THE IMPACT OF TRANSFORMATIONAL ANDTRANSACTIONAL LEADERSHIP ONEMPLOYEE ENGAGEMENT

luận văn, khóa luận, chuyên đề, đề tài

MINISTRY OF EDUCATION AND TRAINING

HCMC UNIVERSITY OF ECONOMICS

-

TRAN MINH PHUONG

THE IMPACT OF TRANSFORMATIONAL AND

TRANSACTIONAL LEADERSHIP ON

EMPLOYEE ENGAGEMENT

MASTER OF BUSINESS ADMINISTRATION THESIS

Ho Chi Minh City – 2011

MINISTRY OF EDUCATION AND TRAINING

HCMC UNIVERSITY OF ECONOMICS

-

TRAN MINH PHUONG

THE IMPACT OF TRANSFORMATIONAL AND

TRANSACTIONAL LEADERSHIP ON

EMPLOYEE ENGAGEMENT

Major Code: 60.34.05

MASTER OF BUSINESS ADMINISTRATION THESIS

SUPERVISOR: DR NGUYEN HUU LAM

Ho Chi Minh City – 2011

ACKNOWLEDGEMENT

I would like to express my heartfelt thanks and appreciation to my research Supervisor, Dr Nguyen Huu Lam for his valuable ideas, guidance and suggestions for my thesis

My sincere thanks to all lecturers of the eMBA class who have given us knowledge, and guidance during the course My special thanks to all commentators Dr Nguyen Trong Hoai, Dr Nguyen Huu Dung, Dr Ho Viet Tien, and Dr Nguyen Van Ngai for valuable advice and suggestions

It is my pleasure to be an eMBA class member as we had a memorable time studying together although we faced many difficulties during our course My sincere thanks to our class monitor Mr Cuong for his contribution to our class, and

Ms Hien my classmate for her support, encouragement and helping on data collection

I would like to thank all of my friends and colleagues who enthusiastically helped

me during the data collection, and special thanks to my manager who encouraged and let me have necessary time for my thesis

Finally, I am deeply grateful to my parents, especially my mother who always care for me, do all best things and support for my studying until now

ABSTRACT

The Vietnam economy continues to grow quickly, especially after Vietnam has become a member of WTO, and in fact this is driving a war on talent Results from research organizations and corporate results have demonstrated there may be a strong link between engagement, employee performance and business outcomes However, how to increase employee engagement level so that they can contribute with high performance for organizations in Vietnam is not much explored

The research investigates the impact of transformational and transactional leadership behaviours on employee engagement level, particularly in manufacturing industry in the south of Vietnam representative by HCMC, Dong Nai and Binh Duong provinces Data analysis was done for valid 223 returned questionnaires collected from employees who are currently working at least one year for the companies in manufacturing sector

The results showed that transformational leadership behaviour has significant and positive influence on employee engagement On the other hand, transactional leadership has no influence on employee engagement This result leads to the same finding with previous researches that transformational leadership would enhance employee engagement level, while transactional leadership behaviour does not significantly connect to employee engagement

For transformational leadership components, the results of research data analysis demonstrated that the first three components Idealized Influence (Attributes), Idealized Influence (Behaviour), Inspirational Motivation did not have impact on employee engagement; only did the last two components Intellectual Stimulation and Individualized Consideration have positive impact on employee engagement

For transactional leadership components, research practical data showed that Contingent Reward; however, has positive relationship with employee engagement while Management by Exception: active did not have significant relationship with

employee engagement, and Management by Exception: passive and Laissez Faire leadership behaviour have week negative relationship with employee engagement

Keywords: transformational leadership, transactional leadership, employee

engagement, the south of Vietnam

CONTENTS

Acknowledgement i

Abstract ii

Contents iv

List of Tables vi

List of Figures vii

CHAPTER1: INTRODUCTION 1

1.1 Research background 1

1.2 Research objective 2

1.3 Research scope and design 3

1.4 Research structure 3

CHAPTER 2: LITERATURE REVIEW AND RESEARCH MODEL 5

2.1 Leadership behavior 5

2.2 Employee engagement 11

2.3 Important of engagement 15

2.4 Leadership and employee engagement 16

CHAPTER 3: RESEARCH METHOD 25

3.1 Research model 25

3.2 Research question 25

3.3 Research hypotheses 26

3.4 Research variables 26

3.5 Sample and data collection 27

3.6 Questionnaire 27

3.6.1 Leadership behavior questionnaire 27

3.6.2 Employee engagement questionnaire 30

CHAPTER 4: ANALYSIS RESULT AND CONCLUSION 35

4.1 Data analysis 35

4.1.1 Sample profile 35

4.1.2 Statistical analysis 37

4.2 Conclusion 49

4.2.1 Question 1 49

4.2.2 Question 2 49

4.2.3 Question 3 51

CHAPTER 5: IMPLICATION AND LIMITATION 53

5.1 Implications of the research 53

5.2 Limitation of the research and some suggestion for future research 54

References 56

Appendix 1

Appendix 2

Appendix 3

Appendix 4

Appendix 5

Appendix 6

Appendix 7

Appendix 8

LIST OF TABLES

Table 4.1: Demographic analysis 37

Table 4.2: Descriptive analysis 38

Table 4.3: Descriptive analysis – Transformational leadership 39

Table 4.4: Descriptive analysis – Transactional leadership 40

Table 4.5: Reliability analysis 40

Table 4.6: The factor loading 42

Table 4.7: The final elements of measurement scale for employee engagement 43

Table 4.8: Correlation analysis 44

Table 4.9: Regression of transformational leadership on employee engagement 45

Table 4.10: Regression of transformational leadership components on employee engagement 46

Table 4.11: Regression of transactional leadership on employee engagement 47

Table 4.12: Regression of transactional leadership components on employee engagement 47

