THE EFFECT OF ORGANIZATIONAL CULTURE AND LEADERSHIP STYLE ON ORGANIZATIONAL COMMITMENT WITHIN SMES IN SURINAME, WITH JOB SATISFACTION AS A MEDIATOR

(1)

FHR Lim A Po Institute for Social Studies – Maastricht School of Management MBA VII – Management &Business Strategy

2010-2012

---

THE EFFECT OF ORGANIZATIONAL CULTURE AND LEADERSHIP

STYLE ON ORGANIZATIONAL COMMITMENT WITHIN SMES IN

SURINAME, WITH JOB SATISFACTION AS A MEDIATOR

By

Daniëlle Griffith- Kranenburg (SRFHR0710004)

Suriname February 2013

Supervised by Dr. Mirdita Elstak

This paper was submitted in partial fulfillment of the requirements for the Masters of Business Administration (MBA) degree at the FHR Lim A Po Institute for Social Studies (FHR) in association with the Maastricht School of Management (MSM),February 2013.

(2)

(3)

“

Unless Commitment is made,

there are only promises and hopes;

but no plans”

(4)

iv

ACKNOWLEDGEMENT

Writing this thesis has been one of the most challenging moments in my life. Without the guidance of my supervisor, the understanding and support of my husband, children, family and friends, I would not have been able to finish this study successfully.

First and far most I like to thank GOD, because his blessings and grace makes all possible

Special thanks to the team of the FHR Lim A Po Institute for giving me the opportunity to develop my knowledge further.

I am very grateful to my supervisor, Mirdita Elstak, who inspired me to perform well with her critical comments, suggestions, insight and motivational words.

I would like to thank my employer, Remas nv, and my colleagues for giving me the opportunity and support to attend this MBA program.

Gratitude to my MBA colleagues for their support during the program.

Special thanks to my uncle, Luciën Kloof, without whom I would not have started this journey.

I would also like to thank my family, especially my parents and in-laws, for their support and encouraging words.

Most of all I would like to dedicate this thesis to my loving husband, Rodney, and my children Cailynn, Khalil and Raïz, who was born during this journey. I will be eternally grateful for the many sacrifices you have made for me and the love, understanding, patience and encouragement you have given me.

Thank you all Sincerely,

(5)

v

ABSTRACT

The purpose of this study was to determine what is different about the role that organizational culture and leadership style play in Small and Medium-sized Enterprises (SMEs). How they influence employee commitment to the organization and how job satisfaction mediates that relationship. It was said that the effect of Leadership style and the Organizational culture on Organizational commitment was mediated by Job satisfaction.

Data was gathered through questionnaires distributed to eight SMEs in Paramaribo. This was done to investigate the different relationships between and the impact of the variables on each other. The scales used were the Multifactor Leadership Questionnaire, MLQ, the Organizational Culture Index, OCI, the Job Satisfaction Survey, JSS and the Organizational Commitment Questionnaire, OCQ. The gathered data was statistically analyzed with SPSS.

Multiple regression was applied according to the steps of Kenny and Baron(1986) who gave the specifications of the procedure for regression analysis when a mediating variable is involved. Some of the results were according to the expectation after theory examination, but others were surprisingly contradictive.

Transformational leadership had a direct and indirect (through job satisfaction) effect on Organizational commitment. Of the other 4 predicted indirect effects 1 was significant namely one with bureaucratic culture. This effect was positive instead of negative as was hypothesized. Bureaucratic and Supportive culture had a significant direct effect on Organizational commitment.

Based on the result of this research it is recommended that transformational leadership style should be practiced in SMEs to gain satisfied and committed employees. Leaders need to state their views clearly; they need to consider employee capabilities and needs. This could ultimately lead to a better performance and a competitive advantage for the organization.

Key words

Leadership, Leadership style, Transformational leadership, Organizational culture, Job satisfaction, Organizational commitment and SMEs

(6)

vi

LIST OF FIGURES

Figure 1-1Structure of the thesis ... 7

Figure 2-1 Proposed Conceptual Framework ... 16

Figure 2-2 Conceptual Framework specifying the variables and the research Hypotheses .... 20

Figure 4-1 The gender response in % of the sample population... 29

Figure 4-2 Job level response in % of the sample population ... 30

Figure 4-3 Age division in % of the sample population ... 30

Figure 4-4 The education level in % of the sample population ... 31

Figure 4-5 The monthly salary in % of the sample population... 31

(10)

x

LIST OF TABLES

Table 2-1 Relationship between Culture, motivators and Job satisfaction ... 18

Table 3-1 Cronbach’s Alpha’s for Leadership style ... 24

Table 3-2 Cronbach’s Alpha’s for Organizational culture ... 25

Table 3-3 Cronbach’s Alpha from Job satisfaction ... 26

Table 3-4 Cronbach’s Alpha from Organizational commitment ... 27

Table 3-5 Analysis Overview ... 28

Table 4-1 Independent, Dependent and Mediating variables with the mean, median, mode, standard deviation and skewness ... 33

Table 4-2 Correlation Matrix ... 35

Table 4-3 Regression coefficient Transformational leadership and Organizational Commitment ... 38

Table 4-4 Model Summary Transformational leadership on Organizational Commitment .... 38

Table 4-5 Regression coefficient Leadership styles, Organizational Culture and Job Satisfaction ... 39

Table 4-6 Model Summary Leadership styles, Organizational Culture on Job Satisfaction ... 39

Table 4-7 Regression coefficient Leadership styles, Organizational Culture, Job Satisfaction and Organizational commitment ... 40

Table 4-8 Model Summary Leadership styles, Organizational Culture, Job Satisfaction and Organizational commitment... 41

Table 4-9 Summary Regression Analysis ... 41

(11)

1

1 INTRODUCTION

1.1 General

In this chapter the background of the research project is presented, followed by an elaboration on the relevance and justification of the study. Furthermore the key concepts of the study are stated which is followed by the problem statement, the research objectives and the research questions. Lastly the limitations and the outline of the thesis structure are stated.

