M. Birasnav, School of Management, New York Institute of Technology, Adliya, Kingdom of Bahrain
S. Rangnekar, Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee, India
A. Dalpati, Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee, India
Purpose – In order to achieve sustained competitive advantage through developing human capital, organizations, apart from human resource management practices, concentrate on developing transformational leaders and implementing knowledge management (KM). To take part in their efforts, this paper intends to explore leadership and KM literatures to examine the interrelationship between transformational leadership, KM, and employee-perceived human capital creation or benefits.
Design/methodology/approach – A systematic literature review is carried out of traditional and contemporary theoretical and empirical research studies to support the nexus of interrelationship between transformational leadership, KM, and human capital. This review is mainly integrated using a model and propositions that relate transformational leadership and KM with human capital benefits.
Findings – Transformational leaders have potential to affect their employees' perceptions of human capital benefits. They also have the greatest potential to augment these benefits through involving them in the KM process, establishing organizational culture, and encouraging communication among employees.
Research limitations/implications – This model suggests that human resource managers should provide training to managers with regard to developing transformational leadership behavior, since this behavior contributes to human capital creation by which an organization achieves competitive advantage. Furthermore, this study mainly focuses on leaders as transformational leaders, since these leaders are highly capable of stimulating their followers' creativity. Therefore, this study only considered the components described by Bass and Avolio.
Originality/value – This paper contributes to leadership literature by adding the notion of transformational leadership as an antecedent of human capital creation.
Transformational leadership; Knowledge management; Organizational culture; Communication; Human capital.
Leadership & Organization Development Journal
Emerald Group Publishing Limited
Developing competencies of human resources is a primary activity to be focused by any organization that takes enormous efforts to overcome their competitors on product quality, customer service, and new product development. Many researchers have concentrated a paradigm shift from human resources to human capital in firms in order to sustain competitive advantage (Bontis and Fitz-enz, 2002; McGregor et al., 2004). Bontis (2001, p. 5) particularly defined human capital as “the combined knowledge, skill, innovativeness and ability of the company's individual employees to meet the task at hand”. To develop human capital in-house or acquire human capital from the external labor market, firms implement human resource management (HRM) practices, particularly, staffing, training, performance appraisal, and rewards (Snell and Dean, 1992). These practices are universally considered as the investments for human capital development through which firms increase their economic value. In this direction, Drucker (2002, p. 71) describes human capital development as “the sine qua non of competition in a knowledge economy”. Through proper investments in human capital augment organizational financial performance and productivity (Acemoglu and Pischke, 1999), it is inevitable that these investments render certain benefits to employees that represent human capital creation among employees.
Research studies carried out in firms to link leadership, particularly, transformational leadership, knowledge management (KM), and human capital benefits are limited. A few studies explored the role of transformational and transactional leadership styles on individual employee's performance and organizational performance through knowledge acquisition, knowledge creation, knowledge sharing, and knowledge exploitation (Bryant, 2003; Politis, 2001, 2002). Although research studies (Smith, 1998; Darroch, 2003) described the relationship between KM and human capital, the effects of KM hierarchical structure on human capital development have not been much considered. Following Bryant (2003) who focused knowledge process functions as mediators in the relationship between transformational leadership and individual performance, the central focus of this paper is to construct a framework to organize relevant literatures to support the connections between transformational leadership, KM, and perceived human capital benefits dimensions. In this framework (see Figure 1), KM process and KM infrastructure (organizational culture and communication) play mediator roles in the relationship between transformational leadership and perceived human capital creation or benefits.
Definition of transformational leadership
Importance is given to leadership development programs in the organizations due to the reported direct relationship between leadership and organizational performance (Aragon-Correa et al., 2007; Lowe et al., 1996). So leaders nowadays are at the central focus of the organizations for which they set clear vision and immensely persuade followers to achieve the vision. Tannenbaum et al. (1961, p. 24) defined leadership as “interpersonal influence, exercised in a situation, and directed, through the communication process, toward the attainment of a specified goal or goals”. The way through which they accomplish goals and improve organizational performance is the behavior or characteristics they possess. For instance, transactional leaders do not voluntarily involve with employees' work until any failure occurs (Bass, 1985); transformational leaders act as role models for employees, motivate them, and stimulate their intelligence (Bass, 1985).
