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THE ROLE OF LEADERS IN INTERNAL MARKETING: A MULTILEVEL EXAMINATION THROUGH THE LENS OF SOCIAL IDENTITY THEORY Jan Wieseke Assistant Professor of Marketing University of Mannheim, L 5,1, 68131 Mannheim, Germany Phone: +49-621-181-3540 Fax: +49-621-181-1556 email: jwieseke@bwl.uni-mannheim.de Michael Ahearne Associate Professor of Marketing C.T Bauer College of Business, University of Houston, 334 Melcher Hall, Houston, TX 77204-6021, Phone (713) 743-4155, Fax (713) 743-4768, E-mail mahearne@uh.edu Son K Lam Doctoral Student in Marketing C.T Bauer College of Business, University of Houston 334 Melcher Hall, Houston, TX 77204-6021 Phone: (713) 743-4577 Email: slam5@uh.edu Rolf van Dick Professor of Social Psychology Institute of Psychology, Johann Wolfgang Goethe Universität Frankfurt Kettenhofweg 128, 60054 Frankfurt, Germany Phone: +49 69 798 23727 Fax: +49 69 798 23727 Email: van.dick@psych.uni-frankfurt.de May 2008 MS07-359-IR – Submission of Conditionally-Accepted Manuscript ACKNOWLEDGMENTS Study was supported by the Institute for the Study of Business Markets at Pennsylvania State University Study was supported by the German National Science Fund (No WI 3146/1-2) THE ROLE OF LEADERS IN INTERNAL MARKETING: A MULTILEVEL EXAMINATION THROUGH THE LENS OF SOCIAL IDENTITY THEORY Abstract There is little empirical research on internal marketing despite its intuitive appeal and anecdotal accounts of its benefits Adopting a social identity theory perspective, the authors propose that internal marketing is fundamentally a process in which leaders instill into followers a sense of oneness with the organization, formally known as organizational identification (OI) The authors test the OI-transfer research model in two multinational studies using multilevel and multisource data Hierarchical linear modeling analyses show that the OI-transfer process takes place in the relationships between business unit managers and salespeople and between regional directors and business unit managers Furthermore, both leader–follower dyadic tenure and charismatic leadership moderate this cascading effect Leaders with a mismatch between their charisma and OI ultimately impair followers’ OI In turn, customer-contact employees’ OI strongly predicts their sales performance Finally, both employees’ and sales managers’ OI are positively related to their business units’ financial performance The study provides empirical evidence for the role of leaders, especially middle-managers, in building member identification that lays the foundation for internal marketing Keywords: internal marketing, organizational identification, customer-contact employees We say, “All right team, let’s practice good customer relations,”… but it’s often vacant What we affirm in speech, we deny in deed (Wasem 1974, p 39) Thirty years has elapsed since Berry, Hensel, and Burke (1976) introduced the concept of internal marketing into marketing literature In its original definition, internal marketing “is concerned with making available internal products (jobs) that satisfy the needs of a vital internal market (employees) while satisfying the objectives of the organization” (Berry, Hensel, and Burke 1976, p 11) Later developments of internal marketing literature further emphasized the crucial element of “communicating by deeds” organizational values and offering employees a clear vision that is worth pursuing (Berry and Parasuraman 1992, p 27) Ardent proponents of internal marketing posit that it should be an ongoing and systematic process initiated by senior management rather than “a speech or letter once a year in which employees are told of the importance of customer satisfaction” (Berry, Hensel, and Burke 1976, p 9) Internal marketing can overhaul the face of a business (George 1990), as has been reported by case studies and anecdotal accounts showing clear gains in employee understanding of corporate values, employee commitment, customer satisfaction, and loyalty (e.g., Ahmed and Rafiq 2002; Bergstrom, Blumenthal, and Crothers 2002; Berry 1995; Gummesson 1987; Hallam 2003; Sartain 2005) Emerging from all theoretical frameworks in this stream of research is the indispensible role of leaders in instilling into employees company culture, values, and vision and continuously “communicating by deeds” (Berry, Hensel, and Burke 1976; George 1990; Grönroos 1990).1 The past decade has also witnessed a surge of interest in how organizational members (e.g., employees) and nonmembers (e.g., customers) develop organizational identification (OI), which Ashforth and Mael (1989) define as the extent to which individuals perceive oneness with the Another often-neglected theme in internal marketing is value creation for internal customers Here we focus on leaders’ influence