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Innovative work behavior in Innovative

work behavior
SMEs: the role of in SMEs

transformational leadership
Emil Knezovi
c and Amina Drki
c
International University of Sarajevo, Sarajevo, Bosnia and Herzegovina
Received 24 March 2020
Revised 6 July 2020
Abstract 22 July 2020
Accepted 22 July 2020
Purpose – The purpose of this paper is to investigate the determinants of innovative work behavior (IWB) by
examining the moderating role of transformational leadership in the context of small and medium
enterprises (SMEs).
Design/methodology/approach – The study surveyed 371 employees from SMEs in Bosnia and
Herzegovina by adopting convenience sampling. Hierarchical regression was used to test the hypotheses.
Findings – The findings supported the authors’ assumptions that IWB determinants such as psychological
empowerment, participation in the decision-making process and organizational justice are positively related to
IWB. Besides, transformational leadership moderates the relationship between organizational justice and IWB.
Research limitations/implications – The data for this study was collected by using convenience sampling
as well as a cross-sectional survey method, which limits the generalization of results.
Practical implications – To spur the IWB among the employees in SMEs, an organization has to create an
environment where psychological empowerment is high, employees have a chance to participate in the
decision-making process and organizational rules and procedures are fair. In the case of organizational justice,
the relationship shall be stronger if transformational leadership is present.
Originality/value – In SMEs, transformational leadership plays an important role. To the best of the authors’
knowledge, this is the first study that demonstrates the moderating effect of transformational leadership on the
relationship between one specific IWB determinant and IWB.
Keywords Innovative work behavior, Psychological empowerment, Participation in the decision-making
process, Organizational justice, Transformational leadership, SMEs, Bosnia and Herzegovina
Paper type Research paper

