This research aimed to investigate effect of transformational leadership (TL) in stimulating employee creativity (EC) leading to organizational innovation (OI) and assess the moderating role of Intrinsic Motivation (IM) between TL and EC. The data was collected from 164 supervisor-employee dyads of 31 Pakistani software firms. A three-step approach to SEM was applied to examine mediator and moderator variables. The findings indicate that the Idealized Influence, Intellectual Stimulation, and Inspirational Motivation have a great influence on OI and EC but Individual Consideration was not found to be significantly related to OI and EC. The findings further proved the positive and significant moderating effect of IM for TL and EC. Thus, through TL style, EC can be promoted with the interactive effect of IM by inspiring employees to think out of the box leading to innovation in the organization. This paper attempts to contribute to the current literature by developing moderating role of IM. Furthermore, we have also examined how each dimension of TL is affecting EC, and OI, further some interesting discoveries are also made which other studies have not done before.

Introduction

Today the organizations are functioning in a very vibrant environment with rapid development of technology, requiring organizations to bring creativity and innovation to products & services. A considerable amount of literature has emphasized the significance of employee creativity for innovation (Ouakouak & Ouedraogo, 2017; Liu, Liao, & Loi, 2012; Shalley, Gilson, & Blum, 2009; Yoshida, Sendjaya, Hirst, & Cooper, 2014). Because stimulating individual creativity is a vital element for firms to remain competitive and survive in the market. Various organizations are also constantly looking for different ways to inspire their employees to work creatively and develop innovative ideas (Gu, Tang, & Wan, 2015; Liu et al., 2012; Walton, 2003). Consequently, many researchers are interested to understand the dynamics of employee creativity, especially, to recognize the factors that develop or inhibit creativity within organizations (De Alencar & De Bruno-Faria, 1997; Zhou & Shalley, 2008). The leadership is considered one of the significant factors that affect creative behavior of employees and organizational innovation (Oldham & Cummings, 1996). Moreover, “Leadership has been put forth as a key driver of organizational innovation” (Prasad & Junni, 2016, p. 1542). The transformational leadership style has received extensive popularity as compared with other styles of leadership among leadership researchers (Khalili, 2016; Mittal & Dhar, 2015; Schaubroeck et al., 2012; Shin & Zhou, 2003; Wang & Rode, 2010; Wang, Rode, Shi, Luo, & Chen, 2013), due to its different approaches to motivate creativity of employees as compared with other styles of leadership (Gupta, Singh, Kumar, & Bhattacharya, 2012; ReiterPalmon & Illies, 2004).