Towards Understanding The Direct and Indirect Effects of CEOs' Transformational Leadership On Firm Innovation Dongil (Don) Jung A,, Anne Wu B, 1, Chee W. Chowc
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Towards understanding the direct and indirect effects of CEOs'
transformational leadership on firm innovation
Dongil (Don) Jung a,⁎, Anne Wu b,1, Chee W. Chowc
Оригинальное название
Towards understanding the direct and indirect effects of CEOs'
transformational leadership on firm innovation
Dongil (Don) Jung a,⁎, Anne Wu b,1, Chee W. Chowc
Towards understanding the direct and indirect effects of CEOs'
transformational leadership on firm innovation
Dongil (Don) Jung a,⁎, Anne Wu b,1, Chee W. Chowc
0 оценок0% нашли этот документ полезным (0 голосов)
38 просмотров13 страниц
Towards Understanding The Direct and Indirect Effects of CEOs' Transformational Leadership On Firm Innovation Dongil (Don) Jung A,, Anne Wu B, 1, Chee W. Chowc
Towards understanding the direct and indirect effects of CEOs'
transformational leadership on firm innovation
Dongil (Don) Jung a,⁎, Anne Wu b,1, Chee W. Chowc
Towards understanding the direct and indirect effects of CEOs'
transformational leadership on rm innovation
Dongil (Don) Jung a, , Anne Wu b,1 , Chee W. Chow c,2 a Department of Management, College of Business, San Diego State University, 5500 Campanile Dr., San Diego, CA 92182, USA b Department of Accounting, National Chengchi University, Wenshan, Taipei, Taiwan c School of Accountancy, San Diego State University, San Diego, CA 92182, USA a r t i c l e i n f o a b s t r a c t This study seeks to advance understanding of howtransformational leadership by top managers (CEOs) can affect their companies' innovativeness. We propose a model that includes bothdirect effects and indirect effects moderated by aspects of organizational culture, structure, and the external environment. The predicted effects are tested with data collected through multiple sources on 50 Taiwanese electronics and telecommunications companies. The results support the expectation that a positive relationship exists between CEOtransformational leadership and organizational innovation. They also support most of the predicted moderating effects. The implications of these ndings for practice and research are delineated. Published by Elsevier Inc. Keywords: Transformational leadership Innovation Moderators This study seeks to advance understanding of how transformational leadership by Chief Executive Ofcers (CEOs) affects innovation at the organizational level. This topic is important because in today's global economy, rms are under constant pressure to innovate their products and services (Andriopoulos &Lowe 2000; Perry-Smith, 2006; Puranam, Singh, &Zollo, 2006; Tierney, Farmer, & Graen, 1999). Thus, for example, Leifer, O'Connor, & Rice (2001) have observed that the contemporary competitive landscape has been and continues to be driven by technological revolution, globalization, hyper-competition, and extreme emphasis on price, quality, and customer satisfaction, requiring an increased recognition and focus on innovation as a strategic competence (p. 102). Numerous studies have sought to identify factors that can stimulate organizational innovation, broadly dened by Amabile & Conti (1999) as the implementationor adoptionof new, useful ideas by people inorganizations (p. 630). Examples of factors found to have an effect include leadership (Amabile, 1998; Mumford & Gustafson, 1998), intra-organizational networks and learning capability (Tsai, 2001), CEO pay (Balkin, Markman, & Gomez-Mejia, 2000), a creativity-conducive work environment (Amabile, 1998), job complexity and type of supervision (Oldham & Cummings, 1996), and organizational culture and climate (Mumford & Gustafson, 1998). Among these myriad factors, managers' leadership behavior has been identied by many researchers as being one of the most, if not the most, important (Amabile, 1998; Jung, 2001; Mumford, Scott, Gaddis, & Strange, 2002). Indeed, over the past two decades, many management scholars and practitioners have called for more adaptive leadership by top business executives in responding to the rapid changes confronting today's organizations (Bass, Avolio, Jung, & Berson, 2003). Corporate chieftains like Jack Welch of General Electric and Lou Gerstner of IBM have been cited as examples of how adaptive leaders can successfully restructure and transform their organizations. The label transformational has been applied to a set of adaptive leadership behaviors held to be more effective than other leadership styles in enhancing organizational innovation (Lowe, Kroeck, & Sivasubramaniam, 1996; Gardner & Avolio, 1998; Howell & Avolio, 1993). Despite being held to be a key driver of innovation at the organizational level, transformational leadership's effects have mostly been studied at the levels of individual employees or organizational subunits (Mumford et al., 2002). The limitation of such a focus The Leadership Quarterly 19 (2008) 582594 Corresponding author. Tel.: +1 619 594 0208; fax: +1 619 594 3272. E-mail addresses: donjung@mail.sdsu.edu (D.(D.) Jung), anwu@nccu.edu.tw (A. Wu), Chow@mail.sdsu.edu (C.W. Chow). 1 Tel.: +886 2 2938 7128. 2 Tel.: +1 619 594 5331. 1048-9843/$ see front matter. Published by Elsevier Inc. doi:10.1016/j.leaqua.2008.07.007 Contents lists available at ScienceDirect The Leadership Quarterly j our nal homepage: www. el sevi er. com/ l ocat e/ l eaqua is that, unless thecreativebehaviors andoutputs of individuals andsubunits arecoordinatedtoyieldorganizational-level outcomes, the companyas awhole still couldbeleft without effective responses tothe challenges of a competitive market place. Asecondlimitationof extant researchis that it has mainly used subjective performance measures (e.g., self-reported andsupervisory ratings of creativity and innovation), which are open to judgment and other biases. Although objective measures are not necessarily free of other forms of unmeasured systematic or random error, they are less subject to cognitive biases and can more directly capture the end-products of innovative efforts in an organization. Therefore, our empirical tests go beyond subjective assessments of organizational innovation to also include objective measures. A further advance over prior research is that we identify and simultaneously test a number of internal and external organizational attributes that may interact with leadership behaviors in affecting organizational innovativeness. We focus on CEOs because they usually play key roles in determining organizational policies/processes as well as resource allocations, yet relatively fewstudies have examined howthey affect innovation at the organizational level. Specically focusing on transformational leadership, Waldman & Yammarino (1999) have called for more research on how this type of leader behavior affects organizational performance through various levels of mediators and moderators. Recently, several authors have undertaken work of this nature. Zhu, Chew, & Spangler (2005) collected company-level data from 170 rms in Singapore. They found perception of the CEO's transformational leadership to be positively associated with perceptions of organizational outcomes (e.g., ability to attract essential employees), and negatively associated with absenteeism. They also found that a company's practices in performance appraisal, stafng, training, and compensation systems fully mediated the relationship between CEO transforma- tional leadership and perceived organizational outcomes. Similarly, De Hoogh & her colleagues (2005) studied 73 small and medium-sized companies, and found that perception of the CEOs' transformational leadership had a positive relationship with their direct reports' work attitude. While these studies did not focus on organizational innovativeness, they do provide support for expecting that the CEO's leadership behavior can affect organizational level outcomes. A prior study that did