LEADERS CREDIBILITY, ORGANISATION AND CAPABILITY: LEADERSHIP SKILLS AS A MEDIATOR

Man In India, 96 (1-2) : 183-193 Serials Publications LEADERS CREDIBILITY, ORGANISATION AND CAPABILITY: LEADERSHIP SKILLS AS A MEDIATOR Wilfredo Herrera Libunao, Wan Hanim Nadrah Binti Wan Muda, Adibah Binti Abdul Latif and Crystal Joan Peter Experts and renowned leadership institutions asserted that leadership skill is a key tool to develop leadership capability. This research pioneered in testing whether this is valid or not by isolating and testing the function of leadership skill on the relationship between leaders credibility, organisation domain and leadership capability. A total of 248 construction industry team leaders in Malaysia participated in the research. Woodworth s (1928) S-O-R model was used as the theoretic frame in determining the role of mediator (leadership skill) on the relationship between the independent variables (leaders credibility and organisation domain) and dependent variable (leadership capability). The SEM in AMOS version 18 was used to test whether leadership skill is full or partial mediator. Mediation analysis results revealed that leadership skill partially mediated the relationship between the leader s credibility and organisation domain, and leadership capability (i.e., personal integrity, working within industry, being customer-focused and quality, working as a team, communication and interpersonal skills, and empowering people). Malaysia construction industry team leaders leadership skills (coaching, problem solving, decision making, performance management, motivation, innovation, proactive, mentoring, and project planning) therefore should be enhanced in order to effectively develop their leadership capability. Keywords: leaders credibility, organisation domain, leadership capability, leadership skills, mediating variable Introduction The construction industry is an important part of Malaysian economy due to the amount of industry linked to it (e.g., basic metal products, electrical machinery). It could be described as a substantial economic driver for Malaysia. The industry is expected to grow by 11.2% this year, given the projects under the Government s Economic Transformation Programme (PERMANDU, 2013). The construction industry has greater need for leadership than any other field of endeavour (Ofori and Toor, 2012). Many reasons support this contention and are evident in the nature of the construction projects/industry and constructed products (Hillebrandt, 2000 as cited by Ofori and Toor, 2012). Projects are: typically expensive, large, technically complex and involve combination of specialised skills; teams are large, multi-cultural and multi-disciplinary; and, members are from several different organisations. These exacerbate problems with communication, coordination and the ability to lead and manage wide range of activities. Unfortunately, there is little leadership research in construction (Ofori and Toor, 2012) and even fewer studies on the mediation effect of leadership skills. In Address for communication: Wilfredo Herrera Libunao, Universiti Teknologi Malaysia, Skudai, Johor, Malaysia, E-mail: wilfredo@utm.my

184 MAN IN INDIA the context of these countries, it is necessary to study the: leadership capabilities needed for site managers and supervisors; the difference leaders can make in their organisations; and, how leaders are developed. Leadership skill was considered as the mediating variable on the basis of Institute of Leadership & Management s (ILME) (2011) assertion that leadership skill is a key tool to develop leadership capability. This research pioneered in testing whether ILME s claim is valid or not by isolating and testing the function of leadership skill on the relationship of leaders credibility, organisation domain and leadership capability. The research aimed to determine the level of influence of leadership skills as mediator on the relationship between the independent (leader s credibility and organisational domain) and dependent (leadership capability) variables. The following hypotheses were empirically tested: Leadership skill will mediate the effect of leader s credibility and organisational domain on leadership capability. (i) Leadership skill will mediate the effect of independent variables on personal integrity component of leadership capability. (ii) Leadership skill will mediate the effect of independent variables on working within industry component of leadership capability. (iii) Leadership skill will mediate the effect of independent variables on customer focus and quality component of leadership capability. (iv) Leadership skill will mediate the effect of independent variables on working as a team component of leadership capability. (v) Leadership skill will mediate the effect of independent variables on communication and interpersonal skills component of leadership capability. (vi) Leadership skill will mediate the effect of independent variables on developing and empowering component of leadership capability. Methodology A total of 248 construction industry team leaders from 14 states of Malaysia participated in the research. Data were collected using survey questionnaire designed specifically for this study. The questionnaire was adapted from the items used by Lyn (2007) in the study; the items were further modified and improved based on the results of the qualitative research. The instrument, consisting of close and openended items, has four parts: Part A (demographic characteristics; Part B (leaders credibility and organizational domain); Part C (leadership skills); and Part D (leadership capability). The questionnaire was pretested and the result of reliability analysis (Kuder Richardson (KR-20) value of Cronbach Alpha = 0.90) confirmed that the instrument was reliable to be used in the research.

