Co-creating Vision with Employees:The Driving Force of Corporate TransformationYong NieJapan Advanced Institute of Science and TechnologyResearch Center for Service ScienceNomi-City, [email protected] KOSAKAJapan Advanced Institute of Science and TechnologyResearch Center for Service ScienceNomi-City, JapanAbstract—Service industries are playing an increasinglyimportant role in economic growth. Many manufacturers aretransforming themselves from product-centric into servicecentric companies in order to gain an advantage in competitivemarkets. Leaders of such companies have to face the mostpervasive challenge-achieving successful transformation withoutexposing their company to uncontrollable risk. The paperconceptualizes the key factors of transformation and identifiesthe importance of vision co-creation rather than top-down oneway transport of vision dominated by leaders. The main purposeof this research is to provide leaders with different lens throughwhich to consider their manner, behavior and influence, andbuild a leadership process framework for achieving successfulcorporate transformation.Keywords—leadership; followership; value co-creation; visionco-creation; corporate transformationI. INTRODUCTIONService industries have grown significantly through pastdecades, and have become dominant concept in today’seconomy. More and more manufacturing companies aretransforming themselves from goods-dominant into servicedominant logic companies, in order to gain an advantage incompetitive markets .Even for companies still inmanufacturing industry, “Servitizaiton is the innovation of anorganizations capabilities and processes to better create mutualvalue through a shift from selling product to selling productservice system”. Service industries are playing anincreasingly important role in economic growth. However, forthe company, the transformation to a service-centric business isvery difficult and the failure is very high . Thus, leaders ofthe company have to face the most pervasive challenge: howcan they achieve successful transformation without exposingtheir company to unacceptable risk?As the company moves away from low-value added, lowskill manufacturing jobs to knowledge-intensive andinnovation-oriented high-skill jobs, building a new pattern ofleadership to enhance employees’ productivity and creativitywill be increasing challenging. Meanwhile, customers becomea co-creator of value rather than the provider itself creates thevalue .Therefore, leaders need to transform their leadershipwhich can motivate and engage their employees to bring outthe best to co-create value with customers .To transform the company from product-centric to servicecentric, and develop employees capable of co-creating valuewith customers, leaders have to rebuild their relationship withemployees. Employees are expected to be with high-level selfmotivation, commitment and shared responsibility so that theycan satisfy customers and co-create high value with customers. The roles of leaders, employees and customers for valueco-creation are explained in the following parts. Thetransforming relationship between leaders and employees is aprocess of vision co-creation.Vargo and Lusch defined two types of marketing: goodsdominant logic (GDL) and service-dominant logic (SDL). Theyargue for a new dominant logic for marketing, in which theprovision of services rather than goods is fundamental toeconomic exchange. They originally provided eightfoundational premises that underpin their case for the S-D logic. After substantial concurrence, debate, dialog and inquiry,they modified and extended the original FPs into ten. From thefoundational premises, two propositions become prominent:first, the fundamental source of competitive advantage is notoperand resources but operant resources, which are mostlystored in the employees’ brains; second, the customer becomesa co-creator of value who determines the value of service andwhose satisfaction and loyalty are mostly affected by theemployees of the service provider. These two aspects convergeat one key point: employees have never been so vital. Theysubstitute for physical resources and become the organization’scompetitive advantage .Based on the above discussion, the main purpose of thisresearch is to provide leaders with different lens through whichto consider their manner, behavior and influence, and build atransforming process framework of leadership for achievingsuccessful corporate transformation.II. EMERGING CHALLENGES IN SERVICE-DOMINANT LOGICA. The subjects of value creation changedOne proposition in service dominant logic is that thecustomer becomes a co-creator of value rather than theprovider itself creates the value. The traditional process ofvalue creation is company-oriented. Product design, theproduction process, productivity, and cost control are vitalfactors for a manufacturer. Work is broken down into variouselaborate units. Materials and information are passed from onedepartment to the next. Staffs are assigned to implement theseThis research was supported by Japanese Grants-in-Aid for ScientificResearch (KAKENHI No.24510186).978-1-4673-4843-0/13/$31.00 © 2013 IEEEsteps and are structured in a hierarchy according to “superiorsubordinate” relationships . The achieving of value isprimarily dependent on the company’s products ― the finaloutputs, and services are simply regarded as adjuncts of theproducts to enhance the value of goods . Companies andconsumers have the distinct roles of production andconsumption, respectively . Consumers are outside theprocesses of value