P-ISSN: 2827-9832
E-ISSN: 2828-335x
http://ijsr.internationaljournallabs.com/index.php/ijsr
412
THE INFLUENCE OF TRANSFORMATIONAL LEADERSHIP ON
COMPANY PERFORMANCE WITH ORGANIZATIONAL
INNOVATION AS A MEDIATING VARIABLE IN PERUMDA TIRTA
HITA BULELENG
I Gede Bobi Suryano
1
, I Nengah Suarmanayasa
2
, Trianasari
3
1
Graduate Student of Master of Management Ganesha University of Education,
23
Ganesha University of Education
igedebobi15@gmail.com, nengah.suarmanayasa@undiksha.ac.id, nanatrianasari01@undiksha.ac.id
ABSTRACT
Perumda Tirta Hita Buleleng during the 2017-2022 period has a good and healthy performance but if further
analyzed the value obtained from the performance assessment decreases from year to year. This condition
indicates that although performance achievements are included in the good and healthy category, there is a
decrease in the quality value of governance in Perumda Tirta Hita Buleleng. This research analyzes the
influence of transformational leadership on Company Performance using mediation variables in the form of
organizational innovation at Perumda Tirta Hita Buleleng. The population in this study was all employees at
Perumda Tirta Hita Buleleng. Determination of samples using the purposive sampling method, namely
employees who have a minimum work period of 3 years and other related ones totaling 100 people. This
research uses a quantitative research design, which is based on the positivism paradigm. The data in this
study was collected in the form of questionnaires and the data were managed using Structural Equation
Modeling (SEM) with a Partial Least Square (PLS) approach. The results of this study show that:
Organizational Innovation has a positive and significant effect on company performance, meaning that
increasing organizational innovation in Perumda Tirta Hita Buleleng can improve company performance.
Based on the research findings and analysis of the research results, it can be concluded that organizational
innovation and transformational leadership have a positive and significant effect on company performance.
Keywords: transformational leadership, organizational innovation, corporate performance
This article is licensed under CC BY-SA 4.0
INTRODUCTION
Based on a report from Top Bisnis Indonesia (June 2021) stated that all business sectors
in Indonesia experienced the impact of a decrease in turnover due to limited business activities
that created economic pressure for most people. A number of industrial sectors that have closed
have caused the level of basic consumption of electricity, water, and basic industrial needs to
decrease significantly, including drinking water management companies. Drinking water
management companies throughout Indonesia experienced a decline in revenue due to a
decrease in water consumption in the commercial business sector. Although indications of
water consumption during the pandemic increased because people were doing more activities
at home, on the one hand, the majority of the industrial sector chose to temporarily close
business operations, so this condition caused the income of regional drinking water companies
to decrease significantly. Regional Public Company (Perumda) Tirta Hita Buleleng is one of
the regional drinking water companies in Buleleng Regency, Bali Province that has been
affected by Covid-19. During the Covid-19 period in
Table 1 Performance Assessment of Perumda Tirta Hita Buleleng based on Kepmendagri
No. 47 of 1999 and the Ministry of PUPR for the 2017-2021 Period
The Influence of Transformational Leadership on Company Performance with Organizational
Innovation as a Mediating VariableiIn Perumda Tirta Hita Buleleng
413 2, 2., Januari 2023
Year
Performance Appraisal
Kepmendagri No. 47 of
1999
Ministry of PUPR
Value
Success
Classification
Success
Classification
2017
72,30
Good
Healthy
2018
73,88
Good
Healthy
2019
72,50
Good
Healthy
2020
72,08
Good
Healthy
2021
70,38
Good
Healthy
Source: Secondary Data (processed, 2022)
Based on Table 1 above, it can be seen that based on the performance assessment from
Kepemdagri No. 47 of 1999 and the Ministry of PUPR during the 2017-2021 period, shows
good and healthy performance. Good and healthy performance shows that Perumda Tirta Hita
Buleleng has good governance, but if further analyzed, the value obtained from performance
appraisal decreases from year to year. This condition indicates that although performance
achievements are included in the good and healthy category, there is a decrease in the quality
value of governance in Perumda Tirta Hita Buleleng. Performance achievements in the 2017-
2021 period included profitable and healthy conditions but in terms of corporate governance,
value decreased throughout the period of the year. This gives an indication that there is a
decline in the quality of governance and performance in Perumda Tirta Hita Buleleng based on
two assessments from the ministry. Factors of changes in the external environment due to the
occurrence of Covid-19 trigger a decrease in the overall performance of the organization.