Table 4.13: Conclusion of research hypotheses 48

LIST OF FIGURES

Figure 3.1: Research model 25 Figure 4.1: Respondents – company categories 35 Figure 4.2: Respondents – job categories 36 Figure 4.3: The result of regression analysis of transformational leadership on employee engagement 49 Figure 4.4: The result of regression analysis of transformation leadership component on employee engagement 51 Figure 4.5: The result of regression analysis of transactional leadership component

on employee engagement 52

CHAPTER 1 INTRODUCTION

1.1 Research background

Engagement is an emerging psychological construct that purports to measure how much a person is into his job The concept of work engagement has gained momentum because of its predictive value for job performance (Bakker, 2009; Schaufeli & Salanova, 2007, cited in Tims, Bakker & Xanthopoulou, 2011) Instead

of traditional organizational structures that heavily rely on management control and economic principles of cost reduction, efficiency, and cash flow, the focus in modern organizations is on the management of human capital Currently, organizations expect their employees to be proactive and show initiative, collaborate smoothly with others, take responsibility for their own professional development, and to be committed to high quality performance standards It is convinced that the people who form the strength of the company and that nothing can be achieved without their commitment and their energy, which makes people the most important asset Thus employees are needed who feel energetic and dedicated, and who are absorbed by their work In other words, organizations need engaged workers

Therefore, employee engagement has become a hot topic in recent years Although there is a great deal of interest in engagement, there is also a good deal of confusion as many different definitions make the knowledge of employee engagement difficult to determine So far none of the definitions has come to dominate the field either as a definition or as a methodology (Wefald, 2008) There are many predictors lead to engagement; however, one of the most concerned factors is leadership behaviors, especially the contemporary concept transformational and transactional leadership It is found numerous paths from transformational leadership to employee engagement The leadership behavior of inspirational motivation, intellectual stimulation, and individualized consideration

enhances meaningfulness - followers perceive their work in a context which is personally important to them, independent and confident by allowing followers to question assumptions and work out their own solutions to problems as well as provide innovative solutions to solve organizational problems In summary, transformational leadership enhances employees’ feelings of involvement, cohesiveness, commitment, potency, and performance and so would enhance the employee engagement level In the other hand, transactional leaders motivate only

to get the work done and reward employees accordingly (Bass & Riggio, 2008), but external rewards have been consistently found to have a negative effect on intrinsic motivation Moreover, laissez-faire leadership style was found positively associated with job stressors such as role ambiguity and conflict Thus transactional leadership does not have positive impact on engagement

The Vietnam economy continues to grow quickly, especially after Vietnam has become a member of WTO, and in fact this is driving a war on talent Results from research organizations and corporate results have demonstrated there may be a strong link between engagement, employee performance and business outcomes However, how to increase employee commitment and engagement level so that they can contribute with high performance for organizations in Vietnam is not much explored There is also much of research on job satisfaction and performance, but engagement, and the effect of leadership behaviors on engagement level is still a new concept that needs more practical study in a Vietnamese context

1.2 Research objective

This research investigates the impact of transformational and transactional leadership behaviours on employee engagement level, particularly in manufacturing industry in the south of Vietnam representative by HCMC, Dong Nai and Binh Duong provinces The purpose of this research is to check if transformational leadership has positive impact on employee engagement and confirm if transactional leadership really has negative or no impact on employee engagement

level, then provide some suggestions for leader or manager to improve their followers’ commitment to increase performance and profitability

The research will answer the following questions

Question 1: How do transformational leadership and transactional leadership affect the level of employee engagement?

Question 2: Which components of transformational leadership have positive influence on employee engagement level?

Question 3: Which components of transactional leadership have negative

influence on employee engagement level?

1.3 Research scope and design

The research focuses on manufacturing industry in HCMC, Dong Nai and Binh Duong provinces in the south of Vietnam

The survey instrument will be initially tested by 10 employees by interview for content, readability, and ambiguity Based on results of the pre-test, some minor changes will be made to the questionnaire items The subject of the research is employees who are working for the company at least one year Total valid answered questionnaire is 223

After data collection, the measurement scale will be checked on reliability by Cronbach alpha and Exploratory Factor Analysis (EFA) to be refined And then, the hypotheses will be tested using correlation analysis and regression analysis

1.4 Research structure

The research includes five chapters

Chapter 1: introduction that will provide information on research background, the purpose and scope of the research, how the research is designed and organized Chapter 2: literature review encompasses the construct definitions that are leadership behaviour, employee engagement and the relationship between the two constructs The research also review what previous researches have done with limitation and suggestion for future researches

Chapter 3: research method that covers research model, research question, research hypotheses, sample and data collection, and research questionnaire.Chapter 4: result of data analysis including descriptive analysis, reliability analysis, factor analysis with EFA, correlation analysis, and regression analysis; and conclusion based on results of data analysis

Chapter 5: implication of the research with some ideas for applying into practice, limitation of the research and suggestion for future research

CHAPTER 2 LITERATURE REVIEW

2.1 Leadership behaviour

The practice and academic circles agree that leadership is really an important subject in the field of organizational behavior Leadership is one with the most dynamic effects during individual and organizational interaction In other words, whether a management is able to execute “collaborated effort” depends on leadership capability The excellent leader not only inspires subordinate’s potential

to enhance efficiency and also meets their requirements in the process of achieving organizational goals Stogdill (1957, cited in Hsien & Tsai) defined leadership as the individual behavior to guide a group to achieve the common target In latter days, Richards & Engle (1986, cited in Hsien & Tsai) defined leadership as about establishment of vision, value and creation of environment so that the objective can

be accomplished According to Robbin and Judge (2007), leadership is the ability to influence a group toward the achievement of a vision or set of goals The source of this influence may be formal, such as that provided by the possession of managerial rank in an organization

Leadership theory has been developed since the beginning of the twentieth century, which starts from the early leadership theories focused on the attributes and characteristics distinguishing between leaders and non-leaders, then concentrates on behavior and later considers the role of followers and the contextual nature of the leadership

The concept of leadership starts with the theory of Great Man Great Man theory assumes that the capacity for leadership is inherent that great leaders are born with innate qualities not made This theory often portrays great leaders as heroic, mythic and destined to rise to leadership when needed The term “Great Man” was used because at the time leadership was thought of primarily as a male quality, especially in terms of military leadership This led to the next school of Trait theory

