The effects of leadership behaviors on employee satisfaction and loyalty in the hospitality industry

The Effects of Leadership Behaviors on Employee Satisfaction and Loyalty in the Hospitality Industry Mai Ngoc Khuong La Boi San Luu Kim Khanh International University, Vietnam National University HCMC, Vietnam Abstract This study was designed to investigate the effects of leadership behaviors on employee loyalty through the mediation of employee satisfaction in the hospitality industry Quantitative methodogy was applied with questionnaires directly distributed and answered by 352 targeted respondents working in hospitality industry in Ho Chi Minh City, specifically those who are employees of luxury hotels and restaurants Despite the fact that all variables showed positive correlation with employee loyalty, only five factors, namely task oriented leadership, relations oriented leadership, change oriented leadership, charismatic leadership and autocratic leadership had significant influences on employee satisfaction and loyalty Recommendations were provided for hospitality companies accordingly, with an emphasis on how to improve the five significant factors, including task oriented leadership, relation oriented leadership, change oriented leadership, and charismatic leadership behaviors in order to maintain high employee loyalty Keywords: hospitality industry, leadership behaviors, leadership styles, employee loyalty, employee satisfaction Introduction Human resources are considered the most important factor affecting organizational efficiency and effectiveness A good plan without a handful team of personnels to execute is no different from useless Hence, companies nowadays need effective leaders and employees to achieve operational and strategic objectives as well as foster high-performing teams As Schwandt and Marquardt (2000) declared, ‘no other role in organizations has received more interest than that of the leader’ Leadership, according to Kumar and Meenakshi (2009), is ‘a complex, multifaceted capability, with myriad nuances and substleties’ However, just excellent leader alone is not enough to build substainable success Companies nowadays are in greater need than ever for a strong skillful workforce that can help companies determine their future achievement Turkyilmaz and colleagues (2011) expressed that it is important for organizations to achieve employee job satisfaction, physical and emotional engagement with their work (Bakker and Leiter, 2010; Agarwal, 2014), loyalty and commitment (Ibrahim and Al Falasi, 2014) Although there have been a lot of researches devoting to leadership behaviors and job satisfaction, employee loyalty, few of them concentrate in the hospitality industry Hospitality is one of the fastest growing sectors within service industry It consists of different functions, most notably is hotels, lodging, accommodation and restaurants, etc Hospitality is characterized by its intangibility, inseparability, perishability and variability In this field, firms compete through intangible products, such as service quality and unique concepts When one new play enters the game, they stir up the whole market with their creative strategy, therefore, this industry is becoming fiercer than ever The total revenue of hospitality and tourism 805 altogether was 8.630 billion VND in June 2017, which yielded 14.7% increase compared to the same period last year Numbers of tourists visiting Ho Chi Minh City during the first months of 2017 was 16% higher than that of last year as well (Department of Tourism, Ho Chi Minh City) Tourism is one of the five industries with the highest foreign currency income in Vietnam, and accommodation sector contributes 70% to the total revenue of tourism sector Plus, this industry alone directly and indirectly attracts approximately billion personnels annually (Vietnam Hotel Association), thus, contributing greatly to the economic development of the country However, hospitality is well-known for its high turnover rate, with tthe estimated employee turnover rate as much as 300% annually (Milman, 2001) Therefore, retaining key performers is becoming one of the primary concerns of firms in this industry This research aims to provide an empirical answer to the problem by measuring the impact of different leadership styles on employee job satisfaction and loyalty, based on which researcher will discuss and give relevant recommendation to improve loyalty of personnels working in hospitality industry in Ho Chi Minh City Literature review 2.1 Employee loyalty As defined by many researchers, the concept of loyalty can be expressed as a ‘feeling’ such as identification with identification with (Boroff and Lewin, 1997), attachment (Leck and Saunders, 1992) or commitment to (Johnson et al., 2009; Yee et al., 2009) the organization It represents a strong desire to stay with an organization (Turkyilmaz et al., 2011) Employee loyalty is a subject that has been receiving considerable interest from researchers recently In such ever-changing and competitive environment, companies, more than ever, need to achieve employee loyalty towards the company (Ibrahim and Al Falasi, 2014) Loyalty is an extremely important factor affecting organizational success, as it has been empirically confirmed by different studies that high employee loyalty can maintain high customer loyalty as well as corporate profitability (Reichheld, 1996) The more loyal the employees are, the more willing they are to provide higher efforts and contribution to the company, increasing profits and loweing turnover rates and costs (Guillon and Cezanne, 2014) According to Cheng and Chew (2004), leadership behaviors is one of the nine factors whose positive influence on employee loyalty is confirmed through their studies Kleinmann (2004) stated that loyalty can be directly improved through leadership styles Chen (2004) concluded that employees will be more loyal to the organization if they are satisfied with their jobs and their leader, vice versa, if they are dissatisfied, they are less committed and look for other opportunities to quit (Pepe, 2010) 2.2 Employee satisfaction Employee job satisfaction refers to an employee’s attitude or feelings about his or her job or different aspects of the job (Pool, 1997) It is the extend to which people like or dislike their job (Allen and Spector, 2002) Higher job satisfaction is acknowledged to increase employee morale, job performance, productivity and lower absenteenism (Turkyilmaz et al., 2011) Employee loyalty can be positively influced by satisfaction (Abraham, 2012) In fact, empirical evidences from previous studies have demonstrated a strong positive correlation between these two factors (Silvestro, 2002), some even claimed that job satisfaction is actually the antecedent of employee loyalty (Jun et al., 2006; Chang et al., 2010) In this research, employee satisfaction both acts as independent variable influencing loyalty and mediating factor affecting to loyalty Wu (2009) stated that job satisfaction can be affected by the relationship between subordinates and managers, working environment, or degree of fulfillment in their work Among determinants of employee job satisfaction, leadership behaviors can be viewed as one of the important key drivers of employee job 806 satisfaction, and their positive correlation has been confirmed by via different studies (Seo et al., 2004; Vance and Larson, 2002) 2.3 Task oriented leadership Task oriented leadership refers to someone whose emphasis is to complete a task perfectly Task-oriented leadership is primarily concerned with achieving organizational goals through behaviors such as assigning tasks, setting rules and instruction, controlling and providing feedback Task oriented leaders are more adaptive to difficult situations (Higgins and Endler, 1995), therefore, they can adjust better and yield higher productivity (Causey and Dubow, 1993) Patchen (1963), Larson, Hunt and Osborn (1974) confirmed the effectiveness of task oriented leadership on performance Brown and Dodd (1999) claimed that contingent reward leadership behaviors can lead to higher satisfaction with supervisors and greater productivity 2.4 Relations oriented leadership Conversely, relations oriented leadership emphasizes on maintaining harmonious relationship with followers, creating a friendly and supportive working environment Since the concentration of relations oriented leadership is followers’ welfare and interests, leaders of this style mainly use informal communication methods (Yukl, 1989), which in turn facilitates subordinates’ participation in decision making process, misunderstanding avoidance and faster mistake recognition (Shamir, 1995) Such leaders also put a lot of efforts into encouraging and giving praises to their subordinates (Lewin and Lippitt, 1938), hence, significantly improve job satisfaction (House et al., 1971) 2.5 Change oriented leadership Change oriented leadership style was identified by Ekvall (1988) in late 20 th century This behavior mainly concerns with the aptitude to adapt to changes Change oriented leader, according to Ekvall and Arvonen (1994), displays four characteristics, including ‘being a promoter of change and growth, having a creative attitude, being a risktaker, and having visionary qualities’ Another primary theoriest of this behavior, Yulk, in his research with Gordon and Taber (2002), confirmed four components in this theory: ‘visioning, intellectual stimulation, risk-taking, and external monitoring’, aligning with the behaviors identified by Yulk (2012) Change oriented leaders demonstrate great persuasive ability to influence people during change process They focus on understanding the environment, seeking solutions, strategies, products or