Factors influencing service innovative behavior evidence from vietnam

List of Acronyms 3PL: Third Party Logistics AGFI: Adjusted Goodness of Fit Indices CFA: Confirmatory Factor Analysis CFI: Comparative Fit Indices CR: Cronbach’s alpha DF: Degrees of Free

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-TRAN PHONG

Factors influencing service innovative behavior: Evidence from Vietnam

MASTER OF BUSINESS (HONOURS)

SUPERVISOR: Dr NGUYEN THI MAI TRANG

Table of Contents

Table of Contents 1

List of Acronyms 3

List of Figures 4

List of Tables 5

Acknowledgement 6

Abstract 7

Introduction 8

Literature review 13

Ethical leadership 13

Service innovative behavior 14

Ethical leadership and leader member exchange relations 15

The positive relationship between LMX and service innovative behavior 17

The moderating role of intrinsic reward (IR) and extrinsic reward (ER) on LMX-SIB’s relationship 18

Research methodology 20

Research design 20

Sample characteristics 23

Measures 24

Data analysis and results 26

Cronbach’s alpha results 27

Exploratory factor analysis (EFA) 28

Structural equation modeling (SEM) testing results 30

Hypothesis testing results 31

Moderating testing results 32

Discussion and implication 33

Discussion 33

Implications 35

Conclusion 38

References 39

Appendix 1: Guideline for pilot study 49

Appendix 2: Vietnamese Questionnaire 50

Appendix 3: Descriptive statistics of samples 52

Appendix 4: The results of Cronbach’s Alpha coefficient of reliability 53

Appendix 5: Exploratory factor analysis-EFA 56

Appendix 6: Confirmatory factor analysis - CFA 58

Appendix 7: Structural results for model 61

Appendix 8: Moderating testing results 63

List of Acronyms

3PL: Third Party Logistics

AGFI: Adjusted Goodness of Fit Indices

CFA: Confirmatory Factor Analysis

CFI: Comparative Fit Indices

CR: Cronbach’s alpha

DF: Degrees of Freedom

DV: Dependence Variable

EL: Ethical Leadership

ER: Extrinsic Rewards

EFA: Exploratory Factor Analysis

GFI: Goodness of Fit Indices

H: Hypothesis

HCM: Ho Chi Minh

IR: Intrinsic Rewards

LMX: Leader Member Exchange

NFI: Normed Fit Indices

PFI: Parsimony Fit Indices

SEM: Structural Equation for Model

SIB: Service Innovative Behavior

SME: Small & Medium-Sized Enterprise

SPSS: Statistical Package for the Social Sciences

RMSEA: Root Mean Square Error of Approximation

List of Figures

Figure 1: Research model……… 19

Figure 2: Research procedure………20

Figure 3: Structural results of model……….30

List of Tables

Table 1: Demographic details……… ……….24

Table 2: KMO and Bartlett's Test……… 28

Table 3: Factors loading……….……29

Tables 4: CR & AVE……….30

Table 5: Regression Weights: (Group number 1 - Default model)………31

Table 6: Chi-Distribution……… 32

Acknowledgement

Honorably, I sincerely express my warmest thank you to my supervisor Prof Nguyen Thi

Mai Trang for her attention, patience, encouragement, and professional knowledge Her

direction and hardly support me to finish draft proposal, evaluated proposal and make

many corrections till I got the best version and She event help me to review the

questionnaire many times before I take pilot test, main survey and that lead me to write

final research of the master thesis

Besides, I would also like to thank lecturers who instruct us in International School of

Business (ISB) during the master course with many interesting subjects Not only the

knowledge I absorbed but also value experience they share that help us growth in real

like and doing better business In addition, my grateful thanks for all respondents who

spend time to participated in my pilot study and help to answered main survey questions

I also would like to thank all my classmate of MBUS 7 for useful conversation, for

weekend studying together before examinations, and for all interesting time we have

studied in the last two years Finally, I am very glad to thank my company where gave

me time and experience to finish my master course that last for two years and all

employee help me for some part like review questionnaire or suggest some ideas about

survey schedule Especially, I am happy to thank my family who motivated me to go

through all subjects and thank for their take care me to complete my thesis step by step

