1. Introduction
Insurance generates a significant impact on the economy by mobilizing domestic savings. Insurance enables to mitigate losses, enhance financial stability and promotes trade and commerce activities which result in economic growth and development. Thus, insurance plays a crucial role in the sustainable growth of an economy. Current technology development contributes a significant impact to a country’s economic growth and brings the public into a digital economic era. Indonesia is one of the countries with high potential for digital economic development, where four sectors attained the highest rapid growth: financial sector; cultural, tourism, and creative economy sector; agricultural sector and agro-logistic sector (Kapuslitbang Aptika & IKP, 2019). The general insurance sector is one of the main contributors to the country’s gross domestic product (GDP), which also has a high potential and continues to grow. It is shown by the escalating insurance industry performance year on year, which is aligned with Indonesia’s economic growth. The total Indonesian population - reaching approximately 270.2 million (Indonesian Statistic Bureau, 2021) - is a significant target market for digital innovation development.
The main impediment faced by the insurance industry in Indonesia is a low insurance literacy due to a lack of understanding in society on the insurance benefits, importance, and most Indonesians still have not considered insurance as a primary need (Hendrisman, 2017). In the year 2019, 63.3% of Indonesians were smartphone users, and the number would keep on increasing in the future (Pusparisa, 2020). Should the general insurance companies implement digital innovation through smartphones, most people in Indonesia will be able to access it (even those who live in remote areas); thus, the insurance industry is predicted to contribute more to the GDP. However, it is not easy to head towards an insurance technology-based (insurtech) company. There are several difficulties currently faced by general insurance companies, such as capital limitation, concerns that the innovation implementation may harm the existing conventional business, unstable digital legal process, limited insurtech-savvy workforce, and finally, employees’/ divisions’ silo mentality within a company which will hinder the innovation implementation teamwork.
This research aims to fulfill the gap from previous research regarding the relationship between transformational leadership influence and organizational innovation. Research in South Africa by Sethibe (2018) found a negative relationship between transformational leadership and incremental innovation. Meanwhile, research examining a manufacturing company in Thailand found that transformational leadership was neither positively nor significantly influenced by product innovation performance (Sattayaraksa & Boon-itt, 2016). In addition, Ng and Kee (2016) stated that transformational leadership in Small Medium Enterprises (SMEs) in Malaysia did not influence innovation.
On the other hand, Yaseen et al. (2018) found that transformational leadership positively influences innovation. Similarly, Noruzy et al. (2013) studying the manufacturing companies in Iran proved that transformational leadership positively influences innovation. Therefore, this research attempts to fill in the gap with a new variable named goal-oriented synergistic interaction to mediate transformational leadership and organizational innovation.
2. Literature Review
2.1. Transformational Leadership
Transformational leadership is a theory of leadership where a leader works with teams to identify needed change, creating a vision to guide the change through inspiration, and executing the change in tandem with committed members of a group. The idea of transformational leadership was initially mentioned in 1973 by Downton (1973) in his sociology study, followed by McGregor in 1978 (Burns, 1978) who used transformational leadership as the terminology. Transformational leadership’s concept is derived from Transformational Theory (Relational Theory of Leadership). This theory focuses on a relationship established between leaders and their followers. Critical characteristics of transformational leadership are the capability to inspire the followers in solving problems and creating new ways to face challenges. A transformational leader plays both roles as a coach and a counselor; thus, there is a direct relationship between the leader and followers. This individual relationship increases the employees’ commitment to completing the tasks and achieving targets and goals. Transformational leadership also creates a proactive, positive attitude, passion, interest, or an increase in the intrinsic motivation of employees, thereby affecting work performance (Nguyen et al., 2019; Wanasida et al., 2021). Transformational leadership has four dimensions (Bass, 1985), which are:
a. Idealized Influence – explains a leader’s behavior in setting a clear vision and mission and acting as a role model for the followers; hence, they respect, trust, and admire him/her as a leader who possesses high morale and ethics.
b. Inspirational Motivation – explains a leader’s behavior that motivates and inspires people in his/ her environment by understanding the meaning of achieving goals and dealing with the challenges.
c. Internal Stimulation – explains a leader’s behavior that stimulates the followers to become innovative and creative by questioning assumptions, reframing problems, and conducting new approaches.
d. Individualized Consideration – explains a leader’s behavior that pays attention to the followers’ needs in achieving their goals and growth.
