Seventh International Conference on “Enterprise in Transition”

LEADING LEARNING IN ORGANIZATIONS: AN EMPIRICAL

INVESTIGATION INTO THE RELATIONSHIP BETWEEN
TRANSFORMATIONAL LEADERSHIP AND ORGANIZATIONAL
LEARNING

Dr. Hugo Zagorsek

University of Ljubljana, Faculty of Economics
Kardeljeva ploščad 17, SI-1000 Ljubljana, Slovenia
E-mail hugo.zagorsek@ef.uni-lj.si

Dr. Vlado Dimovski

University of Ljubljana, Faculty of Economics
Kardeljeva ploščad 17, SI-1000 Ljubljana, Slovenia
E-mail: vlado.dimovski@ef.uni-lj.si

Mag. Miha Skerlavaj

University of Ljubljana, Faculty of Economics
Kardeljeva ploščad 17, SI-1000 Ljubljana, Slovenia
E-mail: miha.skerlavaj@ef.uni-lj.si

Key words: Organizational learning, Transformational leadership,

Abstract

The paper empirically examines the influence of transformational leadership on the process
of learning in organizations. Organizational learning is one of the most important sources of
a sustainable competitive advantage, as well as an important driver of corporate
performance. Leadership appears to be one of the most powerful facilitators of the
organizational learning. However, there is little prior empirical evidence for the impact of
leadership on organizational learning. Data were collected at the organizational unit level
from 753 employees in Slovenia, using combination of the Multi-factor Leadership
Questionnaire (MLQ) and the Organizational Learning and Information Management
Processes (OLIMP) measurement instrument. The results indicate that transformational
leadership has a strong impact on all four phases of organizational learning: Information
Acquisition; Information Distribution; Information Interpretation; and Behavioral and
Cognitive Changes; however, it only directly impacts the first and last phases. Total effect
sizes range from .61 to .79.

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1 INTRODUCTION

Organizational learning is one of the most important sources of a sustainable competitive

advantage that companies have (de Geus 1988) as well as an important driver of corporate
performance (Stata 1989). Given the turbulent environments that organizations work within,
continuous learning is a key driver of their ability to remain adaptive and flexible – that is to
survive and effectively compete (Burke, Stagl et al. 2006). Studies have shown that it affects
competitive advantage (Jashapara 2003), financial and non-financial performance (Bontis,
Crossan et al. 2002; Dimovski and Skerlavaj 2005; Jimenez-Jimenez and Cegarra-Navarro
2006), tangible and intangible collaborative benefits in strategic alliances (Simonin 1997), the
unit cost of production (Darr, Argote et al. 1995), and innovation (Llorens Montes, Ruiz
Moreno et al. 2005). It is especially important for companies from transitional economies,
which strive to catch-up the world’s leading competitors.

Given the significance of organizational learning for corporate performance, it is important to

understand how managers can influence the learning process in organizations. Authors
suggest several antecedents to organizational learning such as the organizational structure,
organizational culture, and subordinates’ autonomy (Bapuji and Crossan 2004), human
resource management practices (Wright 2001), teamwork cohesion (Swieringa and Wierdsma
1992; Marquardt 1996; Dyerson and Mueller 1999; Llorens Montes, Ruiz Moreno et al.
2005), social capital (Nahapiet 1998) and information-communication technologies (Tippins
2003; Ruiz-Mercader, Merono-Cerdan et al. 2006). In addition, several authors have
emphasized the importance of leadership for organizational learning (Swieringa and
Wierdsma 1992; Lei, Slocum et al. 1999; Llorens Montes, Ruiz Moreno et al. 2005; Perez-
Lopez, Montes-Peon et al. 2005). The capability for transformational leadership has even
been described as one of the most important means of developing learning organizations
(Slater and Narver 1995; Maani and Benton 1999; Snell 2001), especially since leadership
also influences many of the previously listed antecedents to organizational learning.

However, the relationship between leadership and organizational learning has rarely been
empirically examined. The purpose of the study is to empirically investigate the relationship
between leadership and organizational learning in the context of a small transitional
economy. More specifically, the study examines the influence of transformational leadership
on learning in organizational units drawn from a wide range of organizations. The basic
research questions is whether transformational leadership contributes to learning in
organizations.

The paper is structured in four major sections. In the first section we provide some theoretical
background to the concepts used in the study – organizational learning and the
transformational leadership theory. We conclude the first section by reviewing existing
research on the relationship between leadership and learning in organizations, develop a
theoretical model and propose hypothesis to be tested. The second section deals with the
methodology. We discuss the research instrument, research design and data collection,
characteristics of the sample and statistical methods used. In the third section we present the
results. Finally, in the last section we discuss the theoretical and practical implications of the
study, review its contributions and limitations and propose some questions requiring further
investigation.