Although each kind of leadership style has its own merits and demerits, transformational leadership draws much attention in organizations since it contributes to firm innovation, organizational learning, and employees' creativity skills (De Jong and Den Hartog, 2007; Aragon-Correa et al., 2007). In view of reaping greater human capital benefits for employees, transformational leadership, a neocharismatic leadership theory, is immensely concentrated in this study. Following Burns (1978), who identified the concept of transformational leadership style, many researches have examined this leadership in various disciplines (for example, Bass, 1985; Yammarino and Bass, 1990; Schepers et al., 2005; Rafferty and Griffin, 2004). Researchers define transformational leadership in terms of idealized influence, inspirational motivation, intellectual stimulation, and individual consideration (Bass, 1985; Nemanich and Keller, 2007). Some researchers also described the first component, idealized influence, as charisma (Schepers et al., 2005; Dubinsky et al., 1995), and further, a few researchers mentioned the first two, idealized influence and inspirational motivation, as charisma (Kark et al., 2003; Avolio et al., 1999). Idealized influence displays leaders as most respectful, trustable, and admirable, shows the characteristics of setting vision and articulating it to accomplish, and describes leaders' risk sharing with their followers in line with ethical principles (Bass, 1999; Bass et al., 2003). Inspirational motivation describes how leaders encourage their employees to achieve vision through creating individual and team spirit (Bass et al., 2003). The component, intellectual stimulation, explains how leaders promote their employees' innovative and creative skills by solving problems entirely in new ways without criticizing employees for mistakes (Bass, 1999; Bass et al., 2003). Finally, individual consideration emphasizes leaders' mentor role on developing their employees' potential, focusing employees' needs for achievement and growth, and developing learning opportunities (Bass, 1999; Bass et al., 2003; Bass and Riggio, 2006).
Definition of knowledge management variables
In today's turbulent economic environment, organizations face high competition, technological obsolescence, and globalization. In this situation, none other than intangible assets i.e., knowledgeable employees could not help their organizations to achieve competitive advantage (Perez and de Pablos, 2003). Therefore, firms take immense efforts in creating new knowledge among employees and through which they develop organizational knowledge. Davenport and Prusak (1998, p. 5) described knowledge as “a fluid mix of framed experience, values, contextual information, insight that provides a framework for evaluating and incorporating new experience and information. It originates and is applied in the minds of knowers”. Further, knowledge is characterized by transferability, capacity for aggregation, appropriability, and specialization, and therefore, it could be utilized throughout a firm (Grant, 1996). Apart from individual employee knowledge, there are generally two types of knowledge mentioned in the literature, which are explicit knowledge and tacit knowledge. Knowledge that is structured, documented, and shared through information technologies is explicit knowledge; whereas tacit knowledge is prevalent only in employees' minds and is delivered through their behaviors and perceptions (Yahya and Goh, 2002). Interactions between these types of knowledge with individual employee knowledge enormously support firms to create organizational knowledge, and thus, firms exploit the benefits of competitive advantage when the developed organizational knowledge is rarely available in other firms, valued more in current firm, and unimitatable by other firms (Perez and de Pablos, 2003; Barney, 1991). Therefore, organizations are highly concerned about the issues of managing knowledge.
KM is “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” (Maier, 2005, p. 433). However, this definition mostly concentrates on strategic process of KM according to Bukowitz and Williams (1999). Importantly, literatures emphasize that the process involved in KM should be integrated with employees who lead their organization towards achieving competitive advantage (Yahya and Goh, 2002; Perez and de Pablos, 2003; Davenport and Prusak, 1998). In this direction, tactical KM process is given much consideration, and it comprises knowledge acquisition, knowledge documentation, knowledge transfer, knowledge creation, and knowledge application (Filius et al., 2000). According to Filius et al. (2000) on implicitly defining KM process, employees acquire knowledge from external networks and customers; they document solutions for the problem in the brainstorming sessions and consequently, frequent changes take place in procedures and policies; knowledge is distributed formally and informally among employees and from mentor to employees; knowledge creation takes place through discussing problems and failures and assigning employees to new high profile projects; and knowledge is applied in the form of using customers' experiences for product or service improvement.