Based on the above explanation, transformational leadership is the most suitable leadership style to spearhead the digital innovation initiatives of Indonesia’s general insurance industry.
2.2. Goal-Oriented Synergistic Interaction (GOSI)
The concept and proposition of goal-oriented synergistic interaction is a synthesis of several concepts and theories. One of the parent theories is Goal Setting Theory (Locke & Latham, 1990) which explains that a specific and challenging goal will yield a better performance rather than an abstract goal, such as “do your best” or possess no goal at all. This theory strengthens further with Goal-Oriented Theory (Dweck & Leggett, 1988; Schunk, 2012), which explains how and why an individual is pursuing a goal. It is then streamlined in a concept of Goal-Oriented Interaction (Park & Pierce, 2019), whereas decision-making is focused on a goal and adopts a philosophy of “the destination is more important than the journey.”
The next theory taken as a foundation of Synergy Mechanism concept is System Theory (Someh et al., 2017) which believes that one unification of system is better than individual parts that stand alone. This theory was initially introduced by a Biologist named Von Bertalanffy (1968) through his book General System Theory (GST) in 1968. From that theory, it was passed down as the Synergistic Relationship concept (Werkhoven, 2019) – a productive working relationship by empowering each member’s strength to achieve the goals. Social Exchange Theory as a parent of organizational interaction theory (Blau, 1968; Gouldner, 1960; Homans, 1958) passed down into Service-Dominant Logic concept (Vargo & Lusch, 2004), which among others attained an element of Relational Interaction Capability (Karpen et al., 2012, 2015). This capability is known as the ability to interact to achieve common value creation.
The synthesis from those several theories and concepts finally creates a concept of goal-oriented synergistic interaction (GOSI). It refers to an interaction within the organization that comprises the ability to initiate company’s activities to focus on achieving goals (goal-oriented interaction), builds members’ collaboration to work proactively (cooperative interaction), persevere, and able to adapt towards change and participate in knowledge and experiences sharing (value-added interaction) to attain organizational goals.
Previous research confirmed that organizational activities focused on achieving goals whereas the leaders inspired team members to have shared vision and objectives that would positively impact corporate performance (Jin et al., 2015). The collaboration among team members to fill the lack of team members’ ability with others’ strength will result in sustainable teamwork (Lacerenza et al., 2018). Team members’ interaction by sharing experiences and knowledge will increase team performance. Team members will learn from each other experiences (both success and failure experiences). The capability to adapt and persevere in facing change conditions is crucial and may contribute to value addition (Do et al., 2016; Yu et al., 2017). Thus, the goal-oriented synergistic interaction (GOSI) variable will function as a strategic mediator to facilitate the relationship between transformational leadership and organizational innovation.
2.3. Organizational Innovation
Organizational innovation refers to an organizational activity to implement new ideas by creating or developing new products, new services, managerial strategies, procedures, working methods, and technologies. The innovation consists of radical innovation, additional innovation, technology innovation and administration innovation (Ruiz-Jiménez & Fuentes-Fuentes, 2013; OECD, 2005; Rajapathirana & Hui, 2018).
