The effects of transformational and transactional leadership on employee motivation

within start-ups and the moderating role of innovative/rules culture.

Master Thesis

2016

Name: Pieter Warmenhoven

Student number: 10715169

Date: 03/03/2016

Supervisor: Prof. Dr. D.N. den Hartog

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Statement of originality�

This document is written by Student Pieter Warmenhoven who declares to take full

responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources

other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is solely responsible for the supervision of

completion of the work, not for the contents.

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Preface''

This thesis is mandatory for fulfilling the entrepreneurship & innovation track of the master

Business Administration at the University of Amsterdam.

The subject I chose for this thesis, leadership and motivation within start-up

companies, is because I am fascinated by the success stories of start-up companies like

2theloo and Vandebron. These companies have grown into very successful businesses within

just a few years. Additionally, I am currently working at a start-up company myself and

someday hope to start my own business as well. My mother started her own company about

10 years ago, had several ups and downs through the years but now has a grown and steady

company. Looking at these companies I recognized how important it is to be an influential

leader who knows how to motivate employees and how this can be done in different ways.

Talking with my cousin, who works at 2theloo, I recognized we both work at successful start-

ups but both are being motivated in different ways by different leader characteristics.

Therefore, I was wondering if there is one best leadership style to motivate employees. With

the knowledge obtained from my bachelor Business administration at the Rijksuniversiteit

Groningen, the courses of this Entrepreneurship & Innovation master and my working

experience at several start-ups, I will try to give an answer to these questions.

I would like to thank Deanne den Hartog for her enthusiasm and supervision during

the writing of my thesis. I would also like to thank the organizations and their employees for

their time and support by filling in the questionnaires.

Amsterdam, June 2016.

Pieter Warmenhoven

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Abstract

Many start-up companies fail and especially in the first few years. One of the most important

problems is that the leader does not know how to motivate employees in the right manner.

This has always been an important topic and much research has been written on this topic but

not specifically focusing on start-up companies where this is such an important issue. This

thesis describes the influence between the two most known and used leadership styles,

Transformational and transactional leadership, on employee motivation within start-up

companies with a possible moderator role of an innovation organizational orientation and

rules organizational orientation.

I will contribute to the existing theory by elaborating on it with empirical results and

support. Research at four successful Dutch start-ups demonstrated that transformational

leadership has a relationship with intrinsic employee motivation. In contrast to transactional

leadership, which showed no relation with employee motivation at all. The moderating roles

of an innovation orientation and a rules orientation showed no significance. However, an

innovation orientation showed a direct relation with intrinsic employee motivation and a rules

orientation showed a direct relation with extrinsic employee motivation.

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Table'of'content'

Introduction…………………………………………………………………………………...................6

Relevance……………………………………………………………………………………….9

Research question……………………………………………………………………………..10

Literature review: Theoretical framework and hypothesis development……………………………...11

Leadership……………………………………………………………………………………..11

!" Transactional leadership…………………………………………………………………..12

!" Transformational leadership………………………………………………………………12

Employee motivation…………………………………………………………………….........13

!" Transformational leadership on employee motivation……………………………………15

!" Transactional leadership on employee motivation………………………………………..16

Organizational culture…………………………………………………………………………18

!" Rules and innovative orientation………………………………………………………….19

!" Rules and innovative orientation on leadership and employee motivation……………….20

Conceptual model……………………………………………………………………………..22

Methodology…………………………………………………………………………………………...23

Research setting and participants……………………………………………………………...23

Measures………………………………………………………………………………………25

Analysis……………………………………………………………………………………….27

Hypothesis testing……………………………………………………………………………..31

Discussion of results…………………………………………………………………………………...36

Practical implications………………………………………………………………………….41

Limitations / suggestions for further research………………………………………………...42

Conclusions………………………………………………………………………………….................44

References……………………………………………………………………………………………...45

Appendixes………………………………………………………………………………….................51

Appendix I…………………………………………………………………………………….51

Appendix II……………………………………………………………………………………52

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Introduction'

According to the Kauffman Index of entrepreneurial activity, the amount of start-up

companies within the world increases significantly. In 2015 the rate of new start-ups

increased with about 10% (Fairlie et al, 2015). However, Forbes magazine states that nine out

of ten startups fail to succeed (Patel, 2015). A private equity database, CB insights, did

research on 101 post-mortem startup companies and concluded several important reasons why

they failed. One of the most important reasons that came forward among 23% on the

companies was that the organization did not have the right team. 9% had to do with Lack of

passion and 8% failed because of burn out among employees.

Stuart and Abetti (1987) state in their research that the entrepreneurial team is the key

to success of new ventures. To be a successful entrepreneurial team in a starting company, it

can be argued that the work relation between the leader and the employees must be good. If

this is not the case, a startup might fail like the previously mentioned 23% researched by CB

insights. The lack of passion (9%) and maybe even burn out (8%) may also be indirect effects

because of a bad leader-employee relation. Good leaders for example, know how to inspire

their employees and encourage open communication which reduces employee job stress with

possible burnout as a result (Gill, Flaschner & Shachar, 2006).

Startup companies often begin with a small team of persons. For example, the average

amount of employees in tech startups is five, with a minimum of one and a maximum of

twenty-five (Lubis, 2011). Due to small quantity of employees in startups, the relationship

between leader and employee is very close and intense. The influence of the leader therefore

will be very important on motivating employees in the right way since motivation is a very

important determinant of job performance (Latham, 2007).

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To come into existence, the founder/leader needs to create a vision in which

everybody believes but also shares. In this way necessary resources can be acquired and

employees become attracted to the concept (Baum, Locke & Kirkpatrick, 1998). In addition,

these leaders need to set clear goals and reward structures for employees that accomplish set

goals (Williamson, 2000). This has shown the importance of leadership processes on

motivation (Yukl, 1998), but not which styles of leadership motivate employees, especially

not in the starting phase of new organizations.

The research presented in this thesis will focus on two commonly implemented

leadership styles and their influence on employee motivation; namely transformational and

transactional leadership. Transformational leadership is marked by inspirational motivation

(Judge & Piccolo, 2004) and transactional leadership with a directive and clear goal focus are

both important styles during the initial stages of the new venture creation process according to

Ensley et al (2006).

As employees react differentially to these various leadership styles, I will make the

distinction between extrinsic and intrinsic motivation (Ryan & Deci, 2000). Extrinsic and

intrinsic motivation respectively distinguish between employees who primarily become

motivated by enjoying the work they do and employees that derive motivation from the

reward they obtain by doing the work. With the focus on inspirational motivation,

transformational leadership is likely to be linked more strongly to intrinsic motivation

whereas transactional leadership with reward as a central element is more likely linked more

strongly to extrinsic motivation.

The organizational environment in which the leaders and employees are in contact

with one another, may have a moderating role. Smircich (1983) argues that when an

organizational culture is an integral part of the organization, leaders can be formed by this

culture with clear norms, values and rules. Two cultural orientations from the organization

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culture model of the FOCUS-group (van Muijen, 1994) will be used: the rules orientation and

the innovative orientation. The rules orientation, which is focused on control and internal

strength, is presented as a moderator between transactional leadership and extrinsic

motivation. Having clear rules and goals within the company is something that a rules

orientation and transactional leadership theoretically have in common. A rules orientation

therefore seems to be an appropriates culture to encourage transactional leadership

The innovative orientation, characterized by creativity and openness to change, is

proposed as a moderator between transformational leadership end intrinsic motivation.

Transformational leaders inspire their employees with a clear vision and leave them free to be

creative and innovative within their work. An innovative orientation seems to be an

appropriate culture to encourage this.

By combining existing literature and collecting data with experiences from employees

in startup companies, this article will give suggestions on how leaders can motivate their

employees best in these first crucial steps of a company and reducing the chance on failure.

The first part of this thesis provides the theoretical backbone, introducing definitions

of transformational leadership, transactional leadership, employee motivation and the rules

and innovation orientation and the relationship between these constructs on basis of earlier

research. With the collection of data out of the survey on employees in start-ups, the paper

will present specific assumptions on which leadership style and capabilities will motivate

employees best.

