The effect of transactional and transformational leadership styles on the organizational commitment and job satisfaction of customer contact personnel.

Emery, Charles R. ; Barker, Katherine J.

ABSTRACT

Customer satisfaction depends, to a large extent, on the attitude of customer contact personnel. This study examines the effect of transactional and transformational leadership on the organizational commitment and job satisfaction of customer contact personnel in banking and food store organizations. The results indicate that the transformational factors of charisma, intellectual stimulation, and individual consideration are more highly correlated with job satisfaction and organizational commitment than the transactional factors of contingency reward and management-by-exception. Also, leader charisma, by itself, is an excellent predictor of employee attitude. As such, this factor appears to have value in leader selection and training programs within the service sector.

INTRODUCTION

Ever increasing competition has driven companies to focus on customer satisfaction. A major determinant of customer satisfaction within the service industry is the attitude of customer contact personnel (Heskett et al., 1990; Parasuraman et al., 1991). This relationship is succinctly summarized by John Smith, former CEO of Marriott Corporation, by the phrase, "you can't have happy customers served by unhappy employees" (Heskett, et al., 1997). Similarly, Heskett (1987) suggests the following sequential relationship to describe successful service firms: "great employee satisfaction begets high employee motivation begets high level of service quality compared with the level the customer expects begets high customer satisfaction begets increased sales volume." Along the same line, Schneider & Bowen (1985a) and Marshall (2001) report that service cultures with the highest organizational commitment and lowest employee turnover consistently report the highest levels of customer satisfaction. Further, Bowen & Schneider (1988) noted that a high percentage of the time when customers report unfavorable views of service quality, they also report having servers with bad attitudes or overhearing employees complain about their jobs and surroundings.

A major determinant of an employee's attitude is his/her perception of their immediate supervisor (Yammarino & Dubinsky, 1992). As such, it seems reasonable to assume that some styles of leadership may be more effective than others at gaining the commitment of customer contact personnel. Heretofore, the vast majority of research on leadership, as an antecedent of employee performance, has been on the effect of task-oriented or people-oriented leadership styles. The purpose of this study is to examine the effect of transactional and transformational leadership styles on the performance (job satisfaction, organizational commitment) of customer contact personnel.

THEORETICAL ISSUES AND HYPOTHESES

The discussion of theoretical issues is divided into two sections. First, we will review some research on the relationship between two surrogates of employee attitude (i.e., organizational commitment and job satisfaction) and customer satisfaction. Second, the dimensions of transformational and transactional leadership are defined and examined in terms of their effect on employee attitude. Subsequently, hypotheses are developed to examine whether transformational leadership or transactional leadership is more correlated with a positive employee attitude.

Employee Attitude and Customer Satisfaction

Two of the more popularly researched components of employee attitude are organizational commitment and job satisfaction (Porter et al., 1974; Kanungo, 1982). One study found that organizational commitment reflects an employee's identification and involvement with a particular organization. More specifically, it embraces three dimensions: "(a) a strong belief in and acceptance of the organization's goals and values; (b) a willingness to exert considerable effort on behalf of the organization; and (c) a strong desire to maintain membership in the organization" (Mowday et al., 1979).

The relationship between organizational commitment and customer satisfaction has been fairly well established. For example, Morrow's (1993) review of 20 studies on the relationship between organizational commitment and customer satisfaction indicates correlations ranging from .27 to .73, and averaging .56. Additionally, four studies of organizational commitment and organizational dependability indicated correlations of .38 to .66 (Dornstein & Matalon, 1989; Meyer & Allen, 1988). In turn, organizational dependability has been offered by numerous studies as a strong correlate with customer satisfaction (Czepiel et al., 1985; Garvin, 1987; Parasuraman et al., 1991).