1.2 Background

Human Capital, which gives competitive edge due to its uniqueness, is one of the resources that work as a pillar for an organization (Holland, Sheehan and de Cieri, 2007). The focus has therefore shifted to “people”, the employees of the organizations (Cohen, 2005). Employees play an important role in organizations, they are the greatest resource an organization can have and it is through their involvement and commitment that the organization can become competitive (Sempane, Rieger & Roodt, 2002). Employees who are committed are liable to increase their performance and devote their time to the organization (Saal & Knight, 1987). Organizational commitment is often described as the key factor in the relationship between employees and organizations (Raju & Srivastava, 1994). It incorporates thoughts of being connected, attached and going beyond the basic requirements of the job which tend to improve organizational efficiency and effectiveness (Williams & Anderson, 1991). Recruiting, managing, developing and retaining the employees, its human resource, is what an organization’s effectiveness depends on (Wallach, 1983). These four aspects influence stability and productiveness of the workforce. Finding ways to improve how employees feel about their job (achieving job satisfaction), so they would become more committed to their organization, is the basis to achieving a competitive organization. Satisfied employees are more willing to try new ideas and could participate more in the decisions that need to be made (Kivimaki & Kalimo, 1994).

Due to their impact on performance and the success of an organization, Organizational commitment and job satisfaction, characteristics of the way employees behave, received a lot of attention in workplace studies. Organizational commitment and job satisfaction increased in importance over the last few years (Lok & Crawford, 2004) because, they predict the input of employees and as Wilson and Rosenfeld (1990) indicated positive and negative feelings towards work and the organization may have powerful effects on the way employees behave in

(12)

2 an organization. Organizations try to encourage commitment in their employees in order to achieve stability and avoid cost when employees leave.

When employees are satisfied with their job, they are committed and usually not tempted to look for other opportunities (Lok, Wang, Westwood & Crawford, 2007). According to Porter & Smith (1970) organizational commitment is achieved when the employee strongly beliefs in and accepts the organizational goals and values, when they are willing to do their utmost on behalf of the organization and when they are willing to stay with the organization. In this definition commitment is something more than submissive loyalty to an organization. It means that you have an active relationship with the organization in the sense that you are going beyond normal duties with the intention of adding to the well being of the organization. Commitment could be concluded not only from employees their experiences and opinions but also out of their actions. Job satisfaction is a set of feelings an individual has about his or her job (Robbins, 2005). In research done by Lawler (1992) his theory offers a theoretical connection between more instant positive emotions like satisfaction, and longer lasting feelings like commitment. As a concept commitment differs from job satisfaction. Commitment represents a general response to the whole organization, goals and values included. Job satisfaction only focuses on one’s job or certain aspects of the job; it emphasizes specific surroundings of a task where the employee executes his duties. Due to all these factors organizational commitment is more stable overtime, it is not influenced by day to day events (Porter et al, 1974) like job satisfaction which can quickly increase or decrease as a result of immediate reactions to different incidents or aspects of the work location. People tend to evaluate their jobs on the basis of factors that they find important (Sempane et al, 2002). If the employees get the salary, the working conditions, the recognition and the advancement they want, they will probably be more productive and will also stay with the organization (Mc Neese-Smith, 1997; Randeree & Chaudhry, 2012).

Leadership is seen as a determinant of several aspects in the way employees behave, so its impact cannot be overlooked (Randeree & Chaudhry, 2012).

Organizational crises, mostly due to the world economic crises, emphasized the need for leadership and organizational culture development by organizational decision makers (Earle, 1996). Changes occurred in employment practices and the decision makers needed to get their organizations through the crises by creating trust, influencing employees to achieve common organizational goals (Leadership) with certain values and beliefs of the organization in mind (Northouse, 2007).

(13)

3 Different studies showed leadership and organizational culture to have a significant influence on organizational commitment and job satisfaction (Lok and Crawford, 1999, 2001). If a leader and his style are seen as trustworthy, employees are willing to follow that leader in accomplishing the organization’s goals. This leads to positive results for the organization which in time affects job satisfaction and organizational commitment. In the case of organizational culture, having a set of values and beliefs which are commonly shared creates affinity and a connection with the organization (O’ Reilly, 1989; Chen, 2004) because people than identify with the organization and want to be part of the collective and they are also more likely to have values which benefit the organization. Organizational culture is the shared understanding of the beliefs, values, norms and philosophies of how things work (Wallach, 1983). Employee behavior (their commitment and job satisfaction), their expectations and their performance will determine if the implementation of plans, policies and strategies is successful and if the organization will be competitive.

This research will be done in Small and Medium-size Enterprises (SMEs). They usually have a flatter organization structure. The small number of employees, centralized decision making, depending on the sector a small number of highly educated employees, the high level of informality, the close personal relationships and the short lines of communication cause different interactions between leaders and their employees in small organizations than in large organization (Bolden &Terry, 2000;). SMEs are often used as an option for unskilled and semi skilled employees to earn the knowledge and experience before moving to another bigger and or better organization. Therefore SMEs repeatedly experience the loss of skilled employees who could play a part in the improvement of the organizations production. This loss of skilled employees could be the result of them being dissatisfied which could influence their commitment to the organization.

It would be interesting to see how leadership and organizational culture, influence organizational commitment and what kind of mediating affect job satisfaction has on this relationship within SMEs.

(14)

4

1.3 Relevance and justification

The majority of businesses in most countries are Small and Medium-sized Enterprises. They are the mainstay of most economies in the world especially when we look at employment and the impact they have on development of those countries1.

With current conditions, like high employee turnover and slow economic growth, facing the established small and medium sized enterprises, the main goal of this research is to determine what type of leadership style and organizational culture keeps employees committed to an organization, an SME where the relationships (as mentioned earlier) between the leader and the employees are different from those in large organizations and if job satisfaction had a mediating effect in this relationship.

This research will show what is expected by employees in terms of leadership style, organizational culture, being satisfied with their job and being committed to an organization. It will also add value to leadership and organizational culture studies in Suriname by being a guide for current and future leaders in their struggle with retaining employees through job satisfaction and organizational commitment. Retaining skilled employees is needed to survive and be competitive in local, regional and international markets.