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2 THEORETICAL BACKGROUND

2.1. Organizational learning

Organizational learning remains a very popular concept in the modern managerial literature
and has been defined in many different ways. Early authors understood it simply as a process
of detecting and correcting errors (Argyris and Schοn 1978). Fiol & Lyles (1985) perceived it
as a process of improving actions through better knowledge and understanding. Huber (1991)
defined organizational learning as the processing of information with the aim to store
knowledge in the organizational memory. He claimed that an entity learns if, through the
processing of information, the range of its potential behaviors is changed. According to
Huber (1991), organizational learning consists of four phases: (1) information acquisition; (2)
information distribution; (3) information interpretation; and (4) organizational memory.
Dimovski (1994) extended Hubers’ information-processing perspective to include action and
defined organizational learning as a process of information acquisition, information
interpretation together with the resulting behavioral and cognitive changes which should, in
turn, have an impact on organizational performance. Other authors emphasizing the
importance of action and changes for organizational learning are Kim (1993), Crossan
(1995), and Sanchez (2005).

Building on these arguments, we define organizational learning as process consisting of four

consecutive phases: (1) information acquisition; (2) the distribution of information; (3)
information interpretation; and (4) the resulting behavioral and cognitive changes. The first
three phases may be grouped in the information-processing stage. While we might expect
these consecutive phases to be empirically highly related, they are theoretically distinct and
related as such.

The information-processing (and organizational-learning) cycle starts with the collection of

information from both internal and external sources, while the third key sub-dimension of
information acquisition is employee training. When assigned adequate importance, these
three sub-dimensions allow employees to constantly update their work-related information
base.

The information gathered through various sources and ways needs to be distributed to those
members of an organization that might require it (Huber 1991). Several channels and
conduits exist that allow for information distribution. Some conduits rely more on ‘people’
(employees are acquainted with goals, take part in more cross-functional teams etc), while
others rely on ‘systems’ (e.g. information system, organized meetings to inform employees,
formalized mechanisms and systems to facilitate the transfer of best practices).

Information must be given meaning. ‘Interpretation is the process of translating events, of

developing models for understanding, of bringing out meaning, of assembling conceptual
schemes’ (Weick and Daft 1984). The purpose of interpreting information is to reduce the
ambiguity related to information. Recent research in the area of organizational learning
culture and organizational performance (Skerlavaj, Indihar Stemberger et al. in press) has
demonstrated that information interpretation also differs in the way people get together in
order to understand the information acquired and distributed. Some vehicles might be formal
such as official memorandums, expert reports, seminars and similar events. Other meetings
might be more informal and involve team and personal meetings.

Organizational learning is reflected in ‘accompanying changes’ (Garvin 1993). Spector and

Davidsen (2006) claimed that ‘learning is fundamentally about change’. If no behavioral or
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cognitive changes occur, organizational learning has not in fact occurred and the only thing
that remains is unused potential for improvements (Fiol and Lyles 1985; Garvin 1993).
Sanchez (2005) supported this notion by saying that ‘knowledge has a value to organizations
only when it is applied in action within an organization’s processes’ (p. 12) and that
‘organizational learning can be said to occur when there is a change in the content,
conditionality, or degree of belief of the beliefs shared by individuals who jointly act on those
beliefs within an organization’ (p.16).

Two levels of learning can be observed when discussing cognitive changes. Lower-level
learning reflects changes within the organizational structure which are short-term and only
partly influence the organization. Higher-level learning reflects changes in general rules and
norms (Fiol and Lyles 1985). Argyris and Schön (1996) classified learning similarly: single-
loop and double-loop learning, (Dodgson 1993) discussed tactical and strategic learning,
while Senge (1990) used the terms adaptive and generative learning. By all means, with
lower-level learning the organization acts passively and only adapts to the environment,
whereas higher-level learning involves an active influence on the business environment.

2.2 Transformational leadership

Like organizational learning, leadership is a complex phenomenon that has been understood
and defined in many different ways. In this study we focus on transformational leadership as
conceptualized by Bass (1985) and developed by Avolio and Bass (1991) in their ‘full-range
leadership theory’. They distinguished between three major types of leadership behavior:
laissez-faire (non-leadership), transactional and transformational leadership. The
transactional leadership process is based on exchange: the leader offers rewards (or threatens
punishments) for the performance of desired behaviors and completion of certain tasks. This
type of leadership may result in the followers’ compliance but it is unlikely to generate
enthusiasm for and a commitment to task objectives. Transformational leadership lies in the
leader’s ability to inspire trust, loyalty and admiration in followers who then subordinate their
individual interests to the interests of the group. Rather than analyzing and controlling
specific transactions with the followers by using rules, directions and incentives,
transformational leadership focuses on intangible qualities such as vision, shared values and
ideas in order to build relationships, give larger meaning to separate activities and provide
common grounds to enlist followers in the change process.