Organizational overall performance dimension targets the sustainability of the manner of
identifying, measuring, and growing the overall performance of people and running companies
and aligning overall performance with the strategic goals of the enterprise It is vital to make
certain that worker overall performance is aligned with the company`s strategic goals (Ismail
& Gali, 2017). Several previous studies have shown results that innovative companies tend to
achieve higher performance. The development of innovations in the organization in general
has a direct impact on the performance of the enterprise. Specifically, organizational innovation
goals to enhance the overall performance of the business enterprise thru the implementation of
enterprise strategies and practices that bring about better performance and decrease expenses
thru enterprise reengineering, paintings responsibilities that don't want to be removed in order
that the performance of the business enterprise is better even as the value is decreased. New
organizational strategies withinside the business enterprise`s enterprise practices also can result
in better high-satisfactory of labor and purchaser service. In fact, the OECD (2005) indicates
that organizational innovation can enhance the place of business pride or productiveness and/or
lessen administrative/transaction costs, which in turn, results in better commercial enterprise
performance. Therefore, theoretically, organizational innovation will enhance the company`s
performance (Bigliardi, 2013; Marques & Ferreira, 2009; Ndubisi & Iftikhar, 2012; Roberts
& Dowling, 2000).
Transformational leadership has been described as a leadership approach that allows
organizations to create change in people and social systems (Strukan et al., 2019). The changes
The Influence of Transformational Leadership on Company Performance with Organizational Innovation as
a Mediating VariableiIn Perumda Tirta Hita Buleleng
414 2, 2., Januari 2023
created are useful and real with the aim of developing followers into leaders (Rattanaborworn
& Ussahawanitchakit, 2015). Transformational leadership supports employee achievement
and a level of self-development. In essence, transformational leadership is a theory of
leadership in which managers encourage, inspire, and intellectually stimulate their followers to
valuable innovation and positive change, which helps to encourage and shape the future
competition of the organization. The concept of transformational leadership highlights the
rewards, sentiments, and importance of leadership adopted to drive innovation in individuals
(Abazeed, 2018; Rohana & Abdullah, 2017).
Several previous studies have found that transformational leadership can increase
organizational innovation. Leadership is identified as a factor that influences organizational
innovation. Leadership is very important to implement and implement innovation strategies,
develop organizational learning, and motivating teams to innovate. Leadership is one of the
important factors that determine the extent to which employees will strive to innovate (Arif &
Akram, 2018).
Several previous studies have found that transformational leadership can increase
organizational innovation. Leadership is identified as a factor that influences organizational
innovation. Leadership is very important to implement and implement innovation strategies,
develop organizational learning, and motivating teams to innovate. Leadership is one of the
important factors that determine the extent to which employees will strive to innovate ((Arif &
Akram, 2018). So this study will use transformational leadership as an antecedent of company
performance with organizational innovation as a mediation variable.
METHOD
This research uses a quantitative research design, which is based on the paradigm of
positivism. Positivism is an approach that departs from the belief that the legitimacy of science
and research comes from the use of precisely measurable data, obtained through
surveys/questionnaires and interviews then combined with statistics and hypothesis testing that
are value-free/objective. Quantitative research is used because this approach has a strong
theoretical basis so it is easy to generalize. A phenomenon can be analyzed to then find the
relationship between the variables involved in it. The relationship is a correlation relationship
or causal relationship analyzing the influence of organizational innovation and
transformational leadership on company performance (Organizational performance).
This research was conducted first using interviews and observations since conducting the
initial survey and distributing questionnaires to respondents and then calculating three financial
ratios to assess the quality of financial decisions. Furthermore, quantitative analysis is based
on multivariate analysis using structural equation modeling or SEM (structural equation
modeling) based on Partial Least Square (PLS).
In this study, the population of places that were conserved was leaders, employees/staff
totaling 335 people. The sample of organizations that will be used as the object of research is
represented by decision-makers in the industry (company), namely leaders/managers related to
decision-making related to the orientation of the company's strategy, such as Head of Section,
Head of Sub-Section, Staff who have a minimum service period of 3 years and other related.