on followers only We thank a reviewer for pointing this out organization From a strategic standpoint, because organizational identity is central, distinct, and enduring (Albert and Whetten 1985), one that is deeply rooted in the minds of all organizational members constitutes a sustainable competitive advantage (Fiol 1991; Porter 1985) A recent metaanalysis shows that OI is a powerful predictor of several important employee outcomes, including job satisfaction, cooperative behavior, in-role performance, organizational citizenship behavior, and customer service (Riketta 2005) In light of its definition and nomological validity, the construct of OI is undoubtedly relevant to research on internal marketing and should be the ultimate goal of internal marketing However, the three research streams—leadership, internal marketing, and OI—have yet to be systematically integrated This discussion reveals important gaps in the internal marketing and OI literature First, the role of leaders’ OI in building followers’ OI remains unexplored in both research streams Second, previous research has largely ignored the link between OI and important firm outcomes To the best of our knowledge, no previous research on OI has directly examined financial performance as a consequence of OI, especially at the business unit (BU) level This void deserves close attention because such a link would not only provide for external validation of the effects of OI but also help managers evaluate the effectiveness of their firms’ internal marketing efforts Methodologically, OI researchers have exclusively focused on a single level, leaving much of the rich phenomenon of how OI can be developed across levels of leader–follower interaction uncharted By bridging the management and marketing literature, we apply rigorous hierarchical linear modeling (HLM; Raudenbush and Bryk 2002) to fill these gaps Specifically, we examine three research questions: (1) the potential influence of leaders’ OI on followers’ OI across multiple organizational levels, a meso phenomenon (House, Rousseau, and Thomas-Hunt 1995) we call the “OI-transfer process”; (2) the boundary conditions under which this transfer can be enhanced; and (3) whether OI is related to important outcomes—namely, customer-contact employees’ performance and BU financial performance Our research provides an empirical validation of both subjective and objective outcomes of internal marketing efforts by using multisource, multilevel, and multinational data We test our proposed conceptual framework in the context of customercontact employees (and their leaders) because, as the first representation of the company (Berry and Parasuraman 1992; Hartline, Maxham, and McKee 2000), these boundary spanners are central to firms’ success In addition, both management and marketing research on OI have largely ignored customer-contact employees The rest of the paper proceeds as follows: We begin by integrating three streams of literature—internal marketing, OI, and leadership—to develop a conceptual framework of OI transfer from leaders to followers Then, we present two empirical studies that test the hypotheses proposed in the conceptual model To enhance the generalizability of our findings, we acquired data from two countries, Germany and the United States, and from two boundary-spanning settings, one with relationship-based pharmaceutical field sales representatives with less direct supervision and one with encounter-like travel agencies with much closer supervision We conclude with a detailed discussion of the research findings, implications for internal marketing practices, and future research directions INTERNAL MARKETING, OI, AND CHARISMATIC LEADERSHIP Figure provides an overview of previous empirical research on internal marketing, OI, and leadership This Venn diagram reveals that these three research streams examine closely related constructs (e.g., work motivation, job attitude, leader–follower dyads) However, there has been little empirical research that bridges across any two of the three research domains, as we show in the overlaping areas At the intersection of the three research areas lies the research gap that we intend to fill - Insert Figure about here Research on Internal Marketing Meager empirical research on internal marketing has focused on outcomes at the employee level These include job satisfaction (e.g., Ahmed, Rafiq, and Saad 2003; Hwang and Chi 2005), work motivation (e.g., Bell, Menguc, and Stefani 2004), and organizational commitment (e.g., Caruana and Calleya 1998; Mukherjee and Malhotra 2006) Few studies explicitly examine customer-related outcome of internal marketing such as service quality (e.g., Bell and Menguc 2002; Bell, Menguc, and Stefani 2004) Previous research on internal marketing, both conceptual and