Organizational Culture and Transformational Leadership As Predictors of Business Unit Performance

Journal of Managerial Psychology
Organizational culture and transformational leadership as predictors of business unit

performance
Athena Xenikou, Maria Simosi,
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JMP
21,6 Organizational culture and
transformational leadership as
predictors of business unit
566
performance
Received May 2006
Revised June 2006
Athena Xenikou
Accepted June 2006 Department of Psychology, University of Thessaloniki, Thessaloniki, Greece, and
Maria Simosi
Department of Product and System Design Engineering,

University of Aegean, Ermoupolis, Greece
Abstract
Purpose – The aim of the study was to examine the relationship between transformational
leadership and organizational cultural orientations, as well as the joint effect of transformational
leadership and organizational culture on business unit performance.
Design/methodology/approach – About 300 employees of a large financial organization in Greece
filled in a number of questionnaires measuring organizational culture orientations and transformational
leadership. The measurement of business unit performance was obtained by the organization under study.
Findings – A path analysis showed that the achievement and adaptive cultural orientations had a
direct effect on performance. Moreover, transformational leadership and humanistic orientation had an
indirect positive impact on performance via achievement orientation.
Research limitations/implications – A research limitation is that the causal direction of the
relations between the predictors and the criteria has been partially established by controlling for the
effect of past performance on the perceptions of organizational culture and leadership.
Practical implications – On a practical level the findings suggest that constructive and positive
social relations at work need to be accompanied by goal setting and task accomplishment if high
organizational performance is to be achieved.
Originality/value – The originality of this study concerns the finding that organizational culture
mediates the effect of transformational leadership on business unit performance.
Keywords Organizational culture, Transformational leadership, Business performance
Paper type Research paper
Organizational culture and transformational leadership have been theoretically and

empirically linked to organizational effectiveness. During the 1990s a number of
comparative studies on the culture-performance link showed that certain culture
orientations are conducive to performance (Calori and Sarnin, 1991; Denison, 1990;
Denison and Mishra, 1995; Gordon and DiTomaso, 1992; Kotter and Heskett, 1992;
Smart and St. John, 1996). As far as transformational leadership is concerned, Bass
Journal of Managerial Psychology (1985) has suggested that transformational qualities lead to performance beyond
Vol. 21 No. 6, 2006
pp. 566-579
expectations in organizational settings; research has empirically demonstrated that
q Emerald Group Publishing Limited there is a relation between transformational attributes and organizational measures
0268-3946
DOI 10.1108/02683940610684409 of effectiveness (Howell and Avolio, 1993; Lowe et al., 1996; Waldman et al., 2001).
Although a considerable number of researchers have argued that there is a constant Organizational
interplay between organizational culture and leadership (Bass and Avolio, 1993; culture
Schein, 1992; Trice and Beyer, 1993; Waldman and Yammarino, 1999), there are limited
empirical studies examining the relation between leadership and culture as well as
their joint effect on important organizational outcomes. This study set out to
investigate whether there is an interrelation between transformational leadership and
organizational culture, and both leadership and culture have a joint effect on important 567
organizational outcomes. In other words, the question that we address concerns the
effect of transformational leadership on the cultural orientations that characterize a
specific organization, as well as the combined effect of transformational leadership and
culture on performance.
In order to investigate the interrelation between leadership and culture, as well as
their joint effect on performance, we primarily reviewed the literature on the

