1. Introduction
Innovation plays a crucial role in organizations being a major driver of companies’ growth and long-term survival (
Waite 2014). Organizations are increasingly drawing upon innovation to answer the fast-technological development (
Jia et al. 2018;
Waite 2014). One of Schumpeter’s definitions of innovation relies on the “creative destruction”, proposing that large firms have a greater incentive to invest in product innovation (
Swedberg 1995). Innovation can be defined as new products, novel ideas, radical change, and creativity (
Waite 2014). It can also be defined as the generation and implementation of new ideas and structures related to marketing innovation, product innovation, service innovation, process innovation, and even organizational innovation to bring value to the customer and employees (
Alblooshi et al. 2020;
Jia et al. 2018).
Leadership is a topic attracting the attention of academics over decades, being defined as the interaction and relationship established with one’s followers that influences, motivates or empowers other individuals in the achievement of certain goals (
Łukowski 2017;
Reed et al. 2019). Although there is no universal definition for leadership, as it varies widely depending on the context in which it is analyzed, leaders act as agents of change providing vision and supporting followers to achieve their goals (
Judge et al. 2002). Leadership is a process of obtaining shared goals through individuals; this process is characterized by the interactive leader–followers influence and by the context in which it takes place (
Bass and Bass 2008;
Bass and Avolio 1994). It can also involve mentoring and coaching (
Jia et al. 2018). Leaders help organizations through their creativity and innovation, ensuring results, being result-driven and innovative, and encouraging, motivating, and inspiring employees (
Waite 2014).
The style used by the leader empowers organizational innovation once leaders influence employees, supporting innovation processes (
Łukowski 2017). The term transactional leadership was introduced by
Weber (
1947); it is centered on the companies’ behavior and based on reward exchange (
Barbuto 1977). Later, transformational leadership was introduced by
Burns (
1978), encapsulating a leadership style related to employees’ motivation (
Łukowski 2017;
Waite 2014). By analyzing the leadership styles—such as autocratic, transactional, democratic, and transformational leadership—it can be concluded which styles promote innovation the most and affect human capital growth. Hence, areas of study must integrate leadership development with human capital and leadership’s impact on companies (
Eckardt et al. 2021). Furthermore, companies have the dilemma of understanding which leadership style is best associated with an organization (
Abdullahi et al. 2020). In addition, different leadership styles lead to different stages of innovation types (
Łukowski 2017).
Different leadership styles can present with an impact on innovation (
Eckardt et al. 2021;
Jia et al. 2018). Based on different leadership styles,
Barnová et al. (
2022) conclude that different leadership styles—supportive, directive, engaged, frustrated and intimate—affect the quality of interpersonal relationships and the outcomes. The openness of the leader has important consequences for innovation, creativity and knowledge sharing (
Khassawneh et al. 2022). Job performance was positively influenced by the servant leadership style, even with passive, control-oriented employees (
Qiang et al. 2023).
There are alternative leadership styles (
Bush 2003) involving different behaviors and outcomes: transformational leadership in which the leader is focused on the process of influencing the outcomes; participative leadership, in which leaders involve stakeholders’ participation in the decision-making process; transactional leadership, in which leaders seek to ensure benefits for both the leader and other stakeholders; contingent leadership, in which leaders are prepared to use alternative approaches to the particular context or situations they face; moral leadership, in which leaders seek to introduce values, beliefs and ethics; and instructional leadership, in which leaders try to set directions of influence targeting learning and improving over time. Other types of leadership styles were put forward based on the behavior of the leader, e.g., autocratic, transactional, democratic, and transformational styles (
Alblooshi et al. 2020), which are dependent on the organizational culture, task environment and organization’s human resources.
The main challenge for an organization is to ensure how to manage innovation. That is why it is important to have leaders who guide followers to achieve innovative performance and gain sustained success (
Jia et al. 2018). On the same line of thought, leadership can make a difference in an organization’s performance once leaders impact product innovation. Employees play an essential role in innovation: for instance, transformational leadership can induce a higher level of organizational innovation quality (
Chen et al. 2014). Top managers who focus on innovation tend to provide methodologies to motivate, inspire, and empower employees (
Alblooshi et al. 2020). In addition, leaders influence organizations, as they can impact culture, strategy, structure, and systems. Moreover, these leaders support followers in establishing open communication standards and learning methodologies needed to innovate, so the importance of leadership for innovation comes from its leaders (
Chen et al. 2014). The context plays an important role in the relationship between the leaders and subordinates, with higher levels of institutional complexity making participative styles problematic (
Khassawneh and Elrehail 2022). Finally, it is concluded that leadership is one of the main contributors to innovation (
Łukowski 2017). Furthermore, the impact of leadership on firms’ innovation performance is still unexplored, which is critical for firms’ competitiveness and effectiveness. As such, an empirical analysis of leadership styles and the consequences on the different roles of innovation role still needs further development (
Brillo and Boonstra 2018;
Jia et al. 2018).
