Imapct factor(SJIF): 6.56
A Refereed Monthly International Journal of Management
Effect of Transformational Leadership through Organizational Trust and Moral Judgment on Sales Performance: An Empirical Case Study
Farideh Haghshenas Kashani1 and Arezu Shabani2
2M.A. Graduated in Faculty of Management, Science and Research Branch, Islamic Azad University, Tehran, Iran.
This study tends to examine the effect of transformational leadership through organizational trust and moral judgment on sales performance in the Pars Animal Feed Company as an empirical case study. The statistical population includes all sales personnel of the Pars Animal Feed Company. The number of samples is determined by Cochran formula. Sales personnel were categorized into six groups for each sales director of geographical regions of Iran. Then, statistical sample is determined by the number of employees in each class. The questionnaire is distributed randomly among managers and sales personnel. This study measures four main components including transformational leadership, organizational trust, moral judgment and sales performance. Data extracted from questionnaires is analysed by LISREL 8.5. Validity and reliability of questionnaires are estimated by content analysis and using Cronbach's alpha and Fisher's exact test. Results show that transformational leadership has a positive and significant effect on organizational trust; organizational trust has a positive and significant effect on moral judgment; moral judgment has a positive and significant effect on sales performance in the Pars Animal Feed Company.
Keywords: Transformational Leadership, Employee Behavior, Organizational Trust, Moral Judgment
Transformational leaders are responsible to implement various leadership behaviors which enable them to increase awareness of followers about importance of outcomes and how to achieve these outcomes (Burns, 1978). Followers are transformed by leaders and leaders consider high moral standards for them (Carlson & Perrewe, 1995). There are many definitions of trust (cf. Hosmer, 1995); however, most of them argue that trust in the organization includes one of expectations, assumptions and beliefs about probability of other actions in the future which are beneficial to social advantages or at least not harmful to an individual (Robinson, 1996). While empirical research does not directly shows the relationship between transformational leadership and organizational trust, indirect evidence suggests that there is a key relationship between these two. Trust in the organization grows as an observer of related contracting and understanding of organizational commitments of employees (Whitener, 1997). Fair treatment of the organization with employees (through its agents) forces employees to compensate this behavior, that is, commitment (Colquitt et al., 2001). Organizational practices recognized by employees as a positive investment (Mayer & Davis, 1999) or attention of the organization to employees and employee care (Wayne et al., 1997) have a positive relationship with organizational trust. Thus, transformational leaders as organizational facilitators are expected to serve employees with help, support, counseling and encouragement (Bass, 1985). This organization cares about its employees; therefore, organizational trust is considered to be significant (Schwepker & Good, 2013). Moral judgment refers to a one’s decision as to whether a behavior is correct or false, moral or immoral. As evidenced in moral decision-making descriptive models (e.g., Ferrel & Gresham, 1985; Jones, 1991), moral judgment plays an important role in moral decision making and is preceded by moral behavior. According to these models, people with higher moral values should also have a higher moral judgment (cf. Jones, 1991). In people whose moral values guide their moral behaviour, moral behaviour is guided by their moral values, which, in turn, influences their moral judgment (Hosmer, 1985). Because strong evidence suggests that moral judgment is preceded by moral behavior, moral judgment forms the structure of this study. The relationship between organizational trust and moral judgment of vendors is not well-known. This relationship may in part relate to some inherent meanings of trust. As noted earlier, trust is based on the belief that trustee is honest and fair (McAllister, 1995). Given the role set theory, people influenced by the behavior they are treated with communicate within the organization in the same way (Merton, 1957). However, evidence shows a positive relationship between moral behavior and organizational performance (Barles et al., 2002; Grisaffe & Jaramillo, 2007; Verschoor, 2003). These behaviors tend to develop long-term relationships with customers. Strong relationships with customer tend to behave ethically and there are continuing relationships between sales performance and customer satisfaction (Arndt & Karande, 2012). Honesty is a kind of moral behavior which is critical to development of trust-based relationships with the customer (Hawes et al, 1989). In fact, moral behavior has a positive relationship with the ability of vendors to gain customer trust (Hansen & Riggle, 2009) and the goal of vendors is to win people's trust in the purchase. A good leadership style is essential to guide sales personnel. Moreover, business ethics has become a major problem currently. In the present era, sales force is one of the most important assets and competitive advantages of any organization. The present study tends to examine the effect of transformational leadership through organizational trust and moral judgment on sales performance and to determine whether transformational leadership can achieve optimal results in order to improve sales performance of the organization through organizational trust and moral judgment.