Transformational leadership encompasses five dimensions. Idealized influence (attributed)

refers to the socialized charisma of the leader, whether the leader is perceived as being
confident and powerful, and whether the leader is viewed as focusing on higher-order ideals
and ethics. Idealized influence (behavior) refers to the charismatic actions of the leader that
are centered on values, beliefs and a sense of mission. Inspirational motivation refers to the
ways the leader energizes their followers by viewing the future with optimism, stressing
ambitious goals, projecting an idealized vision and providing encouragement and meaning for
what needs to be done. Intellectual stimulation occurs when the leader stimulates new
perspectives and ways of doing things, questions old assumptions and beliefs while
encouraging the expression of ideas and reasons. Individualized consideration refers to leader
behavior that contributes to the satisfaction of followers by treating others as individuals,
considering their individual needs, abilities and aspirations and thus allowing them to develop
and self-actualize (Antonakis, Avolio et al. 2003).

Transactional leadership may be an effective type of leadership. Previous research has

indicated a positive correlation between contingent reward leadership and effectiveness, and

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no relationship between management by exception and effectiveness (Lowe, Kroeck et al.

1996). However, transformational leadership is even more effective. Bass (1985) argued that
transformational leadership builds on or augments transactional leadership. Several meta-
analyses of the Multifactor Leadership Questionnaire (‘MLQ’) studies have identified
transformational leadership as the most effective type of leadership behavior (Lowe, Kroeck
et al. 1996; DeGroot, Kiker et al. 2000; Dumdum, Lowe et al. 2002).

2.3 Transformational leadership and organizational learning

By the nature of their status, leaders serve as information centers of their units or teams. They
therefore have a strong influence over the way information is acquired and distributed in the
unit. Laissez-faire leaders, for example, will inhibit the flow of information due to their
inactivity. The processes of acquiring and distributing information will therefore operate
below optimum. The communication between unit members will be restrained and slowed
down. New knowledge will be difficult to obtain, while information from different sources
will not be widely shared. On the other hand, transformational leaders encourage open,
honest and timely communication, and foster dialogue and collaboration between team
members. They encourage the expression of different views and ideas. They act as catalysts,
speeding up the knowledge acquisition and distribution. In the same manner, by allowing the
expression of different views and ideas, by challenging old assumptions and beliefs and by
stimulating new perspectives, they enhance the process of information interpretation as well.
Finally, transformational leaders may facilitate the cognitive and behavioral changes in
organizational members resulting from previous phases of organizational learning. Hence, an
organization that wishes to learn better should adopt more transformational styles of
leadership. Its leader would be a catalyst, a mentor, a facilitator and a trainer of learning
capability.

The empirical evidence, although scarce, generally supports these assertions. A meta-analysis
examining the relationship between leadership behavior in teams and team performance
outcomes found that, out of 50 empirical studies, only three included organizational learning
as the outcome variable and none of them examined the relationship between
transformational leadership and organizational learning. They did, however, examine the
influence of empowering leadership, which may be related to transformational leadership.
The use of empowerment behaviors explained 31% of the variance in team learning, with the
effect size equaling .56 (Burke, Stagl et al. 2006).

In a study of leadership and organizational learning’s role on innovation and performance

Aragon-Correa, Garcia-Morales, & Cordon-Pozo (in press) found that transformational
leadership facilitated the organizational members’ ability to create and use knowledge. Using
data from 408 large firms from Spain and structural equation modeling, they found a strong
and statistically significant effect of transformational leadership on organizational learning,
with the standardized structural coefficient equaling .81. Similarly, a study of 202 companies
from Spain examined the influence of support leadership on learning in organizations
(Llorens Montes, Ruiz Moreno et al. 2005) as part of a larger structural equation model
focusing on the determinants of organizational performance. Support leadership was
conceptualized as being similar to transformational leadership but with a greater emphasis on
tolerance, support and freedom to develop open communication. The direct effect of support
leadership on organizational learning equaled .54, while the total effect was even larger (.64).

Recent research among 104 Jewish elementary schools (104 principals and 1,474 teachers)
showed that transformational leadership had a significant positive direct effect on

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organizational learning (β = .21) (Kurland & Hertz-Lazarowitz, 2006). The effect of

transactional leadership was still positive but somewhat weaker (β = .15), while the effect of
the laissez-faire leadership style showed a negative impact on organizational learning (β = -
.15). These arguments lead to the following hypothesis:

Hypothesis 1: Transformational leadership positively influences the information acquisition

(H1a), information distribution (H1b), information interpretation (H1c), and cognitive and
behavioral changes (H1d) dimensions of organizational learning.

The relationships between the transformational leadership and organizational learning is

summarized in the conceptual model presented in Figure 1.

Organizational learning process

Information processing

Information
acquisition
H1a:+

H1b:+ Information
Transformational distribution
leadership
H1c:+

H1d:+ Information
interpretation

Behavioral and
Cognitive
changes

Figure 1. Hypothesized impacts of laissez-faire, transactional and transformational leadership on

organizational learning.

