Role of Sub-constructs of Psychological Capital and Transformational Leadership in Engaging Employees in Service Sector

Abstract

The purpose of this study is to examine the relationship between transformational leadership (TL) and employee engagement through the mediating role of the sub constructs of psychological capital. The article has used a single cross-sectional descriptive design. The sample consisted of 450 full-time employees working in the service sector in India. The data were mainly analyzed through structural and measurement model. The result of the study revealed that TL has an influence on employee engagement. The relationship between TL and employee engagement is mediated by sub-construct hope of psychological capital. Implication of this study is of high importance for organizations continuously working to increase the level of employee engagement to further enhance competitiveness. Prior research has examined the antecedents of employee work engagement, but little is known about the role of TL and a positive psychological state, in shaping employee work engagement. Imparting TL training and style can help to generate psychological capital which will positively drive employee engagement. Organizations with transformational leaders will be able to make employees feel valued and happy by igniting feeling of hope. The engaged workforce will result in the positive social outcome. This study is original as earlier studies have not explored the important role of hope and also optimism as dimensions of psychological capital. The article supports the critical role of leadership and psychological capital in creating highly engaged employees which have not been studied in an Indian context with specific focus to the service sector.

Keywords

Transformational leadership psychological capital hope employee engagement service sector India

Introduction

Economy worldwide is witnessing a continuous and rapid change in people expectations. Employee’s expectations from the organizations are also changing rapidly. It has become imperative for organizations and human resource practitioners to find various alternatives for recognizing mutual expectations of employers and employees for better organizational performance. Several strategies are available in positive organizational behavior, of which employee engagement has emerged as crucial factors to address the concern for improving the performance of the employees (Anitha, 2014).

Therefore, organizations are focusing to establish employee engagement as the priority agenda for HR. In recent years, many studies on employee engagement have been done adding more meaning to the literature; however, more about the issues of employee engagement (Airila et al., 2014; Bakker, 2011; Chang, Hsu, Liou, & Tsai, 2013) needs to be explored. The developing and moderately new construct is that psychological capital can affect employee engagement (Luthans, Avolio, Avey, & Norman, 2007). Psychological Capital is an important dimension to build the competitiveness of the organization (Luthans & Youssef, 2004). It is one the significant personal resource among various other resources influencing emotion, motivation, and various other factors of human life. Shu and Lazatkhan (2017) have stated emotion as a natural phenomenon of employee work engagement, since it integrates vigor, dedication, and absorption. Hence, it will also result in enhancing the level of employee engagement (Datu & Valdez, 2016). Transformational leadership (TL) has been widely researched and its positive consequences have been established. Primarily it has been perceived as meaningful in work and vital in generating intrinsic motivation (Chen & Hou, 2016) and job satisfaction (Bushra, Ahmad, & Naveed, 2011) among employees. Earlier studies have emphasized the importance of TL in building employee engagement (Ghadi, Fernando, & Caputi, 2013). Research attention given to the psychological contract (Rousseau, 1998; Zhao, Wayne, Glibkowski, & Bravo, 2007) has resulted in linking the psychological capital with TL (Gupta & Singh, 2014; Jung & Avolio, 2000; Luthans et al., 2007). However, the role of sub constructs of psychological capital along with TL on employee engagement has not been widely studied with only a few recent empirical studies (Xu, Liu, & Chung, 2017). This study has been done to fill the above gap and add to the literature of employee engagement and explain the role of TL.

This study is an attempt to explore the interrelationship between TL style, sub constructs of psychological capital and employee engagement in the service sector in India. According to a research study by Hay Group (2013), India has one of the highest attritions in the organized sector with respect to the size of the organization. This implies the need for more effective practices for employee engagement and retention. The findings of the study establish the importance of TL and employee’s psychological capital to address the concern for employee work engagement in service sector. The rest of the article include literature review, methodology, findings and conclusion. The article ends highlighting the implications of the study for the managers and contribution in the literature of employee engagement.

Literature Review

Employee Engagement

Kahn’s (1990) concept of employee engagement has widely been reviewed. He proposed the difference of job involvement and employee engagement, later intends to be cognitive, emotional, and in an addition physical display when involved in and playing out an organizational role (Kahn, 1990). Perrin (2003) defined employee engagement as the optional efforts and additional time of employees into their work. Researchers established employee engagement as an antecedent of organizational performance (Otieno, Waiganjo, & Njeru, 2015). This may manifest in finding associations of highly engaged employees in organizations with revenue growth more than the industry average (Markos & Sridevi, 2010). For conceptualizing employee engagement for this study, employee engagement concept of Perrin (2003) “Engagement is the extent to which employees put discretionary effort into their work, beyond the required minimum to get the job done, in the form of extra time, brainpower or energy” has been considered. Extending this concept, Development Dimensions International Inc. (2005) stated employee engagement as “the extent to which people enjoy and believe in what they do and feel valued for doing it”.

