Petra Business & Management Review, Vol.5 No.

1, 2019 ISSN 2163-3069

Transformational Leadership affect on Competitive Advantage through

Knowledge Management and Organizational Culture in Accounting Office
in Indonesia

Hendri Kwistianus, Devie, Yenni Mangoting Faculty of

Business and Economics, Petra Christian University
Jl. Siwalankerto 121-131, Surabaya 60 236
Email:henrikwistianus@gmail.com

ABSTRACT

The era of globalization encourage the rapid development in technology and information, and
trigger the increasingly fierce competition in the global market, including in the accounting
services industry. Competition in the international accounting services such as MEA and the
potential for economic growth in Indonesia provides a challenge and an opportunity for
Indonesian accounting services industry to be competitive. Leader in the accountant's office
pushed for more adaptive and flexible in the face of rapid change. As a professional services
firm that sells expertise, the firm is required to create and maintain knowledge so that they
can be a competitive advantage of the organization. This study aims to look at the effect of
transformational leadership, knowledge management and organizational culture against the
competitive advantage of the firm in Indonesia. Distributing questionnaires conducted at
accounting firm registered in the finance ministry of the Republic of Indonesia. The results
showed that transformational leadership, knowledge management and organizational culture
positively affects competitive advantage. The results of this study also states capable of
amplifying the influence of organizational culture on knowledge management
transformational leadership.

Keywords: Transformational leadership, Knowledge management, Organizational culture,

Accountant office, Accounting.

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1. INTRODUCTION
In the current era of globalization, the rapid development in the field of information
technology and trigger the increasingly fierce competition in the global market, not least for
the accounting services industry. Potential increase accounting services has been predicted by
the government due to several factors, such as economic growth of Indonesia's relatively
stable and high, incessant government to optimize tax revenues and fulfillment of tax
obligations, an increase in the village fund which drastically in 2017 as well as their related
regulations obligation to the preparation of financial statements (Center for Professional
Development Finance, 2017).
In international competition, accountants in Indonesia is also facing challenges, one of
which is the ASEAN Economic Community (AEC). MEA which was implemented since
2015 an agreement on the integration between the economies of ASEAN countries.
PricewaterhouseCoopers Malaysia published an article that discussed the impact of the
ASEAN Economic Community to the accounting industry. According to managing partner of
PwC Malaysia, Sridharan Nair, MEA becomes an opportunity and challenge to the
accountants to learn how to operate in different markets, as well as being able to use
approaches and new technologies. Accountant who can compete and succeed is an accountant
who is capable of operating in a diverse work environment, multi-market and multi-cultural
(Alexia, 2014).

Picture 1. The number of accountants in

ASEAN countries
Source: IAI.

Indonesia only has 52 637 and 15 940 accountants states that the number of members of
IAI is positioned on four under Thailand, Malaysia and Singapore (see Figure 1.3) while
Indonesia has a lot of companies and organizations (IAI, 2015). The ratio of accountants in
Indonesia compared with a registered company is ranked 8 (34.88%). It was not good for
Indonesia just above Vietnam and Brunei Darussalam who do not have a registered company
(Kusumasari, 2014).
These things show a competitive advantage (competitive advantage) accountants in
Indonesia is very important to note. Competitive advantage in measuring the success of an
organization against its competitors (Porter, 1985). Thus, to be able to continue to compete
globally, KAP and KJA needs to have a competitive advantage that is able to differentiate
itself from competitors.

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2. LITERATURE REVIEW
Transformational Leadership a leadership style that keeps a lot of discussion is
transformational leadership (Bass et al., 2003). Transforming leadership concept first
proposed by Burns (1978) in his study of political leaders. Transformational leader raised the
morale, motivation and morale of followers, while transactional leaders meet personal
interests followers. This concept was developed by Bass and Avolio (Bass & Avolio, 1990;
Bass & Avolio, 1993). Transformational leadership refers to leaders who see the interests
followers beyond the self-interest through idealized influence (charisma), inspiration,
intelectual stimulation, and individual consideration (Bass, 1999).
idealized Influence, Transformational leader admired, respected, and trusted. The
followers identify themselves and want to emulate as their leader. Leaders share the risks with
followers and consistent in behavior on the ethics, principles and values that underpin it.
Inspirational Motivation. In act, the leader will motivate those around them by providing
meaning and challenge to their followers. Intellectual Stimulation. Leaders stimulate
followers attempt to be innovative and creative by questioning assumptions, review the issue,
and approaching old situations in new ways. Individualized consideration. Leaders pay
attention to their individual needs for achievement and growth by acting as a coach or a
mentor.
Knowledge management defined as the process and practice of creating, acquiring,
capturing, sharing and using knowledge wherever such knowledge is to improve learning and
organizational performance (Swan et al., 1999). Knowledge management is also believed to
be an essential factor for maintaining competitive advantage and business success (Davenport
and Prusak, 1998; Drucker, 1998; Loermans, 2002). That is because the source of the
knowledge-based knowledge usually difficult to imitate and socially complex, so it can
produce long-term competitive advantage that is sustainable (Alavi & Leidner, 2001). By
combining some of the critical success factors with a set of knowledge management factors,
Rasula et al. (2008) made a new element for knowledge management. Those elements are
combined into three categories: The first technology is the ability of information technology
to capture knowledge and use of information systems. Second, the organization, the people,
the climate and processes within the organization and third-knowledge is the accumulation of
knowledge, the use of knowledge, practice knowledge sharing and identification of
ownership.
Organizational culture is a collection of values, norms and assumptions based on past
experience that affects perspectives, behaviors and practices of individuals, groups and
organizations in the face of an event (Schein, 1984). Organizational culture that has its roots
in the company will be the DNA of the company. (Janićijević, 2012). The role of
organizational culture is to determine the direction of the organization by directing what to
do, allocate and manage organizational resources and also as a tool to deal with
environmental problems and opportunities of the organization (Tjahyanti, 2011).