empirical, concurs on three important themes First, it is crucial that employees are “wellattuned to the mission, goals, strategies, and systems of the company” (Gummesson 1987, p 24) Second, internal marketing builds on the formation of a corporate identity or collective mind (Ahmed and Rafiq 2002) Third, internal marketing must go beyond short-term marketing training programs and evolve into a management philosophy that requires multilevel management to continuously encourage and enhance employees’ understanding of their roles and organizations (Berry, Hensel, and Burke 1976) Research on OI The OI construct has its roots in social identity theory (Tajfel and Turner 1979) As a special case of identification with a psychological group (Mael and Tetrick 1992), OI has been defined as the degree to which organizational members perceive themselves and the organization as sharing the same definitional attributes (Dutton, Dukerich, and Harquail 1994) An important aspect of social identification with a group is that it involves significant affective and evaluative elements (Tajfel 1981, p 225) In this study, we combine Ashforth and Mael’s (1989) definition of OI and Tajfel’s (1981) work on social identity to define OI as the perception, the value, and the emotional significance of oneness with or belongingness to the organization This definition has two important implications First, it implies that OI is a psychological state rather than a process Second, OI includes three aspects—cognitive, affective, and evaluative (see also Bagozzi and Dholakia 2006) Whereas organizational commitment figures prominently in marketing research,2 especially research on salesperson performance (Brown and Peterson 1993; Churchill et al 1985; MacKenzie, Podsakoff, and Ahearne 1998), OI has received much less attention However, OI has long been recognized as a critical construct in the literature on organizational behavior, affecting both employees’ job attitudes, their motivation to support the organization with which they identify, and the effectiveness of the organization (Ashforth and Mael 1989; Ellemers, de Gilder, and Haslam 2004) Dukerich, Golden, and Shortell (2002, p 507) concur, noting that “the study of identity and identification may help us understand why some members of organizations regularly engage in cooperative behaviors that benefit the organization, whereas others not.” Thus, it is not surprising that OI has attracted a great deal of research interests over the past two decades Empirical research on OI has largely focused on the consequences of OI, whereas its antecedents have received comparably less research scrutiny To date, much of the OI literature has not examined financial performance but rather has focused on examining employee-related outcomes Specifically, OI has consistently been found to be a powerful predictor of employee job attitudes (e.g., job satisfaction, job involvement; Van Knippenberg and Van Schie 2000), cooperative behavior (Dukerich, Golden, and Shortell 2002), in-role performance (Riketta 2005), and organizational citizenship behavior (Bell and Menguc 2002; Dukerich, Golden, and Shortell 2002; Riketta 2005; Van Dick et al 2006) More recently, marketing researchers have begun to investigate customer-related implications of OI (e.g., Ahearne, Bhattacharya, and Gruen 2005; Bhattacharya and Sen 2003; Brown et al 2005) With regard to the antecedents of OI, previous Unlike OI, organizational commitment does not reflect the cognitive element of psychological oneness, selfdefinitional, and self-referencing (Ashforth and Mael 1989; Brown et al 2005; Van Knippenberg and Sleebos 2006) There exists mounting empirical evidence that OI and organizational commitment are distinct from each other (Bergami and Bagozzi 2000; Brown et al 2005; Gautam, Van Dick, and Wagner 2004; Mael and Tetrick 1992; Van Knippenberg and Sleebos 2006) research has investigated both individual antecedents, such as person–organization fit and customer–company fit and personality (e.g., Bhattacharya and Sen 2003), and organizational antecedents, such as identification with lower levels of the organization and organizational prestige and support (e.g., Dutton, Dukerich, and Harquail 1994; Mael and Ashforth 1992) Research on Charismatic Leadership Central to the leadership literature are the correlates and outcomes of different leadership styles In this study, we focus on charismatic leadership only In the widely accepted behavioral model of charismatic leadership (Conger and Kanungo 1998; Conger, Kanungo, and Menon 2000), charismatic leaders are those who possess high sensitivity to the environment and followers’ needs, articulate an attractive vision for the organization, and inspire subordinates to follow their attitudes and behaviors Empirically, previous research on charismatic