The impact of transformational leadership on employee engagement in banking sector at Ho Chi Minh city of Vietnam

Tác động của sự chuyển đổi lãnh đạo trên sự tham gia của nhân viên trong ngành ngân hàng tại thành phố Hồ Chí Minh Việt Nam Luận văn thạc sĩ Đại học Kinh tế TP. Hồ Chí Minh Tác giả: Dương Thị Thanh Tâm Đính kèm file gốc PDF

HoChiMinh City - 2012

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH

CITY

DUONG THI THANH TAM

THE IMPACT OF TRANSFORMATIONAL LEADERSHIP ON

EMPLOYEE ENGAGEMENT IN BANKING SECTOR AT

HO CHI MINH CITY OF VIETNAM

MASTER OF BUSINESS ADMINISTRATION THESIS

DUONG THI THANH TAM

THE IMPACT OF TRANSFORMATIONAL LEADERSHIP ON EMPLOYEE ENGAGEMENT IN BANKING SECTOR AT

HO CHI MINH CITY OF VIETNAM

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: DR TRAN HA MINH QUAN

ACKNOWLEDGEMENT

I would like to express my heartfelt gratitude and deepest appreciation to myresearch Supervisor, Dr Tran Ha Minh Quan for his intensive support, valuablesuggestions, guidance and encouragement during the course of my study

I would like to thank many of my colleagues at HSBC and friends from otherbanks located in Ho Chi Minh City who helped me during the collection of thedata

I would like to express my sincere gratitude to all of my teachers at Faculty ofBusiness Administration and Postgraduate Faculty, University of Economics HoChi Minh City for their teaching and guidance during my MBA course

I would like to specially express my thanks to all of my classmates, my friendsfrom for their support and encouragement

I would also like to avail this opportunity to express my appreciation toProfessor Nguyen Dong Phong, UEH Board of Directors for creating MBAprogram in English

Finally, I heartily dedicate this study to my beloved parents and my husband,Hien who have encouraged and supported me during my study and complete thisthesis

ABSTRACT

Employee engagement is important to any organization which wants to growstably and increase profitability Leadership is one of important factor that canimpact on the level engagement of the followers Transformational leadership,especially, is the most effective leadership behavior in each organization in thisflat world Exploring the relationship between transformational leadership andemployee engagement is really important for each organization This will help theleaders or the managers in the organization increase the level of engagement of

The results reveal that all dimensions of transformational leadership exceptInspirational Motivation have the positive influence on the level of employeeengagement in banking sector of Ho Chi Minh City of Vietnam The component -Individualized Consideration of transformational leadership behavior have thestrongest influence of the level of employee engagement.Based on the findings, it

is recommended that the managers or leaders in banking sector of Ho Chi MinhCity of Vietnam should apply the transformational leadership in practice to

improve the level of engagement of their employees Keywords:

transformational leadership, employee engagement, banking,

individualized consideration, intellectual stimulation, inspirational motivation,

Acknowledgement i

Abstract ii

Contents iv

List of Tables vi

List of Figures vii

CHAPTER1: INTRODUCTION 1

1.1 Research background 1

1.2 Research objective 3

1.3 Research scope and design 4

1.4 Research structure 4

CHAPTER 2: LITERATURE REVIEW 6

2.1 Employee engagement 6

2.2 Important of employee engagement 10

2.3 Leadership theories 12

2.4 Transformational leadership 15

2.5 Relationship between employee engagement and transformational leadership 19

2.6 Research model 28

2.7 Research variables 28

2.8 Research hypotheses 29

CHAPTER 3: RESEARCH METHODOLOGY 31

3.1 Research process 31

3.2 Measurement 33

3.2.1 Transformational leadership measurement 33

3.2.2 Employee engagement measurement 34

3.3 Sample and data collection 35

3.4 Data analysis method 36

LIST OF FIGURES

4.1 CHAPTER 4: DATA ANALYSIS AND RESULTS

37Data analysis 37

4.1.1 Demographic analysis 37

4.1.2 T-test analysis 39

4.1.3 Anova analysis 40

4.1.4 Statistical analysis 41

4.2 Research results and conclusion 57

CHAPTER 5: IMPLICATION AND LIMITATION 61

5.1 Implications 61

5.3 Limitations and future directions 63

References 66

Appendix 1YTable 4.1: The demographic analysis 39

Table 4.5: Descriptive statistics 41

Table 4.6: Descriptive statistics 42

Table 4.7: Cronbach’s a analysis for transformational leadership 44

Table 4.9: Cronbach’s a analysis for employee engagement 45

Table 4.10: Cronbach’s a analysis for employee engagement after amending 46

Table 4.12: Factor analysis - Total variance explained for transformational leadership factors 48

Table 4.13 Factor analysis - rotated component matrix for transformational leadership factors 49

Table 4.14: Factor analysis for employee engagement 50

Table 4.15: Correlations analysis 52

Table 4.16: Model summary 53

Table 4.17: Anova summary 54

Table 4.18: Coefficients 56

Table 4.19: Research hypotheses 57

Figure 2.1: Research model 28

Figure 3.1: Research process 32

Figure 4.1: Age range of respondents 37

Figure 4.2: Length of service of respondents with the bank 38

Figure 4.3: Results of regression analysis of transformational leadership

on employee engagement 59CHAPTER 1

INTRODUCTION

The introductory chapter discusses the research background and researchobjective Furthermore, the research scope and design and research structureare also outlined

1.1 Research background

Today’s business environment requires that companies maintainmaximum flexibility in order to adapt to the changing demands of themarketplace In recent years, multinational companies from around the worldhave eagerly embraced globalization and try to develop and implement aworldwide competition An aggressive campaign to boost profitability,increase market share, and improve customer satisfaction has been launch by

a group of leaders Besides, organizations have to face now with thechallenges of human resource development and management, in order toretain their best employees