creation that occur inside the company.In service-dominant logic, the value creation process ischanged. The value of both tangible products and intangibleservices is co-created by provider and customers. The productmay be the same, but customers can have different serviceexperiences. For example, while a number of people have thesame iPhone, one might use it to play games, another to read ebooks, and someone else might use it to send Facebookmessages to friends. Apple’s co-creator-application developersuse it to discover users’ likes and dislikes; this is really arevolutionary mode for application development. How can itprovide so many different valuable experiences? Apple has itsiTunes. It can attract so many providers, users and otherstakeholders to co-create at the same time together. So,although Apple has iPod, iPhone, iPad and computers, we stillregard it as a service-dominant logic company. This is alsowhy Apple can achieve so much success.Friesen  used the example of eBay to explicate the cocreation process, in which eBay provides the software andbusiness forums, and the seller provides the specific offers.Likewise, security is co-created by both buyers and sellersthrough the application of a rating system. Both ends areinvolved in creating the experience environment, withcustomers playing an active role in the process.In service dominant logic, those who can attract the mostnumbers of co-creators are most likely to dominate the market.B. The compostion of competitive resources changedWhen a company implements new strategies to transforminto a service-centric company, the critical resources havechanged from operand resources, such as materials andequipment, into operant resources: the knowledge and skills ofthe staff . Intangible operant resources are viewed as thecore of organizational competitive advantage. Thedevelopment of advanced nations has shown the transitionunderway from an economy based on natural and physicalresources to one based on intellectual assets.Companies that get the fundamentals of knowledge workerproductivity are expected to thrive in future. On the contrary,those which don’t value emerging knowledge business will notonly lag, but they could face the situation of outright collapsewhen stacked against knowledge-intensive industrycompetitors .C. Employees woking beyond management spanWhen a company implements new strategies to transforminto a service-dominant company, it must take the leadershipchallenge into account. In the logic, effectiveness lies in agreater level of collaboration between employees andmanagement. The old hierarchical relationship, the verticalFig. 1. Vision and value co-creation process in service-dominant logic.communication between leaders and employees, will not workwell any more . The leadership theories of the past dealtwith the qualities and behaviors of individual leaders in acontingency business situation, but said little about theinfluential factors stemming from changes in value creation.Accelerating the value co-creating process, the role ofleadership is to create a strong and innovative followership.Vision co-creation between leaders and employees has adecisive impact on value co-creation between employees andcustomers (Fig.1). Employees increasingly work in teamsconsisting of people from different departments and even fromoutside of the company. Since the goal of such companies isnot to make and sell products but to provide customized serviceand co-create value with their customers, the role of companiesas product suppliers changes. For these companies,effectiveness lies in a greater level of collaboration betweenemployees and management. The challenge for leaders is togain the collaboration of individuals outside their hierarchicalspan of control .III. THE EVOLVEMENT OF LEADERSHIPThe leadership theories in goods-dominant logic strive tosolve problems and promote management effectiveness mainlybased on the individual leader or the relationship betweensuperior and subordinate. During the past century, each era hashad its dominant form of leadership. These theories havedeveloped from trait theories and behavioral theories, tocontingency theories and transformational theories.Traits leadership considers the personal qualities andcharacteristics that differentiate leaders from non-leaders. Theconsensus was that leaders were born not made. People withsome specialized traits could be leaders . The limitation totrait theories was that, while some leaders might havepossessed certain traits, the lack of them did not necessarilymean that the person could not be a leader. After McGregor’sidentification of Theory X & Theory Y managers , researchattention shifted to behavioral theories. X & Y Theory wasclassified by assumptions about human nature. Trait researchprovided a theory for selecting the right leaders fororganizations, while behavioral theories studied the criticalbehavioral determinants of leadership and held that peoplecould be trained to be leaders. Lewin  established threemajor leadership styles: authoritarian, democratic or laissezfaire. In 1945, a group of researchers at The Ohio StateUniversity embarked on identifying the observable behaviorsof leaders instead of personality traits. They identified twodimensions of leader behavior: initiating structure andconsideration, while the University of Michigan provided twoother dimensions of leader behavior: employee orientation andproduction orientation. Blake and Mouton developed amanagerial grid, with concern for production on the horizontalaxis and concern for people on the vertical