The Trait approach arose from the Great Man theory that differentiates leaders from non-leaders by focusing on personal qualities and characteristics (Robbin and Judge, 2007) The list of traits or qualities associated with leadership exists in abundance and continues to be developed It was believed that critical leadership traits could be identified through this approach and that people with such traits could be recruited, selected, and installed into leadership positions However, after several years of research, it became apparent that no consistent traits could be identified Although some traits were found in a considerable number of studies, the results were generally inconclusive Some leaders might have possessed certain traits but the absence of them did not necessarily mean that the person was not a leader Despite the fact that there was little consistency in the results of the various trait studies, however, some traits did appear more frequently than others, including technical skill, friendliness, and task motivation, application to task, group task supportiveness, social skill, emotional control, administrative skill, general charisma, and intelligence Of these, the most widely explored has tended to be charisma (Bolden et al., 2003)

The failures of early trait theory led researchers to go to another direction in the late 1940s through the 1960s that looked at the behaviors exhibited by specific leaders Behavioral theory proposes that specific behaviors differentiate leaders from non-leaders (Robbin and Judge, 2007) While trait theory assumes that leaders are born rather than made, behavioral theory suggests that leadership could be created by training or learning through experience It believes that a leader will be able to achieve ideal organizational efficiency if he demonstrates effective leadership behaviors

Although behavior theory may help to develop specific leadership behavior, they give little guidance as to what constitutes effective leadership in different situations Indeed, most researchers conclude that no leadership style is right for every manager under all situations Instead, contingency situational theory was developed to indicate that the style to be used is contingent upon such factors as the

situation, the people, the task, the organization, and other environmental variables (Bolden et al., 2003) The first comprehensive contingency model for leadership was developed by Fred Fiedler The Fiedler contingency model proposes that effective group performance depends on the proper match between the leader’s style and the degree to which the situation gives control to the leader Fiedler states the better the leader-member relations, the more highly structured the job, and the stronger the position power, the more control the leader has (Robbin and Judge, 2007)

The Hersey and Blanchard’s leadership theory also takes a situational perspective of leadership The model – called situational leadership theory – posits that the developmental levels of a leader’s followers play the greatest role in determining which leadership styles are most appropriate The theory is based on the amount of direction (task behavior) and socio-emotional support (relationship behavior) a leader must provide given the situation and the “level of maturity” of the subordinates Task behavior is the extent to which the leader engages in spelling out the duties and responsibilities to an individual or group This behavior includes telling people what to do, how to do it, when to do it, where to do it, and who’s to

do it In task behavior, the leader engages in one way communication Relationship behavior is the extent to which the leader engages in two-way or multi-way communications by providing socio-emotional support This includes listening, facilitating, and supportive behaviors Maturity is the willingness and ability of a person to take responsibility for directing his or her own behavior (Bolden et al., 2003)

Contemporary leadership theory has been developed since 1970s The viewpoint of contemporary leadership theory states that leadership is a type of interactive process with the environment This new paradigm of leadership has captured widespread attention James MacGregor Burns (1978, cited in Bass & Riggio, 2008) conceptualized leadership as either transactional or transformational Transactional leaders are those who lead through social exchange As Burns (1978)

notes, politicians, for example, lead by “exchanging one thing for another: jobs for votes, or subsidies for campaign contribution” In the same way, transactional business leaders offer financial rewards for productivity or deny rewards for lack of productivity Transformational leaders, on the other hand, are those who stimulate and inspire followers to both achieve extraordinary outcomes and, in the process, develop their own leadership capacity Transformational leader helps followers grow and develop into leaders by responding to individual followers’ needs by empowering them and by aligning the objectives and goals of the individual followers, the leader, the group, and the larger organization More evidence has accumulated to demonstrate that transformational leadership can move followers to exceed expected performance, as well as lead to high levels of follower satisfaction and commitment to the group and organization (Bass & Riggio, 2008)

More recent researches demonstrate that transformational leadership is important in every sector and in every setting

Descriptions of the components of transformational leadership are presented

in the following sections

Idealized Influence (II) Transformational leaders behave in ways that allow

them to serve as role models for their follower The leaders are admired, respected, and trusted Followers identify with the leaders and want to emulate them; leaders are endowed by their followers as having extraordinary capabilities, persistence, and determination Thus, there are two aspects to idealized influence: the leader’s behaviours and the elements that are attributed to the leader by followers and other associates These two aspects, measured by separate sub-factors of the MLQ, represent the interactional nature of idealized influence – it is both embodied in the leader’s behaviour and in attributions that are made concerning the leader by followers A sample item from the MLQ that represents idealized influence behaviour is “The leader emphasizes the importance of having a collective sense of mission” A sample item from the idealized influence attributed factor is “The leader goes beyond self-interest for the good of the group”

In addition, leaders who have a great deal of idealized influence are willing

to take risks and are consistent rather than arbitrary They can be counted on to do the right thing, demonstrating high standards of ethical and moral conduct

Inspirational Motivation (IM) Transformational leaders behave in ways that

motivate and inspire those around them by providing meaning and challenge to their followers’ work Team spirit is aroused Enthusiasm and optimism are displayed Leaders get followers involved in envisioning attractive future states; they create clearly communicated expectations that followers want to meet and also demonstrate commitment to goals and the shared vision A sample MLQ item for

IM is “The leader articulates a compelling vision of the future”

Idealized influence leadership and inspirational motivation usually form a combined single factor of charismatic-inspirational leadership The charismatic-inspirational factor is similar to the behaviours described in charismatic leadership theory (Bass & Avolio, 1993; House, 1977, cited in Bass & Riggio, 2008)

Intellectual Stimulation (IS) Transformational leaders stimulate their

followers’ efforts to be innovative and creative by questioning assumptions, reframing problems, and approaching old situations in new ways Creativity is encouraged There is no public criticism of individual members’ mistakes New ideas and creative problem solutions are solicited from followers, who are included

in the process of addressing problems and finding solution Followers are encouraged to try new approaches, and their ideas are not criticized because they differ from the leaders’ ideas A sample item from the MLQ that represents intellectual stimulation is “The leader gets others to look at problems from many different angles”

