Checking the relationship between strategic leadership, competitive advantage and organizational performance with mediating role of innovation

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1 Checking the relationship between strategic leadership, competitive advantage and organizational performance with mediating role of innovation Tahereh Safarzadeh 1, Elham Dahghan 2, Mona Pazireh 1, Fatemeh Pouraskari 1 1 Master of business administration at university of Guilan, 2 Master of educatiomal administration at Shiraz university international division *f.pooraskari@gmail.com Abstract A rapidly changing world has created a society craving for speed and action. In this world of changing conditions and priorities, leaders and individuals contributors alike must be able to look beyond the now and take a more strategic leadership approach to their work and responsibilities. Without effective strategic leadership, the probability that an organization can achieve superior or even satisfactory performance when confronting the challenges of the global economy will be greatly reduced. On the other hand with the increasing competition in a dynamic environment, competitive advantage can be very important to achieve better performance and better results eventually. So firms with accepting innovation in response to environmental changes and develop new capabilities that will help them to achieve higher performance will be more successful. In this research we first review the literature of strategic leadership and innovation, then argue the relationship which strategic leadership could have with competitive advantage and organizational performance through innovation. Keywords: strategic leadership, organizational performance, competitive advantage, innovation 1. Introduction Penetrating look at around world demonstrate this fact which today world is very different, compared with the past. In this regard, economy globalization, mass production, extra capacity in most markets, competition based on time, excess of information, communication efficiency and increasing of bearing, are the properties of the world(akbari & others,2013). In this world, the trend of development and progress, is going to a direction which, survival of any company needs effective and appropriate competition with other companies. On the other side, competition isn't simply possible. In this economy, competition in some industries has a meaning like fight, that continuation of presenting in this competition needs competitive advantages. Researchers are always looking for finding applicable trends to make these competitive advantages for companies in order to make them survive or developed (porter, 1980). Researches in two past decades have showed, the competitive advantages, based on organization internal competencies, can be a safer base for creation of competitive advantages, compared with external opportunities. One of these competitive superiorities is 11

2 leadership style. Strategic leadership is one leadership style, which is very noticeable and has an effective role in making competitive advantages (Yazdani, 2009). On the other hand, new goods are at the heart of economic growth. The link between innovation and performance at various levels of aggregation has been the focus of attention in a number of studies in recent decades.( Loof & Heshmati,2002) Strategic leaders have been repeatedly recognized for their critical role in recognizing opportunities and making decisions that affect innovation process. Strategic leadership and innovation strategy are crucial for achieving and maintaining strategic competitiveness in the 21 st century. (Elenkov & others, 2005) 2. Strategic leadership Since the mid-1980's a growing body of leadership research has focused on strategic leadership, in contrast to managerial and visionary leadership. It focused on how top leadership makes decisions in the short term that guarantees the long term viability of the organization (Serfonten, 2010). During the 20 years leading up to 2001, the field of strategic leadership has experienced both rejuvenation and metamorphosis. Boal & Hooijberg argue that the essence of strategic leadership involves the capacity to learn and to change, as well as managerial wisdom. They first review issues relating to under what conditions, when and how strategic leadership matters. Next they selectively review three streams of theory and research. The first is strategic leadership theory and its antecedent, the upper echelons theory. The second stream of theory and research focuses on what has been labeled the "new" leadership theories. These include charismatic, transformational and visionary theories of leadership. The third stream of research is classified as the "emergent" theories of leadership. Boal & Hooijberg suggest how the "new" and "emergent" theories can be integrated within what they claim is the essence of strategic leadership, and how cognitive complexity, behavioral complexity and social intelligence form the foundation for absorptive capacity, the capacity to change and managerial wisdom, and that these in turn have an impact on leadership and organizational effectiveness (Wendy Lear, 2012). 2-1) Strategic leadership definition a) Strategic leadership is a person's ability to anticipate, envision, maintain flexibility, think strategically and work with others to initiate changes that will create a viable future for the organization (Wendy Lear, 2012). b) The ability for mobilization an focusing resources and energy on factors which can make differentiation, and can make success in the future (Akbari & others, 2012) c) The ability to make a strategic vision for organization and making motivation in others for accepting it (poursadegh & others, 2010). d) The ability to influence others to voluntarily make day-to-day decisions that enhance the long-term viability of the organization, while at the same time maintaining its short-term financial stability (Serfonten, 2010). 12