culture-performance link to identify the culture dimensions that should be included in
this study. Denison and his colleagues (Denison, 1990; Denison and Mishra, 1995;
Denison et al., 2004) have developed and empirically supported a theory of
organizational culture and effectiveness that identifies four cultural traits that are
positively related to organizational performance, namely involvement and
participation, consistency and normative integration, adaptability, and mission. In
addition, Cooke and his associates (Cooke and Rousseau, 1988; Rousseau, 1990; Cooke
and Szumal, 1993; Cooke and Szumal, 2000) have demonstrated that efficient, as well as
innovative, organizations have group norms that promote achievement,
self-actualisation, participation in decision making, cooperation, social support, and
constructive interpersonal relations. One has to note that Cooke’s model proposes that
organizational culture is conducive to effectiveness given that a humanistic orientation
is combined with an achievement orientation.
In another exploratory model of the relation between organizational culture
and performance Marcoulides and Heck (1993) showed that culture as reflected in
task organization had a positive direct effect on performance. Petty et al. (1995)
found that a cultural emphasis on cooperation and teamwork were conducive to
organizational effectiveness. Similarly, Smart and St. John (1996) showed that
support, innovation, and goal orientations were related to higher performance in
American colleges and universities in comparison to bureaucratic orientation.
On the basis of previous findings we propose that there are primarily two cultural
orientations that are predictors of effectiveness within organizations. The first of these
traits concerns a “humanistic orientation” and reflects the “human relations movement”
in the workplace. Humanistic orientation is characterised by cooperation among
organizational members, emphasis put on teamwork, employees’ self-actualisation and
empowerment, development of people’s creative potential, participation in decision
making, constructive interpersonal relations, and social support. Organizational norms
that encourage cooperation, teamwork, and participation are related to performance
because they facilitate group coordination and synergy of divergent organizational
resources. Moreover, self-actualisation and employee development are the basis of
creating a large pool of organizational resources that reflect the human capital within
organizations and lead to organizational efficiency.
The second cultural trait concerns an “achievement orientation” and involves
assumptions, values and practices on task organization, goal setting, organizational
JMP objectives, experimentation, and an emphasis put on being effective. Organizations
21,6 that promote a “norm of efficiency and achievement” motivate employees by setting
difficult, but attainable goals, and providing feedback on employees’ performance,
which in turn, promotes perceived competence and feelings of self and collective
efficacy. Apart from setting goals and organizational objectives an achievement
orientation is characterized by experimentation and putting new ideas into action,
568 which enables an organization to protect itself from the reported negative effect of goal
setting on a long-term orientation.
We formulated two hypotheses to test the proposition that business unit
performance is related to the humanistic and achievement culture orientations:
H1. Humanistic orientation was anticipated to be positively related to business
unit performance.
H2. Achievement orientation was expected to be positively associated with

business unit performance.
Moreover, there is research on the culture-performance link that has focused on a set of
contingency factors, mainly the competitive environment, that moderate the relation
between culture traits and effectiveness. Kotter and Heskett (1992) argued that only
cultures which help an organization to adapt to external changes contribute to higher
performance in the long run. They found that the theme of tougher competition helping
to create culture-environment mismatches was frequently reported by managers
of lower performing organizations. Gordon (1985, 1991), on the other hand, suggested
that differences in the competitive environment, that is, stable versus dynamic
marketplaces, moderate the effect of culture traits on performance. Gordon and
DiTomaso (1992) found that adaptability was associated with effectiveness in dynamic
rather than stable business environments. Finally, Calori and Sarnin (1991) found that
in a stable-mature industry a firm’s growth performance, but not profitability, was
related to adaptation. Therefore, the contingency approach to culture-performance link
has identified a third culture orientation as an important predictor of organizational
effectiveness, namely “adaptive orientation”. Regarding the relation between an
adaptive culture orientation and organizational effectiveness we formulated the
following hypothesis:
H3. Adaptive orientation was anticipated to be positively associated with
business unit performance given that the competitive environment is
dynamic.
The effect of transformational leadership on organizational culture, and

