Leadership theories

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CHAPTER 2
LITERATURE REVIEW
2.1 Introduction
This chapter will detail the emergence of transformational and transactional theory
from trait, behavioral and situational theories of leadership, previous studies done in
Malaysia and also other countries. The relationship of transformational and
transactional leadership theory to the outcome variable of job performance will also
be examined.

2.2 Leadership Theories

Since the early 1900s, researchers have used numerous theoretical approaches to
elucidate leadership which includes trait, behavioral and situational approaches.
Concept derived from these lines of leadership can be found in present-day theories
of transformational leadership, which encompass leader traits, behavior and
situational variables (Yukl, 1989).

2.2.1 Trait Theory

Trait theory is one of the initial approaches in leadership. Leadership trait theory
implies that leaders are born rather than made. It places emphasis on the personal
attributes of individuals as indicators of leadership success (Linda Van Loan, 1994).
Such leaders were assumed to be endowed with certain traits which are not
possessed by other people. According to Yukl (1989), the kind of traits studied most
often during the early leadership research, included physical characteristics (e.g.,
height, appearance), personality (e.g., self-esteem, dominance, emotional stability),
and ability (general intelligence, verbal fluency, creativity, social insight).

Hundreds of studies using the trait approach to leadership were conducted during
the 1930s and 1940s, but little evidence was found to support any specific traits that

would ensure success in leadership (Stodgill, 1974). Furthermore, with the influence
of behavioral and psychological studies, researchers began to accept that leaders are
not born, but these traits require learning and experience. In addition to that, Yukl
said that a person also needs considerable skills like technical skills, interpersonal
skills and conceptual skills in order to be an effective leader. Stodgill's review of the
varied evidence found in trait research, along with negative reviews by other writers,
contributed to a disappointment with research on leadership traits.

2.2.2 Behavioral Theory

During the late 40s, organizational leadership research shifted away from the study
of leaders' traits to the investigation of leadership style or behavior as a way to
describe what leaders do. Particular emphasis was placed on identifying the kinds of
leadership behavior that increased the effectiveness of subordinates. The shift from
research to behavioral approach also resulted in a new consideration of the practical
implications of leadership research. Many researchers postulated that once effective
leadership behaviors were revealed, leaders could then be trained to develop those
specific behaviors (Bryman, 1992). Behaviors can be learned more readily than traits
and this enables leadership to be reachable to all.
An early series of studies on leadership behavior was conducted at Ohio State
University (Ghee Soon Lim, 2004). Researchers at Ohio State developed the Leader
Behavior Description Questionnaire (LBDQ) and administered it to the employees.
The analysis resulted in two dimensions of leadership which includes consideration
and initiating structure. The initiation of structure indicates the degree, to which a
leader initiates activity in a group, organizes the group and details the way work is to
be accomplished. Consideration describes the concern a leader demonstrates for the
welfare of the other members of the group (Bass, 1990).
A second major program of research on leadership behavior was carried out by
researchers at the University of Michigan. The focus of the Michigan research was
identification of relationships among leader behavior, group processes and measures
of group performance (Yukl, 1981). Michigan researchers established two dimensions
of leadership which consist of employee-centered leaders and job-centered leaders.
Employee-centered leaders display focus on the human needs of their subordinates
and job-centered leader directs activities towards efficiency, cost cutting and
scheduling (Ghee Soon Lim, and Richard L.Daft, 2004). The two dimensions are
parallel to those found in Ohio State Leadership Studies.

Initial results of the University of Michigan Leadership studies found higher

employee productivity and higher job satisfaction with the employee-centered
leadership dimension. Additional follow up studies have resulted in inconsistent and
inconclusive findings (Stodgill, 1974).