1.4 Problem Statement

Organizational commitment has received a lot of attention in research of the work environment. It has been measured and conceptualized in many different ways, but still remains a challenging construct (Lok et al, 2007). The relationship between organizational commitment, organizational culture and leadership style, namely the effect that culture and leadership style, as independent variables, have on commitment as a dependent variable in SMEs, has not been given much attention in research (Lok et al 2007).

Many of the studies on the earlier mentioned constructs were done in large companies and in different concept relationships, so this research will view these concepts from another angle by looking at the relationships between them in Small and Medium sized Enterprises. The relationships are different because they have fewer resources, smaller communication systems, different leadership styles and slim growth opportunities. These characteristics are expected to be different in SMEs.

1

(15)

5 As mentioned earlier SME’s form the mainstay of most economies in the world. That is also the case in Suriname. Having committed employees is therefore important to guarantee performance within and the survival of the organizations which in turn can benefit the Surinamese economy. Research on how to reach that goal, committed employees, is thus of eminent importance, especially in the Surinamese context.

1.5 Research Objectives

If the employees are satisfied and committed improved productivity, profit and growth of the organization are achieved. Organizational commitment results in a stable workforce (Mohanty et al, 2012) and the retention of valued skills because the organization can thus form a consistent group of employees who worked with each other longer and know the strengths and weaknesses they have amongst each other. This results in improved communication among employees and workforce support for the organization. When employees are committed they are involved and have an active relationship with the organization, they are also willing to give “something of themselves” for the organizations well being (Porter et al, 1979). So organizational commitment is very important for an organization’s survival.

The main purpose of this research is to determine what is different in SMEs about the role that organizational culture and leadership style play, how they influence organizational commitment of employees within SME’s and how job satisfaction mediates that relationship. Ultimately this research should give Small and Medium sized enterprises a view on how to improve their organizational culture and leadership style with the intention of creating and keeping a committed workforce.

(16)

6

1.6 Research Questions

The research will address the following questions:

Main Research Question: How and why do leadership style (Transformational, Transactional) and organizational culture (Bureaucratic, Innovative or Supportive) affect organizational commitment in Small and Medium-sized Enterprises, through job satisfaction?

This research will argue that organizational commitment is influenced by different types of organizational culture and different styles of leadership. Job satisfaction has a mediating role in this relationship; it can either strengthen or weaken the organizational commitment of employees.

The following secondary research questions will also be answered:

1. How and why does leadership style (Transactional, Transformational) affect job satisfaction within SME’s?

2. How and why does organizational culture (Bureaucratic, Innovative or Supportive) affect job satisfaction within SME’s?

3. How does job satisfaction affect organizational commitment?

4. Does Transformational leadership have a direct effect on Organizational commitment?

The secondary research questions will help determine the answer to the main research question and clarify the different concepts mentioned.

1.7 Research Limitations

The limitations in this research are as follows:

 Other variables, beyond the earlier mentioned will not be considered in this research;

 Not all the needed company data is correctly documented or retraceable;

 Not all company data is up-to date;

(17)

7

1.8 Outline of the Thesis structure

Figure 1-1Structure of the thesis

This thesis consists of 5 chapters of which the first chapter covers the Introduction to the subject with the relevance and justification, the research questions, problem statement, objectives and the limitations. Next the literature review (2) where the researcher analyzes the existing literature about the subject and develops a theoretical framework for the study. Thereafter the research methodology (3) is described. Here the methods used to achieve the research objectives are explained. In the finding and analysis chapter (chapter 4) the results are presented. These results will be analyzed and tested. Furthermore the researcher will discuss the meaning of the findings in chapter 5. The conclusions and the recommendations will also be given this chapter.

1. Introduction

2. Literature Review

3. Research Methodology

4. Findings and Analysis

5. Discussion, Conclusions and Recommendations

(18)

8

2 LITERATURE REVIEW

2.1 Introduction

In order to answer the research questions several steps need to be taken. One of these steps is viewing relevant theory about the concepts Organizational culture, Leadership, Job satisfaction and Organizational commitment which is done in this chapter. The theory of Small and Medium sized Enterprises (SMEs) is also explored because this is a different type of organization. So the definitions and the characteristics of this type of organization are also looked at. A review of past findings on the relationships between the earlier mentioned variables is presented and at the end of this chapter the theoretical framework for this study will be presented.

2.2 Concept of Leadership

2.2.1 Leadership defined

For as long as there was interaction between people, leadership existed. The topic of leadership has been the focus of studies for the past 20 years and gradually became a topic of great interest. This interest sprung forth out of the fact that leaders provide guidelines and they have to motivate their followers to accomplish tasks (Gill, 1998).

Early on, leadership definitions had the tendency to view the leader as the center or the focus of a group activity. The leader restructures the problems, offers solutions to the problems, establishes priorities and initiates developmental operations (Bass B. , 1990). Leadership was associated with strength of personality (Bass 1990; Bowden, 1926). A leader was seen as a person with many popular traits of personality and character (Bass, 1990; Bingham, 1927). The current descriptions of leadership no longer regard only individual characteristics or differences (Avolio 2007; Yukl 2006).

In Bass’s (1998) current definition, leadership is an interaction between one or more members of a group. In another more recent definition, leadership is a relationship between leaders and followers where they influence each other and they intend real changes and outcomes that reflect their shared purposes (Daft, 2005).

According to Northouse (2007) leadership as a process means that, as mentioned earlier, it is not a characteristic someone is born with, it is an interaction between leaders and their

(19)

9 followers. The leaders influence and are influenced by their followers (a group). Leadership is available to everyone; it is not limited to the person in power (Northouse, 2007).

For this research the following definition for leadership will be applied:

“Leadership is a process whereby an individual influences a group of individuals to achieve common goals (Northouse, 2007) “

This definition is best suited for this research due to the ongoing interaction between leaders and followers in SMEs due to the short communication lines and the flatter organization structure.

Leadership style is the combination of attitude and behavior of a leader, which leads to certain patterns in dealing with the followers (Dubrin 2004). It is the result of the philosophy, personality and experience of the leader. There are several leadership styles such as: autocratic, bureaucratic, charismatic, democratic, participative, situational, transformational, transactional and laissez faire leadership (Mosadeghrad, 2003a). Leadership style has been the deciding factor of more than one facet of employee behavior in organizations.