Abstract

This research thesis examined the effects of ethical leadership and its impacts on service

innovative behavior through leader member exchange at small and medium size logistics

companies in Vietnam, the proposed integrated research model was formed to enhance

the relationship between ethical leadership and service innovative behavior while

interacting through the mediator leader member exchange, the study also examines the

roles of intrinsic and extrinsic reward as moderators By using empirical test of 339

respondents from SME logistics Companies in Vietnam indicated that there are positive

relationships among independent variables and dependent variables

Furthermore, the new findings from this model showed that there are positive

relationships between moderator’s intrinsic reward and extrinsic reward with service

innovative behavior, these moderators generate creative environment and promoting

service innovative behavior of frontline employee working in SME logistics companies

in Vietnam, the leader member exchange also shows positive relationship as mediator

Key words: Ethical, Leader, Ethical leadership, leader member exchange, intrinsic

reward, extrinsic reward, service innovative behavior

Introduction

Due to the globalization process and international trade agreements have connected

business regions to each other and connected nations and nations, the global

organizations exchange their business frequently and the connections also affect every

product and service being offered on global market Especially, that caused business

models being shifted from manufacturing to providing alternative services as new

strategies to develop their organizations (Thakur & Hale, 2013) Han, Kim, & Srivastava

(1998) and Im & Workman (2004) stated that innovative service is an essential

management feature to guarantee firm’s development, the quality of service is essential

for business sustainability and important to service industry where enterprises create

service competitive advantages (Oldham & Cummings, 1996) Therefore, creative service

plays an important role in every business unit influencing service innovative behavior

(Dhar, 2015) or cognitive ability (Khan, Bashir, Abrar, & Saqib, 2017)

Current reports showed that leader’s behaviors have forced organizations to reconsider

ethical behavior of their leaders (Shadnam & Lawrence, 2011), ethical leadership also

gained a lot of interest in company’s applications and in academics for research purposes (Lu & Guy, 2014) A majority of researchers found that there are positive effects of

moral leadership on work satisfaction influencing staff’s performance (Hansen, Alge,

Brown, Jackson, & Dunford, 2013) However, there is a few studies have examined the

influences of ethical leadership at work place on innovative service behavior that

critically fosters employees to contribute their creativities for achieving company’s

Regarding to employee performance and service creativity that were synonymously

defined as complicated interaction process among parties (Dotzel, Shankar, & Berry,

2018) Because of that, the management are looking for effective methods to offer high

quality services in service business industry (Redman & Mathews, 2016) In addition, the

leaders bring out positive impacts that would motivate employees to provide quality

services to customers, as more favorable treatments employees receive from leaders as

higher service innovative behavior employees offer to clients (Chen & Kanfer, 2006), this

is correct for logistics market in Vietnam where small and medium sized logistics

companies facing with main challenge of strictly holding low price competitive rather

than improving service quality or innovative services (Koustab, 2014) Therefore, SMEs

need to improve relationships among leaders and followers that would direct more

innovative service performance of frontline employees who direct serve customer (Dhar,

2016)

Another remarkable point from this paper is an study of leader member exchange

(LMX) which was known as crucial factors interacting among leaders, supervisors,

managers and subordinators, LMX role actually is influencing the relationship between

ethical leadership and service innovative behavior (SIB) in work place (Chen, Lam, &

Zhong, 2012) and (Sears & Hackett, 2011), Previous studies proved that ethical leaders

are undertaking to foster positive relationships between LMX and service innovative

behavior (Hammond & Volmer, 2012) Hence, it is proposed that LMX and ethical

leaders are encouraging service innovative behavior among frontline employees

(Hammond, Neff, Farr, Schwall, & Zhao, 2011)

Although two research constructs such as SIB and LMX were considered as

complicated process in natural working condition (Dotzel, Shankar & Berry, 2013),

rewards are very important motivating functions to build constructive relationship

between ethical leadership and service innovative behavior and play significant roles to

establish work engagement which helps employees focus on their work to complete their

task responsibly (Chen et al., 2012; Malik, Butt, & Choi, 2015) Definitely employees

would use their experience, confidence and skills to deliver the best services to customers

rather than just rewards

The previous studies showed that job autonomy is factor plays as moderating role

influencing relationship between ethical leadership and SIB (Dhar, 2016)) while very few

paper researches reveals that the ethical leadership and LMX are influencing SIB through

moderating of intrinsic and extrinsic reward (Dhar, 2016), whether rewards were used as

a medium by leaders to promote employee’s creativity at the workplace, there are

contradictory standpoints regard to the impacts of rewards on creativity Deci, Koestner,

