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Leadership and Policy in Schools 2004, Vol. 3, No. 3, pp. 211–235 How do Transformational Leaders Transform Organizations? A Study of the Relationship between Leadership and Entrepreneurship ? Ori Eyal 1 and Ronit Kark 2 1 Department of Education, Ben-Gurion University, 84105 Beer-Sheva, Israel, and 2 Departments of Psychology and Sociology, Bar-Ilan University, 52900 Ramat Gan, Israel ABSTRACT The aim of this study is to discover the relationship between different leadership styles and alternative entrepreneurial strategies in the not-for-profit public school system. We develop a conceptual framework for understanding various strategies of corporate entrepreneurship. Accordingly, we hypothesize that transformational leadership can promote a ‘‘vigorous entrepreneurial strategy’’ that encourages radical change, whereas monitoring leadership can only promote limited change by means of an incremental ‘‘calculated entrepreneurial strategy.’’ Passive-avoidant leadership restricts organizational entrepreneurship to the boundaries of existing constraints, mainly using a ‘‘conservative strategy.’’ These relationships were tested using a sample of 1,395 teachers working under 140 elementary school principals. The results partially support the expected relationships. It was found that although transformational leadership pro- vides the most accommodating managerial background for radical entrepreneurship, the re- lationship is complex. We discuss the implications of these findings for both theory and practice. Organizations in general, and schools more specifically, are currently functioning in a highly competitive global environment, characterized by rapidly changing technologies. The increase in uncertainty, complexity, and ? This research was supported by a grant from the Chief Scientist’s Office of the Israel Ministry of Education and Culture. Additional support was provided by the NCJW Research Institute for Innovation in Education, and by the Harvey L. Silbert Center for Israel Studies at The Hebrew University. Address correspondence to: Dr. Ori Eyal, Department of Education, Ben-Gurion University, 84105 Beer-Sheva, Israel. Tel.: þ1-972-8-646-1837. Fax: þ1-972-8-647-2897. E-mail: [email protected] Accepted for publication: May 24, 2004. 10.1080/15700760490503715$16.00 # Taylor & Francis Ltd.

How do Transformational Leaders Transform Organizations ......Leadership and Policy in Schools 2004, Vol. 3, No. 3, pp. 211–235 How do Transformational Leaders Transform Organizations?

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Page 1: How do Transformational Leaders Transform Organizations ......Leadership and Policy in Schools 2004, Vol. 3, No. 3, pp. 211–235 How do Transformational Leaders Transform Organizations?

Leadership and Policy in Schools2004, Vol. 3, No. 3, pp. 211–235

How do Transformational Leaders TransformOrganizations? A Study of the Relationshipbetween Leadership and Entrepreneurship?

Ori Eyal1 and Ronit Kark21Department of Education, Ben-Gurion University, 84105 Beer-Sheva,Israel, and 2Departments of Psychology and Sociology, Bar-Ilan University,52900 Ramat Gan, Israel


The aim of this study is to discover the relationship between different leadership styles andalternative entrepreneurial strategies in the not-for-profit public school system. We develop aconceptual framework for understanding various strategies of corporate entrepreneurship.Accordingly, we hypothesize that transformational leadership can promote a ‘‘vigorousentrepreneurial strategy’’ that encourages radical change, whereas monitoring leadership canonly promote limited change by means of an incremental ‘‘calculated entrepreneurial strategy.’’Passive-avoidant leadership restricts organizational entrepreneurship to the boundaries of existingconstraints, mainly using a ‘‘conservative strategy.’’ These relationships were tested using asample of 1,395 teachers working under 140 elementary school principals. The results partiallysupport the expected relationships. It was found that although transformational leadership pro-vides the most accommodating managerial background for radical entrepreneurship, the re-lationship is complex. We discuss the implications of these findings for both theory and practice.

Organizations in general, and schools more specifically, are currentlyfunctioning in a highly competitive global environment, characterized byrapidly changing technologies. The increase in uncertainty, complexity, and

?This research was supported by a grant from the Chief Scientist’s Office of the Israel Ministryof Education and Culture. Additional support was provided by the NCJW Research Institute forInnovation in Education, and by the Harvey L. Silbert Center for Israel Studies at The HebrewUniversity.Address correspondence to: Dr. Ori Eyal, Department of Education, Ben-Gurion University,84105 Beer-Sheva, Israel. Tel.: þ1-972-8-646-1837. Fax: þ1-972-8-647-2897. E-mail:[email protected]

Accepted for publication: May 24, 2004.

10.1080/15700760490503715$16.00 # Taylor & Francis Ltd.

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competitiveness; scarceness of resources; and the need for continual change,in both non-profit and for-profit organizations, has made entrepreneurship avital asset for organizational survival, growth, and productivity (Damanpour,1991; Howell & Higgins, 1990). Corporate entrepreneurship has beenrecognized as an organization-level phenomenon (Zahra, Karutko, &Jennings, 1999). Consequently, it has been argued that entrepreneurship canbe described as an organization’s constant tendency to initiate and implementincremental, as well as radical, innovations in its internal and externalenvironment (Herbert & Brazeal, 1998; Kemelgor, 2002). It has thereforebeen suggested that entrepreneurship should be examined in terms of theinternal and external organizational environments (Baron, 2002; Caruana,Ewing, & Ramaseshan, 2002). In this realm, the role of managers and leadersas change-oriented agents and as entrepreneurs has been stressed (e.g., Schein,1996; Spreitzer, Janasz, & Quinn, 1999; Work, 1996).