processes to adapt to such surroundings and centering innovation and creativity for better performance They build and develop a vision for change, encourage innovative thinking, and are willing to take risk (Derue et al., 2011) 2.6 Participative leadership Leaders of participative style tend to encourage and motivate their subordinates to take part in the decision making process or discussion Their final decision is based on group members’ ideas instead of their own (Koopman and Wierdsma, 1998) This style of leadership allows greater autonomy by creating interactive and interdepent environment where followers are free to share their opinions with the leader According to Boisot and McKelvey (2010), this adaptive management practices take advantage of opportunities and avoid negativity of changes Participative leadership also improves performance through intrinsic motivation and psychological empowerment, making employees feel needed and valued, thereby putting more efforts into completing the job (Huang, 2012; Huang et al., 2010) 2.7 Charismatic leadership 807 Charismatic leaders are those who have high charismatic effects on followers, and followers are spiritually inspired enough to offer their commitment, loyalty and obedience to leaders According to Shamir and colleagues (House and Shamir, 1993; Shamir et al., 1993) charismatic leadership affects followers’ motivation at self-concept level Subordinates under charismatic leadership are more confident in themselves and willing to accept new challenges House claimed that charismatic leaders display certain traits, such as ‘role modeling, goal articulation, high expectations, confident in followers and motive arousal leader behaviors’ Howell and Costley reported that employees under charismatic leadership have higher satisfaction and commitment towards their job, leaders and organization 2.8 Ethical leadership Brown and his colleagues defined ethical leadership as ‘the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two ways communication, reinforcement, and decision making’ Dalla Costa (1999) believed that ethical leadership style prevents legal and moral impropriety and contributes to the organizational success Ethical leaders are responsible for the consequences of their actions and demonstrate empathy as well as possessing higher tolerance for stress and ambiguity Ethical leadership is important for the sole reason that employees will take the leader and leader’s actions as role model to follow Hence, if the leaders are unethical, such wrong behavior is assumed to be sanctioned as well (Calabrese & Roberts, 2001) Ethical leadership has been proven to have direct positive improvement on work outcome, job involvement and commitment of leaders (Khuntia and Suar, 2004) 2.9 Autocratic leadership Autocratic leadership is described as dominant and can result in significant negative impact on employees’ motivation It emphasizes performance and leader’s authority rather than people, hence, leaders decide policies, procedures, task allocation, relationships, reward and punishment (Van Vugt et al 2004) without taking into account subordinates’ suggestions (Jung et al., 2014) Autocratic leaders assume that people’s nature is lazy, irresponsible and unreliable, as such, the employees would cause job fuctions to be unfinished and disrupted if the leaders are left uninvolved Likert (1961) confirmed that autocratic leadership style uses top downwards communication, where authority and instruction come from leaders, teamwork is non existent and interaction is limited Autocratic leaders rely mostly on authority, control, manipulation and hard work to complete their job (Puni et al., 2016) Autocratic style is now the least popular among leadership behaviors, probably due to farily low levels of job satisfaction of employees working under this style (Kerfoot, 2013) 2.10 Model hypotheses In order to obtain all the objectives and further analyses, this study hypothesized that: H1: Task oriented, relation oriented, change oriented, charismatic, participative, ethical and autocratic leadership directly affect employee job satisfaction H2: Task oriented, relation oriented, change oriented, charismatic, participative, ethical, autocratic leadership, and job satisfaction directly affect employee loyalty H3: The effects of task oriented, relation oriented, change oriented, charismatic, participative, ethical, and autocratic leadership on employee loyalty are mediated by employee job satisfaction Methodology 808 Quantitative approach was employed with survey questionnairs conveniently and directly sent to front-line employees who are working in luxury hotels and restaurants in Ho Chi Minh city to collect data with clear guidance for them to answer correctly The list of four and five stars hotel was be based on the approval of Vietnam Tourism Ministry In this research, questionnaire was be