& Ryan (2001) mentioned that individuals perceive the environment expresses obstacles

to their self-determination or liberality, their intrinsic tasks interesting tends to lessen or

eliminate and resulting in poor creativity Hence this study tries to expand the theory by

examining the role of LMX in influencing employee’s innovative service behavior and to

confirming intrinsic and extrinsic rewards as moderators

Moreover, this study examines the impact of ethical leadership on service innovative

behavior of frontline employee from small and medium sized (SME) logistics companies,

those firms with under 50 employees was defined as small and they are called medium

companies if they own from 50 to under 100 employees (Government department, 2018)

These companies are offering main logistics services and those services are being

managed by department manager or leader directly and the services are being performed

by followers (Autry, 2003) Therefore, SME firms are suitable to do research about

service innovative behavior because frontline employees directly communicate with

customers and their managers

Frontline employees in SME often interact directly with customer to handle their daily

work so that leaders use intrinsic rewards to encourage service quality like

accomplishment of task finished, respect and esteem (Russell, 2001) Beside that, these

SME’s logistics leaders also use extrinsic rewards like bonus, commission, party or gift

to motivate their following employees (Malik et al., 2015) As a result, their employees

generate more innovative behavior in logistics services that lead to higher service quality

performed and higher services competitive level for SME

Furthermore, SME logistics companies in Vietnam provide their services such as sea

freight, air freight, inland trucking, customs clearance, warehousing and documentation

services to direct customer and the customers are being served by their frontline

employees like customer service, customs broker, consultant and salesman or leaders also

interact with customer directly if needed Especially, third party logistics (3PL)

companies play an significant role in logistics market where increasing service-driven

economy is well recognized (Bolumole, 2003)

Consequently, this thesis examines the impact of ethical leadership on SIB of frontline

employees at small and medium sized logistics companies in Ho Chi Minh City (Ministry

of Trade, 2017), Vietnam The SME logistics sector was selected because logistics field

in HCMC contributes to high economy income and owns the biggest sea port and airport

that attracts much investment which creates market competition and develops alternative

logistics services (Van Nam, 2016) Logistics cost accounts for 21% in 2017 in Vietnam

(Cam Tu, 2017) There are more than 1,800 logistics companies and SME logistics that

account for 35% of total number, SME logistics are performing their main functions such

as forwarding freight services by air and freight service by sea, shipping documents

services, customs brokerage, trucking services, oversea agency services and some SME

logistics may offer warehouse storage

In summary, this paper examines the factors that influence service innovative behavior

with the following purposes:

 Examining the impact of ethical leadership influencing service innovative

behavior through LMX

 Testing the moderating effects of intrinsic reward and extrinsic reward on the

relationship between ethical leadership and service innovative behavior

The organization of this thesis included: Introduction, literature review and

hypothesis, research methodology, data analysis and results; discussion and implication;

limitations and directions for future research; and conclusion in turn

Literature review

Ethical leadership

Ethical leadership was defined as standard conduct behavior through individual deeds

and interpersonal relationships, there are such conducts to followers by two ways

conversation and work discussion (Brown, Treviño, & Harrison, 2005), ethical leaders

play very important role in business management Especially for global leadership roles

(Graen, Liden, & Hoel, 1982), that’s why there are many leadership styles (Rose, 2015)

applying to manage employees in each suitable market, such as democratic style involves

a team guided by a leader where all members are inputs to make decision and members

see themselves in the process of making decision (Goleman, 2000) or autocratic

leadership style as Mohiuddin (2017) stated that all decision will be taken by leaders who

exercising complete power and allocating different tasks to each member of the group

Therefore, ethical leaders are core resources leading employees to do right things and

make sure employees following organization principles of conduct (Thomas, 2001)

In addition, ethical leadership is alternative with other leadership-styles by possessing

qualities of employee’s orientation, fairness, openness, assistance, collective

encouragement, reciprocal respect, precise vision and convinced decision making

qualified as honest, responsible, talent, supportive, connective and innovative factors that

create good working environment where motivate employees perform positive behavior

at work (Hansen et al., 2013; Lu & Guy, 2014)