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Relevance

Motivated employees are likely to achieve high performance by showing commitment

and dedication, pursuing common goals and seeking to serve the common good (Grant &

Sumanth, 2009). At the same time employees may be less motivated by not getting any

feedback on their tasks, or the absence of a clear task significance. Especially in companies

starting off, the way leaders work and interact with their followers, the role a leader fulfills is

paramount as there is no standard operating procedure or structure to fall back. More

established companies have more defined goals, structures and work processes that are

designed and improved over the years (Bryant, 2004).

Earlier research focused on transactional leadership or transformational leadership and

motivation separately. Most studies focused on mature companies but not particularly on

startup companies. The purpose of this thesis is to compare the two leadership styles and see

which one will function better in startup companies. Within a start-up company, where many

things are new, the structure and culture have not been well formed yet and many things have

to be learned, the results of this research may help leaders know which capabilities are needed

to motivate employees effectively. As leadership style can, to a certain degree, be learned

(Bass,1991).

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Research question

What is the effect of transactional leadership and transformational leadership on employee

motivation within start-up companies?

The sub-questions I am going to address are:

1.! What is transactional leadership and transformational leadership and what are the

differences?

2.! What is employee motivation?

3! How does transformational leadership influence motivation?

4! How does transactional leadership have effect on motivation?

5! What are rules and innovative orientated organizational cultures?

6! Does an innovative culture increase the effects of transformational leadership on

employee motivation?

7! Does a rules culture increase the effects of transactional leadership on employee

motivation?

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Literature'review:'theoretical'framework'and'hypothesis'development'

Leadership

The study of history has been the study of leaders. What they did, how they did it and

why they did it. ‘The study of leadership rivals in age the emergence of civilization, which

shaped it’s leaders as much as it was shaped by them’ (Bass, 1990, p.3). In an organization,

especially a starting organization, the role of a leader can be very important and possibly be

crucial for the future success of a starting company. Yukl (2002), describes leadership as

processes of influencing others to understand and agree as to what needs to be done. As such

facilitating individual and collective efforts to accomplish a shared objective.

Within scientific research, scholars had different views on leadership which changed

over the years. Until 1940’s researchers it was commonly assumed that leadership was a trait.

Leaders were born rather than made and certain positive characteristics made them into an

effective leader (Den Hartog & Koopman, 2001). The purpose of these studies was to

establish what a ‘perfect’ leader was with regard to personal characteristics like physical

features, abilities and personality traits.

In the 1960’s the previously held notion changed into the leadership style approach

(Bryman, 1992). Rather than focusing on what leaders do, the new approach assessed who

leaders were. Leadership as something that could be learned over time by, for example,

training. Instead of the best leaders having the ‘perfect’ traits, it was the scholars’ intention

searching for the ‘perfect style’. When having found this information, it should be able to

train people in becoming good leaders.

Out of the leadership style approach evolved the ‘new’ leadership during the 1980’s:

transformational leadership and transactional leadership, which was introduced by Burns

(1978). These two styles divide leadership in two styles that differ from each other but both

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can be seen as successful leadership styles and still are being used the most when researching

leadership styles.

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Transactional Leadership

Transactional leadership can be defined as a transaction between leader and follower

(Burns, 1978). The follower receives a valued outcome, like wages or prestige, when work is

according to expectation. This is an exchange of resources.

Transactional leadership has three dimensions: contingent reward, management by

exception-active and management by exception passive (Judge & Piccolo, 2004). Contingent

reward means that followers receive incentives after they accomplish their tasks to stimulate

followers’ task motivation (Breevaart et al, 2013). Management by exception is what manner

the leader anticipates on the results of the follower. The difference between active and passive

management by exception is the timing. Active leaders constantly monitor the followers’

behavior and take action in time before problems arise. Passive leaders wait until a problem

occurs (Judge & Piccolo, 2004). Especially contingent reward has been found to be very

effective. Setting clear expectations and goals and rewarding followers for goal attainment are

likely to be motivating (Avolio,1999).

Transformational Leadership

Transformational leadership can be considered a follow up of transactional leadership.

It goes beyond the exchange of resources by motivating followers to perform beyond

expectation (Bass, 1985). Transformational leadership consists of four features: charisma or

idealized influence, inspirational motivation, intellectual stimulation and individualized

consideration. Charisma or idealized influence is how a leader behaves in a way that the

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follower will get attracted to the ideas and visions (Judge & Piccolo, 2004). A follower will

develop an emotional connection to the organization because of a certain leader. Inspirational

motivation is about creating an appealing and inspiring vision of the future in order to

convince the follower to take over this vision (Breevaart et al, 2013). The intention is to let

the followers contribute to the realization of this future (Van Knippenberg & Stam, 2014).

Individual consideration refers to how every individual follower is different and has his or her

own concerns and needs. The leader serves as a mentor/coach. Intellectual stimulation allows

followers to develop a creative manner of thought. Leaders challenge followers to rethink

their ideas and assumptions and stimulate taking different perspectives on problems.

Employee motivation

‘Work motivation is a set of internal and external forces that originate both within as

well as beyond an individual’s being, to initiate work-related behavior and to determine its

form, direction, intensity, and duration’ (Pinder,1998, p.173).

Much research has been done on the subject of work motivation over the years.

Maslow’s hierarchy of needs (1954) was one of the earlier theories about motivation and

stated that workers are interested in fulfilling external necessities. Maslow describes five

needs in his pyramid model: physiological (food, shelter, clothing, sleep), safety (health,

employment, property), love/belonging (friendship, family, connection), self-esteem

(confidence, achievement, respect of others) and self-actualization (morality, creativity,

experience purpose). Employees are motivated by the desire to achieve or maintain the

various conditions upon which these basic satisfactions rest (Ramlall, 2004).

Another important theory on employee motivation is the Equity theory (Adams, 1969).

This theory asserts that individuals are not merely concerned about the amount of the reward

they receive for their work, but also what others in their direct environment receive. In

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addition to the amount of salary, employees also desire recognition; being rewarded for and in

a fair way in comparison to their colleagues. When they perceive an imbalance in their

outcome in relation to others, tension will be created. This tension creates motivation because

people strive for what they perceive as equality and fairness (Ramlall, 2004).

The two-factor theory or the Motivation-Hygiene theory by Herzberg (1966) has

parallels with Maslow’s hierarchy of needs. According to Herzberg, employees look for

higher-level psychological needs like achievement, responsibility, recognition and growth.

These satisfying intrinsic factors are called ‘Motivators’. The dissatisfying experiences are

called ‘hygiene’ factors and are largely results from extrinsic non-job related factors such as

salary, coworker relations, company policies and supervisory styles (Ramlall,2004). An

increase in motivation can be achieved when changes in the nature of the job are made, which

is referred to as job enrichment. This can increase challenge and responsibility, allowing for

opportunities of advancement and personal growth.

Taking together the higher-lever needs of the theory of Maslow and the satisfying and

dissatisfying factors of the motivator-hygiene theory of Herzberg, allows me to use the

employee motivation theory that connects the two. I will specifically focus on the distinction

between extrinsic and intrinsic motivation (Ryan & Deci, 2000). Extrinsic motivation is

based on external factors that influence motivation like salary and bonus. The satisfaction is

not derived from the work in itself, rather from the reward. Intrinsic motivation of employees

is based on an internal drive focused on satisfaction out of the work itself. Employees that are

intrinsically motivated are directly stimulated and therefore willing to work. This results in

high-quality learning and creativity (Ryan & Deci, 2000). The contrast between the two types

of motivation is respectively doing something because the activity is enjoyable versus its

instrumental value.

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Employees can become motivated in different manners and therefore it is dependent

on different factors. Each employee is different and has a different incentive to work:

intrinsically, extrinsically or a mix of both. The next chapter will focus on how different

leadership styles have impact on employee motivation.