In order to compete successfully, companies need distinctive resources (
Barney 2001). Knowledge is the most important competitive asset companies possess (
Grant 1996), which is part of the company’s human capital (
Grant 1996). As it is unique, difficult to imitate and hard to transfer, firms’ internal knowledge plays an important role in creating strategic value (
Aman-Ullah et al. 2022). Moreover, as tacit knowledge is difficult to imitate, it normally gives companies a competitive advantage (
Lane and Lubatkin 1998). Moreover, as both the level of education, related to articulable knowledge, and learning, related to the way individuals internalize and share knowledge within the company, influence human capital, it is possible to claim that most of the companies’ knowledge resides in the human capital the firm possesses. This human capital depends on the companies’ employees, skills, capabilities, knowledge and expertise (
Mubarik et al. 2020), which influences companies’ performance (
Chen et al. 2020;
Gupta et al. 2020;
Kurdi et al. 2020).
It is clear that innovation is key for companies to succeed in the market and to outcompete their rivals, which depends on the companies’ leadership styles (
Khassawneh et al. 2022;
Qiang et al. 2023) and human capital (
Mubarik et al. 2020). As such, this article aims at understanding the conduct of these three variables. For that, the following research questions are addressed: (1) Do leadership styles affect innovation processes? (2) Do the types of innovation influence the innovation processes? (3) Is the effect of leadership on innovation affected by human capital? With this analysis, the aim is to understand: (1) the relationship between the variables, i.e., leadership styles and human capital as antecedents of innovation processes; and (2) the moderator effect of human capital on the relationship between leadership styles and innovation processes. Based on moderator analysis (
Aguinis et al. 2017;
Frazier et al. 2004), it is expected that the moderator variable (human capital) influences the effect of leadership styles and innovation processes, as the higher the human capital of the company, i.e., employees, skills, capabilities, knowledge and expertise (
Mubarik et al. 2020), the higher the influence is expected on the relationship between leadership styles and innovation processes.
The introduction of human capital is important for the analysis of the moderation effect, as being an essential resource for organizations, it impacts the competitiveness of organizations once employees collect, internalize, and share knowledge. As such, human capital can be considered a source of competitive advantage impacting innovation (
Fakhri et al. 2020;
Moore et al. 2020;
Van de Vliert 2006). It is clear that based on the resource-based view (RBV) of the firm (
Barney 2001), employees’ knowledge, skills, competencies and capabilities reside on human capital, and the firm’s innovative behavior is reflected in how firms develop, introduce and market their new products and services and master their innovative organizational processes to achieve a competitive advantage (
Grant 1996).
This study contributes to the prior literature by providing an overview of how leadership styles, innovation, and human capital behave as a tripod. Several studies consider leadership and innovation, but none so far answer the question: How does leadership affect innovation, considering human capital? In this sense, this study stands out as it addresses the three variables to verify the moderator effect of human capital (
Abdullahi et al. 2020;
Echebiri and Amundsen 2021;
Waite 2014).
The study is based in Portugal and uses the Community Innovation Survey (CIS) 2018. According to the European Innovation Scoreboard 2021, Portugal recently moved from a Strong Innovator in 2020 to a Moderate Innovator in 2021. This fact is justified by the poor performance in regard to the indicators using innovation survey data, reduced government support for R&D, ICT specialists, and job-to-job mobility of HRST and environment-related technologies. However, Portugal stands out in digitalization and the use of information technologies and foreign doctorate students (
Hollanders et al. 2022).
The present article is structured as follows: after this introduction,
Section 2 presents the literature review, focusing on the main variables. First, we show leadership styles by exploring four main leadership groups—autocratic, transactional, democratic, and transformational—then human capital and innovation such as marketing, process, product, service, and organizational innovation; and ultimately, leadership human capital and innovation. Secondly, the database analysis and exploratory analysis are introduced in
Section 3. Then,
Section 4 establishes the econometric estimations and results.
Section 5 presents the concluding remarks.
3. Materials and Methods
To measure how leadership styles, innovation, and human capital are intertwined, 28 logit models were run. First, a descriptive statistic will be made including all the variables under study, which is followed by correlations and estimations.