The sales personnel consists of people who usually work in the sales departments of the organization. Salespeople have a diverse range of jobs; Cutler and Claire split these jobs into six categories, from less-creative jobs to more creative jobs (Cutler & Claire, 2006). Organizational performance can be measured by several indicators such as effectiveness, efficiency, growth and productivity, or by several concepts such as sales to employees, export value, total assets, operating profit rates, etc. This study uses sales performance. Sales performance refers to the average sales of manufactured products over the past years and, in other words, the sales growth of these companies (Nemati, 2011). Sales performance is a behavior which is evaluated in terms of its contribution to organizational goals. Sales performance involves a number of separate and specific activities which may vary considerably during different types of sales jobs (Singh & Das, 2013). Transformational leadership is the process of conscious influence on individuals or groups to make a discontinuous change in the status quo and functions of the organization as a whole (Hater & Bass, 1988). Burns (1978) regards transformational leadership as a process through which the leader and subordinates stimulate each other to achieve high morale and motivation (Zarei, 2011). Kramer (1999) defines trust as the state of perceived vulnerability or perceived risk which arises from uncertainty about motives, intentions and prospective actions of others that depend on them (Chathoth et al, 2011). Azimi (1363) defined behavior as all activities of living entities rather than imposed on them. Behavior refers to a response of any living creature to external stimuli and needs or internal motivations and needs; stimulus is any physical external factor which influences the living creature and causes reaction. A behavior is aimed at achieving a goal which will be entirely profitable based on his beliefs, wisdom or misconceptions (Rezaian, 2000). Shockley and Zalbak define organizational trust as positive expectations of people based on organizational roles, relationships, experiences, interdependencies of intentions and various behaviors of organizational members (Shackley & Zalbach, 2000). Moral judgment refers to people’s views on rules, customs and norms which people must observe in interacting with others and their perceptions of them which evolves with intellectual growth and, consequently, moral development along with the rise of age in people (Piaget, 1932; Damdan 1983).
H1: Transformational leadership has a positive and significant effect on organizational trust in the Pars Animal Feed Company.
H2: Organizational trust has a positive and significant effect on moral judgment in the Pars Animal Feed Company.
H3: Moral judgment has a positive and significant effect on sales performance in the Pars Animal Feed Company.
Given these variables and hypotheses, the model can be developed as shown in Figure 1.
Figure 1: the studied model
Materials and Methods:
This was an applied, descriptive survey. To do field studies, the studied population included 200 sales personnel of the Pars Animal Feed Company. Cochran formula was used to determine sample size; based on this formula, 132 participants were recruited as samples using stratified random sampling. For this purpose, the number of sales personnel was determined and sample size was estimated by Cochran formula. To achieve this number of samples, 126 transformational leadership, organizational trust and moral judgment questionnaires were distributed among randomly selected employees; then, the sales performance questionnaires were distributed among bosses of the same selected employees to fill the questionnaires based on their knowledge of employees and their performance. Out of 132 distributed questionnaires, 132 acceptable questionnaires were used in analysis. This study used two questionnaires; a questionnaire for sales personnel and another for sales managers. The questionnaires had two parts:
This study used standard questionnaires of Schwepker and Good (2013) to measure transformational leadership, organizational trust, moral judgment and sales performance. Structure of the questionnaire is as shown in Table 1.
Table 1: structure of questions
Table 2: reliability of the questionnaires
Cronbach's alpha obtained for all variables was higher than 0.7 and p-value was greater than α=0.05, indicating good reliability of the questionnaire. Due to normal distribution of variables, factor analysis tests, LISREL and Friedman structural equations were used to examine hypotheses. Then, data obtained from questionnaires was analyzed by using SPSS software.
Normality of the variables was examined to test the hypotheses. Therefore, this condition was considered for the variables.
Table 3: K-S test for normality of variables
Since significance level of S-K test is larger than α=0.05 for the studied variables, it can be concluded that distribution of the variables was not significantly different from normal distribution (Table 3). Therefore, distribution of variables was normal.
Sampling Adequacy Index (KMO):
A prerequisite for using LISREL structural equations is adequacy of the studied sample, for which KMO is used:
Table 4: sampling adequacy index (KMO)
As shown in Table 4, KMO was larger than 0.7 (0.901), suggesting that the sample size was adequate for using structural equations. Moreover, significance level of Bartlett’s test showed that factor analysis could be used for data.
Confirmatory Factor Analysis:
This study examined communalities of questions related to transformational leadership and organizational trust.
Table 5: factor loadings of questions related to moral judgment
Table 5 shows factor loading of variables; value of the variance of each variable explained by other variables is shown in the column of factor loadings. Values of this column show that variables had a relatively high communality. It is noteworthy that TL5 and TO27 were excluded from the analysis because their factor loadings were smaller than 0.5. The table below shows factor loading of moral judgement.
Table 6: factor loadings of questions
For moral judgement, MJ_S3_6 was excluded from the study, because factor loadings were smaller than 0.5. Other questions were used in analysis because factor loadings were larger than 0.5 (Table 6).
Structural Equations Modeling:
Significance of the relationships between variables is shown in Figure 2.
The t-value within -1.96 and 1.96 indicates the lack of significant effect of latent variables; otherwise, it indicates a significant effect of latent variables at 95% confidence. As shown in the table for H1 and H2, effect of variables on each other was confirmed at 95% confidence. Finally, R2 indicates variance explained for the relationships between latent variables. Table 8 shows fit indexes of the final model.