3 METHOD

3.1 Research instrument

In order to ensure content validity and ensure the widest possible comparability of results we
built our measure on the previous research base and used pre-tested constructs and measures
to the greatest extent possible.

When choosing a valid and reliable measurement instrument to assess the

organizational learning process, we found that three operationalizations prevail. One is the
Strategic Assessment Map (Bontis, Crossan et al. 2002), the second follows Nonaka and
Takeuchi’s (1995) SECI model, while the third follows the tradition of Hubers’ (1991)
definition of organizational learning. In upgrading Hubers’ (1991) information-processing
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perspective with the behavioral and cognitive dimension and an extensive literature overview,
Dimovski (1994) developed a set of items wrapped up in the OLIMP questionnaire (see the
Appendix), which has since then been refined and tested on several occasions (in the USA,
Slovenia, Croatia, Malaysia) at various points in time (1994, 2002, 2003, 2004, 2005, 2006).
Given the complexity of the organizational learning measurement it always yielded adequate
psychometric properties. In this version, we upgraded the questionnaire with six additional
items in order to also measure the information-distribution dimension. Five-point Likert
scales were used. The questionnaire consisted of four dimensions and nine sub-dimensions,
totaling 36 items. The sub-dimensions and items are listed in the Appendix.

The transformational leadership (as well as it’s sub-dimensions) was measured using the
Multifactor Leadership Questionnaire (MLQ), form 5X (Bass and Avolio 1990). MLQ is one
of the most widely used and tested measures of transformational leadership exhibiting sound
psychometric properties (Avolio, Bass et al. 1995; Lowe, Kroeck et al. 1996; Antonakis,
Avolio et al. 2003). It contains 36 items representing the nine factors (laissez-faire leadership,
management by exception (active), management by exception (passive), contingent reward,
intellectual stimulation, inspirational motivation, individualized consideration, idealized
influence). Each scale is thus made up of four items. In addition, nine items assess the three
leadership outcome scales (these scales were not the focus of the study).

The MLQ was translated into the Slovenian language using the translation-back-translation
technique. In addition, prior to this study the MLQ had been administered to 130 respondents,
obtaining good levels of reliability. Nevertheless, as a result of the pre-testing some minor
modifications to the wording were made for the most problematic items.

3.2 Research design and data collection

For the purposes of the research, we chose the organizational unit as the focus of the study.
An organizational unit was defined as a geographically or functionally distinct part of an
organization, which has its own leader. The respondents were asked to assess the four
constructs of organizational learning in their unit. Similarly, they were asked to rate their
leaders (leaders of their organizational unit) regarding the various leadership behaviors
specified in the previous section.

Where random sampling is problematic (as in management research), one way to enhance the
generalisability of findings is to deliberately sample for heterogeneity (Mark and Cook 1984)
. By intentionally selecting subjects who come from diverse organizational settings, the
researcher can determine whether a selected model accurately describes the actions of
individuals across these divergent contexts. On the other hand, choosing a sample of firms
located in a relatively homogenous geographic, cultural, legal and political space reduces the
impact of confounding variables (variables that cannot be controlled in the empirical
research) (Triandis 1994).

In line with these observations the data were collected in Slovenia in 2006. With its small
transition economy and a population of approximately two million, Slovenia is a model of
economic success and stability for its neighbors in Central and South-east Europe. The
country joined the EU in 2004, has excellent infrastructure, a well-educated workforce and an
excellent central location. It enjoys a GDP per capita that is substantially higher than any of
the other transition economies of Central Europe (2006). In 2007 it also adopted the common
European currency of the euro as the first of the new EU members.

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Paper surveys were mailed to 1,914 alumni of the undergraduate programs of the Faculty of
Economics in Ljubljana, the premier business school in the country. In addition, e-mails with
links to the electronic version of the survey were sent to current and former students (up to
eight previous generations) from the same school which accounted for an additional 4,485
units (with the possibility of the samples overlapping ). 39 paper items were returned due to a
non-existing address and about 10% of the e-mails were inactive (approximately 449). Within
the first three weeks of the mailing, 418 paper surveys had been completed and sent back,
with a response rate of 22.3%. In addition, 374 usable electronic questionnaires were
completed (a response rate of 9.3%). Preliminary screening indicated a large number of
missing values in 39 questionnaires. These questionnaires were removed from further
analysis, making the final sample size 753.

Using this research design we were able to obtain data for organizational units of different
sizes, from different functional backgrounds, and from different levels within the
organizations. In addition, the units belonged to a wide range of companies in terms of size
and industry. In this way the influence of confounding and background variables was
randomized and cancelled out, increasing the validity of the empirical findings (Van de
Vijver 2003).