LEADERS CREDIBILITY, ORGANISATION AND CAPABILITY... 185 The research followed the mediation approach of Baron and Kenny (1986), where mediating relationship is one in which the path relating a to c is mediated by a third variable b (Figure 1). SEM in AMOS version 18 was used to analyse the effect of the mediating variable on the relationship between independent and dependent variables. The testing steps used in this research were as follows: The first step is to show that there is a significant relationship between X as IV and Y as DV; path c. This step is called total effect analysis, whereby: Total effect = Indirect effect + Direct effect c = ab + c Figure 1: Mediation Approach Source: Baron and Kenny, 1986 Where, Y = dependent variable (IV) X = independent variable (DV) M = mediator (MV) a, b, c, c = coefficient of independent variable and mediator The second step is to show that X is related to the M (path a). The third step is to show the M is related to the Y (path b) and it is estimated by controlling the effects of the X on Y. This step is known as indirect effect of X on Y which is defined as the product of X! Y. In mediation analyses, the indirect effect or ab is the measure of the amount of mediation. The final step is to show that the strength of the relation between X and Y are significantly reduced when M is added into the model, which is path c (direct effect). The construct of path model depends on how many independent variables are examined with the dependent variables in this study. Results and Discussion Structural Equation Modelling (SEM) using Analysis of Moment Structure (AMOS) version 18 was used to empirically test the hypotheses of this study. Using path analysis in AMOS, the study assessed the direct and indirect (mediating)

186 MAN IN INDIA relationships among a set of variables. The main purpose was to determine whether the leadership skills partially, fully or does not mediate the relationship between independent variable and dependent variable. In this study, leadership skill as mediating variable enabled the research to seek a more accurate explanation of the causal effect of independent variables (leader s credibility and organisation domain) on dependent variables (leadership capability). The AMOS provided the means to explore the direct, indirect and total effect among the relationship between these three variables. The following steps were used to analyse the mediating variable effect using SEM: Step 1: Testing of statistical significance of the paths: indirect, direct, and total effect; Step 2: Using bootstrapping to improve the statistical power for the small sample size (s<200), the process of bootstrapping was repeated for k times where k was large (>1000); Step 3: Interpretation: No mediation if the indirect effect was >0.05; full mediation when the given direct effect was significant prior to adding the mediator or indirect effect was <0.05 and direct effect was >0.05; and partial mediation when the direct, indirect, and total effect was <0.05. Overall Mediating Effect of leadership Skill on Leader Credibility and Organisational domain and Leadership Capability relationships Table 1 shows the mediating effect of leadership skill (MV) on the relationship between leader s credibility and organisation domain to leadership capability. The indirect effect analysis on the relationship between leader s credibility and leadership capability generated a p-value of 0.004, while between organisation domain and leadership capability was p=0.001 (p<0.05), which indicated statistical significance. Since the indirect effect was significant, direct effect analysis was performed to further determine the effect of MV on the relationship between IV and DV. From the direct effect, p-value of leader s credibility and leadership capability was p=0.017, while between organisation domain and leadership capability was p=0.002, which were still statistically significant. To find out the extent of mediation of leadership skills on the relationship between IV and D, the total effect analysis was further conducted. The p-value obtained in total effect analysis of leader s credibility and leadership capability was p=0.017, while that of organisation domain and leadership capability was p=0.001 (p<0.05). This result implied that leadership skills partially mediated the effect of relationship between leader s credibility and leadership capability, also the relationship between organisation domain and leadership capability at p<0.05.

LEADERS CREDIBILITY, ORGANISATION AND CAPABILITY... 187 TABLE 1: EFFECT OF MV ON THE RELATIONSHIP OF IV AND LEADERSHIP CAPABILITY Effect Organisation Domain Credibility Leadership Skill Indirect Leadership Capability......... Leadership Skills 0.001 * 0.004 *... Direct Leadership Skills... Leadership Capability 0.002 * 0.017 * 0.001 * Total Leadership Skills 0.001 * 0.002 *... Leadership Capability 0.001 * 0.017 * 0.001 * *significant at p<0.05 These results indicated that the MV partially mediated the relationship between IV and DV because there was not only significant relationship between the MV and DV but there was also significant direct relationship between IV and DV. Thus, the relationship between leader s credibility and organisation domain on leadership capability was partially mediated by leadership skill. Leaders behaviour expressed in terms of ability to lead have a variety of causes and it is therefore often unrealistic to expect that leadership skill as a single mediator would be explained completely by an independent variable to dependent variable relation (Judd & Kenny, 1981). Mediating effect of Leadership Skills on the Relationship between Independent Variables and the Six Components of Leadership Capability Further analysis was done on the mediating effect of leadership skills on the relationship between the IV (Leadership Credibility and Organisational Domain) and the six components of leadership capability. SEM using AMOS was performed to determine the mediation effect of leadership skills on IVs (leadership credibility and organisation domain) and leadership capability constructs (personal integrity; working within industry; being customer- focused and quality; working as a team; communication and interpersonal skills; and empowering people). Given that the indirect and direct effect analyses for all the leadership capability components were found to be significant, only the results of the total effect analyses are presented in Table 2. Personal Integrity The total effect analysis showed statistically significant (p<0.05) p-values between leader s credibility and personal integrity (p=0.001), and between organisation domain and personal integrity (p=0.006) (Table 2). These indicate that leadership skills partially mediated the effect of relationship between leader s credibility on personal integrity and that of organisation domain on personal integrity. The partial