Transformational leadership on employee motivation

Transformational leaders stimulate an idealistic and optimistic look towards the future.

Moreover, such leaders focus followers’ attention on long-term vision, facilitate change and

devise new ways of working (Bass & Avolio, 1995). Optimism, eagerness, openness to

change and envisioning long term scenarios are key. Transformational leaders appeal to

employees’ ideological goals, values and sense of future by demonstrating to followers but

also to the organization how the future may be when they do things in a certain way.

Additionally, transformational leaders influence employees by being a role model (Shamir et

al, 1993). Role modeling is a prominent method of influencing employees by shaping

followers’ beliefs and behaviors into those of the leader.

Kark & van Dijk (2007) used the regulatory focus theory from Higgins (1998). This

theory argues that people have two self-regulating systems; the promotion and the prevention

focus. Respectively referring to behavioral patterns based on the choice between creating

pleasure or avoiding pain. Creating pleasure represents the ‘ideal self’ like their hopes, wishes

and aspirations. Concern with accomplishment and aspirations is crucial and therefore this

corresponds with the higher needs on the pyramid of Maslow. Individuals who get motivated

by a promotion focus will take more risks, will enjoy taking new directions, are open to

change and question traditional ways of thinking. Motivating followers with inspirational and

visionary skills to perform better like transformational leaders do according to Ogbonna &

Harris (2000), is therefore in line with the promotion focus (Kark & van Dijk, 2007).

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Corresponding factors of both transformational leadership and a promotion focus are

therefore having positive expectations, focusing on a long-term perspective (Forster &

Higgins, 2005), working in altering situations and having an eagerness to try out new things

(Posavac & Brakus, 2007).

As transformational leaders convey their vision, the future perspective and long-term

goals, the inspirational motivation, followers get committed to their job, feel responsibility for

their tasks and this creates an intrinsic motivation. Employees sense an internal drive, getting

satisfaction out of the work itself by envisioning the future of the organization and their own

part in realizing that future. In order to give employees this experience, transformational

leadership requires a positive relationship with employees’ intrinsic motivation. My

hypothesis is:

Hypothesis 1: Transformational leadership has a positive effect on the intrinsic motivation of

employees

Transactional leadership on employee motivation

Where transformational leadership focuses on the long-term, changing and envisioning

followers a successful future, transactional leadership is more short term focused.

Transactional leadership provides followers with clarity about rules and standards, keeping

the status quo intact (Bass & Avolio,1995). This type of leadership is marked by an

encouragement for followers to do their job according to a set strategy with strict rules,

stability, avoiding errors and a short term plan (Hamstra et al, 2011). Transactional leaders

expect employees to achieve agreed-upon objectives but do not encourage them to assume

greater responsibility for developing and leading themselves and others (Dvir et al,2002).

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The prevention focus from the regulatory focus theory (Higgins, 1998), corresponds

with the transactional leadership theory. Instead of the ‘ideal self’ with the promotion focus,

the prevention focus represents the ‘ought self’ which includes duties, obligations and

responsibilities (Kark & van Dijk, 2007). Prevention focused individuals have a preference

for stability, are concerned with avoiding mistakes and look at short-term details (Higgins et

al., 2001, Forster & Higgins, 2005). The prevention focus has a purpose to assure one’s safety

and security to preserve the status-quo. This corresponds to the lower hierarchical needs from

the motivation theory of Maslow (1954). Like the promotion focus related to the higher

hierarchical needs. Transactional leaders tell employees what they need to do in order to

complete the task to move in a previously decided-upon direction. When employees regard

their work in terms of obligations or a list of tasks they ought to complete, the consequence is

that they will act on what others expect of them.

One of the aspects of transactional leadership Management-by-exception, when

employees do not work or act as required and leaders have to step in, will likely prime the

followers’ prevention focus because the reactions of the transactional leader can be negative,

like in a punishing way. Therefore, they will be more focused on avoidance of failure for

instance (Kark & van Dijk, 2007). This leadership focuses on creating results, strict control

and directness of leaders, next to the contingent reward dimension where followers receive

incentives after accomplishing their tasks, suggests a positives effect between transactional

leadership and extrinsic motivation. I hypothesize:

Hypothesis 2: Transactional leadership has a positive effect on extrinsic motivation of

employees

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Organizational culture

Organizational culture is about people sharing something. This sharing refers to

specific traditions of thinking, systems and meanings or basic assumptions governing people

in certain directions (Alvesson & Sveningsson, 2008).

Next to national culture, Hofstede is well known for his theories on organizational

culture, arguing that culture is holistic and cannot be reduced to single individuals but rather a

whole organization. Different groups create different cultures (Hofstede et al, 1990). Culture

is vague and difficult to grasp and this can therefore be a competitive advantage for an

organization as it is very difficult to simply copy and implement this into some other

organization.

The organizational culture model of the FOCUS-group is based on the competing

values model from Quinn (1998). This model has two dimensions with opposite poles:

internal vs. external focus on the organization’s point of view and flexibility vs. control (van

Muijen et al, 1999). These dimensions correspond to authors with important organizational

dilemma’s (van Muijen, 1994). An internal organization focus sees the processes and people

within the organization as the central point of focus. The external organizational focus

assesses the environment, for instance the level of competition. Within the second dimension,

flexibility and control refers to the extent the organization takes is in control, preserves the

status quo or remains flexible and susceptible to doing things different sometimes. It does not

mean that if an organization is internally oriented, that there is no element of external

orientation.

The organizational culture model places four cultural orientations between the two

dimensions previously discussed: support, innovation, rules and goal orientation (see Fig. 1).

The rules and innovation orientation will be used as the moderators in this research because

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these orientations are most similar to the two leadership styles used in this research;

transformational and transactional leadership.

Figure 1. The competing values model (Quinn, 1988).

Rules and innovation orientation

The rules orientation lies between the internal and control dimensions. Rules

orientation contains respect for authority, rationality of procedures and structured work

processes. Hierarchy is top-down and there is a formal authority (van Muijen et al, 1999).

The innovative orientation is external and flexibility focused. Searching for new

information in the external environment, openness to change, taking risks, creativity and

experimentation. It is preferable to take initiative in the new way instead of the old way.

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Communication is informal and members of an organization have the freedom and space to

develop their selves.

Because the rules and innovative orientations are complete opposites of each other, it

is interesting to see if they moderate the leadership styles and if there is one best

organizational orientation within start-up companies.

Rules and innovative orientation on leadership and employee motivation

As the importance of leadership and employee motivation is paramount according to

the previously discussed theories and their possible effect on each other, I will argue that the

organizational environment in which this occurs is also important. Ogbonna and Harris argue

that leadership and organizational culture influence each other. In other words; ‘the

performance of an organization is dependent on the conscious alignment of employee values

with the espoused values of company strategy’ (Ogbonna & Harris, 2000, p.770).

Smircich (1983) discusses two approaches of organizational culture: culture as an

organizational variable and culture as a concept that can be manipulated. A leader can be

formed by the organizational culture when it is an integral part of the organization, however,

the other way round is also a plausible possibility. The second possibility depends on the

skills and abilities of the leader. Simms (1997) concludes from his research that

transformational leaders are capable of changing the culture within an organization.

Especially in starting companies, leaders have influence on creating the culture when forming

groups within the organization. Once these work cultures exist, the style of leadership is

devised (Schein, 2006). Whether the organizational culture is influenced by the leader or

already is set in stone, the leadership style can be strengthened. When leaders are not

conscious of the culture within the organization, culture will manage them instead. It is

therefore paramount for leaders to understand the culture to lead accordingly (Schein, 2006).

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The organizational culture orientations that will be used in this thesis; rules and

innovation orientation, can both be redirected to one of the leadership styles. The rules

orientation focuses on control and structured work processes and therefore corresponds to a

transactional leadership style and a prevention focused extrinsic employee motivation. There

is no intention to change the culture, rather to play by the rules and procedures that are set

within the organization. There is an internal cultural focus (Ogbonna & Harris, 2000).