Service innovative behavior

Service innovative or service creativity are concerned as initiative from employees for

new processes, new solutions, new services, new market or combination of such into

company, hence service business model are being motivated in developing countries and

developed countries because they help to reduce their countries pollution and contribute

to global pollution reduction program (Campagnolo et al., 2016) Therefore, service plays

an important role in those industry (Goo, Kishore, Rao, & Nam, 2009) and there are

many kind of services that are being offering in hospitality, IT solution, financial

consultant, marketing, shipping or logistics service etc…, consistently those services are

being offered by frontline employees who directly interact with customers daily (Wilson,

Zeithaml, Bitner, & Gremler, 2012) through work supportive tools or in person, that’s

why their emotion is very important at work place and employee’s behavior decide how

good quality service could be performed (Ashforth & Humphrey, 1993)

However, synonymously the behavior at work place is creativity motivated (Scott &

Bruce, 1994) and it was mentioned that innovative behavior depends on many factors like

working environment where employees exist to generate their service innovative

behavior, (Amabile, Conti, Coon, Lazenby, & Herron, 1996) also expressed opinions that

environmental factors such as encouragement of creativity, job autonomy, good

resources, work pressures, and organizational limitations to creativity could affect service

creativity

There are many other factors also influence service innovative behavior like customer

participation that motivate frontline employees offer high quality service and operational

excellence (Li & Hsu, 2018) Scott & Bruce (1994) pointed out that “High-quality LMX

relationship (leadership style) enables employees to feel stronger support in innovation

management and in an overall organizational environment that supports innovative work

to encourage innovation” Besides that, Åmo & Kolvereid (2005) mentioned that service

innovative behavior depends on many internal and external factors of enterprises

Therefore, Leaders play an important role to decide how innovative behavior employees

take and deliver to their customers

Finally, SME logistics companies in Vietnam provide a large range of service

activities to clients (Knemeyer, Corsi, & Murphy, 2003), Regarding to good quality

logistics services that could satisfy customer’s need, this requires frontline employee’s

performance must be qualified and innovated before companies deliver creative and

competitive services Customer’s satisfaction is very important in logistics service as well

because innovative behavior employees create positive relationship between customer

satisfaction and service performances (Mentzer, Flint, & Kent, 1999)

Ethical leadership and leader member exchange relations

Besides the definition of ethical leadership formed as standard conduct behavior through

personal actions and interpersonal relationship (Brown, Treviño, & Harrison, 2005), other

paper also clarified more about LMX’s concepts and its relationship with EL (Garg &

Dhar, 2017) The quality of LMX shows the relationship between manager and inferiors

and it also indicates the degree they exchange their work resources together or support

each other effectively (Masterson, Lewis, Goldman, & Taylor, 2000) However, the LMX

head to have feeble effects on the performance of service employees with routine work

where the supports of direction and motivation from superiors is low (Dunegan,

Uhl-Bien, & Duchon, 2002) So that the LMX tends to affect innovative work behavior where

employees interact with ample work scenario differently, thus they could show their

flexible abilities and skills (Wang, Law, Hackett, Wang, & Chen, 2005)

However, ethical leaders know many solutions to reinforce the positive relationships

between leaders and their subordinators, the ethical leaders also know how to increase

their exchange value resources which helps employees perform job positively, because

ethical leaders own the characteristics of honest, trustworthy, responsible, fair, supportive

and oriented mind which help them aim to right things for employees and right things for

their organization (Hansen et al., 2013) Therefore, when leaders perform base on their

best interest of caring, motivating and supporting employees that form positive responses

and strengthen exchange value between leaders and followers which heading all

organizations to encourage their leaders become ethical leaders

Hypothesis 1 There is positive relationship between ethical leadership and leader

member exchange

The positive relationship between LMX and service innovative behavior

The research model shows the relationships between LMX and ethical leadership and it

also shows influences of LMX on service innovative behavior (Li, Lin, Wu, & Jin, 2016),

the findings of those research are significant due to the guide to the result that LMX play

a critical role in influencing service innovative behavior at the workplace (Olsson,

Hemlin, & Pousette, 2012) It could be stated that followers want to show their effective

performances when they feel connected and motivated supports from leaders (Garg &

Dhar, 2017) According to the norm of reciprocity and persuasion which mentioned that

employees tend to perform their work with innovative behavior when they receive

favorable treatment from their supervisor (Sepdiningtyas & Santoso, 2017)

