Leadership and organizational learning’s role on innovation and performance: Lessons from Spain J....

8/12/2019 Leadership and organizational learnings role on innovation and performance: Lessons from Spain J. Alberto Aragon-Correa a,b,*, Vctor J. Garca-Morales

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Leadership and organizational learnings role on innovation and

performance: Lessons from Spain

J. Alberto Aragon-Correa a,b,*, Vctor J. Garca-Moralesb, Eulogio Cordon-Pozo b

a R otterdam-E rasmus University, The Netherlandsb U n i v e r s it y o f G r a n a d a , S p a i n

Received 3 January 2005; received in revised form 7 April 2005; accepted 27 September 2005

Available online 15 December 2005

Abstract

Leadership style has been traditionally emphasized as one of the most important individual influences on firm innovation. Scholars are now

paying growing attention to the possibility that the collective capability of organizational learning plays a key role in determining innovation. We

propose that leadership style, an individual feature, and organizational learning, a collective process, simultaneously and positively affect firm

innovation. A structural equation model and data from 408 large firms in four sectors supported our hypotheses. Organizational learning had a

stronger direct influence on innovation than CEO transformational leadership for our sample; however, leadership had a strong, significant

influence on organizational learning, indirectly affecting firm innovation. Additionally, innovation positively and significantly influenced

performance. Organizational learning also positively affected performance, but interestingly mainly through innovation.

D 2005 Published by Elsevier Inc.

Keywords: Innovation; Organizational learning; Transformational leadership; Performance; Organizational capabilities

1. Introduction

Market orientation and subsequent firm innovation are

widely recognized to be essential for the survival and growth

of organizations (Bello, Lohtia, & Sangtani, 2004; Damanpour

& Gopalakrishnan, 2001; Hurley & Hult, 1998).Porter (1990)

suggested that by the late twentieth century, most industrial

economies had moved to an innovation-driven stage, during

which firms competed on how to rapidly and profitably

innovate. In this context, it is especially important to gain a

better understanding of factors influencing the successful

development of firm innovations.Different definitions of innovation have been proposed (e.g.,

Knight, 1967; Zaltman, Duncan, & Holbek, 1973). We

accepted for our work the definition of innovation stated by

the Product Development and Management Association

(PDMA, 2004): A new idea, method, or device. The act of

creating a new product or process. The act includes invention

as well as the work required to bring an idea or concept into

final form.

Although firm innovation is widely prescribed as a means to

improve organizational performance, many firms do not or

cannot properly develop it. Researchers have urged attention to

what makes it possible for firms to develop innovation, looking

for answers beyond semiautomatic stimulus-response pro-

cesses (Zollo & Winter, 2002, p. 341). Many authors have

focused their attention on analyzing whether specific manage-

rial characteristics influence the generation of innovation in

organizations, while others have focused on analysis of

organizational factors. We want to highlight the simultaneousinfluence of both kinds of factors.

Leadership style has been emphasized as one of the most

important individual influences on firm innovation, because

leaders can directly decide to introduce new ideas into an

organization, set specific goals, and encourage innovation

initiatives from subordinates (Harbone & Johne, 2003;

McDonough, 2000; Sethi, 2000). Specifically, several writers

have linked transformational leadership to innovation (e.g.

Howell & Avolio, 1993).

Transformational leaders concentrate their efforts on longer-

term goals; value and emphasize developing a vision and

0019-8501/$ - see front matterD

2005 Published by Elsevier Inc.doi:10.1016/j.indmarman.2005.09.006

* Corresponding author. School of Economics and Business, University of

Granada, Campus Cartuja, s.n., Granada 18071, Spain. Tel.: +34 958 24 23 54;

fax: +34 958 24 62 22.

E -mail addresses: [email protected](J..A. Aragon-Correa), [email protected]

(V.J. Garca-Morales), [email protected] (E. Cordon-Pozo).

Industrial Marketing Management 36 (2007) 349 359
http://dx.doi.org/10.1016/j.indmarman.2005.09.006mailto:[email protected]:[email protected]:[email protected]://dx.doi.org/10.1016/j.indmarman.2005.09.006mailto:[email protected]:[email protected]:[email protected]


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inspiring followers to pursue the vision; change or align

systems to accommodate their vision rather than work within

existing systems; and coach followers to take on greater

responsibility for both their own and others development

(Howell & Avolio, 1993).