examine this relation is Jung, Chow & Wu (2003). They posited that a positive direct relation would exist between CEO transformational leadership and organizational innovation, and that this relation would be moderated by the organization's extent of employee empowerment and climate of support for innovation. Survey data from 32 Taiwanese electronics/ telecommunications rms supported the expected direct effect. They also revealed a statistically signicant positive moderating effect fromclimate of support for innovation. However, Junget al. (2003) were emphatic that their results neededvalidation. Specically, they noted as limitations their relatively small sample size and their use of only one informant per rm for each measurement scale. They also stressed the need to expand the scope of their organizational innovation measure and to augment the set of moderating variables. Our study is patterned after Jung et al. (2003) and advances over this prior study in several ways. First, our sample includes a larger number of rms, and we use multiple informants in each rm. Second, we use a more encompassing measure of organizational innovativeness. Finally, we test the moderating effects of a richer set of variables. In addition to empowerment and climate for innovationwhich were included in Jung et al. (2003), we propose moderating effects fromtwo organizational structural attributes (centralization and formalization) and two attributes of the external environment (competition and uncertainty). In the following subsections, we explicate the theoretical basis for the hypothesized direct and moderating effects. Following that, the method section will describe how we use a multi-source and multi-dimensional approach to operationalize the variables. 1. Theoretical background and hypotheses 1.1. Transformational leadership and organizational innovation Bass et al. (2003) have characterized transformational leadership as encompassing ve theoretically distinct components: charisma, idealized inuence, inspirational motivation, intellectual stimulation, andindividualizedconsideration. Theyexplain that both charisma and idealized inuence have to do with serving as role models, with the former reecting followers' attributions and the latter capturing leaders' behaviors. Leaders with idealized inuence tend to place followers' needs over their own needs, share risks with followers, and exhibit adherence to a set of underlying principles and values. Inspirational motivation involves providing meaning and challenge to followers' work, including inculcating visions of the future. Intellectual stimulation entails stimulating followers to question assumptions, reframe problems, and to approach old situations in newways. Newideas and creative solutions are solicited from followers, and there is no public criticism of individuals' mistakes. Finally, leaders who provide individualized considerationare seenas ones who pay attentionto followers' individual needs for achievement andgrowth. They do so byacting as coach or mentor, and by creating learning opportunities as well as a supportive climate in which to grow. Advocates of transformational leadership maintain that by means of their behavior, transformational leaders create personal and professional commitment from subordinates toward higher-level needs like self-esteem and self-actualization (Bass, 1985; Gardner & Avolio, 1998). This in turn increases the latter's intrinsic motivation, which has been identied as an important driver of employee creativity and rm innovation (Oldham & Cummings, 1996; Amabile, 1998; Zhou, 2003). In addition, a transformational leader's intellectual stimulation can facilitate unconventional and innovative thinking and working processes that lead to new knowledge and technology, which is fundamental to rm innovation (Dougherty & Hardy, 1996). At the opposite end of the spectrum, transactional leadership focuses on maintaining the status quo and motivating people through contractual agreement (Bass, 1985). This leadership style tends to emphasize extrinsic rewards, such as monetary incentives and promotion, as a means to increase followers' motivation. Amabile, Conti, Coon, Lazenby, & Herron (1996) have specically identied transactional leadership as being detrimental to creativity, and a recent meta-analysis by Bono & Judge (2004) has provided support for this proposition. It found that as compared to transactional leadership, transformational leadership yielded higher employee job satisfaction and increased their autonomous goal-directed motivation. 583 D.(D.) Jung et al. / The Leadership Quarterly 19 (2008) 582594 Along the same vein, other studies have found that leaders who display transformational behaviors are able to realign their followers' values and norms, promote both personal and organizational changes, and help followers to exceed their initial performance expectations (e.g., House &Shamir, 1993; Jung &Avolio, 2000. See Mumford et al., 2002 for a review). Byand large, these studies have focused on leadership and outcomes at individual or organizational subunit levels using experimental settings and/or subjective measures of creativity (e.g., subjective supervisor ratings). For example, Sosik, Avolio, & Kahai (1997) found that as comparedtoother leadershiptypes, transformational leadershipwas more effective at encouragingfollowers tothink out of the box and to adopt generative and exploratory thinking processes that yielded more creative ideas and solutions. Keller (1992) discovered that transformational leadership displayed by project team leaders in a large R&D organization improved teamperformance. Shin & Zhou (2003) studied 290 employees and their supervisors from 46 Korean companies, and found a positive relation between transformational leadership and follower creativity. While Jung et al. (2003) did consider the link between CEO transformational leadership and organizational innovativeness, the authors were emphatic that their exploratory study needed validation. Another point to note about these prior studies is that few have gone beyond the relational aspects of transformational behaviors. Although leaders oftentimes promote creative thoughts and encourage innovation by interacting with followers (e.g., challenging their long-held assumptions regarding their work approaches), CEOs may inuence innovation in yet other ways. In particular, Upper Echelons Theory posits that organizational outcomes bothstrategies and effectiveness are reections of the values and cognitive bases of powerful actors in the organization. (Hambrick & Mason, 1984, p. 193.) In other words, leaders in the upper echelons of an organization inuence organizational performance directly through their characteristics and behaviors and indirectly through the strategic choices they make. As the top executive and a powerful actor, the CEO is in a unique situation to determine the organization's strategies in responding to the challenges of the environment, and CEOs with transformational leadershipare likely to choose strategies that are change- andgrowth-orientedinnature. Thus, we specify the following hypothesis: Hypothesis 1. Organizational innovation is positively related to the CEO's extent of transformational leadership. 1.2. Moderating effects Although we have made the case for CEOs' leadership behavior to directly inuence organizational innovation, it must also be recognized that such behavior occurs within the larger context of the organization. As such, the analysis would be incomplete without also considering attributes of the organizational and environmental contexts inwhich rminnovation occurs (Damanpour, 1991; Scott &Bruce, 1994; Mumford et al., 2002; Jung et al., 2003). Amabile &her colleagues (1996) have labeled this the context of creativity. In the following subsections, we develop expectations of howspecic attributes of organizational climate, structure, and the external environment would moderate the relationship between CEO transformational leadership and rm innovation. 