Individualized Consideration (IC) Transformational leaders pay special

attention to each individual follower’s needs for achievement and growth by acting

as a coach or mentor Followers and colleagues are developed to successively higher levels of potential Individualized consideration is practiced when new learning opportunities are created along with a supportive climate Individual

differences in terms of needs and desires are recognized The leader’s behaviour demonstrates acceptance of individual differences A two-way exchange in communication is encouraged, and “management by walking around” work spaces are practiced Interactions with followers are personalized The individually considerate leader listens effectively The leader delegates tasks as a means of developing followers Delegated tasks are monitored to see if the followers need additional direction or support and to assess progress; ideally, followers do not feel they are being checked on A sample MLQ item from the individualized consideration scale is “The leader spends time teaching and coaching”

Transactional leadership occurs when the leader rewards or disciplines the follower, depending on the adequacy of the follower’s performance Transactional leadership depends on contingent reinforcement, either positive contingent reward

or the more negative active or passive forms of management-by-exception

Contingent Reward This constructive transaction has been found to be

reasonably effective in motivating others to achieve higher levels of development and performance, although not as much as any of the transformational components Contingent reward leadership involves the leader assigning or obtaining follower agreement on what needs to be done with promised or actual rewards offered in exchange for satisfactorily carrying out the assignment A sample contingent reward item is “The leader makes clear what one can expect to receive when performance goals are achieved” Contingent reward is transactional when the reward is a material one, such as a bonus Contingent reward can be transformational, however, when the reward is psychological, such as praise (Antonakis, Avolio, & Sivasubramaniam, 2003, cited in Bass & Riggio, 2008)

Management-by-Exception This corrective transaction tends to be more

ineffective than contingent reward or the components of transformational leadership The corrective transaction may be active (MBE-A) or passive (MBE-P) In active MBE, the leader arranges to actively monitor deviances from standards, mistakes, and errors in the follower’s assignments and to take corrective action as necessary

MBE-P implies waiting passively for deviances, mistakes, and errors to occur and then taking corrective action Active MBE may be required and effective in some situations, such as when safety is paramount in importance Leaders sometimes must practice passive MBE when required to supervise a large number of subordinates who report directly to the leaders Sample MLQ items for management-by-exception are “The leader focus attention on irregularities, mistakes, exceptions, and deviations from” (active) and “The leader fails to interfere until problems become serious” (passive)

Laissez-Faire Leadership (LF) As mentioned, laissez-faire leadership is the

avoidance or absence of leadership and is, by definition, most inactive, as well as most ineffective according to almost all research on the style As opposed to transactional leadership, laissez-faire represents a non-transaction Necessary decisions are not made Actions are delayed Responsibilities of leadership are ignored Authority remains unused A sample laissez-faire item is “The leader avoids getting involved when important issues arise”

2.2 Employee engagement

The construct of engagement was first presented by Kahn Kahn (1990) defined personal engagement as “the harnessing of organization members’ selves to their work roles; in engagement, people employ and express themselves physically, cognitively, and emotionally during role performances” The cognitive aspect of employee engagement concerns employees’ belief about the organization, its leader and working condition The emotional aspect concerns how employees feel about each of those three factors and whether they have positive or negative attitudes toward the organization and its leaders The physical aspect of employee engagement concerns the physical energies exerted by individuals to accomplish their roles Thus, according to (Kahn, 1990, cited in Wefald, 2008), engagement means to by psychologically as well as physically present when occupying and performing an organization role Kahn (1990) also defined personal disengagement

as “the uncoupling of selves from work roles; in disengagement, people withdraw

and defend themselves physically, cognitively, or emotionally during role performances However, there is lack of in depth research examined the construct of engagement until research on burnout led to a reintroduction of the concept

Engagement was reintroduced as the opposite of burnout, which is someone who is clearly not experiencing job burnout must be engaged in their job (Maslach

& Leiter, 1997, cited in Wefald, 2008) Three factors of burnout received new names and the construct of engagement was applied to this result; that are, emotional exhaustion was changed to high energy, depersonalization became strong involvement, and a reduced sense of efficacy became sense of efficacy Therefore engagement focuses on the positive aspects of a person’s job This positive focus led to a bottom-up development of engagement in the practitioner community (Macey & Schneider, 2008, cited in Wefald, 2008) However, later researches have shown that burnout and engagement are probably obliquely related, but not opposites Schaufeli and Salanova, et al (2002, cited in Wefald, 2008) studied employees and student in Spain They found that there was only a weak negative correlation between emotional exhaustion and vigor indicating that they are not opposite ends of continuum, means that exhaustion and vigor are different constructs If they really are opposites, then there would be a stronger negative correlation

Another construct to engagement in organizational behavior is the notion of flow defined by Csikszentmihalyi (1990) Csikszentmihalyi (1990, cited in Nitin, 2007) defines flow as the “holistic sensation” that people feel when they act with total involvement Flow is the state in which there is little distinction between the self and environment When individuals are in flow state little conscious control is necessary for their actions May et al (2004, cited in Nitin 2007) also agreed that engagement is most closely associated with the constructs of job involvement and

“flow” (Csikszentmihalyi, 1990) Job involvement is defined as “a cognitive or belief state of psychological identification” In the study to empirically test Kahn’s (1990) model, May et al (2004, cited in Nitin, 2007) found that meaningfulness,

safety, and availability were significantly related to engagement They also found that job enrichment and role fit to be positive predictors of meaningfulness; rewarding coworker and supportive supervisor relations were positive predictors of safety, while adherence to coworker norms and self-consciousness were negative predictors Resources were a positive predictor of psychological availability, while participation in outside activities was a negative predictor Overall, meaningfulness was found to have the strongest relation to different employee outcomes in terms of engagement (Kular et al., 2008)

Schaufeli et al (2002, cited in Ronald & Ghada, 2010) conceptualized engagement as a persistent and positive affective motivational state of fulfillment in employees, characterized by vigor, dedication, and absorption According to Schaufeli and Salanova, et al vigor is seen as high energy, resilience, a willingness

to invest effort on the job, ability to not be easily fatigued, and persistence in the face of difficulties Dedication is characterized by strong involvement in work, enthusiasm, and a sense of pride and inspiration Absorption is defined as a pleasant state of being immersed in one’s work, time passing quickly, and being unable to detach from the job Schaufeli et al (2002, cited in Ronald & Ghada, 2010) said

