The literature on operations management (OM) has long been contributing to the successful management of banking operations by offering different practical techniques or approaches to help improve operational efficiency (e.g. [1], [2], [3] and [4]). The usefulness of OM theories in banking operations is partly due to the fact that banking operations traditionally consist of a large number of processes that are routine and could be specified quantitatively. The quantitative techniques of OM, e.g. modelling, have therefore been very effective in improving the cost and efficiency of such processes. However, banking operations in the past decade have been facing an environment characterised by constant changes [5], [6], [7] and [8]. For instance, deregulation, fierce global competition and heightened customer expectations have forced banks to create and deliver services of greater variety and complexity, develop tailor-made solutions for customers with distinct needs and improve with emphases on not only cost and efficiency, but also reliability and responsiveness. Further, advances in information and process technologies have simplified or automated most of the traditional processes in banking operations. As a result, on the one hand, the unstructured tasks in the banking operations of today are not conducive to the normative modelling techniques of OM [9]. On the other hand, the current expected outcomes (i.e. tailor-made solutions and quality services) from banking operations may not be effectively achieved by merely improving operational efficiency or cost. Indeed, it can be inferred from the task nature and the required outcomes that operational employees and the teams formed by them, who are responsible for creating and delivering a service, should be an important determinant of the performance of today's banking operations. Nonetheless, there has been surprisingly little OM research on the theories or approaches that may have significant influences on the performance of banking operational employees or teams. In this study we argue that transformational leadership could be an effective approach to influence employee behaviours in operational teams in banks, thereby enhancing banks' performance.
The concept of leadership is not new for OM researchers because the importance of quality leadership is often emphasised in different quality management theories [10]. Yet transformational leadership is different from the quality leadership concept in OM literature in that it defines leadership in terms of the style or personality of leaders rather than by function. Its central tenet is that transformational leaders can create an impression that they have high competence and visions to achieve success. Subordinates in turn respond with enthusiasm and commitment to the team's objectives [11]. Transformational leaders are able to do this by behaving in charismatic ways to cause subordinates to identify with them, articulating ambitious goals, stimulating subordinates to think creatively and challenge the status quo, and showing concern for the needs of subordinates as individuals [12]. Numerous studies have found transformational leadership to be positively associated with followers' attitudes, motivation, and individual, group and organisational performance [13]. Yet less attention has been given to explore the performance impact of transformational leadership for operational employees and in teams within banking environments. In addition, insights on whether or not the effectiveness of the various dimensions of transformational leadership is different are virtually unavailable in the literature. Further, some researchers have argued that the literature on transformational leadership has generally focused on dyadic leader–subordinate scenarios and called for greater attention to team-based studies [14]. Consequently, this study focuses on examining the effectiveness of transformational leadership dimensions in enhancing the performance of operational banking teams.
The jobs of operational banking teams in general are to provide services to internal or external customers. Therefore, one crucial performance outcome of operational banking teams should be service quality, which is widely touted as a critical prerequisite for satisfying and retaining valued customers [15]. Indeed, a number of researchers have offered empirical evidence to indicate the positive effects of service quality on customer loyalty, demand responsiveness, productivity and market share (e.g. [16], [17], [18], [19] and [20]). In this exploratory study, we selected two relevant service quality dimensions, namely reliability and responsiveness, to reflect the performance of operational banking teams. However, many frameworks of quality management assert that leadership and quality performance are not directly related but are mediated by such factors as people results, and learning and teamwork (e.g. [21]). Within the context of operational banking teams, one key mediating factor between leadership style and service quality performance is likely to be the performance of the team. In order to obtain more detailed insights on the mediating role of team performance, we employed three commonly used team performance indicators namely team cohesion, team leader job satisfaction and team competence, to reflect the performance of the sample teams in this study (e.g. [22], [23], [24] and [25]). Consequently, the purpose of this study is to explore whether the dimensions of transformational leadership have a direct impact on team performance with respect to team cohesion, team leader job satisfaction and team competence, as well as an indirect impact on the service quality dimensions of reliability and responsiveness through the three dimensions of team performance in operational banking teams. Overall, we make two key contributions in this study. First, we offer a unique integration of three distinct domains of the management literature, namely banking operations, transformational leadership and quality management. Second, we provide leaders of operational banking teams with practical insights on how to better manage their team performance and service quality.
