MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HOCHIMINH CITY

DUONG THI THANH TAM
THE IMPACT OF

TRANSFORMATIONAL
LEADERSHIP ON

EMPLOYEE ENGAGEMENT IN BANKING SECTOR AT
HO CHI MINH CITY OF VIETNAM
MASTER OF BUSINESS ADMINISTRATION THESIS

HoChiMinh City - 2012


DUONG THI THANH TAM
THE IMPACT OF

TRANSFORMATIONAL LEADERSHIP ON
EMPLOYEE ENGAGEMENT IN BANKING SECTOR AT
HO CHI MINH CITY OF VIETNAM

Major:
Business Administration
Major Code:
60.34.05
MASTER OF BUSINESS ADMINISTRATION THESIS
Supervisor: DR. TRAN HA MINH QUAN





in each organization in this flat world. Exploring the relationship between transformational
leadership and employee engagement is really important for each organization. This will help
the leaders or the managers in the organization increase the level of engagement of their
subordinates by applying appropriate leadership behavior especially transformational leadership.

The purpose of this study was to explore the impact of four components of transformational
leadership on the level of employee engagement in banking sector at Ho Chi Minh City of
Vietnam. Then it tries to find out which level each component of transformational leadership
have influence on the level of employee engagement in banking sector in the context of Ho Chi
Minh City of Vietnam

This study used Bass and Avolio’s (2004) Multifactor Leadership Questionnaire (3rd
edition, Form5X) to measure the transformational leadership and the Utrecht Work Engagement
Scale (UWES; Schaufeli et al., 2002 to measure the level of employee engagement. The survey
was undertaken with a sample of 205 respondents who are working in banks at Ho Chi Minh
City of Vietnam.

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The results reveal that all dimensions of transformational leadership except Inspirational
Motivation have the positive influence on the level of employee engagement in banking sector
of Ho Chi Minh City of Vietnam. The component - Individualized Consideration of
transformational leadership behavior have the strongest influence of the level of employee
engagement.Based on the findings, it is recommended that the managers or leaders in banking
sector of Ho Chi Minh City of Vietnam should apply the transformational leadership in practice
to improve the level of engagement of their employees. Keywords:

resource development and management, in order to retain their best employees.

Employee turnover is a problem faced by all organizations. High turnover rates have
been associated with decreased customer satisfaction (Koys, 2001), productivity (Huselid,
1995), future revenue growth (Baron, Hannan, & Burton, 2001), and profitability
(Glebbeek & Bax, 2004).Therefore, now all organizations are highly concerned to keep
their valuable employees not only to reduce the turnover cost but to ensure the stability and
developing constantly. In order to be successful, each organization needs to minimize
turnover as well as maximize the effort each individual devotes to his or her organization.
Organizations expect their employees to be proactive and show initiative, collaborate
smoothly with others, take responsibility for their own professional development, and to be
committed to high quality performance standard. An important way of doing this is through
employee engagement. As noted by Schaufeli and Bakker (2004), engaged employees are
likely to have a greater attachment to their organization and a lower tendency to quit.

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Engagement becomes an emerging psychological construct that purports to measures
how much a person is into his job. The concept of work engagement has gained
momentum because of its predictive value for job performance (Bakker, 2009; Schaufeli &
Salanova, 2007). Employees who are engaged put much effort into their work because they
indentify with it. It is convinced that the people are the most important assets who form the
strength of the company and nothing can be achieved without their commitment.
Organizations need employees who feel energetic and dedicated, and who are absorbed by
their work. In other words, organizations need engaged workers. In order to achieve this
aim, employees should be encouraged to participate in organizational activities which are
expected to enhance their engagement. Managers have to build close work relations with
their subordinates to cope with the stressful and heavy working environment. The role of

to increase employee engagement level so that they can contribute with high performance
for banks in Vietnam is not much explored. So far, there has been no research on the effect
of leadership behavior on employee engagement level in banking sector in Vietnamese
context.

1.2.

Research objective

The present research investigates the impact four components of transformational
leadership behaviors on employee engagement level, particularly in banking sector in Ho
Chi Minh City of Vietnam. The purpose of this research is to check if those components of
transformational leadership had positive impact on employee engagement, then provide
some suggestions for leaders or managers in banking sector to improve their followers’
commitment to increase organizational performance and profitability.

The research will answer the following questions:

Question 1: Which components of transformational leadership have influence on employee
engagement level?