Apart from knowledge process capability, Lindsey (2002) also emphasizes that the effectiveness or success of KM depends on knowledge infrastructure capability of an organization. Supporting the importance of knowledge infrastructure, Davenport et al. (1998) identified from 31 KM projects that establishing a knowledge-friendly culture and introducing knowledge transfer channels are the two among eight KM success factors. While considering knowledge is a crucial factor behind sustainable competitive advantage and overall success of a firm, it should be noted that knowledge issues are closely interlinked with organizational culture (Davenport and Prusak, 1998). Since culture has no fixed or broadly agreed meaning, many authors have explained their views about organizational culture. Specifically, Miron et al. (2004, p. 179) define organizational culture as “a set of beliefs and values shared by members of the same organization, which influence their behaviors”. In this direction, researchers explained various kinds of cultures, for example, innovation-specific culture fosters expectations and guidelines for employee's creativity, willingness to experiment, and risk-taking skills (Jassawalla and Sashittal, 2002; O'Reilly et al., 1991); supportive culture encourages employees to get involved in the decision making process with mutual respect and trust (Bititci et al., 2004); detail-oriented culture comprises of values of being analytical, paying attention to detail, and being precise (Judge and Cable, 1997), and thus, such organizations maintain a high level of accuracy in detailed work over a period of time to reduce problems by introducing improvements that increase efficiency and maintain maximal continuity and stability (Miron et al., 2004). Therefore, culture is not inside of employee's head, but somewhere among the heads of a group of employees of the organization where symbols and meanings are publicly expressed through work group interactions, in board meetings, and also in material objects (Alvesson, 2002). In addition, culture prevails in the organization through artifacts, language in the form of jokes and metaphors, behavior patterns in the form of rituals and ceremonies, norms of behavior, heroes, symbols, symbolic actions, and history (Brown, 1995).
On defining communication, it is “a dimension of structure in which information is transmitted throughout the organization to provide data for decision making, to motivate employees, to exercise control, and to express satisfaction or dissatisfaction with operations” (Loveridge, 1996, p. 9). In the organizations, employees should be given information about the organizational activities, goals, and directions, and they must be allowed to have channels to pass relevant information to management (Rodwell et al., 1998). It is commonly believed that communication is central to four management competencies such as management of attention, meaning, trust, and self. Therefore, communication has a vital role in both organizational functioning and organizational effectiveness improvement (Bush and Frohman, 1991).
Definition of human capital
Emphasizing human capital as a part of intellectual capital, human capital theory acknowledges the contribution of employee's human capital on developing intellectual capital. Social capital, a component of intellectual capital as like human capital, also inevitably contributes on human capital development. According to Nahapiet and Ghosal (1998, p. 243), social capital is “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit”. However, employees have a controlling mechanism while investing on their human capital (Becker, 1975). Human capital is referred to as employee's knowledge, skills, capabilities, commitment, know-how, and ideas and health, which add economic value to firms (Becker, 1962; Skandia, 1998; Sullivan, 1999; Ulrich et al., 1999; Snell and Bohlander, 2007). Bart (2001, p. 320) particularly defines human capital as “the collective knowledge, education, skills, attitudes, and experiences of a firm's employees”. On searching for specific attributes or characteristics by which both human capital and human resources deviate each other, Garavan et al. (2001) quoted that flexibility, adaptability, and employability are the attributes which act as catalyst for revolutionalizing human resources into human capital. According to human capital theory, investments on human capital would be high when employees greatly benefit from the developed human capital (Wayne et al., 1999). Such human capital benefits are high individual return on investment, increase of compensation, being a future leader, opportunity to participate in high profile project, and increase in status and authority (Ulrich et al., 1999; Harley, 1999; Bontis and Fitz-enz, 2002; Motley, 2007).
These benefits are employee perceived benefits, and so the extent at which they gain these benefits will be related to the amount of employees' perceived human capital creation. Bontis and Fitz-enz (2002) explained human capital benefits through human capital effectiveness and human capital valuation in terms of human capital return on investment and compensation factor respectively. Employees perceive their human capital benefits when they have potential to deliver more return in terms of contributing to intellectual capital creation over the investment made at them. Further, they realize the degree of human capital improvement by the increase in pay. Considering an employee as one of the future leaders by the organization is the benefit derived from human capital since s/he has enormous potential to vertically move into an influential position (Ulrich et al., 1999). These future leaders show their better performance on the given responsibilities and work related activities. Further, employees feel their human capital benefits when they get opportunity to participate in high profile project or cross-functional teams (Ulrich et al., 1999). Finally, employees also feel their human capital benefits when their authority and status increases. In this moment, it should be noted that skill development is associated with change in authority and status. In line with Harley (1999), these employees realize change in authority as they are empowered.