Currently, Indonesia’s financial industry is considered one of the emerging countries with the rapid growth of technology development. A combination of financial and technology is known as fintech. Meanwhile, in the insurance industry, a combination of insurance and technology is known as insurtech. Insurtech can also be defined as a collaboration between insurance and new technology supported by fintech, for example, an e-commerce that sells insurance products. Innovation in the insurance industry has a broad spectrum and covers internal aspects (within the company-self) and external aspects (regulators, tax office, public as the insurer and the insurance supporting industries, such as brokers, agents, loss adjusters, workshops, etc.). Eventually, when all the insurance industry players implement digitalization, it will create a cohesive innovation ecosystem. For instance, home insurers will become part of an ecosystem centered on apps that help home buyers take out insurance, and also values the property, predicts utility costs, offers smart-home devices to monitor fire or flood risks, send earthquake alert should a problem be detected while the homeowner is away, and offers to send out a repair person. The digital innovation in an insurance company will not only be in the form of marketing insurance products (for instance, in e-commerce platform); however, it may also build the insurance product itself or the internal process within the company to create a comprehensive and end-to-end digital innovation transformation. The innovation will reach a large target market considering most Indonesian people are using gadgets and eventually will increase people’s literacy of general insurance and escalate the country’s GDP.
There are four types of innovation, such as product/ service, process, market, and organization. The product/ service innovation will create a new product/service, such as smartphone applications to simulate insurance premium prices or conduct an online purchase. In addition, the process innovation can be viewed as registering a claim through an online process or requesting an online insurance survey. Further, the market innovation may introduce a new marketing method in designing a product, product placement, promotion, and set up product prices to penetrate a new market, which eventually will increase corporate sales.
To innovate, a company must create new abilities in developing a product/service or innovative technology. This ability comprises both exploitative ability and explorative ability (Alpkan et al., 2012). The exploitative innovation refers to enhancing the current organizational process, utilizing existing competency to enhance production, and efficiently increasing certain benefits. On the other hand, the explorative innovation focuses on research and competency development to find new potentials; hence the result will not be inevitable.
Previous research confirmed that transformational leadership had a positive and significant relationship with explorative and exploitative innovation (Berraies & Abidine, 2019). Furthermore, a study also claimed that organizational innovation through explorative and exploitative activities contributed to the novelty of the new product, processes, and even new markets (Alegre et al., 2011). Recent research mentioned that transformational leadership possessed a vital role in yielding innovation (Sheehan et al., 2020).
The main objective of this present study is to systematically understand the impact of goal-oriented synergistic interaction on the relationship between transformational leadership and organizational innovation. This research adopts an innovation model that correlates with a general insurance company that is explorative and exploitative (Figure 1).
Figure 1: Empirical Research Model
3. Research Hypothesis and Methods
3.1. Relationship Between Transformational Leadership (TL) and Organizational Innovation (OI)
Several studies indicated that transformational leadership played a crucial role in organizational innovation by introducing new ideas, determining specific objectives, and encouraging followers’ initiatives (Henriksen & Mishra, 2018). Transformational leaders also significantly influence innovative behavior (Afsar et al., 2019) and influence innovation strategy (Sattayaraksa & Boon-itt, 2016). It can be seen that they have a significant part in influencing, motivating, and shaping the innovation climate through creative perspective integration, perseverance, energy, and knowledge accumulation to increase both the product and process (Wipulanusat et al., 2017); (Yaseen et al., 2018). Research of 606 SMEs in Thailand also proved that transformational leadership had a positive effect on firm innovativeness (Kittikunchotiwut, 2020). Therefore, based on the above literature review on a relationship between transformational leadership and organizational innovation, the first hypothesis that can be proposed is as follow:
H1: Transformational leadership has a positive influence on organizational innovation.
3.2. Relationship Between Transformational Leadership (TL) and Goal-Oriented Synergistic Interaction (GOSI)
Several previous studies confirmed that there was a relationship between transformational leadership and dimensions of goal-oriented synergistic interaction. Runhaar et al. (2010) examined 456 teachers in Dutch College and proved that learning goal orientation positively correlates with transformational leadership. Research by Jensen et al. (2018) with 3.470 civil servants in the USA depicted that transformational leadership increased goal-oriented motivation. Besides, Shadraconis (2013) pointed that transformational leadership possessed a significant relationship with group synergy. It unified diversity through a collaboration interaction (one of the goal-oriented synergistic interaction’s dimensions) (Agote et al., 2015). Further, it also influences sharing knowledge attitude, which will create knowledgeable employees and eventually benefit the organization.