axis, and plottedfive basic leadership styles: impoverished management, taskmanagement, middle-of-the-road management, country clubmanagement, and team management .Trait and behavioral theories defined particular leadershipcharacteristics and behaviors, but they gave little considerationas to what produces effective leadership in different situations.Contingency theories strived to solve this problem. Theyfocused on situational factors; in other words, leadershipeffectiveness was dependent on the situation around theleaders’ operations. Representative of these theories were theFiedler model , the Hersey-Blanchard leadership model,the leader-participation model and path-goal managementtheory. According to Fiedler, there is no ideal leader. Bothtask-oriented and relationship-oriented leaders can be effectiveif their leadership orientation fits the situation. The condition ofa managerial task was analyzed for three situations: leadermember relations, task structure, and defined position powers.The Hersey-Blanchard leadership model  also took asituational perspective of leadership and argued that successfulleadership was achieved by selecting the right leadership stylewhich was contingent on the level of followers’ acceptance andreadiness. It created four specific leadership styles: telling,selling, participating, and delegating. The leader-participationmodel provided a group of contingency variables to determinethe form and amount of participative decision making indifferent situations . Path-goal theory  argued thatleaders should encourage and support their followers bymaking the path clear and easy. The theory identifiedachievement-oriented, directive, participative, and supportiveleader behaviors.Originally introduced by Burns  and further developedby Bass , the concept of transformational leadership hasfound unique acceptance in leadership research.Transformational leaders can inspire employees to participateenthusiastically in team efforts and share in organizationalgoals, through the effective application of four elements:Individualized consideration on followers, intellectualstimulation to foster creativity, inspirational motivation to gethigh staff engagement and idealized influence .IV. VISION CO-CREATION PROCESSESIn goods-dominant logic, its products-based nature makes ita comparatively simple matter to determine which workcontributes to the expected results and which does not. So,obedience, rules, and process are vital factors to a successfulmanufacturer. Many leaders in these companies are likemilitary commanders. They are directional leaders who cangive their employees well-defined instructions . On theother hand, running a successful service organization is not thesame as running a product-oriented one. Goods are no longerthe whole value of exchange and descend to a carrier forservice provision. Service is the fundamental basis ofexchange; superb service doubtlessly derives from people’sknowledge and brainstorming. Follow-up, responsibility, andthinking based on self-motivation propel the operant resources,replacing operand resources as the fundamental source ofcompetitive advantage .The shift from a goods-dominant logic leadership to aservice-dominant logic leadership can be concluded in sevencommensurate shifts: (1) When measuring the result ofleadership, a shift to a focus on followers’ effectiveness ratherthan the discipline of obedience; (2) the value of offerings isderived from staff members’ thinking rather than fromprescriptive procedures; (3) a shift to conversation as opposedto mandate; (4) a shift to lighting a beacon for people ratherthan paving an even path; (5) a shift to a focus on the influenceof personal power rather than the right of positional power; (6)building a peer climate in place of a hierarchy climate, (7) ashift to an additional emphasis on human ideas via SNS (SocialNetwork Software) for decision-making rather than dependingon ERP (Enterprise Resource Planning) alone.A. From Obedience to FollowingA hierarchical organization clearly defines each employee’srole and the nature of their relationship with other employees.In product-centric companies, the hierarchical organizationworks well because it can ensure command and control of theorganization and the quality manufacturing process. Everyemployee has a boss who determines what activities are to becarried out and how . A staff member needs approval from asupervisor who in turn needs approval from a manager. Theeffectiveness of good leadership in this logic can be measuredby the degree of top-down obedience.Innovation needs ideas; it requires more from the leaderthan just making sure that every employee executes everyproduction process properly. With S-D logic, operant resourcesare the fundamental source of competitive advantage .Effectiveness lies in a greater level of communication betweenemployees and management. Leadership is defined byfollowership. Following is always a voluntary activity. Thebest organizations are those in which people are not managedby others, but rather manage their own relationships andcommitments to others. Along the way the followers developstrong self-motivation, commitment, and a sense ofresponsibility that inspire even greater contribution andinnovation.B. From Procedure to ThinkingIn goods-dominant logic procedures are designed formaximum process control, efficiency, and profit maximization;this usually results in product standardization, even when thatis not responsive to the market. In contrast, service-dominantlogic is focused on the interaction of the providers