leadership has found that these leaders have a profound influence on followers’ attitudes and behavior, ranging from heightened motivation, trust in the leader, and low role conflict and ambiguity to performance improvement (Shamir, House, and Arthur 1993; Conger, Kanungo, and Menon 2000) The Integration of Internal Marketing, OI, and Leadership Consistent with the assumption that satisfied employees are more customer conscious, previous research on internal marketing places a great deal of emphasis on viewing jobs as products that make employees satisfied (Berry and Parasuraman 1992) Although internal marketing has received significant attention in the literature, much of the work remains conceptual or anecdotal In contrast, empirical research on OI and leadership has been prolific, focusing almost exclusively on employee-related outcomes and much less on customer-related outcomes However, as Figure shows, few studies have examined the link between internal marketing and leadership (e.g., Bell, Menguc, and Stefani 2004; Gounaris 2006; Hult 1996), between leadership and OI (e.g., Conger, Kanungo, and Menon 2000; Kark, Shamir, and Chen 2003; Shamir, House, and Arthur 1993; Tyler and Blader 2000), or between OI and internal marketing (e.g., Bell and Menguc 2002) More important, absent in Figure is research that integrates internal marketing, OI, and leadership This is surprising because the three research areas conceptually complement one another Specifically, “the potential of leaders or managers to communicate and create a sense of shared identity is an important determinant of the likelihood that their attempts to energize, direct, and sustain particular work-related behaviors in their followers will be successful” (Ellemers, de Gilder, and Haslam 2004, p 467) The most inclusive shared identity is undoubtedly OI, which we propose to be the ultimate goal of internal marketing Organizational members who identify strongly with customer-oriented organizations are also customer conscious, a notion that should be at the fore of internal marketing Finally, because leaders are instrumental in the implementation of internal marketing, insights into how leaders at different levels can foster the adoption of corporate values among their subordinates are needed In this vein, the bright and dark side of charismatic leadership in terms of which values these leaders actually foster remains a nascent area that deserves further investigation (Conger 1999, p 172) CONCEPTUAL FRAMEWORK AND HYPOTHESES We propose a multilevel model to describe the cascading effect of the leader’s OI on followers’ OI that is enhanced by the leader–follower dyadic tenure and charismatic leadership In turn, this process has a positive impact on customer-contact employee performance and BU sales performance In the description of the model, we use the term “leader–followers” to refer to either the relationship between the regional director and the BU managers or the BU manager and customer-contact employees, which corresponds to the OI transfer from Level to Level and from Level to Level in Figure 2, respectively - Insert Figure about here The Impact of the Leader’s OI on Followers’ OI In the working relationship between leaders and followers, leaders represent the personal actualization of the otherwise abstract, impersonal existence of the organization Therefore, what leaders do, feel, and think should have a profound impact on followers Given this potential influence, it is surprising that few studies in marketing have investigated such effects in an internal marketing context (Berry and Parasuraman 1992; Burmann and Zeplin 2005) Extending the idea of leaders’ “communicating by deeds” in the internal marketing literature, we draw from social identity, emotional contagion, and consistency-driven assimilation theories to propose the behavioral, emotional, and cognitive routes through which leaders influence followers in developing perceptions and feelings of oneness with the organization First, according to social identity theory, identification with the organization evokes identity-congruent behavior on the part of organizational members (Ashforth and Mael 1989; Dutton, Dukerich, and Harquail 1994) Behaviors are congruent with OI when they enhance the organization, which is self-referential for those who identify with the organization Leaders who identify strongly with the organization actively strive to enhance the status of their group and to fulfill collective goals, even in the absence of personal benefits These leaders’ group-oriented actions will be perceived by followers as evidence of the values of the organization and therefore enhance followers’ OI (Van Knippenberg et al 2004) In addition, leaders influence followers’ behavior by signaling what attitudes, behaviors, and