Introduction
Companies are forced to constantly improve in order to compete for their market share due to
the fact that competition is getting fiercer and markets are becoming more demanding. This
especially holds true for small and medium enterprises (SMEs) that are considered engines of
economic growth and invaluable sources of employment (Subhan et al., 2013). One successful
way for companies to acquire and maintain their competitive advantages is through
stimulated innovation and innovative work behaviors (IWBs). That is why contemporary
businesses strive to encourage their employees to be innovative and creative. Businesses tend
to hire employees who exhibit these characteristics since these abilities influence the
organization’s innovative capacities (Lukes and Stephan, 2017; Stam, 2013). In simpler terms,
organizational innovation is “the successful implementation of creative ideas within the
organization” (Amabile, 1988, p. 126). Most research thus far has observed organizational
innovation from the managerial side rather than that of the employees. Laursen and Foss
(2014), however, argue that people are the key to success or failure, while Getz and Robinson
(2003) demonstrated that most of the ideas in an organization are generated by innovative
employees. Accordingly, investing in human capital and nurturing an innovative culture
within the organization play a big role in facilitating innovation. In principle, innovation
through employees is achieved through what we call innovative work behavior.
Although SMEs are considered as valuable innovators due to their flexible structure Employee Relations: The
International Journal
(Afuah, 1998), IWB models are more commonly applied to studies related to large companies. In © Emerald Publishing Limited
0142-5455
particular, there is a lack of literature on this topic when it comes to SMEs (Stoffers et al., 2018). DOI 10.1108/ER-03-2020-0124
ER The literature is even sparser when it comes to less developed countries – the ones that are
usually facing the biggest problems regarding innovation, productivity and overall
performance. Given the role SMEs perform within any given economic system, along with
the fact that innovation offers a company a valuable competitive advantage, there should be no
question that SMEs can boost employees’ IWB. This is an important topic that needs to be
investigated more thoroughly.
The concept of IWB incorporates reasoning in alternative ways, constantly looking for
advancements, seeking out new ways for achieving tasks, searching for new technologies,
applying distinct work strategies and methods and ensuring resources so that new ideas can
become reality (Yuan and Woodman, 2010). Being aware that IWB can increase
organizational effectiveness, performance and boost employees’ satisfaction, a large
amount of research was produced treating many different factors as potential antecedents.
Such factors that have thus far been studied include individual personality traits, team
characteristics, intrinsic job factors, organizational factors, relationships within the
organization and differing strategies. All of these aforementioned factors have been
investigated as significant triggers of IWB (Scott and Bruce, 1994; Janssen, 2000; Axtell et al.,
2006; Pieterse et al., 2010). This led to the general categorization of IWB determinants to the
organizational and individual levels. SMEs often seek more proactive employees who possess
an entrepreneurial mindset. However, they tend to experience difficulties in managing their
employees due to limited financial resources, job insecurity, growth opportunities and
ineffective human resource practices (Stokes et al., 2016). Stoffers et al. (2018) argue that
conventional behavior becomes obsolete when it comes to modifying processes within the
organization; such organizations need employees that are willing (and competent enough) to
make changes. In essence, the core of IWB lies within the skill sets of individual employees.
This makes SMEs more dependent on their culture, which very often serves as a system of
values and expectations among employees (Xerri and Brunetto, 2011). For them, it is essential
to create an environment where employees feel appreciated by the company and where
employees believe that the system is fair and transparent. That is why empowerment and
organizational justice (OJ) are essential for encouraging employees to engage in IWBs. As
human resource practices evolve around the globe, Beaver and Hutchings (2005) contend that
SMEs need a more strategic approach to human resources. Therefore, the first aim of this
research is to investigate, in the context of SMEs, whether empowerment and OJ
influence IWB.
Furthermore, the framework of IWB has been investigated to identify moderating
variables. As Bysted (2013) stated, there is a need for more research regarding the contextual
variables for IWB. Although most of the ideas in the organization are generated by
innovative employees, they are seldom formally encouraged to innovate (Getz and Robinson,
2003). This leads to the conclusion that innovation and innovative behaviors are not typically
part of the job of the majority of employees; rather they represent a unique dimension of
extraordinary employee behavior. In line with this, Shipton et al. (2016) argue that the
research conducted up to this point is far too limited and neglects several key aspects. One
factor that could affect both the determinants and IWB is transformational leadership (TL).
According to Jung et al. (2003), TL is vital in enabling organizations to foster an innovative
environment where employees are granted the requisite autonomy to think creatively and
provide innovative solutions. This leads to innovative behavior and greater employee
creativity (Jaiswal and Dhar, 2015).
TL can be observed as multidimensional and creative behavior that interacts between
employees and organizational outcomes. In particular, the presence of a transformational
leader leads to greater cohesion between employees and their leader – people are more willing
to express their ideas and potential solutions, take charge and make important decisions
(Green et al., 2013). This atmosphere creates engagement inertia toward their work indicating
that TL could moderate the relationship between IWB determinants and IWB. A vast Innovative
majority of existing literature treats innovation from an owner-manager perspective. In work behavior
SMEs, there is an overall perception that owner-manager is in full control when it comes to the
process of innovation (Nolan and Garavan, 2016; Çakar and Ert€ urk, 2010). This triggers the
in SMEs
need to consider innovation from the perspective of employees. Even though the relationship
between IWB and its determinants is not dependent on TL, the presence of a leader with TL
characteristics can positively influence the outcomes. This could be very true for SMEs where
managers often have a more direct relationship with employees and where, in the context of
limited resources (Mesu et al., 2012), leadership behavior can be reciprocated by
extraordinary employee behavior (such as IWB). Therefore, the second aim of this
research is to investigate whether TL is a moderator in the relationship between IWB and its
determinants within the context of SMEs.
Finally, this study has been carried in Bosnia and Herzegovina (B&H), which is a unique
case among the other transition economies. In B&H, political will and economic strategies are
not favorable for operating businesses (Petricevi
c and Danis, 2007). This has resulted in B&H
being one of the least competitive countries in Europe according to the Global
Competitiveness Index (GCI) (World Economic Forum, 2018). One of the indicators used to
determine GCI is innovation. Such low competitiveness is a consequence of the business
environment in B&H, which faces many unfavorable internal circumstances that have
burdened businesses and, as a result, has led to extremely high levels of unemployment, high
levels of black market activities and a large brain drain. As much as governmental lethargy is
not helping the situation, a certain degree of responsibility must be placed on the businesses
themselves since employees often are underpaid, exploited and have limited growth
opportunities. That is why there is a need to further investigate the possibilities for improving
competitiveness on the micro level (Knezovi
c et al., 2020a), especially since empirical research
on this matter remains scarce. SMEs represent 97% of total enterprises in B&H and account
for almost half of the total employed force (Agency for Statistics of Bosnia and Herzegovina,
2019). Despite this, recent studies have provided empirical evidence related to improving the
business performance within SMEs in B&H from the entrepreneurial perspective (Palali
c
et al., 2017; Petkovi
c and Sorak, 2019) and HR perspective (Knezovi
c et al., 2020b). However,
none of them has focused on innovation or more specifically IWB. As innovation is
considered as an important pillar of organizational competitiveness, the third aim of this
research is to discuss the practical implications of IWB for SMEs in the specific case of B&H.