Theories of transformational and charismatic leadership suggest that thereis a significant relationship between leadership, organizational change andentrepreneurship. Charismatic (transformational) leaders, according toConger and Kanungo (1998), ‘‘are by nature entrepreneurial and changeoriented’’ (p. 133). Transformational leadership has also been linked to thepromotion of change and innovation in organizations (Bass, 1985; Howell &Avolio, 1993; Howell & Higgins, 1990), as is evident from the term‘‘transformational leadership,’’ which has been broadly defined as resulting inthe transformation of individual followers or of entire organizations (Yukl,1998). Accordingly, charismatic leadership has been associated withinnovation (Bass, 1985; Conger & Kanungo, 1987, 1988; House, 1977).Furthermore, empirical evidence suggests that proactive behavior, such asdemonstrating initiative, taking action, and persisting until goals are achieved,is associated with transformational and charismatic leadership (Bateman &Crant, 1993; Crant, 2000; Deluga, 1998). Therefore, it could be argued thattransformational leadership is associated with the two basic components ofcorporate entrepreneurship mentioned in the entrepreneurial research: theproactivity of top managers and organizational innovativeness.1

1Five main dimensions of corporate entrepreneurship have been mentioned in the theoreticalliterature: proactivity, innovation, risk-taking, autonomy, and competitive aggressiveness(Lumpkin & Dess, 1996). The first three are most common in measurements of corporateentrepreneurship. Of these dimensions, we considered proactivity and innovation to be intrinsicto corporate entrepreneurship. The theoretical justification for that is given in the next section.


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Following Brown, Davidsson, and Wiklund (2001) and Eyal and Inbar(2003), who assert that distinct strategies of entrepreneurship should berepresented by different combinations of entrepreneurship components, thisstudy aims to investigate the relationship between leadership in the schoolsystem and the main components of entrepreneurship (managers’ proactivityand organizational innovation), by focusing on entrepreneurship as a strategy-profile-based phenomenon.


Corporate EntrepreneurshipThe literature on corporate entrepreneurship recognizes the importance of theindividual to the entrepreneurship process. However, individuals act within acomplex organizational framework that facilitates or limits their actions (e.g.,Baron, 2002; Covin & Miles, 1999; Sharma & Chrisman, 1999). Thus,entrepreneurship is often regarded as an organizational phenomenon.Entrepreneurship was initially defined by Schumpeter (1934), who assertedthat the primary function of entrepreneurship is innovation.

In contrast to the unidimensionality of the above definition, Miller (1983)argues that corporate entrepreneurship is a multidimensional phenomenonthat includes a tendency towards innovation, proactivity, and risk-taking in thedevelopment of products and technology (see also Covin & Slevin, 1991;Miller & Friesen, 1982; Slevin & Covin, 1990). Innovation is defined as theability to implement newly designed services and/or products. Proactivity isdefined as the inclination to shape the environment, rather than merely reactto it passively (Covin & Slevin, 1991; Slevin & Covin, 1990). It has also beendefined as the willingness to initiate action to which competitors then re-spond (Covin & Slevin, 1991; Slevin & Covin, 1990). Risk-taking implieswillingness to make large and bold commitments of resources or to ventureinto unknown spheres, both of which have a reasonable chance of costlyfailure (Baird & Thomas, 1985; Miller & Friesen, 1978).

Although a multidimensional conception of organizational entrepreneur-ship has been used in earlier research, measurements have usually beenunidimensional. This may reflect researchers’ tendency to use a single averagescore for the three dimensions in describing corporate entrepreneurship (e.g.,Brown, Davidsson, & Wiklund, 2001; Covin & Slevin, 1989). Moreover,inclusion of the risk-taking dimension in the entrepreneurship scale may lead


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to measurement bias, since researchers have not found systematic correlationsbetween risk-taking and entrepreneurial organizations, suggesting that thisvariable does not function linearly in the prediction of organizationalentrepreneurship (Lumpkin & Dess, 1996; Norton & Moore, 2002).

Therefore, we propose that different combinations of the two maindimensions of corporate entrepreneurship – the managers’ proactivity andorganizational innovativeness – should represent the entrepreneurial phenom-enon. However, entrepreneurship may take different shapes and characteristics,since these two dimensions may be found in various combinations in differentorganizational settings. These combinations have been given differenttheoretical conceptualizations in the literature, signifying different entrepre-neurial orientations within the system. Table 1 summarizes the differenttheoretical entrepreneurial orientations suggested by the literature.

The conservative orientation, represented by Covin and Slevin’s‘‘conservative organization’’ (low proactivity and low innovativeness) (1989)or Mintzberg’s ‘‘adaptive mode’’ strategy (moderate proactivity and lowinnovativeness) (1973), emphasizes stability, continuity, and maintenance ofthe status quo (Barringer & Bluedorn, 1999; Brazeal & Herbert, 1999).

The incremental orientation, represented by Mintzberg’s ‘‘calculatedentrepreneurial strategy’’ (moderate proactivity and moderate innovativeness)(1973), is reactive in nature and displays traditional linear models that build on

Table 1. The Theoretical Entrepreneurial Strategies.


Managers’ proactivity

Low Moderate High

Low Conservativeorganizations



Moderate Non-entrepreneurialstrategy"

Planning modeor calculatedentrepreneurship


High Non-entrepreneurialstrategy"



"These strategies are viewed in the literature as non-entrepreneurial. Their orientation favorsthe implementation of extrinsic initiatives over intrinsic initiatives. In these strategies, littleeffort will be made to generate new ideas. Although such strategies may exist, scholars will notascribe them in theory to organizational entrepreneurship, because they do not demonstrate aproactive, self-directing, managerial stance (Lumpkin & Dess, 1996; Miller, 1983).


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historical improvements approved by the system. However, this orientationdoes not change the status quo dramatically (Bygrave, 1989; Bygrave &Hofer, 1991; Pavitt, 1991).