1.3. Attributes of organizational climate 1.3.1. Climate for innovation Organizational climate is widely dened as organizational members' shared perceptions of organizational policies, practices, and procedures, both formal and informalindicative of the organization's goals and appropriate means to goal attainment. (Reichers & Schneider, 1990, p. 22). Scott & Bruce (1994) have further explained that climate represents signals individuals receive concerning organizational expectations for behavior and potential outcomes of behavior (p. 582). By serving as the gel that ties together employees from different units and levels, an organization's climate can work for or against particular goals (Daft, 2001). Since innovation typically requires long-term investments and risk-taking (Balkin et al., 2000), employees need to perceive that the organization supports working on innovative yet more risky ideas and products rather than focusing on short-term prot and immediate nancial results (Kanter, 1983). Thus, Mumford & Gustafson (1998) have argued that even when individuals have developed the capacity for innovation, their willingness to undertake productive efforts may be conditioned by beliefs concerning the consequences of such actions in a given environment (p. 37). As such, when there is not a climate that supports or values innovative initiatives, a CEO's transformational leadership behaviors alone may only marginally stimulate employee efforts towards innovation. Consistent with this view, a study of 78 managers by Howell & Avolio (1993) found that when there was a climate of support for innovation within the organizational unit, there was a signicant positive relationship between the intellectual stimulation provided by the leader and the unit's innovative performance. But when support for innovation was absent, the relationship was insignicant. Jung et al. (2003) have provided preliminary evidence consistent with climate for innovation moderating the link between CEO transformational leadership and organizational innovation. 1.3.2. Empowerment Allowing subordinates autonomy and exibility in carrying out their duties can create a sense of ownership and control over the work to be performed (Mumford et al., 2002), and Amabile et al. (1996) and Quinn (1985) have suggested that employees produce more creative work when they perceive more personal control over howto accomplish given tasks. Empirical support for this view has been provided by Zhou (2003), who found that individuals generated the most creative ideas when they worked in a high task autonomy environment. Jung & Sosik (2002) also have argued that people need to be empowered before they could develop intrinsic motivation, which in turn promotes creative endeavors, while Damanpour (1991) has suggested that empowering employees facilitates innovation by increasing their awareness, commitment, and involvement. More specically related to transformational leadership, Avolio, Zhu, Koh, & Bhatia (2004) have found that the effect of such leadership on employee commitment depended on employees' sense of empowerment. Taken as a whole, the preceding discussion suggests that for the 584 D.(D.) Jung et al. / The Leadership Quarterly 19 (2008) 582594 CEO's transformational leadership to stimulate organizational innovation, employees must feel that they have freedom to choose what they work on and how to go about accomplishing their goals. Prior studies of empowerment have mainly dened and measured this construct at the individual level (e.g., Liden, Wayne, & Sparrowe, 2000; Spreitzer, 1995). However, some recent studies (e.g., Kirkman, Rosen, Tesluk, & Gibson, 2004) have used empowerment as a team construct and argued that it increased task motivation due to team members' collective, positive assessment of their organizational task (p. 176). Additionally, Klein, Conn, Smith, & Sorra (2000) have shown that the referent does not invalidate aggregating data to a higher level as long as a high level of within-group agreement is ensured. Thus, we believe there is a sufcient basis for treating empowerment as an organizational level construct, representing employees' shared and collective assessment of the degree to which they are granted autonomy and exibility at work. While Jung et al. (2003) failed to nd a signicant moderating effect from empowerment at the organizational level, the extent of literature support for this effect suggests that further empirical tests, using larger samples and improved measurement, are desirable. Thus, we hypothesize: Hypothesis 2. Climate for innovation and empowerment moderate the relationship between CEO transformational leadership and organizational innovation such that the relationship is more positive among companies with higher levels of (a) climate for innovation and (b) empowerment. 1.4. Organizational structure Since the idea was introduced by classic writings like Burns and Stalker (1961) and Lawrence and Lorsch (1967), researchers have examined how an organization's structure affects its ability to implement creative ideas and to come up with innovative products (Frambach & Schillewaert, 2002). Below, we consider how two attributes of organizational structure centralization and formalization may moderate the relationship between the CEO's transformational leadership and organizational innovation. 1.4.1. Centralization Centralization refers to the degree to which top management delegates decision-making authority to lower-level personnel (Daft, 2001), and mostly relates to what types of decisions an employee is allowed to make. As such, this construct is distinct from empowerment, which primarily concerns the latitude to decide howto undertake given tasks. In a highly centralized organization, employees below the top level have limited autonomy. This can impede efforts at innovation because, as was noted earlier, people tend to become more creative when they feel that they have control over their work (Damanpour, 1991; Amabile et al., 1996; Quinn, 1985). Additionally, organizational innovation typically requires coordination and collaboration across departments and functional specialties (Miller, Droge, & Toulouse, 1988). A highly centralized organizational structure can obstruct such collaborative efforts even when top managers are supportive of innovation. 1.4.2. Formalization Formalization differs from centralization in that it is the extent to which an organization regulates employees' work-related activities with written rules and formal procedures (Grinyear & Yasai-Ardekani, 1980). Empirically, Damanpour (1991) has found that formalization impedes organizational innovation. One reason for this negative impact may be that a highly formalized organization tends to be bureaucratic, and its employees are more likely to resist change (Hage, 1988; Kanter, 1989). A formalized organizational structure also can constrain deviations from established practices that leverage employees' creative potential, or hinder collaborative or uid work processes needed to develop innovative products (Dougherty & Hardy, 1996). Thus, as with centralization, formalization can hinder transformational leaders' efforts at increasing organizational innovation. Based on the preceding discussion, we hypothesize a moderating role for the two structural variables in the relationship between CEO transformational leadership and organizational innovation: Hypothesis 3. Centralization and formalization moderate the relationship between CEO transformational leadership and organizational innovation such that the relationship is more positive among companies with lower levels of (a) centralization and (b) formalization. 1.5. Environmental attributes Finally, we hypothesize that two environmental variables uncertainty and competition would moderate the relationship between CEO transformational leadership and organizational innovation. This effect is expected to arise through these variables' impacts on the context in which innovative work processes occur, and/or the costs and benets of organizational innovation. 