Influence of Transformation Leadership on the Performance of Commercial Banks in Kenya

Abstract

The purpose of the study was to examine the influence of transformation leadership on the performance of commercial banks in Kenya. Specifically, the study sought; to determine the effect of idealized influence on the performance of commercial banks in Kenya; to establish the influence of inspirational motivation on the performance of commercial banks in Kenya; to examine the influence of intellectual stimulation of on the performance of commercial banks in Kenya; to explore the influence of individualized consideration on the performance of commercial banks in Kenya; and to assess the moderating effect of organization culture on the relationship between transformational leadership style and performance of commercial banks in Kenya. The study was informed by the transformational leadership theory, charismatic theory, hierarchy of need theory, competency theory, self-interest theory, Schein’s theory of organizational culture and shareholders’ wealth maximization theory. It employed mixed research design, which included both qualitative and quantitative methods. The study target population was all tier 1 commercial banks in Kenya. According to CBK, there are seven tier 1 banks namely; Kenya Commercial Bank, Equity Bank, Cooperative Bank, Standard Chartered Bank, Barclays Bank, Diamond Trust Bank and Commercial Bank of Africa. The choice of tier 1 banks as the unit of observation was justifiable since they contribute to over 50% of all banking employees, and therefore, they form a good ground for random stratification. The study covered a target population of 24,244 employees working in the seven banks. A sample size of 384 was selected from all the seven banks using stratified random sampling. Primary data was collected using well-structured questionnaires. Descriptive and inferential analyses were used to analyze the data. The study findings revealed that idealized influence and performance of commercial banks are positively and significantly related (r=0.189, p=0.003), inspirational motivation and performance of commercial banks are positively and significantly related (r=0.527, p=0.000), intellectual stimulation and performance of commercial banks are positively and significantly related (r=0.217, p=0.000), and that individual consideration and performance of commercial banks are positively and significantly related (r=0.363, p=0.001). Results also showed that organization culture had a significant moderating effect on the relationship between transformation leadership and performance of commercial banks in Kenya (p=0.000). From the findings, the study concluded that transformation leadership dimensions had a positive and significant influence on the performance of commercial banks in Kenya. Further, the study concluded that organization culture had a significant moderating effect on the relationship between transformation leadership and performance of commercial banks in Kenya. From the findings, the study recommended that the banks’ leadership should consider applying the behaviors associated with idealized influence including articulation of the organization’s goals, role modeling and goal setting in promoting positive behaviors among employees that lead to performance improvement, should encourage managers and employees to apply behaviors associated with inspirational motivation to improve performance of organizations, should intellectually stimulate senior managers through challenging their assumptions, encouraging risk taking and promoting innovation, and should apply behaviors associated with individualized consideration including empowering, coaching and supporting career development of senior managers as strategies to improve the organization performance.