2.2.3 Situational Theory

The failure to find universal leader traits or behaviors that would always determine
effective leadership led researchers in a new direction (Ghee Soon Lim, and Richard
L.Daft, 2004). This fostered situational approach to leadership. Situational approach
examined how leadership changes from situation to situation as behavior effective in
certain circumstances may be ineffective in other.
One variation of the situational approach has been concerned with identifying
aspects of the situation that determine what traits, skills and behaviors are required
for a leader to be effective in a given situation (Yukl,1981). Thus, the effectiveness of
leader behavior is contingent upon organizational situations. According to (Ghee
Soon Lim, and Richard L.Daft, 2004), contingency means that one thing depends on
other things, and for a leader to be effective there must be an appropriate fit between
the leader's behavior and style and the conditions in the situation. There are several
theories of situational leadership that have been developed such as Fiedler's
contingency theory and path-goal theory.
Fiedler's contingency model was designed to enable leaders to diagnose both
leadership style and organizational situation. It presents the leadership situation in
terms of three key elements which are leader-member relations, task structure and
position power.

Leader-member relations
Leaders who give importance to the leader-member relations will try to get support
from the members through close relationship. A leader who has the loyalty and
support of members can depend on them to comply readily with his directions.
Should the subordinates dislike him, the leader must be vigilant that they do not
ignore his directions.

Task structure

Task-oriented leader gets satisfaction when the task is accomplished efficiently. A

task is highly structured when the task performed by the members has specific
operating procedures, have clear goal, routine and it is easy for the leader to
determine how well the work has been performed. When the task structure is high,
the situation is considered favorable to the leader. If the situation is highly
unfavorable, the leader will stress on the organization structure and will give various
directions in order to complete the task resourcefully.

Position power
When a leader has substantial position power, he is able to administer rewards and
punishments to increase subordinate compliance with his directions and policies.
Leaders with little or no position power must rely on other sources of influence over
subordinates (Yukl, 1981).
A Least Preferred Co-worker (LPC) instrument was used to test Fiedler's theory.
When using the LPC, leaders are asked to utilize a list of 16-24 items to describe a
coworker with whom the leader can work least well, and rate this individual on a set
of bipolar adjectives scales (e.g. friendly-unfriendly, boring-interesting, efficientinefficient). The LPC score is the sum of the ratings and is construed as
representative of factors related to the leader, not the specific individual the leader
rates (Yukl, 2002). Fiedler's studies shows that when all the three elements above are
at the highest level or lowest level, the leadership style is the most effective or
ineffective for the latter.
In addition to contingency approach, the Path-Goal Theory of Leadership was
developed to explain how the behavior of a leader influences the motivation and
satisfaction of subordinates. According to the path-goal theory, the leader's
responsibility is to increase subordinates' motivation to attain personal and
organizational goals. The leader increases follower motivation by either clarifying the
follower's path to the rewards and desires or increasing the rewards with
subordinates to help them identify and learn the behaviors that will lead to successful
task accomplishment and organizational rewards. In path-goal theory leaders change
their behaviors to match the situation whereas the Fiedler theory made the
assumption that the new leaders could take over as situations change (Ghee Soon
Lim, and Richard L.Daft, 2004).
The path-goal theory has four categories of behavior that leader can adopt and
include based on the situation. They are supportive leadership, directive leadership,
participative leadership and achievement-oriented leadership.

Supportive Leadership
Giving consideration to the needs of subordinates, displaying concerns for their wellbeing and creating a friendly climate in the work unit (Yukl, 1981).

Directive Leadership
Letting subordinates know what they are expected to do, giving specific guidance,
asking subordinates to follow rules and procedures, scheduling and coordinating the
work (Yukl, 1981). Subordinates do not have any involvement under this leadership.

Participative Leadership
Consulting with subordinates and taking their opinions and suggestions into account
when making decisions (Yukl, 1981). However, the final decision is in the hands of
the leader.

Achievement-Oriented Leadership
Setting challenging goals, seeking performance improvements, emphasizing
excellence in performance and showing confidence that subordinates will attain high
standards (Yukl, 1981).
The expansion of scholars of the early leadership theories, as well as the recognition
of the theories' intrinsic strength and weakness, have contributed much to the
establishment for the present day studies regarding transformational and
transactional leadership. Burns (1978) articulated the concepts of transformational
and transactional leadership in his study which was then further expanded by Bass
(1985). Today, transformational and transactional leadership has captured
widespread attention.