Determinants of innovative work behavior

Most organizations are aware of the fact that individual innovation is profitable. Amabile
(1988) argued that the organization, which strives to be highly competitive in the market and
seeks to gain a competitive advantage, has to ensure that its workers are willing and able to
engage in IWBs. This was a unique model that offered the first theory of organizational
innovation and creativity that attempted to describe the interaction of organizational
innovation and individual creativity and their mutual influence on each other (Amabile and
Pratt, 2016). Following this proposition, various determinants of innovative behavior have
been explored. The broad literature review suggests that innovation is influenced by
environmental, organizational and individual factors (West and Farr, 1990; Kheng et al.,
2013). However, when it comes to IWB, the biggest focus was on individual characteristics
with the assumption that everything starts on a personal level (Scott and Bruce, 1994).
The concept of IWB determinants can be derived from the concrete conceptual model
offered by Ramamoorthy et al. (2005). They argued that the effectiveness of IWB is not based
on the influence of single predictor, but of integrated predictor framework at different job
levels. In fact, they argued that OJ, psychological contract and job autonomy are job-related
dimensions that encourage IWB. This framework can be extended to SMEs since taking into
ER consideration their limited resources, they are still considered as a favorable ground for
innovation. That is why SMEs have to create an environment where employees are more
likely to exhibit extraordinary employee behavior. This environment has to be people-centric
since, in the absence of formality, the existence of HR practices and culture is mostly
measured by employees’ perceptions.

Empowerment
Empowerment can be divided into two different but related constructs: structural and
psychological. While structural empowerment refers to the power that an employee has
based on the position occupied in the organization, psychological empowerment (PE) is
regarded as an internal motivating factor responsible for employees’ active involvement in
the organization itself (Spreitzer, 1995). The key element regarding structural empowerment
is connected to the active involvement of employees in decision-making processes. Regarding
this, De Jong and Den Hartog (2010) have proposed that employee autonomy along with
employee participation in decision-making processes stimulates employees to generate and
ultimately implement new ideas.
Unlike the structural empowerment, which is more at the organizational level, PE is
primarily located within the individual. Spreitzer (1995) defines PE as a motivational
construct that is manifested in four cognitions: meaning, competence, self-determination and
impact. The perceptions employees have regarding the meaningfulness of their tasks impact
their innovative behaviors and motivate them to make more effort in cases where their
personal values are in line with the values of their goals (Singh and Sarkar, 2012). Also, it has
been proposed that employees tend to be more creative and innovative when they perceive
both self-determination and competence to be high. This indicates that employees will exhibit
more IWBs when they feel more competent and confident in handling their job-related issues.
Small businesses tend to have more indirect HR mechanisms that are largely based on daily
interactions between managers and employees. Such a system provides more of an “informal
dimension” to the empowerment and employee participation, which has its benefits,
especially since higher levels of flexibility are required. Based on this, we propose that:
H1. In SMEs, there is a positive and significant relationship between PE and IWB.
H2. In SMEs, there is a positive and significant relationship between participation in the
decision-making process (PDMP) and IWB.

Organizational justice
While empowerment provides a certain degree of control and power to employees, to be
effective, it has to be accompanied by a transparent and fair incentive program. Employees
usually perform higher levels of innovative behaviors when they perceive that their efforts to
innovate are supported and appreciated (Scott and Bruce, 1994). Moreover, when employees
realize that their efforts are fairly rewarded by the organization, they are motivated to
transform higher job demands into IWB as a way of coping with the heavy workload,
whereas they tend to restrict the IWB when they feel like they are inadequately rewarded
(Janssen, 2000). Besides, the concept of fairness is closely related to overall OJ, which is
considered to be an important element of organizational culture (Erkutlu, 2011). Baldwin
(2006) defined OJ as “the extent to which employees perceive workplace procedures,
interactions, and outcomes to be fair in nature” (p. 1).
In an SME setting, such a program is mostly experienced through cultural norms where
employees must fully internalize the idea that they are being treated and rewarded fairly.
That is why in such settings organizational culture is a significant factor; it indicates
expectations for behavior and the potential outcomes of these behaviors (Yuan and
Woodman, 2010). Since small size businesses are not well-known for formalized procedures – Innovative
especially in developing countries where the treatment of employees is often suboptimal – it is work behavior
very important to ensure that employees trust the system. That is why the perception of OJs
can influence employee attitudes toward the organization, which later on reflects in their
in SMEs
performance, among which is IWB. To test the relationship between OJ and IWB in SME
setting, we hypothesize the following:
H3. In SMEs, there is a positive and significant relationship between OJ and IWB.

