www.emeraldinsight.com/0143-7739.htm
LODJ
32,2 Transformational leadership and
human capital benefits: the role of
knowledge management
106
M. Birasnav
School of Management, New York Institute of Technology, Adliya,
Received November 2009
Revised April 2010 Kingdom of Bahrain, and
Accepted May 2010 S. Rangnekar and A. Dalpati
Department of Management Studies, Indian Institute of Technology Roorkee,
Roorkee, India
Abstract
Purpose – In order to achieve sustained competitive advantage through developing human capital,
organizations, apart from human resource management practices, concentrate on developing
transformational leaders and implementing knowledge management (KM). To take part in their
efforts, this paper intends to explore leadership and KM literatures to examine the interrelationship
between transformational leadership, KM, and employee-perceived human capital creation or benefits.
Design/methodology/approach – A systematic literature review is carried out of traditional and
contemporary theoretical and empirical research studies to support the nexus of interrelationship
between transformational leadership, KM, and human capital. This review is mainly integrated using
a model and propositions that relate transformational leadership and KM with human capital benefits.
Findings – Transformational leaders have potential to affect their employees’ perceptions of human
capital benefits. They also have the greatest potential to augment these benefits through involving
them in the KM process, establishing organizational culture, and encouraging communication among
employees.
Research limitations/implications – This model suggests that human resource managers should
provide training to managers with regard to developing transformational leadership behavior, since
this behavior contributes to human capital creation by which an organization achieves competitive
advantage. Furthermore, this study mainly focuses on leaders as transformational leaders, since these
leaders are highly capable of stimulating their followers’ creativity. Therefore, this study only
considered the components described by Bass and Avolio.
Originality/value – This paper contributes to leadership literature by adding the notion of
transformational leadership as an antecedent of human capital creation.
Keywords Transformational leadership, Knowledge management, Organizational culture,
Communication, Human capital
Paper type Literature review
Introduction
Developing competencies of human resources is a primary activity to be focused by
Leadership & Organization any organization that takes enormous efforts to overcome their competitors on product
Development Journal quality, customer service, and new product development. Many researchers have
Vol. 32 No. 2, 2011
pp. 106-126 concentrated a paradigm shift from human resources to human capital in firms in order
q Emerald Group Publishing Limited to sustain competitive advantage (Bontis and Fitz-enz, 2002; McGregor et al., 2004).
0143-7739
DOI 10.1108/01437731111112962 Bontis (2001, p. 5) particularly defined human capital as “the combined knowledge,
skill, innovativeness and ability of the company’s individual employees to meet the Leadership and
task at hand”. To develop human capital in-house or acquire human capital from the human capital
external labor market, firms implement human resource management (HRM) practices,
particularly, staffing, training, performance appraisal, and rewards (Snell and Dean,
1992). These practices are universally considered as the investments for human capital
development through which firms increase their economic value. In this direction,
Drucker (2002, p. 71) describes human capital development as “the sine qua non of 107
competition in a knowledge economy”. Through proper investments in human capital
augment organizational financial performance and productivity (Acemoglu and
Pischke, 1999), it is inevitable that these investments render certain benefits to
employees that represent human capital creation among employees.
Research studies carried out in firms to link leadership, particularly,
transformational leadership, knowledge management (KM), and human capital
benefits are limited. A few studies explored the role of transformational and
transactional leadership styles on individual employee’s performance and
organizational performance through knowledge acquisition, knowledge creation,
knowledge sharing, and knowledge exploitation (Bryant, 2003; Politis, 2001, 2002).
Although research studies (Smith, 1998; Darroch, 2003) described the relationship
between KM and human capital, the effects of KM hierarchical structure on human
capital development have not been much considered. Following Bryant (2003) who
focused knowledge process functions as mediators in the relationship between
transformational leadership and individual performance, the central focus of this paper
is to construct a framework to organize relevant literatures to support the connections
between transformational leadership, KM, and perceived human capital benefits
dimensions. In this framework (see Figure 1), KM process and KM infrastructure
(organizational culture and communication) play mediator roles in the relationship
between transformational leadership and perceived human capital creation or benefits.
Figure 1.
