JBR-07917; No of Pages 8

Journal of Business Research xxx (2013) xxx–xxx

Contents lists available at ScienceDirect

Journal of Business Research

Knowledge management and organizational performance in the service industry:

The role of transformational leadership beyond the effects of transactional leadership
M. Birasnav ⁎
School of Management, New York Institute of Technology, Adliya, Bahrain

a r t i c l e i n f o a b s t r a c t

Article history: This study examines a comprehensive model comprising of various relationships between transformational and
Received 15 September 2012 transactional leadership, knowledge management (KM) process, and organizational performance. Data are col-
Received in revised form 9 July 2013 lected from human resource managers and general managers working in 119 service firms. Exploratory factor
Accepted 17 September 2013
analysis and hierarchical regression analysis are used to analyze the proposed hypotheses. The results indicate
Available online xxxx
that transformational leadership has strong and positive effects on KM process and organizational performance
Keywords:
after controlling for the effects of transactional leadership. Further, KM process partially mediates the relation-
Transformational leadership ship between transformational leadership and organizational performance after controlling for the effects of
Knowledge management transactional leadership. Implications and directions for future research are also discussed.
Organizational performance © 2013 Published by Elsevier Inc.
Transactional leadership

1. Introduction To date, scholars have empirically investigated the positive impacts

Researchers always emphasized the importance of developing unique
knowledge within firms to deliver new products/services and to distin-
guish it from competitors for achieving advantage (Menguc, Auh, &
Shih, 2007). Delivering unique products/services to customers helps
to improve customer satisfaction and sales volume, and so firms have
observed the influence of knowledge development over performance
(Bogner & Bansal, 2007; Tanriverdi, 2005). Since knowledge resides
within the brain of employees, firms develop various strategies to create
organizational knowledge through leveraging employees' knowledge.
Human resource managers are get involved in the activities of finding
suitable leadership style that supports implementation of knowledge
management (KM) programs to augment organizational performance.
Identification of suitable leadership style is essential in this turbulent en-
vironment since researchers have reported that different leadership
styles have varying impacts on implementation of KM process
(Bryant, 2003). Transformational leadership theory postulates that
leaders exhibit certain behaviors that accelerate employees' level of in-
novative thinking through which they improve individual employee
performance, organizational innovation, and organizational perfor-
mance (Aragon-Correa, Garcia-Morales, & Cordon-Pozo, 2007; Colbert,
Kristof-Brown, Bradley, & Barrick, 2008; Piccolo & Colquitt, 2006).
Since transformational leaders greatly influence employees, whose en-
gagement is enormously required for implementation of KM process,
the role of transformational leadership is focused on the implementa-
tion of KM process to improve organizational performance.
⁎ Tel.: +973 17711444; fax: +973 17710399.
E-mail address: birasnav@gmail.com.
of transformational leadership on individual performance (Dvir, Eden,
Avolio, & Shamir, 2002; Wang, Law, Hackett, Wang, & Chen, 2005)
as well as on organizational performance (Aragon-Correa et al., 2007;
Peterson, Walumbwa, Byron, & Myrowitz, 2009). Similarly, KM scholars
have also showcased that managing knowledge has positive association
with organizational performance (Bogner & Bansal, 2007; Lee & Choi,
2003; Tanriverdi, 2005). Though these studies explained the direct im-
pact on organizational performance, the following research questions
are still unanswered: (1) Do transformational leadership behaviors influ-
ence performance of service firms after controlling for transactional lead-
ership behaviors?; (2) Do transformational leadership behaviors help to
implement KM process in service firms after controlling for transactional
leadership behaviors?; and (3) Will KM process mediate the relationship
between transformational leadership and organizational performance in
the service firms after controlling for transactional leadership?
In order to answer these questions, this study investigates the nature
of the relationships among transformational leadership, transactional
leadership, KM process, and organizational performance. In particu-
lar, the purposes of this study are: to investigate the direct impacts
of transformational leadership on KM process and organizational
performance after controlling for the effects of transactional behav-
iors; and to examine the mediation role of KM process in the rela-
tionship between transformational leadership and organizational
performance among service firms located in the Kingdom of Bahrain.
These purposes integrate two important theories such as transfor-
mational leadership theory and knowledge-based view of the
firm. In specific, application of transformational leadership theory
on knowledge-based view of the firm is particularly focused in
this study.

0148-2963/$ – see front matter © 2013 Published by Elsevier Inc.