Further, several studies have found a very positive relationship (.46 to .60) between a person's willingness to participate in quality improvement efforts and organizational commitment (Gaertner & Nollen, 1989; Meyer & Allen, 1988). In turn, organizational participation and a willingness to improve have been linked in several studies to superior customer service (Tornow & Wiley, 1990). Lastly, four studies of organizational commitment and work ethic indicated correlations of .21 to .43 (Brooke et al., 1988; Morrow & McElroy, 1987). In turn, the work ethic of servers or customer contact personnel has been identified as a strong correlate (.42 to .64) with customer satisfaction (Parasuraman et al., 1991). Therefore, based on both the direct and the indirect evidence of these correlational studies, it seems logical to assume that organizational commitment and customer satisfaction are strongly correlated.

Employee job satisfaction is often conceptualized as containing the following elements: the job itself, supervisor relationship, management beliefs, future opportunity, work environment, pay/benefits/rewards, and co-worker relationships (Morris, 1995). According to Morris's research, employee job satisfaction is a critical factor in delivering satisfaction to customers. In a study of the retail banking industry, Brown and Mitchell (1993) found that the job dissatisfaction of customer contact personnel was a key correlate with lower customer satisfaction. Similarly, in an examination of customer satisfaction at a major Midwestern hospital, the correlation between the nurses' job satisfaction and the patients' willingness to recommend the unit was .85 (Atkins et al., 1996). Job satisfaction as measured by Patricia Smith's Job Description Index (1969) has been indicated as a moderately positive correlate (.11 to .34) of customer satisfaction in a broad range of studies (Schlesinger & Zornitsky, 1991; Schneider & Bowen, 1985b). More recently in a longitudinal study, Koys (2001) found a significant positive relationship between employee satisfaction in year one and customer satisfaction in year two.

Transactional and Transformational Leadership

Burns (1978) was one of the first to conceptualize leadership styles in terms of transactional and transformational characteristics. He viewed a leader's behavior on a continuum between transactional and transformational. He suggested that transactional leadership is a style based on bureaucratic authority and legitimacy within the organization. Further, transactional leaders emphasize work standards, assignments, and task-oriented goals. In addition, he believed that transactional leaders tend to focus on task completion and employee compliance, and these leaders rely quite heavily on organizational rewards and punishments to influence employee performance. Al-Mailam (2004) described the transactional leader as an agent of change and goal setter; a leader that works well with employees resulting in improvements in productivity.

In contrast, Burns characterized transformational leadership as a style that motivates followers by appealing to higher ideals and moral values. Transformational leaders must be able to define and articulate a vision for their organizations, and the followers must accept the credibility of the leader. Transformational leadership can motivate and inspire employees to perform beyond expectations and transform both individuals and organizations. (Bass, 1985; Keegan & Hartog, 2004). Subsequently, Bass and Avolio (1987) proposed that transformational leadership is a behavior process comprised of three factors: charisma, intellectual stimulation and individualized consideration. They define the first factor or charisma, with respect to how followers perceive and act toward the leader. For example, followers are seen striving to emulate their charismatic leaders; they place a great deal of trust in their leader's judgment, as well as mission; they support the leader's values and typically adopt them, and frequently form strong emotional ties to the leader. It is important to note, however, that charisma and charismatic leadership have often been considered synonymous with transformational leadership (Conger & Kanungo, 1987). As in Bass and Avolio's (1987) previous research, this research considers that charisma is a testable subset of transformational leadership. Therefore, when the term "charisma" is used in this paper, it is a factor of transformational leadership and defined by the previously mentioned construct developed by Bass and Avolio (1987). For more information recent information on the construct jungle of charisma and charismatic leadership, you are referred to an article by Angelo Fanelli and Vilmos Misangyi, "Bringing out charisma: CEO charisma and external stakeholders," Academy of Management Review (2006) .31(.4), 1049-1061 and one by Kevin Groves, "Linking leader skills, follower attitudes, and contextual variables via an integrated model of charismatic leadership," Journal of Management, 31(2), 255-278.