Mediation role of
knowledge management
LODJ followers to achieve the vision. Tannenbaum et al. (1961, p. 24) defined leadership as
32,2 “interpersonal influence, exercised in a situation, and directed, through the
communication process, toward the attainment of a specified goal or goals”. The
way through which they accomplish goals and improve organizational performance is
the behavior or characteristics they possess. For instance, transactional leaders do not
voluntarily involve with employees’ work until any failure occurs (Bass, 1985);
108 transformational leaders act as role models for employees, motivate them, and
stimulate their intelligence (Bass, 1985).
Although each kind of leadership style has its own merits and demerits,
transformational leadership draws much attention in organizations since it contributes
to firm innovation, organizational learning, and employees’ creativity skills (De Jong
and Den Hartog, 2007; Aragon-Correa et al., 2007). In view of reaping greater human
capital benefits for employees, transformational leadership, a neocharismatic
leadership theory, is immensely concentrated in this study. Following Burns (1978),
who identified the concept of transformational leadership style, many researches have
examined this leadership in various disciplines (for example, Bass, 1985; Yammarino
and Bass, 1990; Schepers et al., 2005; Rafferty and Griffin, 2004). Researchers define
transformational leadership in terms of idealized influence, inspirational motivation,
intellectual stimulation, and individual consideration (Bass, 1985; Nemanich and
Keller, 2007). Some researchers also described the first component, idealized influence,
as charisma (Schepers et al., 2005; Dubinsky et al., 1995), and further, a few researchers
mentioned the first two, idealized influence and inspirational motivation, as charisma
(Kark et al., 2003; Avolio et al., 1999). Idealized influence displays leaders as most
respectful, trustable, and admirable, shows the characteristics of setting vision and
articulating it to accomplish, and describes leaders’ risk sharing with their followers in
line with ethical principles (Bass, 1999; Bass et al., 2003). Inspirational motivation
describes how leaders encourage their employees to achieve vision through creating
individual and team spirit (Bass et al., 2003). The component, intellectual stimulation,
explains how leaders promote their employees’ innovative and creative skills by
solving problems entirely in new ways without criticizing employees for mistakes
(Bass, 1999; Bass et al., 2003). Finally, individual consideration emphasizes leaders’
mentor role on developing their employees’ potential, focusing employees’ needs for
achievement and growth, and developing learning opportunities (Bass, 1999; Bass et al.,
2003; Bass and Riggio, 2006).
Discussion
Organizations immensely concentrate on the process of developing human capital. The
reason is that human capital contributes on intellectual capital creation in the
organization through which achieving and sustaining competitive advantage is viable
(Bontis and Fitz-enz, 2002). Therefore, firms take much effort in finding possible ways
to increase the contribution of the human capital pool in improving organizational
financial performance. In this study, a systematic literature review is conducted to
analyze the mediation role of KM in the relationship between transformational
leadership and employee perceived human capital creation or benefits. In specific, KM
is viewed as two dimensions in line with Lindsey (2002) such as knowledge process
capability and knowledge infrastructure capability. Tactical KM process is considered
under knowledge process capability. This process has greater impact on employees’
performance since it affects employees’ day-to-day knowledge-related activities. Under
knowledge infrastructure capability, organizational culture and communication factors
have been considered. Thus, a conceptual model comprising transformational
leadership, KM factors, and employee perceived human capital benefits is developed in
this study, and it has great potential in contributing to leadership, KM, and human
capital management literature.
Although literature has examined the relationships between leadership and human
capital (Edmondson, 1996; Bontis and Fitz-enz, 2002; Liu et al., 2003), these focused
LODJ entirely on organizational human capital rather than individual employee human
32,2 capital or employees’ perceptions on their human capital benefits. However,
emphasizing the significance of leadership on achieving human capital benefits,
current literature has already focused on individual employee’s ability, innovative
behavior, salary progression, and status (Rafferty and Griffin, 2004; Scott and Bruce,
1994; Wayne et al., 1999). Therefore, greater importance shall be given to develop
118 organizational human capital through supporting the development of an individual
employee human capital. In this direction, organizations should train their managers to
develop transformational leadership behaviors. This training would enforce leaders to
ensure the human capital development process, and augment their potential to direct
this capital development to achieve or sustain competitive advantage. Thus, an
empirical study is strongly recommended to examine the stated proposition that
directly link both transformational leadership and perceived human capital benefits. In
this purpose, Bass and Avolio (1995) have already constructed a questionnaire for
measuring transformational leadership behavior. In view of developing a construct for
employee perceived human capital creation or benefits, the notions of Ulrich et al.