Moderating role of transformational leadership

The influence of leadership and different leadership styles on individual innovation has been
in focus in more recent times (Scott and Bruce, 1994; Janssen, 2000; Axtell et al., 2006). The TL
style was presented as one of the determinants of innovative behavior since such leaders are
better suited to motivate employees to further develop their own skill sets. Bass and Avolio
(1990) characterized TL through four components (or the so-called “4I’s”): inspirational
motivation, idealized influence, intellectual stimulation and individualized consideration. In
principle, TL is about the moral values of followers; it is about increasing their ethical
consciousness and encouraging them to maximize their energy and resources to change
institutions (Burns, 1978). Besides, transformational leaders are often charismatic and have a
strategic vision that inspires others to be creative and innovative (Pieterse et al., 2010).
According to Bass and Riggio (2006), such leaders are crucial for an employee’s growth and
development by responding to their individual needs, empowering them and aligning their
goals with a broader vision of the organization.
Most of the studies on TL and organizational performance have focused on two
organizational outcomes: financial and innovation (Bass et al., 2003; Judge and Piccolo, 2004;
Yukl, 2010; Northouse, 2010; Wang et al., 2011; Ocak and Ozturk, 2018). Furthermore, Senge
et al. (1994) argued that TL influences organizational performance by creating a competitive
advantage through innovation and knowledge stimuli. Regarding the employees, previous
studies have shown the diverse influence of TL (Erkutlu, 2008). Researchers argued that TL
positively influences different employee-related outcomes such as subordinates’ formal task
performance and contextual performance (Judgeand Piccolo, 2004), followers’ perceptions of
their work characteristics (Bass, 1999; Nielsen et al., 2013), organizational commitment of
subordinates (Rowden, 2000), teamwork improvement in the respondents’ companies
(Tabassi et al., 2014) and work engagement (Ghadi et al., 2013; Hayati et al., 2014). Most of the
studies focused on the relationship between TL and creativity, but very few of them have
adequately addressed the importance of TL on IWB (Afsar et al., 2014). The role of TL on IWB
was described by Masood and Afsar (2016); TL is a type of leadership that “seeks
transformation or changes, and encourages employees to think and solve problems
innovatively” (p. 2). Since the leaders in SMEs have less oversight and bureaucracy,
transformational leaders are enabled to easily set up the challenging goals, introduce new
ways of operating and facilitate employees toward innovative thinking. Such leadership
creates an atmosphere in which employees are free to engage in innovative practices.
Therefore, we argue that:
H4. In SMEs, there is a positive and significant relationship between TL and IWB.
However, our main point is not to demonstrate the role of TL on IWB, but rather to show
whether, in the presence of TL, the relationship between IWB determinants and IWB is
stronger. Our argument is based on the role of TL in the organization, which is shown as
multidimensional. Not only does TL influence different organizational outcomes, but it also
improves the processes that already influence organizational outcomes (Gundersen, et al.,
2012). The moderating role of TL was examined on different relationships such as those
ER related to professionalism, openness and work engagement (Jeong et al., 2016), managers’ and
employees’ organizational commitment (Jacobsen and Staniok, 2018) and demographic
diversity and organizational outcome (Muchiri and Ayoko, 2013). However, the moderating
role of TL on the relationship between IWB and its determinants is yet to be investigated.
As an extraordinary work behavior, it is hard to expect that IWB will happen without
strong motivation that can be derived from organizational and supervisor support.
Transformational leaders tend to include employees in the decision-making process by
granting them the necessary autonomy to properly direct their own tasks and duties, which in
turn results in more motivated employees who are willing to propose new solutions and work
on improvements in the organization (Axtell et al., 2006). Due to the positive behavior of a
participative type of leaders, employees are more likely to show positive outcomes, such as
good performance and job satisfaction. Furthermore, those lacking sufficient self-confidence
to at least try and participate in the decision-making process will be triggered to try, while
those who are self-confident will be provided the opportunity to take charge and show their
full leadership potential. Besides, as a kind of influential entity, transformational leaders tend
to build trust in their followers, which increases their belief in overall OJ (Knippenberg et al.,
2004; Katou, 2015). This is in line with Palanski and Yammarino’s (2007) argument that
trustworthiness and integrity are pillars of effective TL. In particular, reciprocity norms are
embedded in TL where the trust in a leader tends to make those with high perception about OJ
more committed and loyal toward the system while moving those with low perception toward
a more positive attitude. Therefore, we can conclude that the effect of TL is two-dimensional.
Transformational leaders can play an important role in strengthening the relationship
between IWB and its determinants by making workers feel appreciated and fostering
sustainable group cohesion. Stordeur et al. (2001) stressed that transformational leaders are
valid standardizer of negative effects that the work environment can produce. Besides, they
can go far beyond pure coaching and inclusiveness. They are the ones responsible for
creating learning processes that lead to better organizational performance (Edmondson,
2002). If we have a mechanism (determinants) that leads to the desired output (IWB), TL can
serve as “high-quality fuel.” This is because transformational leaders bring an interactive
environment that provides clear direction, support, intellectual stimulation and trust.
Transformational leaders who exhibit the “4I’s” encourage positive attitudes among their
employees, which can have a positive effect on the overall creativity and culture of the
business (Cohen-Meitar et al., 2009). This is in line with the argument made by Jung et al.
(2003), who contends that TL is a key element of a successful organizational environment. As
such, they can contribute to the environment where employees are encouraged to think
creatively and bring new perspectives. This type of environment encourages IWBs since
transformational leaders are able to empower employees, convince them to take the initiative
and make decisions, make them feel safe and build trust that their contribution will pay off.
In principle, our argument is grounded in social exchange theory (SET). We expect that
employees who perceive higher empowerment and justice within their organization will
engage in extraordinary employee behavior. In such a case, we believe that TL is dominant
enough to influence such a state with employees. The more present TL is, the higher the
confidence of employees and a sense of importance regarding empowerment and justice will
be, which results in higher IWB. It is for the reason that the literature in SMEs presents HRM
as either leader-centric or relational (Adla et al., 2019). Therefore, adding the nature of small-
size businesses and a more direct relationship of employees with managers, there is a strong
assumption that TL will strengthen the relationship between IWB and its determinants. In
particular, we expect to find that employees who exhibit IWBs will be more likely to display
their full potential. On the other hand, the ones that are usually characterized by low IWB are
more likely to start with it due to added support from a transformational leader. This leads to
our final hypothesis:
 H5. In SMEs, TL moderates the relationship between IWB determinants and IWB. Innovative
Since we are testing the moderating effect on three different relationships, we work behavior
suggest the following subhypotheses:
in SMEs
H5a. TL moderates the relationship between PE and IWB.
H5b. TL moderates the relationship between PDMP and IWB.
H5c. TL moderates the relationship between OJ and IWB.
To summarize, we present a conceptual model that encompasses all the arguments stated
earlier. Figure 1 presents the conceptual model that incorporates the hypotheses developed in
this study.