A rules orientation therefore may strengthen the influence of transactional leadership

on extrinsic employee motivation.

The innovative orientation fits better with a transformational leadership style, where

the crucial aspects are searching for new information, openness to change, less rules and more

informal communication. Transformational leaders share their vision on how the organization

will be in the future but additionally provide employees with more freedom in how to

complete the task and most importantly develop intellectually and professionally. This is an

external cultural focus with competitive and innovative cultural traits (Ogbonna & Harris,

2000). When there is an innovative cultural orientation within a start-up company, this

strengthens the influence of transformational leadership on intrinsic employee motivation.

Therefore, I present the hypotheses:

Hypothesis 3: An innovative orientation strengthens the influence of transformational

leadership on intrinsic employee motivation.

Hypothesis 4: A rules orientation strengthens the influence of transactional leadership on

extrinsic employee motivation.

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Conceptual model

Figure 2 demonstrates the conceptual model of the four hypotheses mentioned above.

The conceptual model consists of two separate models. It assumes that transactional

leadership has a positive relation with extrinsic employee motivation. A rules culture can have

a moderating role on these variables. Transformational leadership assumes to have a positive

relation with intrinsic employee motivation. Innovation culture has a moderating role on these

variables (see Fig 2.)

Figure 2: Conceptual model

Tranformational leadership

Transactional leadership

Rules culture

Innovation culture

Extrinsic employee motivation

Intrinsic employee motivation

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Methodology'

Research setting and participants

The data that has been gathered for this study, consists of the employees of four

different start-up organizations from the Netherlands. The start-ups were carefully selected

based on different criteria: 1) The companies had to be founded no earlier than 2010 and are

therefore a maximum of six years old. 2) The start-ups were all supposed to have more than

twenty-five employees, which can be seen as a factor of success of the start-up company. In

addition to this, more respondents at one company provided me with more data. 3) The start-

up companies had to have a clear and distinctive leader working in close contact with the

employees. Moreover, the start-ups all experienced quick growth and can be considered

successful in their endeavor. For the purpose of this thesis, I will therefore not make a

distinction between the organizations unless the results give different values and measures. In

consultation with the leader, the employees were requested to fill in the questionnaire which

consisted of in total 76 question. The data has been collected through survey tool Qualtrics

Survey Software.

The final sample consisted of a total of 114 respondents: Quality tailors B.V. (16

respondents), Vandebron (46 respondents), Leapfrog 3D (23 respondents), 2theloo B.V. (29

respondents). The names of the respondents and leaders are not mentioned in the survey in

order to preserve anonymity of the respondents allowing for greater honesty.

The four start-ups used for the research are:

Quality'Tailors'B.V.'

Quality Tailors is a fashion company which produces and sells dress clothing for men

(white tie, black tie etc.). The company was founded in 2012 and based in Haarlem. With a

total different sales strategy than other similar companies, organizing a mobile shop on

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location, they gathered a huge market share within student fraternities, selling around 1200+

suits a year. Next to this they sell not only B2C but also B2B. They want to pursue their

growth by opening two stores in the Netherlands within 2016.

Vandebron''

Vandebron is a sustainable energy supplier, bringing green energy directly from the

supplier to the customer. The company was founded in 2013 and is based in Amsterdam.

Vandebron has investing support of the Dutch green Fund (Rabobank), WWF, Technical

university Delft and the university of Wageningen. Because they sell sustainable energy in

combination with a lower price than the competition, they managed to become a serious name

within the Dutch energy sector with more than 80.000 customers.

Leapfrog'3D'printers'

Leapfrog is a company that produces 3D-printers. They started in 2012 by selling just

one type of 3D printers. Nowadays they sell four different kinds of 3D printers over the whole

world. Their unique selling point is making a 3D printer accessible to everyone. The printers

are a lot cheaper and smaller than their competitors sell. Leapfrog focuses on specific aspects

of 3D-printing, namely dental, engineering, architecture but also education. As such it

distinguishes itself from other companies.

2theloo'B.V.'

2theloo, founded in 2010, is an innovative service retail concept. It provides clean

restrooms, but also a shop with toiletries and gifts in busy public areas like gas stations,

shopping malls and train stations. With 250+ establishments within fourteen countries and a

partnership with Shell, they have become a leader in this completely new market segment. By

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using the restrooms, the customer receives a voucher which can be used as a discount at for

example the shop at the gas station or at the shopping mall.

Measures

The questionnaire consists of 76 questions and starts with five demographic questions:

age, gender, nationality, education level and tenure of work, followed with questions or

statements about their leader, their motivation and the organization. Seventeen statements

about leadership and twenty-nine statements about motivation are measured on a seven-point

Likert scale ranging from ‘totally disagree’ to ‘totally agree’. The twenty-five questions about

the organization are measured on a six-point Likert scale. The questions begin with ‘How

often…’ and the answers range from ‘no ‘never’ to ‘always’.

The demographic questions are used as control variables. The control variables serve

to reduce possible confounding effects of for example the age of the employees or tenure of

work. Latham (2006) argues that age and tenure of work are factors that may have an effect

on work motivation. Clark, Oswald and Warr (1996) found a relationship between age and

work motivation where especially young (18-25) and older (50+) employees had a positive

relation with motivation. Older people for example have found their ideal career path and are

therefore motivated by the work they do (Bourne, 1982). Young employees may have just

formed a family and could be more extrinsically motivated because they need the money

(Warr, 1992). Age and tenure of work are in that respect interesting variables to test. Paul

(2012) concluded that lower educated employees were more motivated in their work and were

willing to take extra work. High educated employees were more unwilling to take extra work

in comparison with lower educated employees. As this paper makes a distinction between

intrinsic motivation and extrinsic motivation, education level could be an interesting variable

26

because lower educated employees may be more extrinsically motivated like taking the extra

work because they need the money.

The control variable gender is divided in (0=male, 1=female), Education level is put

into 5 dummy variables: (0= Elementary school, 1=High school, 2=MBO, 3=HBO, 4=WO),

however, nobody with only elementary school filled in the questionnaire. The demographic

question Nationality was not useful as a control variable because all the respondents, except

two of them, had a Dutch nationality. The tenure of work is divided in 0=0-1 year, 1=1-2 year,

2=2-3 year, 3= 3-4 year, 4=4-5 year.

The questions about leadership, motivation and the organization are validated

questions that have been used several times in earlier research which strengthens the

reliability of the research. To further obtain the internal consistency of the variables, I

conducted a reliability test by measuring the Cronbach’s alpha coefficient of transformational

leadership, transactional leadership, intrinsic motivation, extrinsic motivation, innovation

orientation and rules orientation. The Cronbach’s alpha of all of them were above 0,7

(Tenenhaus et al, 2005). See table 1.

Transformational leadership α = 0,89 11 items

Transactional leadership α = 0,91 6 items

Intrinsic motivation α = 0,75 14 items

Extrinsic motivation α = 0,71 15 items

Innovative orientation α = 0,81 6 items

Rules orientation α = 0,78 5 items

Table 1: Cronbach’s alpha of the variables.

The questionnaire consists questions of three previously existing questionnaires. Not

all questions of the existing questionnaires were useful for this research and these have been

left out. The questions that have been used can be viewed in Appendix 2.

27

In order to measure the leadership styles, several questionnaires were possible to use

like the Attributes of Leader Behavior Questionnaire (ABLQ) (Behling & Mcfillen, 1996) or

the Multifactor Leadership Questionnaire (MLQ) (Bass & Avolio, 1997). As this research

focuses on transformational and transactional leadership, I use the Charismatic Leadership In

Organizations (CLIO) questionnaire (De Hoogh, den Hartog & Koopman, 2004). The

questionnaire also measures the autocratic and passive leadership styles. These have been left

out of the questionnaire for this particular research project.

In order to measure motivation of employees, the Work Preference inventory from

Amabile, Hill, Hennessey and Tighe (1994) has been used. The questionnaire proved useful

as it makes a distinction between extrinsic and intrinsic motivation.