188 MAN IN INDIA mediation of leadership skills could also be traced to the significant relationship between the MV and DV and also the significant direct relationship between IV and DV. The partial mediation result indicates that leadership skill had a certain degree of influence on the relationship between IVs (leaders credibility and organisation domain) and personal integrity. The partial mediation could be due to the fact that personal integrity can be influenced by other factors like credibility of leaders, working environment and interpersonal relationship among colleagues in the organisation. This is consistent with Duggar s (2009) statement, where he pointed out that leaders can create harmony around a culture of integrity within the organisation. This culture of integrity, in turn, will create a highly-valued work environment which can result to a win-win situation enabling the organisation to focus its operation on the long-term benefits for its customers, employees and investors. TABLE 2: MEDIATING EFFECT OF LEADERSHIP SKILL ON THE RELATIONSHIP BETWEEN IV AND THE SIX COMPONENTS OF LEADERSHIP CAPABILITY Total Effect Organisation Domain Credibility Leadership Skill Leadership Skill 0.001 * 0.002 *... Personal Integrity 0.001 * 0.006 * 0.001 * Leadership Skill 0.001 * 0.002 *... Working with Industry 0.011 * 0.004 * 0.001 * Leadership Skill 0.001* 0.002*... Being Customer- Focused and Quality 0.001* 0.044* 0.001* Leadership Skill 0.001* 0.002*... Working as a Team 0.004* 0.001* 0.001* Leadership Skill 0.001* 0.002*... Communication and Interpersonal Skills 0.004* 0.001* 0.001* Leadership Skill 0.001 0.002... Empowering People 0.002 0.008 0.001* *Significant at p<0.05 The behaviour of management remains the most important factor of integrity. Several scholars as well as practitioners argue that leadership is the key variable influencing the ethics and integrity of employees (Ciulla, 1998; Dickson et al., 2001). Top level management should therefore be a good role model for team leaders and other employees as their behaviour reflects the norms of the organisation.

LEADERS CREDIBILITY, ORGANISATION AND CAPABILITY... 189 Working with Industry The p-value obtained from total effect analysis between organisation domain and working within industry (p=0.011) and between leader s credibility and working within industry (p=0.004) were found to be significant at p<0.05. Implying that leadership skill partially mediated the effect of relationship between leader s credibility and working within industry and that of the relationship between organisation domain and working within industry. The significant relationships between the MV and DV and between IV and DV further confirm this partial mediation results. The partial mediation effect could be due to other factors that can influence the relationship between IV and DV. The respondents of this research opined that partnership with other companies also influences the company s performance. They further emphasised that working with other industry players will bring about returns that are mutually beneficial to all parties involved. Partnership is the process by which the project parties and individuals operate in a mutual manner to align their interests for the successful outcome of the project (Mackinson, 2008). Collaboration with other company is important to ensure that the company can complete the task required by customers especially when the company does not have the expertise that the other company has. Customer Focus and Quality The total effect analysis showed statistically significant p-values between leader s credibility and customer-focused and quality (p=0.044) and organisation domain and customer-focused and quality (p=0.001). Moreover, the result of the indirect and direct effect analyses showed that there were significant relationships between the MV and DV and also between IV and DV. These results indicated that the leadership skills partially mediated the relationship between IV and DV. The partial mediation results implied that there are other factors that can impact customer satisfaction other than leadership skill. Turel and Serenko (2006) claimed that the services of employees and the price it charges actually determine the level of satisfaction among its customers more than any other measures. According to Harris (2009), 89% of customers stop dealing with an organization after a single bad experience. Customers not only discuss their buying experiences publicly but also discuss how well they are treated after the purchase. Service and support experiences are affected by how well the leader and team address customer inquiries and provide a consistent and personal experience across service channels. Working as a Team The p-values of 0.004 and 0.001 for leader s credibility and working as a team, and organisation domain and working as a team, respectively, were found to be statistically significant at p<0.05. This implies that leadership skill partially mediated