their joint effect on performance
Bass and Avolio (1993) have argued that leadership and culture are so well
interconnected that it is possible to describe an organizational culture characterized by
transformational qualities. The literature on transformational leadership makes an
attempt to approach leadership as a social process by putting emphasis on how leaders
stimulate their followers to transcend their own self-interests for the sake of their team
and the larger organization. Transformational leaders are typically described as those
who inspire their followers to adopt goals and values that are consistent with the
leader’s vision. According to Bass (1985), transformational leaders do work within the Organizational
culture as it exists but are primarily concerned with changing organizational culture. culture
Bass proposes that transformational leadership promotes a working environment
characterised by the achievement of high goals, self-actualisation, and personal
development. Similarly, Bass and Avolio (1993) suggested that transformational
leaders move their organizations in the direction of more transformational qualities in
their cultures, namely, accomplishment, intellectual stimulation, and individual 569
consideration, therefore, suggesting that transformational leadership has a direct effect
on culture. Block (2003) found that employees who rated their immediate supervisor
high in transformational leadership were more likely to perceive the culture of their
organization as adaptive, involving, integrating, and having a clear mission.
As far as the relationship between charismatic leadership and organizational
culture is concerned, Pillai and Meindl (1998) found that charismatic leadership is
associated with the presence of collectivistic values in work groups and a heightened
sense of community. Moreover, Waldman and Yammarino (1999) have proposed that
there is a reciprocal causation between charismatic leadership in senior managers and
adaptive organizational cultures; a charismatic leader is in a position to have an impact
on organizational culture and adaptive cultures tend to precede or allow for the
emergence of charismatic leaders.
On the basis of the relevant literature we hypothesized that transformational
leadership has a direct effect on achievement, humanistic, and adaptive culture
orientations.
H4. Transformational leadership was expected to be positively related to
achievement, humanistic, and adaptive cultural orientations.
With regard to the joint effect of organizational culture and transformational
leadership on organizational performance, Ogbonna and Harris (2000) have conducted
the only study, to our knowledge, that provides some empirical evidence on this issue.
They found that supportive and participative leadership were indirectly and positively
linked to performance via the innovative and the competitive[1] cultures, whereas
instrumental (task oriented) leadership had an indirect negative effect on performance.
Ogbonna and Harris argued that these results show that the relationship between
leadership style and performance is mediated by the form of organizational culture
that is present. Moreover, Lim (1995) has proposed that culture might be the filter
through which other important variables such as leadership influence organizational
performance.
There are thus some theoretical propositions and preliminary findings suggesting
that organizational culture might be the filter through which leadership influences
various organizational outcomes (Lim, 1995; Ogbonna and Harris, 2000). Therefore, we
hypothesized that transformational leadership is related to performance through its
effect on organizational culture:
H5. Transformational leadership was expected to have an indirect positive effect
on performance via achievement, humanistic, and adaptive cultural
orientations.
JMP Method
21,6 Participants and business units
About 300 employees of a large financial organization in Greece participated in
the present study. There were 162 (55 per cent) women and 131 (45 per cent) men.
11 per cent were between 20 and 29 years old, 31 percent were between 30 and 39 years
old, another 25 per cent were between 40 and 49 years old, and 11 per cent were above
570 50 years old. Concerning hierarchical position, 55 per cent did not hold a management
position, 38 per cent were middle managers, and 7 per cent were upper level managers.
Finally, only 2 (less than 1 per cent) participants reported being with the organization
less than six months, 66 (23 per cent) between six months and four years, and
225 (76 per cent) more than four years.
The business units that were studied were 32. Each business unit is a branch of the
large-divisional corporation and operate autonomously to a great extent. The branches

are directed by a general director, who is accountable to the top management of the
corporation. The number of employees working in the branches included in this study
ranges between 10 and 36 employees. More specifically, there were 14 branches with
10-18 employees, 14 branches with 19-27 employees, and 5 branches employing
28-36 people.
Measures
Culture orientations
The three culture orientations measured in the current study were the humanistic,
achievement, and adaptive orientations. Two of the culture orientations, namely
humanistic and achievement were measured by using two subscales of the Organizational
Culture Inventory (OCI; Cooke and Lafferty, 1989). The OCI was designed to measure
behaviours that are expected or implicitly required by members of an organization. The
12 subscales of the OCI contain ten items each, which are measured on a 1-5 Likert scale
(1 ¼ not at all, 5 ¼ to a very great extent). The OCI has been shown to be a reliable and
valid measure of organizational culture (Cooke and Rousseau, 1988; Cooke and Szumal,
1993; Xenikou and Furnham, 1996). The subscales of the OCI that were used in the present
study are labelled by the constructors as “humanistic/helpful” and “achievement”. The
humanistic/helpful subscale measures whether members are expected to be supportive in
their dealing with one another, the organization is managed in a participative and
person-centred way, and an emphasis is put on cooperation and constructive interpersonal
relations. The achievement subscale contains items referring to behavioural norms that
place a value on goal setting, the accomplishment of objectives, and the pursuit of a
standard of excellence.
The adaptive culture orientation was measured by using Denison and Mishra’s (1995)
subscale labelled “adaptability”. The subscale includes two items measured on a 5-point
Likert scale (1 ¼ not at all, 5 ¼ to a very great extent). The adaptability subscale
measures whether the organization focuses on customer demands and whether it is
responsive to environmental changes. Denison and Mishra have demonstrated the
reliability as well as the convergent and discriminant validity of the subscale.
Multifactor leadership questionnaire (Avolio et al., 1999)