3.3 Characteristics of the sample

The average age of the respondents was 34 years; 40% of them were female. Most (48%)
have spent between 1 and 5 years in their present position, while 38% of them have worked
in the same organizational unit for more than 5 years.

The majority of the leaders rated by the respondents were male (67%). Most of them were
between 30 and 50 years old (70%) and only 4% were younger than 30. 63% have spent more
than 3 years as the leaders of their present organizational units, while only 11% have been in
the present leadership position for less than one year. More than half of the leaders rated
belonged to top management (52%), while the rest belonged to middle management (37%)
and line management (11%). On average, they had control over 73 subordinates (the number
of people at the lower levels of the organization); however this parameter is distorted due to
the presence of the CEOs of some large companies. The median number of subordinates was
17. Most leaders came from a business educational background (53%), followed by
engineering (27%), the social sciences (10%) and natural sciences (9%).

The respondents and the leaders they rated came from a wide range of organizations within
various industries. The size of the organizations ranged from 1 to 17,000 employees, with a
mean of 686 and a median of 120 employees. Most of the organizations belonged to service
sectors (46%), followed by the non-profit and public sector (22%) and industry (22%).

In general, the data indicate that most of the leaders belong to senior management and have
held their leadership positions long enough to make an impact on their organizational or
organizational units. Likewise, the majority of the respondents are mature enough and have
been in their units long enough to provide a valid assessment of the constructs under study.

3.4 Statistical methods used and model specification

Structural equation modeling was used to test the hypotheses. The relationships between the
constructs were estimated using LISREL 8.7 with the correlation matrix and asymptotic
covariance matrix as inputs. We also conducted tests of normality which yielded a need to
report Satorra-Bentler (SCALED) Chi square fit indices (Sattora and Bentler 1988). In large
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samples such as ours the χ² test becomes highly problematic because in large samples even
trivial differences between theoretical and empirical covariance matrices may result in a large
value of the statistic (Joreskog 1993). Therefore, we shall provide several measures of model
fit but will use the Comparative Fit Index (CFI), which appears to be the most accurate in a
wide variety of situations (Hu and Bentler 1995), as the primary criterion of model fit.

Three model was corresponding to the conceptual model presented in Figure 2.

Transformational leadership is measured with five indicators: idealized influence (attributed
and behavioral); individual consideration; inspirational motivation; and intellectual
stimulation. Transactional leadership is measured with three scales: contingent reward, active
and passive

Indicators (sub-dimensions) for the organizational learning constructs were obtained through
a combination of exploratory and confirmatory factor analysis, while we upgraded the
validated and reliable questionnaire extended with one additional dimension and six items
based on extensive theoretical support. Information acquisition is measured with three
indicators – internal information acquisition, external information acquisition, and training.
Information distribution is measured by two indicators: a people-oriented information
distribution, and system-oriented information distribution. Information interpretation is
measured by formal information interpretation and informal information interpretation.
Finally, behavioral and cognitive changes are measured by two indicators: behavioral
changes and cognitive changes. The four dimensions of organizational learning are, in effect,
consecutive steps in the process. While we might expect a strong impact on one another, they
are theoretically and empirically distinct constructs.

4 RESULTS

4.1 Validity and reliability

Confirmatory factor analysis (CFA) was used to assess the reliability and validity of the
constructs used in the study. The construct validity measures how well the indicators
represent the corresponding latent variables. Table 1 presents unstandardized and completely
standardized factor loadings together with the corresponding t-values for each indicator and
construct in the measurement model.

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Table 1: Factor Loadings and Construct Validity for the Constructs Used in the Study

Completely
Unstandardized factor
Latent variable Indicator standardized t-values
loading
factor loading

Idealized influence (attributed) II(a) .78 .84 31.97

Idealized influence (behavioral) II(b) .60 .74 23.02

Transformational
leadership (Tf)
Inspirational motivation IM .85 .83 30.12

Intellectual stimulation IS .75 .83 28.86

Individual consideration IC .95 .88 36.41

Internal information acquisition

.54 .69 19.69
(INTERNAL)
Information
acquisition External information acquisition
.45 .57 15.58
(EXTERNAL)
(Infoacq)
Training as information acquisition
.74 .67 20.38
(TRAINING)

Information distribution via systems

.81 .84 29.00
Information (SYSTEM)
distribution
(Distinfo) Information distribution via
.78 .80 27.33
organizational members (PEOPLE)

Informal means of information

Information .62 .76 20.09
interpretation (INFORMAL)
interpretation
Formal means of information
(Infoint) .63 .72 21.28
interpretation (FORMAL)