Methods
Participants and procedure
The data used in this study were gathered from employees working in SMEs in B&H as part
of a larger research project. According to the Agency for Statistics of Bosnia and Herzegovina
(2019), the classification of companies is aligned with EU regulations, which categorize SMEs
as companies with less than 250 employees. We gathered cross-sectional data from February
2019 to May 2019, which resulted in our final sample of 371 employees.
Due to the unavailable public registry of employees, we had to use convenience sampling,
which is a common method in such a situation (Vandekerkhof et al., 2019). That is why we
tried to collect data from a large and divergent sample since this would minimize the risk of
sample bias. Among the respondents, most were employees from service companies (58%),
followed by manufacturing companies (16%), trade companies (14%) and others (12%). The
average employee age was 34, with a little less than 10 years’ work experience and tenure
with the company above five years. There also were more female employees (53%) and more
highly educated employees (68%).

Instrument design and measurement

The questionnaire was distributed to employees in either print or online versions. This
allowed for a greater number of employees to be included. Since we adopted the original

Figure 1.
Conceptual model
ER constructs, which were in English, we utilized a back-to-back translation method into the
local language in order to ensure content validity and accuracy. Furthermore, to ensure
voluntary participation and guarantee data privacy, respondents were provided an informed
consent form that they had to sign before they proceeded with answering the questions.
IWB was measured using six items adopted from the De Jong and Den Hartog (2010) scale.
In this construct, respondents answered how often they do several actions in their jobs related
to innovative output. The response scale ranged from 1 5 “never” to 5 5 “always.” To
measure PE, we adopted the 12-item scale developed by Spreitzer (1995). The scale contains
four subdimensions: meaning, competence, self-determination and impact. All the items were
scored on a five-point Likert scale, ranging from 1 5 “strongly disagree” to 5 5 “strongly
agree.” Participation in decision-making (PDMP) was measured by five items. The scale is
based on the work of Steel and Mento (1987). All the items were presented with a seven-point
Likert scale, ranging from 1 5 “strongly disagree” to 7 5 “strongly agree.” OJ was measured
using Colquitt’s (2001) scale on procedural and distributive justice. This was based on 11
items measured on a five-point Likert scale, ranging from 1 5 “strongly disagree” to
5 5 “strongly agree.” Finally, TL was measured using 12 items adopted from Bass and
Avolio (1992). The scale was composed of four TL dimensions: idealized influence,
inspirational motivation, intellectual stimulation and individualized consideration. All the
items were scored on a five-point Likert scale, ranging from 1 5 “strongly disagree” to
5 5 “strongly agree.”
Following the previous literature, we controlled for several important factors such as
education, tenure and gender of employees. The education level was categorized at five
distinct levels (1–5): primary school, secondary school, bachelor’s degree, master’s degree and
PhD degree. The tenure was measured as the length of time in years spent in the current
company. Finally, gender was measured using a dummy variable (1 5 male, 2 5 female).