http://dx.doi.org/10.1016/j.jbusres.2013.09.006

Please cite this article as: Birasnav, M., Knowledge management and organizational performance in the service industry: The role of transforma-
tional leadership beyond the ef..., Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.09.006
2 M. Birasnav / Journal of Business Research xxx (2013) xxx–xxx
In this direction, this study contributes to literature in two ways.
First, scholars have always focused on transformational leadership in
the view of employees' reactions to leaders and their feeling of them-
selves and in the view of leaders' actions. Researchers concentrating
on the former approach mainly investigated the mediation role of trust
(Dirks & Ferrin, 2002; Pillai, Schriesheim, & Williams, 1999) and self-
efficacy of employees (Gong, Huang, & Farh, 2009) in the relationship of
transformational leadership with follower performance. The latter ap-
proach predominantly investigated the association of transformational
leadership with organizational performance through implementing
human capital management practices, improving organizational learn-
ing, and establishing organizational culture (Aragon-Correa et al., 2007;
Xenikou & Simosi, 2006; Zhu, Chew, & Spangler, 2005). This study ex-
tends the latter approach to predict organizational performance with
the help of the association between transformational leadership and
KM process implementation. Second, this study examines transforma-
tional leadership as an antecedent of implementation of KM process to
create advantage over their competitors. According to Grant (1996),
knowledge-based view of firm rests on the assertions that organizations
perform as repositories of employees' knowledge and competencies,
which are valuable in the current firm and inimitable by other firms.
Within this organizational system, such employees' knowledge is
converted into organizational knowledge, which will then be protected
as intellectual capital. A systematic survey conducted among top-level
managers of service firms supports this study to understand the in-
terrelationships among leadership, KM process, and organizational
performance.
This paper is organized as follows: first, it reports the detailed review
on the concepts of transformational leadership and KM process imple-
mentation and lists out the hypotheses to be tested in this study; second,
it discusses the methodology adopted in this study and in specific, ex-
plains the procedure of collecting responses from participants and mea-
sures used in the survey questionnaire; third, it explains the procedure
used for data analysis and its findings; finally, implications and future re-
search directions are offered.
2. Theoretical framework
2.1. Transactional leadership and transformational leadership
Burns (1978) initiated the discussion of the importance of develop-
ing transformational leadership and transactional leadership styles in
the organizations. Thereafter, Bass (1985) investigated the dimensions
of such leadership styles and identified four components of transfor-
mational style namely idealized influence, intellectual stimulation,
inspirational motivation, and individualized consideration and three
components of transactional style namely contingent reward, active
management by exception, and passive management by exception.
According to Bass and Riggio (2006), contingent reward leadership be-
havior obtains employees prior agreement on the jobs to be done and
exchanges rewards for delivering job performance within a time limit;
a leader having active management by exception behavior supervises
employees intensively, identifies errors or mistakes, and then takes cor-
rective actions; and a leader having passive management by exception
behavior interferes into the employees' work only when the mistakes
or errors occur.
On the other hand, idealized influence behavior transforms leaders
into role models for their employees, helps leaders to develop vision
for organizations and to follow ethical principles, encourages them to
involve in risk-taking activities, and supports employees to perform
effectively under uncertain environment (Nemanich & Keller, 2007). In-
spirational motivation behavior supports leaders to use strategies to
motivate and inspire employees to achieve overall goals of the organiza-
tion (Bass & Riggio, 2006). Intellectual stimulation behavior stimulates
employees' intelligence to solve job problems by analyzing job prob-
lems in all facets and discourages use of traditional methods to solve
Please cite this article as: Birasnav, M., Knowledge management and organizational performance in the service industry: The role of transforma-
tional leadership beyond the ef..., Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.09.006
problems. Individualized consideration transforms a leader into mentor
or coach for his/her employees and supports treating employees differ-
ently by providing equal opportunity to all employees. Scholars often
highlighted charismatic leadership as combined idealized influence and
inspirational motivation behaviors in the literature (Avolio, Bass, & Jung,
1999), and some quote idealized influence alone to represent charismatic
leadership (Dubinsky, Yammarino, & Jolson, 1995).
Transformational leaders frequently show transaction-oriented
leadership behaviors toward their employees (Bass, 1985). Transac-
tional leadership is exhibited in the organizations based on a series of ex-
changes taking place between a leader and followers. Supporting this
notion, Howell and Avolio (1993) asserted that a leader could exhibit
both transformational and transactional behaviors with varying level of
intensity when a situation requires managerial activities like acquisition
of resources to accomplish vision.
2.2. KM process
Apart from implementing human resource management and orga-
nizational learning practices, transformational leaders also concentrate
on establishing knowledge-supportive culture. Knowledge is of two
types: (1) tacit knowledge — knowledge that is inimitable, valuable,
underutilized, unarticulated, and residing in employees' brain; (2) explicit
knowledge — knowledge that is distributable, easy to handle, document-
able, and storable (Jimes & Lucardie, 2003). Organizational knowledge is
created by transforming these knowledge types into other form of knowl-
edge, which is valuable, inimitable, and nontransferable by other firms.
Thus, organizational knowledge becomes a source of sustainable compet-
itive advantage. Devising strategies to properly manage knowledge is
imperative for many organizations due to its significance for attaining or-
ganizational outcomes. Maier (2005) defines KM as “the management
function responsible for regular selection, implementation and evaluation
of knowledge strategies that aim at creating an environment to support
work with knowledge internal and external to the organization in order
to improve organizational performance” (p. 433). KM architecture com-
prises of KM process and KM infrastructure, and the interaction between
these two components supports organizations to create organizational
knowledge and to improve organizational innovation and consequently,
supports achieving overall performance. Scholars frequently specify two
kinds of KM process (Filius, De Jong, & Roelofs, 2000): (1) tactical KM
process — by which employees collect information to solve problems,
derive value from the collected information, learn from the value, and
update the existing knowledge in the system; and (2) strategic KM pro-
cess — by which organizations formulate KM strategy to assess, create,
and sustain intangible assets, and align KM strategy with its business
strategy.
According to Filius et al. (2000), tactical KM process includes the ac-
tivities of knowledge acquisition, documentation, transfer, creation, and
application. Knowledge acquisition is a kind of activity that attracts
missing tacit and explicit knowledge from the external environment.
Documenting knowledge relates to storing and retrieving knowledge
from organizational system for example, databases and documents.
Knowledge transfer allows employees to share their tacit and explicit
knowledge to other employees inside and outside of their organizations.
Knowledge creation is a process of creating knowledge in the forms of
both tacit and explicit knowledge through a knowledge conversion pro-
cess called socialization, externalization, combination, and internalization
(SECI) process (Nonaka, 1994). Knowledge application allows employees
to apply knowledge gained from inside or outside of the organization for
their own purposes.
Implementing KM process in any kind of organizations is essential as
