Purpose: The objective of this study is to see the mediating effect of innovative culture and organizational learning between leadership styles and organizational performance in Malaysian SMEs. Design/methodology/approach: Questionnaires were used to collect data from owners/managers and 950 questionnaires distributed by using postal and email strategy. Out of 950, only 409 questionnaires returned back, 25 questionnaires have missing values and eliminated from a sample, and only 384 questionnaires were used for final analysis.
Findings: Findings reveal that leadership styles have a significant influence on organizational learning, innovative culture, and organizational performance. Innovative culture and organizational learning have a significant influence on organizational performance. Moreover, innovative culture and organizational learning significantly mediate between leadership styles and organizational performance.
Practical implications: In practical term, the current study contributes for managers/ owners in SMEs to focus leadership styles with innovative culture and organizational learning in their decision making if they want to enhance their organizational performance.
Research originality: This study is one of the pioneer studies that test leadership styles at third-order with the combination of two mediating variables innovative culture and organizational learning with organizational performance.
Effective leadership plays an important role to determine the success or failure of any kind of organization (Tourish, 2014). In the last few decades, leadership is the most studied area in business as well as in industry. Moreover, leadership has become a compulsory part for organizations (Bryman, 2007; Brymer & Gray, 2006). Despite the wider quantity of studies on leadership, there has been scant research done on small and medium-size enterprises (SMEs) (Franco & Matos, 2015). A highly competitive market and rapidly changing strategies enhance the importance of leadership in attaining a competitive edge over their competitor through leaders to enhance organizational performance (Jaramillo, Mulki, & Marshall, 2005). The primary purpose of organizations is to focus financial efficiency but also considers their intangible resources and leadership to maintain competitive advantage (Wang, Chich-Jen, & Mei-Ling, 2010). Literature demonstrates that Malaysian SMEs faces issues regarding leadership styles that reduce organization performance (Aziz, Abdullah, Tajudin, & Mahmood, 2013; Hashim, Ahmad, & Zakaria, 2012; Rahim, Zainal Abidin, Mohtar, & Ramli, 2015). Prior studies suggested that effective leadership can help to improve the organizational performance in that situation where organizations face a lot of new issues and challenges (Franco & Matos, 2015; McGrath, Mac Grath, & MacMillan, 2000). Leadership styles have an influence on both individual and organizational performance (Wang et al., 2010; Windsor, 2009). Sometimes firms do not identify the ineffective or effective leaders until time passed and organizations suffer (Nazarian, Soares, & Lottermoser, 2017). Leadership styles are a vital element that explains organizational performance. Hence, this study focuses on leadership styles to determine SMEs performance.