Transformational leadership and human capital benefits
In the organizations, transformational leaders stimulate employees' intelligence, provide vision, recognize employees personally, and consider employees individually (Rafferty and Griffin, 2004), and consequently “leaders and followers raise one another to higher levels of morality and motivation” (Burns, 1978, p. 20). Leaders who are perceived to possess the characteristic of idealized influence always have more willingness to involve in risk-taking job activity and thus, they are more influential, effective, and willing to trust their employees (Bass, 1990a; Bass and Riggio, 2006; Sgro et al., 1980). Alternatively, these leaders create trust by providing employees with autonomy and decision making to perform their tasks and thereby they promote employees' innovative behaviors and self-efficacy (Scott and Bruce, 1994; Conger and Kanungo, 1988). On other hand, this type of empowerment or increased intrinsic motivation improves employees' creative performance (Speritzer, 1995; Amabile and Gryskiewicz, 1987). Supporting employee perceived human capital benefits, London (1993) and Harley (1999) assert that empowerment assists employees to gain authority in their organizations. Further, Phillips (2005) considers employees' innovative behavior and creative performance as human capital measures since these attributes enhance human capital effectiveness in the form of return on investment such as new products or processes development, patents, and copyrights. To support these arguments, Podsakoff et al. (1996) found from 1,539 employees that employees who express more trust at leaders are perceived to have more ability, experience, and knowledge.
Leaders possessing the characteristic of inspirational motivation augment employees' goal accomplishing capabilities or job performance to achieve the set vision (Nemanich and Keller, 2007). In other hand, transformational leaders create individual and team spirit among employees as they show enthusiasm and optimism at employees through coaching, encouraging, and supporting. As a result, they enhance employees' performance while performing job activities and produce high return on investment from employees (Yukl, 2006; Boerner et al., 2007). Leaders who intellectually stimulate employees encourage them to solve task-oriented problems in new and different ways and thereby leaders enforce their employees in challenging organization-held beliefs and values (Yukl, 2006). From this, these leaders promote employees' ability to analyze and solve organizational problems (Rafferty and Griffin, 2004). Thus, leaders encourage employees' professional growth to support employees to attain human capital benefits (Turner et al., 2005).
Another characteristic of transformational leaders, individualized consideration, supports employees in achieving self-actualization through fulfilling their expectations by individual understanding (Rowe, 2007). Because of this individual consideration, leaders promote high interpersonal relationships among employees to avoid any conflict, and ensure enhanced employee productivity in the organizations (Nemanich and Keller, 2007). Further, leaders provide employees who have human capital value opportunities to participate in projects that contribute to achieve competitive advantage (Schepers et al., 2005). At the work, transformational leaders significantly promote individual employee's innovative behavior through encouraging high quality leader member exchange among employees (Krishnan, 2005; Scott and Bruce, 1994). Supporting the studying relationship, Wayne et al. (1999) had found positive relationship between leader-member exchange and employee salary progression and formal authority with the help of 245 supervisor-subordinate dyads. However, considering leadership competencies at this moment, Alimo-Metcalfe et al. (2008) maintained that leadership competencies did not significantly predict organizational performance. Further, Bolden and Gosling (2006) quoted that competencies reinforce a traditional way of thinking. Importantly, Alban-Metcalfe and Alimo-Metcalfe (2009) described that “how” of leadership significantly explained organizational productivity rather than “what” of leadership. Following the above arguments on the influence of transformational leadership on employee's human capital benefits, we propose that:
P1. Transformational leaders significantly support employees to perceive human capital benefits in the organizational life.
Mediation role of knowledge management process
The concept of a KM department is emerging in most of the organizations, and in the past, KM functions were performed with other departmental functions. In view of augmenting human capital benefits, tactical KM process should be considered rather than strategic KM process since the former approach concentrates on employees' day-to-day activities; whereas the latter focuses on alignment of knowledge strategy with organizational business strategy (Filius et al., 2000). Although researchers (Politis, 2001, 2002; Bryant, 2003) had examined the role of transformational leadership on KM, its impact on employee human capital development is scarce in the literature. According to Filius et al. (2000), knowledge is acquired through participation in professional networks, with customers and competitors, and research and development. Connecting with professional networks is a kind of social capital possessed by an individual employee (Friedman and Krackhardt, 1997), and through these networks, employees are in contact with suppliers, customers, and competitors. On exploring supporting literature for human capital benefits, Coleman (1988) described that social capital is essential for human capital creation. Also, Lin and Huang (2005) found that employees who involve in creating social capital have received high potential evaluations in terms of positive career outcomes from their leaders. In this direction, transformational leaders support employees' promotion through social capital creation among employees, and consequently, influence their salary progression. In addition, a study conducted among 239 employees by Politis (2002) revealed that transformational leadership behaviors, particularly, charismatic leadership and intellectual stimulation are positively related to knowledge acquisition but individual consideration is negatively associated with knowledge acquisition.