The organizational culture in this research is divided into innovation culture and rules

culture. It is measured using the Focus questionnaire (van Muijen, Koopman & de Witte,

1996). This questionnaire, based on the competing values model by Cameron & Quinn

(2002), divides the organizational culture into four variables: support orientation, goal

orientation, rules culture and innovation culture. The last two orientations have been used in

the questionnaire. See appendix 2.

Analysis

First of all, the data has been checked for errors in order to optimize the reliability of

the research. Some respondents did not answer the questions completely; values were missing

or some respondents answered all the questions with the same grade which did not seem

reliable. These respondents have been excluded. From the 108 respondents, 94 were reliable

enough to be analyzed.

Before analyzing the interaction terms in the regression analysis, I have conducted

four reliability assumptions of the regression analysis. The variables have been mean-

28

centered. This reduces multicollinearity (Aiken & West, 1991). Moreover, the variance

inflation factors (VIF) have been calculated to asses multicollinearity or redundancy. This

means that when predictors in a regression are highly related to one another and therefore do

not provide unique or independent information to the regression. Looking at the VIF within

the models, the maximum was 3,252. This is considerably below ten when there is definitely a

way of multicollinearity and even below 5 which states a probability of multicollinearity

(Neter et al, 1990). Multicollinearity is therefore not a problem for this particular analysis.

The third reliability assumptions is that the model is homoscedastic, which means that the

variance around the regression line is the same for all values of the independent variable. If

this is not the case, it will have influence on the reliability of the intervals (Pallant, 2010). The

model was homoscedastic and therefore satisfied the reliability assumption. Finally, due to the

fact that I will conduct a linear regression, it is important to check if there is a linear

relationship between the variables. This has been done through scatterplots visually inspecting

for linearity and satisfied the reliability assumption.

Table 2 presents descriptive statistics (Mean, standard deviation) and correlations

between all the variables. Looking at the intrinsic motivation, it has a high mean score, (5,24

out of 7), especially in comparison to the mean of extrinsic motivation (4,43 out of 7) shown

in table 3. The average age of the respondents is 29,43, almost 60% has finished or is still

studying at university level, 21% at HBO level and the average tenure of work within the

start-up is almost two years. Looking at the correlations in table 2, intrinsic motivation

correlates positively with transformational leadership (r=0,39, p<0,01) and innovation

orientation (r=0,32, p<0,01) as well. In theory this means that when a leader shows a

transformational leadership style, the employee will be more intrinsically motivated and that

an innovation orientation within a company has a positive relation on the intrinsic motivation

of an employee. Intrinsic motivation also correlates to extrinsic motivation (r=0,26, p<0,05).

29

This means that in theory people can be motivated in an intrinsic and in an extrinsic way

simultaneously. Transformational leadership correlates to innovation orientation (r=0,28,

p<0,01). In addition, a transformational leadership correlates to transactional leadership

(r=0,73, p<0,01). This should mean that, disregarding other variables, leaders can have both a

transactional and a transformational leadership style. There is no correlation between extrinsic

motivation and transactional leadership (r—0,07, p>0,49). However, extrinsic motivation

correlates to a rules orientation (r=0,34, p<0,01). Innovation orientation and rules orientation

also correlate (r=0,39, p<0,01).

30

Table&2.&Means,&standard&deviations&and&correlations&

Notes:

n=92.

**correlation is significant at the 0.01 level (2-tailed)

* correlation is significant at the 0.05 level (2-tailed)

Mean St. dev (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)

(1) Intrinsic motivation 5,29 0,56

(2) Extrinsic motivation 4,43 0,62 0,26*

(3) Transformational leadership 5,25 0,85 0,39** -0,06

(4) Transactional leadership 5,08 1,06 0.31** -0,07 0,73**

(5) Innovation orientation 4,21 0,82 0,32** 0,16 0,28** 0,24*

(6) Rules orientation 3,74 0,85 0,24* 0,33** 0,16 0,19 0,39**

(7) Education: high school 0,09 0,29 -0,27** -0,10 -0,26** -0,19 -0,06 -0,05

(8) Education: MBO 0,08 0,28 0,18 0,08 0,08 -0,04 -0,14 -0,14 -0,10

(9) Education: HBO 0,21 0,41 0,18 -0,07 0,08 0,13 0,08 -0,12 -0,17 -0,16

(10) Education: WO 0,59 0,49 0,09 0,07 0,04 0,02 0,05 0,22* -0,40 -0,37** -0,64**

(11) Age 29,43 8,80 0,26* -0,20* 0,14 0,11 0,06 -0,08 -0,11 0,31** -0,12 -0,21*

(12) Gender 0,37 0,48 0,22* -0,06 0,06 0,06 -0,06 -0,04 0,12 0,32** 0,14 -0,38** 0,36**

(13) Tenure work 1,93 1,37 0,25* -0,09 -0,03 -0,10 0,02 -0,05 -0,03 -0,01 0,04 -0,07 0,47** -0,02

31

Hypothesis testing

Table 3 presents the hierarchical regression analysis for intrinsic motivation. Model 1

contains the control variables. In model 2a, transformational leadership and innovation

orientation has been added. Model 3a shows the interaction terms between transformational

leaders, innovation orientation and intrinsic motivation. Model 2b and model 3b were added

to test for a possible relation with transactional leadership and a rules orientation. These

possible relations were not hypothesized and will be discussed later on. The table contains the

unstandardized coefficients b and the standard errors. The standard errors are within the

parentheses.

Model 1 shows the recorded control variables. The R square in model 1 is (R2= 0,22)

which indicates how much of the total variation in intrinsic motivation can be explained by

the control variables. In this case this is 22%. In model 2a, Transformational leadership and

the moderator variable are added (R2=0,39). This is 17% more than the R square of model 1.

17% of the total variation can therefore be explained by transformational leadership and

innovation orientation. The output of the analysis demonstrates a significance between the

variables transformational leadership and intrinsic motivation (b=0,18, p<0,01). This result

initiates that intrinsic motivation of employees is positively related to transformational

leadership. Hypothesis 1 can therefore be supported.

Table 4 shows the results for Hypothesis 2. Model 1 displays the control variables.

The R square in model 1 is (R2=0,06). In model 2a, transactional leadership and rules

orientation are added. The R square here is (R2=0,20). The result shows (b= -0,07, p>0,05),

which shows that transactional leadership does not have a positive association on extrinsic

employee motivation. Hypothesis 2 is therefore not supported.

For Hypothesis 3, the data in Table 3 model 3a are important. There the interaction

effects between transformational leadership, innovation orientation and intrinsic motivation

32

are tested. The R square is (R2=0,40) with no significance for model 3a. The regression

results between the interaction of transformational leadership, intrinsic motivation and

innovation orientation shown (b= -0,07, p>0,05). This means that, the moderating role of

innovation between intrinsic motivation and transformational leadership is not significantly

proven within this research. Hypothesis 3 is therefore not supported. However, the direct

effect of innovation orientation on intrinsic motivation does show a significance (b=0,17,

p<0,01).

Table 4 model 3b shows the results for Hypothesis 4. The R square is (R2= 0,20) with

no significance for the model itself. The interaction effect between transactional leadership,

rules orientation and extrinsic motivation tested no positive relation (b= 0,04, p>0,05). The

moderator, in this case rules orientation, does not strengthen the relationship between

transactional leadership and extrinsic motivation. Hypothesis 4 is therefore also not

supported. While there is no moderating effect of rules orientation between transactional

leadership and extrinsic motivation, there is a direct effect between rules orientation and

extrinsic motivation (b=0,25, p<0,001).

These results indicate that from the four drafted hypotheses beforehand, only

Hypothesis 1 is supported. The moderating variables, however, show a direct significant

relationship with the dependent variables, not as a moderator. These results between

innovation orientation and rules orientation and their direct relationship with the dependent

variables extrinsic employee motivation and intrinsic employee motivation were not

hypothesized but are nevertheless interesting to discuss.