The opportunistic orientation, represented by Adizes’s ‘‘arsonist entrepre-neurship’’ (high proactivity and low innovativeness) (1985) and Eyal andInbar’s ‘‘initiating entrepreneurship’’ (high proactivity and moderate innova-tiveness) (2003), represents a ‘‘flurry’’ strategy. These strategies resembleStevenson and Jarillo’s opportunistic entrepreneurial orientation (1990), inwhich almost any opportunity is perceived as one that should be takenadvantage of by the firm (Brown et al., 2001). Organizations that follow theopportunistic orientation create a work environment full of ideas. However,while the ‘‘arsonist entrepreneurship’’ strategy does not lead to theimplementation of the ideas that come up, the ‘‘initiating entrepreneurship’’strategy can be classified as a proactive mode that promotes a trial-and-errorculture, although with limited institutionalization of irregular practices.

The radical orientation is represented by the ‘‘vigorous entrepreneurialstrategy’’ (high proactivity and high innovativeness) (see Barringer & Bluedorn,1999; Covin & Slevin, 1989; Kemelgor, 2002; Miller & Friesen, 1978). Thisstrategy features discontinuous, frame-breaking changes and discards conven-tional operating practices (Brazeal & Herbert, 1999; Stringer, 2000). Itrepresents a dramatic departure from current organizational strategy, indepen-dent of the authorities in the system (Tellis & Golder, 1996). Therefore, itcould be claimed that this entrepreneurial strategy represents the ability to goagainst the current organizational structure, operating as if it did not exist.Hence, it is a way of making organizational dreams come true while ignoringthe standard ways of thinking or acting (Czariawska-Joerges & Wolff, 1991).

Leadership and EntrepreneurshipLeadership and entrepreneurship are discussed together in the researchliterature (Drucker, 1985; Pinchot, 1985). Czariawska-Joerges and Wolff(1991) differentiate between the two and claim that while leadership isresponsible for clarifying causality, simplifying reality and strengtheningcontrol over it, entrepreneurship is an action that can be related to generatingnew realities. Although leadership and entrepreneurship overlap to somedegree, leadership involves influencing subjects’ symbolic realm in order tomove them towards certain actions and determining the time and scope ofthese actions (Leavy, 1996; Shamir, House, & Arthur, 1993), whereasentrepreneurship represents the operational translation of symbols and


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behaviors into actions. It is not just a matter of looking for opportunities; it iseven more about generating a new organizational agenda and creating newthings, while translating symbols into tangible organizational initiatives,action plans and performance.

There is a large body of research literature focusing on a wide variety ofleadership styles (for comprehensive reviews see Bryman, 1996; Yukl, 1998).In this study we will generally draw on current theories of leadership labeledby Bryman (1996) as the ‘‘new leadership’’ theories (including charismaticleadership, visionary leadership and transformational leadership), and morespecifically we will focus on transformational leadership theory. Theory andresearch on transformational leadership distinguishes between three leadershipstyles: (1) transformational, (2) transactional or monitoring, and (3) laissez-faire or passive-avoidant (Avolio, Bass, & Jung, 1999; Bass & Avolio, 1994).

Numerous claims have been raised in the theoretical literature regarding therelation between transformational leadership, entrepreneurship and theinnovation process (e.g., Bass, 1985; Bass & Avolio, 1994; Howell & Avolio,1993; Howell & Higgins, 1990; Oberg, 1972; Spreitzer et al., 1999).Moreover, House and Aditya (1997) assert that charismatic (transformational)leadership theories are unique in that they explain how leaders establishsuccessful entrepreneurial corporations.

Following Oberg (1972), the above-mentioned writers contend thattransformational leadership brings about radical change by supporting beliefsand values that differ from the existing ones. By exerting their influence onfollowers, transformational leaders shape followers’ identification, valueinternalization, emotional bonding, and social contagion processes (Shamir,House, & Arthur, 1993). As a result, subordinates are willing to sacrificetheir own personal interests for the sake of a collective goal and to performbeyond expectations (Bass, 1985). Thus, by kindling followers’ identification,motivation, and inclination to contribute to the development of the organ-ization, transformational leaders may promote radical entrepreneurship in thecorporation.

In line with the above conception of charismatic and transformationalleadership, Howell and Higgins (1990) describe organizational champions asentrepreneurs who use informal organizational mechanisms to garner supportfor innovations (see also Maidique, 1980; Pinchot, 1985). While doing so,they relate the concept of transformational leadership to the literature onorganizational champions, suggesting that organizational champions (i.e.,entrepreneurs) support and advance innovations at the price of confronting


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obstacles presented by organizational officials (Shane, 1994). They concludethat organizational champions function as transformational leaders, develop-ing a clear organizational vision and mechanisms that may be used in order todiscover opportunities. These dynamics are in line with organizational radicalentrepreneurial activism, since entrepreneurship requires persuading andmotivating others to sustain their effort, generating a vision and turning it intoreality (Baron, 2002; Baron & Markman, 2000; Vecchio, 2003). Therefore,transformational leadership as one of the main processes in influencing othersand increasing their devotion, loyalty, excitement, and enthusiasm isconsidered to set the basic conditions for radical entrepreneurial strategies.

Based on the assumption presented in the theoretical literature, thefollowing assumptions are made:

Hypothesis 1a: Transformational leadership is positively related to proactivityand innovativeness.Hypothesis 1b: Leaders who rate high on the transformational scale aremore likely than others to exhibit radical entrepreneurial strategies, charac-terized by higher levels of proactivity and innovativeness (i.e., ‘‘vigorousentrepreneurship’’).