The multifactor leadership questionnaire (MLQ) (Form 5X) was used to measure
transformational leadership. Participants were asked to describe their immediate
supervisor’s leadership on 20 items using a 5-point Likert scale (5 ¼ frequently, if Organizational
not always; 1 ¼ not at all). In the MLQ (Form 5X) transformational leadership is measured culture
by the usage of three transformational scales, namely charisma/inspirational (12 items),
intellectual stimulation (4 items), and individual consideration (4 items). Avolio et al. (1999)
reported that the MLQ’s (Form 5X) coefficient a’s range from 0.92 to 0.63 and showed the
validity of the inventory by conducting a number of confirmatory factor analyses.
571
Organizational performance
Two separate objective measures of financial performance were provided by the
organization for 32 of it is business units. Both performance measures concern
the percentage of annual performance goal met by each business unit. The annual
performance goal of each branch is set by the organization’s top management and it
contains a number of financial indices such as the sale of insurance products, the
number and size of saving accounts, and the issue of new loans and credit cards.
The percentage of goal that is achieved by each branch is used to rate each branch’s
performance on a 4-point scale (4 ¼ above 85 per cent, 3 ¼ 85 per cent to 50 per cent,
2 ¼ 25 to 50 per cent, 1 ¼ below 25 per cent). According to the clarifications provided
by top management, goal setting is determined by each branch’s sales volume during
the past three years, the personnel and local market profile of each branch, as well as
the general financial objectives of the organization as a whole. The first performance
measure was taken five months prior to the collection of this study’s data and is
labelled “past performance”, whereas the second performance measure was taken
seven months following this study’s data collection and is labelled “performance”.
Procedure
Participants were reached at work and were asked to fill in a set of questionnaires
concerning various aspects of work life. They were told truthfully that the HR
department was interested in doing a “staff survey” and that a report would be written
to which they had access. It was also made explicit in the introductory section
of the inventory that they were not required to identify themselves by name.
The questionnaire normally took around 45 minutes to complete. Participants filled in
the questionnaires either at home or at work.
Results
Descriptive statistics, Cronbach’s as, and correlations among all relevant variables are
presented in Tables I and II. The coefficients of internal reliability reached acceptable
Variables M SD a
Achievement orientation 29.48 6.65 0.87

Humanistic orientation 28.60 8.21 0.93
Adaptive orientation 4.55 1.65 0.64
Transformational leadership 68.54 16.59 0.94
Charisma 42.51 9.58 0.91 Table I.
Performance 2.92 1.07 – Means, standard
Past performance 1.63 1.04 – deviations, and Cronbach
a coefficients of the
Note: N ¼ 300 variables
JMP levels for all the variables included in the present analyses. Table II presents the
21,6 correlations among culture orientations, transformational leadership, and business
unit performance.
The achievement orientation was significantly and positively correlated with
business unit performance whereas humanistic orientation was not correlated with
performance. Therefore, organizational norms that promote goal setting, productivity,
572 and effectiveness were associated with higher performance. The correlation between
adaptive orientation and business unit performance was marginally significant and
negative showing that a focus on change might possibly have a negative effect on
performance or that high performance systems have a tendency to avoid change.
Regarding the relationship between transformational leadership and organizational
culture there were moderate positive correlations between transformational leadership
on the one hand and achievement, humanistic, and adaptive orientations on the other.
Finally, as far as the link between leadership and performance is concerned, there was
a marginally significant positive correlation between transformational leadership and
business unit performance, whereas charisma had a significant positive correlation
with performance.
In order to further examine the relationship between cultural orientations and
performance, the link between culture and transformational leadership, and the
combined effect of culture orientations and leadership style on business unit
performance two separate path analyses were carried out. Path analysis (Pendhazur,
1982) involves conducting a number of multiple regression analyses to construct a
model of associations among the predictor variables and the criterion. Direct and
indirect effects[2] of the predictor variables on the criterion can be calculated, which
illustrate more precisely the nature of the relations between the predictors and the
criterion.
Table III reports the results of three hierarchical regression analyses that were
carried out to construct the path model showing the relations among culture
orientations, transformational leadership, and business unit performance[3] after
controlling for the effect of past performance. Individual responses were aggregated to
the business unit level since the criterion variable is an organizational level construct.
Prior to conducting the hierarchical regression analyses we calculated the intra-class
correlations (Bliese, 2000) for humanistic orientation (ICC1 ¼ 0.11, ICC2 ¼ 0.51),
achievement orientation (ICC1 ¼ 0.06, ICC2 ¼ 0.35), adaptive orientation
(ICC1 ¼ 0.03, ICC2 ¼ 0.21), and transformational leadership (ICC1 ¼ 0.07,
ICC2 ¼ 0.39). The findings of the hierarchical regression analyses demonstrate that
Variables (1) (2) (3) (4) (5) (6)
Achievement orientation (1) –