Behavioral and Behavioral changes (BC) .51 .76 21.03

cognitive changes
(Bcc) Cognitive changes (CC) .77 .88 31.17

The results show that the factor loadings for all indicators are statistically significant and
exceed the threshold of .50 for convergent validity (Hair, Anderson et al. 1998).The values of
the Cronbach α, composite reliability index (CRI), as well as the average variance extracted
(AVE) for all latent variables in the final measurement model are presented in Table 2.
Diamantopoulos and Siguaw (2000) suggested that the threshold for CRI should be set at .60.
Constructs exceeding that value are considered to have good composite reliability, which is
the case with all latent variables. The cut-off value for AVE is .50 (Hair et al., 1998), where
reliable constructs should exceed this value, with Cronbach alphas researchers usually use a
cut-off value of α = .70 for studies in advanced phases (α1), while for exploratory studies
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alphas ranging from .50 to .60 (α2) are considered to be adequate (Nunnaly 1978; Van de
Ven 1979). All of the constructs attain the recommended cut-off values using all three
measures of construct reliability. The only exception is the construct information acquisition,
which slightly fails the AVE internal consistency test but fulfills the Cronbach alpha for
exploratory studies (α2) and, what is more, satisfies the CRI criteria which is considered to be
the most robust of all three reliability criteria (Diamantopoulos and Siguaw 2000).
Table 2: Internal Consistency and Reliability

Construct Cronbach α CRI AVE

Transformational leadership .91 .95 .68

Information acquisition .67 .78 .42

Information distribution .81 .88 .67

Information interpretation .71 .81 .55

Behavioral and cognitive changes .78 .88 .68

4.2 The relationship between leadership and organizational learning

Figure 3 presents a structural model of the relationship between transformational leadership

and organizational learning along with the standardized values of path coefficients.
Statistically significant structural coefficients are marked with an asterisk. Overall
coefficients of determination (R2) are also presented for each of the endogenous constructs.
The model exhibits a good fit to the data (χ2 = 351.46 , df = 70, NNFI = .98, CFI = .98, and
GFI = .93). In addition, the high values of the determination coefficients indicate that the
model explains a large percentage of the variance in the endogenous latent variables.

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* Statistically significant at p<0.001.

Figure 2. The impact of transformational leadership on organizational learning.

Hypothesis 1 predicted that transformational leadership will have a strong and positive
influence on all four constructs of organizational learning. The results show that only two of
these four relationships (H1a and H1d) are statistically significant at p<.001.
Transformational leadership demonstrated a strong direct impact on information acquisition
(γ = .72) as well as on behavioral and cognitive changes (γ = .50). The impact of
transformational leadership on information distribution and information interpretation was
not found to be direct but indirect. Transformational leadership demonstrated a strong
indirect effect on information distribution via information acquisition (β = .71). Similarly, the
indirect effect of transformational leadership (via information acquisition and information
distribution) on information interpretation was found to be statistically significant, positive
and strong (β = .61). The total effect of transformational leadership on behavioral and
cognitive changes, which includes direct and indirect effects, amounts to .79.

The direct and total effects of the transformational leadership on the four organizational
learning constructs are summarized in Table 3.

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Table 3: Standardized Direct, Indirect, and Total Effects of the Three Types of Leadership on Organizational
Learning

Transformational leadership
Construct
Direct effect Indirect effect Total effect

Information acquisition .72 --- .72

Information distribution .00n.s. .70 .70

Information interpretation .00n.s. .61 .61

Behavioral and cognitive changes .50 .29 .79

All structural coefficients (except those marked) statistically significant at p>0.001

n.s. - not statistically significant

--- - not specified in the model.

5 DISCUSSION AND CONCLUSIONS

5.1 Implications for theory

This study’s objective was to examine the influence of transformational leadership on the
organizational learning process. Our hypothesis was confirmed, by only partially.
Transformational leadership affects all phases of the organizational learning process.
However, it only directly influences the beginning and ending phases, namely information
acquisition, and behavioral and cognitive changes. The two other phases of organizational
learning are only affected indirectly. One explanation may be that there is great correlation
between the first three phases (the information-processing part of organizational learning).
The structural coefficients between information acquisition and information distribution, for
example, range from .90 to .98 in the three models we tested. Similarly, the structural
coefficients between the information-distribution and information-interpretation phases range
from .88 to .94. The information-processing phases of organizational learning process are
quite related. Nevertheless, they are distinct constructs as proved by both theoretical
arguments (Huber 1991) and empirical research (e.g. Perez-Lopez, Montes-Peon et al. 2005;
Skerlavaj, Indihar Stemberger et al. 2006).

The influence of leadership is greatest on behavioral and cognitive changes, which are the
final and apparently also the most important phase of the learning process in organizations.
The total effect of transformational leadership on behavioral and cognitive changes amounts
to .79, Leadership influences behavioral and cognitive changes in two ways. First, it affects
them through the previous information-processing phases of the organizational learning
process. By facilitating or impeding information processing in an organization, leaders
achieve or impede changes in the mentality or behavior of organizational members in order to
address changes in the internal or external business environment. However, leaders also
influence changes in behavior and cognition directly, over and above the indirect influence
through information-processing phases. This is to be expected as leadership is a relatively
comprehensive process that guides, structures and facilitates all aspects of activities and

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Session I-1. Stakeholder-oriented management and corporate social responsibility (CSR)

relationships in a group of people so as to guide, structure and facilitate the activities and
relationships in the group.