Attention to the organizational influences on innovation is

also important. Although several such influences have beenanalyzed, scholars are paying growing attention to the

possibility that the collective capability of organizational

learning plays a key role in determining innovation (Senge,

1990; Senge, Roberts, Ross, Smith, & Kleiner, 1994; Tushman

& Nadler, 1986). Organizational learning has been defined as a

collective capability based on experiential and cognitive

processes and involving knowledge acquisition, knowledge

sharing, and knowledge utilization (e.g., DiBella, Nevis, &

Gould, 1996; Zollo & Winter, 2002).

We propose that both collective (organizational learning)

and individual (transformational leadership) factors influence

firms to develop and implement organizational innovation.Many previous studies, although contributing significantly to

the understanding of innovation, have not addressed how the

efficacy of innovation may vary with the simultaneous

influence of different organizational factors and have not

analyzed both direct and indirect influences (Van de Ven,

1993). Identifying and better understanding those influences

will complement the general prescription that firms should

innovate.

Additionally, the ultimate purpose of firm innovation is new

knowledge and new applications, especially those connected to

organizational improvements, and many researchers have

claimed a positive relationship between organizational learning

and performance. We sought to reinforce this work bycontributing to the analysis of the influence of innovation on

performance. Further, we sought to show how the influence of

organizational learning on performance is strengthened by the

generation of innovation.

In this article, our focus is primarily on research questions

that concern firm innovation. We first examine the nature and

strength of transformational leadership and organizational

learning as antecedents of firm innovation. We then investigate

whether firm innovation, organizational learning and transfor-

mational leadership affect financial performance. And finally,

using these research findings, we develop a model of direct and

indirect influences to guide future research in this arena and

offer managerial implications.

2. Framework and hypotheses

Capabilities require that multiple characteristics be already

embedded in a firm (Grant, 1991). Like any other capability,

organizational innovation depends on the presence of capabil-

ities by which firms synthesize and acquire knowledge

resources and generate new applications from those resources

(e.g., Calantone, Cavusgil, & Zhao, 2002; Celuch, Kasouf, &

Peruvemba, 2002). All these antecedents have to be analyzed

globally and integrated to achieve systemic thinking.

In the following sections, we present a model consisting of

five hypotheses about how transformational leadership and

organizational learning simultaneously condition firm innova-tion. We also propose an indirect relationship between

transformational leadership and innovation through organiza-

tional learning. We recognize that other variables might be

considered in such a model; however, it was necessary to limit

our model to be able to offer empirical evidence for our

arguments, and we chose these two factors to represent a focus

on individual and on collective explanations for innovation

activity, respectively. Our aim here was simultaneous consid-

eration of these relevant antecedents of firm innovation.

Additionally, we developed two hypotheses about innovations

effect on performance.Fig. 1illustrates the proposed model.

2 . 1. T h e i n fl u en c e o f o rg a ni z a ti o na l l e ar n i ng o n f i r m

innovation

Many works in the growing literature on organizational

learning have noted a positive relationship between organiza-

tional learning and firm innovation (e.g., Calantone et al.,

2002; Tushman & Nadler, 1986). Organizational learning

supports creativity (e.g., Sanchez & Mahoney, 1996), inspires

new knowledge and ideas (e.g.,Damanpour, 1991; Dishman&

1Transformational

Leadership

1Organizational

Learning

Performance

2

3

Innovation

H3(+)

H2(+)

H1(+)

H4(+)

H5(+)

Fig. 1. Hypothesized model.

J.A . A ragon-Correa et al. / Industrial Marketing Management 36 (2007) 349 359350


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Pearson, 2003), and increases ability to understand and apply

them (e.g., Damanpour, 1991).

Generative learning, the most advanced form of organiza-

tional learning, occurs when an organization is willing to

question long-held assumptions about its mission, customers,

capabilities, or strategy and generate changes in its practices,

strategies, and values (e.g., Argyris & Schon, 1996; Senge,1990). This kind of learning is a necessary underpinning for

radical innovations in products and processes (Senge et al.,

1994).