Transactional leadership is a second major style identified in the literature.It involves an exchange process between the leader and the followers, intendedto increase followers’ compliance to the leader and the organizational rules(Yukl, 1998). Leaders who maintain tight logistical control by emphasizingcompliance with rules and procedures, by checking on the progress andquality of the work, and by evaluating the performance of individuals and theorganizational unit would rate high for monitoring behavior (Quinn, 1988;Spreitzer et al., 1999).

Monitoring behavior is often linked to the concept of management. In thecontroversy in the literature over how to distinguish managers or managementprocesses from leaders or leadership processes, it is suggested that manage-ment is stability-oriented whereas leadership is innovation-oriented (Bennis &Nanus, 1985; Yukl, 1998; Zaleznik, 1977). Hence, monitoring impliesbehaviors aimed at controlling others in order to preserve stability in theworkplace (Bass, 1985; Kotter, 1990) or, at best, advocacy of incrementalchanges to organizational systems in an effort to make the existing processesmore efficient.

With these assumptions in mind, it may be argued that monitoringleadership will be related to moderate levels of proactivity and innovativeness,


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which can be characterized as first-order, incremental, non-deviant entrepre-neurial strategies. Hence, the following assumptions are made:

Hypothesis 2a: Monitoring leadership will be positively related to proactiv-ity and innovativeness, but less strongly than is transformational leadership.Hypothesis 2b: Leaders who rate high for monitoring leadership aremore likely to exhibit incremental entrepreneurial strategies characterizedby moderate levels of innovativeness and proactivity (i.e., ‘‘calculatedentrepreneurship’’).

Passive-avoidant leadership, the third leadership style identified in theliterature, is characterized by two main features: laissez-faire leadership, i.e.,behavior that exhibits passive indifference to tasks and to subordinates; andmanagement by exception (passive), which employs contingent punishmentsand other corrective actions when faced with deviations from performancestandards (Avolio et al., 1999; Bass & Avolio, 1994).

Since passive-avoidant leadership represents the antithesis of change-oriented behavior, we suggest that supervisors who apply this form ofleadership are likely to behave in ways that will not inspire ideas, innovation,creativity or willingness to promote change, and instead encourage aconservative, anti-entrepreneurial organizational strategy. Hence, the follow-ing assumptions are made:

Hypothesis 3a: Passive-avoidant leadership is negatively related to proactivityand innovativeness.Hypothesis 3b: Leaders who rate high for passive-avoidant leadership arelikely to exhibit conservative strategies characterized by low levels ofproactivity and innovativeness (i.e., ‘‘conservative organization’’).

Above we have presented the hypothesized relationship betweenentrepreneurship and transformational leadership. At this stage we wouldlike to tie our hypotheses to the context of schooling and educational systems,and to recent trends and perspectives in the education literature, in order todemonstrate the important role entrepreneurship and leadership can playwithin the context of schools.

Schooling, Entrepreneurship and Principal’s LeadershipGovernment striving to control schooling and school reliance on public funds,as a structural arrangement, has made schools slow-changing organizations.In this framework, schools are considered to be conservative organizations


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that retain their basic characteristics across time, place, and even cultures(Drucker, 1985; Weick, 1976). Their patterns have been suggested to be well-established and legitimize, and are known to represent the most efficient wayof organizing education (Cuban, 1984).

However, increases in diversity among pupils, as well as other rapidtechnological, legal and societal changes in the school environment, haveexposed schools to grater uncertainties (Hargreaves, 1997a, 1997b). Thisuncertainty has been reinforced by the introduction of market mechanismsin education due to the withdrawal of the welfare state from educationalresponsibilities (Ardichvili, Cardozo, & Ray, 2003; Caruana et al., 2002).Therefore, the need to retain the relevance of schools to the public theyserve has become crucial (Bowe, Ball, & Gold, 1992; Boyett & Finlay,1993; Kerchner, 1988). Not being able to act in adaptive and innovativeways may endanger school legitimacy. Drucker (1985) asserts that notbeing entrepreneurial, schools might loose their relevance, allowingalternative entrepreneurial agencies to take over their fundamentalfunctions, leaving them drained of substance (Drucker, 1985). This in turncan lead to the limitation of children’s equal access to education andendanger the role of schooling as a mechanism for reducing social-economic gaps.

The rise of uncertainty in the educational arena has been discussed inthe literature, leading to the call for decentralization processes that giveschools, and mainly their principals, the authority to respond in a non-bureaucratic, rapid mode to their community’s needs (Bowe et al., 1992;Boyett & Finlay, 1993). Following this call, decentralized reforms havebeen mandated to insure that school principals will adjust their schoolpractices to their community’s needs and to their uncertain environments.However, studies have reported that even with decentralization reform inEngland (Boyett, 1997; Boyett & Finlay, 1993) and in Israel (Eyal & Inbar,2003), school entrepreneurship is still restricted by the government. Thus,it could be argued that although the decentralization process may putpressure on schools to act in an entrepreneurial fashion, in order to satisfylocal demands (Bowe et al., 1992; Boyett & Finlay, 1993; Kerchner, 1988),schools must still abide by the system’s standards in order to maintaintheir legitimacy and accordingly avoid unapproved entrepreneurial strate-gies. Nevertheless, these reforms have created a new role for principals astransformational leaders who take proactive stances in shaping their envi-ronmental conditions.


