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To cite this document: M. Birasnav, S. Rangnekar, A. Dalpati, (2011),"Transformational leadership and human capital benefits: the
role of knowledge management", Leadership & Organization Development Journal, Vol. 32 Iss: 2 pp. 106 - 126
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M. Birasnav
Introduction
Developing competencies of human resources is a primary activity to be focused by
any organization that takes enormous efforts to overcome their competitors on product
quality, customer service, and new product development. Many researchers have
concentrated a paradigm shift from human resources to human capital in firms in order
to sustain competitive advantage (Bontis and Fitz-enz, 2002; McGregor et al., 2004).
Bontis (2001, p. 5) particularly defined human capital as the combined knowledge,
skill, innovativeness and ability of the companys individual employees to meet the
task at hand. To develop human capital in-house or acquire human capital from the
external labor market, firms implement human resource management (HRM) practices,
particularly, staffing, training, performance appraisal, and rewards (Snell and Dean,
1992). These practices are universally considered as the investments for human capital
development through which firms increase their economic value. In this direction,
Drucker (2002, p. 71) describes human capital development as the sine qua non of
competition in a knowledge economy. Through proper investments in human capital
augment organizational financial performance and productivity (Acemoglu and
Pischke, 1999), it is inevitable that these investments render certain benefits to
employees that represent human capital creation among employees.
Research studies carried out in firms to link leadership, particularly,
transformational leadership, knowledge management (KM), and human capital
benefits are limited. A few studies explored the role of transformational and
transactional leadership styles on individual employees performance and
organizational performance through knowledge acquisition, knowledge creation,
knowledge sharing, and knowledge exploitation (Bryant, 2003; Politis, 2001, 2002).
Although research studies (Smith, 1998; Darroch, 2003) described the relationship
between KM and human capital, the effects of KM hierarchical structure on human
capital development have not been much considered. Following Bryant (2003) who
focused knowledge process functions as mediators in the relationship between
transformational leadership and individual performance, the central focus of this paper
is to construct a framework to organize relevant literatures to support the connections
between transformational leadership, KM, and perceived human capital benefits
dimensions. In this framework (see Figure 1), KM process and KM infrastructure
(organizational culture and communication) play mediator roles in the relationship
between transformational leadership and perceived human capital creation or benefits.
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Figure 1.
Mediation role of
knowledge management
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followers to achieve the vision. Tannenbaum et al. (1961, p. 24) defined leadership as
interpersonal influence, exercised in a situation, and directed, through the
communication process, toward the attainment of a specified goal or goals. The
way through which they accomplish goals and improve organizational performance is
the behavior or characteristics they possess. For instance, transactional leaders do not
voluntarily involve with employees work until any failure occurs (Bass, 1985);
transformational leaders act as role models for employees, motivate them, and
stimulate their intelligence (Bass, 1985).
Although each kind of leadership style has its own merits and demerits,
transformational leadership draws much attention in organizations since it contributes
to firm innovation, organizational learning, and employees creativity skills (De Jong
and Den Hartog, 2007; Aragon-Correa et al., 2007). In view of reaping greater human
capital benefits for employees, transformational leadership, a neocharismatic
leadership theory, is immensely concentrated in this study. Following Burns (1978),
who identified the concept of transformational leadership style, many researches have
examined this leadership in various disciplines (for example, Bass, 1985; Yammarino
and Bass, 1990; Schepers et al., 2005; Rafferty and Griffin, 2004). Researchers define
transformational leadership in terms of idealized influence, inspirational motivation,
intellectual stimulation, and individual consideration (Bass, 1985; Nemanich and
Keller, 2007). Some researchers also described the first component, idealized influence,
as charisma (Schepers et al., 2005; Dubinsky et al., 1995), and further, a few researchers
mentioned the first two, idealized influence and inspirational motivation, as charisma
(Kark et al., 2003; Avolio et al., 1999). Idealized influence displays leaders as most
respectful, trustable, and admirable, shows the characteristics of setting vision and
articulating it to accomplish, and describes leaders risk sharing with their followers in
line with ethical principles (Bass, 1999; Bass et al., 2003). Inspirational motivation
describes how leaders encourage their employees to achieve vision through creating
individual and team spirit (Bass et al., 2003). The component, intellectual stimulation,
explains how leaders promote their employees innovative and creative skills by
solving problems entirely in new ways without criticizing employees for mistakes
(Bass, 1999; Bass et al., 2003). Finally, individual consideration emphasizes leaders
mentor role on developing their employees potential, focusing employees needs for
achievement and growth, and developing learning opportunities (Bass, 1999; Bass et al.,
2003; Bass and Riggio, 2006).