Furthermore, LMX is a construct that influences relation between ethical leadership

and service innovative behavior by strengthen the ethical leader’s personality, greater

characteristics that build up more motivation to exchange with following employees and

encourage employees to perform their innovative behavior Meanwhile, creative behavior

could bring out effective consequences and high quality services offered (Olsson et al.,

2012; Shunlong & Weiming, 2012) Hence, Ethical leadership affected to LMX and

LMX influent on service innovative behavior therefore it could exist a supportive

relationship between LMX and SIB

Hypothesis 2 There is a positive relationship between leader member exchange and

service innovative behavior

The moderating role of intrinsic reward (IR) and extrinsic reward (ER) on LMX-SIB’s

relationship

Intrinsic reward was defined as intrinsic motivation that employees expect to receive at

work place which creating excites on work activities and rewards are promoted to engage

benefits for personnel (Yoon, Sung & Choi, 2015) such as meaningful purpose, free of

choice, sense of competence and path of career that moderating the relationship between

LMX and SIB, it occurs by taking the degree of intrinsic rewards is low, middle or high

range then the moderating level will be adjusted parallel way (Thomas & Tymon, 2009)

Moreover, intrinsic rewards take a dominant part of business development in service

industry, when frontline employees have to interact with customer more frequency and

directly or when they complying with rules and procedures were paramount Positively,

every evaluation was accompanied with each positive emotional responsibility; this

positive blame is admitted as intrinsic rewards that employees get from leaders to

perform innovative services innovative (Leander, Kay, Chartrand & Payne, 2017)

Therefore, intrinsic reward factor plays moderating role in relationship between LMX

and SIB

Hypothesis 3 Intrinsic reward moderates the relationship between the LMX and SIB,

there is positive relationship with greater intrinsic rewards

On the contrary, extrinsic rewards subject to the job such as wage, bonus, commission,

fringe-benefits, position promotions, and vacation or day off compensation (Malik et al.,

2015) The extrinsic rewards are easy to measure and compare that appear physically to

any employee which will be scaled base on their job position, task and key performance

index, they were offered rewards fairly before job taken and performed, in some case the

extra extrinsic rewards were given when employees performed their task excellently or

more than leader’s expectation, that also will drive employees become more innovative

or creativity in next coming tasks (Fairbank & Williams, 2001) Lastly, it is suggested

that the importance of alternative rewards may strengthen or weaken the influences of

reasonable rewards on employee creative performance and extrinsic reward play

moderating roles in relationship between LMX and SIB

Hypothesis 4 Extrinsic reward moderates the relationship between LMX and SIB, there

is positive relationship with greater extrinsic rewards

Figure 1: Research model

member exchange

Ethical

leadership

Service innovative behavior

Extrinsic reward

Intrinsic reward

H4 H3 H2

Research methodology

Research design

The data were collected from hundred respondents who working in SME logistics in

HCM the designed procedure with three steps was applied in this thesis Firstly, literature

was reviewed to list down antecedent outcomes, after that draft questionnaire was

designed to define needed items for measurement Secondly, the draft questionnaire was

used to be taken in second step as pilot test step (qualitative research) and final step is

main survey (quantitative research) The research procedure’s detail showed as figure

below:

Literature Reviews Draft Questionaire In-depth Interview 8 Respondents

Revised Measurements Final Questionaire

Judmental sampling with

339 respondents

data analysis Results and discussion

The pilot study (qualitative research) was undertaken after draft questionnaire be

converted into Vietnamese for in depth interview 8 frontline logistics employees from 4

different SME logistics companies in HCMC, two salesman from Khai Minh Global

Corporation, two customer service staffs of Air Sea Asian Joint Stock Company, one

sales manager from Global Alliance Logistics Corporation and three operation staffs of

Global Exim Trading Company, four companies were selected to minimize the rate of

general bias and diversify new comments for better questionnaire

The pilot test results revealed that some questions were not clear enough for

respondents to understand totally The ethical leadership design with 9 items and there is

one item was recommended to replace “want to talk” with “need to discuss” in EL1,

replacing “problems” with “works” initemLMX1 “My leader understands my needs and

problems” and the respondents also suggested to replace item SIB4 “I often plan new

ideas fit with finance status” with “I often plan suitable method to develop new services”

However, the remained items of IR and ER were not suggested to change or replace

because all respondent understand and can answer the questions (See Appendix 1)