Humanistic orientation (2) 0.82 * * * –
Adaptive orientation (3) 0.41 * * * 0.39 * * * –
Transformational leadership (4) 0.62 * * * 0.57 * * * 0.24 * * * –
Charisma (5) 0.63 * * * 0.55 * * * 0.25 * * * 0.97 * * * –
Performance (6) 0.18 * * 0.09 20.10a 0.12a 0.13 * –
Table II. Past performance (7) 0.06 2 0.01 0.05 0.05 0.07 0.24 * * *
Correlation coefficients of
all relevant variables Notes: N ¼ 300; ap # 0.10; *p # 0.05; * *p # 0.01; * * *p # 0.001
Organizational
Criterion Predictor(s) R2 DR 2 b p
culture
1. Performance
Step 1: F(1,31) ¼ 0.96, p ¼ ns Past performance 0.03 0.17 ns
Step 2: F(5,27) ¼ 3.64, p ¼ 0.012 Past performance 0.40 0.37 0.23 ns
Achievement orientation 0.80 0.012
Humanistic orientation 20.29 ns 573
Adaptive orientation 20.42 0.015
Transformational leadership 20.13 ns
2. Achievement Orientation
Humanistic orientation 0.73 0.001 Table III.
Three hierarchical
Adaptive orientation 20.01 ns

Transformational leadership 0.37 0.001 regression analyses
3. Adaptive orientation showing the impact of
Step 1: F(1,31) ¼ 0.54, p ¼ ns Past performance 0.02 0.13 ns culture orientations and
Step 2: F(4,28) ¼ 1.21, p ¼ ns Past performance 0.15 0.13 0.18 ns transformational
Achievement orientation 20.11 ns leadership on business
Humanistic orientation 0.40 ns unit performance
Transformational leadership 20.16 ns controlling for past
business unit
Note: N ¼ 32 performance
all three measures of culture and transformational leadership are directly and/or
indirectly related to business unit performance. In specific, achievement and adaptive
orientations exert a direct effect on performance (Figure 1). In addition, humanistic
orientation and transformational leadership have a purely indirect effect on business
unit performance.
Figure 1.
The path analysis model
of culture orientations,
transformational
leadership, and business
unit performance
JMP The achievement culture has a strong positive and direct effect on performance
21,6 that indicates the important role of task orientation and accomplishment in
organizational effectiveness. Interestingly, the humanistic orientation was found to
have a marginally significant negative direct effect, as well as an indirect positive
effect via the achievement culture, on business unit performance. Therefore, H1was
rejected while H2 was supported. Moreover, the adaptive orientation had a direct
574 negative impact on business unit performance that contradicts H3.
The path model also unravels the way that transformational leadership affects
organizational culture and business unit performance. The results showed that
transformational leadership had an indirect positive effect on performance through
achievement orientation and therefore, H4 and H5 were partially supported. It appears
that the process of transformational leadership facilitates goal-oriented behaviour and
task accomplishment (the achievement orientation) by offering intellectual stimulation,