it enhances learning capabilities of individual employees as well as
group of employees (Liao & Wu, 2010). According to Crossan, Lane,
and White (1999), learning emerges at individual employee level,
group level, and institutional level, which are integrated by 4I process
such as intuiting, interpreting, integrating, and institutionalizing. This
 M. Birasnav / Journal of Business Research xxx (2013) xxx–xxx
process explains systematic transformation of learning occurred at indi-
vidual employee into organizational practices. Following Crossan et al.
(1999), Vera and Crossan (2004) emphasized that top-level leaders
should exercise strategic leadership – combined transformational and
transactional leadership – to promote organizational learning. Empiri-
cally supporting this notion, Aragon-Correa et al. (2007) and Garcia-
Morales, Llorens-Montes, and Verdu-Jover (2008) found transforma-
tional leadership style as an antecedent of organizational learning, and
the association between transformational leadership and organizational
learning influences organizational performance. However, scholars, to
date, did not empirically investigate the influence of the association be-
tween transformational leadership and KM process over organizational
performance. Organizations should understand how transformational
leaders implement KM process to enhance learning ability at all levels
to improve organizational performance.
3. Hypotheses
3.1. Transformational leadership and organizational performance beyond
the effects of transactional leadership
In the beginning of 80s, scholars have investigated the impact of
leadership and organizational performance, and in particular, Tosi
(1982) expected that since transactional leaders highly concentrate
on implementing strategies, improving hierarchical structure, and
rewarding employee performance and exhibit active management
by exception behavior to correct mistakes, they can devote significant
contribution to improve organizational performance. Further, Waldman,
Ramirez, House, and Puraman (2001), based on upper echelons theory,
proposed that transactional leadership would be positively related to or-
ganizational performance. Lowe, Kroeck, and Sivasubramaniam (1996)
found support for this positive relationship through a meta-analysis re-
search study. Apart from transactional leadership, it is strongly predicted
that transformational leaders will have significant contribution to im-
prove organizational performance. They encourage employees to take
risk, and such risk-taking yields positive effects on performance under un-
certain environment (Waldman et al., 2001). They inspire and motivate
employees to be innovative and to achieve difficult goals, and they insist
employees to approach job problems in all the directions and discourage
them using traditional methods to derive solutions. Thus it is predicted
that transformational leadership will have strong and positive effects on
organizational performance apart from the effects of transactional leader-
ship on organizational performance. Hence,
Hypothesis 1. Transformational leadership will have positive effects
on organizational performance beyond the effects of transactional
leadership.
3.2. Transformational leadership and KM process beyond the effects of
transactional leadership
Since transformational leaders discourage employees to follow tra-
ditional way of solving problems and encourage making innovative so-
lutions through risk-taking efforts, employees are motivated to gather
relevant information from inside and outside of the organization and
to participate in the external professional network (Nemanich & Keller,
2007). As a result, scholars found that transformational behaviors are pos-
itively related to information acquisition (Crawford, 2005). When involv-
ing in risk-taking activities or encouraging employees to take risky efforts,
occurrences of positive and/or negative outcomes are certain. Since these
leaders coach and guide individual employees, transformational leaders
insist employees to document these outcomes and to highlight the out-
comes while interacting with others. In this direction, transformational
leaders encourage employees to involve in knowledge documenta-
tion. Supporting this notion, Nemanich and Vera (2009) found that
transformational leadership is highly correlated with preserving and
Please cite this article as: Birasnav, M., Knowledge management and organizational performance in the service industry: The role of transforma-
tional leadership beyond the ef..., Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.09.006
3
documenting information or knowledge. Apart from establishing KM in-
frastructure to support employees to document and transfer knowledge,
transformational leaders inspire employees to accept implementation of
new technology and to understand the purpose of implementing new
technology (Schepers, Wetzels, & De Ruyter, 2005). Once employees ac-
cept the implementation of new technology and understand that such
implementation supports achieving individual and organizational goals,
they voluntarily get involved in transferring knowledge to others. Thus
it is found that the extent at which transformational leaders support
knowledge sharing is greater than transactional leaders do (Bryant,
2003).
Further, after ensuring transfer of knowledge among all the em-
ployees, transformational leaders stimulate employees' level of thinking
and transform employees' individual and collective knowledge into
organizational knowledge creation in line with Nonaka's (1994) knowl-
edge conversion process. In this direction, scholars found that transforma-
tional leadership has been associated with information and knowledge
creation (Birasnav, Rangnekar, & Dalpati, 2011; Crawford, 2005). Apart
from creating knowledge, transformational leader also supports em-
ployees to apply existing or new knowledge to solve job-related prob-
lems and to create new products and processes. In this direction,
these leaders establish innovation-supportive culture and improve or-
ganizational learning capability to improve organizational innovation
(Jansen, Vera, & Crossan, 2009; Jung, Chow, & Wu, 2003). Without mo-
tivating or rewarding employees, knowledge transfer and knowledge
creation processes cannot be implemented in the organizations. There-
fore, as like transactional leaders, transformational leaders offer both
monetary and non-monetary rewards to employees to share their knowl-
edge to others and create new knowledge (Bass & Riggio, 2006). Further,
Bryant (2003) suggested that transactional leadership is very consistent
to exploit knowledge, to maintain infrastructure, and to provide appro-
priate structure in the organizations. Though transactional leadership
has its own contributions for implementing KM process, it is expected
that the effects of transformational leadership on KM process will be
stronger than transactional leadership. Hence,
Hypothesis 2. Transformational leadership behaviors will have positive
associations with KM process beyond the effects of transactional
leadership.
3.3. Mediator role of KM process beyond transactional leadership effects
Transformational leaders encourage knowledge acquisition due to
the reasons that knowledge acquisition attributes to predicting positive
changes in the profit level of the organizations and ensuring on-time de-
livery and product and process quality (Inkpen, 1998; Politis, 2002). As
application of knowledge and sharing of knowledge create new prod-
ucts and processes, these processes improve overall performance of
the organizations (Droge, Claycomb, & Germain, 2003; Singh, 2008).
In addition, Birasnav et al. (2011) proposed that KM process plays
a mediation role in the relationship between transformational lead-
ership and human capital benefits. It implies that transformational
leaders develop collective employees' human capital by implementing
KM process in the organizations in pursuit of achieving organizational
goals. In this direction, scholars have reported that human capital devel-
opment has positively related to organizational performance (Zhu et al.,
2005). In addition, Bryant (2003) also proposed that transactional
leaders contribute to improving performance at individual-, group-,
and organizational-level through exploiting knowledge in the organiza-
tions. Since these leaders often involve in providing reward to em-
ployees to share knowledge, it is also expected that such leaders
enhance performance through implementing some part of KM process.
However, such contribution would be minimal in comparison to the
contribution of transformational leaders on implementing KM process.
Hence,
4 M. Birasnav / Journal of Business Research xxx (2013) xxx–xxx