As to the second factor, individualized consideration, transformational leaders demonstrate concern for the individual needs of followers, treating followers on a one-to-one basis. Using processes such as mentoring, transformational leaders also raise need perspectives and the goals of followers; that is, they not only identify individual needs, but also raise them appropriate to the challenges confronting followers. Intellectual stimulation is the third key component in the transformational leadership process. With intellectual stimulation, transformational leaders encourage followers to question their old way of doing things or "to break with the past." Followers are supported for questioning their own values, beliefs, and expectations and those of the leader and organization, which may be outdated or inappropriate for current problems. In sum, transformational leaders are able to get followers to perform at maximum levels. They achieve maximum performance because of their ability to inspire followers, to raise their followers' criteria for success, and to have followers think "outside the box" and explore alternative methods for solving problems (Bass, 1985).

According to Bass et al. (1987), transactional leadership can be conceptualized using a two-factor model, i.e., either passive or active. Passive transactional leadership, or management-by-exception (MBE), allows the status quo to exist as long as the old ways are working. If things go wrong, however, a leader practicing passive management-by-exception will take actions that often have a negative connotation. For example, "If this mistake happens again, I will have to write you up." In contrast, active transactional leadership involves an interaction between leader and follower that emphasizes a more proactive positive exchange; for example, providing appropriate rewards when followers meet agreed-upon objectives. The emphasis with active transactional leadership is on rewarding followers for achieving expected performance. Such leadership includes the acquisition of information to determine what the current needs of subordinates are, as well as helping them to address the task and role requirements that result in desired outcome(s). By linking individual needs to what the leader expects to accomplish, as well as to rewards desired by followers, the motivational levels of followers can be enhanced.

Leadership as a Correlate of Organizational Commitment

When the construct of organizational commitment (i.e., affective commitment) is examined in the context of Bass's view of leadership, some interesting possibilities emerge. For example, transformational leadership might exhibit strong positive relations to organizational commitment, given the strong feelings of emotional attachment it is expected to foster. In contrast, transactional leadership (management-by-exception) might foster reduced commitment because employees want to avoid superiors who appear only when things go wrong.

Hypothesis 1: Customer contact personnel who perceive that they are managed via a transformational leadership style will have a higher level of organizational commitment than those managed via a transactional leadership style.

Leadership as a Correlate of Job Satisfaction

When the construct of job satisfaction is examined in the context of Bass's view of leadership (Bass, 1985), several predictions are suggested. First, transformational leadership might intrinsically foster more job satisfaction, given its ability to impart a sense of mission and intellectual stimulation. Also, transformational leaders encourage their followers to take on more responsibility and autonomy. As such, the work tasks provide workers with an increased level of accomplishment and satisfaction. Additionally, since transformational leaders are focused on the individual development of their followers, employees should have a sense that someone is caring for their needs. Conversely, employees under the quid pro quo approach of transactional leaders might find fault or dissatisfaction with the equity of their reward systems. Further, in the management-by-exception approach, the transactional leader is more apt to be perceived as someone who is actively searching for deviations. Under this type of atmosphere, it is often perceived that one mistake outweighs ten successful contributions.

Hypothesis 2: Customer contact personnel who perceive that they are managed via a transformational leadership style will have a higher level of job satisfaction than those managed via a transactional leadership style.

METHOD

Participants and Procedure

The subjects were 77 branch managers from three regional banking organizations and 47 store managers from one national food chain. (Note: Two service environments were selected to test the hypotheses because some previous research suggested that the effect of leadership style might be moderated by an organization's contextual variables (e.g., degree of innovation). The branch and store managers were 43% and 85% male, respectively. These referent leaders were the participants' direct supervisors. The bank and food store respondents were 100% female, 55% married, and most (83%) had been in their current jobs longer than two years and reported to the referent manager for an average of 17 months. Additionally, most (74%) had at least some undergraduate college experience but only 5% were college graduates (mean education for bank respondents was 2 years past high school and one-half year past high school for the food store respondents). Also, the respondents were earning an average wage of $8.50 per hour in the food stores and $10.80 in the banks. The questionnaire was mailed along with a letter requesting participation by the parent company and a letter of introduction and instruction by our research team, to a random selection of four tellers at each bank and four checkout personnel at each store. All participants responded on a voluntary basis and were assured that their individual responses would remain confidential. Of the possible 308 tellers, 292 useable responses were received, for a 95% response rate. Of the possible 188 checkers, 97 useable responses were received, for a 50% response rate.