Transformational Leadership

Every single employee adds to the organizational viability. Considering the aptitudes, experience, and rank some assume a greater part than others. They need to manifest genuine leadership and the capacity to guide people and groups in their most abnormal amount of joint effort and advancement. The topic of leadership has been of eagerness for a large number of years and researchers have attempted to explain the meaning of leadership. Theories which clarify leadership adequacy as far as situational arbitrator factors are named as contingency theories of leadership (Mahsud, Yukl, & Prussia, 2010). These theories show the relationship between leadership styles and adequacy specific to circumstances. Researchers in 1980s prompted to conceive TL which considers leaders as people who motivate adherents through their demonstrations, words, and thoughts (Robbins & Judge, 2013). The transformational approach has been a standout among the most well-known methodologies for researchers since 1980s. It is a piece of the “New Leadership” worldview, which gives more consideration to feeling components of leadership (Northouse, 2013). Transformational leaders engage in with team and followers, concentrate on higher inborn needs and ways in which those results may be achieved (Hay Group, 2013). Studies on TL style and organizational factors like organizational citizenship behavior and subordinate’s fitness (Lian & Tui, 2012) and job satisfaction (Bushra et al., 2011) have established a significant positive relationship of TL with organization outcomes.

Psychological Capital

Human capital as conceptualized by Fitz-enz (2000) consists of social capital, intellectual capital, emotional capital, and psychological capital named “PIES”. The concept of psychological capital is proposed as the essential part of human capital that can address a portion of the human issues in the organizations. Researchers have stated psychological capital as a manifestation of positive organizational behavior (POB) in psychological and management research (Luthans, Avey, Avolio, Norman, & Combs, 2006; Luthans & Youssef, 2004) with four sub-constructs, such as optimism, hope, resiliency, and efficacy (Luthans et al., 2007). Employees with high self-efficacy have the skills and abilities which are required in their current and future jobs for high performance (Chen & Lim, 2012). According to Wood and Bandura (1989), mastery experiences and modeling results in development of self-efficacy. However, to achieve specific goal, high hope in employees are needed, which is an important sub-construct of psychological capital (Luthans, Norman, Avolio, & Avey, 2008). An employee with hope are also needed to be optimistic for about current and future success (Chen & Lim, 2012). Challenging environment and thriving in uncertainty by positive adaption is manifested in resilient individuals (Avey, Reichard, Luthans, & Mhatre, 2011). Self-efficacious, hopeful, optimist, and resilient employees are energetic and dedicated and expected to display satisfaction with their job and career. Psychological capital is moderately new research area with a growing emphasis on employee’s self-directed execution. Many studies have established a significant positive relationship of psychological capital, employee execution (Peterson, Luthans, Avolio, Walumbwa, & Zhang, 2011), and employee’s innovative behavior (Jafri, 2012).

Hypotheses Development

Transformational Leadership and Employee Engagement

Kahn (1990) in a seminal study found that leadership can have a significant impact on mental wellbeing sentiments of their follower. Researchers established that positive relationship of TL with employee engagement results in higher performance (Breevaart, Bakker, Demerouti, & van den Heuvel, 2015; Zhu, Avolio, & Walumbwa, 2009). Aon Hewitt’s (2014) report on the trends of employee engagement stated that leaders primarily influence employee engagement. Researchers have documented that TL significantly influence followers’ work attitudes and behaviors (Avolio, Zhu, Koh, & Bhatia, 2004; Wijewantha & Kialasapathy, 2015). Transformational leaders emphasize on broadening followers’ responsibilities for taking on greater workplace challenges (Avolio et al., 2004). This form of leadership results in the achievement of higher levels of performance among individuals. When reviewing literature, researcher find limited studies (Avolio et al., 2004; Baysak & Yener, 2015) which empirically examined the impact of TL on employee engagement. A study done on employees in India by Popli and Rizvi (2015) highlighted the relationship and high association among TL and employee engagement. It can be hypothesized as:

H1: Transformational leadership style has a significant positive impact on employee engagement.