1.5.1. Uncertainty When the environment is uncertain and turbulent, and/or customers have shifting preferences, organizational innovation becomes more important to survival (Miller et al., 1988; Drazin & Schoonhoven, 1996). Thus, when members of an organization perceive a high level of environmental uncertainty, a sense of crisis or urgency is created, and the need for innovation becomes more widely accepted (Frambach & Schillewaert, 2002). Consistent with this view, a number of early studies found a positive relation between environmental uncertainty and rm innovation (e.g., Hambrick, 1981). More recently, Song & Montoya-Weiss (2001) have reported that perceived technological uncertainty moderates new product development in Japanese companies. Specically, Japanese project managers' perceived level of technological uncertainty affected how they manage the new product 585 D.(D.) Jung et al. / The Leadership Quarterly 19 (2008) 582594 development process by selectively focusing on different competitive advantages such as marketing prociency, cross-functional integration, and technical synergy. Taken together, the preceding literature provides the basis for expecting a positive moderating effect of uncertainty on the relationship between CEO transformational leadership and organizational innovation. 1.5.2. Competition We also expect competition to have a positive moderating effect. When an organization operates in a highly competitive market, or when its members perceive that they are operating under competitive market conditions, they are more likely to accept the need for innovation (Frambach & Schillewaert, 2002). In a highly competitive industry such as computers and consumer electronics, for example, the value and uniqueness of knowledge-intensive resources can be swiftly lost to competitors (Balkin et al., 2000, p.1118). As such, just like the case of environmental uncertainty, competition can increase subordinates' responsiveness to stimuli for innovation. However, competition also may reduce the slack resources (e.g., via reduced prot margins) for supporting experimentation and innovation initiatives. Nohria & Gulati (1996, p.1246) dened such resources as the pool of resources in an organization that is in excess of the minimumnecessary to produce a given level of organizational output, and found an inverse U-shaped relationship between slack resources and innovation. In total, then, while competition can increase attention to innovation, its net impact may be dampened by a lower availability of resources for supporting long-term and risky initiatives. Taken as a whole, our discussion above suggests our fourth hypothesis: Hypothesis 4. Uncertainty and competition moderate the relationship between CEO transformational leadership and organizational innovation such that the relationship is more positive among companies with higher levels of (a) environmental uncertainty and (b) competition. 2. Method 2.1. Participants We focused on a single industry so as to limit extraneous inuences due to different industry types. Our sample was comprised of 50 Taiwanese companies from the electronics and telecommunications industry. This industry was selected because new product development and creative R&D efforts are critical for company survival due to the industry's rapid technological advances and highly competitive markets (Carey & Nahavandi, 1996; Balkin et al., 2000; Schilling & Hill, 1998). To generate the sample, we used a database of published nancial statements (the Taiwan Economic Journal Taiwan Data Bank) to identify all Taiwanese electronics and telecommunications companies that were traded either on the Taiwan Stock Exchange or over-the-counter. We randomly selected 50 of the 317 rms identied, and solicited their participation by approaching a top manager (vice president and above) of each company with the aid of consulting and accounting rms. As inducement, each rm was promised a report comparing it to the rest of the sample. As we encountered (initial) refusals, replacements were randomly selected. In total, we approached 62 companies, out of which 53 (85.5%) ultimately participated. As explained further below, three of these rms were later dropped due to inadequate data. Multiple data sources were used to control common response biases. Three sources were used to measure each company's level of innovation: published nancial statements, a government report on patents granted, and nancial analysts specializing in the Taiwanese electronics and telecommunications industry. Information on leadership behavior and the contextual variables was obtained from surveying managers with at least three years' work experience in their companies. Three top-level managers representing various functional areas from each company were asked to complete Survey A, which measured their company's demographic characteristics (e.g., age, size) and the CEO's extent of transformational leadership. The respondents were selected from those who worked closely with, and/or had frequent interaction with the CEO. This group also answered questions on their organizations' environmental uncertainty and degree of competition. A second group of three mid- to top-level managers per rm was given Survey B that contained measures of empowerment and climate for innovation. A third group of managers (four mid- to top-level managers per rm) was given Survey C containing measures of centralization and formalization. In total, there were 141, 144, and 200 completed responses to Surveys A, B, and C. 2.2. Procedures Each company provided a contact person (typically vice president or above). This person was visited personally by the second author, whoexplainedthe general nature of the study without revealing thespecic hypotheses. Thenthecontact personwas provided with copies of the three surveys and givenexplicit instructions on the number and type of managers neededto complete eachversion. Without exception, the contact persons expressed enthusiasm for the study and committed to following the instructions. To encourage truthful responses in light of many questions' sensitive nature (e.g., the CEO's leadership behaviors, organizational structureandclimate), completecondentialityandanonymitywas guaranteedfor bothrespondents andtheir companies, andapostage- paid, self-addressed envelope was provided for direct return of completed surveys to us. Since responses were obtained from multiple managers in each company, all surveys provided to a company had a common identication code. The presence and purpose of this code was explained in the survey instructions. Participants also were given the second author's contact information in case of questions. Because the survey was administered in Chinese, we followed Brislin's (1986) recommendation of translation and back- translation to ensure conceptual equivalence between the original instruments (in English) and the Chinese versions. A number of 586 D.(D.) Jung et al. / The Leadership Quarterly 19 (2008) 582594 recent studies on leadership have adopted a similar approach (e.g., Shin & Zhou, 2003). All three surveys were rst translated into Chinese by a bilingual individual who was not told the objective of the study. Then, another bilingual person back-translated these into English without having access to the original instruments. Only a few minor changes to the Chinese surveys were triggered by comparing the back-translated and original English versions. 