2.3 Transformational Leadership

Burns (1978) derived his early theory of transformational leadership from Weber's
(1947) model of charismatic leadership and from his own descriptive research on
political leaders. Maslow's hierarchy of needs was seen by Burns (1978) as
fundamental to the transformational process. Burns (1978, p.20) describes
transformational leadership as a process in which leaders and followers raise one
another to higher levels of morality and motivation. According to Burns (1978),
transformational leaders take their subordinates well beyond their day to day work
dealing so that subordinates begin to realize their own potential.

Bass (1985) proposed a more detailed theory than Burns to describe

transformational leadership. He defines transformational leaders primarily in terms
of the leader's effect on followers. According to Bass (1985), a leader can transform
followers by: (1) raising the follower's level of awareness and consciousness about the
importance and worth of certain outcomes, and ways of reaching them, (2) inducing
them to transcend their own self-interest for the sake of team, organization, or larger
polity, and (3) altering the follower's need level on a hierarchy of needs such as
Maslow's.

A strong correlation was found by Bass (1985) between transformational leadership

behavior and increased job satisfaction for followers, increased motivation toward
extra efforts for followers, and perceived leader effectiveness. Transformational
leadership may be most effective during periods of transition and rapid change.
Furthermore, this leadership style can motivate followers to create and promote a
new vision, while continuing to increase followers' satisfaction (Bass, 1985). In
addition, transformational leaders are responsible for motivating their employees to
go beyond ordinary expectations by appealing to their higher order needs and moral
values. This leadership has consistently shown advantages on a range of individual
and organizational outcomes, such as objectives and performance (Bass, 1998).
Factor analytic studies by Bass (1985) have identified four dimensions of
transformational leadership. These include idealized influence, inspirational
motivation, intellectual stimulation and individualized consideration.
Idealized influenc e is a dimension that exhibits leaders to behave in ways that allow
them to serve as role models for their followers (Bass B.M & Ronald E.Riggio, 2006).
Followers identify the leader's competencies and develop a positive attitude towards
them. As the leader serve as their role model, followers will emulate leader's behavior
which would motivate them to perform better resulting better outcomes in the
organization.
Inspirational Motivation leaders behave in ways that motivate and inspire those
around them by providing meaning and challenge to their followers' work (Bass B.M
& Ronald E.Riggio, 2006). This type of leader can communicate well with their
followers and push them to accomplish more for the benefit of everyone in the
organization. Being inspired by the leader, followers are willing to do more than what

they are required to do in order to increase the individual and organizational

performance.
Intellectual Stimulation is one dimension that shows a leader whom stimulates their
followers' efforts to be innovative and creative by questioning assumptions,
reframing problems and approaching old situations in new ways. The leader would
encourage creativity and there would not be public criticism of individual member's
mistake. New ideas and creative problem solutions are solicited from followers, who
are included in the process of addressing problems and finding solutions (Bass B.M
& Ronald E.Riggio, 2006).
Individualized Consideration leaders pay special attention to each individual's
follower's needs for achievement and growth by acting as a coach or mentor (Bass
B.M & Ronald E.Riggio, 2006). The leader finds time to listen and ensure that task
assignments are within the scope, experience, and capability of the employee. The
leader allows time in their busy work schedule for idea and knowledge sharing,
thereby demonstrating to employees their importance and value to the organization
(Bernadette M. Pollard, 2008).
Kark and Shamir (2002) suggested that transformational leaders can have a dual
effect, exerting their influence on followers through the creation of personal
identification with the leader and social identification with the work unit, and that
these different forms of identification can lead to differential outcomes.
Jung, Chow, and Wu (2003) indicated that transformational leadership has
significant and positive relations in terms of both empowerment and fostering an
innovation-supporting organizational climate.
Study done by Khan et al. (2009) exhibited positive and significant impact of
transformational leadership on organizational innovation. He revealed that
organizational size significantly moderated the relationship between all facets of
transformational leadership (Attributed Charisma, Inspirational Motivation,
Intellectual Stimulation and Individualized Consideration) and organizational
innovation except idealized influence.
The transformational leaders must be confident with their followers. They need to
distribute responsibilities and authorities wisely and eliminate the bureaucratic
barriers. Training and guidance should be provided to followers by the leaders to
enhance their capability in problem solving and decision-making. Leaders should

also encourage team meetings to share ideas and information in order to increase
teamwork and cooperation among members.

