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Master Thesis Astrid Groenen Eindhoven University of Technology MASTER How Transformational Leadership relates to Employees’ Adaptive Performance in Small- to Medium-Sized Manufacturing Enterprises The Mediating Roles of Self-efficacy, Psychological Safety and Work Engagement Groenen, A.W.M. Award date: 2021 Link to publication Disclaimer This document contains a student thesis (bachelor's or master's), as authored by a student at Eindhoven University of Technology. Student theses are made available in the TU/e repository upon obtaining the required degree. The grade received is not published on the document as presented in the repository. The required complexity or quality of research of student theses may vary by program, and the required minimum study period may vary in duration. General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain How Transformational Leadership relates to Employees’ Adaptive Performance in Small- to Medium-Sized Manufacturing Enterprises: The Mediating Roles of Self-efficacy, Psychological Safety and Work Engagement In partial fulfilment of the requirements for the degree of: Master of Science in Innovation Management Astrid W. M. Groenen Student ID: 1363506 January 2021 Supervisors: Dr. Sonja Rispens, TU/e, HPM Prof. Dr. Pascale M. Le Blanc, TU/e, HPM Karin Mastenbroek, SpartnerS Organisatieadvies i Title: How Transformational Leadership relates to Employees’ Adaptive Performance in Small- to Medium-Sized Manufacturing Enterprises: The Mediating Roles of Self-efficacy, Psychological Safety and Work Engagement Keywords: Transformational leadership, adaptive performance, agility, manufacturing company, self- efficacy, psychological safety, work engagement Submitted by: A. (Astrid) W. M. Groenen (1363506) Supervised by: S. (Sonja) Rispens: Assistant Professor at the TU/e, and expert in organisational culture and behaviour, leadership, social and organisational psychology, leadership and teamwork. P. (Pascale) M. Le Blanc: Full Professor of Workplace Innovation and Sustainable Employability at the Human Performance Management Group of the TU/e. K. (Karin) Mastenbroek: Management consultant at SpartnerS Organisatieadvies and specialist in the field of new organisation, leadership, and collaboration in teams. ii Abstract The world we live in is continuously and swiftly changing: if organisations want to survive, they must with this turbulence in a way that allows them to adapt quickly to the surroundings, also known as agility. Small to medium-sized manufacturing companies (SMMCs) should rely on the human capital of their company to increase their agility. Therefore, this research focuses on how to improve employees’ adaptive performance through transformational leadership in SMMCs. This study uses an explanatory sequential design. First, data from questionnaires is used to understand the relations between the different variables in seventeen SMMCs in the Netherlands. Second, eight interviews are conducted with general directors and leaders in SMMCs to verify the connections and add more practical insights to the conclusions. While the quantitative data is analysed using IBM SPSS, the qualitative data is analysed using an alternative to verbatim transcription. The results suggest that transformational leadership is directly related to employees’ adaptive performance, and indirectly through the mediating factors of psychological safety and work engagement. More importantly, self-efficacy affects employees’ adaptive performance the most, but transformational leadership is not directly related to this variable: this relationship is mediated by work engagement and psychological safety. The interviews add some practical contributions to improve employees’ adaptive performance within SMMCs further. iii Preface and acknowledgements Dear reader, Within your hands is my Master Thesis, which is written as a final requirement to graduate from the Master of Innovation Management at the Eindhoven University of Technology (TU/e). Through this paper, I aim to provide new knowledge and insights for small- to medium- sized manufacturing companies and make them more aware of the importance of transformational leadership and employees’ adaptive performance. I would like to express my deepest appreciation to my mentor at SpartnerS, Karin Mastenbroek, who helped me throughout the process and showed me how interesting her field of work is. Without her guidance and enthusiasm, this thesis would not be here. Secondly, I would like to thank my mentor at the TU/e, Sonja Rispens, who steered me in the right direction when I got lost in the process. Her and Pascale Le Blanc’s feedback were of great value: thanks to you both! Additionally, I would like to thank all my colleagues at SpartnerS. Not only did they provide me with connections to various manufacturing companies which allowed me to create a large dataset, but they also showed me through their enthusiasm that my project was of value. Last but not least, I would like to thank my friends (you know who you are) who made writing my thesis in a lockdown bearable (yes, even enjoyable) and my family who helped me get through the stressful moments and supported me no matter what. Thank you for reading, Astrid iv Management Summary Introduction The world we live in is continuously and swiftly changing. If organisations want to survive, they must be able to cope with this turbulence in a way that allows them to adapt quickly to their surroundings, also known as agility. Agility is about being able to respond timely and adequately to changes that are (un)expected. SpartnerS Organisatieadvies also sees the importance of this subject. This is a consultancy company with the aim to help manufacturing companies to improve and grow. Their customers are mainly small- to medium-sized manufacturing companies (SMMCs). Accordingly, the main focus of this research is on how to improve the agility of SMMCs. Since SMMCs have a lean structure and flat hierarchy, this allows them to make quick decisions and respond faster to market demands compared to larger companies. So, SMMCs need to focus on their human capital, since research shows that employees can make a significant impact when it comes to creating agility. Employees need to be able to work productively while adapting to changing work conditions. This capability is called ‘adaptive performance’. If an employee can solve small problems or tasks without other people’s involvement, they will more likely understand how it works. Moreover, direct leaders are known to have a significant impact on how employees feel and behave through their behaviour. Furthermore, SpartnerS notices an old type of leadership that does not work in SMMCs anymore (directive leadership), due to social changes and technological innovations. They stated that there needs to be a new kind of leader: one with a clear vision, which shows trust in his or her employees and tries to involve the whole organisation to reach his/her goal. “The all-knowing leader is passé. Equality is the essence”. This type of leadership is called ‘transformational leadership’. Accordingly, this research investigates the following research question: Is transformational leadership related to employees’ adaptive performance in small- to medium-sized manufacturing companies, and if so, how? Theoretical background Transformational leaders are found to directly influence employees’ adaptive performance since they allow employees to search for new ways to solve problems and cope with changes. Additionally, they buffer the adverse effects of uncertainty in a changing environment. However, it is unlikely that transformational leaders only have a direct effect on employees’ adaptive performance. Through literature, I expected that there are mediating factors involved: v psychological safety, self-efficacy, and work engagement. This is because a transformational leader is a role model, shows trust in employees and encourages them to develop new ideas, challenging the status quo. They create an environment that makes the employees feel safe, increasing their adaptive behaviour by allowing them to make decisions, provide feedback, and make mistakes without feeling judged (psychological safety). Additionally, transformational leaders can increase the amount of confidence employees have in themselves in what they can do (self-efficacy), which causes employees to take action sooner and put more effort in their tasks. This is because a transformational leader considers employees individually, shows motivational behaviour and support. Lastly, when a leader invests more effort in their employees, supports them, provides them with a clear vision and intellectually stimulates them, it can make the employees more engaged in their work (work engagement), positively impacting an employees’ adaptive performance through an increase in focus and energy. So, this research analyses the relationship between transformational leadership and employees’ adaptive performance through the mediating roles of psychological safety, self-efficacy and work engagement. Research methodology and results
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