Relationships between leadership styles and employee turnover intertion in the vietnamese hightech industry

RELATIONSHIPS BETWEEN LEADERSHIP STYLES AND EMPLOYEE TURNOVER
INTENTION IN THE VIETNAMESE HIGHTECH INDUSTRY

Huỳnh Anh Nhy
MBUS 2.4
2011


At
University of Economics Ho Chi Minh City– International School Business

Dr. Nguyen Thi Nguyet Que

Page | 1


ACKNOWLEDGEMENT
Frist and foremost I offer my sincerest gratitude to my supervisor, Dr. Nguyen Thi Nguyet Que,
who has supported me through my thesis with her patience and knowledge. Without her support,
this study would not been completed.
I would like to express appreciations to my friends who support me in discussing initial
questionnaire and sending the final ones to survey target.
Last but not least, I would like to thank my parents, and family members for their profound
supporting, love and caring about me throughout my studies.
Huynh Anh Nhy
2013, November 15

Page | i


ABSTRACT

Vietnamese high tech industry is the important part of Vietnam GDP as well as export-shared in
the world. Unfortunately, this industry is facing with highest employee turnover rate in 2008 –
2012 period. Therefore identifying the root cause of employee turnover in this industry is
important. Much empirical studies about employee turnover intention was found out the
influences of leadership styles (transformational, transactional and laissez-faire leadership) on
employee turnover intention. This research was relied on questionnaire survey to discuss whether
there are any relationships between leadership styles and employee turnover intention as well as
strength of each relationship is. As result, there are only four relationships of one dimension of
transformational leadership – individualized consideration and three dimensions of transactional
leadership – contingent reward, management by exception (active), management by exception
(passive) with employee turnover intention, whilst idealized influence, inspirational motivation,
intellectual stimulation and laissez-faire do not significant relate to employee turnover intention.
Therefore, leaders in related industry should focus on negative relationships between
individualized consideration and contingent reward and positive relationships between
management by exception in active and passive to reduce harmful factor of their business.
Keywords: Leadership; Employee turnover intention; Transformation; Transactional; Laissezfaire; Idealized Influence; Inspirational Motivation; Intellectual Stimulation; Individualized
Consideration; Contingent Reward; Management by Exception; Relationship.

Page | ii


TABLE OF CONTENTS
ACKNOWLEDGEMENT ............................................................................................................... i
ABSTRACT .................................................................................................................................... ii
TABLE OF CONTENTS............................................................................................................... iii
LIST OF TABLES ........................................................................................................................ vii
LIST OF FIGURES ....................................................................................................................... ix
CHAPTER 1: INTRODUCTION ................................................................................................... 1
1.1

Introduction ........................................................................................................................ 1

1.2

Background of study and problem statement ................................................................. 1

1.3

Research objective and question ...................................................................................... 5

1.4

Scope and Significant of this study ................................................................................... 6

1.5

Structure of this study ....................................................................................................... 7

CHAPTER 2: LITERATURE REVIEW ........................................................................................ 8
2.1

Introduction ........................................................................................................................ 8

2.2

Leadership overall ............................................................................................................. 8

2.3

Transformational leadership .......................................................................................... 10

2.4

2.3.1

Idealized influence (I.I): ....................................................................................... 11

2.3.2

Inspirational motivation (I.M) ............................................................................. 12

2.3.3

Intellectual stimulation (I.S) ................................................................................ 12

2.3.4

Individualized consideration (I.C)....................................................................... 13

Transactional leadership ................................................................................................. 13
2.4.1

Contingent rewards (C.R) .................................................................................... 14

2.4.2

Management by exception (M.E)......................................................................... 15

2.5

Laissez-faire leadership ................................................................................................... 15

2.6

Employee turnover intention (T.I): ................................................................................ 16

2.7

Relationship between leadership styles and turnover intention .................................. 17
2.7.1

Transformational leadership and employee turnover intention ...................... 17

2.7.1.1 Idealized influence and employee turnover intention .................................... 18
2.7.1.2 Inspirational motivation and employee turnover intention .......................... 18
2.7.1.3 Intellectual stimulation and employee turnover intention ............................ 19
2.7.1.4 Individualized consideration and employee turnover intention ................... 19
Page | iii


2.7.2

Transactional leadership and employee turnover intention ............................. 20

2.7.2.1 Contingent rewards and employee turnover intention .................................. 21
2.7.2.2 Management by exception and employee turnover intention ....................... 22
2.7.3

Laissez-faire leadership and employee turnover intention ............................... 22

2.8

Research model ................................................................................................................ 23