Employee turnover is a problem faced by all organizations Highturnover rates have been associated with decreased customer satisfaction(Koys, 2001), productivity (Huselid, 1995), future revenue growth (Baron,Hannan, & Burton, 2001), and profitability (Glebbeek & Bax,2004).Therefore, now all organizations are highly concerned to keep theirvaluable employees not only to reduce the turnover cost but to ensure thestability and developing constantly In order to be successful, eachorganization needs to minimize turnover as well as maximize the effort eachindividual devotes to his or her organization Organizations expect theiremployees to be proactive and show initiative, collaborate smoothly with

others, take responsibility for their own professional development, and to becommitted to high quality performance standard An important way of doingthis is through employee engagement As noted by Schaufeli and Bakker(2004), engaged employees are likely to have a greater attachment to theirorganization and a lower tendency to quit

Engagement becomes an emerging psychological construct that purports

to measures how much a person is into his job The concept of workengagement has gained momentum because of its predictive value for jobperformance (Bakker, 2009; Schaufeli & Salanova, 2007) Employees whoare engaged put much effort into their work because they indentify with it It

is convinced that the people are the most important assets who form thestrength of the company and nothing can be achieved without theircommitment Organizations need employees who feel energetic anddedicated, and who are absorbed by their work In other words, organizationsneed engaged workers In order to achieve this aim, employees should beencouraged to participate in organizational activities which are expected toenhance their engagement Managers have to build close work relations withtheir subordinates to cope with the stressful and heavy working environment.The role of leader behaviors is very important to engage their followers,especially the transformational leadership Researches showed thatindividualized consideration, intellectual stimulation, inspirational motivation,and idealized influence — four components of transformational leadership allresult in extra effort from workers, higher productivity, higher morale andsatisfaction, higher organizational effectiveness, lower turnover, lowerabsenteeism, and greater organizational adaptability (Robbins & Judge,2007)

In banking sector, due to the nature of business, the more braches andoffices banks have, the more chances they have to get more business and

market shares Thus, banking employees constitute the largest group ofservices providers As banking is one of the vital service industry for anycountry and plays an important role in developing the economy, once bankingindustry develop constantly, the economy will go together A healthy bankingsystem depends on the performance of sound personnel In order to make surethat their employees are good performers they have to know how to retaintalented people and how to engage those people

In the context of Vietnam, after we officially become a member ofWTO, liberating of financial industry is a commitment that we must tocomply This liberation gives many chances not only for foreign banks toenter to Vietnamese market but also local banks to expand their operation tocompete with other ones Together with the expanding in banking network,the need of human resources in financial sector is increasing quickly As aconsequence, banking sector always is facing the turnover problem.Therefore, to retain talented employees, banks need to understand how toengage their employees Results from research organizations and corporateresults have demonstrated there may be a strong link between engagement,employee performance and business outcomes However, how to increaseemployee engagement level so that they can contribute with high performancefor banks in Vietnam is not much explored So far, there has been no research

on the effect of leadership behavior on employee engagement level in bankingsector in Vietnamese context

1.2 Research objective

The present research investigates the impact four components oftransformational leadership behaviors on employee engagement level,particularly in banking sector in Ho Chi Minh City of Vietnam The purpose

of this research is to check if those components of transformational leadershiphad positive impact on employee engagement, then provide some suggestions

for leaders or managers in banking sector to improve their followers’commitment to increase organizational performance and profitability

The research will answer the following questions:

Question 1: Which components of transformational leadership have influence

on employee engagement level?

Question 2: Which level do the four components of transformationalleadership impact on employee engagement?

Based on the above research questions, the objective of this study areoutline to examine the impact of transformational leadership on level ofemployee engagement Specifically, it explores the impact of each component

of transformational leadership behavior on the level of employee engagement

1.3 Research scope and design

The research focuses on banking sector in Ho Chi Minh City ofVietnam

The survey instrument will be initially piloted by 10 employees by interviewfor content, readability, and ambiguity Based on the results of the pilot, someminor change will be made to the questionnaire items Subject of the research

is employees who are working in banks included local and foreign bankslocated in Ho Chi Minh City who are working for the bank Total validanswered questionnaire is 205

After data collection, the measurement scale will be checked onreliability by Cronbach alpha and Exploratory Factor Analysis (EFA) to berefined And then, the hypotheses will be tested using correlation analysis andregression analysis

1.4 Research structure

This research includes five chapters

Chapter 1: Introduction This chapter includes a brief overview of

the research background, the purpose and scope of the research as well as thestructure of the research

Chapter 2: Literature review The chapter comprised a deep review

of previous researches on employee engagement and leadership theories andthe relationship between the two constructs The research also review whatprevious researches had done with limitation and suggestion for futureresearches Based on that, a conceptual model was constructed andhypotheses were proposed

Chapter 3: Research Methodology This chapter describes the

research process included the measurements, sample and data collection, andthe data analysis method

Chapter 4: Data analysis, results and conclusions: This chapter

comprises the official assessment of measures, data analysis to test thehypotheses as well as the research findings and conclusion

Chapter 5: Limitations and Implications This chapter points out the limitation of the research during

it’s implementing and propose managerial implication with specific recommendations and suggest for future research directions

CHAPTER 2 LITERATURE REVIEW

This chapter is an overview of available researches on employee engagement, leadership behaviorand the relationship between the two constructs Based on that, the conceptual model is constructed

2.1 Employee engagement

Engagement at work was first conceptualized by Kahn (1990) as the “harnessing oforganizational members’ selves to their work roles; in engagement, people employ and expressthemselves physically, cognitively, and emotionally during role performances” The cognitive aspect

of employee engagement concerns employees’ beliefs about the organization, its leaders and workingconditions The second aspect — emotional concerns how employees feel about each of those threefactors and whether they have positive or negative attitudes toward the organization and its leaders.The physical aspect concerns the physical energies exerted by individuals to accomplish their roles.Therefore, Kahn (1990) suggested engagement means to be psychologically as well as physicallypresent when occupying and performing an organizational role Alternatively, disengagement is view

as the decoupling of the self from the work role and involves people withdrawing and defendingthemselves during role performances In his research, Kahn (1990) found that three psychologicalconditions were associated with engagement and disengagement at work: meaningfulness, safety andavailability Respondents were suggested to ask themselves three fundamental questions in each rolesituation: (i) How meaningful is it for me to bring myself into this performance? ; (ii) How safe is it

to do so? ; And how available am I to do so? Based on the answer of respondents, he found thatemployees were more likely to be engaged at work in situations where they felt there were high levels

of psychological meaningfulness, psychological safety and psychological availability