These ideas have recently begun to receive some empirical

attention.Hurley and Hult (1998)focused on a large agency of

the US federal government to show that organizational

innovativeness was positively associated with a culture that

emphasizes adaptation, innovation, and learning. Meeus,

Oerlemans, and Hage (2001) analyzed a sample of innovator

firms to show that more complex innovative activities urged

firms to coordinate and exchange information between users

and producers, which implies strong interactive learning. Thesearguments lead to our first hypothesis:

Hypothesis 1. Organizational learning positively influences

firm innovation.

2 .2 . T he i nf l ue nc e o f t ra ns f or m at i on al l e ad er sh ip o n f i rm

innovation

Leaders play a significant role in shaping firms potential to

generate innovations by encouraging an appropriate environ-

ment and making decisions that promote successful generation

and implementation of knowledge (Kanter, 1983; Van de Ven,

1993). The analysis of firm leaders characteristics (e.g.,education, background, personality, or attitudes) has generated

wide attention from innovation researchers (Storey, 2000;

Tushman & Nadler, 1986).

Style of leadership has been highlighted as an especially

important influence on innovation (Harbone & Johne, 2003;

Kanter, 1983; McDonough, 2000; Sethi, 2000). Transforma-

tional leadership, which has been contrasted with Ftraditional_

or Ftransactional_ leadership, includes a wide strategic vision

about the advantages of change and adaptation (Dess & Picken,

2000), significant interest in a communicative culture (Hult,

Ferrell, Hurley, & Giunipero, 2000), attention to the develop-

ment of people (Barczak & Wilemon, 1992), and acceptance ofmistakes (Snell, 2001). It is important to highlight that

managers perceptions about their own roles in their organiza-

tions strongly influence their capability to promote this kind of

leadership in an organization.

Several features of transformational leadership are relevant

for firm innovation. Transformational leaders have an interactive

vision, paying maximum attention to effective communication

and sharing values (e.g., Adair, 1990; Quinn, 1988) and

encouraging an appropriate environment for innovative teams

(Tushman & Nadler, 1986). They support collective processes of

organizational learning (Manz, Barstein, Hostager, & Shapiro,

1989), reciprocal trust between organization members and

leaders (Scott & Bruce, 1994), and favorable attitudes toward

proactivity and risk(Lefebvre & Lefebvre, 1992). Transforma-

tional leaders perceive their role more as coordination than as

command and control(Barczak & Wilemon, 1992).

All these features together allow a better understanding of

the strong relationships between collaborative, innovative

transformational leadership and factors positively influencing

organizational innovation (e.g., Farr & Ford, 1990; Kanter,1983). Transformational leadership is more often linked to

successful innovation than is transactional leadership(Dess &

Picken, 2000; Manz et al., 1989). These arguments lead to the

next hypothesis:

Hypothesis 2. Transformational leadership positively influ-

ences firm innovation.

Simultaneously, it is important for our work to highlight that

transformational leadership and organizational learning are also

related. This circumstance implies indirect influences on

organizational innovation, influences that have usually been

absent from previous research analysis.Many authors have asserted relationships between leader-

ship and organizational learning (e.g., Senge, 1990; Senge et

al., 1994; Tushman & Nadler, 1986). Traditional leadership has

been characterized as highly individualistic and asystematic

and as making the learning of organizational teams difficult;

however, transformational leadership is focused on active

promotion of employees participation in collective decisions

and activities (Adair, 1990; Bass, 1991). Transformational

leaders should be able to build teams and provide them with

direction, energy, and support for processes of change and

organizational learning(Blackler & McDonald, 2000; McDo-

nough, 2000; Nadler & Tushman, 1990).

More specifically, transformational leadership fuels organi-

zational learning by promoting intellectual stimulation, inspi-

rational motivation, and self-confidence among organization

members (Coad & Berry, 1998). A capability for transforma-

tional leadership has been even described as one of the most

important means of developing learning organizations (e.g.,

Maani & Benton, 1999; Slater & Narver, 1995; Snell, 2001).

Thus, we predict:

Hypothesis 3a. Transformational leadership positively influ-

ences organizational learning.