In addition, there is also a relationship between organizational knowledge development by increasing knowledge sharing and establishing trust in transformational leadership (Mooradian et al., 2016; Politis, 2001; Srivastava et al., 2006). Therefore, based on a review of the works as mentioned earlier on the literature between transformational leadership and goal-oriented synergistic interaction dimensions, the second hypothesis that can be proposed is as follows:
H2: Transformational leadership has a positive influence on the goal-oriented synergistic interaction.
3.3. Relationship Between Goal-Oriented Synergistic Interaction (GOSI) and Organizational Innovation (OI)
He and Xu (2017) found that there was a relationship between organizational innovation and synergistic interaction within the organization, which would result in a win-win working relationship between a company, research institution, university, and government. Meanwhile, Harms et al. (2013) – who examined 165 technology companies in Germany - mentioned that there was a significant relationship between radical organization innovations with goal-oriented management. Rock and Grant (2016) stated that the organizations built human resources innovation and creativity by sharing knowledge to create novelty. A study of 245 employees at 20 textile and garment enterprises in Vietnam found that the sharing of knowledge affects innovation in the textile and garment industry with high confidence. The leaders empowered the organizational learning process, which eventually will encourage innovation (Birasnav et al., 2013; Syed Awais Ahmad & James, 2016; Yaseen et al., 2018). Thus, based on the researches explained above on the relationship between innovation organization and goal-oriented synergistic interaction dimensions, the third hypothesis that can be proposed is as follow:
H3: Goal-oriented synergistic interaction has a positive influence on organizational innovation.
3.4. Research Methods
The data was collected from primary data derived from a survey conducted of general insurance leaders (Directors) from all general insurance companies in Indonesia. A survey was executed in the form of a questionnaire measured using a 6-Likert Scale where 6 for significantly agree, 5 for agree, 4 for somewhat agree, 3 for somewhat disagree, 2 for disagree, and 1 for significantly disagree. General insurance companies’ population in Indonesia as of 31 December 2020 consists of 73 companies based on data from Indonesian General Insurance Association (AAUI, 2020). This study also used a census method, where the sample was the total population. The survey responses were analyzed using SmartPLS to get the statistical data.
4. Results and Discussion
A total of 72 respondents participated in this research, consisting of general insurance company’s directors/ leaders in Indonesia. One director represented one company. The response rate from this research is 98.63% from 73 questionnaires distributed and returned. One respondent explained that the reason for not responding to the questionnaire was because the company has returned the insurance license to regulators and is currently in the liquidation process. Therefore, it can be concluded that the response rate from the questionnaires is 100% of the insurance companies’ population that actively operate in 2021.
Total respondents involved are 72 individuals, and their majority span of age is 46–55 years old (34 individuals (47.2%)). Furthermore, most of them are male (57 individuals (79.2%)). Most respondents have worked in the organizations for more than five years (49 individuals (68.1%)). The general insurance companies where the respondents work primarily employ 101–250 individuals (30.6%).
4.1. Measurement Model
Based on Table 1 and Figure 2, transformational leadership, goal-oriented synergistic interaction, and organizational innovation constructs have a composite reliability value of 0.863, 0.867, and 0.877 respectively. All constructs are considered reliable since all their scores are above 0.7 (Hair et al., 2017). Additionally, all constructs are also considered valid since the average variance constructed (AVE) value of each construct ranging from 0.613 to 0.781 has met the required AVE score of 0.5 (Hair et al., 2017). Furthermore, the analysis also revealed that each dimension’s outer loading value ranges from 0.683 to 0.912. The requisite to be fulfilled for outer loading is higher than 0.7 (Hair et al., 2017). However, there are several outer loading values lower than 0.7, which is 0.683 (idealized influence dimension). Previously, Hair et al. (2017) explained that the outer loading value ranging from 0.4 to 0.7 could be eliminated as long as the elimination would increase the AVE score to be higher than 0.5. In this study, the AVE value of transformational leadership is higher than 0.5. Hence, the idealized influence dimension remains to exist.