In this study we integrated the literature on transformational leadership, banking operations and service quality by testing hypotheses on how the different dimensions of transformational leadership influence team performance with respect to team cohesion, team leader job satisfaction and team competence, and how these dimensions of team performance in turn influence the service quality dimensions of reliability and responsiveness in operational banking teams. A distinguishing feature of the present study is that we paid special attention to the study design to ensure the rigour of the study. For instance, the behaviours of the leader of each team were rated by five randomly selected members of the team, and measures including interrater agreement coefficient and intraclass correlations were computed before aggregating data from team members to form a “team-level” dataset. Further, performance variables were rated by team leaders because the leaders should be the most knowledgeable team member in this respect. Thus, the data of this study should be able to accurately reflect the leadership style and performance of the sample teams. In addition, the teams examined in the study were real operational teams of different functions from 15 different retail banks in Macau, China. Thus, despite the relatively small sample size, the findings of this study can be generalised to operational teams of different banks and banking functions.
Before examining the analysis results, it is important to note that one special characteristic of the sample teams of this study is that the teams operate under an extraordinarily fast-changing environment. While businesses today in general operate under a fast-changing environment, it is rare that there is an industry which is directly impacted by a wide range of environmental changes such as the global financial market crisis, the rapid economic development of China, internationalisation and globalisation of financial services, changing consumer needs, increasing competition between financial institutions, and constant advances in technology (e.g. [81], [82], [83], [84] and [85]). Our results concerning the influence of transformational leadership indicate that among the five dimensions of transformational leadership, only one, namely intellectual stimulation (IS), was found to be positively related to team performance and subsequently, to service quality (see Fig. 2). Such findings could be related to how the sample teams cope with the pace of change in the external environment and work on unstructured, diverse and complicated tasks in their internal environments. IS refers to the level concerning how the leader challenges assumptions, takes risks and solicits followers' ideas [12]. Thus, in order to respond to changes quickly and complete tasks satisfactorily, banking employees have to be willing to challenge the status quo while identifying improvement areas, non-risk-averse when making changes, and keen on sharing understanding about changing customer needs and environment. These attributes are more likely to be available in a team, if the team leader displays a leadership style which has a strong emphasis on IS. Based on this reasoning, it can be inferred that the effectiveness of the dimensions of transformational leadership could be partly contingent on the environment or the nature of the task. Hence, one theoretical implication of this finding is that future research could explore how the effectiveness of transformational leadership in banking teams is moderated by factors concerning the environment (e.g., environmental uncertainty) or task nature (e.g., level of standardisation).
The results show that intellectual stimulation (IS) has a critical role in banking operations. The results also reveal that team competence is another important factor in that it is the only team performance dimension that influences both reliability and responsiveness. This finding is consistent with much of the thinking on the importance of knowledge in the literature. The knowledge-based view in the literature stresses that knowledge is the most critical resource for organisations [86]. In this study, IS is a leadership dimension that focuses on nurturing intelligence and knowledge in employees and team competence is concerned with the abilities of the team in a number of areas such as knowledge of tasks, planning skills, and resource allocation, etc. Thus, given the importance of knowledge, it is very reasonable that IS and team competence are important factors leading to superior service quality. In addition, leaders adopting IS tend to encourage members to challenge assumptions and norms. Hence, the finding here echoes the view that when knowledge is heterogeneous, it will be the determinant of superior performance and sustained competitive advantages (e.g. [87] and [88]). The finding indeed supports one key idea proposed in the research agenda on service operations by Roth and Menor [9]. Their agenda argued that one important research theme is to study resources in operations and that the most important resource is likely to be knowledge so that much research on knowledge in service operations shall emerge to advance theory and practise. Consequently, the finding on the effectiveness of IS and team competence in this study is in line with the literature advocating knowledge as a crucial resource.
A review of the extant literature reveals that several researchers have attempted to explore the relationships between transformational leadership and performance outcomes in teams within different contexts. Based on data from a UK chemical processing plant, Williams et al. [89] found that transformational leadership is related to team proactive performance. Keller [11] reported that transformational leadership predicts a number of performance outcomes such as technical quality, schedule performance, and cost performance in R&D teams. Kearney and Gebert [90] also examined R&D teams and offered results to suggest that transformational leadership can foster the utilisation of benefits entailed by both demographic and informational/cognitive team diversity. The work of Schaubroeck et al. [29] employed the data from the financial services teams of a bank and found that transformational leadership influenced team performance through the mediating effect of team potency. The current study extends this body of literature by offering new insights into the impact of transformational leadership on service quality through team performance in operational banking teams. While transformational leadership consists of five dimensions, prior studies often combined the five dimensions to form a single variable in their analyses (e.g. [11] and [91]). The results of this study, however, indicate that the performance impact of the dimensions of transformational leadership is not necessarily the same. Hence, more detailed insights into leadership could be obtained if future leadership research considers the dimensions of a leadership style as separate variables and investigate their relevant variables such as driving forces, outcomes, mediating factors or moderating factors separately.
