The interaction effect of leadership support on the EO - innovative performance relationship

The purpose of the study is to investigate the impact of transformational leadership on the entrepreneurship orientation (EO) – innovative performance relationship and to test innovative performance as a mediator variable between EO and firm performance. Structural equation modelling is employed to test a theoretical model utilizing a data set developed from a survey instrument administered to the most senior level manager of 127 enterprises within the Kingdom of Saudi Arabia (KSA). Results show that innovative performance partially mediates the relationship between EO and firm performance. Results further suggest visionary leaders who absorb the uncertainty inherent in organization endeavours and who encourage organization members to independently use their mind to challenge the status quo spur organization members towards entrepreneurship. The study found that a reward system based on the results of innovative projects offers a counter-intuitive explanation that it may discourage the brightest talent from participating on endeavours with uncertain outcomes. The proposed study model is a valuable addition to appreciating the role transformational leadership plays within enterprises and therefore contributes to the expanding body of research investigating the ability of organizations to utilize a systematic effort of recognizing and exploiting new business opportunities for a sustainable competitive advantage.