This is done on the grounds that employees who have a minimum service period of 3 years
have been declared eligible to be appointed as permanent employees of Perumda Tirta Hita
The Influence of Transformational Leadership on Company Performance with Organizational
Innovation as a Mediating VariableiIn Perumda Tirta Hita Buleleng
415 2, 2., Januari 2023
Buleleng so that they can represent or reflect on the organization, are actors who have made
strategic orientation decisions.
This study used a sample range of 100-200 to produce good goodness of fit. The number
of samples in this study was as many as 100 employees of Perumda Tirta Hita Buleleng.
RESULTS AND DISCUSSION
Based on the results of the questionnaire answers, it can be seen that out of 100 respondents
by gender, 53 people were dominated by men and 49 were women. The education level of
respondents was dominated by Bachelor / S1 as many as 63 people. Furthermore, the age of
respondents is dominated by vulnerable aged 25-40 years as many as 48 people. The
respondent's work experience was dominated by 39 people from 11 – 20 years. The position of
respondents was dominated by staff of as many as 90 people, Kabag as many as 5 people, and
Sub Kabag as many as 5 people.
Based on the results of the questionnaire answers, 100 respondents in this study had an
average value for the Transformational Leadership variable of 4.3 included in the Agree
category. The results of this study state that the dimensions of Transformational Leadership
implemented in Perumda Tirta Hita Buleleng have been felt by all organizations that support
the company's overall performance. During the research process, it was found that the
leadership at Perumda Tirta Hita Buleleng always provides inspirational motivation during
meetings, morning apples, and other formal activities that remind all employees to instill a
sense of pride and respect in each employee towards the company and always remind the
importance of achieving the company's vision and mission in serving the community. This
action is a manifestation of the individual consideration and inspirational motivation of
transformational leadership in Perumda Tirta Hita Buleleng.
The average value for the Organizational Innovation variable of 4.4 falls into the Agree
category. The results of this study found that the dimensions of Organizational Innovation
implemented in Perumda Tirta Hita Buleleng related to business plans are always stated in
formal documents that have been discussed and approved by the supervisory board and
elements of the Buleleng Regency local government. The master plan will contain the targets
of the future work plan by allocating the resources needed by the company. Through this work
plan, Perumda Tirta Hita Buleleng will design a cross-sectional or departmental work process
to achieve the targets of the business plan, so that with cross-sectional or departmental
performance, a level of flexibility is needed and demanded by each employee. Cooperation
support with business Mita and local governments and other parties is often carried out through
working visits in the context of benchmarking the water management innovation system both
among Bermuda in Indonesia and other parties as stakeholders in technological innovation in
Perumda Tirta Hita Buleleng. This action is a concrete step of organizational innovation carried
out by the board of directors and employees at Perumda Tirta Hita Buleleng.
The average value for the Company Performance variable of 4.6 falls into the Strongly
Agree category. During the research process, it was found that the entire board of directors and
staff have a commitment to participate in the development and sustainability of the company.
The existence of Perumda Tirta Hita Buleleng as a company that has authority in managing
regional water is very important for the community, so the role of all members of the
organization becomes very important in providing services to the community. As a concrete
The Influence of Transformational Leadership on Company Performance with Organizational Innovation as
a Mediating VariableiIn Perumda Tirta Hita Buleleng
416 2, 2., Januari 2023
step in maintaining water quality, Perumda Tirta Hita Buleleng has standard operating
procedures in conducting clinical trials through laboratories to maintain and supervise water
quality, while also maintaining the availability of sufficient water discharge for all customers.
Promotional activities for the community related to the importance of maintaining health and
protecting the environment for community involvement to maintain water sources are always
provided through information media placed in front of service offices that are easily read by
the community.
The hypothesis is tested by a t-test. If in the test a p-value of 0.05 (α = 5 is obtained), then
the test is significant. Direct effect and indirect effect analysis to determine the effect of each
construct directly or indirectly. Effect size (f2) analysis to determine the effect caused by the
non-inclusion of one of the constructs in the model. The description of parameter estimation
values along with the critical ratio values of the structural model is presented in Table 2 below.