Measurement of Leadership Variables

An abridged version (Bass, 1985, pp. 209-212) of the MLQ-1 instrument was used to measure the constructs of transformational and transactional leadership. Twenty-seven items were used to measure transformational leadership: 18 for charismatic leadership, seven for individualized consideration, and three for intellectual stimulation. Although Bass's original research with the MLQ-1 suggests that transformational leadership can be partitioned into three factors, recent evidence indicates a high degree of correlation between these behaviors (Bycio et al., 1995; Carless, 1998). As such, we viewed the transformational leadership data from both a three-factor and a single factor standpoint.

Thirteen items were used to measure transactional leadership: seven for contingent reward and six for management-by-exception. A 5-point scale ranging from 0 to 4 was used for all items, with the higher numbers representing greater perceived amounts of the leadership attributes.

Measurement of Outcome Variables

This study used the most popular and valid measure to assess the organizational commitment of the customer contact personnel. This 15-item instrument was developed by Porter et al. (1974) and has demonstrated an average internal consistency reliability of .88 in over 90 samples (Mathieu & Zajac, 1990). The instrument consisted of statements (e.g., "I find that my values and the organization's values are very similar.") to which respondents indicate their level of agreement or disagreement on a seven-point scale.

The job satisfaction of the customer contact personnel was measured by a modified, 11-item version of the Smith et al. (1969) Job Description Index (JDI) that included only those items that would be directly affected by supervisor style. For example, this instrument consists of statements (e.g., "I feel very satisfied with the way company policies are put into practice.") to which respondents indicated their level of satisfaction on a five-point scale.

Data Analysis

The hypotheses were tested using a correlation analysis and comparisons were made between the banking and food store samples as well as with other demographics. Additionally, the expected differential relationships between the leadership scales and the outcome variables (commitment and job satisfaction) were assessed using the formula given by Cohen & Cohen (1983, p. 56) for comparing the size of dependent correlations.

RESULTS

Hypotheses 1 and 2 were tested using a correlation analysis. Tables 1 and 2 present the means, standard deviations, and intercorrelations of the Bass transformational and transactional scales and the outcome measures. The results from the correlation analysis support (in both service industry settings) the hypothesis that employees managed under a transformational style of leadership will have a higher organizational commitment (Hypothesis 1). Specifically, the three factors of transformational leadership, i.e. charisma, intellectual stimulation, and individual consideration, were significantly (p <.01) correlated with the organizational commitment of food store employees at r = .426, r =.376, and r = .371, respectively. With respect to the factors associated with transactional leadership, the correlation between contingency reward and organization commitment was r = .244 (p <.01), and for management-by-exception was r = -.153 (p <.05). Almost identical results were noted in the banking service sector.

Similarly, the results supported the proposition that employees managed under a transformational style of leadership will have higher levels of job satisfaction. Specifically, the factors of charisma and intellectual stimulation correlated with the job satisfaction of food store employees at r = .212 (p <.05), and r = .322 (p<.01), respectively. As for the transactional leadership style there was a negative correlation between job satisfaction and management-by-exception (r = -.244 (p<.01), and the correlation with contingency reward was non-significant. Again, the banking organizations provided similar results. Job satisfaction was positively correlated at r = .130 (p <.05) with intellectual stimulation and lacked significant correlation with the other factors. (Note: the low correlation between organizational commitment and job satisfaction indicates that these are, in fact, different constructs in the eyes of the employees.)