used to collect the statistics data The main purpose of the survey was to find out the relationship between leadership and employee loyalty through the mediation of employee satisfaction There were two parts in the questionnaire The first part’s questions was mainly for testing the hypotheses or the influence of independent variables on dependent variables Respondent were asked to give their opinion by following the 5-point Likert Scale from - Strongly Disagree to - Strongly Agree The second part focused on personal information of respondents to have a clearer picture of the sampling pool’s demographics EFA was applied for both groups of dependent and independent variables KMO was greater than 0.6 and Barlett’s Test equaled p = 000 Thus, this factor analysis was acceptable Cronbach’s Alpha was used to measure the reliability, or internal consistency, of the variables Factor had Cronbach’s Alpha greater than 7, proving its reliability, factor has Cronbach’s Alpha within and 69, indicating that this variable was also acceptable Table1: Summary of Dependent Variables with Reliability Coefficients Factors Factor 1: Employee Satisfaction (EMSATIS) Factor 2: Employee Loyalty (EMLOY) Similarly, with KMO index greater than and Barlett’s test result proved to be significant (p = 000), it can be firmly concluded that these independent factors were considered appropriate Cronbach’s Alphas were greater than 7, indicating that the data was good and these variables were highly reliable for further analysis Table 2: Summary of Independent Variables with Reliability Coefficients Factors Factor Factor Factor Factor Factor Factor Factor 1: 2: 3: 4: 5: 6: 7: Autocratic Leadership (AUTOLEAD) Task Oriented Leadership (TASOLEAD) Ethical Leadership (ETHILEAD) Participative Leadership (PARTLEAD) Relation Oriented Leadership (RELALEAD) Charismatic Leadership (CHARILEAD) Change Oriented Leadership (CHANLEAD) All items from the two tests had factor loadings greater than the cut point of so they were all included The Eigenvalues of the extracted factors were greater than one and the total variance explained was 54.4% for the dependent variables and 67.88% for independent variables, both deemed satisfactory for the requirement of being greater than 50% Research findings 4.1 Profile of Participants in the Research Table 3: Demographics of participants Gender Age Marital status Position Job tenure Educational level It can be concluded that the sampling population’s gender was relatively balanced, with 46.9% participants were male compared to 53.1% of females Approximately 95% of the population is young, aging from 18 to 35 years old Similarly, the majority of participants were single (82.7%) Only 17.3% of them were married They mostly hold employee positions (74.1%), some are junior managers (21.9%), few are middle managers (4%) 41.8% of respondents have worked for less than year, 48.3% have worked for 1-4 years, 8.2% for 4-7 years, 1.1% for 7-10 years, and only 0.6% have been with the same place for more than 10 years The common educational level of this population were college (28.7%), university (28.4%) and vocational training (23.3%) graduates Only a small percentage of participants graduated from high school (19.3%) or post university (0.3%) The demographics suggested that the sampling population is young and well-educated 4.2 Correlations between variables Table 4: Descriptions and Variables’ Correlations AUTOLEAD TASOLEAD ETHILEAD PARTLEAD RELALEAD CHARILEAD CHANLEAD EMSATIS Mean SD Note: * Significant level at p < 05 Table illustrated the correlation coefficients between independent variables, mediating variable and dependent variables Except for autocratic leadership whose influence was negative on loyalty and satisfaction, all other factors were confirmed to be positively correlated with employee loyalty and the mediating factor employee satisfaction Change leadership and task oriented leadership had the strongest correlation with EMLOY, implying that the more task and change oriented leadership os used, the more loyal employees will be Furthermore, relation oriented and charismatic leadership displayed strong bond with EMSATIS, implying that an increase in the application frequency of these two factors will lead to a rise in satisfaction, in turn increase employee loyalty Testing hypotheses 5.1 Direct effects of leadership behaviors on Employee Job Satisfaction Table 5: Effect Coefficients between IVs and EMSATIS Variables AUTOLEAD TASOLEAD ETHILEAD PARTLEAD RELALEAD CHARLEAD CHANLEAD Note: - Dependent Variable: EMSATIS: Employee Satisfaction - Predictors: AUTOLEAD, TASOLEAD, ETHILEAD, PARTLEAD, RELALEAD, CHARLEAD, CHANLEAD - ANOVA: F (7, 344) = 73.053, Sig =000, p < 05 - Model summary: R2 = 598 Based on the Coefficient analysis, there are only three independent variables that have direct effects on EMSATIS, including TASOLEAD (β=.119, p