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Transformational leadership models have substituted the instructionalleadership model dominating the educational field in the 1980s (Hallinger,2003; Leithwood, 1992). Instructional leadership was concentrated onclassroom management. Principals directed curriculum planning and teachingby instructing and guiding their teachers (Leithwood, 1994; Sheppard, 1996).This leadership matched the ‘‘effective school movement’’ goals that hadasked to insure pupils’ proficiency in basic skills, through detailed mapping ofclass curriculum, teaching process, and time devoted for learning (Hallinger,2003). This leadership model asked principals to monitor closely teachers’activities in order to assure the relationship between teaching and its products(Leithwood, 1994). Therefore, instructional leadership resembles Bass’stransactional leadership, which concentrates on the efficient attainment of theorganizational goals (Bass, 1985; Sergiovanni, 1984). This leadership modelis suitable when the system’s reform goals are well defined and agreed upon orwhen the practices in use are well defined. In these cases, leadership stylessuch as monitoring, instructing or directing, which are related to managing theorganizational routine, are seldom connected with second-order change ofthe organizational assumptions (Leithwood, 1992). Therefore, instructional(monitoring) leadership cannot promote a radical entrepreneurship thatfacilitates the creation of new organizational realities. In comparison,transformational leadership can foster radical entrepreneurship.

During the restructuring movement starting in the 1990s, school-basedmanagement reform and teachers’ empowerment ideas have become popular.This perspective has contributed to a more complicated and uncertain realityfor schools (Leithwood, 1994). Under these circumstances, transformationalleadership that is able to facilitate first- and second-order changes in schools(Hallinger, 2003; Leithwood & Louis, 1999) is likely to be related to a radicalentrepreneurship strategy. The radical strategy, described above, represents adramatic departure from the system’s familiar practices (Tellis & Golder,1996). Thus, we suggest that transformational leadership can adopt a radicalentrepreneurial strategy as its main tool for realizing alternative educationalrealities that recognize and take advantage of new opportunities in the schoolenvironment and act upon them, while providing better schooling for diversepupil’s needs. Based on the significant link drawn between schooling,entrepreneurship and a principal’s leadership style, we aim to test the abovehypotheses regarding the relationship between entrepreneurship and aprincipal’s leadership in the context of the public-governmental schoolsystem.


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Sample and Data CollectionThis study is based on a stratified random sample of 140 Israeli elementaryschools located in three districts. The response rate of schools was 81 percent.In each school, ten teachers were chosen randomly to participate in the study.In all the schools sampled, ten teachers responded, except for two schoolswhere only seven and eight teachers responded. The response rate of teachersacross schools was 99.6%. A total of 1,395 teachers – 68 percent of themfemale – were included in the sample.

The use of a stratified sample usually requires a weighted sample to preventdeviations in the estimates and in the p-values derived from the statistical tests(Levy & Lemeshow, 1991; Thompson & Seber, 1996). In our case, however,no correlation was found between the sample weights and the regressionresiduals. Hence, this is a non-informative sampling and therefore does notrequire the use of sampling weights for performance of the statisticalprocedures (Pfeffermann & Sverchkov, 1999).


Measurement of School EntrepreneurshipItems from the Public School Entrepreneurial Inventory (PSEI [Eyal & Inbar,2003]) were used to measure the two dimensions of entrepreneurship –proactivity and innovativeness. The items were formatted on a seven-pointLikert scale, and subjects were asked to indicate the degree to which each itemdescribed the situation in their school. Four items measured proactivity(!¼ 0.86) and ten measured innovativeness (!¼ 0.92). Construct validity wastested by exploratory principal component factor analysis (Grimm & Yarnold,1997), with direct oblimin rotation. The results of this analysis appear in Table 2.

In line with the theoretical model of entrepreneurship proposed above, twodimensions of entrepreneurship as organizational phenomena emerged in thefactor analysis:

1. Principal proactivity. This factor refers to the principal’s willingness toinitiate actions within the school, i.e., intrinsically motivated actions notimposed by higher authorities. Proactivity emphasizes activism but doesnot always suggest an ensuing change, innovation or reform. Rather, itinvolves introducing opportunities into the organization.


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2. Organizational innovativeness. This component is defined as the perceivedquantity of innovations implemented in an organization or unit (i.e.,school) in a given time period and their impact (first- or second-degreechange) on the organization.

Table 2. Results of the Public School Entrepreneurship Inventory, Exploratory Factor Analysis:Direct Oblimin Rotated Factor Loading.

Item Factor 1 Factor 2

The innovations implemented in thelast two years have radicallychanged the school.

0:869 $0.124

The innovations implemented in thelast two years have led to an overall,system-wide change in our school.

0:841 0.010

The innovations implemented in thelast two years have caused a turnaroundin our school’s courses of action.

0:831 0.018

The innovations implemented in thelast two years have led to a significant andsubstantial change in the guiding assumptionsof our school.

0:816 $0.192

In the last two years a great many innovationshave been implemented in our school.

0:696 0.218

In the last two years our school has implementeda great number of activities that did not exist previously.

0:691 0.167

In the last two years our school implementedmany activities that had not been tried previously.

0:660 0.170

A great number of innovations were implementedin our school in the last two years.

0:572 0.232

Innovations are a central factor in thelife of our school.

0:556 0.306

In our school there is a tendency to implementnew courses of action.

0:504 0.381

Our school principal shows a lot of initiative. 0.097 0:846The school principal shows no initiativein his actions.

$0.108 0:835

The school principal has shown great initiativein the development of ideas and activities in our school.

0.147 0:774

Many of the activities that characterize our schoolare the direct result of the principal’s initiative.

0.050 0:723

Note. Factor 1: Innovativeness."Factor 2: Principal proactivity.Factor loadings greater than 0.4 are underlined.


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Constructing the Entrepreneurial Strategy ProfilesIn order to derive the entrepreneurial strategies from the entrepreneurialdimensions – the principal’s proactivity and the innovativeness of theorganization – the average score assigned by the teachers for each of thefactors was reduced to one of three categories: low, moderate, or high. Foreach dimension, a score of less than 4 was categorized as low, between 4and 5.5 was considered moderate, and above 5.5 was considered high. Thechoice of these cutoff points is justified semantically.2 The entrepreneurialstrategies were composed using the categorizations specified above forthe two dimensions of organizational entrepreneurship: proactivity andinnovativeness.

