): If the core values that underlie the behavior are congruent with the core values of the national culture, culture positively influences the relationship between the behavior and innovation orientation. For example, leaders in individualist cultures who have high performance expectations meet the expectations of their culture, where achievement and ambitious goals are major elements (Magnusson et al., 2008). In collectivist cultures, however, this behavior is not in accordance with collectivist values because it can disrupt group harmony (Triandis, 2001). By articulating a vision, top managers can lead employees to incorporate the values, beliefs, and goals that are Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

A. Engelen et al. / Journal of International Management xxx (2013) xxx–xxx

9

connected to this vision (Podsakoff et al., 1990). As a result, employees develop intrinsic motivation, and their work becomes part of their self-actualization, an important element of individualist countries that is less important in collectivist contexts (Hofstede, 2001). As for high performance expectations, those in low power distance cultures put value on everyone's potential to contribute, regardless of position in the hierarchy (Nakata and Sivakumar, 1996). Providing individualized support is unusual in high power-distance cultures because of the natural distance between superiors and subordinates (Carl et al., 2004). Finally, intellectual stimulation motivates employees to deal with problems in innovative ways (Jung et al., 2003; Ling et al., 2008), which generally increases uncertainty, a disadvantage in high uncertainty avoidance cultures and an advantage in low uncertainty avoidance cultures (Luque and Javidan, 2004). Our results show that examining transformational leadership as a second-order construct can be too simplistic, especially when considering the consequences of this leadership style in more than one national culture. Since the ways in which the transformational-leader behaviors affect innovation orientation differ, varying dependencies on national cultural dimensions emerge. The present study is the first study to analyze the moderating influence of culture on each transformational-leader behavior.

5.2. Limitations and avenues for further research This study has several limitations that suggest useful avenues for further research. First, it focuses only on leadership as one main antecedent of innovation orientation; so future research should determine what other factors – those on an organizational level, such as the organizational structure, and those on an individual level, such as the CEO's or other top management members' attention to innovation or risk aversion – influence firms' innovation orientation. Second, we examine the effects of leader behaviors by surveying the top management team members about their leader behavior. However, more accurate results would be generated by surveying the subordinates of top managers instead, as surveying only managers, about their leadership styles may generate biased results. Therefore, future research should be directed toward subordinates in order to deepen insights into the effect of leader behaviors in the top management team. Third, we focus on national culture as a moderator of the relationship between leadership and innovation orientation, but other moderators may also influence this link. Besides moderators from the external environment, such as the technological or competitive intensity of the firm's industry, the interaction effect of a firm's internal moderators, such as the centrality of its organization or corporate culture, could advance our model. For example, extending the present model by determining how the effects of national culture and corporate culture interact would support Webster and White's (2010) observation that national and corporate culture are not isolated from each other. Finally, we chose to measure national culture using the scores from Hofstede's (2001) study, rather than using our questionnaire. If future studies measure national culture in the survey, they should survey all employees who are affected by the leader behaviors, not just the top management team, since the employees' reactions determine the effectiveness of the leaders' behavior. While this approach is appealing from a theoretical perspective, whether the approach is practicable for a large, survey-based study in an international context is questionable (For a similar argumentation, see Kemper et al., 2011).

5.3. Implications for managerial practice Since top management's transformational leadership has a generally positive influence on innovation orientation, it should be prepared to apply a transformational leadership style when a company aspires to establish an innovation orientation. The moderating results of culture provide insight into the transformational-leader behaviors that must be adapted to the cultural setting in order to strengthen the positive effect on innovation orientation. The results suggest that transformational leaders in individualist cultures who wish to increase their firms' innovation orientation should focus on articulating a vision, having high performance expectations, and providing individualized support, while eschewing intellectual stimulation. Leaders in high power-distance cultures should pursue intellectual stimulation and individualized support but avoid high performance expectations. In cultures with high uncertainty avoidance, high performance expectations appear to be productive, while intellectual stimulation does not. Transformational leaders can use the appropriate transformational-leader behavior for their national cultural setting to cultivate innovation, thereby enhancing the firm's competitive advantage and helping to sustain long-term success. Our findings are also in line with some anecdotes from prominent companies. A major finding of this study is that articulating a vision is particularly important for fostering innovativeness in individualist countries. Some major innovative firms in the United States, as probably the most individualist country in the world, excel (according to business press) in having a strong vision. For example, Apple's vision to “simplify the world” and Google's vision to “make all information accessible worldwide” speak for a strong vision as a facet of transformational leadership. In expert interviews with respondents in our sample, we acquired additional insight into how to implement specific leader behaviors. A representative in a company in Germany, a comparatively individualist country with low power distance and a medium level of uncertainty avoidance, told us that providing individualized support in the form of regular coaching with superiors and regular training is an important way to become more innovative in this context. Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

10

Construct inspiration or basis (reflective versus formative Items items in multi-item scale)