In the organizations, knowledge documentation consists of the processes of using documented knowledge in the brainstorming sessions to solve organizational problems, documenting learning from success and failures of the projects, and making frequent changes in the procedures and handbooks (Filius et al., 2000). Transformational leader's risk-taking behavior frequently invites both success and failure during execution of high valued projects (Hater and Bass, 1988). Accordingly, they influence organizational learning by encouraging documenting these successes or failures. In this direction, they promote firm innovation through individual employee's innovative behaviors in the form of creating and managing information and knowledge (Aragon-Correa et al., 2007; Crawford, 2005). In addition, Crawford (2005) found, from a research study conducted among 1,046 participants, that transformational leadership behaviors are positively correlated with document creation. Thus, these leaders support employees to achieve human capital benefits through documenting knowledge.
Knowledge transfer takes place in the organizations formally or informally through mentors and professional meetings (Filius et al., 2000). Owing to the individualized consideration, transformational leaders act as mentors to those employees who wish to develop their potential (Bass, 1990b). It is widely acknowledged that mentoring is a tool for human resources development (Kim, 2007). Thus, implemented practices leading to developing organizational people would have certain impact on employee perceived human capital benefits. Following Sosik et al. (2004), that employees or protégés consider mentors who have high learning goal-orientation as transformational leaders, these mentors offer more challenging projects or assignments to develop protégés' career and as a result, employees realize their human capital benefits (Kim, 2007).
Knowledge is created in the organizations through frequently assessing employees' performance, discussing organizational problems and failures, incorporating new ideas into product or process development, rewarding employees, and developing learning groups (Filius et al., 2000). In this moment, it should be noted that transformational leaders create new ideas and support employees to create and implement these ideas into new product and process development. In this direction, positive relationship between transformational leadership and employees' in-role performance is observed (Podsakoff et al., 1996). Further, organizations create knowledge through encouraging creative performance among employees. To support this notion, Yahya and Goh (2002) found a positive correlation between creativity and knowledge creation (r=0.44, p<0.01). Fostering creative performance, transformational leaders involve in knowledge creation process by offering both monetary and nonmonetary rewards. Even though such particular behavior is listed under transactional leadership, research studies also revealed a positive relationship between transformational leadership and contingent reward (Bass and Riggio, 2006; Goodwin et al., 2001). To enable employees to achieve the set vision, transformational leaders voluntarily involve in rewarding employees in terms of recognizing their behavior through corporate enthusiasm, offering employee award, and offering reward for their competencies. Consequently, employees perceive human capital benefits through salary progression.
According to Filius et al. (2000), an organization applies knowledge in the form of using existing knowledge for new applications and customers' experiences to improve products or services. Connecting knowledge application with innovation, Woodman et al. (1993) described organization innovation as the creation of new products or services useful to customers. Transformational behaviors support leaders in insisting on knowledge application in the organization and consequently, they promote organizational innovation (Yahya and Goh, 2002; Crawford, 2005). The chances are more for promoting organizational innovation through developing human capital by means of improving employees' creative or innovative performance. Thus, knowledge application renders human capital benefits to employees.
Significantly, organizations are involved in implementing KM process for organizational knowledge creation to achieve and sustain competitive advantage. However, without affecting individual employee's knowledge, building an organizational knowledge is not certain. Therefore, implementing KM process in any organization primarily refines employee's knowledge. If knowledge is considered as a component of human capital, the process of creating or improving employee knowledge certainly has certain effects on employee's human capital benefits. For instance, those with knowledge, as high performers, deliver a high return on investment, attract high profile project participation, receive a high salary, and improve their status and authority:
P2. Transformational leaders involve in executing tactical knowledge management process in the organization, and through which they improve employees' human capital benefits.