orientations are expected of the followers (Kelman 1958; Shamir, House, and Arthur 1993) The OI literature suggests that high-OI leaders become more prototypical of the organization because they conform to its norms and values, and their expectations are more likely to be in line with those of the focal organization Previous research has found that individuals are more likely to adhere to messages from prototypical group members than from nonprototypical ones (Van Knippenberg and Hogg 2003) Consequently, followers are likely to align their behavior toward the organization with the expectations of leaders FIGURE Study 1: Two-Way Interaction in Business Unit Manager–Customer-Contact Employee OI Transfer 3A With MOI on the X-axis 3B With TENURE on the X-axis Notes: EMDT = customer-contact employee–business unit manager dyadic tenure, and BU = business unit Figure 3A illustrates the moderating effect of EMDT as hypothesized Figure 3B highlights the OI transfer over time FIGURE Study 2: Contrasts in the Three-Way Interaction in the Business Unit Manager–Customer-Contact Employee OI Transfer Notes: BU = business unit FIGURE Study 2: Three-Way Interaction in the Business Unit Manager–Customer-Contact Employee OI Transfer 5A When BU Manager’s Charismatic Leadership Is Low Notes: BU = business unit EMDT = cust.-contact employee-BU manager dyadic tenure The figures were plotted to illustrate the OI transfer over time FIGURE Study 2: Three-Way Interaction in the Regional Director– Business Unit Manager OI Transfer 6A When Regional Director’s Charismatic Leadership Is Low 5B When BU Manager’s Charismatic Leadership Is High 6B When Regional Director’s Charismatic Leadership Is High Notes: BU = business unit, MDDT = manager–regional director dyadic tenure The figures were plotted to illustrate the OI transfer over time APPENDIX A Measurement Scales Scales Organizational Identification (OI, all levels) Mael and Ashforth 1992 (1 = “strongly disagree,” and = “strongly agree”) When someone criticizes [organization’s name], it feels like a personal insult I am very interested in what others think about [organization’s name] When I talk about [organization’s name], I usually say “we” rather than “they.” This organization’s successes are my successes When someone praises this organization, it feels like a personal compliment If a story in the media criticized [organization’s name], I would feel embarrassed Charismatic Leadership (Regional Directors; BU Managers) Conger and Kanungo 1998 (1 = “strongly disagree,” and = “strongly agree”) I am very successful in inspiring my employees [my sales managers] for a shared vision I can inspire my employees [my sales managers] even on bad days In difficult times I find it easy to convey a sound optimism to my employees [my sales managers] I have a vision that I try achieve with creative ideas I provide inspiring strategic and organizational goals I permanently create new ideas to make my travel agency [my travel agencies] ready for the future I am an entrepreneurial person and readily take opportunities I recognize new opportunities in the market that may facilitate our achievement of organizational objectives I am able to motivate my employees [my sales managers] by articulating effectively the importance of what they are doing I am a convincing representative to the external public Span of control: Number of followers working under a leader Dyadic tenure: Number of years that a follower works with a leader Customer-Oriented Training with Subordinate Managers/Employees (Regional Directors; BU Managers) New Scale (1 = “strongly disagree,” and = “strongly agree”), Study I intensively train my employees [my sales managers] with respect to customer oriented selling I intensively train my employees [my sales managers] in customer negotiation I frequently give hints and suggestions to my employees [my sales managers] with respect to customer oriented negotiation Sales Empathy (BU Managers; Employees) Adapted from Barrett-Lennard 1981 (1 = “strongly disagree,” and = “strongly agree”), Study I always sense exactly what customers want I realize what customer’s mean even when they have difficulty in saying it I it is easy for me to take the customer’s perspective Customer Orientation (BU Managers; Employees) Thomas, Soutar, and Ryan 2001 (1 = “strongly disagree,” and = “strongly agree”), Study I try to figure out what a customer’s needs are I have the customer’s best interests in mind I take a problem solving approach in selling products or services to customers I recommend products or services that are best suited to solving problems I try to find out which kinds of products or services would be most helpful to customers Organizational Commitment (Employees) Allen and Meyer 1990 (1 = “strongly disagree,” and = “strongly agree”), Study I