Theoretically, there are nine potential entrepreneurial strategies. However,as will be shown, only four strategies were identified in our study.

Measurement of Leadership StyleItems from the short version of Bass and Avolio’s Multifactor Leader-ship Questionnaire 5X (MLQ [Avolio et al., 1999]) were used to measure thedifferent leadership styles on a five-point Likert scale.

To measure transformational leadership we used 16 items pertaining to thefollowing behavioral components: individualized consideration, intellectualstimulation, inspirational motivation, and idealized influence (!¼ 0.89).Items measuring attributed charisma, which have been criticized forrepresenting leadership impact rather than leadership behavior (e.g., Kark,Shamir, & Chen, 2003; Yukl, 1998), were not included.

In this study we focus on the monitoring aspects of transactional leader-ship evident in the component of ‘‘management by exception (active).’’

2A semantic scale representing teachers’ agreement with the notion that the behaviors presentedcharacterize the pattern that exists in their school accompanied the original seven-point likertscale used in this research. Scores lower then 4 semantically represented disagreement with thenotion that the behaviors (proactivity and innovation) characterized the pattern that existed intheir school. All scores above 4 represent agreement that the behaviors presented characterizethe school. Yet, proactivity and innovation are highly valued in society in general. Dividing thepositive range of the scale reduced that bias. Thus, scores higher than 4 were divided in mid-range into two categories. Scores higher than 4 and lower than 5.5 meant that the behavior is tobe found, but it cannot characterize fully the pattern of operation in the school. Scores higherthen 5.5 represent strong agreement that the behaviors presented characterize the most commonpattern in their school. It meant that the described behavior is happening on a regular basis atschool.


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Accordingly, monitoring leadership was measured by means of four itemspertaining to management by exception (active) (!¼ 0.70).

Passive-avoidance was measured using eight items pertaining to theMLQ behavioral components of laissez-faire and management by exception(passive) (!¼ 0.82).

Each principal’s rating on the different leadership styles (transformational,monitoring, and passive-avoidant) was calculated based on the average ratingsreceived from the teachers in their schools. Each principal’s mark for eachleadership behavior was put in one of three categories, using the 25th and 75thpercentiles as cutoff points. This procedure resulted in three main groups:those with low, medium, and high marks for the different leadership behaviorsdiscussed above.


Aggregation AnalysesBefore testing the hypotheses, we first had to justify the aggregation ofindividual perceptions (i.e., the teachers’ perceptions) of the researchvariables (i.e., dimensions of leadership style and entrepreneurship) to thegroup level of analysis. Average rwgðiÞ across groups ranged from 0.73 to 0.86(see Table 3), suggesting sufficient within-group agreement. In addition,ICC(1) ranged from 0.13 to 0.37 and ICC(2) was between 0.60 and 0.86,providing sufficient evidence of between-group reliability. Finally, anANOVA indicated that individual perceptions of all variables clusteredsignificantly by group ( p< .001). These results provided sufficient statisticaljustification for aggregating individual perceptions of leadership andentrepreneurship to the group level (see Bliese, 2000).

Table 3. Results of Aggregation Analyses.

Variables rwgðiÞ ICC(1) ICC(2) F"

Transformational leadership 0.83 0.27 0.79 4.71Monitoring leadership 0.73 0.13 0.60 2.43Passive-Avoident leadership 0.84 0.29 0.80 5.06Innovativeness 0.83 0.37 0.86 6.96Principal proactivity 0.86 0.37 0.85 6.81

Note. df¼ 139, 1254."F for all variables was significant (p< .001).


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Hypotheses TestingTable 4 presents the descriptive statistics and zero-order correlations for thevariables in the study. Hypotheses 1a, 2a and 3a were tested using multipleregression analysis, in which the leadership behaviors (transformational,monitoring, and passive-avoidant) and the principal’s background variables(length of time as a teacher in general and at the specific school in particular,length of time as a principal, and level of education) were entered aspredictors, and the two entrepreneurship components were entered as

Table 4. Means, Standard Deviations, and Intercorrelations among Study Variables.

Variable M SD 1 2 3 4 5

1. Transformational leadership 3.92 0.40 1.002. Monitoring leadership 2.88 0.36 .08 1.003. Passive-avoidant leadership 2.02 0.41 $.63" $.14 1.004. Principal proactivity 5.60 0.68 .72" .13 $.67" 1.005. Organizational innovativeness 4.78 0.64 .56" .10 $.46" .78" 1.00

Note. N¼ 140."p< .01.

Table 5. Relationships between Leadership Styles and Principal Proactivity and betweenLeadership Styles and Organizational Innovativeness: Regression Analyses.

Variable Standardized coefficients B



Transformational leadership .50"" .43""Monitoring leadership .04 .04Passive-avoidant leadership $.34"" $.18"Period of service as a teacher .04 .05Period of service as a teacher at the school $.04 $.17Period of service as a principal at the school .01 .10Education .001 .08

F-value 28.60"" 10.52""R .78 .60R2 .60 .36Adjusted R2 .58 .32

Note. N¼ 140."p< .05.""p< .001.


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dependent variables. Table 5 presents the results of these analyses. In supportof Hypothesis 1a, transformational leadership was found to have a significantpositive correlation with principal proactivity (b¼ 0.50; p' .001) andorganizational innovativeness (b¼ 0.43; p' .001). In support of Hypothesis3a, passive-avoidant leadership was found to have a significant negativecorrelation with principal proactivity (b¼$0.34; p' .001) and organiza-tional innovativeness (b¼$0.18; p' .05). The correlations between theseleadership styles (transformational and passive-avoidant) and principalproactivity were stronger than the correlations with organizational innova-tiveness. Hypothesis 2a was not supported. No significant relationship wasfound between monitoring leadership and the entrepreneurship components.Moreover, no significant relationship was found between the principal’sbackground variables and the entrepreneurship components.