Hypothesis 3b. Transformational leadership positively and

indirectly influences firm innovation through organizational

learning.

2 . 3. T h e i n fl u e nc e o n p e rf o rm a n ce

2 . 3 . 1. E f f e c t s o f o r ga n i z a t io n a l l e a r n i n g o n p e r f o rm a n c e

The importance of organizational learning for a companys

survival and effective performance has been highly emphasized

in the literature (e.g., Argyris & Schon, 1996; Huber, 1991;

Senge, 1990; Zahay & Handfield, 2004). However, empirical

analysis of this relationship has been limited.

Some recent works have begun to verify this positive

relationship. Schroeder, Bates, and Junttila (2002) developed

J.A . A ragon-Correa et al. / Industrial Marketing Management 36 (2007) 349 359 351


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resource-based hypotheses and showed a positive relationship

between internal and external learning and organizational

performance in 164 manufacturing plants from six different

countries. Bontis, Crossan, and Hulland (2002) used respon-

dents in 32 Canadian funds to show thatFstocks of learning_at

all organizational levels had a positive relationship with

business performance. Finally,Zahra, Ireland, and Hitt (2000)showed a strong relationship between international diversity

and mode of market entry and the breadth, depth, and speed of

a new venture firms technological learning, especially when a

firm undertook formal knowledge integration. Thus:

Hypothesis 4. Organizational learning will be positively

associated with performance.

2 . 3. 2 . E f fe c ts o f f i r m i n no v at i o n o n p e rf o rm a nc e

Firm innovation has been traditionally focused on the

improvement of organizational performance (Damanpour,

1991; Zaltman et al., 1973). Some previous work has notedthat only certain characteristics of an innovation and not the

innovation itself is positively linked to organizational perfor-

mance (e.g.,Danneels & Kleinschmidt, 2001; Gopalakrishnan,

2000). In any case, the vast majority of previous publications

agree that organizational innovation positively influences

performance. For illustration, we now provide some examples.

Irwin, Hoffman, and Lamont (1998)used a resource-based

view to show the positive relationship between technological

innovations and organizational performance and stated that the

innovation characteristics of rarity, value, and inimitability

moderated this relationship. Hurley and Hult (1998) demon-

strated positive relationships between organizational innova-

tion, a market orientation, and organizational learning andshowed that all these elements together influenced the potential

for good performance.Capron (1999)showed similar relation-

ships after mergers and acquisitions and, finally, Loof and

Heshmati (2002) showed the negative impact of avoiding

innovations. In view of the positive relationships seen in

previous research, our hypothesis is:

Hypothesis 5. Firm innovation will positively influence

performance.

3. Methodology

3 . 1 . S a m p l e a n d p r o c e d u re s

The sample of firms was randomly selected from the Dun

and Bradstreet 2001 database, which includes the 50,000

biggest companies operating in Spain. The final sample

contained 900 firms in four wide categories: farming,

manufacturing, construction, and services. We defined these

categories to control for confounding effects. Choosing a

sample of firms located in a relatively homogeneous geograph-

ic, cultural, legal, and political space enabled us to minimize

the impact of variables that could not be controlled (Hofstede,

1980). The Spanish market is relatively well developed, is

wholly integrated into the European Union, and has had a

slightly better rate of growth in recent years than the European

market overall. However, Spain has received relatively little

attention from organizational researchers.

Drawing on our interviews with five managers and six

academics interested in the topic and familiar with the Spanish

market, we developed a structured questionnaire to investigate

how organizations face learning and innovation issues. Thesedevelopmental interviewees did not provide data for the

empirical investigation.