The models are divided into two groups. In the first group, the role of leadership in types of innovation is analyzed. Second, new variables will be created by multiplying human capital (empud) with the leadership styles, which seeks to address the moderation effect of human capital with leadership styles. In doing so, empirical evidence will be gathered to discuss the impact of these three variables along with reliance on open innovation, size, public funds, technical regime, public funds, channels, and cooperation with universities and clients.
3.1. Database Description
The empirical analysis relies on the Community Innovation Survey (CIS) 2018 from Portugal, encompassing the 2016–2018 biennial. This survey is run under the supervision of Statistics Portugal, following the procedures defined by Eurostat. The database includes 13,702 firms operating in Portugal with heterogeneous structural characteristics and innovative profiles. This CIS is the most comprehensive concerning innovation-related topics providing enlarged evidence for the relevant variables under scrutiny. All information regarding the methodological procedures can be found in: Direcção-Geral de Estatísticas da Educação e Ciência; Instituto Nacional de Estatística—Inquérito Comunitário à Inovação: 2016–2018. Lisbon: INE, 2020. Available at <
https://www.ine.pt/xurl/pub/452685463>. (Accessed on 15 March 2022). ISSN 2184-7983. ISBN 978-989-25-0558-9.
3.2. Variables in Use
According to CIS,
Table 1 addresses a description and measurement scale of each variable in use. Some variables are basic mathematical conversions; others correspond to the CIS original scale.
Concerning technological regimes, firms were divided into four categories according to technological intensities (
Bogliacino and Pianta 2016). Size corresponds to firm size, in terms of the number of employees (small, medium, and large), which is measured using the European Commission definition and CIS methodology. Leadership was divided into four leadership styles (autocratic, transactional, democratic, transformational) depending on the scale responses. Human capital was divided into intensities, following CIS methodology. In addition, innovation was divided into types to know: product, process, marketing, service and organizational. The variable scale is listed in
Table 1.
3.3. Exploratory Analysis
Table 2 shows information regarding the three main variables used in the framework: leadership, innovation, and human capital. Leadership takes the form of styles that will characterize an organization.
Transformational leadership styles are more likely to occur in firms implementing innovation (55.71%), implementing OI strategies (9.37%), with highly-skilled human capital (16.4%), and tend to receive more funds (22.7%).
The higher the human capital intensity of the firms, the higher the likelihood of firms carrying out innovation, open innovation, and having transformational leaders. On the contrary, the lower the human capital intensity, the higher the likelihood of firms having an autocratic leader. Larger firms,
vis-à-vis small and medium-sized firms, are more innovative regardless of the type of innovation—general, OI indoor, or outdoor. Finally, when analyzing the knowledge intensity of the firm, science-based firms tend to be more innovative, in terms of indoor (47.5%) and outdoor (46.8%) innovation, and they have the highest percentage of transformational leadership styles (33%) and the lowest percentage of autocratic leadership styles (8%). Firms in the supplier-dominated sector tend to be the least innovative, with the highest percentage of transformational leaders and the highest percentage of autocratic leaders. All these results are in line with the literature that defends that transformational leaders motivate employees, and the workforce that fosters innovation is characterized by highly skilled individuals who are trained and mentored by their leaders (
Alblooshi et al. 2020;
Eckardt et al. 2021;
Pasamar et al. 2019).
As presented in
Table 3, 89.69% of the firms show some generic leadership style, with democratic leadership representing 36% of the responses and autocratic leadership representing 19%. In terms of innovation, less than half of the respondents carry out innovation (35.69%), highlighting organizational innovation (29.2%) and marketing innovation with only 16.4%.
Table 4 shows the descriptive statistics and the correlations of all variables in the study. It is possible to conclude that transactional and autocratic leadership are negatively correlated with all the independent variables, which means that those two leadership styles hinder innovative propensity in all innovation types. On the other hand, transformational leadership is the leadership style more favorable to trigger innovation in general, and OI in particular, which is aligned with the literature that defends that transformational leaders worry about employees and focus on culture and process improvements (
Khan et al. 2020).
Human capital (empud) positively correlates with transformational leadership as well as the technological regime (knowledge intensity). It is possible to conclude that to take full advantage of the human capital in high-tech companies, transformational leadership styles are mandatory vis-à-vis other leadership styles.
Finally, it is possible to highlight that funds are positively correlated with all types of innovation, which means that funds are likely to incentive innovative actions. Finally, innovation and transformational leadership style are positively related to universities’ cooperation, which supports the contention that knowledge exchange between universities and industry fosters innovation.