2.9

Conclusion ........................................................................................................................ 23

CHAPTER 3: RESEARCH METHODOLOGY .......................................................................... 25
3.1

Introduction ...................................................................................................................... 25

3.2

Research Design ............................................................................................................... 25

3.3

Research sample size and description ............................................................................ 26
3.3.1

Research sampling ................................................................................................ 26

3.3.2

Sample description ................................................................................................ 27

3.4

Initial Questionnaire ........................................................................................................ 28

3.5

Pilot test............................................................................................................................. 31

3.6

Final questionnaire .......................................................................................................... 31

3.7

Data analysis techniques ................................................................................................. 32

3.7.1

Data coding and entering to SPSS software ....................................................... 32

3.7.2

Test reliability of measurement scales with Cronbanch’s alpha analysis ....... 32

3.7.3

Test relationship among factors with Exploratory Factor Analysis ................ 33

3.7.4
Regression analysis to see the impact of independent variables to dependent
variables................................................................................................................................ 34
3.8

Summary........................................................................................................................... 35

CHAPTER 4: DATA ANALYSIS ............................................................................................... 36
4.1

Introduction ...................................................................................................................... 36

4.2

Descriptive Analysis ......................................................................................................... 36

4.3

Reliability (Cronbach’s alpha)........................................................................................ 37
4.3.1

Reliability of transformational leadership style subscales ................................ 38

4.3.1.1 Reliability of Idealized Influence ..................................................................... 38
4.3.1.2 Reliability of Inspirational Motivation............................................................ 39
4.3.1.3 Reliability of Intellectual Stimulation ............................................................. 39
4.3.1.4 Reliability of Individualized Consideration .................................................... 40
Page | iv


4.3.2

Reliability of Transactional Leadership style sub-variance.............................. 40

4.3.2.1 Reliability of Contingent Reward .................................................................... 40
4.3.2.2 Reliability of Managing Exception – Active ................................................... 41
4.3.2.3 Reliability of Managing Exception – Passive .................................................. 41
4.3.3

Reliability of Laissez-Faire Leadership .............................................................. 42

4.3.4

Reliability of Employee Turnover Intention ...................................................... 42

4.4

Exploratory Factor Analysis (EFA) ............................................................................... 43
4.4.1

EFA for independence factors: Leadership Styles............................................. 43

4.4.2

EFA for dependence factor: Employee Turnover Intention ............................. 46

4.5

The Correlation Analysis (Hypothesis testing).............................................................. 47
4.5.1

Assumptions Testing ............................................................................................. 48

4.5.2

Hypothesis testing ................................................................................................. 50

4.5.2.1 Hypothesis 1 testing........................................................................................... 51
4.5.2.2 Hypothesis 2 testing........................................................................................... 51
4.5.2.3 Hypothesis 3 testing........................................................................................... 52
4.6

Conclusion ........................................................................................................................ 53

CHAPTER 5: DISCUSSION, RECOMMENDATION AND CONCLUSION ........................... 54
5.1

Introduction ...................................................................................................................... 54

5.2

Research finding discussion ............................................................................................ 54

5.3

Implication for practice and recommendations for further research ......................... 57

5.3.1

Implication for practice ............................................................................................... 57

5.3.1.1
Reducing employee turnover intention through negative relationship with
Individual Consideration and Contingent Reward .......................................................... 58

5.3.1.2
Reducing employee turnover intention through reducing the positive related
with Management by Exception ......................................................................................... 59
5.3.2

Recommendations for further research ..................................................................... 59

5.4

Research limition ............................................................................................................. 60

5.5

Conclusion ........................................................................................................................ 60

REFFERENCE ............................................................................................................................. 61
APPENDIX A -