Table 1: Validity & Reliability HOC (Higher Order Construct)
Figure 2: Result of Smart PLS
Table 2 below depicts that the overall dimensions are stated as reliable and valid. This condition is shown through composite reliability scores, which range from 0.822 to 0.921 (higher than 0.7). The dimensions are deemed valid since the overall AVE values range from 0.517 to 0.854 (higher than 0.5). Nevertheless, several items possess outer loading values lower than 0.7, such as item Goi4 (0.607); Ci6 (0.696); Va3 (0.652). These items remain to exist since they contain important information for each construct. Besides, each construct with an outer loading value below 0.7 possesses an AVE score higher than 0.5.
Table 2: Validity & Reliability LOC (Lower Order Construct)
The other validity testing was discriminant validity using the Heretroit-Monotrait ratio or HTMT approach. The HTMT value should be lower than 0.90. Table 3 below revealed that each dimension’s HTMT score (lower-order construct/LOC) is less than 0.90. Furthermore, discriminant validity between construct (higher-order construct/HOC) with dimension (LOC) cannot be determined (Hair et al., 2017). Therefore, the discriminant validity requirement is met.
Table 3: Discriminant Validity Assessment Using the HTMT Criterion
1) * Higher Order Construct (HOC); **Lower Order Construct (LOC); ***cannot establish discriminant validity between LOC and HOC (Hair et al., 2017); Threshold value < 0.85 (Hair et al., 2017).
2) CI: cooperative interaction; ExploreDI: exploratory digital innovation; ExploitDI: exploitative digital innovation.
4.2. Structural Model
The result of data analysis indicates that the coefficient of determination scores for the goal-oriented synergistic interaction construct reaches 40.10%, indicating that the construct can be explained by the transformational leadership construct by 40.10%. While the rest 39.90% can be explained by other variables not included in the study. In addition, the goal-oriented synergistic interaction construct can explain the organizational innovation construct. The transformational leadership construct explains 28.90%, and the rest 71.10% can be explained by other variables not included in the study.
This research is population research, where all population members are respondents or census. Therefore, this study did not conduct a t-test to examine the hypotheses. The hypothesis test here is merely concerned with the direction of the standardized path coefficient, which is all positive (Table 4). The dominant construct towards the organizational innovation is the transformational leadership construct with a standardized path coefficient value of 0.633 compared with the goal-oriented synergistic interaction. Thus, the higher the transformational leadership, the higher the goal-oriented synergistic interaction and organizational innovation. Therefore, all hypotheses are supported empirically.
Table 4: Size and Significance of Path Coefficient
4.3. Discussion
The result of research data analysis on the first hypothesis (H1) reveals that transformational leadership positively influences organizational innovation. This result aligns with previous research (Arshad et al., 2016, Jeyaraman et al., 2018; Messersmith & Chang, 2017; Para-Gonzales et al., 2018; Kittikunchotiwut, 2020). In the general insurance industry in Indonesia, transformational leadership contributes a significant influence on organizational innovation. This type of leadership is perceived as the most capable leadership to direct innovation transformation and bring the industry towards digital innovation. This condition is shown from respondent responses which mostly confirmed that the company leaders are role models in the working environment and inspire employees to achieve the objectives.
The empirical model portrays that transformational leadership also positively influences goal-oriented synergistic interaction (H2). It is seen from a standardized path coefficient score of 0.633. This condition correlated with previous research of transformational leadership and goal-oriented synergistic interaction dimensions (Runhaar et al., 2010; Shadraconis, 2013; Agote et al., 2015; Mooradian et al., 2016; Jensen et al., 2018). Transformational leaders could encourage organization members to interact synergistically to achieve the collective goals. In the general insurance industry, the leaders would direct the employees to commit to collaboration strength and sharing knowledge and experiences to achieve their goals.