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Question 2: Which level do the four components of transformational leadership impact on
employee engagement?

Based on the above research questions, the objective of this study are outline to
examine the impact of transformational leadership on level of employee engagement.



Chapter 2: Literature review. The chapter comprised a deep review of previous
researches on employee engagement and leadership theories and the relationship between
the two constructs. The research also review what previous researches had done with
limitation and suggestion for future researches. Based on that, a conceptual model was
constructed and hypotheses were proposed.

Chapter 3: Research Methodology. This chapter describes the research process
included the measurements, sample and data collection, and the data analysis method.

Chapter 4: Data analysis, results and conclusions: This chapter comprises the
official assessment of measures, data analysis to test the hypotheses as well as the research
findings and conclusion.

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Chapter 5: Limitations and Implications. This chapter points out the limitation of the research during it’s implementing
and propose managerial implication with specific recommendations and suggest for future research directions.
CHAPTER 2
LITERATURE REVIEW

This chapter is an overview of available researches on employee engagement, leadership behavior and the relationship
between the two constructs. Based on that, the conceptual model is constructed.

2.1.

Employee engagement

recognitions, community and social support, perceived fairness and values may led to either burnout or engagement.
Where there is a high degree of match between a person and these areas engagement is established.

Engagement is most closely associated with the existing constructs of job involvement (Brown, 1996) and
“flow” (Csikszentmihalyi, 1990) in the social sciences literature. Job involvement is defined as “the degree to which
the job situation is central to the person and his or her identity” Lawler & Hall, 1970). Kanungo (1982) suggested that
job involvement is “a cognitive or belief state of psychological identification”. Job involvement is thought to depend
on both need saliency and the potential of a job satisfy to these needs.

Therefore, Job involvement results from a cognitive judgment about the need satisfying abilities of the job. Job in this
view is tired to one’s self-image. Engagement differs from job involvement in that it is concerned more with how the
individual employs his or her self during the performance of his or her job. Moreover, engagement entails the active
use of emotions and behaviors, in addition to cognitions. Finally, engagement may be thought of as an antecedent to
job involvement in that individuals who experience deep engagement in their roles should come to identify with their
jobs.

The second related construction to engagement is the notion of “flow” defined by Csikszentmihalyi (1990) as
the “holistic sensation that people feel when they act with total involvement”. Flow is the state in which there is little
distinction between the self and environment. When individuals are in a “flow” state, little conscious control is
necessary for their actions. Individuals narrow their attention to specific stimuli. They lose a sense of consciousness
about their selves as they melt with the activity itself. Flow also experience provide feedback that is automatically take
into account by the individual. Finally, individual in a flow experience need no external rewards or goals to motivate

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them as the activity itself present constant challenges. May et al (2004) also agreed that engagement is most closely
associated with the constructs of job involvement and flow.


organization, the focus of engagement is one’s formal role performance rather than purely extra and voluntary
behavior.

The existence of different definitions about employee engagement makes it is difficult to determine the state
of knowledge of it due to each study examines employee engagement under s different protocol. In addition, unless
employee engagement can be universally defined and measured, it cannot be managed, nor can it be known if efforts
to improve it are working (Ferguson, 2007). This highlights the problems of comparability cause by differences in
definition. So far none of the definitions has come to dominate the field either as a definition or as a methodology
(Wefald, 2008).

2.2.

Important of employee engagement

It is important for managers to cultivate engagement given that disengagement or alienation is central to the
problem of workers’ lack of commitment and motivation (Aktouf, 1992). Meaningless work is often associated with
apathy and detachment from ones’ work (Thomas & Velthouse, 1990). In such conditions, individuals are thought to
be estranged from their selves (Seeman, 1972) and restoration of meaning in work is seen as a method to foster an
employee’s motivation and attachment to work. These views demonstrate both the humanistic and practical reasons for
providing meaningful work to individuals — personal fulfillment and motivational qualities of such work.

Practitioners and academics tend to agree that the consequences of employee engagement are positive (Saks,
2006). There is a general belief that there is a connection between employee engagement and business results; a metaanalysis of Harter et al (2002) had confirmed this connection. They concluded that “employee satisfaction and
engagement are related to meaningful business outcomes at a magnitude that is important to many organizations”.
Other researches using a different resource of engagement (involvement and enthusiasm) has linked it to such
variables as employee turnover, customer satisfaction — loyalty, safety and to a lesser degree, productivity and
profitability criteria (Harter, Schnitdt & Hayes, 2002).