The results on path decomposition indicate that the resultant conceptual model (see Fig. 2) is a valid one to reflect the reality of the sample teams of this study. This model implies that leadership and service quality are not directly associated but mediated by team performance. These findings are consistent with the notion in quality management's conceptual frameworks (e.g. [21]) or empirical models (e.g. [10]). Yet the current study supplements the quality management literature by providing empirical evidence that mediating factors are also present when the leadership is transformational leadership rather than quality leadership, and when the quality is service quality rather than product quality. In this study we have explored whether or not team performance dimensions including team cohesion, team leader job satisfaction, and team competence are the mediating factors. Future research could identify and test more different mediating factors so as to achieve a better understanding of the effectiveness of transformational leadership and the predictors of service quality in operational banking teams.
Indeed, the resultant conceptual model (see Fig. 2) implies that many of the findings are different from our expectations. More specifically, the results suggest that four of the dimensions of transformational leaderships have no impact on the team performance dimensions analysed; team cohesion is not related to team competence, reliability and responsiveness; and team leader job satisfaction is not related to responsiveness. Nevertheless, it is premature to conclude that such leadership and team performance dimensions have no impacts on performance. Quality performance has different dimensions (e.g. [92]). Likewise, there could be many different mediating factors between leadership and quality performance. Consequently, more different mediating factors and service quality dimensions could be examined in future research in order to provide more insights to the literature.
5.1. Managerial implications
The results suggest that leadership matters not only at the strategic level of a bank, but also in operational teams. Thus, in addition to the use of traditional OM theories to optimise process efficiency, managers of banking operations have to pay attention to selecting an appropriate leadership style, thereby enhancing team performance and service quality. Also, the earlier discussion on the plausible reason behind the effectiveness of IS in this study implies that the effectiveness of a leadership style is likely to be contingent on factors, such as environmental uncertainty and task nature. Based on this logic, there should be no single leadership style that is universally applicable or effective in all circumstances. Thus, the implication is that banking managers have to adopt an appropriate leadership style. When selecting the appropriate leadership style, banking managers may need to pay attention to the fit between their leadership styles and the environments. The classic contingency model of leadership by Fiedler [93] is a good starting point to understand the factors to consider when making such decisions.
The results also indicate that not every dimension of transformation leadership is equally effective. This is not to suggest that some dimensions of transformational leadership can be ignored. Rather, the results imply that some leadership dimensions may deserve more attention. More specifically, banking managers have to examine if some dimensions of a leadership style could be particularly effective to the tasks or services of the team, and if so, they should adopt more of the behaviours or languages of those dimensions when interacting and communicating with team members. Moreover, the results reveal that IS and team competence have strong and positive effects on team performance and service quality, respectively. IS and team competence are highly likely to be linked with capabilities in knowledge, skills and innovation. Hence, the findings have important implications that such capabilities are likely to be extremely critical for banking operations. To develop such capabilities, the top management of banks may stress the importance of these capabilities through visions, mission statements or different communication channels with employees. The behaviours and languages of IS could be incorporated in the training of operational managers and the training of employees at different levels may include elements that emphasise the importance of such capabilities.
5.2. Limitations and future research
Several limitations were inherent in this study. First and foremost, it should be noted that the data of this study were collected through cross-sectional surveys. Therefore, future research could employ experimental and longitudinal approaches in the laboratory or in the field (e.g., [94] and [95]) to ascertain the posited causal relationships between transformational leadership dimensions and different performance outcomes. In addition, this is an exploratory study concerning how service quality in banking operations is influenced by one important organisational theory—transformational leadership. Indeed, it is highly likely that there are other organisational theories (e.g. motivation theories) that also predict service quality performance in banking operations. Therefore, researchers could identify other relevant organisational theories and examine their impacts on service quality. Furthermore, we have argued that the effectiveness of transformational leadership may be contingent on the environment. Hence, future research may explore how different environmental factors, e.g. task dynamics, environmental uncertainty, national culture, etc., influence the effectiveness of transformational leadership. Or, the effect of the environment can be examined by replicating this study in a different industrial sector such as shipping and transport logistics (e.g. [96]). Also, future researchers may wish to examine why four of the dimensions of transformational leadership and team cohesion are not associated with performance outcomes. In-depth case studies (e.g. [97]) could be conducted to solicit data to explain the unexpected findings. Moreover, despite that the data here were collected from real operational teams from different banks, the size of the team-level data was limited (n=32). Future research could replicate the study with a bigger sample size in order to improve the generalisabilty of the findings. Finally, this study implicitly assumes that Likert scale data are interval-level data and employed parametric statistics in the hypothesis testing. Thus, the results and discussions of this study may have to be interpreted with caution because that assumption might not be valid.