3 2-2) the role of strategic leadership Rowe examines the role of strategic leadership in creating wealth in organizations. Strategic leadership influences others to voluntary make day-to-day decisions that enhance the longterm viability of the organization, while at the same time maintaining its short term financial stability (Wendy, 2012). One strategic leadership role in organization is making cooperative spirit among employees, which in order to make this spirit, all employees shod participate in collective goals determining. Another way to make that is spreading systemic thinking across the organization. (Poursadegh & others, 2010) - To be successful in the tasks and role of strategic leadership, Leaders need to have the ability to think strategically and to be emotionally intelligent. They must have a range of behaviors available and wisdom to apply the right combination of behaviors at the right time (Serfonten, 2010). 2-3) Managerial, Visionary and Strategic leadership Some researchers use Bass framework for identifying strategic leadership which has shown in below figure: charisma transformation al leadership inspiration intellectual simulation strategic leadership individualized consideration managerial leadership contigent management by exeption active active management by exepetion passive Figure 1: Bass frame work of strategic leadership (Bass, 1985) Strategic leadership presumes visionary leadership on the part of those with a willingness to take risks. It presupposes managerial leadership on the part of those with a rational way of looking at the world. Strategic leadership presumes that visionary leadership and managerial leadership can coexist, and that strategic leadership synergistically combines the two. (Serfonten, 2010). 13

4 2-3-1) visionary leadership (transformational leadership) Making common vision id determined as the basic part of effective leadership. Visionary leaders have a leadership style based on oral communication with employees. Visionary leadership is being touted as the cure for many of the ills that affect organizations in today's fast changing environment. This style of leadership requires power to influence people's thoughts and actions (Motallebi ASL, 2007) ) managerial leadership (transactional leadership) The most important thing in application of managerial leadership is exchange process between leader and followers. They can have impact on each other based on the amount of profit they reach in this process. They are more familiar with the functional aspects f their jobs and do not engage themselves with activities that can broaden their view. They are also more interested in the now and are less likely to make value-based decisions. (Amirkabiri & others, 2006). 3) Innovation Innovation is defined as a mental process that leads to the creation of a new phenomenon; this phenomenon may be a new material or spiritual product (the new service or new techniques). Innovation is known as a critical factor for firms to create value and sustain competitive advantage in today's highly complex and dynamic environment. Firms with accepting the innovation, in response to environmental changes and develop new capabilities that will help them to achieve higher performance will be more successful. (Moghli & others, 2012) Organizational innovation is a difficult process. It requires the examination of hidden assumptions, unlearning previous behaviors, and overcoming considerable obstacles. The innovation process tends to exacerbate conflicts between engineering, marketing and manufacturing departments, and managers at the operational level have no clear idea at the outset which innovation project may be viable in the corporation as a whole. (Elenkov & others, 2005) In general terms there are two types of innovation: product innovation or changes in the product a firm makes or the service it offers; and process innovation, a change in the way a product is made or the service offered.( Moghli & others,2012) There are two primary, but distinct ways that innovation occurs in the organizations. One source of innovation occurs in the development of new product markets. Another source of innovation occurs in the development of new and more efficient administrative mechanism: new systems for strategic planning and control, new systems for training, development or promoting managers, and new departments or managerial position for improving intra organization coordination. (Loof & Heshmati, 2002) 4) Competitive advantage Kotler defined competitive advantage as an organizational capability to perform in one or many ways that competitors find difficult to imitate now and in the future. Michal Porter 14

5 considered that competitive advantage grows out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it. Clark Hayes and Wheelwright suggested that firms compete in the market place by virtue of the following competitive priorities: time, quality, and cost along with flexibility. Time: Firms can consider the time factor to compete among each other. Delivery time can be a source of competitive advantage when firms try to reduce the period of time between receiving and accepting customer orders and provisions of products or services to customers. The speed of product development also refers to the time factor; that is the time period between product idea generation till achieving the final design or production. Quality: Quality can be achieved by adding unique attributes to products to enhance their competitive attractiveness, so as to benefit customers in the final stage. Also, quality can be achieved through a couple of dimensions such as quality of design, which means to adapt product design to its function, and the quality of conformity stands for the organizational capability to transform inputs to conformable outputs. Cost: firms must make some kind of compromise between the cost and the characteristics of their products and services. In general most organizations choose to cut total cost by stripping fixed costs and applying continues control on raw materials, reducing employee compensation rates, and by achieving higher levels of productivity. Flexibility: Flexibility can be reviewed as the ability of the processes to switch from one product to another, or from one customer to another at the least cost or impact. Flexibility also can be defined as the ability to adapt the production capability to changes in the environment or market demands. (Moghli & others, 2012) 5) Strategic leadership and innovation: Strategic leadership has a significant role for organization in environmental uncertainty. Because it is supposed that the organizations which are going to survive are the ones adapting the organizational changes, and for that reason strategic leaders should bring the innovativeness to their organizations. (Aslan & others, 2011) There are a number of ways by which strategic leaders can influence organizational innovation processes. By virtue of their prominent position within the firm, strategic leaders are more capable of seeing environmental trends that affect the organization's future and providing more effective communication to the rest of organization, and this leads to higher levels of organizational activity. A second potential way which that effective strategic leaders can positively influence organizational innovation is through the creation of an exciting vision of future about successful conducted innovation activity. A third potential way that strategic leaders can influence organizational innovation is through the selection promotion, and ongoing support of change champions. A fourth potential way is for strategic leaders to create an organizational culture in which productive work is done, productive workers are rewarded, and productive relationships are built and enhanced. (Elenkov & others, 2005) 15