May et al., (2004) completed an empirical researched to test Kahn’s (1990) model and foundthat meaningfulness, safety, and availability were significantly related to engagement

Engagement was reintroduced in the research of Maslach et al (2001) about job burnout Theyconceptualized burnout as the result of chronic and interpersonal stressors experienced at work with

burnout consisting of three dimensions: exhaustion, cynicism and inefficacy As individualexperience burnout their energy is replaced by exhaustion, involvement becomes cynicism andefficacy is turned into ineffectiveness From their research, they suggested engagement as the positiveantithesis of burnout like energy, involvement and efficacy, the opposite poles of burnoutdimensions According to Maslach et al (2001), six areas of work-life as control, workload, rewardsand recognitions, community and social support, perceived fairness and values may led to eitherburnout or engagement Where there is a high degree of match between a person and these areasengagement is established.

Engagement is most closely associated with the existing constructs of job involvement(Brown, 1996) and “flow” (Csikszentmihalyi, 1990) in the social sciences literature Job involvement

is defined as “the degree to which the job situation is central to the person and his or her identity”Lawler & Hall, 1970) Kanungo (1982) suggested that job involvement is “a cognitive or belief state

of psychological identification” Job involvement is thought to depend on both need saliency and thepotential of a job satisfy to these needs

Therefore, Job involvement results from a cognitive judgment about the need satisfying abilities ofthe job Job in this view is tired to one’s self-image Engagement differs from job involvement in that

it is concerned more with how the individual employs his or her self during the performance of his orher job Moreover, engagement entails the active use of emotions and behaviors, in addition tocognitions Finally, engagement may be thought of as an antecedent to job involvement in thatindividuals who experience deep engagement in their roles should come to identify with their jobs

The second related construction to engagement is the notion of “flow” defined byCsikszentmihalyi (1990) as the “holistic sensation that people feel when they act with totalinvolvement” Flow is the state in which there is little distinction between the self and environment.When individuals are in a “flow” state, little conscious control is necessary for their actions.Individuals narrow their attention to specific stimuli They lose a sense of consciousness about theirselves as they melt with the activity itself Flow also experience provide feedback that isautomatically take into account by the individual Finally, individual in a flow experience need noexternal rewards or goals to motivate them as the activity itself present constant challenges May et al

(2004) also agreed that engagement is most closely associated with the constructs of job involvementand flow.

Engagement also was conceptualized as “a persistent, positive, affective-motivational state offulfillment in employees characterized by vigor, dedication, and absorption.” (Schaufeli & Salanova,

et al., 2002) According to them, vigor is seen as high level of energy and resilience, a willingness toinvest effort in the job, ability to not be easily fatigued, and persistence in the face of difficulties.Dedication is characterized by strong involvement in work, enthusiasm, and a sense of pride andinspiration

Absorption is defined as a pleasant state of being immersed in one’s work, time passing quickly, andbeing unable to detach from the job

Recently, employee engagement has been often defined as emotional and intellectualcommitment to the organization (Baumruk, 2004; Shaw, 2005; and Richman, 2006) or the amount ofdiscretionary effort exhibited by employees in their job (Frank et al., 2004); that is when employeeshave many choices, they will act in a way that furthers their organization’s interest An engagedemployee is a person who is fully involved in and enthusiastic about his or her job Employeeengagement was also defined by Trust et al (2006) simply as “passion for work’, a psychologicalstate which is seen to encompass the three dimensions of engagement discussed by Kahn(1990), andcaptures the common theme running through all these definitions (Kular, 2008)

Whilst it is acknowledged that employee engagement has been defined in many differentways, it is also argued that the definitions often sound similar to other better known and establishedconstructs such as “organizational commitment” and “organizational citizenship behavior” (OCB)(Robinson et al., 2004) Therefore, they defined engagement as “one step up from commitment”.However, Saks (2006) argued that organizational commitment also differs from engagement in that itrefers to a person’s attitude and attachment towards their organization, whilst it could be argues thatengagement is not merely an attitude; it is the degree to which and individual is attentive to theirwork and absorbed in the performance of their role

In addition, while OCB involves voluntary and informal behaviors that can help co-workersand the organization, the focus of engagement is one’s formal role performance rather than purelyextra and voluntary behavior.

The existence of different definitions about employee engagement makes it is difficult todetermine the state of knowledge of it due to each study examines employee engagement under sdifferent protocol In addition, unless employee engagement can be universally defined andmeasured, it cannot be managed, nor can it be known if efforts to improve it are working (Ferguson,2007) This highlights the problems of comparability cause by differences in definition So far none

of the definitions has come to dominate the field either as a definition or as a methodology (Wefald,2008)

2.2 Important of employee engagement

It is important for managers to cultivate engagement given that disengagement or alienation iscentral to the problem of workers’ lack of commitment and motivation (Aktouf, 1992) Meaninglesswork is often associated with apathy and detachment from ones’ work (Thomas & Velthouse, 1990)

In such conditions, individuals are thought to be estranged from their selves (Seeman, 1972) andrestoration of meaning in work is seen as a method to foster an employee’s motivation andattachment to work These views demonstrate both the humanistic and practical reasons for providingmeaningful work to individuals — personal fulfillment and motivational qualities of such work

Practitioners and academics tend to agree that the consequences of employee engagement arepositive (Saks, 2006) There is a general belief that there is a connection between employeeengagement and business results; a meta-analysis of Harter et al (2002) had confirmed thisconnection They concluded that “employee satisfaction and engagement are related to meaningfulbusiness outcomes at a magnitude that is important to many organizations” Other researches using adifferent resource of engagement (involvement and enthusiasm) has linked it to such variables asemployee turnover, customer satisfaction — loyalty, safety and to a lesser degree, productivity andprofitability criteria (Harter, Schnitdt & Hayes, 2002)

A highly engaged employee will consistently deliver beyond expectation In the workplaceresearch on employee engagement (Harter, Schmidt & Hayes, 2002) have repeatedly askedemployees “whether they have the opportunity to do what they do best everyday” One in fiveemployees strongly agrees with this statement Those work units scoring higher on this perceptionhave substantially higher performance.