Results
Pretesting
The analysis has been divided into two parts: pretesting and hypotheses testing. For the first
stage, we used reliability test, confirmatory factor analysis (CFA), descriptive statistics and
correlation matrix, while for the hypotheses testing we used hierarchical regression.
For measuring reliability, we used Cronbach’s coefficient alpha test. A construct that
delivers a reliability coefficient of 0.70 and above is usually considered as a reliable one
(Bekele et al., 2014). The reliability test has shown that all constructs scored more than 0.90
indicating that the instrument used provides a highly reliable measure. Furthermore, the
correlation coefficients show that the strength of the correlation between variables ranges
from weak to moderate. Since there is a presence of some relatively higher correlations
between variables, there was a concern with common method bias. For that purpose, we ran
Harman’s single-factor test, which showed a single factor in extracting was 40.69%. Since a
common threshold is 50%, we conclude that there is no track of common method bias.
Since we used the already established constructs, CFA was performed to validate them.
For this, we tested for convergent and discriminant validity. In total, all 46 items were
significant (t > 1.96; p < 0.001), and all of their factor loadings of estimated parameters were
above 0.4. Besides, we calculated the average variance extracted (AVE). All the values except
PE were above 0.5, which is considered as a common threshold (Bagozzi and Yi, 1988).
However, according to Fornell and Larker (1981), if AVE value of a construct is lower than 0.5
(e.g. PE), but composite reliability (CR) higher than 0.6, the convergent validity for a particular
construct can be considered as adequate. Therefore, we can state the convergent validity for
all the constructs was established. For discriminant validity, we selected the square root of
AVE and from Table 1 we can see that the values (in brackets) are greater than the correlation
of paired coefficients, which demonstrates distinctions of the constructs. Finally, the fit Innovative
indexes related to five constructs (PE, PDMP, OJ, TL and IWB) supported the overall fit of the work behavior
model to the data with x2 5 2068.37, degrees of freedom (df) 5 943, x2/df 5 2.19, confirmatory
fit index (CFI) 5 0.93 and root-mean-square error of approximation (RMSEA) 5 0.057.
in SMEs

Hypotheses testing
Hierarchical regression was utilized to test the hypotheses proposed in this study. In
particular, gender, education and tenure were initially added as the control variables (Model
1). After this, we added PE, PDMP and OJ separately to the Model 2. In Model 3, the effect on
IWB by adding TL was tested. Finally, to test the moderating effect of TL between the
aforementioned determinants of IWB, the interaction variables were added. The results of the
hierarchical regression are presented in Table 2.
As it pertains to the control variables, the strongest theoretical foundation is presented for
variables such as gender, education and tenure. However, the research produced mixed
results. For example, in the case of tenure, researchers seem to be the most contradictory. On
the one hand, the researchers, such as Pieterse et al. (2010) and Bysted (2013), found a negative
relationship between tenure and IWB. They argued that the motivation to engage with IWB
decreases over time spent in the company. On the other hand, some researchers such as
Woods et al. (2018) found a positive relationship between these two constructs, while some
researchers such as Janssen (2000) and Miron et al. (2004) found the relationship to be
insignificant. Our model shows that tenure is significant. Besides, we can see that the
educational level is positively related to IWB, while the relationship between gender and IWB
is insignificant.
Model 2 presents the results for the first three hypotheses. The results indicate that all
three determinants are positively related to IWB and that together they explain an additional
36% of the variance. This means that PE, participation in decision-making and OJ are
important determinants of IWB. Therefore, we can conclude that H1, H2 and H3 are
supported.
Regarding the TL, it was hypothesized that TL additionally explains IWB (Model 3). The
results showed that TL explains additional variance (1.4%) in IWB. Therefore, there is
sufficient evidence to support H4. Finally, TL was hypothesized to have a moderating effect
on the relationship between selected determinants of IWB (PE, PDMP and OJ) and IWB. The
results showed that the interaction effect is only significant in the case of OJ. This means that
the employees with a high perception level of OJ while experiencing a high level of manager’s
TL can improve in work areas that lead to higher IWBs. As it concerns PE and PDMP, the
results suggest that their relationship with IWB is not moderated by TL. In conclusion, H5 is
supported partially.