A highly engaged employee will consistently deliver beyond expectation. In the workplace research on



There are many researches prove that engaging and involving employees make good business sense and

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building shareholders’ value. Negative workplace relationships may be a big part of why so many employees are not
engaged with their jobs. In the research of Robinson et al. (2004), they emphasized that “The organization must work
to nurture, maintain and grow engagement, which requires a two-way relationship between employer and employee”.
In their research, they are much more explicit in highlighting the importance of managers and management style in the
two-way process between the organization and employee. Therefore, leadership is one of factors that organization
striving for employee engagement can not afford to ignore.
2.3.
Leadership theories

Leadership is an important function of management which helps to maximize efficiency and to achieve
organizational goals. The excellent leader not only inspires subordinate’s potential to enhance efficiency but also
meets their requirements in the process of achieving organizational goals. Leadership was earlier defined by Stogdill
(1957) as the individual behavior to guide a group to achieve the common target. According to Richards & Engle
(1986,) leadership is about establishment of vision, value and creation of environment so that the objective can be
accomplished. Robbins and Judge (2007) define leadership as the ability to influence a group toward the achievement
of a vision or set of goals. The sour e of this influence may be formal, such as that provided by the possession of
managerial rank in an organization. Kouzes and Posner (2007) suggested that leadership is about the mobilization of
others to get things done.

The theories about leadership had been developed since the 1900’s. At the beginning, leadership was
considered as an innate ability. According to Great Man theory, leadership is considered an art, for which some
fortunate people had an inbuilt genius and the rest of us could only engage in admiring post-game analyses. Next is the
Trait theory where leadership differentiates leaders from non-leaders by focusing on personal qualities and

specific task (Robbins and Jugde, 2007).

The transactional-transformational leadership model has been a large and important part of leadership research
and theory recently. The terms of transactional-transformational leadership were original developed by Burns (1978)
and then cleared up by Bass (1985). In broader terms, the model explains the characteristics of effective leadership.

Transactional leadership theory is founded on the idea that leadersubordinate relations are based on a series of
exchanges or implicit bargains between leaders and followers (Den Hartog & Koopman, 2002). The exchange may be
economic, political or psychological (Burn, 1978). For example, politicians lead by “exchanging one thing for another:
jobs for votes, or subsidies for campaign contribution”.

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On the other hand, Transformational leadership theory suggested that employees function most effectively
when led in a way that is beyond simple transactions. Transformational leaders inspire followers to transcend their
own self-interests for the good of organization and are capable of having profound and extraordinary effect on their
followers. Transformational leaders helps followers grow and develop their own leadership capacity by responding to
individual follower’s needs, empowering them and by aligning the objectives and goals of individual followers, the
leader, the group , and the larger organization.

There was a numerous researches show that transformational leadership is the most effective leadership which
can move followers to exceed expected performance, as well as lead to high levels of follower satisfaction and
commitment to the group and organization (Bass, 1985, 1998). One of evidences for the above statement is the
experimental research of van Vugt, Jepson, Hart and de Cremer (2004). Participants were randomly assigned to one of
three groups and took part in three investment task trials. The authors manipulated the content of the messages sent by
the leader to the group members to simulate either transactional, transformational, or laissez- faire (non-leadership)
leadership style. After the task trials, individuals were asked whether they wanted to stay in the same group or join a
different group for a subsequent task. The results suggested that participants were more likely to leave the group when

Idealized influence: transformational leaders show great persistence and determination in the pursuit of
objectives, show high standards of ethical, principles and moral conduct, sacrifice self-gain for the gain of other,
consider subordinates’ needs over their own needs and share successes and risks with subordinates (Kedsuda &
Stephen, 2007). The leaders become a role model for their followers. The followers trust, admire, respect the leaders
and strive to emulate them. Subordinates are encouraged to develop in an attempt to reach their full potential. There
are two aspects of Idealized influence: idealized influence attributed and idealized influence behavioral. For Idealized
influence (attributes), leaders are perceived as confident, powerful and focused on higher order ideals and ethics. In
the other hand, leaders with Idealized influence (behaviors) manifest actions centered on values, beliefs and a sense of
mission. These two aspects, measured by separate sub-factors of the Multifactor Leadership Questionnaire (MLQ),
represent the interactional nature of idealized influence. It is both embodied in the leaders’ behavior and in attributions
that are made concerning the leaders by followers. For instance, from MLQ, the item “The leader emphasizes the
importance of having a collective sense of mission” represent idealized influence behaviors while the item “The leader
goes beyond selfinterest for the good of the group” represent idealized influence attributed.