SURVEY QUESTIONNAIRE ....................................................................... 67

APPENDIX B – DESCRIPTIONS OF SAMPLE ........................................................................ 71
Page | v


APPENDIX C – RESEARCH RESULTS .................................................................................... 72

Page | vi


LIST OF TABLES

Table 1 – Vietnam Merchandise Export ......................................................................................... 2
Table 2 – Leadership theories ......................................................................................................... 9
Table 3 – Demographic Information............................................................................................. 28
Table 4 – Initial questionnaire and its coding in data analysis of transformational leadership .... 29
Table 5 – Initial questionnaire and its coding in data analysis of transactional leadership .......... 30
Table 6 – Initial questionnaire and its coding in data analysis of laissez-faire leadership and
employee turnover intention ......................................................................................................... 30
Table 7 – Sample sizes, mean scores, standard deviations of leadership style and employee
turnover intention .......................................................................................................................... 36
Table 8 – Cronbach’s alpha of Idealized Influence ...................................................................... 38
Table 9 – Reliability of Inspirational Motivation ......................................................................... 39
Table 10 – Reliability of Intellectual Stimulation......................................................................... 40
Table 11 – Reliability of Individualized Consideration ................................................................ 40
Table 12 – Reliability of Contingent Reward ............................................................................... 41
Table 13 – Reliability of ME Active............................................................................................. 41
Table 14 – Reliability of ME Passive ........................................................................................... 42
Table 15 – Reliability of Laissez-Fair .......................................................................................... 42
Table 16 – Reliability of Employee Turnover Intention ............................................................... 43
Table 17 – KMO and Bartlett’s Test............................................................................................. 43
Table 18 – EFA of 31 measurement items.................................................................................... 45
Table 19 – EFA of 30 items .......................................................................................................... 46
Table 20 – Principal Axis Factoring of Employee Turnover Intention ........................................ 47
Table 21 – Factor Matrix of Turnover Intention ........................................................................... 47
Table 22 – Model Summary ......................................................................................................... 49
Table 23 – ANOVA Result ........................................................................................................... 49
Table 24 – Coefficients Result ...................................................................................................... 50
Table 25 – Hypotheses results ...................................................................................................... 52
Table 25 – Descriptive of transformational leadership ................................................................. 72
Table 26 – Descriptive of transactional leadership ....................................................................... 73
Table 27 – Descriptive of laissez-faire ......................................................................................... 73

Page | vii


Table 28 – Descriptive of turnover intention ................................................................................ 74
Table 29 – Total variances explained in first EFA test ................................................................. 74
Table 30 – Total variances explained in final EFA test ................................................................ 75
Table 31 - Correlations ................................................................................................................. 76

Page | viii


LIST OF FIGURES
Figure 1 - Industry Has Highest Employee Turnover Rate ............................................................ 3
Figure 2 – Research Model ........................................................................................................... 23
Figure 3 – Research Process ......................................................................................................... 26
Figure 4 – Age of respondents ...................................................................................................... 71
Figure 5 – Experiences of respondents ......................................................................................... 71
Figure 6 – Position of respondents................................................................................................ 71

Page | ix


CHAPTER 1: INTRODUCTION
1.1 Introduction
During two last decades, Vietnam is improving his quality in business environment and
workforce also. One of Vietnam attractiveness to Foreign Investors is cheap labor costs. Various
studies have conducted in order to analysis Vietnam competitiveness advantages by international
organizations, such as United State Industrial Development Organization (UNIDO), World
Bank. It is interesting that, between the “two conflicting location factors of low labor cost on the

one hand and the skill level workforce on other hand, investors continue attach relatively higher
importance to the cost than to the skills dimension”, according to UNIDO report ( 2011, p. 137).
Beside of opportunities from labor costly, investors nowadays are dealing with the extra cost
when employee turnover happens.Employee turnover has become a contentious issue, especially
in case companies lose critical talent in times when they most need to retain their knowledge
capital. Identifying the root causes of employee’s turnover in this industry, thus, is important in
this respect.
1.2 Background of study and problem statement
Vietnamese high-tech industry has attracted highest investment fund from foreigners since
Renovation Policy in 1986 efficiency. The investment fund is continuing grown year by year.
The foreign direct investment fund in 2012 to high-tech industry exceeds US Dollar 10 billion,
take 50 percent of total investment fund to Vietnam industries (Vietnam General Statistics
Office, 2013).
As FDI is the important part of Vietnam economic, take 66 percent of total export, contributes
18.6 percent to GDP, high-tech industry becomes major part of the Vietnamese economic
achievements. High-tech products become the largest export item (US Dollar 9.9 billion) in the
first 6 month of 2013, surpassing traditional export such as crude oil, garment and footwear
(World Bank report, 2013). Despite the decrease in recent year due to commodity price boom,
high-tech export continues to dominate world trade, accounting for 61.3 percent Vietnam total
manufactured export (UNIDO, 2011).The world market-share for High-Tech exports of Vietnam

Page | 1


increases from 0.06 percent to 0.22 percent in 2000 – 2009 periods (Vietnam Manufacturing
Competiveness Reports, 2012).
Overall, high-tech industry is becoming an important part of Vietnam economic due to its
contributions to Vietnam GDP as well as export shared in world. As potential growth, Vietnam
government decides to improve the contribution of high-tech industry to 45% of GDP in the next
ten years socio-economic development strategy 2011 – 2020 (Sai Gon Giai Phong, 2011).