“Rather than a momentary and specific state, engagement refers to a more persistent and pervasive affective-cognitive state that is not focused on any particular object, event, individual, or behavior”

Shirom (2003, cited in Wefald, 2007) suggested that the vigor component of engagement is the only non confounded construct in the three factor engagement model that consists of vigor, dedication and absorption Shirom (2007, cited in Wefald, 2008) defines vigor as an individuals’ feeling that they possess physical strength, emotional energy, and cognitive liveliness This definition assumes that vigor is a composite variable, comprised of three affective components Although not empirically tested, Shirom believes that the antecedents of vigor may include variables such as being more extraverted, having certain task characteristics, having multiple roles, group cohesion, and having leaders who encourage employees to

think creatively This last point suggests that leadership is an important antecedent

to vigor Inclusion, engagement is considered as a one factor construct defined by vigor, it follows that engagement will also be related to leadership

Recently, employee engagement has been often defined as emotional and intellectual commitment to the organization or the amount of discretionary effort exhibited by employees in their job (Frank et al., 2004); that is when employees have many choices, they will act in a way that furthers their organization’s interests

An engaged employee is a person who is fully involved in and enthusiastic about his or her job Truss et al (2006) defines employee engagement simply as “passion for work”, a psychological state which is seen to encompass the three dimensions of engagement discussed by Kahn (1990), and captures the common theme running through all these definitions (cited in Kular et al., 2008)

Whilst it is acknowledged that employee engagement has been defined in many different ways, it is also argued the definitions often sound similar to other better known and established constructs such as ‘organizational commitment’ and

‘organizational citizenship behavior’ (OCB) (Robinson et al 2004) Thus Robinson

et al (2004) defined engagement as ‘one step up from commitment’ As a result,

employee engagement has the appearance of being yet another trend, or what some might call “old wine in a new bottle”

For example, Robinson et al (2004) state that:

“…engagement contains many of the elements of both commitment and OCB but is

by no means a perfect match with either In addition, neither commitment nor OCB reflect sufficiently two aspects of engagement - its two-way nature, and the extent to which engaged employees are expected to have an element of business awareness.”(cited in Kular et al., 2008)

Saks (2006) argues that organizational commitment also differs from engagement in that it refers to a person’s attitude and attachment towards their organization, whilst it could be argued that engagement is not merely an attitude; it

is the degree to which an individual is attentive to their work and absorbed in the performance of their role

In addition, while OCB involves voluntary and informal behaviors that can help co-workers and the organization, the focus of engagement is one’s formal role performance rather than purely extra-role and voluntary behavior

The existence of different definitions makes the state of knowledge of employee engagement difficult to determine as each study examines employee engagement under a different protocol In addition, unless employee engagement can be universally defined and measured, it cannot be managed, nor can it be known

if efforts to improve it are working (Ferguson, 2007, cited in Kular et al., 2008) This highlights the problems of comparability cause by differences in definition So far none of the definitions has come to dominate the field either as a definition or as

a methodology

2.3 Important of engagement

Engagement is important for managers to cultivate given that disengagement

or alienation is central to the problem of workers’ lack of commitment and motivation Meaningless work is often associated with apathy and detachment from ones works In such conditions, individuals are thought to be estranged from their selves Other research using a different resource of engagement (involvement and enthusiasm) has linked it to such variables as employee turnover, customer satisfaction – loyalty, safety and to a lesser degree, productivity and profitability criteria (Harter, Schnidt & Hayes, 2002, cited in Nitin, 2007)

Employee engagement is critical to any organization that seeks to retain valued employees Gallup research consistently confirms that engaged work places compared with least engaged are much more likely to have lower employee turnover, higher than average customer loyalty, above average productivity and earnings Gallup compared the scores of these variables among a sample of stores scoring in the top 25 percent on employee engagement and customer loyalty with those in the bottom 25 percent The result show that stores in the bottom 25 percent

significantly under-performed across three productivity measures: sales, customer complaints and turnover The International Survey Research (ISR) team has similarly found encouraging evidence that organizations can only reach their full potential through emotionally engaging employees and customers (ISR 2005)

In an extension of the Gallup findings, Ott (2007, cited in Kular et al., 2008) cites Gallup research, which found that higher workplace engagement predicts higher earnings per share (EPS) among publicly-traded businesses When compared with industry competitors at the company level, organizations with more than four engaged employees for every one actively disengaged, experienced 2.6 times more growth in EPS than did organizations with a ratio of slightly less than one engaged worker for everyone actively disengaged employee The findings can be considered

as reliable as the variability in differing industries was controlled by comparing each company to its competition, and the patterns across time for EPS were explored due to a ‘bouncing’ increase or decrease which is common in EPS (Ott

2007, cited in Kular et al., 2008) These are all good things that prove that engaging and involving employees make good business sense and building shareholder value Negative workplace relationships may be a big part of why so many employees are not engaged with their jobs The Watson Wyatt consulting companies has also been proved that there is an intrinsic link between employee engagement, customer loyalty, and profitability As organizations globalize and become more dependent

on technology in a virtual working environment, there is a greater need to connect and engage with employees to provide them with an organizational ‘identity’

2.4 Leadership and employee engagement

Can leaders influence follower engagement?

Leadership is one factor that any organization striving for employee engagement cannot afford to ignore As previously mentioned, Bass (2008) differentiated between three broad leadership behaviors that vary from individual consideration and support for the employee (transformational leadership) to a

proportional exchange between the leader and the employee (transactional leadership), or to no interest at all for the employee (laissez-faire leadership) Transformational leaders inspire followers with a vision that addresses their higher needs and engage followers in the attainment of that vision The transformational leadership style enhances employees’ feelings of involvement, cohesiveness, commitment, potency, and performance (Shamir, House, & Arthur, 1993) An employee who receives support, inspiration, and quality coaching from the supervisor is likely to experience work as more challenging, involving, and satisfying, and consequently, to become highly engaged with the job tasks

Researchers across cultures have found that transformational/visionary leaders display four common types of behaviors- charisma, inspirational motivation, intellectual stimulation, and individualized consideration