and new ways of framing and solving problems, which in turn has a positive influence
on performance.
Because the literature on charismatic leadership has theoretically proposed and
empirically found an association between charismatic leadership and organizational
culture, we carried out another path analysis in which transformational leadership was
replaced by charisma as measured by the MLQ (Avolio et al., 1999). However, the results
of this second analysis were very similar to the findings of the first analysis (Table IV).
Discussion
The results of the first path analysis showed that achievement and adaptive culture
orientations had a significant and direct effect on business unit performance. It was found
that achievement orientation had a direct positive effect, whereas adaptive orientation had
Criterion Predictor(s) R2 DR 2 b p
1. Performance
Achievement orientation 0.63 0.026
Humanistic orientation 2 0.18 ns
Adaptive orientation 2 0.42 0.016
Charisma 0.08 ns
2. Achievement orientation
Step 1: F(1,31) ¼ 0.16, p ¼ ns Past performance 0.01 2 0.07 ns
Step 2: F(4,28) ¼ 15.21, p ¼ 0.001 Past performance 0.69 0.68 2 0.02 ns
Humanistic orientation 0.80 0.001
Table IV. Adaptive orientation 2 0.03 ns
Three hierarchical Charisma 0.25 0.027
regression analyses 3. Adaptive orientation
showing the impact of Step 1: F(1,31) ¼ 0.54, p ¼ ns Past performance 0.02 0.13 ns
culture orientations and Step 2: F(4,28) ¼ 1.21, p ¼ ns Past performance 0.15 0.13 0.18 ns
charisma on business Achievement orientation 2 0.09 ns
unit performance Humanistic orientation 0.43 ns
controlling for past Charisma 0.02 ns
business unit
performance Note: N ¼ 32
a direct negative effect on organizational performance. Therefore, work environments that Organizational
promote goal setting, the accomplishment of objectives, and high standards of culture
performance are conducive to performance. A possible explanation of the negative effect of
adaptive cultural orientation on performance is that group norms promoting innovation
and adaptability to environmental changes might decrease short-term financial
performance, while it can possibly be conducive to long-term organizational
performance comprising of financial, economic and other business-related factors. The 575
energy and time spent by organizational members in constructing an innovative working
environment might reduce the positive effect of goal setting and accomplishment on
performance in the short run. On the other hand, an adaptive orientation might be a better
predictor of long-term performance as longer periods of time might be necessary for the
coordination of innovation and the accomplishment of goal alignment.
Contrary to our expectations, humanistic orientation was found to have a

marginally significant negative direct effect on business unit performance. A possible
explanation of this unexpected finding is that social support and a friendly work
environment might enable employees to act towards meeting personal goals that are
incompatible with organizational goals, as well as assisting their co-workers in
meeting their own personal interests that are in conflict with the interests of the
organization. For example, organizational members might help each other to do less
work and take time off work that are not entitled when there are positive social
relations among colleagues and at the same time behavioural norms do not emphasize
goal accomplishment. As, however, there was also an indirect positive effect of
humanistic orientation on performance via its effect on achievement orientation, it is
possible to suggest that a cooperative social environment and constructive social
relations at work are conducive to organizational performance given that cooperation
and team spirit are closely related to keeping an eye on goal accomplishment.
Indeed, it might be helpful to future research exploring the combined effect of
achievement and humanistic orientation on performance if the humanistic orientation
was treated as a three-dimensional construct containing:
(1) social support and positive relations at work;
(2) cooperation in goal accomplishment; and
(3) participation in decision making.
In accordance with Cooke and Rousseau’s (1988) model of organizational culture we