At last, I crossed the variables to check if there is some relation between transactional

leadership and intrinsic motivation, transformational leadership and extrinsic motivation, and

the moderating variables. Table 3 model 3b shows there is no positive relation between

transactional leadership and intrinsic motivation (b= 0,03, p>0,05). The interaction effect

33

between transactional leadership, a rules orientation and intrinsic motivation I did not find to

be significant (b=-0,07, p>0,05). Table 3 Model 4 shows the full model with all the control

variables, the independent variables, the interaction terms and intrinsic motivation as the

dependent variable. It is interesting that when testing transactional and transformational

leadership in a model together, they both show no significance with intrinsic motivation while

testing transformational leadership apart, they do show a significance.

Table 4 model 3b indicates that there is no positive relation between transformational

leadership and extrinsic motivation (b=-0,10, p>0,05) and no interaction effect between

transformational leadership, innovative orientation and extrinsic motivation (b=0,02, p>0,05).

Innovation orientation however, has a direct effect on extrinsic motivation (b= 0,18, P<0,05).

Table 4 Model 4 shows the full model with all the control variables, the independent

variables, the interaction terms and extrinsic motivation as the dependent variable. Only a

rules orientation demonstrated a direct positive relation with extrinsic motivation (b= 0,14,

p<0,05).

34

Table&3.&Effects&on&INTRINSIC&MOTIVATION&

Notes: N=92

*p<0,05; **p<0,01; ***p<0,001

Unstandardized coefficients b. Standard errors in parentheses

Main Effects Model 1 Model 2a Model 2b Model 3a Model 3b Model 4

Transformational leadership 0,17** 0,18** 0,13

(0,06) (0,06) (0,08)

Transactional leadership 0,04 0,03 0,04

(0,05) (0,05) (0,07)

Interaction effects

Transform leadership * innovation -0,07 -0,04

(0,06) (0,07)

Transactional leadership * rules -0,07 -0,06

(0,05) (0,05)

Moderator and control variables

Innovation orientation 0,18** 0,17** 0,12

(0,06) (0,06) (0,06)

Rules orientation 0,08 0,11 0,14

(0,06) (0,06) (0,06)

Educ: MBO 0,73** 0,67** 0,56* 0,67** 0,58* 0,73**

(0,26)** (0,24)* (0,23) (0,24)* (0,23) (0,24)

Educ: HBO 0,66 0,48 0,41* 0,48 0,39* 0,49*

(0,21) (0,19) (0,19) (0,19) (0,19) (0,19)

Educ: WO 0,49* 0,33 0,21 0,34* 0,21 0,31

(0,19) (0,17) (0,17) (0,17) (0,17) (0,17)

Age 0,00 0,00 0,00 0,00 0,00 0,00

(0,00) (0,00) (0,00) (0,00) (0,00) (0,00)

Gender 0,25* 0,26* 0,20 0,28* 0,24 0,28*

(0,13) (0,11) 0,12 (0,12) (0,12) (0,11)

Tenure work 0,10* 0,12* 0,10** 0,12* 0,10* 0,13**

(0,04) (0,04) 0,04 (0,04) (0,04) (0,04)

R Square 0,22*** 0,39*** 0,34*** 0,40 0,36 0,44

Adjusted R Square 0,17*** 0,33*** 0,28*** 0,33 0,29 0,35

35

Table&4.&Effects&on&EXTRINSIC&MOTIVATION&

Notes:

N=93 *p<0,05; **p<0,01; ***p<0,001.

Unstandardized coefficients b. Standards errors in parentheses

Main Effects Model 1 Model 2a Model 2b Model 3a Model 3b Model 4

Transactional leadership -0,07 -0,07 0,04

(0,06) (0,06) (0,07)

Transformational leadership -0,10 -0,10 0,13

(0,08) (0,08) (0,08)

Interaction effects

Transactional leadership *rules 0,04 -0,06

(0,06) (0,05)

Transform leadership* innovation 0,02 -0,04

(0,08) (0,07)

Moderator and control variables

Rules orientation 0,27*** 0,25*** 0,14*

(0,07) (0,07) (0,06)

Innovation orientation 0,18 0,18 0,12

(0,08) (0,08) (0,06)

Educ: MBO 0,45 0,56* 0,73* 0,55* 0,72* 0,73**

(0,30) (0,28) (0,31) (0,28) (0,31) (0,24)

Educ: HBO 0,10 0,19 0,24 0,20 0,24 0,49*

(0,23) (0,22) (0,25) (0,23) (0,25) (0,19)

Educ: WO 0,17 0,14 0,30 0,14 0,30 0,31

(0,21) (0,20) (0,22) (0,20) (0,23) (0,17)

Age -0,01 -0,01 -0,02* -0,01 -0,02* 0,00

(0,00) (0,00) (0,00) (0,00) (0,01) (0,00)

Gender 0,00 -0,01 0,04 -0,03 0,03 0,28*

(0,15) (0,14) (0,15) (0,15) (0,15) (0,11)

Tenure work 0,00 0,00 0,01 0,00 0,01 0,13**

(0,05) (0,05) (0,05) (0,05) (0,05) (0,04)

R Square 0,06 0,20*** 0,14 0,20 0,14 0,44

Adjusted R Square 0,00 0,12*** 0,06 0,11 0,05 0,35

36

Discussion&of&results&

This discussion will implement the results of the research question and address the

question: What is the effect of transactional leadership and transformational leadership on

employee motivation within start-up companies?

To start with the effect of transformational leadership on intrinsic employee

motivation, this hypothesis was supported by the data analysis and it seems that this confirms

the theory mentioned before, especially when combining three of the four dimensions of

transformational leadership with intrinsic motivation. The inspirational visionary skills or the

‘inspirational motivation’ of the leader, in combination with the charisma or idealized

influence, which are two of the four important dimensions of transformational leadership, are

effective and help the employee in creating a positive long-term perspective (Breevaart et al,

2013). Employees work toward a specific goal, become committed to the job and feel

responsibility for their tasks. By including employees in the process of realizing this specific

future, the intrinsic motivation is enhanced. As the companies that have been studied are no

older than five years old, possibilities are endless. A transformational leader can act on this.

Envisioning these endless possibilities and conveying this to employees, provides the crucial

intrinsic motivation.

As a third important dimension of transformational leadership, Intellectual stimulation

is important in getting followers to think more creatively, even more confirms the positive

relation between transformational leadership and intrinsic motivation because it is argued that

being free to be creative, is an important factor for intrinsic motivation (Amabile, 2012). The

fourth dimension Individual consideration, refers to individual followers’ personal concerns

and needs which do not seem to have a direct link with intrinsic motivation because an

individuals’ concerns and needs may be both intrinsic and extrinsic.

37

Since transactional leadership showed no relation with intrinsic motivation within the

research, it may even encourage the result that transformational leadership will be the best

leadership style to motivate employees in an intrinsic way

Hypothesis 2, the effect of transactional leadership on extrinsic motivation, was not

supported by the data analysis. In theory, a short term focus with strict rules and standards in

accordance to a set strategy without errors (Hamstra et al, (2011) seemed to have similarities

with the reward focused extrinsic motivation based on external factors that influence

employees (Ryan & Deci, 2000). By completing the work requested by a transactional leader

and being rewarded. The leaders expect employees to achieve agreed-upon objectives but

nothing more than that (Dvir et al, 2002). A two-way transaction between leader and follower

(Burns, 1978). Similar to the discussion of hypothesis 1, it is interesting to elaborate the three

dimensions that explain the definition of transactional leadership combined with extrinsic

motivation of employees. This possibly allows for a better understanding of why hypothesis 2

was not supported. It can be argued that the contingent reward dimension is the exact

definition of extrinsic motivation. Followers receive incentives after accomplishing their tasks

to stimulate their task motivation (Breevaart et al, 2013). Looking at this dimension it seems

strange why the hypothesis is not supported. The second and third dimension are management

by exception passive and management by exception active. The questionnaire mainly focused

on the contingent reward dimension and management by exception and did not make a

distinction between active and passive. Therefore, management by exception passive has been

left out of this discussion. Combining management by exception with extrinsic motivation

seems to make less sense than the first, because management by exception provides the

employee with substantial negative sanctions and in the extreme, no positive sanctions

(Brownell, 1983). Therefore, employees will focus on avoidance of mistakes (Kark & van

Dijk, 2007). This Prevention focus has some positive outcomes like creating results and

38

accuracy. However, most of them are negative outcomes like negative affectivity, vigilance

and non-creativity. This overall attentiveness to negativity because of the directive leadership

style of the leader makes it very difficult for employees to be motivated at all. Banerjee

(2012), therefore argues that, when managers take fewer decisions and take some more

distance, employees will have more responsibility which increases their motivation.