Psychological Capital as a Mediator

We posit that perceived TL results in developing employee psychological capital, which further influence employee work engagement. When leaders are more positive in conflict, failure, obstacles, and demonstrate will power for goal achievement, it is expected that employees will also express higher optimism for future (Li, Castaño, & Li, 2018). Such TL behavior will lead to a feeling of hope and optimism positively influencing psychological capital.

In earlier research, a fit model between psychological capital and employee engagement have been examined (Sihag & Sarikwal, 2014). Although studies have revealed much coherence among the four dimensions of psychological capital (Luthans et al., 2007; Luthans et al., 2008), but there is a dearth of research of the relationship of second-order variables of psychological capital with employee outcomes like employee engagement. Karatepe & Karadas (2015) stated hope positively influence employee work engagement leading to service recovery performance and job performance. Hence following hypotheses have been constructed.

H2: Hope, optimism, self-efficacy, resilience manifested as sub-construct of higher-order construct of psychological capital mediates the relationship between TL and employee engagement.

Research Method

Participants and Procedure

The study is an attempt to examine the interrelationship between TL styles, sub-constructs of psychological capital, and employee engagement. Respondents include private service sector employees working with financial services, information technology, telecom, and hospitality industries located in the national capital region, India. A total of 580 questionnaires were distributed, using a google doc survey along with a printed questionnaire without revealing the respondents’ identity to ensure confidentiality. There was no way of matching respondents’ names with their responses to the concern department and organization. This method of a survey from different sources also helps in reducing common method bias error. A total of 470 responses were received and for the purpose of the study responses from 450 respondents were considered after removing incomplete responses from the print method of survey. The questionnaires explained clearly the roles of the respondents and the purpose of conducting the study. The desired ratio of five respondents per variables have been considered as per the Hair, Anderson, Babin, and Black (2010, p. 90). After using independent sample t-test, the study could not find any significant relationship between online and offline data collected, and as difference was not significant, therefore all data sets were analyzed as one collective. The multifactor leadership questionnaire (MLQ) for TL and one question in the employee engagement questionnaire (loyalty) has been modified for the difference in culture, belief, and lifestyles in the Indian context.

The sample used in the study comprises of 340 males and 110 females. The average age of respondents was 25 years with 40.4 per cent between 20 and 25 years, 33.3 per cent between 26 and 30 years, 14.9 per cent between 31 and 35 years and 11.3 per cent above 36 years. This is representative of the population as moving up in the hierarchy, the percentage in the sample was decreasing. The average experience of respondents was 6.8 years with a standard deviation of 1.09. Forty-six per cent of the respondents were with five or fewer years of experience and 10.8 per cent of 6–9 years of work experience. The respondents with 10–14 years of work experience were 33.2 per cent and with more than 15 years of work experience were only 10 per cent. The sample consists of both technical (210) and nontechnical (240) employees as defined by the respondents themselves.

Measures

Psychological Capital

The instrument for measuring psychological capital had 24 item self-rating questions, consisted of four constructs, namely hope, optimism, resilience, and self-efficacy (Luthans et al., 2007). Each construct had six items measured on likert scale. Researchers have used a similar questionnaire to measure psychological capital (Bergheim, Nielsen, Mearns, & Eid, 2015; Sahoo & Sia, 2015). The Cronbach alphas (α) of these constructs used were 0.87, 0.78, 0.72, and 0.87 for hope, optimism, resilience, and self-efficacy, respectively.

Transformational Leadership

The study used MLQ for measuring the TL style. This construct had 12 items and has been used to assess five sub-constructs of TL (Bass & Avolio, 1992). The questionnaire has also been referred from the translated version of Turkish (Demirtas & Akdogan, 2015; Shrestha, 2012) and Thai. All the variables have been together considered as an indicator to create a single factor to measure TL. Further, it has been translated into an Indian context due to the difference in culture, belief, language, and lifestyles. A sample item is “I have complete faith in my superior.” The Cronbach’s α was measured as 9.09.

Table 1

: Descriptive Statistics and Correlation Analysis

	Mean	SD	CR	AVE	MSV	ASV	1	2	3
Transformational leadership	2.76	1.06	0.919	0.696	0.260	0.180	0.834***(0.909)
Employee engagement	4.35	0.764	0.909	0.715	0.432	0.346	0.510***	0.846*** (0.902)
Psychological capital	4.97	0.955	0.768	0.477	0.432	0.266	0.316***	0.657***	0.691*** (0.782)

Source: The author.

Note: ***P<.001.