Thus employee engagement is critical to any organization that seeks to retain valuedemployees An organization’s capacity to manage employee engagement is closely related to itsability to achieve high performance levels and superior business results The Gallup Organization(2004) found a critical links between employee engagement, customer loyalty, business growth andprofitability They compared the scores of these variables among a sample of stores scoring in the top

25 per cent on employee engagement and customer loyalty with those in the bottom of 25 per cent.The results show that stores in the bottom 25 per cent significantly under-performed across threeproductivity measures: sales, customer complaints and turnover Gallup research consistentlyconfirms that engaged work places compared with least engaged are much more likely to have loweremployee turnover, higher than average customer loyalty, above average productivity and earnings.The findings from the International Survey Research (ISR, 2005) team showed

evidence that organizations can only reach their full potential through emotionally engaging employeesand customers

In an extension of the Gallup findings, Ott (2007) cites Gallup research, which found thathigher workplace engagement predicts higher earnings per share (EPS) among publicly-tradedbusinesses When compared with industry competitors at the company level, organizations with morethan four engaged employees for every one actively disengaged, experienced 2.6 times more growth

in EPS than did organizations with a ratio of slightly less than one engaged worker for every oneactively disengaged employee The findings can be considered as reliable as the variability indiffering industries was control by comparing each company to its completion, and the patternsacross time for EPS were explored due to a “bouncing” increase or decrease which is common in EPS(Ott, 2007) The Watson Wyatt consulting companies has also been proved that there is an intrinsiclink between employee engagement, customer loyalty, and profitability

There are many researches prove that engaging and involving employees make good businesssense and building shareholders’ value Negative workplace relationships may be a big part of why somany employees are not engaged with their jobs In the research of Robinson et al (2004), theyemphasized that “The organization must work to nurture, maintain and grow engagement, whichrequires a two-way relationship between employer and employee” In their research, they are muchmore explicit in highlighting the importance of managers and management style in the two-wayprocess between the organization and employee Therefore, leadership is one of factors thatorganization striving for employee engagement can not afford to ignore.

2.3 Leadership theories

Leadership is an important function of management which helps to maximize efficiency and toachieve organizational goals The excellent leader not only inspires subordinate’s potential toenhance efficiency but also meets their requirements in the process of achieving organizational goals.Leadership was earlier defined by Stogdill (1957) as the individual behavior to guide a group toachieve the common target According to Richards & Engle (1986,) leadership is about establishment

of vision, value and creation of environment so that the objective can be accomplished Robbins andJudge (2007) define leadership as the ability to influence a group toward the achievement of a vision

or set of goals The sour e of this influence may be formal, such as that provided by the possession ofmanagerial rank in an organization Kouzes and Posner (2007) suggested that leadership is about themobilization of others to get things done

The theories about leadership had been developed since the 1900’s At the beginning,leadership was considered as an innate ability According to Great Man theory, leadership isconsidered an art, for which some fortunate people had an inbuilt genius and the rest of us could onlyengage in admiring post-game analyses Next is the Trait theory where leadership differentiatesleaders from non-leaders by focusing on personal qualities and characteristics (Robbins and Judge,2007) However, research efforts at isolating leadership traits resulted in a number of dead due to anumerous of leadership traits were identified Although some of them are common, these particulartraits that were isolated varied a great deal from review to review

The failures of early Trait studies led researchers go to another direction in the late 1040sthrough 1960s that looked at the behaviors exhibited by specific leaders Beginning with over athousand dimensions of leadership behaviors, they had narrowed leadership into task-oriented andpeople-oriented styles Based on the specific behaviors identified leaders, the Behavioral theoriessuggested that leadership could be created by training or learning those behaviors.

Although behavior theory may help to develop specific leadership behavior, the prediction ofeffective leadership is more complex due to different situations Indeed, most researchers confirmthat there is no right leadership style for all situations Therefore, contingency theories arose to with

an attempt to match the leadership behaviors that worked best in specific situations The firstcomprehensive contingency model for leadership was developed by Fred Fiedler This modelproposes that effective group performance depends on the proper match between leader’s style andthe degree to which the situation gives control to the leader According to Fiedler, the better theleader-member relations, the more highly structured the job, and the stronger the position power, themore control the leader has (Robbins and Jugde, 2007)

Hersey and Blanchard have developed a leadership model which called — situationalleadership theory Situational leadership is a contingency theory that focuses on followers.Regardless of what the leader does, effectiveness depends on the actions of the followers This is animportant dimension that had been overlooked or underemphasized in most leadership theories Thetheory is based on the amount of direction (task behavior) and socioemotional support (relationshipbehavior) a leader must provide given the situation and the readiness of the followers The termreadiness refers to the extent to which people have the ability and willingness to accomplish aspecific task (Robbins and Jugde, 2007)

The transactional-transformational leadership model has been a large and important part ofleadership research and theory recently The terms of transactional-transformational leadership wereoriginal developed by Burns (1978) and then cleared up by Bass (1985) In broader terms, the modelexplains the characteristics of effective leadership

Transactional leadership theory is founded on the idea that leadersubordinate relations arebased on a series of exchanges or implicit bargains between leaders and followers (Den Hartog &Koopman, 2002) The exchange may be economic, political or psychological (Burn, 1978) Forexample, politicians lead by “exchanging one thing for another: jobs for votes, or subsidies forcampaign contribution”.