and therecipients as they co-create value through collaborativeprocesses . In other words, manufacturers get competitiveadvantages by controlling the manufacturing procedure and getthe best and standard product quality, while service companieshave to use people’s thinking competence. Finely tunedbureaucracies with carefully defined policies, procedures, andjob descriptions are no match for the knowledge era . Onlyif the creative abilities of the employees are unleashed can theyexpect to respond effectively to market challenges. Goodsdominant companies used the dexterity of their employees’hands to grow, but service companies need to build upon thedexterity of their minds .Google, for example, does not have a top-down culture inwhich people must seek approval for everything they do. Thereis an incredible amount of freedom for employees to do whatthey think is right and to spend time on their own interests.This would be a challenging mode for most goods-dominantcompanies, but it is suitable for Google, a company that mustinnovate continually. “If people have been working at acompany too long they’re inculcated in a development processthat is relatively predictable,” Google’s executive chairmanEric Schmidt said, “Real innovation is hard to do when youhave a process culture with Six Sigma. Risk management isaround the process, keeping it the same.”C. From Mandate to ConversationWhen Louis Gerstner entered IBM in 1993 as its chairmanand chief executive officer, the company had lost $16 billion inthe last three years. An active plan was in place to disaggregatethe company. Gerstner reversed this plan, realizing from hisprevious experiences at RJR Nabisco and American Expressthat there remained a vital need for total IT solutions. Insteadof breaking the company into disparate pieces, Gerstner kept ittogether . The key to IBM’s eventual turnaround wasGerstner’s decision to take the company away from its roots asa hardware manufacturer and lead it into services. Thesubsequent refocusing on the IT services business, which grewto nearly 50% of IBM’s revenues, is widely seen as havingresulted in one of the most remarkable turnarounds in recentmemory. In 2002 services accounted for 40 percent of IBM’srevenue. In the nine years since Gerstner took over, the valueof a share of IBM stock catapulted from $13 to $80 .“ Hierarchy means very little to me. Let’s put together inmeetings the people who can help solve the problem,regardless of position. Reduce committees and meetings to aminimum. No committee decision making. Let’s have lots ofcandid, straightforward communications”  (p.24).Successful companies revolve around encouraging theirstaff to put forward their ideas without hesitation and developthe business with great enthusiasm. They encouragecommunication and collaboration between individuals withdiverse backgrounds, as individuals with more diversitychallenge the existing behaviors and beliefs that actually hinderfuture development .D. From Path-goal to Beacon-goalPath-Goal leadership  emphasizes changing leaders’behavior to satisfy followers’ needs by setting a clear path,removing hurdles and roadblocks, assisting, providing directionand support, and offering rewards to achieve goals.But sometimes in the service dominant era the leadersthemselves do not know exactly how to proceed, because theinnovative service is brand new. Sometimes leaders only knowthe direction; perhaps only have an intuition of the path thatthey must follow. In the face of a fierce business situation,however, excellent leaders can always light a beacon goal fortheir employees and inspire them to proceed, even when theycannot pave a smooth path on the way to service innovation.An example of this is Alibaba.com (lists on the Hong KongStock Exchange) which was founded in 1999. In the “internetwinter” of 2008 there was no clear direction for Yun Ma, CEOof Alibaba.com and his teams to take. He did not knowprecisely how to establish a path for the company. But herealized that the Internet would continue to be the dominanttrend in the future, and he inspired his employees with the ideathat the e-commerce beacon existed and that they could reachit. “Today is difficult. Tomorrow may be more difficult. Theday after tomorrow will be beautiful, because most of ourcompetitors will be dead by tomorrow evening. They will notlive long enough to see the rising sun on the day aftertomorrow.” Under tough business conditions, “staying alivethrough the internet winter” would be the most successfulbusiness principle. These words represented his leadershipstyle: he could light a beacon for his employees. NowAlibaba.com has become the global leader in e-commerce forsmall businesses, with offices in more than 70 cities acrossGreater China, India, Japan, Korea, Europe, and the UnitedStates.E. From Positional Power to Personal PowerPositional power is derived from the person’s position in theorganization. It exists because organizations find it necessary togrant certain powers to leaders so that they can workeffectively. Personal power, on the other hand, is gainedthrough knowledge and experience.The customer is always a co-creator of value . Inservice-dominant logic organizations people increasingly workin teams consisting of people from different departments andpeople from outside the company. The challenge for leaders isto gain the collaboration of individuals over whom they haveno hierarchical power. To effectively lead these collaborativeteams a leader must rely on personal power rather thanpositional power . Whether the leader is heading