Table 1 – Vietnam Merchandise Export

(Source: World Bank Report, 2013)
The most important influence of FDI into High-Tech Industry, besides GDP contribution, is jobs
opportunities. Number of employees working in this industry has increased year by year.
Unfortunately, the more job opportunities are created, the more employees decide to leave
company when have a good chance. Employees are easy to leave company once new changes
come or they do not satisfy with company. Whilst low labor cost is advance competitive,
employee turnover is harmful to organizations’ productivity. Therefore, employee turnover
becomes serious problem that all organizations are facing.
In order to catch the trends of Vietnamese employee trends, surveys have been done by Human
Resources Consultants, namely Towers Watson and American Chamber of Commerce in
Page | 2


Vietnam. The studies found that the highest turnover rate of employees was belonging to HighTech industry in 2008 – 2012 periods. The voluntary rate increases year to year. In 2008 the
employee turnover rate of High-Tech is 16.7%, 2010 is 17,9%, 2011 is 19,3% and first half of
2012 is 9.8% (Amchamvietnam, 2012, p.22).
Figure 1 - Industry Has Highest Employee Turnover Rate

(Source: Towers Watson Vietnam, 2012, P. 28)
Employee turnover is very expensive factor. When employee decide to leave an organization, it
has become important for specific organization to make costly replacement as soon as possible.
The identification of direct and indirect costs of voluntary turnover is as replacement,
recruitment, selection, temporary staff, management time, morale, pressure on remaining staff,
product or service quality and so on (Morell et al, 2004, Dess & Shaw, 2001). The labor
investment budget which organization spends for is a large amount, in order to support their
labors quickly assess job-descriptions as quick as possible. Bureau of Labor Statistics (2008)
when accounting for costs of labor turnover organization has estimated the cost of employee

turnover to for-profit to be up 150 percent of employee remuneration package. Managers at all
costs must minimize employee’s turnover (Henry Ongori, 2007).

Page | 3


As indicated above, high employee turnover costly impacts to business performance of
companies. Identifying the root causes of employee’s turnover, thus, is important in this respect.
Much of the empirical research on employee turnover is based on actual turnover, although some
studies are based on employee intentions to quit. Actually, there are strong link between
intention to quit and actual turnover. The relationship between intentions and actual turnover is
generally stronger than job satisfaction and turnover relationship, even this consistent
relationship is accounted for less variability (Mobley et al, 1979). Much of the research on
perceived opportunities has been found to be associated with intentions to leave but not actual
turnover (Kirschenbaum & Mano-Negrin, 1999).
To define the factor influence to employee turnover intention, various authors (Long et al, 2012,
Pradeep & Prabdu, 2011, Gerstnen & Day, 1997, and Avolio & Bass, 1995) had been found the
influence of leadership style to employee decision to quit their jobs. Leadership is not solely
factors, but is the fundamental one impacting to work-place and employee satisfaction
(Kennerly, 1989).
One of manager’s duties is dealing with conflict or its aftermath as Schermerbon, Hunt & Osborn
(1998) and Thomas & Smidth (1976) state. If the conflict between managers and employees is
not managed well, or poor managed, the morale of employees will down. Once employees unsatisfy with their leaders, the decision to quit a job is considered. Manager who do not use their
influence to build employees trust may face with the high turnover rate, because of their less
effort into retain employee.
This brings the assumption that leadership practices have strong implications in the decisions to
leave of employees.
As indicated earlier, there are explored studies about the relationship between leadership styles
and employee turnover intention in two last decades by various authors, such as Hamstra et al
(2011), Gerstner and Day (1997), Avolio and Bass (1995). Some studies have been focused on

Asia where economy is developing and competitive advantage is about work-force cost and
loyalty, Malik, Damish and Murir (2011), Long et al (2012), We et al (2006) for example.