First, transformational leaders are highly charismatic and creative individuals who challenge the status quo In addition to being innovative iconoclasts, they can

be trusted to do the right thing Doing the right thing in the face of adversity requires courage and visionary leaders possess the required strength of character This attracts followers towards them and makes followers emulate them

Second, visionary leaders are able to provide an inspirational vision, which motivates followers to look beyond the mundane activities of their jobs An inspiring vision not only presents a glorious future but also shows how the individual can work towards it in his/her current job It is this connection between one’s current work and a desirable future, which infuses meaning into the employees’ work Once employees see their work in a larger and more meaningful context, there are completely engaged in their work

Third, visionary leaders encourage their followers to think independently and

to look for novel solutions to existing problems This crucial aspect of independent thinking is what distinguishes authentic leadership from mere indoctrination In organizations, managers can provide challenging assignments in which individuals

are forced to think for themselves and develop their own judgment about the appropriate course of action

Finally, visionary leaders recognize their followers as complete human beings and act as mentors to their followers The role of a mentor or coach is absolutely essential when one is attempting to engage in a novel or innovative task which is fraught with uncertainties For a transformational leader, being individually considerate includes looking beyond the individual as just an employee and recognizing the human being At one level this involves understanding that individual performance is dependent on a host of contextual factors beyond just individual ability, but at a deeper level it is about having respect for the basic humanness of one’s employees

Putting all the above reasoning together, it is found numerous paths from transformational leadership to employee engagement The leadership behavior of inspirational motivation enhances meaningfulness- followers perceive their work in

a context which is personally important to them Intellectual stimulation by the leader enhances follower freedom and self-efficacy by allowing followers to question assumptions and work out their own solutions to problems These three psychological states of meaningfulness, freedom, and self-efficacy lead to engagement which in turn leads to innovation Leader charisma in the form of unconventional behavior provides a worthy role model for followers to emulate and thereby directly enhances innovation by followers Finally, individualized consideration by leaders triggers the norm of reciprocity in followers and they provide innovative solutions to solve organizational problems

Transactional leaders motivate only to get the work done and reward employees accordingly (Bass, 2008), but external rewards (particularly those that are given after finishing a specific task) have been consistently found to have a negative effect on intrinsic motivation Several studies provide additional evidence for the destructiveness of the laissez-faire leadership style Skogstad, Einarsen, Torsheim, Aasland, and Hetland (2007, cited in Tims et al., 2011) found that this

‘leaderless’ leadership style was positively associated with job stressors such as role ambiguity, role conflict and conflict with co-workers, while Hauge, Skogstad, and Einarsen (2007, cited in Tims et al., 2011) supported its positive relationship with bullying at work To conclude, previous research favours our decision to focus on transformational leadership in relation to work engagement

Cufaude (2004, cited in Kular et al., 2008) argues that when managers employ a philosophy of ‘servant leadership’, whereby a manager’s primary role is

in supporting and serving those around them, the environment becomes ‘highly engaged’ Soltis (2004) argues in order to create a highly engaged environment managers must be engaged “if managers aren’t engaged its unlikely employees will respond to any efforts to engage them” Research has demonstrated that employee engagement tends to be based on factors such as relationship they have with their managers (Blizzard, 2003)

In an experimental study conducted by Van Vugt, Jepson, Hart, and De Cremer (2004, cited in Tims et al., 2011), participants were randomly assigned to one of three groups and took part in three investment task trials The authors manipulated the content of the messages sent by the leader to the group members to simulate either a transactional, transformational, or laissez-faire leadership behavior After the task trials, individuals were asked whether they wanted to stay in the same group or join a different group for a subsequent task The results suggested that participants were more likely to leave the group when they were in the condition with the transactional or the laissez-faire leader, in contrast with the transformational leader When confronted with a transactional leader, group members were unhappy with the limited amount of control they had over the decision processes, while when confronted with a laissez-faire leader participants did have control, but they were not motivated to invest additional effort

A diary study investigating whether supervisors’ leadership style influences followers’ daily work engagement by Bakker and Xanthopoulou (in press) predicted that transformational leadership would enhance employees’ work engagement

through the mediation of self-efficacy and optimism, on a day-to-day level two employees from two different organizations, namely a temporary work agency and an industrial consultancy firm (restricts the generalizability of the results)first filled in a general questionnaire, and then a diary survey for 5 consecutive workdays The results of multilevel analyses showed that optimism, but not self-efficacy partially mediated the relationship between transformational leadership and work engagement Thus, transformational leaders fostered followers’ optimism, and indirectly contributed to followers’ levels of vigor, dedication, and absorption Employees become more engaged to their work, when their supervisor is able to boost their optimism through his/her transformational leadership style Work

Forty-Engagement was measured with the short, 9-item version of the Utrecht Work Engagement Scale (UWES; Schaufeli & Bakker, 2003) Transformational Leadership Style was measured with the 12-item Dutch version (Stuart, 2005) of the

Multifactor Leadership Questionnaire (MLQ; Bass & Avolio, 1990) Employees filled out this scale having in mind their direct supervisor

Arnold et al (2008) in two recent researches found a partial and a full mediation of meaning ascribed to work between transformational leadership and psychological well-being Both studies indicated that transformational leaders have

a positive impact on the psychological well-being of their followers Given the similarities between psychological well-being and engagement, it is likely that transformational leadership will also have an impact on engagement

Zhu, Avolio, and Walumbwa (2007, cited in Wefald et al., 2011) in a recent research looking at transformational leadership and engagement using an industry scale developed by the Gallup Corporation (the 12 questions) found that leader-rated follower characteristics moderated the positive relationship between transformation leadership and follower engagement such that as leaders rated their followers more positively, the relationship between transformational leadership and engagement was stronger They also found a significant positive direct relationship between transformational leadership and engagement (r=0.58, p<0.01)

