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Transformational leadership influences the fundamental attitudes and assumptions of an organization’s members, creating a common mentality to attain the firm’s goals. This leadership style usually generates higher performance than transactional. Although evidence shows that the transformational leader exercises a substantial influence on performance, understanding of the processes through which he or she exerts this influence is still limited and largely speculative (Yulk, 1999).Few studies trace the causal path of the effects of transformational leadership on performance systematically by examining the intermediate influence of leaders’ perceptions of different strategic variables related to knowledge and innovation (Bass B. M. 1999).
In today’s information society, the management of knowledge and innovation are key processes that enable us to create, exploit, renew and apply knowledge flows in new ways to create the essential competences for improvement of organizational performance (Barrett, 2006).From this perspective, the transformational leader should manage an organization understood as a ‘system based on knowledge, a system through which circulate information and basic knowledge, knowledge acquired from the outside , or existing knowledge in the organization. This circulation of knowledge creates a knowledge flow that, through various processes of transformation creates new knowledge which, when applied, generates essential competences for the firm’ (Nonaka, 1995). It is not the members’ knowledge in itself that is strategically vital, but the presence of good leadership to enable the organization to integrate, share and use this knowledge innovatively.
If we analyses this understanding of the organization in depth, we see that basic explicit and tacit knowledge circulates in the organization. The degree of tastiness is especially strategic (Lakomski, 2004), as tacit knowledge is difficult to express, formalize or share, making it much harder for competitors to copy than explicit knowledge. Tacit knowledge is crucial to managers’ mental models, which determine how managers understand cause–effect connections, give meaning to events and make decisions (Lubit, 2001).Yet tastiness as a theoretical concept has received little empirical attention (Harrison, 2000).
Organizational knowledge is acquired from the outside through absorptive capacity. It is the firm’s ability to observe the value of new knowledge, assimilate it, and apply it to commercial ends (Cohen, 1990). This dynamic capability influences the firm’s ability to create and deploy the knowledge required to build other organizational capabilities (organizational learning, innovation) that give the firm a base from which to achieve superior performance (Barney, 1991). Organizational knowledge also exists inside the firm, whether currently in use or awaiting a production need. Knowledge slack is essential for creating, sharing and exploiting new knowledge (Cohen, 1990). Drawing on (Nohria, 1996), we define knowledge slack as the pool of knowledge resources in a firm in excess of the minimum necessary to produce a given level of organizational output. Slack facilitates freedom to develop research or projects that may not generate tangible outputs in the short term but that may provide the knowledge base for future success.
From the second part of the definition above, we see that organizational learning enables development of new skills and knowledge, increasing the organization’s capacity to carry out effective actions and improvements in organizational performance (Senge, 1990). Innovation has been defined as a new idea, method or device, the act of creating a new product, service or process. Although firm innovation is widely prescribed as a means to improving organizational performance (Hurley, 1998), many firms do not or cannot develop it properly. Researchers have urged attention to what enables firms to innovate (Zollo, 2002). Several studies link ‘transformational leadership’ to innovation (Damanpour, 2006).
Leaders’ perceptions of these strategic variables are crucial to stimulating organizational performance. They play a major role in informing and molding these variables by determining the types of behavior expected and supported. Leaders tend to form simplified internal cognitive representations and use these mental models to focus on variables they judge to be critical. They make decisions and measure their performance based on these variables (Porac, 1990).
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