propose that achievement and humanistic orientations have a combined positive effect
on effectiveness; but it seems that a distinction between having positive social relations
at work, on the one hand, and using these positive relations to accomplish
organizational goals, on the other, might be important to understand the precise nature
of the culture-performance link.
As far as the effect of transformational leadership and organizational culture is
concerned, the results indicate that transformational leadership leads to an achievement
cultural orientation. Our research design do allow for making causal inferences, which
are not though as strong as in experimental settings, since we controlled for the effect of
past organizational performance when investigating the relationship between
leadership and culture. Past organizational success or failure might have an effect on
the organizational norms that are endorsed within an organization as well as perceptions
of leadership style. Therefore, it is possible to suggest that transformational leadership
JMP stimulates goal setting, task accomplishment, and an achievement orientation. Bass’s
21,6 (1985) proposition that transformational leadership leads to performance beyond
expectations can be further elaborated on the basis of these findings. More specifically,
transformational leadership might create group expectations for higher performance
(achievement cultural orientation), which, in turn affect levels of performance.
One of the main questions that this study set out to explore was whether
576 organizational culture is the filter through which leadership has an effect on
performance. We found that two culture orientations had a direct effect on
organizational performance and that transformational leadership had an indirect
positive effect on performance via its impact on achievement orientation. These
findings support the proposition that, when leadership is seen as a social process that
involves leaders, followers and social situations, organizational culture is found to be a
filter through which leadership influences performance. The present study showed
that organizational culture mediates the effect of transformational leadership on
performance. The mediating role of organizational culture in the
leadership-performance link has also been demonstrated by Ogbonna and Harris
(2000) in a study of multi-industry organizations. In specific, Ogbonna and Harris
found that supportive, participative, and instrumental leadership styles had an indirect
effect on performance via their impact on organizational culture. Therefore, the
mediating role of organizational culture has been demonstrated by using different
models of leadership.
A limitation of the current study is that the causal direction of the relations between
the predictor variables and the criteria has been partially established. By controlling
for the effect of past performance on the perceptions of organizational culture and
leadership style we are in a position to argue that culture and leadership have an effect
on performance. One though has to acknowledge that the question of causality can be
more thoroughly addressed by longitudinal research designs in which all the variables
are measured at different points in time (Wilderom et al., 2000). A cause always
precedes its effect and therefore, it is possible to find the causal direction of a
relationship by taking measures at different time intervals. However, the theoretical
elaboration of the association of predictors with criteria variables and the findings of
correlational studies are invaluable sources in our effort to unravel causality.
On a practical level the findings on the relation between cultural orientations and
short-term financial performance can be used in order to offer suggestions to
practitioners on how to work with culture at a functional level. Constructive and
positive social relations at work need to be accompanied by goal setting and task
accomplishment in order to be conducive to organizational performance. An emphasis
on adaptability and innovation does not always seem to have a positive impact on
performance. A focus on adaptability might indeed undermine short-term performance
while being conducive to long-term organizational performance.
These findings also have practical implications for the training and development of
managers. Training and development management programmes could teach managers
of the important role that culture plays in order to run an effective organization.
Managers may potentially be able to increase performance by working on firm or
subgroup culture (Adkins and Caldwell, 2004). Leadership must be guided by a
realistic vision of what types of culture enhance performance and systematically work
towards strengthening or even creating these cultural traits.
Notes Organizational
1. An important point that should be noticed concerning Ogbonna and Harris’s study is that culture
the measurement of competitive culture included a considerable number of items tapping
achievement rather than competition. Therefore, one needs to be careful when interpreting
the findings of this study since the positive effect of competitive culture on performance
reported by Ogbonna and Harris can be as well interpreted as a positive effect of an
achievement orientation on performance. 577
2. Direct effects are the beta weights of the multiple regressions. Indirect effects are the cross
products of sequential beta weights. Total effects are the sum of direct and indirect effects.
3. The “enter” method for variable inclusion was used in all the hierarchical regression
analyses.
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About the authors 579

Athena Xenikou is an Assistant Professor in Social and Organizational Psychology in the
Department of Psychology at the Aristotle University of Thessaloniki. She has research interests
in leadership, organizational culture, attributional processes in organizational settings, and job
motivation. Athena Xenikou is the corresponding author and can be contacted at:
axenikou@psy.auth.gr
Maria Simosi is a Lecturer in Organizational Theory in the Department of Product and
System Design Engineering at the University of Aegean. Her research interests include
organizational conflict and conflict resolution, leadership, and organizational commitment.
E-mail: maria_simosi@hotmail.com
To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

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Organizational Culture and Transformational Leadership As Predictors of Business Unit Performance

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Department of Product and System Design Engineering,

Organizational culture and transformational leadership have been theoretically and

their joint effect on performance, we primarily reviewed the literature on the

H2. Achievement orientation was expected to be positively associated with

The effect of transformational leadership on organizational culture, and

large-divisional corporation and operate autonomously to a great extent. The branches

Multifactor leadership questionnaire (Avolio et al., 1999)

Achievement orientation 29.48 6.65 0.87

Variables (1) (2) (3) (4) (5) (6)

Achievement orientation (1) –

Adaptive orientation 20.01 ns

task accomplishment (the achievement orientation) by offering intellectual stimulation,

Contrary to our expectations, humanistic orientation was found to have a

In accordance with Cooke and Rousseau’s (1988) model of organizational culture we

performance”, Journal of Applied Psychology, Vol. 78, pp. 891-902.

About the authors 579

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

2013. Relations between transformational leadership, organizational learning, knowledge management,

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