Discussion and conclusions

This study aimed to investigate how SMEs can boost the IWB of their employees. For that
purpose, we presented a theoretical model of the relationships between IWB and its
determinants by taking into consideration the moderating effect of TL. Although the research
on innovation and more specifically on IWB is present for decades, it is limited in several
aspects. First of all, most of the previous studies observed innovation from the managerial
perspective, completely neglecting the employee side. Second, the vast research treated the
topic within large companies. Finally, the context of research was mostly within American or
Western Europe samples. In response to a growing research interest in IWB, this study made
two important contributions to the literature.
First, we investigated the antecedents of IWB from two perspectives: empowerment and
justice. The study was contextualized within SMEs where previous research produced mixed
 ER

Table 1.
Pretesting indicators
M SD α CR AVE 1 2 3 4 5 6 7 8

1 IWB 3.63 0.81 0.92 0.91 0.63 (0.80)

2 PE 3.94 0.68 0.92 0.90 0.44 0.60** (0.66)
3 PDMP 4.87 1.42 0.95 0.95 0.78 0.50** 0.63** (0.88)
4 OJ 3.29 0.9 0.94 0.93 0.55 0.40** 0.47** 0.61** (0.75)
5 TL 3.77 0.78 0.96 0.96 0.66 0.51** 0.62** 0.66** 0.53** (0.81)
6 Gender – – – – – 0.03 0.05 0.03 0.03 0.06 –
7 Education – – – – – 0.18** 0.17** 0.18** 0.07 0.08 0.12* –
8 Tenure – – – – – 0.08 0.03 0.09 0.05 0.05 0.15** 0.22** –
Note(s): N 5 371. *p < 0.05; **p < 0.01. Square root of AVE is presented in the brackets
 Model 1 Model 2 Model 3 Model 4
Innovative
work behavior
Gender 0.025 0.017 0.009 0.000 in SMEs
Education 0.203** 0.096 0.106* 0.109**
Tenure 0.124* 0.131* 0.132** 0.129**
PE 0.447** 0.393** 0.245
PDMP 0.142* 0.081 0.334
OJ 0.106* 0.077 0.538*
TL 0.169** 0.260
PExTL 0.315
PDMPxTL 0.385
OJxTL 0.903*
ΔR2 0.046 0.362 0.014 0.017
R2 0.046 0.408 0.422 0.439
Adjusted R2 0.039 0.399 0.411 0.424 Table 2.
ΔF 5.963** 74.196** 8.640** 3.171* Results of hierarchical
Note(s): N 5 371. *p < 0.05; **p < 0.01 regression analysis

results (Helmy et al., 2019). Furthermore, the determinants of IWB have been extensively
presented throughout the research, but there are no studies done in B&H. Finally, we took
employee perspective due to the assumption that innovation starts from the individual and
that businesses these days tend to attract, develop and retain entrepreneurial employees
(Bosma et al., 2012; Nystr€om, 2012; Stam, 2013). Our findings show that in SMEs, if employees
are psychologically empowered, they are more likely to engage in change processes and IWB
in its nature is a process of change. Furthermore, if the organization provides room for
employees to propose ideas, solutions and make decisions, they are more willing to take
charge. Besides, employees who perceive their organization as just and fair tend to engage
more, thus resulting in more innovative behavior. Our results are in line with previous studies
that were performed within large or mixed sample-size companies (Axtell et al., 2006; De Jong
and Den Hartog, 2010; Janssen, 2000; Ramamoorthy et al., 2005; Scott and Bruce, 1994).
Therefore, this study emphasizes the crucial role of individual and organizational
characteristics in fostering an innovative environment within small-sized businesses as well.
Second, we extended the model by explaining the moderating role of TL on IWB within
SMEs. This extension was the most significant contribution of the paper. As argued,
transformational leaders are those who transmit idealized influence, inspirational motivation,
intellectual stimulation and individual consideration (Saidon et al., 2013). In principle, the core
of TL is about “encouraging the employees to work for the shared vision of organization”
(Islam et al., 2018, p. 667). Within the SMEs, the role of a leader is even more powerful due to
the nature of the relationship with the employees. SMEs are more exposed to the effects of the
dynamic business environment and that is why a conducive environment within an
organization created by transformational leaders tends to stimulate employees to be more
proactive and to use their intellectual abilities to identify opportunities and improve
productivity (Higdon, 2005).
The results showed that within SMEs, TL is an important moderator when it comes to the
relationship between OJ and IWB. This means that within the presence of a transformational
leader, an employee’s perception toward the OJ (or in simple terms: trust) in processes is
higher. Since the leader is the representative of the team or the organization, employees often
tend to associate an organization’s core values through the leader. That is why a
transformational leader can improve employee attitudes toward the organization. This
extends previous findings that were based solely on direct relationships between OJ and IWB
without taking into consideration contingency factors (Akram et al., 2016). On the contrary,
ER we did not find evidence that the transformational leader is a moderator in the relationship
between empowerment and IWB and employees’ PDMP and IWB. This could be understood
via the work of Bakker and Demerouti (2007) regarding job demands–resources theory.
Although the logic of being empowered and having a transformational leader should boost
IWB, job demands are also related to IWB (Jansen, 2000). If job demands are considered as
challenges that motivate employees (Bos-Nehles and Veenendaal, 2017), securing all
necessary conditions for IWB (i.e. PE, employee PDMP and support from transformational
leader) can make employees “too comfortable” with their job. This can potentially have
negative consequences. Therefore, when a leader lacks the “4I’s,” the job itself becomes more
difficult, and more innovative employee behavior is required.