Table 2 Estimation of Structural Model Parameters
Original
Sample
(O)
Sample
Mean (M)
Standard
Deviation
(STDEV)
T Statistics
(|
O/STDEV|)
P Values
Organizational
Innovation (Y
1
) >>
Corporate
Performance (Y
2
)
0,514
0,498
0,113
4,560
0,000
Transformational
Leadership (X) >>
Corporate
Performance (Y
2
)
0,254
0,302
0,141
2,802
0,032
Transformational
Leadership (X) >>
Organizational
Innovation (Y
1
)
0,233
0,266
0,088
2,657
0,008
Transformational
Leadership (X) >>
Organizational
Innovation (Y
1
) >>
Corporate
Performance (Y
2
)
0,120
0,134
0,055
2,171
0,030
Source: secondary data (2022)
Based on Table 2, it is known that the results of the estimated parameters of the
organizational innovation influence model on company performance are 0.514; p value of
0.000; Based on the original sample coefficient that measures the effect of organizational
innovation on the performance of the company tested positive and significant, it can be
concluded that hypothesis 1 is accepted. These findings are relevant to previous research
showing that innovative companies tend to achieve higher performance. The development of
innovations in the organization in general has a direct impact on the performance of the
enterprise. Specifically organizational innovation aims to improve the performance of the
company through the implementation of business methods and practices that result in higher
The Influence of Transformational Leadership on Company Performance with Organizational
Innovation as a Mediating VariableiIn Perumda Tirta Hita Buleleng
417 2, 2., Januari 2023
efficiency and lower costs through business reengineering, work tasks that do not need to be
eliminated so that the efficiency of the company is higher while the cost is lower. New
organizational methods in the company's business practices can also lead to a higher quality of
work and better customer service). In fact, the OECD (2005) suggests that organizational
innovation can improve workplace satisfaction or productivity and/or reduce
administrative/transaction costs, which in turn, leads to higher business performance.
Therefore, theoretically, organizational innovation will improve the company's performance
(Bigliardi, 2013; Marques & Ferreira, 2009; Ndubisi & Iftikhar, 2012; Roberts & Dowling,
2000).
The results of estimating other structural model parameters show the value of
transformational leadership estimates to company performance of 0.254; p-value of 0.032;
Based on the original sample coefficient that measures the effect of transformational leadership
on the company's performance tested positive and significant, it can be concluded that
hypothesis 2 is accepted. The results of this study are relevant to the findings of previous studies
that stated that the influence of leadership styles is considered decisive in a crisis, and its
response to such situations can quickly change the social, economic, and health status of the
organization, ultimately improving the welfare of employees. The increased emotional
connection between the leader and his subordinates so that subordinates can provide
performance that exceeds expectations, so that leadership has a positive impact on the work of
subordinates. The concept of Transformational leadership can be direct, participate,
relationship orientation, or task orientation, depending on the situation and personal character.
The results of estimating other structural model parameters show the estimated value of
transformational leadership to organizational innovation of 0.233; p-value of 0.008; Based on
the original sample coefficient that measures the influence of transformational leadership on
organizational innovation tested positive and significant, it can be concluded that hypothesis 3
is accepted. These results show that the transformational leadership carried out at Perumda
Tirta Hita Buleleng has significantly influenced organizational innovation. The findings
confirmed that the leadership at Perumda Tirta Hita Buleleng provided a discussion room for
all section heads and staff to provide advice and input in solving the problem. The provision of
discussion space is part of the act of autonomy for each employee to develop creativity in
solving a problem with a new and different approach but still under the guidance of the board
of directors. In addition, the company's leadership also supports all forms of cooperation with
business mita and local governments and other parties through work visits in the context of
benchmarking the innovative system of water management both among perumda in Indonesia
as technology transfer and management activities at Perumda Tirta Hita Buleleng
The results of estimating other structural model parameters show the estimated value of
organizational innovation mediating the influence of transformational leadership on company
performance by 0.120; p value of 0.030; Based on the original sample coefficient that measures
the indirect influence of transformational leadership on company performance through
mediation of innovation the company tested positive and significant, it can be concluded that
hypothesis 4 is accepted. These findings are relevant to previous research that states that
Organizational innovation is just as important as technological innovation, as it has had a
positive effect on organizational performance. Organizational innovation emphasizes thoughts
that might be knowledge- and behavior-based, which might be transformative. Therefore
The Influence of Transformational Leadership on Company Performance with Organizational Innovation as
a Mediating VariableiIn Perumda Tirta Hita Buleleng
418 2, 2., Januari 2023
innovation seems at how new thoughts and behaviors are portrayed in a specific corporation
and all that serves to undoubtedly impact the corporation. Organizational improvements are
improvements pertaining to both the manufacturing or adoption, assimilation, and use of the
newness of any brought fee withinside the social and financial sphere; updates or enhancements
to services, products, or maybe marketplaces; facilitation of opportunity strategies of
manufacturing; and a brand new control system. The definition states that innovation may be
each a system and final results at an identical time. The definition of organizational innovation
like that is certainly pretty complete and touches on diverse elements associated with
innovation, which include marketplace improvement, thoughts, behaviors, and different
elements that translate to advantage the corporation. (Damanpour et al., 2009; Sapprasert &
Clausen, 2012).