Page | 4


However, there is little evidence in the literature on the relationship styles and employee
turnover intention in Vietnamcase, specific in high-tech industry that faces with highest turnover
rate in last 5 years.Because of negative effects of turnover to high-tech achievement and the
influences of leadership style to employee turnover intention, specific in voluntary turnover, this
paper will rely on questionnaires survey to discuss how leadership styles are influencing to
employees turn-over in Vietnam High-Tech Industry and this raises the issue of which leadership
style is best used in for this purpose.
1.3 Research objective and question
As indicated earlier, leadership styles is concerned as influent factor to employee turnover and
employee turnover negative impacts to business performance and competiveness advantage. This
study aims to explore the relationships between leadership styles, namely transformational
leadership, transactional leadership and laissez-faire leadership includes with their sub-variances
and employee turnover intention in the Vietnamesehigh-tech indsutry, thatfaces with highest
turnover rate from 2008 – 2012.Relied on theoretical literature and empirical studies related to
leadership styles and employee turnover, author will focus on how leadership style’s subvariables considered in this study influence to employee turnover intention.
The objective of this study, therefore, is to determine relationships between each leadership style,
namely transformationsal leadership (includes 4 sub-variances: idealized influence, inspirational
motivation, intellectual stimulation and individualized consideration), transactional leadership
(contents 3 sub-variances: contingent reward, management by exception (active) and
management by exception (passive)) and laissez-faire leadership and employee turnover
intention in Vietnam high tech industry. Besides that, this research studies the direct influence of
each leadership styles on employee turnover intention.
In order to focus on the purpose of research, author is developing follow research questions for
the quantitative study of employee turnover intention in the Vietnamese high tech industry:

-

Is there any relationship between 4 dimensions of transformational leadership (idealized
influence,

inspirational

motivation,

intellectual

stimulation

and

individualized

consideration) and employee turnover intention?

Page | 5


-

Is there any relationship between 3 aspects of transactional leadership (contingent reward,
management by exception (active) and management by exception (passive)) and
employee turnover intention?

-

Is there any relationship between laissez-faire leadership and employee turnover
intention?

-

How doeseach of leadership influence to employee turnover?

1.4 Scope and Significant of this study
The focus of this research is to determine the relationships between leadership styles and
employee turnover intention in Vietnamese high tech industry. Much of studies about these
relationships are explored in the world, but there is little evidence on literature in Vietnam,
specifics in high tech industry. Target population of this study is staff and supervisor level who
are working in High Teck Park, Ho Chi Minh City. However, author focuses on 4 targeted
companies (Jabil, Sonion, Intel and Nidec) in total 45 companies in Ho Chi Minh City High Tech
Park to collect data.The findings may support leaders in Vietnamese high tech industry to reduce
the problems of intention to leave of employee.
There are two steps in this study, qualitative study in pilot test and quantitative research in main
survey. Pilot test is conducted to refine questionnaire for readability, understandability and
culture accuracy of its content. The main methodology for pilot test is face-to-face interviewing.
The main survey is conducted by quantitative research and is sent to respondents via email,
online to gather data.
Statistical Software of Social Science (SPSS) is used to analysis data gathered. The process of
data analysis includes reliability-testing, relationship among factors with Exploratory Factors
Analysis and testing hypothesis through regression analysis.
As indicated earlier, retaining employee is important to the success of business, because the
skills and acknowledge that employee accumulate whilst working is a part of business. Once
facing with high employee turnover rate, organizations have to deal with the difficult of
recruitment process, training new comers and the extra cost belongs to related process; whilst
continue to maintain their advance competitive. In order to retain employees, organizations
Page | 6

should first identify the turnover roots causes.According to Frank and Taylor (2004), the most
important element in retention is the leader. When leadership styles are using to motivate
employees and recognize their contributions, leaders can help to fix the issue of employee
turnover. Besides that, leaders can influence on employee decision to stay or leave by their role
and behavior in working (Hedberg and Helenius, 2007; Ware, 2008).
Due to the influence of leader on employee decision, many studies have been done to identify the
role that leadership plays in reducing employee turnover intention (Griffith, 2004; Hedberg et
al.., 2007; Avey, Hughes, Norman and Luthans, 2008). Therefore this study will based on these
studies to find out the influence of leadership styles on Vietnamese High-Tech Industry; in order
to recommend solutions which business organization in related industry may apply to reduce the
serious factors in their business.
1.5 Structure of this study
This study includes five chapters that provide following context:
Chapter 1 provides the background of this study, as well as research objective and question. This
chapter also provides the scope and significant of current study.
Chapter 2 provides the comprehensive review of literature on the construct of leadership styles,
turnover intention and develops the hypothesized conceptual model.
Chapter 3 provides the conceptual regarding research design, sample and sampling. The research
methodology is also defined in this chapter.
Chapter 4 reveals data analysis, results of this study and all hypotheses testing.
Chapter 5 is providing the conclusions of study as well as recommendations.