2.2.2 Leadership vs. Management

Leadership and management are considered to be overlapping concepts and are often confused. According to Kotter (1999) leadership and management are two concepts which are unique and matching systems of action. He distinguished different main factors where these concepts have complementary actions (Kotter, 2009).

These are:

 Leadership involves the development of a vision of the future, having a sense of direction. Leaders have to clarify the big picture and set strategies (Northouse, 2007). Management uses management processes, like planning and budgeting, to set the direction for the organization;

 Management is the development of the ability to realize plans in organizations by creating an organizational structure. Leaders however align people and share the new direction, they communicate goals, seek commitment and build teams and coalitions (Northouse, 2007);

 Motivation and inspiration of people are important characteristics of leadership which make sure that the organization keeps moving in the right direction. They satisfy unmet needs and empower followers.

(20)

10 Although both, leadership and management are needed in an organization this study focuses on leadership as an independent variable because setting direction, alignment, motivation and inspiration of people (Kotter, 2001) is needed to keep employees satisfied and committed to the organization. These are the qualities of leaders, thus the focus on leadership style. Leadership considers follower feelings while management has a more controlling manner of getting things done.

2.2.3 New Approach to Leadership

Relationships between supervisors and their employees are different now. Leaders now do not depend as much on their legitimate power to convince people to do as they are told but they participate in an interaction with their employees or they widen and raise the interest of their employees (Northouse, 2007).

Based on the new approach to leadership, there are two contemporary leadership styles which will be researched namely (Bass, 1990):

1. Transactional leadership motives and directs followers by appealing to their own self interest. The focus is on basic management processes like controlling, organizing and short-term planning. This style is more responsive and deals with present issues. It also relies on inducement of rewards, punishment and sanction for unacceptable performance and the ability of the leaders to motivate followers by setting goals and promising rewards for the desired performance.

An exchange takes place between leaders and followers to achieve the desired performance. These exchanges involve four components of Transactional Leadership namely (Bass, 1990; 1999):

 Contingent Reward (CR): Leaders explain their expectations, provide the needed

resources, set shared goals and link them to various rewards for doing well;

 Management by Exception Active (MBEA): Here leaders specify rules and

standards. Furthermore they observe the work of the employees, watch for deviations and take corrective actions when mistakes or errors occur;

 Management by Exception Passive(MBEP): Leaders do not intervene until

problems occur, they wait for things to go wrong before they take action;

 Laissez-Faire (LF): The leader renounces responsibility and avoids making

(21)

11 2. Transformational leadership anticipates future trends, inspires to understand and embrace new possibilities and builds the organization into a community of challenged and rewarded learners. This style also develops others to be leaders or to be better leaders. Its focus is on being proactive, expecting nothing in return, inspiration and motivation of followers to work for goals that go beyond their self- interest. Learning opportunities are created and followers are stimulated to solve problems. The leaders develop strong emotional bonds with their followers and they posses good visioning and management skills.

This leadership style has four components which are (Bodla & Nawaz, 2010; Robbins, 2005):

 Idealized Influence (II): Leaders act in such a way that they can be perceived as role models by the people they lead. They are admired, respected and trusted. These leaders are willing to take risks and they are described by followers as having exceptional capabilities, being persistent and determined. They have high ethical and moral standards and can be trusted to do the right thing.

 Inspirational Motivation (IM): These leaders arouse the team spirit and show enthusiasm and optimism. They involve followers in defining the desired future state of affairs which creates commitment to the goals and the shared vision.

 Intellectual Stimulation (IS): The transformational leaders stimulate their

followers to be creative and innovative by creating an environment in which they are forced to think about old problems in new ways. Mistakes are not publicly criticized.

 Individualized Consideration (IC): The leaders act as mentors and coaches.

Two-way communication is regular and differences are accepted. They respect individual desires and needs. They also delegate different tasks to develop follower skills.

2.3 Organizational culture

Organizational culture is a complex phenomenon (Dubkēvičs & Barbars, 2010). This concept can be very broad and take on many aspects. While conducting research the researcher can come across many definitions of organizational culture. However many define organizational culture as a value system which determines attitude (Schein, 1985, 1990; Peters & Waterman, 1982).

(22)

12 The most popular organizational culture definition was given by Edgar Schein (1985). He defined organizational culture as “(a) a pattern of shared basic assumptions, (b) invented, discovered, or developed by a given group, (c) as it learns to cope with its problems of external adaption and internal integration, (d) that has worked well enough to be considered valid and, therefore (e) is to be taught to new members as the (f) correct way to perceive, think and feel in relation to those problems”. Schein (1990) and Daft (2005) discussed that there are three levels of culture manifestation namely:

1. The observable values (artifacts): this is the level that can be observed, the visible organizational structures and processes. This level is still hard to understand;

2. The espoused values: on this level an image of the organization is created. The strategies, goals and philosophies are formulated through answered certain questions, to create that image;

3. Basic underlying assumptions: these are deep beliefs which form the essence of culture.

In this research the following definition for organizational culture will be applied:

“Organizational culture is the shared understanding of the beliefs, values, norms and philosophies of how things work (Wallach, 1983)”

According to Wallach (1983) another way to analyze culture is by dividing culture into three categories namely: (1) Bureaucratic, (2) Innovative or (3) Supportive cultures.

 A bureaucratic culture is a very organized and systematic culture based on power and control with clearly defined responsibilities and authority. Organizations with this culture are mature, stable, structured, procedural, hierarchical, regulated and power-oriented;

 An innovative culture has a creative, result oriented, challenging work environment and is portrayed as being entrepreneurial ambitious, stimulating, driven and risk-taking;

 A supportive culture displays teamwork and is a people-oriented, encouraging, and has a trusting work environment. This culture is open harmonious, trusting, safe, equitable, sociable, humanistic and collaborative.

Wallach (1983) also stated that an employee is more effective in doing the assigned job and realizes his or her full potential when the individual motivation and the organizational culture match. This is very important in recruiting, managing, motivating developing and retaining employees.