Organizational Entrepreneurial StrategiesIn this study, four of the proposed theoretical strategies of corporateentrepreneurship in elementary schools were identified: (1) the conservativestrategy, consisting of a moderate score for principal proactivity and a low scorefor organizational innovativeness; (2) the calculated entrepreneurial strategy,consisting of moderate scores for principal proactivity and organizationalinnovativeness; (3) the ‘‘initiating entrepreneurial strategy,’’ consisting of ahigh score for principal proactivity and a moderate score for organizationalinnovativeness; (4) the vigorous entrepreneurial strategy, consisting of highscores for both principal proactivity and organizational innovativeness.

Table 6. Distribution of Entrepreneurial Strategies by School Principal’s TransformationalLeadership Score (N¼ 140).

Principals’transformationalleadership scorecategories

Frequency Vigorousentr.




Totalfor thecategory

Low No. of schools 0 6 25 5 36pct. of schools 0 16.7 69.4 13.9 100

Medium No. of schools 8 32 27 4 71pct. of schools 11.3 45.1 38 5.6 100

High No. of schools 8 23 2 0 33pct. of schools 24.2 69.7 6.1 0 100


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Hypotheses 1b, 2b and 3b were tested using chi-square tests. Tables 6 and 7show the entrepreneurial strategy distribution for schools by leadership style(transformational or passive-avoidant).

In support of Hypothesis 1b, a chi-square test examining the relationshipbetween leaders’ transformational style and the entrepreneurial distributionwas found to be statistically significant ("2[6, 140]¼ 43.29, p< .001). Wefound a high proportion of ‘‘initiating entrepreneurship’’ among principals whoscored high for transformational leadership behavior (see Table 6). Thisindicates that principals who are perceived as transformational leaders takemore liberties to initiate new projects that were previously not pursued in theschool. Moreover, a relatively high proportion of ‘‘vigorous entrepreneurship’’is found among principals scoring high on transformational leadership. Thisshows that transformational leadership is also associated with an inclination toimplement innovations that might lead to second-degree changes in the school.

Hypothesis 2b was not supported. A chi-square test of the hypothesis aboutthe relationship between monitoring leadership and entrepreneurship was notfound to be statistically significant. This finding shows that the distribution oforganizational entrepreneurship strategies is not associated with monitoringleadership, which represents routine management behaviors.

A chi-square test examining the relationship between school leaders’passive-avoidance score and the entrepreneurial distribution was found tobe statistically significant ("2[6, 140]¼ 37.55, p< .001), thus partiallysupporting Hypothesis 3b. According to the distribution shown in Table 7, a

Table 7. Distribution of Entrepreneurial Strategies by School Principal’s Passive-AvoidantLeadership Score (N¼ 140).


Frequency Vigorousentr.




Totalfor thecategory

Low No. of schools 8 23 3 0 34pct. of schools 23.5 67.6 8.8 0 100

Medium No. of schools 8 32 30 4 74pct. of schools 10.8 43.2 40.5 5.4 100

High No. of schools 0 6 21 5 32pct. of schools 0 18.8 65.6 15.6 100


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relatively high rate of ‘‘calculated entrepreneurship’’ was found in schoolswhose principals scored high for passive-avoidant leadership behaviors.Passive-avoidant principals were also found to use the ‘‘conservative’’strategy, although less than they used the ‘‘calculated entrepreneurship’’ and‘‘initiating entrepreneurship’’ strategies. These results imply that principalswho are perceived as passive-avoidant by their teachers are associated with amore limited ability to initiate and implement organizational changes in theschool, but are also characterized – surprisingly – by moderate levels ofproactivity and innovativeness.


In this paper we study the relationship between leadership and entrepreneur-ship, a relationship that has seldom been studied empirically. We can concludefrom this study that leadership is associated with entrepreneurship. However,this relationship is complex.

Consistent with our hypotheses, the results show that transformationalleadership sets the most favorable managerial circumstances for organizationalentrepreneurial activism. It was found, however, that transformational leader-ship is more closely associated with proactivity than with organizationalinnovativeness. Studying the relationship between transformational leadershipand the different entrepreneurial strategies provides further support for theseresults. Although transformational leadership was found to provide the mostaccommodating managerial background for radical entrepreneurship, the mostprevalent strategy among transformational leaders was the ‘‘initiatingentrepreneurial strategy’’ (high proactivity and moderate innovativeness). Thisdemonstrates that although transformational leaders scored high on proactivity(generation of ideas), they received only moderate marks on innovativeness(e.g., school implementation of the ideas). As a result, entrepreneurial activismassociated with transformational leadership is mostly opportunistic in nature.Our findings therefore suggest that transformational leaders in the context ofelementary schools mostly promote a trial-and-error entrepreneurial culture thatdoes not allow for the full materialization of radical, second-order changes.These results can be understood in light of the different organizationalmechanisms associated with school entrepreneurship. First, while organiza-tional innovativeness is a situational phenomenon dependent on overallorganizational consensus to overcome internal resistance that might hinder


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the implementation of the innovations, the principal’s proactivity is anintrinsic phenomenon, dependent mostly on the principal and his or her abilityto generate ideas. Second, whereas principal proactivity does not require anyspecial allocation of resources, organizational innovativeness, which is aimedat changing the organizational order, cannot be actualized without resources.Third, the finding that the radical entrepreneurial strategy is not the mostcommon, even under transformational leadership, demonstrates that when oneacts as an agent of change, adopting a nonconformist stance, legitimacy stillplays a major role in public education systems. Thus, radical entrepreneurialstrategies are used as limited experiments that foster system renewal,while simultaneously allowing for maintenance of the legitimate canonicalpractices.