Page | 7


CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
This chapter purpose is to get the grasp of earlier findings of leadership styles and employee

turnover intention. Therefore, this chapter is focusing on leadership theory and its styles as well
as the employee turnover intention. The relationship between leadership styles and employee
turnover intention is discussed in this chapter also.
2.2 Leadership overall
Leadership has long been studied since the 1900s, and until now the definitions of leadership are
still widely discussed topic, that interest and attracted the attention of many authors. There are
various determinations about leadership. However, it is not easy to get one specific definition
about leadership (Bass, 1985).
Traditionally, the term “leadership” is using to describe what align each member in group/ team
with standards in condition of change. Jong and Hartog (2007) describe that leadership influence
people in order to get defined goal. Besides that, leadership is one of critical and important
factors in enhance companies’ achievements (Riaz and Haider, 2010). It continues to be known
as major elements that can help business organizations to maintain and improve their competitive
advantage (Zhu et al, 2005; Rowe, 2001; Riaz and Haider, 2010).
Another definition of leadership by Bennis and Nanus (1985) and Hamidiar (2010) is an
influence on the relationship between leaders and followers to perform to reach all set goals.
When leaders interact with followers, they usually combine all traits, skills and behaviors that
described as leadership style (Lussier, 2004). Therefore, it is important to recognize the role of
leadership in the success of an organization.
As indicated before, there are explored theories about leadership that developed by various
authors in last few decades. Below table is the summary of leadership theories.

Page | 8


Table 2 – Leadership theories
Leadership
Outline description
Theory
Great Man

The original leadership approach of leaders being born
not made. Those certain individuals have exceptional
qualities and are destined to lead. The situation brings
out the leader.
Trait
People have certain natural traits which are more suited
to leadership. Leadership traits can be listed. It is the
combination of the right traits which makes a leader.
Behavioural
Leaders are made and not born. Leadership can be
defined into certain behaviours which can be learned and
developed
Situational/
Situational theory sees leaders adapting their styles to
Contingency
the context and development level of their followers.
Contingency theory proposes that it is situational factors
together with the leaders style which determine the
success of a leader.
Path-Goal Theory The successful leaders create structural paths which help
followers attain their work goals
Charismatic
The personal charisma of an individual creates an
intense emotional attachment for their followers.
Transactional

Emphasis is placed on the leader-follower relation. It is
the transactions (reward, punishment) which are the best
way for leaders to motivate the performance of their
followers

Transformational Leadership is based on the sharing of a vision which
motivates and directs the followers
Cognitive
Servant
Authentic
Complexity

Leaders who by word or personal example influence the
behaviour, thoughts or feelings of their followers
The leadership role is most successful if they serve those
they lead
That the root of any leadership theory is the need for a
leader to be authentic, to be self-aware.
Leadership takes place in a system of complex
interactive dynamics has three entangled roles (adaptive,
administrative, enabling) which reflect the dynamic
relationship between organisational functions and
context

Main writers
Cawthon, 1996
Callan, 2003
Stodgill, 1974
Skinner, 1967
Bandura, 1982
Fiedler, 1964
House,
1974
Hersey,
Blanchard, 1972

House, 1971
Weber,
1947,
House, 1977
Conger,
Kanungo, 1994
Burns, 1978
Bass, 1985
Bass and Avolio,
1995, 1997
Burns, 1978
Bass, 1985
Bass and Avolio,
1995, 1997
Gardner 1996
Greenleaf, 1977
Avolio, Gardner,
2005
Uhl-Bien et la.
2007

Page | 9


The classes of leadership style are researched through few current dedicates by differences
authors. Avolio and Bass (1995) have developed new theory about leader styles, called full range
leadership theory. Nowadays, this theory is probably the most discussed and validated model in
use world-wide (Kirkbride, 2006). The conceptual of full range leadership theory is improved
and now this full range leadership includes five factors of transformational leadership; three
factors of transactional leadership and one factor concerned laissez-faire leadership.

According to Avolio (1999) the full range leadership does not mean that all dimensions of
leadership are covered inside itself, but it is a model of passive/ avoidant leadership.Three
typologies of leadership in this model discussed nextaretransformational leadership, transactional
leadership and laissez-fare leadership.
2.3 Transformational leadership
Transformational leadership was researched by Downton (1973) and number of authors such as
Vinger and Cilliers, (2006); Northouse (2010) quoted again. Transformational leadership is the
leadership style that “inspires followers to transcend followers’self-interests for the good of the
organization and capable of having a profound and extra ordinary effect on the followers
concern” (Robbins, Judge, & Sanghi, 2009, p.456).
Transformational leadership is probably best described about the effect from leaders to his/her
followers, where follower can feel trust, respect toward and are motivated to achieve his/her
goals or business management team’s expectations (Bass and Avolio, 1992). The major
characteristics of this kind leadership is the leader’s ability to motivate follower to accomplish
more than what they can do by their own (Krishnan, 2005).
Transformation Leaderships involve into followers’ job performance by providing a vision and
send of mission, same with inspire pride, gain respect and trust (Bass, 1990).Daft (2010) states
this leadership convinces followers to create a better expectation for the organization strategies
by belief in their own potential.
Generally, leaders who perform transformational leadership usually ensure employee to
understand about how important their roles and their contribution are in organization into
company achievements as well as their own (Jones and George, 2004). Besides that, this kind
Page | 10