Mediation role of organizational culture
On explaining the link between transformational leadership and organizational culture, leaders establish employee supportive culture and trusting culture in the organization through their charismatic and individualized consideration characteristics. According to Mendonca and Kanungo (1996), high power distance enables leaders to act as a mentor and coach to create trust and promote employees' job performance. In this direction, because of the leader-mentorship function, employees perceive human capital benefits in the form of enhanced leadership skills (Kim, 2007). Regarding the quality of the deliverables, Miron et al. (2004) proved, from research conducted among 349 employees working for a research and development company, that quality performance is ensured by creating an attention to detail culture. According to the set challenging vision and difficult to achieve goals, these leaders modify organizational culture in line with internal and external organizational environmental changes. Consequently, employees augment their performance in the form of producing high return on investment (Mendonca and Kanungo, 1996; Bass, 1990b). Individualism focused culture promotes individual employee's autonomy, individual initiative, and emotional independence; whereas collectivism focuses on group identity and distinction between in-group-out-group (Rhee et al., 1995). As mentioned before, employee autonomy and initiative lead to improve human capital benefits, and it is expected that transformational leaders would execute their functions as effective as in the individualism culture. Equally, collectivism-oriented culture highly focuses on group orientation and commitment (Rhee et al., 1995; Cohen, 1999). According to Ulrich et al. (1999), commitment is equally required for human capital creation. Exploring the kinds of above culture transformational leaders establish, Jung et al. (1995) described that these leaders perform more effectively in collectivism culture than individualism culture. Culture focusing on high uncertainty avoidance follows organizational rules and regulations, norms, and procedures. Therefore, employees' innovative behavior is stimulated in the low uncertainty avoidance culture (Den Hartog et al., 1999). Thus, transformational leaders create low uncertainty avoidance culture to induce employees' innovative skills. Such skill development enhances employee's salary progression and authority through which an individual employee perceives human capital benefits. According to masculinity-femininity culture, masculine activities are characterized as goal setting and transactional processes whereas feminine activities are characterized as employee development orientation and more sensitive to employees' needs (Kark, 2004). In this direction, transformational leaders create femininity culture in the organization (Bass, 1985). Hereby, culture focusing highly on self-actualization and employee development supports the prevalence of human capital creation (Xenikou and Simosi, 2006).
An organization focusing on creating groups and developing employees concentrates highly on flexibility and future orientation culture (Quinn, 1988). This culture is encouraged by transformational leaders through an idealized influence, by which they convey to employees that future changes are essential and meaningful for achieving competitive advantage. Thus, employees perceive the necessity of implementation of changes. In this vein, Lau et al. (2002) found from a study conducted among 3,960 managers and employees that employees who view organizational changes positively are highly committed. According to Ulrich et al. (1999), human capital is described as both employee capability and commitment. Thus, organizational culture affects employee perceived human capital benefits. Further, through establishing achievement-oriented culture, leaders frequently deliver feedback on the ongoing performance of employees, and thus, employees increase their perceived competence and self-efficacy which affect employee perceived human capital benefits (Xenikou and Simosi, 2006). The above arguments lead to propose that:
P3. In the organization, transformational leaders establish culture, which supports employees to achieve human capital benefits.
Mediation role of communication
As mentioned before, spreading over the information through out the organization is the process of communication. Communication is an essential part of KM system. Therefore, it contributes to achieve competitive advantage, since open and easy communication channels are necessary for achieving organizational goals and accomplishing organizational activities (Zander, 1994). Developing an efficient common network structure and organization-wide knowledge structure are essential for ensuring ease flow of communication and to achieve KM system success (Jennex and Olfman, 2005). It is not possible to attain KM system success without affecting human capital in the organization. To analyze the prevalence of communication in any organization, two types of communication are considered such as mass communication and face-to-face communication. Mass communication is generated between organization and employees through using an advanced technological infrastructure and publishing a newsletter weekly or monthly; whereas face-to-face communication is generated between an employee and manager through direct verbal communication. On understanding the extent of the prevalence of communication, Budhwar (2003) found that 65 per cent of the firms significantly share strategic information and financial information with their management employees; whereas these practices are not seen among 71 per cent of low-level employees. In the purpose of explaining the relation between transformational leadership and communication, leaders characterized by idealized influence are involved in communicating a clear vision or organizational goals to employees throughout the organization. Through communicating a shared vision, leaders force all employees towards organizational learning (Aragon-Correa et al., 2007).