A study was conducted by Nancy Papalexandris and Eleanna Galanaki (2008) to investigate the impact of leadership practices of CEOs on their immediate subordinates’ satisfaction, commitment, motivation and effectiveness (engagement) The CEOs leadership dimensions were established through Exploratory Factor Analysis including five factors: Manager/Mentor Skills, Articulation of Vision, Self-Management and Inner Balance, Collaboration with other people/Sociability and Bureaucratic Of these five sets of characteristics, only two were found to be related with subordinate’s engagement Good Manager/Mentor and Articulation of Vision In addition to that, a moderating effect of the type of CEO was found to exist on the effect of CEO leadership dimensions on subordinate engagement Wefald (2008) in a research on examination of job engagement, transformational leadership and related psychological constructs hypotheses that after controlling for demographic variables and personality, followers’ reports of their direct report’s level of transformational leadership will significantly predict engagement Transformational leadership was measured using a short measure of transformational leadership called the Global Transformational Leadership (GTL) scale

The result of this research also suggests that engagement measures are subject to the influence of the leaders as measured by followers The limitation of this research is participants are all from one sample of employees, in two separate lines of business, at a mid-sized financial institution Another limitation was the use

of GTL measure Despite a good, reliable, and overall measure of transformational leadership, it does not allow for specific analyses of the various components of transformational leadership or what specific behaviors predict various outcomes (Wefald, 2008) This research suggested that future research should utilize the full Multifactor Leadership Questionnaire that would allow for more specific linking of leaders and followers, and use samples of employees from different organization and different types of jobs for coming with a general conclusion

Xanthopoulou et al (2009) in their diary study among fast-food restaurant employees found that quality coaching from the supervisor made employees feel more optimistic at work, which in turn increased their day-levels of work engagement

Zhu, W., Avolio, B.J., Walumbwa, F.O (2009) in a study “Moderating Role

of Follower Characteristics With Transformational Leadership and Follower Work Engagement” Group Organization Management, 34, 590-619 examines whether follower characteristics moderate the relationship between transformational leadership and follower work engagement Data were collected from 140 followers and their 48 supervisors from a diverse range of industries in South Africa Hierarchical linear modeling results show that follower characteristics moderate the positive relationship between transformational leadership and follower work engagement More specifically, transformational leadership has a more positive effect on follower work engagement when follower characteristics are more positive Implications of the findings for theory, research, and practice are discussed

Within the framework of the Social Cognitive Theory by A Bandura (1997, 2001), the study “Linking Transformational Leadership to Extra-Role Performance: The Mediating Role of Self-Efficacy and Work Engagement” conducted by Salanova & Chambel in 2009 aims to gain insight into the psychological mechanisms (i.e., motivational power of self-efficacy) that underlie how transformational leaders influence employee extra-role performance (as assessed by leaders) The sample comprises dyads of 280 nurses from different health services and their 17 supervisors Structural equation modeling analyses were consistent with a mediation model in which transformational leadership predicted extra-role performance through self-efficacy and work engagement Moreover a direct relationship between transformational leadership and work engagement was found Therefore, transformational leadership style influences levels of self-efficacy and

work engagement, which in turn, positively predict employees´ extra-role performance

Based on article review, it shows that there is really a relationship between leadership behavior and employee engagement, especially transformational leadership would enhance employee engagement In the other hand, as researchers

do not expect that the transactional leadership behavior leads to employee engagement because they lack motivational power and inspirational appeal, they do not conduct much study on the relationship between transactional leadership and engagement

Moreover, much of the researches on engagement so far have concentrated

on organizations in the US, some significant contribution to unearthing employee engagement levels from the UK (Kular et al., 2008), and few researches from other countries Although the Gallup Organization employee engagement survey has been conducted in several countries, there is still a need for research to be carried out in other countries throughout the world to provide an integrity picture on employee engagement Especially, significant contribution contextualized with Vietnamese environment is not yet explored

In addition, almost previous researches on relationship between leadership behavior and employee engagement were conducted in one or two organizations, not in the whole industry to get the overall vision A limitation of some researches was that using the Global Transformation Leadership scale that does not allow for specific analyses of the various components of transformational leadership or what specific behaviors predict various outcome As suggested by (Wefald, 2008), future research should utilize the full Multifactor Leadership Questionnaire that would allow for more specific linking between leaders and followers, and use samples of employee from different organizations and different types of jobs in manufacturing industry to come up with a general conclusion

Therefore, this paper will focus on contemporary leadership theory, and research the impact of both transformational and transactional leadership behavior

on employee engagement to see whether transformational leadership has positive effect on employee engagement and confirm if transactional leadership really does not contribute to engagement in manufacturing industry sector in the south of Vietnam, representing by the three main areas HCMC, Dong Nai and Binh Duong province where located a great number of industrial zones and export processing zones The reason to choose manufacturing industry but other industries to conduct the research is that there is a close interaction between leaders and followers, and a clear objective of output We believe that the followers will be happier with the rewards for overachieved of performance objectives that have effect on level of employee engagement

CHAPTER 3 RESEARCH METHOD

3.3 Research hypotheses

H1 Transformational leadership has positive influence on employee engagement H1a Idealized influence (Attributes) has positive influence on employee engagement level

H1b Idealized influence (Behaviours) has positive influence on employee engagement level

H1c Inspirational Motivation has positive influence on employee engagement level

H1d Intellectual Stimulation has positive influence on employee engagement level

H1e Individualized Consideration has positive influence on employee engagement level

H2 Transactional leadership has negative influence or no influence on employee engagement level

H2a Contingent reward has negative influence on employee engagement level

H2b Management by Exception: active has negative influence on employee engagement level

H2c Management by Exception: passive has negative influence on employee engagement level

H2d Laissez – Faire has negative influence on employee engagement level

3.4 Research variables

The variables in this research were Transformational Leadership, Transactional Leadership and Employee Engagement The dependent variable was Employee Engagement and the independent variables were Transformational Leadership (Idealized Influence (Attributes), Idealized Influence (Behaviors), Inspirational Motivation, Intellectual Stimulation, Individualized Consideration), and Transactional Leadership (Contingent Reward, Management by Exception: active, Management by Exception: passive, Laissez – Faire)