(23)

13

2.4 Job satisfaction

Job satisfaction has been a topic of interest among researchers for several decades (Currivan, 1999; Lund, 2003) due to the fact that many experts (managers and researchers) belief that it can affect and influence work productivity, employee commitment, employee turnover and employee retention (Eslami & Gharakhani, 2012). Job satisfaction is the level to which an employee is satisfied with his current work. This depends on how many of his/her needs and wants are satisfied (Finn, 2001). Job satisfaction is known as a construct with multi facets that includes the employee feelings about different job elements, intrinsic as well as extrinsic. It includes specific features of satisfaction associated with pay, benefits, supervision, organizational practices, promotion, work conditions and relationships with co-workers (Misener et al, 1996).

In this research the following definition for job satisfaction will be applied:

“Job satisfaction is the extent to which people like (satisfaction) or dislike (dissatisfaction) their jobs (Spector, 1997)”

According to literature job satisfaction is influenced by several factors. Worrell (2004) divided these factors into three groups:

 Demographic data: age, gender and race;

 Intrinsic factors: achievement, recognition, work itself, responsibility, advancement and growth;

 Extrinsic factors: company policy, supervision, relationship with boss, work conditions, relationship with peers and salary.

In this research the focus will be on the five factors of job satisfaction which are salary (pay), work itself (nature of the work), supervision, advancement and growth (promotional prospects), relationship with peers. These factors correspond with the feelings, like or dislike of their jobs, mentioned in the definition and are relevant to determining the level of commitment to an organization. Furthermore research (Randeree & Chaudhry, 2012) showed that these factors strongly affect job satisfaction. Employees who feel satisfied with their job are more productive and are likely to stay with the organization (Mc Neese-Smith, 1997).

2.5 Organizational commitment

Organizational commitment is an individual’s psychological attachment to the organization. The individual feel a sense of belonging and identification with the organization.

(24)

14 This adds to their desire to achieve the goals of the organization and their motivation to remain with the organization (Raju & Srivastava, 1994).

Organizational commitment has also been defined as the belief of an employee in the goals and values of an organization and the aspiration to stay with that organization (Mowday et al 1982). Robbins (2005) also had a similar definition of organizational commitment, the condition where the employee identifies with the organization and its goals and desires to continue being a member of that organization.

In this research the following definition for organizational commitment will be applied:

“Organizational commitment is “a strong belief in and acceptance of the organization’s goals and values; a willingness to exert considerable effort on behalf of the organization; and a strong desire to maintain membership in the organization” (Mowday, Steers, & Porter, (1979)

Initially organizational commitment was conceptualized as a one-dimensional construct but it is now known as multi dimensional. Porter et al (1974) stated that organizational commitment contains 3 components which are:

 Value commitment: employees trust, accept and commit to the goals and values of the organization;

 Effort commitment: employees display a high degree of effort to an organization;

 Retention commitment: employees want to continue being a part of the organization. According to Porter et al (1974) and Mowday et al (1982) the degree of organizational and managerial collaboration an employee feels, their participation in decision making, the leadership style and organizational culture influence whether an employee has high or low organizational commitment.

2.6 Small and Medium-sized Enterprises

Small and medium-sized Enterprises (SMEs) are the backbone of many economies because they account for close to 95% of all firms and also play an important role in employment. These enterprises need to invest, produce innovative product and operate efficiently and effectively to maintain their position and ensure that their business activities have added value.

(25)

15 2.6.1 General definition of SMEs

The majority of businesses in any country are SMEs. They have become the driving force responsible for growth and development.

SMEs are defined as “non- subsidiary, independent firms which employ less than a given

number of employees2”. This number may vary from country to country.

Various countries and regions apply different criteria for the definition of SMEs because they have different levels of development, inhabitant size or average business size. The criteria used in the definition of SMEs are:

1. Number of employees; 2. Amount of yearly sales; 3. Amount of total assets; 4. Amount of total revenues.

The International Labor Organization (ILO) only uses the number of employees in categorizing enterprises in the different sectors. This is done because there is no official definition of SMEs. The following categories are specified:

 Micro-enterprise: 1 to 5 workers (full- or part-time)

 Small-enterprise: 6 to 20 workers (full- or part-time)

 Medium-enterprise: 21 to 50 workers (full- or part-time)

 Large-enterprise: 51 or more workers (full- or part-time)

In Suriname the criteria for SMEs commonly used is the number of employees. The categorization, according to the Suriname Trade and Industry Association (VSB) is as follows:

 Micro-enterprise: 1 to 10 workers (full- or part-time)

 Small-enterprise: 10 to 25 workers (full- or part-time)

 Medium-enterprise: 26 to 100 workers (full- or part-time)

 Large-enterprise: 101 or more workers (full- or part-time)

This research is done in the Surinamese context which is why the definition of the VSB is used. It is important to work with a definition formulated by Surinamese authorities because the inhabitant size, the average business size and the level of development differs from other countries

(26)

16

2.7 Relationship between the variables

Figure 2.1 presents a summary diagram of the proposed causal model for the prediction of organizational commitment from the concepts: leadership style, organizational culture and job satisfaction. The model specifies the role of job satisfaction as a mediator of the effect that leadership and organizational culture have on organizational commitment. In this section the basis of the proposed conceptual framework is presented and the hypotheses regarding the relationships between the variables are specified.

Figure 2-1 Proposed Conceptual Framework

2.7.1 Job satisfaction and Leadership styles

It is important for an organization to function efficiently and effectively. Leadership and job satisfaction play an important role in creating and maintaining the effectiveness of an organization.

The relationship between leadership style and job satisfaction received a lot of attention in research, however, findings were mixed (Yousef, 2000). Understanding this relationship may help to reveal underlying causes of satisfaction or dissatisfaction with the job. Strategies could be developed to improve overall job satisfaction among employees. Different aspects of the leadership styles could lead to satisfaction. Many suggest that the leadership style needs to adapt to the situation in order to reduce dissatisfaction of employees. Research also indicates that if the employees trust their leader, it leads to positive outcomes for the organization due to the reflection of the attention that leaders give their employees on the employees’ positive attitude towards work and the conditions within the work environment. The response of employees to their leaders will generally rely on the characteristics of the employees as well as that of the leaders (Wexley & Yukl, 1984).