On the other hand, in order to accomplish vision, transformational leaders encourage use of technology, for example, internet and intranet, since they support new learning and frequently and effectively seek information from employees (Madzar, 2001). However, it is essential to analyze employees' perceptions on usefulness and ease of use of the technology while explaining the technological advantage for communication. In this direction, Schepers et al. (2005) found, from a study conducted among 226 departments, that transformational leadership is related to perceived usefulness of new technology. Since these leaders stimulate employees' intelligence to solve organizational problems in new and different ways, all employees indirectly accept the usage of new technology through perceived usefulness of new technology. Supporting the nexus of the relationship between communication and human capital benefits, it was found that usage of new technology for communication in the organization improves an employee's personal innovativeness and trust (Agarwal and Prasad, 1998; Gefen et al. 2003). As mentioned earlier, these personal and interpersonal factors are related to perceived human capital benefits. Further, the technical infrastructure or communication facility, for example, intranet facility, established in the organization provides employees a collaboration opportunity and facilitates organizational learning (Lai, 2001). Importantly, Lai (2001) found, from a research study conducted among 23 Hong Kong companies, that the extent at which the intranet implemented in the organization has significant contribution on employees' performance. As most of the firms are featured by top-down communication, it is understood that communication originates from top management. Budhwar's (2003) findings show that firms communicate their activities mainly through unions, weekly or monthly employee meetings, established quality circles, and suggestion or feedback boxes. Employee development-oriented leaders consolidate technical details of the process or methods and projects undergoing in the firms and distribute to all employees, especially, to white-collar employees to improve their technical and general knowledge. Thus, prevalence of communication in the organization increases employees' commitment (Rodwell et al., 1998), and as a result, human capital development takes place.
On describing the existence of face-to-face communication in the firms, Dyer (1987) indicates the prevalence of communication through increased listening, timely feedback, and openness to suggestions. Leaders who possess the characteristic of individualized consideration pay attention to their employees' problems, provide necessary feedback to their activities, and offer suggestions to accomplish job activities. Thus, leaders ensure open communication or face-to-face communication in the organization to augment employees' human capital benefits. From these ways, transformational leaders consider that direct face-to-face communication is a tool to develop a higher level of employee potential, through which, they personalize the interactions and are aware of their concerns. According to Dahle (1954), greater impact on employee performance is obtained when leaders initiate face-to-face communications with employees. Further, Smidts et al. (2001) found from a study conducted among 402 employees that employee communication in the organization is positively related to organizational identification that affects employees' performance. In contrast, Bass (1990b) asserts that mass communication delivered by a transformational leader towards an individual employee highly affect his/her performance than one-to-one communication between an employee and supervisors in any level.
Comparing technology-oriented mass communication and face-to-face communication, groups using computers for communication increase their performance on idea generation than the groups that do otherwise (Bordia, 1997). Further, employees using computer-mediated communication deliver better job performance than employees using face-to-face communication when limited time is given by leaders (Bordia, 1997). From a research study conducted among groups, Valacich et al. (1993) found that groups using computer-mediated and electronic communication for interactions generate more unique and high quality ideas than groups using verbal communication. Generation of unique and quality ideas affects employees' human capital benefits. Thus, the above arguments lead to:
P4. In the organization, transformational leaders encourage prevalence of communication among employees, which supports employees to achieve human capital benefits.
Organizations immensely concentrate on the process of developing human capital. The reason is that human capital contributes on intellectual capital creation in the organization through which achieving and sustaining competitive advantage is viable (Bontis and Fitz-enz, 2002). Therefore, firms take much effort in finding possible ways to increase the contribution of the human capital pool in improving organizational financial performance. In this study, a systematic literature review is conducted to analyze the mediation role of KM in the relationship between transformational leadership and employee perceived human capital creation or benefits. In specific, KM is viewed as two dimensions in line with Lindsey (2002) such as knowledge process capability and knowledge infrastructure capability. Tactical KM process is considered under knowledge process capability. This process has greater impact on employees' performance since it affects employees' day-to-day knowledge-related activities. Under knowledge infrastructure capability, organizational culture and communication factors have been considered. Thus, a conceptual model comprising transformational leadership, KM factors, and employee perceived human capital benefits is developed in this study, and it has great potential in contributing to leadership, KM, and human capital management literature.
Although literature has examined the relationships between leadership and human capital (Edmondson, 1996; Bontis and Fitz-enz, 2002; Liu et al., 2003), these focused entirely on organizational human capital rather than individual employee human capital or employees' perceptions on their human capital benefits. However, emphasizing the significance of leadership on achieving human capital benefits, current literature has already focused on individual employee's ability, innovative behavior, salary progression, and status (Rafferty and Griffin, 2004; Scott and Bruce, 1994; Wayne et al., 1999). Therefore, greater importance shall be given to develop organizational human capital through supporting the development of an individual employee human capital. In this direction, organizations should train their managers to develop transformational leadership behaviors. This training would enforce leaders to ensure the human capital development process, and augment their potential to direct this capital development to achieve or sustain competitive advantage. Thus, an empirical study is strongly recommended to examine the stated proposition that directly link both transformational leadership and perceived human capital benefits. In this purpose, Bass and Avolio (1995) have already constructed a questionnaire for measuring transformational leadership behavior. In view of developing a construct for employee perceived human capital creation or benefits, the notions of Ulrich et al. (1999), Harley (1999), Bontis and Fitz-enz (2002), and Motley (2007) could be incorporated.