6 In the search which was done by Aslan & others in turkey, the relations with strategic leadership, strategic change, innovativeness, and perceived environmental uncertainty in the small and medium sized enterprise (SME), were studied. Multifactor leadership questionnaire (MLQ) scales related to strategic leadership was used and for innovation, the scale improved by Elenkov; Judge & Wright (2005), was used. As a result, transformational strategic leadership effects strategic change and innovation through the detection of environmental uncertainty positively. On the other hand, the strategic vision development effects strategic change and innovation in the detection of environmental uncertainty positively. Transactional approach to leadership is more appropriate management style, did not show a significant relationship in strategic leadership.( Aslan & others, 2011) So strategic leadership can affect innovation through its transformational dimension which can see in below figure: Figure 2: the relationship between strategic leadership and innovation (Aslan & others, 2011) 6) Innovation and competitive advantage The organization innovation was well accepted as the key critical factor for modern organization as it increases the competitive advantage. The created innovation leads to the lower production cost of organization, new beneficial knowledge, new working technique and new working procedure, which in turn would generate competitive advantage in the long term. Innovation factor generates value added to the organization through strategy, behavior, support and motivating activities under 5 principles: 1) Customer satisfaction (internal and external) 2) Best practices 3) teamwork 4) challenging spirit and 5) the effective communication in integrating, derives to achieve objective goals. Innovation is also deployed 16

7 To support the personnel continue learning and development, through activities and projects that focus on staff participation. Therefore, innovation is the important foundation to support and motivate creative thinking or value added initiatives, with the involved factors: entrepreneurship, leadership and management. (Wingwon, 2011) In the study which was done by Moghli and others, a quantitive descriptive approach was used to determine whether or not innovation can impact realizing competitive advantage of banking sector in Jordan. The population of the study consisted of 25 banks with more than 666 branches and 81 offices around the country. The result is that innovation has positive impact on time, as a matter of fact, time turned to be the most impacted dimension; this means that the use of innovation improves the lead time, and the time needed to develop new or modify current products and services. The time needed to serve customer is also improved by innovation. Additionally, innovation gas positive impact on quality. It provides better quality and utilizes production method efficiency. Innovation as well has positive impact on cost, it reduces cost of both products and process which reduces the overall cost of operation. Lastly, innovation has positive impact on flexibility. To conclude, innovation has a positive impact on flexibility. ( Moghli and others, 2012) Competitive advantage: Cost Innovation Quality Time Figure 3) the relationship between innovation and competitive advantage (Moghli Flexibility and others, 2012) 7) Conclusion: Considering the changing nature of corporate world, increasing complication of markets and dynamism against organizations, their survival and development will not be possible without competitiveness superiority. Competitive advantage can be very important to achieve better performance and better result eventually. As we argued in research literature and section 6, innovation can be one important source for competitive advantage. On the other hand strategic leadership as argued in section 5, can influence innovation through transformational leadership. So in total we can say that strategic leadership has a positive impact on competitive advantage and performance through the role of innovation. 17

8 References 1. Akbari, M., Anvari, S., Hooshmand, M. (2014). Strategic Leadership and Its Impact on Competitive Advantage and Performance. 3th International Conference of Behavioral Science, Kish, Iran 2. Amirkabiri, A., Khodayari, E., Nazari, F., Moradi, M. (1999). Evaluation The Relationship Between Transformational & Transactional Leadership and Employees Organizational commitment. Tadbir Journal, No. 114, PP Aslan, s; Dicken, A; Sendogdu, A. Investigation of the effects of strategic leadership on strategic change and innovativeness of SMEs in a perceived environmental uncertainty. Journal of Procedia social and behavioral science, Volume 4, number 24, pp Elenkov, D; Judge, W; Wright, P.(2005). Strategic leadership and executive innovation influence: An international multi-cluster Comparative stady, Strategic management journal, number 26, pp: Loof, H; Heshmati, A. (2002). The relationship between innovation and performance: A sensivity analysis, Royal institute of technology 6. Moghli.A; Al Abdullah, G; Al muala, A. (2012). Impact of innovation on realizing competitive advantage in banking sector in Jordan, American Academic & Scholarly Research Journal, volume 4, number 5, pp: Motallebi Asl, S. (2007). Transformational leadership in organizations, a model based on environment, Tadbir journal, no118, pp Poursadegh, N; khatami, B, siahatkhah, M. (2012).The role of strategic leadership in success and implementation of strategy, 10 th international conference on Strategic management, Tehran 9. Porter, M. (1980). Competitive advantage: Analyzing Industrial and competitor, New York,Free Press 10. Jacobs Serfonten, J. (2010). The impact of strategic leadership on operational strategy and performance of business organizations in South Africa, PHD thesis, Dept. Business Administration, University of Stellenbosch 11. Wendy, L; (2012). The relationship between strategic leadership and strategic alignment in high perfomancing companies in South Africa, PHD thesis, Dept. Business Administration, University of South Africa 12. Yazdani, M. (2009). Offering process model to application of knowledge management, based on organizational learning, Journal of IT management, number 1, pp