On the other hand, main survey (quantitative research) was deployed to collect enough

expected data , the main survey’s data were collected by quantitative questionnaire forms

(Schoonenboom & Johnson, 2017) from 700 samples that’s bigger than minimum 290

samples by formula n =50 +8*m (m = 30 independent variables) (Tabachnick & Fidell,

1996) The respondents were approached included male and female, age from 20 to over

40 years old to ensure they have at least 6 months experience, employees has more than 6

months experience understand the overall knowledge of logistics services and they are

already to interact with their managers or leaders The employees and samples was

selected by using judgmental sampling method, the sample’s respondents are frontline

employees from SME logistics companies who taking their position as customer service

staffs, operation staffs, salesman and documentation employees, these employees are the

person in charge to offer companies’ logistics services to clients directly

The questionnaire was designed to deliver to all respondent by Google form link, a

hyper link was sent to over 700 respondents that included 20 people in my company,

about 200 respondents are my friends in logistics filed, over 200 respondents are my

customers and my partners in the market who offering logistics services as well The

remaining of 280 respondents are from Vietnam logistics club, HCM logistics club and

HCM forwarding forum, where estimated there are total thousand members

Furthermore, the main survey form link also was sent to Facebook’s page of logistics

communities, Skype logistics group, email address, Zalo and Viber and to ensure enough

respondents amount for analysis, I also recorded time schedule to remind respondent two

days after share the survey link of questionnaire with thank you email After 5 days of

main survey deployed, there were 48.4% respondents of total 700 respondents who have

more than 6 months experience answered and missing data recorded is 361 samples did

not answer Therefore, 339 respondent’s data was used to analyze by SPSS and AMOS

software for final results

Sample characteristics

The control variables were used are age, gender, experience and position because

previous studies convinced their influences on personal and structural performances

strongly (Foote & Li-Ping Tang, 2008) and these variables are the factors affect to their

emotion to make decision for answering question and for real working environment

Based on 339 respondent’s results in Table 1, the findings indicated that male accounted

for 59.3 % of gender variable (201 male) and female was 40.7% of total respondents(138

female)

There were 145 respondents aged from 26-30 that comprised of 42.8%, aged from

20-25 years old accounted 26.3% this variable (89 respondents) and the remaining

respondents were aged from 31-35 years old and 36-40 years old accounted for 25.1%,

5.9% accordingly

Regarding to position of respondents at their workplace, the greatest number of

respondents being staff (194 respondents, 57.2%), respondents was at manager position

accounted for 37.8% (128 respondents) and remaining employees take other position was

only 5% (17 respondents)

Finally, the experience variable were the described results that largest portion of

respondents are having experience from 3 to 5 years (141 respondents and 41.6%), the

next portion of total respondents are getting experience from 5 to 10 years that accounted

for 31.3% (106 respondents), there are 72 respondents accounting for 21.2% who are

having 6 months to 3 years’ experience and the smallest number of respondent who

having 10 to 15 years’ experience was 5.9% (20 respondents) Detail descriptive statistics

over 3 years to 5 years 141 41.6 over 5 years to 10 years 106 31.3 over 10 years to 15 years 20 5.9

The measurement was employed by multiple item scales with approvable internal

confirmation to evaluate the study variables Each item was accessed on a 5-points Likert

scale (it is ranging from 1 = strongly disagree, 2 = disagree, 3 = neutral, 4 = agree and 5

= strongly agree), 5 - points Likert type scale was used to collect respondent rate and

respondent quality along with respondents’ “frustration level” (Babakus & Mangold,

1992)

The scale comprised items as following: leader pay attention to employees expectation,

leader penalizes staff who break ethical standards, leader often care about employees’

benefits, leader always makes right decision, leader are prestige, leader share term of

business ethics or share value lesion with employees, leader indicate specific method how

to do right things in terms of ethics, leader evaluate performance not just by results but

also the way that they perform

Leader member exchange was formed by the 7-items scale showed by Graen &

Uhl-Bien (1995) and contained following items: manager comprehend my job problems and

demands, leader recognizes employee’s potential abilities, supportive level from leader

help employee solve reality problem in work, level of communication with employees,

employee’s confidence to defend and justify for leader and in personal relationship

Service innovative behavior was measured by a 6-items scale (Hu, Horng, & Sun,

2009) but there was an amended version for new scale provided by Scott & Bruce (1994)