3.5 Sample and data collection

This research focuses on manufacturing industry including foreign companies, state companies, private companies and joint-stock companies in HCMC, Dong Nai and Binh Duong provinces that assumed to have different organizational cultures in order to get an integrity picture of leadership behaviour and employee engagement The research chooses managers, middle managers or supervisors, and technicians or officers who have at least one year length of service

in these companies, and are supposed in better position to apprise about their superior’s leadership behaviour as the subject, and collects data by convenient sampling method The survey instrument was initially tested by 10 employees by interview for content, readability, and ambiguity Based on results of the pre-test, some minor changes were made to the questionnaire items Survey questionnaire then was sent by email to relevant people who are currently working in manufacturing industry These people helped to forward this questionnaire to their friends and colleagues A great number of questionnaires in paper were also directly delivered to students of master degree and second degree classes of HCMC University of Economic, Polytechnic University in HCMC and Lac Hong University in Dong Nai province Total received answered questionnaire is 272, for which 223 returned answers are valid, so effective response rate is 82%

After having all valid questionnaires, SPSS is used to do data analysis

3.6 Questionnaire

3.6.1 Leadership behavior questionnaire

The Multifactor Leadership Questionnaire MLQ 45-item Form 5X was used

to assess the providers' perceptions of supervisors' transformational and transactionalleadership behaviors Transformational leadership was assessedwith four subscales of idealized influence, inspirational motivation, intellectual stimulation, and individual consideration Transactional leadership was assessed with four subscales detailing leadership behaviors, including contingent reward,

laissez-faire, active management by exception, and passive management by

exception

Providers were asked to judge the extentto which their immediate supervisor

engaged in specific behaviorsmeasured by the MLQ Each behavior was rated on a

5-point scaleranging from 1, not at all, to 5, to a very great extent

(Leadership: Theory and Practice, Peter G Northouse, Fifth edition, 2010 SAGE

Publications, Inc., California, America)

Key: 1=Not at all, 2=Once in a while, 3= Sometimes, 4=Fairly often, 5=Frequently,

if not always

Transformational Leadership Behaviours

Idealized Influence (Attributes)

My supervisor goes beyond self-interest for the good of the group

Instil pride in others for being associated with him

Act in ways that build others' respect for

Display a sense of power and confidence

Idealized Influence (Behaviours)

My supervisor considers the moral and ethical consequences of decisions

Talk about his most important values and beliefs

Specify the importance of having a strong sense of purpose

Emphasize the importance of having a collective sense of mission

Inspirational Motivation

My supervisor talks optimistically about the future

Talk enthusiastically about what needs to be accomplished

Articulate a compelling vision of the future

Express confidence that goals will be achieved

Get others to look at problems from many different angles

Suggest new ways of looking at how to complete assignments

Individualized Consideration

My supervisor helps others to develop their strengths

Spend time teaching and coaching

Treat others as individuals rather than just as a member of the group

Consider each individual as having different needs, abilities and aspirations

from others

Transactional leadership behaviours

Contingent Reward

My supervisor makes clear what one can expect to receive when

performance goals are achieved

Provide others with assistance in exchange for their efforts

Discuss in specific terms who is responsible for achieving performance

targets

Express satisfaction when others meet expectations

Management by Exception: active

My supervisor keeps track of all mistakes

Focus attention on irregularities, mistakes, exceptions, and deviations from Concentrate my full attention on dealing with mistakes, complaints and

failures

Direct my attention toward failures to meet standards

Management by Exception: passive

My supervisor waits for things to go wrong before taking action

Fail to interfere until problems become serious

Show a firm belief in "If it ain’t broke, don’t fix it"

Demonstrate that problems must become chronic before I take action

Laissez-Faire

My supervisors avoids making decision

Avoid getting involved when important issues arise

Is absent when needed

Delay responding to urgent questions

3.6.2 Employee engagement questionnaire

The employee survey is a diagnostic tool of choice in the battle for the hearts

of employees Studies of Gallup, Mercer, Hewitt and Watson Wyatt and Hay group

- the consulting companies asked workers number of questions relating to their job Gallup being one of the oldest consulting organizations in conducting engagement survey creates a feedback system for employers that would identify and measure elements of worker engagement most tide to the bottom line Things such as sales, growth, productivity and customer loyalty are all accessed After hundreds of focus group and thousands of interviews with employees from all kinds of organizations

at all levels across a broad industries and countries, business researchers at Gallup sifted through hundreds of questions before coming up with Q 12 with the highest correlations to external measures Q-12 is a twelve-question survey that identifies strong feelings of employee engagement They have identified 12 questions that most effectively measure those dimensions that leaders, managers, and employees can influence When completing the survey employees are asked to rate their response to each question on a scale of 1 to 5

Gallup believes there is a strong correlation between high survey scores and employees’ performance This, in turn, is linked to business outcomes So, by addressing the issues that increase worker engagement employers are able to generate higher profits

The Q.12 comprises of

1 Do you know what is expected of you at work?

2 Do you have the materials and equipment you need to do your work right?

3 At work, do you have the opportunity to do what you do best every day?

4 In the last seven days, have you received recognition or praise for doing good work?

5 Does your supervisor, or someone at work, seems to care about you as a person?

6 Is there someone at work who encourages your development?

7 At work, do your opinions seem to count?

8 Does the mission/purpose of your company make you feel your job is important?

9 Are your associates (fellow employees) committed to doing quality work?

10 Do you have a best friend at work?

11 In the last six months, has someone at work talked to you about your progress?

12 In the last year, have you had opportunities at work to learn and grow?

Gallup’s method differs from other correlation studies by creating a methodology that bridges the ‘soft’ values pertaining to morale and employee engagement (such as recognition and desire to contribute) with ‘hard’ outcomes that are more easily measured

Hay Group is also a well known consulting company to conduct employee survey for a great number of companies all over the world Since 1975, Hay Group has partnered with more than 4,000 organizations worldwide Building on thirty years of research, Hay Group Insight has developed a market-lead framework for measuring and understanding employee engagement and performance helping organizations leverage employee feedback

Hay Group defines employee engagement as “a result achieved by stimulating employees’ enthusiasm for their work and directing it toward organizational success” Their employee engagement questionnaire comprises of two components: commitment that is considered as effective attachment to, and intention to remain with, an organization; and discretionary effort that is the willingness to go above and beyond formal job requirements This definition is considered as contemporary employee engagement construct at the moment It is also according to Robbin & Judge (2007) “a step up from employee commitment” a construct that got much attention in the sixtieth and seventieth decades last century Hay Group has conducted its employee engagement survey for over 350 organizations, and more than four million respondents