leader motivates their follower through their coherence (Northouse 2010). Career path of
employees is drawn clearly and transform to them (Daft, 2010). Company strategy are performed
through managers working styles/ leadership style (Dessler and Starke, 2004)
The weakness of this leadership is focused on the leaders and followers relationship.
Furthermore, transformational leader is focusing on how they can support employees to improve

themselves in the long term and develop over in the short term.
Dimensions of Transformational leadership were discussed with in few decades, such as Bass
(1990) and Jung (1997). These are (1) idealized influence, (2) inspirational motivation, (3)
intellectual stimulation and (4) individualized consideration.
2.3.1

Idealized influence (I.I):

Idealized influence is the behavior “that reflected by leaders showing charismatic personality”
(Shibru et al, 2011, p 688). Idealized influence is providing a role of model for high ethical
behavior, instilling pride, gaining trust and respect. Therefore, idealized influence is indicated
when leaders react in moral and suitable way and are evaluated as dependable by followers
(Kelloway et al., 2003). In other words, idealized influence is known as the degree to which
leader behaves in the admirable way that caused the identification about leaderscharacteristics by
followers.
Additional aspects of Idealized Influence are noted by Bass (1997) when he states:
Leaders display conviction; emphasize trust; take stands on different issues; present their
most important values; emphasize the importance of purpose, commitment and ethical
consequences of decision making. Such leaders are admired as role models in generating
pride, loyalty, confidence, and alignment around a shared purpose (p. 133)
In conclusion, Idealized leadership is “at its core represents the highest levels of moral reasoning
and perspective-taking capacity” (Shibru et al, 2011). Building trust and seeing the good in other
first are main characteristics of this type of leadership.

Page | 11


2.3.2

Inspirational motivation (I.M)

This behavior has to do with the leader’s effort to motivate his/her followers to achieve the
ambitious target by arousing their interesting, ability and beliefs. Inspirational motivation leaders
usually communicate with followers in order to share and challenging goals, build and raise team
spirits and optimism by modeling the behaviors that are deemed appropriated (Yammarino and
Dubnisky, 1994). Bass and Riggio (2006) state that “Transformational leaders get followers
involved in envisioning attractive future states; they create clearly communicated expect ations
that followers want to meet and also demonstrate commitment to goals and the shared vision”.
Therefore, Inspirational Motivation dimension is contributed through behaviors that facilitate
sense of optimism and a commitment to companies’ goals and vision (Downton, 1973; Yulk et
al, 1981, Bass, 1985)
2.3.3

Intellectual stimulation (I.S)

This behavior refers leaders to challenge and evaluate their followers’ ideas and solving problem
skills. Intellectual stimulation leaders usually teach their subordinators to looking for a different
way with their current thinking when dealing with traditional problems. Strongest point of this
behavior is listening to followers even if different from the leader’s ideas.
Northouse (2001) states that:
This is leadershipthat stimulates followers to be creative and innovative, and to challenge
their own beliefs and values as well as those of the leader and the organization. This type
of leadership supports followers as they try new approaches and develop innovative ways
of dealing with organizational issues. It promotes followers’ thinking things out on their
own and engaging in careful problem solving (p.179)
Overall, this type of leadership involves behavior by leaders that encourages new ways of
problem solving, improving follower skills by challenging the belief and values of the followers,
as well as their leaders and companies.

Page | 12

2.3.4

Individualized consideration (I.C)

Individualized consideration is the degree to which the leader pays attention to each individual
follower’s needs, acts as an advisor or coach to the follower, and listens to the follower’s
concerns and needs.
Northouse (2001) states:
This factor is representative of leader who provides a supportive climate in which they
listen carefully to the individual needs of followers. Leaders act as coaches and advisors
while trying to assist individuals in becoming fully actualized. These leaders may use
delegation as a means to help followers grow though personal challenges (p. 179).
A leader modeling individualized consideration will recognize the individual needs and provide
the support, encouragement and coaching for personal development. Such leaders also try to
match each followers needs to that of the organization to enable opportunities for growth and
self-actualization.
2.4 Transactional leadership
The transactional style of leadership was first described by Max Weber in 1947 and then by
Bernard Bass in 1981. Transactional leadership focuses on the exchanges between leader and
follower. This type of leadership, also known as managerial leadership, focuses on the role of
supervision, organization, and group performance. It is a style of leadership that leader promotes
compliance of his followers through both rewards and punishments. Leader usually
communicates with their subordinates to ensure tasks are completed in the better way and
rewards systems are applied when jobs had been done well (Avolio et al., 1991). Therefore,
employee performance and motivation is evaluated by rewards systems through staffs’
achievements in their daily tasks (Dessler and Starke, 2004 and Hamidifar, 2010).
In contrast with transformational leadership, transactional leaders are not looking to a new
future, but looking to merely keep everything the same. Leadersuses transactional leadership as a