We decided to use CEOs as our key informants since they

receive information from a wide range of departments and,

therefore, are a very valuable source for evaluating aspects of

organizations. They also play a major role in forming and

molding organizational characteristics by determining the types

of behavior that are expected and supported (Baer & Frese,

2003). In addition, use of CEOs meant that informants were

similar across organizations, and thus that their levels of

influence in their organizations was constant, which increased

the validity of the variables measurements (Glick, 1985).Because the vast majority of the CEOs were native Spanish

speakers, the questionnaire was written in Spanish to avoid any

problem with the language. The questionnaires were mailed to

the CEOs of the 900 randomly selected firms along with a

cover letter. We used this method rather than interviews

because a mailed survey enabled us to reach a greater number

of firms at a lower cost, put less pressure for an immediate

response on the potential informants, and gave respondents a

greater feeling of autonomy. To reduce possible desirability

bias, we promised that we would keep all individual responses

completely confidential and confirmed that our analyses would

be restricted to an aggregated level that would prevent the

identification of any organization.We mailed each CEO who had not yet responded three

reminders. Four hundred twenty-three CEOs finally answered

the questionnaire but, because of missing values, only 408

questionnaires were included in the research. The response rate

was 45.33%. We did not find significant differences in type of

business or number of employees between the respondents and

the sample or between early and late responders. Furthermore,

since all measures were collected with the same survey

instrument, we tested for the possibility of common method

bias using Harmans one-factor test (e.g.,Scott & Bruce, 1994).

A principal components factor analysis on the questionnaire

measurement items yielded four factors with eigenvaluesgreater than 1.0 that accounted for 66% of the total variance.

Since several factors, as opposed to one factor, were identified,

and since the first factor did not account for most of the

variance, common method variance did not appear to be

present (Podsakoff & Organ, 1986).

3 . 2 . M e a s u re s

Scales are important in designing a survey instrument in

management research. As no single measure can precisely

capture behavior, researchers usually combine two or more

measures into a scale to gauge each variable. Given that

developing new scales is a complex task, wherever possible we



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used pretested scales from past empirical studies to ensure their

validity and reliability.

3 . 2 . 1. T ra n s f o rm a t i o n al l e a d e r sh i p

The strategic literature includes research that measures and

evaluates transformational leadership (e.g., Coad & Berry,

1998; Hult et al., 2000; Podsakoff, Mackenzie, & Bommer,1996). Style of leadership is broadly based on a managers

assumption about his/her role in an organization. Therefore, we

drew five items from the scale designed by Podsakoff et al.

(1996) to assess aspects of transformational leadership. We

asked CEOs whether they gave priority to seeking new

opportunities for their organizations; tried to develop a clear

common view of final aims more than short-term objectives;

emphasized motivating the rest of the company more than

controlling; acted as the organizations leading force more than

as supervisor; and, finally, coordinated their colleagues on the

job. All the items in this paper used a Likert-type 7-point scale

(1, t o t a l l y d i s a g re e to 7, t o t a l l y a g r ee ). A confirmatoryfactor analysis (v5

2=14.25, normed fit index [NFI]=0.97, non-

normed fit index [NNFI]= 0.96, goodness-of-fit index

[GFI] = 0.99, comparative fit index [CFI] = 0.98, adjusted

goodness-of-fit index [AGFI]= 0.98) subsequently verified

the scales unidimensionality and its high validity and

reliability (a=0.850).

3 . 2 . 2. O r g an i z a t i on a l l e a r n i ng

The capability of organizational learning has received much

more theoretical than empirical attention. Additionally, there

are wide differences among the assumptions, procedures, and

objectives of previous measures. We took measures from two

previous scales that had close conceptual links with ourresearch, reflected prior trends well, and had been verified in

detail. We used the first two items of Kale, Singh, and

Perlmutters (2000) scale and added two items based on

Edmondsons (1999) work. This four-item organizational

learning scale asked respondents whether, over the last 3 years,

their organizations had acquired much new and relevant

knowledge, if organizational members had acquired critical

capacities and skills, if organizational improvements had been

influenced by the entry of new knowledge, and if their

organizations were learning organizations. This scale was

similar to other recently proposed measures of external and

internal learning (e.g.,Schroeder et al., 2002). We conducted aconfirmatory factor analysis to validate our scales (v2

2=2.40,

NFI = 0.99, NNFI = 0.99, GFI = 0.99, CFI = 0.99, AGFI = 0.99).

Results showed that final scale was unidimensional and had

high reliability (a =0.919).