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Figure 2

Cameron & Quinn (1999) introduced The Competing Values Framework which is
Organizational Culture Assessment Instrument. This framework has been widely used for
research, one of them in aspects of organizational culture. This results in a theoretical
framework in which aspects of the functioning of the organization are in harmony together
and tension with one another. These models are categorized in two dimensions, the first
dimension drawn vertically, a flexible vs. both control and retractable horizontal dimension,
namely internal vs. external. The combination of these two dimensions produces four
quadrants, namely: clan, adhocracy, market and hierarchy.
Clan culture that has focused on the company's internal functionality and flexibility. Clan
oriented organizations collaborate referring to teamwork, participation, freedom of work,
openness, morale, loyalty, kinship, created through the development and employee
involvement. Create adhocracy cultural orientations, which have the characteristics of
creativity, innovation, development vision, openness to change, adaptability, continuous
improvement, the discovery of creative solutions, anticipate future needs, with growth as the
organization's objectives.
Market organization built Compete orientation has a goal to generate profit revenue,
increase market share, increase aggressive competition, increases in productivity, as well as
build relationships with external parties, namely the supplier and the customer. Hierarchy
organizational culture focused on the planning, systems and processes in an efficient, cost
reduction, building regulations and policies, the predictions for the future, so as to create good
quality by minimizing the occurrence of errors.
Competitive advantage a capability that allows organizations to differentiate itself from
its competitors and is the result of management decisions (Tracey, Vonderembse, & Lim,
1999). Li et al. (2006) suggest five dimensions of competitive advantage that is adopted in
this study: price or the price of a product means the company is able to compete with major
competitors by cheap price. Quality, Quality refers to a set of features and specifications
owned a product that can provide a competitive attractiveness compared to other products and
be a benefit to the customer (Awawdeh & Sharairi, 2012). Delivery dependability means that
the company's ability to deliver the required product on time to customers.
In the context of accounting firms, it is associated with the services offered should suit the
needs of the market, as well as the company was able to complete the provision of such
services on time as agreed with the client. Innovasion means the company is able to introduce

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new products and features in the market. Innovation means coming up with new things either
entirely or partially change the situation, as a source of renewal in order to maintain the
company's market share. Time to market means the company is able to introduce new
products faster than major competitors. In addition the company is also able to rapidly
develop new products or offer services / new skills. In the context of accounting firms, the
form of services / new expertise offered could include expertise in specific areas that have not
owned by competitors, such as audit expertise in the field of e-commerce or technology
companies.
Political Research (2002) conducted a study on the relationship of transformational
leadership with knowledge management to 239 employees revealed that transformational
leadership behavior, in particular, charismatic leadership and intellectual stimullation
positively associated with knowledge aquisition but negatively related to the consideration of
individual knowledge aquisition.
Some researchers have found a relationship between leadership style and organizational
culture (Bass & Avolio, 1993; Bass, 2000; Schein, 2010; Meng, 2014). Prandhan et al. (2017)
also found a significant relationship between transformational leadership on organizational
culture in the retail industry in India. Transformational leaders must be able to create a culture
that is more open and flexible in the organization so that it can build more effective
empowerment.
Things to greatly affect the ability of an organization to compete in a very difficult
business climate is having an effective leadership. Research Petrick et al. (1999) states that
there is a positive relationship between leadership and competitive advantage. Studies of
Paracha et al. (2012) suggest the influence of leadership style on the formation of competitive
advantage.
Some studies believe that knowledge management as an essential factor for maintaining
competitive advantage and business success (Drucker, 1998; Loermans, 2002). That is
because the source of the knowledge-based mindset usually difficult to imitate and socially
complex, so it can produce long-term competitive advantage that is sustainable (Alavi &
Leidner, 2001). Many studies give an idea of the relationship of knowledge management and
competitive advantage (Argote & Ingram, 2000; Sharkie, 2003) and several others have been
conducting empirical studies on the relationship between the two variables (Watanabe &
Senoo, 2008; Danskin et al., 2005) ,
Previous studies have addressed the influence of organizational culture on knowledge
managment effective practices in organizations (Alavi et al., 2005). An organizational culture
can be a contributing factor of knowledge management, but also can be a barrier (Tuggle &
Swan, 2000). Research Alavi et al. (2005) look at how the organization values influence as
part of the culture against the practice of knowledge management, especially in the use of
technology. The results found organizational culture affects the behavior of the use of
knowledge management technology as well as encouraging results from a better knowledge
management. The study was only conducted in one organization so that the relationship
between variables need to be investigated from diverse organizational data.
Cameron & Quinn (1999) stated the main thing that distinguishes great companies, major
competitive advantage, a major factor as the key to success, is the organizational culture.
Klein (2011) found that organizational culture that is flexible, adaptive, and constructive to
encourage the formation of strategy in the enterprise to achieve competitive advantage.