Organizational Culture Leadership style Job Satisfaction Organizational commitment

(27)

17 Job satisfaction is affected by the internal organization environment, which includes organizational climate, leadership styles and personnel relationships (Seashore & Taber 1975). The quality of the leader-employee relationship – or the lack thereof - has a huge affect on the employee’s sense of worth and job satisfaction (Chen, Spector& Jex 1991). Employees are more satisfied with leaders who are thoughtful and encouraging than with those who are either indifferent or judgmental towards employees (Yukl, 1971). Negative leader-employee relations decrease productivity and increase absenteeism and the intention to leave the organization can be high (Ribelin, 2003).

Transformational leadership style reduces work stress and increases employee morale. This leadership style moves employees to achieve more than is expected. Having a good connection with employees and having a clear vision plays an important role in attaining positive results from employees (Bass & Avolio, 1990; Shamir, 1995). Researchers (Smith& Peterson, 1988; Mohammad et al, 2011) belief that certain qualities a transformational leader has produce satisfied employees. Transformational leadership is found to be positively related to job satisfaction.

Transactional leaders however only reach their expected outcomes when they offer rewards or other incentives in return (Bass & Avolio, 1990). This leadership style is negatively related to job satisfaction.

According to Robbins (2003), less employees leave with transformational leadership than with transactional leadership. Hence the hypotheses for Leadership:

H1: Transformational leadership has a positive effect on Job satisfaction in SMEs

H2: Transactional leadership has a negative effect on Job satisfaction in SMEs.

2.7.2 Job satisfaction and Organizational Culture

Organizational culture evolves slowly over time and has a powerful influence on behavior within an organization (Slocum and Hellreigel, 2007).Every organization has a predefined culture which makes the way employees behave vary from a positive to a negative attitude towards their jobs. Understanding the basics of culture is necessary to understand official and unofficial behavior of employees. According to Wallach (1983) individual outcomes, like job satisfaction, depend on the match between an individual’s characteristics and the organization’s culture. An employee can be more effective in his/ her current job when the culture is appropriate to the business and a certain level of job satisfaction is reached. The bureaucratic culture is based on power and control which makes it difficult for some

(28)

18 employees to be satisfied because they are for example achievement motivated. These employees are driven to improve their personal performance and not by doing everything in a regulated and ordered way (Wallach, 1983).

The following relationships between organizational culture, Individual motivators and job satisfaction can be concluded:

Table 2-1 Relationship between Culture, motivators and Job satisfaction

Organizational Culture Individual motivator Job Satisfaction

Bureaucratic Culture Need for Power and Control Supervision

Innovative Culture Need for Achievement Promotion

Supportive Culture Need for Affiliation Coworkers

From: Wallach 1983- Individuals and Organizations: The culture match

The table describes the fact that an employee is more efficient in doing the job and will have a greater chance for advancement or being part of the whole when a match exists between culture and motivation. This ultimately results in job satisfaction. When an organization has a bureaucratic culture, which is based on power and control, the connection is made with the factor supervision of job satisfaction. Literature (Rashid et al, 2003; Lok & Crawford, 2000, Brewer, 1993; Kratrina, 1990; Wallach, 1983) suggests that bureaucratic culture has a negative effect on job satisfaction, because the need for power and control, often has a negative effect on the satisfaction level of employees. Supervision, in a bureaucratic culture, is than mainly power oriented and when that power is used to control and dominate subordinates it is often seen as negative (Wallach, 1983). The other two culture aspects are positively related to job satisfaction because they are experienced as being good work motivators with their motivation to develop personal performance and to be with others, enjoying shared friendships.

Therefore the following hypotheses were formulated:

H3: Bureaucratic culture has a negative effect on Job satisfaction in SMEs.

H4: Innovative culture has a positive effect on Job satisfaction in SMEs.

(29)

19 2.7.3 Organizational commitment and Job satisfaction

According to Meyer et al. (2002), job satisfaction is a determinant of organizational

commitment. Job satisfaction and organizational commitment focus on the feelings and the thoughts employees have towards their work and the organization. The key difference between organizational commitment and job satisfaction is that while organizational commitment can be described as the emotional reaction which an employee has about his organization; job satisfaction is the responses that an employee has about any job. It is believed that these two variables are highly interconnected. In other words, while an employee has positive feelings towards the organization, its values and objectives, it possible for him to be unsatisfied with the job he has in the organization. Researchers taking this position believe that employee orientations about a specific job inevitably precede orientations toward the entire organization. Typically, researchers have coupled this view with a corollary assumption that compared to organizational commitment, job satisfaction varies more directly and instantaneously with changing working conditions (Mowday et al., 1982). The relationship between job satisfaction and organizational commitment is very important at the moment because now people often do not wish to continue working for the same organization for longer periods of time. It is difficult to influence employees to continue working for the organizations. Similarly, if employees are highly satisfied with their work, coworkers, pay, and supervision, the probability is higher that they are committed to the organization than if they are not satisfied. These two key concepts are very important because job satisfaction and commitment are the main determinants of employee turnover, performance, and productivity (Opkara, 2004). Committed and satisfied employees normally have a high performance which contributes towards organizational productivity (Samad, 2007). Therefore the following hypothesis is formulated:

H6: Job satisfaction has a positive effect on Organizational commitment

2.7.4 Organizational Commitment and Leadership style

Prior research suggested that leadership is a key determinant of organizational commitment (Mowday et al, 1982). In particular transformational leadership is positively linked with organizational commitment (Bono & Judge, 2003; Dumdum et al., 2002; Koh, Steers, & Terborg, 1995; Lowe et al., 1996; Walumbwa & Lawler, 2003). Leaders with this leadership style includes employees in the decision making process, they encourage them to be critical and use different approaches to solving problems and they recognize and appreciate the need

(30)

20 of each employee to develop their own potential (Avolio, 1999; Bass & Avolio, 1994; Yammarino, Spangler & Bass, 1993).Transformational leaders provide mission and vision; enhance the sense of belonging and devotion so that employees want to stay a member of the organization. This makes them eager to put in effort for achieving the goals of the organization. This results in involvement of employees in their work and high organizational commitment. Transactional leaders however use rewards to influence employee behavior to their benefit at low costs or they have a total disregard for what happens in the organization and do not feel responsible for anything, which often result in dissatisfaction of the employees. Hence the hypothesis:

H7: Transformational leadership has a positive direct impact on Organizational

commitment

Figure 2-2 Conceptual Framework specifying the variables and the research Hypotheses

Transactional leadership Transformational leadership Bureaucratic culture Innovative culture Supportive Culture

Job satisfaction _{Organizational} Commitment H6 H5 H1 H2 H3 H4 H7

(31)

21

3 METHODOLOGY

3.1 Introduction

The literature related to organizational culture, leadership, job satisfaction and organizational commitment has been reviewed in the previous chapter. This chapter will give the reader a clear view of how this research was carried out. The philosophy, design and the different instruments used for collecting data are described in sections 3.2, 3.3 and 3.4. Furthermore the selected population and sample size are given in section 3.5. Finally the data analysis method and the statistical techniques used in this study are presented in section 3.6.