2.3. Demographic statistics Survey A contained a question on howfrequently the respondent interacted with his/her rm's CEO. The possible answers were rarely, once in a while, sometimes, fairly often, and regularly. In three of the rms, at most one respondent had answered with a frequency higher than rarely or once in a while. These rms were dropped to preserve the integrity of the leadership measure and accordingly, the usable responses to Surveys A, B, and C were reduced to 132, 135, and 188, respectively. On average, the 50 rms remaining in the sample had been in existence for about 17.7 years (range: 5.2 to 37 years). The average tenure of the CEOs was about 10 years and all had been with their company for at least 3.5 years, which was sufcient to span the three-year period (20002002) from which we drew our innovation measures. The companies were relatively large. Only three had fewer than 100 full-time employees. Twenty-three had between 101 and 1000 employees, and the remaining 24 companies had more than 1000 full-time employees. To assess the representativeness of our sample rms, we compared their 2002 sales and R&Das a percentage of sales to those of the 267 Taiwanese electronics and telecommunications rms not included in this study. These two measures were used because they are available fromthe publicly disclosed nancial statements (whereas attributes like leadership behavior and environmental uncertainty are not). There was no signicant difference on the latter (mean values of 0.042 vs. 0.04, p=0.825), but the mean size of the sample rms was signicantly larger than that for the non-sample rms (New Taiwanese Dollars: 22.792 billion vs. 8.612 billion, pb0.0001). Thus, our sample rms are more representative of the larger, and presumably more important/inuential, ones in the Taiwanese electronics and telecommunications industry. The respondents' demographic proles suggest that they were well qualied to answer the survey questions. All indicated that they were either senior- or middle-level managers. In terms of gender and age, the majority of the Survey A respondents were male (70%), and they were quite evenly split between 30 to 40 years old (41%) and 41 to 50 years old (45%). On average, they had been working for their company for 8.8 years (sd=6.22 years) and for the current CEO for 5.8 years (sd=5.3 years). The vast majority (97%) had a college degree or above. Their average tenure in their current job was about 4.5 years and the majority (74%) indicated that they interacted with their CEO either fairly often or regularly. Similarly, most Survey B respondents were male (82%). Slightly over half (57%) were between 41 and 50 years old, with another 39% being in the 30 to 40 age bracket. On average, they had been working for their company for 8.9 years (sd=5.8 years), with an average tenure at the current job of 4.3 years. The vast majority (98%) had a college degree or above. The Survey C respondents were slightly younger than the other two groups. About 66% of them were between 30 and 40 years old, and their average lengths of organizational and positional tenure were 7.9 and 3.7 years, respectively. This group also had a more balanced gender ratio (65% male). Like the other two groups, they were well educated (97% had college or above levels of education). 2.4. Measures The CEO's extent of transformational leadership was measured using Bass & Avolio's (1997) Multifactor Leadership Questionnaire (MLQ). The MLQ has been extensively used in prior research and is considered to be a well-validated measure of transformational leadership (Awamleh & Gardner, 1999). Its construct validity has been demonstrated using Conrmatory Factor Analysis (cf. Avolio, Bass, & Jung, 1999). Each participant was asked to rate four aspects of his/her CEO's behavior related to each of the ve transformational leadership dimensions (total =20 items). The 5-point response scale for each item was anchored by 1=strongly disagree and 5=strongly agree. Sample items are My CEO talks optimistically about the future (for inspirational motivation) and My CEO gets me to look at a task from many different angles (for intellectual stimulation). Employees' perception of empowerment was measured using a 12-item scale developed by Spreitzer (1995). A sample item is I have signicant autonomy in determining how I do my job. All items were rated using a 7-point scale anchored by 1=Very strongly disagree and 7=Very strongly agree. Existence of an innovation supporting organizational climate was measured with a 22-itemscale originally developed by Siegel & Kaemmerer (1978), and later modied by Scott & Bruce (1994). It contains two subscales (support for creativity and tolerance of differences). Sample items are This organization gives me free time to pursue creative ideas during the workday and People around here are expected to deal with problems in the same way. All items were rated on a 7-point scale anchored by 1=Very strongly disagree and 7=Very strongly agree. The centralization and formalization measures were adapted fromsurveys developed by Khandwalla (1977) and Pugh, Hickson, Hinings, and Turner (1968), and extensively used in prior research with adequate levels of reliability (Chow, Shields, & Wu, 1999; Gordon & Narayanan, 1984). Minor modications were made to t the context of the current study. Specically, respondents were asked to indicate the lowest managerial level to which authority has been delegated to make each of eight decisions (e.g., hiring and ring employees, preparation of operating procedures and project calendars). All questions were based on a 7-point scale anchored by 1=Top management; 4=Middle management; and 7=First line supervisors. The responses were reverse scored to yield the centralization measure. The formalization question also focused on these eight decisions, and asked respondents to identify the highest managerial level for which their companies had written manuals that specify how to make each decision. 587 D.(D.) Jung et al. / The Leadership Quarterly 19 (2008) 582594 Perceived competition and environmental uncertainty were measured by questions adapted from Khandwalla's (1977) instrument. Specically, we asked respondents to rate the intensity of competition in their industry on (a) obtaining inputs and (b) price. The 7-point response scale was anchored by 1=Of negligible intensity and 7=Extremely intense. For environmental uncertainty, respondents were asked How stable/dynamic is the external environment facing your company in terms of these aspects: (a) economic; (b) technological; and (c) political/regulatory? The 7-point response scale for each aspect was anchored by 1=Very stable (changing slowly) and 7=Very dynamic (changing rapidly). Having an accurate measure of organizational innovation is important because if organizations are misclassied on this attribute, then inferences about different factors' effects also will be mistaken. In developing the innovation metric, we heeded Balkin et al.'s (2000) recommendation that a composite measure be used to capture broad aspects of innovative activities. In total, we collected three measures to tap into different aspects of innovation. First was annual R&D expenditures as a percentage of sales revenues over the three years prior to our survey (i.e., 2000 through 2002). Many authors (e.g., Hitt, Hoskisson, & Kim, 1997; Balkin et al., 2000) have argued that this ratio proxies for a rm's emphasis on innovation. The data were obtained fromthe sample rms' publicly disclosed nancial statements. Second, sinceinputs maynot successfullyproduceoutputs, wealsoincludedthenumber of patents that acompanyhadobtainedduring the same three-year period. This measure has been commonly used by past research as an indicator of creative performance (Oldham & Cummings, 1996). The data came from the patent database of the Taiwanese Ministry of Economic Affairs' Intellectual Property Ofce. Third, we contacted 20 nancial analysts in Taiwan actively following the electronics and telecommunications industry. These analysts have a professional stake in understanding the fundamental strengths and weaknesses of each rm that they follow, and also would have access to an extensive database for doing so (Barron, Byard, Kile, & Riedl, 2002; Barth & Hutton, 2004). The reason for seeking their evaluations of each company was that, while the number of patents has face validity, it is limited to innovations that are amenable to