Practical implications
In the context of SMEs, IWB can be enhanced through PE, employee involvement in the
decision-making process and the sense of OJ. To psychologically empower someone, the
manager has to develop a more personal relationship to understand employee needs. It is of
crucial importance to understand that PE is not a one-time incentive but rather an ongoing
process that goes through main employee management stages such as selecting, developing
and retaining. For example, SMEs could focus on more proactive employees that have
individual career goals compatible with the organizational ones, which is one of the
requirements for PE. Since managers in small-size businesses very often tend to seize all the
power, the recommendations here are twofold. First, they may encourage the general
participation of employees through meetings where they encourage sharing ideas and
opinions, which can influence the actual decision-making process. Besides, the structural
approach to business is needed where managers can identify some aspects of decision-
making that could be decentralized. It is essential to focus on job design that will provide
autonomy to employees.
Regarding OJ, it is very important to understand that although many SMEs do not have
written rules and policies, the sense of justice has to be felt by the employees. Therefore,
leaders should have a fair system and should communicate their decisions to ensure
transparency. Therefore, organizations should foster a TL approach within not just the
general manager but also with the supervisors where those who can develop effective
personal relations, articulate a vision, intellectually stimulate and inspire should be in
position.
Besides, this study is very important for the context where it was performed. In B&H, the
labor market is characterized by two main characteristics: high unemployment and brain
drain. According to the Global Competitiveness Report, B&H has been ranked as a 135th
country out of 137 countries for its capacity to retain talent and 103rd out of 137 when it
comes to the overall GCI (Stojanovi
c and Niksi
c, 2018; World Economic Forum, 2018). In
particular, brain drain, the emigration of the qualified labor force and low competitiveness of
the business sector have said to be among some of the most serious problems for B&H and
other Western Balkan states. That is why the focus on IWB and its determinants – since IWB
represents one of the key factors for competitive advantage in the market – is essential for the
sustainable models of companies in B&H.

Limitations and future research

Even though this study presented some promising findings regarding IWB, its determinants
and TL as a predictor and moderator, it was constrained by several limitations. First, we used
a convenience sampling method, which limits our ability to generalize the results to the entire
population. However, similar results across different cultures and regions would reduce such
concerns since it would help the instrument to gain population validity. Second, a cross-
sectional survey method was used. This method measures the variables at one point in time, Innovative
which represents the constraint in testing the actual causality. Even though the results are work behavior
supporting the hypotheses, future studies should concentrate on a longitudinal approach to
explain the theoretical foundation regarding causality. Finally, this study measures employee
in SMEs
perceptions of several HR practices and employee-related outcomes across different
industries. Here, future studies might include a multilevel response approach to measure
managers’ perceptions as well. In conclusion, focusing on a single industry would provide an
opportunity to generalize and provide concrete recommendations for a particular industry.

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Further reading
Bass, B.M. (1985), Leadership and Performance beyond Expectations, Free Press, New York, NY.
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groups”, Creativity Research Journal, Vol. 13 No. 2, pp. 185-195.

About the authors

Emil Knezovi
c, PhD, is the Head of the Department of Economics and Management at the International
University of Sarajevo. His research interests include human resource management, entrepreneurship
and small business management. So far, he has published several articles in refereed international and
national journals. Besides, he has published several book chapters, and recently, he coedited a book
entitled “Women’s entrepreneurship in former Yugoslavia: historical framework, ecosystem, and future
ER perspectives for the region.” Emil Knezovi
c is the corresponding author and can be contacted at:
[email protected]
Amina Drki
c holds an MBA degree from the Faculty of Business and Administration (FBA) at the
International University of Sarajevo (IUS). Her practical expertise is in accounting where she worked for
a couple of years. Also, she has been working as a freelance translator for several years.

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