Thus the hypothesis can be summarized as follows:

H1: Leadership style positive effect on knowledge management. H2:
Leadership style positive effect on organizational culture. H3: Leadership
style positive effect on the competitive advantage.
H4: Knowledge management positively affects the competitive advantage of H5:
Organizational culture positive effect on knowledge management. H6:
Organizational culture positively affects competitive advantage.

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3. METHODOLOGY
This study took a sample of registered accounting firms in the finance ministry of the
Republic of Indonesia. Of the questionnaires distributed, obtained 82 accounting firms that
can be used for data analysis. This study used a non-probability sampling. Data analysis
techniques used in this study using the PLS (Partial Least Square) which is part of SEM
(Structural Equation Model). The questionnaire used was adopted from previous studies and
made relevant to the context of the accounting firm. Leadership style adopted from Avolio &
Bass (2002) multifactor leadership questionaire (MLQ), knowledge management adopted
from Rasula et al. (2012), organizational culture adopted from Cameron & Quinn (1999) and
adopted the competitive advantage of Li et al. (2006).

4. RESULT AND DISCUSSION

The first analysis was to assess the measurement model (outer model) to evaluate the
convergent and discriminant validity of each indicator and reliability indicators of blocks each
variable. According to the table first all composite reliability and AVE value of more than 0.7.
An instrument is said to be reliable if the value of the composite reliability and AVE greater
than 0.7 (Fornell & Larcker, 1981). Thus the model in this study can be expressed reliably.

Table 1. AVE & CR

R² value used to measure the variation of the change of independent variables on the
dependent variable. ² The higher the better prediction models of the proposed research model.
The total value of R² above can be used to manually calculate the goodness of fit (GOF) for
application software models PLS does not provide a special menu to calculate GOF.

Table 2. R Square

Of the value of R ² in Table 2, the value Q² = 1 - ((1-0.627) * (1-0.671) * (1-0.455)) =

93.31%. Thus the model used in this study may explain the effect of the competitive
advantage by 93.31% while the rest, ie 7.69% explained by other factors.

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TableTable3.3.ScoreScore OuterOuter Loadingloadings

Transformational Knowledge Organizational Competitive
Leadership Management Culture Advantage
IF1 0,747 KA .609 OL1 .773 P1 0.659
IF2 0,836 MY .590 CS1 .798 Q1 0.758
IF3 0.855 KO 0.615 DC2 0.731 Q2 .832
IM1 .789 KC .653 OL2 0.693 DD1 0.733
IM2 0.804 IU1 0.712 CS2 0.758 DD2 0.815
IM3 .760 IU2 .818 DC3 .669 PI1 0.856
is2 0.575 IQ .814 OL3 .760 PI2 0,844
iS3 .790 IB .807 CS3 .654 TM1 .610
IC1 .664 OC .675 DC4 0.752 TM2 0.761
IC2 .774 OM 0,556 OL4 0.824
IC3 0,656 CS4 .616

Data Table 3 appeared that all the outer loading> 0:50 so it can be rated significant
practical (Chin, 1998). In the variable competitive advantage, top loading outer dimensions
appear on product innovation. On the variable knowledge management looks at the highest
loading outer dimensions of information technology in IT usage indicator. In variable
organizational culture and transformational leadership is highest loading on the outer
dimensions of hierarchy and idealized influence.