Additionally, stepwise and hierarchical regression analyses (Cohen & Cohen, 1983) were conducted to determine the predictive effect of the transformation and transactional factors on the dependent variables. As expected, in the stepwise analysis, charisma was the only factor needed to predict organizational commitment ([R.sup.2] =.152, p<.01 for banks, and [R.sup.2] =.181, p<.01 for food stores). Further, the stepwise analysis revealed that intellectual stimulation was the only factor that significantly predicted job satisfaction (R2=.017, p<.026 for banks and R2 =.145, p<.01 for food stores). In a similar fashion, a hierarchical regression was used to initially enter the contingent reward style in the organizational commitment regression equation. Then charisma was added separately to the equation. The results indicated that charisma more than doubled the predictive powers of contingent rewards.

Also, a one-way ANOVA was conducted to determine whether there were any differences between the two organizations (banking and food stores) in terms of both their response means and the gender of their manager. The results indicated there were no significant differences in response levels (e.g., charisma, intellectual stimulation, individual consideration, MBE, contingent reward, organization commitment and job satisfaction) between the banking and food store organizations. Further, the results indicated that neither gender was more likely to use a particularly style or substyle of leadership.

DISCUSSION

This study attempted to examine the connection between transactional and transformational leadership and employee commitment and job satisfaction in two service industries. As predicted, transformational leadership was found to have a higher correlation with the dependent variables than transactional leadership. Further, these findings seem to support Bass's (1985) model that suggests that transformational leadership is more predictive of individual and group performance. Additionally, the results provide added support for prior research that has shown the use of managing-by-exception is an ineffective leadership style (Bass, 1985).

In the original conceptualization of his model, Bass (1985) suggested that certain contextual factors might moderate the impact of transformational and transactional leadership on performance. According to Bass, transformational leaders are likely to find more ready acceptance in organizational units, in which there is receptivity to change and a propensity for risk taking. In contrast, in organizational units bound by traditions, rules, and sanctions, leaders who question the status quo and continually seek improvement in ways to perform the job may be viewed as too unsettling and, therefore, inappropriate for stability and continuity of the existing structure (Bass & Avolio, 1990). Thus, units open to creative suggestions, innovation, and risk taking (i.e., units supportive of innovation) may be more conducive to transformational leadership than organizational units that are structured, stable, and orderly.

In the present study, it is reasonable to assume that both the banking and food store organizations have stable or mechanistic structures. As such, Bass's model suggests that a transactional leadership style might be more suitable. The data in this study, however, showed that the employees of both the banks and the food stores preferred transformational leaders. One plausible explanation for this interesting finding is that the system of reinforcement in mechanistic organizations is so thoroughly entrenched in the organizational structure, that the leaders themselves do not need to actively or overtly provide contingent reinforcement.

Additionally, the findings confirmed that charisma adds unique variance beyond contingent-reward behavior in relation to leader effectiveness. These findings are consistent with other research conducted in industrial settings that has demonstrated the importance of charismatic leadership (Hater & Bass, 1988; Waldman et al., 1987). On the other hand, the findings fail to support the propositions of Lundberg (1986) and Tichy and Devanna (1986) that charisma is only important at the highest management levels. Their contentions are based on the notion that at these levels there is the greatest need for change. Presumably, lower-level managers implement the decisions of the higher-level charismatic leaders by using contingent rewards.

Finally, it should be noted that two of the most important tests of transformational and transactional leadership on organizational performance were performed in organizations that had either exclusively male (Howell & Avolio, 1993) or exclusively female (Bycio et al., 1995) managers. Our banking sample represents a relatively even distribution between male and female managers and as such offers some insight to whether there are gender differences in terms of the magnitude and preference of particular leadership styles. The findings indicate that there is no difference. Female managers are equally as likely to use a transformational style as males, and when they use a transformational style it contains similar levels of charisma, intellectual stimulation, and individual consideration.