3 . 2 . 3. F i r m i n n o va t i o n

Numerous researchers have analyzed organizations inno-

vation using reliable and valid scales. We based our scale on

Miller and Friesens (1983) work. We first defined firm

innovation (in contrast to industry or market innovation) for

respondents and then asked them to evaluate how high, relative

to competitors, their firms rates of new product/service

introduction and changes in internal operating practices were

for the last 3 years. A confirmatory factor analysis showed that

our scale was unidimensional and reliable (a =0.777). We also

included questions allowing the CEO respondents to offer

precise quantitative data on organizational innovation and

innovation radicality (e.g. number of new products in the last 3

years). We included questions tapping both types of assessment

in our interviews (subjective evaluation and quantitative data),but the managers were more open to offering their perceptions

than to offering precise quantitative data (only 61 offered

quantitative data). Therefore, we tested the model using a

perceptual measure of firm innovation in which each respon-

dent rated his or her organizations innovation relative to that of

other firms in the. Where possible, we calculated the

correlation between the objective and subjective data. These

were high and statistically significant (0.76, p


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In addition, because size and income were highly correlated,

we used number of employees only in our model (Weaver,

Trevino, & Cochran, 1999).

Major industry type was measured at the two-digit SIC code

level and then aggregated to four wide categories, as described

under Sample and procedures above. This variable controls the

potential influence of industry on learning (Li, 1995) and

profitability. The survey asked managers to name the industry

from which the company generated most of its sales.

3 . 3. M o de l a n d a n al y si s

The LISREL 8.30 program was used to test the theoretical

model.Fig. 1shows the basis of the model proposed, together

with the hypotheses to be tested. We used a recursive

nonsaturated model, taking transformational leadership (n1)

as the exogenous latent variable, organizational learning (g1) as

a first-grade endogenous latent variable, and innovation (g2)

and organizational performance (g3) as second-grade endoge-

nous latent variables. Through flexible interplay between

theory and data, this structural equation model approach

bridges theoretical and empirical knowledge to allow a better

understanding of the real world. Such analysis allows for

modeling based on both latent and manifest variables, a

property well suited to the hypothesized model, where most

of the represented constructs are abstractions of unobservable

phenomena. Further, structural equation modeling takes into

account errors in measurement, variables with multipleindicators, and multiple-group comparisons.

4. Analysis and results

In this section we present the main research results. First,

Table 1shows the means and standard deviations as well as the

interfactor correlation matrix for the study variables. There are

significant and positive correlations among transformational

Table 1

Means, standard deviations and correlation

Variable Mean S.D. 1 2 3 4 5

1. Transformational Leadership 5.22 0.94 1.000

2. Organizational Learning 5.37 1.14 0.473*** 1.000

3. Innovation 4.67 1.19 0.387*** 0.587*** 1.000

4. Performance 4.83 1.02 0.456*** 0.488*** 0.509*** 1.0005. Size 3.4 1.68 0.068 0.010 0.071 0.009 1.000

*** Significant at p


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leadership, organizational learning, innovation and perfor-

mance. A series of tests (e.g., tolerance, and variance inflation

factor) showed the absence of multicolinearity (Hair, Ander-

son, Tatham, & Black, 1999). We performed structural

equation modeling (Bollen, 1989) to estimate direct and

indirect effects, using LISREL and using the correlation matrix

and asymptotic covariance matrix as input. This type ofanalysis has the advantage of correcting for unreliability of

measures and also gives information on the direct and indirect

paths between multiple constructs after potentially confounding

variables are controlled for. Fig. 2 shows the standardized

structural coefficients. This diagram shows only paths that are

significant at the 0.5 level. The magnitude of the coefficients of

the variables reflects their relative importance.

With respect to the quality of the measurement model for the

sample, the constructs display satisfactory reliability, as

indicated by composite reliabilities ranging from 0.78 to 0.92

and shared variance coefficients ranging from 0.62 to 0.85

(Table 2). Convergent validitythe extent to which maximallydifferent attempts to measure the same concept agreecan be

judged by looking at both the significance of factor loadings

and shared variance. The amount of variance shared or

captured by a construct should be greater than the amount of

measurement error (shared variance >0.50). All the multi-item

constructs meet this criterion, each loading (k) being signifi-

cantly related to its underlying factor (t-values greater than

28.29). Likewise, a series of chi-square difference tests on the

factor correlations showed that discriminant validity the

degree to which a construct differs from othersis achieved

among all constructs (Anderson & Gerbing, 1988) . In

particular, we established discriminant validity between each

pair of latent variables by constraining the estimated correlation

parameter between them to 1.0 and then performing a chi-

square difference test on the values obtained for the constrained

and unconstrained models (see Anderson & Gerbing, 1988).

