From this perspective, the transformational leader should manage an organization understood as a ‘system based on knowledge, a system through which circulate information and basic knowledge (explicit and tacit), knowledge acquired from the outside (absorptive capacity), or existing knowledge in the organization (knowledge used and knowledge slack). This circulation of knowledge creates a knowledge flow that, through various processes of transformation (organizational learning), creates new knowledge which, when applied (innovation), generates essential competences for the firm’. It is not the members’ knowledge in itself that is strategically vital, but the presence of good leadership to enable the organization to integrate, share and use this knowledge innovatively The Effects of Transformational Leadership on Organizational Performance.

If we analyse this understanding of the organization in depth, we see that basic explicit and tacit knowledge circulates in the organization. The degree of tacitness is especially strategic, as tacit knowledge is difficult to express, formalize or share, making it much harder for competitors to copy than explicit knowledge. Tacit knowledge is crucial to managers’ mental models, which determine how managers understand cause–effect connections, give meaning to events and make decisions. Yet tacitness as a theoretical concept has received little empirical attention.

Organizational knowledge is acquired from the outside through absorptive capacity. It is the firm’s ability to observe the value of new knowledge, assimilate it, and apply it to commercial ends. This dynamic capability influences the firm’s ability to create and deploy the knowledge required to build other organizational capabilities (organizational learning, innovation) that give the firm a base from which to achieve superior performance. Organizational knowledge also exists inside the firm, whether currently in use or awaiting a production need. Knowledge slack is essential for creating, sharing and exploiting new knowledge. Drawing on we define knowledge slack as the pool of knowledge resources in a firm in excess of the minimum necessary to produce a given level of organizational output. Slack facilitates freedom to develop research or projects that may not generate tangible outputs in the short term but that may provide the knowledge base for future success The Effects of Transformational Leadership on Organizational Performance.

From the second part of the definition above, we see that organizational learning enables development of new skills and knowledge, increasing the organization’s capacity to carry out effective actions and improvements in organizational performance The Effects of Transformational Leadership on Organizational Performance. Innovation has been defined as a new idea, method or device, the act of creating a new product, service or process. Although firm innovation is widely prescribed as a means to improving organizational performance many firms do not or cannot develop it properly. Researchers have urged attention to what enables firms to innovate. Several studies link ‘transformational leadership’ to innovation.

Leaders’ perceptions of these strategic variables are crucial to stimulating organizational performance. They play a major role in informing and moulding these variables by determining the types of behaviour expected and supported. Leaders tend to form simplified internal cognitive representations and use these mental models to focus on variables they judge to be critical. They make decisions and measure their performance based on these variables.

Influence of transformational leadership

Transformational leadership guides and motivates a common vision of the organization. It motivates workers to create and share knowledge, generating knowledge slack. Knowledge slack is essential to facilitating personal and professional growth , organizational learning and innovation. Absence of slack is one of the main obstacles to firms’ transfer of practical improvements. Transformational leaders invest substantially and continuously in developing organizational knowledge slack to achieve high innovation and effectiveness. Thus: The Effects of Transformational Leadership on Organizational Performance

Leaders are crucial to the process of creating cultures, systems and structures that foster the absorption, assimilation and application of knowledge. Transformational leadership can make organizations more effective by stimulating absorptive capacity. As the importance of knowledge assets and absorptive capacity grow, firms will increasingly expect transformational management of these valuable assets from their leaders.

Transformational leaders foster absorptive capacity among the organization’s members by encouraging employee empowerment and autonomy. They provide information, responsibilities, skills and competences to the organization’s agents, who may then use it to acquire, implement, transform and use a new practice and improve internal communication by reducing barriers to sharing knowledge, thereby increasing the efficiency of the absorption process (e.g.. Thus:

As knowledge acquires importance in organizations, employees must manage it as a source of value creation and competitiveness. Firms today employ more intellectual workers and have more tasks with greater intellectual content, increasing the number of knowledge workers. Thus, more tasks or jobs are not fully specified. Procedures for acting on an intellectual issue cannot be easily written or presented in manuals The Effects of Transformational Leadership on Organizational Performance.

Transformational leaders enable the search for new opportunities, creation of a common vision, and motivation and guidance of employees. The search for new opportunities encourages greater responsibility in employees and greater exploitation of tacit knowledge at work. The transformational leader can also generate a shared vision through which all of the organization’s members learn, using both explicit and tacit knowledge. The leader knows that the organization’s members possess significant intellectual capacity and tacit knowledge, which should be used at work. Transformational leaders guide others’ professional trajectories, giving them greater liberty in their tasks by allowing them to make greater intellectual decisions based on tacit knowledge. Thus: The Effects of Transformational Leadership on Organizational Performance

Because transformational leadership promotes organizational learning , it is essential to the organization’s success in the intellectual-capital-based new economy. A transformational style allows the organization to learn through experimentation, communication, dialogue , personal mastery and organizational knowledge creation. A learning organization can acquire and use new and relevant knowledge better, develop critical capacities and skills, and increase organizational improvement. A transformational style encourages the stimulation, individualized consideration and motivation essential to learning, making a leader the catalyst, mentor, facilitator and trainer for organizational learning. Thus: The Effects of Transformational Leadership on Organizational Performance

The leader plays a critical role in generating innovation  and creating a climate that encourages the abilities and practices to promote it. The leader’s characteristics and leadership style are key determinants of innovative conduct in organizations. Currently, there is broad consensus that a collaborative, participatory leadership style (transformational) is more likely to encourage organizational innovation than a transactional style. Transformational style fosters a common view of the organization’s goals, allows leaders to guide and motivate firm members and seeks new opportunities and challenges. It creates ideal conditions for innovation by creating teams of innovative people and transmitting stronger motivation to innovate The Effects of Transformational Leadership on Organizational Performance.