3.2 Research Philosophy

There are several general orientations about the nature of research and on how to execute different studies (Creswell, 2003). The nature of this research can be categorized as positivism. In this type of research a theory is developed, data is collected which either supports or contests the theory, necessary revision is done and the theory is tested again. Positivism is when the researcher adopts the position of a philosopher, works with available data and the observable reality (de Bono, 2012). Positivism is the best suitable research approach because in this research the reality is observed and described from an objective viewpoint without interfering with the variables being studied. The researcher relies on the respondent to provide truthful data. Research objectivity is achieved through a strict methodology, where the data ensures that there is a distance between the subjectivity of the researcher and the objectivity of the reality which is studied (Cohen & Crabtree, 2006). Based on theory the hypotheses were formulated (deductive approach). Through a questionnaire the real situation was explored (quantitative data) and the data was analyzed.

3.3 Research design

The research design identifies the method of data gathering, which instruments are used, how they are dealt with and how the gathered information is arranged and analyzed.

The intention of this study is to analyze the effect that organizational culture and leadership style (independent variables) have on organizational commitment (dependent variable) within Small and Medium sized Enterprises. Job satisfaction, as a mediating variable, could change the impact that the independent variables have on the dependent variable.

(32)

22 A descriptive and quantitative research approach was deemed appropriate to gather the primary data and attend to the research questions. Descriptive research determines and reports the way things are. This choice was made because this research involves investigating possible relationships among two or more variables and collecting data to test hypotheses. The variables are measured once through a survey where the opinions of the respondents are illustrated.

3.4 Questionnaire design and measures

Questionnaires assist in gathering information for analyses. Every respondent faces the same questionnaire with standardized questions and format. This makes measurement accurate and guarantees the collection of comparable data.

The questions are designed to be clear and easy to understand. The questionnaires include items to measure the different variables of the research model.

Specification of the required information is the first step in choosing an appropriate questionnaire. The different variables are identified through the research questions, the research objectives, the hypotheses and the exploratory research done for the literature review. The questionnaire is then chosen in accordance with the selected definition for the variables used in the research.

When designing a good questionnaire, questions must be clear and communicate the desired information to the respondents. Double barreled questions, embarrassing questions and bias words within the questions should also be avoided.

The questionnaire is based on the English version of the different instruments, so it had to be translated to Dutch.

3.4.1 Survey administration

Primary data can be collected through different methods namely mail surveys, telephone surveys, self-administered surveys, personal interviews, focus groups, observations etc. Choosing the proper method to administer the questionnaire depends on the research objectives and the restrictions.

The choice for a self-administered survey in this study was based on the advantages and disadvantages of the different methods and also on the research question and objectives. Survey research through a self-administered questionnaire was the best choice for this research which investigates variables which cannot be directly observed. More than one variable could be studied at one time in a realistic setting and it is also possible to collect

(33)

23 large amounts of data. In a self-administered survey the respondents answer the questions directly on the form without the interaction of an interviewer. They complete the form on their own, in their own time and pace.

The respondent is therefore assured of anonymity and privacy which can increase the probability of honest answers to the questions.

3.4.2 Reliability and validity

In order for results to be usable in further research steps they must be reliable and valid. Reliability is when a measure gives the same outcome, under the same circumstances even when it is measured at different points in time.

A qualitative pilot survey is carried out within a small sample of 10 respondents to identify and eliminate possible problems in the questionnaire. There were different reasons that lead to leaving out some questions. The reliability was tested after the survey was conducted. Gliem and Gliem (2003) (from George and Mallery, 2003:p.231) provided the following rule of thumb for the Cronbach’s alpha>.9 excellent, >.8 good, >.7 acceptable, >.6 questionable, >.5 poor and <.5 unacceptable.

Validity is the degree to which the test measures what it is supposed to measure. The questionnaire should be in line with the definition used in the research. When a measure is reliable and valid the results can be correctly utilized and understood.

3.4.3 The questionnaire and measurement scale

An integrated questionnaire combining instruments of the different variables and demographic questions was developed for this research. The questionnaire consists of five parts which are:

1. Leadership style; 2. Organizational culture; 3. Job satisfaction;

4. Organizational Commitment;

5. Demographics (like gender, age, level of education, job title, and monthly salary).

After thoroughly describing the theory about the concepts, organizational culture, leadership, job satisfaction and organizational commitment, the appropriate instruments were recognized and used in this research. They were as follows: the Multifactor Leadership Questionnaire (Bass and Avolio, 2000), Organizational Culture Index (Wallach, 1983), Job satisfaction

(34)

24 Survey (Spector, 1994), Organizational Commitment Questionnaire (original: Porter, Steers, Mowday & Boulian, 1974 and revised Mowday, Steers & Porter, 1979).

Multifactor Leadership Questionnaire (MLQ)

This questionnaire was developed by Bass and Avolio (2000) and has been used in studies to establish the leadership style used in organizations. Respondents were asked to rate the leadership style of the managers with the next highest position to their own. The questionnaire contains 45 items of which 36 statements determine the key characteristics of leadership behavior.