The resulting significant differences in chi-square indicate that

the constructs are not perfectly correlated and that discriminatevalidity is achieved.

The overall fit measures, the multiple squared correlation

coefficients of the variables, and the signs and significance

levels of the path coefficients all indicate that the model fits the

data well (v1652=0.34, p < 0.001; NFI = 0.93; NNFI= 0.93;

GFI= 95; CFI= 0.94; AGFI= 0.94). The hypothesized model

was a significantly better fit than the null model (v1902=

14953.36, p


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indirect effect (0.79, p


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generating innovation (e.g., Dess & Picken, 2000; Hult etal.,

2000; McDonough, 2000; Sethi, 2000). This result is especially

appealing because it supports the characterization of transfor-

mational leadership as more concerned with collective deci-

sions, collective goals, and the generation of capabilities than is

traditional leadership, which focuses more on top-down

decisions, standardized procedures, and the production ofproducts and services.

Therefore, a common perspective integrating and motivating

organizational members is a prerequisite for firm innovation. A

CEOs willingness to accept risks and mistakes is also probably

one of the first steps of the process of innovation. Additionally,

transformational leadership has shown its potential to help

organization members create and use knowledge (e.g., Sengeet

al., 1994; Snell, 2001). Transformational leadership contributes

to a good internal environment for collaboration and work

among team members. Further, one of its main outputs should

be the absorption of ideas promoting organizational learning

and therefore promoting a transformational leaderships indirectinfluence on firm innovation through organizational learning.

Finally, the results of this study also shed additional light on

innovations positive implications for firm performance. These

results support previous literature stating such positive effects

of innovation (e.g.,Damanpour, 1991; Irwin et al., 1998). Our

results show some additional and appealing aspects of the

indirect relationships among organizational learning, firm

innovation, and performance. First, organizational learning

not only directly influences both performance and innovation,

but also influences performance through innovation. Second, in

our sample the relationship between organizational learning

and firm innovation was even stronger than that between

organizational learning and performance. We want to avoid adefinitive assessment about the sense of the analyzed relation-

ships between organizational learning, firm innovation, and

performance. As discussed below, future longitudinal works

should help to complete these findings.

6. Managerial implications

Our research shows the importance of transformational

leadership for improving financial performance and thus

promoting firm innovation and organizational learning. Tradi-

tional relationships between leadership and managers should

then be reviewed. It is especially important here to understandthe importance and peculiarities of transformational leadership.

First, transformational leadership includes very special atten-

tion to the development of the people in a firm. Human

resources are the most important assets for these leaders.

Transformational leaders concentrate their efforts on value

and emphasize developing a vision and inspiring followers to

pursue the vision; they change or align systems to accommo-

date their vision rather than work within existing systems; and

they coach followers to take on greater responsibility for both

their own and others development.

Secondly, style of leadership is broadly based on a

managers assumption about his/her role in an organization.

It is highly important that the transformational leader act in a

way that is coherent with his/her statements. Transformational

leaders have to offer all their resources to avoid any skeptical

behavior in the firm (Wick & Leon, 1995). His/her own

compromise with the abilities of learning plays a key role in

promoting a culture of shared knowledge in the firm.

Thirdly, our work shows the importance of transforming all

these attitudes into organizational routines. Leaders play asignificant role in shaping firms potential to generate innova-

tions by encouraging an appropriate environment and making

decisions that promote successful generation and implementa-

tion of knowledge. Innovation especially needs the collective

effort of organizational learning, and it has to be based on

collective and continuous employees efforts to share and

generate new knowledge more than on individual intentions.

All these features together allow a better understanding of the

strong relationships between collaborative transformational

leadership and factors positively influencing organizational

innovation and learning.