Especially in starting or young companies like the ones researched for this thesis,

opportunities are huge and sometimes directions haven not even been established completely.

Therefore, a transactional leadership style has negative factors that will stall the progress of a

company such as strict rules and tasks that are set. These factors will inhibit the creativity of

the employees. Starting companies often do not have clearly stated operational processes and

procedures. Therefore it should be assumed that start-ups need employees that are creative

and are to be left creative to deal with possible problems in an inventive and creative way.

Transformational leadership also showed no relation to extrinsic motivation and

therefore it can be concluded that leadership styles may have no influence on extrinsic

motivation at all and therefore should come from other variables. Further research could focus

more on the transactional or transformational leadership dimensions separately to see if there

is a relation between the two.

Despite the fact that the direct relation between transformational leadership and

intrinsic motivation has been supported by the results of the data analysis, the data collected

also demonstrated that there was no moderating effect of innovative orientation between these

variables in hypothesis 3. Where Ogbonna & Harris (2000) highlighted the importance of the

alignment of employee values and company strategy using an effective organizational culture,

Smircich, (1983) argued two approaches: 1) Culture as something that can be manipulated,

adapted or totally changed by a leader. 2) Culture as an organizational variable, where the

organizational culture has influence on and slowly changes the leadership style. When a start-

39

up company has no clear culture yet, a transformational leader will be able to adapt the

organizational culture more when he or she focuses on charisma as a core dimension, an

openness to change and experimentation in new ways of working to achieve the long-term

vision (Bass, 1995). The organizational culture is not yet strong enough within start-up

companies to have a strengthening effect between the transformational leader and intrinsic

motivation of an employee. However, the leader is not the only person responsible for the

organizational culture and therefore both approaches argued by Smircich (1983) may be of

influence. Transformational leadership and innovation orientation therefore may have a

reciprocal effect on each other, it is not a one-way street. See figure 3 b1.

In addition to the previously mentioned adjustment of the conceptual model, it could

be argued that there is a relationship between an innovative organizational orientation,

transformational leadership and intrinsic employee motivation. It has been hypothesized as a

moderating variable. This means that the amount of influence from a transformational leader

on intrinsic employee motivation should be changed according to the innovation orientation.

As the data analysis has not yet supported this, but the theoretical similarities show some

congruence, it could be a possibility that innovation orientation does not have a moderating

effect but a mediating effect. Another possibility is that there is a reciprocal effect between

transformational leadership and innovation orientation. Both also have direct effects on

intrinsic employee motivation. Figure 4 depicts this potential mediating effect.

40

Figure 3. Alternative conceptual model 1: Transformational leadership

The total effect between these variables (d1) could be measured by summing up: d1= a1 + b1c1.

Since the effect between transformational leadership and intrinsic employee motivation (a1)

has been proven in hypothesis 1 and the research also showed a significant positive effect

between innovation orientation and intrinsic employee motivation (c1), it seems that a

mediating instead of a moderating effect might indeed be found. Only the reciprocal effect

between transformational and innovation orientation (b1) should be measured to completely

support the mediating effect of innovation orientation. According to the theory, these two

variables do very well correspond. Searching for new information, an openness to change and

less rules but informal communication are all corresponding characteristics. They have an

external cultural focus with competitive and innovative cultural traits (Ogbonna & Harris,

2000). Testing the reciprocal effect of b1 would be something for further research. A

longitudinal research would then be best to test the possible cultural changes brought by the

transformational leader over time within start-ups.

Identical to the moderating effect of innovation orientation on transformational

leadership and intrinsic employee motivation, a rules orientation as moderator between

transactional leadership and extrinsic employee motivation was not supported. As the relation

between transactional leadership and extrinsic employee motivation was not sustained by

hypothesis 2, it is not surprising that hypothesis 4 cannot be supported by the data analysis. It

Tranformational leadership

Intrinsic employee motivation

a1#

b1#

#Innovation orientation

c1

41

could be a possibility, especially according to the theory, that transactional leadership and a

rules orientation have a direct relation to each other but do not have a relation with employee

motivation within start-ups. Transactional leaders are too much focused on prevention by

making no mistakes, not taking risks and following the rules, inhibiting creativity (Kark &

van Dijk, 2007). A rules orientation may strengthen this negative effect and therefore have

cause an even less effect on employee motivation. Creativity appears to be the keyword. The

lack of the possibility for creativeness within transactional leadership and a rules orientation

seems to be important for the motivation of employees within start-up companies.

The data analysis indicated a direct relationship between rules orientation and extrinsic

motivation. This would mean that start-ups with a rules orientated organizational culture

would have a positive effect on extrinsic motivation of employees. This seems plausible, for

example, when financial rewards are set for a sales team in a clear and structural manner.

Employees know exactly what to do to receive these rewards. The transactional leadership

style is not needed for this.

Practical implications

The analysis of the two leadership styles of transformational and transactional

leadership, provides some interesting information for the organization board on how

employees should be managed. Both leadership styles have been analyzed in earlier research

and shown to have value and positive effect on employees, specifically regarding motivation

but also organizations as a whole. Due to the high failure rate of start-up companies, this

information is useful to improve the survival rate.

It is very important for a leader within a start-up company to know the employees.

More importantly, knowing how the employees can be motivated and if they are intrinsically

or extrinsically motivated can greatly affect the outcome. When there is a lack of intrinsic

42

motivation within a start-up company, the visionary and charismatic role of a transformational

leader would be a suggestion to motivate these employees in such a way they will fulfil the

organizational goals and objectives.

To evaluate organizational orientation, these orientations are very important for

employee motivation. Employees can be motivated in an extrinsic way by having a rules

orientation within a start-up. This orientation will give them structure to achieve their

objectives. Having an innovation orientation within a start-up, also encourages the motivation

of employees but in an intrinsic way. For start-ups intrinsically motivated employees are more

effective, because they can be influenced by transformational leaders and an innovation

orientation. In practice it seems unavoidable that only intrinsically motivated employees will

work within a start-up. The research demonstrated that lower educated employees are more

extrinsically motivated than employees who are more highly educated. Assuming that lower

educated employees have more standardized jobs, like cleaning the toilets at 2theloo or

ironing suits at Quality Tailors employees are challenged to a lesser extent. Therefore, these

employees are less intrinsically motivated and do not share the envisioned future of a

transformational leader. A rules orientation within the organization will therefore be a

solution within start-ups. An organizational orientation should not be specifically one, but an

organizational orientation with the best aspects of both.

Limitations / suggestions for further research

Regarding this topic of research, I would like to suggest some limitations and

suggestions for further research. There was a total of 76 questions in the questionnaire and

this possibly turned out to be too many. Respondents may have filled in the questionnaire too

quickly which possibility led to biased answers. According to several reliability assumptions,

the respondent answers that looked unreliable have been omitted. This does not mean that all

43

bias has been eliminated. Additionally, some questions were possibly not relevant for some

respondents’ field of work. Some respondents therefore did not answer several questions. Of

course these respondents’ questions haven not been analyzed. Finally, I selected respondents

of four start-ups from different sectors; high tech, retail and service sector. One of the most

important criteria was that the start-ups were recognized as being successful, however, it may

be possible that employees of high-tech start-ups are motivated in a different manner than a

retail start-up. For further research it could therefore be interesting to research different start-

ups in one sector and possibly compare the results with the research of start-ups within

another sector. As already mentioned towards the end of the discussion part of this thesis, it

can be assumed that lower educated employees have a total different job than others. For

example, there is a clear distinction between cleaning toilets at 2theloo, or designing and

inventing a new 3d-printer at leapfrog. Employees within different departments or

organizational levels of the start-up company are arguably motivated in other ways. Future

research therefore could therefore focus on measuring intrinsic and extrinsic employee

motivation within these business departments.