5.2 Implications for managerial practice

New information and knowledge is constantly emerging from sources within and outside the
company. Channels and conduits for their distribution are evolving. There is continuous
pressure to interpret this information in ways that allow for understanding and exploiting
emerging business opportunities. We consider changes as an integral part of the
organizational learning process. At the same time, behavioral and cognitive changes are also
its most important element. Collecting, spreading and understanding information is a futile
endeavor if there are no resulting changes.

The role of leadership in this context is crucial. Above all, leaders need to promote learning at
all levels and create opportunities for people to acquire information from heterogeneous
sources while leaders have a particularly strong impact on the acquisition of information.
Leaders also need to establish opportunities for employees to distribute information, meet,
discuss ideas and facilitate interpretations based on wider perspectives. By emphasizing the
company’s vision and mission, personal encouragement and empowerment leaders need to
stimulate employees to act upon this information and support changes that contribute to
organizational performance.

Our research also suggests that there are some elements of the organizational learning process
which leaders can influence directly, while other elements can only be influenced via indirect
means. From this perspective, the information-acquisition phase seems to be crucial. It is of
the utmost importance for leaders to facilitate and encourage employees to use all of the
available sources, channels and means of both internal and external information acquisition.
They should create opportunities for people to meet and talk, be alert to changes in the
business environment and above all create an open organizational culture whereby trust and
cooperation are valued.

Finally, leaders should bear in mind that they have several mechanisms for influencing the
learning process in their organization. This study has focused mostly on the actions and
behaviors of leaders. However, organizational architecture, structure, processes, systems,
rules, policies and especially culture are also powerful tools available to leaders. Depending
on their power, position in the organization and the availability of resources, leaders should
use all these mechanisms in order to build an organization that is able to continually learn and
adapt itself to its environment, thereby ensuring a long-term successful performance.

5.3 Limitations and further research

This study makes several important contributions to the field. First, it integrates two
previously relatively disparate fields of organizational learning and leadership. Second, it
empirically proves that transformational leadership strongly impacts learning in
organizations. Finally, it expands the scope of empirical research by examining leadership
and the learning process in the context of a small transitional economy. By testing existing
(predominantly Anglo-Saxon) theories of leadership and organizational learning in different
cultural, economic and political contexts, it enhances the generalizability and validity of these
theories and constructs.

On the other hand, some of the study’s strengths are also its weaknesses. From the
methodological point of view, the sample and context are always an issue. While we believe
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that using Slovenia as a target population contributes to the research’s generalizability, it also
poses a limitation that needs to be accounted for. Expanding the research to other nations
(with different national cultures, nations of different sizes, histories etc) would significantly
contribute to our understanding of the link between leadership and learning.

The second key limitation is the cross-sectional nature of the study. It is possible that at least
certain aspects of leadership and its impact on the learning process emerge with some kind of
time lag. The longitudinal treatment of data might yield additional insights in our two
phenomena and how they relate to each other.

Third, due to its low reliability we were unable to measure the higher-order factor of
transactional leadership as specified by the MLQ. Instead, we used contingent reward
leadership (which exhibited high reliability and validity) as a proxy for transactional
leadership.

Fourth, we limited our research to the direct effect of leadership on organizational learning.
Nevertheless, we acknowledge the fact that this impact might be attenuated using e.g.
organizational culture and structure as moderating variables. Future research should extend
our understanding of the leadership style as antecedent to the organizational learning process
by involving some moderating and mediating variables.

Additional insights into this clearly intriguing area of research might be generated by using
in-depth (preferably qualitative) studies to answer many of the ‘hows’ that might have
emerged in this paper. While we have tried to explain why leadership matters for
organizational learning and how it affects the learning process in organizations there is still a
lot to be said about particular leadership mechanisms in relation to learning.

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Session I-1. Stakeholder-oriented management and corporate social responsibility (CSR)

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Appendix
Operationalization of Organizational Learning Constructs (List of Items)

Dimension/Constructs Sub- Items

dimension/Indicators

Information acquisition Internal information ƒ Employees as an extremely important source of information (INFOACQ1).
(Infoacq) acquisition (INTERNAL)
ƒ Previous decisions important for current decisions (INFOACQ2).

ƒ Employees are encouraged to participate in formal and informal networks outside of the
organizational unit and organization (INFOACQ3).

ƒ Other organizational units are an important source of learning new methods and services
(INFOACQ7).