From the results of the inner weight (Table 4) show all T statistics above 1.96 and
original positive samples, which means all positive significant relationship. Thus, all of the
hypothesis is accepted.

5. CONCLUSION
Hasil penelitian ini yang menyimpulkan bahwa terdapat hubungan positif yang signifikan
antara transformational leadership, knowledge management dan organizational culture
terhadap competitive advantage, maka setiap organisasi perlu untuk membangun
transformational leadership dalam diri pemimpin, knowledge management di antara karyawan
dan organizational culture yang sehat dalam organisasi agar dapat menciptakan competitive
advantage. Hasil penelitian ini juga menunjukkan bahwa transformational leadership penting
dalam membangun organizational culture dan meningkatkan praktek knowledge management.
Implikasi kepada kantor akuntan di Indonesia berdasarkan penilaian responden terhadap
transformational leadership disimpulkan bahwa responden melihat transformational
leadership erat kaitannya dengan dimensi intelectual stimulation. Karakteristik organisasi jasa
profesional memang erat dengan intelektual, namun ketika melihat nilai loading ternyata
indikator yang paling kuat mempengaruhi model adalah idealized influence. Artinya
pemimpin di kantor akuntan sebaiknya tidak hanya membangun pengikutnya melalui
stimulasi intelektual namun juga mengembangkan kemampuan untuk menjadi contoh yang
memberikan tujuan dan arah dari profesi seorang akuntan. Dengan demikian pengikut dalam
organisasi akan memiliki arah yang jelas dalam pengembangan dirinya demi tercapainya
tujuan organisasi.
Pada variabel knowledge management dimensi tertinggi yang mempengaruhi tampak
pada dimensi information technology pada indikator IT usage. Artinya penggunaan teknologi
informasi dalam organisasi yang mampu mendukung efisiensi dan efektivitas kinerja perlu
untuk terus ditingkatkan agar memperkuat pengaruh knowledge management pada
competitive advantage. Selain itu IT quality juga tidak kalah penting dalam mendukung
kinerja perusahaan. Dalam era globalisasi, kantor akuntan di Indonesia tentu harus dan akan
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compete with accounting firms from other countries. The opportunity to work with clients
beyond national borders, to open a branch in another region or country, as well as joint
projects with other countries accounting firm will be very open. It certainly needs to be
supported by adequate IT infrastructure in order to coordinate and provide good performance.
IT tools must be able to support the process of creating, acquiring, capturing, sharing and
using knowledge wherever such knowledge is to improve learning and organizational
performance.
Organizational culture variables showed that most viscous culture in the firm is the
hierarchy while the second is the clan. Culture hierarchy can be said in line with the
characteristics of structured accounting knowledge and is identical to the information system.
So that the characteristics of this strong cultural influence on the firm. In addition clan culture
is also strong enough for the organization of accounting firms are generally not an
organization with a large amount.
In contrast to the company, the size of the company is likely to achieve the labor of
thousands, but in firm size to large accounting firms have a workforce of 20-100 people.
With a small number of organizations, then the bigger the chance for developing clan
culture. But both cultures most powerful in the accountant's office shows that the focus is on
the internal organization and stability in accordance with the competing values framework by
Cameron & Quinn (1999). So management needs to develop a culture also towards external
as adhocracy (the value of the lowest loading). This is important because the internal and
stability is important, but when confronted with rapid business change
as it is today, the leaders are encouraged to continue seeing the world industry trends that
accounting firms in Indonesia can compete in international markets.
Perubahan yang cepat dalam dunia bisnis menyebabkan kantor akuntan perlu untuk
memikirkan bentuk jasa yang mereka berikan. Indikator tertinggi competitive advantage yaitu
product innovation yang menyiratkan bahwah kantor akuntan tidak boleh hanya menawarkan
jasa karena compliance, misalnya perusahaan yang terdaftar di bursa efek harus di audit, atau
perusahaan dengan omset diatas tertentu harus diaudit menurut peraturan dirjen pajak. Kantor
akuntan perlu membuat innovasi produk jasa yang memang mampu memberikan value bagi
klien. Product innovation disini tidak hanya merujuk pada bentuk jasanya namun juga bentuk
keahliannya. Misalnya saat ini perusahaan pasti menggunakan program untuk sistem
akuntansinya, bagaimana akuntan mampu mengembangkan keahlian juga dalam memahami
alur sistem program, keunggulan dan kekurangan program-program akuntansi, serta hal-hal
lain yang terkait dengan keamanan data dan sebagainya, sehingga kantor akuntan mampu
memberikan value lebih bagi klien. Penelitian selanjutnya masih diperlukan untuk
mendukung penelitian ini yang dapat direplikasi pada organisasi dalam sektor lain atau
menggunakan indikator-indikator variabel yang berbeda dengan penelitian ini.

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