Source

Cronbach's Composite Average alpha reliability variance extracted

Learning orientation/learning philosophy (reflective) (Baker To what degree do you agree with the following statements? et al., 1997) –Our firm's ability to learn is the key of our competitive advantage. –The basic values of this firm include learning as key to improvement. –The sense around here is that employee learning is an investment, not an expense. –Learning in our firm is seen as a key commodity necessary to guarantee organizational survival. –There is a commonality of purpose in our firm. –There is agreement on our organizational vision across all levels, functions, and divisions. –All employees are committed to the goals of our firm. –Employees view themselves as partners in charting the direction of our firm. –Our firm is not afraid to reflect critically on the shared assumptions we have made about our customers. –Personnel in our firm realize that the way they perceive the marketplace must be continually questioned. –We collectively question our own biases about the way we interpret customer information. Strategic direction/mission statement Green and Medlin, To what extent do you agree with the following statements? 2009; Wheelen and Hunger, 2000 (reflective) –The purpose or reason for our firm's existence is clearly identified. –The services and/or products provided are clearly identified. –The fundamental, unique competitive advantage that sets our firm apart from other firms of its type, is clearly identified. –The scope of the firm's operations in terms of products and services offered and markets served is clearly identified. –There is a clear description of our firm's philosophy about how it does business and treats our customers. –There is a clear description of what our firm wants to become. –Our mission statement promotes a sense of shared expectations in employees. –Our mission statement communicates a positive public image to important stakeholder groups. –The importance of factors such as technology, creativity, and innovation is emphasized. Transfunctional acclimation/interfunctional cooperation To what extent do you agree with the following statements? Song et al., 1997 (reflective) –People from all departments interact. –Open communication is practiced among all departments. –There is an overall satisfaction with interdepartmental relationships in our firm. –There is a give-and-take-relationship among all departments. –Open communication is practiced among all departments. Articulating a vision Podsakoff et al., 1990; MacKenzie et To what extent do you agree with the following statements? al., 2001 (reflective) Our top management … –… has a clear understanding of where we (as a firm) are going.

Survey

.75

.86

.67

Survey

.91

.93

.59

Survey

.91

.93

.73

Survey

.88

.92

.74

A. Engelen et al. / Journal of International Management xxx (2013) xxx–xxx

Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

Appendix A

items in multi-item scale) Items

Accepting group goals Podsakoff et al., 1990; MacKenzie et al., 2001 (reflective)

Having high performance expectations Podsakoff et al., 1990; MacKenzie et al., 2001 (reflective)

Providing individualized support Podsakoff et al., 1990; MacKenzie et al., 2001 (reflective)

Providing intellectual stimulation Podsakoff et al., 1990; MacKenzie et al., 2001 (reflective)

Firm size Differentiation/cost leadership (Govindarajan and Fisher, 1990) Respondent level Business field Individualism, power distance, uncertainty avoidance Human Development Index (HDI)

–… paints an interesting picture of the future of our firm. –… seeks always new opportunities for the firm. –… inspires others with its plans for the future. –… is able to get others committed to its dreams. To what extent do you agree with the following statements? Our top management … –… leads by “doing” rather than simply by “telling”. –… provides a good model for the employees in our firm to follow. –… leads by example. To what extent do you agree with the following statements? Our top management … –… fosters collaborating among work groups. –… encourages employees to be “team players”. –… gets the group to work together for the same goal. –… develops a team attitude and spirit among employees. To what extent do you agree with the following statements? Our top management … –… makes it clear to the personnel in our firm that it expects to give 110% all the time. –… encourages employees to be “team players”. –… insists on only the best performance. –… will not settle for the second best. To what extent do you agree with the following statements? Our top management … –… acts with considering the feelings of other employees in the firm. –… considers the personal feelings of the personnel before acting. –… shows respect for the personal feelings of the employees in our firm. –… treats employees with considering their personal feelings. To what extent do you agree with the following statements? Our top management … –… challenges the personnel in our firm to think about problems in new ways. –… asks questions that prompt our employees to think about the way they do things. –… stimulates to rethink the way employees in our firm do some things. –… has ideas that have challenged the personnel in our firm to reexamine some of our basic assumptions about work. How many employees in terms of full-time equivalents does your firm have? How does your sales volume in the last three years distribute on products that follow a differentiation strategy vs. those that follow a cost leadership strategy? What is your function in the company? In what business field does your company operate in? – – –

Cronbach's alpha

Composite reliability

Average variance extracted

Survey

.92

.95

.86

Survey

.93

.95

.82

Survey

.84

.91

.76

Survey

.94

.96

.85

Survey

.93

.95

.82

Survey Survey

N.A. N.A.

N.A. N.A.

N.A. N.A.

Survey Survey Hofstede (2001) Human development report (2009)

N.A. N.A. – – –

N.A. N.A. – – –

N.A. N.A. – – –

A. Engelen et al. / Journal of International Management xxx (2013) xxx–xxx 11

Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003

Providing an appropriate model Podsakoff et al., 1990; MacKenzie et al., 2001 (reflective)

Source

12

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Please cite this article as: Engelen, A., et al., Top Management's Transformational Leader Behaviors and Innovation Orientation: A Cross-Cultural Perspective..., Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.04.003