Definition of knowledge management variables
In todays turbulent economic environment, organizations face high competition,
technological obsolescence, and globalization. In this situation, none other than
intangible assets i.e., knowledgeable employees could not help their organizations to
achieve competitive advantage (Perez and de Pablos, 2003). Therefore, firms take
immense efforts in creating new knowledge among employees and through which they
develop organizational knowledge. Davenport and Prusak (1998, p. 5) described
knowledge as a fluid mix of framed experience, values, contextual information,
insight that provides a framework for evaluating and incorporating new experience
and information. It originates and is applied in the minds of knowers. Further,
knowledge is characterized by transferability, capacity for aggregation,
appropriability, and specialization, and therefore, it could be utilized throughout a
firm (Grant, 1996). Apart from individual employee knowledge, there are generally two
types of knowledge mentioned in the literature, which are explicit knowledge and tacit
knowledge. Knowledge that is structured, documented, and shared through
information technologies is explicit knowledge; whereas tacit knowledge is prevalent
only in employees minds and is delivered through their behaviors and perceptions
(Yahya and Goh, 2002). Interactions between these types of knowledge with individual
employee knowledge enormously support firms to create organizational knowledge,
and thus, firms exploit the benefits of competitive advantage when the developed
organizational knowledge is rarely available in other firms, valued more in current
firm, and unimitatable by other firms (Perez and de Pablos, 2003; Barney, 1991).
Therefore, organizations are highly concerned about the issues of managing
knowledge.
KM is the management function responsible for regular selection, implementation
and evaluation of knowledge strategies that aim at creating an environment to support
work with knowledge internal and external to the organization in order to improve
organizational performance (Maier, 2005, p. 433). However, this definition mostly
concentrates on strategic process of KM according to Bukowitz and Williams (1999).
Importantly, literatures emphasize that the process involved in KM should be
integrated with employees who lead their organization towards achieving competitive
advantage (Yahya and Goh, 2002; Perez and de Pablos, 2003; Davenport and Prusak,
1998). In this direction, tactical KM process is given much consideration, and it
comprises knowledge acquisition, knowledge documentation, knowledge transfer,
knowledge creation, and knowledge application (Filius et al., 2000). According to Filius
et al. (2000) on implicitly defining KM process, employees acquire knowledge from
external networks and customers; they document solutions for the problem in the
brainstorming sessions and consequently, frequent changes take place in procedures
and policies; knowledge is distributed formally and informally among employees and
from mentor to employees; knowledge creation takes place through discussing
problems and failures and assigning employees to new high profile projects; and
knowledge is applied in the form of using customers experiences for product or service
improvement.
Apart from knowledge process capability, Lindsey (2002) also emphasizes that the
effectiveness or success of KM depends on knowledge infrastructure capability of an
organization. Supporting the importance of knowledge infrastructure, Davenport et al.
(1998) identified from 31 KM projects that establishing a knowledge-friendly culture
and introducing knowledge transfer channels are the two among eight KM success
factors. While considering knowledge is a crucial factor behind sustainable
competitive advantage and overall success of a firm, it should be noted that
knowledge issues are closely interlinked with organizational culture (Davenport and
Prusak, 1998). Since culture has no fixed or broadly agreed meaning, many authors
have explained their views about organizational culture. Specifically, Miron et al. (2004,
p. 179) define organizational culture as a set of beliefs and values shared by members
of the same organization, which influence their behaviors. In this direction,
researchers explained various kinds of cultures, for example, innovation-specific
culture fosters expectations and guidelines for employees creativity, willingness to
experiment, and risk-taking skills (Jassawalla and Sashittal, 2002; OReilly et al., 1991);
supportive culture encourages employees to get involved in the decision making
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process with mutual respect and trust (Bititci et al., 2004); detail-oriented culture
comprises of values of being analytical, paying attention to detail, and being precise
( Judge and Cable, 1997), and thus, such organizations maintain a high level of accuracy
in detailed work over a period of time to reduce problems by introducing
improvements that increase efficiency and maintain maximal continuity and stability
(Miron et al., 2004). Therefore, culture is not inside of employees head, but somewhere
among the heads of a group of employees of the organization where symbols and
meanings are publicly expressed through work group interactions, in board meetings,
and also in material objects (Alvesson, 2002). In addition, culture prevails in the
organization through artifacts, language in the form of jokes and metaphors, behavior
patterns in the form of rituals and ceremonies, norms of behavior, heroes, symbols,
symbolic actions, and history (Brown, 1995).