On the other hand, Transformational leadership theory suggested that employees functionmost effectively when led in a way that is beyond simple transactions Transformational leadersinspire followers to transcend their own self-interests for the good of organization and are capable ofhaving profound and extraordinary effect on their followers Transformational leaders helps followersgrow and develop their own leadership capacity by responding to individual follower’s needs,empowering them and by aligning the objectives and goals of individual followers, the leader, thegroup , and the larger organization

There was a numerous researches show that transformational leadership is the most effectiveleadership which can move followers to exceed expected performance, as well as lead to high levels

of follower satisfaction and commitment to the group and organization (Bass, 1985, 1998) One ofevidences for the above statement is the experimental research of van Vugt, Jepson, Hart and deCremer (2004) Participants were randomly assigned to one of three groups and took part in threeinvestment task trials The authors manipulated the content of the messages sent by the leader to thegroup members to simulate either transactional, transformational, or laissez- faire (non-leadership)leadership style After the task trials, individuals were asked whether they wanted to stay in the samegroup or join a different group for a subsequent task The results suggested that participants weremore likely to leave the group when they were in the condition with the transactional or the laissez-faire leader, in contrast with the transformational leader When confronted with a transactional leader,group members were unhappy with the limited amount of control they had over the decisionprocesses, while when confronted with a laissez-faire leader participants did have control, but theywere not motivated to invest additional effort In summarize, previous researches support ourdecision to focus on transformational leadership in relation to employee engagement

2.4 Transformational leadership

Transformational leadership is defined as leadership behavior that transforms the norms andvalues of the employees, whereby the leader motivates the workers to perform beyond their ownexpectations (Yuki, 1989) According to Bass (1985), transformational leaders motivate theirfollowers by inspiring them, offering challenges, and encouraging individual development.Transformational leadership stresses achievement of higher collective purpose, of common missionand vision Bass had conducted interviews with 70 senior executives, defining transformationalleadership and asking respondents to describe a transformational leader with whom they had workedwith Respondents reported that the leader encouraged them to work above and beyond what wasexpected of them Their leader increased their awareness of and promoted higher levels ofperformance and greater innovativeness in their teams As a result, the followers trusted in the leaderand heightened self-confidence, and total commitment to the organization The subordinates oftransformational leaders feel trust, admiration, loyalty, and respect toward leaders and are motivated

to perform extra-role behaviors (Bass, 1985; Katz and Kahn, 1978)

The transformational leadership is comprised of four components with descriptions arepresented in the following section:

Idealized influence: transformational leaders show great persistence and determination in the

pursuit of objectives, show high standards of ethical, principles and moral conduct, sacrifice self-gainfor the gain of other, consider subordinates’ needs over their own needs and share successes and riskswith subordinates (Kedsuda & Stephen, 2007) The leaders become a role model for their followers.The followers trust, admire, respect the leaders and strive to emulate them Subordinates areencouraged to develop in an attempt to reach their full potential There are two aspects of Idealizedinfluence: idealized influence attributed and idealized influence behavioral For Idealized influence(attributes), leaders are perceived as confident, powerful and focused on higher order ideals andethics In the other hand, leaders with Idealized influence (behaviors) manifest actions centered onvalues, beliefs and a sense of mission These two aspects, measured by separate sub-factors of theMultifactor Leadership Questionnaire (MLQ), represent the interactional nature of idealized

influence It is both embodied in the leaders’ behavior and in attributions that are made concerningthe leaders by followers For instance, from MLQ, the item “The leader emphasizes the importance ofhaving a collective sense of mission” represent idealized influence behaviors while the item “Theleader goes beyond selfinterest for the good of the group” represent idealized influence attributed.This component can be mapped on Kahn’s (1990) conditions of engagement through relationshipfactors within psychological meaningfulness and safety It is also align with elements of vigor anddedication through developing a willingness to invest in one’s work and building a sense ofinspiration, significance and enthusiasm (Maslach et al, 2001).

Inspirational motivation: leaders behave in ways that motivate subordinates by providing

meaning and challenge to their work Team’s spirit is aroused together with the exhibition ofenthusiasm and optimism The leaders articulate shared vision and goals in clear ways and how theyare to be achieved They also encourage the followers to envision attractive future states andcommunicate with them about the expectations and demonstrate a commitment to goals and sharedvision The inspirational motivation component aligned with the condition of meaningfulness ofKahn (1990) in that the sense of being involved and valued helps instill feeling of meaningfulness.This also reflected in facet of dedication of Maslach et al (2001)

Intellectual stimulation: Transformational leaders stimulate their subordinates’ effort to be

innovative and creative by questioning assumptions, reframing problems, and approaching oldsituations in new ways Creativity is encouraged Followers are animated to try new approaches butemphasized rationality and their ideas are not criticized if differ from the leaders’ ideas Thefollowers’ new ideas and creative problem solutions are counted while involving in the process ofaddressing problems and finding solutions (Bass et al, 2003) Intellectual stimulation maps on toengagement in that it allows followers to feel comfortable and safe in expressing their opinions, keyfactors of psychological safety (Kahn, 1990) It is complied with requirement of engagement isemployees being able to voice their views Intellectual stimulation also shows that leaders value theiremployees’ inputs, and this add to effective reciprocal communication and helps build interpersonalrelationships, factors highlighted as essential for engagement (Robinson et al, 2004)

Individualized consideration: the leaders build a considerate relationship with each

individual They treat their subordinates as unique individuals, and understand the followers’ needsfor achievement and development by adopting a coaching and mentoring approach The subordinatesare developed to successively higher level of potential in a supportive climate Individual differences

in terms of needs and desires are recognized The leaders’ behavior displays acceptance of individualdifferences A two-way exchange in communication is encouraged, and “management by walkingaround” work spaces are practiced Interactions between leader and followers are personalized Theindividually considerate leaders listen effectively The leader delegates tasks as a means ofdeveloping followers Individualized consideration contributes to the levels of trust and supportbetween leaders and followers which is a key in creating psychological safety according to Kahn(1990)

In summarized, idealized influence, inspirational motivation, intellectual stimulation, andindividualized consideration all result in extra effort from workers, higher productivity, higher moraleand satisfaction, higher organizational effectiveness and organizational commitment, lower turnover(Robbins & Judge, 2007)

2.5 Relationship between employee engagement and transformational leadership

One of the essential drivers for employee engagement is leadership This is not surprising asleadership is one of the most researched topics within organizational and business setting with over80,000 articles listed in Business Source Complete and over 25,000 articles listed in PsychINFOdatabases (Julia & Ian, 2009)

There was a numerous researches show that transformational leadership is the most effectiveleadership which can move followers to exceed expected performance, as well as lead to high levels

of follower satisfaction and commitment to the group and organization (Bass, 1985, 1998)

Can transformational leaders influence follower engagement?