aninterdepartmental team; leading a combined company andcustomer project; or building support for a new serviceinnovation, the ability to influence others is extremelyimportant.We saw the importance of personal power when, the instantafter the launch of the iPhone 4, many media articles began toanalyze the performance of Apple’s new CEO, Timothy Cook,who had taken the place of Steve Jobs; most of them gaveCook a passing mark. It was merely a new product release, butit attracted an extraordinary amount of attention from themedia. When Steve Jobs left Apple, he did not take away thecompany’s management system, but his own leadership, whichwas widely regarded as the important power behind Apple’sservice innovation. It was Jobs’ personal power in leadershipwhich energized all the stakeholders ― his staff, customers,and indeed the entire world ― even if people were not reallysure why they trusted him so much. This is why some industryinsiders worried about Apple’s innovation capacity in hisabsence.F. From Hierarchy Climate to Peer ClimateSchneider  defined corporate climate as the “sharedperceptions of the events, practices, and procedures and thekinds of behaviors that get rewarded, supported, and expectedin a setting” (p. 384). Traditional leadership in a hierarchyclimate may fear that innovative ideas and initiatives frombelow could undermine their authority and ultimately theirposition in the organization. But value co-creation orientedleaders view innovation as a collective endeavor that is aboutcreating a peer climate that sustains individual creativity. Apeer climate helps staff to feel more comfortable in takingaccountability, trying new things, and exchanging informationmore freely . Many organizations are willing to selectleaders who can facilitate positive interactions .The PC industry is undergoing a smart transformation.Today’s users have many smart devices and desire anintegrated experience of hardware, software and cloud services.Lenovo, the world’s second largest PC maker, is building anew cloud computing service that will allow users to sharecontent among multiple devices and manage their personalinformation and social networking. To encourage serviceinnovation, eliminate the hierarchy barrier in collaboration, andrespond to customer demands promptly, Lenovo hasimplemented the transformation to a corporate peer climate.For instance, Lenovo requires all employees to use their nameonly, without job title, when they communicate with eachother. Peer relationships are the bedrock of service innovation.Many other international companies are creating a corporateculture that strongly supports an empathetic peer climate.G. From ERP to ERP+SNSERP (Enterprise Resource Planning) is an importantenterprise application that integrates all the individualdepartments and functions inside a single managementsoftware. ERP makes it easier to track work-flow acrossvarious departments and analyze running data for timelydecision making. It can also be used to alter how a product ismanufactured, keep better track of products, and integrate cost,profit, and revenue information. It has been successfully usedto solve many problems in manufacturing companies and wasthe main tool enterprise leaders used to run companies andmake decisions.New social network software (SNS) changes the traditionalERP structure, the core of which was business process anddata, organizing network and knowledge resources throughmutual communication and dialog. The positive impact ofnetworks in driving innovation has been strongly supported inprevious work . The Beehive research project at IBM isone example. Beehive is an internal social networking site thatprovides employees across the organization a “rich connectionto the people they work with” on both a personal and aprofessional level. Beehive helps employees make newconnections, track current friends and coworkers, and renewcontacts with people they have worked with in the past.Reviewing the above seven shifts, we perceive theirconvergence in business management. Leaders with powerfulpersonal power attract their subordinates to follow voluntarily.They encourage followers to approach old situations in newways and value attempts to use previously untested methods tosolve problems with the ability of creative thinking. Theseleaders inspire followers to be at their best and establish a peerclimate with employees that makes them feel engaged andempowered. Meanwhile, by providing a beacon-goal for theorganization, these leaders promote greater levels of challengeand meaning around the service business being pursued. Theymake full use of technical enterprise-level SNS to interact withemployees freely and ensure that the decision-making processadequately absorbs individual knowledge in the organizationalnetwork.V. CONCLUSIONThis paper presents systematically the process of rebuildingleadership to generate a powerful followership, through the cocreation processes rather than the traditional top-down and oneway transport of vision dominated by leaders. Weconceptualize the key factors of transformation. The result ofleading employees should be following, not obedience. Leadersshould not overly emphasize working procedures, as inmanufacturing, but instead make full use of staff’s thinkingability. Peer climate and conversation not only cultivate serviceinnovation but also enable value co-creation oriented leaders toutilize their personal power. Leaders with personal power aremost likely to light an inspiring beacon-goal for theiremployees. 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