CONCLUSIONS AND IMPLICATIONS

This study provides evidence to support the use of transformational leadership to increase the job satisfaction and organizational commitment of customer contact personnel. These outcomes become more significant as service organizations attempt to empower their workers and strive to retain customers through relationship strategies. Further, this study provides a first-time look at the impact of a transformational leadership style on relatively low paid and high school educated customer contact personnel at multiple organizations. The results seem to indicate that transformational leadership and particularly charismatic is preferred by these employees. Additionally, the findings indicate the results can probably be generalized across similar organizational service structures.

Bass (1985) defined transformational leadership with respect to how followers perceive and act toward the leader. For example, followers are seen striving to emulate their transformational leaders; they place a great deal of trust in their leader's judgement, as well as mission; they support the leader's values and typically adopt them, and frequently form strong emotional ties to the leader. Further, it might be suggested that transformational leaders develop within their subordinates the attributes of charisma, intellectual stimulation and individual consideration. These personal characteristics directly support the dimensions of service quality (Parasuraman et al., 1988).

Further, these findings have implications for the training and development of service organization leaders. Given the discriminant validity of the MLQ, training programs could be developed to work on improving the behaviors and skills that result in effective transformational leadership. Preliminary findings from a supervisory training program developed to improve transformational leadership have already produced some promising results (Bass & Avolio, 1990). Additionally, the results indicate that leadership-training programs must continue to emphasize the ineffectuality of a management-by-exception style. Employees view MBE as disempowerment and micro managing. Also, it is important to note the contribution of intellectual stimulation to employee job satisfaction. The fact that it was particularly significant for the checkout personnel might suggest that its importance might increase as jobs become more routine and/or organizations fail to provide the stimulation contextually. Lastly, these findings should have an impact on the way we recruitment and promote leaders in the service environment.

Future research needs to bridge the gap between personnel selection and leadership theory (Kuhnert & Russell, 1990). Because the MLQ has been recommended as a possible selection tool (Waldman et al., 1990), it is worth examining the degree to which the questionnaire can augment or replace more traditional selection methods, including personality inventories (Hogan & Hogan, 1994). Additionally, since charisma is the most predictive of the transformational factors, future efforts are needed to further examine its makeup and whether it can be effectively learned.

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Charles R. Emery, Erskine College

Katherine J. Barker, SUNY Fredonia

Table 1: Means, Standard Deviations, and Correlations of Variables
for the Banking Organizations (N=292)

 M SD Charisma IntStim

Charisma 2.82 1.07
IntStim 1.99 0.94 .693 **
IndCon 2.64 1.10 .896 ** .654 **
ContRwd 1.92 0.95 .648 ** .640 **
MBE 1.78 0.73 -.312 ** -.068
OrgCom 5.52 1.04 .390 ** .264 **
JobSat 8.04 5.13 .113 .130 *

 IndCon ContRwd MBE OrgCom

Charisma
IntStim
IndCon
ContRwd .659 **
MBE -.296 ** .028
OrgCom .386 ** .259 ** -.157 **
JobSat .100 .076 -.022 .160 **

** Correlation is significant at the 0.01 level (2-tailed)

* Correlation is significant at the 0.05 level (2-tailed)

Table 2: Means, Standard Deviations, and Correlations of Variables for
Food Store Organizations (N=94)

 M SD Charisma IntStim

Charisma 2.89 1.06
IntStim 2.05 1.02 .732 **
IndCon 2.82 1.07 .882 ** .696 **
ContRwd 1.98 0.91 .604 ** .631 **
OrgCom 1.94 0.78 -.079 -.019
MBE 5.32 1.08 .426 ** .376 **
JobSat 8.21 6.11 .212 * .322 *

 IndCon ContRwd MBE OrgCom

Charisma
IntStim
IndCon
ContRwd .676 **
OrgCom -.030 .255 *
MBE .371 ** .244 ** -.153 *
JobSat .159 .047 -.244 ** .148

** Correlation is significant at the 0.01 level (2-tailed)

* Correlation is significant at the 0.05 level (2-tailed)