Transformational leaders inspire followers with a vision that address their higher needs andengage followers in the attainment of that vision The transformational leadership style enhances

employees’ feelings of involvement, cohesiveness, commitment, potency, and performance (Shamir,House & Arthur, 1993) An employee who receives support, inspiration and quality coaching fromthe supervisor, is likely to experience work as more challenging, involving and satisfying, andconsequently, to become highly engaged with the job tasks.

Transformational leadership is the combination of four components: idealized influence or charisma,inspirational motivation, intellectual stimulation, and individualized consideration Charismaticleaders in the form of unconventional behavior provide a worthy role model for followers to emulateand thereby directly enhance innovation by followers The leadership behavior of inspirationalmotivation enhances meaningfulness — followers perceive their work in a context which ispersonally important to them

Leaders with intellectual stimulation behavior enhance follower freedom and self-efficacy byallowing followers to question assumptions and work out their own solution to problems These threepsychological states of meaningfulness, freedom, and self-efficacy lead to engagement which in turnleads to innovation Finally, individualized consideration by leaders triggers the norm of reciprocity

in followers and they provide innovative solutions to solve organizational problems Putting all theabove reasoning together, it is found numerous paths from transformational leadership to employeeengagement Transformational leaders bring a positive change in those who follow them They aremostly vigorous, keen, ardent and paying attention on the success of every member of the group

However, in order to create a highly engaged environment, managers must be engaged, “ifmanagers aren’t engaged its unlikely employees will respond to any efforts to engage them” (Soltis,2004) Research has demonstrated that employee engagement tends to be based on factors such asrelationship they have with their managers (Blizzard, 2003)

A study conducted by Schaufeli and Bakker (2004), indirectly measured aspects oftransformational leadership and its influence on job engagement They found that two variablesencompassed in the individual consideration component of transformational leadership (coaching andfeedback) were positively related to vigor, dedication, and absorption

May, Gilson, and Harter (2004) also found significant results relating job engagement andleadership in their study They found that employee job engagement was significantly correlated withsupervisor relations, which they defined as the leader’s display of concern for their employees’ needsand feelings, as well as positive feedback to employees and encouragement from the leader to voicetheir concerns They also found that job engagement was significantly related to meaningfulness,which measures the degree of meaning an individual discovers in their work.

Metzler (2006) examined the relationship between transformational and transactionalleadership and employee engagement (vigor, dedication, and absorption), on a sample of 251university students Leadership style was assessed using Bass and Avolio’s (2004) MultifactorLeadership Questionnaire (MLQ) (3rd edition, Form5X) which consisted of 32 items, measuressubordinate perceptions of their supervisors’ leadership style Employee engagement was assessedusing the Utrecht Work Engagement Scale (UWES; Schaufeli et al., 2002) which measures the extent

to which employees are engaged in their jobs over three dimensions: vigor, dedication, andabsorption Results showed that both leadership styles would positive predict employee vigor,dedication, and absorption, but transformational leadership would have greater power to predict thedimension of employee engagement

Arnold, Turner, Barling, Kelloway, and McKee (2007) found a partial and a full mediation (intwo studies) of meaning ascribed to work between transformational leadership and psychologicalwell-being The correlation between transformational leadership and psychological well-beingwas 57 (p < 01) Both studies indicated that transformational leaders have a positive impact on thepsychological well-being of their followers (Arnold et al., 2007) Given the similarities betweenpsychological well-being and engagement, it is likely that transformational leadership will also have

an impact on engagement

A study looking at transformational leadership and engagement directly was done by Zhu,Avolio, and Walumbwa (2007) This research operationalized engagement using an industry scaledeveloped by the Gallup Corporation (the Q12) Broadly, they found that leader-rated followercharacteristics moderated the positive relationship between transformational leadership and followerengagement such that as leaders rated their followers more positively, the relationship between

transformational leadership and engagement was stronger They also found a significant positivedirect relationship between transformational leadership and engagement (r =.58, p < 01).

In the study of Wefald (2008) on examination of job engagement, transformational leadershipand related psychological constructs, hierarchical regressions were performed to test hypothesis sixwith control variables in the first step (manager, gender, age group, education level, and job tenure),personality variables in the second step (big five personality facets and positive affect), andfollower’s reports of their leader’s level of transformational leadership in the third step Hypothesissix stated that after controlling for demographic variables and personality, followers’ reports of theirdirect report’s level of transformational leadership will significantly predict engagement Thishypothesis was partially supported The reports of transformational leadership predicted bothmeasures of engagement (Schaufeli and Britt), but not Shirom’s vigor Transformational leadershipwas measured using a short measure of transformational leadership called the GlobalTransformational Leadership scale (GTL) (Carless, Wearing, & Mann, 2000) Engagement wasmeasured with two different, published scales The first scale was a short version of the Utrecht WorkEngagement Scale (UWES) from Schaufeli & Salanova et al (2002) called the UWES-9 The

second published engagement scale utilized was a four item scale by Britt, Thomas, and Dawson (2006)

The results of this research suggest that the engagement measures, but not the vigor measureare subject to the influence of the leaders as measured by followers

The importance of leadership for organizations also stems from the results indicating that itcan affect the engagement of employees (using the Schaufeli or Britt engagement measures).However, the limitation of this research is all the data came from one sample of employees, in twoseparate lines of business, at a mid-sized financial institution Besides, while use of the Carless,Wearing, and Mann (2000) Global Transformational Leadership, it does not allow for specificanalyses of the various components of transformational leadership or what specific behaviors predictvarious outcomes (Wefald, 2008) Thus, this research suggested that future research should utilize thefull Multifactor Leadership Questionnaire that would allow for more specific linking of leaders and

followers, and use samples of employees from different organization and different type of jobs forcoming with a general conclusion.