On defining communication, it is a dimension of structure in which information is
transmitted throughout the organization to provide data for decision making, to
motivate employees, to exercise control, and to express satisfaction or dissatisfaction
with operations (Loveridge, 1996, p. 9). In the organizations, employees should be
given information about the organizational activities, goals, and directions, and they
must be allowed to have channels to pass relevant information to management
(Rodwell et al., 1998). It is commonly believed that communication is central to four
management competencies such as management of attention, meaning, trust, and self.
Therefore, communication has a vital role in both organizational functioning and
organizational effectiveness improvement (Bush and Frohman, 1991).
Definition of human capital
Emphasizing human capital as a part of intellectual capital, human capital theory
acknowledges the contribution of employees human capital on developing intellectual
capital. Social capital, a component of intellectual capital as like human capital, also
inevitably contributes on human capital development. According to Nahapiet and
Ghosal (1998, p. 243), social capital is the sum of the actual and potential resources
embedded within, available through, and derived from the network of relationships
possessed by an individual or social unit. However, employees have a controlling
mechanism while investing on their human capital (Becker, 1975). Human capital is
referred to as employees knowledge, skills, capabilities, commitment, know-how, and
ideas and health, which add economic value to firms (Becker, 1962; Skandia, 1998;
Sullivan, 1999; Ulrich et al., 1999; Snell and Bohlander, 2007). Bart (2001, p. 320)
particularly defines human capital as the collective knowledge, education, skills,
attitudes, and experiences of a firms employees. On searching for specific attributes
or characteristics by which both human capital and human resources deviate each
other, Garavan et al. (2001) quoted that flexibility, adaptability, and employability are
the attributes which act as catalyst for revolutionalizing human resources into human
capital. According to human capital theory, investments on human capital would be
high when employees greatly benefit from the developed human capital (Wayne et al.,
1999). Such human capital benefits are high individual return on investment, increase
of compensation, being a future leader, opportunity to participate in high profile
project, and increase in status and authority (Ulrich et al., 1999; Harley, 1999; Bontis
and Fitz-enz, 2002; Motley, 2007).
These benefits are employee perceived benefits, and so the extent at which they gain
these benefits will be related to the amount of employees perceived human capital
creation. Bontis and Fitz-enz (2002) explained human capital benefits through human
capital effectiveness and human capital valuation in terms of human capital return on
investment and compensation factor respectively. Employees perceive their human
capital benefits when they have potential to deliver more return in terms of
contributing to intellectual capital creation over the investment made at them. Further,
they realize the degree of human capital improvement by the increase in pay.
Considering an employee as one of the future leaders by the organization is the benefit
derived from human capital since s/he has enormous potential to vertically move into
an influential position (Ulrich et al., 1999). These future leaders show their better
performance on the given responsibilities and work related activities. Further,
employees feel their human capital benefits when they get opportunity to participate in
high profile project or cross-functional teams (Ulrich et al., 1999). Finally, employees
also feel their human capital benefits when their authority and status increases. In this
moment, it should be noted that skill development is associated with change in
authority and status. In line with Harley (1999), these employees realize change in
authority as they are empowered.
Transformational leadership and human capital benefits
In the organizations, transformational leaders stimulate employees intelligence,
provide vision, recognize employees personally, and consider employees individually
(Rafferty and Griffin, 2004), and consequently leaders and followers raise one another
to higher levels of morality and motivation (Burns, 1978, p. 20). Leaders who are
perceived to possess the characteristic of idealized influence always have more
willingness to involve in risk-taking job activity and thus, they are more influential,
effective, and willing to trust their employees (Bass, 1990a; Bass and Riggio, 2006; Sgro
et al., 1980). Alternatively, these leaders create trust by providing employees with
autonomy and decision making to perform their tasks and thereby they promote
employees innovative behaviors and self-efficacy (Scott and Bruce, 1994; Conger and
Kanungo, 1988). On other hand, this type of empowerment or increased intrinsic
motivation improves employees creative performance (Speritzer, 1995; Amabile and
Gryskiewicz, 1987). Supporting employee perceived human capital benefits, London
(1993) and Harley (1999) assert that empowerment assists employees to gain authority
in their organizations. Further, Phillips (2005) considers employees innovative
behavior and creative performance as human capital measures since these attributes
enhance human capital effectiveness in the form of return on investment such as new
products or processes development, patents, and copyrights. To support these
arguments, Podsakoff et al. (1996) found from 1,539 employees that employees who
express more trust at leaders are perceived to have more ability, experience, and
knowledge.