Employee Engagement

Employee engagement was assessed with an engagement survey Development Dimensions International (DDI) self-rating questionnaire which was developed by E3sm. This contains 17 items on 5 points Likert scale. The questionnaire has five subfactors. These have been considered as one factor to measure employee engagement. The Cronbach’s α for this construct was also significant with a value of 0.899.

Procedures for Data Analysis

Table 1 presents the mean, SD, correlation coefficient, and Cronbach’s α of the constructs. Constructs have moderate to high correlation (r = 0.691 and 0.846, p < 0.01) (Cohen, 1992). The study conducted confirmatory factor analysis (CFA), which was conducted using the AMOS to study the measures. Cronbach’s α was measured as more than 0.7 for all constructs. Raykov (1998) stated that Cronbach’s α may over or underestimate reliability, thus the composite reliability (CR) and average variance extracted (AVE) were also stated. The CR of all used construct was greater than 0.70. Average variance extracted was above 0.50 that confirms good validity of the Dillon and Goldstein (1984). Also, AVE is more than maximum shared variance (MSV); hence it indicates that all constructs had good discriminant validity (Hair et al., 2010).

The results of the study indicated high psychometric properties of the variables for measurement model which validate that constructs in the study are distinct (χ2 = 467.288; df = 50; GFI = 0.872; NFI = 0.90; IFI = 0.906; CFI = 0.906; RMR = 0.075). The findings of the study results showed that the model to fit the data adequacy (χ2 = 665.493; df = 59; GFI = 0.867; NFI = 0.897; IFI = 0.901; CFI = 0.90; RMR = 0.076). A satisfied model fit can be hypothesized with higher value of CFI and other fit indices (above 0.90), and RMR is less than 0.08 (Browne & Cudeck, 1993). According to Bollen (1990), a CFI of 0.85 represent progress and thus it should be acceptable. Present study generates fit indices 0.85 above represent that satisfied model can be hypothesized, considering these criteria as guild lines.

Mediation

Mediation analysis is a contemporary method; in which potential effect of intervening mediator variable explains how an independent variable influences an outcome (Gunzler, Chen, Wu, & Zhang, 2013; Mackinnon & Fairchild, 2009). According to Hayes (2013), any study that is studying the impact of a variable X on another variable Y may have one or more mediating variable between X and Y to study the mediation effect.

Table 2:

Results of Mediation Using Baron and Kenny Approach and Boot Scrap Approach

Structural Relationship	Direct without Mediation	Direct with Mediation	Indirect Sig. (bootstrap)	Result
Transformational leadership→Hope→EE	0.469(***)	0.089(.034)	0.024	Mediation
Transformational leadership→Self-efficacy→EE	0.469(***)	−0.014(NS)	0.835	No mediation
Transformational leadership→Optimization→EE	0.469(***)	0.16(***)	0.249	No mediation
Transformational leadership→Resiliency→EE	0.469(***)	0.066(NS)	0.349	No mediation

Source: The author.

Note: ***P<.001.

Figure 1.

Source: The author.

The mediation effect of sub constructs of psychological capital, hope, self-efficacy, optimism, and resilience on the relations between TL and the employee engagement have been studied (Figure 1). The researchers have used bootstrap technique also to cross-validate the result of the analysis. When we have multiple mediators, the indirect effect comes from both the variables, so to eliminate the error, the effect of other variables has been eliminated to reach the conclusion. Using the approach of Baron & Kenny (1986), in Table 2 TL on employee engagement through hope has an impact as beta value has gone down (0.469–0.089) that indicates a partial mediation. The value of bootstrap (0.024) clearly indicates that there is a mediation effect of TL on employee engagement through hope. Further, if TL on employee engagement through self-efficacy is considered, there is no mediation using Baron and Kenny approach and the same is confirmed from the result of bootstrap (0.835). Similarly, using the same approach it can be seen from the Table 2 that with optimization as an intervening variable between TL and employee engagement as beta value has gone down (0.469–0.16) indicating full mediation; however, the value of bootstrap (0.249) clearly is indicating that there is no mediation through optimization. At the end mediation is not significant in TL on employee engagement via resilience with a bootstrap value of 0.349 also indicate that there is no mediation of transformation leadership on employee engagement through resilience. Hence hope is the only sub construct of psychological capital which mediates the relationship TL with employee engagement.