patent application, and for which rms consider patents to offer meaningful property rights protection. As such, its scope excludes other fruits of innovation efforts, such as process and service improvements. Consider the case of Dell Computer. The company is well known for its innovative operational processes such as a made-to-order manufacturing systemand responsive customer services, which have fueled its market dominance in the U.S. computer industry. Yet it seems unlikely that innovations of this nature would be manifest in the number of patents obtained. Each analyst was asked two questions about each sample rm. The rst question was his/her familiarity with the company. The three possible answers were 1=Not familiar with this company at all; 2=Somewhat familiar with this company; and 3=Very familiar with this company. The second question asked for a rating of the company's innovativeness, dened as the ability to develop new products, services, processes or systems for fullling customers' needs. The 7-point response scale was anchored by 1=Totally lacking in innovation; 4=Average in innovation; and 7=Highly innovative. Only analysts who answered at least a 2 to the rst question were kept for each company. All sample companies had valid ratings fromat least 10 different analysts. There was very high agreement among their innovationratings, as indicatedby the reliabilityscore (.96). Thus, we averaged their ratings for eachcompany. 3. Results We tested our hypotheses with the partial least squares (PLS) structural equations modeling technique (Wold, 1985), which is increasingly being adopted by leadership researchers (e.g., Bass et al., 2003; Howell, Neufeld, &Avolio, 2005; Shamir, Zakay, Breinin, &Popper, 1998). This methoddoes not make assumptions about (a) data distributions to estimate model parameters, (b) observation independence, or (c) variables metrics (Barclay, Higgins, & Thompson, 1995). As compared to more traditional techniques like regression, PLS also is less vulnerable to measurement errors in variables and the effects of outliers (Wilcox, 1998). These attributes make PLS particularly suitable for testing multivariate mainandindirect effects models. This is especiallyso for small sample sizes as in the present study (Chin, 1998; Sosik & Dworakivsky, 1998). The reason is that regression requires that one has more observations than variables for sample size sufciency (e.g., at least 34 observations per variable to get reliable estimates of the errors). In contrast, PLS converts the data into pseudo-variables which capture the variability in the data related to what one is trying to predict. Since there are fewer pseudo-variables than variables, fewer observations are needed (Martens & Naes, 1989). 3 PLS generates estimates of standardized regression coefcients (i.e., path coefcients) for the model paths, which can then be used to measure the relationships between latent variables (see Sambamurthy & Chin, 1994 for more information on PLS). We used a jackkning procedure called blindfolding to evaluate the statistical signicance of the path coefcients (Sambamurthy & Chin, 1994). This procedure omits a part of the data matrix for a particular variable and then estimates path coefcients associated with that variable. The customary omission distance of 10 was used. Since there were multiple raters of CEOleadership as well as the moderating variables, we rst tested within-company variance using James, Demaree & Wolfe's (1984) r wg procedure. We found at least 90% of the companies had a r wg value of .7 or higher for all of the scales. Interrater agreement based on intraclass correlations also showed acceptable ranges for all of the measured variables (transformational leadership=.88; empowerment =.78; climate for innovation=.84; centralization=74; formalization=.85; competition=.74; and uncertainty=.71). Based on these results, we aggregated our data to the company level and conducted all subsequent data analyses at this level. 4 3 A more detailed discussion of the attributes and benets of PLS is available from the rst author. 4 While most of our measures relate to the company as a whole (e.g., centralization, climate for innovation, competition), our empowerment scale focused on the individual manager. As we had noted earlier, Klein et al. (2000) have shown that individual level measures can be aggregated to higher levels if there is a high level of within-group agreement. Since our data satised this criterion, we believe that our aggregation approach is valid for testing empowerment as a rm-level construct. A similar point applies to our measures of climate for innovation and CEO leadership. 588 D.(D.) Jung et al. / The Leadership Quarterly 19 (2008) 582594 Our analyses used the individual items as indicators for all scales except for transformational leadership, which used ve scale scores (i.e., charisma, idealized inuence, inspirational motivation, intellectual stimulation, and individualized consideration) as indicators (see Sosik & Dworakivsky, 1998 for a similar approach). Given the large number of items used to measure the constructs of interest, we rst ran a preliminary PLS analysis with all of the survey items to test the scales' psychometric properties. Three criteria were used to determine whether any item indicator should be retained. First, to ensure adequate reliability, the factor loadings of indicators associated with each construct had to be .60 or above (Bagozzi & Youjae, 1988). Second, the composite scale reliability for each construct (an internal consistency estimate similar to alpha) had to exceed .70. Finally, the average variance extracted by the latent constructs from their indicators had to exceed .50 (Fornell & Larcker, 1981). Applying these criteria led to the retention of 4 items for empowerment, 8 items for climate for innovation, 4 items for centralization, 4 items for formalization, 2 items for competition, and 3 items for environmental uncertainty. Finally, the two output-based innovation measures (number of patents obtained and analysts' ratings) loaded onto a single construct consistently. Table 1 shows descriptive statistics and inter-correlations among the scales. 5 3.1. Results for the measurement component Table 2 presents the factor loadings, composite scale reliabilities and average variance extracted for constructs that contained two or more items. Since PLS estimates its measurement and structural models simultaneously, we ran a full scale model that contains CEO transformational leadership as well as the six moderators as independent variables predicting rm innovation. Table 2 shows that all constructs satised all three retention criteria described earlier. Additional analyses were run to test the constructs' convergent and discriminant validity by comparing the average variance extracted by each construct (diagonal elements) and correlations between constructs. The results showed that the items representing a construct share more variance with each other than with other constructs in the model, thus indicating adequate convergent and discriminant validity (Carmines & Zeller, 1979; Wold, 1985). 6 3.2. Results for the structural component and hypotheses In response to the ndings of past research (e.g., Miller et al., 1988), we included each company's size (number of full-time employees) as a control variable. Additionally, the CEO's organizational tenure was used to control for the possible effects of time sharpening or dulling the effects of his/her transformational leadership. The PLS analysis showed that the model as a whole accounted for about 54% of the variance in rm innovation. Company size was signicantly and positively related to organizational innovation (=.31, pb.001), while CEO tenure was signicantly and positively related to subordinates' perception of transformational leadership (=.21, pb.001). 