Gill, Flaschner, Shah and Bhutani (2010) in their research checked the relationship oftransformational leadership and empowerment with employee job satisfaction and collected data from

218 restaurant managers and found practicing transformational leadership and employeeempowerment leads to higher employee commitment which further enhances employee jobsatisfaction

A diary study of Tims, Bakker & Xanthopoulou (2011) investigated whether and howsupervisors’ leadership style influence followers’ daily work engagement They predicted that atransformational leadership style enhances employees’ work engagement through the mediation ofself-efficacy and optimism, on a day-to-day basis Forty-two employees from two differentorganizations in the Netherlands, most of them worked as consultants at an agency for temporarywork (84%) and the rest worked at an industrial consultancy agency (16%), were asked to fill in afirst general questionnaire and then a diary survey for five consecutive workdays The trait workengagement was measured with the short, 9-item version of the Utrecht work Engagement scale(UWES; Schaufeli, Bakker, & Salanova, 2006) Trait transformational leadership style was measuredwith the 12-item Dutch version (Stuart, 2005) of the Multifactor Leadership Questionnaire (MLQ,Bass & Avolio, 1990) Employees filled out this scale having in mind their direct supervisor It isimportant to note that all participants had a different supervisor as a reference point The resultssupported the positive relationship between day-level transformational leadership and day-level workengagement, as well as the role of day-level optimism but not the selfefficacy as full mediator in thisrelationship Thus, transformational leaders fostered followers’ optimism, and indirectly contributed

to followers’ level of vigor, dedication and absorption An employee, who feels optimistic aboutachieving the work goals, is involved and willing to go the extra mile, and then become moreengaged to their work The limitations of this research are data were collected only from two differentorganizations which restricted the genera liability of the results and the transformational leadershipstyle of each leader was rated only by one subordinate Thus, in future researches it would be

worthwhile to ask several employees to rate their leadership style of each leader on his/her respectiveleadership style in order to get more objective ratings.

Javier (2011), in the study “Manager’s leadership styles and employee engagement:Quantifying manager’s influence” examines to what extend does managers’ leadership style impactemployee engagement levels The research foundation included the model of transactional andtransformational leadership styles and their impact on employee engagement based onTransformational Leadership Development: Manual for the Multifactor Leadership Questionnaire byBass and Avolio (1990) on transactional/transformational leadership and Q12 questions Meta-analysis by Harter, Schmidt, Killham, and Asplund (2006) on employee engagement Study resultsconfirm that there was a direct positive relationship between transformational leadership style andoverall employee engagement Study results also confirm that there was a direct positive associationbetween the transformational leadership style and the management support and teamwork subdimensions of engagement

In the study of Raja (2012), he explored how transformational leadership leads to higheremployee work engagement in the service sector firms of Pakistan 150 respondents who are middlelevel manager from selected service firms had completed the structured questionnaire TheMultifactor Leadership Questionnaire (Bass & Avolio, 1995) and 11-item scale developed byBandura & Gists (1987) for self-efficacy were used as measurement in this study The result showedthat inspirational motivation, idealized influence, individual consideration and intellectual stimulationwhen all these aspects of transformational leadership are practiced by the managers, it leads to higheremployee work engagement

Leadership research shows consistent links between transformational leadership and constructsthat are argued by some to be part of engagement, such as motivation, job satisfaction, organizationalcommitment, proactive behaviors, and organizational citizenship behaviors The research of Mu-LiYang (2012) examined the effects of transformational leadership on job satisfaction andorganizational commitment of public relations (PR) practitioners within the context of PR companies

in Taiwan 305 respondents are from 159 PR firms located in Taipei Regression analyses indicatedthat transformational leadership dimensions did have significant impact on the job satisfaction of PR

practitioners Moreover, job satisfaction in this study was found to be a mediator of the effect oftransformational leadership on the organizational commitment of PR practitioners.

Limsila & Ogunlana (2007) had examined who project managers’ leadership styles andsubordinates’ organizational commitment correlates with leadership outcomes and work performance

of subordinates on construction projects The results showed that transformational leadership stylehas a positive association with work performance and organizational commitment of subordinatemore than the transactional leadership style Transformational leadership produces higher leadershipout come as well

Bushra, Usman, and Naveed (2011) conducted a study to investigate the relationship betweentransformational leadership and job satisfaction and organizational commitment of employeesworking in banking sector of Lahore (Pakistan) The study results confirmed that transformationalleadership positive effects job satisfaction and organizational commitment of employees The sameresults had been found in the research of Riaz et al.(2011), that there is significant and positiverelation between transformational leadership and employees’ affective commitment in banking sector

in Islamabad (Pakistan)

Mert et al (2010) studied the effects of leadership on organizational commitment in generaland to question the role played by transactional and transformational leadership in improvingorganizational commitment of branch employees The study is designed to develop and test astructural equation model of the relationship between transactional and transformational leadershipstyles and the organizational commitment of banking staff Data were collected from 242 offices ofHalkbank in Turkey, and 2454 branch employees from different branches of Halkbank participated inthe study It was found that transformational leadership helps increase organizational commitment ofthe employees

These studies provide evidence for a link between positive transformational leader behaviorswith follower attitudes and behaviors associated with engagement Based on the researches reviewed,

it shows that there is really a relationship between transformational leadership and employeeengagement

However, much of the researches on engagement had been conducted on organizations in the

US, and a few researches from other countries Although the Gallup Organization employeeengagement survey has been conducted in several countries, there is still a need for research to becarried out in other countries throughout the world to provide an integrity picture on employeeengagement Especially, significant contribution contextualized with Vietnamese environment is verylimited

In addition, almost previous researches on relationship between transformational leadershipbehavior and employee engagement were conducted in one or two organizations, not in the wholeindustry to get the overall vision A limitation of some researches was that using the Global