Leaders possessing the characteristic of inspirational motivation augment
employees goal accomplishing capabilities or job performance to achieve the set
vision (Nemanich and Keller, 2007). In other hand, transformational leaders create
individual and team spirit among employees as they show enthusiasm and optimism at
employees through coaching, encouraging, and supporting. As a result, they enhance
employees performance while performing job activities and produce high return on
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investment from employees (Yukl, 2006; Boerner et al., 2007). Leaders who
intellectually stimulate employees encourage them to solve task-oriented problems
in new and different ways and thereby leaders enforce their employees in challenging
organization-held beliefs and values (Yukl, 2006). From this, these leaders promote
employees ability to analyze and solve organizational problems (Rafferty and Griffin,
2004). Thus, leaders encourage employees professional growth to support employees
to attain human capital benefits (Turner et al., 2005).
Another characteristic of transformational leaders, individualized consideration,
supports employees in achieving self-actualization through fulfilling their expectations
by individual understanding (Rowe, 2007). Because of this individual consideration,
leaders promote high interpersonal relationships among employees to avoid any
conflict, and ensure enhanced employee productivity in the organizations (Nemanich
and Keller, 2007). Further, leaders provide employees who have human capital value
opportunities to participate in projects that contribute to achieve competitive
advantage (Schepers et al., 2005). At the work, transformational leaders significantly
promote individual employees innovative behavior through encouraging high quality
leader member exchange among employees (Krishnan, 2005; Scott and Bruce, 1994).
Supporting the studying relationship, Wayne et al. (1999) had found positive
relationship between leader-member exchange and employee salary progression and
formal authority with the help of 245 supervisor-subordinate dyads. However,
considering leadership competencies at this moment, Alimo-Metcalfe et al. (2008)
maintained that leadership competencies did not significantly predict organizational
performance. Further, Bolden and Gosling (2006) quoted that competencies reinforce a
traditional way of thinking. Importantly, Alban-Metcalfe and Alimo-Metcalfe (2009)
described that how of leadership significantly explained organizational productivity
rather than what of leadership. Following the above arguments on the influence of
transformational leadership on employees human capital benefits, we propose that:
P1.
received high potential evaluations in terms of positive career outcomes from their
leaders. In this direction, transformational leaders support employees promotion
through social capital creation among employees, and consequently, influence their
salary progression. In addition, a study conducted among 239 employees by Politis
(2002) revealed that transformational leadership behaviors, particularly, charismatic
leadership and intellectual stimulation are positively related to knowledge acquisition
but individual consideration is negatively associated with knowledge acquisition.
In the organizations, knowledge documentation consists of the processes of using
documented knowledge in the brainstorming sessions to solve organizational
problems, documenting learning from success and failures of the projects, and making
frequent changes in the procedures and handbooks (Filius et al., 2000).
Transformational leaders risk-taking behavior frequently invites both success and
failure during execution of high valued projects (Hater and Bass, 1988). Accordingly,
they influence organizational learning by encouraging documenting these successes or
failures. In this direction, they promote firm innovation through individual employees
innovative behaviors in the form of creating and managing information and knowledge
(Aragon-Correa et al., 2007; Crawford, 2005). In addition, Crawford (2005) found, from a
research study conducted among 1,046 participants, that transformational leadership
behaviors are positively correlated with document creation. Thus, these leaders
support employees to achieve human capital benefits through documenting
knowledge.
Knowledge transfer takes place in the organizations formally or informally through
mentors and professional meetings (Filius et al., 2000). Owing to the individualized
consideration, transformational leaders act as mentors to those employees who wish to
develop their potential (Bass, 1990b). It is widely acknowledged that mentoring is a tool
for human resources development (Kim, 2007). Thus, implemented practices leading to
developing organizational people would have certain impact on employee perceived
human capital benefits. Following Sosik et al. (2004), that employees or proteges
consider mentors who have high learning goal-orientation as transformational leaders,
these mentors offer more challenging projects or assignments to develop proteges
career and as a result, employees realize their human capital benefits (Kim, 2007).