5 The third innovation metric, annual R&D expenditures as a percentage of sales revenues, had a loading of .50 on its own, unique factor. The R&D measure had correlations of .09 and .03, respectively, with the patent and analysts ratings measures, while the latter two had a statistically signicant 0.50 correlation. We conducted all of the analyses by using, alternately, the R&D measure and the aggregate of the latter two metrics (after converting each into a zero mean and unit variance distribution). The same patterns of results were obtained, though the effects were generally smaller in absolute magnitude when the R&D measure was used. Below, we only report the results for the aggregate measure for parsimony. Results based on the R&D measure are available from the rst author on request. The lack of a signicant correlation between R&D and the other two innovation measures, together with the similar patterns of signicant effects, suggest that the variables in our model are applicable to both the input and output ends of organizational innovation. 6 Tables for convergent and discriminant validity are not presented here to conserve space. They are available from the rst author upon request. Table 1 Descriptive statistics and inter-correlations among constructs (n=50 companies) Variable Mean SD Intercorrelations 1 2 3 4 5 6 7 8 9 10 1. CEO transformational leadership 3.74 .42 (.87) 2. Empowerment 5.54 .49 .14 (.84) 3. Climate of support for innovation 4.73 .69 .39 .24 (.90) 4. Centralization 3.24 .80 .15 .08 .35 (.70) 5. Formalization 1.98 .68 .03 .09 .02 .33 (.90) 6. Uncertainty 5.17 .77 .05 .05 .03 .03 .16 (.71) 7. Competition 6.06 .63 .37 .06 .09 .10 .14 .43 (.74) 8. Organizational innovation a .01 .89 .09 .26 b .32 .20 .10 .31 .01 9. CEO tenure with his/her organization 9.95 6.68 .18 .12 .02 .01 .16 .02 .12 .16 10. Company size c 3.07 1.23 .08 .06 .08 .01 .08 .41 .10 .52 .08 Note: values on the diagonal (in parentheses) represent Cronbach alphas. Values off the diagonal are correlations between constructs. a The two output-based measures of organizational innovation (# of patents and analysts' ratings) were standardized into zero mean and unit variance distributions before they were combined into an aggregate measure of company innovativeness. b pb.10; *pb.05; **pb.01; ***pb.01. c Company size ranged from 1 (less than 100 employees), 2 (101500), 3 (5011000), 4 (10015000), and 5 (50011000) to 6 (over 10,000 employees). 589 D.(D.) Jung et al. / The Leadership Quarterly 19 (2008) 582594 3.2.1. Direct effect The CEO's transformational leadership was positively and signicantly related to organizational innovation (=.15, t (49) =3.18, pb.01). This nding provides support for Hypothesis 1. 3.2.2. Moderating effects To test the moderating effects, we took each of the six moderating variables in turn, and created high and low subgroups based on the variable's mean score. Then we reran the model used to test the direct effect of CEO transformational leadership on rm innovation. That is, for each moderating variable, we estimated a path coefcient and standard error between transformational leadership and innovation for each sub-sample. Then, an unpaired t-test was used to test the moderating effect (See Chin, 2000 for more detailed information on how to test moderating effects with PLS, and Sosik, 2005 for a recent example of the identical approach to testing a moderating effect.) The path coefcients and t-statistics for each sub-group are shown in Table 3. Table 3 shows that all of the hypothesized moderating effects are supported except for empowerment. Specically, and consistent with Jung et al. (2003), the path coefcient from CEO transformational leadership to rm innovation was higher in the high climate-for-innovation group than in the low climate-for-innovation group (=.07 vs. =.09; t (48) =3.11, pb.01). Similarly, the path coefcient was higher in the low centralization than in the high centralization group (=.44 vs. =.06; t (48) =25.54, pb.001), and higher in the low formalization than in the high formalization group (=.28 vs. =.11; t (48) =6.99, pb.001). The path coefcient also was higher in the high uncertainty than in the lowuncertainty group (=.23 vs. =.18) though in this case, the difference was only marginally signicant (t (48) =1.78, pb.10). Finally, the path coefcient for the high competition group was signicantly higher than that of the low competition group (=.24 vs. =.07; t (48) =9.05, pb.001). While empowerment also had a signicant moderating role, the direction of its effect was opposite to that hypothesized. Rather than being higher, the path coefcient was lower in the high empowerment group than in the low empowerment group (=.09 vs. =.11; t (48) =11.42, pb.001). The same directional difference also was found by Jung et al. (2003) though in their case, it was not statistically signicant. 4. Discussion and implications This study has tested the direct and moderated effects of CEO transformational leadership on rm innovation. Our results supported a direct and positive effect of CEO transformational leadership on organizational innovation. The ndings further Table 2 Factor loadings, weights, composite scale reliability, and average variance extracted for assessing construct reliability Construct Item Factor loading Weights of measures Composite scale reliability Average variance extracted 1. CEO transformational leadership Charisma .89 .35 .91 .82 II .89 .27 IM .85 .35 IS .78 .12 IC .65 .10 2. Empowerment EMP1 .64 .33 .88 .75 EMP2 .82 .29 EMP3 .89 .34 EMP4 .83 .33 3. Climate of support for innovation CLIMATE1 .67 .07 .92 .78 CLIMATE2 .75 .11 CLIMATE3 .71 .17 CLIMATE4 .82 .12 CLIMATE5 .75 .16 CLIMATE6 .80 .28 CLIMATE7 .86 .21 CLIMATE8 .81 .16 4. Centralization CENTRAL1 .75 .39 .80 .71 CENTRAL2 .61 .32 CENTRAL3 .72 .34 CENTRAL4 .76 .36 5. Formalization FORMAL1 .90 .50 .85 .76 FORMAL2 .75 .34 FORMAL3 .76 .32 FORMAL4 .68 .10 6. Competition COMPETE1 .90 .59 .88 .64 COMPETE2 .86 .51 7. Uncertainty UNCERT1 .69 .24 .84 .73 UNCERT2 .92 .71 UNCERT3 .74 .34 8. Organizational innovation ZPATENT .83 .51 .81 .87 ZANALYSTS .90 .65 Note: II = idealized inuence; IM = inspirational motivation; IS = intellectual stimulation; IC = individualized consideration; EMP = empowerment; CLIMATE = climate of support for innovation; CENTRAL = centralization; FORMAL = formalization; COMPETE = competition; UNCERT = uncertainty; ZPATENT = standardized (zero mean, unit variance) measure of number of patents; ZANALYSTS = standardized (zero mean, unit variance) measure of analysts' innovativeness ratings. 590 D.(D.) Jung et al. / The Leadership Quarterly 19 (2008) 582594 revealed moderating effects by two attributes of the environment (uncertainty and competition) and four rm-level characteristics: climate of support for innovation, formalization, centralization, and empowerment, though in the last case, the effect was opposite in direction to that hypothesized. Froma practice standpoint, our ndings not only underline the importance of managers tting their leadership behaviors to the organizational context in which they work. They also support going beyond that to seek changes in attributes of the organizational context. In the case of high-level managers like CEOs, they may have sufcient authority to inuence some of the variables that moderate the link between their leadership behavior and organizational innovation, thereby amplifying the effects of their leadership behaviors (House & Aditya, 1997; Miller et al., 1988; Pillai & Meindl, 1998). For example, a number of researchers have suggested that top managers are the main architects of organizational climate by communicating what strategy to implement and howthe goals of the organizationare relevant tothe employees' personal values anddesires. Inthe case of organizational innovation, when top managers reinforce its importance by recognizing and rewarding creativity while being tolerant of mistakes, employees are more likely to pursue new ideas and product innovation (Mumford et al., 2002; Sosik, Jung, Berson, Dionne, & Jaussi, 2004). While environmental factors are less likely to be controllable by