Our findings on the relationship between passive-avoidant leadership andentrepreneurship mirror the results for the relationship between transfor-mational leadership and entrepreneurship discussed above. The relationshipbetween each entrepreneurial component (proactivity and innovativeness)and the leadership styles shows that although the passive-avoidant leader-ship style is negatively related to both principal proactivity and organ-izational innovativeness, its negative relationship with principal proactivityis greater. However, the distribution of passive-avoidant leaders amongthe different entrepreneurial strategies is somewhat surprising. Althoughthe ‘‘conservative strategy’’ is common among leaders rated as highlypassive-avoidant, most passive-avoidant leaders employ the incremental‘‘calculated’’ entrepreneurial strategy. It can thus be claimed that passive-avoidant leadership is associated with a dynamic-conservative entrepreneu-rial orientation.

The dominance of the ‘‘calculated entrepreneurial strategy’’ among highlypassive-avoidant leaders can be explained by the school principal’s job, aswell as by the way the public education system works. First, the principal’s jobrequires at least a minimal level of proactivity. Second, principals are requiredto adapt to Education Ministry initiatives concerning new policies,innovations and reforms. Therefore, they are bound to implement changesto some degree. The teachers may identify this as a responsive strategy andassociate it with the principal’s behavior. This strategy helps schools avoidclashes with officials of the public education system by using a continuallyadaptive mechanism, thereby fulfilling the passive-avoidant philosophy ofkeeping up with the system’s performance standards. Moreover, this type ofentrepreneurial orientation may be used to overcome internal and external


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pressures to change the status quo, thus accepting minor modifications ofexisting practices while maintaining and possibly reinforcing the coreorganizational mode of operation.

Unlike the effect of the transformational and passive-avoidant leadershipstyles on organizational entrepreneurial activism, no relationship was foundbetween monitoring leadership and entrepreneurship. This may be due to thefocus of transactional leadership on routine management; i.e., the principalwill accept entrepreneurial activism within the school but will not support oradvance it in any systematic manner. Our results may shed some light on theongoing controversy in the literature about the difference between leadershipand management. The findings of the present study suggest that supervisorswho use a monitoring leadership style, which can be associated with amanagerial stance, are less inclined to be proactive in any systematicmanner or to lead to organizational innovativeness. In contrast, transforma-tional leadership uses entrepreneurship as a possible mechanism leading tochange.

Therefore, our results may support the notion that leadership andmanagement should be viewed as distinct processes. Moreover, transforma-tional leaders may use radical entrepreneurship as a strategy that aims notonly to address present and local needs, but also to elicit new public needs andto act upon them, regardless of system constraints. In this sense, radicalentrepreneurship broadens the organization’s scope by exposing it toopportunities for renewal. Transformational leaders can make the most ofthis, since they act as agents of change.

The results of this study are limited by its cross-sectional design and the useof a single method of data collection. Although studies have shown thatcommon-method bias is rarely strong enough to invalidate research findings(e.g., Doty & Glick, 1998), replication and extensions of our findings usingexperimental and longitudinal designs are needed.

Furthermore, the specific not-for-profit public elementary school systemthat formed the context in which the research took place might limit thegeneralization of the research conclusions. For instance, pupils’ age, theimportance of subject matter, bureaucratic control, administrative autonomy,and different market mechanisms in high schools as well as in private schoolsmight impose different constraints on school entrepreneurship. Therefore,further research is needed on the relationship between entrepreneurship andthe environmental and organizational circumstances under which schoolsoperate.


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Despite its limitations, the studymakes several tentative contributions to theliterature on leadership and organizational entrepreneurship. In general, theresults of the study provide, perhaps for the first time, fairly strong empiricalsupport for the hypothesized relationships between transformational leader-ship and radical forms of entrepreneurship. Furthermore, by combining thedifferent components of entrepreneurship, we offer a taxonomy of entrepre-neurial strategies. Identifying and naming these strategies is important, sinceeach strategy is likely to have a different effect on organizational structure,organizational change and other organizational parameters (e.g., financialoutcomes, employees’ creativity, and penetration of new markets).

Our results start to bridge the gap between the literature on transformationalleadership and the entrepreneurship literature and shed some light on theprocesses by which transformational leaders achieve superior results as agentsof change capable of transforming schools. Nevertheless, future researchshould further examine the impact of leadership style on components ofentrepreneurship against the backdrop of other contextual factors that mightaffect these variables, such as environmental hostility, competitiveness, anduncertainty. This would make it possible to compare various sectors and mightassist in identifying distinct entrepreneurial strategies undertaken withindifferent structural constraints.

Furthermore, more research is needed in order to understand therelationship between the social capital of leaders and their organizationalpower and ability to use certain entrepreneurial strategies. This issue issignificant, since social capital is known to facilitate identification ofopportunities and attainment of goals. It is also important that future researchexamine the relationships between the different entrepreneurial strategies andvarious organizational outcomes, since leaders’ use of the different strategiesidentified in this study is likely to have a major effect on the functioning of theorganization and organizational outcomes.

Although it is beyond the scope of the current study, it should be notedthat school entrepreneurship in general, and radical entrepreneurship in par-ticular, does not promise better schooling. Thus, entrepreneurship should beconsidered as long as it is used to advance pupils’ welfare and promotes theirwell-being. Hopefully, the conceptual framework developed in this study andthe public school entrepreneurial inventory applied here will prove to be ameaningful and effective tool that can be used by school leaders in developing,actualizing, and assessing school entrepreneurship, in order to contribute tobetter schooling and education.


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