Transformation Leadership scale that does not allow for specific analyses of the various components

of transformational leadership or what specific behaviors predict various outcome As suggested by(Wefald, 2008), future research should utilize the full Multifactor Leadership Questionnaire thatwould allow for more specific linking between leaders and followers, and use samples of employeefrom different organizations and different types of jobs in other industries to come up with a generalconclusion

Thus, this study will focus on examination the effective of transformational leadershipbehavior on employee engagement in the Banking sector in Ho Chi Minh City of Vietnam Bankingsector was chosen for the study because of few reasons: First, the transformational leaders isparticularly important for effective functioning in organizations such as banks where tasks arecomplex and require high levels of interdependence, cooperation, information sharing and above alltrust Second, there is many researches conducted in banking sector in other countries but not inVietnam

2.6 Research model

Base on the literature review, the research model for this study was built This model describesthe relationship between transformational leadership and employee engagement Transformationalleadership is the combination of four components: Idealized influence, Inspirational

motivation, Intellectual stimulation, and individualized consideration

Figure 2.1: Research model

2.7 Research variables

The variables in this study were transformational leadership andemployee engagement

The independent variable was transformational leadership with four components:Idealized influence, Inspirational motivation, Intellectual stimulation, andindividualized consideration The dependent variable was employeeengagement.2.8 Research hypotheses

The study aims to thrash out the impact of transformational leadershipstyle of leaders on the level of employee engagement in the banking sector in

Ho Chi Minh City of Vietnam

According to Bass (1985), there are fore core dimensions which built

up transformational leadership: idealized influence, inspirational motivation,intellectual stimulation, and individualized consideration

When leaders take responsibility for their actions, make personalsacrifices, show great determination and share any success, they are applyingidealized influence behaviorof transformational leadership There are twoaspects of Idealized influence: idealized influence attributed (leaders areperceived as confident, powerful and focused on higher order ideals andethics) and idealized influence behavioral (leaders manifest actions centered

on values, beliefs and a sense of mission) Through thesetypes of behavior,transformational leaders inspire others with a clear vision of what can beachieved with extra effort, and encourage follower development in an attempt

to help followers reach their full potential which then enhanced the followerengagement Thus, the following hypotheses were proposed:

Hypothesis H1: Idealized influence (attributes) has positive influence

on employee engagement level

Hypothesis H2: Idealized influence (behaviors) has positive influence

on employee engagement level

When leaders articulate in clear ways shared visions and goals andhow they are to be achieved, inspirational motivation dimension oftransformational leadership occurs Besides, this will help to develop a mutualunderstanding of values and ideals The leaders provide employees inspirationand a sense of being involved and valued by highlighting how followers arecontributing to the organization, plus an alignment of organizational andemployee values as a result of increased employee engagement Therefore,the current study proposed that:

Hypothesis H3: Inspirational motivation has positive influence onemployee engagement level

In accordance with intellectual stimulation dimension, leaders helpfollowers to develop divergent thinking They encourage the subordinates toquestion their own beliefs and values and those of the leaders, and helpdevelop followers’ problem solving capabilities through innovative strategies.This maps on to engagement in that it allows followers to feel comfortableand safe in expressing their opinions, key factors of psychological safety(Kahn, 1990) With this reason, we proposed the hypothesis below:

Hypothesis H4: Intellectual stimulation has positive influence onemployee engagement level

Individualized consideration component of transformational leadershiprefers when leaders treat followers as unique individuals and understandingand sharing their concerns and development needs by adopting a coachingand mentoring approach The followers feel trust and support from the leaderswhich is key in creating Kahn’s (1990) psychological of safety, one ofdimension of employee engagement So we proposed the hypothesis:

Hypothesis H5: Individualized consideration has positive influence onemployee engagement level.

CHAPTER 3RESEARCH METHODOLOGYThis chapter introduces the research process, measurement, sample methodand data collection, and finally outlines the method to do data analysis

3.1 Research process

The research process includes seven steps

First, based on the literature review, the conceptual model was built Thenthe first draft of questionnaire was generated in accordance with theconceptual model

Second, a in depth interview was conducted to check the content,readability, and ambiguity of the questionnaire After in-depth interview,some minor change was implemented to make the questionnaire is clearer andeasy to understand

The modified questionnaire was used to do pilot study with 10 people to makesure they all understand correctly the information required on thequestionnaire After pilot study, the final questionnaire was completed andused to do the main survey

The quantitative research was conducted using the final questionnaire.Then Cronbach Alpha & Exploratory Factor Analysis were use to check thereliability and validity of the measurement

3.2 Measurement

3.2.1 Transformational leadership measurement

The transformational leadership style was assessed by using Bass and Avolio’s (2004) MultifactorLeadership Questionnaire (3rd edition, Form5X) The Multifactor Leadership Questionnaire (MLQ),measures subordinate perceptions of their supervisors’ leadership style include both transformational andtransactional leadership This study employed 20 items of this MLQ to assess the independent variables

of the banks’ employees rating their supervisor’s leadership style regarding four dimensions oftransformational leadership: idealized influence (Attributes and Behaviors), inspirational motivation,intellectual stimulation, and individualized consideration The respondents were asked to indicate theextent to which they perceive specific behavior adopted by their direct supervisor measured by MLQ.Each behavior was rated on a 5-point frequency scale: not at all (1); once a while (2); sometimes (3);fairly often (4); and frequently, if not always (5)

Idealized Influence (Attributes)

My supervisor goes beyond self-interest for the good of the group Instill pride in others for

being associated with him Act in ways that build others’ respect for Display a sense of power

and confidence

Idealized Influence (Behaviors)

My supervisor considers the moral and ethical consequences of decisions Talk about his mostimportant values and beliefs Specify the importance of having a strong sense of purpose Emphasizethe importance of having a collective sense of mission

Inspirational Motivation

My supervisor talks optimistically about the future Talk enthusiastically about what

needs to be accomplished Articulate a compelling vision of the future Express

confidence that goals will be achieved Intellectual Stimulation

My supervisor re-examines critical assumptions question to whether they are appropriate

Seek differing perspectives when solving problems Get others to look at problems from

many different angles Suggest new ways of looking at how to complete assignments