Hypothesis 3. KM process will strongly mediate the relationship be- was “The Cronbach alpha (α) value of idealized influence (attribute)
tween transformational leadership and organizational performance measure was 0.67”. The sample item included in the idealized influence
after controlling for the impact of transactional leadership. (behavior) measure (α = 0.83) was “The α value of idealized influ-
ence (behavior) measure was 0.83”. The sample item included in
the intellectual stimulation measure (α = 0.63) was “The α value
4. Methodology
of intellectual stimulation measure was 0.63”. The sample item in-
cluded in the inspirational motivation measure (α = 0.73) was
4.1. Sample
“The α value of inspirational motivation measure was 0.73”. The
sample item included in the individualized consideration measure
A well-trained team of three graduate students was formed to ad-
(α = 0.75) was “The α value of individualized consideration mea-
minister data collection process. Random sampling was used to identify
sure was 0.75”. The sample item included in the contingent reward
500 service firms located in Bahrain. These firms were clustered into
measure (α = 0.68) was “The α value of contingent reward mea-
three groups based on public service firms, private retail/distribution
sure was 0.68”. The sample item included in the active management
firms, and other private firms. Each graduate student was assigned to
by exception measure (α = 0.73) was “The α value of active man-
each group of firms based on their knowledge and experience with
agement by exception measure was 0.73”. The sample item included
the service firms. This team of students approached human resource
in the passive management by exception measure (α = 0.80) was
managers to participate in this study by responding a survey question-
“The α value of passive management by exception measure was 0.80”.
naire. It comprises three sections such as leadership, KM process, and
The composite reliability coefficients of transformational leadership
organizational performance. These managers were requested to rate
and transactional leadership measures were 0.90 and 0.74 respectively.
their leader's behaviors and prevalence of tactical KM process in their
firms. The team also requested general managers or owners of small
4.2.2. Tactical KM process
firms to respond organizational performance questionnaire. Collecting
In line with Chen and Huang (2009) and Lin and Lee (2005), knowl-
responses from different sources helped to minimize the common
edge acquisition, knowledge transfer, and knowledge application were
method variance bias. This process helped to collect 119 responses
considered as the facets of tactical KM process. In order to measure
from the service firms, which include the sectors of healthcare, account-
KM process, this study used Filius et al.'s (2000) 21-item measure com-
ing, transportation, retail/distribution, hotel, educational institutions,
prising of knowledge acquisition, knowledge transfer, and knowledge
consultancy services, etc. Table 1 depicts the characteristics of the par-
ticipated firms.
Table 2
4.2. Measures Results of exploratory factor analysis.