(1999), Harley (1999), Bontis and Fitz-enz (2002), and Motley (2007) could be
incorporated.
In the literature, the relations between transformational leadership and KM factors
are greatly examined (Politis, 2001, 2002; Bryant, 2003, Crawford, 2005). Most of the
research studies examined this relationship ended up with KM activities. Only a few
studies have gone beyond the KM activities, for example, Politis (2001) examined this
relationship to predict organizational performance. This paper links transformational
leadership and KM relationship with human capital benefits. However, examining the
degree of contribution of this relationship on human capital benefits is essential in
future. Therefore, testing the above stated model empirically would help to formulate
the appropriate structure of the model. In this direction, for conducting empirical study,
constructs developed by Filius et al. (2000) and Birasnav and Rangnekar (2010) could
be used to measure tactical KM process. For organizational culture, O’Reilly et al.
(1991), Lai and Lee (2007), and Nemanich and Keller (2007) have constructed suitable
measures. Further, communication construct could be chosen from the studies of
Al-Alawi et al. (2007) and Lai (2001).
This paper analyzes employee perceived human capital benefits only in the KM
environment. In future, the mediation role of HRM practices instead of KM system
factors shall be analyzed. Although researchers had predicted the relationship between
HRM and human capital (Lepak and Snell, 1999; Snell and Dean, 1992; Birasnav and
Rangnekar, 2009), the extent of impact of HRM aspects is considerably little in this
study, for example, reward and mentoring issues are taken into account. In future, this
study could be also extended by focusing different leadership styles instead of
transformational leadership, for example, participative leadership (Ogbonna and
Harris, 2000), directive leadership (Sims and Manz, 1996), and charismatic leadership
(Den Hartog et al., 1999). Empirically examining the extent of impact of these
leadership styles on perceived human capital benefits would support organizations to
find the best way of a specific leadership style for increasing organizational financial
performance.
Since this study focuses on employee perceived human capital benefits, it should be
noted that employee’s demographic characteristics such as age, gender, education,
rank, and tenure would have certain impact on their perception. For instance, Leadership and
organizations purposefully provide more resources to develop younger employees’ human capital
human capital than older (Pennings et al., 1998). Men differentiate themselves from
women in terms of behavioral differences such as competing, being creative, and
risk-taking ( Johnson et al., 1997). On explaining the impact of education, Becker (1962)
described education as one of the components of human capital. Further, Judge and
Bretz (1994) described that higher rank and tenured employees have more 119
opportunities to learn from organizational environment and job throughout the
tenure. The organizational characteristics such as ownership and size must also be
considered in addition with employee’s characteristics for future research. For
example, knowledge sharing greatly occurs in small and medium sized firms since
these firms have simple organizational structure (Birasnav and Rangnekar, 2009).
Further, Lowe et al. (1996) found from the meta-analytic study that transformational
leadership is more prevalent in private organizations than public organizations. This
paper encourages conducting an empirical study to analyze the mediation role of KM
factors such as tactical KM process, organizational culture, and communication after
controlling for the above demographic characteristics and organizational
characteristics.
Finally, many researchers examined the interrelationship between knowledge
process capability, for example, KM process and knowledge infrastructure capability,
for example, organizational culture and communication (Park et al., 2004; Al-Alawi
et al., 2007; Connelly and Kelloway, 2003; Lai and Lee, 2007). As this study focuses on
the mediation role of KM, the interrelationships between knowledge process capability
and knowledge infrastructure capability are not considered. In future, researchers
could combine these interrelationship effects on employee perceived human capital
benefits. Further, cautious is required to interpret the findings of this study. Like
transformational leadership, many research studies were carried out to closely
represent transformational behavior of a leader, for example, the charismatic
leadership by Shamir (1995) and “nearby” leadership by Alimo-Metcalfe and
Alban-Metcalfe (2005). However, this paper entirely focused on Bass and Avolio’s
(1995) transformational behavior of a leader. Though research studies explained the
significant relationship between transactional leadership behavior and KM process (for
instance, Bryant, 2003), transactional behavior is not considered in this paper as it
doest not give much consideration on individual employee’s human capital.
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Corresponding author
M. Birasnav can be contacted at: birasnav@gmail.com