In the discussion part, transformational and transactional leadership have been

separated into the core dimensions that explain them. The questionnaire that was used within

this research did not make a clear distinction between those dimensions or at least it was not

visible to see which questions would represent which dimensions. Further research could

make a distinction and possibly get results on the more and less important dimensions.

Moreover, the discussion section suggested that an innovation orientation possibly works

better as a mediating variable instead of a moderating variable. Part of this suggestion was

part of the data analysis, such as the relationship between an innovation orientation on

intrinsic motivation. Only the direct effect between transformational research and an

innovative orientation has to be tested.

44

These suggestions for further research will provide a different perspective on the

discussed topic. Due to the narrow scope of this particular research topic, the thesis focused

on some of the important variables and I was therefore able to conclude the following.

Conclusions&

This research was conducted by combining existing theory and variables with each

other and test this within start-up companies. The effect of the two most and commonly

known leadership styles transformational leadership and transactional leadership on employee

motivation. Transformational leadership had a positive effect on intrinsic employee

motivation. Transactional leadership had no positive effect on extrinsic motivation. The

moderating effect of a specific organizational culture, innovative orientation with

transformational leadership and intrinsic motivation and rules orientation with transactional

leadership on extrinsic motivation, both had no moderating effect. Despite the fact that

innovation orientation and rules orientation have no moderating effect, both have a direct

positive relation with employee motivation. Innovation orientation with intrinsic motivation

and a rules orientation with extrinsic motivation. This implies that an innovation orientation

can have a mediating effect instead of a moderating effect. To be a successful start-up, leaders

should be aware of what motivates employees. To be intrinsically motivated, leaders should

be transformational and/or the organization culture should have an innovation orientation. A

rules orientated organizational culture within a start-up improves the extrinsic motivation of

employees. When extrinsic and intrinsic motivated employees both work in start-up

companies, a combination should be found between a rules orientated and an innovative

oriented organizational culture.

45

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Appendixes&

Appendix I: Introduction letter

Dear employer,

My name is Pelle Warmenhoven and for my master's thesis entrepreneurship & innovation at

the University of Amsterdam I am doing research on the influence of different leadership

styles on employee motivation within start-up companies.

Therefore, I would like to ask you 5-10 minutes of your time to fill in this question list. The

questions will be about your direct leader within your company, your own motivation and the

organization as a whole.

Answering the questions will take 5-10 minutes and the questions will be in English.

Naturally the answers will be used in total anonymity and will not be used against you, your

leader or your company.

You will find the questions at the following link:

https://uvacommscience.eu.qualtrics.com/SE/?SID=SV_57pNVRCAt1oUDVH

Thanks in advance for your time, you will be a great help finishing my thesis!

Pelle Warmenhoven

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Appendix II:

Demographic questions Q1. What is your age? Q2. What is your nationality? Q3. What is your gender?

•# Man •# Woman

Q4. What is your highest finished education?

•# Elementary school (Basisonderwijs) •# High school (Middelbaar onderwijs) •# Lower college (Middelbaar beroepsonderwijs (MBO)) •# Middle college (Hoger beroepsonderwijs (HBO)) •# University (Wetenschappelijk onderwijs (WO))

Q5. How long are you working within this company?

•# 0-1 jaar •# 1-2 jaar •# 2-3 jaar •# 3-4 jaar •# 4-5 jaar •# 5+ jaar

Leadership questions These statements will be about the leadership of your leader within the company.

Totally disagree

strongly disagree

more disagree

than agree middle

more agree than

disagree strongly

agree totally agree

Encourages subordinates to be independent thinkers

Involves subordinates in decisions that affect their work

Encourages subordinates to develop their potential

53

Totally disagree

strongly disagree

more disagree

than agree middle

more agree than

disagree strongly

agree totally agree

Is able to make others enthusiastic about his/her ideas

Talks with subordinates about their important values and beliefs

Has a vision and imagination of the future

Challenges subordinates to think about problems in new ways

Delegates challenging responsibilities to subordinates

Displays conviction in his/her ideals, beliefs, and values

Is always seeking new exciting opportunities for the organization

Mobilizes a collective sense of mission

Can be relied on to meet obligations

Can be believed and relied upon to keep his/her word

Ensures that agreements are being kept Highly values clear agreements and fair pay Ensures that conditions and resources are such that subordinates are able to do their job well

Does not criticize subordinates without good reason

54

Motivation The following statements are about your own motivation

Totally disagree

strongly disagree

more disagree

than agree middle

more agree than

disagree strongly

agree totally agree

I enjoy tackling problems that are completely new to me.

I enjoy trying to solve complex problems. The more difficult the problem, the more I enjoy trying to solve it.

I want to work to provide me with opportunities for increasing my knowledge and skills

Curiosity is the driving force behind much of what I do.

I want to find out how good I really can be at my work.

I prefer to figure things out for myself.

What matters most to me is enjoying what I do.

I prefer work I know I can do well over work that stretches my abilities.

No matter what the outcome of a project, I am satisfied if I feel I gained new experience.

I’m more comfortable when I can set my own goals.

I enjoy doing work that is so absorbing that I

55

Totally disagree

strongly disagree

more disagree

than agree middle

more agree than

disagree strongly

agree totally agree

forget about everything else.

It is important for me to be able to do what I most enjoy.

I enjoy relatively simple, straightforward tasks. I am strongly motivated by the (grades) (money) I can earn.

I am keenly aware of the promotion goals I have for myself.

I am strongly motivated by the recognition I can earn from other people

I want other people to find out how good I really can be at my work.

I seldom think about (grades or awards) (Salary and promotions).’’

I am keenly aware of the income goals I have for myself.

To me, success means doing better than other people.

I have to feel that I’m earning something for what I do.

As long as I can do what I enjoy. I’m not that concerned about exactly (what I’m paid).

I believe that there is no point in doing a good job

56

Totally disagree

strongly disagree

more disagree

than agree middle

more agree than

disagree strongly

agree totally agree

if nobody else knows about it.’’

I’m concerned about how other people are going to react to my ideas.

I prefer working on projects with clearly specified procedures.

I’m less concerned with what work I do that what I get for it.

I’m not that concerned about what other people think of my work.

I prefer having someone set clear goals for me in my work.

Organization These last questions will be about the organization All the questions begin with: How many people...

nobody few some many most everybody

with personal problems will be helped? who want to make steps within the organization are being supported by their leader?

are being treated in an impersonal way? All the following questions begin with:

57

How often...

never rarely sometimes often mostly always

are prestations being measured in this organization?

is the organization searching for a new market for existing products/services ?

is constructive criticism being awarded?

is the competition with other companies measured?

does the management emphasizes stability in the work?

will an evaluation be directly linked to the achievement of the goals?

Show managers interest in the personal problems of employees?

does management accurately check if the objectives have been achieved?

is it clear how prestations are being evaluated?

are instructions actually written down offer unpredictable elements in the outside world an opportunity for the organization?

are there tough criteria on which job performance is measured?

something will be done

58

never rarely sometimes often mostly always

on internal conflicts?

does the organization use their technology in an optimal way to develop better products?

the work will be done according to strict procedures?

new ideas by employees are being encouraged?

employees have to perform according to specific criteria?

is the organization searching for new possibilities in an external environment

does the management team work according to the rules?

does the leadership style approve freedom in the employees' work job?

does the company optimize the skills of the employees to develop better products?

is this company searching for new markets for their new products/services?