From this number 8 were removed after the qualitative pretest due to problems with understanding the questions mentioned by pretest respondents. Some of these statements were:

1. Shows that he /she is a firm believer in “if it ain’t broke, don’t fix it”. Most of the pretest respondents did not know this expression. I had to explain what was meant by this expression and this explanation would not be possible during the self-administered questionnaire;

2. Emphasizes the importance of having a collective sense of mission. The pretest respondents did not know the mission of the company. It was not communicated to them. One knew the mission, but he was an upper level manager.

In the combined instrument 28 items were used to rate leadership style. Some of these items were: “Acts in ways that build my respect”, “Keeps track of all mistakes” and “Expresses satisfaction when I meet expectations”.

The MLQ has a scale of 1 to 5 with 1 indicating a “not at all” rating of the statement and the other end of the scale 5 indicating a “frequently if not always” rating for the statement (Bass & Avolio, 2005).

The Cronbach’s alphas found in this research and the original study, for the Multifactor Leadership Questionnaire were:

Table 3-1 Cronbach’s Alpha’s for Leadership style

Leadership style Alpha’s MLQ 5x short form Alpha’s this research

Transformational leadership 0.74 0.76

Transactional leadership 0.83 0.72

(35)

25

Organizational Culture Index (OCI)

To measure organizational culture the Organizational Culture Index of Wallach (1983) was used to determine the culture profile of the organization. Wallach classified organizational culture as bureaucratic, innovative and supportive cultures. This instrument was also downsized from a 24 item instrument to an 18 item instrument after pretest respondents had trouble understanding and interpreting some of the words in the original instrument. Some of the words left out were:

1. Sociable: the pretest respondents could not rate the organization on this word because they did not think it was appropriate for rating an organization;

2. Equitable: they did not know what the word meant. A lot of explaining was needed for this word;

3. Driving: this word was misinterpreted by 9 of the 10 pretest respondents.

Other words which were included in the questionnaire to describe the respondents their organization were: risk taking, structured and challenging. The OCI has a scale of 1 to 5 with 1 indicating a “not at all” rating of the statement and the other end of the scale 5 indicating a “frequently if not always” rating for the statement.

The original questionnaire had a 4-point Likert scale which forced the respondent to make a choice (Wallach, 1983). But the questionnaire format with a 5-point Likert scale of this research left an opening for respondents who could not decide. The reliability values of the original research and the current study were:

Table 3-2 Cronbach’s Alpha’s for Organizational culture

Organizational Culture Alpha’s of the OCI Alpha’s this research

Bureaucratic Culture 0.71 0.70

Innovative Culture 0.87 0.72

Supportive Culture 0.77 0.64

Source: Generated by the researcher

The Cronbach’s Alpha for Innovative Culture was .67. When assessing the reliability if one item is deleted the highest possible reliability was .72 when item 1 was deleted. The item which was deleted regarded the risk taking nature of the company. Innovation is better described by the other statements like result orientation, stimulation, creativity, challenge and enterprising.

(36)

26 For Supportive Culture the same procedure was followed and the highest possible reliability when one item was deleted was .65. This Cronbach’s Alpha was not changed because the improvement was minimal.

Job Satisfaction Survey (JSS)

Measurement of job satisfaction was done with the Job satisfaction Survey of Paul Spector (1994). Questions regarding the five main job satisfaction factors (Sempane et al 2002; Kerego & Mthupha, 1997; Hutcheson, 1996; Robbins, 1993), pay, promotion, coworker’s nature of the work, supervision were chosen to test the job satisfaction level within the companies. The pretest respondents also stated that these five factors mainly determined job satisfaction, the other factors seemed far less important to them in the determination of job satisfaction.

The instrument was thus downsized from 36 items to 20 items representing the five factors. Some of the items included in the questionnaire were: “I feel I am paid a fair amount for the work I do”, “I like the people I work with. These were items regarding pay and coworkers. The JSS has a scale of 1 to 5 with 1 indicating a “strongly disagree” rating of the statement and the other end of the scale 5 indicating a “strongly agree” rating for the statement. The alphas were as followed:

Table 3-3Cronbach’s Alpha from job satisfaction

Job Satisfaction Alpha’s of the JSS Alpha’s this research

Job Satisfaction 0.91 0.80

Organizational Commitment Questionnaire (OCQ)

Employee commitment was measured by the 15-item Organizational Commitment Questionnaire (Mowday, Steers, and Porter, 1979), which has been used with a wide variety of job categories (Mowday et al., 1979).

The two subscales, value commitment and commitment to stay, appear to differentiate between the respondents' commitment to support the goals of the organization and their commitment to retain their organizational membership.

The OCQ has a scale of 1 to 5 with 1 indicating a “strongly disagree” rating of the statement and the other end of the scale 5 indicating a “strongly agree” rating for the statement. The Cronbach’s Alpha’s in the research using the original questionnaire and this study were:

(37)

27

Table 3-4Cronbach’s Alpha from Organizational commitment

Organizational Commitment Alpha’s of the OCQ Alpha’s this research

Organizational Commitment 0.90 0.75

Also important in the design of a questionnaire is the response set-up for measurement. There are four different levels of measurement: nominal, ordinal, interval and ratio (NOIR).

In the demographic part of this research the nominal scale was used and in the other 4 parts the interval scale was used.

3.4.4 Data processing

After the questionnaires were collected, they were checked for completeness. Questionnaires which were blank or extensively incomplete were barred from processing. From the remaining questionnaires incomplete questions were incorporated as errors and coded with “99” during processing.

A total amount of 207 questionnaires were distributed and 197 (95.2%) were returned. Of the 197 returned questionnaires 7 were barred and 190 (91.8 %) were processed. The barred questionnaires were example where more than 50% of the items were not answered or had 2 answers to one question.

3.5 Research population and Sample

With the purpose of testing the research hypotheses ten (10) companies which qualified as SMEs in Paramaribo, were randomly selected and approached. Eight (8) of these companies were willing to participate in the research. Due to lack of accurate statistics about the number of SMEs in Suriname or within a particular sector, company data and other required information, the researcher chose to select the companies randomly. The company owners were first approached and in the first meeting the research was explained and some information was collected about the company. This information was needed to determine if the company was an SME.

The participating companies consisted of construction and production companies, electrical companies, a pest control company, a printing company and a hardware store. SMEs have certain characteristics which makes it possible for researchers to put different organization types together when doing research.