190 MAN IN INDIA the effect of the relationship between leader s credibility and working as a team also on the relationship between organisation domain on working as a team. The statistically significant results on the test of relationships between the MV and DV and that of the direct relationship between IV and DV further support this observation. The above results indicate that leadership skills cannot totally account for the relationship between IV (leaders credibility and organisation domain) and DV (working as a team). This result corroborates the findings of De Meuse et. al. (2009,) who found that teamwork requires an organizational culture which enables and fosters team spirit or the spirit of a group that makes the members want the group to succeed. Ghorbanhosseini (2013), citing papers of other experts, emphasised that focus and attention to effectiveness and efficiency of working teams requires teamwork spirit so that members or elements of working teams are able to do team work and team activity. He further reiterated that the way of interaction and activity of members is important and crucial in success or failure of the teams, thus teamwork culture should be institutionalized in the organization prior to formation and establishment of working teams. Considerable impact of team work culture and group work is such that management scientists regard it as a prerequisite for achieving stable key capabilities in competitive environment of today s world (Crossman, Lee-Kelly and Trust, 2004). Communication and Interpersonal Skills The findings in Table 2 showed that MV partially mediated the relationship between IV and DV because there was not only significant relationship between the MV and DV but there was also significant direct relationship between IV and DV. This indicates that the relationship between IV and DV could be due to factors other than leadership skill. Welfle (2000) mentioned that self-awareness can be one of the other factors that influence the relationship between IV and DV. He stressed that good communication skills enable collegiality among people from different departments when dealing with work-related issues. This is consistent with Cargile s (2002) opinion that if there is complete awareness from both sides, speaker and listener miscommunication can be avoided. He stated that accent or dialect can influence the communication. The speaker s accent or dialect may trigger ethnic, regional or social recognition. The listener may identify the ethnicity of the speaker through language characteristics. The contrast of accent or dialect can cause misunderstanding between the source and the receiver of the message. Nearly all executives that participated in the TRACOM Groups study (2007) agree that interpersonal skills become increasingly important as a person progresses through the leadership ranks. With the appropriate interpersonal skills, leaders can more effectively manage subordinates for greater productivity. They argued that better communication would positively impact individual performance. Moreover,

LEADERS CREDIBILITY, ORGANISATION AND CAPABILITY... 191 they posited that most of the time, the subordinates are the listener and they need to be aware with all the information and briefing from team leader to ensure they get the right massage before taking any action. Empowering People The p-values of 0.002 and 0.008 for the test of relationships between leader s credibility on empowering people and organisation domain on empowering people, respectively was found to be statistically significant at p<0.05. These indicate that leadership skill partially mediated the relationship between IV and DV. It can be assumed that the mediating variable accounts for some, but not all, of the relationship between the independent variable and dependent variable. Partial mediation also implies that there is not only a significant relationship between the mediator and the dependent variable, but also some direct relationship between the independent and dependent variable. Based on the above findings, it can be argued that the success of empowering employees rests on empowering leadership skills of construction industry team leaders. Srivastava, Bartol and Locke (2006) suggest that an important benefit of empowering leadership is that members have increased opportunities and a need to share knowledge in order to solve their problems and make decisions. The above results further confirmed that leadership skill is a partial mediator on the relationship between IV (leader s credibility and organisational domain) and leadership capability. The leadership skill as mediating variable between the relationship of leaders credibility and organisation domain on leadership capability is not fully explored yet. Hence this study could be considered as a pioneering one. The findings of this research showed that, although leadership skill was found to partially mediate the relationship of the abovementioned variables, it was noted that there are other factors that can manifest the relationship between leaders credibility and organisation domain on leadership capability. Conclusion The general conclusion that can be derived from this research is that, leadership skill although accounting for partially mediating the relationship between leader s credibility and organisation domain as independent variable and leadership capability as dependent variable, somehow plays a role in enhancing the construction team leaders leadership capability. It cannot be denied however, that there are other important factors that need to be considered in developing or enhancing a person s leadership capability. The following areas could be pursued beyond this study. i. This research ascertained the effect of leadership skill as mediating variables, albeit partially. This indicates that there are other factors that affect the relationship between leadership credibility/organisational domain

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