Knowledge is created in the organizations through frequently assessing employees
performance, discussing organizational problems and failures, incorporating new ideas
into product or process development, rewarding employees, and developing learning
groups (Filius et al., 2000). In this moment, it should be noted that transformational
leaders create new ideas and support employees to create and implement these ideas
into new product and process development. In this direction, positive relationship
between transformational leadership and employees in-role performance is observed
(Podsakoff et al., 1996). Further, organizations create knowledge through encouraging
creative performance among employees. To support this notion, Yahya and Goh (2002)
found a positive correlation between creativity and knowledge creation (r 0:44,
p , 0:01). Fostering creative performance, transformational leaders involve in
knowledge creation process by offering both monetary and nonmonetary rewards.
Even though such particular behavior is listed under transactional leadership, research
studies also revealed a positive relationship between transformational leadership and
contingent reward (Bass and Riggio, 2006; Goodwin et al., 2001). To enable employees
to achieve the set vision, transformational leaders voluntarily involve in rewarding
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Discussion
Organizations immensely concentrate on the process of developing human capital. The
reason is that human capital contributes on intellectual capital creation in the
organization through which achieving and sustaining competitive advantage is viable
(Bontis and Fitz-enz, 2002). Therefore, firms take much effort in finding possible ways
to increase the contribution of the human capital pool in improving organizational
financial performance. In this study, a systematic literature review is conducted to
analyze the mediation role of KM in the relationship between transformational
leadership and employee perceived human capital creation or benefits. In specific, KM
is viewed as two dimensions in line with Lindsey (2002) such as knowledge process
capability and knowledge infrastructure capability. Tactical KM process is considered
under knowledge process capability. This process has greater impact on employees
performance since it affects employees day-to-day knowledge-related activities. Under
knowledge infrastructure capability, organizational culture and communication factors
have been considered. Thus, a conceptual model comprising transformational
leadership, KM factors, and employee perceived human capital benefits is developed in
this study, and it has great potential in contributing to leadership, KM, and human
capital management literature.
Although literature has examined the relationships between leadership and human
capital (Edmondson, 1996; Bontis and Fitz-enz, 2002; Liu et al., 2003), these focused
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rank, and tenure would have certain impact on their perception. For instance,
organizations purposefully provide more resources to develop younger employees
human capital than older (Pennings et al., 1998). Men differentiate themselves from
women in terms of behavioral differences such as competing, being creative, and
risk-taking ( Johnson et al., 1997). On explaining the impact of education, Becker (1962)
described education as one of the components of human capital. Further, Judge and
Bretz (1994) described that higher rank and tenured employees have more
opportunities to learn from organizational environment and job throughout the
tenure. The organizational characteristics such as ownership and size must also be
considered in addition with employees characteristics for future research. For
example, knowledge sharing greatly occurs in small and medium sized firms since
these firms have simple organizational structure (Birasnav and Rangnekar, 2009).
Further, Lowe et al. (1996) found from the meta-analytic study that transformational
leadership is more prevalent in private organizations than public organizations. This
paper encourages conducting an empirical study to analyze the mediation role of KM
factors such as tactical KM process, organizational culture, and communication after
controlling for the above demographic characteristics and organizational
characteristics.
Finally, many researchers examined the interrelationship between knowledge
process capability, for example, KM process and knowledge infrastructure capability,
for example, organizational culture and communication (Park et al., 2004; Al-Alawi
et al., 2007; Connelly and Kelloway, 2003; Lai and Lee, 2007). As this study focuses on
the mediation role of KM, the interrelationships between knowledge process capability
and knowledge infrastructure capability are not considered. In future, researchers
could combine these interrelationship effects on employee perceived human capital
benefits. Further, cautious is required to interpret the findings of this study. Like
transformational leadership, many research studies were carried out to closely
represent transformational behavior of a leader, for example, the charismatic
leadership by Shamir (1995) and nearby leadership by Alimo-Metcalfe and
Alban-Metcalfe (2005). However, this paper entirely focused on Bass and Avolios
(1995) transformational behavior of a leader. Though research studies explained the
significant relationship between transactional leadership behavior and KM process (for
instance, Bryant, 2003), transactional behavior is not considered in this paper as it
doest not give much consideration on individual employees human capital.
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Corresponding author
M. Birasnav can be contacted at: birasnav@gmail.com