7. Conclusions, limitations, and future directions

This study (1) analyzes the simultaneous influence on firm

innovation of transformational leadership and organizational

learning; (2) shows that although both directly influence

innovation, the collective process of organizational learning

has a stronger direct influence on innovation for our sample than

transformational leadership; (3) however, also shows that

leadership has a strong and significant influence on organiza-

tional learning; and (4) emphasizes the positive and significant

influence of firm innovation on performance. Our research

demonstrates the importance of an integrated analysis of direct

and indirect effects of individual and organizational determi-nants of firm innovation and reinforces previous literature on the

importance of organizational innovation for organizational

performance.

Our results must be only cautiously generalized because this

study has several limitations that suggest further possibilities

for empirical research. First, survey data based on self-reports

may be subject to social desirability bias(Podsakoff & Organ,

1986). However, an assurance of anonymity can reduce such

bias even when responses concern sensitive topics(Hair etal.,

1999). The low risk of social desirability bias in this study was,

however, indicated by the comments of several managers who

noted that it made no sense for their companies to go beyondregulatory compliance in the innovation arena. Further, we

tested the possibility of common method bias using Harmans

one-factor test, and none appeared to be present(Podsakoff &

Organ, 1986; Scott & Bruce, 1994).

Secondly, the study is limited by its cross-sectional design.

Although we tested the most plausible directions for the

pathways in our model, longitudinal research is needed to

assess the direction of causality of the relationships and to

detect possible reciprocal processes. We have tried to temper

this limitation through attention to theoretical arguments

rationalizing the analyzed relationships (Hair et al., 1999)

and through integrating temporal considerations into measure-

ment of the variables. Finally, our results must be cautiously



10/11

analyzed in view of the geographical and business peculiarities

of our sample.

Future research should pay more attention to the influence

of different mixtures of influences on organizational innova-

tion. It should be noted that selected variables explain an

acceptable amount of variance of organizational innovation and

performance. In any case, others could be analyzed, such asshared vision, teamwork, absorptive capacity, and technology.

We might also examine other consequences of introducing an

organizational innovation in firms (e.g., quality improvement,

staff satisfaction, and improvements in relational capacity). The

homogeneous geographical context examined here limits the

influence of external conditions, but future research might well

explicitly integrate the influences of external factors (Aragon-

Correa & Sharma, 2003). More empirical papers supporting (or

rejecting) our results in different contexts would be welcomed,

especially longitudinal studies.

Acknowledgement

We would like to thank Peter J. LaPlaca and the anonymous

reviewers for extremely helpful comments. We would also like

to thank the European Commission-Spanish Ministry of

Science and Research (project SEC 2003-07755) and the

Foundation BBVA for their financial support.

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Juan Alberto Aragon-Correa is Chairman of the Department of Managementat the University of Granada (Spain) and visiting professor at the Rotterdam

Management School (the Netherlands). He received his PhD from the

University of Seville and completed a postdoctoral fellowship at the Saint

Marys University (Canada). His primary research interests include corporate

environmental strategies, firm innovation and dynamic capabilities. He has

published in multiple journals such as A c ad e m y o f M a na g e me n t J o u rn a l ,

A cademy of Management R eview, or J o u r na l o f B u s i n e ss R e s e a rc h.

Vctor J. Garca-Morales is an assistant professor at the University of

Granada (Spain). He received his PhD from the University of Granada and his

primary research interests include the organizational capabilities of knowledge

management and organizational learning. He has published in multiple journals

such as I n t er n at i o na l J o u rn a l o f Te c h no l og y M a na g e me n t , International

Journal of Service Industry Management or R e v i s t a E u r o pe a d e D i r e c ci on y

E conom a d e l a E m p re s a.

Eulogio Cordon-Pozo ([email protected]) is an assistant professor and

coordinator of the Department of Management at the University of Granada

(Spain). He received his PhD from the University of Granada and his primary

research interests include product innovation and high technology activities. He

has published in multiple journals such as T ec h n o l o g y A n a l y s i s a n d S t r a t e g i c

Management , I n t er n a ti o n al J o u rn a l o f Te c h no l o gy M a na g e me n t , R evista

E uropea de Direccion y E conom a d e l a E m p re sa , or E c o n o m i a I n d u s t r ia l .

mailto:[email protected]:[email protected]:[email protected]

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