would be very happy to spend the rest of my career with this travel agency I feel 'emotionally attached' to this travel agency I feel a strong sense of belonging to my travel agency Job Satisfaction (Employees) Hackman and Oldham 1975 (1 = “strongly disagree,” and = “strongly agree”), Study Generally speaking, I am very satisfied with this job I am generally satisfied with the kind of work I in this job I frequently think of quitting this job (reverse coded) Employee Performance New Scale (1= “strongly disagree,” and = “strongly agree”), Study Compared with other employees … I sell more travel My customers are more satisfied My job performance is higher Notes: BU: Business unit APPENDIX B Analytical Procedures and Methodological Notes Study Analytical procedures In Study 1, the first level of analysis includes salespeople’s OI, their dyadic tenure with their sales managers, and their objective performance The second level of analysis is the sales manager’s OI Consistent with previous research using HLM (e.g., Chen, Bliese, and Mathieu 2005) and moderation analysis (Aiken and West 1991), we mean-centered all measures within their respective levels by way of standardization The estimation method chosen was full maximum likelihood because this method allowed for comparison of model fits across nested models (Raudenbush and Bryk 2002) Finally, when analyzing the single-level tests (e.g., salespeople’s performance as an outcome of their OI), we used ordinary least squares regression As the first step in HLM analysis, we conducted a one-way analysis of variance with random effects to investigate whether systematic between-group variance exists in the criterion variable, customer-contact employees’ OI This step was also equivalent to estimating a null model (i.e., an intercept-only model) in which no predictors were specified for either Level or Level The null model results indicated that there was significant between-group variance (χ2(33, N = 285) = 64.4, p < 00) Therefore, we were confident that the variance to be explained in the criterion variable at Level required another predictor at Level 2, and we proceeded with a two-level model Study Discriminant validity analysis All the constructs satisfy the stringent test of discriminant validity that Fornell and Larcker (1981) suggest, in which the average variance extracted by the measuring items of a construct is greater than the shared variance between each pair of constructs (the square of the pairwise correlation) In addition, we tested discriminant validity among OI, organizational commitment, job satisfaction, identification with the travel agency, and customer orientation by conducting a series of nested chi-square analyses The results show that constraining the correlation of any pair of these variables to one resulted in a significant increase in the chi-square statistics At the customer-contact employee level, the change in chi-square when the correlations between OI and organizational commitment and between OI and Identification with the travel agency are constrained to one is Δχ2 (d.f =1) = 1835.1 and 1830.9, p < 00, respectively At the BU manager level, constraining the correlation between OI and Identification with the travel agency results in Δχ2 (d.f = 1) = 843.9, p < 00 This result of construct validity is robust in that we measured OI and identification with the travel agency using the same scale with only a change of the target of identification from the organization to the travel agency It provides concrete evidence that OI is distinct not only from organizational commitment but also from lower-level identification constructs, such as identification with the travel agency Analytical procedures As in Study 1, we first ran three null models to justify the use of higher-level predictors The results of the first null model for the manager–employee data set showed that customer-contact employees who worked under different managers exhibited significant between-group variance in OI (χ2(393, N = 1005) = 727, p < 00) Similarly, in the second null model for the director–manager interface, managers who worked under different directors also showed significant between-group variance in OI (χ2(21, N = 394) = 98.7, p < 00) The third null model tested a three-level model to determine whether it was possible for a thirdlevel predictor (i.e., director level) to exert a direct impact on customer-contact employees’ OI in a bypassing manner The results showed that this was possible (χ2(21, N = 1005) = 146.7, p < 00), but it required a mediation test To test whether BU managers’ OI fully mediated the relationship of a Level-3 predictor on customer-contact employees’ OI at Level 1, we conducted a series of tests that Baron and Kenny (1986) and Mathieu and 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