Discussion

This study is an attempt to find the influence of TL on employee engagement with sub constructs of psychological capital as mediators. The findings of the study significantly supported the first hypothesis that TL style has a significant positive influence on employee engagement (Ghadi et al., 2013; Salanova et al., 2011). The study further elaborates the understanding of the significance of subcontracts of psychological capital and explains the interrelationship between TL and employee engagement. The psychological capital has widely been researched (Badran & Youssef-Morgan, 2015) as a personal resource and it results in building positive work outcomes. After conducting bootstrap analysis, the study could find only hope as a mediator between TL style and employee engagement. This is a significant finding that hopes as sub-construct of psychological capital elaborate the relationship between TL and employee engagement. Hope is “a positive motivational state that is based on an interactively derived sense of successful” (Snyder, 1995). Organizations can develop hope, which is an intrinsic motivational force within organizational settings (Luthans et al., 2008) and can, therefore, facilitate employee work engagement. In one of the primitive studies, Bacha & Walker (2013) stated that leaders who foster hope will gain transformational leverage resulting in better experiences manifested in highly engaged employees. This will lead to goal-directed energy generating alternative ways to succeed (López, Granero-Gallegos, Abraldes, & Rodríguez-Suárez, 2013). Transformational leadership ignites hope with a derived feeling of success manifested in energy. The study, therefore, found the hope, as an important sub-construct of psychological capital leads to higher employee engagement. Ersner-Hershfield, Carvel, and Isaacowitz (2009) explained optimism as a generalized positive expectancy which may result in higher overall employee engagement. Optimism has a high beta coefficient; however, the bootstrap result of optimism states that it is not a highly significant mediator, which means that though it explains the relationship of TL with employee engagement, but not very meaningful. One explanation to this is that the construct of optimism may not have been interpreted correctly as some of the previous studies of psychological capital with cross-cultural dimensions have indicated a problematic understanding of the sub-construct optimism (Mehrabi, Babri, Frohar, Khabazuan, & Salili, 2013). The study does not support self-efficacy as a mediator between TL and employee engagement. According to Bandura (1986), TL strengthens the belief of followers that they can achieve the goals which lead to increased levels of self-efficacy. Therefore, hope may have an indirect positive effect on self-efficacy.

Theoretical Implications

The topic of employee engagement has become salient not only in organizations but also widely researched in academics. The antecedents of employee engagement have been an important research area in recent times; however, sub-constructs of psychological capital as an antecedent of employee engagement has not been established in literature. This study adds to the present theory by stating the significance of hope, a sub-construct of psychological capital as a mediator between TL and employee engagement. This is one of the few studies where the bootstrap approach is being used to confirm the type of mediation. This study adds to the present literature by establishing psychological capital and TL as an antecedent for employee engagement.

Practical Implication

Engaging employees has been one of the focus and main agenda for HR professionals and managers. Engaged employees will bring more productivity and may also contribute to innovative culture. In recent times keeping employees engaged and retaining high performers have been a key challenge in service sector. One of the important practical implication of the study is that it establishes the significance of hope as a prime source for engaging employees along with TL. Managers are interested in knowing antecedents and factors which can be meaningfully applied in the organizational settings to increase employee work engagement. However, it is difficult to implement specific practices which have a direct and positive impact on employee engagement, since it is more vigorous and emotion-driven. Self-efficacy and resilience have more dependency on employees themselves, whereas hope can be generated with a positive leadership style. The article brings insights into the need for training of managers to adopt TL style and instill hope among employees. Supervisors should exert TL which will generate a positive psychological state of hope among employees. Industry practitioners need to focus on the psychological status of employees and implement process and practices which support the TL style for higher employee work engagement. Also, a transformational supervisor can also take practical actions, such as increasing expectations for employees, positive reinforcement, neglecting self-interest which will increase the hope of employees and further their work engagement.

Limitation and Future Research

One of the limitations of this study is the use of a cross-sectional design which has limited the inferences on the causality. Further research may use time-lagged research design in finding the causal relationship of TL and sub-constructs of psychological capital with employee engagement. Also, since the data collected mainly from Delhi NCR region, we suggest further research should have data collection from different substates and culture in order to cross-validate the findings of this study. Another important limitation is that our study may have common method bias as the date were collected from the same organizations for the constructs. However, since we collected data for TL and employee engagement from different survey methods, has allowed us to reduce the common method error (Podsakoff, Mackenzie, Lee, & Podsakoff, 2003). The study states the need for further research on the role of optimism in employee engagement since the two different methods of finding the mediating role of optimism has resulted in different results. This study has accepted the result of bootstrap analysis establishing that optimism is not the significant mediator between for explaining relationship of TL and employee engagement.

Footnotes

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author received no financial support for the research, authorship, and/or publication of this article.

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