This component can be mapped on Kahn’s (1990) conditions of engagement through relationship factors within
psychological meaningfulness and safety. It is also align with elements of vigor and dedication through developing a
willingness to invest in one’s work and building a sense of inspiration, significance and enthusiasm (Maslach et al,
2001).

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Inspirational motivation: leaders behave in ways that motivate subordinates by providing meaning and
challenge to their work. Team’s spirit is aroused together with the exhibition of enthusiasm and optimism. The leaders
articulate shared vision and goals in clear ways and how they are to be achieved. They also encourage the followers to
envision attractive future states and communicate with them about the expectations and demonstrate a commitment to
goals and shared vision. The inspirational motivation component aligned with the condition of meaningfulness of
Kahn (1990) in that the sense of being involved and valued helps instill feeling of meaningfulness. This also reflected
in facet of dedication of Maslach et al (2001).

2.5.

Relationship between employee engagement and transformational leadership

One of the essential drivers for employee engagement is leadership. This is not surprising as leadership is one
of the most researched topics within organizational and business setting with over 80,000 articles listed in Business
Source Complete and over 25,000 articles listed in PsychINFO databases (Julia & Ian, 2009).

There was a numerous researches show that transformational leadership is the most effective leadership which
can move followers to exceed expected performance, as well as lead to high levels of follower satisfaction and
commitment to the group and organization (Bass, 1985, 1998).
Can transformational leaders influence follower engagement?

Transformational leaders inspire followers with a vision that address their higher needs and engage followers
in the attainment of that vision. The transformational leadership style enhances employees’ feelings of involvement,
cohesiveness, commitment, potency, and performance (Shamir, House & Arthur, 1993). An employee who receives
support, inspiration and quality coaching from the supervisor, is likely to experience work as more challenging,
involving and satisfying, and consequently, to become highly engaged with the job tasks.

Transformational leadership is the combination of four components: idealized influence or charisma, inspirational
motivation, intellectual stimulation, and individualized consideration. Charismatic leaders in the form of
unconventional behavior provide a worthy role model for followers to emulate and thereby directly enhance
innovation by followers. The leadership behavior of inspirational motivation enhances meaningfulness — followers
perceive their work in a context which is personally important to them.

Leaders with intellectual stimulation behavior enhance follower freedom and self-efficacy by allowing followers to

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assessed using the Utrecht Work Engagement Scale (UWES; Schaufeli et al., 2002) which measures the extent to
which employees are engaged in their jobs over three dimensions: vigor, dedication, and absorption. Results showed
that both leadership styles would positive predict employee vigor, dedication, and absorption, but transformational
leadership would have greater power to predict the dimension of employee engagement.

Arnold, Turner, Barling, Kelloway, and McKee (2007) found a partial and a full mediation (in two studies) of
meaning ascribed to work between transformational leadership and psychological well-being. The correlation between
transformational leadership and psychological well-being was .57 (p < .01). Both studies indicated that
transformational leaders have a positive impact on the psychological well-being of their followers (Arnold et al.,
2007). Given the similarities between psychological well-being and engagement, it is likely that transformational
leadership will also have an impact on engagement.

A study looking at transformational leadership and engagement directly was done by Zhu, Avolio, and
Walumbwa (2007). This research operationalized engagement using an industry scale developed by the Gallup
Corporation (the Q12). Broadly, they found that leader-rated follower characteristics moderated the positive
relationship between transformational leadership and follower engagement such that as leaders rated their followers
more positively, the relationship between transformational leadership and engagement was stronger. They also found a
significant positive direct relationship between transformational leadership and engagement (r =.58, p < .01).

In the study of Wefald (2008) on examination of job engagement, transformational leadership and related
psychological constructs, hierarchical regressions were performed to test hypothesis six with control variables in the
first step (manager, gender, age group, education level, and job tenure), personality variables in the second step (big
five personality facets and positive affect), and follower’s reports of their leader’s level of transformational leadership
in the third step. Hypothesis six stated that after controlling for demographic variables and personality, followers’
reports of their direct report’s level of transformational leadership will significantly predict engagement. This
hypothesis was partially supported. The reports of transformational leadership predicted both measures of engagement