Items of Filius et al. (2000) Factor loading

4.2.1. Transformational and transactional leadership KA KAP KT
To measure transformational leadership and transactional leader-
“This organization actively collects information about needs and 0.48
ship behaviors, thirty-two items from Multifactor Leadership Question-
wishes of clients”
naire (Form 5X — Short, rater form, Bass & Avolio, 1995) were used in “Our organization does research (i.e. with universities) to explore 0.64
this study. Human resource managers rated their immediate leader's future chances/possibilities”
behaviors in a 5-point Likert scale ranging from 1 (Not at all) to 5 (Fre- “Members regularly follow courses, training programs, and 0.76
quently, if not always). Exploratory factor analysis (principle compo- seminars to remain informed”
“We consider our competitors as a source of inspiration for 0.57
nents with varimax rotation) was conducted to identify the factor developing new methods/approaches”
structure of this measure, and it yielded eight factors with eigenvalues “Selling knowledge, products, or services gets explicit attention” 0.70
of more than one. Factor loading of more than or equal to 0.30 was con- “Members promote new knowledge (products and services) 0.58
sidered as a criterion to retain items in this measure in line with Dess externally in the market”
“Experiences of clients are used to improve products and 0.60
and Beard (1984), and seven items, which were wrongly clustered
services”
with other factors, were removed for further analysis. The following “We use existing know-how in a creative manner for new 0.40
five factors were associated with transformational leadership: idealized applications”
influence (attribute), idealized influence (behavior), intellectual stimu- “Members promote knowledge (products and services) 0.42
lation, inspirational motivation, and individualized consideration; and internally”
“One of our strong qualities is combining our specialisms in 0.46
the following three factors were associated with transactional leader- multi-disciplinary teams”
ship: contingent reward, active management by exception, and pas- “We try to conquer dysfunctional beliefs within the organization” 0.61
sive management by exception. The sample item included in the “Before developing products or services we do marketing 0.46
idealized influence (attribute) measure (Cronbach's alpha (α) = 0.67) research among potential clients”
“New members are assigned a mentor who helps them find their 0.34
way in the organization”
“Much knowledge is distributed in informal ways (“in the 0.83
Table 1 corridors”)”
Characteristics of the sample. “There are regular meeting being organized in which professional 0.41
matters are discussed”
Variables Frequency Variables Frequency
“We have a form in intercolleagual review, in which members 0.41
Age, years Size, number of employees discuss their methods of working”
≤5 34 ≤24 31 “Members change jobs, regularly, thus distributing their 0.74
6–10 26 25–49 23 know-how”
11–15 11 50–99 17 Eigenvalue 7.69 1.58 1.33
16–20 6 100–199 14 Percentage of variance explained 36.6 7.51 6.32
≥21 42 ≥200 34 Cronbach's alpha (α) 0.75 0.85 0.75
Type Capital, BHD
Note: KA—knowledge acquisition; KAP—knowledge application; KT—knowledge transfer.
Private 75 ≤500,000 27
The items listed above are reproduced by the permission of the Emerald Group Publishing
Public 44 500,001–1,000,000 15
Limited from “Knowledge management in the HRD office: a comparison of three cases” by
1,000,001–1,500,000 25
Filius, R., De Jong, J.A., & Roelofs, E.C., Journal of Workplace Learning, Vol. 12, No. 7, pp. 286-
≥1,500,001 52
295. © Emerald Group Publishing Limited all rights reserved.

Please cite this article as: Birasnav, M., Knowledge management and organizational performance in the service industry: The role of transforma-
tional leadership beyond the ef..., Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.09.006
 M. Birasnav / Journal of Business Research xxx (2013) xxx–xxx 5