2.4 Transactional Leadership

According to Burns, a transactional leader was someone who approaches followers
with an eye to exchange one thing for another: jobs for votes, or subsidies to include
for campaign contributions (Klinsontorn, 2007, p.35). An example using Burns
definition, it would be like a boss paying extra incentive for its employee who does
the most sales. Thus, followers obtain rewards for job performance, while leaders
benefit from the completion of tasks. Transactional leaders are good at traditional
management functions such as planning and budgeting and generally focus on the
impersonal aspects of job performance (Ghee Soon Lim, and Richard L.Daft, 2004).
The definition of Burns was expanded by Bass (1985). He said that a transactional
leader must also clearly define how the work is needed to be accomplished for the
employee to obtain reward. This will give a clear understanding to the employees on
how much of work is required to achieve their goals. According to Archold (2004),
trust is essential to leaders credibility in fulfilling with the agreed upon reward once
the task is completed within the present parameters. Despite the exchanging of
rewards, a follower must trust that the leader would follow through his part if the
work is accomplished as required. Should this not be the case, then the followers will
not cooperate to complete the work as their needs are not satisfied.
Transactional leadership refers to a leadership that satisfies current needs through
provision of rewards as motivation to the followers. The downside of this is it
encourages the followers to be selfish. The followers will start demanding for more
rewards as an exchange to accomplish the task given. Klinsontorn (2004) added that
the focus on leading others solely from a contingent reinforcement perspective may
result in subordinates maximizing short-term gains to reach their goals quickly,
regardless of the long-term effects.
Bass (1985) research on leadership states that there are two dimensions in
transactional leadership which includes contingent reward and active and passive
management-by-exception.
Contingent Reward means to reward a follower that meets the expectation or punish
for they fail to meet the expectation (Klinsontorn, 2007). For Bass (1985), the
transactional leadership is contingent reinforcement. The leader and follower agree
on what the follower needs to do to be rewarded or to avoid punishment. Should the

agreed-upon performance is achieved; this dimension reinforces the effort to

maintain the desired speed and accuracy of employee performance.
Active Management-by-exception occurs when the leader has a system for actively
monitoring errors and gaps in expected performance and takes corrective action
appropriately (Bass & Avolio, 1990).
Passive Management-by-exception occurs when the leader intervenes only when
there is a gap between desired and actual performance levels. Accordingly, the leader
pays attention to the subordinate only when corrective actions are necessary. Thus,
there are no preventive actions or attempts by the leader to monitor or influence
performance (Bass & Avolio, 1990).
According to Bass (1985), both types of leadership, transformational and
transactional, are needed for the maintenance and growth of complex organizational
systems. He added that though transformational and transactional leadership are
conceptually different, both the leadership can be displayed by the same individuals
in different amounts and intensities. A study of military officers and industrial
managers by Waldman, Bass and Einstein (1986) also showed that although the
effects of transformational leadership were generally much stronger than those of
transactional leadership, those who had both transactional and transformational
characteristics were much more successful than those who had only one.
We have discussed few of the leadership theories and the current leadership styles
which are being practiced in organization. It is now important to have a broad
overview on employee job performance and its relation to leadership.

2.5 J ob performance
According to Cascio (1992), job performance is defined as completeness of the work
that has been undertaken by the employees. It is generally accepted that the
effectiveness of any set of people is largely dependent on the quality of its leadership;
effective leader behavior facilitates the attainment of the follower's desires, which
then results in effective performance (Ristow et al., 1999).
Furthermore, it also has been broadly accepted that effective organizations require
effective leadership. Organizational performance will suffer if this is ignored.
Research done by Canty L.T (2005) has revealed that there was a significant
relationship between the leadership styles and job performances scores of managers.