5. Conclusions
The purpose of the present article was to address the relationship of the tripod leadership style, human capital, and innovation, and also to further address if human capital mediates the relationship between leadership style and innovation. To this end, econometric models were implemented using the CIS database. Empirical evidence proves that leadership styles play an important role in influencing the implementation of innovation strategies across firms. Notwithstanding, on one hand, the leader can work as an enhancer of the innovative activity, and, on the other hand, it may constitute a hindering factor to innovation. While autocratic and transactional leaders tend to negatively influence the implementation of innovation strategies, disregarding the innovation style, democratic and transformational leaders are innovation boosters, the transformational leader having the strongest influence on the implementation of general innovation.
When analyzing the five types—marketing, product innovation, service, process, and organizational—of innovation, the transformative leadership style influences positively the five types of innovation, whereas the opposite occurs for the autocratic leadership style. Moreover, human capital also influences positively the implementation of innovation across firms and the five types of innovation: marketing, product, service, process, and organizational.
The results highlight that, in general, transformational leaders have a strong impact on the way innovation is dealt with and internalized within the organization, influencing the creative process that leads to different innovation outcomes. On the contrary, it is possible to assert that autocratic leaders hinder creativity within the organization, jeopardizing the outcomes for the five types of innovation. If innovation plays a vital role in firms’ competitiveness, a good transformational leadership style is mandatory for making innovation happen. It is also clear that an autocratic leader jeopardizes innovation and, consequently, firms’ competitiveness.
The estimation has four moments, and the first (encompassing models 1 to 4) proved that steadily, the human capital intensity rises the innovation odds. Moreover, the establishment of collaborations with external players, firm size, and technological intensity do leverage the innovative propensity. The second moment (Models 5 to 14) addresses the importance of transactional and transformational leaders for each innovation type. In the same vein, the transactional leader does jeopardize the overall innovation propensity, independent of the innovation type. Conversely, the transformational leader, through the motivational and empowered environment developed with the staff within the organizations, does enhance the innovative propensity in all innovation types.
The human capital tested the moderation effect of the leadership style in multiple dimensions in the general innovation performance (models 15 to 18): the moderation is negative in the case of the autocratic-led organizations, not significant in transactional contexts and positive when democratic and transformational leaders are in play. These findings deserve further attention from managers, practitioners, and policymakers, as they further reinforce the positive effects of the collaborative and empowered relationship with employees which raises the innovative propensity. These positive environments are cradles for the innovation processes, which will generate advantages for organizations.
In the final set of models run (models 19 to 28), the same procedure was implemented for each innovation type and for both the transactional and the transformational leaders. Again, the results prove that the transactional leader is incapable of establishing a connection with the firm human capital, being the moderation effect statistically insignificant, evidencing an opportunity for interaction being wasted. Transformational leaders, due to their charisma and the ability to empower the human capital, present a positive and significant impact on the innovation odds in all five types of innovation: marketing, product, service, process, and organizational.
The vast empirical evidence collected across the 28 models run proves that leadership can make the difference in regard to the innovation strategy, and some firms may be doomed to fail due to the wrong leadership strategy. Policymakers cannot ignore this influence on innovative strategies, as the innovative mindset is key to economic growth as well as an important driver of dynamic and competitive ecosystems.
The promotion of consistent Innovation strategies in organizations needs to consider leadership tutorial programs within organizations so that collaboration can flourish. Moreover, this paper proves that the leader may influence the organization in different layers, and the interaction with the skilled labor force (human capital) also plays an important role. The promotion of sustained innovative strategies needs to consider the development of solid and empowered relations with the entire staff and in particular with the most skilled. This trust link will empower staff members, promoting critical sense, intrapreneurship, and virtuous innovation cycles emerging from the inside the firms, which could fully exploit the absorptive capacity and the development of internal sources of innovation. These findings raise the possibility of developing a tripod strategy for successful innovative strategies investing in prepared leaders who respect, value, and consider their skilled collaborators generating an internal innovation culture, which will be key for underpinning firms’ resilience and thus generating competitive advantages.
Future studies could explore how leadership styles influence innovation performance in different types of knowledge intensity, per company size, scrutinizing positive and negative types of leadership styles since the literature still tends to explore the positive impacts, always pointing to transformational leadership. Our empirical analysis had the CIS database, which covered 13,702 companies in Portugal. As such, the limitation of this study is that it is not generalizable to other European economies. As a result, we propose that future studies could explore other economic realities, broadening the breadth and scope of the results to other types of leadership styles and countries.
In terms of practitioners and public policy recommendations, companies should focus on human capital. Moreover, leadership courses need to be provided to managers and directors so that companies can fully profit from the understanding of leadership and adapt more properly to contextual characteristics. In this way, public policy support for innovation could enhance the qualification of employees and managers and improve innovative behavior and standards.