In the literature, the relations between transformational leadership and KM factors are greatly examined (Politis, 2001, 2002; Bryant, 2003, Crawford, 2005). Most of the research studies examined this relationship ended up with KM activities. Only a few studies have gone beyond the KM activities, for example, Politis (2001) examined this relationship to predict organizational performance. This paper links transformational leadership and KM relationship with human capital benefits. However, examining the degree of contribution of this relationship on human capital benefits is essential in future. Therefore, testing the above stated model empirically would help to formulate the appropriate structure of the model. In this direction, for conducting empirical study, constructs developed by Filius et al. (2000) and Birasnav and Rangnekar (2010) could be used to measure tactical KM process. For organizational culture, O'Reilly et al. (1991), Lai and Lee (2007), and Nemanich and Keller (2007) have constructed suitable measures. Further, communication construct could be chosen from the studies of Al-Alawi et al. (2007) and Lai (2001).
This paper analyzes employee perceived human capital benefits only in the KM environment. In future, the mediation role of HRM practices instead of KM system factors shall be analyzed. Although researchers had predicted the relationship between HRM and human capital (Lepak and Snell, 1999; Snell and Dean, 1992; Birasnav and Rangnekar, 2009), the extent of impact of HRM aspects is considerably little in this study, for example, reward and mentoring issues are taken into account. In future, this study could be also extended by focusing different leadership styles instead of transformational leadership, for example, participative leadership (Ogbonna and Harris, 2000), directive leadership (Sims and Manz, 1996), and charismatic leadership (Den Hartog et al., 1999). Empirically examining the extent of impact of these leadership styles on perceived human capital benefits would support organizations to find the best way of a specific leadership style for increasing organizational financial performance.
Since this study focuses on employee perceived human capital benefits, it should be noted that employee's demographic characteristics such as age, gender, education, rank, and tenure would have certain impact on their perception. For instance, organizations purposefully provide more resources to develop younger employees' human capital than older (Pennings et al., 1998). Men differentiate themselves from women in terms of behavioral differences such as competing, being creative, and risk-taking (Johnson et al., 1997). On explaining the impact of education, Becker (1962) described education as one of the components of human capital. Further, Judge and Bretz (1994) described that higher rank and tenured employees have more opportunities to learn from organizational environment and job throughout the tenure. The organizational characteristics such as ownership and size must also be considered in addition with employee's characteristics for future research. For example, knowledge sharing greatly occurs in small and medium sized firms since these firms have simple organizational structure (Birasnav and Rangnekar, 2009). Further, Lowe et al. (1996) found from the meta-analytic study that transformational leadership is more prevalent in private organizations than public organizations. This paper encourages conducting an empirical study to analyze the mediation role of KM factors such as tactical KM process, organizational culture, and communication after controlling for the above demographic characteristics and organizational characteristics.
Finally, many researchers examined the interrelationship between knowledge process capability, for example, KM process and knowledge infrastructure capability, for example, organizational culture and communication (Park et al., 2004; Al-Alawi et al., 2007; Connelly and Kelloway, 2003; Lai and Lee, 2007). As this study focuses on the mediation role of KM, the interrelationships between knowledge process capability and knowledge infrastructure capability are not considered. In future, researchers could combine these interrelationship effects on employee perceived human capital benefits. Further, cautious is required to interpret the findings of this study. Like transformational leadership, many research studies were carried out to closely represent transformational behavior of a leader, for example, the charismatic leadership by Shamir (1995) and “nearby” leadership by Alimo-Metcalfe and Alban-Metcalfe (2005). However, this paper entirely focused on Bass and Avolio's (1995) transformational behavior of a leader. Though research studies explained the significant relationship between transactional leadership behavior and KM process (for instance, Bryant, 2003), transactional behavior is not considered in this paper as it doest not give much consideration on individual employee's human capital.
Figure 1Mediation role of knowledge management
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