The scale included items like: You go to work with creative and innovative emotions,

you attempt to put forward your own creative ideas and try to convince customer, you

look for new service techniques, methods or procedures, you offer a fit plan for

generating new ideas, you try to deploy new plan with in current resource and you

consider yourself a creative member of team

Intrinsic rewards were measured by 4 items scale On the elementary of the

measurement was discovered by Baer, Oldham, & Cummings (2003), we evaluated

4-items scale to verify intrinsic rewards for innovative services that perceived by the

participants so the measure items were defined as: Be praised once the job get completed,

employee’s autonomy at workplace, employee’s personal growth direction and

employee’s enjoyment of achievement

Extrinsic rewards were evaluated by 4 items scale as well Similar to Malik et al.,

(2015), this study also assessed extrinsic rewards for service innovative behavior by

using four items to measure and they are: Fiscal bonus for employees show creative

performances, follower would be recognized when they perform creatively, personal

rewards and benefits and innovative performance is considered for promotion decisions

Data analysis and results

Analytic approach

The Descriptive statistics results was analyzed by SPSS 16.0 to collect frequency and

percentage of control variable samples which showed in Demographic detail Table 1,

after that the analysis of Cronbach’s alpha (CR) were conducted for each construct to

measure reliability, the Cronbach’s alpha value was expected > 0.6 to prove that the

measurement was good and data was reliability Furthermore, factor correlation analysis

will be run to examine relationship between variables (Wong & Hiew, 2005) where

correlation coefficient index goes from 0.1 to 0.29 is suggested weak, if it shows from 0.3

to 0.49 is middle range and it is strong if indicates from 0.5 to 1, by the way this value

should not go beyond 0.8 (Field, 2005) to avoid multi-collinearity Moreover, CFA test

analyzed to examine model fit on the basis of root mean square error of approximation

(RMSEA), comparative fit index (CFI), adjusted and goodness fit index (AGFI & GFI),

parsimony fit index (PFI) normed fit index (NFI) and x2 by using Amos-20 Finally, the

structural equation modeling (SEM) was utilized to test the research model fit and

moderating test with hypothesis test

Cronbach’s alpha results

The validity of Cronbach's alpha from all construct’s scales were expected to be above

0.7 or over 0.6 could be acceptable (Nunnally, 1978 & Peterson, 1994), the unachieved

items was removed because their Corrected Item-total Correction value was lower than

0.3

The findings indicated the first value of Cronbach's alpha for ethical leadership was

0.672 (ethical leadership = 0.672), but the corrected item-total correction value of EL5,

EL6 and EL8 was lower than 0.3 Therefore, the items EL5, EL6 and EL8 were removed

to re-analyze with new value of Cronbach’s alpha was 0.898, CR = 0.786 (LMX), but

item LMX3 was removed due to item-total correction value was lower than 0.3, after

calculating again the new value of Cronbach’s alpha was 0.895 (leader member

exchange), CR=0.883 (service innovative behavior), CR=0.806 (intrinsic reward) and

CR=0.896 (extrinsic reward) are achievable After removed unachieved items and

re-analyzed those factor, the new Corrected Item-Total Correlation was higher than 0.5,

therefore all item are reliability to test EFA and SEM, the result of Cronbach’ alpha

coefficient was presented in Appendix 4

Exploratory factor analysis (EFA)

KMO index was 0.889 (Table 2) that is over 0.5 and sign of Bartlett’s Test was 0.000

which matching the test request theory, furthermore the EFA (Extraction Method:

Principal Axis Factoring, Rotation Method: Promax with Kaiser Normalization) loadings

factor was extracted from 5 factors and all factors loadings index were higher than 0.5

with total Cumulative variance extracted was over 50% (59.7%) and eigen-value was

more than 1.0; ethical leadership values = 7.999); leader member exchange

(eigen-values = 3.255); service innovative behavior (eigen(eigen-values = 2.575); extrinsic reward

(eigen-values = 1.728) In summary, the EFA analysis described that the expected

outcomes was pleased by all item-scales, the EFA analysis results was presented as Table

3

Table 2: KMO and Bartlett's Test

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy .889

Table 3: EFA Results

Ethical leadership: Eigen-values 7.999

EL2 My leader penalize me if I violate the regulations 851

EL7 My leader show me example of doing thing ethically 654

Leader member exchange: Eigen values 3.255

LMX4 My leader always communicate and share with us new works 817

LMX5 I’m confidence to support my leader in presenting necessary job 678

Service innovative behavior: Eigen values 2.575

SIB4 I often plan suitable method to develop new services 760

SIB2 I often try to suggest creative ideas and convince customer to take them 758