The outcome revealed that transformational and transactional leadership styles are
needed for the support and growth of multifaceted organizational systems.
According to Limsila et al. (2007), the transformational leadership style has a
positive association with work performance and organizational commitment of
subordinates than the transactional style. She added that transformational leaders
produce higher leadership outcome as well.
A similar research was done by Klinsontorn (2005). His study indicated that there
were positive linear relationship between some dimensions of transformational and
transactional leadership and all outcome variables (extra effort, effectiveness and
satisfaction with leadership).
Good leaders whom comprehend the importance of achieving the organizational
goals will motivate the employees in accomplishing it. Once the employees get
motivated, they would perform efficiently which would then increase the
organizational performance. Hence, effective leadership is required in order to have
an effective organization.

2.6 Previous Studies in Malaysia

In Malaysia, there are many studies done on the issue of leadership. Aspects of
leadership have been topic of interest for many local researchers to study in various
areas whether it is public or private sector. Existing literature on leadership is mainly
based on organizations in western countries. Comparatively, many studies have been
undertaken in context of public schools and higher education institution in Malaysia.
However, there is lack of studies done on the relationship between the
transformational and transactional leadership style and job performance in Malaysia.
Mung -Ling Voon et al. (2009) studied on the preferred leadership style of academics
in Malaysian public higher education institutions. She finds that universities leaders
do not adopt only one leadership style when managing academics. Indeed, they are
more likely to use the elements of transformational and transactional leadership
together in order to both inspire and motivate academics. Overall, the finding shows
that there is no single approach to leading academics in Malaysian public
universities. Academics at different phases of their career have different expectations
of leaders.
A similar study was done by Ismail Hussein Amzat. His study examined the
perceptions of academic staff on leadership styles practiced by Heads of Departments

at International Islamic University Malaysia (IIUM). He also investigated the

perceptions of academic staff towards these leadership styles in relation to their own
self-efficacy. The outcome revealed that the higher the Laissez Faire leadership style
exercised by the Heads of IIUM, the higher is self-efficacy of the academic staff.
Noran Fauziah Yaakud & Ahmad Mahdzan Ayob (1993) examined the correlation
between the principal's leadership style and some school background factors on
overall school performance. The results showed that all the four independent
variables in the regression model, i.e. principal's leadership style, age of school, small
town & rural schools correlate significantly with overall school performance.
Furthermore, a study related to the issue of leadership was also done by May-Chiun
Lo, T.Ramayah and Hii Wei Min (2009) in respect of leadership style and employees'
organizational commitment on Malaysia manufacturing industry. About 156
Malaysian executives voluntarily participated in the study which the results have
indicated that several dimensions of transformational and transactional leadership
have positive relationship with organizational commitment but transformational
leaders are more able to bring in commitment in employees than transactional
leaders.
The issue of leadership also attracted Tinah binti Naim@Nain (2007) to investigate if
there is a significant relation between the style of leadership of the school principle
from the teachers' point of view and stress among teachers in the district of Muar,
Johor. The outcome of the research showed that the teachers were at high opinion of
the principal from both the dimensions which were initiating structure and
consideration. Based on the research there were no significant differences between
the teacher's level of stress and their age, experiences, marital status, form teacher,
teaching exam classes and the sessions they are teaching. However, there was a
significant difference between teachers' level of stress and their sex. There was a very
weak negative relationship between structural dimension of principal's leadership
and teacher's stress. There was no significant relationship between principal's
leadership style and consideration dimension.
Nor Siah Jaharuddin (2006) investigated the relationships between corporate
cultures and leadership styles toward organizational performance of local and foreign
organizations in Malaysia. The findings showed that both local and foreign
companies practiced different sets of culture at the workplace. As for the leadership
style, no difference was found in both types of companies since results show the
similarity of styles used by the leaders in both type of organizations. The results also

indicate d that there is no association between corporate cultures and company's

performance, and no association between leadership styles and company's
performance in both types of organizations. This factor might lead to the facts of
other more influence factors such as socio-economic conditions, global competition
and technological advancement, a part of the culture and leadership style.
Ismail et al. (2009) examined the effect of transformational leadership
characteristics and empower on service quality by using usable questionnaires
gathered from employees working in the city based local authority in Sarawak,
Malaysia. The outcome showed that the relationship between empowerment and
selected transformational leadership characteristics (i.e. intellectual stimulation and
individualized consideration) is positively and significantly correlated with service
quality. The result confirms that empowerment does act as a full mediating variable
in the leadership model of the organization under study.
Of the research conducted on SMEs, very few studies have attempted to examine the
leadership styles in SMEs, particularly in the local context. Mohd Khairuddin
Hashim, Sa'ari Ahmad and Ooi Lay Leng strived to address this issue by examining
the relationship between leadership styles and job satisfaction among employees in
SMEs. Findings of the study indicate that transformational and transactional
leadership styles are associated positively to employees' job satisfaction in SMEs.
They also suggested that the adoption of both leadership styles may be able to
increase the level of job satisfaction among the employees in small and mediumsized enterprises.