application factors. Human resource managers rated the prevalence of
KM process activities in a 5-point Likert scale ranging from 1 (Completely
disagree) to 5 (Completely agree). Exploratory factor analysis (principle
components analysis with varimax rotation) was conducted to identify
the dimensionality of this measure. Factor loading of more than or equal
to 0.30 was considered as a criterion to retain items in this measure.
This analysis resulted in five factors with eigenvalues of more than one
(see Table 2). The last two factors' alpha values were less than 0.60,
and so three items representing these two factors were removed for fur-
ther analysis. These three factors are named as knowledge acquisition,
knowledge transfer, and knowledge application. The sample item includ-
ed in the knowledge acquisition measure (α = 0.75) was “This organiza-
tion actively collects information about needs and wishes of clients”. The
sample item included in the knowledge transfer measure (α = 0.75) was
“There are regular meeting being organized in which professional matters
are discussed”. The sample item included in the knowledge application
measure (α = 0.85) was “Experiences of clients are used to improve
products and services”.
4.2.3. Organizational performance
A 7-item measure developed by Delaney and Huselid (1996) was
used in this study to measure organizational performance. General
managers or owners of small service firms were requested to rate the
level of their organization's performance over the past 3 years com-
pared to the organizations of the same kind in a 4-point Likert scale
ranging from 1 (Worse) to 4 (Much better). Only one item from this
measure was removed, as its factor loading was less than 0.30. The sam-
ple item included in this measure (α = 0.76) was “Development of
new products, services, or programs?”.
4.2.4. Control variables
Firm age, type, size, and capital were considered as control variables
in this study. Larger firms as well as high capital firms tend to invest
more resources to implement practices that enhance organizational
knowledge and performance (Tsai, 2001). Scholars have reported that
organizational size has a significant impact on the organizational ability
to learn, which has clear association with implementation of KM pro-
cess (Aragon-Correa et al., 2007). Further, it is also proved that the
pace of implementation of collaborative climate in private firms is com-
parably higher than public firms in pursuit of achieving KM
effectiveness (Sveiby & Simons, 2002). Firm age was measured by a
5-point scale ranging from 1 (≤5 years) to 5 (≥21 years); Categorical
question (1 = Private and 2 = Public) was used to assess type of
firm; firm size was measured by a 5-point scale ranging from 1 (≤24
employees) to 5 (≥200 employees); and firm capital was measured
by a 4-point scale ranging from 1 (≤500,000 BHD) to 4 (≥1,500,001
BHD).
5. Results
Table 3 shows the mean, standard deviation, and zero-order correla-
tion coefficients of all the studying variables. In line with previous re-
search studies, transformational leadership and transactional leadership
components have positive associations with KM process factors and or-
ganizational performance. Further, KM process factors have positive re-
lationships with organizational performance. It is observed that the
interrelationships among the components of transformational leader-
ship are significant. The magnitude of the correlation coefficients of
transformational leadership with KM process factors and organizational
performance are close to each other. As a result, consistent with the
previous research studies (Zhu et al., 2005), the components of trans-
formational leadership are combined into a single higher order factor.
Transactional leadership components are also combined into a single
factor.
To test the proposed hypotheses, data were analyzed using a series
of hierarchical regression analysis (HRA). To test the mediation role of
KM process between transformational leadership and organizational
performance, four steps suggested by Baron and Kenny (1986) were
followed. First, dependent variable (organizational performance) is to
be regressed on the independent variable (transformational leadership)
to show that both variables have certain associations that may be medi-
ated. Second, mediator (KM process) is to be regressed on the indepen-
dent variable to show that both variables have certain associations.
Third, dependent variable is to be regressed on both the mediator and
independent variable to show that mediator has certain associations
with dependent variable after controlling for independent variable.
Last, complete mediation exists only when the beta value of indepen-
dent variable on dependent variable is zero or non-significant after con-
trolling for the mediator, and if this value is significantly reduced, then
partial mediation prevails. Table 4 shows the results of these steps.

Table 3
Descriptive statistics and zero-order correlation coefficients.

Variables 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Mean 2.96 1.37 2.97 2.86 3.64 3.24 3.68 3.58 3.74 3.75 3.54 3.62 3.67 3.46 3.59 3.30
Standard deviation 1.69 0.48 1.59 1.21 0.84 0.88 0.75 0.88 0.75 0.74 0.83 0.65 0.70 0.69 0.66 0.50
1. Age 00
2. Type 31⁎ 00
3. Size 66⁎ 61⁎ 00
4. Capital 39⁎ 51⁎ 72⁎ 00
5. Contingent reward 12 01 09 07 00
6. Passive MBE 10 21⁎⁎ 13 10 14 00
7. Active MBE 03 −02 15 05 37⁎ 29⁎ 00
8. Idealized influence (B) 02 −04 01 01 54⁎ 09 35⁎ 00
9. Idealized influence (A) −12 −10 −04 04 46⁎ 03 24⁎ 51⁎ 00
10. Inspirational motivation −03 −13 −02 −07 34⁎ −07 38⁎ 51⁎ 39⁎ 00
11. Individualized −01 06 08 02 52⁎ 23⁎⁎ 45⁎ 62⁎ 52⁎ 46⁎ 00
consideration
12. Intellectual stimulation 06 −18⁎⁎ −02 02 47⁎ 13 46⁎ 52⁎ 37⁎ 55⁎ 44⁎ 00
13. Knowledge acquisition −04 −05 −01 01 40⁎ 06 45⁎ 48⁎ 43⁎ 56⁎ 59⁎ 44⁎ 00
14. Knowledge transfer −02 −00 00 00 42⁎ 31⁎ 43⁎ 48⁎ 31⁎ 40⁎ 47⁎ 43⁎ 52⁎ 00
15. Knowledge application 00 01 −01 −02 50⁎ 10 46⁎ 54⁎ 46⁎ 54⁎ 56⁎ 47⁎ 65⁎ 70⁎ 00
16. Organizational −06 −20⁎⁎ −14 −09 55⁎ 07 33⁎ 52⁎ 40⁎ 41⁎ 44⁎ 57⁎ 47⁎ 48⁎ 61⁎ 00
performance

Notes: Decimals are omitted from the correlation coefficients.

MBE — management by exception; idealized influence (B) — idealized influence (behavior); idealized influence (A) — idealized influence (attribute).
⁎ p b .01.
⁎⁎ p b .05.

Please cite this article as: Birasnav, M., Knowledge management and organizational performance in the service industry: The role of transforma-
tional leadership beyond the ef..., Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.09.006
6 M. Birasnav / Journal of Business Research xxx (2013) xxx–xxx