Once parameters of the model are estimated, the question is the extent to which the model fits to data. This question can only be examined by using fit indexes. Therefore, the researcher needs to ensure fit of the model after estimating the parameters and before interpreting them. For this purpose, this section analyses different fit indexes of the structural equations model and explains how total fit, fit of the measurement model and fit of the structural model are interpreted. Results of hypothesis testing by using structural equations modelling are listed below.
H1: Transformational leadership has a positive effect on organizational trust in the Pars Animal Feed Company.
Considering the standardized estimate of transformational leadership on organizational trust (0.84) and T=7.57 and R2=0.71 and sig=0.01, it can be concluded that transformational leadership has a significant effect on organizational trust. Therefore, the hypothesis is confirmed. Thus, H0 (absence of effect) is rejected and H1 (presence of effect) is confirmed.
H2: Organizational trust has a positive effect on moral judgment in the Pars Animal Feed Company.
Considering the standardized estimate of organizational trust on moral judgment (0.44) and T=3.13 and R2=0.19 and sig=0.01, it can be concluded that organizational trust has a significant effect on moral judgment. Therefore, the hypothesis is confirmed. Thus, H0 (absence of effect) is rejected and H1 (presence of effect) is confirmed.
H3: Moral judgment has a positive effect on sales performance in the Pars Animal Feed Company.
Considering the standardized estimate of moral judgment on sales performance (0.25) and T=2.03 and R2=0.061 and sig=0.01, it can be concluded that moral judgment has a significant effect on sales performance. Therefore, the hypothesis is confirmed. Thus, H0 (absence of effect) is rejected and H1 (presence of effect) is confirmed.
In order to study the scenarios, Friedman test was used to rank the questions related to each scenario.
Obviously, p-value<0.05 indicates the difference between means of independent variables. As shown in the table, the highest priority belonged to the question 1-3 (mean=6.3) and the lowest priority belonged to the question 1-5 (mean=3.02). The second highest priority belonged to the question 1-1, followed by the questions 1-8, 1-2, 1-4, 1-7 and 1-6, respectively. Obviously, 1-3 had the highest weight, suggesting that justice was more important than other variables for employees (Table 9).
Table 9: Friedman test related to questions of the first scenario
Obviously, p-value<0.05 indicates the difference between means of independent variables. As shown in the table, the highest priority belonged to the question 2-1 (mean=6.14) and the lowest priority belonged to the question 2-5 (mean=3.1). The second highest priority belonged to the question 2-3, followed by the questions 2-8, 2-7, 2-2, 2-4 and 2-6, respectively. Obviously, 2-1 had the highest weight, suggesting that this was not fair for employees to make unrealistic promises for future plans to achieve their goals (Table 10).
Table 10: Friedman test related to questions of the second scenario
Obviously, p-value<0.05 indicates the difference between means of independent variables. As shown in the table, the highest priority belonged to the question 3-3 (mean=6.34) and the lowest priority belonged to the question 3-5 (mean=2.99). The second highest priority belonged to the question 3-5, followed by the questions 3-1, 3-8, 3-2, 3-4, 3-7 and 3-6, respectively. Obviously, 3-3 had the highest weight, suggesting that this was not fair for employees (Table 11).
Table 11: Friedman test related to questions of the third scenario
The first hypothesis assumed that transformational leadership has a positive and significant effect on organizational trust in the Pars Animal Feed Company. The obtained coefficient of correlation showed that transformational leadership has a positive effect on organizational trust. The results of fitting the regression model also showed that transformational leadership had a positive and significant effect on organizational trust. The positive relationship between these two variables suggests that higher transformational leadership is associated with greater organizational trust. In this study, transformational leadership consisted of six dimensions including vision, behavioral modeling, group goal acceptance, high performance expectation, individual support and intellectual stimulation. Hypothesis testing indicated significant effect of transformational leadership on organizational trust in the studied population. A glance at dimensions of transformational leadership and trust reveals this relationship. For example, emphasis on a common vision, behavioral modeling, group goal acceptance, high performance expectation, individual support and intellectual stimulation (dimensions of transformational leadership) provide the groundwork for building organizational trust. The second hypothesis assumed that organizational trust has a positive and significant effect on moral judgment in the Pars Animal Feed Company. The obtained coefficient of correlation showed that organizational trust has a positive effect on moral judgment. The results of fitting the regression model also showed that organizational trust had a positive and significant effect on moral judgment. The positive relationship between these two variables suggests that higher organizational trust is associated with greater moral judgment. In fact, the positive relationship between these two variables indicates that promotion of transformational leadership in the studied population will lead to an increase in organizational trust. Hypothesis testing indicates the significant effect of organizational trust on moral judgment in the studied population. The third hypothesis assumed that moral judgement has a positive and significant effect on sales performance in the Pars Animal Feed Company. The obtained coefficient of correlation showed that moral judgment has a positive effect on sales performance. The results of fitting the regression model also showed that moral judgement had a positive and significant effect on sales performance. The positive relationship between these two variables suggests that higher moral judgement is associated with greater sales performance. In fact, the positive relationship between these two variables indicates that promotion of moral judgement in the studied population will lead to an increase in sales performance. Hypothesis testing indicates the significant effect of moral judgment on sales performance in the studied population.
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