SIB3 I often think about new method, process and new services 641

Extrinsic reward: Eigen values 1.915

ER2 I would do better when company offer more physical benefits 824

ER1 I like more salary and bonus after complete good job 749

Intrinsic reward: Eigen-values 1.728

IR2 I love to be gave more power to make my own decisions 740

IR4 I would be very happy when leader identify my good outcomes 651

Tables 4: CR & AVE

Structural equation modeling (SEM) testing results

Structural equation modeling (SEM) test was conducted to validate the significant

relationship with in factors, SEM also was approached with the maximum likelihood

estimates method, the result was acceptable for model fit when the value of Chi-square =

336.278, Chi-square/df =2.528: CFI = 0.942; GFI = 0.906; TLI = 0.933 and RMSEA =

0.067 (Figure 2) Besides that, all P-value < 0.001 (Table 5) confirmed that the factors

relationship was statistical significant, this result also reconfirmed that factors affect each

other positively as hypothesis proposed

Table 5: Regression Weights: (Group number 1 - Default model)

Estimate S.E C.R P Label LMX < - EL 495 054 9.104 ***

Hypothesis testing results

The results from structural model testing above by SEM tested using approach maximum

likelihood estimates method also indicated that ethical leadership (EL) had positive

relationship with leader member exchange (LMX), thus H1: Beta = 0.495, p = 0.000 and

LMX had positive affect to service innovative behavior (SIB) with H2: Beta = 0.250, p =

0.000 (Table 5) Moreover, the results from SEM test presented Chi-square/df =2.528;

CFI = 0.942; GFI = 0.906; TLI = 0.933 and RMSEA = 0.067, those values were

acceptable to model fit and significant to confirmed that the hypothesis H1 and H2 was

supported

Moderating testing results

The hypothesis H3 and H4 were proposed that IR and ER affects positively to

relationship between EL and SIB so that the multi-group test deployed to find out

Chi-distribution of intrinsic reward (IR) and extrinsic reward (ER), the finding value support

to conclude that there is moderating relationship in the model or not In sum, the findings

result showed that the different of IR’s Chi-square value was 125.443, the different of

degrees of freedom (DF) was 2.0 so the Chi-Distribution value of IR was lover than 5%,

the different of ER’s Chi-square value was 122.257, the different of degrees of freedom

(DF) was also 2.0 so the Chi-Distribution value of ER was lover than 5% as well, that

results explained that the differences was statistical significant and that results confirmed

that IR and ER are positively moderating relationship between LMX and SIB (Table 6)

Degrees of freedom = 268 Degrees of freedom = 266 2 0%

Probability level = 000 Probability level = 000

Chi-square = 688.155 Chi-square = 565.898 122.257

Degrees of freedom = 268 Degrees of freedom = 266 2 0%

Probability level = 000 Probability level = 000

Discussion and implication

Discussion

The findings in this study presented that exchanging relationships between leaders and

followers play very important parts in influencing service innovative behavior among

employees, the results of effect analysis indicated that LMX has a positive effect on

service innovative behavior, higher level of exchange between leaders and followers lead

to higher level of service innovative behavior Furthermore, the presented results also

pointed out that LMX effects more on SIB with high level of intrinsic rewards and

extrinsic rewards, but this effect also explained that a weak relation occurred if low level

of intrinsic and extrinsic rewards, that’s why there is a mixed relationship between LMX

with service innovative behavior

Firstly, the influencing of ethical leadership on LMX was known as H1, it pointed out

that ethic leaders impact more on the relationship between them with employees, the

positive impacts of EL on LMX increasing the innovative behavior when employees tend

to accept higher standard of leader’s ethics in workplace (Hansen et al., 2013b) The

result of this hypothesis is also consistent with previous researches which examined the

positive influence of ethical leadership on influencing employee’s behavior (Kalshoven,

Den Hartog, & De Hoogh, 2011) Therefore, when the leaders focus on job outcomes in

companies, motivate open connections, promote employees at right time, give chances,

and provide suitable rewards (Brown et al., 2005), the employees would respond by

innovative behavior