Furthermore, the goal-oriented synergistic interaction is also confirmed to have a positive relationship with organizational innovation (H3). It is shown in the standardized path coefficient value of 0.204. The organization members would proactively collaborate to achieve the common goal: digital innovation (both explorative and exploitative). The majority of respondents agreed that the company was developing a digital insurance product and promoting it through a digital platform, such as social media. This result is in line with previous research on the relationship between dimensions of goal-oriented synergistic interaction and organizational innovation (Birasnav et al., 2013; Harms et al., 2013; Rock & Grant, 2016; He & Xu, 2017; Yaseen et al., 2018).
5. Conclusion
The research examines the relationship between transformational leadership influence and organizational innovation in Indonesia’s general insurance companies. It involves 72 respondents, representing 72 general insurance companies that are actively operating in Indonesia in 2021. The results of this research offer crucial implications about the organizational interaction in the emerging market of the insurance industry, such as Indonesia.
In the digital era, the insurance industry must enhance and innovate its traditional business model. Based on the results described and explained, it can be concluded that transformational leadership positively influences organizational innovation. For this reason, the insurance leadership management must use this type of leadership to encourage the insurance digital products or services and create a new digital insurance market in Indonesia.
Further, this study confirms that this type of leadership - which can communicate vision, mission, and corporate values, become a role model, and employees’ inspiration to achieve the target - can stimulate the initiative for the company’s interaction to a particular interaction. This type of interaction focuses on achieving goals (goal-oriented interaction), building members’ collaboration to work proactively (cooperative interaction), persevering, and being able to adapt towards changes and participating in knowledge and experiences sharing (value-added interaction) to achieve the organizational goals.
Based on the data analysis, the goal-oriented synergistic interaction positively influences organizational innovation in Indonesia’s general insurance companies. It is also concluded that the goal-oriented synergistic interaction positively mediates transformational leadership and organizational innovation. There is no one-size-fits-all or specific pattern in collaborating to achieve the insurance digital innovation. By having a clear goal to be targeted and working synergistically using each other’s strengths, and being adaptive towards a changing environment, the insurance companies will achieve sustainable innovation. If most or all general insurance companies in Indonesia implement digital innovation through smartphones, with a higher rate of public accessibility, Indonesia will have a tremendous increment of insurance literacy, and finally, the insurance industry will contribute more to the country’s GDP.
This research contributes practically to the discussion on goal-oriented synergistic interaction, organizational innovation, and transformational leadership of insurance leaders in the 4.0 insurance industry. This study confirms that the transformational leadership and synergistic interaction that is goal-oriented would work together to foster innovation performance. For the leaders, this study suggests that they need to spend extensive efforts ensuring a synergistic interaction among the goal-oriented team to pursue explorative and exploitative innovation. They need to encourage the employees to produce innovation of insurance digital products or services and create a digital insurance market.
Silo’s mentality, which frequently occurs in the organization, can be mitigated by team compilation that incorporates various skills, experiences, and characters. Thus, it can involve many areas and expertise and ultimately connect the participants. The interaction will promote insurtech innovation; hence the company will have a unique value proposition to compete in the market. If all or most insurance companies in Indonesia implement digital innovation, the country’s GDP from the financial sector will undoubtedly escalate.
There are several limitations in this research; for example, this research focuses on goal-oriented synergistic interaction as a mediating variable. Future researches are suggested to examine the influence of corporate culture and gender in the relationship between transformational leadership and organizational innovation. Besides the transformational leadership style, future research can also analyze the influence of transactional leadership style toward organizational innovation and review the difference. Both practitioners and academics can also examine the utilization of goal-oriented synergistic interaction as an integral part of organizational behavior and evaluate the impact on job performance or organizational performance.
When this study was conducted, the general insurance industry in Indonesia was being impacted by the Covid-19 pandemic. Thus, several companies focused on their organizational activities heading towards sustainability to survive in the corporate performance. Hence, the digital innovation activities in some insurance companies slowly progressed than expected. Future similar research is highly suggested to be conducted when the pandemic has subsided to attain a more relevant result.
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