2.7 Previous Studies in Overseas

A study done by Klinsontorn (2005) indicates that there were positive linear
relationship between some dimensions of transformational and transactional
leadership and all outcome variables (extra effort, leader effectiveness and
satisfaction with leadership). The results further showed that there was a negative
linear relationship between laissez-faire leadership and two outcomes: leader
effectiveness, satisfaction with leader. The leader-outcome correlations showed
higher scores between transformational leadership style and organizational
outcomes than between transactional leadership style and organizational outcomes.
William B.Walsh (2009) investigated the relationship between managers' leadership
styles and subordinates' job performance in an aviation security environment which
took place in a medium sized International Airport located in southern Arizona.
Based on the results, the researcher concluded that a manager did have a direct

influence over the success of his or her subordinates regardless of the leadership style
used.
In addition to the study on leadership style and job performance, Brett Anthony
Hayward (2005) examined the relationship between employee performance,
leadership and emotional intelligence in a South African parastatal. He found that
there is a significant relationship between employee performance and an emotionally
intelligent, transactional leader. However, no significant linear relationship was
found between employee performance and an emotionally intelligent,
transformational leader.
Similar research has been done by Lorita T. Canty (2005). She analyzed the
leadership styles and job performances of the Midwest district managers of an
Illinois international manufacturing company as perceived by their direct reports.
The study revealed that there was a significant relationship between the leadership
styles and job performances scores of managers. The results also indicated how
leadership styles could affect the behaviors in job performances of managers.
Furthermore, it revealed that transformational and transactional leadership styles
are needed for the support and growth of multifaceted organizational systems.
Apart from that, Chung- Kai Li and Chia Hung-Hung (2009) studied the role of
leader-member relationships (LMX) and coworker relationships (CMX) using the
social-identity and social exchange theory in explaining the relationship between
transformational leadership and task performance/organizational citizenship
behavior. Results indicated all four dimensions of transformational leadership have
positive effects on LMX, whereas only individualized consideration and inspirational
motivation positively affect CWR.
Masi (1994) shows statistically that there is a positive correlation between
transformational leadership and both individual empowerment and motivation but
has negative correlation between transactional leadership and individual
commitment to quality of organizational outcomes and organizational productivity.
In 1994, Green did a study at a small, post secondary, educational institution to
determine the effect of perceived faculty leadership on the outcome variables,
effectiveness, extra effort and satisfaction. The study concluded that the
transformational leadership variables contribute more to the output variables than
the transactional leadership variables and the laissez-faire leadership variable.

Besides that, Linda Van (1994) examined the relationship of transformational and
transactional leadership to organizational culture, employee performance and
employee attrition. She also analyzed the transformational and transactional
leadership at different managerial levels of an organization. The study showed that
there are significant differences between executive-level and first-level supervisors in
the use of transformational leadership. It was also shown that leaders who used
transformational leadership and leaders who practiced contingent reward linked to
subordinate culture that exhibited high levels of humanism, affiliation, achievement
and self-actualization. The results did not consistently support the hypothesis that
the quality and quantity of subordinate performance were higher under
transformational leadership. It was also concluded that this study support the
development of transformational leadership in organizational settings.
In a nutshell, most of the past studies points out that the transformational leadership
has significant relationship and consequences on job performance and organizational
effectiveness. Therefore, this has becomes an interesting topic to study on. However,
this topic is not widely studied in Malaysia, thus, this research is very timely.

2.8 Conclusion
This chapter's literature review covers various related topics that are fundamental to
the research title. The third chapter will provide further information about the
methodology used in this study, methods used to obtain the data and data analysis.