CONCLUSION
Based on the research findings and analysis of the research results, it can be concluded
that organizational innovation and transformational leadership have a positive and significant
effect on company performance. In addition, organizational innovation can be a mediation in
the influence of transformational leadership on the performance of the company. Further
research can use other proxies in measuring company performance such as Balance Score
Cards, and can add other contingencies, such as personality.
REFERENCES
Abazeed, R. A. M. (2018). Impact of transformational leadership style on organizational
learning in the Ministry of Communication and Information Technology in Jordan.
International Journal of Business and Social Science, 9(1), 118–129.
Arif, S., & Akram, A. (2018). Transformational leadership and organizational performance:
the mediating role of organizational innovation. SEISENSE Journal of Management, 1(3),
59–75.
Bigliardi, B. (2013). The effect of innovation on financial performance: A research study
involving SMEs. Innovation, 15(2), 245–255.
Damanpour, F., Walker, R. M., & Avellaneda, C. N. (2009). Combinative effects of innovation
types and organizational performance: A longitudinal study of service organizations.
Journal of Management Studies, 46(4), 650–675.
Ismail, H. N., & Gali, N. (2017). Relationships among performance appraisal satisfaction,
work–family conflict and job stress. Journal of Management & Organization, 23(3), 356–
372.
Marques, C. S., & Ferreira, J. (2009). SME innovative capacity, competitive advantage and
performance in a’traditional’industrial region of Portugal. Journal of Technology
Management & Innovation, 4(4), 53–68.
Ndubisi, N. O., & Iftikhar, K. (2012). Relationship between entrepreneurship, innovation and
performance: Comparing small and medium‐size enterprises. Journal of Research in
Marketing and Entrepreneurship.
Ortel, T. L., Neumann, I., Ageno, W., Beyth, R., Clark, N. P., Cuker, A., Hutten, B. A., Jaff,
M. R., Manja, V., & Schulman, S. (2020). American Society of Hematology 2020
guidelines for management of venous thromboembolism: treatment of deep vein
thrombosis and pulmonary embolism. Blood Advances, 4(19), 4693–4738.
The Influence of Transformational Leadership on Company Performance with Organizational
Innovation as a Mediating VariableiIn Perumda Tirta Hita Buleleng
419 2, 2., Januari 2023
Rattanaborworn, J., & Ussahawanitchakit, P. (2015). Transformational leadership and firm
performance: Empirical evidence from instant foods and convenience foods businesses in
Thailand. The Business & Management Review, 7(1), 12.
Roberts, P. W., & Dowling, G. R. (2000). REPUTATION AND SUSTAINED SUPERIOR
FINANCIAL PERFORMANCE. Academy of Management Proceedings, 2000(1), M1–
M6.
Rohana, N. S. M., & Abdullah, C. Z. (2017). Leadership competencies and organizational
performance: Review and proposed framework. International Journal of Academic
Research in Business and Social Sciences, 7(8), 824–831.
Sapprasert, K., & Clausen, T. H. (2012). Organizational innovation and its effects. Industrial
and Corporate Change, 21(5), 1283–1305.
Strukan, E., Terek, E., & Nikolić, M. (2019). Impact of leadership on interpersonal trust at
work in enterprises in Bosnia and Herzegovina. Journal of Engineering Management and
Competitiveness (JEMC), 9(1), 48–59.