External information ƒ Reports prepared by external experts as an extremely important source of information (INFOACQ4).
acquisition (EXTERNAL)
ƒ When accepting an important decision our leader tries to get advice or information from sources of
outside of the company (hiring experts, contacting managers from other companies) (INFOACQ11).

ƒ Our organizational unit has employees whose job it is related to searching for external information
(INFOACQ12).

ƒ External sources (reports, consultants, newsletters etc.) are extremely important for the operations of
our organizational unit (INFOACQ13).

Training as information ƒ Frequently organized internal trainings (INFOACQ9).

acquisition (TRAINING)
ƒ In our organizational unit we often send employees to various seminars, workshops, conferences
with the intention to acquire new information (INFOACQ15).

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Session I-1. Stakeholder-oriented management and corporate social responsibility (CSR)

Information System-oriented ƒ Our information system allows for efficient and quality information exchange inside our
distribution (Infodist) information distribution organizational unit or company (INFODIST1).
(SYSTEM)
ƒ We have organized meetings to inform employees on a regular basis (INFODIST3).

ƒ We have formal mechanisms and systems in place that allow for the transfer of best practices among
various fields of activities (e.g. group-incentive plans) (INFODIST4).

People-oriented ƒ All members of our organizational unit are acquainted with the goals of the unit and organization
information distribution (INFODIST2).
(PEOPLE)
ƒ There are individuals within our organizational unit who cooperate in multiple teams or project
groups with individuals from other organizational units (INFODIST5).

ƒ We have individuals whose job it is to collect and internally distribute improvement proposals from
our employees (INFODIST6).

Information Informal information ƒ Personal contacts – (INFOINT1).

interpretation (Intinfo) interpretation
(INFORMAL) ƒ Team meetings – (INFOINT2).

ƒ Committees as decision-makers – (INFOINT3).

Formal information ƒ Seminars, conferences, workshops… – (INFOINT5).

interpretation (FORMAL)
ƒ Written memos, notes, letters… – (INFOINT6).

ƒ Special expert reports – (INFOINT7).

ƒ Forums (e-chat, e-debates) – (INFOINT10).

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Behavioral and Behavioral changes (BC) ƒ Adaptability to environmental pressures - (BCC1).

cognitive changes
(Bcc) ƒ Quality of products/services - (BCC2).

ƒ Number of products/services offered - (BCC3).

ƒ Technology of operation - (BCC4).

ƒ Speed of operations - (BCC5).

ƒ Introduction of new marketing approaches - (BCC6).

ƒ Average productivity of employees - (BCC7)

Cognitive changes (CC) ƒ Satisfaction of employees - (BCC8).

ƒ Overall atmosphere - (BCC9).

ƒ Personal communication between top managers and employees - (BCC10).

ƒ Team meetings’ efficiency - (BCC11).

ƒ Employees’ level of understanding of the company’s strategic orientation - (BCC12).

ƒ Employees’ level of understanding of major problems in the company - (BCC13).

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Table 1

Factor Loadings and Construct Validity for the Constructs Used in the Study.

Completely
Unstandardized standardized t-
Latent variable Indicator
factor loading factor values
loading

Idealized influence (attributed) II(a) .78 .84 31.97

Transformational Idealized influence (behavioral) II(b) .60 .74 23.02

leadership (Tf)
Inspirational motivation IM .85 .83 30.12

Intellectual stimulation IS .75 .83 28.86

Individual consideration IC .95 .88 36.41

Internal information acquisition

.54 .69 19.69
(INTERNAL)
Information
acquisition External information acquisition
.45 .57 15.58
(EXTERNAL)
(Infoacq)
Training as information acquisition
.74 .67 20.38
(TRAINING)

Information distribution via systems

.81 .84 29.00
Information (SYSTEM)
distribution
(Distinfo) Information distribution via
.78 .80 27.33
organizational members (PEOPLE)

Informal means of information

Information .62 .76 20.09
interpretation (INFORMAL)
interpretation
Formal means of information
(Infoint) .63 .72 21.28
interpretation (FORMAL)

Behavioral and Behavioral changes (BC) .51 .76 21.03

cognitive changes
(Bcc) Cognitive changes (CC) .77 .88 31.17

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Table 2

Internal Consistency and Reliability

Construct Cronbach α CRI AVE

Transformational leadership .91 .95 .68

Information acquisition .67 .78 .42

Information distribution .81 .88 .67

Information interpretation .71 .81 .55

Behavioral and cognitive changes .78 .88 .68

Table 3

Standardized Direct, Indirect, and Total Effects of the Three Types of Leadership on
Organizational Learning

Transformational leadership
Construct
Direct effect Indirect effect Total effect

Information acquisition .72 --- .72

Information distribution .00n.s. .70 .70

Information interpretation .00n.s. .61 .61

Behavioral and cognitive changes .50 .29 .79

All structural coefficients (except those marked) statistically significant at p>0.001

n.s. - not statistically significant

--- - not specified in the model.

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