the managers of a company, they also can be used as leverage for promoting change. In this regard, our nding of signicant positive moderating effects from two environmental variables is worthy of note. Bass (1985) has argued that transformational leaders often emphasize crisis in order to bring about change, and we had proposed that when employees perceive a high level of uncertainty and competition surrounding their organization, they are more likely to be receptive of change and innovation initiatives. The recent turnaround of Samsung Electronics illustrates how this may come about. When Yun Jong Young became the vice-chairman and CEO in 1997, the company had US$11 billion in debt and a brand name that was mainly associated with low-end consumer products. Within ve years, the company had turned around completely, earning US$5.9 billion on sales of US$33.8 billion in 2002. Many observers have attributed this transformation to Young's leadership, with a vision to make Samsung a world-class company that could charge premium prices (Business Week, 2002). Toward this end, he continually emphasized the uncertainty in the high-tech industry as a way to motivate employees and to promote change. Our nding of positive moderating effects for environmental uncertainty and competition is consistent with their serving such a motivational role. From a research perspective, our ndings underline the desirability of placing the empirical analysis of CEO leadership in its organizational and environmental context, rather than analyzing bivariate relationships in isolation. Among possible directions for future research, a topic worthy of scrutiny is our nding a negative moderating effect of empowerment on the relationship between CEO transformational leadership and rm innovation. As Table 1 shows, even the zero-order correlation between empowerment and innovation is negative and statistically signicant. Although our data precluded a search for underlying causes, a plausible explanation is the sourcing of our data from Taiwan, where cultural values are relatively high in power distance (Hofstede, 1997). According to Hofstede, people from a high power distance culture expect leaders to act strongly, and become uncomfortable when leaders try to delegate heavily. In a work setting, this translates into a preference for paternalistic leaders, with considerable dependence of subordinates on their superiors (Adler, 2002). Thus, subordinates in a high power distance culture may feel confused and frustrated when left alone to gure out what they need to do and how to accomplish their goals. More generally, our nding relating to empowerment may imply a need for transformational leaders to maintain a balance between letting people feel empowered, and providing structure and control by dening goals and agenda (Mumford et al., 2002). The optimal balance may well vary across cultures an area worthy of future research especially considering the increasing globalization of economic activities. Alternatively, the negative relationship between empowerment and innovation could be due to the unique nature of a high-tech industry with rapidly changing technology. In the hyper- competitive consumer electronics industry from which our sample companies were drawn, even top-selling innovative products can become obsolete relatively quickly (Bharadwaj &Konsynski, 1997). The resultant need to continuously develop innovative products might require what Brown & Eisenhardt (1998) have referred to as structuredchaos. They arguedthat there is a redenedrole of leaders as architects andcultural guardians, who need to go beyond the traditional managerial responsibilities by carefully monitoring and controlling organizational reconguration processes. As such, there may be a threshold past which additional empowerment would hamper managers' ability to lead change. Sosik et al. (2004) also stressedthe importance of maintaining sucha balance inmany high-techorientedcompanies: The challenge for executives is to also set the boundaries that help direct those creative individuals towards achieving innovation. In an R&D organization, establishing guidelines and boundaries is important, and then giving people freedom to operate within those boundaries is important (p. 176). It would be worthwhile to explore if, and how, this balance differs between high-tech and other industries. Table 3 Moderating effects of cultural, structural, and environmental variables Hypothesis and moderator Path coefcients from CEO transformational leadership to rm innovation in each sub-group (N=25 in each sub-group) t-value of difference in path coefcients H2a: climate for innovation Low climate for innovation =.07 High climate for innovation =.09 3.11 H2b: empowerment Low empowerment =.11 High empowerment =.09 11.42 H3a: centralization Low centralization =.44 High centralization =.06 25.54 H3b: formalization Low formalization =.28 High formalization =.11 6.69 H4a: uncertainty Low uncertainty =.18 High uncertainty =.23 1.78 H4b: competition Low competition =.24 High competition =.07 9.05 *pb.10; **pb.01; ***pb.001 (df =48). 591 D.(D.) Jung et al. / The Leadership Quarterly 19 (2008) 582594 Yet another possibility is the sourcing of our empowerment measures. Even if the mid- to senior-level managers who supplied the survey data perceived that they were being empowered by their CEO, they may not have in turn empowered their own subordinates. Since major breakthroughs or innovative products often come from front-line employees and research scientists/ engineers, data fromthese other levels of the organization can shed further light on the role of empowerment in the organizational innovation process. In addition to delving more deeply into specic ndings of this study, there is room for expanding the scope of inquiry. First, although the current model has managed to explain a signicant proportion (54%) of the variance in organizational innovation, it has only included a subset of the potentially relevant cultural, structural, and environmental variables. Future research is needed to expand the set of variables and to examine how they independently and interactively inuence organizational innovation. Examples of other potentially relevant variables include rm strategy, performance measurement, and compensation policies, to name just a few. In particular, we had omitted the effects of individual-level factors. Yet often, organizational innovations and innovative products are initiated by a small group of highly creative individuals (Amabile et al., 1996; Mumford et al., 2002). Such employees' ability to experiment and take risks may depend on attributes of the organizational context, including the resource and time constraints at work, and how performance is measured and rewarded. As such, there is room for additional research which examines how CEO leadership affects managers and employees at different levels in an organization, and how the latter interact among themselves to enhance innovation. The framework proposed by Waldman & Yammarino (1999) could help to guide such an examination of leadership effects across multiple levels of an organization. Second, in analyzing cross-sectional data, our study can only reveal correlation but not causation. A longitudinal study that relates changes in leader behavior to changes in outcomes is more suited for uncovering causal relationships. Furthermore, we had suggested earlier that the effects of CEO leadership behaviors can be magnied or dampened by selected attributes of the organization, and a longitudinal study can illuminate the extent to which transformational leaders seek to recongure these attributes. Such a study would be further enriched by investigating the processes and pathways whereby effects arise, including further disaggregating the variables under study. For example, are there differences in the nature of innovative efforts under more vs. less formalized work arrangements? 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