model attend to followers' tasks in order to find faults and deviations. Transactional leaders
promote compliance of their followers through both rewards and punishment. He/she will decide
punishment such as punitive and penalized actions applied in case the followers or subordinates
Page | 13


fail to perform as per the instruction. Positive rewards are such as complimentary comments,
praise and recognition upon successful compliance with instruction from the leaders and
achievement of objectives (Riaz and Haider, 2010).This type of leadership is working in crisis
and emergency scenarios, as well as when projects need to be carried out in a specific situation.
Generally, main characteristics of transactional leaderships are focusing on management and
supervising their followers as well as group performance. As focus closely on followers’ tasks,
this type of leader is carefully access any deviations from organizational standard.Contingent
rewards and negative reinforcement are tools of transactional leadership in order to evaluate their
subordinator’s achievements.Transactional leaders work in organization structures alignments.
These kinds of leaders use negotiation to attain their management goals that are in sync with the
organization's goals.
This kind of leadership uses extrinsic motivation to increase productivity. Dimensions of this
leadership are (1) contingent rewards (subordinates receive rewards for good performance), (2)
management by exception (active: monitoring and correcting subordinates to align job
achievements with standard) and (3) management by exception (passive: receiving contingent
punishment in response obvious difference from standard).
2.4.1

Contingent rewards (C.R)

According to Bass & Avolio (1994), transactional leadership emphasizes the transaction or
exchange that takes place among leaders, colleagues and followers. This exchange is based on
the leader discussing with others what is required and specifying the conditions and rewards
these others will receive if they fulfill those requirements. Therefore, Contingent Reward is an

exchange process between leaders and followers in which effort by followers exchanged for
specific rewards. The leader tries to obtain agreements from followers on what must be done and
what the payoffs will be for the people doing it.
Transactional leaders link the goal to rewards, clarify expectations, provide necessary resources,
set mutually agreed upon goals, and provide various kinds of rewards for successful
performance.

Page | 14


Bass(1998) explains thatcontingent reward has been found to be reasonably effective to achieve
higher levels of development and performance. With this method, the leader assigns or gets
agreement on what needs to be done and promises rewards or actually rewards others in
exchange for satisfactorily carrying out the assignment.
2.4.2

Management by exception (M.E)

Management-by-Exception is one of tools of transactional leadership, but is less effective than
contingent reward (Avolio and Bass, 1995). When applying management by exception, leader
only takes actions when things go wrong and standards are not met (Avolio and Bass, 1989, 1995
and 1997). Leader avoids giving directions if the old ways work and allow followers to continue
doing their jobs as always if performance goals are met (Hater and Bass, 1988). There is two
kinds of management by exception: active and passive.
When applying management by exception active (M.E Active), the leader need to arrange to
actively monitor deviances, mistakes, and errors in the followers’ jobs and to take corrective
action if necessary (Gill, Levine and Pitt, 1998, Hater and Bass, 1988). In contrast, management
by exception passive (M.E Passive) implies waiting passively for deviances, mistakes, and
errors to occur and then taking corrective action (Gill, Levine and Pitt, 1998). Once management
by exception passive is used, it may be required and effective in some situations such as when

safety is paramount in importance. Leaders sometimes must practice it when it is necessary to
supervise a large number of subordinates who report directly to the leaders. Hartog, Muijen and
Koopman (1997, p. 24) state, “the difference between two kinds of management by exception is
that the active form the leader searches for the deviations, whereas in the passive form the leader
waits for problems to materialize”.
2.5 Laissez-faire leadership
Laissez-Faire(L.F) leadership is known as passive kind of leadership style (Long and Thean,
2011). This type of leader is refers to “hands-off” and allow his or her followers or employees to
make decisions or to complete a task in whichever way they decide (Robbins et al., 2010). This
type of leader is usually let his subordinators to work under their own-rule, and do not consider
on issues arises in organization environment (Hamidifar, 2010).

Page | 15