Table 4 leadership research that investigates the associations between transfor-

HRA results of leadership on KM process and organizational performance. mational leadership and firm performance, and contributes to KM litera-
Predictors Model 1 Model 2 Model 3 Model 4 ture by investigating KM process implementation as a much needed
mechanism transformational leaders employ to improve organizational
OP KA KT KAPP OP OP
performance. Data were collected from human resource managers
Control variables
and general managers of Bahrain service firms to examine the medi-
Age 0.06 0.01 −0.02 0.02 0.04 0.05⁎⁎
Type −0.10 −0.00 0.05 0.14 −0.18 −0.14 ation role of KM process in the relationship between transformation-
Size −0.14 0.00 −0.00 −0.03 −0.09 −0.13 al leadership and organizational performance. HRA results indicated
Capital 0.03 0.04 −0.04 −0.06 0.06 0.05 that leaders having transformational leadership behaviors have po-
Leadership factors tential to contribute to firm performance in addition to the effects
Transactional 0.22⁎ 0.05 0.30⁎ 0.07 0.19†
leadership
of transactional behaviors. Transformational leaders provide high
Transformational 0.48⁎ 0.65⁎ 0.42⁎ 0.71⁎ 0.29⁎ importance to implement KM process in their organizations in the
leadership forms of acquiring missing knowledge from external environment,
KM factors transferring knowledge between employees, and encouraging
Knowledge 0.10 −0.04
knowledge application. However, results also highlighted that KM
acquisition
Knowledge transfer 0.14 0.03 process acts as a partial mediator in the relationship between trans-
Knowledge 0.44⁎ 0.29⁎ formational leadership and organizational performance.
application Implementing KM process is an essential activity that organizations
F 12.88⁎ 15.01⁎ 12.29⁎ 22.06⁎ 9.51⁎ 9.75⁎ must execute to achieve competitive advantage through encouraging
ΔF 36.34⁎ 44.11⁎ 36.43⁎ 65.10⁎ 20.76⁎ 2.40†
R2 0.43 0.47 0.42 0.57 0.40 0.47
employees to contribute toward developing organizational knowledge.
ΔR2 0.41 0.46 0.42 0.56 0.37 0.04 In this direction, it is transformational leaders who develop human cap-
ital (combination of employees' knowledge, skills, commitment, and ca-
Notes: Standardized beta coefficients are reported.
OP — organizational performance; KA — knowledge acquisition; KT — knowledge transfer; pabilities) through encouraging employees to transfer their knowledge
KAP — knowledge application. to other employees and applying their knowledge for completing pro-
⁎ p b .01. jects and performing different critical jobs. It is found that these leaders
⁎⁎ p b .05.
†
acquire knowledge from external environment by involving in the ac-
p b .1.
tivities of searching for experts and consultants who possess the missing
knowledge and make them available for other employees either tempo-
Model 1 shows that transactional leadership is positively related to rarily or permanently. Scholars provide support for this notion that
organizational performance, and after controlling for the effects of trans- transformational leadership is positively related to recruitment and se-
actional leadership, transformational leadership is positively associ- lection process (Zhu et al., 2005). However, this way of knowledge ac-
ated with organizational performance (β = 0.48, p b 0.01). Therefore, quisition did not help leaders to improve organizational performance.
Hypothesis 1 predicting that transformational leadership will have Similarly, the way these leaders support employees to transfer knowl-
positive effects on organizational performance beyond the effects of edge between employees also did not contribute significantly to improve
transactional leadership was completely supported. Model 2 shows organizational performance. It is knowledge application that contributes
the effects of transformational leadership and transactional leadership significantly to enhance organizational performance. It is commonly
on tactical KM process factors. After controlling for the effects of trans- found among service firms that leaders encourage their employees to
actional leadership, the variance of transformational leadership signifi- attend conferences, workshops, and seminars to gain new knowledge.
cantly and positively explains the variance on knowledge acquisition By establishing enough technological infrastructure in the organizations,
(β = 0.65, p b 0.01), knowledge transfer (β = 0.42, p b 0.01), and the gained knowledge is immediately applied for solving job problems. In
knowledge application (β = 0.71, p b 0.01). Thus, complete support line with the researchers (for example, Edmondson, 1996), who asserted
was found for Hypothesis 2 indicating that transformational leadership that leadership is a source of sustainable competitive advantage, this
behaviors will have positive associations with KM process beyond the study showcases that transformational leadership is a source of improv-
effects of transactional leadership. Model 3 shows that only one KM ing organizational performance directly and indirectly through knowl-
process variable, knowledge application, is positively related to organi- edge application.
zational performance. Therefore, knowledge application has potential
to act as a mediator in the relationship between transformational lead- 7. Limitations
ership and organizational performance.
Model 4 shows the beta values of both transformational leadership There are certain limitations involved in this research study. First,
and KM process variables on organizational performance. After entering since this study is an organizational level study, the managers chosen
the KM process factors into the regression equation in which organiza- to participate in this study was a limitation. Managers familiar with
tional performance was regressed on transformational leadership, the the issues of this study were participated, and the analysis related to
beta value of transformational leadership on organizational performance homogeneous set of the responses from the organizations was not
0.48 (p b 0.01) is significantly reduced to 0.29 (p b 0.01). These results performed. In future, this analysis will be performed along with intro-
show that knowledge application plays a partial mediator role in the rela- ducing other variables like organizational learning. Second, this study
tionship between transformational leadership and organizational perfor- collected responses for transformational leadership and KM process
mance. Thus, Hypothesis 3 indicating that KM process will strongly from human resource managers. Therefore, the common method vari-
mediate the relationship between transformational leadership and orga- ance bias could not be eliminated, as it was very difficult to find two man-
nizational performance is partially supported. agers working in the service firms. Research studies can be conducted
among manufacturing industries and number of sources for collecting re-
6. Discussions sponses can be increased. Third, number of service firms participated in
this study was another limitation of this study. However, low response
In order to survive in the turbulent market environment, firms make rate was unavoidable when the survey is conducted among service
lots of efforts to implement various knowledge-enhancing practices to firms, and since two participants from one firm were participated in
create organizational knowledge by which they increase their ability this study, responses were also rejected when one participant could not
to innovate new products. This study adds to the growing body of provide the response.

