International Journal of Economics, Management and Accounting

Volume. 1, No. 1, March 2024

e-ISSN : 3046-9376; and p-ISSN : 3048-0396; Page. 01-05
DOI: https://doi.org/10.61132/ijema.v1i1.316
Available online at: https://international.areai.or.id/index.php/IJEMA

The Influence of Leadership Styles on Employee Motivation and

Organizational Performance in the Service Sector
Budi Santoso1, Agus Hidayat2, Tuti Andriani3
1-3
Universitas Udayana, Indonesia

Abstract: This study investigates how different leadership styles, such as transformational and transactional,
affect employee motivation and organizational performance within the service sector. Through a survey of service-
based organizations, the research highlights the relationship between leadership approach, employee satisfaction,
and overall productivity. Findings suggest that transformational leadership significantly enhances motivation and
performance, offering a strategic advantage in a competitive market.

Keywords: Leadership styles, employee motivation, organizational performance, service sector, transformational
leadership, employee satisfaction

1. INTRODUCTION
In the service sector, where employee interactions with clients often define the quality
of service, leadership styles play a pivotal role in shaping employee motivation and
organizational performance. Leadership style influences not only the productivity and
efficiency of the workforce but also the overall morale and satisfaction of employees, which
ultimately contributes to the company's success. Service-based organizations are highly
dependent on the motivation levels of their employees, as motivated employees are more likely
to go the extra mile in customer service, fostering customer satisfaction and loyalty.
This article aims to explore the influence of different leadership styles—particularly
transformational and transactional leadership—on employee motivation and organizational
performance. While transformational leaders inspire employees through vision and
encouragement, transactional leaders rely on structured tasks and reward systems to drive
employee performance. The study examines which style better supports employee motivation
and contributes to higher organizational performance within the service sector.

2. LITERATURE REVIEW
Leadership Styles
Leadership styles in organizational studies have long been classified into various
models, with transformational and transactional leadership styles being among the most
examined. Transformational leadership is characterized by the leader’s ability to inspire
and motivate employees to exceed expectations through a shared vision, which fosters an
environment of innovation and commitment (Bass, 1985). Studies suggest that
transformational leaders create a sense of belonging and purpose, leading to higher levels
of employee motivation and job satisfaction (Burns, 1978; Judge & Piccolo, 2004).
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Transactional leadership, on the other hand, is based on structured goals and

rewards. Leaders in this style motivate employees by providing clear instructions, setting
expectations, and offering rewards for meeting objectives. This approach is effective in
task-oriented environments where clear guidelines are essential (Bass & Avolio, 1994).
However, it has been criticized for not fostering creativity and for its limited impact on
employee engagement and intrinsic motivation (Robbins & Judge, 2017).
Employee Motivation and Organizational Performance
Employee motivation significantly impacts organizational performance,
particularly in the service industry, where employee engagement is directly linked to
customer satisfaction and loyalty. High employee motivation enhances productivity,
reduces turnover, and increases customer satisfaction (Herzberg, 1966). Motivation
theories, such as Herzberg's two-factor theory and Maslow's hierarchy of needs, emphasize
the importance of fulfilling employees' intrinsic and extrinsic needs to maintain high levels
of engagement (Maslow, 1943).
In the context of leadership, studies have shown that transformational leadership
positively affects motivation by promoting trust, encouraging personal growth, and
supporting autonomy (Gagné & Deci, 2005). Transactional leadership, though often
associated with extrinsic motivation, can also drive performance, especially in routine and
task-driven roles.

3. METHODOLOGY
This research used a mixed-methods approach, combining quantitative and qualitative
data to assess the impact of leadership styles on employee motivation and organizational
performance in service-based organizations across Indonesia. The sample consisted of
employees and managers from 15 service organizations, including hospitality, finance, and
healthcare.
Data Collection
a. Surveys: A structured survey was administered to 200 employees to gauge their
perceptions of leadership styles, motivation levels, and organizational performance.
b. Interviews: In-depth interviews were conducted with 15 managers to gain insights into
the leadership practices they employ and how they perceive these practices to affect
employee motivation and performance.

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 c. Performance Data: Organizational performance data, including customer satisfaction
scores and employee turnover rates, were collected for a two-year period to assess
correlations with leadership style and motivation.
Data Analysis
Quantitative data were analyzed using regression analysis to explore relationships
between leadership styles, employee motivation, and organizational performance metrics.
Qualitative data from interviews were coded and analyzed thematically to provide context
and insights into the quantitative findings.

4. RESULTS
Quantitative Findings
a. Impact of Transformational Leadership: The results showed a strong positive
correlation between transformational leadership and employee motivation (r = 0.65, p
< 0.01). Employees who perceived their leaders as transformational reported higher job
satisfaction, commitment, and willingness to take on additional responsibilities.
b. Impact of Transactional Leadership: Transactional leadership showed a moderate
positive correlation with motivation (r = 0.45, p < 0.05), but this relationship was
particularly pronounced in task-oriented roles. Employees in such roles indicated that
clear expectations and rewards positively influenced their motivation.
c. Organizational Performance: Organizational performance metrics, including customer
satisfaction and employee turnover, were significantly higher in organizations led by
transformational leaders. Firms with predominantly transformational leadership styles
experienced lower turnover rates and higher customer satisfaction.
Qualitative Findings
From the interviews, managers noted that transformational leadership facilitated
open communication, creativity, and trust among employees. Employees in organizations
with transformational leaders expressed feeling valued and motivated to contribute to
organizational goals. Conversely, managers employing transactional leadership indicated
that while this style effectively maintained productivity, it was less effective in promoting
long-term engagement and employee innovation.
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5. DISCUSSION
The findings suggest that leadership style plays a crucial role in influencing both
employee motivation and organizational performance in the service sector. Transformational
leadership was found to be more effective in fostering high employee motivation and better
organizational performance, aligning with previous studies that highlight its positive impact on
intrinsic motivation (Judge & Piccolo, 2004). By emphasizing shared vision, encouragement,
and empowerment, transformational leaders create a workplace culture where employees are
more likely to be motivated, innovative, and committed to organizational success.
Transactional leadership, while effective in task-oriented roles, may not yield the same
level of engagement or performance benefits as transformational leadership. This approach is
beneficial for short-term tasks requiring specific outcomes and clear directives, but it may not
encourage the flexibility and customer-centric focus required in the service industry (Robbins
& Judge, 2017). Organizations may benefit from adopting a hybrid leadership approach that
incorporates both transformational and transactional elements to address diverse job roles and
performance needs.

6. CONCLUSION
In conclusion, this study demonstrates that transformational leadership has a more
substantial impact on employee motivation and organizational performance within the service
sector compared to transactional leadership. Transformational leaders create an environment
of trust, open communication, and shared vision that enhances employee engagement and
satisfaction, which are essential for sustaining competitive advantage in the service industry.
Transactional leadership, while useful in specific roles, is less effective for achieving long-term
employee commitment and performance improvements.
For service-based organizations seeking to enhance performance, adopting
transformational leadership practices could lead to higher employee motivation, lower turnover
rates, and improved customer satisfaction. Future research could explore the effects of
leadership styles on specific performance outcomes, such as customer retention and brand
loyalty, providing further insights into effective leadership strategies in the service sector.

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