Please cite this article as: Birasnav, M., Knowledge management and organizational performance in the service industry: The role of transforma-
tional leadership beyond the ef..., Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.09.006
 M. Birasnav / Journal of Business Research xxx (2013) xxx–xxx
8. Implications for theory
This study has a number of contributions to theory and leadership
and KM literature. First, it developed a conceptual model through in-
tegrating the concepts of transformational leadership, KM, and orga-
nizational performance. Though a number of studies investigated the
positive effects of transformational leadership on organizational perfor-
mance (Aragon-Correa et al., 2007; Peterson et al., 2009), it built the
conceptual model indicating the mediation role of tactical KM process
and derived three hypotheses. Second, this study empirically tested
the conceptual model and proved that transformational leadership has a
direct effect on organizational performance and has indirect effect on per-
formance through implementing tactical KM process. However, only
knowledge application has played a mediation role in the relationship be-
tween transformational leadership and organizational performance.
Third, despite the prevalence of certain associations between transaction-
al leadership and KM process and between transactional leadership and
organizational performance, the effects of transactional leadership on
KM process and organizational performance were controlled for in this
study. Thus, this study provided strong evidence to show the interrela-
tionships between transformational leadership and KM process and be-
tween transformational leadership and organizational performance. Due
to these contributions, this study made significant contributions to an-
swer research questions in relation to examining the effects of transfor-
mational leadership on performance and tactical KM process beyond
the effects of transactional leadership and to examining the mediating
role of tactical KM process in the relationship between transformational
leadership and performance. Previous research study suggested that
transformational leadership behaviors could be developed among
managers through training sessions. For instance, Barling, Weber,
and Kelloway (1996) empirically showed that training provided to
bank managers to develop transformational leadership behaviors had
significant contribution on improving financial performance. Consistent
with this research study, the current study emphasized the importance
of developing transformational leadership to improve organizational
performance through implementing KM process.
9. Implications for practice
This study has certain implications for managers. First, managers
responsible for human resource management should provide training
to managerial employees on exhibiting transformational behaviors apart
from transactional behaviors. As transformational behaviors were proved
effective under uncertain environment, human resource managers should
monitor the external environment, read the economic situations, and
present these situations to the trainees so that they can understand
the component of transformational behaviors to be exhibited during a
particular uncertain environment. Second, human resource managers
should take efforts to create KM department that may function under
the purview of human resource management or operations management,
as knowledge application was found to have significant relationship with
organizational performance. KM department shall be assigned re-
sponsibility of suggesting acquisition of missing knowledge to the
human resource department, listing relevant workshops or confer-
ences, identifying employees to participate in these workshops,
implementing techniques and necessary facilities to transfer the ac-
quired knowledge, and importantly, suggesting and monitoring the
application process of knowledge in other department by integrat-
ing all the departments together to share the job problems. Third,
general managers can increase the performance level of their organiza-
tions if they involve in exercising transformational leadership behaviors
apart from traditional leadership style, and so these managers should
engage in development of goals, use different techniques to improve
employees' knowledge, and create trust among employees. Last, con-
tents related to knowledge acquisition, transfer, and application shall
be included in the annual performance appraisal process by human
Please cite this article as: Birasnav, M., Knowledge management and organizational performance in the service industry: The role of transforma-
tional leadership beyond the ef..., Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.09.006
7
resource managers, and this will emphasize the importance given to
prevalence of KM process by the organizations.
10. Directions for future research
In future, apart from addressing the limitations, the conceptual
model will be refined by including more number of constructs. For ex-
ample, a moderating role of environmental uncertainty will be included
in the relationship between transformational leadership and KM pro-
cess and between transformational leadership and organizational per-
formance in line with Jansen et al. (2009). The concepts of KM process
will be explored further by including knowledge documentation and
knowledge creation constructs as per Filius et al. (2000)'s definition of
tactical KM process. In addition, the role of organizational learning will
be examined in the associations among transformational leadership,
KM process, and performance.
11. Conclusions
The present study (1) investigated the direct effect of transformational
leadership on organizational performance and indirect effect of transfor-
mational leadership on organizational performance through KM process
beyond the effects of transactional leadership; (2) proved that after con-
trolling for the effects of transactional leadership, transformational lead-
ership strongly predicted organizational performance; (3) showed that
it is transformational leaders, who make significant contribution to ac-
quire, transfer, and apply knowledge in the organizations beyond the con-
tributions of transactional leadership on implementing KM process; and
(4) empirically showed that implementation of KM process partially
mediates the relationship between transformational leadership and or-
ganizational performance after controlling the effects of transactional
leadership.
Acknowledgements
I would like to thank the anonymous reviewers for their comments
to improve this article. I would also like to thank the New York Institute
of Technology for providing resources to carry out this study as well as
Mr. Talal, Mr. Mohammed, and Mr. Yousif for their support on data
collection.
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